Good afternoon, everyone, and thank you for participating in today's Third Quarter 2021 Corporate Update Call for Barfresh Food Group. Joining us today is Barfresh Food Group's Founder and CEO, Riccardo Delle Coste. The discussion today will include forward-looking statements.

Except for historical information herein, matters set forth on this call are forward-looking within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements about the company's commercial progress, success of the strategic relationships and projections of future financial performance.

These forward-looking statements are identified by the use of words such as grow, expand, anticipate, intend, estimate, believe, expect, plan, should, hypothetical, potential, forecast and project, continue, could, may, predict and will, and variations of such words and similar expressions are intended to identify such forward-looking statements.

All statements other than the statements of historical fact that address activities, events or developments that the company believes or anticipates will or may occur in the future are forward-looking statements.

These statements are based on certain assumptions made based on experience, expected future developments or other factors that the company believes are appropriate under the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the company.

Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements.

Accordingly, investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made.

The contents of this call should be considered in conjunction with the company's recent filings with the Securities and Exchange Commission, including its annual report on Form 10-K, the quarterly report on Form 10-Q, and the current reports on Form 8-K, including any warnings, risk factors and uncertainties, statements contained therein.

Furthermore, the company expressly disclaims any current intention to update publicly any forward-looking statements after this call, whether as a result of new information, future events, changes in assumptions or otherwise.

In order to aid in the understanding of the company's business performance, the company is also presenting certain non-GAAP measures, including adjusted EBITDA, which is reconciled in the table of the business update release to the most comparable GAAP measures.

Management believes that the adjusted EBITDA provides useful information to the investor because it is directly reflective of the cash flow of the company. The primary factors of reconciling these items are noncash costs, including stock compensation, stock issued for services and gain or loss on the sale of derivatives.

Now I will turn the call over to CEO of Barfresh Food Group, Mr. Riccardo Delle Coste. Please go ahead, sir..

Thank you, and good afternoon, everyone. On the call today, I will review our third quarter and first 9 months ended September 30, 2021, results and discuss our outlook for the fourth quarter.

Revenue for the third quarter of 2021 increased 173% to $1.9 million compared to $708,000 for the same period last year, and up 48% compared to $1.3 million in the second quarter of 2021.

The sequential and year-over-year increase in revenue is the result of increased orders for our Twist & Go product in the school channel as well as the gradual return in sales of our single-serve and bulk products compared to the COVID-19 affected quarter last year.

For the first 9 months of 2021, revenue increased 118% to $4.2 million compared to $1.9 million in the same period of 2020. This is already our best revenue year in the company's history.

I'm really proud of our ability to achieve record third quarter revenue despite the fact that we were working against significant supply chain challenges due to manufacturing constraints and raw material wait times.

We had an additional $200,000 of planned revenue in the third quarter that we were not able to capture as a result of our manufacturer's inability to supply us with product due to labor and raw material shortages.

Additionally, while we entered this school year in double the number of locations from last year, we were not able to service all these locations in the third quarter.

We made the strategic decision not to pursue orders from some of the larger school districts, in order to preserve those relationships and not risk having to cancel their orders due to the supply challenges. Therefore, our results this quarter are not a true reflection of our robust school pipeline.

However, we expect to activate more of the larger school districts in the new year once we are comfortable that our supply chain is able to support the additional schools. Gross margins for the third quarter of 2021 were 37% compared to 39% for the same period last year.

Gross margins for the first 9 months of 2021 were 38%, compared to 41% in the same period of 2020. The decline in gross margins was due to the higher sales volume and product mix of our Twist & Go and WHIRLZ 100% juice concentrates as well as higher raw material and packaging costs, some of which are the resulting factor of higher resin prices.

We expect gross profit margins for the fourth quarter of 2021 to stay in the high 30s. And while we expect labor shortages to persist into the fourth quarter and possibly next year, the good news is on the raw materials front, we are starting to see resin prices fall, which will be favorable for our Twist & Go economics.

Our net loss for the third quarter of 2021 improved to $507,000 as compared to a net loss of $878,000 in the third quarter of 2020. G&A expenses for the third quarter of 2021 increased 9% to $1.1 million compared to $976,000 for the same period last year.

The increase in G&A was primarily driven by a significant increase in shipping and storage costs, from the unprecedented market increases, and labor shortages in the quarter, which more than offset the lower R&D and personnel costs.

Net loss for the first 9 months of 2021 improved to $1.4 million as compared to a net loss of $2.8 million in the same period of 2020. G&A expenses for the first 9 months of 2021 decreased by 14% compared with the prior year period. We expect the elevated shipping and storage costs to continue into the first half of 2022.

However, our expected increase in volume per load and higher sales volume as well as us taking advantage of more efficient distribution arrangements will help to partially offset these costs.

For the third quarter of 2021, and the first 9 months of 2021, our adjusted EBITDA improved to a loss of $225,000, a new record for the company and $1.1 million, respectively, as compared to a loss of approximately $600,000 and $2.2 million for the same period last year.

We achieved these improvements despite the backdrop of COVID-19, and a minimal return of sales from our single-serve and bulk products, and significantly higher costs. We fully expect to be at or very close to adjusted EBITDA breakeven in the fourth quarter due to higher revenue.

As of September 30, 2021, we had approximately $6.4 million of cash, and $1.2 million of inventory on our balance sheet, compared to $1.9 million of cash and $900,000 of inventory as of December 31, 2020. On June 3, 2021, we announced the completion of a private placement of approximately $6 million of common stock with no warrant coverage.

In addition, we also negotiated the conversion of approximately $700,000 and the retirement of approximately $800,000 of existing debt and interest. This transaction eliminated all prior convertible debt and related interest.

Additionally, we are currently working to have our second PPP loan for $568,000, forgiven and expect that to occur in the fourth quarter of 2021. Once this second PPP loan is forgiven, we expect to be debt-free. Now to give you an update on our expectations for the fourth quarter of this year.

Despite the industry-wide shortages and COVID-19 affected customers, we expect continued revenue improvement in the fourth quarter of 2021, and have already achieved revenue of approximately $1.8 million, which is a 300% increase compared to the full fourth quarter of last year, and larger than the third quarter.

Keep in mind, our third quarter is historically our largest quarter of the year. This is the first time we have had sequential growth from the third to the fourth quarter. Since the start of the year, we have seen continued improvement in sales each month from our school customers, which has helped offset the slower recovery of our bulk customers.

The continued sequential revenue growth into the fourth quarter is especially meaningful given this is historically a seasonally lighter quarter for us from holiday school closures. We are now working with double the number of school locations we had last year.

And as we start to see our supply chain challenges ease, we will begin to engage with those larger school customers that we haven't been able to service during this time period. Additionally, we continue to pursue and win new school accounts, both independently and by entering into strategic distribution relationships.

We expect to announce some of these new relationships over the next few months. We expect to be close to breakeven adjusted EBITDA in the fourth quarter due to stronger revenue. We are also passing on price increases where possible, buying more raw materials in advance to improve costs, and reviewing strategic supplier relationships.

We also see the opportunity for our ready-to-drink Twist & Go product to extend outside of the school channel and continue to work on these plans together with a number of new distribution partnerships that we expect to announce in the near future that will benefit all of our channels.

We are starting to see small improvements in our supply chain, but believe now is an important time to review our overall manufacturing partnerships, and determine areas to provide greater efficiencies, and add additional capacity, and strategic value as we expect significant greater volume for 2022.

We are still in contact with national restaurant chains, regional QSRs, and military customers, and expect, as restrictions ease and businesses start to pick back up, we will see a greater return in not only our single-serve, but also our bulk products next year. We also need to be strategic in our approach.

And not bring on new customers, we are not able to immediately service due to the significant supply chain challenges, namely raw material shortages, and extremely long lead times. Once the supply challenges subside, we will be in a position to re-engage in a more meaningful way, and hope this will be the case sometime early next year.

We have a strong cash position and clean debt structure and are making progress on optimizing our operations to further improve our operating expenses, which we believe will drive us closer to being breakeven as early as the fourth quarter of this year.

As a result of our revenue increases, cost reductions and margin improvements, we have significantly reduced our cash burn, and expect this trend to continue into 2022. Our capital raise earlier this year had a secondary purpose, to increase the stockholders' equity in order to meet the listing requirements for a national exchange.

We met those requirements and submitted our application in July, and are underway in the uplisting process. As I'm sure you are all aware, there have been a record number of IPO and SPAC transactions this year that have inundated the national exchanges, which has caused our uplifting process to take much longer than expected.

However, we are in regular communication with our uplisting agent, and have provided all necessary documentation, leaving us hopeful that we are close to the end of the process with an uplisting occurring soon.

In closing, we have continued to deliver sequential and year-over-year revenue growth throughout this year, setting company revenue records, despite supply chain challenges that have curtailed the amount of product available to ship and expect another record fourth quarter.

We have doubled our number of school locations to include major wins with some of the largest school districts in the country, and are continually expanding our presence in this channel. The many improvements we have achieved so far this year has positioned us for strong continued growth next year.

I look forward to speaking with you all again when we announce our fourth quarter and full year 2021 results. Now with that, let us take your questions.

Operator?.

The first question comes from Matt Bullock with Maxim Group..

I was hoping you could just provide a little bit of an update on the single-serve and bulk products segment, maybe at a high level where they are in terms of pre-COVID levels? And where you expect them to trend going forward through 2022?.

Yes, sure. So the single-serve has actually started to come back. It's actually probably come back a little bit more so than the bulk product. Primarily in summer was the strongest return.

Mainly the businesses were starting to open back up again, and the single-servings actually help that process, the bulk products have taken a little bit of a slower path to recovery back.

The reason for that being some of the accounts that we're in, the bulk product on itself is a bulk service item, which means that it's a high capacity, high volume throughput where people are generally congregated.

So even though some of the customers have come back for their general business, the areas of the business that are particularly serving our product may not have reopened yet, right? And that's -- I'll give you a couple of examples. Let's say, a military base, for example, where they've got the troops are going by and doing self-service.

The self-service area on a communal touch point may not be opened up yet, but the single-serve grab-and-go area is. So we are starting to see more and more of those locations open up. There is a little -- there was a little bit of product in the pipeline as well from the previous selling season.

So we are seeing those areas of the business to pick back up again..

Okay. Excellent. That's excellent.

And then I guess pivoting to Twist & Go, can you just provide a little bit more context around the progress you've had regarding retail distribution? And if any of those supply chain disruptions have a kind of pushed that out at all or maybe, what are those partnerships might look like once the deal is reached?.

Yes. So we are still -- it is still a work in progress. We are getting amazing traction in the education channel, and we're really getting amazing feedback from the consumers and their parents, too.

We're probably getting messages every other day from a parent that's tried the product in a school, and from the children that have tried the product, and they go back and they bring it back to their parents, and they say they love the product, and the parents are reaching out to us asking us where they can buy the product in the grocery store.

So it's definitely something that we're working on. We haven't got any definitive plans to announce just yet, other than we are pursuing it, and it is in the pipeline, and we are actively working on it from a grocery store, a retail planning proposition.

Does that make sense?.

Absolutely.

My last question would be, is there a time line we should expect for the 10-Q to be filed?.

10-Q should have been filed by now..

Our next question comes from Mike Donnelly with Ibex Investors..

I think it will be completed? Is it going to be by the end of the year? Just a little bit more color on the uplifting would be helpful..

Sorry, Mike, you cut out. I didn't catch all that question..

You mentioned that you submitted an application in July to uplift to a national exchange.

Can you give us some more color as to when you hope it to be completed? Is it by the end of the year? Is it Q1?.

Yes. Look, I mean, I think everyone – this is something that’s been experienced by everybody. There’s considerable delays in everything that’s been going on. We submitted the application some time ago. I can tell you that we have completed everything that was requested of us in terms of submitting documents, et cetera.

It is – we believe we’ve met all the financial requirements, that’s hence why we did the capital raise. We believe it’s very close now. We are in contact with them. I wouldn’t be able to – it’s possible that it will happen before the end of the year. It’s very possible.

But it may tick over into the next year, but it is very possible that it could happen before the end of the year..

Our next question comes from William Gregozeski with Greenridge Global..

Riccardo, how much revenue was from the education channel in the third quarter as a percent of your total?.

It's probably about a little bit over half to 2/3 right now. But I think something to keep in mind is that the education channel is across multiple fronts, number one, both the bulk and Twist & Go product.

But we're also just scratching the surface, right? I mean we're still dealing with the effects of COVID, both in the bulk product and the Twist & Go product. And our hope and our real aim is to be doing serious multiples from where we are now.

I mean we're not really -- we haven't been dealing with a lot of the largest of the accounts, purely for supply chain challenge issues. So we really are just scratching the surface from where we're at, even within these channels..

Okay. And then you've mentioned that not distributing to all the schools you've signed to date.

What percent that you've signed in terms of just number of schools or size of schools by students? Are you distributing into now versus what you're unable to because of the supply chain?.

Well, I think it's not necessarily that we sign them up, right? There's no essential contract per se. But what ends up happening is we end up having the product available for them to put on their menus, and we agree a deal structure for them to include it as part of their menu plan.

We're simply avoiding any of the large accounts and really negotiating and giving pricing for those larger accounts because volume that's required in a very short period of time for when they place the menu, it just becomes too challenging for the business to manage given the current environment of the supply chain issues.

And they're quite extensive. Everything from trucking and shipping to getting the raw materials at all. Let alone the actual price increases that are coming along with that.

So it's really difficult to give you an exact percentage of those that we're not, as it relates to the rest of the business because some of those accounts could be as much as our total business right now. I mean there's some significant accounts out there that we've been working with that are very large.

And it could -- one account could be as big as what we're doing right now in our total business. So I think that it's -- there's a lot of exciting stuff around the corner for us, particularly when the supply chain challenges ease, and we're obviously really looking forward to that. And we're trying to plan as much as we can.

-- but we do need to still deal with the realities of what's going on out there..

Okay.

So that really just applies to what would be new schools, not existing like the LA school district or something like that, correct?.

Yes. So that's probably a good example where we haven't supplied them during this period. And that's a great example of an account that hasn't been supplied during this period. And that's a real volume, it's real -- there's a significant volume requirement there for an account like that. And that probably less expensive prices as well.

So we are definitely guiding the business towards the more profitable accounts that are less -- have less of a requirement on the supply chain..

Okay.

And last question was, what's the percent of Twist & Go in the third quarter? And where do you see that as a percent of total sales a year from now, if it's even possible to project that?.

Yes. A year from now would be very difficult to project also because we’ve got the other parts of the business, and we also expect the other parts of our business to come back. And particularly with the national accounts et cetera, coming on strong, we obviously have some expectations around that for next year.

So right now, we’re probably sitting at about 60%, 65%, maybe a little bit more with the Twist & Go as it stands..

This concludes the question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..