CARTER LEDYARD & MILBURN LLP
Counselors at Law
2 Wall Street
New York, NY 10005-2072
o
Tel (212) 732-3200
Fax (212) 732-3232
January 20, 2006
VIA EDGAR
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Mr. Karl Hiller
Branch Chief
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Mail Stop 7010
Washington, D.C. 20549-0506
Re: Tofutti Brands Inc.
Form 10-KSB for Fiscal Year Ended January 01, 2005 Filed
April 08, 2005
Form 10-QSB for Thirty Nine Weeks Ended October 01, 2005
Filed November 21, 2005
File No. 001-09009
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Dear Mr. Hiller:
On behalf of our client, Tofutti Brands Inc. (the "Company"), we are
submitting this letter in response to the written comments of the Staff of the
Securities and Exchange Commission (the "Commission"), in a letter to Mr. Steven
Kass, dated December 12, 2005 (the "Comment Letter"), with respect to the
Company's Form 10-KSB for Fiscal Year Ended January 01, 2005 Filed April 08,
2005 (the "Form 10-KSB") and Form 10-QSB for Thirty Nine Weeks Ended October 01,
2005 Filed November 21, 2005 (the "Form 10-QSB").
Pursuant to Rule 472 under the Securities Act of 1933, we are
simultaneously filing Amendments No. 1 to the Company's Annual Report on Form
10-KSB for the year ended January 1, 2005 and Quarterly Report on Form 10-QSB
for the Thirty Nine Weeks Ended October 1, 2005 as requested in the Comment
Letter. We have repeated your numbered comments below and have provided a
response to each comment.
Mr. Karl Hiller
Form 10-KSB for the Fiscal Year Ended January 01, 2005
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Management's Discussion and Analysis, page 15
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Critical Accounting Policies, page 15
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1. We note that you record freight out expense as a selling expense,
excluding this item from both costs of sales and gross profit. Since
your freight out expense appears significant, the guidance in paragraph
8 of EITF 00-10 would ordinarily require that you reflect freight out
expense associated with revenues in your measure of gross profit.
Based on the above comment, management has revised the financial presentation of
the Company's financial statements to include freight out expense as a measure
in calculating gross profit and reclassified such costs as a component of cost
of sales.
Independent Auditors' Report, page F-2
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2. We note the language in your prior auditor's report indicating that it
conducted its audit of your financial statements for fiscal year 2003
in accordance with U.S. GAAS, without any reference to the PCAOB
auditing standards. We understand that by including this report in
your filing, you have obtained permission and a reissuance of the report
from your prior auditor. Under these circumstances, and for auditors
that are registered with the PCAOB, references to auditing standards
generally accepted in the United States should be replaced with
"standards of the Public Company Accounting Oversight Board (United
States)" to comply with the Commission Guidance Regarding the Public
Company Accounting Oversight Board's Auditing and Related Professional
Practice Standard No. 1 (SEC Release Nos. 33-8422; 34-49708; FR-73). If
your prior auditor is no longer registered with the PCAOB, you should
contact us by telephone prior to responding to this comment, as a
different approach will be necessary.
We have determined that the Company's prior auditor, while no longer registered
with the PCAOB, was registered at the time it issued its report. Accordingly,
the auditor has revised its report to indicate that its audit of the financial
statement of the Company for fiscal year 2003 was made in accordance with the
PCAOB auditing standards.
Notes to Financial Statements, page F-7
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Note 1 - Description of the Business and Summary of Significant Accounting
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Policies, page F-7
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Recent Accounting Pronouncements, page F-10
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Mr. Karl Hiller
3. We note that in the third and fourth paragraphs under this heading, you
state "Management does not believe the adoption of this Statement will
not have an effect on the financial statements." Given your disclosure,
it appears management is not able to rule out the possibility of
material effects. Please elaborate on your expectations in this regard.
Also replace the double negative structure with a clear statement of the
evaluation you performed to comply with SAB Topic 11:M.
Based on the fact that the Company has not granted any options to employees in
the last two fiscal years and has granted only a limited number of options to
non-employee directors, the Company does not believe the adoption of this
statement will have a material adverse effect on its financial statement. A
statement to that effect has been included in the annual report. In addition,
the structure of the last sentence has been revised to delete the double
negative.
Note 3 - Stock Options, page F-11
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4. Tell us how you accounted for the stock options that you granted to
non-employees, e.g,, 20,000 non-qualified stock options granted to
non-employee directors in 2004.
The Company followed the intrinsic method of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for the stock options granted to the non-employee
directors.
Note 5 - Contingencies, page F-13
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5. We note your disclosure indicating that you have been served with a
legal complaint by a candy manufacturer, and notified that a former
employee intended to bring an action against you alleging
discrimination and unlawful termination; and that you have provided for
the expense associated with these matters in your income statement for
fiscal 2004. Please disclose the amount accrued, and the amount of
reasonably possible additional loss, if material, to comply with SAB
Topic 5:Y, IRQ 4. If you believe the amounts are not material, you may
submit this information on a supplemental basis for our review.
The requested information has been provided in Note 5.
Form 10-QSB for the Thirty-nine Weeks Ended October 1 2005
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Part II - Other Information, page 18
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Legal Proceedings, page 18
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Mr. Karl Hiller
6. We note your disclosure explaining that you took possession of certain
disputed candy inventory as of April 1, 2005, and that although you
will undertake efforts to sell this inventory, in the event the candy
becomes un-saleable, you will have to write off the value of any candy
left in inventory. Please disclose the value of such candy remaining in
inventory, and the amount of time you have until it is no longer
saleable. It should be clear whether your statement indicating you do
not believe any write-off would have a material adverse effect on the
company, is equivalent to stating that you believe the impact on your
results of operations would not be material in any quarter or fiscal
year.
The disclosure with respect to the legal proceeding has been revised to reflect
that the carrying value of the candy was written down and that the write-off of
such candy would not have a material adverse effect on the Company's operations.
The remaining candy in the inventory after reserves was approximately $87,500 at
October 1, 2005.
I have been authorized by our client to acknowledge that: (i) the
Company is responsible for the adequacy and accuracy of the disclosures in its
filings; (ii) comments by the Staff, or changes to disclosure in response to
comments by the Staff, do not foreclose the Commission from taking any actions
with respect to the Company's filings; and (iii) the Company may not assert
Staff comments as a defense in any proceeding initiated by the Commission or any
person under the federal securities laws of the United States.
If you have any further questions, please do not hesitate to contact me
at 212-238-8605.
Very truly yours,
/s/Steven J. Glusband
Steven J. Glusband
SJG:var
Enclosures
cc: Mr. Steven Kass
Ms. Lily Dang