BARFRESH FOOD GROUP INC. 10-Q

Item 1. Financial Statements. Barfresh Food Group Inc. Condensed Consolidated Balance Sheets March 31, 2025 December 31, 2024 (unaudited) (audited) Assets Current assets: Cash $ 1,872,000 $ 235,000 Trade accounts receivable, net 1,499,000 829,000 Other receivables 112,000 55,000 Inventory, net 1,128,000 1,500,000 Prepaid expenses and other current assets 189,000 104,000 Total current assets 4,800,000 2,723,000 Property, plant and equipment, net of depreciation 308,000 333,000 Intangible assets, net of amortization 157,000 178,000 Other non-current assets 72,000 84,000 Total assets $ 5,337,000 $ 3,318,000 Liabilities and Stockholders’ Equity Current liabilities: Line of credit $ - $ 609,000 Accounts payable 1,422,000 1,200,000 Disputed co-manufacturer accounts payable (Note 4) 499,000 499,000 Accrued expenses 188,000 142,000 Accrued payroll and employee related expenses 239,000 67,000 Financing agreements - current 103,000 99,000 Total current liabilities 2,451,000 2,616,000 Financing agreements 97,000 124,000 Total liabilities 2,548,000 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; 15,920,047 and 14,746,172 shares issued and outstanding at March 31, 2025 and December 31, 2024, respectively - - Additional paid in capital 67,171,000 64,199,000 Accumulated deficit ( 64,382,000 ) ( 63,621,000 ) Total stockholders’ equity 2,789,000 578,000 Total liabilities and stockholders’ equity $ 5,337,000 $ 3,318,000 See the accompanying notes to the condensed consolidated financial statements 3 Barfresh Food Group Inc. Condensed Consolidated Statements of Operations For the three months ended March 31, 2025 and 2024 (Unaudited) 2025 2024 Revenue $ 2,930,000 $ 2,829,000 Cost of revenue 2,030,000 1,659,000 Gross profit 900,000 1,170,000 Operating expenses: Selling, marketing and distribution 824,000 694,000 General and administrative 747,000 855,000 Depreciation and amortization 67,000 67,000 Total operating expenses 1,638,000 1,616,000 Loss from operations ( 738,000 ) ( 446,000 ) Interest expense 23,000 3,000 Net loss $ ( 761,000 ) $ ( 449,000 ) Per share information - basic and fully diluted: Weighted average shares outstanding 15,387,665 14,500,863 Net loss per share $ ( 0.05 ) $ ( 0.03 ) See the accompanying notes to the condensed consolidated financial statements 4 Barfresh Food Group Inc. Consolidated Statements of Cash Flows For the three months ended March 31, 2025 and 2024 (Unaudited) 2025 2024 Net loss $ ( 761,000 ) $ ( 449,000 ) Adjustments to reconcile net loss to net cash used in operating activities Stock-based compensation 158,000 366,000 Depreciation and amortization 74,000 74,000 Gain on asset disposal - - Amortization of line of credit discount 4,000 - Changes in assets and liabilities Accounts receivable ( 670,000 ) ( 545,000 ) Other receivables ( 57,000 ) 140,000 Inventories 372,000 ( 70,000 ) Prepaid expenses and other assets ( 66,000 ) ( 107,000 ) Accounts payable 222,000 ( 271,000 ) Accrued expenses 218,000 93,000 Net cash used in operating activities ( 506,000 ) ( 769,000 ) Investing activities Purchase of property and equipment ( 28,000 ) - Net cash used in investing activities ( 28,000 ) - Financing activities Borrowings under line of credit 782,000 - Repayment of line of credit ( 1,402,000 ) - Issuance of convertible debt - 65,000 Financing agreement payments ( 23,000 ) - Issuance of common stock, net of $ 26,000 issuance cost 2,974,000 - Shares repurchased for income tax withholding under stock compensation program ( 160,000 ) ( 20,000 ) Net cash provided by financing activities 2,171,000 45,000 Net increase (decrease) in cash 1,637,000 ( 724,000 ) Cash, beginning of period 235,000 1,891,000 Cash, end of period $ 1,872,000 $ 1,167,000 Non-cash financing and investing activities: Convertible notes issued in exchange for trade payables $ - $ 71,000 Conversion of debt and interest to equity $ - $ 136,000 Financed acquisition of long-term assets $ - $ 154,000 Cash paid for interest $ 19,000 $ - See the accompanying notes to the condensed consolidated financial statements 5 Barfresh Food Group Inc. Notes to Condensed Consolidated Financial Statements March 31, 2025 (Unaudited) Note 1. Description of the Business, Basis of Presentation, and 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. Basis of Presentation The accompanying condensed consolidated financial statements are unaudited, except for the condensed balance sheet as of December 31, 2024. These unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended December 31, 2024 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on March 27, 2025. In management’s opinion, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, that are necessary for a fair presentation of financial results for the interim periods presented. Operating results for any quarter are not necessarily indicative of the results for the full fiscal year. Principles of Consolidation The consolidated financial statements include the financial statements of the Company and our wholly owned subsidiaries, Barfresh Inc. and Barfresh Corporation Inc. (formerly known as Smoothie, 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 For the three months ended March 31, 2025 2024 Manufacturer A 52 % 36 % Manufacturer B 38 % 63 % Other Manufacturers 10 % 1 % 6 Summary of Significant Accounting Policies There have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC on March 27, 2025 that have had a material impact on our condensed consolidated financial statements and related notes. Financial Instruments The Company’s financial instruments consist of cash, accounts receivable, accounts payable, the line of credit and financing agreements. The carrying value of the Company’s financial instruments approximates their fair value. Accounts Receivable and Allowances 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. 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 condensed consolidated statements of operations. As of March 31, 2025 and December 31, 2024, there was no allowance for credit losses. There was no credit loss expense for the three months ended March 31, 2025 and 2024. 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 frozen beverages, 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. 7 4) Allocate the transaction price to performance obligations in the contract Since the Company’s contracts contain a single performance obligation, delivery of frozen beverages, 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 frozen beverages when title and risk of loss passes and the customer accepts the goods, which generally occurs at the time of delivery to a customer warehouse. Customer sales incentives such as volume-based rebates or discounts are treated as a reduction of sales at the time the sale is recognized. Shipping and handling costs are treated as fulfilment costs and presented in distribution, selling and administrative costs. Payments that are received before performance obligations are recorded are shown as current liabilities. The Company evaluated the requirement to disaggregate revenue and concluded that substantially all of its revenue comes from a single product, frozen beverages. Storage and Shipping Costs Storage and outbound freight costs are included in selling, marketing and distribution expense. For the three months ending March 31, 2025 and 2024, storage and outbound freight totaled approximately $ 391,000 and $ 364,000 , respectively. Research and Development Expenditures for research activities relating to product development and improvement are charged to expense as incurred. The Company incurred approximately $ 18,000 and $ 30,000 in research and development expense for the three months ended March 31, 2025 and 2024, respectively. Loss Per Share For the three months ended March 31, 2025 and 2024, common stock equivalents have not been included in the calculation of net loss per share as their effect is anti-dilutive as a result of losses incurred. 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: Schedule of Inventory March 31, 2025 December 31, 2024 Raw materials and packaging $ 519,000 $ 505,000 Finished goods 609,000 995,000 Inventory, net $ 1,128,000 $ 1,500,000 8 Note 3. Property Plant and Equipment Property and equipment, net consist of the following: Schedule of Property and Equipment, Net March 31, 2025 December 31, 2024 Manufacturing equipment $ 1,556,000 $ 1,376,000 Customer equipment 1,398,000 1,398,000 Construction in progress - 152,000 Property and equipment, gross 2,954,000 2,926,000 Less: accumulated depreciation ( 2,646,000 ) ( 2,593,000 ) Property and equipment, net of depreciation $ 308,000 $ 333,000 Depreciation expense related to these assets was approximately $ 53,000 and $ 59,000 for the three-months periods ending March 31, 2025 and 2024, respectively. Depreciation expense in cost of revenue was $ 7,000 for each of the three-month periods ending March 31, 2025 and 2024. Note 4. Commitments and Contingencies Lease Commitments The Company leases office space under a non-cancellable operating lease which expired on March 31, 2023 , and was extended in a series of amendments through September 30, 2025. The Company’s periodic lease cost was approximately $ 20,000 for each of the three-month periods ending March 31, 2025 and 2024. 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. 9 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 the probability of a material unfavorable outcome is remote. Note 5. Debt Line of Credit In August 2024, the Company secured receivables financing of $ 1,500,000 (the “Facility”). Under the Facility, the Company may borrow up to 90% of eligible customer account balances. Amounts outstanding bear interest at a rate prime plus 1.2% and collateral fees of 0.15% and are secured by accounts receivable and inventory . The Facility expires on September 5, 2025 , and renews automatically, unless notice is given or received. As of March 31, 2025, there were no borrowings under the Facility. Unamortized deferred financing cost amounted to $ 7,000 and are included in prepaid expenses and other current assets on the accompanying March 31, 2025 consolidated balance sheet. Financing Agreements In 2024, the Company entered into financing agreements to purchase equipment and software as a service, with imputed or stated interest of 15 - 19 %. Amounts due under the agreements are as follows as of March 31, 2025: Schedule of Financing Agreements 2025 (9 months) $ 96,000 2026 136,000 Total payments due 232,000 Less: interest ( 32,000 ) Financing agreements 200,000 Less: current portion ( 103,000 ) Financing agreements $ 97,000 Financing agreements non current $ 97,000 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. 10 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 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 the Company drew down $ 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. Stockholders’ Equity The following are changes in stockholders’ equity for the three months ended March 31, 2024 and 2025: Schedule of Changes in Stockholders’ Equity 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 175,562 - ( 20,000 ) - ( 20,000 ) Equity-based compensation expense - - 366,000 - 366,000 Conversion of debt and interest (Note 5) 124,208 - 136,000 - 136,000 Registered issuance of common stock Registered issuance of common stock, shares Net loss - - - ( 449,000 ) ( 449,000 ) Balance March 31, 2024 14,719,875 $ - $ 63,781,000 $ ( 61,245,000 ) $ 2,536,000 Additional Common Stock paid in Accumulated Shares Amount Capital (Deficit) Total 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 121,082 - ( 160,000 ) - ( 160,000 ) Equity-based compensation expense - - 158,000 - 158,000 Registered issuance of common stock 1,052,793 2,974,000 2,974,000 Net loss - - - ( 761,000 ) ( 761,000 ) Balance March 31, 2025 15,920,047 $ - $ 67,171,000 $ ( 64,382,000 ) $ 2,789,000 Balance 15,920,047 $ - $ 67,171,000 $ ( 64,382,000 ) $ 2,789,000 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. Warrants During the three months ended March 31, 2025, 121,076 warrants at a weighted average exercise price of $ 3.51 per share expired. There are no warrants outstanding as of March 31, 2025. Equity Incentive Plan As of March 31, 2025, the Company has $ 409,000 of total unrecognized share-based compensation expense relative to unvested options, stock awards and stock units, which is expected to be recognized over the remaining weighted average period of 3.0 years. 11 Stock Options The following is a summary of stock option activity for the three months ended March 31, 2025: Summary of Stock Options Activity Number of Options Weighted average exercise price per share Remaining term in years Outstanding on December 31, 2024 710,323 $ 5.04 5.5 Issued 40,071 $ 2.74 Forfeited - Expired ( 3,102 ) $ 10.01 Outstanding on March 31, 2025 747,292 $ 4.89 5.5 Exercisable, March 31, 2025 520,874 $ 5.73 3.9 The fair value of the options issued was calculated using the Black-Scholes option pricing model, based on the following: Summary of Fair Value of Options Using Black-Sholes Option Pricing Model 2025 Expected term (in years) 8.0 Expected volatility 97.4 % Risk-free interest rate 4.4 % Expected dividends $ - Weighted average grant date fair value per share $ 2.36 Restricted Stock The following is a summary of restricted stock award and restricted stock unit activity for the three months ended March 31, 2025: Schedule of Restricted Stock Award and Restricted Stock Unit Activity Number of shares Weighted average grant date fair value Unvested at January 1, 2025 61,873 $ 2.72 Granted 44,880 $ 2.69 Forfeited ( 9,960 ) $ ( 2.51 ) Vested ( 18,873 ) $ ( 4.80 ) Unvested at March 31, 2025 77,920 $ 2.23 Performance Share Units The Company issues performance share units (“PSUs”) that represent shares potentially issuable based upon Company and individual performance in the years of issuance. 12 The following table summarizes the activity for the Company’s unvested PSUs for the three months ended March 31, 2025: Schedule of Performance Stock Unit Activity Number of shares Weighted average grant date fair value Unvested January 1, 2025 157,694 $ 1.20 Vested ( 157,694 ) Unvested at March 31, 2025 - $ - Note 7. Income Taxes 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 the deferred tax assets will not be recognized. Accordingly, at this time the Company has placed a valuation allowance on all tax assets. As of March 31, 2025, the estimated effective tax rate for 2025 was zero . There are open statutes of limitations for taxing authorities in federal and state jurisdictions to audit our tax returns from 2019 through the current period. Our policy is to account for income tax related interest and penalties in income tax expense in the statement of operations. For the three months ending March 31, 2025 and 2024, the Company did not incur any interest and penalties associated with tax positions. As of March 31, 2025, the Company did not have any significant unrecognized uncertain tax positions. Note 8. Liquidity During the three months ending March 31, 2025, the Company used cash in operations of $ 506,000 . As of March 31, 2025, the Company had $ 1,872,000 of cash. 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 4, the dispute and subsequent contract termination with the Manufacturer has resulted in limitations in the Company’s ability to procure certain products necessary to achieve our growth projections and in elevated legal costs. To mitigate the impact of procurement constraints, the Company builds inventory in anticipation of third quarter seasonal requirements, and has invested in materials necessary to carry out trials and initial production runs at new co-manufacturers. The Company secured a receivables-based line of credit in August 2024 of $ 1,500,000 , with no outstanding borrowing as of March 31, 2025. Management expects that the cash cycle will shorten as additional contracted capacity improves production volume and efficiency in 2025. Additionally, in May 2024, the Company obtained non-recourse litigation financing to allow vigorous pursuit of the complaint against the Manufacturer without further expense to the Company. Finally, as described in Note 6, the Company raised $ 3,000,000 through the sale of the Company’s common stock in February 2025. The financial position at March 31, 2025 and historical results raise substantial doubt about the Company’s ability to continue as a going concern. As described, the Company has completed steps to mitigate dispute related issues and raise capital. The actions taken have resulted in the alleviation of the substantial doubt about the Company’s ability to continue as a going concern. 13