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 29, 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
-------- ----------
(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 August 2, 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
TOFUTTI BRANDS INC.
INDEX
Page
----
Part I - Financial Information:
Item 1. Condensed Balance Sheets - June 29, 2002
(Unaudited) and December 29, 2001 (Audited) 3
Condensed Statements of Income -
(Unaudited) - Thirteen and Twenty-six
week periods ended June 29, 2002 and June 30, 2001 4
Condensed Statements of Cash Flows -
(Unaudited) - Twenty-six week periods
ended June 29, 2002 and June 30, 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 14
Signatures 15
2
TOFUTTI BRANDS INC.
Condensed Balance Sheets
(000's omitted except for share data)
June 29, December 29,
2002 2001
(Unaudited) (Audited)
----------- ---------
Assets
Current assets:
Cash and equivalents $1,786 $2,329
Accounts receivable (net of allowance for doubtful
accounts of $363 and $325, respectively) 2,159 1,461
Inventories 703 816
Prepaid expenses 3 10
Prepaid income taxes 46 --
Deferred income taxes 337 478
---- ---
Total current assets 5,034 5,094
----- -----
Other assets 209 325
---- ---
Total assets $5,243 $5,419
====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $331 $155
Accrued compensation -- 375
Income taxes payable -- 187
---- ---
Total current liabilities 331 717
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock: par value $.01 per share; 100,000 -- --
shares authorized; none issued
Common stock: par value $.01 per share; 61 61
15,000,000 shares authorized; 6,111,567 and
6,091,267 shares issued and outstanding at June 29,
2002 and December 29, 2001, respectively
Less: Treasury stock, at cost -- (38)
Additional paid-in capital 2,698 3,156
Accumulated earnings 2,153 1,523
------ -----
Total stockholders' equity 4,912 4,702
------ ------
Total liabilities and stockholders' equity $5,243 $5,419
======= ======
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 29, 2002 June 30, 2001 June 29, 2002 June 29, 2001
------------- ------------- ------------- -------------
Net sales $5,111 $4,641 $8,824 $8,059
Cost of sales 3,246 3,168 5,799 5,300
----- ----- ----- -----
Gross profit 1,685 1,473 3,025 2,759
----- ----- ----- -----
Operating expenses:
Selling 530 480 937 872
Marketing 85 50 173 140
Research and development 84 128 200 255
General and administrative 346 288 657 586
--- --- --- ---
1,045 946 1,967 1,853
----- --- ----- -----
Operating income 640 527 1,058 906
Interest income 6 17 13 46
-- -- -- --
Income before income taxes 646 544 1,071 952
Income taxes 272 212 441 373
--- --- --- ---
Net income $374 $332 $630 $579
==== ==== ==== ====
Weighted average common shares
outstanding:
Basic 6,093 6,146 6,079 6,183
===== ===== ===== =====
Diluted 7,101 7,354 7,021 7,381
===== ===== ===== =====
Net income per share:
Basic $0.06 $0.06 $0.10 $0.09
===== ===== ===== =====
Diluted $0.05 $0.05 $0.09 $0.08
===== ===== ===== =====
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 29, 2002 June 30, 2001
------------- -------------
Cash flows from operating activities, net $ (239) $ (605)
Cash flows from investing activities 116 --
Cash flows from financing activities (420) (205)
---- -----
Net change in cash and equivalents (543) (810)
Cash and equivalents at beginning of period 2,329 2,211
----- -----
Cash and equivalents at end of period 1,786 1,401
===== =====
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Taxes $472 $550
==== ====
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 twenty-six week period
ended June 29, 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 31.
Note 3: Inventories
The composition of inventories is as follows:
June 29, 2002 December 29, 2001
------------- -----------------
Finished products $384 $537
Raw materials and packaging 319 279
--- ---
$703 $816
==== ====
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.
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 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 is computed by 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 Thirteen Twenty-six Twenty-six
Weeks Weeks Weeks Weeks
Ended Ended Ended Ended
June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001
------------- ------------- ------------- -------------
Numerator
Net income-basic . . . . . . . . . . . . . . $374 $332 $630 $579
==== ==== ==== ====
Net income-diluted . . . . . . . . . . . . . $374 $332 $630 $579
==== ==== ==== ====
Denominator
Denominator for basic earnings per share
Weighted average shares . . . . . . . .
6,093 6,146 6,079 6,183
----- ----- ----- -----
Effect of dilutive securities
Stock options . . . . . . . . . . . . .
1,008 1,208 942 1,198
----- ----- --- -----
Denominator for diluted earnings per share 7,101 7,354 7,021 7,381
----- ----- ----- -----
Earnings per share
Basic . . . . . . . . . . . . . . . . . $0.06 $0.06 $0.10 $0.09
===== ===== ===== =====
Diluted . . . . . . . . . . . . . . . . $0.05 $0.05 $0.09 $0.08
===== ===== ===== =====
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 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 at 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 June 29, 2002 Compared with
Thirteen Weeks Ended June 30, 2001
- --------------------------------------------------------------------------------
Net sales for the thirteen weeks ended June 29, 2002 increased by $470,000, or
10%, to $5,111,000, from the sales level realized for the thirteen weeks ended
June 30, 2001. In the 2002 period, sales of hard pack Tofutti increased by
$275,000 while food product sales increased by $195,000. Our gross profit for
the current quarter increased by $212,000 and our gross profit percentage
increased slightly to 33% compared to 32% for the same period last year.
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. 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
9
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 2002 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 10% to $530,000 for the current fiscal quarter
compared with $480,000 for the comparable period in 2001. This increase was due
primarily to higher outside warehouse rental, freight and commission expenses
associated with the higher sales level in 2002. Marketing expenses increased 70%
to $85,000 in 2002 compared to $50,000 in 2001 due primarily to an increase in
promotion expense. We believe that trade promotions are an effective way to help
market our products.
Research and development costs, which consist principally of salary expenses,
decreased to $84,000 for the thirteen weeks ended June 29, 2002 compared to
$128,000 for the comparable period in 2001. This decrease was mainly
attributable to decreased costs for payroll, which more than offset higher costs
for lab supplies, equipment repairs and outside professional fees related to
additional Kosher supervision costs.
General and administrative expenses increased to $346,000 for the current
quarter compared with $288,000 for the comparable period in 2001 due primarily
to an increase in payroll costs.
Interest income was $7,000 for the current fiscal quarter as compared with
$17,000 for the comparable period in 2001. The decrease was primarily
attributable to the lower level of funds available for investment in the current
period and lower prevailing interest rates.
Twenty-Six Weeks Ended June 29, 2002 Compared with
Twenty-Six Weeks Ended June 30, 2001
- --------------------------------------------------------------------------------
Net sales for the twenty-six weeks ended June 29, 2002 increased by $765,000, or
9%, to $8,824,000, from the sales level realized for the twenty-six weeks ended
June 30, 2001. In the 2002 period, sales of hard pack Tofutti increased by
$476,000 while food product sales increased by $281,000. As a result of the
increase in sales, our gross profit for the current period increased by
$266,000, and our gross profit percentage remained constant at 34%.
Cost of sales during the twenty-six weeks ended June 29, 2002 was adversely
impacted by significant industry-wide price increases in paper and plastic
packaging, which increased our cost of goods sold.
Selling expenses increased 7% to $937,000 for the twenty-six weeks ended June
29, 2002 compared to $872,000 for the twenty-six weeks ended June 30, 2001. This
increase was due primarily to higher outside warehouse rental, freight and
commission expenses associated with the higher sales level in 2002. Marketing
expenses increased to $173,000 in 2002 compared to
10
$140,000 in 2001 due primarily to an increase in promotion expense. We believe
that trade promotions are an effective way to help market our products.
Research and development costs, which consist principally of salary expenses,
decreased to $200,000 for the twenty-six weeks ended June 29, 2002 compared to
$255,000 for the comparable period in 2001. This decrease was mainly
attributable to decreased costs for payroll, which more than offset higher
costs for lab supplies, equipment repairs and outside professional fees related
to additional Kosher supervision costs.
General and administrative expenses increased to $657,000 for the current period
compared with $586,000 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 $13,000 for the current fiscal quarter as compared with
$46,000 for the comparable period in 2001. The decrease was primarily
attributable to the lower level of funds available for investment in the current
period and lower prevailing interest rates.
Income before income tax increased by $119,000 to $1,071,000 for the twenty-six
weeks ended June 29, 2002 compared to the twenty-six weeks ended June 30, 2001
resulting in an increase in income tax expense of $68,000.
Liquidity and Capital Resources
As of June 29, 2002, we had approximately $1.8 million in cash and equivalents
and our working capital was $4.7 million as compared to $2.3 million in cash and
equivalents and working capital of $4.4 million as of December 29, 2001.
Net cash used in operating activities was approximately $239,000 for the
twenty-six weeks ended June 29, 2002. This amount was primarily attributable to
a $176,000 increase in accounts payable and accrued expenses. The decrease in
cash provided by operating activities was exacerbated by a $698,000 increase in
accounts receivable and offset by a decrease in income taxes payable of $187,000
and accrued compensation of $375,000.
The decrease in inventories for the twenty-six weeks ended June 29, 2002 was
primarily due to our efforts to manage our inventory by increased inventory
turns. The increase in accounts receivable at June 29, 2002 was primarily the
result of increased sales.
Net cash provided by investing activities of $116,000 represents repayment of a
stockholder loan.
Net cash used in financing activities was $420,000 for the twenty-six weeks
ended June 29, 2002, which funds were primarily used for option and stock
repurchases.
On September 18, 2000, our Board of Directors authorized the 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.
11
From December 30, 2001 through June 29, 2002, we purchased an additional 63,600
shares at a cost of $138,000, bringing our total purchases to 390,000 shares at
a total cost of $829,000 or $2.11 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.
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
During the thirteen week period ended June 29, 2002, we held our
Annual Meeting of Shareholders.
At the meeting, held on May 30, 2002, 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 2003 Annual Meeting of
Shareholders.
For Against Abstained
--- ------- ---------
David Mintz 6,034,332 38,757 -
Aron Forem 6,034,182 38,907 -
Reuben Rapoport 6,034,433 38,757 -
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 2002.
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.
99.1 Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
99.2 Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
- ------------------
* 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 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 and Chief Executive Officer
/s/Steven Kass
--------------
Steven Kass
Chief Financial Officer
Date: August 13, 2002
15