Good afternoon, everyone, and thank you for participating on today's Third Quarter 2022 Corporate Update Call for Barfresh Food Group. Joining us today is Barfresh Food Group's Founder and CEO, Riccardo Delle Coste; and Barfresh Food Group's CFO, Lisa Roger. Following prepared remarks, we will open the call for your questions. The discussion today will include forward-looking statements. Except for historical information herein, matters set forth on this call are forward-looking within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements about the company's commercial progress, success of its strategic relationships and projections of future financial performance. These forward-looking statements are identified by the use of words such as grow, expand, anticipate, intend, estimate, believe, expect, plan, should, hypothetical, potential, forecast and project, continue, could, may, predict and will and variations of such words and similar expressions are intended to identify such forward-looking statements. All statements other than the statements of historical facts that address activities, events or developments that the company believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions made based on experience, expected future developments and other factors the company believes are appropriate under the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the company. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. The contents of this call should be considered in conjunction with the company's recent filings with the Securities and Exchange Commission, including its annual report on Form 10-K and the quarterly reports on Form 10-Q and current reports on Form 8-K, including any warnings, risk factors and cautionary statements contained therein. Furthermore, the company expressly disclaims any current intention to update publicly any forward-looking statements after this call, whether as a result of new information, future events, changes in assumptions or otherwise. In order to aid in the understanding of the company's business performance, the company is also presenting certain non-GAAP measures, including adjusted EBITDA, which are reconciled in a table in the business update release to the most comparable GAAP measures. The reconciling items are not operational or noncash costs, including stock compensation, stock issued for services and gain or loss on the sales of derivatives and other nonrecurring costs, such as these associated with the product withdrawal and the company's NASDAQ uplist. Management believes that adjusted EBITDA provides useful information to the investor because it is directly reflective of the period-to-period performance of the company's core business. Now I will turn the call over to the CEO of Barfresh Food Group, Mr. Riccardo Delle Coste. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining us for our Third Quarter 2022 Earnings Call. Before I provide an overview of our results, I need to first provide an update on the state of our business and some events that have impacted our third quarter results and will have an impact on the remainder of the year and into 2023. During the third quarter, we began to receive customer complaints related to the textural consistency of some of our Twist & Go product, which was isolated to one of our manufacturers. We pride ourselves on delivering quality product to our customers and voluntarily withdrew the impacted product from the market while we tried to work with the manufacturer to understand and resolve the issues. Unfortunately, our attempts to resolve these disputes by informal negotiation as contractually required were unsuccessful, and we found ourselves at an impasse. Today, we filed a complaint in the Federal District Court of Los Angeles against the manufacturer. It is important to point out that this issue is specific to only one manufacturer, and we are continuing to supply product to customers as we work with our other manufacturers to produce Twist & Go as well as our single-serve and bulk products. We are also actively working to replace the lost bottle manufacturing capacity. However, that process will take time. Considering the manufacturer in question accounted for 58% of all inventory purchases, the lost production will have a significant impact on our revenue until we have replaced the lost capacity. We expect to make up some of the lost revenue with the launch of Twist & Go in our new carton format. We have been working over the past year on a number of cost savings initiatives, and one of those was a format extension…

Thank you, Riccardo. Revenue for the third quarter of 2022 increased 25% to $2.4 million compared to $1.9 million in the prior year. Revenue for the first 9 months of 2022 increased 82% to $7.7 million compared to $4.2 million for the same period last year. The year-over-year increase in revenue is the result of increased orders for our Twist & Go product in the school channel as well as increased sales of our single-serve and bulk products. . Net sales for the third quarter of 2022 include a $1.2 million unfavorable impact related to expected customer credits and lost revenues resulting from the product withdrawal Riccardo mentioned at the start of the call. Gross margins for the third quarter of 2022 were negative 30% compared to 37% for the same period last year. Our third quarter gross margins tracked with our year-to-date Q2 performance exclusive of the unfavorable impact related to the product withdrawal, including customer returns, fees, unsalable inventory and the other product withdrawal-related costs. Gross margin for the first 9 months of 2022 were 12% compared to 38% for the same period last year. The year-over-year decline in gross margins was primarily due to the costs related to the product withdrawal in the third quarter of 2022, in addition to higher raw material and packaging costs from the unprecedented market costs and labor shortages as well as product mix. We expect gross margin improvement with the launch of the Twist & Go carton product. Selling, marketing and distribution expense for the third quarter of 2022 increased to $0.8 million compared to $0.5 million in the third quarter of 2021. For the first 9 months of 2022, selling, marketing and distribution expense increased to $2.1 million compared to $1.2 million in the same period last year. The increase…

Thank you, Lisa. We spent the greater part of this year making significant improvements in our business. And if not for the unexpected issue with our manufacturer, we would have been on a path towards delivering an incredible second half of the year and sustained profitability. Over the course of this year, we have expanded our manufacturing footprint by entering into a new manufacturing agreement, expanded our customer base across all channels, continued to see steady improvement in sales from our single-serve and bulk customers, increased our sales network by adding sales brokers nationally, rolled out a new product extension with the introduction of our Twist & Go carton format, implemented a new operating system to help us manage growth and provide better visibility into our business. We believe the issue with our manufacturer is an isolated, temporary setback that we are able to weather with existing financial resources. Our performance in the first half of this year and the course we were on provide confidence that once we have replaced the Twist & Go capacity, we will be set up for strong long-term growth. As a reminder, we will not be able to comment on the ongoing litigation beyond what is in the complaint filed today. Now with that said, let's take your questions. Operator?

[Operator Instructions] The first question comes from Nick Sherwood with Maxim Group.

This is Nick Sherwood from Maxim Group, speaking for Anthony Vendetti. What sort of capacity do you have right now for the carton Twist & Go? And sort of how do you see that developing throughout the year as you add new accounts to that product?

Yes. Yes, we've just launched that new carton capacity, the new carton product right now. We'll be able to move into about 20 million units a year with that capacity. We've just started. So we're making some improvements to the process as we get started here, but we expect to be able to have about a $20 million annual run rate.

Okay. And then as a follow-up, do you see that the gross margins for that product being higher than your historical gross margins you've been experiencing in the past 2 quarters?

Correct. That's actually -- as we -- as I described in the call, that was one of the initiatives that we had been working on from the beginning of the year in terms of some of the cost improvement -- cost improvements. So we believe it's going to have a very significant positive impact on our bottom line.

[Operator Instructions] As there are no more questions at this time, this concludes the question-and-answer session and today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.