UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20212022
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________ to ___________________
Commission File Number: 000-55131
BARFRESH FOOD GROUP INC.
(Exact name of registrant as specified in its charter)
Delaware | 27-1994406 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
3600 Wilshire Blvd., Suite 1720, Los Angeles, California | 90010 | |
(Address of principal executive offices) | (Zip Code) |
310-598-7113
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:None
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | |||
Common stock, $0.000001 par value | BRFH | The Nasdaq | Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | |
Non-accelerated filer ☐ | Smaller reporting company ☒ Emerging growth company ☒ |
If an emerging growth company, indicate by the check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: August 11, 2021.July 25, 2022. shares as of
TABLE OF CONTENTS
Page Number | ||
PART I - FINANCIAL INFORMATION | ||
Item 1. | Financial Statements. | 3 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | |
Item 4. | Controls and Procedures. | |
PART II - OTHER INFORMATION | ||
Item 1. | Legal Proceedings. | |
Item 1A. | Risk Factors. | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | |
Item 3. | Defaults Upon Senior Securities. | |
Item 4. | Mine Safety Disclosures. | |
Item 5. | Other Information. | |
Item 6. | Exhibits. | |
SIGNATURES |
2 |
Item 1. Financial Statements.
Barfresh Food Group Inc.
Condensed Consolidated Balance Sheets
June 30, | December 31, | |||||||||||||||
June 30, 2021 | December 31, 2020 | 2022 | 2021 | |||||||||||||
(Unaudited) | (Audited) | (Unaudited) | (Audited) | |||||||||||||
Assets | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash | $ | 6,821,636 | $ | 1,816,887 | $ | 3,533,000 | $ | 5,533,000 | ||||||||
Restricted cash | 142,382 | 142,382 | 211,000 | 142,000 | ||||||||||||
Accounts receivable, net | 544,558 | 425,029 | ||||||||||||||
Trade accounts receivable, net | 1,245,000 | 1,223,000 | ||||||||||||||
Other receivables | 148,000 | - | ||||||||||||||
Inventory, net | 1,032,325 | 870,190 | 1,570,000 | 705,000 | ||||||||||||
Prepaid expenses and other current assets | 46,673 | 47,066 | 50,000 | 64,000 | ||||||||||||
Total current assets | 8,587,574 | 3,301,554 | 6,757,000 | 7,667,000 | ||||||||||||
Property, plant and equipment, net of depreciation | 1,700,796 | 1,922,912 | 1,346,000 | 1,588,000 | ||||||||||||
Operating lease right-of-use assets, net | 118,068 | 147,947 | 53,000 | 87,000 | ||||||||||||
Intangible assets, net of amortization | 399,756 | 430,216 | 339,000 | 370,000 | ||||||||||||
Deposits | 6,746 | 14,817 | 7,000 | 7,000 | ||||||||||||
Total Assets | $ | 10,812,940 | $ | 5,817,446 | ||||||||||||
Total assets | $ | 8,502,000 | $ | 9,719,000 | ||||||||||||
Liabilities And Stockholders’ Equity | ||||||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 641,243 | $ | 353,046 | $ | 1,277,000 | $ | 974,000 | ||||||||
Accrued expenses | 360,173 | 298,489 | 200,000 | 228,000 | ||||||||||||
Advance payment | 401,306 | 401,306 | ||||||||||||||
Accrued payroll | 232,037 | 191,137 | ||||||||||||||
Accrued vacation | 91,440 | 117,166 | ||||||||||||||
Accrued interest | 33,600 | 68,627 | ||||||||||||||
Accrued payroll and employee related | 226,000 | 212,000 | ||||||||||||||
Lease liability | 69,512 | 65,007 | 58,000 | 81,000 | ||||||||||||
Loan payable – Paycheck Protection Program | 12,912 | 410,317 | ||||||||||||||
Convertible note, net of discount | - | 158,243 | ||||||||||||||
Derivative liabilities | - | 41,475 | ||||||||||||||
Total current liabilities | 1,842,223 | 2,104,813 | 1,761,000 | 1,495,000 | ||||||||||||
Long term liabilities: | ||||||||||||||||
Accrued interest | - | 127,664 | - | 34,000 | ||||||||||||
Lease liability | 58,259 | 94,170 | - | 14,000 | ||||||||||||
Loan payable – Paycheck Protection Program | 555,219 | 157,814 | ||||||||||||||
Convertible note - related party, net of discount | - | 197,804 | ||||||||||||||
Convertible note, net of discount | - | 810,995 | ||||||||||||||
Total liabilities | 2,455,701 | 3,493,260 | 1,761,000 | 1,543,000 | ||||||||||||
Commitments and contingencies (Note 6 and 9) | - | - | ||||||||||||||
Commitments and contingencies (Note 5) | - | - | ||||||||||||||
Stockholders’ equity: | ||||||||||||||||
Preferred stock, $ | par value, shares authorized, issued or outstanding- | - | - | - | ||||||||||||
Common stock, $ | par value; shares authorized; and shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively168 | 149 | ||||||||||||||
Common stock, $ par value; shares authorized; and shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | - | - | ||||||||||||||
Additional paid in capital | 60,145,458 | 53,223,665 | 60,537,000 | 60,341,000 | ||||||||||||
Accumulated deficit | (51,788,387 | ) | (50,899,628 | ) | (53,796,000 | ) | (52,165,000 | ) | ||||||||
Total stockholders’ equity | 8,357,239 | 2,324,186 | 6,741,000 | 8,176,000 | ||||||||||||
Total Liabilities and Stockholders’ Equity | $ | 10,812,940 | $ | 5,817,446 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 8,502,000 | $ | 9,719,000 | ||||||||||||
See the accompanying notes to the condensed consolidated financial statements
3 |
Barfresh Food Group Inc.
Condensed Consolidated Statements of Operations
For the three and six months ended June 30, 2022 and 2021
(Unaudited)
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
For the three months ended June 30, | For the six months ended June 30, | For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
Revenue | $ | 1,301,211 | $ | 506,276 | $ | 2,316,062 | $ | 1,240,156 | $ | 2,799,000 | $ | 1,301,000 | $ | 5,325,000 | $ | 2,316,000 | ||||||||||||||||
Cost of revenue | 728,272 | 389,815 | 1,387,696 | 718,449 | 1,916,000 | 739,000 | 3,678,000 | 1,405,000 | ||||||||||||||||||||||||
Depreciation of manufacturing equipment | 11,564 | 1,155 | 17,673 | 9,602 | ||||||||||||||||||||||||||||
Gross profit | 561,375 | 115,306 | 910,693 | 512,105 | 883,000 | 562,000 | 1,647,000 | 911,000 | ||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Selling and marketing | 690,000 | 443,000 | 1,322,000 | 756,000 | ||||||||||||||||||||||||||||
General and administrative | 1,017,364 | 1,084,040 | 1,768,965 | 2,308,465 | 813,000 | 575,000 | 1,678,000 | 1,013,000 | ||||||||||||||||||||||||
Depreciation and amortization | 146,364 | 153,500 | 293,297 | 303,648 | 117,000 | 146,000 | 278,000 | 293,000 | ||||||||||||||||||||||||
Total operating expenses | 1,163,728 | 1,237,540 | 2,062,262 | 2,612,113 | 1,620,000 | 1,164,000 | 3,278,000 | 2,062,000 | ||||||||||||||||||||||||
Operating loss | (602,353 | ) | (1,122,234 | ) | (1,151,569 | ) | (2,100,008 | ) | (737,000 | ) | (602,000 | ) | (1,631,000 | ) | (1,151,000 | ) | ||||||||||||||||
Other (income)/expenses | ||||||||||||||||||||||||||||||||
Other (income)/expenses/loss from derivative liability | 483 | (6,197 | ) | (16,305 | ) | (157,099 | ) | |||||||||||||||||||||||||
Other (income) from debt extinguishment - PPP | (568,131 | ) | - | (568,131 | ) | - | ||||||||||||||||||||||||||
Other (income)/expenses/loss from debt extinguishment | 193,562 | 0 | 193,562 | (379,200 | ) | |||||||||||||||||||||||||||
Gain from derivative liability | - | - | - | (16,000 | ) | |||||||||||||||||||||||||||
Gain from debt extinguishment - Paycheck Protection Program | - | (568,000 | ) | - | (568,000 | ) | ||||||||||||||||||||||||||
Loss on debt extinguishment | - | 194,000 | - | 194,000 | ||||||||||||||||||||||||||||
Interest | 68,973 | 63,483 | 128,064 | 358,877 | - | 69,000 | - | 128,000 | ||||||||||||||||||||||||
Total other (income) expense | (305,113 | ) | 57,286 | (262,810 | ) | (177,422 | ) | |||||||||||||||||||||||||
Total other expense | - | (305,000 | ) | - | (262,000 | ) | ||||||||||||||||||||||||||
Net (loss) | $ | (297,240 | ) | $ | (1,179,520 | ) | $ | (888,759 | ) | $ | (1,922,586 | ) | ||||||||||||||||||||
Net loss | $ | (737,000 | ) | $ | (297,000 | ) | $ | (1,631,000 | ) | $ | (889,000 | ) | ||||||||||||||||||||
Per share information - basic and fully diluted: | ||||||||||||||||||||||||||||||||
Weighted average shares outstanding | 156,858,706 | 143,498,391 | 152,996,039 | 137,598,082 | 12,915,000 | 12,066,000 | 12,915,000 | 11,769,000 | ||||||||||||||||||||||||
Net (loss) per share | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||||||||||||||||||
Net loss per share | $ | (0.06 | ) | $ | (0.02 | ) | $ | (0.13 | ) | $ | (0.08 | ) |
See the accompanying notes to the condensed consolidated financial statements
4 |
Barfresh Food Group Inc.
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 20212022 and 20202021
(Unaudited)
| ||||||||
2021 | 2020 | |||||||
Net Cash (used for) operating activities | $ | (651,255 | ) | $ | (1,930,045 | ) | ||
Investing Activities | ||||||||
Purchase of property and equipment | (38,970 | ) | (34,365 | ) | ||||
Purchase of intangibles | (1,751 | ) | (4,293 | ) | ||||
Net Cash (used for) investing activities | (40,721 | ) | (38,658 | ) | ||||
Financing Activities | ||||||||
Cash received for stock | 6,000,000 | 3,825,000 | ||||||
Proceeds from note payable | 568,131 | 568,131 | ||||||
Repayment of convertible notes | (840,000 | ) | (90,166 | ) | ||||
Payments of operating leases | (31,406 | ) | (27,360 | ) | ||||
Net Cash from financing activities | 5,696,725 | 4,275,605 | ||||||
Net change in cash and restricted cash | 5,004,749 | 2,306,902 | ||||||
Cash and restricted cash, beginning of year | 1,959,269 | 1,091,374 | ||||||
Cash and restricted cash, end of year | $ | 6,964,018 | $ | 3,398,276 | ||||
Accrued interest paid in stock | $ | 151,138 | $ | 379,350 | ||||
Net carrying value of convertible notes and accrued interest settled through issuance of stock (debt extinguishment) | $ | 466,658 | $ | 1,170,963 | ||||
Extinguishment of derivative liability | $ | 25,170 | $ | - | ||||
Executive deferred compensation settled through issuance of warrants | $ | - | $ | 167,892 | ||||
Debt discount warrant and derivative liability | $ | - | $ | 107,611 | ||||
Offering and debt issuance costs included in accounts payable | $ | - | $ | 39,208 |
2022 | 2021 | |||||||
Net loss | $ | (1,631,000 | ) | $ | (889,000 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Depreciation and amortization | 286,000 | 293,000 | ||||||
Stock-based compensation | 93,000 | 10,000 | ||||||
Stock and options issued for services | 98,000 | 75,000 | ||||||
Interest expense related to debt discount | - | 56,000 | ||||||
Gain on debt extinguishment - Paycheck Protection Program | - | (568,000 | ) | |||||
Gain on derivative | - | (16,000 | ) | |||||
Loss on debt extinguishment | - | 194,000 | ||||||
Changes in assets and liabilities | ||||||||
Accounts receivable | (22,000 | ) | (120,000 | ) | ||||
Other receivables | (148,000 | ) | - | |||||
Inventories | (865,000 | ) | (162,000 | ) | ||||
Prepaid expenses and other assets | 11,000 | 5,000 | ||||||
Accounts payable | 303,000 | �� | 289,000 | |||||
Accrued expenses | (14,000 | ) | 77,000 | |||||
Accrued interest | (34,000 | ) | 72,000 | |||||
Net cash used in operating activities | (1,923,000 | ) | (684,000 | ) | ||||
Investing activities | ||||||||
Purchase of property and equipment | (13,000 | ) | (39,000 | ) | ||||
Net cash used in investing activities | (13,000 | ) | (39,000 | ) | ||||
Financing activities | ||||||||
Proceeds from issuance of stock | 5,000 | 6,000,000 | ||||||
Proceeds from note payable | - | 568,000 | ||||||
Repayment of convertible notes | - | (840,000 | ) | |||||
Net cash from financing activities | 5,000 | 5,728,000 | ||||||
Net change in cash and restricted cash | (1,931,000 | ) | 5,005,000 | |||||
Cash and restricted cash, beginning of period | 5,675,000 | 1,959,000 | ||||||
Cash and restricted cash, end of period | $ | 3,744,000 | $ | 6,964,000 | ||||
Cash paid during the period for: | ||||||||
Cash paid for amounts included in the measurement of lease liabilities | $ | 20,000 | $ | 38,000 | ||||
Non-cash financing and investing activities: | ||||||||
Net carrying value of convertible notes and accrued interest extinguished through issuance of stock | $ | - | $ | 467,000 | ||||
Accrued interest paid in stock | $ | - | $ | 151,000 | ||||
Equipment included in accounts payable and accrued liability | $ | - | $ | 26,000 |
See the accompanying notes to the condensed consolidated financial statements
5 |
Barfresh Food Group Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 20212022
(Unaudited)
Note 1. Description of the Business, Basis of Presentation, and Summary of Significant Accounting Policies
Barfresh Food Group Inc., (“we,” “us,” “our,” and the “Company”) was incorporated on February 25, 2010 in the State of Delaware. We areThe Company is engaged in the manufacturingmanufacture and distribution of ready to blendready-to-drink and ready-to-blend beverages, particularly, smoothies, shakes and frappes.
Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on March 10, 2022. In management’s opinion, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, that are necessary for a fair presentation of financial results for the interim periods presented. Operating results for any quarter are not necessarily indicative of the results for the full fiscal year.
BasisReverse Stock Split
Effective December 29, 2021, the Company amended its certificate of incorporation to implement a 1-for-13 reverse stock split of its issued and outstanding shares of common stock. All the share numbers, share prices, exercise prices and other per share information throughout these financial statements have been adjusted, on a retroactive basis, to reflect the 1-for-13 reverse stock split.
Principles of Consolidation
The consolidated financial statements include the financial statements of the Company and our wholly owned subsidiaries, Barfresh Inc. and Barfresh Corporation Inc. (formerly known as Smoothie, Inc.). All inter-company balances and transactions among the companies have been eliminated upon consolidation.
Use of Estimates
The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the years reported. Actual results may differ from these estimates.
ConcentrationSummary of Credit RiskSignificant Accounting Policies
The amount of cash on deposit with financial institutions can be in excess of the $250,000 federally insured limit. However, we believe that cash on deposit that exceeds $250,000 in the financial institutions is financially sound and the risk of loss is minimal.
Restricted CashThere have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 10, 2022 that have had a material impact on our condensed consolidated financial statements and related notes.
At June 30, 2021 and December 31, 2020, the Company had $142,382 and $142,382, respectively, in restricted cash related to a co-packing agreement.
6 |
Fair Value Measurement
Financial 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:
Level 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.
Level 2 – Pricing inputs are other than quoted prices in active markets but are either directly or indirectly observable as of the reported date. 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.
Level 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.
Our financial instruments consist of cash, accounts receivable, accounts payable, advanced payments, restricted cash, as well as our PPP loan, convertible notes, and the PPP loan.derivative liabilities which were settled in 2021. The carrying value of our financial instruments on June 30, 2022, December 31, 2021 and June 30, 2021 approximates their fair value. The PPP loan approximatesvalues, except for the derivative liability, which was carried at fair value as forgiveness is expected in the near term.prior to its extinguishment.
Restricted Cash
Barfresh Food Group Inc.
NotesAt June 30, 2022 and December 31, 2021, the Company had approximately $211,000 and $142,000, respectively, in restricted cash related to Condensed Consolidated Financial Statementsa co-packing agreement.
June 30, 2021
(Unaudited)
Accounts Receivable
Accounts receivable are typically unsecured. Our credit policy calls for payment generally within 30 days. The credit worthiness of a customer is evaluated prior to a sale. As of June 30, 2021 and December 31, 2020,2021, the Company’s allowance for doubtful accounts was approximately $128,230121,000 and $133,424, respectively.. The Company did not have an allowance for doubtful accounts as of June 30, 2022. The allowance wasis estimated based on evaluation of collectability of outstanding accounts receivable. Delinquent accounts are written-off when it is determined that the amounts are uncollectible.
InventoryOther Receivables
Inventory consists of 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. As of June 30, 2021 and December 31, 2020, the Company’s inventory reserve was $55,701 and $59,093, respectively.
Intangible Assets
Intangible assets are comprisedOther receivables consist of patents, net of amortization and trademarks. The patent costs are being amortized overamounts due from vendors for materials acquired on their behalf for use in manufacturing the life of the patent, which is twenty years from the date of filing the patent application. In accordance with ASC Topic 350 Intangibles – Goodwill and Other (“ASC 350”), the costs of internally developing other intangible assets, such as patents, are expensed as incurred. However, as allowed by ASC 350, costs associated with the acquisition of patents from third parties, legal fees and similar costs relating to patents have been capitalized.
In accordance with ASC 350 legal costs related to trademarks have been capitalized. We have determined that trademarks have an indeterminable life and therefore are not being amortized.
Long-Lived Assets and Other Acquired Intangible Assets
We evaluate the recoverability of property and equipment and finite-lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. The evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of property and equipment and intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value. We have not recorded any impairment charges during the periods presented.
Property,Plant, and Equipment
Property, plant, and equipment is stated at cost less accumulated depreciation and accumulated impairment loss, if any. Depreciation is calculated on a straight-lined basis over the estimated useful lives of the assets. Leasehold improvements are being amortized over the shorter of the useful life of the asset or the lease term that includes any expected renewal periods that are deemed to be reasonably assured. The estimated useful lives used for financial statement purposes are:
Furnitureand fixtures: 5 years
Manufacturing equipment and customer equipment: 3 yearsto 7 years
Vehicles: 5 years
Barfresh Food Group Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2021
(Unaudited)Company’s products.
Revenue Recognition
In accordance with ASC 606, Revenue from Contracts with Customers, revenue is recognized when a customer obtains ownership of promised goods. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods.goods, net of rebates and other marketing allowances. The Company applies the following five steps:
1) Identify the contract with a customer
1) | Identify the contract with a customer | |
A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for goods or services that are transferred is probable. For the Company, the contract is the approved sales order, which may also be supplemented by other agreements that formalize various terms and conditions with customers. |
A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for goods or services that are transferred is probable. For the Company, the contract is the approved sales order, which may also be supplemented by other agreements that formalize various terms and conditions with customers.
7 |
2) Identify the performance obligation in the contract
2) | Identify the performance obligation in the contract | |
Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer. For the Company, this consists of the delivery of frozen beverages, which provide immediate benefit to the customer. |
Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer. For the Company, this consists of the delivery of frozen beverages, which provide immediate benefit to the customer.
3) Determine the transaction price
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods and is generally stated on the approved sales order. Variable consideration, which typically includes volume-based rebates or discounts, are estimated utilizing the most likely amount method.
4) Allocate the transaction price to performance obligations in the contract
Since our contracts contain a single performance obligation, delivery of frozen beverages, the transaction price is allocated to that single performance obligation.
Allocate the transaction price to performance obligations in the contract Since our contracts contain a single performance obligation, delivery of frozen beverages, the transaction price is allocated to that single performance obligation. The Company recognizes revenue from the sale of frozen beverages when title and risk of loss passes and the customer accepts the goods, which generally occurs at the time of delivery to a customer warehouse. Customer sales incentives such as volume-based rebates or discounts are treated as a reduction of sales at the time the sale is recognized. Shipping and handling costs are treated as fulfillment costs and presented in distribution, selling and administrative costs. Payments that are received before performance obligations are recorded are shown as current liabilities. Shipping and Storage Costs Shipping and handling costs are Research and Development Expenditures for research activities relating to product development and improvement are charged to expense as incurred. At June 30, 2022 and 2021 financial position. Note 2. Inventory Inventory consists of the Schedule of Inventory Note 3. Property Plant and Equipment Schedule of Major Classes of Property and Equipment these respectively, and $ Note The The Note The following table presents the future operating lease payment as of June 30, Schedule of Estimate Future Maturities of Lease Liabilities From time to time, various lawsuits and legal proceedings may arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these, or other matters may arise from time to time that may harm our business. Note 6. Stockholders’ Equity The following are changes in stockholders’ equity for the six months ended June 30, 2021 and June 30, 2022: Barfresh Food Group, Inc. Condensed Consolidated Statements of Stockholders’ Equity Schedule of Changes in Stockholders' Equity During the six months ended June 30, Equity Incentive Plan Summary of Stock Options Activity Summary of Fair Value of Options Using Black-Sholes Option Pricing Model As of June 30, Summary of Restricted Stock Award and Restricted Stock Unit Activity As of June 30, Note ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of evidence, it is more than likely than not that some portion or all There are open statutes of limitations for taxing authorities in federal and state jurisdictions to audit our tax returns from For the three and six months ended June 30, 2022 and 2021, the Company did not incur any interest and penalties associated with tax positions. As of June 30, 2022, the Company did not have any significant unrecognized uncertain tax positions. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion should be read in conjunction with the financial information included elsewhere in this Quarterly Report on Form 10-Q (this “Report”), including our unaudited condensed consolidated financial statements and the related References in this Cautionary Note Regarding Forward-Looking Statements This discussion includes forward-looking statements, as that term is defined in the federal securities laws, based upon current expectations that involve risks and uncertainties, such as plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. Words such as “anticipate”, “estimate”, “plan”, “continuing”, “ongoing”, “expect”, “believe”, “intend”, “may”, “will”, “should”, “could” and similar expressions are used to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise. Critical Accounting Policies Recent Accounting Pronouncements See Note 1 to the accompanying notes to unaudited condensed consolidated financial statements included in Results of Operations Results of Operation for Three Months Ended June 30, Revenue and cost of revenue Revenue increased Cost of revenue for Our operations were primarily directed towards increasing sales and expanding our distribution network. Sales and marketing expenses increased approximately $133,000 (72%) from approximately $186,000 in 2021 to $319,000 in 2022. The increase in sales and marketing expenses was primarily the result of the retention of new employees and outside service providers to assist with sales and initiatives, as well as participation in education nutrition trade shows in 2022. Storage and outbound freight expense increased approximately $114,000 (44%) from approximately $257,000 in 2021 to $371,000 in 2022. The increase was primarily a result of the 115% increase in revenue, tempered by logistics efficiencies from the increased volume in core markets served. General and administrative expenses Our general and administrative expenses Personnel cost represents the cost of employees including salaries, bonuses, employee benefits and employment taxes and continues to be our largest cost. Personnel cost Stock 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 Research and development expenses Other expenses Operating loss We had operating losses of Interest expense was approximately $69,000 and loss on debt extinguishment was approximately $194,000 for the three months ended June 30, 2021. Interest related to convertible debt that was converted and repaid in 2021. We did not incur any interest expense for the three months ended June 30, Net loss We had net losses of Results of Operation for Six Months Ended June 30, Revenue and cost of revenue Revenue increased Cost of revenue for Sales and marketing expenses increased approximately $210,000 (59%) from approximately $355,000 in 2021 to $565,000 in 2022. The increase in sales and Storage and outbound freight expense increased approximately $356,000 (89%) from approximately $401,000 in 2021 to $757,000 in 2022. The increase was primarily a result of the 130% increase in revenue, tempered by logistics efficiencies from the increased volume in core markets served. General and administrative expenses Our general and administrative expenses Personnel cost represents the cost of employees including salaries, bonuses, employee benefits and employment taxes and continues to be our largest cost. Personnel cost Stock 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 six months ended June 30, Legal, professional, and consulting fees increased approximately $66,000 (37%) from approximately $178,000 in 2021 to $244,000 in 2022. The increase was primarily due to corporate development activities. Research and development expenses decreased Other expenses Operating loss We had operating losses of Other income and The change in the value of the derivative liability is based upon the Black-Scholes model from one period to another. The gain Net loss We had net losses of Liquidity and Capital Resources As of June 30, During the six months ended June 30, Our 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 expenses, and to continue to control Our 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 We have entered into a direct lease for premises covering the period April 1, 2019 to March 31, 2023. The aggregate minimum Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not required because we are a smaller reporting company. Item 4. Controls and Procedures. Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our Chief Executive Officer Management has identified the following material weaknesses in our internal control over financial reporting: Management 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 In an effort to remediate the identified material weakness and enhance our internal control over financial reporting, we have hired additional personnel and are reassigning control responsibilities in conjunction with the implementation of a new enterprise resource planning system. We believe that we are taking the steps necessary to Since the assessment of the effectiveness of our internal control over financial reporting did identify material weaknesses, management considers its internal control over financial reporting to Management believes that the material weakness set forth above did not have an effect on our financial results. Changes in Internal Control over Financial Reporting There have been no changes in the Company’s internal PART Item 1. Legal Proceedings. Neither the Company nor its subsidiaries are party to or have property that is the subject of any material pending legal proceedings. We may be subject to ordinary legal proceedings incidental to our business from time to time that are not required to be disclosed under this Item 1. Item 1A. Risk Factors. Not required because we are a smaller reporting company. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Item 3. Defaults Upon Senior Securities. None. Item 4. Mine Safety Disclosures. Not applicable. Item 5. Other Information. None. Item 6. Exhibits. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Riccardo Delle Coste Chief Executive Officer (Principal Executive Officer) (Principal 5) Recognize Revenue when or as the Company satisfies a performance obligation3) Determine the transaction price The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods and is generally stated on the approved sales order. Variable consideration, which typically includes rebates or discounts, are estimated utilizing the most likely amount method and amounts recorded as revenue and accounts receivable reflect such estimates at the time of shipment. Subsequent adjustments to estimates of variable consideration have not been material. 4) 5) Recognize Revenue when or as the Company satisfies a performance obligation The Company evaluated the requirement to disaggregate revenue and concluded that substantially all of its revenue comes from smoothie beverages. treated as fulfillment costs and presentedincluded in distribution, selling and administrative costs.marketing expenses. For the three months ending June 30, 2022 and 2021, shipping and handling costs totaled approximately $371,000 and $257,000, respectively. For the six months ending June 30, 2022 and 2021, shipping and handling costs totaled approximately $757,000 and $401,000, respectively.Payments that are received before performance obligations are recorded are shown as current liabilities.The Company evaluated the requirement to disaggregate revenue and concluded that substantially all of its revenue comes from a single product, frozen beverages.WeThe Company incurred approximately $70,30497,000 and $93,730127,000, in research and development expenses for the three months ending June 30, 20212022 and 2020,2021, respectively. For the six months ending June 30, 20212022 and 2020,2021, research and development costsexpense totaled approximately $138,44666,000 and $179,154138,000, respectively.Shipping and Storage CostsShipping and handling costs are included in general and administrative expenses. For the three months ending June 30, 2021 and 2020, shipping and storage costs totaled $237,403 and $96,425, respectively. For the six months ending June 30, 2021 and 2020, shipping and storage costs totaled $381,137 and $229,533, respectively.LeasesWe determine if an arrangement is a lease upon inception. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The right to control the use of an asset includes the right to obtain substantially all of the economic benefits of the underlying asset and the right to direct how and for what purpose the asset is used.After adoption of ASU 2016-02 and related standards, operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Lease expense is recognized on a straight-line basis over the lease term. As a lessee, the Company leases office space.8 Notes to Condensed Consolidated Financial Statements(Unaudited) 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.Income TaxesReclassificationsThe provision for income taxes is determined in accordance withCertain reclassifications have been made to the provisions2021 financial statements to conform to the 2022 presentation, including the presentation of ASC Topic 740, Accounting for Income Taxes (“ASC 740”). Under this method, deferred tax assetsselling and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assetsmarketing expense apart from general and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable incomeadministrative expense in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assetscondensed consolidated statement of operations, and liabilitiesthe presentation of a changereconciliation of the components of net cash used in tax rates is recognizedoperating activities as well as the inclusion of operating lease payments in incomeoperating activities in the period that includes the enactment date. ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements, uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amountcondensed consolidated statement of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts. ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of evidence, it is more than likely than not that some portion or all of the deferred tax assets will not be recognized.cash flows.Derivative LiabilityRecent PronouncementsThe 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 result of this accounting treatment is that the fair value of any derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as gain/loss from derivative liability. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. We analyzed the derivative financial instruments in accordance with ASC 815. The objective is to provide guidance for determining whether an equity-linked financial instrument is indexed to an entity’s own stock. This determination is needed for a scope exception which would enable a derivative instrument to be accounted for under the accrual method. The classification of a non-derivative instrument that falls within the scope of ASC 815-40-05 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” also hinges on whether the instrument is indexed to an entity’s own stock. A non-derivative instrument that is not indexed to an entity’s own stock cannot be classified as equity and must be accounted for as a liability. There is a two-step approach in determining whether an instrument or embedded feature is indexed to an entity’s own stock. First, the instrument’s contingent exercise provisions, if any, must be evaluated, followed by an evaluation of the instrument’s settlement provisions. The Company utilized the fair value standard set forth by the Financial Accounting Standards Board, defined as the amount at which the assets (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale.Debt ExtinguishmentThe Company evaluates its convertible instruments in accordance with ASC 470-50, “Debt Modifications and Extinguishments.” For all extinguishments of debt, ASC 470-50 requires the difference between the reacquisition price (including any premium) and the net carrying amountFrom time to time, new accounting pronouncements are issued that we adopt as of the debt being extinguished (including any deferred debt issuance costs) to be recognized as a gain or loss whenspecified effective date. We have not determined if the debt is extinguished. Accordingly, the Company recorded a net lossimpact of $193,562 and net gain of $379,200, respectively, non-cash gain/lossrecently issued standards that are not yet effective will have an impact on extinguishment of debt in its statementsour results of operations for the six months ended June 30, 2021 and 2020, and a net loss of $193,562 and $0 for the three months ended June 30, 2021 and 2020 respectively.We calculate net loss per share in accordance with ASC Topic 260. 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 June 30, 2021 and 2020 any equivalents would have been anti-dilutive as we had losses for the years then ended.9Barfresh Food Group Inc.Notes to Condensed Consolidated Financial StatementsJune 30, 2021(Unaudited)We calculate stock compensation in accordance with ASC Topic 718, Compensation-Stock Based Compensation (“ASC 718”). ASC 718 requires that the cost resulting from all share-based payment transactions be recognized in the financial statements and establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value based measurement method in accounting for share-based payment transactions with employees except for equity instruments held by employee stock ownership plans.following at June 30, 2021 and December 31, 2020:following: June 30, December 31, 2021 2020 2022 2021 Raw materials $ 159,718 $ 130,296 $ 214,000 $ 105,000 Finished goods, net of reserve 872,607 739,894 Finished goods 1,356,000 600,000 Inventory, net $ 1,032,325 $ 870,190 $ 1,570,000 $ 705,000 Major classes of propertyProperty and equipment, at June 30, 2021 and December 31, 2020:net consist of the following: 2021 2020 Furniture and fixtures $ 1,524 $ 1,524 Manufacturing Equipment and customer equipment 3,599,851 3,573,527 Leasehold Improvements 4,886 4,886 Vehicles 29,696 29,696 3,635,957 3,609,633 Less: accumulated depreciation (2,592,120 ) (2,331,034 ) 1,043,837 1,278,599 Equipment not yet placed in service 656,959 644,313 Property and equipment, net of depreciation $ 1,700,796 $ 1,922,912 We recorded depreciation expense related to these assets of $130,258 and $153,500 for the three-months ended June 30, 2021 and 2020, respectively and $261,086 and $303,648 for the six months ended June 30, 2021 and 2020, respectively. Depreciation expense in Cost of Goods Sold was $11,564 and $1,155 for three months ended June 30, 2021 and 2020, respectively, and $17,673 and $9,602 for the six months ended June 30, 2021 and 2020, respectively.Note 4. Intangible AssetsAs of June 30, 2021, intangible assets consist of patent costs of $768,138, trademarks of $121,661 and accumulated amortization of $490,043.As of December 31, 2020, intangible assets consist of patent costs of $768,138, trademarks of $119,911 and accumulated amortization of $457,833. June 30, December 31, 2022 2021 Manufacturing and customer equipment $ 3,814,000 $ 3,800,000 Other property 36,000 36,000 Property and equipment, gross 3,850,000 3,836,000 Less: accumulated depreciation (3,150,000 ) (2,894,000 ) Property and equipment 700,000 942,000 Equipment not yet placed in service 646,000 646,000 Property and equipment, net of depreciation $ 1,346,000 $ 1,588,000 109 Barfresh Food Group Inc.NotesDepreciation expense related to Condensed Consolidated Financial StatementsJune 30, 2021(Unaudited)The amounts carried on the balance sheet represent cost to acquire, legal fees and similar costs relating to the patents incurred by the Company. Amortization is calculated through the expiration date of the patents, which is December 2025. The amount charged to amortizationassets was approximately$16,105110,000 and $15,902130,000 for the three months ended June 30, 20212022 and 2020,2021, respectively, and $32,210255,000 and $31,805261,000 for the six months ended June 30, 2022 and 2021, respectively. Depreciation expense in cost of revenue was approximately $10,000and 2020, respectively.$12,000Estimated future amortization expense related to patents as of for three months ended June 30, 2022 and 2021, is as follows:Schedule of Estimated Future Amortization Expense Related to Intangible Property10,000 Total Amortization Years ending December 31, 2021 $ 32,211 2022 64,421 2023 64,421 2024 64,219 2025 52,823 Intangible asset, net of amortization $ 278,095 Note 5. Related PartiesAs disclosed below in Note 7, members of management and directors invested in$18,000 for the Company’s convertible notes;six months ended June 30, 2022 and in Note 10, members of management and directors have received shares of stock and options in exchange for services.2021, respectively.6. Paycheck Protection Program (PPP) loanOn May 7, 2020 the Company was granted a $568,131 loan under the PPP administered by a Small Business Administration (SBA) approved partner. The loan, which matures in two years, is uncollateralized and is fully guaranteed by the Federal government. The Company is eligible for loan forgiveness of up to 100% of the loan, upon meeting certain requirements. On May 20, 2021 the loan for $568,131 was legally released and forgiven by the SBA. Forgiveness income of $568,131 has been recorded for the three and six months ended June 30, 2021.On January 27, 2021, the Company was granted a second $568,131 loan under the PPP administered by an SBA approved partner. The loan, which matures in five years, at an interest rate of 1%, and is uncollateralized and is fully guaranteed by the Federal government. The deferral period is 24 weeks plus 10 months from the loan note date. The Company is eligible for loan forgiveness of up to 100% of the loan, upon meeting certain requirements. The Company has recorded a note payable and will record the forgiveness upon being legally released from the loan obligation by the SBA. The Company will be required to repay any remaining balance, plus interest accrued at 1 percent, in monthly payments commencing upon notification that the loan will not be forgiven or only partially forgiven.The repayment for the PPP loan as of June 30, 2021, are as follows:Schedule of Repayment of Paycheck Protection Program (PPP) Loan Total Repayment Years ending December 31, 2021 (six months remaining) $ - 2022 90,384 2023 154,945 2024 154,945 2025 154,945 Later years 12,912 Repayment of debt $ 568,131 11Barfresh Food Group Inc.Notes to Condensed Consolidated Financial StatementsJune 30, 2021(Unaudited)Note 7.4. Convertible Notes and Derivative Liability (Related and Unrelated Party)As of June 30, 2021,In 2018, the Company settled all outstanding convertible noteissued Milestone I and Milestone II Convertible Notes, which included the $1,071,000 Series CN Note 1 noteholders. The debt settlement consisted of debtwere repaid and converted to company stock of $231,000 ($30,000 related party) in principal and $192,663 ($37,689 related party) in interest into shares of common stock, and debt in the amountsecond quarter of $840,000 ($180,000 related party) was repaid.2021.convertible notes consist of the following components as of June 30, 2021 and December 31, 2020:Schedule ofMilestone II Convertible Notes June 30, 2021 December 31, 2020 Convertible notes $ 1,181,167 $ 1,181,167 Less: Debt discount (warrant value) (92,266 ) (92,266 ) Less: Debt discount (derivative value) (Note 8) Less: Debt discount (issuance costs paid) (6,004 ) (6,004 ) Less: Note conversion/settlements (1,181,167 ) (110,166 ) Add: Debt discount amortization 98,270 38,173 Total convertible notes $ - $ 1,010,904 As of June 30, 2021, the Company settled all outstanding convertible note holders which included the $168,000 Series CN Note 2 noteholders. The debt settlement consisted of debt converted to company stock of $168,000 in principal and $41,747 in interest into shares of common stock.The convertible notes consist of the following components as of June 30, 2021 and December 31, 2020:Schedule of Convertible Notes June 30, 2021 December 31, 2020 Convertible notes $ 235,200 $ 235,200 Less: Debt discount (warrant value) (1,817 ) (1,817 ) Less: Debt discount (derivative value) (Note 8) (13,528 ) (13,528 ) Less: Debt discount (issuance costs paid) (6,004 ) (6,004 ) Less: Note conversion/settlements (235,200 ) (67,200 ) Add: Debt discount amortization 21,349 9,487 Total convertible notes $ - $ 156,138 The total of $1,167,042 shown in the two tables above at December 31, 2020, are presented in the balance sheet as Current Liabilities: $158,243 Convertible Note-Net of Discount and Long-Term Liabilities: Convertible Note – related party net of Discount of $197,804, and Convertible Note – net of Discount $810,995.Note 8. Derivative LiabilitiesAs discussed in Note 7, Convertible Notes, the Company had $168,000 of principal outstanding in CN Notes 2 that contained variable conversion provisions. The conversion terms of the convertible notes are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued wasprovisions based on the future price of the Company’s common stock, thereforeresulting in the potential issuance of an indeterminate number of shares of common stock issuable upon conversionconversion. The Company measured the fair value of the promissory note is indeterminate. The Company fair valuedderivative resulting from the variable conversion provisions each reporting period. The fair value was reported as a derivative liability in the accompanying consolidated balance sheets and the change in value was recorded as a gain or loss in the accompanying consolidated statements of operations.The fair values of the Company’s derivative liabilities are estimated at the issuance date and are revalued at each subsequent reporting date. As of June 30, 2021, the Convertible Noteholders discussed in Note 7 were settled. Upon debt extinguishment the Company’s derivative liability was revalued at May 26, 2021 with value ofapproximately $25,17025,000, which resultedresulting in a loss of $483 for the three months ended June 30, 2021, and a gain of approximately $16,305 16,000for the six months ended June 30, 2021.12Barfresh Food Group Inc.Notes to Condensed Consolidated Financial StatementsJune 30, 2021(Unaudited)fairderivative value of $25,000 was included in the derivative liabilities for CN Notes 2 was calculated usingdetermining the Black-Scholes model using the following assumptions.loss on debt extinguishment.Schedule of Fair Value of the Derivative Liability 26-May-21 31-Dec-20 Expected life 0.46 0.92 Volatility (based on comparable company) 101.32 % 120.38 % Risk Free interest rate 0.04 % 0.1 % Dividend yield (on common stock) - - Reconciliation of the derivative liability measured at fair value on a recurring basis with the use of significant unobservable inputs (level 3) from December 31, 2020 to June 30, 2021:Schedule of Derivative Liability Measured at Fair Value on a Recurring Basis Jun. 30, 2021 December 31, 2020 $ 41,475 Net gain from change in value (16,305 ) Extinguishment change in derivative from debt settlement (25,170 ) June 30, 2021 $ - The following table presents the Company’s fair value hierarchy for applicable assets and liabilities measured at fair value as of December 31, 2020 and June 30, 2021:Schedule of Fair Value Hierarchy of Assets and Liabilities Level 1 Level 2 Level 3 Total Derivative Liability December 31, 2020 $ - - 41,475 $ 41,475 Level 1Level 2Level 3TotalDerivative Liability June 30, 2021$---$-9.5. Commitments and ContingenciesWe leaseThe Company leases office space under a non-cancelable operating lease which expires on March 31, 2023. OurThe Company’s periodic lease cost and operating cash flows was approximately $19,75220,000 and $19,782for each of the three months ended June 30, 2022 and 2021, and 2020, respectively. Our periodic lease cost and operating cash flow was $39,670 respectively, and $34,844 40,000for each of the six months ended June 30, 20212022 and 2020,2021, respectively. As of June 30, 2021,2022, our right of use asset and related liability was approximately $118,068 and $127,771.In determining the present value of our operating lease right-of-use asset and liability, we used a 10% discount rate (which approximated our borrowing rate). The remaining term on the lease is 3 years53,000.2021.2022. Jun. 30, 2021 2021 (six months remaining) 39,297 2022 80,361 2022 (six months remaining) $ 40,000 2023 20,238 20,000 Total Lease payments 139,896 Total lease payments 60,000 Less: imputed interest (12,125 ) (2,000 ) Total lease liability $ 127,771 $ 58,000 We areThe Company is currently the defendant in one legal proceeding for an amount less than $100,000. Our legal counsel and management believe a material unfavorable outcome to be remote.1310 Barfresh Food Group Inc.Notes to Condensed Consolidated Financial StatementsJune 30, 2021(Unaudited) Shares Amount Capital (Deficit) Total Additional Common Stock paid in Accumulated Shares Amount Capital (Deficit) Total Balance December 31, 2020 11,471,797 $ - $ 53,224,000 $ (50,900,000 ) $ 2,324,000 Issuance of stock for capital raise 1,282,051 - 6,000,000 - 6,000,000 Conversion of debt and accrued interest 114,614 - 685,000 - 685,000 Interest paid in shares 19,377 - 151,000 - 151,000 Stock and options issued for services 4,579 - 75,000 - 75,000 Stock-based compensation - - 10,000 - 10,000 Issuance of stock for warrant exercise Issuance of stock for warrant exercise, shares Net loss - - - (889,000 ) (889,000 ) Balance June 30, 2021 12,892,418 $ - $ 60,145,000 $ (51,789,000 ) $ 8,356,000 Additional Common Stock paid in Accumulated Shares Amount Capital (Deficit) Total Balance December 31, 2021 12,905,112 $ - $ 60,341,000 $ (52,165,000 ) $ 8,176,000 Issuance of stock for warrant exercise 986 - 5,000 - 5,000 Stock-based compensation - - 93,000 - 93,000 Stock and options issued for services 13,801 - 98,000 - 98,000 Net loss - - - (1,631,000 ) (1,631,000 ) Balance June 30, 2022 12,919,899 $ - $ 60,537,000 $ (53,796,000 ) $ 6,741,000 Note 10. Stockholders’ EquityWarrants2021, we issued2022, 520,00099,274 options to purchase our common stock to employees. Thewarrants at a weighted average exercise price of the options were $0.43-$ per share with a combinationexpired, and 986 warrants at an exercise price of both cliff and graded vesting over $3 years5.07 and are exercisableper share were exercised for a periodproceeds of 8 years.approximately $5,000. Number of
Options Weighted
average exercise
price per share Remaining term
in years Outstanding on December 31, 2021 625,016 $ 7.55 3.8 Issued 50,722 $ 6.00 Cancelled/expired (13,080 ) $ 4.92 Outstanding on June 30, 2022 662,658 $ 7.48 3.5 Exercisable, June 30, 2022 571,746 $ 7.77 2.9 11 Expected life (in years)-Volatility (based on a comparable company)%-%Risk Free interest rate%-%%Dividend yield (on common stock)For the six months ended June 30, 2021, the Company issued options for board director compensation, and options were cancelled. The total amount of equity-based compensation included in additional paid in capital was $ and $ for the three-months ended June 30, 2021 and 2020, respectively. The total amount of equity-based compensation included in additional paid in capital was $ and $ for the six-months ended June 30, 2021 and 2020, respectively.Summary of Outstanding Stock Options Issued to Employees and Directors Number
of Options Exercise
price per share $ Average
remaining term
in years Aggregate
intrinsic value
at date of
grant $ Outstanding January 1, 2021 7,640,959 - - Issued - Employees 520,000 - - Issued - Directors 148,810 Cancelled/Expired (450,000 ) Outstanding June 30 2021 7,859,769 - - Exercisable, June 30, 2021 6,693,669 - - 2022 Expected term (in years) - Weighted average expected volatility % Weighted average risk-free interest rate % Expected dividends $ - Weighted average grant date fair value per share $ 4.53 2021,2022, the Company has approximately $of total unrecognized share-based compensation expense related to unvested options, which is expected to be amortizedrecognized over the remaining weighted average period of years.14Barfresh Food Group Inc.Notes to Condensed Consolidated Financial StatementsJune 30, 2021(Unaudited)The following is Changes in Stockholders’ Equity as of June 30, 2020 and June 30, 2021:Schedule of Changes in Stockholders' Equity Shares Amount Capital (Deficit) Total Additional Common Stock paid in Accumulated Shares Amount Capital (Deficit) Total Balance January 1, 2020 130,341,737 $ 130 $ 47,030,716 (46,747,122 ) $ 283,724 Issuance of stock for capital raise, net of offering costs of $27,200 7,650,000 8 3,797,792 - 3,797,800 Conversion of debt and accrued interest Conversion of debt and accrued interest,shares Conversion of debt 4,770,030 5 13,333,757 - 1,333,762 Interest paid in shares 632,251 - 379,350 - 379,350 Issuance of stock for services 27,601 - 25,000 - 25,000 Equity based compensation - - 194,524 - 194,524 Warrants issued to management - - 167,892 - 167,892 Warrant Modification - - 18,899 - 18,899 Warrant issued for note extension - - 75,184 - 75,184 Restricted stock issuance 121,527 - - - - Net (loss) for the year - - - (1,922,586 ) (1,922,586 ) Balance June 30, 2020 143,543,146 $ 143 $ 53,023,114 (48,669,708 ) $ 4,353,549 Additional Common Stock paid in Accumulated Shares Amount Capital (Deficit) Total Balance January 1, 2021 149,133,372 $ 149 $ 53,223,665 (50,899,628 ) $ 2,324,186 Balance 149,133,372 $ 149 $ 53,223,665 (50,899,628 ) $ 2,324,186 Issuance of stock for capital raise, 16,666,666 17 5,999,983 - 6,000,000 Conversion of debt and accrued interest 1,489,976 2 685,388 - 685,390 Interest paid in shares 251,897 - 151,138 - 151,138 Issuance of stock for services 59,524 - 75,000 - 75,000 Equity based compensation - - 10,284 - 10,284 Net (loss) for the year - - - (888,759 ) (888,759 ) Balance June 30, 2021 167,601,435 $ 168 $ 60,145,458 (51,788,387 ) $ 8,357,239 Balance 167,601,435 $ 168 $ 60,145,458 (51,788,387 ) $ 8,357,239 15Barfresh Food Group Inc.Notes to Condensed Consolidated Financial StatementsJune 30, 2021(Unaudited)On June 1, 2021, the Company completed a private placement of shares of its common stock at $ per share, resulting in gross proceeds of $6,000,000. In addition, holders of debt converted a total of $399,000 in principal and $234,410 in interest into shares of common stock, and debt in the amount of $840,000 was retired.Note 11. Outstanding Warrantsyears. Number of
shares Weighted
average grant
date fair value Unvested at January 1, 2022 - $ - Granted 41,554 $ 5.40 Forfeited (1,754 ) $ 5.06 Unvested at June 30, 2022 39,800 $ 5.41 2021:2022, the Company has approximately $ of unrecognized share-based compensation expense related to restricted stock awards and restricted stock units, which is expected to be recognized over the remaining weighted average period of years.Summary of Outstanding Warrants Number of
warrants Price
per share Remaining term
in years Intrinsic value
at date of grant Warrants issued in connection with private placements of common stock 20,873,817 $ 0.50 - $1.00 $ Warrants issued in connection with private placement of notes 3,465,501 $ 0.60 $ - Warrants issued in connection with settlement of deferred compensation 3,169,599 $ 0.60 $ - 12.7. Income Taxesof the deferred tax assets will not be recognized. Accordingly, at this time the Company has placed a valuation allowance on all tax assets. As of June 30, 2021,2022, the estimated effective tax rate for the year will be 0.2022 was zero.20092017 through the current period. Our policy is to account for income tax related interest and penalties in income tax expense in the statement of operations.1612 notes. notes and with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 10, 2022, and other reports that we file with the SEC from time to time.Management’s Discussion and Analysis of Financial Condition and Results of Operations sectionQuarterly Report on Form 10-Q to “us”, “we”, “our” and similar terms refer to Barfresh Food Group Inc.The Company’s products are made in four formats. The first is in portion controlled single serving beverage ingredient packs, suitable for smoothies, shakes and frappes that can also be utilized for cocktails and mocktails. These packs contain all of the ingredients necessary to make a smoothie, shake or frappe, including the ice. Simply add water, empty the packet into a blender, blend and serve. The second format is the bulk “Easy Pour” format. The Company’s bulk “Easy Pour” format also contains all of the solid ingredients necessary to make the beverage, packaged in gallon containers in a concentrated formula that is mixed “one to one” with water. The third format is the Company’s new WHIRLZ 100% Juice Concentrates. These new 5:1 juice concentrates are a perfect complement to the company’s current existing 1:1 bulk Easy Pour products used in beverage dispensing equipment. The fourth format is the Company’s new ready-to-drink bottled smoothie, “Twist & Go”™, This sweet fruit and creamy yogurt smoothie contains four ounces of yogurt and a half-cup of fruit/fruit juice and comes in two different flavors.Domestic and international patents and patents pending are owned by Barfresh, as well as related trademarks for all of the single serve products. Patent rights have been granted in 13 jurisdictions including the United States. In addition, the Company has purchased all of the trademarks related to the patented products.The Company conducts sales through several channels, including National Accounts, Regional Accounts, and Broadline Distributors. Barfresh’s primary broadline distribution arrangement is through an exclusive nationwide agreement with Sysco Corporation (“Sysco”), the U.S.’s largest broadline distributor, which was entered into during July 2014. Pursuant to that agreement, all Barfresh products are included in Sysco’s national core selection of beverage items, making Barfresh its exclusive single-serve, pre-portioned beverage provider. The agreement is mutually exclusive; however, Barfresh may also sell the products to other foodservice distributors, but only to the extent required for such foodservice distributors to service multi-unit chain operators with at least 20 units and where Sysco is not such multi- unit chain operator’s nominated distributor for our products. On October 2, 2019, the exclusive distribution agreement with Sysco expired, opening the possibility to expand distribution with other distributors outside of the Sysco system.During 2016 and 2017, the Company announced that it had signed supply agreements with several of the major global on-site foodservice operators. On March 8, 2018, the Company announced that it had signed a new supply agreement with one of the largest of these foodservice operators, for exclusive distribution of four Barfresh single serve SKUs. On November 14, 2018, the Company announced that it had received approval for multiple products to be rolled out to a national restaurant chain with over 2,500 locations. The Company has multiple SKUs developed and approved by the customer which are awaiting placement on the marketing calendar.17On October 26, 2015, Barfresh signed a five-year agreement with PepsiCo North America Beverages, a division of PepsiCo, to become its exclusive sales representative within the food service channel to present the Barfresh line of ready-to-blend smoothies and frozen beverages throughout the United States and Canada. Through this agreement, Barfresh’ products are included as part of PepsiCo’s offerings to its significant customer base. The agreement facilitates access to potential National customer accounts, through introductions provided by PepsiCo’s one thousand plus person foodservice sales team. Barfresh products have become part of PepsiCo’s customer presentations at national trade shows and similar venues. On May 30, 2019, the Company amended its agreement with Pepsi which included a reduction in the commission fee and a clause which allows either party the right to terminate the agreement upon 90 days written notice. Neither party has exercised its right to terminate the agreement. This agreement remains in effect.Barfresh utilizes contract manufacturers to manufacture all of the products in the United States.During November 2016, the Company received an equity investment from Unibel, the majority shareholder of the Bel Group (“Unibel”). The Bel Group is headquartered in Paris, France, with global operations in 33 countries, 30 production sites on 4 continents and nearly 12,000 employees. Its many branded products, including The Laughing Cow®, Mini Babybel® and Boursin®, are sold in over 130 countries around the world. Pursuant to the securities purchase agreement, Unibel purchased 15,625,000 shares of common stock at $0.64 per share (“Shares”) and warrants to purchase 7,812,500 shares of common stock (“Warrants”) for aggregate gross proceeds to Barfresh of $10 million. The Warrants are exercisable for a term of five years at a per share price of $.88 for cash. Pursuant to the Investor Rights agreement, Barfresh has registered the Shares and the Warrants, and Unibel was granted a seat on the Barfresh Board. This strategic investment provided Barfresh with necessary capital while leveraging Unibel’s more than 150 years of industrial expertise, innovative capabilities, world-class marketing and branding expertise to accelerate our growth in new and existing markets and product channels.On February 14, 2018, the Company announced the private placement of convertible notes with gross proceeds of $4.1 million. The closing of the first 60% of this amount occurred between March 12 and 22, 2018, after notice was issued by the Company that it had entered into a material agreement or series of related agreements with a national account for the sale of its products into approximately 1,000 new locations. The remaining 40% of the principal amount was to be received upon achieving a second milestone, which is entering into a material agreement or series of related agreements with a national account for the sale of its products into approximately 2,500 new locations. During November of 2018, the Company and several of the Convertible Note investors agreed to amend the definition of Milestone 2 to allow for the funding the remaining 40% of the principal amount upon the Company receiving approval from a National Restaurant Chain with over 2,500 for the rollout of its products. Such approval was received during the fourth quarter of 2018, and the Company received an additional $1.4 million of convertible note proceeds.The convertible notes were unsecured and had (i) a two-year term, and (ii) a 10% annual coupon to be paid in cash or stock at the Company’s discretion at a conversion price equal to 85% of the average closing bid prices of the Common Stock over the twenty (20) consecutive trading day period immediately preceding the payment date, but in no event lower than sixty cents ($0.60) per share of Common Stock. The investors could elect to convert their principal into common stock at a conversion price equal to the lower of: (i) $0.88 per share of Common Stock, or (ii) 85% of the average closing bid prices of the Common Stock over the twenty (20) consecutive trading day period immediately preceding the date of investor’s election to convert, but in no event lower than $0.60 per share of Common Stock. Investors also received warrant coverage of 25% of the number of shares that would be issuable upon a full conversion of the principal amount at an average of the twenty consecutive trading day period immediately preceding the applicable closing date. If any principal amount were to remain outstanding after the one-year anniversary of the closing, investors would be granted an additional warrant with identical terms. The warrants are exercisable for a period of three years for cash at the greater of 120% of the closing price or $0.70 per share of common stock. After the initial private placement, investors were offered the opportunity to accelerate the issuance of the additional warrant by increasing their convertible note investment by 10% to 20%. After the close of the first quarter 2018, a number of investors took advantage of this acceleration opportunity, resulting in an increase in the amount of the total convertible note by $177,300 and the issuance of 930,332 additional warrants. During the fourth quarter 2018, four of the convertible note investors elected to convert their notes into stock, with a total of $453,000 of convertible debt, plus accrued interest being converted into stock.During the fourth quarter of 2018, one investor exercised 833,333 N warrants for cash, at $0.45 per share. $221,918 of the proceeds of that transaction were used to pay down a short term note payable, held by the same investor, in the amount of $200,000, plus accrued interest. The balance of the proceeds of the N warrant exercise, in the amount of $153,082 were received by the Company.18During the first quarter of 2019, the Company completed additional funding, including a Private Placement Offering for common shares priced at $0.60 per share, resulting in the receipt of capital investment in the amount of $2.4 million and the issuance of 4,000,000 shares. In addition, during the first quarter of 2019 the Company offered to reduce the exercise price on its I Warrants from $1 to $0.60, for a limited time. During the time this offer was open, I Warrant holders converted 2,841,454 warrants at $0.60, resulting in the receipt of capital investment in the amount of $1.7 million. In addition, during the first quarter of 2019, one investor exercised G series warrants, resulting in the receipt of capital investment in the amount of $180,000, and the issuance of 300,000 shares. In total, during the first quarter of 2019 the Company raised $4.3 million and issued 7,141,454 shares, and no additional warrants were issued.On March 23, 2020, the Company completed additional funding, including a Private Placement Offering for common shares priced at $0.50 per share (subject to adjustment) resulting in the receipt of proceeds in the amount of $3,825,000 million and the issuance of 7,650,000 shares. The investors of this Private Placement Offering were granted O warrants which are eligible to purchase an additional 0.50 shares for every share issued to each purchaser, exercisable for a period of 3 years at an exercise price of $0.60 per share (subject to adjustment). If the volume-weighted average trading price for the 20 consecutive trading days that concluded 6 months after the initial closing (the “Six Month Price”) exceeded or equaled $0.50 per share (the “Target Price”), the per share purchase price would not be adjusted. If the Six Month Price was less than the Target Price, the per share purchase price would be automatically reduced to the Six Month Price, but in no event less than $0.35 per share, in which case the Company would issue to each investor, pro-rata based on such investor’s investment: (a) shares in a quantity that equaled the difference between the number of shares issued to such purchaser at closing and the number of shares that would have been issued to such purchaser at closing at the Six Month Price; and (b) a warrant for a number of shares of common stock equal to 50% of the difference between the number of shares issued to such investor at closing and the number of shares that would have been issued to such investor at closing at the Six Month Price, with an exercise price equal to the sum of $0.10 per share and the Six Month Price, but in no event less than $0.45 per share. The exercise price per share for each warrant would automatically adjust to the sum of $0.10 per share and the Six-Month Price, but in no event less than $0.45 per share. On September 28, 2020, the Company determined the volume-weighted average price was below the $0.35 per share and consequently issued 5,322,868 additional shares in accordance with provisions of the Private Placement Offering. Similarly, the Company issued an additional 2,652,868 Warrants to investors that contributed capital or exercised the conversion of their convertible note. Lastly, the Company issued an additional 459,000 Warrants for convertible noteholders that extended their convertible notes.In addition, the Company obtained a 24 month extension on $1,071,000 in principal, and conversion of $720,000 of principal of the Milestone I Convertible Notes at a conversion price of $0.50 per share. The remaining $110,166 was extended for thirty days. The interest rate on the principal balance of the extended Milestone I Convertible Notes was amended to 15%. Furthermore, the Company obtained a 12 month extension on $168,000 in principal, and conversion of $1,128,000 in principal of the Milestone II Convertible Notes. The Convertible Noteholders of the Milestone I and II Convertible Notes were granted additional interest depending upon their election to convert or extend their Convertible Notes.On June 1, 2021, the Company completed a private placement of 16,666,666 shares of its common stock at $0.36 per share, resulting in gross proceeds of $6,000,000. In addition, holders of debt converted a total of $399,000 in principal and $234,410 in interest into 1,741,873 shares of common stock, debt in the amount of $840,000 was retired, and a PPP loan in the amount of $568,131 was forgiven, leaving the Company with no debt except for a PPP loan in the amount of $568,131.Currently we have 14 employees and 3 consultants.OurThere 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 have been preparedand related notes.conformity with accounting principles generally accepted in the United States of America (“GAAP”).this Quarterly Report on Form 10-Q for further details regarding this topic.1913 Revenue RecognitionIn accordance with ASC 606, “Revenue from Contracts with Customers”, revenue is recognized when a customer obtains ownership of promised goods. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods. The Company applies the following five steps:1)Identify the contract with a customerA contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for goods or services that are transferred is probable. For the Company, the contract is the approved sales order, which may also be supplemented by other agreements that formalize various terms and conditions with customers.2)Identify the performance obligation in the contractPerformance obligations promised in a contract are identified based on the goods or that will be transferred to the customer. For the Company, this consists of the delivery of frozen beverages, which provide immediate benefit to the customer.3)Determine the transaction priceThe transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods and is generally stated on the approved sales order. Variable consideration, which typically includes volume-based rebates or discounts, are estimated utilizing the most likely amount method.4)Allocate the transaction price to performance obligations in the contractSince our contracts contain a single performance obligation, delivery of frozen beverages, the transaction price is allocated to that single performance obligation.5)Recognize Revenue when or as the Company satisfies a performance obligationThe Company recognizes revenue from the sale of frozen beverages when title and risk of loss passes and the customer accepts the goods, which generally occurs at the time of delivery to a customer warehouse. Customer sales incentives such as volume-based rebates or discounts are treated as a reduction of sales at the time the sale is recognized. Shipping and handling costs are treated as fulfillment costs and presented in distribution, selling and administrative costs.Stock-based CompensationWe account for share-based employee compensation plans under the fair value recognition and measurement provisions in accordance with applicable accounting standards, which require all share-based payments to employees, including grants of stock options and restricted stock units (RSUs), to be measured based on the grant date fair value of the awards, with the resulting expense generally recognized on a straight-line basis over the period during which the employee is required to perform service in exchange for the award.2020212022 as Compared to the Three Months Ended June 30, 20202021$794,935 (157%by approximately $1,498,000 (115%) from $506,276approximately $1,301,000 in 20202021 to $1,301,211approximately $2,799,000 in 2021.2022. The overall revenue for the second quarter 20212022 was higher due to growinggrowth in “Twist & Go”™ revenue and the gradual return of single serve demand.20212022 was $728,272approximately $1,916,000 as compared to $389,815approximately $739,000 in 2020.2021. Our gross profit was $561,375approximately $883,000 (32%) and $562,000 (43%) for 2022 and $115,306 (23%) for 2021, and 2020, respectively. Gross margins increaseddecreased in the second quarter primarily due to higher sales volume and product mix. We anticipate margins will improve based on improving mix which includes “Twist and Go margins and having a greater mix of higher margin bulk and single serve revenue. As a result, the gross profit percentage for the remainder of 2021 is expected to be approximately 40%.& Go”™ at slightly lower product margins.OperatingSelling and marketing expenses Three months ended
June 30, Three months ended
June 30, 2022 2021 Change Percent Sales and marketing 319,000 186,000 133,000 72 % Storage and outbound freight 371,000 257,000 114,000 44 % 690,000 443,000 247,000 56 % decreased slightly $66,676 (6%)increased by 41%, or approximately $237,000, from $1,084,040approximately $575,000 in 20202021 to $1,017,364approximately $813,000 in 2021. Shipping2022, primarily driven by personnel, including non-cash stock-based compensation, and storage costs were higher offset by lower legalother general and professional fees, and personnel costs.administrative expenses. The following is a breakdown of our general and administrative expenses for the three months ended June 30, 20212022, and 2020:2021: Three months ended June 30, Three months ended June 30, 2021 2020 Difference Personnel costs $ 353,946 $ 427,500 $ (73,554 ) Stock based compensation/options 44,869 55,812 (10,943 ) Legal and professional fees 44,712 151,035 (106,323 ) Travel 12,643 12,917 (274 ) Rent 19,753 19,782 (29 ) Marketing and selling 40,832 57,837 (17,005 ) Consulting fees 56,715 34,621 22,094 Director fees 72,870 50,000 22,870 Research and development 70,304 93,730 (23,426 ) Shipping and storage 237,403 96,425 140,978 Other expenses 63,317 84,381 (21,064 ) $ 1,017,364 $ 1,084,040 $ (66,676 ) Three months ended
June 30, Three months ended
June 30, 2022 2021 Change Percent Personnel costs 358,000 210,000 148,000 70 % Stock-based compensation 64,000 45,000 19,000 42 % Legal, professional and consulting fees 64,000 101,000 (37,000 ) -37 % Director fees 62,000 73,000 (11,000 ) -15 % Research and development 97,000 70,000 27,000 39 % Other general and administrative expenses 168,000 76,000 92,000 121 % 813,000 575,000 238,000 41 % 14 decreased $73,554 (17%increased by approximately $148,000 (70%) from $427,500approximately $210,000 to $353,946. We had 17 full time employees at$358,000. The increase in personnel cost was partially offset by the enddecrease in consulting fees as we choose to hire permanent staff as the critical stages of the second quarter of 2020,COVID-19 pandemic waned, rather than rely on consultants and we currently have 14 full time employees.temporary staff.current quarterthree months ended June 30, 2022 was $44,869, a decrease of $10,943, or 20%, from the year ago quarter expense of $55,812. The Company issues additional stock optionsapproximately $64,000 compared to its employees from time to time under its Equity Compensation Plan.21Legal and professional fees decreased $106,323 (70%) from $151,035 in 2020 to $44,712 in 2021. The decrease was primarily due to renegotiated fees for legal services. We anticipate legal fees related to our business and financing activities to decrease as we have renegotiated arrangements with existing service providers.Travel expenses decreased $274 (2%) from $12,917 in 2020 to $12,643 in 2021. We anticipate that travel expenses for the remainder of this year will gradually pick up and for the second half of 2021 comparable to 2019 trends.Rent expense remained flat$45,000 for the three months ended June 30, 2020 compared2021 due to the three months ended June 30, 2021. Rent expense is for our locationaforementioned increase in Los Angeles, California. Rent expense for the Los Angeles office is approximately $6,500 per month. We lease office space at 3600 Wilshire Boulevard, Los Angeles, California pursuant to a new lease that commenced on April 1, 2019 and expires March 31, 2023.Marketing and selling expenses decreased $17,005 (29%) from $57,837 in 2020 to $40,832 in 2021. Lower marketing and selling expenses were primarily due to changes that were made to certain sales commission agreements.Consulting fees were $56,715 in 2021, as compared with $34,621 in 2020, an increase of 64%. Our consulting fees vary based on needs. We engaged consultants in the areas of finance during the quarter due to reduced headcount. The need for future consulting services will be variable.Director fees increased $22,870 (46%) from $50,000 in 2020 to $72,870 in 2021. Annual director fees are anticipated at $50,000 per non-employee director of which six directors will be compensated in 2021.staffing.decreased $23,426 (25%increased approximately $27,000 (39%) from $93,730approximately $70,000 in 20202021 to $70,304$96,000 in 2021. These expenses relate to the services performed by our Director of Manufacturing and Product Development, and consultants supporting that employee.2022. The reductionincrease is primarily due to material consumption and expiration, partially offset by a reduction in labor hours for our development staff.Shipping and storage expense increased $140,978 (146%) from $96,425 in 2020 to $237,403 in 2021. This is primarily due to higher sales volume, higher fuel costs, and from relocating materials from one location to another. We anticipate that shipping and storage expense as a percentage of sales will reduce during the balance of the year, as the Company is able to take advantage of more efficient distribution arrangements as well as an increased volume per load due to higher sales volume in 2021.consulting team.decreased $21,064 (25%increased approximately $93,000 (122%) from $84,381 in 2020 to $63,317approximately $76,000 in 2021 primarily due to lower insurance expense and$169,000 in 2022. In 2022, we incurred approximately $65,000 in one-time costs related to the uplist of our common stock to the NASDAQ Stock Market. Additionally, 2021 benefited from the results of vendor payables reconciliation resulting in the cash and accrued expense reconciliations. Other expenses consistreduction of ordinary operating expenses such as investor relations, office, telephone, insurance, and stock related costs. We anticipate these expenses to be comparable to 2020 for the balance of the year.vendor liabilities.$602,353approximately $737,000 and $1,122,234$602,000 for the three-month periods ended June 30, 20212022 and 2020,2021, respectively. The improvementincrease of $519,881approximately $135,000 or 46%22%, was primarily due to higher sales volume and related product margin and lower General and Administrative expenses.the increase in operating expenses, partially offset by the increase in gross profit.The change in the value of the derivative liability is based upon the Black-Scholes model from one period to another. The loss is a result of the change in components of the Black-Scholes model. Components include the Company’s stock price, conversion price, remaining term, volatility,Other income and current discount rate. The derivative liability was settled upon conversion and repayment of the convertible notes.The PPP loan in the amount of $568,131 was forgiven and debt extinguished, resulting in other operating income of $568,131.The debt settlement in the quarter resulted in debt converted of $399,000 in principal and $280,610 in interest into 1,741,873 shares of common stock, with debt in the amount of $840,000 repaid, resulted in a loss of $193,562.expense2021 was $68,973, as compared with $63,483 for2022. We also recognized gain of $568,000 from the three months ended June 30, 2020. Interest relates to the unconverted portionforgiveness of convertible debt of $1,071,000 that was issued on March 14, 2018, andour PPP loan in the unconverted portion of convertible debt in the amount of $168,000 that was issued on November 30, 2018. This compares to the unconverted portion of convertible debt of $1,071,000 and in the unconverted portion of convertible debt of $235,200 as of June 30, 2020.202122$297,240approximately $737,000 and $1,179,520$297,000 in the three-month periods ended June 30, 2022 and 2021, and 2020, respectively.respectively, with the primary change due to the $568,000 gain on the forgiveness of the PPP loan in 2021.15 20212022 as Compared to the Six Months Ended June 30, 20202021$1,075,906 (87%by approximately $3,009,000 (130%) from $1,240,156approximately $2,316,000 in 20202021 to $2,316,062approximately $5,325,000 in 2021.2022. The overall revenue for the second quarter 2021six months ended June 30, 2022 was higher due to growinggrowth in “Twist & Go”™revenue and the gradual return of single serve demand.20212022 was $1,387,696approximately $3,678,000 as compared to $718,449approximately $1,405,000 in 2020.2021. Our gross profit was $910,693approximately $1,647,000 (31%) and $911,000 (39%) for 2022 and $512,105 (41%) for 2021, and 2020, respectively. Gross margins decreased in the second quartersix months ended June 30, 2022 primarily due to product mix which includes “Twist & Go”™ at slightly lower product margins. We anticipate margins will improve based on improving Twist and Go margins and having a greater mix of higher margin bulk and single serve revenue. As a result, the gross profit percentage for the remainder of 2021 is expected to be approximately 40%.OperatingSelling and marketing expenses Six months ended
June 30, Six months ended
June 30, 2022 2021 Change Percent Sales and marketing 565,000 355,000 210,000 59 % Storage and outbound freight 757,000 401,000 356,000 89 % 1,322,000 756,000 566,000 75 % Our operations were primarily directed towards increasingexpanding our distribution network.marketing expenses was primarily the result of the retention of new employees and outside service providers to assist with sales initiatives, as well as participation in education nutrition trade shows in 2022.decreased $539,500 (23%)increased by 66%, or approximately $665,000, from $2,308,465 in 2020 to $1,768,965approximately $1,013,000 in 2021 with the improvementto approximately $1,677,000 in 2022, primarily driven by personnel, including non-cash stock-based compensation, shipping and marketingstorage and selling expenses resulting from lower headcountother general and the renegotiation of certain sales commission agreements, lower stock based compensation, and legal and professional fees.administrative expenses. The following is a breakdown of our general and administrative expenses for the six months ended June 30, 20212022, and 2020:2021: Six months ended June 30, Six months ended June 30, 2021 2020 Difference Personnel costs $ 665,501 $ 847,680 $ (182,179 ) Stock based compensation/options 10,284 194,524 (184,240 ) Legal and professional fees 108,387 243,497 (135,110 ) Travel 17,964 51,836 (33,872 ) Rent 39,671 39,844 (173 ) Marketing and selling 81,865 136,812 (54,947 ) Consulting fees 69,212 60,188 9,024 Director fees 150,000 100,000 50,000 Research and development 138,446 179,154 (40,708 ) Shipping and storage 381,137 229,533 151,604 Other expenses 106,498 225,397 (118,899 ) $ 1,768,965 $ 2,308,465 $ (539,500 ) Six months ended
June 30, Six months ended
June 30, 2022 2021 Change Percent Personnel costs 684,000 395,000 289,000 73 % Stock-based compensation 93,000 10,000 83,000 830 % Legal, professional and consulting fees 244,000 178,000 66,000 37 % Director fees 125,000 150,000 (25,000 ) -17 % Research and development 127,000 138,000 (11,000 ) -8 % Other general and administrative expenses 405,000 142,000 263,000 185 % 1,678,000 1,013,000 665,000 66 % 16 decreased $182,179 (21%increased by approximately $289,000 (73%) from $847,680approximately $395,000 to $665,501. We had 17 full time employees at$684,000. The increase in personnel cost was partially offset by the enddecrease in consulting fees as we choose to hire permanent staff as the critical stages of the second quarter of 2020,COVID-19 pandemic waned, rather than rely on consultants and we currently have 14 full time employees.temporary staff.20212022 was $10,284, a decrease of $184,240, or 95%, from the year ago period expense of $194,524. The Company issues additional stock optionsapproximately $93,000 compared to its employees from time to time under its Equity Compensation Plan.23Legal and professional fees decreased $135,110 (55%) from $243,497 in 2020 to $108,387 in 2021. The decrease was primarily due to renegotiated fees for legal services. We anticipate legal fees related to our business and financing activities to decrease as we have renegotiated arrangements with existing service providers.Travel expenses decreased $33,872 (65%) from $51,836 in 2020 to $17,964 in 2021. The decrease is primarily due to reduction in travel costs associated with terminated employees, tighter controls over sales territories, and reduced travel due to COVID-19. We anticipate that travel expenses for the remainder of this year will gradually pick up and for the second half of 2021 be comparable to 2019 trends.Rent expense remained flat$10,000 for the six months ended June 30, 2020 compared2021 due to the six months ended June 30, 2021. Rent expense is for our locationaforementioned increase in Los Angeles, California. Rent expense forstaffing coupled with the Los Angeles office is approximately $6,500 per month. We lease office space at 3600 Wilshire Boulevard, Los Angeles, California pursuant to a new lease that commenced on April 1, 2019departure of two key employees and expires March 31, 2023.Marketing and selling expenses decreased $54,947 (40%) from $136,812 in 2020 to $81,865 in 2021. Lower marketing and selling expenses were primarily due to changes that were made to certain sales commission agreements.Consulting fees were $69,212 in 2021, as compared with $60,188 in 2020, an increasethe forfeiture of $9,024 (15%). Our consulting fees vary based on needs. We engaged consultants in the areas of finance during the quarter due to reduced headcount. The need for future consulting services will be variable.Director fees increased $50,000 (50%) from $100,000 in 2020 to $150,000 in 2021. Annual director fees are anticipated at $50,000 per non-employee director of which two additional directors will be compensatedtheir unvested options in 2021.$40,708 (23%approximately $11,000 (8%) from $179,154approximately $138,000 in 20202021 to $138,446$127,000 in 2021. These expenses relate to the services performed by our Director of Manufacturing and Product Development, and consultants supporting that employee.2022. The reduction is primarily due to a reduction in labor hours for our development staff.Shipping and storage expense increased $151,604 (66%) from $229,533 in 2020 to $381,137 in 2021. This is primarily due to higher sales volume, higher fuel costs, and from relocating materials from one location to another. We anticipate that shipping and storage expense as a percentage of sales will reduce during the balance of the year, as the Company is able to take advantage of more efficient distribution arrangements as well as an increased volume per load due to higher sales volume in 2021.consulting team.decreased $118,899 (53%increased approximately $263,000 (185%) from $225,397 in 2020 to $106,498approximately $142,000 in 2021 primarily due to lower insurance expense and$405,000 in 2022. In 2022, we incurred approximately $168,000 in one-time costs related to the uplist of our common stock to the NASDAQ Stock Market. Additionally, 2021 benefited from the results of vendor payables reconciliation resulting in the reduction of vendor cash and accrued expenses reconciliation. Other expenses consist of ordinary operating expenses such as investor relations, office, telephone, insurance, and stock related costs. We anticipate these expenses to be comparable to 2020 for the balance of the year.liabilities.$1,151,569approximately $1,631,000 and $2,100,008$1,151,000 for the six-month periods ended June 30, 20212022 and 2020,2021, respectively. The improvementincrease of $948,439approximately $480,000 or 45%42%, was primarily due to higher sales volumethe increase in operating expenses, partially offset by the increase in gross profit.related product margin.expenseisof approximately $16,000 for the six months ended June 30, 2021 was a result of the change in components of the Black-Scholes model. Components include the Company’s stock price, conversion price, remaining term, volatility, and current discount rate. The derivative liability was settled upon conversion and repayment of the convertible notes.notes in the second quarter of 2021.The PPP loanInterest expense was approximately $128,000 for the six months ended June 30, 2021. Interest related to convertible debt that was converted and repaid in the amount of $568,131 was forgiven and debt extinguished, resulting in other operating income of $568,131.The debt settlement in the second quarter resulted in debt converted of $399,000 in principal and $280,610 in2021. We did not incur any interest into 1,741,873 shares of common stock, with debt in the amount of $840,000 repaid, resulting in a loss of $193,562.24Interest expense for the six months ended June 30, 2021 was $128,064, as compared with $358,877 for the six months ended June 30, 2020. Interest decreased $230,813 (64%) due to conversion and repayment of $2,005,366 in convertible notes during the first quarter of 2020.2022.$888,759approximately $1,631,000 and $1,922,586$889,000 in the six-month periods ended June 30, 2022 and 2021, and 2020, respectively.respectively, with the primary change due to the $568,000 gain on forgiveness of the PPP loan in 2021.2021,2022, we had a working capital surplus of $6,745,351approximately $4,996,000 as compared with a working capital surplus of $1,196,741approximately $6,172,000 at December 31, 2020.2021. The increasedecrease in working capital surplus is primarily due to operating loss for the completion of the private placement of our common stock which resulted in gross proceeds of $6,000,000, offset by the debt extinguishment of all convertible debt of which $840,000 of the principal debt was paid in cash.In 2020, the Company was granted a $568,131 loan under the PPP administered by a Small Business Administration (SBA) approved partner. The loan, which matures in two years, is uncollateralized and is fully guaranteed by the Federal government. The Company was eligible for loan forgiveness of up to 100% of the loan, upon meeting certain requirements, and recorded the forgiveness upon being legally released from the loan obligation by the SBA during the threesix months ended June 30, 2021.On January 27, 2021, the Company was granted a $568,131 loan under the PPP administered by a SBA approved partner. The loan, which matures in five years, at an interest rate of 1%, and is uncollateralized and is fully guaranteed by the Federal government. The deferral period is 24 weeks plus 10 months from the loan note date. The Company is eligible for loan forgiveness of up to 100% of the loan, upon meeting certain requirements. The Company has recorded a note payable and will record the forgiveness upon being legally released from the loan obligation by the SBA. The Company will be required to repay any remaining balance, plus interest accrued at 1 percent, in monthly payments commencing upon notification that the loan will not be forgiven or only partially forgiven. The Company anticipates the loan to be forgiven in the second half of 2021.On June 1, 2021, the Company completed a private placement of 16,666,666 shares of its common stock at $0.36 per share, resulting in gross proceeds of $6,000,000. In addition, holders of debt converted a total of $399,000 in principal and $234,410 in interest into 1,741,873 shares of common stock and debt in the amount of $840,000 was retired, leaving the Company with no debt except for the PPP loan in the amount of $568,131.2022.2021,2022, we used cash of $651,255approximately $1,923,000 in operations, $38,970and $13,000 for the purchase of equipment, and $1,751 for patents and trademarks.partially offset by $5,000 from the issuance of stock pursuant to an outstanding warrant.17 and reduce fixed overhead expense.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.requirementslease payments under the non-cancellable direct lease as of June 30, 2021 is $127,771.2022 are approximately $60,000.25(who is presently also serving as our interim principal financial officer) and our Controller,Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Securities and Exchange Act of 1934 Rule 15(d)13(a)-15(e). Disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act has been appropriately recorded, processed, summarized and reported on a timely basis and are effective in ensuring that such information is accumulated and communicated to the Company’s management, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and our ControllerChief Financial Officer concluded that as of June 30, 2021, although process improvements have been implemented which addresses internal control weaknesses,2022, our disclosure on controls and procedures remain the same and are not effective.dutiesduties. help ensure that we are able to properly implement internal control procedures. New processes have since been implementedaddress segregation of duty issues which also includes transactional signs offs between preparer and reviewer as well as documenting discussions around financial results and metrics including reserves and balance sheet reconciliations.be ineffective.18 controls as described above; however, such changes did not affect ourcontrol over financial reporting during the three months ended June 30, 2021.2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.26II-OTHERII- OTHER INFORMATIONOn June 1, 2021, the registrant completed a private placement of 16,666,666 shares of its common stock at $0.36 per share, resulting in gross proceeds of $6,000,000. In addition, holders of debt converted a total of $399,000 in principal and $234,410 in interest into 1,741,873 shares of common stock.None.The registrant relied upon the exemption from registration contained in Rule 506(b) and Section 4(a)(2) of the Securities Act, and corresponding provisions of state securities laws, on the basis that (i) offers were made to a limited number of prospective investors and existing debt holders, (ii) each offer was made through direct communication with the offerees by the registrant, (iii) each of the offerees had the requisite sophistication and financial ability to bear risks of investing in the registrant’s common stock, (iv) the registrant provided extensive disclosure to the offerees, and (v) there was no general solicitation and no commission or remuneration was paid in connection with the offers.19 Exhibit No. Description 31.1 Certification of Principal Executive Officer pursuant to Rule 15d-14(a) Certification13a-14(a) (filed herewith)31.2 Certification of Principal Financial Officer pursuant to Rule 13a-14(a) (filed herewith) 32.1 Certification pursuant to 18 U.S.C. Section 1350 (filed(furnished herewith)101.INS Inline XBRL Instance Document* 101.SCH Inline XBRL Taxonomy Extension Schema Document* 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document* 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document* 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document* 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document* 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) *XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. In accordance with SEC Release 33-8238, Exhibit 32.1 is furnished and not filed. *XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.In accordance with SEC Release 33-8238, Exhibit 32.1 is furnished and not filed.2720 BARFRESH FOOD GROUP INC. Date: August 11, 2021July 28, 2022By: /s/ Riccardo Delle Coste Date: August 11, 2021July 28, 2022By: /s/ Eric NarimatsuLisa Roger ControllerChief Financial OfficerAccountingFinancial Officer)2821