Description of the Business and Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Description of Business

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

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

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-two week fiscal period ended on December 31, 2016 and the fifty-three week period fiscal ended January 2, 2016.

Estimates and Uncertainties

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 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

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 December 31, 2016 and January 2, 2016, the Company derived approximately 85% and 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 5% of total accounts receivable at December 31, 2016, and one customer represented 9% of total accounts receivable at January 2, 2016. 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 46% and 44% of the Company’s net sales for the fiscal years ended December 31, 2016 and January 2, 2016.

Accounts Receivable

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 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.

Cash and Cash Equivalents

Cash and Cash Equivalents - The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

Inventories

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 33% and 29% of its finished products from one supplier and 22% and 24% of its finished products from another supplier during the periods ended December 31, 2016 and January 2, 2016, respectively.

Income Taxes

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

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 Income (Loss) Per Share

Net Income (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 year ended December 31, 2016, stock equivalents of 80,000 shares were excluded from diluted earnings per share calculations since the effect was anti-dilutive because the strike price was greater than the quoted market value at such date. For the fiscal year ended January 2, 2016, stock equivalents of 80,000 shares were excluded from diluted earnings per share calculations since the effect was anti-dilutive due to overall net loss position.

	Fiscal Year Ended December 31, 2016		Fiscal Year Ended January 2, 2016
Net income (loss), numerator, basic and diluted computation	$	421	$	(643	)
Weighted average shares - denominator basic computation		5,154		5,154
Effect of dilutive stock options		—		—
Weighted average shares, as adjusted - denominator diluted computation		5,154		5,154
Net income (loss) per common share:
Basic and diluted	$	0.08	$	(0.12	)

Fair Value of Financial Instruments

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 - Freight costs to ship inventory to customers and to outside warehouses amounted to $943 and $857 during the fiscal years ended December 31, 2016 and January 2, 2016, respectively. Such costs are included in costs of goods sold.

Advertising Costs

Advertising Costs - The Company expenses advertising costs as they are incurred. Advertising expenses amounted to $158 and $236 during the fiscal years ended December 31, 2016 and January 2, 2016, respectively.

Product Development Costs

Product Development Costs - Costs of new product development and product redesign are charged to expense as incurred. Product development costs amounted to $426 and $523 during the fiscal years ended December 31, 2016 and January 2, 2016, respectively.

Recent Accounting Pronouncements

Recent Accounting Pronouncements – In June 2016, the FASB issued Accounting Standards Update, or ASU 2016-13, Financial Instruments (Topic 326)- Credit Losses, Measurement of Credit Losses on Financial Instruments, which provides guidance regarding the measurement of credit losses on financial instruments. The new guidance replaces the incurred loss impairment methodology in the current guidance with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. This ASU will be effective for fiscal years beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018. The Company is in the process of assessing the impact of this guidance on its financial statements.

In March 2016, the FASB issued ASU 2016-09, Stock Compensation, which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company is currently evaluating the impact of adopting this guidance on its financial statements.

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 guidance 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.

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 as this standard became effective for it for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. The adoption of this guidance is not expected to impact the Company’s financial position, results of operations or cash flows.