U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 27, 1998
___ Transition report under Section 13 or 15(d) of the Exchange Act for
the transition period from to
Commission file number: 1-9009
Tofutti Brands Inc.
-------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 13-3094658
-------- ----------
(State of Incorporation) (I.R.S. Employer
Identification No.)
50 Jackson Drive, Cranford, New Jersey 07016
(Address of Principal Executive Offices)
----------------------------------------
(908) 272-2400
--------------
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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 __
APPLICABLE ONLY TO CORPORATE ISSUERS
As of July 29, 1998 the Issuer had 6,183,567 shares of Common Stock, par
value $.01, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes __ No X
<PAGE>
TOFUTTI BRANDS INC.
INDEX
Page
----
Part I - Financial Information:
Condensed Balance Sheets - June 27, 1998
(Unaudited) and December 27, 1997 3
Condensed Statements of Operations -
(Unaudited) - Thirteen and twenty-six
week periods ended June 27, 1998 and
thirteen and twenty-six week periods ended
June 28, 1997 4
Condensed Statements of Cash Flows -
(Unaudited) - Twenty-six week period
ended June 27, 1998 and
twenty-six week period ended
June 28, 1997 5
Notes to Condensed Financial Statements -
(Unaudited) 6
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7-10
Part II - Other Information:
Item 4. Submission of Matters to a Vote
of Shareholders 11
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
<PAGE>
TOFUTTI BRANDS INC.
Condensed Balance Sheets
(Unaudited)
(000's omitted)
June 27, December 27,
1998 1997
---- ----
Assets
Current assets:
Cash and cash equivalents $ 221 54
Accounts receivable (net of allowance
for doubtful accounts of
$488 in 1998 and $458 in 1997) 1,070 919
Inventories (Note 2) 552 541
Prepaid expenses 1 7
Deferred income taxes 260 276
----- -----
Total current assets 2,104 1,797
Deferred income taxes 190 174
Other assets 97 97
------ -----
Total assets $2,391 2,068
====== =====
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable - current portion $ 18 17
Accounts payable 351 94
Accrued expenses 58 194
Income taxes payable 34 14
--- -----
Total current liabilities 461 319
Note payable 39 49
--- -----
Total liabilities 500 368
Stockholders' equity:
Preferred stock - -
Common stock 62 62
Paid-in capital 3,631 3,631
Accumulated deficit (1,802) (1,993)
------- ------
Total stockholders' equity 1,891 1,700
------ ------
Total liabilities and stockholders'
equity $2,391 2,068
====== ======
See accompanying notes to condensed financial statements.
3
<PAGE>
TOFUTTI BRANDS INC.
Condensed Statements of Operations
(Unaudited)
(000's omitted)
<TABLE>
<CAPTION>
Thirteen Thirteen Twenty-Six Twenty-Six
weeks weeks weeks weeks
ended ended ended ended
6/27/98 6/28/97 6/27/98 6/28/97
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $2,324 2,013 4,075 3,537
Cost of sales 1,558 1,332 2,628 2,304
----- ----- ----- ------
Gross profit 766 681 1,447 1,233
--- ---- ----- ------
Operating expenses:
Selling 281 229 505 402
Marketing and sales promotion 35 51 99 95
Research and development 82 55 164 113
General and administrative 258 232 460 402
--- ----- --- -----
656 567 1,228 1,012
--- ----- ----- -----
Operating income 110 114 219 221
Interest expense 2 1 6 5
--- ---- --- ----
Income before income
taxes 108 113 213 216
Income taxes 11 - 22 -
--- ---- --- ----
Net income $ 97 113 191 216
==== ==== ==== ====
Net income per share:
Basic $.02 .02 .03 .04
Diluted $.01 .02 .03 .04
Weighted average number of
shares outstanding:
Basic 6,184 6,054 6,184 6,054
Diluted 6,752 6,185 6,717 6,120
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE>
TOFUTTI BRANDS INC.
Condensed Statements of Cash Flows
(Unaudited)
(000's omitted)
Twenty-six Twenty-six
weeks weeks
ended ended
6/27/98 6/28/97
------- -------
Cash flows from operating
activities, net $167 8
Cash flows from investing activities - -
Cash flows from financing activities - -
--- ---
Net increase in cash and
cash equivalents 167 8
Cash and cash equivalents
at beginning of period 54 11
--- ---
Cash and cash equivalents
at end of period $221 19
===== ====
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 6 5
Income Taxes - -
See accompanying notes to condensed financial statements.
5
<PAGE>
TOFUTTI BRANDS INC.
Notes to Condensed Financial Statements
(Unaudited)
(000's omitted)
(1) Basis of Presentation
The accompanying financial information is unaudited, but, in the opinion of
management, reflects all adjustments (which include only normally recurring
adjustments) necessary to present fairly the Company's financial position,
operating results and cash flows for the periods presented. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The financial
information should be read in conjunction with the audited financial
statements and notes thereto for the year ended December 28, 1997 included
in the Company's Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission. The results of operations for the thirteen and
twenty-six week periods ended June 27, 1998 and June 28, 1997 are not
necessarily indicative of the results to be expected for the full year.
Certain reclassifications have been made to the December 27, 1997 balance
sheet to conform to the June 27, 1998 presentaton.
(2) Inventories
The composition of inventories is as follows:
June 27, Dec. 27,
1998 1997
---- ----
Raw materials and packaging
supplies $196 199
Finished goods 356 342
--- ----
$552 541
==== ====
(3) Earnings Per Share
Basic earnings per common share has been computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per
common share has been computed by dividing net income by the weighted average
number of common shares outstanding, including the dilutive effect of stock
options.
6
<PAGE>
TOFUTTI BRANDS INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying condensed financial
statements.
The discussion and analysis which follows in this Quarterly Report and in other
reports and documents of the Company and oral statements made on behalf of the
Company by its management and others may contain trend analysis and other
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 which reflect the Company's current views with respect to
future events and financial results. These include statements regarding the
Company's earnings, projected growth and forecasts, and similar matters which
are not historical facts. The Company reminds stockholders that forward-looking
statements are merely predictions and therefore are inherently subject to
uncertainties and other factors which could cause the actual future events or
results to differ materially from those described in the forward-looking
statements. These uncertainties and other factors include, among other things,
business conditions and growth in the food industry and general economies, both
domestic and international; lower than expected customer orders; competitive
factors; changes in product mix or distribution channels; and resource
constraints encountered in developing new products. The forward-looking
statements contained in this Quarterly Report and made elsewhere by or on behalf
of the Company should be considered in light of these factors.
Results of Operations
Thirteen Weeks Ended June 27, 1998 Compared with Thirteen Weeks
Ended June 28, 1997
Net sales for the thirteen weeks ended June 27, 1998 were $2,324,000, an
increase of $311,000 or 15% from the sales level realized for the thirteen weeks
ended June 28, 1997. In the 1998 period, sales of hard pack Tofutti increased by
$162,000, while food product sales increased by $149,000. As a result of the
increase in sales, the Company's gross profit for the current quarter increased
by $85,000, while its gross profit percentage decreased slightly to 33% compared
to 34% for the same period last
7
<PAGE>
year. This decline in gross profit percentage was a result of increased expenses
associated with the introduction of new products.
The Company anticipates a continuing increase in sales during the third and
fourth quarters of the current fiscal year due to the introduction of new
products and expanded distribution. Such increases are dependent upon market
acceptance of these products, for which no assurance can be given. The Company
expects its gross profit percentage to continue to be adversely affected by the
introduction of its new products.
Selling expenses increased to $281,000 for the current fiscal quarter compared
with $229,000 for the comparable period in 1997. This increase was due primarily
to higher outside warehouse rental, freight and commission expenses associated
with the higher sales level in 1998. Marketing and sales promotion decreased to
$35,000 in the 1998 period from $51,000 in 1997 due primarily to a decrease in
spending for artwork and plates for new product package designs and a decrease
in point-of-sale materials.
Research and development costs increased to $82,000 for the thirteen weeks ended
June 27, 1998 compared to $55,000 for the comparable period last year. This
increase was due to the hiring of two additional persons and additional research
and development expenses associated with the Company's new products. These
additional expenses consist mainly of start-up costs incurred at new co-packing
facilities, including additional Kosher supervision costs. Management expects
that research and development costs will continue at the same level for the
remainder of the year.
General and administrative expenses were $258,000 for the current period
compared with $232,000 for the comparable period in 1997, due primarily to an
increase in payroll costs and public relations expense.
Twenty-Six Weeks Ended June 27, 1998 Compared with Twenty-Six Weeks
Ended June 28, 1997
Net sales for the twenty-six weeks ended June 27, 1998 were $4,075,000, an
increase of $538,000 or 15% from the sales level realized for the twenty-six
weeks ended June 28, 1997. In the 1998 period sales of hard pack Tofutti
increased by $332,000, while food product sales increased by $206,000. As a
result of the increase in sales, the Company's gross profit for the current
period increased by $214,000, while its gross profit percentage increased
8
<PAGE>
slightly to 36% as compared to 35% for the same period last year. The increase
in gross profit percentage was principally due to the increase in sales of the
Company's frozen dessert products. The Company obtains a higher gross profit
percentage on frozen dessert products than on food products.
Selling expenses increased by $103,000 to $505,000 for the current fiscal period
compared with $402,000 for the comparable period last year. This increase was
due primarily to higher outside warehouse rental, freight and commission
expenses associated with the higher sales level in 1998. Marketing and sales
promotion expenses increased slightly to $98,000 from $95,000 in 1997. The
Company is not currently engaged in any major marketing programs.
Research and development expenses were $164,000 for the twenty-six weeks ended
June 27, 1998 compared with $113,000 for the comparable period last year,
reflecting an increase in related research and development costs incurred in the
development of the Company's new products.
General and administrative expenses were $460,000 for the current period
compared with $402,000 for the comparable period in 1997, due primarily to an
increase in payroll costs and public relations expense.
Liquidity and Capital Resources
The Company's working capital was $1,643,000 at June 27, 1998, an increase of
$165,000 from December 27, 1997. Accounts receivable increased to $1,070,000 at
June 27, 1998, an increase of $151,000 from December 27, 1997, reflecting the
Company's significantly higher sales. Inventories increased slightly by $11,000,
reflecting an increase in finished goods inventory, consistent with the
Company's increased sales.
Prepaid expenses decreased from $7,000 at December 27, 1997 to $1,000 at June
27, 1998. Deferred taxes and other assets were unchanged at June 27, 1998 from
December 27, 1997.
Accounts payable increased by $257,000 to $351,000 at June 27, 1998, reflecting
the higher sales and an increase in inventory, while accrued liabilities
decreased from December 27, 1997 by $136,000 to $58,000 at June 27, 1998.
The Company does not have any material capital commitments and contemplates no
material capital expenditures in the foreseeable
9
<PAGE>
future. Although the Company has operated on a profitable basis in recent years,
it has been unable to secure additional financing or equity capital. As a
result, it has not had sufficient funds to fully implement the marketing of its
new products. This has hindered the Company in its efforts to increase the sales
of its products. The Company believes it will be able to fund its operations in
1998 from its current resources, however, any substantial increase in its
operations may require additional working capital. Although the Company has had
discussions and intends to have future ones with interested parties concerning
additional financing for the Company, no assurance can be given that such
working capital will be available, if required. Management believes that if its
operations in 1998 continue in a manner consistent with its results for 1997, it
will have sufficient financial resources to continue its operations throughout
the coming year.
The Year 2000 Issue
The Company is conducting a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue and is
developing an implementation plan to resolve the issue. The Company presently
believes that, with modifications to existing software and conversions to new
software for certain applications, the Year 2000 issue will not pose significant
operational problems for the Company's computer systems as so modified and
converted. The Company expects its implementation plan to be completed on a
timely basis and without significant cost.
Other Matters
In June 1997, the Financial Accounting Standards Board released Statement 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131"). This statement became effective for the Company beginning December 28,
1997 and requires disclosure of certain information about operating segments and
geographic areas of operation. The adoption of SFAS 131 does not require interim
reporting in the year of adoption. The Company is completing its evaluation of
the disclosure requirements of SFAS 131 and will begin such disclosure in its
Form 10-KSB for the year ending December 26, 1998. This statement does not have
any effect on the results of operations or financial position of the Company.
10
<PAGE>
PART II - OTHER INFORMATION
TOFUTTI BRANDS INC.
Item 4. Submission of Matters to a Vote of Shareholders
During the thirteen week period ended June 27, 1998, the Company held
its Annual Meeting of Shareholders.
At the meeting, held on May 29, 1998, the Company's shareholders voted
for:
1. The election of the following directors to hold office for a term
until their successors are duly elected and qualified at the
Company's 1999 Annual Meeting of Shareholders.
For Against Abstained Unvoted
--- ------- --------- -------
David Mintz 5,720,570 34,186 - -
Bernard Koster 5,726,571 28,185 - -
Reuben Rapoport 5,726,571 28,185 - -
Franklin Snitow 5,726,571 28,185 - -
2. To approve an amendment to the Company's 1993 Stock Option Plan
providing for an increase of 1,500,000 shares of Common Stock
available for the grant of options.
For Against Abstained Unvoted
--- ------- --------- -------
3,551,597 89,236 13,908 2,110,015
3. The ratification of the appointment of KPMG Peat Marwick LLP to
examine the Company's accounts for 1998.
For Against Abstained Unvoted
--- ------- --------- -------
5,747,747 2,575 4,359 -
11
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1* Certificate of Incorporation, as amended through February
1986.
3.1.1** March 1986 Amendment to Certificate of Incorporation
3.2* By-laws
4.1*** Copy of the Company's 1993 Stock Option Plan
10.1**** Copy of Legal Settlement between the Company and the NEMP
Corporation
27 Financial Data Schedule
(b) Reports on Form 8-K filed during the last quarter of the period covered
by this report:
None
__________________
* Filed as an exhibit to the Registrant's Form 10-K for the fiscal year
ended July 31, 1985 and hereby incorporated by reference thereto.
** Filed as an exhibit to the Registrant's Form 10-K for the fiscal year
ended August 2, 1986 and hereby incorporated by reference thereto.
*** Filed as an exhibit to the Company's Form 10-KSB for the fiscal year
ended January 1, 1994 and hereby incorporated by reference thereto.
**** Filed as an exhibit to the Registrant's Form 10-K for the fiscal year
ended December 28, 1991 and hereby incorporated by reference thereto.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
TOFUTTI BRANDS INC.
(Registrant)
/s/David Mintz
--------------
David Mintz
President
/s/Steven Kass
--------------
Steven Kass
Chief Financial Officer
Date: August 11, 1998
13
<PAGE>
EXHIBIT INDEX
Exhibit
No. Exhibit
--- -------
3.1* Certificate of Incorporation, as amended through February
1986.
3.1.1** March 1986 Amendment to Certificate of Incorporation
3.2* By-laws
4.1*** Copy of the Company's 1993 Stock Option Plan
10.1**** Copy of Legal Settlement between the Company and the NEMP
Corporation
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-26-1998
<PERIOD-END> Jun-27-1998
<CASH> 221,000
<SECURITIES> 0
<RECEIVABLES> 1,558,000
<ALLOWANCES> 488,000
<INVENTORY> 552,000
<CURRENT-ASSETS> 2,104,000
<PP&E> 59,000
<DEPRECIATION> 59,000
<TOTAL-ASSETS> 2,391,000
<CURRENT-LIABILITIES> 461,000
<BONDS> 0
0
0
<COMMON> 62,000
<OTHER-SE> 1,829,000
<TOTAL-LIABILITY-AND-EQUITY> 2,391,000
<SALES> 4,075,000
<TOTAL-REVENUES> 4,075,000
<CGS> 2,628,000
<TOTAL-COSTS> 2,628,000
<OTHER-EXPENSES> 1,228,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,000
<INCOME-PRETAX> 213,000
<INCOME-TAX> 22,000
<INCOME-CONTINUING> 191,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 191,000
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
