Tootie Pie Company, Inc. - FORM 10-Q

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EX-31.1 - Tootie Pie Company, Inc.	ex31-1.htm
EX-32.1 - Tootie Pie Company, Inc.	ex32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

	TOOTIE PIE COMPANY, INC.
	(Exact name of registrant as specified in charter)

NV		333-135702		72-1602919
(State or other jurisdiction of incorporation or organization)		(Commission File Number)		(IRS Employer Identification No.)

	129 Industrial Drive, Boerne, TX 78006
	(Address of principal executive offices) (Zip Code)

	(210) 737-6600
	(Registrant’s telephone number, including area code)

	N/A
	(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. T Yes £ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes x No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer £		Accelerated filer £
Non-accelerated filer £ (Do not check if a smaller reporting company)		Smaller reporting company T

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). £ Yes T No

As of November 12, 2012, 16,138,100 shares of the issuer’s common stock, $0.001 par value, were outstanding.

Index

TOOTIE PIE COMPANY, INC.

INDEX

PART I – FINANCIAL INFORMATION		Page
Item 1.	Financial Statements (Unaudited)
	Balance Sheets as of September 30, 2012 and March 31, 2012	3
	Statements of Operations for the three months and six months ended September 30, 2012 and 2011	4
	Statements of Cash Flows for the six months ended September 30, 2012 and 2011	5
	Notes to Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	13
Item 4.	Controls and Procedures	13
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	14
Item 1A.	Risk Factors	14
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 3.	Defaults Upon Senior Securities	15
Item 4.	Removed and Reserved	15
Item 5.	Other Information	15
Item 6.	Exhibits	15

Index

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TOOTIE PIE COMPANY, INC.

BALANCE SHEETS

	September 30,			March 31,
	2012			2012
	(unaudited)			(unaudited)
ASSETS
Current Assets:
Cash and equivalents	$	24,698		$	27,569
Accounts receivable, net		200,947			25,436
Inventory		508,968			234,167
Other current assets		105,198			48,290
Total current assets		839,811			335,462

Fixed Assets:
Furniture and equipment		787,760			712,113
Leasehold improvements		212,971			209,693
Building		7,000			7,000
Construction in progress		12,260			12,260
Total fixed assets		1,019,991			941,066
Less accumulated depreciation		(466,199	)		(397,334	)
Net fixed assets		553,792			543,732

Other Assets:
Intangible assets, net		—			11,369
Deposits and other		52,824			37,796
Total other assets		52,824			49,165

Total Assets	$	1,446,427		$	928,359

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable, trade	$	425,228		$	277,403
Accounts payable, employees		6,063			12,589
Accrued expenses		52,875			47,563
Deferred revenue		21,168			24,594
Long-term debt, current portion		583,054			77,122
Note payable, related party		—			—
Total current liabilities		1,088,388			439,271

Long-term Debt, net of current		—			1,990

Total Liabilities	$	1,088,388		$	441,261

Stockholders’ Equity:
Preferred stock, $0.001 par value; authorized 100,000 shares, none issued or outstanding		—			—
Common stock, $0.001 par value; authorized 99,900,000 shares, 16,138,100 and 14,738,100 issued and outstanding		14,738			14,738
Additional paid-in-capital		4,912,068			4,852,068
Retained earnings (deficit)		(4,568,767	)		(4,379,708	)
Total stockholders’ equity		358,039			487,098

Total Liabilities and Stockholders’ Equity	$	1,446,427		$	928,359

See Notes to Interim Financial Statements.

Index

TOOTIE PIE COMPANY, INC.

STATEMENTS OF OPERATIONS

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Sales, net	$	769,345		$	630,601		$	1,381,797		$	1,116,752
Cost of goods sold		227,260			230,641			424,997			421,647
Gross profit		542,085			399,960			956,800			695,105

Operating Expenses:
General and administrative expense		200,783			218,511			375,389			400,010
Selling expense		415,686			370,322			779,208			715,749
Total operating expenses		616,469			588,833			1,154,597			1,115,759

Operating Income (Loss)		(74,384	)		(188,873	)		(197,797	)		(420,654	)

Other Income (Expense)		0			10,841			0			4,460


Income (Loss) before income taxes		(74,384	)		(178,032	)		(197,797	)		(416,194	)

Income taxes – Texas margin tax		0			(750	)		0			(750	)

Net Income (Loss)	$	(74,384	)	$	(178,782	)	$	(197,797	)	$	(416,944	)


Earnings (Loss) Per Share
Basic and diluted loss per share	$	(0.00	)	$	(0.01	)	$	(0.01	)	$	(0.03	)
Weighted average common shares outstanding, basic and diluted		16,138,100			14,435,105			15,441,925			14,386,788

See Notes to Interim Financial Statements.

Index

TOOTIE PIE COMPANY, INC.

STATEMENTS OF CASH FLOWS

	Six Months Ended September 30,
	2012			2011
	(unaudited)			(unaudited)
Operating Activities
Net loss	$	(197,797	)	$	(416,944	)
Adjustments to reconcile net loss to net cash (used) by operating activities:
Depreciation		68,865			61,345
Amortization		11,367			13,643
Non-cash compensation expense		8,738			40,700
Non-cash expense for services		—			108,111
Changes in operating assets and liabilities:
Accounts receivable		(175,511	)		(96,425	)
Inventory		(274,800	)		(174,059	)
Other current assets		(56,908	)		30,456
Accounts payable and accrued expenses		83,186			132,003
Net Cash (Used) by Operating Activities		(532,859	)		(301,170	)
Investing Activities
Other Assets					(416	)
Purchases of fixed assets		(93,953	)		(20,057	)
Net Cash (Used) by Investing Activities		(93,953	)		(20,473	)
Financing Activities
Borrowings on notes payable		765,000			100,000
Borrowings on notes payable, related party		—			—
Repayments on notes payable		(201,059	)		(76,297	)
Issuances of common stock, net of offering costs		60,000			—
Net Cash Provided & (Used) by Financing Activities		623,941			23,703

Net Change in Cash		(2,871	)		(297,940	)
Cash at beginning of period		27,569			402,362

Cash at End of Period	$	24,698		$	104,422

See Notes to Interim Financial Statements.

Index

TOOTIE PIE COMPANY, INC.

NOTES TO INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited financial statements of Tootie Pie Company, Inc. (the “Company”) have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying financial statements reflect all adjustments of a normal recurring nature considered necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows for such periods. The accompanying interim financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2012. Results of operations for interim periods are not necessarily indicative of results that may be expected for any other interim periods or the full fiscal year.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

NOTE 2 – INVENTORIES

Inventories consist of the following:

	September 30, 2012		March 31, 2012
Raw materials	$	30,040	$	18,360
Packaging materials		30,483		27,458
Finished goods		448,445		188,349
Total Inventories	$	508,968	$	234,167

NOTE 3 – STOCK-BASED COMPENSATION

The Company measures and recognizes compensation expense for all share-based payment awards based on estimated fair values using the Black-Scholes option pricing model. The Company recognized stock-based compensation expense in the quarter ended September 30, 2012 and 2011 of $8,738 and $40,700, respectively.

NOTE 4 – INCOME TAXES

The Company does not have any unrecognized income tax benefits at September 30, 2012 or September 30, 2011. If applicable, the Company would recognize interest and penalties related to uncertain tax positions in interest expense. As of September 30, 2012, the Company had no accrued interest or penalties.

As of September 30, 2012, the tax years ended March 31, 2007 through March 31, 2012 remain subject to examination by tax authorities.

The Company has incurred net operating losses since its inception, resulting in a deferred tax asset of approximately $1,564,000 at September 30, 2012. In assessing the reliability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred tax asset to warrant the application of a full valuation allowance as of September 30, 2012 and March 31, 2012.

Index

NOTE 5 – EARNINGS (LOSS) PER SHARE

Basic earnings per share are computed on the basis of the weighted average number of common shares outstanding during each quarter. Diluted earnings per share are computed on the basis of the weighted average number of common shares and dilutive securities outstanding. Dilutive securities having an anti-dilutive effect on diluted earnings per share are excluded from the calculation.

The following reconciles the components of the earnings (loss) per share (EPS) computation:

	Income (Loss) Numerator			Shares Denominator		Per Share Amount
Three Months Ended September 30, 2012
Basic EPS:
Net (loss)	$	(74,384	)		16,138,100	$	(0.00	)
Effect of dilutive options		—			—		—
Dilutive EPS	$	(74,384	)		16,138,100	$	(0.00	)

Three Months Ended September 30, 2011
Basic EPS:
Net (loss)	$	(178,782	)		14,435,105	$	(0.01	)
Effect of dilutive options		—			—		—
Dilutive EPS	$	(178,782	)		14,435,105	$	(0.01	)



Six Months Ended September 30, 2012
Basic EPS:
Net (loss)	$	(197,797	)		15,441,925	$	(0.01	)
Effect of dilutive options		—			—		—
Dilutive EPS	$	(197,797	)		15,441,925	$	(0.01	)

Six Months Ended September 30, 2011
Basic EPS:
Net (loss)	$	(416,944	)		14,386,788	$	(0.03	)
Effect of dilutive options		—			—		—
Dilutive EPS	$	(416,944	)		14,386,788	$	(0.03	)

Index

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS DISCLAIMER

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described in our Annual Report on Form 10-K and other reports we file with the Securities and Exchange Commission. In general, such statements are identified by the use of forward-looking words or phrases including, but not limited to “intended,” “will,” “should,” “may,” “expects,” “expected,” “anticipates,” and “anticipated” or the negative thereof or variations thereon or similar terminology. Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made. We do not intend to update any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law.

This Management’s Discussion and Analysis should be read in conjunction with the interim financial statements and the notes thereto included in this Quarterly Report, and our financial statements for the year ended March 31, 2012 included in our Annual Report on Form 10-K that was filed with the Securities and Exchange Commission on October 5, 2012.

History

On September 9, 2005, we purchased certain assets from Ms. Ruby Lorraine “Tootie” Feagan, including all of her pie recipes, customer lists, the right to the “Tootie Pie” name, the related baking equipment, and a building located in Medina, Texas in exchange for $50,000 in cash and the issuance of 600,000 shares of common stock valued at $150,000, with the goal of maximizing the market and profitability of her pie recipes. We lease a 5,000 square foot building in Boerne, Texas where we manufacture our pies for broad-based distribution. This facility also serves as our corporate headquarters. We closed the original Medina location in 2006 which allowed us to focus all production and sales efforts out of our facility in Boerne.

On October 8, 2009, we launched the initial phase of our Tootie Pie Gourmet Café concept with the purchase of certain business assets held by two Benny’s Bagels sandwich shops located in San Antonio, Texas. By March 2010, we completed the rebranding of these two stores as our first Tootie Pie Gourmet Cafés.

On March 14, 2011, we entered into an agreement to purchase certain of the assets of the business formerly known as the Silver Spoon Bakery. This location became our first Café in Austin. In February 2012, we opened our second Café in Austin.

On March 20, 2012 we entered into a lease agreement that included all of the assets of a former coffee business, at The Village at Allen Shopping Center, located in Allen (Dallas), TX. This location opened on June 7, 2012 and became our second location in the Dallas area.

As of June 30, 2012, we own and operate seven Cafés in Texas, which are located in San Antonio, Austin, Fredericksburg, Frisco (Dallas) and Allen (Dallas).

Our fiscal year end is March 31.

Business Overview

We manufacture, market, and sell handmade, fully-baked “high quality” pies. We have three sales channels: retail, corporate and wholesale that require “value added” marketing strategies to address each customer base. Our retail and corporate market covers all fifty states in the United States. Our wholesale market covers thirteen states in the south central, central and southeastern portions of the United States.

Our retail market consists primarily of individuals who purchase our products for gifts, special occasions or for their personal consumption. We sell to the retail market through our website, internet marketing from our websites, phone orders and walk-in customers at our storefront in Boerne, Texas, as well as our seven Tootie Pie Gourmet Cafés in Texas, which are located in San Antonio, Austin, Fredericksburg and Frisco.

Index

We currently own and operate seven Tootie Pie Gourmet Cafés. Our Cafés are a dessert destination where customers can enjoy a quality dine-in experience or pick up a pie to take home. In addition to featuring our Tootie Pies, the Cafés offer a light menu including pastries, bagels, soups, sandwiches, paninis, salads, drinks and a full coffee menu. We seek to create an inviting atmosphere which will enable us to attract a diverse guest base. We currently operate company-owned Cafés at the following locations:

·	16615 Huebner Road at Bitters, San Antonio, TX

·	5130 Broadway, San Antonio, TX

·	10515 N. Mopac Expressway Ste. A-120, Austin, TX

·	701 Capitol of Texas Highway, Austin, TX

·	339 E. Main St, Fredericksburg, TX

·	6959 Lebanon Road, Ste 100, Frisco, TX

·	190 Stacy Road, Ste. 1408, Allen, TX

Our corporate market is comprised of businesses that purchase our pies for customer and employee appreciation gifts, marketing/promotional events and/or personal use. Our corporate sales program provides a convenient and cost effective way for our corporate clients to promote their company through customer and employee appreciation programs. Our corporate customers range in size from small businesses to large corporations. We believe this market will continue to play a key role in our future growth because our current corporate customers send our pies to their contacts and employees. We believe that once those end-recipients sample the quality of our pies, they may become our future customers. We sell to the corporate market through our website, internet marketing, phone orders and direct sales calls.

Our wholesale market is comprised of regional and national broad-line foodservice distributors who purchase our products and then resell them to their customers. All of our pies produced for wholesale distribution are shipped frozen to our distributors, who then deliver them to their respective end-users. We focus on the quality, handcrafted nature of our pies and the value that such a dessert can bring to the overall dining experience of an end-user. Because of the inherent cost of the high quality ingredients that we use and the value-added marketing approach we employ, we must price our pies at the higher end of the wholesale dessert industry category.

We sell to our wholesale market via our in-house sales force. Our in-house sales force works directly with foodservice distributors and foodservice brokers to sell our products to the distributors’ customers. These customers include restaurants, hotels, hospitals, convention centers, sports facilities, caterers and retail grocery store outlets.

We sell our pies through the following distributors:

Ben E. Keith Food Services San Antonio

Ben E. Keith Food Services Dallas/Fort Worth

Ben E. Keith Food Services Oklahoma

Ben E. Keith Food Services Amarillo

Ben E. Keith Food Services Albuquerque

Ben E. Keith Food Services Little Rock

Sysco Food Services of San Antonio

Sysco Food Services of Austin

Sysco Food Services of Houston

Sysco Food Services of Dallas

Sysco Food Services of Atlanta

Sysco Food Services of St. Louis

Sysco Food Services of Jackson

Sysco Food Services of East Texas

U.S. Foodservice – Austin

Performance Food Group – Temple

Martin Preferred Foods – Houston

·	Cheney Brothers – Florida

·	Reinhart Food Service

Index

Ben E. Keith Food Services of San Antonio, Dallas/Fort Worth, Oklahoma, Amarillo, Albuquerque and Little Rock are part of Ben E. Keith Food Services, a multi-state foodservice distributor. Each location covers the following territories:

Ben E. Keith Food Services of San Antonio sells to customers located in the central and south Texas markets.

Ben E. Keith Food Services of Dallas/Fort Worth sells to customers located in west Texas, north Texas, east Texas and parts of northern Louisiana.

Ben E. Keith Food Services of San Antonio and Dallas/Fort Worth both service the Houston, Texas market.

Ben E. Keith Food Services of Oklahoma sells to customers located in Oklahoma, eastern Kansas and western Missouri.

Ben E. Keith Food Services of Amarillo sells to customers located in the Texas panhandle, eastern New Mexico, parts of western Oklahoma and western Kansas.

Ben E. Keith Food Services of Albuquerque sells to customers located in New Mexico and southeastern Colorado.

Ben E. Keith Food Services of Little Rock sells to customers located in Arkansas, southern Missouri, western Tennessee, northwest Mississippi and Louisiana.

Sysco Food Services of San Antonio, Austin, Houston, Dallas, East Texas, Atlanta, St. Louis and Jackson are part of Sysco Corporation, a national foodservice distributor. Each location covers the following territories:

Sysco Food Services of San Antonio sells to customers located in the south Texas market.

Sysco Food Services of Austin sells to customers located in the central Texas market.

Sysco Food Services of Houston and East Texas sell to customers located in the east Texas market.

Sysco Food Services of Dallas sells to customers located in the Dallas/Ft. Worth market.

Sysco Food Services of Atlanta sells to customers in the greater Atlanta market.

Sysco Food Services of St. Louis sells to customers in the greater St. Louis market.

Sysco Food Services of Jackson sells to customers in Mississippi and surrounding markets.

U.S. Foodservice – Austin is part of U.S. Foodservice Corporation, a national foodservice distributor. U.S. Foodservice – Austin sells to customers in the central and south Texas.

Performance Food Group – Temple is part of Performance Food Group, a multi-state broad-line foodservice distributor as well as a national account foodservice distributor. Performance Food Group – Temple sells to customers in the central Texas market.

Martin Preferred Foods is a foodservice distributor. Martin Preferred Foods is based in Houston, Texas and services the Texas market. Martin is a member of Unipro. Unipro is the largest foodservice purchasing group that allows its independent distributors to compete with the major grocery distribution companies in the state of Texas.

Cheney Brothers Inc. is a food service distributor. They market to customers in Florida from two locations in Riviera and Ocala.

Reinhart is a multi-state food service distributor that has locations primarily in the Eastern United States. Reinhart mostly serves the Oklahoma market for our Company.

The distributors purchase our products in volume and then sell and deliver our products to their customers. The distributors’ customers are referred to as “end-users,” and consist of restaurants, hotels, hospitals, schools, convention centers and caterers. The size of each distributor’s customers varies and ranges from local to regional and national companies.

Index

A key component of our wholesale business is actively marketing our products to our distributors’ sales forces and to their respective end-users. We accomplish this by hiring sales personnel, whose primary responsibility is to educate the distributors’ sales forces about our products and to assist them in selling our products, including going on sales calls with them or making sales calls on their behalf. Part of our plan also includes providing our sales support to our distributors at a level that separates us from our competitors.

We manage our production of finished inventory by maintaining an established minimum level of inventory by product type. We believe this provides us the necessary lead time to produce inventory based on demand. To manage our inventory for the seasonality of our retail, corporate, and wholesale sales, we analyze our current production capacity and, based on this capacity and projected sales volumes, we build up our inventory of pies to meet the anticipated demand. In the event we over-produce inventory for the holiday season, we intend to reduce inventory production and sell the excess inventory to wholesale and retail customers after the holiday season.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

General: This Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to the reported amounts of revenues and expenses, bad debt, investments, intangible assets, income taxes, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions or conditions. We consider the following accounting policies to be critical because the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters, the susceptibility of such matters to change, or we believe the impact of the estimates and assumptions on financial condition or operating performance is material.

Revenue Recognition: Revenue is recognized when the following four criteria have been met: (1) the product has been shipped and we have no significant remaining obligations; (2) persuasive evidence of an arrangement exists; (3) the price to the buyer is fixed or determinable; and (4) collection is probable. Our products may be shipped from either production or third party storage facilities to customers. Deductions from sales for discounts are recorded as reductions of revenues and are provided for at the time of initial sale product.

Valuation of Intangible Assets: We periodically review, on at least an annual basis, the carrying value of intangible assets and other long-lived assets, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. To the extent the fair value of intangible assets and long-lived assets, determined based upon the estimated future cash flows attributable to the assets, less estimated future cash outflows, are less than the carrying amount, an impairment loss is recognized.

Federal Income Taxes: Deferred tax assets and liabilities are recorded based on the difference between the tax bases of assets and liabilities and their carrying amount for financial reporting purposes, as measured by the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are computed with the presumption that they will be realizable in future periods when taxable income is generated. Predicting the ability to realize these assets in future periods requires a great deal of judgment by management. It is our judgment we cannot predict with reasonable certainty that the deferred tax assets as of September 30, 2012 will be realized in future periods. Accordingly, a valuation allowance has been provided to reduce the net deferred tax assets to $0. The Company recognizes income tax benefits only when it meets the “more likely than not” recognition threshold. We have not recorded any unrecognized income tax benefits at September 30, 2012.

Share-Based Compensation: We recognize compensation cost relating to share-based payments, including grants of employee stock options based on the estimated fair value of the equity or liability instruments issued using the Black-Scholes option pricing model. We measure the cost of services received in exchange for stock options based on the grant-date fair value of the award and recognize the cost over the requisite service period.

New Accounting Standard

We are not aware of any new accounting standards have been released, or are not yet effective, that will have a significant impact on our financial position or results of operations in future periods.

Results of Operations

Revenues:

Our revenues are principally derived from selling our pies to retail, corporate and wholesale markets. Revenues for the quarter ended September 30, 2012 increased 22% to $769,345 from $630,601 for the quarter ended September 30, 2011. The overall increase in revenues comes primarily from the operation of seven Tootie Pie Gourmet Cafés during the first quarter of fiscal year 2012, versus five Cafés that were open for the same period last year. Our internet, corporate and wholesale business combined to remain virtually unchanged.

Index

For periods reported below, our customers were in the following categories:

	Three month period ended September 30, 2012			Three month period ended September 30, 2011			Six month period ended September 30, 2012			Six month period ended September 30, 2011
Retail (1)		48	%		43	%		51	%		48	%
Corporate		12	%		5	%		12	%		3	%
Wholesale		40	%		52	%		37	%		49	%
Totals		100	%		100	%		100	%		100	%

(1) This figure includes pies sold in our Tootie Pie Gourmet Cafés.

Due to the seasonal nature of our business, we expect there will be large fluctuations in the percentage breakdown between the categories of our business reported at the various reporting periods. Although our retail and corporate customers purchase our pies throughout the year, the majority of such sales are during November and December, our third fiscal quarter. Sales to our wholesale customers also experience seasonal fluctuations with a large portion of our wholesale revenue also recorded during our third fiscal quarter. Specifically, 47% of our retail revenue, 94% of our corporate revenue and 28% of our wholesale revenue for the fiscal year ended March 31, 2012 was recorded in our fiscal third quarter.

As of September 30, 2012, our two largest wholesale customers were Ben E. Keith Food Services and Sysco Corporation. For the quarter ended September 30, 2012, Ben E. Keith Food Services and Sysco Corporation combined for 96% of our overall wholesale revenue, 82% and 14%, respectively.

Cost of Goods Sold:

Cost of goods sold generally includes raw materials, direct labor, cooking and cleaning supplies and factory overhead. Cost of goods sold was $227,260 and $230,641 for the quarters ended September 30, 2012 and September 30, 2011, respectively. The decrease from the prior year quarter was primarily due to ongoing efforts to maintain costs and negotiate better terms on raw materials.. to the overall increase in sales, as well as some inflationary increases in the cost of some raw materials.

Cost of goods sold, as a percentage of net sales, was 30% for the three month period ended September 30, 2012 compared to 37% for the three month period ended September 30, 2011. We consider the 7% reduction to be a result of overall higher sales and our ongoing efforts to maintain costs.

Gross Profit:

Gross profit was 70% of net sales for the quarter ended September 30, 2012 compared to 63% for the quarter ended September 30, 2011. We consider the 7% improvement to be a result of overall higher sales and our ongoing efforts to maintain costs. We expect the gross profit percentage to continue to fluctuate as we refine our manufacturing and sales processes.

Selling, General and Administrative Expenses:

Selling, general and administrative expenses increased to $616,469 for the quarter ended September 30, 2012 from $588,833 for the quarter ended September 30, 2011. The increase in selling and general and administrative expenses from the prior year periods was principally due to an increase in personnel required to open, manage and operate seven Gourmet Café locations, versus five Cafés during the same period last year; as well as an increase in production in anticipation of higher sales for the upcoming holiday season.

Net Loss:

Net loss decreased to $74,384 for the three months ended September 30, 2012 from $178,782 for the three months ended September 30, 2011. The net loss decrease for the three months ended September 30, 2012 was principally due to an increase in overall sales and our ongoing efforts to maintain costs.

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Liquidity and Capital Resources

On April 6, 2012, we obtained a $1,000,000 working capital line of credit from TCA Global Credit Master Fund, LP. We believe our current working capital will be adequate to fund our operations for the next twelve months, based on a conservative revenue forecast. In the event our current working capital is not adequate to fund our operations and growth and we do not receive any additional capital or financing, we may need to seek alternative sources of working capital. Potential sources of such working capital could include senior debt facilities, new lines of credit or additional sales of our securities. There is a risk that such additional financing may not be available, or may not be available on acceptable terms, and the inability to obtain additional financing or generate sufficient cash from operations could require us to reduce or eliminate expenditures for capital equipment, production, or marketing of our products, or otherwise curtail or discontinue our operations, which could have a material adverse effect on our business, financial condition and results of operations.

At September 30, 2012, we had $24,698 of cash and cash equivalents, compared to $27,569 of cash and cash equivalents at March 31, 2012. Our current assets at September 30, 2012 were $839,811 compared to $335,462 at March 31, 2012. Our current liabilities at September 30, 2012 were $1,088,388 compared to $439,271 at March 31, 2012.

Net cash used in operating activities was $532,859 for the quarter ended September 30, 2012, compared to $301,170 of net cash used for the quarter ended September 30, 2011. The decrease in operating cash used is a direct result of our efforts to build inventory to meet projected sales increases for the upcoming holiday season, as well as expenses related to operation of our seven Tootie Pie Gourmet Cafés.

Net cash used in investing activities was $93,953 for the quarter ended September 30, 2012 and $20,473 for the quarter ended September 30, 2011. These investing activities primarily reflected capital expenditures related to our acquisition of our Tootie Pie Gourmet Cafés.

Net cash provided by financing activities was $623,941 and $23,703 for the quarters ended September 30, 2012 and 2011, respectively. Net cash provided by financing activities for the quarter ended September 30, 2012 represented proceeds from borrowings on our working capital credit line and notes payable. We had no such transactions during the period ending September 30, 2011.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a Smaller Reporting Company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures:

Our management evaluated, with the participation of our Chief Executive Officer, who is also our Interim Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer/Interim Chief Financial Officer concluded that our disclosure controls and procedures as of June 30, 2012 are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act (i) are recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) are accumulated and communicated to our management, including our Chief Executive Officer/Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required reasonable assurance that such information is accumulated and communicated to our management. Our disclosure controls and procedures are designed to provide reasonable assurance that such information is accumulated and communicated to our management. Our disclosure controls and procedures include components of our internal control over financial reporting. Management's assessment of the effectiveness of our internal control over financial reporting is expressed at the level of reasonable assurance that the control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system's objectives will be met.

Changes in Internal Control over Financial Reporting:

There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We may be involved from time to time in ordinary litigation, negotiation and settlement matters that will not have a material effect on our operations or finances. We are not aware of any pending or threatened litigation against us or our officers and directors in their capacity as such that could have a material impact on our operations or finances.

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Tootie Pie Company, Inc. (the "Company") executed a securities purchase agreement with TCA Global Credit Master Fund, LP, a Cayman Islands limited partnership (“TCA”), on April 6, 2012, whereby TCA committed to purchase up to $1,000,000 of senior secured redeemable debentures of the Company (the “Agreement”). The Agreement provides for the purchase and sale of debentures and extension of the total loan amount in separate closings. TCA funded an amount of $350,000 for the first closing, and TCA will fund up to an additional $650,000 at a later date or dates, subject to certain terms and conditions. The loan is secured by all of the assets and properties of the Company pursuant to a security agreement executed April 6, 2012 (the “Security Agreement”). The net proceeds available to the Company, after deducting the transaction advisory fee payable by the Company to TCA and other associated closing costs and expenses, will be approximately $323,650.

On April 6, 2012, the Company issued a $350,000 senior secured redeemable debenture to TCA (the “Debenture”). The Debenture is due and payable on April 9, 2013 (the “Maturity Date”), together with interest on the outstanding principal balance of the Debenture at a rate of 11% per annum. The Debenture may be prepaid by the Company at any time prior to the Maturity Date with three business days advance written notice to TCA. On or before the Maturity Date, when the Company redeems the Debenture, the Company will be required to pay a redemption premium equal to the then outstanding principal amount due under the Debenture multiplied by four percent (4%), in addition to the principal amount being redeemed, all accrued interest as of the redemption date, and all costs, fees, and charges due and payable. Upon the occurrence of an event of default under the Debenture, the interest rate on the Debenture shall increase and immediately accrue at the maximum interest rate permitted by applicable law, and TCA would be entitled, in its sole direction, to acceleration of full repayment of the debt plus all accrued interest and redemption premiums due under the Debenture.

On July 31, 2012, the Company issued a $350,000 senior secured redeemable debenture to TCA (the “Debenture”). The Debenture is due and payable on August 9, 2013 (the “Maturity Date”), together with interest on the outstanding principal balance of the Debenture at a rate of 11% per annum. The Debenture may be prepaid by the Company at any time prior to the Maturity Date with three business days advance written notice to TCA. On or before the Maturity Date, when the Company redeems the Debenture, the Company will be required to pay a redemption premium equal to the then outstanding principal amount due under the Debenture multiplied by four percent (4%), in addition to the principal amount being redeemed, all accrued interest as of the redemption date, and all costs, fees, and charges due and payable. Upon the occurrence of an event of default under the Debenture, the interest rate on the Debenture shall increase and immediately accrue at the maximum interest rate permitted by applicable law, and TCA would be entitled, in its sole direction, to acceleration of full repayment of the debt plus all accrued interest and redemption premiums due under the Debenture.

The Company has agreed to make monthly payments of principal ($29,166.67), interest, and the corresponding amount of redemption premium ($1,750.00) to TCA, beginning on May 1, 2012. The Debenture is secured by all of the assets and properties of the Company pursuant to the Security Agreement.

The Company agreed to pay a transaction advisory fee to TCA equal to three percent (3%) of the amount of the Debenture purchased by TCA at the first closing, or approximately $10,500. The Company also agreed to reimburse TCA for due diligence fees and legal fees, for an aggregate of $20,000.

The Company intends to use the funds from the Debenture for general working capital purposes.

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The Company may request that TCA purchase additional debentures under the Agreement at any time prior to the Maturity Date of the Debenture. In the event of any additional closings, the Company shall pay to TCA a transaction advisory fee equal to two percent (2%) of the amount of the debentures purchased by TCA at any such additional closings, which fee shall be due and payable upon such additional closing and withheld from the gross purchase price paid by TCA for the debentures at such additional closing.

Common Stock Issuance pursuant to the Securities Purchase Agreement between the Company and TCA Global Credit Master Fund, LP, executed April 6, 2012

In connection with the sale of the Debenture and as both inducement for their purchase by TCA and compensation for corporate advisory and investment banking services provided by TCA to the Company prior to April 6, 2012, the Company shall issue to TCA shares of its common stock valued at $60,000 (the “Shares”).

It is the intention of the Company and TCA that the value of the Shares shall equal $60,000. In the event the value of the Shares issued to TCA does not equal $60,000 after a nine month evaluation date, the Agreement provides for an adjustment provision allowing for necessary action (either the issuance of additional shares to TCA or the return of shares previously issued to TCA to the Company) to adjust the number of Shares issued.

With respect to the sale of its common stock described above, the Company is relying on the Section 4(2) exemption from securities registration under the federal securities laws for transactions not involving any public offering. No advertising or general solicitation was employed in offering the Shares. The Shares were sold to an accredited investor. The Shares were offered for investment purposes only and not for the purpose of resale or distribution, and the transfer thereof was appropriately restricted by the Company.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

During the quarter ended June 30, 2012, we did not have any defaults on senior debt securities.

ITEM 4. REMOVED AND RESERVED

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

Exhibit Number		Description

3.1		Articles of Incorporation (included as Exhibit 3.1 to the Form SB-2 filed July 11, 2006 and incorporated herein by reference).

3.2		Bylaws (included as Exhibit 3.2 to the Form SB-2 filed July 11, 2006 and incorporated herein by reference).

4.1		Corrected Form A Warrant (included as Exhibit 4.1 to the Form SB-2/A filed August 24, 2006 and incorporated herein by reference).

4.2		Corrected Form B Warrant (included as Exhibit 4.2 to the Form SB-2/A filed August 24, 2006 and incorporated herein by reference).

10.1		Hold Harmless Agreement and Guaranty/Warranty of Product between the Company and Sysco Corporation, dated August 9, 2006 (included as Exhibit 10.4 to the Form SB-2/A filed October 18, 2006 and incorporated herein by reference).

10.2		Non-Compete Agreement between the Company and Bobbie Keese, dated September 9, 2005 (included as Exhibit 10.5 to the Form SB-2/A filed October 18, 2006 and incorporated herein by reference).

10.3		Non-Compete Agreement between the Company and Ruby Lorraine “Tootie” Feagan, dated September 9, 2005 (included as Exhibit 10.6 to the Form SB-2/A filed October 18, 2006 and incorporated herein by reference).

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10.4		Final Agreement between the Company and Ruby Lorraine “Tootie” Feagan dated November 6, 2006 (included as Exhibit 10.7 to the Form SB-2/A filed November 9, 2006 and incorporated herein by reference).

10.5		Full Service Broker Agreement between the Company and Hanks Brokerage Company dated November 7, 2006 (included as Exhibit 10.8 to the Form SB-2/A filed November 9, 2006 and incorporated herein by reference).

10.6		Stock Option Agreement between the Company and Don L. Merrill, Jr., dated March 22, 2007 (included as Exhibit 10.1 to the Form 8-K filed March 28, 2007 and incorporated herein by reference).

10.7		Tootie Pie Company, Inc. 2008 Stock Option and Incentive Plan, dated January 14, 2008 (included as Exhibit 10.1 to the Registration Statement on Form S-8 filed January 22, 2008 and incorporated herein by reference).

10.8		Asset Purchase and Sale Agreement between the Company and Amado Mesta and Adrianna Mesta doing business as Benny’s Bagels, dated August 11, 2009.

10.9		Securities Purchase Agreement by and between the Company and Dawson Holdings, L.P., dated August 26, 2010 (included as Exhibit 10.1 to the Form 8-K filed August 31, 2010).

10.10		Tootie Pie Company, Inc. 2011 Stock Option and Incentive Plan, dated January 14, 2008 (included as Exhibit 10.1 to the Registration Statement on Form S-8 filed March 2, 2011 and incorporated herein by reference).

10.11		Employment Agreement between the Company and Don L. Merrill, Jr., dated December 1, 2010 (included as Exhibit 10.1 to the Form 8-K/A filed March 24, 2011 and incorporated herein by reference).

10.12		Lease on Boerne, TX property

10.13		Securities Purchase Agreement, Senior Secured Redeemable Debenture, Subordination of Loans Agreement and Security Agreement by and between the Company and TCA Global Credit Master Fund, LP, executed April 6, 2012 (included as Exhibit 10.1, 10.2, 4.1 and 4.2 to the Form 8-K filed April 12, 2012)

21.1		Subsidiaries of the Registrant (included as Exhibit 21.1 to the Annual Report on Form 10-K filed June 30, 2008 and incorporated herein by reference).

31.1		Certification of the Chief Executive Officer/Interim Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1		Certification of Chief Executive Officer/Interim 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 herewith).

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SIGNATURE

Pursuant to the requirements 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.

Date: November 16, 2012		TOOTIE PIE COMPANY, INC.


	By:	/s/ Don L. Merrill, Jr.
		Don L. Merrill, Jr. President, Chief Executive Officer, Interim Chief Financial Officer and Principal Accounting Officer

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Attached files

Tootie Pie Company, Inc. Reports

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