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 27, 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 November 7, 1997 the Issuer had 6,183,567 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 - September 27, 1997
(Unaudited) and December 28, 1996 (Audited) 3
Condensed Statements of Operations -
(Unaudited) - Thirteen and thirty-nine
week periods ended September 27, 1997 and
thirteen and thirty-nine week periods ended
September 28, 1996 4
Condensed Statements of Cash Flows -
(Unaudited) - Thirty-nine week period
ended September 27, 1997 and thirty-nine
week period ended September 28, 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 11
Signatures 12
2
TOFUTTI BRANDS INC.
Condensed Balance Sheets
(000's omitted)
September 27, December 28,
1997 1996
(Unaudited) (Audited)
----------- ---------
Assets
Current assets:
Cash and cash equivalents $ 68 $ 11
Accounts receivable (net of reserve of
$358 in 1997 and $295 in 1996) 1,334 977
Inventories (Note 2) 494 351
Prepaid expenses 15 10
----- -----
Total current assets 1,911 1,349
Deferred taxes 311 311
Other assets 76 76
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Total assets $2,298 $1,736
===== =====
Liabilities and Stockholders' Equity
Current liabilities:
Legal settlement payable - current portion $ 15 $ 15
Accounts payable 642 504
Accrued liabilities 148 115
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Total current liabilities 805 634
Long-term debt - legal settlement 56 66
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Total liabilities 861 700
Stockholders' equity:
Preferred stock - -
Common stock 62 61
Paid-in capital 3,589 3,503
Retained (deficit) (2,214) (2,528)
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Total stockholders' equity 1,437 1,036
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Total liabilities and stockholders'
equity $2,298 $1,736
====== ======
See accompanying notes to condensed financial statements.
3
TOFUTTI BRANDS INC.
Condensed Statement of Operations
(Unaudited)
(000's omitted)
Thirty- Thirty-
Thirteen Thirteen nine nine
weeks weeks weeks weeks
ended ended ended ended
9/27/97 9/28/96 9/27/97 9/28/96
------- ------- ------- -------
Net sales $1,921 1,656 5,458 4,430
Cost of sales 1,283 1,094 3,587 2,803
----- ------ ------ ------
Gross profit 638 562 1,871 1,627
---- ------ ------ ------
Operating expenses:
Selling 227 222 629 620
Marketing and sales promotion 26 52 121 167
Research and development 71 47 184 146
General and administrative 211 183 613 553
----- ------- ------ ------
535 504 1,547 1,486
----- ------ ------ ------
Operating income 103 58 324 141
Interest expense 3 3 8 9
----- ------ ------ ------
Income before income
tax expense 100 55 316 132
Income tax expense - - 1 1
------ ------ ----- ------
Net income $ 100 55 315 131
Net income per share $ .02 .01 .05 .02
===== ====== ===== =====
Weighted average number of
shares outstanding 6,184 6,065 6,184 6,065
====== ====== ====== ======
See accompanying notes to condensed financial statements.
4
TOFUTTI BRANDS INC.
Condensed Statements of Cash Flows
(Unaudited
(000's omitted)
Thirty-nine Thirty-nine
weeks weeks
ended ended
9/27/97 9/28/96
------- -------
Cash flows from operating
activities, net $(23) 7
Cash flows from investing activities - -
Cash flows from financing activities 86 -
---- ---
Net increase in cash
and cash equivalents 63 7
Cash at beginning of period 5 12
---- ---
Cash at end of period $ 68 5
=== ===
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 8 9
Income taxes 1 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 thirty-nine week
period ended September 27, 1997 are not necessarily indicative of the
results to be expected for the full year.
(2) Inventories
The composition of inventories is as follows:
Sept. 27, Dec. 28,
1997 1996
---- ----
Raw materials and packaging
supplies $ 169 262
Finished goods 325 89
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$ 494 351
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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 September 27, 1997 Compared with Thirteen
Weeks Ended September 28, 1996
Net sales for the thirteen weeks ended September 27, 1997 were $1,921,000, an
increase of $265,000 or 16% from the sales level realized for the thirteen weeks
ended September 28, 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 $76,000, while its
gross profit percentage decreased to 33% compared to 34% for the same period
last year. The decrease in the
7
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. The decrease was also due to special allowances
used to introduce the Company's new pasta, cookie and frozen novelty lines.
The Company anticipates that sales will increase during the fourth quarter of
the current fiscal year as compared to the comparable 1996 period due to the
introduction of new products and expanded distribution. This increase is
dependent upon market acceptance of these products, for which no assurance can
be given.
Selling expenses increased to $227,000 for the current fiscal quarter compared
with $222,000 for the comparable period last year. The increase in freight,
commission, warehouse and bad debt expenses associated with the increased sales
level was partially offset by a reduction in payroll costs. Marketing and sales
promotion expenses decreased to $26,000 in the 1997 period from $52,000 in 1996.
This decrease was due principally to a reduction in promotions and magazine and
newspaper advertising in the 1997 period.
Research and development costs were $71,000 for the thirteen weeks ended
September 27, 1997 compared with $47,000 for the comparable 1996 period,
reflecting an increase in related research and development costs incurred in the
development of the Company's new products.
General and administrative expenses were $211,000 for the current period
compared with $183,000 for the comparable period in 1996, reflecting increased
building maintenance costs, office expense, professional fees and outside
services. Most of these increases were directly related to the increase in sales
volume.
The Company's imputed interest expense was unchanged for the current fiscal
quarter compared with the comparable period in 1996.
Thirty-nine Weeks Ended September 27, 1997 Compared with Thirty-
nine Weeks Ended September 28, 1996
Net sales for the thirty-nine weeks ended September 27, 1997 were $5,458,000, an
increase of $1,028,000, or 23% from the sales level realized for the thirty-nine
weeks ended September 28, 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 $244,000, while
its gross profit percentage decreased to 34% as
8
compared to 37% for the same period last year. The decrease in the 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. The decrease was also due to special allowances used to introduce
the Company's new pasta, cookie and frozen novelty lines.
Selling expenses increased to $629,000 for the current fiscal period compared
with $620,000 for the comparable period last year. The increase in freight,
commission, warehouse and bad debt expenses associated with the increased sales
level was partially offset by a reduction in payroll costs. Marketing and sales
promotion expenses decreased to $121,000 from $167,000 in 1996. This decrease
was due principally to a reduction in promotions and magazine and newspaper
advertising in the 1997 period.
Research and development expenses were $184,000 for the thirty-nine weeks ended
September 27, 1997, compared with $146,000 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 $613,000 for the current period
compared with $553,000 for the comparable period in 1996, reflecting increased
building maintenance costs, office expense, professional fees and outside
services. Most of these increases were directly related to the increase in sales
volume.
The Company's imputed interest expense was $8,000 for the thirty-nine weeks
ended September 27, 1997 compared with $9,000 for the comparable period in 1996.
Liquidity and Capital Resources
The Company's working capital was $1,106,000 at September 27, 1997, an increase
of $391,000 from December 28, 1996. Accounts receivable increased to $1,334,000
at September 27, 1997, an increase of $324,000 from December 28, 1996. This
increase was attributable to the increase in sales. Inventories increased by
$143,000 due principally to an increase in finished goods inventory, reflecting
the higher sales level and new product introductions.
Prepaid expenses increased slightly by $5,000 to $15,000 at September 27, 1997.
Deferred taxes and other assets were unchanged from December 28, 1996 at
$311,000 and $76,000, respectively.
9
Accounts payable and accrued liabilities increased by $138,000 and $33,000
respectively at September 27, 1997, reflecting the higher sales level and an
increase in inventory.
As a result of the Company's inability to secure sufficient additional financing
or equity capital, it has not had enough 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 recent sales trends and the planned introduction of
new products in the fourth quarter of this year and the first half of 1998, the
Company believes that its revenues may improve in the fourth quarter of this
year and that such improvement in sales is sustainable into 1998. Management
believes that it will have sufficient financial resources to continue its
operations through the coming fiscal year.
The Company does not have any material capital commitments.
10
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 Company's 1993 Stock Option Plan
10.1**** Copy of Legal Settlement between the Company and the NEMP
Corporation
27 Financial Data Schedule
(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.
11
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: November 11, 1997
12
EXHIBIT INDEX
Exhibit No. Description
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
27 Financial Data Schedule
___________
* 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.