Barfresh(BRFH) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements This section presents Barfresh Food Group Inc.'s unaudited condensed consolidated financial statements and related notes Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position at specific points in time Condensed Consolidated Balance Sheet Highlights (June 30, 2025 vs. December 31, 2024) | Metric | June 30, 2025 | December 31, 2024 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Cash | $712,000 | $235,000 | +$477,000 | +203.0% | | Total Current Assets | $3,253,000 | $2,723,000 | +$530,000 | +19.5% | | Total Assets | $3,767,000 | $3,318,000 | +$449,000 | +13.5% | | Line of Credit | $0 | $609,000 | -$609,000 | -100.0% | | Total Current Liabilities | $1,651,000 | $2,616,000 | -$965,000 | -36.9% | | Total Liabilities | $1,720,000 | $2,740,000 | -$1,020,000 | -37.2% | | Total Stockholders' Equity | $2,047,000 | $578,000 | +$1,469,000 | +254.2% | Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net loss over specific periods Condensed Consolidated Statements of Operations Highlights (Three Months Ended June 30) | Metric | 2025 | 2024 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,625,000 | $1,464,000 | +$161,000 | +11.0% | | Cost of Revenue | $1,119,000 | $955,000 | +$164,000 | +17.2% | | Gross Profit | $506,000 | $509,000 | -$3,000 | -0.6% | | Loss from Operations | $(868,000) | $(1,005,000) | +$137,000 | -13.6% | | Net Loss | $(880,000) | $(1,011,000) | +$131,000 | -13.0% | | Net Loss per Share | $(0.06) | $(0.07) | +$0.01 | -14.3% | Condensed Consolidated Statements of Operations Highlights (Six Months Ended June 30) | Metric | 2025 | 2024 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $4,555,000 | $4,293,000 | +$262,000 | +6.1% | | Cost of Revenue | $3,149,000 | $2,614,000 | +$535,000 | +20.5% | | Gross Profit | $1,406,000 | $1,679,000 | -$273,000 | -16.3% | | Loss from Operations | $(1,606,000) | $(1,450,000) | -$156,000 | +10.8% | | Net Loss | $(1,641,000) | $(1,460,000) | -$181,000 | +12.4% | | Net Loss per Share | $(0.10) | $(0.10) | $0.00 | 0.0% | Condensed Consolidated Statements of Cash Flows This section outlines the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30) | Metric | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(1,575,000) | $(1,549,000) | -$26,000 | | Net Cash Used in Investing Activities | $(94,000) | $(4,000) | -$90,000 | | Net Cash Provided by Financing Activities | $2,146,000 | $45,000 | +$2,101,000 | | Net Increase (Decrease) in Cash | $477,000 | $(1,508,000) | +$1,985,000 | | Cash, End of Period | $712,000 | $383,000 | +$329,000 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the financial statements Note 1. Description of the Business, Basis of Presentation, and Summary of Significant Accounting Policies This note describes the company's operations, financial statement basis, and key accounting policies - The company manufactures and distributes ready-to-drink and ready-to-blend beverages, specifically smoothies, shakes, and frappes[16] Vendor Concentrations (Percentage of Finished Goods Purchased) | Manufacturer | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Manufacturer A | 44% | 45% | 48% | 56% | | Manufacturer B | 44% | 49% | 41% | 41% | | Other Manufacturers | 12% | 6% | 11% | 3% | - Manufacturer A will cease supplying Twist & Go smoothie bottles by February 2026; Manufacturer B is installing new bottling equipment expected to be operational by January 2026 with 400% additional capacity[20] - Revenue is recognized when a customer obtains ownership of promised goods, typically upon delivery to a customer warehouse[28] Research and Development Expense | Period | 2025 | 2024 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Three months ended June 30 | $31,000 | $17,000 | +$14,000 | +82.4% | | Six months ended June 30 | $49,000 | $47,000 | +$2,000 | +4.3% | Note 2. Inventory This note details the composition and valuation of the company's inventory assets Inventory Composition (June 30, 2025 vs. December 31, 2024) | Category | June 30, 2025 | December 31, 2024 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Raw materials and packaging | $470,000 | $505,000 | -$35,000 | -6.9% | | Finished goods | $1,372,000 | $995,000 | +$377,000 | +37.9% | | Inventory, net | $1,842,000 | $1,500,000 | +$342,000 | +22.8% | Note 3. Property Plant and Equipment This note outlines the company's fixed assets, including manufacturing and customer equipment Property and Equipment, Net (June 30, 2025 vs. December 31, 2024) | Category | June 30, 2025 | December 31, 2024 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Manufacturing equipment | $1,556,000 | $1,376,000 | +$180,000 | +13.1% | | Customer equipment | $1,398,000 | $1,398,000 | $0 | 0.0% | | Construction in progress | $66,000 | $152,000 | -$86,000 | -56.6% | | Total Gross Property & Equipment | $3,020,000 | $2,926,000 | +$94,000 | +3.2% | | Accumulated depreciation | $(2,700,000) | $(2,593,000) | -$107,000 | +4.1% | | Property and equipment, net | $320,000 | $333,000 | -$13,000 | -3.9% | Depreciation Expense | Period | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Three months ended June 30 | $54,000 | $56,000 | -$2,000 | | Six months ended June 30 | $107,000 | $113,000 | -$6,000 | Note 4. Commitments and Contingencies This note discloses legal disputes and other potential future obligations or claims - The company is engaged in a legal dispute with a contract manufacturer (Schreiber Dispute) over quality issues and contract termination, resulting in a $499,000 withholding of payments[38][39] - Non-recourse litigation financing was secured in May 2024 to fund the pursuit of the complaint against the manufacturer[40] - The supply disruption from the dispute has adversely impacted operations, though the company has mitigated this with single-serve smoothie cartons[41] Note 5. Debt This note details the company's various financing agreements and outstanding debt obligations - A $1,500,000 receivables financing facility was secured in August 2024, with no outstanding borrowings as of June 30, 2025[43] Financing Agreements Amounts Due (as of June 30, 2025) | Period | Amount Due | | :--- | :--- | | 2025 (6 months) | $64,000 | | 2026 | $136,000 | | Total payments due | $200,000 | | Less: interest | $(24,000) | | Net amount | $176,000 | | Less: current portion | $(107,000) | | Financing agreements (non-current) | $69,000 | - A $2,000,000 privately placed convertible debt offering from July 2023 to March 2024 was fully settled by March 2024 through conversion into common stock[46][47] Note 6. Stockholders' Equity This note outlines changes in the company's equity, including stock issuances and compensation - On February 5, 2025, the company sold 1,052,793 shares of common stock at $2.85 per share in a registered direct offering, raising $2,974,000[48] Stockholders' Equity Changes (Six Months Ended June 30, 2025) | Item | Amount | | :--- | :--- | | Balance December 31, 2024 | $578,000 | | Issuance of common stock for equity compensation, net | $(161,000) | | Equity-based compensation expense | $297,000 | | Registered issuance of common stock | $2,974,000 | | Net loss | $(1,641,000) | | Balance June 30, 2025 | $2,047,000 | - Total unrecognized share-based compensation expense is $867,000, expected to be recognized over a weighted average period of 2.2 years[50] Note 7. Income Taxes This note explains the company's income tax provisions and deferred tax assets - A valuation allowance has been placed on all deferred tax assets, resulting in an estimated effective tax rate of zero for 2025[56] - No significant unrecognized uncertain tax positions or associated interest and penalties were incurred for the three and six months ended June 30, 2025 and 2024[58] Note 8. Liquidity This note assesses the company's ability to meet its short-term obligations and fund operations - The company used $1,575,000 in cash from operations during the six months ended June 30, 2025[59] - Working capital increased to $2,101,000 as of June 30, 2025, from $606,000 at December 31, 2024, primarily due to capital raised[59][94] - Despite a history of operating losses and negative cash flow, actions such as securing new manufacturing capacity, obtaining litigation financing, and raising capital have alleviated substantial doubt about the company's ability to continue as a going concern[60][61][62] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, liquidity, and capital resources Cautionary Note Regarding Forward-Looking Statements This note advises that future results may differ from forward-looking statements due to risks - The discussion includes forward-looking statements subject to risks and uncertainties, and actual results may differ materially[66][67] Critical Accounting Policies This section highlights key accounting policies requiring significant management judgment - Consolidated financial statements are prepared in conformity with GAAP[68] Results of Operations This section analyzes the company's financial performance over the reported periods Results of Operation for the Three Months Ended June 30, 2025 as Compared to the Three Months Ended June 30, 2024 This section compares the company's financial performance for the three-month periods - Revenue increased by 11% to $1,625,000, while cost of revenue increased by 17% due to new manufacturer trial costs and sub-optimal supply methods[69][70] - Gross profit margin decreased from 34.8% in 2024 to 31.1% in 2025, attributed to product mix and new manufacturer trial costs[71] - Selling, marketing, and distribution expenses rose by 9% to $634,000, primarily due to a 27% increase in storage and outbound freight costs[74][75] - General and administrative expenses decreased by 22% to $673,000, driven by lower personnel costs (14% decrease), stock-based compensation (35% decrease), and legal fees (49% decrease due to non-recourse funding)[76][77][78] - Net loss improved by $131,000 to $(880,000), with gross margin expected to normalize in the second half of 2025 as new co-manufacturers reach full capacity[80] Results of Operation for the Six Months Ended June 30, 2025 as Compared to the Six Months Ended June 30, 2024 This section compares the company's financial performance for the six-month periods - Revenue increased by 6% to $4,555,000, but cost of revenue increased by 20% due to new manufacturer trial costs and sub-optimal supply[81][82] - Gross profit margin decreased significantly from 39.1% in 2024 to 30.9% in 2025, primarily due to product mix and new manufacturer trial and development costs[83] - Selling, marketing, and distribution expenses increased by 14% to $1,458,000, driven by higher sales and marketing costs (13% increase) and storage/outbound freight (15% increase) due to product mix and freight inefficiencies[84][85][86] - General and administrative expenses decreased by 17% to $1,420,000, mainly due to lower stock-based compensation (43% decrease) and legal fees (48% decrease), partially offset by a 10% increase in personnel costs[87][88][89] - Net loss increased by $181,000 to $(1,641,000), primarily due to the decrease in gross margin and increased selling, marketing, and distribution costs[90] Liquidity and Capital Resources This section analyzes the company's cash position, funding sources, and capital management - The company used $1,575,000 in cash from operations during the first six months of 2025, with changes in current assets and liabilities using $391,000, mainly due to inventory investment and decreases in payables[93] - Working capital significantly increased to $2,101,000 as of June 30, 2025, from $606,000 at December 31, 2024, primarily due to a $3,000,000 capital raise from common stock sales in February 2025[92][94] - All convertible debt from a $2,000,000 offering (July 2023-March 2024) was fully converted into common stock by March 2024[91] - Future liquidity depends on profitable sales growth, control of operating expenses, and the ability to secure additional funding if necessary[95][96] Off-Balance Sheet Arrangements This section discloses any material off-balance sheet transactions or obligations - The company has no off-balance sheet arrangements that are material to its financial condition or results of operations[97] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Barfresh Food Group Inc. is not required to provide market risk disclosures - The company is exempt from providing quantitative and qualitative disclosures about market risk due to its status as a smaller reporting company[98] Item 4. Controls and Procedures Management evaluated disclosure controls and procedures as effective with no changes in internal control - Disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of June 30, 2025[99] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[100] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and other miscellaneous disclosures Item 1. Legal Proceedings The company is involved in an ongoing legal dispute with a contract manufacturer and another minor proceeding - Ongoing dispute with a contract manufacturer (Schreiber Dispute) regarding product quality issues and contract termination, with an unpredictable outcome[102] - The company is a defendant in a legal proceeding for less than $100,000, with a material unfavorable outcome considered remote[103] Item 1A. Risk Factors The company faces significant supply chain and manufacturing disruption risks due to reliance on limited manufacturers - Significant risk of disruption within the supply chain, contract manufacturing, or distribution channels due to reliance on a limited number of manufacturers[105][107] - A contract manufacturer for Twist & Go smoothie bottles will cease supply by February 1, 2026, and the company is working with new and existing manufacturers to replace and increase that volume, but success is not assured[108] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company issued 19,920 shares for $50,000 to board members under registration exemptions during Q2 2025 - Issued 19,920 shares of common stock to two board members for $50,000 in settlement of vested restricted stock units during Q2 2025[109] - The issuance relied on exemptions from registration under Rule 506(b) and Section 4(a)(2) of the Securities Act[109] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities for the period - No defaults upon senior securities were reported[110] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable[111] Item 5. Other Information No other material information was reported in this section - No other information was reported[112] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL documents List of Exhibits | Exhibit No. | Description | | :--- | :--- | | 31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(a) | | 31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) | | 32.1 | Certification pursuant to 18 U.S.C. Section 1350 | | 101.INS | Inline XBRL Instance Document* | | 101.SCH | Inline XBRL Taxonomy Extension Schema Document* | | 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document* | | 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document* | | 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document* | | 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document* | | 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | SIGNATURES The report is signed by Barfresh Food Group Inc.'s CEO and CFO as of August 13, 2025 - The report was signed by Riccardo Delle Coste (CEO) and Lisa Roger (CFO) on August 13, 2025[115][116]