TOFUTTI BRANDS INC

Note 1: Basis of Presentation

The accompanying unaudited condensed financial information, in the opinion of management, reflects all adjustments (which include only normally recurring adjustments) necessary to present fairly the Company’s financial position, operating results and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The results of operations for the thirteen-week and thirty-nine-week period ended September 28, 2024 are not necessarily indicative of the results to be expected for the full year or any other period.

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

Note 2: Recently Issued Accounting Standards

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

In November 2023, the FASB issued ASU 2023-07,Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The standard is effective for annual reporting periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024. The Company is currently evaluating the impact of this guidance on its disclosures in the consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures (ASU 2023-09). ASU 2023-09 requires that an entity, on an annual basis, disclose additional income tax information, primarily related to the rate reconciliation and income taxes paid. The amendment in the ASU is intended to enhance the transparency and decision usefulness of income tax disclosures. The ASU’s amendments are effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact that adoption of ASU 2023-09 will have on its financial statements.

Note 3: Inventories

Inventories consist of the following:

Note 4: Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company accounts for penalties or interest related to uncertain tax positions as part of its provision for income taxes.

The Company recognized an income tax expense of $5 and an income tax expense of $148 for the thirty-nine week periods ended September 28, 2024 and September 30, 2023, respectively. The Company recorded a valuation allowance of $143 for the thirty-nine week period ended September 28, 2024.

Note 5: Earnings (Loss) Per Share

Basic earnings per common share (“EPS”) applicable to common stockholders is computed by dividing earnings applicable to common stockholders by the weighted-average number of common shares outstanding. If there is a loss from operations, diluted EPS is computed in the same manner as basic EPS is computed.

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

The following are securities excluded from weighted-average shares used to calculate diluted earnings (loss) per common share, as the result of including them to calculate diluted EPS is anti-dilutive:

Note 6: Share Based Compensation

On June 10, 2014, the shareholders of the Company approved the 2014 Equity Incentive Plan (the “2014 Plan”). The 2014 Plan provides for grants of various types of awards that are designed to attract and retain highly qualified personnel who will contribute to the success of the Company and to provide incentives to participants in the 2014 Plan that are linked directly to increases in shareholder value which will therefore inure to the benefit of all shareholders of the Company. Such grants can be, but are not limited to, options, stock appreciation rights, restricted stock, performance grants, stock bonuses, and any other type of award that is consistent with the purposes of the 2014 Plan. Employees and officers of the Company are eligible to receive incentive stock options while corporate directors are only eligible to receive non-qualified options.

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.”0 and 250,000 stock options were issued in 2023 and 2022, respectively, and 250,000 non-qualified options were outstanding as of September 28, 2024. The exercise price of all options granted in 2022 is $0.95 per share, the market price at the close of business on the date of the grant.83,333 of the options vested at the respective grant date,83,333 will vest in December 2023, and 83,334 will vest in December 2024. In the event of a sale of the Company at any time prior to December 22, 2024, all remaining unvested options shall vest immediately. All options expire on December 22, 2027. No additional options were made available or granted during the thirty-nine weeks ended September 28, 2024.

The following is a summary of stock option activity from December 30, 2023 to September 28, 2024:

The following table summarizes information about stock options outstanding from December 30, 2023 to September 28, 2024:

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 the fiscal year ended December 31, 2022,250,000 options were granted, with 83,333 of the options vesting at the respective grant date,83,333 vesting in December 2023, and 83,334 vesting in December 2024. At the date of grant, expected volatility was 82.65%, a risk-free rate of 3.79%,0% expected dividends, and an expected term offive years.

The expected term was determined based on the reasoning that all previously granted options have been held to expiration. Additionally, all 5 members who were granted options are board members or an officer, and the expectation is that they are holding these options to expiration or until any such liquidation event would take place which is not estimable.

As of September 28, 2024, and September 30, 2023 the intrinsic value of the options outstanding and exercisable options was $0 and $12, respectively, and there was $9 of total unrecognized compensation cost. Total stock-based compensation for both of the thirteen weeks ended September 28, 2024, and September 30, 2023 was $13, which is recorded in general and administrative expenses on the statement of operations. Total stock-based compensation was $40 and $47 for the thirty-nine weeks ended September 28, 2024, and September 30, 2023, respectively.

The 250,000 options outstanding will expire on December 22, 2027 if not exercised by that date.

Note 7: Revenue

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

Revenues by geographical region are as follows:

Approximately 92% of the Americas’ revenue for the thirteen weeks ended September 28, 2024 is attributable to sales in the United States compared with 93% of the Americas’ revenue for the thirteen weeks ended September 30, 2023. For the thirty-nine week period ended September 28, 2024 approximately 91% of the Americas’ revenue is attributable to sales in the United States compared to 91% for the thirty-nine week period ended September 30, 2023. All of the Company’s assets are located in the United States.

Net sales by major product category:

Note 8: Leases

Through September 1, 2024, the Company’s facilities were located in a one-story 6,200 square foot facility in Cranford, New Jersey. The facility housed the Company’s 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 continued to occupy the premises on a monthly basis. In September, the company left the lease and derecognized the associated right of use asset and liability. Rent expense was $42 and $23 for the thirteen weeks ended September 28, 2024 and September 30, 2023, and $97 and $69 for the thirty-nine weeks ended September 28, 2024 and September 30, 2023, respectively. The Company also rents warehouse storage space at various outside facilities. Outside warehouse expenses were $90. for the thirteen weeks ended September 28, 2024 and $85 for the thirteen weeks ended September 30, 2023, and $271 and $246 for the thirty-nine weeks ended September 28, 2024 and September 30, 2023, respectively. The Company rents a copier and mail machine under a finance lease. In 2022, the Company entered into a copier and mail machine lease, which still exists as of September 28, 2024. Payments for the copier and mail machine amounted to $4 and $0 for the thirteen weeks ended September 28, 2024 and September 30, 2023, respectively and $4 and $6 for the thirty-nine weeks ended September 28, 2024 and September 30, 2023, respectively.

We recently signed afive-year lease to move our offices into a one-story facility in Edison, New Jersey. The lease commenced on July 1 2024, with anoption to extend for an additional five years at the end of the lease. Annual rent for the lease escalates by 3% year over year until the end of the lease term. We completed the move into the new facility in September 2024. The 5,100 square foot facility houses our administrative offices, a warehouse, freezers, and refrigerators.

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

Under Topic 842, finance lease cost includes amortization, which is recognized on a straight-line basis over the expected life of the leased asset, and interest expense, which is recognized following an effective interest rate method. The Company has a finance lease consisting of a copier lease with a term of four years. The standard requires a lessee to record a right-of-use asset and a corresponding lease liability at the inception of the lease.

The Company’s lease agreements generally do not provide an implicit borrowing rate; therefore, an internal incremental borrowing rate is determined based on information available at lease commencement date for purposes of determining the present value of lease payments. At the time of adoption of Topic 842, the Company used the incremental borrowing rate of 5.5% for all leases that commenced prior to that date.

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

ROU lease asset and lease liability for our finance lease were recorded in the balance sheet as follows:

Future lease payments included in the measurement of lease liabilities on the balance sheet as of September 28, 2024 are as follows:

Note 9: Accrued Expenses

Accrued expenses and other current liabilities consist of the following: