What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-04-27 compared with 2022-11-14 · 69 added, 167 removed, 52 unchanged (82% of the section changed)

24 unchanged sentences

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 a material impact on our condensed consolidated financial statements and related

Accounting Pronouncements

Note 1 to the accompanying notes to unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q

for further details regarding this topic.

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

of America (“GAAP”).

of Operations

of Operation for Three Months Ended September 30, 2022 as Compared to the Three Months Ended September 30, 2021

of Operation for Three Months Ended March 31, 2023 as Compared to the Three Months Ended March 31, 2022

and cost of revenue

increased by approximately $476,000 (25%) from approximately $1,930,000 in 2021 to approximately $2,406,000 in 2022.

The overall revenue

for the third quarter 2022 was higher due to growth in “Twist & Go”™

revenue and the gradual return of single serve demand.

Revenue in the third quarter of 2022 was adversely impacted by a withdrawal of

“Twist & Go”™ product manufactured by one of its co-manufacturers.

The withdrawal resulted from quality complaints that are the subject of a legal dispute that is more fully described in the footnotes

of the accompanying financial statements.

As a result of the withdrawal, we recorded a reserve for anticipated sales claims and distributor

administrative fees of $630,000.

The Company anticipates that its revenues will be adversely impacted as a result of the dispute unless

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

timing of which is uncertain.

of revenue for 2022 was approximately $3,129,000 as compared to approximately $1,209,000 in 2021.

Cost of revenue in the third quarter

of 2022 was adversely impacted by the anticipated disposal of withdrawn inventory, amounting to $932,000 including ancillary costs.

gross profit was approximately ($723,000) (-30%) and $721,000 (37%) for 2022 and 2021, respectively.

Excluding the impact of the product

withdrawal on both revenue and cost of revenue, our gross profit in the third quarter was $839,000 (28%).

The decrease in the third quarter

is primarily due to product mix which includes a higher proportion of “Twist & Go”™

at slightly lower product margins.

decreased $435,000, or 17%, from $2,526,000 in 2022 to $2,091,000 in 2023.

The decline in revenue was due to limited supply due to our

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

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 2023 was $1,236,000 as compared to $1,762,000 in 2022.

Our gross profit was $855,000 (41%) and $764,000 (30%) for 2023

and 2022, respectively.

Cost of revenue declined as a result of the 17% decrease in revenue, partially offset by lower costs relative

to revenue on the smoothie carton product, resulting in the 1,100-basis point gross margin improvement.

marketing and distribution expense

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

Three months ended September 30,

Sales and marketing

Storage and outbound freight

and marketing expense increased approximately $201,000 (123%) from approximately $164,000 in 2021 to $365,000 in 2022.

The increase 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 $134,000 (42%) from approximately $316,000 in 2021 to $450,000 in 2022.

was primarily a result of the 25% increase in revenue and the additional shipments that were ultimately not recognized as revenue due

to the aforementioned product withdrawal.

and administrative expense

general and administrative expense increased by 81%, or approximately $472,000, from approximately $586,000 in 2021 to approximately

$1,058,000 in 2022, primarily driven by research and development, personnel, including non-cash stock-based compensation, and other general

and administrative expense.

The following is a breakdown of our general and administrative expense for the three months ended September

30, 2022, and 2021:

Three months ended September 30,

Personnel costs

Stock-based compensation

Legal, professional and consulting fees

Director fees

Research and development

Other general and administrative expenses

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 $108,000 (44%) from approximately $244,000 to $352,000.

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.

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

Stock based compensation includes

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

Stock based compensation for the three months

ended September 30, 2022 was approximately $118,000 compared to $42,000 for the three months ended September 30, 2021 due to the aforementioned

increase in staffing as well as the implementation of a performance-based stock compensation program.

and development expense increased approximately $186,000 (547%) from approximately $34,000 in 2021 to $220,000 in 2022.

is primarily due to materials consumed in pre-production runs at a new co-manufacturer that will provide our Twist

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

expense increased approximately $59,000 (40%) from approximately $149,000 in 2021 to $208,000 in 2022, primarily related to an increase

in maintenance costs on equipment loaned to our bulk product customers, costs related to our annual meeting, and approximately $8,000

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

loss and net loss

had operating and net losses of approximately $2,708,000 and $508,000 for the three-month periods ended September 30, 2022 and 2021,

respectively.

The increase of approximately $2,200,000 or 433%, was primarily due to $1,785,000 in charges related to the aforementioned

product quality issue and withdrawal.

of Operation for Nine Months Ended September 30, 2022 as Compared to the Nine Months Ended September 30, 2021

and cost of revenue

increased by approximately $3,485,000 (82%) from approximately $4,246,000 in 2021 to approximately $7,731,000 in 2022.

The overall revenue

for the nine months ended September 30, 2022 was higher due to growth in “Twist & Go”™

revenue and the gradual return of single serve demand.

Revenue in the third quarter of 2022 was adversely impacted by a withdrawal

of “Twist & Go”™ product manufactured by one of its co-manufacturers.

The withdrawal resulted from quality complaints that are the subject of a legal dispute that is more fully described in the footnotes

of the accompanying financial statements.

As a result of the withdrawal, we recorded a reserve for anticipated sales claims and distributor

administrative fees of $630,000.

The Company anticipates that its revenues will be adversely impacted as a result of the dispute unless

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

timing of which is uncertain.

of revenue for 2022 was approximately $6,807,000 as compared to approximately $2,614,000 in 2021.

Cost of revenue in the third quarter

of 2022 was adversely impacted by the anticipated disposal of withdrawn inventory, amounting to $932,000 including ancillary costs.

gross profit was approximately $924,000 (12%) and $1,632,000 (38%) for 2022 and 2021, respectively.

Excluding the impact of the product

withdrawal on both revenue and cost of revenue, our gross profit in the nine months ended September 30, 2022 was $2,486,000 (30%).

margins decreased in the nine months ended September 30, 2022 primarily due to product mix which includes “Twist

& Go”™ at slightly lower product margins.

marketing and distribution expense

Nine months ended September 30,

Three months ended

Sales and marketing

Storage and outbound freight

marketing and distribution expense decreased approximately $8,000 (1%) from approximately $675,000 in 2022 to $667,000 in 2023.

and marketing expense increased approximately $67,000 (23%) from approximately $289,000 in 2022 to $356,000 in 2023.

The increase 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 $491,000 (68%) from approximately $717,000 in 2021 to $1,208,000 in 2022.

was primarily a result of the 82% increase in revenue, tempered by logistics efficiencies from the increased volume in core markets served.

sales and marketing expense was primarily the result of the retention of 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

product sampling and advertising in conjunction with the launch of its smoothie carton product.

and outbound freight expense decreased approximately $75,000 (19%) from approximately $386,000 in 2022 to $311,000 in 2023.

was the result of the 17% decrease in revenue and distribution efficiencies.

and administrative expense

general and administrative expense increased by 71%, or approximately $1,138,000, from approximately $1,598,000 in 2021 to approximately

$2,736,000 in 2022, primarily driven by personnel, including non-cash stock-based compensation, other general and administrative expense,

and research and development.

The following is a breakdown of our general and administrative expense for the nine months ended September

30, 2022, and 2021:

Nine months ended September 30,

Three months ended March 31,

Personnel costs

1 unchanged sentence

Legal, professional and consulting fees

Director fees

Director fees paid in cash

Research and development

Other general and administrative expenses

and administrative expense increased approximately $171,000 (21%) from approximately $823,000 in 2022 to $994,000 in 2023.

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 $399,000 (63%) from approximately $637,000 to $1,036,000.

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.

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

Stock based compensation includes

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

Stock based compensation for the nine months ended September 30, 2022

was approximately $211,000 compared to $52,000 for the nine months ended September 30, 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 $98,000 (40%) from approximately $244,000 in 2021 to $342,000 in 2022.

increase was primarily due to corporate development activities.

and development expense increased approximately $174,000 (101%) from approximately $173,000 in 2021 to $347,000 in 2022.

is primarily due to materials consumed in pre-production runs at a new co-manufacturer that will provide our Twist

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

expense increased approximately $321,000 (110%) from approximately $292,000 in 2021 to $613,000 in 2022.

Personnel cost increased by approximately $180,000 (58%) from approximately $309,000 to $489,000 and stock-based compensation increased

by approximately $124,000 (146%) from $85,000 to $209,000.

The increase in personnel cost and stock-based compensation resulted primarily

from modification of our 2022 performance stock unit program, with partial cash settlement.

professional, and consulting fees decreased approximately $46,000 (29%) from approximately $161,000 in 2022 to $115,000 in 2023.

decrease was primarily due to a reduction in temporary labor, partially offsetting the increase in personnel costs.

and development expense decreased approximately $10,000 (32%) from approximately $31,000 in 2022 to $21,000 in 2023 as a result of vendor

credits related to development activities.

expense decreased approximately $77,000 (36%) from approximately $212,000 in 2022 to $135,000 in 2023.

In 2022, we incurred approximately

$102,000 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.

had operating losses of approximately $4,339,000 and $1,658,000 for the nine-month periods ended September 30, 2022 and 2021, respectively.

The increase of approximately $2,681,000 or 162%, was primarily due to $1,785,000 in charges related to the aforementioned product quality

issue and withdrawal and 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 nine months ended September 30, 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 $568,000 in the nine months

ended September 30, 2021.

expense was approximately $128,000 for the nine months ended September 30, 2021.

Interest related to convertible debt that was converted

and repaid in 2021.

We did not incur any interest expense for the nine months ended September 30, 2022.

had net losses of approximately $4,339,000 and $1,396,000 in the nine-month periods ended September 30, 2022 and 2021, respectively,

with the primary change due to the $568,000 gain on forgiveness of the PPP loan in 2021.

In 2023, we incurred approximately $25,000

in inventory disposal costs related to our dispute with the Manufacturer.

had net losses of approximately $910,000 and $895,000 for the three-month periods ended March 31, 2023 and 2022, respectively.

of approximately $15,000, was the result of the aforementioned changes in revenue, cost and expenses.

and Capital Resources

of September 30, 2022, we had working capital of approximately $2,619,000 as compared with approximately $6,172,000 at December 31, 2021.

The decrease in working capital surplus is primarily due to operating loss for the nine months ended September 30, 2022.

the nine months ended September 30, 2022, we used cash of approximately $2,619,000 in operations, and $13,000 for the purchase of equipment,

partially offset by $5,000 from the issuance of stock pursuant to an outstanding warrant.

of March 31, 2023, we had working capital of $1,250,000 compared with $1,801,000 at December 31, 2022.

The decrease in working capital

is primarily due to the operating loss for the three months ended March 31, 2023.

the three months ended March 31, 2023, we used $1,242,000 in operations.

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.

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 $234,000 in interest into 133,991

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

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 expense, and to continue to control fixed overhead expense.

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

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,

including related party advances.

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

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

There are no assurances that we will be able to generate

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

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

The aggregate minimum lease payments

under the non-cancellable direct lease as of September 30, 2022 are approximately $40,000.

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

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

There are no assurances that we will be able

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

Sheet Arrangements

5 unchanged sentences

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 2. Management’s Discussion and Analysis