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 28, 1997
__ 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.
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(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 ___
APPLICABLE ONLY TO CORPORATE ISSUERS
As of July 25, 1997 the Issuer had 6,053,567 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:
Condensed Balance Sheets - June 28, 1997
(Unaudited) and December 28, 1996 (Audited) 3
Condensed Statements of Operations -
(Unaudited) - Thirteen and twenty-six
week periods ended June 28, 1997 and
thirteen and twenty-six week periods ended
June 29, 1996 4
Condensed Statements of Cash Flows -
(Unaudited) - Twenty-six week period
ended June 28, 1997 and twenty-six week period
ended June 29, 1996 5
Notes to Condensed Financial Statements -
(Unaudited) 6
Management's Discussion and Analysis of
Financial Condition and Results of
Operation 7-10
Part II - Other Information:
Item 4. Submission of Matters to a Vote
of Shareholders 11
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
TOFUTTI BRANDS INC.
Condensed Balance Sheets
(000's omitted)
June 28, December 28,
1997 1996
(Unaudited) (Audited)
----------- ---------
Assets
Current assets:
Cash and cash equivalents $ 19 11
Accounts receivable (net of reserve of
$337 in 1997 and $295 in 1996) 1,269 977
Inventories (Note 2) 430 351
Prepaid expenses 10 10
----- -----
Total current assets 1,728 1,349
Deferred taxes 311 311
Other assets 76 76
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Total assets $2,115 1,736
===== =====
Liabilities and Stockholders' Equity
Current liabilities:
Legal settlement payable - current portion $ 16 15
Accounts payable 669 504
Accrued liabilities 122 115
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Total current liabilities 807 634
Long-term debt - legal settlement 57 66
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Total liabilities 864 700
Stockholders' equity:
Preferred stock - -
Common stock 61 61
Paid-in capital 3,503 3,503
Retained (deficit) (2,313) (2,528)
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Total stockholders' equity 1,251 1,036
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Total liabilities and stockholders'
equity $2,115 1,736
====== ======
See accompanying notes to condensed financial statements.
3
TOFUTTI BRANDS INC.
Condensed Statement of Operations
(Unaudited)
(000's omitted)
Thirteen Thirteen Twenty-Six Twenty-Six
weeks weeks weeks weeks
ended ended ended ended
6/28/97 6/29/96 6/28/97 6/29/96
------- ------- ------- -------
Net sales $2,013 1,679 3,537 2,774
Cost of sales 1,332 1,055 2,304 1,709
----- ------ ------ ------
Gross profit 681 624 1,233 1,065
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Operating expenses:
Selling 229 238 402 398
Marketing and sales promotion 51 73 95 115
Research and development 55 57 113 99
General and administrative 232 190 402 370
----- ------ ------ ------
567 558 1,012 982
----- ------ ------ ------
Operating income 114 66 221 83
Interest expense 1 3 5 7
----- ------ ------ ------
Income before income
tax expense 113 63 216 76
Income tax expense - - - 1
------ ------ ----- ------
Net income $ 113 63 216 75
Net income per share $ .02 .01 .04 .01
====== ====== ====== ======
Weighted average number of
shares outstanding 6,054 6,065 6,054 6,065
====== ====== ====== ======
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
6/28/97 6/29/96
------- -------
Cash flows from operating
activities, net $ 8 86
Cash flows from investing activities - -
Cash flows from financing activities - -
--- ---
Net increase in cash
and cash equivalents 8 86
Cash at beginning of period 11 12
--- ----
Cash at end of period $ 19 98
==== ====
Supplemental disclosures of cash flow
information: Cash paid during the period
for:
Interest $ 5 7
Income Taxes - 1
See accompanying notes to condensed financial statements.
5
TOFUTTI BRANDS INC.
Notes to Condensed Financial Statements
(Unaudited)
(000's omitted)
(1) 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 28, 1996 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 28, 1997 are not necessarily indicative of the results to
be expected for the full year.
(2) Inventories
The composition of inventories is as follows:
June 28, Dec. 28,
1997 1996
---- ----
Raw materials and packaging
supplies $ 147 262
Finished goods 283 89
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$ 430 351
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6
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 the Company's 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 of the Company and oral statements made on behalf of the
Company by its 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 the Company's current views with respect to
future events and financial results. These include statements regarding the
Company's earnings, projected growth and forecasts, and similar matters which
are not historical facts. The Company reminds 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 behalf
of the Company should be considered in light of these factors.
Results of Operations
Thirteen Weeks Ended June 28, 1997 Compared with Thirteen Weeks
Ended June 29, 1996
Net sales for the thirteen weeks ended June 28, 1997 were $2,013,000 an increase
of $334,000 or 20% from the sales level realized for the thirteen weeks ended
June 29, 1996. The Company's frozen dessert line (principally novelty items) and
food product line both showed increases during this period. The Company's gross
profit for the current quarter increased by $57,000, while its gross profit
percentage decreased to 34% compared to 37% for the same period last year. The
decrease in the gross profit percentage
7
was due to an increase in novelty and food product sales during the 1997 period.
The Company's gross profit on novelties and food products is less than on pints.
Also, the Company's gross profit percentage was adversely affected by the
introductory promotional costs associated with its new products.
The Company anticipates a continuing increase in sales during the third and
fourth quarters of the current fiscal year due to the introduction of new
products and expanded distribution. Such increases are dependent upon market
acceptance of these products, for which no assurance can be given. The Company
expects its gross profit percentage to continue to be adversely affected by the
introduction of its new products.
Selling expenses decreased slightly to $229,000 for the current fiscal quarter
compared with $238,000 for the comparable period in 1996. Marketing and sales
promotion decreased to $51,000 in the 1997 period from $73,000 in the 1996
period. The Company is not currently engaged in any major marketing programs.
Research and development costs decreased slightly to $55,000 for the thirteen
weeks ended June 28, 1997 compared to $57,000 for the comparable period last
year.
General and administrative expenses were $232,000 for the current period
compared with $190,000 for the comparable period in 1996, reflecting increased
professional fees and outside services, specifically increased Kosher
certification costs. These costs have risen substantially due to the engagement
of additional manufacturing facilities to make the Company's new products. These
facilities require increased inspection services.
The Company's imputed interest expense was $1,000 for the current fiscal quarter
compared to $3,000 last year.
Twenty-Six Weeks Ended June 28, 1997 Compared with Twenty-Six Weeks
Ended June 29, 1996
Net sales for the twenty-six weeks ended June 28, 1997 were $3,537,000, an
increase of $763,000, or 28% from the sales level realized for the twenty-six
weeks ended June 29, 1996. The Company's frozen dessert line (principally
novelty items) and food product line both showed increases during this period.
The Company's gross profit for the current period increased by $168,000, while
its gross profit percentage decreased to 35% as compared to 38% for the same
period last year. The decrease in the
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gross profit percentage was due to an increase in novelty and food product sales
during the 1997 period. The Company's gross profit on novelties and food
products is less than on pints. Also, the Company's gross profit percentage was
adversely affected by the introductory promotional costs associated with its new
products.
Selling expenses remained constant at $402,000 for the current fiscal period
compared with $398,000 for the comparable period last year. Marketing and sales
promotion expenses decreased to $95,000 from $115,000 in 1996. The Company is
not currently engaged in any major marketing programs.
Research and development expenses were $113,000 for the twenty-six weeks ended
June 28, 1997, compared with $99,000 for the comparable period last year,
reflecting an increase in related research and development costs incurred in the
development of the Company's new products.
General and administrative expenses were $402,000 for the current period
compared with $370,000 for the comparable period in 1996, the bulk of the
increase was incurred in the second quarter due to higher professional fees and
outside service expenses.
The Company's imputed interest expense was $5,000 for the twenty-six weeks ended
June 28, 1997 compared with $7,000 for the twenty-six weeks ended June 29, 1996.
Liquidity and Capital Resources
The Company's working capital was $921,000 at June 28, 1997, an increase of
$206,000 from December 28, 1996. Accounts receivable increased to $1,269,000 at
June 28, 1997, an increase of $292,000 from December 28, 1996, reflecting the
significantly higher sales level. Inventories increased by $79,000 due
principally to an increase in finished goods inventory, reflecting the higher
sales level and new product introductions.
Prepaid expenses remained unchanged at $10,000 for both periods Deferred taxes
and other assets were unchanged from December 28, 1996 at $311,000 and $76,000,
respectively.
Accounts payable increased by $165,000 to $669,000 at June 28, 1997, reflecting
the higher sales level and increase in inventory, while accrued liabilities
increased from December 28, 1996 by $7,000 to $122,000 at June 28, 1997.
9
As a result of the Company's inability to secure additional financing or equity
capital, it has not had sufficient funds to fully implement the marketing of its
new products. This has hindered the Company in its efforts to increase the sales
of its products. The Company continues to fund its operations from current
resources. Based on its results for the first two quarters of 1997 and the
planned introduction of new products in the third and fourth quarters of this
year, the Company believes that its revenues will improve in 1997. Management
believes that it will have sufficient financial resources to continue its
operations through the coming year.
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PART II - OTHER INFORMATION
TOFUTTI BRANDS INC.
Item 4. Submission of Matters to a Vote of Shareholders
During the thirteen week period ended June 28, 1997, the Company held its
Annual Meeting of Shareholders.
At the meeting, held on May 29, 1997, the Company's 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
1996 Annual Meeting of Shareholders
For Against Abstained Unvoted
--- ------- --------- -------
David Mintz 5,031,602 35,488 - -
Bernard Koster 5,038,142 28,948 - -
Reuben Rapoport 5,038,142 28,948 - -
Franklin Snitow 5,038,142 114,738 - -
2. The ratification of the appointment of KPMG Peat Marwick to examine
the Company's accounts for 1997.
For Against Abstained Unvoted
--- ------- --------- -------
5,039,975 8,265 18,850 -
11
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 Company's 1993 Stock Option Plan
10.1**** Copy of Legal Settlement between the Company and the NEMP
Corporation
(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 Company's Form 10-KSB for the fiscal year
ended January 1, 1994 and hereby incorporated by reference thereto.
**** Filed as an exhibit to the Registrant's Form 10-K for the fiscal year
ended December 28, 1991 and hereby incorporated by reference thereto.
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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: August 11, 1997
13