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 September 30, 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
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(State of Incorporation) (I.R.S. Employer
Identification No.)
50 Jackson Drive, Cranford, New Jersey 07016
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(Address of Principal Executive Offices)
(908) 272-2400
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(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 November 13, 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
--- ---
TOFUTTI BRANDS INC.
INDEX
Page
Part I - Financial Information:
Item 1. Condensed Balance Sheets - September 30, 2000
(Unaudited) and January 1, 2000 (Audited) 3
Condensed Statements of Income -
(Unaudited) - Thirteen and Thirty-nine
week periods ended September 30, 2000 and
Thirteen and Forty week periods ended October 2, 1999 4
Condensed Statements of Cash Flows -
(Unaudited) - Thirty-nine week period
ended September 30, 2000 and
Forty week period ended October 2, 1999 5
Notes to Condensed Financial Statements -
(Unaudited) 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-12
Part II - Other Information:
Item 4. Submission of Matters to a Vote of Shareholders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
TOFUTTI BRANDS INC.
Condensed Balance Sheets
(000's omitted)
September 30, January 1,
2000 2000
----------- ---------
(Unaudited) (Audited)
Assets
Current assets:
Cash and cash equivalents $2,004 $1,693
Accounts receivable (net of allowance for doubtful
accounts of $253 and $200, respectively) 1,464 831
Short-term investments 265 253
Inventories 928 566
Prepaid expenses 6 8
Deferred income taxes 272 180
----- -----
Total current assets 4,939 3,531
----- -----
Other Assets:
Deferred income taxes $ -- $ 3
Other assets 140 141
----- -----
140 144
----- -----
Total assets $5,079 $3,675
===== =====
Liabilities and Stockholders' Equity
Current liabilities:
Note payable $ 13 $ 22
Accounts payable and accrued expenses 547 129
Accrued compensation -- 200
Income taxes payable 429 122
----- -----
Total current liabilities 989 473
Note payable, less current maturities -- 8
----- -----
Stockholders' equity:
Preferred stock -- --
Common stock 64 63
Additional paid-in capital 3,763 3,714
Accumulated profit (deficit) 313 (583)
Less: Treasury stock, 23,600 shares (50) --
----- -----
Total stockholders' equity 4,090 3,194
----- -----
Total liabilities and stockholders' equity $5,079 $3,675
===== =====
See accompanying notes to condensed financial statements.
3
TOFUTTI BRANDS INC.
Condensed Statements of Income
(Unaudited)
(000's omitted)
Thirteen weeks Thirteen Thirty-nine Forty
ended weeks ended weeks ended weeks ended
Sept. 30, 2000 Oct. 2, 1999 Sept. 30, 2000 Oct. 2, 1999
-------------- ------------ --------------- -------------
Net sales $3,603 $3,252 $10,474 $9,326
Cost of sales 2,226 2,029 6,517 5,945
----- ----- ----- -----
Gross profit 1,377 1,223 3,957 3,381
----- ----- ----- -----
Operating expenses:
Selling 446 358 1,228 1,020
Marketing 60 42 193 146
Research and development 92 99 299 269
General and administrative 232 215 791 699
--- ---- --- ------
830 714 2,511 2,134
--- --- ----- -----
Operating income 547 509 1,446 1,247
Interest income (expense) 26 4 57 --
--- ---- ------- -----
Income before income taxes 573 513 1,503 1,247
Income taxes 239 203 607 497
--- ---- --- ----
Net income $334 $310 $896 $750
==== ==== ==== ====
Weighted average common
shares outstanding:
Basic 6,355 6,296 6,333 6,228
===== ===== ===== =====
Diluted 7,596 7,738 7,703 7,378
===== ===== ===== =====
Net income per share:
Basic $0.05 $0.05 $0.14 $0.12
===== ===== ===== =====
Diluted $0.04 $0.04 $0.12 $0.10
===== ===== ===== =====
See accompanying notes to condensed financial statements.
4
TOFUTTI BRANDS INC.
Condensed Statements of Cash Flows
(Unaudited)
(000's omitted)
Thirty-nine Forty
weeks weeks
ended ended
Sept. 30, 2000 Oct. 2, 1999
-------------- ------------
Cash flows from operating
activities, net $ 328 $ 996
Cash flows from financing activities (17) 5
--- ---
Net change in cash and
cash equivalents 311 1,001
Cash and cash equivalents,
at beginning of period 1,693 407
----- ----
Cash and cash equivalents,
at end of period $2,004 $1,408
====== ======
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 2 $ 4
==== ====
Income taxes $389 $ --
==== ====
See accompanying notes to condensed financial statements.
5
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 fifty-three weeks 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 thirty-nine
week period ended September 30, 2000 are not necessarily indicative of
the results to be expected for the full year.
The Company's fiscal year is generally 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:
September 30, January 1,
2000 2000
--------------- ----------
Raw materials and packaging
supplies $385 $352
Finished goods 543 214
--- ----
$928 $566
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6
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 were
required 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 of $12 and a New
Jersey state tax of $56.
Note 5: Market Risk
We invest our excess cash in bank certificates of deposit, high rated
money market funds and repurchase agreements. The bank certificates of
deposit are usually for a term of not more than six months nor more
than $100 per account.
Note 6: 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 the
weighted average number of common shares outstanding, including the
dilutive effects of stock options.
Note 7: Treasury Stock
On September 19, 2000, the Board of Directors authorized a stock buy
back of up to 250,000 of the Company's shares of common stock from
time to time in open market transactions, subject to general market
conditions and the price of its common stock. At September 30, 2000,
the Company had bought back 23,600 shares at cost and held them in
treasury.
7
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 Thirteen Thirty-nine Forty
Weeks Weeks Weeks Weeks
Ended Ended Ended Ended
Sept. 30, 2000 Oct. 2, 1999 Sept. 30, 2000 Oct. 2, 1999
-------------- ------------ -------------- ------------
Numerator
Net income-basic............................. $334 $310 $896 $750
==== ==== ==== ====
Net income-diluted........................... $334 $310 $896 $750
==== ==== ==== ====
Denominator
Denominator for basic earnings per share
Weighted average shares ..................... 6,355 6,296 6,333 6,228
----- ----- ----- -----
Effect of dilutive securities
Stock options............................ 1,241 1,442 1,370 1,150
----- ----- ----- -----
Denominator for diluted earnings per
share.................................... 7,596 7,738 7,703 7,378
----- ----- ----- -----
Earnings per share
Basic...................................... $0.05 $0.05 $0.14 $0.12
===== ===== ===== =====
Diluted.................................... $0.04 $0.04 $0.12 $0.10
===== ===== ===== =====
8
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 condensed financial statements.
The discussion and analysis which follows in this quarterly report and in other
reports and documents and 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 in this quarterly report. We will provide copies of Exhibit 99 to
stockholders free of charge upon receipt of a written request submitted to the
Company's Secretary at 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 September 30, 2000 Compared with
Thirteen Weeks Ended October 2, 1999
- --------------------------------------------------------------------------------
Net sales for the thirteen weeks ended September 30, 2000 were $3,603,000, an
increase of $351,000, or 11%, from the sales level realized for the thirteen
weeks ended October 2, 1999. In
9
the 2000 period, sales of hard pack Tofutti increased by $90,000 while food
product sales increased by $261,000. As a result of the increase in sales, our
gross profit for the current quarter increased by $154,000 and our gross profit
percentage was the for the same as the period last year. Our gross profit
percentage was negatively impacted 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 its current high level for the
foreseeable future.
We anticipate a continuation in the trend of increased 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. During this fiscal year we have
made a major commitment to obtain additional shelf space for our products in
large chain supermarkets. This has caused us to spend additional funds for
additional introductory allowances for the placement of these products. These
continuing costs will have a negative impact on our gross profit percentage as
we expense these costs as incurred.
Selling expenses increased 25% to $446,000 for the current fiscal quarter
compared with $358,000 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
significantly impacted by the recent surge in fuel prices, which resulted in
freight carriers adding fuel surcharges to their bills. Marketing expenses
increased 43% to $60,000 in 2000 compared to $42,000 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,
decreased slightly to $92,000 for the thirteen weeks ended September 30, 2000
compared to $99,000 for the comparable period in 1999.
General and administrative expenses increased to $232,000 for the current
quarter compared with $215,000 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 tax expense increased by $36,000 to $239,000 for the period due to the
increased income for the period.
Thirty-nine Weeks Ended September 30, 2000 Compared with
Forty Weeks Ended October 2, 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 year which
ended on January 1, 2000. We 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 thirty-nine weeks ended September 30, 2000 were $10,474,000,
an increase of $1,148,000, or 12%, from the sales level realized for the forty
weeks ended October 2, 1999. In the
10
2000 period, sales of hard pack Tofutti increased by $568,000 while food product
sales increased by $580,000. As a result of the increase in sales, our gross
profit for the current period increased by $576,000 and our gross profit
percentage increased to 38% compared to 36% for the same period last year. Due
to the increased expenses associated with the introduction of new products, we
did not achieve our historical gross margins during this period and expect that
our gross margins during the remainder of 2000 will continue to be affected by
these introductory expenses. Additionally, our gross profit percentage was
negatively impacted by significant industry-wide price increases in paper and
plastic packaging, which increased our cost of goods sold.
Selling expenses increased 20% to $1,228,000 for the thirty-nine weeks ended
September 30, 2000 compared to $1,020,000 for the forty weeks ended October 2,
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 significantly impacted by the recent surge in fuel prices,
which resulted in freight carriers adding fuel surcharges to their bills.
Marketing expenses increased 32% to $193,000 in 2000 compared to $146,000 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 $299,000 for the thirty-nine weeks ended September 30, 2000
compared to $269,000 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 $791,000 for the current period
compared with $699,000 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 tax expense increased by $110,000 to $607,000 for the period due to the
increase in income for the period.
Liquidity and Capital Resources
At September 30, 2000, our working capital was $3,950,000, an increase of
$892,000 from January 1, 2000. At the end of the thirty-nine week period,
accounts receivable increased by $633,000 from January 1, 2000 due to the higher
sales level in the first nine months of 2000. Inventories increased by $362,000,
reflecting the additional inventory required to support the Company's higher
level of sales and new products. Current deferred income taxes increased $92,000
due to the increase in tax assets not deductible in the current period. At
September 30, 2000, accounts payable and accrued liabilities increased by
$418,000 to $547,000, reflecting the higher level of expenditures associated
with the sales and inventory increase during the first nine months of 2000.
Income taxes payable increased by $307,000, which is reflected in the current
provision of $695,000, less payments of $266,000.
11
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 for the next twelve months 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.
Stock Buy-Back
On September 19, 2000, we announced that we would buy back up to 250,000 shares
of our common stock from time to time in open market transactions, subject to
general market conditions and the price of our common stock. As of September 30,
2000, we had purchased 23,600 shares of our stock at cost, which are held in
Treasury. As of November 13, 2000, the number of shares that we have purchased
was 93,200.
12
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 (filed via EDGAR only).
99**** Additional Information Regarding Forward-Looking Statements.
(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 Registrant's Form S-8 (Registration No.
333-79567) 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.
13
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: November 14, 2000
14
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 (filed via EDGAR only).
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.