See accompanying notes to unaudited condensed financial statements.

TOFUTTI BRANDS INC.

Unaudited Condensed Statements of Cash Flows

(in thousands)

See accompanying notes to unaudited condensed financial statements.

TOFUTTI BRANDS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(In thousands, except for share and per share data)

Note 1: Basis of Presentation

The accompanying unaudited condensed financial information, in the opinion of management, reflects all adjustments (which include only normally recurring adjustments) necessary to present fairly the Company’s financial position, operating results and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The results of operations for the thirteen-week and thirty-nine-week period ended OctoberApril 1, 20222023 are not necessarily indicative of the results to be expected for the full year or any other period.

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

Note 2: Recently Issued Accounting Standards

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

In June 2016, the FASB issuedOn January 1, 2023, we adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments. The amendments in this Update requireASU 2016-13 replaces the previously established credit losses framework with a new topicaccounting standard that requires management to be added (Topic 326) to the Accounting Standards Codification (“ASC”) and removes the thresholds that entities apply to measure credit losses on financial instruments measured at amortized cost, such as loans, trade receivables, reinsurance recoverables, and off-balance-sheet credit exposures, and held-to-maturity securities. Under current U.S. GAAP, entities generally recognize credit losses when it is probable that the loss has been incurred. The guidance under ASU 2016-13 will remove all current recognition thresholds and will require entities under the new current expected credit loss (“CECL”) model to recognize an allowance for expected credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that an entity expects to collect over the instrument’s contractual life. The new CECL model is based upon expected losses rather than incurred losses. Additionally, theon a broader range of reasonable and supportable information for lifetime credit loss recognition guidance for available-for-sale securities is amended and will require that credit losses on such debt securities should be recognized as an allowance for credit losses rather than a direct write-down of amortized cost balance. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We are currently evaluating the effect that this new guidance will have on our financial statements and related disclosures.estimates.

Note 3: Inventories

Inventories consist of the following:

Schedule of Inventories

TOFUTTI BRANDS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(In thousands, except for share and per share data)

Note 4: Income Taxes

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

During the thirteen and thirty-nine weeks ended October 1, 2022, theThe Company recognized an income tax benefitexpense of $6911 and an income tax expense of $12720 , respectively, asfor the thirteen week periods ended April 1, 2023 and April 2, 2022, respectively. The Company recorded a resultvaluation allowance of $24 for the losses recognized in eachthirteen week period that were not covered by the Company’s valuation allowance.ended April 1, 2023.

Note 5: Earnings (Loss) Per Share

Fully dilutedBasic earnings (loss) per common share have been(“EPS”) applicable to common stockholders is computed by dividing earnings applicable to common stockholders by the weighted averageweighted-average number of common shares outstanding, which would account foroutstanding. If there is a potential 282,486 shares to be issued upon conversion of a convertible note as of October 2, 2021. The convertible note for 282,486 shares was includedloss from operations, diluted EPS is computed in the calculation of fully diluted earnings for the thirteen and thirty-nine weeks ended October 2, 2021. The note was repaid in full on December 22, 2021. No dilutive shares were issuable in either the thirteen or thirty-nine week periods ended October 1, 2022.same manner as basic EPS is computed.

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

Schedule of Earnings Per Share, Basic and Diluted

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

Schedule of Weighted Average Numbers of Shares

TOFUTTI BRANDS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(In thousands, except for share and per share data)

Note 6: Share Based Compensation

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

The 2014 Plan made 250,000shares of common stock available for awards. The 2014 Plan also permits performance-based 2014 awards paid under it to be tax deductible under Section 162(m) of the Internal Revenue Code of 1986, as amended, as “performance-based compensation.” No250,000 and 0 stock options were issued in 2022 orand 2021, respectively, and no250,000 non-qualified options were outstanding as of OctoberDecember 31, 2022. The exercise price of all options granted in 2022 is $0.95 per share, the market price at the close of business on the date of the grant. 83,333 of the options vested at the respective grant date, 83,333 will vest in December 2023, and 83,334 will vest in December 2024. In the event of a sale of the Company at any time prior to December 22, 2024, all remaining unvested options shall vest immediately. All options expire on December 21, 2027.

The following is a summary of stock option activity from December 31, 2022 to April 1, 2023:

Schedule of Stock Option Activity

The following table summarizes information about stock options outstanding at April 1, 2023:

Schedule of Information About Stock Options

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing formula. Expected volatilities and risk-free interest rates are based upon the expected life of the grant. The interest rates used are the U.S. Treasury yield curve in effect at the time of the grant.

During fiscal year ended December 31, 2022, 250,000 options were granted, with 83,333 of the options vesting at the respective grant date, 83,333 vesting in December 2023, and January83,334 vesting in December 2024. At the date of grant, expected volatility was 82.65%, a risk-free rate of 3.79%, 0% expected dividends, and an expected term of five years.

As of April 1, 2022.2023, the intrinsic value of the options outstanding and exercisable options was $35 and $12, respectively, and there was $85 of total unrecognized compensation cost. Total stock-based compensation for the thirteen weeks ended April 1, 2023 was $20, which is recorded in general and administrative expenses on the statement of operations.

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

Note 7: NotesNote Payable

Small Business Administration (SBA) Loan

On May 2, 2020, the Company received from the SBA a loan of $165 from the Paycheck Protection Program at an interest rate of1%. Interest and payments were deferred until March 4, 20212021. The current portion of the loan was $165 as of January 2, 2021 and the loan was scheduled to expire on May 2, 2022. On January 12, 2022, the Company was informed by the SBA that the entire amount of the loan had been forgiven free of taxation. The Company recorded forgiveness of debt income of $165 in the thirty-nine weeks ended October 1, 2022 as SBA loan forgiveness on the unaudited condensed statement of operations.

Related Party

On January 6, 2016, David Mintz, the Company’s former Chairman and Chief Executive Officer, provided the Company with a loan of $500. The loan was extended until December 31, 2021 and was, at the option of the holder, convertible into the Company’s common stock at a conversion price of $1.77 per share. Interest expense incurred to the related party was $25 for both fiscal years ended January 1, 2022 and January 2, 2021. On December 22, 2021, the entire loan of $500 plus accrued interest of $25 was paid by the Company to Mr. Mintz’s estate.

Note 8: Revenue

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

Revenues by geographical region are as follows:

Schedule of Disaggregation Revenue

TOFUTTI BRANDS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(In thousands, except for share and per share data)

Approximately 94%90% of the Americas’ revenue in both the thirteen and thirty-nine week periodsperiod in 2023 and 94% in the thirteen week period in 2022 and 2021 is attributable to sales in the United States. All of the Company’s assets are located in the United States.

Net sales by major product category:

Summary of Net Sales by Major Product Category

Note 9:Leases

The Company’s facilities are located in a one-story facility in Cranford, New Jersey. The 6,200square foot facility houses its administrative offices, a warehouse, walk-in freezer and refrigerator, and a product development laboratory and test kitchen. The Company’s original lease agreement expired on July 1, 1999, but it continues to occupy the premises on a monthly basis. Any changes by either the landlord or the Company remains subject to a six-month notification period. The Company currently has no plans to enter into a long-term lease agreement for the facility. Rent expense was $23 and $2120 for the thirteen weeks ended OctoberApril 1, 2023 and April 2, 2022, and October 2, 2021. Rent expense was $61 for the thirty-nine weeks ended October 1, 2022 and October 2, 2021.respectively. The Company’s management believes that the Cranford facility will continue to satisfy its space requirements for the foreseeable future and that if necessary, such space can be replaced without a significant impact to the business. The Company rents warehouse storage space at various outside facilities. Outside warehouse expenses were $7275 for the thirteen weeks ended OctoberApril 1, 20222023 and $11595 for the thirteen weeks ended OctoberApril 2, 20212022. The Company rents copiers under finance leases. The Company currently has one copier under a finance lease with a start date of June 1, 2022. Payments for copiers amounted to $4 and $2630 for the thirty-ninethirteen weeks ended OctoberApril 1, 2023 and April 2, 2022, and $364 for the thirty-nine weeks ended October 2, 2021.respectively.

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

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

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

TOFUTTI BRANDS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(In thousands, except for share and per share data)

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

Schedule of ROU leaseLease Assets and Liabilities Forfor Operating Leases

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

Schedule of ROU Lease Assets and Liabilities for Finance Leases

Future lease payments included in the measurement of lease liabilities on the balance sheet as of OctoberApril 1, 20222023 are as follows:

Schedule of Future Lease Payments

TOFUTTI BRANDS INC.

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

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

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

Critical Accounting Estimates

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

Revenue Recognition. We primarily sell plant-based, vegan, and dairy-free soy-based cheeses and frozen desserts and other food products.desserts. We recognize revenue when control over the products transfers to our customers, deemed to be the performance obligation, which generally occurs when the product is shipped or picked up from one of our distribution locations by the customer. We account for product shipping, handling and insurance as fulfillment activities with revenues for these activities recorded within net revenue and costs recorded within cost of sales. Revenues are recorded net of trade and sales incentives and estimated product returns. Known or expected pricing or revenue adjustments, such as trade discounts, rebates or returns, are estimated at the time of sale. We base these estimates of expected amounts principally on historical utilization and redemption rates. Estimates that affect revenue, such as trade incentives and product returns, are monitored and adjusted each period until the incentives or product returns are realized.

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

Accounts Receivable. The majority of our accounts receivables are due from distributors (domestic and international) and retailers. Credit is extended based on evaluation of a customers’ financial condition and, generally, collateral is not required. Accounts receivable are most often due within 30 to 90 days and are stated at amounts due from customers net of an allowance for doubtful accounts and reserve for sales promotions. Accounts outstanding longer than the contractual payment terms are considered past due. We determine whether anmake estimates of expected credit and collectability trends for the allowance is necessary by considering a numberfor credit losses based upon our assessment of various factors, including historical experience, the lengthage of time tradethe accounts receivable are past due,balances, credit quality of our previous loss history,customers, current and future economic conditions that may affect the customer’s current ability to pay its obligation, and the conditionCompany’s expectation of the general economy andcollectability in determining the industry as a whole. We write-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the bad debt expense account. We do not accrue interest on accounts receivable past due.allowance for credit losses.

Inventory. Inventory is stated at lower of cost or net realizable value 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.

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

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

Recent DevelopmentsAccounting Pronouncements

An outbreakOur company considers the applicability and impact of an infectious respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019all Accounting Standard Updates (“ASUs”). ASUs not discussed below were assessed and spread globally. This outbreak resulted in travel restrictions, closed international borders, enhanced health screenings at portsdetermined to be either not applicable or are expected to have minimal impact on our balance sheets or statements of entry and elsewhere, prolonged quarantines, order cancellations, supply chain disruptions, increased costs for raw materials, lower consumer demand, and other significant economic impacts, as well as general concern and uncertainty.operations.

The severityOn January 1, 2023, we adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaces the pandemicpreviously established credit losses framework with a new accounting standard that requires management to measure an allowance for expected credit losses that is based on a broader range of reasonable and the future uncertainty regarding the length of its effects could have negative consequencessupportable information for our company. To date, the effects of the pandemic have negatively affected certain aspects of our operations. All of our co-packing facilities are currently operating normally, and the pandemic has not constrained any of our production requirements. The cost of certain key ingredients and packaging has increased substantially due to short-term supply issues related to COVID-19. Additionally, we are currently experiencing longer lead times in receiving certain ingredients and packaging. We anticipate that these longer lead times will persist for the balance of 2022. We continue to be able to schedule trucks for delivery and a large majority of our customers are still operating and ordering our products as before. However, our freight costs have increased substantially due to a driver shortage caused by COVID-19 and a significant increase in fuel costs. Fuel costs have continued to increase substantially due to record high petroleum costs caused by the current unsettled world political situation. In response to these cost increases and the potential for additional cost increases affecting various aspects of our operations, we initiated a series of sales price increases commencing in the fourth quarter of 2021 and continuing into the first quarter of 2022 to help offset these cost increases. As these costs have either continued to increase, or have remained at their high historic levels, we have been forced to implement further price increases which will become effective during the fourth quarter of the current year.lifetime credit loss estimates.

Our ability to handle customer and consumer communications, schedule production, and order ingredients necessary for our production has not been materially impacted. Nor have we experienced a significant change in the timeliness of payments of our invoices. Our cash position is $1,365,000 as of November 8, 2022 as compared to our fiscal year end January 1, 2022 balance of $1,698,000

Results of Operations

Thirteen Weeks Ended OctoberApril 1, 20222023 Compared with Thirteen Weeks Ended OctoberApril 2, 20212022

Net sales for the thirteen weeks ended OctoberApril 1, 20222023 decreased by $460,000,to $2,490,000, or 14%28%, to $2,896,000, from net sales of $3,356,000$3,463,000 for the thirteen weeks ended OctoberApril 2, 2021.2022. Sales of our vegan cheese products decreased to $2,334,000$2,100,000 in the thirteen weeks ended OctoberApril 1, 20222023 from $2,816,000$2,916,000 in the thirteen weeks ended OctoberApril 2, 2021,2022, due to the timing of cheese promotions that occurred this year versus last year. Sales of our frozen dessert and frozen food products, which consist primarily of frozen dessert products, increased slightlydecreased to $562,000 in the thirteen weeks ended October 1, 2022 from $540,000$390,000 for the thirteen weeks ended OctoberApril 1, 2023 from $547,000 for the thirteen weeks ended April 2, 2021.2022. Sales of frozen dessert products were negatively impacted by a reduction in sales of our pint products.

Our gross profit decreased significantly to $427,000$606,000 for the thirteen weeks ended OctoberApril 1, 20222023 from $818,000$857,000 for the thirteen weeks ended OctoberApril 2, 2021,2022, due partiallyprimarily to the reduction in sales.timing of promotions being moved to a different fiscal period. Our gross profit percentage was 15% for the thirteen weeks ending October 1, 2022 compared to 24% for the thirteen weeks ending OctoberApril 1, 2023 compared to 25% for the thirteen weeks ended April 2, 2021. The decrease in both our gross profit and gross profit percentage were primarily caused by the substantial increases in the costs for certain ingredients, especially soybean oil. These substantial cost increases were due primarily to the lingering supply chain issues caused by the Covid-19 pandemic and the record high cost of petroleum. The high cost of petroleum has also directly impacted the costs of certain ingredients and packaging such as the plastic packaging we use for our spreadable cheese products. While the costs of some of these key ingredients have recently started to decline, we anticipate that our gross margin and gross margin percentage will continue to be negatively impacted into fiscal year 2023.2022.

Freight out expense, a significant part of our cost of sales, decreased by $59,000,$106,000, or 20%33%, to $218,000 for the thirteen weeks ended OctoberApril 1, 20222023 compared with $277,000$212,000, or 9%, for the thirteen weeks OctoberApril 2, 2021.2022. Freight out expense was 8%9% of sales for both the thirteen weeks ended April 1, 2023 and April 2, 2022.

Selling expenses increased by $7,000, or 3%, to $271,000 for the thirteen weeks ended OctoberApril 1, 2022 compared to 8% of sales2023 from $264,000 for the thirteen weeks ended OctoberApril 2, 2021. While actual freight expense declined for the current quarter, it2022. The increase was due to more customers picking up their ordersincreases in meetings and convention expense of $44,000 and sample shipping costs of $7,000, which were partially offset by decreases in commission expense of $21,000, outside warehouse rental expense of $15,000, and a decrease in bad debt expense of $15,000. The decrease in commission expense was caused by the decrease in sales, while the increase in meetings and convention expense was due to the additional pickup allowances we offer. The availabilitysponsoring of trucks is still limited andfood shows in 2023 that were not attended in the actual cost of shipping is still at the same high cost from the first half of 2022.comparable 2022 period.

SellingMarketing expenses decreased by $21,000,$61,000, or 7%39%, to $261,000$95,000 for the thirteen weeks ended OctoberApril 1, 20222023 from $282,000$156,000 for the thirteen weeks ended OctoberApril 2, 2021.2022. The decrease was primarily due to decreases in outside warehouse rentaladvertising expense of $40,000$16,000, artwork and commissionplate expense of $13,000, and promotion expense of $49,000, which were partially offset by increases in meeting and convention expense of $22,000 and messenger expense of $5,000.

Marketing expenses increased by $65,000, or 171%, to $103,000 for the thirteen weeks ended October 1, 2022 from $38,000 for the thirteen weeks ended October 2, 2021. Thean increase was primarily due to increases in point of sale materials expense of $24,000 and advertising expenses of $12,000, and an increase$13,000. The decrease in promotion expensesexpense is a reflection of $21,000.the decrease in sales. We anticipate that our marketing expenses will continue at a lower level as compared to those for the balance of the year will be higher that the corresponding period in fiscal year 2021.2022 period.

Product development costs, which consist principally of salary expenses and laboratory costs, increaseddecreased slightly by $2,000,$12,000, or 8%27%, to $26,000$27,000 for the thirteen weeks ended OctoberApril 1, 20222023 from $24,000$40,000 for the thirteen weeks ended OctoberApril 2, 2021.2022, due to a $12,000 decrease in laboratory supplies. We anticipate our product development costs for the balance of the year will continue at a similar level as those for the 20212022 period.

General and administrative expenses decreased by $33,000,$35,000, or 9%10%, to $298,000$302,000 for the thirteen weeks ended OctoberApril 1, 20222023 from $331,000$337,000 for the thirteen weeks ended OctoberApril 2, 2021,2022, primarily due to a decreasedecreases in professional fees and outside services expense of $33,000, a decrease in loss incurred on the sale of assets of $36,000, and a decrease on franchise tax expenses of $7,000, which were partially offset by increases in payroll$15,000, public relations expense of $24,000,$28,000 and general insuranceIT expense of $15,000. We anticipate our general and administrative expense for the remaining period in 2022 will approximate the same level as in the corresponding 2021 period.

Income tax benefit was $69,000 for the thirteen weeks ended October 1, 2022 and income tax expense was $16,000 for the thirteen weeks ended October 2, 2021. The income tax benefit resulted from the lower taxable income during the thirteen weeks ended October 1, 2022 compared to the thirteen weeks ended October 2, 2021.

Thirty-Nine Weeks Ended October 1, 2022 Compared with Thirty-Nine Weeks Ended October 2, 2021

Net sales for the thirty-nine weeks ended October 1, 2022 decreased by $195,000, or 2%, to $9,338,000, from net sales of $9,533,000 for the thirty-nine weeks ended October 2, 2021. Sales of our vegan cheese products decreased by $257,000 to $7,776,000 in the thirty-nine weeks ended October 1, 2022 from $8,033,000 in the thirty-nine weeks ended October 2, 2021. Sales of our frozen dessert and frozen food products, which consist primarily of frozen dessert products, increased to $1,562,000 in the thirty-nine weeks ended October 1, 2022 from $1,500,000 for the thirty-nine weeks ended October 2, 2021.

Our gross profit decreased to $1,812,000 in the thirty-nine weeks ended October 1, 2022 from $2,577,000 in the thirty-nine weeks ended October 2, 2021. Our gross profit percentage was 19% for the thirty-nine weeks ending October 1, 2022 compared to 27% for the thirty-nine weeks ending October 2, 2021. The decrease in both our gross profit and gross profit percentage were caused by the substantial increases in certain ingredients and freight expenses. These substantial cost increases were due primarily to the lingering supply chain issues caused by the Covid-19 pandemic and the record high cost of petroleum. Besides causing substantial increases in our freight expenses, the high cost of petroleum has also directly impacted the costs of certain ingredients and packaging such as the plastic packaging we use for our spreadable cheese products.

Freight out expense, a significant part of our cost of sales, increased by $86,000, or 11%, to $861,000 for the thirty-nine weeks ended October 1, 2022 compared with $775,000 for the thirty-nine weeks October 2, 2021. Freight out expense was 9% of sales for the thirty-nine weeks ended October 1, 2022 compared to 8% of sales for the thirty-nine weeks ended October 2, 2021. The increase in freight out expenses was due to the increases in shipping costs due to the large increase in the cost of fuel and the unavailability of trucks.

Selling expenses decreased by $75,000, or 8%, to $834,000 for the thirty-nine weeks ended October 1, 2022 from $909,000 for the thirty-nine weeks ended October 2, 2021. This decrease was primarily attributable to decreases in payroll expense of $22,000, outside warehouse rental expense of $98,000, and commission expense of $15,000, which were offset by increases in meetings and convention expenses of $42,000 and travel, entertainment, and auto expenses of $20,000.

Marketing expenses increased by $197,000, or 114%, to $370,000 for the thirty-nine weeks ended October 1, 2022 from $173,000 for the thirty-nine weeks ended October 2, 2021. The increase was primarily due to increases in promotions expense of $59,000, artwork and plate expenses of $73,000, advertising expenses of $32,000, and point of sales material expense of $30,000. In 2022, we completed the rebranding of our product line and introduced new packaging for our products.

Product development costs increased by $9,000, or 9%, to $108,000 for the thirty-nine weeks ended October 1, 2022 from $99,000 for the thirty-nine weeks ended October 2, 2021, primarily due to the increase in professional fees and outside services of $28,000 which was partially offset by a decrease in lab costs and supplies of $9,000.

General and administrative expenses decreased by $110,000, or 10%, to $987,000 for the thirty-nine weeks ended October 1, 2022 from $1,097,000 for the thirty-nine weeks ended October 2, 2021, primarily due to decreases in payroll expense of $32,000, professional fees and outside services expense of $48,000, loss on the sale of asset of $36,000, equipment rental expense of $19,000, and travel, auto and entertainment expenses of $14,000,$7,000, which were partially offset by an increase in public relationsnon-cash compensation expense of $50,000$20,000. We anticipate that our general and an increase in general insurance expense of $9,000. The decrease in payrolladministrative expenses will continue at a slightly lower level than those for the 2022 period.

Income tax expense was due to no salary being paid to Mr. Mintz this period$11,000 for the thirteen weeks ended April 1, 2023 and $20,000 for the thirteen weeks ended April 2, 2022. The income tax expense resulted from the reduction in the deferred tax asset balance during the thirteen weeks ended April 1, 2023 compared to the same period in the prior year.thirteen weeks ended April 2, 2022.

Income tax benefit was $127,000 for the thirty-nine weeks ended October 1, 2022 and income tax expense was $52,000 for the thirty-nine weeks ended October 2, 2021 resulting from the lower taxable income during the thirty-nine weeks ended October 1, 2022 compared to the thirty-nine weeks ended October 2, 2021.

Liquidity and Capital Resources

As of OctoberApril 1, 2022,2023, we had approximately $965,000$418,000 in cash and our working capital was approximately $3,994,000,$3,554,000, compared with approximately $1,698,000$1,072,000 in cash and working capital of $4,326,000$3,625,000 at January 1,December 31, 2022. The decrease in cash is primarily due to the use of funds to purchase ingredients during the period, due to management’s decision to purchase certain key ingredientsdecreases in advance of production needs to ensure an adequate supplyaccounts payable and to prevent future production disruptions.

accrued expenses.

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

Net cash used in operating activities for the thirteen weeks ended OctoberApril 1, 20222023 was $733,000$650,000 compared to $1,500,000 provided by$109,000 used in operating activities for the thirteen weeks ended OctoberApril 2, 2021.2022. Net cash used in operating activities for the thirty-ninethirteen weeks ended OctoberApril 1, 20222023 was primarily a result of a net loss of $195,000, SBA loan forgiveness of $165,000,$102,000, an increase in inventories of $820,000,$124,000, deferred taxes of $133,000$32,000, a decrease in accounts payable and accrued expenses of $838,000, and a non-cash lease expense of $6,000,$3,000, offset by a decrease in accounts receivable of $146,000, an increase$365,000, a decrease in accounts payable and accrued expensesdeferred taxes of $385,000,$10,000, stock-based compensation of $20,000, and a decrease in prepaid expenses and other current assets of $42,000.$14,000. The significant increase in inventories during the period is due to management’s decision to purchase certain key ingredients in advance of production needs to ensure an adequate supply and to prevent future production disruptions.

We believe our existing cash on hand at OctoberApril 1, 2022,2023, existing working capital and the cash flows expected from operations will be sufficient to support our operating and capital requirements during the next twelve months.

Inflation and Seasonality

We do not believe that our operating results have been materially affected by inflation during 2020 and 2021.However, beginning in 2022, due to substantial increases in ingredient, packaging, freight, and co-packing expenses, we are now experiencing negative effects on our operations from inflation. While we do believe that certain of these costs and expenses will return to their previous lower levels, there isthe preceding two years. There can be no assurance, however, that theyour operating results will do so.not be affected by inflation in the future. Our business is subject to minimal seasonal variations with slightly increased sales historically in the second and third quarters of the fiscal year. We expect to continue to experience slightly higher sales in the second and third quarters, and slightly lower sales in the fourth and first quarters, as a result of reduced sales of dairy-free frozen desserts during those periods.

Off-balance Sheet Arrangements

None.

Contractual Obligations

We had no material contractual obligations as of OctoberApril 1, 2022.2023.

Recently Issued Accounting Standards

See Note 2 to the unaudited condensed financial statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. As of OctoberApril 1, 2022,2023, our Company’s chief executive and financial officer conducted an evaluation regarding the effectiveness of our Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based upon the evaluation of these controls and procedures, our chief executive and financial officer concluded that our disclosure controls and procedures were not effective as OctoberApril 1, 2022.2023.

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

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

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

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

Based on the evaluation under the frameworks described above, Mr. Kass, our chief executive and chief financial officer, has concluded that our internal control over financial reporting was ineffective as of OctoberApril 1, 20222023 because of the following material weaknesses in internal controls over financial reporting:

To date, we have been unable to remediate these weaknesses, which stem from our historically small workforce, which consisted of four persons at OctoberApril 1, 2022.2023.

Changes in Internal Control over Financial Reporting

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

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are not a party to any material litigation.

Item 1A. Risk Factors

There have been no material changes to the Company’s “Risk Factors” set forth in its Annual Report on Form 10-K for the year ended January 1,December 31, 2022.

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

None.

Item 3. Default Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

SIGNATURES

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