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EX-31.1 - Attis Industries Inc. | v199969_ex31-1.htm |
EX-32.1 - Attis Industries Inc. | v199969_ex32-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
one)
x QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the
Quarterly Period Ended September 30, 2010
OR
¨ TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the
transition period from ______ to _______
Commission
File Number 1-13984
BROOKLYN
CHEESECAKE & DESSERTS COMPANY, 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)
|
2070 Central Park Avenue
2nd Fl. Yonkers, NY
10710
(Address
of principal executive offices)
(914)
361-1420
(Registrant’s
telephone number including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
proceeding 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 ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act (check one): Large Accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer
(do not check if a smaller reporting company) ¨ Smaller reporting
company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
As of
October 26, 2010, there were 1,139,208 shares of the registrant’s common stock,
par value $0.025 per share, outstanding.
INDEX
|
|
PART
I. FINANCIAL INFORMATION
|
|
Item
1. Financial statements:
|
|
Balance
Sheets as of September 30, 2010 (unaudited) and December 31,
2009
|
1
|
Statements
of Operations for the nine and three months ended September 30, 2010 and
2009 (unaudited)
|
2
|
Statements
of Cash Flows for the nine months ended September 30, 2010 and 2009
(unaudited)
|
3
|
Notes
to Financial Statements (unaudited)
|
4
|
Item
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
|
9
|
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
|
11
|
Item
4 Controls and Procedures
|
11
|
PART
II. OTHER INFORMATION
|
|
Item
1. Legal Proceedings
|
12
|
Item
1A. Risk Factors
|
12
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
12
|
Item
3. Defaults Upon Senior Securities
|
12
|
Item
4. [Removed and Reserved]
|
12
|
Item
5. Other Information
|
12
|
Item
6. Exhibits
|
13
|
SIGNATURES
|
14
|
CERTIFICATIONS
|
PART
I. FINANCIAL INFORMATION
Item
1. Financial statements
BROOKLYN
CHEESECAKE & DESSERTS COMPANY, INC.
BALANCE
SHEETS
September 30, 2010
|
December 31, 2009
|
|||||||
(Unaudited)
|
(1)
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
|
$ | 200 | $ | 155 | ||||
Accounts
receivable
|
4,000 | 22,732 | ||||||
Total
current assets
|
4,200 | 22,887 | ||||||
Other
assets:
|
||||||||
Trademark,
net of amortization
|
38,625 | 43,125 | ||||||
Total
other assets
|
38,625 | 43,125 | ||||||
$ | 42,825 | $ | 66,012 | |||||
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIENCY)
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 2,448 | $ | 35,951 | ||||
Accrued
expense
|
3,089 | 403,863 | ||||||
Notes
payable
|
8,304 | 815,000 | ||||||
Cash
advances, officer
|
- | 83,900 | ||||||
Total
current liabilities
|
13,841 | 1,338,714 | ||||||
Stockholders'
equity (deficiency):
|
||||||||
Preferred
stock $.001 par value, authorized 5,000,000 shares, none
issued
|
- | - | ||||||
Common
stock, $.025 par value, authorized 75,000,000 shares, issued and
outstanding 1,139,208 shares
|
28,480 | 17,110 | ||||||
Additional
paid in capital
|
13,585,673 | 12,254,135 | ||||||
Accumulated
deficit
|
(13,585,169 | ) | (13,543,947 | ) | ||||
Total
stockholders’ equity (deficiency)
|
28,984 | (1,272,702 | ) | |||||
Total
liabilities and stockholders’ equity (deficiency)
|
$ | 42,825 | $ | 66,012 |
(1)
Derived from Audited Financial Statements.
See notes
to unaudited financial statements.
1
BROOKLYN
CHEESECAKE & DESSERTS COMPANY, INC.
STATEMENTS
OF OPERATIONS
(UNAUDITED)
Nine Months
|
Three Months
|
|||||||||||||||
Ended September 30
|
Ended September 30
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Licensing
fees
|
$ | 7,000 | $ | 7,000 | $ | 2,000 | $ | 2,000 | ||||||||
Selling,
general and administrative expenses
|
13,877 | 17,879 | 7,578 | 6,427 | ||||||||||||
Interest
expense
|
34,346 | 79,463 | - | 26,487 | ||||||||||||
48,223 | 97,342 | 7,578 | 32,914 | |||||||||||||
Net
loss
|
$ | (41,223 | ) | $ | (90,342 | ) | $ | (5,578 | ) | $ | (30,914 | ) | ||||
Earnings
per common share:
|
||||||||||||||||
Basic
and diluted:
|
$ | ( .07 | ) | $ | (.92 | ) | $ | (.01 | ) | $ | (.32 | ) | ||||
Weighted
average number of common shares outstanding
|
560,064 | 97,778 | 1,139,208 | 97,778 |
See notes
to unaudited financial statements.
2
BROOKLYN
CHEESECAKE & DESSERTS COMPANY, INC.
STATEMENTS
OF CASH FLOWS
(UNAUDITED)
Nine Months
|
||||||||
Ended September 30
|
||||||||
2010
|
2009
|
|||||||
Operating
activities:
|
||||||||
Net
(loss)
|
$ | (41,223 | ) | $ | ( 90,342 | ) | ||
Amortization
|
4,500 | 4,500 | ||||||
Increase
(decrease) in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
(4,500 | ) | 6,500 | |||||
Accounts
payable
|
(33,503 | ) | (6,857 | ) | ||||
Accrued
expenses
|
30,885 | 72,211 | ||||||
Net
cash used in operating activities
|
(43,841 | ) | (13,988 | ) | ||||
Financing
activities:
|
||||||||
Proceeds
from loans
|
8,304 | - | ||||||
Proceeds
from cash advances, officer
|
35,582 | 10,000 | ||||||
Net
cash provided by financing activities
|
43,886 | 10,000 | ||||||
Net
increase (decrease) in cash and cash equivalents
|
45 | (3,988 | ) | |||||
Cash
and cash equivalents, beginning of period
|
155 | 4,058 | ||||||
Cash
and cash equivalents, end of period
|
$ | 200 | $ | 70 | ||||
Supplemental
disclosures:
|
||||||||
Cash
paid during the year for:
|
||||||||
Taxes:
|
$ | - | $ | - | ||||
Interest:
|
$ | - | $ | - | ||||
Non
cash financing activities:
|
||||||||
Shares
issued in exchange for debt
|
$ | 791,768 | $ | - | ||||
Shares
issued in exchange for officer advances
|
$ | 119,482 | $ | - | ||||
Accrued
interest contributed to capital
|
$ | 431,659 | $ | - |
See notes
to unaudited financial statements.
3
BROOKLYN
CHEESECAKE & DESSERTS COMPANY, INC.
NOTES TO
FINANCIAL STATEMENTS
SEPTEMBER
30, 2010
(UNAUDITED)
1.
|
Basis
of presentation:
|
The
accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the instructions to Form 10-Q. 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
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. For further information, refer to the financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 2009 filed with the Securities and Exchange
Commission on April 15, 2010.
The
results of operations for the three and nine months ended September 30, 2010 are
not necessarily indicative of the results for the full fiscal year ending
December 31, 2010.
Accounting
standards have been issued or proposed by the FASB and other standards-setting
bodies that are not expected to have a material impact on the financial
statements for the period ending September 30, 2010 upon adoption.
2.
|
Description
of business and going concern:
|
The
Company was a manufacturer of baking and confectionery products, which were sold
to supermarkets, food distributors, educational institutions, restaurants, mail
order and to the public. Although the Company sold its products throughout the
United States, its main customer base was on the East Coast of the United
States. The Company has now become a holder and licensor of intellectual
property.
The
accompanying financial statements are prepared assuming the Company will
continue as a going concern. At September 30, 2010, the Company had an
accumulated deficit of $13,585,169, and a working capital deficiency of $ 9,641.
Additionally, for the nine months ended September 30, 2010, the Company incurred
a net loss from operations of $41,223 and had negative cash flows from
operations in the amount of $43,841. The ability of the Company to continue as a
going concern is dependent upon increasing licensing fees and obtaining
additional capital and financing. While the Company believes in the viability of
its strategy to increase licensing fees and in its ability to raise additional
funds, there can be no assurances to that effect.
3.
|
Summary
of significant accounting policies:
|
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 or less to be cash
equivalents.
Accounts
receivable and allowances:
Accounts
receivable are reported at net realizable value. Management considers the need
for an allowance for doubtful accounts related to its accounts receivable that
are deemed to have potential collectability issues. Management reviews its
accounts receivable on a quarterly basis. The Company includes any receivables
balances determined to be uncollectible along with a general reserve for
doubtful accounts. No allowance was considered necessary at September 30,
2010.
Use of
estimates:
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.
4
BROOKLYN
CHEESECAKE & DESSERTS COMPANY, INC.
NOTES TO
FINANCIAL STATEMENTS
SEPTEMBER
30, 2010
(UNAUDITED)
3.
|
Summary
of significant accounting policies
(continued):
|
Net
(Loss) Income per Share:
The
Company computes basic net (loss) income per share based on the weighted average
common shares outstanding during the same period. Diluted net (loss) income per
share adjusts the weighted average for potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock, which would then
share in the earnings of the Company. At September 30, 2010, the Company
had no such securities outstanding.
Revenue
Recognition:
Income
from licensing fees are recognized from the sale by our licensee of goods
bearing the Brooklyn Cheesecake & Desserts Company, Inc. trademark. The
Company records revenue when persuasive evidence of an arrangement exists,
services have been rendered or product delivery has occurred, the sales price to
the customer is fixed or determinable, and collectability is reasonably
assured.
Income
Taxes:
Income
taxes are accounted for using an asset and liability approach that requires the
recognition of deferred tax asset and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax consequences, the Company
generally considers all expected future events other than changes in the tax law
or rates. A valuation allowance is recorded when it is deemed more likely than
not that a deferred tax asset will not be realized.
Impairment
of Long-Lived Assets:
The
Company reviews long-lived assets for impairment whenever circumstances and
situations change such that there is an indication that the carrying amounts may
not be recovered. The recoverability of assets held and used in operations is
measured by a comparison of the carrying amount of the assets to the future net
cash flows expected to be generated by the assets. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the
assets.
Fair
Value of Financial Instruments:
The
Company’s financial instruments consist of, accounts receivable, accounts
payable, accrued expenses, and notes payable. The carrying amounts of the
financial instruments reported in the balance sheet approximate fair value based
on the short-term maturities of these instruments.
Recent
accounting pronouncements:
In June
2009, the Financial Accounting Standards Board (FASB), issued ASC 105, "The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles-a replacement of FASB Statement No. 162". ASC 105
establishes the FASB Accounting Standards Codification as the source of
authoritative accounting principles and the framework for selecting the
principles used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting
principles in the United States. This SFAS is effective for financial statements
issued for interim and annual periods ending after September 15, 2009, and is
not expected to have a material impact on our financial statements.
In June
2009, the FASB issued Accounting Standards Update No. 2009-01, “Generally
Accepted Accounting Principles” (ASC Topic 105) which establishes the
FASB Accounting Standards Codification (“the Codification” or “ASC”)
as the official single source of authoritative U.S. generally accepted
accounting principles (“GAAP”). All existing accounting standards are
superseded. All other accounting guidance not included in the Codification will
be considered non-authoritative. The Codification also includes all relevant
Securities and Exchange Commission (“SEC”) guidance organized using the same
topical structure in separate sections within the Codification.
5
BROOKLYN
CHEESECAKE & DESSERTS COMPANY, INC.
NOTES TO
FINANCIAL STATEMENTS
SEPTEMBER
30, 2010
(UNAUDITED)
3.
|
Summary
of significant accounting policies
(continued):
|
Following
the Codification, the Board will not issue new standards in the form of
Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts.
Instead, it will issue Accounting Standards Updates (“ASU”) which will serve to
update the Codification, provide background information about the guidance and
provide the basis for conclusions on the changes to the
Codification.
The
Codification is not intended to change GAAP, but it will change the way GAAP is
organized and presented. The Codification is effective for our fiscal year
ending 2009 financial statements and the principal impact on our financial
statements is limited to disclosures as all future references to authoritative
accounting literature will be referenced in accordance with the Codification. In
order to ease the transition to the Codification, we are providing the
Codification cross-reference alongside the references to the standards issued
and adopted prior to the adoption of the Codification.
In April
2009, the FASB issued FASB Staff Positions FAS 115-2 and FAS 124-2, “Recognition
and Presentation of Other-Than-Temporary Impairments” (ASC Topic 320-10-65).
This update provides guidance for allocation of charges for other-than-temporary
impairments between earnings and other comprehensive income. It also
revises subsequent accounting for other-than-temporary impairments and expands
required disclosure. The update was effective for interim and annual periods
ending after June 15, 2009. The adoption of FAS 115-2 and FAS 124-2 did not have
a material impact on the results of operations and financial
condition
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (ASC Topic 855). This
guidance is intended to establish general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or available to be issued. It is effective for
interim and annual reporting periods ending after June 15, 2009. The adoption of
this guidance did not have a material impact on our financial statements. The
Company evaluated all events and transactions that occurred after September 30,
2010 up through the date the financial statements were available to be issued.
During this period no material subsequent events came to our
attention.
Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the consolidated financial statements
upon adoption.
4.
|
Trademark
and licensing agreements:
|
On March
7, 2002, the Company purchased the rights to the trademarks 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 trademark rights
are being amortized on the straight-line basis over a fifteen-year
term. Amortization expense was $1,500 and $1,500 for the three months
September 30, 2010 and 2009, respectively.
On March
28, 2006, the Company entered into a licensing agreement with its former
Chairman and CEO, whereby a one percent of sales fee would be charged for
the use of the Brooklyn Cheesecake & Desserts Company, Inc. trademarks.
Licensing fees were $2,000 and $2,000 for the three months ended September 30,
2010 and 2009, respectively.
September 30
|
December 31
|
|||||||
2010
|
2009
|
|||||||
Trademark
|
$ | 90,000 | $ | 90,000 | ||||
Less:
Accumulated Amortization
|
(51,375 | ) | (46,875 | ) | ||||
Trademark,
Net
|
$ | 38,625 | $ | 43,125 |
6
BROOKLYN
CHEESECAKE & DESSERTS COMPANY, INC.
NOTES TO
FINANCIAL STATEMENTS
SEPTEMBER
30, 2010
(UNAUDITED)
The
following is a schedule of future amortization of the trademark:
2010
|
6,000 | |||
2011
|
6,000 | |||
2012
|
6,000 | |||
2013
|
6,000 | |||
2014
|
6,000 | |||
Thereafter
|
8,625 | |||
$ | 38,625 |
5.
|
Notes
payable:
|
A note
dated January 31, 2006 was issued to Ronald L. Schutté the former Chairman and
CEO payable on demand, with interest at the rate of 13% per annum, and secured
by the Company’s trademarks. The original amount of the loan was $995,818 of
which $195,818 plus additional loans and accrued interest was satisfied upon
completion of an exchange agreement dated March 28, 2006. Mr. Schutté also
advanced $15,000 to the Company to cover additional expenses during the period.
The balance at September 30, 2010 and December 31, 2009 was $0 and $815,000
respectively. On April 29, 2010, pursuant to the Debt Conversion Agreement that
we entered into with Mr. Schutte: (i) we forgave accounts receivable for
licensing fees due from the baking company owned by Mr. Schutte of $23,232 in
exchange for a $23,232 reduction of the principal balance of the note payable to
Mr. Schutte in the original principal amount of $815,000, and (ii) we converted
the remaining principal balance of $791,768 of Mr. Schutte’s promissory note by
issuing 6,334,144 shares of common stock to Mr. Schutte. During the period
ending September 30, 2010 Mr. Schutté advanced $8,304 to the Company. The
advances were used for operating expenses.
6.
|
Cash
Advances Officer:
|
Anthony
Merante, the Company’s Chairman, President and CEO, makes cash advances to the
Company from time to time to enable it to meet its payment obligations. These
advances bear no interest and are payable on demand. Mr. Merante made cash
advances in the aggregate amount of $35,582 to the Company during the nine
months ended September 30, 2010. Amounts due to Mr. Merante at September 30,
2010 and December 31, 2009 were zero and $83,900, respectively. On April 29,
2010, pursuant to the Debt Conversion Agreement that we entered into with Mr.
Merante, we converted the outstanding principal balance of his indebtedness of
$119,482 by issuing 955,856 shares of common stock to Mr. Merante.
7.
|
Common
Stock:
|
The
following common stock issuances were made during the period ended September 30,
2010:
·
|
The
Company issued 6,334,144 shares of common stock in satisfaction of an
outstanding note payable. Pursuant to a Debt Conversion Agreement: (i) we
forgave accounts receivable for licensing fees of $23,232 in exchange for
a $23,232 reduction of the principal balance of a note payable in the
original principal amount of $815,000, and (ii) we converted the remaining
principal balance of $791,768 by issuing 6,334,144 shares of common stock.
The shares were issued to the former Chairman and CEO of the Company,
valued at $791,768 or $.125 per share, on April 29, 2010 the closing
trading price on the date of
issuance.
|
·
|
The
Company issued 955,856 shares of common stock in satisfaction of
outstanding Officer Cash Advances. Pursuant to a Debt Conversion Agreement
that we entered into, we converted the outstanding principal balance of
$119,482 by issuing 955,856 shares of common stock. The shares were issued
to our current Chairman and CEO, valued at $119,482 or $.125 per share, on
April 29, 2010 the closing trading price on the date of
issuance.
|
7
BROOKLYN
CHEESECAKE & DESSERTS COMPANY, INC.
NOTES TO
FINANCIAL STATEMENTS
SEPTEMBER
30, 2010
(UNAUDITED)
Each of
these issuances of common stock was exempt from registration pursuant to Section
4(2) of the Securities Act of 1933, as amended.
8.
|
Additional
Paid in Capital
|
On April
29, 2010, pursuant to a Debt Conversion Agreement with Ronald L. Schutté, our
former Chairman and Chief Executive Officer, Mr. Schutte forgave and agreed to
permanently forbear on collection of the accrued but unpaid interest of $431,659
on his note payable which was recorded as a contribution to
capital.
9.
|
Debt
Conversion Agreement
|
Effective
April 29, 2010, we entered into a Debt Conversion Agreement with each of Mr.
Ronald L. Schutte, our former Chairman and Chief Executive Officer, and Mr.
Anthony J. Merante our current Chairman and Chief Executive Officer pursuant to
which we eliminated approximately $934,482 of our indebtedness in exchange for
the forgiveness of $23,232 owed to us and the issuance of an aggregate of
7,290,000 shares of our common stock. These transactions helped reduce our
negative working capital which we hope will increase our ability to raise the
capital needed to fully implement our business plan.
Pursuant
to the Debt Conversion Agreement that we entered into with Mr. Schutte: (i) we
forgave accounts receivable for licensing fees due from the baking company owned
by Mr. Schutte of $23,232 in exchange for a $23,232 reduction of the principal
balance of the note payable to Mr. Schutte in the original principal amount of
$815,000, (ii) Mr. Schutte forgave and agreed to permanently forbear on
collection of the accrued but unpaid interest of $431,659 on his note payable
which was recorded as a contribution to capital, and (iii) we converted the
remaining principal balance of $791,768 of Mr. Schutte’s promissory note by
issuing 6,334,144 shares of common stock to Mr. Schutte (the “Schutte Conversion
Shares”).
Pursuant
to the Debt Conversion Agreement that we entered into with Mr. Merante, we
converted the outstanding principal balance of his indebtedness of $119,482 by
issuing 955,856 shares of common stock to Mr. Merante (the “Merante Conversion
Shares” and, collectively with the Schutte Conversion Shares, the “Conversion
Shares”).
In order
to induce them to execute the Debt Conversion Agreements, we provided each of
Messrs. Schutte and Merante with the right to sell their respective Conversion
Shares to any potential investor in any subsequent equity offering that we
complete at the price and other terms and conditions of such
offering.
10.
|
Subsequent
Events
|
For
purposes of determining whether a post balance sheet event should be evaluated,
to determine whether it has an effect on the financial statements for the period
ending September 30, 2010, subsequent events were evaluated by the company
through the date on which the unaudited financial statements for the period
ending September 30, 2010 were available to be issued. On October 11, 2010, the
Company's majority shareholder approved the Company's Board of Directors'
recommendation to effect a one share for seven reverse common stock split, as
well as an increase in the Company's $.025 par value common stock and $.001 par
value preferred stock to 75,000,000 and 5,000,000 shares, respectively. For
accounting purposes, the reverse split and increase in authorized capital stock
is deemed to have occurred on such date. Accordingly, the effect of the reverse
split and increase in authorized capital has been retroactively reflected in
these financial statements."
8
Forward
Looking Statements
This Quarterly Report on Form 10-Q
includes forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. We have based these forward-looking
statements on our current expectations and projections about future
events. These forward-looking statements are subject to known and
unknown risks, uncertainties and assumptions about us that may cause our actual
results, level of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking
statements. In some cases, you can identify forward-looking
statements by terminology such as “may,” “will,” “should,” “could,” “would,”
“expect,” “plan,” “anticipate,” ”believe,” “estimate,” ”continue,” or the
negative of such terms or other similar expressions. Factors that
might cause or contribute to such a discrepancy include, but are not limited to,
those in our other Securities and Exchange Commission filings, including our
Annual Report on Form 10K filed on April 15, 2010. The
following discussion should be read in conjunction with our Financial Statements
and related Notes thereto included elsewhere in this report.
Item
2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Overview
From March 2002 through
March 2006, we were a manufacturer of baking and confectionary
products. In March 2006, we entered into an Exchange Agreement
pursuant to which we exchanged our baking equipment and other fixed assets and
JM Specialties, Inc., our wholly owned subsidiary, for the satisfaction and
assumption of approximately $1,145,000 of outstanding liabilities and
obligations owed to Ronald L. Schutté, our former president and chief executive
officer. We retained our trademarks and now license these trademarks to a New
Jersey corporation formed by Mr. Schutté to continue the baking operations that
were transferred to him pursuant to the Exchange Agreement.
We
presently do not have sufficient cash to implement our business
plan.
We have experienced this lack of
liquidity throughout 2009 and the first nine months of 2010, causing us to be
unable to meet our obligations as they come due. We believe that we need to
raise or otherwise obtain at least $1,000,000 in additional financing in order
to satisfy our existing obligations and implement our business plan. If we are not
successful in obtaining such financing, we may not be able to continue to
operate our business.
Although we are hopeful that licensing
fees will increase in the future and be sufficient to pay related expenses, we
will also look for additional opportunities, such as joint ventures,
partnerships, strategic alliances or business combinations. The Company is not
currently in discussions regarding any such opportunities
On October 11, 2010, one shareholder
owning 6,459,513 shares of our Common Stock, or approximately 81% of the issued
and outstanding shares, consented in writing to a one (1) for seven (7) reverse
split of the shares of the Company’s issued and outstanding Common Stock and to
an increase in the authorized shares of the Company’s capital stock. It is
expected that such corporate actions will be effected on or about November 14,
2010. For accounting purposes the reverse split and increase in authorized
capital stock is deemed to have occurred on October 11, 2010 and, accordingly,
have been retroactively reflected in the financial statements included in this
report.
The following discussion and analysis
should be read in conjunction with the financial statements and the related
notes thereto included in this Quarterly Report on Form 10-Q.
9
Critical
Accounting Policies
Revenue
Recognition:
Income from licensing fees are
recognized from the sale by our licensee of goods bearing the Brooklyn
Cheesecake
& Desserts Company, Inc. trademark. The Company records revenue when
persuasive evidence of an arrangement exists, services have been rendered or
product delivery has occurred, the sales price to the customer is fixed or
determinable, and collectability is reasonably assured.
Results
of Operations
Nine
and Three Months Ended September 30, 2010 Compared to the Nine and Three Months
Ended September 30, 2009
Licensing
fees aggregated $7,000 and $7,000 for the nine months ended September 30, 2010
and 2009. There was no change. Licensing fees for the three months ended
September 30, 2010 as compared to September 30, 2009 was $2,000 and $2,000
respectively. There was no change.
Selling,
general and administrative expenses totaled $13,877 and $17,879 for the nine
months ended September 30, 2010 and 2009. The decrease of $4,002 or
23% was the result of lower legal fees. Selling, general and administrative
expenses for the three months ended September 30, 2010 increased to $7,578 from
$6,427 for the three months ended September 30, 2010. This is an
increase of $1,151 or 18%. This is a result of higher legal fees
during the quarter.
Interest
expense was $34,346 and $79,463 for the nine months ended September 30, 2010 and
2009. Interest expense for the three months ended September 30, 2010 and 2009
was $0 and $26,487. The decrease was a result of the debt conversion of the
former Chairman and Chief Executive Officer. Prior to conversion, interest
accrued on the outstanding principal balance at a rate of 13% per annum on the
$815,000 note payable.
Liquidity
and Capital Resources
Since
inception, our only source of working capital has been the $8,455,000 received
from the sale of our securities.
As of
September 30, 2010, we had negative working capital of $9,641 as compared to
negative working capital of $1,315,827 at December 31, 2009.
Net Cash
Used in Operating Activities during the nine months ended September 30, 2010 of
$43,223 was due to our net loss of $41,223 and amortization expense of
$4,500. This was offset by an increase in accounts receivable of
$4,500, a decrease in accounts payable of $33,503, and an increase in accrued
expenses of $30,885.
Net Cash
Provided by Financing Activities during thenine months ended September 30, 2010
of $43,886 was due to loans of $8,304 and officer advances of
$35,582.
Effective
April 29, 2010, we entered into a Debt Conversion Agreement with each of Mr.
Ronald L. Schutte,
our former Chairman and Chief Executive Officer, and Mr. Anthony J. Merante our
current Chairman and Chief Executive Officer pursuant to which we eliminated
approximately $934,482 of our indebtedness in exchange for the
forgiveness of $23,232 owed to us and the issuance of an aggregate of 7,290,000
shares of our common stock. These transactions helped reduce our
negative working capital which we hope will increase our ability to raise the
capital needed to fully implement our business plan.
Pursuant
to the Debt Conversion Agreement that we entered into with Mr. Schutte: (i) we
forgave accounts receivable for licensing fees due from the baking company owned
by Mr. Schutte of $23,232 in exchange for a $23,232 reduction of the principal
balance of the note payable to Mr. Schutte in the original principal amount of
$815,000, (ii) Mr. Schutte forgave and agreed to permanently forbear on
collection of the accrued but unpaid interest of $431,659 on his note payable
which was recorded as a contribution to capital, and (iii) we converted the
remaining principal balance of $791,768 of Mr. Schutte’s promissory note by
issuing 6,334,144 shares of common stock to Mr. Schutte (the “Schutte Conversion
Shares”).
Pursuant
to the Debt Conversion Agreement that we entered into with Mr. Merante, we
converted the outstanding principal balance of his indebtedness of $119,482 by
issuing 955,856 shares of common stock to Mr. Merante (the “Merante Conversion
Shares” and, collectively with the Schutte Conversion Shares, the “Conversion
Shares”).
10
Although
we have previously been successful in obtaining sufficient capital funds through
issuance of common stock and warrants, there can be no assurance that we will be
able to do so in the future especially given the recent liquidity crisis in the
credit markets. We expect that the continued deterioration in the
worldwide economy will adversely affect licensing fee revenue.
Inflation
and Seasonality
Licensing revenue will vary since it is
tied to peak baking seasons. Revenues are generally higher during holiday
seasons such as Thanksgiving, Christmas, Jewish New Year, Easter and Passover
than they are during other times of the year.
Off-Balance
Sheet Arrangements
There were no off-balance sheet
arrangements during the three and nine months ended September 30,
2010 that have, or are reasonably likely to have, a current or future effect on
our financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
is material to our interests.
Item
3. Quantitative and Qualitative Disclosures About Market Risk
This disclosure is not required for a
smaller reporting company.
Item
4 Controls and Procedures
EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES.
As
of September 30, 2010, we carried out an evaluation of the
effectiveness of the design and operation of our “disclosure controls and
procedures” (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) under
the supervision and with the participation of our management, including Anthony
J. Merante, our Chief Executive Officer and Chief Financial Officer. Based upon
that evaluation, Mr. Merante concluded that our disclosure controls and
procedures are effective at a reasonable assurance level to ensure that
information required to be disclosed in our reports filed or submitted under the
Exchange Act is accumulated and communicated to management to allow timely
decisions regarding required disclosure.
Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act are recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in our reports filed under the Exchange Act is
accumulated and communicated to management to allow timely decisions regarding
required disclosure.
CHANGES
IN INTERNAL CONTROLS
During
the quarter ended September 30, 2010, there was no change in the issuer’s
internal control over financial reporting that has materially affected, or is
reasonable likely to materially affect, the issuer’s internal control over
financial reporting.
LIMITATIONS
ON THE EFFECTIVENESS OF CONTROLS.
A
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control. 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 the 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. The Company conducts periodic evaluations of its internal controls
to enhance, where necessary, its procedures and controls.
11
PART
II – OTHER INFORMATION
Item
1. Legal Proceedings
From
time to time we may be a party to legal proceedings occurring in the ordinary
course of business. We are not currently involved in any legal
proceedings.
Item
1A. Risk Factors
This
disclosure is not required for a smaller reporting company.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
On April 29, 2010, the Company issued
6,334,144 shares of common stock in satisfaction of an outstanding note
payable. The shares were issued to the former Chairman and CEO,
valued at $791,768 or $.125 per share, the closing trading price on the date of
issuance.
On April 29, 2010, the Company issued
955,856 shares of common stock in satisfaction of Officer Cash
Advances. These shares were issued to our current Chairman and CEO,
valued at $119,482 or $.125 per share, the closing trading price on
the date of issuance.
Each of
these issuances of common stock was exempt from registration pursuant to Section
4(2) of the Securities Act of 1933, as amended.
Item
3. Defaults Upon Senior Securities
None
Item
4. [Removed and Reserved]
Item
5. Other Information
None.
12
Item
6. Exhibits
(a)
Exhibits
3.1
|
Restated
Certificate of Incorporation. Incorporated by reference to the
Company's Registration Statement on Form SB-2 Registration Number
33-96094.
|
3.2
|
Amended
and Restated By-laws. Incorporated by reference to the
Company's Registration Statement on Form SB-2 Registration Number
33-96094.
|
3.3
|
Amendment
to Certificate of Incorporation. Incorporated by
reference to the Company's Current Report on Form 8-K, dated February 23,
2005.
|
3.4
|
Amendment
to Certificate of Incorporation. Incorporated by
reference to the Company's Current Report on Form 8-K, dated March 22,
2006.
|
4.1
|
Form
of certificate for shares of Common Stock. Incorporated by
reference to the Company's Registration Statement on Form SB-2
Registration Number 33-96094.
|
4.2
|
2004
Stock Incentive Plan. Incorporated by reference to the
company’s Definitive Proxy statement filed on Form Schedule 14A dated July
15, 2004.
|
10.1
|
Debt
Conversion Agreement dated as of April 29, 2010, by and between Brooklyn
Cheesecake and Dessert Company, Inc. and Ronald
Schutte. Incorporated by reference to the Company’s Current
Report on Form 8-K dated April 29,
2010.
|
10.2
|
Debt
Conversion Agreement dated as of April 29, 2010, by and between Brooklyn
Cheesecake and Dessert Company, Inc. and Anthony
Merante. Incorporated by reference to the Company’s Current
Report on Form 8-K dated April 29,
2010.
|
31.1
|
Certification
dated October 26, 2010 pursuant to Exchange Act Rule 13a-14(a) or
15d-14(a) as adopted pursuant to Section 302 of the Sarbanes Oxley-Act of
2002 by Anthony J. Merante, Chairman, President, Chief Executive Officer,
and Chief Financial Officer.
|
32.1
|
Certification
dated October 26, 2010 pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 made by Anthony
J. Merante, Chairman, President, Chief Executive Officer, and Chief
Financial Officer.
|
13
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Brooklyn
Cheesecake & Desserts Company, Inc.
By:
|
/s/Anthony J. Merante
|
Chairman,
President, Chief Executive Officer and Chief Financial
Officer
|
|
(principal
financial officer and principal accounting
officer)
|
Date:
October 26, 2010
14