Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - TOFUTTI BRANDS INC | Financial_Report.xls |
| EX-31.2 - EXHIBIT 31.2 - TOFUTTI BRANDS INC | ex31-2.htm |
| EX-32.2 - EXHIBIT 32.2 - TOFUTTI BRANDS INC | ex32-2.htm |
| EX-31.1 - EXHIBIT 31.1 - TOFUTTI BRANDS INC | ex31-1.htm |
| EX-32.1 - EXHIBIT 32.1 - TOFUTTI BRANDS INC | ex32-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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x
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 27, 2014
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o
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Transition report pursuant to Section 13 or 15(d) of the Exchange Act for the transition period from [ ] to [ ]
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Commission file number: 1-9009
Tofutti Brands Inc.
(Exact Name of Registrant 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
(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 requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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).
Yes x No o
Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, or a non-accelerated filer. See of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
(Do not check if smaller reporting company)
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Smaller reporting company x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of November 7, 2014 the Registrant had 5,153,706 shares of Common Stock, par value $0.01, outstanding.
TOFUTTI BRANDS INC.
INDEX
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TOFUTTI BRANDS INC.
Condensed Balance Sheets
(in thousands, except share and per share figures)
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September 27, 2014
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December 28, 2013*
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|||||||
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Assets
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Current assets:
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Cash and cash equivalents
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$ | 64 | $ | 214 | ||||
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Accounts receivable, net of allowance for doubtful
accounts and sales promotions of $329 and $277,
respectively
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2,270 | 1,954 | ||||||
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Inventories, net of reserve of $150 and $150, respectively
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1,906 | 1,844 | ||||||
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Prepaid expenses
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45 | 40 | ||||||
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Deferred costs
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197 | 138 | ||||||
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Total current assets
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4,482 | 4,190 | ||||||
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Fixed assets
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29 | -- | ||||||
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Other assets
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16 | 16 | ||||||
| $ | 4,527 | $ | 4,206 | |||||
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Liabilities and Stockholders’ Equity
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Current liabilities:
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Current maturities of notes payable
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$ | 6 | $ | -- | ||||
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Accounts payable
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1,477 | 877 | ||||||
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Accrued expenses
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339 | 459 | ||||||
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Deferred revenue
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213 | 153 | ||||||
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Total current liabilities
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2,035 | 1,489 | ||||||
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Notes payable, less current maturities
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23 | -- | ||||||
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Commitments and contingencies
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-- | -- | ||||||
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Stockholders’ equity:
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Preferred stock - par value $.01 per share;
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authorized 100,000 shares, none issued
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-- | -- | ||||||
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Common stock - par value $.01 per share;
authorized 15,000,000 shares, issued and
outstanding 5,153,706 shares at September 27, 2014,
and 5,153,706 shares at December 28, 2013
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52 | 52 | ||||||
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Additional paid-in capital
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-- | -- | ||||||
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Retained earnings
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2,417 | 2,665 | ||||||
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Total stockholders’ equity
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2,469 | 2,717 | ||||||
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Total liabilities and stockholders’ equity
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$ | 4,527 | $ | 4,206 | ||||
*Derived from audited financial information.
See accompanying notes to condensed financial statements.
| 3 |
TOFUTTI BRANDS, INC.
Condensed Statements of Operations
(Unaudited)
(in thousands, except per share figures)
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Thirteen
weeks ended
September 27, 2014
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Thirteen
weeks ended
September 28, 2013
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Thirty-nine
weeks ended
September 27, 2014
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Thirty-nine
weeks ended
September 28, 2013
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|||||||||||||
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Net sales
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$ | 3,292 | $ | 3,442 | $ | 10,647 | $ | 11,143 | ||||||||
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Cost of sales
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2,451 | 2,405 | 7,555 | 7,613 | ||||||||||||
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Gross profit
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841 | 1,037 | 3,092 | 3,530 | ||||||||||||
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Operating expenses:
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Selling and warehouse
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306 | 404 | 1,117 | 1,351 | ||||||||||||
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Marketing
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128 | 161 | 402 | 485 | ||||||||||||
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Research and development
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152 | 130 | 488 | 450 | ||||||||||||
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General and administrative
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419 | 450 | 1,327 | 1,434 | ||||||||||||
| 1,005 | 1,145 | 3,334 | 3,720 | |||||||||||||
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Loss before income taxes
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(164 | ) | (108 | ) | (242 | ) | (190 | ) | ||||||||
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Income tax expense
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-- | 41 | 6 | 46 | ||||||||||||
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Net loss
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$ | (164 | ) | $ | (149 | ) | $ | (248 | ) | $ | (236 | ) | ||||
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Weighted average common
shares outstanding:
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Basic and diluted
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5,154 | 5,154 | 5,154 | 5,154 | ||||||||||||
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Net loss per common share:
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Basic and diluted
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$ | (0.03 | ) | $ | (0.03 | ) | $ | (0.05 | ) | $ | (0.05 | ) | ||||
See accompanying notes to condensed financial statements.
| 4 |
TOFUTTI BRANDS INC.
(Unaudited)
(in thousands)
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Thirty-nine
weeks
ended
September 27, 2014
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Thirty-nine
weeks
ended
September 28, 2013
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|||||||
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Cash (used in) operating activities, net
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$ | (150 | ) | $ | (174 | ) | ||
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Cash (used in) financing activities, net
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-- | -- | ||||||
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Net (decrease) in cash and cash equivalents
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(150 | ) | (174 | ) | ||||
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Cash and cash equivalents at beginning of period
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214 | 471 | ||||||
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Cash and cash equivalents at end of period
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$ | 64 | $ | 297 | ||||
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Supplemental cash flow information:
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Income taxes paid
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$ | 6 | $ | 6 | ||||
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Non-cash transactions:
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Financing of vehicle through note payable
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$ | 29 | $ | -- | ||||
See accompanying notes to condensed financial statements.
| 5 |
TOFUTTI BRANDS INC.
(dollars in thousands, except per share figures)
Note 1: Liquidity and Capital Resources
At September 27, 2014, Tofutti Brands, Inc. (“Tofutti” or the “Company”) had approximately $64 in cash compared to $214 at December 28, 2013. Net cash used in operating activities for the thirty-nine weeks ended September 27, 2014 was $150 compared to $174 used in operating activities for the thirty-nine weeks ended September 28, 2013. Net cash used in operating activities for the thirty-nine weeks ended September 27, 2014 was primarily a result of the net loss of $248 as well as increases in accounts receivable, inventory and deferred costs offset by increases in accounts payable and accrued expense.
The Company has historically financed operations and met capital requirements primarily through positive cash flow from operations. However, due to the net losses and cash used in operations in the previous two fiscal years, the Company may require additional financing in order to accomplish or exceed their business plans for future periods. The Company continues to implement cost cutting measures in fiscal year 2014 as a way to increase profitability and operating cash flow in future periods.
The Company’s ability to introduce successful new products may be adversely affected by a number of factors, such as unforeseen cost and expenses, economic environment, increased competition, and other factors beyond the Company’s control. Management cannot provide assurance that the Company will operate profitably in the future, or that it will not require significant additional financing in order to accomplish or exceed the objectives of its business plan. Consequently, the Company’s historical operating results cannot be relied on as an indicator of future performance, and management cannot predict whether the Company will obtain or sustain positive operating cash flow or generate net income in the future.
Note 2: 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 3: 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 accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The condensed balance sheet amounts as of December 28, 2013 are derived from our audited financial statements for the year ended December 28, 2013. The financial information should be read in conjunction with the audited financial statements and notes thereto for the year ended December 28, 2013 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. The results of operations for the thirteen and thirty-nine week periods ended September 27, 2014 are not necessarily indicative of the results to be expected for the full year or any other period.
The Company operates on a fiscal year which ends on the Saturday closest to December 31st.
| 6 |
TOFUTTI BRANDS INC.
Notes to Condensed Financial Statements
(dollars in thousands, except per share figures)
Note 4: Recent Accounting Pronouncements
In May, 2014, the FASB issued an accounting standards update that completes the joint effort by the FASB and International Accounting Standards Board to improve financial reporting by creating common revenue recognition guidance for GAAP and International Financial Reporting Standards. The update applies to all companies that enter into contracts with customers to transfer goods or services and is effective for Tofutti for interim and annual reporting periods beginning after December 15, 2015. Early application is not permitted and companies have the choice to apply the update either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying the update at the date of initial application (January 1, 2017) and not adjusting comparative information. The Company is currently evaluating the requirements of this update and has not yet determined its impact on its financial statements.
In August, 2014, the FASB issued guidance that requires management to evaluate whether there are conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern. If such conditions or events exist, disclosures are required that enable users of the financial statements to understand the nature of the conditions or events, management’s evaluation of the circumstances and management’s plans to mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. The Company will be required to perform an annual assessment of its ability to continue as a going concern when this standard becomes effective for it on October 1, 2017; however, the adoption of this guidance is not expected to impact the Company’s financial position, results of operations or cash flows.
Note 5: Inventories
The composition of inventories, net of reserves of $150 and $150, is as follows:
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September 27, 2014
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December 28,
2013
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Finished products
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$ | 1,240 | $ | 1,342 | ||||
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Raw materials and packaging
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666 | 502 | ||||||
| $ | 1,906 | $ | 1,844 | |||||
Note 6: 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. 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. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. As of the periods ended September 27, 2014 and December 28, 2013, the Company recorded a full valuation allowance on its deferred tax asset balances of $649 and $547, respectively.
| 7 |
TOFUTTI BRANDS INC.
Notes to Condensed Financial Statements
(dollars in thousands, except per share figures)
Note 7: Earnings (Loss) Per Share
Basic earnings (loss) per common share has been computed by dividing net income (loss) by the weighted average number of common shares outstanding. As of September 27, 2014 and September 28, 2013, the Company had no outstanding instruments that impact diluted earnings per share.
The following table sets forth the computation of basic and diluted loss per share:
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Thirteen
Weeks
Ended
Sept. 27, 2014
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Thirteen
Weeks
Ended
Sept. 28, 2013
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Thirty-nine
Weeks Ended
Sept. 27, 2014
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Thirty-nine
Weeks Ended
Sept. 28, 2013
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Numerator
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Net loss-basic and diluted
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$ | (164 | ) | $ | (149 | ) | $ | (248 | ) | $ | (236 | ) | ||||
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Denominator
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Denominator for basic and diluted earnings per share weighted average shares
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5,154 | 5,154 | 5,154 | 5,154 | ||||||||||||
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Loss per common share basic and diluted
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$ | (0.03 | ) | $ | (0.03 | ) | $ | (0.05 | ) | $ | (0.05 | ) | ||||
Note 8: Share Based Compensation
On June 10, 2014, the shareholders of the Company approved the 2014 Equity Incentive Plan (the “2014 Plan”). The 2014 Plan provides for grants of various types of awards that are designed to attract and retain highly qualified personnel who will contribute to the success of the Company and to provide incentives to participants in the 2014 Plan that are linked directly to increases in shareholder value which will therefore inure to the benefit of all shareholders of the Company. The Company intends to rely on a combination of multi-year performance awards, options and other stock-based awards for these purposes.
The 2014 Plan made 250,000 shares of Common Stock available for awards. As of September 27, 2014, the Company had not issued any awards under the 2014 Plan. The 2014 Plan also permits performance-based 2014 awards paid under it to be tax deductible under Section 162(m) of the Internal Revenue Code of 1986, as amended, as “performance-based compensation.”
Note 9: Note Payable
In September, 2014, the Company obtained an auto loan of approximately $29 from a bank. The loan requires 60 monthly payments of $0.535 through August 2019. Interest is charged at a fixed nominal rate of 4.64%. The loan is collateralized by the underlying automobile.
|
September 27, 2014
|
December 28,
2013
|
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Note payable
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$ | 29 | -- | |||||
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Less current maturity
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6 | -- | ||||||
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Note payable, net of current maturity
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$ | 23 | -- | |||||
| 8 |
TOFUTTI BRANDS INC.
| Item 2. |
Condition and Results of Operations
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The following is management’s discussion and analysis of certain significant factors which have affected our financial position and operating results during the periods included in the accompanying financial statements.
The discussion and analysis which follows in this Quarterly Report and in other reports and documents and in oral statements made on our behalf by our management and others may contain trend analysis and other forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 which reflect our current views with respect to future events and financial results. These include statements regarding our earnings, projected growth and forecasts, and similar matters which are not historical facts. We remind stockholders that forward-looking statements are merely predictions and therefore are inherently subject to uncertainties and other factors which could cause the actual future events or results to differ materially from those described in the forward-looking statements. These uncertainties and other factors include, among other things, business conditions in the food industry and general economic conditions, 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.
Critical Accounting Policies
Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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. The policies discussed below are considered by management to be critical to an understanding of our financial statements because their application places the most significant demands on management’s judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. For all of these policies, management cautions that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment.
Revenue Recognition. We recognize revenue when goods are shipped from our production facilities or outside warehouses and the following four criteria have been met: (i) the product has been shipped and we have no significant remaining obligations; (ii) persuasive evidence of an arrangement exists; (iii) the price to the buyer is fixed or determinable; and (iv) collection is probable. We record as deductions against sales all trade discounts, returns and allowances that occur in the ordinary course of business, when the sale occurs. To the extent we charge our customers for freight expense, it is included in revenues. The amount of freight costs charged to customers has not been material to date.
Accounts Receivable. The majority of our accounts receivables are due from distributors (domestic and international) and retailers. Credit is extended based on evaluation of a customers’ financial condition and, generally, collateral is not required. Accounts receivable are most often due within 30 to 90 days and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. We determine whether an allowance is necessary by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, the customer’s current ability to pay its obligation, and the condition of the general economy and the industry as a whole. We write off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the bad debt expense account. We do not accrue interest on accounts receivable past due.
| 9 |
Deferred Revenue and Costs. Deferred revenue represents amounts from sales of our products that have been billed and shipped, but for which the transactions have not met our revenue recognition criteria. The cost of the related products have been recorded as deferred costs on our balance sheet.
Inventory. Inventory is stated at lower of cost or market determined by first in first out (FIFO) method. Inventories in excess of future demand are written down and charged to the provision for inventories. At the point of which loss is recognized, a new, lower cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in the newly established cost basis.
Fixed Asset. Fixed assets consist of a company automobile used for advertising and trade show purposes. Amortization is provided by charges to income using the straight-line method over the useful life of five years.
Income Taxes. Our company has a history of losses and has a full valuation allowance on the deferred tax assets. We will recognize a tax benefit in the financial statements for an uncertain tax position only if management’s assessment is that the position is “more likely than not” (i.e., a likelihood greater than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term “tax position” refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for financial reporting purposes. Our federal and state tax returns are open to examination for the years 2011 through 2013.
Results of Operations
Thirteen Weeks Ended September 27, 2014 Compared with Thirteen Weeks Ended September 28, 2013
Net
sales for the thirteen weeks ended September 27, 2014 were $3,292,000, a decrease of $150,000, or 4%, from net sales of
$3,442,000 for the thirteen weeks ended September 28, 2013. The decrease in sales was primarily the result of a
decrease in frozen food product sales, primarily frozen desserts, with a smaller decrease in our nondairy cheese
product line. In addition, in the 2014 period we increased promotional and allowance activity by over $100,000, which
negatively affected reported sales. We expect that our sales promotion programs activity will continue at present
or increased levels into 2015.
Our
gross profit in the thirteen week period ended September 27, 2014 was $841,000, a decrease of $196,000, or 20%, compared to $1,037,000
in the thirteen week period ended September 28, 2013 caused primarily by the reduction in sales. Our gross profit percentage
was 26% for the period ending September 27, 2014 compared to 30% for the period ending September 28, 2013. The
decrease in our gross profit percentage was due primarily to additional sale promotion programs in the 2014 period. Freight
out expense, a significant part of our cost of sales, decreased by $29,000, or 10%, to $261,000 for the thirteen weeks ended September
27, 2014 compared with $290,000 for the thirteen weeks ended September 28, 2013, partly as a result of the reduction
in sales and lower fuel costs. As a percentage of sales, freight out expense decreased to 7% in the 2014
thirteen week period from 8% for the 2013 thirteen week period. Our freight out expense during the third quarter was
positively impacted by the pick-up allowance we offer, which saves us a significant expense. Because we no longer have
to ship to the customers who make use of the pick-up allowance, it costs us significantly less to offer the allowance than to
pay to ship the products. We expect such savings will continue going forward.
Selling expenses decreased by $98,000, or 24%, to $306,000 for the thirteen weeks ended September 27, 2014 compared to $404,000 for the thirteen weeks ended September 28, 2013. This decrease was due principally to decreases in outside warehouse rental expense of $50,000, bad debt expense of $29,000, and commission expense of $24,000, which decreases were partially offset by an increase in travel, entertainment and auto expense of $12,000. We anticipate that the current period’s selling expenses will continue on the same level for the balance of 2014.
| 10 |
Marketing expenses decreased by $33,000, or 20%, to $128,000 for the thirteen weeks ended September 27, 2014 compared to $161,000 for the thirteen weeks ended September 28, 2013 due principally to decreases in public relations expense of $21,000, television, radio and newspaper advertising expense of $11,000, promotions expense of $8,000, and point of sales expense of $4,000, which decreases were partially offset by an increase in artwork and plate expense of $12,000. We anticipate that the current period’s marketing expenses will continue on the same level for the balance of 2014.
Research and development costs, which consist principally of salary expenses and laboratory costs, increased by $22,000, or 18%, to $152,000 for the thirteen weeks ended September 27, 2014 from $130,000 for the thirteen weeks ended September 28, 2013 due to an increase in professional fees and outside services of $20,000 and lab costs and supplies of $8,000, which increases were partially offset by a decrease in payroll expense of $6,000. The increase in professional fees and outside services expense was due to additional kosher certification fees. We anticipate that our research and development expenses will continue at the same level for the remainder of 2014.
General
and administrative expenses decreased by $31,000, or 7%, to $419,000 for the thirteen weeks ended September 27, 2014 compared
with $450,000 for the thirteen weeks ended September 28, 2013 due to decreases in public relations expense of $20,000,
contribution expense of $11,000, and professional fees and outside services expense of $10,000, which decreases were
partially offset by an increase in general insurance expense of $7,000. We anticipate that our general and administrative
expenses will continue on the same level for the balance of 2014.
We did not recognize any income tax expense for the thirteen weeks ended September 27, 2014 compared to $41,000 in income tax expense for the thirteen weeks ended September 28, 2013. The income tax expense for the thirteen weeks ended September 28, 2013 was due to a change in estimate for refundable income taxes which we finalized when amending our returns during the thirteen weeks ending September 28, 2013.
Thirty-nine Weeks Ended September 27, 2014 Compared with Thirty-nine Weeks Ended September 28, 2013
Net
sales for the thirty-nine weeks ended September 27, 2014 were $10,647,000, a decrease of $496,000, or 4%, from net sales of $11,143,000
for the thirty-nine weeks ended September 28, 2013. The decrease in sales was primarily from decreases in sales in
the second and third quarters mainly in our frozen dessert and frozen food categories, which were partially offset by an increase
in sales in the first quarter of 2014. In addition, in the 2014 period we increased promotional and allowance activity
by over $192,000, which negatively affected reported sales.
Our gross profit in the period ended September 27, 2014 was $3,092,000, a decrease of $438,000, or 6%, compared to $3,530,000 in the period ended September 28, 2013 primarily caused by the reduction in sales. Our gross profit percentage was 29% for the period ending September 27, 2014 compared to 32% for the period ending September 28, 2013. The decrease in our gross profit percentage was due primarily to promotional activity in 2014, primarily during the second and third quarters. Freight out expense, a significant part of our cost of sales, decreased by $98,000, or 12%, to $699,000 for the September 27, 2014 compared to $797,000 for the thirty-nine weeks ended September 28, 2013, reflecting the lower level of sales. Our freight out expense during the third quarter was positively impacted by the pick-up allowance we offer, which saves us a significant expense. Because we no longer have to ship to the customers who make use of the pick-up allowance, it costs us significantly less to offer it than to pay to ship the products.
| 11 |
Selling expenses decreased by $234,000, or 17%, to $1,117,000 for the thirty-nine weeks ended September 27, 2014 compared to $1,351,000 for the thirty-nine weeks ended September 28, 2013. This decrease was due principally to decreases in payroll expense of $120,000, commissions expense of $50,000, outside warehouse rental expense of $11,000, and meeting and convention expense of $22,000. These decreases were partially offset by an increase in travel, entertainment and auto expense of $5,000.
Marketing expenses decreased by $83,000, or 17%, to $402,000 for the thirty-nine weeks ended September 27, 2014 compared to $485,000 for the thirty-nine weeks ended September 28, 2013 due principally to decreases in magazine and newspaper advertising expense of $70,000, promotion expense of $26,000, public relations expense of $15,000, and point of sale material expense of $8,000, which decreases were offset by an increase in artwork and plate expense of $33,000.
Research and development costs, which consist principally of salary expenses and laboratory costs, increased by $38,000, or 8%, to $488,000 for the thirty-nine weeks ended September 27, 2014 from $450,000 for the thirty-nine weeks ended September 28, 2013 due to increases in professional fees and outside services expense of $50,000 and lab supply expense of $15,000, which increases were partially offset by decreases in payroll expense of $16,000 and equipment repair expense of $10,000. The increase in professional fees and outside services expense was due to additional kosher certification fees.
General and administrative expenses decreased by $107,000, or 7%, to $1,327,000 for the thirty-nine weeks ended September 27, 2014 compared with $1,434,000 for the thirty-nine weeks ended September 28, 2013 due to decreases in professional fees and outside services expense of $55,000, public relations expense of $29,000, contributions expense of $26,000, and decreases in IT expense of $4,000, which decreases were offset in part by an increase in general insurance expense of $16,000.
We recognized income tax expense for the thirty-nine weeks ended September 27, 2014 of $6,000 compared to income tax expense of $46,000 for the thirty-nine weeks ended September 28, 2013. The income tax expense for the thirty-nine weeks ended September 28, 2013 was due to a change in estimate for refundable income taxes which we finalized when amending our returns during the thirty-nine weeks ending September 28, 2013.
Liquidity and Capital Resources
As of September 27, 2014, we had approximately $64,000 in cash and cash equivalents and our working capital was approximately $2.4 million, compared with approximately $214,000 in cash and cash equivalents and working capital of $2.7 million at December 28, 2013.
The following table summarizes our cash flows for the periods presented:
|
Thirty-nine Weeks
ended September 27, 2014 |
Thirty-nine Weeks
ended September 28, 2013 |
|||||||
|
Net cash used in operating activities
|
$ | (150,000 | ) | $ | (174,000 | ) | ||
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Net cash used in financing activities
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-- | -- | ||||||
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Net decrease in cash and cash equivalents
|
$ | (150,000 | ) | $ | (174,000 | ) | ||
| 12 |
The decrease in our cash and cash equivalents for the thirty-nine weeks ended September 28, 2014 is attributable to the $150,000 used in operating activities. The net cash used in operating activities was due primarily to the $248,000 net loss in the period, a $293,000 increase in current assets, and a $29,000 increase in fixed assets, offset in part by an increase in current liabilities of $546,000. Inventory and accounts receivable increased by $62,000 and $315,000, respectively. Accounts payable and accrued expenses increased primarily as a result of the inventory purchases made during the thirty-nine weeks ended September 27, 2014. While we believe that we will be able to fund our operations during the next twelve months from our working capital and from cash generated from operations, we are investigating establishing a line of credit to provide additional financial resources for our working capital and cash flow requirements.
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 minimal seasonal variations with slightly increased sales historically in the second and third quarters of the fiscal year. We expect to continue to experience slightly higher sales in the second and third quarters, and slightly lower sales in the fourth and first quarters, as a result of reduced sales of nondairy frozen desserts during those periods.
Off-balance Sheet Arrangements
None.
Contractual Obligations
As of September 27, 2014, we did not have any material contractual obligations or commercial commitments.
Recent Accounting Pronouncements
See Note 4 to the unaudited condensed consolidated financial statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
We do not believe that our exposure to market risk related to the effect of changes in interest rates, foreign currency exchange rates, commodity prices and other market risks with regard to instruments entered into for trading or for other purposes is material.
Evaluation of Disclosure Controls and Procedures. As of September 27, 2014, our company’s chief executive officer and chief financial officer conducted an evaluation regarding the effectiveness of our company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based upon the evaluation of these controls and procedures, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective as September 27, 2014.
| 13 |
Disclosure Controls and Internal Controls. As provided in Rule 13a-14 of the General Rules and Regulations under the Securities and Exchange Act of 1934, as amended, Disclosure Controls are defined as meaning controls and procedures that are designed with the objective of insuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, designed and reported within the time periods specified by the SEC’s rules and forms. Disclosure Controls include, within the definition under the Exchange Act, and without limitation, controls and procedures to insure that information required to be disclosed by us in our reports is accumulated and communicated to our management, including our chief executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure. Internal Controls are procedures which are designed with the objective of providing reasonable assurance that (1) our transactions are properly authorized; (2) our assets are safeguarded against unauthorized or improper use; and (3) our transactions are properly recorded and reported, all to permit the preparation of our financial statements in conformity with generally accepted accounting principles.
Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of the Chief Executive Officer and Chief Financial Officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management’s evaluation of internal control over financial reporting includes using the COSO framework, an integrated framework for the evaluation of internal controls issued by the Committee of Sponsoring Organizations of the Treadway Commission, to identify the risks and control objectives related to the evaluation of our control environment.
Based on their evaluation under the frameworks described above, our chief executive officer and chief financial officer have concluded that our internal control over financial reporting was ineffective as of September 27, 2014 because of the following material weaknesses in internal controls over financial reporting:
|
|
●
|
a lack of sufficient resources and an insufficient level of monitoring and oversight, which may restrict our ability to gather, analyze and report information relative to the financial statements and income tax assertions in a timely manner.
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|
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●
|
The limited size of the accounting department makes it impracticable to achieve an optimum separation of duties.
|
We are seeking ways to remediate these weaknesses, which stem from our small workforce, which consisted of twelve employees at September 27, 2014, that will not require us to hire additional personnel.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the period covered by this report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 14 |
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Item 1.
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We are not a party to any material litigation.
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Item 1A.
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There have been no material changes to the Company’s “Risk Factors” set forth in its Annual Report on Form 10-K for the year ended December 28, 2013.
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Item 2.
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None.
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Item 3.
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None.
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Item 4.
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Item 5.
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None.
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Item 6.
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31.1
|
Certification by Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
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31.2
|
Certification by Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
|
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32.1
|
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.
|
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32.2
|
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.
|
|
101.INS
|
Instance Document*
|
|
101.SCH
|
Schema Document*
|
|
101.CAL
|
Calculation Linkbase Document*
|
|
101.DEF
|
Definition Linkbase Document*
|
|
101.LAB
|
Labels Linkbase Document*
|
|
101.PRE
|
Presentation Linkbase Document*
|
|
*
|
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for the purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
|
| 15 |
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.
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(Registrant)
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/s/David Mintz
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David Mintz
|
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President
|
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/s/Steven Kass
|
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Steven Kass
|
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Chief Accounting and Financial Officer
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Date: November 12, 2014
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| 16 |