# Barfresh Food Group Inc.: Form 10-Q for the period ended Mar 31, 2024

- Company: [Barfresh Food Group Inc.](/companies/brfh.md) (CIK 1487197)
- Form: 10-Q
- Filed: 2024-05-15
- Accepted by EDGAR: May 15, 2024, 16:06 ET
- Period: 2024-03-31
- Accession: 0001493152-24-019816
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1487197/000149315224019816/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1487197/000149315224019816/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $2.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-01-01 to 2024-03-31 | $1.7m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-01-01 to 2024-03-31 | $1.2m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-01-01 to 2024-03-31 | $30.0k | us-gaap:ResearchAndDevelopmentExpense |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | −$449.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.03 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.03 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 14,500,863 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | −$769.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2024-03-31 | $1.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $4.1m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $4.7m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $2.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $2.2m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-03-31 | $2.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 12,334 characters.

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 March 31, 2024 as Compared to the Three Months Ended March 31, 2023

#### Revenue and cost of revenue

Revenue increased $738,000, or 35%, to $2,829,000 in 2024 as compared to $2,091,000 in 2023. Our revenue in 2024 benefited from continued acceptance of our carton packaging format and improvements in bulk sales, including our WHIRLZ 100% juice product that was reintroduced in the fourth quarter of 2023, as the impact of venue closures and labor shortages resulting from the pandemic had substantially resolved. Our revenues in 2023 were adversely impacted because of lost customers and supply constraints resulting from the product issues and related dispute with the Manufacturer. While the introduction of our carton packaging format 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 been able to expand our capacity on a limited basis at our existing smoothie bottle manufacturer and are actively working to develop additional manufacturing capacity. We expect expanded capacity to become available in 2024, subject to the risks and uncertainties associated with contracting and pre-production activities.

Cost of revenue increased $423,000, or 34%, to $1,659,000 in 2024 as compared to $1,236,000 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.

Our gross profit was $1,170,000 (41.4%) and $855,000 (40.9%) for 2024 and 2023, respectively. 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

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

|  | Three months ended March 31, 2024 | Three months ended March 31, 2023 | Change | Percent |
| --- | ---: | ---: | ---: | ---: |
| Sales and marketing | $330,000 | $356,000 | $(26,000) | -7% |
| Storage and outbound freight | 364,000 | 311,000 | 53,000 | 17% |
| Sales, marketing and distribution expense | $694,000 | $667,000 | $27,000 | 4% |

Selling, marketing and distribution expense increased approximately $27,000 (4%) from approximately $667,000 in 2023 to $694,000 in 2024.

Sales and marketing expense decreased approximately $26,000 (-7%) from approximately $356,000 in 2023 to $330,000 in 2024. The decrease is a result of headcount reductions and lower advertising expense, partially offset by higher broker commissions due to expansion of the broker network and the increase in revenue.

Storage and outbound freight expense increased approximately $53,000 (17%) from approximately $311,000 in 2023 to $364,000 in 2024, primarily because of the 35% increase in revenue, freight efficiencies, and lower storage and inventory management cost in 2024 because of inventory disposals following the dispute with the Manufacturer.

#### General and administrative expense

|  | Three months ended March 31, 2024 | Three months ended March 31, 2023 | Change | Percent |
| --- | ---: | ---: | ---: | ---: |
| Personnel costs | $262,000 | $489,000 | $(227,000) | -46% |
| Stock-based compensation | 303,000 | 209,000 | 94,000 | 45% |
| Legal, professional and consulting fees | 157,000 | 115,000 | 42,000 | 37% |
| Director fees paid in cash | - | 25,000 | (25,000) | -100% |
| Research and development | 30,000 | 21,000 | 9,000 | 43% |
| Other general and administrative expenses | 106,000 | 135,000 | (29,000) | -21% |
|  | $858,000 | $994,000 | $(136,000) | -14% |

General and administrative expense decreased approximately $136,000 (-14%) from approximately $994,000 in 2023 to $858,000 in 2024.

Personnel cost represents the cost of employees including salaries, bonuses, employee benefits and employment taxes. Personnel cost decreased by approximately $227,000 (-46%) from approximately $489,000 to $262,000 and stock-based compensation increased by approximately $94,000 (45%) from $209,000 to $303,000. The decrease in personnel cost resulted from a reduction in headcount and the decision to issue stock-based compensation in lieu of cash bonuses. Additionally, approximately $54,000 in officer salaries and vacation pay were settled in our stock and classified as stock-based compensation in the three months ended March 31, 2024. Further, directors’ fees previously paid in cash were instead paid in our stock. The actions surrounding cash bonuses, conversion of other cash compensation and directors’ fees as well as the first quarter performance in 2024 against annual operating plan targets resulted in a $94,000 increase in stock-based compensation in 2024 compared to 2023.

Legal, professional, and consulting fees increased by $42,000 (37%) as a result of legal spend in pursuit of our claim against the Manufacturer.

Other general and administrative expenses decreased by approximately $29,000 (-21%) due to a reduction in operating costs associated with the product withdrawal.

#### Net loss

We had net losses of approximately $449,000 and $889,000 for the three-month periods ended March 31, 2024 and 2023, respectively. The decrease in net loss of approximately $440,000, was the result of improved revenue and margins, and a reduction of approximately $125,000 in operating expenses due to cost-saving measures.

### Liquidity and Capital Resources

On June 1, 2021, we completed a private placement of 1,282,051 shares of its 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 the 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.

During the three months ended March 31, 2024, we used $769,000 in operations. Our net loss adjusted for non-cash operating expenses was essentially breakeven, while changes in non-cash current assets and liabilities consumed $760,000 primarily as a result of increased accounts receivable due to the $907,000 increase in revenue compared to the fourth quarter of 2023 and to a lesser extent due to timing of inventory purchases and resulting payments to vendors.

As of March 31, 2024, we had working capital of $1,981,000 compared with $1,846,000 at December 31, 2023. The increase in working capital is primarily due to capital raised in the three months ended March 31, 2024 through the sale 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 and reduce fixed overhead expense. Our current dispute with the Manufacturer and the resulting loss of product supply and legal expense continue to negatively impact our financial position, results of operations and cash flow. While the introduction of our carton packaging format 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 identified and are actively working to develop additional smoothie bottle manufacturing capacity. We expect expanded capacity to become available in 2024, subject to the risks and uncertainties associated with contracting and 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.

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 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.

## Controls and procedures

As filed, 2,490 characters.

### 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 March 31, 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.

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 mediation activities and controls in place as of March 31, 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.

Other than the remediation steps taken above, 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.

Filed May 15, 2024.
Source: SEC EDGAR, the filing index for accession 0001493152-24-019816. Last ingested by Listed: Nov 6, 2026, 16:42 ET. No prices; not investment advice.