UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
(X) Quarterly Report Pursuant To Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended March 31, 2005
OR
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File Number 1-13984
BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC.
(Formerly Creative Bakeries, Inc.)
(Exact name of Registrant as specified in its Charter)
New York 13-3832215
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
20 Passaic Avenue, Fairfield, NJ 07004
--------------------------------------
(Address of principal executive offices)
(973) 808-9292
--------------
(Registrant's telephone number, including area code)
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 |_|
As of May 14, 2005, there were 11,733,231 shares of the registrant's common
stock, par value $0.001 per share, outstanding.
Transition Small Business Disclosure Format (check one) Yes |_| No |X|
BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES
(FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES)
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Condensed consolidated financial statements:
Balance sheet as of March 31, 2005 (unaudited) F-2
Statements of operations for the three
months ended March 31, 2005 and 2004 (unaudited) F-3
Statements of cash flows for the three months
ended March 31, 2005 and 2004 (unaudited) F-4
Notes to condensed consolidated financial
Statements F-5 - F-10
Item 2. Management's discussion and analysis or
Plan of Operations
Item 3. Controls and Procedures
PART II. OTHER INFORMATION
Item 2. Unregistered sales of equity securities and use of proceeds
Item 6. Exhibits and reports on Form 8K
SIGNATURES
CERTIFICATIONS
PART I. FINANCIAL INFORMATION
BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES
(FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES)
CONDENSED CONSOLIDATED BALANCE SHEET - MARCH 31, 2005
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 2,554
Accounts receivable, less allowance for doubtful
accounts of $400 153,828
Inventories 141,866
Prepaid expenses 42,008
------------
Total current assets 340,256
------------
Property and equipment, net 316,302
------------
Other assets:
Security deposits 6,242
Website development 150,000
Tradename, net of amortization 71,625
------------
Total other assets 227,867
------------
$ 884,425
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 485,917
Accrued expenses 52,835
Capital lease obligation 12,402
Notes payable 2,500
Notes payable, officer 685,987
------------
Total current liabilities 1,239,641
------------
Other liabilities:
Capital lease obligation, net of current portion 45,190
Notes payable, officer, net of current portion 78,480
Deferred rent 22,020
------------
Total other liabilities 145,690
------------
Stockholders' deficiency:
Preferred stock $.001 par value, authorized 2,000,000
shares, none issued
Common stock, $.001 par value, authorized 30,000,000
shares, issued and outstanding 11,733,231 shares 11,733
Additional paid in capital 11,771,941
Accumulated deficit (12,284,580)
------------
Total stockholders' deficiency (500,906)
------------
$ 884,425
============
See notes to condensed consolidated financial statements.
F-2
BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES
(FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
(UNAUDTIED)
2005 2004
------------ ------------
Net sales $ 348,470 $ 515,171
Cost of sales 324,730 492,335
------------ ------------
Gross profit 23,740 22,836
------------ ------------
Selling, general and
administrative expenses 342,221 194,363
Interest expense 22,807 13,017
------------ ------------
365,028 207,380
------------ ------------
Net (loss) $ (341,288) $ (184,544)
============ ============
Earnings per common share:
Primary and fully diluted:
Net (loss) per
common share $ (0.03) $ (0.03)
============ ============
Weighted average number of
common shares outstanding 10,585,302 5,496,750
============ ============
See notes to condensed consolidated financial statements.
F-3
BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES
(FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
2005 2004
------------ ------------
Operating activities:
Net loss $ (341,288) $ (184,544)
Adjustments to reconcile net loss from
operations to cash used in
operating activities:
Depreciation and amortization 21,337 25,578
Common stock issued for services 157,000 --
Interest accrued on long-term debt -- 2,029
Changes in other operating assets and liabilities:
Accounts receivable 146,503 (35,579)
Inventories (38,064) (19,366)
Prepaid expenses 7,131 18,239
Security deposit (477) --
Accounts payable (34,028) 73,091
Accrued expenses 8,900 (13,625)
Deferred rent 2,340 4,140
------------ ------------
Net cash used in operating activities (70,646) (130,037)
Investing activities:
Purchase of property and equipment (17,664) (19,000)
------------ ------------
Net cash used in investing activities (17,664) (19,000)
------------ ------------
Financing activities:
Proceeds from officers' note payable 44,976 37,566
Proceeds from notes payable -- 29,806
Proceeds from capital lease obligation 10,663 --
------------ ------------
Net cash provided by financing activities 55,639 67,372
------------ ------------
Net decrease in cash and cash equivalents (32,671) (81,665)
Cash and cash equivalents, beginning of period 35,225 82,523
------------ ------------
Cash and cash equivalents, end of period $ 2,554 $ 858
============ ============
Supplemental disclosures:
Cash paid during the year for:
Interest: $ 5,220 $ 10,076
============ ============
Non cash transactions affecting investing
and financing:
Issuance of restricted common shares for debt $ 81,034 $ --
============ ============
See notes to condensed consolidated financial statements.
F-4
BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES
(FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
1. Basis of presentation:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. The
results of operations for the three months ended are not necessarily
indicative of the results to be expected for the full year. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report for the year ended
December 31, 2004 included in its Annual Report filed on Form 10-KSB.
The Company has incurred losses from continuing operations over the last
several quarters. Management has described its plan of action in regard to
this uncertainty in its latest annual report filed December 31, 2004.
2. Principles of consolidation:
The accompanying condensed consolidated financial statements include the
accounts of the Company and all of its wholly owned subsidiaries.
Intercompany transactions and balances have been eliminated in
consolidation.
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. The Company sells its products
throughout the United States, with a concentration in the East Coast. The
Company also exports cheesecake to Japan.
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 March 31, 2005, the Company had no
uninsured cash balances.
4. Accounts receivable:
Following is a summary of receivables at March 31, 2005:
Trade accounts $ 154,228
Less allowance for doubtful accounts (400)
------------
$ 153,828
============
F-5
BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES
(FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
5. Inventories:
Inventories at March 31, 2005 consist of:
Finished goods $ 46,177
Raw materials 42,664
Supplies 53,025
------------
$ 141,866
============
6. Property and equipment:
The following is a summary of property and equipment at March 31, 2005.
Baking equipment $ 1,507,878
Furniture and fixtures 109,105
Leasehold improvements 180,422
------------
1,797,405
Less: Accumulated depreciation
and amortization 1,481,103
------------
$ 316,302
============
Depreciation expense was $19,837 and $19,278, respectively, for the
quarters ended March 31, 2005 and 2004.
The useful lives of property and equipment for purposes of computing
depreciation are:
Years
Machinery and equipment 10
Furniture and computers 5
Leasehold improvements 10-15
7. Loan acquisition costs:
The Company incurred loan acquisition costs in the amount of $16,957 in
connection with one of the notes payable financings the Company entered
into in 2003. These costs were being amortized over the life of the loan.
Loan amortization expense for the quarter ended March 31, 2004 amounted to
$4,800. The loan was repaid in June 2004.
8. Tradename and licensing agreements:
On March 7, 2002, the Company purchased the rights to the tradenames
Brooklyn Cheesecake Company, Inc. and Brooklyn Cheesecake and Desserts
Company, Inc. and the related corporate logo in exchange for 300,000
shares of the Company's common stock, valued on the purchase date at
$90,000. The tradename rights are being amortized on the straight-line
basis over a fifteen-year term. Amortization expense was $1,500 for each
of the quarters ended March 31, 2005 and 2004.
F-6
BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES
(FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
8. Tradename and licensing agreements (continued):
The following is a schedule of future amortizations on the trade name:
2006 $ 6,000
2007 6,000
2008 6,000
2009 6,000
2010 6,000
Thereafter 41,625
----------
$ 71,625
9. Notes payable to executive officers:
Note dated May 21, 2004 in the amount of $54,000, payable on demand, with
interest at the rate of 8.5% per annum. The note is unsecured. This note
consolidates in a single promissory note several loan advances received by
the Company in the first and second quarter of 2004.
Note dated June 15, 2004 in the amount of $317,000, with interest at the
rate of 13% per annum. Interest payments are due on the last day of each
month with the note maturing on May 20, 2005. The note is secured by all
of the Company's assets.
Note payable effective April 2, 2003 in the original amount of $50,000,
with a variable interest rate that was 8.4% at March 31, 2005. Monthly
payment of principal and interest are approximately $1,300. Note is
unsecured. The outstanding balance on the loan was $47,366 at March 31,
2005.
Note dated January 1, 2003 in the original amount of $88,000 with an
interest rate of 8.5% per annum. The note is unsecured. Interest only
payments are due for the first eighteen months and principal and interest
are due monthly thereafter until the maturity date of December 31, 2005.
The balance on the note was $106,065 at March 31, 2005 including accrued
interest.
Note dated December 31, 2004 in the amount of $111,651, payable on demand,
with interest at the rate of 8.5% per annum. The note is unsecured. This
note consolidates in a single promissory note several loan advances
received by the Company in the third quarter of 2004.
Note dated May 25, 2004 in the amount of $28,000, payable on demand, with
interest at the rate of 8.5% per annum. The note is unsecured. This note
consolidates in a single promissory note several loan advances received
during the first and second quarters of 2004.
Note payable effective August 18, 2003 in the original amount of $50,000,
with a variable interest rate that was 9.25% at March 31, 2005. Monthly
payments of principal and interest are approximately $1,000. Note is
unsecured. The outstanding balance on the loan was $50,274 at March 31,
2005.
Note dated December 31, 2004 in the amount of $8,911, payable on demand,
with interest at the rate of 8.5% per annum. The note is unsecured. This
note consolidates in a single promissory note several loan advances
received during the third and fourth quarters of 2004.
F-7
BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES
(FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
9. Notes payable to executive officers (continued):
Note dated March 31, 2005 in the amount of $41,200, payable on demand,
with interest at the rate of 8.5% per annum. The note is unsecured. This
note consolidates in a single promissory note several loan advances
received during the first quarter of 2005.
Maturities for the next five years are as follows:
March 31, 2006 $ 685,987
March 31, 2007 19,160
March 31, 2008 19,160
March 31, 2009 19,160
March 31, 2010 8,526
Thereafter 12,474
----------
$ 764,467
10. Leases- Capital:
Capitalized lease with an order date of March 9, 2004, in the amount of
$47,940 plus a 10% buyout amount of $4,794. Monthly payments of principal
and interest in the amount of $1,051 commenced April 7, 2004, payable over
60 months. The lease matures in April 2009. The balance of the lease was
$44,899 at March 31, 2005. The note is guaranteed by a member of the Board
of Directors.
Capitalized lease with an order date of February 22, 2005, in the amount
of $13,000. Monthly payments of principal and interest in the amount of
$477 commenced March 22, 2005, payable over 36 months. The lease matures
in February 2008. The balance of the lease was $12,713 at March 31, 2005.
The note is guaranteed by a member of the Board of Directors.
At March 31,2005 equipment held under capital leases is summarized as
below:
2005
------------
Manufacturing equipment $ 66,129
Less: Accumulated depreciation 4,255
------------
$ 61,874
============
Minimum Future Lease Payments
Minimum future lease payments under capital leases as of March 31, 2005
for each of the next four years and in the aggregate are:
Quarter Ended March 31,
2006 $ 18,336
2007 18,336
2008 17,859
2009 12,618
------------
Total minimum lease payments 67,149
Less: Amount representing interest 9,557
------------
Present value of net minimum lease payment $ 57,592
============
The interest rates on the capitalized leases are 9.7% and 19% and is
imputed based on the lower of the Company's incremental borrowing rate at
the inception of the lease or the lessor's implicit rate of return.
F-8
BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES
(FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
11. Long-term debt
Note dated June 28, 2004 in the amount of $2,500, payable on demand, with
interest at the rate of 8.5% per annum. The note is unsecured. The holder
of the note is a member of the Board of Directors.
12. Common Stock:
The following restricted common stock issuances were made in the quarter ended
March 31, 2005:
- The Company issued 1,850,000 shares of common stock for services
valued at $148,000. All the shares were issued to officers of the
Company, valued at $148,000, or $0.08 per share on January 13, 2005,
the closing trading price on the date of issuance.
- The Company issued 225,427 shares of common stock in settlement of
an account payable of $18,034. These shares are valued at
approximately $0.08 per share the closing trading price on the date
of issuance.
- In payment of fees to Company Board members and Corporate Secretary,
the Company issued 112,500 shares of common stock, valued at $9,000.
These shares are valued at $0.08 per share the closing trading price
on the date of issuance.
- The Company issued 1,050,000 shares of common stock in settlement of
website development costs of $63,000. These shares are valued at
$0.06 per share the closing trading price on the date the agreement
was made.
The issuance of the common stock was exempt from registration pursuant to
Section 4(2) of The Securities Act of 1933, as amended.
13. Commitments and contingencies:
The Company rents office, plant and warehouse space in New Jersey under a
five-year lease that expires August 31, 2008. Rental expense for the three
months ended March 31, 2005 and 2004 was $49,709 and $51,051,
respectively.
The minimum future rentals on the facilities are as follows:
March 31, 2006 $ 151,000
March 31, 2007 159,500
March 31, 2008 165,500
Thereafter 70,000
------------
$ 546,000
============
The Company entered into an agreement for legal services commencing
February 1, 2005. The agreement calls for one-third of the monthly
retainer fee of $3,000 to be paid through the issuance of an equivalent
number of restricted common shares based on an agreed upon market value
formula. The shares are to be issued on a quarterly basis.
F-9
BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES
(FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
14. Concentration of Credit Risk
As of March 31, 2005, the Company had included in accounts receivable
three customers whose outstanding balances equaled or exceeded 10% of
total accounts receivable. The totals were 13.6%, 17.8%, and 23.4%. If any
of the customers should default, it could have a significant impact on the
Company's operation. During the three months ended March 31, 2005 those
customers accounted for 54% of total revenue. In the three months ended
March 31, 2004, two customers accounted for 12% and 10% of revenue.
Purchases from one supplier for the three months ended March 31, 2005
represented approximately 51% of non-affiliated purchases. For the three
months ended March 31, 2004 purchases from three suppliers represented
approximately 80% of non-affiliated purchases. At March 31, 2005, amounts
due to the suppliers amounted to 44% of accounts payable.
15. 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. 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 than not to be realized.
The Company has a loss carryforward of $8,886,000 that may be offset
against future taxable income. The carryforward losses expire at the end
of the years 2005 through 2024.
F-10
Item 2. Managements Discussion and Analysis or Plan of Operations
Overview
The reduction of sales revenue for this period as compared to the same
period for 2004, shows a reduction of $ 166,701. This is attributed to the
consolidation and streamlining efforts of management to determine the correct
product mix. The company earned $ 904 more in gross profit in 2005 than they did
in 2004 with $ 166,701 less in sales. Management continues to evaluate
production processes and product mix with the goal of reducing cost of goods
sold expenses and increasing gross profit. Machinery upgrades which will
facilitate savings have been identified.
The increased Selling, General and Administrative expenses as compared to
2004, are due to the issue of common stock in lieu of salaries to key management
personnel. The value of this stock was $ 148,000.
E-Commerce, export and foodservice are the main areas that the company's
sales and marketing efforts are focused. A commercial grade web site:
www.Brooklyncheesecake.com was launched on May 8, 2005.
Management continues active solicitation for funding sources as well as
acquisition or merger candidates.
Management will continue to refine operations and control costs. Active
solicitation for companies to be acquired by or merged with Brooklyn Cheesecakes
& Desserts Company, continue to be evaluated.
Results of Operations
Three Months Ended March 31, 2005 Compared to Three Months Ended March 31,
2004
The Company had consolidated net sales of $348,470 and $515,171 for the
three months ended March 31, 2005 and 2004 respectively, a decrease of $166,701,
or 32%. The decrease in sales is a result of our reduced sales of low margin
products.
The cost of sales were $324,730 and $492,335 for the three months ended
March 31, 2005 and 2004 respectively, a decrease of $167,605, or 34%. The
reduction was a direct result of the decreased sales. Gross profit percentages
for the three months ended March 31, 2005 and 2004 were 7% and 4%, respectively.
The increase was a result of eliminating the low margin products.
Operating expenses totaled $342,221and $194,363 for the three months ended
March 31, 2005 and 2004. This was an increase of $147,858, or 76%. This was a
result of increased salaries paid in common stock.
Interest expense was $22,807 and $13,017 for the three-months ended March
31, 2005 and 2004 respectively, an increase of $9,790, or 75%. The increase is a
result of additional borrowing.
Liquidity and Capital Resources
Since its inception the Company's only source of working capital has been
the $8,455,000 received from the issuance of its securities.
As of March 31, 2005, the Company had a negative working capital from
continuing operations of $899,385 as compared to a negative working capital of
$675,729 at March 31, 2004.
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.
Risk Factors
The Following information sets forth facts that could cause our actual
results to differ materially from those contained in forward looking statements
we have made in this quarterly report and those we may make from time to time.
If We Are Unable to Obtain Additional Funds, We May Have to Significantly
Curtail the Scope of Our Operations and Alter Our Business Model.
Profitable operations are essential for the Company to become viable. The
present business plan contemplates profitable operations will be achieved.
However, in the event that profitable operations are not achieved, our present
financial resources should allow us to continue operations through June 30,
2005. If additional financing is not available when required or is not available
on acceptable terms, we may be unable to continue our operations at current
levels or at all. We are engaged in seeking additional financing and we continue
to impose actions designed to minimize our operating loses. We would consider
strategic opportunities, including investment in the Company, a merger or other
acceptable transactions, to sustain our operations. We do not currently have any
agreements in place with respect to any such strategic opportunity, and there
can be no assurances that additional capital will be available to us on
acceptable terms, or at all. If we are unable to obtain additional financing or
to arrange a suitable strategic opportunity, our business will be placed in
significant financial jeopardy.
Our Independent Auditors have Stated that Our Recurring Losses from
Operations and Our Accumulated Deficit Raise Substantial Doubt About Our Ability
to Continue as a Going Concern.
The report of our independent Certified Public Accounts dated March 15,
2005 for the December 31, 2004 consolidated financial statements contained an
explanatory paragraph that states that our recurring losses from operations and
accumulated deficit raise substantial doubt about our ability to continue as a
going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of that uncertainty. We believe
we will need to raise more money to finance our operations and sustain our
business model. We may not be able to obtain additional financing on acceptable
terms, or at all. Any failure to raise additional financing will likely place us
in significant financial jeopardy.
Our Financial Condition Has Adversely Affected Our Ability to Pay Suppliers on a
Timely Basis Which May Jeopardize Our Ability to Continue Our Operations
Necessary to Continue Shipment and Sales of Our Products.
As of March 31, 2005 our accounts payable totaled $485,914 of which
$103,302 were over sixty (60) days old. While we have negotiated payment plans
with our major suppliers and vendors whereby we pay C.O.D. with a nominal pay
down of any past due amounts, there can be no assurances that we will be able to
continue these payment plans or obtain the necessary materials and/or
ingredients to produce our baked goods. If we are unable to obtain additional
financing on acceptable terms, our ability to make timely payments to our
critical suppliers will be jeopardized and we will be unable to obtain critical
supplies and services to maintain and continue to manufacture, ship and to sell
our products.
The Company and the Price Of Our Shares May Be Adversely Affected By the
Public Sale of a Significant Number of the Shares Eligible For Future Sale.
All but a very small number of the outstanding shares of our Common Stock
are freely tradable. Sales of Common Stock in the public market could materially
adversely affect the market price of our Common Stock. Such sales may also
inhibit our ability to obtain future equity or equity-related financing on
acceptable terms. At our Annual Meeting of Stockholders held August 4, 2004 our
stockholders approved an increase in the number of authorized shares of Common
Stock from 10,000,000 shares to 30,000,000 shares. The issuance and registration
of additional shares could have a significant adverse effect on the trading
price of our Common Stock.
We Have Obtained Secured Financing With the Pledge of All of Our Assets.
We have previously procured interim financing to continue operations in
arms length transactions from the following directors: Ronald L. Schutte, the
Chief Executive Officer and Chairman of the Board, in the amount of $636,082 and
Anthony J. Merante, Director and Chief Financial Officer, in the amount of
$128,385. A $317,000 note to Mr. Schutte is secured by all the assets of the
Company. In the event of default, Messors Schutte and Merante will obtain, in
addition to other remedies, the right to all of our assets as well as the right
to appoint qualified members to our Board of Directors that would constitute a
majority.
We Have Incurred Losses in the Past and We Expect To Incur Losses in the
Future.
We have incurred losses in each year since our inception. Our net loss for
the fiscal year ended December 31, 2004 was $574,324 and our accumulated deficit
as of December 31, 2004 was $11,943,294. We expect operating losses to continue
through 2005 as we continue our marketing and sales activities and conduct
additional development of our products.
Risks Related to the Market for Our Common Stock
The Price of Our Common Stock is Subject to Volatility
Our Common Stock has traded as low as $0.06 per share and as high as $0.50
per share in the twelve (12) month ended March 31, 2005. Our average trading
volume is extremely low. As such, a significant sale of our Common Stock may
result in a major fluctuation of the market price. Some other factors leading to
the volatility include:
o Price and volume fluctuation in the stock market at large which do
not relate to our operating performance;
o Fluctuation in our operating results;
o Concerns about our ability to finance our continuing operations;
o Financing arrangements which may require the issuance of a
significant number of shares in relation to the number shares of our
Common Stock currently outstanding;
o Fluctuations in market demand and supply of our products.
Our Common Stock is Currently Traded on the Over-The-Counter-
Bulletin-Board and an Investor's Availability to Trade Our Common Stock May Be
Limited by Trading Volume
The trading volume in our common shares has been extremely limited. A
consistently active trading market for our Common Stock may not develop on the
Over-The-Counter-Bulletin-Board. The average trading volume in our Common Stock
on the Over-The-Counter-Bulletin-Board for the month ended March 31, 2005 was
approximately 10,626 shares.
Risks Related to Our Business
We are Currently Dependent on a Few Major Customers for a Significant
Portion of Our Revenues
We currently record sales from approximately 35 customers. Three customers
and two customers accounted for in excess of 10% of our revenues for the periods
ended March 31, 2005 and 2004, respectively. We intend to establish long-term
relationships with our customers and continue to expand our customer base. While
we diligently seek to become less dependent on any one customer, it is likely
that certain business relationships may result in one or more customers
contributing to a significant portion of our revenue in any given year for the
foreseeable future. The loss of one or more of these significant customers may
result in a material adverse effect on our revenues and our ability to become
profitable or our ability to continue our business operations.
We Have Limited Ability to Sell and Market Our Products
At the current time, we have limited marketing capability as compared with
many of our competitors and we do not have a large sales, promotion and
marketing budget as we are constrained by our lack of working capital and our
ability to raise the necessary cash flow from our business operations to
re-invest in our marketing programs. As a result of our limited marketing
capabilities, we are forced to rely upon customer referrals and a part-time
sales force. Our competitors have direct advertising and sales promotion
programs for their products as well as sales and marketing personnel that may
have a competitive advantage over us in contacting prospective customers. Our
position in the industry is considered minor in comparison to that of our
competitors, and while we continue to develop and explore new marketing methods
and techniques and programs directed toward foreign customers, our ability to
compete at the present time is limited. Our success depends upon the ability to
market, penetrate and expand markets and form alliances with distributors.
However, there can be no assurances that:
o Our direct selling efforts will be effective;
o We will obtain an expanded degree of market acceptance;
o We will be able to successfully form relationships with distributors
to market our products.
We Depend Upon the Marketability of Primary Products
Frozen cheesecake, pre-portioned desserts and tart shells are our primary
products. We may have to cease operations if any of our primary products fails
to achieve market acceptance and/or generate significant revenues. Additionally,
the marketability of our products is dependent upon customer taste, preference
and acceptance, which are variables that may be beyond our ability to control.
We May Not Be Able to Successfully Develop and Market New Products That We
Plan to Introduce
We plan to develop new baked goods for production. There are numerous
developmental issues that may preclude the introduction of these products into
commercial sale. If we are unable to establish market acceptance for these
products, we may have to abandon them or alter our business plan. Such
modifications to our business plan will likely delay achievement of milestones
related to revenue increases and achievement of profitability.
We May Experience Problems in Manufacturing Sufficient Quantities and
Commercial Quantities of Our Products
We may encounter difficulties in the production of our current and any
future products due to such reasons as:
o Lack of working capital necessary to gain market acceptance;
o Limited equipment and resources to produce product;
o Quality control and assurance;
o Supplies of ingredients; and
o Shortages of qualified personnel.
Any of the foregoing or other difficulties would affect our ability to
meet increases in demand should our products gain market acceptance.
We Claim Certain Proprietary Rights in Connection with the Combination of
Ingredients and Manufacture of Our Products
Although we do not possess any patent protection for the formulation and
production of our products, we believe that the combination of ingredients and
our method of production are unique and important to our ability to produce
quality baked goods and desserts. As we do not possess intellectual property
protection, there is the risk that we may not be able to prevent a competitor
from duplicating our recipes or our methods of production.
We Use Certain Names that Do Not Have Protection under Federal or State
Trademark Laws.
Our use of the names, "Creative Bakeries", "Brooklyn Cheesecake Company"
and "Brooklyn Cheesecake & Desserts Company," under which Brooklyn Cheesecake &
Desserts Company, Inc. conducts business and has established goodwill may be
subject to legal challenge since there are other businesses operating under
similar names and we have not registered trademarks for these names with either
federal or state agencies. In addition, we utilize packaging with depictions of
the Brooklyn Bridge in designed or stylized formats in conjunction with the
names, "Brooklyn Cheesecake Company, Inc." and "Brooklyn Cheesecake and Deserts
Company," which have not been registered with either federal or state agencies.
In that we do not possess registered trademarks for our trade names or trade
dress, we may face opposition to our usage of same that may require us to
discontinue usage of certain trade names or packaging, which in turn will
require us to re-establish goodwill associated with our product names and
packaging. We are seeking trademark registrations with the United States Patent
and Trademark Office but there can be no assurances that we will be successful
in obtaining a registered mark.
Attraction and Retention of Key Personnel
Our future success depends in significant part on the continued services
of key sales and senior management personnel. The loss of Ronald L. Schutte, our
Chairman and Chief Executive Officer, Anthony Merante our Chief Financial
Officer, or other key employees could have a material adverse affect on our
business, results of operations and financial condition. There can be no
assurances that we can attract, assimilate or retain other highly qualified
personnel in the future.
We have Limited Product Liability Insurance Due to the High Cost of Same
We manufacture, market and sell baked goods and dessert products. In the
event our products are tainted/spoiled or cause illness in consumers, we may
face potential claims. Due to the high cost of product liability insurance, we
only maintain insurance coverage of $2,000,000 to protect against claims
associated with the consumption of our product. Any claim against us, whether or
not successful, may result in our expenditure of substantial funds and
litigation. Further, any claims may require management's time and use of our
resources and may have a materially adverse impact on us.
Geographic Concentration of our Business is Primarily in the New York City
Tri-State Area
Although we have expanded our customer base abroad in Japan, most of
Brooklyn Cheesecake & Desserts Company, Inc. retail and institutional/wholesale
customers are located in the Eastern Region of the United States. Adverse
changes in economic conditions in the New York City metropolitan area are more
likely to affect the Company's business, financial condition and results of
operations than if its operations were spread over a larger market area.
Government Regulation: Maintenance of Licenses and Certification
Brooklyn Cheesecake & Desserts Company, Inc 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 the 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 our business, financial condition or
results of operations. In addition, the Company's products are certified as
kosher by independent entities. We believe that we will continue to meet the
kosher certification requirements. However, the failure to retain or obtain such
certification in the future could have a material adverse effect on our
business, financial condition or results of operations.
Continuing Changes in Food Service Industry
The results of operations of food service businesses are affected by,
among other things, changes in consumer tastes, national, regional and local
economic conditions, demographic trends, traffic patterns and the type, number
and location of competing units. Multi-unit food service companies also can be
substantially adversely affected by publicity resulting from poor food quality,
illness, injury or other health concerns or operating difficulties stemming from
one unit or a limited number of units, or health concerns as to particular types
of food or methods of preparing food. There can be no assurance that the Company
will be able to maintain the quality of its food products. In addition,
dependence on frequent deliveries of fresh ingredients also subjects food
service businesses, such as Creative Bakeries, to the risk that shortages or
interruptions in supply caused by adverse weather or other conditions could
adversely affect the availability, quality and cost of ingredients.
Competition
The baking industry is a highly competitive and highly fragmented
industry. Brooklyn Cheesecake & Desserts Company, Inc. 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 we do. Competition in both the retail
and institutional/wholesale baking industry is based on product quality, brand
name loyalty, price and customer service. Competitors with significant economic
resources in the baking industry could, at any time, enter the wholesale or
retail bakery/cafe business.
Quarterly Fluctuations; Seasonality; Possible Volatility of Stock Price
Brooklyn Cheesecake & Desserts Company, Inc. operating results may be
subject to seasonal fluctuations, especially during the Thanksgiving, Christmas,
Chanukah, Easter and Passover seasons. Such variations could cause the market
price of the Common Stock to fluctuate substantially. In addition, the stock
markets in the United States have, from time to time, experienced significant
price and volume fluctuations that are unrelated or disproportionate to the
operating performance of individual companies. Such fluctuations may adversely
affect the price of the Company's Common Stock.
Possible Adverse Effect of Issuance of Preferred Stock
Creative Bakeries' Restated Certificate of Incorporation authorizes the
issuance of 2,000,000 shares of Preferred Stock, with designations, rights and
preferences as determined from time to time by the Board of Directors. As a
result of the foregoing, the Board of Directors can issue, without further
shareholder approval, Preferred Stock with dividend, liquidation, conversion,
voting or other rights that could adversely affect the voting power or other
rights of the holders of Common Stock. The issuance of Preferred Stock could,
under certain circumstances, discourage, delay or prevent a change in control of
the Company.
Item 3. Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form
10-QSB, we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on the forgoing, our Chief Executive Officer has concluded
that our disclosure controls and procedures were effective as of the quarter
ended March 31, 2005.
We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer, as
appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable and not absolute assurance of achieving
the desired control objectives. In reaching a reasonable level of assurance,
management was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. In addition, the design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions;
over time, control may become inadequate because of changes in conditions, or
the degree of compliance with policies or procedures may deteriorate. Because of
the inherent limitations in a cost-effective control system, misstatements due
to error or fraud may occur and not be detected.
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following restricted common stock issuances were made in the quarter ended
March 31, 2005:
- The Company issued 1,850,000 shares of common stock for services
valued at $148,000. All the shares were issued to officers of the
Company, valued at $148,000, or $0.08 per share on January 13, 2005,
the closing trading price on the date of issuance.
- The Company issued 225,427 shares of common stock in settlement of
an account payable of $18,034. These shares are valued at $0.08 per
share the January 13, 2005, closing trading price on the date of the
agreement.
- In payment of fees to Company Board members and Corporate Secretary,
the Company issued 112,500 shares of common stock, valued at $9,000.
These shares are valued at $0.08 per share the January 13, 2005,
closing trading price on the date of issuance.
- The Company issued 1,050,000 shares of common stock in settlement of
website development cost of $63,000. These shares are valued at
$0.06 per share the December 29, 2004 closing trading price on the
date the agreement was made.
The issuance of the common stock was exempt from registration pursuant to
Section 4(2) of The Securities Act of 1933, as amended.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of President and Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification pursuant to 18 U.S.C. section 1350, as adopted
pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.
32.2 Certification pursuant to 18 U.S.C. section 1350, as adopted
pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K/A on January 19, 2005
regarding the resignation of Zeller, Weiss & Kahn LLP as the Company's
Certified Public Accountants.
The Company filed a current report on Form 8-K on January 19, 2005
regarding the engagement of Sherb & Co., LLP as the Company's new
Certified Public Accountants.
The Company filed a current report on Form 8-K on January 20, 2005
announcing the appointment of Anthony Merante as Chief Financial Officer.
The Company filed a current report on Form 8-K on February 22, 2005
regarding an amendment to the Company's Certificate of Incorporation
changing the Company name to Brooklyn Cheesecake & Desserts Company, Inc.
from Creative Bakeries, Inc.
The Company filed a current report on Form 8-K on March 7, 2005
regarding the Company entering into an agreement for website development
and issuance of an aggregate of 2,500,000 shares of common stock as
consideration for service.
The Company filed a current report on Form 8-K on March 5, 2005
regarding the extension of the due date of the $317,000 Secured promissory
note in favor of Ronald L. Schutte the Company's CEO, President and
Chairman.
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 May 12, 2005.
Brooklyn Cheesecake & Desserts Company, Inc.
By: /s/ Ronald L. Schutte
President and Chief Executive Officer
By: /s/ Anthony J. Merante
Vice-President and Chief Financial Officer