Note 1. Description of the Business, Basis of Presentation, and 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 frozen beverages and food, including ready-to-drink and ready-to-blend smoothies, shakes, frappes and ice cream mix, and raw and processed milk.

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited, except for the condensed balance sheet as of December 31, 2025. These unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended December 31, 2025 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on April 15, 2026. In management’s opinion, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, that are necessary for a fair presentation of financial results for the interim periods presented. Operating results for any quarter are not necessarily indicative of the results for the full fiscal year.

Principles of Consolidation

The consolidated financial statements include the financial statements of the Company and our wholly-owned subsidiaries, Barfresh Inc. and Barfresh Corporation Inc. (formerly known as Smoothie, Inc.), and Arps Dairy, 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

Since the Acquisition, Arps Dairy has commenced production of virtually all of the Company’s legacy product lines. Historically, the Company was exposed to supply risk as a result of concentration in its vendor base resulting from the use of a limited number of contract manufacturers.

A comparison of production by source is summarized in the table below:

 Schedule of Contract Manufacturers Percentage of Finished Goods

Manufacturer A gave notice that it would not renew our contract when it concluded in February 2026. Additionally, in December 2025, Manufacturer B discontinued manufacturing our products. Approximately 30% of our revenue in the quarter ended March 31, 2026 was produced in 2025, prior to the discontinuance. The commencement of production at Arps Dairy is a significant step towards mitigating the impact of these losses, and the potential adverse effect on our business, financial condition and results of operations.

Summary of Significant Accounting Policies

There have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the SEC on April 15, 2026 that have had a material impact on our condensed consolidated financial statements and related notes.

Financial Instruments

The Company’s financial instruments consist of cash, accounts receivable, accounts payable, the line of credit, financing agreements, notes payable and convertible notes. The carrying value of the Company’s financial instruments approximates their fair value.

Accounts Receivable and Allowances

Accounts receivable are recorded and carried at the original invoiced amount less allowances for credits and for any potential uncollectible amounts due to credit losses. We make estimates of the expected credit and collectability trends for the allowance for credit losses based on our assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of our customers, current economic conditions, and other factors that may affect our ability to collect from our customers. Expected credit losses are recorded as general and administrative expenses on our condensed consolidated statements of operations. As of March 31, 2026 and December 31, 2025, there was no allowance for credit losses. There was no credit loss expense for the three months ended March 31, 2026 and 2025.

Government Grant

The Company has been awarded a $2,400,000 government grant to fund 50% of equipment purchases for the New Facility. As of March 31, 2026, there have been no assets acquired that are eligible for reimbursement under the grant. The Company expects to early adopt the Financial Accounting Standards Board’s Accounting Standards Update 2025-10, Government Grants. Grant proceeds will reduce the value of the assets acquired and the resulting depreciation expense over the estimated useful lives of the assets acquired.

Derivative Liability

The Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC 815, Derivatives and Hedging. The Company determined that its convertible instruments issued in 2026 did not include embedded derivatives that required bifurcation due to the scope exception in ASC 815.

Revenue Recognition

In accordance with ASC 606, Revenue from Contracts with Customers, revenue is recognized when a customer obtains ownership of promised goods. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods. The Company applies the following five steps:

Storage and Shipping Costs

Storage and outbound freight costs are included in selling, marketing and distribution expense. For the three months ending March 31, 2026 and 2025, storage and outbound freight totaled approximately $443,000 and $391,000, respectively.

Research and Development

Expenditures for research activities relating to product development and improvement are charged to expense as incurred. The Company incurred approximately $24,000 and $19,000 in research and development expense for the three months ended March 31, 2026 and 2025, respectively.

Loss Per Share

For the three months ended March 31, 2026 and 2025, common stock equivalents have not been included in the calculation of net loss per share as their effect is anti-dilutive as a result of losses incurred.

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.