Post-effective Amendment to Registration Statement (pos Am)

Date : 06/19/2017 @ 6:03AM
Source : Edgar (US Regulatory)
Stock : Barfresh Food Group Inc. (QB) (BRFH)
Quote : 0.57  0.0 (0.00%) @ 3:58PM
Barfresh Food Group Inc. (QB) share price Chart

Post-effective Amendment to Registration Statement (pos Am)

 

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 16 , 2017

 

REGISTRATION STATEMENT NO. 333- 211019

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

P ost -Effective Amendment No. 1 to

 

FORM S-1

 

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

BARFRESH FOOD GROUP, INC.

(Name of small business issuer in its charter)

 

Delaware   2038   27-1994406
(State or jurisdiction of   (Primary Standard Industrial   (I.R.S. Employer
incorporation or organization)   Classification Code Number)   Identification No.)

 

8383 Wilshire Blvd., Suite 750

Beverly Hills, California 90211

Telephone: (310) 598-7113

(Address and telephone number of principal executive offices and principal place of business)

 

Copies to:

 

Mark Y. Abdou

Ruba Qashu

Libertas Law Group, Inc.

225 Santa Monica Boulevard, 5 th Floor

Santa Monica, CA 90401

Telephone: (310) 359-8742

Facsimile: (310) 356-1922

 

Approximate date of proposed sale to the public:

From time to time after the effective date hereof.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X]

 

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, check the following box. [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated filer [  ] Accelerated filer [  ] Non-accelerated filer [  ] Smaller reporting company [X]

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

     
 

 

SUBJECT TO COMPLETION, DATED JUNE [  ] , 2017

 

PROSPECTUS

 

 

 

13,290,915 Shares of Common Stock

This prospectus relates to 13,290,915 shares of our common stock, par value $0.000001 per share, of which 5,508,419 are issuable upon exercise of certain warrants, that may be sold from time to time by the selling shareholders listed under the caption “Selling Shareholders”. All of the shares, when sold, will be sold by these selling shareholders. The selling shareholders may sell these shares from time to time in the open market at prevailing prices or in individually negotiated transactions through agents designated from time to time or through underwriters or dealers. We will not control or determine the price at which the selling shareholders decide to sell their shares. See “Plan of Distribution”. The selling shareholders may be deemed underwriters of the shares of common stock that they are offering. We will pay the expenses of registering these shares.

 

We are not selling any shares of common stock in this offering and therefore will not receive any proceeds from the sale of common stock hereunder. We will receive proceeds from any exercise of outstanding warrants by the selling shareholders if and when those warrants are exercised for cash.

 

Our common stock is traded on the OTCQB under the symbol BRFH. On June 12 , 2017 the last reported sale price of our common stock was $0 .705 per share.

 

INVESTING IN OUR COMMON STOCK INVOLVES SUBSTANTIAL RISK. IN REVIEWING THIS PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DESCRIBED UNDER THE HEADING “RISK FACTORS” BEGINNING ON PAGE 6.

 

Neither we nor any selling shareholder has authorized any dealer, salesman or other person to give any information or to make any representation other than those contained or incorporated by reference in this prospectus. You must not rely upon any information or representation not contained or incorporated by reference in this prospectus.

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS IS NOT AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY JURISDICTION WHERE IT WOULD BE UNLAWFUL.

 

The date of this prospectus is June [●], 2017

 

     
 

 

TABLE OF CONTENTS

 

PROSPECTUS SUMMARY 3
   
SUMMARY OF THE OFFERING 6
   
RISK FACTORS 7
   
NOTE REGARDING FORWARD LOOKING STATEMENTS 12
   
USE OF PROCEEDS 12
   
SELLING SHAREHOLDERS 12
   
PLAN OF DISTRIBUTION 15
   
LEGAL PROCEEDINGS 16
   
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS 16
   
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 21
   
DESCRIPTION OF SECURITIES 24
   
LEGAL MATTERS 25
   
EXPERTS 25
   
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES 26
   
DESCRIPTION OF BUSINESS 24
   
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 33
   
DESCRIPTION OF PROPERTY 41
   
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 41
   
EXECUTIVE COMPENSATION 42
   
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS 45
   
WHERE YOU CAN FIND ADDITIONAL INFORMATION 47
   
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 48

 

2  
   

 

PROSPECTUS SUMMARY

 

This summary highlights selected information contained elsewhere in this prospectus. To understand this offering fully, you should read the entire prospectus carefully, including the “Risk Factors” section, the financial statements and the notes to the financial statements. Unless the context otherwise requires, references contained in this prospectus to the “Company”, “Barfresh”, “we”, “us” or “our” shall mean Barfresh Food Group Inc. , a Delaware corporation.

 

BARFRESH FOOD GROUP INC.

 

Our Company

 

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 was granted on August 16, 2016. 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 a number of National Accounts, having recently launched in market tests with several major National Key accounts, and is focused on moving from in-market tests to national roll-out with those major National Key accounts.

 

On July 6 th , 2016, the Company announced that it had signed a supply agreement with a major global on-site foodservice operator. The agreement, which marked the culmination of a successful in market test conducted at several locations, makes Barfresh’s suite of blended beverages available across the customer’s diverse customer base in its education, healthcare, sports and entertainment, and business government channels, in the US and Canada representing over 2,000 potential accounts.

 

3  
   

 

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’s products have been included in Sysco’s “Cutting Edge Solutions” (“CES”) Platform since March of 2016, and are once again included in Sysco’s most recent CES Platform, announced during February of 2017. 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.

 

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. The agreement facilitates access to potential National customer accounts, through introductions provided by PepsiCo’s one-thousand plus person foodservice sales team. Barfresh products have become part of PepsiCo’s customer presentations at national trade shows and similar venues.

 

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. Production lines are currently operational at two locations. The first is in our Salt Lake City contract manufacturer location, which currently produces products sold to existing customers. Currently annual production capacity with this contract manufacturer is 14 million units per year. The second location is with Yarnell Operations, LLC., a subsidiary of Shulze and Burch, located in Arkansas. The Yarnell’s agreement, which was signed during February, 2016, secures additional production capacity ahead of expected sales growth. Barfresh will have the capacity to ramp up to an incremental production capacity of 100 million units through this agreement. Yarnell’s began shipping product for Barfresh during June of 2016. 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.

 

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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.

 

Registrable Securities

 

On January 29, 2016 Barfresh closed a private placement to accredited investors of $2,670,000 in promissory notes and Series H Warrants to purchase up to 1,297,500 shares of common stock of the Company for aggregate gross proceeds to the Company of $2,670,000. Pursuant to the terms of the convertible promissory notes, approximately 96% of the accrued principal and interest were converted by the holders into our February 26, 2016 financing, described below. The Series H Warrants are exercisable for a term of five years at a per share price of $1.00. The Series H Warrants have piggy-back registration rights.

 

In February 2016, pursuant to a securities purchase agreement between Barfresh and certain accredited investors, Barfresh sold 7,754,371 shares of its common stock and Series I Warrants to purchase up to 3,877,186 shares of common stock for aggregate gross proceeds to the Company of $6,203,498. The financing consisted of two components: a new equity raise in the amount of $3,570,000 and the conversion into common equity of $2,633,498 of principal and interest of convertible promissory notes previously issued on January 29, 2016. The Series I Warrants are exercisable for a term of five-years at a per share price of $1.00. The shares and common stock issuable upon exercise of the Series I Warrants have the registration rights set forth in that a registration rights agreement between the Company and purchasers.

 

GVC Capital, LLC, a registered broker dealer was issued 96,680 placement agent warrants in connection with the conversion of the convertible promissory notes issued on January 29, 2016 into the February 26, 2016 financing. The placement agent warrants are exercisable for a term of five-years at a price of $1.00 per share or via cashless exercise.

 

In December 2013, we closed an offering of $775,000 in short-term notes payable (“Short-Term Notes”). The Short-Term Notes accrued 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. We exercised our right to extend the due date of the Short-Term Notes to June 20, 2015. The extended Short-Term Notes accrue interest at the rate of 3% per annum and required us to issue additional warrants (“Series EN Warrants”). We issued 898,842 Series EN Warrants to the Short-Term Note holders for the right to purchase shares of our common stock. Each Series EN Warrant entitles the holder to purchase one share of our common stock at a price of $0.485 per share, may be exercised on a cashless basis and are exercisable for a period of three years.

 

On December 1, 2013, we issued warrants to purchase 300,000 to Greenridge Global, LLC as compensation for services rendered.

 

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SUMMARY OF THE OFFERING

 

The Offering  

Up to 13,290,915 shares of our common stock, par value $0.000001 per share, of which 1,297,500 are issuable upon exercise of Series H Warrants, 3,891,249 are issuable upon exercise of Series I Warrants, 96,680 are issuable upon exercise of certain placement agent warrants, 57,990 are issuable upon exercise of Series EN warrants and 165,000 are issuable upon the exercise of certain other warrants.

 

Series H Warrants may be exercised by the payment of the exercise price of $1.00 per share for a term of five years ending in 2020 in cash and have piggyback registration rights

 

The Series I Warrants may be exercised by the payment of the exercise price of $1.00 per share or via cashless exercise for a term of five years ending in 2021 and have registration rights.

 

The placement agent warrants may be exercised by the payment of the exercise price of $1.00 per share or via cashless exercise for at term of five years ending 2021 and have piggyback registration rights.

 

Series EN Warrants may be exercised by the payment of the exercise price of $0.485 per share or via cashless exercise for a term of three years ending in 2017 and have registration rights.

 

The other warrants may be exercised by the payment of the exercise price of $0.50 per share or via cashless exercise for a term of three years ending in 2016 and have piggyback registration rights.

 

Trading Market   OTCQB under the symbol “BRFH”
     
Offering Period   We are registering the selling shareholders’ shares to allow the selling shareholders the opportunity to sell their shares. The shares of common stock being registered include such indeterminate number of shares of common stock as may be issuable with respect to the shares of common stock being registered hereunder as a result of stock splits, stock dividends or similar transactions. The shares of common stock being registered do not include additional shares of common stock issuable as a result of changes in market price of the common stock, issuance by us of shares of equity securities below a certain price or other anti-dilutive adjustments or variables not covered by Rule 416 (“Rule 416”) under the Securities Act of 1933, as amended (“Securities Act”).
     
Risk Factors   The shares being offered are speculative and involve very high risks, including those listed in “Risk Factors”.
     
Net Proceeds  

We will not receive any proceeds from the sale of any shares by selling shareholders. However, we may receive up to an aggregate of $5,396,054 from the exercise by selling shareholders of warrants to purchase the common stock we are registering under this registration statement.

     
Use of Proceeds   We expect to use any cash proceeds we receive from the exercise of warrants by selling shareholders for general working capital purposes.
     

 

6  
   

 

RISK FACTORS

 

An investment in the Company’s securities involves significant risks, including the risks described below. You should carefully consider the risks described below before purchasing the shares. The risks highlighted here are not the only ones that the Company faces. For example, 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, and you might lose all or part of your investment.

 

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.

 

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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.

 

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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, 2016, identified the following material weaknesses in the Company’s internal control over financial reporting:

 

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.
   
Inadequate Segregation of Duties: We have an inadequate number of personnel to properly implement certain control procedures related to segregation of duties.

 

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.

 

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.

 

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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.

 

10  
   

 

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:

 

  actual or anticipated variations in our operating results;
     
  announcements of developments by us or our competitors;
     
  announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
     
  adoption of new accounting standards affecting the our industry;
     
  additions or departures of key personnel;
     
  introduction of new products by us or our competitors;
     
  sales of our common stock or other securities in the open market; and
     
  other events or factors, many of which are beyond our control.

 

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.

 

11  
   

 

NOTE REGARDING FORWARD LOOKING STATEMENTS

 

This prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” contains forward-looking statements. We may, in some cases, use words such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “potential”, “predict”, “project”, “should”, “will”, “would” or the negative of those terms, and similar expressions that convey uncertainty of future events or outcomes to identify these forward-looking statements. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. Forward-looking statements in this prospectus include, but are not limited to, statements about:

 

   the success, cost and timing of our sales and licensing activities;
     
   our ability to attract collaborators with development, marketing and commercialization expertise;
     
   the size and growth potential of the markets for our products, and our ability to serve those markets;
     
   the performance of our third-party suppliers and manufacturers;
     
   our ability to attract and retain key management personnel;
     
   the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing; and
     
   our expectations regarding our ability to maintain and protect intellectual property protection for our products.

 

These forward-looking statements reflect our management’s beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this prospectus and are subject to risks and uncertainties. We discuss many of these risks in greater detail under “Risk Factors”. In addition, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

 

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this prospectus by these cautionary statements. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

USE OF PROCEEDS

 

We will not receive any of the proceeds from the sale of the shares of common stock offered under this prospectus by the selling shareholders. Rather, the selling shareholders will receive those proceeds directly.

 

However, we may receive up to an aggregate of $5,396,054 from the exercise by selling shareholders of warrants to purchase the common stock we are registering under this registration statement. We expect to use any cash proceeds from the exercise of warrants for general working capital purposes.

 

SELLING SHAREHOLDERS

 

We are registering 13,290,915 shares of our common stock, par value $0.000001 per share, of which 1,297,500 are issuable upon exercise of Series H Warrants and 3,891,249 are issuable upon exercise of Series I Warrants, 96,680 shares are issuable upon exercise of certain placement agent warrants, 57,990 are issuable upon exercise of Series EN Warrants and 165,000 are issuable upon exercise of certain other warrants. The shares of common stock being registered include such indeterminate number of shares of common stock as may be issuable with respect to the shares of common stock being registered hereunder only as a result of stock splits, stock dividends or similar transactions. The shares of common stock being registered do not include additional shares of common stock issuable as a result of changes in market price of the common stock, issuance by us of equity securities below a certain price or other anti-dilutive adjustments or variables not covered by Rule 416. All shares that may be issued will be restricted securities as that term is defined in Rule 144 under the Securities Act, and will remain restricted unless and until such shares are sold pursuant to this prospectus, or otherwise are sold in compliance with Rule 144.

 

No shareholder may offer or sell shares of our common stock under this prospectus unless such shareholder has notified us of such shareholder’s intention to sell shares of our common stock and the registration statement of which this prospectus is a part has been declared effective by the SEC and remains effective at the time such selling shareholder offers or sells such shares. We are required to amend the registration statement of which this prospectus is a part to reflect material developments in our business and current financial information. Each time we file a post-effective amendment to our registration statement with the SEC, it must first become effective prior to the offer or sale of shares of our common stock by the selling shareholders.

 

The following table sets forth as of June 14, 2017, information regarding the current ownership of our common stock by the persons identified, based on information provided to us by them, which we have not independently verified. We have assumed for purposes of the table that the selling shareholders will sell all of the shares offered by this prospectus. The selling shareholders may, from time to time, offer all or some of their shares under this prospectus or in another manner. No assurance can be given as to the actual number of shares that will be resold by the selling shareholders (or any of them). In addition, a selling shareholder may have already sold or otherwise disposed of shares in transactions exempt from the registration requirements of the Securities Act. The selling shareholders are not making any representation that the shares covered by this prospectus will be offered for sale. Except as set forth below, no selling shareholder has held any position nor had any material relationship with our affiliates or us during the past three years. Except as set forth below, each of the selling shareholders has advised the Company that it is not a registered broker-dealer or an affiliate of a registered broker-dealer.

 

12  
   

 

Name of Selling Shareholder  

Number of

Shares Owned

Before Offering

    Number of Shares
Being Offered
   

Number of Shares
Owned

After Offering

    Percent of
Shares
Owned After
Offering
 
                         
William D. Moreland     2,422,814 1     2,422,814       0       0  
Theodore Edward Dastoli     56,250 2     56,250       0       0  
Steven P. Cugine     300,000 3     120,691       179,309       *  
Rodney Cerny     60,572 4     60,572       0       0  
Pacific Grove Master Fund, L.P. 5     5,625,000 6     5,625,000       0       0  
AMLM Pty Limited ATF The Mitchell Family Trust 7     46,875 8     46,875       0       0  
Jon P. Jung     48,458 9     48,458       0       0  
John J. Trant     36,155 10     36,155       0       0  
Ephraim Fields     831,732 11     562,500       0       0  
Cornelius J. Sullivan     241,121 12     241,121       0       *  
Clifford Marshall Athey     120,931 13     120,931       0       0  
Julie A. Seiden Trust A 14     221,353 15     121,353       100,000       *  
Julie A. Seiden Trust B 16     121,353 17     121,353       0       0  
Joseph M. Cugine 18     670,871 19     120,871       550,000       *  
GE Price Superannuation Fund 20     60,731 21     60,731       0       0  
Angus Charles Cuthbertson     392,688 22     242,688       150,000       *  
Bansbach Capital Group, LLC 23     242,299 24     242,283       0       0  
Vicki Barone 25     4,834 26     4,834       0       0  
Steven M. Bathgate 27     28,000 28     28,000       0       0  
James Bisping     60,131 29     60,131       0       0  
William Robert Gregozeski     300,000 30     165,000       0       *  
Michael E. Donnelly 31     325,968 32     208,735       117,233       *  
2 J Realty Investment LLC 33     603,626 34     603,626       0       0  
Fivex Pty Ltd ATF the Harbourview Share Portfolio Trust 35     242,575 36     242,575       0       0  
Joseph Tesoriero 37     121,290 38     121,290       0       0  
Giuseppe Delle Coste     109,841 39     48,498       61,343       0  
GVC Partners LLC 40     19,336 41     19,336       0       0  
Richard T. Huebner 42     4,454 43     4,454       0       0  
Jennifer Toth     120,931 44     120,931       0       0  
Jeff Osterfeld TOD     375,000 45     375,000       0       0  
Jesse Brooks Nichols 46     5,620 47     5,620       0       0  
Mathew Kelsall 48     4,834 49     4,834       0       0  
Brian McMahon     73,085 50     73,085       0       0  
Mirella Delle Coste     1,063,444 51     242,458       820,986       *  
R.D. Capital Holdings Pty Ltd 52     19,780,909 53     121,140       19,659,769       20.8  
Pensel Pty Limited ATF Superannuation Fund 54     254,182 55     48,589       205,593       0  
Todd R. Burmeister     60,115 56     60,115       0       0  
Timothy F. Trant     187,500 57     120,541       0       0  
Mark Y. Abdou     441,705 58     42,188       398,977       *  
David Robert Morgan     242,575 59     242,575       0       0  
Farinway Pty Ltd 60     48,589 61     48,589       0       0  
Koudsi Revocable Trust 62     28,125 63     28,125       0       0  

 

* Less than 1%

 

13  
   

 

 

 

1 Includes 640,938 shares issuable upon exercise of Series I Warrants and 500,000 shares issuable upon exercise of Series H Warrants.

2 Includes 18,750 shares issuable upon exercise of Series I Warrants.

3 Includes 100,000 shares underlying certain warrants, including 31,897 shares underlying Series I Warrants and 25,000 shares underlying Series H Warrants.

4 Includes 16,024 shares underlying Series I Warrants and 12,500 shares underlying Series H Warrants.

5 Registered Investment Company under the Investment Company Act of 1940.

6 Includes 1,875,000 shares underlying Series I Warrants.

7 Anne Mitchell and Luke Mitchell are the individuals with voting and investment control over the shares held by this trust.

8 Includes 15,625 shares underlying Series I Warrants.

9 Includes 12,819 shares underlying Series I Warrants and 10,000 shares underlying Series H Warrants.

10 Includes 9,552 shares underlying Series I Warrants and 7,500 shares underlying Series H Warrants.

11 Includes 187,500 shares underlying Series I Warrants.

12 Includes 63,707 shares underlying Series I Warrants and 50,000 shares underlying Series H Warrants.

13 Includes 31,977 shares underlying Series I Warrants and 25,000 shares underlying Series H Warrants.

14 Arthur L. Seiden, as trustee, is the individual with voting and investment control over the shares held by this trust.

15 Includes 32,118 shares underlying Series I Warrants and 25,000 shares underlying Series H Warrants.

16 Arthur L. Seiden, as trustee, is the individual with voting and investment control over the shares held by this trust.

17 Includes 32,118 shares underlying Series I Warrants and 25,000 shares underlying Series H Warrants.

18 President of Barfresh Food Group, Inc.

19 Includes 31,957 shares underlying Series I Warrants and 25,000 shares underlying Series H Warrants.

20 Gary Price is the individual with voting and investment control over the shares held by this entity.

21 Includes 16,077 shares underlying Series I Warrants and 12,500 shares underlying Series H Warrants.

22 Includes 64,229 shares underlying Series I Warrants, 50,000 shares underlying Series H Warrants and 150,000 shares underlying certain options.

23 Louis P. Bansbach IV, as managing member, is the individual with voting and investment control over the shares held by this entity.

24 Includes 64,094 shares underlying Series I Warrants and 50,000 shares underlying Series H Warrants.

25 Principal of GVC Capital, LLC, a registered broker dealer.

26 Consists of 4,834 shares underlying placement agent warrants.

27 Affiliate of GVC Capital, LLC, a registered broker dealer.

28 Consists of 28,000 shares underlying placement agent warrants.

29 Includes 15,877 shares underlying Series I Warrants and 12,500 shares underlying Series H Warrants.

30 Consists of 300,000 shares underlying warrants.

31 Affiliate of GVC Capital, LLC, a registered broker dealer.

32 Includes 29,602 shares underlying placement agent warrants, 57,990 Series EN Warrants, 32,048 shares underlying Series I Warrants and 25,000 shares underlying Series H Warrants.

33 Jason Eiswerth and Jeffrey Dellorusso, as managing members, are the individuals with voting and investment control over the shares held by this entity.

34 Includes 159,542 shares underlying Series I Warrants and 125,000 shares underlying Series H Warrants.

35 Joshua Berger is the individual with voting and investment control over the shares held by this entity.

36 Includes 64,192 shares underlying Series I Warrants and 50,000 shares underlying Series H Warrants.

37 Chief Financial Officer of the Company.

38 Includes 32,096 shares underlying Series I Warrants and 25,000 shares underlying Series H Warrants.

39 Includes 12,833 shares underlying Series I Warrants and 10,000 shares underlying Series H Warrants.

40 Steve Bathgate, Richard Huebner, Vicki Barone and Greg Fulton are the individuals with voting and investment control over the shares held by this entity. They all disclaim beneficial ownership of the shares held by this entity due to the fact that the shares are held by the firm and do not belong to any of this individuals alone.

41 Consists of shares underlying placement agent warrants.

42 Affiliate of GVC Capital, LLC, a registered broker dealer.

43 Consists of shares underlying placement agent warrants.

44 Includes 31,977 shares underlying Series I Warrants and 25,000 shares underlying Series H Warrants.

45 Includes 125,000 shares underlying Series I Warrants.

46 Affiliate of GVC Capital, LLC, a registered broker dealer.

47 Consists of shares underlying placement agent warrants.

48 Affiliate of GVC Capital, LLC, a registered broker dealer.

49 Consists of shares underlying placement agent warrants.

50 Includes 16,028 shares underlying Series I Warrants and 25,000 shares underlying Series H Warrants.

51 Includes 64,153 shares underlying Series I Warrants and 50,000 shares underlying Series H Warrants and 400,000 shares underlying certain other warrants.

52 Riccardo Delle Coste, the Chief Executive Officer and a director of the Company, is the individual with voting and investment control over the shares held by this entity.

53 Includes 32,048 shares underlying Series I Warrants and 25,000 shares underlying Series H Warrants and 482,647 shares underlying certain other warrants.

54 David Paul Selig and Katrina Jane Beatrice Selig are the individuals with voting and investment control over the shares held by this entity.

55 Includes 12,863 shares underlying Series I Warrants and 10,000 shares underlying Series H Warrants.

56 Includes 15,872 shares underlying Series I Warrants and 12,500 underlying Series H Warrants.

57 Includes 31,847 shares underlying Series I Warrants and 25,000 shares underlying Series H Warrants.

58 Includes shares underlying 14,063 Series I Warrants and shares underlying 67,500 certain other warrants.

59 Includes 64,192 shares underlying Series I Warrants and 50,000 shares underlying Series H Warrants.

60 Michael Wiener is the individual with voting and investment control over the shares held by this entity.

61 Includes 12,863 shares underlying Series I Warrants and 10,000 shares underlying Series H Warrants.

62 John J. Koudsi is the individual with voting and investment control over the shares held by this entity.

63 Includes 9,375 shares underlying Series I Warrants.

 

14  
   

 

PLAN OF DISTRIBUTION

 

We are registering the shares of common stock previously issued and the shares of common stock issuable upon exercise of the warrants to permit the resale of these shares of common stock by the holders of the common stock and warrants from time to time after the date of this prospectus. We will not receive any of the proceeds from the sale by the selling shareholders of the shares of common stock. We will bear all fees and expenses incident to our obligation to register the shares of common stock.

 

The selling shareholders may sell or dispose of the securities in one or more of the following ways (or in any combination) from time to time:

 

  through underwriters or dealers;
     
  directly to a limited number of purchasers or to a single purchaser (including block transactions);
     
  through agents; or
     
  an offering of shares by way of a distribution to shareholders, partners or members.

 

If the selling shareholders use underwriters in the sale, the securities will be acquired by the underwriters for their own account(s) and may be resold from time to time in one or more transactions, including:

 

  negotiated transactions;
     
  at a fixed public offering price or prices, which may be changed;
     
  at market prices prevailing at the time of sale;
     
  at prices related to prevailing market prices; or
     
  at negotiated prices.

 

Broker-dealers engaged by the selling shareholders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling shareholders (or, if any broker-dealer acts as agent for the purchaser of shares of common stock, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction, not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

 

The obligations of the underwriters to purchase any securities will be conditioned on customary closing conditions and the underwriters will be obligated to purchase all of such series of securities, if any are purchased.

 

15  
   

 

The selling shareholders may sell the securities through agents from time to time. Generally, any agent will be acting on a best-efforts basis for the period of its appointment.

 

The selling shareholders may enter into hedging transactions with broker-dealers or other financial institutions. In connection with such transactions, broker-dealers or other financial institutions may engage in short sales of our common stock in the course of hedging the positions they assume with the selling shareholders. The selling shareholders may also enter into options or other transactions with broker-dealers or other financial institutions which require the delivery to such broker-dealer or other financial institution of shares offered hereby, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

 

The selling shareholders and any broker-dealers or agents that are involved in selling the shares of common stock may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares of common stock purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each selling shareholder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the shares of common stock. In no event shall any broker-dealer receive fees, commissions and markups, which, in the aggregate, would exceed eight percent (8%).

 

Because selling shareholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder. In addition, any shares of common stock covered by this prospectus that qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. The selling shareholders have advised us that there is no underwriter or coordinating broker acting in connection with the proposed sale of the shares of common stock by the selling shareholders.

 

As used herein, “selling shareholders” includes donees, pledgees, distributees, transferees or other successors-in-interest selling shares received after the date of this prospectus from a named selling shareholder as a gift, pledge, partnership distribution or other non-sale related transfer.

 

Underwriters and agents may be entitled under agreements entered into with the selling shareholders, if applicable, to indemnification by the selling shareholders, if applicable, against certain civil liabilities, including liabilities under the Securities Act of 1933, or to contribution with respect to payments which the underwriters or agents may be required to make.

 

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the shares of common stock may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling shareholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of our securities by the selling shareholders or any other person. We will make copies of this prospectus available to the selling shareholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act). In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

 

LEGAL PROCEEDINGS

 

We are not party to any lawsuits or legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse affect on our results of operations and financial position, and have no knowledge of any threatened or potential lawsuits or legal proceedings against us. From time to time, we may be involved in litigation relating to claims arising out of operations in the ordinary course of business.

 

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS

 

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   36   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   Director
Alice Elliot   59   Director
Alexander H. Ware   54   Director
Isabelle Ortiz-Cochet   55   Director

 

16  
   

 

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 Nevada corporation and our wholly owned subsidiary (“Barfresh NV”), since its inception. Mr. Delle Coste is the inventor of the patented technology and the creator of Barfresh. Mr. Delle Coste 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 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 accreditations, 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 before receiving 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 NV since its inception. Prior to joining Barfresh NV, 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 served temporarily as Principal Accounting Officer. 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 has been the chief financial officer and a director of other public companies: From 2012 to 2016, LifeApps Digital Media Inc. and Arvana Inc. From 2006 to 2010 he was the chief financial officer of Spicy Pickle Franchising, Inc. In all of the companies 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 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, 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.

 

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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.

 

Alexander H. Ware was appointed as director of the company on July 13, 2016. Mr. Ware currently serves as the Executive Vice President & Chief Financial Officer of Buffalo Wild Wings since October 2016. Mr. Ware previously served as Executive Chairman of MStar Holding Corporation. Mr. Ware served as Interim Chief Executive Officer for MStar Holding Corporation in 2013. Prior to his time at MStar Holding Corporation, he served as a Senior Advisor and previously as Executive Vice President of Strategic Development of Pohlad Companies, a family office, from 2010 to 2015. He served in increasing capacities at PepsiAmericas, Inc. and related companies for a total of 16 years culminating as Executive Vice President & Chief Financial Officer in 2010. Previously, he was Senior Associate in their Environmental Practice at Booz Allen Hamilton, Inc. from 1990-1994. Mr. Ware received his Bachelor of Arts degree in Economics from the Hampden-Sydney College and his Master of Business Administration from Darden Graduate School of Business at University of Virginia.

 

Qualifications: Mr. Ware brings over 30 years of experience in leadership, strategic planning and business portfolio management.

 

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Isabelle Ortiz-Cochet was appointed as director of the Company on December 16, 2016. She is the Chief Investment Officer for Unibel, parent company of Bel Group. Bel is an international France-based group, a world leader in branded cheese business, with brands such as Laughing Cow, Mini-Babybel or Boursin. In that position since January 2016, Ms. Ortiz-Cochet drives Unibel diversification strategy, and leads the investment portfolio development. She was previously VP Strategic Development at Bel Group Form September 2013 to December 2015. From 2007 to 2013, based out of Bel’s New York office, Ms. Ortiz-Cochet led the development of long term strategies in North and South America, as well as Marketing strategy in the region. Prior to that position, she held a number of leadership positions in marketing and global strategy at Bel out of the Paris office, at French, European and corporate levels. Isabelle began her career with Kimberly Clark in France. Isabelle earned a master degree from ESSEC Business School in France, and an executive MBA from HEC Business School, France .  

 

Pursuant to the investor rights agreement between Barfresh and Unibel dated November 23, 2016, Unibel is entitled to appoint one director to the board of directors of Barfresh, which director is entitled to sit on each committee of the board of directors selected by the Unibel, unless Unibel has beneficial ownership of less than: (i) 75.0% of the Shares; and (ii) 5.0% of the company’s issued and outstanding common stock. Unibel has designated Isabelle Ortiz-Cochet as its board designee. Barfresh has agreed to call shareholder meetings whenever necessary to ensure Unibel’s designee is elected as a director. At any time that Unibel’s designee is not a director, Unibel’s designee will be entitled to be a board observer. Riccardo Delle Coste, Steven Lang and their respective affiliates have agreed to vote their shares in favor of Unibel’s designee.

 

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Employment Agreements

 

On April 27, 2015, Smoothie, Inc. entered into an executive employment agreement with Riccardo Delle Coste, its Chief Executive Officer and director. 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. 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 four of our seven directors are independent, which constitutes a majority.

 

Board Committees

 

We currently have an audit committee, a compensation committee and a nominating and governance committee. The members of the audit committee are Arnold Tinter, Steven Lang and Riccardo Delle Coste. 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 members of the compensation committee are Arnold Tinter, Alice Elliot and Riccardo Delle Coste. 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 members of the nominating committee are Arnold Tinter, Alice Elliot and Steven Lang. The nominating and governance committee is primarily responsible for overseeing corporate governance and for identifying, evaluating and recommending individuals to serve as directors of the company.

 

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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 our Chief Financial Officer are bound by a Code of Ethics that complies with Item 406 of Regulation S-K of the Exchange Act.

 

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 June 14 , 2017 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 June 14 , 2017. As of June 14 , 2017, the Company had 118,322,070 shares of common stock outstanding. 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 June 14 , 2017 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.

 

The following table sets forth certain information regarding our shares of common stock beneficially owned as of June 14 , 2017, 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 June 14 , 2017. As of June 14 , 2017, the Company had 118,322,070 shares of common stock outstanding. 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 June 14 , 2017 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.

 

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      Common Stock                                            
Name and address of beneficial owner (1)     Amount and nature of beneficial ownership       Percent of class o/s       Shares held           Convertible shares       Options Exercisable       Warrants Exercisable       Percent of o/s only
Riccardo Delle Coste (2) (3) (4) (5) (6) (7)     20,621,266       17.32 %     19,854,156   (3 )             383,333 (4)     383,777   (5) (6) (7)   16.78%
                                                     
Steven Lang (8) (9) (10) (11)     20,033,061       16.84 %     19,393,424   (9 )             356,990 (10)     282,647   (11)   16.39%
                                                     
Joseph Tesoriero (12) (13) (14)     663,219       0.56 %     278,257                   308,333 (13)     76,629   (14)   0.24%
                                                       
Arnold Tinter (15) (16)     950,000       0.80 %     800,000                   150,000 (16)             0.68%
                                                       
Joe Cugine (17) (18) (19)     1,785,492       1.50 %     1,306,139                   383,333 (18)     96,020   (19)   1.10%
                                                       
Alice Elliot (20) (21) (22)     678,255       0.57 %     424,599   (21) (22)               123,656 (23)     130,000   (24)   0.36%
                                                       
Alexander Ware (25) (26) (27)     318,224       0.27 %     240,099   (26 )                     78,125   (27)   0.20%
                                                       
Isabelle Ortiz-cochet (28) (29) 2 Allee De Longchamp Suresnes, France     33,603       0.03 %                         33,603 (29)             0.00%
                                                       
                                                       
All directors and officers as a group (8 persons)     45,083,120       37.23 %     42,296,674                   1,739,248       1,047,198       35.75%
                                                       
Unibel (30) 2 Allee De Longchamp Suresnes, France 92150     23,437,500       18.58 %     15,625,000                           7,812,500   (30)   13.21%
                                                       
Lazarus Investment Partners LLLP (31) 3200 Cherry Creek South Drive Suite 670 Denver, CO 80209     17,234,548       14.00 %     12,421,318                           4,813,230   (31)   10.50%
                                                       
Wolverine Asset Management, LLC (“WAM”) (32) (33) 175 West Jackson Blvd. Suite 340 Chicago, IL 60604     6,501,600       5.40 %     4,501,600                           2,000,000   (32)   3.80%

 

1 The address of those listed, except as noted is c/o Barfresh Food Group Inc., 8383 Wilshire Blvd., Beverly Hills, CA 90211
2 Mr. Delle Coste is the Chief Executive Officer , President and a Director of the Company
3 Includes 19,454,156 shares owned by R.D. Capital Holdings PTY Ltd. and of which Riccardo Delle Coste is deemed to be a beneficial owner.
4 Includes 383,333 shares underlying options granted.
5 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.
6 Includes 25,000 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.
7 Includes 76,130 shares underlying warrants issued in connection with the purchase of common shares, 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 Mr. Lang is a Director of the Company
9 Includes 19,054,828 shares owned by Sidra Pty Limited of which Steven Lang is deemed to be a beneficial owner
10 Includes 356,990 shares underlying options granted
11 Includes 282,646 shares underlying warrants issued in connection with a promissory note the holder of which is Sidra PTY Limited
12 Mr. Tesoriero is the Chief Financial Officer of the Company
13 Includes308,333 shares underlying options granted.
14 Includes 76,629 shares underlying warrants issued in connection with a promisory note and conversion thereof.
15 Mr. Tinter is the Secretary and a Director of the Company
16 Includes 356,990 shares underlying options granted
17 Mr. Cugine is President of a subsidiary of the Company and a Director
18 Includes 383,333 shares underlying options granted.
19 Includes 96,020 shares underlying warrants issued in connection with purchase of common shares.

 

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20 Ms. Elliot is a Director of the Company
21 Includes 360,000 shares owned by Elliot-Herbst LP of which Alice Elliot is deemed to be a beneficial owner
22 Includes 64,599 shares owned by Elliot-Herbst Family LLC of which Ms. Elliot is deemed to be a beneficial owner
23 Includes 123,656 shares underlying options granted
24 Includes 130,000 shares underlying warrants issued in connection with purchase of common shares
25 Mr. Ware is a Director of the Company
26 Includes 220,599 shares owned by The Alexander Ware Revocable Trust of which Mr. Ware is deemed to be a beneficail owner
27 Includes 78,125 shares underlying warrants issued to The Alexander Ware Revocable Trust in connection with purchase of common stock.
28 Ms. Ortiz-cochet is a Director of the Company
29 Includes 33,603 shares underlying options granted
30 Includes 7,812,500 shares underlying warrants issued in connection with the purchase of common stock.
31 Includes 4,813,230 shares underlying warrants issued in connection with the purchase of common stock.
32 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.
33 Includes 2,000,000 shares underlying warrants issued in connection with the purchase of common stock.

 

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DESCRIPTION OF SECURITIES

 

Authorized Capital Stock

 

Our authorized share capital consists of 295,000,000 shares of common stock, par value $0.000001 per share and 5,000,000 shares of preferred stock, par value $0.000001 per share. As of June 14 , 2017, 118,322,070 shares of our common stock were outstanding.

 

Common Stock

 

Each share of our common stock entitles its holder to one vote in the election of each director and on all other matters voted on generally by our shareholders, other than any matter that (i) solely relates to the terms of any outstanding series of preferred stock or the number of shares of that series and (ii) does not affect the number of authorized shares of preferred stock or the powers, privileges and rights pertaining to the common stock. No share of our common stock affords any cumulative voting rights. This means that the holders of a majority of the voting power of the shares voting for the election of directors can elect all directors to be elected if they choose to do so. Holders of our common stock will be entitled to dividends in such amounts and at such times as our board of directors in its discretion may declare out of funds legally available for the payment of dividends. We currently intend to retain our entire available discretionary cash flow to finance the growth, development and expansion of our business and do not anticipate paying any cash dividends on the common stock in the foreseeable future. Any future dividends will be paid at the discretion of our board of directors after taking into account various factors, including:

 

  general business conditions;
     
  industry practice;
     
  our financial condition and performance;
     
  our future prospects;
     
  our cash needs and capital investment plans;
     
  our obligations to holders of any preferred stock we may issue;
     
  income tax consequences; and
     
  the restrictions Delaware and other applicable laws and our credit arrangements then impose.

 

If we liquidate or dissolve our business, the holders of our common stock will share ratably in all our assets that are available for distribution to our shareholders after our creditors are paid in full and the holders of all series of our outstanding preferred stock, if any, receive their liquidation preferences in full.

 

Our common stock has no preemptive rights and is not convertible or redeemable or entitled to the benefits of any sinking or repurchase fund.

 

Series H Warrants

 

Series H Warrants to purchase up to 1,297,500 shares common stock are currently outstanding. Series H Warrants may be exercised by the payment of the exercise price of $1.00 per share for a term of five years ending in 2020 in cash and have piggyback registration rights for the shares of common stock underlying the warrants

 

The Series H Warrants are subject to customary protective provisions for certain events.

 

Series I Warrants

 

Series I Warrants to purchase up to 3,891,249 shares common stock are currently outstanding. The Series I Warrants may be exercised by the payment of the exercise price of $1.00 per share or via cashless exercise for a term of five years ending in 2021 and have registration rights for the shares of common stock underlying the warrants.

 

The Series I Warrants are subject to customary protective provisions for certain events.

 

Series EN Warrants

 

Series EN Warrants to purchase up to 898,842 shares common stock are currently outstanding. Series EN Warrants may be exercised by the payment of the exercise price of $0.485 per share or via cashless exercise for a term of three years ending in 2017 and have registration rights. These warrants are subject to customary protective provisions for certain events.

 

Placement Agent Warrants

 

Warrants to purchase 96,680 shares of common stock were issued as placement agent warrants. Placement agent warrants may be exercised by the payment of the exercise price of $1.00 per share or via cashless exercise for at term of five years ending 2021 and have piggyback registration rights. These warrants are subject to customary protective provisions for certain events.

 

Other Warrants

 

Other warrants to purchase 300,000 shares of common stock are being registered hereunder. These warrants were issued to a consultant as compensation for services rendered on December 1, 2013. These warrants may be exercised by the payment of the exercise price of $0.50 per share or via cashless exercise for a term of three years ending in 2016 and have piggyback registration rights. These warrants are subject to customary protective provisions for certain events.

 

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LEGAL MATTERS

 

The validity of the common stock to be sold under this prospectus will be passed upon for us by Libertas Law Group, Inc. Libertas Law Group’s principal, Mark Y. Abdou, beneficially owns 641,872 shares of the Company’s common stock, including shares underlying 14,063 Series I Warrants, 54,805 shares underlying Series J Warrants and shares underlying 67,500 other warrants. Mr. Abdou is a selling shareholder under the prospectus.

 

EXPERTS

 

Our financial statements, as of December 31, 2016 and for the nine-months ended December 31, 2015 appearing in the prospectus, have been audited by Eide Bailly LLP, an independent registered public accounting firm, to the extent and for the periods indicated in their report appearing herein, which report expresses an unqualified opinion, and are included in reliance upon such report and upon authority of such firm as experts in accounting and auditing.

 

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

 

The Company’s directors and executive officers are indemnified as provided by the Delaware General Corporation Law and the Company’s Certificate of Incorporation. These provisions state that the Company’s directors may cause the Company to indemnify a director or former director against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, actually and reasonably incurred by him as a result of him acting as a director. The indemnification of costs can include an amount paid to settle an action or satisfy a judgment. Such indemnification is at the discretion of the Company’s board of directors and is subject to the SEC’s policy regarding indemnification.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

In the event that a claim for indemnification against such liabilities (other than the payment of expenses incurred or paid by a director, officer or controlling person in a successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to the court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

At present, there is no pending litigation or proceeding involving any of our directors, officers or employees as to which indemnification is sought, nor are we aware of any threatened litigation or proceeding that may result in claims for indemnification.

 

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DESCRIPTION OF BUSINESS

 

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 was granted on August 16, 2016. 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 a number of National Accounts, having recently launched in market tests with several major National Key accounts, and is focused on moving from in-market tests to national roll-out with those major National Key accounts.

 

On July 6 th , 2016, the Company announced that it had signed a supply agreement with a major global on-site foodservice operator. The agreement, which marked the culmination of a successful in market test conducted at several locations, makes Barfresh’s suite of blended beverages available across the customer’s diverse customer base in its education, healthcare, sports and entertainment, and business government channels, in the US and Canada representing over 2,000 potential accounts.

  

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’s products have been included in Sysco’s “Cutting Edge Solutions” (“CES”) Platform since March of 2016, and are once again included in Sysco’s most recent CES Platform, announced during February of 2017. 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.

 

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. The agreement facilitates access to potential National customer accounts, through introductions provided by PepsiCo’s one-thousand plus person foodservice sales team. Barfresh products have become part of PepsiCo’s customer presentations at national trade shows and similar venues.

 

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. Production lines are currently operational at two locations. The first is in our Salt Lake City contract manufacturer location, which currently produces products sold to existing customers. Currently annual production capacity with this contract manufacturer is 14 million units per year. The second location is with Yarnell Operations, LLC., a subsidiary of Shulze and Burch, located in Arkansas. The Yarnell’s agreement, which was signed during February, 2016, secures additional production capacity ahead of expected sales growth. Barfresh will have the capacity to ramp up to an incremental production capacity of 100 million units through this agreement. Yarnell’s began shipping product for Barfresh during June of 2016. 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.

 

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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 NV”), 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:

 

  Acquisition of Barfresh NV. We acquired all of the outstanding capital stock of Barfresh NV 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 NV and the former shareholders of Barfresh NV. As a result of this transaction, Barfresh NV became our wholly owned subsidiary and the former shareholders of Barfresh NV became our controlling shareholders.
     
  Spinout of prior business. Immediately prior to the acquisition of Barfresh NV, 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.
     
  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.
     
  Change of name . Subsequent to the merger, we changed the name of the Company from Moving Box Inc. to Barfresh Food Group Inc.
     
  Forward stock split . Subsequent to the merger, we conducted a four for one forward stock split of the Company’s common stock.

 

Strategic Investment by Unibel

 

During November, 2016, the Company received an equity investment from Unibel, the majority shareholder of the Bel Group (“Unibel”). The Bel Group is headquartered in Paris, France, with global operations in 33 countries, 30 production sites on 4 continents and nearly 12,000 employees. Its many branded products, including The Laughing Cow ® , Mini Babybel ® and Boursin ® , are sold in over 130 countries around the world. Pursuant to the securities purchase agreement, Unibel purchased 15,625,000 shares of common stock at $0.64 per share (“Shares”) and warrants to purchase 7,812,500 shares of common stock (“Warrants”) for aggregate gross proceeds to Barfresh of $10 million. The Warrants are exercisable for a term of five years at a per share price of $.88 for cash. Pursuant to the Investor Rights agreement, Barfresh has registered the Shares and the Warrants, and Unibel was granted a seat on the Barfresh Board. This strategic investment provides Barfresh with the necessary capital to drive revenue growth while leveraging Unibel’s more than 150 years of industrial expertise, innovative capabilities, world-class marketing and branding expertise to accelerate our growth in new and existing markets and product channels

 

Products

 

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.

 

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28  
   

 

The following seven flavors are available as part of our standard portfolio of products:

 

 

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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:

 

  Portion controlled
     
  Zero waste
     
  Product consistency – every time a smoothie, shake or frappe is made
     
  Easy inventory control
     
  Long shelf life (24 months)
     
  Minimal capital investment necessary
     
  Faster and easier to make (less than 60 seconds)
     
  Ability to itemize the ingredients of the beverages on menus
     
  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:

 

  From as little as 150 calories (per serving)
     
  Real fruit in every smoothie
     
  Dairy free options
     
  Kosher approved
     
  Gluten Free

 

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 year ended December 31, 2016, in the amount of $432,146, and for the year ended December 31, 2015 in the amount of $341,998. During the quarter ended September 30, 2016, we re-classified certain personnel expenses that had previously been included in personnel expense, to Research and Development These expenses relate primarily to the services performed by our Director of Manufacturing and Product Development, and supporting consultant expenses. The re-classification is shown in both the current period and the prior period. 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.

 

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The existing competition from a product perspective can be separated into three categories:

 

  Specialized juice bar products: The product is made in-store and each ingredient is added separately.
     
  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.
     
  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.

 

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 issued on August 16, 2016. 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 34 employees and 5 consultants. There are currently 23 employees and 1 consultant selling our products.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with the financial statements and information included elsewhere in this prospectus. This discussion includes forward-looking statements, as that term is defined in the federal securities laws, based upon current expectations that involve risks and uncertainties, such as plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. Words such as “anticipate”, “estimate”, “plan”, “continuing”, “ongoing”, “expect”, “believe”, “intend”, “may”, “will”, “should”, “could” and similar expressions are used to identify forward-looking statements.

 

We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. Factors that may affect our results include, but are not limited to, the risk factors set forth in this prospectus under the heading “Risk Factors”. Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.

 

Barfresh is a leader in the creation, manufacturing and distribution of ready to blend frozen beverages. The current portfolio of products includes smoothies, shakes and frappes. All of the products are portion controlled and ready to blend beverage ingredient packs or “beverage packs”. The beverage packs contain all of the solid ingredients necessary to make the beverage, including the base (either sorbet, frozen yogurt or ice cream), real fruit pieces, juices and ice – five ounces of water are added before blending.

 

Domestic and international patents and patents pending are owned by Barfresh, as well as related trademarks for all of the products. In November 2011, the Company acquired the patent rights in the United States and Canada. The Canadian patent has been granted and the United States patent was granted on August 16, 2016. 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 a number of National Accounts and have recently launched in market tests with several major National Key accounts. The Company is focused on moving from in-market tests to national roll-out with those major National Key accounts.

 

In addition to the National Accounts, the Company sells to food distributors that supply products to the food services market place. Effective July 2, 2014, the Company entered into an exclusive agreement with Sysco Merchandising and Supply Chain Services, Inc. for resale by the Sysco Corporation (“Sysco”) to the foodservice industry of the Company’s ready-to-blend smoothies, shakes and frappes. All Barfresh products will be included in Sysco’s national core selection of beverage items, making Barfresh its exclusive single-serve, pre-portioned beverage provider. The agreement is mutually exclusive; however, Barfresh may also sell the products to other foodservice distributors, but only to the extent required for such foodservice distributors to service multi-unit chain operators with at least 20 units and where Sysco is not such multi-unit chain operators nominated distributor for our products.

 

The Company’s products have been included in Sysco’s “Cutting Edge Solutions” (“CES”) Platform since March of 2016, and are once again included in Sysco’s most recent CES Platform, announced during February of 2017. 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 Operating Companies (“OPCO”) will participate in the CES program, and will be evaluated on their success in moving the CES products.

 

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.

 

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The Company has recently announced several important new customer contracts. During February of 2017, the Company announced that it had opened a branded Barfresh kiosk at the Pepsi Center in Denver, Colorado. The kiosk is the culmination of efforts by the Barfresh sales team, PepsiCo North America Beverages, and Aramark. During March of 2017 the Company announced that it had entered into a multi-year agreement to offer Barfresh smoothies at a Barfresh branded food service location at the Aquarium of the Pacific, in Long Beach, California. During March of 2017 the Company announced that it had entered into a multi-year agreement to offer Barfresh smoothies at three branded food service locations at the Statue of Liberty monument on Ellis Island in New York City. During April of 2017 the Company announced that it had entered into a multi-year agreement with Centerplate, granting Barfresh access to offer its smoothies to Centerplate’s multiple venues that serve over 116 million guests annually. And during April of 2017 the Company announced that it had rolled out its product to the Landry, Inc. restaurant concept Bubba Gump Shrimp, Co.

 

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 one production line is 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. Currently annual production capacity with our Salt Lake City 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, securing additional production capacity ahead of expected sales growth. Barfresh now has 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.

 

During November, 2016, the Company received an equity investment from Unibel, the majority shareholder of the Bel Group (“Unibel”). The Bel Group is headquartered in Paris, France, with global operations in 33 countries, 30 production sites on 4 continents and nearly 12,000 employees. Its many branded products, including The Laughing Cow®, Mini Babybel® and Boursin®, are sold in over 130 countries around the world. Pursuant to the securities purchase agreement, Unibel purchased 15,625,000 shares of common stock at $0.64 per share (“Shares”) and warrants to purchase 7,812,500 shares of common stock (“Warrants”) for aggregate gross proceeds to Barfresh of $10 million. The Warrants are exercisable for a term of five years at a per share price of $.088 for cash. Pursuant to the Investor Rights agreement, Barfresh has registered the Shares and the Warrants, and Unibel was granted a seat on the Barfresh Board. This strategic investment provides Barfresh with the necessary capital to drive revenue growth while leveraging Unibel’s more than 150 years of industrial expertise, innovative capabilities, world-class marketing and branding expertise to accelerate our growth in new and existing markets and product channels.

 

Currently we have 34 employees and 5 consultants. There are currently 23 employees and 1 consultant selling our products.

 

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Critical Accounting Policies

 

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

 

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 not yet effective may have an impact on our results of operations and financial position.

 

In May 2014, the FASB issued ASU Update 2014-09 Revenue from Contracts with Customers (Topic 606), which converged guidance on recognizing revenue in contracts with customers on an effective date after our year ending December 31, 2017. The Company is in the initial stages of evaluating the effect of the standard on our financial statements and continues to evaluate the available transition methods. However, based on our initial evaluation, we do not expect there to be material changes to our current Revenue Recognition policies due to the non-complex contracts with our customers, including the definition of our performance obligations and the transaction prices in our contracts with our customers. The Company does not plan to adopt the standard until the interim period ended March 31, 2018.

 

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. The adoption of this guidance did not 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 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. The adoption of this guidance did not have a material impact on our 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 leaves the accounting for the organization 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 Company is in the initial stages of evaluating the effect of the standard on our financial statements and continues to evaluate the available transition methods. However, based on our initial evaluation, we do not expect there to be material changes to both our current and long-term lease liabilities and our fixed assets of our limited number of operating leases that will be converted to financing leases under the new guidance. The Company does not plan to adopt the standard until the interim period ended March 31, 2019.

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718) (“ASU 2016-09”). The standard identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with early adoption permitted. The Company previously adopted ASU 2016-09.

 

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Results of Operations

 

Results of Operation for Three Months Ended March 31, 2017 as Compared to the Three Months Ended March 31, 2016

 

Revenue and cost of revenue

 

Revenue increased $36,844 (13%) from $275,326 in 2016 to $312,170 in 2017. The increase in revenue is primarily the result of the continuation of the national rollout of our product, which began during the first quarter of 2016 to all 72 of Sysco’s U.S. mainland distribution centers, as well as the addition of new customers beyond the Sysco distribution network. During the quarter ended March 31, 2017, our product was distributed through all 72 of Sysco’s distribution centers.

 

Cost of revenue for 2017 was $181,649 as compared to $140,735 in 2016. Our gross profit was $130,521 (42%) and $134,591 (49%) for 2017 and 2016, respectively. The change in our gross profit percentage was due to a change in the mix of our customer revenue, with an increasing portion of our revenue coming from larger National Accounts that are in test mode. We anticipate that our gross profit percentage for the remainder of 2017 will be comparable to the percentage for the current quarter.

 

Operating expenses

 

Our operations during 2017 and 2016 were primarily directed towards increasing sales and expanding our distribution network.

 

Our general and administrative expenses decreased $140,536 (5%) from $2,574,066 in 2016 to $2,433,530 in 2017, reflecting both lower personnel costs as a result of the November 2016 realignment of our sales force, as well as lower travel expense. The first quarter of 2016 required unusually high travel activity due to the roll-out of our product to multiple Sysco distribution centers as part of the “Cutting Edge Solution” roll-out. The following is a breakdown of our general and administrative expenses for the three months ended March 31, 2017 and 2016:

 

    three months ended
March 31, 2017
    three months ended
March 31, 2016
    Difference  
Personnel costs   $ 1,278,692     $ 1,512,304     $ (233,612 )
Stock based compensation/options     344,268       244,789       99,479  
Legal and professional fees     113,014       151,400       (38,386 )
Travel     92,861       136,758       (43,897 )
Rent     54,241       22,947       31,294  
Marketing and selling     118,658       94,015       24,643  
Consulting fees     48,945       81,592       (32,647 )
Director fees     37,500       25,000       12,500  
Research and development     114,601       68,568       46,033  
Shipping and Storage     64,154       85,960       (21,806 )
Other expenses     166,596       150,733       15,863  
    $ 2,433,530     $ 2,574,066     $ (140,536 )

 

Personnel cost represents the cost of employees including salaries, bonuses, employee benefits and employment taxes and continues to be our largest cost. Personnel cost decreased $233,612 (15%) from $1,512,304 to $1,278,692. During the first quarter of the prior year we significantly increased our sales staff primarily as a result of the national roll-out of our distribution agreement with Sysco. At the end of the prior quarter, we had 46 full time employees compared to 33 at the end of the current quarter. During the fourth quarter of 2016, we affected a restructuring of our sales force, whereby we eliminated 13 full time sales positions, and replaced the associated sales territory coverage with brokerage arrangements. This change will allow our remaining sales force to more effectively focus on pursuing larger accounts, while our expanded brokerage network will support and expand our “up and down the street” business. In addition, we expect the change to reduce our overall overhead costs by a net $1 million to $1.5 million on an annualized basis.

 

We do not anticipate any further significant changes to our personnel organization during the balance of 2017.

 

Stock based compensation is used as an incentive to attract new employees and to compensate existing employees. Stock based compensation includes stock issued and options granted to employees and non-employees. During the fourth quarter of 2016, we made additional grants to our sales force members who are remaining with the Company after our personnel restructuring, and we also made additional grants to our senior executive team, which grants had been authorized earlier in the year, for issuance after completion of the most recent bridge financing. All of these factors contributed to higher expense within the current period.

 

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L egal and professional fees decreased $ 38,386 (25%) from $151,400 in 2016 to $113,044 in 2017. The decreased was primarily due to a decrease in legal services required. We anticipate legal fees related to our business and financing activities to increase as our business continues to grow.

 

Travel expenses decreased $43,897 (32%) from $136,758 in 2016 to $92,861 in 2017. The decrease is due to higher travel expenses that were incurred during the first quarter of 2016 in connection with the Sysco Cutting Edge Solution roll-out, as well as a reduction in travel costs associated with terminated employees. We anticipate that travel expenses for the balance of this year will be consistent with the first quarter.

  

Rent expense is primarily for our location in Beverly Hills, California. Rent expense for the Beverly Hills office is approximately $10,996 per month. We have entered into a new lease for office space at 8383 Wilshire Boulevard, Beverly Hills, California. The new lease commenced on November 1, 2016 and expires in February 8, 2018.

 

Marketing and selling expenses increased $24,643 (26%) from $94,015 in 2016 to $118,658 in 2017. Higher marketing and selling expenses were primarily due to higher sales commissions paid during the current quarter.

 

Consulting fees decreased $32,647 (40%) from $81,592 in 2016 to $48,945 in 2017. Our consulting fees vary based on needs. We engage consultants in the areas of sales, operations and accounting. Future consulting fees will be variable.

 

Director fees increased $12,500 from $25,000 in 2016 to $37,500 in 2017. The increase in director fees is due to the increase in the number of our directors. Annual director fees are anticipated at $50,000 per non-employee director.

 

Research and development expenses increased $ 46,033 (67%) from $68,568 in 2016 to $114,601 in 2017. During the third quarter of 2016 we re-classified certain personnel expenses that had previously been included in Personnel Expense, to Research and Development. These expenses relate to the services performed by our Director of Manufacturing and Product Development, and consultants supporting that employee. The re-classification is shown in both the current period and the prior period. The increase in Research and Development Expense is being driven by an increased need for research and development services, as we continue to expand product offerings, both for our standard SKU’s, and for National Accounts.

 

Shipping and storage expense decreased $21,806 (25%) from $85,960 in 2016 to $64,154 in 2017. The higher expense in 2016 is due to costs incurred to better position inventory for the national roll-out with Sysco. Shipping and storage expense as a percentage of revenue decreased to 20%, as compared with 31% in the prior quarter. This improvement results from the transition to more efficient shipping options that have become available as our operations have expanded. We anticipate that shipping and storage expense as a percentage of sales will reduce during the balance of the year, as the Company is able to take advantage of more efficient distribution arrangements.

 

Other expenses consist of ordinary operating expenses such as investor relations, office, telephone, insurance, and stock related costs. We anticipate increases in certain of these expenses, as our business continues to grow.

 

We had operating losses of $2,359,040 and $2,486,222 for 2017 and 2016, respectively.

 

Interest expense decreased from $221,332 in 2016 to zero in 2017. Interest primarily relates to convertible debt that was issued in November, 2015, and converted into stock during February, 2016, and short term notes that were issued in December 2013, all of which were repaid prior to the current quarter.

 

We had ne t losses of $2,359,040 and $2,707,554 in 2017 and 2016, respectively.

 

37  
   

 

Results of Operation for the Twelve Months Ended December 31, 2016 as Compared to the Twelve Months Ended December 31, 2015

 

Revenue and Cost of Revenue

 

Revenue for 2016 was $ 1,457,499 as compared to $ 490,905 in 2015. Our business grew primarily through the expansion of our business relationship with Sysco Corporation (“Sysco”), a major broad line food distributor. We began shipping to Sysco in July 2014, and by early 2016 had our products in all 72 of Sysco’s Operating Companies. In addition in 2016 we shipped more product directly to a number of quick serve restaurants and other regional customers outside of the Sysco distribution system.

 

Cost of revenue for 2016 was $772,827 as compared to $280,648 in 2015. Our gross profit was $684,672 or 47%, for 2016 and $210,257 or 42.8% for 2015. During the first quarter of 2016, we increased our selling prices by approximately 8%, which helped drive the higher gross profit margin in 2016. We anticipate that our gross profit percentage will continue to improve in the future, as our business gains scale and as we expand our manufacturing operations.

 

Operating Expenses

 

Our operations during 2016 were directed towards increasing sales and creating and finalizing customized flavors for potential customers. The increase in our business relationship with Sysco drove an increase in our selling, marketing, and general and administrative expenses. During the first quarter of 2016, we hired additional sales personnel, to support and enhance our business relationship with Sysco, and to work with the PepsiCo North America sales force in gaining new customers and supporting existing customers. During the fourth quarter of 2016, we re-aligned our sales force to a more efficient model, by increasing the number of dedicated sales brokers that represent our products, and reducing the number of sales force employees.

 

Primarily as a result of building our sales force, general and administrative expenses increased from $6,819,183 in 2015 to $10,415,933 in 2016, an increase of $3,596,750 or 52.7%. We hired additional sales personnel during the first quarter of 2016. However during the fourth quarter of 2016 we re-aligned our sales force to increase the number of dedicated sales brokers, and reduced the number of employees. We expect our full year run rate personnel expenses to reduce by about $1.5 million on a full year run rate, beginning in 2017.

 

Following is a breakdown of our selling, marketing and general and administrative expenses for 2016 and 2015.

 

    Twelve
months ended
    Twelve
months ended
             
    December 31, 2016     December 31, 2015     Change        
Personnel costs   $ 5,560,502     $ 2,996,623     $ 2,563,879       85 %
Stock based compensation/options     1,133,149       970,575       162,574       17 %
Legal and professional fees     425,781       355,598       70,183       20 %
Travel     605,920       404,266       201,654       50 %
Rent     96,151       87,025       9,126       10 %
Marketing and selling     611,737       481,316       130,421       27 %
Investor and public relations     118,405       161,904       (43,499 )     (27 )%
Consulting fees     242,668       335,689       (93,021 )     (28 )%
Director fees     165,227       37,088       128,139       345 %
Research and development     432,146       341,998       90,148       26 %
Shipping and Storage     407,247       158,721       248,526       156 %
Other expenses     617,000       488,380       128,620       26 %
    $ 10,415,933     $ 6,819,183     $ 3,596,750       52 %

 

Personnel cost represents the cost of employees including salaries, employee benefits, car allowances, and employment taxes, and continues to be our largest expense. Personnel costs increased $2,563,879 (85%), from $2,996,623 in 2015 to $5,560,502 in 2016. We hired 26 new employees during 2015, and had 22 full time equivalent employees for 2015 when taking into consideration new employee start dates. During 2016, we hired 20 new employees, and during the fourth quarter of 2016 we re-aligned our sales force to a more efficient model, by increasing the number of dedicated sales brokers that represent our products, and reducing the number of sales force employees. When taking into consideration start dates for new employees, and separation dates for those employees who left our workforce, we had 43 full time equivalent employees during 2016. The increase in personnel costs is due to the increase in full time equivalent employees from 2015 to 2016. At December 31, 2016, we had 34 full time employees, as compared to 33 at December 31, 2015. We do not anticipate adding any significant additional personnel during the balance of 2017.

 

38  
   

 

Stock based compensation is used as an incentive to attract new employees and to compensate and retain existing employees. Stock based compensation includes stock issued and stock options granted to employees and certain non-employees, and increased $162,574 (17%) from $970,575 in 2015 to $1,133,149 in 2016. The fair value of the stock grants is based on the trading value of our shares on the date of the grants and are being amortized over applicable vesting periods. We anticipate making additional grants in the future.

 

Legal and professional fees, which include accounting and legal services, increased $70,183 (20%) from $355,598 in 2015 to $425,781 in 2016. We anticipate legal fees related to ongoing legal compliance to remain comparable to 2016.

 

Travel and entertainment expenses increased $201,654 (50%) from $404,266 in 2015 to $605,920 in 2016. The increase is due to an increase in business activity and an increase in the number of personnel traveling on company business.

 

Consulting fees decreased from $335,689 in 2015 to $242,668 in 2016, a decrease of $93,021 or 28%. A number of individuals who worked as consultants during a portion of 2015 became employees during the prior period. We anticipate consulting costs to continue to decline during 2017.

 

Investor and public relations fees decreased $43,499 (27%), from $161,904 in 2015 to $118,405 in 2016. Our investor relations services are incurred on a monthly retainer basis. We expect investor relations costs to be relatively constant in 2017 on a full year basis.

 

Rent expense increased $9,126 from $87,025 in 2015 to $96,151 in 2016. Rent expense is primarily incurred for our Headquarters location in Beverly Hills, California. During September of 2016 we relocated our Headquarters location to larger sub-leased premises in Beverly Hills, where the monthly rent is currently $10,996, increasing to $11,326 on November 1, 2017. The sub-lease expires on February 28, 2018. We have entered into a direct lease on the same premises beginning on March 1, 2018, expiring March 31, 2019, at a monthly rent of $14,487.

  

The Company incurred research and development expenses for the year ended December 31, 2016, in the amount of $432,146, and for the year ended December 31, 2015 in the amount of $341,998. During the quarter ended September 30, 2016, we re-classified certain personnel expenses that had previously been included in personnel expense, to Research and Development These expenses relate primarily to the services performed by our Director of Manufacturing and Product Development, and supporting consultant expenses. The re-classification is shown in both the current period and the prior period. 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.

 

We anticipate this cost continuing in future periods, at an increased rate as compared with 2016.

 

Director fees for 2016 were $165,227 as compared with $37,088 in 2015. The increase is primarily due to an increase of the number of our directors during 2016. We currently pay our non-employee directors $50,000 per year. These fees can either be paid in cash, or in stock or stock options, at the election of the director.

 

Other expenses consist of ordinary operating expenses such as office, telephone, insurance, and other similar expenses. These expenses directly correlate to our overall business activity. We expect these expenses to continue to increase during 2017 as our business grows.

 

Operating loss was $9,939,875 in 2016, and $6,783,818 in 2015.

 

Interest expense was $250,850 in 2016, as compared with $424,245 in 2015. Interest expense for 2015 primarily relates to convertible debt that was issued in August 2012, and renewed in September 2013, and short term notes that were issued in December 2013 and renewed in December 2014. The stated interest rate on the convertible debt during 2015 was 12%. Interest expense for 2016 relates to $2,670,000 of convertible debt that was issued during September of 2015, the majority of which was converted to equity during the first quarter of 2016. The stated interest rate on the convertible debt issued during September of 2015 was 10%.

 

Net loss was $10,190,725 in 2016, and $7,225,920 in 2015.

 

39  
   

 

Liquidity and Capital Resources

 

As of December 31, 2016, we had a working capital surplus of $8,751,702, primarily due to the equity investment made by Unibel during the fourth quarter of 2016.

 

During the twelve month period ended December 31, 2016, we used cash of $8,024,788 in operations, $1,053,498 for the purchase of equipment, net of sales of equipment, and $64,089 for patents and trademarks. During the three months ended March 31, 2017 we used cash for operations of $1,614,825 and also purchased equipment for $146,440.

 

Our liquidity needs will depend on how quickly we ramp up sales through our relationships with Sysco and PepsiCo.

 

During 2016 we issued 28,277,329 shares of our common stock (“Shares”) and warrants to purchase 14,033,438 Shares (“Warrants”) for aggregate gross proceeds to the Company of $18,812,690. Of these total amounts 24,598,674 Shares were issued for cash of $16,457,150; 3,502,327 Shares were issued for Conversion of Debt in the amount of $2,242,692; and 176,328 Shares were issued in settlement of debt in the amount of $112,849. Of the total 14,033,438 Warrants issued during 2016, 3,877,186 are priced at $1,00; 7,812,500 are priced at $0.88, and 2,343,752 are priced at $.0.75. The 2016 financing activity occurred in three separate private placements with accredited investors. In the first transaction, we issued 7,754,373 Shares and five year Warrants priced at $1.00 to purchase up to 3,877,186 Shares, for aggregate gross proceeds to the Company of $6,203,498. The first transaction consists of two components: a new equity raise in the amount of $3,570,000 and the conversion into common equity of $2,633,498 of principal and interest of convertible promissory notes previously issued during the fourth quarter of 2016. In the second transaction, we sold 4,687,504 Shares and five year Warrants priced at $.75 to purchase up to 2,343,752 Shares, for aggregate gross proceeds to the Company of $3,000,000. In the third transaction we sold 15,625,000 Shares, and five year Warrants priced at $.88 to purchase up to 7,812,500 shares for aggregate gross proceeds to the Company of $10,000,000. During 2016 we also converted $52,613 of debt into 210,455 shares of stock, related to a note that was settled for most investors during 2015.

 

Our operations to date have been financed by the sale of securities, the issuance of convertible debt and the issuance of short-term debt, including related party advances. If we are unable to generate sufficient cash flow from operations with the capital raised we will be required to raise additional funds either in the form of capital or in the form of debt. There are no assurances that we will be able to generate the necessary capital to carry out our current plan of operations.

 

We lease office space under a non-cancellable operating sub-lease, which expires February 28, 2018, and we have entered into a direct lease for the same premises covering the period March 1, 2018 to March 31, 2019.

 

The aggregate minimum requirements under non-cancelable leases as of March 31, 2017 is $310,557.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

 

40  
   

 

DESCRIPTION OF PROPERTY

 

Our principal executive offices are located at 8383 Wilshire Blvd., Suite 750, Beverly Hills, CA 90211. We lease this office space for $10, 996.65 per month, increasing to $11,326.55 per month as of November 1, 2017. We lease the office space under a non-cancelable operating lease, which expires February 28, 2018, and we have entered into a direct lease for the same premises covering the period March 1, 2018 to March 31, 2019.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

The following includes a summary of transactions since the beginning of fiscal 2011, 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 1,297,500 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.

 

On September 28, 2016, we closed a private placement to accredited investors of 4,687,504 shares of common stock at $.64 per share, and warrants to purchase up to 2,343,752 shares of common stock, for aggregate proceeds to the Company of $3,000,000. Of the aggregate offering amount, 371,639 shares and 185,819 warrants, were placed with members of the Company’s management, including officers and directors of the Company, and family members of certain officers and directors.

 

The acquisition of the international patents on October 15, 2013 was funded through an advance of $672,157 from an affiliate of Steven Lang at an interest rate of 6.0%. Two hundred thousand ($200,000) of the advances were satisfied through the participation of Riccardo Delle Coste and Steven Lang, separately through their affiliates, in the Company’s December 20, 2013 private placement of notes and warrants. Five-year warrants to purchase 333,334 shares of common stock at an exercise price of $0.45 per share were issued to each of these related parties as part of their investment. The related parties participated in the offering upon the same terms offered to other investors. The balance of the remaining loan, plus accrued interest of $5,617, was paid in full and in cash by the Company prior to the end of 2013.

 

Lazarus Investment Partners LLP, a greater than 10% shareholder of the Company (“Lazarus”) participated in the private placement that closed on December 20, 2013. Lazarus purchased a 2%, one-year $500,000 note and five-year warrants to purchase 833,333 shares of common stock at an exercise price of $0.45 in this offering.

 

During the period beginning April 1, 2010 and ending March 31, 2012, a related party that is under common control of Riccardo Delle Coste and Steven Lang made advances to us of $144,011. These advances were non-interest bearing. As of March 31, 2012, we repaid these advances. The company under common control was located in Australia and was in the same line of business of the Company; however, at the time, we did not conduct business in the same territories.

 

Pursuant to the Share Exchange Agreement dated January 10, 2012 we issued 37,333,328 shares of our common stock to Riccardo Delle Coste and Steven Lang, through the entities that they controlled. Accordingly, Riccardo Delle Coste and Steven Lang, together, control more than 50% of the votes eligible to be cast by shareholders in the election of directors and generally. Immediately following the share exchange, Messrs. Delle Coste and Lang became our principal shareholders and were appointed as members of our board of directors.

 

In December 2009 we entered into a contract whereby entities controlled by Riccardo Delle Coste and Steven Lang agreed to assign to us certain intellectual property related to certain patent applications filed in the United States and Canada in respect to the ingredient pack for an individual smoothie. The assignment was completed in November 2011. We issued two shares of our common stock in consideration for such assignment.

 

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.

 

41  
   

 

EXECUTIVE COMPENSATION

 

The following table summarizes all compensation for the fiscal year ending December 31, 2016 (“2016”) and Transition Period, 9 months ending December 31, 2015 (“12/2015”) received by our “Named Executive Officers”:

 

Name and
Principal
Position
  Period   Salary
($)
    Bonus
(1)
($)
    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
  2016     364,583       43,750       57,118 (2)     158,750 (3)                     11,700 (4)     635,901  
    12/2015     289,583                                               7,200 (4)     296,783  
                                                                     
Joseph Cugine, President, Barfresh Corp. Inc. a wholly owned subsidiary   2016     300,000       25,137       32,818 (5)     139,382 (6)                             497,337  
    12/2015     212,500                600,000 (7)     310,420 (8)                     41,667 (9)     1,164,587  
                                                                     
Joseph Tesoriero, Chief Financial Officer   2016     290,000       19,488       25,443 (10)     95,646 (11)                             430,577  
    12/2015     156,250               287,000 (12)     435,403 (13)                             878,653  

 

1. Represents discretionary bonuses for fiscal year 2015 that were paid during fiscal year 2016. Whether or not bonuses will be paid for fiscal year 2016 is discretionary and has not yet been determined.
   
2. Represents 121,527 shares of restricted stock valued using the Black-Scholes pricing model. The shares were granted on December 12, 2016 and vest ratably over the next three years.
   
3. Represents two stock option grants: (1) 250,000 options shares issued 5/25/2016, with an exercise price of $0.61, which vest ratably over the next three years and are exercisable until 5/25/2024 and (2) 125,000 options issued on 11/25/2016, with an exercise price of $0.72, which vest ratably over the next three years and are exercisable until 11/25/2024.
   
4. Represents the car allowance paid to Mr. Delle Coste.
   
5. Represents 69,825 shares of restricted valued using the Black-Scholes pricing model. The shares were granted on 12/12/2016 and vest ratably over the next three years.
   
6. Represents two stock option grants: (1) 250,000 options issued on 5/25/2016, with an exercise price of $0.61, which vest ratably over the next three years and are exercisable until 5/25/2024 and (2) 83,791 options issued on 11/25/2016, with an exercise price of $0.72, which vest ratably over the next three years and are exercisable until 11/25/2024.
   
7. 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.
   
8. 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.
   
9. Represents consulting fees paid to Mr. Cugine prior to becoming an employee.
   
10. Represents 54,133 shares of restricted stock valued using the Black-Scholes pricing model. The shares were granted on December 12, 2016 and vest ratably over the next three years.
   
11. Represents two stock option grants: (1) 175,000 options issued on 5/25/2016, with an exercise price of $0.61, which vest ratably over the next three years and are exercisable until 5/25/2024 and (2) 54,567 options issued on 11/25/2016, with an exercise price of $0.72, which vest ratably over the next three years and are exercisable until 11/25/2024.
   
12. 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.
   
13. 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.

 

42  
   

 

Outstanding Equity Awards at Fiscal Year-End Table

 

Option Awards   Stock Awards  
Name     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 (#)
 
Riccardo Delle Coste     300,000 (1)     1       0.45     1/21/20             1       1  
      250,000 (2)             0.61     5/25/24                        
      125,000 (3)             0.72     11/25/24                        
                                  121,527                  
                                                     
Joseph Cugine     600,000 (4)             0.50     5/1/23     1,000,000       875,000          
      250,000 (5)             0.61     5/25/24                        
      83,791 (6)             0.72     11/25/24                        
                                  69,825                  
                                                     
Joseph Tesoriero     500,000 (7)             0.82     5/1/23     350,000       306,250          
      175,000 (8)             0.61     5/25/24                        
      54,567 (9)             0.72     11/25/24                        
                                  54,133                  

 

1. Fully vested.
   
2. Vest in equal increments on 5/25/2017, 5/25/2018 and 5/25/2019.
   
3. Vest in equal increments on 11/25/2017, 11/25/2018, and 11/25/2019.
   
4. Vest in equal increments on 5/1/2017 and 5/1/2018.
   
5. Vest in equal increments on 5/25/2017, 5/25/2018 and 5/25/2019.
   
6. Vest in equal increments on 11/25/2017, 11/25/2018 and 11/25/2019.
   
7. Vest in equal increments on 5/18/2017 and 5/18/2018.
   
8. Vest in equal increments on 5/25/2017, 5/25/2018 and 5/25/2019.
   
9. Vest in equal increments on 11/25/2017, 11/25/2018, and 11/25/2019.

 

43  
   

 

Compensation of Directors

 

The following table summarizes the compensation paid to our directors that were not employees for the fiscal year ended December 31, 2016. A director who is a Company employee does not receive any compensation for service as a director. The compensation received by directors that are employees of the Company is shown above in the summary compensation table. We reimburse all directors for expenses incurred in their capacity as directors.

 

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     50,000                                     70,000 (1)     120,000  
Steven Lang                   50,000                               50,000  
Alice Elliot                   50,000                               50,000  
                                                       
Alex Ware           23,561 (2)                                        
Isabelle Ortiz-Cochet             (3)                                        

 

(1) Represents consulting fees paid to Mr. Tinter.
   
(2) Mr. Ware joined the board on July 13, 2016.
   
(3) Ms. Ortiz-Cochet joined the board on December 16, 2016, and has elected to receive Stock Options for her service beginning in 2017.

 

Employment Agreements

 

On April 27, 2015, The Company entered into an executive employment agreement with Riccardo Delle Coste, its Chief Executive Officer and director. 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.

 

44  
   

 

On April 27, 2015, Smoothie entered into an executive employment agreement with Joseph M. Cugine to serve as President of Smoothie, Inc. 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.

 

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

There were no changes in or disagreements with our accountants on accounting and financial disclosure during the last two fiscal years, the fiscal year ending December 31, 2016 and the Transition Period ending December 31, 2015.

 

MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

 

Market Information

 

Our common stock is currently traded on the OTCQB under the symbol “BRFH”. Our common stock had been quoted on the OTC Bulletin Board since July 27, 2011 under the symbol MVBX. Effective February 29, 2012, our symbol changed to BRFH based on the forward split and name change. On March 21, 2012, our common stock was delisted to Pink Sheets. On January 21, 2014, we registered our common stock under Section 12(g) of the Exchange Act. The following table sets forth the range of high and low bid quotations for the applicable period. These quotations as reported by the OTCQB reflect inter-dealer prices without retail mark-up, markdown or commissions and may not necessarily represent actual transactions.

 

    Bid Quotation  
Financial Quarter Ended   High ($)     Low ($)  
           
March 31, 2017     0.83       0.52  

December 31, 2016

    0.83      

0.56

 

September 30, 2016

   

0.76

     

0.55

 
June 30, 2016    

0.86

     

0.55

 
March 31, 2016     0.91       0.72  
December 31, 2015     1.13       0.41  
September 30, 2015     0.79       0.52  
June 30, 2015     0.91       0.50  
March 31, 2015     0.64       0.42  
December 31, 2014     0.72       0.39  

 

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Holders

 

At June 14 , 2017, there were 118,322,070 shares of our common stock outstanding. Our shares of common stock are held by approximately 103 stockholders of record. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers and registered clearing agencies.

 

Dividends

 

We have never declared or paid a cash dividend. Any future decisions regarding dividends will be made by our board of directors. We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Our board of directors has complete discretion on whether to pay dividends. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

The following table provides information, as of December 31, 2016, with respect to equity securities authorized for issuance under our equity compensation plans:

 

Plan Category   Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options,
Warrants and
Rights
(a)
    Weighted-Average
Exercise Price of
Outstanding
Options, Warrants
and Rights
(b)
    Number of
Securities
Remaining
Available for
Future Issuance
Under Equity
Compensation
 Plans (excluding
securities reflected
in Column (a))(c)
 
                   
Equity compensation plans approved by security holders     4,562,422     $ 0.58       10,437,558  
Equity compensation plans not approved by security holders     800,000     $ 0.50       0  
                         
TOTAL     5,362,442     $ 0.57       10,437,558  

 

Transfer Agent

 

Our transfer agent, Action Stock Transfer, is located at 2469 E. Fort Union Blvd, Suite 214, Salt Lake City, Utah 84121, and its telephone number is (801) 274-1088.

 

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WHERE YOU CAN FIND ADDITIONAL INFORMATION

 

We have filed with the SEC a registration statement on Form S-1, including exhibits and schedules, under the Securities Act, with respect to the shares of common stock being offered by this prospectus. This prospectus, which constitutes part of the registration statement, does not contain all of the information in the registration statement and its exhibits. For further about the Company and the common stock offered by this prospectus, we refer you to the registration statement and its exhibits. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.

 

You can read our SEC filings, including the registration statement, over the Internet at the SEC’s website at www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities at 100 F Street, NE, Washington, D.C. 20549. You may also obtain copies of these documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, NE, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. You may also request a copy of these filings, at no cost, by writing us at 8383 Wilshire Blvd., Suite 750, Beverly Hills, CA 90211 or calling us at (310) 598-7113.

 

We are subject to the information reporting requirements of the Securities Exchange Act of 1934, as amended, and we will file reports, proxy statements and other information with the SEC. These reports, proxy statements and other information will be available for inspection and copying at the public reference room and web site of the SEC referred to above. We also maintain a website at www.barfresh.com/us/ , at which you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information contained on or accessible through our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.

 

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Index to Consolidated Financial Statements

 

    Page
     
INTERIM FINANCIAL STATEMENTS  
     
Consolidated Balance Sheets as of March 31, 2017 (unaudited)   F-1
     
Condensed Consolidated Statements of Operations For the Three Months Ended March 31, 2017 and March 31, 2016 (unaudited)   F-2
     
Condensed Consolidated Statements of Cash Flows For the Three Months ended Ended March 31, 2017 and 2016 (unaudited)   F-3
     
Notes to Condensed Consolidated Financial Statements (unaudited)   F-4 
     
ANNUAL AND TRANSITIONAL FINANCIAL STATEMENTS    
     
Report of Independent Registered Public Accounting Firm   F-9
     
Consolidated Balance Sheets as of December 31, 2016 and 2015   F-10
     
Consolidated Statements of Operations for the Year Ended December 31, 2016 and the Nine Months Ended December 31, 2015   F-11
   
Consolidated Statements of Stockholders’ Equity for the Period from April 1, 2015 to December 31, 2016   F-12
     
Consolidated Statements of Cash Flows for the Year Ended December 31, 2016 and the Nine Months Ended December 31, 2015   F-13
     
Notes to Consolidated Financial Statements   F-14

 

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Barfresh Food Group Inc.

Condensed Consolidated Balance Sheets

 

    March 31, 2017     December 31, 2016  
    (Unaudited)     (Audited)  
Assets                
Current assets:                
Cash   $ 7,449,931     $ 9,180,947  
Accounts Receivable     237,015       131,088  
Inventory     275,781       317,948  
Prepaid expenses and other current assets     96,468       25,864  
Total current assets     8,059,195       9,655,847  
Property, plant and equipment, net of depreciation     1,599,346       1,494,478  
Intangible asset, net of amortization     609,596       619,863  
Deposits     48,758       53,202  
Total Assets