What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-14 compared with 2026-05-14 · 115 added, 56 removed, 84 unchanged (67% of the section changed)

27 unchanged sentences

of Operations

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

of Operation for the Three Months Ended June 30, 2026 as Compared to the Three Months Ended June 30, 2025

and cost of revenue

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including $2,943,000 in raw and processed milk sales.

Revenue in the frozen beverages and food segment increased 9%.

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

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of revenue increased $3,738,000, or 334%, to $4,857,000 in 2026 as compared to $1,119,000 in 2025.

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.

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

Cost of revenue increased at a significantly

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

Products in this

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

overhead costs.

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

increased 76% due to start-up costs and lower than anticipated productivity at the Existing Facility.

gross loss was $150,000 (-3%) for 2026 and our gross profit was $506,000 (31%) for 2025.

loss from frozen beverages and food was $209,000 (-12%) in 2026 compared to a gross profit of $506,000 (31%) in 2025.

The decrease is

due to high start-up costs and lower than anticipated productivity at the Existing Facility.

profit from raw and processed milk was $59,000 (2%) in 2026.

marketing and distribution expense

Three months ended June 30, 2026

Three months ended June 30, 2025

Sales and marketing

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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.

a result of lower personnel costs as we rely more heavily on our broker network.

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

and outbound freight expense increased approximately $29,000 (11%) from approximately $276,000 in 2025 to $305,000 in 2026, primarily

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

due to costs associated with the delivery of processed milk at Arps Dairy, partially offset by lower revenue and finished goods inventory

of legacy Barfresh products.

and administrative expense

Three months ended June 30, 2026

Three months ended June 30, 2025

Personnel costs

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cost represents the cost of employees including salaries, bonuses, employee benefits and employment taxes.

Personnel cost decreased by

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

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

Personnel cost increased by

approximately $43,000 (15%) from approximately $292,000 in 2025 to $335,000 in 2026 due to the addition of headcount associated with

professional and consulting fees increased by approximately $37,000 (123%) from $30,000 in 2025 to $67,000 in 2026 primarily due to timing

of audit fees associated with the filing of our annual report on Form 10-K.

general and administrative expenses increased by approximately $34,000 (27%) due to increased recruiting, information technology and

insurance expense associated with Arps Dairy.

expense was $344,000 in 2026 compared to $12,000 in 2025.

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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.

had net losses of approximately $1,861,000 and $880,000 for the three-month periods ending June 30, 2026 and 2025, respectively.

increase in net loss of approximately $981,000 was primarily due to an increase in loss from operations of $649,000, and an increase

of $332,000 in interest expense incurred related to the acquisition of Arps Dairy and the build out of the New Facility.

of Operation for the Six Months Ended June 30, 2026 as Compared to the Six Months Ended June 30, 2025

and cost of revenue

increased $5,784,000, or 127%, to $10,339,000 in 2026 as compared to $4,555,000 in 2025.

Arps Dairy contributed $6,021,000 to revenue,

including $5,508,000 in raw and processed milk sales.

of revenue increased $6,307,000, or 200%, to $9,456,000 in 2026 as compared to $3,149,000 in 2025.

Cost of revenue increased at a higher

rate compared to revenue as low margin milk processing revenue made up 53% of the revenue mix.

Additionally, start-up costs and low productivity

significantly impacted the cost of legacy Barfresh products that were produced at the Existing Facility.

gross profit was $883,000 (9%) and $1,406,000 (31%) for 2026 and 2025, respectively.

profit from frozen beverages and food was $696,000 (14%) and $1,406,000 in 2026 and 2025, respectively.

The decrease is due to high start-up

costs and lower than anticipated productivity at the Existing Facility.

marketing and distribution expense

Six months ended June 30, 2026

Six months ended June 30, 2025

Sales and marketing

Storage and outbound freight

marketing and distribution expense decreased approximately $200,000 (14%) from approximately $1,458,000 in 2025 to $1,258,000 in 2026.

and marketing expense decreased approximately $281,000 (36%) from approximately $791,000 in 2025 to $510,000 in 2026.

The decrease is

a result of lower personnel costs as we rely more heavily on our broker network.

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

Finally, sample expense decreased due to non-recurring sample costs associated with the 2025 launch of our Pop & Go product.

and outbound freight expense increased approximately $81,000 (12%) from approximately $667,000 in 2025 to $748,000 in 2026, primarily

due to costs associated with the delivery of processed milk at Arps Dairy, partially offset by lower revenue and finished goods inventory

of legacy Barfresh products.

and administrative expense

Six months ended June 30, 2026

Six months ended June 30, 2025

Personnel costs

Stock based compensation

Legal, professional and consulting fees

Research and development

Other general and administrative expenses

Business acquisition expense

and administrative expenses increased approximately $129,000 (9%) from approximately $1,420,000 in 2025 to $1,549,000 in 2026.

cost increased by approximately $29,000 (4%) from approximately $665,000 in 2025 to $694,000 in 2026 due to the addition of headcount

associated with Arps Dairy.

compensation decreased by approximately $41,000 from $297,000 in 2025 to $256,000 in 2026 as a result of lower expected attainment under

our performance stock unit program.

professional and consulting fees increased by approximately $63,000 (57%) from $111,000 in 2025 to $174,000 in 2026 due to audit

costs associated with the expanded scope of work resulting from the Acquisition, and temporary consultants associated with the

integration of Arps Dairy.

general and administrative expenses increased by approximately $58,000 (24%) due to increased information technology and insurance expense

associated with Arps Dairy.

expense was $569,000 in 2026 compared to $35,000 in 2025.

The increase of $534,000 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 $2,522,000 and $1,641,000 for the six-month periods ending June 30, 2026 and 2025, respectively.

increase in net loss of approximately $881,000 was primarily due to an increase in loss from operations of $347,000, and an increase

of $534,000 in interest expense incurred related to the acquisition of Arps Dairy and the build out of the New Facility.

and Capital Resources

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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.

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

results of operations and cash flow.

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

While expanded capacity became available 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.

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.

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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.

acquired $888,000 of equipment through leasing transactions in 2025 and the first six months of 2026.

In December 2025, we were granted

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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.

debt and certain construction payables.

the six months ending June 30, 2026, we used $3,051,000 in operations.

Our net loss adjusted for non-cash operating expenses used $2,002,000,

while changes in current assets and liabilities used $1,049,000 primarily because of settlements of amounts due to co-manufacturers who

discontinued providing product in December 2025 and January 2026, partially offset by a decrease in accounts receivable due to seasonality.

of June 30, 2026, we had net current liabilities of $1,041,000, including $1,818,000 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

June 30, 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.

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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.

The proceeds from the sale of convertible promissory notes in March 2026 are

not sufficient to carry out our current plan of operations, which includes the investment of $6,662,000 in Construction Obligations described

in Note 5 of the accompanying unaudited financial statements.

The $2,400,000 grant received in December 2025 is subject to uncertainty

associated with the requirement to complete all funded phases of the project by December 31, 2026.

This uncertainty could increase the

Construction Obligation to $9,062,000.

We anticipate that we will have additional sources of liquidity 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