What changed in this filing

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Item 1. Financial Statements

2023-04-27 compared with 2022-11-14 · 200 added, 270 removed, 157 unchanged (75% of the section changed)

Financial Statements.

Food Group Inc.

Consolidated Balance Sheets

September 30,

Barfresh Food Group Inc.

Condensed Consolidated Balance Sheets

Current assets:

11 unchanged sentences

Accounts payable

Disputed co-manufacturer accounts payable (Note 4)

Accrued expenses

2 unchanged sentences

Total current liabilities

Long term liabilities:

Accrued interest

Lease liability

Total liabilities

4 unchanged sentences

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

13,002,603 and 12,934,741 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

Additional paid in capital

7 unchanged sentences

Consolidated Statements of Operations

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,

the three months ended March 31, 2023 and 2022

Cost of revenue

4 unchanged sentences

Total operating expenses

Operating loss

$ ( 910,000 )

$ ( 895,000 )

( 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 )

$ ( 508,000 )

$ ( 4,339,000 )

$ ( 1,396,000 )

Per share information - basic and fully diluted:

4 unchanged sentences

Consolidated Statements of Cash Flows

the nine months ended September 30, 2022 and 2021

the three months ended March 31, 2023 and 2022

$ ( 910,000 )

$ ( 895,000 )

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

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

Depreciation and amortization

Stock-based compensation

Stock and options issued for services

Changes in assets and liabilities

Accounts receivable

Other receivables

Prepaid expenses and other assets

Accounts payable

Accrued expenses

Net cash used in operating activities

( 1,242,000 )

( 1,132,000 )

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

Investing activities

Purchase of property and equipment

Net cash used in investing activities

Financing activities

Proceeds from issuance of stock

Net cash provided by financing activities

Net decrease in cash and restricted cash

( 1,242,000 )

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

( 1,141,000 )

Cash and restricted cash, beginning of period

Cash and restricted cash, end of period

Cash paid during the year for:

Amounts included in the measurement of lease liabilities

Non-cash financing and investing activities:

Value of shares relinquished in modification of stock-based compensation awards (Note 5)

the accompanying notes to the condensed consolidated financial statements

4 unchanged sentences

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.

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.

The Company is engaged in the manufacturing and distribution of ready-to-drink and ready-to-blend

beverages, particularly, smoothies, shakes and frappes.

of Presentation

14 unchanged sentences

of the results for the full fiscal year.

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.

of Consolidation

4 unchanged sentences

eliminated upon consolidation.

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.

preparation of 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.

Concentrations

1 unchanged sentence

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,

Purchases from the Company’s significant contract manufacturers as a percentage of all finished goods purchased

were as follows:

of Company’s Contract Manufacturers of Finished Goods

For the three months ended March 31,

Manufacturer A

1 unchanged sentence

Manufacturer C

Manufacturer D

of Significant Accounting Policies

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.

Value Measurement

2022, as filed with the SEC on March 2, 2023 that have had a material impact on our condensed consolidated financial statements and related

Value Measurement and Financial Instruments

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:

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.

2 – Pricing inputs are other than quoted prices in active markets but are either directly or indirectly observable as of the reported

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.

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.

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.

and Disclosures (“ASC 820”), that requires the valuation of assets and liabilities permitted to be either recorded or

disclosed at fair value based on a hierarchy of available inputs as follows:

1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or

2 – Quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets and liabilities in markets

that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

3 – Prices or valuation techniques that require inputs that are both significant to the fair value and unobservable (i.e., supported

by little or no market activity).

Company’s financial instruments consist of cash, restricted cash, accounts receivable and accounts payable.

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 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.

of the Company’s financial instruments approximates their fair value.

each of March 31, 2023 and December 31, 2022, the Company had approximately $ 211,000 in restricted cash related to a co-packing agreement.

Receivable and Allowances

Accounts receivable are recorded and carried at the original invoiced amount

less allowances for credits and for any potential uncollectible amounts due to credit losses.

We make estimates of the expected credit

and collectability trends for the allowance for credit losses based on our assessment of various factors, including historical experience,

the age of the accounts receivable balances, credit quality of our customers, current economic conditions, and other factors that may

affect our ability to collect from our customers.

Expected credit losses are recorded as general and administrative expenses on our condensed

consolidated statements of operations.

of March 31, 2023 and December 31, 2022, there was no allowance for doubtful accounts.

receivables consist of amounts due from vendors for materials acquired on their behalf for use in manufacturing the Company’s products,

vendor rebates and freight claims.

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:

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 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.

Provisions for refunds 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

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

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,

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.

the Company’s 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 fulfilment costs and presented in distribution, selling and administrative

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.

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

product, frozen 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 outbound freight costs are included in selling, marketing and distribution expense.

For the three months ending March 31, 2023 and

2022, storage and outbound freight totaled approximately $ 311,000 and $ 386,000 , respectively.

and Development

1 unchanged sentence

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.

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.

$ 21,000 and $ 31,000 , in research and development expense for the three months ending March 31, 2023 and 2022, respectively.

the three months ended March 31, 2023 and 2022 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

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.

reclassifications have been made to the 2022 financial statements to conform to the 2023 presentation, namely the presentation of selling

and marketing expense apart from general and administrative expense in the consolidated statement of operations, the reclassification

of materials shipping to cost of revenue, and the presentation of the components of cash used in operations.

Pronouncements

3 unchanged sentences

consists of the following:

September 30,

Raw materials

3 unchanged sentences

and equipment, net consist of the following:

of Major Classes of Property and Equipment

September 30,

of Property and Equipment, Net

Manufacturing and customer equipment

4 unchanged sentences

( 3,317,000 )

Property and equipment

Equipment not yet placed in service

Property and equipment, net of 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.

Convertible Notes and Derivative Liability (Related and Unrelated Party)

2018, the Company issued Milestone I and Milestone II Convertible Notes, which were repaid and converted in the second quarter of 2021.

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.

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.

expense related to these assets was approximately $ 92,000 and $ 145,000 for the three months ended March 31, 2023 and 2022, respectively.

Depreciation expense in cost of revenue was $ 4,000 for the three months ended March 31, 2023.

There was no depreciation expense in cost

of revenue for the three months ended March 31, 2022.

Commitments and Contingencies

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 .

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)

Total lease payments

imputed interest

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.

Company leases office space under a non-cancellable operating lease which expired on March 31, 2023 , and was extended through June 30,

The Company’s periodic lease cost was approximately $ 20,000 for each of the three months ended March 31, 2023 and 2022.

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

One of the Company’s contract

manufacturers (the “Manufacturer”) provided approximately 52 % and 42 % of the Company’s 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, the Company experienced numerous quality issues with the case packaging utilized by the Manufacturer.

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

by the Manufacturer.

In response, the Company withdrew product from the market and destroyed on-hand inventory, withholding $ 499,000

in payments due to the Manufacturer.

Company 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, the Company received notification from the 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 (the “Complaint”), claiming

that the Manufacturer had not met its obligations under the Supply Agreement, and seeking economic damages.

In response, the Manufacturer

terminated the Supply Agreement.

On January 20, 2023, the Company 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, the

Company has the right to refile the Complaint in California State Court.

to the uncertainties surrounding the claim, the Company is 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 its supply

resulting from the dispute has and will continue to 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.

legal matters

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

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.

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.

Our legal counsel and management believe the probability

of a material unfavorable outcome is remote.

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

following are changes in stockholders’ equity for the three months ended March 31, 2022 and 2023:

Schedule of Changes in Stockholders' Equity

1 unchanged sentence

$ ( 52,165,000 )

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

Shares issued for warrant exercise

Equity-based compensation

Issuance of stock and options for services

Cash settlement of equity-based compensation

Balance March 31, 2022

$ ( 53,060,000 )

1 unchanged sentence

$ ( 58,384,000 )

$ ( 52,165,000 )

Shares issued for warrant

based compensation

of stock for services

Beginning balance

$ ( 58,384,000 )

Equity-based compensation

Cash settlement of equity-based compensation

Issuance of stock and options for services

$ ( 910,000 )

Balance September 30, 2022

Balance March 31, 2023

$ ( 59,294,000 )

Ending balance

$ ( 59,294,000 )

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 .

the three months ended March 31, 2023, 684,639 warrants at a weighted average exercise price of $ 5.85 per share expired.

Incentive Plan

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

2022, the Company issued equity awards under the 2015 Equity Incentive Plan (the “2015 Plan”) and outside the Plan.

2023, the Board of Directors adopted the 2023 Equity Incentive Plan (the “2023 Plan”), reserving 650,000 shares for future

issuance, and discontinuing further grants under the 2015 Plan.

of March 31, 2023, the Company has $ 227,000 of total unrecognized share-based compensation expense relative to unvested options, stock

awards and stock units, which is expected to be recognized over the remaining weighted average period of 1.8 years.

following is a summary of stock option activity for the three months ended March 31, 2023:

Summary of Stock Options Activity

Number of Options

exercise price per share

exercise price

term in years

Outstanding on December 31, 2022

Cancelled/expired

Outstanding on September 30, 2022

Exercisable, September 30, 2022

Outstanding on March 31, 2023

Exercisable, March 31, 2023

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

1 unchanged sentence

Expected term (in years)

Weighted average expected volatility

Weighted average risk-free interest rate

Expected volatility

Risk-free interest rate

Expected dividends

Weighted average grant date fair value per share

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 nine months ended September 30, 2022:

following is a summary of restricted stock award and restricted stock unit activity for the three months ended March 31, 2023:

of Restricted Stock Award and Restricted Stock Unit Activity

2 unchanged sentences

Unvested at January 1, 2023

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:

Unvested at March 31, 2023

2022, the Company issued performance share units (“PSUs”) that represented shares potentially issuable based upon Company

and individual performance in 2022.

following table summarizes the activity for the Company’s unvested PSUs for the three months ended March 31, 2023:

of Performance Stock Unit Activity

Number of shares

average grant

1 unchanged sentence

Unvested at January 1, 2023

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.

Unvested at March 31, 2023

February 2023, the unvested awards issued for individual performance and outstanding at January 1, 2023 were modified to cash-settle

the original grant-date fair value of approximately $ 80,000 ,

resulting in incremental compensation of $ 56,000

after considering the $ 24,000 fair value of the vested shares at the date of the modification.

Additionally, the Company performance

targets were modified to allow approximately 71,000

PSU to vest, with an additional time-based vesting requirement for approximately 26,000

Because the awards did not vest based on the original terms, the modification was considered a new grant, resulting in

in compensation expense in the three-months ended March 31, 2023.

Company adopted a 2023 PSU program in April 2023, granting approximately 172,000 PSUs at target performance.

The results for the three-month

period ended March 31, 2023 include $ 67,000 in stock-based compensation expense as management determined that the service inception date

preceded the grant date.

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

As of March 31, 2023, the estimated effective tax rate for the 2023 was zero .

are open statutes of limitations for taxing authorities in federal and state jurisdictions to audit our tax returns from 2018 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 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.

the three months ended March 31, 2023 and 2022, the Company did not incur any interest and penalties associated with tax positions.

of March 31, 2023, the Company did not have any significant unrecognized uncertain tax positions.

the three months ended March 31, 2023, the Company used cash for operations of $ 1,242,000 .

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.

more fully in Note 4, the dispute and subsequent contract termination with the 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

dispute resolution, including litigation, is costly and will require the outlay of cash.

as of March 31, 2023, the Company has $ 1,777,000 of cash and restricted cash and even though management has identified certain indicators,

these indicators do not raise substantial doubt regarding the Company’s ability to continue as a going concern.

However, management

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