What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2025-03-27 compared with 2024-03-22 · 251 added, 222 removed, 537 unchanged (47% of the section changed)

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Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the Company’s

disclosure controls and procedures were not effective as of December 31, 2023.

has identified the following material weakness in our internal control over financial reporting:

has concluded that there is a material weakness due to the control environment.

The control environment is impacted due to the Company’s

inadequate segregation of duties, including information technology control activities.

recognizes that there are inherent limitations in the effectiveness of any system of internal control, and accordingly, even effective

internal control can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect

material misstatements.

In addition, effective internal control at a point in time may become ineffective in future periods because of

changes in conditions or due to deterioration in the degree of compliance with our established policies and procedures.

In an effort to remediate the identified material weakness and enhance

our internal control over financial reporting, we have hired additional information technology personnel to help ensure that we are able

to properly implement internal control procedures.

disclosure controls and procedures were effective as of December 31, 2024.

report shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that

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Financial Officer)

Arnold Tinter

Isabelle Ortiz-Cochet

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Barfresh Food Group, Inc.

2023 Equity Incentive Plan (incorporated by reference to Exhibit 4.5 to Registration Statement on Form S-8 filed August 14, 2023)+

First Amended and Restated 2023 Equity Incentive Plan (incorporated by reference to Exhibit 4.5 to Registration Statement on Form S-8 filed August 14, 2024)+

Executive Employment Agreement by and between Smoothie, Inc.

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Form of Securities Purchase Agreement together with form of Convertible Promissory Note (incorporated by reference to Exhibit 10.1 from the Quarterly Report on Form 10-Q filed October 26, 2023)

Barfresh Food Group Inc.

2024 Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.9 to Registration Statement on Form S-8 filed August 14, 2024)+

Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 from the Current Report on Form 8-K filed February 6, 2025)

Subsidiaries (incorporated by reference to Exhibit 21.1 to Annual Report on Form 10-K for the year ended December 31, 2019, filed April 13, 2020)

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Section 1350*

Compensation Recovery Policy*

Presentation.

Compensation Recovery Policy (incorporated by reference to Exhibit 97.1 to Annual Report on Form 10-K for the year ended December 31, 2023, filed March 22, 2024)

XBRL Instance.

XBRL Presentation.

XBRL Calculation.

XBRL Definition.

Page Interactive Data File (embedded within the Inline XBRL document)

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generally accepted in the United States of America.

discussed in Note 2 to the consolidated financial statements, the 2022 financial statements have been restated to correct a misstatement.

consolidated financial statements are the responsibility of the Company’s management.

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or disclosures to which they relate.

of Convertible Debt and Related Conversion

discussed in Note 6 to the consolidated financial statements, in 2023 the Company executed subscription agreements for $1,880,000 of

a $2,000,000 privately placed convertible debt offering.

The complexity of the accounting treatment (especially the derivative

considerations related to the conversion) requires management to make significant judgements which impacts the overall calculation

and conversion of the debt.

identified the valuation of the convertible debt and related conversion as a critical audit matter.

Auditing the complex judgments involves

especially challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these matters.

Valuation of Inventories

As discussed in Note 1 to the

Company’s consolidated financial statements, adjustments are made to reduce the cost of inventory to its net realizable value for

estimated excess or obsolete balances.

The Company values its inventories at the lower of cost or net realizable value, with cost being

determined using the first-in, first-out method.

Management monitors inventory quantities on hand and records adjustments for estimated

excess or obsolete items based on estimated future demand for product.

We identified the valuation of inventories as a critical audit matter.

The principal considerations for our determination

that performing procedures relating to valuation of inventories is a critical audit matter are related to the significant assumptions

used by management when determining the future demand of the inventory.

Auditing the significant assumptions involves especially challenging

auditor judgment due to the nature and extent of audit evidence and effort required to address these matters.

primary procedures we performed to address this critical audit matter included:

an understanding of management’s processes, controls and methodology related to the convertible debt issued and related derivative

considerations.

the completeness, accuracy and relevance of the underlying data which includes the principal, interest, and volume weighted average

stock price (conversion price) used in determining the proper accounting treatment of the convertible debt and related issuance of

common stock.

cash receipts related to the issuance of the convertible debt.

common stock issued in relation to the conversion of the convertible debt.

the adequacy of the disclosure related to the convertible debt and related equity.

Obtained management’s analysis and gained an understanding of management’s processes, controls and methodology

to develop the estimate for excess and obsolete inventory.

Evaluated the reasonableness of assumptions used by management in determining the estimated future demand for product,

including examining the historical accuracy of the Company’s prior estimates, and sales and return activity in 2025.

Tested the completeness, accuracy and relevance of the underlying data used in management’s estimate.

Tested the mathematical accuracy and computations related to the application of the methodology.

have served as Barfresh Food Group Inc.’s auditor since 2012.

/s/ Eide Bailly LLP

March 22, 2024

Eide Bailly LLP

Food Group Inc.

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Current assets:

Restricted cash

Trade accounts receivable, net

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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

Current liabilities:

Line of credit

Accounts payable

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Accrued expenses

Accrued payroll and employee related

Lease liability

Accrued payroll and employee related expenses

Financing agreements - current

Total current liabilities

Financing agreements

Total liabilities

Commitments and contingencies (Note 7)

Commitments and contingencies

Stockholders’ equity:

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23,000,000 shares authorized;

14,420,105 and 12,934,741 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively

14,746,172 and 14,420,105 shares issued and outstanding at December 31, 2024 and 2023, respectively

Additional paid in capital

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Total liabilities and stockholders’ equity

the accompanying notes to the consolidated financial statements

See the accompanying notes to the consolidated financial statements

Food Group Inc.

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Depreciation and amortization

Impairment of long-lived assets

Total operating expenses

Loss from operations

( 2,773,000 )

( 2,816,000 )

Interest expense

$ ( 2,825,000 )

$ ( 2,824,000 )

Per share information - basic and fully diluted:

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the years ended December 31, 2024 and 2023

Balance December 31, 2021 (as restated)

Balance December 31, 2022

$ ( 57,972,000 )

Shares issued for warrant exercise

Issuance of stock and options for services

Equity-based compensation

Conversion of debt and interest (Note 5)

Issuance of common stock for equity compensation, net of shares repurchased for income tax withholding

Equity-based compensation expense

Value of shares relinquished in modification of stock-based compensation awards (Note 7)

Issuance of stock for services

( 2,824,000 )

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$ ( 60,796,000 )

Equity-based compensation

Cash settlement of equity-based compensation

Issuance of stock and options for services

Conversion of debt and interest (Note 5)

Conversion of debt and interest

Issuance of common stock for equity compensation, net of shares repurchased for income tax withholding

Equity-based compensation expense

( 2,825,000 )

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the years ended December 31 2024 and 2023

to reconcile net loss to net cash used in operating activities

on asset disposal

and amortization

and options issued for services

in assets and liabilities

expenses and other assets

$ ( 2,825,000 )

$ ( 2,824,000 )

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

Stock-based compensation

Depreciation and amortization

Loss on asset disposal

Amortization of line of credit discount

Stock and options issued for services

Changes in assets and liabilities

Accounts receivable

Other receivables

Prepaid expenses and other assets

Accounts payable

cash used in operating activities

of property and equipment

cash used in investing activities

from issuance of stock

from convertible notes

cash from financing activities

change in cash and restricted cash

and restricted cash, beginning of year

and restricted cash, end of year

the accompanying notes to the consolidated financial statements.

Accrued expenses

Net cash used in operating activities

( 2,229,000 )

( 2,940,000 )

Investing activities

Purchase of property and equipment

Net cash used in investing activities

Financing activities

Borrowings under line of credit

Repayment of line of credit

( 2,208,000 )

Issuance of convertible debt

Financing agreement payments

Repurchases from stock compensation program

Net cash provided by (used in) financing activities

Net decrease in cash

( 1,656,000 )

( 1,128,000 )

Cash, beginning of year

Cash, end of year

See the accompanying notes to the consolidated financial statements

Food Group Inc.

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from these estimates.

Concentrations

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.

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

were as follows:

Schedule of Contract Manufacturers Percentage of Finished Goods

Manufacturer A

Manufacturer B

Other Manufacturers

Concentration

of Credit Risk

amount of cash on deposit with financial institutions exceeds the $ 250,000 federally insured limit at December 31, 2023 and 2022.

we believe that cash on deposit that exceeds $ 250,000 in the financial institutions is financially sound and the risk of loss is minimal.

amount of cash on deposit with financial institutions exceeds the $ 250,000 federally insured limit at December 31, 2023.

believe that cash on deposit that exceeds $ 250,000 in the financial institutions is financially sound and the risk of loss is minimal.

following customers accounted for 10% or more of the Company’s accounts receivable balance at December 31:

Schedule of Company's Contract Manufacturers of Finished Goods

December 31, 2022, the Company had $ 211,000 in restricted cash related to a contract manufacturing agreement.

The restricted cash was

released in 2023.

Value Measurement

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 of financial transmission rights.

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

The carrying value of our financial

instruments approximates their fair value.

receivable from customers are typically unsecured.

The Company’s credit policy calls for payment generally within 30 days.

credit worthiness of a customer is evaluated prior to a sale.

Accounts receivable totaled $ 821,000 and

of December 31, 2023 and 2022, respectively.

Allowances for credit losses are considered when an undisputed balance is

greater than 90 days past due.

There was no allowance

for credit losses as of December 31, 2023 and 2022.

There was no credit loss expense for the years ended December 31, 2023 and 2022.

consists of finished goods and is carried at the lower of cost or net realizable value on a first in first out basis.

The Company monitors

the remaining useful life of its inventory and establishes a reserve of obsolescence where appropriate.

financial instruments consist of cash, accounts receivable, accounts payable, and the line of credit and financing agreements.

value of our financial instruments approximates their fair value.

receivable are recorded and carried at the original invoiced amount less allowances for credits and for any potential uncollectible

amounts due to credit losses.

Accounts receivable from customers are typically unsecured.

The Company’s credit policy calls

for payment generally within 30 days.

The credit worthiness of a customer is evaluated prior to an initial sale and is updated

periodically based on payment performance.

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 consolidated statements of

As of December 31, 2024 and 2023, there was no

allowance for credit losses.

credit loss expense for the years ended December 31, 2024 and 2023.

Accounts receivable amounted to $ 126,000 on January 1, 2023.

consists of packaging, raw materials and finished goods and is carried at the lower of cost or net realizable value on a first

in first out basis.

The Company monitors the remaining useful life of its inventory and establishes a reserve of obsolescence where appropriate.

assets are comprised of patents, net of amortization and trademarks.

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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 in 2022.

There was no impairment in 2023.

There was no impairment in 2024 or 2023.

Plant, and Equipment

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The Company incurred $ 132,000

and $ 382,000 , in research and development expenses for the years ended December 31, 2023 and 2022, respectively.

and $ 115,000 ,

in research and development expenses for the years ended December 31, 2024 and 2023, respectively, which is included in general and administrative

expense in the accompanying consolidated statements of operations.

and Shipping Costs

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than not that some portion or all of the deferred tax assets will not be recognized.

the years ended December 31, 2023 and 2022 we did not have any interest and penalties or any significant unrecognized uncertain tax positions.

the years ended December 31, 2024 and 2023 we did no t have any interest and penalties or any significant unrecognized uncertain tax positions.

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 Company determined that its convertible instruments issued in 2023 did not include any embedded derivatives that require bifurcation.

The Company determined that its convertible instruments issued in 2024 and 2023 did not include any embedded derivatives that require

calculate net loss per share in accordance with ASC Topic 260, Earnings per Share .

Basic net loss per share is computed by dividing

net loss by the weighted average number of shares of common stock outstanding for the period, and diluted earnings per share is computed

by including common stock equivalents outstanding for the period in the denominator.

At December 31, 2023 and 2022 any equivalents would

have been anti-dilutive as we had losses for the years then ended.

Basic net loss per share is computed by

dividing net loss by the weighted average number of shares of common stock outstanding for the period, and diluted earnings per

share is computed by including common stock equivalents outstanding for the period in the denominator.

At December 31, 2024 and 2023

any common stock equivalents would have been anti-dilutive as we had losses for the years then ended.

Based Compensation

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measurement method in accounting for share-based payment transactions with employees.

Reclassifications

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.

expense has been reclassified from general and administrative expense in the 2023 financial statements to conform to the 2024 presentation.

pronouncements

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impact of recently issued standards that are not yet effective will have an impact on our results of operations and financial position.

Restatement of Prior Financial Information

Company’s previously filed audited balance sheet and 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 restatement reduced the accumulated deficit by $ 327,000 as of December

The effect of the correction

of previously issued financial statements is summarized below:

Schedule of Prior Financial Information

As Previously

December 31, 2022

As Previously

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

Year ended December 31, 2022

As Previously

Consolidated Statement of Operations

Depreciation and amortization

Total operating expenses

$ ( 6,219,000 )

$ ( 6,134,000 )

Consolidated Statement of Cash Flows

$ ( 6,219,000 )

$ ( 6,134,000 )

Depreciation and amortization

Net cash used in operating activities

$ ( 2,648,000 )

February 5, 2025, the Company entered into securities purchase agreements with several investors, pursuant to which the Company sold

an aggregate of 1,052,793 shares of common stock at a price of $ 2.85 per share in a registered direct offering.

consists of the following at December 31:

Schedule of Inventory

Raw materials

Raw materials and packaging

Finished goods

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Customer equipment

Construction in Progress

Property and equipment, gross

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Property and equipment, net of depreciation

recorded depreciation expense related to these assets of $ 339,000 and $ 380,000 for the years ended December 31, 2023 and 2022, respectively.

Company recorded depreciation expense related to these assets of $ 220,000 and $ 339,000 for the years ended December 31, 2024 and 2023,

respectively.

Depreciation expense in cost of revenue was $ 25,000 and $ 18,000 for the years ended December 31, 2024 and 2023 respectively.

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amounts carried on the balance sheet represent cost to acquire, legal fees and similar costs relating to the patents incurred by the

Amortization is calculated through the expiration date of the patent.

Amortization is recorded through the expiration date of the patent.

The amount charged to expenses for amortization of the

patent costs was $ 63,000 for each of the years ended December 31, 2024 and 2023, respectively.

future amortization expense related to patents as of December 31, 2023, is as follows:

Schedule of Estimated Future Amortization Expense Related to Intangible Property

ending December 31,

asset, net of amortization

Convertible Notes

July to October of 2023, the Company executed subscription agreements for $ 1,880,000 of a $ 2,000,000 privately placed convertible debt

The 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 Price”).

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.

October 23, 2023, we 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, settling all debt.

The Company expects to record $ 54,000 in amortization expense in 2025.

August 2024, the Company secured receivables financing of $ 1,500,000 (the “Facility”).

Under the Facility, the Company may

borrow up to 90% of eligible customer account balances.

Amounts outstanding bear interest at a rate prime plus 1.2% (8.70% as of December

31, 2024) and collateral fees of 0.15% and are secured by accounts receivable and inventory.

The Facility expires on September 5,

2025, and renews automatically, unless notice is given or received.

As of December 31, 2024, borrowings under the Facility amounted to

$ 620,000 and $ 880,000 was available to borrow, subject to available collateral.

Unamortized deferred financing cost amounted to $ 11,000

as of December 31, 2024.

2024, the Company entered into financing agreements to purchase equipment and software as a service, with imputed or stated interest

of 15 - 19 %.

Amounts due under the agreements are as follows as of December 31, 2024:

Schedule of Financing Agreements

Total payments due

Financing agreements

current portion

Financing agreements

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 $ 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, between 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.

settlement of $ 30,000 and $ 71,000 in 2023 and 2024, respectively.

Commitments and Contingencies

Company leases office space under a non-cancelable operating lease which expired on March 31, 2023 and has been extended multiple times,

most recently through September 30, 2024 .

The Company incurred lease expense of $ 80,000 for the years ended December 31, 2023 and 2022, respectively.

most recently through March 31, 2025.

The Company incurred lease expense of $ 85,000 and $ 80,000 for the years ended December 31, 2024

and 2023, respectively.

Due to the short-term nature of the extensions, there is no right of use asset or related liability as of December

As of December

31, 2022, the right of use asset and related liability were $ 18,000 and $ 20,000 , respectively.

31, 2024 and 2023.

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

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

May 2024, the Company entered into a non-recourse litigation financing arrangement which is expected to be adequate to pursue the Complaint

to conclusion.

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

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Stockholders’ Equity

2022, the Company issued 23,643 shares of common stock, valued between $ 5.00 - $ 5.16 per share, for services rendered.

Additionally,

5,000 fully vested shares of common stock were granted and issued for equity-based compensation at a value of $ 4.50 per share.

2022, the Company issued 986 shares of common stock due to the exercise of a warrant at an exercise price of $ 5.07 .

2023, the Company issued 1,315,491 shares of common stock pursuant to the conversion of debt and accrued interest, as more fully described

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between $ 1.45 - $ 4.00 were issued for services.

2024, the Company issued 124,208 shares of common stock pursuant to the conversion of debt and accrued interest, as more fully described

2024, the Company issued 201,859 shares of common stock for equity-based compensation.

following is a summary of changes in warrants outstanding for the years ended December 31, 2024 and 2023:

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Summary of Outstanding Warrants

issuance event

of deferred compensation

Warrant issuance event

Number of warrants

Exercise price per share

Remaining term in years

Intrinsic value at date of grant

Settlement of deferred compensation

Incentive Plan

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Total shares reserved for awards that are outstanding and expected to

vest or available for issuance is 1,305,000 as of December 31, 2023.

vest or available for issuance are 1,752,000 as of December 31, 2024.

Employee Stock Purchase Plan

In 2024, the Company adopted an Employee Stock Purchase Plan (the “ESPP”)

which permits employees to defer compensation to purchase shares at a 15 % discount to the lower of the market price at the beginning or

end of the deferment period.

There were no deferrals in 2024.

The Company reserved 1,400,000 shares for issuance under the ESPP.

total amount of equity-based compensation included in general and administrative expense in the accompanying consolidated statements

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Summary of Stock Options Activity

exercise price

term in years

Number of Options

Weighted average exercise price per share

Remaining term in years

Outstanding on December 31, 2022

Cancelled/expired

Outstanding on December 31, 2023

Cancelled/expired

Outstanding on December 31, 2024

Exercisable, December 31, 2024

December 2024, the Company modified 163,669 options that were expected to expire from December of 2024 through July of 2026 to extend

the term through December 31, 2026.

As a result of the modification, the Company recorded $ 110,000 of stock compensation expense, representing

the fair value of the re-issued options compared to the fair value of the expiring options immediately prior to the modification.

fair value of the options issued was calculated using the Black-Sholes option pricing model, based on the criteria shown below:

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

term (in years)

Weighted average expected

average risk-free interest rate

average grant date fair value per share

Expected term (in years)

Expected volatility

Risk-free interest rate

Expected dividends

Weighted average grant date fair value per share

following is a summary of restricted stock award and restricted stock unit activity:

Summary of Restricted Stock Award and Restricted Stock Unit Activity

average grant

date fair value

Schedule of Restricted Stock Award and Restricted Stock Unit Activity

Number of shares

Weighted average grant date fair value

Unvested at January 1, 2023

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Unvested at December 31, 2024

2023 and 2022, the Company issued performance share units (“PSUs”) that represent shares potentially issuable based upon

The Company issues performance share units (“PSUs”) that represent shares potentially issuable based upon

achievement of Company and individual performance targets.

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following is a summary of PSU activity:

Summary of Performance Stock Unit Activity

average grant

date fair value

Unvested at January 1, 2022

Schedule of Performance Stock Unit Activity

Number of shares

Weighted average grant date fair value

Unvested January 1, 2023

Unvested at December 31, 2023

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Statutory federal income tax rate

Permanent differences

Change in valuation allowance

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31, 2024 and 2023, respectively, is necessary to reduce the deferred tax assets to the amount that will more likely than not be realized.

The increase in the valuation allowance for the current period is $ 619,000 resulting from current year tax losses net of adjustments

to finalize the 2022 tax loss upon filing the tax returns.

The decrease in the valuation allowance for the current period is $ 644,000 resulted from a lower blended state tax rate, partially offset

by current year tax losses and the adjustments to finalize the 2023 tax loss upon filing the tax returns.

of December 31, 2024, the Company has a net operating loss carry forward to offset future taxable income of approximately $ 55,036,000 ,

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co-employment partner and review of the calculations provided that it has reasonable assurance for receipt of the ERC and recorded the

ERC benefit of $ 92,000

within general and administrative expenses in

the accompanying consolidated statement of operations for the year ended December 31, 2023.

The Company recorded a corresponding receivable

for the benefit expected to be received within other receivables on the consolidated balance sheet as of December 31, 2023.

received the refund in March 2024.

ERC benefit of $ 92,000 within general and administrative expenses in the accompanying consolidated statement of operations for the year

ended December 31, 2023.

The Company recorded a corresponding receivable for the benefit expected to be received within other receivables

on the consolidated balance sheet as of December 31, 2023.

The Company received the refund in March 2024.

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

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Company operates in one business segment.

Sales to the following customers represented more than 10% of total sales for the years ended

December 31, 2023 and 2022:

The Chief Executive Officer is the chief operating decision maker whom assesses

performance and allocates resources based on actual and projected operating results.

Sales to the following customers represented

more than 10% of total sales for the years ended December 31, 2024 and 2023:

Schedule of Revenue by Major Customers by Reporting Segments

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Non-cash financing and investing activities:

Financed acquisition of long-term assets

Convertible note issued in exchange for trade payables

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the years ended December 31, 2024 and 2023, the Company used cash for operations of $ 2,229,000 and $ 2,940,000 , respectively.

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 7, the litigation against 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 December 31, 2023, we have $ 1,891,000 of 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, we 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.

As of December

31, 2024, the Company had $ 235,000 of cash.

Company has a history of operating losses and negative cash flow, which are expected to improve with growth.

As described more fully

in Note 6, the dispute and subsequent contract termination with the Manufacturer has resulted in limitations in the Company’s ability

to procure certain products necessary to achieve our growth projections and in elevated legal costs.

mitigate the impact of procurement constraints, the Company built and paid for inventory in anticipation of third quarter seasonal requirements,

and invested in materials necessary to carry out trials and initial production runs at new co-manufacturers.

The Company secured a receivables-based

line of credit in August 2024 of $ 1,500,000 , with $ 880,000 available to borrow as of December 31, 2024.

Management expects that the cash

cycle will shorten as additional contracted capacity improves in production volume and efficiency in 2025.

Additionally, in May 2024,

the Company obtained non-recourse litigation financing to allow vigorous pursuit of the complaint against the Manufacturer without further

expense to the Company.

Finally, as described in Note1, the Company raised $ 3,000,000 through the sale of the Company’s common

stock in February 2025.

alleviated, the financial position at December 31, 2024 and historical results raise substantial doubt about the Company’s ability

to continue as a going concern.

As described, the Company has completed steps to mitigate dispute related issues and raise capital.

actions taken have resulted in the alleviation of the substantial doubt about the Company’s ability to continue as a going concern.

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-K

Item 9A. Controls and Procedures