TOFUTTI BRANDS INC

GENERAL

We are engaged in the development, production and marketing of TOFUTTI® brand plant-based, dairy free frozen dessert and cheese products that contain no butterfat or cholesterol and use soy and other vegetable proteins. Our products are 100% dairy free, but offer consumers the same texture and full-bodied taste as their dairy counterparts. Our cholesterol free products derive their fat from corn and palm oils, each naturally lower in saturated fat than dairy products. All of our products are completely vegan and our vegan cheese products are gluten free as well. In addition, all of our products are certified Kosher-parve and all of our vegan cheese products are also certified Halal.

We were organized under the laws of the State of New York in 1981 and became a Delaware corporation in 1984. Our registered and principal executive office is located at 50 Jackson Drive, Cranford, New Jersey 07016. Our telephone number is 908-272-2400. Our internet website address is www.tofutti.com. The information on our website is not incorporated by reference into this annual report.

STRATEGY

Our objective is to be a leading provider of plant-based, dairy free food products, primarily cheese products and frozen desserts, to supermarkets, health food stores, and food service customers in the United States and abroad. We intend to continue to introduce new plant-based products that offer good taste while containing no butterfat, cholesterol or dairy to these markets.

We focus our marketing efforts towards those consumers who find our products essential to their everyday diets because of health, lifestyle or religious reasons. As part of this strategy, we seek to achieve brand awareness through product innovation, eye-catching packaging, trade advertising and promotion, and a strong word-of-mouth marketing program. We believe that our ability to offer a wide range of dairy free, vegan, and Kosher-parve products will continue to provide us with a competitive advantage.

TOFUTTI PRODUCT LINE

We offer a broad product line of plant-based, dairy free vegan products that use soy or other vegetable-based proteins. Our dairy free products include spreads, frozen desserts, and cheese slices.

Dairy Free Vegan Cheese Products

Frozen Desserts

MARKETING AND DISTRIBUTION

TOFUTTI products are sold and distributed across the United States and internationally, and can be found in gourmet specialty shops, Kosher supermarkets, natural/health food stores, and national and regional supermarket chains. Our products are sold by independent unaffiliated food brokers to distributors and sometimes on a direct basis to retail chain accounts or to warehouse accounts that directly service chain accounts. Such direct accounts include Kroger, Giant Eagle, DeMoulas/Market Basket, and Wakefern Food Corp. Food brokers act as our agents within designated territories or for specific accounts and receive commissions, which average 4% of net collected sales. Certain key domestic, Kosher, and food service accounts and all international accounts are handled directly by us.

We currently sell our dairy-free vegan cheese products and frozen dessert products in most major markets in the United States, including Atlanta, Baltimore, Boston, Charlotte, Chicago, Cincinnati, Cleveland, Dallas, Denver, Detroit, Houston, Jacksonville, Kansas City, Los Angeles, Miami, Milwaukee, Minneapolis, Nashville, New York, Orlando, Philadelphia, Phoenix, Portland, Richmond, Salt Lake City, San Diego, San Francisco, Seattle, St. Louis, Tampa and Washington, D.C. Our products are also sold in approximately twelve other countries.

In addition to ice cream and cheese distributors, our products are handled by most major national and regional natural and/or gourmet specialty distributors in the country. We distribute our products through approximately thirty nine (39) distributors to the national health food market.

We currently distribute most of our products by allowing customers to pick-up products from outside storage facilities. We do not own, lease or otherwise maintain any vehicles involved in the shipping of our products. From our co-packing facilities, we either ship direct to our customers or we ship to outside public storage facilities from where our customers are able to pick up their orders. Use of outside storage facilities in several key locations in the United States allows us to provide our customers with products in a timely fashion. Currently, we use one warehouse in New jersey for our cheese products and one warehouse in Pennsylvania for our frozen dessert products. We use one warehouse in northern California for both categories of products.

Our sales to health food accounts in fiscal 2023 decreased to $4,476,000 from approximately $6,527,000 in fiscal 2022. Sales to health food accounts in fiscal 2023 and 2022 was 44% and 51% of total sales respectively. Sales to foreign distributors decreased to $1,219,000, or 12% of sales, in fiscal 2023, from $1,572,000, or 12% of sales, in fiscal 2022. Our sales to the Kosher market decreased to $711,000 in fiscal 2023, from sales of approximately $754,000 in fiscal 2022. Sales to Kosher market markets in fiscal 2023 were 7% of sales compared to 6% of sales in fiscal 2022.

The following table presents the geographical breakdown of our sales in our largest domestic markets for the last two fiscal years.

During fiscal 2023, we shipped our products to distributors in Australia, Canada, Egypt, the UK, France, Israel, Mexico, and Panama. Sales to foreign distributors decreased to $1,219,000, or 12% of sales, in fiscal 2023, from $1,572,000, or 12% of sales, in fiscal 2022. We conduct all of our foreign business in U.S. dollars. Our future export sales could be adversely affected by an increase in the value of the U.S. dollar against local currencies, which could increase the local currency price of our products.

COMPETITION

TOFUTTI frozen desserts compete with all forms of ice cream products, yogurt-based desserts and other plant-based frozen desserts. Other plant-based frozen dessert products are presently being sold throughout the United States by established distributors of ice cream and other frozen dessert products. Similarly, our cheese products compete with all types of cheese products, both plant-based and dairy. The cheese and frozen dessert categories are highly competitive and most companies with whom we compete are substantially larger and have significantly greater resources than us. Our products face substantial competition from dairy free and dairy products marketed by companies with significantly greater resources than we have.

In most product categories, we compete not only with widely advertised branded products, but also with generic and private label products that are generally sold at lower prices. Competition in our product categories is based on product innovation, product quality, price, brand recognition and loyalty, effectiveness of marketing, promotional activity, and the ability to identify and satisfy consumer preferences. Our market share and ability to grow our revenue could also be adversely impacted if we are not successful in introducing innovative products in response to changing consumer demands or by new product introductions of our competitors. If we are unable to build and sustain brand equity by offering recognizably superior product quality, we may be unable to maintain premium pricing over competitive products. Sales of our plant-based cheese products have been significantly negatively impacted by increased competition with the introduction of new vegan cheese products from a number of other companies. Our future product sales of plant based cheese products could be negatively impacted by the further introduction of other competitive products.

PRODUCT DEVELOPMENT

All of our current products were developed by us in our own laboratory. In fiscal 2023 and 2022, our product development expenses were approximately $166,000 and $143,000, respectively. We currently do not intend to reopen the laboratory to its previous level of operations. However, all required quality control requirements are still being performed as needed. All product development costs are expensed as incurred and are recorded as operating expenses in our financial statements.

PRODUCTION

All of our products are produced by co-packers to whom we supply certain key ingredients and packaging for the manufacturing processes. Our co-packing facilities are fully licensed and must comply with all state and federal laws and regulations. Additionally, our production facilities are certified as SQF facilities. The Safe Quality Food (SQF) Program is a rigorous and credible safety and quality program of on-going audits and certifications that is being required by more and more food distributors and retailers before they will accept a new food product into their facility or store. We currently utilize four co-packers, all of whom were able to continue the production of our products during the course of the COVID-19 pandemic. Our co-packers manufacture and package our products and, in certain instances, warehouse such products pending shipment. For certain key product categories, such as dairy free vegan cheeses and dairy free frozen desserts, we have more than one co-packer. In selecting an appropriate co-packer, we take into account all of the preceding factors, plus cost considerations such as product processing fees and freight and warehouse expenses.

We believe that all of our products are produced under the strictest quality control procedures that are available in each manufacturing facility used by us. These quality control procedures include, but are not limited to, the cleaning processes utilized prior to running our products; spot line inspections during production; in-house laboratory testing as required by government agencies; supervision of all our production by our Kosher supervisory service; supervision of all our vegan cheese production by our Halal supervisory service; and random testing by outside independent laboratories to ensure that our internal quality control procedures, guidelines, ingredients, and nutritional reporting requirements are being properly followed.

For the fiscal years ended December 30, 2023 and December 31, 2022, we purchased approximately 57% and 49% of our finished goods, respectively, from Franklin Foods, our co-packer for ourBETTER THAN CREAM CHEESE, WHIPPED BETTER THAN CREAM CHEESE, SOUR SUPREME,andBETTER THAN RICOTTA products, and 9% and 14%, respectively, of our finished goods from College Circle Creamery (formerly Luke’s Ice Cream), our frozen dessert novelty co-packer.

Relationships with Co-Packers

We do not have any written production agreements with our co-packers and do not anticipate that we would encounter any material difficulty in obtaining alternative production sources, at a comparable cost, if one or all of our co-packers decide to terminate their relationships with us. Nevertheless, any disruption in supply could have a material adverse effect on our company.

In order to protect our formulas, we have entered into confidentiality arrangements with our co-packers and some of our co-packers’ employees. All of our employees, including officers, sign similar confidentiality agreements. There can be no assurance that such confidentiality arrangements can or will be maintained, or that our trade secrets, know-how and marketing ability cannot be obtained by others, or that others do not now possess similar or even more effective capabilities.

Kosher Certification

KOF-K Kosher Supervision, or KOF-K, of Teaneck, New Jersey provides us with our Kosher certification service. Before KOF-K will permit its certification, evidenced by its symbol, to be placed on a product, KOF-K must approve both the ingredients contained in the product and the facility processing the product. Approval of the manufacturing facilities we use include periodic inspections, and in most cases, on-site supervision of actual production. We pay a yearly renewal fee for certification and ongoing fees throughout the year for supervisory services for each production run. We believe that our ability to successfully market and distribute our products is dependent upon our continued compliance with the requirements of rabbinical certification. All TOFUTTI® products meet the requirements for certification as Kosher-parve.

Halal Certification

In early 2013, we completed a Halal certification process at Franklin Foods, the co-packer of ourBETTER THAN CREAM CHEESE,WHIPPED BETTER THAN CREAM CHEESE, BETTER THAN SOUR CREAMandBETTER THAN RICOTTA products and at Whitehall Specialties, the co-packer of our vegan cheese slices. This certification is provided by the Islamic Food and Nutrition Council of America (IFANCA) of Park Ridge, Illinois and currently applies only to those products manufactured by Franklin Foods and Whitehall Specialties. Before IFANCA will permit its certification to be placed on a product, which is evidenced by its symbol, IFANCA must approve both the ingredients contained in the product and the facility processing the product. Approval of the manufacturing facilities we use includes periodic inspections. There is a yearly renewal fee for certification. All TOFUTTI® vegan cheese products meet the requirements for certification as Halal.

TRADEMARKS AND PATENTS

We have registered our trademark, TOFUTTI®, and other trademarks for our frozen desserts and other products in the United States and approximately thirty-two foreign countries. We believe our trademarks are an important means of establishing consumer recognition for our products and we will vigorously oppose any unauthorized use of our trademarks. We are not currently involved in any trademark litigation.

Although we believe that our formulas and processes are proprietary, we have not sought patent protection for such technology. Instead, we are relying on the complexity of our technology, on trade secrecy laws and on confidentiality agreements. We believe that our technology has been independently developed and does not infringe the patents of others.

GOVERNMENT REGULATION

Companies engaged in the manufacture, packaging and distribution of food items are subject to extensive regulation by various government agencies which, pursuant to statutes, rules, and regulations, prescribe quality, purity, manufacturing and labeling requirements. Food products are often subject to “standard of identity” requirements, which are promulgated at either the Federal or state level to determine the permissible qualitative and quantitative ingredient content of food. To the extent that any product that we seek to market does not conform to an applicable standard, special permission to market such a product is required.

Our United States product labels are subject to regulation by the United States Food and Drug Administration, or the FDA. Such regulations include standards for product descriptions, nutritional claims, label format, minimum type sizes, content and location of nutritional information panels, nutritional comparisons, and ingredient content panels. Our labels, ingredients and manufacturing processes are subject to inspection by the FDA. During 2022, we re-designed all our packaging including updating our nutritional and ingredient panels to conform to the labeling requirements of the Food Safety Modernization Act. We believe that we are in compliance with current labeling requirements and conduct periodic reviews to make certain that such compliance is on-going.

The Food, Drug and Cosmetic Act, the Food Safety Modernization Act and rules and regulations promulgated by the FDA thereunder, contain no specific Federal standard of identity which is applicable to our products. Our frozen dessert products meet the New York State standard of identity for “parevine,” which has been adopted by at least eight other states. Many states require registration and label review before food products can be sold. While approval in one jurisdiction generally indicates the products will meet with approval in other jurisdictions, there is no assurance that approval from other jurisdictions will be forthcoming. Additionally, many of our major customers now require that any food products that they purchase be produced in Safe Quality Food, or SQF, manufacturing facilities. The SQF program is recognized by the Global Food Safety Initiative and provides a rigorous system to manage food safety risks and provide safe products use by companies in the food industry. All of our current co-packers are SQF certified or have completed the certification process and are awaiting final approval by the certifying organization.

Food manufacturing facilities are subject to inspections by various safety, health and environmental regulatory authorities. A finding of a failure to comply with one or more regulatory requirements can result in the imposition of sanctions including the closing of all or a portion of a company’s facilities, subject to a period during which the company can remedy the alleged violations. Our Cranford, New Jersey facility is subject to inspection by the New Jersey-Kosher Enforcement Bureau and the New Jersey Environmental Health Services. We believe that we, our distributors and our co-packers are in compliance in all material respects with governmental regulations regarding our current products and have obtained the material governmental permits, licenses, qualifications and approvals required for our operations. Our compliance with Federal, state and local environmental laws has not materially affected us either economically or in the manner in which we conduct our business. However, there can be no assurance that our company, our distributors and our co-packers will be able to comply with such laws and regulations in the future or that new governmental laws and regulations will not be introduced that could prevent or temporarily inhibit the development, distribution and sale of our products to consumers.

New government laws and regulations may be introduced in the future that could result in additional compliance costs, seizures, confiscations, recalls or monetary fines, any of which could prevent or inhibit the development, distribution and sale of our products. If we fail to comply with applicable laws and regulations, we may be subject to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which could have a material adverse effect on our business, results of operations and financial condition.

EMPLOYEES

We have successfully operated our business with a limited number of employees for over a decade. We employed five persons as of December 30, 2023 and December 31, 2022 on a full-time basis. We consider our employees to be among the most valuable assets of our company.

We believe that an engaged workforce is key to maintaining our ability to innovate. We are committed to providing a safe work environment for our employees in compliance with applicable regulations.

We do not have any collective bargaining agreements with our employees.