SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 27, 1997
Commission File Number: 1-9009
TOFUTTI BRANDS INC.
(Name of small business issuer in its charter)
Delaware 13-3094658
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 Jackson Drive, Cranford, New Jersey 07016
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (908) 272-2400
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, par value $.01 per share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
Yes x No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $7,440,000
The aggregate market value of voting stock held by non-affiliates computed by
reference to the closing sale price of such stock, as reported by the American
Stock Exchange, on March 12, 1998 was $3,476,000.
As of March 12, 1998, the Registrant had 6,183,567 shares of Common Stock, par
value $.01, outstanding.
Transitional Small Business Disclosure Format Yes No x .
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PART I
Item 1. Description of Business
GENERAL
Tofutti Brands Inc., a Delaware corporation (the "Company") is engaged in
the development, production and marketing of TOFUTTI(R) brand non-dairy frozen
desserts and other food products. TOFUTTI products are non-dairy, soya-based
products which contain no butterfat, cholesterol or lactose. Butterfat and
cholesterol are perceived by some medical experts and a significant number of
consumers as causing health problems. In addition, some studies have shown that
lactose intolerance, the inability to metabolize milk and dairy products, is
present to varying degrees in a significant number of people. All dairy products
have lactose, or milk sugar. Most human beings are born with a supply of
lactase, an enzyme essential for digesting lactose. With age, the body's supply
of lactase may diminish, which may cause difficulty in the digestion of lactose.
TOFUTTI products are 100% milk free yet offer the same texture and full-bodied
taste as their dairy counterparts. TOFUTTI products are also free of cholesterol
and derive their fat from soy and corn, both naturally lower in saturated fat
than dairy products.
TOFUTTI products are an alternative for dairy-conscious individuals with
lactose intolerance or for those health-oriented people with a desire to keep
cholesterol intake in check. The Company's products enable such individuals to
enjoy products similar to dairy products without their downside health risks.
Although the Company believes the absence of lactose and butterfat in TOFUTTI
products makes them attractive to persons with lactose intolerance or heart
disease, the Company has not conducted any studies regarding the efficacy of
TOFUTTI products as they relate to lactose intolerance and heart disease and
makes no representation as to the accuracy of studies performed by others.
Since May 1982, the Company has been engaged in the sale of a liquid mix
for the processing of TOFUTTI in numerous flavors by soft serve machines at
retail locations. In June 1984, the Company commenced selling hard frozen
TOFUTTI.
The Company made several new product introductions in 1996. During the
year, the Company extended its non-dairy cheese line by introducing six new
flavors of BETTER THAN CREAM CHEESE(R) and three new flavors of SOUR SUPREME(R).
During the summer of 1996, the Company introduced several new frozen novelty
items, including cakes and other chocolate enrobed novelties. The Company at
this time also introduced its first non-frozen, non-refrigerated product line,
TOFUTTI COOKIES. In December 1996, the Company introduced a chocolate coated
CANNOLI filled with a non-dairy cheese filling. The Company also introduced
several new products in 1997. Among them were a peanut butter flavor TOFUTTI
CUTIE(R), TOFUTTI SOY LAVASCH(TM) flatbread crackers, and TOFUTTI SOY-RITE(TM)
frozen soy beverage.
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In 1996, the Company also made a change in its distribution arrangements
for the metropolitan New York area. Effective March 31, 1996, the Company
terminated the services of The Haagen-Dazs Company and appointed the Mattus Ice
Cream Company to be its New York area master distributor. During 1997 the
Company improved the distribution of its products, which resulted in a
significant increase in sales.
TOFUTTI PRODUCT LINE
o Premium TOFUTTI non-dairy frozen dessert, available in prepacked pints,
three-gallon cans and soft serve mix, is sold nationally in supermarkets,
grocery stores, retail shops and restaurants. The Company currently offers
seven flavors of premium hard frozen TOFUTTI: Chocolate Supreme, Wildberry
Supreme, Vanilla, Vanilla Almond Bark(R), Vanilla Fudge, Chocolate Cookie
Crunch and Better Pecan(R).
o TOFUTTI low fat non-dairy frozen dessert offers the calorie-conscious
consumer a creamy dessert that is 98% fat free and less than 120 calories
per serving. Sold nationally in pints, LOW FAT TOFUTTI is offered in a
number of flavors including Vanilla Fudge, Chocolate Fudge, Coffee
Marshmallow Swirl, Strawberry Banana and Peach Mango.
o Cool and refreshing TOFUTTI SORBETS in pint containers offer the consumer a
natural sorbet dessert and come in six flavors: Chocolate, Strawberry,
Orange Peach Mango, Lemon, Coffee and Raspberry Tea.
o HONEY SWEETENED TOFUTTI in pints offers those individuals with sugar
restrictions a natural alternative without artificial sweeteners and comes
in two flavors: Vanilla Chamomile and Krazy Garlic Plus.
o TOFUTTI CUTIES(R) are bite-size frozen sandwiches combining a chocolate,
vanilla, wildberry or peanut butter filling between two chocolate wafers.
Half the size of traditional ice cream sandwiches, TOFUTTI CUTIES offer
consumers a portion controlled treat.
o TOFUTTI TOO-TOO'S(TM) are frozen dessert cookie sandwiches combining creamy
and delicious TOFUTTI with a round, vanilla/chocolate chip cookie.
TOO-TOO's are available in three flavors: Vanilla, Vanilla/Chocolate Swirl
and Vanilla/Chocolate Chip.
o TOFUTTI FRUTTI(R) stick novelties have 180 calories per bar and combine
creamy vanilla TOFUTTI with a tangy sorbet covered in chocolate.
o TEDDY FUDGE POPS(R) and CHOCOLATE FUDGE TREATS are stick novelties that
offer the consumer the same taste as real fudge bars. The TEDDY FUDGE POP
has 70 calories and 1 gram of fat per bar, while CHOCOLATE FUDGE TREATS
have only 30 calories per bar and are fat and sugar free.
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o TOFUTTI DIXIE CUPS offer the consumer a portion controlled 4 oz. cup of
TOFUTTI frozen dessert in either Vanilla or Chocolate flavors.
o TOFUTTI SUNDAE CUPS offer the diet conscious consumer a sugar free, fat
free dessert with the taste and texture of premium TOFUTTI. They are
currently available in two flavors: Vanilla Fudge Sundae and Strawberry
Sundae.
o TOFUTTI FROZEN DESSERT CAKES offer the Tofutti consumer an upscale
non-dairy frozen dessert alternative to dairy ice cream cakes. The cakes
come in various types, CHOCOLATE LOVERS DELIGHT, ROCK N' ROLL and the
SPRINKLE ROLL, and sizes. They are currently available in supermarkets and
health food store outlets.
o TOFUTTI ITALIAN STYLE CANNOLI are made using the Company's non-dairy BETTER
THAN CREAM CHEESE. They combine a creamy, non-dairy cheese filling with a
chocolate covered cannoli shell and are available in retail packages.
o BETTER THAN CREAM CHEESE(R) is similar in taste and texture to traditional
cream cheese but is milk and butterfat free and contains no cholesterol.
The 8 oz. retail packages are available in plain, French onion, herbs and
chives, wildberry, smoked salmon, jalapeno, cinnamon and raisin, ginseng
and dill, garlic and herb and garden veggie. The plain version is also
available in 30 lb. bulk boxes, while certain select flavors are available
in 5 lb. containers.
o SOUR SUPREME(R) complements BETTER THAN CREAM CHEESE in that it is similar
in taste and texture to traditional sour cream but is milk and
butterfat-free and contains no cholesterol. The 12 oz. retail packages are
available in plain, guacamole, salsa and cherries 'n' berries. The plain
version is also available in 30 lb. bulk boxes.
o TOFUTTI TORTELLINI are bite-sized frozen pasta filled with TOFUTTI BETTER
THAN CREAM CHEESE and are sold in 15 oz. bags for supermarkets and health
food stores. The tortellini are available in three flavors: cheese, spinach
cheese and meatless meat.
o EGG WATCHERS(R) is a fat-free replacement for whole eggs that has the
taste, nutrition and versatility of whole eggs without the cholesterol and
with 60% less calories and fat. EGG WATCHERS can be used in virtually all
recipes that require whole eggs.
o TOFUTTI COOKIES are made with all natural ingredients and unbleached flour.
The 16 oz. packages are available in peanut butter, oatmeal raisin,
chocolate chip and TOFIGGI(TM) fig bars. Like all TOFUTTI products, they
are completely dairy and cholesterol free.
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o TOFUTTI SOY LAVASCH(TM) flatbread crackers, made with TOFUTTI BETTER THAN
CREAM CHEESE, offer consumers a tasty snack that tastes delicious with
spreads or simply plain. SOY LAVASCH come in 5 oz. retail packages and are
available in four flavors: Onion & Poppy, Garlic & Dill, Hot & Spicy and
Herb & Chive.
o TOFUTTI SOY RITE(TM) is a frozen soy beverage that offers health conscious
consumers a nutritional creamy beverage drink with all the taste and
texture of real milk, yet contains no lactose or cholesterol. SOY RITE
comes in Vanilla and Chocolate Flavors and is available in 8 oz. and 16 oz.
containers.
PRODUCTION
All of the Company's products are manufactured by co-packers to whom the
Company supplies certain key ingredients for the manufacturing processes. The
Company's co-packers manufacture and package the Company's products and, in
certain instances, warehouse such products pending shipment. For certain key
product categories, such as non-dairy frozen dessert and non-dairy cheeses, the
Company has more than one co-packer. The Company currently has ten co-packers,
including one in the United Kingdom that manufactures the Company's non-dairy
frozen dessert pints.
The Company does not have any written production agreements with its
co-packers and does not anticipate that it would encounter any material
difficulty in obtaining alternative production sources, at a comparable cost, if
one or all of its contract manufacturers decide to terminate their relationships
with the Company.
In order to protect its formulas, the Company has entered into
confidentiality arrangements with its contract manufacturers and their
employees. There can be no assurance that such confidentiality arrangements can
or will be maintained, or that the Company's trade secrets, know-how and
marketing ability cannot be obtained by others, or that others do not now
possess similar or even more effective capabilities.
KOF-K Kosher Supervision ("KOF-K") of Teaneck, New Jersey provides the
Company's kosher certification service. Before KOF-K will permit its
certification, evidenced by its symbol, to be placed on a product, KOF-K must
approve both the ingredients contained in the product and the facility
processing the product. The Company believes that its ability to successfully
market and distribute its products is dependent upon its continued compliance
with the requirements of rabbinic certification. All TOFUTTI products meet the
requirements for certification as kosher-parve.
MARKETING AND DISTRIBUTION
TOFUTTI products are sold and distributed across the United States and
internationally, and can be found in gourmet specialty shops, kosher
supermarkets, natural/health food stores, and national and regional supermarket
chains. Generally, most products marketed by the Company are sold to independent
unaffiliated food brokers, to distributors and sometimes on a direct basis
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to retail chain accounts. Food brokers act as agents for the Company within
designated territories or for specific accounts and receive commissions, which
average 5% of net sales.
On April 1, 1993, the Company entered into an exclusive distribution
agreement with Haagen-Dazs, a subsidiary of Grand Metropolitan Ltd., for the
distribution of its non-dairy frozen dessert products principally in the New
York metropolitan area. On February 27, 1996, the Company informed Haagen-Dazs
that its services would be terminated effective March 31, 1996 and that the
Mattus Ice Cream Company would begin distributing in the metropolitan New York
area. Currently, the Company still sells to Haagen-Dazs in Florida and Georgia.
During 1997, sales to Haagen-Dazs distributors nationwide totaled $209,000 or 3%
of sales as compared to $135,000 or 2% of sales in 1996. Total sales to Mattus
in the New York metropolitan area were $801,000 or 11% of sales in 1997 as
compared to total sales to Mattus and Haagen-Dazs in 1996 of $440,000 or 8% of
sales. The increase in sales in the metropolitan New York area was due to the
fact that Mattus distributed the Company's products for all of 1997, as opposed
to only nine months in 1996. Additionally, the Company issued credits in excess
of $100,000 to Haagen-Dazs in 1996 to settle returned product and trade
allowance expenses.
During 1997, the Company expanded its distribution in the national health
food market, which now includes twenty-five distributors. Sales to the Company's
health food distributors in 1997 were $2,985,000 or 40% of sales, as compared to
$2,232,000 or 38% of sales in 1996. In 1997, the Company had sales of $1,033,000
or 14% of sales to Trader Joe's, a west coast based health food supermarket
chain, as compared to $821,000 or 14% in 1996. Overall, the Company's west coast
sales were $1,809,000 or 24% of sales in 1997, as compared to $1,511,000 or 26%
in 1996. The Company continues to have a strong presence in the kosher market,
with sales of $647,000 or 9% of sales in 1997, as compared with sales of
$599,000 or 10% in 1996. The Company expects the favorable trend in the national
health food, west coast and kosher markets to continue in 1998. The Company
currently sells its frozen desserts in most major markets in the United States,
including Atlanta, Boston, Philadelphia, Cleveland, Cincinnati, Detroit, Denver,
Phoenix, Los Angeles, San Francisco and Seattle.
During 1997, the Company shipped TOFUTTI non-dairy products to distributors
in Canada, England, Belgium, France, Germany, the Netherlands, Sweden, Panama,
Martinique, Mexico, Israel and Australia. Sales to distributors in foreign
countries totaled $865,000 or 12% of sales in 1997 as compared to $621,000 or
11% of sales in 1996. The increase in export sales was due primarily to an
increase in sales to the Company's Israeli and European distributors. The
Company's future export sales could be adversely affected by an increase in the
value of the U.S. dollar, which could increase the Company's local currency
price for its products.
RESEARCH AND DEVELOPMENT
During the last two years, David Mintz, Chief Executive Officer, and Reuben
Rapoport, Director of Product Development, have devoted substantial time and
effort to the development of new products and the reformulation of the Company's
current products. In 1997 and 1996, the Company's research and development
expenses were $273,000 and $206,000, respectively. Such amounts do not include
any portion of Mr. Mintz's salary.
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COMPETITION
TOFUTTI frozen desserts compete with all forms of ice cream products,
yogurt-based desserts and other soya-based frozen desserts. The Company believes
it has the most complete line of non-dairy frozen dessert products and is a
leader in this market. Other soya-based frozen dessert products are presently
being sold in both soft serve and hard frozen form throughout the United States
by established manufacturers and distributors of ice cream and other frozen
dessert products. The ice cream and frozen dessert industry is highly
competitive and most companies with whom the Company competes are substantially
larger and have significantly greater resources than the Company. The Company's
other products also face substantial competition, from both non-dairy and dairy
competitive products marketed by companies with significantly greater resources
than the Company.
GOVERNMENT REGULATION
Companies engaged in the manufacture, packaging and distribution of food
items are subject to extensive regulation by various government agencies which,
pursuant to statutes, rules, and regulations, prescribe quality, purity,
manufacturing and labeling requirements. Food products are often subject to
"standard of identity" requirements which are promulgated at either the Federal
or state level to determine the permissible qualitative and quantitative
ingredient content of food. To the extent that any product that the Company
seeks to market does not conform to an applicable standard, special permission
to market such a product is required.
The Company's United States product labels are subject to regulation by the
United States Food and Drug Administration ("FDA"). Such regulations include
standards for product descriptions, nutritional claims, label format, minimum
type sizes, content and location of nutritional information panels, nutritional
comparisons, and ingredient content panels. The Company's labels, ingredients
and manufacturing processes are subject to inspection by the FDA. In 1994,
federal laws relating to food product labeling were amended to require food
product companies to make numerous changes in their product labeling. The
Company believes that it is in compliance with current labeling requirements.
The Food, Drug and Cosmetic Act and rules and regulations promulgated by
the FDA thereunder, contain no specific Federal standard of identity which is
applicable to TOFUTTI. TOFUTTI frozen dessert products meet the New York State
standard of identity for "parevine," which has been adopted by at least eight
other states. Many states require registration and label review before food
products can be sold. While approval in one jurisdiction generally indicates the
products will meet with approval in other jurisdictions, there is no assurance
that approval from other jurisdictions will be forthcoming.
Food manufacturing facilities are subject to inspections by various
regulatory authorities. A finding of a failure to comply with one or more
regulatory requirements can result in the imposition of sanctions including the
closing of all or a portion of a company's facilities, subject to a period
during which the company can remedy the alleged violations. The Company's
Cranford, New Jersey facility is subject to inspection by the New Jersey-Kosher
Enforcement Bureau and Environmental Health Services. The Company believes it
and its distributors and co-packers are in compliance in all material respects
with governmental regulations regarding its current products and has obtained
the material governmental permits, licenses, qualifications and approvals
required for its operations. The Company's compliance with Federal, state and
local environmental laws has not materially affected it either economically or
in the manner in which it conducts its business. However, there can be no
assurance that the Company, its distributors and co-
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packers will be able to comply with such laws and regulations in the future or
that new governmental laws and regulations will not be introduced that could
prevent or temporarily inhibit the development, distribution and sale of the
Company's products to consumers.
TRADEMARKS AND PATENTS
The Company has registered its trademark, TOFUTTI(R), and other trademarks
for its frozen desserts and other products in the United States and
approximately 35 foreign countries. The Company believes its trademarks are an
important means of establishing consumer recognition for its products.
Although the Company believes that its formulas and processes are
proprietary, the Company has not sought patent protection for such technology.
Instead, the Company is relying on the complexity of its technology, on trade
secrecy laws, and on confidentiality agreements. The Company believes that its
technology has been independently developed and does not infringe the patents of
others.
EMPLOYEES
On December 27, 1997, the Company employed eight people on a full-time
basis, compared with seven people as of December 28, 1996. The Company considers
its relations with its employees to be good.
Item 2. Description of Properties
The Company's facilities are located in a modern one-story facility in
Cranford, New Jersey. The 6,200 square foot facility houses the Company's
administrative offices, a warehouse, walk-in freezer and refrigerator, and a
product development laboratory and test kitchen. On January 3, 1994, the Company
signed a five-year lease extension which expires July 1, 1999. Management
believes that the Cranford facility will continue to satisfy the Company's space
requirements for the foreseeable future.
Item 3. Legal Proceedings
The Company is not a party to any material litigation.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock has traded on the American Stock Exchange under
the symbol TOF since October 29, 1985. The following table sets forth the high
and low sales prices as reported on the American Stock Exchange for the two most
recent fiscal years:
Quarter Ended High Low
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March 30, 1996........................ $1 $ 9/16
June 29, 1996......................... 15/16 5/8
September 28, 1996.................... 3/4 5/8
December 28, 1996..................... 3/4 9/16
March 29, 1997........................ 7/8 9/16
June 28, 1997......................... 1-3/16 9/16
September 27, 1997.................... 2-7/8 3/4
December 27, 1997..................... 2-3/16 1-1/8
As of March 12, 1998, there were approximately 1,084 holders of record of
the Company's Common Stock. The Company has not paid and has no present
intention of paying cash dividends on its Common Stock in the foreseeable
future.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position and
operating results during the periods included in the accompanying financial
statements.
The discussion and analysis which follows in this Annual Report may contain
trend analysis and other forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934 which reflect the Company's
current views with respect to future events and financial results. These include
statements regarding the Company's earnings, projected growth and forecasts, and
similar matters which are not historical facts. The Company reminds stockholders
that forward-looking statements are merely predictions and therefore are
inherently subject to
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uncertainties and other factors which could cause the actual future events or
results to differ materially from those described in the forward-looking
statements. These uncertainties and other factors include, among other things,
business conditions and growth in the food industry and general economies, both
domestic and international; lower than expected customer orders; competitive
factors; changes in product mix or distribution channels; and resource
constraints encountered in developing new products. The forward-looking
statements contained in this Annual Report and made elsewhere by or on behalf of
the Company should be considered in light of these factors.
Fifty-two Weeks Ended December 27, 1997 Compared with Fifty-two Weeks Ended
December 28, 1996
Net sales for the fifty-two weeks ended December 27, 1997 were $7,440,000,
an increase of $1,598,000 or 27% from the sales level realized for the fifty-two
weeks ended December 28, 1996. In the 1997 period, sales of hard pack TOFUTTI
and food product sales increased by $1,216,000 and $382,000, respectively. The
hard pack sales increase was attributable to an increase in sales of all
categories of frozen dessert products, while the increase in food product sales
was mostly attributable to an increase in sales of BETTER THAN CREAM CHEESE and
SOUR SUPREME. The Company's gross profit for the current year increased by
$577,000 or 27% due primarily to the sales increase, while its gross profit
percentage remained unchanged at 36% in 1997. The Company's gross profit in 1997
was adversely affected by the start-up costs associated with the Company's new
products and the increased cost of allowances associated with the introduction
of those new products. The Company anticipates its gross profit percentage will
not improve in 1998 due to the continuing introductory sales costs it will incur
with the planned introduction of new products in 1998.
Based on its recent sales trend, the Company believes that its revenues
will improve in 1998. The Company expects continued sales increases in its
frozen dessert and food product lines and in most customer categories.
Selling expenses increased 15% to $1,003,000 for the current fiscal period
from $870,000 for the comparable 1996 period. The primary cause of the increase
was increased warehouse, freight and bad debt expenses. The increase in
warehouse expense is attributable to an increase in inventory to support the
Company's increased level of operations. The increased freight expense is
attributable to the increase in sales. The increase in bad debt expense reflects
an additional provision to the reserve for bad debts arising from the Company's
increased level of sales and for potentially delinquent accounts. Marketing and
sales promotion expenses decreased 25% in 1997 to $172,000 from $230,000 in
1996. This decrease was due principally to the Company's reduction in trade
magazine and newspaper advertising.
Research and development expenses increased in 1997 to $273,000 as compared
to $206,000 in 1996. The increase in research and development expenses was due
to increased costs associated with new product development and the start-up of
new co-packing plants to make those products. General and administrative
expenses were $794,000 for the current period compared with $716,000 for the
comparable period in 1996. The increase of $78,000 was due in part to increased
salary, telephone, office equipment rental, professional fees, and public
relation expenses.
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Interest expense was $7,000 for the fifty-two week period ended December
27, 1997 compared with $12,000 for the fifty-two week period ended December 28,
1996.
As a result of reductions in the valuation allowance on deferred tax
assets, the Company recorded income tax benefits of $83,000 and $45,000 in 1997
and 1996, respectively.
Liquidity and Capital Resources
At December 27, 1997, the Company's working capital was $1,202,000, an
increase of $487,000 from December 28, 1996. At the end of the fifty-two week
period, accounts receivable decreased by $58,000 from December 28, 1996,
principally reflecting the increase in the reserve for bad debts. Inventories
increased by $190,000, reflecting the additional inventory for the Company's new
products. Deferred tax assets increased $139,000 primarily as a result of a
reduction in the valuation allowance. Accounts payable decreased to $94,000 from
$504,000, while accrued expenses increased to $194,000 from $115,000 in 1996.
The increase in income taxes payable of $14,000 represents a provision for state
income taxes offset by a tax benefit related to the exercise of non-qualified
stock options. The overall reduction in the Company's current liabilities of
$315,000 was generated by the Company's improved cash flow caused by the
increased profit in 1997 as compared to 1996. The increase in the Company's
common stock and paid in capital in 1997 of $129,000 was due to the exercise of
stock options in September 1997.
The Company does not have any material capital commitments and contemplates
no material expenditures in the foreseeable future. As a result of the Company's
inability to secure additional financing or equity capital, it has not had
sufficient funds to fully implement the marketing of its new products. This has
hindered the Company in its efforts to increase the sales of its products.
Although the Company was able to fund its operations in 1997 from its current
resources, any substantial increase in its operations may require additional
working capital. Although the Company has had discussions and intends to have
future ones with interested parties concerning additional financing for the
Company, no assurance can be given that such working capital will be available
if required. Management believes that if its operations in 1998 continue in a
manner consistent with its results for 1997, it will have sufficient financial
resources to continue its operations throughout the coming year.
Inflation and Seasonality
The Company does not believe that its operating results have been
materially affected by inflation during the preceding two years. The can be no
assurance, however, that the Company's operating results will not be affected by
inflation in the future. The Company's business is not subject to substantial
seasonal variations.
The Year 2000 Issue
The Company is conducting a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue and is
developing an implementation plan to resolve the issue. The Company presently
believes that, with modifications to existing software and conversions to new
software for certain applications, the Year 2000 issue will not
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pose significant operational problems for the Company's computer systems as so
modified and converted. The Company expects its implementation plan to be
completed on a timely basis and without significant cost.
Other Matters
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for reporting
and display of comprehensive income and its components in the financial
statements. SFAS 130 is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The adoption of SFAS 130 will have no impact
on the Company's results of operations, financial position or cash flows.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes
standards for the way public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. SFAS 131 is effective for financial statements for fiscal years
beginning after December 15, 1997, and the Company will comply beginning with
year-end 1998 results. Financial statement disclosures for prior periods are
required to be restated. The Company is in the process of evaluating the
disclosure requirements. The adoption of SFAS 131 will have no impact on the
Company's results of operations, financial position or cash flows.
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Item 7. Financial Statements
Index to Financial Statements
Independent Auditors' Report.............................................F-1
Financial Statements:
Balance Sheets
December 27, 1997 and December 28, 1996......................F-2
Statements of Operations and Accumulated Deficit
Fifty-two weeks ended
December 27, 1997 and December 28, 1996......................F-3
Statements of Cash Flows
Fifty-two weeks ended
December 27, 1997 and December 28, 1996......................F-4
Notes to Financial Statements...................................F-5
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Independent Auditors' Report
The Board of Directors
Tofutti Brands Inc.:
We have audited the accompanying balance sheets of Tofutti Brands Inc. as of
December 27, 1997 and December 28, 1996, and the related statements of
operations and accumulated deficit, and cash flows for the fifty-two week
periods then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tofutti Brands Inc. as of
December 27, 1997 and December 28, 1996 and the results of its operations and
its cash flows for the fifty-two week periods then ended, in conformity with
generally accepted accounting principles.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Short Hills, New Jersey
March 13, 1998
F-1
<PAGE>
TOFUTTI BRANDS INC.
BALANCE SHEETS
(000's omitted except for share and per share data)
<TABLE>
<CAPTION>
December 27, December 28,
1997 1996
---- ----
<S> <C> <C>
Assets
Current Assets:
Cash $ 54 $ 11
Accounts receivable (net of allowance for doubtful
accounts of $458 in 1997 and $295 in 1996) (Note 2) 919 977
Inventories (Note 3) 541 351
Prepaid expense 7 10
----- ------
Total current assets 1,521 1,349
Fixed assets (net of accumulated depreciation) (Note 4) -- --
Deferred income taxes (Note 9) 450 311
Other assets (Note 5) 97 76
------ ------
Total assets $2,068 $1,736
====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Note payable - current portion 17 15
Accounts payable 94 504
Accrued expenses (Note 6) 194 115
Income taxes payable (Note 9) 14 --
---- ----
Total current liabilities 319 634
Note payable 49 66
---- ----
Total liabilities 368 700
Stockholders' equity (Note 7):
Preferred stock - par value $.01 per share;
authorized 100,000 shares, none issued -- --
Common stock - par value $.01 per share;
authorized 15,000,000 shares, issued and
outstanding 6,183,567 shares at 12/27/97 and
6,053,567 at 12/28/96 62 61
Paid-in capital 3,631 3,503
Accumulated deficit (1,993) (2,528)
------ ------
Total stockholders' equity 1,700 1,036
------ ------
Commitments (Note 8) -- --
------ ------
Total liabilities and stockholders' equity $2,068 $1,736
====== ======
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
TOFUTTI BRANDS INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(000's omitted except for per share data)
<TABLE>
<CAPTION>
Fifty-two weeks Fifty-two weeks
ended ended
December 27, 1997 December 28, 1996
----------------- -----------------
<S> <C> <C>
Net sales $7,440 $5,842
Cost of sales 4,739 3,718
------ -----
Gross profit 2,701 2,124
Operating expenses:
Selling 1,003 870
Marketing and sales promotion 172 230
Research and development 273 206
General and administrative 794 716
----- -----
2,242 2,022
----- -----
Operating income 459 102
Interest expense 7 12
---- ---
Income before income tax benefit 452 90
Income tax benefit (Note 9) 83 45
---- ----
Net income 535 135
Accumulated deficit, beginning of year (2,528) (2,663)
------ ------
Accumulated deficit, end of year $(1,993) $(2,528)
======= =======
Net income per share:
Basic $.09 $.02
Diluted .08 .02
=== ===
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
TOFUTTI BRANDS INC.
STATEMENTS OF CASH FLOWS
(000's omitted)
<TABLE>
<CAPTION>
Fifty-two Fifty-two
weeks ended weeks ended
December 27, December 28,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $535 $135
Net adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Deferred taxes (139) (47)
Provision for bad debts 163 62
Change in assets and liabilities:
Increase in accounts receivable (105) (33)
Increase in inventories (190) (155)
Decrease in prepaid expense 3 1
Increase in other assets (21) (20)
(Decrease) increase in accounts payable (410) 140
Increase (decrease) in accrued expenses 79 (71)
Increase in income taxes payable 14 --
---- ----
Net cash (used in) provided by operating activities (71) 12
---- ----
Cash flows from financing activities:
Repayment of note payable (15) (13)
Issuance of common stock 129 --
---- ----
Net cash provided by (used in) financing activities 114 (13)
---- ----
Net increase (decrease) in cash 43 (1)
Cash at beginning of period 11 12
---- ----
Cash at end of period $ 54 $ 11
==== ====
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 7 $ 12
==== ====
Income taxes 1 2
==== ====
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
TOFUTTI BRANDS INC.
NOTES TO FINANCIAL STATEMENTS
(000's omitted except for share and per share data)
(1) Summary of Significant Accounting Policies
Description of Business
Tofutti Brands Inc. ("Tofutti" or the "Company") is engaged in the development,
production and marketing of non-dairy frozen desserts and other food products.
Revenue Recognition
The Company recognizes revenue when goods are shipped from its production
facilities or outside warehouses.
Common Stock
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128 "Earnings per Share", which requires a
dual presentation of earnings per share basic and diluted. Basic earnings per
common share has been computed by dividing net income by the weighted average
number of common shares outstanding of 6,086,000 in 1997 and 6,054,000 in 1996.
Diluted earnings per share has been computed by dividing net income by the
weighted average number of common shares outstanding, including the dilutive
effects of stock options, of 6,404,000 in 1997 and 6,060,000 in 1996.
In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which allowed companies,
beginning in 1996, to either retain Accounting Principles Board ("APB") Opinion
No. 25 "Accounting for Stock Issued to Employees", and related interpretations,
for recognizing expense for stock-based compensation, or to adopt a new
accounting method based on estimated fair value. The Company has decided to
continue to follow APB 25 and has provided pro forma disclosures of net earnings
as required under the provisions of SFAS 123 (see Note 7).
The change in common stock and paid-in capital during 1997 was attributable to
the exercise of options to purchase 130,000 shares of common stock.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the
first-in, first-out method.
Fixed Assets
Fixed assets are carried at cost. Depreciation is computed using the
straight-line method. When assets are retired or otherwise disposed of, the cost
and related accumulated depreciation are
F-5
<PAGE>
TOFUTTI BRANDS INC.
NOTES TO FINANCIAL STATEMENTS
(000's omitted except for share and per share data)
removed from the accounts, and any resulting gain or loss is recognized in
income for the period. The cost of maintenance and repairs is charged to income
as incurred; significant renewals and betterments are capitalized.
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 and operating
loss and tax credit carryforwards. 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.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," defines
the fair value of a financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing parties.
Cash, accounts receivable, accounts payable, accrued expenses, income taxes
payable and note payable as of December 27, 1997 and December 28, 1996 are
stated at their carrying values. The carrying amounts approximate fair value
because of the short-term maturity of those instruments or because the interest
rates approximate market rates of interest.
Risks and Uncertainties
The Company performs ongoing credit evaluations of its customers' financial
conditions and, generally, requires no collateral from its customers.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-6
<PAGE>
TOFUTTI BRANDS INC.
NOTES TO FINANCIAL STATEMENTS
(000's omitted except for share and per share data)
(2) Accounts Receivable
Activity in the allowance for doubtful accounts is set forth below:
Fifty-two weeks Fifty-two weeks
ended ended
December 27, December 28,
1997 1996
---- ----
Beginning balance $295 $242
Additions charged to expense 163 62
Less: Write offs - 9
---- ----
$458 $295
==== ====
(3) Inventories
Inventories consist of:
December 27, December 28,
1997 1996
---- ----
Finished products $342 $262
Raw materials and packaging 199 89
---- ----
$541 $351
==== ====
(4) Fixed Assets
Fixed assets consist of the following:
December 27, December 28, Useful
1997 1996 Lives
---- ---- -----
Machinery and equipment $30 $30 5 yr
Leasehold improvements 29 29 5 yr
-- --
59 59
Less accumulated depreciation 59 59
-- --
$-- $--
=== ===
(5) Other Assets
On October 17, 1994, the Company's Board of Directors adopted a resolution
wherein the Corporation was authorized to purchase a $1,000 split dollar
insurance plan on the life of a
F-7
<PAGE>
TOFUTTI BRANDS INC.
NOTES TO FINANCIAL STATEMENTS
(000's omitted except for share and per share data)
member of David Mintz's family. Mr. Mintz is Chairman and President of the
Company. The purpose of this transaction is to provide the Mintz estate with
funds sufficient to pay any estate taxes levied upon the transfer of Mr. Mintz's
Tofutti stock, which would otherwise have necessitated a sale of the stock. The
sale of such stock might have the negative effect of significantly decreasing
the market price of the stock to the detriment of other shareholders. Upon the
death of the family member or termination of the policy prior to death, the
Company is to receive a complete refund of all its premiums paid plus interest
at 4%.
(6) Accrued Expenses
Accrued expenses consist of the following:
December 27, December 28,
1997 1996
---- ----
Advertising $ 2 $ 7
Professional fees 31 26
Selling 130 80
Inventory purchases 30 --
Other 1 2
---- ----
Total $194 $115
==== ====
(7) Stock Options
The 1993 Stock Option Plan (the "1993 Plan") provides for the granting to key
employees of incentive stock options, within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, and for the granting of nonstatutory
options to key employees and consultants. The 1993 Plan is currently
administered by the Board of Directors, which determines the terms and
conditions of the options granted under the 1993 Plan, including the exercise
price, number of shares subject to the option and the exercisability thereof.
Options are generally exercisable in cumulative installments of 33-1/3% or 50%
per year commencing one year after the date of grant and annually thereafter,
with contract lives of generally five years from the date of grant. A total of
1,400,000 shares have been reserved for issuance under the 1993 Plan. At
December 27, 1997, 1,220,000 shares were subject to outstanding options and no
additional shares were available for future grant.
F-8
<PAGE>
TOFUTTI BRANDS INC.
NOTES TO FINANCIAL STATEMENTS
(000's omitted except for share and per share data)
The following is a summary of stock option activity from December 30, 1995 to
December 27, 1997:
<TABLE>
<CAPTION>
INCENTIVE OPTIONS NON-QUALIFIED OPTIONS
----------------- ---------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding and exercisable at
December 30, 1995 and
December 28, 1996 83,000 $.681 55,000 $.625
Granted in 1997 1,118,000 .765 102,000 .790
Exercised in 1997 (75,000) .6875 (55,000) .625
Canceled in 1997 (8,000) .625 -- --
------- -----
Outstanding at December 27, 1997 1,118,000 .765 102,000 .790
========= =======
Exercisable at December 27, 1997 -- -- -- --
Weighted average fair value of
options granted during the year $.39 $.39
</TABLE>
The fair value of each stock option granted during 1997 is estimated on the date
of grant using the Black-Scholes option pricing model with the following
assumptions:
1997
----
Expected life (years) 4.0
Expected volatility 62.0%
Expected dividend yield 0.0%
Risk-free interest rate 5.5%
There were no stock options granted during 1996.
F-9
<PAGE>
TOFUTTI BRANDS INC.
NOTES TO FINANCIAL STATEMENTS
(000's omitted except for share and per share data)
The following table summarizes information about the stock options outstanding
at December 27, 1997:
OPTIONS OUTSTANDING
-------------------
Weighted Average Weighted
Range of Number Remaining Life Average
Exercise Prices Outstanding (in years) Exercise Price
- --------------- ----------- ---------- --------------
$.6875--$1.031 1,220,000 4.3 $.767
Set forth below are the Company's net income and net income per share, presented
both "as reported" and "pro forma," as if compensation cost had been determined
consistent with the fair value provisions of SFAS 123:
1997
----
Net income available for common stockholders:
As reported $535
Pro forma 392
Basic earnings per share:
As reported .09
Pro forma .06
Diluted earnings per share:
As reported .08
Pro forma .06
(8) Lease Obligation
Future minimum lease payments under an existing operating lease that expires on
July 1, 1999 are as follows:
Period ending Amount
------------- ------
December 26, 1998 $ 74
Thru July 1, 1999 37
---
Total $111
====
Annual net rental expenses aggregated $68 for each of the fifty-two week periods
ended December 27, 1997 and December 28, 1996.
F-10
<PAGE>
TOFUTTI BRANDS INC.
NOTES TO FINANCIAL STATEMENTS
(000's omitted except for share and per share data)
(9) Income Taxes
The components of income tax expense (benefit) for the fifty-two week periods
ended December 27, 1997 and December 28, 1996 are as follows:
1997 1996
---- ----
Current:
Federal $ -- $ --
State 56 2
-- --
56 2
-- ---
Deferred:
Federal (124) (60)
State (15) 13
---- --
(139) (47)
---- ---
Total income tax benefit $(83) $(45)
==== ====
Deferred tax assets at December 27, 1997 and December 28, 1996 are as follows:
1997 1996
---- ----
Allowance for doubtful accounts $183 $123
Inventories 12 7
Note payable 26 35
Other accruals 53 --
Loss carryforwards and tax credits 435 641
--- ---
Gross deferred tax assets 709 806
Valuation allowance 259 495
--- ---
Net deferred tax assets $450 $311
=== ====
Based upon the level of projected future taxable income over the periods in
which the deferred tax assets principally attributable to the net operating loss
carryforwards are deductible, management believes it is more likely than not the
Company will realize its net deferred tax assets at December 27, 1997. The
amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
F-11
<PAGE>
TOFUTTI BRANDS INC.
NOTES TO FINANCIAL STATEMENTS
(000's omitted except for share and per share data)
The Company has net operating loss carryforwards of approximately $1,192, which
will expire in 2005. The Company also has unused tax credits of approximately
$30.
A reconciliation between the federal tax expense at the statutory tax rate of
34% and the Company's actual tax benefit for the fifty-two week periods ended
December 27, 1997 and December 28, 1996 is as follows:
1997 1996
---- ----
Expected tax $154 $ 31
Non-deductible expenses 8 18
State income taxes, net of federal
income tax benefit 27 10
Change in valuation allowance (236) (132)
Other (36) 28
------ -----
Total $ (83) $ (45)
===== =====
(10) Business Concentrations
During both fifty-two week periods ended December 27, 1997 and December 28,
1996, the Company derived approximately 89% of its net sales domestically. The
remaining sales in both periods were exports to various other countries. Sales
to two customers represented 14% and 11% of net sales in 1997. In 1996, sales to
two customers represented 14% and 12% of net sales.
F-12
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 9. Directors and Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The Directors and Executive Officers of the Company are:
Name Age Position
- ---- --- --------
David Mintz................... 66 Chairman of the Board of Directors,
Chief Executive Officer
Steven Kass................... 46 Chief Financial Officer, Secretary and
Treasurer
Reuben Rapoport............... 67 Director of Product Development and
Director
Franklyn Snitow............... 51 Director
Bernard Koster................ 63 Director
David Mintz has been Chairman of the Board and Chief Executive Officer of
the Company and its predecessor since August 1981.
Steven Kass has been Chief Financial Officer of the Company since November
1986 and the Secretary and Treasurer since January 1987.
Reuben Rapoport has been the Director of Product Development of the Company
since January 1984 and a Director of the Company since July 1983.
Franklyn Snitow has been a Director of the Company since 1987. He has been
a partner in the New York City law firm of Snitow & Pauley, the Company's
general counsel, since 1985.
Bernard Koster has been a Director of the Company since March 1993. He has
been counsel to the New Jersey law firm of Litwin and Holsinger since January
1993. Since February 1990, Mr. Koster has also acted as an independent business
consultant.
All Directors of the Company hold office until the next Annual Meeting of
Stockholders and until their successors have been elected and qualified.
Officers serve at the pleasure of the Board of Directors. There are no family
relationships between Directors and executive officers
-13-
<PAGE>
of the Company. All of the executive officers devote their full time to the
operations of the Company.
Compliance with Section 16(a) of The Exchange Act. Section 16(a) of the
Securities Exchange Act of 1934, as amended, requires the Company's officers and
directors, and persons who own more than ten-percent of its Common Stock, to
file initial statements of beneficial ownership (Form 3), and statements of
changes in beneficial ownership (Forms 4 or 5), of Common Stock and other equity
securities of the Company with the Securities and Exchange Commission (the
"SEC") and the American Stock Exchange. Officers, directors and greater than
ten-percent stockholders are required by SEC regulation to furnish the Company
with copies of all such forms they file.
To the Company's knowledge, based solely on its review of the copies of
such forms received by it, or written representations from certain reporting
persons that no additional forms were required for those persons, the Company
believes that during fiscal 1997 all persons subject to these reporting
requirements filed the required reports on a timely basis except: (i) David
Mintz, Chairman of the Board and President, did not timely file a report on Form
4 for (a) a February 28, 1997 grant of 400,000 options and a July 31, 1997 grant
of 80,000 options under the Company's 1993 Amended Stock Option Plan (the
"Plan"), (b) the September 22, 1997 exercise of 75,000 options granted under
Plan, and (c) the subsequent sale of 40,000 shares so acquired on September 22,
1997 (4,400 shares for $2.5625 per share, 4,000 shares for $2.375 per share,
13,000 shares for $2.625 per share and 5,600 shares for $2.25 per share) and
September 24, 1997 (2,500 shares for $2.375 per share, 2,000 shares for $2.0625
per share, 5,500 shares for $2.4375 per share and 3,000 shares for $2.25 per
share); (ii) Bernard Koster, a director of the Company, did not timely file a
report on Form 4 for (a) a February 28, 1997 grant of 30,000 options and a July
31, 1997 grant of 10,000 options under the Plan, (b) the September 22, 1997
exercise of 16,000 options granted under the Plan, and (c) the subsequent sale
of 12,000 shares so acquired on September 29, 1997 (2,500 shares for $2.4375 per
share, 1,500 shares for $2.25 per share and 2,000 shares for $2.0625 per share),
September 30, 1997 (400 shares for $2.0625 per share and 1,600 shares for $2.00
per share) and October 1, 1997 (2,000 shares for $2.125 per share and 2,000
shares for $2.00 per share); (iii) Reuben Rapoport, a director of the Company,
did not timely file a report on Form 4 for a February 28, 1997 grant of 75,000
options and a July 31, 1997 grant of 20,000 options under the Plan; (iv)
Franklyn H. Snitow, a director of the Company, did not timely file a report on
Form 4 for (a) a February 28, 1997 grant of 30,000 options and a July 31, 1997
grant of 30,000 options under the Plan, (b) the September 21, 1997 exercise of
30,000 options granted under Plan, and (c) the subsequent sale of 10,000 shares
so acquired on September 22, 1997 for $2.4375 per share; and (v) Steven Kass,
Chief Financial Officer, Secretary and Treasurer of the Company, did not timely
file a report on Form 4 for a February 28, 1997 grant of 360,000 options and a
July 31, 1997 grant of 70,000 options under the Company's Plan.
-14-
<PAGE>
Item 10. Executive Compensation
The following table sets forth information concerning the total
compensation during the last three fiscal years for the Company's executive
officers whose total salary in fiscal 1997 totaled $100,000 or more:
SUMMARY COMPENSATION TABLE
--------------------------
Annual Long-Term
Compensation Compensation
------------ ------------
Securities Underlying
Name and Principal Position Year Salary ($) Options (#)
- --------------------------- ---- ---------- -----------
David Mintz 1997 $180,000(1) 480,000
Chief Executive Officer 1996 155,000(2) --
and Chairman of the Board 1995 125,000 --
Steven Kass 1997 117,500(1) 430,000
Chief Financial Officer 1996 100,000(2) --
Secretary and Treasurer 1995 --(3) --
- ---------------
(1) Includes bonuses of $30,000 and $20,000 for Messrs. Mintz and Kass,
respectively, accrued at year-end and payable April 1, 1998.
(2) Includes bonuses of $30,000 and $15,000 for Messrs. Mintz and Kass,
respectively, accrued at year-end and payable April 1, 1997.
(3) Less than $100,000.
The aggregate value of all other perquisites and other personal benefits
furnished in each of the last three years to each of these executive officers
was less than 10% of each officer's salary for such year.
On October 17, 1994, the Company's Board of Directors adopted a resolution
wherein the Corporation was authorized to purchase a $1,000,000 split dollar
insurance plan on the life of a member of David Mintz's family. Mr. Mintz is
Chairman and Chief Executive Officer of the Company. The purpose of this
transaction is to provide the Mintz estate with funds sufficient to pay any
estate taxes levied upon the transfer of Mr. Mintz's Tofutti stock, which would
have otherwise necessitated a sale of the stock. The sale of such stock might
have a negative effect of significantly decreasing the market price of the stock
to the detriment of other shareholders. Upon the death of the family member or
termination of the policy prior to death, the Company is to receive a complete
refund of all its premiums paid plus interest at 4%.
There are currently no employment agreements between the Company and any of
its officers. Neither Mr. Snitow nor Mr. Koster has received any cash
remuneration from the Company for his service as a Director in the last three
years.
-15-
<PAGE>
STOCK OPTIONS
The following table provides information concerning the grants and
exercising of stock options during the Company's last fiscal year to each of the
officers named above in the Summary Compensation Table.
<TABLE>
<CAPTION>
OPTIONS GRANTED IN LAST FISCAL YEAR
-----------------------------------
Percent of
Number of Total
Shares Options
Underlying Granted to
Options Employees in
Name Granted (#) Fiscal Year Exercise Price ($/SH) Expiration Date
- ---- ----------- ----------- --------------------- ---------------
<S> <C> <C> <C> <C>
David Mintz, 400,000(1) 32.8 $ .756 2/28/02
Chief Executive Officer 80,000(2) 6.6 1.031 7/31/02
and Chairman of the
Board
Steven Kass, 360,000(1) 29.5 .6875 2/28/02
Chief Financial Officer, 70,000(2) 5.7 .9375 7/31/02
Secretary and Treasurer
- ----------------------
</TABLE>
(1) One-third of the shares subject to this option becomes exercisable on each
of January 1, 1998, January 1, 1999 and January 1, 2000.
(2) One-half of the shares subject to this option becomes exercisable on each
of August 1, 1998 and August 1, 1999.
-16-
<PAGE>
The following table provides information concerning stock options held in
1997 by each of the executive officers named above in the Summary Compensation
Table.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
---------------------------------------------
Number of Shares
Shares Underlying Unexercised Value of Unexercised in the
Acquired on Value Options at FY-End (#) Money Options at FY-End ($)
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ ------------ ------------------------- --------------------------
<S> <C> <C> <C> <C>
David Mintz, 75,000 $70,312(1) 480,000 (U) $395,120(U)(1)
Chief Executive Officer
and Chairman of the
Board
Steven Kass, -- -- 430,000(U) 385,625(U)(1)
Chief Financial Officer,
Secretary and Treasurer
</TABLE>
- -----------------------
(E) Exercisable options
(U) Unexercisable options
(1) Calculated by subtracting option exercise price from year-end market price.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of March 12, 1998, certain information
regarding the Company's Common Stock, $.01 par value, for each person known by
the Company to be the beneficial owner of more than 5% of the outstanding shares
of the Company's Common Stock, for each executive officer named in the Summary
Compensation Table, for each of the Company's Directors and for the executive
officers and Directors of the Company as a group:
Amount of
Name Beneficial Ownership Percent of Class
- ---- -------------------- ----------------
David Mintz...................... 3,283,440 (1) 50.4%
Steven Kass...................... 120,000 (2) 1.8%
Reuben Rapoport.................. 45,000 (3) *
Franklyn Snitow.................. 30,000 (4) *
Bernard Koster................... 14,000 (5) *
All Executive Officers and
Directors as a group (5 persons). 3,492,440 (6) 53.4%
________________
-17-
<PAGE>
The address of all individuals except Messrs. Koster and Snitow is c/o
Tofutti Brands, Inc., 50 Jackson Drive, Cranford, New Jersey 07016. The address
of Mr. Snitow is 345 Madison Avenue, New York, NY 10017 and the address of Mr.
Koster is 2050 Center Ave., Suite 670, Ft. Lee, New Jersey 07024. Each person
listed above has sole voting and/or investment power of the shares attributed to
him.
* Less than 1%.
(1) Includes 133,000 shares issuable upon the exercise of currently exercisable
stock options.
(2) Issuable upon the exercise of currently 120,000 exercisable stock options.
(3) Includes 25,000 shares issuable upon the exercise of currently exercisable
stock options.
(4) Includes 10,000 shares issuable upon the exercise of currently exercisable
stock options.
(5) Includes 10,000 shares issuable upon the exercise of currently exercisable
stock options.
(6) Includes 298,000 shares issuable upon the exercise of currently exercisable
stock options.
Item 12. Certain Relationships and Related Transactions
Franklyn Snitow, a director of the Company, is a member of the law firm of
Snitow & Pauley, which firm provided minimal legal services on behalf of the
Company in 1997.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1* Certificate of Incorporation.
3.1.1** March 1986 Amendment to Certificate of Incorporation.
3.2* By-laws of Registrant.
4.1*** Copy of the Registrant's 1993 Stock Option Plan.
10.1**** Copy of Legal Settlement between the Company and the NEMP Corporation.
23.1 Consent of Independent Auditors.
27 Financial Data Schedule.
-18-
<PAGE>
* Filed as an exhibit to the Registrant's Form 10-K for the fiscal year
ended July 31, 1985 and hereby incorporated by reference thereto.
** Filed as an exhibit to the Registrant's Form 10-K for the fiscal year
ended August 2, 1986 and hereby incorporated by reference thereto.
*** Filed as an exhibit to the Company's Form 10-KSB for the fiscal year
ended January 1, 1994 and hereby incorporated by reference thereto.
**** Filed as an exhibit to the Registrant's Form 10-K for the fiscal year
ended December 28, 1991 and hereby incorporated by reference thereto.
(b) Reports on Form 8-K filed during the last quarter of the period covered by
this report:
None.
-19-
<PAGE>
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 on April 8, 1998.
TOFUTTI BRANDS INC.
(Registrant)
/s/David Mintz
--------------
David Mintz
Chairman of the Board and
Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this Report has
been signed below on April 8, 1998, by the following persons on behalf of the
Registrant and in the capacities indicated.
/s/David Mintz
- --------------
David Mintz
Chairman of the Board
and Chief Executive Officer
/s/Steven Kass
- --------------
Steven Kass
Secretary, Treasurer and
Chief Financial Officer
/s/Bernard Koster
- -----------------
Bernard Koster
Director
/s/Reuben Rapoport
- ------------------
Reuben Rapoport
Director
/s/Franklyn Snitow
- ------------------
Franklyn Snitow
Director
-20-
<PAGE>
EXHIBIT INDEX
Exhibit Page
3.1* Certificate of Incorporation, as amended through February 1986.
3.1.1** March 1986 Amendment to Certificate of Incorporation.
3.2* By-laws of the Registrant.
4.1*** Copy of the Registrant's 1993 Stock Option Plan.
10.1**** Copy of Legal Settlement between the Company and the
NEMP Corporation.
23.1 Consent of Independent Auditors.
27 Financial Data Schedule
* Filed as an exhibit to the Registrant's Form 10-K for the fiscal year ended
July 31, 1985 and hereby incorporated by reference thereto.
** Filed as an exhibit to the Registrant's Form 10-K for the fiscal year ended
August 2, 1986 and hereby incorporated by reference thereto.
*** Filed as an exhibit to the Company's Form 10-KSB for the fiscal year ended
January 1, 1994 and hereby incorporated by reference thereto.
**** Filed as an exhibit to the Registrant's Form 10-K for the fiscal year ended
December 28, 1991 and hereby incorporated by reference thereto.
Exhibit 23.1
Consent of Independent Auditors
The Board of Directors
Tofutti Brands Inc.:
We consent to the incorporation by reference in the Registration Statement (Nos.
33-72654 and 333-48605) on Form S-8 of Tofutti Brands Inc. of our report dated
March 13, 1998, relating to the balance sheets of Tofutti Brands Inc. as of
December 27, 1997 and December 28, 1996 and the related statements of operations
and accumulated deficit, and cash flows for the fifty-two week periods then
ended, which report appears in the December 27, 1997 annual report on Form
10-KSB of Tofutti Brands Inc.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Short Hills, New Jersey
April 9, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> DEC-27-1997
<CASH> 54,000
<SECURITIES> 0
<RECEIVABLES> 1,377,000
<ALLOWANCES> 458,000
<INVENTORY> 541,000
<CURRENT-ASSETS> 1,521,000
<PP&E> 59,000
<DEPRECIATION> 59,000
<TOTAL-ASSETS> 2,068,000
<CURRENT-LIABILITIES> 319,000
<BONDS> 0
0
0
<COMMON> 62,000
<OTHER-SE> 1,638,000
<TOTAL-LIABILITY-AND-EQUITY> 2,068,000
<SALES> 7,440,000
<TOTAL-REVENUES> 7,440,000
<CGS> 4,739,000
<TOTAL-COSTS> 4,739,000
<OTHER-EXPENSES> 2,242,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,000
<INCOME-PRETAX> 452,000
<INCOME-TAX> (83,000)
<INCOME-CONTINUING> 535,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 535,000
<EPS-PRIMARY> .09
<EPS-DILUTED> .08
</TABLE>
