Barfresh Food Group Inc. — Fiscal 2021 Form 10-K Summary
Business context and reporting period
Barfresh manufactures and distributes ready-to-drink and ready-to-blend frozen beverages, including smoothies, shakes and frappes. Products are sold through national and regional accounts and broadline distributors, including Sysco, and are targeted to foodservice, schools, military bases and other institutional customers. The filing covers the fiscal year ended December 31, 2021, with comparison to fiscal 2020.
The Company uses contract manufacturers in the United States and operated with 14 employees and four consultants as of March 1, 2022. Effective December 29, 2021, it completed a 1-for-13 reverse stock split. Its common stock began trading on the Nasdaq Capital Market under BRFH on January 20, 2022.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $6,699,850 | $2,567,547 | +161% |
| Gross profit | $2,507,045 | $764,072 | +228% |
| Gross margin | 37% | 30% | +7 percentage points |
| Total operating expenses | $4,601,429 | $4,973,174 | -7% |
| Operating loss | $(2,094,384) | $(4,209,102) | Improved 50% |
| Net loss | $(1,265,147) | $(4,152,506) | Improved 56% |
| Basic and diluted loss per share | $(0.10) | $(0.38) | Improved |
| Cash flow from operations | $(1,861,633) | $(3,269,000) | Improved |
Revenue growth was attributed primarily to increased Twist & Go sales and a gradual recovery in single-serve and bulk demand. Gross-margin improvement reflected better Twist & Go margins and a greater mix of higher-margin bulk and single-serve products.
General and administrative expense declined to $3,979,702 from $4,379,976. Shipping and storage expense more than doubled to $1,054,182 due to higher sales volume, fuel costs, labor shortages and relocation of materials. Research and development expense declined to $244,609 from $515,145.
Cash and restricted cash totaled $5,675,222 at December 31, 2021, including unrestricted cash of $5,532,840. Working capital surplus increased to $6,170,701 from $1,196,742. Total assets were $9,719,364 and total liabilities were $1,543,506. The Company reported no outstanding convertible debt, PPP loans or derivative liabilities at year-end.
Cash used in investing activities was $150,545, principally for equipment. Financing activities generated $5,728,131, including $6,000,000 from a common-stock private placement, $568,131 of PPP loan proceeds and $840,000 of debt repayment.
Material changes versus the prior comparable period
- Revenue increased by $4,132,303, or 161%, to $6,699,850.
- Gross margin increased from 30% to 37%, while gross profit increased by $1,742,973.
- Operating loss narrowed by $2,114,718, and net loss narrowed by $2,887,359.
- Interest expense declined 73% to $129,768 as convertible notes were converted or repaid.
- Two PPP loans totaling $1,136,262 were forgiven, producing a corresponding gain in 2021. This was a material non-operating contributor to the reduced net loss.
- On June 1, 2021, the Company issued 1,282,051 shares at $4.68 per share for gross proceeds of $6,000,000.
- Debt holders converted $399,000 of principal and $234,410 of interest into 133,991 shares, while $840,000 of debt was retired for cash.
- Common shares outstanding increased to 12,905,112 at December 31, 2021 from 11,471,797 at December 31, 2020, before subsequent share activity.
- Customer concentration remained significant: two customers each represented 21% and 20% of 2021 revenue, respectively.
Guidance, outlook, commentary and risks
Management did not provide formal quantitative revenue, earnings or cash-flow guidance. Management expects shipping and storage expense as a percentage of sales to decline in 2022 as distribution becomes more efficient and shipment volumes increase. It also expects travel expense to increase as COVID-19 restrictions ease.
Management stated that future liquidity depends on profitably increasing sales and controlling variable and fixed operating costs. Although year-end liquidity improved substantially, the Company continues to use cash in operations and stated that additional equity or debt financing may be required if operating cash flow is insufficient.
- COVID-19 continued to affect restaurant demand, school attendance, product launches and manufacturing supply chains.
- The Company depends on a limited number of suppliers, contract manufacturers and distributors. A manufacturing disruption may require up to nine months to replace or retrofit a manufacturer.
- Packaging, ingredient, fuel, labor and contract-manufacturing cost increases could reduce gross margins if not passed to customers.
- The Company has a history of operating losses and may not achieve or sustain profitability.
- Distributors and national accounts generally are not required to place minimum orders, making sales timing and volume difficult to predict.
- The Company identified a material weakness in internal control over financial reporting and ineffective disclosure controls as of December 31, 2021, caused primarily by inadequate segregation of duties and limited continuity in the principal financial officer role. Management plans to hire additional financial personnel, but no assurance was provided regarding the timing or success of remediation.
- The Company had a non-cancelable office lease with approximately $100,599 of remaining undiscounted payments as of December 31, 2021.
- The filing states that the Company was defendant in one legal proceeding involving less than $100,000; management and counsel considered a material unfavorable outcome remote.
- Outstanding equity instruments included 602,151 options and 1,287,404 warrants at December 31, 2021, creating potential future dilution.
Most important facts for an investor to verify
- Whether the sharp 2021 revenue growth and 37% gross margin were sustained in subsequent quarterly filings.
- Whether the Company reached positive operating and free cash flow after year-end.
- The extent to which the 2021 net-loss improvement depended on the nonrecurring $1,136,262 PPP forgiveness gain.
- Customer concentration, renewal and termination terms for major distributor and sales relationships, including Sysco and PepsiCo.
- Progress in remediating the material weakness in internal controls and any subsequent restatements or control deficiencies.
- Actual dilution from outstanding options, warrants and future financing requirements.
- Exposure to supply-chain, ingredient, packaging, labor and contract-manufacturing cost inflation.
- Post-year-end cash balance, debt status and financing activity.