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What changed in BARFRESH FOOD GROUP INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of BARFRESH FOOD GROUP INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+121 added−117 removedSource: 10-K (2024-03-22) vs 10-K (2023-03-02)

Top changes in BARFRESH FOOD GROUP INC.'s 2023 10-K

121 paragraphs added · 117 removed · 63 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

9 edited+1 added−3 removed13 unchanged
Biggest changeArmed Forces and is currently in contract with and selling its bulk Easy Pour products into over one hundred military bases in the United States and abroad. The Company’s single serve format features portion controlled and ready-to-blend beverage ingredient packs or “beverage packs”.
Biggest changeThe Company’s single-serve format features portion controlled and ready-to-blend beverage ingredient packs or “beverage packs”.
The Company utilizes contract manufacturers. Before entering into any manufacturing contracts, the Company determines that the manufacturer meets all government requirements. Environmental Laws The Company does not believe that it is subject to any environmental laws, either state or federal. Compliance with any laws concerning manufacturing is the responsibility of the contract manufacturer.
Before entering into any manufacturing contracts, the Company determines that the manufacturer meets all government requirements. 5 Environmental Laws The Company does not believe that it is subject to any environmental laws, either state or federal. Compliance with any laws concerning manufacturing is the responsibility of the contract manufacturer.
The Company has a “no sugar added” version of the bulk “Easy Pour” format, WHIRLZ 100% Juice Concentrate, that is specifically targeted for the aforementioned USDA national school meal programs. In addition, the Company received approval from the United States Defense Logistics Agency (“DLA”) to sell its smoothie products into all branches of the U.S.
The Company has a “no sugar added” version of the bulk “Easy Pour” format that is specifically targeted for the aforementioned USDA national school meal programs. In addition, the Company received approval from the United States Defense Logistics Agency (“DLA”) to sell its smoothie products into all branches of the U.S.
The increase in Research and Development expenses was primarily attributable to the launch of the Company’s Twist & Go ™ cartons, as well as costs incurred to investigate the quality issues experienced with the Manufacturer, more fully described in Item 7, Competition There is significant competition in the smoothie market at both the institutional and consumer purchasing level.
Research and Development expenses in 2022 were primarily attributable to the launch of the Company’s Twist & Go™ cartons, as well as costs incurred to investigate the quality issues experienced with the Manufacturer, more fully described in Item 7. Competition There is significant competition in the smoothie market at both the institutional and consumer purchasing level.
In addition, the Company purchased all of the trademarks related to the patented products. 5 Governmental Approval and Regulation While the Company is not aware of the need for any governmental approvals to manufacture or distribute its products, manufacturing products which meet the criteria of the USDA’S national school meal program and USDLA is critical to the Company’s business plan.
Governmental Approval and Regulation While the Company is not aware of the need for any governmental approvals to manufacture or distribute its products, manufacturing products which meet the criteria of the USDA’S national school meal program and USDLA is critical to the Company’s business plan. The Company utilizes contract manufacturers.
The beverage packs contain all the 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.
The beverage packs contain all the 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. 4 Distribution The Company conducts sales through several channels, including National Accounts, Regional Accounts, and Broadline Distributors.
In February 2023, Barfresh terminated the agreement. Such termination is not anticipated to have a significant impact on sales. Manufacturing Barfresh utilizes contract manufacturers to manufacture all of its products in the United States. Research and Development The Company incurred approximately $382,000 and $245,000, in research and development expenses for the years ended December 31, 2022 and 2021, respectively.
Manufacturing Barfresh utilizes contract manufacturers to manufacture all of its products in the United States. Research and Development The Company incurred approximately $115,000 and $382,000 in research and development expenses for the years ended December 31, 2023 and 2022, respectively.
Employees As of March 1, 2023, the Company has 13 employees and 3 consultants.
Employees As of March 18, 2024, the Company has 10 employees and 3 consultants.
Intellectual Property Barfresh owns the domestic and international property rights to its products’ sealed pack of ingredients used in its single serve products. 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.
Intellectual Property Barfresh owns the domestic and international property rights to its products’ sealed pack of ingredients used in its single serve products. Patents in the United States and Australia are in effect through 2025.
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Distribution The Company conducts sales through several channels, including National Accounts, Regional Accounts, and Broadline Distributors. 4 On October 26, 2015, Barfresh signed a five-year 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.
Added
Armed Forces and is currently in contract with and selling its bulk Easy Pour products into over one hundred military bases in the United States and abroad. Additionally, the Company offers WHIRLZ 100% Juice concentrate, which is sold at ambient temperatures and mixed in beverage dispensing equipment on a 5:1 ratio.
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The United States patent was originally filed on December 4, 2007 and it was granted during August of 2017. The Canadian patent was originally filed on August 16, 2005 and it was granted on May 27, 2014.
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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.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

36 edited+30 added−11 removed70 unchanged
Biggest changeMost of our suppliers and manufacturers produce similar products for other companies, and our products may represent a small portion of their businesses. Further, it takes a newly engaged manufacturer typically up to nine months of retrofitting/ preparation before it can begin producing our products.
Biggest changeFurther, it takes a newly engaged manufacturer typically up to nine months of retrofitting/ preparation before it can begin producing our products. We have contracts in place to produce sufficient units to meet projected demand; however, if one of our manufacturers fails to perform, we would be faced with a significant interruption in our supply chain.
We cannot assure you that we will be able to secure our fruit supply. 9 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.
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.
As discussed in Item 9A – “Controls and Procedures” of this Form 10-K, we have re-evaluated our internal control over financial reporting and our disclosure controls and procedures and concluded that they were not effective as of December 31, 2022.
As discussed in Item 9A – “Controls and Procedures” of this Form 10-K, we have re-evaluated our internal control over financial reporting and our disclosure controls and procedures and concluded that they were not effective as of December 31, 2023.
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.
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.
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.
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. 13 Our common stock is subject to price volatility unrelated to our operations.
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.
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.
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.
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 including uncertainty resulting from war, terrorism or contagious disease.
At present, members of our board of directors and/or their affiliated entities control over 60% of the outstanding shares of voting stock, and therefore have the power to control all matters requiring the approval of our stockholders, including the election of directors and the approval of mergers and other significant corporate transactions. 12 Item 1B. Unresolved Staff Comments. Not applicable.
At present, members of our board of directors and/or their affiliated entities control over 60% of the outstanding shares of voting stock, and therefore have the power to control all matters requiring the approval of our stockholders, including the election of directors and the approval of mergers and other significant corporate transactions.
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.
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.
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.
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. 10 We have identified a material weakness in our disclosure controls and procedures and internal control over financial reporting.
Accordingly, we cannot predict the timing or quantity of purchases by any of our independent distributors or whether any of our distributors will continue to purchase products from us in the same frequencies and volumes as they may have done in the past.
Our distributors are not required to place minimum monthly or annual orders for our products. Accordingly, we cannot predict the timing or quantity of purchases by any of our independent distributors or whether any of our distributors will continue to purchase products from us in the same frequencies and volumes as they may have done in the past.
These assessments and estimates are based on the information available to management at the time and involve a significant amount of management judgment. Actual outcomes or losses may differ materially from those envisioned by our current assessments and estimates.
Based on these assessments and estimates, we establish reserves and disclose the relevant litigation claims or legal proceedings, as appropriate. These assessments and estimates are based on the information available to management at the time and involve a significant amount of management judgment. Actual outcomes or losses may differ materially from those envisioned by our current assessments and estimates.
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.
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.
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.
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. Our use of information technology and third-party service providers exposes us to cybersecurity breaches and other business disruptions.
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. The impact of COVID-19 on the Company is constantly evolving.
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. Beginning in March 2020, the COVID-19 pandemic had a significant impact on the Company.
Such bans precluded our single serve products from being served at those establishments for a number of weeks, and in some instances, resulted in abandoned product launches. Furthermore, many school districts closed regular attendance for a period of time thereby disrupting sales of product into that channel.
Specifically, our business was impacted by dining bans targeted at restaurants to reduce the size of public gatherings. Such bans precluded our single-serve products from being served at those establishments and in some instances, resulted in abandoned product launches. Furthermore, many school districts closed regular attendance for a period of time thereby disrupting sales of product into that channel.
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.
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. Litigation or legal proceedings could expose us to significant liabilities and damage our reputation.
If adequate funds are not available or if they are not available on acceptable terms, our ability to fund the growth of our operations, take advantage of opportunities, develop products or services or otherwise respond to competitive pressures, could be significantly limited. 6 Issues with a manufacturer have resulted in a significant loss for 2022, as well as other negative impacts.
If adequate funds are not available or if they are not available on acceptable terms, our ability to fund the growth of our operations, take advantage of opportunities, develop products or services or otherwise respond to competitive pressures, could be significantly limited.
Failure to take adequate steps to protect against or mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, could adversely affect our business, financial condition and results of operations. Our experience with the Manufacturer demonstrates how our reliance on a limited number of manufacturers and suppliers further increases this risk.
Failure to take adequate steps to protect against or mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, could adversely affect our business, financial condition and results of operations.
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.
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.
If we overestimate distributor or retailer demand for our products, we may end up with too much inventory, resulting in higher storage costs, increased trade spending and the risk of inventory spoilage.
If we materially underestimate demand for our products or are unable to maintain sufficient inventory, we might not be able to satisfy demand on a short-term basis. If we overestimate distributor or retailer demand for our products, we may end up with too much inventory, resulting in higher storage costs, increased trade spending and the risk of inventory spoilage.
The results for 2022 reflect the estimated accounting impact of these actions, including $493,000 in refunds and administrative fees due to customers and $932,000 to dispose of unsaleable inventory. In addition to the accounting impact, we must obtain suitable replacement contract manufacturers and regain the confidence of our customers and investing public, all while seeking a resolution with the Manufacturer.
In addition to the accounting impact, we must obtain suitable replacement contract manufacturers and regain the confidence of our customers and investing public, all while seeking a resolution with the Manufacturer.
Provisions in our Company 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.
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. 14 Provisions in our Company 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.
Our failure to develop or license a substitute technology could prevent us from selling our products. 10 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.
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.
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.
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.
Improper conduct by our employees or agents could damage our reputation or lead to litigation or legal proceedings that could result in civil or criminal penalties, including substantial monetary fines, as well as disgorgement of profits.
Improper conduct by our employees or agents could damage our reputation or lead to litigation or legal proceedings that could result in civil or criminal penalties, including substantial monetary fines, as well as disgorgement of profits. 9 Our litigation with Manufacturer was voluntarily withdrawn from the court system in January 2023 and refiled in August 2023, as we were unable to reach a suitable resolution.
Litigation or legal proceedings could expose us to significant liabilities and damage our reputation. We may become party to litigation claims and legal proceedings. Litigation involves significant risks, uncertainties and costs, including distraction of management attention away from our business operations.
We may become party to litigation claims and legal proceedings. Litigation involves significant risks, uncertainties and costs, including distraction of management attention away from our business operations. We evaluate litigation claims and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses.
We cannot assure you that brokerage firms will want to conduct any secondary offerings on behalf of our Company in the future. 11 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 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.
These tasks require substantial amounts of personnel and capital resources. As of the filing of this report, we are unable to predict the impact on our results for the 2023 fiscal year. We may need additional financing in the future, which may not be available when needed or may be costly and dilutive.
These tasks have required substantial amounts of personnel and capital resources in 2023 with ongoing activities expected in 2024. 6 We may need additional financing in the future, which may not be available when needed or may be costly and dilutive. We may require additional financing to support our working capital needs in the future.
As described more fully in Item 7, we experienced product quality issues with a contract manufacturer (the “Manufacturer”) that provided approximately 52% and 42% of our products in the years ended December 31, 2022 and 2021. Complaints from customers led us to withdraw product from the market and destroy existing inventory.
Issues with a manufacturer have resulted in a significant loss for 2022 and 2023, as well as other negative impacts. As described more fully in Item 7, we experienced product quality issues with a contract manufacturer (the “Manufacturer”) that provided approximately 52% of our products in the year ended December 31, 2022.
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 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.
Additionally, our larger distributors and partners may make orders that are larger than we have historically been required to fill. Shortages in inventory levels, supply of raw materials or other key supplies could negatively affect us.
Additionally, our larger distributors and partners may make orders that are larger than we have historically been required to fill.
We have contracts in place to produce sufficient units to meet projected demand; however, if one of our manufacturers fails to perform, we would be faced with a significant interruption in our supply chain. If one of our manufacturers or suppliers fails to perform or deliver products, for any reason, our sales and results of operations could be adversely affected.
If one of our manufacturers or suppliers fails to perform or deliver products, for any reason, our sales and results of operations could be adversely affected.
It is difficult to predict the timing and amount of our sales because our distributors and national accounts may not be required to place minimum orders with us. Our distributors are not required to place minimum monthly or annual orders for our products.
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. It is difficult to predict the timing and amount of our sales because our distributors and national accounts may not be required to place minimum orders with us.
Disruption within our supply chain, contract manufacturing or distribution channels could have an adverse effect on our business, financial condition and results of operations. Our ability, through our suppliers, business partners, contract manufacturers, independent distributors and retailers, to produce, transport, distribute and sell products is critical to our success.
Our ability, through our suppliers, business partners, contract manufacturers, independent distributors and retailers, to produce, transport, distribute and sell products is critical to our success.
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. 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.
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. We may not be able to continue to comply with Nasdaq listing standards.
Removed
The direct impact to our operations had begun to take effect at the close of the first quarter ended March 31, 2020. Specifically, our business was impacted by dining bans targeted at restaurants to reduce the size of public gatherings.
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In 2022 and 2023, we experienced supply chain interruptions and inflation for component and transportation costs. We believe that the impact of the pandemic has substantially abated, but will continue to monitor and assess developments. Risks Related to Our Business We have a history of operating losses.
Removed
More recently, we have experienced a disruption in the supply chain for manufacturing our products due to COVID-19. The developments surrounding COVID-19 remain fluid and dynamic, and consequently, will require the Company to continue to monitor news headlines from government and health officials, as well as, the business community.
Added
Complaints from customers led us to withdraw product from the market and destroy existing inventory. The results for 2022 reflect the estimated accounting impact of these actions, including $493,000 in refunds and administrative fees due to customers and $932,000 to dispose of unsaleable inventory.
Removed
We may require additional financing to support our working capital needs in the future.
Added
Shortages in inventory levels, supply of raw materials or other key supplies could negatively affect us. 7 Disruption within our supply chain, contract manufacturing or distribution channels could have an adverse effect on our business, financial condition and results of operations.
Removed
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. 7 The recent global coronavirus outbreak could harm our business and results of operations. In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic.
Added
During the fourth quarter of 2023, the beverage industry began experiencing a shortage of 4-ounce and 8-ounce cartons, directly impacting our “Twist & Go”™ product. As of the date of this report, the shortage is continuing and could impair the ability of our manufacturers to fulfill orders that we place with them and/or increase our costs.
Removed
This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, customers, economies, and financial markets globally, potentially leading to an economic downturn. It has also disrupted the normal operations of many businesses, including ours.
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If we are unable to pass on any increased costs, our gross margin will decrease. Our experience with the Manufacturer demonstrates how our reliance on a limited number of manufacturers and suppliers further increases this risk. Most of our suppliers and manufacturers produce similar products for other companies, and our products may represent a small portion of their businesses.
Removed
This outbreak could decrease spending, adversely affect demand for our product and harm our business and results of operations. It is not possible for us to predict the duration or magnitude of the adverse results of the outbreak and its effects on our business or results of operations at this time.
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While we believe that that our claims have merit, there is no assurance of a favorable outcome to this case. Our inability to protect our intellectual property rights may force us to incur unanticipated costs.
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If we materially underestimate demand for our products or are unable to maintain sufficient inventory of raw materials, we might not be able to satisfy demand on a short-term basis.
Added
We use information technology and third-party service providers to support our business processes and activities, including supporting critical business operations such as manufacturing and distribution; communicating with our suppliers, customers and employees; maintaining effective accounting processes and financial and disclosure controls; executing corporate transactions; conducting research and development activities; and meeting regulatory, legal and tax requirements.
Removed
We evaluate litigation claims and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses. Based on these assessments and estimates, we establish reserves and disclose the relevant litigation claims or legal proceedings, as appropriate.
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Shared service centers managed by third parties provide an increasing number of services important to conducting our business, including accounting, internal control, human resources and computing functions.
Removed
While the litigation with the Manufacturer has been voluntarily moved from the court system, there is no assurance that we will be able to reach a suitable resolution with the Manufacturer and not be forced to refile our case with the court. We have identified a material weakness in our disclosure controls and procedures and internal control over financial reporting.
Added
Continuity of business applications and services has been, and may in the future be, disrupted by events such as infection by viruses or malware; other cybersecurity attacks; issues with or errors in systems’ maintenance or security; power outages; hardware or software failures; denial of service attacks; telecommunication failures; natural disasters; terrorist attacks; and other catastrophic occurrences.
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Our common stock is subject to price volatility unrelated to our operations.
Added
Our use of new and emerging technologies such as cloud-based services and mobile applications continues to evolve, presenting new and additional risks in managing access to our data, relying on third parties to manage and safeguard data, ensuring access to our systems and availability of third-party systems.
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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.
Added
In addition, we are experiencing new and more frequent attempts by third parties to gain access to our systems, such as through increased email phishing of our workforce. 11 We leverage third parties for various technology and business services who may experience cybersecurity breaches, whether from circumvention of security systems, denial-of-service attacks or other cyberattacks such as hacking, phishing attacks, computer viruses, ransomware or malware, cyber extortion, employee or insider error, malfeasance, social engineering, physical breaches or other actions or attempts to exploit vulnerabilities may cause confidential information or Personally Identifiable Information belonging to us or our employees, customers, consumers, partners, suppliers, or governmental or regulatory authorities to be misused or breached.
Added
These risks could be magnified since the number of employees, contractors and others working outside of offices increased since the COVID-19 pandemic. Additionally, continued geopolitical turmoil, including the ongoing war in Ukraine, has heightened the risk of cyberattacks.
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When risks such as these materialize, the need for us to coordinate with various third-party service providers and for third-party service providers to coordinate amongst themselves might increase challenges and costs to resolve related issues. Our information security program includes capabilities designed to evaluate and mitigate cyber risks arising from third-party service providers.
Added
Cyber threats to externally-hosted technology and business services are beyond our control. Additionally, new initiatives, such as those related to digital commerce and direct sales, that increase the amount of confidential information that we process and maintain increase our potential exposure to a cybersecurity breach.
Added
Furthermore, the rapid evolution and increased adoption of artificial intelligence technologies may intensify our cybersecurity risks.
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If our controls, disaster recovery and business continuity plans or those of our third-party providers do not effectively respond to or resolve the issues related to any such disruptions in a timely manner, our product sales, financial condition, results of operations and stock price may be materially and adversely affected, and we might experience delays in reporting our financial results, loss of intellectual property and damage to our reputation or brands.
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In May 2023, we received a letter from Nasdaq indicating that we were not in compliance with Nasdaq Listing Rule 5550(b)(1), which requires companies listed on The Nasdaq Stock Market to maintain a minimum of $2,500,000 in stockholders’ equity for continued listing.
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In our quarterly report on Form 10-Q for the period ended March 31, 2023, we reported stockholders’ equity of $1,845,000, thereby failing to satisfy Listing Rule 5550(b)(1). While we recently regained compliance with this Rule, our stockholders’ equity at December 31, 2023 was only $2,503,000.
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Incurring net losses going forward may cause us to fail to meet Nasdaq listing standards and result in our common stock only being tradable in the over-the-counter markets. Our use of information technology and third-party service providers exposes us to cybersecurity breaches and other business disruptions.
Added
We use information technology and third-party service providers to support our business processes and activities, including supporting critical business operations such as manufacturing and distribution; communicating with our suppliers, customers and employees; maintaining effective accounting processes and financial and disclosure controls; executing corporate transactions; conducting research and development activities; and meeting regulatory, legal and tax requirements.
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Shared service centers managed by third parties provide an increasing number of services important to conducting our business, including accounting, internal control, human resources and computing functions. 12 Continuity of business applications and services has been, and may in the future be, disrupted by events such as infection by viruses or malware; other cybersecurity attacks; issues with or errors in systems’ maintenance or security; power outages; hardware or software failures; denial of service attacks; telecommunication failures; natural disasters; terrorist attacks; and other catastrophic occurrences.
Added
Our use of new and emerging technologies such as cloud-based services and mobile applications continues to evolve, presenting new and additional risks in managing access to our data, relying on third parties to manage and safeguard data, ensuring access to our systems and availability of third-party systems.
Added
In addition, we are experiencing new and more frequent attempts by third parties to gain access to our systems, such as through increased email phishing of our workforce.
Added
We leverage third parties for various technology and business services who may experience cybersecurity breaches, whether from circumvention of security systems, denial-of-service attacks or other cyberattacks such as hacking, phishing attacks, computer viruses, ransomware or malware, cyber extortion, employee or insider error, malfeasance, social engineering, physical breaches or other actions or attempts to exploit vulnerabilities may cause confidential information or Personally Identifiable Information belonging to us or our employees, customers, consumers, partners, suppliers, or governmental or regulatory authorities to be misused or breached.
Added
These risks could be magnified since the number of employees, contractors and others working outside of offices increased since the COVID-19 pandemic. Additionally, continued geopolitical turmoil, including the ongoing war in Ukraine, has heightened the risk of cyberattacks.
Added
When risks such as these materialize, the need for us to coordinate with various third-party service providers and for third-party service providers to coordinate amongst themselves might increase challenges and costs to resolve related issues. Our information security program includes capabilities designed to evaluate and mitigate cyber risks arising from third-party service providers.
Added
Cyber threats to externally-hosted technology and business services are beyond our control. Additionally, new initiatives, such as those related to digital commerce and direct sales, that increase the amount of confidential information that we process and maintain increase our potential exposure to a cybersecurity breach.
Added
Furthermore, the rapid evolution and increased adoption of artificial intelligence technologies may intensify our cybersecurity risks.
Added
If our controls, disaster recovery and business continuity plans or those of our third-party providers do not effectively respond to or resolve the issues related to any such disruptions in a timely manner, our product sales, financial condition, results of operations and stock price may be materially and adversely affected, and we might experience delays in reporting our financial results, loss of intellectual property and damage to our reputation or brands.
Added
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.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties. Our principal executive offices are located at 3600 Wilshire Boulevard Suite 1720, Los Angeles, 90010. Beginning in April 2019, we leased this office space pursuant to a direct lease for approximately $80,000 annually through March 31, 2023. The Company extended its lease through June 2023 while management evaluates options for renewal or relocation.
Biggest changeItem 2. Properties. Our principal executive offices are located at 3600 Wilshire Boulevard Suite 1720, Los Angeles, 90010. Beginning in April 2019, we leased this office space pursuant to a direct lease for approximately $80,000 annually through March 31, 2023. The Company extended its lease multiple times, most recently through September 2024, while management evaluates options for renewal or relocation.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

0 edited+2 added−3 removed0 unchanged
Removed
Item 3. Legal Proceedings. Other than as disclosed below, neither the Company nor its subsidiaries are party to or have property that is the subject of any material pending legal proceedings. We may be subject to ordinary legal proceedings incidental to our business from time to time that are not required to be disclosed under this Item 3.
Added
Item 3. Legal Proceedings As described in Note 7, the Company has an on-going dispute with the Manufacturer, the outcome of which cannot be predicted at this time. From time to time, various lawsuits and legal proceedings may arise in the ordinary course of business.
Removed
On November 10, 2022, we filed a complaint in the United States District Court for the Central District of California, Western Division, against Schreiber Foods, Inc. claiming a breach of the supply agreement and seeking economic damages.
Added
However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently the defendant in one legal proceeding for an amount less than $100,000. Our legal counsel and management believe a material unfavorable outcome to be remote. Item 4. Mine Safety Disclosures.
Removed
On January 20, 2023, the Company filed a voluntary dismissal of the complaint which allows the parties to reach a potential resolution outside of the court system. Further information is included in Item 7 and Notes 1 and 9 of our financial statements. Item 4. Mine Safety Disclosures. Not applicable. 13 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+4 added−4 removed1 unchanged
Biggest changePurchases of Equity Securities by the Company There were no purchases of equity securities made by the Company in the period covered by this report. 14 Securities Authorized for Issuance Under Equity Compensation Plans For equity compensation plan information, refer to Item 12. Security Ownership of Certain Beneficial Owners and Related Stockholder Matters of this Annual Report on Form 10-K.
Biggest changeSecurities Authorized for Issuance Under Equity Compensation Plans For equity compensation plan information, refer to Item 12. Security Ownership of Certain Beneficial Owners and Related Stockholder Matters of this Annual Report on Form 10-K. Transfer Agent Our transfer agent, Securities Transfer Corporation, is located at 2901 N.
Our shares of common stock are held by 82 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.
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.
Transfer Agent Our transfer agent, Securities Transfer Corporation, is located at 2901 N. Dallas Parkway, Suite 380, Plano, Texas 75093, and its telephone number is (469) 633-0101. Item 6. [Reserved]
Dallas Parkway, Suite 380, Plano, Texas 75093, and its telephone number is (469) 633-0101. Item 6. [Reserved]
Removed
Prior to January 20, 2022, our common stock was quoted on the OTCQB. Effective December 29, 2021, we effected a 1-for-13 reverse stock split. The following table sets forth the range of high and low bid quotations for the applicable periods, as adjusted for the reverse stock split.
Added
Holders On March 18, 2024, there were 14,507,146 shares of our common stock outstanding. Our shares of common stock are held by 89 stockholders of record.
Removed
These quotations as reported by the Nasdaq Capital Market reflect inter-dealer prices without retail mark-up, markdown or commissions and may not necessarily represent actual transactions.
Added
Recent Sales of Unregistered Securities On October 9, 2023, the Company drew down $1,390,000 in convertible debt and converted a total of $1,207,000 of principal into 820,160 shares of common stock.
Removed
Bid Quotation Financial Quarter Ended High ($) Low ($) December 31, 2022 3.09 1.00 September 30, 2022 5.89 2.62 June 30, 2022 7.64 4.67 March 31, 2022 8.00 3.86 December 31, 2021 7.15 3.12 September 30, 2021 8.45 4.68 June 30, 2021 8.45 4.96 March 31, 2021 7.15 3.90 Holders On February 24, 2023, there were 12,971,330 shares of our common stock outstanding.
Added
Additionally, on December 19, 2023, the Company drew down $470,000 in convertible debt and converted a total of $653,000 of principal and $4,000 of accrued interest into 495,331 shares of common stock.
Removed
Recent Sales of Unregistered Securities During the fourth quarter of 2022, there were no sales of unregistered securities.
Added
The registrant relied upon the exemption from registration contained in Rule 506(b) and Section 4(a)(2) of the Securities Act, and corresponding provisions of state securities laws, on the basis that (i) offers were made to a limited number of prospective investors and existing debt holders, (ii) each offer was made through direct communication with the offerees by the registrant, (iii) each of the offerees had the requisite sophistication and financial ability to bear risks of investing in the registrant’s common stock, (iv) the registrant provided extensive disclosure to the offerees, and (v) there was no general solicitation and no commission or remuneration was paid in connection with the offers. 16 Purchases of Equity Securities by the Company There were no purchases of equity securities made by the Company in the period covered by this report.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

14 edited+21 added−33 removed16 unchanged
Biggest changeIf such review indicates that the carrying amount of property and equipment and intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value. We recorded impairment charges of $746,000 related to idle equipment resulting from overcapacity for single-serve products and equipment that is held at the Manufacturer.
Biggest changeIn 2022, we recorded impairment charges of $746,000 related to idle equipment resulting from overcapacity for single-serve products and equipment that is held at the Manufacturer. No impairment charges were recorded in 2023. 20 Net loss We had net losses of approximately $2,824,000 and $6,134,000 for the years ended December 31, 2023 and 2022, respectively.
At only 125 -130 calories and with 5 grams of protein, it makes the perfect start to any day or on-the-go snack. 15 The Company’s bulk “Easy Pour” format, which contains all the ingredients necessary to make the beverage, is packaged in gallon containers in a concentrated formula that is mixed 1:1 with water.
At only 125 -130 calories and with 5 grams of protein, it makes the perfect start to any day or on-the-go snack. The Company’s bulk “Easy Pour” format, which contains all the ingredients necessary to make the beverage, is packaged in gallon containers in a concentrated formula that is mixed 1:1 with water.
The beverage packs contain all the 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 single serve products.
The beverage packs contain all the 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. 17 Domestic and international patents and patents pending are owned by Barfresh, as well as related trademarks for all of the single serve products.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The information and financial data discussed below is derived from the audited financial statements of Barfresh for its fiscal years ended December 31, 2022 and 2021. The financial statements of Barfresh were prepared and presented in accordance with generally accepted accounting principles in the United States.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The information and financial data discussed below is derived from the audited financial statements of Barfresh for its fiscal years ended December 31, 2023 and 2022. The financial statements of Barfresh were prepared and presented in accordance with generally accepted accounting principles in the United States.
Patent rights have been granted in 13 jurisdictions including the United States. In addition, the Company has purchased all of the trademarks related to the patented products. The Company conducts sales through several channels, including National Accounts, Regional Accounts, and Broadline Distributors.
Patent rights have been granted in 13 jurisdictions including the United States. In addition, the Company has purchased all of the trademarks related to the patented products. The Company conducts sales through several channels, including National Accounts, Regional Accounts, and Broadline Distributors. Currently we have 10 employees and 3 consultants.
Stock-based Compensation We account for share-based employee compensation plans under the fair value recognition and measurement provisions in accordance with applicable accounting standards, which require all share-based payments to employees, including grants of stock options and restricted stock units (RSUs) and performance stock units (PSUs), to be measured based on the grant date fair value of the awards, with the resulting expense generally recognized on a straight-line basis over the period during which the employee is required to perform service in exchange for the award.
Shipping and handling costs are treated as fulfilment costs and presented in distribution, selling and administrative costs. 18 Stock-based Compensation We account for share-based employee compensation plans under the fair value recognition and measurement provisions in accordance with applicable accounting standards, which require all share-based payments to employees, including grants of stock options and restricted stock units (RSUs) and performance stock units (PSUs), to be measured based on the grant date fair value of the awards, with the resulting expense generally recognized on a straight-line basis over the period during which the employee is required to perform service in exchange for the award.
Personnel cost represents the cost of employees including salaries, bonuses, employee benefits and employment taxes and continues to be our largest cost. Personnel cost increased by approximately $510,000 (61%) from approximately $830,000 to $1,340,000.
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 by approximately $141,000 (-11%) from approximately $1,340,000 in 2022 to $1,199,000 in 2023.
Customer sales incentives such as volume-based rebates or discounts are treated as a reduction of sales at the time the sale is recognized. Shipping and handling costs are treated as fulfilment costs and presented in distribution, selling and administrative costs.
Customer sales incentives such as volume-based rebates or discounts are treated as a reduction of sales at the time the sale is recognized.
Selling, marketing and distribution expense Year ended December 31, Year ended December 31, 2022 2021 Change Percent Sales and marketing $ 1,394,000 $ 756,000 $ 638,000 84 % Storage and outbound freight 1,467,000 1,054,000 413,000 39 % $ 2,861,000 $ 1,810,000 $ 1,051,000 58 % Sales, marketing and distribution expense increased approximately $1,051,000 (58%) from approximately $1,810,000 in 2021 to $2,861,000 in 2022.
Selling, marketing and distribution expense Year ended December 31, Year ended December 31, 2023 2022 Change Percent Sales and marketing $ 1,336,000 $ 1,394,000 $ (58,000 ) -4 % Storage and outbound freight 1,278,000 1,467,000 (189,000 ) -13 % $ 2,614,000 $ 2,861,000 $ (247,000 ) -9 % Selling, marketing and distribution expense decreased approximately $247,000 (-9%) from approximately $2,861,000 in 2022 to $2,614,000 in 2023.
Revenue Recognition In accordance with ASC 606, “Revenue from Contracts with Customers”, revenue is recognized when a customer obtains ownership of promised goods. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods.
The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods.
General and administrative expense Year ended December 31, Year ended December 31, 2022 2021 Change Percent Personnel costs $ 1,340,000 $ 830,000 $ 510,000 61 % Stock-based compensation and payment for outside services 559,000 281,000 278,000 99 % Legal, professional and consulting fees 499,000 396,000 103,000 26 % Director fees paid in cash 100,000 100,000 - 0 % Research and development 382,000 245,000 137,000 56 % Other general and administrative expenses 669,000 318,000 351,000 110 % $ 3,549,000 $ 2,170,000 $ 1,379,000 64 % General and administrative expense increased approximately $1,379,000 (64%) from approximately $2,170,000 in 2021 to $3,549,000 in 2022.
General and administrative expense Year ended December 31, Year ended December 31, 2023 2022 Change Percent Personnel costs $ 1,199,000 $ 1,340,000 $ (141,000 ) -11 % Stock-based compensation and payment for outside services 543,000 559,000 (16,000 ) -3 % Legal, professional and consulting fees 310,000 499,000 (189,000 ) -38 % Director fees paid in cash - 100,000 (100,000 ) -100 % Research and development 115,000 382,000 (267,000 ) -70 % Other general and administrative expenses 527,000 669,000 (142,000 ) -21 % $ 2,694,000 $ 3,549,000 $ (855,000 ) -24 % General and administrative expense decreased approximately $855,000 (-24%) from approximately $3,549,000 in 2022 to $2,694,000 in 2023.
Additionally, we experienced maintenance cost increases related to equipment loaned to our bulk product customers, and an increase in annual meeting costs. Asset Impairment We evaluate the recoverability of property and equipment and finite-lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable.
Asset Impairment We evaluate the recoverability of property and equipment and finite-lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. The evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.
The evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate.
Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of property and equipment and intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value.
Expense for PSUs is recognized based on expected performance against targets. 17 Results of Operations Revenue and cost of revenue Revenue increased $2,462,000, or 37%, from $6,700,000 in 2021 to $9,162,000 in 2022.
Expense for PSUs is recognized based on expected performance against targets. Results of Operations Revenue and cost of revenue Revenue was $8,127,000 in 2023 compared to $9,162,000 in 2022, a decrease of $1,035,000, or 11%. Revenue in 2022 was negatively impacted by the $630,000 claims estimate resulting from the market withdrawal of product purchased from the Manufacturer.
Removed
On October 26, 2015, Barfresh signed a five-year agreement with PepsiCo North America Beverages, a division of PepsiCo, to become its exclusive sales representative within the food service channel to present the Barfresh line of ready-to-blend smoothies and frozen beverages throughout the United States and Canada. In February 2023, Barfresh terminated the agreement.
Added
Barfresh utilizes contract manufacturers to manufacture all of the products in the United States. Critical Accounting Policies Our financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Revenue Recognition In accordance with ASC 606, “Revenue from Contracts with Customers”, revenue is recognized when a customer obtains ownership of promised goods.
Removed
Such termination is not anticipated to have a significant impact on sales. Currently we have 13 employees and 3 consultants. Barfresh utilizes contract manufacturers to manufacture all of the products in the United States. Recent developments Our products are produced to specifications through several contract manufacturers.
Added
Excluding the refund claims estimate, revenue was $9,655,000 in 2022 and therefore decreased by $1,528,000 in 2023, or 16% based on product shipped. Our revenues have been adversely impacted as a result of lost customers and supply constraints resulting from the product issues and related dispute with the Manufacturer.
Removed
One of our contract manufacturers (the “Manufacturer”) has provided approximately 52% and 42% of our products in the years ended December 31, 2022 and 2021, respectively, under a Supply Agreement with an initial term through September 2025. Over the course of 2022, we experienced numerous quality issues with the case packaging utilized by the Manufacturer.
Added
While the introduction of our carton packaging format has mitigated the loss of supply, the product offering has not been accepted by some customers or as a substitute for the bottle product in all use cases. Further, as discussed in Item 1A, Risk Factors , we may be adversely affected by a carton shortage currently impacting the beverage industry.
Removed
In addition, in July of 2022, we began receiving customer complaints about the texture of our smoothie products produced by the Manufacturer. In response, we withdrew product from the market and destroyed on-hand inventory, withholding $499,000 in payments due to the Manufacturer.
Added
We have identified and are actively working to develop additional smoothie bottle manufacturing capacity. We had expected expanded capacity to become available in early 2024, but were unable to complete the contracting process with the potential partner that had been identified.
Removed
The results reflect the estimated accounting impact of such actions, including an estimated product return allowance of $330,000 and total product returns reducing revenue by $493,000 as of and for the year ended December 31, 2022, and $932,000 in cost of revenue to dispose of unsaleable inventory.
Added
We believe we will expand capacity in 2024, however, there can be no assurances regarding our ability to identify and contract with a suitable partner. Cost of revenue was $5,243,000 in 2023 compared to $7,722,000 in 2022, a decrease of $2,479,000, or 32%.
Removed
We attempted to resolve the issues based on the contractual procedures described in the Supply Agreement. However, on November 4, 2022, in response to a formal proposal of alternate resolutions, we received notification from the Manufacturer that it denied any responsibility for the defective manufacture of the product.
Added
Cost of revenue in 2022 was negatively impacted by the $932,000 inventory write-off related to the product withdrawal. Excluding the inventory write-off, cost of revenue was $6,790,000 in 2022, and therefore decreased by $1,547,000 in 2023, or 23% based on product shipped.
Removed
In response, on November 10, 2022, we filed a complaint in the United States District Court for the Central District of California, Western Division (the “Complaint”), claiming that the Manufacturer has not met its obligations under the Supply Agreement, and seeking economic damages. In response, the Manufacturer terminated the Supply Agreement.
Added
Excluding the impact of the product withdrawal, cost of revenue declined due to lower revenue, and lower product cost due to a shift in product mix resulting from the limited supply of smoothie bottles. Our gross profit was $2,884,000 (36%) and $1,440,000 (16%) for 2023 and 2022, respectively. Adjusted for the product withdrawal, our 2022 gross profit was $2,865,000 (30%).
Removed
On January 20, 2023, we filed a voluntary dismissal of the Complaint which allows the parties to reach a potential resolution outside of the court system. However, if the parties are once again unable to come to an agreement, we have the right to refile the Complaint in California State Court.
Added
Adjusted comparative gross margin improvement is a result of favorable product mix, pricing actions, and a slight improvement in the cost of supply chain components.
Removed
Due to the uncertainties surrounding the claim, we are not able to predict either the outcome or a range of reasonably possible recoveries that could result from its actions against the Manufacturer, and no gain contingencies have been recorded.
Added
Sales and marketing expense decreased approximately $58,000 (4%) from approximately $1,394,000 in 2022 to $1,336,000 in 2023. We reduced labor costs in 2023.
Removed
The disruption in supply resulting from the dispute will adversely impact its results of operations and cash flow until a suitable resolution is reached or new sources of reliable supply at sufficient volume can be identified and developed, the timing of which is uncertain. 16 Critical Accounting Policies Our financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Added
These reductions were partially offset by additional expense for product sampling of smoothie carton products, equipment maintenance incurred to relaunch bulk product sales in locations that had been non-operational as a result of COVID shutdowns and subsequent labor shortages, and broker commissions as we engaged numerous regional K-12 specialists to expand our geographic reach in the third quarter of 2022, and thus incurred a full year of expense in 2023 compared to a partial year in 2022. 19 Storage and outbound freight expense decreased approximately $189,000 (-13%) from approximately $1,467,000 in 2022 to $1,278,000.
Removed
The overall revenue for 2022 was significantly higher due to growing Twist & Go™ revenue prior to our product withdrawal resulting from the quality complaints with product purchased from the Manufacturer. As a result of the withdrawal, we recorded a reserve for anticipated sales claims and administrative fees of $493,000.
Added
Adjusted for freight cost related to aforementioned product withdrawal credit memos, freight expense was $1,274,000 in 2022. The volume-related decrease in expense from the decline in revenue was offset by higher costs resulting from product mix and inefficiencies due to production transitions.
Removed
We anticipate that our revenues will be adversely impacted as a result of the dispute unless and until new sources of reliable supply at sufficient volume can be identified and developed, the timing of which is uncertain. Cost of revenue for 2022 was $7,722,000 as compared to $4,193,000 in 2021.
Added
The decrease in personnel cost resulted primarily from the confirmation and recognition of our 2021 COVID-related tax credit, partially offset by bonus expense from the 2023 decision to cash settle a portion of the 2022 performance stock units. Additionally, salaries were lower due to a decrease in headcount. Legal, professional and consulting fees decreased by $189,000 (-38%).
Removed
Our gross profit was $1,440,000 (16%) and $2,507,000 (37%) for 2022 and 2021, respectively. Cost of revenue was adversely impacted by the completed and anticipated disposals of Twist & Go™ product purchased from the Manufacturer, resulting in a charge of $932,000. Depreciation from manufacturing equipment was $29,000 and $18,000 for December 31, 2022 and 2021, respectively.
Added
We reduced outside services in an effort to conserve working capital. Research and development expense decreased approximately $267,000 (-70%) from approximately $382,000 in 2022 to $115,000 in 2023. Expense was elevated in 2022 as we incurred pre-production expense related to the launch of our carton format, while 2023 expense was limited as activities were minimized to conserve working capital.
Removed
Sales and marketing expense increased approximately $638,000 (84%) from approximately $756,000 in 2021 to $1,394,000 in 2022. The increase in sales and marketing expense was primarily the result of the retention of new employees and outside service providers to assist with sales and initiatives, including, beginning in the third quarter of 2022, brokers specializing in the school market.
Added
Certain director fees previously paid in cash were paid in stock in 2023 in order to conserve working capital.
Removed
Additionally, the Company increased its participation in education nutrition trade shows in 2022. Storage and outbound freight expense increased approximately $413,000 (39%) from approximately $1,054,000 in 2021 to $1,467,000 in 2022. The increase was primarily a result of the 37% increase in revenue.
Added
Other general and administrative expenses decreased approximately $142,000 (-21%) from approximately $669,000 in 2022 to $527,000 in 2023 primarily as a result of non-recurring costs related to our uplisting to the NASDAQ stock exchange in 2022, partially offset by licensing and development costs for information technology improvements.
Removed
The increase in personnel cost was partially offset by the decrease in consulting fees as we choose to hire permanent staff as the critical stages of the COVID-19 pandemic waned, rather than rely on consultants and temporary staff. 18 Stock-based compensation is used as an incentive to attract and compensate employees and other service providers.
Added
The decrease in net loss of approximately $3,296,000, was the result of the non-recurrence of the estimated refund claims and inventory disposal costs associated with the product withdrawal, improved margins, and a reduction of approximately $1,106,000 in operating expenses due to cost saving measures, reduced volume of product shipped, and the recognition of our COVID-related tax credit and the non-recurrence of the $746,000 asset impairment.
Removed
Stock-based compensation includes stock issued and options granted to employees and non-employees. Stock-based compensation for the year ended December 31, 2022 was approximately $559,000 compared to $281,000 for the year ended December 31, 2021 due to the aforementioned increase in staffing, and the institution of our performance-based stock compensation program in the third quarter of 2022.
Added
Liquidity and Capital Resources On October 23, 2023, we drew down $1,390,000 in convertible debt and converted a total of $1,207,000 of principal into 820,160 shares of common stock.
Removed
Stock-based compensation in 2021 benefited from forfeiture credits due to the departure of two key employees. Legal, professional, and consulting fees increased approximately $103,000 (26%) from approximately $396,000 in 2021 to $499,000 in 2022. The increase was primarily due to the dispute and litigation with the Manufacturer and corporate development activities.
Added
Additionally, on December 19, 2023, we drew down $470,000 in convertible debt and converted a total of $653,000 of principal and $4,000 of accrued interest into 495,331 shares of common stock, settling all debt. Debt drawdowns included the non-cash settlement of $30,000 in accounts payable. During the year ended December 31, 2023, we used $2,958,000 in operations.
Removed
Research and development expense increased approximately $137,000 (56%) from approximately $245,000 in 2021 to $382,000 in 2022. The increase is primarily due to materials consumed in pre-production runs at a new contract manufacturer that provided our Twist & Go™ product in carton format starting in the fourth quarter of 2022 .
Added
As of December 31, 2023, we had working capital of $1,846,000 compared with $1,801,000 at December 31, 2022. Cash received from our debt issuance of $1,830,000 offset our operating loss of $1,848,000, net of $990,000 in non-cash expenses.
Removed
Additionally, we incurred costs investigating the quality issue that occurred with the Manufacturer. Other expense increased approximately $351,000 (110%) from approximately $318,000 in 2021 to $669,000 in 2022. In 2022, we incurred approximately $175,000 in one-time costs related to the uplist of our common stock to the NASDAQ Stock Market.
Added
Our cash balance declined by $1,128,000 as receivables rebounded to reflect the 34% increase in revenue for the quarter ended December 31, 2023 compared to the same period of 2022, in addition to the settlement of credit memo reserves resulting from the 2022 product withdrawal.
Removed
Operating loss We had operating losses of approximately $6,219,000 and $2,095,000 for the years ended December 31, 2022 and 2021, respectively. The increase of approximately $4,124,000 or 196%, was primarily due to $1,425,000 in charges related to the aforementioned product quality issue and withdrawal, the asset impairment of $746,000 and other increases in operating expense.
Added
Additionally, we settled accrued payroll, with the repayment reinvested by management in our debt offering, and reduced liabilities for cash director fees and franchise taxes associated with our 2021 reverse split. We intend to compensate directors in stock or options until our liquidity and financial position improve.
Removed
Other income and expense The change in the value of the derivative liability is based upon the Black-Scholes model from one period to another. The gain of approximately $16,000 for the year ended December 31, 2021 was a result of the change in components of the Black-Scholes model.
Removed
The derivative liability was settled upon conversion and repayment of the convertible notes in the second quarter of 2021, which resulted in an extinguishment loss of $194,000. We recorded a gain on extinguishment of Covid-19 related Paycheck Protection Program (“PPP”) loan of $1,136,000 in the year ended December 31, 2021.
Removed
Interest expense was approximately $128,000 for the year ended December 31, 2021. Interest related to convertible debt that was converted and repaid in 2021. We did not incur any interest expense for the year ended December 31, 2022.
Removed
Net loss We had net losses of approximately $6,219,000 and $1,265,000 in the years ended December 31, 2022 and 2021, respectively, an increase of $4,954,000 due primarily to the $1,425,000 charges related to the product withdrawal and the asset impairment of $746,000 in 2022, increases in operating expense and the $1,136,000 gain on forgiveness of the PPP loan in 2021. 19 Liquidity and Capital Resources As of December 31, 2022, we had working capital of $1,801,000 compared with $6,172,000 at December 31, 2021.
Removed
The decrease in working capital is primarily due to the operating loss of $6,219,000, partially offset by non-cash expenses of $1,834,000. During the year ended December 31, 2022, we used $2,648,000 in operations and $13,000 for the purchase of equipment. The impact of COVID-19 on the Company is constantly evolving.
Removed
The direct impact to our operations had begun to take effect at the close of the first quarter ended March 31, 2020. Specifically, our business was impacted by dining bans targeted at restaurants to reduce the size of public gatherings.
Removed
Such bans precluded our single serve products from being served at those establishments for a number of weeks, and in some instances, resulted in abandoned product launches. Furthermore, many school districts closed regular attendance for a period of time thereby disrupting sales of product into that channel.
Removed
More recently, we have experienced a disruption in the supply chain for manufacturing our products due to COVID-19. The developments surrounding COVID-19 remain fluid and dynamic, and consequently, will require the Company to continue to monitor news headlines from government and health officials, as well as the business community.
Removed
In each of the years ended December 31, 2021 and 2020, the Company was granted a $568,000 loan under the PPP administered by a Small Business Administration (SBA) approved partner. The loans were forgiven, and the Company recorded a gain of $1,136,000 upon being legally released from the loan obligations during the year ended December 31, 2021.
Removed
On June 1, 2021, the Company completed a private placement of 1,282,051 shares of its common stock at $4.68 per share, resulting in gross proceeds of $6,000,000.
Removed
In addition, holders of debt converted a total of $399,000 in principal and $234,000 in interest into 133,991 shares of common stock and debt in the amount of $840,000 was retired, leaving the Company with no debt. We have entered into a direct lease covering the period April 1, 2019 to March 31, 2023.
Removed
The aggregate minimum requirements under the non-cancellable direct lease as of December 31, 2022 is approximately $20,000. The Company extended its lease through June 2023 while management evaluates options for renewal or relocation.

Other BRFH 10-K year-over-year comparisons