BARFRESH FOOD GROUP INC

Previous wording

Revenue increased $738,000, or 35%, to $2,829,000 in 2024 as compared to $2,091,000 in 2023. Our revenue in 2024 benefited from continued acceptance of our carton packaging format and improvements in bulk sales, including our WHIRLZ 100% juice product that was reintroduced in the fourth quarter of 2023, as the impact of venue closures and labor shortages resulting from the pandemic had substantially resolved. Our revenues in 2023 were adversely impacted because of lost customers and supply constraints resulting from the product issues and related dispute with the Manufacturer. While the introduction of our carton packaging format has mitigated the loss of supply, the product offering has not been accepted by some customers or as a substitute for the bottle product in all use cases. We have been able to expand our capacity on a limited basis at our existing smoothie bottle manufacturer and are actively working to develop additional manufacturing capacity. We expect expanded capacity to become available in 2024, subject to the risks and uncertainties associated with contracting and pre-production activities.

Current wording

While the introduction of our carton packaging format has mitigated the loss of supply, the product offering has not been accepted by some customers or as a substitute for the bottle product in all use cases. We have been able to expand our capacity on a limited basis at our existing smoothie bottle manufacturer and in July 2024 contracted with an additional manufacturer. We expect expanded capacity to become available in the third quarter of 2024, subject to the risks and uncertainties associated with pre-production activities.

Previous wording

Our gross profit was $1,170,000 (41.4%) and $855,000 (40.9%) for 2024 and 2023, respectively. The improvement in gross margin is a result of favorable product mix, pricing actions, and a slight improvement in the cost of supply chain components.

Current wording

Our gross profit was $509,000 (34.8%) and $474,000 (31.4%) for 2024 and 2023, respectively. The improvement in gross margin is a result of favorable product mix, pricing actions, and a slight improvement in the cost of supply chain components.

Previous wording

Sales and marketing expense decreased approximately $26,000 (-7%) from approximately $356,000 in 2023 to $330,000 in 2024. The decrease is a result of headcount reductions and lower advertising expense, partially offset by higher broker commissions due to expansion of the broker network and the increase in revenue.

Current wording

Sales and marketing expense decreased approximately $7,000 (5%) from approximately $373,000 in 2023 to $366,000 in 2024. The increase is a result of a reduction in compensation expense, partially offset by higher broker commissions due to expansion of the broker network.

Previous wording

We had net losses of approximately $449,000 and $889,000 for the three-month periods ended March 31, 2024 and 2023, respectively. The decrease in net loss of approximately $440,000, was the result of improved revenue and margins, and a reduction of approximately $125,000 in operating expenses due to cost-saving measures.

Current wording

We had net losses of approximately $1,011,000 and $742,000 for the three-month periods ended June 30, 2024 and 2023, respectively. The increase in net loss of approximately $269,000, was primarily the result of a shift to stock-based compensation and the non-recurrence of recognizing ERTC benefits in 2023.

Previous wording

Cost of revenue increased $423,000, or 34%, to $1,659,000 in 2024 as compared to $1,236,000 in 2023. Cost of revenue increased at a lower rate compared to revenue due to product mix and slight improvements in raw material and other input costs.

Current wording

Cost of revenue increased $341,000, or 15%, to $2,614,000 in 2024 as compared to $2,273,000 in 2023. Cost of revenue increased at a lower rate compared to revenue due to product mix and slight improvements in raw material and other input costs.

Previous wording

Storage and outbound freight expense increased approximately $53,000 (17%) from approximately $311,000 in 2023 to $364,000 in 2024, primarily because of the 35% increase in revenue, freight efficiencies, and lower storage and inventory management cost in 2024 because of inventory disposals following the dispute with the Manufacturer.

Current wording

Storage and outbound freight expense increased approximately $19,000 (3%) from approximately $562,000 in 2023 to $581,000 in 2024, primarily because of the 19% increase in revenue over the same period, partially offset by freight efficiencies, and lower storage and inventory management cost in 2024.

Previous wording

On June 1, 2021, we completed a private placement of 1,282,051 shares of its common stock at $4.68 per share, resulting in gross proceeds of $6,000,000. In addition, holders of debt converted a total of $399,000 in principal and $234,000 in interest into 133,991 shares of common stock and debt in the amount of $840,000 was retired, leaving the Company with no debt.

Current wording

On June 1, 2021, we completed a private placement of 1,282,051 shares of our common stock at $4.68 per share, resulting in gross proceeds of $6,000,000. In addition, holders of debt converted a total of $399,000 in principal and $234,000 in interest into 133,991 shares of common stock and debt in the amount of $840,000 was retired, leaving the Company with no debt.

Previous wording

From July 2023 to March 2024, we 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 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 the 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.

Current wording

From July 2023 to March 2024, we 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 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.

Previous wording

As of March 31, 2024, we had working capital of $1,981,000 compared with $1,846,000 at December 31, 2023. The increase in working capital is primarily due to capital raised in the three months ended March 31, 2024 through the sale convertible notes and the conversion of those notes and other current liabilities to equity.

Current wording

As of June 30, 2024, we had working capital of $1,185,000 compared with $1,846,000 at December 31, 2023. The decrease in working capital is primarily due to losses incurred in the six months ended June 30, 2024, partially offset by capital raised in the six months ended June 30, 2024 through the sale convertible notes and the conversion of those notes and other current liabilities to equity.

Previous wording

Our 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 and reduce fixed overhead expense. Our current dispute with the Manufacturer and the resulting loss of product supply and legal expense continue to negatively impact our financial position, results of operations and cash flow. While the introduction of our carton packaging format has mitigated the loss of supply, the product offering has not been accepted by some customers or as a substitute for the bottle product in all use cases. We have identified and are actively working to develop additional smoothie bottle manufacturing capacity. We expect expanded capacity to become available in 2024, subject to the risks and uncertainties associated with contracting and pre-production activities. Additionally, we have taken other measures to reduce our liquidity requirements, including compensating our directors and employees with equity to reduce cash compensation requirements.

Current wording

Our 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. Our current dispute with the Manufacturer and the resulting loss of product supply and legal expense continue to negatively impact our financial position, results of operations and cash flow. While the introduction of our carton packaging format has mitigated the loss of supply, the product offering has not been accepted by some customers or as a substitute for the bottle product in all use cases. We have contracted with a co-manufacturer for additional smoothie bottle manufacturing capacity. We expect expanded capacity to become available in 2024, subject to the risks and uncertainties associated with pre-production activities. Additionally, we have taken other measures to reduce our liquidity requirements, including compensating our directors and employees with equity to reduce cash compensation requirements, obtaining non-recourse litigation financing, and securing receivables financing in the third quarter of 2024.