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 audited financial statements.

Critical Accounting Policies

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

Revenue 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.





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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 an allowance is necessary by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, the customer's current ability to pay its obligation, and the condition of the general economy and the industry as a whole. We write-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the bad debt expense account. We do not accrue interest on accounts receivable past due.

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.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments. The amendments in this Update require a new topic to be added (Topic 326) to the Accounting Standards Codification ("ASC") and removes the thresholds that entities apply to measure credit losses on financial instruments measured at amortized cost, such as loans, trade receivables, reinsurance recoverables, and off-balance-sheet credit exposures, and held-to-maturity securities. Under current U.S. GAAP, entities generally recognize 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 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. 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.

Key Factors Affecting Our Business

Our operations and the operating metrics discussed below have been and will likely continue to be affected by certain key factors as well as certain historical events and actions. The key factors affecting our business and results of operations include among others, our lack of sufficient working capital, dependence on a few key distributors for a significant portion of our sales, dependence on several key suppliers to produce our products, our reliance on a limited number of key executives to manage our business and significant competition from better capitalized competitors. For further discussion of the factors affecting our results of operations, see "Risk Factors."

We may not be able to maintain profitability in the future and may not have sufficient working capital to fund our operations in the future.

We incurred a loss in fiscal 2022 and have not been consistently profitable in recent years. Our cash decreased to $1,072,000 as of December 31, 2022 from $1,698,000 as of January 1, 2022 and our working capital decreased to $3,625,000 as of December 31, 2022 from $4,326,000 as of January 1, 2022. The lack of sufficient working capital in the future could negatively impact our ability to introduce and adequately promote new products. To the extent that we incur operating losses in the future or are unable to generate free cash flows from our business, we may not have sufficient working capital to fund our operations and will be required to obtain additional financing. Such financing may not be available, or, if available, may not be on terms satisfactory to us. If we are unable to maintain revenues, we may not be able sustain profitable operations in the future or generate positive cash flows from our operations.





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We depend on a few key distributors for a significant portion of our sales.

A significant portion of our sales are to several key distributors, which are large distribution companies with numerous divisions and subsidiaries who act independently. Such distributors as a group accounted for 47% and 48% of our net sales for the fiscal years ended December 31, 2022 and January 1, 2022, respectively. Although we believe that the business associated with any of our primary distributors can be readily transferred to other distributors or directly to supermarket warehouses, if necessary, no assurance can be given that a change in distributors would not be disruptive to our business, which could have a material adverse effect on our business and results of operations.

Interruptions in the supply of products from our co-packers and suppliers could adversely affect our revenues.

We depend on a limited number of suppliers for ingredients, packaging materials and the production of our products. We do not produce any of our own products. For the years ended December 31, 2022 and January 1, 2022, we purchased approximately 49% and 50%, respectively, of our finished goods from Franklin Foods, including our BETTER THAN CREAM CHEESE, WHIPPED BETTER THAN CREAM CHEESE, BETTER THAN SOUR CREAM, and BETTER THAN RICOTTA products, and purchased approximately 14% and 11%, respectively, of our finished goods from Luke's Ice Cream, our frozen dessert novelty co-packer. Any disruption in supply could have a material adverse effect on our company.

We have little control over the suppliers of ingredients to our co-packers. Disruptions in these relationships may reduce our sales and revenues. Overall difficulty of suppliers meeting product demand, interruptions in the supply chain, obstacles or delays in the process of renegotiating or renewing agreements with preferred suppliers, financial difficulties experienced by suppliers, or the deficiency, lack, or poor quality of alternative suppliers could adversely impact our sales which, in turn, would adversely affect our business and operating results. We believe that, if necessary, we could obtain available alternative sources of supply for each of our products. Depending on the product, that might entail using more than one source of supply.

We have a complex network of suppliers, co-manufacturing locations, distribution networks, and information systems that support our ability to consistently provide our products to our customers. Factors that are hard to predict or beyond our control, such as weather, raw material shortages, natural disasters, fires or explosions, terrorism, or health pandemics, such as COVID-19, could damage or disrupt our operations or our suppliers', co-packers' or distributors' operations. These disruptions may require additional resources to restore our supply chain or distribution network. If we cannot respond to disruptions in our operations, whether by finding alternative suppliers or replacing capacity at key manufacturing or distribution locations, or if we are unable to quickly repair damage to our information, production, or supply systems, we may be late in delivering, or be unable to deliver, products to our customers and may also be unable to track orders, inventory, receivables, and payables. If that occurs, our customers' confidence in us and long-term demand for our products could decline. Any of these events could materially and adversely affect our product sales, financial condition, and operating results.

We rely on Steven Kass to manage our business.

Upon the death of Mr. Mintz, our continued success is significantly dependent on the services of Steven Kass (age 71), who is serving as our Chief Executive and Financial Officer. The loss of his services would have a material adverse effect on our business and results of operations.





Competition.

The plant-based, dairy free vegan frozen dessert, cheese and health food markets are highly competitive. In addition, many of our principal competitors are large, diversified companies with resources significantly greater than ours. We expect strong competition to continue, including competition for adequate distribution and competition for the limited shelf space for the frozen dessert and dairy free cheese food categories in supermarkets and other retail food outlets.

From time to time, we and our customers experience price pressure in some of our markets as a result of competitors' promotional pricing practices as well as general market conditions. Our failure to match or exceed our competitors' cost reductions through innovative products and other improvements could weaken our competitive position. Competition is based on product quality, reliability, food safety, distribution effectiveness, brand loyalty, price, effective promotional activities, the ability to identify and satisfy emerging consumer preferences and the ability to provide ancillary support services. We may not be able to compete effectively with these larger, more diversified companies.





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Recent Developments

An outbreak of an infectious respiratory illness caused by a novel coronavirus known as COVID-19 has spread globally since December 2019. This outbreak resulted in travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, prolonged quarantines, order cancellations, supply chain disruptions, increased costs for raw materials, and lower consumer demand, and other significant economic impacts, as well as general concern and uncertainty.

The residual uncertainty regarding the length of the pandemic's effects could have negative consequences for our company. To date, the effects of the pandemic have affected certain aspects of our operations. All of our co-packing facilities operated and continue to operate normally, and the pandemic did not constrain any of our production requirements. The cost of certain key ingredients and packaging has increased substantially due to short and long-term supply issues related to COVID-19. 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. Additionally, our freight costs have increased due to a driver shortage caused by COVID-19. In response to these cost increases and the potential for additional cost increases affecting various aspects of our operations, we had initiated a series of sales price increases commencing in the fourth quarter of 2021 which continued into 2022 to help offset these cost increases. The pandemic has had a negative impact on our sales, specifically with respect to our food service sales to retail outlets, such as restaurants and small food shops, which account for a small part of our total business and with respect to our inability to regain our level of export sales to certain foreign jurisdictions.

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 and our cash position of approximately $968,000 as of March 27, 2022 has improved since our fiscal year end December 31, 2022.

Fiscal Year Ended December 31, 2022 Compared with Fiscal Year Ended January 1, 2022

We operate on a fiscal year ending on the Saturday closest to December 31. Fiscal years for the financial statements included in this report are the fifty-two week periods ended December 31, 2022 (fiscal 2022) and January 1, 2022 (fiscal 2021).

Net sales for the fiscal year ended December 31, 2022 were $12,827,000, a slight increase of $237,000 or 2%, from net sales of $12,590,000 for the fiscal year ended January 1, 2022 due to the price increases implemented by the Company in the fourth quarter of 2022. Sales of our frozen dessert and frozen food product lines increased slightly to $1,876,000 in the fiscal year ended December 31, 2022 from $1,829,000 in fiscal 2021. Sales of vegan cheese products also increased slightly to $10,951,000 in the fiscal year ended December 31, 2022 from $10,761,000 in the fiscal year ended January 1, 2022.

Our gross profit for the year ended December 31, 2022 decreased by $1,000,000 to $2,342,000 from $3,342,000 for the fiscal year ended January 1, 2022. Our gross profit percentage for the fiscal year ended December 31, 2022 was 18% compared to 27% for the fiscal year ended January 1, 2022. Sales promotion and allowance expense increased to $1,514,000 in the fiscal year ended December 31, 2022 from $1,487,000 in the fiscal year ended January 1, 2022. The decrease in both our gross profit and gross profit percentage was primarily caused by the substantial increases in the costs for certain ingredients, especially palm oil, gums and flavorings and the substantial increase in freight out expense. 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 directly impacted the costs of certain ingredients and packaging such as the plastic packaging we use for our spreadable cheese products.

Freight out expense increased by $100,000 or 9% to $1,159,000 for the year ended December 31, 2022 compared with $1,059,000, or 8%, for the year ended January 1, 2022. Freight out expense increased due to significant increases in freight rates across all methods of shipping due to increases in fuel costs and the reduction in vehicle availability due to the pandemic. Freight out cost as a percentage of sales was 9% and 8% for the years ended December 31, 2022 and January 1, 2022, respectively. Due to the continued high cost of petroleum, we anticipate that our freight out expense will continue at a high percentage of sales in 2023, similar to fiscal year 2022.

Selling and warehousing expenses decreased by $59,000, or 5%, to $1,147,000 for the fiscal year ended December 31, 2022 from $1,206,000 for the fiscal year ended January 1, 2022. This decrease was primarily attributable to decreases in payroll expense of $22,000, outside warehouse rental expense of $96,000, and commission expense of $19,000, which were partially offset by increases in messenger costs of $15,000 and meeting and convention expense of $57,000. We anticipate that our selling expense will continue at the same level in 2023. The increase in meeting and convention expense was due to the resumption of the Company's participation in trade and distribution shows.

Marketing expenses increased in the fiscal year ended December 31, 2022 by $283,000, or 101%, to $564,000 from $281,000 in the fiscal year ended January 1, 2022 due to increases in promotion expense of $86,000, non-capitalizable artwork and plate expense of $98,000, point of sale material expense of $33,000 and advertising expense of $61,000. In 2022, we completed the rebranding of our product line and introduced new packaging for our products, which along with other related marketing expenditures, accounted for a substantial increase in our marketing expenses. Because many of the expenditures were one-time expenses, we anticipate that our marketing expenses for 2023 will decrease significantly.





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Research and development expenses increased by $19,000, or 15%, to $143,000 in the fiscal year ended December 31, 2022 from $124,000 in the fiscal year ended January 1, 2022. The increase was primarily attributable to an increase in professional fees and outside services expense of $39,000, which was partially offset by decreases in lab costs and supplies expense of $9,000 and depreciation expense of 10,000.

General and administrative expenses decreased by $85,000, or 6%, to $1,404,000 for the year ended December 31, 2022 from $1,489,000 for the year ended January 1, 2022. The decrease was primarily due to decreases in payroll expense of $42,000, professional fees and outside services expense of $73,000, equipment rental expense of $24,000 and the one-time $75,000 expense in fiscal 2021 relating to the sale of an asset, which were partially offset by increases in public relations expense of $67,000, stock-based compensation expense of $56,000, and building maintenance expense of $17,000. The decrease in payroll expense was due to no salary being paid to Mr. Mintz this period compared to the same period in the prior year. We anticipate that our total general and administrative expenses for fiscal 2023 will be consistent with those in fiscal 2022.

Overall, total operating expenses increased by $158,000, or 5%, to $3,258,000 for the year ended December 31, 2022 compared to total operating expenses of $3,100,000 in the year ended January 1, 2022. Due to the one-time nature of certain of our operating expenses in fiscal 2022, we anticipate a reduction in our operating expenses in fiscal 2023.

As a result of the foregoing we incurred an operating loss of $916,000 in the year ended December 31, 2022 as compared with operating income of $242,000 in the year ended January 1, 2022.

Loss before income taxes was $753,000 in the year ended December 31, 2022 as compared with income before income taxes of $217,000 in the year ended January 1, 2022.

Benefit from income taxes for the year ended December 31, 2022 was $228,000 compared to income tax expense of $74,000 for the year ended January 1, 2022 resulting from the lower pre-tax income during this period compared to prior year.

Liquidity and Capital Resources

At December 31, 2022, we had approximately $1,072,000 in cash, and our working capital was $3,625,000 as compared to $1,698,000 and $ 4,326,000 at January 1, 2022. We principally operate our business on the cash flows from our operations and currently have no borrowings. In order to provide our company with needed working capital, David Mintz, our former Chairman and Chief Executive Officer, provided our company with a convertible loan of $500,000 in January 2016. On December 22, 2021, the loan balance of $500,000 plus accrued interest of $25,000 was paid by the Company to Mr. Mintz's estate.





Cash Flows



                                                               Fiscal Year ended
                                                    December 31, 2022       January 1, 2022
                                                                (In thousands)
Net cash (used in) provided by operating
activities                                         $              (616 )   $             689
Net cash provided by investing activities - sale
and disposal of equipment                                            -                    50
Net cash used in financing activities                              (10 )                (500 )
Net (decrease) increase in cash                                   (626 )                 239
Cash at beginning of year                                        1,698                 1,459
Cash at end of year                                $             1,072     $           1,698

Cash used in operating activities for the fiscal year ended December 31, 2022 was $616,000 compared to $689,000 provided by operating activities for the fiscal year ended January 1, 2022. Cash used in operating activities was primarily from our net loss of $525,000, SBA loan forgiveness of $165,000, a deferred tax asset increase of $255,000, an increase in inventories of $589,000, and a non-cash change in right of use assets and lease liabilities of $12,000, offset by stock-based compensation of $56,000, amortization of financing right-of-use asset of $9,000, provision for bad debts expense of $15,000, a decrease in accounts receivable of $16,000 and an increase in accounts payable and accrued expenses of $819,000.





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Cash provided by investing activities was $0 for the fiscal year ended December 31, 2022 compared to cash provided by investing activities of $50,000 for the fiscal year ended January 1, 2022. Cash provided by investing activities in the fiscal year ended January 1, 2022 was due to proceeds from the sale of equipment.

Cash used in financing activities for the fiscal year ended December 31, 2022 was $10,000 compared to cash used of $500,000 for the fiscal year ended January 1, 2022. Cash used in financing activities for the fiscal year ended December 31, 2022 was due to payments made on our financing lease. Cash used in financing activities in the fiscal year ended January 1, 2022 was due to the repayment of a convertible note of $500,000 that had been provided to us by Mr. Mintz.

As a result of the foregoing, our cash decreased to $1,072,000 at December 31, 2022 from $1,698,000 at January 1, 2022.

We believe our existing cash on hand at December 31, 2022, our existing working capital, and our expected cash flows from operations will be sufficient to support our operating and capital requirements for at least the next twelve months dating from the issuance of the financial statements.





Contractual Obligations

We had no material contractual obligations at December 31, 2022.





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.





Market Risk

We will invest our excess cash, should there be any, in highly rated money market funds which are subject to changes in short-term interest rates. We do not believe that our foreign currency exposure is significant as our export sales are transacted in U.S. dollars. We did not enter into any foreign exchange contracts in the year ended December 31, 2022.

Off-Balance Sheet Arrangements





None.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.






Not applicable.



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