UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| Quarterly
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended |
| Transition report pursuant to Section 13 or 15(d) of the Exchange Act for the transition period from ☐ to ☐ |
Commission
file number:
(Exact Name of Registrant as Specified in Its Charter)
| (State of Incorporation) | (I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices)
(Registrant’s Telephone Number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None |
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.
Indicate by check mark whether the registrant has submitted electronically 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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller
reporting company |
Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
As of May 16, 2023 the Registrant had shares of Common Stock, par value $0.01, outstanding.
TOFUTTI BRANDS INC.
INDEX
| 2 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TOFUTTI BRANDS INC.
Unaudited Condensed Balance Sheets
(in thousands, except share and per share figures)
| April 1, 2023 | December 31,2022 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowance for doubtful accounts and sales promotions was $ | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Operating lease right-of-use assets | ||||||||
| Financing lease right-of-use assets | ||||||||
| Deferred tax assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Income taxes payable | $ | $ | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Financing lease liabilities, current | ||||||||
| Total current liabilities | ||||||||
| Financing lease liabilities, long-term | ||||||||
| Operating lease liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock - par value $ per share; authorized shares, issued and outstanding | ||||||||
| Common stock - par value $ per share; authorized shares, issued and outstanding shares | ||||||||
| Additional paid in capital | ||||||||
| Retained earnings | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to unaudited condensed financial statements.
| 3 |
TOFUTTI BRANDS, INC.
Unaudited Condensed Statements of Operations
(in thousands, except per share figures)
| Thirteen weeks | Thirteen weeks | |||||||
| ended | ended | |||||||
| April 1, 2023 | April 2, 2022 | |||||||
| Net sales | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Selling and warehouse | ||||||||
| Marketing | ||||||||
| Research and development | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Income from operations | ( | ) | ||||||
| SBA loan forgiveness | ||||||||
| Income before interest expense and income taxes | ( | ) | ||||||
| Interest expense | ||||||||
| (Loss) income before income tax | ( | ) | ||||||
| Provision for income taxes | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Weighted average common shares outstanding | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
| (Loss) earnings per share: | ||||||||
| Basic | $ | ( | ) | $ | ||||
| Diluted | $ | ( | ) | $ | ||||
See accompanying notes to unaudited condensed financial statements.
| 4 |
TOFUTTI BRANDS, INC.
Unaudited Condensed Statements of Changes in Stockholders’ Equity
(in thousands)
| Thirteen weeks ended April 1, 2023 | ||||||||||||||||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Total | |||||||||||||
| December 31, 2022 | $ | $ | $ | $ | ||||||||||||
| Stock-based compensation | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||
| April 1, 2023 | $ | $ | $ | $ | ||||||||||||
| Thirteen weeks ended April 2, 2022 | ||||||||||||||||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Total | |||||||||||||
| January 1, 2022 | $ | $ | $ | $ | ||||||||||||
| Net income | ||||||||||||||||
| April 2, 2022 | $ | $ | $ | $ | ||||||||||||
See accompanying notes to unaudited condensed financial statements.
| 5 |
TOFUTTI BRANDS INC.
Unaudited Condensed Statements of Cash Flows
(in thousands)
| Thirteen weeks ended April 1, 2023 | Thirteen weeks ended April 2, 2022 | |||||||
| Cash used in operating activities, net | $ | ( | ) | $ | ( | ) | ||
| Cash used in financing activities, net | ( | ) | ||||||
| Net (decrease) increase in cash | ( | ) | ( | ) | ||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Interest paid | $ | |||||||
See accompanying notes to unaudited condensed financial statements.
| 6 |
TOFUTTI
BRANDS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(In thousands, except for share and per share data)
Note 1: Basis of Presentation
The accompanying unaudited condensed financial information, 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 results of operations for the thirteen-week period ended April 1, 2023 are not necessarily indicative of the results to be expected for the full year or any other period.
The Company’s fiscal year is either a fifty-two or fifty-three-week period which ends on the Saturday closest to December 31st.
Note 2: Recently Issued Accounting Standards
The Company considers the applicability and impact of all Accounting Standard Updates (“ASUs”). ASUs not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s balance sheets or statements of operations.
On January 1, 2023, we adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaces the previously established credit losses framework with a new accounting standard that requires management to measure an allowance for expected credit losses that is based on a broader range of reasonable and supportable information for lifetime credit loss estimates.
Note 3: Inventories
Inventories consist of the following:
| April 1, 2023 | December 31, 2022 | |||||||
| Finished products | $ | $ | ||||||
| Raw materials and packaging | ||||||||
| $ | $ | |||||||
| 7 |
TOFUTTI
BRANDS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(In thousands, except for share and per share data)
Note 4: Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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. The Company accounts for penalties or interest related to uncertain tax positions as part of its provision for income taxes.
The
Company recognized an income tax expense of $
Basic earnings per common share (“EPS”) applicable to common stockholders is computed by dividing earnings applicable to common stockholders by the weighted-average number of common shares outstanding. If there is a loss from operations, diluted EPS is computed in the same manner as basic EPS is computed.
Thirteen weeks ended April 1, 2023 | Thirteen weeks ended April 2, 2022 | |||||||
| Net income (loss), numerator, basic computation | $ | ( | ) | $ | ||||
| Net income (loss), numerator, diluted computation | $ | ( | ) | $ | ||||
| Weighted average shares - denominator basic computation | ||||||||
| Weighted average shares, as adjusted - denominator diluted computation | ||||||||
| Earnings (loss) per common share - basic | $ | ( | ) | $ | ||||
| Earnings (loss) per common share - diluted | $ | ( | ) | $ | ||||
Thirteen weeks Ended April 1, 2023 | Thirteen weeks Ended April 2, 2022 | |||||||
| Shares subject to outstanding common stock options | ||||||||
| 8 |
TOFUTTI
BRANDS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(In thousands, except for share and per share data)
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. Such grants can be, but are not limited to, options, stock appreciation rights, restricted stock, performance grants, stock bonuses, and any other type of award that is consistent with the purposes of the 2014 Plan. Employees and officers of the Company are eligible to receive incentive stock options while corporate directors are only eligible to receive non-qualified options.
The 2014 Plan made shares of common stock available for awards. 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.” and stock options were issued in 2022 and 2021, respectively, and non-qualified options were outstanding as of December 31, 2022. The exercise price of all options granted in 2022 is $ per share, the market price at the close of business on the date of the grant. of the options vested at the respective grant date, will vest in December 2023, and will vest in December 2024. In the event of a sale of the Company at any time prior to December 22, 2024, all remaining unvested options shall vest immediately. All options expire on December 21, 2027.
The following is a summary of stock option activity from December 31, 2022 to April 1, 2023:
| NON-QUALIFIED OPTIONS | ||||||||
| Shares | Weighted Average Exercise Price ($) | |||||||
| Outstanding at December 31, 2022 | ||||||||
| Granted | ||||||||
| Exercised | ||||||||
| Outstanding at April 1, 2023 | ||||||||
| Exercisable at April 1, 2023 | ||||||||
Range of Exercise Prices ($) | Number Outstanding | Weighted Average Remaining Life (in years) | Weighted Average Exercise Price($) | Number Exercisable | ||||||||||||
| $ | $ | |||||||||||||||
The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing formula. Expected volatilities and risk-free interest rates are based upon the expected life of the grant. The interest rates used are the U.S. Treasury yield curve in effect at the time of the grant.
During fiscal year ended December 31, 2022, options were granted, with of the options vesting at the respective grant date, vesting in December 2023, and vesting in December 2024. At the date of grant, expected volatility was %, a risk-free rate of %, % expected dividends, and an expected term of .
As of April 1, 2023, the intrinsic value of the options outstanding and exercisable options was $ and $, respectively, and there was $ of total unrecognized compensation cost. Total stock-based compensation for the thirteen weeks ended April 1, 2023 was $, which is recorded in general and administrative expenses on the statement of operations.
options will expire on December 22, 2027 if not exercised by that date.
Note 7: Note Payable
Small Business Administration (SBA) Loan
On
May 2, 2020, the Company received from the SBA a loan of $
Note 8: Revenue
Performance obligations relating to the delivery of food products are satisfied when the goods are shipped to the customer and net of all applicable discounts, as follows: Payment term discounts, off-invoice allowance, manufacturer chargeback, freight allowance, spoilage discounts, and product returns.
Revenues by geographical region are as follows:
Thirteen weeks ended April 1, 2023 | Thirteen weeks ended April 2, 2022 | |||||||
| Revenues by geography: | ||||||||
| Americas | $ | $ | ||||||
| Europe | ||||||||
| Asia Pacific and Africa | ||||||||
| Middle East | ||||||||
| $ | $ | |||||||
| 9 |
TOFUTTI
BRANDS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(In thousands, except for share and per share data)
Approximately
Thirteen weeks ended April 1, 2023 | Thirteen weeks ended April 2, 2022 | |||||||
| Frozen desserts and foods | $ | $ | ||||||
| Cheeses | ||||||||
| $ | $ | |||||||
Note 9: Leases
The
Company’s facilities are located in a one-story facility in Cranford, New Jersey. The
Under Topic 842, operating lease expense is generally recognized evenly over the term of the lease. The standard requires a lessee to record a right-of-use asset and a corresponding lease liability at the inception of the lease. The current portion of lease liabilities is included in accrued expenses on the condensed balance sheets.
Under Topic 842, finance lease cost includes amortization, which is recognized on a straight-line basis over the expected life of the leased asset, and interest expense, which is recognized following an effective interest rate method. The Company has a finance lease consisting of a copier lease with a term of four years. The standard requires a lessee to record a right-of-use asset and a corresponding lease liability at the inception of the lease.
The
Company’s lease agreements generally do not provide an implicit borrowing rate; therefore, an internal incremental borrowing rate
is determined based on information available at lease commencement date for purposes of determining the present value of lease payments.
At the time of adoption of Topic 842, the Company used the incremental borrowing rate of
| 10 |
TOFUTTI
BRANDS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(In thousands, except for share and per share data)
ROU lease assets and lease liabilities for our operating leases were recorded in the balance sheet as follows:
| As of | As of | |||||||
| April 1, 2023 | December 31, 2022 | |||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Current portion of lease liabilities | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Total lease liability | $ | $ | ||||||
| Weighted average remaining lease term (in years) | ||||||||
| Weighted average discount rate | % | % | ||||||
ROU lease asset and lease liability for our finance lease were recorded in the balance sheet as follows:
| As of | As of | |||||||
| April 1, 2023 | December 31, 2022 | |||||||
| Finance lease right-of-use asset | $ | $ | ||||||
| Current portion of lease liabilities | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Total lease liabilities | $ | $ | ||||||
| Weighted average remaining lease term (in years) | ||||||||
| Weighted average discount rate | % | % | ||||||
Future lease payments included in the measurement of lease liabilities on the balance sheet as of April 1, 2023 are as follows:
| Operating lease liabilities | Finance lease liability | Total | ||||||||||
| 2023 (remainder of year) | $ | $ | $ | |||||||||
| 2024 | ||||||||||||
| 2025 | ||||||||||||
| 2026 | ||||||||||||
| Total future minimum lease payments | ||||||||||||
| Present value adjustment | ( | ) | ( | ) | ( | ) | ||||||
| Total | $ | $ | $ |
| ||||||||
| 11 |
TOFUTTI BRANDS INC.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is management’s discussion and analysis of certain significant factors which have affected our financial position and operating results during the periods included in the accompanying 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 Estimates
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 primarily sell plant-based, vegan, dairy-free soy-based cheeses and frozen desserts. We recognize revenue when control over the products transfers to our customers, deemed to be the performance obligation, which generally occurs when the product is shipped or picked up from one of our distribution locations by the customer. We account for product shipping, handling and insurance as fulfillment activities with revenues for these activities recorded within net revenue and costs recorded within cost of sales. Revenues are recorded net of trade and sales incentives and estimated product returns. Known or expected pricing or revenue adjustments, such as trade discounts, rebates or returns, are estimated at the time of sale. We base these estimates of expected amounts principally on historical utilization and redemption rates. Estimates that affect revenue, such as trade incentives and product returns, are monitored and adjusted each period until the incentives or product returns are realized.
Key sales terms, such as pricing and quantities ordered, are established on a frequent basis such that most customer arrangements and related incentives have a one year or shorter duration. As such, we do not capitalize contract inception costs and we capitalize product fulfillment costs in accordance with U.S. GAAP and our inventory policies. We generally do not have any unbilled receivables at the end of a period.
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 and reserve for sales promotions. Accounts outstanding longer than the contractual payment terms are considered past due. We make estimates of expected credit and collectability trends for the allowance for credit losses based upon our assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of our customers, current and future economic conditions that may affect the Company’s expectation of the collectability in determining the allowance for credit losses.
Inventory. Inventory is stated at lower of cost or net realizable value 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.
Income Taxes. 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. A valuation allowance is recorded if there is uncertainty as to the realization of 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.
Recent Accounting Pronouncements
Our company considers the applicability and impact of all Accounting Standard Updates (“ASUs”). ASUs not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on our balance sheets or statements of operations.
On January 1, 2023, we adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaces the previously established credit losses framework with a new accounting standard that requires management to measure an allowance for expected credit losses that is based on a broader range of reasonable and supportable information for lifetime credit loss estimates.
| 12 |
Results of Operations
Thirteen Weeks Ended April 1, 2023 Compared with Thirteen Weeks Ended April 2, 2022
Net sales for the thirteen weeks ended April 1, 2023 decreased to $2,490,000, or 28%, from net sales of $3,463,000 for the thirteen weeks ended April 2, 2022. Sales of our vegan cheese products decreased to $2,100,000 in the thirteen weeks ended April 1, 2023 from $2,916,000 in the thirteen weeks ended April 2, 2022, due to the timing of cheese promotions that occurred this year versus last year. Sales of our frozen dessert and frozen food products, which consist primarily of frozen dessert products, decreased to $390,000 for the thirteen weeks ended April 1, 2023 from $547,000 for the thirteen weeks ended April 2, 2022. Sales of frozen dessert products were negatively impacted by a reduction in sales of our pint products.
Our gross profit decreased significantly to $606,000 for the thirteen weeks ended April 1, 2023 from $857,000 for the thirteen weeks ended April 2, 2022, due primarily to the timing of promotions being moved to a different fiscal period. Our gross profit percentage was 24% for the thirteen weeks ending April 1, 2023 compared to 25% for the thirteen weeks ended April 2, 2022.
Freight expense, a significant part of our cost of sales, decreased by $106,000, or 33%, for the thirteen weeks ended April 1, 2023 compared with $212,000, or 9%, for the thirteen weeks April 2, 2022. Freight expense was 9% of sales for both the thirteen weeks ended April 1, 2023 and April 2, 2022.
Selling expenses increased by $7,000, or 3%, to $271,000 for the thirteen weeks ended April 1, 2023 from $264,000 for the thirteen weeks ended April 2, 2022. The increase was due to increases in meetings and convention expense of $44,000 and sample shipping costs of $7,000, which were partially offset by decreases in commission expense of $21,000, outside warehouse rental expense of $15,000, and a decrease in bad debt expense of $15,000. The decrease in commission expense was caused by the decrease in sales, while the increase in meetings and convention expense was due to the sponsoring of food shows in 2023 that were not attended in the comparable 2022 period.
Marketing expenses decreased by $61,000, or 39%, to $95,000 for the thirteen weeks ended April 1, 2023 from $156,000 for the thirteen weeks ended April 2, 2022. The decrease was primarily due to decreases in advertising expense of $16,000, artwork and plate expense of $13,000, and promotion expense of $49,000, which were partially offset by an increase in point of sale materials expense of $13,000. The decrease in promotion expense is a reflection of the decrease in sales. We anticipate that our marketing expenses will continue at a lower level as compared to those for the 2022 period.
Product development costs, which consist principally of salary expenses and laboratory costs, decreased slightly by $12,000, or 27%, to $27,000 for the thirteen weeks ended April 1, 2023 from $40,000 for the thirteen weeks ended April 2, 2022, due to a $12,000 decrease in laboratory supplies. We anticipate our product development costs for the balance of the year will continue at a similar level as those for the 2022 period.
General and administrative expenses decreased by $35,000, or 10%, to $302,000 for the thirteen weeks ended April 1, 2023 from $337,000 for the thirteen weeks ended April 2, 2022, primarily due to decreases in professional fees and outside services expense of $15,000, public relations expense of $28,000 and IT expense of $7,000, which were partially offset by an increase in non-cash compensation expense of $20,000. We anticipate that our general and administrative expenses will continue at a slightly lower level than those for the 2022 period.
Income tax expense was $11,000 for the thirteen weeks ended April 1, 2023 and $20,000 for the thirteen weeks ended April 2, 2022. The income tax expense resulted from the reduction in the deferred tax asset balance during the thirteen weeks ended April 1, 2023 compared to the thirteen weeks ended April 2, 2022.
| 13 |
Liquidity and Capital Resources
As of April 1, 2023, we had approximately $418,000 in cash and our working capital was approximately $3,554,000, compared with approximately $1,072,000 in cash and working capital of $3,625,000 at December 31, 2022. The decrease in cash is primarily due to decreases in accounts payable and accrued expenses.
The following table summarizes our cash flows for the periods presented:
Thirteen Weeks ended April 1, 2023 | Thirteen Weeks ended April 2, 2022 | |||||||
| Net cash used in operating activities | $ | (650 | ) | $ | (109 | ) | ||
| Net cash used in financing activities | (4 | ) | - | |||||
| Net decrease in cash and cash equivalents | (654 | ) | (109 | ) | ||||
Net cash used in operating activities for the thirteen weeks ended April 1, 2023 was $650,000 compared to $109,000 used in operating activities for the thirteen weeks ended April 2, 2022. Net cash used in operating activities for the thirteen weeks ended April 1, 2023 was primarily a result of a net loss of $102,000, an increase in inventories of $124,000, deferred taxes of $32,000, a decrease in accounts payable and accrued expenses of $838,000, and a non-cash lease expense of $3,000, offset by a decrease in accounts receivable of $365,000, a decrease in deferred taxes of $10,000, stock-based compensation of $20,000, and a decrease in prepaid expenses and other current assets of $14,000. The increase in inventories during the period is due to management’s decision to purchase certain key ingredients in advance of production needs to ensure an adequate supply and to prevent future production disruptions.
We believe our existing cash on hand at April 1, 2023, existing working capital and the cash flows expected from operations will be sufficient to support our operating and capital requirements during the next twelve months.
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 dairy-free frozen desserts during those periods.
Off-balance Sheet Arrangements
None.
Contractual Obligations
We had no material contractual obligations as of April 1, 2023.
Recently Issued Accounting Standards
See Note 2 to the unaudited condensed financial statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
| 14 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As of April 1, 2023, our Company’s chief executive and 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 and financial officer concluded that our disclosure controls and procedures were not effective as April 1, 2023.
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 interim 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 the evaluation under the frameworks described above, Mr. Kass, our chief executive and chief financial officer, has concluded that our internal control over financial reporting was ineffective as of April 1, 2023 because of the following material weaknesses in internal controls over financial reporting:
| ● | A continuing 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, including but not limited to accounting estimates, reserves, allowances, and income tax matters, in a timely manner. | |
| ● | The limited size of the accounting department makes it impracticable to achieve an optimum separation of duties and monitoring of internal controls. |
To date, we have been unable to remediate these weaknesses, which stem from our historically small workforce, which consisted of four persons at April 1, 2023.
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.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any material litigation.
Item 1A. Risk Factors
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 31, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Default Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
| 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. | |
| 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. | |
| 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. | |
| 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 | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Schema Document | |
| 101.CAL | Inline XBRL Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Definition Linkbase Document | |
| 101.LAB | Inline XBRL Labels Linkbase Document | |
| 101.PRE | Inline XBRL Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| TOFUTTI BRANDS INC. | |
| (Registrant) | |
| /s/ Steven Kass | |
| Steven Kass | |
| Chief Executive Officer | |
| Chief Accounting and Financial Officer | |
| Date: May 16, 2023 |
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