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PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements
TOFUTTI
BRANDS INC.
Unaudited
Condensed Balance Sheets
(in
thousands, except share and per share figures)
See
accompanying notes to unaudited condensed financial statements.
TOFUTTI
BRANDS, INC.
Unaudited
Condensed Statements of Operations
(in
thousands, except per share figures)
See
accompanying notes to unaudited condensed financial statements.
TOFUTTI
BRANDS, INC.
Unaudited
Condensed Statements of Changes in Stockholders’ Equity
(in
thousands)
| |
Common Stock | | |
Additional Paid-in Capital | | |
Retained Earnings | | |
Total | |
| |
Thirteen weeks ended April 2, 2022 | |
| |
Common Stock | | |
Additional Paid-in Capital | | |
Retained Earnings | | |
Total | |
| |
| | |
| | |
| | |
| |
January 1, 2022 | |
$ | 52 | | |
$ | 207 | | |
$ | 4,308 | | |
$ | 4,567 | |
Net income | |
| — | | |
| — | | |
| 205 | | |
| 205 | |
Net income (loss) | |
| — | | |
| — | | |
| 205 | | |
| 205 | |
April 2, 2022 | |
$ | 52 | | |
$ | 207 | | |
$ | 4,513 | | |
$ | 4,772 | |
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 period ended April 1, 2023 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 31st.
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.
On
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 previously 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 supportable information
for lifetime credit loss estimates.
Note
3: Inventories
Inventories
consist of the following:
Schedule
of Inventories
| |
April 1, 2023 | | |
December 31, 2022 | |
Finished products | |
$ | 1,748 | | |
$ | 1,387 | |
Raw materials and packaging | |
| 839 | | |
| 1,076 | |
Inventories,
net | |
$ | 2,587 | | |
$ | 2,463 | |
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.
The
Company recognized an income tax expense of $11 and an income tax expense of $20 for the thirteen week periods ended April 1, 2023 and
April 2, 2022, respectively. The Company recorded a valuation allowance of $24 for the thirteen week period ended April 1, 2023.
Note
5: Earnings (Loss) Per Share
Basic
earnings per common share (“EPS”) applicable to common stockholders is computed by dividing earnings applicable to common
stockholders by the weighted-average number of common shares outstanding. If there is a loss from operations, diluted EPS is computed
in the same manner as basic EPS is computed.
The
following table sets forth the computation of basic and diluted earnings per share:
Schedule
of Earnings Per Share, Basic and Diluted
| |
Thirteen weeks ended April 1, 2023 | | |
Thirteen weeks ended April 2, 2022 | |
Net income (loss), numerator, basic computation | |
$ | (102 | ) | |
$ | 205 | |
Net income (loss), numerator, diluted computation | |
$ | (102 | ) | |
$ | 205 | |
| |
| | | |
| | |
Weighted average shares - denominator basic computation | |
| 5,154 | | |
| 5,154 | |
Weighted average shares, as adjusted - denominator diluted computation | |
| 5,154 | | |
| 5,154 | |
Earnings (loss) per common share - basic | |
$ | (0.02 | ) | |
$ | 0.04 | |
Earnings (loss) per common share - diluted | |
$ | (0.02 | ) | |
$ | 0.04 | |
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
| |
Thirteen weeks Ended April 1, 2023 | | |
Thirteen weeks Ended April 2, 2022 | |
Shares subject to outstanding common stock options | |
| 250,000 | | |
| — | |
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 250,000 shares of common stock available for awards. The 2014 Plan also permits performance-based 2014 awards paid under
it to be tax deductible under Section 162(m) of the Internal Revenue Code of 1986, as amended, as “performance-based compensation.”
250,000 and 0 stock options were issued in 2022 and 2021, respectively, and 250,000 non-qualified options were outstanding as of December
31, 2022. The exercise price of all options granted in 2022 is $0.95 per share, the market price at the close of business on the date
of the grant. 83,333 of the options vested at the respective grant date, 83,333 will vest in December 2023, and 83,334 will vest in December
2024. In the event of a sale of the Company at any time prior to December 22, 2024, all remaining unvested options shall vest immediately.
All options expire on December 21, 2027.
The
following is a summary of stock option activity from December 31, 2022 to April 1, 2023:
Schedule
of Stock Option Activity
| |
NON-QUALIFIED OPTIONS | |
| |
Shares | | |
Weighted Average Exercise Price ($) | |
Outstanding at December 31, 2022 | |
| 250,000 | | |
| 0.95 | |
Granted | |
| — | | |
| — | |
Exercised | |
| — | | |
| — | |
Outstanding at April 1, 2023 | |
| 250,000 | | |
| 0.95 | |
Exercisable at April 1, 2023 | |
| 83,333 | | |
| 0.95 | |
The
following table summarizes information about stock options outstanding at April 1, 2023:
Schedule
of Information About Stock Options
Range of Exercise Prices ($) | |
Number Outstanding | | |
Weighted Average Remaining Life (in years) | | |
Weighted Average Exercise Price($) | | |
Number Exercisable | |
$0.95 | |
| 250,000 | | |
| 4.75 | | |
$ | 0.95 | | |
| 83,333 | |
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 83,334 vesting in December 2024. At the date of grant, expected volatility was 82.65%, a risk-free rate
of 3.79%, 0% expected dividends, and an expected term of five years.
As
of April 1, 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: Note 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 of 1%. Interest
and payments were deferred until March 4, 2021. 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.
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
| |
Thirteen weeks ended April 1, 2023 | | |
Thirteen weeks ended April 2, 2022 | |
Revenues by geography: | |
| | | |
| | |
Americas | |
$ | 2,421 | | |
$ | 3,285 | |
Europe | |
| 4 | | |
| - | |
Asia Pacific and Africa | |
| 57 | | |
| - | |
Middle East | |
| 8 | | |
| 178 | |
Revenues | |
$ | 2,490 | | |
$ | 3,463 | |
TOFUTTI
BRANDS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(In thousands, except for share and per share data)
Approximately
90% of the Americas’ revenue in the thirteen week period in 2023 and 94% in the thirteen week period in 2022 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:
Note
9: Leases
The
Company’s facilities are located in a one-story facility in Cranford, New Jersey. The square 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 $20 for the thirteen weeks ended April 1, 2023 and April 2, 2022, 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 $75 for the thirteen weeks ended April 1, 2023 and $95 for the thirteen
weeks ended April 2, 2022. 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 $0 for the thirteen weeks ended April 1, 2023 and April 2,
2022, 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 Lease Assets and Liabilities for Operating Leases
| |
As of | | |
As of | |
| |
April 1, 2023 | | |
December 31, 2022 | |
Operating lease right-of-use assets | |
$ | 140 | | |
$ | 158 | |
| |
| | | |
| | |
Current portion of lease liabilities | |
| 73 | | |
| 74 | |
Operating lease liabilities, net of current portion | |
| 67 | | |
| 85 | |
Total lease liability | |
$ | 140 | | |
$ | 159 | |
| |
| | | |
| | |
Weighted average remaining lease term (in years) | |
| 1.8 | | |
| 2.1 | |
Weighted average discount rate | |
| 5.5 | % | |
| 5.5 | % |
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
| |
As of | | |
As of | |
| |
April 1, 2023 | | |
December 31, 2022 | |
Finance lease right-of-use asset | |
$ | 49 | | |
$ | 53 | |
| |
| | | |
| | |
Current portion of lease liabilities | |
| 15 | | |
| 15 | |
Operating lease liabilities, net of current portion | |
| 36 | | |
| 39 | |
Total lease liabilities | |
$ | 51 | | |
$ | 54 | |
| |
| | | |
| | |
Weighted average remaining lease term (in years) | |
| 3.2 | | |
| 3.4 | |
Weighted average discount rate | |
| 6.5 | % | |
| 6.5 | % |
Future
lease payments included in the measurement of lease liabilities on the balance sheet as of April 1, 2023 are as follows:
Schedule
of Future Lease Payments
| |
Operating lease liabilities | | |
Finance lease liability | | |
Total | |
2023 (remainder of year) | |
$ | 60 | | |
$ | 13 | | |
$ | 73 | |
2024 | |
| 81 | | |
| 18 | | |
| 99 | |
2025 | |
| 7 | | |
| 18 | | |
| 25 | |
2026 | |
| - | | |
| 7 | | |
| 7 | |
Total future minimum lease payments | |
| 148 | | |
| 56 | | |
| 204 | |
Present value adjustment | |
| (8 | ) | |
| (5 | ) | |
| (13 | ) |
Total | |
$ | 140 | | |
$ | 51 | | |
$ | 191 | |
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, dairy-free soy-based cheeses and frozen 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 make estimates of expected
credit and collectability trends for the allowance for credit losses based upon our assessment of various factors, including historical
experience, the age of the accounts receivable balances, credit quality of our customers, current and future economic conditions that
may affect the Company’s expectation of the collectability in determining the 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.
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
Accounting Pronouncements
Our
company considers the applicability and impact of all Accounting Standard Updates (“ASUs”). ASUs not discussed below were
assessed and determined to be either not applicable or are expected to have minimal impact on our balance sheets or statements of operations.
On
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 previously 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 supportable information
for lifetime credit loss estimates.
Results
of Operations
Thirteen
Weeks Ended April 1, 2023 Compared with Thirteen Weeks Ended April 2, 2022
Net sales for the thirteen weeks ended April 1, 2023
decreased to $2,490,000, or 28%, from net sales of $3,463,000 for the thirteen weeks ended April 2, 2022. Sales of our vegan cheese products
decreased to $2,100,000 in the thirteen weeks ended April 1, 2023 from $2,916,000 in the thirteen weeks ended April 2, 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, decreased to $390,000 for the thirteen weeks ended April 1, 2023 from $547,000 for the thirteen
weeks ended April 2, 2022. Sales of frozen dessert products were negatively impacted by a reduction in sales of our pint products.
Our gross profit decreased significantly to $606,000
for the thirteen weeks ended April 1, 2023 from $857,000 for the thirteen weeks ended April 2, 2022, due primarily to the timing of promotions
being moved to a different fiscal period. Our gross profit percentage was 24% for the thirteen weeks ending April 1, 2023 compared to
25% for the thirteen weeks ended April 2, 2022.
Freight expense, a significant part of our cost of
sales, decreased by $106,000, or 33%, for the thirteen weeks ended April 1, 2023 compared with $212,000, or 9%, for the thirteen weeks
April 2, 2022. Freight expense was 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 April 1, 2023 from $264,000 for the thirteen weeks ended April 2, 2022. The increase was due to increases
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 sponsoring of food shows
in 2023 that were not attended in the comparable 2022 period.
Marketing expenses decreased by $61,000, or 39%, to
$95,000 for the thirteen weeks ended April 1, 2023 from $156,000 for the thirteen weeks ended April 2, 2022. The decrease was primarily
due to decreases in advertising expense of $16,000, artwork and plate expense of $13,000, and promotion expense of $49,000, which were
partially offset by an increase in point of sale materials expense of $13,000. The decrease in promotion expense is a reflection of the
decrease in sales. We anticipate that our marketing expenses will continue at a lower level as compared to those for the 2022 period.
Product development costs, which consist principally
of salary expenses and laboratory costs, decreased slightly by $12,000, or 27%, to $27,000 for the thirteen weeks ended April 1, 2023
from $40,000 for the thirteen weeks ended April 2, 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 2022 period.
General and administrative expenses decreased by $35,000,
or 10%, to $302,000 for the thirteen weeks ended April 1, 2023 from $337,000 for the thirteen weeks ended April 2, 2022, primarily due
to decreases in professional fees and outside services expense of $15,000, public relations expense of $28,000 and IT expense of $7,000,
which were partially offset by an increase in non-cash compensation expense of $20,000. We anticipate that our general and administrative
expenses will continue at a slightly lower level than those for the 2022 period.
Income tax expense was $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 thirteen weeks ended April 2, 2022.
Liquidity
and Capital Resources
As
of April 1, 2023, we had approximately $418,000 in cash and our working capital was approximately $3,554,000, compared with
approximately $1,072,000 in cash and working capital of $3,625,000 at December 31, 2022. The decrease in cash is primarily due to
decreases in accounts payable and accrued expenses.
The
following table summarizes our cash flows for the periods presented:
| |
Thirteen Weeks ended April 1, 2023 | | |
Thirteen Weeks ended April 2, 2022 | |
Net cash used in operating activities | |
$ | (650 | ) | |
$ | (109 | ) |
Net cash used in financing activities | |
| (4 | ) | |
| - | |
Net decrease in cash and cash equivalents | |
| (654 | ) | |
| (109 | ) |
Net
cash used in operating activities for the thirteen weeks ended April 1, 2023 was $650,000 compared to $109,000 used in operating
activities for the thirteen weeks ended April 2, 2022. Net cash used in operating activities for the thirteen weeks ended April 1,
2023 was primarily a result of a net loss of $102,000, an increase in inventories of $124,000, deferred taxes of $32,000, a decrease
in accounts payable and accrued expenses of $838,000, and a non-cash lease expense of $3,000, offset by a decrease in accounts
receivable of $365,000, a decrease in deferred taxes of $10,000, stock-based compensation of $20,000, and a decrease in prepaid
expenses and other current assets of $14,000. The 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 April 1, 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 the preceding two years. There can be no
assurance, however, that our operating results will 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 April 1, 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 April 1, 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 April 1, 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 April 1, 2023 because of the following material weaknesses in internal
controls over financial reporting:
|
● |
A
continuing lack of sufficient resources and an insufficient level of monitoring and oversight, which may restrict our ability to
gather, analyze and report information relative to the financial statements, including but not limited to accounting estimates, reserves,
allowances, and income tax matters, in a timely manner. |
|
|
|
|
● |
The
limited size of the accounting department makes it impracticable to achieve an optimum separation of duties and monitoring of internal
controls. |
To
date, we have been unable to remediate these weaknesses, which stem from our historically small workforce, which consisted of four persons at April
1, 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.