Barfresh(BRFH) - 2024 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements The company's financial statements for the period ended September 30, 2024, show a decrease in total assets and stockholders' equity compared to December 31, 2023, with revenue increasing year-over-year for both periods, despite continued net losses and negative operating cash flow, necessitating new debt and financing agreements Condensed Consolidated Balance Sheets As of September 30, 2024, total assets decreased to $3.77 million from $4.81 million at year-end 2023, primarily due to reduced cash and inventory, while total liabilities slightly increased to $2.37 million, and stockholders' equity declined from $2.50 million to $1.40 million Balance Sheet Comparison (in thousands) | Account | Sep 30, 2024 (Unaudited) | Dec 31, 2023 (Audited) | | :--- | :--- | :--- | | Total Current Assets | $3,090 | $4,153 | | Cash | $401 | $1,891 | | Inventory, net | $770 | $1,214 | | Total Assets | $3,772 | $4,810 | | Total Current Liabilities | $2,218 | $2,307 | | Total Liabilities | $2,369 | $2,307 | | Total Stockholders' Equity | $1,403 | $2,503 | Condensed Consolidated Statements of Operations For Q3 2024, revenue grew 40% year-over-year to $3.64 million, with gross profit increasing to $1.26 million, but rising operating expenses led to a slightly larger net loss of $513,000 compared to $476,000 in Q3 2023, while the nine-month revenue increased 28% to $7.93 million, and the net loss narrowed to $1.97 million from $2.12 million in the prior year Statement of Operations Highlights (in thousands, except per share data) | Metric | Q3 2024 | Q3 2023 | 9 Months 2024 | 9 Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $3,637 | $2,603 | $7,929 | $6,205 | | Gross Profit | $1,260 | $913 | $2,938 | $2,242 | | Loss from Operations | $(500) | $(475) | $(1,949) | $(2,120) | | Net Loss | $(513) | $(476) | $(1,973) | $(2,123) | | Net Loss Per Share | $(0.03) | $(0.04) | $(0.13) | $(0.16) | Consolidated Statements of Cash Flows For the nine months ended September 30, 2024, the company used $1.54 million in cash from operating activities, an improvement from the $1.99 million used in the same period of 2023, with net cash provided by financing activities at $115,000, resulting in a $1.49 million decrease in cash, ending the period at $401,000 Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,544) | $(1,990) | | Net cash used in investing activities | $(61) | $0 | | Net cash provided by (used in) financing activities | $115 | $(18) | | Net decrease in cash | $(1,490) | $(2,008) | | Cash, end of period | $401 | $1,011 | Notes to Condensed Consolidated Financial Statements Key notes highlight significant vendor concentration, an ongoing legal dispute with a former key manufacturer, new debt facilities to improve liquidity, and the alleviation of substantial doubt about the company's ability to continue as a going concern, alongside the adoption of a new equity incentive plan and modification of its performance share unit program - The company has significant vendor concentration, with two manufacturers (A and B) accounting for 100% of finished goods purchases in Q3 2024 and 98% in the first nine months of 2024[11] - The company is in a legal dispute with a former key contract manufacturer over product quality issues, withholding $499,000 in payments, which has adversely impacted supply and operations, though partially mitigated by new product formats and litigation financing obtained in May 2024[26][27] - In August 2024, the company secured a $1.5 million receivables financing facility to improve liquidity, with $1.4 million available to borrow as of September 30, 2024[29] - Despite a history of negative cash flow and operating losses, management's actions, including securing new financing and contracting additional manufacturing capacity, have alleviated substantial doubt about the company's ability to continue as a going concern[42][44] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 40% revenue growth in Q3 2024 to improved availability of its bottled smoothies and continued acceptance of its carton products, with gross margin improving to 38% excluding one-time production relocation costs, while operating expenses increased due to higher sales and marketing costs to support growth, and the company has taken several steps to manage liquidity, including securing a new credit line and litigation financing, expecting expanded manufacturing capacity in Q4 2024 Results of Operations For Q3 2024, revenue increased 40% year-over-year, driven by improved product availability and new product formats, with gross margin at 35% (or 38% excluding $126,000 in production relocation costs), and selling, marketing, and distribution expenses rising 42% to support sales growth, while for the nine-month period, revenue grew 28% and net loss decreased by $150,000, as higher gross profit offset increased operating expenses Q3 2024 vs Q3 2023 Performance (in thousands) | Metric | Q3 2024 | Q3 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $3,637 | $2,603 | $1,034 | 40% | | Gross Profit | $1,260 | $913 | $347 | 38% | | Gross Margin | 35% | 35% | - | - | | Selling, Marketing & Distribution | $990 | $697 | $293 | 42% | | General & Administrative | $705 | $577 | $128 | 22% | | Net Loss | $(513) | $(476) | $(37) | 8% | Nine Months 2024 vs 2023 Performance (in thousands) | Metric | 9M 2024 | 9M 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $7,929 | $6,205 | $1,724 | 28% | | Gross Profit | $2,938 | $2,242 | $696 | 31% | | Gross Margin | 37% | 36% | - | - | | Net Loss | $(1,973) | $(2,123) | $150 | -7% | Liquidity and Capital Resources The company's liquidity has been strained by operating losses and a dispute with a key manufacturer, addressed by a $2 million convertible debt offering, non-recourse litigation financing, and a receivables financing line in Q3 2024, though working capital decreased to $1.37 million from $2.35 million at year-end 2023, with future liquidity dependent on ramping up sales profitably and controlling expenses - The company used $1.54 million in cash from operations during the first nine months of 2024, primarily due to a net loss adjusted for non-cash items and an increase in accounts receivable[69] - Working capital (excluding disputed payables) decreased from $2.35 million at Dec 31, 2023, to $1.37 million at Sep 30, 2024, due to operating losses[70] - The company has taken measures to reduce liquidity requirements, including compensating directors and employees with equity, obtaining non-recourse litigation financing, and securing receivables financing[71] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Barfresh Food Group Inc. is not required to provide this information - Disclosure is not required because the company is a smaller reporting company[73] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2024, with a previously disclosed material weakness related to the control environment and inadequate segregation of duties successfully remediated - The CEO and CFO concluded that as of September 30, 2024, the company's disclosure controls and procedures were effective at a reasonable assurance level[73] - A material weakness in internal control over financial reporting related to inadequate segregation of duties, previously disclosed through 2023, has been remediated as of September 30, 2024[74][75] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is involved in an ongoing dispute with a former contract manufacturer, the outcome of which is currently unpredictable, and is also a defendant in another minor legal proceeding for an amount less than $100,000, which management believes is unlikely to have a material unfavorable outcome - The company has an ongoing dispute with a former manufacturer, as described in Note 4 of the financial statements, and the outcome cannot be predicted at this time[76] Item 1A. Risk Factors As a smaller reporting company, Barfresh Food Group Inc. is not required to provide this information - Disclosure is not required because the company is a smaller reporting company[77] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the third quarter of 2024, the company issued 22,266 shares of common stock for services valued at $97,300, with the issuance exempt from registration under Rule 506(b) and Section 4(a)(2) of the Securities Act - In the quarter ended September 30, 2024, the company issued 22,266 shares of common stock in exchange for services valued at $97,300[77] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[78] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[78] Item 5. Other Information The company reported no other information - None[78] Item 6. Exhibits The report lists the exhibits filed, including officer certifications (Exhibits 31.1, 31.2, 32.1) and Inline XBRL documents - Exhibits filed with the report include certifications from the Principal Executive Officer and Principal Financial Officer, as well as Inline XBRL data files[74][79]