v3.26.1
Debt
 3 Months Ended
Mar. 31, 2026
Debt Disclosure [Abstract]  
Debt

Note 4. 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 $1,250,000 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 8.2% and 8.7% March 31, 2026 and 2025, respectively. The Credit Facilities expire on their respective annual anniversaries, and renew automatically, unless notice is given or received.

 

 

As of March 31, 2026, there was $543,000 drawn under the Credit Facilities, and $3,207,000 was available to borrow, subject to available collateral. Unamortized deferred financing discount amounted to $16,000 as of March 31, 2026.

 

Financing Agreements

 

The Company has entered into financing agreements to purchase equipment and software as a service, with a weighted average imputed or stated interest of 22%. Amounts due under the agreements are due over a weighted average period of 31 months, with maturities as follows as of March 31, 2026:

 

      
2026 (9 months)  $361,000 
2027   411,000 
2028   99,000 
2029   149,000 
2030   35,000 
Total payments due   1,055,000 
Less: interest   (264,000)
 Financing agreements   791,000 
Less: current portion   (308,000)
Financing agreements  $483,000 

 

Notes Payable

 

   March 31,   December 31, 
   2026   2025 
Manager note  $41,000   $61,000 
Advances from Arps Dairy former stockholders   400,000    800,000 
Mortgage Note payable to bank in monthly installments of $22,000 including interest at 6.85% with a balloon payment due January 1, 2026; secured by real property and personal guarantees of Arps’ former stockholders.   -    2,170,000 
Total payments due   441,000    3,031,000 
Less: current portion   (441,000)   (3,031,000)
Long-term portion  $-   $- 

 

On February 10, 2026, the Company elected to convert $400,000 of the Advances from Arps Dairy former stockholders and $20,000 of the manager note into 129,032 and 6,540 of the Company’s common stock, respectively. See Note 6.

 

On March 5, 2026, the maturity date of the New Advances 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.

 

The Mortgage Note was repaid in March 2026 with the proceeds of the convertible note and warrant issuance.

 

Convertible Notes and Warrants

 

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, including $230,000 (3.1%) sold to related parties. Net proceeds amounted to $7,374,000, after cash issuance costs of $154,000. 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 principal and interest into shares of the Company’s common stock at any time prior to maturity at the conversion price of $2.90 per share (the “Conversion Price”), if the common stock of the registrant trades at $4.35 per share (150% of the Conversion Price) for 20 out of the preceding 30 consecutive trading days. The holders of the Notes have the option on up to 10 occasions to convert all or any portion of the principal and interest into shares of the registrant’s common stock at the Conversion Price. The registrant may prepay the Notes at any time prior to maturity, subject to payment of the Minimum Interest, any other accrued but unpaid interest, and a prepayment penalty of 5% if the amount of the Note principal that is prepaid does not exceed 50% or a prepayment of 10% if the amount of the Note principal that is prepaid exceeds 50%. Interest is to be paid quarterly in arrears beginning April 1, 2026 and can be paid in either cash or shares of the registrant’s common stock at the election of the Company. If paid in stock, the shares must be registered and valued at a 10% discount to the 10-day volume-weighted average price.

 

Purchasers of the Notes were issued 2,352,500 detachable warrants to purchase common stock (the “Warrants’) at a price of $3.20 per share (the “Exercise Price”) for a 4-year term from date of issuance in an amount equal to 100% of their investment amounts. The Company may call the Warrants (the “Call”) if the common stock of the registrant trades at or above $4.80 per share (150% of the Exercise Price) for 20 out of the preceding 30 consecutive trading days. Additionally, 22,655 broker warrants were issued at an exercise price of $3.48 per share for a 3-year term, expiring March 10, 2029.

 

Should the Company sell any of its securities in a capital-raising transaction at a price lower than the Conversion Price while any Notes are outstanding, the Conversion Price will adjust to that lower price. The Warrant Exercise Price will adjust to a 10% premium to the new Note conversion price.

 

 

The warrants are legally detachable, separately exercisable and accounted for as equity. Additionally, the conversion feature meets the scope exception of ASC 815 and was not bifurcated from the debt host contract.

 

At issuance, the Company allocated $484,000 of the net proceeds to the warrants using the relative fair value method. The warrants were valued using the Black-Scholes option pricing model, based on the difference between two options, representing the value of the warrant excluding the value derived from appreciation of the Company’s common stock in excess of the strike price of the Call, with the following Level 3 inputs:

 

   Warrant   Call 
Risk-free interest rate   3.5%   3.5%
Expected volatility   90%   90%
Expected term (years)   4    4 
Expected dividends  $-   $- 
Stock price  $2.76   $2.76 
Exercise price  $3.20   $4.80 

 

The allocation resulted in a corresponding debt discount of $642,000, inclusive of $148,000 in transaction costs, which is being amortized to interest expense over the term of the note using the effective interest method, resulting in $23,000 in interest expense for the three months ended March 31, 2026.