What changed in this filing

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Item 1. Financial Statements

2024-05-15 compared with 2023-10-26 · 147 added, 229 removed, 262 unchanged (59% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

September 30,

Current assets:

Restricted cash

Trade accounts receivable, net

4 unchanged sentences

Property, plant and equipment, net of depreciation

Operating lease right-of-use assets, net

Intangible assets, net of amortization

Other non-current assets

Liabilities and Stockholders’ Equity

4 unchanged sentences

Accrued payroll and employee related

Lease liability

Total current liabilities

Other non-current liabilities

Total liabilities

Commitments and contingencies (Note 5)

Commitments and contingencies

Stockholders’ equity:

2 unchanged sentences

23,000,000 shares authorized;

13,104,614 and 12,934,741 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

14,719,875 and 14,420,105 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

Additional paid in capital

4 unchanged sentences

Total liabilities and stockholders’ equity

the accompanying notes to the consolidated financial statements

the accompanying notes to the condensed consolidated financial statements

Food Group Inc.

Consolidated Statements of Operations

the three and nine months ended September 30, 2023 and 2022

For the three months ended September 30,

For the nine months ended September 30,

the three months ended March 31, 2024 and 2023

Cost of revenue

6 unchanged sentences

$ ( 889,000 )

$ ( 2,123,000 )

$ ( 4,276,000 )

Per share information - basic and fully diluted:

1 unchanged sentence

Net loss per share

the accompanying notes to the consolidated financial statements

the accompanying notes to the condensed consolidated financial statements

Food Group Inc.

Statements of Cash Flows

the nine months ended September 30, 2023 and 2022

Consolidated Statements of Cash Flows

the three months ended March 31, 2024 and 2023

$ ( 449,000 )

$ ( 889,000 )

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

Depreciation and amortization

Adjustments to reconcile net loss to net cash used in operating

Stock-based compensation

Depreciation and amortization

Stock and options issued for services

1 unchanged sentence

Accounts receivable

( 1,033,000 )

Other receivables

4 unchanged sentences

( 1,224,000 )

( 2,619,000 )

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

Issuance of debt (Note 6)

Repurchases from stock compensation program

Net cash provided by (used in) financing activities

Net decrease in cash and restricted cash

( 1,242,000 )

( 2,627,000 )

Cash and restricted cash, beginning of period

Cash and restricted cash, end of period

Cash paid during the year for:

Cash, beginning of period

Cash, end of period

Cash paid during the period 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 7)

the accompanying notes to the consolidated financial statements

Convertible notes issued in exchange for trade payables

Conversion of debt and interest to equity

Acquisition of long-term software license in exchange for contract payable

Value of shares relinquished in modification of stock-based compensations awards

the accompanying notes to the condensed consolidated financial statements

Food Group Inc.

32 unchanged sentences

Concentrations

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

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

manufacturers.

1 unchanged sentence

were as follows:

Schedule of Company’s Contract Manufacturers of Finished Goods

For the three months ended September 30,

For the nine months ended September 30,

of Contract Manufacturers Percentage of Finished Goods

Manufacturer A

1 unchanged sentence

Manufacturer C

Manufacturer D

Manufacturer E

Concentration risk percentage

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,

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”), 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.

2023, as filed with the SEC on March 22, 2024 that have had a material impact on our condensed consolidated financial statements and

related notes.

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

The carrying value

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

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

The restrictions were

released in June 2023.

Receivable and Allowances

6 unchanged sentences

losses are recorded as general and administrative expenses on our condensed consolidated statements of operations.

As of September 30,

2023 and December 31, 2022, there was no allowance for expected credit losses.

receivables consist of the Company’s 2021 Employer Retention Tax Credit claim, amounts due from vendors for materials acquired

on their behalf for use in manufacturing the Company’s products, vendor rebates and freight claims.

As of March 31, 2024

and December 31, 2023, there was no allowance for credit losses.

There was no credit loss expense for the three months ended March 31,

2024 and 2023.

receivables consist of the Company’s 2021 Employer Retention Credit “ERC” claim, which the Company collected in March

2024, amounts due from vendors for materials acquired on their behalf for use in manufacturing the Company’s products, vendor rebates

and freight claims.

claims can be made in a variety of circumstances with varying degrees of subjectivity and clear authoritative guidance.

Paid claims are

subject to IRS inspection which may occur prior to expiration of the statute of limitations.

The Company’s ERC claim was based

on objectively calculated declines in revenue using methods that are clearly defined in the Coronavirus Aid, Relief, and Economic Security

Act and various regulations and interpretations thereof.

accordance with ASC 606, Revenue from Contracts with Customers, revenue is recognized when a customer obtains ownership of promised goods.

33 unchanged sentences

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

For the three months ending September 30, 2023

and 2022, storage and outbound freight totaled approximately $ 370,000 and $ 273,000 , respectively.

For the nine months ending September

30, 2023 and 2022, storage and outbound freight totaled approximately $ 932,000 and $ 1,040,000 , respectively.

For the three months ending March 31, 2024 and

2023, storage and outbound freight totaled approximately $ 364,000 and $ 311,000 , respectively.

and Development

1 unchanged sentence

The Company incurred approximately

$ 32,000 and $ 220,000 , in research and development expense for the three months ending September 30, 2023 and 2022, respectively.

the nine months ending September 30, 2023 and 2022, the Company incurred approximately $ 88,000 and $ 347,000 , respectively.

the three and nine months ended September 30, 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.

$ 30,000 and $ 21,000 , in research and development expense for the three months ending March 31, 2024 and 2023, respectively.

the three months ended March 31, 2024 and 2023 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 2022 financial statements to conform to the 2023 presentation, namely the presentation of selling,

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

of materials shipping from selling, marketing and distribution to cost of revenue, and the presentation of the components of cash used

in operations.

reclassifications have been made to the 2023 financial statements to conform to the 2024 presentation, namely stock-based compensation

paid to the Company’s directors has been reclassified from stock and options issued for services and shares repurchased for employee

tax withholding under the Company’s stock compensation program have been reclassified to financing activities in the consolidated

statement of cash flows, with corresponding changes reflected in the statement of stockholders’ equity for the three months ended

March 31, 2023.

Pronouncements

3 unchanged sentences

Restatement of Prior Financial Information

Company’s previously filed unaudited statement of operations and cash flow statement and audited balance sheets have been restated

to correct errors in calculating depreciation.

From a quantitative and qualitative perspective, the Company determined that correcting

the previously filed financial statements would not require amendment to its previously filed reports on Form 10-Q and 10-K.

of the correction of previously issued financial statements is summarized below:

Company’s previously filed unaudited statement of operations and cash flow statement have been restated to correct errors in calculating

depreciation.

From a quantitative and qualitative perspective, the Company determined that correcting the previously filed financial

statements would not require amendment to its previously filed reports on Form 10-Q and 10-K.

The effect of the correction of previously

issued financial statements is summarized below:

Schedule of Prior Financial Information

As Previously Reported

December 31, 2022

As Previously Reported

Consolidated Balance Sheet

Property, plant and equipment, net of depreciation

Accumulated deficit

$ ( 58,384,000 )

$ ( 57,972,000 )

Total stockholders’ equity

Total liabilities and stockholders’ equity

As Previously Reported

Three-months ended September 30, 2022

As Previously Reported

Consolidated Statement of Operations

Depreciation and amortization

Total operating expenses

$ ( 2,708,000 )

$ ( 2,687,000 )

As Previously Reported

Nine-months ended September 30, 2022

As Previously Reported

Three-months ended March 31, 2023

As Previously

Consolidated Statement of Operations

12 unchanged sentences

Schedule of Inventory

September 30,

Raw materials

4 unchanged sentences

Schedule of Property and Equipment, Net

September 30,

Manufacturing equipment

5 unchanged sentences

Property and equipment, net of depreciation

expense related to these assets was approximately $ 102,000 and $ 85,000 each of the three months ended September 30, 2023 and 2022, respectively,

and $ 277,000 and $ 297,000 , respectively, for the nine months ended September 30, 2023 and 2022.

Depreciation expense in cost of revenue

was $ 4,000 and $ 10,000 for the three months ended September 30, 2023 and 2022, respectively, and $ 13,000 and $ 19,000 for the nine months

ended September 30, 2023 and 2022, respectively.

expense related to these assets was approximately $ 59,000 and $ 71,000 each of the three months ended March 31, 2024 and 2023.

expense in cost of revenue was $ 7,000 and $ 4,000 for the three months ended March 31, 2024 and 2023, respectively.

Commitments and Contingencies

Company leases office space under a non-cancellable operating lease which expired on March

31, 2023 , and was extended

in a series of amendments through March 31, 2024 .

The Company’s periodic lease cost was approximately $ 20,000

for each of the three months ended September 30, 2023 and 2022 and $ 60,000

for each of the nine months ended September 30, 2023 and 2022.

Company leases office space under a non-cancellable operating lease which expired on March 31, 2023 , and was extended in a series of

amendments through September 30, 2024.

The Company’s periodic lease cost was approximately $ 20,000 for each of the three months

ended March 31, 2024 and 2023.

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

19 unchanged sentences

However, as the parties were once again unable to come to an agreement,

the Company re-filed the Complaint in California State Court in August 2023.

the Company re-filed the Complaint in California State Court in August 2023 and continues to progress through the court system.

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

13 unchanged sentences

of a material unfavorable outcome is remote.

Convertible Debt Subscriptions

From July to October of 2023, the

Company executed subscription agreements for $ 1,880,000 of a $ 2,000,000

privately placed convertible debt offering.

debt may be drawn in 25% increments, matures on the anniversary of the draw, bears interest at 10% per annum for the term,

regardless of earlier payment or conversion, and is mandatorily convertible as to principal and interest into shares of the

Company’s common stock at any time prior to maturity at the greater of $1.20 or 85% of the volume-weighted average price of

the common stock for the ten trading days immediately preceding the written notice of the conversion (the “Conversion

If the Company has not exercised the mandatory conversion, the holder of the debt has the option after six

months and on up to four occasions to convert all or any portion of the principal and interest into shares of the Company’s

common stock at the Conversion Price.

The Company made its initial drawdown on the convertible debt on October 23, 2023, as described in Note 10.

Convertible Notes

July 2023 to March 2024, the Company executed subscription agreements for substantially all of a $ 2,000,000 privately placed convertible

debt offering.

The debt was available to be drawn in 25% increments, maturing on the anniversary of the draw, bearing interest at 10%

per annum for the term, regardless of earlier payment or conversion, and was mandatorily convertible as to principal and interest into

shares of the Company’s common stock at any time prior to maturity at the greater of $1.20 or 85% of the volume-weighted average

price of the common stock for the ten trading days immediately preceding the written notice of the conversion (the “Conversion

If the Company had not exercised the mandatory conversion, the holder of the debt had the option after six months and

on up to four occasions to convert all or any portion of the principal and interest into shares of the Company’s common stock at

the Conversion Price.

October 23, 2023, the Company drew down $ 1,390,000 in

convertible debt and converted a total of $ 1,207,000

of principal into 820,160

shares of common stock.

Additionally, on December 19, 2023, the Company drew down $ 470,000

in convertible debt and converted a total of $ 653,000

of principal and $ 4,000

of accrued interest into 495,331

shares of common stock.

Finally, on March 27 and 29, 2024 the Company drew down $ 136,000

in convertible debt and converted the total drawn into 124,208

shares, settling all debt.

Debt drawdowns included the non-cash settlement of $ 30,000

in accounts payable in the year ended December 31, 2023 and the three months ended March 31, 2024, respectively.

Stockholders’ Equity

following are changes in stockholders’ equity for the nine months ended September 30, 2022 and 2023:

following are changes in stockholders’ equity for the three months ended March 31, 2023 and 2024:

Schedule of Changes in Stockholders' Equity

1 unchanged sentence

$ ( 57,972,000 )

Shares issued for warrant exercise

Issuance of common stock for

equity compensation, net of shares repurchased for income tax withholding

Equity-based compensation

Cash settlement of equity-based compensation

Issuance of stock and options for services

( 4,276,000 )

Balance September 30, 2022

Cash settlement of equity-based

Conversion of debt and interest

Issuance of stock for services

Balance March 31, 2023

$ ( 58,861,000 )

2 unchanged sentences

$ ( 60,796,000 )

Issuance of common stock for

equity compensation, net of shares repurchased for income tax withholding

Equity-based compensation

Cash settlement of equity-based compensation

Issuance of stock and options for services

( 2,123,000 )

Balance September 30, 2023

Conversion of debt and interest

Balance March 31, 2024

$ ( 61,245,000 )

the nine months ended September 30, 2023, 936,375 warrants at a weighted average exercise price of $ 6.00 per share expired.

the three months ended March 31, 2024, 122,739 warrants at a weighted average exercise price of $ 9.10 per share expired.

Incentive Plan

3 unchanged sentences

The Board of Directors discontinued further grants under the 2015 Plan.

of September 30, 2023, the Company has $ 153,000 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 1.5 years.

following is a summary of stock option activity for the nine months ended September 30, 2023:

Summary of Stock Options Activity

exercise price

term in years

In March 2024, the Board of Directors amended

the 2023 Plan to reserve an additional 650,000 shares for future issuance, bringing the total for the plan to 1,300,000 , and to provide

an evergreen provision that reserves additional shares depending on future non-plan issuances of common stock.

of March 31, 2024, the Company has $ 77,000 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 1.1 years.

following is a summary of stock option activity for the three months ended March 31, 2024:

Schedule of Stock Options Activity

Number of Options

Weighted average exercise price per share

Remaining term in years

Outstanding on December 31, 2023

Cancelled/expired

Outstanding on September 30, 2023

Exercisable, September 30, 2023

Outstanding on March 31, 2024

Exercisable, March 31, 2024

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

Schedule of Fair Value of Options Using Black-Sholes Option Pricing Model

Expected term (in years)

3 unchanged sentences

Weighted average grant date fair value per share

following is a summary of restricted stock award and restricted stock unit activity for the nine months ended September 30, 2023:

Summary of Restricted Stock Award and Restricted Stock Unit Activity

average grant

date fair value

following is a summary of restricted stock award and restricted stock unit activity for the three months ended March 31, 2024:

Schedule of Restricted Stock Award and Restricted Stock Unit Activity

Number of shares

Weighted average grant date fair value

Unvested at January 1, 2024

Unvested at September 30, 2023

Unvested at March 31, 2024

2023 and 2024, the Company issued performance share units (“PSUs”) that represented shares potentially issuable based upon

Company and individual performance in the years of issuance.

following table summarizes the activity for the Company’s unvested PSUs for the nine months ended September 30, 2023:

Summary of Performance Stock Unit Activity

following table summarizes the activity for the Company’s unvested PSUs for the three months ended March 31, 2024:

Schedule of Performance Stock Unit Activity

Number of shares

average grant

date fair value

Weighted average grant date fair value

Unvested at January 1, 2024

Unvested at September 30, 2023

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

Unvested and expected to vest at March 31, 2024

February 2023, the unvested awards issued and outstanding for individual performance under the 2022 PSU program 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

3 unchanged sentences

awards did not vest based on the original terms, the modification was considered a new grant, resulting in $ 64,000 in compensation expense

in the nine-months ended September 30, 2023.

Company adopted a 2023 PSU program in April 2023, granting approximately 211,000 PSUs at target performance against company-wide metrics.

An additional 76,000 PSUs were granted in September 2023 for performance against individual goals, replacing the Company’s cash

bonus program.

The results for the three and nine months ended September 30, 2023 include $ 84,000 in expense for the 2023 PSU program.

Estimates of expense associated with 2023 performance will be reassessed each quarter through the performance period.

in the three-months ended March 31, 2023.

Company adopted a 2024 PSU program in March 2024, granting approximately 445,000 PSUs at target performance against company-wide metrics.

The results for the three months ended March 31, 2024 include $ 125,000 in expense for the 2024 PSU program.

Estimates of expense associated

with 2024 performance will be reassessed each quarter through the performance period.

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, 2023, the estimated effective tax rate for 2023 was zero .

As of March 31, 2024, the estimated effective tax rate for 2024 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, 2023 and 2022, the Company did not incur any interest and penalties associated with tax

As of September 30, 2023, the Company did not have any significant unrecognized uncertain tax positions.

the nine months ended September 30, 2023, the Company used cash for operations of $ 2,008,000 .

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.

As described more fully in Note 5, the dispute and subsequent contract termination with the Manufacturer has resulted in limitations

in our ability to procure certain products, which has and may continue to inhibit our ability to achieve positive cash flow until we

are able to expand our manufacturing capacity.

Additionally, management has considered that dispute resolution, including litigation,

is costly and will require the outlay of cash.

as of September 30, 2023, the Company has $ 1,011,000 of cash and funding commitments of approximately $ 1,880,000 , as more fully described

As such, 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.

Subsequent Event – Nasdaq Compliance

May 5, 2023, the Company received a notice letter from the Listing Qualifications Staff of The Nasdaq Stock Market, LLC (“Nasdaq”)

notifying the Company that it was not in compliance with the Listing Rule 5550(b) (the “Rule”), which requires listed companies

to maintain a minimum $ 2,500,000 stockholders’ equity, $ 35,000,000 market value of listed securities, or $ 500,000 net income from

continuing operations.

In its quarterly report for the period ended March 31, 2023, the Company reported stockholders’ equity of

$ 1,845,000 , and as a result, did not satisfy the Rule.

On June 14, 2023, the Company received a letter from Nasdaq granting the Company

an extension through October 30, 2023 to regain compliance with the Rule.

October 23, 2023, the Company issued convertible notes in the amount of $ 1,390,000

pursuant to the subscription agreements described in Note 6.

Note balances of $ 1,207,000

were immediately converted into approximately 820,000 shares of common stock.

A pro-forma balance sheet giving effect to the transactions is

presented below:

Schedule of Pro-forma Balance Sheet

September 30,

Convertible Debt

Conversion of

Debt to Equity

September 30, 2023

(proforma, unaudited)

Current assets:

Trade accounts receivable, net

Other receivables

Inventory, net

Prepaid expenses and other current assets

Total current assets

Property, plant and equipment, net of depreciation

Intangible assets, net of amortization

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

Disputed co-manufacturer accounts payable

Accrued expenses

Accrued payroll and employee related

Convertible notes payable

( 1,207,000 )

Total current liabilities

( 1,207,000 )

Total liabilities

( 1,207,000 )

Stockholders’ equity:

Additional paid in capital

Accumulated deficit

( 60,095,000 )

( 58,888,000 )

Total stockholders’ equity

Total liabilities and stockholders’ equity

believes that taking into consideration the October 23, 2023 note issuance and conversion, the Company satisfies the

stockholders’ equity requirement on a pro-forma basis as of September 30, 2023 and as of October 26, 2023.

Nasdaq will continue to monitor the

Company’s ongoing compliance with the Rule and, if at the time of its next periodic report the Company does not evidence

compliance, it may be subject to delisting.

the three months ended March 31, 2024 and 2023, the Company did not incur any interest and penalties associated with tax positions.

of March 31, 2024, the Company did not have any significant unrecognized uncertain tax positions.

the three months ended March 31, 2024, the Company used cash for operations of $ 769,000 .

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 5, the dispute and subsequent contract termination with the Manufacturer has resulted in limitations in our ability

to procure certain products, which has and may continue to inhibit our ability to achieve positive cash flow until we are able to expand

our manufacturing capacity.

Additionally, management has considered that dispute resolution, including litigation, is costly and will

require the outlay of cash.

as of March 31, 2024, the Company has $ 1,167,000 of cash.

As such, 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