AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON APRIL 7 , 2017
REGISTRATION STATEMENT NO. 333-215322
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Pre-Effective Amendment No. 3 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
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2038
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27-1994406
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(State
or jurisdiction of
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(Primary
Standard Industrial
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(I.R.S.
Employer
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incorporation
or organization)
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Classification
Code Number)
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Identification
No.)
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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 [ ]
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Accelerated
filer [ ]
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Non-accelerated
filer [ ]
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Smaller
reporting company [X]
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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.
CALCULATION
OF REGISTRATION FEE
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Title
of each class of securities to be registered
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Amount
to be registered (1)
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Proposed
maximum offering price per share
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Proposed
maximum aggregate offering Price
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Amount
of registration fee
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Common stock, par value $0.000001
per share
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20,224,338
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$
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0.64
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(2)
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$
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12,943,576
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Common stock, par value $0.000001 per share,
issuable upon exercise of Series J Warrants
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2,374,362
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$
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0.75
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(3)
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$
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1,780,772
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Common
stock, par value $0.000001 per share, issuable upon exercise of Series K Warrants
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7,812,500
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$
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0.88
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(3)
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$
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6,875,000
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Total
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$
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21,599,348
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$
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2,504
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(4)
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(1)
Pursuant to Rule 416 under the Securities Act of 1933, as amended (“Securities Act”), the shares of common stock being
registered hereunder 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.
(2)
Estimated solely for the purpose of calculating the registration fee under Rule 457(c) under the Securities Act.
(3)
Estimated solely for the purpose of calculating the registration fee under Rule 457(g) under the Securities Act.
(4)
Fee previously submitted with the initial filing of this registration statement on Form S-1.
SUBJECT TO COMPLETION, DATED APRIL
7 , 2017
PROSPECTUS
30,411,200
Shares of Common Stock
This prospectus relates to
30,411,200 shares of our common stock, par value $0.000001 per share, of which 10,190,862 are issuable upon exercise
of 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 April 6 , 2017 the last reported sale price of our common stock was $0.63 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 April
[●], 2017
TABLE
OF CONTENTS
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.
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.
Registrable
Securities
On
November 23, 2016, the Company entered into a securities purchase agreement and investor rights agreement with Unibel, the majority
shareholder of Bel Group (“Unibel”). Pursuant to the securities purchase agreement, Unibel purchased 15,625,000 shares
of common stock at $0.64 per share and Series K Warrants to purchase 7,812,500 shares of common stock for aggregate gross proceeds
to Barfresh of $10 million. The Series K Warrants are exercisable for a term of five years at a per share price of $0.88 for cash.
The shares of common stock and common stock issuable upon exercise of the Series K warrants have the registration rights set forth
in the investor rights agreement between the Company and purchasers.
Pursuant to a securities
purchase agreement between the Company and certain accredited investors, in September, 2016 and October, 2016, the Company sold
4,687,502 shares of common stock and Series J Warrants to purchase 2,343,757 shares of common stock for aggregate gross proceeds
to the Company of approximately $2.3 million. The Series J warrants are exercisable for a term of five years at a per share price
of $0.75. The shares of common stock and common stock issuable upon exercise of the Series J Warrants have the registration rights
set forth in a registration rights agreement between the Company and purchasers. The Company issued an additional 74,687 Series
J Warrant to placement agents as compensation for services in the offering.
SUMMARY
OF THE OFFERING
The
Offering
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Up
to 30,411,200 shares of our common stock, par value $0.000001 per share, of which
2,374,362 are issuable upon exercise of Series J Warrants and 7,812,500 are issuable
upon exercise of Series K Warrants.
Series
J Warrants may be exercised by the payment of the exercise price of $0.75 per share for a term of five years
ending in cash or via cashless exercise.
The
Series K Warrants may be exercised by the payment of the exercise price of $0.88 per share for cash
for a term of five years.
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Trading
Market
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OTCQB
under the symbol “BRFH”
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Offering
Period
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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”).
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Risk
Factors
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The
shares being offered are speculative and involve very high risks, including those listed in “Risk Factors”.
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Net
Proceeds
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We
will not receive any proceeds from the sale of any shares by selling shareholders. However,
we may receive up to an aggregate of $8,655,772 from the exercise by selling shareholders
of warrants to purchase the common stock we are registering under this registration statement.
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Use
of Proceeds
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We
expect to use any cash proceeds we receive from the exercise of warrants by selling shareholders for general working capital
purposes.
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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.
Our
senior management’s limited experience managing a publicly traded company may divert management’s attention from operations
and harm our business.
With
the exception of our Chief Financial Officer, our senior management team has relatively limited experience managing a publicly
traded company and complying with federal securities laws, including compliance with recently adopted disclosure requirements
on a timely basis. Our management will be required to design and implement appropriate programs and policies in responding to
increased legal, regulatory compliance and reporting requirements, and any failure to do so could lead to the imposition of fines
and penalties and harm our business.
We
may be unable to attract and retain qualified, experienced, highly skilled personnel, which could adversely affect the implementation
of our business plan.
Our
success depends to a significant degree upon our ability to attract, retain and motivate skilled and qualified personnel. As we
become a more mature company in the future, we may find recruiting and retention efforts more challenging. If we do not succeed
in attracting, hiring and integrating excellent personnel, or retaining and motivating existing personnel, we may be unable to
grow effectively. The loss of any key employee, including members of our senior management team, and our inability to attract
highly skilled personnel with sufficient experience in our industries could harm our business.
Product
liability exposure may expose us to significant liability.
We
may face an inherent business risk of exposure to product liability and other claims and lawsuits in the event that the development
or use of our technology or prospective products is alleged to have resulted in adverse effects. We may not be able to avoid significant
liability exposure. Although we believe our insurance coverage to be adequate, we may not have sufficient insurance coverage,
and we may not be able to obtain sufficient coverage at a reasonable cost. An inability to obtain product liability insurance
at acceptable cost or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization
of our products. A product liability claim could hurt our financial performance. Even if we ultimately avoid financial liability
for this type of exposure, we may incur significant costs in defending ourselves that could hurt our financial performance and
condition.
Our
inability to protect our intellectual property rights may force us to incur unanticipated costs.
Our
success will depend, in part, on our ability to obtain and maintain protection in the United States and internationally for certain
intellectual property incorporated into our products. Our intellectual property rights may be challenged, narrowed, invalidated
or circumvented, which could limit our ability to prevent competitors from marketing similar solutions that limit the effectiveness
of our patent protection and force us to incur unanticipated costs. In addition, existing laws of some countries in which we may
provide services or solutions may offer only limited protection of our intellectual property rights.
Our
products may infringe the intellectual property rights of third parties, and third parties may infringe our proprietary rights,
either of which may result in lawsuits, distraction of management and the impairment of our business.
As
the number of patents, copyrights, trademarks and other intellectual property rights in our industry increases, products based
on our technology may increasingly become the subject of infringement claims. Third parties could assert infringement claims against
us in the future. Infringement claims with or without merit could be time consuming, result in costly litigation, cause product
shipment delays or require us to enter into royalty or licensing agreements. Royalty or licensing agreements, if required, might
not be available on terms acceptable to us, or at all. We may initiate claims or litigation against third parties for infringement
of our proprietary rights or to establish the validity of our proprietary rights. Litigation to determine the validity of any
claims, whether or not the litigation is resolved in our favor, could result in significant expense to us and divert the efforts
of our technical and management personnel from productive tasks. If there is an adverse ruling against us in any litigation, we
may be required to pay substantial damages, discontinue the use and sale of infringing products and expend significant resources
to develop non-infringing technology or obtain licenses to infringing technology. Our failure to develop or license a substitute
technology could prevent us from selling our products.
If
securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our
share price and trading volume could decline.
The
trading market for our common stock may be impacted, in part, by the research and reports that securities or industry analysts
publish about our business or us. There can be no assurance that analysts will cover us, continue to cover us or provide favorable
coverage. If one or more analysts downgrade our stock or change their opinion of our stock, our share price may decline. In addition,
if one or more analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in
the financial markets, which could cause our share price or trading volume to decline.
We
will continue to incur increased costs as a result of operating as a public company, and our management will be required to devote
substantial time to compliance initiatives and corporate governance practices.
As
a public company, we will continue to incur significant legal, accounting and other expenses. The Sarbanes-Oxley Act of 2002,
the Dodd-Frank Wall Street Reform and Consumer Protection Act and other applicable securities rules and regulations impose various
requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate
governance practices. Our management and other personnel will need to continue to devote a substantial amount of time to these
compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and make
some activities more time-consuming and costly.
We
cannot predict or estimate the amount of additional costs we may incur to continue to operate as a public company, nor can we
predict the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due
to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided
by regulatory and governing bodies which could result in continuing uncertainty regarding compliance matters and higher costs
necessitated by ongoing revisions to disclosure and governance practices.
We have identified material weaknesses
in our internal control over financial reporting. If we fail to maintain an effective system of internal control over financial
reporting, we may not be able to accurately report our financial results or prevent fraud.
Pursuant to Section 404 of the Sarbanes-Oxley
Act of 2002, or Section 404, we are required to furnish a report by our management on our internal control over financial reporting.
As such, our management has conducted this evaluation and, as of December 31, 2016, identified the following material weaknesses
in the Company’s internal control over financial reporting:
●
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We do not have a fully independent audit committee: We are
not currently obligated to have a fully independent audit committee, including a member who is an “audit committee financial
expert,” as defined in Item 407 of Regulation S-K, under applicable regulations or listing standards. However, it is
management’s view that such a committee is an important internal control over financial reporting, the lack of which
may result in ineffective oversight in the establishment and monitoring of internal controls and procedures.
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●
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Inadequate Segregation of Duties: We have an inadequate number
of personnel to properly implement certain control procedures related to segregation of duties.
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Management has concluded that our disclosure
controls and procedures are not effective. Effective internal control over financial reporting is necessary to provide reliable
financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our operating
results could be harmed. We will need to continue to dedicate internal resources, potentially engage outside consultants and adopt
a detailed work plan to modify and document the adequacy of internal control over financial reporting, continue steps to improve
control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous
reporting and improvement process for internal control over financial reporting. Continued identification of one or more material
weaknesses in our internal control over financial reporting could result in an adverse reaction in the financial markets due to
a loss of confidence in the reliability of our financial statements.
Failure
to comply with the United States Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.
As
a Delaware corporation, we are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States
companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining
business. Some foreign companies, including some that may compete with our Company, may not be subject to these prohibitions.
Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices may occur from time-to-time in countries in which
we conduct our business. However, our employees or other agents may engage in conduct for which we might be held responsible.
If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences
that may have a material adverse effect on our business, financial condition and results of operations.
Risks
Related to Ownership of Our Common Stock
Our
common stock is quoted on the OTCQB, which may have an unfavorable impact on our stock price and liquidity.
Our
common stock is quoted on the OTCQB, which is a significantly more limited trading market than the New York Stock Exchange, or
the NASDAQ Stock Market. The quotation of the Company’s shares on the OTCQB may result in a less liquid market available
for existing and potential shareholders to trade shares of our common stock, could depress the trading price of our common stock
and could have a long-term adverse impact on our ability to raise capital in the future.
There
is limited liquidity on the OTCQB, which may result in stock price volatility and inaccurate quote information.
When
fewer shares of a security are being traded on the OTCQB, volatility of prices may increase and price movement may outpace the
ability to deliver accurate quote information. Due to lower trading volumes in shares of our common stock, there may be a lower
likelihood of one’s orders for shares of our common stock being executed, and current prices may differ significantly from
the price one was quoted at the time of one’s order entry.
If
we are unable to adequately fund our operations, we may be forced to voluntarily file for deregistration of our common stock with
the SEC.
Compliance
with the periodic reporting requirements required by the SEC consumes a considerable amount of both internal, as well external,
resources and represents a significant cost for us. If we are unable to continue to devote adequate funding and the resources
needed to maintain such compliance, while continuing our operations, we could be forced to deregister with the SEC. After the
deregistration process, our common stock would only be tradable on the “Pink Sheets” and could suffer a decrease in
or absence of liquidity.
Because
we became public by means of a “reverse merger”, we may not be able to attract the attention of major brokerage firms.
Additional
risks may exist since we became public through a “reverse merger”. Securities analysts of major brokerage firms may
not provide coverage of us since there is little incentive to brokerage firms to recommend the purchase of our common stock. We
cannot assure you that brokerage firms will want to conduct any secondary offerings on behalf of our Company in the future.
Future
sales of our common stock in the public market could lower the price of our common stock and impair our ability to raise funds
in future securities offerings.
Future
sales of a substantial number of shares of our common stock in the public market, or the perception that such sales may occur,
could adversely affect the then prevailing market price of our common stock and could make it more difficult for us to raise funds
in the future through a public offering of our securities.
Our
common stock is thinly traded, so you may be unable to sell at or near asking prices or at all if you need to sell your shares
to raise money or otherwise desire to liquidate your shares.
Currently,
the Company’s common stock is quoted in the OTCQB and future trading volume may be limited by the fact that many major institutional
investment funds, including mutual funds, as well as individual investors follow a policy of not investing in OTCQB stocks and
certain major brokerage firms restrict their brokers from recommending OTCQB stocks because they are considered speculative, volatile
and thinly traded. The OTCQB market is an inter-dealer market much less regulated than the major exchanges and our common stock
is subject to abuses, volatility and shorting. Thus, there is currently no broadly followed and established trading market for
the Company’s common stock. An established trading market may never develop or be maintained. Active trading markets generally
result in lower price volatility and more efficient execution of buy and sell orders. Absence of an active trading market reduces
the liquidity of the shares traded there.
The
trading volume of our common stock has been and may continue to be limited and sporadic. As a result of such trading activity,
the quoted price for the Company’s common stock on the OTCQB may not necessarily be a reliable indicator of its fair market
value. Further, if we cease to be quoted, holders would find it more difficult to dispose of our common stock or to obtain accurate
quotations as to the market value of the Company’s common stock and as a result, the market value of our common stock likely
would decline.
Our
common stock is subject to price volatility unrelated to our operations.
The
market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our
ability to achieve our planned growth, quarterly operating results of other companies in the same industry, trading volume in
our common stock, changes in general conditions in the economy and the financial markets or other developments affecting the Company’s
competitors or the Company itself. In addition, the OTCQB is subject to extreme price and volume fluctuations in general. This
volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their
operating performance and could have the same effect on our common stock.
We
are subject to penny stock regulations and restrictions and you may have difficulty selling shares of our common stock.
Our
common stock is currently quoted on the OTCQB. Our common stock is subject to the requirements of Rule 15(g)-9, promulgated under
the Securities Exchange Act as long as the price of our common stock is below $5.00 per share. Under such rule, broker-dealers
who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special
sales practice requirements, including a requirement that they make an individualized written suitability determination for the
purchaser and receive the purchaser’s consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock
Reform Act of 1990, also requires additional disclosure in connection with any trades involving a stock defined as a penny stock.
Generally, the Commission defines a penny stock as any equity security not traded on a national exchange that has a market price
of less than $5.00 per share. The required penny stock disclosures include the delivery, prior to any transaction, of a disclosure
schedule explaining the penny stock market and the risks associated with it. Such requirements could severely limit the market
liquidity of the securities and the ability of purchasers to sell their securities in the secondary market.
Because
we do not intend to pay dividends, shareholders will benefit from an investment in our common stock only if it appreciates in
value.
We
have never declared or paid any cash dividends on our preferred stock or common stock. For the foreseeable future, it is expected
that earnings, if any, generated from our operations will be used to finance the growth of our business, and that no dividends
will be paid to holders of the Company’s common stock. As a result, the success of an investment in our common stock will
depend upon any future appreciation in its value. There can be no guarantee that our common stock will appreciate in value.
The
price of our common stock may become volatile, which could lead to losses by investors and costly securities litigation.
The
trading price of our common stock is likely to be highly volatile and could fluctuate in response to factors such as:
|
●
|
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.
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 $8,655,772 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 30,411,200 shares of our common stock, par value $0.000001 per share, of which 2,374,362 are issuable upon
exercise of Series J Warrants and 7,812,500 are issuable upon exercise of Series K 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 February
6, 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.
|
|
|
|
|
|
|
|
|
|
|
Percent
of
|
|
|
|
Number
of
|
|
|
|
|
|
Number
of Shares
|
|
|
Shares
|
|
|
|
Shares
Owned
|
|
|
Number
of Shares
|
|
|
Owned
|
|
|
Owned
After
|
|
Name
of Selling Shareholder
|
|
Before
Offering
|
|
|
Being
Offered
|
|
|
After
Offering
|
|
|
Offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
Besser
|
|
|
468,750
|
|
|
|
468,750
|
1
|
|
|
0
|
|
|
|
0
|
|
JEB
Partners L.P.
2
|
|
|
1,171,875
|
|
|
|
1,171,875
|
3
|
|
|
0
|
|
|
|
0
|
|
Pacific
Grove Masterfund LP
4
|
|
|
6,069,625
|
|
|
|
585,938
|
5
|
|
|
5,483,687
|
|
|
|
4.7
|
%
|
Fivex
Pty Ltd ATF The Harbourview Share
|
|
|
362,758
|
|
|
|
234,375
|
7
|
|
|
128,383
|
|
|
|
*
|
|
Portfolio
Trust
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rodney
Ranaan
|
|
|
77,345
|
|
|
|
77,345
|
8
|
|
|
0
|
|
|
|
0
|
|
Loretta
Ranaan
|
|
|
37,500
|
|
|
|
37,500
|
9
|
|
|
0
|
|
|
|
0
|
|
Matthew
Ranaan
|
|
|
65,625
|
|
|
|
65,625
|
10
|
|
|
0
|
|
|
|
0
|
|
Bijan
Ranaan
|
|
|
75,000
|
|
|
|
75,000
|
11
|
|
|
0
|
|
|
|
0
|
|
John
Ranaan
|
|
|
75,000
|
|
|
|
75,000
|
12
|
|
|
0
|
|
|
|
0
|
|
Justin
Ranaan
|
|
|
77,345
|
|
|
|
77,345
|
13
|
|
|
0
|
|
|
|
0
|
|
Irrevocable
Trust for Rodney, Matthew and
|
|
|
16,407
|
|
|
|
16,407
|
15
|
|
|
0
|
|
|
|
0
|
|
Justin
Ranaan UA 02/08/1995
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brio
Capital Master Fund Ltd.
16
|
|
|
1,171,875
|
|
|
|
1,171,875
|
17
|
|
|
0
|
|
|
|
0
|
|
Pensel
PTY Limited as Trustee for the Selig
|
|
|
246,694
|
|
|
|
70,313
|
19
|
|
|
176,381
|
|
|
|
*
|
|
Superannuation
Fund
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMLM
Pty Ltd. ATF The Mitchell Family
|
|
|
58,595
|
|
|
|
58,595
|
21
|
|
|
0
|
|
|
|
0
|
|
Trust
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alexander
Ware Revocable Trust u/a/d
|
|
|
253,875
|
|
|
|
234,375
|
23
|
|
|
19,500
|
|
|
|
*
|
|
12/29/04
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GE
Price Superannuation Fund
24
|
|
|
165,419
|
|
|
|
117,188
|
25
|
|
|
48,231
|
|
|
|
*
|
|
E Squared
Capital Fund LP
26
|
|
|
468,750
|
|
|
|
468,750
|
27
|
|
|
0
|
|
|
|
0
|
|
Unibel
28
|
|
|
23,437,500
|
|
|
|
23,437,500
|
29
|
|
|
0
|
|
|
|
0
|
|
Mirella
Delle Coste
|
|
|
549,215
|
|
|
|
117,188
|
30
|
|
|
432,027
|
|
|
|
*
|
|
Joseph
M. Cugine
|
|
|
902,159
|
|
|
|
117,188
|
31
|
|
|
784,971
|
|
|
|
*
|
|
Joseph
S. Tesoriero
|
|
|
179,885
|
|
|
|
58,595
|
32
|
|
|
121,290
|
|
|
|
*
|
|
William
D. Moreland
|
|
|
3,022,814
|
|
|
|
600,000
|
33
|
|
|
2,422,814
|
|
|
|
2.1
|
%
|
Mark
Abdou
|
|
|
641,872
|
|
|
|
164,414
|
34
|
|
|
477,458
|
|
|
|
*
|
|
Michael
E. Donnelly
35
|
|
|
220,473
|
|
|
|
7,500
|
36
|
|
|
212,973
|
|
|
|
*
|
|
Vicki
D.E. Barone
37
|
|
|
5,834
|
|
|
|
1,000
|
38
|
|
|
4,834
|
|
|
|
*
|
|
Steven
M. Bathgate
39
|
|
|
35,500
|
|
|
|
7,500
|
40
|
|
|
28,000
|
|
|
|
*
|
|
GVC
Partners LLC
41
|
|
|
23,337
|
|
|
|
4,000
|
42
|
|
|
19,337
|
|
|
|
*
|
|
Maxim
Partners LLC
43
|
|
|
54,687
|
|
|
|
54,687
|
44
|
|
|
0
|
|
|
|
0
|
|
Robert
Gary Rifkin
|
|
|
690,120
|
|
|
|
468,750
|
45
|
|
|
221,370
|
|
|
|
*
|
|
Samantha
Rifkin
|
|
|
70,313
|
|
|
|
70,313
|
46
|
|
|
0
|
|
|
|
0
|
|
Ryan
Gerad Rifkin
|
|
|
93,750
|
|
|
|
93,750
|
47
|
|
|
0
|
|
|
|
0
|
|
Steven
G. Rifkin
|
|
|
70,313
|
|
|
|
70,313
|
48
|
|
|
0
|
|
|
|
0
|
|
Sidra
Pty Ltd
49
|
|
|
19,054,828
|
|
|
|
132,246
|
50
|
|
|
18,922,582
|
|
|
|
16.16
|
%
|
*
Less than 1%
1
|
Includes
156,250 shares underlying Series J Warrants.
|
|
|
2
|
James
Besser exercises voting and investment control over all shares beneficially owned.
|
|
|
3
|
Includes
390,625 shares underlying Series J Warrants.
|
|
|
4
|
Jamie
Mendola exercises voting and investment control over all shares beneficially owned.
|
|
|
5
|
Includes
195,313 shares underlying Series J Warrants.
|
|
|
6
|
Joshua
Berger exercises voting and investment control over all shares beneficially owned.
|
|
|
7
|
Includes
78,125 shares underlying Series J Warrants.
|
|
|
8
|
Includes
25,782 shares underlying Series J Warrants.
|
|
|
9
|
Includes
12,500 shares underlying Series J Warrants.
|
|
|
10
|
Includes
21,875 shares underlying Series J Warrants.
|
|
|
11
|
Includes
25,000 shares underlying Series J Warrants.
|
|
|
12
|
Includes
25,000 shares underlying Series J Warrants.
|
|
|
13
|
Includes
25,782 shares underlying Series J Warrants.
|
|
|
14
|
John
Ranaan exercises voting and investment control over all shares beneficially owned.
|
|
|
15
|
Includes
5,469 shares underlying Series J Warrants.
|
|
|
16
|
Shaye
Hirsch exercises voting and investment control over all shares beneficially owned.
|
|
|
17
|
Includes
390,625 shares underlying Series J Warrants.
|
|
|
18
|
David
Paul Selig exercises voting and investment control over all shares beneficially owned.
|
|
|
19
|
Includes
23,438 shares underlying Series J Warrants.
|
|
|
20
|
Luke
Mitchell exercises voting and investment control over all shares beneficially owned.
|
|
|
21
|
Includes
19,532 shares underlying Series J Warrants.
|
|
|
22
|
Alexander
H. Ware exercises voting and investment control over all shares beneficially owned.
|
|
|
23
|
Includes
78,125 shares underlying Series J Warrants.
|
|
|
24
|
Gary
Price exercises voting and investment control over all shares beneficially owned.
|
|
|
25
|
Includes
39,063 shares underlying Series J. Warrants.
|
26
|
Ed
Ilyadzhanov exercises voting and investment control over all shares beneficially owned.
|
|
|
27
|
Includes
156,250 shares underlying Series J Warrants.
|
|
|
28
|
No
individual has voting and investment control over shares beneficially owned; control is exercised by a majority vote of the
following individuals: Antoine Fievet, Bruno Schoch, Gerard Boivin, Valentine Fievet, Laurent Fievet, Marion Roidor, Thomas
Sauvin and Pascal Vienot.
|
|
|
29
|
Includes
7,812,500 shares underlying Series K Warrants.
|
|
|
30
|
Includes
39,063 shares underlying Series J Warrants.
|
|
|
31
|
Includes
39,063 shares underlying Series J Warrants.
|
|
|
32
|
Includes
19,532 shares underlying Series J Warrants.
|
|
|
33
|
Includes
200,000 shares underlying Series J Warrants.
|
|
|
34
|
Includes
54,805 shares underlying Series J Warrants.
|
|
|
35
|
Affiliate
of GVC Capital, LLC, a broker dealer.
|
|
|
36
|
Consists
of 7,500 shares underlying Series J Warrants.
|
|
|
37
|
Affiliate
of GVC Capital, LLC, a broker dealer.
|
|
|
38
|
Consists
of 1,000 shares underlying Series J Warrants.
|
|
|
39
|
Affiliate
of GVC Capital, LLC, a broker dealer.
|
|
|
40
|
Consists
of 7,500 shares underlying Series J Warrants.
|
|
|
41
|
Vicki
D.E Barone exercises voting and investment control over all shares beneficially owned. GVC Partners LLC is a broker-dealer
and owns GVC Capital, LLC.
|
|
|
42
|
Consists
of 4,000 shares underlying Series J Warrants.
|
|
|
43
|
Affiliate
of Maxim Group, LLC, a broker dealer. Michael Rabinowitz exercises voting and investment control over all shares beneficially
owned.
|
|
|
44
|
Consists
of 54,687 shares underlying Series J Warrants.
|
|
|
45
|
Includes
156,250 shares underlying Series J Warrants.
|
|
|
46
|
Includes
23,438 shares underlying Series J Warrants.
|
|
|
47
|
Includes
31,250 shares underlying Series J Warrants.
|
|
|
48
|
Includes
23,438 shares underlying Series J Warrants.
|
|
|
49
|
Steven
Lang exercises voting and investment control over all shares beneficially owned.
|
|
|
50
|
Includes
44,082 shares underlying Series J Warrants.
|
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.
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
|
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.
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.
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.
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.
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 April 7, 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 April 37, 2017. As of April 7, 2017, the Company had 117,537,263 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 April 7, 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 April 7, 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 April 7, 2017. As of April 7, 2017, the Company had 117,537,263 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 April 7, 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.
|
|
Common
Stock
|
|
Name
and address of beneficial owner
(1)
|
|
Amount
and nature of beneficial ownership
|
|
|
Percent
of class o/s
|
|
Riccardo
Delle Coste
(2) (3) (4) (5) (6) (7)
|
|
|
20,621,266
|
|
|
|
17.43
|
%
|
|
|
|
|
|
|
|
|
|
Steven
Lang
(8) (9) (10) (11)
|
|
|
20,033,061
|
|
|
|
16.95
|
%
|
|
|
|
|
|
|
|
|
|
Joseph
Tesoriero
(12) (13) (14)
|
|
|
238,219
|
|
|
|
0.20
|
%
|
|
|
|
|
|
|
|
|
|
Arnold
Tinter
(15) (16)
|
|
|
950,000
|
|
|
|
0.81
|
%
|
|
|
|
|
|
|
|
|
|
Joe
Cugine
(17) (18) (19)
|
|
|
985,492
|
|
|
|
0.84
|
%
|
|
|
|
|
|
|
|
|
|
Alice
Elliot
(20) (21) (22)
|
|
|
678,255
|
|
|
|
0.58
|
%
|
|
|
|
|
|
|
|
|
|
Alexander Ware
(25) (26) (27)
|
|
|
318,224
|
|
|
|
0.27
|
%
|
|
|
|
|
|
|
|
|
|
Isabelle
Ortiz-cochet
(28) (29)
2 Allee De Longchamp Suresnes, France
|
|
|
33,603
|
|
|
|
0.03
|
%
|
|
|
|
|
|
|
|
|
|
All
directors and officers as a group (8 persons)
|
|
|
43,858,120
|
|
|
|
36.62
|
%
|
|
|
|
|
|
|
|
|
|
Unibel
(30)
2 Allee De Longchamp Suresnes, France 92150
|
|
|
23,437,500
|
|
|
|
18.70
|
%
|
|
|
|
|
|
|
|
|
|
Lazarus
Investment Partners LLLP
(31)
3200 Cherry Creek South Drive Suite 670 Denver, CO 80209
|
|
|
17,234,548
|
|
|
|
14.09
|
%
|
|
|
|
|
|
|
|
|
|
Wolverine
Asset Management, LLC (“WAM”)
(32) (33)
175 West Jackson Blvd. Suite 340 Chicago, IL 60604
|
|
|
6,501,600
|
|
|
|
5.44
|
%
|
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
|
Includes 58,333 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 83,333 shares underlying options granted.
|
19
|
Includes 96,020 shares underlying warrants issued in connection
with purchase of common shares.
|
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.
|
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 April 3 , 2017, 117,537,263 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
J Warrants
Series
J Warrants to purchase up to 2,343,750 shares common stock are currently outstanding. Series J Warrants may
be exercised by the payment of the exercise price of $0.75 per share for a term of five years in cash or via cashless
exercise and have registration rights for the shares of common stock underlying the warrants.
The
Series J Warrants are subject to customary protective provisions for stock dividends and splits and fundamental corporate transactions,
including any sale of all or substantially all of the Company’s assets, any tender offer or exchange offer, or any reclassification
of the common stock.
Series
K Warrants
Series
K Warrants to purchase up to 7,812,500 shares common stock are currently outstanding. The Series K Warrants
may be exercised by the payment of the exercise price of $0.88 in cash for a term of five years and have registration rights
for the shares of common stock underlying the warrants.
The
Series K Warrants are subject to full ratchet and weighted average anti-dilution protection. After the third anniversary
of the issuance of the Series K Warrants, the Company may redeem the warrants for a redemption price of $0.001 per Warrant Share,
subject to prior notice and provided the market price of the common stock receivable upon exercise of the Series K Warrants is
at least $1.76, subject to adjustment as set otherwise provided herein.
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,
201 6 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.
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.
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.
The following seven flavors are available
as part of our standard portfolio of products:
In addition to the standard product range,
the Company has developed a number of exclusive flavors for several National Accounts that are currently engaged in the pre-rollout
testing process.
Some of the key product benefits for operators
include:
|
●
|
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
|
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.
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.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
During
the nine-month period ended December 31, 2015 we changed our year end from March 31 to December 31, 2015. As a result, our 2015
fiscal period was shortened from twelve months to a nine-month transition period ended on December 31, 2015.
In this MD&A, when financial results
for the 2016 fiscal year are compared to financial results for the prior year period, the results compare the audited twelve month
period ended December 31, 2016 to the unaudited results for the twelve month period ended December 31, 2015.
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.
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 $.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.
Currently we have 34 employees and 5 consultants.
There are currently 23 employees and 1 consultant selling our products.
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
We recognize revenue when there is persuasive
evidence of an arrangement, delivery has occurred or services have been rendered, the sales price is determinable, and collection
is reasonably assured. Revenue is recorded net of provisions for discounts, slotting fees, and promotion allowances. Our products
are sold on various terms. Our credit terms, which are established in accordance with local and industry practices, typically
require payment within 30 days of delivery. We recognize revenue upon receipt of our products by our distributors and retail accounts,
in accordance with written sales terms, net of provisions for discounts or allowances. Allowances for returns and discounts are
made on a case-by-case basis. Historically, neither returns nor discounts have been material.
Impairments
We periodically evaluate whether the carrying
value of long-lived assets has been impaired when circumstances indicate the carrying value of those assets may not be recoverable.
The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and
eventual disposition of the asset. If the carrying value is not recoverable, the impairment loss is measured as the excess of
the asset’s carrying value over its fair value.
Share-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), 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.
Convertible Notes
We issue debt that may have separate warrants,
conversion features, or no equity-linked attributes. When we issue debt with warrants, we determine the value of the warrants
using the Black-Scholes Option Pricing Model (“Black-Scholes”) using the stock price on the date of issuance, the
risk free interest rate associated with the life of the debt, and the estimated volatility of our stock. When we issue debt with
a conversion feature, we must first assess whether the conversion feature meets the requirements to be treated as a derivative.
If the conversion feature within convertible debt meets the requirements to be treated as a derivative, we estimate the fair value
of the convertible debt derivative using Black-Scholes upon the date of issuance, using the stock price on the date of issuance,
the risk free interest rate associated with the life of the debt, and the estimated volatility of our stock. If the conversion
feature is not treated as a derivative, we assess whether it is a beneficial conversion feature (“BCF’). A BCF exists
if the conversion price of the convertible debt instrument is less than the stock price on the commitment date. This typically
occurs when the conversion price is less than the fair value of the stock on the date the instrument was issued. The value of
a BCF is equal to the intrinsic value of the feature, the difference between the conversion price and the common stock into which
it is convertible.
Results of Operations
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.
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.
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
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 the non-cancellable sub-lease and direct lease
as of December, 2016 is $387,598.
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.
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.
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 $100,000 or (ii) interest bearing, irrespective of amount, must be approved by the Company’s board of directors.
All issuances of securities by the Company must be approved by the board of directors, irrespective of whether the recipient is
a related party. Each of the foregoing transactions, if required by its terms, was approved in this manner.
EXECUTIVE
COMPENSATION
The following table summarizes all compensation
for the fiscal year ending December 31, 2016 (“2016”) and Transition Period, 9 months ending December 31, 2015 (“12/2015”)
received by our “Named Executive Officers”:
Name and
Principal
Position
|
|
Period
|
|
Salary
($)
|
|
|
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 $0.82, vest 50% in 2017 and 50% in 2018, and are exercisable until 5/1/2023.
|
Outstanding Equity Awards at Fiscal
Year-End Table
Option Awards
|
|
Stock Awards
|
|
Name
|
|
Number
of
securities
underlying
unexercised options
(#) exercisable
|
|
|
Equity
incentive
plan
awards:
Number of
securities
underlying
unexercised
unearned
options (#)
|
|
|
Option
exercise
price ($)
|
|
|
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.
|
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.
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
|
|
Holders
At April 7 , 2017, there were 117,537,263
shares of our common stock outstanding. Our shares of common stock are held by 109 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.
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.
Index
to Consolidated Financial Statements
Report of Independent Registered Public Accounting
Firm
Board of Directors and Stockholders
Barfresh Food Group, Inc.
Beverly Hills, California
We have audited the accompanying consolidated
balance sheets of Barfresh Food Group, Inc. as of December 31, 2016 and 2015, and the related consolidated statements of operations,
stockholders’ equity, and cash flows for the year ended December 31, 2016 and the nine-month period ended December 31, 2015.
Barfresh Food Group, Inc.’s management is responsible for these financial statements. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with
standards of the Public Company Accounting Oversight Board (United States.) Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is
not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over
financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Barfresh Food Group, Inc. as of
December 31, 2016 and 2015, and the results of its operations and its cash flows for the year ended December 31, 2016 and the nine-month
period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.
/s/ Eide Bailly LLP
|
|
|
|
Denver, Colorado
|
|
March 29, 2017
|
|
Barfresh Food Group Inc.
Consolidated Balance Sheets
December 31, 2016 and 2015
|
|
2016
|
|
|
2015
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,180,947
|
|
|
$
|
1,986,004
|
|
Accounts receivable
|
|
|
131,088
|
|
|
|
28,596
|
|
Inventory
|
|
|
317,948
|
|
|
|
327,961
|
|
Prepaid expenses and other current assets
|
|
|
25,864
|
|
|
|
30,524
|
|
Total current assets
|
|
|
9,655,847
|
|
|
|
2,373,085
|
|
Property, plant and equipment, net of depreciation
|
|
|
1,494,478
|
|
|
|
688,772
|
|
Intangible assets, net of amortization
|
|
|
619,863
|
|
|
|
617,257
|
|
Deposits
|
|
|
53,202
|
|
|
|
16,451
|
|
Total Assets
|
|
$
|
11,823,390
|
|
|
$
|
3,695,565
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
153,756
|
|
|
$
|
131,804
|
|
Accrued expenses
|
|
|
746,375
|
|
|
|
236,312
|
|
Deferred rent liability
|
|
|
165
|
|
|
|
1,855
|
|
Short-term notes payable - related party, net of discount
|
|
|
-
|
|
|
|
50,000
|
|
Short-term notes payable
|
|
|
-
|
|
|
|
50,000
|
|
Convertible note - related party, net of discount
|
|
|
-
|
|
|
|
119,993
|
|
Convertible note, net of discount
|
|
|
-
|
|
|
|
1,975,878
|
|
Current portion of long term debt
|
|
|
3,849
|
|
|
|
14,039
|
|
Total current liabilities
|
|
|
904,145
|
|
|
|
2,579,881
|
|
Long term Debt, net of current portion
|
|
|
8,958
|
|
|
|
45,992
|
|
Total liabilities
|
|
|
913,103
|
|
|
|
2,625,873
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.000001 par value, 5,000,000 shares authorized, none issued or outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.000001 par value; 300,000,000 shares authorized; 117,103,276 and 86,186,453 shares issued and outstanding at December 31, 2016 and 2015, respectively
|
|
|
117
|
|
|
|
86
|
|
Additional paid in capital
|
|
|
35,829,627
|
|
|
|
15,798,338
|
|
Accumulated (deficit)
|
|
|
(24,919,457
|
)
|
|
|
(14,728,732
|
)
|
Total stockholders’ equity
|
|
|
10,910,287
|
|
|
|
1,069,692
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
11,823,390
|
|
|
$
|
3,695,565
|
|
See the accompanying notes to the consolidated
financial statements
Barfresh Food Group Inc.
Consolidated Statements of Operations
|
|
For the year ended
|
|
|
For the nine
months ended
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Revenue
|
|
$
|
1,457,499
|
|
|
$
|
437,272
|
|
Cost of revenue
|
|
|
772,827
|
|
|
|
251,300
|
|
Gross profit
|
|
|
684,672
|
|
|
|
185,972
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
10,415,933
|
|
|
|
5,666,204
|
|
Depreciation and Amortization
|
|
|
208,614
|
|
|
|
135,494
|
|
Total operating expenses
|
|
|
10,624,547
|
|
|
|
5,801,698
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(9,939,875
|
)
|
|
|
(5,615,726
|
)
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
Interest
|
|
|
250,850
|
|
|
|
296,509
|
|
Loss on extinguishment of debt
|
|
|
-
|
|
|
|
7,857
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(10,190,725
|
)
|
|
$
|
(5,920,092
|
)
|
|
|
|
|
|
|
|
|
|
Per share information - basic and fully diluted:
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
95,557,640
|
|
|
|
79,149,995
|
|
Net (loss) per share
|
|
$
|
(0.11
|
)
|
|
$
|
(0.07
|
)
|
See the accompanying notes to the consolidated
financial statements
Barfresh Food Group, Inc.
Statement of Stockholders’ Equity
For the Period from April 1, 2015 to December
31, 2016
|
|
Common Stock
|
|
|
Additional
paid in
|
|
|
Accumulated
|
|
|
Unearned
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
services
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance April 1, 2015
|
|
|
77,720,828
|
|
|
$
|
78
|
|
|
$
|
14,034,623
|
|
|
$
|
(8,808,640
|
)
|
|
$
|
(47,342
|
)
|
|
$
|
5,178,719
|
|
Exercise of warrants
|
|
|
6,695,352
|
|
|
|
7
|
|
|
|
2,493
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,500
|
|
Issuance of stock for services
|
|
|
141,477
|
|
|
|
-
|
|
|
|
83,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
83,000
|
|
Conversion of debt into stock
|
|
|
1,628,796
|
|
|
|
2
|
|
|
|
447,197
|
|
|
|
-
|
|
|
|
-
|
|
|
|
447,199
|
|
Effect of issuance of warrants in relation to debt
|
|
|
-
|
|
|
|
-
|
|
|
|
600,629
|
|
|
|
-
|
|
|
|
-
|
|
|
|
600,629
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
630,395
|
|
|
|
-
|
|
|
|
-
|
|
|
|
630,395
|
|
Amortization of unearned services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
47,342
|
|
|
|
47,342
|
|
Net (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,920,092
|
)
|
|
|
-
|
|
|
|
(5,920,092
|
)
|
Balance December 31, 2015
|
|
|
86,186,453
|
|
|
$
|
87
|
|
|
|
15,798,337
|
|
|
|
(14,728,732
|
)
|
|
$
|
-
|
|
|
|
1,069,692
|
|
Issuance of stock for cash, net of expenses of $750,019
|
|
|
24,598,674
|
|
|
|
24
|
|
|
|
15,707,106
|
|
|
|
|
|
|
|
|
|
|
|
15,707,130
|
|
Exercise of warrants
|
|
|
2,464,017
|
|
|
|
2
|
|
|
|
714,998
|
|
|
|
|
|
|
|
|
|
|
|
715,000
|
|
Exercise of options
|
|
|
50,000
|
|
|
|
|
|
|
|
25,500
|
|
|
|
|
|
|
|
|
|
|
|
25,500
|
|
Conversion of debt into stock
|
|
|
3,502,327
|
|
|
|
4
|
|
|
|
2,242,688
|
|
|
|
|
|
|
|
|
|
|
|
2,242,692
|
|
Debt settled for stock
|
|
|
176,328
|
|
|
|
|
|
|
|
112,849
|
|
|
|
|
|
|
|
|
|
|
|
112,849
|
|
Issuance of stock for services
|
|
|
125,477
|
|
|
|
|
|
|
|
95,000
|
|
|
|
|
|
|
|
|
|
|
|
95,000
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
1,133,149
|
|
|
|
|
|
|
|
|
|
|
|
1,133,149
|
|
Net (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,190,725
|
)
|
|
|
|
|
|
|
(10,190,725
|
)
|
Balance
|
|
|
117,103,276
|
|
|
$
|
117
|
|
|
$
|
35,829,627
|
|
|
$
|
(24,919,457
|
)
|
|
$
|
-
|
|
|
$
|
10,910,287
|
|
See the accompanying notes to the consolidated
financial statements
Barfresh Food Group Inc.
Consolidated Statements of Cash Flows
|
|
For the year
ended
December 31, 2016
|
|
|
For the nine
month ended
December 31, 2015
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(10,190,725
|
)
|
|
$
|
(5,920,092
|
)
|
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
147,131
|
|
|
|
89,648
|
|
Equity based compensation
|
|
|
1,133,148
|
|
|
|
630,395
|
|
Amortization of intellectual property
|
|
|
61,483
|
|
|
|
45,846
|
|
Interest related to debt discount
|
|
|
180,707
|
|
|
|
225,363
|
|
Amortization of unearned services
|
|
|
-
|
|
|
|
47,342
|
|
Loss on sale of property and equipment
|
|
|
63,751
|
|
|
|
|
|
Stock issuance for service
|
|
|
95,000
|
|
|
|
83,000
|
|
Change in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(102,492
|
)
|
|
|
17,500
|
|
Inventory
|
|
|
10,013
|
|
|
|
(162,114
|
)
|
Prepaid expenses
|
|
|
4,660
|
|
|
|
(24,138
|
)
|
Deposits
|
|
|
(36,751
|
)
|
|
|
-
|
|
Accounts payable
|
|
|
21,952
|
|
|
|
(1,450
|
)
|
Accrued expenses
|
|
|
589,025
|
|
|
|
(160,656
|
)
|
Deferred rent
|
|
|
(1,690
|
)
|
|
|
371
|
|
Net cash (used in) operations
|
|
|
(8,024,788
|
)
|
|
|
(5,128,985
|
)
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of fixed assets
|
|
|
(1,053,498
|
)
|
|
|
(236,014
|
)
|
Proceeds from sale of equipment
|
|
|
36,910
|
|
|
|
2,951
|
|
Investment in patent and trademarks
|
|
|
(64,089
|
)
|
|
|
(11,669
|
)
|
Net cash (used in) investing activities
|
|
|
(1,080,677
|
)
|
|
|
(244,732
|
)
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities:
|
|
|
|
|
|
|
|
|
Issuance of common stock and warrants for cash
|
|
|
16,457,150
|
|
|
|
-
|
|
Equity issuance costs
|
|
|
(750,020
|
)
|
|
|
-
|
|
Exercise of warrant and options
|
|
|
740,500
|
|
|
|
2,500
|
|
Repayment of short term notes payable -related party
|
|
|
(100,000
|
)
|
|
|
(550,000
|
)
|
Repayment of long term debt
|
|
|
(47,222
|
)
|
|
|
(9,436
|
)
|
Issuance of convertible notes
|
|
|
-
|
|
|
|
2,670,000
|
|
Borrowing from long term debt
|
|
|
-
|
|
|
|
33,000
|
|
Debt issuance costs
|
|
|
-
|
|
|
|
(76,000
|
)
|
Repayment of short term notes payable
|
|
|
-
|
|
|
|
(75,000
|
)
|
Net cash provided by financing activities
|
|
|
16,300,408
|
|
|
|
1,995,064
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
7,194,943
|
|
|
|
(3,378,653
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
1,986,004
|
|
|
|
5,364,657
|
|
Cash and cash equivalents at end of period
|
|
$
|
9,180,947
|
|
|
$
|
1,986,004
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
23,370
|
|
|
$
|
57,710
|
|
Cash paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
|
Common stock issued for services, and conversion of debt
|
|
$
|
2,450,537
|
|
|
$
|
1,160,592
|
|
Fair value of warrants issued with notes payable and common stock
|
|
$
|
0
|
|
|
$
|
600,629
|
|
See the accompanying notes to the financial
statements
Note 1. Summary of Significant Accounting
Policies
Barfresh Food Group Inc., (“we,”
“us,” “our,” and the “Company”) was incorporated on February 25, 2010 in the State of Delaware.
We are engaged in the manufacturing and distribution of ready to blend beverages, particularly, smoothies, shakes and frappes.
On December 15, 2015, the Company changed its
fiscal year end from March 31 to December 31 with immediate effect. The Company previously filed a Transition Report on Form 10-K
for the nine-month period ending December 31, 2015.
The accompanying financial statements have
been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Basis of Consolidation
The consolidated financial statements include
the financial statements of the Company and our wholly owned subsidiaries, Barfresh Inc. and Barfresh Corporation Inc. All inter-company
balances and transactions among the companies have been eliminated upon consolidation.
Use of Estimates
The preparation of financial statements in
accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
in the balance sheets and revenues and expenses during the years reported. Actual results may differ from these estimates.
Cash and Cash Equivalents
We consider all highly liquid investments with
an original maturity of three months or less, at the time of purchase, to be cash equivalents.
Concentration of Credit Risk
The amount of cash on deposit with financial
institutions exceeds the $250,000 federally insured limit at December 31, 2016 and 2015. However, we believe that cash on deposit
that exceeds $250,000 in the financial institutions is financially sound and the risk of loss is minimal.
Fair Value Measurement
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Topic 820,
Fair Value Measurements and Disclosures
(“ASC 820”),
provides a comprehensive framework for measuring fair value and expands disclosures which are required about fair value measurements.
Specifically, ASC 820 sets forth a definition of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques,
giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to
unobservable value inputs. ASC 820 defines the hierarchy as follows:
Level 1 - Quoted prices are available
in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities included in
Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed on the New York Stock Exchange.
Level 2 - Pricing inputs are other
than quoted prices in active markets, but are either directly or indirectly observable as of the reported date. The types of assets
and liabilities in Level 2 are typically either comparable to actively traded securities or contracts or priced with models using
highly observable inputs.
Level 3 - Significant inputs to pricing
that are unobservable as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring
significant management judgment or estimation, such as complex and subjective models and forecasts used to determine the fair value
of financial transmission rights.
Our financial instruments consist of accounts
receivable, accounts payable, accrued expenses, notes payable, and convertible notes. The carrying value of our financial instruments
approximates their fair value due to their relative short maturities.
Accounts Receivable
Accounts receivable are typically unsecured.
Our credit policy calls for payment generally within 30 days. The credit worthiness of a customer is evaluated prior to a sale.
As of December 31, 2016, and 2015, there is no allowance for doubtful accounts. There was no bad debt expense for the year ended
December 31, 2016 and the nine months ended December 31, 2015.
Inventory
Inventory consists of finished goods and is
carried at the lower of cost or market on a first in first out basis.
Intangible Assets
Intangible assets are comprised of patents,
net of amortization and trademarks. The patent costs are being amortized over the life of the patent, which is twenty years from
the date of filing the patent application. In accordance with ASC Topic 350
Intangibles - Goodwill and Other
(“ASC
350”), the costs of internally developing other intangible assets, such as patents, are expensed as incurred. However, as
allowed by ASC 350, costs associated with the acquisition of patents from third parties, legal fees and similar costs relating
to patents have been capitalized.
In accordance with ASC 350 legal costs related
to trademarks have been capitalized. We have determined that trademarks have an indeterminable life and therefore are not being
amortized.
Property, Plant, and Equipment
Property, plant, and equipment is stated at
cost less accumulated depreciation and accumulated impairment loss, if any. Depreciation is calculated on a straight-line basis
over the estimated useful lives of the assets. Leasehold improvements are being amortized over the shorter of the useful life of
the asset or the lease term that includes any expected renewal periods that are deemed to be reasonably assured. The estimated
useful lives used for financial statement purposes are:
Furniture and fixtures: 5 years
Manufacturing Equipment: 7 years
Leasehold improvements: 2 years
Vehicles 5 years
Revenue Recognition
We recognize revenue when there is persuasive
evidence of an arrangement, delivery has occurred or services have been rendered, the sales price is determinable, and collection
is reasonably assured. Revenue is recorded net of provisions for discounts, slotting fees, and promotion allowances. Our products
are sold on various terms. Our credit terms, which are established in accordance with local and industry practices, typically require
payment within 30 days of delivery. We recognize revenue upon receipt of our products by our distributors and retail accounts,
in accordance with written sales terms, net of provisions for discounts or allowances. Allowances for returns and discounts are
made on a case-by-case basis. Historically, neither returns nor discounts have been material.
Research and Development
Expenditures for research activities relating
to product development and improvement are charged to expense as incurred. We incurred $432,146 and $256,499, in research and development
expenses for the year ended December 31, 2016 and the nine months ended December 31, 2015, respectively.
Rent Expense
We recognize rent expense on a straight-line
basis over the reasonably assured lease term as defined in ASC Topic 840,
Leases
(“ASC 840”). Rent expense is
charged to expense beginning with the occupancy date. Deferred rent was $165 and $1,855 at December 31, 2016 and 2015, respectively,
and will be charged to rent expense over the life of the lease.
Income Taxes
The provision for income taxes is determined
in accordance with the provisions of ASC Topic 740,
Accounting for Income Taxes
(“ASC 740”). Under this method,
deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities
are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
ASC 740 prescribes a comprehensive model for
how companies should recognize, measure, present, and disclose in their financial statements, uncertain tax positions taken or
expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when
it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially
and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon
ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
For the year ended December 31, 2016 and for
the nine months ended December 31, 2015 we did not have any interest and penalties or any significant unrecognized uncertain tax
positions.
Earnings per Share
We calculate net loss per share in accordance
with ASC Topic 260,
Earnings per Share
. Basic net loss per share is computed by dividing net loss by the weighted average
number of shares of common stock outstanding for the period, and diluted earnings per share is computed by including common stock
equivalents outstanding for the period in the denominator. At December 31, 2016 and 2015 any equivalents would have been anti-dilutive
as we had losses for the periods then ended.
Stock Based Compensation
We calculate stock compensation in accordance
with ASC Topic 718,
Compensation-Stock Based Compensation
(“ASC 718”). ASC 718 requires that the cost resulting
from all share-based payment transactions be recognized in the financial statements and establishes fair value as the measurement
objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based measurement
method in accounting for share-based payment transactions with employees except for equity instruments held by employee stock ownership
plans
Recent pronouncements
From time to time, new accounting pronouncements
are issued that we adopt as of the specified effective date. We believe that the impact of recently issued standards that are not
yet effective may have an impact on our results of operations and financial position.
The Company is in the initial stages of evaluating
the effect of the standard on our financial statements and continue 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 April 2015, the FASB issued ASU 2015-03,
Interest-Imputation of Interest: Simplifying the Presentation of Debt Issuance Cost
. The guidance requires an entity to
present debt issuance costs in the balance sheet as a direct reduction from the carrying amount of the debt liability, consistent
with debt discounts, rather than as an asset. Amortization of debt issuance costs will continue to be reported as interest expense.
Debt issuance costs related to revolving credit arrangements, however, will continue to be presented as an asset and amortized
ratably over the term of the arrangement. ASU 2015-03 is effective for reporting periods beginning after December 15, 2015 including
interim periods within those annual periods. Early application is permitted, and upon adoption, ASU 2015-03 should be applied on
a retrospective basis. We have adopted ASU 2015-03 and it has not had a material impact on our Consolidated Financial Statements.
In July 2015, the FASB issued ASU 2015-11,
Inventory
, which simplifies the measurement principle of inventories valued under the First-In, First-Out (“FIFO”)
or weighted average methods from the lower of cost or market to the lower of cost and net realizable value. ASU 2015-11 is effective
for reporting periods beginning after December 15, 2016 including interim periods within those annual periods. We do not expect
the standard to have a material impact on our Consolidated Financial Statements.
In November 2015, the FASB issued ASU 2015-17,
Balance Sheet Classification of Deferred Taxes
, which requires that deferred tax assets and liabilities be classified as
noncurrent on the consolidated balance sheet. ASU 2015-17 is effective for annual periods beginning after December 15, 2016, including
interim periods within those annual periods. Early adoption is permitted as of the beginning of an interim or annual reporting
period. Upon adoption, ASU 2015-17 may be applied either prospectively or retrospectively. We do not expect the adoption of this
guidance to have a material impact on our Consolidated Financial Statements.
In February 2016, the FASB issued ASU No. 2016-02,
Leases
, to improve financial reporting about leasing transactions. This ASU will require organizations that lease assets
(“lessees”) to recognize a lease liability and a right-of-use asset on its balance sheet for all leases with terms
of more than twelve months. A lease liability is a lessee’s obligation to make lease payments arising from a lease, measured
on a discounted basis and a right-of-use asset represents the lessee’s right to use, or control use of, a specified asset
for the lease term. The amendments in this ASU simplify the accounting for sale and leaseback transactions primarily because lessees
must recognize lease assets and lease liabilities. This ASU leaves the accounting for the organizations that own the assets leased
to the lessee (“lessor”) largely unchanged except for targeted improvements to align it with the lessee accounting
model and Topic 606, Revenue from Contracts with Customers.
The Company is in the initial stages of evaluating
the effect of the standard on our financial statements and continue 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 2016-09,
Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic 718, Compensation - Stock Compensation. This ASU
simplifies several aspects of the accounting for share-based payment award transactions, including (i) income tax consequences,
(ii) classification of awards as either equity or liabilities, (iii) whether to estimate forfeitures or account for them when they
occur and (iv) classification on the statement of cash flows. The standard is effective for interim and annual periods beginning
after December 31, 2016. Early adoption will be permitted with any adjustments reflected as of the beginning of the fiscal year
of adoption. The Company is evaluating the impact of this standard on its consolidated financial statements and disclosures.
In August 2016, the FASB issued ASU No. 2016-15
- Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce diversity
in practice in how certain transactions are classified in the statement of cash flows. The eight items that the ASU provides classification
guidance on include (1) debt prepayment and extinguishment costs, (2) settlement of zero-coupon debt instruments, (3) contingent
consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from
the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (6) distributions received
from equity method investments, (7) beneficial interests in securitization transactions, and (8) separately identifiable cash flows
and application of the predominance principle. The standard is effective on January 1, 2018, however early adoption is permitted.
The standard requires the use of the retrospective transition method. The Company is in the process of evaluating the impact of
this new guidance.
Note 2. Property Plant and Equipment
Major classes of property and equipment at
December 31, 2016 and 2015 consist of the following:
|
|
2016
|
|
|
2015
|
|
Furniture and fixtures
|
|
$
|
1,524
|
|
|
$
|
13,604
|
|
Manufacturing Equipment
|
|
|
1,605,317
|
|
|
|
705,782
|
|
Leasehold Improvements
|
|
|
4,800
|
|
|
|
3,300
|
|
Vehicles
|
|
|
29,696
|
|
|
|
116,752
|
|
|
|
|
1,641,337
|
|
|
|
839,438
|
|
Less: accumulated depreciation
|
|
|
(396,863
|
)
|
|
|
(249,732
|
)
|
|
|
|
1,244,474
|
|
|
|
589,706
|
|
Equipment not yet placed in service
|
|
|
250,004
|
|
|
|
99,066
|
|
Property and equipment, net of depreciation
|
|
$
|
1,494,478
|
|
|
$
|
688,772
|
|
We recorded depreciation expense related to
these assets of $147,131 and $89,648 for the year ended December 31, 2016 and the nine months ended December 31, 2015, respectively.
Note 3. Intangible Assets
As of December 31, 2016, intangible assets
consist of patent costs of $750,640, trademarks of $73,925 and accumulated amortization of $204,702.
As of December 31, 2015, intangible assets
consist of patent costs of $745,943, trademarks of $14,533 and accumulated amortization of $143,219
The amounts carried on the balance sheet represent
cost to acquire, legal fees and similar costs relating to the patents incurred by the Company. Amortization is calculated through
the expiration date of the patent, which is December, 2025. The amount charged to expenses for amortization of the patent costs
was $61,483 and $45,846 for the year ended December 31, 2016 and the nine months ended December 31, 2015, respectively.
Estimated future amortization expense related
to intangible property as of December 31, 2016, is as follows:
|
|
Total Amortization
|
|
Years ending December 31,
|
|
|
|
2017
|
|
$
|
61,595
|
|
2018
|
|
|
61,595
|
|
2019
|
|
|
61,595
|
|
2020
|
|
|
61,595
|
|
2022
|
|
|
61,595
|
|
Later years
|
|
|
237,963
|
|
|
|
$
|
545,938
|
|
Note 4. Related Parties
As disclosed below in Note 5, previous balances
owed to related parties, a significant shareholder and a company controlled by a director and significant shareholder, have been
fully paid.
As disclosed below in Note 6, members of management,
directors, and members of their families, participated in $635,000 of the total $2,670,000 convertible notes offering.
As disclosed below in Note 9, members of management and directors
have received shares of stock and options in exchange for services.
Note 5. Short-Term Notes Payable (Related
and Unrelated)
In December 2013, we closed an offering of
$775,000 in short-term notes payable (“Short-Term Notes”), $500,000 of which was purchased by a significant shareholder
and $100,000 was purchased by a company controlled by a director and significant shareholder. The Short-Term Notes bear interest
at a rate of 2% per annum and were due and payable on December 20, 2014. We also issued 1,291,667 warrants to the Short-Term Note
holders for the right to purchase shares of our common stock. Each warrant entitles the holder to purchase one share of our common
stock at a price of $0.45 per share, may be exercised on a cashless basis and are exercisable for a period of five years.
In accordance with the guidance in ASC Topic
470-20
Debt with Conversion and Other Options
(“ASC 470”), we first calculated the fair value of the warrants
issued and then determined the relative value of the Short-Term Notes.
The relative value of the warrants was $298,232,
which was the amount recorded as debt discount to the short-term notes. The amounts recorded as debt discount were amortized over
the one-year term, and accreted to interest expense. We estimated the effective interest rate as calculated to be approximately
52% but paid cash at a rate of 2% per annum.
We exercised our right to extend the due date
of the Short-Term Notes to September 20, 2015. The extended Short-Term Notes bear at the rate of 3% per annum and required us to
issue additional warrants (“Extension Warrants”). We issued 898,842 Extension Warrants to the Short-Term Note holders
for the right to purchase shares of our common stock. Each Extension Warrant entitles the holder to purchase one share of our common
stock at a price of $0.485 per share, may be exercised on a cashless basis and are exercisable for a period of three years.
As discussed above, we accounted for the warrants
as per the guidance in ASC 470. The relative value of the Extension Warrants, $164,638, was the amount recorded as the new debt
discount. The amounts recorded as debt discount were being amortized over the six-month term of the note, and accreted to interest
expense. We estimated the effective interest rate as calculated to be approximately 53% but pay cash at a rate of 3% per annum.
The fair value of the Extension Warrant, $0.23
per share, was calculated using the Black-Sholes option pricing model using the following assumptions:
Expected life (in years)
|
|
|
3
|
|
Volatility (based on a comparable company)
|
|
|
76.88
|
%
|
Risk Free interest rate
|
|
|
1.10
|
%
|
Dividend yield (on common stock)
|
|
|
-
|
%
|
On June 20, 2015, some of the Short-Term Notes
were amended again, and some of the Short-Term Notes were redeemed. Short-Term Notes totaling $700,000 were amended to provide
for repayment on June 20, 2015 of 50% of the face value, plus accrued interest to that date ($10,500), and extension of the remaining
balance until September 20, 2015, and the interest rate on the notes that were extended was adjusted to 10%. The remaining Short-Term
Notes were fully redeemed on June 20, 2015. One such note in the amount of $25,000 was redeemed for cash, and one such note in
the amount of $50,000 was redeemed for 71,429 shares of our common stock. As a result of the above described amendments and redemptions
of the Short-Term Notes, all remaining unamortized debt discount was expensed as of June 20, 2015.
Of the balance of the notes due that were payable
on September 20, 2015, one note for $250,000 was repaid on October 1, 2015, and two notes, one to a related party in the amount
of $50,000, and one to an unrelated party in the amount of $50,000, plus total accrued interest $12,849 were converted into stock
at $0.64 per share on September 27, 2016, plus 50% warrants coverage at $0.75 per share.
Note 6. Convertible Notes (Related and Unrelated)
In August 2012, we closed an offering of $440,000
of convertible notes. The notes bear interest at a rate of 12% per annum and were due and payable on September 6, 2013. In addition,
the notes were convertible, at any time after the original issue date until the notes are no longer outstanding, into our common
stock at a conversion price of $0.372 per share. We also issued 956,519 warrants to the note holders for the right to purchase
shares of our common stock. Each warrant entitled the holder to purchase one share of our common stock at a price of $0.46 per
share for a term of seven years.
When the convertible notes were due, we settled
the notes by repaying $40,000 of the notes in cash, issuing new convertible notes in the amount of $400,000 and received payment
for another note in the amount of $20,000. The new notes bear interest at a rate of 12% per annum and were due and payable on September
6, 2015. In addition, the new notes were convertible at any time after the original issue date until the new notes are no longer
outstanding, into our common stock at a conversion price of $0.25 per share. We also issued warrants to the new note holders for
the right to purchase shares of our common stock. Each warrant entitles the holder to purchase one share of our common stock at
a price of $0.25 per share. There were 1,680,000 warrants issued. The warrants issued with the original notes were cancelled.
In accordance with the guidance in ASC 470,
we first calculated the fair value of the warrants issued and then determined the relative value of the notes and determined that
there was a beneficial conversion feature.
The fair value of the warrants, $0.13 per share
($216,531 in the aggregate), was calculated using the Black-Sholes option pricing model using the following assumptions:
Expected life (in years)
|
|
|
3
|
|
Volatility (based on a comparable company)
|
|
|
85
|
%
|
Risk Free interest rate
|
|
|
0.91
|
%
|
Dividend yield (on common stock)
|
|
|
-
|
|
The relative value of the warrants to the notes
was $142,873, which was the amount recorded as a portion of the debt discount. We also recorded a beneficial conversion feature
on the convertible notes of $125,905. The amounts recorded as debt discount are being amortized over the two-year term, and accreted
to interest expense. We estimated the effective interest rate as calculated to be approximately 74% but will be paying cash at
a rate of 12% per annum.
As of December 31, 2015, all of the associated
debt discount has been amortized.
During September 2015, all of the holders of
the convertible notes elected to convert the then outstanding $420,000 of notes, and accumulated interest of $21,955 to our common
stock. We issued 1,767,822 shares of our common stock in conversion of these notes.
During late 2015, we raised $2,670,000 through
the issuance of convertible promissory notes. The notes bore interest at a rate of 10% and matured in one year. Upon completion
of an equity financing which occurred during the first quarter of 2016, holders of approximately 96% of these notes elected to
convert all outstanding principal and accrued and unpaid interest under the notes into the class of equity issued in such financing
on the same terms as the other investors concurrently with the closing of such financing. The balance of the notes, $100,000, and
accrued interest of $5,498 was repaid in cash. During late 2015 we also issued 1,335,000 warrants to the note holders for the right
to purchase shares of our common stock. Each warrant entitled the holder to purchase one share of our common stock at a price of
$1.00 per share for a term of five years. Of the aggregate offering amount, $635,000 of the notes and warrants to purchase up to
317,500 shares of common stock were placed with members of the Company’s management, including officers and directors of
the Company, and family members of certain officers and directors.
There was no outstanding balance at December
31, 2016. At December 31, 2015, the balance of the notes was comprised of the following:
|
|
December 31, 2015
|
|
Convertible notes (including related party)
|
|
|
2,720,000
|
|
Less: Debt discount (warrant value)
|
|
|
(554,462
|
)
|
Less: Debt discount (issuance costs paid)
|
|
|
(69,667
|
)
|
|
|
$
|
2,095,871
|
|
We did not record any discount for beneficial
conversion as the conversion terms were unknown at the time of issuance. The conversion price was set during the February 2016
equity transaction. At that time the Company evaluated whether a beneficial conversion feature should have been recorded, and concluded
that no such beneficial conversion feature needed to be recorded.
The fair value of the warrants, $0.586 per
share ($782,863 in the aggregate), was calculated using the Black-Sholes option pricing model using the following assumptions:
Expected life (in years)
|
|
|
3
|
|
Volatility (based on a comparable company)
|
|
|
77.5
|
%
|
Risk Free interest rate
|
|
|
1.73
|
%
|
Dividend yield (on common stock)
|
|
|
-
|
|
The relative value of the warrants to the notes
was $600,629, which was the amount recorded as a portion of the debt discount. The amount recorded as debt discount are being amortized
over the one year term of the notes, one years, and accreted to interest expense. We estimated the effective interest rate as calculated
to be approximately 34% but will be paying cash at a rate of 10% per annum.
Note 7. Long term Debt
Long term debt at December 31, 2016 and 2015,
consists of installment agreements on one and three vehicles, respectively, maturing on different dates through June 2020. The
installment agreements, are with one financial institution and bear no interest. Monthly payments are $320 per month.
The annual maturities of long term debt as
of December 31, 2016, are as follows:
For years ending December 31,
|
|
|
|
2017
|
|
|
3,849
|
|
2018
|
|
|
3,849
|
|
2019
|
|
|
3,849
|
|
2020
|
|
|
1,263
|
|
|
|
$
|
12,807
|
|
Note 8. Commitments and Contingencies
We lease office space under non-cancelable
operating leases, which expires on March 31, 2019. The aggregate minimum requirements are as follows:
For years ending December 31,
|
|
|
|
2017
|
|
$
|
132,620
|
|
2018
|
|
|
167,530
|
|
2019
|
|
|
43,462
|
|
|
|
$
|
343,612
|
|
Note 9. Stockholders’ Equity
During the nine months ended December 31, 2015,
we increased our authorized capitalization to 300,000,000 shares of stock, consisting of 295,000,000 shares of common stock, par
value $0.000001per share, and 5,000,000 shares of blank check preferred stock, par value $0.000001. During the nine-months ended
December 31, 2015, our Board of Directors also unanimously approved and adopted the Barfresh Food Group, Inc. 2015 Equity Incentive
Plan (the “Plan”). The maximum number of shares that may be issued pursuant to awards under the Plan is 15,000,000
shares.
During the nine months ended December 31, 2015,
we issued 141,477 shares of common stock, valued at $83,000, for services.
During the nine-months ended December 31, 2015
we granted the right to 1,000,000 shares of restricted common stock to a director of the Company who during the period became an
officer of the Company. The stock vests 50% on each of the second and third anniversary of the issuance. In accordance with ASC
Topic 718, Compensation - Stock Compensation (“ASC 718”), compensation expense in the amount of $166,667 for the nine
months ended December 31, 2015, was recognized in the statement of operations. In addition, we granted the right to 450,000 shares
of restricted stock to two other officers in connection with employment agreements entered into during the nine months ended December
31, 2015. In accordance with ASC Topic 718, Compensation - Stock Compensation (“ASC 718”), compensation expense in
the amount of $78,467 for the nine months ended December 31, 2015 was recognized in the statement of operations.
During the nine months ended December 31, 2015,
we issued 1,985,000 options to purchase our common stock to officers and employees of the Company. In addition, we cancelled 10,000
options to purchase our common stock. The exercise price of the options ranged from $0.50 to $0.82 per share, and the options are
exercisable for periods of between 5 and 8 years. The options vest under a variety of vesting schedules.
The fair value of the options ($1,345,317 in
the aggregate) was calculated using the Black-Sholes option pricing model, based on the criteria shown below, and are being written
off the life of each option.
Expected life (in years)
|
|
|
4.5 to 8
|
|
Volatility (based on a comparable company)
|
|
|
78% to 99 %
|
|
Risk Free interest rate
|
|
|
1.38% to 2.11 %
|
|
Dividend yield (on common stock)
|
|
|
-
|
|
During 2016 we issued 28,277,339 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 the note that was settled for most investors during 2015.
In additions to the warrants discussed above
we issued 171,368 warrants to placement agents who worked on the above describe financings.
The fair value of the warrants described above,
in the aggregate of $6,189,196, was estimated at the date of grant using the Black-Scholes option pricing model, with an allocation
of the proceeds applied to the warrants. The fair value of the warrants has been included in the total additional paid in capital.
The following assumptions were used in the Black-Scholes option pricing model:
Expected life (in years)
|
|
|
5
|
|
Volatility (based on a comparable company)
|
|
|
75.56%-78.12% %
|
|
Risk Free interest rate
|
|
|
1.23%-1.83% %
|
|
Dividend yield (on common stock)
|
|
|
-
|
|
During the year ended December 31, 2016, the
holder of warrants to purchase shares of common stock exercised their rights and purchased 1,250,000 shares of common stock for
an aggregate price of $715,000. In addition, the holders of 620,000 warrants exercised their right to a cash-less conversion and
received 1,214,017 shares.
Also during the year ended December 31, 2016
we issued 64,599 shares of stock to a member of our board of directors in lieu of $50,000 in director fees due and 60,878 shares
of common stock in lieu of cash for legal fees. We valued the shares based on the trading value on the date issued.
In addition, during the year ended December
31, 2016 we issued 50,000 shares of stock at a price of $0.51 per share in exchange for outstanding options.
During the year ended December 31, 2016, we
issued 1,893,442 options to purchase our common stock to employees of the Company. In addition, we cancelled 56,000 options to
purchase our common stock. The exercise price of the options ranged from $0.6129 to $0.83 per share, and are exercisable for a
period of 8 years and have varying vesting periods of up to three years.
The fair value of the options ($883,490 in
the aggregate) was calculated using the Black-Sholes option pricing model, based on the criteria shown below, and are being expensed
over the vesting period of each option.
Expected life (in years)
|
|
|
5.5 to 8
|
|
Volatility (based on a comparable company)
|
|
|
74.09% to 82.65
|
%
|
Risk Free interest rate
|
|
|
1.24% to 1.73
|
%
|
Dividend yield (on common stock)
|
|
|
-
|
|
The total amount of equity based compensation
for the year ended December 31, 2016 and the nine months ended December 31, 2015 included in additional paid in capital was $1,133,149
and $630,395, respectively.
The following is a summary of outstanding stock
options issued to employees and directors as of December 31, 2016:
|
|
Number of Options
|
|
|
Exercise price per share $
|
|
|
Average remaining term in years
|
|
|
Aggregate intrinsic value at date of grant $
|
|
Outstanding April 1, 2015
|
|
|
1,600,000
|
|
|
|
.45 -.54
|
|
|
|
4.25
|
|
|
|
-
|
|
Issued
|
|
|
1,985,000
|
|
|
|
.47 -.87
|
|
|
|
6.42
|
|
|
|
|
|
Cancelled
|
|
|
(10,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2015
|
|
|
3,575,000
|
|
|
|
|
|
|
|
4.84
|
|
|
|
|
|
Issued
|
|
|
1,893,442
|
|
|
|
.61 - .83
|
|
|
|
7.16
|
|
|
|
|
|
Cancelled
|
|
|
(56,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(50,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2016
|
|
|
5,362,442
|
|
|
|
|
|
|
|
5.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
1,580,000
|
|
|
|
.45 - .54
|
|
|
|
2.53
|
|
|
|
-
|
|
Note 10. Outstanding Warrants
The following is a summary of all outstanding
warrants as of December 31, 2016:
|
|
Number of Warrants
|
|
|
Exercise price per share $
|
|
|
Average remaining term in years
|
|
|
Aggregate intrinsic value at date of grant
|
|
Warrants issued in connection with private placements of common stock
|
|
|
26,735,640
|
|
|
|
0.25 - 1.50
|
|
|
|
1.72
|
|
|
$
|
161,250
|
|
Warrants issued in connection with private placement of notes
|
|
|
3,525,509
|
|
|
|
.48 – 1.00
|
|
|
|
2.48
|
|
|
|
$ 64,583-
|
|
Note 11. Income Taxes
Income tax provision (benefit) for the year
ended December 31, 2016 and the nine months ended December 31, 2015 is summarized below:
|
|
2016
|
|
|
2015
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
Total current
|
|
|
-
|
|
|
|
-
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(2,878,000
|
)
|
|
|
(1,712,000
|
)
|
State
|
|
|
(279,300
|
)
|
|
|
(167,000
|
)
|
Total deferred
|
|
|
(3,157,300
|
)
|
|
|
(1,888,000
|
)
|
Increase in valuation allowance
|
|
$
|
3,157,300
|
|
|
$
|
1,888,000
|
|
The provision for income taxes differs from
the amount computed by applying the statutory federal income tax rate before provision for income taxes. The sources and tax effect
of the differences are as follows:
|
|
2016
|
|
|
2015
|
|
Income tax provision at the federal statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State income taxes, net of federal benefit
|
|
|
3.3
|
%
|
|
|
3.3
|
%
|
Effect of net operating loss
|
|
|
(37.3
|
%)
|
|
|
(37.3
|
%)
|
|
|
|
-
|
%
|
|
|
-
|
%
|
Components of the net deferred income tax assets
at December 31, 2016 and 2015 were as follows:
|
|
2016
|
|
|
2015
|
|
Net operating loss carryover
|
|
$
|
7,766,100
|
|
|
$
|
4,708,800
|
|
Valuation allowance
|
|
|
(7,766,100
|
)
|
|
|
(4,708,800
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
ASC 740 requires a valuation allowance to reduce
the deferred tax assets reported if, based on the weight of evidence, it is more than likely than not that some portion or all
of the deferred tax assets will not be recognized. After consideration of all the evidence, both positive and negative, management
has determined that a $7,766,100 and $4,708,800 allowance at December 31, 2016 and 2015, respectively, is necessary to reduce the
deferred tax assets to the amount that will more likely than not be realized. The change in the valuation allowance for the current
period is $3,157,300.
As of December 31, 2016, we have a net operating
loss carry forward of approximately $21,088,800. The loss will be available to offset future taxable income. If not used, this
carry forward will expire as follows:
2030
|
|
$
|
1,000
|
|
2031
|
|
$
|
63,800
|
|
2032
|
|
$
|
345,900
|
|
2033
|
|
$
|
1,840,300
|
|
2034
|
|
$
|
2,324,100
|
|
2035
|
|
$
|
2,987,300
|
|
2036
|
|
$
|
5,061,700
|
|
2037
|
|
$
|
8,464,700
|
|
As of December 31, 2016, we did not have any
significant unrecognized uncertain tax positions.
Note 12. Business Segments and Customer
Concentrations.
During the year ended December 31, 2016 and
the nine months ended December 31, 2015, we operate in only one segment and sold only in the United States
All of our assets are located in the United
States.
The following is a breakdown of customers representing
more than 10% of sales for the year ended December 31, 2016:
|
|
Revenue from customer
|
|
|
Percentage of total revenue
|
|
Customer A
|
|
$
|
1,194,960
|
|
|
|
82.0
|
%
|
Customer B
|
|
|
161,363
|
|
|
|
11.1
|
%
|
|
|
$
|
1,356,323
|
|
|
|
93.1
|
%
|
The following is a breakdown of customers representing
more than 10% of sales for the nine months ended December 31, 2015:
|
|
Revenue from customer
|
|
|
Percentage of total revenue
|
|
Customer A
|
|
$
|
373,190
|
|
|
|
85.3
|
%
|
Customer C
|
|
|
37,276
|
|
|
|
8.5
|
%
|
Customer D
|
|
|
18,144
|
|
|
|
4.1
|
%
|
|
|
$
|
428,610
|
|
|
|
98.0
|
%
|
Note 13. Transitional Reporting Year –
Comparison of audited results for the year ended December 31, 2016 to the unaudited results for the year ended December 31, 2015.
This comparison is provided because the previous audited period was a nine month transitional period ending December 31, 2015.
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
(unaudited)
|
|
Revenue
|
|
$
|
1,457,499
|
|
|
$
|
490,905
|
|
Cost of revenue
|
|
|
772,827
|
|
|
|
280,648
|
|
Gross profit
|
|
|
684,672
|
|
|
|
210,257
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
10,415,933
|
|
|
|
6,819,183
|
|
Depreciation and Amortization
|
|
|
208,164
|
|
|
|
174,892
|
|
Total operating expenses
|
|
|
10,624,547
|
|
|
|
6,994,075
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(9,939,875
|
)
|
|
|
(6,783,818
|
)
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
Interest
|
|
|
250,850
|
|
|
|
424,245
|
|
Loss on extinguishment of debt
|
|
|
-
|
|
|
|
7,857
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(10,190,725
|
)
|
|
$
|
(7,225,920
|
)
|
|
|
|
|
|
|
|
|
|
Per share information - basic and fully diluted:
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
95,857,003
|
|
|
|
89,437,799
|
|
Net (loss) per share
|
|
$
|
(0.11
|
)
|
|
$
|
(0.08
|
)
|
Note 14. Subsequent Events
Management has evaluated all activity and concluded
that no subsequent events have occurred that would require recognition in the financial statements or disclosure in the notes to
the financial statements except as for the following:
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
24. Indemnification of Directors and Officers
Section
145 of the Delaware General Corporation Law provides that a corporation may indemnify directors and officers as well as other
employees and individuals against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with any threatened, pending or completed actions, suits or proceedings
in which such person is made a party by reason of such person being or having been a director, officer, employee or agent of the
corporation. Section 145 of the Delaware General Corporation Law also provides that expenses (including attorneys’ fees)
incurred by a director or officer in defending an action may be paid by a corporation in advance of the final disposition of an
action if the director or officer undertakes to repay the advanced amounts if it is determined such person is not entitled to
be indemnified by the corporation. The Delaware General Corporation Law provides that Section 145 is not exclusive of other rights
to which those seeking indemnification may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors
or otherwise. The provision does not affect directors’ responsibilities under any other laws, such as the federal securities
laws. The Company’s Certificate of Incorporation provides for such indemnification to the fullest extent of Section 145
and states that the indemnification is not exclusive of other rights of those seeking indemnification may be entitled.
Section
102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a
director of the corporation shall not be personally liable to the corporation or its shareholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the corporation
or its shareholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) for unlawful payments of dividends or unlawful stock repurchases, redemptions or other distributions, or (iv) for
any transaction from which the director derived an improper personal benefit. The Company’s Certificate of Incorporation
provides for such limitation of liability.
The Company has entered into agreements
with its directors and executive officers, that require the Company to indemnify such persons to the fullest extent permitted
by law, against expenses, judgments, fines, settlements and other amounts incurred (including attorneys’ fees), and advance
expenses if requested by such person, in connection with investigating, defending, being a witness in, participating, or preparing
for any threatened, pending, or completed action, suit, or proceeding or any alternative dispute resolution mechanism, or any
inquiry, hearing or investigation (collectively, a “Proceeding”), relating to any event or occurrence that takes place
either prior to or after the execution of the indemnification agreement, related to the fact that such person is or was a director
or officer of the Company, or while a director or officer is or was serving at the request of the Company as a director, officer,
employee, trustee, agent or fiduciary of another foreign or domestic corporation, partnership, joint venture, employee benefit
plan, trust or other enterprise, or was a director, officer, employee or agent of a foreign or domestic corporation that was a
predecessor corporation of the Company or of another enterprise at the request of such predecessor corporation, or related to
anything done or not done by such person in any such capacity, whether or not the basis of the Proceeding is alleged action in
an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer,
employee, or agent of the Company. Indemnification is prohibited on account of any Proceeding in which judgment is rendered against
such persons for an accounting of profits made from the purchase or sale by such persons of securities of the Company pursuant
to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of any federal, state
or local laws. The indemnification agreements also set forth certain procedures that apply in the event of a claim for indemnification
thereunder.
The
Company maintains insurance on behalf of any person who is or was a director, officer or employee of the Company, or is
or was serving at the request of the Company as a director, officer, employee or agent of another company, partnership, joint
venture, trust or other enterprise against liability asserted against him and incurred by him in any such capacity, or arising
out of his status as such, whether or not the Company would have the power to indemnify him against liability under the provisions
of this section.
The
right of any person to be indemnified is subject always to the right of the Company by its board of directors, in lieu of such
indemnity, to settle any such claim, action, suit or proceeding at the expense of the Company by the payment of the amount of
such settlement and the costs and expenses incurred in connection therewith.
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 Securities
and Exchange Commission, 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.
Item
25. Other Expenses of Issuance and Distribution
The
following table sets forth the costs and expenses payable by us in connection with the offering of the common stock being registered.
All amounts are estimates. The selling shareholders will pay none of the expenses set forth below.
SEC filing fees
|
|
$
|
2,504
|
|
Legal fees and expenses
|
|
|
15,000
|
|
Accounting fees and expenses
|
|
|
2,500
|
|
Transfer agent fees and expenses
|
|
|
100
|
|
Printing fees
|
|
|
2,500
|
|
Miscellaneous
|
|
|
2,000
|
|
Total
|
|
$
|
24,604
|
|
Item
26. Recent Sales of Unregistered Securities
The
following sets forth all sales of unregistered securities we have completed during the last three years. Except as otherwise indicated
below, the following transactions were effected in reliance upon the exemption from registration set forth in Section 4(2) of
the Securities Act. We based such reliance upon the following facts and circumstances: (i) the investors were accredited investors,
as defined in Rule 501 of the Securities Act and were sophisticated, having sufficient knowledge and experience in financial and
business matters to make them capable of evaluating the merits and risks of the investment, (ii) the investors represented that
they were purchasing the securities for investment purposes without a view to distribution, (iii) the investors had access to
our management and information concerning the Company, its business and financial information and (iv) we conducted the sale of
the securities without general solicitation or advertising. Except as otherwise indicated below, no underwriting discounts or
commissions were paid in the transactions.
On
November 23, 2016, the Company entered into a securities purchase agreement and investor rights agreement with Unibel, the majority
shareholder of Bel Group (“Unibel”). Pursuant to the securities purchase agreement, Unibel purchased 15,625,000 shares
of common stock at $0.64 per share and warrants to purchase 7,812,500 shares of common stock 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 $0.88 for cash. The shares and common
stock issuable upon exercise of the warrants have the registration rights set forth in the investor rights agreement between the
Company and purchasers.
Pursuant to a securities
purchase agreement between the Company and certain accredited investors, in September, 2016 and October, 2016, the Company sold
4,687,500 shares of common stock and warrants to purchase 2,343,750 shares of common stock for aggregate gross proceeds to the
Company of approximately $2.3 million. The warrants are exercisable for a term of five years at a per share price of $0.75. The
shares and common stock issuable upon exercise of the warrants have the registration rights set forth in a registration rights
agreement between the Company and purchasers.
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.
During
the three months ended September 30, 2015 we granted 80,000 options to purchase shares of our common stock to officers, directors
and employees. The exercise prices range from $0.47 to $0.72.
During
the three months ended June 30, 2015 we granted the right to 1,000,000 shares of restricted common stock to a director of the
Company who during the period became an officer of the Company. The stock vests 50% on each of the second and third anniversary
of the issuance. In addition, we granted the right to 350,000 shares of restricted to another officer in connection with an employment
agreement entered into during the three month period ended June 30, 2015.
During
the three months ended June 30, 2015, we issued 1,740,000 options to purchase our common stock to officers and employees of the
Company. The exercise price of the options ranged from $0.50 to $0.82 per share, and the options are exercisable for periods of
between 5 and 8 years. The options vest under a variety of vesting schedules. Two hundred sixty five thousand (265,000) of the
options vest on the first anniversary of issuance, 675,000 of the options vest on the second anniversary of issuance, 675,000
of the options vest on the third anniversary of issuance, and 125,000 of the options vest on the third anniversary of issuance.
During
the year ended March 31, 2015 we completed two offerings of common stock units at a price of $0.50 per unit. Each unit consists
of one share of common stock and a five year warrant to purchase one-half (1/2) share of our common stock at an exercise price
of $0.60 per share. We sold a total of 11,044,000 units representing 11,044,000 shares and warrants to purchase 5,522,000 shares
for total consideration of $5,522,000.
During
the year ended March 31, 2015 we issued 900,000 shares of restricted common stock to an officer and two employees of the Company
for services rendered.
Also
during the year ended March 31, 2015, we issued 155,000 shares of our restricted common stock to legal counsel and a consultant
to the Company.
Additionally,
during the year ended March 31, 2015, we issued 64,100 shares of our common stock to a director. The shares vest over a one year
period. We also issued options to purchase 600,000 shares of our common stock at an exercise price of $0.45 per share to two officers
and directors and a director of the Company. The options vested immediately and are exercisable for a period of 5 years from the
date of issuance, January 21, 2014.
During
November 2014 we issued 494,000 shares of our common stock for total consideration of $247,000. In addition to the Common Stock,
the Company issued 247,000 warrants to purchase shares of the Company’s common stock for a purchase price of $0.60 per share
and for a term of 5 years.
On
March 20, 2014 we completed a private placement to accredited investors of 5,000,000 shares of common stock and Series E Warrants
to purchase up to 2,500,000 shares for aggregate gross proceeds to the Company of $2,500,000. The Series E Warrants are exercisable
for a term of three-years at a per share price of $0.60. An additional 25,000 shares of common stock and Series E Warrants to
purchase 25,000 shares were issued to a service provider.
During
the year ended March 31, 2014 we issued 600,000 shares of common stock to officers and directors of the Company for services rendered.
We also issued 55,000 shares of our common stock to non-employees for consulting services and options to purchase 800,000 shares
of our common stock at an exercise price of $0.50 per share to a director of the Company. The options vested immediately and are
exercisable for a period of 3 years from the date of issuance, February 14, 2014.
On
December 20, 2013 we completed a private offering of an aggregate of $775,000 in promissory notes. The notes bear interest at
a rate of 2.0% and are due and payable on December 20, 2014, with certain provisions for extension. In addition to the notes,
the Company issued to the holders five-year warrants to purchase 1,291,667 shares of the Company’s common stock for a purchase
price of $0.45 per share.
On
August 7, 2013 we completed a private placement of 7,626,000 units at a purchase price of $0.25 per unit for a total aggregate
amount of $1,906,500. Each unit consists of one share of common stock, one three-year Series C Warrant to purchase a share of
common stock at a purchase price of $0.25 per share, and one five-year Series D Warrant to purchase one-half share of common stock
at a purchase price of $0.25 per one-half share ($0.50 per share). Network 1 Financial Securities, Inc., a licensed broker dealer,
acted as placement agent and received a selling commission equal to $190,650 and non-accountable expense reimbursement of $57,195.
Item
27. Exhibits
(
b)
|
Exhibits
required by Item 601 of Regulation S-K
|
Exhibit
Number
|
|
Description
|
2.1
|
|
Share
Exchange Agreement dated January 10, 2012 by and among Moving Box Inc., Andreas Wilcken, Jr., Barfresh Inc. and the shareholders
of Barfresh Inc. (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K as filed January 17, 2012
|
3.1
|
|
Certificate
of Incorporation of Moving Box Inc. dated February 25, 2010 (incorporated by reference to Exhibit 3.1 to Form S-1 (Registration
No. 333-168738) as filed August 11, 2010)
|
3.2
|
|
Amended
and Restated Bylaws of Barfresh Food Group Inc. (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K as
filed August 4, 2014)
|
3.3
|
|
Certificate
of Amendment of Certificate of Incorporation of Moving Box Inc. dated February 13, 2012 (incorporated by reference to Exhibit
3.1 to Current Report on Form 8-K as filed February 17, 2012)
|
3.4
|
|
Certificate
of Amendment of Certificate of Incorporation of Smoothie Holdings Inc. dated February 16, 2012 (incorporated by reference
to Exhibit 3.2 to Current Report on Form 8-K as filed February 17, 2012)
|
4.1
|
|
Form
of Series A Warrant (incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K as filed January 17, 2012)
|
4.2
|
|
Form
of Series B Warrant (incorporated by reference to Exhibit 4.2 to Form 10K for the period ending March 31, 2014, as filed June
30, 2014)
|
4.3
|
|
Form
of Series C Warrant (incorporated by reference to Exhibit 4.3 to Form 10K for the period ending March 31, 2014, as filed June
30, 2014)
|
4.4
|
|
Form
of Series D Warrant (incorporated by reference to Exhibit 4.4 to Form 10K for the period ending March 31, 2014, as filed June
30, 2014)
|
4.5
|
|
Form
of Series PA Warrant (incorporated by reference to Exhibit 4.5 to Form 10K for the period ending March 31, 2014, as filed
June 30, 2014)
|
4.6
|
|
Form
of Series CN Warrant (incorporated by reference to Exhibit 4.6 to Form 10K for the period ending March 31, 2014, as filed
June 30, 2014)
|
4.7
|
|
Form
of Series EN Warrant (incorporated by reference to Exhibit 4.7 to Registration Statement
on Form S-1 (Registration No. 333-211019) as filed April 29, 2016)
|
4.8
|
|
Form
of Series E Warrant (Incorporated by reference to Exhibit 3.8 to Registration Statement on Form S-1 (Registration No. 333-203340)
as filed April 10, 2015)
|
4.9
|
|
Form
of Series G Warrant (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K as filed February 16, 2015)
|
4.10
|
|
Form
of Series H Warrant (incorporated by reference to Exhibit 4.10 to Registration Statement
on Form S-1 (Registration No. 333-211019) as filed April 29, 2016)
|
4.11
|
|
Form
of Series I Warrant (incorporated by reference to Exhibit 4.11 to Registration Statement
on Form S-1 (Registration No. 333-211019) as filed April 29, 2016)
|
4.12
|
|
Form
of Convertible Promissory Note dated January 29, 2016 by Barfresh Food Group Inc. in favor of certain investors (incorporated
by reference to Exhibit 4.12 to Registration Statement on Form S-1 (Registration No. 333-211019) as filed April 29, 2016)
|
4.13
|
|
Form
of warrant dated December 1, 2013 (incorporated by reference to Exhibit 4.13 to Registration
Statement on Form S-1 (Registration No. 333-211019) as filed April 29, 2016)
|
4.14
|
|
Form
of Series K Warrant*
|
4.15
|
|
Form
of Series J Warrant*
|
5.1
|
|
Opinion
and Consent of Libertas Law Group, Inc.*
|
10.1
|
|
Form
of Registration Rights Agreement dated February 16, 2016 (incorporated by reference
to Exhibit 10.1 to Registration Statement on Form S-1 (Registration No. 333-211019) as
filed April 29, 2016)
|
10.2
|
|
Intellectual
Property Sale Deed by and between National Australia Bank Limited and Barfresh Inc. dated October 15, 2013 (incorporated by
reference to Exhibit 10.1 to Quarterly Report on Form 10-Q as filed November 20, 2013)
|
10.3
|
|
Form
of Securities Purchase Agreement dated February 16, 2016 by and between Barfresh Food Group Inc. and certain investors. (incorporated
by reference to Exhibit 10.3 to Registration Statement on Form S-1 (Registration No. 333-211019) as filed April 29, 2016)
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10.4
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Form
of Investor Rights Agreement dated November 23, 2016 by and between Barfresh Food Group,
Inc. and Unibel*
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10.5
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Form
of Securities Purchase Agreement dated November 23, 2016 by and between Barfresh Food
Group, Inc. and Unibel*
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10.6
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Form
of Securities Purchase Agreement dated September 28, 2016 by and between Barfresh Food
Group, Inc. and certain investors*
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10.7
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Form
of Registration Rights Agreement dated September 28, 2016 by and between Barfresh Food
Group, Inc. and certain investors*
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21.1
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Subsidiaries
(Incorporated by reference to Exhibit 21.1 to Transitional Report on Form 10KT for the transitional period from April 1, 2015
to December 31, 2015, filed on March 30, 2016)
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23.1
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Consent
of Eide Bailly LLP+
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23.2
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Consent
of Libertas Law Group, Inc. (included in Exhibit 5.1)*
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*
Previously filed with this registration statement on Form S-1.
+Filed herewith.
Item
28. Undertakings
The
undersigned registrant hereby undertakes:
1.
To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:
a.
To include any prospectus required by Section 10(a)(3) of the Securities Act;
b.
To reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information
in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in the volume and rise represent no more than a 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
c.
To include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement
or any material changes to such information in the Registration Statement.
2.
For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the initial bona fide offering.
3.
To file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.
4.
For determining liability of the undersigned issuer under the Securities Act to any purchaser in the initial distribution of the
securities, the undersigned issuer undertakes that in a primary offering of securities of the undersigned issuer pursuant to this
registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities
are offered or sold to such purchaser by means of any of the following communications, the undersigned issuer will be a seller
to the purchaser and will be considered to offer or sell such securities to such purchaser:
i.
Any preliminary prospectus or prospectus of the undersigned issuer relating to the offering required to be filed pursuant to Rule
424;
ii.
Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned issuer or used or referred to
by the undersigned issuer;
iii.
The portion of any other free writing prospectus relating to the offering containing material information about the undersigned
issuer or its securities provided by or on behalf of the undersigned issuer; and
iv.
Any other communication that is an offer in the offering made by the undersigned issuer to the purchaser.
5.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission 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 by
the Registrant of expenses incurred or paid by a director, officer of controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent,
submit to a 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.
6.
For determining any liability under the Securities Act, treat the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant under
Rule 424(b)(1) or (4) or 497(h) under the Securities Act as part of this registration statement as of the time the Commission
declared it effective.
7.
For determining any liability under the Securities Act, treat each post-effective amendment that contains a form of prospectus
as a new registration statement for the securities offered in the registration statement, and that offering of the securities
at that time as the initial bona fide offering of those securities.
8.
That, for the purpose of determining liability under the Securities Act to any purchaser:
a.
If the issuer is relying on Rule 430B:
1.
Each prospectus filed by the undersigned issuer pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement
as of the date the filed prospectus was deemed part of and included in the registration statement; and
2.
Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance
on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information
required by section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of
the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of
securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any
person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement
relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by
reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with
a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement
or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date;
or
b.
If the issuer is subject to Rule 430C: Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating
to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A,
shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness.
Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part
of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify
any statement that was made in the registration statement or prospectus that was part of the registration statement or made in
any such document immediately prior to such date of first use.
SIGNATURES
In accordance with the requirements of the
Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements
of filing on Form S-1 and authorized this registration statement to be signed on its behalf by the undersigned, in the City of
Beverly Hills, State of California, on April 7 , 2017.
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BARFRESH
FOOD GROUP, INC.
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/s/
Riccardo Delle Coste
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Riccardo
Delle Coste
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Chief
Executive Officer
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In
accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following persons
in the capacities and on the dates stated.
Signature
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Title
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Date
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/s/ Riccardo Delle Coste
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Chief Executive Officer and Director
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April
7, 2017
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Riccardo Delle Coste
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(Principal Executive Officer)
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*
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Chief Financial Officer
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April
7, 2017
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Joseph Tesoriero
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(Principal Financial Officer; Principal Accounting Officer)
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*
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Director
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April
7, 2017
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Arnold Tinter
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*
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Director
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April
7, 2017
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Joseph M. Cugine
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*
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Director
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April
7, 2017
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Alice Elliot
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*
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Director
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April
7, 2017
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Alexander H. Ware
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*By:
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/s/
Riccardo Delle Coste
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Riccardo
Delle Coste
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Attorney
in Fact
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