BARFRESH FOOD GROUP INC. 10-Q

Item 1. Financial Statements. Barfresh Food Group Inc. Condensed Consolidated Balance Sheets September 30, December 31, 2022 2021 (Unaudited) (Audited) Assets Current assets: Cash $ 2,837,000 $ 5,533,000 Restricted cash 211,000 142,000 Trade accounts receivable, net 1,142,000 1,223,000 Other receivables 77,000 - Inventory, net 602,000 705,000 Prepaid expenses and other current assets 137,000 64,000 Total current assets 5,006,000 7,667,000 Property, plant and equipment, net of depreciation 1,241,000 1,588,000 Operating lease right-of-use assets, net 36,000 87,000 Intangible assets, net of amortization 323,000 370,000 Deposits 7,000 7,000 Total assets $ 6,613,000 $ 9,719,000 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 1,802,000 $ 974,000 Accrued expenses 315,000 228,000 Accrued payroll and employee related 231,000 212,000 Lease liability 39,000 81,000 Total current liabilities 2,387,000 1,495,000 Long term liabilities: Accrued interest - 34,000 Lease liability - 14,000 Total liabilities 2,387,000 1,543,000 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; 12,934,741 and 12,905,112 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively - - Additional paid in capital 60,730,000 60,341,000 Accumulated deficit ( 56,504,000 ) ( 52,165,000 ) Total stockholders’ equity 4,226,000 8,176,000 Total liabilities and stockholders’ equity $ 6,613,000 $ 9,719,000 See the accompanying notes to the condensed consolidated financial statements 3 Barfresh Food Group Inc. Condensed Consolidated Statements of Operations For the three and nine months ended September 30, 2022 and 2021 (Unaudited) 2022 2021 2022 2021 For the three months ended September 30, For the nine months ended September 30, 2022 2021 2022 2021 Revenue $ 2,406,000 $ 1,930,000 $ 7,731,000 $ 4,246,000 Cost of revenue 3,129,000 1,209,000 6,807,000 2,614,000 Gross profit ( 723,000 ) 721,000 924,000 1,632,000 Operating expenses: Selling, marketing and distribution 815,000 480,000 2,137,000 1,236,000 General and administrative 1,058,000 586,000 2,736,000 1,598,000 Depreciation and amortization 112,000 163,000 390,000 456,000 Total operating expenses 1,985,000 1,229,000 5,263,000 3,290,000 Operating loss ( 2,708,000 ) ( 508,000 ) ( 4,339,000 ) ( 1,658,000 ) Other (income)/expenses Gain from derivative liability - - - ( 16,000 ) Gain from debt extinguishment - Paycheck Protection Program - - - ( 568,000 ) Loss on debt extinguishment - - - 194,000 Interest - - - 128,000 Total other expense - - - ( 262,000 ) Net loss $ ( 2,708,000 ) $ ( 508,000 ) $ ( 4,339,000 ) $ ( 1,396,000 ) Per share information - basic and fully diluted: Weighted average shares outstanding 12,931,000 12,892,000 12,920,000 12,143,000 Net loss per share $ ( 0.21 ) $ ( 0.04 ) $ ( 0.34 ) $ ( 0.11 ) See the accompanying notes to the condensed consolidated financial statements 4 Barfresh Food Group Inc. Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2022 and 2021 (Unaudited) 2022 2021 Net loss $ ( 4,339,000 ) $ ( 1,396,000 ) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 407,000 370,000 Stock-based compensation 211,000 52,000 Stock and options issued for services 173,000 75,000 Interest expense related to debt discount - 56,000 Gain on debt extinguishment - Paycheck Protection Program - ( 568,000 ) Gain on derivative - ( 16,000 ) Loss on debt extinguishment - 194,000 Changes in assets and liabilities Accounts receivable 81,000 ( 757,000 ) Other receivables ( 77,000 ) - Inventories 103,000 ( 308,000 ) Prepaid expenses and other assets ( 78,000 ) ( 30,000 ) Accounts payable 828,000 1,064,000 Accrued expenses 106,000 46,000 Accrued interest ( 34,000 ) 72,000 Net cash used in operating activities ( 2,619,000 ) ( 1,146,000 ) Investing activities Purchase of property and equipment ( 13,000 ) ( 137,000 ) Net cash used in investing activities ( 13,000 ) ( 137,000 ) Financing activities Proceeds from issuance of stock 5,000 6,000,000 Proceeds from note payable - 568,000 Repayment of convertible notes - ( 840,000 ) Net cash from financing activities 5,000 5,728,000 Net change in cash and restricted cash ( 2,627,000 ) 4,445,000 Cash and restricted cash, beginning of period 5,675,000 1,959,000 Cash and restricted cash, end of period $ 3,048,000 $ 6,404,000 Cash paid during the period for: Amounts included in the measurement of lease liabilities $ 60,000 $ 48,000 Non-cash financing and investing activities: Net carrying value of convertible notes and accrued interest extinguished through issuance of stock $ - $ 467,000 Accrued interest paid in stock $ - $ 151,000 Equipment included in accounts payable and accrued liability $ - $ 85,000 Extinguishment of derivative liability $ - $ 25,000 See the accompanying notes to the condensed consolidated financial statements 5 Barfresh Food Group Inc. Notes to Condensed Consolidated Financial Statements September 30, 2022 (Unaudited) Note 1. Description of the Business, Basis of Presentation, and Summary of Significant Accounting Policies Barfresh Food Group Inc., (“we,” “us,” “our,” and the “Company”) was incorporated on February 25, 2010 in the State of Delaware. The Company is engaged in the manufacture and distribution of ready-to-drink and ready-to-blend beverages, particularly, smoothies, shakes and frappes. Recent Business Developments The 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. Over the course of 2022, the Company has experienced quality issues with the case packaging utilized by the co-manufacturer. In July 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 inventory. 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. The 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. Basis of Presentation The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on March 10, 2022. In management’s opinion, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, that are necessary for a fair presentation of financial results for the interim periods presented. Operating results for any quarter are not necessarily indicative of the results for the full fiscal year. Reverse Stock Split Effective December 29, 2021, the Company amended its certificate of incorporation to implement a 1-for-13 reverse stock split of its issued and outstanding shares of common stock. All the share numbers, share prices, exercise prices and other per share information throughout these financial statements have been adjusted, on a retroactive basis, to reflect the 1-for-13 reverse stock split. 6 Principles of Consolidation The consolidated financial statements include the financial statements of the Company and our wholly owned subsidiaries, Barfresh Inc. and Barfresh Corporation Inc. (formerly known as Smoothie, Inc.). All inter-company balances and transactions among the companies have been eliminated upon consolidation. Use of Estimates The 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 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. Vendor Concentrations The 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: Schedule of Company’s Contact Manufacturers of Finished Goods For the three months ended September 30, For the nine months ended September 30, 2022 2021 2022 2021 Manufacturer A 54 % 31 % 58 % 42 % Manufacturer B 31 % 32 % 28 % 36 % Manufacturer C 9 % 30 % 8 % 15 % Manufacturer D 6 % 7 % 6 % 7 % 100 % 100 % 100 % 100 % Summary of Significant Accounting Policies There have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 10, 2022 that have had a material impact on our condensed consolidated financial statements and related notes. Fair Value Measurement Financial 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. Specifically, ASC 820 sets forth a definition of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. ASC 820 defines the hierarchy as follows: Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed on the New York Stock Exchange. Level 2 – Pricing inputs are other than quoted prices in active markets but are either directly or indirectly observable as of the reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or contracts or priced with models using highly observable inputs. Level 3 – Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models and forecasts used to determine the fair value. Our 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. 7 Restricted Cash At 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. Accounts Receivable As 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 September 30, 2022. The allowance is estimated based on evaluation of collectability of outstanding accounts receivable. Delinquent accounts are written-off when it is determined that the amounts are uncollectible. Other Receivables Other receivables consist of amounts due from vendors for materials acquired on their behalf for use in manufacturing the Company’s products. Revenue Recognition In 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, net of rebates and other marketing allowances. The Company applies the following five steps: 1) 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. 2) 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. 3) Determine the transaction price 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. Subsequent adjustments to estimates of variable consideration have not been material. 4) Allocate the transaction price to performance obligations in the contract Since our contracts contain a single performance obligation, delivery of frozen beverages, the transaction price is allocated to that single performance obligation. 5) Recognize Revenue when or as the Company satisfies a performance obligation The 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 fulfilment costs and presented in distribution, selling and administrative costs. Payments that are received before performance obligations are recorded are shown as current liabilities. The Company evaluated the requirement to disaggregate revenue and concluded that substantially all of its revenue comes from smoothie beverages. 8 Storage and Shipping Costs Storage 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. Research and Development Expenditures for research activities relating to product development and improvement are charged to expense as incurred. The Company incurred approximately $ 220,000 and $ 34,000 , in research and development expense for the three months ending September 30, 2022 and 2021, respectively. For the nine months ending September 30, 2022 and 2021, research and development expense totaled approximately $ 347,000 and $ 173,000 , respectively. Loss Per Share At 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 Certain reclassifications have been made to the 2021 financial statements to conform to the 2022 presentation, including the presentation of selling and marketing expense apart from general and administrative expense in the condensed consolidated statement of operations, and the presentation of a reconciliation of the components of net cash used in operating activities as well as the inclusion of operating lease payments in operating activities in the condensed consolidated statement of cash flows. Recent Pronouncements From time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We have not determined if the impact of recently issued standards that are not yet effective will have an impact on our results of operations and financial position. Note 2. Inventory Inventory consists of the following: Schedule of Inventory September 30, December 31, 2022 2021 Raw materials $ 40,000 $ 105,000 Finished goods 562,000 600,000 Inventory, net $ 602,000 $ 705,000 9 Note 3. Property Plant and Equipment Property and equipment, net consist of the following: Schedule of Major Classes of Property and Equipment September 30, December 31, 2022 2021 Manufacturing and customer equipment $ 3,815,000 $ 3,800,000 Other property 36,000 36,000 Property and equipment, gross 3,851,000 3,836,000 Less: accumulated depreciation ( 3,256,000 ) ( 2,894,000 ) Property and equipment 595,000 942,000 Equipment not yet placed in service 646,000 646,000 Property and equipment, net of depreciation $ 1,241,000 $ 1,588,000 Depreciation expense related to these assets was approximately $ 105,000 and $ 147,000 for the three months 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. Note 4. Convertible Notes and Derivative Liability (Related and Unrelated Party) In 2018, the Company issued Milestone I and Milestone II Convertible Notes, which were repaid and converted in the second quarter of 2021. The Milestone II Convertible Notes contained variable conversion provisions based on the future price of the Company’s common stock, resulting in the potential issuance of an indeterminate number of shares of common stock upon conversion. The Company measured the fair value of the derivative resulting from the variable conversion provisions each reporting period. Upon debt extinguishment the Company’s derivative liability was revalued at approximately $ 25,000 , resulting in a gain of approximately $ 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 extinguishment. Note 5. Commitments and Contingencies Lease Commitments The 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 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 . The following table presents the future operating lease payment as of September 30, 2022: Schedule of Estimate Future Maturities of Lease Liabilities 2022 (three months remaining) $ 20,000 2023 20,000 Total lease payments 40,000 Less: imputed interest ( 1,000 ) Total lease liability $ 39,000 Legal Proceedings As 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. From time to time, various lawsuits and legal proceedings may arise in the ordinary course of business. 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 unfavorable outcome to be remote. 10 Note 6. Stockholders’ Equity The following are changes in stockholders’ equity for the nine months ended September 30, 2021 and September 30, 2022: Barfresh Food Group, Inc. Condensed Consolidated Statements of Stockholders’ Equity Schedule of Changes in Stockholders' Equity Additional Common Stock paid in Accumulated Shares Amount Capital (Deficit) Total Balance December 31, 2020 11,471,797 $ - $ 53,224,000 $ ( 50,900,000 ) $ 2,324,000 Issuance of stock for capital raise 1,282,051 - 6,000,000 - 6,000,000 Conversion of debt and accrued interest 114,614 - 685,000 - 685,000 Interest paid in shares 19,377 - 151,000 - 151,000 Issuance of stock for services 4,579 - 75,000 - 75,000 Equity based compensation - - 52,000 - 52,000 Shares issued for warrant exercise Shares issued for warrant exercise, shares Net loss - - - ( 1,396,000 ) ( 1,396,000 ) Balance September 30, 2021 12,892,418 $ - $ 60,187,000 $ ( 52,296,000 ) $ 7,891,000 Additional Common Stock paid in Accumulated Shares Amount Capital (Deficit) Total Balance December 31, 2021 12,905,112 $ - $ 60,341,000 $ ( 52,165,000 ) $ 8,176,000 Beginning balance 12,905,112 $ - $ 60,341,000 $ ( 52,165,000 ) $ 8,176,000 Shares issued for warrant exercise 986 - 5,000 - 5,000 Equity based compensation 5,000 - 211,000 - 211,000 Issuance of stock for services 23,643 - 173,000 - 173,000 Net loss - - - ( 4,339,000 ) ( 4,339,000 ) Balance September 30, 2022 12,934,741 $ - $ 60,730,000 $ ( 56,504,000 ) $ 4,226,000 Ending balance 12,934,741 $ - $ 60,730,000 $ ( 56,504,000 ) $ 4,226,000 Warrants During 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 . Equity Incentive Plan Stock Options The following is a summary of stock option activity for the nine months ended September 30, 2022: Summary of Stock Options Activity Number of Options Weighted average exercise price per share Remaining term in years Outstanding on December 31, 2021 625,016 $ 7.55 3.8 Issued 56,980 $ 5.90 Cancelled/expired ( 17,644 ) $ 5.08 Outstanding on September 30, 2022 664,352 $ 7.38 3.2 Exercisable, September 30, 2022 577,242 $ 7.64 2.7 11 The fair value of the options issued was calculated using the Black-Scholes option pricing model, based on the following: Summary of Fair Value of Options Using Black-Sholes Option Pricing Model 2022 Expected term (in years) 5.5 - 8 Weighted average expected volatility 84.8 % Weighted average risk-free interest rate 2.1 % Expected dividends $ - Weighted average grant date fair value per share $ 4.53 As 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. Restricted Stock The following is a summary of restricted stock award and restricted stock unit activity for the nine months ended September 30, 2022: Summary of Restricted Stock Award and Restricted Stock Unit Activity Number of shares Weighted average grant date fair value Unvested at January 1, 2022 - $ - Granted 41,554 $ 5.27 Forfeited ( 4,631 ) $ 5.38 Unvested at September 30, 2022 36,923 $ 5.25 As 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. Performance Stock Units During 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 of grant. The following table summarizes the activity for the Company’s unvested PSUs for the nine months ended September 30, 2022: Summary of Performance Stock Unit Activity Number of shares Weighted average grant date fair value Unvested at January 1, 2022 - $ - Granted 123,512 $ 4.50 Forfeited ( 1,889 ) $ 4.50 Unvested at September 30, 2022 121,623 $ 4.50 The 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. 12 Note 7. Income Taxes 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 the deferred tax assets will not be recognized. Accordingly, at this time the Company has placed a valuation allowance on all tax assets. As of September 30, 2022, the estimated effective tax rate for the 2022 was zero. There are open statutes of limitations for taxing authorities in federal and state jurisdictions to audit our tax returns from 2017 through the current period. Our policy is to account for income tax related interest and penalties in income tax expense in the statement of operations. For the three and nine months ended September 30, 2022 and 2021, the Company did not incur any interest and penalties associated with tax positions. As of September 30, 2022, the Company did not have any significant unrecognized uncertain tax positions. Note 8. Liquidity During 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.