Quarterly Report for Quarter Ending June 29, 2024 (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 29, 2024

☐	Transition report pursuant to Section 13 or 15(d) of the Exchange Act for the transition period from ☐ to ☐

Commission file number: 1-9009

Tofutti Brands Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		13-3094658
(State of Incorporation)		(I.R.S. Employer Identification No.)

50 Jackson Drive, Cranford, New Jersey07016

(Address of Principal Executive Offices)

(908)272-2400

(Registrant's Telephone Number, including area code)

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

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.01 per share		TOFB		None

N/A

(Former Name, Former Address and Former Fiscal Year,

if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer☒
Smaller reporting company ☒	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of August 15, 2024 the Registrant had 5,153,706shares of Common Stock, par value $0.01, outstanding.

TOFUTTI BRANDS INC.

INDEX

		Page
Part I - Financial Information:
Item 1.	Unaudited Condensed Financial Statements	3
	Unaudited Condensed Balance Sheets - June 29, 2024 and December 30, 2023	3
	Unaudited Condensed Statements of Operations -Thirteen and Twenty-Six Weeks ended June 29, 2024 and July 1, 2023	4
	Unaudited Condensed Statements of Changes in Stockholders' Equity -Thirteen and Twenty-Six Weeks ended June 29, 2024 and July 1, 2023	5
	Unaudited Condensed Statements of Cash Flows -Twenty-Six Weeks ended June 29, 2024 and July 1, 2023	6
	Notes to Unaudited Condensed Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
Item 4.	Controls and Procedures	17
Part II - Other Information:
Item 1.	Legal Proceedings	18
Item 1A.	Risk Factors	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3.	Defaults Upon Senior Securities	18
Item 4.	Mine Safety Disclosures	18
Item 5.	Other Information	18
Item 6.	Exhibits	18
Signatures	19

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

TOFUTTI BRANDS INC.

Condensed Balance Sheets

(in thousands, except share and per share figures)

		June 29, 2024 (Unaudited)			December 30, 2023
Assets
Current assets:
Cash		$	489			$	837
Accounts receivable, net of allowance for doubtful accounts and sales promotions of $505and $525, respectively			817				828
Inventories			2,171				2,475
Prepaid expenses and other current assets			75				93
Total current assets			3,552				4,233
Operating lease right-of-use asset			47				81
Finance lease right-of-use asset			29				36
Deferred tax assets			246				246
Other assets			40				19
Total assets		$	3,914			$	4,615
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable			12				237
Accrued expenses			387				541
Finance lease liability, current portion			11				15
Total current liabilities			410				793
Operating lease liabilities, net of current portion			-				7
Finance lease liability, net of current portion			20				23
Total liabilities			430				823
Stockholders' equity:
Preferred stock - par value $.01per share; authorized 100,000shares, noneissued and outstanding			-				-
Common stock - par value $.01per share; authorized 15,000,000shares, 5,153,706shares issued and outstanding			52				52
Additional paid-in capital			350				323
Retained earnings			3,082				3,417
Total stockholders' equity			3,484				3,792
Total liabilities and stockholders' equity		$	3,914			$	4,615

See accompanying notes to unaudited condensed financial statements.

TOFUTTI BRANDS, INC.

Unaudited Condensed Statements of Operations

(in thousands, except per share figures)

		Thirteen weeks ended June 29, 2024			Thirteen weeks ended July 1, 2023			Twenty-six weeks ended June 29, 2024			Twenty-six weeks ended July 1, 2023
Net sales		$	2,283			$	2,719			$	4,495			$	5,208
Cost of sales			1,616				2,052				3,359				3,935
Gross profit			667				667				1,136				1,273
Operating expenses:
Selling and warehouse			250				320				464				592
Marketing			79				89				213				184
Research and development			22				56				64				83
General and administrative			342				383				724				686
		693				848				1,465				1,545
Loss from operations			(26	)			(181	)			(329	)			(272	)
Loss before interest expense and income taxes			(26	)			(181	)			(329	)			(272	)
Interest expense			1				1				1				2
Loss before income tax			(27	)			(182	)			(330	)			(274	)
Income tax expense			5				136				5				146
Net loss		$	(32	)		$	(318	)		$	(335	)		$	(420	)
Weighted average common shares outstanding:
Basic			5,154				5,154				5,154				5,154
Diluted			5,154				5,154				5,154				5,154
Loss per common share:
Basic		$	(0.01	)		$	(0.06	)		$	(0.06	)		$	(0.08	)
Diluted		$	(0.01	)		$	(0.06	)		$	(0.06	)		$	(0.08	)

See accompanying notes to unaudited condensed financial statements.

TOFUTTI BRANDS, INC.

Unaudited Condensed Statements of Changes in Stockholders' Equity

(in thousands)

		Thirteen and twenty-six weeks ended June 29, 2024
		Common Stock			Additional Paid-in Capital			Retained Earnings			Total
December 30, 2023		$	52				323				3,417				3,792
Stock-based compensation			-				14				-				14
Net loss			-				-				(303	)			(303	)
March 30, 2024		$	52				337				3,114				3,503
Stock-based compensation			-				13				-				13
Net loss			-				-				(32	)			(32	)
June 29, 2024		$	52				350				3,082				3,484

		Thirteen and twenty-six weeks ended July 1, 2023
		Common Stock			Additional Paid-in Capital			Retained Earnings			Total
December 31, 2022		$	52				263				3,783				4,098
Stock-based compensation			-				20				-				20
Net loss			-				-				(102	)			(102	)
April 1, 2023		$	52				283				3,681				4,016
Stock-based compensation			-				13				-				13
Net loss			-				-				(318	)			(318	)
July 1, 2023		$	52				296				3,363				3,711

See accompanying notes to unaudited condensed financial statements.

TOFUTTI BRANDS INC.

Unaudited Condensed Statements of Cash Flows

(in thousands)

		Twenty-six weeks ended			Twenty-six weeks ended
		29-Jun-24			1-Jul-23
Cash used in operating activities, net		$	(344	)		$	(485	)
Cash used in financing activities, net			(4	)			(4	)
Net decrease in cash		$	(348	)		$	(489	)
Cash at beginning of period			837				1,072
Cash at end of period		$	489			$	569
Supplemental cash flow information:
Income taxes paid		$	7			$	-
Interest paid on finance leases		$	1			$	2

See accompanying notes to unaudited condensed financial statements.

TOFUTTI BRANDS INC.

Notes to Unaudited Condensed Financial Statements

(in thousands, except 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 twenty-six-week period ended June 29, 2024 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 December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures (ASU 2023-09). ASU 2023-09 requires that an entity, on an annual basis, disclose additional income tax information, primarily related to the rate reconciliation and income taxes paid. The amendment in the ASU is intended to enhance the transparency and decision usefulness of income tax disclosures. The ASU's amendments are effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact that adoption of ASU 2023-09 will have on its financial statements.

Note 3: Inventories

Inventories consist of the following:

		June 29, 2024			December 30, 2023
Finished products		$	1,237			$	1,366
Raw materials and packaging			934				1,109
	$	2,171			$	2,475

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.

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.

TOFUTTI BRANDS INC.

Notes to Unaudited Condensed Financial Statements

(in thousands, except share and per share data)

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

		Thirteen weeks ended June 29, 2024			Thirteen weeks ended July 1, 2023			Twenty-six weeks ended June 29, 2024			Twenty-six weeks ended July 1, 2023
Loss, numerator, basic computation		$	(32	)		$	(318	)		$	(335	)		$	(420	)
Net loss, numerator, diluted computation		$	(32	)		$	(318	)		$	(335	)		$	(420	)
Weighted average shares - denominator basic computation			5,154				5,154				5,154				5,154
Weighted average shares, as adjusted - denominator diluted computation			5,154				5,154				5,154				5,154
Loss per common share - basic		$	(0.01	)		$	(0.06	)		$	(0.06	)		$	(0.08	)
Loss per common share - diluted		$	(0.01	)		$	(0.06	)		$	(0.06	)		$	(0.08	)

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:

		Thirteen weeks Ended June 29, 2024			Thirteen weeks Ended July 1, 2023
Shares subject to outstanding common stock options			250,000				250,000

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." 0and 250,000stock options were issued in 2023 and 2022, respectively, and 250,000non-qualified options were outstanding as of June 29, 2024. The exercise price of all options granted in 2022 is $0.95per share, the market price at the close of business on the date of the grant. 83,333of the options vested at the respective grant date, 83,333will vest in December 2023, and 83,334will 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 22, 2027. No additional options were made available or granted during the twenty-six weeks ended June 29, 2024.

The following is a summary of stock option activity from December 30, 2023 to June 29, 2024:

		NON-QUALIFIED OPTIONS
		Shares			Weighted Average Exercise Price ($)
Outstanding at December 30, 2023			250,000				0.95
Granted			-				-
Exercised			-				-
Outstanding at June 29, 2024			250,000				0.95
Exercisable at June 29, 2024			166,666				0.95

TOFUTTI BRANDS INC.

Notes to Unaudited Condensed Financial Statements

(in thousands, except share and per share data)

The following table summarizes information about stock options outstanding from December 30, 2023 to June 29, 2024:

Range of Exercise Prices ($)			Number Outstanding			Weighted Average Remaining Life (in years)			Weighted Average Exercise Price($)			Number Exercisable
$	0.95				250,000				3.50			$	0.95				166,666

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 the fiscal year ended December 31, 2022, 250,000options were granted, with 83,333of the options vesting at the respective grant date, 83,333vesting in December 2023, and 83,334vesting 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.

The expected term was determined based on the reasoning that all previously granted options have been held to expiration. Additionally, all 5 members who were granted options are board members or an officer, and the expectation is that they are holding these options to expiration or until any such liquidation event would take place which is not estimable.

As of June 29, 2024, and July 1, 2023 the intrinsic value of the options outstanding and exercisable options was $0and $12, respectively, and there was $22of total unrecognized compensation cost. Total stock-based compensation for both of the thirteen weeks ended June 29, 2024 and July 1, 2023 was $13, which is recorded in general and administrative expenses on the statement of operations. Total stock-based compensation was $27and $34for the twenty-six weeks ended June 29, 2024 and July 1, 2023, respectively.

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

Note 7: 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:

		Thirteen weeks ended June 29, 2024			Thirteen weeks ended July 1, 2023			Twenty-six weeks ended June 29, 2024			Twenty-six weeks ended July 1, 2023
Revenues by geography:
Americas		$	2,099			$	2,586			$	4,224			$	5,006
Europe			79				7				79				11
Asia Pacific and Africa			-				-				-				57
Middle East			105				126				192				134
	$	2,283			$	2,719			$	4,495			$	5,208

Approximately 95% of the Americas' revenue for the thirteen weeks ended June 29, 2024 is attributable to sales in the United States compared with 93% of the Americas' revenue for the thirteen weeks ended July 1, 2023. For the twenty-six week period ended June 29, 2024 approximately 92% of the Americas' revenue is attributable to sales in the United States compared to 91% for the twenty-six week period ended July 1, 2023. All of the Company's assets are located in the United States.

TOFUTTI BRANDS INC.

Notes to Unaudited Condensed Financial Statements

(in thousands, except share and per share data)

Net sales by major product category:

Note 8: 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 $7and $7for the thirteen weeks ended June 29, 2024 and July 1, 2023, and $14and $14for the twenty-six weeks ended June 29, 2024 and July 1, 2023, respectively. The Company rents warehouse storage space at various outside facilities. Outside warehouse expenses were $98for the thirteen weeks ended June 29, 2024 and $85for the thirteen weeks ended July 1, 2023, and $181and $161for the twenty-six weeks ended June 29, 2024 and July 1, 2023, respectively. The Company rents copiers under finance leases. In 2022, the Company terminated two copier leases, and entered into one additional lease, which still exists as of June 29, 2024. Payments for copiers amounted to $0and $4for the thirteen weeks ended June 29, 2024 and July 1, 2023, respectively and $0and $8for the twenty-six weeks ended June 29, 2024 and July 1, 2023, 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.

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

		As of			As of
		June 29, 2024			December 30, 2023
Operating lease right-of-use assets		$	47			$	81
Current portion of lease liabilities			47				74
Operating lease liabilities, net of current portion			-				7
Total lease liability		$	47			$	81
Weighted average remaining lease term (in years)			0.5				1.2
Weighted average discount rate			5.5	%			5.5	%

TOFUTTI BRANDS INC.

Notes to Unaudited Condensed Financial Statements

(in thousands, except share and per share data)

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

		As of			As of
		June 29, 2024			December 30, 2023
Finance lease right-of-use asset		$	29			$	36
Current portion of lease liabilities			11				15
Finance lease liabilities, net of current portion			20				23
Total lease liabilities		$	31			$	38
Weighted average remaining lease term (in years)			1.8				2.4
Weighted average discount rate			6.5	%			6.5	%

Future lease payments included in the measurement of lease liabilities on the balance sheet as of June 29, 2024 are as follows:

		Operating lease liabilities			Finance lease liability			Total
2024 (remainder of the year)			47				8				55
2025			-				18				18
2026			-				7				7
Total future minimum lease payments			47				33				80
Present value adjustment			-				2				2
Total		$	47			$	31			$	78

Note 9: Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

		As of			As of
		June 29, 2024			December 30, 2023
Accrued payroll and other benefits		$	2			$	-
Accrued professional fees			15				11
Uncertain tax position			216				211
Operating lease liability			47				81
Accrued purchases			107				238
Total accrued expenses and other current liabilities		$	387			$	541

Note 10: Subsequent Events

The Company notes it will be moving its offices and corporate offices some time during the third quarter. We expect the move to be completed no later than September 30^th, 2024.

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 vegan and 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. Management closely monitors outstanding balances during the year and allocates an allowance account if appropriate. The Company estimates and records a provision for its expected credit losses related to its financial instruments, including its trade receivables and contract assets. The Company considers historical collection rates, the current financial status of its customers, macroeconomic factors, and other industry-specific factors when evaluating for current expected credit losses. Forward-looking information is also considered in the evaluation of current expected credit losses. However, because of the short time to the expected receipt of accounts receivable, the Company believes that the carrying value, net of expected losses, approximates fair value and therefore, relies more on historical and current analysis of such financial instruments.

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 Accounting Pronouncements

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 December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures (ASU 2023-09). ASU 2023-09 requires that an entity, on an annual basis, disclose additional income tax information, primarily related to the rate reconciliation and income taxes paid. The amendment in the ASU is intended to enhance the transparency and decision usefulness of income tax disclosures. The ASU's amendments are effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact that adoption of ASU 2023-09 will have on its financial statements.

Results of Operations

Thirteen Weeks Ended June 29, 2024 Compared with Thirteen Weeks Ended July 1, 2023

Net sales for the thirteen weeks ended June 29, 2024 decreased by $436,000, or 16%, to $2,283,000, from net sales of $2,719,000 for the thirteen weeks ended July 1, 2023. Sales of our vegan cheese products decreased to $1,926,000 in the thirteen weeks ended June 29, 2024 from $2,283,000 in the thirteen weeks ended July 1, 2023. Sales of our frozen dessert products decreased to $357,000 in the thirteen weeks ended June 29, 2024 from $436,000 for the thirteen weeks ended July 1, 2023. The decrease in frozen dessert product sales was due to a decrease in sales of our frozen dessert pints. The decrease in the sales of our vegan cheese products was due to continued introduction of competitive products in the vegan cheese category and a decline of our export cheese business.

Our gross profit was $667,000 for both the thirteen weeks ended June 29, 2024 and the thirteen weeks ended July 1, 2023. Our gross profit percentage increased to 29% for the thirteen weeks ending June 29, 2024 compared to 25% for the thirteen weeks ending July 1, 2023. Our gross profit dollars and gross profit percentage were positively impacted by a decrease in our sales promotion and allowance expenses to $249,000 in the second quarter of this year as compared to $273,000 in the second quarter of the prior fiscal year. We anticipate that our gross profit dollars and gross profit percentage will remain consistent for the balance of 2024.

Freight expense, a significant part of our cost of sales, increased slightly by $6,000, or 4%, to $179,000 for the thirteen weeks ended June 29, 2024 compared with $173,000 for the thirteen weeks ended July 1, 2023. Freight expense was 8% of sales for the thirteen weeks ended June 29, 2024 compared to 6% of sales for the thirteen weeks ended July 1, 2023. We anticipate that our freight expense will continue at a higher rate for the balance of 2024.

Selling expenses decreased by $70,000, or 22%, to $250,000 for the thirteen weeks ended June 29, 2024 from $320,000 for the thirteen weeks ended July 1, 2023. The decrease was due to decreases in commission expense of $38,000, meetings and convention expense of $18,000, bad debt expense of $16,000, and sample shipping expenses of $11,000 which were partially offset by an increase in outside warehouse rental expenses of $13,000. The decrease in commission expense is due to the decrease in sales for the thirteen-weeks ended June 29,2024 compared with the thirteen-weeks ended July 1, 2023.

Marketing expenses decreased by $10,000, or 11%, to $79,000 for the thirteen weeks ended June 29, 2024 from $89,000 for the thirteen weeks ended July 1, 2023. The decrease was primarily due to decreases in artwork and plates expense of $3,000, and advertising expense $14,000, which were partially offset by an increase in promotion expense of $7,000. We anticipate that our marketing expenses for the balance of the year will be comparable to the corresponding periods in fiscal year 2023.

Product development costs, which consist principally of salary expenses and laboratory costs, decreased by $34,000, or 61%, to $22,000 for the thirteen weeks ended June 29, 2024 from $56,000 for the thirteen weeks ended July 1, 2023. The decrease was primarily due to a decrease in professional fees and outside services expense of $24,000 and lab costs and supplies expense of $7,000. We anticipate our product development costs will continue at a lower level than the corresponding 2023 periods as we have reduced our research and development work.

General and administrative expenses decreased by $41,000, or 11%, to $342,000 for the thirteen weeks ended June 29, 2024 from $383,000 for the thirteen weeks ended July 1, 2023, primarily due to decreases in public relations expense of $16,000 and professional fees and outside services expense of $43,000, which were partially offset by increases in office supplies expense of $7,000 and payroll expense of $11,000. We anticipate our general and administrative expenses for the remaining periods in 2024 will approximate the same levels as in the corresponding 2023 periods.

Income tax expense was $5,000 for the thirteen weeks ended June 29, 2024 and $136,000 for the thirteen weeks ended July 1, 2023.

Twenty Six Weeks Ended June 29, 2024 Compared with Twenty Six Weeks Ended July 1, 2023

Net sales for the twenty-six weeks ended June 29, 2024 decreased by $713,000, or 14%, to $4,495,000, from net sales of $5,208,000 for the twenty-six weeks ended July 1, 2023. Sales of our vegan cheese products decreased to $3,735,000 in the twenty-six weeks ended June 29, 2024 from $4,382,000 for the twenty-six weeks ended July 1, 2023. Sales of our frozen dessert products decreased to $764,000 for the twenty-six weeks ended June 29, 2024 from $826,000 for the twenty-six weeks ended July 1, 2023. The significant reduction in sales for the current twenty-six week period was primarily due to the decrease in our vegan cheese sales caused by increased competition in the vegan cheese category and a decline in our export cheese business.

Our gross profit decreased to $1,136,000 for the twenty-six weeks ended June 29, 2024 from $1,273,000 for the twenty-six weeks ended July 1, 2023, while our gross profit percentage was 25% for the twenty-six weeks ending June 29, 2024 compared to 24% for the twenty-six weeks ending July 1, 2023. The decrease in gross profit dollars was due to the reduction in sales. The increase in our gross profit percentage was due to a $85,000 decrease in sales promotion and allowance expense to $442,000 in fiscal 2024, from $527,000 in fiscal 2023. We anticipate that our gross margin percentage will remain unchanged or slightly increase for the balance of the fiscal year.

Freight expense, a significant part of our cost of sales, decreased by $28,000, or 8%, to $357,000 for the twenty-six weeks ended June 29, 2024 compared with $385,000 for the twenty-six weeks July 1, 2023. Freight expense was 8% of sales for the twenty-six weeks ended June 29, 2024 and for the twenty-six weeks ended July 1, 2023.

Selling expenses decreased by $128,000, or 22%, to $464,000 for the twenty-six weeks ended June 29, 2024 from $592,000 for the twenty-six weeks ended July 1, 2023. The decrease was primarily attributable to decreases in meetings and convention expense of $44,000, commission expense of $76,000, bad debt expense of $15,000, and sample shipping expenses of $23,000, which were partially offset by an increase in outside warehouse rental expenses of $20,000 and payroll expenses of $10,000. The decrease in commission expense is due to the decrease in sales and a reduction to the commission rate we pay to our brokers from 5% to 4% for the twenty-six weeks ended June 29, 2024 compared with the twenty-six weeks ended July 1, 2023.

Marketing expenses increased by $29,000, or 16%, to $213,000 for the twenty-six weeks ended June 29, 2024 from $184,000 for the twenty-six weeks ended July 1, 2023. The increase was primarily due to increases in promotions expense of $37,000 and advertising expense of $7,000, which were partially offset by a decrease in point of sale material expense of $14,000.

Product development costs, which consist principally of salary expenses and laboratory costs, were $64,000 for the twenty-six weeks ended June 29, 2024 and $83,000 for the twenty-six weeks ended July 1, 2023. The decrease was due primarily to a decrease in professional fees and outside services expenses of $15,000 and lab costs and supplies expense of $6,000.

General and administrative expenses increased by 6%, or $38,000, to $724,000 for the twenty-six weeks ended June 29, 2024 from $686,000 for the twenty-six weeks ended July 1, 2023. This increase was primarily due to increases in payroll expense of $20,000, professional fees and outside services expense of $12,000, office supply expense of $7,000, equipment repairs expense of $5,000, and general insurance expense of $6,000, which were partially offset by decreases in public relations expense of $21,000. Our increase in payroll expense was due primarily to an increase in group insurance expense.

Income tax expense was $5,000 for the twenty-six weeks ended June 29, 2024 and $146,000 for the thirteen weeks ended July 1, 2023.

Liquidity and Capital Resources

As of June 29, 2024, we had approximately $489,000 in cash and our working capital was approximately $3,105,000, compared with approximately $837,000 in cash and working capital of $3,440,000 at December 30, 2023.

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

		Twenty-six weeks ended			Twenty-six weeks ended
		29-Jun-24			1-Jul-23
Cash used in operating activities, net		$	(344	)		$	(485	)
Cash used in financing activities, net			(4	)			(4	)
Net decrease in cash		$	(348	)		$	(489	)

Net cash used in operating activities for the twenty-six weeks ended June 29, 2024 was $344,000 compared to $485,000 used in operating activities for the twenty-six weeks ended July 1, 2023. Net cash used in operating activities for the twenty-six weeks ended June 29, 2024 was primarily a result of the net loss of $335,000 and decreases in current assets other than cash of $313,000, primarily inventory, which were offset by decreases in current liabilities, primarily accounts payable and accrued expenses, of $383,000.

We believe our existing cash on hand at June 29, 2024, 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 June 29, 2024.

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 June 29, 2024, 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 of June 29, 2024.

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 ensure 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 June 29, 2024 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 small workforce of five persons at June 29, 2024.

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 December 30, 2023.

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

31.1		Certification by Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
31.2		Certification by Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
32.1		Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Schema Document
101.CAL		Inline XBRL Calculation Linkbase Document
101.DEF		Inline XBRL Definition Linkbase Document
101.LAB		Inline XBRL Labels Linkbase Document
101.PRE		Inline XBRL Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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.

	TOFUTTI BRANDS INC.
	(Registrant)
	/s/ Steven Kass
	Steven Kass
	Chief Executive Officer
	Chief Accounting and Financial Officer
Date: August 15, 2024

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