What changed in this filing

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Item 1. Financial Statements

2024-10-24 compared with 2024-08-14 · 150 added, 115 removed, 296 unchanged (47% of the section changed)

Financial Statements.

Barfresh Food Group Inc.

Condensed Consolidated Balance Sheets

Food Group Inc.

Consolidated Balance Sheets

September 30,

Current assets:

9 unchanged sentences

Current liabilities:

Line of credit, net

Accounts payable

2 unchanged sentences

Accrued payroll and employee related

Financing agreements - current

Total current liabilities

Other non-current liabilities

Financing agreements

Total liabilities

4 unchanged sentences

23,000,000 shares authorized;

14,723,906 and 14,420,105 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively

14,746,172 and 14,420,105 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively

Additional paid in capital

5 unchanged sentences

the accompanying notes to the condensed consolidated financial statements

Barfresh Food Group Inc.

Condensed Consolidated Statements of Operations

For the three and six months ended June 30, 2024 and 2023

For the three months

ended June 30,

For the six months

ended June 30,

Food Group Inc.

Consolidated Statements of Operations

the three and nine months ended September 30, 2024 and 2023

For the three months ended September 30,

For the nine months ended September 30,

Cost of revenue

4 unchanged sentences

Total operating expenses

Loss from operations

( 1,949,000 )

( 2,120,000 )

Interest expense

$ ( 513,000 )

$ ( 476,000 )

$ ( 1,973,000 )

$ ( 2,123,000 )

Per share information - basic and fully diluted:

4 unchanged sentences

Statements of Cash Flows

the six months ended June 30, 2024 and 2023

the nine months ended September 30, 2024 and 2023

$ ( 1,973,000 )

$ ( 2,123,000 )

to reconcile net loss to net cash used in operating activities

and amortization

and options issued for services

in assets and liabilities

expenses and other assets

cash used in operating activities

Adjustments to reconcile net loss to net cash used in operating activities

Stock-based compensation

Depreciation and amortization

Amortization of debt discounts

Stock and options issued for services

Changes in assets and liabilities

Accounts receivable

( 1,033,000 )

Other receivables

Prepaid expenses and other assets

Accounts payable

Accrued expenses

Net cash used in operating activities

( 1,544,000 )

of property and equipment

cash used in investing activities

from stock compensation program

cash provided by (used in) financing activities

decrease in cash

( 1,990,000 )

Investing activities

Purchase of property and equipment

Net cash used in investing activities

Financing activities

Borrowings under line of credit

Repayment of line of credit

Issuance of convertible debt

Financing agreement payments

Repurchases from stock compensation program

Net cash provided by (used in) financing activities

Net decrease in cash

( 1,490,000 )

( 2,008,000 )

Cash, beginning of period

Cash, end of period

paid during the period for:

included in the measurement of lease liabilities

financing and investing activities:

notes issued in exchange for trade payables

of debt and interest to equity

of long-term software license in exchange for contract payable

of shares relinquished in modification of stock-based compensations awards

Cash paid during the period for:

Amounts included in the measurement of lease liabilities

Non-cash financing and investing activities:

Convertible notes issued in exchange for trade payables

Conversion of debt and interest to equity

Financed acquisition of long-term assets

Value of shares relinquished in modification of stock-based compensations awards

the accompanying notes to the condensed consolidated financial statements

38 unchanged sentences

of Contract Manufacturers Percentage of Finished Goods

For the three months ended June 30,

For the six months ended June 30,

For the three months ended September 30,

For the nine months ended September 30,

Manufacturer A

6 unchanged sentences

related notes.

Company’s financial instruments consist of cash, accounts receivable and accounts payable.

Company’s financial instruments consist of cash, accounts receivable, accounts payable, the line of credit and financing agreements.

The carrying value of the Company’s

8 unchanged sentences

losses are recorded as general and administrative expenses on our condensed consolidated statements of operations.

As of June 30, 2024

As of September 30,

2024 and December 31, 2023, there was no allowance for credit losses.

There was no credit loss expense for the three and six months ended

June 30, 2024 and 2023.

receivables consist of the Company’s 2021 Employer Retention Credit “ERC” claim, which the Company collected in March

2024, amounts due from vendors for materials acquired on their behalf for use in manufacturing the Company’s products, vendor rebates

and freight claims.

There was no credit loss expense for the three and nine months

ended September 30, 2024 and 2023.

receivables consist of the Company’s 2021 Employee Retention Tax Credit “ERTC” claim, which the Company collected

in March 2024, amounts due from vendors for materials acquired on their behalf for use in manufacturing the Company’s

products, vendor rebates and freight claims.

claims can be made in a variety of circumstances with varying degrees of subjectivity and clear authoritative guidance.

1 unchanged sentence

subject to IRS inspection which may occur prior to expiration of the statute of limitations.

The Company’s ERC claim was based

The Company’s ERTC claim was based

on objectively calculated declines in revenue using methods that are clearly defined in the Coronavirus Aid, Relief, and Economic Security

23 unchanged sentences

revenue when or as the Company satisfies a performance obligation

Company recognizes revenue from the sale of frozen beverages when title and risk of loss

passes and the customer accepts the goods, which generally occurs at the time of delivery

to a customer warehouse.

Customer sales incentives such as volume-based rebates or discounts

are treated as a reduction of sales at the time the sale is recognized.

Shipping and handling

costs are treated as fulfilment costs and presented in distribution, selling and administrative

Company recognizes revenue from the sale of frozen beverages when title and risk of loss passes and the customer accepts the goods,

which generally occurs at the time of delivery to a customer warehouse.

Customer sales incentives such as volume-based rebates or

discounts are treated as a reduction of sales at the time the sale is recognized.

Shipping and handling costs are treated as fulfilment

costs and presented in distribution, selling and administrative costs.

that are received before performance obligations are recorded are shown as current liabilities.

3 unchanged sentences

and outbound freight costs are included in selling, marketing and distribution expense.

For the three months ending June 30, 2024 and

2023, storage and outbound freight totaled approximately $ 217,000 and $ 252,000 , respectively.

For the six months ended June 30, 2024

For the three months ending September 30, 2024

and 2023, storage and outbound freight totaled approximately $ 480,000 and $ 370,000 , respectively.

For the nine months ended September

30, 2024 and 2023, storage and outbound freight totaled approximately $ 1,061,000 and $ 932,000 , respectively.

and Development

1 unchanged sentence

The Company incurred approximately

$ 17,000 and $ 35,000 in research and development expense for the three months ended June 30, 2024 and 2023, respectively, and $ 47,000

and $ 56,000 for the six months ended June 30, 2024 and 2023, respectively.

the three and six months ended June 30, 2024 and 2023 common stock equivalents have not been included in the calculation of net loss

per share as their effect is anti-dilutive as a result of losses incurred.

$ 52,000 and $ 32,000 in research and development expense for the three months ended September 30, 2024 and 2023, respectively, and $ 99,000

and $ 88,000 for the nine months ended September 30, 2024 and 2023, respectively.

the three and nine months ended September 30, 2024 and 2023, common stock equivalents have not been included in the calculation of net

loss per share as their effect is anti-dilutive as a result of losses incurred.

Reclassifications

2 unchanged sentences

tax withholding under the Company’s stock compensation program have been reclassified to financing activities in the consolidated

statement of cash flows, with corresponding changes reflected in the statement of stockholders’ equity for the six months ended

June 30, 2023.

statement of cash flows, with corresponding changes reflected in the statement of stockholders’ equity for the nine months ended

September 30, 2023.

Pronouncements

4 unchanged sentences

Schedule of Inventory

Raw materials

September 30,

Raw materials and packaging

Finished goods

3 unchanged sentences

Schedule of Property and Equipment, Net

September 30,

Manufacturing equipment

Customer equipment

Construction in progress

Property and equipment, gross

3 unchanged sentences

Property and equipment, net of depreciation

expense related to these assets was approximately $ 56,000 and $ 87,000 for the three months ended June 30, 2024 and 2023, respectively,

and $ 113,000 and $ 174,000 for the six months ended June 30, 2024 and 2023, respectively.

Depreciation expense in cost of revenue was

$ 6,000 and $ 5,000 for the three months ended June 30, 2024 and 2023, respectively, and $ 13,000 and $ 10,000 for the six months ended June

30, 2024 and 2023, respectively.

expense related to these assets was approximately $ 55,000 and $ 102,000 for the three months ended September 30, 2024 and 2023, respectively,

and $ 168,000 and $ 277,000 for the nine months ended September 30, 2024 and 2023, respectively.

Depreciation expense in cost of revenue

was $ 6,000 and $ 4,000 for the three months ended September 30, 2024 and 2023, respectively, and $ 19,000 and $ 13,000 for the nine months

ended September 30, 2024 and 2023, respectively.

Commitments and Contingencies

Company leases office space under a non-cancellable operating lease which expired on March 31, 2023 , and was extended in a series of

amendments through September 30, 2024.

The Company’s periodic lease cost was approximately $ 20,000 for each of the three months

ended June 30, 2024 and 2023 and $ 40,000 for each of the six months ended June 30, 2024 and 2023.

amendments through March 31, 2025 .

The Company’s periodic lease cost was approximately $ 20,000 for each of the three month periods

ended September 30, 2024 and 2023 and $ 60,000 for each of the nine month periods ended September 30, 2024 and 2023.

Company’s products are produced to its specifications through several contract manufacturers.

37 unchanged sentences

of a material unfavorable outcome is remote.

Convertible Notes

August 2024, the Company secured receivables financing of $ 1,500,000 (the “Facility”).

Under the Facility,

the Company may borrow up to 90% of eligible customer account balances.

Amounts outstanding bear interest at a rate prime plus 1.2% (9.20%

as of September 30, 2024) and collateral fees of 0.15% and are secured by accounts receivable and inventory.

The Facility terminates on September 5, 2025, and renews automatically,

unless notice is given or received.

As of September 30, 2024, borrowings under the Facility amounted to $ 86,000 , net of unamortized

deferred financing cost of $ 14,000 , and $ 1,400,000 was available to borrow.

2024, the Company entered into financing agreements to purchase equipment and software as a service, with imputed or stated interest

of 15 - 19 %.

Amounts due under the agreements are as follows as of September 30, 2024:

of Financing Agreements

2024 (3 months)

Total payments due

Financing agreements

current portion

Financing agreements

July 2023 to March 2024, the Company executed subscription agreements for substantially all of a $ 2,000,000 privately placed convertible

16 unchanged sentences

Stockholders’ Equity

following are changes in stockholders’ equity for the six months ended June 30, 2023 and 2024:

following are changes in stockholders’ equity for the nine months ended September 30, 2023 and 2024:

Schedule of Changes in Stockholders' Equity

Balance December 31, 2022

$ ( 57,972,000 )

Issuance of common stock for equity compensation, net of shares repurchased for income tax withholding

1 unchanged sentence

Cash settlement of equity-based compensation

Conversion of debt and interest (Note 5)

Issuance of stock for services

Balance June 30, 2023

( 2,123,000 )

Balance September 30, 2023

$ ( 60,095,000 )

Balance December 31, 2023

6 unchanged sentences

( 1,973,000 )

Balance June 30, 2024

Balance September 30, 2024

$ ( 62,769,000 )

the six months ended June 30, 2024, 122,739 warrants at a weighted average exercise price of $ 9.10 per share expired.

the nine months ended September 30, 2024, 122,739 warrants at a weighted average exercise price of $ 9.10 per share expired.

Incentive Plan

6 unchanged sentences

an evergreen provision that reserves additional shares depending on future non-plan issuances of common stock.

of June 30, 2024, the Company has $ 797,000 of total unrecognized share-based compensation expense relative to unvested options, stock

awards and stock units, which is expected to be recognized over the remaining weighted average period of 2.5 years.

following is a summary of stock option activity for the six months ended June 30, 2024:

of September 30, 2024, the Company has $ 545,000 of total unrecognized share-based compensation expense relative to unvested options,

stock awards and stock units, which is expected to be recognized over the remaining weighted average period of 2.8 years.

following is a summary of stock option activity for the nine months ended September 30, 2024:

Schedule of Stock Options Activity

3 unchanged sentences

Outstanding on December 31, 2023

Outstanding on June 30, 2024

Exercisable, June 30, 2024

Outstanding on September 30, 2024

Exercisable, September 30, 2024

fair value of the options issued was calculated using the Black-Scholes option pricing model, based on the following:

5 unchanged sentences

Weighted average grant date fair value per share

following is a summary of restricted stock award and restricted stock unit activity for the six months ended June 30, 2024:

following is a summary of restricted stock award and restricted stock unit activity for the nine months ended September 30, 2024:

Schedule of Restricted Stock Award and Restricted Stock Unit Activity

2 unchanged sentences

Unvested at January 1, 2024

Unvested at June 30, 2024

Unvested at September 30, 2024

2023 and 2024, the Company issued performance share units (“PSUs”) that represented shares potentially issuable based upon

Company and individual performance in the years of issuance.

following table summarizes the activity for the Company’s unvested PSUs for the six months ended June 30, 2024:

following table summarizes the activity for the Company’s unvested PSUs for the nine months ended September 30, 2024:

Schedule of Performance Stock Unit Activity

2 unchanged sentences

Unvested at January 1, 2024

Unvested and expected to vest at June 30, 2024

Unvested and expected to vest at September 30, 2024

February 2023, the unvested awards issued and outstanding for individual performance under the 2022 PSU program were modified to cash-settle

4 unchanged sentences

awards did not vest based on the original terms, the modification was considered a new grant, resulting in $ 64,000 in compensation expense

in the six months ended June 30, 2023.

in the nine months ended September 30, 2023.

Company adopted a 2024 PSU program in March 2024, granting approximately 430,000 PSUs at target performance against company-wide and

individual performance metrics.

The results for the three and six months ended June 30, 2024 include $ 85,000 and $ 210,000 , respectively,

The results for the three and nine months ended September 30, 2024 include $ 79,000 and $ 289,000 , respectively,

in expense for the 2024 PSU program.

5 unchanged sentences

valuation allowance on all tax assets.

As of June 30, 2024, the estimated effective tax rate for 2024 was zero .

As of September 30, 2024, the estimated effective tax rate for 2024 was zero .

are open statutes of limitations for taxing authorities in federal and state jurisdictions to audit our tax returns from 2018 through

1 unchanged sentence

Our policy is to account for income tax related interest and penalties in income tax expense in the statement of

the three and six months ended June 30, 2024 and 2023, the Company did not incur any interest and penalties associated with tax positions.

As of June 30, 2024, the Company did not have any significant unrecognized uncertain tax positions.

Subsequent Event

In August 2024, the Company secured a $ 1,500,000

receivables financing facility which bears interest at prime plus 1.2 %

per annum on amounts borrowed.

The facility has a thirteen-month

term that renews annually and is secured by accounts receivable and inventory.

During the six months ended June 30, 2024, the Company

used $ 1,549,000 in operations.

As of June 30, 2024, the Company had $ 1,185,000 of working capital, including $ 383,000 in cash.

The Company has a history of negative cash flow and

operating losses, which were expected to improve with growth.

As described more fully in Note 4, the dispute and subsequent contract

termination with the Manufacturer has resulted in limitations in our ability to procure certain products necessary to achieve our growth

projections and in elevated legal costs.

To mitigate the impact, the Company has built inventory in anticipation of third quarter seasonal

requirements, contributing $ 320,000

to the cash used in operations in the first half of 2024.

The Company expects that the seasonality in its cash flow will ease as additional

contracted capacity commences production in the third and fourth quarters of 2024.

Additionally, in May 2024, the Company obtained non-recourse

litigation financing to allow vigorous pursuit of the complaint against the Manufacturer without further expense to the Company.

The financial position at June 30, 2024 and

historical results raise substantial doubt about the Company’s ability to continue as a going concern, which has been

the three and nine months ended September 30, 2024 and 2023, the Company did not incur any interest and penalties associated with tax

As of September 30, 2024, the Company did not have any significant unrecognized uncertain tax positions.

the nine months ended September 30, 2024, the Company used $ 1,544,000 in operations.

As of September 30, 2024, the Company had $ 1,371,000

of working capital, including $ 401,000 in cash and excluding $ 499,000 in disputed co-manufacturer accounts payable (Note 4).

Company has a history of negative cash flow and operating losses, which were expected to improve with growth.

As described more fully

in Note 4, the dispute and subsequent contract termination with the Manufacturer has resulted in limitations in the Company’s ability

to procure certain products necessary to achieve our growth projections and in elevated legal costs.

mitigate the impact of procurement constraints, the Company built and paid for inventory in anticipation of third quarter seasonal requirements,

contributing $ 320,000 to the cash used in operations in the first half of 2024.

The inventory build allowed the Company to generate a

40 % increase in revenue in the three months ended September 30, 2024 compared to the prior year quarter.

Accounts receivable increased

with revenue by $ 504,000 compared with September 30, 2023.

The Company secured a receivables-based line of credit in August 2024 of $ 1,500,000 ,

with $ 1,400,000 available to borrow as of September 30, 2024.

Management expects that the cash cycle will shorten as additional contracted

capacity commences production in the fourth quarter of 2024, offset by additional working capital necessary for further anticipated growth.

Additionally, in May 2024, the Company obtained non-recourse litigation financing to allow vigorous pursuit of the complaint against

the Manufacturer without further expense to the Company.

alleviated, the financial position at September 30, 2024 and historical results raise substantial doubt about the Company’s ability

to continue as a going concern.

As described, the Company has taken and partially completed steps to mitigate the dispute related issues.

Additionally,

in August 2024, the Company secured receivables financing of $ 1,500,000 .

Management believes that other potential actions are feasible, including raising additional financing and reducing growth-related

expenditures.

While management cannot predict with certainty whether additional actions would achieve the predicted outcome, the

availability of such options, along with the actions already taken, resulted in the alleviation of the substantial doubt about the

Company’s ability to continue as a going concern.

Management believes that other potential actions are feasible, including raising additional financing and reducing growth-related expenditures.

While management cannot predict with certainty whether additional actions would achieve the predicted outcome, the availability of such

options, along with the actions already taken, resulted in the alleviation of the substantial doubt about the Company’s ability

to continue as a going concern.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements