What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-02 compared with 2022-03-10 · 164 added, 210 removed, 94 unchanged (80% of the section changed)

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of this Annual Report.

Company’s products are packaged in four distinct

Company’s ready-to-drink bottled smoothie, “Twist & Go”™, has initially been focused towards the USDA national

school meal program, including the School Breakfast Program, the National School Lunch Program and Smart Snacks in Schools Program..

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

strawberry banana, peach and mango pineapple.

“Twist & Go”™ contains no added sugars, preservatives, artificial

flavors or colors.

At only 125 -130 calories and with 5 grams of protein, it makes the perfect start to any day or on-the-go

Company’s bulk “Easy Pour” format, which contains all the ingredients necessary to make the beverage, is packaged

in gallon containers in a concentrated formula that is mixed 1:1 with water.

The Company has a “no sugar added” version of

the bulk “Easy Pour” format that is specifically targeted for the aforementioned USDA national school meal programs.

Company’s products are packaged in three distinct formats.

Company’s ready-to-drink smoothie, Twist & Go™, has initially been focused towards the USDA national school meal program,

including the School Breakfast Program, the National School Lunch Program and Smart Snacks in Schools Program.

This sweet fruit and creamy

yogurt smoothie contains four ounces of yogurt and a half-cup of fruit/fruit juice and comes in three different flavors:

strawberry banana,

peach and mango pineapple.

“Twist & Go”™ contains no added sugars, preservatives, artificial flavors or colors.

At only 125 -130 calories and with 5 grams of protein, it makes the perfect start to any day or on-the-go snack.

Company’s bulk “Easy Pour” format, which contains all the ingredients necessary to make the beverage, is packaged in

gallon containers in a concentrated formula that is mixed 1:1 with water.

The Company has a “no sugar added” version of the

bulk “Easy Pour” format that is specifically targeted for the aforementioned USDA national school meal programs.

the Company received approval from the United States Defense Logistics Agency (“DLA”) to sell its smoothie products into

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military bases in the United States and abroad.

Company’s WHIRLZ 100% Juice Concentrates are a perfect complement to the Company’s current existing 1:1 bulk Easy Pour products

used in beverage dispensing equipment.

The 100% juice concentrates offer a more affordably priced product that responds to the need of

the schools to have a wider range of options at various price points.

The products are USDA reimbursable, Smart Snack Compliant for schools

in the United States, a good source of Vitamin C, contain no added sugars and come in fun, great-tasting flavors.

Company’s single-serve format features portion controlled and ready-to-blend beverage ingredient packs or “beverage packs”.

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

primary broadline distribution arrangement is through a nationwide agreement with Sysco Corporation (“Sysco”), the U.S.’s

largest broadline distributor.

Pursuant to that agreement, all Barfresh products are included in Sysco’s national core selection

of beverage items.

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.

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

Neither party has exercised its right to terminate the agreement.

This agreement remains in effect.

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

Recent developments

June 1, 2021, the Company completed a private placement of 1,282,051 shares of its common stock at $4.68 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 133,991

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

Additionally, in 2021, two PPP loans amounting

to $1,136,262 were forgiven as a result, the company has no debt outstanding.

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.

In February 2023, Barfresh terminated the agreement.

Such termination is not anticipated to have a significant impact on sales.

we have 13 employees and 3 consultants.

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

products are produced to specifications through several contract manufacturers.

One of our contract manufacturers (the “Manufacturer”)

has provided approximately 52% and 42% of our products in the years ended December 31, 2022 and 2021, respectively, under a Supply Agreement

with an initial term through September 2025.

the course of 2022, we experienced numerous quality issues with the case packaging utilized by the Manufacturer.

In addition, in

July of 2022, we began receiving customer complaints about the texture of our smoothie products produced by the Manufacturer.

response, we withdrew product from the market and destroyed on-hand inventory, withholding $499,000 in payments due to the

Manufacturer.

The results reflect the estimated accounting impact of such actions, including an estimated product return allowance

of $330,000 and total product returns reducing revenue by $493,000 as of and for the year ended December 31, 2022, and $932,000 in

cost of revenue to dispose of unsaleable inventory.

attempted to resolve the issues based on the contractual procedures described in the Supply Agreement.

However, on November 4, 2022,

in response to a formal proposal of alternate resolutions, we received notification from the Manufacturer that it denied any responsibility

for the defective manufacture of the product.

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

for the Central District of California, Western Division (the “Complaint”), claiming that the Manufacturer has not met its

obligations under the Supply Agreement, and seeking economic damages.

In response, the Manufacturer terminated the Supply Agreement.

On January 20, 2023, we filed a voluntary dismissal of the Complaint which allows the parties to reach a potential resolution outside

of the court system.

However, if the parties are once again unable to come to an agreement, we have the right to refile the Complaint

in California State Court.

to the uncertainties surrounding the claim, we are not able to predict either the outcome or a range of reasonably possible recoveries

that could result from its actions against the Manufacturer, and no gain contingencies have been recorded.

The disruption in 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.

Accounting Policies

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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.

Variable consideration, which typically includes rebates or discounts, are estimated

utilizing the most likely amount method.

Provisions for refunds and other adjustments are generally provided for in the period the related sales are recorded,

based on management’s assessment of historical and projected trends.

the transaction price to performance obligations in the contract

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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.

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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.

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.

(RSUs) and performance stock units (PSUs), 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

Expense for PSUs is recognized based on expected performance against targets.

of Operations

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The overall revenue for 2022 was significantly higher due

to growing “Twist & Go”™ revenue

and the gradual return of single serve and bulk demand.

to growing Twist & Go™ revenue prior

to our product withdrawal resulting from the quality complaints with product purchased from the Manufacturer.

As a result of the withdrawal,

we recorded a reserve for anticipated sales claims and administrative fees of $493,000.

We anticipate that our revenues will be adversely

impacted as a result of the dispute unless and until new sources of reliable supply at sufficient volume can be identified and developed,

the timing of which is uncertain.

of revenue for 2022 was $7,722,000 as compared to $4,193,000 in 2021.

Our gross profit was $2,507,045 (37%) and $764,072 (30%)

for 2021 and 2020, respectively.

This improvement was mainly driven by improving Twist & Go ™

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

from manufacturing equipment was $17,673 and $18,938 for December 31, 2021 and 2020, respectively.

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

general and administrative expenses decreased $400,274 (9%) from $4,379,976 in 2020 to $3,979,702 in 2021.

and storage costs were significantly higher due to higher sales volume and due to unprecedented market prices and labor shortages, which

offset lower research and development and personnel costs.

The following is a breakdown of our general and administrative expenses

for the years 2021 and 2020.

Year ended December 31,

Our gross profit was $1,440,000 (16%) and $2,507,000 (37%) for

2022 and 2021, respectively.

Cost of revenue was adversely impacted by the completed and anticipated disposals of Twist

& Go™ product purchased from the Manufacturer, resulting in a charge of $932,000.

Depreciation from manufacturing equipment

was $29,000 and $18,000 for December 31, 2022 and 2021, respectively.

marketing and distribution expense

Sales and marketing

Storage and outbound freight

marketing and distribution expense increased approximately $1,051,000 (58%) from approximately $1,810,000 in 2021 to $2,861,000 in 2022.

and marketing expense increased approximately $638,000 (84%) from approximately $756,000 in 2021 to $1,394,000 in 2022.

in sales and marketing expense was primarily the result of the retention of new employees and outside service providers to assist with

sales and initiatives, including, beginning in the third quarter of 2022, brokers specializing in the school market.

Additionally, the

Company increased its participation in education nutrition trade shows in 2022.

and outbound freight expense increased approximately $413,000 (39%) from approximately $1,054,000 in 2021 to $1,467,000 in 2022.

increase was primarily a result of the 37% increase in revenue.

and administrative expense

Personnel costs

Stock based compensation/options

Legal and professional fees

Marketing and selling

Consulting fees

Director fees

Stock-based compensation and payment for outside services

Legal, professional and consulting fees

Director fees paid in cash

Research and development

Shipping and storage

Other expenses

cost represents the cost of employees including salaries, bonuses, employee benefits and employment taxes for the years 2021 and 2020

and continues to be our largest cost.

Personnel cost decreased $264,953 (17%) from $1,581,414 to $1,316,461 as a result of staffing vacancies.

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

Other general and administrative expenses

and administrative expense increased approximately $1,379,000 (64%) from approximately $2,170,000 in 2021 to $3,549,000 in 2022.

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

Personnel cost increased by approximately $510,000 (61%) from approximately $830,000 to $1,340,000.

The increase in personnel cost

was partially offset by the decrease in consulting fees as we choose to hire permanent staff as the critical stages of the COVID-19 pandemic

waned, rather than rely on consultants and temporary staff.

compensation is used as an incentive to attract and compensate employees and other service providers.

Stock-based compensation includes

stock issued and options granted primarily to employees and members of our board of directors.

Stock compensation for the year ended

December 31, 2021 was $91,959, a decrease of $184,682, or 67%, from the year ended December 31, 2020 expense of $276,641.

is primarily due to changes in our workforce and the timing of equity grants.

The Company issues additional stock options to its employees

from time to time under its Equity Compensation Plan.

and professional fees decreased 35%, or $103,809, from $300,047 in 2020 to $196,238 in 2021.

The decrease was primarily due to reduced

legal services required.

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

arrangements with existing service providers.

expenses decreased $49,201 (57%) from $86,569 in 2020 to $37,368 in 2021.

The decrease is primarily due to reduced travel associated

with terminated employees and COVID restrictions.

We anticipate that travel expenses for 2022 will increase compared to the current year

as business resumes with COVID restrictions being lifted.

and selling expenses decreased $67,827 (33%) from $205,050 in 2020 to $137,223 in 2021.

Lower marketing and selling expenses were primarily

due to lower percentage commissions associated with renegotiated distribution agreements.

fees increased $162,996 (215%), from $75,890 in 2020, to $238,886 in 2021.

The increase was due primarily to services related to consulting

to improve sales operations and temporary labor to bridge staffing vacancies.

Our consulting fees vary based on needs.

We engaged consultants

in the areas of sales operations during both 2021 and 2020.

The need for future consulting services will be variable.

fees increased $62,500, or 33%, from $187,500 in 2020 to $250,000 in 2021 as we had more non-employee directors in 2021 who

received compensation.

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

and development expenses decreased $270,536 (53%) from $515,145 in 2020 to $244,609 in 2021 due to reduced product development activity

with national accounts and fewer market tests.

These expenses relate to the services performed by our Director of Manufacturing and Product

Development, and consultants supporting that employee.

These activities are primarily directed towards the development of new

and storage expense increased $565,717 (116%) from $488,465 in 2020 to $1,054,182 in 2021.

is primarily due to higher sales volume, higher fuel costs, and from costs resulting from relocating materials from one location to another.

We anticipate that shipping and storage expense as a percentage of sales will reduce during 2022, 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 2022.

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

expense decreased $247,552, from $581,061 in 2020 to $333,509 in 2021, driven mainly by equipment repair, recruiting, and insurance expense.

(income)/expenses

expense decreased $349,376 (73%) from $479,144 in 2020 to $129,768 in 2021.

This decrease is due to the conversion and

repayment of convertible notes during 2020 and 2021.

change in fair value of the derivative liability resulted in gains of $16,305 and $156,540 for the years ended December 31, 2021 and

2020, respectively.

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.

The derivative

liability was settled upon conversion and repayment of the convertible notes in June 2021.

recorded a gain on extinguishment of PPP debt of $1,136,262 in 2021.

We also recognized a loss of $193,562 on debt extinguishment in

2021, as compared to a gain of $379,200 in 2020, both resulting from differences between the reacquisition price and the carrying amount

of debt extinguished.

In 2020, we recognized a gain of $437,201 related to the portion of convertible notes that were converted to common

stock on March 20, 2020, offset by a loss on extinguishment of debt of $58,001 related to the portion of convertible notes that were

extended by either 24 months for Milestone I, or 12 months for Milestone II.

had net losses of $1,265,147 and $4,152,506 for the years 2021 and 2020, respectively.

This reduction in net loss, in the amount

of $2,887,359, or 56%, is primarily attributable to the same factors that drove the improvement in gross profit and operating

expenses, as well as the gain from extinguishment of the PPP loans.

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

Stock-based compensation for the year ended December 31, 2022 was approximately

$559,000 compared to $281,000 for the year ended December 31, 2021 due to the aforementioned increase in staffing, and the institution

of our performance-based stock compensation program in the third quarter of 2022.

Stock-based compensation in 2021 benefited from forfeiture

credits due to the departure of two key employees.

professional, and consulting fees increased approximately $103,000 (26%) from approximately $396,000 in 2021 to $499,000 in 2022.

increase was primarily due to the dispute and litigation with the Manufacturer and corporate development activities.

and development expense increased approximately $137,000 (56%) from approximately $245,000 in 2021 to $382,000 in 2022.

is primarily due to materials consumed in pre-production runs at a new contract manufacturer that provided our Twist

& Go™ product in carton format starting in the fourth quarter of 2022 .

Additionally, we incurred costs investigating the quality issue that occurred with the Manufacturer.

expense increased approximately $351,000 (110%) from approximately $318,000 in 2021 to $669,000 in 2022.

In 2022, we incurred approximately

$175,000 in one-time costs related to the uplist of our common stock to the NASDAQ Stock Market.

Additionally, we experienced maintenance

cost increases related to equipment loaned to our bulk product customers, and an increase in annual meeting costs.

evaluate the recoverability of property and equipment and finite-lived intangible assets for possible impairment whenever events or circumstances

indicate that the carrying amount of such assets may not be recoverable.

The evaluation is performed at the lowest level for which identifiable

cash flows are largely independent of the cash flows of other assets and liabilities.

Recoverability of these assets is measured by a

comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate.

If such review indicates

that the carrying amount of property and equipment and intangible assets is not recoverable, the carrying amount of such assets is reduced

to fair value.

We recorded impairment charges of $746,000 related to idle equipment resulting from overcapacity for single-serve products

and equipment that is held at the Manufacturer.

had operating losses of approximately $6,219,000 and $2,095,000 for the years ended December 31, 2022 and 2021, respectively.

of approximately $4,124,000 or 196%, was primarily due to $1,425,000 in charges related to the aforementioned product quality issue and

withdrawal, the asset impairment of $746,000 and other increases in operating expense.

income and expense

change in the value of the derivative liability is based upon the Black-Scholes model from one period to another.

The gain of approximately

$16,000 for the year ended December 31, 2021 was a result of the change in components of the Black-Scholes model.

The derivative liability

was settled upon conversion and repayment of the convertible notes in the second quarter of 2021, which resulted in an extinguishment

loss of $194,000.

recorded a gain on extinguishment of Covid-19 related Paycheck Protection Program (“PPP”) loan of $1,136,000 in the year

ended December 31, 2021.

expense was approximately $128,000 for the year ended December 31, 2021.

Interest related to convertible debt that was converted and

repaid in 2021.

We did not incur any interest expense for the year ended December 31, 2022.

had net losses of approximately $6,219,000 and $1,265,000 in the years ended December 31, 2022 and 2021, respectively, an increase of

$4,954,000 due primarily to the $1,425,000 charges related to the product withdrawal and the asset impairment of $746,000 in 2022, increases

in operating expense and the $1,136,000 gain on forgiveness of the PPP loan in 2021.

and Capital Resources

of December 31, 2021, we had a working capital surplus of $6,170,701 as compared with a working capital surplus of $1,196,742

at December 31, 2020.

The increase in working capital surplus is primarily due to the completion of the private placement of our

common stock which resulted in gross proceeds of $6,000,000, offset by the debt extinguishment of all convertible debt of which $840,000

of the principal debt was paid in cash.

of December 31, 2022, we had working capital of $1,801,000 compared with $6,172,000 at December 31, 2021.

The decrease in working capital

is primarily due to the operating loss of $6,219,000, partially offset by non-cash expenses of $1,834,000.

the year ended December 31, 2022, we used $2,648,000 in operations and $13,000 for the purchase of equipment.

impact of COVID-19 on the Company is constantly evolving.

The direct impact to our operations had begun to take effect at the close of

the first quarter ended March 31, 2020.

Specifically, our business was impacted by dining bans targeted at restaurants to reduce the

size of public gatherings.

Such bans precluded our single serve products from being served at those establishments for a number of weeks,

and in some instances, resulted in abandoned product launches.

Furthermore, many school districts closed regular attendance for a period

of time thereby disrupting sales of product into that channel.

More recently, we have experienced a disruption in the supply chain for

manufacturing our products due to COVID-19.

The developments surrounding COVID-19 remain fluid and dynamic, and consequently, will require

the Company to continue to monitor news headlines from government and health officials, as well as the business community.

each of the years ended December 31, 2021 and 2020, the Company was granted a $568,000 loan under the PPP administered by a Small Business

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shares of common stock and debt in the amount of $840,000 was retired, leaving the Company with no debt.

the year ended December 31, 2021, we used cash of $1,861,633 in operations, $150,545 for the purchase of equipment, and

$840,000 for the repayment of debt.

The Company received $6,000,000 in cash for issuance of stock, and $568,131 for an SBA PPP loan.

the year ended December 31, 2020, the Company completed a funding, including a Private Placement Offering for common shares priced at

$6.50 per share (subject to adjustment) in the amount of $3,825,000 and the issuance of 588,462 shares.

The investors of this Private

Placement Offering were granted 294,231 O warrants, exercisable for a period of 3 years at an exercise price of $7.80 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 $6.50 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 $4.55 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;

(b) a warrant for 0.50 shares for each additional share issued, with an exercise price equal to the sum of $1.30 per share and the Six

Month Price, but in no event less than $5.85 per share.

On September 28, 2020, the Company issued 409,451 additional shares in accordance

with provisions of the Private Placement Offering and an additional 204,726 warrants exercisable at $5.85 per share.

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 $6.50 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.

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

The aggregate minimum requirements under the

non-cancellable direct lease as of December 31, 2022 is approximately $20,000.

The Company extended its lease through June 2023

while management evaluates options for renewal or relocation.

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.

impact of COVID-19 on the Company is constantly evolving.

The direct impact to our operations had begun to take effect at the close of

the first quarter ended March 31, 2020.

Specifically, our business was impacted by dining bans targeted at restaurants to reduce the

size of public gatherings.

Such bans precluded our single serve products from being served at those establishments for a number of weeks,

and in some instances, resulted in abandoned product launches.

Furthermore, many school districts closed regular attendance for a period

of time thereby disrupting sales of product into that channel.

More recently, we have experienced a disruption in the supply chain

for manufacturing our products due to COVID-19.

The developments surrounding COVID-19 remain fluid and dynamic, and consequently, will

require the Company to continue to monitor news headlines from government and health officials, as well as, the business community.

Our recent business developments with the Manufacturer

impact our supply chain and will result in increased legal cost and are expected to have a negative impact on our financial position,

results of operations and cash flow.

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

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

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

The aggregate minimum requirements

under the non-cancellable direct lease as of December 31, 2021 is approximately $101,000.

Sheet Arrangements

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What changed 10-K

Item 7. Management’s Discussion and Analysis