UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended September 30, 2015
or
[ ]
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: 000-55131
BARFRESH
FOOD GROUP INC.
(Exact
name of registrant as specified in its charter)
Delaware |
|
27-1994406 |
(State
or other jurisdiction of
incorporation or organization) |
|
(I.R.S.
Employer
Identification No.) |
|
|
|
8530
Wilshire Blvd., Suite 450, Beverly Hills, California |
|
90211 |
(Address
of principal executive offices) |
|
(Zip
Code) |
310-598-7113
(Registrant’s
telephone number, including area code)
Not
Applicable
(Former
name, former address and former fiscal year, if changed since last report)
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 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.
[X]
Yes [ ] No
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[X]
Yes [ ] No
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and smaller reporting
company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer [ ] |
Accelerated
filer [ ] |
Non-accelerated
filer [ ] (Do not check if a smaller reporting company) |
Smaller
reporting company [X] |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ]
Yes [X] No
As
of November 10, 2015, there were 79,884,521 outstanding shares of common stock of the registrant.
TABLE
OF CONTENTS
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements.
Barfresh
Food Group Inc.
Condensed
Consolidated Balance Sheets
| |
September 30, 2015 | | |
March 31, 2015 | |
| |
(Unaudited) | | |
(Audited) | |
Assets | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash | |
$ | 1,511,686 | | |
$ | 5,364,657 | |
Accounts Receivable | |
| 119,796 | | |
| 46,096 | |
Inventory | |
| 310,595 | | |
| 165,847 | |
Prepaid expenses and other current assets | |
| 36,190 | | |
| 6,386 | |
Total current assets | |
| 1,978,267 | | |
| 5,582,986 | |
Property, plant and equipment, net of depreciation | |
| 619,033 | | |
| 545,454 | |
Intangible asset, net of amortization | |
| 630,447 | | |
| 651,433 | |
Deposits | |
| 16,451 | | |
| 16,451 | |
Total Assets | |
$ | 3,244,198 | | |
$ | 6,796,324 | |
| |
| | | |
| | |
Liabilities And Stockholders’ Equity | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 162,593 | | |
$ | 133,254 | |
Accrued expenses | |
| 369,867 | | |
| 424,262 | |
Deferred rent liability | |
| 2,040 | | |
| 1,484 | |
Short-term notes payable - related party, net of discount | |
| 300,000 | | |
| 157,393 | |
Short-term notes payable, net of discount | |
| 50,000 | | |
| 539,631 | |
Convertible note, net of discount | |
| 50,000 | | |
| 325,114 | |
Current portion of long term debt | |
| 14,039 | | |
| 7,551 | |
Total current liabilities | |
| 948,539 | | |
| 1,588,689 | |
Long Term Debt | |
| 49,505 | | |
| 28,916 | |
Total liabilities | |
| 998,044 | | |
| 1,617,605 | |
| |
| | | |
| | |
Commitments and contingencies (Note 6) | |
| - | | |
| - | |
| |
| | | |
| | |
Stockholders’ equity: | |
| | | |
| | |
Preferred stock, $0.000001 par value, 5,000,000 shares authorized, none issued or outstanding | |
| - | | |
| - | |
Common stock, $0.000001 par value; 295,000,000 shares authorized; 79,884,521 and 77,720,828 shares
issued and outstanding at September, 2015 and March 31, 2015, respectively | |
| 80 | | |
| 78 | |
Additional paid in capital | |
| 14,923,086 | | |
| 14,034,623 | |
Accumulated deficit | |
| (12,675,067 | ) | |
| (8,808,640 | ) |
Unearned services | |
| (1,945 | ) | |
| (47,342 | ) |
Total stockholders’ equity | |
| 2,246,154 | | |
| 5,178,719 | |
Total Liabilities and Stockholders’ Equity | |
$ | 3,244,198 | | |
$ | 6,796,324 | |
See
the accompanying notes to the condensed consolidated financial statements
Barfresh
Food Group Inc.
Condensed
Consolidated Statements of Operations
(Unaudited)
| |
For the three months ended | | |
For the six months ended | |
| |
September 30, | | |
September 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Revenue | |
$ | 226,127 | | |
$ | 40,233 | | |
$ | 394,227 | | |
$ | 101,725 | |
Cost of revenue | |
| 119,229 | | |
| 19,744 | | |
| 209,431 | | |
| 61,103 | |
Gross profit | |
| 106,898 | | |
| 20,489 | | |
| 184,796 | | |
| 40,622 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
General and administrative | |
| 2,138,815 | | |
| 778,800 | | |
| 3,745,545 | | |
| 1,456,031 | |
Depreciation Amortization | |
| 42,524 | | |
| 29,196 | | |
| 87,572 | | |
| 57,916 | |
Total operating expenses | |
| 2,181,339 | | |
| 807,996 | | |
| 3,833,117 | | |
| 1,513,947 | |
| |
| | | |
| | | |
| | | |
| | |
Operating loss | |
| (2,074,441 | ) | |
| (787,507 | ) | |
| (3,648,321 | ) | |
| (1,473,325 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other expenses | |
| | | |
| | | |
| | | |
| | |
Interest | |
| 62,507 | | |
| 126,766 | | |
| 210,249 | | |
| 237,756 | |
Loss on debt conversion | |
| - | | |
| - | | |
| 7,858 | | |
| - | |
| |
| 62,507 | | |
| 126,766 | | |
| 218,107 | | |
| 237,756 | |
| |
| | | |
| | | |
| | | |
| | |
Net (loss) | |
$ | (2,136,948 | ) | |
$ | (914,273 | ) | |
$ | (3,866,427 | ) | |
$ | (1,711,081 | ) |
| |
| | | |
| | | |
| | | |
| | |
Per share information - basic and fully diluted: | |
| | | |
| | | |
| | | |
| | |
Weighted average shares outstanding | |
| 78,496,262 | | |
| 66,254,136 | | |
| 78,188,337 | | |
| 65,887,401 | |
Net (loss) per share | |
$ | (0.03 | ) | |
$ | (0.01 | ) | |
$ | (0.05 | ) | |
$ | (0.03 | ) |
See
the accompanying notes to the condensed consolidated financial statements
Barfresh
Food Group Inc.
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
| |
For the six month ended
September 30, | |
| |
2015 | | |
2014 | |
Net Cash used in operations | |
$ | (3,366,381 | ) | |
$ | (1,134,262 | ) |
| |
| | | |
| | |
Cash flow from investing activities: | |
| | | |
| | |
Investment in trademark | |
| (9,906 | ) | |
| (11,438 | ) |
Purchase of equipment | |
| (138,945 | ) | |
| (191,249 | ) |
Sale of equipment | |
| 7,684 | | |
| 1,977 | |
Net Cash used in investing activities | |
| (141,167 | ) | |
| (200,710 | ) |
| |
| | | |
| | |
Cash flow from financing activities: | |
| | | |
| | |
Exercise of Warrant | |
| 2,500 | | |
| - | |
Repayment of Short Term Notes | |
| (75,000 | ) | |
| - | |
Repayment of Short Term Notes -related party | |
| (300,000 | ) | |
| - | |
Long term borrowing | |
| 33,000 | | |
| - | |
Repayment of long term debt | |
| (5,923 | ) | |
| - | |
Net cash used in financing activities | |
| (345,423 | ) | |
| - | |
| |
| | | |
| | |
Net (decrease) in cash | |
| (3,852,971 | ) | |
| (1,334,972 | ) |
Cash at beginning of period | |
| 5,364,657 | | |
| 2,632,612 | |
Cash at end of period | |
$ | 1,511,686 | | |
$ | 1,297,64 | |
| |
| | | |
| | |
Supplemental disclosure of cash flow information: | |
| | | |
| | |
Cash paid for interest | |
$ | 57,720 | | |
$ | 3,182 | |
Cash paid for income taxes | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
Non-cash financing activities | |
| | | |
| | |
Common Stock issued for services | |
$ | 60,500 | | |
$ | 476,333 | |
Common stock issued on conversion of note | |
$ | 50,000 | | |
$ | - | |
Common stock issued on conversion of convertible note | |
$ | 389,341 | | |
$ | - | |
See
the accompanying notes to the condensed consolidated financial statements
Barfresh
Food Group Inc.
Notes
to Condensed Consolidated Financial statements
September
30, 2015 and 2014
(Unaudited)
Note
1. Basis of Presentation and Significant Accounting Policies
Throughout
this report, the terms “our”, “we”, “us” and the “Company” refer to Barfresh Food
Group Inc., including its subsidiaries. The accompanying unaudited condensed financial statements of Barfresh Food Group Inc.
at September 30, 2015 and 2014 have been prepared in accordance with generally accepted accounting principles (“GAAP”)
for interim financial statements, instructions to Form 10-Q, and Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed
financial statements should be read in conjunction with the financial statements and notes thereto included in our annual report
on Form 10-K for the year ended March 31, 2015. In management’s opinion, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation to make our financial statements not misleading have been included.
The results of operations for the periods ended September 30, 2015 and 2014 presented are not necessarily indicative of the results
to be expected for the full year. The March 31, 2015 balance sheet has been derived from our audited financial statements included
in our annual report on Form 10-K for the year ended March 31, 2015.
Basis
of Consolidation
The
condensed consolidated financial statements include the financial statements of the Company and our wholly owned subsidiaries
Barfresh Inc. and Barfresh Corporation, Inc. (formerly known as Smoothie, 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 and revenues and expenses during the years reported. Actual results may differ
from these estimates.
Inventory
Inventory
consists of finished goods and is carried at the lower of cost or market on a first in first out basis.
Intangible
Assets
Intangible
assets are comprised of patents, net of amortization. The patent costs are being amortized over the life of the patents, which
is twenty years from the date of filing the patent applications. In accordance with ASC Topic 350 Intangibles - Goodwill and
Other (“ASC 350”), the costs of internally developing other intangible assets, such as patents, are expensed as
incurred. However, as allowed by ASC 350, legal fees and similar costs relating to patents have been capitalized.
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 deemed to be reasonably assured.
The estimated useful lives used for financial statement purposes are:
Furniture
and fixtures: 5 years
Equipment:
7 years
Leasehold
improvements: 2 years
Vehicle:
5 years
Barfresh
Food Group Inc.
Notes
to Condensed Consolidated Financial statements
September
30, 2015 and 2014
(Unaudited)
Revenue
Recognition
We
recognize revenue from products sold when there is persuasive evidence of an arrangement, delivery has occurred or services have
been rendered, the sales price is determinable and collection is reasonably assured.
Earnings
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 September 30, 2015
and 2014 any equivalents would have been anti-dilutive as we had losses for the periods then ended.
Research
and Development
Expenditures
for research activities relating to product development and improvement are charged to expense as incurred. We incurred $17,672
and $33,577 in research and development expenses for the six-month periods ended September 30, 2015 and 2014, respectively, and
$9,289 and $27,925 in research and development expenses for the three-month periods ended September 30, 2015 and 2014, respectively.
Rent
Expense
We
recognize rent expense on a straight-line basis over the reasonably assured lease term as defined in ASC Topic 840, Leases
(“ASC 840”).
Recent
Pronouncements
From
time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We believe that the impact
of recently issued standards that are not yet effective may have an impact on our results of operations and financial position.
ASU Update 2014-09 Revenue From Contracts With Customers (Topic 606) issued May 28, 2014 by FASB and IASB converged guidance
on recognizing revenue in contracts with customers with an effective date after December 15, 2017 will be evaluated as to impact
and implemented accordingly. In addition, ASU Update 2014-15 Presentation of Financial Statements-Going Concern (Sub Topic
205-40) issued August 27, 2014 by FASB defines management’s responsibility to evaluate whether there is substantial
doubt about an organization’s ability to continue as a going concern. The additional disclosure requirement is effective
after December 15, 2016 and will be evaluated as to impact and implemented accordingly.
Note
2. Property Plant and Equipment
Major
classes of property and equipment at September 30, 2015 and March 31, 2015:
| |
September 30, 2015 | | |
March 31, 2015 | |
Furniture and fixtures | |
$ | 13,604 | | |
$ | 10,794 | |
Equipment | |
| 703,047 | | |
| 632,596 | |
Leasehold Improvements | |
| 3,300 | | |
| 3,300 | |
Vehicle | |
| 116,752 | | |
| 58,752 | |
| |
| 836,703 | | |
| 705,442 | |
Less: accumulated depreciation | |
| (217,670 | ) | |
| (159,988 | ) |
Property and equipment, net of depreciation | |
| 619,033 | | |
| 545,454 | |
We
recorded depreciation expense related to these assets of $57,682 and $27,284 for the six-month periods ended September 30, 2015
and 2014, respectively, and $28,007 and $13,642 for the three-month periods ended September 30, 2015 and 2014, respectively.
Barfresh
Food Group Inc.
Notes
to Condensed Consolidated Financial statements
September
30, 2015 and 2014
(Unaudited)
Note
3. Intangible Assets
As
of September 30, 2015 and March 31, 2015, intangible assets consist primarily of patent costs and trademarks of $ 758,712 and
$748,806, less accumulated amortization of $128,265 and $97,373, respectively.
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 calculated through the expiration date of the patent, which is December, 2025. The amount charged
to expenses for amortization of the patent costs was $30,892 and $30,633 for the six-month periods ended September 30, 2015and
2014, respectively, and $15,519 and $15,555 for the three-month periods ended September 30, 1015 and 2014, respectively.
Estimated
amortization expense related to the patent as of September 30, 2015 is as follows:
Fiscal Years Ending March 31, | |
| |
2016 (6
months remaining) | |
$ | 41,579 | |
2017 | |
| 61,492 | |
2018 | |
| 61,492 | |
2019 | |
| 61,492 | |
2020 | |
| 61,492 | |
Thereafter | |
| 342,900 | |
Total | |
$ | 630,447 | |
Note
4. Short-Term Notes Payable (Related and Unrelated)
In
December 2013, we closed an offering of $775,000 in short-term notes payable (“Short-Term Notes”), $500,000 of which
was purchased by a significant shareholder, $100,000 was purchased by the family trust of an officer, director and significant
shareholder and $100,000 was purchased by a company controlled by a director and significant shareholder. During December 31,
2014 the $100,000 that was purchased by the family trust of an officer, director and significant shareholder is no longer considered
to be owned by the officer as he is no longer, nor is any other related party, the trustee and does not exercise control over
the trust and is not classified as a related party debt. The Short-Term Notes bear interest at a rate of 2% per annum and were
due and payable on December 20, 2014. We also issued 1,291,667 warrants to the Short-Term Note holders for the right to purchase
shares of our common stock. Each warrant entitles the holder to purchase one share of our common stock at a price of $0.45 per
share, may be exercised on a cashless basis and are exercisable for a period of five years.
In
accordance with the guidance in ASC Topic 470-20 Debt with Conversion and Other Options (“ASC 470”), we first
calculated the fair value of the warrants issued and then determined the relative value of the Short-Term Notes.
The
relative value of the warrants was $298,232, which was the amount recorded as debt discount. The amounts recorded as debt discount
was amortized over the life of the note, one year, and charged to interest expense. We estimated the effective interest rate as
calculated to be approximately 52% but paid cash at a rate of 2% per annum.
We
exercised our right to extend the due date of the Short-Term Notes to June 20, 2015. The extended Short-Term Notes bear at the
rate of 3% per annum and we required us to issue additional warrants (“Extension Warrants”). We issued 898,842 warrants
to the Short-Term Note holders for the right to purchase shares of our common stock. Each warrant entitles the holder to purchase
one share of our common stock at a price of $0.485 per share, may be exercised on a cashless basis and are exercisable for a period
of three years.
On
June 20, 2015, some of the Short-Term Notes were amended, and some of the Short-Term Notes were redeemed. Short-Term Notes totaling
$700,000 were amended to provide for repayment on June 20, 2015 of 50% of the face value, plus accrued interest to that date ($10,500),
and extension of the remaining balance until September 20, 2015, and the interest rate on the notes that were extended was adjusted
to 10%. The remaining Short-Terms Notes were fully redeemed on June 20, 2015. One such note in the amount of $25,000 was redeemed
for cash, and one such note in the amount of $50,000 was redeemed for 71,429 shares of our common stock. As a result of the above
described amendments and redemptions of the Short-Terms Notes, all remaining unamortized debt discount was expensed as of June
20, 2015.
Of
the balance of the notes due that were payable on September 20, 2015, one note for $250,000 was repaid on October 1, 2015, and
two notes totaling $100,000 were extended until December 31, 2015, with 10% interest.
Barfresh
Food Group Inc.
Notes
to Condensed Consolidated Financial statements
September
30, 2015 and 2014
(Unaudited)
Note
5. Convertible Note (Related and Unrelated)
In
August 2012, we closed an offering of $440,000 of convertible notes, $50,000 of which was purchased by the family trust of a significant
shareholder of ours. The notes bear interest at a rate of 12% per annum and were due and payable on September 6, 2013. In addition,
the notes were convertible at any time after the original issue date until the notes are no longer outstanding into our common
stock at a conversion price of $0.372 per share. We also issued 956,519 warrants to the note holders for the right to purchase
shares of our common stock. Each warrant entitled the holder to purchase one share of our common stock at a price of $0.46 per
share for a term of seven years.
When
the convertible notes were due we settled the notes by repaying $40,000 of the notes in cash, issuing new convertible notes in
the amount of $400,000 and received payment for another note in the amount of $20,000. The new notes bear interest at a rate of
12% per annum and are due and payable on September 6, 2015. In addition the new notes are convertible at any time after the original
issue date until the new notes are no longer outstanding, into our common stock at a conversion price of $0.25 per share. We also
issued warrants to the new note holders for the right to purchase shares of our common stock. Each warrant entitles the holder
to purchase one share of our common stock at a price of $0.25 per share. There were 1,680,000 warrants issued. The warrants issued
with the original notes were cancelled.
In
accordance with the guidance in ASC 470, we first calculated the fair value of the warrants issued and then determined the relative
value of the notes and determined that there was a beneficial conversion feature.
The
fair value of the warrants, $0.13 per share, ($216,531 in the aggregate) was calculated using the Black-Sholes option pricing
model using the following assumptions:
Expected life (in years) |
| 3 | |
Volatility (based on a comparable company) |
| 85 | % |
Risk Free interest rate |
| 0.91 | % |
Dividend yield (on common stock) |
| - | |
The
relative value of the warrants to the notes was $142,873, which was the amount recorded as a portion of the debt discount. We
also recorded a beneficial conversion feature on the convertible notes of $125,905. The amounts recorded as debt discount will
be amortized over the life of the notes, two years, and charged to interest expense. We estimated the effective interest rate
as calculated to be approximately 74% but the face rate was 12% per annum.
As
of September 30, 2015 all debt discount has been amortized.
During
September 2015 all of the holders of the convertible notes elected to convert the notes, $420,000, and accumulated interest of
$21,955 to our common stock. We issued 1,557,367 shares of our common stock and will issue the remaining 210,455 shares in the
near future.
Note
6. Commitments and Contingencies
We
lease office space under a non-cancelable operating lease, which will expire on November 7, 2016.
The
aggregate minimum requirements under non-cancelable leases as of September 30, 2015 is as follows:
Fiscal Years ending March 31, | |
| |
2016 | |
$ | 46,368 | |
2017 | |
| 54,529 | |
| |
$ | 100,897 | |
Barfresh
Food Group Inc.
Notes
to Condensed Consolidated Financial statements
September
30, 2015 and 2014
(Unaudited)
Note
7. Stockholders’ Equity
During
the six months ended September 30, 2015, we increased our authorized capitalization to 300,000,000 shares of stock, consisting
of 295,000,000 shares of common stock, par value $0.000001per share, and 5,000,000 shares of blank check preferred stock, par
value $0.000001. During the quarter, our Board of Directors also unanimously approved and adopted the Barfresh Food Group, Inc.
2015 Equity Incentive Plan (the “Plan”). The maximum number of shares that may be issued pursuant to awards under
the Plan is 15,000,000 shares.
During
the six months ended September 30, 2015 we issued 97,581 shares of common stock, valued at $60,500, for services.
During
the six months ended September 30, 2015 we granted the right to 1,000,000 shares of restricted common stock to a director of the
Company who during the period became an officer of the Company. The stock vests 50% on each of the second and third anniversary
of the issuance. In accordance with ASC Topic 718, Compensation - Stock Compensation (“ASC 718”), compensation expense
in the amount of $104,167 and $62,500, respectively for the six and three months ended September 30, 2015, was recognized in the
statement of operations. In addition, we granted the right to 350,000 shares of restricted to another officer in connection with
an employment agreement entered into during the six months ended September 30, 2015. In accordance with ASC Topic 718, Compensation
- Stock Compensation (“ASC 718”), compensation expense in the amount of $44,040 and $29,896, respectively for the
six and three months ended September 30, 2015 was recognized in the statement of operations.
During
the six months ended September 30, 2015, we issued 1,790,000 options to purchase our common stock to officers and employees of
the Company. In addition, we cancelled 10,000 options to purchase our common stock. The exercise price of the options ranged from
$0.50 to $0.82 per share, and are exercisable for periods of between 5 and 8 years. The options vest under a variety of vesting
schedules. Seventy thousand (70,000) of the options vest on the first anniversary of issuance, 850,000 of the options vest on
the second anniversary of issuance, and 870,000 of the options vest on the third anniversary of issuance.
The
fair value of the options ($1,181,393 in the aggregate) was calculated using the Black-Sholes option pricing model, based on the
criteria shown below, and are being written off the life of each option.
Expected life (in years) | |
| 4.5
to 8 | |
Volatility (based on a comparable company) | |
| 78%
to 99% | |
Risk Free interest rate | |
| 1.38%
to 2.11% | |
Dividend yield (on common stock) | |
| - | |
The
following is a summary of outstanding stock options issued to employees and directors as of September 30, 2015:
| |
Number of Options | | |
Exercise price per share | | |
Average remaining term in years | | |
Aggregate intrinsic value at date of grant | |
Outstanding
March 31, 2015 | |
| 1,600,000 | | |
| $0.45
- $0.54 | | |
| 3.25 | | |
$ | - | |
Issued | |
| 1,820,000 | | |
| $0.45
- $0.82 | | |
| 7.59 | | |
$ | 210,000 | |
Cancelled | |
| (10,000 | ) | |
| - | | |
| - | | |
| - | |
Outstanding September
30, 2015 | |
| 3,410,000 | | |
| $0.45
- $0.82 | | |
| 5.51 | | |
$ | 210,000 | |
Exercisable | |
| 1,450,000 | | |
| $0.45
- $0.51 | | |
| 3.05 | | |
$ | - | |
Barfresh
Food Group Inc.
Notes
to Condensed Consolidated Financial statements
September
30, 2015 and 2014
(Unaudited)
Note
8. Outstanding Warrants
The
following is a summary of all outstanding warrants as of September 30, 2015:
| |
Number of warrants | | |
price per share | | |
remaining term
in years | | |
intrinsic value at
date of grant | |
Warrants issued in connection with private placements of common stock | |
| 22,033,332 | | |
$ | 0.25
- 1.50 | | |
| 1.65 | | |
$ | 1,590,567 | |
Warrants issued in connection with private placement of convertible notes | |
| 1,680,000 | | |
$ | 0.25 | | |
| 0.94 | | |
$ | - | |
Warrants issued in connection with short-term notes payable | |
| 2,190,509 | | |
$ | 0.45-$0.485 | | |
| 2.73 | | |
$ | 64,583 | |
During
the six month period ended September 30, 2015 holders of 667,560 warrants to purchase shares of our common stock elected to exercise
those warrants. Of the warrants exercised 657,560 were cashless and we issued 427,316 shares of our common stock in exchange for
the warrants and 10,000 were exercised for cash and we issued 10,000 shares of our common stock.
Note
9. Interest Expense
Interest
expense includes direct interest of $37,387 and $33,041 for the six month periods ended September 30, 2015 and 2014, respectively
and $19,362 and $16,611 for the three months ended September 30, 2015 and 2014, calculated based on the interest rates stated
in our various debt instruments.
In
addition as more fully described in Notes 4 and 5 above, interest expense includes non-cash amortization of the debt discount
of $172,862 and $204,715 for the six months ended September 30, 2015 and 2014, respectively and $43,145 and $110,155 for the three
months ended September 30, 2015 and 2014.
Note
10. Income Taxes
We
account for income taxes in interim periods in accordance with ASC Topic 740, Income Taxes (“ASC 740”). We have determined
an estimated annual effective tax rate. The rate will be revised, if necessary, as of the end of each successive interim period
during our fiscal year to our best current estimate. As of September 30, 2015 the estimated effective tax rate for the year will
be zero.
There
are open statutes of limitations for taxing authorities in federal and state jurisdictions to audit our tax returns from 2009
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. There have been no income tax related interest or penalties assessed or recorded.
ASC
740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. This pronouncement also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and transition.
For
the six months ended September 30, 2015 and 2014, we did not have any interest and penalties associated with tax positions. As
of September 30, 2015 we did not have any significant unrecognized uncertain tax positions.
Note
11. Business Segments
During
the three months ended September 30, 2015 and 2014, we operated in only one business segment.
Note
12. Subsequent Events
Management
has evaluated all activity and concluded that no subsequent events have occurred that would require recognition in the financial
statements or disclosure in the notes to the financial statements.
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 as of September,
2015 and for the six month periods ended September 30, 2015 and 2014 and the related notes. References in this Management’s
Discussion and Analysis of Financial Condition and Results of Operations section to “us”, “we”, “our”
and similar terms refer to Barfresh Food Group Inc. 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.
Barfresh
is a leader in the creation, manufacturing and distribution of ready to blend frozen beverages. The current portfolio of products
includes smoothies, shakes and frappes. All of the products are portion controlled and ready to blend beverage ingredient packs
or “beverage packs”. The beverage packs contain all of the solid ingredients necessary to make the beverage, including
the base (either sorbet, frozen yogurt or ice cream), real fruit pieces, juices and ice – five ounces of water are added
before blending.
Domestic
and international patents and patents pending are owned by Barfresh, as well as related trademarks for all of the products. In
November 2011, the Company acquired the patent rights in the United States and Canada. The Canadian patent has been granted and
the United States patent is “patent pending”. On October 15, 2013, the Company acquired all of the related international
patent rights, which were filed pursuant to the Patent Cooperation Treaty and have been granted in 13 jurisdictions. The patents
are pending in the remainder of the jurisdictions that have signed the treaty. In addition, on October 15, 2013, the Company purchased
all of the trademarks related to the patented products.
The
Company has conducted sales through two channels: National Accounts, and through an exclusive nationwide distribution agreement
with Sysco Corporation (“Sysco”), the U.S.’s largest broadline distributor, which was entered into during July
2014.
The
process of obtaining sales orders for National Accounts generally follows several steps, including product demonstration, product
testing, and exclusive flavor development for the larger National Accounts. We are currently in various stages of product development
and testing with National Accounts representing over 37,000 restaurant locations. The Company recently moved into full roll out
with Shari’s Café and Pies, a family dining chain in the Pacific Northwest operating 100 restaurants which are open
24 hours a day, 365 days a year. Barfresh also recently entered into a sales agreement with the Bowling Proprietor’s Association
of America (“BPAA”), an organization that serves the interests of 3,340 bowling centers nationwide. Under the agreement
with BPAA, Barfresh will work with the organization to provide Barfresh’s line of smoothies, shakes and frappes to its members.
In
addition to the National Accounts, the Company sells to food distributors that supply products to the food services market place.
Effective July 2, 2014, the Company entered into an exclusive agreement with Sysco Merchandising and Supply Chain Services, Inc.
for resale by the Sysco Corporation (“Sysco”) to the foodservice industry of the Company’s ready-to-blend smoothies,
shakes and frappes. All Barfresh products will be included in Sysco’s national core selection of beverage items, making
Barfresh its exclusive single-serve, pre-portioned beverage provider. The agreement is mutually exclusive; however, Barfresh may
also sell the products to other foodservice distributors, but only to the extent required for such foodservice distributors to
service multi-unit chain operators with at least 20 units and where Sysco is not such multi-unit chain operators nominated distributor
for our products. The Company has already started shipping to 35 of the 74 Sysco distribution centers under this agreement and
anticipates a national rollout over the next 12 months.
On
October 26, 2015, Barfresh signed an agreement with PepsiCo North America Beverages, a division of PepsiCo, to become its exclusive
sales representative within the food service channel to present Barfresh’s line of ready-to-blend smoothies and frozen beverages
throughout the United States and Canada. Through this agreement, Barfresh’ products will be included as part of PepsiCo’s
offerings to its significant customer base, which we expect to fast track our growth and expedite the test to market process.
Finally,
the Company intends to monetize the international patents outside of the current area of operations, North America, by expanding
contract manufacturing to other countries and selling either through selling agents or internal sales personnel. The Company will
also consider entering into some form of license or royalty agreements with third parties.
Barfresh
currently utilizes contract manufacturers to manufacture all of the products in the United States. Ice cream manufacturers are
best suited to produce the products and two production lines are currently operational in our Salt Lake City contract manufacturer
location. This manufacturer is currently producing products sold to existing customers as well as producing exclusive products
developed for National Accounts. Currently annual production capacity with our existing contract manufacturer is 14 million units
per year. The Company is now in advanced discussion with an additional contract manufacturing company that would be able to produce
an additional 100 million units per year.
Although
there currently is not a contract in place with any suppliers for the raw materials needed to manufacture our products, there
are a significant number of sources available and the company does not anticipate becoming dependent on any one supplier. As demand
for the range of our products grows, we plan to contract a level of raw material requirements to ensure continuity of supply.
As
of September 30, 2015, we had 34 employees and 4 consultants. There are currently 24 employees and 2 consultants selling our products.
Most
recently, as part of the Company’s expansion due to the acquisition of the international patents, a leading regional Australian
food ingredient supply and product developer has been engaged as the wholesaler and distributor for Barfresh products in Australia.
Critical
Accounting Policies
The
significant accounting policies set forth in Note 2 to our audited consolidated financial statements included in our Annual Report
on Form 10-K for the year ended March 31, 2015, as updated by Note 1 to the Unaudited Condensed Consolidated Financial Statements
included herein, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our
Annual Report on Form 10-K for the year ended March 31, 2015, appropriately represent, in all material respects, the current status
of our critical accounting policies and estimates, the disclosure with respect to which is incorporated herein by reference
Results
of Operations
Results
of Operation for Three Months Ended September 30, 2015 as Compared to the Three Months Ended September 30, 2014 (References to
2015 and 2014 are to the three months ended September 30, 2015 and 2014, respectively, unless otherwise specified.)
Revenue
and cost of revenue
Revenue
increased $185,894 (462%) from $40,233 in 2014 to $226,127 in 2015. The increase is a result of our product being distributed
through Sysco, a leading national broad line food distributor. We currently sell into 34 of Sysco’s 74 distribution locations.
At this time last year we sold our product into 2 of Sysco’s distribution locations. We expect to have our product in all
of Sysco’s 74 distribution locations during calendar year 2016.
Cost
of revenue for 2015 was $119,229 as compared to $19,744 in 2014. Our gross profit was $106,898 (47.27%) and $20,489 (50.93%) for
2015 and 2014, respectively. There were no significant change in our selling prices. Revenue in both 2015 and 2014 included sales
of blenders and freezers. We only make a nominal profit on these items as they are to accommodate our customers. We anticipate
that our gross profit percentage for the remainder of 2015 will be comparable to the current percentage.
Operating
expenses
Our
operations during 2015 and 2014 were directed towards increasing sales and finalizing flavor profiles. During the current quarter
we increased our overhead as a result of the ongoing implementation of the distribution agreement with Sysco. We anticipate further
increases to selling costs, mostly related to increasing our sales and marketing staff, as we continue to implement our distribution
agreement with Sysco, and as we begin to implement our new sales agreement with PepsiCo North America Beverages.
Our
general and administrative expenses increased $1,360,015 (175%) from $778,800 in 2014 to $2,138,815 in 2015, as our business grew,
and may not necessarily be indicative of the rate of future increases. The following is a breakdown of our general and administrative
expenses for the three months ended September 30, 2015 and 2014:
| |
Three
months ended September 30, | |
| |
2015 | | |
2014 | | |
Difference | |
Personnel
costs | |
$ | 1,040,843 | | |
$ | 239,626 | | |
$ | 801,217 | |
Stock
based compensation/options | |
| 255,321 | | |
| 116,823 | | |
| 138,498 | |
Legal
and professional fees | |
| 202,072 | | |
| 105,795 | | |
| 96,277 | |
Travel | |
| 110,404 | | |
| 55,323 | | |
| 55,081 | |
Rent | |
| 34,482 | | |
| 35,211 | | |
| (729 | ) |
Marketing
and selling | |
| 158,686 | | |
| 43,610 | | |
| 115,076 | |
Consulting
fees | |
| 172,090 | | |
| 78,495 | | |
| 93,595 | |
Other
expenses | |
| 164,917 | | |
| 103,917 | | |
| 61,000 | |
| |
$ | 2,138,815 | | |
$ | 778,800 | | |
$ | 1,360,015 | |
Personnel
cost represents the cost of employees including salaries, employee benefits and employment taxes and continues to be our largest
cost. Personnel cost increased $801,217 (334%) from $239,626 to $1,040,842. We have significantly increased our sales staff primarily
as a result of the distribution agreement with Sysco. We currently have 34 full time employees compared to 6 at the end of the
prior period. We anticipate personnel cost to increase in the future as we add more staff for both the further implementation
of the Sysco distribution agreement and the PepsiCo sales agreement.
Stock
based compensation is used as an incentive to attract new employees and to compensate existing employees. Stock based compensation
includes stock issued and options granted to employees and non-employees. During the three months ended September 30, 2015, we
granted 80,000 options to purchase shares of our common stock to employees. The exercise prices range from $0.47 to $0.72. The
fair value of the stock was based on the trading value of the shares on the date of grant and are being amortized over the vesting
period. The fair value of the stock options was calculated using the Black-Sholes model using the following assumptions: expected
life in years, 8; volatility, 98.7% to 99%; risk free rate of return, 1.64% to 2.11%, and no annual dividends and are being amortized
over the vesting period. We anticipate making additional grants in the future. Fewer grants were made in 2014.
Legal
and professional fees increased $ 96,277 ( 91%) from $105,795 in 2014 to $ 202,072 in 2015. The increase was primarily due to
increased accounting costs and more legal services required as a result of increased business and financing activity. We anticipate
legal fees related to ongoing Securities and Exchange Commission reporting to remain the same and additional legal fees to be
related to the continuing increase in our business and financing activities.
Travel
expenses increased $55,081 (100%) from $55,323 in 2014 to $110,404 in 2015. The increase is due to increased travel related to
increased personnel engaging in selling and marketing activities. We anticipate that travel cost will continue to increase as
we increase our personnel and our customer base.
Rent
expense is primarily for our location in Beverly Hills, California. Rent expense for the Beverly Hills office is approximately
$7,600 per month. The lease on the office commenced in November 8, 2014 and expires in November 2016. Rent expense also includes
monthly parking fees as well as an offsite storage facilities. The increase is due to a nominal increase on the office and the
addition of additional parking fees as our employee base grows.
Marketing
and selling expenses increased $115,076 (264%) from $43,610 in 2014 to $158,686 in 2015. The increase relates primarily to the
increase in overall sales and marketing activities, including a rebranding project. We anticipate a continued increase in these
costs as our business continues to grow.
Consulting
fees increased $93,595 (119%) from $78,495 in 2014 to $172,090 in 2015. Our consulting fees vary based on needs. We engage consultants
in the areas of sales, operations and accounting. Future consulting fees will be variable.
Other
expenses consist of ordinary operating expenses such as office, telephone, insurance, and stock related costs. We anticipate increases
in these expenses.
We
had operating losses of $2,074,441 and $787,507 for 2015 and 2014, respectively.
Interest
expense decreased $64,259 (51%) from $126,766 in 2014 to $62,507 in 2015. Interest primarily relates to convertible debt that
was issued in August 2012, renewed in September 2013, and converted into stock during September of 2015, and short term notes
that were issued in December 2013, which were partially repaid during June of 2015. The stated interest rate on the convertible
debt is 12%. After giving effect to the debt discount the effective rate of interest on the short term debt is estimated to be
approximately 53% and approximately 74% on the convertible notes. Interest expense includes direct interest of $19,362 and $16,611
for 2015 and 2014, respectively, calculated based on the interest rates stated in our various debt instruments. In addition, interest
expense includes non-cash amortization of the debt discount of $43,145 and $110,155 for 2015 and 2014, respectively
We
had net losses of $2,136,948 and $914,273 for 2015 and 2014, respectively.
Results
of Operation for Six Months Ended September 30, 2015 as Compared to the Six Months Ended September 30, 2014 (References to
2015 and 2014 are to the six months ended September 30, 2015 and 2014, respectively, unless otherwise specified.)
Revenue
and cost of revenue
Revenue
increased $292,502 (288%) from $101,725 in 2014 to $394,227 in 2015. The increase is a result of our product being distributed
through Sysco, a leading national broad line food distributor. We currently sell into 34 of Sysco’s 74 distribution locations.
At this time last year we sold our product into 2 of Sysco’s distribution locations. We expect to have our product in all
of Sysco’s 74 distribution locations during calendar year 2016.
Cost
of revenue for 2015 was $209,431 as compared to $61,103 in 2014. Our gross profit was $184,796 (46.88%) and $40,622 ( 39.93%)
for 2015 and 2014, respectively. There were no significant change in our selling prices. Revenue in both 2015 and 2014 included
sales of blenders and freezers. We only make a nominal profit on these items as they are to accommodate our customers. We anticipate
that our gross profit percentage for the remainder of 2015 will be comparable to the current percentage.
Operating
expenses
Our
operations during 2015 and 2014 were directed towards increasing sales and finalizing flavor profiles. During the current quarter
we increased our overhead as a result of the ongoing implementation of the distribution agreement with Sysco. We anticipate further
increases to selling costs, mostly related to increasing our sales and marketing staff, as we continue to implement our distribution
agreement with Sysco, and as we begin to implement our new sales agreement with PepsiCo North America Beverages.
Our
general and administrative expenses increased $2,289,514 (157%) from $1,456,031 in 2014 to $3,745,545 in 2015, as our business
grew, and may not necessarily be indicative of the rate of future increases. The following is a breakdown of our general and administrative
expenses for the six months ended September 30, 2015 and 2014:
| |
Six
months ended September 30, | |
| |
2015 | | |
2014 | | |
Difference | |
Personnel
costs | |
$ | 1,775,997 | | |
$ | 481,752 | | |
$ | 1,294,245 | |
Stock
based compensation/options | |
| 423,663 | | |
| 320,823 | | |
| 102,840 | |
Legal
and professional fees | |
| 279,604 | | |
| 134,306 | | |
| 145,298 | |
Travel | |
| 242,060 | | |
| 87,957 | | |
| 154,103 | |
Rent | |
| 67,615 | | |
| 59,160 | | |
| 8,455 | |
Marketing
and selling | |
| 471,953 | | |
| 68,691 | | |
| 403,262 | |
Consulting
fees | |
| 202,091 | | |
| 110,995 | | |
| 91,096 | |
Other
expenses | |
| 282,562 | | |
| 192,347 | | |
| 90,215 | |
| |
$ | 3,745,545 | | |
$ | 1,456,031 | | |
$ | 2,289,514 | |
Personnel
cost represents the cost of employees including salaries, employee benefits and employment taxes and continues to be our largest
cost. Personnel cost increased $ 1,294,245 ( 269%) from $481,752 to $1,775,997. We have increased our sales staff primarily as
a result of the distribution agreement with Sysco. We currently have 34 full time employees compared to 6 at the end of the prior
period. We anticipate personnel cost to increase in the future as we add more staff for both the further implementation of the
Sysco distribution agreement and the PepsiCo sales agreement.
Stock
based compensation is used as an incentive to attract new employees and to compensate existing employees. Stock based compensation
includes stock issued and options granted to employees and non-employees. During the six months ended September 30, 2015, we granted
1,820,000 options to purchase shares of our common stock to officers, directors and employees. The exercise prices range from
$0.45 to $0.82 and we granted restricted stock rights for 1,350,000. The fair value of the stock was based on the trading value
of the shares on the date of grant and are being amortized over the vesting period. The fair value of the stock options was calculated
using the Black-Sholes model using the following assumptions: expected life in years, 8; volatility, 98.7% to 99%; risk free rate
of return, 1.64% to 2.11%, and no annual dividends and are being amortized over the vesting period. We anticipate making additional
grants in the future. Fewer grants were made in 2014.
Legal
and professional fees increased $ 145,298 (108%) from $134,306 in 2014 to $ 279,604 in 2015. The increase was primarily due to
increased accounting costs and more legal services required as a result of increased business and financing activity. We anticipate
legal fees related to ongoing Securities and Exchange Commission reporting to remain the same and additional legal fees to be
related to the continuing increase in our business and financing activities.
Travel
expenses increased $154,103 (175%) from $87,957 in 2014 to $242,060 in 2015. The increase is due to increased travel related to
increased personnel engaging in selling and marketing activities. We anticipate that travel cost will continue to increase as
we increase our personnel and our customer base.
Rent
expense is primarily for our location in Beverly Hills, California. Rent expense for the Beverly Hills office is approximately
$7,600 per month. The lease on the office commenced in November 8, 2014 and expires in November 2016. Rent expense also includes
monthly parking fees as well as an offsite storage facilities. The increase is due to a nominal increase on the office and the
addition of additional parking fees as our employee base grows.
Marketing
and selling expenses increased $403,262 (587%) from $68,691 in 2014 to $471,953 in 2015. The increase relates primarily to the
increase in overall sales and marketing activities, including a rebranding project. We anticipate a continued increase in these
costs as our business continues to grow.
Consulting
fees increased $91,096 (82%) from $110,995 in 2014 to $202,091 in 2015. Our consulting fees vary based on needs. We engage consultants
in the areas of sales, operations and accounting. Future consulting fees will be variable.
Other
expenses consist of ordinary operating expenses such as office, telephone, insurance, and stock related costs. We anticipate increases
in these expenses.
We
had operating losses of $3,648,321 and $1,473,325 for 2015 and 2014, respectively.
Interest
expense decreased $27,507 (12%) from $237,756 in 2014 to $210,249 in 2015. Interest primarily relates to convertible debt that
was issued in August 2012, renewed in September 2013, and converted into stock during September of 2015, and short term notes
that were issued in December 2013, which were partially repaid during June of 2015. The stated interest rate on the convertible
debt is 12%. After giving effect to the debt discount the effective rate of interest on the short term debt is estimated to be
approximately 53% and approximately 74% on the convertible notes. Interest expense includes direct interest of $37,387 and $33,041
for 2015 and 2014, respectively, calculated based on the interest rates stated in our various debt instruments. In addition, interest
expense includes non-cash amortization of the debt discount of $172,862 and $204,715 for 2015 and 2014, respectively
We
had net losses of $3,866,427 and $1,711,081 for 2015 and 2014, respectively.
Liquidity
and Capital Resources
During
the six months ended September 30, 2015 we used cash for operations of $ $3,366,381, $9,906 for investment in patent and trademarks,
and also purchased equipment for $138,945, and received $7,684 from the sale of equipment. In addition we used $380,923 to repay
debt.
During
the six months ended September 30, 2014 we used $1,134,262 of cash for operations, $11,438 for investment in patents, $191,249
for the purchase of equipment, and received $1,977 from the sale of equipment.
Our
operations to date have been financed by the sale of securities, the issuance of convertible debt and the issuance of short-term
debt, including related party advances. If we are unable to generate sufficient cash flow from operations with the capital raised
we will be required to raise additional funds either in the form of capital or debt. There are no assurances that we will be able
to generate the necessary capital or debt to carry out our current plan of operations.
We
lease office space under a non-cancelable operating lease, which expires November, 2016.
The
aggregate minimum requirements under non-cancelable leases as of March 31, 2015 is as follows:
Fiscal
Years ending March 31, | |
| |
| |
| |
2016 | |
$ | 46,368 | |
2017 | |
| 54,529 | |
| |
$ | 100,897 | |
During
the six months ended September 30, 2015, we renegotiated the short term notes that were due June 20, 2015. We repaid one note
in full ($25,000) 50% of three notes were paid ($350,000) and one note was converted to 71,429 shares of our common stock. The
balance of the notes due, $350,000, were payable on September 20, 2015 and bore interest at 12% per annum. One note for $250,000
was repaid on October 1, 2015, and two notes totaling $100,000 were extended until December 31, 2015, with 10% interest.
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 expenses, 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.
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 Accounting Officer,
we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Securities and Exchange Act
of 1934 Rules 13a-15(f). Based on this evaluation, our Chief Executive Officer and our Chief Accounting Officer concluded that
the Company’s disclosure controls and procedures were effective as of September 30, 2015.
However,
management has identified the following material weaknesses in our internal control over financial reporting:
|
● |
We
established an audit committee during our last quarter ended June 30, 2015. We are not currently obligated to have an audit
committee, including a member who is an “audit committee financial expert”, as defined in Item 407 of Regulation
S-K, under applicable regulations or listing standards. It is management’s view that such a committee is an important
internal control over financial reporting, the lack of which may result in ineffective oversight in the establishment and
monitoring of internal control. |
|
|
|
|
● |
We
do not have a majority of independent directors on our board of directors, which may result in ineffective oversight in the
establishment and monitoring of our internal control. |
|
|
|
|
● |
Inadequate
Segregation of Duties: We have an inadequate number of personnel to properly implement internal controls over financial reporting. |
Since
the assessment of the effectiveness of our internal control over financial reporting did identify material weaknesses, management
considers its internal control over financial reporting to be ineffective.
Management
believes that the material weakness set forth above did not have an effect on our financial results.
Changes
in Internal Control over Financial Reporting
There
have been no changes in the Company’s internal control over financial reporting during the three months ended September
30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART
II-OTHER INFORMATION
Item
1. Legal Proceedings.
Neither
the Company nor its subsidiaries are party to or have property that is the subject of any material pending legal proceedings.
We may be subject to ordinary legal proceedings incidental to our business from time to time that are not required to be disclosed
under
this Item 1.
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 three months ended September 30, 2015 we granted 80,000 options to purchase shares of our common stock to officers, directors
and employees. The exercise prices range from $0.47 to $0.72.
The
foregoing issuances of securities were made in reliance on Section 4(2) of the Securities Act of 1933, as amended (the “Act”)
for transactions of an issuer not involving a public offering.
Item
3. Defaults Upon Senior Securities.
None.
Item
4. Mine Safety Disclosures.
Not
applicable.
Item
5. Other Information.
None.
Item
6. Exhibits.
Exhibit
No. |
|
Description |
31.1 |
|
Certification
of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (filed herewith) |
|
|
|
31.2 |
|
Certification
of Principal Accounting Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (filed herewith) |
|
|
|
32.1 |
|
Certification
of Principal Executive Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith) |
|
|
|
32.2 |
|
Certification
of Principal Accounting Officer of the Company, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
|
|
|
101.INS* |
|
XBRL
Instance Document |
101.SCH* |
|
XBRL
Taxonomy Extension Schema Document |
101.CAL* |
|
XBRL
Taxonomy Extension Calculation Linkbase Document |
101.DEF* |
|
XBRL
Taxonomy Extension Definition Linkbase Document |
101.LAB* |
|
XBRL
Taxonomy Extension Label Linkbase Document |
101.PRE* |
|
XBRL
Taxonomy Extension Presentation Linkbase 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, Exhibits 32.1 and 32.2 are furnished and not filed. |
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:
November 20, 2015 |
By: |
/s/
Riccardo Delle Coste |
|
|
Riccardo
Delle Coste
Chief
Executive Officer
(Principal
Executive Officer) |
|
|
|
Date:
November 20, 2015 |
By: |
/s/
Joseph S. Tesoriero |
|
|
Joseph
S. Tesoriero |
|
|
Chief
Financial Officer
(Principal
Financial Officer)
|
Exhibit
31.1
CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT
TO 18 U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002
I,
Riccardo Delle Coste, certify that:
1. |
I
have reviewed this Form 10-Q of Barfresh Food Group Inc.; |
|
|
2. |
Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report; |
|
|
3. |
Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
present in this report; |
|
|
4. |
The
registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
b) |
Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principals; |
|
|
|
|
c) |
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and |
|
|
|
|
d) |
Disclosed
in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and |
5. |
The
registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions): |
|
a) |
All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and |
|
|
|
|
b) |
Any
fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
Dated:
November 20, 2015 |
By: |
/s/
Riccardo Delle Coste |
|
|
Riccardo
Delle Coste
Chief
Executive Officer
(Principal
Executive Officer) |
Exhibit
31.2
CERTIFICATION
OF PRINCIPAL ACCOUNTING OFFICER
PURSUANT
TO 18 U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002
I,
Joseph S. Tesoriero, certify that:
1. |
I have reviewed this Form 10-Q of Barfresh Food Group Inc.; |
|
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report; |
|
|
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
b) |
Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principals; |
|
|
|
|
c) |
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and |
|
|
|
|
d) |
Disclosed
in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and |
5. |
The
registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions): |
|
a) |
All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and |
|
|
|
|
b) |
Any
fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
Dated:
November 20, 2015 |
By: |
/s/
Joseph S. Tesoriero |
|
|
Joseph
S. Tesoriero
Chief
Financial Officer
(Principal
Accounting Officer) |
Exhibit
32.1
CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT
TO 18 U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of Barfresh Food Group Inc. (the “Company”) on Form 10-Q for the quarter ended
September 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Riccardo
Delle Coste, Chief Executive Officer of the Company, does hereby certify, pursuant to § 906 of the Sarbanes-Oxley Act of
2002 (18 U.S.C. § 1350), that to his knowledge:
(1) |
|
The
Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
|
|
(2) |
|
The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company. |
Date:
November 20, 2015 |
By: |
/s/
Riccardo Delle Coste |
|
|
Riccardo
Delle Coste
Chief
Executive Officer
(Principal
Executive Officer) |
Exhibit
32.2
CERTIFICATION
OF PRINCIPAL ACCOUNTING OFFICER
PURSUANT
TO 18 U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with this Quarterly Report of Barfresh Food Group Inc. (the “Company”) on Form 10-Q for the quarter ended
September 30, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Joseph
S. Tesoriero, Chief Financial Officer of the Company, does hereby certify, pursuant to § 906 of the Sarbanes-Oxley Act of
2002 (18 U.S.C. § 1350), that to his knowledge:
1. |
The
Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
|
2. |
The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of Barfresh Food Group Inc. |
Date:
November 20, 2015 |
By: |
/s/
Joseph S. Tesoriero |
|
|
Joseph
S. Tesoriero
Chief
Financial Officer
(Principal
Accounting Officer) |