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 March 31,June 30, 2022

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:

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.000001 par valueBRFHThe 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: 12,919,899 12,929,741shares as of AprilJuly 25, 2022.

 

 

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.1213
Item 3.Quantitative and Qualitative Disclosures About Market Risk.1518
Item 4.Controls and Procedures.1518
   
PART II - OTHER INFORMATION 
   
Item 1.Legal Proceedings.1519
Item 1A.Risk Factors.1519
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.1619
Item 3.Defaults Upon Senior Securities.1619
Item 4.Mine Safety Disclosures.1619
Item 5.Other Information.1619
Item 6.Exhibits.120
   
SIGNATURES1721

 

2

 

Item 1. Financial Statements.

Barfresh Food Group Inc.

Condensed Consolidated Balance Sheets

 

 March 31, December 31,  June 30, December 31, 
 2022 2021  2022 2021 
 (Unaudited) (Audited)  (Unaudited) (Audited) 
Assets              
Current assets:                
Cash $4,284,168  $5,532,840  $3,533,000  $5,533,000 
Restricted cash  250,382   142,382   211,000   142,000 
Trade accounts receivable, net  1,719,937   1,222,476   1,245,000   1,223,000 
Other receivables  231,959   -   148,000   - 
Inventory, net  850,802   705,349   1,570,000   705,000 
Prepaid expenses and other current assets  101,396   63,859   50,000   64,000 
Total current assets  7,438,644   7,666,906   6,757,000   7,667,000 
Property, plant and equipment, net of depreciation  1,456,527   1,588,043   1,346,000   1,588,000 
Operating lease right-of-use assets, net  70,176   87,391   53,000   87,000 
Intangible assets, net of amortization  354,173   370,278   339,000   370,000 
Deposits  6,746   6,746   7,000   7,000 
Total assets $9,326,266  $9,719,364  $8,502,000  $9,719,000 
                
Liabilities and Stockholders’ Equity                
Current liabilities:                
Accounts payable $1,377,590  $974,218  $1,277,000  $974,000 
Accrued expenses  202,336   228,227   200,000   228,000 
Accrued payroll and employee related  223,292   212,465   226,000   212,000 
Lease liability  76,731   81,295   58,000   81,000 
Total current liabilities  1,879,949   1,496,205   1,761,000   1,495,000 
Long term liabilities:                
Accrued interest  33,600   33,600   -   34,000 
Lease liability  -   13,701   -   14,000 
Total liabilities  1,913,549   1,543,506   1,761,000   1,543,000 
                
Commitments and contingencies (Note 5)  -   -   -    -  
                
Stockholders’ equity:                
Preferred stock, $0.000001 par value, 5,000,000 shares authorized, NaN issued or outstanding  -   -   -   - 
Common stock, $0.000001 par value; 295,000,000 shares authorized; 12,919,899 and 12,905,112 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively  13   13 
Common stock, $0.000001 par value; 295,000,000 shares authorized; 12,919,899 and 12,905,112 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively  -   - 
Additional paid in capital  60,471,988   60,340,620   60,537,000   60,341,000 
Accumulated deficit  (53,059,284)  (52,164,775)  (53,796,000)  (52,165,000)
Total stockholders’ equity  7,412,717   8,175,858   6,741,000   8,176,000 
Total liabilities and stockholders’ equity $9,326,266  $9,719,364  $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 March 31,June 30, 2022 and 2021

(Unaudited)

 

 2022 2021 2022 2021 
         For the three months ended
June 30,
 For the six months ended
June 30,
 
 2022 2021  2022 2021 2022 2021 
Revenue $2,525,549  $1,014,851  $2,799,000  $1,301,000  $5,325,000  $2,316,000 
Cost of revenue  1,709,873   665,532   1,916,000   739,000   3,678,000   1,405,000 
Gross profit  815,676   349,319   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  1,549,039   751,601   813,000   575,000   1,678,000   1,013,000 
Depreciation and amortization  161,146   146,933   117,000   146,000   278,000   293,000 
Total operating expenses  1,710,185   898,534   1,620,000   1,164,000   3,278,000   2,062,000 
                        
Operating loss  (894,509)  (549,215)  (737,000)  (602,000)  (1,631,000)  (1,151,000)
                        
Other (income)/expenses                        
Gain from derivative liability  -   (16,787)  -   -   -   (16,000)
Gain from debt extinguishment - Paycheck Protection Program  -   (568,000)  -   (568,000)
Loss on debt extinguishment  -   194,000   -   194,000 
Interest  -   59,091   -   69,000   -   128,000 
Total other expense  -   42,304   -   (305,000)  -   (262,000)
                        
Net loss $(894,509) $(591,519) $(737,000) $(297,000) $(1,631,000) $(889,000)
                        
Per share information - basic and fully diluted:                        
Weighted average shares outstanding  12,909,204   11,471,798   12,915,000   12,066,000   12,915,000   11,769,000 
Net loss per share $(0.07) $(0.05) $(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 threesix months ended March 31,June 30, 2022 and 2021

(Unaudited)

 

         2022 2021 
 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 $(1,132,148) $(410,574)  (1,923,000)  (684,000)
                
Investing activities                
Purchase of property and equipment  (13,524)  (4,647)  (13,000)  (39,000)
Net cash used in investing activities  (13,524)  (4,647)  (13,000)  (39,000)
                
Financing activities                
Proceeds from issuance of stock  5,000   -   5,000   6,000,000 
Proceeds from note payable  -   568,131   -   568,000 
Repayment of convertible notes  -   (840,000)
Net cash from financing activities  5,000   568,131   5,000   5,728,000 
                
Net change in cash and restricted cash  (1,140,672)  152,910   (1,931,000)  5,005,000 
Cash and restricted cash, beginning of period  5,675,222   1,959,269   5,675,000   1,959,000 
Cash and restricted cash, end of period $4,534,550  $2,112,179  $3,744,000  $6,964,000 
                
Cash paid during the period for:                
Cash paid for amounts included in the measurement of lease liabilities $19,648  $19,076  $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 $-  $23,511  $-  $26,000 

 

See the accompanying notes to the condensed consolidated financial statements

 

5

 

Barfresh Food Group Inc.

Notes to Condensed Consolidated Financial Statements

March 31,June 30, 2022

(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. The Company is engaged in the manufacture and distribution of ready-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.

 

Reverse 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.

 

Summary of Significant Accounting Policies

 

There 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.

 

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 derivative liabilities which were settled in 2021. The carrying value of our financial instruments on March 31,June 30, 2022, December 31, 2021 and March 31,June 30, 2021 approximates their fair values, except for the derivative liability, which was carried at fair value prior to its extinguishment.

 

Restricted Cash

 

At March 31,June 30, 2022 and December 31, 2021, the Company had approximately $250,000211,000 and $142,000, respectively, in restricted cash related to a co-packing agreement.

 

Accounts Receivable

 

As of each of March 31, 2022 and December 31, 2021, the Company’s allowance for doubtful accounts was approximately $121,000. The Company did not have an allowance wasfor doubtful accounts as of June 30, 2022. The allowance is estimated based on evaluation of collectability of outstanding accounts receivable. Delinquent accounts are written-off when it is determined that the amounts are uncollectible.

 

Other Receivables

 

Other receivables consist of amounts due from vendors for materials acquired on their behalf for use in manufacturing the 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
   
  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
   
  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.

 

7

 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.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)

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.

   
 5)Recognize Revenue when or as the Company satisfies a 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.

   
  The companyCompany evaluated the requirement to disaggregate revenue and concluded that substantially all of its revenue comes from smoothie beverages.

 

Shipping and Storage Costs

 

Shipping and handling costs are included in generalselling and administrativemarketing expenses. For the three months ending March 31,June 30, 2022 and 2021, shipping and handling costs totaled approximately $437,000371,000 and $144,000257,000, respectively. For the six months ending June 30, 2022 and 2021, shipping and handling costs totaled approximately $757,000 and $401,000, respectively.

 

Research and Development

 

Expenditures for research activities relating to product development and improvement are charged to expense as incurred. The Company incurred approximately $31,00097,000 and $68,000127,000, in research and development expenses for the three months ending March 31,June 30, 2022 and 2021, respectively. For the six months ending June 30, 2022 and 2021, research and development expense totaled approximately $66,000 and $138,000, respectively.

8

 

Loss Per Share

 

At March 31,June 30, 2022 and 2021 common stock equivalents have not been included in the calculation of net loss per share as their effect is anti-dilutive as a result of losses incurred.

 

Reclassifications

Certain reclassifications have been made to the 2021 financial statements to conform to the 2022 presentation, including the presentation of selling and marketing expense apart from general and administrative expense in the condensed consolidated statement of operations, and the presentation of a reconciliation of the components of net cash used in operating activities as well as the inclusion of operating lease payments in operating activities in the condensed consolidated statement of cash flows.

Recent Pronouncements

 

From time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We have not determined if the impact of recently issued standards that are not yet effective will have an impact on our results of operations and financial position.

8

 

Note 2. Inventory

 

Inventory consists of the following:

 Schedule of Inventory

 March 31, December 31,  June 30, December 31, 
 2022 2021  2022  2021 
Raw materials $102,768  $105,355  $214,000  $105,000 
Finished goods  748,035   599,994   1,356,000   600,000 
Inventory, net $850,802  $705,349  $1,570,000  $705,000 

Note 3. Property Plant and Equipment

 

Property and equipment, net consist of the following:

 Schedule of Major Classes of Property and Equipment

 March 31, December 31,  June 30, December 31, 
 2022 2021  2022  2021 
Furniture and fixtures $1,524  $1,524 
Manufacturing equipment and customer equipment  3,813,763   3,800,238 
Leasehold improvements  4,886   4,886 
Vehicles  29,696   29,696 
Manufacturing and customer equipment $3,814,000  $3,800,000 
Other property  36,000   36,000 
Property and equipment, gross  3,849,869   3,836,344   3,850,000   3,836,000 
Less: accumulated depreciation  (3,039,673)  (2,894,632)  (3,150,000)  (2,894,000)
Property and equipment  810,196   941,712   700,000   942,000 
Equipment not yet placed in service  646,331   646,331   646,000   646,000 
Property and equipment, net of depreciation $1,456,527  $1,588,043  $1,346,000  $1,588,000 

9

 

Depreciation expense related to these assets was approximately $145,000110,000 and $131,000130,000 for the three months ended March 31,June 30, 2022 and 2021, respectively, and $255,000 and $261,000 for the six months ended June 30, 2022 and 2021, respectively. Depreciation expense in cost of revenue was approximately $6,00010,000 and $12,000 for three months ended March 31, 2021. There was June 30, 2022 and 2021, respectively, and $010,000 depreciation expense in cost of revenueand $18,000 for the threesix months ended March 31, 2022.June 30, 2022 and 2021, respectively.

 

Note 4. Convertible Notes and Derivative Liability (Related and Unrelated Party)

 

In 2018, the Company issued Milestone I and Milestone II Convertible Notes, which were repaid and converted in the second quarter of 2021.

 

The Milestone II Convertible Notes contained variable conversion provisions based on the future price of the Company’s common stock, resulting in the potential issuance of an indeterminate number of shares of common stock upon conversion. The Company measured the fair value of the derivative resulting from the variable conversion provisions each reporting period. The fair value was reported as a

Upon debt extinguishment the Company’s derivative liability andwas revalued at approximately $25,000, resulting in a gain of approximately $16,000 for the change insix months ended June 30, 2021. The derivative value of $16,787 25,000was recorded as a gainincluded in the accompanying condensed consolidated statement of operations fordetermining the three months ended March 31, 2021.loss on debt extinguishment.

 

Note 5. Commitments and Contingencies

 

The Company leases office space under a non-cancelable operating lease which expires on March 31, 2023. OurThe Company’s periodic lease cost was approximately $20,000 for each of the three months ended March 31,June 30, 2022 and 2021, respectively, and $40,000 for each of the six months ended June 30, 2022 and 2021, respectively. As of March 31,June 30, 2022, our right of use asset was approximately $70,17653,000.

9

  

The following table presents the future operating lease payment as of March 31,June 30, 2022.

Schedule of Estimate Future Maturities of Lease Liabilities

     
2022 (nine months remaining) $60,713 
2023  20,238 
Total lease payments  80,951 
Less: imputed interest  (4,220)
Total lease liability $76,731 

     
2022 (six months remaining) $40,000 
2023  20,000 
Total lease payments  60,000 
Less: imputed interest  (2,000)
Total lease liability $58,000 

 

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. The 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.

10

 

Note 6. Stockholders’ Equity

 

The following are changes in stockholders’ equity for the threesix months ended March 31,June 30, 2021 and March 31,June 30, 2022:

Barfresh Food Group, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

 Schedule of Changes in Stockholders' Equity

                
        Additional       
  Common Stock  paid in  Accumulated    
  Shares  Amount  Capital  (Deficit)  Total 
Balance December 31, 2020  11,471,797  $12  $53,223,803  $(50,899,629) $2,324,186 
Shares issued for warrant exercise  -          -    
Equity based compensation  -   -   (34,585)  -   (34,585)
Issuance of stock for services  -          -    
Net loss  -   -   -   (591,519)  (591,519)
Balance March 31, 2021  11,471,797  $12  $53,189,218  $(51,491,148) $1,698,082 
  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  $13  $60,340,620  $(52,164,775) $8,175,858 
Shares issued for warrant exercise  986       5,000   -   5,000 
Equity based compensation  -   -   28,036   -   28,036 
Issuance of stock for services  13,801       98,332   -   98,332 
Net loss  -   -   -   (894,509)  (894,509)
Balance March 31, 2022  12,919,899  $13  $60,471,988  $(53,059,284) $7,412,717 

        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 

Warrants

 

During the threesix months ended March 31,June 30, 2022, 96,66499,274 warrants at ana weighted average exercise price of $9.108.97 per share expired, and 986 warrants at an exercise price of $5.07 per share were exercised for proceeds of approximately $5,000.

10

 

Equity Incentive Plan

 

The following is a summary of stock option activity for the threesix months ended March 31,June 30, 2022:

Summary of Stock Options Activity 

 Number of Options Weighted average exercise price per share Remaining term in years  Number of
Options
 Weighted
average exercise
price per share
 Remaining term
in years
 
Outstanding on December 31, 2021  625,016  $7.55   3.8   625,016  $7.55   3.8 
Issued  25,385  $5.58       50,722  $6.00     
Cancelled/expired  (11,541) $4.94       (13,080) $4.92     
Outstanding on March 31, 2022  638,860  $7.52   3.5 
Outstanding on June 30, 2022  662,658  $7.48   3.5 
                        
Exercisable, March 31, 2022  539,345  $7.92   3.0 
Exercisable, June 30, 2022  571,746  $7.77   2.9 

 

11

The fair value of the options issued (approximately $105,000, in the aggregate) was calculated using the Black-SholesBlack-Scholes option pricing model, based on the following:

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

 2021  2022 
Expected term (in years)  5.5   5.5 - 8 
Expected volatility  85.7%
Risk-free interest rate  1.5 - 1.6%
Weighted average expected volatility  84.8%
Weighted average risk-free interest rate  2.1%
Expected dividends $-  $- 
Weighted average grant date fair value per share $4.15  $4.53 

 

As of March 31,June 30, 2022, the Company has approximately $189,000228,000 of unrecognized share-based compensation expense related to unvested options, which is expected to be recognized over the remaining weighted average period of 2.22.4 years.

 

The following is a summary of restricted stock award and restricted stock unit activity for the threesix months ended March 31,June 30, 2022:

 Summary of Restricted Stock Award and Restricted Stock Unit Activity

 Number of shares Weighted average grant date fair value  Number of
shares
 Weighted
average grant
date fair value
 
Unvested at January 1, 2022  -  $-   -  $- 
Granted  40,554  $5.36   41,554  $5.40 
Unvested at March 31, 2022  40,554  $5.36 
Forfeited  (1,754) $5.06 
Unvested at June 30, 2022  39,800  $5.41 

 

As of March 31,June 30, 2022, the Company has approximately $202,000175,000 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 2.62.4 years.

Note 7. Income Taxes

 

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 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 March 31,June 30, 2022, the estimated effective tax rate for the year2022 was 0.zero.

 

There are open statutes of limitations for taxing authorities in federal and state jurisdictions to audit our tax returns from 2017 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.

 

For the three and six months ended March 31,June 30, 2022 and 2021, the Company did not incur any interest and penalties associated with tax positions. As of March 31,June 30, 2022, the Company did not have any significant unrecognized uncertain tax positions.

 

1112

 

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 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.

 

References in this Quarterly Report on Form 10-Q to “us”, “we”, “our” and similar terms refer to Barfresh Food Group Inc.

 

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

 

There have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 10, 2022, that have a material impact on our condensed consolidated financial statements and related notes.

Recent Accounting Pronouncements

 

See Note 1 to the accompanying notes to unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for further details regarding this topic.

 

13

Results of Operations

 

Results of Operation for Three Months Ended March 31,June 30, 2022 as Compared to the Three Months Ended March 31,June 30, 2021

 

Revenue and cost of revenue

 

Revenue increased by approximately $1,511,000 (149%$1,498,000 (115%) from approximately $1,015,000$1,301,000 in 2021 to approximately $2,526,000$2,799,000 in 2022. The overall revenue for the firstsecond quarter 2022 was higher due to growth in “Twist & Go”™ revenue and the gradual return of single serve demand.

  

12

Cost of revenue for 2022 was approximately $1,710,000$1,916,000 as compared to approximately $666,000$739,000 in 2021. Our gross profit was approximately $816,000$883,000 (32%) and $349,000 (34%$562,000 (43%) for 2022 and 2021, respectively. Gross margins decreased in the firstsecond quarter primarily due to product mix which includes “Twist & Go”™ at slightly lower product margins.

 

OperatingSelling and marketing expenses

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

 

  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%

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 increased by 106%41%, or approximately $797,000,$237,000, from approximately $752,000$575,000 in 2021 to approximately $1,549,000$813,000 in 2022, primarily driven by personnel, including non-cash stock-based compensation, and other general and administrative expenses. The following is a breakdown of our general and administrative expenses for the three months ended June 30, 2022, and 2021:

  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

Personnel cost represents the cost of employees including salaries, bonuses, employee benefits and employment taxes and continues to be our largest cost. Personnel cost increased by approximately $148,000 (70%) from approximately $210,000 to $358,000. The increase in personnel cost was partially offset by the decrease in consulting fees as we choose to hire permanent staff as the critical stages of the COVID-19 pandemic waned, rather than rely on consultants and temporary staff.

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 three months ended June 30, 2022 was approximately $64,000 compared to $45,000 for the three months ended June 30, 2021 due to the aforementioned increase in staffing.

Research and development expenses increased approximately $27,000 (39%) from approximately $70,000 in 2021 to $96,000 in 2022. The increase is primarily due to material consumption and expiration, partially offset by a reduction in labor hours for our development consulting team.

Other expenses increased approximately $93,000 (122%) from approximately $76,000 in 2021 to $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 reduction of vendor liabilities.

Operating loss

We had operating losses of approximately $737,000 and $602,000 for the three-month periods ended June 30, 2022 and 2021, respectively. The increase of approximately $135,000 or 22%, was primarily due to the increase in operating expenses, partially offset by the increase in gross profit.

Other income and expense

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, 2022. We also recognized gain of $568,000 from the forgiveness of our PPP loan in 2021

Net loss

We had net losses of approximately $737,000 and $297,000 in the three-month periods ended June 30, 2022 and 2021, respectively, with the primary change due to the $568,000 gain on the forgiveness of the PPP loan in 2021.

15

Results of Operation for Six Months Ended June 30, 2022 as Compared to the Six Months Ended June 30, 2021

Revenue and cost of revenue

Revenue increased by approximately $3,009,000 (130%) from approximately $2,316,000 in 2021 to approximately $5,325,000 in 2022. The overall revenue for the six months ended June 30, 2022 was higher due to growth in “Twist & Go”™ revenue and the gradual return of single serve demand.

Cost of revenue for 2022 was approximately $3,678,000 as compared to approximately $1,405,000 in 2021. Our gross profit was approximately $1,647,000 (31%) and $911,000 (39%) for 2022 and 2021, respectively. Gross margins decreased in the six months ended June 30, 2022 primarily due to product mix which includes “Twist & Go”™ at slightly lower product margins.

Selling 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%

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 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.

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 increased by 66%, or approximately $665,000, from approximately $1,013,000 in 2021 to approximately $1,677,000 in 2022, primarily driven by personnel, including non-cash stock-based compensation, shipping and storage and other general and administrative expenses. The following is a breakdown of our general and administrative expenses for the threesix months ended March 31,June 30, 2022, and 2021:

 

 

Three months ended

March 31,

 

Three months ended

March 31,

      Six months ended
June 30,
 Six months ended
June 30,
     
 2022 2021 Change Percent  2022 2021 Change Percent 
Personnel costs  499,658   311,556   188,102   60%  684,000   395,000   289,000   73%
Stock-based compensation  28,036   (34,585)  62,621   181%  93,000   10,000   83,000   830%
Shipping and storage  437,434   143,735   293,699   204%
Legal, professional and consulting fees  179,922   76,172   103,750   136%  244,000   178,000   66,000   37%
Marketing and selling  75,502   42,955   32,547   76%
Director fees  62,500   77,130   (14,630)  -19%  125,000   150,000   (25,000)  -17%
Research and development  30,644   68,141   (37,498)  -55%  127,000   138,000   (11,000)  -8%
Other general and administrative expenses  235,343   66,497   168,845   254%  405,000   142,000   263,000   185%
  1,549,039   751,601   797,438   106%  1,678,000   1,013,000   665,000   66%

16

 

Personnel cost represents the cost of employees including salaries, bonuses, employee benefits and employment taxes and continues to be our largest cost. Personnel cost increased by approximately $188,000 (60%$289,000 (73%) from approximately $312,000$395,000 to $500,000. We had eleven full time equivalent employees$684,000. The increase in personnel cost was partially offset by the first quarterdecrease in consulting fees as we choose to hire permanent staff as the critical stages of 2021, compared with fifteen in the first quarter of 2022.COVID-19 pandemic waned, rather than rely on consultants and temporary staff.

 

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 threesix months ended March 31,June 30, 2022 was approximately $28,000$93,000 compared to ($35,000)$10,000 for the threesix months ended March 31,June 30, 2021 due to the aforementioned increase in staffing coupled with the departure of two key employees and the forfeiture of their unvested options in 2021.

 

Shipping and storage expense increased approximately $294,000 (204%) from approximately $144,000 in 2021 to $437,000 in 2022. The increase was primarily a result of the 149% increase in revenue, as well as increased supply chain costs resulting from the COVID-19 pandemic and other geopolitical events.

Legal, professional, and consulting fees increased approximately $104,000 (136%$66,000 (37%) from approximately $76,000$178,000 in 2021 to $180,000$244,000 in 2022. The increase was primarily due to corporate development activities.

 

Marketing and selling expenses increased approximately $33,000 (76%) from approximately $43,000 in 2021 to $76,000 in 2022. The increase in marketing and selling expenses was primarily the result of the retention of outside service providers to assist with sales initiatives.

Director fees decreased approximately $15,000 from approximately $76,000 in 2021 to $63,000 in 2022. Annual director fees are anticipated at $50,000 per non-employee director.

13

Research and development expenses decreased approximately $37,000 (55%$11,000 (8%) from approximately $68,000$138,000 in 2021 to $31,000$127,000 in 2022. The reduction is primarily due to the non-recurrence of material consumption and expiration as well as a reduction in labor hours for our development consulting team.

 

Other expenses increased approximately $169,000 (254%$263,000 (185%) from approximately $66,000$142,000 in 2021 to $235,000$405,000 in 2022. In 2022, we incurred approximately $102,000$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 liabilities.

 

Operating loss

We had operating losses of approximately $895,000$1,631,000 and $549,000$1,151,000 for the three-monthsix-month periods ended March 31,June 30, 2022 and 2021, respectively. The increase of approximately $346,000$480,000 or 63%42%, was primarily due to the increase in general and administrativeoperating expenses, partially offset by the increase in gross profit.

Other income and expense

 

The change in the value of the derivative liability is based upon the Black-Scholes model from one period to another. The gain of approximately $17,000$16,000 for the threesix months ended March 31,June 30, 2021 was a result of the change in components of the Black-Scholes model. The derivative liability was settled upon conversion and repayment of the convertible notes in the second quarter of 2021.

 

Interest expense was approximately $59,000$128,000 for the threesix months ended March 31,June 30, 2021. Interest related to convertible debt that was converted and repaid in 2021. We did not incur any interest expense for the threesix months ended March 31,June 30, 2022.

Net loss

 

We had net losses of approximately $895,000$1,631,000 and $592,000$889,000 in the three-monthsix-month periods ended March 31,June 30, 2022 and 2021, respectively.respectively, with the primary change due to the $568,000 gain on forgiveness of the PPP loan in 2021.

Liquidity and Capital Resources

 

As of March 31,June 30, 2022, we had working capital of approximately $5,559,000$4,996,000 as compared with approximately $6,171,000$6,172,000 at December 31, 2021. The decrease in working capital surplus is primarily due to operating loss for the threesix months ended March 31,June 30, 2022.

 

During the threesix months ended March 31,June 30, 2022, we used cash of approximately $1,132,000$1,923,000 in operations, and $14,000$13,000 for the purchase of equipment, partially offset by $5,000 from the issuance of stock pursuant to an outstanding warrant.

17

 

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 fixed overhead expense.

 

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 debt. There are no assurances that we will be able to generate the necessary capital to carry out our current plan of operations.

 

We have entered into a direct lease for premises covering the period April 1, 2019 to March 31, 2023. The aggregate minimum lease payments under the non-cancellable direct lease as of March 31,June 30, 2022 are approximately $81,000.$60,000.

 

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.

14

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 and our 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 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 Chief Financial Officer concluded that as of March 31,June 30, 2022, our disclosure controls and procedures are not effective.

 

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 duties.

 

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 help ensure that we are able to properly implement internal control procedures.

 

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 be ineffective.

 

Management believes that the material weakness set forth above did not have an effect on our financial results.

 

18

Changes in Internal Control over Financial Reporting

 

There have been no changes in the Company’s internal control over financial reporting during the three months ended March 31,June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II-OTHERII- OTHER INFORMATION

 

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.

15

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

During the quarter ended March 31, 2022, the Company sold 986 shares of common stock for $5,000 pursuant to the exercise of warrants, and issued 13,801 shares of common stock for services valued at $98,333. The Company 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 persons, (ii) each offer was made through direct communication with the offerees by the Company, (iii) each of the offerees, which included an officer and two directors of the Company, had the requisite sophistication and financial ability to bear risks of investing in the Company’s common stock, (iv) the Company provided disclosure to the offerees, and (v) there was no general solicitation and no commission or remuneration was paid in connection with the offers.None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

19

Item 6. Exhibits.

 

Exhibit No. Description
   
31.1 Certification of Principal Executive Officer pursuant to Rule 13a-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 (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*

104Cover 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.

 

1620

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.

 

 BARFRESH FOOD GROUP INC.
   
Date: AprilJuly 28, 2022By:/s/ Riccardo Delle Coste
  

Riccardo Delle Coste

Chief Executive Officer

(Principal Executive Officer)

   
Date: AprilJuly 28, 2022By:/s/ Lisa Roger
  

Chief Financial Officer

(Principal Financial Officer)

 

1721