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 April 3, 1999
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 13, 1999 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 - April 3, 1999
(Unaudited) and December 26, 1998 (Audited) 3
Condensed Statements of Operations -
(Unaudited) - Fourteen Week Period ended
April 3, 1999 and Thirteen Week Period
ended March 28, 1998 4
Condensed Statements of Cash Flows -
(Unaudited) - Fourteen Week Period
ended April 3, 1999 and Thirteen Week
Period ended March 28, 1998 5
Notes to Condensed Financial Statements -
(Unaudited) 6-7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-11
Part II - Other Information:
Item 4. Submission of Matters to a Vote
of Shareholders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
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TOFUTTI BRANDS INC.
Condensed Balance Sheets
(000's omitted)
April 3, December 26,
1999 1998
(Unaudited) (Audited)
----------- ---------
Assets
Current assets:
Cash and cash equivalents $ 843 $ 407
Accounts receivable (net of allowance
for doubtful accounts of $139
in 1999 and $120 in 1998) 1,139 985
Inventories (Note 2) 596 613
Prepaid expenses 10 13
Deferred income taxes 216 335
--- ---
Total current assets 2,804 2,353
Deferred income taxes 180 180
Other assets 119 119
---- ----
Total assets $3,103 $2,652
====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Note payable - current portion $ 20 $ 19
Accounts payable 282 85
Accrued expenses 236 240
Income taxes payable 52 19
--- -----
Total current liabilities 590 363
Note payable 24 29
----- ----
Total liabilities 614 392
Stockholders' equity:
Preferred stock -- --
Common stock 62 62
Paid-in capital 3,631 3,631
Accumulated deficit (1,204) (1,433)
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Total stockholders' equity 2,489 2,260
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Total liabilities and
stockholders' equity $3,103 $2,652
====== ======
See accompanying notes to condensed financial statements.
3
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TOFUTTI BRANDS INC.
Condensed Statement of Operations
(Unaudited)
(000's omitted)
Fourteen Thirteen
weeks weeks
ended ended
April 3, 1999 March 28, 1998
------------- --------------
Net sales $ 2,663 $1,751
Cost of sales 1,658 1,070
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Gross profit 1,005 681
----- -----
Operating expenses:
Selling 295 224
Marketing and sales promotion 37 64
Research and development 76 82
General and administrative 211 202
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619 572
---- ----
Operating income 386 109
Interest expense 2 4
--- ----
Income before income taxes 384 105
Income taxes 155 9
--- ----
Net income $ 229 $ 96
===== =====
Net income per share:
Basic $.04 $.02
Diluted $.04 $.01
Weighted average number of shares
outstanding:
Basic 6,184 6,184
Diluted 6,430 6,682
See accompanying notes to condensed financial statements.
4
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TOFUTTI BRANDS INC.
Condensed Statements of Cash Flows
(Unaudited)
(000's omitted)
Fourteen Thirteen
weeks weeks
ended ended
April 3,1999 March 28,1998
------------ -------------
Cash flows from operating
activities, net $436 $ 55
Cash flows from investing activities -- --
Cash flows from financing activities -- --
--- ----
Net increase in cash 55
Cash at beginning of period 407 54
--- --
Cash at end of period $843 $109
=== ===
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 2 $ 4
Taxes -- --
See accompanying notes to condensed financial statements.
5
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TOFUTTI BRANDS INC.
Notes to Condensed Financial Statements
(Unaudited)
(000's omitted)
(1) Description of Business
Tofutti Brands Inc. ("Tofutti" or the "Company") is engaged in one business
segment, the development, production and marketing of non-dairy frozen
desserts and other food products.
(2) 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 26, 1998 included
in the Company's Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission. The results of operations for the fourteen week period
ended April 3, 1999 are not necessarily indicative of the results to be
expected for the full year.
The Company's fiscal year is usually the fifty-two week period which ends
on the last Saturday in December. The 1999 fiscal year is a fifty-three
week year which ends on January 1, 2000. The Company has included the extra
week in the 1999 fiscal year in the first quarter, resulting in a fourteen
week quarter, which ended on April 3, 1999.
Certain reclassifications have been made to the December 26, 1998 balance
sheet to conform to the April 3, 1999 presentation.
6
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(3) Inventories
The composition of inventories is as follows:
April 3, Dec. 26,
1999 1998
---- ----
Raw materials and packaging
supplies $263 $382
Finished goods 333 231
--- ----
$596 $613
==== ====
(4) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carry forwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
7
<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. In addition, difficulties in
completing remediation of the year 2000 issues by the Company's customers or
suppliers may have a material adverse affect on the Company and its operations.
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
Fourteen Weeks Ended April 3, 1999 Compared with Thirteen Weeks Ended
March 28, 1998
The Company's fiscal year is usually the fifty-two week period which ends on the
last Saturday in December. The 1999 fiscal year is a fifty-three week year which
ends on January 1, 2000. The Company has included the extra week in the 1999
fiscal year in the first quarter, resulting in a fourteen week quarter, which
ended on April 3, 1999.
Net sales for the fourteen weeks ended April 3, 1999 were $2,663,000 an increase
of $912,000 or 52% from the sales level realized for the thirteen weeks ended
March 28, 1998. In the 1999 period, sales of hard pack Tofutti increased by
$551,000, while food products sales increased by $361,000. As a result of the
increase in sales, the Company's gross profit in the current period increased by
$324,000. The Company's gross profit percentage decreased slightly from 39% in
the 1998 period to 38% for the current period. This reduction in gross profit
percentage was
8
<PAGE>
caused by the sales promotion and allowance costs associated with the
introduction of the Company's new products in 1999.
The Company anticipates a continuing increase in sales for the balance 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 32% to $295,000 for the current fiscal quarter
compared with $224,000 for the comparable period in 1998. This increase was due
primarily to higher outside warehouse rental, freight and commission expenses
associated with the higher sales level in 1999. Marketing and sales promotion
decreased 42% to $37,000 in 1999 versus $64,000 in 1998 due primarily to a
decrease in spending for artwork and plates for new product package designs and
point of sale materials.
Research and development costs, which consist principally of salary expenses,
decreased slightly to $76,000 for the fourteen weeks ended April 3, 1999
compared to $82,000 for the comparable period in 1998.
General and administrative expenses increased slightly to $211,000 for the
current quarter compared with $202,000 for the comparable period in 1998 due
primarily to a slight increase in salary and related payroll tax and fringe
benefit expenses.
Income Taxes
The Company's tax year ends on July 31st, its former fiscal year. Due to the
timing difference between the end of the fiscal and tax year, the Company, on
its quarterly and year end reports, must make estimates as to its state and
federal tax liabilities.
Beginning in 1999, to the extent the Company generates future income for
financial reporting purposes, the Company will be required to provide federal
and state tax expense. Although the Company will begin paying state income taxes
in 1999, the Company will not be required to pay federal income tax until such
time as it utilizes its remaining federal net operating loss carryforwards and
tax credits.
Income tax expense for the fourteen week period ended April 3, 1999 was $155,000
compared to $9,000 for the comparable period in 1998.
Liquidity and Capital Resources
At April 3, 1999, the Company's working capital was $2,214,000, an increase of
$224,000 from December 26, 1998. At the end of the fourteen week period,
accounts receivable increased by $154,000 from December 26, 1998 due to the
higher sales level. Inventories and prepaid expenses decreased by $17,000 and
$3,000, respectively. Current deferred income taxes
9
<PAGE>
decreased by $119,000 reflecting the provision for federal income tax expense in
the first quarter. At April 3, 1999, accounts payable increased by $197,000 to
$282,000 reflecting the higher level of expenditures associated with the sales
increase during the first quarter of 1999. Accrued expenses decreased slightly
from $240,000 at December 26, 1998 to $236,000 at April 3, 1999. Income taxes
payable were $52,000 at April 3, 1999, an increase of $33,000, which reflects
the provision for state income tax expense in the first quarter of 1999.
The Company does not presently have any material capital commitments and
contemplates no material capital expenditures in the foreseeable future. The
Company believes it will be able to fund its operations in 1999 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 for the
remainder of 1999 continue in a manner consistent with its results for the first
quarter of 1999, it will have sufficient financial resources to continue its
operations throughout the coming year.
The Year 2000 Issue
The Company has completed a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 ("Y2K") issue.
Substantially all of the Company's manufacturing is performed by third-party
co-packers, and the Company's financial systems are PC-based purchased software.
The Company is in the process of replacing its existing financial systems with
Y2K compliant software and expects the conversion to be completed by June 1999.
Consequently, management presently believes that due to the lack of date
sensitive computer systems and applications currently in use, the Y2K issue will
not pose significant operational problems for the Company's computer systems.
Therefore, the Company to date has not nor does it expect to develop any
contingency plans relating to the Y2K issue. Costs of addressing the Y2K issue
have not been material to date and, based on information gathered to date from
the Company and its vendors, are not currently expected to have a material
adverse impact on the Company's financial position, results of operations or
cash flows.
In addition, the Company has contacted its major suppliers and vendors seeking
information about their internal compliance efforts. Upon review, the Company
believes that most of its major suppliers and co-packers will be Y2K compliant
and any non-compliance by its suppliers and co-packers will not have a
significant adverse effect upon the Company's operations.
The Company is in the process of developing business contingency plans to
mitigate the risk of a potential non-compliant vendor or system. The Company
will continue to assess its exposure to Y2K problems or possible disruptions.
Based upon the information it has developed to date, management believes that no
disruptions will occur in the Company's operations. However, the Company is
subject to risks should the Company or a third party vendor or service provider
be unable to resolve issues related to the Y2K.
10
<PAGE>
Other Matters
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about
Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131
establishes standards for the way public business enterprises report information
about operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in financial
reports issued to shareholders. It also establishes standards for disclosures
about products and services, geographic areas and major customers. SFAS 131 is
effective for financial statements for fiscal years beginning after December 15,
1997. Financial statement disclosures for prior periods are required to be
restated. The adoption of SFAS 131 has had no impact on the Company's results of
operations, financial position or cash flows. The Company operates in one
business segment, the development, production and marketing of TOFUTTI brand
non-dairy frozen desserts and other food products. Management does not receive,
nor does the Company generate, discrete financial operating results for any
portion of the business other than for product sales.
11
<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 Registrant's Amended 1993 Stock Option Plan
27 Financial Data Schedule
(b) Reports on Form 8-K:
On April 28, 1999, the Registrant filed with the Securities and
Exchange Commission a Form 8-K, dated April 26, 1999, reporting a
change in certifying accountant. On April 30, 1999, the Registrant
filed Amendment No. 1 to Form 8-K, dated April 26, 1999, reporting a
change in certifying accountant.
________________
* 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 Registrant's Form S-8 (Registration No.
333-48605) filed March 25, 1998 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: May 14, 1999
13
<PAGE>
EXHIBIT INDEX
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 of the Registrant.
4.1*** Copy of the Registrant's Amended 1993 Stock Option Plan.
27 Financial Data Schedule
______________
* 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 Registrant's Form S-8 (Registration No.
333-48605) filed March 25, 1998 and hereby incorporated by reference
thereto.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TOFUTTI
BRANDS INC.'S REPORT ON FORM 10-QSB FOR THE QUARTER ENDED APRIL 3, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> APR-03-1999
<CASH> 843,000
<SECURITIES> 0
<RECEIVABLES> 1,278,000
<ALLOWANCES> 139,000
<INVENTORY> 596,000
<CURRENT-ASSETS> 2,804,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,103,000
<CURRENT-LIABILITIES> 590,000
<BONDS> 0
0
0
<COMMON> 62,000
<OTHER-SE> 2,427,000
<TOTAL-LIABILITY-AND-EQUITY> 3,103,000
<SALES> 2,663,000
<TOTAL-REVENUES> 2,663,000
<CGS> 1,658,000
<TOTAL-COSTS> 1,658,000
<OTHER-EXPENSES> 619,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,000
<INCOME-PRETAX> 384,000
<INCOME-TAX> 155,000
<INCOME-CONTINUING> 229,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 229,000
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
