TOFUTTI BRANDS INC - Annual Report: 2016 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

For the fiscal year ended January 2, 2016

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:

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

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

Yes [  ] 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 [  ] 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. [  ]

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

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

As of March 29, 2016, the issuer had 5,153,706 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-dairy frozen desserts and other food products. TOFUTTI products are soy-based, non-dairy products which contain no butterfat, cholesterol or lactose.

As used in this annual report, the terms “we,” “us” and “our” mean Tofutti Brands Inc., unless otherwise indicated. Statements made in this annual report concerning the contents of any contract, agreement or other document are summaries of such contracts, agreements or documents and are not complete descriptions of all of their terms. If we filed any of these documents as an exhibit to this annual report or to any previous filling with the Securities and Exchange Commission, you may read the document itself for a complete recitation of its terms.

Except for the historical information contained in this annual report, the statements contained in this annual report are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, as amended, with respect to our business, financial condition and results of operations. Such forward-looking statements reflect our current view with respect to future events and financial results. We urge you to consider that statements which use the terms “anticipate,” “believe,” “do not believe,” “expect,” “plan,” “intend,” “estimate,” “anticipate” and similar expressions are intended to identify forward-looking statements. We remind readers that forward-looking statements are merely predictions and therefore inherently subject to uncertainties and other factors and involve known and unknown risks that could cause the actual results, performance, levels of activity, or our achievements, or industry results, to be materially different from any future results, performance, levels of activity, or our achievements expressed or implied by such forward-looking statements. Such forward-looking statements are also included in Item 1. “Business” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as required by applicable law, including the securities laws of the United States, we undertake no obligation to publicly release any update or revision to any forward-looking statements to reflect new information, future events or circumstances, or otherwise after the date hereof. We have attempted to identify significant uncertainties and other factors affecting forward-looking statements in the Risk Factors section that appears in Item 1A. “Risk Factors.”

We operate on a fiscal year ending on the Saturday closest to December 31. Fiscal years for the financial statements included herein are the fifty-three week period ended January 2, 2016 (fiscal 2015) and the fifty-two week period ended December 27, 2014 (fiscal 2014).

PART I

GENERAL

We are engaged in the development, production and marketing of TOFUTTI® brand non-dairy frozen desserts and other food products. TOFUTTI products are soy-based, non-dairy products which contain no butterfat, cholesterol or lactose. Our products are 100% milk free yet offer the same texture and full-bodied taste as their dairy counterparts. Our products are also free of cholesterol and derive their fat from soy and corn, both naturally lower in saturated fat than dairy products. With the exception of Mintz’s Blintzes, all of our products are completely vegan and our soy-cheese products are gluten free as well. In addition, all of our products are certified kosher-parve and all of our soy-cheese products are also certified halal.

We were organized under the laws of the State of New York in 1981 and became a Delaware corporation in 1984. Our registered office and principal executive offices are located at 50 Jackson Drive, Cranford, New Jersey 07016, our telephone number is 908-272-2400. 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, vegan, soy-based food products, primarily frozen desserts and soy-cheese products, to supermarkets and health food stores in the United States and abroad. We intend to continue to introduce new products that offer good taste while containing no butterfat, cholesterol or dairy to these markets.

We focus our marketing efforts toward those consumers who find our products essential to their everyday diets because of health, lifestyle or religious reasons. In order to broaden the use of our soy-cheese products, we incorporate them into our branded food products such as blintzes, pizza, 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, vegan soy-based, kosher-parve products will continue to provide us with a competitive advantage.

TOFUTTI PRODUCT LINE

We offer a broad product line of soy-based, non-dairy products. Our non-dairy products include frozen desserts, soy-based cheeses and spreads, and other frozen food products.

Frozen Desserts

Non-dairy Soy-Based Cheese Products

Frozen Food Products

Planned 2016 Product Introductions

Beginning in the third quarter of 2016, we plan to introduce a new line of vegan dips, shredded cheddar and mozzarella soy-cheeses, and several new frozen dessert stick novelties.

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 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 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 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, 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 which our customers are able to pick up products. Use of outside storage facilities in several key locations in the United States allows us to provide our customers with products in a timely fashion.

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

Our sales to health food accounts in fiscal 2015 decreased to approximately $6,081,000, or 44% of total sales, from approximately $6,379,000, or 44% of total sales, in fiscal 2014. Our sales to the kosher market increased slightly to approximately $1,436,000, or 10% of sales, in fiscal 2015, from sales of approximately $1,418,000, or 10% of sales, in fiscal 2014.

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

During fiscal 2015, we shipped our products to distributors in Australia, Brazil, Canada, Egypt, England, Ireland, Israel, Malaysia, Mexico, Panama, South Africa, and Trinidad. Our distributor in England is our master distributor for all of Europe and part of the Middle East, excluding Israel, and sells our products to approximately twenty other countries. Sales to foreign distributors decreased to $2,319,000, or 17% of sales, in fiscal 2015, as compared to $2,495,000, or 17% of sales, in fiscal 2014. 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-based frozen desserts. We believe that we are a leader in the non-dairy frozen dessert product market and offer the most complete line of non-dairy frozen dessert products. Other soy-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 other products also face substantial competition from non-dairy and dairy products marketed by companies with significantly greater resources than we have.

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-dairy frozen dessert, soy-cheese and other food products that contain no butterfat, cholesterol or lactose and are 100% milk-free, yet offer the same texture and full-bodied taste as their dairy counterparts.

PRODUCT DEVELOPMENT

All of our current products were developed 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 2015 and 2014, our product development expenses were approximately $523,000 and $641,000, respectively. These amounts do not include any portion of Mr. Mintz’s salary. All product development costs are expensed as incurred and are recorded as operating expenses in our financial statements.

PRODUCTION

We believe that all of our products are produced under the strictest quality control procedures that are available in each manufacturing facility used by us. These quality control procedures include, but are not limited to, the cleaning processes utilized prior to running our products; spot line inspections during production; in-house laboratory testing as required by government agencies; supervision of all our production by our kosher supervisory service; supervision of all our soy-cheese production by our halal supervisory service; and random testing by outside independent laboratories to ensure that our internal quality control procedures and guidelines are being properly followed.

All of our products are produced by co-packers to whom we supply certain key ingredients and packaging for the manufacturing processes. Our co-packing facilities are fully licensed and must comply with all state and federal laws and regulations. We currently utilize six 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-dairy 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.

During the years ended January 2, 2016 and December 27, 2014, we purchased approximately 24% 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, our BETTER THAN CREAM CHEESE, SOUR SUPREME, and BETTER THAN RICOTTA co-packer.

Relationships with Co-Packers

We do not have any written production agreements with our co-packers and do not anticipate that we would encounter any material difficulty in obtaining alternative production sources, at a comparable cost, if one or all of our co-packers decide to terminate their relationships with us. Nevertheless, any disruption in supply could have a material adverse effect on our company.

In order to protect our formulas, we have entered into confidentiality arrangements with our co-packers and some of our co-packers’ employees. All of our employees, including officers, sign similar confidentiality agreements. There can be no assurance that such confidentiality arrangements can or will be maintained, or that our trade secrets, know-how and marketing ability cannot be obtained by others, or that others do not now possess similar or even more effective capabilities.

Kosher Certification

KOF-K Kosher Supervision, or KOF-K, of Teaneck, New Jersey provides us with our kosher certification service. Before KOF-K will permit its certification, evidenced by its symbol, to be placed on a product, KOF-K must approve both the ingredients contained in the product and the facility processing the product. Approval of the manufacturing facilities we use include periodic inspections, and in most cases, on-site supervision of actual production. We pay a yearly renewal fee for certification. We believe that our ability to successfully market and distribute our products is dependent upon our continued compliance with the requirements of rabbinical certification. All TOFUTTI products meet the requirements for certification as kosher-parve.

Halal Certification

In early 2013, we completed a halal certification process at Franklin Foods, the co-packer of our BETTER THAN CREAM CHEESE, SOUR SUPREME and BETTER THAN RICOTTA products and at Whitehall Specialties, the co-packer of our soy-cheese slices and bulk Better Than Mozzarella products. This certification is provided by the Islamic Food and Nutrition Council of America (IFANCA) of Park Ridge, Illinois and currently applies only to those products manufactured by Franklin Foods and Whitehall Specialties. Before IFANCA will permit its certification to be placed on a product, which is evidenced by its symbol, IFANCA must approve both the ingredients contained in the product and the facility processing the product. Approval of the manufacturing facilities we use includes periodic inspections. There is a yearly renewal fee for certification. All TOFUTTI soy-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.

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, we employed nine persons on a full-time basis as compared to twelve persons on a full time basis on December 27, 2014. 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 profitability in the future. To the extent that we continue to incur operating losses, we may not have sufficient working capital to fund our operations in the future.

Our sales have not rebounded since the loss in 2011 of our then largest customer, when it discontinued stocking branded goods. We continue to struggle to replace those sales. The loss of revenues from this former customer has affected our profitability. We had net losses of $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 in cash and cash equivalents and our working capital was $2,003,000. The lack of sufficient working capital could negatively impact our ability to introduce and adequately promote new products. To the extent that we incur operating losses in the future or are unable to generate free cash flows from our business, we may not have sufficient working capital to fund our operations and will be required to obtain additional financing. Such financing may not be available, or, if available, may not be on terms satisfactory to us. If adequate funds are not available to us, our business, and results of operations and financial condition will be adversely affected.

We 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. 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.

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.

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% of our net sales in the fiscal year ended January 2, 2016 and 43% of our net sales for the fiscal year ended December 27, 2014. Although we believe that the business associated with any of our primary distributors can be readily transferred to other distributors or directly to supermarket warehouses if necessary, no assurance can be given that a change in distributors would not be disruptive to our business, which could have a material adverse effect on our business and results of operations.

We depend on several key suppliers to produce our products.

We do not produce any of our own products. During the years ended January 2, 2016 and December 27, 2014, we purchased approximately 24% 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, our BETTER THAN CREAM CHEESE, SOUR SUPREME, and BETTER THAN RICOTTA co-packer. Although we believe that there will be no problem in continuing to obtain finished goods from our current or alternative sources in the future, any disruption in supply could have a material adverse effect on our company.

Our suppliers are subject to federal, state and local government regulations that could adversely affect our business and financial position.

Virtually all food manufacturing operations are subject to regulation by various federal, state and local government entities and agencies. As producers of food products for human consumption, our suppliers are subject to stringent production, packaging, quality, labeling and distribution standards, including regulations mandated by the Federal Food, Drug and Cosmetic Act, the FDA, OSHA, the EPA and the USDA. Future regulation by various federal, state or local governmental entities or agencies could, among other things, increase our suppliers’ cost of production, cause them to incur unexpected expenditures or encumber productivity, any of which may adversely affect our business and financial results.

Our ability to compete effectively in the highly competitive frozen dessert and health food markets may affect our operational performance and financial results.

The frozen dessert, non-dairy cheese food and health food markets are highly competitive. In addition, many of our principal competitors are large, diversified companies with resources significantly greater than ours. We expect strong competition to continue, including competition for adequate distribution and competition for the limited shelf space for the frozen dessert and non-dairy cheese food categories in supermarkets and other retail food outlets. 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 downturns and disruptions in financial markets can adversely affect our business and results of operations.

Our results of operations can be materially affected by adverse conditions in the financial markets and depressed economic conditions generally. Worsening economic conditions may result in diminished demand for our products and in decreased sales volumes. Recessionary environments adversely affect the demand for our products as a result of constraints on discretionary spending by our retail customers. In addition, this could result in longer sales cycles, slower acceptance of new products and increased competition for our products, which in turn could cause us to reduce prices for our products resulting in reduced gross margins. Any of these events would likely harm our business, operating results and financial condition.

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, sales to our major customers fluctuate widely from period to period and there is no way to accurately predict that their sales pattern from one year will be repeated in the corresponding period of the next fiscal year. Due to the foregoing factors, in some future quarter our operating results may be below the expectations of investors. In such event, it is likely that the price of our common stock would be materially adversely affected.

We have no registered patents. The absence of patent protection could adversely affect our results of operations.

We rely upon the confidentiality of our formulas and our know-how rather than upon patent protection. There is no assurance that such confidentiality can or will be maintained or that our know-how cannot be obtained by others or that others do not now possess similar or even more effective capabilities. The failure to maintain the confidentiality of our know-how could adversely affect our operating results.

We are subject to risks associated with international operations.

In fiscal 2015 approximately 17% of our revenues were from international sales. Although we continue to expand our international operations, we cannot be certain that we will be able to maintain or increase international market demand for our products. To the extent that we cannot do so in a timely manner, our business, operating results and financial condition will be adversely affected. International operations are subject to inherent risks, including the following:

Negative developments in any of these areas in one or more countries could result in a reduction in demand for our products, the cancellation or delay of orders already placed, difficulty in collecting receivables, and a higher cost of doing business, any of which could adversely affect our business, results of operations or financial condition.

We may be adversely affected by fluctuations in currency exchange rates.

Our foreign transactions are always in U.S. dollars, and to date we have not engaged in any currency hedging transactions intended to reduce the effect of fluctuations in foreign currency exchange rates on our results of operations. Therefore, our future export sales could be adversely affected by an increase in the value of the U.S. dollar, which could increase the local currency price of our products. Although exposure to currency fluctuations to date has not had a material effect on our business, there can be no assurance such fluctuations in the future will not materially and adversely affect our revenues from international sales and, consequently, our business, operating results and financial condition.

Product liability suits, if brought, could have a material adverse effect on our business.

From time to time in the normal course of our business, we become subject to product liability claims. If a product liability claim exceeding our insurance coverage were to be successfully asserted against us, it could harm our business. We cannot assure you that such coverage will be sufficient to insure against claims which may be brought against us, or that we will be able to maintain such insurance or obtain additional insurance covering existing or new products. As a marketer of food products, we are subject to the risk of claims for product liability. We maintain general product liability and umbrella insurance coverage and generally require that our co-packers maintain product liability insurance with us as a co-insured. Similarly, most of our customers require us to name them as additional insureds as well, and in some cases we are required to sign hold harmless and indemnification agreements.

If our food products become adulterated or misbranded, we would need to recall those items and may experience product liability claims if consumers are injured as a result.

Food products occasionally contain contaminants due to inherent defects or improper storage or handling. Under adverse circumstances, food producers may be required to recall some of their products if they become adulterated or misbranded or as a result of a government-mandated recall. The scope of such a recall could result in significant costs incurred as a result of the recall, potential destruction of inventory, and lost sales. Should consumption of any product cause injury, we may be liable for monetary damages as a result of a settlement or judgment against us. A widespread product recall could result in changes to one or more of our business processes, product shortages, a loss of customer confidence in our brand or other adverse effects on our business.

Our failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have an adverse effect on our financial results and the market price of our common stock.

The Sarbanes-Oxley Act of 2002 imposes certain duties on us and our executives and directors. Our efforts to comply with the requirements of Section 404 have resulted in increased general and administrative expense and a diversion of management time and attention, and we expect these efforts to require the continued commitment of resources. Section 404 of the Sarbanes-Oxley Act requires us to provide management’s annual review and evaluation of our internal control over financial reporting in connection with the filing of our Annual Report on Form 10-K for each fiscal year. Based on their evaluation under the frameworks described above, our chief executive officer and chief financial officer concluded that our internal control over financial reporting was ineffective as of January 2, 2016 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

We have received a notice of non-compliance with a continued listing standard from the NYSE MKT for our common stock. 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 subject to the procedures and requirements 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, we were 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 plan or to regain compliance with the continued listing standards by the end of the extension period could result in our being delisted from the NYSE 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 negatively impact our ability to raise equity financing; 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.

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 to control the policies and management of our company.

Our Chairman of the Board and Chief Executive Officer, David Mintz, holds 2,630,440 shares of common stock representing approximately 51.0% of the outstanding shares. For as long as Mr. Mintz has a controlling interest in our company, he will have the ability to exercise a controlling influence over our business and affairs, including any determinations with respect to potential mergers or other business combinations involving us, our acquisition or disposition of assets, our incurrence of indebtedness, our issuance of any additional common shares or other equity securities, our repurchase or redemption of common shares and our payment of dividends. Similarly, as long as Mr. Mintz has a controlling interest in our company, he will have the power to determine the outcome of matters submitted to a vote of our shareholders, including the power to elect all of the members of our board of directors and prevent an acquisition or any other change in control of us.

We do not intend to pay cash dividends.

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

None.

Our facilities are located in a one-story facility in Cranford, New Jersey. The 6,200 square foot facility houses our administrative offices, a warehouse, walk-in freezer and refrigerator, and a product development laboratory and test kitchen. Our lease agreement expired on July 1, 1999, but we continue to occupy the premises under the terms of that agreement, subject to a six month notification period for us and the landlord with respect to any changes. We currently have no plans to enter into a long-term lease agreement for the facility. Our rent expense was $82,000 and $81,000 in fiscal 2015 and fiscal 2014, respectively. 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 and $523,000 during fiscal 2015 and 2014, respectively.

We are not a party to any material litigation.

Not applicable.

PART II

Our common stock was listed on the American Stock Exchange on October 29, 1985 and has traded on the AMEX or its successors under the symbol TOF since such time. As a result of the merger of the NYSE and AMEX, it currently trades on the NYSE MKT. Each share ranks equally as to dividends, voting rights, participation in assets on winding-up and in all other respects. No shares have been or will be issued subject to call or assessment. There are no preemptive rights, provisions for redemption or for either cancellation or surrender, or provisions for sinking or purchase funds.

The following table sets forth the high and low sales prices as reported on the NYSE MKT or its predecessors for the two most recent fiscal years:

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

Holders of Record

As of March 25, 2016, there were approximately 426 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.

Equity Compensation Plans

Our shareholders adopted our 2014 Equity Incentive Plan (the “Plan”) on June 10, 2014. As of January 2, 2016, 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. 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 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 be 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.

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, 2016 (the fourth quarter of fiscal 2015).

Not applicable.

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

Critical Accounting Policies

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

Revenue Recognition. We recognize revenue when goods are shipped from our production facilities or outside warehouses and the following four criteria have been met: (i) the product has been shipped and we have no significant remaining obligations; (ii) persuasive evidence of an arrangement exists; (iii) the price to the buyer is fixed or determinable; and (iv) collection is probable. We record as deductions against sales all trade discounts, returns and allowances that occur in the ordinary course of business, when the sale occurs. To the extent we charge our customers for freight expense, it is included in freight out expense in cost of goods sold. The amount of freight costs charged to customers has not been material to date.

Accounts Receivable. The majority of our accounts receivables are due from distributors (domestic and international) and retailers. Credit is extended based on evaluation of a customers’ financial condition and, generally, collateral is not required. Accounts receivable are most often due within 30 to 90 days and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. We determine whether an allowance is necessary by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, the customer’s current ability to pay its obligation, and the condition of the general economy and the industry as a whole. We write-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the bad debt expense account. We do not accrue interest on accounts receivable past due.

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 market determined by first in first out (FIFO) method. Inventories in excess of future demand are written down and charged to the provision for inventories. At the point of which loss is recognized, a new, lower cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in the newly established cost basis.

Income Taxes. The carrying value of deferred tax assets assumes that we will be able to generate sufficient future taxable income to realize the deferred tax assets based on estimates and assumptions. If these estimates and assumptions change in the future, we may be required to record a valuation allowance against deferred tax assets which could result in additional income tax expense. We will recognize a tax benefit in the financial statements for an uncertain tax position only if management’s assessment is that the position is “more likely than not” (i.e., a likelihood greater than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term “tax position” refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for financial reporting purposes.

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

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

Recent Accounting Pronouncements

In February 2016, the FASB issued guidance which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. This Accounting Standards Update, or ASU, will be effective for fiscal years beginning after December 15, 2018 including interim periods within those fiscal years. Early adoption is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. We are currently evaluating the impact of adopting the new leases standard on our 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, organizations will be required to classify all deferred tax assets and liabilities as noncurrent. The amendments apply to all organizations that present a classified balance sheet. This amendment is effective for our company for financial statements issued for annual periods beginning after December 15, 2016 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 on 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. We do not expect the adoption of this guidance will have a material impact on our financial statements and related disclosures.

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. 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 raise substantial doubt about an entity’s ability to continue as a going concern. If such conditions or events exist, disclosures are required that enable users of the financial statements to understand the nature of the conditions or events, management’s evaluation of the circumstances and management’s plans to mitigate the conditions 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 assessment 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, the adoption of this guidance is not expected to impact our financial position, results of operations or cash flows.

Key Factors Affecting Our Business

Our operations and the operating metrics discussed below have been, and will likely continue to be affected by certain key factors as well as certain historical events and actions. The key factors affecting our business and results of operations include among others, our ability to attain profitability in the future, dependence 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. For further discussion of the factors affecting our results of operations, see “Risk Factors.”

We may not be able to attain profitability in the future.

Our sales have not rebounded since the loss 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 in cash and cash equivalents and our working capital was $2,003,000. The lack of sufficient working capital could negatively impact our ability to introduce and adequately promote new products. To the extent that we incur operating losses in the future or are unable to generate free cash flows from our business, we may not have sufficient working capital to fund our operations and will be required to obtain additional financing. Such financing may not be available, or, if available, may not be on terms satisfactory to us. If adequate funds are not available to us, our business, and results of operations and financial condition will be adversely affected.

We depend on a few key distributors for a significant portion of our sales.

A significant portion of our sales are to several key distributors, which are large distribution companies with numerous divisions and subsidiaries who act independently. Such distributors as a group accounted for 44% and 43% of our net sales for the fiscal years ended January 2, 2016 and December 27, 2014, 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 key suppliers to produce our products.

We do not produce any of our own products. During the years ended January 2, 2016 and December 27, 2014, we purchased approximately 24% and 26%, respectively, of our finished goods from Ice Cream Specialties, our primary frozen dessert novelty co-packer and 29% and 28% of our finished goods, respectively, from Franklin Foods, our BETTER THAN CREAM CHEESE, SOUR SUPREME, and BETTER THAN RICOTTA co-packer. Although we believe that there will be no problem in continuing to obtain finished goods from our current or alternative sources in the future, any disruption in supply could have a material adverse effect on our company.

Competition.

The frozen dessert, non-dairy cheese food and health food markets are highly competitive. In addition, many of our principal competitors are large, diversified companies with resources significantly greater than ours. We expect strong competition to continue, including competition for adequate distribution and competition for the limited shelf space for the frozen dessert and non-dairy cheese food categories in supermarkets and other retail food outlets.

From time to time, we and our customers experience price pressure in some of our markets as a result of competitors’ promotional pricing practices as well as general market conditions. Our failure to match or exceed our competitors’ cost reductions through innovative products and other improvements could weaken our competitive position. Competition is based on product quality, reliability, food safety, distribution effectiveness, brand loyalty, price, effective promotional activities, the ability to identify and satisfy emerging consumer preferences and the ability to provide ancillary support services. We may not be able to compete effectively with these larger, more diversified companies.

We rely on a limited number of key executives to manage our business.

Our success is significantly dependent on the services of David Mintz (age 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, 2016 Compared with Fiscal Year Ended December 27, 2014

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-three week period ended January 2, 2016 (fiscal 2015) and the fifty-two week period ended December 27, 2014 (fiscal 2014).

Net sales for the fiscal year ended January 2, 2016 were $13,764,000, a decrease of $589,000, or 4%, from net sales of $14,353,000 for the fiscal year ended December 27, 2014. Sales in our frozen dessert product line decreased to $3,866,000 in fiscal 2015 from $4,386,000 in fiscal 2014. Our frozen dessert business continues to be negatively impacted by the overall sluggishness of sales in the ice cream category. Sales of soy-cheese products decreased to $9,311,000 in fiscal 2015 from $9,446,000 in fiscal 2014, primarily as a result of increased 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 of an increase in Pizza Pizzaz sales.

Our gross profit in the year ended January 2, 2016 decreased by $652,000 to $3,598,000 from $4,250,000, reflecting the reduction in sales. Our gross profit percentage for the year ended January 2, 2016 decreased to 26% from 30% for the year ended December 27, 2014. Our gross profit percentage was negatively impacted by a $482,000 increase in sales 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 $959,000 for the year ended December 27, 2014 due to the decrease in sales. Freight out cost as a percentage of sales decreased slightly from 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. 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 cost alternatives.

Selling and warehousing expenses increased by $78,000, or 5%, to $1,550,000 for fiscal 2015 from $1,472,000 in fiscal 2014. This increase was caused primarily by an increase in payroll expense of $13,000, bad debt expense of $87,000, and meetings and conventions expense of $15,000. These increases were partially offset by decreases in commission expense of $8,000, travel, entertainment and auto expense of $14,000 and outside warehouse rental expense of $10,000. We anticipate that selling expenses in 2016 should be lower compared with our expenses in 2015.

Marketing expenses decreased in fiscal 2015 by $196,000, or 35%, to $357,000 from $553,000 in fiscal 2014 due to decreases in advertising expense of $28,000, public relations expense of $49,000, promotion expense of $52,000, and artwork and plates expense of $69,000. We expect marketing expenses to decline in fiscal 2016 compared to 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.

Product development expenses decreased by $118,000, or 18%, to $523,000 in fiscal 2015 from $641,000 in fiscal 2014. The decrease was caused primarily by a decrease in payroll expense of $113,000. We expect product development costs to remain constant or decline slightly in fiscal 2016.

General and administrative expenses increased by $73,000, or 4%, to $1,888,000 for fiscal 2015 as compared with $1,815,000 for fiscal 2014. The increase was primarily due to a non-cash $113,000 increase in stock option expense, a $18,000 increase in professional fees and outside services, and a $10,000 increase in general insurance expense. These increases were partially offset by a $12,000 decrease in public relations expense, a $18,000 decrease in payroll expense, and a $24,000 decrease in travel, entertainment and auto expense. Our management expects that general and administrative expenses in 2016 will decrease compared with fiscal 2015 expenses due to a significant reduction in stock option expense.

Overall, total operating expenses in fiscal 2015 decreased by $163,000, or 4%, to $4,318,000 compared to total operating expenses of $4,481,000 in fiscal 2014. We anticipate that our operating expenses in fiscal 2016 will decline in comparison to fiscal 2015 due to a reduction on stock option expense and declines in sales and marketing expenses.

Loss before income taxes increased by $490,000, or 212%, to a loss of $721,000 in fiscal 2015 as compared with a loss of $231,000 in fiscal 2014.

Income tax benefit for the 2015 fiscal period was $78,000 compared to income tax benefit of $68,000 for the 2014 fiscal period. The income tax benefit in 2015 and 2014 was due to reductions in our unrecognized tax positions from prior years.

Liquidity and Capital Resources

Our recent operating history has resulted in a decrease in our capital resources. At January 2, 2016, we had approximately $55,000 in cash and cash equivalents, and our working capital was $2,003,000, a decrease of $530,000 from December 27, 2014. Our current and quick acid test ratios, both measures of liquidity, were 2.4 and 1.4, 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.

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, 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, the closing price of our common stock on the NYSE MKT on the date the promissory note was entered into.

Cash used in operating activities was $280,000 for the fiscal year ended January 2, 2016 compared with cash provided by operating activities of $129,000 for the fiscal year ended December 27, 2014. In 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.

In the fiscal year ended January 2, 2016, we used $6,000 in financing activities compared to $2,000 used in financing activities for the fiscal year ended December 27, 2014.

As a result of the foregoing, our cash and cash equivalents decreased to $55,000 at January 2, 2016 from $341,000 at December 27, 2014.

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, existing working capital and the cash flows expected from operations, will be sufficient to support our operating and capital requirements during the next twelve months. However, we may require additional financing in order to carry out our business plans for future periods.

Contractual Obligations

We had no material contractual obligations at January 2, 2016.

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-dairy 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.

Off-Balance Sheet Arrangements

None.

Not applicable.

Index to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of

Tofutti Brands Inc.

We have audited the accompanying balance sheets of Tofutti Brands Inc. (the “Company”) as of January 2, 2016 and December 27, 2014, and the related statements of operations, changes in stockholders’ equity, and cash flows for each of the fiscal years then ended. The financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Tofutti Brands Inc. as of 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.

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
(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, 2016 and December 27, 2014
(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, Tofutti Brands, Inc. (the “Company”) had approximately $55 in cash compared to $341 at December 27, 2014. Net cash used in operating activities for the year ended January 2, 2016 was $280 compared to $129 provided by operating activities for the year ended December 27, 2014. Net cash used in operating activities for the year ended January 2, 2016 was primarily the result of our net loss of $643 and a decrease of $184 in accounts payable and accrued expenses, which were partially offset by decreases in accounts receivable and inventory of $131 and $379, respectively.

During the years ended January 2, 2016 and December 27, 2014, $6 and $2 was used in financing activities, respectively.

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, provided it with a loan of $500,000 which is due on December 31, 2017. 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.

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-dairy frozen desserts and other food products.

Operating Segments. 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 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-dairy frozen desserts, frozen food products and soy-based cheese products.

Fiscal Year - The Company operates on a fiscal year ending on the Saturday closest to December 31st. Fiscal years for the financial statements included herein are the fifty-three week period fiscal ended January 2, 2016 and the fifty-two week fiscal period ended on December 27, 2014.

TOFUTTI BRANDS INC.

NOTES TO FINANCIAL STATEMENTS

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

Estimates and Uncertainties - The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include allowance for doubtful accounts, sales promotion accruals, inventory reserves and reserves for uncertain tax positions. Actual results could differ from those estimates.

Revenue Recognition - Revenue is recognized when goods are shipped from production facilities or outside warehouses to customers. Revenue is recognized when the following four criteria under ASC 605 have been met: the product has been shipped and the Company has no significant remaining obligations; persuasive evidence of an arrangement exists; the price to the buyer is fixed or determinable; and collection is probable. Deductions from sales for promotional programs, manufacturers’ charge-backs, co-operative advertising programs and other programs are recorded as reductions of revenues and are provided for at the time of initial sale of product. Freight charged to customers is included in revenues, and has generally been insignificant.

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, 2016 is limited.

During the fiscal years ended January 2, 2016 and December 27, 2014, the Company derived approximately 83% of its net sales domestically. The remaining sales in both periods were exports to foreign countries. The accounts receivable balance of one customer represented approximately 9% of total accounts receivable at January 2, 2016, and one customer represented 16% of total accounts receivable at December 27, 2014. 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% and 43% of the Company’s net sales for the fiscal years ended January 2, 2016 and December 27, 2014.

Accounts Receivable - The majority of the Company’s accounts receivables are due from distributors (domestic and international) and retailers. Credit is extended based on evaluation of a customers’ financial condition and, generally, collateral is not required. Accounts receivable are most often due within 30 to 90 days and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. The Company writes-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the bad debt expense. The Company does not accrue interest on accounts receivable past due.

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

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 market determined by first in first out (FIFO) method. Inventories in excess of future demand are written down and charged to the provision for inventories. At the point of which loss is recognized, a new, lower cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in the newly established cost basis.

The Company purchased approximately 24% and 26% of its finished products from one supplier and 29% and 28% of its finished products from another supplier during the periods ended January 2, 2016 and December 27, 2014, respectively.

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

Stock-based compensation - The Company accounts for stock-based awards to employees and directors in accordance with the provisions of ASC 718, “Compensation – Stock 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.

Net Loss 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, 2016 and December 27, 2014, 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.

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 and $959 during the fiscal years ended January 2, 2016 and December 27, 2014, 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 and $265 during the fiscal years ended January 2, 2016 and December 27, 2014, respectively.

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

Recent Accounting Pronouncements - In February 2016, the FASB issued guidance which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. This Accounting Standards Update, or ASU, will be effective for fiscal years beginning after December 15, 2018 including interim periods within those fiscal years. Early adoption is permitted. The new leases standard requires a modified retrospective transition approach 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, organizations will be required to classify all deferred tax assets 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 adoption 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 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. The Company does not expect the adoption of this guidance will have a material impact on its financial statements and related disclosures.

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 FASB issued guidance that requires management to evaluate whether there are conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern. If such conditions or events exist, disclosures are required that enable users of the financial statements to understand the nature of the conditions or events, management’s evaluation of the circumstances and management’s plans to mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. The Company will be required to perform 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, the adoption of this guidance is not expected to impact the Company’s financial position, results of operations or cash flows.

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, 2016 and December 27, 2014 was $6 and $2, respectively.

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, 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, 2014 to January 2, 2016:

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

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.

As of January 2, 2016, the intrinsic value of the options outstanding and exercisable was immaterial. As of January 2, 2016, there was approximately $94 of total unrecognized compensation cost that will be recognized through 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.

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 in 2015 and $80 in 2014. 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 components of income tax benefit for the fiscal years ended January 2, 2016 and December 27, 2014 are as follows:

A reconciliation between the expected federal tax expense at the statutory tax rate of 34% and the Company’s actual tax expense for the fiscal years ended January 2, 2016 and December 27, 2014 follows:

Deferred tax assets for the fiscal years ended January 2, 2016 and December 27, 2014 consist of the following components:

At January 2, 2016, the Company has $1,860 of federal net operating loss carryforwards and $2,664 of state net operating loss carryforwards, which will begin to expire in 2032.

Management has concluded that based upon all available evidence it is more likely than not that deferred tax assets will not be utilized. The Company has recorded an increase in the valuation allowance in the amount of $253 during the year ended January 2, 2016. The remaining deferred tax asset is offset by the federal unrecorded tax benefit.

The Company will recognize a tax benefit in the financial statements for an uncertain tax position only if management’s assessment is that the position is “more likely than not” (i.e., a likelihood greater than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term “tax position” refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for financial reporting purposes.

TOFUTTI BRANDS INC.

NOTES TO FINANCIAL STATEMENTS

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

The following table indicates the changes to the Company’s uncertain tax positions for the fiscal years ended January 2, 2016 and December 27, 2014:

The Company accounts for penalties or interest related to uncertain tax positions as part of its provision for income taxes. The Company had approximately $2 and $32 of accrued interest and penalties related to uncertain tax positions at January 2, 2016 and December 27, 2014, respectively. The amount of uncertain tax positions that would affect the effective tax rate if they were recognized is $119.

The liability at January 2, 2016 for uncertain tax positions is included in accrued expenses. The Company’s federal and state tax returns are open to examination for the years 2012 to 2015.

NOTE 8: NOTE 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.

Minimum estimated future payments on this loan as of January 2, 2016 are as follows:

TOFUTTI BRANDS INC.

NOTES TO FINANCIAL STATEMENTS

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

NOTE 9: SALES BY GEOGRAPHIC REGION AND PRODUCT CATEGORY

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

Approximately 93% of the Americas revenue in fiscal 2015 and fiscal 2014 is attributable to the United States. All of the Company’s assets are located in the United States.

Net sales by major product category (in thousands):

NOTE 10: SUBSEQUENT EVENTS

On January 6, 2016, the Company entered into a loan agreement with David Mintz, Chairman of the Board of Directors and Chief Executive Officer of the Company, evidenced by a promissory note, whereby Mr. Mintz agreed to loan the Company $500 until December 31, 2017. The loan will bear interest at 5% per annum commencing March 31, 2016 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 shares of the Company’s Common Stock at a conversion price of $4.01 per share, the closing price of the Company’s 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 other obligations of the Company 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.

None.

Evaluation of Disclosure Controls and Procedures

Evaluation of Disclosure Controls and Procedures. As of January 2, 2016, our company’s chief executive officer and chief financial officer conducted an evaluation regarding the effectiveness of our company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based upon the evaluation of these controls and procedures, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective with respect to the material weaknesses, as described below in our internal control over financial reporting, that have not been fully remediated as of the end of the fiscal year 2015.

Disclosure Controls and Internal Controls. As provided in Rule 13a-14 of the General Rules and Regulations under the Securities and Exchange Act of 1934, as amended, Disclosure Controls are defined as meaning controls and procedures that are designed with the objective of insuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, designed and reported within the time periods specified by the SEC’s rules and forms. Disclosure Controls include, within the definition under the Exchange Act, and without limitation, controls and procedures to insure that information required to be disclosed by us in our reports is accumulated and communicated to our management, including our chief executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure. Internal Controls are procedures which are designed with the objective of providing reasonable assurance that (1) our transactions are properly authorized; (2) our assets are safeguarded against unauthorized or improper use; and (3) our transactions are properly recorded and reported, all to permit the preparation of our financial statements inconformity with generally accepted accounting principles.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of the Chief Executive Officer and Chief Financial Officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management’s evaluation of internal control over financial reporting includes using the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, framework, an integrated framework (2013) for the evaluation of internal controls issued by COSO, to identify the risks and control objectives related to the evaluation of our control environment.

Based on their evaluation under the frameworks described above, our chief executive officer and chief financial officer have concluded that our internal control over financial reporting was ineffective as of January 2, 2016 because of the following material weaknesses in internal controls over financial reporting:

Remediation Plan

We are continuing to seek ways to remediate these weaknesses, which stem from our small workforce, that will not require us to hire additional personnel.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during the quarter ended January 2, 2016 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

None.

PART III

Our directors and executive officers are:

David Mintz has been our Chairman of the Board and Chief Executive Officer since August 1981. Mr. Mintz’s knowledge about our company and his role as the developer of our product line is essential to the operation of our board.

Steven Kass has been our Chief Financial Officer since November 1986 and Secretary and Treasurer since January 1987.

Neal S. Axelrod has been a director since August 2007. Mr. Axelrod has been a self-employed certified public accountant in New Jersey since 1977. Mr. Axelrod’s accounting and financial background enhances the breadth of experience of the board of directors.

Joseph N. Himy was elected to serve as a member of the Board of Directors and the Audit Committee on October 30, 2013 by our Board of Directors. He has been Managing Director of The CFO Squad, a financial and business advisory firm providing outsourced CFO advisory and regulatory consulting services primarily for public companies, since August 2011. From May 2008 until August 2011, Mr. Himy was Chief Financial Officer of Vyteris, Inc., manufacturer of the first active transdermal patch approved by the U.S. Food and Drug Administration for the pain associated with blood draws, intravenous cannulations and laser ablation of superficial skin lesions. Prior to May 2008 and from October 2004, Mr. Himy held various other positions at Vyteris, including Corporate Controller and VP of Finance. Mr. Himy received a B.S. degree in Accounting from Brooklyn College of the City University of New York and is a certified public accountant. Mr. Himy’s accounting and financial and corporate governance experience background enhances the breadth of experience of the board of directors.

Scott Korman has served as member of the Board of Directors since December 2011 and as a member of the Audit Committee from December 2011 until March 2016. Mr. Korman founded Nashone, Inc., a private equity firm, in 1984 and is its President. Nashone is also involved in financial advisory, turnaround and general management assignments. Mr. Korman is currently Chairman of Da-Tech Corporation, a Pennsylvania based contract electronics manufacturer. He previously served as Chairman and CEO of Best Manufacturing Group LLC., a leading manufacturer and distributor of uniforms, napery, service apparel, and hospitality and healthcare textiles. Mr. Korman also served as President and CEO of Welsh Farms Inc., a full service dairy, processing and distributing milk, ice cream mix and ice cream products. Mr. Korman received a B.S. degree in Economics from the University of Pennsylvania Wharton School in 1977. He also serves on the boards of various not-for-profit groups and was the founder of the Englewood Business Forum. Mr. Korman’s experience as a CEO of a frozen dessert company enhances the breadth of experience of the board of directors.

Franklyn Snitow has been a director since 1987 and became a member of the Audit Committee in March 2016. He has been a partner in the New York City law firm Snitow Kanfer & Holtzer, LLP, our general counsel, since 1985. Mr. Snitow’s legal and corporate governance background enhances the breadth of experience of the board of directors.

All directors hold office until the next Annual Meeting of Stockholders and until their successors have been elected and qualified. Officers serve at the pleasure of the Board of Directors. All of the executive officers devote their full time to our operations.

Employment Agreements

There are currently no employment agreements between us and any of our officers.

Family Relationships

There are no family relationships between any of our directors and executive officers.

Involvement in Legal Proceedings

From time to time we may be subject to various claims and contingencies in the ordinary course of business, including those related to litigation, business transactions, employee-related matters and taxes, and others. When we are aware of a claim or potential claim, we assess the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, we will record a liability for the loss. In addition to the estimated loss, the recorded liability includes probable and estimable legal costs associated with the claim or potential claim. There is no assurance that such matters will not materially and adversely affect our business, financial position, and results of operations or cash flows.

Audit Committee and Audit Committee Financial Expert

The Audit Committee of the Board of Directors is comprised of Mr. Axelrod, who serves as chairman, Mr. Himy and Mr. Snitow. Mr. Snitow became a member of the Audit Committee in March 2016 after Mr. Korman stepped down. The Board of Directors has determined that all of the Audit Committee members are independent, as that term is defined under the enhanced independence standards for audit committee members in the Securities and Exchange Act of 1934. The Board of Directors has also determined that Mr. Axelrod is an Audit Committee Financial Expert as that term is defined in rules issued pursuant to the Sarbanes-Oxley Act of 2002.

Section 16(a) Beneficial Ownership Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers, directors and persons who own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of common stock and other of our equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by Commission regulations to furnish us with copies of all Section 16(a) reports they file.

To our knowledge, based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons that no additional forms were required for those persons, we believe that during fiscal 2015 all persons subject to these reporting requirements filed the required reports on a timely basis.

Code of Ethics

We have adopted a Code of Business Conduct and Ethics, which applies to directors, officers, employees and agents of our company. We have also adopted a Code of Ethics for Senior Officers, which applies to our chief executive officer, and all senior financial officers of our company, including the chief financial officer, chief accounting officer or controller, or persons performing similar functions. The Code of Business Conduct and Ethics and the Code of Ethics for Senior Officers are publicly available on our website at www.tofutti.com and printed copies are available upon request. If we make any substantive amendments to the Code of Business Conduct and Ethics or the Code of Ethics or grant any waivers, including any implicit waiver, from a provision of these codes to our chief executive officer, chief financial officer or corporate controller or our directors, we will disclose the nature of such amendment or waiver on our website.

The following table sets forth information concerning the total compensation during the last three fiscal years for our named executive officers whose total salary in fiscal 2015 totaled $100,000 or more:

Summary Compensation Table

The aggregate value of all other perquisites and other personal benefits furnished to each of these executive officers was less than $10,000 in both the 2015 and 2014 fiscal years.

Employment Agreements

We do not currently have any employment agreements with our executive officers. We do not anticipate having employment contracts with executive officers and key personnel in the future.

Grants of Plan-Based Awards for Fiscal 2015

During the fiscal year ended January 2, 2016, David Mintz was awarded 15,000 stock options under our 2014 Equity Incentive Plan. 10,000 options with an exercise price of $4.39 were granted April 1, 2015, with 3,333 of the options exercisable on April 2, 2015, 3,333 exercisable January 4, 2016, and 3,334 exercisable January 2, 2017 with all such options expiring March 31, 2020. An additional 5,000 options with an exercise price of $4.46 were granted on June 10, 2015 with 1,667 of the options exercisable on June 11, 2015, 1,667 exercisable January 4, 2016, and 1,666 exercisable January 2, 2017 with all such options expiring June 9, 2020.

Outstanding Equity Awards at Fiscal Year End

The following table reflects that the options awards granted to the named executive officers identified above in the summary compensation table pursuant to the 2014 Equity Incentive Plan.

Outstanding Equity Awards at Fiscal Year-End

Director Compensation

Our non-employee directors earned director compensation in fiscal year ended January 2, 2016 based on the number of meetings attended. Mr. Axelrod, chairman of the audit committee, receives $1,500 per meeting attended. Other members of the audit committee receive $1,000 per meeting attended. All other non-employee directors are entitled to $500 per meeting attended.

The following table sets forth the compensation received by each of the Company’s non-employee directors for the year ended January 2, 2016. Each non-employee director is considered independent under NYSE MKT listing standards.

The following tables set forth as of March 30, 2016 certain information regarding the ownership of our common stock, $0.01 par value, for each person known by us to be the beneficial owner of more than 5% of the outstanding shares of common stock, for each executive officer named in the Summary Compensation Table, for each of our directors and for our executive officers and directors as a group:

Security Ownership of Certain Beneficial Owners

Security Ownership of Management

*Less than 1%.

In order to provide our company with additional working capital, on January 6, 2016, David Mintz, our Chairman and Chief Executive, provided us with a loan of $500,000 which is due on December 31, 2017. 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 our common stock at a conversion price of $4.01 per share, the closing price of our common stock on the NYSE MKT on the date the promissory note was entered into.

In the 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 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. The loan is secured by is secured by substantially all of our assets.

Set forth below are the aggregate fees billed for each of the fiscal years ended January 2, 2016 and December 27, 2014 for services rendered by EisnerAmper LLP, our independent registered accounting firm.

Audit fees consist of fees billed for services rendered for the audit of our financial statements and review of our financial statements included in our quarterly reports on Form 10-Q and services provided in connection with other statutory or regulatory filings. During fiscal 2015 and 2014, we incurred audit fees with EisnerAmper LLP in the amount of $79,000 and $102,000, respectively.

Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and not reported under Audit fees. No such fees were billed in fiscal 2015 or 2014.

Tax fees consist of fees billed for professional services related to the preparation of our U.S. federal and state income tax returns and tax advice. No such fees were billed in fiscal 2015 or 2014. The Audit Committee pre-approved all Audit-related fees. After considering the provision of services encompassed within the above disclosures about fees, the Audit Committee has determined that the provision of such services is compatible with maintaining EisnerAmper’s independence.

The Audit Committee’s policy is to pre-approve all audit and non-audit related services, tax services and other services. Pre-approval is generally provided for up to one year, and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The Audit Committee has delegated the pre-approval authority to its chairperson when expedition of services is necessary. The independent registered public accounting firm and management are required to periodically report to the full Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval and the fees for the services performed to date.

PART IV

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on April 1, 2016.

In accordance with the Securities Exchange Act of 1934, this Report has been signed below on April 1, 2016, by the following persons on behalf of the Registrant and in the capacities indicated.

EXHIBIT INDEX