BARFRESH FOOD GROUP INC.

Note 1. 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.

On October 3, 2025, we acquired 100% of the stock (the “Acquisition”) of Arps Dairy, Inc., an Ohio corporation (“Arps Dairy”). See Note 11.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

Principles of Consolidation

The consolidated financial statements include the financial statements of the Company and our wholly owned subsidiaries, Barfresh Corporation Inc. (formerly known as Smoothie, Inc.), Arps Dairy, Inc., and Barfresh 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:

Manufacturer A gave notice that it would not renew our contract when it concluded in February 2026. Additionally, in December 2025, Manufacturer B discontinued manufacturing our products. The Acquisition is a significant step towards protecting against or mitigating the impact of these losses, and the adverse effect on our business, financial condition and results of operations. Since the Acquisition, Arps Dairy has commenced production of virtually all of the Company’s legacy product lines, manufacturing 18% of cases produced in the fourth quarter of 2025.

Concentration of Credit Risk

The following customers accounted for 10% or more of the Company’s accounts receivable balance at December 31:

Financial Instruments

Our financial instruments consist of cash, accounts receivable, accounts payable, and the line of credit and financing agreements. The carrying value of our financial instruments approximates their fair value.

Accounts Receivable

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. Accounts receivable from customers are typically unsecured. The Company’s credit policy calls for payment generally within 30 days. The credit worthiness of a customer is evaluated prior to an initial sale and is updated periodically based on payment performance. 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 consolidated statements of operations. As of December 31, 2025 and 2024, there wasno allowance for credit losses. There wasno credit loss expense for the years ended December 31, 2025 and 2024. Accounts receivable amounted to $821,000 on January 1, 2024.

Inventory

Inventory consists of packaging, raw materials and finished goods and is carried at the lower of cost or net realizable value on a first in first out basis. The Company monitors the remaining useful life of its inventory and establishes a reserve of obsolescence where appropriate.

Intangible Assets

In accordance with ASC Topic 350Intangibles – Goodwill and Other Intangibles (“ASC 350”), legal costs related to trademarks have been capitalized. We have determined that trademarks have an indeterminable life and therefore are not being amortized. Patent costs capitalized pursuant to ASC 350 became fully amortized in 2025.

Long-Lived Assets and Other Acquired Intangible Assets

We evaluate the recoverability of property and equipment and finite-lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. The evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of property and equipment and intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value. There was no impairment in 2025 or 2024.

Property, Plant, and Equipment

Property, plant, and equipment is stated at cost less accumulated depreciation and accumulated impairment loss, if any. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are being amortized over the shorter of the useful life of the asset or the lease term that includes any expected renewal periods that are deemed to be reasonably assured. The estimated useful lives used for financial statement purposes are (in years):

Government Grant

The Company has been awarded a $2,400,000 government grant to fund 50% of equipment purchases for the New Facility. As of December 31, 2025, there have been no assets acquired that are eligible for reimbursement under the grant. The Company expects to early adopt the Financial Accounting Standards Board’s Accounting Standards Update 2025-10, Government Grants. Grant proceeds will reduce the value of the assets acquired and the resulting depreciation expense over the estimated useful lives of the assets acquired.

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:

Research and Development

Expenditures for research activities relating to product development and improvement are charged to expense as incurred. The Company incurred $128,000 and $132,000, in research and development expenses for the years ended December 31, 2025 and 2024, respectively, which is included in general and administrative expense in the accompanying consolidated statements of operations.

Storage and Shipping Costs

Storage and outbound freight costs are included in selling, marketing and distribution expense. For the years ended December 31, 2025 and 2024, storage and outbound freight amounted to $1,652,000 and $1,473,000, respectively.

Leases

We determine if an arrangement is a lease upon inception. The Company classifies an arrangement as a finance lease if the lease transfers ownership at the end of the term, contains a purchase option that the Company is reasonably certain to exercise, covers the major part of the asset’s remaining economic life, or the present value of lease payments equals or exceeds substantially all of the asset’s fair value. Other arrangements are classified as operating leases. Assets acquired under finance leases and operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Depreciation of property and equipment acquired under finance leases is recorded on a straight-line basis, and interest is recognized on the lease liability using the effective interest method. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Leases with an initial or extended term of twelve months or less are not recorded on the balance sheet. As a lessee, the Company leases office space, machinery and equipment.

Income Taxes

The provision for income taxes is determined in accordance with the provisions of ASC Topic 740,Accounting for Income Taxes (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements, uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has agreater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

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 of the deferred tax assets will not be recognized.

For the years ended December 31, 2025 and 2024 we didnot have any interest and penalties or any significant unrecognized uncertain tax positions.

Derivative Liability

The Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The Company determined that its convertible instruments issued in 2024 and 2023 did not include any embedded derivatives that require bifurcation.

Loss per Share

We calculate net loss per share in accordance with ASC Topic 260,Earnings per Share. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period, and diluted earnings per share is computed by including common stock equivalents outstanding for the period in the denominator. At December 31, 2025 and 2024 any common stock equivalents would have been anti-dilutive as we had losses for the years then ended.

Stock Based Compensation

The Company calculates stock compensation in accordance with ASC Topic 718,Compensation-Stock Based Compensation (“ASC 718”). ASC 718 requires that the cost resulting from all share-based payment transactions be recognized in the financial statements and establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based measurement method in accounting for share-based payment transactions with employees.

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 at December 31:

Note 3. Property Plant and Equipment

Major classes of property and equipment consist of the following at December 31:

The Company recorded depreciation expense related to these assets of $202,000 and $220,000 for the years ended December 31, 2025 and 2024, respectively. Depreciation expense in cost of revenue was $76,000 and $25,000 for the years ended December 31, 2025 and 2024 respectively.

Assets subject to financing leases consist of the following at December 31:

Depreciation expense related to leased assets amounted to $93,000 in 2025. There was no depreciation expense related to leased assets in 2024.

Note 4. Intangible Assets

Intangible assets consist of the following at December 31:

The amounts carried on the balance sheet represent cost to acquire, legal fees and similar costs relating to the patents incurred by the Company. Amortization is recorded through the expiration date of the patent. The amount charged to expenses for amortization of the patent costs was $54,000 and $63,000 for the years ended December 31, 2025 and 2024, respectively.

Note 5. Debt

Line of Credit

In August 2024, the Company secured receivables financing of $1,500,000 (the “Barfresh Facility”), and amended the facility in September 2025 to increase the available financing to $2,500,000. In October 2025, the Company secured receivables financing of $1,500,000 for Arps Dairy (together with the Barfresh Facility, the “Credit Facilities”).

Under the Credit Facilities, the Company may borrow up to 90% of eligible customer account balances. Amounts outstanding bear interest at a rate based on the prime rate plus collateral fees, and are secured by accounts receivable and inventory. The weighted average rate was 8.35% and 8.70% on December 31, 2025 and 2024, respectively. The Credit Facilities expire on their respective annual anniversaries, and renew automatically, unless notice is given or received.

As of December 31, 2025, there was $1,149,000 drawn under the Credit Facilities, and $2,851,000 was available to borrow, subject to available collateral. Unamortized deferred financing discount amounted to $25,000 as of December 31, 2025.

Financing Agreements

In 2024 and 2025, the Company entered into financing agreements to purchase equipment and software as a service, with a weighted average imputed or stated interest of 23%. Amounts due under the agreements are due over a weighted average period of 28 months, with maturities as follows as of December 31, 2025:

Interest expense related to financing agreements amounted to $62,000 and $24,000 in 2025 and 2024, respectively.

Debt

The Company’s debt consists of amounts owed by Arps Dairy prior to the Acquisition, and includes the following:

Manager Note

The balance represents amounts due to a manager who was an Arps Dairy stockholder preceding the selling shareholders in the Acquisition (the “Manager Note”). The manager agreed to forgive one-half of the note payable in connection with the Acquisition, establishing the fair value of the note as of the Acquisition date (Note 11). The remaining balance was modified to require quarterly payments in either cash or Barfresh Shares, at Barfresh’ election, commencing no later than April 3, 2026, with full repayment due no later than October 3, 2026.

Advances from Former Stockholders

Prior to the Acquisition, Arps Dairy shareholders made advances from time to time to support working capital requirements. Concurrently with the close of the Acquisition, the advances were formalized and the Company assumed joint and several liability for the obligations. The Company issued notes in the aggregate principal amount of $800,000 to the selling shareholders, which consist of $400,000 of debt previously owed by Arps Dairy (the “Existing Loans”) and $400,000 representing advances used to reduce the outstanding balance of the revolving line of credit to $800,000 (the “New Advances”). The Existing Loans are non-interest bearing, and were converted into shares of the Barfresh’ common stock on February 10, 2026, prior to their maturity on April 3, 2026. Because New Advances were not paid by January 3, 2026, interest accrues at the rate of 7% per annum from October 3, 2025 through the April 3, 2026 maturity date. On March 5, 2026, the maturity date of the New Advances was extended to the earlier of October 1, 2026 or the receipt of financing secured by real estate owned by the Company. Additionally, the amendments provide that holder may elect to have interest paid in cash or shares valued at a 10% discount to the volume-weighted average price of the common stock over the ten trading days immediately preceding the payment.

Mortgage Note

Prior to the Acquisition, Arps Dairy was out of compliance with the financial covenants of its Mortgage Note held by a commercial bank. In association with and contingent upon the closing of the Acquisition, Barfresh and Arps Dairy entered into a Forbearance and Loan Modification Agreement (the “Forbearance”) with the bank. As a result of the Forbearance, the bank agreed that it will not exercise its legal or contractual rights and remedies against the Company, collateral or the guarantors through January 1, 2026. Additionally, the bank consented to the sale and transfer of ownership of the Company to Barfresh and required Barfresh to become a guarantor of the Mortgage Note on a joint and several basis with the former stockholders. The Forbearance obligated the Company to repay Arps Dairy’s revolving line of credit, and an equipment note as a condition to close the Acquisition. The Company paid loan modification and legal fees of approximately $25,000 for the Forbearance.

Barfresh issued 29,020 shares valued at approximately $97,000 in consideration for the continuing guarantee of the former Arps Dairy stockholders through the term of the Forbearance. The expense is included in interest expense in the accompanying statement of operations for the year ended December 31, 2025.

On January 20, 2026, effective January 1, 2026, the parties agreed to extend the Forbearance through February 1, 2026, with an option to further extend through March 1, 2026. The option was exercised, and the Company repaid the Mortgage Note on March 6, 2026, releasing all guarantor obligations of the former shareholders.

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.

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 $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, between March 27 and 29, 2024 the Company drew $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. Commitments and Contingencies

Lease Commitments, Construction and Demolition

The Company leases headquarters office space under a non-cancelable operating lease which expired on March 31, 2023 and has been extended multiple times, most recently through March 31, 2026. The Company incurred lease expense of $85,000 for the years ended December 31, 2025 and 2024, respectively. Due to the short-term nature of the extensions, there is no right of use asset or related liability as of December 31, 2025 and 2024. The lease was not extended on March 31, 2026, and new commitments for headquarters facilities are leased on a month-to-month basis.

During 2023, the Arps Dairy sold its manufacturing facility (the “Existing Facility”) and purchased a different facility, executing both transactions with the same counterparty. Following the exchange, Arps Dairy commenced to expand the acquired property to provide a 44,000 square foot of production and office space (the “New Facility”). Arps Dairy continues to operate at the Existing Facility under a leasing arrangement. The initial lease term was 18 months, and the lease was classified as an operating lease. Additionally, the counterparty leases space at the New Facility. Neither party pays rent for the space that it occupies.

In connection with the Acquisition, the lease on the Existing Facility was extended until September 30, 2026 to permit the completion of the New Facility. Right of use assets and lease liabilities related to the free rent periods for the Existing Facility and New Facility were considered immaterial at the Acquisition date and were not considered in accounting for the business combination (Note 11). The Company is subject to penalties of $1,000 per day if it has not vacated the Existing Facility by September 30, 2026.

The New Facility expansion is expected to cost $6,000,000, of which $3,706,000 was incurred prior to the Acquisition (the “Construction Obligations”). As of December 31, 2025, Arps Dairy had incurred $4,388,000, $1,782,000 of which was construction related. In conjunction with the Acquisition, the contractor agreed to forebear from filing a mechanics lien against the building through December 2, 2025. Additionally, the agreement with the contractor stipulates that if any portion of the balance remains outstanding after December 31, 2025, it will accrue interest at 8% per annum from day sixty-one until repayment is received, subject to rate adjustment for scope modifications.

The Company is liable for the demolition of the Existing Facility, once it has vacated the premises. The Company has been awarded a $100,000 grant to pay for the demolition, which expires on December 31, 2026. No liability is currently recorded for the demolition as management believes the grant is sufficient to cover the liability.

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.

In 2025, the California State Court heard on the merits of fraud claims included in the complaint and determined that there was sufficient evidence to allow the claims to be heard. A trial date has been set for April 2027.

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 a material unfavorable outcome to be remote.

Note 7. Stockholders’ Equity

In 2024, the Company issued 124,208 shares of common stock pursuant to the conversion of debt and accrued interest, as more fully described in Note 5.

In 2024, the Company issued 201,859 shares of common stock for equity-based compensation.

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.

On October 3, 2025, in connection with continuing guarantees on the Mortgage Note,29,020 shares of common stock were granted to the selling stockholders of Arps Dairy. See Note 5.

In 2025, the Company issued 141,296 shares of common stock for equity-based compensation.

Warrants

The following is a summary of changes in warrants outstanding for the years ended December 31, 2025 and 2024:

Equity Incentive Plan

Through 2022, the Company issued equity incentive awards under the 2015 Equity Incentive Plan (the “2015 Plan”) and outside the Plan. In June 2023, the Company’s stockholders adopted the 2023 Equity Incentive Plan (the “2023 Plan”), reserving 650,000 shares for future issuance, subject to adjustment under the plan’s evergreen provision. The Board of Directors discontinued further grants under the 2015 Plan.

Awards may be granted to employees, members of the Board of Directors and consultants, and may take the form of options, restricted stock, restricted stock units, performance shares and stock appreciation rights. The Company has issued options with no intrinsic value, stock awards and stock units through December 31, 2025, and issues new shares upon exercise of options or vesting of stock awards and stock units.

The Company has reserved approximately 266,000 and 360,000, respectively for awards outstanding under the 2015 Plan and 2023 Plan, and 352,000 shares for equity awards issued outside either of the Company’s equity incentive plans. As of December 31, 2025,709,000 shares remain available for the issuance of awards under the 2023 Plan. Total shares reserved for awards that are outstanding and expected to vest or available for issuance are 1,687,000 as of December 31, 2025.

Employee Stock Purchase Plan

In 2024, the Company adopted an Employee Stock Purchase Plan (the “ESPP”) which permits employees to defer compensation to purchase shares at a 15% discount to the lower of the market price at the beginning or end of the deferment period. There were no deferrals in 2025 or 2024. The Company reserved 1,400,000 shares for issuance under the ESPP.

Stock-Based Compensation

The total amount of equity-based compensation included in general and administrative expense in the accompanying consolidated statements of operations was $536,000 and $784,000 for the years ended December 31, 2025 and 2024.

As of December 31, 2024, the Company has $515,000 of total unrecognized share-based compensation expense related to unvested options, stock awards and stock units, which is expected to be amortized over the remaining weighted average period of 2.3 years.

Stock Options

The following is a summary of stock option activity:

In December 2024, the Company modified 163,669 options that were expected to expire from December of 2024 through July of 2026 to extend the term through December 31, 2026. As a result of the modification, the Company recorded $110,000 of stock compensation expense, representing the fair value of the re-issued options compared to the fair value of the expiring options immediately prior to the modification.

The fair value of the options issued was calculated using the Black-Sholes option pricing model, based on the criteria shown below:

Restricted Stock

The following is a summary of restricted stock award and restricted stock unit activity:

Performance Stock Units

The Company issues performance share units (“PSUs”) that represent shares potentially issuable based upon achievement of Company and individual performance targets. The grantees have the ability to earn 0% and, in some cases, up to 200% of the PSU target award. The awards also included various time-based service requirements.

The following is a summary of PSU activity:

Note 8. Income Taxes

Income tax provision (benefit) for the years ended December 31, 2025 and 2024 is summarized below:

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate before provision for income taxes. The sources and tax effect of the differences are as follows:

Components of the net deferred income tax assets at December 31, 2025 and 2024 were as follows:

The Company recognized an income tax benefit of $285,000 related to the release of valuation allowance as a result of the Acquisition (Note 11). ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of evidence, it is more likely than not that some portion or all of the deferred tax assets will not be recognized. After consideration of all the evidence, both positive and negative, management hasdetermined that a 100% valuation allowance, amounting to $13,635,000 and $13,923,000 at December 31, 2025 and 2024, respectively, is necessary to reduce the net deferred tax assets to the amount that will more likely than not be realized. The decrease in valuation allowance of $288,000 and $644,000 in 2025 and 2024, respectively, resulted from a lower blended state tax rate, partially offset by current year tax losses, and in 2025, deferred tax liabilities recognized in the Acquisition and adjustments to finalize the 2024 tax loss upon filing the tax returns.

As of December 31, 2025, the Company has a net operating loss carry forward to offset future taxable income of approximately $58,603,000, $28,482,000 of which begins to expire in 2033. Net operating loss carryforwards of $30,122,000 may be carried forward indefinitely.

The Company may have experienced an ownership change that could limit its ability to utilize its operating loss carryforward to offset taxable income in future years. An analysis will be required to determine whether such change has occurred, the outcome of which could impact the Company’s operating results and cash flow if and when it achieves profitability in taxable jurisdictions.

CARES Act

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to provide certain relief as a result of the COVID-19 pandemic. The CARES Act provides tax relief, along with other stimulus measures, including a provision for an Employee Retention Credit (“ERC”), which allows for employers to claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages paid to employees from the start of the COVID-19 pandemic through September 30, 2021. The ERC was designed to encourage businesses to keep employees on the payroll during the COVID-19 pandemic. The Company received a refund of $92,000 in March 2024.

ERC claims were permitted in a variety of circumstances with varying degrees of subjectivity and clear authoritative guidance. Paid claims are subject to IRS inspection which may occur at any time prior to expiration of the statute of limitations, generally two years from the date the refund was paid. The Company’s ERC claim was based on objectively calculated declines in revenue using methods that are clearly defined in the CARES Act and various regulations and interpretations thereof.

Note 9. Business Segments and Major Customers

As a result of the Acquisition, the Company operates in two business segments. The Chief Executive Officer is the chief operating decision maker (“CODM”) who assesses performance and allocates resources based on actual and projected operating results. The CODM reviews revenue and gross profit in evaluating the efficiency of strategies within each segment, ensuring that financial and operational resources are optimized and aligned with the Company’s overall strategic objectives. The tables below present selected segment data for the years ended December 31, 2025 and 2024:

Assets are not regularly allocated to segments or considered by the CODM in assessing the performance of segments as there is a high degree of commonality in the assets utilized by the Company’s segments. Therefore, assets by segment are not presented.

Sales to the following customers represented more than 10% of total sales for the years ended December 31, 2025 and 2024:

Note 10. Supplemental Cash Flow Information

Supplemental cash flow information is as follows:

Note 11. Business Combination

On October 3, 2025, the Company acquired all of the outstanding stock of Arps Dairy, a dairy processing company, in a stock purchase accounted for as a business combination. 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 in the fourth quarter of 2024, we were notified in 2025 that other co-manufacturers elected to discontinue production of smoothie cartons and smoothie bottles in December 2025 and January 2026, respectively. The Acquisition was undertaken to resolve constrained capacity experienced since 2022 under the co-manufacturing business model.

The purchase price of Arps Dairy stock is allocated to the identified assets and liabilities based on their estimated respective fair values as of October 3, 2025, with the difference recorded as a bargain purchase in the accompanying consolidated statement of operations for the year ended December 31, 2025:

The Company recognized a bargain purchase of $767,000 which is recognized as a non-operational gain in the accompanying consolidated statement of operations for the year ended December 31, 2025. The Company believes that the bargain purchase is a result of the financial distress experienced by Arps Dairy, the condition of Old Facility, and the lack of progress on the New Facility due to financing constraints.

The Company incurred $518,000 in transaction costs related to the Acquisition during the year ended December 31, 2025. The costs are classified as general and administrative expense in the accompanying consolidated statement of operations. The results of operations for Arps Dairy have been included in the Company’s consolidated statement of operations since the closing date of the Acquisition on October 3, 2025. Arps Dairy’s total revenues and loss for the year ended December 31, 2025 amounted to $2,852,000 and $921,000, respectively.

The following unaudited pro forma financial information shows the combined results of operations of the Company and Arps Dairy, as if the Acquisition had occurred as of the beginning of the years presented. Pro forma net loss for 2025 excludes $767,000 bargain purchase gain, $285,000 income tax benefit, $518,000 of transaction costs, and $97,000 of debt guarantee expense accounted for as a separate transaction and expensed over the guarantee period (Note 5), as all are directly attributable to the Acquisition. The pro forma data is presented for informational purposes only and does not purport to be indicative of the results of future operations or of the results that would have occurred had the Acquisition taken place in the periods noted below.

Note 12. Liquidity

During the years ended December 31, 2025 and 2024, the Company used cash for operations of $1,666,000 and $2,229,000, respectively. As of December 31, 2025, the Company had $325,000 cash and its current liabilities exceeded current assets by $6,802,000.

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 6, 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. The Acquisition is expected to alleviate the supply constraints.

The Company paid $1,223,000, net of cash acquired, to purchase the Arps Dairy stock, and incurred $518,000 in acquisition costs. Additionally, the Arps Dairy Mortgage Note of $2,262,000, Construction Obligations for previously incurred services of $2,189,000, Existing Loans of $400,000 and New Advances of $400,000 became short-term financial commitments of the Company upon consummation of the Acquisition.

The Company increased its receivables-based line of credit in September 2025 to $2,500,000. In October 2025, Arps Dairy secured a receivables-based line of credit of $1,500,000. In December 2025, the Company was granted $2,400,000 to fund up to 50% of the cost of new equipment purchases and installation. In February 2026, New Advances of $400,000 were converted into shares of the Company’s common stock. Finally, in March 2026, the Company raised $7,528,000 through the sale of convertible promissory notes. The proceeds were used to retire the Mortgage Note and are expected to be used to repay the Construction Obligations incurred, as well as complete construction of the New Facility.

Although alleviated, the Company’s financial position at December 31, 2025 and historical results raise substantial doubt about its ability to continue as a going concern. As described, the Company has completed steps to improve liquidity. The actions taken have resulted in the alleviation of the substantial doubt about the Company’s ability to continue as a going concern.

Note 13. Subsequent Events

On January 20, 2026, effective January 1, 2026, the parties agreed to extend the Forbearance through February 1, 2026, with an option to further extend through March 1, 2026. The option was exercised, and the Company repaid the Mortgage Note on March 6, 2026, releasing all guarantor obligations of the former shareholders.

On February 10, 2026, the Company elected to convert the $400,000 balance of the Existing Loans and $20,000 of the Manager Note into 129,032 and 6,540 of the Company’s common stock, respectively. See Note 5.

On March 5, 2026, the maturity date of the New Advances to Arps Dairy former stockholders was extended to the earlier of October 1, 2026 or the receipt of financing secured by real estate owned by the Company. Additionally, the amendments provide that holder may elect to have interest paid in cash or shares valued at a 10% discount to the volume-weighted average price of the common stock over the ten trading days immediately preceding the payment.

Beginning on March 5, 2026 and through March 23, 2026, the Company obtained subscriptions for unsecured senior convertible promissory notes in the aggregate amount of $7,528,000 (the “Notes”) from accredited investors. Net proceeds amounted to $7,387,000, after issuance costs of $141,000. The Notes bear interest at 10% per annum for the first 12 months of the 24-month term, regardless of earlier payment or conversion (the “Minimum Interest”), and are mandatorily convertible as to principal and interest into shares of the Company’s common stock at any time prior to maturity at the conversion price of $2.90 per share (the “Conversion Price”), if the common stock of the registrant trades at $4.35 per share(150% of the Conversion Price) for 20 out of the preceding 30 consecutive trading days. The holders of the Notes have the option on up to 10 occasions to convert all or any portion of the principal and interest into shares of the registrant’s common stock at the Conversion Price. The registrant may prepay the Notes at any time prior to maturity, subject to payment of the Minimum Interest, any other accrued but unpaid interest, and a prepayment penalty of 5% if the amount of the Note principal that is prepaid does not exceed 50% or a prepayment of 10% if the amount of the Note principal that is prepaid exceeds 50%. Interest is to be paid quarterly in arrears beginning April 1, 2026 and can be paid in either cash or shares of the registrant’s common stock at the election of the Company. If paid in stock, the shares must be registered and valued at a 10% discount to the 10-day volume-weighted average price.

Purchasers of the Notes were issued 2,352,500 detachable warrants to purchase common stock (the “Warrants’) at a price of $3.20 per share (the “Exercise Price”) for a 4-year term from date of issuance in an amount equal to 100% of their investment amounts. The Company may call the Warrants if the common stock of the registrant trades at $4.80 per share (150% of the Exercise Price) for 20 out of the preceding 30 consecutive trading days. Additionally,22,655 broker warrants were issued at an exercise price of $3.48 per share for a 3-year term, expiring March 10, 2029.

Should the Company sell any of its securities in a capital-raising transaction at a price lower than the Conversion Price while any Notes are outstanding, the Conversion Price will adjust to that lower price. The Warrant Exercise Price will adjust to a 10% premium to the new Note conversion price.

The Company has agreed to file a registration statement covering the shares underlying the Notes, interest on the Notes, and the Warrants by May 4, 2026. Failure to file the registration statement within such period would result in a penalty of 1% per month for every month that the registration statement is not so filed.

On March 6, 2026, the Mortgage Note was repaid in full.