The following is management's discussion and analysis of certain significant factors which have affected our financial position and operating results during the periods included in the accompanying audited financial statements.

Critical Accounting Policies

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

Revenue Recognition. We primarily sell vegan and dairy-free soy-based cheeses, frozen desserts and other food products. 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.





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Accounts Receivable. The majority of our accounts receivables are due from distributors (domestic and international) and retailers. Credit is extended based on evaluation of a customers' financial condition and, generally, collateral is not required. Accounts receivable are most often due within 30 to 90 days and are stated at amounts due from customers net of an allowance for doubtful accounts and reserve for sales promotions. Accounts outstanding longer than the contractual payment terms are considered past due. We determine whether an allowance is necessary by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, the customer's current ability to pay its obligation, and the condition of the general economy and the industry as a whole. We write-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the bad debt expense account. We do not accrue interest on accounts receivable past due.

Inventory. Inventory is stated at lower of cost or net realizable value determined by first in first out (FIFO) method. Inventories in excess of future demand are written down and charged to the provision for inventories. At the point of which loss is recognized, a new, lower cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in the newly established cost basis.

Fixed Assets. During fiscal 2018 and 2019, we spent $150,000 on equipment to be used at our new co-packer's frozen dessert facility. Our co-packer began using this equipment in connection with the production of frozen stick novelty items in the third quarter of 2019 and continues to do so. Depreciation is provided by charges to income using the straight-line method over the estimated useful life of ten years. There were no fixed asset additions in fiscal 2020.

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

Our company considers the applicability and impact of all Accounting Standard Updates ("ASUs"). ASUs not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on our balance sheets or statements of operations.





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In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments. The amendments in this Update require a new topic to be added (Topic 326) to the Accounting Standards Codification ("ASC") and removes the thresholds that entities apply to measure credit losses on financial instruments measured at amortized cost, such as loans, trade receivables, reinsurance recoverables, and off-balance-sheet credit exposures, and held-to-maturity securities. Under current U.S. GAAP, entities generally recognize credit losses when it is probable that the loss has been incurred. The guidance under ASU 2016-13 will remove all current recognition thresholds and will require entities under the new current expected credit loss ("CECL") model to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that an entity expects to collect over the instrument's contractual life. The new CECL model is based upon expected losses rather than incurred losses. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We are currently evaluating the effect that this new guidance will have on our financial statements and related disclosures.

In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40)-Accounting for Convertible Instruments and Contracts in an Equity's Own Equity. For convertible instruments, the Board decided to reduce the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. The Board concluded that eliminating certain accounting models simplifies the accounting for convertible instruments, reduces complexity for preparers and practitioners, and improves the decision usefulness and relevance to financial statement users. This ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.

Key Factors Affecting Our Business

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

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

While our operations have been profitable in the last few years, we incurred losses in prior years. Our cash increased to $1,459,000 while our working capital increased to $4,669,000 as of January 2, 2021. The lack of sufficient working capital in the future could negatively impact our ability to introduce and adequately promote new products. To the extent that we incur operating losses in the future or are unable to generate free cash flows from our business, we may not have sufficient working capital to fund our operations and will be required to obtain additional financing. Such financing may not be available, or, if available, may not be on terms satisfactory to us. If we are unable to maintain revenues, we may not be able sustain profitable operations in the future or generate positive cash flows from our operations.

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

A significant portion of our sales are to several key distributors, which are large distribution companies with numerous divisions and subsidiaries who act independently. Such distributors as a group accounted for 54% and 44% of our net sales for the fiscal years ended January 2, 2021 and December 28, 2019, respectively. Although we believe that the business associated with any of our primary distributors can be readily transferred to other distributors or directly to supermarket warehouses if necessary, no assurance can be given that a change in distributors would not be disruptive to our business, which could have a material adverse effect on our business and results of operations.





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

We depend on a limited number of suppliers for ingredients, packaging materials and the production of our products. We do not produce any of our own products. For the years ended January 2, 2021and December 28, 2019, we purchased approximately 40% and 52%, respectively, of our finished goods from Franklin Foods, including our BETTER THAN CREAM CHEESE, WHIPPED BETTER THAN CREAM CHEESE, BETTER THAN SOUR CREAM, and BETTER THAN RICOTTA products, and purchased approximately 16% and 19%, respectively, of our finished goods from Luke's Ice Cream, our frozen dessert novelty co-packer. Any disruption in supply could have a material adverse effect on our company.

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

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

We rely on a limited number of key executives to manage our business.

Upon the death of Mr. Mintz, our continued success is significantly dependent on the services of Steven Kass (age 69), who is presently serving as our interim Chief Executive Officer and as our Chief Financial Officer. The loss of his services would have a material adverse effect on our business and results of operations.





Competition.

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





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





Recent Developments

On February 24, 2021 David Mintz, our founder, Chief Executive Officer and Chairman of the Board of Directors, passed away. Steven Kass, Chief Financial Officer, was appointed interim CEO by our Board of Directors.

An outbreak of infectious respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and has now spread globally. This outbreak has resulted in travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations, supply chain disruptions, and lower consumer demand, layoffs, defaults and other significant economic impacts, as well as general concern and uncertainty. The impact of this outbreak has adversely affected the economies of many nations and the entire global economy and may impact our company in ways that cannot necessarily be foreseen. Other infectious illness outbreaks that may arise in the future could have similar impacts. Public health crises caused by the outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally.

The current severity of the pandemic and the uncertainty regarding the length of its effects could have negative consequences for our company. To date, the effects of the pandemic have not materially affected our company's operations. All of our co-packing facilities are currently operating normally and the pandemic has not constrained any of our production requirements. We continue to be able to schedule trucks for delivery and a large majority of our customers are still operating and ordering our products as before.

Most of our administrative functions are being performed remotely. A small crew maintains the office for those functions that cannot be handled remotely. Our ability to collect money, pay bills, handle customer and consumer communications, schedule production, and order ingredients necessary for our production has not been impacted. To date, the pandemic has had minimal impact on our sales. The majority of our sales relate to retail products sold in supermarkets. Supermarket sales in general have seen a substantial surge in business due to the pandemic, as consumers stock up on all products that they would normally purchase. The only negative effect to our business to date has been with respect to our food service sales to retail outlets, such as restaurants and small food shops, which account for a small part of our total business and with respect to our inability to regain our level of export sales to foreign jurisdictions. Our marketing efforts have also been constrained due to social distancing restrictions and other current government rules and regulations that preclude face to face sales meeting, attendance at trade shows and the initiation of new promotions.

To date we have not experienced a significant change in the timeliness of payments of our invoices and our cash position remains stable with approximately $1,459,000 of cash as of January 2, 2021.

Depending on the length and severity of the pandemic, Covid-19 may ultimately have a significant impact on our operations and ability to maintain our current level of operations without a further infusion of capital, which may not be available to us.





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Fiscal Year Ended January 2, 2021 Compared with Fiscal Year Ended December 28, 2019

We operate on a fiscal year ending on the Saturday closest to December 31. Fiscal years for the financial statements included in this report are the fifty-three week period ended January 2, 2021 (fiscal 2020) and the fifty-two week period ended December 28, 2019 (fiscal 2019).

Net sales for the fiscal year ended January 2, 2021 were $13,815,000, an increase of $685,000 or 5%, from net sales of $13,130,000 for the fiscal year ended December 28, 2019. Sales of our frozen dessert and frozen food product lines increased to $2,146,000 in fiscal 2020 from $1,889,000 in fiscal 2019. Sales of vegan cheese products increased to $11,669,000 in fiscal 2020 from $11,241,000 in fiscal 2019 due to an increase in sales of our food service sized BETTER THAN CREAM CHEESE and BETTER THAN SOUR CREAM products. Domestic sales of our cheese products increased while our export cheese business was negatively impacted by political uncertainty in the UK and its impact on the UK's currency. It was also negatively impacted by the continued effects of the bankruptcy of our UK master distributer in December 2019. Since our master distributor in the UK managed our sales for the rest of Europe, our sales there have been negatively impacted by the issues in the UK and our inability to obtain a successor distributor.

Our gross profit for the year ended January 2, 2021 increased by $216,000 to $4,253,000 from $4,037,000. Our gross profit percentage for both the years ended January 2, 2021 and December 28, 2019 was 31%. Sales promotion and allowance expense was $1,582,000 for the year ended January 2, 2021 compared to $1,378,000 for the year ended December 28, 2019. We intend to increase gross profitability in future periods through selective price increases and selective ingredient replacements to lower-cost alternatives.

Freight out expense increased by $94,000 to $1,037,000, or 8%, for the year ended January 2, 2021 compared with $943,000 for the year ended December 28, 2019. Freight out expense increased due to the increase in net sales and significant increases in freight rates across all methods of shipping due to increases in fuel costs and the reduction in vehicle availability due to the pandemic. Freight out cost as a percentage of sales in fiscal 2020 was 8% compared to approximately 7% in fiscal 2019. We anticipate that freight out expense in fiscal 2021 will continue at this higher level.

Selling and warehousing expenses decreased by $445,000, or 27%, to $1,187,000 for fiscal 2020 from $1,632,000 in fiscal 2019. This decrease was primarily attributable to decreases in commission expense of $82,000, travel, entertainment and auto expense of $48,000, messenger expense of $13,000, meetings and conventions expense of $33,000, payroll expense of $76,000 and bad debt expense of $210,000. These decreases were partially offset by an increase in outside warehouse rental expense of $10,000. The decrease in bad debt expense was primarily a result of writing off the receivables of our UK master distributor at the end of fiscal 2019. We anticipate that selling expenses as a percentage of sales in fiscal 2021 will decline from those in fiscal 2020 due to continued Covid-related reductions in travel and other sales activities.

Marketing expenses decreased in fiscal 2020 by $89,000, or 26%, to $258,000 from $347,000 in fiscal 2019 due to a decrease in promotion expense of $95,000 and artwork and plate expense of $16,000, which was partially offset by an increase in advertising expense of $27,000. We expect that marketing expenses in fiscal 2021 will remain at the same level as in fiscal 2020.

Product development expenses decreased by $84,000, or 26%, to $240,000 in fiscal 2020 from $324,000 in fiscal 2019. The decrease was primarily attributable to decreases in payroll expense of $50,000, lab costs and supplies expense of $38,000, and uniform rental expense of $14,000, which were partially offset by an increase in equipment repairs expense of $12,000. Because we do not anticipate our research and development department resuming operations at the pre-Covid level in 2021, we expect that product development costs will remain constant or decline slightly in fiscal 2021.





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General and administrative expenses increased by $66,000, or 4%, to $1,692,000 for fiscal 2020 from $1,626,000 for fiscal 2019. The increase was primarily due to increases in payroll expense of $31,000, professional fees and outside services expenses of $19,000, equipment rental expense of $6,000, office supplies expense of $9,000, and general insurance expense of $57,000, which were partially offset by decreases in IT expense of $20,000 and travel, entertainment and auto expense of $33,000. General insurance expense increased due to increases in our general package insurance policy and our directors and officers' liability policy. We expect that general and administrative expenses will decrease in fiscal 2021.

Overall, total operating expenses in fiscal 2020 decreased by $552,000, or 14%, to $3,377,000 compared to total operating expenses of $3,929,000 in fiscal 2019. We anticipate our operating expenses to continue at lower than historical levels due to ongoing Covid restrictions.

Income before income taxes increased to $851,000 in fiscal 2020 as compared with income before income taxes of $83,000 in fiscal 2019.

Provision for income taxes for the 2020 fiscal period was $255,000 compared to income tax expense of $5,000 for the 2019 fiscal period.

Liquidity and Capital Resources

At January 2, 2021, we had approximately $1,459,000 in cash, and our working capital was $4,639,000.

In order to provide our company with additional working capital, on January 6, 2016, David Mintz, our Chairman and Chief Executive Officer, provided our company with a convertible loan of $500,000 which is secured by substantially all of our assets. The loan has been extended until December 31, 2022. Interest of 5% is payable on a quarterly basis without compounding. The loan may be prepaid in whole or in part at any time without premium or penalty. During the original term of the loan it was convertible into shares of our common stock at a conversion price of $4.01 per share, the closing price of our common stock on the NYSE MKT on the date the promissory note was entered into. The extended loan is convertible into our common stock at a conversion price of $1.77 per share at the option of the holder, the closing price of our common stock on the OTCQB on the date the promissory note was extended. See "Certain Relationships and Related Transactions, and Director Independence."




Cash Flows                                                           Fiscal Year ended
                                                          January 2, 2021      December 28, 2019
                                                                      (In thousands)
Net cash provided by (used in) operating activities      $          780      $            (15 )
Net cash used in investing activities                                -                    (29 )
Net cash provided financing activities                              165                    -
Net increase (decrease) in cash                                     945                   (44 )
Cash at beginning of year                                           514                   558
Cash at end of year                                      $        1,459      $            514




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Cash provided by operating activities for the fiscal year ended January 2, 2021 was $780,000 compared to $15,000 used in operating activities for the fiscal year ended December 28, 2019. Cash provided by operating activities was primarily from net income from operations.

Cash used in investing activities was $0 for the fiscal year ended January 2, 2021 compared to cash used in investing activities of $29,000 for the fiscal year ended December 28, 2019. Cash used in investing activities in fiscal 2019 was due to fixed asset purchases.

Cash provided by financing activities for the fiscal year ended January 2, 2021 was $165,000 and $0 for the fiscal year ended December 28, 2019. Cash provided by financing activities in fiscal 2020 was from a Paycheck Protection Program ("PPP") loan provided from borrowings from the SBA.

As a result of the foregoing, our cash increased to $1,459,000 at January 2, 2021 from $514,000 at December 28, 2019.

We believe our existing cash on hand at January 2, 2021, existing working capital, and our expected cash flows from operations will be sufficient to support our operating and capital requirements for at least the next twelve months dating from the issuance of the financial statements.





Contractual Obligations

We had no material contractual obligations at January 2, 2021.





Inflation and Seasonality

We do not believe that our operating results have been materially affected by inflation during the preceding two years. There can be no assurance, however, that our operating results will not be affected by inflation in the future. Our business is subject to minimal seasonal variations with slightly increased sales historically in the second and third quarters of the fiscal year. We expect to continue to experience slightly higher sales in the second and third quarters, and slightly lower sales in the fourth and first quarters, as a result of reduced sales of dairy free frozen desserts during those periods.





Market Risk

We will invest our excess cash, should there be any, in highly rated money market funds which are subject to changes in short-term interest rates. We do not believe that our foreign currency exposure is significant as our export sales are transacted in U.S. dollars. We did not enter into any foreign exchange contracts in the year ended January 2, 2021.

Off-Balance Sheet Arrangements





None.

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






Not applicable.



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