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 30, 2002
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)
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(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
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APPLICABLE ONLY TO CORPORATE ISSUERS
As of May 7, 2002 the Issuer had 6,111,567 shares of Common Stock, par
value $.01, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
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TOFUTTI BRANDS INC.
INDEX
Page
----
Part I - Financial Information:
Item 1. Condensed Balance Sheets - March 30, 2002
(Unaudited) and December 29, 2001 (Audited) 3
Condensed Statements of Income -
(Unaudited) - Thirteen Week Periods ended
March 30, 2002 and March 31, 2001 4
Condensed Statements of Cash Flows -
(Unaudited) - Thirteen Week Periods ended March 30, 2002
and March 31, 2001 5
Notes to Condensed Financial Statements -
(Unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
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)
March 30, December 29,
2002 2001
(Unaudited) (Audited)
----------- ---------
Assets
Current assets:
Cash and equivalents $2,081 $2,329
Accounts receivable (net of allowance
for doubtful accounts of $343 and $325,
respectively) 1,671 1,461
Inventories 741 816
Prepaid expenses 12 10
Prepaid income taxes 59 --
Deferred income taxes 315 478
--- ---
Total current assets 4,879 5,094
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Other assets 209 325
--- ---
Total assets $5,088 $5,419
====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $571 $155
Accrued compensation -- 375
Income taxes payable -- 187
--- ---
Total current liabilities 571 717
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock -- --
Common stock 61 61
Less: Treasury stock, at cost -- (38)
Additional paid-in capital 2,677 3,156
Accumulated earnings 1,779 1,523
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Total stockholders' equity 4,517 4,702
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Total liabilities and stockholders' equity $5,088 $5,419
====== ======
See accompanying notes to condensed financial statements.
3
TOFUTTI BRANDS, INC.
Condensed Statements of Income
(Unaudited)
(000's omitted)
Thirteen Thirteen
weeks weeks
ended ended
March 30, 2002 March 31, 2001
--------------- --------------
Net sales $3,713 $3,418
Cost of sales 2,373 2,132
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Gross profit 1,340 1,286
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Operating expenses:
Selling 407 392
Marketing 88 90
Research and development 116 127
General and administrative 311 298
--- ---
922 907
--- ---
Operating income 418 379
Interest income 7 29
--- ---
Income before income taxes 425 408
Income taxes 169 161
--- ---
Net income $256 $247
==== ====
Weighted average number of shares
outstanding:
Basic 6,060 6,218
===== =====
Diluted 6,920 7,405
===== =====
Net income per share:
Basic $0.04 $0.04
===== =====
Diluted $0.04 $0.03
===== =====
See accompanying notes to condensed financial statements.
4
TOFUTTI BRANDS INC.
Condensed Statements of Cash Flows
(Unaudited)
(000's omitted)
Thirteen Thirteen
weeks weeks
ended ended
March 30, 2002 March 31, 2001
-------------- --------------
Cash flows from operating activities, net $ 77 $ (638)
Cash flows from investing activities 116 --
Cash flows from financing activities, net (441) (115)
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Net change in cash and equivalents (248) (753)
Cash and equivalents at beginning of period 2,329 2,211
----- -----
Cash and equivalents at end of period $2,081 $1,458
====== ======
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ -- $ --
==== ====
Taxes $252 $150
==== ====
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 29, 2001 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 30, 2002 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 31st.
Note 3: Inventories
The composition of inventories is as follows:
March 30, December 29,
2002 2001
---- ----
Finished products $409 $537
Raw materials and packaging 332 279
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$741 $816
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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, should there be any, 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 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
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 Thirteen Weeks
Ended Ended
March 30, 2002 March 31, 2001
-------------- --------------
Numerator
Net income-basic........................... $256 $247
==== ====
Net income-diluted......................... $256 $247
==== ====
Denominator
Denominator for basic earnings per share
Weighted average shares ................ 6,060 6,218
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Effect of dilutive securities
Stock options........................... 860 1,187
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Denominator for diluted earnings per share. 6,920 7,405
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Earnings per share
Basic.................................... $0.04 $0.04
===== =====
Diluted.................................. $0.04 $0.03
===== =====
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 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 the "Risk Factors" contained in
our Annual Report on Form 10-KSB for the fiscal year ended December 29, 2001. We
will provide copies of our Form 10-KSB 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 the Form 10-KSB 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 March 30, 2002 Compared with Thirteen Weeks Ended
March 31, 2001
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Net sales for the thirteen weeks ended March 30, 2002 were $3,713,000 an
increase of $295,000 or 9% from the sales level realized for the thirteen weeks
ended March 31, 2001. In the thirteen weeks ended March 30, 2002, sales of hard
pack Tofutti increased by $200,000, while food products sales increased by
$95,000. As a result of the increase in sales, our gross profit in the current
period
9
increased by $54,000. Our gross profit percentage decreased slightly from 38% in
the 2001 period to 36% for the current period.
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, we are continuing to make 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 continued to
be adversely 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.
Selling expenses increased 4% to $407,000 for the current fiscal quarter
compared with $392,000 for the comparable period in 2001. This increase in the
2002 period was due primarily to higher freight and commission expenses
generated by the higher level of sales.
Research and development costs, which consist principally of salary expenses,
decreased to $116,000 for the thirteen weeks ended March 30, 2002 compared to
$127,000 for the comparable period in 2001. This decrease was mainly
attributable to decreased costs for payroll, lab supplies, equipment repairs and
outside professional fees.
General and administrative expenses increased slightly to $311,000 for the
current quarter compared with $298,000 for the comparable period in 2001 due
primarily to an increase in salary and related payroll tax and fringe benefit
expenses, professional fees and outside services.
Interest income was $7,000 for the current fiscal quarter as compared with
$29,000 for the comparable period in 2001. The decrease was primarily
attributable to lower prevailing interest rates in 2002.
Liquidity and Capital Resources
As of March 30, 2002, we had approximately $2.1 million in cash and equivalents
and our working capital was approximately $4.3 million.
Net cash provided by operating activities was approximately $77,000 for the
three months ended March 30, 2002. This amount was primarily attributable to a
$75,000 decrease in inventories, a $163,000 decrease in deferred income tax and
a $416,000 increase in accounts payable and accrued expenses. These increases in
cash provided by operating activities were offset in part by an increase
10
in accounts receivable of $210,000, a decrease in income taxes payable of
$187,000 and the payment of accrued compensation of $375,000.
The decrease in inventories for the three months ended March 30, 2002 was
primarily due to our efforts to manage our inventory by increased inventory
turns. The increase in accounts receivable at March 30, 2002 was primarily the
result of greater sales recorded at the end of the first quarter of 2002
compared to the end of fiscal year 2001.
Net cash provided by investing activities of $116,000 represents repayment of a
stockholder loan.
Net cash used in financing activities was $441,000 for the three months ended
March 30, 2002, which funds were primarily used for option and stock
repurchases.
On September 18, 2000, our Board of Directors authorized a repurchase of 250,000
shares of our common stock at prevailing market prices. During fiscal 2000 we
repurchased 122,400 shares of common stock at a total cost of $247,000. On May
21, 2001, our Board of Directors authorized the repurchase of up to an
additional 250,000 shares of common stock. During 2001 we purchased an
additional 204,000 shares for $436,000. From December 30, 2001 through March 30,
2002 we purchased an additional 56,600 shares at a cost of $120,000, bringing
our total purchases to 383,000 shares at a total cost of $802,000 or $2.09 per
share.
In view of the strong financial condition of the company, our Board of Directors
on February 26, 2002 authorized us to enter into a transaction with David Mintz
whereby Mr. Mintz surrendered 480,000 of his options in consideration of the
payment to him of $350,000, an amount equal to the difference of 75% of the
closing market price of our common stock on that date ($2.09) less the exercise
price of such options.
Our capital requirements are dependent on many factors, including market
acceptance of our products, as well as our marketing and sales activities. We
anticipate that our cash resources will be used primarily to fund our operating
activities, as well as for stock repurchases. 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 2002 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.
11
Market Risk
We invest our excess cash, should there be any, 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
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
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* 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.
(b) Reports on Form 8-K:
None.
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
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David Mintz
President
/s/Steven Kass
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Steven Kass
Chief Financial Officer
Date: May 14, 2002
14