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 November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses ("ASU 2024-03"), and in January 2025, the FASB issued ASU 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date ("ASU 2025-01"). ASU 2024-03 requires additional disclosure of the nature of expenses included in the income statement as well as disclosures about specific types of expenses included in the expense captions presented in the income statement. ASU 2024-03, as clarified by ASU 2025-01, is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of these standards will have on it financial statements.

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.

In July 2025, the FASB issued ASU No. 2025-05, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets", which provides all entities, including public business entities, with a practical expedient, which allows the entity to assume that current conditions as of the balance sheet date do not change for the remaining life of the asset when developing reasonable and supportable forecasts as part of estimating expected credit losses. The amendments in ASU No. 2025-05 should be applied prospectively and are effective for all entities for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted in both interim and annual reporting periods in which financial statements have not yet been issued or made available for issuance. The Company is currently assessing the impact of adopting this standard on the Company's unaudited Condensed Consolidated Financial Statements.

Results of Operations

Thirteen Weeks Ended September 27, 2025 Compared with Thirteen Weeks Ended September 28, 2024

Net sales for the thirteen weeks ended September 27, 2025 decreased by $79,000, or 4%, from net sales of $1,986,000 for the thirteen weeks ended September 28, 2024 to $1,907,000 for the thirteen weeks ended September 27, 2025. Sales of our vegan cheese products decreased slightly to $1,632,000 in the thirteen weeks ended September 27, 2025 from $1,648,000 in the thirteen weeks ended September 28, 2024. Sales of our frozen dessert products decreased to $275,000 in the thirteen weeks ended September 27, 2025 from $338,000 for the thirteen weeks ended September 28, 2024.

Our gross profit increased to $519,000 for the thirteen weeks ended September 27, 2025 from $485,000 for the thirteen weeks ended September 28, 2024. Our gross profit percentage increased to 27% for the thirteen weeks ending September 27, 2025 compared to 24% for the thirteen weeks ending September 28, 2024. The increase was due to a price increase instituted at the beginning of fiscal year 2025.

Freight out expense, a significant part of our cost of sales, decreased by $20,000, to $136,000, for the thirteen weeks ended September 27, 2025 compared with $156,000 for the thirteen weeks September 28, 2024. The decrease in Freight out expense was due to the reduction in sales. Freight out expense was 7% of sales for the thirteen weeks ended September 27, 2025 compared to 8% for the thirteen weeks ended September 28, 2024.

Selling expenses increased slightly by $10,000, or 5%, to $217,000 for the thirteen weeks ended September 27, 2025 from $207,000 for the thirteen weeks ended September 28, 2024. This increase was primarily due to increases in bad debt expense of $9,000 and outside warehouse rental expense of $4,000, which were partially offset by a decrease in commission expense of $5,000. We anticipate that our selling expense will continue at the same level for the balance of 2025.

Marketing expenses increased by $12,000, or 15%, to $95,000 for the thirteen weeks ended September 27, 2025 from $83,000 for the thirteen weeks ended September 28, 2024. The increase was primarily due to an increase in promotion expense of $12,000. We anticipate that our marketing promotion expenses will continue at the same level for the balance of 2025.

Research and development increased slightly by $3,000, or 11%, to $31,000 for the thirteen weeks ended September 27, 2025 from $28,000 for the thirteen weeks ended September 28, 2024 due primarily to a $5,000 increase in professional fees and outside services expense. We anticipate our product development costs for the balance of the year will continue at a slightly higher level as compared to the 2024 period due to higher professional fees and outside services expense.

General and administrative expenses decreased by $65,000, or 17%, to $309,000 for the thirteen weeks ended September 27, 2025 from $374,000 for the thirteen weeks ended September 28, 2024, primarily due to decreases in stock option expense of $13,000, real and personal property tax expense of $3,000, building expense of $20,000, waste removal expense of $5,000, office supply expense of $12,000, equipment rental expense of $6,000, and public relations expense of $13,000. These decreases were partially offset by an increase in professional fees and outside services expense of $10,000. We anticipate our general and administrative expense will continue at a lower level compared to 2024 for the remainder of this fiscal year.

Income tax expense was $4 for the thirteen weeks ended September 27, 2025 and $0 for the thirteen weeks ended September 28, 2024.

Thirty-nine Weeks Ended September 27, 2025, Compared with Thirty-nine Weeks Ended September 28, 2024

Net sales for the thirty-nine weeks ended September 27, 2025 decreased by $954,000, or 15%, to $5,527,000 from net sales of $6,481,000 for the thirty-nine weeks ended September 28, 2024. Sales of our vegan cheese products decreased to $4,713,000 in the thirty-nine weeks ended September 27, 2025 from $5,383,000 in the thirty-nine weeks ended September 28, 2024, due to increased competition in the vegan cheese category. Sales of our frozen dessert products decreased to $814,000 in the thirty-nine weeks ended September 27, 2025 from $1,098,000 for the thirty-nine weeks ended September 28, 2024. The decrease was due to a reduction in the sales of pints in the current fiscal year.

Our gross profit increased to $1,726,000 for the thirty-nine weeks ended September 27, 2025 by $105,000 from $1,621,000 for the thirty-nine weeks ended September 28, 2024, due principally to significant price increases we implemented at the end of 2024. Our gross profit percentage was 31% for the thirty-nine weeks ending September 27, 2025 compared to 25% for the thirty-nine weeks ending September 28, 2024. Ingredient and packaging cost increases that took place in the first thirty-nine weeks of 2024 and negatively impacted the gross profit in the 2024 period were not present in the first three quarters of 2025. Our gross profit and gross profit percentage were also positively impacted by a decrease of $91,000 in sales and promotional allowance expense to $531,000 for the thirty-nine weeks ended September 27, 2025 from $622,000 for the thirty-nine weeks ended September 28, 2024.

Freight out expense decreased by $96,000, or 19%, to $417,000, for the thirty-nine weeks ended September 27, 2025 compared with $513,000 for the thirty-nine weeks September 28, 2024. Freight out expense was 8% of sales for the thirty-nine weeks ended September 27, 2025 and the thirty-nine weeks ended September 28, 2024. The significant reduction in freight expense was due to the significant decrease in sales in the 2025 period.

Selling expenses decreased by $49,000, or 7%, to $622,000 for the thirty-nine weeks ended September 27, 2025 from $671,000 for the thirty-nine weeks ended September 28, 2024, due to decreases in meetings and convention expense of $37,000, and commission expense of $12,000.

Marketing expenses increased slightly by $8,000, or 3%, to $305,000 for the thirty-nine weeks ended September 27, 2025 from $297,000 for the thirty-nine weeks ended September 28, 2024. Increases in artwork and plate expense of $19,000, and promotion expenses of $21,000, were partially offset by a decrease in advertising expense of $29,000.

Research and development costs, increased by $21,000, or 23%, to $113,000 for the thirty-nine weeks ended September 27, 2025 from $92,000 for the thirty-nine weeks ended September 28, 2024 due primarily to an increase in professional fees and outside services expense of $23,000.

General and administrative expenses decreased by $118,000, or 11%, to $979,000 for the thirty-nine weeks ended September 27, 2025 from $1,097,000 for the thirty-nine weeks ended September 28, 2024, primarily due to decreases in stock option expense of $40,000, payroll expense of $6,000, building rental expense of $32,000, real and personal property tax expense of $19,000, waste removal of $13,000, public relations expense of $12,000, and office supplies expense of $20,000. These decreases were partially offset by increases in professional fees and outside services expense of $20,000, and general insurance expenses of $12,000.

Income tax expense was $12 for the thirty-nine weeks ended September 27, 2025 and $5 for the thirty-nine weeks ended September 28, 2024.

Liquidity and Capital Resources

As of September 27, 2025, we had approximately $630,000 in cash and our working capital was approximately $2,598,000, compared with approximately $462,000 in cash and working capital of $2,893,000 at December 28, 2024.

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

		Thirty-nine Weeks ended				Thirty-nine Weeks ended
		September 27, 2025				September 28, 2024
Cash provided by (used in) operating activities, net		$	174			$	(655	)
Cash used in financing activities, net			(6	)			(6	)
Net increase (decrease) in cash		$	168			$	(661	)

Net cash provided by operating activities for the thirty-nine weeks ended September 27, 2025 was $174,000 compared to $655 used in operating activities for the thirty-nine weeks ended September 28, 2024. Net cash provided by operating activities for the thirty-nine weeks ended September 27, 2025 was primarily a result of a decrease in accounts receivable of $202,000 and an increase of current liabilities of $595,000, which were partially offset by an increase in inventories of $352,000 and the net loss of $306,000.

We believe our existing cash on hand at September 27, 2025, 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 have faced inflationary price increases in the costs of some of our imported commodities and in freight costs. While we have been able to partially offset inflation and other changes in the costs of commodities by increasing prices, there can be no assurance that we will be able to continue to do so in the future. While there are no current tariffs that have affected any of the Company's imports or exports, uncertainty regarding their implementation by the U.S. and certain foreign countries has already influenced the purchasing decisions of some of our domestic and international customers. 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 September 27, 2025.

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.