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(c). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2025. 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. 24 Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2025. 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(c). 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, 2025. 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, including accounting for the business combination consummated in 2025 and information technology control activities. 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, such as those that occurred as a result of the business combination, 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 will fully engage our information technology personnel to help ensure that we are able to properly implement internal control procedures and seek external qualified resources to assist with complex and significant transaction. 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 25 PART III Item 10. Directors, Executive Officers and Corporate Governance. Information required by this Item regarding our directors and executive officers, corporate governance, including our audit committee and code of ethics, and compliance with Section 16(a) of the Exchange Act is incorporated by reference to our proxy statement to be filed with the SEC in connection with our 2026 Annual Meeting of Stockholders (the “Proxy Statement”). Item 11. Executive Compensation. Information required by this Item regarding executive compensation is incorporated by reference to our Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Information required by this item regarding securities authorized for issuance under our equity compensation plans is incorporated by reference to the information set forth under the caption “Executive Compensation” in our Proxy Statement. Item 13. Certain Relationships and Related Transactions, and Director Independence. Information required by this Item regarding certain relationships and related transaction is incorporated by reference to our Proxy Statement. Item 14. Principal Accounting Fees and Services. Information required by this Item regarding principal accounting fees and services is incorporated by reference to our Proxy Statement. 26 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. 27 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: April 15, 2026 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 April 15, 2026 Riccardo Delle Coste (Principal Executive Officer /s/ Lisa Roger Chief Financial Officer April 15, 2026 Lisa Roger (Principal Financial Officer) /s/ Steven Lang Director April 15, 2026 Steven Lang /s/ Joseph M. Cugine Director April 15, 2026 Joseph M. Cugine /s/ Marc Panvier Director April 15, 2026 Marc Panvier /s/ Alexander Ware Director April 15, 2026 Alexander Ware /s/ Timothy Trant Director April 15, 2026 Timothy Trant 28 Exhibit Index Exhibit Number Description 2.1 Stock Purchase Agreement dated September 15, 2025 (incorporated by reference to Exhibit 2.1 from the Current Report on Form 8-K filed September 18, 2025) 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) 3.6 Certificate of Amendment of Certificate of Incorporation of Barfresh Food Group Inc. dated August 1, 2022 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K as filed August 2, 2022) 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) 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 Barfresh Food Group, Inc. First Amended and Restated 2023 Equity Incentive Plan (incorporated by reference to Exhibit 4.5 to Registration Statement on Form S-8 filed August 14, 2024)+ 10.3 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)+ 10.4 Barfresh Food Group Inc. 2024 Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.9 to Registration Statement on Form S-8 filed August 14, 2024)+ 10.5 Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 from the Current Report on Form 8-K filed February 6, 2025) 10.6 Commercial Guaranty to WesBanco Bank, Inc. (incorporate by reference to Exhibit 10.1 from the Current Report on Form 8-K filed October 7, 2025) 10.7 Form of Amended and Restated Note to Arps Dairy Shareholders dated March 5, 2026* 10.8 Arps Dairy, Inc. and WesBanco Bank, Inc. Forbearance and Loan Modification Agreement dated October 1, 2025* 29 10.9 First Amendment to Arps Dairy, Inc. and WesBanco Bank, Inc. Forbearance and Loan Modification Agreement dated January 20, 2026* 10.10 Form of Indemnification Agreement with directors and executive officers* 21.1 Subsidiaries* 23.2 Consent of Independent Registered Public Accounting Firm* 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* 97.1 Compensation Recovery Policy (incorporated by reference to Exhibit 97.1 to Annual Report on Form 10-K for the year ended December 31, 2023, filed March 22, 2024) 101.INS Inline XBRL Instance. 101.XSD Inline XBRL Schema. 101.PRE Inline XBRL Presentation. 101.CAL Inline XBRL Calculation. 101.DEF Inline XBRL Definition. 101.LAB Inline XBRL Label. 104 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. 30 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, 2025 and 2024 F-3 Consolidated Statements of Operations for the Years Ended December 31, 2025 and 2024 F-4 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2025 and 2024 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2025 and 2024 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, 2025 and 2024, 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 “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, 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 the Company 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. The Company 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 consolidated 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 consolidated 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 consolidated financial statements and (2) involved especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated 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. Business Combination As described in Note 11 to the Company’s consolidated financial statements, on October 3, 2025, the Company completed the acquisition of Arps Dairy, Inc. The Company accounted for the Arps Dairy, Inc., acquisition as a business combination and, accordingly, allocated the purchase price to the assets acquired and liabilities assumed based on their respective estimated fair values as of the date of acquisition. Management’s estimates of fair value included assumptions related to the value of property and equipment acquired. We identified the accounting for the business combination as a critical audit matter because of the valuation of acquired property and equipment required especially challenging and subjective auditor judgement, involved the use of valuation specialists and the evaluation of significant management assumptions. The primary procedures we performed to address this critical audit matter included: ● Obtaining an understanding of management’s processes, controls and methodology used to determine the fair value of assets acquired and liabilities assumed; ● Evaluating the competence, capabilities, and objectivity of management’s valuation specialists and the reasonableness of the work performed; ● Assessing the valuation methodologies and significant assumptions used to estimate the fair value of the acquired property and equipment, including the involvement of our valuation specialists; ● Testing the completeness and accuracy of the underlying data used in management’s fair value estimates; and ● Testing the mathematical accuracy of the valuation models and related calculations. We have served as Barfresh Food Group Inc.’s auditor since 2012. /s/ Eide Bailly LLP Denver, Colorado April 15, 2026 F- 2 Barfresh Food Group Inc. Consolidated Balance Sheets December 31, December 31, 2025 2024 Assets Current assets: Cash $ 325,000 $ 235,000 Trade accounts receivable, net 1,957,000 829,000 Other receivables 99,000 55,000 Inventory, net 1,665,000 1,500,000 Prepaid expenses and other current assets 182,000 104,000 Total current assets 4,228,000 2,723,000 Property, plant and equipment, net of depreciation 8,297,000 333,000 Intangible assets, net of amortization 125,000 178,000 Other non-current assets 180,000 84,000 Total assets $ 12,830,000 $ 3,318,000 Liabilities and Stockholders’ Equity Current liabilities: Line of credit $ 1,124,000 $ 609,000 Accounts payable - trade 3,086,000 1,200,000 Accounts payable - construction in progress 2,433,000 - Disputed co-manufacturer accounts payable (Note 6) 499,000 499,000 Accrued expenses 388,000 142,000 Accrued payroll and employee related expenses 173,000 67,000 Financing agreements - current 296,000 99,000 Debt 3,031,000 - Total current liabilities 11,030,000 2,616,000 Financing agreements 470,000 124,000 Total liabilities 11,500,000 2,740,000 Commitments and contingencies Stockholders’ equity: Preferred stock, $ 0.000001 par value, 400,000 shares authorized, none issued or outstanding - - Common stock, $ 0.000001 par value; 23,000,000 shares authorized; and 15,969,281 and 14,746,172 shares issued and outstanding at December 31, 2025 and December 31, 2024, respectively - - Additional paid in capital 67,645,000 64,199,000 Accumulated deficit ( 66,315,000 ) ( 63,621,000 ) Total stockholders’ equity 1,330,000 578,000 Total liabilities and stockholders’ equity $ 12,830,000 $ 3,318,000 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, 2025 and 2024 2025 2024 Revenue $ 14,208,000 $ 10,717,000 Cost of revenue 11,094,000 7,049,000 Gross profit 3,114,000 3,668,000 Operating expenses: Selling, marketing and distribution 3,182,000 3,139,000 General and administrative 3,186,000 3,043,000 Depreciation and amortization 178,000 259,000 Total operating expenses 6,546,000 6,441,000 Loss from operations ( 3,432,000 ) ( 2,773,000 ) Bargain purchase (Note 11) ( 767,000 ) - Debt guarantee expense (Note 5) 97,000 - Interest expense 217,000 52,000 Net loss before benefit of income tax $ ( 2,979,000 ) $ ( 2,825,000 ) Benefit of income tax 285,000 - Net loss $ ( 2,694,000 ) $ ( 2,825,000 ) Per share information - basic and fully diluted: Weighted average shares outstanding 15,804,000 14,678,000 Net loss per share $ ( 0.17 ) $ ( 0.19 ) See the accompanying notes to the consolidated financial statements F- 4 Barfresh Food Group Inc. Consolidated Statements of Stockholders’ Equity For the years ended December 31, 2025 and 2024 Shares Amount Capital (Deficit) Total Additional Common Stock paid in Accumulated Shares Amount Capital (Deficit) Total Balance December 31, 2023 14,420,105 $ - $ 63,299,000 $ ( 60,796,000 ) $ 2,503,000 Issuance of common stock for equity compensation, net of shares repurchased for income tax withholding 201,859 - ( 20,000 ) - ( 20,000 ) Equity-based compensation expense - - 784,000 - 784,000 Conversion of debt and interest (Note 5) 124,208 - 136,000 - 136,000 Net loss - - - ( 2,825,000 ) ( 2,825,000 ) Balance December 31, 2024 14,746,172 $ - $ 64,199,000 $ ( 63,621,000 ) $ 578,000 Balance 14,746,172 $ - $ 64,199,000 $ ( 63,621,000 ) $ 578,000 Issuance of common stock for equity compensation, net of shares repurchased for income tax withholding 141,296 - ( 161,000 ) - ( 161,000 ) Equity-based compensation expense - - 536,000 - 536,000 Registered issuance of common stock 1,052,793 - 2,974,000 - 2,974,000 Shares issued in exchange for continuing guarantees (Note 5) 29,020 - 97,000 - 97,000 Net loss - - - ( 2,694,000 ) ( 2,694,000 ) Balance December 31, 2025 15,969,281 $ - $ 67,645,000 $ ( 66,315,000 ) $ 1,330,000 Balance 15,969,281 $ - $ 67,645,000 $ ( 66,315,000 ) $ 1,330,000 See the accompanying notes to the consolidated financial statements F- 5 Barfresh Food Group Inc. Consolidated Statements of Cash Flows For the years ended December 31 2025 and 2024 2025 2024 Net loss $ ( 2,694,000 ) $ ( 2,825,000 ) Adjustments to reconcile net loss to net cash used in operating activities Bargain purchase of Arp’s Dairy, Inc. ( 767,000 ) - Deferred tax provision ( 288,000 ) - Stock-based compensation 536,000 784,000 Depreciation and amortization 255,000 283,000 Shares issued in exchange for continuing guarantees 97,000 - Amortization of line of credit discount 22,000 6,000 Changes in assets and liabilities Accounts receivable 1,000 ( 8,000 ) Other receivables ( 34,000 ) 105,000 Inventories - ( 286,000 ) Prepaid expenses and other assets ( 153,000 ) 40,000 Accounts payable - trade 1,130,000 ( 399,000 ) Accrued expenses 229,000 71,000 Net cash used in operating activities ( 1,666,000 ) ( 2,229,000 ) Investing activities Purchase of property and equipment ( 123,000 ) ( 53,000 ) Acquisition of Arp’s Dairy, Inc. net of cash acquired (Note 11) ( 1,223,000 ) - Net cash used in investing activities ( 1,346,000 ) ( 53,000 ) Financing activities Borrowings under line of credit 9,073,000 2,811,000 Repayment of line of credit ( 8,580,000 ) ( 2,208,000 ) Issuance of convertible debt - 65,000 Mortgage Note payments ( 19,000 ) - Financing agreement payments ( 185,000 ) ( 22,000 ) Issuance of common stock, net of $ 26,000 issuance cost 2,974,000 - Shares repurchased for income tax withholding under stock compensation program ( 161,000 ) ( 20,000 ) Net cash provided by financing activities 3,102,000 626,000 Net increase (decrease) in cash 90,000 ( 1,656,000 ) Cash, beginning of year 235,000 1,891,000 Cash, end of year $ 325,000 $ 235,000 See the accompanying notes to the 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. The Company is engaged in the manufacturing and distribution of ready-to-drink and ready-to-blend beverages, particularly smoothies, shakes and frappes. On October 3, 2025, we acquired 100 % of the stock (the “Acquisition”) of Arps Dairy, Inc., an Ohio corporation (“Arps Dairy”). See Note 11. 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”). Principles of Consolidation The consolidated financial statements include the financial statements of the Company and our wholly owned subsidiaries, Barfresh Corporation Inc. (formerly known as Smoothie, Inc.), Arps Dairy, Inc., and Barfresh 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. Vendor Concentrations The Company is exposed to supply risk as a result of concentration in its vendor base resulting from the use of a limited number of contract manufacturers. Purchases from the Company’s significant contract manufacturers as a percentage of all finished goods purchased were as follows: Schedule of Contract Manufacturers Percentage of Finished Goods 2025 2024 Manufacturer A 43 % 54 % Manufacturer B 40 % 38 % Manufacturer C 10 % 1 % Other Manufacturers 7 % 7 % Manufacturer A gave notice that it would not renew our contract when it concluded in February 2026. Additionally, in December 2025, Manufacturer B discontinued manufacturing our products. The Acquisition is a significant step towards protecting against or mitigating the impact of these losses, and the adverse effect on our business, financial condition and results of operations. Since the Acquisition, Arps Dairy has commenced production of virtually all of the Company’s legacy product lines, manufacturing 18% of cases produced in the fourth quarter of 2025. F- 7 Concentration of Credit Risk The following customers accounted for 10% or more of the Company’s accounts receivable balance at December 31: Schedule of Company's Contract Manufacturers of Finished Goods 2025 2024 Customer A 36 % - % Customer B 10 % 23 % Customer C 7 % 16 % Customer D 7 % 10 % Customer E 1 % 10 % Financial Instruments Our financial instruments consist of cash, accounts receivable, accounts payable, and the line of credit and financing agreements. The carrying value of our financial instruments approximates their fair value. Accounts Receivable Accounts receivable are recorded and carried at the original invoiced amount less allowances for credits and for any potential uncollectible amounts due to credit losses. Accounts receivable from customers 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 an initial sale and is updated periodically based on payment performance. We make estimates of the expected credit and collectability trends for the allowance for credit losses based on our assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of our customers, current economic conditions, and other factors that may affect our ability to collect from our customers. Expected credit losses are recorded as general and administrative expenses on our consolidated statements of operations. As of December 31, 2025 and 2024, there was no allowance for credit losses. There was no credit loss expense for the years ended December 31, 2025 and 2024. Accounts receivable amounted to $ 821,000 on January 1, 2024. Inventory Inventory consists of packaging, raw materials and 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 In accordance with ASC Topic 350 Intangibles – Goodwill and Other Intangibles (“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. Patent costs capitalized pursuant to ASC 350 became fully amortized in 2025. 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. There was no impairment in 2025 or 2024. F- 8 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 (in years): Summary of Estimated Useful Lives of Assets Building 40 Manufacturing equipment 7 Customer equipment 7 Government Grant The Company has been awarded a $ 2,400,000 government grant to fund 50% of equipment purchases for the New Facility. As of December 31, 2025, there have been no assets acquired that are eligible for reimbursement under the grant. The Company expects to early adopt the Financial Accounting Standards Board’s Accounting Standards Update 2025-10, Government Grants. Grant proceeds will reduce the value of the assets acquired and the resulting depreciation expense over the estimated useful lives of the assets acquired. 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 products, 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 rebates or discounts, are estimated utilizing the most likely amount method. Provisions for refunds are generally provided for in the period the related sales are recorded, based on management’s assessment of historical and projected trends. 4) Allocate the transaction price to performance obligations in the contract Since the Company’s contracts contain a single performance obligation, delivery of products, 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 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. F- 9 Research and Development Expenditures for research activities relating to product development and improvement are charged to expense as incurred. The Company incurred $ 128,000 and $ 132,000 , in research and development expenses for the years ended December 31, 2025 and 2024, respectively, which is included in general and administrative expense in the accompanying consolidated statements of operations. Storage and Shipping Costs Storage and outbound freight costs are included in selling, marketing and distribution expense. For the years ended December 31, 2025 and 2024, storage and outbound freight amounted to $ 1,652,000 and $ 1,473,000 , respectively. Leases We determine if an arrangement is a lease upon inception. The Company classifies an arrangement as a finance lease if the lease transfers ownership at the end of the term, contains a purchase option that the Company is reasonably certain to exercise, covers the major part of the asset’s remaining economic life, or the present value of lease payments equals or exceeds substantially all of the asset’s fair value. Other arrangements are classified as operating leases. Assets acquired under finance leases and 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. Depreciation of property and equipment acquired under finance leases is recorded on a straight-line basis, and interest is recognized on the lease liability using the effective interest method. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Leases with an initial or extended term of twelve months or less are not recorded on the balance sheet. As a lessee, the Company leases office space, machinery and equipment. 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, 2025 and 2024 we did no t 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 Company determined that its convertible instruments issued in 2024 and 2023 did not include any embedded derivatives that require bifurcation. Loss 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, 2025 and 2024 any common stock equivalents would have been anti-dilutive as we had losses for the years then ended. F- 10 Stock Based Compensation The Company calculates 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. Note 2. Inventory Inventory consists of the following at December 31: Schedule of Inventory 2025 2024 Raw materials and packaging $ 684,000 $ 505,000 Finished goods 981,000 995,000 Inventory, net $ 1,665,000 $ 1,500,000 Note 3. Property Plant and Equipment Major classes of property and equipment consist of the following at December 31: Schedule of Property and Equipment 2025 2024 Land $ 357,000 $ - Building 1,834,000 - Manufacturing equipment 2,335,000 1,376,000 Customer equipment 1,426,000 1,398,000 Construction in progress 5,139,000 152,000 Property and equipment, gross 11,091,000 2,926,000 Less: accumulated depreciation ( 2,794,000 ) ( 2,593,000 ) Property and equipment, net of depreciation $ 8,297,000 $ 333,000 The Company recorded depreciation expense related to these assets of $ 202,000 and $ 220,000 for the years ended December 31, 2025 and 2024, respectively. Depreciation expense in cost of revenue was $ 76,000 and $ 25,000 for the years ended December 31, 2025 and 2024 respectively. Assets subject to financing leases consist of the following at December 31: Schedule of Assets Subject to Finance Leases 2025 2024 Manufacturing equipment $ 106,000 $ - Customer equipment 33,000 - Construction in progress 866,000 91,000 Property and equipment, gross 1,005,000 91,000 Less: accumulated depreciation ( 93,000 ) - Property and equipment, net of depreciation $ 912,000 $ 91,000 Depreciation expense related to leased assets amounted to $ 93,000 in 2025. There was no depreciation expense related to leased assets in 2024. F- 11 Note 4. Intangible Assets Intangible assets consist of the following at December 31: Schedule of Intangible Assets 2025 2024 Patent costs, subject to amortization $ - $ 768,000 Less: accumulated amortization - ( 714,000 ) Patent costs, net - 54,000 Trademarks, not subject to amortization 125,000 124,000 Total $ 125,000 $ 178,000 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 recorded through the expiration date of the patent. The amount charged to expenses for amortization of the patent costs was $ 54,000 and $ 63,000 for the years ended December 31, 2025 and 2024, respectively. Note 5. Debt Line of Credit In August 2024, the Company secured receivables financing of $ 1,500,000 (the “Barfresh Facility”), and amended the facility in September 2025 to increase the available financing to $ 2,500,000 . In October 2025, the Company secured receivables financing of $ 1,500,000 for Arps Dairy (together with the Barfresh Facility, the “Credit Facilities”). Under the Credit Facilities, the Company may borrow up to 90% of eligible customer account balances. Amounts outstanding bear interest at a rate based on the prime rate plus collateral fees, and are secured by accounts receivable and inventory. The weighted average rate was 8.35% and 8.70% on December 31, 2025 and 2024, respectively. The Credit Facilities expire on their respective annual anniversaries, and renew automatically, unless notice is given or received . As of December 31, 2025, there was $ 1,149,000 drawn under the Credit Facilities, and $ 2,851,000 was available to borrow, subject to available collateral. Unamortized deferred financing discount amounted to $ 25,000 as of December 31, 2025. Financing Agreements In 2024 and 2025, the Company entered into financing agreements to purchase equipment and software as a service, with a weighted average imputed or stated interest of 23 %. Amounts due under the agreements are due over a weighted average period of 28 months, with maturities as follows as of December 31, 2025: Schedule of Financing Agreements 2026 $ 443,000 2027 387,000 2028 75,000 2029 125,000 2030 5,000 Total payments due 1,035,000 Less: interest ( 269,000 ) Financing agreements 766,000 Less: current portion ( 296,000 ) Financing agreements $ 470,000 F- 12 Interest expense related to financing a greement s amounted to $ 62,000 and $ 24,000 in 2025 and 2024, respectively. Debt The Company’s debt consists of amounts owed by Arps Dairy prior to the Acquisition, and includes the following: Schedule of Debt 2025 Manager note $ 61,000 Advances from Arps Dairy former stockholders 800,000 Mortgage Note payable to bank in monthly installments of $ 22,000 including interest at 6.85 % with a balloon payment due January 1, 2026; secured by real property and personal guarantees of Arps’ former stockholders. 2,170,000 Total payments due 3,031,000 Less: current portion ( 3,031,000 ) Long-term portion $ - Manager Note The balance represents amounts due to a manager who was an Arps Dairy stockholder preceding the selling shareholders in the Acquisition (the “Manager Note”). The manager agreed to forgive one-half of the note payable in connection with the Acquisition, establishing the fair value of the note as of the Acquisition date (Note 11). The remaining balance was modified to require quarterly payments in either cash or Barfresh Shares, at Barfresh’ election, commencing no later than April 3, 2026, with full repayment due no later than October 3, 2026. Advances from Former Stockholders Prior to the Acquisition, Arps Dairy shareholders made advances from time to time to support working capital requirements. Concurrently with the close of the Acquisition, the advances were formalized and the Company assumed joint and several liability for the obligations. The Company issued notes in the aggregate principal amount of $ 800,000 to the selling shareholders, which consist of $ 400,000 of debt previously owed by Arps Dairy (the “Existing Loans”) and $ 400,000 representing advances used to reduce the outstanding balance of the revolving line of credit to $ 800,000 (the “New Advances”). The Existing Loans are non-interest bearing, and were converted into shares of the Barfresh’ common stock on February 10, 2026, prior to their maturity on April 3, 2026 . Because New Advances were not paid by January 3, 2026, interest accrues at the rate of 7 % per annum from October 3, 2025 through the April 3, 2026 maturity date. On March 5, 2026, the maturity date of the New Advances was extended to the earlier of October 1, 2026 or the receipt of financing secured by real estate owned by the Company. Additionally, the amendments provide that holder may elect to have interest paid in cash or shares valued at a 10 % discount to the volume-weighted average price of the common stock over the ten trading days immediately preceding the payment. Mortgage Note Prior to the Acquisition, Arps Dairy was out of compliance with the financial covenants of its Mortgage Note held by a commercial bank. In association with and contingent upon the closing of the Acquisition, Barfresh and Arps Dairy entered into a Forbearance and Loan Modification Agreement (the “Forbearance”) with the bank. As a result of the Forbearance, the bank agreed that it will not exercise its legal or contractual rights and remedies against the Company, collateral or the guarantors through January 1, 2026. Additionally, the bank consented to the sale and transfer of ownership of the Company to Barfresh and required Barfresh to become a guarantor of the Mortgage Note on a joint and several basis with the former stockholders. The Forbearance obligated the Company to repay Arps Dairy’s revolving line of credit, and an equipment note as a condition to close the Acquisition. The Company paid loan modification and legal fees of approximately $ 25,000 for the Forbearance. F- 13 Barfresh issued 29,020 shares valued at approximately $ 97,000 in consideration for the continuing guarantee of the former Arps Dairy stockholders through the term of the Forbearance. The expense is included in interest expense in the accompanying statement of operations for the year ended December 31, 2025. On January 20, 2026, effective January 1, 2026, the parties agreed to extend the Forbearance through February 1, 2026, with an option to further extend through March 1, 2026. The option was exercised, and the Company repaid the Mortgage Note on March 6, 2026, releasing all guarantor obligations of the former shareholders. Convertible Notes From July 2023 to March 2024, the Company executed subscription agreements for substantially all of a $ 2,000,000 privately placed convertible debt offering. The debt was available to be drawn in 25% increments, maturing on the anniversary of the draw, bearing interest at 10% per annum for the term, regardless of earlier payment or conversion, and was mandatorily convertible as to principal and interest into shares of the Company’s common stock at any time prior to maturity at the greater of $1.20 or 85% of the volume-weighted average price of the common stock for the ten trading days immediately preceding the written notice of the conversion (the “Conversion Price”). If the Company had not exercised the mandatory conversion, the holder of the debt had the option after six months and on up to four occasions to convert all or any portion of the principal and interest into shares of the Company’s common stock at the Conversion Price. On October 23, 2023, the Company drew down $ 1,390,000 in convertible debt and converted a total of $ 1,207,000 of principal into 820,160 shares of common stock. Additionally, on December 19, 2023, the Company drew $ 470,000 in convertible debt and converted a total of $ 653,000 of principal and $ 4,000 of accrued interest into 495,331 shares of common stock. Finally, between March 27 and 29, 2024 the Company drew $ 136,000 in convertible debt and converted the total drawn into 124,208 shares, settling all debt. Debt drawdowns included the non-cash settlement of $ 30,000 and $ 71,000 in 2023 and 2024, respectively. Note 6. Commitments and Contingencies Lease Commitments, Construction and Demolition The Company leases headquarters office space under a non-cancelable operating lease which expired on March 31, 2023 and has been extended multiple times, most recently through March 31, 2026 . The Company incurred lease expense of $ 85,000 for the years ended December 31, 2025 and 2024, respectively. Due to the short-term nature of the extensions, there is no right of use asset or related liability as of December 31, 2025 and 2024. The lease was not extended on March 31, 2026, and new commitments for headquarters facilities are leased on a month-to-month basis. During 2023, the Arps Dairy sold its manufacturing facility (the “Existing Facility”) and purchased a different facility, executing both transactions with the same counterparty. Following the exchange, Arps Dairy commenced to expand the acquired property to provide a 44,000 square foot of production and office space (the “New Facility”). Arps Dairy continues to operate at the Existing Facility under a leasing arrangement. The initial lease term was 18 months, and the lease was classified as an operating lease. Additionally, the counterparty leases space at the New Facility. Neither party pays rent for the space that it occupies. In connection with the Acquisition, the lease on the Existing Facility was extended until September 30, 2026 to permit the completion of the New Facility. Right of use assets and lease liabilities related to the free rent periods for the Existing Facility and New Facility were considered immaterial at the Acquisition date and were not considered in accounting for the business combination (Note 11). The Company is subject to penalties of $ 1,000 per day if it has not vacated the Existing Facility by September 30, 2026. F- 14 The New Facility expansion is expected to cost $ 6,000,000 , of which $ 3,706,000 was incurred prior to the Acquisition (the “Construction Obligations”). As of December 31, 2025, Arps Dairy had incurred $ 4,388,000 , $ 1,782,000 of which was construction related. In conjunction with the Acquisition, the contractor agreed to forebear from filing a mechanics lien against the building through December 2, 2025. Additionally, the agreement with the contractor stipulates that if any portion of the balance remains outstanding after December 31, 2025, it will accrue interest at 8 % per annum from day sixty-one until repayment is received, subject to rate adjustment for scope modifications. The Company is liable for the demolition of the Existing Facility, once it has vacated the premises. The Company has been awarded a $ 100,000 grant to pay for the demolition, which expires on December 31, 2026 . No liability is currently recorded for the demolition as management believes the grant is sufficient to cover the liability. Legal Proceedings Schreiber Dispute The Company’s products are produced to its specifications through several contract manufacturers. One of the Company’s contract manufacturers (the “Manufacturer”) provided approximately 52 % and 42 % of the Company’s products in the years ended December 31, 2022 and 2021, respectively, under a Supply Agreement with an initial term through September 2025. Over the course of 2022, the Company experienced numerous quality issues with the case packaging utilized by the Manufacturer. In addition, in July of 2022, the Company began receiving customer complaints about the texture of the Company’s smoothie products produced by the Manufacturer. In response, the Company withdrew product from the market and destroyed on-hand inventory, withholding $ 499,000 in payments due to the Manufacturer. The Company attempted to resolve the issues based on the contractual procedures described in the Supply Agreement. However, on November 4, 2022, in response to a formal proposal of alternate resolutions, the Company received notification from the Manufacturer that it was denying any responsibility for the defective manufacture of the product. In response, on November 10, 2022, the Company filed a complaint in the United States District Court for the Central District of California, Western Division (the “Complaint”), claiming that the Manufacturer had not met its obligations under the Supply Agreement, and seeking economic damages. In response, the Manufacturer terminated the Supply Agreement. On January 20, 2023, the Company filed a voluntary dismissal of the Complaint which allowed the parties to reach a potential resolution outside of the court system. However, as the parties were once again unable to come to an agreement, the Company re-filed the Complaint in California State Court in August 2023 and continues to progress through the court system. In May 2024, the Company entered into a non-recourse litigation financing arrangement which is expected to be adequate to pursue the Complaint to conclusion. In 2025, the California State Court heard on the merits of fraud claims included in the complaint and determined that there was sufficient evidence to allow the claims to be heard. A trial date has been set for April 2027. Due to the uncertainties surrounding the claim, the Company is not able to predict either the outcome or a range of reasonably possible recoveries that could result from its actions against the Manufacturer, and no gain contingencies have been recorded. The disruption in its supply resulting from the dispute has and will continue to adversely impact the Company’s results of operations and cash flow until a suitable resolution is reached or new sources of reliable supply at sufficient volume can be identified and developed, the timing of which is uncertain. The Company has mitigated the impact of the supply disruption with the introduction of its single-serve smoothie cartons; however, the product format has not been accepted by some customers or as a substitute for the bottle product in all use cases. Other legal matters 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. F- 15 Note 7. Stockholders’ Equity In 2024, the Company issued 124,208 shares of common stock pursuant to the conversion of debt and accrued interest, as more fully described in Note 5. In 2024, the Company issued 201,859 shares of common stock for equity-based compensation. On February 5, 2025, the Company 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. On October 3, 2025, in connection with continuing guarantees on the Mortgage Note, 29,020 shares of common stock were granted to the selling stockholders of Arps Dairy. See Note 5. In 2025, the Company issued 141,296 shares of common stock for equity-based compensation. Warrants The following is a summary of changes in warrants outstanding for the years ended December 31, 2025 and 2024: Summary of Changes in Warrants Outstanding Number of warrants Outstanding at December 31, 2023 243,815 Expired ( 122,739 ) Outstanding at December 31, 2024 121,076 Expired ( 122,076 ) Outstanding at December 31, 2025 - Equity Incentive Plan Through 2022, the Company issued equity incentive awards under the 2015 Equity Incentive Plan (the “2015 Plan”) and outside the Plan. In June 2023, the Company’s stockholders adopted the 2023 Equity Incentive Plan (the “2023 Plan”), reserving 650,000 shares for future issuance, subject to adjustment under the plan’s evergreen provision. The Board of Directors discontinued further grants under the 2015 Plan. Awards may be granted to employees, members of the Board of Directors and consultants, and may take the form of options, restricted stock, restricted stock units, performance shares and stock appreciation rights. The Company has issued options with no intrinsic value, stock awards and stock units through December 31, 2025, and issues new shares upon exercise of options or vesting of stock awards and stock units. The Company has reserved approximately 266,000 and 360,000 , respectively for awards outstanding under the 2015 Plan and 2023 Plan, and 352,000 shares for equity awards issued outside either of the Company’s equity incentive plans. As of December 31, 2025, 709,000 shares remain available for the issuance of awards under the 2023 Plan. Total shares reserved for awards that are outstanding and expected to vest or available for issuance are 1,687,000 as of December 31, 2025. Employee Stock Purchase Plan In 2024, the Company adopted an Employee Stock Purchase Plan (the “ESPP”) which permits employees to defer compensation to purchase shares at a 15 % discount to the lower of the market price at the beginning or end of the deferment period. There were no deferrals in 2025 or 2024. The Company reserved 1,400,000 shares for issuance under the ESPP. F- 16 Stock-Based Compensation The total amount of equity-based compensation included in general and administrative expense in the accompanying consolidated statements of operations was $ 536,000 and $ 784,000 for the years ended December 31, 2025 and 2024. As of December 31, 2024, the Company has $ 515,000 of total unrecognized share-based compensation expense related to unvested options, stock awards and stock units, which is expected to be amortized over the remaining weighted average period of 2.3 years. Stock Options The following is a summary of stock option activity: Summary of Stock Options Activity Number of Options Weighted average exercise price per share Remaining term in years Outstanding on December 31, 2023 587,091 $ 6.50 3.6 Granted 404,074 $ 4.80 8.0 Forfeited ( 178,669 ) $ 7.39 Expired ( 102,173 ) $ 8.38 Outstanding on December 31, 2024 710,323 $ 5.04 5.5 Granted 87,902 $ 2.72 8.0 Expired ( 35,223 ) $ 8.79 Outstanding on December 31, 2025 763,002 $ 4.60 5.3 Exercisable, December 31, 2025 536,901 $ 5.40 3.8 In December 2024, the Company modified 163,669 options that were expected to expire from December of 2024 through July of 2026 to extend the term through December 31, 2026. As a result of the modification, the Company recorded $ 110,000 of stock compensation expense, representing the fair value of the re-issued options compared to the fair value of the expiring options immediately prior to the modification. 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 2025 2024 Expected term (in years) 8.0 5.6 Expected volatility 97.9 % 103.9 % Risk-free interest rate 4.2 % 4.2 % Expected dividends $ - $ - Weighted average grant date fair value per share $ 2.26 $ 1.53 F- 17 Restricted Stock The following is a summary of restricted stock award and restricted stock unit activity: Schedule of Restricted Stock Award and Restricted Stock Unit Activity Number of shares Weighted average grant date fair value Unvested at December 31, 2023 32,606 $ 4.82 Granted 65,000 $ 1.73 Vested ( 10,733 ) $ 5.58 Forfeited ( 25,000 ) $ 1.64 Unvested at December 31, 2024 61,873 $ 2.72 Granted 153,434 $ 2.80 Vested ( 39,293 ) $ 3.67 Forfeited ( 27,460 ) $ 1.63 Unvested at December 31, 2025 148,554 $ 2.54 Performance Stock Units The Company issues performance share units (“PSUs”) that represent shares potentially issuable based upon achievement of Company and individual performance targets. The grantees have the ability to earn 0 % and, in some cases, up to 200 % of the PSU target award. The awards also included various time-based service requirements. The following is a summary of PSU activity: Schedule of Performance Stock Unit Activity Number of shares Weighted average grant date fair value Unvested at December 31, 2023 63,888 $ 1.84 Granted 429,844 $ 1.22 Vested ( 52,669 ) $ 1.15 Forfeited ( 283,369 ) $ 1.22 Unvested January 1, 2025 157,694 $ 1.20 Granted 143,011 $ 2.74 Vested ( 155,157 ) $ 1.20 Forfeited ( 78,805 ) $ 2.74 Unvested at December 31, 2025 66,743 $ 2.70 F- 18 Note 8. Income Taxes Income tax provision (benefit) for the years ended December 31, 2025 and 2024 is summarized below: Summary of Income Tax Provision (Benefit) 2025 2024 Current: Federal $ - $ - State - - Total - - Deferred: Federal ( 749,000 ) ( 626,000 ) State 752,000 1,270,000 Change in valuation allowance ( 288,000 ) ( 644,000 ) Total ( 285,000 ) - Benefit of income taxes $ ( 285,000 ) $ - 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 2025 2024 Statutory federal income tax rate $ ( 632,000 ) 21 % 21 % State tax ( 105,000 ) 3 4 Permanent differences 164,000 ( 5 ) - Change in valuation allowance 288,000 ( 10 ) ( 25 ) Net benefit of income taxes $ ( 285,000 ) 9 % - % Components of the net deferred income tax assets at December 31, 2025 and 2024 were as follows: Schedule of Components of Net Deferred Income Tax Assets 2025 2024 Deferred tax asset - Net operating loss carryover $ 13,920,000 $ 13,923,000 Valuation allowance ( 13,635,000 ) ( 13,923,000 ) Net deferred tax asset 285,000 - Deferred tax liability - depreciation ( 285,000 ) - Net deferred tax asset $ - $ - The Company recognized an income tax benefit of $ 285,000 related to the release of valuation allowance as a result of the Acquisition (Note 11). ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of evidence, it is more 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 100 % valuation allowance, amounting to $ 13,635,000 and $ 13,923,000 at December 31, 2025 and 2024, respectively, is necessary to reduce the net deferred tax assets to the amount that will more likely than not be realized. The decrease in valuation allowance of $ 288,000 and $ 644,000 in 2025 and 2024, respectively, resulted from a lower blended state tax rate, partially offset by current year tax losses, and in 2025, deferred tax liabilities recognized in the Acquisition and adjustments to finalize the 2024 tax loss upon filing the tax returns. F- 19 As of December 31, 2025, the Company has a net operating loss carry forward to offset future taxable income of approximately $ 58,603,000 , $ 28,482,000 of which begins to expire in 2033. Net operating loss carryforwards of $ 30,122,000 may be carried forward indefinitely. The Company may have experienced an ownership change that could limit its ability to utilize its operating loss carryforward to offset taxable income in future years. An analysis will be required to determine whether such change has occurred, the outcome of which could impact the Company’s operating results and cash flow if and when it achieves profitability in taxable jurisdictions. CARES Act On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to provide certain relief as a result of the COVID-19 pandemic. The CARES Act provides tax relief, along with other stimulus measures, including a provision for an Employee Retention Credit (“ERC”), which allows for employers to claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages paid to employees from the start of the COVID-19 pandemic through September 30, 2021. The ERC was designed to encourage businesses to keep employees on the payroll during the COVID-19 pandemic. The Company received a refund of $ 92,000 in March 2024. ERC claims were permitted in a variety of circumstances with varying degrees of subjectivity and clear authoritative guidance. Paid claims are subject to IRS inspection which may occur at any time prior to expiration of the statute of limitations, generally two years from the date the refund was paid. The Company’s ERC claim was based on objectively calculated declines in revenue using methods that are clearly defined in the CARES Act and various regulations and interpretations thereof. Note 9. Business Segments and Major Customers As a result of the Acquisition, the Company operates in two business segments. The Chief Executive Officer is the chief operating decision maker (“CODM”) who assesses performance and allocates resources based on actual and projected operating results. The CODM reviews revenue and gross profit in evaluating the efficiency of strategies within each segment, ensuring that financial and operational resources are optimized and aligned with the Company’s overall strategic objectives. The tables below present selected segment data for the years ended December 31, 2025 and 2024: Schedule of Business Combination Reportable Segment 2025 2024 Revenue Frozen Beverages and Food $ 11,460,000 $ 10,717,000 Raw and Processed Milk 2,748,000 - Revenue $ 14,208,000 $ 10,717,000 Gross profit Frozen Beverages and Food $ 2,977,000 $ 3,668,000 Raw and Processed Milk 137,000 - Gross profit 3,114,000 3,668,000 Unallocated: Total operating expenses ( 6,546,000 ) ( 6,441,000 ) Bargain purchase 767,000 - Debt guarantee expense ( 97,000 ) - Interest expense ( 217,000 ) ( 52,000 ) Net loss before benefit of income tax $ ( 2,979,000 ) $ ( 2,825,000 ) Assets are not regularly allocated to segments or considered by the CODM in assessing the performance of segments as there is a high degree of commonality in the assets utilized by the Company’s segments. Therefore, assets by segment are not presented. Sales to the following customers represented more than 10% of total sales for the years ended December 31, 2025 and 2024: Schedule of Revenue by Major Customers by Reporting Segments 2025 2024 Customer A– Frozen Beverages and Food 16 % 15 % Customer B– Raw and Processed Milk 15 % - % Customer C– Frozen Beverages and Food 11 % 14 % Customer D– Frozen Beverages and Food 10 % 15 % F- 20 Note 10. Supplemental Cash Flow Information Supplemental cash flow information is as follows: Schedule of Cash Flow Supplemental Information 2025 2024 Cash paid during the year for: Interest $ 239,000 $ 46,000 Non-cash financing and investing activities: Financed acquisition of long-term assets $ 728,000 $ 245,000 Accounts payable arising from acquisition of long-term assets $ 171,000 $ - Conversion of debt and interest to equity $ - $ 136,000 Convertible notes issued in exchange for trade payables $ - $ 71,000 Note 11. Business Combination On October 3, 2025, the Company acquired all of the outstanding stock of Arps Dairy, a dairy processing company, in a stock purchase accounted for as a business combination. Our 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 capacity. 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. The purchase price of Arps Dairy stock is allocated to the identified assets and liabilities based on their estimated respective fair values as of October 3, 2025, with the difference recorded as a bargain purchase in the accompanying consolidated statement of operations for the year ended December 31, 2025: Schedule of Business Acquisition Acquisition consideration Cash paid to retire Arps Dairy debt $ 1,306,000 Fair value of assets and liabilities Cash $ 83,000 Accounts receivable $ 1,129,000 Other current assets $ 196,000 Property, plant and equipment 7,144,000 Total assets acquired $ 8,552,000 Accounts payable and accrued expenses $ 882,000 Accounts payable - construction in progress 2,262,000 Mortgage Note 2,189,000 Stockholder advances 800,000 Manager note payable 61,000 Deferred tax liability 285,000 Total liabilities assumed $ 6,479,000 Bargain purchase 767,000 Purchase price allocation $ 1,306,000 The Company recognized a bargain purchase of $ 767,000 which is recognized as a non-operational gain in the accompanying consolidated statement of operations for the year ended December 31, 2025. The Company believes that the bargain purchase is a result of the financial distress experienced by Arps Dairy, the condition of Old Facility, and the lack of progress on the New Facility due to financing constraints. The Company incurred $ 518,000 in transaction costs related to the Acquisition during the year ended December 31, 2025. The costs are classified as general and administrative expense in the accompanying consolidated statement of operations. The results of operations for Arps Dairy have been included in the Company’s consolidated statement of operations since the closing date of the Acquisition on October 3, 2025. Arps Dairy’s total revenues and loss for the year ended December 31, 2025 amounted to $ 2,852,000 and $ 921,000 , respectively. F- 21 The following unaudited pro forma financial information shows the combined results of operations of the Company and Arps Dairy, as if the Acquisition had occurred as of the beginning of the years presented. Pro forma net loss for 2025 excludes $ 767,000 bargain purchase gain, $ 285,000 income tax benefit, $ 518,000 of transaction costs, and $ 97,000 of debt guarantee expense accounted for as a separate transaction and expensed over the guarantee period (Note 5), as all are directly attributable to the Acquisition. The pro forma data is presented for informational purposes only and does not purport to be indicative of the results of future operations or of the results that would have occurred had the Acquisition taken place in the periods noted below. Schedule of Business Combination Pro Forma Information 2025 2024 (unaudited) (unaudited) Pro forma revenue $ 27,403,000 $ 32,298,000 Pro forma net loss $ ( 3,961,000 ) $ ( 3,309,000 ) Pro forma net loss per share, basic and fully diluted $ ( 0.25 ) $ ( 0.23 ) Note 12. Liquidity During the years ended December 31, 2025 and 2024, the Company used cash for operations of $ 1,666,000 and $ 2,229,000 , respectively. As of December 31, 2025, the Company had $ 325,000 cash and its current liabilities exceeded current assets by $ 6,802,000 . The Company has a history of operating losses and negative cash flow, which are expected to improve with growth. As described more fully in Note 6, 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. The Acquisition is expected to alleviate the supply constraints. The Company paid $ 1,223,000 , net of cash acquired, to purchase the Arps Dairy stock, and incurred $ 518,000 in acquisition costs. Additionally, the Arps Dairy Mortgage Note of $ 2,262,000 , Construction Obligations for previously incurred services of $ 2,189,000 , Existing Loans of $ 400,000 and New Advances of $ 400,000 became short-term financial commitments of the Company upon consummation of the Acquisition. The Company increased its receivables-based line of credit in September 2025 to $ 2,500,000 . In October 2025, Arps Dairy secured a receivables-based line of credit of $ 1,500,000 . In December 2025, the Company was granted $ 2,400,000 to fund up to 50 % of the cost of new equipment purchases and installation. In February 2026, New Advances of $ 400,000 were converted into shares of the Company’s common stock. Finally, in March 2026, the Company raised $ 7,528,000 through the sale of convertible promissory notes. The proceeds were used to retire the Mortgage Note and are expected to be used to repay the Construction Obligations incurred, as well as complete construction of the New Facility. Although alleviated, the Company’s financial position at December 31, 2025 and historical results raise substantial doubt about its ability to continue as a going concern. As described, the Company has completed steps to improve liquidity. The actions taken have resulted in the alleviation of the substantial doubt about the Company’s ability to continue as a going concern. F- 22 Note 13. Subsequent Events On January 20, 2026, effective January 1, 2026, the parties agreed to extend the Forbearance through February 1, 2026, with an option to further extend through March 1, 2026. The option was exercised, and the Company repaid the Mortgage Note on March 6, 2026, releasing all guarantor obligations of the former shareholders. On February 10, 2026, the Company elected to convert the $ 400,000 balance of the Existing Loans and $ 20,000 of the Manager Note into 129,032 and 6,540 of the Company’s common stock, respectively. See Note 5. On March 5, 2026, the maturity date of the New Advances to Arps Dairy former stockholders was extended to the earlier of October 1, 2026 or the receipt of financing secured by real estate owned by the Company. Additionally, the amendments provide that holder may elect to have interest paid in cash or shares valued at a 10 % discount to the volume-weighted average price of the common stock over the ten trading days immediately preceding the payment. Beginning on March 5, 2026 and through March 23, 2026, the Company obtained subscriptions for unsecured senior convertible promissory notes in the aggregate amount of $ 7,528,000 (the “Notes”) from accredited investors. Net proceeds amounted to $ 7,387,000 , after issuance costs of $ 141,000 . The Notes bear interest at 10 % per annum for the first 12 months of the 24-month term, regardless of earlier payment or conversion (the “Minimum Interest”), and are mandatorily convertible as to principal and interest into shares of the Company’s common stock at any time prior to maturity at the conversion price of $ 2.90 per share (the “Conversion Price”), if the common stock of the registrant trades at $ 4.35 per share (150% of the Conversion Price) for 20 out of the preceding 30 consecutive trading days. The holders of the Notes have the option on up to 10 occasions to convert all or any portion of the principal and interest into shares of the registrant’s common stock at the Conversion Price. The registrant may prepay the Notes at any time prior to maturity, subject to payment of the Minimum Interest, any other accrued but unpaid interest, and a prepayment penalty of 5% if the amount of the Note principal that is prepaid does not exceed 50% or a prepayment of 10% if the amount of the Note principal that is prepaid exceeds 50%. Interest is to be paid quarterly in arrears beginning April 1, 2026 and can be paid in either cash or shares of the registrant’s common stock at the election of the Company. If paid in stock, the shares must be registered and valued at a 10% discount to the 10-day volume-weighted average price. Purchasers of the Notes were issued 2,352,500 detachable warrants to purchase common stock (the “Warrants’) at a price of $ 3.20 per share (the “Exercise Price”) for a 4 -year term from date of issuance in an amount equal to 100 % of their investment amounts. The Company may call the Warrants if the common stock of the registrant trades at $ 4.80 per share ( 150 % of the Exercise Price) for 20 out of the preceding 30 consecutive trading days. Additionally, 22,655 broker warrants were issued at an exercise price of $ 3.48 per share for a 3 -year term, expiring March 10, 2029. Should the Company sell any of its securities in a capital-raising transaction at a price lower than the Conversion Price while any Notes are outstanding, the Conversion Price will adjust to that lower price. The Warrant Exercise Price will adjust to a 10 % premium to the new Note conversion price. The Company has agreed to file a registration statement covering the shares underlying the Notes, interest on the Notes, and the Warrants by May 4, 2026. Failure to file the registration statement within such period would result in a penalty of 1 % per month for every month that the registration statement is not so filed. On March 6, 2026, the Mortgage Note was repaid in full. F- 23