UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

For the fiscal year ended January 2, 2016December 29, 2018

Commission File Number: 1-9009

TOFUTTI BRANDS INC.

(Exact name of registrant as specified in its charter)

(908) 272-2400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Title of each class
Common Stock, par value $0.01 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [  ] 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 [  ] 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 [  ]

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 [X] No [  ] No [X]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) 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. [  ][X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “large accelerated filer”“smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes [  ] 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: $11,480,860$4,026,741.

As of March 29, 2016,25, 2019, the issuer had 5,153,706shares5,153,706 shares of common stock, par value $0.01, outstanding.

TABLE OF CONTENTS

INTRODUCTION

We are engaged in the development, production and marketing of TOFUTTI® brand non-dairydairy free, vegan frozen desserts, cheeses and other food products. TOFUTTI products are soy-based, non-dairysoy and other vegetable protein-based, vegan, dairy free 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, or the Exchange Act, 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, weWe undertake no obligation to publicly release any update or revision torevise 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-threefifty-two week period ended January 2, 2016December 29, 2018 (fiscal 2015)2018) and the fifty-two week period ended December 27, 201430, 2017 (fiscal 2014)2017).

PART I

Item 1. Business.

GENERAL

We are engaged in the development, production and marketing of TOFUTTI® brand non-dairydairy free, vegan frozen desserts, cheeses and other food products. TOFUTTI products are soy-based, non-dairyvegan, dairy free products which contain no butterfat, cholesterol or lactose.lactose and use soy and other vegetable proteins. Our products are 100% milkdairy 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 soycorn and corn, bothpalm oils, each naturally lower in saturated fat than dairy products. With the exception of Mintz’s Blintzes, all of our products are completely vegan and our soy-cheesevegan cheese products are gluten free as well. In addition, all of our products are certified kosher-parve and all of our soy-cheesevegan 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. 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 non-dairy,dairy free, vegan soy-based food products, primarily cheese products and frozen desserts, and soy-cheese products, to supermarkets, and health food stores, and food service customers 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, 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 non-dairy,dairy free, vegan, soy-based,and kosher-parve products will continue to provide us with a competitive advantage.

TOFUTTI PRODUCT LINE

We offer a broad product line of soy-based, non-dairy products.vegan, dairy free products that use soy or other vegetable based proteins. Our non-dairydairy free products include frozen desserts, soy-based cheeses and spreads, and other frozen food products.

Frozen Desserts

Non-dairy Soy-BasedDairy Free Vegan Cheese Products

Frozen Food Products

Planned 20162019 Product Introductions

Beginning We plan to reintroduce ourTOFUTTI MARRYME® BARS, CHOCOLATE FUDGE TREATS,andTOTALLY FUDGE POPSin the thirdsecond quarter of 2016, we2019. We also plan to introduce a new line of vegan dips and shredded cheddar and mozzarella soy-cheeses, and several new frozen dessert stick novelties.vegan cheeses in the third quarter of 2019.

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 or to warehouse accounts that directly service chain accounts. Such direct accounts include Albertsons, Walmart, Kroger, Roundy’s Supermarkets, King Soopers, Fred Meyer, Restaurant Depot, DeMoulas/Market Basket, Wakefern Food Corp., and Ahold USA. 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, kosher, and food service accounts and all international accounts are handled directly by us. Our products are also sold in approximately thirty other countries.

We currently sell our dairy-free vegan cheese products and frozen dessert products, frozen entrees and soy-cheese products in most major markets in the United States, including Atlanta, Baltimore, Boston, Charlotte, Chicago, Cincinnati, Cleveland, Dallas, Denver, Detroit, Houston, Jacksonville, Kansas City, Los Angeles, Miami, Milwaukee, Minneapolis, Nashville, New York, Orlando, Philadelphia, Phoenix, Portland, Richmond, Salt Lake City, San Diego, 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 whichwhere our customers are able to pick up products.their orders. 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. Currently, we use two warehouses in New Jersey, one for our frozen dessert and food products and one for our cheese products, and one warehouse in northern California for both categories of products.

In addition to ice cream and cheese distributors, our products are handled by most major national and regional natural and/or gourmet specialty distributors in the country. We distribute our products through thirty-five (35)thirty-nine (39) distributors into the national health food market.

Our sales to health food accounts in fiscal 20152018 decreased to approximately $6,081,000,$5,850,000, or 44%45% of total sales, from approximately $6,379,000,$6,916,000, or 44%49% of total sales, in fiscal 2014.2017, due to the decline in frozen dessert sales to health food accounts. Our sales to the kosher market increased slightly to $1,498,000, or 11% of sales, in fiscal 2018, from sales of approximately $1,436,000,$1,364,000, or 10% of sales, in fiscal 2015, from sales of approximately $1,418,000, or 10% of sales, in fiscal 2014.2017.

The following table presents the geographical breakdown of our sales in our largest domestic markets for the last two fiscal years.

During fiscal 2015,2018, we shipped our products to distributors in Australia, Brazil, Canada, Egypt, England, Ireland, Israel, Malaysia, Mexico, Panama, and South Africa, and Trinidad.Africa. Our distributor in England isacts as our master distributor for all of Europe and part of the Middle East, excluding Israel, and sells our products tointo approximately twenty other countries. Sales to foreign distributors decreasedincreased to $2,319,000,$2,333,000, or 17%18% of sales, in fiscal 2015, as compared to $2,495,000,2018, from $1,663,000, or 17%12% of sales, in fiscal 2014.2017. 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.

COMPETITION

TOFUTTI frozen desserts compete with all forms of ice cream products, yogurt-based desserts and other soy-basedplant-based frozen desserts. We believe that we are a leader in the non-dairydairy free frozen dessert product market and offer the most complete line of non-dairydairy free frozen dessert products. Other soy-basedplant-based frozen dessert products are presently being sold throughout the United States by established manufacturers and distributors of ice cream and other frozen dessert products. The ice cream and frozen dessert industry is highly competitive and most companies with whom we compete are substantially larger and have significantly greater resources than us. Our otherAll of our products also face substantial competition from non-dairydairy free and dairy products marketed by companies with significantly greater resources than we have. Similar to our frozen desserts, all our vegan cheese products face stiff competition within their category from both dairy cheese products and plant-based cheese products.

In most product categories, we compete not only with widely advertised branded products, but also with generic and private label products that are generally sold at lower prices. Competition in our product categories is based on product innovation, product quality, price, brand recognition and loyalty, effectiveness of marketing, promotional activity, and the ability to identify and satisfy consumer preferences. Our market share and ability to grow our revenue could also be adversely impacted if we are not successful in introducing innovative products in response to changing consumer demands or by new product introductions of our competitors. If we are unable to build and sustain brand equity by offering recognizably superior product quality, we may be unable to maintain premium pricing over competitive products. We believe that we are able to compete effectively due to our ability to offer an array of non-dairyvegan cheese products, dairy free frozen dessert, soy-cheesedesserts, and other food products that contain no butterfat, cholesterol or lactose and are 100% milk-free,dairy free, yet offer the same texture and full-bodied taste as their dairy counterparts.

PRODUCT DEVELOPMENT

All of our current products were developed by us 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 20152018 and 2014,2017, our product development expenses were approximately $523,000$410,000 and $641,000,$393,000, 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-cheesevegan 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 sixfive 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 non-dairydairy free vegan cheeses and dairy free frozen desserts, and non-dairy soy-based 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.

DuringFor the years ended January 2, 2016December 29, 2018 and December 27, 2014,30, 2017, we purchased approximately 24%49% and 26%41% of our finished goods, respectively, from Franklin Foods, our co-packer for ourBETTER THAN CREAM CHEESE, WHIPPED BETTER THAN CREAM CHEESE, SOUR SUPREME, and BETTER THAN RICOTTA products, and 20% and 17%, respectively, of our finished goods from Ice Cream Specialties and Luke’s Ice Cream, our former and current frozen dessert novelty co-packer, and 29% and 28% of our finished goods, respectively, from Franklin Foods, ourBETTER THAN CREAM CHEESE,SOUR SUPREME, and BETTER THAN RICOTTA co-packer.co-packers.

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.

In September 2016, we were notified by Ice Cream Specialties, the co-packer of our frozen dessert stick novelties, Tofutti Cuties, and Yours Truly Cones, that they would cease manufacturing those products by the end of January 2018. In April 2018 we began production of our Tofutti Cuties at Luke’s Ice Cream, located in Florida. Luke’s Ice Cream began manufacturing Yours Truly Cones in November 2018 and will begin the manufacture of our frozen dessert novelty bars in the second quarter of 2019.

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.certification and ongoing fees throughout the year for supervisory services for each production run. 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 ourBETTER THAN CREAM CHEESE,WHIPPED BETTER THAN CREAM CHEESE, SOUR SUPREME andBETTER THAN RICOTTA products and at Whitehall Specialties, the co-packer of our soy-cheesevegan 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. All TOFUTTI soy-cheesevegan cheese products meet the requirements for certification as halal.

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.

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. Additionally, many of our major customers now require that any food products that they purchase be produced in Safe Quality Food, or SQF, manufacturing facilities. The SQF program is recognized by the Global Food Safety Initiative and provides a rigorous system to manage food safety risks and provide safe products use by companies in the food industry. All of our current co-packers are SQF certified or are in the process of becoming certified.

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, our distributors and our 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 January 2, 2016, weWe employed nine persons on a full-time basis as compared to twelvein fiscal 2018 and eight persons on a full timefull-time basis on December 27, 2014.in fiscal 2017. We do not have any collective bargaining agreements with our employees.

Item 1A. Risk Factors.

Investing in our common stock involves a high degree of risk and uncertainty. You should carefully consider the risks and uncertainties described below before investing in our common stock. If any of the following risks actually occurs, our business prospects, financial 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.

Risks Related to Our Business

We may not be able to attain profitabilitymaintain profitable operations in the future. To the extent that we continue to incur operating losses, weWe may not have sufficient working capital to fund our operations in the future.

Our sales have not rebounded since the loss in 2011 of our then largest customer, when it discontinued stocking branded goods. We continueWhile we returned to struggle to replace those sales. The loss of revenues from this former customer has affected our profitability. We had net losses of $163,000 in the year ended December 27, 2014 and $643,000 in the year ended January 2, 2016. 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.

fiscal 2016 and maintained profitable operations in 2017 and 2018, we incurred losses in prior years. As of January 2, 2016,December 29, 2018, we had $55,000$558,000 in cash and cash equivalents and our working capital was $2,003,000.$3,896,000. Our cash and cash equivalents decreased from $1,414,000 as of December 29, 2018 as a result of increases in accounts receivable and inventory and decreases in accounts payable and accrued expenses. The lack of sufficient working capital couldhas negatively impactimpacted 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.

Interruptions in the supply of products from our co-packers and suppliers could adversely affect our revenues.

We depend on a limited number of suppliers for ingredients, packaging materials and the production of our products. We do not produce any of our own products. For the year ended December 29, 2018, we purchased approximately 49% of our finished goods from Franklin Foods, including ourBETTER THAN CREAM CHEESE, WHIPPED BETTER THAN CREAM CHEESE, SOUR SUPREME,andBETTER THAN RICOTTAproducts, and purchased approximately 20% of our finished goods from Ice Cream Specialties and Luke’s Ice Cream, our former and current frozen dessert novelty co-packers.

In September 2016, we were notified by Ice Cream Specialties, the then co-packer of our frozen dessert stick novelties, Tofutti Cuties, and Yours Truly Cones, that they would cease manufacturing those products by the end of January 2018. In April 2018 we began production of our Tofutti Cuties at Luke’s Ice Cream, located in Florida. Luke’s began manufacturing Yours Truly Cones in November 2018 and we expect that they will initiate the manufacture of our frozen dessert novelty bars in the second quarter of 2019. Our frozen dessert pints are produced by Leiby’s Dairy in Pennsylvania. Any future disruption in supply could have a further material adverse effect on our company.

We have little control over the suppliers of ingredients to our co-packers. Disruptions in these relationships may reduce our sales and revenues. Overall difficulty of suppliers meeting product demand, interruptions in the supply chain, obstacles or delays in the process of renegotiating or renewing agreements with preferred suppliers, financial difficulties experienced by suppliers, or the deficiency, lack, or poor quality of alternative suppliers could adversely impact our sales which, in turn, would adversely affect our business and operating results. We believe that, if necessary, we could obtain available alternative sources of supply for each of our products. Depending on the product, that might entail using more than one source of supply.

Our operations may be adversely affected by failure to maintain or renegotiate distribution, supply or manufacturing agreements on favorable terms.

We have a number of distribution, supply and co-packing agreements for our supplies and products. These agreements vary depending on the particular supply and/or product. There can be no assurance that we will be able to renew these agreements on favorable terms or that these agreements will not be terminated. Termination of these agreements or failure to renew these agreements on favorable terms could have a negative effect on our results of operations and financial condition.

We are indebted to our Chairman and Chief Executive Officer pursuant to a promissory note which is secured by substantially all of our assets. Any failure to meet our obligations under the note could materially harm our business, financial condition and results of operations.

On January 6, 2016, we received a $500,000 loan from Mr. David Mintz, our Chairman of the Board and Chief Executive Officer of the company.Officer. The loan which expires on December 31, 2017, bears interest at 5% per annum and may be prepaid in whole or in part at any time without premium or penalty. The loan is secured by substantially all of our assets and is convertible into shares of our common stock at a conversion price of $4.01 per share.share, at the option of the holder. Initially due on December 31, 2017, the loan has been extended until December 31, 2020.

In the event we are unable to repay the loan, or if there is an event of default, without any action on the part of Mr. Mintz, the interest rate will increase to 12% per annum and the entire principal and interest balance under the loan, and all of our other obligations under the loan, will be immediately due and payable, and Mr. Mintz will be entitled to seek and institute any and all remedies available to him.Any failure to meet our obligations under the note could materially harm our business, financial condition and results of operations.

Successful customer relationships are vital to our business and continued growth.

We must maintain strong relationships with our existing customers and build relationships with new customers in order to ensure our products are well presented to our consumers and available for purchase in major markets. The strength of our customer relationships also affects our ability to obtain pricing and competitive trade terms. Failure to maintain strong relationships with customers could negatively impact our terms of business with affected customers and reduce the availability of our products to consumers.

We dependrely on a fewlimited number of key distributors for a significant portion ofexecutives to manage our sales.business.

A significant portionOur success is significantly dependent on the services of our sales are to several key distributors, which are large distribution companies with numerous divisionsDavid Mintz (age 87), Chief Executive Officer, and subsidiaries who act independently. Such distributors as a group accounted for 44%Steven Kass (age 67), Chief Financial Officer. The loss of our net sales in the fiscal year ended January 2, 2016 and 43%services of our net sales for the fiscal year ended December 27, 2014. Although we believe that the business associated with anyeither 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, whichthese persons could have a material adverse effect on our business and results of operations.

We dependAs a branded goods business, our success depends on several key suppliers to produce our products.

We do not produce anythe value and relevance of our own products. During the years ended January 2, 2016brand and December 27, 2014, we purchased approximately 24%products to consumers and 26%, respectively, of our finished goods from Ice Cream Specialties, our frozen dessert novelty co-packer, and 29% and 28% of our finished goods, respectively, from Franklin Foods, ourBETTER THAN CREAM CHEESE,SOUR SUPREME, andBETTER 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.ability to innovate and remain competitive.

Consumer tastes, preferences and behaviors are constantly changing and our ability to anticipate and respond to these changes and to continue to maintain loyalty to our brand and products is vital to our business. We are dependent on creating innovative products that continue to meet the needs of our consumers. If we are unable to innovate effectively, our sales or margins could be materially adversely affected.

The successful introduction of innovative products and packaging 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, and continued acceptance of our current products, which may be accompanied by significant promotional expenditures, is likely to have an important impact on our future financial results.

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 Food Safety Modernization 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.

Our abilityWe may not be able to compete effectively in the highly competitive frozen dessert and health food markets may affect our operational performance and financial results.markets.

The frozen dessert, non-dairydairy free 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-dairydairy free cheese food categories in supermarkets and other retail food outlets. Competition in our product categories is based on product innovation, product quality, price, brand recognition and loyalty, effectiveness of marketing, promotional activity, and the ability to identify and satisfy consumer preferences. Our market share and ability to grow our revenue could also be adversely impacted if we are not successful in introducing innovative products in response to changing consumer demands or by new product introductions of our competitors. If we are unable to build and sustain brand equity by offering recognizably superior product quality, we may be unable to maintain premium pricing over competitive products.

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 84), Chief Executive Officer, and Steven Kass (age 64), 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.

The principal raw materials that we use are commodities that experience price volatility caused by external conditions such as weather, product scarcity, limited sources of supply, commodity market fluctuations, currency fluctuations, and changes in governmental agricultural and energy policies and regulations. Commodity price changes may result in unexpected increases in raw material, packaging, and energy costs. 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 downturnsconditions adversely affecting consumer discretionary spending may negatively impact our business and disruptions in financial markets can adversely affectoperating results.

We believe that our revenues and profitability are strongly correlated to consumer discretionary spending, which is influenced by general economic conditions, unemployment levels, and the availability of discretionary income. In an economic downturn our business and results of operations.

Our results of operations cancould 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.affected.

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. 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 non-dairy frozen desserts. In addition, salesSales 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 20152018, approximately 17%18% of our revenues were from international sales. Although we continueintend 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:

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.dollars. Therefore, our future export sales could be adversely affected by an increase in the value of the U.S. dollar, which could increase the local currency price of our products. 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.

Incidents involving food-borne illnesses, food tampering, or food contamination involving our products or our supply chain could create negative publicity and significantly harm our operating results.

While we and our co-packers dedicate substantial resources to food safety matters to enable customers to enjoy safe, quality food products, food safety events, including instances of food-borne illness (such as salmonella or E. Coli), have occurred in the food industry in the past, and could occur in the future. Instances or reports, whether true or not, of food-safety issues, such as food-borne illnesses, food tampering, food contamination or mislabeling, either during the growing, manufacturing, packaging, storing, or preparation of products, have in the past severely injured the reputations of companies in the frozen desert and dairy sectors and could affect us as well. Any report linking us, our suppliers or co-packers to food-borne illnesses or food tampering, contamination, mislabeling, or other food-safety issues could damage the value of our brands immediately and severely hurt sales of our products and possibly lead to product liability claims, litigation (including class actions), or other damages. In addition, food safety incidents, whether or not involving our brands, could result in negative publicity for the industry or market segments in which we operate. Increased use of social media could create and/or amplify the effects of negative publicity. This negative publicity may reduce demand for our products.

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.

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 theirour 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 January 2, 2016December 29, 2018 because of the following material weaknesses in internal controls over financial reporting:

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 announced exploration of strategic alternatives has not resulted in any transaction, and speculation and uncertainty regarding the outcome of any further exploration of strategic alternatives may adversely impact our business.

We have received

On September 30, 2016, we announced that we had engaged a noticefinancial advisor and were pursuing strategic alternatives to enhance shareholder value, including a possible sale or other form of non-compliancebusiness combination. In August 2017, we announced that we had terminated our engagement with a continued listing standard from the NYSE MKT for our common stock.financial advisor. While we are continuing to pursue value-enhancing initiatives, there can be no assurance that any transaction will be consummated. The process of exploring strategic alternatives involves the dedication of significant resources and the incurrence of significant costs and expenses. If we are unable to avoid the delisting of our common stock from the NYSE MKT, it could have a substantial negative effect on our liquidity and results of operations.

On April 1, 2015, we received a notice from the NYSE MKT LLC (the “NYSE MKT”) indicating that we did not meet continued listing standards of the NYSE MKT. We are not in compliance with Section 1003(a)(ii) of the NYSE MKT Company Guide (the “Company Guide”) because we reported stockholders’ equity of $2.6 million as of December 27, 2014 and had net losses in in three out of our four most recent fiscal years. As a result, we became subjectmitigate these or other potential risks related to the procedures and requirementsuncertainty caused by our exploration of Section 1009 of the Company Guide.

We submitted a plan of compliance to the NYSE MKT on April 28, 2015 addressing how we intend to regain compliance and on June 23, 2015, wewere granted an extension until October 1, 2016 to regain compliance with the continued listing standards of the NYSE MKT. We will be subject to periodic review by the staff of NYSE Regulation, Inc. during the extension period. Failure to make progress consistent with the planstrategic alternatives, it may disrupt our business or to regain compliance with the continued listing standards by the end of the extension period could result in our being delisted from theNYSE MKT.

If our common stock ultimately were to be delisted for any reason, it could negatively impact us by (i) reducing the liquidity and market price of our common stock; (ii) reducing the number of investors willing to hold or acquire our common stock, which could negativelyadversely impact our ability to raise equity financing;revenue, operating results, and (iii) limiting our ability to use a registration statement to offer and sell freely tradable securities, thereby preventing us from accessing the public capital markets.financial condition.

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:

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 tocontrol 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.

Trading on the OTCQB tier of the OTC Markets may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.

Since October 24, 2016 our common stock has been quoted on the OTCQB tier of the electronic quotation system operated by OTC Markets. Trading in stock quoted on the OTC Markets is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Markets is not a stock exchange, and trading of securities on the OTC Markets is often more sporadic than the trading of securities listed on a quotation system like NASDAQ or a stock exchange like the NYSE MKT. Accordingly, shareholders may have difficulty reselling any of their shares and the lack of liquidity may negatively impact our ability to pursue strategic alternatives.

Penny stock rules will limit the ability of our stockholders to sell their stock.

The Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors.” The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

The Financial Industry Regulatory Authority, or FINRA, has adopted sales practice requirements which may also limit a shareholder’s ability to buy and sell our stock.

In addition to the penny stock rules described above, FINRA has adopted rules that require that, in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative, low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative, low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for its shares.

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:

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.

We do not intend to pay cash dividends.

Our policy is to retain earnings, if any, for use in our business and, for this reason, we do not intend to pay cash dividends on our shares of common stock in the foreseeable future.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

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,in 1999, but we continue to occupy the premises under the terms of that agreement, subject to a six month notification period forfrom 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 $82,000 and $81,000 in both fiscal 20152018 and fiscal 2014, respectively.2017. 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 $513,000$448,000 and $523,000$507,000 during fiscal 20152018 and 2014,2017, respectively.

Item 3. Legal Proceedings.

We are not a party to any material litigation.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock was listed on the American Stock Exchange, or the AMEX, on October 29, 1985 and has traded on the AMEX or its successorssuccessor, NYSE MKT, under the symbol TOF since such time. As a resultuntil October 24, 2016 when our common stock began to be quoted on the OTCQB tier of the merger ofelectronic quotation system operated by OTC Markets under the NYSE and AMEX, it currently trades on the NYSE MKT. symbol TOFB.

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:

The closing price for our common stock on March 28, 2016,25, 2019, as reported on the NYSE MKT,OTCQB, was $3.20.$1.65.

Holders of Record

As of March 25, 2016,2019, there were approximately 426356 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 632 additional shareholders.

Dividends

We have not paid and have no present intention of paying cash dividends on our common stock in the foreseeable future.

2014 Equity Compensation PlansIncentive Plan

Our shareholders adopted our 2014 Equity Incentive Plan (the “Plan”) on June 10, 2014. As of January 2, 2016,December 29, 2018, we had issued 80,000 non-qualified stock option awards under the Plan.

2014 Equity Incentive Plan

The Plan will expire on June 9, 2024. No option awards were granted in the two fiscal years ended December 29, 2018. The Plan provides for grants of various types of awards (“Awards”) that are designed to attract and retain highly qualified employees and directors who will contribute to the success of the company and to provide incentives to participants in this Plan that are linked directly to increases in shareholder value which will, therefore, inure to the benefit of all of our shareholders.

The Plan will expire on June 9, 2024. The Plan makes 250,000 shares of our common stock available for Awards under the Plan. The Plan also permits performance-based Awards paid under the Plan to be tax deductible to the company as “performance-based compensation” under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).

Administration

The Plan will beis administered in accordance with the requirements of Section 162(m) of the Code (but only to the extent necessary and desirable to qualify Awards under the Plan as “performance-based compensation” under Section 162(m)) and, to the extent applicable, Rule 16b-3 under the Securities Exchange Act of 1934 (“Rule 16b-3”), by the Board or, at the Board’s sole discretion, by the compensation or any other committee of the Board, as appointed by the Board (the “Administrator”).

Eligible Participants

Incentive stock options, or ISOs, may be granted only to employees (including officers and directors who are also employees) of the company. Options and stock appreciation rights may be granted only to eligible participants as to whom company shares constitute “service recipient stock,” within the meaning of the regulations under Section 409A of the Code. All other Awards may be granted to employees, officers and directors of the company. An Eligible Participant may be granted more than one Award under the Plan.

The Plan allows us to grant ISOs to our employees and non-statutory stock options, stock appreciation rights, restricted stock, performance grants, stock bonuses and any other types of equity-based awards to our employees, officers and directors. We believe that our ability to grant this broad array of equity incentives is critical to secure, retain and motivate our employees and directors and to respond to market conditions and best practices, while at the same time balancing such issuances and the potential dilution to our stockholders.

Sales of Unregistered Securities

There were no sales of unregistered securities during fiscal 2015.2018.

Purchase of Equity Securities By the Issuer and Affiliates

We did not purchase any shares of our common stock in the thirteen weeks ended January 2, 2016December 29, 2018 (the fourth quarter of fiscal 2015)2018).

Item 6. Selected Financial Data.

Not applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following is management’s discussion and analysis of certain significant factors which have affected our financial position and operating results during the periods included in the accompanying audited financial statements.

Critical Accounting Policies

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The policies discussed below are considered by management to be critical to an understanding of our financial statements because their application places the most significant demands on management’s judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. For all of these policies, management cautions that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment.

Revenue RecognitionRecognition..We We primarily sell non-dairy soy-based cheeses, frozen desserts and other food products. We recognize revenue when goods are shipped fromcontrol over the products transfers to our production facilities or outside warehouses and the following four criteria have been met: (i)customers, which generally occurs when the product has beenis shipped or picked up from one of our distribution locations by the customer. We account for product shipping, handling and insurance as fulfillment activities with revenues for these activities recorded within net revenue and costs recorded within cost of sales. Revenues are recorded net of trade and sales incentives and estimated product returns. Known or expected pricing or revenue adjustments, such as trade discounts, rebates or returns, are estimated at the time of sale. We base these estimates of expected amounts principally on historical utilization and redemption rates. Estimates that affect revenue, such as trade incentives and product returns, are monitored and adjusted each period until the incentives or product returns are realized.

Key sales terms, such as pricing and quantities ordered, are established on a frequent basis such that most customer arrangements and related incentives have a one year or shorter duration. As such, we do not capitalize contract inception costs and we capitalize product fulfillment costs in accordance with U.S. GAAP and our inventory policies. We generally do not have no significant remaining obligations; (ii) persuasive evidenceany unbilled receivables at the end 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 freight out expense in cost of goods sold. The amount of freight costs charged to customers has not been material to date.a period.

Accounts Receivable.The. 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 and reserve for sales promotions. 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.

Fixed Assets.Fixed assets are depreciated and amortized over the estimated useful life of the related asset. Fixed assets are stated at cost, less accumulated depreciation. The automobile is being depreciated on a straight line basis over a period of five years.

Inventory.Inventory is stated at lower of cost or marketnet realizable value 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.

Fixed Assets. During fiscal 2018, we spent $121,000 on equipment to be used at our new co-packer’s frozen dessert facility. We anticipate that this equipment will begin being used in connection with the production of frozen stick novelty items in the second quarter of 2019.Depreciation will be provided by charges to income using the straight-line method over the useful life of ten years.

Income Taxes.The. 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 allowedsustained 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.sheets.

Stock Based Compensation.We follow the provisions of ASC 718Share-Based Payment. We use the Black-Scholes option pricing model to measure the estimated fair value of the options under ASC 718.718. Stock-based compensation expense is recognized over the requisite service period.

Recent Accounting Pronouncements

Our company considers the applicability and impact of all Accounting Standard Updates (“ASUs”). ASUs not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on our balance sheets or statements of operations.

In February 2016, the FASB issued guidanceestablished Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which amends the existing accounting standards for lease accounting, including requiringrequires lessees to recognize most leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; ASU No. 2018-11, Targeted Improvements; and ASU No. 2018-20, Narrow-Scope Improvements for Lessors. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on theirthe balance sheets and making targeted changes to lessor accounting. This Accounting Standards Update, or ASU,sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The new standard was effective for fiscal years beginning afterour company on December 15, 2018 including interim periods within those fiscal years. Early adoption is permitted. The new leases standard requires a30, 2018. A modified retrospective transition approach foris required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into after,between the date of initial application with an option to use certain transition relief. We are currently evaluatingand the impact of adoptingeffective date. The entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative periods. We adopted the new standard on December 30, 2018 and used the effective date as our date of initial application. Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided for dates and periods before December 30, 2018.

The new standard provides several optional practical expedients in transition. We elected the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs.

The new standard also provides practical expedients for an entity’s ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We did not elect the practical expedient to not separate lease and non-lease components for any of our leases.

We expect that this standard will have a material effect on our financial statements.

In November 2015, While we continue to assess all the FASB issued guidance that eliminateseffects of adoption, we currently believe the current requirement for organizationsmost significant effects relate to present deferred tax liabilities and assets as current and non-current in a classified balance sheet. Instead, organizations will be required to classify all deferred taxthe recognition of new ROU assets and lease liabilities as noncurrent. The amendments apply to all organizations that present a classifiedon our balance sheet. This amendment is effectivesheet for our company for financial statements issued for annual periods beginning after December 15, 2016real estate and interim periods within those annual periods. We have not yet adopted this guidance but do not expect the adoption of this guidance will have a material impact onequipment operating leases and providing significant new disclosures about our financial statements and related disclosures.

In July 2015, the FASB issued guidance which changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. ASU 2015-11 defines net realizable value as estimated selling pricings in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new guidance must be applied on a prospective basis and is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted.leasing activities. We do not expect the adoption of this guidance will have a material impact onsignificant change in our financial statementsleasing activities between now and related disclosures.adoption.

We currently expect to recognize additional operating liabilities of approximately $359,000 with corresponding ROU assets of the same amount, based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases.

Effective December 31, 2017, we adopted Financial Accounting Standards Board (“FASB”) Topic 606, Revenue from Contacts with Customers (“ASC 606”). In 2015,accordance with ASC 606, it was determined that the standard only impacted enhanced disclosure regarding revenue recognition, including disclosures of revenue streams, performance obligations, variable consideration and the related judgments and estimates necessary to apply the new standard.

ASC 606 was applied using the modified retrospective method. There was no cumulative effect of the initial application to be recognized as an adjustment to opening retained earnings at December 31, 2017. Accordingly, comparative periods have not been adjusted and continue to be reported under FASB issued an accounting standards update which deferredASC Topic 605, Revenue Recognition (“ASC” 605).

We generate revenues from the effective datedelivery of ASU 2014-09 for all entities by one year. The update applies to all companies that enter into contracts with customers to transferTofutti branded plant-based cheeses, frozen desserts and other food products. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration expected to be received in exchange for those goods or services. We recognizes revenue when obligations under the terms of a contract with customers are satisfied; generally, this occurs with the transfer of control of our products. Revenue is measured as the amount of net consideration expected to be received in exchange for transferring products. Revenue from product sales is governed primarily by purchase orders (“contracts”) which specify quantity and is effective for public companies for interimproduct(s) ordered, shipping terms and annual reporting periods beginning after December 15, 2017. Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We are currently evaluating the requirements of this update and have not yet determined its impact on our financial statements.

In August, 2014, the FASB issued guidance that requires management to evaluate whether there are conditions or events that raisesubstantial doubt about an entity’s ability to continue as a going concern. If such conditions or events exist, disclosures are required that enable userscertain aspects of the financial statementstransaction price including discounts. Contracts are at standalone pricing that is governed by a pricing list. A performance obligation is a promise in a contract to understandtransfer a distinct service to the naturecustomer. The performance obligation in these contracts is determined by each of the conditions or events, management’s evaluationindividual purchase orders and the respective stated quantities, with revenue being recognized at a point in time when obligations under the terms of the circumstances and management’s plans to mitigateagreement are satisfied. This generally occurs with the conditionstransfer of control when the product is shipped or events that raise substantial doubt about the entity’s ability to continue as a going concern. We will be required to perform an annual assessmentin most cases, picked up from one of our ability to continue as a going concern when this standard becomes effective for us for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016; however,distribution locations, by the adoption of this guidance is not expected to impact our financial position, results of operations or cash flows.customer.

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,lack of sufficient working capital, dependence on 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.business, and competition. For further discussion of the factors affecting our results of operations, see “Risk Factors.”

We may not be able to attainmaintain profitability in the future and may not have sufficient working capital to fund our operations in the future.

Our salesWhile our operations have not rebounded sincebeen profitable for the losslast three fiscal years, we incurred losses in 2011 of our then largest customer, when it discontinued stocking branded goods. Since mid-2011, 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, $908,000 in the year ended December 28, 2013, $163,000 in the year ended December 27, 2014, and $643,000 in the year ended January 2, 2016. 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 January 2, 2016, we had $55,000 inyears. Our cash and cash equivalents anddecreased to $558,000 while our working capital was $2,003,000.increased to $3,896,000 as of December 29, 2018. The lack of sufficient working capital in the future 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 fundswe are unable to maintain revenues, we may not available to us,be able sustain profitable operations in the future or generate positive cash flows from our business, and results of operations and financial condition will be adversely affected.operations.

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 44%42% and 43%47% of our net sales for the fiscal years ended January 2, 2016December 29, 2018 and December 27, 2014,30, 2017, respectively. 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 keyInterruptions in the supply of products from our co-packers and suppliers to producecould adversely affect our products.revenues.

We depend on a limited number of suppliers for ingredients, packaging materials and the production of our products. We do not produce any of our own products. DuringFor the yearsyear ended January 2, 2016 and December 27, 2014,29, 2018, we purchased approximately 24% and 26%, respectively,49% of our finished goods from Franklin Foods, our co-packer ofBETTER THAN CREAM CHEESE, WHIPPED BETTER THAN CREAM CHEESE, SOUR SUPREME,andBETTER THAN RICOTTAproducts. We purchased 20% of our finished goods in fiscal 2018 from Ice Cream Specialties and Luke’s Ice Cream, our primaryformer and current frozen dessert novelty co-packers.

In September 2016, we were notified by Ice Cream Specialties, the co-packer of our frozen dessert stick novelties, Tofutti Cuties, and Yours Truly Cones, that they would cease manufacturing those products by the end of January 2018. In April 2018 we began production of our Tofutti Cuties at our new frozen dessert novelty co-packer, Luke’s Ice Cream, located in Florida. Luke’s began manufacturing Yours Truly Cones in November 2018 and 29% and 28%we expect them to initiate the manufacture of our finished goods, respectively, from Franklin Foods, ourBETTER THAN CREAM CHEESE,SOUR SUPREME, andBETTER THAN RICOTTA co-packer. Although we believe that there will be no problem in continuing to obtain finished goods from our current or alternative sourcesfrozen dessert novelty bars in the second quarter of 2019. Our frozen dessert pints are produced by Leiby’s Dairy in Pennsylvania. Any future any disruption in supply could have a material adverse effect on our company.

We have little control over the suppliers of ingredients to our co-packers. Disruptions in these relationships may reduce our sales and revenues. Overall difficulty of suppliers meeting product demand, interruptions in the supply chain, obstacles or delays in the process of renegotiating or renewing agreements with preferred suppliers, financial difficulties experienced by suppliers, or the deficiency, lack, or poor quality of alternative suppliers could adversely impact our sales which, in turn, would adversely affect our business and operating results. We believe that, if necessary, we could obtain available alternative sources of supply for each of our products. Depending on the product, that might entail using more than one source of supply.

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 87), our Chief Executive Officer, and Steven Kass (age 67), our 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.

Competition.

The dairy free, vegan frozen dessert non-dairy cheeseand 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-dairydairy free 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 84), Chief Executive Officer, and Steven Kass (age 64), 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 January 2, 2016December 29, 2018 Compared with Fiscal Year Ended December 27, 201430, 2017

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-threefifty-two week period ended January 2, 2016December 29, 2018 (fiscal 2015)2018) and the fifty-two week period ended December 27, 201430, 2017 (fiscal 2014)2017).

Net sales for the fiscal year ended January 2, 2016December 29, 2018 were $13,764,000,$13,066,000, a decrease of $589,000,$1,041,000, or 4%7%, from net sales of $14,353,000$14,107,000 for the fiscal year ended December 27, 2014.30, 2017. Sales inof our frozen dessert and frozen food product linelines decreased to $3,866,000$2,255,000 in fiscal 20152018 from $4,386,000$2,870,000 in fiscal 2014.2017. Our frozen dessert business continues to be negatively impacted by the overall sluggishness ofsluggish sales in the ice cream category. Additionally, in September 2016, Ice Cream Specialties, the co-packer who manufactured our frozen dessert novelty products, which included Tofutti Cuties, Yours Truly Cones and stick novelties, notified us that they would completely cease manufacturing these products by the end of January 2018. The co-packer ceased manufacturing our stick novelties and Yours Truly Cones in June 2017. The unavailability of these items negatively impacted sales of our frozen desserts. Sales of soy-cheesevegan cheese products decreased to $9,311,000$10,811,000 in fiscal 20152018 from $9,446,000$11,237,000 in fiscal 2014, primarily as2017 due to a resultFDA industry-wide mandate that by June 2018 it would no longer be permissible to make and sell food products using partially hydrogenated fats. It took several months to transition our accounts purchasing those items to our other version ofincreased the Better Than Cream Cheese and Sour Supreme, which negatively impacted sales. All such accounts were successfully transitioned in 2018, and we expect sales promotion and allowance expense in support of our soy cheese product sales. Sales of our frozen food entrée products increased to $587,000 in fiscal 2015 from $521,000 in fiscal 2014. Sales of frozen food entrée products increased primarily as a result ofan increase in Pizza Pizzaz sales.return to their former levels.

Our gross profit in the year ended January 2, 2016December 29, 2018 decreased by $652,000$636,000 to $3,598,000$4,104,000 from $4,250,000,$4,740,000, reflecting the reductiondecrease in sales.sales and gross profit percentage. Our gross profit percentage for the year ended January 2, 2016December 29, 2018 decreased to 26%31% from 30%34% for the year ended December 27, 2014. Our30, 2017. The decline in our gross profit percentage was negatively impacted bydue to initial start-up costs incurred in connection with re-starting the production of Tofutti Cuties and Yours Truly Cones with a $482,000 increase in salesnew co-packer. Sales promotion and allowance in the 2015 fiscal year. We are currently reviewing these allowance programs and where necessary have eliminated these programs in fiscal 2016 where the impact on sales does not justify the cost. Freight out expense decreased to $857,000 for the year ended January 2, 2016 compared with $959,000was $1,513,000 for the year ended December 27, 2014 due29, 2018 compared to $1,529,000 for the decrease in sales. Freight out cost as a percentage of sales decreased slightlyfrom 6.7% in 2014 to 6.2% in 2015. The decrease in freight out expense in 2015 was primarily the result of the lower level of fuel prices during the second half of 2015.year ended December 30, 2017. We anticipate that our freight cost as a percentage of sales in fiscal 2016 will approximate the 2015 percentages should fuel costs remain steady.We also intend to increase gross profitability in future periods through selective price increases and selective ingredient replacements to lower costlower-cost alternatives.

Freight out expense decreased to $918,000 for the year ended December 29, 2018 compared with $960,000 for the year ended December 30, 2017 due to the reduction in sales. Freight out cost as a percentage of sales in fiscal 2018 and fiscal 2017 was approximately 7%.

Selling and warehousing expenses increaseddecreased by $78,000,$159,000, or 5%10%, to $1,550,000$1,357,000 for fiscal 20152018 from $1,472,000$1,516,000 in fiscal 2014.2017. This increasedecrease was caused primarily by an increaseattributable to decreases in commission expense of $108,000, outside warehouse rental expense of $59,000 and in payroll expense of $13,000, bad debt expense of $87,000,$25,000. These decreases were partially offset by increases in travel, entertainment, auto and meetings and conventions expense of $15,000. These increases were partially offset by decreases$23,000, and messenger expense of $9,000. The decrease in commission expense of $8,000, travel, entertainment and auto expense of $14,000 and outside warehouse rental expense of $10,000.in fiscal 2018 was largely attributable to the decline in sales. We anticipate that selling expenses as a percentage of sales in 2016 shouldfiscal 2019 will be lower compared with our expensescomparable to or slightly less than in 2015.fiscal 2018.

Marketing expenses decreased in fiscal 20152018 by $196,000,$19,000, or 35%6%, to $357,000$294,000 from $553,000$313,000 in fiscal 20142017 due to decreasesa decrease in advertising expense of $28,000, public relations expense of $49,000, promotion expense of $52,000, and$42,000, which was partially offset by an increase in artwork and plates expense of $69,000.$22,000. We expect that marketing expenses to decline in fiscal 2016 compared2018 will be comparable to or slightly less than our expenses in fiscal 2015 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 or an outside marketing consultant.2017.

Product development expenses decreasedincreased by $118,000,$17,000, or 18%4%, to $523,000$410,000 in fiscal 20152018 from $641,000$393,000 in fiscal 2014.2017. The decreaseincrease was caused primarily by a decreaseattributable to an increase in payroll expense of $113,000.$34,000, which was partially offset by decreases in professional fees and outside services expense of $10,000, travel, entertainment and auto expense of $11,000, and lab costs and supplies expense of $5,000. We expect that product development costs towill remain constant or decline slightly in fiscal 2016.2019.

General and administrative expenses increaseddecreased by $73,000,$97,000, or 4%5%, to $1,888,000$1,671,000 for fiscal 2015 as compared with $1,815,0002018 from $1,768,000 for fiscal 2014.2017. The increasedecrease was primarily due to a non-cash $113,000 increasedecreases in stock optioncompensation expense a $18,000 increaseof $69,000 as all options fully vested in fiscal 2017, professional fees and outside services expenses of $41,000, utilities expense of $9,000, increased bank fees, and a $10,000 increase inincreased general insurance expense. These increasesdecreases were partially offset by a $12,000 decrease in public relations expense, a $18,000 decreaseincreases in payroll expense of $20,000, office supply expense of $6,000 and a $24,000 decrease in travel, entertainmentbuilding maintenance and auto expense. Our management expectsrepairs expense of $5,000. We expect that general and administrative expenses will remain constant in 2016 will decrease compared with fiscal 2015 expenses due to a significant reduction in stock option expense.2019.

Overall, total operating expenses in fiscal 20152018 decreased by $163,000,$258,000, or 4%6%, to $4,318,000$3,732,000 compared to total operating expenses of $4,481,000$3,990,000 in fiscal 2014.2017. We anticipate that our operating expenses in fiscal 20162019 will decline in comparison toremain comparable with fiscal 2015 due to a reduction on stock option expense and declines in sales and marketing2018 expenses.

LossIncome before income taxes increased by $490,000, or 212%,decreased to a loss of $721,000$347,000 in fiscal 20152018 as compared with a lossincome before income taxes of $231,000$724,000 in fiscal 2014.2017, due to the reduction in sales.

Income tax benefit for the 20152018 fiscal period was $78,000$160,000 compared to income tax benefitexpense of $68,000$20,000 for the 20142017 fiscal period. TheOur income tax expense rate in 2017 resulted from our use of federal and state net operating loss carryforwards. Our income tax benefit in 2015 and 2014during the 2018 fiscal period was due to reductionsa reversal of valuation allowance on deferred tax assets as we concluded we will be able to utilize such assets in our unrecognized tax positions from prior years.

future periods. As of December 29, 2018, we had no federal net operating loss carryforwards and $731,000 of state net operating loss carryforwards, which will begin to expire in 2033.

Liquidity and Capital Resources

Our recent operating history has resulted in a decrease in our capital resources. At January 2, 2016,December 29, 2018, we had approximately $55,000$558,000 in cash and cash equivalents, and our working capital was $2,003,000, a decrease of $530,000 from December 27, 2014. Our$3,896,000, and our current and quick acid test ratios, both measures of liquidity, were 2.47.1 and 1.4,4.4, respectively, as of both January 2, 2016 and December 27, 2014.

In September 2014, we obtained a loan of approximately $29,000 from a bank for the purchase of an automobile used for marketing purposes. The loan requires 60 monthly payments of $535 through August 2019. Interest is charged at a fixed nominal rate of 4.64%. The loan is collateralized by the underlying automobile.29, 2018.

In fiscal 2014 and 2015, we incurred significant losses which resulted in a decrease in our capital resources. In order to provide our company with additional working capital, on January 6, 2016, David Mintz, our Chairman and Chief Executive, provided our company with a loan of $500,000 which is secured by substantially all of our assets and is due on December 31, 2017. Commencing March 31, 2016, interestassets. Interest of 5% is payable on a quarterly basis without compounding. The loan may be prepaid in whole or in part at any time without premium or penalty. The loan is convertible into our common stock at a conversion price of $4.01 per share at the option of the holder, the closing price of our common stock on the NYSE MKT on the date the promissory note was entered into. Initially due December 31, 2017, the loan has been extended untilDecember 31, 2020.

Cash used in operating activities was $280,000 for the fiscal year ended January 2, 2016December 29, 2018 was $725,000 compared with cashto $1,288,000 provided by operating activities for the year ended December 30, 2017. Net cash used in operating activities for the year ended December 29, 2018 was primarily the result of $129,000increases in accounts receivable of $463,000 and inventory of $336,000 and a decrease in accounts payable and accrued expenses of $414,000. These uses of cash were partially offset by net income of $507,000.

Cash used in investing activities was $121,000 for the fiscal year ended December 27, 2014. In29, 2018 due to fixed asset purchases compared to no cash used in investing activities for the fiscal year ended January 2, 2016, our cash flow from operating activities reflected a net loss of $643,000 and a decrease of $184,000 in accounts payable and accrued expenses, which were partially offset by decreases in accounts receivable and inventory of $131,000 and $379,000, respectively.December 30, 2017.

InCash used in financing activities was $10,000 for the fiscal year ended January 2, 2016, we used $6,000 in financing activitiesDecember 29, 2018 compared to $2,000$6,000 used in financing activities for the fiscal year ended December 27, 2014.30, 2017.

As a result of the foregoing, our cash and cash equivalents decreased to $55,000 at January 2, 2016 from $341,000$558,000 at December 27, 2014.29, 2018 from $1,414,000 at December 30, 2017.

We believe our existing cash and cash equivalents on hand at January 2, 2016, supplemented by the $500,000 loan we received on January 6, 2016,December 29, 2018, existing working capital, and theour expected 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 January 2, 2016.December 29, 2018.

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 non-dairydairy free 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 January 2, 2016.December 29, 2018.

Off-Balance Sheet Arrangements

None.

Not applicable.

Item 8. Financial Statements and Supplementary Data.

Index to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TheTo the Board of Directors and Stockholders of

Tofutti Brands, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Tofutti Brands, Inc. (the “Company”) as of January 2, 2016December 29, 2018 and December 27, 2014,30, 2017, and the related statements of operations,income, changes in stockholders’ equity, and cash flows for each of the fiscal years then ended. Theended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 29, 2018 and December 30, 2017, and the results of its operations and its cash flows for each of the fiscal years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. OurAs part of our audits included considerationwe are required to obtain an understanding 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

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. 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 January 2, 2016 and December 27, 2014, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America./s/ EisnerAmper LLP

We have served as the Company’s auditor since fiscal year 2010.

EISNERAMPER LLP

Philadelphia, Pennsylvania

March 29, 2019

TOFUTTI BRANDS INC.

BALANCE SHEETS

(In thousands, except for share and per share data)

See accompanying notes to financial statements.

TOFUTTI BRANDS INC.

STATEMENTS OF OPERATIONS
INCOME

(In thousands, except for per share data)

See accompanying notes to financial statements.

TOFUTTI BRANDS INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Fiscal Years ended January 2, 2016December 29, 2018 and December 27, 201430, 2017
(In thousands, except for share data)

See accompanying notes to financial statements.

TOFUTTI BRANDS INC.

STATEMENTS OF CASH FLOWS

(In thousands)

See accompanying notes to financial statements.

TOFUTTI BRANDS INC.

NOTES TO FINANCIAL STATEMENTS

(In thousands, except for share and per share data)

NOTE 1: LIQUIDITY AND CAPITAL RESOURCES

At January 2, 2016,December 29, 2018, Tofutti Brands, Inc. (the “Company”) had approximately $55$558 in cash compared to $341$1,414 at December 27, 2014.30, 2017. Net cash used in operating activities for the year ended January 2, 2016December 29, 2018 was $280$725 compared to $129$1,288 provided by operating activities for the year ended December 27, 2014.30, 2017. Net cash used in operating activities for the year ended January 2, 2016December 29, 2018 was primarily the result of our net lossincreases in accounts receivable of $643$463 and a decreaseinventory of $184$336 and decreases in accounts payable and accrued expenses whichof $414 and deferred revenue of $34. These uses of cash were partially offset by decreases in accounts receivable and inventorynet income of $131 and $379, respectively.$507.

DuringCash used in investing activities was $121 for the yearsfiscal year ended January 2, 2016 and December 27, 2014, $6 and $2 was29, 2018 compared to none for the fiscal year ended December 30, 2017.

Cash used in financing activities respectively.was $10 for the fiscal year ended December 29, 2018 compared to $6 used in financing activities for the fiscal year ended December 30, 2017.

The Company has historically financed operations and met capital requirements primarily through positive cash flow from operations. However, due to the net losslosses and cash used in operations for the year ended January 2, 2016in prior years in order to provide the Company with additional working capital, on January 6, 2016, David Mintz, the Company’s Chairman and Chief Executive, provided it with a loan of $500,000 which is due on December 31, 2017.$500. Commencing March 31, 2016, interest of 5% is payable on a quarterly basis without compounding. The loan may be prepaid in whole or in part at any time without premium or penalty. The loan is convertible into the Company’s common stock at a conversion price of $4.01 per share, the closing price of its common stock on the NYSE MKT on the date the promissory note was entered into. In any event of default, as defined in the promissory note, without any action on the part of Mr. Mintz, the interest rate will increase to 12% per annum and the entire principal and interest balance under the loan, and all of the Company’s other obligations under the loan, will be immediately due and payable, and Mr. Mintz will be entitled to seek and institute any and all remedies available to him. Initially due December 31, 2017, the loan has been extended untilDecember 31, 2020.

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 non-dairydairy free frozen desserts and other food products.

Operating Segments. The Company reports on operating segments in accordance with standards for publiccompaniesto report information about operating segments and geographic distribution of sales in financial statements. While the Company has multiple products and or product groups, its goal is to focus on non-dairydairy free foods. The Company’s chief operating decision maker tracks revenue by product groups, but does not track more granular operating results by product group as many of the ingredients are similar amongst these groups. As a result, the Company has determined that it has only one operating segment, which is the development, production and marketing of soy-based, non-dairysoy and other vegetable protein- based, dairy free frozen desserts, frozen food products and soy-basedsoy and other vegetable protein-based cheese products. All long-lived assets are located in the United States, the Company’s country of domicile.

TOFUTTI BRANDS INC.

NOTES TO FINANCIAL STATEMENTS

(In thousands, except for share and per share data)

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-three week period fiscal ended January 2, 2016 and the fifty-two week fiscal periodperiods ended on December 27, 2014.

TOFUTTI BRANDS INC.

NOTES TO FINANCIAL STATEMENTS

(In thousands, except for share29, 2018 and per share data)December 30, 2017, fiscal 2018 and fiscal 2017, 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– 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 programsprimarily sell dairy free, vegan cheeses, frozen desserts and other programsfood products as detailed in Note 9 Revenue. The Company recognizes revenue when control over the products transfers to its customers, which generally occurs upon delivery or shipment of the products. The Company accounts for product shipping, handling and insurance as fulfillment activities with revenues for these activities recorded within net revenue and costs recorded within cost of sales. Revenues are recorded net of trade and sales incentives and estimated product returns. Known or expected pricing or revenue adjustments, such as reductions of revenues andtrade discounts, rebates or returns, are provided forestimated at the time of initial salesale. The Company bases these estimates of product. Freight charged to customers is includedexpected amounts principally on historical utilization and redemption rates. Estimates that affect revenue, such as trade incentives and product returns, are monitored and adjusted each period until the incentives or product returns are realized.

Key sales terms, such as pricing and quantities ordered, are established on a frequent basis such that most customer arrangements and related incentives have a one year or shorter duration. As such, we do not capitalize contract inception costs and we capitalize product fulfillment costs in revenues,accordance with U.S. GAAP and hasour inventory policies. The Company generally been insignificant.does not have any unbilled receivables at the end of a period.

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 January 2, 2016December 30, 2017 is limited.

During the fiscal years ended January 2, 2016December 29, 2018 and December 27, 2014,30, 2017, the Company derived approximately 83%82% and 88% of its net sales domestically. The remaining sales in both periods were exports to foreign countries. The accounts receivable balance of one customerthree customers represented approximately 9% of total accounts receivable at January 2, 2016, and one customer represented 16%51% of total accounts receivable at December 27, 2014.29, 2018, and three customers represented approximately 45% of total accounts receivable at December 30, 2017. 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 44%42% and 43%47% of the Company’s net sales for the fiscal years ended January 2, 2016December 29, 2018 and December 27, 2014.30, 2017.

TOFUTTI BRANDS INC.

NOTES TO FINANCIAL STATEMENTS

(In thousands, except for share and per share data)

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 and reserve for sales promotion. 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.

TOFUTTI BRANDS INC.

NOTES TO FINANCIAL STATEMENTS

(In thousands, except for share and per share data)

Cash and Cash 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 marketnet realizable value determined by first in first out (FIFO) method. Inventories in excess of future demand or approaching expiration 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.

The Company purchased approximately 24%49% and 26%41% of its finished products from one supplier and 29%20% and 28%17% of its finished products from another supplier during the periods ended January 2, 2016December 29, 2018 and December 27, 2014,30, 2017, 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 allowedsustained 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.

Stock-based compensation- The Company accounts for stock-based awards to employees and directors in accordance with the provisions of ASC 718,“Compensation “Compensation – Stock Compensation”.Compensation.” Under ASC 718,share-based awards are valued at fair value on the date of grant and that fair value is recognized over the requisite service period on a straight-line basis. The Company values its stock option using the Black-Scholes option pricing model.

TOFUTTI BRANDS INC.

NOTES TO FINANCIAL STATEMENTS

(In thousands, except for share and per share data)

Net LossEarnings Per Share- Basic earnings per common share has been computed by dividing earnings by the weighted average number of common shares outstanding. For the fiscal years ended January 2, 2016December 29, 2018 and December 27, 2014,30, 2017, stock equivalents of 80,000 shares and 0 shares, respectively, were excluded from diluted earnings per share calculations since the effect was anti-dilutive due to overall net loss position.because the strike price was greater than the quoted market value at such date.

TOFUTTI BRANDS INC.

NOTES TO FINANCIAL STATEMENTS

(In thousands, except for share and per share data)

Fair Value of Financial Instruments - The fair value of financial instruments, which primarily consist of cash and equivalents, accounts receivable, accounts payable and accrued expenses 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 $857$918 and $959$960 during the fiscal years ended January 2, 2016December 29, 2018 and December 27, 2014,30, 2017, 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 $236$188 and $265$192 during the fiscal years ended January 2, 2016December 29, 2018 and December 27, 2014,30, 2017, respectively.

Product Development Costs -Costs of new product development and product redesign are charged to expense as incurred. Product development costs amounted to $523$410 and $641$393 during the fiscal years ended January 2, 2016December 29, 2018 and December 27, 2014,30, 2017, respectively.

RecentAccounting Pronouncements - – The Company considers the applicability and impact of all Accounting Standard Updates (“ASUs”). ASUs not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s balance sheets or statements of operations.

In February 2016, the FASB issued guidanceestablished Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which amends the existing accounting standards for lease accounting, including requiringrequires lessees to recognize most leases on their balance sheetson-balance sheet and making targeted changesdisclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to lessor accounting. This Accounting Standards Update, orTopic 842; ASU will be effectiveNo. 2018-10, Codification Improvements to Topic 842, Leases; ASU No. 2018-11, Targeted Improvements; and ASU No. 2018-20, Narrow-Scope Improvements for fiscal years beginning after December 15, 2018 including interim periods within those fiscal years. Early adoption is permitted.Lessors. The new leases standard establishes a right-of-use model (“ROU”) that requires a modified retrospective transition approachlessee to recognize a ROU asset and lease liability on the balance sheet for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the impact of adopting the new leases standard on its financial statements.

In November 2015, the FASB issued guidance that eliminates the current requirement for organizations to present deferred tax liabilities and assets as current and non-current in a classified balance sheet.Instead, organizationsterm longer than 12 months. Leases will be required to classify all deferred tax assetsclassified as finance or operating, with classification affecting the pattern and liabilities as noncurrent. The amendments apply to all organizations that present a classified balance sheet. This amendment is effective for the Company for financial statements issued for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The Company has not yet adopted this guidance but does not expect the adoptionclassification of this guidance will have a material impact on its financial statements and related disclosures.

In July 2015, the FASB issued guidance which changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. ASU 2015-11 defines net realizable value as estimated selling pricingsexpense recognition in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new guidance must be applied on a prospective basis and is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. The Company does not expect the adoption of this guidance will have a material impact on its financial statements and related disclosures.income statement.

In 2015, the FASB issued an accounting standards update which deferred the effective date of ASU 2014-09 for all entities by one year. The update applies to all companies that enter into contracts with customers to transfer goods or services and is effective for public companies for interim and annual reporting periods beginning after December 15, 2017. Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the requirements of this update and has not yet determined its impact on its financial statements.

TOFUTTI BRANDS INC.

NOTES TO FINANCIAL STATEMENTS

(In thousands, except for share and per share data)

In August, 2014,The new standard was effective for the FASB issued guidance that requires managementCompany on December 30, 2018. We adopted the new standard on December 30, 2018. A modified retrospective transition approach is required, applying the new standard to evaluate whether there are conditionsall leases existing at the date of initial application. An entity may choose to use either (1) its effective date or events that raisesubstantial doubt about an entity’s ability to continue as a going concern. Ifsuch conditions or events exist, disclosures are required that enable users(2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to understandleases entered into between the naturedate of initial application and the effective date. The entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative periods. The Company adopted the new standard on December 30, 2018 and used the effective date as its date of initial application. Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided for dates and periods before December 30, 2018.

The new standard provides several optional practical expedients in transition. The Company elected the ‘package of practical expedients’, which permits it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs.

The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. The Company did not elect the practical expedient to not separate lease and non-lease components for any of its leases.

The Company expects that this standard will have a material effect on its financial statements. While the Company continues to assess all the effects of adoption, it currently believes the most significant effects relate to the recognition of new ROU assets and lease liabilities on its balance sheet for its real estate and equipment operating leases and providing significant new disclosures about its leasing activities. The Company does not expect a significant change in its leasing activities between now and adoption.

The Company currently expects to recognize additional operating liabilities of approximately $370,000 with corresponding ROU assets of the conditions or events, management’s evaluationsame amount, based on the present value of the circumstancesremaining minimum rental payments under current leasing standards for existing operating leases.

Effective December 31, 2017, the Company adopted Financial Accounting Standards Board (“FASB”) Topic 606, Revenue from Contacts with Customers (“ASC 606”). In accordance with ASC 606, it was determined that the standard only impacted enhanced disclosure regarding revenue recognition, including disclosures of revenue streams, performance obligations, variable consideration and management’s plansthe related judgments and estimates necessary to mitigateapply the conditions or events that raise substantial doubt aboutnew standard.

ASC 606 was applied using the entity’s abilitymodified retrospective method. There was no cumulative effect of the initial application to be recognized as an adjustment to opening retained earnings at December 31, 2017. Accordingly, comparative periods have not been adjusted and continue as a going concern. to be reported under FASB ASC Topic 605, Revenue Recognition (“ASC” 605).

TOFUTTI BRANDS INC.

NOTES TO FINANCIAL STATEMENTS

(In thousands, except for share and per share data)

The Company will be required to performgenerates revenues from the delivery of Tofutti branded plant-based cheeses, frozen desserts and other food products. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services in an annual assessment of its ability to continue as a going concern when this standard becomes effective for it for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016; however,amount that reflects the adoption of this guidance is notconsideration expected to impactbe received in exchange for those goods or services. The company recognizes revenue when obligations under the terms of a contract with customers are satisfied; generally, this occurs with the transfer of control of the Company’s financial position, resultsproducts. Revenue is measured as the amount of operationsnet consideration expected to be received in exchange for transferring products. Revenue from product sales is governed primarily by purchase orders (“contracts”) which specify quantity and product(s) ordered, shipping terms and certain aspects of the transaction price including discounts. Contracts are at standalone pricing that is governed by a pricing list. A performance obligation is a promise in a contract to transfer a distinct service to the customer. The performance obligation in these contracts is determined by each of the individual purchase orders and the respective stated quantities, with revenue being recognized at a point in time when obligations under the terms of the agreement are satisfied. This generally occurs with the transfer of control when the product is shipped or cash flows.in most cases, picked up from one of the Company’s distribution locations, by the customer.

NOTE 3: INVENTORIES

Inventories consist of the following:

NOTE 4: FIXED ASSETS

Fixed assets consist of the following:

Depreciation expense as of year-end January 2, 2016December 29, 2018 and December 27, 201430, 2017 was $6$10 and $2,$5, respectively. During the fourth quarter of fiscal 2018, an automobile with a net book value of $3 was sold to a related party for $3. Proceeds from the sale were received in the first quarter of fiscal 2019.

NOTE 5: STOCK OPTIONS

On June 10, 2014, the shareholders of the Company approved the 2014 Equity Incentive Plan (the “2014 Plan”). The 2014 Plan provides for grants of various types of awards that are designed to attract and retain highly qualified personnel who will contribute to the success of the Company and to provide incentives to participants in the 2014 Plan that are linked directly to increases in shareholder value which will therefore inure to the benefit of all shareholders of the Company. The Company intends to rely on a combination of multi-year performance awards, options and other stock-based awards for these purposes. The 2014 Plan made 250,000 shares of Common Stock available for awards. The 2014 Plan also permits performance-based 2014 awards paid under it to be tax deductible under Section 162(m) of the Internal Revenue Code of 1986, as amended, as “performance-based compensation.” As of January 2, 2016,December 29, 2018, the Company has issued 80,000 non-qualified stock option awards under the 2014 Plan.

TOFUTTI BRANDS INC.

NOTES TO FINANCIAL STATEMENTS

(In thousands, except for share and per share data)

The following is a summary of stock option activity from December 27, 201430, 2017 to January 2, 2016:December 29, 2018:

The following table summarizes information about stock options outstanding at January 2, 2016:December 29, 2018:

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing formula. Expected volatilities and risk-free interest rates are based upon the expected life of the grant. The interest rates used are the U.S. Treasury yield curve in effect at the time of the grant.

During fiscal 2015, 80,000 options were granted,with 26,668 of the options vesting at the respective grant date, 26,666 vesting in January 2016, and 26,666 vesting in January 2017. At the date of grant, expected volatility was 69.8%-71.4%, a risk-free rate of 1.3%-1.8%, 0% expected dividends, and an expected term of five year.years.

As of January 2, 2016,December 29, 2018, the intrinsic value of the options outstanding and exercisable was immaterial. As of January 2, 2016,immaterial, and there was approximately $94$0 of total unrecognized compensation cost that will be recognizedthrough January 2, 2017 related to non-vested share-based compensation arrangements granted under the Plan. For the fiscal year ended January 2, 2016 stock compensation expense was $113.cost.

NOTE 6: 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 on a monthly basis. 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 $82$81 in 2015fiscal 2018 and $80 in 2014.fiscal 2017. 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.

TOFUTTI BRANDS INC.

NOTES TO FINANCIAL STATEMENTS

(In thousands, except for share and per share data)

NOTE 7: INCOME TAXES

The Company calculates its provision for federal and state income taxes based on current tax law. The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017 (“Enactment Date”) and has several key provisions impacting accounting for and reporting of income taxes. The most significant provision reduces the U.S. corporate statutory tax rate from 35% to 21% beginning on January 1, 2018. Although most provisions of tax reform were not effective until 2018, the Company was required to record the effect of a change in tax law as of the Enactment Date on its deferred tax assets. The Company maintained a full valuation allowance against its deferred tax assets, and there was no income tax expense recorded related to this change as of December 30, 2017. As of the Enactment Date, the Company estimates that its deferred tax asset and related valuation allowance were each reduced by approximately $155.

Additionally, the Securities Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) on December 22, 2017, which allows the Company to record provisional amounts during a measurement period not to extend beyond one year of the Enactment Date. SAB 118 was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. As of December 29, 2018, the Company has completed the accounting of the effects of the Act and has no adjustments to the effects recorded at December 30, 2017.

The components of income tax benefit(benefit) expense for the fiscal years ended January 2, 2016December 29, 2018 and December 27, 201430, 2017 are as follows:

A reconciliation between the expected federal tax expense at the statutory tax raterates of 21% and 34% and the Company’s actual tax expense for the fiscal years ended January 2, 2016December 29, 2018 and December 27, 201430, 2017, respectively, follows: