What changed in this filing

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Item 1. Financial Statements

2021-08-11 compared with 2021-05-17 · 244 added, 600 removed, 341 unchanged (71% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

March 31, 2021

June 30, 2021

December 31, 2020

8 unchanged sentences

Intangible assets, net of amortization

Liabilities And Stockholders’

Liabilities And Stockholders’ Equity

Current liabilities:

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Lease liability

Loan payable –

Paycheck Protection Program

Convertible note - related party, net of discount

Loan payable – Paycheck Protection Program

Convertible note, net of discount

4 unchanged sentences

Lease liability

Loan payable –

Paycheck Protection Program

Loan payable – Paycheck Protection Program

Convertible note - related party, net of discount

2 unchanged sentences

Commitments and contingencies (Note 6 and 9)

Stockholders’

Stockholders’ equity:

Preferred stock, $ 0.000001 par value, 5,000,000 shares authorized, none issued or outstanding

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295,000,000 shares authorized;

149,133,372 and 149,133,372 shares issued and outstanding at

March 31, 2021 and December 31, 2020, respectively

167,601,435 and 149,133,372 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

Additional paid in capital

2 unchanged sentences

( 50,899,628 )

Total stockholders’

Total Liabilities and Stockholders’

Total stockholders’ equity

Total Liabilities and Stockholders’ Equity

the accompanying notes to the condensed consolidated financial statements

1 unchanged sentence

Consolidated Statements of Operations

the three months ended March 31, 2021 and 2020

For the three months

ended June 30,

For the six months

ended June 30,

Cost of revenue

5 unchanged sentences

Operating loss

( 1,122,234 )

( 1,151,569 )

( 2,100,008 )

Other (income)/expenses

Gain from derivative liability

Gain on extinguishment of debt

Interest expense

Other (income)/expenses/loss from derivative liability

Other (income) from debt extinguishment - PPP

Other (income)/expenses/loss from debt extinguishment

Total other (income) expense

$ ( 297,240 )

$ ( 1,179,520 )

$ ( 888,759 )

$ ( 1,922,586 )

Per share information - basic and fully diluted:

4 unchanged sentences

Consolidated Statements of Cash Flows

the three months ended March 31, 2021 and 2020

the six months ended June 30, 2021 and 2020

Net Cash (used for) operating activities

$ ( 651,255 )

$ ( 1,930,045 )

Investing Activities

5 unchanged sentences

Proceeds from note payable

Repayment of convertible notes

Payments of operating leases

3 unchanged sentences

Cash and restricted cash, end of year

Non-cash financing and investing activities

Total property and equipment included in accounts payable

Accrued interest paid in stock

Net carrying value of convertible notes and accrued interest settled through issuance of stock (debt extinguishment)

Extinguishment of derivative liability

Executive deferred compensation settled through issuance of warrants

Net carrying value of convertible notes and accrued interest settled through issurance of stock (debt extinguishment)

Accrued interest settled through issuance of stock

Debt discount warrant and derivative liability

Offering and debt issuance costs included in accounts payable

Offering proceeds receivable

the accompanying notes to the condensed consolidated financial statements

2 unchanged sentences

Summary of Significant Accounting Policies

Food Group Inc., (“we,”

“us,”

“our,”

and the “Company”) was incorporated on February

Food Group Inc., (“we,” “us,” “our,” and the “Company”) was incorporated on February

25, 2010 in the State of Delaware.

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accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the

United States of America (“GAAP”).

of Consolidation

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cash on deposit that exceeds $ 250,000 in the financial institutions is financially sound and the risk of loss is minimal.

March 31, 2021 and December 31, 2020, the Company had $142,382 and $142,382, respectively, in restricted cash related to a co-packing

June 30, 2021 and December 31, 2020, the Company had $ 142,382 and $ 142,382 , respectively, in restricted cash related to a co-packing

Value Measurement

Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements

and Disclosures (“ASC 820”), provides a comprehensive framework for measuring fair value and expands disclosures which are

Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements

and Disclosures (“ASC 820”), provides a comprehensive framework for measuring fair value and expands disclosures which are

required about fair value measurements.

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used to determine the fair value.

financial instruments consist of cash, accounts receivable, accounts payable, advanced payments, restricted cash, and the PPP loan.

carrying value of our financial instruments approximates their fair value.

The PPP loan approximates fair value as forgiveness is expected

in the near term.

Food Group Inc.

to Condensed Consolidated Financial Statements

Our financial instruments consist of cash, accounts

receivable, accounts payable, advanced payments, restricted cash, PPP loan, convertible notes, and derivative liabilities.

carrying value of our financial instruments approximates their fair value, except for the derivative liability in which carrying value

is fair value.

The PPP loan and convertible notes approximate fair value as forgiveness and repayment is expected in the near term.

receivable are typically unsecured.

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is evaluated prior to a sale.

As of March 31, 2021 and December 31, 2020, the Company’s allowance for doubtful accounts was $133,424

As of June 30, 2021 and December 31, 2020, the Company’s allowance for doubtful accounts was $ 128,230

and $ 133,424 , respectively.

2 unchanged sentences

The Company monitors the remaining useful life of its inventory and establishes a reserve of obsolescence where appropriate.

31, 2021 and December 31, 2020, the Company’s inventory reserve was $55,701 and $59,093, respectively.

30, 2021 and December 31, 2020, the Company’s inventory reserve was $ 55,701 and $ 59,093 , respectively.

assets are comprised of patents, net of amortization and trademarks.

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which is twenty years from the date of filing the patent application.

In accordance with ASC Topic 350 Intangibles –

Other (“ASC 350”), the costs of internally developing other intangible assets, such as patents, are expensed as incurred.

In accordance with ASC Topic 350 Intangibles – Goodwill and

Other (“ASC 350”), the costs of internally developing other intangible assets, such as patents, are expensed as incurred.

However, as allowed by ASC 350, costs associated with the acquisition of patents from third parties, legal fees and similar costs relating

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We have not recorded any impairment charges during the periods presented.

Plant, and Equipment

Property,Plant,

and Equipment

plant, and equipment is stated at cost less accumulated depreciation and accumulated impairment loss, if any.

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The estimated useful lives used for financial statement purposes are:

and fixtures:

Furniture and fixtures:

Manufacturing

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Identify the contract with a customer

contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s

rights, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration

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We incurred $ 70,304 and $ 93,730 ,

in research and development expenses for the three months ending March 31, 2021 and 2020, respectively.

Food Group Inc.

to Condensed Consolidated Financial Statements

in research and development expenses for the three months ending June 30, 2021 and 2020, respectively.

For the six months ending June

30, 2021 and 2020, research and development costs totaled $ 138,446 and $ 179,154 , respectively.

and Storage Costs

and handling costs are included in general and administrative expenses.

For the three months ending March 31, 2021 and 2020, shipping

and handling costs totaled $143,735 and $133,108, respectively.

For the three months ending June 30, 2021 and 2020, shipping

and storage costs totaled $ 237,403 and $ 96,425 , respectively.

For the six months ending June 30, 2021 and 2020, shipping and storage

costs totaled $ 381,137 and $ 229,533 , respectively.

determine if an arrangement is a lease upon inception.

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As a lessee, the Company leases office space.

provision for income taxes is determined in accordance with the provisions of ASC Topic 740, Accounting for Income Taxes (“ASC

Food Group Inc.

to Condensed Consolidated Financial Statements

provision for income taxes is determined in accordance with the provisions of ASC Topic 740, Accounting for Income Taxes (“ASC

Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences

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in income in the period that includes the enactment date.

740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements,

uncertain tax positions taken or expected to be taken on a tax return.

Under ASC 740, tax positions must initially be recognized in the

financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities.

positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of

being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of evidence, it is more than likely

than not that some portion or all of the deferred tax assets will not be recognized.

ASC 740 prescribes a comprehensive model for how companies should recognize,

measure, present, and disclose in their financial statements, uncertain tax positions taken or expected to be taken on a tax return.

Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will

be sustained upon examination by the tax authorities.

Such tax positions must initially and subsequently be measured as the largest amount

of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full

knowledge of the position and relevant facts.

ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based

on the weight of evidence, it is more than likely than not that some portion or all of the deferred tax assets will not be recognized.

Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components

of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.”

The result of this accounting treatment is that the fair value of any derivative is marked-to-market each balance sheet date and recorded

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The objective is to provide guidance for determining whether an equity-linked financial instrument is indexed

to an entity’s own stock.

This determination is needed for a scope exception which would enable a derivative instrument to be accounted

for under the accrual method.

The classification of a non-derivative instrument that falls within the scope of ASC 815-40-05 “Accounting

for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”

also hinges on whether

the instrument is indexed to an entity’s own stock.

A non-derivative instrument that is not indexed to an entity’s own stock

The classification of a non-derivative instrument that falls within the scope of ASC 815-40-05 “Accounting

for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” also hinges on whether

the instrument is indexed to an entity’s own stock.

A non-derivative instrument that is not indexed to an entity’s own stock

cannot be classified as equity and must be accounted for as a liability.

There is a two-step approach in determining whether an instrument

or embedded feature is indexed to an entity’s own stock.

First, the instrument’s contingent exercise provisions, if any,

must be evaluated, followed by an evaluation of the instrument’s settlement provisions.

or embedded feature is indexed to an entity’s own stock.

First, the instrument’s contingent exercise provisions, if any,

must be evaluated, followed by an evaluation of the instrument’s settlement provisions.

The Company utilized the fair value standard

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or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale.

Food Group Inc.

to Condensed Consolidated Financial Statements

Extinguishment

Company evaluates its convertible instruments in accordance with ASC 470-50, “Debt Modifications and Extinguishments.”

Company evaluates its convertible instruments in accordance with ASC 470-50, “Debt Modifications and Extinguishments.” For

all extinguishments of debt, ASC 470-50 requires the difference between the reacquisition price (including any premium) and the net carrying

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extinguished.

Accordingly, the Company recorded a net gain of $0 and $379,200, respectively, non-cash gain on extinguishment of debt

in its statements of operations for the three months ended March 31, 2021 and 2020.

calculate net loss per share in accordance with ASC Topic 260, Earnings per Share .

Basic net loss per share is computed by dividing

net loss by the weighted average number of shares of common stock outstanding for the period, and diluted earnings per share is computed

by including common stock equivalents outstanding for the period in the denominator.

At March 31, 2021 and 2020 any equivalents would

have been anti-dilutive as we had losses for the years then ended.

Accordingly, the Company recorded a net loss of $ 193,562 and net gain of $ 379,200 , respectively, non-cash gain/loss on

extinguishment of debt in its statements of operations for the six months ended June 30, 2021 and 2020, and a net loss of $ 193,562 and

$ 0 for the three months ended June 30, 2021 and 2020 respectively.

calculate net loss per share in accordance with ASC Topic 260.

Basic net loss per share is computed by dividing net loss by the weighted

average number of shares of common stock outstanding for the period, and diluted earnings per share is computed by including common stock

equivalents outstanding for the period in the denominator.

At June 30, 2021 and 2020 any equivalents would have been anti-dilutive as

we had losses for the years then ended.

Food Group Inc.

to Condensed Consolidated Financial Statements

Based Compensation

calculate stock compensation in accordance with ASC Topic 718, Compensation-Stock Based Compensation (“ASC 718”).

ASC 718 requires that the cost resulting from all share-based payment transactions be recognized in the financial statements and establishes

fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based

measurement method in accounting for share-based payment transactions with employees except for equity instruments held by employee stock

ownership plans.

consists of the following at March 31, 2021 and December 31, 2020:

calculate stock compensation in accordance with ASC Topic 718, Compensation-Stock Based Compensation (“ASC 718”).

requires that the cost resulting from all share-based payment transactions be recognized in the financial statements and establishes

fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value

based measurement method in accounting for share-based payment transactions with employees except for equity instruments held by employee

stock ownership plans.

consists of the following at June 30, 2021 and December 31, 2020:

Schedule of Inventory

Raw materials

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Inventory, net

Company has recorded a reserve for slow moving and potentially obsolete inventory.

The reserve at March 31, 2021 and December 31, 2020

was $55,701 and $59,093, respectively.

Food Group Inc.

to Condensed Consolidated Financial Statements

Property Plant and Equipment

classes of property and equipment at March 31, 2021 and December 31, 2020:

classes of property and equipment at June 30, 2021 and December 31, 2020:

of Major Classes of Property and Equipment

Furniture and fixtures

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accumulated depreciation

( 2,592,120 )

( 2,331,034 )

Equipment not yet placed in service

Property and equipment, net of depreciation

recorded depreciation expense related to these assets of $130,828 and $134,246 for the three-months ended March 31, 2021 and 2020, respectively.

Depreciation expense in Cost of Goods Sold was $6,109 and $8,447 for three-months ended March 31, 2021 and 2020, respectively.

recorded depreciation expense related to these assets of $ 130,258 and $ 153,500 for the three-months ended June 30, 2021 and 2020, respectively

and $ 261,086 and $ 303,648 for the six months ended June 30, 2021 and 2020, respectively.

Depreciation expense in Cost of Goods Sold was

$ 11,564 and $ 1,155 for three months ended June 30, 2021 and 2020, respectively, and $ 17,673 and $ 9,602 for the six months ended June

30, 2021 and 2020, respectively.

Intangible Assets

of March 31, 2021, intangible assets consist of patent costs of $768,138, trademarks of $121,173 and accumulated amortization of $473,938.

of June 30, 2021, intangible assets consist of patent costs of $ 768,138 , trademarks of $ 121,661 and accumulated amortization of $ 490,043 .

of December 31, 2020, intangible assets consist of patent costs of $ 768,138 , trademarks of $ 119,911 and accumulated amortization of $ 457,833 .

Food Group Inc.

to Condensed Consolidated Financial Statements

amounts carried on the balance sheet represent cost to acquire, legal fees and similar costs relating to the patents incurred by the

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The amount charged to amortization

was $16,105 and $15,902 for the three-months ended March 31, 2021 and 2020, respectively.

future amortization expense related to patents as of March 31, 2020, is as follows:

was $ 16,105 and $ 15,902 for the three months ended June 30, 2021 and 2020, respectively, and $ 32,210 and $ 31,805 for the six months ended

June 30, 2021 and 2020, respectively.

future amortization expense related to patents as of June 30, 2021, is as follows:

Schedule of Estimated Future Amortization Expense Related to Intangible Property

Total Amortization

Years ending December 31,

2021 (nine months remaining)

asset, net of amortization

Related Parties

disclosed below in Note 7, members of management and directors invested in the Company’s convertible notes;

and in Note 10, members

of management and directors have received shares of stock and options in exchange for services.

Food Group Inc.

to Condensed Consolidated Financial Statements

Paycheck Protection Program (PPP) loan

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for loan forgiveness of up to 100 % of the loan, upon meeting certain requirements.

The Company has recorded a note payable and will record

the forgiveness upon being legally released from the loan obligation by the SBA.

No forgiveness income has been recorded for the three

months ended March 31, 2021.

The Company will be required to repay any remaining balance, plus interest accrued at 1 percent, in monthly

payments commencing upon notification that the loan will not be forgiven or only partially forgiven.

The company has applied for and

anticipates the loan to be forgiven in 2021.

January 27, 2021, the Company was granted a second $568,131 loan under the PPP administered by a SBA approved partner.

On May 20, 2021 the loan for $ 568,131 was legally

released and forgiven by the SBA.

Forgiveness income of $ 568,131 has been recorded for the three and six months ended June 30, 2021.

January 27, 2021, the Company was granted a second $ 568,131 loan under the PPP administered by an SBA approved partner.

The loan, which

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payments commencing upon notification that the loan will not be forgiven or only partially forgiven.

repayment for the combined PPP loans as of March 31, 2021, are as follows:

repayment for the PPP loan as of June 30, 2021, are as follows:

Schedule of Repayment of Paycheck Protection Program (PPP) Loan

Total Repayment

Years ending December 31,

2021 (nine months remaining)

2021 (six months remaining)

Repayment of debt

Food Group Inc.

to Condensed Consolidated Financial Statements

Convertible Notes (Related and Unrelated Party)

of March 31, 2021 the principal balance for the convertible notes (CN Notes 1) which mature on March 20, 2022 was $1,071,000 and bears

interest at 15% and the convertible notes (CN Notes 2) which mature on November 30, 2021 was $168,000 and bears interest at 10%.

CN Notes 1 consist of the following components as of March 31, 2021 and December 31, 2020:

March 31, 2021

of June 30, 2021, the Company settled all outstanding convertible note which included the $ 1,071,000

Series CN Note 1 noteholders.

The debt settlement

consisted of debt converted to company stock of $ 231,000

related party) in principal and $ 192,663

related party) in interest into 1,159,243

shares of common stock, and debt in the amount

related party) was repaid.

convertible notes consist of the following components as of June 30, 2021 and December 31, 2020:

Schedule of Convertible Notes

June 30, 2021

December 31, 2020

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Debt discount (warrant value)

Debt discount (derivative value) (Note 8)

Debt discount (issuance costs paid)

Note conversion/settlements

( 1,181,167 )

Debt discount amortization

Food Group Inc.

to Condensed Consolidated Financial Statements

CN Notes 2 consist of the following components as of March 31, 2021 and December 31, 2020:

March 31, 2021

Total convertible notes

of June 30, 2021, the Company settled all outstanding convertible note holders which included the $ 168,000

Series CN Note 2 noteholders.

The debt settlement consisted of debt converted to company stock of $ 168,000

in principal and $ 41,747

in interest into 582,630

shares of common stock.

convertible notes consist of the following components as of June 30, 2021 and December 31, 2020:

Schedule of Convertible Notes

June 30, 2021

December 31, 2020

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Debt discount (issuance costs paid)

Note repayment

Note conversion/settlements

Debt discount amortization

total of the two tables above, net of discount, equals $1,182,378 which is presented on the balance sheet as Current Liabilities:

Convertible Note, Net of Discount and $200,625 Convertible Note, Related Party, Net of Discount.

The total of $1,167,042 shown in the

two tables above at December 31, 2020, are presented in the balance sheet as Current Liabilities:

$158,243 Convertible Note-Net of Discount

and Long-Term Liabilities:

$197,804 Convertible Note –

related party net of Discount, and $810,095 Convertible Note –

maturity of convertible notes at face value before effect of all discount, are as follow:

Total convertible notes

Years ending December 31,

total of $ 1,167,042 shown in the two tables above at December 31, 2020, are presented in the balance sheet as Current Liabilities:

Convertible Note-Net of Discount and Long-Term Liabilities:

Convertible Note – related party net of Discount of $ 197,804 , and Convertible

Note – net of Discount $ 810,995 .

Derivative Liabilities

discussed in Note 7, Convertible Notes, the Company has $168,000 of principal outstanding in CN Notes 2 that contain variable conversion

The conversion terms of the convertible notes are variable based on certain factors, such as the future price of the Company’s

discussed in Note 7, Convertible Notes, the Company had $ 168,000 of principal outstanding in CN Notes 2 that contained variable conversion

The conversion terms of the convertible notes are variable based on certain factors, such as the future price of the Company’s

common stock.

The number of shares of common stock to be issued is based on the future price of the Company’s common stock, therefore

The number of shares of common stock to be issued was based on the future price of the Company’s common stock, therefore

the number of shares of common stock issuable upon conversion of the promissory note is indeterminate.

The Company fair values the variable

The Company fair valued the variable

conversion provisions each reporting period.

The fair value gets reported as a derivative liability in the accompanying consolidated

balance sheets and the change in value is recorded as a gain or loss in the accompanying consolidated statements of operations.

The fair value was reported as a derivative liability in the accompanying consolidated balance

sheets and the change in value was recorded as a gain or loss in the accompanying consolidated statements of operations.

fair values of the Company’s derivative liabilities are estimated at the issuance date and are revalued at each subsequent reporting

As of June 30, 2021, the Convertible Noteholders discussed in Note 7 were settled.

Upon debt extinguishment the Company’s

derivative liability was revalued at May 26, 2021 with value of $ 25,170 ,

which resulted in a loss of $ 483

for the three months

ended June 30, 2021, and a gain of $ 16,305

for the six months

ended June 30, 2021.

Food Group Inc.

to Condensed Consolidated Financial Statements

fair value of the derivative liabilities for CN Notes 2 was calculated using the Black-Scholes model using the following assumptions.

Schedule of Fair Value of the Derivative Liability

Expected life

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of the derivative liability measured at fair value on a recurring basis with the use of significant unobservable inputs (level 3) from

December 31, 2020 to March 31, 2021:

December 31, 2020 to June 30, 2021:

Schedule of Derivative Liability Measured at Fair Value on a Recurring Basis

December 31, 2020

Net gain from change in value

For the period ended March 31, 2021

Food Group Inc.

to Condensed Consolidated Financial Statements

following table presents the Company’s fair value hierarchy for applicable assets and liabilities measured at fair value as of

December 31, 2020 and March 31, 2021:

Extinguishment change in derivative from debt settlement

June 30, 2021

following table presents the Company’s fair value hierarchy for applicable assets and liabilities measured at fair value as of

December 31, 2020 and June 30, 2021:

Schedule of Fair Value Hierarchy of Assets and Liabilities

Derivative Liability December 31, 2020

Derivative Liability March 31, 2021

Derivative Liability June 30, 2021

Commitments and Contingencies

lease office space under non-cancelable operating lease which expires on March

Our periodic lease cost was $19,918 and $20,062

for the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021, our right of use asset and related liability

was $133,202 and $143,954.

determining the present value of our operating lease right-of-use asset and liability, we used a 10% discount rate (which approximates

Our periodic lease cost and operating

cash flows was $ 19,752 and

the three months ended June 30, 2021 and 2020, respectively.

Our periodic lease cost and operating cash flow was $ 39,670

for the six months ended June 30, 2021 and 2020,

respectively.

As of June 30, 2021, our right of use asset and related liability was $ 118,068

and $ 127,771 .

determining the present value of our operating lease right-of-use asset and liability, we used a 10 % discount rate (which approximated

our borrowing rate).

The remaining term on the lease is 3 years .

following table presents the future operating lease payment as of March 31, 2021.

2021 (nine months remaining)

following table presents the future operating lease payment as of June 30, 2021.

of Estimate Future Maturities of Lease Liabilities

2021 (six months remaining)

Total Lease payments

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unfavorable outcome to be remote.

Stockholders’

the three months ended March 31, 2021, we issued 250,000 options to purchase our common stock to employees.

The exercise price of the

options were $0.38-$0.42 per share, with graded vesting over 3 years, and are exercisable for a period of 8 years.

fair value of the options issued ($79,157, in the aggregate) was calculated using the Black-Sholes option pricing model, based on the

criteria shown below.

Expected life (in years)

Risk Free interest rate

Dividend yield (on common stock)

addition to the 250,000 options granted we cancelled 450,000 options.

The total amount of equity-based compensation included in additional

paid in capital was an expense charge of $30,165 offset by a recapture of expenses of $64,750, resulting in a net credit against the

expense for $34,585 for the three-months ended March 31, 2021.

Food Group Inc.

to Condensed Consolidated Financial Statements

following is a summary of outstanding stock options issued to employees and directors as of March 31, 2021:

Stockholders’ Equity

the six months ended June 30, 2021, we issued 520,000 options to purchase our common stock to employees.

The exercise price of the options

were $ 0.43 -$ 0.46 per share, with a combination of both cliff and graded vesting over 3 years and are exercisable for a period of 8 years.

fair value of the options issued ($ 177,751 , in the aggregate) was calculated using the Black-Sholes option pricing model, based on the

criteria shown below.

Summary of Fair Value of Options Using Black-Sholes Option Pricing Model

life (in years)

(based on a comparable company)

88.83 %- 89.37

Free interest rate

1.25 %- 1.32 %

yield (on common stock)

the six months ended June 30, 2021, the Company issued 148,810 options for board director compensation, and 450,000 options were cancelled.

The total amount of equity-based compensation included in additional paid in capital was $ 44,869

and $ 55,812 for the three-months ended June 30, 2021 and 2020, respectively.

The total amount of equity-based compensation included in

additional paid in capital was $ 10,284 and $ 194,524 for the six-months ended June 30, 2021 and 2020, respectively.

The following

is a summary of outstanding stock options issued to employees and directors as of June 30, 2021:

Summary of Outstanding Stock Options Issued to Employees and Directors

price per share $

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Outstanding January 1, 2021

Issued - Employees

Issued - Directors

Cancelled/Expired

Outstanding March 31, 2021

Exercisable, March 31, 2021

of March 31, 2021, the Company has $176,923 of total unrecognized share-based compensation expense related to unvested options, which

is expected to be amortized over the remaining weighted average period of 1.42 years.

following are changes in stockholders’

equity as of March 31, 2020 and March 31, 2021:

Outstanding June 30 2021

Exercisable, June 30, 2021

of June 30, 2021, the Company has $ 230,519

of total unrecognized

share-based compensation expense related to unvested options, which is expected to be amortized over the remaining weighted average period

of 2.85 years .

Food Group Inc.

to Condensed Consolidated Financial Statements

The following

is Changes in Stockholders’ Equity as of June 30, 2020 and June 30, 2021:

Schedule of Changes in Stockholders' Equity

Balance January 1, 2020

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Issuance of stock for capital raise, net of offering costs of $ 27,200

Conversion of debt and accrued interest

Conversion of debt and accrued interest,shares

Conversion of debt

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Warrant issued for note extension

Restricted stock issuance

Net (loss) for the year

Balance March 31, 2020

( 1,922,586 )

Balance June 30, 2020

( 48,669,708 )

Balance January 1, 2021

( 50,899,628 )

Issuance of stock for capital raise,

Conversion of debt and accrued interest

Interest paid in shares

Issuance of stock for services

Equity based compensation

Net (loss) for the year

Balance March 31, 2021

Balance June 30, 2021

( 51,788,387 )

Food Group Inc.

to Condensed Consolidated Financial Statements

June 1, 2021, the Company completed a private placement of 16,666,666 shares of its common stock at $ 0.36 per share, resulting in gross

proceeds of $ 6,000,000 .

In addition, holders of debt converted a total of $ 399,000 in principal and $ 234,410 in interest into 1,741,873

shares of common stock, and debt in the amount of $ 840,000 was retired.

Outstanding Warrants

following is a summary of all outstanding warrants as of March 31, 2021:

Number of warrants

price per share

remaining term in years

intrinsic value at date of grant

following is a summary of all outstanding warrants as of June 30, 2021:

Summary of Outstanding Warrants

Remaining term

Intrinsic value

at date of grant

Warrants issued in connection with private placements of common stock

6 unchanged sentences

a valuation allowance on all tax assets.

As of March 31, 2021, the estimated effective tax rate for the year will be zero.

As of June 30, 2021, the estimated effective tax rate for the year will be zero .

are open statutes of limitations for taxing authorities in federal and state jurisdictions to audit our tax returns from 2009 through

1 unchanged sentence

Our policy is to account for income tax related interest and penalties in income tax expense in the statement of

the three-month periods ended March 31, 2021 and 2020, we did not have any interest and penalties associated with tax positions.

March 31, 2021, we did not have any significant unrecognized uncertain tax positions.

the three months ended March 31, 2021, we used cash for operations of $394,088 and purchased equipment for $4,647.

During the three months

ended March 31, 2020, we used cash for operations of $973,554 and purchased equipment for $16,575.

have a history of operating losses and negative cash flow.

As our operations grow, we expect to experience significant increases in our

working capital requirements.

Management has evaluated these conditions and concluded that current plans will alleviate this concern.

of March 31, 2021, we had $2,112,179 of restricted and unrestricted cash on the balance sheet.

We have continued to significantly reduce

core operating expenses, reducing total General and Administrative Expense in the first three months of 2021 by $472,824, or 39%, as

compared with the first three months of 2020.

Company’s forecast for the next twelve months reflects a continuation of the improvement in cash flow from operations and is expecting

an increase in revenue bouncing back from Covid-19 and its new Twist & Go products.

The Company believes this will provide sufficient

cash to cover operating expenses and $1,139,000 in debt due over the next 12 months.

If there are not sufficient cash flows to cover

the debt repayment the Company believes that the debt could be satisfied through refinancing including conversion, raising additional

proceeds through issuance of stock or new debt.

With the lean initiatives implemented by the business in 2020, liquidity is expected

to remain stable with very little change from 2020.

Management has concluded that these actions have alleviated the substantial doubt

of our ability to continue as a going concern.

However, the Company cannot predict, with certainty, the outcome of its action to generate

liquidity, including the availability of additional financing, or whether such actions would generate the expected liquidity as planned.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

following discussion should be read in conjunction with the financial information included elsewhere in this Quarterly Report on Form

10-Q (this “Report”), including our unaudited condensed consolidated financial statements and the related notes.

in this Management’s Discussion and Analysis of Financial Condition and Results of Operations section to “us”, “we”,

“our”

and similar terms refer to Barfresh Food Group Inc.

This discussion includes forward-looking statements, as that term

is defined in the federal securities laws, based upon current expectations that involve risks and uncertainties, such as plans, objectives,

expectations and intentions.

Actual results and the timing of events could differ materially from those anticipated in these forward-looking

statements as a result of a number of factors.

Words such as “anticipate”, “estimate”, “plan”, “continuing”,

“ongoing”, “expect”, “believe”, “intend”, “may”, “will”, “should”,

“could”

and similar expressions are used to identify forward-looking statements.

caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks

and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon

which the statements are based.

Any one or more of these uncertainties, risks and other influences could materially affect our results

of operations and whether forward-looking statements made by us ultimately prove to be accurate.

Our actual results, performance and

achievements could differ materially from those expressed or implied in these forward-looking statements.

We undertake no obligation

to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.

Company’s products are made in four formats.

The first is in portion controlled single serving beverage ingredient packs, suitable

for smoothies, shakes and frappes that can also be utilized for cocktails and mocktails.

These packs contain all of the ingredients necessary

to make a smoothie, shake or frappe, including the ice.

Simply add water, empty the packet into a blender, blend and serve.

format is the bulk “Easy Pour”

The Company’s bulk “Easy Pour”

format also contains all of the solid

ingredients necessary to make the beverage, packaged in gallon containers in a concentrated formula that is mixed “one to one”

The third format is the Company’s new WHIRLZ 100% Juice Concentrates.

These new 5:1 juice concentrates are a perfect

complement to the company’s current existing 1:1 bulk Easy Pour products used in beverage dispensing equipment.

The fourth format

is the Company’s new ready-to-drink bottled smoothie, “Twist & Go”™,

This sweet fruit and creamy yogurt smoothie contains four ounces of yogurt and a half-cup of fruit/fruit juice and comes in two different

and international patents and patents pending are owned by Barfresh, as well as related trademarks for all of the single serve products.

Patent rights have been granted in 13 jurisdictions including the United States.

In addition, the Company has purchased all of the trademarks

related to the patented products.

Company conducts sales through several channels, including National Accounts, Regional Accounts, and Broadline Distributors.

Barfresh’s

primary broadline distribution arrangement is through an exclusive nationwide agreement with Sysco Corporation (“Sysco”),

the U.S.’s largest broadline distributor, which was entered into during July 2014.

Pursuant to that agreement, all Barfresh products

are included in Sysco’s national core selection of beverage items, making Barfresh its exclusive single-serve, pre-portioned beverage

The agreement is mutually exclusive;

however, Barfresh may also sell the products to other foodservice distributors, but only

to the extent required for such foodservice distributors to service multi-unit chain operators with at least 20 units and where Sysco

is not such multi- unit chain operator’s nominated distributor for our products.

On October 2, 2019, the exclusive distribution

agreement with Sysco expired, opening the possibility to expand distribution with other distributors outside of the Sysco system.

2016 and 2017 the Company announced that it had signed supply agreements with several of the major global on-site foodservice

On March 8, 2018, the Company announced that it had signed a new supply agreement with one of the largest of these

foodservice operators, for exclusive distribution of four Barfresh single serve SKUs.

On November 14, 2018, the Company announced

that it had received approval for multiple products to be rolled out to a national restaurant chain with over 2,500 locations.

The Company has multiple SKUs developed and approved by the customer which are awaiting placement on the marketing calendar.

October 26, 2015, Barfresh signed a five-year agreement with PepsiCo North America Beverages, a division of PepsiCo, to become

its exclusive sales representative within the food service channel to present the Barfresh line of ready-to-blend smoothies and

frozen beverages throughout the United States and Canada.

Through this agreement, Barfresh’

products are included as part

of PepsiCo’s offerings to its significant customer base.

The agreement facilitates access to potential National customer

accounts, through introductions provided by PepsiCo’s one thousand plus person foodservice sales team.

Barfresh products

have become part of PepsiCo’s customer presentations at national trade shows and similar venues.

On May 30, 2019, the Company

amended its agreement with Pepsi which included a reduction in the commission fee and a clause which allows either party the right

to terminate the agreement upon 90 days written notice.

Neither party has exercised its right to terminate the agreement.

agreement remains in effect.

utilizes contract manufacturers to manufacture all of the products in the United States.

November 2016, the Company received an equity investment from Unibel, the majority shareholder of the Bel Group (“Unibel”).

The Bel Group is headquartered in Paris, France, with global operations in 33 countries, 30 production sites on 4 continents and nearly

12,000 employees.

Its many branded products, including The Laughing Cow®, Mini Babybel®

and Boursin®, are sold in over 130

countries around the world.

Pursuant to the securities purchase agreement, Unibel purchased 15,625,000 shares of common stock at $0.64

per share (“Shares”) and warrants to purchase 7,812,500 shares of common stock (“Warrants”) for aggregate gross

proceeds to Barfresh of $10 million.

The Warrants are exercisable for a term of five years at a per share price of $.88 for cash.

to the Investor Rights agreement, Barfresh has registered the Shares and the Warrants, and Unibel was granted a seat on the Barfresh

This strategic investment provided Barfresh with necessary capital while leveraging Unibel’s more than 150 years of industrial

expertise, innovative capabilities, world-class marketing and branding expertise to accelerate our growth in new and existing markets

and product channels.

February 14, 2018, the Company announced the private placement of convertible notes with gross proceeds of $4.1 million The closing of

the first 60% of this amount occurred between March 12 and 22, 2018, after notice was issued by the Company that it had entered into

a material agreement or series of related agreements with a national account for the sale of its products into approximately 1,000 new

The remaining 40% of the principal amount was to be received upon achieving a second milestone, which is entering into a material

agreement or series of related agreements with a national account for the sale of its products into approximately 2,500 new locations.

During November of 2018 the Company and several of the Convertible Note investors agreed to amend the definition of Milestone 2 to allow

for the funding the remaining 40% of the principal amount upon the Company receiving approval from a National Restaurant Chain with over

2,500 for the rollout of its products.

Such approval was received during the fourth quarter of 2018, and the Company received an additional

$1.4 million of convertible note proceeds.

convertible notes are unsecured and have (i) a two-year term, (ii) a 10% annual coupon to be paid in cash or stock at the Company’s

discretion at a conversion price equal to 85% of the average closing bid prices of the Common Stock over the twenty (20) consecutive

trading day period immediately preceding the payment date, but in no event lower than sixty cents ($0.60) per share of Common Stock.

The investor’s may elect to convert their principal into common stock at a conversion price equal to the lower of:

(i) $0.88 per

share of Common Stock, or (ii) 85% of the average closing bid prices of the Common Stock over the twenty (20) consecutive trading day

period immediately preceding the date of investor’s election to convert;

but in no event lower than $0.60 per share of Common Stock.

Investors also received warrant coverage of 25% of the number of shares that would be issuable upon a full conversion of the principal

amount at an average of the twenty consecutive trading day period immediately preceding the applicable closing date.

If any principal

amount remains outstanding after the one-year anniversary of the closing, investors will be granted an additional warrant with identical

The warrants are exercisable for a period of three years for cash at the greater of 120% of the closing price or $0.70 per share

of common stock.

After the initial private placement, investors were offered the opportunity to accelerate the issuance of the additional

warrant by increasing their convertible note investment by 10% to 20%.

After the close of the first quarter 2018, a number of investors

took advantage of this acceleration opportunity, resulting in an increase in the amount of the total convertible note by $177,300 and

the issuance of 930,332 additional warrants.

During the fourth quarter 2018, four of the convertible note investors elected to convert

their notes into stock, with a total of $453,000 of convertible debt, plus accrued interest being converted into stock.

the fourth quarter of 2018, one investor exercised 833,333 N warrants for cash, at $0.45 per share.

$221,918 of the proceeds of that

transaction were used to pay down a short term note payable, held by the same investor, in the amount of $200,000, plus accrued interest.

The balance of the proceeds of the N warrant exercise, in the amount of $153,082 were received by the Company.

the first quarter of 2019, the Company completed additional funding, including a Private Placement Offering for common shares priced

at $0.60 per share, resulting in the receipt of capital investment in the amount of $2.4 million and the issuance of 4,000,000 shares.

In addition, during the first quarter of 2019 the Company offered to reduce the exercise price on its I Warrants from $1 to $0.60, for

a limited time.

During the time this offer was open, I Warrant holders converted 2,841,454 warrants at $0.60, resulting in the receipt

of capital investment in the amount of $1.7 million.

In addition, during the first quarter of 2019, one investor exercised G series warrants,

resulting in the receipt of capital investment in the amount of $180,000, and the issuance of 300,000 shares.

In total, during the first

quarter of 2019 the Company raised $4.3 million and issued 7,141,454 shares, and no additional warrants were issued.

March 23, 2020, the Company completed additional funding, including a Private Placement Offering for common shares priced at $0.50 per

share (subject to adjustment) resulting in the receipt of proceeds in the amount of $3,825,000 million and the issuance of 7,650,000

The investors of this Private Placement Offering were granted O warrants which are eligible to purchase an additional 0.50 shares

for every share issued to each purchaser, exercisable for a period of 3 years at an exercise price of $0.60 per share (subject to adjustment).

If the volume-weighted average trading price for the 20 consecutive trading days that conclude upon 6 months after the initial closing

(the “Six Month Price”) exceeds or equals $0.50 per share (the “Target Price”), the per share purchase price

will not be adjusted.

If the Six Month Price is less than the Target Price, the per share purchase price will be automatically reduced

to the Six Month Price, but in no event less than $0.35 per share, in which case the Company shall issue to each investor, pro-rata based

on such investor’s investment:

(a) shares in a quantity that equals the difference between the number of shares issued to such

purchaser at closing and the number of shares that would have been issued to such purchaser at closing at the Six Month Price;

a warrant for a number of shares of common stock equal to 50% of the difference between the number of shares issued to such investor

at closing and the number of shares that would have been issued to such investor at closing at the Six Month Price, with an exercise

price equal to the sum of $0.10 per share and the Six Month Price, but in no eventless than $0.45 per share.

The exercise price per share

for each warrant will automatically adjust to the sum of $0.10 per share and the Six-Month Price, but in no event less than $0.45 per

On September 28, 2020, the Company determined the volume-weighted average price was below the $0.35 per share and consequently

issued 5,322,868 additional shares in accordance with provisions of the Private Placement Offering.

Similarly, the Company issued an

additional 2,652,868 Warrants to investors that contributed capital or exercised the conversion of their convertible note.

Company issued an additional 459,000 Warrants for convertible noteholders that extended their convertible notes.

addition, the Company obtained a 24 month extension on $1,071,000 in principal, and conversion of $720,000 of principal of the Milestone

I Convertible Notes at a conversion price of $0.50 per share.

The remaining $110,166 was extended for thirty days.

The interest rate

on the principal balance of the extended Milestone I Convertible Notes was amended to 15%.

Furthermore, the Company obtained a 12 month

extension on $168,000 in principal, and conversion of $1,128,000 in principal of the Milestone II Convertible Notes.

The Convertible

Noteholders of the Milestone I and II Convertible Notes were granted additional interest depending upon their election to convert or

extend their Convertible Notes.

we have 12 employees and 3 consultants

Accounting Policies

financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

accordance with ASC 606, “Revenue from Contracts with Customers”, revenue is recognized when a customer obtains ownership

of promised goods.

The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive

in exchange for these goods.

The Company applies the following five steps:

the contract with a customer

contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s

rights, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration

for goods or services that are transferred is probable.

For the Company, the contract is the approved sales order, which may also

be supplemented by other agreements that formalize various terms and conditions with customers.

the performance obligation in the contract

obligations promised in a contract are identified based on the goods or that will be transferred to the customer.

For the Company,

this consists of the delivery of frozen beverages, which provide immediate benefit to the customer.

the transaction price

transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods

and is generally stated on the approved sales order.

Variable consideration, which typically includes volume-based rebates or discounts,

are estimated utilizing the most likely amount method.

the transaction price to performance obligations in the contract

our contracts contain a single performance obligation, delivery of frozen beverages, the transaction price is allocated to that single

performance obligation.

Revenue when or as the Company satisfies a performance obligation

Company recognizes revenue from the sale of frozen beverages when title and risk of loss passes and the customer accepts the goods,

which generally occurs at the time of delivery to a customer warehouse.

Customer sales incentives such as volume-based rebates or

discounts are treated as a reduction of sales at the time the sale is recognized.

Shipping and handling costs are treated as fulfillment

costs and presented in distribution, selling and administrative costs.

account for share-based employee compensation plans under the fair value recognition and measurement provisions in accordance with applicable

accounting standards, which require all share-based payments to employees, including grants of stock options and restricted stock units

(RSUs), to be measured based on the grant date fair value of the awards, with the resulting expense generally recognized on a straight-line

basis over the period during which the employee is required to perform service in exchange for the award.

issue debt that may have separate warrants, conversion features, or no equity-linked attributes.

When we issue debt with warrants, we

determine the value of the warrants using the Black-Scholes Option Pricing Model (“Black-Scholes”) using the stock price

on the date of issuance, the risk free interest rate associated with the life of the debt, and the estimated volatility of our stock.

When we issue debt with a conversion feature, we must first assess whether the conversion feature meets the requirements to be treated

as a derivative.

If the conversion feature within convertible debt meets the requirements to be treated as a derivative, we estimate

the fair value of the convertible debt derivative using Black-Scholes upon the date of issuance, using the stock price on the date of

issuance, the risk free interest rate associated with the life of the debt, and the estimated volatility of our stock.

If the conversion

feature is not treated as a derivative, we assess whether it is a beneficial conversion feature (“BCF’).

A BCF exists if

the conversion price of the convertible debt instrument is less than the stock price on the commitment date.

This typically occurs when

the conversion price is less than the fair value of the stock on the date the instrument was issued.

The value of a BCF is equal to the

intrinsic value of the feature, the difference between the conversion price and the common stock into which it is convertible.

Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components

of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.”

The result of this accounting treatment is that the fair value of any derivative is marked-to-market each balance sheet date and recorded

as a liability.

In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of

operations as gain/loss from derivative liability.

Upon conversion or exercise of a derivative instrument, the instrument is marked to

fair value at the conversion date and then that fair value is reclassified to equity.

We analyzed the derivative financial instruments

in accordance with ASC 815.

The objective is to provide guidance for determining whether an equity-linked financial instrument is indexed

to an entity’s own stock.

This determination is needed for a scope exception which would enable a derivative instrument to be accounted

for under the accrual method.

The classification of a non-derivative instrument that falls within the scope of ASC 815-40-05 “Accounting

for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”

also hinges on whether

the instrument is indexed to an entity’s own stock.

A non-derivative instrument that is not indexed to an entity’s own stock

cannot be classified as equity and must be accounted for as a liability.

There is a two-step approach in determining whether an instrument

or embedded feature is indexed to an entity’s own stock.

First, the instrument’s contingent exercise provisions, if any,

must be evaluated, followed by an evaluation of the instrument’s settlement provisions.

The Company utilized the fair value standard

set forth by the Financial Accounting Standards Board, defined as the amount at which the assets (or liability) could be bought (or incurred)

or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale.

of Operations

of Operation for Three Months Ended March 31, 2021 as Compared to the Three Months Ended March 31, 2020

and cost of revenue

increased $280,971 (38%) from $733,880 in 2020 to $1,014,851 in 2021.

The overall revenue for the first quarter 2021 was higher due to

growing , “Twist & Go”™

revenue and the gradual return of single

serve demand.

of revenue for 2021 was $659,423 as compared to $328,634 in 2020.

Our gross profit was $349,319 (34%) and $396,799 (54%) for 2021

and 2020, respectively.

Gross margins decreased in the first quarter primarily due to product mix which includes “Twist

& Go”™

at lower product margins.

We anticipate margins will improve based on improving Twist and Go

margins and having a greater mix of higher margin bulk and single serve revenue.

the gross profit percentage for

the remainder of 2021 is expected to be approximately 40%.

operations were primarily directed towards increasing sales and expanding our distribution network.

general and administrative expenses decreased $472,824 (39%) from $1,224,425 in 2020 to $751,601 in 2021, with the improvement primarily

driven by personnel and marketing and selling expenses resulting from lower headcount and the renegotiation of certain sales commission

The following is a breakdown of our general and administrative expenses for the three months ended March 31, 2021 and 2020:

Three months ended March 31, 2021

Three months ended March 31, 2020

Personnel costs

Stock based compensation/options

Legal and professional fees

Marketing and selling

Consulting fees

Director fees

Research and development

Shipping and storage

Other expenses

cost represents the cost of employees including salaries, bonuses, employee benefits and employment taxes and continues to be our largest

Personnel cost decreased $108,624 (26%) from $420,180 to $311,556.

We had 16 full time employees at the end of the first quarter

of 2020, and we currently have 12 full time employees.

based compensation is used as an incentive to attract new employees and to compensate existing employees.

Stock based compensation includes

stock issued and options granted to employees and non-employees.

Stock based compensation for the current quarter was ($34,585) due to

the departure of 2 key employees, a decrease of $173,297, or 125%, from the year ago quarter expense of $138,712.

The Company issues

additional stock options to its employees from time to time under its Equity Compensation Plan.

and professional fees decreased $28,787 (31%) from $92,462 in 2020 to $63,675 in 2021.

The decrease was primarily due to renegotiated

fees for legal services.

We anticipate legal fees related to our business and financing activities to decrease as we have renegotiated

arrangements with existing service providers.

expenses decreased $33,598 (86%) from $38,919 in 2020 to $5,321 in 2021.

The decrease is primarily due to reduction in travel costs associated

with terminated employees, tighter controls over sales territories, and reduced travel due to COVID-19.

We anticipate that travel expenses

for the remainder of this year will gradually pick up and for the second half of 2021 comparable to 2019 trends.

expense remained flat for the three months ended March 31, 2020 compared to the three months ended March 31, 2021.

Rent expense is for

our location in Los Angeles, California.

Rent expense for the Los Angeles office is approximately $6,500 per month.

We lease office space

at 3600 Wilshire Boulevard, Los Angeles, California pursuant to a new lease that commenced on April 1, 2019 and expires March 31, 2023.

and selling expenses decreased $37,942 (48%) from $78,975 in 2020 to $41,033 in 2021.

Lower marketing and selling expenses were primarily

due to changes that were made to certain sales commission agreements.

fees were $12,497 in 2021, as compared with $25,567 in 2020, a decrease of $13,070.

Our consulting fees vary based on needs.

consultants in the areas of finance during the quarter due to reduced headcount.

The need for future consulting services will be variable.

fees increased $27,130 from $50,000 in 2020 to $ 77,130 in 2021.

Annual director fees are anticipated at $50,000 per non-employee director

of which two additional directors will be compensated in 2021.

and development expenses decreased $17,283 (20%) from $85,424 in 2020 to $68,141 in 2021.

These expenses relate to the services performed

by our Director of Manufacturing and Product Development, and consultants supporting that employee.

The reduction is primarily due to

a reduction in labor hours for our development staff.

and storage expense increased $10,627 (8%) from $133,108 in 2020 to $143,735 in 2021.

We anticipate that shipping and storage expense

as a percentage of sales will reduce during the balance of the year, as the Company is able to take advantage of more efficient distribution

arrangements as well as an increased volume per load due to higher sales volume in 2021.

expenses decreased $97,836 from $141,016 in 2020 to $43,180 in 2021, primarily due to lower insurance expense and the results

of vendor payables reconciliation resulting in the correction of vendor liabilities.

Other expenses consist of ordinary

operating expenses such as investor relations, office, telephone, insurance, and stock related costs.

We anticipate these expenses

to be comparable to 2020 for the balance of the year.

had operating losses of $549,215 and $977,774 for the three-month periods ended March 31, 2021 and 2020, respectively.

The decrease of

$428,559 or 44%, was primarily due to lower General and Administrative expenses.

The change in the value of the derivative

liability is based upon the Black-Scholes model from one period to another.

The gain is a result of the change in components

of the Black-Scholes model.

Components include the Company’s stock price, conversion price, remaining term, volatility,

and current discount rate.

Interest expense for the three months ended

March 31, 2021 was $59,091, as compared with $295,394 for the three months ended March 31, 2020.

Interest relates to the unconverted

portion of convertible debt of $1,071,000 that was issued on March 14, 2018, and in the unconverted portion of convertible debt

in the amount of $168,000 that was issued on November 30, 2018.

This compares to the unconverted portion of convertible

debt of $2,244,300 and in the unconverted portion of convertible debt of $1,363,200 as of March 31, 2020.

had net losses of $591,519 and $743,066 in the three-month periods ended March 31, 2021 and 2020, respectively.

and Capital Resources

of March 31, 2021, we had a working capital surplus of $22,435 as compared with a working capital surplus of $1,196,741 at December 31,

The decrease in working capital surplus is primarily due to convertible debt net of discount of $1,182,378 coming due in the next

12 months and higher accrued interest offset by higher cash and accounts receivables.

2020, the Company was granted a $568,131 loan under the PPP administered by a Small Business Administration (SBA) approved partner.

loan, which matures in two years, is uncollateralized and is fully guaranteed by the Federal government.

The Company is eligible for

loan forgiveness of up to 100% of the loan, upon meeting certain requirements.

The Company has recorded a note payable and will record

the forgiveness upon being legally released from the loan obligation by the SBA.

No forgiveness income has been recorded for the three

months ended March 31, 2021.

The Company will be required to repay any remaining balance, plus interest accrued at 1 percent, in monthly

payments commencing upon notification that the loan will not be forgiven or only partially forgiven.

The company has applied for and

anticipates the loan to be forgiven in 2021.

January 27, 2021, the Company was granted a $568,131 loan under the PPP administered by a SBA approved partner.

The loan, which matures

in five years, at an interest rate of 1%, and is uncollateralized and is fully guaranteed by the Federal government.

The deferral period

is 24 weeks plus 10 months from the loan note date.

The Company is eligible for loan forgiveness of up to 100% of the loan, upon meeting

certain requirements.

The Company has recorded a note payable and will record the forgiveness upon being legally released from the loan

obligation by the SBA.

The Company will be required to repay any remaining balance, plus interest accrued at 1 percent, in monthly payments

commencing upon notification that the loan will not be forgiven or only partially forgiven.

the three months ended March 31, 2021, we used cash of $394,088 in operations, $4,647 for the purchase of equipment, and

$1,263 for patents and trademarks.

liquidity needs will depend on how quickly we are able to profitably ramp up sales, as well as our ability to control and reduce variable

operating expenses, and to continue to control and reduce fixed overhead expense.

operations to date have been financed by the sale of securities, the issuance of convertible debt and the issuance of short-term debt,

including related party advances.

If we are unable to generate sufficient cash flow from operations with the capital raised we will be

required to raise additional funds either in the form of equity or in the form of debt.

There are no assurances that we will be able

to generate the necessary capital to carry out our current plan of operations.

have entered into a direct lease for premises covering the period April 1, 2019 to March 31, 2023.

The aggregate minimum requirements

under the non-cancellable direct lease as of March 31, 2021 is $143,954.

Sheet Arrangements

have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition,

changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that

are material to stockholders.

Quantitative and Qualitative Disclosures About Market Risk.

required because we are a smaller reporting company.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements