TOFUTTI BRANDS INC

Current report

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.

Current report

*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.

Current report

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.

Current report

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.

Current report

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.

Current report

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.

Current report

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

Current report

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.

Current report

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.

Current report

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.

Current report

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.

Current report

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.

Current report

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.

Current report

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.

Previous report

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.

Previous report

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. The adoption of ASU 2016-13 did not have a material impact on our unaudited condensed consolidated financial statements.

Previous report

Our gross profit decreased significantly to $470,000 for the thirteen weeks ended March 30, 2024 from $606,000 for the thirteen weeks ended April 1, 2023, due principally to the reduction in sales. Our gross profit percentage was 21% for the thirteen weeks ending March 30, 2024 compared to 24% for the thirteen weeks ending April 1, 2023. Our gross profit percentage decreased partly due to the fact that our frozen dessert product sales accounted for a higher percentage of total sales. Our gross profit percentage is significantly lower on frozen dessert products versus our cheese products. Finally, continued cost increases in certain key ingredients and packaging negatively affected our gross profit and gross profit percentage.

Previous report

General and administrative expenses increased by $80,000, or 26%, to $382,000 for the thirteen weeks ended March 30, 2024 from $302,000 for the thirteen weeks ended April 1, 2023, primarily due to an increase in professional fees and outside services expense of $55,000, an increase in insurance expenses of $10,000, and equipment repairs of $5,000. We anticipate our general and administrative expense will continue at a higher level compared to the 2023 period due to higher professional fees and outside services.