What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-14 compared with 2025-11-06 · 87 added, 115 removed, 53 unchanged (79% of the section changed)

3 unchanged sentences

our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December

31, 2024, as filed with the SEC on March 27, 2025, and other reports that we file with the SEC from time to time.

31, 2025, as filed with the SEC on April 15, 2026, and other reports that we file with the SEC from time to time.

in this Quarterly Report on Form 10-Q to “us”, “we”, “our” and similar terms refer to Barfresh Food

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of Operations

of Operation for the Three Months Ended September 30, 2025 as Compared to the Three Months Ended September 30, 2024

of Operation for the Three Months Ended March 31, 2026 as Compared to the Three Months Ended March 31, 2025

and cost of revenue

increased $2,702,000, or 92%, to $5,632,000 in 2026 as compared to $2,930,000 in 2025.

increased as a result of growth in our Twist & Go products and the introduction of Pop & Go in the fourth quarter of 2024.

have been able to expand our capacity on a limited basis at our existing smoothie bottle manufacturer and have been developing an additional

manufacturer relationship since the fourth quarter of 2024.

With the acquisition of Arps, we expect expanded capacity to become available

in the fourth quarter of 2025, subject to the risks and uncertainties associated with early-stage production activities.

Arps Dairy contributed $2,837,000 to revenue,

including $2,566,000 in raw and processed milk sales.

acquisition of Arps Dairy gives us the expanded capacity we have sought over the past three years, necessary to service our customer

base and expand our sales reach.

of revenue increased $2,569,000, or 127%, to $4,599,000 in 2026 as compared to $2,030,000 in 2025.

Cost of revenue increased at a lower

rate compared to revenue due to the non-recurrence in 2025 of manufacturing relocation expenses incurred in 2024, partially offset

by inventory costs.

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

Cost of revenue in the frozen beverages and food segment, which consisted primarily of Barfresh legacy products in 2026, increased

at the same rate as revenue.

gross profit was $1,033,000 (18%) and $900,000 (31%) for 2026 and 2025, respectively.

Excluding production relocation costs, our gross

profit was $1,386,000 in 2024 (38%).

The reduction in gross margin is a result of product mix and inventory costs, partially offset by

the non-recurrence of manufacturing relocation costs.

profit from frozen beverages and food was $905,000 in 2026 (30%) compared to $900,000 in 2025 (31%).

The slight decrease is due to product

profit from raw and processed milk was $128,000 in 2026 (5%).

marketing and distribution expense

Three months ended September 30,

Sales and marketing

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and marketing expense decreased approximately $179,000 (41%) from approximately $433,000 in 2025 to $254,000 in 2026.

and outbound freight expense increased approximately $11,000 (2%) from approximately $480,000 in 2024 to $491,000 in 2025, a slower pace

than the 16% increase in revenue, primarily due to efficiencies resulting from larger average shipments.

The decrease is

a result of lower personnel costs as we rely more heavily on our broker network, as well as a decrease in sample expense, which was elevated

in 2025 due to the introduction of our Pop & Go freeze pops.

Additionally, equipment maintenance expense for machines provided to

our customers for use with our bulk products decreased, as single serve products have become more prominent in the school setting.

and outbound freight expense increased approximately $52,000 (13%) from approximately $391,000 in 2025 to $443,000 in 2026, primarily

due to costs associated with the delivery of processed milk at Arps Dairy.

and administrative expense

Three months ended September 30,

Personnel costs

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Other general and administrative expenses

Business acquisition expense

and administrative expenses increased approximately $8,000 (1%) from approximately $747,000 in 2025 to $755,000 in 2026.

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approximately $14,000 (4%) from approximately $372,000 in 2025 to $358,000 in 2026.

The decrease in personnel cost resulted from a decreased

compensation decreased by approximately $16,000 from $179,000 in 2024 to $163,000 in 2025 as a result of a reduction in the size of our

board of directors.

professional and consulting fees increased by approximately $86,000 (239%) from $36,000 in 2024 to $122,000 in 2025 due to costs incurred

in association with the Arps acquisition.

and development decreased by approximately $19,000 (37%) from $52,000 in 2024 to $33,000 in 2025 due to a decrease in development activities

following the introduction of our Pop & Go product, and a decrease in co-manufacturer development activities in anticipation of our

acquisition of Arps.

general and administrative expenses increased by approximately $129,000 (102%) due to costs incurred in association with the acquisition

had net losses of approximately $290,000 and $513,000 for the three-month periods ending September 30, 2025 and 2024, respectively.

decrease in net loss of approximately $223,000 was primarily due to the increase in revenue and gross margin, and the reduction in operating

expense exclusive of Arps acquisition expenses.

of Operation for the Nine months Ended September 30, 2025 as Compared to the Nine months Ended September 30, 2024

and cost of revenue

increased $857,000, or 11%, to $8,786,000 in 2025 as compared to $7,929,000 in 2024.

of revenue increased $837,000, or 17%, to $5,828,000 in 2025 as compared to $4,991,000 in 2024.

Cost of revenue increased at a higher

rate compared to revenue due to trial costs at our new manufacturer and elevated costs to supply product in a sub-optimal manner while

the production process at a new manufacturer is under development.

gross profit was $2,958,000 (34%) and $2,938,000 (37%) for 2025 and 2024, respectively.

Excluding production relocation costs, our gross

profit was $3,114,000 in 2024 (39%).

The reduction in gross margin is a result of product mix and new manufacturer trial and development

marketing and distribution expense

Nine months ended June 30,

Sales and marketing

Storage and outbound freight

marketing and distribution expense increased approximately $132,000 (6%) from approximately $2,267,000 in 2024 to $2,399,000 in 2025.

and marketing expense increased approximately $36,000 (3%) from approximately $1,206,000 in 2024 to $1,242,000 in 2025.

is a result of broker commissions on increased revenue.

Additionally, sample expense increased as a result of the launch of our Pop &

and outbound freight expense increased approximately $96,000 (9%) from approximately $1,061,000 in 2024 to $1,157,000 in 2025, primarily

because of the 11% increase in revenue, offset by shipping efficiencies.

and administrative expense

Nine months ended June 30,

Personnel costs

Stock based compensation

Legal, professional and consulting fees

Research and development

Other general and administrative expenses

and administrative expenses decreased approximately $159,000 (7%) from approximately $2,423,000 in 2024 to $2,264,000 in 2025.

cost increased by approximately $20,000 (2%) from approximately $916,000 in 2024 to $936,000 in 2025.

compensation decreased by approximately $235,000 from $696,000 in 2024 to $461,000 in 2025 as a result of lower expected attainment under

our performance stock unit program and a reduction in the size of our board of directors.

professional and consulting fees decreased by approximately $17,000 (7%) from $250,000 in 2024 to $233,000 in 2025 due to funding the

Schrieber litigation through non-recourse litigation funding starting in Q3 2024, partially offset by Arps acquisition costs incurred

and development decreased by approximately $17,000 (17%) from $99,000 in 2024 to $82,000 in 2025 due to a decrease in development activities

following the introduction of our Pop & Go product, and a decrease in co-manufacturer development activities in anticipation of our

acquisition of Arps.

general and administrative expenses increased by approximately $90,000 (19%) due to costs associated with the acquisition of Arps, partially

offset by the non-recurrence of recruitment costs incurred in the second quarter of 2024.

had net losses of approximately $1,931,000 and $1,973,000 for the nine-month periods ended September 30, 2025 and 2024, respectively,

an improvement of $42,000.

While revenue increased 11% and operating expenses were reduced by $63,000, these improvements were partially

offset by the 3.4 percentage point decrease in gross margin and a $41,000 increase in interest expense.

The decrease in personnel cost resulted from decreased

head count, and lower employer payroll taxes due to timing of vesting of stock-based compensation.

compensation decreased by approximately $56,000 (35%) from $158,000 in 2025 to $102,000 in 2026 as a result of lower expected attainment

under our performance stock unit program.

professional and consulting fees increased by approximately $26,000 (32%) from $81,000 in 2025 to $107,000 in 2026 due to costs of temporary

personnel associated with integration of Arps Dairy.

general and administrative expenses increased by approximately $25,000 (21%) due to travel costs associated with the integration of Arps

expense was $225,000 in 2026 compared to $23,000 in 2025.

The increase of $202,000 is a result of mortgage debt, notes and lease financing

related to the Acquisition and the purchase of equipment required for the New Facility, as well as the issuance of $7,528,000 of convertible

notes in March 2026.

had net losses of approximately $661,000 and $761,000 for the three-month periods ending March 31, 2026 and 2025, respectively.

in net loss of approximately $100,000 was primarily due to a decrease in the loss from operations of $302,000, offset by an increase of

$202,000 in interest expense incurred related to the acquisition of Arps Dairy and the build out of the New Facility.

and Capital Resources

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

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 our 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 we 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 our common stock at the Conversion Price.

On October 23, 2023, we issued

$1,390,000 of convertible notes pursuant to the subscription agreements, and immediately converted $1,207,000 of principal and interest

into approximately 820,000 shares of common stock.

Additionally, on December 19, 2023, we drew down $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, on March 27 and

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 we sold an aggregate of 1,052,793

shares of common stock at a price of $2.85 per share in a registered direct offering.

the nine months ended September 30, 2025, we used $2,173,000 in operations.

Our net loss adjusted for non-cash operating expenses was

a loss of $1,297,000, while changes in current assets and liabilities used $876,000.

The increase in revenue resulted in a $1,660,000

increase in accounts receivable, while we reduced our investment in inventory by $426,000.

The changes reflect the education channel’s

seasonal revenue peak, and the draw down of inventory built over the summer school break to minimize the impact of production capacity

Additionally, accounts payable increased by $529,000 due to timing of material purchases and amounts due for Arps acquisition

costs incurred.

of September 30, 2025, we had working capital of $1,626,000 compared with $606,000 at December 31, 2024, both excluding disputed accounts

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

The increase in working capital is primarily due to capital raised

in the nine months ended September 30, 2025 through the sale of common stock, partially offset by losses incurred in the nine months

ended September 30, 2025.

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.

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.

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.

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 from manufacturer C in the fourth quarter

of 2024, we were notified in 2025 that manufacturers A and B elected to discontinue production of smoothie bottles and smoothie cartons

in January 2026 and December 2025, 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 $1,250,000.

acquired $823,000 of equipment through leasing transactions in 2025 and the first three months of 2026.

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.

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.

the quarter ended March 31, 2026, we used $2,382,000 in operations.

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

of $455,000, while changes in current assets and liabilities used $1,927,000 primarily because of settlements of amounts due to co-manufacturers

who discontinued providing product in December 2025 and January 2026.

of March 31, 2026, we had net current assets of $903,000, including $1,861,000 of construction payables, compared with net current liabilities

of $6,303,000 on December 31, 2025.

Disputed accounts payable due to the Manufacturer of $499,000 are excluded from both March 31, 2026

and December 31, 2025 amounts.

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-Q

Item 2. Management’s Discussion and Analysis