Financial Analysis

Note 11. Business Combination On October 3, 2025, the Company acquired all of the outstanding stock of Arps Dairy, a dairy processing company, in a stock purchase accounted for as a business combination. Our continuing dispute with the Manufacturer and the resulting loss of product supply in 2022 negatively impacted our financial position, results of operations and cash flow. Subsequently, we contracted with a co-manufacturer for additional smoothie bottle manufacturing capacity. While expanded capacity became available in the fourth quarter of 2024, we were notified in 2025 that other co-manufacturers elected to discontinue production of smoothie cartons and smoothie bottles in December 2025 and January 2026, respectively. The Acquisition was undertaken to resolve constrained capacity experienced since 2022 under the co-manufacturing business model. The purchase price of Arps Dairy stock is allocated to the identified assets and liabilities based on their estimated respective fair values as of October 3, 2025, with the difference recorded as a bargain purchase in the accompanying consolidated statement of operations for the year ended December 31, 2025: Schedule of Business Acquisition Acquisition consideration Cash paid to retire Arps Dairy debt $ 1,306,000 Fair value of assets and liabilities Cash $ 83,000 Accounts receivable $ 1,129,000 Other current assets $ 196,000 Property, plant and equipment 7,144,000 Total assets acquired $ 8,552,000 Accounts payable and accrued exp …

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Note 6. Commitments and Contingencies Lease Commitments, Construction and Demolition The Company leases headquarters office space under a non-cancelable operating lease which expired on March 31, 2023 and has been extended multiple times, most recently through March 31, 2026 . The Company incurred lease expense of $ 85,000 for the years ended December 31, 2025 and 2024, respectively. Due to the short-term nature of the extensions, there is no right of use asset or related liability as of December 31, 2025 and 2024. The lease was not extended on March 31, 2026, and new commitments for headquarters facilities are leased on a month-to-month basis. During 2023, the Arps Dairy sold its manufacturing facility (the Existing Facility) and purchased a different facility, executing both transactions with the same counterparty. Following the exchange, Arps Dairy commenced to expand the acquired property to provide a 44,000 square foot of production and office space (the New Facility). Arps Dairy continues to operate at the Existing Facility under a leasing arrangement. The initial lease term was 18 months, and the lease was classified as an operating lease. Additionally, the counterparty leases space at the New Facility. Neither party pays rent for the space that it occupies. In connection with the Acquisition, the lease on the Existing Facility was extended until September 30, 2026 to permit the completion of the New Facility. Right of use assets and lease liabilities related to the fr …

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Note 5. Debt Line of Credit In August 2024, the Company secured receivables financing of $ 1,500,000 (the Barfresh Facility), and amended the facility in September 2025 to increase the available financing to $ 2,500,000 . In October 2025, the Company secured receivables financing of $ 1,500,000 for Arps Dairy (together with the Barfresh Facility, the Credit Facilities). Under the Credit Facilities, the Company may borrow up to 90% of eligible customer account balances. Amounts outstanding bear interest at a rate based on the prime rate plus collateral fees, and are secured by accounts receivable and inventory. The weighted average rate was 8.35% and 8.70% on December 31, 2025 and 2024, respectively. The Credit Facilities expire on their respective annual anniversaries, and renew automatically, unless notice is given or received . As of December 31, 2025, there was $ 1,149,000 drawn under the Credit Facilities, and $ 2,851,000 was available to borrow, subject to available collateral. Unamortized deferred financing discount amounted to $ 25,000 as of December 31, 2025. Financing Agreements In 2024 and 2025, the Company entered into financing agreements to purchase equipment and software as a service, with a weighted average imputed or stated interest of 23 %. Amounts due under the agreements are due over a weighted average period of 28 months, with maturities as follows as of December 31, 2025: Schedule of Financing Agreements 2026 $ 443,000 2027 387,000 2028 75,000 2029 125,00 …

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Note 8. Income Taxes Income tax provision (benefit) for the years ended December 31, 2025 and 2024 is summarized below: Summary of Income Tax Provision (Benefit) 2025 2024 Current: Federal $ - $ - State - - Total - - Deferred: Federal (749,000 ) (626,000 ) State 752,000 1,270,000 Change in valuation allowance (288,000 ) (644,000 ) Total (285,000 ) - Benefit of income taxes $ (285,000 ) $ - 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: Summary of Statutory Federal Income Tax Rate Before Provision for Income Taxes 2025 2024 Statutory federal income tax rate $ (632,000 ) 21 % 21 % State tax (105,000 ) 3 4 Permanent differences 164,000 (5 ) - Change in valuation allowance 288,000 (10 ) (25 ) Net benefit of income taxes $ (285,000 ) 9 % - % Components of the net deferred income tax assets at December 31, 2025 and 2024 were as follows: Schedule of Components of Net Deferred Income Tax Assets 2025 2024 Deferred tax asset - Net operating loss carryover $ 13,920,000 $ 13,923,000 Valuation allowance (13,635,000 ) (13,923,000 ) Net deferred tax asset 285,000 - Deferred tax liability - depreciation (285,000 ) - Net deferred tax asset $ - $ - The Company recognized an income tax benefit of $ 285,000 related to the release of valuation allowance as a result of the Acquisition (Note 11). ASC 740 requires a valuation allowance to …

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Recent pronouncements From time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We have not determined if the impact of recently issued standards that are not yet effective will have an impact on our results of operations and financial position.

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Note 9. Business Segments and Major Customers As a result of the Acquisition, the Company operates in two business segments. The Chief Executive Officer is the chief operating decision maker (CODM) who assesses performance and allocates resources based on actual and projected operating results. The CODM reviews revenue and gross profit in evaluating the efficiency of strategies within each segment, ensuring that financial and operational resources are optimized and aligned with the Companys overall strategic objectives. The tables below present selected segment data for the years ended December 31, 2025 and 2024: Schedule of Business Combination Reportable Segment 2025 2024 Revenue Frozen Beverages and Food $ 11,460,000 $ 10,717,000 Raw and Processed Milk 2,748,000 - Revenue $ 14,208,000 $ 10,717,000 Gross profit Frozen Beverages and Food $ 2,977,000 $ 3,668,000 Raw and Processed Milk 137,000 - Gross profit 3,114,000 3,668,000 Unallocated: Total operating expenses (6,546,000) (6,441,000 ) Bargain purchase 767,000 - Debt guarantee expense (97,000 ) - Interest expense (217,000 ) (52,000 ) Net loss before benefit of income tax $ (2,979,000 ) $ (2,825,000 ) Assets are not regularly allocated to segments or considered by the CODM in assessing the performance of segments as there is a high degree of commonality in the assets utilized by the Companys segments. Therefore, assets by segment are not presented. Sales to the following customers represented more than 10% of total sales fo …

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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. The Company is engaged in the manufacturing and distribution of ready-to-drink and ready-to-blend beverages, particularly smoothies, shakes and frappes. On October 3, 2025, we acquired 100 % of the stock (the Acquisition) of Arps Dairy, Inc., an Ohio corporation (Arps Dairy). See Note 11. Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Principles of Consolidation The consolidated financial statements include the financial statements of the Company and our wholly owned subsidiaries, Barfresh Corporation Inc. (formerly known as Smoothie, Inc.), Arps Dairy, Inc., and Barfresh 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. Vendor Concentrations The Company is exposed to supply risk as a result of concentration in its vendor base resulting from the use of a limited number of contract manufacturers. …

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Note 7. Stockholders Equity In 2024, the Company issued 124,208 shares of common stock pursuant to the conversion of debt and accrued interest, as more fully described in Note 5. In 2024, the Company issued 201,859 shares of common stock for equity-based compensation. On February 5, 2025, the Company entered into securities purchase agreements with several investors, pursuant to which the Company sold an aggregate of 1,052,793 shares of common stock at a price of $ 2.85 per share in a registered direct offering. On October 3, 2025, in connection with continuing guarantees on the Mortgage Note, 29,020 shares of common stock were granted to the selling stockholders of Arps Dairy. See Note 5. In 2025, the Company issued 141,296 shares of common stock for equity-based compensation. Warrants The following is a summary of changes in warrants outstanding for the years ended December 31, 2025 and 2024: Summary of Changes in Warrants Outstanding Number of warrants Outstanding at December 31, 2023 243,815 Expired (122,739 ) Outstanding at December 31, 2024 121,076 Expired (122,076 ) Outstanding at December 31, 2025 - Equity Incentive Plan Through 2022, the Company issued equity incentive awards under the 2015 Equity Incentive Plan (the 2015 Plan) and outside the Plan. In June 2023, the Companys stockholders adopted the 2023 Equity Incentive Plan (the 2023 Plan), reserving 650,000 shares for future issuance, subject to adjustment under the plans evergreen provision. The Board of Directo …

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Note 13. Subsequent Events On January 20, 2026, effective January 1, 2026, the parties agreed to extend the Forbearance through February 1, 2026, with an option to further extend through March 1, 2026. The option was exercised, and the Company repaid the Mortgage Note on March 6, 2026, releasing all guarantor obligations of the former shareholders. On February 10, 2026, the Company elected to convert the $ 400,000 balance of the Existing Loans and $ 20,000 of the Manager Note into 129,032 and 6,540 of the Companys common stock, respectively. See Note 5. On March 5, 2026, the maturity date of the New Advances to Arps Dairy former stockholders was extended to the earlier of October 1, 2026 or the receipt of financing secured by real estate owned by the Company. Additionally, the amendments provide that holder may elect to have interest paid in cash or shares valued at a 10 % discount to the volume-weighted average price of the common stock over the ten trading days immediately preceding the payment. Beginning on March 5, 2026 and through March 23, 2026, the Company obtained subscriptions for unsecured senior convertible promissory notes in the aggregate amount of $ 7,528,000 (the Notes) from accredited investors. Net proceeds amounted to $ 7,387,000 , after issuance costs of $ 141,000 . The Notes bear interest at 10 % per annum for the first 12 months of the 24-month term, regardless of earlier payment or conversion (the Minimum Interest), and are mandatorily convertible as to …

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