TOFUTTI BRANDS INC - Quarter Report: 2010 October (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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S
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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 October 2, 2010
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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)
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Delaware
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13-3094658
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(State of Incorporation)
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(I.R.S. Employer Identification No.)
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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 T 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 o 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 T
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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 T
As of November 15, 2010 the Registrant had 5,176,678 shares of Common Stock, par value $.01, outstanding.
TOFUTTI BRANDS INC.
INDEX
2
TOFUTTI BRANDS INC.
(in thousands, except share and per share figures)
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October 2,
2010
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January 2,
2010
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(unaudited)
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Assets
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Current assets:
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Cash and cash equivalents
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$ | 2,289 | $ | 1,413 | ||||
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Accounts receivable, net of allowance for doubtful
accounts and sales promotions of $593 and $538,
respectively
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1,697 | 1,461 | ||||||
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Inventories
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1,652 | 1,931 | ||||||
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Prepaid expenses
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14 | 13 | ||||||
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Refundable income taxes
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33 | 252 | ||||||
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Deferred income taxes
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299 | 299 | ||||||
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Total current assets
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5,984 | 5,369 | ||||||
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Fixed assets, net of accumulated amortization of $37 and $33
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11 | 15 | ||||||
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Other assets
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16 | 16 | ||||||
| $ | 6,011 | $ | 5,400 | |||||
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Liabilities and Stockholders’ Equity
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Current liabilities:
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Accounts payable
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$ | 585 | $ | 164 | ||||
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Accrued expenses
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477 | 616 | ||||||
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Accrued officers’ compensation
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375 | 500 | ||||||
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Total current liabilities
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1,437 | 1,280 | ||||||
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Stockholders’ equity:
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||||||||
| Preferred stock - par value $.01 per share;
authorized 100,000 shares, none issued
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-- | -- | ||||||
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Common stock - par value $.01 per share;
authorized 15,000,000 shares, issued and
outstanding 5,176,678 shares at October 2, 2010
and 5,176,678 shares at January 2, 2010
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52 | 52 | ||||||
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Retained earnings
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4,522 | 4,068 | ||||||
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Total stockholders’ equity
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4,574 | 4,120 | ||||||
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Total liabilities and stockholders’ equity
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$ | 6,011 | $ | 5,400 | ||||
See accompanying notes to condensed financial statements.
3
TOFUTTI BRANDS, INC.
(Unaudited)
(in thousands, except per share figures)
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Thirteen
weeks ended
October 2, 2010
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Thirteen
weeks ended
September 26, 2009
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Thirty-nine
weeks ended
October 2, 2010
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Thirty-nine
weeks ended
September 26, 2009
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|||||||||||||
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Net sales
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$ | 4,378 | $ | 4,730 | $ | 13,474 | $ | 14,137 | ||||||||
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Cost of sales
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2,909 | 3,211 | 9,221 | 9,812 | ||||||||||||
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Gross profit
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1,469 | 1,519 | 4,253 | 4,325 | ||||||||||||
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Operating expenses:
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Selling and warehouse
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376 | 369 | 1,163 | 1,235 | ||||||||||||
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Marketing
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100 | 136 | 403 | 328 | ||||||||||||
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Research and development
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148 | 152 | 430 | 444 | ||||||||||||
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General and administrative
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508 | 546 | 1,517 | 1,579 | ||||||||||||
| 1,132 | 1,203 | 3,513 | 3,592 | |||||||||||||
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Income before income taxes
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337 | 316 | 740 | 733 | ||||||||||||
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Income tax expense
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125 | 116 | 295 | 283 | ||||||||||||
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Net income
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$ | 212 | $ | 200 | $ | 445 | $ | 450 | ||||||||
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Weighted average common shares outstanding:
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Basic and diluted
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5,177 | 5,177 | 5,177 | 5,178 | ||||||||||||
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Net income per common share:
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Basic and diluted
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$ | 0.04 | $ | 0.04 | $ | 0.09 | $ | 0.09 | ||||||||
See accompanying notes to condensed financial statements.
4
TOFUTTI BRANDS INC.
(Unaudited)
(in thousands)
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Thirty-nine
weeks
ended
October 2, 2010
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Thirty-nine
weeks
ended
September 26, 2009
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|||||||
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Cash flows provided by operating activities, net
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$ | 876 | $ | 595 | ||||
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Cash flows used in financing activities, net
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-- | (14 | ) | |||||
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Net increase in cash and cash equivalents
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876 | 581 | ||||||
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Cash and cash equivalents at beginning of period
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1,413 | 238 | ||||||
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Cash and cash equivalents at end of period
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$ | 2,289 | $ | 819 | ||||
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Supplemental cash flow information:
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Income taxes paid
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$ | -- | $ | -- | ||||
See accompanying notes to condensed financial statements.
5
TOFUTTI BRANDS INC.
(in thousands, except per share figures)
Note 1: 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 2: 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 January 2, 2010 have been derived from our audited financial statements for the year ended January 2, 2010. The financial information should be read in conjunction with the audited financial statements and notes thereto for the year ended January 2, 2010 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 October 2, 2010 are not necessarily indicative of the results to be expected for the full year.
The Company operates on a fiscal year which ends on the Saturday closest to December 31st. The Company’s 2010 fiscal year ends on January 1, 2011, and the quarterly period end dates are April 3, 2010, July 3, 2010 and October 2, 2010.
Note 3: Recent Accounting Pronouncements
There have been no recent accounting pronouncements or changes in accounting pronouncements during the thirteen weeks ended October 2, 2010, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2010, that are of material significance, or have potential material significance, to the Company.
6
TOFUTTI BRANDS INC.
Notes to Condensed Financial Statements
(in thousands, except per share figures)
Note 4: Inventories
The composition of inventories is as follows:
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October 2,
2010
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January 2,
2010
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Finished products
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$ | 1,162 | $ | 1,214 | ||||
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Raw materials and packaging
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490 | 717 | ||||||
| $ | 1,652 | $ | 1,931 | |||||
Note 5: 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.
Note 6: Earnings Per Share
Basic earnings per common share has been computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per common share has been computed by dividing net income by the weighted average number of common shares outstanding and common stock equivalents, which include options outstanding during the same period. Not included in the calculation were 51,000 non-qualified options and 61,000 non-qualified options to directors, respectively, that were antidilutive because the average market price of our common stock for the thirteen and thirty-nine week periods ended October 2, 2010 and September 26, 2009 was less than the exercise price of any of these options.
The following table sets forth the computation of basic and diluted earnings per share:
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Thirteen Weeks
Ended
October 2, 2010
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Thirteen Weeks
Ended
September 26, 2009
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Thirty-nine Weeks
Ended
October 2, 2010
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Thirty-nine Weeks
Ended
September 26, 2009
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Numerator
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Net income-basic
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$ | 212 | $ | 200 | $ | 445 | $ | 450 | ||||||||
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Net income-diluted
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$ | 212 | $ | 200 | $ | 445 | $ | 450 | ||||||||
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Denominator
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Denominator for basic and diluted earnings per share weighted average shares
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5,177 | 5,177 | 5,177 | 5,178 | ||||||||||||
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Earnings per common share
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||||||||||||||||
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Basic and diluted
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$ | 0.04 | $ | 0.04 | $ | 0.09 | $ | 0.09 | ||||||||
7
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 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 customer’s 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. We provide various promotional allowances to our customers which are included in our reserves based on our estimated expense for the period.
8
Allowance for Inventory Obsolescence. We are required to state our inventories at the lower of cost or market price. We maintain an allowance for inventory obsolescence for losses resulting from inventory items becoming unsaleable due to expiration of product shelf life, loss of specific customers or changes in customers’ requirements. Based on historical and projected sales information, we believe our allowance is adequate. However, changes in general economic, business and market conditions could cause our customers’ purchasing requirements to change. These changes could affect our ability to sell our inventory; therefore, the allowance for inventory obsolescence is reviewed regularly and changes to the allowance are updated as new information is received.
Income Taxes. The carrying value of deferred tax assets assumes that we will be able to generate sufficient future taxable income to realize the deferred tax assets based on estimates and assumptions. If these estimates and assumptions change in the future, we may be required to record a valuation allowance against deferred tax assets which could result in additional income tax expense.
Results of Operations
Thirteen Weeks Ended October 2, 2010 Compared with Thirteen Weeks Ended September 26, 2009
Net sales for the thirteen weeks ended October 2, 2010 were $4,378,000, a decrease of $352,000, or 7%, from the sales level realized for the thirteen weeks ended September 26, 2009. Sales were negatively impacted in the thirteen weeks ended October 2, 2010 because of a significant decrease in sales in all frozen dessert categories. Management believes this is an industry-wide trend, which may be due to the continuing economic recession. The decrease in frozen dessert sales has been offset in part by continuing strong sales in our cheese product categories.
Our gross profit in the thirteen week period ended October 2, 2010 decreased by $50,000 to $1,469,000, reflecting the lower level of sales. Our gross profit percentage for the thirteen week period ending October 2, 2010 was 34% compared to 32% for the period ending September 26, 2009. This improvement in gross profit percentage was due to an improvement in the mix of products sold in the 2010 period compared to the 2009 period. During the 2010 period sales of less profitable frozen dessert products, which had been part of the product mix sold in the 2009 period, were discontinued. Freight out expense decreased to $237,000 for the thirteen weeks ended October 2, 2010 compared with $242,000 for the thirteen weeks ended September 26, 2009. This decrease was the result of our arranging shipments in a more cost-effective manner by shipping our frozen dessert novelties from our plant in Indiana to the West Coast rather than shipping them from our third-party Pennsylvania warehouse.
Selling and warehouse expenses increased slightly to $376,000 for the thirteen weeks ended October 2, 2010 compared with $369,000 for the thirteen weeks ended September 26, 2009. This increase was due primarily to an $8,000 increase in commission expense.
Marketing expenses decreased by $36,000 to $100,000 for the thirteen weeks ended October 2, 2010 compared with $136,000 for the thirteen weeks ended September 26, 2009 due principally to a $28,000 decrease in newspaper advertising expense and a $22,000 decrease in promotion expense, which were partially offset by a $10,000 increase in public relations expense.
Research and development costs, which consist principally of salary expenses and laboratory costs, decreased slightly to $148,000 for the thirteen weeks ended October 2, 2010 compared to $152,000 for the thirteen weeks ended September 26, 2009. This decrease was primarily due to a decrease in lab costs and supplies of $15,000, which was partially offset by increases of $6,000 in payroll expense and $5,000 of professional fees and outside services expense.
9
General and administrative expenses decreased to $508,000 for the thirteen weeks ended October 2, 2010 compared with $546,000 for the thirteen weeks ended September 26, 2009, due primarily to decreases travel and entertainment expense of $25,000 and public relations expense of $15,000.
Income tax expense was $125,000 in the thirteen weeks ended October 2, 2010 compared to income tax expense of $116,000 in the thirteen weeks ended September 26, 2009. The effective tax rate used to calculate the tax expense was 37% for the current period as compared to a tax rate of 42% for the 2009 period. We expect that the effective tax rate for the full fiscal year will be approximately 40%.
Thirty-Nine Weeks Ended October 2, 2010 Compared with Thirty-Nine Weeks Ended September 26, 2009
Net sales for the thirty-nine weeks ended October 2, 2010 were $13,474,000, a decrease of $663,000 or 5%, from the sales level realized for the thirty-nine weeks ended September 26, 2009. Sales were negatively impacted in the thirty-nine weeks ended October 2, 2010 because of a significant decrease in sales in all frozen dessert categories. Management believes this is an industry-wide trend, which may be due to the continuing economic recession. The decrease in frozen dessert sales has been offset in part by continuing strong sales in our cheese product categories.
Our gross profit in the period ended October 2, 2010 decreased by $72,000, or 2%, to $4,253,000 due to the lower sales in the 2010 period. Our gross profit percentage increased to 32% for the thirty-nine week period ended October 2, 2010 compared to 31% for the thirty-nine week period ended September 26, 2009. This improvement in gross profit percentage was due to a reduction in freight out expense and an improvement in the mix of products sold. During the 2010 period sales of less profitable frozen dessert products, which had been part of the product mix sold in the 2009 period, were discontinued. Freight out expense, part of our cost of sales, decreased by $32,000, or 4%, to $722,000 for the thirty-nine weeks ended October 2, 2010 compared with $754,000 for the thirty-nine weeks ended September 26, 2009. The decrease in freight out expense was a result of our arranging shipments in a more cost-effective manner by shipping our frozen dessert novelties from our plant in Indiana to the West Coast rather than shipping them from our third-party Pennsylvania warehouse.
Selling and warehouse expenses decreased by 6% to $1,163,000 for the thirty-nine week period ended October 2, 2010 compared with $1,235,000 for the comparable period in 2009. This decrease is due primarily to decreases in commission expense of $9,000, outside warehouse rental of $31,000 and payroll expense of $55,000. These decreases were partially offset by an increase in auto expense of $26,000.
Marketing expenses increased by $75,000 to $403,000 in the thirty-nine week period ended October 2, 2010 from $328,000 in the thirty-nine weeks ended September 26, 2009 due principally to a $39,000 increase in advertising expense and a $33,000 increase in promotion expense.
Research and development costs, which consist principally of salary expenses and laboratory costs, decreased slightly to $430,000 for the thirty-nine weeks ended October 2, 2010 compared to $444,000 for the thirty-nine weeks ended September 26, 2009, due primarily to a decrease of $13, 000 in payroll expense.
General and administrative expenses decreased to $1,517,000 for the thirty-nine week period ended October 2, 2010 compared with $1,579,000 for the thirty-nine week period ended September 26, 2009 due primarily to decreases in payroll expense of $30,000, travel and entertainment expense of $36,000 and outside fees and professional fee expense of $18,000, which were offset by increases in auto expense of $12,000 and data processing expense of $7,000.
10
The slight increase in income tax expense in the thirty-nine week period ended October 2, 2010 to $295,000 from $283,000 in the 2009 thirty-nine week period ended September 26, 2009 reflects the slightly higher effective tax rate of 40% in the 2010 period compared to 39% in the 2009 period.
Liquidity and Capital Resources
As of October 2, 2010, we had approximately $2.3 million in cash and cash equivalents and our working capital was approximately $4.6 million compared to $1.4 million in cash and cash equivalents and working capital of approximately $4.1 million at January 2, 2010. Management determined not to incur the costs associated with renewing the company's line of credit with Wachovia Bank which lapsed on April 30, 2010 after assessing our financial condition, which improved substantially since the beginning of 2009 and our history of never drawing on the line since 2006 when the line of credit was first obtained.
The following table summarizes our cash flows for the periods presented:
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Thirty-Nine
Weeks ended
October 2,
2010
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Thirty-Nine
Weeks ended
September 26,
2009
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|||||||
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Net cash provided by operating activities
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$ | 876,000 | $ | 595,000 | ||||
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Net cash used in financing activities
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-- | (14,000 | ) | |||||
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Net change in cash and cash equivalents
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$ | 876,000 | $ | 581,000 | ||||
The increase in our net cash flows provided by operating activities was primarily the result of net income for the period, the reduction in inventory, and the increase in accounts payable, which were partially offset by the increase in accounts receivable and the decrease in accrued expenses.
Our net cash flows used in financing activities in the thirty-nine weeks ended September 26, 2009 represents the repurchase of our common stock. Our Board of Directors first instituted a share repurchase program in September 2000 and has to date authorized the repurchase of 2,200,000 shares of our common stock at prevailing market prices. As of January 2, 2010, we had repurchased 1,818,889 shares at a total cost of $5,294,000, or an average price of $2.91 per share. We have not repurchased any shares since the period ended March 28, 2009 in order to conserve our cash position. In March 2010, our Board of Directors authorized management to reinitiate share repurchases and increased the authorized repurchase program to 2,200,000 shares from 1,850,000 shares of common stock.
We believe that our working capital and operating cash flow will be sufficient to meet 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 nondairy frozen desserts during those periods.
11
Off-balance Sheet Arrangements
None.
Contractual Obligations
As of October 2, 2010, we did not have any contractual obligations or commercial commitments, including obligations relating to discontinued operations.
Recent Accounting Pronouncements
See Note 3 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.
Changes in Market Risk
The continuing recession, driven initially by the crisis in global credit and financial markets, has lead to severely diminished liquidity and credit availability, declines in consumer confidence, increases in unemployment rates and uncertainty about economic stability. The current economic climate could impact the ability of our customers and consumers to purchase our products. Our business and financial performance, including collection of our accounts receivable and realization of inventory may be adversely affected if economic conditions deteriorate or do not improve.
Evaluation of Disclosure Controls and Procedures. As of October 2, 2010, 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 of the end of the thirteen weeks ended October 2, 2010.
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.
12
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 October 2, 2010 because of the following material weaknesses in internal controls over financial reporting:
|
|
·
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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 and accurate manner; and
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·
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the limited size of our accounting department makes it impracticable to achieve an optimum separation of duties.
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In the thirteen weeks ended July 3, 2010, we identified accounting errors in our Condensed Financial Statements for the thirteen weeks ended April 3, 2010. To correct such errors, we recorded a $148,000 reduction in net sales and a $55,000 reduction in cost of sales in the Condensed Statement of Operations for the thirteen weeks ended July 3, 2010. The after-tax impact of recording this adjustment was a $56,000 reduction in net income, or $0.01 per share. We determined that the errors were not material to the financial statements in the period in which they originated and, accordingly, a restatement of the financial statements for the thirteen weeks ended April 3, 2010 was not necessary. Management evaluated the relevant internal controls over financial reporting in light of the deficiencies in internal controls noted and did not identify any additional material weakness in internal control over financial reporting.
Remediation Plan
We are seeking ways to remediate these weaknesses, which stem from our small workforce, 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.
13
We are not a party to any material litigation.
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 January 2, 2010.
None.
None.
None.
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31.1
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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
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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
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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
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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.
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14
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.
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TOFUTTI BRANDS INC.
(Registrant)
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By:
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/s/ David Mintz | |
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David Mintz
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President
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By:
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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 16, 2010
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