U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.
For the fiscal year ended: December 31, 1999
Commission File Number: 0-18711
Creative Bakeries, Inc.
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(Name of Small Business Issuer in Its Charter)
New York 22-3576940
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
20 Passaic Avenue, Fairfield, NJ 07004
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number: (973) 808-8248
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange on
Title of Each Class Which Registered
- ------------------- -------------------------
Common Stock, $.001 per share NASDAQ
Securities registered under Section 12 (g) of the Exchange Act: None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes x No
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenue for its most recent fiscal year was $4,500,405. As of
December 31, 1999 there were 4,882,250 shares of Company's Common Stock, par
value $.001 per share, outstanding.
<PAGE>
Transitional Small Business Disclosure Format (check one):
Yes ____ No X
PART I
ITEM 1. DESCRIPTION OF THE BUSINESS
GENERAL
Creative Bakeries, Inc. ("Creative"), through its two operating
subsidiaries, WGJ Desserts and Cafes, Inc. (the "WGJ Subsidiary") and Batter
Bake-Chatterley Inc. (the "BBC Subsidiary") (Creative, the WGJ Subsidiary and
the BBC Subsidiary to be hereinafter collectively referred to as the "Company"
unless the context indicates otherwise) offers a broad line of premium quality
pastries, cakes, pies, cookies and other assorted desserts which are produced at
its baking facilitY. Such baked goods are marketed and distributed on a
wholesale basis to supermarkets, restaurants and institutional dining facilities
as well as by mail order. The Company has recently completed a corporate
restructuring pursuant to which it has eliminated its William Greenberg retail
operations while consolidating the operations of JMS Specialities, Inc. ("JMS"),
which the Company acquired in January 1997, and of Chatterley Elegant Desserts,
Inc. a New Jersey corporation ("Chatterley"), which the Company acquired in
August 1997. The Company is continuing to pursue its strategy of seeking
acquisition or merger candidates which would expand the Company's existing
product offerings and geographic markets. There can be no assurance that the
Company will be able to successfully identify such candidates on terms
acceptable to the Company or at all.
Creative was incorporated in November 1993. The Company's executive
offices are located at 20 Passaic Avenue, Fairfield, NJ 07004 and its telephone
number is (973) 808-8248.
BUSINESS STRATEGY
The Company's business strategy is comprised of the following:
Retail: After carefully analyzing its retail operations, management has
concluded that the additional William Greenberg stores it had recently opened
were not generating the level of sales required to become profitable and that
the resources required to increase retail sales would be better utilized in
expanding its wholesale division. The Company therefore closed down all the
retail stores.
Institutional/Wholesale: With the acquisitions of JMS and Chatterley,
the Company plans to increase its penetration in the institutional/wholesale
food market by expanding its marketing efforts to restaurants, hotels and
corporate dining facilities and by offering its products to supermarkets on a
national basis. The Company plans to expand both its product line and geographic
distribution through the following strategies:
Expand geographic distribution by acquiring new food distributors in
the Connecticut and Philadelphia areas as well as key distributor areas
throughout the United States. To do this, the Company intends to appoint food
brokers in various states to handle sales on a commission-only basis.
Continue to expand the fat-free product line targeting existing
customers
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as well as new customers; and
Enter into co-packing arrangements whereby the Company would introduce
private label products of other bakery operations.
Mail Order. The WGJ Subsidiary is offering its products through other
specialty food retailers and through its mail order catalogue business. Mail
order sales accounted for approximately 1% of total sales for each fiscal year
ended December 31, 1998, 1997 and 1996 respectively.
Kosher Foods. The Company also is seeking to benefit from the growth of
the kosher food industry. According to Prepared Foods, the kosher food industry
generated approximately $33 billion in sales in 1994 and has been growing at a
rate of approximately 15% per annum. The WGJ Subsidiary and the BBC Subsidiary
each have a kosher certification and the Company believes that it can benefit
from the projected growth of this market.
BUSINESS PHILOSOPHY
High Quality Ingredients. The Company believes that developing and
maintaining premium quality products is the key to its future success. The
Company uses fresh ingredients in its products including, AA creamy butter,
fresh eggs, premium fruits, nuts, and chocolates blended for the Company's
unique recipes. The Company seeks to maintain rigorous standards for freshness,
quality, and consistency.
Customer Service. The Company's goal is to provide its customers with
warm, courteous and efficient service. The Company depends on and enjoys a high
rate of repeat business. The Company believes that the quality of the
relationship between its employees and its customers is critical to its success.
The Company strives to hire and train well-qualified, highly motivated employees
committed to providing superior levels of customer service.
PRODUCTS
Baked Goods
The BBC Subsidiary markets a full line of premium quality baked
products such as cheese cakes, mousse cakes and tart shells. Additionally the
Company has now expanded its offerings to include a line of frozen batter and
baked products such as a variety of Gourmet Frozen Muffin Batter products, No
Sugar Added Batters as well as a selection of Fully Baked Thaw & Sell muffins
and cakes. The Company continues to develop new products and welcomes customer
requests.
Kosher Foods
Kosher foods generally are consumed by persons of the Jewish faith as
well as Muslims, Seven Day Adventists and others who perceive kosher
certification as a seal of purity. Kosher is a biblical term originally used to
denote that which is "fit" and "proper".
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The Company's subsidiaries have kosher certifications and the Company
believes that it can capitalize on the projected growth of this market. The
Company believes that its kosher certifications will enable it to better
penetrate certain market areas. The Company's products are not kosher for
Passover.
CUSTOMERS
RETAIL
The WGJ Subsidiary has licensed the "William Greenberg Jr." name to a
retail operator who sells its products directly to individual consumers. The
retailer also sells its specialty desserts to customers for parties, weddings,
bar mitzvahs and other special occasions.
INSTITUTIONAL/WHOLESALE
This market is mainly served through the BBC Subsidiary. With the
acquisition of Chatterley the Company now offers its institutional and wholesale
customers an expanded line of baked goods, batter and frozen-finished cakes,
brownies and muffins.
The BBC Subsidiary sells its products through food distributors to
hotels, hospitals and institutional feeders such as coffee shops, Marriott,
Restaurant Associates, etc. The products are also sold retail through food
distributors and direct to supermarket distribution centers.
MAIL ORDER
The WGJ Subsidiary sells select products through mail order. These
products are shipped via overnight delivery and second day delivery throughout
the United States and internationally. The Company has a toll-free number
(800)564-2470 for its mail order operations.
INGREDIENTS AND PRINCIPAL SUPPLIERS
The Company seeks to use only the highest quality ingredients
available. The Company has a policy of inspecting all raw ingredients before
their intended use.
The ingredients used by the Company consist primarily of flour, eggs,
sugar, butter and chocolate. The WGJ Subsidiary obtains its principal
ingredients from three suppliers in each of their respective industries. All
ingredients used by the Company are subject to substantial price fluctuations.
The Company historically has been able to pass any significant price increases
in its ingredients through to its customers. However, no assurance can be given
that the Company will be able to continue this practice in the future. Any
substantial increase in the prices of ingredients used by the Company could, if
not offset by a corresponding increase in product prices, have a material
adverse effect on its business, financial condition or results of operations.
The Company does not believe the loss of any of its suppliers would have a
material adverse effect on its business and believes that other suppliers could
readily provide such products if necessary.
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DISTRIBUTION AND MARKETING
The WGJ Subsidiary no longer operates the commissary and does not directly
operate any retail stores either. Instead it has licensed its name to a an
operator who runs retail and wholesale operations.
The BBC Subsidiary bakes all of its products at its 30,000 square foot
facility in Fairfield, New Jersey. Although utilization of the facility varies
based on seasonal fluctuation, the facility is operated on the basis of two
shifts, five days a week. The Company believes that the BBC Subsidiary has the
capacity to meet future requirements, including those arising out of the
consolidation with the Company. The BBC Subsidiary delivers 90% of its products
by truck to its institutional/wholesale customers. About 10% of its customers
pick up their orders directly at the bakery and utilize their own distribution
networks.
Historically, the Company has relied upon word-of-mouth and customer
satisfaction to market its products to new customers and to make existing
customers aware of new products.
COMPETITION
The baking industry is a highly competitive and highly fragmented
industry. The Company competes with national, regional and local bakeries as
well as supermarket chains that have in-store bakeries. Many of these
competitors are larger, more established and have greater financial and other
resources than the Company. Competition in both the retail and
institutional/wholesale baking industry is based on product quality, brand name
loyalty, price and customer service.
The WGJ Subsidiary competes with all restaurants and beverage outlets
that serve bakery items and/or coffee, including a growing number of specialty
coffee stores in the New York City metropolitan area, although its main business
continues to be as a full service bakery servicing wholesale and retail
clientele. The specialty coffee/cafe business has become increasingly
competitive and relatively few barriers exist to entry. Some of the WGJ
Subsidiary's major competitors include Au Bon Pain, Brothers Gourmet Coffees,
Eclair, New World Coffee, Starbucks and Timothy's Coffee of the World. Some of
the BBC Subsidiary's major competitors include Karps, Bake-N-Joy, Pillsbury, and
Quaker Oats. Competitors with significant economic resources in the baking
industry or existing non-specialty and specialty coffee/cafe businesses could,
at any time, enter the institutional/wholesale or retail bakery/cafe business.
TRADEMARKS
The WGJ Subsidiary has trademarks registered with the United States
Patent and Trademark office for the trademarks Wm. Greenberg Jr.TM, William
Greenberg Jr.TM, William Greenberg Jr. DessertTM and William Greenberg Jr.
Desserts and CafesTM. The JMS Subsidiary has a trademark and design registered
with the United States Patent and Trademark office for The Healthy BakeryTM (US
Registration No. 1,644,559). While the Company believes that the trademarks are
valid and
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enforceable, there can be no assurance as to the degree of protection its
registered trademarks will afford the Company.
GOVERNMENT REGULATION
The Company is subject to numerous state regulations relating to the
preparation and sale of food. It is also subject to federal and state laws
governing the Company's relationship with employees, including minimum wage
requirements, overtime, working and safety conditions, and citizenship
requirements. The failure to obtain or retain required food licenses or to be in
compliance with applicable governmental regulations, or any increase in the
minimum wage rate, employee benefits costs (including costs associated with
mandated health insurance coverage) or other costs associated with employees,
could adversely affect the business, results of operations or financial
condition of the Company.
EMPLOYEES
The WGJ Subsidiary no longer has any employees.
As of April 1, 2000, the BBC Subsidiary together with Creative had
approximately 40 full-time employees, of whom 37 are employed in production, 2
in sales, 4 in administration and 3 in executive positions. The BBC Subsidiary
does not have a union and the Company believes that it has good relations with
its employees.
ITEM 2. DESCRIPTION OF PROPERTY
As of April 1, 2000, the Company leases in Fairfield, New Jersey 29,362
square feet for its baking facilities. The Company believes that its existing
lease will be renewed when it expires in 2004 or alternative properties can be
leased on acceptable terms. The Company believes that its present facilities are
well maintained, in good condition and are suitable for the Company to continue
to operate and meet its production needs in the foreseeable future. The Company
is also considering subcontracting certain of its production requirements. PLAN
OF OPERATION
WGJ Subsidiary:
The company has completed its plan of closing down the commissary and the
retail operations.
The company has licensed the "William Greenberg Jr." brand to an operator
who continues to run the Madison Avenue store and the wholesale business. This
has effectively stopped any further losses on the part of the WGJ subsidiary and
provides opportunity to rebuild the business in certain areas such as Mail Order
Business.
In connection with the restructuring plan, management had written down
its baking equipment, leasehold improvements and fixtures as of December 31,
1996, by approximately $ 850,000 in 1996 and to $35,000 in 1998 due to
impairment in
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their value. In addition, management has determined unamortized goodwill of
approximately $840,000 has no continuing value and accordingly it was written
off during 1996. Finally, the Company had charged 1996 with a $450,000
provision for actions aimed at restructuring the Company, of which $369,459
was actually incurred as of December 31, 1999. This charge mainly comprises
write-down of leasehold improvements on stores that have been closed down,
provisions for lease obligations on certain retail stores, and charges for
consultants involved in the restructuring. By taking the above actions, future
periods will not be affected by amortization, depreciation or expense of these
costs.
Acquisition of JM Specialties, Inc.
The Company acquired JM Specialties Inc. in January 1997 and appointed
Phil Grabow as the CEO and President of the Company.
Other Acquisitions
On March 20, 1997, the Company entered into an employment contract with
the former owners of a company that produced low-fat and fat-free cookies.
Pursuant to the contract both individuals received a signing bonus aggregating
$68,000. These employment contracts have been terminated.
Acquisition of Chatterley Elegant Desserts, Inc.
On August 28, 1997 the Company entered into a stock purchase agreement
("Stock Purchase Agreement") with Yona Abrahami, pursuant to which the Company
purchased from Ms. Abrahami all the outstanding shares of Chatterley Elegant
Desserts, Inc., a New Jersey Corporation, in exchange for 1,300,000 shares of
the Company's common stock. The Stock Purchase Agreement was subsequently
amended and Ms. Abrahami surrendered to the Company 200,000 shares of the
Company's common stock. The acquisition has been accounted for as a
pooling-of-interests.
Chatterley leases a 35,000 sq.ft. baking and office facility. Its
products are highly regarded by upscale super markets such as Kings and by
executive chefs in some of the finest hotels and restaurants.
Currently, the Company is pursuing contracts with various Supermarket
chains for both private label and The Healthy Bakery label which is a trademark
of the Company.
JMS and Chatterley Consolidation
As planned, the JMS facility in Parsippany was closed and the
consolidation of its operations into Chatterley's Fairfield facility was
completed in 1997.
JM Specialties Inc. and Chatterley Elegant Desserts Inc. have been
formally merged to form the BBC Subsidiary.
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Management believes that the merger of JMS and Chatterley adds
considerable strength to the Company's marketing plan. The efficiencies derived
from the merger of JMS and Chatterley positions the Company to aggressively
pursue new business with improved profit margins. Management intends to
implement new marketing programs with a focus on increasing the wholesale
division of the business. Brokers have been hired for New England, Philadelphia
& Western Pennsylvania and the Southern Florida markets with other areas to
follow with a view to expanding from a tri-State (New York, New Jersey and
Connecticut) base to a regional and ultimately, a national bakery and dessert
company.
Future mergers and acquisitions:
In line with its goal of "growth through mergers and acquisitions", the
company is negotiating a merger with Paramark Corporation. If successful, it
will provide a springboard for further expansion.
The Company continues to seek opportunities in markets it does not
currently serve. It has secured a contract to produce Private Label cookies and
muffins. It is estimated that the Private Label business will provide up to a $1
million in revenue. The company has also secured orders from Fund Raising
business which will amount to approximately $800,000 in annual sales. This is a
seasonal business which will be delivered between September and December.
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ITEM 3. LEGAL PROCEEDING
There are no pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the Nasdaq Small Cap Market
under the symbol "CBAK" and the Boston Exchange under the Trading symbol "BYK".
The following table sets forth the range of quarterly high and low bid prices,
as reported on the NASDAQ SmallCap Market, during the last two fiscal years
through March 31, 2000.
<TABLE>
<CAPTION>
Period High Low
- ------------------------------------------------------------------
<S> <C> <C>
FISCAL YEAR 1999:
First Quarter 7/8 7/8
Second Quarter 11/16 11/16
Third Quarter 1/2 7/16
Fourth Quarter 1/2 3/8
Fiscal Year 1999:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
</TABLE>
The number of shareholders of record of the Common Stock on March 31,
2000 was 31 excluding 2,572,276 shares of Common Stock held by Cede & Co. The
Company believes that it has in excess of 500 shareholders.
The Company has never paid cash dividends on its Common Stock and does
not anticipate paying dividends in the foreseeable future. The payment of future
cash demands by the Company on its Common Stock will be at the discretion of the
Board of Directors and will depend upon the Company's earnings (if any), general
financial condition, cash flows, capital requirements and other considerations
deemed relevant by the Board of Directors.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATIONS
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General
The Company is continuing to seek new and profitable avenues of growth. As a
result of the new strategy and concentration on growing Batter Bake - Chatterley
There has been an increase in new business. During 1999 the Company, secured
Approximately $ 1,000,000 in new annualized business from a national supermarket
chain for which it started producing in June 1999. Another $ 800,000 in
annualized business began for a fund raising company in September 1999. This is
a seasonal business which was delivered between September and December.
Reception to our new mini cakes has been overwhelming. Future plans call for
producing these products sugar free for people on special diets.
The Company is still on a stock repurchase program. It will continue
repurchasing stock at opportune moments. The stock will be used to cover
options/acquisitions. The Company will continue to seek out potential candidates
for merger or acquisition that meet its specific needs.
The Company was incorporated in November 1993 and was in the
development stage through July 1995. From April 1994 through June 1995, the
Company assembled its core management, raised approximately $ 600,000 from
equity financing, and negotiated a definitive agreement to purchase the
operating assets and business of Greenberg's - L. P. In July 1995, the Company
completed the acquisition for a purchase price of $ 1,967,300 in cash and a
promissory note for $ 32,700. In connection with the acquisition, the Company
obtained a $ 2,000,000 term loan and applied a portion of the net proceeds from
its initial public offering, consummated in October 1995 to pay in full the
principal and accrued interest under the term loan. The acquisition was
accounted for as a purchase and the excess of the purchase price over the value
of the net assets acquired was recorded as goodwill.
At December 31, 1999 to the extent the Company may have taxable income
in future periods, there is available a net operating loss for federal income
tax purposes of approximately $8,942,204 which can be used to reduce the tax on
income up to that amount through the year 2011.
Results of Operations
Historical
The Company from its inception on November 12, 1993 through July 10,
1995, was in the developmental stage and did not carry on any significant
operations nor generate any revenues. Management's efforts were directed towards
the development and implementation of a plan to generate sufficient revenues in
the baking industry to cover all of its costs and expenses. The Company did not
generate any revenues until July 10, 1995 when it acquired the operating assets
of Greenberg's -L. P.
The Company's consolidated revenues from continuing operations
aggregated $4,500,505 and $3,841,440 for the years ended December 31, 1999 and
1998
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respectively, an increase of 17%. The cost of goods sold was $3,485,812 and
$3,137,519 for 1999 and 1998 respectively, an increase of 12%, due to the
overall increase in sales. Operating expenses were $1,123,732 and $1,300,317 for
1999 and 1998 respectively, a decrease of 15%, mainly attributable personnel and
reduction in the number of management personnel and tighter control of overhead.
As a result, the loss from continuing operations was $112,143 and $576,796 for
1999 and 1998 respectively, a decrease of 82%. Management attributes this
positive trend to its overall restructuring efforts.
Depreciation and amortization for 1999 decreased as compared to 1998
due to assets written down or written off for the year ended December 31, 1999.
In 1998, the Company incurred costs associated with issuance of the
warrants. These costs for services rendered and loan fees to InterEquity were
charged to operating costs and amounted to approximately $5,005.
During 1999 the Company earned interest income of $8,506 which arose
mainly from investing a portion of the net proceeds it received upon the private
placement and exercise of warrants.
The company's consolidated revenues from its discontinued operation,
the WGJ subsidiary were $0 in 1999 and 1,064,856 in 1998. The WGJ subsidiary
showed a loss from operations of $35,664 in 1999 and $282,045 in 1998 and a net
gain of $200,722 in 1999 vs. a net loss of $347,728 in 1998. The 1999 gain was
mainly from forgiveness of debt.
The 1998 statements of operations reflect a charge in the amount of
$5,005 which represents the fair market value of 10789 warrants, issued to a
lender in order to satisfy an obligation under a written agreement.
These warrants were valued at $0.47
SEGMENT INFORMATION
The following is the breakdown of operating data between Retail and
Wholesale for both its continuing and discontinued operations:
<TABLE>
<CAPTION>
1999 % of 1998 % of Change % of
---- sales ---- sales ------ sales
----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Operating data:
Net Sales:
Retail (discontinued) 100 1,064,856 100 -1,064,856 100
Wholesale (continuing) 4,500,405 100 3,841,440 100 658,965 100
Total 4,500,405 100 4,906,296 100 -405,891 100
Operating Income (Loss):
Retail (discontinued) (35,664) (282,045) -03 246,381 23
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Wholesale (continuing) (104,834) -2 (384,237) -10 279,403 42
(140,498) -3 (666,282) -14 525,784 130
Other Income (Expense): 263,382 6 (258,242) -03 521,624 129
Net Loss 122,884 3 (924,524) -19 1,047,408 259
Balance Sheet Data:
Identifiable Assets:
Retail $ 254,786 $ 599,901 - 345,115
Wholesale 1,177,526 1,471,966 - 294,440
1,432,312 2,071,867 - 639,555
General Corporate 889,941 772,362 117,579
Total $2,322,253 $2,844,229 - 521,976
</TABLE>
PLAN OF OPERATION
WGJ Subsidiary:
The company has completed its plan of closing down the commissary and the
retail operations.
The subsidiary has licensed its brand to an operator who continues to run
the Madison Avenue store and the wholesale business. This has effectively
stopped any further losses on the part of the WGJ subsidiary and provides
opportunity to rebuild the business in certain areas such as Mail Order
Business.
In connection with the restructuring plan, management has written down
its baking equipment, leasehold improvements and fixtures as of December 31,
1998, by approximately $ 1,288,000000 due to impairment in their value. In
addition, management has determined unamortized goodwill of approximately
$840,000 has no continuing value and accordingly it was written off during 1996.
Finally, the Company had charged 1996 with a $ 450,000 provision for actions
aimed at restructuring the Company, of which $369,459 was actually incurred as
of December 31, 1998. This charge mainly comprises write-down of leasehold
improvements on stores that have been closed down, provisions for lease
obligations on certain retail stores, and charges for consultants involved in
the restructuring. By taking the above actions, future periods will not
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be affected by amortization, depreciation or expense of these costs.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
Since its inception the Company's only source of working capital has
been the $8,455,000 received from the issuance of its securities.
In June 1995, The Company issued 180,000 shares of common stock to
unrelated parties for $ 600,000 and in August 1995, the Company issued 60,000
shares of its common stock to unrelated parties for $ 200,000. In connection
with the acquisition of Greenberg's- L.P., the Company received $2,000,000 from
the sale of two notes to InterEquity Capital Partners, L.P. ("InterEquity").
During October 1995, the Company received net proceeds of $4,900,000 from the
sale of 1,150,000 shares of its common stock in an initial public offering.
During January 1997 the Company received net proceeds of $1,747,500 from the
private placement of 1,875,500 common stock purchase warrants at $1.10 per
warrant. During October 1997 the Company received net proceeds of $883,000 from
the exercise of a portion of these common stock warrants. Of the $5,700,000
proceeds from the aforementioned stock sales: (i) $ 2,125,000 was issued to
repay the InterEquity debt including interest; (ii) $ 2,615,000 was used in
operations; (iii) $ 765,000 was used to purchase property, equipment and
leaseholds; and (iv) $ 195,000 was used for general corporate purposes. The
$1,650,000 proceeds from the private placement warrants was used to acquire JMS.
Of the $883,000 proceeds from the exercise of warrants $325,000 was used for
consolidation and merger of JMS and Chatterley, $388,000 was used for corporate
expenses and the remaining $170,000 will be used for working capital purposes.
As of December 31, 1999, the Company had a negative working capital
from continuing operations of approximately $196,106 as compared to a negative
working capital of $385,396 at December 31, 1998. During 1998 and 1999,
management took actions with a view towards restructuring the Company in order
to reduce operating costs and enhance the Company's efficiency. Pursuant to such
restructuring, a new management team was put into place, executive
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contracts and leases were renegotiated and certain positions were eliminated
and certain stores were closed down. The Company expects, although there can
be no assurance, that the aforementioned actions will reduce and reverse the
negative cash flow which it has experienced since inception.
CAPITAL RESOURCES:
On January 23, 1997, the Company purchased JMS for $900,000 in cash,
500,000 shares of the Company's common stock valued at $875,000 and $400,000
purchase warrants valued at $440,000.
In order to finance the acquisition, the Company sold in a private
placement 1,875,500 common stock purchase warrants at a net price to the Company
of $1,747,500.
In October 1997 the Company raised $883,000 in connection with the
exercise of the warrants from the private placement related to the purchase of
JMS.
If and when the market price of the Company's stock increases and
exceeds the exercise price of the warrants previously issued, the Company may
receive additional funds upon the exercise of its warrants to operate and fund
future expansion and acquisitions. The Company is looking for opportunities to
acquire other companies which would improve its cash flow and capital positions
in both the short- and long-term. Management believes that funds for such
acquisition can be raised in transactions similar to the sale of stock purchase
warrants which funded the JMS acquisition.
Although the Company has previously been successful in obtaining
sufficient capital funds through issuance of common stock and warrants, there
can be no assurance that the Company will be able to do so in the future.
INFLATION AND SEASONALITY:
To date,inflation has not had a significant impact on the Company's
operations. The Company's revenues are affected
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by seasons with revenues anticipated to increase during holiday seasons such
as Thanksgiving, Christmas, Jewish New Year, Easter and Passover.
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This annual report contains certain forward-looking statements with
respect to the financial condition, results of operations and business of the
Company including statements relating to the cost savings, revenue enhancements
and marketing and other advantages that are expected to be realized from the
Company's plans to restructure and consolidate its operations and grow through
strategic acquisitions. Such forward-looking statements involve certain risks
and uncertainties that could cause actual results to differ materially from
those contemplated by such forward-looking statements. Such risks and
uncertainties include, without limitation: (1) expected cost savings from the
restructured or consolidated operations cannot be fully realized; (2)
difficulties relating to the integration of new businesses that may be acquired;
(3) the impact of competition on revenues and margins; (4) increases in the
costs of ingredients; and (5) other risks and uncertainties as may be detailed
from time to time in the Company's public announcements and Commission filings.
ITEM 7. FINANCIAL STATEMENTS
Index to Financial Statement...............................................F-1
Independent Accountants' Report............................................F-2
Financial Statements:
Balance Sheets as at December 31, 1999 and 1998...................F-3
Statement of Operations For the Years Ended December 31, 1999
and 1998........................................................F-4
Statements of Stockholders' Equity (Deficiency) For the Years
Ended December 31, 1999 and 1998................................F-5
Statements of Cash Flows For the Years Ended December 31, 1999
and 1998........................................................F-6
16
<PAGE>
Notes to Financial Statements.............................F-7 to F-23
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable
17
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS:
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information Concerning the Board of Directors and Executive Officers
The following table sets forth certain information concerning the Board
of Directors, persons nominated to be elected as directors and executive
officers of the Company:
<TABLE>
<CAPTION>
Name of Director or
Executive Officer, Principal Occupation Date of Initial Election
Age and Position For Previous Five Years as Director
Held with Company ----------------------- ------------------------
- -----------------
<S> <C> <C>
Philip Grabow, 60, Chief Executive Officer, October 1985 to January 23, 1997
President and Director January 1997 of JMS
Richard Fechtor, 69, Director Founder of and since 1974 Executive Vice July 11, 1996
President of Fechtor, Detwiler & Co.,
Inc., the representative of the
underwriters in the Company's initial
public offering; Director of Vascular
Laboratories since 1989
Raymond J. McKinstry, 52, Investment manager with Astair & Partners, August 1995
Director Limited, a London based brokerage company,
1987 to present
Kenneth Sitomer, 53, Chief Operating Officer of Sam and Libby, July 1997
Director Inc., a publicly held company, 1993 to
present; private consultant to footwear
industry 1992 to March 1993; President and
Chief Executive Officer of Russ Togs,
Inc., a publicly held company listed on
the New York Stock Exchange, 1989 to
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Name of Director or
Executive Officer, Principal Occupation Date of Initial Election
Age and Position For Previous Five Years as Director
Held with Company ----------------------- ------------------------
- -----------------
<S> <C> <C>
1992.
Karen Brenner, 46, President of Fortuna Advisors, Inc., an July 1997
Director investment advisory firm in California
1993 to present; founder and President of
Karen Brenner, Registered Investment
Advisor, the predecessor to Fortuna
Advisors, Inc., 1984 to 1993; Managing
Partner of F.C. Partners, a California
limited partnership, April 1996 to
present; Director on DDL Electronics,
Inc., a publicly held company, July
1996 to present; Director of Krug
International Corp., a publicly held
company, July 1996 to present.
Yona Abrahami, 54 Founder and President of Chatterley August 1997
Director
</TABLE>
All directors hold office until the next annual meeting of shareholders
or until their successors are elected and qualified. For a period of five years
from October 12, 1995, Fechtor Detwiler & Co., Inc. (the "Representative") has
the right to nominate one member to the Company's Board of Directors. Mr.
Fechtor is the Representative's current nominee to the Board of Directors. There
are no family relationships among any of the directors and executive officers of
the Company.
Officers are appointed by the Board of Directors and serve at the
discretion of the Board.
Compliance With Section 16(a) of the Securities Exchange Act of 1934
19
<PAGE>
The Securities and Exchange Commission (the "Commission") has
comprehensive rules relating to the reporting of securities transactions by
directors, officers and shareholders who beneficially own more than 10% of the
Company's Common Shares (collectively, the "Reporting Persons"). These rules are
complex and difficult to interpret. Based solely on a review of Section 16
reports received by the Company from Reporting Persons, the Company believes
that no Reporting Person has failed to file a Section 16 report on a timely
basis during the most recent fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
Compensation of Directors
Directors of the Company who are not salaried officers receive a fee of
$500 for attending each meeting of the Board of Directors or a committee
thereof. In addition, all directors are reimbursed for their reasonable
out-of-pocket expenses incurred in connection with attending such meetings.
Executive Compensation in 1999
The following table sets forth compensation paid to the Chief Executive
Officer and to executive officers of the Company, excluding those executive
officers who did not receive an annual salary and bonus in excess of $100,000 in
the fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
Name and Principal Position Year Salary ($) Bonus ($) Other Annual Compensation
- --------------------------- ---- ---------- --------- -------------------------
<S> <C> <C> <C> <C>
Philip Grabow, CEO 1999 $150,000 $0.00 $0.00
Yona Abrahami, VP 1999 $100,000 $0.00 $0.00
</TABLE>
No other executive officer received a salary and bonus in excess of
$100,000 for the year ended December 31, 1999. The Company has not granted any
stock options, stock appreciation rights or long-term incentive awards to any
executive officer of the Company since its inception.
Employment Agreements
20
<PAGE>
Simultaneously with the acquisition of Chatterley, the Company entered
into employment agreements with Yona Abrahami and David Abrahami. David
Abrahami's contract has since been terminated. These agreements were filed as
exhibits B and C respectively with the Form 8-K/A on November 17, 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of Common
Shares beneficially owned, as of the date of this Amendment to the Annual
Report, by: (i) all persons known by the Company to be the beneficial owner of
more than 5% of the outstanding shares of Common Stock; (ii) each director of
the Company; (iii) each of the "named executive officers" as defined under the
rules and regulations of the Securities Act of 1933, as amended; and (iv) all
directors and executive officers of the Company as a group (7 persons):
<TABLE>
<CAPTION>
Name Number of Shares Percentage
- ---- Beneficially Beneficially
Owned(1) Owned(2)
---------------- ------------
<S> <C> <C>
Yona Abrahami(3)........................................................... 1,100,000 21.3%
Philip Grabow(4)........................................................... 800,000 14.6%
Richard Fechtor(5)......................................................... 142,933 2.8%
Raymond J. McKinstry(6).................................................... 50,000 *
InterEquity Capital Partners, L.P.(7)...................................... 378,390 6.8%
Kenneth Sitomer(8)......................................................... -- --
Karen Brenner(9)........................................................... -- --
5000
Ashwin R. Shah(10)......................................................... --
Willa Abrahamson(11)....................................................... 400,000 7.7%
Fortuna Investment Partners(12)............................................ 550,000 9.6%
100 Wilshire Blvd.
Suite 1500
Santa Monica, CA 90401
Baileys Family Trust....................................................... 606,250 10.5%
P.O. Box 9109
Newport Beach, CA 92658
</TABLE>
21
<PAGE>
<TABLE>
<S> <C> <C>
All executive officers
and directors as a group
(7 persons)(14)............................................................ 2,097,519 19.1%
</TABLE>
- -----------------------------
* Less than 1%.
(1) Unless otherwise noted, the Company believes that all persons named in
the table have sole voting power with respect to all shares
beneficially owned by them. A person is deemed to be the beneficial
owner of securities that can be acquired by such person within 60 days
from the date hereof upon the exercise of warrants or options.
(2) Assumes 5,161,750 shares of Common Stock outstanding as of the March
31, 1998. Each beneficial owner's percentage ownership is determined by
assuming that options or warrants that are held by such person (but not
those held by any other person) and which are exercisable within 60
days from the date hereof have been exercised.
(3) Ms. Abrahami's address is c/o 20 Passaic Avenue, Fairfield, New Jersey
07004.
(4) Mr. Grabow's business address is c/o 20 Passaic Avenue, Fairfield, New
Jersey 07004. Includes 500,000 Common Shares and currently exercisable
warrants to purchase an additional 300,000 shares of Common Stock. See
"Certain Relationships and Related Transactions."
(5) Mr. Fechtor's business address is 155 Federal Street, Boston,
Massachusetts 02110. Upon the conversion of a certain note, InterEquity
Capital Partners, L.P., received a six-year warrant exercisable until
October 2001 to purchase, on one occasion, 6% of the issued and
outstanding capital shares of the Company on a fully diluted basis as
of the date of exercise. Certain persons associated with the
Representative, received an aggregate 17.5% interest in such warrant,
including Mr. Fechtor, who received a 5% interest in such warrant. As
of March 31, 1998, there are 7,644,250 shares of Common Stock
outstanding on a fully diluted basis, 6% of which equals 458,655 shares
of Common Stock. Accordingly, Mr. Fechtor's ownership as shown in the
table includes 22,933 shares issuable upon exercise of such warrant.
See "Certain Relationships and Related Transactions." Also includes
120,000 shares of Common Stock. Excludes 5,500 shares of Common Stock
owned by Mr. Fechtor's wife, of which he disclaims beneficial
ownership.
(6) Mr. McKinstry's business address is 40 Queen Street, London EC4R 1DD,
England. Includes currently exercisable warrants to purchase 50,000
Common Shares.
22
<PAGE>
(7) InterEquity's business address is 220 Fifth Avenue, New York, New York
10001. Includes an 82.5% interest in a six-year warrant exercisable to
purchase, on one occasion, 6% of the issued and outstanding capital
shares of the Company on a fully diluted basis as of the date of
exercise. As of March 31, 1998, there are 7,644,250 shares of Common
Stock outstanding, 6% of which equals 458,655 shares of Common Stock.
Accordingly, InterEquity's ownership as shown in the table includes
378,390 shares issuable upon exercise of such warrant. The warrant is
currently exercisable and expires in October 2001.
(8) Mr. Sitomer's address is 303 East 57th Street, New York, New York
10022.
(9) Ms. Brenner's address is P.O. Box 9109, Newport Beach, California
92660.
(10) Mr. Shah's address is c/o 20 Passaic Avenue, Fairfield, New Jersey
07004.
(11) Mr. Abrahamson's address is 1800 NE 115th Street, Miami, FL 53181.
(12) Includes currently exercisable warrants to purchase 550,000 shares.
(13) Includes currently exercisable warrants to purchase 606,250 shares.
(14) Includes the shares of Common Stock beneficially owned by Ms. Abrahami,
Mr. Grabow, Mr. Fechtor, Mr. McKinstry, Mr. Sitomer, Ms. Brenner and
Mr. Shah.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The JMS Acquisition
On January 17, 1997, the Company entered into a stock purchase
agreement (the "Stock Purchase Agreement") with Philip Grabow ("Grabow"),
pursuant to which, on January 23, 1997, the Company consummated the purchase
from Grabow of all the outstanding shares of J.M. Specialties, Inc., a New
Jersey corporation (the "JMS Subsidiary"), in exchange for (i) $900,000 in cash,
(ii) 500,000 shares (the "JMS Shares") of the Common Stock of the Company and
(iii) 350,000 warrants (the "JMS Warrants") exercisable for shares of Common
Stock of the Company (the "JMS Transaction"). Each JMS Warrant entitles Grabow
to purchase one Common Share of the Company at the exercise price of $2.50 per
share until December 31, 2000.
In connection with the Stock Purchase Agreement, Grabow and the Company
also entered (i) a registration rights agreement, dated as of January 23, 1997,
regarding the terms of the registration of the Common Shares of issuable upon
exercise of the JMS Warrants,
23
<PAGE>
and (ii) an employment agreement dated as of January 23, 1997. Pursuant to the
employment agreement, Grabow will serve as President and Chief Executive
Officer of the Company at an annual salary level of $250,000 for the first
year, and a minimum of $150,000 thereafter. Also in connection with the JMS
Transaction, effective January 23, 1997, Grabow was elected to serve as a
director of the Company.
JMS Acquisition Indebtedness
The payment of the cash portion of the purchase price for the JMS
Subsidiary and such working capital, was funded through the net proceeds
received from the sale by the Company of 1,500,000 common stock purchase
warrants (the "Private Placement Warrants") at a price of $1.10 per Private
Placement Warrant to a limited number of purchasers that qualified as
"accredited investors" under the Securities Act of 1933. The terms of the
Private Placement Warrants are substantially similar to the JMS Warrants.
The Chatterley Acquisition
On August 28, 1997 the Company entered into a stock purchase agreement
with Yona Abrahami pursuant to which the Company purchased from Ms. Abrahami all
the outstanding shares of Chatterley Elegant Desserts, Inc., a New Jersey
Corporation, in exchange for 1,300,000 shares of the Company's common stock.
Such stock purchase agreement was subsequently amended and Ms. Abrahami agreed
to reduce the purchase price by surrendering 200,000 shares of common stock back
to the Company.
24
<PAGE>
PART IV
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Financial Statements
The financial statements filed as part of the Company's Form 10-KSB are
listed in Item 7. Financial Statements are included in Part IV hereof at page
F-1.
(b) Reports on Form 8-K
On September 11, 1997, the Company filed a Current Report on Form 8-K
announcing completion of the Chatterley acquisition.
(c) Listing of Exhibits
**2.1 Purchase and Sale Agreement, dated June 2, 1995, by and
among the Company, Greenberg Dessert Associates Limited
Partnership, SMG Baking Enterprises, Inc. and its limited
partners.
***2.2 Stock Purchase Agreement, dated as of January 17, 1997, by
and between the Company and Philip Grabow, without exhibits.
**3.1 Restated Certificate of Incorporation.
**3.2 Amended and Restated By-laws.
**4.1 Form of certificate for shares of Common Stock.
**4.2 Form of Representatives Warrant.
**4.3 Loan Agreement, dated July 10, 1995, by and between
InterEquity Capital Partners, L.P. and the Company.
**10.1 Employment Agreement, dated July 10, 1995, by and between
the Company and Stephen Fass.
**10.2 Employment Agreement, dated as of July 10, 1995, by and
between the Company and Willa Rose Abramson.
25
<PAGE>
**10.3 Employment Agreement, dated as of July 10, 1995, by and
between the Company and Maria Maggio Marfuggi.
**10.4 Employment Agreement and Consulting Agreement, dated July
10, 1995, by and between the Company and Seth Greenberg.
**10.5 Consulting Agreement, dated July 10, 1995, by and between
the Company and William Greenberg Jr., and Carol Greenberg.
**10.6 Departmental License Agreement effective February 1995 by
and between the Company and Macy's East, Inc.
**10.8 Form of Warrant for InterEquity Capital Partners, L.P.
**10.9 1995 William Greenberg Jr. Desserts and Cafes, Inc. Stock
Option Plan
**10.10 Lease Agreement dated July 1995 between the Company and
Murray Greenstein.
**10.11 Lease Agreement dated January 1994 between Schnecken Baking
Realty Corp. and Gerel Corporation.
**10.12 Assignment and Assumption of Lease dated July 1995 between
the Company and Schnecken Baking Realty Corp.
**10.13 Lease dated April 1991 between Greenberg's 35th Street
Baking Co., Inc. and Rugby Managed Asset Fund.
**10.14 Assignment and Assumption of Lease dated July 1995 between
the Company and Greenberg's 35th Street Baking Co.
**10.15 Lease dated May 1989 as modified in January 1991 between
Greenberg's Triple S. Baking Co., Inc. and Stahl Real Estate
Co.
**10.16 Assignment and Assumption of Lease dated July 1995 between
the Company and Greenberg's Triple S. Baking Co., Inc.
26
<PAGE>
**10.17 Consulting Agreement, dated July 10, 1995, by and between
the Company and Marilyn Miller.
**10.18 Form of Indemnity Agreement.
**10.19 Sublease dated December 1995 between Timothy's Coffees of
the World, Inc., and the Company.
****10.20 Lease dated March 8, 1995 between Harran Holding Corp., c/o
A. J. Clarke Management and the Company.
****10.21 Agreement dated January 13, 1996 by and between the Company
and Barry Kaplan Associates.
*****10.22 Employment Agreement, dated January 23, 1997, by and between
the Company and Philip Grabow.
*****10.23 Form of Warrant for the Private Placement made in
conjunction with the JMS Subsidiary acquisition.
******10.24 Stock Purchase Agreement dated August 28, 1997, between the
Company and Yona Abrahami.
******10.25 Employment Agreement dated August 28, 1992 between the
Company and Yona Abrahami.
******10.26 Employment Agreement dated August 28, 1992 between the
Company and David Abrahami.
*10.27 Amendment to Stock Purchase Agreement dated March 10, 1997,
between the Company and Yona Abrahami.
*21.1 List of Subsidiaries of the Company, the state of
incorporation of each, and the names under which such
subsidiaries do business.
- ---------------------
* Filed Herewith.
** Incorporated by reference to the Company's Registration Statement on
Form SB-2 Registration Number 33-96094.
*** Incorporated by reference to Schedule 13-D filed by Philip Grabow on SEC
File Number 005-48185.
27
<PAGE>
**** Incorporated by reference to the Company's Annual Report for the fiscal
year ended December 31, 1995, on Form 10-KSB Commission File Number
1-13984.
***** Incorporated by reference to the Company's Annual Report for the fiscal
year ended December 31, 1996, on Form 10-KSB Commission.
****** Incorporated by reference to the Company's Current Report on Form 8-K,
dated September 11, 1997 and Form 8-K/A, dated November 17, 1997.
28
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
registrant duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on March 30, 1999.
CREATIVE BAKERIES, INC.
By: /s/ Philip Grabow
-----------------------
Philip Grabow
President and Chief
Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities
indicated on March 31, 2000.
Signatures Title
- ---------- -----
/s/Philip Grabow President, Chief Executive Officer/Director
- -----------------------
Philip Grabow
- -----------------------
Director
- -----------------------
Richard Fechtor
/s/Raymond J. McKinstry Director
- -----------------------
Raymond J. McKinstry
/s/Kenneth Sitomer Director
- -----------------------
Kenneth Sitomer
/s/Karen Brenner Director
- -----------------------
29
<PAGE>
CREATIVE BAKERIES, INC.
YEAR ENDED DECEMBER 31, 1999
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent auditors' report F-1
Consolidated financial statements:
Balance sheet F-2
Statement of loss F-3
Statement of stockholders' equity F-4
Statement of cash flows F-5 - F-6
Notes to consolidated financial statements F-7 - F-15
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Creative Bakeries, Inc.
We have audited the accompanying consolidated balance sheet of Creative
Bakeries, Inc. as of December 31, 1999, and the related consolidated statements
of loss, stockholders' equity, and cash flows for the years ended December 31,
1999 and 1998. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Creative Bakeries, Inc. as
of December 31, 1999, and the results of its operations and cash flows for the
years ended December 31, 1999 and 1998, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As shown in the
accompanying financial statements, the Company incurred significant losses from
operations for the years ended December 31, 1999 and 1998 and as of December 31,
1999 has a working capital deficiency in the amount of $193,108, which raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are discussed in the notes to the
financial statements. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
March 27, 2000
F-1
<PAGE>
CREATIVE BAKERIES, INC.
CONSOLIDTAED BALANCE SHEET - DECEMBER 31, 1999
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents $ 114,971
Accounts receivable, less allowance for doubtful
accounts of $9,000 314,139
Inventories 283,284
Prepaid expenses and other current assets 87,730
-----------
Total current assets 800,124
-----------
Property and equipment, net 626,724
-----------
Other assets:
Goodwill, net of amortization 889,941
Security deposits 5,464
-----------
895,405
-----------
$ 2,322,253
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable, bank $ 138,788
Loans payable, other 7,500
Accounts payable 515,594
Accrued expenses 334,350
-----------
Total current liabilities 996,232
-----------
Other liabilities:
Deferred rent 137,586
Net liabilities of discontinued operations
less assets to be disposed of 370,992
-----------
508,578
-----------
Stockholders' equity:
Preferred stock $.001 par value, authorized 2,000,000
shares, no shares issued and outstanding
Common stock, $.001 par value, authorized 10,000,000
shares, issued and outstanding 5,245,250 shares 5,245
Additional paid in capital 11,510,063
Deficit (10,363,621)
-----------
1,151,687
Common stock held in treasury, 363,000 shares (334,244)
-----------
817,443
-----------
$ 2,322,253
===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
CREATIVE BAKERIES, INC.
CONSOLIDATED STATEMENT OF LOSS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net sales $4,500,405 $3,841,440
Cost of sales 3,485,812 3,137,519
---------- ----------
Gross profit 1,014,593 703,921
Selling, general and administrative expenses 1,123,732 1,300,317
---------- ----------
Loss from operations (109,139) (596,396)
---------- ----------
Other income (expenses):
Sale of marketable securities 3,216
Gain (loss) from sale of disposition of assets (800) 35,383
Interest income 8,506 10,195
Interest expense (13,926) (25,978)
---------- ----------
(3,004) 19,600
---------- ----------
Loss from continuing operations (112,143) (576,796)
---------- ----------
Discontinued operations:
Loss from operations of New York facility
to be disposed of (39,713) (42,662)
Estimated loss on disposal of New York facility (305,066)
---------- ----------
(39,713) (347,728)
---------- ----------
Loss before extraordinary items (151,856) (924,524)
---------- ----------
Extraordinary items:
Gain on extinguishment of debt, continuing
operations 30,000
Gain on extinguishment of debt, discontinued
operations 240,435
----------
270,435
----------
Net income (loss) $ 118,579 $(924,524)
========== ==========
Earnings per share information:
Basic earnings:
Continuing operations $ (0.02) $ (0.11)
Discontinued operations (0.01) (0.07)
Extraordinary items:
Continuing operations 0.01
Discontinued operations 0.04
---------- ----------
Net income per share $ 0.02 $ (0.18)
========== ==========
Diluted earnings:
Continuing operations $ (0.02)
Discontinued operations (0.01)
Extraordinary items:
Continuing operations
Discontinued operation 0.03
----------
Net income per share $ 0.00
==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
CREATIVE BAKERIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Common stock
------------------
Number Additional Total
of Paid in Accumulated Treasury Stockholders'
Shares Amount Capital Deficit Stock Equity
------ ------ ------- ------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 5,161,750 $5,162 $11,029,123 $(9,557,676) ($247,369) $1,229,240
Common stock issued, June 30, 1998 100,000 100 111,900 112,000
Fair market value of warrant to acquire 19,149
shares of common stock issued to a lender in
order to obtain financing for the purchase of
the operating assets of Greenberg Desserts Associates
Limited Partnership, valued at $.560 per share 5,005 5,005
--------- ------ ----------- ----------- -------- ----------
5,261,750 5,262 11,146,028 (9,557,676) (247,369) 1,346,245
Common stock issued in settlement of accrued
obligations 40,000 40 60,360 60,400
Cancellation of shares regarding the purchase of
Chatterley Elegant Desserts, Inc. (200,000) (200) 200
Net loss for the year ended December 31, 1998 (924,524) (924,524)
--------- ------ ----------- ----------- -------- ----------
Balance at December 31, 1998 5,101,750 5,102 11,206,588 (10,482,200) (247,369) 482,121
Exercise of warrants on January 26, 1999 150,000 150 187,350 187,500
Common stock issued in settlement of accrued
obligations 53,500 53 111,760 111,813
Cancellation of shares regarding the purchase of
Chatterley Elegant Desserts, Inc. (60,000) (60) 60
Fair market value of warrant to acquire 8,610 shares
of common stock issued to a lender in order to obtain
financing for the purchase of the operating assets of
Greenberg Desserts Associates Limited Partnership,
valued at $.500 per share 4,305 4,305
Purchase of treasury stock (95,625) (95,625)
Treasury stock issued in settlement of accrued obligations 8,750 8,750
Net income for the year ended December 31, 1999 118,579 118,579
--------- ------ ----------- ----------- -------- ----------
Balance at December 31, 1999 5,245,250 $5,245 $11,510,063 $(10,363,621) $(334,244) $ 817,443
========= ====== =========== =========== ======== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Operating activities:
Loss from continuing operations $(112,143) $(576,796)
Income from extraordinary items 30,000
Adjustments to reconcile income from
continuing operations to cash provided
from continuing operations:
Depreciation and amortization 195,629 235,353
Gain on sale of marketable securities (3,216)
Gain (loss) on sale of fixed assets 800 (35,383)
Stock issued in consideration of services 40,000
Compensatory element of issuance of warrants 4,305 5,005
Changes in other operating assets and
liabilities from continuing operations:
Accounts receivable (51,663) 182,795
Inventory (47,692) 107,417
Prepaid expenses and other current assets (15,913) 11,253
Security deposits 18,850
Accounts payable (10,048) (32,118)
Accrued expenses and other current
liabilities (20,102) (65,360)
Deferred rent (13,752) (1,540)
-------- --------
Net cash used in continuing operations (43,795) (110,524)
Net cash used in discontinued operations (119,306) (35,510)
-------- --------
Net cash used in operating activities (163,101) (146,034)
-------- --------
Investing activities:
Proceeds from sale of marketable securities 4,533
Proceeds from sale of fixed assets 5,000 35,383
Purchase of property and equipment (25,027) (11,970)
-------- --------
Net cash provided by (used in) investing
activities from continuing operations (15,494) 23,413
Net cash provided by investing activities
from discontinued operations 73,750
-------- --------
Net cash provided by investing activities 58,256 23,413
-------- --------
Financing activities:
Proceeds from issuance of common stock and warrants 187,500 112,000
Purchase of treasury stock (95,625) (247,369)
Payment of debt (47,241) (91,696)
-------- --------
Net cash provided by (used in) financing
activities 44,634 (227,065)
-------- --------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net decrease in cash and cash equivalents (60,211) (349,686)
-------- --------
Cash and cash equivalents, beginning of period 129,626 479,312
Cash and cash equivalents, discontinued operations,
end of period 45,556
-------- --------
175,182 479,312
-------- --------
Cash and cash equivalents, end of period 114,971 129,626
Cash and cash equivalents, discontinued operations,
end of period
-------- --------
$114,971 $129,626
======== ========
Supplemental disclosures:
Cash paid during the year for:
Interest paid during the year
Continuing operations $ 15,042 $ 25,978
======== ========
Discontinued operations $ 0 $ 0
======== ========
Income taxes paid during the year
Continuing operations $ 0 $ 0
======== ========
Discontinued operations $ 0 $ 0
======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1. Realization of assets - going concern:
Although the Company is currently operating its businesses, the
continuation of such business as going concerns is contingent upon,
among other things, the continued forbearance by the Company's
creditors from exercising their rights in connection with delinquent
accounts payable and payroll obligations. Management has indicated its
plan to meet its obligations is dependent upon cash flows, if any,
generated from JMS and Chatterley Elegant Desserts, Inc. and the
acquisition of additional businesses. These conditions, among others,
raise substantial doubt about the Company's ability to continue as a
going concern. The accompanying financial statements do not include any
adjustments relating to the recoverability and classification of asset
carrying amounts of the amount and classification of liabilities that
might result should the Company be unable to continue as a going
concern.
William Greenberg Jr. Desserts and Cafes, Inc. was incorporated in the
State of New York on November 12, 1993. In 1997, the Company
transferred all of its business assets and liabilities to a newly
formed wholly-owned subsidiary, WGJ Desserts and Cafes, Inc. At this
time the Company's name was changed to Creative Bakeries, Inc. WGJ
Desserts and Cafes, Inc. operated a number of retail locations as well
as operating a bakery facility, all located in New York City. As of
June 1998, WGJ Desserts and Cafes, Inc. shut down its manufacturing
facility and effective November 1998, sold its final retail store.
Although the Company has not vacated its manufacturing facilities, all
operations have ceased.
During the year ended December 31, 1999, the Company incurred a loss
from continuing operations in the amount of $107,838 and net income of
$122,884, and as of December 31, 1999 had a net working capital
deficiency of $196,106. During 1998, the Company discontinued
operations of its two remaining retail stores. In June, 1998, the
Company also closed its manufacturing plant in New York.
During 1997, the Company incurred restructuring costs in the form of
consulting fees, salary settlement costs and losses incurred on the
abandonment of assets at the retail facilities closed late in the year.
These costs amounted to $369,458 and were offset against the estimated
restructuring costs recorded at the end of 1996.
In connection with the restructuring plan, the Company determined the
carrying value of its baking equipment, furniture and fixtures and
leasehold improvements exceeded their fair market value. Therefore, in
accordance with SFAS No. 121 "Accounting for the Impairment of Long-
Lived Assets", a provision for impairment losses aggregating $305,066
was charged and included as part of other expenses in the accompanying
statement of operations for the year ended December 31, 1998. Such
impairment loss represents the excess of the carrying value of $340,066
over management's estimate of the fair market value of the assets of
$35,000.
F-7
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1. Realization of assets - going concern (continued):
In view of these matters, management believes that actions presently
being taken to revise the Company's operating and financial
requirements provide the opportunity for the Company to continue as a
going concern.
2. Accounting policies:
Principles of consolidation:
The accompanying consolidated financial statements include the account
of the Company and all of its wholly owned subsidiaries. Intercompany
transactions and balances have been eliminated in consolidation.
Cash and cash equivalents:
For the purpose of the statement of cash flows, the Company considers
all short-term debt securities purchased with a maturity of three
months of less to be cash equivalents.
Inventories:
Inventories are stated at the lower of cost (first-in-first-out) or
market.
Property and equipment:
The cost of property, plant and equipment is depreciated over the
estimated useful lives of the related assets. The cost of leasehold
improvements is depreciated over the lesser of the length of the
related leases or the estimated useful lives of the assets.
Depreciation is computed on the straight-line method for financial
reporting purposes and on the modified cost recovery system method
for income tax basis.
Intangible assets:
Goodwill represents the excess of the cost of companies acquired over
the fair value of their net assets at the dates of acquisition and is
being amortized on the straight-line method over forty years.
The Company's covenant not to compete is being amortized over a period
of five years.
Deferred rent:
The accompanying consolidated financial statements reflect rent expense
on a straight-line basis over the life of the lease. Rent expense
charged to operations differs with the cash payments required under
the terms of the real property operating leases because of scheduled
rent payment increases throughout the term of the leases. The
deferred rent liability is the result of recognizing rental expenses
as required by generally accepted accounting principles.
Comprehensive income:
There were no items of other comprehensive income in 1999 and 1998, and
thus, net income is equal to comprehensive income for each of those
years.
F-8
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
3. Nature of operations, risks and uncertainties:
The Company is a manufacturer of baking and confectionery products which
are sold to supermarkets, food distributors, educational institutions,
restaurants, mail order and to the public. Although the Company sells
its products throughout the United States, its main customer base is on
the East Coast of the United States.
The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of estimates
and assumptions regarding certain types of assets, liabilities,
revenues and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements.
Accordingly, upon settlement, actual results may differ from estimated
amounts.
The Company maintains all of its cash balances in New Jersey financial
institutions. The balances are insured by the Federal Deposit Insurance
Company (FDIC) up to $100,000. At December 31, 1999, the Company had
uninsured cash balances of $149,868.
4. Accounts receivable:
Following is a summary of receivables at December 31, 1999:
<TABLE>
<S> <C>
Trade accounts $323,139
Less allowance for doubtful accounts (9,000)
--------
$314,139
========
</TABLE>
At December 31, 1999, accounts receivable in the amount of $323,139 was
pledged as collateral in connection with the Company's line of credit.
5. Inventories:
Inventories at December 31 consist of :
<TABLE>
<S> <C>
Finished goods $ 98,754
Raw materials 79,141
Supplies 105,389
--------
$283,284
========
</TABLE>
6. Property and equipment:
The Company's baking equipment, furniture and fixtures and leasehold
improvements were deemed to be impaired and written down to
management's estimate of their fair value at December 31, 1998. Fair
value, was determined by management's estimation of the net sales value
if the property assets were offered for sale. An impairment loss in the
amount of $305,066 was charged to operations during the fourth quarter
of 1998.
F-9
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
6. Property and equipment (continued):
The following is a summary of property and equipment at December 31,
1999:
<TABLE>
<S> <C>
Baking equipment $1,442,972
Furniture and fixtures 78,864
Leasehold improvements 180,422
----------
1,702,258
Less: Accumulated depreciation
and amortization 1,075,534
----------
$ 626,724
==========
</TABLE>
Depreciation expense charged to operations was $114,717 and $154,443 in
1999 and 1998, respectively.
Machinery and equipment with a cost of $197,000 is pledged as collateral
for the Company's line of credit.
The useful lives of property and equipment for purposes of computing
depreciation are:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Machinery and equipment 10
Furniture and computers 5
Leasehold improvements 10-15
</TABLE>
7. Intangible assets:
The acquisition agreement of Greenberg's - L.P. contained a provision
for a covenant not to compete of $125,000 which management is
amortizing over its five year term. Amortization of the covenant
charged to operations was $25,000 in 1999 and 1998.
The excess cost over the fair value of the net assets acquired from
J.M. Specialties, Inc. aggregated $1,213,565. This goodwill has been
amortized over its estimated useful life of fifteen years. Amortization
charged to operations amounted to $80,912 in 1999 and 1998.
8. Note payable, bank:
As of December 31, 1999, the Company had an available revolving line of
credit with Hudson United Bank in the amount of $150,000, of which
$138,788 had been utilized at December 31, 1999. The interest rate at
December 31, 1999 was 9.50%.
F-10
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
9. Commitments and contingencies:
The Company is obligated under a triple net lease for use of 29,362
square feet of office and plant space in New Jersey with the lease
commencing January 31, 1994 and expiring December 31, 2004.
The minimum future rentals on the baking facility is as follows:
<TABLE>
<CAPTION>
Facility
----------
<S> <C>
December 31, 2000 $ 200,000
December 31, 2001 200,000
December 31, 2002 200,000
December 31, 2003 200,000
Thereafter 230,000
----------
$1,030,000
==========
</TABLE>
Rent expense for all operating leases amounted to $210,120 in 1999 and
$442,794 in 1998 and includes straight-lining of rent adjustments
discussed in Note 2.
10. Income taxes:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS No. 109") "Accounting for Income
Taxes", which requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed annually for differences between the
financial statement and income tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future based on
enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period, plus or minus the change
during the period in deferred tax assets and liabilities. There was no
cumulative effect of adoption or current effect in continuing
operations mainly because the Company has accumulated a net operating
loss carryforward of $8,942,204. The Company has made no provision for
a deferred tax asset due to the net operating loss carryforward because
a valuation allowance has been provided which is equal to the deferred
tax asset. It cannot be determined at this time that a deferred tax
asset is more likely that not to be realized.
The Company has a loss carryforward of $8,942,204 that may be offset
against future taxable income. The carryforward losses expire at the
end of the years 2010 through 2013.
F-11
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
11. Capital stock:
(a) Common stock:
In June 1998, the Company sold 100,000 shares of its common stock for
proceeds of $110,000.
In July 1998, the Company issued 40,000 in settlement of certain
obligations due a former shareholder and unrelated debtor of Chatterley
Elegant Desserts, Inc. The total amount of the settlement was $60,400.
In January 1999, the Company issued 40,000 shares in settlement of
certain accrued obligations due a former shareholder.
In January 1999, the Company issued 150,000 shares of its common stock
at $1.25, for total proceeds of $187,500.
In May 1999, the Company issued 13,500 shares of its common stock in
settlement of certain obligations due a former employee of William
Greenberg, Jr. Desserts and Cafes, Inc. The total amount of the
settlement was $11,813.
In December 1999, the Company cancelled 60,000 shares of its common
stock regarding the purchase of Chatterley Elegant Desserts, Inc.
(b) Warrants:
In order to obtain financing for the acquisition of Greenberg's - L.P.
(see Note 2), the Company sold to the lender for $1,000, a Convertible
Note which in accordance with the terms of the conversion agreement,
was converted by the lender into a warrant to acquire shares of stock
of the Company in a number sufficient to equal 6% of the Company's then
outstanding preferred and common stock (163,404 shares of common
stock). The warrant expires on July 31, 2001. The warrant contains
anti-dilutive provisions throughout its six (6) year life which
entitles the holder to its applicable percentages of the Company's
capital stock on the date the warrant is exercised. Based upon the
issuance of 143,500 and 100,000 shares of common stock in 1999 and
1998, respectively, the lender was entitled to an additional 8,610 and
19,149 shares of common stock, respectively. Accordingly, the financial
statements include a charge to operations of $4,305 and $5,005 for 1999
and 1998 which represents the market value of the stock at the time the
warrants were issued by the Company.
F-12
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
12. Earnings per share:
Primary earnings per share is computed based in the weighted average
number of shares actually outstanding plus the shares that would have
been outstanding assuming conversion of the common stock purchase
warrants which are considered to be common stock equivalents. However,
according to FASB 128, effective for financial statements issued and
annual periods issued after December 15, 1997, entities with a loss
from continuing operations, the exercise of any potential shares
increases the number of shares outstanding and results in a lower loss
per share. Thus, potential issuances are excluded from the calculation
of earnings per share. These common stock purchase warrants amounted to
1,680,965 in 1999 and $2,485,000 in 1998.
Reconciliation of shares used in computation of earnings per share:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Weighted average of shares actually
outstanding 5,288,280 5,040,900
Common stock purchase warrants 1,689,575
--------- ---------
Primary and fully diluted weighted
average common shares outstanding 6,977,855 5,040,900
========= =========
</TABLE>
13. Supplemental schedule of non-cash investing and financing activities:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Issuance of common shares in consideration
of legal, consulting fees and other
obligations $53,500 $40,000
------- -------
$53,500 $40,000
======= =======
</TABLE>
F-13
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
14. Discontinued operations:
In 1998, the Company adopted a formal plan to close WGJ Desserts and
Cafes, Inc., its New York manufacturing facility, which was done in
July of 1998 and to dispose of its one remaining retail store, which
was accomplished in November 1998. The New Jersey facility was
unaffected and still continues to sell and manufacture.
The sale of the final retail location resulted in a selling price of
$405,000 which includes a note receivable of $295,000. The sale
resulted in a gain of $321,350 which is included in other income.
On November 3, 1998, the Company sold its one remaining retail facility
for $405,000 which represented disposition of equipment and a license
to sell under the "William Greenberg, Jr. Desserts and Cafes" name. The
agreement called for a cash down payment of $110,000 with the remainder
being paid on a note receivable due in semi-annual installments of
$36,875 plus interest at prime.
The maturities of the notes are as follows:
<TABLE>
<CAPTION>
<S> <C>
December 31, 2000 $ 73,750
December 31, 2001 73,750
December 31, 2002 73,750
--------
$221,250
========
</TABLE>
In the event that the licensee opens and operates any additional retail
store(s) utilizing the license (other than the original retail store)
and the annual gross retail sales of any such store(s) exceeds
$400,000, then the licensee shall pay the licensor (the Company) a five
percent royalty on all sales in excess of the $400,000 of sales in each
store. The licensee shall pay the licensor a royalty on a semi-annual
basis of 3% of all mail order sales in excess of $100,000.
Net liabilities, less assets to be disposed of, of WGJ Desserts, Inc.
consisted of the following as of December 31, 1999:
<TABLE>
<S> <C>
Liabilities:
Accounts payable $218,457
Accrued expenses 407,321
--------
625,778
--------
Assets:
Notes receivable 221,250
Interest receivable 2,988
Covenant not to compete 12,500
Security deposits 18,048
--------
254,786
--------
$370,992
========
</TABLE>
F-14
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
14. Discontinued operations (continued):
Information relating to discontinued operations for WGJ Desserts and
Cafes, Inc. for the year ended December 31, 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net sales $1,064,856
Cost of sales 687,677
----------
Gross profit 377,179
Operating expenses $35,664 659,224
------- ----------
Net loss from operations (35,664) (282,045)
------- ----------
Settlement income 64,439
Loss on sale of fixed assets (25,500)
Miscellaneous expense (6,863)
Loss on abandonment of leasehold
improvements (143,176)
Gain on sale of 82nd Street facility 321,350
Interest income 21,450 3,633
------- ----------
(4,050) 239,383
------- ----------
Net loss from operations (39,714) (42,662)
Estimated loss on disposal of
New York facility (305,066)
------- ----------
$(39,714) $ (347,728)
======= ==========
</TABLE>
15. Extraordinary items:
During 1999, the Company recognized an extraordinary gain of $30,000
($0.00 per share) from continuing operations and an extraordinary gain
of $240,435 ($0.03 per share) from discontinued operations. The
extraordinary gains resulted from forgiveness of certain accrued
liabilities and obligations under an operating lease.
F-15
<PAGE>
Karen Brenner
/s/Yona Gonen Director
- -----------------------
Yona Gonen
<PAGE>
Exhibit 21.1
List of Subsidiaries
Name State of Incorporation
- ---- ----------------------
WGJ Deserts and Cafes, Inc. New York
Batter-Bake Chatterley Inc. New Jersey
30
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 114,971
<SECURITIES> 0
<RECEIVABLES> 314,139
<ALLOWANCES> 0
<INVENTORY> 283,284
<CURRENT-ASSETS> 800,124
<PP&E> 626,720
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,322,253
<CURRENT-LIABILITIES> 996,232
<BONDS> 0
5,245
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,322,253
<SALES> 1,264,676
<TOTAL-REVENUES> 0
<CGS> 830,343
<TOTAL-COSTS> 1,283,034
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,421
<INCOME-PRETAX> (101,987)
<INCOME-TAX> 0
<INCOME-CONTINUING> (66,248)
<DISCONTINUED> (35,739)
<EXTRAORDINARY> 270,435
<CHANGES> 0
<NET-INCOME> 168,448
<EPS-BASIC> 0.01
<EPS-DILUTED> 0
</TABLE>
