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 March 28, 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 May 8, 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 - March 28, 1998
(Unaudited) and December 27, 1997 (Audited) 3
Condensed Statements of Operations -
(Unaudited) - Thirteen Week Period ended
March 28, 1998 and Thirteen Week Period
ended March 29, 1997 4
Condensed Statements of Cash Flows -
(Unaudited) - Thirteen Week Period
ended March 28, 1998 and Thirteen Week
Period ended March 29, 1997 5
Notes to Condensed Financial Statements -
(Unaudited) 6
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7-9
Part II - Other Information:
Item 4. Submission of Matters to a Vote
of Shareholders 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
2
<PAGE>
TOFUTTI BRANDS INC.
Condensed Balance Sheets
(000's omitted)
<TABLE>
<CAPTION>
March 28, December 27,
1998 1997
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 109 $ 54
Accounts receivable (net of allowance
for doubtful accounts of $473
in 1998 and $458 in 1997) 960 919
Inventories (Note 2) 688 541
Prepaid expenses -- 7
Deferred income taxes 268 276
---- ----
Total current assets 2,025 1,797
Deferred income taxes 182 174
Other assets 97 97
----- -----
Total assets $2,304 $2,068
===== =====
Liabilities and Stockholders' Equity
Current liabilities:
Note payable - current portion $ 18 $ 17
Accounts payable 310 94
Accrued expenses 116 194
Income taxes payable 20 14
--- ---
Total current liabilities 464 319
Note payable 44 49
----- -----
Total liabilities 508 368
Stockholders' equity:
Preferred stock -- --
Common stock 62 62
Paid-in capital 3,631 3,631
Accumulated deficit (1,897) (1,993)
------ ------
Total stockholders' equity 1,796 1,700
------ ------
Total liabilities and
stockholders' equity $2,304 $2,068
===== =====
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
TOFUTTI BRANDS INC.
Condensed Statement of Operations
(Unaudited)
(000's omitted)
<TABLE>
<CAPTION>
Thirteen Thirteen
weeks weeks
ended ended
March 28, 1998 March 29, 1997
-------------- --------------
<S> <C> <C>
Net sales $ 1,751 $ 1,524
Cost of sales 1,070 972
----- -----
Gross profit 681 552
----- -----
Operating expenses:
Selling 224 173
Marketing and sales promotion 64 44
Research and development 82 58
General and administrative 202 170
----- -----
572 445
----- -----
Operating income 109 107
Interest expense 4 4
----- -----
Income before income
taxes 105 103
Income taxes 9 --
----- -----
Net income $ 96 $ 103
===== =====
Net income per share:
Basic $ .02 $ .02
Diluted $ .01 $ .02
Weighted average number of shares outstanding:
Basic 6,184 6,054
Diluted 6,682 6,056
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE>
TOFUTTI BRANDS INC.
Condensed Statements of Cash Flows
(Unaudited)
(000's omitted)
<TABLE>
<CAPTION>
Thirteen Thirteen
weeks weeks
ended ended
March 28,1998 March 29,1997
------------- -------------
<S> <C> <C>
Cash flows from operating
activities, net $ 55 $ 85
Cash flows from investing activities -- --
Cash flows from financing activities -- --
---- ----
Net increase in cash 55 85
Cash at beginning of period 54 11
---- ----
Cash at end of period $ 109 $ 96
=== ====
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4 $ 4
Taxes 1 --
</TABLE>
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 27, 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 week period
ended March 28, 1998 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 March 27, 1998 presentation.
(2) Inventories
The composition of inventories is as follows:
March 28, Dec. 27,
1998 1997
---- ----
Raw materials and packaging
supplies $ 216 $ 199
Finished goods 472 342
----- ----
$ 688 $ 541
===== ====
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 March 28, 1998 Compared with Thirteen Weeks Ended March 29,
1997
Net sales for the thirteen weeks ended March 28, 1998 were $1,751,000 an
increase of $227,000 or 15% from the sales level realized for the thirteen weeks
ended March 29, 1997. In the 1998 period sales of hard pack Tofutti increased by
$169,000, while food products sales increased by $58,000. As a result of the
increase in sales, the Company's gross profit in the current period increased by
$129,000. The Company's gross profit percentage increased from 36% in the 1997
period to 39% for the current period. The increase in gross profit percentage
was principally
7
<PAGE>
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.
The Company anticipates a continuing increase in sales during the second and
third quarters of the current fiscal year due to the introduction of new
products and expanded distribution. Such increase is dependent upon market
acceptance of these products, for which no assurance can be given.
Selling expenses increased 30% to $224,000 for the current fiscal quarter
compared with $173,000 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
increased 45% to $64,000 in 1998 versus $44,000 in 1997 due primarily to an
increase in spending for artwork and plates for new product package designs and
an increase in point of sale materials.
Research and development costs, which consist principally of salary expenses,
increased 41% to $82,000 for the thirteen weeks ended March 28, 1998 compared to
$58,000 for the comparable period in 1997. This increase was due to the hiring
of an additional person 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.
General and administrative expenses increased to $202,000 for the current
quarter compared with $170,000 for the comparable period in 1997 due primarily
to an increase in salary and related payroll tax and fringe benefit expenses.
Liquidity and Capital Resources
At March 28, 1998, the Company's working capital was $1,561,000, an increase of
$83,000 from December 27, 1997. At the end of the thirteen week period, accounts
receivable increased by $41,000 from December 27, 1997 due to the higher sales
level. Inventories increased by $147,000 reflecting an increase in finished
goods inventory at outside warehouses, consistent with the Company's increased
sales level.
8
<PAGE>
The Company does not have any material capital commitments and contemplates no
material capital expenditures in the foreseeable 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.
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 ended December 26, 1998. This statement does not have
any effect on the results of operations or financial position of the Company.
9
<PAGE>
PART II - OTHER INFORMATION
TOFUTTI BRANDS INC.
Item 4. Submission of Matters to a Vote of Shareholders
None.
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.
10
<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: May 11, 1998
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-26-1998
<PERIOD-END> Mar-28-1998
<CASH> 109,000
<SECURITIES> 0
<RECEIVABLES> 1,433,000
<ALLOWANCES> 473,000
<INVENTORY> 688,000
<CURRENT-ASSETS> 2,025,000
<PP&E> 59,000
<DEPRECIATION> 59,000
<TOTAL-ASSETS> 2,304,000
<CURRENT-LIABILITIES> 464,000
<BONDS> 0
0
0
<COMMON> 62,000
<OTHER-SE> 1,734,000
<TOTAL-LIABILITY-AND-EQUITY> 2,304,000
<SALES> 1,751,000
<TOTAL-REVENUES> 1,751,000
<CGS> 1,070,000
<TOTAL-COSTS> 1,070,000
<OTHER-EXPENSES> 572,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,000
<INCOME-PRETAX> 105,000
<INCOME-TAX> 9,000
<INCOME-CONTINUING> 96,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 96,000
<EPS-PRIMARY> .02
<EPS-DILUTED> .01
</TABLE>
