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 26, 1998
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: $8,991,000
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 10, 1999 was $2,996,127.
As of March 10, 1999, 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.
The Company introduced several new products during 1998. Among them were
several new frozen items including sugar free, fat free TOFUTTI non-dairy frozen
dessert in half-gallons, TOFUTTI BLINTZES and POTATO PANCAKES, both made with
the Company's BETTER THAN CREAM CHEESE(R) and TOFUTTI PIZZA PIZZAZ, made with
the Company's non-dairy mozzarella cheese. The Company also introduced several
new shelf-stable products in 1998; TOFUTTI TEDDY BEARS CHOCOLATE and PANCAKE
SYRUPS are fat free, all natural products, while TOFUTTI TOTALLY NUTS, offers
consumers roasted soy nuts as a healthy snack alternative. With the introduction
of its new products and improved channels of distribution, the Company
significantly improved its sales in 1998.
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
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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. LOW FAT TOFUTTI is
also available as a soft serve mix in three flavors: Vanilla, Chocolate and
Strawberry.
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 SUNDAE HALF GALLONS offer the diet conscious consumer a sugar free,
fat free dessert with the taste and texture of premium TOFUTTI. They are
currently available in three flavors: Vanilla Fudge Sundae, Chocolate Fudge
Sundae and Strawberry Sundae.
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 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.
o The TOFUTTI CUTIE PIE is a rich, premium novelty treat on a stick that
combines a rich, creamy TOFUTTI vanilla or chocolate center covered with a
chocolate coating. It is available in most health food stores and select
supermarkets.
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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 BETTER THAN CHEESECAKE(R) is made with the Company's popular BETTER
THAN CREAM CHEESE and SOUR SUPREME. Each 20 oz. cake is completely dairy
free and the product is available in three flavors: Plain, Chocolate Marble
and Strawberry.
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 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(R) fig bars. Like all TOFUTTI products, they are
completely dairy and cholesterol free.
o TOFUTTI SOY LAVASCH(R) 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(R) 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.
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, 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.
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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 two flavors: cheese and
spinach cheese.
o TOFUTTI PIZZA PIZZAZ combines a delicious pan crust, zesty sauce and
TOFUTTI'S totally dairy free mozzarella cheese into a completely authentic,
yet healthy pizza. It is available in three square slice retail boxes.
o TOFUTTI BLINTZES are frozen crepes filled with TOFUTTI BETTER THAN CREAM
CHEESE that are dairy and cholesterol free, yet taste just like real cheese
blintzes. Whether as a main meal or a snack, they can be served either hot,
warm or slightly chilled.
o TOFUTTI POTATO PANCAKES offer the consumer a snack or dinner side dish that
combines a delicious mixture of potato and the Company's non-dairy sour
cream, SOUR SUPREME.
o TOFUTTI TEDDY BEARS CHOCOLATE SYRUP and PANCAKE SYRUP offer the consumer
syrups that are not only dairy and cholesterol free, but fat free as well.
Both products can be used in conjunction with other Tofutti products or
regular dairy products.
o TOFUTTI TOTALLY NUTS, a new homestyle roasted soy bean snack product,
offers consumers a healthy yet delicious snack alternative. TOFUTTI TOTALLY
NUTS are available in 6.5 oz. retail packages and are sold to the Company's
natural and specialty products customers.
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.
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 by independent
unaffiliated food brokers to distributors and sometimes on a direct basis 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.
During 1998, the Company had national supermarket sales of $2,390,000 or
27% of sales, as compared to $2,169,000 or 29% of sales in 1997. The Mattus Ice
Cream Company distributes the Company's non-dairy frozen dessert products to
supermarket accounts in the metropolitan New York area. Total sales to Mattus in
the New York metropolitan area were $864,000 or 10% of sales in 1998, as
compared with sales of $802,000 or 11% of sales in 1997. The Company
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currently sells its frozen dessert products in most major markets in the United
States, including Atlanta, Boston, Cincinnati, Cleveland, Denver, Detroit, Los
Angeles, Miami, New York, Philadelphia, Phoenix, San Francisco and Seattle.
The Company distributes its products through twenty-four distributors in
the national health food market. Sales to the Company's health food distributors
in 1998 were $4,231,000 or 47% of sales, as compared to $3,084,000 or 41% of
sales in 1997. In 1998, sales to Trader Joe's, a West Coast based health food
supermarket chain, rose to $1,418,000 or 16% of sales as compared to $1,032,000
or 14% of sales in 1997. Overall, the Company's West Coast sales were $2,221,000
or 25% of sales in 1998, as compared to $1,810,000 or 24% of sales in 1997. The
Company continues to have a strong presence in the kosher market, with sales of
$605,000 or 7% of sales in 1998, as compared with sales of $649,000 or 9% of
sales in 1997. During 1998, the Company had sales to food service accounts of
$705,000 or 8% of sales, as compared with sales of $673,000 or 9% of sales in
1997.
During 1998, the Company shipped TOFUTTI non-dairy products to distributors
in Australia, Belgium, Bermuda, Canada, England, France, Germany, Israel,
Kuwait, Martinique, Mexico, the Netherlands, Panama, Portugal, Spain and Sweden.
Sales to distributors in foreign countries totaled $1,060,000 or 12% of sales in
1998, as compared to $865,000 or 12% of sales in 1997. The increase in export
sales was due primarily to an increase in sales to the Company's Israeli and
Canadian 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 local currency price of its products.
The Company expects the favorable sales trend in the supermarket, national
health food, West Coast, kosher, food service and international markets to
continue in 1999.
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.
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 1998 and 1997,
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the Company's research and development expenses were $342,000 and $273,000,
respectively. Such amounts do not include any portion of Mr. Mintz's salary.
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 seventeen
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.
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 thirty-seven 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.
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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-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.
EMPLOYEES
On December 26, 1998 the Company employed nine persons on a full-time
basis, compared with eight persons as of December 27, 1997. The Company
considers its relations with its employees to be good.
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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. The Company's
annual rental under its lease was $74,000 in 1998. The Company is currently in
negotiations to extend the lease beyond its current expiration date and is
reasonably certain that such lease extension will be granted. 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.
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 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
March 29, 1998........................ 1-9/16 15/16
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Quarter Ended High Low
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June 27, 1998......................... 2 1-1/4
September 26, 1998.................... 1-7/16 7/8
December 26, 1998..................... 1-5/16 7/8
As of March 10, 1999, there were approximately 1,042 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 and in
other reports and documents of the Company and oral statements made on behalf of
the Company by its 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 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
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. In addition, difficulties in
completing remediation of the year 2000 issues by the Company, its customers or
suppliers may have a material adverse affect on the Company and its operations.
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 26, 1998 Compared with Fifty-two Weeks Ended
December 22, 1997
Net sales for the fifty-two weeks ended December 26, 1998 were $8,991,000,
an increase of $1,551,000 or 21% from the sales level realized for the fifty-two
weeks ended December 27, 1997. In the 1998 period, non-dairy frozen dessert
product sales and food product sales increased by $1,013,000 and $538,000,
respectively, from the 1997 period. The increase in non-dairy
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frozen dessert sales 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 in 1998 increased by $472,000 or 17% due
primarily to the sales increase, while its gross profit percentage decreased
slightly from 36% in 1997 to 35% in 1998. The Company's gross profit percentage
in 1998 was adversely affected by the start-up manufacturing 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 that while
its gross profit will increase due to increased sales in 1999, its gross profit
percentage will not improve due to manufacturing start-up costs associated with
the planned introduction of new products in 1999.
Based on its recent sales trends, the Company expects continued sales
increases in its frozen dessert and food product lines and in most customer
categories.
Selling expenses increased 26% to $1,268,000 for the current fiscal period
from $1,003,000 for the comparable 1997 period. The primary cause of the
increase was increased warehouse, freight and commission 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 and commission
expenses are attributable to the increase in sales. Marketing and sales
promotion expenses increased 9% in 1998 to $188,000 from $172,000 in 1997. This
increase was due principally to artwork and plate expenses associates with new
package design for the Company's new products, which was partially offset by a
reduction in the Company's trade magazine and newspaper advertising.
Research and development expenses increased to $342,000 in 1998 as compared
to $273,000 in 1997. This increase was due to the hiring of two employees and
additional research and development expenses associated with the Company's new
products. These additional expenses consist mainly of start-up costs incurred at
new co-packing facilities, including additional Kosher supervision costs.
Management expects that research and development costs will continue at the same
level for 1999. General and administrative expenses were $853,000 for the 1998
period as compared with $794,000 for the comparable period in 1997. The $59,000
increase was due in part to increased salary and public relation expenses.
Interest expense was $7,000 for the fifty-two week periods ended December
26, 1998 and December 27, 1997.
As a result of reductions in the valuation allowance on deferred tax
assets, the Company recorded income tax benefits of $45,000 and $83,000 in 1998
and 1997, respectively.
Income Taxes
The Company's tax year ends on July 31st, its former fiscal year. Due to
the timing difference between the end of the fiscal and tax year, the Company,
on its quarterly and year end reports, must make estimates as to its state and
federal tax liabilities.
Beginning in 1999, to the extent the Company generates future income for
financial reporting purposes, the Company will be required to provide federal
and state tax expense.
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Although the Company will begin paying state income taxes in 1999, the Company
will not be required to pay federal income tax until such time as it utilizes
its remaining federal net operating loss carryforwards and tax credits.
Liquidity and Capital Resources
At December 26, 1998, the Company's working capital was $1,990,000, an
increase of $512,000 from December 27, 1997. At December 26, 1998, accounts
receivable increased by $66,000 from December 27, 1997, principally reflecting
the increase in sales. At December 26, 1998, inventories increased by $72,000
from December 27, 1997, reflecting the additional inventory for the Company's
new products. Prepaid expenses increased by $6,000 to $13,000 at December 26,
1998 from December 27, 1997 due to a prepaid 1999 New Jersey income tax payment.
Deferred tax assets increased $65,000 at December 26, 1998 compared to December
27, 1997 primarily as a result of a reduction in the valuation allowance. At
December 26, 1998, accounts payable decreased slightly to $85,000 from $94,000,
while accrued expenses increased to $240,000 from $194,000 in 1997. The increase
in income taxes payable of $5,000 to $19,000 at December 26, 1998 represents an
additional provision for state income taxes.
The Company does not have any material capital commitments and contemplates
no material capital expenditures in the foreseeable future. Although the Company
has operated on a profitable basis in recent years, it has not had sufficient
funds to fully implement the marketing of its new products. Despite this lack of
financing, the Company has succeeded in increasing the sales of its products and
introducing new products. The Company believes it will be able to fund its
operations during 1999 from its current resources; however, 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.
Bad Debt Write-off
During 1998, the Company wrote off against its allowance for doubtful
accounts $473,000 of accounts receivable it deemed to be uncollectible. This
amount represented balances owed by some of the Company's foreign customers,
which had been reserved for in prior years.
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 has completed a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 ("Y2K") issue.
Substantially all of the Company's manufacturing is performed by third-party
co-packers, and the Company's financial systems are PC-based purchased software.
The Company is in the process of replacing its
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existing financial systems with Y2K compliant software and expects the
conversion to be completed by June 1999. Consequently, management presently
believes that due to the lack of date sensitive computer systems and
applications currently in use, the Y2K issue will not pose significant
operational problems for the Company's computer systems. Therefore, the Company
to date has not nor does it expect to develop any contingency plans relating to
the Y2K issue. Costs of addressing the Y2K issue have not been material to date
and, based on information gathered to date from the Company and its vendors, are
not currently expected to have a material adverse impact on the Company's
financial position, results of operations or cash flows.
In addition, the Company has contacted its major suppliers and vendors
seeking information about their internal compliance efforts. Upon review, the
Company believes that most of its major suppliers and co-packers will be Y2K
compliant and any non-compliance by its suppliers and co-packers will not have a
significant adverse effect upon the Company's operations.
The Company is in the process of developing business contingency plans to
mitigate the risk of a potential non-compliant vendor or system. The Company
will continue to assess its exposure to Y2K problems or possible disruptions.
Based upon the information it has developed to date, management believes that no
disruptions will occur in the Company's operations. However, the Company is
subject to risks should the Company or a third party vendor or service provider
be unable to resolve issues related to the Y2K.
Other Matters
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("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 financial
reports issued to shareholders. It also establishes standards for 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. Financial statement disclosures for prior periods are required to be
restated. The adoption of SFAS 131 has had no impact on the Company's results of
operations, financial position or cash flows. The Company operates in one
business segment, the development, production and marketing of TOFUTTI brand
non-dairy frozen desserts and other food products. Management does not receive,
nor does the Company generate, discrete financial operating results for any
portion of the business other than for product sales.
-13-
<PAGE>
Item 7. Financial Statements
Index to Financial Statements
Independent Auditors' Report........................................F-1
Financial Statements:
Balance Sheets
December 26, 1998 and December 27, 1997.....................F-2
Statements of Operations and Accumulated Deficit
Fifty-two weeks ended
December 26, 1998 and December 27, 1997.....................F-3
Statements of Cash Flows
Fifty-two weeks ended
December 26, 1998 and December 27, 1997.....................F-4
Notes to Financial Statements..................................F-5
-14-
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Tofutti Brands Inc.:
We have audited the accompanying balance sheets of Tofutti Brands Inc. as of
December 26, 1998 and December 27, 1997, 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 26, 1998 and December 27, 1997 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 LLP
Short Hills, New Jersey
March 16, 1999
F-1
<PAGE>
TOFUTTI BRANDS INC.
BALANCE SHEETS
(000's omitted except for share and per share data)
<TABLE>
<CAPTION>
December 26, December 27,
1998 1997
---- ----
<S> <C> <C>
Assets
Current assets:
Cash $ 407 $ 54
Accounts receivable, net of allowance for doubtful
accounts of $120 in 1998 and $458 in 1997
(Note 2) 985 919
Inventories (Note 3) 613 541
Prepaid expense 13 7
Deferred Income Taxes 335 276
---- ---
Total current assets 2,353 1,797
Fixed assets, net (Note 4) -- --
Deferred income taxes (Note 9) 180 174
Other assets (Note 5) 119 97
---- ------
Total assets $ 2,652 $2,068
======= ======
Liabilities and Stockholders' Equity
Current liabilities:
Note payable - current portion $ 19 $ 17
Accounts payable 85 94
Accrued expenses (Note 6) 240 194
Income taxes payable 19 14
--- ---
Total current liabilities 363 319
Note payable 29 49
--- ---
Total liabilities 392 368
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 December 26, 1998
and December 27, 1997 62 62
Paid-in capital 3,631 3,631
Accumulated deficit (1,433) (1,993)
------ ------
Total stockholders' equity 2,260 1,700
----- ------
Commitments and contingencies (Note 8)
Total liabilities and stockholders' equity $ 2,652 $2,068
======= ======
</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 26, 1998 December 27, 1997
----------------- -----------------
<S> <C> <C>
Net sales $ 8,991 $ 7,440
Cost of sales 5,818 4,739
----- ------
Gross profit 3,173 2,701
Operating expenses:
Selling 1,268 1,003
Marketing and sales promotion 188 172
Research and development 342 273
General and administrative 853 794
--- -----
2,651 2,242
----- -----
Operating income 522 459
Interest expense 7 7
----- -----
Income before income tax benefit 515 452
Income tax benefit (Note 9) 45 83
----- -----
Net income 560 535
Accumulated deficit, beginning of year (1,993) (2,528)
------ ------
Accumulated deficit, end of year $(1,433) $(1,993)
======= =======
Net income per share:
Basic $.09 $ .09
Diluted .08 .08
==== ===
</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 26, December 27,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 560 $ 535
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Deferred taxes (65) (139)
Provision for bad debts 135 163
Change in assets and liabilities:
Increase in accounts receivable (201) (105)
Increase in inventories (72) (190)
(Increase) decrease in prepaid expense (6) 3
Decrease in accounts payable (9) (410)
Increase in accrued expenses 46 79
Increase in income taxes payable 5 14
--- ----
Net cash provided by (used in) operating activities 393 (50)
--- ----
Cash flows from financing activities:
Repayment of note payable (18) (15)
Increase in other assets (22) (21)
Issuance of common stock -- 129
--- ----
Net cash (used in) provided by financing activities (40) 93
--- ---
Net increase in cash 353 43
Cash at beginning of period 54 11
---- ---
Cash at end of period $ 407 $ 54
===== =====
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 7 $ 7
=== ===
Income taxes 15 1
=== ===
</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 one business
segment, 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 6,184,000 in 1998 and 6,086,000 in 1997.
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 6,610,000 in 1998 and 6,404,000 in 1997.
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price at the date of the grant over the amount an employee must
pay to acquire the stock. Because the Company grants options at a price equal to
the market price of the stock at the date of grant, no compensation expense is
recorded. As required by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123), the Company discloses
pro forma net income and earnings per share as if the fair value method had been
applied (see Note 7).
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 removed from the accounts, and any
resulting gain or loss is recognized in income for the period.
F-5
<PAGE>
TOFUTTI BRANDS INC.
NOTES TO FINANCIAL STATEMENTS
(000's omitted except for share and per share data)
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 carry forwards. 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 26, 1998 and December 27, 1997 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.
Reclassifications
Certain reclassifications of the 1997 financial statements have been made to
conform to the 1998 presentation.
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 26, December 27,
1998 1997
---- ----
Beginning balance $ 458 $ 295
Additions charged to expense 135 163
Less: Write offs 473 --
----- -----
$ 120 $ 458
===== =====
(3) Inventories
Inventories consist of the following:
December 26, December 27,
1998 1997
---- ----
Finished products $382 $342
Raw materials and packaging 231 199
---- ----
$613 $541
==== ====
(4) Fixed Assets
Fixed assets consist of the following:
December 26, December 27, Useful
1998 1997 Lives
------ ------ -----
Machinery and equipment $ 30 $ 30 5 yr
Leasehold improvements 29 29 5 yr
-- --
59 59
Less accumulated depreciation 59 59
-- --
$ -- $ --
==== =====
F-7
<PAGE>
TOFUTTI BRANDS INC.
NOTES TO FINANCIAL STATEMENTS
(000's omitted except for share and per share data)
(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 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 26, December 27,
1998 1997
---- ----
Professional fees $ 30 $ 31
Selling 147 130
Inventory purchases 52 30
Other 11 3
----- -----
Total $ 240 $ 194
===== =====
(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 non-qualified
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 2,900,000 shares have
been reserved for issuance under the 1993 Plan. At December 26, 1998, 1,214,000
shares were subject to outstanding options and 1,506,000 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 28, 1996 to
December 26, 1998:
<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 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
Canceled in 1998 (6,000) .6875 -- --
Outstanding at December 26, 1998 1,112,000 .766 102,000 .790
========= =======
Exercisable at December 26, 1998 404,000 .764 41,000 .790
======= ======
Exercisable at December 27, 1997 -- -- -- --
</TABLE>
The Company did not grant any stock options during 1998. The weighted average
fair value of both the incentive and non-qualified options granted during 1997
was $.39. The fair market value of each stock option granted during 1997 was
estimated on the date of grant using the Black-Scholes option pricing model with
the following assumptions: expected life of 4.0 years; expected volatility of
62.0%; expected dividend yield of 0%; and a risk free interest rate of 5.5%
The following table summarizes information about the stock options outstanding
at December 26, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------
Weighted Average Weighted
Range of Number Remaining Life Average
Exercise Prices Outstanding (in years) Exercise Price
--------------- ----------- ---------- --------------
<S> <C> <C> <C>
$.6875--$1.031 1,214,000 3.3 $.768
</TABLE>
F-9
<PAGE>
TOFUTTI BRANDS INC.
NOTES TO FINANCIAL STATEMENTS
(000's omitted except for share and per share data)
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:
1998 1997
---- ----
Net income available for common stockholders:
As reported $560 $535
Pro forma 390 392
Basic earnings per share:
As reported .09 .09
Pro forma .06 .06
Diluted earnings per share:
As reported .08 .08
Pro forma .06 .06
(8) Commitments and Contingencies
The Company leases a warehouse and administrative facility in Cranford, New
Jersey under an operating lease expiring on July 1, 1999. The Company is
currently in negotiations to extend the lease beyond its current expiration date
and management believes that such lease extension, which will not exceed five
years, will be consummated. The Company's annual rental under its existing lease
was $74, with $37 being due for the period January through June 1999. Management
does not expect its future rental expense to be materially different after the
expected consummation of the aforementioned extension.
Annual net rental expenses aggregated $74 and $68 respectively for each of the
fifty-two week periods ended December 26, 1998 and December 27, 1997.
In the normal course of business, the Company from time to time may be a party
to various litigation, claims or assessments. Management believes that the
ultimate outcome of these matters will not have a material affect on the
Company's financial position or results of operations.
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 26, 1998 and December 27, 1997 are as follows:
1998 1997
---- ----
Current:
Federal $ -- $ --
State 20 56
-- --
20 56
-- --
Deferred:
Federal (50) (124)
State (15) (15)
---- ----
(65) 139
---- ---
Total income tax benefit $(45) $(83)
==== ====
Deferred tax assets at December 26, 1998 and December 27, 1997 are as follows:
1998 1997
---- ----
Allowance for doubtful accounts $ 48 $183
Inventories 12 12
Note payable 20 26
Other accruals 64 53
Loss carry forwards and tax credits 371 435
--- ---
Gross deferred tax assets 515 709
Valuation allowance -- 259
--- ---
Net deferred tax assets $515 $450
=== ====
Based upon the level of projected future taxable income over the periods in
which the net operating loss carry forwards and tax credits are deductible,
management believes it is more likely than not the Company will realize its net
deferred tax assets at December 26, 1998. 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.
The Company has net operating loss carry forwards of approximately $1,004, which
will expire in 2005. The Company also has unused tax credits of approximately
$30.
F-11
<PAGE>
TOFUTTI BRANDS INC.
NOTES TO FINANCIAL STATEMENTS
(000's omitted except for share and per share data)
A reconciliation between the expected 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 26, 1998 and December 27, 1997 is as follows:
1998 1997
---- ----
Expected tax expense $ 175 $ 154
Non-deductible expenses 7 8
State income taxes, net of federal
income tax benefit 31 27
Change in valuation allowance (259) (236)
Other 1 (36)
--- ------
Income tax benefit $ (45) $ (83)
====== ======
(10) Business Concentrations
During the fifty-two week periods ended December 26, 1998 and December 27, 1997,
the Company derived approximately 88% of its net sales domestically. The
remaining sales in both periods were exports to various other countries. During
1998 and 1997, the Company had sales to two individual customers representing
16% and 10%, and 14% and 11%, respectively, 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................ 67 Chairman of the Board of Directors,
Chief Executive Officer
Steven Kass................ 47 Chief Financial Officer, Secretary and
Treasurer
Reuben Rapoport............ 68 Director of Product Development and
Director
Franklyn Snitow............ 52 Director
Bernard Koster............. 64 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 & Cunningham (the successor to
Snitow & Pauley), the Company's general counsel, since 1985.
Bernard Koster has been a Director of the Company since March 1993. Since
February 1990, Mr. Koster has acted as an independent business consultant. He
has also been counsel to the New Jersey law firm of Litwin and Holsinger since
March 1993.
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
-13-
<PAGE>
Board of Directors. There are no family relationships between Directors and
executive officers 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 1998 all persons subject to these reporting
requirements filed the required reports on a timely basis.
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 1998 totaled $100,000 or more:
SUMMARY COMPENSATION TABLE
--------------------------
Annual Long-Term
Compensation Compensation
------------ ------------
Securities Underlying
Name and Principal Position Year Salary ($) Options (#)
- --------------------------- ---- ---------- -----------
David Mintz 1998 $225,000(1) --
Chief Executive Officer 1997 180,000(2) 480,000
and Chairman of the Board 1996 155,000(3) --
Steven Kass 1998 145,000(1) --
Chief Financial Officer 1997 117,500(2) 430,000
Secretary and Treasurer 1996 100,000(3) --
- ---------------
(1) Includes bonuses of $50,000 and $35,000 for Messrs. Mintz and Kass,
respectively, accrued at year-end and payable April 1, 1999.
(2) Includes bonuses of $30,000 and $20,000 for Messrs. Mintz and Kass,
respectively, accrued at year-end and payable April 1, 1998.
(3) Includes bonuses of $30,000 and $15,000 for Messrs. Mintz and Kass,
respectively, accrued at year-end and payable April 1, 1997.
-14-
<PAGE>
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 $1,000,000 split dollar
insurance plan on the life of a member of David Mintz's family. Mr. Mintz is
Chairman and Chief Executive Officer of the Company. The purpose of this
transaction is to provide the Mintz estate with funds sufficient to pay any
estate taxes levied upon the transfer of Mr. Mintz's Tofutti stock, which would
have otherwise necessitated a sale of the stock. The sale of such stock might
have a negative effect of significantly decreasing the market price of the stock
to the detriment of other shareholders. Upon the death of the family member or
termination of the policy prior to death, the Company is to receive a complete
refund of all its premiums paid plus interest at 4%.
There are currently no employment agreements between the Company and any of
its officers. Neither Mr. Snitow nor Mr. Koster has received any cash
remuneration from the Company for his service as a Director in the last three
years.
STOCK OPTIONS
The following table provides information concerning the grants and
exercising of stock options during the Company's last fiscal year to each of the
officers named above in the Summary Compensation Table.
<TABLE>
<CAPTION>
OPTIONS GRANTED IN LAST FISCAL YEAR
---------------------------------------------------------
Percent of
Number of Total
Shares Options
Underlying Granted to
Options Employees in
Name Granted (#) Fiscal Year Exercise Price ($/SH) Expiration Date
- ---- ----------- ----------- --------------------- ---------------
<S> <C> <C> <C> <C>
David Mintz, -- -- $ -- --
Chief Executive Officer
and Chairman of the
Board
Steven Kass, -- -- -- --
Chief Financial Officer,
Secretary and Treasurer
</TABLE>
-15-
<PAGE>
The following table provides information concerning stock options held in
1998 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 Value of Unexercised
Shares Underlying Unexercised in the Money Options
Acquired on Value Options at FY-End (#) at FY-End ($)
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
David Mintz, -- $ -- 174,000 (E) $32,696 (E)(1)
Chief Executive Officer 306,000(U) 64,904 (U)(1)
and Chairman of the
Board
Steven Kass, -- -- 155,000(E) 39,687 (E)(1)
Chief Financial Officer, 275,000(U) 77,187 (U)(1)
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 10, 1999, 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....................... 3,454,440 (1) 49.7%
Steven Kass....................... 275,000 (2) 4.0%
Reuben Rapoport................... 85,000 (3) *
Franklyn Snitow................... 50,000 (4) *
Bernard Koster.................... 25,000 (5) *
All Executive Officers and
Directors as a group (5 persons).. 3,889,440 (6) 55.9%
_______________
-16-
<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 575 Lexington Avenue, New York, New York 10017 and the address
of Mr. Koster is 7 Old Smith Road, Tenafly, New Jersey 07670. Each person listed
above has sole voting and/or investment power of the shares attributed to him.
* Less than 1%.
(1) Includes 307,000 shares issuable upon the exercise of currently exercisable
stock options.
(2) Issuable upon the exercise of currently 275,000 exercisable stock options.
(3) Includes 65,000 shares issuable upon the exercise of currently exercisable
stock options.
(4) Includes 30,000 shares issuable upon the exercise of currently exercisable
stock options.
(5) Issuable upon the exercise of 25,000 currently exercisable stock options.
(6) Includes 702,000 shares issuable upon the exercise of currently exercisable
stock options.
Item 12. Certain Relationships and Related Transactions
NONE
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 Amended 1993 Stock Option Plan.
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.
-17-
<PAGE>
** 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 Registrant's Form S-8 (Registration No. 333-
48605) filed March 25, 1998 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.
-18-
<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 March 25, 1999.
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 March 25, 1999, 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
-19-
<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 Amended 1993 Stock Option Plan.
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 Registrant's Form S-8 (Registration No. 333-
48605) filed March 25, 1998 and hereby incorporated by reference
thereto.
<PAGE>
EXHIBIT 23.1
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
The Board of Directors
Tofutti Brands Inc.:
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-72654 and 333-48605) on Form S-8 of Tofutti Brands Inc. of our report
dated March 16, 1999, relating to the balance sheets of Tofutti Brands Inc. as
of December 26, 1998 and December 27, 1997 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 26, 1998 annual report
on Form 10-KSB of Tofutti Brands Inc.
/s/KPMG LLP
KPMG LLP
Short Hills, New Jersey
March 26, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TOFUTTI
BRANDS INC.'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 26, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-END> DEC-26-1998
<CASH> 407,000
<SECURITIES> 0
<RECEIVABLES> 1,105,000
<ALLOWANCES> 120,000
<INVENTORY> 613,000
<CURRENT-ASSETS> 2,353,000
<PP&E> 59,000
<DEPRECIATION> 59,000
<TOTAL-ASSETS> 2,652,000
<CURRENT-LIABILITIES> 363,000
<BONDS> 0
0
0
<COMMON> 62,000
<OTHER-SE> 2,198,000
<TOTAL-LIABILITY-AND-EQUITY> 2,652,000
<SALES> 8,991,000
<TOTAL-REVENUES> 8,991,000
<CGS> 5,818,000
<TOTAL-COSTS> 5,818,000
<OTHER-EXPENSES> 2,651,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,000
<INCOME-PRETAX> 515,000
<INCOME-TAX> (45,000)
<INCOME-CONTINUING> 560,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 560,000
<EPS-PRIMARY> .09
<EPS-DILUTED> .08
</TABLE>
