See accompanying notes to unaudited condensed financial statements.

TOFUTTI BRANDS, INC.

Unaudited Condensed Statements of Changes in Stockholders’ Equity

(in thousands)

Unaudited Condensed Statements of Cash Flows

(Unaudited)

(in thousands)

See accompanying notes to unaudited condensed financial statements.

TOFUTTI BRANDS INC.

Notes to Condensed Financial Statements

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(In thousands, except for share and per share data)

Note 1: Liquidity and Capital Resources

At September 30, 2017, Tofutti Brands, Inc. (“Tofutti” or the “Company”) had approximately $505 in cash compared to $132 at December 31, 2016. Net cash provided by operating activities for the thirty-nine weeks ended September 30, 2017 was $377 compared to $354 used in operating activities for the thirty-nine weeks ended October 1, 2016. Net cash used in financing activities for the thirty-nine weeks ended September 30, 2017 was $4 compared to $496 provided by financing activities for the thirty-nine weeks ended October 1, 2016. Net cash provided by financing activities for the thirty-nine weeks ended October 1, 2016 was primarily a result of the loan provided by the Company’s Chairman and Chief Executive Officer.

The Company has historically financed operations and met capital requirements primarily through positive cash flow from operations. However, due to the net loss and cash used in operations for the year ended January 2, 2016 in order to provide the Company with additional working capital, on January 6, 2016, David Mintz, the Company’s Chairman and Chief Executive Officer, provided it with a loan of $500. Commencing March 31, 2016, interest of 5% is payable on a quarterly basis without compounding. The loan, which may be prepaid in whole or in part at any time without premium or penalty, 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 date the promissory note was entered into. Initially due December 31, 2017, the loan has been extended until December 31, 2018.

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.

On August 11, 2017, the Company terminated its engagement with a financial advisor that was assisting it in pursuing strategic alternatives.

Note 2: Description of Business

Tofutti is engaged in one business segment, the development, production and marketing of non-dairy frozen desserts and other food products.

The Company reports on operating segments in accordance with standards for public companies. The Company’s management tracks revenue by product groups, but does not track more granular operating results by product group as many of the ingredients are similar among 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 cheese-products, non-dairy frozen desserts, and non-dairy frozen food products.

TOFUTTI BRANDS INC.

Notes to Condensed Financial Statements

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

Note 3: 1: Basis of Presentation

The accompanying unaudited condensed financial information, is unaudited, but, in the opinion of management, reflects all adjustments (which include only normally recurring adjustments) necessary to present fairly the Company’s financial position, operating results and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The condensed balance sheet amounts as of December 31, 2016 are derived from our audited financial statements for the year ended December 31, 2016. The financial information should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. The results of operations for the thirteen and thirty-nine week periodsthirteen-week period ended September 30, 2017April 2, 2022 are not necessarily indicative of the results to be expected for the full year or any other period.

The Company’s fiscal year is either a fifty-two or fifty-three weekfifty-three-week period which ends on the Saturday closest to December 31^st.

Note 4: Recent2: Recently Issued Accounting PronouncementsStandards

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 FebruaryJune 2016, the Financial Accounting Standards Board, or FASB issued ASU 2016-02, Leases2016-13, Financial Instruments - Credit Losses (Topic 842): “Recognition and326) Measurement of Credit Losses on Financial Assets and Financial Liabilities.” The update supersedes Topic 840, Leases and requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous accounting principles generally accepted in the United States of America (“U.S. GAAP”). Topic 842 retains a distinction between finance leases and operating leases, with cash payments from operating leases classified within operating activities in the statement of cash flows.Instruments. The amendments in this update areUpdate require a new topic to be added (Topic 326) to the Accounting Standards Codification (“ASC”) and removes the thresholds that entities apply to measure credit losses on financial instruments measured at amortized cost, such as loans, trade receivables, reinsurance recoverables, and off-balance-sheet credit exposures, and held-to-maturity securities. Under current U.S. GAAP, entities generally recognize credit losses when it is probable that the loss has been incurred. The guidance under ASU 2016-13 will remove all current recognition thresholds and will require entities under the new current expected credit loss (“CECL”) model to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that an entity expects to collect over the instrument’s contractual life. The new CECL model is based upon expected losses rather than incurred losses. Additionally, the credit loss recognition guidance for available-for-sale securities is amended and will require that credit losses on such debt securities should be recognized as an allowance for credit losses rather than a direct write-down of amortized cost balance. The ASU is effective for fiscal years beginning after December 15, 2018 for public business entities, which for2022, including interim periods within those fiscal years. We are currently evaluating the Company means December 30, 2018. The Company's adoption ofeffect that this ASU, is not currently expected tonew guidance will have any significant impact on itsour financial statements.statements and related disclosures.

Note 3: Inventories

In May 2014, the FASB issued ASC 606, “Revenue from Contracts with Customers.” The standard, including subsequently issued amendments, will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The key focus

Inventories consist of the new standard is that an entity should recognize revenue to depict the transferfollowing:

Schedule of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this key focus, there is a five-step approach outlined in the standard. Entities are permitted to apply the new standard either retrospectively, subject to certain practical expedients, or the modified retrospective method that requires the application of the guidance only to contracts that are uncompleted on the date of initial application. For the Company, adoption will be effective December 31, 2017. The Company has not completed its assessment of the new standard and is continuing to evaluate the impacts of the standard on its overall operations and related disclosures.Inventories

TOFUTTI BRANDS INC.

Notes to Condensed Financial Statements

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(In thousands, except for share and per share data)

Note 5: Inventories

The composition of inventories is as follows:

Note 6: 4: Income Taxes

Income taxes are accounted for under the asset and liability method. 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. DeferredThe Company accounts for penalties or interest related to uncertain tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Aspositions as part of the periods ended September 30, 2017 and December 31, 2016, the Company recorded a full valuation allowance on its deferred tax asset balances.provision for income taxes.

Note 7: 5: Earnings Per Share

BasicFully diluted earnings per common share has been computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per common share for the periods ended September 30, 2017 and October 1, 2016 have been computed by dividing net incomeearnings by the weighted average number of common shares outstanding, and common stock equivalents, which include options outstanding during the same period. Notwould account for a potential 282,486 shares to be issued upon conversion of a convertible note as of April 3, 2021. The convertible note for 282,486 shares was included in the calculation of fully diluted earnings for September 30, 2017 and October 1, 2016 were 80,000 non-qualified options granted to directors that were antidilutive because the market price of the common stock as of September 30, 2017 and October 1, 2016thirteen weeks ended April 3, 2021. The note was less than the exercise prices of any of these options.repaid in full on December 22, 2021.

The following table sets forth the computation of basic and diluted earnings per share:

Schedule of Earnings Per Share, Basic and Diluted

TOFUTTI BRANDS INC.

Notes to Condensed Financial Statements

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(In thousands, except for share and per share data)

Note 8: Fixed Assets

Fixed assets consist of the following:

Note 9: Stock6: Share Based Compensation

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.” AsNo stock options were issued in 2022 or 2021 and no options were outstanding as of September 30, 2017,April 2, 2022 and January 1, 2022.

Note 7: Notes Payable

Small Business Administration (SBA) Loan

On May 2, 2020 the Company issued 80,000 non-qualified stock option awards underreceived from the 2014 Plan.

ThereSBA a loan of $165 from the Paycheck Protection Program at an interest rate of 1%. Interest and payments were no options granted duringdeferred until March 4, 2021 The current portion of the loan was $165 as of January 2, 2021 and the loan would have expired on May 2, 2022. On January 12, 2022, the Company was informed by the SBA that the entire amount of the loan had been forgiven free of taxation. The Company recorded forgiveness of debt income of $165 in the thirteen and thirty-nine weeks ended September 30, 2017.

The following is a summary of stock option activity from December 31, 2016 to September 30, 2017:

TOFUTTI BRANDS INC.

Notes to Condensed Financial Statements

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

The following table summarizes information about stock options outstanding at September 30, 2017:

The fair value of each option award is estimatedApril 2, 2022 as SBA loan forgiveness on the datecondensed statement 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.operations.

As of September 30, 2017, the intrinsic value of the options outstanding and exercisable was immaterial. For the thirteen and thirty-nine weeks ended September 30, 2017, stock compensation expense was $0 and $69, respectively, compared with $0 and $25 for the thirteen and thirty-nine week periods ended October 1, 2016, respectively.

Note 10: Notes Payable

In September 2014, the Company obtained an auto loan of approximately $29 from a bank. The loan requires 60 monthly payments of $0.535 through August 2019. Interest is charged at a fixed nominal rate of 4.64%. The loan is collateralized by the underlying automobile.

Convertible Note Payable - Related Party

On January 6, 2016, David Mintz, the Company’s former Chairman and Chief Executive Officer, provided itthe Company with a loan of $500.$500. The loan which was originally set to expire onextended until December 31, 2017 has been extended to December 31, 2018. No other terms2021 and was, at the option of the loan were modified. 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 isholder, convertible into the Company’s common stock at a conversion price of $4.01$1.77 per share,share. Interest expense incurred to the closing price of the Company’s common stock on the date the promissory noterelated party 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$25 for both fiscal years ended January 1, 2022 and January 2, 2021. On December 22, 2021, the entire principalloan of $500 plus accrued interest of $25 was paid by the Company to Mr. Mintz’s estate.

Note 8: Revenue

Performance obligations relating to the delivery of food products are satisfied when the goods are shipped to the customer and interest balance under the loan,net of all applicable discounts, as follows: Payment term discounts, off-invoice allowance, manufacturer chargeback, freight allowance, spoilage discounts, 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.product returns.

TOFUTTI BRANDS INC.

Notes to Condensed Financial Statements

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

Note 11: Sales by Geographic Region and Product Category

Revenues by geographical region are as follows (in thousands):follows:

Schedule of Revenue

SalesApproximately 90% and 91% of the Americas revenue in the 2022 and the 2021 periods, respectively, is attributable to sales in the United States accounted for approximately 95% of revenues in the Americas in both the 2017 and 2016 thirteen week periods. Sales in the United States accounted for approximately 94% and 90% of revenues in the Americas in the 2017 and 2016 thirty-nine week periods, respectively.States. All of the Company’s assets are located in the United States.

Beginning in the first quarter of 2017, the Company elected to combine the frozen desserts and frozen foods categories into one category as frozen food revenues are not material.

Net sales by major product category (in thousands):category:

Summary of Net Sales by Major Product Category

Note 9: 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 $20 in the thirteen weeks ended April 2, 2022 and the thirteen weeks ended April 3, 2021. 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. The Company rents warehouse storage space at various outside facilities. Outside warehouse expenses amounted to $95 for the thirteen weeks ended April 2, 2022 and $112 for the thirteen weeks ended April 3, 2021.

Under Topic 842, operating lease expense is generally recognized evenly over the term of the lease. The standard requires a lessee to record a right-of-use asset and a corresponding lease liability at the inception of the lease. The current portion of lease liabilities is included in accrued expenses on the condensed balance sheets.

The Company’s lease agreements generally do not provide an implicit borrowing rate; therefore, an internal incremental borrowing rate is determined based on information available at lease commencement date for purposes of determining the present value of lease payments. The Company used the incremental borrowing rate on December 29, 2018 of 5.5% for all leases that commenced prior to that date.

TOFUTTI BRANDS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(In thousands, except for share and per share data)

ROU lease assets and lease liabilities for our operating leases were recorded in the balance sheet as follows:

Schedule of ROU lease Assets and Liabilities For Operating Leases

Future lease payments included in the measurement of lease liabilities on the balance sheet as of April 2, 2022 are as follows:

Schedule of Future Lease Payments

TOFUTTI BRANDS INC.

Item 2. 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 financial statements.

The discussion and analysis which follows in this Quarterly Report and in other reports and documents and in oral statements made on our behalf by our management and others may contain trend analysis and other forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 which reflect our current views with respect to future events and financial results. These include statements regarding our earnings, projected growth and forecasts, and similar matters which are not historical facts. We remind stockholders that forward-looking statements are merely predictions and therefore are inherently subject to uncertainties and other factors which could cause the actual future events or results to differ materially from those described in the forward-looking statements. These uncertainties and other factors include, among other things, business conditions in the food industry and general economic conditions, both domestic and international; lower than expected customer orders; competitive factors; changes in product mix or distribution channels; and resource constraints encountered in developing new products. The forward-looking statements contained in this Quarterly Report and made elsewhere by or on our behalf should be considered in light of these factors.

Critical Accounting PoliciesEstimates

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 primarily sell vegan and dairy-free 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 andcustomers, deemed to be the following four criteria have been met: (i)performance obligation, 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 revenues. The amount of freight costs charged to customers has not been material to date.a period.

Accounts Receivable. The majority of our accounts receivables are due from distributors (domestic and international) and retailers. Credit is extended based on evaluation of a customers’ financial condition and, generally, collateral is not required. Accounts receivable are most often due within 30 to 90 days and are stated at amounts due from customers net of an allowance for doubtful accounts.accounts 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 offwrite-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.due.

Deferred Revenue and Costs. Deferred revenue represents amounts from sales of our products that have been billed and shipped, but for which the transactions have not met our revenue recognition criteria. The cost of the related products have been recorded as deferred costs on our balance sheet.

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.Leases. Fixed assets consist of a company automobile used for advertising and trade show purposes. AmortizationUnder Topic 842, operating lease expense is provided by charges to income using the straight-line methodgenerally recognized evenly over the useful lifeterm of fivethe lease. We have operating leases primarily consisting of facilities with remaining lease terms of approximately one to three years. Leases with an initial term of twelve months or less are not recorded on the balance sheet. For lease agreements entered into or reassessed after the adoption of Topic 842, we have combined the lease and non-lease components in determining the lease liabilities and right of use assets.

Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The carrying valueeffect 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 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.assets. We will recognize a tax benefit in the financial statements for an uncertain tax position only if management’s assessment is that the position is “more likely than not” (i.e., a likelihood greater than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term “tax position” refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for financial reporting purposes.Our federal

Recent Developments

An outbreak of an infectious respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and state tax returnshas now spread globally. This outbreak has resulted in travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, prolonged quarantines, order cancellations, supply chain disruptions, increased costs for raw materials, and lower consumer demand, and other significant economic impacts, as well as general concern and uncertainty.

The severity of the pandemic and the uncertainty regarding the length of its effects could have negative consequences for our company. To date, the effects of the pandemic have affected certain aspects of our operations. All of our co-packing facilities are opencurrently operating normally, and the pandemic has not constrained any of our production requirements. The cost of certain key ingredients and packaging has increased substantially due to examinationshort-term supply issues related to COVID-19. Additionally, we are currently experiencing longer lead times in receiving certain ingredients and packaging. We anticipate that these longer lead times will persist for the years 2014 through 2016.

Stock Based Compensation.The Company followsbalance of 2022. We continue to be able to schedule trucks for delivery and a large majority of our customers are still operating and ordering our products as before. Additionally, our freight costs have increased substantially due to a driver shortage caused by COVID-19 and a significant increase in fuel costs. In response to these cost increases and the provisionspotential for additional cost increases affecting various aspects of ASC 718Share-Based Payment. The Company uses the Black-Scholes option pricing model to measure the estimated fair valueour operations, we have initiated a series of the options under ASC 718. Stock-based compensation expense is recognized over the requisite service period.

Recent accounting pronouncements

In February 2016, the Financial Accounting Standards Board, or FASB, issued ASU 2016-02, Leases (Topic 842): “Recognition and Measurement of Financial Assets and Financial Liabilities.” The update supersedes Topic 840, Leases and requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous accounting principles generally acceptedsales price increases commencing in the United Statesfourth quarter of America (“U.S. GAAP”). Topic 842 retains2021 and continuing into the first quarter of 2022 to help offset these cost increases.

Our ability to handle customer and consumer communications, schedule production, and order ingredients necessary for our production has not been materially impacted. Nor have we experienced a distinction between finance leases and operating leases, with cash payments from operating leases classified within operating activitiessignificant change in the statementtimeliness of payments of our invoices and our cash flows. The amendments in this update are effective forposition of approximately $2,075,000 as of May 9, 2022 has improved since our fiscal years beginning after December 15, 2018 for public business entities, which for our company means December 30, 2018. Our company's adoption of this ASU, is not currently expected to have any significant impact on its financial statements.year end January 1, 2022.

In May 2014, the FASB issued ASC 606, “Revenue from Contracts with Customers.” The standard, including subsequently issued amendments, will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The key focus of the new standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this key focus, there is a five-step approach outlined in the standard. Entities are permitted to apply the new standard either retrospectively, subject to certain practical expedients, or the modified retrospective method that requires the application of the guidance only to contracts that are uncompleted on the date of initial application. For our company, adoption will be effective December 31, 2017. Our company has not completed its assessment of the new standard and is continuing to evaluate the impacts of the standard on our overall operations and related disclosures.

Results of Operations

Thirteen Weeks Ended September 30, 2017April 2, 2022 Compared with Thirteen Weeks Ended October 1, 2016April 3, 2021

Net sales for the thirteen weeks ended September 30, 2017 were $3,326,000, a decrease of $280,000,April 2, 2022 increased by $313,000, or 8%10%, to $3,463,000, from net sales of $3,606,000$3,150,000 for the thirteen weeks ended October 1, 2016. BeginningApril 3, 2021. Sales of our vegan cheese products increased to $2,916,000 in the first quarter of 2017, we elected to combine2022 period from $2,720,000 in the frozen desserts and frozen foods categories into one category, as frozen food revenues are not material.2021 period. Sales of our frozen dessert and frozen food products, decreasedwhich consist primarily of frozen dessert products, increased to $810,000$547,000 in the thirteen weeks ended September 30, 2017April 2, 2022 from $1,183,000$430,000 for the thirteen weeks ended October 1, 2016. Sales of vegan cheese products increased to $2,516,000 in the 2017 period from $2,423,000 in the 2016 period. Sales of our frozen dessert products were negatively impacted by production and shipping issues at our frozen dessert novelties plant due to a major physical restructuring program in process at this facility, which resulted in less inventory available for sale.April 3, 2021. We anticipate the problems will continue throughoutan increase in sales dollars over the balance of this year. We are currently in the process of securing additional facilities to makecurrent fiscal year as our frozen novelty products. Sales of our vegan cheese product line increased due to a demand for our vegan cheese products. We believe that our frozen dessert sales will continue to be negatively impacted for the balance of 2017.prices increases take full effect.

Our gross profit increaseddecreased to $1,267,000$857,000 in the thirteen weeksperiod ended September 30, 2017April 2, 2022 from $1,108,000$1,001,000 in the thirteen weeksperiod ended October 1, 2016.April 3, 2021. Our gross profit percentage was 38%25% for the thirteen weeksperiod ending September 30, 2017April 2, 2022 compared to 31%32% for the thirteen weeksperiod ending October 1, 2016. Our gross profit percentageApril 3, 2021. The decrease in the third quarter of 2017 was positively impacted by the increase in our vegan cheese business, which has higher gross margins than our frozen dessert products. Sales of our vegan cheese products were 76% of net sales in the thirteen weeks ended September 30, 2017 compared to 67% of net sales in the thirteen weeks ended October 1, 2016. In addition, price increases for our top selling vegan cheese products averaging between 5% and 6%, that were in effect for the thirteen weeks ended September 30, 2017, contributed to the increase inboth our gross profit and gross profit percentage forwere caused by the period. substantial increases in certain ingredients and freight expense.

Freight out expense, a significant part of our cost of sales, decreasedincreased by $4,000,$91,000, or 2%40%, to $214,000$318,000 for the thirteen weeks ended September 30, 2017 from $218,000April 2, 2022 compared with $227,000 for the thirteen weeks April 3, 2021. Freight out expense was 9% of sales for the thirteen weeks ended October 1, 2016, partially dueApril 2, 2022 compared to the decrease in sales. As a percentage7% of sales freight out expense was 6% in both the 2017 and 2016 thirteen week periods.

Selling expenses decreased by $19,000, or 5%, to $336,000 for the thirteen weeks ended September 30, 2017 from $355,000April 3, 2021. The increase in freight out expenses was due to the increase in sales, but primarily due to the increases in shipping costs due to the large increase in the cost of fuel and the unavailability of trucks. We anticipate that our freight out expense will continue at the current higher rate for the balance of 2022.

Selling expenses decreased by $59,000, or 18%, to $264,000 for the thirteen weeks ended October 1, 2016. This decrease was principally due to decreases in commission expense of $16,000 and payroll expense of $9,000, which were partially offset by a $6,000 increase in travel, entertainment and auto expense. We anticipate that our selling expenses will remain at the same level for the balance of 2017.

Marketing expenses increased by $11,000, or 26%, to $54,000April 2, 2022 from $323,000 for the thirteen weeks ended September 30, 2017 from $43,000April 3, 2021. This decrease was primarily attributable to decreases in payroll expense of $18,000, outside warehouse rental expense of $17,000, and commission expense of $22,000. We anticipate our selling expenses for 2022 will remain below the level of selling expenses in 2021. The decrease in commission expense is due to lower cash collections in the current period. Commissions to our brokers are paid upon cash receipts. The reduction in payroll expense was due to one less employee in sales in the current period.

Marketing expenses increased by $86,000, or 123%, to $156,000 for the thirteen weeks ended October 1, 2016,April 2, 2022 from $70,000 for the thirteen weeks ended April 3, 2021. The increase was primarily due principally to a $13,000 increaseincreases in promotions expense of $55,000, artwork and plates expense of $19,000, and advertising expense which was partially offset by a reduction in artwork and plate expense of $1,000.$9,000, We anticipate that our marketing expenses will remain at the same level for the remainderbalance of fiscal 2017.the year will be lower than the first quarter of 2022, as the increase in promotion expense during the first quarter was a one time event.

Research and

Product development costs, which consist principally of salary expenses and laboratory costs, increased by $22,000,$1,000, or 37%3%, to $82,000$40,000 for the thirteen weeks ended September 30, 2017April 2, 2022 from $60,000$39,000 for the thirteen weeks ended October 1, 2016, primarily due to increases in payroll expense of $3,000, lab costs and supplies expense of $8,000, and travel, entertainment and auto expense of $11,000. We anticipate that research and development expenses will remain at the same level for the remainder of fiscal 2017.April 3, 2021.

General and administrative expenses decreased by $147,000,$110,000, or 24%25%, to $465,000$337,000 for the thirteen weeks ended September 30, 2017April 2, 2022 from $612,000$447,000 for the thirteen weeks ended October 1, 2016April 3, 2021, primarily due to decreases in payroll expense of 103,000, travel, entertainment and auto expenses of $12,000, and professional fees and outside services expense of $180,000, and IT expense of $9,000, which were partially offset by increases in travel, entertainment and auto expense of $9,000, and public relations expense of $18,000. The decrease in professional fees and outside services expense was due to the settlement of a legal matter in December 2016. We anticipate that general and administrative expenses will remain at the same level for the remainder of fiscal 2017.

We recognized no income tax expense for the thirteen weeks ended September 30, 2017 or the thirteen weeks ended October 1, 2016. We have a history of losses and have a valuation allowance on our deferred assets.

Thirty-nine Weeks Ended September 30, 2017 Compared with Thirty-nine Weeks Ended October 1, 2016

Net sales for the thirty-nine weeks ended September 30, 2017 were $10,255,000, a decrease of $647,000, or 6%, from net sales of $10,902,000 for the thirty-nine weeks ended October 1, 2016. Beginning in the first quarter of 2017, we elected to combine the frozen desserts and frozen foods categories into one category as frozen food revenues are not material. Sales of our frozen dessert and frozen food products decreased to $2,348,000 in the thirty-nine weeks ended September 30, 2017 from $3,339,000 for the thirty-nine weeks ended October 1, 2016. Sales of vegan cheese products increased to $7,907,000 in the 2017 period from $7,563,000 in the 2016 period. Sales of our frozen dessert products were negatively impacted by production and shipping issues at our frozen desserts novelty plant due to a major physical restructuring program in process at this facility, which resulted in less inventory available for sale. We anticipate the problems will continue throughout the balance of this year. We are currently in the process of securing additional facilities to make our frozen novelty products. Sales of our vegan cheese product line increased due to an increase in our domestic vegan cheese business.

Our gross profit decreased to $3,454,000 in the thirty-nine week period ended September 30, 2017 from $3,531,000 in the thirty-nine week period ended October 1, 2016, due to the decrease in sales. Our gross profit percentage was 34% for the period ending September 30, 2017 compared to 32% for the period ending October 1, 2016. Our gross profit percentage in the 2017 period was positively impacted by the increase in our vegan cheese business, which has higher gross margins than our frozen dessert products. Sales of our vegan cheese products were 77% of net sales in the thirty-nine weeks ended September 30, 2017 compared to 69% of nets sales in the thirty-nine weeks ended October 1, 2016. In addition, promotion expense for our vegan cheese products has been proportionately lower than for our frozen dessert products. Freight out expense, a significant part of our cost of sales, was $737,000 for the thirty-nine weeks ended September 30, 2017 compared to $711,000 for the thirty-nine weeks ended October 1, 2016. As a percentage of sales, freight out expense was 7% for both the 2017 and 2016 thirty-nine week periods.

Selling expenses increased by $46,000, or 4%, to $1,133,000 for the thirty-nine weeks ended September 30, 2017 from $1,087,000 for the thirty-nine weeks ended October 1, 2016. This increase was due to increases in commission expense of $39,000, outside warehouse rental expense of $10,000, and travel, entertainment and auto expense of $15,000, which were partially offset by decreasesan increase in meetings and conventionspublic relations expense of $4,000, and$30,000. The decrease in payroll expense of $4,000. The increase in commission expense was due to no salary being paid to Mr. Mintz this period compared to the hiring of additional food brokers for previously non-commissionable customers.same period in the prior year.

Marketing expenses increased by $38,000, or 22%, to $212,000

Income tax expense was $20,000 for the thirty-ninethirteen weeks ended September 30, 2017 from $174,000April 2, 2022 and $36,000 for the thirty-ninethirteen weeks ended October 1, 2016, due principally to increases in advertising expense of $27,000 and promotions expense of $26,000, which were partially offset by a decrease in artwork and plates expense of $15,000.

Research and development costs, which consist principally of salary expenses and laboratory costs, decreased by $26,000, or 8%, to $283,000 forApril 3, 2021 resulting from the thirty-ninelower taxable income during the thirteen weeks ended September 30, 2017 from $309,000 forApril 2, 2022 compared to the thirty-ninethirteen weeks ended October 1, 2016, due primarily to a decrease in professional fees and outside services expense of $65,000, which was partially offset by an increase in lab costs and supplies of $25,000, and travel, entertainment and auto expense of $12,000. The decrease in professional fees and outside services expense was due to the settlement of a legal matter in December 2016.April 3, 2021.

General and administrative expenses decreased by $198,000, or 13%, to $1,382,000 for the thirty-nine weeks ended September 30, 2017 from $1,580,000 for the thirty-nine weeks ended October 1, 2016. Increases in stock option expense of $43,000, payroll expense of $15,000, general insurance expense of $14,000, travel, entertainment and auto expense of $13,000, and building maintenance and repairs expense of $6,000 were offset by decreases in IT expense of $22,000, public relations expense of $27,000, and professional fees and outside services expense of $255,000. The decrease in professional fees and outside services expense was due to the settlement of a legal matter in December 2016.

For the thirty-nine weeks ended September 30, 2017, we recognized income tax expense of $5,000 compared to income tax expense of $6,000 for the thirty-nine weeks ended October 1, 2016. We have a history of losses and have a full valuation allowance on our deferred tax assets. We did not record tax expense other than state taxes for the thirty-nine weeks ending September 30, 2017 and October 1, 2016.

Liquidity and Capital Resources

As of September 30, 2017,April 2, 2022, we had approximately $505,000$1,589,000 in cash and cash equivalents and our working capital was approximately $3,438,000,$4,551,000, compared with approximately $132,000$1,698,000 in cash and cash equivalents and working capital of $2,949,000$4,326,000 at December 31, 2016. On August 11, 2017, we terminated our engagement with a financial advisor that was assisting us in pursuing strategic alternatives. We are currently evaluating our strategic alternatives.January 1, 2022.

In order to provide our company with additional working capital, on January 6, 2016, David Mintz, our former Chairman and Chief Executive Officer, provided our company with a convertible loan of $500,000. On December 22, 2021, the loan balance of $500,000 which is secured by substantially all of our assets and has been extended to December 31, 2018. Commencing March 31, 2016,plus accrued 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,$25,000 was paid by the closing price of our common stock 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 ofCompany to 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.Mintz’s estate.

The following table summarizes our cash flows for the periods presented: