PART
I
Item
1. Business.
Business
Overview
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.
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 operator’s nominated
distributor for our products.
The
Company is one of five vendors that was named to Sysco’s “Cutting Edge Solution” (“CES”) Platform
during March of 2016. As part of this platform, our products will receive national advertising and marketing, and will be considered
a core product. All 72 of SYSCO’s OPCO’s will participate in the CES program, and will be evaluated on their success
in moving the CES products. As a direct result the Company, which had already begun shipping products to 37 of the 72 Sysco distribution
centers, expects to have its products in all 72 SYSCO Opco’s by the end of the second quarter 2016.
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 the Company expects to fast track our growth and expedite the test to market
process. The agreement gives Barfresh access to PepsiCo’s one-thousand plus person foodservice sales team, with Barfresh
products becoming part of PepsiCo’s customer presentations.
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 test products
developed for potential National Accounts. Currently annual production capacity with our existing contract manufacturer is 14
million units per year. In February 2016, the Company signed an agreement with Yarnell Operations, LLC, a subsidiary of Schulze
and Burch, that secures additional production capacity ahead of expected dramatic sales growth in 2016. Barfresh will have the
capacity to ramp up to an incremental production capacity of 100 million units through this agreement. The Yarnell Operations,
LLC, subsidiary is strategically located in Arkansas. Yarnell’s location enhances the company’s ability to efficiently
move product throughout the supply chain to destinations in the eastern United States, home to many of the country’s large
foodservice outlets.
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.
Corporate
History and Background
The
Company, which was incorporated in Delaware on February 25, 2010, was originally formed to produce movies. As the result of the
reverse merger, more fully described below, the Company is now engaged in the manufacturing and distribution of ready to blend
beverages, particularly, smoothies, shakes and frappes.
Reorganization
and Recapitalization
During
January, 2012, the Company entered into a series of transactions pursuant to which Barfresh Inc., a Colorado corporation (“Barfresh
CO”), was acquired, spun-out prior operations to the former principal shareholder, completed a private offering of securities
for an aggregate purchase price of approximately $999,998, conducted a four for one forward stock split and changed the name of
the Company. The following describes the steps of this reorganization:
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Acquisition
of Barfresh CO
. We acquired all of the outstanding capital stock of Barfresh CO in exchange for the issuance of 37,333,328
shares of our $0.000001 par value common stock pursuant to a Share Exchange Agreement between us, our former principal shareholder,
Barfresh CO and the former shareholders of Barfresh CO. As a result of this transaction, Barfresh CO became our wholly owned
subsidiary and the former shareholders of Barfresh CO became our controlling shareholders.
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Spinout
of prior business
. Immediately prior to the acquisition of Barfresh CO, we spun-out our previous business operations to
a former officer, director and principal shareholder, in exchange for all of the shares of our common stock held by that person.
Such shares were cancelled immediately following the acquisition.
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Financing
transaction
. Immediately following the acquisition of Barfresh, we sold an aggregate of 1,333,332 shares of our common
stock and five-year warrants to purchase 1,333,332 shares of common stock at a per share exercise price of $1.50 in a private
offering for gross proceeds of $999,998, less expenses of $26,895.
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Change
of name
. Subsequent to the merger, we changed the name of the Company from Moving Box Inc. to Barfresh Food Group Inc.
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Forward
stock split
. Subsequent to the merger, we conducted a four for one forward stock split of the Company’s common stock.
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Products
All
of our products are portion controlled beverage ingredient packs, suitable for smoothies, shakes and frappes that can also be
utilized for cocktails and mocktails. They contain all of the ingredients necessary to make a smoothie, shake or frappe, including
the ice. Simply add water, empty the packet into a blender, blend and serve.
The
following nine flavors are available as part of our standard portfolio of products:
In
addition to the standard product range, the Company has developed a number of exclusive flavors for several National Accounts
that are currently engaged in the pre-rollout testing process.
Some
of the key product benefits for operators include:
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Portion
controlled
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Zero
waste
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Product
consistency – every time a smoothie, shake or frappe is made
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Easy
inventory control
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Long
shelf life (24 months)
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Minimal
capital investment necessary
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Faster
and easier to make (less than 60 seconds)
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Ability
to itemize the ingredients of the beverages on menus
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Products
require less retail space
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Some
of the key benefits of the products for the end consumers that drink the products include:
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From
as little as 150 calories (per serving)
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Real
fruit in every smoothie
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Dairy
free options
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Kosher
approved
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Gluten
Free
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Customer
Marketing Material
A
wide range of consumer marketing materials has been created to assist customers in selling blended beverages.
Research
and Development
The
Company incurred research and development expenses for the 9 month transitional year ended December 31, 2015 in the amount of
$67,341, and for fiscal year ended March 31, 2015 in the amount of $51,465. The increase in Research and Development expenses
was primarily attributable to increased activity in creating unique flavors for potential customers in our national account pipeline.
Competition
There
is significant competition in the smoothie market at both the consumer purchasing level and also the product level.
The
competition at the consumer level is primarily between specialized juice bars (e.g. Jamba Juice) and major fast casual and fast
food restaurant chains (such as McDonalds). Barfresh does not compete specifically at this level but intends to supply its product
to customers that fall within these segments to enable them to compete for consumer demand.
There
may also be new entrants to the smoothie market that may alter the current competitor landscape.
The
existing competition from a product perspective can be separated into three categories:
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Specialized
juice bar products: The product is made in-store and each ingredient is added separately.
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Syrup
based products: The fruit puree is supplied in bulk and not portion controlled for each smoothie. These types of products
still require the addition of juice, milk or water and/or yogurt and ice. While there are a number of competitors for this
style of product, the two dominant competitors are Island Oasis and Minute Maid, which are both owned by Coca Cola.
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Portion
pack products: These products contain only the fruit and yogurt and require the addition of juice or milk and ice. The two
dominant competitors are General Mills’ Yoplait Smoothies and Inventure Group’s Jamba Smoothies.
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The
Company believes that ease of use, portion control, premium quality, and minimal capital investment required to enable a customer
to begin to carry Barfresh beverage products all add up to represent a very significant competitive advantage that will allow
us to quickly gain traction in the market and secure long-term agreements with customers. However, there are other factors that
may influence the adoption of a particular product by customers, including their dependence on prior relationships with competition.
Intellectual
Property
Barfresh
owns the domestic and intellectual property rights to its products’ sealed pack of ingredients.
In
November 2011, the Company acquired patent applications filed in the United States (Patent Application number 11/660415) and Canada
(Patent Application number 2577163) from certain related parties. The United States patent was originally filed on December 4,
2007 and its current status is patent pending. The Canadian patent was originally filed on August 16, 2005 and it has been granted.
On
October 15, 2013, the Company acquired all of the related international patent rights, which were filed pursuant to the Patent
Cooperation Treaty, have been granted in 13 jurisdictions and are pending in the remainder of the jurisdictions that have signed
the PCT. In addition, the Company purchased all of the trademarks related to the patented products.
Governmental
Approval and Regulation
The
Company is not aware of the need for any governmental approvals of its products.
The
Company utilizes a contract manufacturer. Before entering into any manufacturing contract, the Company determines that the manufacturer
has met all government requirements.
The
Company will be subject to certain labeling requirements as to the contents and nutritional information of our products.
Environmental
Laws
The
Company does not believe that it will be subject to any environmental laws, either state or federal. Any laws concerning manufacturing
will be the responsibility of the contract manufacturer.
Employees
Currently
we have 44 employees and 5 consultants. There are currently 35 employees and 1 consultant selling our products. We have recently
hired additional employees, particularly in the sales area, as we roll out our products to all 72 Sysco distribution centers.
Item
1A. Risk Factors
An
investment in the Company’s securities involves significant risks, including the risks described below. The risks included
below are not the only ones that the Company faces. Additional risks presently unknown to us or that we currently consider immaterial
or unlikely to occur could also impair our operations. If any of the risks or uncertainties described below or any such additional
risks and uncertainties actually occur, our business, prospects, financial condition or results of operations could be negatively
affected.
Risks
Related to Our Business
We
have a history of operating losses
We
have a history of operating losses and may not achieve or sustain profitability. These operating losses have been generated while
we market to potential customers. We cannot guarantee that we will become profitable. Even if we achieve profitability, given
the competitive and evolving nature of the industry in which we operate, we may be unable to sustain or increase profitability
and our failure to do so would adversely affect the Company’s business, including our ability to raise additional funds.
A
worsening of economic conditions or a decrease in consumer spending may adversely impact our ability to implement our business
strategy.
Our
success depends to a significant extent on discretionary consumer spending, which is influenced by general economic conditions
and the availability of discretionary income. There is no certainty regarding economic conditions in the United States, and credit
and financial markets and confidence in economic conditions could deteriorate at any time. Accordingly, we may experience declines
in revenue during economic turmoil or during periods of uncertainty. Any material decline in the amount of discretionary spending,
leading cost-conscious consumers to be more selective in restaurants visited, could have a material adverse effect on our revenue,
results of operations, business and financial condition.
The
challenges of competing with the many food services businesses may result in reductions in our revenue and operating margins.
We
compete with many well-established companies, food service and otherwise, on the basis of taste, quality and price of product
offered, customer service, atmosphere, location and overall guest experience. Our success depends, in part, upon the popularity
of our products and our ability to develop new menu items that appeal to consumers across all four day parts. Shifts in consumer
preferences away from our products, our inability to develop new menu items that appeal to consumers across all day parts, or
changes in our menu that eliminate items popular with some consumers could harm our business. We compete with other smoothie and
juice bar retailers, specialty coffee retailers, yogurt and ice cream shops, bagel shops, fast-food restaurants, delicatessens,
cafés, take-out food service companies, supermarkets and convenience stores. Our competitors change with each of the four
day parts, ranging from coffee bars and bakery cafés to casual dining chains. Many of our competitors or potential competitors
have substantially greater financial and other resources than we do, which may allow them to react to changes in the market quicker
than we can. In addition, aggressive pricing by our competitors or the entrance of new competitors into our markets, could reduce
our revenue and operating margins. We also compete with other employers in our markets for workers and may become subject to higher
labor costs as a result of such competition.
Fluctuations
in various food and supply costs, particularly fruit and dairy, could adversely affect our operating results.
Supplies
and prices of the various ingredients that we are going to use to can be affected by a variety of factors, such as weather, seasonal
fluctuations, demand, politics and economics in the producing countries.
These
factors subject us to shortages or interruptions in product supplies, which could adversely affect our revenue and profits. In
addition, the prices of fruit and dairy, which are the main ingredients in our products, can be highly volatile. The fruit of
the quality we seek tends to trade on a negotiated basis, depending on supply and demand at the time of the purchase. An increase
in pricing of any fruit that we are going to use in our products could have a significant adverse effect on our profitability.
We cannot assure you that we will be able to secure our fruit supply.
Our
business depends substantially on the continuing efforts of our senior management and other key personnel, and our business may
be severely disrupted if we lose their services.
Our
future success heavily depends on the continued service of our senior management and other key employees. If one or more of our
senior executives is unable or unwilling to continue to work for us in his present position, we may have to spend a considerable
amount of time and resources searching, recruiting, and integrating a replacement into our operations, which would substantially
divert management’s attention from our business and severely disrupt our business. This may also adversely affect our ability
to execute our business strategy.
Our
senior management’s limited experience managing a publicly traded company may divert management’s attention from operations
and harm our business.
With
the exception of our Chief Financial Officer, our senior management team has relatively limited experience managing a publicly
traded company and complying with federal securities laws, including compliance with recently adopted disclosure requirements
on a timely basis. Our management will be required to design and implement appropriate programs and policies in responding to
increased legal, regulatory compliance and reporting requirements, and any failure to do so could lead to the imposition of fines
and penalties and harm our business.
We
may be unable to attract and retain qualified, experienced, highly skilled personnel, which could adversely affect the implementation
of our business plan.
Our
success depends to a significant degree upon our ability to attract, retain and motivate skilled and qualified personnel. As we
become a more mature company in the future, we may find recruiting and retention efforts more challenging. If we do not succeed
in attracting, hiring and integrating excellent personnel, or retaining and motivating existing personnel, we may be unable to
grow effectively. The loss of any key employee, including members of our senior management team, and our inability to attract
highly skilled personnel with sufficient experience in our industries could harm our business.
Product
liability exposure may expose us to significant liability.
We
may face an inherent business risk of exposure to product liability and
other claims and lawsuits in the event that the
development or use of our
technology or prospective products is alleged to have resulted in adverse
effects. We
may not be able to avoid significant liability exposure. Although we believe our insurance coverage to be adequate, we may not
have
sufficient insurance coverage, and we may not be able to obtain sufficient
coverage at a reasonable cost. An
inability to obtain product liability
insurance at acceptable cost or to otherwise protect against potential product
liability claims could prevent or inhibit the commercialization of our products.
A product liability claim could hurt
our financial performance. Even if we ultimately avoid
financial
liability for this type of exposure, we may incur significant
costs in defending ourselves that could hurt our
financial performance and condition.
Our
inability to protect our intellectual property rights may force us to incur unanticipated costs.
Our
success will depend, in part, on our ability to obtain and maintain
protection in the United States and internationally
for certain intellectual
property incorporated into our products. Our intellectual property rights may be challenged, narrowed,
invalidated or
circumvented, which could limit our ability to prevent competitors from
marketing similar solutions
that limit the effectiveness of our patent
protection and force us to incur unanticipated costs. In addition, existing
laws
of some countries in which we may provide services or solutions may offer only
limited protection of our intellectual
property rights.
Our
products may infringe the intellectual property rights of third parties, and third parties may infringe our proprietary rights,
either of which may result in lawsuits, distraction of management and the impairment of our business.
As
the number of patents, copyrights, trademarks and other intellectual
property rights in our industry increases, products
based on our technology may
increasingly become the subject of infringement claims. Third parties could
assert infringement
claims against us in the future. Infringement claims with or
without merit could be time consuming, result in costly litigation,
cause
product shipment delays or require us to enter into royalty or licensing
agreements. Royalty or licensing
agreements, if required, might not be available
on terms acceptable to us, or at all. We may initiate claims or litigation
against third
parties for infringement of our proprietary rights or to establish the validity
of our proprietary
rights. Litigation to determine the validity of any claims,
whether or not the litigation is resolved in our favor, could
result in
significant expense to us and divert the efforts of our technical and management
personnel from productive
tasks. If there is an adverse ruling against us in any
litigation, we may be required to pay substantial damages, discontinue
the use
and sale of infringing products and expend significant resources to develop
non-infringing technology or
obtain licenses to infringing technology. Our
failure to develop or license a substitute technology could prevent us from
selling our products.
If
securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our
share price and trading volume could decline.
The
trading market for our common stock may be impacted, in part, by the research and reports that securities or industry analysts
publish about our business or us. There can be no assurance that analysts will cover us, continue to cover us or provide favorable
coverage. If one or more analysts downgrade our stock or change their opinion of our stock, our share price may decline. In addition,
if one or more analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in
the financial markets, which could cause our share price or trading volume to decline.
We
will continue to incur increased costs as a result of operating as a public company, and our management will be required to devote
substantial time to compliance initiatives and corporate governance practices.
As
a public company, we will continue to incur significant legal, accounting and other expenses. The Sarbanes-Oxley Act of 2002,
the Dodd-Frank Wall Street Reform and Consumer Protection Act and other applicable securities rules and regulations impose various
requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate
governance practices. Our management and other personnel will need to continue to devote a substantial amount of time to these
compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and make
some activities more time-consuming and costly.
We
cannot predict or estimate the amount of additional costs we may incur to continue to operate as a public company, nor can we
predict the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due
to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided
by regulatory and governing bodies which could result in continuing uncertainty regarding compliance matters and higher costs
necessitated by ongoing revisions to disclosure and governance practices.
We
have identified material weaknesses in our internal control over financial reporting. If we fail to maintain an effective system
of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud.
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we are required to furnish a report by our management on our
internal control over financial reporting. As such, our management has conducted this evaluation and, as of December 31, 2015,
identified the following material weaknesses in the Company’s internal control over financial reporting:
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We
do not have a fully independent audit committee: We are not currently obligated to have a fully independent 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. However, 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 controls and procedures.
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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 required internal controls and procedures.
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Inadequate
Segregation of Duties: We have an inadequate number of personnel to properly implement certain control procedures related
to segregation of duties.
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Management
has concluded that our disclosure controls and procedures are not effective. Effective internal control over financial reporting
is necessary to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports
or prevent fraud, our operating results could be harmed. We will need to continue to dedicate internal resources, potentially
engage outside consultants and adopt a detailed work plan to modify and document the adequacy of internal control over financial
reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning
as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Continued
identification of one or more material weaknesses in our internal control over financial reporting could result in an adverse
reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
We
are operating with less than a majority of independent directors.
We
do not have a majority of independent directors. The Company is operated without the oversight of a majority of independent directors
and material agreements and transactions, including those with related parties, are not approved with the oversight of a majority
of independent directors.
Failure
to comply with the United States Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.
As
a Delaware corporation, we are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States
companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining
business. Some foreign companies, including some that may compete with our Company, may not be subject to these prohibitions.
Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices may occur from time-to-time in countries in which
we conduct our business. However, our employees or other agents may engage in conduct for which we might be held responsible.
If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences
that may have a material adverse effect on our business, financial condition and results of operations.
Risks
Related to Ownership of Our Common Stock
Our
common stock is quoted on the OTCQB, which may have an unfavorable impact on our stock price and liquidity.
Our
common stock is quoted on the OTCQB, which is a significantly more limited trading market than the New York Stock Exchange, or
the NASDAQ Stock Market. The quotation of the Company’s shares on the OTCQB may result in a less liquid market available
for existing and potential shareholders to trade shares of our common stock, could depress the trading price of our common stock
and could have a long-term adverse impact on our ability to raise capital in the future.
There
is limited liquidity on the OTCQB, which may result in stock price volatility and inaccurate quote information.
When
fewer shares of a security are being traded on the OTCQB, volatility of prices may increase and price movement may outpace the
ability to deliver accurate quote information. Due to lower trading volumes in shares of our common stock, there may be a lower
likelihood of one’s orders for shares of our common stock being executed, and current prices may differ significantly from
the price one was quoted at the time of one’s order entry.
If
we are unable to adequately fund our operations, we may be forced to voluntarily file for deregistration of our common stock with
the SEC.
Compliance
with the periodic reporting requirements required by the SEC consumes a considerable amount of both internal, as well external,
resources and represents a significant cost for us. If we are unable to continue to devote adequate funding and the resources
needed to maintain such compliance, while continuing our operations, we could be forced to deregister with the SEC. After the
deregistration process, our common stock would only be tradable on the “Pink Sheets” and could suffer a decrease in
or absence of liquidity.
Because
we became public by means of a “reverse merger”, we may not be able to attract the attention of major brokerage firms.
Additional
risks may exist since we became public through a “reverse merger”. Securities analysts of major brokerage firms may
not provide coverage of us since there is little incentive to brokerage firms to recommend the purchase of our common stock. We
cannot assure you that brokerage firms will want to conduct any secondary offerings on behalf of our Company in the future.
Future
sales of our common stock in the public market could lower the price of our common stock and impair our ability to raise funds
in future securities offerings.
Future
sales of a substantial number of shares of our common stock in the public market, or the perception that such sales may occur,
could adversely affect the then prevailing market price of our common stock and could make it more difficult for us to raise funds
in the future through a public offering of our securities.
Our
common stock is thinly traded, so you may be unable to sell at or near asking prices or at all if you need to sell your shares
to raise money or otherwise desire to liquidate your shares.
Currently,
the Company’s common stock is quoted in the OTCQB and future trading volume may be limited by the fact that many major institutional
investment funds, including mutual funds, as well as individual investors follow a policy of not investing in OTCQB stocks and
certain major brokerage firms restrict their brokers from recommending OTCQB stocks because they are considered speculative, volatile
and thinly traded. The OTCQB market is an inter-dealer market much less regulated than the major exchanges and our common stock
is subject to abuses, volatility and shorting. Thus, there is currently no broadly followed and established trading market for
the Company’s common stock. An established trading market may never develop or be maintained. Active trading markets generally
result in lower price volatility and more efficient execution of buy and sell orders. Absence of an active trading market reduces
the liquidity of the shares traded there.
The
trading volume of our common stock has been and may continue to be limited and sporadic. As a result of such trading activity,
the quoted price for the Company’s common stock on the OTCQB may not necessarily be a reliable indicator of its fair market
value. Further, if we cease to be quoted, holders would find it more difficult to dispose of our common stock or to obtain accurate
quotations as to the market value of the Company’s common stock and as a result, the market value of our common stock likely
would decline.
Our
common stock is subject to price volatility unrelated to our operations.
The
market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our
ability to achieve our planned growth, quarterly operating results of other companies in the same industry, trading volume in
our common stock, changes in general conditions in the economy and the financial markets or other developments affecting the Company’s
competitors or the Company itself. In addition, the OTCQB is subject to extreme price and volume fluctuations in general. This
volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their
operating performance and could have the same effect on our common stock.
We
are subject to penny stock regulations and restrictions and you may have difficulty selling shares of our common stock.
Our
common stock is currently quoted on the OTCQB. Our common stock is subject to the requirements of Rule 15(g)-9, promulgated under
the Securities Exchange Act as long as the price of our common stock is below $5.00 per share. Under such rule, broker-dealers
who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special
sales practice requirements, including a requirement that they make an individualized written suitability determination for the
purchaser and receive the purchaser’s consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock
Reform Act of 1990, also requires additional disclosure in connection with any trades involving a stock defined as a penny stock.
Generally, the Commission defines a penny stock as any equity security not traded on a national exchange that has a market price
of less than $5.00 per share. The required penny stock disclosures include the delivery, prior to any transaction, of a disclosure
schedule explaining the penny stock market and the risks associated with it. Such requirements could severely limit the market
liquidity of the securities and the ability of purchasers to sell their securities in the secondary market.
Because
we do not intend to pay dividends, shareholders will benefit from an investment in our common stock only if it appreciates in
value.
We
have never declared or paid any cash dividends on our preferred stock or common stock. For the foreseeable future, it is expected
that earnings, if any, generated from our operations will be used to finance the growth of our business, and that no dividends
will be paid to holders of the Company’s common stock. As a result, the success of an investment in our common stock will
depend upon any future appreciation in its value. There can be no guarantee that our common stock will appreciate in value.
The
price of our common stock may become volatile, which could lead to losses by investors and costly securities litigation.
The
trading price of our common stock is likely to be highly volatile and could fluctuate in response to factors such as:
|
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actual
or anticipated variations in our operating results;
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announcements
of developments by us or our competitors;
|
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|
announcements
by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
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●
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adoption
of new accounting standards affecting the our industry;
|
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|
additions
or departures of key personnel;
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introduction
of new products by us or our competitors;
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|
sales
of our common stock or other securities in the open market; and
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other
events or factors, many of which are beyond our control.
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The
stock market is subject to significant price and volume fluctuations. In the past, following periods of volatility in the market
price of a company’s securities, securities class action litigation has often been initiated against such a company. Litigation
initiated against us, whether or not successful, could result in substantial costs and diversion of our management’s attention
and Company resources, which could harm our business and financial condition.
Investors
may experience dilution of their ownership interests because of the future issuance of additional shares of our common stock.
We
intend to continue to seek financing through the issuance of equity or convertible securities to fund our operations. In the future,
we may also issue additional equity securities resulting in the dilution of the ownership interests of our present shareholders.
We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for our common
stock in connection with hiring or retaining employees, future acquisitions or for other business purposes. The future issuance
of any such additional shares of common stock will result in dilution to our shareholders and may create downward pressure on
the trading price of our common stock.
Provisions
in our corporate charter documents and under Delaware law could make an acquisition of our company, which may be beneficial to
our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions
in our certificate of incorporation and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control
of our company that stockholders may consider favorable, including transactions in which you might otherwise receive a premium
for your shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of
our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible
for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders
to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors.
In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General
Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining
with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding
voting stock, unless the merger or combination is approved in a prescribed manner.
Item
2. Properties.
Our
principal executive offices are located at 8530 Wilshire Blvd., Suite 450, Beverly Hills, CA 90121. We lease this space for $7,600
per month.
Item
3. 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
4. Mine Safety Disclosures.
Not
applicable.
PART
III
Item
10. Directors, Executive Officers and Corporate Governance.
Directors
and Executive Officers
The
following sets forth information about our directors and executive officers as of the date of this Report:
Name
|
|
Age
|
|
Position
|
Riccardo
Delle Coste
|
|
37
|
|
President,
Chief Executive Officer and Chairman
|
Joseph
S. Tesoriero
|
|
62
|
|
Chief
Financial Officer
|
Steven
Lang
|
|
63
|
|
Director
|
Arnold
Tinter
|
|
71
|
|
Secretary
and Director
|
Joseph
M. Cugine
|
|
55
|
|
President
of Barfresh Corporation, Inc., and Director
|
Alice
Elliot
|
|
59
|
|
Director
|
Riccardo
Delle Coste
has been the Chairman of our board of directors, President and Chief Executive Officer since January 10, 2012.
He has also been the President and Chief Executive Officer of Barfresh Inc., a Colorado corporation and our wholly owned subsidiary
(“Barfresh CO”), since its inception. Mr. Delle Coste is the inventor of the patent pending technology and the creator
of Smoo Smoothies. Mr. Delle Coste started the business in 2005 and developed a unique system using controlled pre-packaged portions,
to deliver a freshly made smoothie that is quick, cost efficient, healthy and with no waste. In building the business, he is responsible
for securing new business tenders and maintaining key client relationships. He is also responsible for the development of new
product from testing to full-scale production, establishment of the manufacturing facilities that have all necessary accreditation
(HACCP, Halal, and Kosher), technology development, product improvement and R&D with new product launches. Mr. Delle Coste
also has over five years of investment banking experience. Mr. Delle Coste attended Macquarie University, Sydney, Australia while
studying for a Bachelor of Commerce for 3.5 years but left to pursue business interests and did not receive a degree.
Qualifications
:
Mr. Delle Coste has 17 years of experience within retail, hospitality and dairy manufacturing.
Joseph
S. Tesoriero
was appointed as Chief Financial Officer of the Company on May 18, 2015. Mr. Tesoriero has served as an independent
director of Smart & Final Stores, Inc. (NYSE: SFS) since July of 2014, where he serves as Chairman of the Audit Committee
and a member of the Nominating and Governance Committee. He was most recently engaged as a financial advisor for Dole Asia Holdings,
Ltd. Pte., a Singapore based wholly owned subsidiary of Itochu Corporation of Japan, from April 2013 to October 2013. Prior to
this consulting engagement, Mr. Tesoriero served as Executive Vice Present and Chief Financial Officer of Dole Food Company Inc.
from February 2010 to April 2013, as its Vice President and Chief Financial Officer from August 2004 to February 2010 and as its
Vice President of Tax from September 2002 to August 2004. Prior to joining Dole, Mr. Tesoriero was Senior Vice President of Tax
of Global Crossing (1998-2002), Vice President of Tax of Coleman Camping Equipment (1997-1998), International Tax Attorney with
Revlon Cosmetics (1989-1997) and Tax Attorney with IBM (1980-1988). Mr. Tesoriero began his career in 1978 as a Tax Associate
with Haskins & Sells (now Deloitte Touche). Mr. Tesoriero holds a B.S. in Accounting from Villanova University, a J.D. from
New York Law School and an LL.M. in Taxation from Boston University. He has been a member of the New York State Bar since 1978.
Qualifications
:
Mr. Tesoriero has over 30 years of experience in corporate finance leadership positions.
Steven
Lang
was appointed as Director of the Company on January 10, 2012. He has also served as Secretary of Barfresh CO since
its inception. Prior to joining Barfresh CO, from 2003 to 2007, Mr. Lang was a director of Vericap Finance Limited, a company
that specializes in providing advice to and investing in Australian companies with international growth potential. From 1990 to
1999, he served as a director of Babcock & Brown’s Australian operations where he was responsible for international
structured finance transactions. Mr. Lang received a Bachelor of Commerce and a Bachelor of Laws from the University of New South
Wales in 1976 and a Master of Laws from the University of Sydney in 1984. He has been a member of the Institute of Chartered Accountants
in Australia and was licensed to practice foreign law in New York.
Qualifications
:
Mr. Lang has over 35 years of experience in business, accounting, law and finance and served as Chairman of an Australian public
company.
Arnold
Tinter
was appointed as Director, Chief Financial Officer and Secretary of the Company on January 10, 2012. Mr. Tinter
resigned his position as Chief Financial Officer on May 18, 2015. Mr. Tinter founded Corporate Finance Group, Inc., a consulting
firm located in Denver, Colorado, in 1992, and is its President. Corporate Finance Group, Inc., is involved in financial consulting
in the areas of strategic planning, mergers and acquisitions and capital formation. He is the chief financial officer to two other
public companies; LifeApps Digital Media Inc. and Peak Pharmaceuticals Inc., and one private company, Bambu Franchising LLC. From
2006 to 2010 he was the chief financial officer of Spicy Pickle Franchising, Inc., a public company, where his responsibilities
included oversight of all accounting functions, including SEC reporting, strategic planning and capital formation. From May 2001
to May 2003, he served as chief financial officer of Bayview Technology Group, LLC, a privately held company that manufactured
and distributed energy-efficient products. From May 2003 to October 2004, he also served as that company’s chief executive
officer. Prior to 1990, Mr. Tinter was chief executive officer of Source Venture Capital, a holding company with investments in
the gaming, printing and retail industries. Mr. Tinter currently serves as a director of LifeApps Digital Media Inc., a public
company. Mr. Tinter received a B.S. degree in Accounting in 1967 from C.W. Post College, Long Island University, and is licensed
as a Certified Public Accountant in Colorado.
Qualifications:
Mr. Tinter has over 40 years of experience as a Certified Public Accountant and a financial consultant. During his career
he served as a director of numerous public companies.
Joseph
M. Cugine
was appointed as Director of the Company on July 29, 2014 and on April 27, 2015, was appointed president of
our wholly owned subsidiary, Barfresh Corporation, Inc. (fka Smoothie Inc.) Mr. Cugine is the owner and president of Cugine Foods
and JC Restaurants, a franchisee of Taco Bell and Pizza Hut in New York. He is also president and owner of Restaurant Consulting
Group LLC. Prior to owning and operating his own firms, Mr. Cugine held a series of leadership roles with PepsiCo, lastly as chief
customer officer and senior vice president of PepsiCo’s Foodservice division. Mr. Cugine also serves on the board of directors
of The Chef’s Warehouse, Inc., a publicly traded specialty food products distributor in the U.S., as well as Ridgefield
Playhouse and R4 Technology. He received his B.S. degree from St. Joseph’s University in Philadelphia.
Qualifications:
Mr. Cugine’s career in sales, marketing, operations and supply chain spans more than 25 years. He has extensive industry
contacts and proven experience leading and advising numerous successful food distribution companies.
Alice
Elliot
was appointed as Director of the Company on October 15, 2014. Ms. Elliot is the founder and chief executive of
The Elliot Group, a global retained executive search firm specializing in the hospitality, foodservice, retail and service sectors.
For more than 20 years, Ms. Elliot has hosted the exclusive invitation only ‘Elliot Leadership Conference.’ She was
a co-founder of ‘The Elliot Leadership Institute,’ a nonprofit organization dedicated to leadership development and
advancement in the foodservice industry, and is known for her philanthropic and educational endeavors and contributions. Throughout
her career, Ms. Elliot has received various industry honors, including the Trailblazer Award from the Women’s Foodservice
Forum and induction into the National Restaurant Association Educational Foundation’s College of Diplomates. She was also
recently named to the Nation’s Restaurant News list of the 50 Most Powerful People in Foodservice.
Qualifications
:
Well recognized for the placement of senior-level executives at public and privately held restaurant organizations nationwide,
Ms. Elliot is sought out for their intellectual and strategic thought leadership.
Employment
Agreements
On
April 27, 2015, Smoothie, Inc. entered into an executive employment agreement with Riccardo Delle Coste, its Chief Executive Officer
and director. The name of Smoothie, Inc. was changed to Barfresh Corporation, Inc., on July 7, 2015. Mr. Delle Coste is also the
Chief Executive Officer and Chairman of the Company. Pursuant to the employment agreement, he will receive a base salary of $350,000
and performance bonuses of 75% of his base salary based on mutually agreed upon performance targets. In addition, Mr. Delle Coste
will receive up to an additional 500,000 performance options, on an annual basis. All options granted under the employment agreement
are subject to the Company’s 2015 Equity Incentive Plan.
On
April 27, 2015, Smoothie, Inc. entered into an executive employment agreement with Joseph M. Cugine to serve as President of Smoothie,
Inc. The name of Smoothie, Inc. was changed to Barfresh Corporation, Inc., on July 7, 2015. Pursuant to the employment agreement,
Mr. Cugine will receive a base salary of $300,000 and performance bonuses of 75% of his base salary based on mutually agreed upon
performance targets. In addition, Mr. Cugine will receive 8-year options to purchase up to 600,000 shares of Barfresh, one-half
vesting on each of the second and third anniversaries of the date of Mr. Cugine’s employment agreement. In addition, he
will receive up to an additional 500,000 performance options, on an annual basis. All options granted under the employment agreement
are subject to the Company’s 2015 Equity Incentive Plan
The
Company entered into an executive employment agreement with Joseph S. Tesoriero on May 18, 2015, pursuant to which he agreed to
serve as Chief Financial Officer. Pursuant to the employment agreement, Mr. Tesoriero will receive a base salary of $250,000 and
performance bonuses of 75% of his base salary, based upon performance targets determined by the Board of Directors. In addition,
Mr. Tesoriero was granted 350,000 shares of common stock of Barfresh and 8-year options to purchase up to 500,000 shares of common
stock of Barfresh. One-half of each of the share and option grants vests on each of the second and third anniversaries of the
date of commencement of Mr. Tesoriero’s employment. Mr. Tesoriero will also receive 8-year performance options to purchase
up to an additional 350,000 shares on an annual basis. All shares and options granted under the employment agreement are subject
to the Company’s 2015 Equity Incentive Plan.
Term
of Office
Directors
are appointed for a one-year term to hold office until the next annual general meeting of shareholders or until removed from office
in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until the earlier of resignation
or removal.
Director
Independence
We
use the definition of “independence” standards as defined in the NASDAQ Stock Market Rule 5605(a)(2) provides that
an “independent director” is a person other than an officer or employee of the company or any other individual having
a relationship, which, in the opinion of the Company’s board of directors, would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director. We have determined that only one of our directors is independent,
which constitutes less than a majority.
Board
Committees
We
currently have an audit, and a compensation committee. The audit committee is primarily responsible for reviewing the services
performed by our independent auditors and evaluating our accounting policies and our system of internal controls. None of the
members of the audit committee are independent, as defined above. In the future we will have an independent member of the committee.
The compensation committee is primarily responsible for reviewing and approving our salary and benefits policies (including stock
options) and other compensation of our executive officers. The board has discussed the need for a Nominating and Governance Committee
and resolved to establish such a committee in the near future.
Family
Relationships
There
are no family relationships among any of our officers or directors.
Legal
Proceedings
To
the best of our knowledge, none of our executive officers or directors are parties to any material proceedings adverse to the
Company, have any material interest adverse to the Company or have, during the past ten years:
|
●
|
been
convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other
minor offenses);
|
|
|
|
|
●
|
had
any bankruptcy petition filed by or against him/her or any business of which he/she was a general partner or executive officer,
either at the time of the bankruptcy or within two years prior to that time;
|
|
|
|
|
●
|
been
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting his/her involvement in any type of business,
securities, futures, commodities or banking activities;
|
|
|
|
|
●
|
been
found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed,
suspended, or vacated;
|
|
|
|
|
●
|
been
subject to, or party to, any judicial or administrative order, judgment, decree , or finding, not subsequently reversed, suspended
or vacated, relating to an alleged violation of (i) any Federal or State securities or commodities law or regulation, (ii)
any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary
or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist
order, or removal or prohibition order or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection
with any business entity; or been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended
or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))),
any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent
exchange, association, entity or organization that has disciplinary authority over its members or persons associated with
a member.
|
Code
of Ethics
Our
Chief Executive Officer and Chief Financial Officer are bound by a Code of Ethics that complies with Item 406 of Regulation S-K
of the Exchange Act.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires our directors and executive
officers and beneficial holders of more than 10% of our common stock to file with the SEC initial reports of ownership and reports
of changes in ownership of our equity securities.
To
our knowledge, based solely upon a review of Forms 3 and 4 and amendments thereto furnished to Barfresh under 17 CFR 240.16a-3(e)
during our most recent fiscal year and Forms 5 and amendments thereto furnished to Barfresh with respect to our most recent fiscal
year or written representations from the reporting persons, we believe that during the Transition Period ended December 31, 2015
our directors, executive officers and persons who own more than 10% of our common stock complied with all Section 16(a) filing
requirements, with the exception of Riccardo Delle Coste and Arnold Tinter. Mr. Delle Coste and Mr. Tinter have made all required
Section 16(a) filings, although not on a timely basis.
Item
11. Executive Compensation.
The
following table summarizes all compensation for the Transition Period, 9 months ending December 31, 2015 (“12/2015”)
and fiscal year March 31, 2015 (“2015”) received by our “Named Executive Officers”:
Name
and
Principal
Position
|
|
Period
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
|
Change
in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
Riccardo
Delle Coste,
Chief Executive Officer
|
|
|
12/2015
|
|
|
|
289,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,200
|
1
|
|
|
296,783
|
|
|
|
|
2015
|
|
|
|
266,666
|
|
|
|
|
|
|
204,000
|
2
|
|
89,790
|
3
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
560,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph
Cugine, President, Barfresh Corp. Inc. a wholly owned subsidiary
|
|
|
12/2015
|
|
|
|
212,500
|
|
|
|
|
|
|
600,000
|
4
|
|
310,420
|
5
|
|
|
|
|
|
|
|
|
|
|
41,667
|
6
|
|
|
1,164,587
|
|
|
|
|
2015
|
|
|
|
-
|
|
|
|
|
|
|
49,998
|
7
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
37,500
|
6
|
|
|
37,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph
Tesoriero, Chief Financial Officer
|
|
|
12/2015
|
|
|
|
156,250
|
|
|
|
|
|
|
287,000
|
8
|
|
435,403
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
878,653
|
|
|
|
|
2015
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.
|
Represents
the car allowance paid to Mr. Delle Coste.
|
|
|
|
|
2.
|
Represents
400,000 shares of restricted stock valued at the aggregate grant date fair value computed in accordance with FASB ASC Topic
718. The market value at the date of grant was $0.51 per share. The shares vested upon issuance.
|
|
|
|
|
3.
|
Represents
option to purchase 300,000 shares of common stock. The exercise price of the options is $0.45, vested upon issuance, and are
exercisable until 1/21/2020. The options are valued in accordance with FASB ASC Topic 718 using the Black-Shoes Option pricing
model.
|
|
|
|
|
4.
|
Represents
1,000,000 shares of restricted stock valued at the aggregate grant date fair value computed in accordance with FASB ASC Topic
718. The shares vest 50% in 2017 and 50% in 2018.
|
|
|
|
|
5.
|
Represents
option to purchase 600,000 shares of common stock. The exercise price of the options is $0.50, vest 50% in 2017 and 50% in
2018, and are exercisable until 5/1/2023.
|
|
|
|
|
6.
|
Represents
consulting fees paid to Mr. Cugine prior to becoming an employee.
|
|
|
|
|
7.
|
Represents
64,100 shares of restricted stock valued at the aggregate grant date fair value computed in accordance with FASB ASC Topic
718. The shares vested upon issuance.
|
|
|
|
|
8.
|
Represents
350,000 shares of restricted stock valued at the aggregate grant date fair value computed in accordance with FASB ASC Topic
718. The shares vest 50% in 2017 and 50% in 2018.
|
|
|
|
|
9.
|
Represents
option to purchase 500,000 shares of common stock. The exercise price of the options is $0.82, vest 50% in 2017 and 50% in
2018, and are exercisable until 5/1/2023.
|
Outstanding
Equity Awards at Fiscal Year-End Table
Option
Awards
|
|
Stock
Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Number
of securities underlying unexercised options (#) exercisable
|
|
Number
of securities underlying unexercised options (#) exercisable
|
|
Equity
incentive plan awards: Number of securities underlying unexercised unearned options (#)
|
|
|
Option
exercise price ($)
|
|
|
Option
expiration date
|
|
|
Number
of shares or units of stock that have not vested (#)
|
|
|
|
Market
value of shares or units of stock that have not vested ($)
|
|
|
Equity
incentive plan awards: Number of unearned shares, units or other rights that have not vested (#)
|
|
Equity
incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($)
|
Riccardo
Delle Coste
|
|
300,000
|
|
|
|
|
|
|
0.45
|
|
|
1/21/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph
Cugine
|
|
|
|
600,000
|
1
|
|
|
|
0.50
|
|
|
5/1/2023
|
|
|
1,000,000
|
|
|
|
875,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph
Tesoriero
|
|
|
|
500,000
|
2
|
|
|
|
0.82
|
|
|
5/1/2023
|
|
|
350,000
|
|
|
|
306,250
|
|
|
|
|
|
1.
300,000 are exercisable on 5/1/17 and 300,000 are exercisable on 5/1/18
2.
250,000 are exercisable on 5/18/17 and 250,000 are exercisable on 5/18/18
Compensation
of Directors
The
following table summarizes the compensation paid to our directors for the Transition Period ended December 31, 2015:
Name
|
|
Fees
Earned or
Paid in
Cash
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
|
All
Other
Compensation
($)
|
|
Total
($)
|
|
Arnold
Tinter
|
|
|
37,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,500
|
(1)
|
|
90,000
|
|
Steven
Lang
|
|
|
37,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,500
|
|
Alice
Elliot
|
|
|
37,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,500
|
|
|
1.
|
Represents
consulting fees paid to Mr. Tinter.
|
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth certain information regarding our shares of common stock beneficially owned as of March 16, 2016 for
(i) each shareholder known to be the beneficial owner of 5% or more of our outstanding shares of common stock, (ii) each Named
Executive Officer and director, and (iii) all executive officers and directors as a group. A person is considered to beneficially
own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii)
of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options
or warrants or otherwise. Unless otherwise indicated, voting and investment power relating to the shares shown in the table for
our directors and executive officers is exercised solely by the beneficial owner or shared by the owner and the owner’s
spouse or children.
For
purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common
stock that such person has the right to acquire within 60 days of March 16, 2016. For purposes of computing the percentage of
outstanding shares of our common stock held by each person or group of persons named above, any shares that such person or persons
has the right to acquire within 60 days of March 16, 2016 is deemed to be outstanding, but is not deemed to be outstanding for
the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially
owned does not constitute an admission of beneficial ownership. Unless otherwise specified, the address of each of the persons
set forth below is in care of Barfresh Food Group Inc., 8530 Wilshire Blvd., Suite 450, Beverly Hills, CA 90211.
Name
and address of beneficial owner
(1)
|
|
Amount
and
nature of
beneficial
ownership
|
|
|
Percent
of class o/s
|
|
Riccardo
Delle Coste
(2) (3) (4) (5) (6) (7) (8)
|
|
|
20,480,909
|
|
|
|
21.58
|
%
|
R.D.
Capital Holdings Pty Ltd
. (3) (5) (6) (7)
|
|
|
19,780,909
|
|
|
|
20.91
|
%
|
Steven
Lang
(9) (10) (11) (12)
|
|
|
20,399,311
|
|
|
|
21.41
|
%
|
Sidra
Pty Limited
(7) (9)
|
|
|
19,249,310
|
|
|
|
20.41
|
%
|
Joseph
Tesoriero
(13) (14)
|
|
|
121,291
|
|
|
|
0.13
|
%
|
Arnold
Tinter
(15) (16)
|
|
|
950,000
|
|
|
|
1.01
|
%
|
Joe
Cugine
(17) (18) (19)
|
|
|
1,714,100
|
|
|
|
1.82
|
%
|
Alice
Elliot
(20) (21) (22)
|
|
|
490,000
|
|
|
|
0.52
|
%
|
All
directors and officers as a group (5 persons)
|
|
|
44,155,611
|
|
|
|
45.78
|
%
|
|
|
|
|
|
|
|
|
|
Lazarus
Investment Partners LLLP,3200 Cherry Creek South Drive, Suite 670, Denver, CO 80209
|
|
|
17,237,548
|
|
|
|
17.52
|
%
|
|
|
|
|
|
|
|
|
|
Wolverine
Asset Management, LLC (“WAM”)175 West Jackson Blvd., Suite 340 Chicago, IL 60604
(23)
|
|
|
6,451,528
|
|
|
|
6.72
|
%
|
1
|
Unless
otherwise specified, the address of each of the persons set forth below is in care of Barfresh Food Group Inc., 8530 Wilshire
Blvd., Suite 450, Beverly Hills, CA 90211.
|
|
|
2
|
Mr.
Delle Coste is the Chief Executive Officer, President and a Director of the Company
|
|
|
3
|
Includes
18,966,664 shares owned by R.D. Capital Holdings PTY Ltd. and of which Riccardo Delle Coste is deemed to be a beneficial owner.
|
|
|
4
|
Includes
300,000 shares underlying options granted.
|
|
|
5
|
Includes
200,000 shares underlying warrants related to the convertible debt owned by R.D. Capital Holdings PTY Ltd. and of which Riccardo
Delle Coste is deemed to be a beneficial owner.
|
|
|
6
|
Includes
282,647 shares underlying warrants issued in connection with a promissory note the holder of which was R.D. Capital Holdings
PTY Ltd. And of which Riccardo Delle Coste is deemed to be a beneficial owner.
|
|
|
7
|
Includes
75,000 shares underlying warrants issued in connection with a promissory note the holder of which was R.D. Capital Holdings
PTY Ltd. and of which Riccardo Delle Coste is deemed to be a beneficial owner.
|
|
|
8
|
Includes
96,278 shares underlying warrants issued in connection with a promissory note the holder of which was R.D. Capital Holdings
PTY Ltd. and of which Riccardo Delle Coste is deemed to be a beneficial owner.
|
|
|
9
|
Mr.
Lang is a Director of the Company
|
|
|
10
|
Includes
18,966,664 shares owned by Sidra Pty Limited of which Steven Lang is deemed to be a beneficial owner
|
|
|
11
|
Includes
950,000 shares underlying options granted
|
|
|
12
|
Includes
282,6469shares underlying warrants issued in connection with a promissory note the holder of which is Sidra PTY Limited
|
|
|
13
|
Mr.
Tesoriero is the Chief Financial Officer of the Company
|
|
|
14
|
Includes
57,097 shares underlying warrants issued in connection with a promissory note and conversion thereof.
|
|
|
15
|
Mr.
Tinter is the Secretary and a Director of the Company
|
|
|
16
|
Includes
150,000 shares underlying options granted
|
|
|
17
|
Mr.
Cugine is a Director of the Company
|
|
|
18
|
Includes
500,000 shares owned by Restaurant Consulting Group LLC of which Joe Cugine is deemed to be a beneficial owner.
|
|
|
19
|
Includes
50,000 shares underlying warrants issued in connection with purchase of common shares
|
|
|
20
|
Ms.
Elliot is a Director of the Company
|
|
|
21
|
Includes
160,000 shares owned by Elliot-Herbst LP of which Alice Elliot is deemed to be a beneficial owner
|
|
|
22
|
Includes
30,000 shares underlying warrants issued in connection with purchase of common shares
|
|
|
23
|
Wolverine
Asset Management, LLC (“WAM”) is the investment manager of Wolverine Flagship Fund Trading Limited and has voting
and dispositive power over these securities. The sole member and manager of WAM is Wolverine Holdings, L.P. (“Wolverine
Holdings”). Robert R. Bellick and Christopher L. Gust may be deemed to control Wolverine Trading Partners, Inc., the
general partner of Wolverine Holdings.
|
Changes
in control
.
None
Item
13. Certain Relationships and Related Transactions, and Director Independence.
Certain
Relationships and Related Transactions
The
following includes a summary of transactions since the beginning of fiscal 2015, or any currently proposed transaction, in which
we were or are to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average
of our total assets at year end for the last two completed fiscal years and in which any related person had or will have a direct
or indirect material interest (other than compensation described under “Executive Compensation”). We believe the terms
obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable
to or better than terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.
On
January 29, 2016, we closed a private placement to accredited investors of $2,670,000 in promissory notes and warrants to purchase
up to 1,335,000 shares of common stock of the Company for aggregate gross proceeds to the Company of $2,670,000. Of the aggregate
offering amount, $635,000 of the notes and warrants to purchase up to 317,500 shares of common stock were placed with members
of the Company’s management, including officers and directors of the Company, and family members of certain officers and
directors.
Our
principal executive offices were located at 90 Madison Street, Suite 701, Denver, Colorado 80206 through March 2015. The executive
office was co-located with the office of Corporate Finance Group, a company that is owned by Arnold Tinter, a director and former
Chief Financial Officer. We used this property free of charge. We no longer occupy those premises.
The
Company’s policy with regard to related party transactions requires any related party loans that are (i) non-interest bearing
and in excess of $100,000 or (ii) interest bearing, irrespective of amount, must be approved by the Company’s board of directors.
All issuances of securities by the Company must be approved by the board of directors, irrespective of whether the recipient is
a related party. Each of the foregoing transactions, if required by its terms, was approved in this manner.
Director
Independence
We
use the definition of “independence” standards as defined in the NASDAQ Stock Market Rule 5605(a)(2) provides that
an “independent director” is a person other than an officer or employee of the company or any other individual having
a relationship, which, in the opinion of the Company’s board of directors, would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director. We have determined that only one of our directors is independent,
which constitutes less than a majority.
Item
14. Principal Accounting Fees and Services.
Aggregate
fees for professional services rendered to the Company by Eide Bailly LLP for the Transition Period ending December 31, 2015 and
fiscal year ended March 31, 2015 were as follows.
|
|
Nine
month
Transition
Period ending
December 31, 2015
|
|
|
Fiscal
year ended March 31, 2015
|
|
Audit
fees
|
|
$
|
39,920
|
|
|
$
|
34,588
|
|
Audit
related fees
|
|
|
-
|
|
|
|
-
|
|
Tax
fees
|
|
|
-
|
|
|
|
-
|
|
All
other fees
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
39,920
|
|
|
$
|
34,588
|
|
As
defined by the SEC, (i) “audit fees” are fees for professional services rendered by our principal accountant for the
audit of our annual financial statements and review of financial statements included in our Form 10-K, or for services that are
normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years;
(ii) “audit-related fees” are fees for assurance and related services by our principal accountant that are reasonably
related to the performance of the audit or review of our financial statements and are not reported under “audit fees;”
(iii) “tax fees” are fees for professional services rendered by our principal accountant for tax compliance, tax advice,
and tax planning; and (iv) “all other fees” are fees for products and services provided by our principal accountant,
other than the services reported under “audit fees,” “audit-related fees,” and “tax fees.”
Audit
Fees.
The aggregate fees billed for the Transition Period ending December 31, 2015 and the fiscal year ended March 31, 2015
were for the audits of our financial statements and reviews of our interim financial statements included in our annual and quarterly
reports.
Audit
Related Fees.
The aggregate fees billed for the Transition Period ending December 31, 2015 and the fiscal year ended March
31, 2015 were for the audit or review of our financial statements that are not reported under Audit Fees.
Tax
Fees.
Eide Bailly LLP did not provide us with professional services related to tax compliance, tax advice and tax planning
for the Transition Period ending December 31, 2015 and the fiscal year ended March 31, 2015.
All
Other Fees.
Eide Bailly LLP did not provide us with professional services related to “Other Fees” for the Transition
Period ending December 31, 2015 and the fiscal year ended March 31, 2015.
Audit
Committee Pre-Approval Policies and Procedures
Under
the SEC’s rules, an audit committee is required to pre-approve the audit and non-audit services performed by the independent
registered public accounting firm in order to ensure that they do not impair the auditors’ independence. The SEC’s
rules specify the types of non-audit services that an independent auditor may not provide to its audit client and establish the
audit committee’s responsibility for administration of the engagement of the independent registered public accounting firm.
The Company has established an Audit Committee. Accordingly, audit services and non-audit services described in this Item 14 were
pre-approved by an Audit Committee.
There
were no hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for
the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time,
permanent employees.
Notes
to Consolidated Financial Statements
December
31, 2015 and March 31, 2015
Note
1. Summary of Significant Accounting Policies
Barfresh
Food Group Inc., (“we,” “us,” “our,” and the “Company”) was incorporated on February
25, 2010 in the State of Delaware. We are engaged in the manufacturing and distribution of ready to blend beverages, particularly,
smoothies, shakes and frappes.
On
December 15, 2015 the Company changed its fiscal year end from March 31 to December 31 with immediate effect. As a result the
Company is filing a Transition Report on Form 10-K for the nine-month period ending December 31, 2015.
The
accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America (“GAAP”).
Basis
of Consolidation
The
consolidated financial statements include the financial statements of the Company and our wholly owned subsidiaries Barfresh Inc.
and Barfresh Corporation 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.
Cash
and Cash Equivalents
We
consider all highly liquid investments with an original maturity of three months or less, at the time of purchase, to be cash
equivalents.
Concentration
of Credit Risk
The
amount of cash on deposit with financial institutions exceeds the $250,000 federally insured limit at December 31, 2015. However,
we believe that cash on deposit that exceeds $250,000 in the financial institutions is financially sound and the risk of loss
is minimal.
Fair
Value Measurement
Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820,
Fair Value
Measurements and Disclosures
(“ASC 820”), provides a comprehensive framework for measuring fair value and expands
disclosures which are required about fair value measurements. Specifically, ASC 820 sets forth a definition of fair value and
establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active
markets for identical assets and liabilities and the lowest priority to unobservable value inputs. ASC 820 defines the hierarchy
as follows:
Level
1 - Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets
and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed
on the New York Stock Exchange.
Level
2 - Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the
reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or
contracts or priced with models using highly observable inputs.
Level
3 - Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included
in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models
and forecasts used to determine the fair value of financial transmission rights.
Barfresh
Food Group Inc.
Notes
to Consolidated Financial Statements
December
31, 2015 and March 31, 2015
Our
financial instruments consist of accounts receivable, accounts payable, accrued expenses, notes payable, and convertible notes.
The carrying value of our financial instruments approximates their fair value due to their relative short maturities.
Accounts
Receivable
Accounts
receivable are typically unsecured. Our credit policy calls for payment generally within 30 days. The credit worthiness of a customer
is evaluated prior to a sale. As of December 31, 2015, and March 31, 2015 there is an Allowance for Doubtful Accounts of approximately
$65,000. Bad Debt Expense for the period ended March 31, 2015 was $65,000, and there was no Bad Debt Expense for the period ended
December 31, 2015.
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 patent, which
is twenty years from the date of filing the patent application. 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, costs associated with the acquisition of patents from third parties, 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 that are deemed to be reasonably
assured. The estimated useful lives used for financial statement purposes are:
Furniture
and fixtures: 5 years
Manufacturing
Equipment: 7 years
Leasehold
improvements: 2 years
Vehicles
5 years
Revenue
Recognition
We
recognize revenue 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. Revenue is recorded net of provisions for discounts, slotting
fees, and promotion allowances. Our products are sold on various terms. Our credit terms, which are established in accordance
with local and industry practices, typically require payment within 30 days of delivery. We recognize revenue upon receipt of
our products by our distributors and retail accounts, in accordance with written sales terms, net of provisions for discounts
or allowances. Allowances for returns and discounts are made on a case-by-case basis. Historically, neither returns nor discounts
have been material.
Research
and Development
Expenditures
for research activities relating to product development and improvement are charged to expense as incurred. We incurred $67,341
and $51,465, in research and development expenses for the nine months ended December 31, 2015 and the year ended March 31, 2015,
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”). In addition, our lease agreement provides for rental payments commencing at a date other than the
date of initial occupancy. We include the rent holidays in determination of straight-line rent expense. Therefore, rent expense
is charged to expense beginning with the occupancy date. Deferred rent was $1,855 and $1,484 at December 31, 2015 and March 31,
2015, respectively, and will be charged to rent expense over the life of the lease.
Barfresh
Food Group Inc.
Notes
to Consolidated Financial Statements
December
31, 2015 and March 31, 2015
Income
Taxes
The
provision for income taxes is determined in accordance with the provisions of ASC Topic 740,
Accounting for Income Taxes
(“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC
740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements,
uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized
in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities.
Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant
facts.
For
the nine months ended December 31, 2015 and for the year ended March 31, 2015 we did not have any interest and penalties or any
significant unrecognized uncertain tax positions.
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 December 31, 2015
and March 31, 2015 any equivalents would have been anti-dilutive as we had losses for the years then ended.
Stock
Based Compensation
We
calculate stock compensation in accordance with ASC Topic 718,
Compensation-Stock Based Compensation
(“ASC 718”).
ASC 718 requires that the cost resulting from all share-based payment transactions be recognized in the financial statements and
establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities
to apply a fair-value-based measurement method in accounting for share-based payment transactions with employees except for equity
instruments held by employee stock ownership plans
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.
Barfresh
Food Group Inc.
Notes
to Consolidated Financial Statements
December
31, 2015 and March 31, 2015
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 on an effective date after December 31, 2017 will be evaluated as to impact and implemented
accordingly.
ASU
Update 2014-15 Presentation of Financial Statements-Going Concern (Sub Topic 205-40) issued August 27, 2014 by FASB defines managements
responsibility to evaluate whether there is a substantial doubt about an organizations ability to continue as a going concern.
The additional disclosure required is effective after December 31, 2015 and will be evaluated as to impact and implemented accordingly.
In
April 2015, the FASB issued ASU 2015-03,
Interest-Imputation of Interest: Simplifying the Presentation of Debt Issuance Cost
.
The guidance requires an entity to present debt issuance costs in the balance sheet as a direct reduction from the carrying amount
of the debt liability, consistent with debt discounts, rather than as an asset. Amortization of debt issuance costs will continue
to be reported as interest expense. Debt issuance costs related to revolving credit arrangements, however, will continue to be
presented as an asset and amortized ratably over the term of the arrangement. ASU 2015-03 is effective for reporting periods beginning
after December 15, 2015 including interim periods within those annual periods. Early application is permitted, and upon adoption,
ASU 2015-03 should be applied on a retrospective basis. We have adopted ASU 2015-03 and it has not had a material impact on our
Consolidated Financial Statements.
In
July 2015, the FASB issued ASU 2015-11,
Inventory
, which simplifies the measurement principle of inventories valued under
the First-In, First-Out (“FIFO”) or weighted average methods from the lower of cost or market to the lower of cost
and net realizable value. ASU 2015-11 is effective for reporting periods beginning after December 15, 2016 including interim periods
within those annual periods. We do not expect the standard to have a material impact on our Consolidated Financial Statements.
In
November 2015, the FASB issued ASU 2015-17,
Balance Sheet Classification of Deferred Taxes
, which requires that deferred
tax assets and liabilities be classified as noncurrent on the consolidated balance sheet. ASU 2015-17 is effective for annual
periods beginning after December 15, 2016, including interim periods within those annual periods. Early adoption is permitted
as of the beginning of an interim or annual reporting period. Upon adoption, ASU 2015-17 may be applied either prospectively or
retrospectively. We do not expect the adoption of this guidance to have a material impact on our Consolidated Financial Statements.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases
, to improve financial reporting about leasing transactions. This
ASU will require organizations that lease assets (“lessees”) to recognize a lease liability and a right-of-use asset
on its balance sheet for all leases with terms of more than twelve months. A lease liability is a lessee’s obligation to
make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset represents the lessee’s
right to use, or control use of, a specified asset for the lease term. The amendments in this ASU simplify the accounting for
sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. This ASU leaves the
accounting for the organizations that own the assets leased to the lessee (“lessor”) largely unchanged except for
targeted improvements to align it with the lessee accounting model and Topic 606, Revenue from Contracts with Customers.
The
amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those
fiscal years. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases)
must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest
comparative period presented in the financial statements. The modified retrospective approach would not require any transition
accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full
retrospective transition approach. The Company is evaluating the potential impact of ASU 2016-02 on its Consolidated Financial
Statements.
Barfresh
Food Group Inc.
Notes
to Consolidated Financial Statements
December
31, 2015 and March 31, 2015
Note
2. Property Plant and Equipment
Major
classes of property and equipment at December 31, 2015 and March 31, 2015 consist of the following:
|
|
December
31, 2015
|
|
|
March
31, 2015
|
|
Furniture
and fixtures
|
|
$
|
13,604
|
|
|
$
|
10,794
|
|
Manufacturing
Equipment
|
|
|
705,782
|
|
|
|
632,596
|
|
Leasehold
Improvements
|
|
|
3,300
|
|
|
|
3,300
|
|
Vehicles
|
|
|
116,752
|
|
|
|
58,752
|
|
|
|
|
839,438
|
|
|
|
705,442
|
|
Less:
accumulated depreciation
|
|
|
(249,732
|
)
|
|
|
(159,988
|
)
|
|
|
|
589,706
|
|
|
|
545,454
|
|
Equipment
not yet placed in service
|
|
|
99,066
|
|
|
|
-
|
|
Property
and equipment, net of depreciation
|
|
$
|
688,772
|
|
|
$
|
545,454
|
|
We
recorded depreciation expense related to these assets of $89,648 and $72,103 for the nine months ended December 31, 2015 and the
year ended March 31, 2015, respectively.
Note
3. Intangible Assets
During
the year ended March 31, 2014, we acquired at a cost of $672,157, all of the international patent rights for a pre-portioned,
ready to blend packet for beverages, particularly, smoothies, shakes and frappes.
As
of December 31, 2015 and March 31, 2015, intangible assets primarily consists of patent costs of $760,475 and $748,806, less accumulated
amortization of $143,218 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 $45,846 and $61,378 for the nine months ended December 31, 2015 and the year
ended March 31, 2015, respectively.
Estimated
future amortization expense related to intangible property as of December 31, 2015 is as follows:
Years
ending December 31,
|
|
Total
Amortization
|
|
2016
|
|
$
|
61,328
|
|
2017
|
|
$
|
61,328
|
|
2018
|
|
$
|
61,328
|
|
2019
|
|
$
|
61,328
|
|
2020
|
|
$
|
61,328
|
|
Later
years
|
|
$
|
310,617
|
|
|
|
$
|
617,257
|
|
Note
4. Related Parties
As
disclosed below in Note 5, there remains outstanding $50,000 in Short-Term Notes Payable to related parties, a significant shareholder
and a company controlled by a director and significant shareholder.
Barfresh
Food Group Inc.
Notes
to Consolidated Financial Statements
December
31, 2015 and March 31, 2015
As
disclosed below in Note 6, members of management, directors, and members of their families, participated in $635,000 of the total
$2,670,000 convertible notes offering.
As
disclosed below in Note 9, members of management and directors have received shares of stock and options in exchange for services.
Note
5. 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 and $100,000 was purchased by a company controlled by a director and significant shareholder.
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 to the short term notes. The amounts
recorded as debt discount were amortized over the one year term, and accreted 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 required us to issue additional warrants (“Extension Warrants”). We issued 898,842 Extension
Warrants to the Short-Term Note holders for the right to purchase shares of our common stock. Each Extension 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.
As
discussed above, we accounted for the warrants as per the guidance in ASC 470. The relative value of the Extension Warrants, $164,638,
was the amount recorded as the new debt discount. The amounts recorded as debt discount were being amortized over the six-month
term of the note, and accreted to interest expense. We estimated the effective interest rate as calculated to be approximately
53% but pay cash at a rate of 3% per annum.
The
fair value of the Extension Warrant, $0.23 per share, was calculated using the Black-Sholes option pricing model using the following
assumptions:
Expected
life (in years)
|
|
|
3
|
|
Volatility
(based on a comparable company)
|
|
|
76.88
|
%
|
Risk
Free interest rate
|
|
|
1.10
|
%
|
Dividend
yield (on common stock)
|
|
|
-
|
%
|
Barfresh
Food Group Inc.
Notes
to Consolidated Financial Statements
December
31, 2015 and March 31, 2015
On
June 20, 2015, some of the Short-Term Notes were amended again, 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-Term 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-Term 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
one note to related parties totaling $50,000 were extended until June 30, 2016, with 10% interest.
Interest
expenses includes direct interest of $15,068 and $17,644 and amortization of debt discounts of $77,976 and $316,917 for the nine
months ended December 31, 2015, and for the year ended March 31, 2015, respectively, for this note.
Note
6. Convertible Notes (Related and Unrelated)
In
August 2012, we closed an offering of $440,000 of convertible notes. 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 were due and payable on September 6, 2015. In addition, the new notes were 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 are
being amortized over the two year term, and accreted to interest expense. We estimated the effective interest rate as calculated
to be approximately 74% but will be paying cash at a rate of 12% per annum.
As
of December 31, 2015, all debt discount has been amortized.
During
September 2015, all of the holders of the convertible notes elected to convert the then outstanding $420,000 of notes, and accumulated
interest of $21,955 to our common stock. We issued 1,557,367 shares of our common stock prior to December 31, 2015, and have issued
the remaining 210,455 shares after December 31, 2015.
Barfresh
Food Group Inc.
Notes
to Consolidated Financial Statements
December
31, 2015 and March 31, 2015
Interest
expenses include direct interest of $21,955 and $50,400 and amortization of debt discount of $95,249 and $132,054 for nine month
ended December 31, 2015 and for the year ended March 31, 2015 respectively for this note.
During
the nine months ended December 31, 2015, we raised $2,670,000 through the issuance of convertible promissory notes. The notes
bear interest at a rate of 10% and mature in one year. In the event we complete an equity financing prior to the maturity date
of the notes, the holders shall have the right to convert all outstanding principal and accrued and unpaid interest under the
notes into the class of equity issued in such financing on the same terms as the other investors concurrently with the closing
of such financing. We also issued 1,335,000 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 $1.00 per share for a term of five years.
Of the aggregate offering amount, $635,000 of the notes and warrants to purchase up to 317,500 shares of common stock were placed
with members of the Company’s management, including officers and directors of the Company, and family members of certain
officers and directors.
We
elected early adoption of ASU 2015-03, accordingly issuance cost paid has been recorded as debt discount. The following is a breakdown
of the convertible promissory note
|
|
December
31, 2015
|
|
|
March
31, 2015
|
|
Convertible
notes (including related party)
|
|
$
|
2,720,000
|
|
|
$
|
420,000
|
|
Less:
Debt discount (warrant value)
|
|
|
(554,462
|
)
|
|
|
(94,886
|
)
|
Less:
Debt discount (issuance costs paid)
|
|
|
(69,667
|
)
|
|
|
-
|
|
|
|
$
|
2,095,871
|
|
|
$
|
325,114
|
|
We
did not record any discount for beneficial conversion as the conversion terms were unknown at December 31, 2015.
Interest
expenses includes direct interest of $26,671 and amortization of debt discount of $52,500 for nine month ended December 31, 2015
for this note.
The
fair value of the warrants, $0.586 per share ($782,863 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)
|
|
|
77.5
|
%
|
Risk
Free interest rate
|
|
|
1.73
|
%
|
Dividend
yield (on common stock)
|
|
|
-
|
|
The
relative value of the warrants to the notes was $600,629, which was the amount recorded as a portion of the debt discount. The
amount recorded as debt discount are being amortized over the one year term of the notes, one years, and accreted to interest
expense. We estimated the effective interest rate as calculated to be approximately 34% but will be paying cash at a rate of 10%
per annum.
Subsequent
to December 31, 2015, we had an equity financing and holders of all of the convertible notes except for $100,000 exercised their
right to convert. See Note 14 for additional disclosure.
Note
7. Long term Debt
Long
term debt at December 31, 2015 consists of installment agreements on four vehicles maturing on different dates through June 2020.
The installment agreements, are with one financial institution and bear no interest. Monthly payments are $1,171 per month.
The
annual maturities of long term debt as of December 31, 2015 are as follows:
For
years ending December 31,
|
|
|
|
2016
|
|
$
|
14,039
|
|
2017
|
|
|
14,051
|
|
2018
|
|
|
14,051
|
|
2019
|
|
|
14,051
|
|
2020
|
|
|
3,839
|
|
|
|
$
|
60,031
|
|
Barfresh
Food Group Inc.
Notes
to Consolidated Financial Statements
December
31, 2015 and March 31, 2015
Note
8. Commitments and Contingencies
We
lease office space under a non-cancelable operating lease, which expires on November 7, 2016. The aggregate minimum requirements
through December 31, 2016 total $79,587
Note
9. Stockholders’ Equity
During
the year ended March 31, 2015, we completed two offerings of common stock units at a price of $0.50 per unit. Each unit consists
of one share of common stock and a five-year warrant to purchase one-half (1/2) share of our common stock at an exercise price
of $0.60 per share (“Unit” or “Units”). We sold a total of 11,044,000 units representing 11,044,000 shares
and warrants to purchase 5,522,000 shares for total consideration of $5,522,000.
The
fair value of the warrants, $1,842,613, was estimated at the date of grant using the Black-Scholes option pricing model, with
an allocation of the proceeds applied to the warrants. The difference between the warrant allocation and the proceeds was allocated
to the shares of common stock issued. The fair value of the warrants has been included in the total additional paid in capital.
The following assumptions were used in the Black-Scholes option pricing model:
Expected
life (in years)
|
|
|
5
|
|
Volatility
(based on a comparable company)
|
|
|
100
|
%
|
Risk
Free interest rate
|
|
|
0.36
|
%
|
Dividend
yield (on common stock)
|
|
|
-
|
|
During
the year ended March 31, 2015, we issued 900,000 shares of common stock to an officer and two employees of the Company for services
rendered. In accordance with ASC Topic 718, Compensation - Stock Compensation (“ASC 718”), compensation expense in
the amount of $446,460 was recognized in the statement of operations.
Also
during the year ended March 31, 2015, we issued 155,000 shares of our restricted common stock to legal counsel and a consultant
to the Company. In accordance with ASC Topic 505, Equity-Based Payments to Non-Employees (“ASC 505”), expense in the
amount of $113,845 was recognized in the statement of operations.
Additionally,
during the year ended March 31, 2015, we issued 64,100 shares of our Common Stock to a Director. The fair value of the stock was
based on the trading value of the shares on the date of grant. The shares vest over a one-year period and are being amortized
over that period. The unamortized balance is shown as Unearned Services in the equity section of the Balance Sheet.
We
also issued options to purchase 600,000 shares of our common stock at an exercise price of $0.45 per share to two officers and
directors and a director of the Company. The options vested immediately and are exercisable for a period of 5 years from the date
of issuance, January 21, 2014. The fair value of the options, $179,581, which was charged to expenses, was estimated at the date
of grant using the Black-Scholes option pricing model with the following assumptions:
Expected
life (in years)
|
|
|
5
|
|
Volatility
(based on a comparable company)
|
|
|
91
|
%
|
Risk
Free interest rate
|
|
|
1.35
|
%
|
Dividend
yield (on common stock)
|
|
|
-
|
|
During
the year ended March 31, 2015, we issued 150,000 options to a director of the Company. The exercise price of the options is $0.54
per share, which was the fair market value of the option on the date of grant and is exercisable for a period of 5 years. The
options vest on the first anniversary of the issuance, October 14, 2015. The unamortized balance is shown as Unearned Services
in the equity section of the Balance Sheet.
Barfresh
Food Group Inc.
Notes
to Consolidated Financial Statements
December
31, 2015 and March 31, 2015
The
fair value of the option, $0.3814 per share, ($57,209 in the aggregate) was calculated using the Black-Sholes option pricing model
using the following assumptions and is being written off over a one-year period:
Expected
life (in years)
|
|
|
5
|
|
Volatility
(based on a comparable company)
|
|
|
91.8
|
%
|
Risk
Free interest rate
|
|
|
1.45
|
%
|
Dividend
yield (on common stock)
|
|
|
-
|
|
During
the nine months ended December 31, 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 nine-months ended December 31, 2015, 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 nine months ended December 31, 2015, we issued 141,477 shares of common stock, valued at $83,000, for services.
During
the nine-months ended December 31, 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 $166,667 for the nine months ended December 31, 2015, was recognized in the statement of operations. In addition,
we granted the right to 450,000 shares of restricted stock to two other officers in connection with employment agreements entered
into during the nine months ended December 31, 2015. In accordance with ASC Topic 718, Compensation - Stock Compensation (“ASC
718”), compensation expense in the amount of $78,467 for the nine months ended December 31, 2015 was recognized in the statement
of operations.
During
the nine months ended December 31, 2015, we issued 1,985,000 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 ($1,345,317 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)
|
|
|
-
|
|
Barfresh
Food Group Inc.
Notes
to Consolidated Financial Statements
December
31, 2015 and March 31, 2015
The
following is a summary of outstanding stock options issued to employees and directors as of December 31, 2015:
|
|
Number
of
Options
|
|
|
Exercise
price
per share
$
|
|
|
Average
remaining term
in years
|
|
|
Aggregate
intrinsic
value at date
of grant
$
|
|
Outstanding
April 1, 2014
|
|
|
800,000
|
|
|
|
0.50
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
800,000
|
|
|
|
.45-.54
|
|
|
|
4.25
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
March 31, 2015
|
|
|
1,600,000
|
|
|
|
.
45
-.54
|
|
|
|
4.25
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
1,985,000
|
|
|
|
.47
-.87
|
|
|
|
6.42
|
|
|
|
|
|
Cancelled
|
|
|
(10,000
|
)
|
|
|
.50
|
|
|
|
7.25
|
|
|
|
|
|
Outstanding
December 31, 2015
|
|
|
3,575,000
|
|
|
|
|
|
|
|
4.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
1,600,000
|
|
|
|
.45
- .54
|
|
|
|
2.53
|
|
|
|
-
|
|
Note
10. Outstanding Warrants
The
following is a summary of all outstanding warrants as of December 31, 2015:
|
|
Number
of
Warrants
|
|
|
Exercise
price
per share
$
|
|
|
Average
remaining
term
in years
|
|
|
Aggregate
intrinsic value at
date of grant
|
|
Warrants
issued in connection with private placements of common stock
|
|
|
11,213,332
|
|
|
|
0.25
- 1.50
|
|
|
|
1.69
|
|
|
$
|
262,700
|
|
Warrants
issued in connection with private placement of convertible notes
|
|
|
1,680,000
|
|
|
|
0.25
|
|
|
|
1.45
|
|
|
$
|
-
|
|
Warrants
issued in connection with short-term notes payable
|
|
|
2,190,509
|
|
|
|
.45
|
|
|
|
3.23
|
|
|
$
|
64,583
|
|
Warrants
issued in connection with convertible short-term notes payable
|
|
|
1,310,000
|
|
|
|
1.00
|
|
|
|
5
|
|
|
|
$
|
|
Note
11. Income Taxes
Income
tax provision (benefit) for the nine months ended December 31, 2015 and the year ended March 31, 2015 is summarized below:
|
|
December
31, 2015
|
|
|
March
31, 2015
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
Total
current
|
|
|
-
|
|
|
|
-
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,712,000
|
)
|
|
|
(1,015,700
|
)
|
State
|
|
|
(167,000
|
)
|
|
|
(98,600
|
)
|
Total
deferred
|
|
|
(1,888,000
|
)
|
|
|
(1,114,300
|
)
|
Increase
in valuation allowance
|
|
|
1,888,000
|
|
|
|
1,114,300
|
|
Barfresh
Food Group Inc.
Notes
to Consolidated Financial Statements
December
31, 2015 and March 31, 2015
The
provision for income taxes differs from the amount computed by applying the statutory federal income tax rate before provision
for income taxes. The sources and tax effect of the differences are as follows:
|
|
December
31, 2015
|
|
|
March
31, 2015
|
|
Income
tax provision at the federal statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State
income taxes, net of federal benefit
|
|
|
3.3
|
%
|
|
|
3.3
|
%
|
Effect
of net operating loss
|
|
|
(37.3
|
%)
|
|
|
(37.3
|
%)
|
|
|
|
-
|
%
|
|
|
-
|
%
|
Components
of the net deferred income tax assets at December 31, 2015 and March 31, 2015 were as follows:
|
|
December
31, 2015
|
|
|
March
31, 2015
|
|
Net
operating loss carryover
|
|
$
|
4,708,800
|
|
|
$
|
2,820,800
|
|
Valuation
allowance
|
|
|
(4,708,800
|
)
|
|
|
(2,820,800
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
ASC
740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of evidence, it is more
than likely than not that some portion or all of the deferred tax assets will not be recognized. After consideration of all the
evidence, both positive and negative, management has determined that a $4,708,800 and $2,820,800 allowance at December 31, 2015
and March 31, 2015, respectively, is necessary to reduce the deferred tax assets to the amount that will more likely than not
be realized. The change in the valuation allowance for the current period is $1,888,000.
As
of December 31, 2015, we have a net operating loss carry forward of approximately $12,624,100. The loss will be available to offset
future taxable income. If not used, this carry forward will expire as follows:
2030
|
|
$
|
1,000
|
|
2031
|
|
$
|
63,800
|
|
2032
|
|
$
|
345,900
|
|
2033
|
|
$
|
1,840,300
|
|
2034
|
|
$
|
2,324,100
|
|
2035
|
|
$
|
2,987,300
|
|
2036
|
|
$
|
5,061,700
|
|
As
of December 31, 2015 we did not have any significant unrecognized uncertain tax positions.
Note
12. Business Segments
During
the nine months ended December 31, 2015 and the year ended March 31, 2015, we operate in only one segment and sold to two geographic
locations as follows:
|
|
December
31, 2015
|
|
|
March
31, 2015
|
|
Australia
|
|
$
|
|
|
|
$
|
6,968
|
|
United
States
|
|
|
437,272
|
|
|
|
204,499
|
|
|
|
$
|
437,272
|
|
|
$
|
211,467
|
|
All
of our assets are located in the United States.
Barfresh
Food Group Inc.
Notes
to Consolidated Financial Statements
December
31, 2015 and March 31, 2015
The
following is a breakdown of customers representing more than 10% of sales for the nine months ended December 31, 2015:
|
|
Revenue
from
customer
|
|
|
Percentage
of total
revenue
|
|
Customer
A
|
|
$
|
373,190
|
|
|
|
85.3
|
%
|
Customer
B
|
|
|
37,276
|
|
|
|
8.5
|
%
|
Customer
C
|
|
|
18,144
|
|
|
|
4.1
|
%
|
|
|
$
|
428,610
|
|
|
|
98.0
|
%
|
The
following is a breakdown of customers representing more than 10% of sales for the year ended March 31, 2015:
|
|
Revenue
from
customer
|
|
|
Percentage
of total
revenue
|
|
Customer
A
|
|
$
|
58,911
|
|
|
|
28.0
|
%
|
Customer
B
|
|
|
52,195
|
|
|
|
24.8
|
%
|
Customer
C
|
|
|
24,234
|
|
|
|
11.5
|
%
|
|
|
$
|
135,340
|
|
|
|
64.3
|
%
|
Note
13. Transitional Reporting Year – Comparison of audited results for the nine months ended December 31, 2015 to the unaudited
results for the nine months ended December 31, 2014.
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
(unaudited)
|
|
Revenue
|
|
$
|
437,272
|
|
|
$
|
157,834
|
|
Cost
of revenue
|
|
|
251,300
|
|
|
|
97,456
|
|
Gross
profit
|
|
|
185,972
|
|
|
|
60,378
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
5,666,204
|
|
|
|
2,058,929
|
|
Depreciation
and Amortization
|
|
|
135,494
|
|
|
|
94,823
|
|
Total
operating expenses
|
|
|
5,801,698
|
|
|
|
2,153,752
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(5,615,726
|
)
|
|
|
(2,093,374
|
)
|
|
|
|
|
|
|
|
|
|
Other
expenses
|
|
|
|
|
|
|
|
|
Interest
|
|
|
296,509
|
|
|
|
379,279
|
|
Loss
on extinguishment of debt
|
|
|
7,857
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
(loss)
|
|
$
|
(5,920,092
|
)
|
|
$
|
(2,472,653
|
)
|
|
|
|
|
|
|
|
|
|
Per
share information - basic and fully diluted:
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
79,149,995
|
|
|
|
66,281,522
|
|
Net
(loss) per share
|
|
$
|
(0.07
|
)
|
|
$
|
(0.04
|
)
|
Note
14. 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 except as for the following:
On
February 26, 2016 the Company, pursuant to a securities purchase agreement between the Company and certain accredited investors,
sold 7,379,371 shares of its common stock (“Shares”) and warrants to purchase up to 3,689,686 Shares (“Warrants”)
for aggregate gross proceeds to the Company of $5,903,498. The financing consists of two components: a new equity raise in the
amount of $3,270,000 and the conversion into common equity of $2,633,498 of principal and interest of convertible promissory notes
previously issued. See discussion in Note 6. The Warrants are exercisable for a term of five-years at a per Share price of $1.00.