BARFRESH FOOD GROUP INC. 10-K

Item 9A. Controls and Procedures. Management’s Annual Report on Internal Control over Financial Reporting 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 13a-15(e). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2021, due to inadequate segregation of duties. Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act, for the Company. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of its management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021. The framework used by management in making that assessment was the criteria set forth in the document entitled “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. 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 13a-15(e). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2021. Management has identified the following material weakness 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 addition, we note that a different person was identified as our principal financial officer in each of our last three annual reports on Form 10-K. This lack of continuity and institutional knowledge has also affected internal control over financial reporting. 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 recognizes that there are inherent limitations in the effectiveness of any system of internal control, and accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect material misstatements. In addition, effective internal control at a point in time may become ineffective in future periods because of changes in conditions or due to deterioration in the degree of compliance with our established policies and procedures. In an effort to remediate the identified material weakness and enhance our internal control over financial reporting, we plan to hire additional financial personnel to help ensure that we are able to properly implement internal control procedures. This report shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. Changes in Internal Control over Financial Reporting None Item 9B. Other Information. None Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. None 22 PART III Item 10. Directors, Executive Officers and Corporate Governance. Directors and Executive Officers The following sets forth information about our directors and executive officers as of the date of this Report: Name Age Position Riccardo Delle Coste 43 President, Chief Executive Officer and Chairman Lisa Roger 56 Chief Financial Officer Steven Lang 69 Director Arnold Tinter 76 Secretary and Director Joseph M. Cugine 61 Director Isabelle Ortiz-Cochet 60 Director Alexander H. Ware 59 Director Justin Borus 45 Director Riccardo Delle Coste has been the Chairman of our board of directors, President and Chief Executive Officer since January 10, 2012. He has also been the President and Chief Executive Officer of Barfresh Inc., a Nevada corporation and our wholly owned subsidiary (“Barfresh NV”), since its inception. Mr. Delle Coste is the inventor of the patented technology and the creator of Barfresh. Mr. Delle Coste developed a unique system using controlled pre-packaged portions to deliver a freshly made smoothie that is quick, cost efficient, healthy and with no waste. In building the business, he is responsible for securing new business and maintaining key client relationships. He is also responsible for the development of new product from testing to full-scale production, establishment of the manufacturing facilities that have all necessary accreditations, technology development, product improvement and research and development with new product launches. Mr. Delle Coste also has over five years of investment banking experience. Mr. Delle Coste attended Macquarie University, Sydney, Australia while studying for a Bachelor of Commerce for 3.5 years but left to pursue business interests before receiving a degree. Qualifications : Mr. Delle Coste has 18 years of experience within retail, hospitality and dairy manufacturing. Lisa Roger was appointed on January 4, 2022 to serve as our Chief Financial Officer effective January 17, 2022. Ms. Roger previously served as the EVP Corporate Controller at FreshRealm, a fresh meals solution provider that partners with retailers, from May 2021 to December 2021. From March 2014 to May 2021, she held various positions with Fox Factory Inc., most recently as the Vice President, Accounting and Tax. Fox Factory Inc. is a designer, manufacturer and marketer of products and systems used primarily on bikes, side-by-sides, off-road vehicles and trucks, ATVs, snowmobiles, specialty vehicles and applications, motorcycles, and commercial trucks. Ms. Roger holds a Bachelor of Arts degree in Economics and Business from University of California, Los Angeles and a Master of Business Administration degree from University of California, Los Angeles Anderson Graduate School of Management, and is a Certified Public Accountant in the State of California (inactive status). Steven Lang was appointed as Director of the Company on January 10, 2012. He has also served as Secretary of Barfresh NV since its inception. Prior to joining Barfresh NV, from 2003 to 2007, Mr. Lang was a director of Vericap Finance Limited, a company that specializes in providing advice to and investing in Australian companies with international growth potential. From 1990 to 1999, he served as a director of Babcock & Brown’s Australian operations where he was responsible for international structured finance transactions. Mr. Lang received a Bachelor of Commerce and a Bachelor of Laws from the University of New South Wales in 1976 and a Master of Laws from the University of Sydney in 1984. He has been a member of the Institute of Chartered Accountants in Australia and was licensed to practice foreign law in New York. Qualifications : Mr. Lang has over 40 years of experience in business, accounting, law and finance and served as Chairman of an Australian public company. 23 Arnold Tinter was appointed as Director, Chief Financial Officer and Secretary of the Company on January 10, 2012. Mr. Tinter resigned his position as Chief Financial Officer on May 18, 2015, and served temporarily as Principal Accounting Officer. Mr. Tinter founded Corporate Finance Group, Inc., a consulting firm located in Denver, Colorado, in 1992, and is its President. Corporate Finance Group, Inc., is involved in financial consulting in the areas of strategic planning, mergers and acquisitions and capital formation. He has been the chief financial officer and a director of other public companies In all of the companies his responsibilities included oversight of all accounting functions, including SEC reporting, strategic planning and capital formation. Since May 2015, he has served as chief financial officer of Bambu Franchising LLC, LLC, a privately held company that is a franchisor of Vietnamese-themed shoppes that serve drinks and desserts. Prior to 1990, Mr. Tinter was chief executive officer of Source Venture Capital, a holding company with investments in the gaming, printing and retail industries. Mr. Tinter received a B.S. degree in Accounting in 1967 from C.W. Post College, Long Island University, and is licensed as a Certified Public Accountant in Colorado. Qualifications: Mr. Tinter has over 45 years of experience as a Certified Public Accountant and a financial consultant. During his career he served as a director of numerous public companies. Joseph M. Cugine was appointed as Director of the Company on July 29, 2014, and served as president of our wholly owned subsidiary, Barfresh Corporation, Inc., from April 27, 2015, to July 13, 2021. Mr. Cugine is the owner and president of Cugine Foods and JC Restaurants, a franchisee of Taco Bell and Pizza Hut in New York. He is also president and owner of Restaurant Consulting Group LLC. Prior to owning and operating his own firms, Mr. Cugine held a series of leadership roles with PepsiCo, lastly as chief customer officer and senior vice president of PepsiCo’s Foodservice division. Mr. Cugine also serves on the board of directors of The Chef’s Warehouse, Inc., a publicly traded specialty food products distributor in the U.S., as well as Ridgefield Playhouse and R4 Technology. He received his B.S. degree from St. Joseph’s University in Philadelphia. Qualifications: Mr. Cugine’s career in sales, marketing, operations and supply chain spans more than 25 years. He has extensive industry contacts and proven experience leading and advising numerous successful food distribution companies. Isabelle Ortiz-Cochet was appointed as director of the Company on December 16, 2016. She is the Chief Investment Officer for Unibel, parent company of Bel Group. Bel is an international France-based group, a world leader in branded cheese business and fruit pouches, with brands such as Laughing Cow, Mini-Babybel, Boursin or GoGo Squeez. In that position since January 2016, Ms. Ortiz-Cochet drives Unibel diversification strategy, and leads the investment portfolio development. She was previously VP Strategic Development at Bel Group Form September 2013 to December 2015. From 2007 to 2013, based out of Bel’s New York office, Ms. Ortiz-Cochet led the development of long term strategies in North and South America, as well as Marketing strategy in the region. Prior to that position, she held a number of leadership positions in marketing and global strategy at Bel out of the Paris office, at French, European and corporate levels. Isabelle began her career with Kimberly Clark in France. Isabelle earned a master’s degree from ESSEC Business School in France, and an executive MBA from HEC Business School, France . Pursuant to the investor rights agreement between Barfresh and Unibel dated November 23, 2016, Unibel is entitled to appoint one director to the board of directors of Barfresh, which director is entitled to sit on each committee of the board of directors selected by the Unibel, unless Unibel has beneficial ownership of less than: (i) 75.0% of its Shares; and (ii) 5.0% of the company’s issued and outstanding common stock. Unibel has designated Isabelle Ortiz-Cochet as its board designee. Barfresh has agreed to call shareholder meetings whenever necessary to ensure Unibel’s designee is elected as a director. At any time that Unibel’s designee is not a director, Unibel’s designee will be entitled to be a board observer. Riccardo Delle Coste, Steven Lang and their respective affiliates have agreed to vote their shares in favor of Unibel’s designee. Alexander H. Ware was appointed as director of the company on July 13, 2016. Currently, Mr. Ware serves as advisor to Foodsby, Inc. From September 2018 to December 2021, Mr. Ware served as President of Foodsby, Inc., a fast-growing meal ordering platform for office buildings. Previously, he served as Interim President, Executive Vice President and Chief Financial Officer of Buffalo Wild Wings from October 2016 to 2018. From 2012 through 2016, Mr. Ware was Executive Chairman of MStar Holding Corporation (MicroStar), and had served as Interim Chief Executive Officer in 2013. Prior to MicroStar, he served as a Senior Advisor and previously as Executive Vice President of Strategic Development of Pohlad Companies, a family office, from 2010 to 2015. Starting in 1994, he served in increasing capacities at PepsiCo, then PepsiAmericas, Inc. culminating as Executive Vice President and Chief Financial Officer from 2005 to 2010. Previously, he was a Senior Associate at Booz Allen Hamilton, Inc. from 1990 to 1994. Mr. Ware received his Bachelor of Arts degree in Economics from Hampden-Sydney College and his Master of Business Administration from the Darden Graduate School of Business at University of Virginia. In addition to Barfresh, Mr. Ware currently serves on the board of MStar Holding Corporation and on the advisory board of Stonearch Capital. 24 Qualifications : Mr. Ware has specific and relevant industry experience in the production and marketing of beverages as well as the operations and management of restaurants. In addition, Mr. Ware has knowledge in the areas of strategic and financial planning, corporate development, personnel management, resource allocation and distribution. Justin Borus was appointed as a Director of the Company on April 29, 2020. Mr. Borus has approximately 20 years of capital markets expertise. He has been the Chief Investment Officer of Ibex Investors, LLC, a firm focused on niche, differentiated strategies including microcap companies for over 10 years. Prior to joining Ibex, he worked in both the private equity and investment banking groups at Bear, Stearns & Co. Inc. in New York and London. Mr. Borus has served on the Board of Directors of several non-profits including the Anti-Defamation League and Colorado Public Radio. Qualifications: Mr. Borus brings over 20 years of capital markets expertise. Term of Office Directors are appointed for a one-year term to hold office until the next annual general meeting of shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until the earlier of resignation or removal. Director Independence We use the definition of “independence” standards as defined in the NASDAQ Stock Market Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the Company or any other individual having a relationship, which, in the opinion of the Company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. We have determined that five of our seven directors are independent, which constitutes a majority. Board Committees We currently have an audit committee, a compensation committee and a nominating and governance committee. The members of the audit committee are Arnold Tinter, Steven Lang and Alexander Ware. The audit committee is primarily responsible for reviewing the services performed by our independent auditors and evaluating our accounting policies and our system of internal controls. Steven Lang, Arnold Tinter, and Alexander Ware are independent members of the audit committee, as defined below. The members of the compensation committee are Arnold Tinter and Justin Borus. The compensation committee is primarily responsible for reviewing and approving our salary and benefits policies (including stock options) and other compensation of our executive officers. The members of the nominating committee are Arnold Tinter, Steven Lang, and Isabelle Ortiz-Cochet. The nominating and governance committee is primarily responsible for overseeing corporate governance and for identifying, evaluating and recommending individuals to serve as directors of the Company. Legal Proceedings To the best of our knowledge, none of our executive officers or directors are parties to any material proceedings adverse to the Company, have any material interest adverse to the Company or have been subject to legal, administrative or judicial orders, proceedings or decrees required to be disclosed. Code of Ethics Our Chief Executive Officer and our Chief Financial Officer are bound by a Code of Ethics that complies with Item 406 of Regulation S-K of the Exchange Act. 25 Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires our directors and executive officers and beneficial holders of more than 10% of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of our equity securities. To our knowledge, based solely upon a review of Forms 3 and 4 and amendments thereto furnished to Barfresh under 17 CFR 240.16a-3(e) during our most recent fiscal year and Forms 5 and amendments thereto furnished to Barfresh with respect to our most recent fiscal year, we believe that during the fiscal year ended December 31, 2021 our directors, executive officers and persons who own more than 10% of our common stock complied with all Section 16(a) filing requirements with the exception of the following: ● Riccardo Delle Coste, late filing of Form 4 ● Joseph Cugine, late filing of Form 4 ● Isabelle Ortiz-Cochet, late filing of Form 4 ● Alexander H. Ware, late filing of Form 4 ● Steve Lang, late filing of Form 4 ● Unibel, late filing of Form 4 Each late filing reported one transaction unless otherwise indicated. None of our officers or directors submitted Form 5 filings. Item 11. Executive Compensation. The following table sets forth information about the remuneration of our principal executive officer for services rendered during our fiscal years ended December 31, 2021 and 2020, and our other executive officers that had total compensation of $100,000 or more for our last completed full fiscal year (the “Named Officers”). Certain tables and columns have been omitted as no information was required to be disclosed under those tables or columns. SUMMARY COMPENSATION TABLE Name and Principal Position Year Salary ($) Option awards ($) All other compensation ($) Total ($) Riccardo Delle Coste, 2021 397,031 (1) 75,960 (2) 10,800 (4) 483,791 Chief Executive Officer 2020 350,000 (1) 67,500 (3) 10,800 (4) 428,300 Raffi Loussararian, 2020 175,000 24,000 (6) -0- 199,000 Vice President Finance (5) (1) Of the salary earned in 2021, 397,031 was paid and none was deferred. In 2020, $213,648 was paid and $136,352 was deferred. (2) Represents a stock option grant of 19,233 option shares issued 4/27/21 with an exercise price of $5.72, which vests in equal increments on each of the first, second and third anniversaries of the grant date. (3) Represents a stock option grant of 19,231 option shares issued 04/27/2020 with an exercise price of $4.94, which vests in equal increments on each of the first, second and third anniversaries of the date of grant. (4) Represents the car allowance paid to Mr. Delle Coste. (5) Mr. Loussararian served as Vice President Finance from July 29, 2019 to January 6, 2021. (6) Represents a stock option grant of 11,539 shares issued 01/06/2020 with an exercise price of $4.81, which vests 3 years after the date of grant (cliff vesting). 26 Employment Agreements On April 27, 2015, Smoothie, Inc. entered into an executive employment agreement with Riccardo Delle Coste, its Chief Executive Officer and director. Mr. Delle Coste is also the Chief Executive Officer and Chairman of the Company. Pursuant to the employment agreement, he receives a base salary of $350,000 and performance bonuses of 75% of his base salary based on mutually agreed upon performance targets. In addition, Mr. Delle Coste receives up to an additional 38,462 performance options, on an annual basis. All options granted under the employment agreement are subject to the Company’s 2015 Equity Incentive Plan. The Company entered into an executive employment agreement with Raffi Loussararian on July 29, 2019, to which he agreed to serve as Vice President, Finance. Pursuant to the employment agreement, Mr. Loussararian received a base salary of $175,000 and performance bonuses of 25% of his base salary, based upon performance targets determined by the Board of Directors. In addition, Mr. Loussararian was granted 3-year options to purchase up to 11,539 shares of common stock of Barfresh. The option grant was to vest ratably on each anniversary of the date of commencement of Mr. Loussararian’s employment. All options granted under the employment agreement are subject to the Company’s 2015 Equity Incentive Plan. Mr. Loussararian left the Company in January 2021, thereby terminating his options. The following table sets forth information with respect to outstanding equity awards for the Named Officers: OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END Option Awards Name Number of securities underlying unexercised options (#) exercisable Number of securities underlying unexercised options (#) unexercisable Option exercise price ($) Option expiration date Riccardo Delle Coste 19,231 (1) 8.97 4/27/23 19,231 (1) 7.93 5/27/24 9,616 (1) 9.36 11/25/24 19,231 (1) 9.36 4/27/25 19,231 (1) 7.15 9/15/25 19,231 (1) 6.76 7/26/26 12,821 (2) 6,410 (2) 5.85 5/20/27 6,410 (2) 12,821 (2) 4.94 4/25/28 - 19,231 (2) 5.72 4/27/29 (1) Fully vested. (2) Vest ratably in equal increments on the first, second and third anniversary of the date of grant of the option. Compensation of Directors The following table summarizes the compensation paid to our directors that were not employees for the fiscal year ended December 31, 2021. A director who is a Company employee does not receive any compensation for service as a director. The compensation received by directors that are employees of the Company is shown above in the summary compensation table. We reimburse all directors for expenses incurred in their capacity as directors. 27 DIRECTOR COMPENSATION Name Fees earned or paid in cash ($) Stock awards ($) Option awards ($) Total ($) Arnold Tinter 50,000 -0- -0- 50,000 Steven Lang 50,000 -0- -0- 50,000 Isabelle Ortiz-Cochet -0- -0- 50,000 50,000 Alex Ware -0- 50,000 -0- 50,000 Justin Borus -0- -0- -0- -0- Joseph Cugine -0- 25,000 25,000 50,000 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information regarding our shares of common stock beneficially owned as of March 3, 2022, for (i) each shareholder known to be the beneficial owner of 5% or more of our outstanding shares of common stock, (ii) each named executive officer and director, and (iii) all executive officers and directors as a group. A person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options or warrants or otherwise. Unless otherwise indicated, voting and investment power relating to the shares shown in the table for our directors and executive officers is exercised solely by the beneficial owner or shared by the owner and the owner’s spouse or children. For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within 60 days of March 3, 2022. As of March 3, 2022, the Company had 12,917,246 shares of common stock outstanding. For purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons named above, any shares that such person or persons has the right to acquire within 60 days of March 31, 2022 is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership. Common Stock Name and address of beneficial owner (1) Amount and nature of beneficial ownership Percent of class o/s Riccardo Delle Coste (2) (3) (4) (5) 1,749,108 13.3 % Justin Borus (6) (7) (8) 1,744,183 13.2 % Steven Lang (9) (10) (11) (12) 1,613,651 12.4 % Joe Cugine (13) (14) (15) 309,735 2.4 % Arnold Tinter (16) 61,540 0.5 % Alexander Ware (17) (18) 59,459 0.5 % Isabelle Ortiz-Cochet 2 Allee De Longchamp Suresnes, France (19) (20) 53,356 0.4 % Lisa Roger (21) — — All directors and officers as a group (8 persons) 5,591,032 40.8 % Unibel, 2 Allee De Longchamp Suresnes, France 92150 (22) 1,630,148 12.5 % IBEX Investors LLC 260 N Josephine Street, Suite 300, Denver, CO 80206 (23) 1,249,444 9.6 % Bleichroeder LP 1345 Avenue of the Americas, 47th Floor, New York, NY 10105 (24) 725,287 5.6 % Brian L Pessin; Sandra F Pessin 370 Lexington Ave, Suite 704, New York, NY 10017 711,235 5.5 % 28 1 The address of those listed, except as noted is c/o Barfresh Food Group Inc., 3600 Wilshire Blvd., Suite 1720 Los Angeles CA 90010. 2 Mr. Delle Coste is the Chief Executive Officer, President and a Director of the Company. 3 Includes 1,501,880 shares owned by R.D. Capital Holdings PTY Ltd. and of which Riccardo Delle Coste is deemed to be a beneficial owner. 4 Includes 137,824 shares issuable under exercisable options granted. 5 Includes 6,223 shares underlying warrants issued in connection with promissory notes the holder of which is Riccardo Delle Coste or R.D. Capital Holdings PTY Ltd. and of which Riccardo Delle Coste is deemed to be a beneficial owner and 56,280 shares underlying warrants issued in connection with deferred compensation. 6 Mr. Borus is a Director of the Company. 7 Includes 1,110,982 shares owned by Ibex Microcap Fund LLLP, of which Justin Borus is the manager of the investment manager and general partner, respectively, and deemed to be a beneficial owner. 8 Includes 138,462 shares underlying warrants issued to Ibex Microcap Fund LLLP in connection with the purchase of common stock. 9 Mr. Lang is a Director of the Company. 10 Includes 1,471,323 shares owned by Sidra Pty Limited and 43,852 shares by Hodumo Pty Ltd of which Steven Lang is deemed to be a beneficial owner. 11 Includes 35,098 shares underlying options granted. 12 Includes 37,331 shares underlying warrants issued in connection with promissory notes the holder of which is Hodumo Pty Limited, of which Steven Lang is deemed to be a beneficial owner. 13 Mr. Cugine is a Director of the Company. 14 Includes 116,017 shares issuable under exercisable options granted. 15 Includes 27,944 shares underlying warrants issued in connection with purchase of common shares. 16 Mr. Tinter is the Secretary and a Director of the Company. 17 Mr. Ware is a Director of the Company. 18 Includes 57,959 shares owned by The Alexander Ware Revocable Trust of which Mr. Ware is deemed to be a beneficial owner. 19 Ms. Ortiz-Cochet is a Director of the Company 20 Includes 53,356 shares underlying options granted. 21 Ms. Roger is the Chief Financial Officer of the Company. 22 Includes 137,613 shares underlying warrants issued in connection with the conversion of a promissory note. 23 Includes 138,462 shares underlying warrants issued in connection with the purchase of common stock 24 Bleichroeder LP is deemed to be the beneficial owner of these shares as a result of acting as investment adviser to various clients. Clients of Bleichroeder have the right to receive and the ultimate power to direct the receipt of dividends from, or the proceeds of the sale of, such securities. 29 Item 13. Certain Relationships and Related Transactions, and Director Independence. Certain Relationships and Related Transactions The following includes a summary of transactions since the beginning of fiscal 2021 or any currently proposed transaction, in which we were or are to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years and in which any related person had or will have a direct or indirect material interest (other than compensation described under “Executive Compensation”). We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to or better than terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions. The Company’s policy with regard to related party transactions requires any related party loans that are (i) non-interest bearing and in excess of $100,000 or (ii) interest bearing, irrespective of amount, must be approved by the Company’s board of directors. All issuances of securities by the Company must be approved by the board of directors, irrespective of whether the recipient is a related party. Each of the foregoing transactions, if required by its terms, was approved in this manner. Director Independence We use the definition of “independence” standards as defined in the NASDAQ Stock Market Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the company or any other individual having a relationship, which, in the opinion of the Company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. We have determined as of December 31, 2021 that five of our seven directors are independent, which constitutes a majority. Item 14. Principal Accounting Fees and Services. Aggregate fees for professional services rendered to the Company by Eide Bailly LLP for the years ended December 31, 2021 and December 31, 2020 were as follows. 2021 2020 Audit fees $ 81,000 $ 73,032 Audit related fees - - Tax fees 8,100 6,300 All other fees - - Total $ 89,100 $ 79,332 As defined by the SEC, (i) “audit fees” are fees for professional services rendered by our principal accountant for the audit of our annual financial statements and review of financial statements included in our Form 10-K, or for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years; (ii) “audit-related fees” are fees for assurance and related services by our principal accountant that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “audit fees;” (iii) “tax fees” are fees for professional services rendered by our principal accountant for tax compliance, tax advice, and tax planning; and (iv) “all other fees” are fees for products and services provided by our principal accountant, other than the services reported under “audit fees,” “audit-related fees,” and “tax fees.” Audit Fees. The aggregate fees billed for the years ended December 31, 2021 and 2020 were for the audits of our financial statements and reviews of our interim financial statements included in our annual and quarterly reports. Audit Related Fees. Eide Bailly LLP did not provide us with audit related services for the years ended December 31, 2021 or December 31, 2020, that are not reported under Audit Fees. Tax Fees. The aggregate tax fees billed for the years end December 31, 2021 and 2020 related to the preparation of corporate income tax returns. All Other Fees. Eide Bailly LLP did not provide us with professional services related to “Other Fees” for the years ended December 31, 2021 or December 31, 2020. 30 Audit Committee Pre-Approval Policies and Procedures Under the SEC’s rules, an audit committee is required to pre-approve the audit and non-audit services performed by the independent registered public accounting firm in order to ensure that they do not impair the auditors’ independence. The SEC’s rules specify the types of non-audit services that an independent auditor may not provide to its audit client and establish the audit committee’s responsibility for administration of the engagement of the independent registered public accounting firm. The Company has established an Audit Committee. Accordingly, audit services and non-audit services described in this Item 14 were pre-approved by an Audit Committee. There were no hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees. PART IV Item 15. Exhibits and Financial Statements. (a) 1. Financial Statements See Index to Financial Statements in Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference. 2. Financial Statement Schedules All other financial statement schedules have been omitted because they are either not applicable or the required information is shown in the financial statements or notes thereto. 3. Exhibits See the Exhibit Index, which follows the signature page of this Annual Report on Form 10-K, which is incorporated herein by reference. (b) Exhibits See Item 15(a) (3) above. (c) Financial Statement Schedules See Item 15(a) (2) above. Item 16. Form 10-K Summary. None. 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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: March 10, 2022 By: /s/ Riccardo Delle Coste Riccardo Delle Coste Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Capacity Date /s/ Riccardo Delle Coste Chief Executive Officer and Director March 10, 2022 Riccardo Delle Coste (Principal Executive Officer /s/ Lisa Roger Chief Financial Officer March 10, 2022 Lisa Roger (Principal Financial Officer) /s/ Steven Lang Director March 10, 2022 Steven Lang /s/ Arnold Tinter Director March 10, 2022 Arnold Tinter /s/ Joseph M. Cugine Director March 10, 2022 Joseph M. Cugine /s/ Isabelle Ortiz-Cochet Director March 10, 2022 Isabelle Ortiz-Cochet /s/ Alexander H. Ware Director March 10, 2022 Alexander Ware /s/ Justin Borus Director March 10, 2022 Justin Borus 32 Exhibit Index Exhibit Number Description 3.1 Certificate of Incorporation of Moving Box Inc. dated February 25, 2010 (incorporated by reference to Exhibit 3.1 to Form S-1 (Registration No. 333-168738) as filed August 11, 2010) 3.2 Amended and Restated Bylaws of Barfresh Food Group Inc. (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K as filed August 4, 2014) 3.3 Certificate of Amendment of Certificate of Incorporation of Moving Box Inc. dated February 13, 2012 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K as filed February 17, 2012) 3.4 Certificate of Amendment of Certificate of Incorporation of Smoothie Holdings Inc. dated February 16, 2012 (incorporated by reference to Exhibit 3.2 to Current Report on Form 8-K as filed February 17, 2012) 3.5 Certificate of Amendment of Certificate of Incorporation of Barfresh Food Group Inc. dated December 17, 2021 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K as filed December 29, 2021) 4.1 Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934, as amended (incorporated by reference to Exhibit 4.20 to Annual Report on Form 10-K for the year ended December 31, 2019, as filed April 13, 2020) 4.2 Form of Series O Warrant (incorporated by reference to Exhibit 4.21 to Annual Report on Form 10-K for the year ended December 31, 2019, as filed April 13, 2020) 10.1 Barfresh Food Group, Inc. 2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.10 to Annual Report Form 10-K filed July 7, 2015)+ 10.2 Executive Employment Agreement by and between Smoothie, Inc. and Riccardo Delle Coste dated April 27, 2015 (incorporated by reference to Exhibit 10.11 to Annual Report Form 10-K filed July 7, 2015)+ 10.3 Form of Securities Purchase Agreement dated March 15, 2020 by and between Barfresh Food Group, Inc. and certain investors (incorporated by reference to Exhibit 10.14 to Annual Report on 10-K for the year ended December 31, 2019, filed April 13, 2020) 21.1 Subsidiaries (incorporated by reference to Exhibit 21.1 to Annual Report on Form 10-K for the year ended December 31, 2019, filed April 13 2020) 31.1 Rule 13a-14(a) Certification of Principal Executive Officer* 31.2 Rule 13a-14(a) Certification of Principal Financial Officer 32.1 Certification Pursuant to 18 U.S.C. Section 1350* 32.2 Certification Pursuant to 18 U.S.C. Section 1350 101.INS XBRL Instance. 101.XSD XBRL Schema. 101.PRE XBRL Presentation. 101.CAL XBRL Calculation. 101.DEF XBRL Definition. 101.LAB 104 XBRL Label. Cover Page Interactive Data File (embedded within the Inline XBRL document) * Filed herewith + Compensatory plan In accordance with SEC Release 33-8238, Exhibit 32.1 is being furnished and not filed. Furnished herewith. 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. 33 Barfresh Food Group Inc. Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm (Eide Bailly LLP, Denver, Colorado, PCAOB ID 286 ) F-2 Consolidated Balance Sheets as of December 31, 2021 and 2020 F-3 Consolidated Statements of Operations for the Years Ended December 31, 2021 and 2020 F-4 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2021 and 2020 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020 F-6 Notes to Consolidated Financial Statements F-7 F- 1 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders Barfresh Food Group, Inc. Los Angeles, California Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Barfresh Food Group, Inc. (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations , stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Barfresh Food Group, Inc. as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to Barfresh Food Group, Inc. in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Barfresh Food Group Inc. is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risk of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate. Debt and Equity Transactions As discussed in Notes 7, 8 and 10 to the consolidated financial statements, the Company has entered into debt and equity agreements which include stock-based compensation, debt modification and derivative liabilities. These agreements include transactions, including the issuance of stock options, that are required to be recorded at estimated fair value. These transactions resulted in recording of stock-based compensation expense of $91,959 and a loss on debt extinguishment of $193,562 for the year ended December 31, 2021, and the valuation of a derivative liability of $25,170 as of May 26, 2021. The Company’s determination of the estimated fair values involves the identification of related financial instruments and a clear understanding of the terms of the agreements. Auditing management’s estimates of fair value requires a high degree of auditor judgment and an increased extent of effort, including the need to carefully examine to understand the true nature of the related agreements. Our audit procedures related to determination of the estimated fair values of these debt and equity transactions included the following, among others: ● We obtained an understanding of management’s process and methodology to develop the estimates. ● We obtained an understanding of the internal controls relating to the methodology, reliability and accuracy of the information used in the calculation and management’s review and approval for the transactions. ● We examined signed contracts and amendments. ● We evaluated the reasonableness of the inputs and assumptions used by management in developing the estimates. ● We evaluated the adequacy of the disclosures related to these fair value measurements. /s/ Eide Bailly LLP We have served as Barfresh Food Group Inc.’s auditor since 2012. Denver, Colorado March 10, 2022 F- 2 Barfresh Food Group Inc. Consolidated Balance Sheets December 31, 2021 and 2020 2021 2020 Assets Current assets: Cash $ 5,532,840 $ 1,816,887 Restricted cash 142,382 142,382 Accounts receivable, net 1,222,476 425,029 Inventory, net 705,349 870,190 Prepaid expenses and other current assets 63,859 47,066 Total current assets 7,666,906 3,301,554 Property, plant and equipment, net of depreciation 1,588,043 1,922,912 Operating lease right-of-use assets, net 87,391 147,947 Intangible assets, net of amortization 370,278 430,216 Deposits 6,746 14,817 Total assets $ 9,719,364 $ 5,817,446 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 974,218 $ 353,045 Accrued expenses 228,227 298,489 Advance payment - 401,306 Accrued payroll and employee related 212,465 308,303 Accrued interest - 68,627 Lease liability 81,295 65,007 Loan payable - Paycheck Protection Program - 410,317 Convertible note, net of discount - 158,243 Derivative liabilities - 41,475 Total current liabilities 1,496,205 2,104,812 Long term liabilities: Accrued interest 33,600 127,664 Lease liability 13,701 94,170 Loan payable - Paycheck Protection Program - 157,814 Convertible note - related party, net of discount - 197,804 Convertible note, net of discount - 810,995 Total liabilities 1,543,506 3,493,259 Commitments and contingencies (Note 9) - Stockholders’ equity: Preferred stock, $ 0.000001 par value, 5,000,000 shares authorized, none issued or outstanding - - Common stock, $ 0.000001 par value; 295,000,000 shares authorized; 12,905,112 and 11,471,797 shares issued and outstanding at December 31, 2021 and 2020, respectively 13 12 Additional paid in capital 60,340,620 53,223,803 Accumulated deficit ( 52,164,775 ) ( 50,899,628 ) Total stockholders’ equity 8,175,858 2,324,187 Total liabilities and stockholders’ equity $ 9,719,364 $ 5,817,446 See the accompanying notes to the consolidated financial statements. F- 3 Barfresh Food Group Inc. Consolidated Statements of Operations For the years ended December 31, 2021 and 2020 2021 2020 Revenue $ 6,699,850 $ 2,567,547 Cost of revenue 4,175,132 1,784,537 Depreciation of manufacturing equipment 17,673 18,938 Gross profit 2,507,045 764,072 Operating expenses: General and administrative 3,979,702 4,379,976 Depreciation and Amortization 621,727 593,198 Total operating expenses 4,601,429 4,973,174 Operating loss ( 2,094,384 ) ( 4,209,102 ) Other (income)/expenses Gain from derivative liability ( 16,305 ) ( 156,540 ) Gain from debt extinguishment - Paycheck Protection Program ( 1,136,262 ) - Loss (gain) on debt extinguishment 193,562 ( 379,200 ) Interest 129,768 479,144 Total other income ( 829,237 ) ( 56,596 ) Net loss $ ( 1,265,147 ) $ ( 4,152,506 ) Per share information - basic and fully diluted: Weighted average shares outstanding 12,070,295 11,061,533 Net loss per share $ ( 0.10 ) $ ( 0.38 ) See the accompanying notes to the consolidated financial statements. F- 4 Barfresh Food Group, Inc. Statements of Stockholders’ Equity For the years ended December 31, 2021 and 2020 Shares Amount Capital (Deficit) Total Additional Common Stock paid in Accumulated Shares Amount Capital (Deficit) Total Balance January 1, 2020 10,026,287 $ 11 $ 47,030,836 $ ( 46,747,122 ) $ 283,725 Issuance of stock for capital raise, net of offering costs of $ 27,200 997,913 1 3,797,799 - 3,797,800 Conversion of debt 366,925 - 1,333,762 - 1,333,762 Interest paid in shares 50,358 - 392,789 - 392,789 Issuance of stock for services 20,966 - 130,000 - 130,000 Equity based compensation - - 276,641 - 276,641 Warrants issued to management - - 167,893 - 167,893 Warrant modification - - 18,899 - 18,899 Warrant issued for note extension - - 75,184 - 75,184 Restricted stock issuance 9,348 - - - - Net (loss) for the year - - - ( 4,152,506 ) ( 4,152,506 ) Balance December 31, 2020 11,471,797 $ 12 $ 53,223,803 $ ( 50,899,628 ) $ 2,324,187 Issuance of stock for capital raise 1,282,051 1 5,999,999 - 6,000,000 Conversion of debt and accrued interest 114,614 - 685,300 - 685,300 Interest paid in shares 19,377 - 151,138 - 151,138 Issuance of stock for services 17,273 - 188,421 - 188,421 Equity based compensation - - 91,959 - 91,959 Net (loss) for the year - - - ( 1,265,147 ) ( 1,265,147 ) Balance December 31, 2021 12,905,112 $ 13 $ 60,340,620 $ ( 52,164,775 ) $ 8,175,858 See the accompanying notes to the consolidated financial statements. F- 5 Barfresh Food Group Inc. Condensed Consolidated Statements of Cash Flows For the years ended December 31, 2021 and 2020 2021 2020 Net loss $ ( 1,265,147 ) $ ( 4,152,506 ) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 639,401 612,136 Interest expense related to debt discount 56,145 276,013 Stock-based compensation 91,959 276,641 Stock and options issued for services 188,421 130,000 Gain on debt extinguishment - Paycheck Protection Program ( 1,136,262 ) - Gain on derivative ( 16,305 ) ( 156,540 ) Loss (gain) on debt extinguishment 193,562 ( 379,200 ) Changes in assets and liabilities Accounts receivable ( 797,447 ) ( 140,361 ) Inventories 164,841 ( 240,700 ) Prepaid expenses and other assets ( 16,831 ) ( 51,791 ) Accounts payable 584,753 ( 272,022 ) Accrued expenses ( 219,245 ) 213,107 Advanced payments ( 401,306 ) 401,306 Accrued interest 71,828 214,917 Net cash used in operating activities ( 1,861,633 ) ( 3,269,000 ) Investing activities Purchase of property and equipment ( 150,545 ) ( 59,662 ) Net cash used in investing activities ( 150,545 ) ( 59,662 ) Financing activities Cash received for stock, net of offering costs 6,000,000 3,797,800 Proceeds from note payable 568,131 568,131 Repayment of convertible notes ( 840,000 ) ( 157,366 ) Debt issuance costs - ( 12,008 ) Net cash from financing activities 5,728,131 4,196,557 Net change in cash and restricted cash 3,715,953 867,895 Cash and restricted cash, beginning of year 1,959,269 1,091,374 Cash and restricted cash, end of year $ 5,675,222 $ 1,959,269 See the accompanying notes to the condensed consolidated financial statements. F- 6 Barfresh food Group Inc. Notes to Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies Barfresh Food Group Inc., (“we,” “us,” “our,” and the “Company”) was incorporated on February 25, 2010 in the State of Delaware. We are 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 consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Certain reclassifications have been made to the 2020 consolidated statement of cash flows to conform to the 2021 presentation. 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 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. Concentration of Credit Risk The amount of cash on deposit with financial institutions exceeds the $ 250,000 federally insured limit at December 31, 2021 and 2020. However, we believe that cash on deposit that exceeds $ 250,000 in the financial institutions is financially sound and the risk of loss is minimal. Restricted Cash At both December 31, 2021 and 2020, the Company had $ 142,382 in restricted cash related to our co-packing agreement. F- 7 Barfresh food Group Inc. Notes to Consolidated Financial Statements 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 of financial transmission rights. Our financial instruments consist of cash, accounts receivable, accounts payable, advanced payments, derivative liabilities, convertible notes, restricted cash, and Paycheck Protection Plan (“PPP”) loan payable. The carrying value of our financial instruments approximates their fair value, except for the derivative liability in which carrying value is fair value. Accounts Receivable Accounts receivable are typically unsecured. The Company’s credit policy calls for payment generally within 30 days. The credit worthiness of a customer is evaluated prior to a sale. As of December 31, 2021, and 2020, the Company’s allowance for doubtful accounts was $ 121,230 and $ 133,424 respectively. There was ($ 7,000 ) of bad debt recoveries recorded for the year ended December 31, 2021, and $ 133,424 of bad debt expense for the year ended December 31, 2020. The allowance was applied to certain receivable accounts which are over 95 days. Inventory Inventory consists of finished goods and is carried at the lower of cost or net realizable value on a first in first out basis. The Company monitors the remaining useful life of its inventory and establishes a reserve of obsolescence where appropriate. Intangible Assets Intangible assets are comprised of patents, net of amortization and trademarks. The patent costs are being amortized over the life of the patent, which is twenty years from the date of filing the patent application. In accordance with ASC Topic 350 Intangibles - Goodwill and Other (“ASC 350”), the costs of internally developing other intangible assets, such as patents, are expensed as incurred. However, as allowed by ASC 350, costs associated with the acquisition of patents from third parties, legal fees and similar costs relating to patents have been capitalized. In accordance with ASC 350 legal costs related to trademarks have been capitalized. We have determined that trademarks have an indeterminable life and therefore are not being amortized. Long-Lived Assets and Other Acquired Intangible Assets We evaluate the recoverability of property and equipment and finite-lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. The evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of property and equipment and intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value. We have not recorded any impairment charges during the years presented. F- 8 Barfresh food Group Inc. Notes to Consolidated Financial Statements Property, Plant, and Equipment Property, plant, and equipment is stated at cost less accumulated depreciation and accumulated impairment loss, if any. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are being amortized over the shorter of the useful life of the asset or the lease term that includes any expected renewal periods that are deemed to be reasonably assured. The estimated useful lives used for financial statement purposes are: Summary of Estimated Useful Lives of Assets Furniture and fixtures: 5 years Manufacturing equipment and customer equipment: 3 years to 7 years Vehicles: 5 years 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 volume-based rebates or discounts, are estimated utilizing the most likely amount method. 4) Allocate the transaction price to performance obligations in the contract Since our contracts contain a single performance obligation, delivery of frozen beverages, the transaction price is allocated to that single performance obligation. 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 company evaluated the requirement to disaggregate revenue and concluded that substantially all of its revenue comes from a single product, frozen beverages. F- 9 Barfresh food Group Inc. Notes to Consolidated Financial Statements Research and Development Expenditures for research activities relating to product development and improvement are charged to expense as incurred. We incurred $ 244,609 and $ 515,145 , in research and development expenses for the years ended December 31, 2021 and 2020, respectively. Shipping and Storage Costs Shipping and Storage costs are included in general and administrative expenses. For the years ended December 31, 2021 and 2020, shipping and handling costs totaled $ 1,054,182 and $ 488,465 , respectively. Leases We determine if an arrangement is a lease upon inception. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The right to control the use of an asset includes the right to obtain substantially all of the economic benefits of the underlying asset and the right to direct how and for what purpose the asset is used. After adoption of ASU 2016-02 and related standards, operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Lease expense is recognized on a straight-line basis over the lease term. As a lessee, the Company leases office space. Income Taxes The provision for income taxes is determined in accordance with the provisions of ASC Topic 740, Accounting for Income Taxes (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements, uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts. ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of evidence, it is more than likely than not that some portion or all of the deferred tax assets will not be recognized. For the years ended December 31, 2021 and 2020 we did not have any interest and penalties or any significant unrecognized uncertain tax positions. Derivative Liability The Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The result of this accounting treatment is that the fair value of any derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as gain/loss from derivative liability. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. We analyzed the derivative financial instruments in accordance with ASC 815. The objective is to provide guidance for determining whether an equity-linked financial instrument is indexed to an entity’s own stock. This determination is needed for a scope exception which would enable a derivative instrument to be accounted for under the accrual method. The classification of a non-derivative instrument that falls within the scope of ASC 815-40-05 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” also hinges on whether the instrument is indexed to an entity’s own stock. A non-derivative instrument that is not indexed to an entity’s own stock cannot be classified as equity and must be accounted for as a liability. There is a two-step approach in determining whether an instrument or embedded feature is indexed to an entity’s own stock. First, the instrument’s contingent exercise provisions, if any, must be evaluated, followed by an evaluation of the instrument’s settlement provisions. The Company utilized the fair value standard set forth by the Financial Accounting Standards Board, defined as the amount at which the assets (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale. F- 10 Barfresh food Group Inc. Notes to Consolidated Financial Statements Earnings per Share We calculate net loss per share in accordance with ASC Topic 260, Earnings per Share . Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period, and diluted earnings per share is computed by including common stock equivalents outstanding for the period in the denominator. At December 31, 2021 and 2020 any equivalents would have been anti-dilutive as we had losses for the years then ended. Debt Extinguishment The Company evaluates its convertible instruments in accordance with ASC 470-50, “Debt Modifications and Extinguishments.” For all extinguishments of debt, ASC 470-50 requires the difference between the reacquisition price (including any premium) and the net carrying amount of the debt being extinguished (including any deferred debt issuance costs) to be recognized as a gain or loss when the debt is extinguished. Accordingly, the Company recorded a net loss of $ 193,562 and net gain of $ 379,200 , respectively, non-cash gain/loss on extinguishment of debt in its statements of operations for the years ended December 31, 2021 and 2020, respectively. Stock Based Compensation We calculate stock compensation in accordance with ASC Topic 718, Compensation-Stock Based Compensation (“ASC 718”). ASC 718 requires that the cost resulting from all share-based payment transactions be recognized in the financial statements and establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based measurement method in accounting for share-based payment transactions with employees. 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. Subsequent events None. Note 2. Inventory Inventory consists of the following at December 31: Schedule of Inventory 2021 2020 Raw materials $ 105,355 $ 130,296 Finished goods 599,994 739,894 Inventory, net $ 705,349 $ 870,190 F- 11 Barfresh food Group Inc. Notes to Consolidated Financial Statements Note 3. Property Plant and Equipment Major classes of property and equipment at December 31, 2021 and 2020 consist of the following: Schedule of Major Classes of Property and Equipment 2021 2020 Furniture and fixtures $ 1,524 $ 1,524 Manufacturing equipment and customer equipment 3,800,238 3,573,528 Leasehold improvements 4,886 4,886 Vehicles 29,696 29,696 3,836,344 3,609,633 Less: accumulated depreciation ( 2,894,632 ) ( 2,331,034 ) 941,712 1,278,600 Equipment not yet placed in service 646,331 644,313 Property and equipment, net of depreciation $ 1,588,043 $ 1,922,912 We recorded depreciation expense related to these assets of $ 557,306 and $ 529,385 for the years ended December 31, 2021 and 2020, respectively. Depreciation expense in cost of goods sold was $ 17,673 and $ 18,938 for the years ended December 31, 2021 and 2020 respectively. Note 4. Intangible Assets As of December 31, 2021, intangible assets consist of patent costs of $ 768,138 , trademarks of $ 124,395 and accumulated amortization of $ 522,255 . As of December 31, 2020, intangible assets consist of patent costs of $ 768,138 , trademarks of $ 119,911 and accumulated amortization of $ 457,833 . The amounts carried on the balance sheet represent cost to acquire, legal fees and similar costs relating to the patents incurred by the Company. Amortization is calculated through the expiration date of the patent. The amount charged to expenses for amortization of the patent costs was $ 64,422 and $ 63,813 for the years ended December 31, 2021 and 2020, respectively. Estimated future amortization expense related to patents as of December 31, 2021, is as follows: Schedule of Estimated Future Amortization Expense Related to Intangible Property Total Amortization Years ending December 31, 2022 $ 64,422 2023 64,422 2024 64,249 2025 48,640 2026 4,150 Intangible asset, net of amortization $ 245,883 Note 5. Related Parties Members of management and directors invested in the Company’s convertible notes (Note 7). Additionally, members of management and directors have received shares of stock and options in exchange for services (Note 10). F- 12 Barfresh food Group Inc. Notes to Consolidated Financial Statements Note 6. Paycheck Protection Program (PPP) Loan The PPP was established to provide federally guaranteed, uncollateralized loans to assist businesses during the Covid-10 pandemic. PPP loans are administered by a Small Business Administration (SBA) approved partners. On May 7, 2020 the Company was granted a $ 568,131 loan which was to mature in two years . On January 27, 2021, the Company was granted a second $ 568,131 loan which was to mature in five years . The Company was eligible for loan forgiveness of up to 100 % of the loans, upon meeting certain requirements. On May 20, 2021 and December 22, 2021, respectively, the loans were legally released and forgiven by the SBA. Loan forgiveness income of $ 1,136,262 has been recorded for the year ended December 31, 2021. Note 7. Convertible Notes (Related and Unrelated Party) In 2018, the Company issued Milestone I and Milestone II Convertible Notes. On March 20, 2020, the Company obtained a 24-month extension on $ 1,071,000 in principal, and conversion of $ 720,000 of principal of the Milestone I Convertible Notes at a conversion price of $ 6.50 per share. The remaining $ 110,166 was extended for thirty days. The interest rate on the principal balance of the extended Milestone I Convertible Notes was amended to 15 %. Furthermore, the Company obtained a 12-month extension on $ 168,000 in principal, and conversion of $ 1,128,000 in principal of the Milestone II Convertible Notes. The Convertible Noteholders of the Milestone I and II Convertible Notes were granted additional interest depending upon their election to convert or extend their Convertible Notes. The Company accounted for the modification in accordance with ASC 470-50, Modifications and Extinguishments (“ASC 470-50”), which states that for all extinguishments of debt, the difference between the reacquisition price (including any premium) and the net carrying amount of the debt being extinguished (including any deferred debt issuance costs) should be recognized as a gain or loss when the debt is extinguished. Accordingly, the Company recorded a net gain on extinguishment of debt of $ 379,200 which was comprised of a gain of $ 437,201 related to notes that were converted to 366,925 shares of common stock and a loss of $ 58,001 related to convertible notes that were extended by either 24 months for Milestone I Convertible Notes, or 12 months for Milestone II Convertible Notes. During the year ended December 31, 2021, the Company settled the remaining Milestone I Convertible Notes by issuing 89,173 shares of common stock in exchange for $ 231,000 ($ 30,000 related party) and $ 192,663 ($ 37,689 related party) in principal and interest, respectively, and repaying $ 840,000 ($ 180,000 related party) in cash. Additionally, the Company settled the remaining amounts due under Milestone II Convertible Notes by issuing 44,818 shares of common stock in exchange for $ 168,000 and $ 41,747 of principal and interest, respectively. In accordance with ASC 470-50, the Company recorded a loss of $ 193,562 upon extinguishment of the Milestone I and Milestone II Convertible Notes. Convertible note balances outstanding consisted of the following components: Schedule of Convertible Notes December 31, December 31, 2021 2020 Convertible notes, net - 1,167,042 Less: current portion convertible notes, net - ( 158,243 ) Less: related party convertible notes, net - ( 197,804 ) Long term convertible notes, net $ - $ 810,995 Milestone I Convertible Notes, net of unamortized discount of $ 60,097 at December 31, 2020 $ - $ 1,010,904 Milestone II Convertible Notes, net of unamortized discount of $ 11,862 at December 31, 2020 - 156,138 Convertible notes, net - 1,167,042 Less: current portion convertible notes, net - ( 158,243 ) Less: related party convertible notes, net - ( 197,804 ) Long term convertible notes, net $ - $ 810,995 F- 13 Barfresh food Group Inc. Notes to Consolidated Financial Statements Note 8. Derivative Liabilities Milestone II Convertible Notes (Note 7) 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 derivative liability in the accompanying consolidated balance sheets and the change in value was recorded as a gain or loss in the accompanying consolidated statements of operations. On May 26, 2021, the Milestone II Convertible Notes were settled. Upon extinguishment, the derivative liability was revalued to $ 25,170 , which resulted in a gain of $ 16,305 for the year ended December 31, 2021. The fair value of the derivative liabilities for Milestone II Convertible Notes was calculated using the Black-Scholes model using the following assumptions: Schedule of Fair Value of the Derivative Liability 26-May-21 31-Dec-20 Expected life 0.46 0.92 Volatility (based on comparable company) 101.32 % 120.38 % Risk Free interest rate 0.04 % 0.1 % Dividend yield (on common stock) - - The following table provides a reconciliation of the beginning and ending balances for the Company’s derivative liabilities measured at fair value on a recurring basis using Level 3 inputs: Schedule of Derivative Liability Measured at Fair Value on a Recurring Basis December 31, 2019 $ 211,028 Initial derivative value - March 20, 2020 13,527 Extinguishment of derivative upon debt conversion and extension ( 26,540 ) Net gain from change in fair value ( 156,540 ) December 31, 2020 41,475 Extinguishment of derivative upon debt settlement ( 25,170 ) Net gain from change in fair value ( 16,305 ) December 31, 2021 $ - The following table presents the Company’s fair value hierarchy for applicable assets and liabilities measured at fair value as of December 31, 2021 and December 31, 2020: Schedule of Fair Value Hierarchy of Assets and Liabilities Level 1 Level 2 Level 3 Total Derivative Liability December 31, 2021 $ - - - $ - Level 1 Level 2 Level 3 Total Derivative Liability December 31, 2020 $ - - 41,475 $ 41,475 Note 9. Commitments and Contingencies We lease office space under a non-cancelable operating lease which expires on March 31, 2023 . We incurred lease expense of $ 79,267 and $ 82,194 for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, our right of use asset and related liability was $ 87,391 and $ 94,996 , respectively. F- 14 Barfresh food Group Inc. Notes to Consolidated Financial Statements In determining the present value of our operating lease right-of-use asset and liability, we used a 10 % discount rate (which approximates our borrowing rate). The remaining term on the lease is 1.25 years. The following table presents the future operating lease payment as of December 31, 2021: Schedule of Estimate Future Maturities of Lease Liabilities 2022 $ 80,361 2023 20,238 Total lease payments $ 100,599 Less:imputed interest ( 5,603 ) Total lease liability $ 94,996 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. Note 10. Stockholders’ Equity During the year ended December 31, 2020, the Company completed a funding, including a Private Placement Offering for common shares priced at $ 6.50 per share (subject to adjustment) in the amount of $ 3,825,000 and the issuance of 588,462 shares. The investors of this Private Placement Offering were granted 294,231 O warrants, exercisable for a period of 3 years at an exercise price of $ 7.80 per share (subject to adjustment). If the volume-weighted average trading price for the 20 consecutive trading days that conclude upon 6 months after the initial closing (the “Six Month Price”) exceeds or equals $6.50 per share (the “Target Price”), the per share purchase price will not be adjusted. If the Six Month Price is less than the Target Price, the per share purchase price will be automatically reduced to the Six Month Price, but in no event less than $4.55 per share, in which case the Company shall issue to each investor, pro-rata based on such investor’s investment: (a) shares in a quantity that equals the difference between the number of shares issued to such purchaser at closing and the number of shares that would have been issued to such purchaser at closing at the Six Month Price; and (b) a warrant for 0.50 shares for each additional share issued, with an exercise price equal to the sum of $1.30 per share and the Six Month Price, but in no event less than $5.85 per share. On September 28, 2020, the Company issued 409,451 additional shares in accordance with provisions of the Private Placement Offering and an additional 204,726 warrants exercisable at $ 5.85 per share. In 2020, the Company issued 366,925 shares of common stock in exchange for convertible notes and 35,308 warrants to convertible noteholders that extended the term of their convertible notes (Note 7). In 2020, the Company, at its option, issued 50,358 shares of common stock to pay interest due of $ 392,789 . In 2020, the Company issued 20,966 shares of common stock, valued between $ 3.25 - $ 6.50 per share, for services rendered. In 2020, the Company settled deferred executive compensation liabilities with the issuance of 121,076 warrants exercisable at $ 3.51 per share. The fair value of the warrants totaled $ 251,837 , resulting in $ 83,945 of additional stock-based compensation. On June 1, 2021, the Company 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 2021, holders of debt converted a total of $ 399,000 in principal and $ 234,410 in interest into 133,991 shares of common stock, and debt in the amount of $ 840,000 was retired (Note 7). F- 15 Barfresh food Group Inc. Notes to Consolidated Financial Statements In 2021, the Company issued 17,273 shares of common stock, valued between $ 4.94 - $ 10.15 per share, for services rendered. In 2021, the Company issued a warrant to purchase 10,550 shares of common stock at exercise prices ranging from $ 3.25 - $ 5.46 (weighted average $ 4.15 ) in exchange for services rendered. Warrants The following is a summary of changes in warrants outstanding for the years ended December 31, 2021 and 2020: Summary of Changes in Warrants Outstanding Number of warrants Outstanding at December 31,2019 2,014,694 Issued 655,763 Expired ( 466,154 ) Outstanding at December 31, 2020 2,204,303 Issued 10,550 Expired ( 927,449 ) Outstanding at December 31, 2021 1,287,404 The following is a summary of all outstanding warrants as of December 31, 2021: Summary of Outstanding Warrants Warrant issuance event Number of warrants Weighted average exercise price Exercise price per share Remaining term in years Intrinsic value at date of grant Private placements of common stock 818,683 $ 7.65 $ 6.89 - 7.80 1.28 $ - Private placement of notes 214,356 $ 8.39 $ 7.80 - 9.10 0.76 $ - Settlement of deferred compensation 243,815 $ 6.32 $ 3.51 - 9.10 2.74 $ - Settlement of services 10,550 $ 4.15 $ 3.12 - 5.46 0.62 $ - 1,287,404 $ 7.49 $ 3.12 - 9.10 1.47 $ - Equity Incentive Plan Under the 2015 Equity Incentive Plan (the “2015 Plan”), the Company has reserved 1,153,846 shares for equity incentive awards for issuance to employees, members of the board of directors and other service providers. Awards may take the form of options, restricted stock, restricted stock units, performance shares and stock appreciation rights. The Company has only issued options with no intrinsic value through December 31, 2021, and issues new shares upon exercise of options. As of December 31, 2021, there were 435,750 shares available for the issuance of awards under the 2015 Plan. F- 16 Barfresh food Group Inc. Notes to Consolidated Financial Statements The following summarizes activity related to stock options for the years ended December 31, 2021 and 2020: Summary of Stock Options Activity Number of Options Exercise price per share Remaining term in years Outstanding January 1, 2020 554,076 $ 5.20 - $ 11.31 4.6 Issued 82,258 $ 4.42 - $ 5.72 Cancelled/expired ( 48,109 ) Outstanding on December 31, 2020 588,225 $ 4.42 - $ 11.31 3.5 Issued 58,113 $ 4.94 - $ 6.37 Cancelled/expired ( 44,187 ) Outstanding on December 31, 2021 602,151 $ 4.42 - $ 11.31 3.8 Exercisable, December 31, 2021 513,416 $ 4.42 - $ 11.31 3.3 Stock-Based Compensation The fair value of the options issued was calculated using the Black-Sholes option pricing model, based on the criteria shown below: Summary of Fair Value of Options Using Black-Sholes Option Pricing Model 2021 2020 Expected term (in years) 5.5 - 8.0 5.5 - 8.0 Expected volatility 85.0 % - 89.4 % 73.4 % - 75.8 % Risk-free interest rate 0.7 % - 1.3 % 0.3 % - 1.6 % Expected dividends $ - $ - Weighted average grant date fair value per share $ 4.04 $ 2.65 The total amount of equity-based compensation included in general and administrative expense in the accompanying consolidated statements of operations was $ 91,959 and $ 276,641 for the years ended December 31, 2021 and 2020. As of December 31, 2021, the Company has $ 148,398 of total unrecognized share-based compensation expense related to unvested options, which is expected to be amortized over the remaining weighted average period of 1.5 years. Note 11. Income Taxes Income tax provision (benefit) for the years ended December 31, 2021 and 2020 is summarized below: Summary of Income Tax Provision (Benefit) 2021 2020 Current: Federal $ - $ - State - - Total - - Deferred: Federal ( 1,001,707 ) ( 715,000 ) State ( 322,293 ) ( 235,000 ) Change in valuation allowance 1,324,000 950,000 Total - - Provision for income taxes $ - $ - F- 17 Barfresh food Group Inc. Notes to Consolidated Financial Statements The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate before provision for income taxes. The sources and tax effect of the differences are as follows: Summary of Statutory Federal Income Tax Rate Before Provision for Income Taxes 2021 2020 Statutory federal income tax rate 21 % 21 % State tax 7 % 7 % Permanent differences ( 15 )% ( 3 )% Change in valuation allowance ( 13 )% ( 25 )% Total Income tax - % - % Components of the net deferred income tax assets at December 31, 2021 and 2020 were as follows: Schedule of Components of Net Deferred Income Tax Assets 2021 2020 Net operating loss carryover $ 12,669,000 $ 11,345,000 Valuation allowance ( 12,669,000 ) ( 11,345,000 ) Deferred Tax Assets, Net $ - $ - ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of evidence, it is more than likely than not that some portion or all of the deferred tax assets will not be recognized. After consideration of all the evidence, both positive and negative, management has determined that a $ 12,669,000 and $ 11,345,000 allowance at December 31, 2021 and 2020, respectively, is necessary to reduce the deferred tax assets to the amount that will more likely than not be realized. The increase in the valuation allowance for the current period is $ 1,324,000 resulting for current year tax losses, including the 2021 loss adjusted for the PPP loan forgiveness and the true up of prior year net operating loss carryforwards. As of December 31, 2021, the Company has a net operating loss carry forward to offset future taxable income of approximately $ 45,272,000 , $ 28,482,000 of which begins to expire in 2033. Net operating loss carry forwards of $ 16,790,000 may be carried forward indefinitely. Note 12. Business Segments and Customer Concentrations The Company operates in one business segment. Sales to the following customers represented more than 10% of total sales for the years ended December 31, 2021 and 2020: Schedule of Revenue by Major Customers by Reporting Segments 2021 2020 Customer A 21 % 21 % Customer B 20 % 32 % Customer C 9 % 11 % F- 18 Barfresh food Group Inc. Notes to Consolidated Financial Statements Note 13. Supplemental Cash Flow Information Supplemental cash flow information for the years ended December 31, 2021 and 2020 is as follows: Schedule of Cash Flow Supplemental Information 2021 2020 Cash paid during the period for: Cash paid for amounts included in the measurement of lease liabilities $ 78,020 $ 75,748 Non-cash financing and investing activities: Net carrying value of convertible notes and accrued interest settled through issuance of stock (debt extinguishment) $ 466,658 $ 1,770,963 Accrued interest settled through issuance of stock $ 151,138 $ 392,789 Deferred compensation settled through issuance of warrants $ - $ 167,893 Debt discount warrant and derivative liability $ - $ 107,611 Extinguishment of derivative liability $ 25,170 $ - Equipment included in accounts payable and accrued liability $ 89,565 $ - F- 19