美國
證券交易委員會 及交易所
華盛頓特區，20549
表單
| 根據1934年證券交易法的第13或15(d)條款，季報。 |
截至年度季度結束
| 根據1934年證券交易法第13或15(d)條的過渡報告 |
從______________到______________的過渡期間
委員會
檔案號碼：
(根據公司章程所述的註冊人的正確名稱)
（州或其他管轄區 註冊或組織） |
（美國國稅局雇主識別號碼） 識別號碼） | |
| （總執行辦公室地址） | （郵政編碼） |
（申報人的電話號碼，包括區號）
(如有更改，請填寫更改前的名稱、地址和財政年度)
根據該法案第12(b)條紀錄的證券：
| 每個類別的標題 | 交易標誌 | 在哪個交易所上市的名字 | ||
| |
勾選表示公司已按照證券交易法第13或15(d)條款的規定，在過去12個月（或公司需要提交此類報告的較短期限內）提交了所有所需的報告；並且公司在過去90天內一直受到此類提交報告的要求。
請用勾選框表示，是否本登記人在過去12個月內（或本登記人應遞交此類文件的較短期間內）按照S-t條例第405條的規定，已經以電子方式提交每一份所需提交的互動資料檔案。
請勾選以下選項，指明掛牌者是否為大型快速申報掛牌者、快速申報掛牌者、非快速申報掛牌者、較小型的報告公司或新興成長型公司。關於Exchange Act第1202條中「大型快速申報掛牌者」、「快速申報掛牌者」、「較小型報告公司」和「新興成長型公司」的定義，請參閱。
| 大型加速文件申報者 ☐ | 加速申報者 ☐ |
| 較小的報告公司 | |
| 新興成長型企業 |
如為新興成長公司，請在此勾選，以示登記人已選擇不使用《交易所法》第13(a)條所規定的供遵守任何新版或修訂的財務會計準則的延長過渡期。 ☐
請勾選是否登記者為外殼公司（依照交易所法規120億2的定義）。是 ☐ 否
標示截至最近實際可行日期，每個發行人普通股的已發行數量： 截至2024年10月21日的股份。
目錄
頁面 數字 | ||
| 部分 I-財務資訊 | ||
| 物品 1. | 財務報表。 | 3 |
| 物品 二. | 管理層對財務狀況和營運結果的討論和分析。 | 14 |
| 物品 三. | 有關市場風險的定量和定性披露。 | 18 |
| 物品 4. | 控制和程序。 | 18 |
| 第二部分-其他資料 | 19 | |
| 物品 1. | 法律程序。 | 19 |
| 物品 一 A. | 風險因素。 | 19 |
| 物品 二. | 未登記股份證券銷售及所得款項的使用 | 19 |
| 物品 三. | 高級證券的違約。 | 19 |
| 物品 4. | 礦山安全披露。 | 19 |
| 物品 5. | 其他資訊。 | 19 |
| 物品 六. | 展品。 | 19 |
| 簽名 | 20 | |
項目 1. 基本報表。
Barfresh 食品集團股份有限公司。
縮短的 合併資產負債表
| 九月三十日， | 12月31日， | |||||||
| 2024 | 2023 | |||||||
| （未經審計） | (已核准) | |||||||
| 資產 | ||||||||
| 流動資產: | ||||||||
| 現金 | $ | $ | ||||||
| 交易應收帳款，扣除折讓後淨額 | ||||||||
| 其他應收款項 | ||||||||
| 存貨，淨額 | ||||||||
| 預付費用及其他流動資產 | ||||||||
| 全部流動資產 | ||||||||
| 資產、設備及設施，扣除折舊後淨值 | ||||||||
| 無形資產，減損後淨值 | ||||||||
| 其他非流動資產 | ||||||||
| 資產總額 | $ | $ | ||||||
| 550,714 | ||||||||
| 流動負債： | ||||||||
| 信貸額度，淨額 | $ | $ | ||||||
| 應付賬款 | ||||||||
| 有爭議的共同製造商應付款項（註4） | ||||||||
| 應計費用 | ||||||||
| 應計的薪資和員工相關 | ||||||||
| 融資協議 - 流動 | ||||||||
| 流動負債合計 | ||||||||
| 融資協議 | ||||||||
| 總負債 | ||||||||
| 合約和可能負債 | ||||||||
| 股東權益： | ||||||||
| 優先股，面額$0.01，授權股數為5,000,000股，發行且流通股數為截至2024年6月30日和2023年12月31日之184,668,188股和181,364,180股。 面值， 股份已授權 已發行或流通 | ||||||||
| 0.01 面值; 授權股份為 和 2024年9月30日和2023年12月31日分別發行並流通的股份 | ||||||||
| 額外資本贈与金 | ||||||||
| 累積虧損 | ( | ) | ( | ) | ||||
| 股東權益總額 | ||||||||
| 負債和股東權益總額 | $ | $ | ||||||
See the accompanying notes to the condensed consolidated financial statements
| 3 |
Barfresh Food Group Inc.
Condensed Consolidated Statements of Operations
For the three and nine months ended September 30, 2024 and 2023
(Unaudited)
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, marketing and distribution | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Per share information - basic and fully diluted: | ||||||||||||||||
| Weighted average shares outstanding | ||||||||||||||||
| Net loss per share | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
See the accompanying notes to the condensed consolidated financial statements
| 4 |
Barfresh Food Group Inc.
Consolidated Statements of Cash Flows
For the nine months ended September 30, 2024 and 2023
(Unaudited)
| 2024 | 2023 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Stock-based compensation | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt discounts | ||||||||
| Stock and options issued for services | ||||||||
| Changes in assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Other receivables | ( | ) | ||||||
| Inventories | ||||||||
| Prepaid expenses and other assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Financing activities | ||||||||
| Borrowings under line of credit | ||||||||
| Repayment of line of credit | ( | ) | ||||||
| Issuance of convertible debt | ||||||||
| Financing agreement payments | ( | ) | ||||||
| Repurchases from stock compensation program | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Cash paid during the period for: | ||||||||
| Amounts included in the measurement of lease liabilities | $ | $ | ||||||
| Non-cash financing and investing activities: | ||||||||
| Convertible notes issued in exchange for trade payables | $ | $ | ||||||
| Conversion of debt and interest to equity | $ | $ | ||||||
| Financed acquisition of long-term assets | $ | $ | ||||||
| Value of shares relinquished in modification of stock-based compensations awards | $ | $ | ||||||
See the accompanying notes to the condensed consolidated financial statements
| 5 |
Barfresh Food Group Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2024
(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 manufacturing 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, 2023 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on March 22, 2024. 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.
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 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.
Vendor Concentrations
The Company is exposed to supply risk as a result of concentration in its vendor base resulting from the use of a limited number of contract manufacturers. Purchases from the Company’s significant contract manufacturers as a percentage of all finished goods purchased were as follows:
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Manufacturer A | % | % | % | % | ||||||||||||
| Manufacturer B | % | % | % | % | ||||||||||||
| Manufacturer C | % | % | % | % | ||||||||||||
| % | % | % | % | |||||||||||||
| 6 |
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, 2023, as filed with the SEC on March 22, 2024 that have had a material impact on our condensed consolidated financial statements and related notes.
Financial Instruments
The Company’s financial instruments consist of cash, accounts receivable, accounts payable, the line of credit and financing agreements. The carrying value of the Company’s financial instruments approximates their fair value.
Accounts Receivable and Allowances
Accounts
receivable are recorded and carried at the original invoiced amount less allowances for credits and for any potential uncollectible amounts
due to credit losses. We make estimates of the expected credit and collectability trends for the allowance for credit losses based on
our assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of our
customers, current economic conditions, and other factors that may affect our ability to collect from our customers. Expected credit
losses are recorded as general and administrative expenses on our condensed consolidated statements of operations. As of September 30,
2024 and December 31, 2023, there was
Other Receivables
Other receivables consist of the Company’s 2021 Employee Retention Tax Credit “ERTC” claim, which the Company collected in March 2024, amounts due from vendors for materials acquired on their behalf for use in manufacturing the Company’s products, vendor rebates and freight claims.
ERTC claims can be made in a variety of circumstances with varying degrees of subjectivity and clear authoritative guidance. Paid claims are subject to IRS inspection which may occur prior to expiration of the statute of limitations. The Company’s ERTC claim was based on objectively calculated declines in revenue using methods that are clearly defined in the Coronavirus Aid, Relief, and Economic Security Act and various regulations and interpretations thereof.
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. 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. |
| 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. | ||
| 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 rebates or discounts, are estimated utilizing the most likely amount method. Provisions for refunds are generally provided for in the period the related sales are recorded, based on management’s assessment of historical and projected trends. |
| 7 |
| 4) | Allocate the transaction price to performance obligations in the contract
Since the Company’s 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 fulfilment costs and presented in distribution, selling and administrative costs.
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. |
Storage and Shipping Costs
Storage
and outbound freight costs are included in selling, marketing and distribution expense. For the three months ending September 30, 2024
and 2023, storage and outbound freight totaled approximately $
Research and Development
Expenditures
for research activities relating to product development and improvement are charged to expense as incurred. The Company incurred approximately
$
For the three and nine months ended September 30, 2024 and 2023, common stock equivalents have not been included in the calculation of net loss per share as their effect is anti-dilutive as a result of losses incurred.
Reclassifications
Certain reclassifications have been made to the 2023 financial statements to conform to the 2024 presentation, namely stock-based compensation paid to the Company’s directors has been reclassified from stock and options issued for services and shares repurchased for employee tax withholding under the Company’s stock compensation program have been reclassified to financing activities in the consolidated statement of cash flows, with corresponding changes reflected in the statement of stockholders’ equity for the nine months ended September 30, 2023.
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:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Raw materials and packaging | $ | $ | ||||||
| Finished goods | ||||||||
| Inventory, net | $ | $ | ||||||
Note 3. Property Plant and Equipment
Property and equipment, net consist of the following:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Manufacturing equipment | $ | $ | ||||||
| Customer equipment | ||||||||
| Construction in progress | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net of depreciation | $ | $ | ||||||
Depreciation
expense related to these assets was approximately $
Note 4. Commitments and Contingencies
Lease Commitments
The
Company leases office space under a non-cancellable operating lease which expired on
Legal Proceedings
Schreiber Dispute
The
Company’s products are produced to its specifications through several contract manufacturers. One of the Company’s contract
manufacturers (the “Manufacturer”) provided approximately
Over
the course of 2022, the Company experienced numerous quality issues with the case packaging utilized by the Manufacturer. In addition,
in July of 2022, the Company began receiving customer complaints about the texture of the Company’s smoothie products produced
by the Manufacturer. In response, the Company withdrew product from the market and destroyed on-hand inventory, withholding $
| 9 |
The Company attempted to resolve the issues based on the contractual procedures described in the Supply Agreement. However, on November 4, 2022, in response to a formal proposal of alternate resolutions, the Company received notification from the Manufacturer that it was denying any responsibility for the defective manufacture of the product. In response, on November 10, 2022, the Company filed a complaint in the United States District Court for the Central District of California, Western Division (the “Complaint”), claiming that the Manufacturer had not met its obligations under the Supply Agreement, and seeking economic damages. In response, the Manufacturer terminated the Supply Agreement. On January 20, 2023, the Company filed a voluntary dismissal of the Complaint which allowed the parties to reach a potential resolution outside of the court system. However, as the parties were once again unable to come to an agreement, the Company re-filed the Complaint in California State Court in August 2023 and continues to progress through the court system.
In May 2024, the Company entered into a non-recourse litigation financing arrangement which is expected to be adequate to pursue the Complaint to conclusion.
Due to the uncertainties surrounding the claim, the Company is not able to predict either the outcome or a range of reasonably possible recoveries that could result from its actions against the Manufacturer, and no gain contingencies have been recorded. The disruption in its supply resulting from the dispute has and will continue to adversely impact the Company’s results of operations and cash flow until a suitable resolution is reached or new sources of reliable supply at sufficient volume can be identified and developed, the timing of which is uncertain. The Company has mitigated the impact of the supply disruption with the introduction of its single-serve smoothie cartons; however the product format has not been accepted by some customers or as a substitute for the bottle product in all use cases.
Other Legal Matters
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. We are
currently the defendant in one legal proceeding for an amount less than $
Note 5. Debt
Line of Credit
In
August 2024, the Company secured receivables financing of $
Financing Agreements
In
2024, the Company entered into financing agreements to purchase equipment and software as a service, with imputed or stated interest
of
| 2024 (3 months) | $ | |||
| 2025 | ||||
| 2026 | ||||
| Total payments due | ||||
| Less: interest | ( | ) | ||
| Less: current portion | ( | ) | ||
| Financing agreements | $ |
| 10 |
Convertible Notes
From
July 2023 to March 2024, the Company executed subscription agreements for substantially all of a $
On
October 23, 2023, the Company drew down $
Note 6. Stockholders’ Equity
The following are changes in stockholders’ equity for the nine months ended September 30, 2023 and 2024:
| Additional | ||||||||||||||||||||
| Common Stock | paid in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | (Deficit) | Total | ||||||||||||||||
| Balance December 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common stock for equity compensation, net of shares repurchased for income tax withholding | ( | ) | ( | ) | ||||||||||||||||
| Equity-based compensation expense | - | |||||||||||||||||||
| Cash settlement of equity-based compensation | - | ( | ) | ( | ) | |||||||||||||||
| Issuance of stock for services | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance September 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Additional | ||||||||||||||||||||
| Common Stock | paid in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | (Deficit) | Total | ||||||||||||||||
| Balance December 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common stock for equity compensation, net of shares repurchased for income tax withholding | ( | ) | ( | ) | ||||||||||||||||
| Equity-based compensation expense | - | |||||||||||||||||||
| Conversion of debt and interest (Note 5) | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance September 30, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
Warrants
During
the nine months ended September 30, 2024, warrants at a weighted average exercise price of $
Equity Incentive Plan
Through 2022, the Company issued equity awards under the 2015 Equity Incentive Plan (the “2015 Plan”) and outside the Plan. In June 2023, the Company’s stockholders adopted the 2023 Equity Incentive Plan (the “2023 Plan”), reserving shares for future issuance. The Board of Directors discontinued further grants under the 2015 Plan. In March 2024, the Board of Directors amended the 2023 Plan to reserve an additional shares for future issuance, bringing the total for the plan to , and to provide an evergreen provision that reserves additional shares depending on future non-plan issuances of common stock.
As of September 30, 2024, the Company has $ of total unrecognized share-based compensation expense relative to unvested options, stock awards and stock units, which is expected to be recognized over the remaining weighted average period of 2.8 years.
| 11 |
Stock Options
| Number of Options | Weighted average exercise price per share | Remaining term in years | ||||||||||
| Outstanding on December 31, 2023 | $ | |||||||||||
| Issued | $ | |||||||||||
| Expired | ( | ) | $ | |||||||||
| Outstanding on September 30, 2024 | $ | |||||||||||
| Exercisable, September 30, 2024 | $ | |||||||||||
| 2024 | ||||
| Expected term (in years) | ||||
| Expected volatility | % | |||
| Risk-free interest rate | % | |||
| Expected dividends | $ | |||
| Weighted average grant date fair value per share | $ | |||
Restricted Stock
| Number of shares | Weighted average grant date fair value | |||||||
| Unvested at January 1, 2024 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Unvested at September 30, 2024 | $ | |||||||
Performance Share Units
During 2023 and 2024, the Company issued performance share units (“PSUs”) that represented shares potentially issuable based upon Company and individual performance in the years of issuance.
| Number of shares | Weighted average grant date fair value | |||||||
| Unvested at January 1, 2024 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Unvested and expected to vest at September 30, 2024 | $ | |||||||
| 12 |
In February 2023, the unvested awards issued and outstanding for individual performance under the 2022 PSU program were modified to cash-settle the original grant-date fair value of approximately $, resulting in incremental compensation of $ after considering the $ fair value of the vested shares at the date of the modification. Additionally, the Company performance targets were modified to allow approximately PSUs to vest, with an additional time-based vesting requirement for approximately of the PSUs. Because the awards did not vest based on the original terms, the modification was considered a new grant, resulting in $ in compensation expense in the nine months ended September 30, 2023.
The Company adopted a 2024 PSU program in March 2024, granting approximately PSUs at target performance against company-wide and individual performance metrics. The results for the three and nine months ended September 30, 2024 include $ and $, respectively, in expense for the 2024 PSU program. Estimates of expense associated with 2024 performance will be reassessed each quarter through the performance period.
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 September 30, 2024, the estimated effective tax rate for 2024 was
There are open statutes of limitations for taxing authorities in federal and state jurisdictions to audit our tax returns from 2018 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 nine months ended September 30, 2024 and 2023, the Company did not incur any interest and penalties associated with tax positions. As of September 30, 2024, the Company did not have any significant unrecognized uncertain tax positions.
Note 8. Liquidity
During
the nine months ended September 30, 2024, the Company used $
The Company has a history of negative cash flow and operating losses, which were expected to improve with growth. As described more fully in Note 4, the dispute and subsequent contract termination with the Manufacturer has resulted in limitations in the Company’s ability to procure certain products necessary to achieve our growth projections and in elevated legal costs.
To
mitigate the impact of procurement constraints, the Company built and paid for inventory in anticipation of third quarter seasonal requirements,
contributing $
Although alleviated, the financial position at September 30, 2024 and historical results raise substantial doubt about the Company’s ability to continue as a going concern. As described, the Company has taken and partially completed steps to mitigate the dispute related issues. Management believes that other potential actions are feasible, including raising additional financing and reducing growth-related expenditures. While management cannot predict with certainty whether additional actions would achieve the predicted outcome, the availability of such options, along with the actions already taken, resulted in the alleviation of the substantial doubt about the Company’s ability to continue as a going concern.
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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, 2023, as filed with the SEC on March 22, 2024, 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
Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Results of Operations
Results of Operation for the Three Months Ended September 30, 2024 as Compared to the Three Months Ended September 30, 2023
Revenue and cost of revenue
Revenue increased $1,034,000, or 40%, to $3,637,000 in 2024 as compared to $2,603,000 in 2023. Our revenue in 2024 benefited from increased sales of our bottled Twist & Go smoothies due to improved availability resulting from inventory built over the months prior to the commencement of the school year, continued acceptance of Twist & Go smoothies provided in cartons, and improvements in bulk sales due to the reintroduction of our WHIRLZ 100% juice product in the fourth quarter of 2023.
We have been able to expand our capacity on a limited basis at our existing smoothie bottle manufacturer and in July 2024 contracted with an additional manufacturer. We expect expanded capacity to become available in the fourth quarter of 2024, subject to the risks and uncertainties associated with pre-production activities.
Cost of revenue increased $687,000, or 41%, to $2,377,000 in 2024 as compared to $1,690,000 in 2023. Cost of revenue increased at a slightly higher rate compared to revenue due to $126,000 in cost incurred to relocate our single-serve smoothie pouch production line.
Our gross profit was $1,260,000 (35%) and $913,000 (35%) for 2024 and 2023, respectively. Excluding production relocation costs, our gross profit was $1,386,000 in 2024 (38%). The improvement in gross margin is a result of favorable product mix, pricing actions, and a slight improvement in the cost of supply chain components.
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Selling, marketing and distribution expense
Our operations were primarily directed towards increasing sales and expanding our distribution network.
Three months ended September 30, | Three months ended September 30, | |||||||||||||||
| 2024 | 2023 | Change | Percent | |||||||||||||
| Sales and marketing | $ | 510,000 | $ | 327,000 | $ | 183,000 | 56 | % | ||||||||
| Storage and outbound freight | 480,000 | 370,000 | 110,000 | 30 | % | |||||||||||
| $ | 990,000 | $ | 697,000 | $ | 293,000 | 42 | % | |||||||||
Selling, marketing and distribution expense increased approximately $293,000 (42%) from approximately $697,000 in 2023 to $990,000 in 2024.
Sales and marketing expense increased approximately $183,000 (56%) from approximately $327,000 in 2023 to $510,000 in 2024. The increase is a result of higher personnel cost, travel and broker commissions due to expansion of the broker network.
Storage and outbound freight expense increased approximately $110,000 (30%) from approximately $370,000 in 2023 to $480,000 in 2024, lower than the 40% rate of increase in revenue primarily because of freight efficiencies, and lower storage and inventory management cost in 2024.
General and administrative expense
Three months ended September 30, | Three months ended September 30, | |||||||||||||||
| 2024 | 2023 | Change | Percent | |||||||||||||
| Personnel costs | $ | 312,000 | $ | 196,000 | $ | 116,000 | 59 | % | ||||||||
| Stock-based compensation | 179,000 | 240,000 | (61,000 | ) | -25 | % | ||||||||||
| Legal, professional and consulting fees | 36,000 | 61,000 | (25,000 | ) | -41 | % | ||||||||||
| Director fees paid in cash | - | (50,000 | ) | 50,000 | -100 | % | ||||||||||
| Research and development | 52,000 | 32,000 | 20,000 | 63 | % | |||||||||||
| Other general and administrative expenses | 126,000 | 98,000 | 28,000 | 29 | % | |||||||||||
| $ | 705,000 | $ | 577,000 | $ | 128,000 | 22 | % | |||||||||
General and administrative expenses increased approximately $128,000 (22%) from approximately $577,000 in 2023 to $705,000 in 2024.
Personnel cost represents the cost of employees including salaries, bonuses, employee benefits and employment taxes. Personnel cost increased by approximately $116,000 (59%) from approximately $196,000 in 2023 to $312,000 in 2024. The increase in personnel cost resulted from the non-recurrence of the 2023 reversal of cash bonuses in favor of increased performance-based stock compensation in the third quarter, increased head count and higher staff utilization, and resulting deferral of paid time off. Similarly, director fees paid in cash decreased as a result of a shift to stock-based compensation in the third quarter of 2023.
Stock-based compensation decreased by approximately $61,000 (25%) from $240,000 in 2023 to $179,000 in 2024 as a result of the aforementioned 2023 third quarter shift to performance-based stock-based compensation, partially offset by stock-based compensation associated with increased headcount.
Other general and administrative expenses increased by approximately $28,000 (29%) due to increased information technology costs and the non-recurrence of certain 2023 adjustments to estimates.
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Net loss
We had net losses of approximately $513,000 and $476,000 for the three-month periods ended September 30, 2024 and 2023, respectively. The increase in net loss of approximately $37,000, was primarily the result of operating expense increases of $384,000 due to headcount, and variable freight and broker commission costs, partially offset by increased gross profit of $347,000 from our 40% increase in revenue.
Results of Operation for the Nine Months Ended September 30, 2024 as Compared to the Nine Months Ended September 30, 2023
Revenue and cost of revenue
Revenue increased $1,724,000, or 28%, to $7,929,000 in 2024 as compared to $6,205,000 in 2023. Our revenue in 2024 benefited from continued acceptance of our carton packaging format, increased sales of our bottled Twist & Go smoothies due to improved availability in the third quarter of 2024, and improvements in bulk sales due to the reintroduction of our WHIRLZ 100% juice product in the fourth quarter of 2023.
Cost of revenue increased $1,028,000, or 26%, to $4,991,000 in 2024 as compared to $3,963,000 in 2023. Cost of revenue increased at a lower rate compared to revenue due to product mix and slight improvements in raw material and other input costs, partially offset by $176,000 in cost incurred to relocate our single-serve smoothie pouch production line.
Our gross profit was $2,938,000 (37%) and $2,242,000 (36%) for 2024 and 2023, respectively. Excluding production relocation costs, our gross profit was $3,114,000 in 2024 (39%). The improvement in gross margin is a result of favorable product mix, pricing actions, and a slight improvement in the cost of supply chain components.
Selling, marketing and distribution expense
Nine months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2024 | 2023 | Change | Percent | |||||||||||||
| Sales and marketing | $ | 1,206,000 | $ | 1,058,000 | $ | 148,000 | 14 | % | ||||||||
| Storage and outbound freight | 1,061,000 | 932,000 | 129,000 | 14 | % | |||||||||||
| $ | 2,267,000 | $ | 1,990,000 | $ | 277,000 | 14 | % | |||||||||
Selling, marketing and distribution expense increased approximately $277,000 (14%) from approximately $1,990,000 in 2023 to $2,267,000 in 2024.
Sales and marketing expense increased approximately $148,000 (14%) from approximately $1,058,000 in 2023 to $1,206,000 in 2024. The increase is a result of higher personnel costs, travel and broker commission due to expansion of the broker network. Advertising and sample expense were lower as a result of non-recurring costs in 2023 associated with the launch of our smoothie carton format offering.
Storage and outbound freight expense increased approximately $129,000 (14%) from approximately $932,000 in 2023 to $1,061,000 in 2024, primarily because of the 28% increase in revenue over the same period, partially offset by freight efficiencies, and lower storage and inventory management cost in 2024.
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General and administrative expense
Nine months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2024 | 2023 | Change | Percent | |||||||||||||
| Personnel costs | $ | 916,000 | $ | 929,000 | $ | (13,000 | ) | -1 | % | |||||||
| Stock based compensation | 696,000 | 431,000 | 265,000 | 61 | % | |||||||||||
| Legal, professional and consulting fees | 250,000 | 236,000 | 14,000 | 6 | % | |||||||||||
| Research and development | 99,000 | 88,000 | 11,000 | 13 | % | |||||||||||
| Other general and administrative expenses | 462,000 | 378,000 | 84,000 | 22 | % | |||||||||||
| $ | 2,423,000 | $ | 2,062,000 | $ | 361,000 | 18 | % | |||||||||
General and administrative expenses increased approximately $361,000 (18%) from approximately $2,062,000 in 2023 to $2,423,000 in 2024.
Personnel cost decreased by approximately $13,000 (1%) from approximately $929,000 in 2023 to $916,000 in 2024. The decrease in personnel cost resulted from a reduction in headcount and cash bonus expense as a result of adopting an equity-only incentive structure in mid-2023, partially offset by the non-recurrence of the recognition of a COVID-19 related Employee Retention Tax Credit in 2023.
Stock-based compensation increased by approximately $265,000 (61%) from $431,000 in 2023 to $696,000 in 2024 as a result of the Company adopting an equity-only structure for management incentives and Board of Directors compensation, implemented to conserve cash and to achieve compliance with NASDAQ listing regulations. Increases in management headcount and the issuance of long-term incentive awards also contributed to the increase.
Other general and administrative expenses increased by approximately $84,000 (22%) due to recruiting fees incurred to broaden the capabilities of our management team, partially offset by a decrease in patent fees due to targeted renewals in 2024.
Net loss
We had net losses of approximately $1,973,000 and $2,123,000 for the nine-month periods ended September 30, 2024 and 2023, respectively. The decrease in net loss of approximately $150,000, was primarily the result an increase in gross profit of approximately $696,000, partially offset by increased operating expense of $546,000 due to variable freight and broker commission costs, increased headcount, and the non-recurrence of recognizing ERTC benefits in 2023.
Liquidity and Capital Resources
On June 1, 2021, we completed a private placement of 1,282,051 shares of our common stock at $4.68 per share, resulting in gross proceeds of $6,000,000. In addition, holders of debt converted a total of $399,000 in principal and $234,000 in interest into 133,991 shares of common stock and debt in the amount of $840,000 was retired, leaving the Company with no debt.
From July 2023 to March 2024, we executed subscription agreements for substantially all of a $2,000,000 privately placed convertible debt offering. The debt was available to be drawn in 25% increments, maturing on the anniversary of the draw, bearing interest at 10% per annum for the term, regardless of earlier payment or conversion, and was mandatorily convertible as to principal and interest into shares of our common stock at any time prior to maturity at the greater of $1.20 or 85% of the volume-weighted average price of the common stock for the ten trading days immediately preceding the written notice of the conversion (the “Conversion Price”). If we had not exercised the mandatory conversion, the holder of the debt had the option after six months and on up to four occasions to convert all or any portion of the principal and interest into shares of our common stock at the Conversion Price. On October 23, 2023, we issued $1,390,000 of convertible notes pursuant to the subscription agreements, and immediately converted $1,207,000 of principal and interest into approximately 820,000 shares of common stock. Additionally, on December 19, 2023, we drew down $470,000 in convertible debt and converted a total of $653,000 of principal and $4,000 of accrued interest into 495,331 shares of common stock. Finally, on March 27 and 29, 2024, we drew down $136,000 in convertible debt and converted the total drawn into 124,208 shares, settling all debt.
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During the nine months ended September 30, 2024, we used $1,544,000 in operations. Our net loss adjusted for non-cash operating expenses was a loss of $982,000, while changes in non-cash current assets and liabilities consumed $562,000 primarily because of increased accounts receivable resulting from our 40% increase in revenue compared to the nine months ended September 30, 2024. Additionally, our accounts payable decreased as we improved adherence with vendor terms. These changes were partially offset by a $444,000 reduction in inventory.
As of September 30, 2024, we had working capital of $1,371,000 compared with $2,345,000 at December 31, 2023, both excluding disputed accounts payable of $499,000 resulting from our dispute with the Manufacturer. The decrease in working capital is primarily due to losses incurred in the nine months ended September 30, 2024, partially offset by capital raised in the nine months ended September 30, 2024 through the sale of convertible notes and the conversion of those notes and other current liabilities to equity.
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 current dispute with the Manufacturer and the resulting loss of product supply and legal expense have negatively impacted our financial position, results of operations and cash flow. While the introduction of our carton packaging format in 2023 has mitigated the loss of supply, the product offering has not been accepted by some customers or as a substitute for the bottle product in all use cases. We have contracted with a co-manufacturer for additional smoothie bottle manufacturing capacity. We expect expanded capacity to become available in the fourth quarter of 2024, subject to the risks and uncertainties associated with pre-production activities. Additionally, we have taken other measures to reduce our liquidity requirements, including compensating our directors and employees with equity to reduce cash compensation requirements, obtaining non-recourse litigation financing, and securing receivables financing in the third quarter of 2024.
Our operations to date have been financed by the sale of securities, the issuance of convertible debt and the issuance of short-term debt. 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 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.
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 expense, 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 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 the evaluation of our disclosure controls and procedures as of September 30, 2024, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
Through 2023, we had previously disclosed a material weakness in our internal control over financial reporting related to the control environment, which was impacted by inadequate segregation of duties, including information technology control activities.
| 18 |
We took actions to remediate the material weakness relating to our internal control over financial reporting, as described below. The controls and processes we implemented to remediate the identified material weakness included:
| ● | Implemented procedures to mitigate the lack of segregation of duties | |
| ● | Retained additional information technology resources which bolstered control over data access and changes to operating systems |
As a result of the remediation activities and controls in place as of September 30, 2024 described above, we have remediated this previously disclosed material weakness. However, completion of remediation does not provide assurance that our remediated controls will continue to operate properly or that our financial statements will be free from error.
There were no additional changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II- OTHER INFORMATION
Item 1. Legal Proceedings.
As described in Note 4, the Company has an on-going dispute with the Manufacturer, the outcome of which cannot be predicted at this time.
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. We are 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.
Item 1A. Risk Factors.
Not required because we are a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the quarter ended September 30, 2024, the Company issued 22,266 shares of common stock for services valued at $97,300.
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, including prospective investors and existing debt holders, (ii) each offer was made through direct communication with the offerees by the Company, (iii) each of the offerees, which included three 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.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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* | |
| 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. |
| 19 |
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: October 24, 2024 | By: | /s/ Riccardo Delle Coste |
| Riccardo Delle Coste | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: October 24, 2024 | By: | /s/ Lisa Roger |
| Chief Financial Officer | ||
| (Principal Financial Officer) | ||
| 20 |