What changed in this filing

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Item 1. Financial Statements

2022-11-14 compared with 2022-07-28 · 245 added, 148 removed, 182 unchanged (68% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

accounts receivable, net

expenses and other current assets

September 30,

Current assets:

plant and equipment, net of depreciation

lease right-of-use assets, net

assets, net of amortization

and Stockholders’ Equity

payroll and employee related

Restricted cash

Trade accounts receivable, net

Other receivables

Inventory, net

Prepaid expenses and other current assets

Total current assets

Property, plant and equipment, net of depreciation

Operating lease right-of-use assets, net

Intangible assets, net of amortization

Liabilities and Stockholders’ Equity

Current liabilities:

term liabilities:

and contingencies (Note 5)

Stockholders’

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

stock, $ 0.000001 par value;

Accounts payable

Accrued expenses

Accrued payroll and employee related

Lease liability

Total current liabilities

Long term liabilities:

Accrued interest

Lease liability

Total liabilities

Commitments and contingencies (Note 5)

Stockholders’ equity:

Preferred stock, $ 0.000001 par value, 400,000 shares authorized, none issued or outstanding

Common stock, $ 0.000001 par value;

23,000,000 shares authorized;

12,919,899 and 12,905,112 shares issued and outstanding at June 30, 2022

and December 31, 2021, respectively

paid in capital

12,934,741 and 12,905,112 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

Additional paid in capital

Accumulated deficit

( 56,504,000 )

( 52,165,000 )

stockholders’ equity

liabilities and stockholders’ equity

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 and six months ended June 30, 2022 and 2021

the three months ended

the six months ended

and marketing

and administrative

and amortization

the three and nine months ended September 30, 2022 and 2021

For the three months ended September 30,

For the nine months ended September 30,

Cost of revenue

Operating expenses:

Selling, marketing and distribution

General and administrative

Depreciation and amortization

Total operating expenses

Operating loss

( 2,708,000 )

( 4,339,000 )

(income)/expenses

from derivative liability

from debt extinguishment - Paycheck Protection Program

on debt extinguishment

other expense

( 1,658,000 )

Other (income)/expenses

Gain from derivative liability

Gain from debt extinguishment - Paycheck Protection Program

Loss on debt extinguishment

Total other expense

$ ( 2,708,000 )

1 unchanged sentence

$ ( 4,339,000 )

share information - basic and fully diluted:

average shares outstanding

loss per share

$ ( 1,396,000 )

Per share information - basic and fully diluted:

Weighted average shares outstanding

Net loss per share

the accompanying notes to the condensed consolidated financial statements

1 unchanged sentence

Consolidated Statements of Cash Flows

the six months ended June 30, 2022 and 2021

the nine months ended September 30, 2022 and 2021

$ ( 4,339,000 )

$ ( 1,396,000 )

Adjustments to reconcile net loss to net cash used in operating activities

Depreciation and amortization

Stock-based compensation

Stock and options issued for services

Interest expense related to debt discount

Gain on debt extinguishment - Paycheck Protection Program

Gain on derivative

Loss on debt extinguishment

Changes in assets and liabilities

Accounts receivable

Other receivables

Prepaid expenses and other assets

Accounts payable

Accrued expenses

Accrued interest

Net cash used in operating activities

Adjustments to reconcile net loss

to net cash used in operating activities

and amortization

and options issued for services

expense related to debt discount

on debt extinguishment - Paycheck Protection Program

on derivative

on debt extinguishment

in assets and liabilities

expenses and other assets

used in operating activities

( 2,619,000 )

Investing activities

Purchase of property and equipment

Net cash used in investing activities

Financing activities

Proceeds from issuance of stock

Proceeds from note payable

Repayment of convertible notes

Net cash from financing activities

Net change in cash and restricted cash

( 1,146,000 )

Cash and restricted cash, beginning of period

Cash and restricted cash, end of period

Cash paid during the period for:

Cash paid for amounts included in the measurement of lease liabilities

Non-cash financing and investing activities:

Net carrying value of convertible notes and accrued interest extinguished through issuance of stock

Accrued interest paid in stock

Equipment included in accounts payable and accrued liability

of property and equipment

used in investing activities

from issuance of stock

from note payable

of convertible notes

from financing activities

in cash and restricted cash

( 2,627,000 )

and restricted cash, beginning of period

and restricted cash, end of period

paid during the period for:

included in the measurement of lease liabilities

financing and investing activities:

carrying value of convertible notes and accrued interest extinguished through issuance of stock

interest paid in stock

included in accounts payable and accrued liability

Extinguishment

of derivative liability

the accompanying notes to the condensed consolidated financial statements

6 unchanged sentences

particularly, smoothies, shakes and frappes.

Business Developments

Company’s products are produced to its specifications through several co-manufacturers.

One of the Company’s co-manufacturers

has provided approximately 58 % of the Company’s products in the nine months ended September 30, 2022 under a Supply Agreement that

expires in September 2025.

the course of 2022, the Company has experienced quality issues with the case packaging utilized by the co-manufacturer.

of 2022, the Company began receiving customer complaints about the texture of the Company’s smoothie products produced by the same

co-manufacturer.

In response, subsequent to September 30, 2022, the Company has withdrawn product from the market and destroyed on-hand

The results for the third quarter of 2022 reflect the estimated accounting impact of such actions, including $ 630,000 in refund

and administrative fees due to customers and $ 932,000 to dispose of unsaleable inventory.

Company has been attempting to informally resolve the issues.

However, on November 4, 2022, in response to a formal proposal of alternate

resolutions, the Company received notification from its co-manufacturer that it was denying any responsibility for the defective manufacture

of the product.

In response, on November 10, 2022, the Company filed a complaint in the United States District Court for the Central

District of California, Western Division, claiming that the co-manufacturer has not met its obligations under the Agreement, and seeking

economic damages.

Due to the uncertainties of litigation, the Company is not able to predict either the outcome or a range of reasonably

possible recoveries that could result from its legal action against the co-manufacturer, and no gain contingencies have been recorded.

The Company anticipates that the disruption in its supply resulting from the dispute will adversely impact its results of operations

and cash flow until a suitable resolution is reached or new sources of reliable supply at sufficient volume can be identified and developed,

the timing of which is uncertain.

of Presentation

25 unchanged sentences

preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect

the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the years reported.

Actual results

may differ from these estimates.

the reported amounts of assets and liabilities in the balance sheets and 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.

These estimates are based

on information available as of the date of the financial statements;

therefore, actual results may differ from these estimates.

Concentrations

Company is exposed to supply risk as a result of concentrations in its vendor base resulting from the use of a limited number of contract

manufacturers.

Purchases from the Company’s contract manufacturers as a percent of all finished goods purchased were as follows:

of Company’s Contact Manufacturers of Finished Goods

For the three months ended September 30,

For the nine months ended September 30,

Manufacturer A

Manufacturer B

Manufacturer C

Manufacturer D

of Significant Accounting Policies

21 unchanged sentences

used to determine the fair value.

financial instruments consist of cash, accounts receivable, accounts payable, advanced payments, restricted cash, as well as our PPP

loan, convertible notes, and derivative liabilities which were settled in 2021.

The carrying value of our financial instruments on June

30, 2022, December 31, 2021 and June 30, 2021 approximates their fair values, except for the derivative liability, which was carried

at fair value prior to its extinguishment.

June 30, 2022 and December 31, 2021, the Company had approximately $ 211,000 and $ 142,000 , respectively, in restricted cash related to

a co-packing agreement.

financial instruments consist of cash, accounts receivable, accounts payable, advanced payments, restricted cash, as well as our Paycheck

Protection Program (“PPP”) loan, convertible notes, and derivative liabilities which were settled in 2021.

The carrying value

of our financial instruments on September 30, 2022, December 31, 2021 and September 30, 2021 approximates their fair values, except for

the derivative liability, which was carried at fair value prior to its extinguishment.

September 30, 2022 and December 31, 2021, the Company had approximately $ 211,000 and $ 142,000 , respectively, in restricted cash related

to a co-packing agreement.

of December 31, 2021, the Company’s allowance for doubtful accounts was approximately $ 121,000 .

The Company did not have an allowance

for doubtful accounts as of June 30, 2022.

The allowance is estimated based on evaluation of collectability of outstanding accounts receivable.

for doubtful accounts as of September 30, 2022.

The allowance is estimated based on evaluation of collectability of outstanding accounts

Delinquent accounts are written-off when it is determined that the amounts are uncollectible.

4 unchanged sentences

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 services that will be transferred to the customer.

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 rebates or discounts, are estimated

utilizing the most likely amount method and amounts recorded as revenue and accounts receivable reflect such estimates at the time

Subsequent adjustments to estimates of variable consideration have not been material.

Identify the contract

with a customer

A 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.

Identify the performance

obligation in the contract

Performance obligations

promised in a contract are identified based on the goods or services 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.

Determine the transaction

The 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 rebates or discounts, are estimated utilizing the most

likely amount method and amounts recorded as revenue and accounts receivable reflect such estimates at the time of shipment.

adjustments to estimates of variable consideration have not been material.

the transaction price to performance obligations in the contract

1 unchanged sentence

performance obligation.

Revenue when or as the Company satisfies a performance obligation

Recognize 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,

2 unchanged sentences

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

Shipping and handling costs are treated as fulfillment

Shipping and handling costs are treated as fulfilment

costs and presented in distribution, selling and administrative costs.

that are received before performance obligations are recorded are shown as current liabilities.

Company evaluated the requirement to disaggregate revenue and concluded that substantially all of its revenue comes from smoothie

and Storage Costs

and handling costs are included in selling and marketing expenses.

For the three months ending June 30, 2022 and 2021, shipping and handling

costs totaled approximately $ 371,000 and $ 257,000 , respectively.

For the six months ending June 30, 2022 and 2021, shipping and handling

costs totaled approximately $ 757,000 and $ 401,000 , respectively.

The Company evaluated the

requirement to disaggregate revenue and concluded that substantially all of its revenue comes from smoothie beverages.

and Shipping Costs

and outbound freight costs are included in selling and marketing expense.

For the three months ending September 30, 2022 and 2021, storage

and outbound freight totaled approximately $ 450,000 and $ 316,000 , respectively.

For the nine months ending September 30, 2022 and 2021,

storage and outbound freight costs totaled approximately $ 1,208,000 and $ 717,000 , respectively.

and Development

1 unchanged sentence

The Company incurred approximately

$ 97,000 and $ 127,000 , in research and development expenses for the three months ending June 30, 2022 and 2021, respectively.

months ending June 30, 2022 and 2021, research and development expense totaled approximately $ 66,000 and $ 138,000 , respectively.

June 30, 2022 and 2021 common stock equivalents have not been included in the calculation of net loss per share as their effect is anti-dilutive

as a result of losses incurred.

$ 220,000 and $ 34,000 , in research and development expense for the three months ending September 30, 2022 and 2021, respectively.

the nine months ending September 30, 2022 and 2021, research and development expense totaled approximately $ 347,000 and $ 173,000 , respectively.

September 30, 2022 and 2021 common stock equivalents have not been included in the calculation of net loss per share as their effect

is anti-dilutive as a result of losses incurred.

Reclassifications

8 unchanged sentences

consists of the following:

September 30,

Raw materials

4 unchanged sentences

of Major Classes of Property and Equipment

September 30,

Manufacturing and customer equipment

8 unchanged sentences

expense related to these assets was approximately $ 105,000 and $ 147,000 for the three months

ended June 30, 2022 and 2021, respectively, and $ 255,000 and $ 261,000 for the six months ended June 30, 2022 and 2021, respectively.

Depreciation expense in cost of revenue was approximately $ 10,000 and $ 12,000 for three months ended June 30, 2022 and 2021, respectively,

and $ 10,000 and $ 18,000 for the six months ended June 30, 2022 and 2021, respectively.

ended September 30, 2022 and 2021, respectively, and $ 360,000 and $ 407,000 for the nine months ended September 30, 2022 and 2021, respectively.

Depreciation expense in cost of revenue was approximately $ 10,000 and $ 18,000 for the nine months ended September 30, 2022 and 2021,

respectively.

There was no depreciation expense included in cost of revenue for the three months ended September 30, 2022 or 2021.

Convertible Notes and Derivative Liability (Related and Unrelated Party)

5 unchanged sentences

debt extinguishment the Company’s derivative liability was revalued at approximately $ 25,000 , resulting in a gain of approximately

$ 16,000 for the six months ended June 30, 2021.

$ 16,000 for the nine months ended September 30, 2021.

The derivative value of $ 25,000 was included in the determining the loss on debt

1 unchanged sentence

Commitments and Contingencies

Company leases office space under a non-cancelable operating lease which expires on March 31, 2023 .

Company leases office space under a non-cancellable operating lease which expires on March 31, 2023 .

The Company’s periodic lease

cost was approximately $ 20,000 for each of the three months ended June 30, 2022 and 2021, respectively, and $ 40,000 for each of the six

months ended June 30, 2022 and 2021, respectively.

As of June 30, 2022, our right of use asset was approximately $ 53,000 .

following table presents the future operating lease payment as of June 30, 2022.

cost was approximately $ 20,000 for each of the three months ended September 30, 2022 and 2021, respectively, and $ 60,000 for each of

the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, our right of use asset was approximately $ 36,000 .

following table presents the future operating lease payment as of September 30, 2022:

Schedule of Estimate Future Maturities of

Lease Liabilities

2022 (six months remaining)

2022 (three months remaining)

Total lease payments

1 unchanged sentence

Total lease liability

described in Note 1, the Company has filed a lawsuit against its co-manufacturer, Schreiber Foods, Inc., the outcome of which cannot

be predicted at this time.

time to time, various lawsuits and legal proceedings may arise in the ordinary course of business.

However, litigation is subject to

inherent uncertainties and an adverse result in these, or other matters may arise from time to time that may harm our business.

is currently the defendant in one legal proceeding for an amount less than $ 100,000 .

Litigation is subject to inherent

uncertainties and an adverse result in these, or other matters may arise from time to time that may harm our business.

The Company is

currently the defendant in one legal proceeding for an amount less than $ 100,000 .

Our legal counsel and management believe a material

1 unchanged sentence

Stockholders’ Equity

following are changes in stockholders’ equity for the six months ended June 30, 2021 and June 30, 2022:

Barfresh Food Group, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

following are changes in stockholders’ equity for the nine months ended September 30, 2021 and September 30, 2022:

Food Group, Inc.

Consolidated Statements of Stockholders’ Equity

Schedule of Changes in Stockholders' Equity

1 unchanged sentence

$ ( 50,900,000 )

Issuance of stock for capital raise

Conversion of debt and accrued interest

Interest paid in shares

Stock and options issued for services

Stock-based compensation

Issuance of stock for warrant exercise

Issuance of stock for warrant exercise, shares

Balance June 30, 2021

of stock for capital raise

of debt and accrued interest

paid in shares

of stock for services

based compensation

Shares issued for warrant

Shares issued for warrant exercise, shares

( 1,396,000 )

Balance September 30, 2021

$ ( 52,296,000 )

Balance December

$ ( 52,165,000 )

Issuance of stock for warrant exercise

Stock-based compensation

Stock and options issued for services

$ ( 52,165,000 )

Shares issued for warrant

based compensation

of stock for services

( 4,339,000 )

Balance June 30, 2022

( 4,339,000 )

the six months ended June 30, 2022, 99,274 warrants at a weighted average exercise price of $ 8.97 per share expired, and 986 warrants

Balance September 30, 2022

$ ( 56,504,000 )

the nine months ended September 30, 2022, 102,852 warrants at a weighted average exercise price of $ 8.82 per share expired, and 986 warrants

at an exercise price of $ 5.07 per share were exercised for proceeds of approximately $ 5,000 .

Incentive Plan

following is a summary of stock option activity for the six months ended June 30, 2022:

following is a summary of stock option activity for the nine months ended September 30, 2022:

Summary of Stock Options Activity

average exercise

price per share

Remaining term

Number of Options

exercise price per share

Outstanding on December 31, 2021

Cancelled/expired

Outstanding on June 30, 2022

Exercisable, June 30, 2022

Outstanding on September 30, 2022

Exercisable, September 30, 2022

fair value of the options issued was calculated using the Black-Scholes option pricing model, based on the following:

5 unchanged sentences

Weighted average grant date fair value per share

of June 30, 2022, the Company has approximately $ 228,000 of unrecognized share-based compensation expense related to unvested options,

of September 30, 2022, the Company has approximately $ 180,000 of unrecognized share-based compensation expense related to unvested options,

which is expected to be recognized over the remaining weighted average period of 2.2 years.

following is a summary of restricted stock award and restricted stock unit activity for the six months ended June 30, 2022:

following is a summary of restricted stock award and restricted stock unit activity for the nine months ended September 30, 2022:

of Restricted Stock Award and Restricted Stock Unit Activity

2 unchanged sentences

Unvested at January 1, 2022

Unvested at June 30, 2022

of June 30, 2022, the Company has approximately $ 175,000 of unrecognized share-based compensation expense related to restricted stock

awards and restricted stock units, which is expected to be recognized over the remaining weighted average period of 2.4 years.

Unvested at September 30, 2022

of September 30, 2022, the Company has approximately $ 104,000 of unrecognized share-based compensation expense related to restricted

stock awards and restricted stock units, which is expected to be recognized over the remaining weighted average period of 2.1 years.

the nine months ended September 30, 2022, the Company issued performance share units (“PSUs”) that represent shares potentially

issuable in the future.

Issuance is based upon Company and individual performance over the remainder of 2022.

The PSUs vest only upon

the achievement of the applicable performance goals and depending on the particular grantee and achievement on the performance goals,

the grantee may earn between 0 % and 200 % of the target PSUs.

The fair value of PSUs is calculated based on the stock price on the date

following table summarizes the activity for the Company’s unvested PSUs for the nine months ended September 30, 2022:

of Performance Stock Unit Activity

average grant

date fair value

Unvested at January 1, 2022

Unvested at September 30, 2022

stock-based compensation expense recognized each period is dependent upon the Company’s estimate of the number of shares that will

ultimately vest based on the achievement of certain performance conditions.

Future stock-based compensation for unvested performance-based

awards could reach a maximum of $ 547,000 , in 2022 assuming achievement at the maximum level.

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

2 unchanged sentences

valuation allowance on all tax assets.

As of June 30, 2022, the estimated effective tax rate for the 2022 was zero.

As of September 30, 2022, the estimated effective tax rate for the 2022 was zero.

are open statutes of limitations for taxing authorities in federal and state jurisdictions to audit our tax returns from 2017 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 and six months ended June 30, 2022 and 2021, the Company did not incur any interest and penalties associated with tax positions.

As of June 30, 2022, the Company did not have any significant unrecognized uncertain tax positions.

the three and nine months ended September 30, 2022 and 2021, the Company did not incur any interest and penalties associated with tax

As of September 30, 2022, the Company did not have any significant unrecognized uncertain tax positions.

the nine months ended September 30, 2022 and 2021, the Company used cash for operations of $ 2,619,000

and $ 1,146,000 ,

respectively.

The Company has a history of operating losses and negative cash flow, which were expected to improve with growth, offset

by working capital required to achieve such growth.

As described more fully in Note 1, our litigation against co-manufacturer has resulted

in uncertainty around our ability to procure product, which in turn may inhibit our ability to achieve positive cash flow.

Additionally,

management has considered that litigation is costly and will require the outlay of cash.

However as of September 30, 2022, we have $ 3,048,000

of cash and restricted cash and even though we have identified certain indicators, these indicators do not raise substantial doubt regarding

the Company’s ability to continue as a going concern.

However, the Company cannot predict, with certainty, the outcome of

its potential actions to generate liquidity, including the availability of additional financing, or whether such actions would generate

the expected liquidity as planned.

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