What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-04-15 compared with 2025-03-27 · 126 added, 80 removed, 108 unchanged (66% of the section changed)

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of this Annual Report.

Company’s products are packaged in four distinct formats.

Company is primarily engaged in selling frozen beverages and food.

As a result of the Acquisition, the Company sells raw and processed

milk to a single customer.

Continuation of the raw and processed milk business is strategic from the standpoint of our supply chain and

capacity utilization.

Company’s legacy products are packaged in four distinct formats.

Company’s ready-to-drink smoothie, Twist & Go™, has initially been focused towards the USDA national school meal program,

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peach, and mango pineapple.

The product was originally launched in a bottled packaging format.

The Company introduced Twist & Go™

cartons in 2022.

“Twist & Go”™ contains no added sugars, preservatives, artificial flavors or colors.

At only 125 -130 calories and with 5 grams of protein, it makes the perfect start to any day or on-the-go snack.

-130 calories and with 5 grams of protein, it makes the perfect start to any day or on-the-go snack.

Company’s bulk “Easy Pour” format, which contains all the ingredients necessary to make the beverage, is packaged in

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cream), real fruit pieces, juices, and ice – five ounces of water are added before blending.

and international patents are owned by Barfresh, as well as related trademarks for all of the single serve products.

Patent rights have been maintained in two jurisdictions including the United States.

The patents expire in 2025.

2024, the Company introduced its ready-to-eat juice pop, “Pop & Go” ™ , with initial shipments in the

fourth quarter of 2024.

The product will initially be focused towards the National School Lunch and Smart Snacks in Schools Programs.

Pop & Go ™ contains 4 oz of juice, no added sugars, preservatives or artificial flavors or colors, and comes in

five flavors.

Company conducts sales through several channels, including National Accounts, Regional Accounts, and Broadline Distributors.

we have 10 employees and 3 consultants.

utilizes contract manufacturers to manufacture all of the products in the United States.

raw and processed milk is sold directly to a single customer.

of April 13, we have 32 employees and 3 consultants.

In 2025, Barfresh

utilized contract manufacturers to manufacture the predominate majority of all of the products in the United States.

Barfresh anticipates that it will manufacture the majority of its products in 2026.

Accounting Policies

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obligations promised in a contract are identified based on the goods or services that will be transferred to the customer.

Company, this consists of the delivery of frozen beverages, which provide immediate benefit to the customer.

Company, this consists of the delivery of products, which provide immediate benefit to the customer.

the transaction price

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the transaction price to performance obligations in the contract

the Company’s contracts contain a single performance obligation, delivery of frozen beverages, the transaction price is allocated

to that single performance obligation.

the Company’s contracts contain a single performance obligation, delivery of products, the transaction price is allocated to

that single performance obligation.

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 costs.

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

Company evaluated the requirement to disaggregate revenue and concluded that substantially all of its revenue comes from a single

product, frozen beverages.

Company recognizes revenue from the sale of products 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.

account for share-based employee compensation plans under the fair value recognition and measurement provisions in accordance with applicable

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and cost of revenue

determined that we operate in two reportable segments:

Frozen Beverages and Food, and Raw and Processed Milk.

The following table summarizes

revenue and gross profit by segment for the years ended December 31, 2025 and 2024:

Frozen beverages and food

Raw and processed milk

Frozen beverages and food

Raw and processed milk

was $14,208,000 in 2025 compared to $10,717,000 in 2024, an increase of $3,491,000, or 33%.

Our revenue in 2024 benefited from increased

sales of our bottled Twist & Go smoothies due to improved availability resulting from inventory built over the months prior to the

commencement of the school year, continued acceptance of Twist & Go smoothies provided in cartons, and improvements in bulk sales

due to the reintroduction of our WHIRLZ 100% juice product in the fourth quarter of 2023.

Arps Dairy contributed $2,852,000 to revenue,

including $2,748,000 in raw and processed milk sales.

Our revenue in 2025 benefited from increased sales of our bottled Twist & Go

smoothies due to improved availability resulting from inventory built over the months prior to the commencement of the school year and

growth of our Pop & Go juice pops, introduced in the fourth quarter of 2024, partially offset by declining revenue from our bulk,

single serve and smoothie carton products.

of revenue was $11,094,000 in 2025 compared to $7,049,000 in 2024, an increase of $4,045,000, or 57%.

Cost of revenue increased at a slightly

higher rate compared to revenue due to $283,000 in cost incurred to relocate our single-serve smoothie pouch production line.

Cost of revenue increased at a

higher rate compared to revenue due to the inclusion of the raw and processed milk operations after the Acquisition.

Products in this

segment are generally commodities with commensurate margins, but provide a strategic milk supply to the business and contribute to fixed

overhead costs.

Cost of revenue in the frozen beverages and food segment, which consisted primarily of Barfresh legacy products in 2025,

increased 20%.

The rate of increase in cost of revenue exceeded revenue growth due to start up costs at Arps Dairy, provisions for anticipated

expirations of bulk product inventory, and provisions for ingredient related cost obligations to conclude our multi-year co-manufacturing

gross profit was $3,114,000 (22%) and $3,668,000 (34%) for 2025 and 2024, respectively.

Excluding production relocation costs, our gross

profit was $3,951,000 in 2024 (37%).

The improvement in gross margin is a result of favorable product mix, pricing actions, and a slight

improvement in the cost of supply chain components.

Excluding production relocation cost and ingredient

contract obligations, our gross profit was $3,177,000 in 2025 (22%) and $3,951,000 in 2024 (37%).

profit from frozen beverages and food was $2,977,000 in 2025 (26%) compared to $3,668,000 in 2024 (34%).

The decrease is due to product

mix, as bulk, single serve and smoothie carton products have generally sold at a higher gross margin compared to smoothie bottles.

Additionally,

gross profit was impacted by the increase in cost of revenue from start-up costs and inventory provisions.

profit from raw and processed milk was $137,000 in 2025 (5%).

marketing and distribution expense

Year ended December 31,

Sales and marketing

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marketing and distribution expense increased approximately $43,000 (1%) from $3,139,000 in 2024 to $3,182,000 in 2025.

and marketing expense increased approximately $330,000 (25%) from approximately $1,336,000 in 2023 to $1,666,000 in 2024.

is a result of higher personnel costs, travel and broker commission due to expansion of the broker network.

and outbound freight expense increased approximately $195,000 (15%) from $1,278,000 in 2023 to $1,473,000 in 2024, primarily because

of the 32% increase in revenue over the same period, partially offset by freight efficiencies, and lower storage and inventory management

cost in 2024.

and marketing expense decreased approximately $14,000 (1%) from approximately $1,666,000 in 2024 to $1,652,000 in 2025.

and outbound freight expense increased approximately $57,000 (4%) from $1,473,000 in 2024 to $1,530,000 in 2025, primarily because of

the 7% increase in frozen beverage and food revenue over the same period, partially offset by freight efficiencies, and lower storage

and inventory management cost in 2024.

We incurred $99,000 in outbound freight in 2025 for processed milk deliveries.

and administrative expense

Year ended December 31,

Personnel costs

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Other general and administrative expenses

Business acquisition expense

and administrative expense increased approximately $143,000 (5%) from $3,043,000 in 2024 to $3,186,000 in 2025.

cost represents the cost of employees including salaries, bonuses, employee benefits and employment taxes and continues to be our largest

Personnel cost increased by approximately $51,000 (4%) from $1,199,000 in 2023 to $1,250,000 in 2024.

The increase in personnel

cost resulted primarily from the non-recurring confirmation and recognition of our 2021 COVID-related tax credit in 2023, partially offset

by a reduction in cash bonus expense.

compensation increased by approximately $241,000 (44%) from $543,000 in 2023 to $784,000 in 2024.

The increase is due to higher attainment

under performance awards and the modification of expiring options issued to our board of directors to extend the term through December

professional and consulting fees decreased by approximately $28,000 (-9%).

We reduced outside services and obtained non-recourse litigation

financing to conserve working capital.

and development expense increased by approximately $17,000 (15%) from $115,000 in 2023 to $132,000 in 2024.

Expense related to optimization

of our carton format and the re-launch of our bulk concentrate products in 2023, and the launch of our Pop & Go product in 2024,

as well as reformulations to meet specific market or manufacturing requirements.

general and administrative expenses increased approximately $76,000 (15%) from $519,000 in 2023 to $595,000 in 2024 primarily due to

recruiting fees incurred to broaden the capabilities of our management team.

Personnel cost decreased by approximately $37,000 (3%) from $1,250,000 in 2024 to $1,213,000 in 2025.

The decrease in personnel

cost resulted primarily from a reduction in co-manufacturing administration headcount, partially offset by the addition of general and

administrative personnel at Arps Dairy.

compensation decreased by $248,000 (32%) from $784,000 in 2024 to $536,000 in 2025.

The decrease is due to lower attainment under performance

awards and the non-recurrence of the two-year extension of expiring board of director options in December 2024.

professional and consulting fees decreased by approximately $61,000 (22%) due to non-recourse litigation funding secured in May of 2024.

Legal, professional and consulting fees associated with the Acquisition are included in business acquisition expense.

general and administrative expenses decreased approximately $25,000 (4%) from $595,000 in 2024 to $570,000 in 2025.

acquisition expense of $518,000 represents legal, accounting, and consulting fees, as well as travel associated with the Acquisition.

expense was $217,000 in 2025 compared to $52,000 in 2024.

The increase of $44,000 is a result of securing a receivables-based line of credit

in 2024, as well as equipment and software financing.

The increase of $165,000 is a result of utilization of receivables financing

throughout the year, and mortgage debt, notes and lease financing related to the Acquisition and the purchase of equipment required for

the New Facility.

had net losses of approximately $2,694,000 and $2,825,000 for the years ended December 31, 2025 and 2024, respectively.

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29, 2024, we drew down $136,000 in convertible debt and converted the total drawn into 124,208 shares, settling all debt.

February 5, 2025, we entered into securities purchase agreements with several investors, pursuant to which the Company sold an aggregate

of 1,052,793 shares of common stock at a price of $2.85 per share in a registered direct offering, raising $2,974,000.

continuing dispute with the Manufacturer and the resulting loss of product supply in 2022 negatively impacted our financial position,

results of operations and cash flow.

Subsequently, we contracted with a co-manufacturer for additional smoothie bottle manufacturing

While expanded capacity became available in the fourth quarter of 2024, we were notified in 2025 that other co-manufacturers

elected to discontinue production of smoothie cartons and smoothie bottles in December 2025 and January 2026, respectively.

The Acquisition

was undertaken to resolve constrained capacity experienced since 2022 under the co-manufacturing business model.

order to consummate the Acquisition, we paid $1,223,000, net of cash acquired, to purchase 100% of Arps Dairy stock.

Additionally, we

incurred $518,000 in acquisition costs in 2025.

In order to finance the Acquisition, we increased our receivables-based line of credit

in September 2025 to $2,500,000.

As a result of the Acquisition, $5,251,000 of mortgage debt, construction related payables and advances

from former shareholders payable by Arps Dairy became short-term financial commitments of the Company.

The Acquisition was structured

to allow us to take control of Arps Dairy manufacturing operations ahead of completing all necessary long-term financing activities.

the Acquisition, Arps Dairy secured a receivables-based line of credit of $1,500,000.

acquired $728,000 of equipment through leasing transactions in 2025.

In December 2025, we were granted $2,400,000 to fund up to 50% of

the cost of new equipment purchases and installation for the New Facility.

the year ended December 31, 2025, we used $1,666,000 in operations.

Our net loss adjusted for non-cash operating expenses was a loss

of $1,752,000, while changes in non-cash current assets and liabilities consumed $477,000 primarily because we invested in inventory

for production trials and ramp, and our accounts payable decreased as we improved adherence with vendor terms.

of December 31, 2024, we had working capital of $606,000 compared with $2,345,000 at December 31, 2023, both excluding disputed accounts

payable of $499,000 resulting from our dispute with the Manufacturer.

The decrease in working capital is primarily due to losses incurred

in 2024, partially offset by borrowing under our receivables-based line of credit.

liquidity needs will depend on how quickly we are able to profitably ramp up sales, as well as our ability to control and reduce variable

operating expenses, and to continue to control fixed overhead expense.

Our current dispute with the Manufacturer and the resulting loss

of product supply and legal expense have negatively impacted our financial position, results of operations and cash flow.

While the introduction

of our carton packaging format in 2023 has mitigated the loss of supply, the product offering has not been accepted by some customers

or as a substitute for the bottle product in all use cases.

We have contracted with a co-manufacturer for additional smoothie bottle

manufacturing capacity.

Expanded capacity became available in the fourth quarter of 2024, and we expect that capacity to increase and

become more efficient in 2025, subject to the risks and uncertainties associated with production activities.

Additionally, we have taken

other measures to reduce our liquidity requirements, including compensating our directors and employees with equity to reduce cash compensation

requirements, obtaining non-recourse litigation financing, securing receivables financing in the third quarter of 2024, and the sale

of an aggregate of 1,052,793 shares of common stock to raise $3,000,000 in February 2025.

operations to date have been financed by the sale of securities, the issuance of convertible debt and the issuance of short-term debt.

If we are unable to generate sufficient cash flow from operations with the capital raised we will be required to raise additional funds

either in the form of equity or in the form of debt.

There are no assurances that we will be able to generate the necessary capital to

carry out our current plan of operations.

of $2,839,000, while changes in current assets and liabilities provided $1,173,000 primarily because of delayed payments to co-manufacturers

who discontinued providing product in December 2025 and January 2026.

of December 31, 2025, we had negative working capital of $6,303,000, including $2,170,000 of mortgage debt and $2,433,000 of construction

payables, compared with working capital $606,000 on December 31, 2024.

Disputed accounts payable due to the Manufacturer of $499,000

are excluded from both December 31, 2025 and 2024 working capital amounts.

February 2026, $400,000 of Arps selling shareholder advances were converted into shares of our common stock.

March 2026, we raised $7,528,000 through the sale of convertible promissory notes.

The proceeds were used to retire $2,541,000 in mortgage

debt and construction payables, and are expected to be used to repay remaining construction related payables as well as complete construction

of the New Facility in 2026.

operations to date have been financed by the sale of securities, the issuance of convertible and short-term debt and equipment leasing.

Our liquidity needs will depend on careful management of the construction of the New Facility, as well as how quickly we are able to

profitably ramp up sales, achieve manufacturing cost synergies anticipated as a result of the Acquisition, control and reduce variable

operating expenses, and control fixed overhead expense.

There are no assurances that the grant received in December 2025 and the proceeds

from the sale of convertible promissory notes in March 2026 will be sufficient to carry out our current plan of operations.

We anticipate

that we will have additional sources of liquidity, if required, through mortgage financing supported by the guarantee of the United States

Department of Agriculture, and equipment lease financing, among other options.

However, there are no assurances that these funds will

be available.

If we are unable to generate sufficient cash flow from operations, control construction costs, or raise additional capital

through debt issuances, we may be required to raise additional funds in the form of equity.

Sheet Arrangements

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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-K

Item 7. Management’s Discussion and Analysis