Timing of revenue recognition (in thousands):

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

The Company’s facilities are located in a one-story facility in Cranford, New Jersey. The 6,200 square foot facility houses the Company’s administrative offices, a warehouse, walk-in freezer and refrigerator, and a product development laboratory and test kitchen. The lease agreement expired in 1999, but the Company continues to occupy the premises under the terms of that agreement, subject to a six-month notification period from the Company and the landlord with respect to any changes. The Company currently has no plans to enter into a long-term lease agreement for the facility. Rent expense was $40 and $40 for the six months ended June 29, 2019 and June 30, 2018, respectively. Management believes that the Cranford facility will continue to satisfy the Company’s space requirements for the foreseeable future. The Company rents warehouse storage space at various outside facilities. Outside warehouse expenses amounted to $210 and $231 for the three months ended June 29, 2019 and June 30, 2018, respectively.

Leases with an initial term of twelve months or less are not recorded on the balance sheet. For lease agreements entered into or reassessed after the adoption of Topic 842, the Company has combined the lease and non-lease components in determining the lease liabilities and ROU assets.

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

TOFUTTI BRANDS INC.

Notes to Condensed Financial Statements

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

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

Future lease payments included in the measurement of lease liabilities on the condensed balance sheet as of June 29,December 28, 2019, for the following five fiscal years and thereafter are as follows:

TOFUTTI BRANDS INC.

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

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

Critical Accounting Policies

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

Revenue RecognitionRecognition.. We primarily sell non-dairy soy-based frozen desserts, cheeses and other food products as detailed in Note 11Revenues.11: Revenue. We recognize revenue when control over the products transfers to our customers, which generally occurs upon delivery or shipment of the products. We account for product shipping, handling and insurance as fulfillment activities with revenues for these activities recorded within net revenue and costs recorded within cost of sales. Revenues are recorded net of trade and sales incentives and estimated product returns. Known or expected pricing or revenue adjustments, such as trade discounts, rebates or returns, are estimated at the time of sale. We base these estimates of expected amounts principally on historical utilization and redemption rates. Estimates that affect revenue, such as trade incentives and product returns, are monitored and adjusted each period until the incentives or product returns are realized.

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

Accounts ReceivableReceivable.. 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.

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

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.

Fixed Assets. Fixed assets consist of frozen dessert manufacturing equipment that has been installed at our new co-packer’s frozen dessert manufacturing facilities. During fiscal 2018 and the first quarter of 2019, we spent $150,000 on equipment to be used at our new co-packer’s frozen dessert facility. We anticipate that this equipment will begin being used in connection with the production of frozen stick novelty items in the third quarter of 2019.Depreciation will beis provided by charges to income using the straight-line method over the useful life of ten years.

Leases.Under Topic 842, operating lease expense is generally recognized evenly over the term of the lease. We have operating leases primarily consisting of facilities with remaining lease terms of approximately two to four years. Leases with an initial term of twelve months or less are not recorded on the balance sheet. For lease agreements entered into or reassessed after the adoption of Topic 842, we have combined the lease and non-lease components in determining the lease liabilities and ROU assets.

Income TaxesTaxes.. 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. 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.

Recent accounting pronouncements

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

In FebruaryJune 2016, the FASB established Topic 842, Leases, by issuingissued ASU 2016-02, which requires lessees2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments. The amendments in this Update require a new topic to be added (Topic 326) to the Accounting Standards Codification (“ASC”) and removes the thresholds that entities apply to measure credit losses on financial instruments measured at amortized cost, such as loans, trade receivables, reinsurance recoverables, and off-balance-sheet credit exposures, and held-to-maturity securities. Under current U.S. GAAP, entities generally recognize leases on-balance sheetcredit losses when it is probable that the loss has been incurred. The guidance under ASU 2016-13 will remove all current recognition thresholds and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU 2018-10, Codification Improvements to Topic 842, Leases; and ASU 2018-11, Targeted Improvements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

We adopted the new standard on December 30, 2018, the first day of fiscal 2019. We used the modified retrospective transition approach with the effective date as the date of initial application. Consequently, financial information will not be updated, and the disclosures requiredrequire entities under the new standard will not be providedcurrent expected credit loss (“CECL”) model to recognize an allowance for datescredit losses for the difference between the amortized cost basis of a financial instrument and periods before December 30, 2018.

the amount of amortized cost that an entity expects to collect over the instrument’s contractual life. The new standard provides several optional practical expedients in transition.CECL model is based upon expected losses rather than incurred losses. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We electedare currently evaluating the ‘package of practical expedients’, which permits us not to reassess under theeffect that this new standard the prior conclusions about lease identification, lease classification and initial direct costs.

The adoption of the standard resulted in a material effectguidance will have on our financial statements with a balance sheet recognition of additional lease assets of approximately $346,000 and lease liabilities of approximately $362,000 upon adoption.related disclosures.

Recent Developments

The new standard also provides practical expedientsCOVID-19 outbreak has resulted in travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations, supply chain disruptions, and lower consumer demand, layoffs, defaults and other significant economic impacts, as well as general concern and uncertainty.

The current severity of the pandemic and the uncertainty regarding the length of its effects could have negative consequences for an entity’s ongoing accounting.our company. To date, the effects of the pandemic have not materially affected our company’s operations. All of our co-packing facilities are currently operating as normal and the pandemic has not constrained any of our production requirements. We currently have electedcontinue to be able to schedule trucks for delivery and a large majority of our customers are still operating and ordering our products as before.

Most of our administrative functions are being performed remotely. A small crew maintains the short-term lease recognition exemption for all leases that qualify. This means,office for those leasesfunctions that qualify,cannot be handled remotely. Our ability to collect money, pay bills, handle customer and consumer communications, schedule production, and order ingredients necessary for our production has not been impacted. To date, the pandemic has had minimal impact on our sales. The majority of our sales relate to retail products sold in supermarkets. Supermarket sales in general have seen a substantial surge in business due to the pandemic, as consumers stock up on all products that they would normally purchase. We experienced a slight decline in sales at the beginning of the imposition of restrictions to mitigate the spread of COVID-19 and experienced a decline with respect to food service sales to retail outlets, such as restaurants and small food shops, which account for a small part of our total business. We expect that any potential decline in our sales will be offset in whole or in part by a similar decline in sales and marketing expenses due to social distancing restrictions and other current government rules and regulations that preclude face to face sales meeting, attendance at trade shows and the initiation of new promotions.

To date we willhave not recognize ROU assetsexperienced a significant change in the timeliness of payments of our invoices and our cash position remains stable with approximately $908,000 of cash and cash equivalents as of March 28, 2020 and $1,200,000 as of May 31, 2020.

Depending on the length and severity of the pandemic, it could negatively affect our business in the following ways:

If some or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leasesall of those assets in separate lease and non-lease components for allthe preceding events take place, they would have a significant impact on our leases.ability to maintain our current level of operations without a further infusion of capital.

Results of Operations

Thirteen Weeks Ended June 29, 2019March 28, 2020 Compared with Thirteen Weeks Ended JuneMarch 30, 20182019

Net sales for the thirteen weeks ended June 29, 2019 were $3,143,000, a decrease of $300,000,March 28, 2020 decreased by $275,000, or 9%8%, to $3,226,000, from net sales of $3,443,000$3,501,000 for the thirteen weeks ended JuneMarch 30, 2018. The decrease is attributable to a decline in sales in both the2019. Sales of our frozen dessert and frozen food category and the vegan cheese product category. Frozenproducts, which consist primarily of frozen dessert and frozen food products, sales decreased by $133,000 to $569,000$412,000 in the thirteen weeks ended June 29, 2019March 28, 2020 from $702,000$523,000 for the thirteen weeks ended JuneMarch 30, 2018. Frozen2019. Sales of our vegan cheese products decreased to $2,814,000 in the 2020 period from $2,978,000 in the 2019 period. Sales of both our frozen dessert salesproducts and our vegan cheese product line were negatively impacted by the unavailabilitystart of certain frozen novelties that our former manufacturing plant had produced for us. We anticipate these novelties will become available in the third and fourth quarters of this year. Sales of vegan cheese products decreased to $2,574,000 in the 2019 period from $2,741,000 in the 2018 periodrestrictions imposed due to a decreasethe COVID-19 coronavirus, particularly in our export cheese business. Our export vegan cheese product sales were also negatively impacted by new customs requirements in Israel, which impacted all imports into that country.The new regulations have significantly increased the time it takesbankruptcy of our UK distributor at the end of 2019 due to get shipments cleared through customs in Israel as government officials implement the new requirements. We anticipate that we will still face these issueseconomic downturn in the third quarter, but they should be resolved duringUK brought about by the fourth quarter.uncertainties of Brexit. We are in the process of finding a suitable replacement.

Our gross profit decreasedincreased slightly to $860,000$996,000 in the thirteen weeksperiod ended June 29, 2019March 28, 2020 from $1,014,000$983,000 in the thirteen weeksperiod ended JuneMarch 30, 2018 due to the reduction in sales and a lower gross profit percentage in the 2019 period.2019. Our gross profit percentage was 27%31% for the thirteen weeksperiod ending June 29, 2019March 28, 2020 compared to 29%28% for the period ending March 30, 2019. The increase was due to more vegan cheese products as a percentage of overall sales during the thirteen weeks ending June 30, 2018.week 2020 period, which carry higher margins.

Our gross profit percentage was negatively impacted by an increase in freight out expense, which is a component of cost of sales.

Freight out expense, a significant part of our cost of sales, increased by $15,000,$38,000, or 6%19%, to $274,000$243,000 for the thirteen weeks ended June 29, 2019March 28, 2020 compared with $259,000$205,000 for the thirteen weeks March 30, 2019. Freight out expense increased due to increased freight rates caused by a shortage of drivers during the COVID-19 outbreak. Freight out expense was 7% of sales for the thirteen weeks ended June 30, 2018. As a percentage of sales, freight out expense was 9% percentMarch 28, 2020 compared to 6% for the thirteen weeks ended June 29, 2019 comparedMarch 30, 2019. We anticipate that freight out expense will continue at the same percentage of sales over the remainder of 2020.

Selling expenses decreased by $90,000, or 23%, to 8% percent$307,000 for the thirteen weeks ended June 30, 2018. Our gross profit and gross profit percentage were also negatively impacted by an increase in sales discounts and allowances of $33,000, or 9%, to $386,000March 28, 2020 from $397,000 for the thirteen weeks ended June 29, 2019 from $353,000 for the thirteen weeks ended JuneMarch 30, 2018. This increase in sales discounts and allowances accounted for a 1% decrease in our gross profit percentage. We believe that sales discounts and allowances are a necessary tool for us to remain competitive with comparable products.

Selling expenses decreased by $27,000, or 8%, to $321,000 for the thirteen weeks ended June 29, 2019 from $348,000 for the thirteen weeks ended June 30, 2018.2019. This decrease was due principally due to decreases of $53,000 in commission expense, $16,000 in payroll expense, $12,000 in meeting and convention expense, $6,000 in travel, entertainment and auto expense, of $11,000, outside warehouse rental expense of $10,000, and $3,000 in messenger expense. The decrease in commission expense was partially due to the termination of $6,000,some food service brokers for which were partly offset by an increasewe incurred commission expense only in payroll expense of $4,000 and messenger costs of $6,000.the 2019 period. We anticipate that our selling expenses will remain at the same levelbe significantly lower for the balance of 2019.2020 compared to 2019.

Marketing expenses increased by $37,000,$41,000, or 66%49%, to $93,000$125,000 for the thirteen weeks ended June 29, 2019March 28, 2020 from $56,000$84,000 for the thirteen weeks ended JuneMarch 30, 2018, due to an increase in promotion expense of $58,000, which was partially offset by decreases2019. Increases in advertising expense of $19,000$14,000 and artwork and platein promotions expense of $30,000 were partially offset by a decrease in public relations expense of $3,000. The increase in promotion expense wasThese increases were due to certain promotional expenses coming duefalling in a different quarter in 2020 than in 2019. We anticipate reductions in marketing expenses for the second quarter this year compared to last year.balance of 2020.

Research and development costs, which consist principally of salary expenses and laboratory costs, decreasedincreased by $9,000$32,000, or 8%55%, to $99,000$90,000 for the thirteen weeks ended June 29, 2019March 28, 2020 from $108,000$58,000 for the thirteen weeks ended JuneMarch 30, 2018, primarily2019, due to decreases in payroll expense of $5,000 and lab costs and supplies expense of $8,000. We anticipate that research and development expenses will remain at the same level for the remainder of fiscal 2019.

General and administrative expenses decreased slightly by $4,000 to $402,000 for the thirteen weeks ended June 29, 2019 from $406,000 for the thirteen weeks ended June 30, 2018. Increases in professional fees expense of $10,000 and IT expense of $19,000 were partially offset by a reduction in travel, entertainment and auto expense of $15,000 and building maintenance and repair expense of $15,000. We anticipate that general and administrative expenses will remain at the same level for the remainder of fiscal 2019.

There was no income tax expense for the thirteen weeks ended June 29, 2019 or the thirteen weeks ended June 30, 2018.

Twenty-Six Weeks Ended June 29, 2019 Compared with Twenty-Six Weeks Ended June 30, 2018

Net sales for the twenty-six weeks ended June 29, 2019 were $6,644,000, a decrease of $573,000, or 8%, from net sales of $7,217,000 for the twenty-six weeks ended June 30, 2018. Sales of our frozen dessert and frozen food products decreased to $1,092,000 for the twenty-six weeks ended June 29, 2019 from $1,344,000 for the twenty-six weeks ended June 30, 2018. Sales of vegan cheese products decreased to $5,552,000 in the 2019 period from $5,873,000 in the 2018 period. Sales of our frozen dessert products were negatively impacted by the unavailability of certain frozen novelties that our former manufacturing plant had produced for us. We anticipate these novelties will become available in the third and fourth quarters of this year. Sales of our vegan cheese product line decreased due to a decrease in both our export and domestic cheese business. Our export vegan cheese sales were negatively impacted by new customs requirements in Israel, which impacted all imports into that country.The new regulations have significantly increased the time it takes to get shipments cleared through customs in Israel as government officials implement the new requirements. We anticipate that we will still face these issues in the third quarter, but they should be resolved during the fourth quarter.

Our gross profit decreased to $1,843,000 in the twenty-six week period ended June 29, 2019 from $2,294,000 in the twenty-six week period ended June 30, 2018, due to the decreases in sales and our gross profit percentage. Our gross profit percentage was 28% for the twenty-six weeks ended June 29, 2019 compared to 32% for the twenty-six week period ended June 30, 2018. As a percentage of sales, freight out expense was 7% in both the 2019 and 2018 twenty-six week periods. The decrease in our gross profit percentage was primarily due to an increase in our frozen dessert product costs, which were negatively impacted by start-up costs at a new production facility in the twenty-six weeks ended June 29, 2019. Our gross profit and gross profit percentage were also negatively impacted by an increase in sales discounts and allowances of $33,000, or 5%, to $753,000 for the thirteen weeks ended June 29, 2019 from $720,000 for the thirteen weeks ended June 30, 2018.This increase in sales discounts and allowances accounted for a 1% decrease in our gross profit percentage.

Selling expenses increased by $15,000, or 2%, to $718,000 for the twenty-six weeks ended June 29, 2019 from $703,000 for the twenty-six weeks ended June 30, 2018. This increase was due to increases in payroll expense of $12,000, commissions expense of $33,000,$10,000 and messenger expense of $10,000, which were partially offset by decreases in travel, entertainment and auto expense of $15,000 and outside warehouse rental expense of $21,000. The increase in commission expense was due to the hiring of an outside sales broker to handle our food service business.

Marketing expenses increased by $39,000, or 28%, to $177,000 for the twenty-six weeks ended June 29, 2019 from $138,000 for the twenty-six weeks ended June 30, 2018, due an increase in promotion expense of $41,000. The increase in promotion expense was due to certain promotional expenses coming due in the second quarter of this year compared to last year.

Research and development costs, which consist principally of salary expenses and laboratory costs, decreased by $57,000, or 27%, to $157,000 for the twenty-six weeks ended June 29, 2019 from $214,000 for the twenty-six weeks ended June 30, 2018, due primarily to decreases in professional fees and outside services expense of $12,000, payroll expense of $16,000, and lab costs and supplies expense of $27,000. Payroll expense decreased as a result of one less person in$5,000. We anticipate that our research and development.development expenses will be lower over the balance of 2020.

General and administrative expenses increased slightly by $6,000, or 1%, to $811,000$410,000 for the twenty-sixthirteen weeks ended June 29, 2019March 28, 2020 from $805,000$409,000 for the twenty-sixthirteen weeks ended JuneMarch 30, 2018. This increase was a result2019. Decreases of increases in payroll expense of $21,000 and$10,000, IT expense of $33,000, which were partially offset by decreases in travel, entertainment and auto$12,000, office supplies expense of $17,000,$3,000 and building maintenance and repair expense of $15,000, equipment rental expense of $9,000 were offset by increases in professional fees and outside service expense of $20,000 and general insurance expense of $17,000.$10,000. We anticipate that our general and administrative expenses for the remainder of 2020 will be similar to or slightly lower than those of 2019.

Income tax expense was $7,000 for the thirteen weeks ended March 28, 2020 and $6,000 for the twenty-sixthirteen weeks ended June 29, 2019 compared to $5,000 for the twenty-six weeks ended JuneMarch 30, 2018.2019. We did not record tax lossexpense other than minimum state taxes for the twenty-sixthirteen weeks ended June 29, 2019ending March 28, 2020 and JuneMarch 30, 2018.2019.

Liquidity and Capital Resources

As of June 29, 2019,March 28, 2020, we had approximately $893,000$908,000 in cash and cash equivalents and our working capital was approximately $3,737,000,$3,884,000, compared with approximately $558,000$514,000 in cash and cash equivalents and working capital of $3,896,000$3,840,000 at December 29, 2018. Our current and quick acid test ratios were 5.1 and 2.8, respectively, as of June 29, 2019 compared with 7.1 and 4.2, respectively, as of December 29, 2018.28, 2019.

In order to provide our company with additional working capital, on January 6, 2016, David Mintz, our Chairman and Chief Executive Officer, provided our company with a loan of $500,000 which is secured by substantially all of our assets. The loan which has been extended tountil December 31, 2020, bears interest2022. Interest of 5% and 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$1.77 per share at the option of the holder, the closing price of our common stock on the OTCQB on the date the extension of the promissory note was entered into. In any event of default, as defined

Small Business Administration Loan

On May 4, 2020, we were granted a loan (the “Loan”) from Valley National Bank in the promissory note, without any actionaggregate amount of approximately $165,000, pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020. The term of the loan is four years, with monthly payments due the first day of each month, beginning seven months from the date of initial disbursement, or December 1, 2020, whichever is earlier. Interest accrues at 1% per year, effective on the partdate of Mr. Mintz,initial disbursement. In addition, a portion of the interest rate will increase to 12% per annum and the entire principal and interest balanceloan may be forgiven under provisions under the loan,CARES Act based on payments for payroll, rent and all of our other obligations underutilities during the loan, will be immediately due and payable, and Mr. Mintz will be entitledperiod subsequent to seek and institute any and all remedies available to him.obtaining the loan.

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

Net cash provided by operating activities was $364,000 for the twenty-sixthirteen weeks ended June 29, 2019March 28, 2020 was $394,000 compared to $867,000 used in$62,000 provided by operating activities for the twenty-sixthirteen weeks ended JuneMarch 30, 2018.2019. Net cash provided by operating activities for the twenty-sixthirteen weeks ended June 29, 2019March 28, 2020 was primarily a result of our operating income and a decrease in accounts receivable and an increaseinventory, which was partially offset by decreases in accounts payable and accrued expenses, which were partially offset by an increase in inventories.expenses. Net cash used in investing activities was $29,000 for the twenty-sixthirteen weeks ended June 29, 2019March 28, 2020 was $0 compared to $0$29,000 used in investing activities for the twenty-sixthirteen weeks ended JuneMarch 30, 2018. Net2019. Accounts receivable decreased due to strong cash usedcollection in financing activities was $0 for the twenty-six weeks ended June 29, 2019 compared to $10,000 used in financing activities for the twenty-six weeks ended June 30, 2018.first quarter.

We believe our existing cash and cash equivalents on hand at June 29, 2019,March 28, 2020, 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.

Inflation and Seasonality

We do not believe that our operating results have been materially affected by inflation or seasonality during the preceding two years. There can be no assurance, however, that our operating results will not be affected by inflation or seasonality 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 nondairy frozen desserts during those periods.

Off-balance Sheet Arrangements

None.

Contractual Obligations

As of June 29, 2019, we did not have anyWe had no material contractual obligations or commercial commitments, including obligations relating to discontinued operations.as of March 28, 2020.

Recently Adopted Accounting Standards

See Note 4 to the unaudited condensed financial statements included in Part I, Item 1,Financial Statements, of this Quarterly Report on Form 10-Q.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

We do not believe that our exposure to market risk related to the effect of changes in interest rates, foreign currency exchange rates, commodity prices and other market risks with regard to instruments entered into for trading or for other purposes is material.

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures. As of June 29, 2019,March 28, 2020, 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 as June 29, 2019.March 28, 2020.

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 in conformity with generally accepted accounting principles.

Management’s 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 COSO framework, an integrated framework for the evaluation of internal controls issued by the Committee of Sponsoring Organizations of the Treadway Commission, 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 continued to bewas ineffective as of June 29, 2019March 28, 2020 because of the following recurring material weaknesses in internal controls over financial reporting:

We continue to seek waysTo date, we have been unable to remediate these weaknesses, which stem from our small workforce which consisted of eight employeesnine persons at June 29, 2019, that will not require us to hire additional personnel.March 28, 2020.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the period covered by this report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.Legal Proceedings

We are not a party to any material litigation.

ThereItem 1A.Risk Factors

Other than as set forth below, there have been no material changes to the Company’s “Risk Factors” set forth in its Annual Report on Form 10-K for the year ended December 29, 2018.28, 2019.

If we do not qualify for retention or forgiveness of the Paycheck Protection Program loan, our financial condition may be adversely affected.

On May 4, 2020, we entered into a loan agreement with Valley National Bank as the lender under thePaycheck Protection Program (the “PPP”) of the CARES Act administered by Small Business Administration (the “SBA”), and subsequently received a loan in the amount of approximately $165,000 (the “PPP Loan”) to help sustain our employee payroll costs, rent, and utilities due to the severe impact of the recent COVID-19 pandemic. We made good faith certifications of our necessity for the PPP Loan, and believe that we are in full compliance with the terms and conditions outlined in the CARES Act. However, as a consequence of post-PPP Loan rulemaking by the SBA, shifting regulatory guidance and/or other factors, we may be required to repay the PPP Loan before its expected maturity date. In addition, we hope to obtain forgiveness of all or a portion of the PPP Loan, as allowed under the CARES Act. As there is still substantial uncertainty about PPP forgiveness qualifications, we make no representations that we will qualify for forgiveness of all or part of the PPP Loan. Due to the incomplete and changing regulations around the PPP, new pronouncements may also change our current compliance status under the law, and any potential allowable forgiveness of the PPP Loan amount.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.Default Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

None.

Item 5.Other Information

None.

Item 6.Exhibits

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.

Date: August 13, 2019June 26, 2020