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 30, 2001
___ 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
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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 August 8, 2001 the Issuer had 6,135,667 shares of Common Stock, par
value $.01, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes __ No X
TOFUTTI BRANDS INC.
INDEX
Page
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Part I - Financial Information:
Item 1. Condensed Balance Sheets - June 30, 2001
(Unaudited) and December 30, 2000 (Audited) 3
Condensed Statements of Income -
(Unaudited) - Thirteen and Twenty-six
week periods ended June 30, 2001 and
July 1, 2000 4
Condensed Statements of Cash Flows -
(Unaudited) - Twenty-six week periods
ended June 30, 2001 and
July 1, 2000 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 14
Signatures 15
2
TOFUTTI BRANDS INC.
Condensed Balance Sheets
(000's omitted)
June 30, 2001 December 30, 2000
------------- -----------------
(Unaudited) (Audited)
Assets
Current assets:
Cash and equivalents $1,401 $2,211
Short-term investments 219 269
Accounts receivable (net of allowance for doubtful
accounts of $301 and $270, respectively) 2,083 876
Inventories 864 908
Prepaid expenses 3 9
Deferred income taxes 237 359
--- ---
Total current assets 4,807 4,632
----- -----
Other assets 181 181
--- ---
Total assets $4,988 $4,813
====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Note payable $ -- $ 8
Accounts payable and accrued expenses 621 146
Accrued compensation -- 375
Income taxes payable 32 331
--- ---
Total current liabilities 653 860
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock -- --
Common stock 61 64
Less: Treasury stock, at cost -- (247)
Additional paid-in capital 3,322 3,763
Accumulated earnings 952 373
--- ---
Total stockholders' equity 4,335 3,953
----- -----
Total liabilities and stockholders' equity $4,988 $4,813
====== ======
See accompanying notes to condensed financial statements.
3
TOFUTTI BRANDS INC.
Condensed Statements of Income
(Unaudited)
(000's omitted)
Thirteen Thirteen Twenty-six Twenty-six
weeks ended weeks ended weeks ended weeks ended
June 30, 2001 July 1, 2000 June 30, 2001 July 1, 2000
------------- ------------ ------------- ------------
Net sales $4,641 $3,847 $8,059 $6,872
Cost of sales 3,168 2,363 5,300 4,292
----- ----- ----- -----
Gross profit 1,473 1,484 2,759 2,580
----- ----- ----- -----
Operating expenses:
Selling 480 468 872 783
Marketing 50 90 140 134
Research and development 128 107 255 206
General and administrative 288 292 586 558
--- --- --- ---
946 957 1,853 1,681
--- --- ----- -----
Operating income 527 527 906 899
Interest income 17 16 46 31
-- -- -- --
Income before income taxes 544 543 952 930
Income taxes 212 211 373 368
--- --- --- ---
Net income $332 $332 $579 $562
==== ==== ==== ====
Weighted average common
shares outstanding:
Basic 6,146 6,341 6,183 6,323
===== ===== ===== =====
Diluted 7,354 7,833 7,381 7,751
===== ===== ===== =====
Net income per share:
Basic $0.06 $0.05 $0.09 $0.09
===== ===== ===== =====
Diluted $0.05 $0.04 $0.08 $0.07
===== ===== ===== =====
See accompanying notes to condensed financial statements.
4
TOFUTTI BRANDS INC.
Condensed Statements of Cash Flows
(Unaudited)
(000's omitted)
Twenty-six Twenty-six
weeks weeks
ended ended
June 30, 2001 July 1, 2000
------------- ------------
Cash flows from operating activities, net $(605) $(185)
Cash flows from financing activities (205) 39
---- ---
Net change in cash (810) (146)
Cash and equivalents at beginning of period 2,211 1,693
----- -----
Cash and equivalents at end of period 1,401 1,547
===== =====
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $-- $2
=== ==
Income taxes $550 $129
==== ====
Noncash financing activity:
The Company has retired 219 shares of its common stock
held in treasury, at a cost of $444 during the twenty-six
weeks ended June 30, 2001.
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 year ended December 30, 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 twenty-six week period
ended June 30, 2001 are not necessarily indicative of the results to
be expected for the full year.
The Company operates on a fiscal year which ends on the Saturday
closest to December 31.
Note 3: Inventories
The composition of inventories is as follows:
June 30, 2001 December 30, 2000
------------- -----------------
Finished products $555 $658
Raw materials and packaging 309 250
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$864 $908
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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.
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 net
income by the weighted average number of common shares outstanding
adjusted for the incremental shares attributed to stock options.
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 Twenty-six Twenty-six
Weeks Weeks Weeks Weeks
Ended Ended Ended Ended
June 30, 2001 July 1, 2000 June 30, 2001 July 1, 2000
------------- ------------ ------------- ------------
Numerator
Net income-basic . . . . . . . . . . . . . . $332 $332 $579 $562
==== ==== ==== ====
Net income-diluted . . . . . . . . . . . . . $332 $332 $579 $562
==== ==== ==== ====
Denominator
Denominator for basic earnings per share
Weighted average shares . . . . . . . . 6,146 6,341 6,183 6,323
----- ----- ----- -----
Effect of dilutive securities
Stock options . . . . . . . . . . . . . 1,208 1,492 1,198 1,428
----- ----- ----- -----
Denominator for diluted earnings per share 7,354 7,833 7,381 7,751
----- ----- ----- -----
Earnings per share
Basic . . . . . . . . . . . . . . . . . $0.06 $0.05 $0.09 $0.09
===== ===== ===== =====
Diluted . . . . . . . . . . . . . . . . $0.05 $0.04 $0.08 $0.07
===== ===== ===== =====
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 December 30, 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 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 June 30, 2001 Compared with Thirteen Weeks Ended
July 1, 2000
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Net sales for the thirteen weeks ended June 30, 2001 increased by $794,000, or
21%, to $4,641,000, from the sales level realized for the thirteen weeks ended
July 1, 2000. In the 2001 period, sales of hard pack Tofutti increased by
$517,000 while food product sales increased by $277,000. Our gross profit for
the current quarter decreased by $11,000 and our gross profit percentage
decreased to 32% compared to 39% for the same period last year. Our gross profit
was negatively impacted by two factors. First, we continued to absorb
significant industry-wide price increases in paper and plastic packaging, which
increased our cost of goods sold. The second factor was our recording as an
expense in the second quarter of certain new product
9
introduction allowances. These allowances had the effect of reducing our net
sales during the period.
We anticipate that our sales will continue to increase during the balance of the
current fiscal year on a comparative basis to last 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, we are making a major commitment to obtain additional shelf space for
our products in large chain supermarkets. This will require us to increase
spending 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. Additionally, our cost of sales during
the quarter was adversely impacted by significant industry-wide price increases
in paper and plastic packaging, which increased our cost of goods sold. We
expect that our operating expenses during the remainder of 2001 will continue to
be adversely affected by such costs and that these increased expenses will
offset most of the additional gross profit generated by the increase in sales.
We expect the cost of packaging to remain at its current high level for the
foreseeable future.
Selling expenses increased by 3% to $480,000 for the current fiscal quarter
compared with $468,000 for the comparable period in 2000. This increase was due
primarily to higher outside warehouse rental, freight and commission expenses
associated with the higher sales level in 2001. 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
decreased 44% to $50,000 in 2001 compared to $90,000 in 2000 due primarily to a
reduction in spending for artwork and plates for new product package design.
Research and development costs, which consist principally of salary expenses,
increased to $128,000 for the thirteen weeks ended June 30, 2001 compared to
$107,000 for the comparable period in 2000. This increase was mainly
attributable to increased costs for payroll, lab supplies, equipment repairs and
outside professional fees related to additional Kosher supervision costs.
General and administrative expenses decreased slightly to $288,000 for the
current quarter compared with $292,000 for the comparable period in 2000.
Interest income was $17,000 for the current fiscal quarter as compared with
$16,000 for the comparable period in 2000. The increase was primarily
attributable to the higher level of funds available for investment in the
current period, which was offset by lower interest rates.
Twenty-Six Weeks Ended June 30, 2001 Compared with Twenty-Six Weeks Ended
July 1, 2000
- --------------------------------------------------------------------------------
Net sales for the twenty-six weeks ended June 30, 2001 increased by $1,187,000,
or 17%, to $8,059,000, from the sales level realized for the twenty-six weeks
ended July 1, 2000. In the 2001 period, sales of hard pack Tofutti increased by
$568,000 while food product sales increased by $619,000. As a result of the
increase in sales, our gross profit for the current period increased by
$179,000, and our gross profit percentage decreased to 34% compared to 38% for
the same period last year. We did not achieve our historical gross margins
during this period due to the increased expenses associated with the
introduction of new products and the significant industry-wide price increases
in paper and plastic packaging, which increased our cost of goods sold.
10
Selling expenses increased 11% to $872,000 for the twenty-six weeks ended June
30, 2001 compared to $783,000 for the twenty-six weeks ended July 1, 2000. This
increase was due primarily to higher outside warehouse rental, freight and
commission expenses associated with the higher sales level in 2001. 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 slightly to $140,000 in 2001 compared to $134,000 in 2000 due
primarily to an increase in spending for artwork and plates for new product
package design and for coupon expense, due to an increased rate of coupon
redemption.
Research and development costs, which consist principally of salary expenses,
increased to $255,000 for the twenty-six weeks ended June 30, 2001 compared to
$206,000 for the comparable period in 2000. This increase was mainly
attributable to increased costs for payroll, lab supplies, equipment repairs and
outside professional fees related to additional Kosher supervision costs.
General and administrative expenses increased to $586,000 for the current period
compared with $558,000 for the comparable period in 2000 due primarily to an
increase in salary and related payroll tax and fringe benefit expenses,
professional fees and outside services.
Interest income was $46,000 for the current fiscal quarter as compared with
$31,000 for the comparable period in 2000. The increase was primarily
attributable to the higher level of funds available for investment in the
current period.
Income before income tax increased by $22,000 to $952,000 for the twenty-six
weeks ended June 30, 2001 compared to the twenty-six weeks ended July 1, 2000
resulting in an increase in income tax expense of $5,000.
Liquidity and Capital Resources
At June 30, 2001, our working capital was $4,154,000, an increase of $382,000
from December 30, 2000. Our cash and cash equivalents decreased to $1,401,000 at
June 30, 2001 from $2,211,000 at December 30, 2000, as a result of the use of
$810,000 during the 2001 period to support our higher level of operating
activities and to fund our continuing stock buy-back program. At the end of the
twenty-six week period, accounts receivable increased by $1,207,000 from
December 30, 2000 due to the higher sales level in the first six months of 2001
as compared to the first six months of 2000. Inventories and prepaid expenses
decreased by $44,000 and $6,000 respectively, compared to their balances at
December 30, 2000. Current deferred income taxes decreased $122,000 due to the
utilization of assets in the current period. At June 30, 2001, accounts payable
and accrued liability increased by $475,000 to $621,000 reflecting the higher
level of expenditures associated with the sales and inventory increases during
the first six months of 2001. Income taxes payable decreased $299,000, which
reflects a $146,000 payment towards the prior year's liability and the
prepayments towards this year's provision.
11
Our Board of Directors authorized a buy-back of 250,000 shares of common stock
in the fourth quarter of 2000 and authorized the repurchase of an additional
250,000 shares on May 30, 2001. As of June 30, 2001, 218,900 shares had been
repurchased. We expect the Board will reassess the buy-back program at the end
of this year.
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 2001 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 subject to seasonal variations with increased sales in the second
and third quarters of the fiscal year. We expect to continue to experience
relatively higher sales in the second and third quarters, and relatively lower
sales in the fourth and first quarters, as a result of reduced sales of
non-dairy frozen desserts during those periods.
Market Risk
We invest our excess cash in bank certificates of deposit and the highest rated
money market funds. 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.
12
PART II - OTHER INFORMATION
TOFUTTI BRANDS INC.
Item 4. Submission of Matters to a Vote of Shareholders
During the thirteen week period ended June 30, 2001, we held our
Annual Meeting of Shareholders.
At the meeting, held on May 24, 2001, our 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 2002 Annual Meeting of
Shareholders.
For Against Abstained
--- ------- ---------
David Mintz 6,034,332 38,757 -
Aron Forem 6,034,332 38,757 -
Reuben Rapoport 6,034,182 38,907 -
Franklyn Snitow 6,028,332 38,757 -
Jeremy Wiesen 6,028,332 38,757 -
2. The ratification of the appointment of Wiss & Company
LLP to examine the Company's accounts for 2001.
For Against Abstained
--- ------- ---------
6,073,089 30,550 4,589
13
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.
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 December 30, 2000 and hereby incorporated by reference thereto.
(b) Reports on Form 8-K filed during the last quarter of the period
covered by this report:
None.
14
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 14, 2001
15