TOFUTTI BRANDS INC - Annual Report: 2013 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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For the fiscal year ended December 28, 2013
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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Commission File Number: 1-9009
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TOFUTTI BRANDS INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of incorporation or organization)
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13-3094658
(I.R.S. Employer Identification No.)
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50 Jackson Drive, Cranford, New Jersey
(Address of principal executive offices)
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07016
(Zip Code)
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(908) 272-2400
((Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Common Stock, par value $0.01 per share
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NYSE MKT
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No x
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer o Smaller Reporting Company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
Yes o No x
The aggregate market value of the voting stock held by non-affiliates of the Registrant as of the most recently completed second fiscal quarter: $3,784,899
As of March 25, 2014, the issuer had 5,153,706 shares of common stock, par value $0.01, outstanding.
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INTRODUCTION
We are engaged in the development, production and marketing of TOFUTTI® brand nondairy frozen desserts and other food products. TOFUTTI products are nondairy, soy-based products which contain no butterfat, cholesterol or lactose.
As used in this annual report, the terms “we,” “us” and “our” mean Tofutti Brands Inc., unless otherwise indicated. Statements made in this annual report concerning the contents of any contract, agreement or other document are summaries of such contracts, agreements or documents and are not complete descriptions of all of their terms. If we filed any of these documents as an exhibit to this annual report or to any previous filling with the Securities and Exchange Commission, you may read the document itself for a complete recitation of its terms.
Except for the historical information contained in this annual report, the statements contained in this annual report are “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 the Private Securities Litigation Reform Act of 1995, as amended, with respect to our business, financial condition and results of operations. Such forward-looking statements reflect our current view with respect to future events and financial results. We urge you to consider that statements which use the terms “anticipate,” “believe,” “do not believe,” “expect,” “plan,” “intend,” “estimate,” “anticipate” and similar expressions are intended to identify forward-looking statements. 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. Such forward-looking statements are also included in Item 1. “Business” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as required by applicable law, including the securities laws of the United States, we undertake no obligation to publicly release any update or revision to any forward-looking statements to reflect new information, future events or circumstances, or otherwise after the date hereof. We have attempted to identify significant uncertainties and other factors affecting forward-looking statements in the Risk Factors section that appears in Item 1A. “Risk Factors.”
We operate on a fiscal year ending on the Saturday closest to December 31. Fiscal years for the financial statements included herein are the fifty-two week periods ended December 28, 2013 (fiscal 2013) and December 29, 2012 (fiscal 2012).
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Business.
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GENERAL
We are engaged in the development, production and marketing of TOFUTTI® 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. Substantially all of our products are completely vegan and our soy-cheese products are gluten free as well. In addition, all of our products are certified kosher-parve and all of our soy-cheese products are also certified halal.
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 info@tofutti.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, vegan, soy-based food products, primarily frozen desserts and soy-cheese products, to supermarkets and health food stores in the United States and abroad. We intend to continue to introduce new products that offer good taste while containing no butterfat, cholesterol or dairy to these markets.
We focus our marketing efforts toward those consumers who find our products essential to their everyday diets because of health, lifestyle or religious reasons. In order to broaden the use of our soy-cheese products, we incorporate them into our branded food products such as blintzes, pizza, ravioli and other frozen entrée products. As part of this strategy, we seek to achieve brand awareness through product innovation, eye-catching packaging, trade advertising, and a strong word-of-mouth marketing program. We believe that our ability to offer a wide range of nondairy/ vegan soy-based, kosher-parve 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 soy-based cheeses and spreads, and other frozen food products.
Frozen Desserts
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Premium TOFUTTI® nondairy frozen dessert, available in pre-packed 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 six flavors of premium, hard frozen TOFUTTI in pints, three flavors in three gallon bulk cans and one soft-serve flavor.
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TOFUTTI CUTIES®, our best selling product, are bite size frozen sandwiches combining a choice of one of five different fillings between two chocolate wafers. 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, we offer our TOTALLY VANILLA TOFUTTI CUTIE, made from vanilla TOFUTTI between two vanilla wafers, while our KEY LIME CUTIE combines tangy lime-flavored TOFUTTI between two vanilla wafers.
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YOURS TRULY cones have a generous scoop of creamy vanilla TOFUTTI set in a chocolate-coated crispy cone, then covered in deep, rich chocolate and topped with a crispy chocolate cookie crunch. The YOURS TRULY CARAMEL SUNDAE cone has a caramel core in the center of vanilla TOFUTTI, while YOURS TRULY TRIPLE CHOCOLATE HAPPINESS cones have a chocolate core.
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TOTALLY FUDGE POPSÒ, CHOCOLATE FUDGE TREATS, and COFFEE BREAK TREATS are stick novelties that offer the consumer the same taste as real fudge or coffee 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 TREATSä have only 30 calories per bar. Both products appeal to anyone on either a low fat or low carb diet.
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CHOCOLATE COVERED FLOWERS, a frozen dessert stick novelty, combine a dark chocolate coating over a blend of frozen flower and fruit nectars for a portion controlled treat.
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HOORAY HOORAY is a sugar free stick novelty made with stevia, a natural sugar replacement ideal for those individuals who want to avoid sugar without using an artificial sweetener. Each bar has a creamy center of vanilla Tofutti, surrounded by a sugar-free chocolate coating containing crisped rice.
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CAFÉ LATTE is a stick novelty with a center of rich coffee flavored Tofutti surrounded by a deep chocolate coating.
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BLACK GOLD is a stick novelty, which takes rich chocolate Tofutti and enrobes it in a deep, dark chocolate coating.
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MARRY ME BARSä are stick novelties that feature creamy vanilla TOFUTTI surrounded by 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.
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Nondairy Soy-Based Cheese Products
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BETTER THAN CREAM CHEESEÒ is similar in taste and texture to traditional cream cheese, but is milk-free, butterfat-free, gluten-free and contains no cholesterol. It is as versatile as real cream cheese, whether spread on a bagel, used as a dip for snack items, such as crackers or chips, or used in any favorite recipe. It is available in 8 oz. retail packages or 30 lb. bulk boxes for food service customers.
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SOUR SUPREMEÒ is similar in taste and texture to traditional sour cream, but is milk-free, butterfat-free, gluten-free and contains no cholesterol. SOUR SUPREME has the versatility of sour cream with the added benefit 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 for food service customers. Like BETTER THAN CREAM CHEESE, SOUR SUPREME is sold nationally in most health food stores and select supermarkets.
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TOFUTTI also offers versions of BETTER THAN CREAM CHEESE and SOUR SUPREME without partially hydrogenated fat and no trans fatty acids. They are also made with organic sugar and are available in most health food stores. Non-hydrogenated fat BETTER THAN CREAM CHEESE is available in three flavors and the plain flavor is also available in one ounce portion-controlled cups, 5 lb. containers, or 30 lb. boxes for food service customers. This version of SOUR SUPREME is also available in 5 lb. containers, or 30 lb. boxes for food service customers.
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TOFUTTI SOY-CHEESE SLICESÔ offer consumers a delicious nondairy, gluten-free, vegan alternative to regular cheese slices and contain no trans fatty acids. 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 two flavors Mozzarella and American. The Mozzarella version is also available in 40 lb. blocks for food service customers.
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BETTER THAN RICOTTA CHEESEÒ, our dairy free ricotta cheese alternative offers consumers a dairy-free and gluten-free alternative that tastes and works just like real ricotta cheese in all their favorite recipes. Available in 16 oz. retail containers and 5 lb. containers and 30 lb. boxes for food service customers, BETTER THAN RICOTTA is available nationally in supermarkets and health food stores.
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Frozen Food Products
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TOFUTTI PIZZA PIZZAZ combines a delicious pan crust, zesty sauce and TOFUTTI totally dairy free 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.
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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. Our BLINTZES are available in freezer cases in select supermarkets and health food stores and can be served hot, warm, or slightly chilled as a main meal or a snack.
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TOFUTTI RAVIOLI combine our delicious BETTER THAN RICOTTA CHEESE® blend with egg free pasta into a healthy and filling meal. The product is available in jumbo round and bite-sized square sizes sold in 12 oz bags and is available in freezer cases in many health food stores.
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2014 Product Introductions
Beginning in the second quarter of 2014, we plan to introduce a new line of frozen dessert pints, a new frozen dessert stick novelty, shredded soy-cheeses, additional flavors of soy-cheese slices and new frozen prepared entrées that incorporate our soy-cheese products.
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. All 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 collected sales. Certain key domestic accounts and all international accounts are handled directly by us. Our products are also sold in approximately thirty other countries.
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We currently sell our frozen dessert products in most major markets in the United States, including Atlanta, Baltimore, Boston, Charlotte, Chicago, Cincinnati, Cleveland, Dallas, Denver, Detroit, Houston, Kansas City, Los Angeles, Miami, Milwaukee, Minneapolis, New York, Orlando, Philadelphia, Phoenix, Portland, Richmond, San Francisco, Seattle, St. Louis, Tampa and Washington, D.C.
We currently distribute all of our products by common carrier or by allowing customers to pick-up products from outside storage facilities. We do not own, lease or otherwise maintain any vehicles involved in the shipping of our products. From our co-packing facilities, we either ship direct to our customers or we ship to outside public storage facilities from which our customers are able to pick-up products. Use of outside storage facilities in several key locations in the United States allows us to provide our customers with products in a timely fashion.
In addition to ice cream and cheese distributors, our products are handled by almost every major national and regional natural and/or gourmet specialty distributor in the country. We distribute our products through thirty (30) distributors in the national health food market. In certain situations, we also sell directly to several major supermarket chains who maintain their own warehouses.
Our sales to health food accounts in fiscal 2013 decreased to approximately $6,674,000, or 45% of total sales, from approximately $7,088,000, or 49% of total sales, in fiscal 2012. Our sales to the kosher market increased to approximately $1,565,000, or 11% of sales, in fiscal 2013, from sales of approximately $1,127,000, or 8% of sales, in fiscal 2012.
The following table presents the geographical breakdown of our sales in our largest domestic markets for the last two fiscal years.
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Fiscal Year
ended
December 28, 2013
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Fiscal Year
ended
December 29, 2012
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Sales
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total Sales |
Sales
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% of
total Sales |
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(Dollars in thousands)
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Midwest
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$ | 2,428 | 17 | % | $ | 2,234 | 16 | % | ||||||||
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Metropolitan New York
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2,230 | 15 | % | 2,186 | 15 | % | ||||||||||
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California
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1,704 | 12 | % | 1,866 | 13 | % | ||||||||||
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New England
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1,653 | 11 | % | 1,946 | 14 | % | ||||||||||
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Florida
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928 | 6 | % | 875 | 6 | % | ||||||||||
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Northwest
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838 | 6 | % | 702 | 5 | % | ||||||||||
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Mid-Atlantic
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798 | 5 | % | 718 | 5 | % | ||||||||||
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Southwest
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496 | 3 | % | 466 | 3 | % | ||||||||||
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Southeast
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334 | 2 | % | 286 | 2 | % | ||||||||||
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Upstate New York
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283 | 2 | % | 261 | 2 | % | ||||||||||
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Rocky Mountains
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278 | 2 | % | 310 | 2 | % | ||||||||||
During fiscal 2013, we shipped our products to distributors in Australia, Brazil, Canada, Egypt, England, Israel, Malaysia, Mexico, Panama, South Africa, Taiwan, and Trinidad. Our distributor in England is our master distributor for all of Europe and part of the Middle East, excluding Israel, and sells our products to approximately twenty other countries. Sales to foreign distributors increased to $2,414,000, or 16% of sales, in fiscal 2013, as compared to approximately $2,057,000, or 14% of sales, in fiscal 2012. We conduct all of our foreign business in U.S. dollars. Accordingly, our future export sales could be adversely affected by an increase in the value of the U.S. dollar against local currencies, which could increase the local currency price of our products.
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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 offer the most complete line of nondairy frozen dessert products. Other soy-based frozen dessert products are presently being sold throughout the United States by established manufacturers, 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. We believe that we are able to compete effectively due to our ability to offer an array of non-dairy frozen dessert and other food products that contain no butterfat, cholesterol or lactose and are 100% milk-free, yet offer the same texture and full-bodied taste as their dairy counterparts.
PRODUCT DEVELOPMENT
All of our current products were developed internally in our own laboratory. David Mintz, our Chief Executive Officer, devotes a substantial amount of his time and effort to new product development and product reformulation. In fiscal 2013 and 2012, our product development expenses were approximately $585,000 and $643,000, respectively. These amounts do not include any portion of Mr. Mintz’s salary. All product development costs are expensed as incurred and are recorded as operating expenses in our financial statements.
PRODUCTION
We believe that all of our products are produced under the strictest quality control procedures that are available in each manufacturing facility used by us. These quality control procedures include, but are not limited to, the cleaning processes utilized prior to running our products; spot line inspections during production; in-house laboratory testing as required by government agencies; supervision of all our production by our kosher supervisory service; supervision of all our soy-cheese production by our halal supervisory service; and random testing by outside independent laboratories to ensure that our internal quality control procedures and guidelines are being properly followed.
All of our products are produced by co-packers to whom we supply certain key ingredients and packaging for the manufacturing processes. Our co-packing facilities are fully licensed and must comply with all state and federal laws and regulations. We currently utilize eight co-packers. 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. In selecting an appropriate co-packer, we take into account all of the preceding factors, plus cost considerations such as product processing fees and freight and warehouse expenses.
During the years ended December 28, 2013 and December 29, 2012, we purchased approximately 27% and 26%, respectively, of our finished goods from Ice Cream Specialties, our primary frozen dessert novelty co-packer, and 28% and 30% of our finished goods, respectively, from Franklin Foods, our BETTER THAN CREAM CHEESE, SOUR SUPREME, and BETTER THAN RICOTTA co-packer.
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Relationships with Co-Packers
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 co-packers decide to terminate their relationships with us. Nevertheless, any disruption in supply could have a material adverse effect on our company.
In order to protect our formulas, we have entered into confidentiality arrangements with our co-packers and some of our co-packers’ employees. All of our 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.
Kosher Certification
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 pay a yearly renewal fee for certification. 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.
Halal Certification
In early 2013, we completed a halal certification process at Franklin Foods, the co-packer of our BETTER THAN CREAM CHEESE, SOUR SUPREME and BETTER THAN RICOTTA products and at Whitehall Specialties, the co-packer of our soy-cheese slices and bulk Better Than Mozzarella products. This certification is provided by the Islamic Food and Nutrition Council of America (IFANCA) of Park Ridge, Illinois and currently applies only to those products manufactured by Franklin Foods and Whitehall Specialties. Before IFANCA will permit its certification to be placed on a product, which is evidenced by its symbol, IFANCA must approve both the ingredients contained in the product and the facility processing the product. Approval of the manufacturing facilities we use includes periodic inspections. There is a yearly renewal fee for certification.
TRADEMARKS AND PATENTS
We have registered our trademark, TOFUTTI®, and other trademarks for our frozen desserts and other products in the United States and approximately thirty-seven foreign countries. We believe our trademarks are an important means of establishing consumer recognition for our products and we will vigorously oppose any unauthorized use of our trademarks. We are not currently involved in any trademark litigation.
Although we believe that our formulas and processes are proprietary, we have not sought patent protection for such technology. Instead, we are relying on the complexity of our technology, on trade secrecy laws and on confidentiality agreements. We believe that our technology has been independently developed and does not infringe the patents of others.
GOVERNMENT REGULATION
Companies engaged in the manufacture, packaging and distribution of food items are subject to extensive regulation by various government agencies which, pursuant to statutes, rules, and regulations, prescribe quality, purity, manufacturing and labeling requirements. Food products are often subject to “standard of identity” requirements, which are promulgated at either the Federal or state level to determine the permissible qualitative and quantitative ingredient content of food. To the extent that any product that we seek to market does not conform to an applicable standard, special permission to market such a product is required.
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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 and conduct periodic reviews to make certain that such compliance is on-going.
The Food, Drug and Cosmetic Act, the Food Safety Modernization Act and rules and regulations promulgated by the FDA thereunder, contain no specific Federal standard of identity which is applicable to our products. Our 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 safety, health and environmental 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 the New Jersey 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.
New government laws and regulations may be introduced in the future that could result in additional compliance costs, seizures, confiscations, recalls or monetary fines, any of which could prevent or inhibit the development, distribution and sale of our products. If we fail to comply with applicable laws and regulations, we may be subject to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which could have a material adverse effect on our business, results of operations and financial condition.
EMPLOYEES
On December 28, 2013, we employed twelve persons on a full-time basis as compared to fourteen persons on a full time basis on December 29, 2012. We do not have any collective bargaining agreements with our employees.
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Risk Factors.
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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 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.
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Risks Related to Our Business
We may not be able to attain profitability in the future. To the extent that we continue to incur operating losses, we may not have sufficient working capital to fund our operations in the future.
Since mid-2011, when our then largest customer discontinued stocking branded goods, our sales have continued to be lower than in the years prior to 2011. While net sales in fiscal 2013 increased slightly over net sales in fiscal 2012, we continue to struggle to replace those sales. The loss of revenues from this former customer has affected our profitability. We had net losses of $824,000 in the year ended December 29, 2012 and $908,000 in the year ended December 28, 2013. If we are unable to increase revenues, we may not be able to return to or sustain profitable operations in the future or generate positive cash flows from our operations.
As of December 28, 2013, we had $214,000 in cash and cash equivalents and our working capital was $2,701,000. The lack of sufficient working capital could negatively impact our ability to introduce and adequately promote new products. To the extent that we incur operating losses in the future or are unable to generate free cash flows from our business, we may not have sufficient working capital to fund our operations and will be required to obtain additional financing. Such financing may not be available, or, if available, may not be on terms satisfactory to us. If adequate funds are not available to us, our business, and results of operations and financial condition will be adversely affected.
We depend on a few key distributors for a significant portion of our sales.
A significant portion of our sales are to several key distributors, which are large distribution companies with numerous divisions and subsidiaries who act independently. Such distributors as a group accounted for 45% of our net sales for the fiscal years ended December 28, 2013 and December 29, 2012. Although we believe that the business associated with any of our primary distributors can be readily transferred to other distributors or directly to supermarket warehouses if necessary, no assurance can be given that a change in distributors would not be disruptive to our business, which could have a material adverse effect on our business and results of operations.
We depend on several key suppliers to produce our products.
We do not produce any of our own products. During the years ended December 28, 2013 and December 29, 2012, we purchased approximately 27% and 26%, respectively, of our finished goods from Ice Cream Specialties, our primary frozen dessert novelty co-packer and 28% and 30% of our finished goods, respectively, from Franklin Foods, our BETTER THAN CREAM CHEESE, SOUR SUPREME, and BETTER THAN RICOTTA co-packer. Although we believe that there will be no problem in continuing to obtain finished goods from our current or alternative sources in the future, any disruption in supply could have a material adverse effect on our company.
Our suppliers are subject to federal, state and local government regulations that could adversely affect our business and financial position.
Virtually all food manufacturing operations are subject to regulation by various federal, state and local government entities and agencies. As producers of food products for human consumption, our suppliers are subject to stringent production, packaging, quality, labeling and distribution standards, including regulations mandated by the Federal Food, Drug and Cosmetic Act, the FDA, OSHA, the EPA and the USDA. Future regulation by various federal, state or local governmental entities or agencies could, among other things, increase our suppliers’ cost of production, cause them to incur unexpected expenditures or encumber productivity, any of which may adversely affect our business and financial results.
| 10 |
Our ability to compete effectively in the highly competitive frozen dessert and health food markets may affect our operational performance and financial results.
The frozen dessert, non-dairy cheese food and health food markets are highly competitive. 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 and non-dairy cheese food categories in supermarkets and other retail food outlets.
From time to time, we and our customers experience price pressure in some of our markets as a result of competitors’ promotional pricing practices as well as general market conditions. Our failure to match or exceed our competitors’ cost reductions through innovative products and other improvements could weaken our competitive position. Competition is based on product quality, reliability, food safety, distribution effectiveness, brand loyalty, price, effective promotional activities, the ability to identify and satisfy emerging consumer preferences and the ability to provide ancillary support services. We may not be able to compete effectively with these larger, more diversified companies.
We rely on a limited number of key executives to manage our business.
Our success is significantly dependent on the services of David Mintz (age 82), Chief Executive Officer, and Steven Kass (age 62), Chief Financial Officer. The loss of the services of either of these persons could have a material adverse effect on our business and results of operations.
A material change in consumer demand for our products could have a significant impact on our business.
We are a consumer food products company and rely on continued demand for our products. To achieve business goals, we must develop and sell products that appeal to consumers. If demand and growth rates fall substantially below expected levels or our market share declines significantly in these businesses, our results could be negatively impacted. This could occur due to unforeseen negative economic or political events or to changes in consumer trends and habits.
Our operating costs are subject to fluctuations which could affect our business results.
Our costs are subject to fluctuations, particularly due to changes in commodity prices, raw materials prices, cost of labor, foreign exchange rates and interest rates. Therefore, our success is dependent, in part, on our continued ability to manage these fluctuations through pricing actions, cost savings projects and sourcing decisions. In the manufacturing and general overhead areas, we need to maintain key manufacturing and supply arrangements, including any key sole supplier and manufacturing plant arrangements.
Economic downturns and disruptions in financial markets can adversely affect our business and results of operations.
Our results of operations can be materially affected by adverse conditions in the financial markets and depressed economic conditions generally. Worsening economic conditions may result in diminished demand for our products and in decreased sales volumes. Recessionary environments adversely affect the demand for our products as a result of constraints on discretionary spending by our retail customers. In addition, this could result in longer sales cycles, slower acceptance of new products and increased competition for our products, which in turn could cause us to reduce prices for our products resulting in reduced gross margins. Any of these events would likely harm our business, operating results and financial condition.
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In addition, the current economic climate, and particularly the increased difficulty in securing credit, could impact the ability of our customers to purchase our products. Certain of our retail customers who have seen significant dampening of consumer demand, could face increased financial pressures that could impact their ability to purchase our products and make payments in a timely manner. The continued high unemployment levels in the U.S. and the lingering effects of the global credit crisis, will impact the ability of our customers to purchase our products.
Natural disasters, terrorist attacks or breaches of network or information technology security could have an adverse effect on our business.
Natural disasters, cyber-attacks or other breaches of network or information technology (IT) security, terrorist acts or acts of war may cause disrupt our systems and operations. For example, the impact of Hurricane Sandy in 2012 caused our executive office in New Jersey to be closed for six days. We expect that our inability to operate our facilities as a result of such events, even for a limited period of time, may result in significant expenses and/or loss of market share to our competitors. While we maintain insurance coverage for some of these events, the potential liabilities associated with these events could exceed the insurance coverage we maintain. Any of these occurrences could result in a material adverse effect on our results of operations and financial condition.
We need to continue to introduce new products.
The successful introduction of innovative products on a periodic basis has become increasingly important to our ability to maintain and grow our sales. 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.
Our operating results vary quarterly.
We have often recognized a slightly greater portion of revenues in the second and third quarter of the 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. In addition, sales to our major customers fluctuate widely from period to period and there is no way to accurately predict that their sales pattern from one year will be repeated in the corresponding period of the next fiscal year. 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.
We have no registered patents. The absence of patent protection could adversely affect our results of operations.
We rely upon the confidentiality of our formulas and our know-how rather than upon patent protection. There is no assurance that such confidentiality can or will be maintained or that our know-how cannot be obtained by others or that others do not now possess similar or even more effective capabilities. The failure to maintain the confidentiality of our know-how could adversely affect our operating results.
We are subject to risks associated with international operations.
In fiscal 2013 approximately 16% of our revenues were from international sales. Although we continue to expand our international operations, we cannot be certain that we will be able to maintain or increase international market demand for our products. To the extent that we cannot do so in a timely manner, our business, operating results and financial condition will be adversely affected. International operations are subject to inherent risks, including the following:
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different and changing regulatory requirements in the jurisdictions in which we currently operate or may operate in the future;
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the impact of possible recessionary environments in multiple foreign markets;
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export restrictions, tariffs and other trade barriers;
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difficulties in managing and supporting foreign operations;
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longer payment cycles;
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difficulties in collecting accounts receivable;
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political and economic changes, hostilities and other disruptions in regions where we currently sell or products or may sell our products in the future; and
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seasonal reductions in business activities.
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Negative developments in any of these areas in one or more countries could result in a reduction in demand for our products, the cancellation or delay of orders already placed, difficulty in collecting receivables, and a higher cost of doing business, any of which could adversely affect our business, results of operations or financial condition.
We may be adversely affected by fluctuations in currency exchange rates.
Our foreign transactions are always in U.S. dollars, and to date we have not engaged 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 effect on our business, there can be no assurance such fluctuations in the future will not materially and adversely affect our revenues from international sales and, consequently, our business, operating results and financial condition.
Product liability suits, if brought, could have a material adverse effect on our business.
From time to time in the normal course of our business, we become subject to product liability claims. If a product liability claim exceeding our insurance coverage were to be successfully asserted against us, it could harm our business. We cannot assure you that such coverage will be sufficient to insure against claims which may be brought against us, or that we will be able to maintain such insurance or obtain additional insurance covering existing or new products. As a marketer of food products, we are subject to the risk of claims for product liability. We maintain general product liability and umbrella insurance coverage and generally require that our co-packers maintain product liability insurance with us as a co-insured. Similarly, most of our customers require us to name them as additional insureds as well, and in some cases we are required to sign hold harmless and indemnification agreements.
If our food products become adulterated or misbranded, we would need to recall those items and may experience product liability claims if consumers are injured as a result.
Food products occasionally contain contaminants due to inherent defects or improper storage or handling. Under adverse circumstances, food producers may be required to recall some of their products if they become adulterated or misbranded or as a result of a government-mandated recall. The scope of such a recall could result in significant costs incurred as a result of the recall, potential destruction of inventory, and lost sales. Should consumption of any product cause injury, we may be liable for monetary damages as a result of a settlement or judgment against us. A widespread product recall could result in changes to one or more of our business processes, product shortages, a loss of customer confidence in our brand or other adverse effects on our business.
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Our failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have an adverse effect on our financial results and the market price of our common stock.
The Sarbanes-Oxley Act of 2002 imposes certain duties on us and our executives and directors. Our efforts to comply with the requirements of Section 404 have resulted in increased general and administrative expense and a diversion of management time and attention, and we expect these efforts to require the continued commitment of resources. Section 404 of the Sarbanes-Oxley Act requires us to provide management’s annual review and evaluation of our internal control over financial reporting in connection with the filing of our Annual Report on Form 10-K for each fiscal year. Based on their evaluation under the frameworks described above, our chief executive officer and chief financial officer concluded that our internal control over financial reporting was ineffective as of December 28, 2013 because of the following material weaknesses in internal controls over financial reporting:
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a continuing lack of sufficient resources and an insufficient level of monitoring and oversight, which may restrict our ability to gather, analyze and report information relative to the financial statements in a timely manner.
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The limited size of the accounting department makes it impracticable to achieve an optimum separation of duties.
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Our failure to maintain effective internal controls over financial reporting could result in investigation or sanctions by regulatory authorities, and could have a material adverse effect on our operating results, investor confidence in our reported financial information, and the market price of our common stock.
Risks Relating to Our Common Stock
Our common stock may be delisted from the NYSE MKT, which could negatively impact the price of our common stock and our ability to access the capital markets.
Our common stock is currently listed on the NYSE MKT. Continued listing on the NYSE MKT is conditioned upon compliance with various continued listing standards. We are not currently in compliance with certain of such standards and this could result in delisting and adversely affect the market price and liquidity of our common stock and our ability to raise additional capital. Delisting from the NYSE MKT could also result in other negative implications, including the potential loss of confidence by our customers and suppliers and fewer business development opportunities.
Volatility of the market price of our common stock could adversely affect our shareholders and us.
The market price of our common stock has been subject to fluctuations in the past and may be subject to wide fluctuations in response to numerous factors, including the following:
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actual or anticipated variations in our quarterly operating results or those of our competitors;
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announcements by us or our competitors of new and enhanced products;
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developments or disputes concerning proprietary rights;
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introduction and adoption of new industry standards;
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market conditions or trends in our industry;
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announcements by us or our competitors of significant acquisitions;
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entry into strategic partnerships or joint ventures by us or our competitors;
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additions or departures of key personnel;
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political and economic conditions, such as a recession or interest rate or currency rate fluctuations or political events; and
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other events or factors in any of the countries in which we do business, including those resulting from war, incidents of terrorism, natural disasters or responses to such events.
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In addition, in recent years the stock market has been highly volatile. Many of these factors are beyond our control and may materially adversely affect the market price of our ordinary shares, regardless of our performance. In the past, following periods of market volatility, shareholders have often instituted securities class action litigation relating to the stock trading and price volatility of the company in question. If we were involved in any securities litigation, it could result in substantial cost to us to defend and divert resources and the attention of management from our business.
Our principal shareholder has the ability to control the policies and management of our company.
Our Chairman of the Board and Chief Executive Officer, David Mintz, holds 2,630,440 shares of common stock representing approximately 51.0% of the outstanding shares. For as long as Mr. Mintz has a controlling interest in our company, he will have the ability to exercise a controlling influence over our business and affairs, including any determinations with respect to potential mergers or other business combinations involving us, our acquisition or disposition of assets, our incurrence of indebtedness, our issuance of any additional common shares or other equity securities, our repurchase or redemption of common shares and our payment of dividends. Similarly, as long as Mr. Mintz has a controlling interest in our company, he will have the power to determine the outcome of matters submitted to a vote of our shareholders, including the power to elect all of the members of our board of directors and prevent an acquisition or any other change in control of us.
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.
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Item 1B.
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None.
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Item 2.
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Our facilities are located in a 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. We currently have no plans to enter into a long-term lease agreement for the facility. Our rent expense was $81,000 in both fiscal 2013 and 2012. Our management believes that the Cranford facility will continue to satisfy our space requirements for the foreseeable future. We rent warehouse storage space at various outside facilities. Outside warehouse expenses amounted to $538,000 and $596,000 during fiscal 2013 and 2012, respectively.
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Item 3.
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We are not a party to any material litigation.
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Item 4.
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Not applicable.
Our common stock was listed on the American Stock Exchange on October 29, 1985 and has traded on the AMEX or its successors under the symbol TOF since such time. As a result of the merger of the NYSE and AMEX, it currently trades on the NYSE MKT. Each share ranks equally as to dividends, voting rights, participation in assets on winding-up and in all other respects. No shares have been or will be issued subject to call or assessment. There are no preemptive rights, provisions for redemption or for either cancellation or surrender, or provisions for sinking or purchase funds.
The following table sets forth the high and low sales prices as reported on the NYSE MKT or its predecessors for the two most recent fiscal years:
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Quarter Ended
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High
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Low
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March 31, 2012
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$ | 2.55 | $ | 1.40 | ||||
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June 30, 2012
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2.50 | 1.50 | ||||||
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September 29, 2012
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1.78 | 1.34 | ||||||
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December 29, 2012
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1.70 | 1.10 | ||||||
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March 30, 2013
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1.63 | 1.16 | ||||||
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June 29, 2013
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1.60 | 1.37 | ||||||
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September 28, 2013
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2.84 | 1.45 | ||||||
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December 28, 2013
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3.55 | 2.02 | ||||||
The closing price for our common stock on March 25, 2014, as reported on the NYSE MKT, was $5.42.
Holders of Record
As of March 25, 2014, there were approximately 520 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 additional 600 shareholders.
Dividends
We have not paid and have no present intention of paying cash dividends on our common stock in the foreseeable future.
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Equity Compensation Plans
We do not have any equity compensation plans for our executive officers or employees, but we do have an equity compensation plan for our non-employee directors.
The following table sets forth, as of December 28, 2013, certain information related to our compensation plan under which shares of our common stock are authorized for issuance.
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Plan Category
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Number of securities
to be issued upon exercise of outstanding options, warrants and rights |
Weighted-average
exercise price of outstanding options,
warrants and rights |
Number of securities
Remaining available
for future issuance
under equity compensation
plans (excluding securities reflected in column (a) |
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(a)
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(b)
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(c)
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Equity Compensation Plans Approved by Security Holders
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0 | n/a | 100,000 | |||||||||
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Equity Compensation Plans Not Approved by Security Holders
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-- | n/a | -- | |||||||||
2004 Non-Employee Directors’ Stock Option Plan
Our shareholders adopted the 2004 Non-Employee Directors’ Stock Option Plan (the “2004 Directors’ Plan”) on June 3, 2004. The 2004 Directors’ Plan will expire on June 2, 2014. The purpose and intent of the 2004 Directors’ Plan is to attract and retain the best available individuals as non-employee directors of the company, to provide additional incentive to non-employee directors to continue to serve as directors and to encourage their continued service on the Board. All options granted under 2004 Directors’ Plan are “non-qualified stock options.” The maximum aggregate number of shares of common stock which may be issued under the 2004 Directors’ Plan is 100,000 shares.
The 2004 Directors’ Plan is currently administered by our Board of Directors, which in the future may delegate such administration to a committee of directors. Subject to the provisions of the 2004 Directors’ Plan and applicable law, the Board or the Committee has the authority, to determine, among other things, to whom options may be granted, the number of shares of common stock to be covered by each option, the exercise price for each share, the vesting period of the option, and the terms, conditions and restrictions thereof, to construe and interpret the 2004 Directors’ Plan, to prescribe, amend and rescind rules and regulations relating to the 2004 Directors’ Plan, and to make all other determinations deemed necessary or advisable for the administration of the 2004 Directors’ Plan.
The term of any option granted under the 2004 Directors’ Plan was fixed by the Board of Directors at the time the options were granted, provided that the exercise period was not to be longer than five years from the date of grant. All options granted under the 2004 Directors’ Plan have up to five-year terms and have vesting periods that range from one to three years from the grant date. The exercise price of any options granted under the 2004 Directors’ Plan is the fair market value at the date of grant. As of March 25, 2014, our non-employee directors as a group, consisting of seven persons, did not hold any options to purchase shares of common stock under the 2004 Directors’ Plan.
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Sales of Unregistered Securities
There were no sales of unregistered securities during fiscal 2013.
Purchase of Equity Securities By the Issuer and Affiliates
We did not purchase any shares of our common stock in the thirteen weeks ended December 28, 2013 (the fourth quarter of fiscal 2013).
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Item 6.
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Not applicable.
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. We recognize revenue when goods are shipped from our production facilities or outside warehouses and the following four criteria have been met: (i) the product has been shipped and we have no significant remaining obligations; (ii) persuasive evidence of an arrangement exists; (iii) the price to the buyer is fixed or determinable; and (iv) collection is probable. We record as deductions against sales all trade discounts, returns and allowances that occur in the ordinary course of business, when the sale occurs. To the extent we charge our customers for freight expense, it is included in revenues. The amount of freight costs charged to customers has not been material to date.
Accounts Receivable. The majority of our accounts receivables are due from distributors (domestic and international) and retailers. Credit is extended based on evaluation of a customers’ financial condition and, generally, collateral is not required. Accounts receivable are most often due within 30 to 90 days and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. We determine whether an allowance is necessary by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, the customer’s current ability to pay its obligation, and the condition of the general economy and the industry as a whole. We write-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the bad debt expense account. We do not accrue interest on accounts receivable past due.
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Inventory. Inventory is stated at lower of cost or market determined by first in first out (FIFO) method. Inventories in excess of future demand are written down and charged to the provision for inventories. At the point of which loss is recognized, a new, lower cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in the newly established cost basis.
Income Taxes. The carrying value of deferred tax assets assumes that we will be able to generate sufficient future taxable income to realize the deferred tax assets based on estimates and assumptions. If these estimates and assumptions change in the future, we may be required to record a valuation allowance against deferred tax assets which could result in additional income tax expense. We will recognize a tax benefit in the financial statements for an uncertain tax position only if management’s assessment is that the position is “more likely than not” (i.e., a likelihood greater than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term “tax position” refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for financial reporting purposes.
Deferred Revenue and Costs. Deferred revenue represents amounts from sales of our product that have been billed and shipped, but for which the transactions have not met our revenue recognition criteria. The cost of the related product has been recorded as deferred costs on our balance sheet.
Recent Accounting Pronouncements
Accounting Standards updates that became effective after December 28, 2013 are not expected to have a significant effect on our financial position or results of operations.
Results of Operations
Key Factors Affecting Our Business
Our operations and the operating metrics discussed below have been, and will likely continue to be affected by certain key factors as well as certain historical events and actions. The key factors affecting our business and results of operations include among others, our ability to attain profitability in the future, dependence a few key distributors for a significant portion of our sales, dependence on several key suppliers to produce our products, competition, and our reliance on a limited number of key executives to manage our business. For further discussion of the factors affecting our results of operations, see “Risk Factors.”
We may not be able to attain profitability in the future.
Since mid-2011, when our then largest customer discontinued stocking branded goods, our sales have continued to be lower than in the years prior to 2011 as we have struggled to replace those sales. The loss of revenues from this former customer has affected our profitability. We had net losses of $824,000 in the year ended December 29, 2012 and $908,000 in the year ended December 28, 2013. If we are unable to increase revenues, we may not be able to return to or sustain profitable operations in the future or generate positive cash flows from our operations.
As of December 28, 2013, we had $214,000 in cash and cash equivalents and our working capital was $2,701,000. The lack of sufficient working capital could negatively impact our ability to introduce and adequately promote new products. To the extent that we incur operating losses in the future or are unable to generate free cash flows from our business, we may not have sufficient working capital to fund our operations and will be required to obtain additional financing. Such financing may not be available, or, if available, may not be on terms satisfactory to us. If adequate funds are not available to us, our business, and results of operations and financial condition will be adversely affected.
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We depend on a few key distributors for a significant portion of our sales.
A significant portion of our sales are to several key distributors, which are large distribution companies with numerous divisions and subsidiaries who act independently. Such distributors as a group accounted for 45% of our net sales for the fiscal years ended December 28, 2013 and December 29, 2012. Although we believe that the business associated with any of our primary distributors can be readily transferred to other distributors or directly to supermarket warehouses if necessary, no assurance can be given that a change in distributors would not be disruptive to our business, which could have a material adverse effect on our business and results of operations.
We depend on several key suppliers to produce our products.
We do not produce any of our own products. During the years ended December 28, 2013 and December 29, 2012, we purchased approximately 27% and 26%, respectively, of our finished goods from Ice Cream Specialties, our primary frozen dessert novelty co-packer and 28% and 30% of our finished goods, respectively, from Franklin Foods, our BETTER THAN CREAM CHEESE, SOUR SUPREME, and BETTER THAN RICOTTA co-packer. Although we believe that there will be no problem in continuing to obtain finished goods from our current or alternative sources in the future, any disruption in supply could have a material adverse effect on our company.
Competition.
The frozen dessert, non-dairy cheese food and health food markets are highly competitive. 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 and non-dairy cheese food categories in supermarkets and other retail food outlets.
From time to time, we and our customers experience price pressure in some of our markets as a result of competitors’ promotional pricing practices as well as general market conditions. Our failure to match or exceed our competitors’ cost reductions through innovative products and other improvements could weaken our competitive position. Competition is based on product quality, reliability, food safety, distribution effectiveness, brand loyalty, price, effective promotional activities, the ability to identify and satisfy emerging consumer preferences and the ability to provide ancillary support services. We may not be able to compete effectively with these larger, more diversified companies.
We rely on a limited number of key executives to manage our business.
Our success is significantly dependent on the services of David Mintz (age 82), Chief Executive Officer, and Steven Kass (age 62), Chief Financial Officer. The loss of the services of either of these persons could have a material adverse effect on our business and results of operations.
Fiscal Year Ended December 28, 2013 Compared with Fiscal Year Ended December 29, 2012
We operate on a fiscal year ending on the Saturday closest to December 31. Fiscal years for the financial statements included in this report are the fifty-two week periods ended December 28, 2013 and December 29, 2012.
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Net sales for the fiscal year ended December 28, 2013 were $14,692,000, an increase of $349,000, or 2%, from net sales of $14,343,000 for the fiscal year ended December 29, 2012. The increase in sales was primarily due to the increase of sales in our soy-cheese product line. Our frozen dessert business continues to be negatively impacted by the overall sluggishness of sales in the ice cream category. We intend to address this issue in the frozen dessert category with the introduction of a new frozen dessert pint line and stick novelty during the second quarter of 2014. We also intend to introduce several new soy-cheese products and frozen food entrée products throughout the balance of 2014. We believe our sales will improve during fiscal year 2014 due to the introduction of new products and price increases that were implemented in the first quarter of 2014.
Our gross profit in the year ended December 28, 2013 increased by $14,000 to $3,965,000 from $3,951,000, reflecting the increased level of sales. Our gross profit percentage for the year ended December 28, 2013 declined to 27% from 28% for the year ended December 29, 2012, primarily due to the increase in freight out expense. Freight out expense increased to $1,099,000 for the year ended December 28, 2013 compared with $989,000 for the year ended December 29, 2012. Freight out cost as a percentage of sales increased from 6.9% in 2012 to 7.5% in 2013. The increase in freight out expense in 2013 was a result of the higher level of sales for the year and the higher cost of shipping in general. We anticipate that our freight cost as a percentage of sales will approximate the 2013 percentages should fuel costs remain steady. Our gross profit was also impacted by price increases for certain key ingredients and packaging costs. We implemented price increases for some of our products in the first quarter of 2014, which we expect will help improve our profit margin in 2014. We also intend to institute cost cutting measures in fiscal 2014 to increase profitability in future periods.
Selling and warehousing expenses increased by $17,000, or 1%, to $1,664,000 for fiscal 2013 from $1,647,000 in fiscal 2012. This increase was caused primarily by a $130,000 increase in payroll expense, which was offset by decreases in outside warehouse rental expense of $58,000, bad debt expense of $44,000, messenger expense of $13,000 and meetings and conventions expense of $7,000. We anticipate that with the exception of commission expenses and outside warehouse rental expense, which are variable based on sales, and payroll expense, which should decrease in 2014, all other selling expenses in 2014 should remain relatively consistent with our expenses in 2013.
Marketing expenses increased in fiscal 2013 by $38,000, or 6%, to $676,000 from $638,000 in fiscal 2012. Increases in artwork and plates expense of $26,000, advertising expense of $43,000 and promotion expense of $27,000 were partially offset by decreases in in public relations expense of $35,000 and point of sale materials expense of $22,000. We expect marketing expenses to decline in fiscal 2014 compared to fiscal 2013 due to the elimination of certain promotion and advertising programs and a major reduction in public relations expense as a result of our decision to no longer employ a public relations firm after the first quarter of 2014.
Product development expenses decreased by $58,000, or 9%, to $585,000 in fiscal 2013 from $643,000 in fiscal 2012. The decrease was caused primarily by decreases in payroll expense of $7,000 and lab and supplies expense of $64,000, which were partially offset by an increase in professional fees and outside services expense of $28,000. We expect product development costs to remain constant in fiscal 2014.
General and administrative expenses increased slightly by $4,000 to $1,939,000 for fiscal 2013 as compared with $1,935,000 for fiscal 2012. The increase was primarily due to a $34,000 increase in payroll expense, a $41,000 increase in professional fees and outside services and a $38,000 increase in general insurance expense. These increases were offset by an $87,000 decrease in IT expense, a $13,000 decrease in public relations expense and a $7,000 decrease in office supplies expense. Our management expects that general and administrative expenses in 2014 will remain consistent with fiscal 2013 expenses.
| 21 |
Overall, total operating expenses in fiscal 2013 were essentially unchanged at $4,864,000 compared to total operating expenses of $4,863,000 in fiscal 2012.
Loss before income taxes decreased by $13,000 to a loss of $899,000 in fiscal 2013 as compared with a loss of $912,000 in fiscal 2012.
Income tax expense for the 2013 fiscal period was $9,000 compared to an income tax benefit of $88,000 for the 2012 fiscal period. Our income tax rate was 0% for the 2013 fiscal year compared to 10% in the 2012 fiscal year. The income tax expense in 2013 was due to our inability to recognize an income tax benefit related to our net operating loss, which management believes we will be unable to utilize.
Liquidity and Capital Resources
Our recent operating history has resulted in a decrease in our capital resources. At December 28, 2013, we had approximately $214,000 in cash and cash equivalents, and our working capital was $2,701,000, a decrease of $908,000 from December 29, 2012. Our current and quick acid test ratios, both measures of liquidity, were 2.8 and 1.6, respectively, at December 28, 2013 compared to 4.4 and 2.7, respectively, at December 29, 2012. We do not have a line of credit or other approved borrowing facility.
At December 28, 2013, our accounts receivable increased by $74,000 to $1,954,000 from December 29, 2012, reflecting the increase of sales in fiscal 2013. The average number of days outstanding for accounts receivable in fiscal 2013 decreased to 48 days from 55 days in fiscal 2012.
At December 28, 2013, our inventories increased to $1,844,000 from $1,750,000 at December 29, 2012. Refundable and deferred income taxes decreased from $331,000 at the end of fiscal 2012 to $0 at December 28, 2013 due to the lack of an income tax benefit associated with our operating loss. Accounts payable and accrued expenses increased by $424,000 to $1,489,000 at December 28, 2013, from $1,065,000 at December 29, 2012, due to the increase in inventory.
|
Cash Flows
|
Fiscal Year ended
|
|||||||
|
December 28, 2013
|
December 29, 2012
|
|||||||
|
(In thousands)
|
||||||||
|
Net cash used in operating activities
|
$ | (257 | ) | $ | (1,107 | ) | ||
|
Net cash used in financing activities
|
-- | (16 | ) | |||||
|
Net decrease in cash and cash equivalents
|
(257 | ) | (1,123 | ) | ||||
|
Cash and cash equivalents at beginning of year
|
471 | 1,594 | ||||||
|
Cash and cash equivalents at end of year
|
$ | 214 | $ | 471 | ||||
Cash used in operating activities was $257,000 for the fiscal year ended December 28, 2013 compared with cash used in operating activities of $1,107,000 for the fiscal year ended December 29, 2012. In the fiscal year ended December 28, 2013, our cash flow from operating activities reflected a net loss of $908,000, a $74,000 increase in accounts receivable, and a $94,000 increase in inventories, which were partially offset by a $37,000 decrease in prepaid expenses, a $331,000 decrease in income taxes refundable, offset by a $424,000 increase in accounts payable and accrued expenses.
We did not use any funds in financing activities in the fiscal year ended December 28, 2013 compared to $16,000 used in the fiscal year ended December 29, 2012 for the repurchase of common stock.
As a result of the foregoing, our cash and cash equivalents decreased to $214,000 at December 28, 2013 from $471,000 at December 29, 2012.
| 22 |
We believe our existing cash and cash equivalents on hand at December 28 2013, the cash flows expected from operations will be sufficient to support our operating and capital requirements during the next twelve months. However, we may require additional financing in order to carry out our business plans for future periods.
Contractual Obligations
We had no material contractual obligations at December 28, 2013.
Inflation and Seasonality
We do not believe that our operating results have been materially affected by inflation during the preceding two years. There can be no assurance, however, that our operating results will not be affected by inflation in the future. Our business is subject to minimal seasonal variations with slightly increased sales historically in the second and third quarters of the fiscal year. We expect to continue to experience slightly higher sales in the second and third quarters, and slightly lower sales in the fourth and first quarters, as a result of reduced sales of nondairy frozen desserts during those periods.
Market Risk
We will invest our excess cash, should there be any, in highly rated money market funds which are subject to changes in short-term interest rates. We do not believe that our foreign currency exposure is significant as our export sales are transacted in U.S. dollars. We did not enter into any foreign exchange contracts in the year ended December 28, 2013.
Off-Balance Sheet Arrangements
None.
Not applicable.
Index to Financial Statements
|
F-1
|
||
|
Financial Statements:
|
||
|
F-2
|
||
|
F-3
|
||
|
F-4
|
||
|
F-5
|
||
|
F-6
|
| 23 |
The Board of Directors and Stockholders
Tofutti Brands, Inc.
We have audited the accompanying balance sheets of Tofutti Brands, Inc. (the “Company”) as of December 28, 2013 and December 29, 2012, and the related statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 28, 2013. The 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 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 28, 2013 and December 29, 2012, and the results of its operations and its cash flows for each of the years in the two-year period ended December 28, 2013, in conformity with accounting principles generally accepted in the United States of America.
/s/ EisnerAmper LLP
Iselin,
New Jersey
March 28, 2014
| F-1 |
TOFUTTI BRANDS INC.
BALANCE SHEETS
(In thousands, except for share and per share data)
BALANCE SHEETS
(In thousands, except for share and per share data)
|
December 28,
|
December 29,
|
|||||||
|
2013
|
2012
|
|||||||
|
Assets
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 214 | $ | 471 | ||||
|
Accounts receivable, net of allowance for doubtful accounts and sales promotions of $277 and $303 respectively
|
1,954 | 1,880 | ||||||
|
Inventories, net of reserve of $150 and $100, respectively
|
1,844 | 1,750 | ||||||
|
Prepaid expenses
|
40 | 77 | ||||||
|
Deferred costs
|
138 | 165 | ||||||
|
Refundable income taxes
|
— | 331 | ||||||
|
Total current assets
|
4,190 | 4,674 | ||||||
|
Other assets
|
16 | 16 | ||||||
| $ | 4,206 | $ | 4,690 | |||||
|
Liabilities and Stockholders’ Equity
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable
|
$ | 877 | $ | 446 | ||||
|
Accrued expenses
|
459 | 436 | ||||||
|
Deferred revenue
|
153 | 183 | ||||||
|
Total current liabilities
|
1,489 | 1,065 | ||||||
|
Commitments and contingencies
|
— | — | ||||||
|
Stockholders’ equity:
|
||||||||
|
Preferred stock - par value $.01 per share; authorized 100,000 shares, none issued
|
— | — | ||||||
|
Common stock - par value $.01 per share; authorized 15,000,000 shares, issued and outstanding 5,153,706 shares at December 28, 2013, and 5,153,706 shares at December 29, 2012
|
52 | 52 | ||||||
|
Additional paid-in capital
|
— | — | ||||||
|
Retained earnings
|
2,665 | 3,573 | ||||||
|
Total stockholders’ equity
|
2,717 | 3,625 | ||||||
|
Total liabilities and stockholders’ equity
|
$ | 4,206 | $ | 4,690 | ||||
See accompanying notes to financial statements.
| F-2 |
|
Fiscal year
ended
December 28, 2013
|
Fiscal Year
ended
December 29, 2012
|
|||||||
|
Net sales
|
$ | 14,692 | $ | 14,343 | ||||
|
Cost of sales
|
10,727 | 10,392 | ||||||
|
Gross profit
|
3,965 | 3,951 | ||||||
|
Operating expenses:
|
||||||||
|
Selling and warehousing
|
1,664 | 1,647 | ||||||
|
Marketing
|
676 | 638 | ||||||
|
Product development costs
|
585 | 643 | ||||||
|
General and administrative
|
1,939 | 1,935 | ||||||
| 4,864 | 4,863 | |||||||
|
Loss before provision for income tax
|
(899 | ) | (912 | ) | ||||
|
Income tax expense (benefit)
|
9 | (88 | ) | |||||
|
Net loss
|
$ | (908 | ) | $ | (824 | ) | ||
|
Weighted average common shares outstanding:
|
||||||||
|
Basic and diluted
|
5,154 | 5,154 | ||||||
|
Net loss per common share:
|
||||||||
|
Basic and diluted
|
$ | (0.18 | ) | $ | (0.16 | ) | ||
See accompanying notes to financial statements.
| F-3 |
TOFUTTI BRANDS INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Fiscal Years ended December 28, 2013 and December 29, 2012
(In thousands, except for share data)
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Fiscal Years ended December 28, 2013 and December 29, 2012
(In thousands, except for share data)
|
Additional
|
Total
|
|||||||||||||||||||
|
Common Stock
|
Paid-In
|
Retained
|
Stockholders’
|
|||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Earnings
|
Equity
|
||||||||||||||||
|
Balances, December 31, 2011
|
5,162,186 | $ | 52 | $ | — | $ | 4,413 | $ | 4,465 | |||||||||||
|
Stock repurchase
|
(8,480 | ) | — | — | (16 | ) | (16 | ) | ||||||||||||
|
Net loss for year ended December 29, 2012
|
— | — | — | (824 | ) | (824 | ) | |||||||||||||
|
Balances, December 29, 2012
|
5,153,706 | 52 | — | $ | 3,573 | $ | 3,625 | |||||||||||||
|
Net loss for year ended December 28, 2013
|
— | — | — | (908 | ) | (908 | ) | |||||||||||||
|
Balances, December 28, 2013
|
5,153,706 | $ | 52 | — | $ | 2,665 | $ | 2,717 | ||||||||||||
See accompanying notes to financial statements.
| F-4 |
TOFUTTI BRANDS INC.
STATEMENTS OF CASH FLOWS
(In thousands)
STATEMENTS OF CASH FLOWS
(In thousands)
|
Fiscal Year
ended December 28, 2013 |
Fiscal Year
ended December 29, 2012 |
|||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net (loss) income
|
$ | (908 | ) | $ | (824 | ) | ||
|
Adjustments to reconcile net (loss) income to net cash flows provided by (used in) operating activities:
|
||||||||
|
Amortization
|
— | 5 | ||||||
|
Provision for bad debts and sales promotions
|
(26 | ) | (183 | ) | ||||
|
Deferred taxes
|
— | 265 | ||||||
|
Change in assets and liabilities:
|
||||||||
|
Accounts receivable
|
(48 | ) | 239 | |||||
|
Inventories
|
(94 | ) | (309 | ) | ||||
|
Prepaid expenses
|
64 | (120 | ) | |||||
|
Income taxes refundable
|
331 | (289 | ) | |||||
|
Accounts payable and accrued expenses
|
424 | 109 | ||||||
|
Net cash flows used in operating activities
|
(257 | ) | (1,107 | ) | ||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Purchase of common stock
|
— | (16 | ) | |||||
|
Net cash flows used in financing activities
|
— | (16 | ) | |||||
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
(257 | ) | (1,123 | ) | ||||
|
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR
|
471 | 1,594 | ||||||
|
CASH AND CASH EQUIVALENTS, AT END OF YEAR
|
$ | 214 | $ | 471 | ||||
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
||||||||
|
Income taxes paid
|
$ | 6 | $ | 6 | ||||
See accompanying notes to financial statements.
| F-5 |
| NOTE 1: | LIQUIDITY AND CAPITAL RESOURCES |
At December 28, 2013, Tofutti Brands, Inc. (the “Company”) had approximately $214 in cash compared to $471 at December 29, 2012. Net cash used in operating activities for the year ended December 28, 2013 was $257 compared to $1,107 used in operating activities for the year ended December 29, 2012. Net cash used in operating activities for the year ended December 28, 2013 was primarily the result of our net loss of $908 as well as increases in inventory and accounts receivable, which were partially offset by decreases in prepaid expenses and income taxes refundable and an increase in accounts payable and accrued liabilities.
During the year ended December 28, 2013, $0 was used in financing activities compared to $16 used in financing activities during the year ended December 29, 2012.
The Company has historically financed operations and met capital requirements primarily through positive cash flow from operations. However, due to the net loss for the year ended December 28, 2013 and cash used in operations, the Company may require additional financing in order to accomplish or exceed their business plans for future periods. The Company is instituting cost cutting measures in fiscal year 2014 as a way to increase profitability in future periods.
The Company’s ability to introduce successful new products may be adversely affected by a number of factors, such as unforeseen cost and expenses, economic environment, increased competition, and other factors beyond the Company’s control. Management cannot provide assurance that the Company will operate profitably in the future, or that it will not require significant additional financing in order to accomplish or exceed the objectives of its business plan. Consequently, the Company’s historical operating results cannot be relied on to be an indicator of future performance, and management cannot predict whether the Company will obtain or sustain positive operating cash flow or generate net income in the future.
| NOTE 2: | 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 31st. Fiscal years for the financial statements included herein are the fifty-two week fiscal periods ended on December 28, 2013 and December 29, 2012, respectively.
Estimates and Uncertainties - The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America 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. Significant estimates include allowance for doubtful accounts, sales promotion accruals, inventory reserves and reserves for uncertain tax positions. Actual results could differ from those estimates.
Revenue Recognition - Revenue is recognized when goods are shipped from production facilities or outside warehouses to customers. Revenue is recognized when the following four criteria under ASC 605 have been met: the product has been shipped and the Company has no significant remaining obligations; persuasive evidence of an arrangement exists; the price to the buyer is fixed or determinable; and collection is probable. Deductions from sales for promotional programs, manufacturers’ charge-backs, co-operative advertising programs and other programs are recorded as reductions of revenues and are provided for at the time of initial sale of product. Freight charged to customers is included in revenues, and has generally been insignificant.
| F-6 |
Concentration of Credit/Sales Risk - Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and unsecured trade receivables. During the year, the Company’s cash balance at its financial institution exceeded the FDIC limit of $250.
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 28, 2013 is limited.
During the fiscal years ended December 28, 2013 and December 29, 2012, the Company derived approximately 84% and 86%, respectively, of its net sales domestically. The remaining sales in both periods were exports to foreign countries. The accounts receivable balance of one customer represented approximately 8% of total accounts receivable at December 28, 2013 and 11% of total accounts receivable at December 29, 2012. In addition, a significant portion of the Company’s sales are to several key distributors, which are large distribution companies with numerous divisions and subsidiaries who act independently. Such distributors as a group accounted for 45% and 45% of the Company’s net sales for the fiscal years ended December 28, 2013 and December 29, 2013.
Accounts Receivable - The majority of the Company’s accounts receivables are due from distributors (domestic and international) and retailers. Credit is extended based on evaluation of a customers’ financial condition and, generally, collateral is not required. Accounts receivable are most often due within 30 to 90 days and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. The Company writes-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the bad debt expense. The Company does not accrue interest on accounts receivable past due.
Deferred Revenue and Deferred Costs - Deferred revenue represents amounts from sales of the Company’s product that have been billed and shipped, but for which the transactions have not met its revenue recognition criteria. The cost of the related product has been recorded as deferred costs on its balance sheet.
Cash and Equivalents - The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Inventories - Inventory is stated at lower of cost or market determined by first in first out (FIFO) method. Inventories in excess of future demand are written down and charged to the provision for inventories. At the point of which loss is recognized, a new, lower cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in the newly established cost basis.
| F-7 |
The Company purchased approximately 27% and 26% of its finished products from one supplier and 28% and 30% of its finished products from another supplier during the periods ended December 28, 2013 and December 29, 2012, respectively.
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. A valuation allowance is recorded if there is uncertainty as to the realization of deferred tax assets. The Company will recognize a tax benefit in the financial statements for an uncertain tax position only if management’s assessment is that the position is “more likely than not” (i.e., a likelihood greater than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term “tax position” refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for financial reporting purposes.
Net Income Per Share - Basic earnings per common share has been computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share has been computed by dividing net income by the weighted average number of common shares outstanding, including the dilutive effects of stock options.
|
Fiscal
Year
Ended December 28, 2013 |
Fiscal Year
Ended
December 29, 2012
|
|||||||
|
Net (loss) income, numerator, basic and diluted computation
|
$ | (908 | ) | $ | (824 | ) | ||
|
Weighted average shares - denominator basic computation
|
5,154 | 5,154 | ||||||
|
Effect of dilutive stock options
|
— | — | ||||||
|
Weighted average shares, as adjusted - denominator diluted computation
|
5,154 | 5,154 | ||||||
|
Net (loss) income per common share:
|
||||||||
|
Basic
|
$ | (0.18 | ) | $ | (0.16 | ) | ||
|
Diluted
|
$ | (0.18 | ) | $ | (0.16 | ) | ||
Fair Value of Financial Instruments - The fair value of financial instruments, which primarily consist of cash and equivalents, accounts receivable and accounts payable are stated at their carrying values. The carrying amounts approximate fair value because of the short-term nature of those instruments.
Freight Costs - Freight costs to ship inventory to customers and to outside warehouses amounted to $1,099 and $989 during the fiscal years ended December 28, 2013 and December 29, 2012, respectively. Such costs are included in costs of goods sold.
Advertising Costs - The Company expenses advertising costs as they are incurred. Advertising expenses amounted to $323 and $279 during the fiscal years ended December 28, 2013 and December 29, 2012, respectively.
| F-8 |
Product Development Costs - Costs of new product development and product redesign are charged to expense as incurred. Product development costs amounted to $585 and $643 during the fiscal years ended December 28, 2013 and December 29, 2012, respectively.
Recent Accounting Pronouncements - Accounting Standards Updates that became effective during fiscal 2013 or after are not expected to have a significant effect on the Company’s financial position or results of operations.
| NOTE 3: | INVENTORIES |
Inventories consist of the following:
|
December 28,
2013
|
December 29,
2012
|
|||||||
|
Finished products
|
$ | 1,342 | $ | 1,099 | ||||
|
Raw materials and packaging
|
502 | 651 | ||||||
| $ | 1,844 | $ | 1,750 | |||||
| NOTE 4: | STOCK OPTIONS |
The Company’s shareholders adopted the 2004 Non-Employee Directors’ Stock Option Plan (the “2004 Directors’ Plan”) on June 3, 2004. The purpose and intent of the 2004 Directors’ Plan is to attract and retain the best available individuals as non-employee directors of the Company, to provide additional incentive to non-employee directors to continue to serve as directors and to encourage their continued service on the Board. All options granted under 2004 Directors’ Plan are “non-qualified stock options.” The maximum aggregate number of shares of common stock which may be issued under the 2004 Directors’ Plan is 100,000 shares. The maximum term of any option under the plan is five years, and generally vests over a period of three years.
The following is a summary of stock option activity from December 31, 2011 to December 28, 2013:
|
1993 PLAN
INCENTIVE OPTIONS
|
2004 DIRECTORS’ PLAN
NON-QUALIFIED
OPTIONS |
|||||||||||||||||||
|
Shares
|
Weighted
Average
Exercise
Price ($)
|
Shares
|
Weighted Average
Exercise
Price ($)
|
Total
Aggregate Intrinsic
Value ($) |
||||||||||||||||
|
Outstanding at December 31, 2011
|
— | — | 41,000 | 2.90 | — | |||||||||||||||
|
Exercisable at December 31, 2011
|
— | — | 41,000 | 2.90 | — | |||||||||||||||
|
Expired in fiscal 2012
|
— | — | 41,000 | 2.90 | — | |||||||||||||||
|
Outstanding at December 29, 2012
|
— | — | 0 | — | — | |||||||||||||||
|
Exercisable at December 29, 2012
|
— | — | 0 | — | — | |||||||||||||||
|
Expired in fiscal 2013
|
— | — | 0 | — | — | |||||||||||||||
|
Outstanding at December 28, 2013
|
— | — | 0 | — | — | |||||||||||||||
| F-9 |
There were no stock options granted in the last two fiscal years, and no options were outstanding as of year-end, December 28, 2013.
| NOTE 5: | LEASES |
The Company’s facilities are located in a 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 original lease agreement expired on July 1, 1999, but it continues to occupy the premises under the terms of that agreement. Any changes by either the landlord or the Company remains subject to a six month notification period. The Company currently has no plans to enter into a long-term lease agreement for the facility. Rent expense was $81 in 2013 and $81 in 2012. 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: | INCOME TAXES |
The components of income tax expense (benefit) for the fiscal years ended December 28, 2013 and December 29, 2012 are as follows:
|
December 28,
2013
|
December 29,
2012
|
|||||||
|
Current:
|
||||||||
|
Federal
|
$ | 9 | $ | (334 | ) | |||
|
State
|
— | — | ||||||
| 9 | (334 | ) | ||||||
|
Deferred:
|
||||||||
|
Federal
|
191 | |||||||
|
State
|
55 | |||||||
| 246 | ||||||||
|
Total income tax expense (benefit)
|
$ | 9 | $ | (88 | ) | |||
A reconciliation between the expected federal tax expense at the statutory tax rate of 34% and the Company’s actual tax expense for the fiscal years ended December 28, 2013 and December 29, 2012 follows:
| December 28, 2013 |
December 29, 2012 |
|||||||
|
Income tax expense computed at federal statutory rate
|
$ | (322 | ) | $ | (310 | ) | ||
|
State income taxes, net of federal income tax benefit
|
2 | 21 | ||||||
|
Permanent items
|
12 | 16 | ||||||
|
Change in federal valuation allowance
|
317 | 172 | ||||||
|
Other items
|
— | 13 | ||||||
| $ | 9 | $ | (88 | ) | ||||
| F-10 |
Deferred tax assets for the fiscal years ended December 28, 2013 and December 29, 2012 consist of the following components:
|
December 28,
2013
|
December 29,
2012
|
|||||||
|
Allowance for doubtful accounts
|
$ | 100 | $ | 109 | ||||
|
Inventory
|
94 | 80 | ||||||
|
Federal
and state net operating loss
|
347 | 16 | ||||||
|
Other
|
6 | 6 | ||||||
|
Valuation allowance
|
(547 | ) | (211 | ) | ||||
|
Deferred tax asset
|
$ | — | $ | — | ||||
Management
has concluded that based upon all available evidence it is more likely than not that deferred tax assets will not be
utilized. The Company has recorded an increase in the valuation allowance in the amount of $336 during the year ended
December 28, 2013. The remaining deferred tax asset is offset by the federal unrecorded tax benefit.
The Company will recognize a tax benefit in the financial statements for an uncertain tax position only if management’s assessment is that the position is “more likely than not” (i.e., a likelihood greater than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term “tax position” refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for financial reporting purposes.
The following table indicates the changes to the Company’s uncertain tax positions for the fiscal years ended December 28, 2013 and December 29, 2012:
|
Balance at December 31, 2011
|
$ | 253 | ||
|
Reduction based on tax positions
taken in a prior year
|
(62 | ) | ||
|
Balance at December 29, 2012
|
$ | 191 | ||
|
Reduction due to the expiration of the statute of limitations
|
(13 | ) | ||
|
Balance at December 28, 2013
|
$ | 178 |
The Company accounts for penalties or interest related to uncertain tax positions as part of its provision for income taxes. The Company had approximately $91 and $115 of accrued interest and penalties related to uncertain tax positions at December 28, 2013 and December 29, 2012, respectively. The amount of uncertain tax positions that would affect the effective tax rate if they were recognized is $269.
The liability at December 28, 2013 for uncertain tax positions is included in accrued expenses. The Company’s federal and state tax returns are open to examination for the years 2010 to 2013.
| F-11 |
| NOTE 7: | RELATED PARTY TRANSACTIONS |
Effective October 1, 2012, the Company entered into an agreement with a director pursuant to which the director agreed to provide it with certain consulting and business development services relating to the introduction of the Company to potential users, licensees, and co-developers of its products. Under this agreement, which terminated on September 30, 2013, the director was entitled to receive a 10% commission on sales if the Company entered into a licensing agreement with a third party and a 5% commission on sales to a third party that does not enter into a license agreement with it. No payments were made under such provisions during the year ended December 28, 2013, but in the event such agreements are entered into in the three years subsequent to September 30, 2013, the Company would be obligated to pay the director such commissions for revenues arising out of relationships he initiated. In addition, the Company agreed that if the director is instrumental in the sale of any of its securities to a third party, the Company would enter into an agreement to compensate him for such services, based upon the fair market value of such services. The Company paid him an expense allowance of $2,500 a month and paid him a total of $7,500 in the year ended December 29, 2012 and $22,500 in the year ended December 28, 2013. This agreement was approved by the Company’s audit committee and board of directors, with the director abstaining from such consideration.
| F-12 |
|
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
|
None.
|
Item 9A.
|
Evaluation of Disclosure Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As of December 28, 2013, our company’s chief executive officer and chief financial officer conducted an evaluation regarding the effectiveness of our company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based upon the evaluation of these controls and procedures, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective with respect to the material weaknesses, as described below in our internal control over financial reporting, that have not been fully remediated as of the end of the fiscal year 2013.
Disclosure Controls and Internal Controls. As provided in Rule 13a-14 of the General Rules and Regulations under the Securities and Exchange Act of 1934, as amended, Disclosure Controls are defined as meaning controls and procedures that are designed with the objective of insuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, designed and reported within the time periods specified by the SEC’s rules and forms. Disclosure Controls include, within the definition under the Exchange Act, and without limitation, controls and procedures to insure that information required to be disclosed by us in our reports is accumulated and communicated to our management, including our chief executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure. Internal Controls are procedures which are designed with the objective of providing reasonable assurance that (1) our transactions are properly authorized; (2) our assets are safeguarded against unauthorized or improper use; and (3) our transactions are properly recorded and reported, all to permit the preparation of our financial statements inconformity with generally accepted accounting principles.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of the Chief Executive Officer and Chief Financial Officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management’s evaluation of internal control over financial reporting includes using the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, framework, an integrated framework (1992) for the evaluation of internal controls issued by COSO, to identify the risks and control objectives related to the evaluation of our control environment.
| 24 |
Based on their evaluation under the frameworks described above, our chief executive officer and chief financial officer have concluded that our internal control over financial reporting was ineffective as of December 28, 2013 because of the following material weaknesses in internal controls over financial reporting:
|
|
·
|
a continuing lack of sufficient resources and an insufficient level of monitoring and oversight, which may restrict our ability to gather, analyze and report information relative to the financial statements in a timely manner.
|
|
|
·
|
The limited size of the accounting department makes it impracticable to achieve an optimum separation of duties.
|
Remediation Plan
We are continuing to seek ways to remediate these weaknesses, which stem from our small workforce, that will not require us to hire additional personnel.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during the quarter ended December 28, 2013, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.
| Item 9B. | Other Information. |
None.
| 25 |
Our directors and executive officers are:
|
Name
|
Age
|
Position
|
|
|||
|
David Mintz
|
82
|
Chairman of the Board of Directors, Chief Executive Officer
|
||||
|
Steven Kass
|
62
|
Chief Financial Officer, Secretary and Treasurer
|
||||
|
Neal S. Axelrod
|
61
|
Director
|
||||
|
Joseph Fischer
|
74
|
Director
|
||||
|
Philip Gotthelf
|
61
|
Director
|
||||
|
Joseph N. Himy
|
44
|
Director
|
||||
|
Scott Korman
|
59
|
Director
|
||||
|
Reuben Rapoport
|
85
|
Director
|
||||
|
Franklyn Snitow
|
67
|
Director
|
||||
David Mintz has been our Chairman of the Board and Chief Executive Officer since August 1981. Mr. Mintz’s knowledge about our company and his role as the developer of our product line is essential to the operation of our board.
Steven Kass has been our Chief Financial Officer since November 1986 and Secretary and Treasurer since January 1987.
Neal S. Axelrod has been a director since August 2007. Mr. Axelrod has been a self-employed certified public accountant in New Jersey since 1977. Mr. Axelrod’s accounting and financial background enhances the breadth of experience of the board of directors.
Joseph Fischer has been a director since August 2007. He previously served as a director from March 2004 until June 2007. He has been the principal in FMM Investments, which manages private portfolios, since 1992. Prior to that and since 1982, Mr. Fischer was the Controller of the Swingline Division of American Brands Inc. Mr. Fisher’s accounting and financial background enhances the breadth of experience of the board of directors.
Philip Gotthelf has been a director since 2006. He has been President of EQUIDEX Incorporated, a registered Commodity Trading Advisor, and EQUIDEX Brokerage Group, a registered Introducing Broker, since 1985. He has also been publisher of the COMMODEX System and COMMODITY FUTURES FORECAST Service since 1975 and has authored several financial books for Probus/McGraw Hill, McGraw Hill and John Wiley & Sons. Mr. Gotthelf’s financial background enhances the breadth of experience of the board of directors.
| 26 |
Joseph N. Himy was elected to serve as a member of the Board of Directors and the Audit Committee on October 30, 2013 by our Board of Directors. He has been Managing Director of The CFO Squad, a financial and business advisory firm providing outsourced CFO advisory and regulatory consulting services primarily for public companies, since August 2011. From May 2008 until August 2011, Mr. Himy was Chief Financial Officer of Vyteris, Inc., manufacturer of the first active transdermal patch approved by the U.S. Food and Drug Administration for the pain associated with blood draws, intravenous cannulations and laser ablation of superficial skin lesions. Prior to May 2008 and from October 2004, Mr. Himy held various other positions at Vyteris, including Corporate Controller and VP of Finance. Mr. Himy received a B.S. degree in Accounting from Brooklyn College of the City University of New York and is a certified public accountant. Mr. Himy’s accounting and financial and corporate governance experience background enhances the breadth of experience of the board of directors.
Scott Korman has served as member of the Board of Directors and the Audit Committee since December 2011. Mr. Korman founded Nashone, Inc., a private equity firm, in 1984 and is its President. Nashone is also involved in financial advisory, turnaround and general management assignments. Mr. Korman is currently Chairman of Da-Tech Corporation, a Pennsylvania based contract electronics manufacturer. He previously served as Chairman and CEO of Best Manufacturing Group LLC., a leading manufacturer and distributor of uniforms, napery, service apparel, and hospitality and healthcare textiles. Mr. Korman also served as President and CEO of Welsh Farms Inc., a full service dairy, processing and distributing milk, ice cream mix and ice cream products. Mr. Korman received a B.S. degree in Economics from the University of Pennsylvania Wharton School in 1977. He also serves on the boards of various not-for-profit groups and was the founder of the Englewood Business Forum. Mr. Korman’s experience as a CEO of a frozen dessert company enhances the breadth of experience of the board of directors.
Reuben Rapoport, our former Director of Product Development who retired in April 2003, has been a director since July 1983. Mr. Rapoport’s product development background and knowledge about our company enhances the breadth of experience of the board of directors.
Franklyn Snitow has been a director since 1987. He has been a partner in the New York City law firm Snitow Kanfer Holtzer & Millus, LLP, our general counsel, since 1985. Mr. Snitow’s legal and corporate governance background enhances the breadth of experience of the board of directors.
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
Involvement in Legal Proceedings
To the best of our knowledge, during the past ten 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.
| 27 |
Audit Committee and Audit Committee Financial Expert
The Audit Committee of the Board of Directors is comprised of Mr. Axelrod, who serves as chairman, Mr. Himy and Mr. Korman. 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 Mr. Axelrod 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 2013 all persons subject to these reporting requirements filed the required reports on a timely basis.
Code of Ethics
We have adopted a Code of Business Conduct and Ethics, which applies to directors, officers, employees and agents of our company. We have also adopted a Code of Ethics for Senior Officers, which applies to our chief executive officer, and all senior financial officers of our company, including the chief financial officer, chief accounting officer or controller, or persons performing similar functions. The Code of Business Conduct and Ethics and the Code of Ethics for Senior Officers 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 Business Conduct and Ethics or the Code of Ethics 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 or our directors, we will disclose the nature of such amendment or waiver on our website.
| 28 |
|
Item 11.
|
Executive Compensation. |
The following table sets forth information concerning the total compensation during the last three fiscal years for our named executive officers whose total salary in fiscal 2013 totaled $100,000 or more:
Summary Compensation Table
|
Name and Principal
Position |
Fiscal
Year
|
Salary ($)
|
Bonus ($)
|
Stock
Awards ($) |
Option
Awards ($) |
Non-Equity
Incentive Plan Compensation ($) |
All Other
Compensation ($) |
Total($)
|
||||||||||||||||||||||
|
David Mintz
|
2013
|
450,000 | — | — | — | — | — | 450,000 | ||||||||||||||||||||||
|
Chief Executive Officer
|
2012
|
450,000 | — | — | — | — | — | 450,000 | ||||||||||||||||||||||
|
and Director
|
2011
|
450,000 | — | — | — | — | — | 450,000 | ||||||||||||||||||||||
|
Steven Kass
|
2013
|
125,000 | — | — | — | — | — | 125,000 | ||||||||||||||||||||||
|
Chief Financial Officer
|
2012
|
125,000 | — | — | — | — | — | 125,000 | ||||||||||||||||||||||
|
2011
|
125,000 | — | 125,000 | |||||||||||||||||||||||||||
The aggregate value of all other perquisites and other personal benefits furnished to each of these executive officers was less than $10,000 in both the 2013 and 2012 fiscal years.
Grants of Plan-Based Awards for Fiscal 2013
There were no stock options awarded during the fiscal year ended December 28, 2013.
Long-Term Incentive Plans-Awards in Last Fiscal Year
We do not currently have any long-term incentive plans.
Director Compensation
Our non-employee directors earned director compensation in fiscal year ended December 28, 2013 based on the number of meetings attended. Mr. Axelrod, chairman of the audit committee, receives $1,500 per meeting attended. Other members of the audit committee receive $1,000 per meeting attended. All other non-employee directors are entitled to $500 per meeting attended. Messrs. Forem and Snitow waive their compensation.
The following table sets forth the compensation received by each of the Company’s non-employee directors for the year ended December 28, 2013. Each non-employee director is considered independent under NYSE MKT listing standards. Mr. Forem waived his compensation.
|
Name
|
Fees
Earned or Paid in Cash ($) |
Stock
Awards ($) |
Option
Awards ($) |
Non-Equity
Incentive Plan Compensation ($) |
Nonqualified Deferred Compensation ($)
|
All Other Compensation ($)
|
Total ($)
|
|||||||||||||||||||||
|
Neal S. Axelrod
|
18,000 | — | — | — | — | — | 18,000 | |||||||||||||||||||||
|
Joseph Fischer
|
2,000 | — | — | — | — | — | 2,000 | |||||||||||||||||||||
|
Aaron Forem*
|
— | — | — | — | — | — | — | |||||||||||||||||||||
|
Philip Gotthelf
|
3,600 | — | — | — | — | 22,500 | ** | 26,100 | ||||||||||||||||||||
|
Joseph N. Himy***
|
— | |||||||||||||||||||||||||||
|
Scott Korman
|
8,000 | — | — | — | — | — | 8,000 | |||||||||||||||||||||
|
Reuben Rapoport
|
— | — | — | — | — | — | — | |||||||||||||||||||||
|
Franklyn Snitow
|
500 | — | — | — | — | — | 500 | |||||||||||||||||||||
* Mr. Forem resigned in October 2013.
| 29 |
**Mr. Gotthelf received a $2,500 per month expense allowance through September 30, 2013 pursuant to a consulting agreement. See Item 13. Certain Relationships and Related Transactions, and Director Independence.
***Mr. Himy was elected to the board in October 2013.
Employment Agreements
We do not currently have any employment agreements with our executive officers. We do not anticipate having employment contracts with executive officers and key personnel in the future.
Outstanding Equity Awards at Fiscal Year End
The following table reflects that no options awards were granted to either of the named executive officers identified above in the summary compensation table pursuant to an Equity Incentive Plan.
Outstanding Equity Awards at Fiscal Year-End
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
|
Name
|
Number of
securities underlying unexercised options (#) Exerciseable |
Number of securities underlying unexercised options (#) Unexerciseable |
Equity incentive plan awards: number of securities underlying unexercised unearned options (#) |
Option exercise price ($) |
Option expiration date |
Number of shares or units of stock that have not vested (#) |
Market value of shares or units of stock that have not vested ($) |
Equity incentive plan awards: number of unearned shares, units or other rights that have not vested (#) |
Equity incentive plan awards: market or payout value of unearned shares, units or other rights that have not vested ($) |
|||||||||||||||||||||||||||
|
David Mintz
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
|
Steven Kass
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
|
Item 12.
|
The following tables set forth as of March 25, 2014 certain information regarding the ownership of our common stock, $0.01 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:
Security ownership of certain beneficial owners.
|
Name and
Address of Beneficial Owner(1)
|
Amount and
Nature of Beneficial Owner(2)
|
Percent of Class(3)
|
||
|
David Mintz
|
2,630,440
|
51.0%
|
|
(1)
|
The address of Mr. Mintz is c/o Tofutti Brands Inc., 50 Jackson Drive, Cranford, New Jersey 07016. Mr. Mintz has sole voting and/or investment power of the shares attributed to him.
|
|
(2)
|
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 25, 2014 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.
|
|
(3)
|
Based on 5,153,706 shares issued and outstanding as of March 25, 2014.
|
| 30 |
Security ownership of management.
|
Name and
Address of Beneficial Owner(1)
|
Amount and
Nature of Beneficial Owner(2) |
Percent of Class(3)
|
|||
|
David Mintz
|
2,630,440
|
51.0
|
% | ||
|
Steven Kass
|
220,000
|
4.3
|
% | ||
|
Franklyn Snitow
|
47,200
|
*
|
|||
|
Reuben Rapoport
|
41,100
|
*
|
|||
|
Neal S. Axelrod
|
1,000
|
*
|
|||
|
Joseph Fischer
|
0
|
*
|
|||
|
Philip Gotthelf
|
0
|
*
|
|||
|
Joseph N. Himy
|
0
|
*
|
|||
|
Scott Korman
|
0
|
*
|
|||
|
All Executive Officers and Directors as a group (9 persons)
|
2,939,740
|
57.1
|
% | ||
|
*
|
Less than 1%.
|
|
(1)
|
The address of Messrs. Mintz, Kass, Axelrod, Fischer, Gotthelf, Himy and Rapoport is c/o Tofutti Brands Inc., 50 Jackson Drive, Cranford, New Jersey 07016. The address of Mr. Snitow is 575 Lexington Avenue, New York, New York 10017. The address of Mr. Korman is c/o Nashone, Inc., 175 Elm Road, Englewood, NJ 0361. Each of these persons has sole voting and/or investment power of the shares attributed to him.
|
|
(2)
|
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 25, 2014 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.
|
|
(3)
|
Based on 5,153,706 shares issued and outstanding as of March 25, 2014. |
|
Certain Relationships and Related Transactions, and Director Independence.
|
Effective October 1, 2012, we entered into an agreement with our director, Philip Gotthelf, pursuant to which Mr. Gotthelf agreed to provide us with certain consulting and business development services relating to the introduction of our company to potential users, licensees, and co-developers of our products. Under this agreement, which terminated on September 30, 2013, Mr. Gotthelf is entitled to receive a 10% commission on sales if we entered into a licensing agreement with a third party and a 5% commission on sales to a third party that does not enter into a license agreement with us. In addition, we agreed that if Mr. Gotthelf is instrumental in the sale of any of our securities to a third party, we would enter into an agreement to compensate him for such services, based upon the fair market value of such services. No payments were made under such provisions during the year ended December 28, 2013, but in the event such agreements are entered into in the three years subsequent to September 30, 2013, we would be obligated to pay Mr. Gotthelf such commissions for revenues arising out of relationships he initiated. We also agreed to pay Mr. Gotthelf an expense allowance of $2,500 a month and paid him a total of $22,500 in the year ended December 28, 2013 and $7,500 in the year ended December 29, 2012. This agreement was approved by our audit committee and board of directors, with Mr. Gotthelf abstaining from such consideration.
| 31 |
|
Principal Accounting Fees and Services.
|
Fees for independent registered public accounting firms for fiscal 2012 and 2013
Set forth below are the aggregate fees billed for each of the last two fiscal years ended December 28, 2013 and December 29, 2012 for services rendered by EisnerAmper LLP.
|
2013
|
2012
|
|||||||
|
Audit fees
|
$ | 98,000 | $ | 98,000 | ||||
|
Audit-related fees
|
— | — | ||||||
|
Total Audit & Audit-related fees
|
$ | 98,000 | $ | 98,000 | ||||
|
Tax fees
|
— | — | ||||||
|
All other fees
|
— | — | ||||||
|
Total fees
|
$ | 98,000 | $ | 98,000 | ||||
Audit fees consist of fees billed for services rendered for the audit of our financial statements and review of our financial statements included in our quarterly reports on Form 10-Q and services provided in connection with other statutory or regulatory filings. During fiscal 2013 and 2012, we incurred audit fees with EisnerAmper LLP in the amount of $98,000 and $98,000, respectively.
Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and not reported under Audit fees. No such fees were billed in fiscal 2013 or 2012.
Tax fees consist of fees billed for professional services related to the preparation of our U.S. federal and state income tax returns and tax advice. No such fees were billed in 2013 or 2012. The Audit Committee pre-approved all Audit-related fees. After considering the provision of services encompassed within the above disclosures about fees, the Audit Committee has determined that the provision of such services is compatible with maintaining EisnerAmper’s independence.
Pre-approval policy of services performed by independent registered public accounting firm
The Audit Committee’s policy is to pre-approve all audit and non-audit related services, tax services and other services. Pre-approval is generally provided for up to one year, and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The Audit Committee has delegated the pre-approval authority to its chairperson when expedition of services is necessary. The independent registered public accounting firm and management are required to periodically report to the full Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval and the fees for the services performed to date.
| 32 |
|
Exhibits and Financial Statement Schedules.
|
||
|
(a)
|
Financial Statements
|
|
|
|
See Item 8.
|
|
(b)
|
Financial Statement Schedules
|
|
|
None.
|
||
|
(c)
|
Exhibits
|
|
|
3.1
|
Certificate of Incorporation, as amended through February 1986.(1)
|
|
|
3.1.1
|
March 1986 Amendment to Certificate of Incorporation.(2)
|
|
| 3.1.2 | June 1993 Amendment to Certificate of Incorporation.(3) | |
| 3.2 | By-laws.(1) | |
|
4.1
|
Tofutti Brands Inc. 2004 Non-Employee Directors’ Stock Option Plan.(4)
|
|
|
31.1
|
Certification by 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.
|
|
|
101.INS
|
Instance Document*
|
|
|
101.SCH
|
Schema Document*
|
|
| 101.CAL | Calculation Linkbase Document* | |
| 101.DEF | Definition Linkbase Document* | |
| 101.LAB | Labels Linkbase Document* | |
| 101.PRE | Presentation Linkbase Document* |
| 33 |
|
*
|
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for the purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
|
|
(1)
|
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.
|
|
(2)
|
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.
|
|
(3)
|
Filed as an exhibit to the Registrant’s Form 10-KSB for the fiscal year ended January 1, 2005 and hereby incorporated by reference thereto.
|
|
(4)
|
Filed as Appendix B to the Registrant’s Schedule 14A filed May 10, 2004 and hereby incorporated by reference thereto.
|
| 34 |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on March 28, 2014.
|
TOFUTTI BRANDS INC.
|
||
|
(Registrant)
|
||
|
/s/David Mintz
|
||
|
David Mintz
|
||
|
Chairman of the Board and
|
||
|
Chief Executive Officer
|
||
In accordance with the Securities Exchange Act of 1934, this Report has been signed below on March 28, 2014, 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 and Principal Accounting Officer
|
||
|
/s/Neal Axelrod
|
||
|
Neal S. Axelrod
Director
|
||
|
|
||
|
Joseph Fischer
Director
|
||
| 35 |
|
/s/Philip Gotthelf
|
||
|
Philip Gotthelf
Director
|
||
|
/s/Joseph N. Himy
|
||
|
Joseph N. Himy
Director
|
||
|
/s/Scott Korman
|
||
|
Scott Korman
Director
|
||
|
|
||
|
Reuben Rapoport
Director
|
||
|
/s/Franklyn Snitow
|
||
|
Franklyn Snitow
Director
|
||
| 36 |
EXHIBIT INDEX
Exhibit
|
3.1
|
Certificate of Incorporation, as amended through February 1986.(1)
|
|
3.1.1
|
March 1986 Amendment to Certificate of Incorporation.(2)
|
|
3.1.2
|
June 1993 Amendment to Certificate of Incorporation.(3)
|
|
3.2
|
By-laws.(1)
|
|
4.1
|
Tofutti Brands Inc. 2004 Non-Employee Directors’ Stock Option Plan.(4)
|
|
31.1
|
Certification by 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.
|
|
101.INS
|
Instance Document*
|
|
101.SCH
|
Schema Document*
|
|
101.CAL
|
Calculation Linkbase Document*
|
|
101.DEF
|
Definition Linkbase Document*
|
|
101.LAB
|
Labels Linkbase Document*
|
|
101.PRE
|
Presentation Linkbase Document*
|
|
*
|
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for the purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
|
|
(1)
|
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.
|
|
(2)
|
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.
|
|
(3)
|
Filed as an exhibit to the Registrant’s Form 10-KSB for the fiscal year ended January 1, 2005 and hereby incorporated by reference thereto.
|
|
(4)
|
Filed as Appendix B to the Registrant’s Schedule 14A filed May 10, 2004 and hereby incorporated by reference thereto.
|