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 1, 2000
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 12, 2000 the Issuer had 6,354,567 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:
Item 1. Condensed Balance Sheets - April 1, 2000
(Unaudited) and January 1, 2000 (Audited) 3
Condensed Statements of Income -
(Unaudited) - Thirteen Week Period
ended April 1, 2000 and Fourteen Week Period ended
April 3, 1999 4
Condensed Statements of Cash Flows -
(Unaudited) - Thirteen Week Period ended
April 1, 2000 and Fourteen Week Period
ended April 3, 1999 5
Notes to Condensed Financial Statements -
(Unaudited) 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-11
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
<PAGE>
TOFUTTI BRANDS INC.
Condensed Balance Sheets
(000's omitted)
<TABLE>
<CAPTION>
April 1, January 1,
2000 2000
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $1,752 $1,693
Accounts receivable (net of allowance
for doubtful accounts of $221 and $200, respectively) 1,423 831
Short-term investments 258 253
Inventories 687 566
Prepaid expenses 2 8
Deferred income taxes 177 180
----- -----
Total current assets 4,299 3,531
----- -----
Other assets:
Deferred income taxes 1 3
Other assets 140 141
--- ---
141 144
--- ---
Total assets $4,440 $3,675
====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Note payable $ 22 $ 22
Accounts payable and accrued expenses 714 129
Accrued compensation -- 200
Income taxes payable 228 122
--- -----
Total current liabilities 964 473
Note payable, less current maturities 2 8
-- --
Stockholders' equity:
Preferred stock -- --
Common stock 64 63
Additional paid-in capital 3,763 3,714
Accumulated deficit (353) (583)
---- -----
Total stockholders' equity 3,474 3,194
----- -----
Total liabilities and stockholders' equity $4,440 $3,675
====== ======
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
TOFUTTI BRANDS INC.
Condensed Statements of Income
(Unaudited)
(000's omitted)
Thirteen Fourteen
weeks weeks
ended ended
April 1, 2000 April 3, 1999
------------- -------------
Net sales $3,025 $2,663
Cost of sales 1,929 1,658
----- -----
Gross profit 1,096 1,005
----- -----
Operating expenses:
Selling 315 295
Marketing and sales promotion 44 37
Research and development 99 76
General and administrative 266 211
--- ---
724 619
--- ---
Operating income 372 386
Interest income (expense) 15 (2)
-- ---
Income before income taxes 387 384
Income taxes 157 155
--- ---
Net income $230 $229
==== ====
Weighted average number of shares
outstanding:
Basic 6,300 6,184
===== =====
Diluted 7,803 6,430
===== =====
Net income per share:
Basic $.04 $.04
==== ====
Diluted $.03 $.04
==== ====
See accompanying notes to condensed financial statements.
4
<PAGE>
TOFUTTI BRANDS INC.
Condensed Statements of Cash Flows
(Unaudited)
(000's omitted)
Thirteen Fourteen
weeks weeks
ended ended
April 1, 2000 April 3, 1999
------------- -------------
Cash flows from operating
activities, net $ 15 $436
Cash flows from investing activities -- --
Cash flows from financing activities, net 44 --
-- ----
Net change in cash 59 436
Cash and equivalents at beginning of period 1,693 407
----- ---
Cash and equivalents at end of period $1,752 $843
====== ====
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 2 $ 2
====== ====
Taxes $ 44 $ --
====== ====
See accompanying notes to condensed financial statements.
5
<PAGE>
TOFUTTI BRANDS INC.
Notes to Condensed Financial Statements
(Unaudited)
(000's omitted)
Note 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.
Note 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 January 1, 2000 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 April 1, 2000 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 was a fifty-three
week year which ended on January 1, 2000. The Company 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.
Note 3: Inventories
The composition of inventories is as follows:
April 1, January 1,
2000 2000
---- ----
Raw materials and packaging
supplies $216 $352
Finished goods 471 214
--- ---
$687 $566
==== ====
6
<PAGE>
TOFUTTI BRANDS INC.
Notes to Condensed Financial Statements (continued)
(Unaudited)
(000's omitted)
Note 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.
In previous years, our tax year ended on July 31st. Due to the timing
difference between the end of the fiscal and tax year, we had to make
estimates as to our state and federal tax liabilities in our quarterly and
year end reports. On March 7, 2000, the IRS approved a change of our tax
year to December 31. We filed a short year tax return for the period August
1, 1999 to January 1, 2000 on March 12, 2000, which resulted in a federal
tax due of $12,000 and a New Jersey state tax due of $56,000.
Note 5: Market Risk
We invest our excess cash in bank certificates of deposit, high rated money
market funds and repurchase agreements. The bank certificate of deposits
are usually for a term of not more than six months and never for more than
$100,000 per account.
Note 6: Earnings Per Share
Basic earnings per common share is computed using the weighted average
number of shares outstanding. Diluted earnings per common share is computed
using the weighted average number of shares outstanding adjusted for the
incremental shares attributed to stock options.
7
<PAGE>
TOFUTTI BRANDS INC.
Notes to Condensed Financial Statements (continued)
(Unaudited)
(000's omitted)
The following table sets forth the computation of basic and diluted
earnings per share:
Thirteen Weeks Fourteen Weeks
Ended Ended
April 1, 2000 April 3, 1999
------------- -------------
Numerator
Net income-basic............................ $230 $229
==== ====
Net income-diluted.......................... $230 $229
==== ====
Denominator
Denominator for basic earnings per share
Weighted average shares ................. 6,300 6,184
----- -----
Effect of dilutive securities
Stock options........................... 1,503 246
----- ----
Denominator for diluted earnings per share.. 7,803 6,430
----- -----
Earnings per share
Basic..................................... $0.04 $0.04
===== =====
Diluted................................... $0.03 $0.04
===== =====
8
<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 our financial position and operating results during
the periods included in the accompanying financial statements.
The discussion and analysis which follows in this Quarterly Report and in other
reports and documents and in oral statements made on our behalf by our
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 our current views with respect to future events and financial
results. These include statements regarding our earnings, projected growth and
forecasts, and similar matters which are not historical facts. We remind
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 our behalf should be considered in light of these
factors.
We have attempted to identify additional significant uncertainties and other
factors affecting forward-looking statements in Exhibit 99 ("Additional
Information Regarding Forward-Looking Statements") filed with our Annual Report
on Form 10-KSB for the fiscal year ended January 1, 2000 and incorporated by
reference to this Quarterly Report. We will provide copies of Exhibit 99 to
stockholders free of charge upon receipt of a written request submitted to our
Secretary c/o Tofutti Brands Inc., 50 Jackson Drive, Cranford, New Jersey 07016.
Stockholders may also obtain copies of Exhibit 99 for a nominal charge from the
Public Reference Section of the Securities and Exchange Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 or at the Commission's website:
http://www.sec.gov.
Results of Operations
Thirteen Weeks Ended April 1, 2000 Compared with Fourteen Weeks Ended April 3,
1999
- --------------------------------------------------------------------------------
Our fiscal year is usually the fifty-two week period which ends on the last
Saturday in December. The 1999 fiscal year was a fifty-three week period which
ended on January 1, 2000. The extra week
9
<PAGE>
in the 1999 fiscal year was included in the first quarter, resulting in a
fourteen week quarter, which ended on April 3, 1999.
Net sales for the thirteen weeks ended April 1, 2000 were $3,025,000 an increase
of $362,000 or 14% from the sales level realized for the fourteen weeks ended
April 3, 1999. In the thirteen weeks ended April 1, 2000, sales of hard pack
Tofutti increased by $271,000, while food products sales increased by $91,000.
As a result of the increase in sales, our gross profit in the current period
increased slightly by $91,000. Our gross profit percentage decreased slightly
from 38% in the 1999 period to 36% for the current period. This reduction in
gross profit percentage was caused by significant industry-wide price increases
in paper and plastic packaging, which increased our cost of goods sold. We
expect the cost of packaging to remain at their current high levels for the
foreseeable future.
We anticipate 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. In addition, beginning in the first quarter of 2000,
we have made a major commitment to obtain additional shelf space for our
products in large chain supermarkets. This will require that we spend additional
funds for additional introductory allowances for the placement of these
products. These costs will have a continuing negative impact on our gross profit
percentage as we expense these costs as incurred against sales and not over the
expected life of these authorizations.
Selling expenses increased 7% to $315,000 for the current fiscal quarter
compared with $295,000 for the comparable period in 1999. This increase was due
primarily to higher outside warehouse rental, freight and commission expenses
associated with the higher sales level in 2000. Freight expenses were
particularly impacted by the recent surge in fuel prices, which resulted in
freight carriers adding fuel surcharges to their bills. Marketing and sales
promotion increased 19% to $44,000 in 2000 compared to $37,000 in 1999 due
primarily to an increase in spending for artwork and plates for new product
package design.
Research and development costs, which consist principally of salary expenses,
increased to $99,000 for the thirteen weeks ended April 1, 2000 compared to
$76,000 for the comparable period in 1999. This increase was mainly attributable
to increased costs for lab supplies, equipment repairs and outside professional
fees related to additional Kosher supervision costs.
General and administrative expenses increased to $266,000 for the current
quarter compared with $211,000 for the comparable period in 1999 due primarily
to an increase in salary and related payroll tax and fringe benefit expenses,
professional fees and outside services.
Income Taxes
In previous years, our tax year ended on July 31st. Due to the timing difference
between the end of the fiscal and tax year, we had to make estimates as to our
state and federal tax liabilities in our
10
<PAGE>
quarterly and year end reports. On March 7, 2000, the IRS approved a change of
our tax year to December 31. We filed a short year tax return for the period
August 1, 1999 to January 1, 2000 on March 12, 2000, which resulted in a federal
tax due of $12,000 and a New Jersey state tax due of $56,000.
Liquidity and Capital Resources
At April 1, 2000, our working capital was $3,335,000, an increase of $277,000
from January 1, 2000. At the end of the thirteen week period, accounts
receivable increased by $592,000 from January 1, 2000 due to the higher sales
level in the first quarter of 2000 as compared to the first quarter of 1999.
Inventories increased by $121,000, reflecting the additional inventory required
to support the Company's higher level of sales and new products. Current
deferred income taxes decreased $3,000 due to the utilization of assets in the
current period. At April 1, 2000, accounts payable and accrued liability
increased by $585,000 to $714,000 reflecting the higher level of expenditures
associated with the sales and inventory increase during the first quarter of
2000. Income taxes payable increased $106,000, which was reflected by the
current provision of $152,000 less payments of $46,000.
We do not presently have any material capital commitments and contemplate no
material capital expenditures in the foreseeable future. We believe that we will
be able to fund our operations in 2000 from our current resources.
Inflation and Seasonality
We do not believe that our operating results have been materially affected by
inflation during the preceding two years. There can be no assurance, however,
that our operating results will not be affected by inflation in the future. Our
business is not subject to substantial seasonal variations.
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
99**** Additional Information Regarding Forward-Looking Statements
________________
* 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.
333-79567) filed May 28, 1999 and hereby incorporated by reference
thereto.
**** Filed as an exhibit to the Registrant's Form 10-KSB for the fiscal year
ended January 1, 2000 and hereby incorporated by reference thereto.
(b) Reports on Form 8-K:
None.
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 16, 2000
13
<PAGE>
EXHIBIT INDEX
Exhibit Page
- ------- ----
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
99**** Additional Information Regarding Forward-Looking Statements
__________
* 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.
333-79567) filed May 28, 1999 and hereby incorporated by reference
thereto.
**** Filed as an exhibit to the Registrant's Form 10-KSB for the fiscal year
ended January 1, 2000 and hereby incorporated by reference thereto.
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TOFUTTI
BRANDS INC.'S REPORT ON FORM 10-QSB FOR THE QUARTER ENDED APRIL 1, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-2000
<PERIOD-END> APR-01-2000
<CASH> 1,752,000
<SECURITIES> 258,000
<RECEIVABLES> 1,644,000
<ALLOWANCES> 221,000
<INVENTORY> 687,000
<CURRENT-ASSETS> 4,299,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,440,000
<CURRENT-LIABILITIES> 964,000
<BONDS> 0
0
0
<COMMON> 64,000
<OTHER-SE> 3,410,000
<TOTAL-LIABILITY-AND-EQUITY> 4,440,000
<SALES> 3,025,000
<TOTAL-REVENUES> 3,025,000
<CGS> 1,929,000
<TOTAL-COSTS> 1,929,000
<OTHER-EXPENSES> 724,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (15,000)
<INCOME-PRETAX> 387,000
<INCOME-TAX> 157,000
<INCOME-CONTINUING> 230,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 230,000
<EPS-BASIC> .04
<EPS-DILUTED> .03
</TABLE>
