Barfresh Food Group (NASDAQ: BRFH) grows sales but faces higher losses and funding needs
Barfresh Food Group Inc. reported sharply higher sales but wider losses for the quarter and six months ended June 30, 2026. Revenue rose 190% to $4,707,000 for the quarter and 127% to $10,339,000 year-to-date, driven by the October 2025 acquisition of Arps Dairy, which contributed significant raw and processed milk revenue.
Profitability deteriorated. Quarterly gross margin swung from a 31% profit in 2025 to a 3% gross loss in 2026, and year-to-date gross margin fell from 31% to 9%, reflecting low-margin milk sales plus high start-up costs and low productivity at the Existing Facility for legacy frozen beverages. Net loss increased to $1,861,000 for the quarter and $2,522,000 year-to-date, with interest expense rising to $569,000 on mortgage, equipment financing and $7,528,000 of new convertible notes.
Liquidity remains tight: cash was $324,000, current liabilities $5,341,000, and stockholders’ equity slipped to a deficit of $84,000. The company faces Construction Obligations of $6,622,000 for its New Facility, potentially increasing to $9,062,000 if a $2,400,000 USDA equipment grant is not fully realized, and plans to rely on mortgage, equipment and possibly equity financing. Management discloses that historical losses and funding needs raise substantial doubt about continuing as a going concern, though recent financing and planned actions are expected to alleviate this. A material weakness in internal control over financial reporting, tied to the control environment and IT segregation of duties, remains outstanding.
Positive
- Revenue grew 190% quarterly and 127% year-to-date, reaching $4,707,000 and $10,339,000 respectively, largely from the Arps Dairy acquisition and expansion into raw and processed milk.
- The company raised $7,528,000 through unsecured senior convertible promissory notes, using proceeds to retire $2,541,000 of mortgage debt and fund construction and working capital.
- Barfresh secured a $2,400,000 USDA grant to fund 50% of eligible equipment for the New Facility and a separate $100,000 demolition grant, which could reduce future capital outlays if conditions are met.
- Conversion of $420,000 of notes payable into equity and increased receivables-based credit facilities have reduced some short-term debt pressure and improved current liquidity flexibility.
Negative
- Gross margin deteriorated from a 31% profit to a 3% gross loss in the quarter and from 31% to 9% year-to-date, driven by low-margin milk and costly production ramp-up.
- Net loss widened to $1,861,000 for the quarter and $2,522,000 year-to-date, while interest expense surged to $569,000 from $35,000, reflecting higher leverage.
- The company faces Construction Obligations of $6,622,000, potentially rising to $9,062,000 if USDA grant conditions are not fully met, with no assured long-term financing in place.
- Management states that historical losses, limited cash of $324,000, and funding needs for the New Facility raise substantial doubt about the company’s ability to continue as a going concern.
- Stockholders’ position weakened from equity of $1,330,000 at year-end 2025 to a $84,000 deficit by June 30, 2026, indicating balance sheet strain.
- A material weakness in internal control over financial reporting related to the control environment and IT segregation of duties persists, and disclosure controls were deemed not effective.
Filing Explained
Convertible notes remain a recorded liability, while conditional conversion and warrants could dilute holders beyond the 16,308,172 shares outstanding on August 11.
This Form 10-Q is an unaudited quarterly report, and it lists
The notes carry 10% annual interest for the first 12 months of their 24-month term. Holders may convert at
If conversion or warrant exercise occurs, additional shares would increase the total share count and reduce existing holders’ percentage ownership absent offsetting changes. The filing also ties the New Facility’s grant eligibility to completion of funded phases by
Key Figures
Key Terms
convertible promissory notes financial
non-recourse litigation financing financial
going concern financial
performance share units financial
material weakness financial
Construction Obligations financial
FAQ
How did Barfresh Food Group (BRFH) perform financially in Q2 2026?
What drove Barfresh Food Group (BRFH) revenue growth for the first half of 2026?
What is the liquidity position of Barfresh Food Group (BRFH) as of June 30, 2026?
What major financing did Barfresh Food Group (BRFH) complete in 2026?
What are Barfresh Food Group’s (BRFH) construction obligations for the New Facility?
Does Barfresh Food Group (BRFH) have going concern or internal control issues?
How has the Arps Dairy acquisition affected Barfresh Food Group (BRFH)?
AI-generated analysis. How Rhea-AI works. Not financial advice.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________ to ___________________
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company | |
| Emerging
growth company |
If an emerging growth company, indicate by the check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate
the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
TABLE OF CONTENTS
Page Number | ||
| PART I – FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements. | 3 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 17 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 21 |
| Item 4. | Controls and Procedures. | 22 |
| PART II – OTHER INFORMATION | 23 | |
| Item 1. | Legal Proceedings. | 23 |
| Item 1A. | Risk Factors. | 23 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 23 |
| Item 3. | Defaults Upon Senior Securities. | 23 |
| Item 4. | Mine Safety Disclosures. | 23 |
| Item 5. | Other Information. | 23 |
| Item 6. | Exhibits. | 24 |
| SIGNATURES | 25 | |
| 2 |
Item 1. Financial Statements.
Barfresh Food Group Inc.
Condensed Consolidated Balance Sheets
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| (unaudited) | (audited) | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Trade accounts receivable, net | ||||||||
| Other receivables | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net of depreciation | ||||||||
| Intangible assets, net of amortization | ||||||||
| Other non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Line of credit | $ | $ | ||||||
| Accounts payable - trade | ||||||||
| Accounts payable - construction in progress | ||||||||
| Disputed co-manufacturer accounts payable (Note 5) | ||||||||
| Accrued expenses | ||||||||
| Accrued payroll and employee related expenses | ||||||||
| Financing agreements - current | ||||||||
| Notes payable | ||||||||
| Total current liabilities | ||||||||
| Financing agreements | ||||||||
| Convertible notes | - | |||||||
| Total liabilities | ||||||||
| Commitments and contingencies | - | - | ||||||
| Stockholders’ (deficit) equity: | ||||||||
| Preferred stock, $ | - | - | ||||||
| Common stock, $ | - | - | ||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ (deficit) equity | ( | ) | ||||||
| Total liabilities and stockholders’ (deficit) equity | $ | $ | ||||||
See the accompanying notes to the condensed consolidated financial statements
| 3 |
Barfresh Food Group Inc.
Condensed Consolidated Statements of Operations
For the three and six months ended June 30, 2026 and 2025
(Unaudited)
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross profit | ( | ) | ||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, marketing and distribution | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Per share information - basic and fully diluted: | ||||||||||||||||
| Weighted average shares outstanding | ||||||||||||||||
| Net loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
See the accompanying notes to the condensed consolidated financial statements
| 4 |
Barfresh Food Group Inc.
Consolidated Statements of Cash Flows
For the six months ended June 30, 2026 and 2025
(Unaudited)
| 2026 | 2025 | |||||||
| For the six months ended June 30, | ||||||||
| 2026 | 2025 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Stock-based compensation | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of financing discounts | ||||||||
| Changes in assets and liabilities | ||||||||
| Accounts receivable | ||||||||
| Other receivables | ||||||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ||||||||
| Accounts payable - trade | ( | ) | ( | ) | ||||
| Accrued expenses | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities | ||||||||
| Borrowings under line of credit | ||||||||
| Repayment of line of credit | ( | ) | ( | ) | ||||
| Issuance of convertible debt and warrants, net of $ | - | |||||||
| Repayment of mortgage note | ( | ) | - | |||||
| Financing agreement payments | ( | ) | ( | ) | ||||
| Issuance of common stock, net of $ | - | |||||||
| Shares repurchased for income tax withholding under stock compensation program | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net (decrease) increase in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| Non-cash financing and investing activities: | ||||||||
| Conversion of notes payable to equity | $ | $ | - | |||||
| Financed acquisition of long-term assets | $ | $ | - | |||||
| Issuance of warrants to brokers in convertible debt and warrant offering | $ | $ | - | |||||
See the accompanying notes to the condensed consolidated financial statements
| 5 |
Barfresh Food Group Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2026
(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 frozen beverages and food, including ready-to-drink and ready-to-blend smoothies, shakes, frappes and ice cream mix, and raw and processed milk.
Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited, except for the condensed balance sheet as of December 31, 2025. 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, 2025 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on April 15, 2026. 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., Barfresh Corporation Inc. (formerly known as Smoothie, Inc.), and Arps Dairy, 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
Since the Acquisition, Arps Dairy has commenced production of virtually all of the Company’s legacy product lines. Historically, the Company was exposed to supply risk as a result of concentration in its vendor base resulting from the use of a limited number of contract manufacturers.
A comparison of production of legacy product lines by source is summarized in the table below:
Schedule of Contract Manufacturers Percentage of Finished Goods
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Owned production facility | % | - | % | % | - | % | ||||||||||
| Co-manufactured: | ||||||||||||||||
| Manufacturer A | - | % | % | % | % | |||||||||||
| Manufacturer B | - | % | % | - | % | % | ||||||||||
| Manufacturer C | % | % | % | % | ||||||||||||
| Manufacturer D | % | % | % | % | ||||||||||||
| Concentration risk, percentage | % | % | % | % | ||||||||||||
| 6 |
Manufacturer A gave notice that it would not renew the contract with the Company when it concluded in February 2026. Additionally, in December 2025, Manufacturer B discontinued manufacturing our products. The commencement of production at Arps Dairy is a significant step towards mitigating the impact of these contract losses, and the potential adverse effect on the Company’s business, financial condition and results of operations.
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, 2025, as filed with the SEC on April 15, 2026 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, financing agreements, notes payable and convertible notes. 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 June 30, 2026
and December 31, 2025, there was
Government Grant
The
Company has been awarded a $
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 815, Derivatives and Hedging. The Company determined that its convertible instruments issued in 2026 did not include embedded derivatives that required bifurcation due to the scope exception in ASC 815.
| 7 |
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. | ||
| 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. |
Storage and Shipping Costs
Storage
and outbound freight costs are included in selling, marketing and distribution expense. For the three months ending June 30, 2026 and
2025, storage and outbound freight totaled approximately $
Research and Development
Expenditures
for research activities relating to product development and improvement are charged to expense as incurred. The Company incurred approximately
$
Loss Per Share
For the three and six months ended June 30, 2026 and 2025, 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.
| 8 |
Note 2. Inventory
Inventory consists of the following:
Schedule of Inventory
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Raw materials and packaging | $ | $ | ||||||
| Finished goods | ||||||||
| Inventory, net | $ | $ | ||||||
Note 3. Property Plant and Equipment
Property and equipment, net consist of the following:
Schedule of Property and Equipment
| June 30, | December, 31 | |||||||
| 2026 | 2025 | |||||||
| Land | $ | $ | ||||||
| Building | ||||||||
| Manufacturing equipment | ||||||||
| Customer equipment | ||||||||
| Construction in progress | ||||||||
| Property and equipment, gross | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net of depreciation | $ | $ | ||||||
Depreciation
expense related to these assets was approximately $
Assets subject to financing leases consist of the following:
Schedule of Assets Subject to Finance Leases
| June 30, | December, 31 | |||||||
| 2026 | 2025 | |||||||
| Manufacturing equipment | $ | $ | ||||||
| Customer equipment | ||||||||
| Construction in progress | ||||||||
| Property and equipment, gross | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net of depreciation | $ | $ | ||||||
Depreciation
expense related to leased assets amounted to $
Note 4. Debt
Line of Credit
In
August 2024, the Company secured receivables financing of $
As
of June 30, 2026, there was $
| 9 |
Financing Agreements
The
Company has entered into financing agreements to purchase equipment and software as a service, with a weighted average imputed or stated
interest of
Schedule of Financing Agreements
| 2026 (6 months) | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Total payments due | ||||
| Less: interest | ( | ) | ||
| Financing agreements | ||||
| Less: current portion | ( | ) | ||
| Financing agreements | $ |
Notes Payable
Schedule Of Notes Payable
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Manager note | $ | $ | ||||||
| Advances from Arps Dairy former stockholders | ||||||||
| Mortgage Note payable to bank in monthly installments of $ | - | |||||||
| Total payments due | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Long-term portion | $ | - | $ | - | ||||
On
February 10, 2026, the Company elected to convert $
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
The Mortgage Note was repaid in March 2026 with the proceeds of the convertible note and warrant issuance.
Convertible Notes and Warrants
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 $
| 10 |
Purchasers
of the Notes were issued
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 warrants are legally detachable, separately exercisable and accounted for as equity. Additionally, the conversion feature meets the scope exception of ASC 815 and was not bifurcated from the debt host contract.
At
issuance, the Company allocated $
Schedule of Black-scholes Option Pricing Model
| Warrant | Call | |||||||
| Risk-free interest rate | % | % | ||||||
| Expected volatility | % | % | ||||||
| Expected term (years) | ||||||||
| Expected dividends | $ | - | $ | - | ||||
| Stock price | $ | $ | ||||||
| Exercise price | $ | $ | ||||||
The
allocation resulted in a corresponding debt discount of $
Note 5. Commitments and Contingencies
Lease Commitments, Construction and Demolition
The
Company leased headquarters office space under a non-cancelable operating lease which expired on
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
| 11 |
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. The Company is subject to penalties of $
As
of June 30, 2026, the New Facility expansion is expected to cost $
Other
than amounts included in Accounts Payable – Construction in Progress, there are no firm commitments for capital expenditures.
However, the Company would face significant uncertainty about its ability to supply product if it is unable to complete the New
Facility, which would in turn have a material impact on its financial position, operating results, and cash flows. Expected capital
expenditures for 2026, including settlement of Accounts Payable – Construction in Progress, amount to $
Accounts
Payable – Construction in Progress is primarily owed to the construction contractor for work performed in the first half of 2025.
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
The
Company is liable for the demolition of the Existing Facility, once it has vacated the premises. The Company has been awarded a $
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
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 $
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.
| 12 |
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. Additionally, the Company acquired Arps Dairy in the fourth quarter of 2025 and is ramping up production of its products at Arps.
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 $
Note 6. Stockholders’ (Deficit) Equity
The following are changes in stockholders’ (deficit) equity for the six months ended June 30, 2026 and 2025:
Schedule of Changes in Stockholders’ Equity
| Shares | Amount | Capital | (Deficit) | Total | ||||||||||||||||
| Common Stock | Additional paid in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | (Deficit) | Total | ||||||||||||||||
| Balance December 31, 2024 | $ | - | $ | $ | ( | ) | $ | |||||||||||||
| Issuance of common stock for equity compensation, net of shares repurchased for income tax withholding | - | ( | ) | - | ( | ) | ||||||||||||||
| Shares issued in settlement of former Arps shareholder and manager notes | - | - | - | - | - | |||||||||||||||
| Issuance of detachable warrants | - | - | - | - | - | |||||||||||||||
| Equity-based compensation expense | - | - | - | |||||||||||||||||
| Registered issuance of common stock | - | - | ||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||
| Balance June 30, 2025 | $ | - | $ | $ | ( | ) | $ | |||||||||||||
| Common Stock | Additional paid in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | (Deficit) | Total | ||||||||||||||||
| Balance December 31, 2025 | $ | - | $ | $ | ( | ) | $ | |||||||||||||
| Issuance of common stock for equity compensation, net of shares repurchased for income tax withholding | - | ( | ) | - | ( | ) | ||||||||||||||
| Equity-based compensation expense | - | - | - | |||||||||||||||||
| Shares issued in settlement of former Arps shareholder and manager notes | - | - | ||||||||||||||||||
| Issuance of detachable warrants | - | - | ||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||
| Balance June 30, 2026 | $ | - | $ | $ | ( | ) | $ | ( | ) | |||||||||||
Warrants
In
association with the issuance of convertible notes (Note 4),
| 13 |
Equity Incentive Plan
As
of June 30, 2026, the Company has $
Stock Options
The following is a summary of stock option activity for the six months ended June 30, 2026:
Schedule of Stock Options Activity
| Number of Options | Weighted average exercise price per share | Remaining term in years | ||||||||||
| Outstanding on December 31, 2025 | $ | | | |||||||||
| Granted | $ | |||||||||||
| Forfeited | ( | ) | $ | |||||||||
| Outstanding on June 30, 2026 | $ | |||||||||||
| Exercisable, June 30, 2026 | $ | |||||||||||
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
| 2026 | ||||
| Expected term (in years) | ||||
| Expected volatility | % | |||
| Risk-free interest rate | % | |||
| Expected dividends | $ | - | ||
| Weighted average grant date fair value per share | $ | |||
Restricted Stock
The following is a summary of restricted stock award and restricted stock unit activity for the six months ended June 30, 2026:
Schedule of Restricted Stock Award and Restricted Stock Unit Activity
Number of shares | Weighted average grant date fair value | |||||||
| Unvested at December 31, 2025 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Forfeited | - | $ | - | |||||
| Unvested at June 30, 2026 | $ | |||||||
Performance Share Units
From 2023 to 2025, the Company issued performance share units (“PSUs”) that represented shares potentially issuable based upon Company and individual performance in the years of issuance.
| 14 |
The following table summarizes the activity for the Company’s unvested PSUs for the six months ended June 30, 2026:
Schedule of Performance Stock Unit Activity
| Number of shares | Weighted average grant date fair value | |||||||
| Unvested at December 31, 2025 | $ | | ||||||
| Vested | ( | ) | $ | |||||
| Unvested June 30, 2026 | $ | |||||||
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 June 30, 2026, the estimated effective tax rate for 2026 was
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- and six-months ending June 30, 2026 and 2025, the Company did not incur any interest and penalties associated with tax positions. As of June 30, 2026, the Company did not have any significant unrecognized uncertain tax positions.
Note 8. 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 (the “Acquisition”). Arps results of operations have been included in the consolidated statement of operations since October 4, 2025. The following unaudited pro forma information presents the consolidated results of operations as if the acquisition had occurred on January 1, 2025:
Schedule of Unaudited Pro Forma Information Presenting Consolidated Results of Operations
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Pro forma revenue | $ | $ | $ | $ | ||||||||||||
| Pro forma net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Pro forma net loss per share, basic and fully diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
This 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 above.
| 15 |
Note 9. Business Segments
As
a result of the Acquisition, the Company operates in
Schedule of Business Combination Reportable Segment
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Revenue | ||||||||||||||||
| Frozen beverages and food | $ | $ | $ | $ | ||||||||||||
| Raw and processed milk | - | - | ||||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Gross profit | ||||||||||||||||
| Frozen beverages and food | $ | ( | ) | $ | $ | |||||||||||
| Raw and processed milk | - | - | ||||||||||||||
| Gross (loss) profit | ( | ) | ||||||||||||||
| Unallocated: | ||||||||||||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Note 10. Liquidity
During
the six months ended June 30, 2026, the Company used cash for operations of $
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 5, 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 that were incurred before the Company obtained non-recourse litigation financing in 2025. The Acquisition is expected to alleviate the supply constraints. However, bring-up costs and lower than anticipated productivity at the Existing Facility have contributed to further losses in the first half of 2026.
The
Company increased its receivables-based line of credit in September 2025 to $
In
February 2026, $
In
March 2026, the Company raised $
Although alleviated, the Company’s financial position at June 30, 2026 and historical results raise substantial doubt about its ability to continue as a going concern. As described, the Company has completed and anticipates steps to improve liquidity. If the anticipated financing is unavailable, the Company will be required to pursue other options, including reducing its operating expenses. The actions taken and anticipated alleviate the substantial doubt about the Company’s ability to continue as a going concern.
| 16 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the financial information included elsewhere in this Quarterly Report on Form 10-Q (this “Report”), including our unaudited condensed consolidated financial statements and the related notes and with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the SEC on April 15, 2026, and other reports that we file with the SEC from time to time.
References in this Quarterly Report on Form 10-Q to “us”, “we”, “our” and similar terms refer to Barfresh Food Group Inc.
Cautionary Note Regarding Forward-Looking Statements
This discussion includes forward-looking statements, as that term is defined in the federal securities laws, based upon current expectations that involve risks and uncertainties, such as plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. Words such as “anticipate”, “estimate”, “plan”, “continuing”, “ongoing”, “expect”, “believe”, “intend”, “may”, “will”, “should”, “could” and similar expressions are used to identify forward-looking statements.
We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.
Critical Accounting Policies
Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Results of Operations
Results of Operation for the Three Months Ended June 30, 2026 as Compared to the Three Months Ended June 30, 2025
Revenue and cost of revenue
Revenue increased $3,082,000, or 190%, to $4,707,000 in 2026 as compared to $1,625,000 in 2025. Arps Dairy contributed $3,193,000 to revenue, including $2,943,000 in raw and processed milk sales. Revenue in the frozen beverages and food segment increased 9%.
The acquisition of Arps Dairy gives us the expanded capacity we have sought over the past three years, necessary to service our customer base and expand our sales reach.
Cost of revenue increased $3,738,000, or 334%, to $4,857,000 in 2026 as compared to $1,119,000 in 2025. Cost of revenue increased at a significantly higher rate compared to revenue due to the inclusion of the raw and processed milk operations after the Acquisition. Products in this segment are generally commodities with commensurate margins, but provide a strategic milk supply to the business and contribute to fixed overhead costs. Cost of revenue in the frozen beverages and food segment, which consisted primarily of Barfresh legacy products in 2026, increased 76% due to start-up costs and lower than anticipated productivity at the Existing Facility.
Our gross loss was $150,000 (-3%) for 2026 and our gross profit was $506,000 (31%) for 2025.
Gross loss from frozen beverages and food was $209,000 (-12%) in 2026 compared to a gross profit of $506,000 (31%) in 2025. The decrease is due to high start-up costs and lower than anticipated productivity at the Existing Facility.
Gross profit from raw and processed milk was $59,000 (2%) in 2026.
| 17 |
Selling, marketing and distribution expense
| Three months ended June 30, 2026 | Three months ended June 30, 2025 | Change | Percent | |||||||||||||
| Sales and marketing | $ | 256,000 | $ | 358,000 | $ | (102,000 | ) | -28 | % | |||||||
| Storage and outbound freight | 305,000 | 276,000 | 29,000 | 11 | % | |||||||||||
| $ | 561,000 | $ | 634,000 | $ | (73,000 | ) | -12 | % | ||||||||
Selling, marketing and distribution expense decreased approximately $73,000 (12%) from approximately $634,000 in 2025 to $561,000 in 2026.
Sales and marketing expense decreased approximately $102,000 (28%) from approximately $358,000 in 2025 to $256,000 in 2026. The decrease is a result of lower personnel costs as we rely more heavily on our broker network. Additionally, equipment maintenance expense for machines provided to our customers for use with our bulk products decreased, as single serve products have become more prominent in the school setting.
Storage and outbound freight expense increased approximately $29,000 (11%) from approximately $276,000 in 2025 to $305,000 in 2026, primarily due to costs associated with the delivery of processed milk at Arps Dairy, partially offset by lower revenue and finished goods inventory of legacy Barfresh products.
General and administrative expense
| Three months ended June 30, 2026 | Three months ended June 30, 2025 | Change | Percent | |||||||||||||
| Personnel costs | $ | 335,000 | $ | 292,000 | $ | 43,000 | 15 | % | ||||||||
| Stock-based compensation | 154,000 | 139,000 | 15,000 | 11 | % | |||||||||||
| Legal, professional and consulting fees | 67,000 | 30,000 | 37,000 | 123 | % | |||||||||||
| Research and development | 37,000 | 31,000 | 6,000 | 19 | % | |||||||||||
| Other general and administrative expenses | 161,000 | 127,000 | 34,000 | 27 | % | |||||||||||
| Business acquisition expense | 40,000 | 54,000 | (14,000 | ) | -26 | % | ||||||||||
| $ | 794,000 | $ | 673,000 | $ | 121,000 | 18 | % | |||||||||
General and administrative expenses increased approximately $121,000 (18%) from approximately $673,000 in 2025 to $794,000 in 2026.
Personnel cost represents the cost of employees including salaries, bonuses, employee benefits and employment taxes. Personnel cost increased by approximately $43,000 (15%) from approximately $292,000 in 2025 to $335,000 in 2026 due to the addition of headcount associated with Arps Dairy.
Legal, professional and consulting fees increased by approximately $37,000 (123%) from $30,000 in 2025 to $67,000 in 2026 primarily due to timing of audit fees associated with the filing of our annual report on Form 10-K.
Other general and administrative expenses increased by approximately $34,000 (27%) due to increased recruiting, information technology and insurance expense associated with Arps Dairy.
| 18 |
Interest Expense
Interest expense was $344,000 in 2026 compared to $12,000 in 2025. The increase of $332,000 is a result of mortgage debt, notes and lease financing related to the Acquisition and the purchase of equipment required for the New Facility, as well as the issuance of $7,528,000 of convertible notes in March 2026.
Net loss
We had net losses of approximately $1,861,000 and $880,000 for the three-month periods ending June 30, 2026 and 2025, respectively. The increase in net loss of approximately $981,000 was primarily due to an increase in loss from operations of $649,000, and an increase of $332,000 in interest expense incurred related to the acquisition of Arps Dairy and the build out of the New Facility.
Results of Operation for the Six Months Ended June 30, 2026 as Compared to the Six Months Ended June 30, 2025
Revenue and cost of revenue
Revenue increased $5,784,000, or 127%, to $10,339,000 in 2026 as compared to $4,555,000 in 2025. Arps Dairy contributed $6,021,000 to revenue, including $5,508,000 in raw and processed milk sales.
Cost of revenue increased $6,307,000, or 200%, to $9,456,000 in 2026 as compared to $3,149,000 in 2025. Cost of revenue increased at a higher rate compared to revenue as low margin milk processing revenue made up 53% of the revenue mix. Additionally, start-up costs and low productivity significantly impacted the cost of legacy Barfresh products that were produced at the Existing Facility.
Our gross profit was $883,000 (9%) and $1,406,000 (31%) for 2026 and 2025, respectively.
Gross profit from frozen beverages and food was $696,000 (14%) and $1,406,000 in 2026 and 2025, respectively. The decrease is due to high start-up costs and lower than anticipated productivity at the Existing Facility.
Selling, marketing and distribution expense
| Six months ended June 30, 2026 | Six months ended June 30, 2025 | Change | Percent | |||||||||||||
| Sales and marketing | $ | 510,000 | $ | 791,000 | $ | (281,000 | ) | -36 | % | |||||||
| Storage and outbound freight | 748,000 | 667,000 | 81,000 | 12 | % | |||||||||||
| $ | 1,258,000 | $ | 1,458,000 | $ | (200,000 | ) | -14 | % | ||||||||
Selling, marketing and distribution expense decreased approximately $200,000 (14%) from approximately $1,458,000 in 2025 to $1,258,000 in 2026.
Sales and marketing expense decreased approximately $281,000 (36%) from approximately $791,000 in 2025 to $510,000 in 2026. The decrease is a result of lower personnel costs as we rely more heavily on our broker network. Additionally, equipment maintenance expense for machines provided to our customers for use with our bulk products decreased, as single serve products have become more prominent in the school setting. Finally, sample expense decreased due to non-recurring sample costs associated with the 2025 launch of our Pop & Go product.
Storage and outbound freight expense increased approximately $81,000 (12%) from approximately $667,000 in 2025 to $748,000 in 2026, primarily due to costs associated with the delivery of processed milk at Arps Dairy, partially offset by lower revenue and finished goods inventory of legacy Barfresh products.
| 19 |
General and administrative expense
| Six months ended June 30, 2026 | Six months ended June 30, 2025 | Change | Percent | |||||||||||||
| Personnel costs | $ | 694,000 | $ | 665,000 | $ | 29,000 | 4 | % | ||||||||
| Stock based compensation | 256,000 | 297,000 | (41,000 | ) | -14 | % | ||||||||||
| Legal, professional and consulting fees | 174,000 | 111,000 | 63,000 | 57 | % | |||||||||||
| Research and development | 61,000 | 49,000 | 12,000 | 24 | % | |||||||||||
| Other general and administrative expenses | 302,000 | 244,000 | 58,000 | 24 | % | |||||||||||
| Business acquisition expense | 62,000 | 54,000 | 8,000 | nm | ||||||||||||
| $ | 1,549,000 | $ | 1,420,000 | $ | 129,000 | 9 | % | |||||||||
General and administrative expenses increased approximately $129,000 (9%) from approximately $1,420,000 in 2025 to $1,549,000 in 2026.
Personnel cost increased by approximately $29,000 (4%) from approximately $665,000 in 2025 to $694,000 in 2026 due to the addition of headcount associated with Arps Dairy.
Stock-based compensation decreased by approximately $41,000 from $297,000 in 2025 to $256,000 in 2026 as a result of lower expected attainment under our performance stock unit program.
Legal, professional and consulting fees increased by approximately $63,000 (57%) from $111,000 in 2025 to $174,000 in 2026 due to audit costs associated with the expanded scope of work resulting from the Acquisition, and temporary consultants associated with the integration of Arps Dairy.
Other general and administrative expenses increased by approximately $58,000 (24%) due to increased information technology and insurance expense associated with Arps Dairy.
Interest Expense
Interest expense was $569,000 in 2026 compared to $35,000 in 2025. The increase of $534,000 is a result of mortgage debt, notes and lease financing related to the Acquisition and the purchase of equipment required for the New Facility, as well as the issuance of $7,528,000 of convertible notes in March 2026.
Net loss
We had net losses of approximately $2,522,000 and $1,641,000 for the six-month periods ending June 30, 2026 and 2025, respectively. The increase in net loss of approximately $881,000 was primarily due to an increase in loss from operations of $347,000, and an increase of $534,000 in interest expense incurred related to the acquisition of Arps Dairy and the build out of the New Facility.
Liquidity and Capital Resources
On February 5, 2025, we 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, raising $2,974,000.
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 from manufacturer C in the fourth quarter of 2024, we were notified in 2025 that manufacturers A and B elected to discontinue production of smoothie bottles and smoothie cartons in January 2026 and December 2025, respectively. The Acquisition was undertaken to resolve constrained capacity experienced since 2022 under the co-manufacturing business model.
| 20 |
In order to consummate the Acquisition, we paid $1,223,000, net of cash acquired, to purchase 100% of Arps Dairy stock. Additionally, we incurred $518,000 in acquisition costs in 2025. In order to finance the Acquisition, we increased our receivables-based line of credit in September 2025 to $2,500,000. As a result of the Acquisition, $5,251,000 of mortgage debt, construction related payables and advances from former shareholders payable by Arps Dairy became short-term financial commitments of the Company. The Acquisition was structured to allow us to take control of Arps Dairy manufacturing operations ahead of completing all necessary long-term financing activities.
Following the Acquisition, Arps Dairy secured a receivables-based line of credit of $1,250,000.
We acquired $888,000 of equipment through leasing transactions in 2025 and the first six months of 2026. In December 2025, we were granted $2,400,000 to fund up to 50% of the cost of new equipment purchases and installation for the New Facility.
In February 2026, $400,000 of Arps selling shareholder advances were converted into shares of our common stock.
In March 2026, we raised $7,528,000 through the sale of convertible promissory notes. The proceeds were used to retire $2,541,000 in mortgage debt and certain construction payables.
During the six months ending June 30, 2026, we used $3,051,000 in operations. Our net loss adjusted for non-cash operating expenses used $2,002,000, while changes in current assets and liabilities used $1,049,000 primarily because of settlements of amounts due to co-manufacturers who discontinued providing product in December 2025 and January 2026, partially offset by a decrease in accounts receivable due to seasonality.
As of June 30, 2026, we had net current liabilities of $1,041,000, including $1,818,000 of construction payables, compared with net current liabilities of $6,303,000 on December 31, 2025. Disputed accounts payable due to the Manufacturer of $499,000 are excluded from both June 30, 2026 and December 31, 2025 amounts.
Our operations to date have been financed by the sale of securities, the issuance of convertible and short-term debt and equipment leasing. Our liquidity needs will depend on careful management of the construction of the New Facility, as well as how quickly we are able to profitably ramp up sales, achieve manufacturing cost synergies anticipated as a result of the Acquisition, control and reduce variable operating expenses, and control fixed overhead expense. The proceeds from the sale of convertible promissory notes in March 2026 are not sufficient to carry out our current plan of operations, which includes the investment of $6,662,000 in Construction Obligations described in Note 5 of the accompanying unaudited financial statements. The $2,400,000 grant received in December 2025 is subject to uncertainty associated with the requirement to complete all funded phases of the project by December 31, 2026. This uncertainty could increase the Construction Obligation to $9,062,000. We anticipate that we will have additional sources of liquidity through mortgage financing supported by the guarantee of the United States Department of Agriculture, and equipment lease financing, among other options. However, there are no assurances that these funds will be available. If we are unable to generate sufficient cash flow from operations, control construction costs, or raise additional capital through debt issuances, we may be required to raise additional funds in the form of equity.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expense, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required because we are a smaller reporting company.
| 21 |
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Securities and Exchange Act of 1934 Rule 13(a)-15(e). Disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act has been appropriately recorded, processed, summarized, and reported on a timely basis and are effective in ensuring that such information is accumulated and communicated to the Company’s management, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of June 30, 2026, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective at the reasonable assurance level.
Management has identified the following material weakness in our internal control over financial reporting:
Management has concluded that there is a material weakness due to the control environment. The control environment is impacted due to the Company’s inadequate segregation of duties, primarily information technology control activities.
Management recognizes that there are inherent limitations in the effectiveness of any system of internal control, and accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect material misstatements. In addition, effective internal control at a point in time may become ineffective in future periods because of changes in conditions, such as those that occurred as a result of the business combination, or due to deterioration in the degree of compliance with our established policies and procedures.
In an effort to remediate the identified material weakness and enhance our internal control over financial reporting, we will fully engage our information technology personnel to help ensure that we are able to properly implement internal control procedures.
This report shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Changes in Internal Control over Financial Reporting
None.
| 22 |
PART II- OTHER INFORMATION
Item 1. Legal Proceedings.
As described in Note 5, the Company has an on-going dispute with the Manufacturer, the outcome of which cannot be predicted at this time.
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.
Item 1A. Risk Factors.
Not required because we are a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the quarter ended June 30, 2026, the Company issued 59,289 to three members of its board of directors in settlement of vested restricted stock units for services with a grant date value $150,000. The Company relied upon the exemption from registration contained in Rule 506(b) and Section 4(a)(2) of the Securities Act, and corresponding provisions of state securities laws, on the basis that (i) offers were made to a limited number of persons, (ii) each offer was made through direct communication with the offerees by the Company, (iii) each of the offerees had the requisite sophistication and financial ability to bear risks of investing in the Company’s common stock, (iv) the Company provided disclosure to the offerees, and (v) there was no general solicitation and no commission or remuneration was paid in connection with the offers.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
| 23 |
Item 6. Exhibits.
| Exhibit No. | Description | |
| 31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(a) (filed herewith) | |
| 31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) (filed herewith) | |
| 32.1 | Certification pursuant to 18 U.S.C. Section 1350 (furnished herewith) | |
| 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) | |
| *XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. | ||
| In accordance with SEC Release 33-8238, Exhibit 32.1 is furnished and not filed. |
| 24 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| BARFRESH FOOD GROUP INC. | ||
| Date: August 14, 2026 | By: | /s/ Riccardo Delle Coste |
| Riccardo Delle Coste | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: August 14, 2026 | By: | /s/ Lisa Roger |
| Chief Financial Officer | ||
| (Principal Financial Officer) | ||
| 25 |