UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Commission file number: 1-9009

Tofutti Brands Inc.

(Exact Name of Registrant as Specified in Its Charter)

50 Jackson Drive, Cranford, New Jersey07016

(Address of Principal Executive Offices)

(908) 272-2400

(Registrant’s Telephone Number, including area code)

Securities registered pursuant to Section 12(g) of the Act:

N/A

(Former Name, Former Address and Former Fiscal Year,

if Changed Since Last Report)

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 ☒   No ☐

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 [  ]☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “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]☒

As of November 13, 2020August 16, 2021, the Registrant had 5,153,706 shares of Common Stock, par value $0.01, outstanding.

TOFUTTI BRANDS INC.

INDEX

INDEX

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

TOFUTTI BRANDS INC.

Unaudited Condensed Balance Sheets

(in thousands, except share and per share figures)

See accompanying notes to unaudited condensed financial statements.

TOFUTTI BRANDS, INC.

Unaudited Condensed Statements of OperationsIncome

(Unaudited)

(in thousands, except per share figures)

See accompanying notes to unaudited condensed financial statements.

TOFUTTI BRANDS, INC.

Unaudited Condensed Statements of Changes in Stockholders’ Equity

(Unaudited)

(in thousands)

See accompanying notes to unaudited condensed financial statements.

TOFUTTI BRANDS INC.

Unaudited Condensed Statements of Cash Flows

(Unaudited)

(in thousands)

See accompanying notes to unaudited condensed financial statements.

TOFUTTI BRANDS INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

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

Note 1: Liquidity and Capital Resources

At September 26, 2020, Tofutti Brands, Inc. (“Tofutti” or the “Company”) had approximately $1,399 in cash compared to $514 at December 28, 2019. Net cash provided by operating activities was $720 for the thirty-nine weeks ended September 26, 2020 compared to $2 used in operating activities for the thirty-nine weeks ended September 28, 2019. Cash provided by operating activities for the thirty-nine weeks ended September 26, 2020 was primarily a result of the Company’s operating profit, a decrease in accounts receivable, and an increase in accounts payable offset by increases in inventory and accrued expenses. Net cash provided by financing activities was $165 for the thirty-nine weeks ended September 26, 2020 compared to $0 provided by financing activities for the thirty-nine weeks ended September 28, 2019. Net cash provided by financing activities was due to the Company’s receipt of a loan under the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Net cash used in investing activities was $0 for the thirty-nine weeks ended at September 26, 2020 compared to $29 used in investing activities for the thirty-nine weeks ended September 28, 2019.

The Company historically has primarily financed operations and met capital requirements through positive cash flow from operations. However, due to net losses and cash used in operations in 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. The original loan was convertible into shares of 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 first entered into. Effective January 10, 2020, the loan was extended until December 31, 2022 and is convertible into the Company’s common stock at a conversion price of $1.77 per share, the closing price of the common stock on the OTCQB on the date the extension of the promissory note was entered into. See Note 10.

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, the inability to make sales calls due to travel restrictions imposed by governmental agencies in response to the spread of COVID-19 and other factors beyond the Company’s control. Trade food shows and sales conferences, major events used to introduce and sell the Company’s products, have been postponed indefinitely.

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. In addition, the continued spread of COVID-19 and the resulting economic downturn could materially and adversely affect the Company’s business and results of operations. 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.

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

Small Business Administration Loan (SBA Loan)

On May 4, 2020, the Company was granted a loan from the Valley National Bank in the aggregate amount of $165, pursuant to the PPP under the CARES Act. Interest accrues at 1% per year, effective on the date of initial disbursement. In addition, a portion of the loan may be forgiven under provisions under the CARES Act based on payments for payroll, rent and utilities during the period subsequent to obtaining the loan.

According to SBA guidelines, if a loan has closed prior to June 5, 2020 and the recipient of the loan has chosen to adopt the 24-week “covered period,” the principal and interest on the loan will be deferred until the earlier of:

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 to 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-dairy 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 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, non-dairy frozen desserts, frozen food products and soy-based cheese products.

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 results of operations for the thirteenthirteen-week and twenty-six week and thirty-nine periods ended September 26, 2020July 3, 2021 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.

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

Note 4: New and 2: Recently AdoptedIssued Accounting Standards

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 June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments. The amendments in this Update 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, 2022, including interim periods within those fiscal years. We are currently evaluating the effect that this new guidance will have on our financial statements and related disclosures.

Note 5: 3: Inventories

The compositionInventories consist of inventories is as follows:the following:

Schedule of Inventories

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. The Company accounts for penalties or interest related to uncertain tax positions as part of its provision for income taxes.

Note 7: 5: Earnings (Loss) Per Share

Basic earnings (loss) per common share has been computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted earnings (loss) per common share for the periods ended September 26, 2020 and September 28, 2019 have been computed by dividing net income (loss) byis calculated using the weighted average number of common shares outstanding and common stock equivalents, which include options and a convertible note outstanding during the same period as applicable. Notperiods. Diluted earnings per share is calculated by dividing earnings by the weighted number of common shares outstanding, which would account for a potential 282,486 shares to be issued upon conversion and have been included in the calculation of diluted earnings (loss) per common share for the thirteen and thirty-nine weeks periods ended September 28, 2019 were the shares issuable upon conversion of a convertible note payable and the shares issuable upon exercise of 80,000 non-qualified options granted to directors, as a consequence of their anti-dilutive effect.July 3, 2021.

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

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

Schedule of Earnings Per Share, Basic and Diluted

Note 8: Fixed Assets6: Equipment

Fixed assets consistEquipment consists of the following:

Schedule of Equipment

Depreciation expense for the thirteen and thirty-ninetwenty-six weeks ended September 26, 2020 was $3July 3, 2021 and $8, respectively. Depreciation expense for the thirteen and thirty-ninetwenty-six weeks ended September 28, 2019June 27, 2020 was $2 $3 and $2,$5, respectively.

TOFUTTI BRANDS INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

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

Note 9: 7: 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.

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

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 2020 or 2021 and no options were outstanding as of September 26,July 3, 2021.

Note 8: Notes Payable

Small Business Administration (SBA) Loan

On May 4, 2020 the Company had issued 80,000 non-qualified stock option awards underreceived from the 2014 Plan, allSBA a loan of which have expired.$165 from the Paycheck Protection Program at an interest rate of 1%. Interest and payments were deferred until March 4, 2021. The current portion of the loan was $128 as of July 3, 2021 and the loan will expire on May 4, 2022. No demand for repayment of the loan has been made as of August 17, 2021. The Company has applied for loan forgiveness and is awaiting the results. There has been no further communication from the SBA on the status.

Note 10: Notes Payable

Related Party

On January 6, 2016, David Mintz, the Company’s former Chairman and Chief Executive, who passed away in February 2021, provided the Company with a loan of $500.$500 with an annual interest rate of 5% payable on a quarterly basis. The loan, which was originally set to expire on December 31, 2017 has beenwas extended to December 31, 2022effective January 10, 2020. The original loan was convertible into shares of the Company’s common stock at a conversion price of $4.01 $4.01 per share, the closing price of its common stock on the NYSE MKT on the date the promissory note was first entered into. The extended loan is, at the option of the holder, convertible into the Company’s common stock at a conversion price of $1.77 $1.77 per share, the closing price of the Company’s common stock on the date of the extension of the promissory note. No other terms 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. 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.

SBA Note Payable

On May 4, 2020, the Company was granted a $165 loan from the Valley National Bank, pursuantInterest expense incurred to the PPP under the Cares Act. Interest accrues at 1% per year, effective on the date of initial disbursement. In addition, a portion of the loan may be forgiven under provisions under the CARES Act based on payments for payroll, rentrelated party was $6,000 and utilities during the period subsequent to obtaining the loan.

The Company elected to account$12,000 for the loan in accordance with ASC 470. The Company recognized the entire loan amount as a liability on the balance sheet, with interest accruedthirteen and expensed over the term of the loan. The loan will remain a liability until either the Company has been legally released from being the primary obligor under the liability (the loan is forgiven), or the Company pays the lendertwenty-six week periods ended July 3, 2021 and is relieved of its obligation$6,000 and $13,000 for the liability.thirteen and twenty-six week periods ended June 27, 2020, respectively.

TOFUTTI BRANDS INC.
NOTES TO FINANCIAL STATEMENTS
(In thousands, except for share and per share data)Schedule of Related Party Notes Payable

According to SBA guidelines, if a loan has closed prior to June 5, 2020 and the recipient of the loan has chosen to adopt the 24-week “covered period,” the principal and interest on the loan will be deferred until the earlier of:

Note 9: Revenue

Note 11: Revenues

Performance obligations relating to the delivery of food products are recognized at a point in time based on actual products and quantitysatisfied when the goods are shipped which can vary from purchase order to purchase order,the customer and net of all applicable discounts, as follows: Payment term discounts, off-invoice allowance, manufacturer chargeback, freight allowance, spoilage discounts, and product returns.

Revenues by geographical region are as follows:

Approximately 93% of the Americas revenue in 2020 and 86% of the Americas revenue in 2019 is attributable to sales in the United States in both the thirteen and thirty-nine week periods. All of the Company’s assets are located in the United States.

Net sales by major product category:

TOFUTTI BRANDS INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

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

TimingRevenues by geographical region are as follows:

Schedule of revenue recognition:Revenues by Geographical Region

Note 12: 10: Leases

The Company’s facilities areCompany is 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 monthsix-month notification period. The Company currently has no plans to enter into a long-term lease agreement for the facility. Rent expense was $13 $20 for the thirteen weeks ended September 26, 2020July 3, 2021 and $19 $19for the thirteen weeks ended September 28, 2019.June 27, 2020. Rent expense was $51 $40 for the thirty-ninetwenty-six weeks ended September 26, 2020July 3, 2021 and $58 $38for the thirty-ninetwenty-six weeks ended September 28, 2019.June 27, 2020. 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 were $116 $137 for the thirteen weeks ended September 26, 2020July 3, 2021 and $121 $113for the thirteen weeks ended September 28, 2019June 27, 2020 and $342 $249 or the twenty-six weeks ended July 3, 2021 and $227for the thirty-ninetwenty-six weeks ended September 26, 2020 and $331 for the thirty-nine weeks ended September 28, 2019.June 27, 2020.

Under Topic 842, operating lease expense is generally recognized evenly over the term of the lease. The Company has operating leases primarily consisting of facilitiesone facility and office equipment with remaining lease terms of approximately two to four years. The Company does not have the option to terminate the leases early.

TOFUTTI BRANDS INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

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

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, the Company has combined the lease and non-lease components in determining the lease liabilities and right-of-use, or ROU, assets.

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%5.5% for all leases that commenced prior to that date.

TOFUTTI BRANDS INC.
NOTES TO 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 September 26, 2020, for the following five fiscal years and thereafterJuly 3, 2021 are as follows:

Schedule of Future Minimum Rental Commitments

TOFUTTI BRANDS INC.

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 Policies

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

Revenue Recognition.We primarily sell non-dairyvegan and dairy-free soy-based cheeses, frozen desserts cheeses and other food products as detailed in Note 11: Revenue.products. We recognize revenue when control over the products transfers to our customers, deemed to be the performance obligation, which generally occurs upon deliverywhen the product is shipped or shipmentpicked up from one of our distribution locations by the products.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.