BARFRESH FOOD GROUP INC. 10-K

Item 1. Business. Business Overview Barfresh is a leader in the creation, manufacturing and distribution of ready to blend frozen beverages. The current portfolio of products includes smoothies, shakes and frappes. Products are packaged in four distinct formats. The Company’s original single serve format features portion controlled and ready to blend beverage ingredient packs or “beverage packs”. The beverage packs contain all of the solid ingredients necessary to make the beverage, including the base (either sorbet, frozen yogurt or ice cream), real fruit pieces, juices and ice – five ounces of water are added before blending. The Company’s bulk “Easy Pour” format also contains all of the solid ingredients necessary to make the beverage, packaged in gallon containers in a concentrated formula that is mixed “one to one” with water. The Company has a “no sugar added” version of the bulk “Easy Pour” format that is specifically targeted for the USDA national school meal program, including the School Breakfast Program, the National School Lunch Program, and Smart Snacks in Schools Program. The Company is currently in contract to sell its bulk Easy Pour products into over three hundred schools. In addition, the Company received approval from the United States Defense Logistics Agency (“DLA”) to sell its smoothie products into all branches of the U.S. Armed Forces, and is currently in contract with and selling its bulk Easy Pour products into over one hundred military bases in the United States and abroad. The Company’s new WHIRLZ 100% Juice Concentrates. The new 5:1 juice concentrates will initially target elementary and secondary schools and are a perfect complement to the company’s current existing 1:1 bulk Easy Pour products used in beverage dispensing equipment. The 100% juice concentrates offer a more affordably priced product that responds to the need of the schools to have a wider range of options at various price points. The products are USDA Reimbursable, Smart Snack Compliant for schools in the United States, a good source of Vitamin C, contain no added sugars and come in fun, great-tasting flavors. WHIRLZ 100% Juice Concentrates will come in the following 10 exciting flavors: Mango (a first to market flavor), Fruit Punch, Pink Lemonade, Cherry Limeade, Coco Breeze, Blue Raspberry, Green Watermelon, Cherry, Sour Apple, and Strawberry Kiwi. The Company’s new ready-to-drink bottled smoothie, “Twist & Go”™, which will initially be focused towards the school system channel. This sweet fruit and creamy yogurt smoothie contains four ounces of yogurt and a half-cup of fruit/fruit juice and comes in two different flavors: strawberry banana and peach. “Twist & Go”™ contains no added sugars, no preservatives, artificial flavors or colors. At only 125 -130 calories and with 5 grams of protein, they make the perfect start to any day or on-the-go snack. Domestic and international patents and patents pending are owned by Barfresh, as well as related trademarks for all of the single serve products. Patent rights have been granted in 13 jurisdictions including the United States. In addition, the Company has purchased all of the trademarks related to the patented products. The Company conducts sales through several channels, including National Accounts, Regional Accounts, and Broadline Distributors. Barfresh’s primary broadline distribution arrangement is through an exclusive nationwide agreement with Sysco Corporation (“Sysco”), the U.S.’s largest broadline distributor, which was entered into in July 2014. Pursuant to that agreement, all Barfresh products are included in Sysco’s national core selection of beverage items, making Barfresh its exclusive single-serve, pre-portioned beverage provider. The agreement is mutually exclusive; however, Barfresh may also sell the products to other foodservice distributors, but only to the extent required for such foodservice distributors to service multi-unit chain operators with at least 20 units and where Sysco is not such multi- unit chain operator’s nominated distributor for our products. On October 2, 2019, the exclusive distribution agreement with Sysco expired, opening the possibility to expand distribution with other distributors outside of the Sysco system. 4 During 2016 and 2017 the Company announced that it had signed supply agreements with several of the major global on-site foodservice operators. On March 8, 2018, the Company announced that it had signed a new supply agreement with one of the largest of these foodservice operators, for exclusive distribution of four of Barfresh’s single serve SKUs. On November 14, 2018, the Company announced that it had received approval for multiple products to be rolled out to a national restaurant chain with over 2,500 locations. On October 26, 2015, Barfresh signed a five year agreement with PepsiCo North America Beverages, a division of PepsiCo, to become its exclusive sales representative within the food service channel to present Barfresh’s line of ready-to-blend smoothies and frozen beverages throughout the United States and Canada. Through this agreement, Barfresh’ products are included as part of PepsiCo’s offerings to its significant customer base. The agreement facilitates access to potential National customer accounts, through introductions provided by PepsiCo’s one-thousand plus person foodservice sales team. Barfresh products have become part of PepsiCo’s customer presentations at national trade shows and similar venues. On May 30, 2019, the Company amended its agreement with Pepsi which included a reduction in the commission fee and a clause which allows either party the right to terminate the agreement upon 90 days written notice. Neither party has exercised its right to terminate the agreement. Barfresh utilizes contract manufacturers to manufacture all of its products in the United States. Our corporate office is located at 3600 Wilshire Boulevard Suite 1720, Los Angeles, 90010. Our telephone number is (310) 598-7113 and our website is www.barfresh.com. Corporate History and Background The Company, which was incorporated in Delaware on February 25, 2010, was originally formed to produce movies. As the result of a reverse merger transaction in 2012, the Company is now engaged in the manufacturing and distribution of ready to blend frozen beverages, including smoothies, shakes and frappes. We have two direct subsidiaries: Barfresh Corporation, Inc. (formerly known as Smoothie, Inc.) and Barfresh, Inc. Products The Company’s products are made in four formats. The first is in portion controlled single serving beverage ingredient packs, suitable for smoothies, shakes and frappes that can also be utilized for cocktails and mocktails. These packs contain all of the ingredients necessary to make a smoothie, shake or frappe, including the ice. Simply add water, empty the packet into a blender, blend and serve. The second format is the bulk “Easy Pour” format. The Company’s bulk “Easy Pour” format also contains all of the solid ingredients necessary to make the beverage, packaged in gallon containers in a concentrated formula that is mixed “one to one” with water. The third format is the Company’s new WHIRLZ 100% Juice Concentrates. These new 5:1 juice concentrates are a perfect complement to the company’s current existing 1:1 bulk Easy Pour products used in beverage dispensing equipment. The fourth format is the Company’s new ready-to-drink bottled smoothie, “Twist & Go”™, This sweet fruit and creamy yogurt smoothie contains four ounces of yogurt and a half-cup of fruit/fruit juice and comes in two different flavors. 5 6 The following flavors are available as part of our standard portfolio of single serve products: The following flavors are available as part of our standard portfolio of bulk products: 7 Some of the key benefits of the products for the end consumers that drink the products include: ● From as little as 125-130 calories (per serving) ● Real fruit in every smoothie ● Dairy free options ● Kosher approved ● Gluten Free Customer Marketing Material A wide range of consumer marketing materials has been created to assist customers in selling blended beverages. Research and Development The Company incurred research and development expenses for the year ended December 31, 2020 in the amount of $515,145 and for the year ended December 31, 2019 in the amount of $538,391. The decrease in Research and Development expenses was primarily attributable to reduced activity in creating unique flavors for potential customers in our national account pipeline. 8 Competition There is significant competition in the smoothie market at both the consumer purchasing level and also the product level. The competition at the consumer level is primarily between specialized juice bars (e.g. Jamba Juice) and major fast casual and fast food restaurant chains (such as McDonalds). Barfresh does not compete specifically at this level but intends to supply its product to customers that fall within these segments to enable them to compete for consumer demand. There may also be new entrants to the smoothie market that may alter the current competitor landscape. The existing competition from a product perspective can be separated into three categories: ● Specialized juice bar products: The product is made in-store and each ingredient is added separately. ● Syrup based products: The fruit puree is supplied in bulk and not portion controlled for each smoothie. These types of products still require the addition of juice, milk or water and/or yogurt and ice. While there are a number of competitors for this style of product, the two dominant competitors are Island Oasis and Minute Maid. ● Portion pack products: These products contain only the fruit and yogurt and require the addition of juice or milk and ice. The dominant competitor is General Mills’ Yoplait Smoothies. The Company believes that its single serve products afford a very significant competitive advantage based on ease of use, portion control, premium quality, and minimal capital investment required to enable a customer to begin to carry Barfresh beverage products. The Company also believes that its bulk “Easy Pour” product represents an attractive alternative delivery method for customers that serve high volume locations, where speed of service over extended periods is a critical requirement. The Company has recently launched a “no sugar added” version of the bulk “Easy Pour” format, WHIRLZ 100% Juice Concentrates as well as Twist & Go a new ready to drink smoothie that is specifically targeted for the USDA national school meal program, including the School Breakfast Program, the National School Lunch Program, and Smart Snacks in Schools Program. Intellectual Property Barfresh owns the domestic and intellectual property rights to its products’ sealed pack of ingredients used in its single serve products. In November 2011, the Company acquired patent applications filed in the United States (Patent Application number 11/660415) and Canada (Patent Application number 2577163) from certain related parties. The United States patent was originally filed on December 4, 2007 and it was granted during August of 2017. The Canadian patent was originally filed on August 16, 2005 and it was granted on May 27, 2014. On October 15, 2013, the Company acquired all of the related international patent rights, which were filed pursuant to the Patent Cooperation Treaty, have been granted in 13 jurisdictions and are pending in the remainder of the jurisdictions that have signed the PCT. In addition, the Company purchased all of the trademarks related to the patented products. Governmental Approval and Regulation The Company is not aware of the need for any governmental approvals of its products. The Company utilizes contract manufacturers. Before entering into any manufacturing contracts, the Company determines that the manufacturer meets all government requirements. 9 Environmental Laws The Company does not believe that it will be subject to any environmental laws, either state or federal. Any laws concerning manufacturing will be the responsibility of the contract manufacturer. Employees As of March 15, 2021, the Company has 12 employees and 3 consultants.