SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-KSB

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 27, 1997

                         Commission File Number: 1-9009

                               TOFUTTI BRANDS INC.
                 (Name of small business issuer in its charter)

               Delaware                             13-3094658
    (State or other jurisdiction of              (I.R.S. Employer
    incorporation or organization)              Identification No.)

 50 Jackson Drive, Cranford, New Jersey                07016
(Address of principal executive offices)            (Zip Code)

Issuer's telephone number:  (908) 272-2400

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

                                                   Name of each exchange
             Title of each class                   on which registered
             -------------------                   -------------------
 Common Stock, par value $.01 per share           American Stock Exchange

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

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during  the past 12  months,  and (2) has been
subject to such filing requirements for the past 90 days.

                                    Yes x No

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will 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-KSB or any
amendment to this Form 10-KSB. [X]

Issuer's revenues for its most recent fiscal year: $7,440,000

The aggregate  market value of voting stock held by  non-affiliates  computed by
reference to the closing  sale price of such stock,  as reported by the American
Stock Exchange, on March 12, 1998 was $3,476,000.

As of March 12, 1998, the Registrant had 6,183,567  shares of Common Stock,  par
value $.01, outstanding.

Transitional Small Business Disclosure Format     Yes       No  x .



                     

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                                     PART I

Item 1. Description of Business

GENERAL

     Tofutti Brands Inc., a Delaware  corporation  (the "Company") is engaged in
the  development,  production and marketing of TOFUTTI(R) brand non-dairy frozen
desserts and other food products.  TOFUTTI  products are  non-dairy,  soya-based
products  which  contain no  butterfat,  cholesterol  or lactose.  Butterfat and
cholesterol  are perceived by some medical  experts and a significant  number of
consumers as causing health problems. In addition,  some studies have shown that
lactose  intolerance,  the inability to metabolize milk and dairy  products,  is
present to varying degrees in a significant number of people. All dairy products
have  lactose,  or milk  sugar.  Most  human  beings  are born  with a supply of
lactase, an enzyme essential for digesting lactose.  With age, the body's supply
of lactase may diminish, which may cause difficulty in the digestion of lactose.
TOFUTTI  products are 100% milk free yet offer the same texture and  full-bodied
taste as their dairy counterparts. TOFUTTI products are also free of cholesterol
and derive their fat from soy and corn,  both  naturally  lower in saturated fat
than dairy products.

     TOFUTTI  products are an alternative for  dairy-conscious  individuals with
lactose  intolerance or for those  health-oriented  people with a desire to keep
cholesterol  intake in check. The Company's  products enable such individuals to
enjoy products  similar to dairy products  without their downside  health risks.
Although the Company  believes  the absence of lactose and  butterfat in TOFUTTI
products  makes them  attractive  to persons with lactose  intolerance  or heart
disease,  the Company has not  conducted  any studies  regarding the efficacy of
TOFUTTI  products as they relate to lactose  intolerance  and heart  disease and
makes no representation as to the accuracy of studies performed by others.

     Since May 1982,  the Company  has been  engaged in the sale of a liquid mix
for the  processing  of TOFUTTI in  numerous  flavors by soft serve  machines at
retail  locations.  In June 1984,  the  Company  commenced  selling  hard frozen
TOFUTTI.

     The Company  made  several new product  introductions  in 1996.  During the
year,  the Company  extended its non-dairy  cheese line by  introducing  six new
flavors of BETTER THAN CREAM CHEESE(R) and three new flavors of SOUR SUPREME(R).
During the summer of 1996,  the Company  introduced  several new frozen  novelty
items,  including cakes and other chocolate  enrobed  novelties.  The Company at
this time also introduced its first non-frozen,  non-refrigerated  product line,
TOFUTTI  COOKIES.  In December 1996, the Company  introduced a chocolate  coated
CANNOLI  filled with a non-dairy  cheese  filling.  The Company also  introduced
several new products in 1997.  Among them were a peanut  butter  flavor  TOFUTTI
CUTIE(R),  TOFUTTI SOY LAVASCH(TM) flatbread crackers,  and TOFUTTI SOY-RITE(TM)
frozen soy beverage.




                                      -2-

<PAGE>



     In 1996,  the Company also made a change in its  distribution  arrangements
for the  metropolitan  New York area.  Effective  March 31,  1996,  the  Company
terminated the services of The Haagen-Dazs  Company and appointed the Mattus Ice
Cream  Company  to be its New York  area  master  distributor.  During  1997 the
Company  improved  the  distribution  of  its  products,  which  resulted  in  a
significant increase in sales.

TOFUTTI PRODUCT LINE

o    Premium TOFUTTI  non-dairy  frozen dessert,  available in prepacked  pints,
     three-gallon  cans and soft serve mix, is sold nationally in  supermarkets,
     grocery stores, retail shops and restaurants.  The Company currently offers
     seven flavors of premium hard frozen TOFUTTI:  Chocolate Supreme, Wildberry
     Supreme,  Vanilla,  Vanilla Almond Bark(R), Vanilla Fudge, Chocolate Cookie
     Crunch and Better Pecan(R).

o    TOFUTTI  low fat  non-dairy  frozen  dessert  offers the  calorie-conscious
     consumer a creamy  dessert  that is 98% fat free and less than 120 calories
     per  serving.  Sold  nationally  in pints,  LOW FAT TOFUTTI is offered in a
     number  of  flavors  including  Vanilla  Fudge,   Chocolate  Fudge,  Coffee
     Marshmallow Swirl, Strawberry Banana and Peach Mango.

o    Cool and refreshing TOFUTTI SORBETS in pint containers offer the consumer a
     natural  sorbet  dessert and come in six  flavors:  Chocolate,  Strawberry,
     Orange Peach Mango, Lemon, Coffee and Raspberry Tea.

o    HONEY  SWEETENED  TOFUTTI  in pints  offers  those  individuals  with sugar
     restrictions a natural alternative without artificial  sweeteners and comes
     in two flavors: Vanilla Chamomile and Krazy Garlic Plus.

o    TOFUTTI  CUTIES(R) are bite-size frozen  sandwiches  combining a chocolate,
     vanilla,  wildberry or peanut butter filling between two chocolate  wafers.
     Half the size of  traditional  ice cream  sandwiches,  TOFUTTI CUTIES offer
     consumers a portion controlled treat.

o    TOFUTTI TOO-TOO'S(TM) are frozen dessert cookie sandwiches combining creamy
     and  delicious  TOFUTTI  with  a  round,   vanilla/chocolate  chip  cookie.
     TOO-TOO's are available in three flavors: Vanilla,  Vanilla/Chocolate Swirl
     and Vanilla/Chocolate Chip.

o    TOFUTTI  FRUTTI(R)  stick  novelties  have 180 calories per bar and combine
     creamy vanilla TOFUTTI with a tangy sorbet covered in chocolate.

o    TEDDY FUDGE POPS(R) and  CHOCOLATE  FUDGE TREATS are stick  novelties  that
     offer the consumer  the same taste as real fudge bars.  The TEDDY FUDGE POP
     has 70 calories  and 1 gram of fat per bar,  while  CHOCOLATE  FUDGE TREATS
     have only 30 calories per bar and are fat and sugar free.



                                       -3-

<PAGE>



o    TOFUTTI  DIXIE CUPS offer the  consumer a portion  controlled  4 oz. cup of
     TOFUTTI frozen dessert in either Vanilla or Chocolate flavors.

o    TOFUTTI  SUNDAE CUPS offer the diet  conscious  consumer a sugar free,  fat
     free  dessert  with the taste and  texture  of  premium  TOFUTTI.  They are
     currently  available in two flavors:  Vanilla  Fudge Sundae and  Strawberry
     Sundae.

o    TOFUTTI  FROZEN  DESSERT  CAKES  offer  the  Tofutti  consumer  an  upscale
     non-dairy  frozen dessert  alternative to dairy ice cream cakes.  The cakes
     come in  various  types,  CHOCOLATE  LOVERS  DELIGHT,  ROCK N' ROLL and the
     SPRINKLE ROLL, and sizes. They are currently  available in supermarkets and
     health food store outlets.

o    TOFUTTI ITALIAN STYLE CANNOLI are made using the Company's non-dairy BETTER
     THAN CREAM CHEESE.  They combine a creamy,  non-dairy cheese filling with a
     chocolate covered cannoli shell and are available in retail packages.

o    BETTER THAN CREAM  CHEESE(R) is similar in taste and texture to traditional
     cream cheese but is milk and  butterfat  free and contains no  cholesterol.
     The 8 oz. retail packages are available in plain,  French onion,  herbs and
     chives,  wildberry,  smoked salmon, jalapeno,  cinnamon and raisin, ginseng
     and dill,  garlic and herb and  garden  veggie.  The plain  version is also
     available in 30 lb. bulk boxes,  while certain select flavors are available
     in 5 lb. containers.

o    SOUR SUPREME(R)  complements BETTER THAN CREAM CHEESE in that it is similar
     in  taste  and  texture  to   traditional   sour  cream  but  is  milk  and
     butterfat-free and contains no cholesterol.  The 12 oz. retail packages are
     available in plain,  guacamole,  salsa and cherries 'n' berries.  The plain
     version is also available in 30 lb. bulk boxes.

o    TOFUTTI  TORTELLINI are bite-sized  frozen pasta filled with TOFUTTI BETTER
     THAN CREAM CHEESE and are sold in 15 oz. bags for  supermarkets  and health
     food stores. The tortellini are available in three flavors: cheese, spinach
     cheese and meatless meat.

o    EGG  WATCHERS(R)  is a  fat-free  replacement  for whole  eggs that has the
     taste,  nutrition and versatility of whole eggs without the cholesterol and
     with 60% less  calories and fat. EGG WATCHERS can be used in virtually  all
     recipes that require whole eggs.

o    TOFUTTI COOKIES are made with all natural ingredients and unbleached flour.
     The 16 oz.  packages  are  available  in  peanut  butter,  oatmeal  raisin,
     chocolate chip and TOFIGGI(TM) fig bars.  Like all TOFUTTI  products,  they
     are completely dairy and cholesterol free.




                                       -4-

<PAGE>



o    TOFUTTI SOY LAVASCH(TM)  flatbread crackers,  made with TOFUTTI BETTER THAN
     CREAM  CHEESE,  offer  consumers a tasty snack that tastes  delicious  with
     spreads or simply plain.  SOY LAVASCH come in 5 oz. retail packages and are
     available in four flavors:  Onion & Poppy,  Garlic & Dill,  Hot & Spicy and
     Herb & Chive.

o    TOFUTTI SOY RITE(TM) is a frozen soy beverage that offers health  conscious
     consumers  a  nutritional  creamy  beverage  drink  with all the  taste and
     texture of real milk,  yet  contains  no lactose or  cholesterol.  SOY RITE
     comes in Vanilla and Chocolate Flavors and is available in 8 oz. and 16 oz.
     containers.

PRODUCTION

     All of the Company's  products are  manufactured  by co-packers to whom the
Company supplies certain key ingredients for the  manufacturing  processes.  The
Company's  co-packers  manufacture  and package the  Company's  products and, in
certain  instances,  warehouse such products pending  shipment.  For certain key
product categories,  such as non-dairy frozen dessert and non-dairy cheeses, the
Company has more than one co-packer.  The Company  currently has ten co-packers,
including one in the United Kingdom that  manufactures  the Company's  non-dairy
frozen dessert pints.

     The  Company  does not  have any  written  production  agreements  with its
co-packers  and  does  not  anticipate  that it  would  encounter  any  material
difficulty in obtaining alternative production sources, at a comparable cost, if
one or all of its contract manufacturers decide to terminate their relationships
with the Company.

     In  order  to  protect  its   formulas,   the  Company  has  entered   into
confidentiality   arrangements   with  its  contract   manufacturers  and  their
employees. There can be no assurance that such confidentiality  arrangements can
or will be  maintained,  or that  the  Company's  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.

     KOF-K  Kosher  Supervision  ("KOF-K") of Teaneck,  New Jersey  provides the
Company's   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.  The Company  believes that its ability to  successfully
market and distribute  its products is dependent  upon its continued  compliance
with the requirements of rabbinic  certification.  All TOFUTTI products meet the
requirements for certification as kosher-parve.

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. Generally, most products marketed by the Company are sold to independent
unaffiliated food brokers, to distributors and sometimes on a direct basis



                                       -5-

<PAGE>



to retail  chain  accounts.  Food  brokers act as agents for the Company  within
designated  territories or for specific accounts and receive commissions,  which
average 5% of net sales.

     On April 1,  1993,  the  Company  entered  into an  exclusive  distribution
agreement with  Haagen-Dazs,  a subsidiary of Grand  Metropolitan  Ltd., for the
distribution  of its non-dairy  frozen dessert  products  principally in the New
York metropolitan  area. On February 27, 1996, the Company informed  Haagen-Dazs
that its  services  would be  terminated  effective  March 31, 1996 and that the
Mattus Ice Cream Company would begin  distributing in the  metropolitan New York
area. Currently,  the Company still sells to Haagen-Dazs in Florida and Georgia.
During 1997, sales to Haagen-Dazs distributors nationwide totaled $209,000 or 3%
of sales as compared  to $135,000 or 2% of sales in 1996.  Total sales to Mattus
in the New  York  metropolitan  area  were  $801,000  or 11% of sales in 1997 as
compared to total sales to Mattus and  Haagen-Dazs  in 1996 of $440,000 or 8% of
sales.  The increase in sales in the  metropolitan  New York area was due to the
fact that Mattus  distributed the Company's products for all of 1997, as opposed
to only nine months in 1996. Additionally,  the Company issued credits in excess
of  $100,000  to  Haagen-Dazs  in 1996 to  settle  returned  product  and  trade
allowance expenses.

     During 1997, the Company  expanded its  distribution in the national health
food market, which now includes twenty-five distributors. Sales to the Company's
health food distributors in 1997 were $2,985,000 or 40% of sales, as compared to
$2,232,000 or 38% of sales in 1996. In 1997, the Company had sales of $1,033,000
or 14% of sales to Trader  Joe's,  a west coast based  health  food  supermarket
chain, as compared to $821,000 or 14% in 1996. Overall, the Company's west coast
sales were  $1,809,000 or 24% of sales in 1997, as compared to $1,511,000 or 26%
in 1996. The Company  continues to have a strong  presence in the kosher market,
with  sales  of  $647,000  or 9% of sales in 1997,  as  compared  with  sales of
$599,000 or 10% in 1996. The Company expects the favorable trend in the national
health  food,  west coast and kosher  markets to continue  in 1998.  The Company
currently  sells its frozen desserts in most major markets in the United States,
including Atlanta, Boston, Philadelphia, Cleveland, Cincinnati, Detroit, Denver,
Phoenix, Los Angeles, San Francisco and Seattle.

     During 1997, the Company shipped TOFUTTI non-dairy products to distributors
in Canada, England,  Belgium, France, Germany, the Netherlands,  Sweden, Panama,
Martinique,  Mexico,  Israel and  Australia.  Sales to  distributors  in foreign
countries  totaled  $865,000  or 12% of sales in 1997 as compared to $621,000 or
11% of sales in 1996.  The  increase  in export  sales was due  primarily  to an
increase  in sales to the  Company's  Israeli  and  European  distributors.  The
Company's future export sales could be adversely  affected by an increase in the
value of the U.S.  dollar,  which could  increase the Company's  local  currency
price for its products.

RESEARCH AND DEVELOPMENT

     During the last two years, David Mintz, Chief Executive Officer, and Reuben
Rapoport,  Director of Product  Development,  have devoted  substantial time and
effort to the development of new products and the reformulation of the Company's
current  products.  In 1997 and 1996,  the  Company's  research and  development
expenses were $273,000 and $206,000,  respectively.  Such amounts do not include
any portion of Mr. Mintz's salary.



                                      -6-

<PAGE>




COMPETITION

     TOFUTTI  frozen  desserts  compete  with all forms of ice  cream  products,
yogurt-based desserts and other soya-based frozen desserts. The Company believes
it has the most  complete  line of non-dairy  frozen  dessert  products and is a
leader in this market.  Other  soya-based  frozen dessert products are presently
being sold in both soft serve and hard frozen form  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 the Company competes are  substantially
larger and have significantly  greater resources than the Company. The Company's
other products also face substantial competition,  from both non-dairy and dairy
competitive products marketed by companies with significantly  greater resources
than the Company.

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 the Company
seeks to market does not conform to an applicable  standard,  special permission
to market such a product is required.

     The Company's United States product labels are subject to regulation by the
United States Food and Drug  Administration  ("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.  The Company's labels,  ingredients
and  manufacturing  processes  are  subject to  inspection  by the FDA. In 1994,
federal  laws  relating to food  product  labeling  were amended to require food
product  companies  to make  numerous  changes in their  product  labeling.  The
Company believes that it is in compliance with current labeling requirements.

     The Food,  Drug and Cosmetic Act and rules and  regulations  promulgated by
the FDA thereunder,  contain no specific  Federal  standard of identity which is
applicable to TOFUTTI.  TOFUTTI 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
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.  The  Company's
Cranford,  New Jersey facility is subject to inspection by the New Jersey-Kosher
Enforcement  Bureau and Environmental  Health Services.  The Company believes it
and its distributors  and co-packers are in compliance in all material  respects
with  governmental  regulations  regarding its current products and has obtained
the  material  governmental  permits,  licenses,  qualifications  and  approvals
required for its operations.  The Company's  compliance with Federal,  state and
local  environmental laws has not materially  affected it either economically or
in the  manner  in which it  conducts  its  business.  However,  there can be no
assurance that the Company,  its  distributors  and  co-

                                      -7-


<PAGE>


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 the
Company's products to consumers.

TRADEMARKS AND PATENTS

     The Company has registered its trademark,  TOFUTTI(R), and other trademarks
for  its  frozen   desserts  and  other   products  in  the  United  States  and
approximately 35 foreign  countries.  The Company believes its trademarks are an
important means of establishing consumer recognition for its products.

     Although  the  Company   believes  that  its  formulas  and  processes  are
proprietary,  the Company has not sought patent  protection for such technology.
Instead,  the Company is relying on the complexity of its  technology,  on trade
secrecy laws, and on confidentiality  agreements.  The Company believes that its
technology has been independently developed and does not infringe the patents of
others.

EMPLOYEES

     On December  27,  1997,  the Company  employed  eight people on a full-time
basis, compared with seven people as of December 28, 1996. The Company considers
its relations with its employees to be good.


Item 2. Description of Properties

     The  Company's  facilities  are located in a modern  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. On January 3, 1994, the Company
signed a  five-year  lease  extension  which  expires  July 1, 1999.  Management
believes that the Cranford facility will continue to satisfy the Company's space
requirements for the foreseeable future.


Item 3. Legal Proceedings

     The Company is not a party to any material litigation.


Item 4. Submission of Matters to a Vote of Security Holders

     None.



                                       -8-

<PAGE>



                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

     The Company's  Common Stock has traded on the American Stock Exchange under
the symbol TOF since October 29, 1985.  The following  table sets forth the high
and low sales prices as reported on the American Stock Exchange for the two most
recent fiscal years:


Quarter Ended                              High                Low
-------------                           ---------             -----
March 30, 1996........................   $1                  $ 9/16
June 29, 1996.........................     15/16               5/8
September 28, 1996....................      3/4                5/8
December 28, 1996.....................      3/4                9/16

March 29, 1997........................      7/8                9/16
June 28, 1997.........................    1-3/16               9/16
September 27, 1997....................    2-7/8                3/4
December 27, 1997.....................    2-3/16             1-1/8

     As of March 12, 1998, there were  approximately  1,084 holders of record of
the  Company's  Common  Stock.  The  Company  has not  paid  and has no  present
intention  of paying  cash  dividends  on its  Common  Stock in the  foreseeable
future.


Item 6. 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 the  Company's  financial  position and
operating  results  during the periods  included in the  accompanying  financial
statements.

     The discussion and analysis which follows in this Annual Report may contain
trend  analysis  and other  forward-looking  statements  within  the  meaning of
Section 21E of the  Securities  Exchange Act of 1934 which reflect the Company's
current views with respect to future events and financial results. These include
statements regarding the Company's earnings, projected growth and forecasts, and
similar matters which are not historical facts. The Company reminds stockholders
that  forward-looking  statements  are  merely  predictions  and  therefore  are
inherently  subject to  



                                      -9-

<PAGE>


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 and growth in the food industry and general economies,  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 Annual Report and made elsewhere by or on behalf of
the Company should be considered in light of these factors.

Fifty-two Weeks Ended December 27, 1997 Compared with Fifty-two Weeks Ended
December 28, 1996

     Net sales for the fifty-two weeks ended December 27, 1997 were  $7,440,000,
an increase of $1,598,000 or 27% from the sales level realized for the fifty-two
weeks ended  December 28, 1996.  In the 1997 period,  sales of hard pack TOFUTTI
and food product sales increased by $1,216,000 and $382,000,  respectively.  The
hard  pack  sales  increase  was  attributable  to an  increase  in sales of all
categories of frozen dessert products,  while the increase in food product sales
was mostly  attributable to an increase in sales of BETTER THAN CREAM CHEESE and
SOUR  SUPREME.  The  Company's  gross profit for the current  year  increased by
$577,000 or 27% due  primarily  to the sales  increase,  while its gross  profit
percentage remained unchanged at 36% in 1997. The Company's gross profit in 1997
was adversely  affected by the start-up costs  associated with the Company's new
products and the increased cost of allowances  associated with the  introduction
of those new products.  The Company anticipates its gross profit percentage will
not improve in 1998 due to the continuing introductory sales costs it will incur
with the planned introduction of new products in 1998.

     Based on its recent sales  trend,  the Company  believes  that its revenues
will  improve in 1998.  The Company  expects  continued  sales  increases in its
frozen dessert and food product lines and in most customer categories.

     Selling expenses  increased 15% to $1,003,000 for the current fiscal period
from $870,000 for the comparable 1996 period.  The primary cause of the increase
was  increased  warehouse,  freight  and bad  debt  expenses.  The  increase  in
warehouse  expense is  attributable  to an increase in  inventory to support the
Company's  increased  level of  operations.  The  increased  freight  expense is
attributable to the increase in sales. The increase in bad debt expense reflects
an additional  provision to the reserve for bad debts arising from the Company's
increased level of sales and for potentially delinquent accounts.  Marketing and
sales  promotion  expenses  decreased  25% in 1997 to $172,000  from $230,000 in
1996.  This decrease was due  principally  to the  Company's  reduction in trade
magazine and newspaper advertising.

     Research and development expenses increased in 1997 to $273,000 as compared
to $206,000 in 1996. The increase in research and  development  expenses was due
to increased costs  associated with new product  development and the start-up of
new  co-packing  plants  to make  those  products.  General  and  administrative
expenses  were  $794,000 for the current  period  compared with $716,000 for the
comparable  period in 1996. The increase of $78,000 was due in part to increased
salary,  telephone,  office  equipment  rental,  professional  fees,  and public
relation expenses.




                                       -10-

<PAGE>



     Interest  expense was $7,000 for the fifty-two  week period ended  December
27, 1997 compared with $12,000 for the fifty-two  week period ended December 28,
1996.

     As a result of  reductions  in the  valuation  allowance  on  deferred  tax
assets,  the Company recorded income tax benefits of $83,000 and $45,000 in 1997
and 1996, respectively.

Liquidity and Capital Resources

     At December 27, 1997,  the Company's  working  capital was  $1,202,000,  an
increase of $487,000 from  December 28, 1996.  At the end of the fifty-two  week
period,  accounts  receivable  decreased  by $58,000  from  December  28,  1996,
principally  reflecting  the increase in the reserve for bad debts.  Inventories
increased by $190,000, reflecting the additional inventory for the Company's new
products.  Deferred  tax assets  increased  $139,000  primarily as a result of a
reduction in the valuation allowance. Accounts payable decreased to $94,000 from
$504,000,  while accrued  expenses  increased to $194,000 from $115,000 in 1996.
The increase in income taxes payable of $14,000 represents a provision for state
income  taxes offset by a tax benefit  related to the exercise of  non-qualified
stock options.  The overall  reduction in the Company's  current  liabilities of
$315,000  was  generated  by the  Company's  improved  cash  flow  caused by the
increased  profit in 1997 as compared  to 1996.  The  increase in the  Company's
common  stock and paid in capital in 1997 of $129,000 was due to the exercise of
stock options in September 1997.

     The Company does not have any material capital commitments and contemplates
no material expenditures in the foreseeable future. As a result of the Company's
inability  to secure  additional  financing  or equity  capital,  it has not had
sufficient funds to fully implement the marketing of its new products.  This has
hindered  the  Company in its  efforts to  increase  the sales of its  products.
Although  the Company was able to fund its  operations  in 1997 from its current
resources,  any  substantial  increase in its operations may require  additional
working  capital.  Although the Company has had  discussions and intends to have
future ones with  interested  parties  concerning  additional  financing for the
Company,  no assurance can be given that such working  capital will be available
if required.  Management  believes that if its  operations in 1998 continue in a
manner  consistent with its results for 1997, it will have sufficient  financial
resources to continue its operations throughout the coming year.

Inflation and Seasonality

     The  Company  does  not  believe  that  its  operating  results  have  been
materially  affected by inflation  during the preceding two years. The can be no
assurance, however, that the Company's operating results will not be affected by
inflation in the future.  The Company's  business is not subject to  substantial
seasonal variations.

The Year 2000 Issue

     The Company is conducting a comprehensive review of its computer systems to
identify  the  systems  that could be  affected  by the "Year 2000" issue and is
developing an  implementation  plan to resolve the issue. The Company  presently
believes that, with  modifications  to existing  software and conversions to new
software for certain applications, the Year 2000 issue will not



                                      -11-

<PAGE>



pose significant  operational  problems for the Company's computer systems as so
modified  and  converted.  The  Company  expects its  implementation  plan to be
completed on a timely basis and without significant cost.

Other Matters

     In June 1997, the Financial  Accounting Standards Board (the "FASB") issued
Statement  of  Financial  Accounting  Standards  ("SFAS")  No.  130,  "Reporting
Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for reporting
and  display  of  comprehensive  income  and  its  components  in the  financial
statements.  SFAS 130 is effective for fiscal years beginning after December 15,
1997.  Reclassification of financial statements for earlier periods provided for
comparative  purposes is required.  The adoption of SFAS 130 will have no impact
on the Company's results of operations, financial position or cash flows.

     In June 1997, the FASB issued SFAS No. 131,  "Disclosure  about Segments of
an  Enterprise  and Related  Information"  ("SFAS  131").  SFAS 131  establishes
standards  for the way public  business  enterprises  report  information  about
operating  segments  in annual  financial  statements  and  requires  that those
enterprises  report selected  information  about  operating  segments in interim
financial  reports issued to  shareholders.  It also  establishes  standards for
related  disclosures  about  products and services,  geographic  areas and major
customers.  SFAS 131 is  effective  for  financial  statements  for fiscal years
beginning  after December 15, 1997,  and the Company will comply  beginning with
year-end 1998 results.  Financial  statement  disclosures  for prior periods are
required  to be  restated.  The  Company  is in the  process of  evaluating  the
disclosure  requirements.  The  adoption  of SFAS 131 will have no impact on the
Company's results of operations, financial position or cash flows.



                                      -12-

<PAGE>



Item 7. Financial Statements


                          Index to Financial Statements


Independent Auditors' Report.............................................F-1

Financial Statements:

         Balance Sheets
            December 27, 1997 and December 28, 1996......................F-2

         Statements of Operations and Accumulated Deficit
            Fifty-two weeks ended
            December 27, 1997 and December 28, 1996......................F-3

         Statements of Cash Flows
            Fifty-two weeks ended
            December 27, 1997 and December 28, 1996......................F-4

         Notes to Financial Statements...................................F-5







                                      -13-

<PAGE>



                          Independent Auditors' Report





The Board of Directors
Tofutti Brands Inc.:

We have audited the  accompanying  balance  sheets of Tofutti  Brands Inc. as of
December  27,  1997  and  December  28,  1996,  and the  related  statements  of
operations  and  accumulated  deficit,  and cash  flows for the  fifty-two  week
periods then ended.  These 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  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  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
December 27, 1997 and December  28, 1996 and the results of its  operations  and
its cash flows for the fifty-two  week periods then ended,  in  conformity  with
generally accepted accounting principles.


/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP

Short Hills, New Jersey
March 13, 1998



                                       F-1

<PAGE>



                               TOFUTTI BRANDS INC.
                                 BALANCE SHEETS
               (000's omitted except for share and per share data)

<TABLE>
<CAPTION>
                                                                      December 27,       December 28,
                                                                           1997               1996
                                                                           ----               ----
<S>                                                                      <C>                <C>
Assets
Current Assets:
     Cash                                                                $   54             $   11
     Accounts receivable (net of allowance for doubtful
        accounts of $458 in 1997 and $295 in 1996) (Note 2)                 919                977
     Inventories (Note 3)                                                   541                351
     Prepaid expense                                                          7                 10
                                                                          -----             ------
                Total current assets                                      1,521              1,349

Fixed assets (net of accumulated depreciation) (Note 4)                      --                 --
Deferred income taxes (Note 9)                                              450                311
Other assets (Note 5)                                                        97                 76
                                                                         ------             ------
                Total assets                                             $2,068             $1,736
                                                                         ======             ======

Liabilities and Stockholders' Equity

Current liabilities:
     Note payable - current portion                                          17                 15
     Accounts payable                                                        94                504
     Accrued expenses (Note 6)                                              194                115
     Income taxes payable (Note 9)                                           14                 --
                                                                           ----               ----
                  Total current liabilities                                 319                634

Note payable                                                                 49                 66
                                                                           ----               ----
                  Total liabilities                                         368                700

Stockholders' equity (Note 7):
     Preferred stock - par value $.01 per share;
       authorized 100,000 shares, none issued                                --                 --
     Common stock - par value $.01 per share;
       authorized 15,000,000 shares, issued and
       outstanding 6,183,567 shares at 12/27/97 and
       6,053,567 at 12/28/96                                                 62                 61

     Paid-in capital                                                      3,631              3,503
     Accumulated deficit                                                 (1,993)            (2,528)
                                                                         ------             ------
                  Total stockholders' equity                              1,700              1,036
                                                                         ------             ------

Commitments (Note 8)                                                         --                 --
                                                                         ------             ------

                 Total liabilities and stockholders' equity              $2,068             $1,736
                                                                         ======             ======

</TABLE>
                 See accompanying notes to financial statements.



                                                        F-2

<PAGE>



                               TOFUTTI BRANDS INC.
                STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
                    (000's omitted except for per share data)

<TABLE>
<CAPTION>
                                                                Fifty-two weeks               Fifty-two weeks
                                                                     ended                         ended
                                                               December 27, 1997             December 28, 1996
                                                               -----------------             -----------------
<S>                                                                <C>                           <C> 
Net sales                                                           $7,440                        $5,842
Cost of sales                                                        4,739                         3,718
                                                                    ------                         -----
                  Gross profit                                       2,701                         2,124

Operating expenses:
  Selling                                                            1,003                           870
  Marketing and sales promotion                                        172                           230
  Research and development                                             273                           206
  General and administrative                                           794                           716
                                                                     -----                         -----
                                                                     2,242                         2,022
                                                                     -----                         -----

                  Operating income                                     459                           102

Interest expense                                                         7                            12
                                                                      ----                           ---
                  Income before income tax benefit                     452                            90

Income tax benefit (Note 9)                                             83                            45
                                                                      ----                          ----

                  Net income                                           535                           135

Accumulated deficit, beginning of year                              (2,528)                       (2,663)
                                                                    ------                        ------

Accumulated deficit, end of year                                   $(1,993)                      $(2,528)
                                                                   =======                       =======

Net income per share:
   Basic                                                              $.09                          $.02
   Diluted                                                             .08                           .02
                                                                       ===                           ===
</TABLE>





                 See accompanying notes to financial statements.



                                                        F-3

<PAGE>



                               TOFUTTI BRANDS INC.
                            STATEMENTS OF CASH FLOWS
                                 (000's omitted)


<TABLE>
<CAPTION>
                                                                         Fifty-two               Fifty-two
                                                                        weeks ended             weeks ended
                                                                        December 27,            December 28,
                                                                            1997                    1996
                                                                            ----                    ----
<S>                                                                         <C>                     <C>
Cash flows from operating activities:
   Net income                                                               $535                    $135

   Net  adjustments  to  reconcile  net income to net 
    cash (used in) provided by operating activities:
   Deferred taxes                                                           (139)                    (47)
   Provision for bad debts                                                   163                      62
   Change in assets and liabilities:
   Increase in accounts receivable                                          (105)                    (33)
   Increase in inventories                                                  (190)                   (155)
   Decrease in prepaid expense                                                 3                       1
   Increase in other assets                                                  (21)                    (20)
   (Decrease) increase in accounts payable                                  (410)                    140
   Increase (decrease) in accrued expenses                                    79                     (71)
   Increase in income taxes payable                                           14                      --
                                                                            ----                    ----

   Net cash (used in) provided by operating activities                       (71)                     12
                                                                            ----                    ----

Cash flows from financing activities:
   Repayment of note payable                                                 (15)                    (13)
   Issuance of common stock                                                  129                      --
                                                                            ----                    ----
   Net cash provided by (used in) financing activities                       114                     (13)
                                                                            ----                    ----

Net increase (decrease) in cash                                               43                      (1)

Cash at beginning of period                                                   11                      12
                                                                            ----                    ----
Cash at end of period                                                       $ 54                    $ 11
                                                                            ====                    ====

Supplemental  disclosures  of cash flow  information:  
   Cash paid during the year for:
   Interest                                                                 $  7                    $ 12
                                                                            ====                    ====
   Income taxes                                                                1                       2
                                                                            ====                    ====

</TABLE>


                 See accompanying notes to financial statements.



                                       F-4

<PAGE>


                               TOFUTTI BRANDS INC.
                          NOTES TO FINANCIAL STATEMENTS
               (000's omitted except for share and per share data)



(1) Summary of Significant Accounting Policies

Description of Business

Tofutti Brands Inc.  ("Tofutti" or the "Company") is engaged in the development,
production and marketing of non-dairy frozen desserts and other food products.

Revenue Recognition

The  Company  recognizes  revenue  when goods are  shipped  from its  production
facilities or outside warehouses.

Common Stock

Effective  December  31,  1997,  the  Company  adopted  Statement  of  Financial
Accounting  Standards  ("SFAS") No. 128 "Earnings per Share",  which  requires a
dual  presentation  of earnings per share basic and diluted.  Basic earnings per
common share has been  computed by dividing  net income by the weighted  average
number of common shares  outstanding of 6,086,000 in 1997 and 6,054,000 in 1996.
Diluted  earnings  per share has been  computed  by  dividing  net income by the
weighted  average  number of common  shares  outstanding, including the dilutive
effects of stock options, of 6,404,000 in 1997 and 6,060,000 in 1996.

In October 1995, the Financial  Accounting  Standards Board ("FASB") issued SFAS
No. 123,  "Accounting for Stock-Based  Compensation,"  which allowed  companies,
beginning in 1996, to either retain Accounting  Principles Board ("APB") Opinion
No. 25 "Accounting for Stock Issued to Employees",  and related interpretations,
for  recognizing  expense  for  stock-based  compensation,  or  to  adopt  a new
accounting  method  based on  estimated  fair value.  The Company has decided to
continue to follow APB 25 and has provided pro forma disclosures of net earnings
as required under the provisions of SFAS 123 (see Note 7).

The change in common stock and paid-in  capital during 1997 was  attributable to
the exercise of options to purchase 130,000 shares of common stock.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined by the
first-in, first-out method.

Fixed Assets

Fixed  assets  are  carried  at  cost.   Depreciation   is  computed  using  the
straight-line method. When assets are retired or otherwise disposed of, the cost
and related accumulated depreciation are



                                       F-5

<PAGE>


                               TOFUTTI BRANDS INC.
                          NOTES TO FINANCIAL STATEMENTS
               (000's omitted except for share and per share data)

removed from the  accounts,  and any  resulting  gain or loss is  recognized  in
income for the period.  The cost of maintenance and repairs is charged to income
as incurred; significant renewals and betterments are capitalized.

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 and operating
loss and tax credit  carryforwards.  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.

Fair Value of Financial Instruments

SFAS No. 107,  "Disclosures about Fair Value of Financial  Instruments," defines
the fair value of a financial  instrument as the amount at which the  instrument
could be exchanged in a current transaction between willing parties.

Cash,  accounts  receivable,  accounts payable,  accrued expenses,  income taxes
payable and note  payable as of  December  27,  1997 and  December  28, 1996 are
stated at their carrying  values.  The carrying  amounts  approximate fair value
because of the short-term  maturity of those instruments or because the interest
rates approximate market rates of interest.

Risks and Uncertainties

The Company  performs  ongoing credit  evaluations  of its customers'  financial
conditions and, generally, requires no collateral from its customers.

The  preparation  of the  financial  statements  in  conformity  with  generally
accepted  accounting  principles  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. Actual results could differ from those estimates.









                                       F-6

<PAGE>


                               TOFUTTI BRANDS INC.
                          NOTES TO FINANCIAL STATEMENTS
               (000's omitted except for share and per share data)

(2) Accounts Receivable

Activity in the allowance for doubtful accounts is set forth below:



                                         Fifty-two weeks         Fifty-two weeks
                                             ended                   ended
                                          December 27,            December 28,
                                              1997                    1996
                                              ----                    ----
     Beginning balance                        $295                    $242
     Additions charged to expense              163                      62
     Less: Write offs                            -                       9
                                              ----                    ----
                                              $458                    $295
                                              ====                    ====

(3) Inventories

Inventories consist of:

                                          December 27,            December 28,
                                             1997                    1996
                                             ----                    ----
     Finished products                       $342                    $262
     Raw materials and packaging              199                      89
                                             ----                    ----
                                             $541                    $351
                                             ====                    ====

(4) Fixed Assets

Fixed assets consist of the following:


                                      December 27,      December 28,      Useful
                                         1997              1996            Lives
                                         ----              ----            -----

Machinery and equipment                  $30               $30              5 yr
Leasehold improvements                    29                29              5 yr
                                          --                --
                                          59                59

Less accumulated depreciation             59                59
                                          --                --
                                         $--               $--
                                         ===               ===

(5) Other Assets

On October 17,  1994,  the  Company's  Board of  Directors  adopted a resolution
wherein  the  Corporation  was  authorized  to  purchase a $1,000  split  dollar
insurance plan on the life of a



                                       F-7

<PAGE>


                               TOFUTTI BRANDS INC.
                          NOTES TO FINANCIAL STATEMENTS
               (000's omitted except for share and per share data)


member of David  Mintz's  family.  Mr.  Mintz is Chairman  and  President of the
Company.  The purpose of this  transaction  is to provide the Mintz  estate with
funds sufficient to pay any estate taxes levied upon the transfer of Mr. Mintz's
Tofutti stock,  which would otherwise have necessitated a sale of the stock. The
sale of such stock might have the negative  effect of  significantly  decreasing
the market price of the stock to the detriment of other  shareholders.  Upon the
death of the family  member or  termination  of the policy  prior to death,  the
Company is to receive a complete  refund of all its premiums  paid plus interest
at 4%.

(6)  Accrued Expenses

Accrued expenses consist of the following:


                                          December 27,           December 28,
                                             1997                   1996
                                             ----                   ----
     Advertising                             $  2                   $  7
     Professional fees                         31                     26
     Selling                                  130                     80
     Inventory purchases                       30                     --
     Other                                      1                      2
                                             ----                   ----
                    Total                    $194                   $115
                                             ====                   ====
     


(7)  Stock Options

The 1993 Stock  Option Plan (the "1993  Plan")  provides for the granting to key
employees of incentive  stock options,  within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended,  and for the granting of nonstatutory
options  to  key  employees  and   consultants.   The  1993  Plan  is  currently
administered  by  the  Board  of  Directors,  which  determines  the  terms  and
conditions of the options  granted  under the 1993 Plan,  including the exercise
price,  number of shares subject to the option and the  exercisability  thereof.
Options are generally  exercisable in cumulative  installments of 33-1/3% or 50%
per year  commencing  one year after the date of grant and annually  thereafter,
with contract  lives of generally  five years from the date of grant. A total of
1,400,000  shares  have been  reserved  for  issuance  under the 1993  Plan.  At
December 27, 1997,  1,220,000 shares were subject to outstanding  options and no
additional shares were available for future grant.









                                       F-8

<PAGE>


                               TOFUTTI BRANDS INC.
                          NOTES TO FINANCIAL STATEMENTS
               (000's omitted except for share and per share data)


The  following is a summary of stock option  activity  from December 30, 1995 to
December 27, 1997:

<TABLE>
<CAPTION>
                                                   INCENTIVE OPTIONS              NON-QUALIFIED OPTIONS
                                                   -----------------              ---------------------
                                                                Weighted                         Weighted
                                                                 Average                          Average
                                                                Exercise                         Exercise
                                                 Shares           Price        Shares             Price
                                                 ------           -----        ------             -----
<S>                                           <C>                 <C>         <C>                 <C>  
Outstanding and exercisable at
  December 30, 1995 and
  December 28, 1996                              83,000           $.681        55,000             $.625
Granted in 1997                               1,118,000            .765       102,000              .790
Exercised in 1997                               (75,000)           .6875      (55,000)             .625
Canceled in 1997                                 (8,000)           .625            --                --
                                                -------                         -----
Outstanding at December 27, 1997              1,118,000            .765       102,000              .790
                                              =========                       =======
Exercisable at December 27, 1997                     --              --            --                --

Weighted average fair value of
options granted during the year                    $.39                          $.39

</TABLE>

The fair value of each stock option granted during 1997 is estimated on the date
of grant  using  the  Black-Scholes  option  pricing  model  with the  following
assumptions:


                                                  1997
                                                  ----
     Expected life (years)                         4.0
     Expected volatility                          62.0%
     Expected dividend yield                       0.0%
     Risk-free interest rate                       5.5%

There were no stock options granted during 1996.





                                       F-9

<PAGE>


                               TOFUTTI BRANDS INC.
                          NOTES TO FINANCIAL STATEMENTS
               (000's omitted except for share and per share data)

The following table summarizes  information about the stock options  outstanding
at December 27, 1997:
                               OPTIONS OUTSTANDING
                               -------------------
                                     Weighted Average         Weighted
    Range of           Number         Remaining Life           Average
Exercise Prices     Outstanding         (in years)         Exercise Price
---------------     -----------         ----------         --------------
 $.6875--$1.031      1,220,000              4.3                 $.767

Set forth below are the Company's net income and net income per share, presented
both "as reported" and "pro forma," as if compensation  cost had been determined
consistent with the fair value provisions of SFAS 123:

                                                        1997
                                                        ----
Net income available for common stockholders:
   As reported                                          $535
   Pro forma                                             392
Basic earnings per share:
   As reported                                           .09
   Pro forma                                             .06
Diluted earnings per share:
   As reported                                           .08
   Pro forma                                             .06




(8) Lease Obligation

Future minimum lease payments under an existing  operating lease that expires on
July 1, 1999 are as follows:


  Period ending                   Amount
  -------------                   ------
December 26, 1998                  $ 74
Thru July 1, 1999                    37
                                    ---
                   Total           $111
                                   ====

Annual net rental expenses aggregated $68 for each of the fifty-two week periods
ended December 27, 1997 and December 28, 1996.



                                      F-10

<PAGE>


                               TOFUTTI BRANDS INC.
                          NOTES TO FINANCIAL STATEMENTS
               (000's omitted except for share and per share data)

(9) Income Taxes

The  components of income tax expense  (benefit) for the fifty-two  week periods
ended December 27, 1997 and December 28, 1996 are as follows:


                                               1997            1996
                                               ----            ----
     Current:
           Federal                           $   --           $  --
           State                                 56               2
                                                 --              --
                                                 56               2
                                                 --             ---
     Deferred:
           Federal                             (124)            (60)
           State                                (15)             13
                                               ----              --
                                               (139)            (47)
                                               ----             ---

     Total income tax benefit                  $(83)           $(45)
                                               ====            ====



Deferred tax assets at December 27, 1997 and December 28, 1996 are as follows:


                                               
                                                 1997                 1996
                                                 ----                 ----
Allowance for doubtful accounts                  $183                 $123
Inventories                                        12                    7
Note payable                                       26                   35
Other accruals                                     53                   --
Loss carryforwards and tax credits                435                  641
                                                  ---                  ---
Gross deferred tax assets                         709                  806
Valuation allowance                               259                  495
                                                  ---                  ---

Net deferred tax assets                          $450                 $311
                                                  ===                 ====

Based upon the level of  projected  future  taxable  income  over the periods in
which the deferred tax assets principally attributable to the net operating loss
carryforwards are deductible, management believes it is more likely than not the
Company will  realize its net  deferred  tax assets at December  27,  1997.  The
amount  of the  deferred  tax asset  considered  realizable,  however,  could be
reduced  in the near term if  estimates  of future  taxable  income  during  the
carryforward period are reduced.




                                      F-11

<PAGE>


                               TOFUTTI BRANDS INC.
                          NOTES TO FINANCIAL STATEMENTS
               (000's omitted except for share and per share data)

The Company has net operating loss carryforwards of approximately  $1,192, which
will expire in 2005.  The Company  also has unused tax credits of  approximately
$30.

A  reconciliation  between the federal tax expense at the  statutory tax rate of
34% and the Company's  actual tax benefit for the  fifty-two  week periods ended
December 27, 1997 and December 28, 1996 is as follows:



                                                 1997             1996
                                                 ----             ----
Expected tax                                     $154            $  31
Non-deductible expenses                             8               18
State income taxes, net of federal
    income tax benefit                             27               10
Change in valuation allowance                    (236)            (132)
Other                                             (36)              28
                                                ------           -----
               Total                            $ (83)           $ (45)
                                                =====            =====


(10) Business Concentrations

During both  fifty-two  week  periods  ended  December 27, 1997 and December 28,
1996, the Company derived  approximately 89% of its net sales domestically.  The
remaining sales in both periods were exports to various other  countries.  Sales
to two customers represented 14% and 11% of net sales in 1997. In 1996, sales to
two customers represented 14% and 12% of net sales.





                                      F-12

<PAGE>



Item 8.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
         Financial Disclosure

         None.


                                    PART III

Item 9.  Directors  and  Executive  Officers,  Promoters  and  Control  Persons;
         Compliance with Section 16(a) of the Exchange Act

         The Directors and Executive Officers of the Company are:


Name                             Age      Position
----                             ---      --------
David Mintz...................    66      Chairman of the Board of Directors,
                                          Chief Executive Officer
Steven Kass...................    46      Chief Financial Officer, Secretary and
                                          Treasurer
Reuben Rapoport...............    67      Director of Product Development and
                                          Director
Franklyn Snitow...............    51      Director
Bernard Koster................    63      Director

     David Mintz has been Chairman of the Board and Chief  Executive  Officer of
the Company and its predecessor since August 1981.

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

     Reuben Rapoport has been the Director of Product Development of the Company
since January 1984 and a Director of the Company since July 1983.

     Franklyn  Snitow has been a Director of the Company since 1987. He has been
a  partner  in the New York  City law firm of  Snitow &  Pauley,  the  Company's
general counsel, since 1985.

     Bernard  Koster has been a Director of the Company since March 1993. He has
been counsel to the New Jersey law firm of Litwin and  Holsinger  since  January
1993. Since February 1990, Mr. Koster has also acted as an independent  business
consultant.

     All  Directors of the Company 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.  There are no family
relationships between Directors and executive officers



                                      -13-

<PAGE>



of the  Company.  All of the  executive  officers  devote their full time to the
operations of the Company.

     Compliance  with Section  16(a) of The Exchange  Act.  Section 16(a) of the
Securities Exchange Act of 1934, as amended, requires the Company's officers and
directors,  and persons who own more than  ten-percent  of its Common Stock,  to
file initial  statements of  beneficial  ownership  (Form 3), and  statements of
changes in beneficial ownership (Forms 4 or 5), of Common Stock and other equity
securities  of the Company  with the  Securities  and Exchange  Commission  (the
"SEC") and the American  Stock  Exchange.  Officers,  directors and greater than
ten-percent  stockholders  are required by SEC regulation to furnish the Company
with copies of all such forms they file.

     To the  Company's  knowledge,  based  solely on its review of the copies of
such forms  received by it, or written  representations  from certain  reporting
persons that no additional  forms were required for those  persons,  the Company
believes  that  during  fiscal  1997 all  persons  subject  to  these  reporting
requirements  filed the  required  reports on a timely basis  except:  (i) David
Mintz, Chairman of the Board and President, did not timely file a report on Form
4 for (a) a February 28, 1997 grant of 400,000 options and a July 31, 1997 grant
of 80,000  options  under the  Company's  1993  Amended  Stock  Option Plan (the
"Plan"),  (b) the September 22, 1997  exercise of 75,000  options  granted under
Plan, and (c) the subsequent  sale of 40,000 shares so acquired on September 22,
1997 (4,400  shares for $2.5625  per share,  4,000  shares for $2.375 per share,
13,000  shares for  $2.625  per share and 5,600  shares for $2.25 per share) and
September 24, 1997 (2,500 shares for $2.375 per share,  2,000 shares for $2.0625
per share,  5,500  shares for $2.4375  per share and 3,000  shares for $2.25 per
share);  (ii) Bernard Koster,  a director of the Company,  did not timely file a
report on Form 4 for (a) a February 28, 1997 grant of 30,000  options and a July
31, 1997 grant of 10,000  options  under the Plan,  (b) the  September  22, 1997
exercise of 16,000 options  granted under the Plan, and (c) the subsequent  sale
of 12,000 shares so acquired on September 29, 1997 (2,500 shares for $2.4375 per
share, 1,500 shares for $2.25 per share and 2,000 shares for $2.0625 per share),
September  30, 1997 (400 shares for $2.0625 per share and 1,600 shares for $2.00
per share)  and  October  1, 1997  (2,000  shares for $2.125 per share and 2,000
shares for $2.00 per share);  (iii) Reuben Rapoport,  a director of the Company,
did not timely  file a report on Form 4 for a February  28, 1997 grant of 75,000
options  and a July 31,  1997  grant of 20,000  options  under  the  Plan;  (iv)
Franklyn H. Snitow,  a director of the Company,  did not timely file a report on
Form 4 for (a) a February  28, 1997 grant of 30,000  options and a July 31, 1997
grant of 30,000  options under the Plan,  (b) the September 21, 1997 exercise of
30,000 options  granted under Plan, and (c) the subsequent sale of 10,000 shares
so acquired on  September  22, 1997 for $2.4375 per share;  and (v) Steven Kass,
Chief Financial Officer,  Secretary and Treasurer of the Company, did not timely
file a report on Form 4 for a February  28, 1997 grant of 360,000  options and a
July 31, 1997 grant of 70,000 options under the Company's Plan.








                                      -14-

<PAGE>



Item 10.  Executive Compensation

     The  following   table  sets  forth   information   concerning   the  total
compensation  during the last three  fiscal  years for the  Company's  executive
officers whose total salary in fiscal 1997 totaled $100,000 or more:

                           SUMMARY COMPENSATION TABLE
                           --------------------------

                                              Annual            Long-Term
                                           Compensation        Compensation
                                           ------------        ------------
                                                           Securities Underlying
Name and Principal Position      Year        Salary ($)         Options (#)
---------------------------      ----        ----------         -----------
David Mintz                      1997       $180,000(1)           480,000
Chief Executive Officer          1996        155,000(2)                --
  and Chairman of the Board      1995        125,000                   --

Steven Kass                      1997        117,500(1)           430,000
Chief Financial Officer          1996        100,000(2)                --
  Secretary and Treasurer        1995             --(3)                --
---------------
(1)  Includes  bonuses  of  $30,000  and  $20,000  for  Messrs.  Mintz and Kass,
     respectively, accrued at year-end and payable April 1, 1998.
(2)  Includes  bonuses  of  $30,000  and  $15,000  for  Messrs.  Mintz and Kass,
     respectively, accrued at year-end and payable April 1, 1997.
(3)  Less than $100,000.

     The aggregate value of all other  perquisites  and other personal  benefits
furnished  in each of the last three years to each of these  executive  officers
was less than 10% of each officer's salary for such year.

     On October 17, 1994, the Company's Board of Directors  adopted a resolution
wherein the  Corporation  was  authorized to purchase a $1,000,000  split dollar
insurance  plan on the life of a member of David  Mintz's  family.  Mr. Mintz is
Chairman  and Chief  Executive  Officer  of the  Company.  The  purpose  of this
transaction  is to provide  the Mintz  estate with funds  sufficient  to pay any
estate taxes levied upon the transfer of Mr. Mintz's Tofutti stock,  which would
have otherwise  necessitated  a sale of the stock.  The sale of such stock might
have a negative effect of significantly decreasing the market price of the stock
to the detriment of other  shareholders.  Upon the death of the family member or
termination  of the policy prior to death,  the Company is to receive a complete
refund of all its premiums paid plus interest at 4%.

     There are currently no employment agreements between the Company and any of
its  officers.  Neither  Mr.  Snitow  nor  Mr.  Koster  has  received  any  cash
remuneration  from the  Company  for his service as a Director in the last three
years.







                                      -15-

<PAGE>



STOCK OPTIONS

         The following  table  provides  information  concerning  the grants and
exercising of stock options during the Company's last fiscal year to each of the
officers named above in the Summary Compensation Table.

<TABLE>
<CAPTION>

                       OPTIONS GRANTED IN LAST FISCAL YEAR
                       -----------------------------------
                                                         Percent of
                                        Number of          Total
                                         Shares           Options
                                       Underlying         Granted to
                                        Options         Employees in
Name                                  Granted (#)        Fiscal Year     Exercise Price ($/SH)        Expiration Date
----                                  -----------        -----------     ---------------------        ---------------
<S>                                    <C>                  <C>               <C>                         <C> 
David Mintz,                           400,000(1)           32.8              $ .756                      2/28/02
Chief Executive Officer                 80,000(2)            6.6               1.031                      7/31/02
  and Chairman of the                                    
  Board                                                  
                                                         
Steven Kass,                           360,000(1)           29.5                .6875                     2/28/02
  Chief Financial Officer,              70,000(2)            5.7                .9375                     7/31/02
  Secretary and Treasurer                                
----------------------                                
</TABLE>
(1)  One-third of the shares subject to this option becomes  exercisable on each
     of January 1, 1998, January 1, 1999 and January 1, 2000.

(2)  One-half of the shares subject to this option  becomes  exercisable on each
     of August 1, 1998 and August 1, 1999.



















                                      -16-

<PAGE>



     The following table provides  information  concerning stock options held in
1997 by each of the executive  officers named above in the Summary  Compensation
Table.


<TABLE>
<CAPTION>
                       AGGREGATED OPTION EXERCISES IN LAST
                  FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
                  ---------------------------------------------
                                                                            Number of Shares
                                      Shares                             Underlying Unexercised         Value of Unexercised in the
                                   Acquired on           Value           Options at FY-End (#)          Money Options at FY-End ($)
Name                               Exercise (#)      Realized ($)      Exercisable/Unexercisable         Exercisable/Unexercisable
----                               ------------      ------------      -------------------------        --------------------------
<S>                                   <C>             <C>                     <C>                              <C>
David Mintz,                          75,000          $70,312(1)              480,000 (U)                      $395,120(U)(1)
Chief Executive Officer
  and Chairman of the
  Board

Steven Kass,                            --                --                   430,000(U)                       385,625(U)(1)
  Chief Financial Officer,
  Secretary and Treasurer

</TABLE>
-----------------------
 (E) Exercisable options
 (U) Unexercisable options
 (1) Calculated by subtracting option exercise price from year-end market price.


Item 11.  Security Ownership of Certain Beneficial Owners and Management

     The following  table sets forth as of March 12, 1998,  certain  information
regarding the Company's  Common Stock,  $.01 par value, for each person known by
the Company to be the beneficial owner of more than 5% of the outstanding shares
of the Company's Common Stock,  for each executive  officer named in the Summary
Compensation  Table,  for each of the Company's  Directors and for the executive
officers and Directors of the Company as a group:


                                       Amount of
Name                               Beneficial Ownership       Percent of Class
----                               --------------------       ----------------
David Mintz......................     3,283,440 (1)                 50.4%
Steven Kass......................       120,000 (2)                  1.8%
Reuben Rapoport..................        45,000 (3)                  *
Franklyn Snitow..................        30,000 (4)                  *
Bernard Koster...................        14,000 (5)                  *
All Executive Officers and
Directors as a group (5 persons).     3,492,440 (6)                 53.4%
________________



                                      -17-

<PAGE>



     The  address of all  individuals  except  Messrs.  Koster and Snitow is c/o
Tofutti Brands, Inc., 50 Jackson Drive,  Cranford, New Jersey 07016. The address
of Mr. Snitow is 345 Madison  Avenue,  New York, NY 10017 and the address of Mr.
Koster is 2050 Center Ave.,  Suite 670, Ft. Lee, New Jersey  07024.  Each person
listed above has sole voting and/or investment power of the shares attributed to
him.

*    Less than 1%.

(1)  Includes 133,000 shares issuable upon the exercise of currently exercisable
     stock options.

(2)  Issuable upon the exercise of currently 120,000 exercisable stock options.

(3)  Includes 25,000 shares issuable upon the exercise of currently  exercisable
     stock options.

(4)  Includes 10,000 shares issuable upon the exercise of currently  exercisable
     stock options.

(5)  Includes 10,000 shares issuable upon the exercise of currently  exercisable
     stock options.

(6)  Includes 298,000 shares issuable upon the exercise of currently exercisable
     stock options.


Item 12. Certain Relationships and Related Transactions

     Franklyn Snitow, a director of the Company,  is a member of the law firm of
Snitow & Pauley,  which firm provided  minimal  legal  services on behalf of the
Company in 1997.


Item 13. Exhibits and Reports on Form 8-K

(a)  Exhibits

3.1*      Certificate of Incorporation.

3.1.1**   March 1986 Amendment to Certificate of Incorporation.

3.2*      By-laws of Registrant.

4.1***    Copy of the Registrant's 1993 Stock Option Plan.

10.1****  Copy of Legal Settlement between the Company and the NEMP Corporation.

23.1      Consent of Independent Auditors.

27        Financial Data Schedule.




                                      -18-

<PAGE>




*        Filed as an exhibit to the  Registrant's  Form 10-K for the fiscal year
         ended July 31, 1985 and hereby incorporated by reference thereto.

**       Filed as an exhibit to the  Registrant's  Form 10-K for the fiscal year
         ended August 2, 1986 and hereby incorporated by reference thereto.

***      Filed as an exhibit to the  Company's  Form  10-KSB for the fiscal year
         ended January 1, 1994 and hereby incorporated by reference thereto.

****     Filed as an exhibit to the  Registrant's  Form 10-K for the fiscal year
         ended December 28, 1991 and hereby incorporated by reference thereto.

(b)  Reports on Form 8-K filed during the last quarter of the period  covered by
     this report:

     None.



                                      -19-

<PAGE>




                                   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 8, 1998.

                                            TOFUTTI BRANDS INC.
                                            (Registrant)

                                            /s/David Mintz
                                            --------------
                                            David Mintz
                                            Chairman of the Board and
                                            Chief Executive Officer



     In accordance  with the  Securities  Exchange Act of 1934,  this Report has
been signed below on April 8, 1998, by the  following  persons on behalf of the
Registrant and in the capacities indicated.


/s/David Mintz
--------------
David Mintz
Chairman of the Board
and Chief Executive Officer

/s/Steven Kass
--------------
Steven Kass
Secretary, Treasurer and
Chief Financial Officer

/s/Bernard Koster
-----------------
Bernard Koster
Director

/s/Reuben Rapoport
------------------
Reuben Rapoport
Director

/s/Franklyn Snitow
------------------
Franklyn Snitow
Director



                                      -20-

<PAGE>



                                  EXHIBIT INDEX


Exhibit                                                                   Page

3.1*      Certificate of Incorporation, as amended through February 1986.

3.1.1**   March 1986 Amendment to Certificate of Incorporation.

3.2*      By-laws of the Registrant.

4.1***    Copy of the Registrant's 1993 Stock Option Plan.

10.1****  Copy of Legal Settlement between the Company and the 
          NEMP Corporation.

23.1      Consent of Independent Auditors.

27        Financial Data Schedule



*    Filed as an exhibit to the Registrant's Form 10-K for the fiscal year ended
     July 31, 1985 and hereby incorporated by reference thereto.

**   Filed as an exhibit to the Registrant's Form 10-K for the fiscal year ended
     August 2, 1986 and hereby incorporated by reference thereto.

***  Filed as an exhibit to the Company's  Form 10-KSB for the fiscal year ended
     January 1, 1994 and hereby incorporated by reference thereto.

**** Filed as an exhibit to the Registrant's Form 10-K for the fiscal year ended
     December 28, 1991 and hereby incorporated by reference thereto.