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 January 1, 2000
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
------------------- -------------------
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: $11,912,000
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 24, 2000 was $12,835,000.
As of March 24, 2000, the Registrant had 6,299,567 shares of Common Stock, par
value $.01, outstanding.
Transitional Small Business Disclosure Format Yes No x .
<PAGE>
PART I
Item 1. Description of Business
GENERAL
We are engaged in the development, production and marketing of TOFUTTI(R)
brand nondairy frozen desserts and other food products. TOFUTTI products are
non-dairy, soya-based products which contain no butterfat, cholesterol or
lactose. Our products are 100% milk free yet offer the same texture and
full-bodied taste as their dairy counterparts. Our products are also free of
cholesterol and derive their fat from soy and corn, both naturally lower in
saturated fat than dairy products.
We introduced several new products during 1999. Among them were several new
frozen dessert items including vanilla and strawberry Crumb Cake Bars, Monkey
Bars and additional sugar free half gallons flavors. We also introduced a line
of veggie and veggie cheese burgers called Quit Beef'n and a nutriceutical
product called Tofutti Ultra Soy Protein Powder. With the introduction of these
new products and improved channels of distribution, we significantly increased
our sales in 1999.
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. We currently offer 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 LOW FAT TOFUTTI 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 HONEY SWEETENED TOFUTTI in pints offers those individuals with sugar
restrictions a natural alternative without artificial sweeteners and is
available in Vanilla Chamomile.
o TOFUTTI 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 four flavors: Vanilla Fudge Sundae, Chocolate Fudge
Sundae, Strawberry Sundae and Vanilla.
-2-
<PAGE>
o TOFUTTI CUTIES(R) are bite-size frozen sandwiches combining a chocolate,
vanilla, wildberry or peanut butter flavored filling of TOFUTTI 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 fat free, sugar free
CHOCOLATE FUDGE TREATS have only 30 calories per bar.
o TOFUTTI MONKEY BAR(TM) is a stick novelty that features a rich chocolate
center surrounded by peanut butter flavored TOFUTTI, dipped in a rich
chocolate coating.
o TOFUTTI CRUMB CAKE BARS offer consumers a milk free crunchie-coated TOFUTTI
vanilla stick novelty. CRUMB CAKE BARS come in two flavors, Vanilla Fudge
and Sensational Strawberry. Vanilla Fudge has a rich chocolate fudge center
surrounded by crispy dairy free chocolate crunchies, while Sensational
Strawberry features a strawberry center surrounded by vanilla crunchies.
o TOFUTTI CUTIE PIE is a premium novelty treat on a stick that combines a
rich, creamy TOFUTTI vanilla or chocolate center covered with a chocolate
coating. This product is available in most health food stores and select
supermarkets.
o TOFUTTI ROCK N' ROLL FROZEN DESSERT CAKE offers the Tofutti consumer an
upscale non-dairy frozen dessert alternative to dairy ice cream cakes. This
product is currently available in select supermarkets and health food store
outlets.
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 food service
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
-3-
<PAGE>
no cholesterol. The 12 oz. retail packages are available in plain,
guacamole, salsa and cherries 'n' berries. The plain version is also
available in food service 30 lb. bulk boxes.
o TOFUTTI BETTER THAN MOZZARELLA CHEESE(TM) is the first totally dairy free
mozzarella cheese that tastes and performs just like real mozzarella
cheese. Complementing BETTER THAN MOZZARELLA CHEESE is TOFUTTI BETTER THAN
CHEDDAR CHEESE(TM), which tastes like real cheddar cheese. Both products
are key ingredients in some of the Company's frozen food products and are
also available in food service 20 lb. bulk boxes.
o TOFUTTI SOY-CHEESE SLICES(TM) offer the consumer a delicious non-dairy
alternative to regular Cheese Slices. Available in individually wrapped 8
oz. packages, TOFUTTI SOY-CHEESE SLICES are sold in all health food stores
and select supermarkets and come in three flavors: American, Mozzarella and
Roasted Garlic.
o TOFUTTI PIZZA PIZZAZ combines a delicious pan crust, zesty sauce and
TOFUTTI'S totally dairy free BETTER THAN MOZZARELLA CHEESE into a
completely authentic, yet healthy pizza. TOFUTTI PIZZA PIZZAZ is sold at
retail in three square slices to a package and is available in the freezer
case in select supermarkets and health food stores.
o TOFUTTI PIZZA BAGELS feature TOFUTTI'S dairy free BETTER THAN MOZZARELLA
CHEESE and tomato sauce on a tasty bagel. PIZZA BAGELS are available in
supermarket and health food store freezer cases.
o TOFUTTI QUIT BEEF'N(TM) veggie burgers offer the consumer a delicious
tasting veggie burger that also has the fiber and protein of soy that is
recommended for a healthy diet. With TOFUTTI'S totally dairy free BETTER
THAN CHEDDAR CHEESE, QUIT BEEF'N Veggie Cheeseburgers offer the consumer a
healthy, totally dairy free cheeseburger.
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. TOFUTTI CHEESE & BLUEBERRY PILLOWS are frozen crepes filled with
BETTER THAN CREAM CHEESE and blueberries. Both products can be served
either hot, warm or slightly chilled as a main meal or a snack.
o TOFUTTI POTATO PANCAKES offer the consumer a snack or dinner side dish that
combines a delicious mixture of potato and our non-dairy sour cream, SOUR
SUPREME.
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.
-4-
<PAGE>
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, TOFUTTI
COOKIES are completely dairy and cholesterol free and can be found in
select supermarkets and health food stores.
o TOFUTTI SOY LAVASCH(R) flatbread crackers, made with all natural
ingredients and 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 A new and exciting snack product, TOFUTTI TOTALLY NUTS, homestyle roasted
soy beans offers consumers a healthy yet delicious snack alternative. Three
flavors: Homestyle, Onion and Garlic, and Barbecue, are available in 6.5
oz. retail packages for sale to our natural and specialty products
customers. TOFUTTI Chocolate Dipped Soy Nuts come in 3.5 oz. retail
packages.
o We are now offering a pure soy protein nutriceutical supplement, TOFUTTI
ULTRA SOY PROTEIN POWER. It is an all natural instant powder mix, high in
isoflavones and amino acids which are necessary for maintaining good
health. Available in 16 oz. containers, ULTRA SOY PROTEIN POWER is sold at
most health food stores.
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 of our products are sold by independent unaffiliated
food brokers to distributors and sometimes on a direct basis to retail chain
accounts. Food brokers act as our agents within designated territories or for
specific accounts and receive commissions, which average 5% of net sales.
The Mattus Ice Cream Company distributes our 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 $1,040,000 or 9% of sales in
1999, as compared with sales of $864,000 or 10% of sales in 1998. We currently
sell our frozen dessert products in most major markets in the United States,
including Atlanta, Boston, Cincinnati, Chicago, Cleveland, Denver, Detroit, Los
Angeles, Miami, New York, Orlando, Philadelphia, Phoenix, San Francisco, Seattle
and Tampa.
We distribute our products through twenty-six distributors in the national
health food market. Our sales to health food distributors in 1999 were
$5,910,000 or 50% of sales, as compared to $4,231,000 or 47% of sales in 1998.
In 1999, sales to Trader Joe's, a West Coast based health food supermarket
chain, rose to $2,071,000 or 17% of sales, as compared to $1,418,000 or 16% of
sales in 1998. Overall, West Coast sales were $3,195,000 or 27% of our
-5-
<PAGE>
sales in 1999, as compared to $2,221,000 or 25% of sales in 1998. We continue to
have a strong presence in the kosher market, with sales of $758,000 or 6% of
sales in 1999, as compared with sales of $605,000 or 7% of sales in 1998. During
1999, our sales to food service accounts grew to $1,007,000 or 8% of sales, as
compared with sales of $705,000 or 8% of sales in 1998.
During 1999, we shipped TOFUTTI non-dairy products to distributors in
Australia, Belgium, Bermuda, Canada, England, France, Germany, Israel, Kuwait,
Mexico, the Netherlands, Panama, Portugal, Spain, Sweden and the United Arab
Emirates. Sales to foreign distributors totaled $1,304,000 or 11% of sales in
1999, as compared to $1,060,000 or 12% of sales in 1998. The increase in export
sales was due primarily to an increase in sales to our European, Canadian and
Australian distributors. Our 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 our products.
We expect the favorable sales trend in the national health food, West
Coast, kosher, food service and international markets to continue in 2000.
COMPETITION
TOFUTTI frozen desserts compete with all forms of ice cream products,
yogurt-based desserts and other soya-based frozen desserts. We believe that we
are a leader in the non-dairy frozen dessert product market and have the most
complete line of non-dairy frozen dessert products. 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 we compete are
substantially larger and have significantly greater resources than us. Our other
products also face substantial competition, from both non-dairy and dairy
competitive products marketed by companies with significantly greater resources
than we have.
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 our current
products. In 1999 and 1998, our research and development expenses were $376,000
and $342,000, respectively. These amounts do not include any portion of Mr.
Mintz's salary.
PRODUCTION
All of our products are manufactured by co-packers to whom we supply
certain key ingredients for the manufacturing processes. Our co-packers
manufacture and package our 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, we have more than one co-packer. We
currently have a total of eighteen co-packers, including one in the United
Kingdom that manufactures some of our non-dairy frozen dessert products.
-6-
<PAGE>
We do not have any written production agreements with our co-packers and do
not anticipate that we would encounter any material difficulty in obtaining
alternative production sources, at a comparable cost, if one or all of our
contract manufacturers decide to terminate their relationships with us.
In order to protect our formulas, we have entered into confidentiality
arrangements with our contract manufacturers and their employees. There can be
no assurance that such confidentiality arrangements can or will be maintained,
or that our 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 us with
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. We
believe that our ability to successfully market and distribute our 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
We have registered our trademark, TOFUTTI(R), and other trademarks for our
frozen desserts and other products in the United States and approximately
thirty-six foreign countries. We believe our trademarks are an important means
of establishing consumer recognition for our products.
Although we believe that our formulas and processes are proprietary, we
have not sought patent protection for such technology. Instead, we are relying
on the complexity of our technology, on trade secrecy laws and on
confidentiality agreements. We believe that our technology has been
independently developed and does not infringe the patents of others.
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 we seek to
market does not conform to an applicable standard, special permission to market
such a product is required.
Our 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. Our 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
-7-
<PAGE>
numerous changes in their product labeling. We believe that we are 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. Our Cranford, New
Jersey facility is subject to inspection by the New Jersey-Kosher Enforcement
Bureau and Environmental Health Services. We believe that we and our
distributors and co-packers are in compliance in all material respects with
governmental regulations regarding our current products and have obtained the
material governmental permits, licenses, qualifications and approvals required
for its operations. Our compliance with Federal, state and local environmental
laws has not materially affected us either economically or in the manner in
which we conduct our business. However, there can be no assurance that our
company, our distributors and our 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 our products to consumers.
EMPLOYEES
On January 1, 2000, we employed ten persons on a full-time basis, compared
with nine persons as of December 26, 1998. We consider our relations with our
employees to be good.
Item 2. Description of Properties
Our facilities are located in a modern one-story facility in Cranford, New
Jersey. The 6,200 square foot facility houses our administrative offices, a
warehouse, walk-in freezer and refrigerator, and a product development
laboratory and test kitchen. On January 3, 1994, we signed a five-year lease
extension which expired July 1, 1999. Our annual rental under the lease was
$74,000 in 1999. We are currently in negotiations to extend the lease and are
reasonably certain that such lease extension will be granted. Our management
believes that the Cranford facility will continue to satisfy our space
requirements for the foreseeable future.
Item 3. Legal Proceedings
We are not a party to any material litigation.
-8-
<PAGE>
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
Our 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
- ------------- ---- ---
March 29, 1998........................ $1-9/16 $ 15/16
June 27, 1998......................... 2 1-1/4
September 26, 1998.................... 1-7/16 7/8
December 26, 1998..................... 1-5/16 7/8
April 3, 1999......................... 1-3/8 7/8
July 3, 1999.......................... 3-3/4 1-1/16
October 2, 1999....................... 3 2-1/4
January 1, 2000....................... 2-9/16 1-9/16
As of March 24, 2000, there were approximately 926 holders of record of our
Common Stock. We have not paid and have no present intention of paying cash
dividends on our 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 our financial position and operating results during
the periods included in the accompanying audited financial statements.
The discussion and analysis which follows in this Annual Report and in other
reports and documents and in oral statements made on our behalf by our
management and others may contain trend analysis
-9-
<PAGE>
and other forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934 which reflect our current views with respect to
future events and financial results. These include statements regarding our
earnings, projected growth and forecasts, and similar matters which are not
historical facts. We remind stockholders that forward-looking statements are
merely predictions and therefore are inherently subject to uncertainties and
other factors which could cause the actual future events or results to differ
materially from those described in the forward-looking statements. These
uncertainties and other factors include, among other things, business conditions
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 our behalf should be considered in light of
these factors.
We have attempted to identify additional significant uncertainties and other
factors affecting forward-looking statements in Exhibit 99 incorporated by
reference to this Annual Report ("Additional Information Regarding
Forward-Looking Statements"). We will provide copies of Exhibit 99 to
stockholders free of charge upon receipt of a written request submitted to our
Secretary c/o Tofutti Brands Inc., 50 Jackson Drive, Cranford, New Jersey 07016.
Stockholders may also obtain copies of Exhibit 99 for a nominal charge from the
Public Reference Section of the Securities and Exchange Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 or at the Commission's website:
http://www.sec.gov.
Fifty-three Weeks Ended January 1, 2000 Compared with Fifty-two Weeks Ended
December 26, 1998
Our fiscal year is usually the fifty-two week period which ends on the last
Saturday in December. The 1999 fiscal year was a fifty-three week period which
ended on January 1, 2000.
Net sales for the fifty-three weeks ended January 1, 2000 were $11,912,000,
an increase of $2,921,000 or 32% from the sales level realized for the fifty-two
weeks ended December 26, 1998. In the 1999 period, non-dairy frozen dessert
product sales and food product sales increased by $1,858,000 and $1,063,000,
respectively, from the 1998 period. The increase in non-dairy 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. Our gross profit in 1999 increased by $1,390,000 or 44% due primarily
to the sales increase, while our gross profit percentage increased from 35% in
1998 to 38% in 1999. The increase in the gross profit percentage is primarily
the result of the large increase in frozen dessert sales, for which we have a
higher gross profit margin. Although our gross profit percentage increased in
1999, it was still adversely affected by the start-up manufacturing costs
associated with our new products and the increased cost of allowances associated
with the introduction of those new products. We anticipate that while our gross
profit will increase due to increased sales in 2000, our gross profit percentage
will not improve due to manufacturing start-up costs and promotional allowances
associated with the planned introduction of new products in 2000.
Based on recent sales trends, we expect continued sales increases in our
frozen dessert and food product lines and in most customer categories.
-10-
<PAGE>
Selling expenses increased $253,000 or 20% to $1,521,000 for the current
fiscal period from $1,268,000 for the comparable 1998 period. A decrease of
$75,000 in bad debt expense was offset by increases in warehouse ($24,000),
freight ($104,000), commission ($63,000) and trade show expenses ($104,000). The
increase in warehouse expense is attributable to an increase in inventory to
support our increased level of operations. The increased freight and commission
expenses, both variable expenses, are attributable to the increase in sales. The
increase in trade show expense is due to our attendance at numerous trade shows
throughout the year. We believe that attendance at these shows is the most
effective and economical way to market and sell our products. Marketing and
sales promotion expenses increased by $11,000 in 1999 to $199,000, a slight
increase from 1998. This slight increase was due principally to increases in
magazine advertising, point-of-sale material and coupon expenses.
Research and development expenses increased to $376,000 in 1999 as compared
to $342,000 in 1998. This increase was due to the hiring of one additional
employee and additional research and development expenses associated with our
new products. These additional expenses consist mainly of start-up costs
incurred at new co-packing facilities, including additional Kosher supervision
costs. Our management expects that research and development costs will continue
at a slightly higher level for 2000.
General and administrative expenses were $1,043,000 for the 1999 period as
compared with $853,000 for the comparable period in 1998. The $190,000 increase
was due largely to increased salary, utilities, and outside services expenses.
Interest income was $17,000 for the fifty-three week period ended January
1, 2000 due to increased cash flow which resulted in the purchase of short-term
investments. Interest expense was $5,000 and $7,000 for the fifty-three week
period ended January 1, 2000 and the fifty-two week period ended December 26,
1998, respectively. Our management anticipates an increase in interest income in
fiscal year 2000 as our cash balances have increased.
As a result of reductions in deferred tax assets and a current year tax
increase, we recorded income tax expense of $586,000 in the 1999 period versus
an income tax benefit of $45,000 in 1998.
Based on the foregoing, we had net income of $850,000 or $0.12 per share on
a diluted basis in the fifty-three week period ended January 1, 2000 as compared
with net income of $560,000 or $0.08 per share on a diluted basis for the
fifty-two week period ended December 26, 1998.
Income Taxes
In previous years, our tax year ended on July 31st. Due to the timing
difference between the end of the fiscal and tax year, we had to make estimates
as to our state and federal tax liabilities in our quarterly and year end
reports. On March 7, 2000, the IRS approved a change of our tax year to December
31. We will file a short year tax return for the period August 1, 1999 to
January 1, 2000.
-11-
<PAGE>
Liquidity and Capital Resources
At January 1, 2000, our working capital was $3,058,000, an increase of
$1,068,000 from December 26, 1998. Our current and quick acid test ratios, both
measures of liquidity, were 7.5 and 6.3, respectively, at January 1, 2000
compared to 7.6 and 5.6 at December 26, 1998. At January 1, 2000, accounts
receivable decreased by $124,000 from December 26, 1998, principally reflecting
the improvement in cash collections. At January 1, 2000, inventories decreased
by $17,000 from December 26, 1998. Prepaid expenses decreased by $5,000 to
$8,000 at January 1, 2000 from December 26, 1998 due to the utilization of a
prepaid 1999 New Jersey income tax payment. Current deferred tax assets and
non-current deferred tax assets decreased by $155,000 and $177,000,
respectively, at January 1, 2000 compared to December 26, 1998 as a result of a
reduction in the valuation allowance and the recording of federal income tax
expense. At January 1, 2000, accounts payable and accrued expenses decreased by
$51,000 from $180,000 to $129,000. Accrued compensation increased by $115,000 to
$200,000 at January 1, 2000 reflecting an increase in annual bonuses to two of
our executive officers. The increase in income taxes payable of $103,000 to
$122,000 at January 1, 2000 represents an additional provision for state and
federal income taxes.
We do not have any material capital commitments and contemplate no material
capital expenditures in the foreseeable future. We believe that we will be able
to fund our operations during 2000 from current resources.
Inflation and Seasonality
We do not believe that our operating results have been materially affected
by inflation during the preceding two years. There can be no assurance, however,
that our operating results will not be affected by inflation in the future. Our
business is not subject to substantial seasonal variations.
Market Risk
We invest our excess cash in bank certificates of deposit and the highest
rated money market funds. The bank certificate of deposits are usually for a
term of not more than six months and never for more than $100,000 per account.
-12-
<PAGE>
Item 7. Financial Statements
Index to Financial Statements
Independent Auditors' Reports....................................F-1-2
Financial Statements:
Balance Sheets..........................................F-3
Statements of Income....................................F-4
Statements of Changes in Stockholders' Equity...........F-5
Statements of Cash Flows................................F-6
Notes to Financial Statements...........................F-7-13
-13-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
Tofutti Brands Inc.
We have audited the accompanying balance sheet of Tofutti Brands Inc. as of
January 1, 2000 and the related statements of income, changes in stockholders'
equity and cash flows for the fifty-three week period 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 audit.
We conducted our audit 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 audit provides 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
January 1, 2000 and the results of its operations and its cash flows for the
fifty-three week period then ended, in conformity with generally accepted
accounting principles.
/s/Wiss & Company
WISS & COMPANY, LLP
Livingston, New Jersey
March 9, 2000
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Tofutti Brands Inc.:
We have audited the accompanying balance sheet of Tofutti Brands Inc. as of
December 26, 1998, and the related statements of income, changes in
stockholders' equity, and cash flows for the fifty-two week period 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 audit.
We conducted our audit 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 audit provides 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 the results of its operations and its cash flows for the
fifty-two week period then ended in conformity with generally accepted
accounting principles.
/s/KPMG LLP
Short Hills, New Jersey
March 16, 1999
F-2
<PAGE>
TOFUTTI BRANDS INC.
BALANCE SHEETS
(000's omitted except for share and per share data)
<TABLE>
<CAPTION>
January 1, December 26,
2000 1998
---- ----
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $1,693 $ 407
Accounts receivable, net of allowance for doubtful
accounts of $200 and $120, respectively 831 955
Short-term investments 253 -
Inventories 566 583
Prepaid expenses 8 13
Deferred income taxes 180 335
--- -----
Total current assets 3,531 2,293
----- -----
Other assets: -
Deferred income taxes 3 180
Other assets 141 119
---- -----
$144 $299
---- ----
$3,675 $2,592
====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Note payable $ 22 $ 19
Accounts payable and accrued expenses 129 180
Accrued compensation 200 85
Income taxes payable 122 19
--- ---
Total current liabilities 473 303
Note payable, less current maturities 8 29
--- ---
Commitments and contingencies -- --
Stockholders' equity:
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 6,299,567 shares at January 1, 2000
and 6,183,567 shares at December 26, 1998 63 62
Additional paid-in capital 3,714 3,631
Accumulated deficit (583) (1,433)
------ ------
Total stockholders' equity 3,194 2,260
----- -----
Total liabilities and stockholders' equity $3,675 $2,592
====== ======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
TOFUTTI BRANDS INC.
STATEMENTS OF INCOME
(000's omitted except for per share data)
<TABLE>
<CAPTION>
Fifty-three weeks Fifty-two weeks
ended ended
January 1, 2000 December 26, 1998
--------------- -----------------
<S> <C> <C>
Net sales $11,912 $8,991
Cost of sales 7,349 5,818
----- -----
Gross profit 4,563 3,173
Operating expenses:
Selling 1,521 1,268
Marketing and sales promotion 199 188
Research and development 376 342
General and administrative 1,043 853
----- ---
3,139 2,651
----- -----
Operating income 1,424 522
Interest income (expense) 12 (7)
----- ---
Income before income tax (expense) benefit 1,436 515
Income tax (expense) benefit (586) 45
---- ----
Net income $850 $560
==== ====
Weighted Average Common Shares Outstanding:
Basic 6,245 6,184
===== =====
Diluted 7,368 6,610
===== =====
Net income per share:
Basic $.14 $.09
==== ====
Diluted $.12 $.08
==== ====
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
TOFUTTI BRANDS INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(000's omitted except for per share data)
<TABLE>
<CAPTION>
Common Stock Additional Total
----------------------- Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
Balances, December 27, 1997 6,183,567 $62 $3,631 $(1,993) $1,700
Net Income -- -- -- 560 560
--------- --- ------ ------ -----
Balances, December 26, 1998 6,183,567 62 3,631 (1,433) 2,260
Issuance of Common Stock for
Stock Options 116,000 1 83 -- 84
Net Income -- -- -- 850 850
--- --- ------ ----- -----
Balances, January 1, 2000 6,299,567 $63 $3,714 $(583) $3,194
========= === ====== ===== ======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
TOFUTTI BRANDS INC.
STATEMENTS OF CASH FLOWS
(000's omitted)
<TABLE>
<CAPTION>
Fifty-three Fifty-two
weeks ended weeks ended
January 1, December 26,
2000 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $850 $ 560
Adjustments to reconcile net income to net
cash flows from operating activities:
Provision for bad debts 60 135
Accrued interest on investments (3) --
Deferred taxes 332 (65)
Change in assets and liabilities:
Accounts receivable 64 (171)
Inventories 17 (42)
Prepaid expenses 5 (6)
Accounts payable and accrued expenses (51) (58)
Accrued compensation 115 35
Income taxes payable 103 5
---- ---
Net cash flows from operating activities 1,492 393
----- ---
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments (250) --
Other assets (22) (22)
----- ----
Net cash flows from investing activities (272) (22)
----- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable (18) (18)
Issuance of common stock 84 --
---- ----
Net cash flows from financing activities 66 (18)
---- ----
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,286 353
CASH AND CASH EQUIVALENTS, AT BEGINNING
OF PERIOD 407 54
--- ---
CASH AND CASH EQUIVALENTS, AT END OF
PERIOD $1,693 $407
====== ====
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 5 $ 7
==== ===
Income taxes paid $151 $15
==== ===
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
TOFUTTI BRANDS INC.
NOTES TO FINANCIAL STATEMENTS
(000's omitted except for share and per share data)
NOTE 1: DESCRIPTION OF THE BUSINESS AND 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.
Fiscal Year - The Company operates on a fiscal year ending on the Saturday
closest to December 31. Fiscal years for the financial statements included
herein ended on January 1, 2000 (fifty-three weeks) and December 26, 1998
(fifty-two weeks).
Estimates and Uncertainties - 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.
Revenue Recognition - Revenue is recognized when goods are shipped from
production facilities or outside warehouses.
Concentration of Credit/Sales Risk - Financial instruments that potentially
subject the Company to concentration of credit risk consists primarily of cash
and unsecured trade receivables. The Company maintains its cash balances in
financial institutions which are insured by the Federal Deposit Insurance
Corporation (FDIC) up to $100,000 each. At times during the year amounts may
exceed the FDIC limit.
The Company performs ongoing evaluations of its customers' financial condition
and does not require collateral. Management feels that credit risk beyond the
established allowances at January 1, 2000 is limited.
During the fifty-three and fifty-two week periods ended January 1, 2000 and
December 26, 1998, the Company derived approximately 89% and 88%, respectively,
of its net sales domestically. The remaining sales in both periods were exports
to various other countries. The Company had sales to two individual customers
representing 17% and 13% of net sales during 1999 and 16% and 10% of net sales
during 1998.
Cash and Cash Equivalents - The Company considers all highly liquid investments
with original maturities of three months or less to be cash equivalents.
Short-Term Investments - The Company's investments represent certificates of
deposit that have a maturity of less than one year, which the Company has the
positive intent and ability to hold to maturity.
F-7
<PAGE>
TOFUTTI BRANDS INC.
NOTES TO FINANCIAL STATEMENTS
(000's omitted except for share and per share data)
Inventories - Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.
Property and Equipment - Property and equipment are stated at cost. The Company
provides for depreciation using the straight-line method by charges to income at
rates based on the estimated useful lives of the assets.
Income Taxes - Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Net Income Per Share and Stock Based Compensation - Basic earnings per common
share has been computed by dividing net income by the weighted average number of
common shares outstanding. 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.
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 4).
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 January 1, 2000 and December 26, 1998 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.
Reclassifications - Certain reclassifications of the December 26, 1998 financial
statements have been made to conform to the January 1, 2000 presentation.
F-8
<PAGE>
TOFUTTI BRANDS INC.
NOTES TO FINANCIAL STATEMENTS
(000's omitted except for share and per share data)
NOTE 2: INVENTORIES
Inventories consist of the following:
January 1, December 26,
2000 1998
---- ----
Finished products $352 $ 352
Raw materials and packaging 214 231
--- -----
$566 $ 583
==== =====
NOTE 3: 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%.
NOTE 4: 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
stock 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
2,900,000 shares have been reserved for issuance under the 1993 Plan. At January
1, 2000, 2,383,000 shares were subject to outstanding options and 221,000
additional shares were available for future grant.
F-9
<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 27, 1997 to
January 1, 2000:
<TABLE>
<CAPTION>
INCENTIVE OPTIONS NON-QUALIFIED OPTIONS
----------------- --------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price ($) Shares Price ($)
------ ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at December 27, 1997 1,118,000 0.765 102,000 0.790
Exercisable at December 27, 1997 -- -- -- --
Canceled in 1998 (6,000) 0.6875 -- --
--------- -------
Outstanding at December 26, 1998 1,112,000 0.766 102,000 0.790
Granted in 1999 1,186,000 1.116 99,000 1.0625
Exercised in 1999 (96,000) 0.716 (20,000) 0.750
--------- -------
Outstanding at January 1, 2000 2,202,000 0.9560 181,000 0.944
========= =======
Exercisable at January 1, 2000 1,411,000 0.866 115,000 0.876
========= =======
Exercisable at December 26, 1998 404,000 0.764 41,000 0.790
========= =======
</TABLE>
The fair value of each stock option granted during 1999 is estimated on the date
of grant using the Black-Scholes option pricing model with the following
assumptions:
1999
----
Expected life (years) 4.0
Expected volatility 197%
Expected dividend yield 0.0%
Risk-free interest rate 5.5%
Weighted average fair value of
options granted during the year $.85
There were no stock options granted during 1998.
F-10
<PAGE>
TOFUTTI BRANDS INC.
NOTES TO FINANCIAL STATEMENTS
(000's omitted except for share and per share data)
The following table summarizes information about stock options outstanding at
January 1, 2000:
Weighted Average Weighted
Range of Number Remaining Life Average
Exercise Prices Outstanding (in years) Exercise Price
--------------- ----------- ---------- --------------
$.6875--1.031 1,098,000 2.3 $0.77
$1.0625-$1.1688 1,285,000 4.3 $1.11
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:
2000 1998
---- ----
Net income available for common stockholders:
As reported $850 $560
Pro forma 336 390
Basic earnings per share:
As reported .14 .09
Pro forma .05 .06
Diluted earnings per share:
As reported .12 .08
Pro forma .05 .06
NOTE 5: COMMITMENTS AND CONTINGENCIES
The Company leases a warehouse and administrative facility in Cranford, New
Jersey under an operating lease which expired on July 1, 1999. The Company is
currently in negotiations to extend the lease 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 is $74. 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 $74, respectively, for the
fifty-three week period ended January 1, 2000 and the fifty-two week period
ended December 26, 1998.
F-11
<PAGE>
TOFUTTI BRANDS INC.
NOTES TO FINANCIAL STATEMENTS
(000's omitted except for share and per share data)
Litigation - 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.
NOTE 6: INCOME TAXES
The components of income tax expense (benefit) for the fifty-three and fifty-two
week periods ended January 1, 2000 and December 26, 1998 are as follows:
2000 1998
---- ----
Current:
Federal $ 80 $ --
State 173 20
--- --
253 20
--- --
Deferred:
Federal 250 (50)
State 83 (15)
-- ---
333 (65)
--- ---
Total income tax expense (benefit) $586 $(45)
==== ====
Deferred tax assets at January 1, 2000 and December 26, 1998 are as follows:
2000 1998
---- ----
Allowance for doubtful accounts $ 24 $ 48
Accruals and reserves 159 96
Net operations loss carry forwards and tax credits -- 371
-- ---
Deferred tax assets $183 $515
==== ====
F-12
<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 (benefit) at the
statutory tax rate of 34% and the Company's actual tax expense (benefit) for the
fifty-three and fifty-two week periods ended January 1, 2000 and December 26,
1998 follows:
2000 1998
---- ----
Income tax expense computed at
federal statutory rate $488 $ 175
Permanent and other items 6 8
State income taxes, net of federal
income tax benefit 92 31
Change in valuation allowance -- (259)
-- -----
Income tax expense (benefit) $586 $ (45)
==== ======
F-13
<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
Our Directors and Executive Officers are:
Name Age Position
- ---- --- --------
David Mintz................. 68 Chairman of the Board of Directors,
Chief Executive Officer
Steven Kass................. 48 Chief Financial Officer, Secretary and
Treasurer
Reuben Rapoport............. 69 Director of Product Development and
Director
Franklyn Snitow............. 53 Director
Bernard Koster.............. 65 Director
Jeremy Wiesen............... 57 Director
David Mintz has been our Chairman of the Board and Chief Executive Officer
since August 1981.
Steven Kass has been our Chief Financial Officer since November 1986 and
Secretary and Treasurer since January 1987.
Reuben Rapoport has been the Director of Product Development since January
1984 and a Director since July 1983.
Franklyn Snitow has been a Director since 1987. He has been a partner in
the New York City law firm of Snitow & Cunningham, our general counsel, since
1985.
Bernard Koster has been a Director 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.
-14-
<PAGE>
Jeremy Wiesen has been a Director since May 1999. He has been an Associate
Professor of Business Law and Accounting at the Leonard N. Stern School of
Business, New York University since 1972. He was a member of the board of
directors of Mego Mortgage Corporation from November 1996 through March 1998 and
was previously a director and officer of our company from June 1983 through
January 1986.
All Directors 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
any of our Directors and executive officers. All of the executive officers
devote their full time to our operations.
Compliance with Section 16(a) of The Exchange Act. Section 16(a) of the
Securities Exchange Act of 1934, as amended, requires our officers and
directors, and persons who own more than ten percent of our 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 us with copies of
all such forms they file.
To our knowledge, based solely on our review of the copies of such forms
received by us, or written representations from certain reporting persons that
no additional forms were required for those persons, we believe that during
fiscal 1999 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 our executive officers whose
total salary in fiscal 1999 totaled $100,000 or more:
SUMMARY COMPENSATION TABLE
--------------------------
Annual Long-Term
Compensation Compensation
------------ ------------
Securities Underlying
Name and Principal Position Year Salary ($) Options (#)
- --------------------------- ---- ---------- -----------
David Mintz 1999 $303,000(1) 600,000
Chief Executive Officer 1998 225,000(2) --
and Chairman of the Board 1997 180,000(3) 480,000
Steven Kass 1999 187,000(1) 400,000
Chief Financial Officer 1998 145,000(2) --
Secretary and Treasurer 1997 117,500(3) 430,000
- ---------------
(1) Includes bonuses of $125,000 and $75,000 for Messrs. Mintz and Kass,
respectively, accrued at year-end and paid on February 11, 2000.
-15-
<PAGE>
(2) Includes bonuses of $50,000 and $35,000 for Messrs. Mintz and Kass,
respectively, accrued at year-end and paid on April 1, 1999.
(3) Includes bonuses of $30,000 and $20,000 for Messrs. Mintz and Kass,
respectively, accrued at year-end and paid on April 1, 1998.
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, our Board of Directors adopted a resolution wherein we
were authorized to purchase a $1,000,000 split dollar insurance plan on the life
of a member of David Mintz's family. Mr. Mintz is our Chairman and Chief
Executive Officer. The purpose of this transaction is to provide the Mintz
estate with funds sufficient to pay any estate taxes levied upon the transfer of
Mr. Mintz's Tofutti stock, which would have otherwise necessitated a sale of the
stock. The sale of such stock might have a negative effect of significantly
decreasing the market price of the stock to the detriment of other shareholders.
Upon the death of the family member or termination of the policy prior to death,
we will receive a complete refund of all the premiums paid plus interest at 4%.
There are currently no employment agreements between us and any of our
officers. Neither Mr. Snitow nor Mr. Koster has received any cash remuneration
for their service as Director in the last three years, nor has Mr. Wiesen since
his election to the Board in May 1999.
STOCK OPTIONS
The following table provides information concerning the grants and
exercising of stock options during our last fiscal year to each of the officers
named above in the Summary Compensation Table.
<TABLE>
OPTIONS GRANTED IN LAST FISCAL YEAR
-----------------------------------------------------------------------------------
Number of Percent of
Shares Total Options
Underlying Granted to
Options Employees in
Name Granted (#) Fiscal Year Exercise Price ($/SH) Expiration Date
- ---- ----------- ----------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
David Mintz, 600,000 47% $1.1688 3/18/04
Chief Executive Officer
and Chairman of the
Board
Steven Kass, 400,000 31% 1.0625 3/18/04
Chief Financial Officer,
Secretary and Treasurer
</TABLE>
-16-
<PAGE>
The following table provides information concerning stock options held in
1999 by each of the executive officers named above in the Summary Compensation
Table.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
-----------------------------------------------------------------------------------------------
Number of Shares Value of Unexercised
Shares Underlying Unexercised in the Money Options
Acquired on Value Options at FY-End (#) at FY-End ($)
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
David Mintz, -- $ -- 680,000 (E) $529,000 (E)(1)
Chief Executive Officer 400,000 (U) 207,000 (U)(1)
and Chairman of the
Board
Steven Kass, 35,000 78,812 528,000(E) 461,000 (E)(1)
Chief Financial Officer, 267,000(U) 167,000 (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 24, 2000, certain information
regarding the ownership of our Common Stock, $.01 par value, for each person
known by us to be the beneficial owner of more than 5% of the outstanding shares
of Common Stock, for each executive officer named in the Summary Compensation
Table, for each of our Directors and for our executive officers and directors as
a group:
Amount of
Name Beneficial Ownership Percent of Class
- ---- -------------------- ----------------
David Mintz........................ 3,659,240 (1) 46.8%
Steven Kass........................ 528,000 (2) 6.7%
Reuben Rapoport.................... 145,000 (3) 1.9%
Jeremy Wiesen...................... 88,500 (4) 1.1%
Franklyn Snitow.................... 78,000 (5) 1.0%
Bernard Koster..................... 33,000 (6) *
All Executive Officers and
Directors as a group (6 persons).. 4,531,740(7) 57.9%
________________
-17-
<PAGE>
The address of Messrs. Mintz, Kass and Rapoport 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. The address of Mr. Koster is 7 Old
Smith Road, Tenafly, New Jersey 07670. The address of Mr. Wiesen is 254 East
68th Street, Apt. 30F, New York, New York 10021. Each person listed above has
sole voting and/or investment power of the shares attributed to him.
* Less than 1%.
(1) Includes 680,000 shares issuable upon the exercise of currently exercisable
stock options.
(2) Issuable upon the exercise of currently 528,000 exercisable stock options.
(3) Includes 125,000 shares issuable upon the exercise of currently exercisable
stock options.
(4) Includes 20,000 shares issuable upon the exercise of currently exercisable
stock options.
(5) Includes 58,000 shares issuable upon the exercise of currently exercisable
stock options.
(6) Includes 30,000 shares issuable upon the exercise of currently exercisable
stock options.
(7) Includes 1,441,000 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 WISS & COMPANY, LLP.
23.2 Consent of KPMG LLP.
27 Financial Data Schedule (filed via EDGAR only).
-18-
<PAGE>
99 Additional Information Regarding Forward-Looking Statements.
___________
* 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.
333-79567) filed May 28, 1999 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 March 31, 2000.
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 31, 2000, 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
/s/Jeremy Wiesen
- ----------------
Jeremy Wiesen
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 Amended 1993 Stock Option Plan.
23.1 Consent of WISS & COMPANY, LLP.
23.2 Consent of KPMG LLP.
27 Financial Data Schedule (filed via EDGAR only).
99 Additional Information Regarding Forward-Looking Statements.
___________
* 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.
333-79567) filed May 28, 1999 and hereby incorporated by reference thereto.
EXHIBIT 23.1
<PAGE>
WISS & COMPANY, LLP
Certified Public Accountants
CONSENT OF INDEPENDENT AUDITORS
To The Board of Directors
Tofutti Brands Inc.
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-72654, 333-48605 and 333-79567) on Form S-8 of Tofutti Brands Inc. of
our report dated March 9, 2000, relating to the balance sheet of Tofutti Brands
Inc. as of January 1, 2000 and the related statements of income, changes in
stockholders' equity and cash flows for the fifty-three week period then ended,
which report appears in the January 1, 2000 annual report on Form 10-KSB of
Tofutti Brands Inc.
/s/Wiss & Company
WISS & COMPANY, LLP
Livingston, New Jersey
March 30, 2000
EXHIBIT 23.2
<PAGE>
Consent of Independent Auditors
The Board of Directors
Tofutti Brands Inc.:
We consent to incorporation by reference in the Registration Statements (Nos.
33-72654, 333-48605 and 333-79567) on Form S-8 of Tofutti Brands Inc. of our
report dated March 16, 1999, relating to the balance sheet of Tofutti Brands
Inc. as of December 26, 1998, and the related statements of income, changes in
stockholders' equity, and cash flows for the fifty-two week period then ended,
which report appears in the January 1, 2000 annual report on Form 10-KSB of
Tofutti Brands Inc.
/s/KPMG LLP
Short Hills, New Jersey
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TOFUTTI
BRANDS INC.'S REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED JANUARY 1, 2000
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> JAN-01-2000
<CASH> 1,693,000
<SECURITIES> 253,000
<RECEIVABLES> 1,031,000
<ALLOWANCES> 200,000
<INVENTORY> 566,000
<CURRENT-ASSETS> 3,531,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,675,000
<CURRENT-LIABILITIES> 473,000
<BONDS> 0
0
0
<COMMON> 63,000
<OTHER-SE> 3,131,000
<TOTAL-LIABILITY-AND-EQUITY> 3,675,000
<SALES> 11,912,000
<TOTAL-REVENUES> 11,912,000
<CGS> 7,349,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,139,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (12,000)
<INCOME-PRETAX> 1,436,000
<INCOME-TAX> 586,000
<INCOME-CONTINUING> 850,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 850,000
<EPS-BASIC> .14
<EPS-DILUTED> .12
</TABLE>
EXHIBIT 99
<PAGE>
EXHIBIT 99
ADDITIONAL INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Our Annual Report on Form 10-KSB for the 1999 fiscal year ended on January
1, 2000 (the "Annual Report") contains various forward-looking statements which
reflect our current views with respect to future events and financial results.
Forward-looking statements usually include the verbs "anticipates," "believes,"
"estimates," "expects," "intends," "plans," "projects," "understands" and other
verbs suggesting uncertainty. We remind shareholders that forward-looking
statements are merely predictions which are inherently subject to uncertainties
and other factors which could cause the actual results to differ materially from
the forward-looking statement. Some of these uncertainties and other factors are
discussed in the Annual Report. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." In this Exhibit 99, we have
attempted to identify additional uncertainties and other factors which may
affect its forward-looking statements.
Shareholders should understand that the uncertainties and other factors
identified in the Annual Report and this Exhibit 99 do not constitute a
comprehensive list of all the uncertainties and other factors which may affect
forward-looking statements. We have merely attempted to identify those
uncertainties and other factors which, in its view at the present time, have the
highest likelihood of significantly affecting its forward-looking statements. In
addition, we do not undertake any obligation to update or revise any
forward-looking statements or the list of uncertainties and other factors which
could affect such statements.
* * *
Dependence on Independent Distributors. Historically, we have been
dependent on maintaining satisfactory relationships with our various health food
distributors, Mattus Ice Cream Company, our frozen dessert distributor in the
New York Metropolitan area, and the other independent distributors that have
acted as our distributors. Our health food distributors accounted for 50% of our
sales. While we believe that our relationships with our distributors have been
satisfactory and have been instrumental in our growth, we have at times
experienced difficulty in maintaining such relationships to our satisfaction.
Since available distribution alternatives are limited, there can be no assurance
that difficulties in maintaining satisfactory relationships with our
distributors will not have a material adverse effect on our business in the
future.
Recent Growth in Sales and Earnings. In 1999, our net sales increased 32%
to $11,912,000 from $8,991,000 in 1998. The successful introduction of
innovative products on a periodic basis has become increasingly important to our
sales growth. Accordingly, the future degree of market acceptance of any of our
new products, which may be accompanied by significant promotional expenditures,
is likely to have an important impact on our future financial results.
Competitive Environment. The frozen dessert and health food markets are
highly competitive. The ability to successfully introduce innovative products on
a periodic basis that are accepted by the marketplace is a significant
competitive factor. In addition, many of our principal competitors are large,
diversified companies with resources significantly greater than ours. We
-1-
<PAGE>
expect strong competition to continue, including competition for adequate
distribution and competition for the limited shelf space for the frozen dessert
category in supermarkets and other retail food outlets.
Our Operating Results Vary Quarterly And Seasonally. We have often
recognized a substantial portion of our revenues in the second and third quarter
of the year and in the last month, or even weeks, of a quarter. Our expense
levels are substantially based on our expectations for future revenues and are
therefore relatively fixed in the short-term. If revenue levels fall below
expectations, our quarterly results are likely to be disproportionately
adversely affected because a proportionately smaller amount of our expenses
varies with its revenues. Our operating results reflect seasonal trends and we
expect to continue to be affected by such trends in the future. We expect to
continue to experience relatively higher sales in the second and third quarters,
and relatively lower sales in the fourth and first quarters, as a result of
reduced sales of frozen non-dairy desserts. Due to the foregoing factors, in
some future quarter our operating results may be below the expectations of
public market analysts and investors. In such event, it is likely that the price
of our common stock would be materially adversely affected.
Reliance on a Limited Number of Key Personnel. Our success is significantly
dependent on the services of David Mintz, Chief Executive Officer, Mr. Steven
Kass, Chief Financial Officer, and Reuben Rapoport, Director of Product
Development. The loss of the services of any of these persons could have a
material adverse effect on our business.
Control of the Company. Our Chairman of the Board and Chief Executive
Officer, David Mintz, holds shares representing approximately 47% of the
outstanding shares of common stock, permitting him as a practical matter to
elect all members of the Board of Directors and thereby effectively control the
business, policies and management of our company.
We Are Subject To Risks Associated With International Operations. In 1999
approximately 11% of our revenues were from international sales. Although we
continue to expand our international operations, we cannot be certain that we
will be able to maintain or increase international market demand for our
products. To the extent that we cannot do so in a timely manner, our business,
operating results and financial condition will be adversely affected.
International operations are subject to inherent risks, including the
following:
o the impact of possible recessionary environments in multiple foreign
markets;
o longer receivables collection periods and greater difficulty in
accounts receivable collection;
o unexpected changes in regulatory requirements;
o potentially adverse tax consequences; and
o political and economic instability.
-2-
<PAGE>
We may be adversely affected by fluctuations in currency exchange rates. We
do not currently engage in any currency hedging transactions intended to reduce
the effect of fluctuations in foreign currency exchange rates on our results of
operations. Although exposure to currency fluctuations to date has not had a
material adverse effect on our business, there can be no assurance such
fluctuations in the future will not have a material adverse effect on revenues
from international sales and, consequently our business, operating results and
financial condition.
We May Require Additional Capital In The Future. Our working capital
requirements and the cash flow provided by our operating activities are likely
to vary greatly from quarter to quarter, depending on the timing of orders and
deliveries, the build-up of inventories, and the payment terms offered to
customers. We anticipate that our existing capital resources, will be adequate
to satisfy our working capital and capital expenditure requirements for at least
12 months. No assurance can be given that we will not consume an unexpected and
significant amount of our available resources. Our future capital requirements
will depend on many factors, including continued progress in our expansion plans
and the success of new product introductions. To the extent that the funds
generated from our operations are insufficient to fund our operating and
financial requirements, we may be required to raise additional funds through
public or private financings or other sources. Any equity or debt financings, if
available at all, may cause dilution to our then-existing shareholders. If
additional funds are raised through the issuance of equity securities, the net
tangible book value per share of our common shares may decrease and the
percentage ownership of then current shareholders may be diluted. We do not have
any committed sources of additional financing, and there can be no assurance
that additional financing, if necessary, will be available on commercially
reasonable terms, if at all. If adequate funds are not available, our business,
financial condition and results of operations would be materially and adversely
affected.
Our Stock Price Is Subject To Volatility. The market price of our common
stock may be subject to wide fluctuations in response to announcements
concerning us or our competitors, quarterly variations in operating results, the
introduction of new products or changes in product pricing policies by us or our
competitors, general market conditions in the industry, developments in the
financial markets and other factors.
We Do Not Intend To Pay Cash Dividends. Our policy is to retain earnings,
if any, for use in our business and, for this reason, we do not intend to pay
cash dividends on the common shares in the foreseeable future.
-3-
