10KSB/A 1 frm10ksba1fy2003.txt AMENDMENT NO. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-KSB/A Amendment No. 1 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 27, 2003 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) (908) 272-2400 Issuer's telephone number, including area code Securities registered under 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 under 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: $19,014,000 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 23, 2004 was $11,073,000. As of March 23, 2004, the Registrant had 5,894,867 shares of Common Stock, par value $.01, outstanding. Transitional Small Business Disclosure Format Yes ___ No x. Explanatory Note This Amendment No. 1 on Form 10-KSB/A of Tofutti Brands Inc. for the fiscal year ended December 27, 2003 is being filed solely to (i) correct a typographical error in the Statements of Changes in Stockholders' Equity table in the financial statements and in Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters and (ii)clarify the information provided for certain non-Employee Directors in "Item 10. Executive Compensation." For the convenience of the reader the entire document is being refiled. Other than as expressly set forth above, this Form 10-KSB/A, and the exhibits filed herewith, does not, and does not purport to, amend, update or restate the information in the Form 10-KSB or reflect any events that have occurred after the Form 10-KSB was filed. 2 PART I This Annual Report on Form 10-KSB contains various "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and within the Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements reflect our current view 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 readers that forward-looking statements are merely predictions and therefore inherently subject to uncertainties and other factors and involve known and unknown risks that could cause the actual results, performance, levels of activity, or our achievements, or industry results, to be materially different from any future results, performance, levels of activity, or our achievements expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. We have attempted to identify additional significant uncertainties and other factors affecting forward-looking statements in the Risk Factors section which appears in Item 1 - Business. 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 nondairy, soy-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. During 2003, we introduced several new products. In frozen desserts, we came out with WAVE CUTIES in three flavors: blueberry, strawberry or chocolate sauce blended with creamy vanilla TOFUTTI between two vanilla wafers. We also introduced the JAZZY CUTIE which consists of vanilla TOFUTTI filling between a vanilla and a chocolate wafer. TOFUTTI DELIGHTS are no sugar added, chocolate coated stick novelties in a multi-flavored pack box. They are a low-carb product similar in appearance to our Chocolate Fudge Treats. In 2003 we introduced new versions of BETTER THAN CREAM CHEESE and SOUR SUPREME made without hydrogenated fat and potassium sorbate. These products are for those individuals who are concerned about trans fatty acids. During 2003, we decided to focus more on our core business of non-dairy frozen dessert and cheese products. Accordingly, we discontinued a number of products that did not fit into our long term plans. Specifically, we eliminated our candy and nut products, certain flavors of our 3 BETTER THAN CREAM CHEESE and SOUR SUPREME, slow-moving frozen dessert items, and a number of frozen food products. We believe that the elimination of these products, when coupled with our new product introductions, will greatly enhance the visibility of our remaining products which should result in the reduction of slower moving inventory and translate into additional shelf space and ultimately greater sales. We were organized under the laws of the State of New York in 1981 and became a Delaware corporation in 1984. Our registered office and principal executive offices are located at 50 Jackson Drive, Cranford, New Jersey 07016, our telephone number is 908-272-2400 and our email address is tofuttibrands@aol.com. Our address on the Internet is www.tofutti.com. The information on our website is not incorporated by reference into this annual report. STRATEGY Our objective is to be a leading provider of nondairy, soy-based food products, primarily frozen desserts and soy-cheese products, to supermarkets and health food stores. We intend to continue to introduce new products that offer good taste while containing no butterfat, cholesterol or lactose to these markets. We believe that our ability to offer a wide range of nondairy, soy-based parve kosher products will continue to provide us with a competitive advantage. TOFUTTI PRODUCT LINE We offer a broad product line of nondairy soy-based products. Our products include frozen desserts, nondairy cheeses and spreads and other frozen food products. Frozen Desserts o Premium TOFUTTI(R) nondairy frozen dessert, available in prepacked pints, three-gallon cans, and soft serve mix, is sold nationally in supermarkets, health food stores, retail shops, and restaurants. Premium TOFUTTI was the first nondairy frozen dessert to be marketed to the general public through supermarkets. We currently offer eight flavors of premium, hard frozen TOFUTTI in pints: Vanilla, Chocolate Supreme, Wildberry Supreme, Vanilla Almond Bark(R), Vanilla Fudge, Chocolate Cookie Crunch, Better Pecan(R), and Mint Chocolate Chip. Premium TOFUTTI soft serve mix is available in three flavors: Vanilla, Chocolate, and Peanut Butter. Tofutti in three gallon bulk cans is available in Vanilla, Chocolate Supreme and Vanilla Almond Bark. o LOW FAT TOFUTTI offers the calorie-conscious consumer a creamy dessert that is 98% fat free and has less than 120 calories per serving. Sold nationally in pints, LOW FAT TOFUTTI is offered in a number of flavors including Chocolate Fudge, Coffee Marshmallow, and Vanilla Fudge. o NO SUGAR ADDED TOFUTTI pints offer the diet or sugar conscious consumer a nondairy frozen dessert with the taste and texture of premium TOFUTTI and the calories and fat of our low fat product. With its low carb count, it is ideal for people on the 4 Atkins diet. Available in Strawberry and Chocolate flavors, NO SUGAR ADDED TOFUTTI pints are sold in select supermarkets. o TOFUTTI SUPER SOY SUPREME(TM), made with organic cane juice crystals and with no gluten added, is sold in health food stores and select supermarkets for those individuals looking for a delicious tasting, nondairy frozen dessert without refined sugar or artificial sweeteners. It is available in 500 ml (17 oz.) containers and comes in two flavors: Bella Vanilla(TM) and New York, New York Chocolate(TM). o TOFUTTI CUTIES(R), the Company's best selling product, are bite size frozen sandwiches combining a Vanilla, Cookies and Cream, Chocolate, Peanut Butter, Mint Chocolate Chip, Wild Berry, or Coffee filling between two chocolate wafers. Being half the size of traditional ice cream sandwiches, TOFUTTI CUTIES offer consumers a portion controlled treat. Unlike ice cream sandwiches, CUTIES are totally dairy free, without butterfat or cholesterol, yet with the same great taste that makes ice cream sandwiches one of the best selling novelties in the freezer case. Like all our frozen dessert products, they are completely trans fat free, including the wafers. For those individuals who cannot have chocolate, our TOTALLY VANILLA TOFUTTI Cutie is vanilla TOFUTTI between two vanilla wafers. Using the same vanilla wafers, we have also introduced the WAVE CUTIETM in three different flavors - blueberry, strawberry and chocolate sauces blended with creamy vanilla TOFUTTI. Last, but not least is the JAZZY CUTIETM, which consists of vanilla TOFUTTI between a vanilla and chocolate wafer. o No sugar added TOFUTTI CUTIES not only have the same great taste and health benefits of our regular Vanilla CUTIES, but combine a creamy no sugar added vanilla filling with a crispy, great tasting no sugar added wafer. A low carb product, they are an ideal snack for individuals on the Atkins diet. o TOFUTTI TOO-TOO'S are frozen dessert cookie sandwiches combining creamy and delicious premium vanilla TOFUTTI and chocolate chips with a round, chocolate chip cookie. o TOTALLY FUDGE POPS(R), CHOCOLATE FUDGE TREATS, and COFFEE BREAK TREATS are stick novelties that offer the consumer the same taste as real fudge bars. The TOTALLY FUDGE POPS, made with organic sugar and with no gluten added, have 70 calories and 1 gram of fat per bar, while fat free, no sugar added CHOCOLATE FUDGE TREATS and COFFEE BREAK TREATS(TM) have only 30 calories per bar. Both TREATS are ideal for anyone on either a low fat or low carb diet. o TOFUTTI DELIGHTS(TM) are no sugar added stick novelties shaped just like TREATS, each one covered in a thick, dark chocolate coating. A multi-pack product, each box of DELIGHTS comes with three different centers- vanilla, chocolate or strawberry. They are available in select supermarkets and health food stores and are an ideal snack for those individuals on a low carb diet. 5 o TOFUTTI MONKEY BARS(TM) are stick novelties that feature a rich chocolate center surrounded by peanut butter flavored TOFUTTI, dipped in a rich chocolate coating. o HOORAY HOORAY BARS (TM) are no sugar added stick novelties that combine creamy vanilla TOFUTTI with a chocolate center covered in a thick dark chocolate coating. o MARRY ME BARS(TM) are stick novelties that feature creamy vanilla TOFUTTI surrounded with a dark chocolate coating. Made with organic sugar and with no gluten added, MARRY ME BARS satisfy important diet requirements of certain consumers with that great TOFUTTI taste. Nondairy Cheese Products 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. It is as versatile as real cream cheese, whether spread on a bagel or used in any favorite recipe. The 8 oz. retail packages are available in Plain, French Onion, Herbs & Chives, Smoked Salmon, Garlic & Herb, Garden Veggie, Creamed Spinach and Broccoli Cheddar. The plain version is also available in 30 lb. bulk boxes. The product is sold in many health food stores and select supermarkets around the country. o SOUR SUPREME(R) is similar in taste and texture to traditional sour cream, but is milk and butterfat free and contains no cholesterol. SOUR SUPREME has the versatility of sour cream with the benefits of being dairy free. The 12 oz. retail packages are available in Plain and Guacamole. The plain version is also available in 30 lb. bulk boxes. Like BETTER THAN CREAM CHEESE, SOUR SUPREME is sold nationally in most health food stores and select supermarkets. o For consumers concerned with their fat and calorie intake, TOFUTTI now offers versions of BETTER THAN CREAM CHEESE and SOUR SUPREME with no partially hydrogenated fat and no trans fatty acids. They are also made with organic sugar, no preservatives, and are available in most health food stores. o TOFUTTI SOY-CHEESE SLICES(TM) offer consumers a delicious nondairy, vegan alternative to regular cheese slices. Available as individually wrapped slices in 8 oz. packages, TOFUTTI SOY-CHEESE SLICES are sold in most health food stores and select supermarkets and come in three flavors: Mozzarella, American, and Roasted Garlic. Other Food Products o TOFUTTI PIZZA PIZZAZ combines a delicious pan crust, zesty sauce and TOFUTTI totally dairy free BETTER THAN MOZZARELLA CHEESE into a completely authentic, yet healthy pizza. TOFUTTI PIZZA PIZZAZ is sold three squared slices to a package and is available in freezer cases in select supermarkets and health food stores. 6 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. They can be served hot, warm, or slightly chilled as a main meal or a snack. o TOFUTTI CHEESE PILLOWS are frozen crepes filled with BETTER THAN CREAM CHEESE and a variety of fruit fillings. They are available in Blueberry Cheese, Apple Danish & Cheese, and Cherry Cheese flavors, and can be served hot, warm, or slightly chilled as a main meal or a snack. TOFUTTI PILLOWS are sold in most health food stores and select supermarkets. o EGG WATCHERS(R) is a fat free replacement for whole eggs that has the taste, nutrition, and versatility of whole eggs without the fat and cholesterol and with 60% less calories. EGG WATCHERS can be used in virtually all recipes that require whole eggs. It appeals to those consumers who are concerned about lowering dietary cholesterol and fat levels, but do not want to give up the great taste and good nutritional values of whole eggs. o TOFUTTI COOKIES are made with all natural ingredients and unbleached flour. The 16 oz. packages are available in Peanut Butter, Oatmeal Raisin, Chocolate Chip, and TOFIGGY(R) fig bars. Like all TOFUTTI products, they are completely dairy and cholesterol free and can be found in select supermarkets and 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. Certain key domestic accounts and all international accounts are handled directly by us. Since mid-2003, Eskimo Pie Frozen Distribution, Inc., a wholly-owned subsidiary of CoolBrands International, Inc., has been the distributor of our frozen desserts in the New York metropolitan area, as well our distributor in the Southern New Jersey-Philadelphia area, Maryland, Delaware and Northern Virginia and in the Southeastern United States including Florida. Eskimo Pie became our distributor in these areas as a result of the sale of the distribution assets of Nestle Ice Cream Company, LLC, or NICC, our distributor since May 2001, to CoolBrands. NICC, formerly known as Haagen Dazs, had also been our distributor of frozen desserts in the Southeastern United States for the last twelve years. Total sales to Eskimo Pie/NICC in the New York metropolitan area were $1,244,000 or 7% of sales in 2003 as compared to $1,102,000 or 6% of sales in 2002 to NICC. We currently sell our frozen dessert products in most major markets in the United States, including Atlanta, Baltimore, Boston, Charlotte, Chicago, Cincinnati, Cleveland, Denver, Detroit, Los Angeles, Miami, Milwaukee, Minneapolis, New York, Orlando, Philadelphia, Phoenix, Richmond, San Francisco, Seattle and Tampa. 7 We distribute our products through forty-two distributors in the national health food market. Our sales to health food distributors in 2003 were $10,541,000, or 55% of total sales, as compared to $9,112,000, or 52% of sales, in 2002. In 2003, sales to Trader Joe's, a West Coast based health food supermarket chain, were $4,221,000, or 22% of sales, as compared to $3,647,000, or 21% of sales, in 2002. Overall, West Coast sales were $5,033,000, or 26% of our sales, in 2003, as compared to $4,854,000, or 28% of sales, in 2002. Our sales in Florida decreased to $1,831,000, or 10% of sales, in 2003 compared to $1,899,000, or 11% of sales, in 2002. Total sales in the Midwest increased to $1,681,000, or 9% of sales, in 2003 as compared to $1,666,000, or 9% of sales, in 2002, while sales in New England, another important market for us, increased to $2,320,000, or 12%of sales, as compared to sales of $2,243,000, or 13%, in 2002. We continue to have a strong presence in the kosher market, with sales of $1,299,000, or 7% of sales, in 2003, as compared with sales of $1,196,000, or 7% of sales, in 2002. During 2003, we shipped TOFUTTI nondairy products to distributors in Australia, Bermuda, Canada, England, Israel, Mexico, and Panama. Our distributor in England is our master distributor for all of Europe and sells our products to approximately ten other European countries. Sales to foreign distributors decreased to $1,586,000, or 8% of sales, in 2003, as compared to $1,840,000, or 11% of sales, in 2002. Our international sales were negatively impacted by unfavorable economic conditions in some of the countries where we sell our products. We conduct all of our foreign business in U.S. dollars. Therefore, 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 preceding sales categories to continue in 2004. COMPETITION TOFUTTI frozen desserts compete with all forms of ice cream products, yogurt-based desserts and other soy-based frozen desserts. We believe that we are a leader in the nondairy frozen dessert product market and have the most complete line of nondairy frozen dessert products. Other soy-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 nondairy and dairy competitive products marketed by companies with significantly greater resources than we have. RESEARCH AND DEVELOPMENT All of our products are developed internally in our own laboratory. During the last two years, David Mintz, Chief Executive Officer, and Reuben Rapoport, our former Director of Product Development, have devoted substantial time and effort to the development of new products and the reformulation of our current products. In 2003 and 2002, our research and development expenses were $552,000 and $437,000, respectively. These amounts do not include any portion of Mr. Mintz's salary. 8 PRODUCTION All of our products are manufactured by co-packers to whom we supply certain key ingredients and packaging for the manufacturing processes. We currently utilize nine co-packers, including one in the United Kingdom, a decrease from eleven co-packers in the previous year. This decrease is a result of consolidation and the discontinuation of some products. Our co-packers manufacture and package our products and, in certain instances, warehouse such products pending shipment. For certain key product categories, such as nondairy frozen desserts and nondairy cheeses, we have more than one co-packer. 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. All Tofutti employees, including officers, sign similar confidentiality agreements. 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, or KOF-K, of Teaneck, New Jersey provides us with our 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. Approval of the manufacturing facilities we use include periodic inspections, and in most cases, on-site supervision of actual production. We believe that our ability to successfully market and distribute our products is dependent upon our continued compliance with the requirements of rabbinical 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 9 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, or the 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. 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 our 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 December 27, 2003 we employed twelve persons on a full-time basis compared with eleven persons as of December 28, 2002. We consider our relations with our employees to be good. We do not have any collective bargaining agreements with our employees. RISK FACTORS Investing in our common stock involves a high degree of risk and uncertainty. You should carefully consider the risks and uncertainties described below before investing in our common stock. If any of the following risks actually occurs, our business, prospects, financial 10 condition and results of operations could be harmed. In that case, the value of our common stock could decline, and you could lose all or part of your investment. Reliance on Independent Distributors. We believe that we have no outstanding risk factors in the sale and distribution of our products and feel that the business associated with our current primary distributor, Eskimo Pie Frozen Distribution, Inc., can be easily transferred to another distributor if necessary. Recent Growth in Sales and Earnings. In 2003, our net sales increased 8% to $19,014,000 from $17,499,000 in 2002. 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 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 slightly greater portion of 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. We expect to continue to experience slightly higher sales in the second and third quarters, and slightly lower sales in the fourth and first quarters, as a result of reduced sales of nondairy frozen desserts. Due to the foregoing factors, in some future quarter our operating results may be below the expectations of 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 (age 72), Chief Executive Officer and Steven Kass (age 52), Chief Financial Officer. The loss of the services of either 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 2,634,440 shares of common stock representing approximately 45% of the outstanding shares, 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 2003 approximately 8% of our revenues were from international sales. Although we continue to 11 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. We May Be Adversely Affected by Fluctuations in Currency Exchange Rates. Since our foreign transactions are always in U.S. dollars, 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. Therefore, 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. 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. Our Stock Price is Subject to Volatility. The market price of our common stock has been subject to fluctuation in the past and may be subject to wide fluctuations in the future 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 our shares of common stock in the foreseeable future. Item 2. Description of Property. 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. Our lease agreement expired on July 1, 1999, but we continue to occupy the premises under the terms of that agreement, subject to a six month notification period for us and the landlord with respect to any changes. In 2003 we completed renovations to our product development laboratory and offices in the facility. We currently have no plans to enter into a long-term lease agreement for the facility. 12 Our rent expense was $74,000 in 2003. Our management believes that the Cranford facility will continue to satisfy our space requirements for the foreseeable future. Item 3. Legal Proceedings. Our company was served with a complaint by a candy manufacturer in June, 2003. The plaintiff has alleged that we breached our obligations in connection with the sale of certain candy bars manufactured by the candy manufacturer that were to be distributed by us within the United States. The candy manufacturer is seeking damages in the amount of $308,798, plus interest. We have counterclaimed, asserting among other things, that the candy manufacturer breached its obligations to us and caused us damages. The litigation is in its discovery phase. The current trial date is September 1, 2004. While we feel that the complaint is without merit, there can be no assurance that a legal finding favorable to us will be entered. We intend to vigorously defend this action and oppose all relief sought by the plaintiff while seeking compensation on its counterclaims. 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 30, 2002............... $2.24 $1.98 June 29, 2002................ 3.50 2.00 September 28, 2002........... 3.10 2.00 December 28, 2002............ 3.05 2.50 March 29, 2003............... 2.65 2.45 June 28, 2003................ 2.88 2.35 September 27, 2003........... 3.32 2.80 December 27, 2003............ 3.18 2.75 As of March 23, 2004, there were approximately 680 direct holders of record of our common stock. Based upon the most recent census performed by our stock transfer agent, brokerage houses and other financial institutions hold our common stock for approximately an 13 additional 2,900 shareholders. 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. Critical Accounting Policies Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The policies discussed below are considered by management to be critical to an understanding of our financial statements because their application places the most significant demands on management's judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. For all of these policies, management cautions that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment. Revenue Recognition. Our revenue recognition policy is significant because our revenue is a key component of our results of operations. Revenue is recognized at such time as goods are shipped from production facilities or outside warehouses as evidenced by signed shipping documents. Our normal shipping terms are FOB shipping point. Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Based on historical information, we believe that our allowance is adequate. Changes in general economic, business and market conditions could result in an impairment in the ability of our customers to make their required payments; therefore, the allowance for doubtful accounts is reviewed monthly and changes to the allowance are updated based on actual collection experience We use a combination of percentage of sales, specific account identification and the aging of accounts receivable to establish an allowance for losses on accounts receivable. Any changes in our assumptions relating to the collectability of our accounts receivable, may affect our financial position and results of operations. Allowance for Inventory Obsolescence. We maintain an allowance for inventory obsolescence for losses resulting from inventory items becoming unsaleable due to loss of specific customers or changes in customers' requirements. Based on historical and projected sales information, we believe our allowance is adequate. However, changes in general economic, business and market conditions could cause our customers' purchasing requirements to change. These changes could affect our inventory saleability; therefore, the allowance for 14 inventory obsolescence is reviewed regularly and changes to the allowance are updated as new information is received. Valuation Allowance for Deferred Tax Assets. The carrying value of deferred tax assets assumes that we will be able to generate sufficient future taxable income to realize the deferred tax assets based on estimates and assumptions. If these estimates and assumptions change in the future, we may be required to record a valuation allowance against deferred tax assets which could result in additional income tax expense. Results of Operations Fifty-two Weeks Ended December 27, 2003 Compared with Fifty-two Weeks Ended December 28, 2002 -------------------------------------------------------------------------------- Net sales for the fifty-two weeks ended December 27, 2003 were $19,014,000, an increase of $1,515,000, or 8 %, from the sales level realized for the fifty-two weeks ended December 28, 2002. Based on recent sales trends, we expect continued sales increases in our frozen dessert and food product lines and in most customer categories. Our gross profit in 2003 increased by $309,000, or 5%, due primarily to the sales increase, while our gross profit percentage decreased slightly to 33% in 2003 as compared to 34% in 2002. Our gross profit percentage continues to be adversely affected by start-up manufacturing costs associated with our new products and the increased cost of allowances associated with the introduction of those new products. Additionally, the entire frozen dessert industry was subject to significant price increases to certain key ingredients and packaging, due mainly to supply shortages as a result of political events in certain foreign countries and the general economic situation here in the United States. In order to improve the gross profit percentage, we initiated a series of price increases that commenced in the fourth quarter of 2003 that will be completed by the beginning of the second quarter 2004. Although we anticipate that our gross profit will increase due to increased unit sales and higher sales prices in 2004, our gross profit percentage will not improve materially due to manufacturing start-up costs and promotional allowances associated with the planned introduction of new products. Selling expenses increased $151,000, or 7%, to $2,192,000 for the current fiscal year from $2,041,000 in the 2002 period. This increase was caused primarily by a $101,000 increase in freight and a $35,000 increase in commissions. The increased freight expense, a variable expense, is attributable to the increase in sales and the increased cost of fuel. We do not anticipate a significant reduction in the cost of shipping in the foreseeable future. The increase in commissions expense is directly related to the increase in sales. We anticipate that with the exception of freight and commission expenses, which are variable to sales, all other selling expenses in 2004 should remain relatively consistent with our expenses in 2003. Marketing expenses increased by $88,000 in 2003 to $601,000. This increase is primarily attributable to an $83,000 increase in expenses for artwork and plates, a $14,000 increase in public relations expense and an $11,000 increase in magazine advertising expense. The increase in these expenses was partially offset by a $27,000 reduction in expenses associated 15 with promotions. We expect marketing expenses to remain consistent with 2003 expenses or increase modestly in 2004. Research and development expenses increased to $552,000 in 2003 as compared to $437,000 in 2002. The increase was due mainly to an increase in payroll costs of approximately $50,000 and lab costs and supplies of $47,000. Our management expects that research and development costs will continue at a slightly higher level in 2004. General and administrative expenses were $1,838,000 for the 2003 period as compared with $1,465,000 for the comparable period in 2002, an increase of $373,000 or 25%. The $373,000 increase was due primarily to increases in payroll of $250,000, professional fees and outside services of $11,000, general insurance of $17,000, travel and entertainment of $37,000, data processing supplies of $26,000 and building maintenance of $26,000. Operating income decreased by $418,000 to $1,131,000 in 2003 as compared with $1,549,000 in 2002 as a result of increases in operating expenses. Interest income was $15,000 for the fifty-two week period ended December 27, 2003 as compared with interest income of $30,000 for the fifty-two week period ended December 28, 2002. The decrease in interest income was primarily attributable to the lower interest rates available for investment of our funds. We anticipate that despite a consistent level of cash balances our interest income will not improve given the current level of interest rates. Income taxes for the current fiscal period were $760,000, or 66% of taxable income, compared to $640,000, or 41% of taxable income, in 2002. The increase in the effective 2003 tax rate was due to an adjustment in the deferred tax asset account as a result of a revaluation of taxable reserves and allowances according to current IRS rules and regulations. We expect that our tax rate in 2004 will revert to our historical rate of approximately 40%. Liquidity and Capital Resources At December 27, 2003, our working capital was $4,038,000, a decrease of $347,000 from December 28, 2002. Our current and quick acid test ratios, both measures of liquidity, were 4.8 and 3.8, respectively, at December 27, 2003 compared to 9.2 and 6.7 at December 28, 2002. At December 27, 2003, accounts receivable increased by $139,000 to $1,508,000 from December 28, 2002, reflecting an increase in sales. At December 27, 2003, inventories decreased to $774,000 in 2003 compared to $814,000 in 2002. Prepaid expenses decreased slightly by $15,000 to $0 at December 27, 2003 from December 28, 2002. At December 27, 2003, we had prepaid income taxes of $55,000 as a result of an overpayment to the State of New Jersey. Our deferred tax asset decreased by $265,000 to $220,000 at December 27, 2003 from $485,000 at December 28, 2002 reflecting an adjustment in the valuation and reserve accounts for calculating income taxes. At December 27, 2003, accounts payable and accrued expenses and accrued compensation increased $396,000 and $125,000, respectively, from December 28, 2002. Income taxes payable at December 27, 2003 increased slightly to $105,000 from $82,000 at December 28, 2002, also reflecting an adjustment in the valuation and reserve accounts for calculating income taxes. 16 On September 18, 2000, our Board of Directors authorized the repurchase of 250,000 shares of our common stock at prevailing market prices. During fiscal 2000 we repurchased 122,400 shares of common stock at a total cost of $247,000. On May 21, 2001, our Board of Directors authorized the repurchase of up to an additional 250,000 shares of common stock. During 2001 we purchased an additional 204,000 shares for $436,000. During 2002 we purchased an additional 299,600 shares at a cost of $767,000. On January 2, 2003, our Board of Directors authorized the repurchase of an additional 250,000 shares of common stock. From December 29, 2002 through December 27, 2003, we purchased an additional 234,700 shares at a cost of $599,000, bringing our total purchases through December 27, 2003 to 860,700 shares at a total cost of $2,049,000 or $2.38 per share. During the period December 28, 2003 through March 23, 2004, we purchased an additional 130,900 shares at a cost of $470,000, bringing cumulative totals to date to 991,600 shares at a total cost of $2,519,000 or $2.54 per share. On March 23, 2004, our Board of Directors ratified certain purchases and brought the aggregate number of shares subject to our repurchase program up to 1,250,000 shares. In view of the strong financial condition of the company, our Board of Directors on October 17, 2003 authorized us to enter into a transaction with David Mintz whereby Mr. Mintz surrendered 300,000 of his options in consideration of the payment to him of $358,000, an amount equal to the difference of 75% of the closing market price of our common stock on that date ($3.45) less the exercise price of such options. In October 2003, $358,000 was paid to Mr. Mintz. On January 12, 2004, our Board of Directors authorized us to enter into a transaction with David Mintz whereby Mr. Mintz surrendered an additional 300,000 of his options in consideration of the payment to him of $324,000, an amount equal to the difference of 75% of the average closing price of our common stock on the nine days of trading from December 29, 2003 through January 9, 2004 ($3.00) less the exercise price of such options. In January 2004, $324,000 was paid to Mr. Mintz. 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 2004 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 subject to minimal seasonal variations with slightly increased sales in the second and third quarters of the fiscal year. We expect to continue to experience slightly higher sales in the second and third quarters, and slightly lower sales in the fourth and first quarters, as a result of reduced sales of nondairy frozen desserts during those periods. 17 Market Risk We invest our excess cash, should there be any, 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. Off-Balance Sheet Arrangements None. Item 7. Financial Statements. Index to Financial Statements Independent Auditors' Report.................................................F-1 Financial Statements: Balance Sheets...............................................................F-2 Statements of Income.........................................................F-3 Statements of Changes in Stockholders' Equity................................F-4 Statements of Cash Flows.....................................................F-5 Notes to Financial Statements................................................F-6 18 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 27, 2003 and December 28, 2002, and the related statements of income, changes in stockholders' equity and cash flows for the years 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Tofutti Brands Inc. as of December 27, 2003 and December 28, 2002, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/Wiss & Company WISS & COMPANY, LLP Livingston, New Jersey March 18, 2004 F-1 TOFUTTI BRANDS INC. BALANCE SHEETS (000's omitted except for share and per share data)
December 27, December 28, 2003 2002 ------------ ------------ Assets Current assets: Cash and equivalents $2,557 $2,234 Accounts receivable, net of allowance for doubtful accounts of $149 and $340, respectively 1,508 1,369 Inventories 774 814 Prepaid expenses -- 15 Prepaid income taxes 55 -- Deferred income taxes 220 485 --- ------ Total current assets 5,114 4,917 Fixed assets (net of accumulated amortization of $5) 43 -- Other assets 16 216 -- ------ $5,173 $5,133 ====== ====== Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses $471 $75 Accrued officers' compensation 500 375 Income taxes payable 105 82 --- ------ Total current liabilities 1,076 532 ----- ------ Commitment and Contingency 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 5,709,867 shares at December 27, 2003 and 5,878,567 shares at December 28, 2002 57 59 Additional paid-in capital 1,193 2,081 Retained earnings 2,847 2,461 ----- ------ Total stockholders' equity 4,097 4,601 ----- ------ Total liabilities and stockholders' equity $5,173 $5,133 ====== ======
See accompanying notes to financial statements. F-2 TOFUTTI BRANDS INC. STATEMENTS OF INCOME (000's omitted except for per share data)
Fifty-two weeks Fifty-two weeks ended ended December 27, 2003 December 28, 2002 ----------------- ----------------- Net sales $19,014 $17,499 Cost of sales 12,700 11,494 ------ ------ Gross profit 6,314 6,005 ----- ------- Operating expenses: Selling 2,192 2,041 Marketing 601 513 Research and development 552 437 General and administrative 1,838 1,465 ----- ----- 5,183 4,456 ----- ----- Operating income 1,131 1,549 Interest income 15 30 ------ ------ Income before income tax 1,146 1,579 Income taxes 760 641 --- ------ Net income $386 $938 ==== ===== Weighted average common shares outstanding: Basic 5,744 6,056 ===== ======= Diluted 6,556 6,878 ===== ======= Net income per share: Basic $0.07 $0.15 ===== ======= Diluted $0.06 $0.14 ===== =======
See accompanying notes to financial statements. F-3 TOFUTTI BRANDS INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (000's omitted except for share data)
Common Stock Treasury Stock Additional Total --------------------- ----------------- Paid-In Retained Stockholders' Shares Amount Shares Amount Capital Earnings Equity ------ ------ ------ ------ ------- -------- ------ Balances, December 29, 2001 6,091,267 $61 18,100 $(38) $3,156 $1,523 $4,702 Issuance of Common Stock 105,000 1 -- -- 77 -- 78 Purchase of Treasury Stock -- -- 299,600 (767) -- -- (767) Retirement of Treasury Stock (317,700) (3) (317,700) 805 (802) -- -- Purchase of Options -- -- -- -- (350) -- (350) Net Income -- -- -- -- -- 938 938 --------- --- -------- ---- ------ --- --- Balances, December 28, 2002 5,878,567 59 -- -- 2,081 2,461 4,601 Issuance of Common Stock 66,000 1 -- -- 66 -- 67 Purchase of Treasury Stock (234,700) -- 234,000 (599) -- -- (599) Retirement of Treasury Stock -- (3) (234,000) 599 (596) -- -- Purchase of Options -- -- -- -- (358) -- (358) Net Income -- -- -- -- -- 386 386 -------- --- -------- --- ------ ---- --- Balances, December 27, 2003 5,709,867 $57 -- -- $1,193 $2,847 $4,097 ========= === ======== ==== ====== ====== ======
See accompanying notes to financial statements. F-4 TOFUTTI BRANDS INC. STATEMENTS OF CASH FLOWS (000's omitted)
Fifty-two Fifty-two weeks ended weeks ended December 27, December 28, 2003 2002 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $386 $938 Adjustments to reconcile net income to net cash flows from operating activities: Amortization 5 -- Provision for bad debts 65 60 Deferred taxes 265 (7) Change in assets and liabilities: Accounts receivable (204) 32 Inventories 40 2 Prepaid expenses 15 (5) Prepaid income taxes (55) -- Accounts payable and accrued expenses 521 (80) Income taxes payable 23 (105) --- ----- Net cash flows from operating activities 1,061 835 ----- ----- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of insurance policy 200 -- Purchase of fixed assets (48) 109 ---- ----- Net cash flows from investing activities 152 109 --- ----- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock 67 78 Purchase of treasury stock (599) (767) Purchase of options (358) (350) ----- ------- Net cash flows from financing activities (890) (1,039) ---- ------- NET CHANGE IN CASH AND EQUIVALENTS 323 (95) CASH AND EQUIVALENTS, AT BEGINNING OF PERIOD 2,234 2,329 ----- ------ CASH AND EQUIVALENTS, AT END OF PERIOD $2,557 $2,234 ====== ====== SUPPLEMENTAL CASH FLOW INFORMATION: Income taxes paid $525 $ 750 ==== =======
See accompanying notes to financial statements. F-5 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 nondairy 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 December 27, 2003 and December 28, 2002. 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 cash balances of up to $100,000 each in financial institutions which are insured by the Federal Deposit Insurance Corporation (FDIC). During the year, the Company's cash balance at a financial institution 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 December 27, 2003 is limited. During the years ended December 27, 2003 and December 28, 2002, the Company derived approximately 92% and 89% of its net sales domestically. The remaining sales in both periods were exports to foreign countries. The Company had sales to two customers representing 22% and 14% of net sales during 2003 and 21% and 13% of net sales during 2002. Cash and Equivalents - The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Inventories - Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. The Company periodically reviews inventories and establishes reserves for obsolescence. Management feels that risk beyond the established reserve is limited. Fixed Assets - Fixed assets consist of leasehold improvements. Amortization is provided by charges to income using the straight-line method over the useful life of ten years. F-6 TOFUTTI BRANDS INC. NOTES TO FINANCIAL STATEMENTS (000's omitted except for share and per share data) 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.
Year Ended Year Ended December 27, December 28, 2003 2002 ------------ ------------ Net Income, numerator, basic and diluted computation $386 $938 Weighted average shares - denominator basic computation 5,744 6,056 Effect of dilutive stock options 812 822 --- --- Weighted average shares, as adjusted - denominator diluted computation 6,556 6,878 ----- ----- Net Income per share: Basic $0.07 $ 0.15 ===== ====== Diluted $0.06 $ 0.14 ===== ======
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. F-7 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: Dec. 27, Dec. 28, 2003 2002 ---- ---- Net income available for common stockholders: As reported $386 $938 Pro forma 386 938 Basic earnings per share: As reported $0.07 $0.15 Pro forma 0.07 0.15 Diluted earnings per share: As reported $0.06 $0.14 Pro forma 0.06 0.14 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 and equivalents, accounts receivable, accounts payable, accrued expenses and income taxes payable as of December 27, 2003 and December 28, 2002 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. Advertising Costs - The Company expenses advertising costs as they are incurred. Advertising expenses amounted to $24 and $46 during the years ended December 27, 2003 and December 28, 2002, respectively. Reclassifications - Certain amounts previously recorded have been reclassified to conform to the current year presentation. Recent Accounting Pronouncements - In January 2003, the FASB issued FASB Interpretation No. (FIN) 46, "Consolidation of Variable Interest Entities." This Interpretation clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 applies to variable interest entities created after January 31, 2003, and is effective as of July 31, 2003 for variable interest entities created prior to February 1, 2003. The Company does not expect the adoption of FIN 46 to have a material effect on its financial position, results of operations or cash flows. F-8 TOFUTTI BRANDS INC. NOTES TO FINANCIAL STATEMENTS (000's omitted except for share and per share data) In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This statement amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," for implementation issues related to the definition of a derivative and other FASB projects related to financial instruments. SFAS No. 149 requires that contracts with comparable characteristics be accounted for in a similar fashion. SFAS No. 149 applies prospectively to contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company does not expect the adoption of SFAS No. 149 to have a material effect on its financial position, results of operations or cash flows. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires that financial instruments within the scope of SFAS No. 150 be classified as a liability or an asset. SFAS No. 150 is effective for all financial instruments entered into after May 31, 2003 and otherwise, the beginning of the first interim period after June 15, 2003. The Company does not expect the adoption of SFAS No. 150 to have a material effect on its financial position, results of operations or cash flows. NOTE 2: INVENTORIES Inventories consist of the following: December 27, December 28, 2003 2002 ---- ---- Finished products 532 $576 Raw materials and packaging 242 238 --- --- $774 $814 ==== ==== 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 the Company's Chairman and President, David Mintz. The purpose of this transaction was 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 might have necessitated a sale of the stock. This might have had 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 was guaranteed to receive a complete refund of all its premiums paid plus interest at 4%. As of December 28, 2002, the $200 balance receivable under this contract was completely secured by the guaranteed cash surrender value of the policy and F-9 TOFUTTI BRANDS INC. NOTES TO FINANCIAL STATEMENTS (000's omitted except for share and per share data) the assets in a related party trust created specifically to generate payment to the Company in the event of termination of the policy prior to the death of the insured. Under the Sarbanes-Oxley Act of 2002, public companies are prohibited from extending credit to any director or executive officer, or from renewing or extending existing loans. As a result, public companies have taken the view that they may not make annual premium payments on split dollar insurance plans, since they may be deemed to be prohibited loans. In 2003, the Company ceased making any payments under the policy, subject to future guidance as to the legality of such payments. On December 24, 2003 Mr. Mintz purchased the insurance policy from the Company for $208, which represented all previous premiums paid by the Company plus interest of 4% per annum. NOTE 4: STOCK OPTIONS The 1993 Stock Option Plan (the "1993 Plan") provides for the granting to key employees of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and for the granting of non-qualified stock options to key employees and consultants. The 1993 Plan is currently administered by the Board of Directors, which determines the terms and conditions of the options granted under the 1993 Plan, including the exercise price, number of shares subject to the option and the exercisability thereof. Options are generally exercisable in cumulative installments of 33-1/3% or 50% per year commencing one year after the date of grant and annually thereafter, with contract lives of generally five or ten years from the date of grant. A total of 2,900,000 shares have been reserved for issuance under the 1993 Plan. At December 28, 2002, 1,688,000 shares were subject to outstanding options and 211,000 additional shares were available for future grant. The following is a summary of stock option activity from December 29, 2001 to December 27, 2003:
INCENTIVE OPTIONS NON-QUALIFIED OPTIONS --------------------------- --------------------- Weighted Weighted Average Average Exercise Exercise Shares Price ($) Shares Price ($) ------ --------- ------ --------- Outstanding and exercisable at December 29, 2001 2,107,000 $0.96 186,000 $1.047 Granted in 2002 -- -- -- -- Exercised in 2002 (55,000) 0.742 (50,000) 0.738 Purchased and retired in 2002 (480,000) 0.802 -- -- Expired in 2002 -- -- (20,000) 0.938 -------- ------- ------- ----- Outstanding and exercisable at December 28, 2002 1,572,000 1.016 116,000 1.199 Granted in 2003 -- -- -- --
F-10 TOFUTTI BRANDS INC. NOTES TO FINANCIAL STATEMENTS (000's omitted except for share and per share data) Exercised in 2003 (29,000) 100 (37,000) 1.04 Purchased and retired in 2003 (300,000) 1.17 -- -- Expired in 2003 12,000 1.06 -- -- -------- ------- ------- ----- Outstanding and exercisable at December 27, 2003 1,231,000 $0.96 79,000 $1.27 ========= ===== ====== =====
There were no stock options granted during 2003 and 2002. The following table summarizes information about stock options outstanding at December 27, 2003: Weighted Average Weighted Range of Number Remaining Life Average Exercise Prices Outstanding (in years) Exercise Price --------------- ----------- ---------- -------------- $0.6875--0.9375 425,000 3.3 $0.75 $1.0625 - 1.1688 865,000 2.4 $1.11 $1.90 20,000 2.4 $1.90 NOTE 5: COMMITMENT The Company's facilities are located in a modern one-story facility in Cranford, New Jersey. The 6,200 square foot facility houses its administrative offices, a warehouse, walk-in freezer and refrigerator, and a product development laboratory and test kitchen. The Company's lease agreement expired on July 1, 1999, but it continues to occupy the premises under the terms of that agreement, subject to a six month notification period for the landlord or for the Company with respect to any changes. The Company currently has no plans to enter into a long-term lease agreement for the facility. Rent expense was $74 in 2003. The Company's management believes that the Cranford facility will continue to satisfy its space requirements for the foreseeable future and that if necessary, such space can be replaced without a significant impact to the business. NOTE 6: CONTINGENCY The Company was served with a complaint by a candy manufacturer in June, 2003. The plaintiff has alleged that the Company breached its obligations in connection with the sale of certain candy bars manufactured by the candy manufacturer that were to be distributed by the Company within the United States. The candy manufacturer is seeking damages in the amount of $309, plus interest. The Company has counterclaimed, asserting among other things, that the candy manufacturer breached its obligations to the Company and caused it damages. The litigation is in its discovery phase. The current trial date is September 1, 2004. While the Company feels that the complaint is without merit, there can be no assurance that a legal finding favorable to it will be entered. The Company intends to vigorously defend this action and oppose all relief sought by the plaintiff while seeking compensation on its counterclaims. F-11 TOFUTTI BRANDS INC. NOTES TO FINANCIAL STATEMENTS (000's omitted except for share and per share data) NOTE 7: INCOME TAXES The components of income tax expense (benefit) for the years ended December 27, 2003 and December 28, 2002 are as follows: Dec. 27, Dec. 28, 2003 2002 ---- ---- Current: Federal $386 $502 State 109 146 --- --- 495 648 --- --- Deferred: Federal 206 (6) State 59 (1) -- --- 265 (7) --- --- Total income tax expense $760 $641 ==== ==== Deferred tax asset at December 27, 2003 and December 28, 2002 are as follows: Dec. 27, Dec. 28, 2003 2002 ---- ---- Allowance for doubtful accounts $75 $80 Accruals and reserves 145 405 --- --- Deferred tax asset $220 $485 ==== ==== A reconciliation between the expected federal tax expense at the statutory tax rate of 34% and the Company's actual tax expense for the years ended December 27, 2003 and December 28, 2002 follows: Dec. 27, Dec. 28, 2003 2002 ---- ---- Income tax expense computed at federal statutory rate $390 $537 Permanent and other items 317 (12) State income taxes, net of federal income tax benefit 69 92 -- ---- $760 $641 ==== ==== NOTE 8: RELATED PARTY The Board of Directors on October 17, 2003 authorized a transaction with David Mintz whereby Mr. Mintz surrendered 300,000 of his options in consideration of the payment to him of $358, an amount equal to the difference of 75% of the closing market price of our common stock on that F-12 TOFUTTI BRANDS INC. NOTES TO FINANCIAL STATEMENTS (000's omitted except for share and per share data) date ($3.45) less the exercise price of such options. In October 2003, $358 was paid to Mr. Mintz. On January 12, 2004, the Board of Directors authorized a transaction with David Mintz whereby Mr. Mintz surrendered an additional 300,000 of his options in consideration of the payment to him of $324, an amount equal to the difference of 75% of the average closing price of the Company's common stock on the nine days of trading from December 29, 2003 through January 9, 2004 ($3.00) less the exercise price of such options. In January 2004, $324 was paid to Mr. Mintz. F-13 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. Item 8A. Controls and Procedures. Within the 90 days prior to the date of the filing of this Form 10-KSB, our company carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Securities Exchange Act of 1934 Rule 13a-14(c) and15d-14(c). Based upon that evaluation, our chief executive officer and chief financial officer concluded that our company's disclosure controls and procedures are effective in timely alerting them to material information relating to the company required to be included in the company's periodic SEC filings. There have been no significant changes in our company's internal controls or other factors which could significantly affect internal controls subsequent to the date of the evaluation. 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................. 72 Chairman of the Board of Directors, Chief Executive Officer Steven Kass................. 52 Chief Financial Officer, Secretary and Treasurer Joseph Fischer.............. 64 Director Aaron Forem ................ 49 Director Reuben Rapoport............. 73 Director Franklyn Snitow............. 57 Director Jeremy Wiesen............... 61 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. Joseph Fischer was appointed to our Board of Directors in March 2004. He has been the principal in FMM Investments, which manages private portfolios, since 1992. Prior to that 19 and since 1982, Mr. Fischer was the Controller of the Swingline Division of American Brands Inc. Aaron Forem has been a director since 2000. He is the president of Wuhl Shafman Lieberman Corp., located in Newark, New Jersey, which is one of the largest produce wholesalers in the Northeast United States. He has been president of Wuhl Shafman Lieberman Corp. since 1980. Reuben Rapoport, our former Director of Product Development who retired in April 2003, has been 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. Jeremy Wiesen has been a director since 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 All of the executive officers devote their full time to our operations. Employment Agreements There are currently no employment agreements between us and any of our officers. Family Relationships There are no family relationships between any of our directors and executive officers. Involvement in Legal Proceedings To the best of our knowledge, during the past five years, none of our directors or executive officers were involved in one of the following: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of any competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated. 20 Audit Committee Financial Expert The Audit Committee of the Board of Directors is comprised of Messrs. Fischer, Forem and Wiesen. The Board of Directors has determined that all of the Audit Committee members are independent, as that term is defined under the enhanced independence standards for audit committee members in the Securities and Exchange Act of 1934. The Board of Directors has also determined that Joseph Fisher is an Audit Committee Financial Expert as that term is defined in rules issued pursuant to the Sarbanes-Oxley Act of 2002. Section 16(a) Beneficial Ownership Compliance Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers, directors and persons who own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of common stock and other of our equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by Commission regulations to furnish us with copies of all Section 16(a) reports 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 2003 all persons subject to these reporting requirements filed the required reports on a timely basis. Code of Ethics We have adopted a Code of Ethics for Executive and Financial Officers. This code of ethics applies to our chief executive officer, chief financial officer, corporate controller and other finance organization employees. We also adopted a Code of Conduct, which applies to all of our employees. The Code of Ethics and the Code of Conduct are publicly available on our website at www.tofutti.com and printed copies are available upon request. If we make any substantive amendments to the Code of Ethics or the Code of Conduct or grant any waivers, including any implicit waiver, from a provision of these codes to our chief executive officer, chief financial officer or corporate controller, we will disclose the nature of such amendment or waiver on our website. 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 2003 totaled $100,000 or more: 21 SUMMARY COMPENSATION TABLE -------------------------- Annual Long-Term Compensation Compensation ------------ ------------ Securities Underlying Name and Principal Position Year Salary ($) Options (#) --------------------------- ---- ---------- ----------- David Mintz, 2003 $ 603,000(1) -- Chief Executive Officer 2002 500,000(2) -- and Chairman of the Board 2001 500,000(3) -- Steven Kass, 2003 275,000(1) -- Chief Financial Officer, 2002 250,000(2) -- Secretary and Treasurer 2001 250,000(3) -- --------------- (1) Includes bonuses of $350,000 and $150,000 for Messrs. Mintz and Kass, respectively, accrued at year end and paid on or about January 16, 2004. (2) Includes bonuses of $250,000 and $125,000 for Messrs. Mintz and Kass, respectively, accrued at year-end and paid on or about March 28, 2003. (3) Includes bonuses of $250,000 and $125,000 for Messrs. Mintz and Kass, respectively, accrued at year-end and paid on or about March 29, 2002. 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 was 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 are guaranteed to receive a complete refund of all the premiums paid plus interest at 4%. As of December 28, 2002, the balance receivable under this contract of $200,000 was completely secured by the guaranteed cash surrender value of the policy and the assets in a related party trust created specifically to generate payment to us in the event of termination of the policy prior to the death of the insured. Under the Sarbanes-Oxley Act of 2002, public companies are prohibited from extending credit to any director or executive officer, or from renewing or extending existing loans. As a result, public companies have taken the view that they may not be able to make annual premium payments on split dollar insurance plans, since they may be deemed to be prohibited loans. In 2003, we ceased making any payments under the policy subject to future guidance as to the legality of such payments. Such guidance was not forthcoming and in December 2003, Mr. 22 Mintz purchased the insurance policy from us for $208,000, which represented all previous premiums paid by our company plus interest of 4% per annum. Mr. Snitow has not received any cash remuneration for his service as a director in the last three years. In 2002 and 2003, Mr. Wiesen received $2,500 and $1,000, respectively, for his services as director. In 2002, Mr. Forem donated his $1,000 fee for services as director to charity and did not receive any cash remuneration in 2003. STOCK OPTIONS Neither of the officers named above in the Summary Compensation Table received a grant of stock options nor exercised stock options in our last fiscal year. The following table provides information concerning stock options held in 2003 by each of the executive officers named above in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES --------------------------------------------------------------------------------- Number of Shares Value of Unexercised Shares Underlying Unexercised in the Money Options Acquired on Value Options at FY-End (#) at FY-End ($) Name Exercise(#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable ---- ----------- ------------ ------------------------- ------------------------- David Mintz, -- $ -- 300,000(E) $564,000(E)(1) Chief Executive Officer and Chairman of the Board Steven Kass, -- -- 795,000(E) 1,740,000(E)(1) Chief Financial Officer, Secretary and Treasurer
----------------------- (E) Exercisable options (1) Calculated by subtracting option exercise price from year-end market price of $3.05 per share. Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The following table sets forth as of March 23, 2004 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: 23 Amount of Beneficial Percent of Name Ownership(1) Class(2) ---- ------------ -------- David Mintz................ 2,634,440 44.7% Steven Kass................ 795,000 (3) 11.9% Reuben Rapoport............ 90,000 1.5 % Jeremy Wiesen.............. 64,400 (4) 1.1% Franklyn Snitow............ 47,200 * Aaron Forem................ 20,000 * Joseph Fischer............. -- -- All Executive Officers and Directors as a group (6 persons) 3,651,040(5) 54.4% -------------- * Less than 1%. The address of Messrs. Mintz, Kass, Fischer, Rapoport and Wiesen 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. Forem is 52-62 Cornelia Street, Newark, New Jersey 07105. Each person listed above has sole voting and/or investment power of the shares attributed to him. (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock relating to options currently exercisable or exercisable within 60 days of March 23, 2004 are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them. (2) Based on 5,894,867 shares issued and outstanding as of March 23, 2004. (3) Issuable upon the exercise of 795,000 currently exercisable stock options. (4) Includes 20,000 shares issuable upon the exercise of currently exercisable stock options. (5) Includes 815,000 shares issuable upon the exercise of currently exercisable stock options. Item 12. Certain Relationships and Related Transactions. In view of the strong financial condition of our company, the Board of Directors on October 17, 2003 authorized a transaction with David Mintz whereby Mr. Mintz surrendered 300,000 of his options in consideration of the payment to him of $358,000, an amount equal to the difference of 75% of the closing market price of our common stock on that date ($3.45) less the exercise price of such options. In October 2003, $358,000 was paid to Mr. Mintz. On October 17, 1994, our Board of Directors adopted a resolution wherein we were authorized to purchase a $1 million plan on the life of our Chairman and President. The purpose 24 of this transaction was 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 which might have had 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, we were guaranteed to receive a complete refund of all premiums paid plus interest at 4%. As of December 28, 2002, the $200,000 balance receivable under this contract was completely secured by the guaranteed cash surrender value of the policy and the assets in a related party trust created specifically to generate payment to us in the event of termination of the policy prior to the death of the insured. Under the Sarbanes-Oxley Act of 2002, public companies are prohibited from extending credit to any director or executive officer, or from renewing or extending existing loans. As a result, public companies have taken the view that they may not make annual premium payments on split dollar insurance plans, since they may be deemed to be prohibited loans. In 2003, we ceased making any payments under the policy, subject to future guidance as to the legality of such payments. On December 24, 2003, we sold the policy to Mr. Mintz for $208,000 which represented all previous premiums paid by us plus interest of 4% per annum. On January 12, 2004, our Board of Directors authorized us to enter into a transaction with David Mintz whereby Mr. Mintz surrendered an additional 300,000 of his options in consideration of the payment to him of $324,000, an amount equal to the difference of 75% of the average closing price of our common stock on the nine days of trading from December 29, 2003 through January 9, 2004 ($3.00) less the exercise price of such options. In January 2004, $324,000 was paid to Mr. Mintz. 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. 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. 31.2 Certification by Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. 32.1 Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 25 32.2 Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ----------- * 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: On January 6, 2003, the Registrant filed with the Securities and Exchange Commission a Form 8-K bearing a cover date of January 3, 2003 containing a press release announcing an extension of the stock repurchase plan. Item 14. Principal Accountant Fees and Services. Fees Paid to Independent Public Accountants The following table sets forth, for each of the years indicated, the fees paid to our independent public accountants and the percentage of each of the fees out of the total amount paid to the accountants. Year Ended December 31, ------------------------------------------------- 2003 2002 ----------------------- ----------------------- Services Rendered Fees Percentages Fees Percentages --------------------- --------- ----------- ----- ----------- Audit (1)............ $31,000 100% $28,500 100% Audit-related (2).... -- -- -- -- Tax (3).............. -- -- -- -- Other................ -- -- -- -- ---- ---- ---- ---- Total ............... $31,000 100% $28,500 100% ======= ==== ======= ==== -------------- (1) Audit fees consist of services that would normally be provided in connection with statutory and regulatory filings or engagements, including services that generally only the independent accountant can reasonably provide. (2) Audit-related fees relate to assurance and associated services that traditionally are performed by the independent accountant, including: attest services that are not required by statute or regulation; accounting consultation and audits in connection with mergers, 26 acquisitions and divestitures; employee benefit plans audits; and consultation concerning financial accounting and reporting standards. (3) Tax fees relate to services performed by the tax division for tax compliance, planning, and advice. Pre-Approval Policies and Procedures Our Audit Committee has adopted a policy and procedures for the pre-approval of audit and non-audit services rendered by our independent public accountants, Wiss & Company LLP. The policy generally pre-approves certain specific services in the categories of audit services, audit-related services, and tax services up to specified amounts, and sets requirements for specific case-by-case pre-approval of discrete projects, those which may have a material effect on our operations or services over certain amounts. Pre-approval may be given as part of the Audit Committee's approval of the scope of the engagement of our independent auditor or on an individual basis. The pre-approval of services may be delegated to one or more of the Audit Committee's members, but the decision must be presented to the full Audit Committee at its next scheduled meeting. The policy prohibits retention of the independent public accountants to perform the prohibited non-audit functions defined in Section 201 of the Sarbanes-Oxley Act or the rules of the SEC, and also considers whether proposed services are compatible with the independence of the public accountants. 27 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 June 22, 2004. 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 June 22, 2004, 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 -------------- Aaron Forem Director /s/Reuben Rapoport ------------------ Reuben Rapoport Director ------------------ Franklyn Snitow Director /s/Jeremy Wiesen ---------------- Jeremy Wiesen Director /s/Joseph Fischer ----------------- Joseph Fischer Director 28 EXHIBIT INDEX Exhibit 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. 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. 31.2 Certification by Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. 32.1 Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ------------- * 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.