UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended March 31, 2015
or
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from ___________ to ___________
Commission
File Number: 000-55131
BARFRESH
FOOD GROUP INC.
(Exact
name of registrant as specified in its charter)
Delaware |
|
27-1994406 |
(State
or other jurisdiction of
incorporation or organization) |
|
(I.R.S.
Employer
Identification No.) |
|
|
|
8530
Wilshire Blvd., Suite 450, Beverly Hills, California |
|
90211 |
(Address
of principal executive offices) |
|
(Zip
Code) |
310-598-7113
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered under Section 12(g) of the Act: Common Stock, $0.000001 par value
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ]
No [X]
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ]
No [X]
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See definition of “large accelerated filer,” “accelerated filer” and “small reporting
company” in Rule 12b-2 of the Exchange Act.
Large
Accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company
[X]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No
[X]
The
aggregate market value of the voting and non-voting common equity held by non-affiliates (excluding voting shares held by officers
and directors) as of September 30, 2014 was $18,488,500.
As
of June 22, 2015, there were 79,229,533 outstanding shares of common stock of the registrant.
BARFRESH
FOOD GROUP INC.
FORM
10-K
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION
This
Annual Report on Form 10-K (“Annual Report”), the other reports, statements, and information that we have previously
filed or that we may subsequently file with the Securities and Exchange Commission (“SEC”) and public announcements
that we have previously made or may subsequently make include, may include, incorporate by reference or may incorporate by reference
certain statements that may be deemed to be forward-looking statements. The forward-looking statements included or incorporated
by reference in this Annual Report and those reports, statements, information and announcements address activities, events or
developments that Barfresh Food Group Inc., a Delaware corporation (hereinafter referred to as “we”, “us”,
“our”, “Company” or “Barfresh”) expects or anticipates will or may occur in the future. Any
statements in this document about expectations, beliefs, plans, objectives, assumptions or future events or performance are not
historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words
or phrases such as “may”, “should”, “could”, “predict”, “potential”,
“believe”, “will likely result”, “expect”, “will continue”, “anticipate”,
“seek”, “estimate”, “intend”, “plan”, “projection”, “would”,
“outlook” and similar expressions. Accordingly, these statements involve estimates, assumptions and uncertainties,
which could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified
in their entirety by reference to the factors discussed throughout this document. All forward-looking statements concerning economic
conditions, rates of growth, rates of income or values as may be included in this document are based on information available
to us on the dates noted, and we assume no obligation to update any such forward-looking statements.
Management
cautions that forward-looking statements are qualified by their terms and/or important factors, many of which are outside of our
control, involve a number of risks, uncertainties and other factors that could cause actual results and events to differ materially
from the statements made, including, but not limited to, the following risk factors. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance,
or achievements.
Certain
risks and uncertainties could cause actual results or outcomes to differ materially from those expressed in any forward-looking
statements made by us, and you should not place undue reliance on any such forward-looking statements. Actual results or outcomes
may differ materially from those expressed in any forward-looking statements made by us, and you should not place undue reliance
on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made and we do
not undertake any obligation to update any forward-looking statement or statements to reflect events or circumstances after the
date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time,
and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business
or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained
in any forward-looking statements. See “Risk Factors” set forth in Item 1A.
PART
I
Item
1. Business.
Business
Overview
Barfresh
is a leader in the creation, manufacturing and distribution of ready to blend frozen beverages. The current portfolio of products
includes smoothies, shakes and frappes. All of the products are portion controlled and ready to blend beverage ingredient packs
or “beverage packs”. The beverage packs contain all of the ingredients necessary to make the beverage, including the
base (either sorbet, frozen yogurt or ice cream), real fruit pieces, juices and ice – five ounces of water are added to
the beverage pack before blending.
Domestic
and international patents and patents pending are owned by Barfresh, as well as related trademarks for all of the products. In
November 2011, the Company acquired the patent rights in the United States and Canada. The Canadian patent has been granted and
the United States patent is “patent pending”. On October 15, 2013, the Company acquired all of the related international
patent rights, which were filed pursuant to the Patent Cooperation Treaty and have been granted in 13 jurisdictions. The patents
are pending in the remainder of the jurisdictions that have signed the treaty. In addition, on October 15, 2013, the Company purchased
all of the trademarks related to the patented products.
The
Company currently conducts and plans to conduct sales through two channels: directly to certain National Accounts, and through
an exclusive nationwide distribution agreement with Sysco Corporation (“Sysco”) the U.S.’s largest broad line
distributor, which was entered into during July 2014.
The
process of obtaining sales orders for National Accounts generally follows several steps, including product demonstration, product
testing, and exclusive flavor development for the larger National Accounts. We are currently in various stages of product development
and testing with National Accounts representing over 20,000 restaurant locations. The Company recently moved into full roll out
with a number of National Accounts, including a national entertainment theme park operator, and with Shari’s Café
and Pies, a family dining chain in the Pacific Northwest operating 97 restaurants which are open 24 hours a day, 365 days a year.
In
addition to the National Accounts, the Company sells to food distributors that supply products to the food services market place.
Effective July 2, 2014, the Company entered into an agreement with Sysco Merchandising and Supply Chain Services, Inc. for resale
by the Sysco Corporation (“Sysco”) to the foodservice industry of the Company’s ready-to-blend smoothies, shakes
and frappes. All Barfresh products will be included in Sysco’s national core selection of beverage items, making Barfresh
its exclusive single-serve, pre-portioned beverage provider. The agreement is mutually exclusive; provided however, the products
are supplied to other foodservice distributors, but only to the extent required for such foodservice distributors to service multi-unit
chain operators with at least 20 units and where Sysco is not such multi-unit chain operators nominated distributor for our products.
The Company has already started shipping to 20 of the 74 Sysco distribution centers under this agreement and anticipates a national
rollout over the next 12 months.
Finally,
the Company intends to monetize the international patents outside of the current area of operations, North America, by expanding
contract manufacturing to other countries and selling either through selling agents or internal sales personnel. The Company will
also consider entering into some form of license or royalty agreements with third parties.
Barfresh
currently utilizes contract manufacturers to manufacture all of the products in the United States. Ice cream manufacturers are
best suited to produce the products and two production lines are currently operational in our Salt Lake City contract manufacturer
location. This manufacturer is currently producing products sold to existing customers as well as producing exclusive products
developed for National Accounts. Currently annual production capacity with our existing contract manufacturer is 14 million units
per year. The Company is currently in discussion with two additional contract manufacturing companies that would be able to produce
an additional 100 million units per year.
Although
there currently is not a contract in place with any suppliers for the raw materials needed to manufacture our products, there
are a significant number of sources available and the company does not anticipate becoming dependent on any one supplier. As demand
for the range of our products grows, we plan to contract a level of raw material requirements to ensure continuity of supply.
As
of the end of the fiscal year we had 11 employees and 3 consultants. As of June 23, 2014 we have 25 employees and 3 consultants.
There are currently 15 employees selling our products.
Most
recently, as part of the Company’s expansion due to the acquisition of the international patents, a leading regional Australian
food ingredient supply and product developer has been engaged as the wholesaler and distributor for Barfresh products in Australia.
Corporate
History and Background
The
Company incorporated on February 25, 2010 in the state of Delaware. The Company was originally formed to acquire scripts for movie
opportunities, to produce the related movies and to sell, lease, license, distribute and syndicate the movies and develop other
related media products related to the movies. As the result of the reverse merger, more fully described below, the Company is
now engaged in the manufacturing and distribution of ready to blend beverages, particularly, smoothies, shakes and frappes.
Reorganization
and Recapitalization
During
January, 2012, the Company entered into a series of transactions pursuant to which Barfresh Inc., a Colorado corporation (“Barfresh
CO”), was acquired, spun-out prior operations to the former principal shareholder, completed a private offering of securities
for an aggregate purchase price of approximately $999,998, conducted a four for one forward stock split and changed the name of
the Company. The following describes the foregoing transactions:
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Acquisition
of Barfresh CO. We acquired all of the outstanding capital stock of Barfresh CO in exchange for the issuance of 37,333,328
shares of our $0.000001 par value common stock pursuant to a Share Exchange Agreement between us, our former principal shareholder,
Barfresh CO and the former shareholders of Barfresh CO. As a result of this transaction, Barfresh CO became our wholly owned
subsidiary and the former shareholders of Barfresh CO became our controlling shareholders. |
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Spinout
of prior business. Immediately prior to the acquisition of Barfresh CO, we spun-out our previous business operations to
a former officer, director and principal shareholder, in exchange for all of the shares of our common stock held by that person.
Such shares were cancelled immediately following the acquisition. |
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Financing
transaction. Immediately following the acquisition of Barfresh, we sold an aggregate of 1,333,332 shares of our common
stock and five-year warrants to purchase 1,333,332 shares of common stock at a per share exercise price of $1.50 in a private
offering for gross proceeds of $999,998, less expenses of $26,895. |
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Change
of name. Subsequent to the merger, we changed the name of the Company from Moving Box Inc. to Barfresh Food Group Inc. |
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Forward
stock split. Subsequent to the merger, we conducted a four for one forward stock split of the Company’s common stock. |
Products
All
of the products are portion controlled beverage ingredient packs, suitable for smoothies, shakes and frappes that can also be
utilized for cocktails and mocktails. They contain all of the ingredients necessary to make a smoothie, shake or frappe, including
the ice. Simply add water, empty the packet into a blender, blend and serve.
The
following flavors are available for sale as part of the standard line:
In
addition to the standard product range, the Company has developed a number of exclusive flavors for several National Accounts
that are currently engaged in the pre-rollout testing process.
Some
of the key product benefits for operators include:
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Portion controlled |
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Zero waste |
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Product consistency
– every time a smoothie, shake or frappe is made |
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Easy inventory
control |
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Long shelf life
(24 months) |
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Minimal capital
investment necessary |
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● |
Faster and easier
to make (less than 60 seconds) |
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● |
Ability to itemize
the ingredients of the beverages on menus |
|
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Products require
less retail space |
Some of
the key benefits of the products for the end consumers that drink the products include:
|
● |
From as little
as 150 calories (per serving) |
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Real fruit in
every smoothie |
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Dairy free options |
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Kosher approved |
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Gluten Free |
Customer
Marketing Material
A
wide range of consumer marketing materials has been created to assist customers in selling blended beverages.
Research
and Development
An
incurrence of $51,465 and $47,035 in research and development expenses for the fiscal years ended March 31, 2015, and 2014, respectively.
Competition
There
is significant competition in the smoothie market at both the consumer purchasing level and also the product level.
The
competition at the consumer level is primarily between specialized juice bars (e.g. Jamba Juice) and major fast casual and fast
food restaurant chains (such as McDonalds). Barfresh does not compete specifically at this level but intends to supply its product
to customers that fall within these segments to enable them to compete for consumer demand.
There
may also be new entrants to the smoothie market that may alter the current competitor landscape.
The
existing competition from a product perspective can be separated into three categories:
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Specialized
juice bar products: The product is made in-store and each ingredient is added separately. |
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Syrup
based products: The fruit puree is supplied in bulk and not portion controlled for each smoothie. These types of products
still require the addition of juice, milk or water and/or yogurt and ice. While there are a number of competitors for this
style of product, the two dominant competitors are Island Oasis and Minute Maid, which are both owned by Coca Cola. |
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Portion
pack products: These products contain only the fruit and yogurt and require the addition of juice or milk and ice. The two
dominant competitors are General Mills’ Yoplait Smoothies and Inventure Group’s Jamba Smoothies. |
The
Company believes that its products ease of use, portion control, premium quality, and minimal capital investment required to enable
a customer to begin to carry Barfresh beverage products all add up to represent a very significant competitive advantage that
will allow us to quickly gain traction in the market and secure long-term agreements with customers. The Company also believes
that the product’s attributes will make it more attractive to customers. However, there are other factors that may influence
the adoption of a particular product by customers, including their dependence on prior relationships with competition.
Intellectual
Property
Barfresh
owns the domestic and intellectual property rights to its products’ sealed pack of ingredients.
In
November 2011, the Company acquired patent applications filed in the United States (Patent Application number 11/660415) and Canada
(Patent Application number 2577163) from certain related parties. The United States patent was originally filed on December 4,
2007 and its current status is patent pending. The Canadian patent was originally filed on August 16, 2005 and it has been granted.
On
October 15, 2013, the Company acquired all of the related international patent rights, which were filed pursuant to the Patent
Cooperation Treaty, have been granted in 13 jurisdictions and are pending in the remainder of the jurisdictions that have signed
the PCT. In addition, the Company purchased all of the trademarks related to the patented products.
Governmental
Approval and Regulation
The
Company is not aware of the need for any governmental approvals of its products.
The
Company utilizes a contract manufacturer. Before entering into any manufacturing contract, the Company determines that the manufacturer
has met all government requirements.
The
Company will be subject to certain labeling requirements as to the contents and nutritional information of our products.
Environmental
Laws
The
Company does not believe that it will be subject to any environmental laws, either state or federal. Any laws concerning manufacturing
will be the responsibility of the contract manufacturer.
Employees
Currently,
the Company has 25 full time employees. We expect to hire additional employees, particularly in the sales area, as we roll out
our products to all 74 Sysco distribution centers over the next approximately twelve months.
Item
1A. Risk Factors
An
investment in the Company’s securities involves significant risks, including the risks described below. The risks included
below are not the only ones that the Company faces. Additional risks presently unknown to us or that we currently consider immaterial
or unlikely to occur could also impair our operations. If any of the risks or uncertainties described below or any such additional
risks and uncertainties actually occur, our business, prospects, financial condition or results of operations could be negatively
affected.
Risks
Related to Our Business
We
have a history of operating losses and there can be no assurance that we can achieve or maintain profitability.
We
have a history of operating losses and may not achieve or sustain profitability. These operating losses have been generated while
we market to potential customers. We cannot guarantee that we will become profitable. Even if we achieve profitability, given
the competitive and evolving nature of the industry in which we operate, we may be unable to sustain or increase profitability
and our failure to do so would adversely affect the Company’s business, including our ability to raise additional funds.
A
worsening of economic conditions or a decrease in consumer spending may adversely impact our ability to implement our business
strategy.
Our
success depends to a significant extent on discretionary consumer spending, which is influenced by general economic conditions
and the availability of discretionary income. While there are signs that economic conditions may be improving, there is no certainty
that this trend will continue or that credit and financial markets and confidence in economic conditions will not deteriorate
again. Accordingly, we may experience declines in revenue during economic turmoil or during periods of uncertainty. Any material
decline in the amount of discretionary spending, leading cost-conscious consumers to be more selective in restaurants visited,
could have a material adverse effect on our revenue, results of operations, business and financial condition.
The
challenges of competing with the many food services businesses may result in reductions in our revenue and operating margins.
We
compete with many well-established companies, food service and otherwise, on the basis of taste, quality and price of product
offered, customer service, atmosphere, location and overall guest experience. Our success depends, in part, upon the popularity
of our products and our ability to develop new menu items that appeal to consumers across all four day parts. Shifts in consumer
preferences away from our products, our inability to develop new menu items that appeal to consumers across all day parts, or
changes in our menu that eliminate items popular with some consumers could harm our business. We compete with other smoothie and
juice bar retailers, specialty coffee retailers, yogurt and ice cream shops, bagel shops, fast-food restaurants, delicatessens,
cafés, take-out food service companies, supermarkets and convenience stores. Our competitors change with each of the four
day parts, ranging from coffee bars and bakery cafés to casual dining chains. Many of our competitors or potential competitors
have substantially greater financial and other resources than we do, which may allow them to react to changes in the market quicker
than we can. In addition, aggressive pricing by our competitors or the entrance of new competitors into our markets, as evidenced
by McDonald’s Corporation’s inclusion of fruit smoothies on their menu, could reduce our revenue and operating margins.
We also compete with other employers in our markets for hourly workers and may become subject to higher labor costs as a result
of such competition.
Fluctuations
in various food and supply costs, particularly fruit and dairy, could adversely affect our operating results.
Supplies
and prices of the various ingredients that we are going to use to can be affected by a variety of factors, such as weather, seasonal
fluctuations, demand, politics and economics in the producing countries.
These
factors subject us to shortages or interruptions in product supplies, which could adversely affect our revenue and profits. In
addition, the prices of fruit and dairy, which are the main ingredients in our products, can be highly volatile. The fruit of
the quality we seek tends to trade on a negotiated basis, depending on supply and demand at the time of the purchase. An increase
in pricing of any fruit that we are going to use in our products could have a significant adverse effect on our profitability.
We cannot assure you that we will be able to secure our fruit supply.
Our
business depends substantially on the continuing efforts of our senior management and other key personnel, and our business may
be severely disrupted if we lose their services.
Our
future success heavily depends on the continued service of our senior management and other key employees. If one or more of our
senior executives is unable or unwilling to continue to work for us in his present position, we may have to spend a considerable
amount of time and resources searching, recruiting, and integrating a replacement into our operations, which would substantially
divert management’s attention from our business and severely disrupt our business. This may also adversely affect our ability
to execute our business strategy. In addition, of any of our senior executives joins a competitor or forms a competing company,
we may lose customers, suppliers, knowhow and key employees.
Our
senior management’s limited experience managing a publicly traded company may divert management’s attention from operations
and harm our business.
With
the exception of our Chief Financial Officer, our senior management team has relatively limited experience managing a publicly
traded company and complying with federal securities laws, including compliance with recently adopted disclosure requirements
on a timely basis. Our management will be required to design and implement appropriate programs and policies in responding to
increased legal, regulatory compliance and reporting requirements, and any failure to do so could lead to the imposition of fines
and penalties and harm our business.
We
may be unable to attract and retain qualified, experienced, highly skilled personnel, which could adversely affect the implementation
of our business plan.
Our
success depends to a significant degree upon our ability to attract, retain and motivate skilled and qualified personnel. As we
become a more mature company in the future, we may find recruiting and retention efforts more challenging. If we do not succeed
in attracting, hiring and integrating excellent personnel, or retaining and motivating existing personnel, we may be unable to
grow effectively. The loss of any key employee, including members of our senior management team, and our inability to attract
highly skilled personnel with sufficient experience in our industries could harm our business.
Product
liability exposure may expose us to significant liability.
We
may face an inherent business risk of exposure to product liability and other claims and lawsuits in the event that the
development or use of our technology or prospective products is alleged to have resulted in adverse effects. We
may not be able to avoid significant liability exposure. Although we believe our insurance coverage to be adequate, we may not
have sufficient insurance coverage, and we may not be able to obtain sufficient coverage at a reasonable cost. An
inability to obtain product liability insurance at acceptable cost or to otherwise protect against potential product
liability claims could prevent or inhibit the commercialization of our products. A product liability claim could hurt
our financial performance. Even if we avoid liability exposure, significant costs could be incurred that could hurt our
financial performance and condition.
Our
inability to protect our intellectual property rights may force us to incur unanticipated costs.
Our
success will depend, in part, on our ability to obtain and maintain protection in the United States and internationally
for certain intellectual property incorporated into our products. Our intellectual property rights may be challenged, narrowed,
invalidated or circumvented, which could limit our ability to prevent competitors from marketing similar solutions
that limit the effectiveness of our patent protection and force us to incur unanticipated costs. In addition, existing
laws of some countries in which we may provide services or solutions may offer only limited protection of our intellectual
property rights.
Our
products may infringe the intellectual property rights of third parties, and third parties may infringe our proprietary rights,
either of which may result in lawsuits, distraction of management and the impairment of our business.
As
the number of patents, copyrights, trademarks and other intellectual property rights in our industry increases, products
based on our technology may increasingly become the subject of infringement claims. Third parties could assert infringement
claims against us in the future. Infringement claims with or without merit could be time consuming, result in costly litigation,
cause product shipment delays or require us to enter into royalty or licensing agreements. Royalty or licensing
agreements, if required, might not be available on terms acceptable to us, or at all. We may initiate claims or litigation
against third parties for infringement of our proprietary rights or to establish the validity of our proprietary
rights. Litigation to determine the validity of any claims, whether or not the litigation is resolved in our favor, could
result in significant expense to us and divert the efforts of our technical and management personnel from productive
tasks. If there is an adverse ruling against us in any litigation, we may be required to pay substantial damages, discontinue
the use and sale of infringing products and expend significant resources to develop non-infringing technology or
obtain licenses to infringing technology. Our failure to develop or license a substitute technology could prevent us from
selling our products.
If
securities or industry analysts do not continue to publish research, or publish inaccurate or unfavorable research, about our
business, our share price and trading volume could decline.
The
trading market for our common stock may be impacted, in part, by the research and reports that securities or industry analysts
publish about our business or us. There can be no assurance that analysts will cover us, continue to cover us or provide favorable
coverage. If one or more analysts downgrade our stock or change their opinion of our stock, our share price may decline. In addition,
if one or more analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in
the financial markets, which could cause our share price or trading volume to decline.
We
will continue to incur increased costs as a result of operating as a public company, and our management will be required to devote
substantial time to compliance initiatives and corporate governance practices.
As
a public company, we will continue to incur significant legal, accounting and other expenses. The Sarbanes-Oxley Act of 2002,
the Dodd-Frank Wall Street Reform and Consumer Protection Act and other applicable securities rules and regulations impose various
requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate
governance practices. Our management and other personnel will need to continue to devote a substantial amount of time to these
compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and make
some activities more time-consuming and costly.
We
cannot predict or estimate the amount of additional costs we may incur to continue to operate as a public company, nor can we
predict the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due
to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided
by regulatory and governing bodies which could result in continuing uncertainty regarding compliance matters and higher costs
necessitated by ongoing revisions to disclosure and governance practices.
We
have identified material weaknesses in our internal control over financial reporting. If we fail to maintain an effective system
of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud.
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we are required to furnish a report by our management on our
internal control over financial reporting. As such, our management has conducted this evaluation and, as of March 31, 2015, identified
the following material weaknesses in the Company’s internal control over financial reporting:
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● |
We did not have
an audit committee: While we are not currently obligated to have an audit committee, including a member who is an “audit
committee financial expert,” as defined in Item 407 of Regulation S-K, under applicable regulations or listing standards;
however, it is management’s view that such a committee is an important internal control over financial reporting, the
lack of which may result in ineffective oversight in the establishment and monitoring of internal controls and procedures. |
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We do not have a
majority of independent directors on our board of directors, which may result in ineffective oversight in the establishment
and monitoring of required internal controls and procedures. |
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Inadequate Segregation
of Duties: We have an inadequate number of personnel to properly implement certain control procedures related to segregation
of duties. |
Management
believes that these material weaknesses have not had an effect our financial results and has concluded that disclosure controls
and procedures remain effective. Nonetheless, effective internal control over financial reporting is necessary to provide reliable
financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our operating
results could be harmed. We will need to continue to dedicate internal resources, potentially engage outside consultants and adopt
a detailed work plan to modify and document the adequacy of internal control over financial reporting, continue steps to improve
control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous
reporting and improvement process for internal control over financial reporting. Continued identification of one or more material
weaknesses in our internal control over financial reporting could result in an adverse reaction in the financial markets due to
a loss of confidence in the reliability of our financial statements.
We
are operating with less than a majority of independent directors.
We
do not have a majority of independent directors. The Company is operated without the oversight of a majority of independent directors
and material agreements and transactions, including those with related parties, are not approved with the oversight of a majority
of independent directors.
Failure
to comply with the United States Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.
As
a Delaware corporation, we are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States
companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining
business. Some foreign companies, including some that may compete with our Company, may not be subject to these prohibitions.
Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices may occur from time-to-time in countries in which
we conduct our business. However, our employees or other agents may engage in conduct for which we might be held responsible.
If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences
that may have a material adverse effect on our business, financial condition and results of operations.
Risks
Related to Ownership of Our Common Stock
Riccardo
Delle Coste, Steven Lang, Arnold Tinter and Joseph M Cugine have voting control over matters submitted to a vote of the shareholders,
and they may take actions that conflict with the interests of our other shareholders and holders of our debt securities.
Riccardo
Delle Coste, Steven Lang, Arnold Tinter and Joseph M. Cugine together, control more than 50% of the votes eligible to be cast
by shareholders in the election of directors and generally. As a result, Messrs. Delle Coste, Lang, Tinter and Cugine have the
power to control all matters requiring the approval of our shareholders, including the election of directors and the approval
of mergers and other significant corporate transactions.
Our
common stock is quoted on the OTCQB, which may have an unfavorable impact on our stock price and liquidity.
Our
common stock is quoted on the OTCQB, which is a significantly more limited trading market than the New York Stock Exchange, NYSE
MKT or the NASDAQ Stock Market. The quotation of the Company’s shares on the OTCQB may result in a less liquid market available
for existing and potential shareholders to trade shares of our common stock, could depress the trading price of our common stock
and could have a long-term adverse impact on our ability to raise capital in the future.
There
is limited liquidity on the OTCQB, which may result in stock price volatility and inaccurate quote information.
When
fewer shares of a security are being traded on the OTCQB, volatility of prices may increase and price movement may outpace the
ability to deliver accurate quote information. Due to lower trading volumes in shares of our common stock, there may be a lower
likelihood of one’s orders for shares of our common stock being executed, and current prices may differ significantly from
the price one was quoted at the time of one’s order entry.
If
we are unable to adequately fund our operations, we may be forced to voluntarily file for deregistration of our common stock with
the SEC.
Compliance
with the periodic reporting requirements required by the SEC consumes a considerable amount of both internal, as well external,
resources and represents a significant cost for us. If we are unable to continue to devote adequate funding and the resources
needed to maintain such compliance, while continuing our operations, we could be forced to deregister with the SEC. After the
deregistration process, our common stock would only be tradable on the “Pink Sheets” and could suffer a decrease in
or absence of liquidity.
Because
we became public by means of a “reverse merger”, we may not be able to attract the attention of major brokerage firms.
Additional
risks may exist since we became public through a “reverse merger”. Securities analysts of major brokerage firms may
not provide coverage of us since there is little incentive to brokerage firms to recommend the purchase of our common stock. We
cannot assure you that brokerage firms will want to conduct any secondary offerings on behalf of our Company in the future.
Future
sales of our common stock in the public market could lower the price of our common stock and impair our ability to raise funds
in future securities offerings.
Future
sales of a substantial number of shares of our common stock in the public market, or the perception that such sales may occur,
could adversely affect the then prevailing market price of our common stock and could make it more difficult for us to raise funds
in the future through a public offering of our securities.
Our
common stock is thinly traded, so you may be unable to sell at or near asking prices or at all if you need to sell your shares
to raise money or otherwise desire to liquidate your shares.
Currently,
the Company’s common stock is quoted in the OTCQB and future trading volume may be limited by the fact that many major institutional
investment funds, including mutual funds, as well as individual investors follow a policy of not investing in OTCQB stocks and
certain major brokerage firms restrict their brokers from recommending OTCQB stocks because they are considered speculative, volatile
and thinly traded. The OTCQB market is an inter-dealer market much less regulated than the major exchanges and our common stock
is subject to abuses, volatility and shorting. Thus, there is currently no broadly followed and established trading market for
the Company’s common stock. An established trading market may never develop or be maintained. Active trading markets generally
result in lower price volatility and more efficient execution of buy and sell orders. Absence of an active trading market reduces
the liquidity of the shares traded there.
The
trading volume of our common stock has been and may continue to be limited and sporadic. As a result of such trading activity,
the quoted price for the Company’s common stock on the OTCQB may not necessarily be a reliable indicator of its fair market
value. Further, if we cease to be quoted, holders would find it more difficult to dispose of our common stock or to obtain accurate
quotations as to the market value of the Company’s common stock and as a result, the market value of our common stock likely
would decline.
Our
common stock is subject to price volatility unrelated to our operations.
The
market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our
ability to achieve our planned growth, quarterly operating results of other companies in the same industry, trading volume in
our common stock, changes in general conditions in the economy and the financial markets or other developments affecting the Company’s
competitors or the Company itself. In addition, the OTCQB is subject to extreme price and volume fluctuations in general. This
volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their
operating performance and could have the same effect on our common stock.
We
are subject to penny stock regulations and restrictions and you may have difficulty selling shares of our common stock.
Our
common stock is currently quoted on the OTCQB. Our common stock is subject to the requirements of Rule 15(g)-9, promulgated under
the Securities Exchange Act as long as the price of our common stock is below $5.00 per share. Under such rule, broker-dealers
who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special
sales practice requirements, including a requirement that they make an individualized written suitability determination for the
purchaser and receive the purchaser’s consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock
Reform Act of 1990, also requires additional disclosure in connection with any trades involving a stock defined as a penny stock.
Generally, the Commission defines a penny stock as any equity security not traded on a national exchange that has a market price
of less than $5.00 per share. The required penny stock disclosures include the delivery, prior to any transaction, of a disclosure
schedule explaining the penny stock market and the risks associated with it. Such requirements could severely limit the market
liquidity of the securities and the ability of purchasers to sell their securities in the secondary market.
Because
we do not intend to pay dividends, shareholders will benefit from an investment in our common stock only if it appreciates in
value.
We
have never declared or paid any cash dividends on our preferred stock or common stock. For the foreseeable future, it is expected
that earnings, if any, generated from our operations will be used to finance the growth of our business, and that no dividends
will be paid to holders of the Company’s common stock. As a result, the success of an investment in our common stock will
depend upon any future appreciation in its value. There can be no guarantee that our common stock will appreciate in value.
The
price of our common stock may become volatile, which could lead to losses by investors and costly securities litigation.
The
trading price of our common stock is likely to be highly volatile and could fluctuate in response to factors such as:
|
● |
actual
or anticipated variations in our operating results; |
|
● |
announcements
of developments by us or our competitors; |
|
● |
announcements
by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; |
|
● |
adoption
of new accounting standards affecting the our industry; |
|
● |
additions
or departures of key personnel; |
|
● |
introduction
of new products by us or our competitors; |
|
● |
sales
of our common stock or other securities in the open market; and |
|
● |
other
events or factors, many of which are beyond our control. |
The
stock market is subject to significant price and volume fluctuations. In the past, following periods of volatility in the market
price of a company’s securities, securities class action litigation has often been initiated against such a company. Litigation
initiated against us, whether or not successful, could result in substantial costs and diversion of our management’s attention
and Company resources, which could harm our business and financial condition.
Investors
may experience dilution of their ownership interests because of the future issuance of additional shares of our common stock.
We
intend to continue to seek financing through the issuance of equity or convertible securities to fund our operations. In the future,
we may also issue additional equity securities resulting in the dilution of the ownership interests of our present shareholders.
We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for our common
stock in connection with hiring or retaining employees, future acquisitions or for other business purposes. The future issuance
of any such additional shares of common stock will result in dilution to our shareholders and may create downward pressure on
the trading price of our common stock.
Provisions
in our corporate charter documents and under Delaware law could make an acquisition of our company, which may be beneficial to
our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions
in our certificate of incorporation and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control
of our company that stockholders may consider favorable, including transactions in which you might otherwise receive a premium
for your shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of
our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible
for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders
to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors.
In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General
Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining
with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding
voting stock, unless the merger or combination is approved in a prescribed manner.
Item
2. Properties.
Our
principal executive offices are located at 8530 Wilshire Blvd., Suite 450, Beverly Hills, CA 90121. We lease this space for $7,600
per month.
Item
3. Legal Proceedings.
Neither
the Company nor its subsidiaries are party to or have property that is the subject of any material pending legal proceedings.
We may be subject to ordinary legal proceedings incidental to our business from time to time that are not required to be disclosed
under this Item 1.
Item
4. Mine Safety Disclosures.
Not
applicable.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market
Information
Our
common stock is currently traded on the OTCQB under the symbol “BRFH”. Our common stock had been quoted on the OTC
Bulletin Board since July 27, 2011 under the symbol MVBX. Effective February 29, 2012, our symbol changed to BRFH based on the
forward split and name change. On March 21, 2012, our common stock was delisted to Pink Sheets. On January 21, 2014, we registered
our common stock under Section 12(g) of the Exchange Act. The following table sets forth the range of high and low bid quotations
for the applicable period. These quotations as reported by the OTCQB reflect inter-dealer prices without retail mark-up, markdown
or commissions and may not necessarily represent actual transactions.
| | |
Bid Quotation |
Financial
Quarter Ended | | |
High
($) | | |
Low
($) |
March
31, 2015 | | |
| 0.64 | | |
| 0.42 | |
December 31, 2014 | | |
| 0.72 | | |
| 0.39 | |
September 30, 2014 | | |
| 0.85 | | |
| 0.57 | |
June 30, 2014 | | |
| 0.84 | | |
| 0.45 | |
March 31, 2014 | | |
| 0.84 | | |
| 0.40 | |
December 31, 2013 | | |
| 0.62 | | |
| 0.30 | |
September 30, 2013 | | |
| 0.50 | | |
| 0.24 | |
June 30, 2013 | | |
| 0.36 | | |
| 0.22 | |
Holders
At
June 22, 2015, there were 79,229,533 shares of our common stock outstanding. Our shares of common stock are held by approximately
59 stockholders of record. The number of record holders was determined from the records of our transfer agent and does not include
beneficial owners of common stock whose shares are held in the names of various security brokers, dealers and registered clearing
agencies.
Dividends
We
have never declared or paid a cash dividend. Any future decisions regarding dividends will be made by our board of directors.
We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate
paying any cash dividends in the foreseeable future. Our board of directors has complete discretion on whether to pay dividends.
Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations
and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the
board of directors may deem relevant.
Securities
Authorized for Issuance Under Equity Compensation Plans
The following
table provides information, as of March 31, 2015, with respect to equity securities authorized for issuance under our equity compensation
plans:
Plan
Category | |
Number
of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights
(a) | | |
Weighted-Average
Exercise Price of Outstanding Options, Warrants and Rights (b) | | |
Number
of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in Column
(a))(c) | |
| |
| | |
| | |
| |
Equity compensation plans
approved by security holders | |
| 750,000 | | |
$ | 0.50 | | |
| 14,250,000 | |
Equity compensation plans not approved
by security holders | |
| 800,000 | | |
$ | 0.50 | | |
| 0 | |
| |
| | | |
| | | |
| | |
TOTAL | |
| 1,550,000 | | |
$ | 0.50 | | |
| 14,250,000 | |
Transfer
Agent
Our
transfer agent, Action Stock Transfer, is located at 2469 E. Fort Union Blvd, Suite 214, Salt Lake City, Utah 84121, and its telephone
number is (801) 274-1088.
Recent
Sales of Unregistered Securities
There
were no sales of equity securities during the period covered by this Annual Report that were not registered under the Securities
Act that were not included in a Quarterly Report on Form 10Q or a Current Report on Form 8K.
Item
6. Selected Financial Data.
Not
applicable because we are a smaller reporting company.
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The
information and financial data discussed below is derived from the audited financial statements of Barfresh for its fiscal years
ended March 31, 2015 and 2014. The financial statements of Barfresh were prepared and presented in accordance with generally accepted
accounting principles in the United States. The information and financial data discussed below is only a summary and should be
read in conjunction with the historical financial statements and related notes of Barfresh contained elsewhere in this Annual
Report. This discussion and analysis may contain forward-looking statements based on assumptions about our future business. Our
actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors.
See “Cautionary Note Regarding Forward Looking Statements” above for a discussion of forward-looking statements and
the significance of such statements in the context of this Annual Report.
Barfresh
is a leader in the creation, manufacturing and distribution of ready to blend frozen beverages. The current portfolio of products
includes smoothies, shakes and frappes. All of the products are portion controlled and ready to blend beverage ingredient packs
or “beverage packs”. The beverage packs contain all of the solid ingredients necessary to make the beverage, including
the base (either sorbet, frozen yogurt or ice cream), real fruit pieces, juices and ice – five ounces of water are added
before blending.
Domestic
and international patents and patents pending are owned by Barfresh, as well as related trademarks for all of the products. In
November 2011, the Company acquired the patent rights in the United States and Canada. The Canadian patent has been granted and
the United States patent is “patent pending”. On October 15, 2013, the Company acquired all of the related international
patent rights, which were filed pursuant to the Patent Cooperation Treaty and have been granted in 13 jurisdictions. The patents
are pending in the remainder of the jurisdictions that have signed the treaty. In addition, on October 15, 2013, the Company purchased
all of the trademarks related to the patented products.
The
Company currently conducts and plans to conduct sales through two channels: National Accounts, and through an exclusive nationwide
distribution agreement with Sysco Corporation (“Sysco”), the U.S.’s largest broadline distributor, which was
entered into during July 2014.
The
process of obtaining sales orders for National Accounts generally follows several steps, including product demonstration, product
testing, and exclusive flavor development for the larger National Accounts. We are currently in various stages of product development
and testing with National Accounts representing over 20,000 restaurant locations. The Company recently moved into full roll out
with a number of National Accounts, including a national entertainment theme park operator, and with Shari’s Café
and Pies, a family dining chain in the Pacific Northwest operating 97 restaurants which are open 24 hours a day, 365 days a year.
In
addition to the National Accounts, the Company sells to food distributors that supply products to the food services market place.
Effective July 2, 2014, the Company entered into an agreement with Sysco Merchandising and Supply Chain Services, Inc. for resale
by the Sysco Corporation (“Sysco”) to the foodservice industry of the Company’s ready-to-blend smoothies, shakes
and frappes. All Barfresh products will be included in Sysco’s national core selection of beverage items, making Barfresh
its exclusive single-serve, pre-portioned beverage provider. The agreement is mutually exclusive; provided however, the products
are supplied to other foodservice distributors, but only to the extent required for such foodservice distributors to service multi-unit
chain operators with at least 20 units and where Sysco is not such multi-unit chain operators nominated distributor for our products.
The Company has already started shipping to 20 of the 74 Sysco distribution centers under this agreement and anticipates a national
rollout over the next 12 months.
Finally,
the Company intends to monetize the international patents outside of the current area of operations, North America, by expanding
contract manufacturing to other countries and selling either through selling agents or internal sales personnel. The Company will
also consider entering into some form of license or royalty agreements with third parties.
Barfresh
currently utilizes contract manufacturers to manufacture all of the products in the United States. Ice cream manufacturers are
best suited to produce the products and two production lines are currently operational in our Salt Lake City contract manufacturer
location. This manufacturer is currently producing products sold to existing customers as well as producing exclusive products
developed for National Accounts. Currently annual production capacity with our existing contract manufacturer is 14 million units
per year. The Company is currently in discussion with two additional contract manufacturing companies that would be able to produce
an additional 100 million units per year.
Although
there currently is not a contract in place with any suppliers for the raw materials needed to manufacture our products, there
are a significant number of sources available and the company does not anticipate becoming dependent on any one supplier. As demand
for the range of our products grows, we plan to contract a level of raw material requirements to ensure continuity of supply.
As
of the end of the fiscal year we had 12 employees and 3 consultants. As of June 23, 2015 we have 25 employees and 3 consultants.
There are currently 15 employees selling our products.
Most
recently, as part of the Company’s expansion due to the acquisition of the international patents, a leading regional Australian
food ingredient supply and product developer has been engaged as the wholesaler and distributor for Barfresh products in Australia.
Critical
Accounting Policies
Our
financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America
(“GAAP”).
Basis
of Consolidation
The
consolidated financial statements include the financial statements of the Company and our wholly owned subsidiaries Barfresh Inc.
and Smoothie 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.
Fair
Value Measurement
Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value
Measurements and Disclosures (“ASC 820”), provides a comprehensive framework for measuring fair value and expands
disclosures which are required about fair value measurements. Specifically, ASC 820 sets forth a definition of fair value and
establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active
markets for identical assets and liabilities and the lowest priority to unobservable value inputs. ASC 820 defines the hierarchy
as follows:
Level
1 - Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets
and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed
on the New York Stock Exchange.
Level
2 - Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the
reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or
contracts or priced with models using highly observable inputs.
Level
3 - Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included
in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models
and forecasts used to determine the fair value of financial transmission rights.
Our
financial instruments consist of accounts receivable, accounts payable, accrued expenses, notes payable, and convertible notes.
The carrying value of our financial instruments approximates their fair value due to their relative short maturities.
Accounts
Receivable
Accounts
receivable are typically unsecured. Our credit policy calls for payment generally within 30 days. The credit worthiness of a customer
is evaluated prior to a sale. As of March 31, 2015 there is an allowance for doubtful accounts $65,000.
Intangible
Assets
Intangible
assets are comprised of patents, net of amortization. The patent costs are being amortized over the life of the patent, which
is twenty years from the date of filing the patent application. In accordance with ASC Topic 350 Intangibles - Goodwill and
Other (“ASC 350”), the costs of internally developing other intangible assets, such as patents, are expensed as
incurred. However, as allowed by ASC 350, costs associated with the acquisition of patents from third parties, legal fees and
similar costs relating to patents have been capitalized.
Property,
Plant and Equipment
Property,
plant and equipment is stated at cost less accumulated depreciation and accumulated impairment loss, if any. Depreciation is calculated
on a straight line basis over the estimated useful lives of the assets. Leasehold improvements are being amortized over the shorter
of the useful life of the asset or the lease term that includes any expected renewal periods that are deemed to be reasonably
assured. The estimated useful lives used for financial statement purposes are:
Furniture
and fixtures: 5 years
Equipment:
7 years
Leasehold
improvements: 2 years
Vehicles
5 years
Revenue
Recognition
We
recognize revenue when there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the
sales price is determinable, and collection is reasonably assured.
Research
and Development
Expenditures
for research activities relating to product development and improvement are charged to expense as incurred. We incurred $51,465
and $47,035, in research and development expenses for the years ended March 31, 2015 and 2014, respectively.
Rent
Expense
We
recognize rent expense on a straight-line basis over the reasonably assured lease term as defined in ASC Topic 840, Leases
(“ASC 840”). In addition, our lease agreement provides for rental payments commencing at a date other than the
date of initial occupancy. We include the rent holidays in determination of straight-line rent expense. Therefore, rent expense
is charged to expense beginning with the occupancy date. Deferred rent was $1,484 and $1,866 at March 31, 2015 and 2014 respectively
and will be charged to rent expense over the life of the lease.
Earnings
per Share
We
calculate net loss per share in accordance with ASC Topic 260, Earnings per Share. Basic net loss per share is computed
by dividing net loss by the weighted average number of shares of common stock outstanding for the period, and diluted earnings
per share is computed by including common stock equivalents outstanding for the period in the denominator. At March 31, 2015 and
2014 any equivalents would have been anti-dilutive as we had losses for the years then ended.
Recent
Pronouncements
From
time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We believe that the impact
of recently issued standards that are not yet effective may have an impact on our results of operations and financial position.
ASU Update 2014-09 Revenue From Contracts With Customers (Topic 606) issued May 28, 2014 by FASB and IASB converged guidance on
recognizing revenue in contracts with customers with an effective date after December 15, 2016 will be evaluated as to impact
and implemented accordingly. In addition, ASU Update 2014-15 Presentation of Financial Statements-Going Concern (Sub Topic 205-40)
issued August 27, 2014 by FASB defines management’s responsibility to evaluate whether there is substantial doubt about
an organization’s ability to continue as a going concern. The additional disclosure requirement is effective after December
15, 2016 and will be evaluated as to impact and implemented accordingly.
Results
of Operations
Results
of Operation for the Year Ended March 31, 2015 as Compared to the Year Ended March 31, 2014
(References
to 2015 and 2014 are to the years ended March 31, 2015 and 2014 respectively, unless otherwise specified.)
Revenue
and cost of revenue
Revenue
for 2015 was $211,467 as compared to $110,085 in 2014. Our business grew primarily from the addition of a major broad line food
distributor, Sysco Corporation (“Sysco”). We began shipping to that customer in July 2014. In addition we are shipping
to a number of quick serve restaurants that we did not ship to in 2014.
Cost
of revenue for 2015 was $126,804 as compared to $48,534 in 2014. Our gross profit was $84,663 (40.0%) and $61,551 (55.9%) for
2015 and 2014, respectively. There were no significant change in our selling prices. Sales in both 2015 and 2014 included sales
of blenders and freezers. We only make a nominal profit on these items as they are to accommodate our customers. We have no specific
plan as to major sales of equipment to customers in the future. We anticipate that our gross profit percentage going forward will
improve over the current percentage.
Operating
expenses
Our
operations during 2015 and 2014 were directed towards increasing sales and finalizing flavor profiles. The addition of Sysco necessitated
our increasing our selling general and administrative costs. We are continuing to add sales personnel to assist Sysco in selling
and marketing efforts to their customers. We also have added additional staff to our marketing department as well as our accounting
department. Our overhead has increased significantly as the cost of supporting the new business and personnel required it.
Our
general and administrative expenses increased $944,638 as we grew the business and may not necessarily be indicative of future
rates of growth.
The
following is a breakdown of our selling, general and administrative expenses for 2015 and 2014:
| |
2015 | | |
2014 | | |
Difference | |
Personnel costs | |
$ | 1,042,870 | | |
$ | 877,646 | | |
$ | 165,224 | |
Stock based compensation/options | |
| 685,906 | | |
| 291,631 | | |
| 394,275 | |
Legal and professional fees | |
| 261,489 | | |
| 176,334 | | |
| 85,155 | |
Travel | |
| 246,387 | | |
| 166,621 | | |
| 79,766 | |
Marketing and selling | |
| 193,806 | | |
| 109,104 | | |
| 84,702 | |
Consulting fees | |
| 183,680 | | |
| 259,346 | | |
| (75,666 | ) |
Investor and public relations | |
| 165,308 | | |
| 122,224 | | |
| 43,084 | |
Rent | |
| 95,181 | | |
| 77,007 | | |
| 18,174 | |
Research and development | |
| 51,465 | | |
| 47,035 | | |
| 4,430 | |
Director fees | |
| 50,333 | | |
| - | | |
| 50,333 | |
Other expenses | |
| 235,483 | | |
| 140,322 | | |
| 95,161 | |
| |
$ | 3,211,908 | | |
$ | 2,267,270 | | |
$ | 944,638 | |
Personnel
cost represents the cost of employees including salaries, employee benefits and employment taxes and continues to be our largest
cost. Personnel cost increased $165,224 (18.8%) from $877,646 in 2014 to $1,042,870 in 2015. At March 31, 2015 we had had 11 full
time employees as compared to 6 at March 31, 2014. We currently have 25 full time employees. We anticipate personnel cost to increase
in the future as we add more staff.
Stock
based compensation is used as an incentive to attract new employees and to compensate existing employees. Stock based compensation
includes stock issued and options granted to employees and non-employees and increased $394,275 (135%) from $291,631 in 2014 to
$685,906 in 2015. The amount in 2015 represents the amortization of stock grants and option grants to our directors. The fair
value of the stock was based on the trading value of the shares on the date of grant and are being amortized over any vesting
period. The fair value of the stock options was calculated using the Black-Sholes model using the following assumptions: expected
life in years, 5; volatility, 91.0% to 91.8%; risk free rate of return, 1.35% to 1.45% and no annual dividends and are being amortized
over any vesting period. We anticipate making additional grants in the future. We anticipate making additional grants in the future.
Legal
and professional fees, which include accounting and legal services, increased $85,155 (48.3%) from $176,334 in 2014 to $261,489
in 2015, as a result of increased activity. We anticipate legal fees related to ongoing Securities and Exchange Commission reporting
to remain the same and additional legal fees to be related to the number of contracts we are negotiating, which are increasing.
Travel
and entertainment expenses increased $79,766 (47.9%) from $166,621 in 2014 to $246,387 in 2015. The increase is due to increased
travel related to selling and marketing activities. We anticipate that travel and entertainment cost will increase as we increase
the number of customers that we are selling to.
Consulting
fees decreased $75,666 (30%) from $259,346 in 2014 to $183,680 in 2015. Prior to growing our staff we relied on consultants for
services that are now being provided by employees. We anticipate consultancy costs to remain close to the current level.
Investor
relations fees increased $43,084 (35.3%) from $122,224 in 2014 to $165,308 in 2015. In 2014 we were paying a lower monthly retainer
than we currently are. In addition we attended more investor conferences in 2015 than in 2014. We anticipate that our investor
relations cost will remain at the current level.
Rent
expense increased 18,174 (23.6%) from $77,007 in 2014 to $95,181 in 2015. Rent expense is primarily for our location in Beverly
Hills, California. Our rent expense is approximately $7,600 per month. The lease on the office commenced in October 2012, expired
in October 2014 and was renewed and now expires in November 2016. Rent expense also includes monthly parking fees as well as an
offsite storage facilities. During 2014 we had a subtenant that leased a portion of our space. We no longer have that subtenant.
We anticipate an increase in rent in future periods.
Research
and development expenses increased $4,430 (9.42%) from $47,035 in 2014 to $51,465 in 2015. Research and development represents
the cost of developing flavor profiles of our products and the development of future equipment. We anticipate cost continuing
in future periods, the amounts of which cannot be estimated at this point in time. Our research and development cost will be dependent
on new formulations and new flavor profiles as our customer base increases.
In
2014 we did not have any director fees. We currently pay our non-employee directors $12,500 per quarter.
Other
expenses consist of ordinary operating expenses such as office, telephone, insurance, and stock related costs. These expenses
directly correlate to our overall activity. We anticipate that these cost will continue to rise as we our business activity.
We
had operating losses of $3,261,466 and $2,290,562 for 2015 and 2014, respectively.
Interest
expense increased $224,127 (76.5%) from $292,888 in 2014 to $517,015 in 2015. Interest primarily relates to convertible debt that
was issued in August 2012 and renewed in September 2013 and short term notes that were issued in December 2013 and renewed in
December 2014. The stated interest rate on the convertible debt is 12%. After giving effect to the debt discount the effective
rate of interest on the short term debt is estimated to be approximately 53% and approximately 74% on the convertible notes. Interest
expense includes direct interest of $68,044 and $66,842 for 2015 and 2014, respectively, calculated based on the interest rates
stated in our various debt instruments. In addition, interest expense includes non-cash amortization of the debt discount of $448,971
and $224,680 for 2015 and 2014, respectively.
We
had net losses of $3,778,481 ($0.06 per share) and $2,583,450 ($0.05 per share) for 2015 and 2014, respectively.
Liquidity
and Capital Resources
As
of March 31, 2015 we had working capital of $3,994,297.
During
the year ended March 31, 2015 we used cash of $2,282,083 in operations, $271,927 for the purchase of equipment and $12,158 for
patents and trademarks. We generated cash flow from the sale of equipment of $15,709.
We
generated $5,283,788 in financing activity from the sale of common stock during the year ended March 31, 2015.
Our
operations to date have been financed by the sale of securities, the issuance of convertible debt and the issuance of short-term
debt, including related party advances. If we are unable to generate sufficient cash flow from operations with the capital raised
we will be required to raise additional funds either in the form of capital or debt. There are no assurances that we will be able
to generate the necessary capital or debt to carry out our current plan of operations.
We
lease office space under a non-cancelable operating lease, which expires November, 2016.
The
aggregate minimum requirements under non-cancelable leases as of March 31, 2015 is as follows:
Fiscal Years ending March 31, | | |
|
2016 | | |
$ | 91,252 | |
2017 | | |
| 53,231 | |
| | |
$ | 144,483 | |
Subsequent
to March 31, 2015, we renegotiated the short term notes that were due June 2015. We repaid one note in full ($25,000) 50% of three
notes were paid ($350,000) and one note was converted to 71,429 shares of our common stock. The balance of the notes due, $350,000,
are payable on September 20, 2015 and bear interest at 12% per annum.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to stockholders.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk.
Not
applicable because we are a smaller reporting company.
Item
8. Financial Statements and Supplementary Data.
Our
consolidated financial statements are included beginning immediately following the signature page to this report. See Item 15
for a list of the consolidated financial statements included herein.
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item
9A. Controls and Procedures.
Management’s
Annual Report on Internal Control over Financial Reporting
Disclosure
Controls and Procedures
Under
the supervision and with the participation of our management, including our Chief Executive Officer and our Principal Accounting
Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Securities and Exchange
Act of 1934 Rules 13a-15(f). Based on this evaluation, our Chief Executive Officer and our Principal Accounting Officer concluded
that the Company’s disclosure controls and procedures were effective as of March 31, 2015.
Management’s
Annual Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, for the Company.
Internal
control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of its management
and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use
or disposition of our assets that could have a material effect on the financial statements.
Management
recognizes that there are inherent limitations in the effectiveness of any system of internal control, and accordingly, even effective
internal control can provide only reasonable assurance with respect to financial statement preparation and may not prevent or
detect material misstatements. In addition, effective internal control at a point in time may become ineffective in future periods
because of changes in conditions or due to deterioration in the degree of compliance with our established policies and procedures.
Our
management assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2015. The
framework used by management in making that assessment was the criteria set forth in the document entitled “Internal Control
– Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 1992
which assessment identified material weaknesses in internal control over financial reporting. A material weakness is a control
deficiency, or a combination of deficiencies in internal control over financial reporting that creates a reasonable possibility
that a material misstatement in annual or interim financial statements will not be prevented or detected on a timely basis.
Under
the supervision and with the participation of our management, including our Chief Executive Officer and our Principal Accounting
Officer we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Securities and Exchange
Act of 1934 Rules 13a-15(f). Based on this evaluation, our Chief Executive Officer and our Principal Accounting Officer concluded
that the Company’s disclosure controls and procedures were effective as of March 31, 2015.
However,
management has identified the following material weaknesses in our internal control over financial reporting:
|
● |
We
do not have an audit committee: While we are not currently obligated to have an audit committee, including a member who is
an “audit committee financial expert,” as defined in Item 407 of Regulation S-K, under applicable regulations
or listing standards; however, it is management’s view that such a committee is an important internal control over financial
reporting, the lack of which may result in ineffective oversight in the establishment and monitoring of internal control. |
|
|
|
|
● |
We
do not have a majority of independent directors on our board of directors, which may result in ineffective oversight in the
establishment and monitoring of our internal control. |
|
|
|
|
● |
Inadequate
Segregation of Duties: We have an inadequate number of personnel to properly implement internal controls. |
Since
the assessment of the effectiveness of our internal control over financial reporting did identify material weaknesses, management
considers its internal control over financial reporting to be ineffective.
Management
recognizes that there are inherent limitations in the effectiveness of any system of internal control, and accordingly, even effective
internal control can provide only reasonable assurance with respect to financial statement preparation and may not prevent or
detect material misstatements. In addition, effective internal control at a point in time may become ineffective in future periods
because of changes in conditions or due to deterioration in the degree of compliance with our established policies and procedures.
Management
believes that the material weakness set forth above did not have an effect on our financial results.
In
an effort to remediate the identified material weakness and enhance our internal control over financial reporting, we plan to
engage additional accounting personnel to ensure that we are able to properly implement internal control procedures at such time
as funds are available.
This
report shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities
of that section, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof,
regardless of any general incorporation language in such filing.
Changes
in Internal Control over Financial Reporting
There
have been no changes in our internal control over financial reporting during the fourth quarter of our fiscal year ended March
31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item
9B. Other Information.
None.
PART
III
Item
10. Directors, Executive Officers and Corporate Governance.
Directors
and Executive Officers
The following
sets forth information about our directors and executive officers as of the date of this Report:
Name |
|
Age |
|
Position |
Riccardo Delle
Coste |
|
36 |
|
President, Chief
Executive Officer and Chairman |
Joseph S. Tesoriero |
|
62 |
|
Chief Financial
Officer |
Steven Lang |
|
62 |
|
Director |
Arnold Tinter |
|
70 |
|
Principal Accounting
Officer, Secretary and Director |
Joseph M. Cugine |
|
54 |
|
Director |
Alice Elliot |
|
58 |
|
Director |
Riccardo
Delle Coste has been the Chairman of our board of directors, President and Chief Executive Officer since January 10, 2012.
He has also been the President and Chief Executive Officer of Barfresh Inc., a Colorado corporation and our wholly owned subsidiary
(“Barfresh CO”), since its inception. Mr. Delle Coste is the inventor of the patent pending technology and the creator
of Smoo Smoothies. Mr. Delle Coste started the business in 2005 and developed a unique system using controlled pre-packaged portions,
to deliver a freshly made smoothie that is quick, cost efficient, healthy and with no waste. In building the business, he is responsible
for securing new business tenders and maintaining key client relationships. He is also responsible for the development of new
product from testing to full-scale production, establishment of the manufacturing facilities that have all necessary accreditation
(HACCP, Halal, and Kosher), technology development, product improvement and R&D with new product launches. Mr. Delle Coste
also has over five years of investment banking experience. Mr. Delle Coste attended Macquarie University, Sydney, Australia while
studying for a Bachelor of Commerce for 3.5 years but left to pursue business interests and did not receive a degree.
Qualifications:
Mr. Delle Coste has 17 years of experience within retail, hospitality and dairy manufacturing.
Joseph
S. Tesoriero was appointed as Chief Financial Officer of the Company on May 18, 2015. Mr. Tesoriero has served as an independent
director of Smart & Final Stores, Inc. (NYSE: SFS) since July of 2014, where he serves as Chairman of the Audit Committee
and a member of the Nominating and Governance Committee. He was most recently engaged as a financial advisor for Dole Asia Holdings,
Ltd. Pte., a Singapore based wholly owned subsidiary of Itochu Corporation of Japan, from April 2013 to October 2013. Prior to
this consulting engagement, Mr. Tesoriero served as Executive Vice Present and Chief Financial Officer of Dole Food Company Inc.
from February 2010 to April 2013, as its Vice President and Chief Financial Officer from August 2004 to February 2010 and as its
Vice President of Tax from September 2002 to August 2004. Prior to joining Dole, Mr. Tesoriero was Senior Vice President of Tax
of Global Crossing (1998-2002), Vice President of Tax of Coleman Camping Equipment (1997-1998), International Tax Attorney with
Revlon Cosmetics (1989-1997) and Tax Attorney with IBM (1980-1988). Mr. Tesoriero began his career in 1978 as a Tax Associate
with Haskins & Sells (now Deloitte Touche). Mr. Tesoriero holds a B.S. in Accounting from Villanova University, a J.D. from
New York Law School and an LL.M. in Taxation from Boston University. He has been a member of the New York State Bar since 1978.
Qualifications:
Mr. Tesoriero has over 30 years of experience in corporate finance leadership positions.
Steven
Lang was appointed as Director of the Company on January 10, 2012. He has also served as Secretary of Barfresh CO since
its inception. Prior to joining Barfresh CO, from 2003 to 2007, Mr. Lang was a director of Vericap Finance Limited, a company
that specializes in providing advice to and investing in Australian companies with international growth potential. From 1990 to
1999, he served as a director of Babcock & Brown’s Australian operations where he was responsible for international
structured finance transactions. Mr. Lang received a Bachelor of Commerce and a Bachelor of Laws from the University of New South
Wales in 1976 and a Master of Laws from the University of Sydney in 1984. He has been a member of the Institute of Chartered Accountants
in Australia and was licensed to practice foreign law in New York.
Qualifications:
Mr. Lang has over 35 years of experience in business, accounting, law and finance and served as Chairman of an Australian public
company.
Arnold
Tinter was appointed as Director, Chief Financial Officer and Secretary of the Company on January 10, 2012. Mr. Tinter
resigned his position as Chief Financial Officer on May 18, 2015 and was appointed as Principal Accounting Officer. Mr. Tinter
founded Corporate Finance Group, Inc., a consulting firm located in Denver, Colorado, in 1992, and is its President. Corporate
Finance Group, Inc., is involved in financial consulting in the areas of strategic planning, mergers and acquisitions and capital
formation. He is the chief financial officer to two other public companies: LifeApps Digital Media Inc. and Arvana Inc. From 2006
to 2010 he was the chief financial officer of Spicy Pickle Franchising, Inc., a public company, where his responsibilities included
oversight of all accounting functions, including SEC reporting, strategic planning and capital formation. From May 2001 to May
2003, he served as chief financial officer of Bayview Technology Group, LLC, a privately held company that manufactured and distributed
energy-efficient products. From May 2003 to October 2004, he also served as that company’s chief executive officer. Prior
to 1990, Mr. Tinter was chief executive officer of Source Venture Capital, a holding company with investments in the gaming, printing
and retail industries. Mr. Tinter currently serves as a director of LifeApps Digital Media Inc., a public company. Mr. Tinter
received a B.S. degree in Accounting in 1967 from C.W. Post College, Long Island University, and is licensed as a Certified Public
Accountant in Colorado.
Qualifications:
Mr. Tinter has over 40 years of experience as a Certified Public Accountant and a financial consultant. During his career
he served as a director of numerous public companies.
Joseph
M. Cugine was appointed as Director of the Company on July 29, 2014 and on April 27, 2015, was appointed president of
our wholly owned subsidiary, Smoothie Inc. Mr. Cugine is the owner and president of Cugine Foods and JC Restaurants, a franchisee
of Taco Bell and Pizza Hut in New York. He is also president and owner of Restaurant Consulting Group LLC. Prior to owning and
operating his own firms, Mr. Cugine held a series of leadership roles with PepsiCo, lastly as chief customer officer and senior
vice president of PepsiCo’s Foodservice division. Mr. Cugine also serves on the board of directors of The Chef’s Warehouse,
Inc., a publicly traded specialty food products distributor in the U.S., as well as Ridgefield Playhouse and R4 Technology. He
received his B.S. degree from St. Joseph’s University in Philadelphia.
Qualifications:
Mr. Cugine’s career in sales, marketing, operations and supply chain spans more than 25 years. He has extensive industry
contacts and proven experience leading and advising numerous successful food distribution companies.
Alice
Elliot was appointed as Director of the Company on October 15, 2014. Ms. Elliot is the founder and chief executive of
The Elliot Group, a global retained executive search firm specializing in the hospitality, foodservice, retail and service sectors.
For more than 20 years, Ms. Elliot has hosted the exclusive invitation only ‘Elliot Leadership Conference.’ She was
a co-founder of ‘The Elliot Leadership Institute,’ a nonprofit organization dedicated to leadership development and
advancement in the foodservice industry, and is known for her philanthropic and educational endeavors and contributions. Throughout
her career, Ms. Elliot has received various industry honors, including the Trailblazer Award from the Women’s Foodservice
Forum and induction into the National Restaurant Association Educational Foundation’s College of Diplomates. She was also
recently named to the Nation’s Restaurant News list of the 50 Most Powerful People in Foodservice.
Qualifications:
Well recognized for the placement of senior-level executives at public and privately held restaurant organizations nationwide,
Ms. Elliot is sought out for their intellectual and strategic thought leadership.
Employment
Agreements
On
April 27, 2015, Smoothie, Inc. entered into an executive employment agreement with Riccardo Delle Coste, its Chief Executive Officer
and director. Mr. Delle Coste is also the Chief Executive Officer and Chairman of the Company. Pursuant to the employment agreement,
he will receive a base salary of $350,000 and performance bonuses of 75% of his base salary based on mutually agreed upon performance
targets. In addition, Mr. Delle Coste will receive up to an additional 500,000 performance options, on an annual basis. All options
granted under the employment agreement are subject to the Company’s 2015 Equity Incentive Plan.
On
April 27, 2015, Smoothie, Inc. entered into an executive employment agreement with Joseph M. Cugine to serve as President of Smoothie,
Inc. Pursuant to the employment agreement, Mr. Cugine will receive a base salary of $300,000 and performance bonuses of 75% of
his base salary based on mutually agreed upon performance targets. In addition, Mr. Cugine will receive 8-year options to purchase
up to 600,000 shares of Barfresh, one-half vesting on each of the second and third anniversaries of the date of Mr. Cugine’s
employment agreement. In addition, he will receive up to an additional 500,000 performance options, on an annual basis. All options
granted under the employment agreement are subject to the Company’s 2015 Equity Incentive Plan
The
Company entered into an executive employment agreement with Joseph S. Tesoriero on May 18, 2015, pursuant to which he agreed to
serve as Chief Financial Officer. Pursuant to the employment agreement, Mr. Tesoriero will receive a base salary of $250,000 and
performance bonuses of 75% of his base salary, based upon performance targets determined by the Board of Directors. In addition,
Mr. Tesoriero was granted 350,000 shares of common stock of Barfresh and 8-year options to purchase up to 500,000 shares of common
stock of Barfresh. One-half of each of the share and option grants vests on each of the second and third anniversaries of the
date of commencement of Mr. Tesoriero’s employment. Mr. Tesoriero will also receive 8-year performance options to purchase
up to an additional 350,000 shares on an annual basis. All shares and options granted under the employment agreement are subject
to the Company’s 2015 Equity Incentive Plan.
Term
of Office
Directors
are appointed for a one-year term to hold office until the next annual general meeting of shareholders or until removed from office
in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until the earlier of resignation
or removal.
Director
Independence
We
use the definition of “independence” standards as defined in the NASDAQ Stock Market Rule 5605(a)(2) provides that
an “independent director” is a person other than an officer or employee of the company or any other individual having
a relationship, which, in the opinion of the Company’s board of directors, would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director. We have determined that only one of our directors is independent,
which constitutes less than a majority.
Board
Committees
We
currently have an audit, and a compensation committee. The audit committee is primarily responsible for reviewing the services
performed by our independent auditors and evaluating our accounting policies and our system of internal controls. None of the
members of the audit committee are independent, as defined above. In the future we will have an independent member of the committee.
The compensation committee is primarily responsible for reviewing and approving our salary and benefits policies (including stock
options) and other compensation of our executive officers.
Family
Relationships
There are
no family relationships among any of our officers or directors.
Legal
Proceedings
To
the best of our knowledge, none of our executive officers or directors are parties to any material proceedings adverse to the
Company, have any material interest adverse to the Company or have, during the past ten years:
|
● |
been
convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other
minor offenses); |
|
|
|
|
● |
had
any bankruptcy petition filed by or against him/her or any business of which he/she was a general partner or executive officer,
either at the time of the bankruptcy or within two years prior to that time; |
|
|
|
|
● |
been
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting his/her involvement in any type of business,
securities, futures, commodities or banking activities; |
|
|
|
|
● |
been
found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed,
suspended, or vacated; |
|
|
|
|
● |
been
subject to, or party to, any judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended
or vacated, relating to an alleged violation of (i) any Federal or State securities or commodities law or regulation, (ii)
any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary
or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist
order, or removal or prohibition order or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection
with any business entity; or been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended
or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))),
any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent
exchange, association, entity or organization that has disciplinary authority over its members or persons associated with
a member. |
Code
of Ethics
Our
Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer are bound by a Code of Ethics that complies
with Item 406 of Regulation S-K of the Exchange Act.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires our directors and executive
officers and beneficial holders of more than 10% of our common stock to file with the SEC initial reports of ownership and reports
of changes in ownership of our equity securities.
To
our knowledge, based solely upon a review of Forms 3 and 4 and amendments thereto furnished to Barfresh under 17 CFR 240.16a-3(e)
during our most recent fiscal year and Forms 5 and amendments thereto furnished to Barfresh with respect to our most recent fiscal
year or written representations from the reporting persons, we believe that during the fiscal year ended March 31, 2015 our directors,
executive officers and persons who own more than 10% of our common stock complied with all Section 16(a) filing requirements,
with the exception of the following: Joseph M. Cugine and Alice Elliot each filed a late Form 3 and Form 4 filings.
Item
11. Executive Compensation.
The following
table summarizes all compensation for fiscal years 2015 and 2014 received by our principal executive officer and principal financial
officer, who were the only executive officers of the Company in fiscal year 2014, our “Named Executive Officers”:
Name
and Principal Position | |
Year | | |
Salary
($) | | Bonus
($)
|
|
Stock
Awards ($) | | |
Option
Awards ($) | | |
Non-Equity
Incentive Plan Compensation ($) | | |
Change
in Pension Value and Nonqualified Deferred Compensation Earnings
($) | | |
All
Other Compensation ($) | | |
Total
($) | |
Riccardo Delle Coste, Chief
Executive Officer | |
| 2015 | | |
| 266,666 | | |
|
| 204,000 | | |
| 89,790 | | |
| | | |
| | | |
| | | |
| 560,456 | |
| |
| 2014 | | |
| 117,517 | | |
|
| | | |
| | | |
| | | |
| | | |
| | | |
| 117,517 | |
| |
| | | |
| | | |
|
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Arnold Tinter, Chief
Financial Officer | |
| 2015 | | |
| 96,000 | | |
|
| | | |
| 44,895 | | |
| | | |
| | | |
| | | |
| 140,895 | |
| |
| 2014 | | |
| 72,000 | | |
|
| 160,000 | | |
| | | |
| | | |
| | | |
| | | |
| 232,000 | |
Outstanding
Equity Awards at Fiscal Year-End Table
At
March 31, 2015, the Company had no outstanding equity awards to its Named Executive Officers.
Employment
Agreements
On
April 27, 2015, The Company entered into an executive employment agreement with Riccardo Delle Coste, its Chief Executive Officer
and director. Mr. Delle Coste is also the Chief Executive Officer and Chairman of the Company. Pursuant to the employment agreement,
he will receive a base salary of $350,000 and performance bonuses of 75% of his base salary based on mutually agreed upon performance
targets. In addition, Mr. Delle Coste will receive up to an additional 500,000 performance options, on an annual basis. All options
granted under the employment agreement are subject to the Company’s 2015 Equity Incentive Plan.
On
April 27, 2015, Smoothie entered into an executive employment agreement with Joseph M. Cugine to serve as President of Smoothie,
Inc. Pursuant to the employment agreement, Mr. Cugine will receive a base salary of $300,000 and performance bonuses of 75% of
his base salary based on mutually agreed upon performance targets. In addition, Mr. Cugine will receive 8-year options to purchase
up to 600,000 shares of Barfresh, one-half vesting on each of the second and third anniversaries of the date of Mr. Cugine’s
employment agreement. In addition, he will receive up to an additional 500,000 performance options, on an annual basis. All options
granted under the employment agreement are subject to the Company’s 2015 Equity Incentive Plan.
The
Company entered into an executive employment agreement with Joseph S. Tesoriero on May 18, 2015, pursuant to which he agreed to
serve as Chief Financial Officer. Pursuant to the employment agreement, Mr. Tesoriero will receive a base salary of $250,000 and
performance bonuses of 75% of his base salary, based upon performance targets determined by the Board of Directors. In addition,
Mr. Tesoriero was granted 350,000 shares of common stock of Barfresh and 8-year options to purchase up to 500,000 shares of common
stock of Barfresh. One-half of each of the share and option grants vests on each of the second and third anniversaries of the
date of commencement of Mr. Tesoriero’s employment. Mr. Tesoriero will also receive 8-year performance options to purchase
up to an additional 350,000 shares on an annual basis. All shares and options granted under the employment agreement are subject
to the Company’s 2015 Equity Incentive Plan.
Compensation
of Directors
The following
table summarizes the compensation paid to our directors for the fiscal year ended March 31, 2015:
|
|
Fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earned or |
|
|
|
|
|
|
|
|
Non-Equity |
|
|
|
|
|
|
|
|
|
Paid in |
|
|
Stock |
|
|
Option |
|
|
Incentive Plan |
|
|
All Other |
|
|
|
|
Name |
|
Cash |
|
|
Awards |
|
|
Awards |
|
|
Compensation |
|
|
Compensation |
|
|
Total |
|
Riccardo Delle Coste |
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
- |
|
Arnold Tinter |
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
- |
|
Steven Lang |
|
$ |
15,000 |
|
|
|
- |
|
|
|
44,895 |
|
|
|
- |
|
|
|
- |
|
|
$ |
69,895 |
|
Alice Elliot
|
|
$ |
- |
|
|
|
- |
|
|
|
57,209 |
|
|
|
- |
|
|
|
- |
|
|
$ |
57,209 |
|
Joseph M. Cugine |
|
$ |
- |
|
|
|
50,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
50,000 |
|
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth certain information regarding our shares of common stock beneficially owned as of June 22, 2015 for
(i) each shareholder known to be the beneficial owner of 5% or more of our outstanding shares of common stock, (ii) each Named
Executive Officer and director, and (iii) all executive officers and directors as a group. A person is considered to beneficially
own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii)
of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options
or warrants or otherwise. Unless otherwise indicated, voting and investment power relating to the shares shown in the table for
our directors and executive officers is exercised solely by the beneficial owner or shared by the owner and the owner’s
spouse or children.
For
purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common
stock that such person has the right to acquire within 60 days of June 22, 2015. For purposes of computing the percentage of outstanding
shares of our common stock held by each person or group of persons named above, any shares that such person or persons has the
right to acquire within 60 days of June 22, 2015 is deemed to be outstanding, but is not deemed to be outstanding for the purpose
of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does
not constitute an admission of beneficial ownership. Unless otherwise specified, the address of each of the persons set forth
below is in care of Barfresh Food Group Inc., 8530 Wilshire Blvd., Suite 450, Beverly Hills, CA 90211.
Name
and address of beneficial owner (1) | |
Amount
and nature of beneficial ownership | | |
Percent
of class o/s | |
| |
| | |
| |
Riccardo Delle Coste (2)
(3) (4) (5)(6) | |
| 20,049,310 | | |
| 25.37 | % |
| |
| | | |
| | |
R.D. Capital Holdings Pty Ltd. | |
| 18,966,664 | | |
| 23.94 | % |
| |
| | | |
| | |
Steven Lang (7) (8) (9)(10) | |
| 20,249,310 | | |
| 25.35 | % |
| |
| | | |
| | |
Sidra Pty Limited | |
| 19,249,310 | | |
| 24.21 | % |
| |
| | | |
| | |
Arnold Tinter (11)(12) | |
| 800,000 | | |
| 1.20 | % |
| |
| | | |
| | |
Joseph M. Cugine (13)(140(15) | |
| 1,714,100 | | |
| 2.16 | % |
| |
| | | |
| | |
Alice Elliot (16) (17) (18) | |
| 490,000 | | |
| 0.62 | % |
| |
| | | |
| | |
All directors and officers as a group
(5 persons) | |
| 43,302,720 | | |
| 53.69 | % |
| |
| | | |
| | |
Lazarus Investment Partners LLLP 3200
Cherry Creek South Drive Suite 670 Denver, CO 80209 (19) | |
| 18,093,295 | | |
| 20.27 | % |
Wolverine
Flagship Fund Trading Limited 175
West Jackson Blvd., Suite 340 Chicago,
IL 60604 (20) | |
| 6,000,000 | | |
| 7.39 | % |
Bruce
Grossman c/o
Dillon Hill Capital LLC 200
Business Park Drive, Suite 306 Armonk,
NY 10504 (21) | |
| 4,500,000 | | |
| 5.57 | % |
(1) |
The
address of all officers and directors listed is c/o Barfresh Food Group Inc., 8530 Wilshire Blvd,, Suite 450, Beverly Hills,
CA 90211. |
|
|
(2) |
Mr.
Delle Coste is the Chief Executive Officer, President and a Director of the Company. |
|
|
(3) |
Includes
18,966,664 shares owned by R.D. Capital Holdings PTY Ltd. and of which Riccardo Delle Coste is deemed to be a beneficial
owner. |
|
|
(4) |
Includes
200,000 shares underlying convertible debt and 200,000 shares underlying warrants related to the convertible debt owned
by the Delle Coste Family Trust. Mr. Delle Coste may be deemed to indirectly beneficially own these shares but disclaims
beneficial ownership of these shares pursuant to Rule 13d-4 promulgated under the Securities Exchange Act of 1 934, as amended. |
|
|
(5) |
Includes
300,000 shares underlying options granted. |
|
|
(6) |
Includes
282,646 shares underlying warrants issued in connection with a promissory note the holder of which is the Delle Coste
Family Trust. Mr. Delle Coste may be deemed to indirectly beneficially own these shares but disclaims beneficial ownership
of these shares pursuant to Rule 13d-4 promulgated under the Securities Exchange Act of 1934, as amended. |
|
|
(7) |
Mr.
Lang is a Director of the Company. |
|
|
(8) |
Includes
18,966,664 shares owned by Sidra Pty Limited of which Steven Lang is deemed to be a beneficial owner. |
|
|
(9) |
Includes
950,000 shares underlying options granted. |
|
|
(10) |
Includes
282,6469 shares underlying warrants issued in connection with a promissory note the holder of which is Sidra PTY Limited. |
|
|
(11) |
Mr.
Tinter is the Chief Financial Officer, Secretary and a Director of the Company. |
|
|
(12) |
Includes
150,000 shares underlying options granted |
|
|
(13) |
Mr.
Cugine is a Director of the Company. |
|
|
(14) |
Includes
500,000 shares owned by Restaurant Consulting Group LLC of which Joe Cugine is deemed to be a beneficial owner. |
|
|
(15) |
Includes
50,000 shares underlying warrants issued in connection with purchase of common stock. |
|
|
(16) |
Ms.
Elliot is a Director of the Company. |
|
|
(17) |
Includes
160,000 shares owned by Elliot-Herbst LP of which Alice Elliot is deemed to be a beneficial owner. |
|
|
(18) |
Includes
30,000 shares underlying warrants issued in connection with purchase of common stock. |
|
|
(19) |
Includes
10,033,333 shares underlying warrants issued in connection with purchase of common stock. Lazarus Management Company
LLC, a Colorado limited liability company (“Lazarus Management”), is the investment adviser and general partner
of Lazarus Investment Partners LLLP (“Lazarus Partners”), and consequently may be deemed to have voting
control and investment discretion over securities owned by Lazarus Partners. Justin B. Borus is the managing member
of Lazarus Management. As a result, Mr. Borus may be deemed to be the beneficial owner of any shares deemed to be beneficially
owned by Lazarus Management. The foregoing should not be construed in and of itself as an admission by Lazarus Management
or Mr. Borus as to beneficial ownership of the shares owned by Lazarus Partners. Each of Lazarus Management and Mr.
Borus disclaims beneficial ownership of the securities, except to the extent of its or his pecuniary interests therein. |
|
|
(20) |
Includes
2,000,000 shares underlying warrants issued in connection with purchase of common stock. Wolverine Asset Management,
LLC (“WAM”) is the investment manager of Wolverine Flagship Fund Trading Limited and has voting and dispositive
power over these securities. The sole member and manager of WAM is Wolverine Holdings, L.P. (“Wolverine Holdings”).
Robert R. Bellick and Christopher L. Gust may be deemed to control Wolverine Trading Partners, Inc., the general partner
of Wolverine Holdings. |
|
|
(21) |
Dillon
Hill Capital, LLC, of which the Mr. Grossman is the sole member, directly owns 2,000,000 shares are common stock and
warrants to purchase an additional 1,000,000 shares of common stock. Dillon Hill Investment Company, LLC, the sole member
of which is a trust of which Mr. Grossman’s spouse is a co-trustee, directly owns 1,000,000 shares of common stock and
warrants to purchase an additional 500,000 shares of common stock. By virtue of the relationships described above, the Mr.
Grossman n may be deemed to have sole voting and dispositive power over the shares and warrants held by Dillon Hill Capital
LLC and shared voting and dispositive power over the shares and warrants held by Dillon Hill Investment Company, LLC. |
Changes
in control.
None
Item
13. Certain Relationships and Related Transactions, and Director Independence.
Certain
Relationships and Related Transactions
The
following includes a summary of transactions since the beginning of fiscal 2015, or any currently proposed transaction, in which
we were or are to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average
of our total assets at year end for the last two completed fiscal years and in which any related person had or will have a direct
or indirect material interest (other than compensation described under “Executive Compensation”). We believe the terms
obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable
to or better than terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.
Our
principal executive offices were located at 90 Madison Street, Suite 701, Denver, Colorado 80206 through March 2015. The executive
office was co-located with the office of Corporate Finance Group, a company that is owned by Arnold Tinter, a director and former
Chief Financial Officer. We used this property free of charge. We no longer occupy those premises.
The
Company’s policy with regard to related party transactions requires any related party loans that are (i) non-interest bearing
and in excess of $100,000 or (ii) interest bearing, irrespective of amount, must be approved by the Company’s board of directors.
All issuances of securities by the Company must be approved by the board of directors, irrespective of whether the recipient is
a related party. Each of the foregoing transactions, if required by its terms, was approved in this manner.
Director
Independence
We
use the definition of “independence” standards as defined in the NASDAQ Stock Market Rule 5605(a)(2) provides that
an “independent director” is a person other than an officer or employee of the company or any other individual having
a relationship, which, in the opinion of the Company’s board of directors, would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director. We have determined that only one of our directors is independent,
which constitutes less than a majority.
Item
14. Principal Accounting Fees and Services.
Aggregate
fees for professional services rendered to the Company by Eide Bailly LLP for the years ended March 31, 2015 and 2014 were as
follows.
| |
Fiscal
2015 | | |
Fiscal
2014 | |
Audit fees | |
$ | 34,588 | | |
$ | 37,264 | |
Audit related fees | |
| - | | |
| - | |
Tax fees | |
| - | | |
| - | |
All other fees | |
| - | | |
| - | |
Total | |
$ | 34,588 | | |
$ | 37,264 | |
As
defined by the SEC, (i) “audit fees” are fees for professional services rendered by our principal accountant for the
audit of our annual financial statements and review of financial statements included in our Form 10-K, or for services that are
normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years;
(ii) “audit-related fees” are fees for assurance and related services by our principal accountant that are reasonably
related to the performance of the audit or review of our financial statements and are not reported under “audit fees;”
(iii) “tax fees” are fees for professional services rendered by our principal accountant for tax compliance, tax advice,
and tax planning; and (iv) “all other fees” are fees for products and services provided by our principal accountant,
other than the services reported under “audit fees,” “audit-related fees,” and “tax fees.”
Audit
Fees. The aggregate fees billed for the years ended March 31, 2015 and 2014 were for the audits of our financial statements
and reviews of our interim financial statements included in our annual and quarterly reports.
Audit
Related Fees. The aggregate fees billed for the years ended March 31, 2015 and 2014 were for the audit or review of our financial
statements that are not reported under Audit Fees.
Tax
Fees. Eide Bailly LLP did not provide us with professional services related to tax compliance, tax advice and tax planning
for the years ended March 31, 2015 and 2014.
All
Other Fees. Eide Bailly LLP did not provide us with professional services related to “Other Fees” for the years
ended March 31, 2015 and 2014.
Audit
Committee Pre-Approval Policies and Procedures
Under
the SEC’s rules, an audit committee is required to pre-approve the audit and non-audit services performed by the independent
registered public accounting firm in order to ensure that they do not impair the auditors’ independence. The SEC’s
rules specify the types of non-audit services that an independent auditor may not provide to its audit client and establish the
audit committee’s responsibility for administration of the engagement of the independent registered public accounting firm.
The Company has established an Audit Committee subsequent to the start of the audit. Accordingly, none of audit services and non-audit
services described in this Item 14 were pre-approved by an Audit Committee.
There
were no hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for
the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time,
permanent employees.
PART
IV
Item
15. Exhibits and Financial Statements
(a)
1. Financial Statements
See
Index to Financial Statements in Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference.
2.
Financial Statement Schedules
All
other financial statement schedules have been omitted because they are either not applicable or the required information is shown
in the financial statements or notes thereto.
3.
Exhibits
See
the Exhibit Index, which follows the signature page of this Annual Report on Form 10-K, which is incorporated herein by reference.
(b)
Exhibits
See
Item 15(a) (3) above.
(c)
Financial Statement Schedules
See
Item 15(a) (2) above.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
|
BARFRESH
FOOD GROUP INC. |
|
|
|
Date:
July 7, 2015 |
By: |
/s/
Riccardo Delle Coste |
|
|
Riccardo
Delle Coste
Chief
Executive Officer
(Principal
Executive Officer) |
Date:
July 7, 2015 |
By: |
/s/
Arnold Tinter |
|
|
Arnold Tinter |
|
|
Principal Accounting
Officer |
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Signature |
|
Capacity |
|
Date |
|
|
|
|
|
/s/
Riccardo Delle Coste |
|
President,
Chief Executive Officer and Director |
|
July 7, 2015 |
Riccardo Delle
Coste |
|
(Principal Executive
Officer) |
|
|
|
|
|
|
|
/s/
Arnold Tinter |
|
Chief
Financial Officer, Secretary and Director |
|
July 7, 2015 |
Arnold Tinter |
|
(Principal Financial
Officer) |
|
|
|
|
|
|
|
/s/
Steven Lang |
|
Director |
|
July
7, 2015 |
Steven
Lang
|
|
|
|
|
/s/
Joseph M. Cugine |
|
Director |
|
July
7, 2015 |
Joseph M. Cugine |
|
|
|
|
|
|
|
|
|
/s/
Alice Elliot |
|
Director |
|
July
7, 2015 |
Alice Alliot |
|
|
|
|
Barfresh
Food Group Inc.
Index
to Consolidated Financial Statements
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and
Stockholders
of Barfresh Food Group Inc.
We
have audited the accompanying consolidated balance sheets of Barfresh Food Group Inc. (the “Company”) as of March
31, 2015 and 2014, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows
for each of the years in the two-year period ended March 31, 2015. Barfresh Food Group Inc.’s management is responsible
for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Barfresh Food Group Inc. as of March 31, 2015 and 2014, and the results of its operations and its cash flows for each of the
years in the two-year period ended March 31, 2015 in conformity with accounting principles generally accepted in the United States
of America.
/s/
Eide Bailly LLP |
|
|
|
Greenwood
Village, Colorado |
|
July
6, 2015 |
|
Barfresh
Food Group Inc.
Consolidated
Balance Sheets
March
31, 2015 and 2014
| |
2015 | | |
2014 | |
| |
| | |
| |
Assets | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash | |
$ | 5,364,657 | | |
$ | 2,632,612 | |
Accounts Receivable | |
| 46,096 | | |
| 68,640 | |
Inventory | |
| 165,847 | | |
| 76,913 | |
Prepaid
expenses and other current assets | |
| 6,386 | | |
| 12,007 | |
Total current assets | |
| 5,582,986 | | |
| 2,790,172 | |
Property, plant and equipment, net of
depreciation | |
| 545,454 | | |
| 362,078 | |
Intangible asset, net of amortization | |
| 651,433 | | |
| 700,654 | |
Deposits | |
| 16,451 | | |
| 14,461 | |
Total Assets | |
$ | 6,796,324 | | |
$ | 3,867,365 | |
| |
| | | |
| | |
Liabilities And Stockholders’
Equity | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 133,254 | | |
$ | 175,851 | |
Accrued expenses | |
| 424,262 | | |
| 242,820 | |
Deferred rent liability | |
| 1,484 | | |
| 1,866 | |
Short-term notes
payable - related party, net of discount | |
| 157,393 | | |
| 492,015 | |
Short-term notes
payable, net of discount | |
| 539,631 | | |
| 52,731 | |
Convertible note,
net of discount | |
| 325,114 | | |
| - | |
Current
portion of long term debt | |
| 7,551 | | |
| - | |
Total current liabilities | |
| 1,588,689 | | |
| 965,283 | |
Long term debt | |
| 28,916 | | |
| - | |
Convertible
note, net of discount | |
| - | | |
| 193,059 | |
Total liabilities | |
| 1,617,605 | | |
| 1,158,342 | |
| |
| | | |
| | |
Commitments and contingencies | |
| - | | |
| - | |
| |
| | | |
| | |
Stockholders’ equity: | |
| | | |
| | |
Preferred stock, $0.000001 par value,
5,000,000 shares authorized, none issued or outstanding | |
| - | | |
| - | |
Common stock, $0.000001 par value; 95,000,000
shares authorized; and 77,720,828 and 65,247,660, shares issued and outstanding at March 31, 2015 and 2014, respectively | |
| 78 | | |
| 65 | |
Additional paid in capital | |
| 14,034,623 | | |
| 7,739,117 | |
Accumulated deficit | |
| (8,808,640 | ) | |
| (5,030,159 | ) |
Unearned services | |
| (47,342 | ) | |
| - | |
Total stockholders’
equity | |
| 5,178,719 | | |
| 2,709,023 | |
Total Liabilities
and Stockholders’ Equity | |
$ | 6,796,324 | | |
$ | 3,867,365 | |
See
the accompanying notes to the consolidated financial statements
Barfresh
Food Group Inc.
Consolidated
Statements of Operations
For
the Years Ended March 31, 2015 and 2014
| |
2015 | | |
2014 | |
Revenue | |
$ | 211,467 | | |
$ | 110,085 | |
Cost of revenue | |
| 126,804 | | |
| 48,534 | |
Gross profit | |
| 84,663 | | |
| 61,551 | |
| |
| | | |
| | |
Operating expenses: | |
| | | |
| | |
General and administrative | |
| 3,211,908 | | |
| 2,267,270 | |
Depreciation
Amortization | |
| 134,221 | | |
| 84,843 | |
Total operating
expenses | |
| 3,346,129 | | |
| 2,352,113 | |
| |
| | | |
| | |
Operating loss | |
| (3,261,466 | ) | |
| (2,290,562 | ) |
| |
| | | |
| | |
Other expenses | |
| | | |
| | |
Interest | |
| 517,015 | | |
| 292,888 | |
| |
| | | |
| | |
Net (loss) | |
$ | (3,778,481 | ) | |
$ | (2,583,450 | ) |
| |
| | | |
| | |
Per share information - basic and fully
diluted: | |
| | | |
| | |
Weighted average
shares outstanding | |
| 66,651,993 | | |
| 57,276,274 | |
Net (loss)
per share | |
$ | (0.06 | ) | |
$ | (0.05 | ) |
See
the accompanying notes to the consolidated financial statements
Barfresh
Food Group, Inc.
Statement
of Stockholders’ Equity
For
the Years Ended March 31, 2015 and 2014
| |
| | |
| | |
Additional | | |
| | |
| | |
| |
| |
Common Stock | | |
paid in | | |
Accumulated | | |
Unearned | | |
| |
| |
Shares | | |
Amount | | |
capital | | |
Deficit | | |
services | | |
Total | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Balance April 1, 2013 | |
| 50,366,660 | | |
$ | 50 | | |
$ | 2,355,328 | | |
$ | (2,446,709 | ) | |
$ | - | | |
$ | (91,331 | ) |
Issuance of common stock and warrants for
cash, net of expenses of $295,320 | |
| 14,226,000 | | |
| 14 | | |
| 4,511,166 | | |
| - | | |
| - | | |
| 4,511,180 | |
Effect of beneficial conversion and issuance
of warrants in relation to convertible debt | |
| - | | |
| - | | |
| 268,778 | | |
| - | | |
| - | | |
| 268,778 | |
Effect of issuance of warrants in relation
to debt | |
| - | | |
| - | | |
| 298,232 | | |
| - | | |
| - | | |
| 298,232 | |
Issuance of stock for services to non-employees | |
| 55,000 | | |
| - | | |
| 28,730 | | |
| - | | |
| - | | |
| 28,730 | |
Issuance of stock for services to employee | |
| 600,000 | | |
| 1 | | |
| 239,999 | | |
| - | | |
| - | | |
| 240,000 | |
Stock based compensation | |
| - | | |
| - | | |
| 155,119 | | |
| - | | |
| - | | |
| 155,119 | |
Adjustment to stock based comp | |
| - | | |
| - | | |
| (118,235 | ) | |
| - | | |
| - | | |
| (118,235 | ) |
Net loss for the
year ended March 31, 2014 | |
| - | | |
| - | | |
| - | | |
| (2,583,450 | ) | |
| - | | |
| (2,583,450 | ) |
Balance March 31, 2014 | |
| 65,247,660 | | |
| 65 | | |
| 7,739,117 | | |
| (5,030,159 | ) | |
| - | | |
| 2,709,023 | |
Issuance of common stock and warrants for
cash, net of expenses of $238,212 | |
| 11,044,000 | | |
| 11 | | |
| 5,283,777 | | |
| - | | |
| - | | |
| 5,283,788 | |
Effect of issuance of warrants in relation
to debt (debt discount) | |
| - | | |
| - | | |
| 164,638 | | |
| - | | |
| - | | |
| 164,638 | |
Issuance of stock for services to non-employees | |
| 155,000 | | |
| - | | |
| 113,845 | | |
| - | | |
| - | | |
| 113,845 | |
Issuance of stock for services to employee
and directors | |
| 964,100 | | |
| 1 | | |
| 496,457 | | |
| - | | |
| (41,665 | ) | |
| 454,793 | |
Stock based compensation | |
| - | | |
| - | | |
| 236,790 | | |
| - | | |
| (57,209 | ) | |
| 179,581 | |
Amortization of unearned services | |
| - | | |
| - | | |
| - | | |
| - | | |
| 51,532 | | |
| 51,532 | |
Conversion of warrants | |
| 310,068 | | |
| 1 | | |
| (1 | ) | |
| - | | |
| - | | |
| - | |
Net loss for the
year ended March 31, 2015 | |
| - | | |
| - | | |
| - | | |
| (3,778,481 | ) | |
| - | | |
| (3,778,481 | ) |
| |
| 77,720,828 | | |
$ | 78 | | |
$ | 14,034,623 | | |
$ | (8,808,640 | ) | |
$ | (47,342 | ) | |
$ | 5,178,719 | |
See
the accompanying notes to the consolidated financial statements
Barfresh
Food Group Inc.
Consolidated
Statements of Cash Flows
For
the Years Ended March 31, 2015 and 2014
| |
2015 | | |
2014 | |
Cash flow from operating activities: | |
| | | |
| | |
Net loss for the period | |
$ | (3,778,481 | ) | |
$ | (2,583,450 | ) |
Adjustments to reconcile net loss to
net cash used in operating activities: | |
| | | |
| | |
Depreciation | |
| 72,842 | | |
| 53,951 | |
Equity based compensation | |
| 748,219 | | |
| 305,614 | |
Amortization of
intellectual property | |
| 61,379 | | |
| 30,892 | |
Amortization of
debt discount | |
| 448,971 | | |
| 228,164 | |
Amortization of
unearned services | |
| 51,532 | | |
| - | |
Reserve for bad
debt | |
| (65,000 | ) | |
| - | |
Purchase of assets
for long term debt | |
| 37,751 | | |
| - | |
Changes in operating assets and liabilities | |
| | | |
| | |
Accounts receivable | |
| 87,544 | | |
| (61,227 | ) |
Receivable from
related party | |
| - | | |
| 13,540 | |
Inventory | |
| (88,934 | ) | |
| (64,201 | ) |
Prepaid expenses | |
| 5,621 | | |
| 214,594 | |
Deposits | |
| (1,990 | ) | |
| (3,730 | ) |
Accounts payable | |
| (42,597 | ) | |
| (71,831 | ) |
Accrued expenses | |
| 181,442 | | |
| 55,724 | |
Deferred rent | |
| (382 | ) | |
| (3,200 | ) |
Net cash used
in operations | |
| (2,282,083 | ) | |
| (1,885,160 | ) |
| |
| | | |
| | |
Cash flow from investing activities: | |
| | | |
| | |
Purchase of fixed
assets | |
| (271,927 | ) | |
| (104,532 | ) |
Disposition of fixed
assets | |
| 15,709 | | |
| | |
Purchase of
patents | |
| (12,158 | ) | |
| (699,561 | ) |
Net Cash used
in investing activities | |
| (268,376 | ) | |
| (804,093 | ) |
| |
| | | |
| | |
Cash flow from financing activities: | |
| | | |
| | |
Issuance of common
stock and warrants for cash | |
| 5,283,788 | | |
| 4,511,180 | |
Issuance of short
term notes | |
| - | | |
| 775,000 | |
Repayment of long
term debt | |
| (1,284 | ) | |
| - | |
Repayment of convertible
debt | |
| - | | |
| (40,000 | ) |
Issuance of convertible
debt | |
| - | | |
| 20,000 | |
Advance from related
party | |
| - | | |
| 485,132 | |
Repayment to related
party | |
| - | | |
| (515,404 | ) |
Net cash provided by financing activities | |
| 5,282,504 | | |
| 5,235,908 | |
| |
| | | |
| | |
Net increase (decrease) in cash | |
| 2,732,045 | | |
| (2,546,655 | ) |
Cash at beginning of period | |
| 2,632,612 | | |
| 85,957 | |
Cash at end of period | |
$ | 5,364,657 | | |
$ | 2,632,612 | |
| |
| | | |
| | |
Supplemental disclosure of cash flow
information: | |
| | | |
| | |
Cash paid for interest | |
$ | 81,185 | | |
$ | 63,875 | |
Cash paid for income
taxes | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
Non-cash financing activities: | |
| | | |
| | |
Common stock issued
for services/stock based compensation | |
$ | 847,092 | | |
$ | 268,730 | |
Fair value of warrants
issued with convertible notes | |
$ | 164,638 | | |
$ | 142,873 | |
Value of beneficial conversion of
convertible notes | |
$ | - | | |
$ | 125,905 | |
Fair value of warrants
issued with notes payable | |
$ | - | | |
$ | 298,232 | |
See
the accompanying notes to the consolidated financial statements
Barfresh
Food Group Inc.
Notes
to Consolidated Financial Statements
March
31, 2015 and 2014
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. We are engaged in the manufacturing and distribution of ready to blend beverages, particularly,
smoothies, shakes and frappes.
The
accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America (“GAAP”).
Basis
of Consolidation
The
consolidated financial statements include the financial statements of the Company and our wholly owned subsidiaries Barfresh Inc.
and Smoothie 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.
Cash
and Cash Equivalents
We
consider all highly liquid investments with an original maturity of three months or less, at the time of purchase, to be cash
equivalents.
Concentration
of Credit Risk
The
amount of cash on deposit with financial institutions exceeds the $250,000 federally insured limit at March 31, 2015. However,
we believe that cash on deposit that exceeds $250,000 in the financial institutions is financially sound and the risk of loss
is minimal.
Fair
Value Measurement
Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value
Measurements and Disclosures (“ASC 820”), provides a comprehensive framework for measuring fair value and expands
disclosures which are required about fair value measurements. Specifically, ASC 820 sets forth a definition of fair value and
establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active
markets for identical assets and liabilities and the lowest priority to unobservable value inputs. ASC 820 defines the hierarchy
as follows:
Level
1 - Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets
and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed
on the New York Stock Exchange.
Level
2 - Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the
reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or
contracts or priced with models using highly observable inputs.
Level
3 - Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included
in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models
and forecasts used to determine the fair value of financial transmission rights.
Our
financial instruments consist of accounts receivable, accounts payable, accrued expenses, amounts due to a related party, notes
payable, and convertible notes. The carrying value of our financial instruments approximates their fair value due to their relative
short maturities.
Barfresh
Food Group Inc.
Notes
to Consolidated Financial Statements
March
31, 2015 and 2014
Accounts
Receivable
Accounts
receivable are typically unsecured. Our credit policy calls for payment generally within 30 days. The credit worthiness of a customer
is evaluated prior to a sale. As of March 31, 2015 there is an allowance for doubtful accounts $65,000.
Intangible
Assets
Intangible
assets are comprised of patents, net of amortization. The patent costs are being amortized over the life of the patent, which
is twenty years from the date of filing the patent application. In accordance with ASC Topic 350 Intangibles - Goodwill and
Other (“ASC 350”), the costs of internally developing other intangible assets, such as patents, are expensed as
incurred. However, as allowed by ASC 350, costs associated with the acquisition of patents from third parties, legal fees and
similar costs relating to patents have been capitalized.
Property,
Plant and Equipment
Property,
plant and equipment is stated at cost less accumulated depreciation and accumulated impairment loss, if any. Depreciation is calculated
on a straight line basis over the estimated useful lives of the assets. Leasehold improvements are being amortized over the shorter
of the useful life of the asset or the lease term that includes any expected renewal periods that are deemed to be reasonably
assured. The estimated useful lives used for financial statement purposes are:
Furniture
and fixtures: 5 years
Equipment:
7 years
Leasehold
improvements: 2 years
Vehicles
5 years
Revenue
Recognition
We
recognize revenue when there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the
sales price is determinable, and collection is reasonably assured.
Research
and Development
Expenditures
for research activities relating to product development and improvement are charged to expense as incurred. We incurred $51,465
and $47,035, in research and development expenses for the years ended March 31, 2015 and 2014, respectively.
Rent
Expense
We
recognize rent expense on a straight-line basis over the reasonably assured lease term as defined in ASC Topic 840, Leases
(“ASC 840”). In addition, our lease agreement provides for rental payments commencing at a date other than the
date of initial occupancy. We include the rent holidays in determination of straight-line rent expense. Therefore, rent expense
is charged to expense beginning with the occupancy date. Deferred rent was $1,484 and $1,866 at March 31, 2015 and 2014 respectively
and will be charged to rent expense over the life of the lease.
Earnings
per Share
We
calculate net loss per share in accordance with ASC Topic 260, Earnings per Share. Basic net loss per share is computed
by dividing net loss by the weighted average number of shares of common stock outstanding for the period, and diluted earnings
per share is computed by including common stock equivalents outstanding for the period in the denominator. At March 31, 2015 and
2014 any equivalents would have been anti-dilutive as we had losses for the years then ended.
Recent
Pronouncements
From
time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We believe that the impact
of recently issued standards that are not yet effective may have an impact on our results of operations and financial position.
ASU Update 2014-09 Revenue From Contracts With Customers (Topic 606) issued May 28, 2014 by FASB and IASB converged guidance on
recognizing revenue in contracts with customers with an effective date after December 15, 2016 will be evaluated as to impact
and implemented accordingly. In addition, ASU Update 2014-15 Presentation of Financial Statements-Going Concern (Sub Topic 205-40)
issued August 27, 2014 by FASB defines management’s responsibility to evaluate whether there is substantial doubt about
an organization’s ability to continue as a going concern. The additional disclosure requirement is effective after December
15, 2016 and will be evaluated as to impact and implemented accordingly.
Barfresh
Food Group Inc.
Notes
to Consolidated Financial Statements
March
31, 2015 and 2014
Note
2. Property Plant and Equipment
Major
classes of property and equipment at March 31, 2015 and 2014 consist of the following:
| |
2015 | | |
2014 | |
Furniture and fixtures | |
$ | 10,794 | | |
$ | 13,331 | |
Equipment | |
| 632,596 | | |
| 372,617 | |
Leasehold Improvements | |
| 3,300 | | |
| 3,300 | |
Vehicles | |
| 58,752 | | |
| - | |
| |
| 705,442 | | |
| 389,248 | |
Less: accumulated depreciation | |
| (159,988 | ) | |
| (87,146 | ) |
| |
| 545,454 | | |
| 302,102 | |
Equipment not in service | |
| - | | |
| 59,976 | |
Property and equipment, net of depreciation | |
$ | 545,454 | | |
$ | 362,078 | |
We
recorded depreciation expense related to these assets of $72,103 and $53,951 for the years ended March 31, 2015 and 2014, respectively.
Note
3. Intangible Assets
As
of March 31, 2015 and 2014, intangible assets primarily consists of patent costs of $748,806 and $736,648, less accumulated amortization
of $97,373 and $35,994, respectively.
During
the year ended March 31, 2014, we acquired at a cost of $672,157, all of the international patent rights for a pre-portioned,
ready to blend packet for beverages, particularly, smoothies, shakes and frappes.
The
amounts carried on the balance sheet represent cost to acquire, legal fees and similar costs relating to the patents incurred
by the Company. Amortization is calculated through the expiration date of the patent, which is December, 2025. The amount charged
to expenses for amortization of the patent costs was $61,378 and $30,892 for the years ended March 31, 2015 and 2014, respectively.
Estimated
future amortization expense related to intangible property as of March 31, 2015 is as follows:
Years
ending March 31, | |
Total
Amortization | |
2015 | |
$ | 60,513 | |
2017 | |
| 60,513 | |
2018 | |
| 60,513 | |
2019 | |
| 60,513 | |
2020 | |
| 60,513 | |
Later years | |
| 348,868 | |
| |
$ | 651,433 | |
Note
4. Advance from Related Party
During
the year ended March 31, 2014 we received a cash advance from an affiliate of a director and shareholder of the Company in the
amount of $672,157 (Australian $710,000), which was used for the purchase of certain international patent rights. The advance
was repaid with interest calculated at 6.0% per annum, $5,617. The repayment was made in the form of a note in the amount $200,000
and cash of $451,495, which was net of a foreign exchange gain of $26,280, as payments were due in Australian dollars.
Barfresh
Food Group Inc.
Notes
to Consolidated Financial Statements
March
31, 2015 and 2014
During
the years ended March 31, 2014 we received cash advances in the amounts of $12,975 from a relative of an officer of the Company.
The advances bear no interest and were repaid.
Note
5. Short-Term Notes Payable (Related and Unrelated)
In
December 2013, we closed an offering of $775,000 in short-term notes payable (“Short-Term Notes”), $500,000 of which
was purchased by a significant shareholder, $100,000 was purchased by the family trust of an officer, director and significant
shareholder and $100,000 was purchased by a company controlled by a director and significant shareholder. During 2014 the $100,000
that was purchased by the family trust of an officer, director and significant shareholder is no longer considered to be owned
by the officer as he is no longer, nor is any other related party, the trustee and does not exercise control over the trust and
is not classified as a related party debt. The Short-Term Notes bear interest at a rate of 2% per annum and were due and payable
on December 20, 2014. We also issued 1,291,667 warrants to the Short-Term Note holders for the right to purchase shares of our
common stock. Each warrant entitles the holder to purchase one share of our common stock at a price of $0.45 per share, may be
exercised on a cashless basis and are exercisable for a period of five years.
In
accordance with the guidance in ASC Topic 470-20 Debt with Conversion and Other Options (“ASC 470”), we first
calculated the fair value of the warrants issued and then determined the relative value of the Short-Term Notes.
The
relative value of the warrants was $298,232, which was the amount recorded as debt discount. The amounts recorded as debt discount
was amortized over the life of the note, one year, and charged to interest expense. We estimated the effective interest rate as
calculated to be approximately 52% but paid cash at a rate of 2% per annum.
We
exercised our right to extend the due date of the Short-Term Notes to June 20, 2015. The extended Short-Term Notes bear at the
rate of 3% per annum and required us to issue additional warrants (“Extension Warrants”). We issued 898,842 warrants
to the Short-Term Note holders for the right to purchase shares of our common stock. Each warrant entitles the holder to purchase
one share of our common stock at a price of $0.485 per share, may be exercised on a cashless basis and are exercisable for a period
of three years.
As
discussed above we accounted for the warrants as per the guidance in ASC 470. The relative value of the new warrants, $164,638,
was the amount recorded as the new debt discount. The amounts recorded as debt discount is being amortized over the life of the
note, six months, and charged to interest expense. We estimated the effective interest rate as calculated to be approximately
53% but pay cash at a rate of 3% per annum.
The
fair value of the warrant, $0.23 per share, was calculated using the Black-Sholes option pricing model using the following assumptions:
Expected life (in years) | |
3 | |
Volatility (based on a comparable company) | |
76.88 | % |
Risk Free interest rate | |
1.10 | % |
Dividend yield (on common stock) | |
- | % |
The balance
at March 31, 2015 was comprised of:
Convertible notes payable,
related and unrelated parties | |
$ | 775,000 | |
Unamortized Debt
discount | |
| (77,976 | ) |
| |
$ | 697,024 | |
Interest
expenses includes direct interest of $17,644 and amortization of debt discount of $316,917 for the year ended March 31, 2015 for
this note.
Barfresh
Food Group Inc.
Notes
to Consolidated Financial Statements
March
31, 2015 and 2014
Note
6. Convertible Note (Related and Unrelated)
In
August 2012, we closed an offering of $440,000 of convertible notes
The
notes bear interest at a rate of 12% per annum and were due and payable on September 6, 2013. In addition, the notes were convertible
at any time after the original issue date until the notes are no longer outstanding into our common stock at a conversion price
of $0.372 per share. We also issued 956,519 warrants to the note holders for the right to purchase shares of our common stock.
Each warrant entitled the holder to purchase one share of our common stock at a price of $0.46 per share for a term of seven years.
When
the convertible notes were due we settled the notes by repaying $40,000 of the notes in cash, issuing new convertible notes in
the amount of $400,000 and received payment for another note in the amount of $20,000. The new notes bear interest at a rate of
12% per annum and are due and payable on September 6, 2015. In addition the new notes are convertible at any time after the original
issue date until the new notes are no longer outstanding, into our common stock at a conversion price of $0.25 per share. We also
issued warrants to the new note holders for the right to purchase shares of our common stock. Each warrant entitles the holder
to purchase one share of our common stock at a price of $0.25 per share. There were 1,680,000 warrants issued. The warrants issued
with the original notes were cancelled.
In
accordance with the guidance in ASC 470, we first calculated the fair value of the warrants issued and then determined the relative
value of the notes and determined that there was a beneficial conversion feature.
The
fair value of the warrants, $0.13 per share, ($216,531 in the aggregate) was calculated using the Black-Sholes option pricing
model using the following assumptions:
Expected life (in years) | |
3 | |
Volatility (based on a comparable company) | |
85 | % |
Risk Free interest rate | |
0.91 | % |
Dividend yield (on common stock) | |
- | |
The
relative value of the warrants to the notes was $142,873, which was the amount recorded as a portion of the debt discount. We
also recorded a beneficial conversion feature on the convertible notes of $125,905. The amounts recorded as debt discount are
being amortized over the life of the notes, two years, and charged to interest expense. We estimated the effective interest rate
as calculated to be approximately 74% but will be paying cash at a rate of 12% per annum.
The
balance at March 31, 2015 was comprised of:
Convertible notes payable,
related and unrelated parties | |
$ | 420,000 | |
Unamortized Debt
discount | |
| (94,886 | ) |
| |
$ | 325,114 | |
Interest
expenses includes direct interest of $50,400 and amortization of debt discount of $132,054 for the year ended March 31, 2015 for
this note.
Note
7. Long term Debt
Long
term debt at March 31, 2015 consists of installment payments on two vehicles maturing in November 2019 and April 2020. The installment
agreements bears no interest. Monthly payments are $629 per month.
Barfresh
Food Group Inc.
Notes
to Consolidated Financial Statements
March
31, 2015 and 2014
Note
8. Commitments and Contingencies
We lease
office space under a non-cancelable operating lease, which expires October 31, 2014. We renewed the lease and it will now expire
on November 7, 2016.
The aggregate
minimum requirements under non-cancelable leases as of March 31, 2015 is as follows:
Fiscal Years ending March 31, | |
| | |
2016 | |
$ | 91,881 | |
2017 | |
| 54,529 | |
| |
$ | 145,410 | |
Note
9. Stockholders’ Equity
During
the year ended March 31, 2014, we completed an offering of common stock units at a price of $0.25 per unit. Each unit consists
of one share of common stock and a three year warrant to purchase one-half (1/2) share of our common stock at an exercise price
of $0.50 per share (“Unit” or “Units”). We sold 1,600,000 units representing 1,600,000 shares and warrants
to purchase 800,000 shares for total consideration of $400,000.
The
fair value of the warrants, $123,496, was estimated at the date of grant using the Black-Scholes option pricing model, with an
allocation of the proceeds applied to the warrants. The difference between the warrant allocation and the proceeds was allocated
to the shares of common stock issued. The fair value of the warrants has been included in the total additional paid in capital.
The following assumptions were used in the Black-Scholes option pricing model:
Expected life (in years) |
| 3 | |
Volatility (based on a comparable company) |
| 100 | % |
Risk Free interest rate |
| 0.36 | % |
Dividend yield (on common stock) |
| - | |
During
July and August of 2013 we completed an offering of common stock units at a price of $0.25 per unit. Each unit consisted of one
share of common stock, a three-year warrant to purchase one share of our common stock at an exercise price of $0.25 per share
(which may be exercised on a cashless basis), and a five-year warrant to purchase one-half (1/2) share of our common stock at
an exercise price of $0.50 per share (“Unit” or “Units) for total consideration of $1,906,500 less $267,645
in cost for a net amount received of $1,638,855.
The
fair value of the warrants, estimated at the date of grant using the Black-Scholes option pricing model was $3,089,919. The estimated
value was higher than the proceeds received from the sale of the units. Accordingly, the proceeds received less the par value
of the common stock, has been included in the total additional paid in capital. The following assumptions were used in the Black-Scholes
option pricing model:
Expected life (in years) |
| 3
- 5 | |
Volatility (based on a comparable company) |
| 87
- 106 | % |
Risk Free interest rate |
| 0.67
- 1.38 | % |
Dividend yield (on common stock) |
| - | |
During
March 2014 we completed an offering of common stock units at a price of $.50 per unit. Each unit consists of one share of common
stock, a three-year warrant to purchase one share of our common stock at an exercise price of $0.60 per share (which may be exercised
on a cashless basis), and a five-year warrant to purchase one-half (1/2) share of our common stock at an exercise price of $0.50
per share for total consideration of $2,500,000 less $27,675 in cost for a net amount received of $2,472,325. Included in the
cost of the offering is value of Units issued to legal counsel for services in connection with the offering.
Barfresh
Food Group Inc.
Notes
to Consolidated Financial Statements
March
31, 2015 and 2014
The
fair value of the warrants, estimated at the date of grant using the Black-Scholes option pricing model was $1,001,396. The estimated
value was higher than the proceeds received from the sale of the units. Accordingly, the proceeds received less the par value
of the common stock, has been included in the total additional paid in capital. The following assumptions were used in the Black-Scholes
option pricing model:
Expected life (in years) |
| 3 | |
Volatility (based on a comparable company) |
| 83 | % |
Risk Free interest rate |
| 0.91 | % |
Dividend yield (on common stock) |
| - | |
During
the year ended March 31, 2014, we terminated a contract with a non-employee. All previously unvested stock option expense attributed
to the non-employee, in the amount of $14,747 was reversed and credited to general and administrative expenses.
Certain
previously granted restricted stock rights and stock options were subject to performance conditions. As a result of the employee
termination the performance conditions will not be met. In accordance with ASC Topic 718, Compensation - Stock Compensation (“ASC
718”), previously recognized unvested equity based compensation cost of $103,488 has been reversed during the year ended
March 31, 2014.
During
the year ended March 31, 2014 we issued 600,000 shares of common stock to officers and directors of the Company for services rendered.
In accordance with ASC 718 compensation expense in the amount of $240,000 was recognized in the statement of operations for the
year ended March 31, 2014. The fair value of the stock was based on the trading value of the shares on the date of grant.
During
the year ended March 31, 2014, we issued 55,000 shares of our common stock to non-employees for consulting services. Pursuant
to the guidance in ASC 505, the value of the shares was charged to expense in the amount of $28,730. The fair value of the stock
was based on the trading value of the shares on the date of grant.
During
the year ended March 31, 2014, we issued options to purchase 800,000 shares of our common stock at an exercise price of $0.50
per share to a Director of the Company. The options vested immediately and are exercisable for a period of 3 years from the date
of issuance, February 14, 2014. The fair value of the options, $115,119, which was charged to expenses, was estimated at the date
of grant using the Black-Scholes option pricing model with the following assumptions:
Expected life (in years) |
| 3 | |
Volatility (based on a comparable company) |
| 84 | % |
Risk Free interest rate |
| 0.91 | % |
Dividend yield (on common stock) |
| - | |
All
other previously outstanding stock options issued to employees were cancelled during the year ended March 31, 2014.
During
the year ended March 31, 2015 we completed two offerings of common stock units at a price of $0.50 per unit. Each unit consists
of one share of common stock and a five year warrant to purchase one-half (1/2) share of our common stock at an exercise price
of $0.60 per share (“Unit” or “Units”). We sold a total of 11,044,000 units representing 11,044,000 shares
and warrants to purchase 5,522,000 shares for total consideration of $5,522,000.
The
fair value of the warrants, $1,842,613 was estimated at the date of grant using the Black-Scholes option pricing model, with an
allocation of the proceeds applied to the warrants. The difference between the warrant allocation and the proceeds was allocated
to the shares of common stock issued. The fair value of the warrants has been included in the total additional paid in capital.
The following assumptions were used in the Black-Scholes option pricing model:
Expected life (in years) |
| 5 | |
Volatility (based on a comparable company) |
| 100 | % |
Risk Free interest rate |
| 0.36 | % |
Dividend yield (on common stock) |
| - | |
Barfresh
Food Group Inc.
Notes
to Consolidated Financial Statements
March
31, 2015 and 2014
During
the year ended March 31, 2015 we issued 900,000 shares of common stock to an officer and two employees of the Company for services
rendered. In accordance with ASC Topic 718, Compensation - Stock Compensation (“ASC 718”), compensation expense in
the amount of $446,460 was recognized in the statement of operations.
Also
during the year ended March 31, 2015, we issued 155,000 shares of our restricted common stock to legal counsel and a consultant
to the Company. In accordance with ASC Topic 505, Equity-Based Payments to Non-Employees (“ASC 505”), expense in the
amount of $113,845 was recognized in the statement of operations.
Additionally,
during the year ended March 31, 2015 we issued 64,100 shares of our Common Stock to a Director. The fair value of the stock was
based on the trading value of the shares on the date of grant. The shares vest over a one year period and are being amortized
over that period. The unamortized balance is shown as Unearned Services in the equity section of the Balance Sheet.
We
also issued options to purchase 600,000 shares of our common stock at an exercise price of $0.45 per share to two officers and
directors and a director of the Company. The options vested immediately and are exercisable for a period of 5 years from the date
of issuance, January 21, 2014. The fair value of the options, $179,581, which was charged to expenses, was estimated at the date
of grant using the Black-Scholes option pricing model with the following assumptions:
Expected life (in years) |
| 5 | |
Volatility (based on a comparable company) |
| 91 | % |
Risk Free interest rate |
| 1.35 | % |
Dividend yield (on common stock) |
| - | |
During
the year ended March 31, 2015 we issued 150,000 options to a director of the Company. The exercise price of the options is $0.54
per share, which was the fair market value of the option on the date of grant and is exercisable for a period of 5 years. The
options vest on the first anniversary of the issuance, October 14, 2015. The unamortized balance is shown as Unearned Services
in the equity section of the Balance Sheet.
The
fair value of the option, $0.3814 per share, ($57,209 in the aggregate) was calculated using the Black-Sholes option pricing model
using the following assumptions and is being written off over a 1 year period:
Expected life (in years) |
| 5 | |
Volatility (based on a comparable company) |
| 91.8 | % |
Risk Free interest rate |
| 1.45 | % |
Dividend yield (on common stock) |
| - | |
The following
is a summary of outstanding stock options issued to employees and directors as of Mach 31, 2015:
| |
Number
of
Options | | |
Exercise
price
per share
$ | | |
Average
remaining term
in years | | |
Aggregate
intrinsic
value at date of grant
$ | |
Outstanding April 1, 2013 | |
| 625,000 | | |
| 1.00 | | |
| | | |
| - | |
Issued | |
| 800,000 | | |
| 0.50 | | |
| | | |
| - | |
Cancelled | |
| 625,000 | | |
| 1.00 | | |
| - | | |
| - | |
Outstanding March 31, 2014 | |
| 800,000 | | |
| 0.50 | | |
| - | | |
| - | |
Issued | |
| 750,000 | | |
| 0.45
- 0.54 | | |
| 4.25 | | |
| - | |
Cancelled | |
| - | | |
| - | | |
| - | | |
| - | |
Outstanding March
31, 2015 | |
| 1,550,000 | | |
| 0.45
- 0.54 | | |
| 4.25 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable | |
| 1,400,000 | | |
| 0.45
– 0.50 | | |
| 3.02 | | |
| - | |
Barfresh
Food Group Inc.
Notes
to Consolidated Financial Statements
March
31, 2015 and 2014
Note
10. Outstanding Warrants
The
following is a summary of all outstanding warrants as of March 31, 2015:
| |
Number
of
warrants | | |
Exercise
price
per share
$ | | |
Average
remaining term
in years | | |
Aggregate
intrinsic value at
date of grant | |
Warrants issued in connection
with private placements of common stock | |
| 22,664,312 | | |
| 0.25
- 1.50 | | |
| 2.63 | | |
$ | 1,907,650 | |
Warrants issued in connection with private
placement of convertible notes | |
| 1,680,000 | | |
| 0.25 | | |
| 1.45 | | |
$ | - | |
Warrants issued in connection with short-term
notes payable | |
| 2,190,509 | | |
| .45 | | |
| 3.23 | | |
$ | 64,583 | |
Note
11. Interest Expense
Interest
expense includes direct interest of $68,044 and $63,276 for the years ended March 31, 2015 and 2014, respectively, calculated
based on the interest rate stated in our debt instruments.
In
addition as more fully described in Note 6 above, interest expense includes non-cash amortization of the debt discount of $448,970
and $228,165 for the years ended March 31, 2015 and 2014, respectively.
Interest
expense also included various finance charges of $1,447 for the year ended March 31, 2014.
Note
12. Income Taxes
Income
tax provision (benefit) for the years ended March 31, 2015 and 2014 is summarized below:
| |
2015 | | |
2014 | |
Current: | |
| | | |
| | |
Federal | |
$ | - | | |
$ | - | |
State | |
| - | | |
| - | |
Total current | |
| - | | |
| - | |
Deferred: | |
| | | |
| | |
Federal | |
| (1,015,700 | ) | |
| (790,200 | ) |
State | |
| (98,600 | ) | |
| (76,700 | ) |
Total deferred | |
| (1,114,300 | ) | |
| (866,900 | ) |
Increase in valuation allowance | |
| 1,114,300 | | |
| 866,900 | |
Barfresh
Food Group Inc.
Notes
to Consolidated Financial Statements
March
31, 2015 and 2014
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:
|
|
2015 |
|
|
2014 |
|
Income tax provision at the federal statutory rate |
|
34.0 |
% |
|
34.0 |
% |
State income taxes, net of federal benefit |
|
3.3 |
% |
|
3.3 |
% |
Effect of net operating loss |
|
(37.3 |
%) |
|
(37.3 |
%) |
|
|
- |
% |
|
- |
% |
Components
of the net deferred income tax assets at March 31, 2015 and 2014 were as follows:
| |
2015 | | |
2014 | |
Net operating loss carryover | |
$ | 2,820,800 | | |
$ | 1,706,500 | |
Valuation allowance | |
| (2,820,800 | ) | |
| (1,706,500 | ) |
| |
$ | - | | |
$ | - | |
ASC
740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of evidence, it is more
than likely than not that some portion or all of the deferred tax assets will not be recognized. After consideration of all the
evidence, both positive and negative, management has determined that a $2,820,800 and $1,706,500 allowance at March 31, 2015 and
2014, respectively, is necessary to reduce the deferred tax assets to the amount that will more likely than not be realized. The
change in the valuation allowance for the current year is $1,114,300.
As
of March 31, 2015, we have a net operating loss carry forward of approximately $7,562,400. The loss will be available to offset
future taxable income. If not used, this carry forward will expire as follows:
2030 | |
$ | 1,000 | |
2031 | |
$ | 63,800 | |
2032 | |
$ | 345,900 | |
2033 | |
$ | 1,840,300 | |
2034 | |
$ | 2,324,100 | |
2035 | |
$ | 2,987,300 | |
As
of March 31, 2015 we did not have any significant unrecognized uncertain tax positions.
Note
13. Business Segments
During
the years ended March 31, 2015 and 2014 we operate in only one segment and sold to two geographic location as follows:
| |
2015 | | |
2014 | |
Australia | |
$ | 6,968 | | |
$ | 65,760 | |
United States | |
| 204,499 | | |
| 44,325 | |
| |
$ | 211,467 | | |
$ | 110,085 | |
All of our
assets are located in the United States.
Barfresh
Food Group Inc.
Notes
to Consolidated Financial Statements
March
31, 2015 and 2014
The
following is a breakdown of customers representing more than 10% of sales for the year ended March 31, 2015
| |
Revenue
from customer | | |
Percentage
of total revenue | |
Customer A | |
$ | 58,911 | | |
| 28.0 | % |
Customer B | |
| 52,195 | | |
| 24.8 | % |
Customer C | |
| 24,234 | | |
| 11.5 | % |
| |
$ | 135,340 | | |
| 64.3 | % |
The following
is a breakdown of customers representing more than 10% of sales for the year ended March 31, 2014:
| |
Revenue
from customer | | |
Percentage
of total revenue | |
Customer C | |
$ | 67,760 | | |
| 59.7 | % |
Customer D | |
| 20,160 | | |
| 18.3 | % |
Customer E | |
| 12,960 | | |
| 11.8 | % |
| |
$ | 100,880 | | |
| 89.8 | % |
Note 14.
Subsequent Events
Management
has evaluated all activity and concluded that no subsequent events have occurred that would require recognition in the financial
statements or disclosure in the notes to the financial statements except as for the following:
Subsequent
to March 31, 2015, we renegotiated the short term notes that were due June 2015. We repaid one note in full ($25,000), 50% of
three notes were paid ($350,000) and one note was converted to 71,429 shares of our common stock. The balance of the notes due,
$350,000, are payable on September 20, 2015 and bear interest at 10% per annum.
Exhibit
Index
Exhibit
Number |
|
Description |
|
|
|
2.1 |
|
Share
Exchange Agreement dated January 10, 2012 by and among Moving Box Inc., Andreas Wilcken, Jr., Barfresh Inc. and the shareholders
of Barfresh Inc. (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K as filed January 17, 2012) |
|
|
|
3.1 |
|
Certificate
of Incorporation of Moving Box Inc. dated February 25, 2010 (incorporated by reference to Exhibit 3.1 to Form S-1 (Registration
No. 333-168738) as filed August 11, 2010) |
|
|
|
3.2 |
|
Amended
and Restated Bylaws of Barfresh Food Group Inc. (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K as
filed August 4, 2014) |
|
|
|
3.3 |
|
Certificate
of Amendment of Certificate of Incorporation of Moving Box Inc. dated February 13, 2012 (incorporated by reference to Exhibit
3.1 to Current Report on Form 8-K as filed February 17, 2012) |
|
|
|
3.4 |
|
Certificate
of Amendment of Certificate of Incorporation of Smoothie Holdings Inc. dated February 16, 2012 (incorporated by reference
to Exhibit 3.2 to Current Report on Form 8-K as filed February 17, 2012) |
|
|
|
4.1
|
|
Form
of Series A Warrant (incorporated by reference to Exhibit 10.3 to Current Report on Form
8-K as filed January 17, 2012)
|
|
|
|
4.2 |
|
Form
of Series B Warrant (incorporated by reference to Exhibit 4.2 to Form 10K for the period ending March 31, 2014, as filed June
30, 2014) |
|
|
|
4.3 |
|
Form
of Series C Warrant (incorporated by reference to Exhibit 4.3 to Form 10K for the period ending March 31, 2014, as filed June
30, 2014) |
|
|
|
4.4 |
|
Form
of Series D Warrant (incorporated by reference to Exhibit 4.4 to Form 10K for the period ending March 31, 2014, as filed June
30, 2014) |
|
|
|
4.5 |
|
Form
of Series PA Warrant (incorporated by reference to Exhibit 4.5 to Form 10K for the period ending March 31, 2014, as filed
June 30, 2014) |
|
|
|
4.6
|
|
Form
of Series CN Warrant (incorporated by reference to Exhibit 4.6 to Form 10K for the period
ending March 31, 2014, as filed June 30, 2014)
|
|
|
|
4.7 |
|
Form
of Series N Warrant** |
|
|
|
4.8 |
|
Form
of Series E Warrant** |
|
|
|
4.9 |
|
Form
of Series G Warrant (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K as filed February 16, 2015) |
|
|
|
4.10 |
|
Form
of Note dated December 20, 2013 by Barfresh Food Group Inc. in favor of certain investors (incorporated by reference to Exhibit
4.1 to Form 10Q for the period ending December 31, 2013, as filed February 13, 2014) |
|
|
|
10.1 |
|
Form
of Registration Rights Agreement dated December 20, 2013 (incorporated by reference to Exhibit 4.2 to Form 10Q for the period
ending December 31, 2013, as filed February 13, 2014) |
|
|
|
10.2 |
|
Intellectual
Property Sale Deed by and between National Australia Bank Limited and Barfresh Inc. dated October 15, 2013 (incorporated by
reference to Exhibit 10.1 to Quarterly Report on Form 10-Q as filed November 20, 2013) |
|
|
|
10.3 |
|
Agreement
of Sale, dated January 10, 2012, by and among Moving Box Inc. and Andreas Wilcken, Jr. (incorporated by reference to Exhibit
10.1 of Current Report on Form 8-K as filed January 17, 2012) |
|
|
|
10.4 |
|
Form
of Subscription Agreement dated January 10, 2012 by and between Moving Box, Inc. and certain investors. (incorporated by reference
to Exhibit 10.2 of Current Report on Form 8-K as filed January 17, 2012) |
|
|
|
10.5 |
|
Form
of Lock Up Agreement dated January 10, 2012 (incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K as filed
January 17, 2012) |
|
|
|
10.6 |
|
Amendment
No. 2, dated January 10, 2012 to Agreement dated March 21, 2010, by and among Moving Box Inc., Moving Box Entertainment LLC,
Garrett LLC, Ian McKinnon, Brad Miller, Andreas Wilckin, Jr. and Uptone Pictures, Inc. (incorporated by reference to Exhibit
10.5 to Current Report on Form 8-K, as filed January 17, 2012) |
10.7 |
|
Investor
Release dated January 10, 2012, by and among Moving Box Inc., Andreas Wilcken, Jr., Garrett LLC, Ian McKinnon and Brad Miller
(incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K as filed January 17, 2012) |
|
|
|
10.8 |
|
Form
of Registration Rights Agreement dated March 13, 2015 (incorporated by reference to Exhibit 10.2 to Current Report on Form
8-K as filed February 16, 2015) |
|
|
|
10.9 |
|
Barfresh
Food Group, Inc. 2014 Equity Incentive Plan (incorporated by reference to Exhibit 10.10 to Annual Report Form 10-K filed June
30, 2014)+ |
|
|
|
10.10 |
|
Barfresh
Food Group, Inc. 2015 Equity Incentive Plan*+ |
|
|
|
10.11 |
|
Executive
Employment Agreement by and between Smoothie, Inc. and Riccardo Delle Coste dated April 27, 2015*+ |
|
|
|
10.12 |
|
Executive
Employment Agreement by and between Smoothie, Inc. and Joseph M. Cugine dated April 27, 2015*+ |
|
|
|
10.13 |
|
Executive
Employment Agreement by and between Barfresh Food Group, Inc. and Joseph S. Tesoriero
dated May 18, 2015*+ |
|
|
|
21.1 |
|
Subsidiaries* |
|
|
|
31.1 |
|
Certification of Principal Executive Officer, pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
|
|
|
31.2 |
|
Certification of Principal
Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
|
|
|
|
32.1 |
|
Certification of Principal
Executive Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32.2 |
|
Certification of Principal
Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
101.INS |
|
XBRL Instance Document* |
101.SCH |
|
XBRL Taxonomy Extension Schema Document* |
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase
Document* |
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase
Document* |
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase
Document* |
101.PRE |
|
XBRL Taxonomy Extension Presentation
Linkbase Document* |
* |
|
Filed
herewith |
|
|
|
+ |
|
Compensatory
plan |
In
accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed.
Furnished
herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement
or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
BARFRESH
FOOD GROUP INC.
2015
EQUITY INCENTIVE PLAN
1.
PURPOSE. The Barfresh Food Group Inc. 2015 Equity Incentive Plan has two complementary purposes: (a) to attract and
retain outstanding individuals to serve as officers, employees, directors, consultants and advisors to the Company and its Affiliates,
and (b) to increase stockholder value. The Plan will provide participants with incentives to increase stockholder value by offering
the opportunity to acquire shares of the Company’s Common Stock or receive monetary payments based on the value of such
Common Stock, on the potentially favorable terms that this Plan provides.
2.
EFFECTIVE DATE. The Plan shall become effective upon its adoption by the Board of Directors of the Company, subject
to approval by the stockholders of the Company within twelve (12) months of the effective date. Any Awards granted under the Plan
prior to such stockholder approval shall be conditioned on such approval.
3.
DEFINITIONS. Capitalized terms used in this Plan have the following meanings:
(a)
“Affiliate” means any entity that, directly or through one or more intermediaries, is controlled by, controls, or
is under common control with, the Company within the meaning of Code Sections 414(b) or (c), provided that, in applying such provisions,
the phrase “at least fifty percent (50%)” shall be used in place of “at least eighty percent (80%)” each
place it appears therein.
(b)
“Award” means a grant of Options (as defined below), Stock Appreciation Rights (as defined in Section 3(w) hereof),
Performance Shares (as defined in Section 3(p) hereof), Restricted Stock (as defined in Section 3(s) hereof), or Restricted Stock
Units (as defined in Section 3(t) hereof).
(c)
“Bankruptcy” shall mean (i) the filing of a voluntary petition under any bankruptcy or insolvency law, or a petition
for the appointment of a receiver or the making of an assignment for the benefit of creditors, with respect to the Participant,
or (ii) the Participant being subjected involuntarily to such a petition or assignment or to an attachment or other legal or equitable
interest with respect to the Participant’s assets, which involuntary petition or assignment or attachment is not discharged
within 60 days after its date, and (iii) the Participant being subject to a transfer of its Issued Shares by operation of law
(including by divorce, even if not insolvent), except by reason of death.
(d)
“Board” means the Board of Directors of the Company.
(e)
“Change of Control” shall be deemed to have occurred as of the first day that any one or more of the following conditions
is satisfied, including, but not limited to, the signing of documents by all parties and approval by all regulatory agencies,
if required:
(i)
The stockholders approve a plan of complete liquidation or dissolution of the Company; or
(ii)
The consummation of (A) an agreement for the sale or disposition of all or substantially all of the Company’s assets (other
than to an Excluded Person (as defined below)), or (B) a merger, consolidation or reorganization of the Company with or involving
any other corporation, other than a merger, consolidation or reorganization that would result in the holders of voting securities
of the Company outstanding immediately prior thereto continuing to hold (either by remaining outstanding or by being converted
into voting securities of the surviving entity), at least fifty percent (50%) of the combined voting power of the voting securities
of the Company (or such other surviving entity) outstanding immediately after such merger, consolidation or reorganization.
An
Excluded Person means: (i) the Company or any of its Affiliates, (ii) a trustee or other fiduciary holding securities under any
employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to
an offering of such securities or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially
the same proportions as their ownership of stock in the Company.
Notwithstanding
the foregoing, with respect to an Award that is considered deferred compensation subject to Code Section 409A, if the definition
of “Change of Control” results in the payment of such Award, then such definition shall be amended to the minimum
extent necessary, if at all, so that the definition satisfies the requirements of a change of control under Code Section 409A.
(f)
“Code” means the Internal Revenue Code of 1986, as amended. Any reference to a specific provision of the Code includes
any successor provision and the regulations promulgated under such provision.
(g)
“Committee” means the Compensation Committee of the Board (or a successor committee with similar authority) or if
no such committee is named by the Board, than it shall mean the Board.
(h)
“Common Stock” means the Common Stock of the Company, par value $0.001 per share.
(i)
“Company” means Barfresh Food Group Inc., a Delaware corporation, or any successor thereto.
(j)
“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time. Any reference to a specific
provision of the Exchange Act shall be deemed to include any successor provision thereto.
(k)
“Fair Market Value” means, per Share on a particular date, the value as determined by the Committee using a reasonable
valuation method within the meaning of Code Section 409A, based on all information in the Company’s possession at such time,
or if applicable, the value as determined by an independent appraiser selected by the Board or Committee.
(l)
“Issued Shares” means, collectively, all outstanding Shares issued pursuant to an Award and all Option Shares.
(m)
“Option” means the right to purchase Shares at a stated price upon and during a specified time. “Options”
may either be “incentive stock options” which meet the requirements of Code Section 422, or “nonqualified stock
options” which do not meet the requirements of Code Section 422.
(n)
“Option Shares” mean outstanding Shares that were issued to a Participant upon the exercise of an Option.
(o)
“Participant” means an officer or other employee of the Company or its Affiliates, or an individual that the Company
or an Affiliate has engaged to become an officer or employee, or a consultant or advisor who provides services to the Company
or its Affiliates, including a non-employee director of the Board, whom the Committee designates to receive an Award.
(p)
“Performance Shares” means the right to receive Shares to the extent the Company, Subsidiary, Affiliate or other business
unit and/or Participant achieves certain goals that the Committee establishes over a period of time the Committee designates.
(q)
“Permitted Transferee” means, in connection with a transfer made for bona fide estate planning purposes, either during
a Participant’s lifetime or on death by will or intestacy, to his or her spouse, child (natural or adopted), or any other
direct lineal descendant of such Participant (or his or her spouse) (all of the foregoing collectively referred to as “family
members”), or any other relative approved unanimously by the Board of Directors of the Company, or any custodian or trustee
of any trust, partnership or limited liability company for the benefit of, or the ownership interests of which are owned wholly
by, such Participant or any such family members.
(r)
“Plan” means this Barfresh Food Group Inc. 2015 Equity Incentive Plan, as amended from time to time.
(s)
“Restricted Stock” means Shares that are subject to a risk of forfeiture and/or restrictions on transfer (including
but not limited to stock grants with the recipient having the right to make an election under Section 83(b) of the Code), which
may lapse upon the achievement or partial achievement of performance goals during a specified period and/or upon the completion
of a period of service or upon the occurrence of other events, as determined by the Committee.
(t)
“Restricted Stock Unit” means the right to receive a Share, or a cash payment, the amount of which is equal to the
Fair Market Value of a Share, which is subject to a risk of forfeiture which may lapse upon the achievement or partial achievement
of performance goals during a specified period and/or upon the completion of a period of service or upon the occurrence of other
events, as determined by the Committee.
(u)
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.
(v)
“Share” means a share of Common Stock.
(w)
“Stock Appreciation Right” or “SAR” means the right of a Participant to receive cash, and/or Shares with
a Fair Market Value, equal to the excess of the Fair Market Value of a Share over the grant price.
(x)
“Subsidiary” means any corporation in an unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the chain) owns stock possessing more than fifty percent (50%) of the total combined
voting power of all classes of stock in one of the other corporations in the chain.
(y)
“10% Owner-Employee” means an employee who, at the time an incentive stock option is granted, owns (directly or indirectly,
within the meaning of Code Section 424(d)) more than ten percent (10%) of the total combined voting power of all classes of stock
of the Company or of any Subsidiary.
4.
ADMINISTRATION.
(a)
Committee Administration. The Committee has full authority to administer this Plan, including the authority to (i) interpret
the provisions of this Plan, (ii) prescribe, amend and rescind rules and regulations relating to this Plan, (iii) correct any
defect, supply any omission, or reconcile any inconsistency in any Award or agreement covering an Award in the manner and to the
extent it deems desirable to carry this Plan into effect, and (iv) make all other determinations necessary or advisable for the
administration of this Plan. All actions or determinations of the Committee are made in its sole discretion and will be final
and binding on any person with an interest therein. If at any time the Committee is not in existence, the Board shall administer
the Plan and references to the Committee in the Plan shall mean the Board.
(b)
Delegation to Committees or Officers. To the extent applicable law permits, the Board may delegate to another committee
of the Board or to one or more officers of the Company, or the Committee may delegate to a sub-committee, any or all of the authority
and responsibility of the Committee. If the Board or Committee has made such a delegation, then all references to the Committee
in this Plan include such committee, sub-committee or one or more officers to the extent of such delegation.
(c)
No Liability. No member of the Committee, and no individual or officer to whom a delegation under subsection (b) has been
made, will be liable for any act done, or determination made, by the individual in good faith with respect to the Plan or any
Award. The Company will indemnify and hold harmless such individual to the maximum extent that the law and the Company’s
bylaws permit.
5.
DISCRETIONARY GRANTS OF AWARDS. Subject to the terms of this Plan and applicable law, the Committee has full power
and authority to: (a) designate from time to time the Participants to receive Awards under this Plan; (b) determine the type or
types of Awards to be granted to each Participant; (c) determine the number of Shares with respect to which an Award relates;
and (d) determine any terms and conditions of any Award including but not limited to permitting the delivery to the Company of
Shares or the relinquishment of an appropriate number of vested Shares under an exercisable Option in satisfaction of part of
all of the exercise price of, or withholding taxes with respect to, an Award or payment through a “net exercise” procedure
established by the Company such that, without the payment of any funds, the Participant may exercise the Option and receive the
net number of Shares. Method of payment, in the case of an incentive stock option, shall be determined at the time of grant. Awards
may be granted either alone or in addition to, in tandem with, or in substitution for any other Award (or any other award granted
under another plan of the Company or any Affiliate). The Committee’s designation of a Participant in any year will not require
the Committee to designate such person to receive an Award in any other year.
6.
SHARES RESERVED UNDER THIS PLAN.
(a)
Plan Reserve. An aggregate of fifteen million (15,000,000) Shares are reserved for issuance under this Plan, all of which
may be issued as any form of Award.
(b)
Replenishment of Shares Under this Plan. If an Award lapses, expires, terminates or is cancelled without the issuance of
Shares or payment of cash under the Award, then the Shares subject to or reserved for in respect of such Award, or the Shares
to which such Award relates, may again be used for new Awards as determined under subsection (a), including issuance pursuant
to incentive stock options. If Shares are delivered to (or withheld by) the Company in payment of the exercise price or withholding
taxes of an Award, then such Shares may be used for new Awards under this Plan as determined under subsection (a), including issuance
pursuant to incentive stock options. If Shares are issued under any Award and the Company subsequently reacquires them pursuant
to rights reserved upon the issuance of the Shares, then such Shares may be used for new Awards under this Plan as determined
under subsection (a), but excluding issuance pursuant to incentive stock options.
7.
OPTIONS. Subject to the terms of this Plan, the Committee will determine all terms and conditions of each Option, including
but not limited to:
(a)
Whether the Option is an incentive stock option or a nonqualified stock option; provided that in the case of an incentive stock
option, if the aggregate Fair Market Value (determined at the time of grant) of the Shares with respect to which such option and
all other incentive stock options issued under this Plan (and under all other incentive stock option plans of the Company or any
Affiliate that is required to be included under Code Section 422) are first exercisable by the Participant during any calendar
year exceeds $100,000, such Option automatically shall be treated as a nonqualified stock option to the extent this limit is exceeded.
Only employees of the Company or a Subsidiary are eligible to be granted incentive stock options;
(b)
The number of Shares subject to the Option;
(c)
The exercise price per Share, which may not be less than the Fair Market Value of a Share as determined on the date of grant;
provided that an incentive stock option granted to a 10% Owner-Employee must have an exercise price that is at least one hundred
ten percent (110%) of the Fair Market Value of a Share on the date of grant;
(d)
The terms and conditions of exercise; and
(e)
The termination date, except that each Option must terminate no later than the tenth (10th) anniversary of the date of grant and
each incentive stock option granted to any 10% Owner-Employee must terminate no later than the fifth (5th) anniversary of the
date of grant.
In
all other respects, the terms of any incentive stock option should comply with the provisions of Code Section 422 except to the
extent the Committee determines otherwise.
8.
STOCK APPRECIATION RIGHTS. Subject to the terms of this Plan, the Committee will determine all terms and conditions
of each SAR, including but not limited to:
(a)
The number of Shares to which the SAR relates;
(b)
The grant price, provided that the grant price shall not be less than the Fair Market Value of the Shares subject to the SAR as
determined on the date of grant;
(c)
The terms and conditions of exercise or maturity;
(d)
The term, provided that an SAR must terminate no later than the tenth (10th) anniversary of the date of grant; and
(e)
Whether the SAR will be settled in cash, Shares or a combination thereof.
9.
PERFORMANCE SHARE AWARDS. Subject to the terms of this Plan, the Committee will determine all terms and conditions
of each Performance Share Award, including but not limited to:
(a)
The number of Shares to which the Performance Share Award relates;
(b)
The terms and conditions of each Award, including, without limitation, the selection of the performance goals that must be achieved
for the Participant to realize all or a portion of the benefit provided under the Award; and
(c)
Whether all or a portion of the Shares subject to the Award will be issued to the Participant, without regard to whether the performance
goals have been attained, in the event of the Participant’s death, disability, retirement or other circumstance.
10.
RESTRICTED STOCK AND RESTRICTED STOCK UNIT AWARDS. Subject to the terms of this Plan, the Committee will determine
all terms and conditions of each award of Restricted Stock or Restricted Stock Units, including but not limited to:
(a)
The number of Shares or Restricted Stock Units to which such Award relates;
(b)
The period of time over which, and/or the criteria or conditions that must be satisfied so that, the risk of forfeiture and/or
restrictions on transfer imposed on the Restricted Stock or Restricted Stock Units will lapse;
(c)
Whether all or a portion of the Restricted Shares or Restricted Stock Units will be released from a right of repurchase and/or
be paid to the Participant in the event of the Participant’s death, disability, retirement or other circumstance;
(d)
With respect to awards of Restricted Stock, the manner of registration of certificates for such Shares, and whether to hold such
Shares in escrow pending lapse of the risk of forfeiture, right of repurchase and/or restrictions on transfer or to issue such
Shares with an appropriate legend referring to such restrictions;
(e)
With respect to awards of Restricted Stock, whether dividends paid with respect to such Shares will be immediately paid or held
in escrow or otherwise deferred and whether such dividends shall be subject to the same terms and conditions as the Award to which
they relate; and
(f)
With respect to awards of Restricted Stock Units, whether to credit dividend equivalent units equal to the amount of dividends
paid on a Share and whether such dividend equivalent units shall be subject to the same terms and conditions as the Award to which
they relate.
11.
TRANSFERABILITY. Except as set forth in Section 15 hereof, each award granted under this plan is not transferable other
than by will or the laws of descent and distribution, or to a revocable trust, or as permitted by Rule 701 of the Securities Act.
12.
TERMINATION AND AMENDMENT.
(a)
Term. Subject to the right of the Board or Committee to terminate the Plan earlier pursuant to Section 12(b), the Plan
shall terminate on, and no Awards may be granted after the tenth (10th) anniversary of the Plan’s effective date.
(b)
Termination and Amendment. The Board or Committee may amend, alter, suspend, discontinue or terminate this Plan at any
time, provided that:
(i)
the Board must approve any amendment of this Plan to the extent the Company determines such approval is required by: (a) action
of the Board, (b) applicable corporate law, or (c) any other applicable law or rule of a self-regulatory organization;
(ii)
stockholders must approve any of the following Plan amendments: (a) an amendment to materially increase any number of Shares specified
in Section 6(a) (except as permitted by Section 14(a)) or expand the class of individuals eligible to receive an Award to the
extent required by the Code, the Company’s bylaws or any other applicable law, (b) any other amendment if required by applicable
law or the rules of any self-regulatory organization, or (c) an amendment that would diminish the protections afforded by Section
12(e); provided, that such stockholder approval may be obtained within 12 months of the approval of such amendment by the Board
or Committee.
(c)
Amendment, Modification or Cancellation of Awards. Except as provided in subsection (e) and subject to the restrictions
of this Plan, the Committee may modify or amend an Award or waive any restrictions or conditions applicable to an Award (including
relating to the exercise, vesting or payment thereof), and the Committee may modify the terms and conditions applicable to any
Award (including the terms of the Plan), and the Committee may cancel any Award, provided that the Participant (or any other person
as may then have an interest in such Award as a result of the Participant’s death or the transfer of an Award) must consent
in writing if any such action would adversely affect the rights of the Participant (or other interested party) under such Award.
Notwithstanding the foregoing, the Committee need not obtain Participant (or other interested party) consent for the amendment,
modification or cancellation of an Award pursuant to the provisions of Section 14(a), or the amendment or modification of an Award
to the extent deemed necessary to comply with any applicable law, the listing requirements of any principal securities exchange
or market on which the Shares are then traded, or to preserve favorable accounting treatment of any Award for the Company.
(d)
Survival of Committee Authority and Awards. Notwithstanding the foregoing, the authority of the Committee to administer
this Plan and modify or amend an Award, and the authority of the Board or Committee to amend this Plan, shall extend beyond the
date of this Plan’s termination. In addition, termination of this Plan will not affect the rights of Participants with respect
to Awards previously granted to them, and all unexpired Awards will continue in full force and effect after termination of this
Plan except as they may lapse or be terminated by their own terms and conditions.
(e)
Repricing Prohibited. Notwithstanding anything in this Plan to the contrary, neither the Committee nor any other person
may decrease the exercise price of any Option or the grant price of any SAR nor take any action that would result in a deemed
decrease of the exercise price or grant price of an Option or SAR under Code Section 409A, after the date of grant, except in
accordance with Section 1.409A-1(b)(5)(v)(D) of the Treasury Regulations (26 C.F.R.), or in connection with a transaction which
is considered the grant of a new Option or SAR for purposes of Section 409A of the Code, provided that the new exercise price
or grant price is not less than the Fair Market Value of a Share on the new grant date.
(f)
Foreign Participation. To assure the viability of Awards granted to Participants employed or residing in foreign countries,
the Committee may provide for such special terms as it may consider necessary or appropriate to accommodate differences in local
law, tax policy or custom. Moreover, the Committee may approve such supplements to, or amendments, restatements or alternative
versions of this Plan as it determines is necessary or appropriate for such purposes. Any such amendment, restatement or alternative
versions that the Committee approves for purposes of using this Plan in a foreign country will not affect the terms of this Plan
for any other country.
13.
TAXES.
(a)
Withholding. In the event the Company or any Affiliate is required to withhold any foreign, Federal, state or local taxes
or other amounts in respect of any income recognized by a Participant as a result of the grant, vesting, payment or settlement
of an Award or disposition of any Shares acquired under an Award, the Company may deduct (or require an Affiliate to deduct) from
any payments of any kind otherwise due the Participant cash, or with the consent of the Committee, Shares otherwise deliverable
or vesting under an Award, to satisfy such tax obligations. Alternatively, the Company may require such Participant to pay to
the Company, in cash, promptly on demand, or make other arrangements satisfactory to the Company regarding the payment to the
Company of the aggregate amount of any such taxes and other amounts required to be withheld. If Shares are deliverable upon exercise
or payment of an Award, the Committee may permit a Participant to satisfy all or a portion of the foreign, Federal, state and
local withholding tax obligations arising in connection with such Award by electing to (a) have the Company withhold Shares otherwise
issuable under the Award, (b) tender back Shares received in connection with such Award, or (c) deliver other previously owned
Shares; provided that the amount to be withheld may not exceed the total minimum foreign, federal, state and local tax withholding
obligations associated with the transaction to the extent needed for the Company to avoid an accounting charge. If an election
is provided, the election must be made on or before the date as of which the amount of tax to be withheld is determined and otherwise
as the Company requires. In any case, the Company may defer making payment or delivery under any Award if any such tax may be
pending unless and until indemnified to its satisfaction.
(b)
No Guarantee of Tax Treatment. Notwithstanding any provisions of the Plan, the Company does not guarantee to any Participant
or any other person with an interest in an Award that any Award intended to be exempt from Code Section 409A shall be so exempt,
nor that any Award intended to comply with Code Section 409A shall so comply, nor that any Award designated as an incentive stock
option within the meaning of Code Section 422 qualifies as such, and neither the Company nor any Affiliate shall indemnify, defend
or hold harmless any individual with respect to the tax consequences of any such failure.
14.
ADJUSTMENT PROVISIONS; CHANGE OF CONTROL.
(a)
Adjustment of Shares. If (i) the Company shall at any time be involved in a merger or other transaction in which the Shares
are changed or exchanged; (ii) the Company shall subdivide or combine the Shares or the Company shall declare a dividend payable
in Shares, other securities or other property; (iii) the Company shall effect a cash dividend the amount of which, on a per Share
basis, exceeds ten percent (10%) of the Fair Market Value of a Share at the time the dividend is declared, or the Company shall
effect any other dividend or other distribution on the Shares in the form of cash, or a repurchase of Shares, that the Committee
determines by resolution is special or extraordinary in nature or that is in connection with a transaction that is a recapitalization
or reorganization involving the Shares; or (iv) any other event shall occur, which, in the case of this subsection (iv), in the
judgment of the Committee necessitates an adjustment to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under this Plan, then, in each case, the Committee shall, in such manner as it may deem equitable,
adjust any or all of: (w) the number and type of Shares subject to this Plan (including the number and type of Shares that may
be issued pursuant to incentive stock options), (x) the number and type of Shares subject to outstanding Awards, (y) the grant,
purchase, or exercise price with respect to any Award, and (z) the performance goals established under any Award.
(i)
In any such case, the Committee may also make provision for a cash payment, in an amount determined by the Committee, to the holder
of an outstanding Award in exchange for the cancellation of all or a portion of the Award (without the consent of the holder of
an Award), effective at such time as the Committee specifies (which may be the time such transaction or event is effective); provided
that any such adjustment to an Award that is exempt from Code Section 409A shall be made in a manner that permits the Award to
continue to be so exempt, and any adjustment to an Award that is subject to Code Section 409A shall be made in a manner that complies
with the provisions thereof. However, with respect to Awards of incentive stock options, no such adjustment may be authorized
to the extent that such authority would cause this Plan to violate Code Section 422(b). Further, the number of Shares subject
to any Award payable or denominated in Shares must always be a whole number.
(ii)
Without limitation, in the event of any reorganization, merger, consolidation, combination or other similar corporate transaction
or event, whether or not constituting a Change of Control, other than any such transaction in which the Company is the continuing
corporation and in which the outstanding Common Stock is not being converted into or exchanged for different securities, cash
or other property, or any combination thereof, the Committee may provide that awards, without limitation, will be assumed by the
surviving corporation or its parent, will have the vesting accelerated or will be cancelled with or without consideration, in
all cases without the consent of the Participant.
(iii)
Notwithstanding the foregoing, in the case of a stock dividend (other than a stock dividend declared in lieu of an ordinary cash
dividend) or subdivision or combination of the Shares (including a reverse stock split), adjustments contemplated by this subsection
that are proportionate shall nevertheless automatically be made as of the date of such stock dividend or subdivision or combination
of the Shares.
(b)
Issuance or Assumption. Notwithstanding any other provision of this Plan, and without affecting the number of Shares otherwise
reserved or available under this Plan, in connection with any merger, consolidation, acquisition of property or stock, or reorganization,
the Committee may authorize the cancellation, with or without consideration, issuance, assumption or acceleration of vesting of
awards upon such terms and conditions as it may deem appropriate, in all cases without the consent of the Participant.
(c)
Change of Control. Upon a Change of Control, the Committee may, in its discretion, determine that any or all outstanding
Awards held by Participants who are then in the employ or service of the Company or any Affiliate shall vest or be deemed to have
been earned in full, and:
(i)
If the successor or surviving corporation (or parent thereof) so agrees, all outstanding Awards shall be assumed, or replaced
with the same type of award with similar terms and conditions, by the successor or surviving corporation (or parent thereof) in
the Change of Control. If applicable, each Award which is assumed by the successor or surviving corporation (or parent thereof)
shall be appropriately adjusted, immediately after such Change of Control, to apply to the number and class of securities which
would have been issuable to the Participant upon the consummation of such Change of Control had the Award been exercised or vested
immediately prior to such Change of Control, and such other appropriate adjustments in the terms and conditions of the Award shall
be made.
(ii)
If the provisions of paragraph (i) do not apply, then all outstanding Awards shall be cancelled as of the date of the Change of
Control and, at the option of the Committee, may be exchanged for a payment in cash and/or Shares (which may include shares or
other securities of any surviving or successor entity or the purchasing entity or any parent thereof) equal to:
(1)
In the case of an Option or SAR, the excess of the Fair Market Value of the Shares on the date of the Change of Control covered
by the vested portion of the Option or SAR that has not been exercised over the exercise or grant price of such Shares under the
Award;
(2)
In the case of Restricted Stock Units, the Fair Market Value of a Share on the date of the Change of Control multiplied by the
number of vested units, unless otherwise provided in the Award agreement and subject to the repurchase right set forth in Section
15 hereof; and
(3)
In the case of a Performance Share Award, the Fair Market Value of a Share on the date of the Change of Control multiplied by
the number of earned Shares.
(d)
Parachute Payment Limitation.
(i)
Except as may be set forth in a written agreement by and between the Company and the holder of an Award, in the event that the
Company’s auditors determine that any payment or transfer by the Company under the Plan to or for the benefit of a Participant
(a “Payment”) would be nondeductible by the Company for federal income tax purposes because of the provisions concerning
“excess parachute payments” in Code Section 280G, then the aggregate present value of all Payments shall be reduced
(but not below zero) to the Reduced Amount (defined herein). For purposes of this Section 14(d), the “Reduced Amount”
shall be the amount, expressed as a present value, which maximizes the aggregate present value of the Payments without causing
any Payment to be nondeductible by the Company because of Code Section 280G.
(ii)
If the Company’s auditors determine that any Payment would be nondeductible by the Company because of Code Section 280G,
then the Company shall promptly give the Participant notice to that effect and a copy of the detailed calculation thereof and
of the Reduced Amount, and the Participant may then elect, in his or her sole discretion, which and how much of the Payments shall
be eliminated or reduced (as long as after such election the aggregate present value of the Payments equals the Reduced Amount)
and shall advise the Company in writing of his or her election within ten (10) days of receipt of notice. If no such election
is made by the Participant within such ten (10) day period, then the Company may elect which and how much of the Payments shall
be eliminated or reduced (as long as after such election the aggregate present value of the Payments equals the Reduced Amount)
and shall notify the Participant promptly of such election. For purposes of this Section 14(d), present value shall be determined
in accordance with Code Section 280G(d)(4). All determinations made by the Company’s auditors under this Section 14(d) shall
be binding upon the Company and the Participant and shall be made within sixty (60) days of the date when a Payment becomes payable
or transferable. As promptly as practicable following such determination and the elections hereunder, the Company shall pay or
transfer to or for the benefit of the Participant such amounts as are then due to him or her under the Plan and shall promptly
pay or transfer to or for the benefit of the Participant in the future such amounts as become due to him or her under the Plan.
(iii)
Except to the extent such payment was made in connection with a Change of Control, as a result of uncertainty in the application
of Code Section 280G at the time of an initial determination by the Company’s auditors hereunder, it is possible that Payments
will have been made by the Company that should not have been made (an “Overpayment”) or that additional Payments that
will not have been made by the Company could have been made (an “Underpayment”), consistent in each case with the
calculation of the Reduced Amount hereunder. In the event that the Company’s auditors, based upon the assertion of a deficiency
by the Internal Revenue Service against the Company or the Participant that the auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated for all purposes as a loan to the Participant which
he or she shall repay to the Company, together with interest at the applicable federal rate provided in Code Section 7872(f)(2);
provided, however, that no amount shall be payable by the Participant to the Company if and to the extent that such payment would
not reduce the amount subject to taxation under Code Section 4999. In the event that the auditors determine that an Underpayment
has occurred, such Underpayment shall promptly be paid or transferred by the Company to or for the benefit of the Participant,
together with interest at the applicable federal rate provided in Code Section 7872(f)(2).
(iv)
For purposes of this Section 14(d), the term “Company” shall include affiliated corporations to the extent determined
by the auditors in accordance with Code Section 280G(d)(5).
15.
STOCK TRANSFER RESTRICTIONS.
(a)
Restriction on Transfer of Options. No Option shall be transferable by the Participant otherwise than by will or by the
laws of descent and distribution and all Options shall be exercisable, during the Participant’s lifetime, only by the Participant,
or by the Participant’s legal representative or guardian in the event of the Participant’s incapacity. The Participant
may elect to designate a beneficiary by providing written notice of the name of such beneficiary to the Company, and may revoke
or change such designation at any time by filing written notice of revocation or change with the Company, and any such beneficiary
may exercise the Participant’s Option in the event of the Participant’s death to the extent provided herein. If the
Participant does not designate a beneficiary, or if the designated beneficiary predeceases the Participant, the legal representative
of the Participant may exercise the Option in the event of the Participant’s death to the extent provided herein. Notwithstanding
the foregoing, the Committee, in its sole discretion, may provide in the Award agreement regarding a given Option that the Participant
may transfer, without consideration for the transfer, his or her Options to members of his or her immediate family, to trusts
for the benefit of such family members, or to partnerships in which such family members are the only partners, provided that the
transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Option.
(b)
Issued Shares. No Issued Shares shall be sold, assigned, transferred, pledged, hypothecated, given away or in any other
manner disposed of or encumbered, whether voluntarily or by operation of law, unless such transfer is in compliance with the terms
of the applicable Award, all applicable securities laws (including, without limitation, the Securities Act and the Exchange Act),
and with the terms and conditions of this Section 15. In connection with any proposed transfer, the Committee may require the
transferor to provide at the transferor’s own expense an opinion of counsel to the transferor and the Company, satisfactory
to the Committee, that such transfer is in compliance with all foreign, federal and state securities laws (including, without
limitation, the Securities Act). Any attempted disposition of Issued Shares not in accordance with the terms and conditions of
this Section 15 shall be null and void, and the Company shall not reflect on its records any change in record ownership of any
Issued Shares as a result of any such disposition, shall otherwise refuse to recognize any such disposition and shall not in any
way give effect to any such disposition of Issued Shares.
(c)
Legends. The Company may cause a legend or legends to be put on any certificates for shares to make appropriate references
to any applicable legal restrictions on transfer.
(d)
Adjustments for Changes in Capital Structure. If, as a result of any reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split or other similar change in the outstanding Shares of the Company, the outstanding
Shares are increased or decreased or are exchanged for a different number or kind of shares of the Company’s stock, the
restrictions contained in this Section 15 shall apply with equal force to additional and/or substitute securities, if any, received
by Participant in exchange for, or by virtue of his or her ownership of, Issued Shares.
16.
MISCELLANEOUS.
(a)
Other Terms and Conditions. The grant of any Award under this Plan may also be subject to other provisions (whether or
not applicable to the Award awarded to any other Participant) as the Committee determines appropriate, subject to any limitations
imposed in the Plan.
(b)
Code Section 409A. The provisions of Code Section 409A are incorporated herein by reference to the extent necessary for
any Award that is subject to Code Section 409A to comply therewith.
(c)
Employment or Service. The issuance of an Award shall not confer upon a Participant any right with respect to continued
employment or service with the Company or any Affiliate, or the right to continue as a consultant or director. Unless determined
otherwise by the Committee, for purposes of the Plan and all Awards, the following rules shall apply:
(i)
a Participant who transfers employment between the Company and any Affiliate, or between Affiliates, will not be considered to
have terminated employment;
(ii)
a Participant who ceases to be a consultant, advisor or non-employee director because he or she becomes an employee of the Company
or an Affiliate shall not be considered to have ceased service with respect to any Award until such Participant’s termination
of employment with the Company and its Affiliates;
(iii)
a Participant who ceases to be employed by the Company or an Affiliate of the Company and immediately thereafter becomes a non-employee
director of the Company or any Affiliate, or a consultant to the Company or any Affiliate, shall not be considered to have terminated
employment until such Participant’s service as a director of, or consultant to, the Company and its Affiliates has ceased;
and
(iv)
a Participant employed by an Affiliate will be considered to have terminated employment when such entity ceases to be an Affiliate
of the Company.
Notwithstanding
the foregoing, with respect to an Award subject to Code Section 409A, a Participant shall be considered to have terminated employment
(where termination of employment triggers payment of the Award) upon the date of his separation from service within the meaning
of Code Section 409A.
(d)
No Fractional Shares. No fractional Shares or other securities may be issued or delivered pursuant to this Plan, and the
Committee may determine whether cash, other securities or other property will be paid or transferred in lieu of any fractional
Shares or other securities, or whether such fractional Shares or other securities or any rights to fractional Shares or other
securities will be canceled, terminated or otherwise eliminated.
(e)
Unfunded Plan. This Plan is unfunded and does not create, and should not be construed to create, a trust or separate fund
with respect to this Plan’s benefits. This Plan does not establish any fiduciary relationship between the Company and any
Participant. To the extent any person holds any rights by virtue of an Award granted under this Plan, such rights are no greater
than the rights of the Company’s general unsecured creditors.
(f)
Requirements of Law. The granting of Awards under this Plan and the issuance of Shares in connection with an Award are
subject to all applicable laws, rules and regulations and to such approvals by any governmental agencies or national securities
exchanges as may be required. Notwithstanding any other provision of this Plan or any award agreement, the Company has no liability
to deliver any Shares under this Plan or make any payment unless such delivery or payment would comply with all applicable laws
and the applicable requirements of any securities exchange or similar entity. In such event, the Company may substitute cash for
any Share(s) otherwise deliverable hereunder without the consent of the Participant or any other person.
(g)
Governing Law. This Plan, and all agreements under this Plan, shall be construed in accordance with and governed by the
laws of the State of Delaware, without reference to any conflict of law principles. Any legal action or proceeding with respect
to this Plan, any Award or any award agreement, or for recognition and enforcement of any judgment in respect of this Plan, any
Award or any award agreement, may only be brought and determined in a court sitting in the State of California, County of Los
Angeles.
(h)
Limitations on Actions. Any legal action or proceeding with respect to this Plan, any Award or any Award agreement, must
be brought within one year (365 days) after the day the complaining party first knew or should have known of the events giving
rise to the complaint.
(i)
Construction. Whenever any words are used herein in the masculine, they shall be construed as though they were used in
the feminine in all cases where they would so apply; and wherever any words are used in the singular or plural, they shall be
construed as though they were used in the plural or singular, as the case may be, in all cases where they would so apply. Titles
of sections are for general information only, and the Plan is not to be construed with reference to such titles.
(j)
Severability. If any provision of this Plan or any award agreement or any Award (i) is or becomes or is deemed to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person or Award, or (ii) would disqualify this Plan, any award agreement
or any Award, then such provision should be construed or deemed amended to conform to applicable laws, or if it cannot be so construed
or deemed amended without, in the determination of the Committee, materially altering the intent of this Plan, award agreement
or Award, then such provision should be stricken as to such jurisdiction, person or Award, and the remainder of this Plan, such
award agreement and such Award will remain in full force and effect.
[End
of Document]
C
E R T I F I C A T I O N
On
behalf of the Company, the undersigned hereby certifies that this Barfresh Food Group Inc. 2015 Equity Incentive Plan has been
approved by the Board of Directors of the Company on April 27, 2015 and by the stockholders of the Company on May 8, 2015.
|
BARFRESH
FOOD GROUP INC. |
|
|
|
|
By: |
/s/
Riccardo Delle Coste |
|
Name: |
Riccardo Delle
Coste |
|
Title: |
Chief Executive
Officer/Director |
EMPLOYMENT
AGREEMENT
This
Employment Agreement (“Agreement”) is made as of April 27, 2015, by and between Barfresh Food Group Inc., a Delaware
corporation (the “Company”) and Riccardo Delle Coste, an individual (the “Executive”).
RECITALS
WHEREAS,
Company desires to employ Executive on the terms set forth in this Agreement; and
WHEREAS,
Executive desires to be employed by the Company on the terms set forth in this Agreement.
NOW,
THEREFORE, for good and valuable consideration of the mutual benefits and obligations set forth in this agreement,
the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
1.
TERM OF EMPLOYMENT/AT-WILL EMPLOYMENT. Executive’s employment under this Agreement shall commence on April 27, 2015
(the “Effective Date”) and continue until terminated as provided hereunder (the “Term”). Executive and
the Company agree that Executives employment with the Company constitutes at-will employment.
2.
NATURE OF DUTIES. During the Term, Executive shall serve as Chief Executive Officer of the Company and as Chief Executive
Officer of its subsidiaries, Barfresh Inc. and Smoothie Inc. (together with the Company, the “Group”). In addition,
during the Term, Executive shall be nominated to serve as a member of the Board of Directors of the Company, and Executive shall
serve and continue to serve, if and when elected and re-elected, as a member of the Board. Executive shall report to the Board,
and shall have all the customary powers and duties associated with his positions. Executive shall be subject to the Company’s
policies, procedures and approval practices, as generally in effect from time to time for all senior executives of the Company.
Executive shall perform his duties and responsibilities from any location Executive deems necessary.
Except
for sick leave, reasonable vacations and excused leaves of absence, Executive shall devote substantially all of his business time
and effort to the performance of his duties for the Group, which he shall perform faithfully and to the best of his ability. However,
nothing in this Agreement shall preclude Executive from participating in the affairs of any governmental, educational or other
charitable institution and serving as a member of the board of directors of a corporation, except for a competitor of the Group,
provided Executive notifies the Board prior to his participating in any such activities and as long as the Board does not determine,
in the exercise of its reasonable judgment, that any such activities interfere with or diminish Executive’s obligations
under the Agreement. Unless otherwise in conflict with Company policy, Executive shall be entitled to retain all fees and other
compensation derived from such activities, in addition to the compensation and benefits payable to him under this Agreement.
3.
COMPENSATION AND RELATED MATTERS.
(a)
Base Salary. During the Term, Executive shall receive an annual base salary (“Base Salary”) at the rate of
$350,000, subject to a minimum 5% annual increase. The term “Base Salary” as used in this Agreement shall mean, at
any point in time, Executive’s annual base salary at such time. The Base Salary shall be payable in substantially equal
semi-monthly installments and shall in no way limit or reduce the obligations of the Company hereunder.
(b)
Performance Bonuses. In addition to the Base Salary, Executive shall receive annual performance bonuses (collectively,
the “Performance Bonuses”) as follows:
(i)
a bonus equal to 50% of Executive’s Base Salary for that calendar year, based on targets determined by the Board after consultation
with Executive no later than ninety (90) days after the start of the applicable fiscal year, which amount will be paid no later
than March 15 of the following year; and
(ii)
a bonus equal to 25% of Executive’s Base Salary for that calendar year, based on targets determined by the Board after consultation
with Executive no later than ninety (90) days after the start of the applicable fiscal year, which amount will be paid in three
(3) equal annual installments, with the first installment due no later than March 15 of the following year and subsequent payments
being made on March 31 of the following applicable year.
For
purposes of this Section 3(b), if Executive and the Board fail to agree on performance targets within ninety (90) days after the
start of an applicable fiscal year, the target proposal last submitted by Executive prior to the end of such ninety (90) day period
shall become effective for that fiscal year.
(c)
Performance Options. In addition to Base Salary and Performance Bonuses, Executive is eligible to receive incentive compensation
in the form of “Performance Options” in accordance with the Company’s 2015 Equity Incentive Plan (“Plan”)
and subject to the approval of the Board and applicable securities laws, as set forth below:
(i)
On the Effective Date and each anniversary of the effective date, Executive shall receive a grant of 250,000 Performance Options
(based on targets determined by the Board after consultation with Executive) at an exercise price equal to the closing bid price
on the date of the grant, which will vest in equal increments on each of the first, second and third anniversaries of the date
of grant; and
(ii)
On each anniversary of the Effective Date, Executive shall receive an additional grant of 250,000 additional Performance Options
(based on targets determined by the Board after consultation with Executive no later than ninety (90) days after the start of
the fiscal year in which such grant occurs) at an exercise price equal to the closing bid price on the date of the grant, which
will vest in equal increments on each of the first, second and third anniversaries of the date of grant. Notwithstanding the preceding
sentence, if the performance targets for an applicable fiscal year have not been determined prior to an anniversary of the Effective
Date, Executive will receive a grant of 250,000 options in lieu of the Performance Options for such year.
Performance
Options shall have a term of 8 years from the date of grant. For clarity and notwithstanding anything else provided in this Agreement,
vesting of Performance Options that have been granted shall not accelerate other than upon a Change in Control (as defined below),
and upon a “Discharge Other Than for Cause or Resignation for Good Reason” as provided for in Section 4(c) below.
For all purposes in this Agreement, “Change in Control” shall have the meaning set forth Plan, except that for purposes
of this Agreement, a Change in Control shall be defined by replacing the term “Company” in each place in which it
occurs in Sections 3(e)(i) and (ii) of the Plan with the phrase “Company or Smoothie Inc.”
(d)
Expenses. Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him during
the Term (in accordance with the policies and procedures then in effect and established by the Company for its senior executive
officers and subject to Section 8(d) below) in performing services hereunder, provided that Executive properly accounts therefore
in accordance with Company policy.
(e)
Other Benefits. Executive shall be entitled to participate in or receive benefits generally made available to the employees
of the Company (401(k), etc.) or as explicitly provided hereunder. Any other benefits must be agreed to in writing by the Board.
(f)
Vacations. Commencing 90 days after the Effective Date, Executive shall be entitled to 20 days paid vacation in each calendar
year, pro-rated for any partial year. As of the date of this Agreement, Executive has accrued vacation days that shall not be
affected by this Agreement. Executive may only accrue up to an additional 20 days of paid vacation during the term of this Agreement.
(g)
Car Allowance. Executive shall receive an annual car allowance of $9,600 (with payments to Executive being made monthly).
(h)
Indemnification. During and following the Term, the Company shall fully indemnify Executive for any liability to the fullest
extent permitted by applicable law. In addition, the Company agrees to continue and maintain, at the Company’s sole expense,
a directors’ and officers’ liability insurance policy covering Executive both during and, while potential liability
exists, after the Term that is no less favorable than the policy covering active directors and senior officers of the Company
from time to time.
4.
TERMINATION.
(a)
Discharge for Cause. The Company may terminate Executive’s employment at any time if it believes in good faith that
it has Cause to terminate his employment. As used herein, “Cause” means (i) Executive’s conviction in any court
of competent jurisdiction of an act of fraud or dishonesty, the purpose or effect of which materially and adversely affects the
Group, (ii) Executive’s failure or refusal to attempt in good faith to perform his job duties under this Agreement (other
than by reason of physical or mental illness, injury, or condition); provided however, in each instance Executive must be provided
notice from the Board of his failure to do so and an opportunity to cure such breach within 10 business days or such longer time
as prescribed in the written notice or reasonably required to cure any such breach, and/or (iii) Executive becoming barred or
prohibited by any governmental or regulatory agency from holding his position with the Company or fulfilling his duties hereunder
or subjecting the Company to “bad actor disqualification” under Rule 506(d) of the Securities Act of 1933.
Upon
Executive’s discharge for Cause, the Company shall pay to Executive any unpaid and earned Base Salary, any then vested and
unpaid Performance Bonuses, expense reimbursements and vacation days accrued prior to termination of employment and all of Executive’s
unvested Performance Options shall terminate; provided, however, that in exchange for Executive’s execution of a release
in accordance with Section 4(g), Executive shall have a period of 90 days from the date of termination to exercise any vested
Performance Options and any other vested options, pursuant to the terms of the Plan.
(b)
Termination for Disability. Except as prohibited by applicable law and, if required by applicable law, subject to the Company
providing Executive with reasonable accommodations, the Company may terminate Executive’s employment on account of Disability.
“Disability” means a physical or mental illness, injury, or condition that prevents Executive from performing substantially
all of his duties under this Agreement for at least 90 consecutive calendar days or for at least 180 calendar days, whether or
not consecutive, in any 365 calendar day period. If Company terminates Executive due to a Disability, Company shall pay Executive
any unpaid earned Base Salary, any then vested and unpaid Performance Bonuses, expense reimbursements and vacation days accrued
prior to termination of employment and all of Executive’s unvested Performance Options shall terminate; provided, however,
that in exchange for Executive’s execution of a release in accordance with Section 4(g), Executive’s Base Salary shall
be continued for 3 months after the date of termination and all of Executive’s vested Performance Options and any other
vested options shall be exercisable for a period of 90 days from the date of termination.
(c)
Discharge Other Than for Cause or Resignation for Good Reason. The Company may terminate Executive’s employment at
any time for any reason, and without advance notice. Additionally, Executive may resign from employment for “Good Reason”
(as described below). If the Company discharges Executive other than for Cause or Executive resigns for Good Reason, the Company
shall pay to Executive any unpaid earned Base Salary, and unpaid and vested Performance Bonuses, expense reimbursements and vacation
days accrued prior to termination of employment, and all Executive shall retain ownership of all then vested Performance Options;
provided, however, that in exchange for Executive’s execution of a release in accordance with Section 4(g), Executive
shall be entitled to the following special benefits: (A) a lump sum payment equal to 36 months of Executive’s Base Salary;
(B) a lump sum payment equal to the Performance Bonus Executive would have received in the year of his termination of employment
(determined based on actual performance through the date of termination and paid at the time the Performance Bonus would have
been paid under Section 3(b)); (C) a lump sum payment equal to the aggregate value of all then unvested tranches of any Performance
Bonus, determined after fully accelerating all then unvested tranches, (D) Executive’s then outstanding unvested Performance
Options shall continue to vest (based on actual performance as of each vesting date)(except that all such options shall fully
vest if such termination is in connection with a Change in Control) and all his vested Performance Options and other vested options
shall become exercisable for a period of one year from the date of termination; (E) if such termination occurs prior to the grant
of the Performance Options that would have otherwise been granted in the year of such termination (the “Make-whole Performance
Options”), Executive shall receive a lump sum payment equal to the grant date value of the Make-whole Performance Options,
and (F) subject to Executive timely electing COBRA, the Company shall continue to contribute towards health insurance premiums
under the Company’s group health plan on behalf of Executive and his covered dependents as of immediately prior to the date
of Executive’s termination of employment in the same dollar amount as it contributed immediately prior to the date of Executive’s
termination of employment (or, if such contributions are prohibited or penalized under then-applicable law, reimburse to Executive,
upon submission of proof of payment by Executive, an equivalent dollar amount) until the earlier of 18 months after the date of
Executive’s termination of employment or such time as Executive becomes eligible for substantially similar benefits from
another employer. Notwithstanding anything in this Agreement to the contrary, in the event Executive is terminated without Cause
or Executive resigns for Good Reason during the one-year period immediately following a Change in Control, the payments made pursuant
to Section 4(c)(B) and Section 4(c)(D) above shall be determined based on target performance instead of actual performance.
For
purposes of this Section 4(c), “Good Reason” shall mean any of the following: (i) a material diminution of Executive’s
Base Salary, (ii) a material diminution in Executive’s authority, duties or responsibilities, and (iii) any material breach
of this Agreement by the Company. Additionally, any resignation by Executive during the one-year period immediately following
a Change in Control shall be deemed to be a resignation for Good Reason. Notwithstanding anything in this Agreement to the contrary,
Executive cannot resign from employment with the Company on the basis of Good Reason unless Executive has provided written notice
to the Company of the circumstances providing grounds for resignation for Good Reason within 90 days of the initial existence
of such grounds (except where Good Reason is based on a Change in Control, in which case Executive may provide notice at any time
during the one-year period immediately following such Change in Control) and the Company has had at least 30 days from the date
on which such notice is provided to cure such circumstances. Failure by Executive to provide written notice of Good Reason as
described above shall not constitute a waiver or preclude Executive from notifying the Company of any future event giving rise
to Good Reason, including an event of a similar nature.
(d)
Resignation without Good Reason. Except as provided in Section 4(c) above, Executive promises not to resign his employment
without giving the Company at least 60 days’ advance written notice. If Executive resigns without Good Reason, the Company
may accept his resignation effective on the date set forth in his notice or the date of the Company’s receipt of his notice.
Upon Executive’s resignation without Good Reason, the Company shall pay Executive any unpaid earned Base Salary, and earned
and unpaid vested Performance Bonuses, expense reimbursements and vacation days accrued prior to termination of employment and
Executive’s unvested Performance Options shall terminate; provided, however, that in exchange for 60 days’
advance written notice of Executive’s resignation and Executive’s execution of a release in accordance with Section
4(g), Executive shall have a period of 90 days from the date of termination to exercise any vested Performance Options and other
vested options, pursuant to the terms of the Plan.
(e)
Death. If Executive dies, the Company shall pay to Executive’s estate any accrued unpaid Base Salary, Performance
Bonuses, expense reimbursements and vacation days accrued prior to termination of employment, and, in exchange for execution of
a release by Executive’s estate in accordance with Section 4(g), Executive’s vested Performance Options shall be exercisable
by the estate for a period of twelve (12) months from the date of termination.
(f)
Disputes Under This Section. All disputes relating to this Agreement, including disputes relating to this Section 4, shall
be resolved by final and binding arbitration under Section 7. In the event of any dispute under this Section (4) or any other
provision of this Agreement, the Company shall continue to make all payments, and provide all benefits, to Executive until the
dispute is finally resolved in accordance with Section 7 or, if applicable, by judicial determination; provided that if
the Executive is subject to a final adverse determination, the Company may seek to recover any amounts paid to the Executive during
the period in which the Executive’s conduct has been determined to be in violation of this Agreement. In the event that
the Company initiates any proceeding to terminate the Executive for “cause” hereunder, the Executive shall be provided
with written notice of the grounds underlying the allegation of “cause” and a reasonable opportunity to appear with
counsel before the Board to contest such allegations.
(g)
Execution of Release. Executive will only receive the special benefits that are conditioned upon his execution of a general
release if Executive signs the release (which shall be in the form attached as Annex A) and he does not subsequently properly
revoke the release. Any payment conditioned upon Executive’s execution of a general release shall be paid on the date that
is 60 days following Executive’s termination of employment, provided Executive timely executed the general release and does
not subsequently revoke it.
(h)
Termination of Options. Notwithstanding anything contained herein to the contrary, no Performance Option is exercisable
after expiration of its 8-year term.
5.
CONFIDENTIALITY. During the term of Executive’s employment, in exchange for his promises to use such information solely
for the Company’s benefit, the Company will provide Executive with Confidential Information concerning, among other things,
its business, operations, customers, vendors, owners, investors, and business partners. “Confidential Information”
refers to information not generally known by others in the form in which it is used by the Company, and which gives the Company
a competitive advantage over other companies which do not have access to this information, including secret, confidential, or
proprietary information or trade secrets of the Company and its subsidiaries and affiliates, conveyed orally or reduced to a tangible
form in any medium, including information concerning the operations, future plans, customers, business models, strategies, and
business methods of the Company and its subsidiaries and affiliates, as well as information about the Company’s customers,
clients and business partners and their respective operations and confidential information. “Confidential Information”
does not include: (a) information that: (i) Executive knew prior to his employment with the Company or any predecessor company;
(ii) subsequently came into Executive’s possession other than through his work for the Company or any predecessor company
and not as a result of a breach of any duty owed to the Company; or (iii) is generally known within the relevant industry; or
(b) any prior knowledge, information or know-how which Executive legally obtained from a source other than the Company.
(a)
Promise Not to Disclose. Executive promises never to use or disclose any Confidential Information before it has become
generally known within the relevant industry through no fault of Executive. Notwithstanding this paragraph, Executive may disclose
Confidential Information: (i) during his employment for the benefit of the Company; (ii) as required to do so by court order,
subpoena, or otherwise as required by law, provided that upon receiving such order, subpoena, or request and prior to disclosure,
to the extent permitted by law, Executive shall provide written notice to the Company of such order, subpoena, or request and
of the content of any testimony or information to be disclosed and shall cooperate fully with the Company to lawfully resist disclosure
of the information; and (iii) to an attorney for the purpose of securing professional advice.
(b)
Promise Not to Solicit. Executive agrees that, during his employment with the Company and for 12 months after his termination
for any reason (together, the “Restricted Period”): (1) as to any client or business partner of the Company with whom
Executive had dealings or about whom Executive acquired Confidential Information during his employment, Executive will not solicit,
attempt to solicit, assist others to solicit, or accept any unsolicited request from the client or business partner to do business
with any person or entity other than the Company or its affiliates; and (2) Executive will not solicit, attempt to solicit, assist
others to solicit, hire, or assist others to hire for employment any person who at the time of Executive’s termination of
employment is, or within the 12 months preceding such termination was, an officer, manager, employee, or consultant of the Company.
Executive agrees that the restrictions set forth in this paragraph do not and will not prohibit him from engaging in his livelihood
and do not foreclose him his working with clients or business partners not identified in this paragraph.
(c)
Promise Not to Engage in Certain Employment. Executive agrees that, during the Restricted Period, he will not, without
the prior written consent of the Company, accept any employment; provide any services, advice or information; or assist or engage
in any activity (whether as an employee, consultant, or in any other capacity, whether paid or unpaid) with any business or other
entity in the business, directly or indirectly, for profit or not, of developing, distributing or marketing compounds or technologies
for the manufacture and distribution of smoothies, or smoothie-like beverages in the United States or elsewhere.
(d)
Return of Information. When Executive’s employment with the Company ends, he will promptly deliver to the Company,
or, at its written instruction, destroy, all documents, data, drawings, manuals, letters, notes, reports, electronic mail, recordings,
and copies of the same, of or pertaining to it or any other Group member in his possession or control. Notwithstanding the foregoing,
Executive may retain his personal effects, files, benefit information, or other property to the extent such materials do not contain
any of the Company’s Confidential Information. In addition, during his employment with the Company or the Group and subsequently,
Executive agrees to meet with Company personnel and, based on knowledge or insights he gained during his employment with the Company
and the Group, answer any question they may have related to the Company or the Group as reasonably requested.
(e)
Intellectual Property. Intellectual property (including such things as all ideas, concepts, inventions, plans, developments,
software, data, configurations, materials (whether written or machine-readable), designs, drawings, illustrations, and photographs,
developed, created, conceived, made, or reduced to practice during Executive’s employment with the Company (except intellectual
property that has no relation to the Group or any Group customer that Executive developed, etc., purely on his own time and at
his own expense), shall be the sole and exclusive property of the Company, and Executive does now assign all rights, title, and
interest in any such intellectual property to the Company.
(f)
Enforcement of This Section. This Section 5 shall survive the termination of this Agreement or Executive’s employment
for any reason. Executive acknowledges that: (a) this section’s terms are reasonable and necessary to protect the Company’s
legitimate interests; (b) this section’s restrictions will not prevent him from earning or seeking a livelihood; (c) this
section’s restrictions shall apply wherever permitted by law; and (d) the violation of any of this section’s terms
would irreparably harm the Company. Accordingly, Executive agrees that, if he violates any of the provisions of this section,
the Company or any Group member shall be entitled to, in addition to other remedies available to it, to seek an injunction to
be issued by any court of competent jurisdiction restraining Executive from committing or continuing any such violation, without
the need to prove the inadequacy of money damages or post any bond or for any other undertaking.
6.
CONFLICT OF INTEREST. In keeping with Executive’s fiduciary duties to the Company, Executive agrees that while employed
by the Company he shall not, acting alone or in conjunction with others, directly or indirectly, become involved in a conflict
of interest or, upon discovery thereof, allow such a conflict to continue. Moreover, Executive agrees that he shall immediately
disclose to the Company any facts that might involve any reasonable possibility of a conflict of interest. It is agreed that any
direct or indirect interest, connection with or benefit from any outside activities, where such interest might in any way adversely
affect the Company, involves a possible conflict of interest. Circumstances in which a conflict of interest on the part of Executive
might arise, and which must be reported immediately by Executive to the Company, include, but are not limited to, the following:
(a)
ownership of a material interest in any supplier, contractor, subcontractor, customer, or other entity with which the Company
does business;
(b)
acting in any capacity, including director, officer, partner, consultant, employee, distributor, agent, or the like for a supplier,
contractor, subcontractor, customer, or other entity with which the Company does business;
(c)
accepting, directly or indirectly, payment, service, or loans from a supplier, contractor, subcontractor, customer, or other entity
with which the Company does business, including, but not limited to, gifts, trips, entertainment, or other favors of more than
a nominal value;
(d)
misuse of the Company’s information or facilities to which Executive has access in a manner which will be detrimental to
the Company’s interest, such as utilization for Executive’s own benefit of know-how, inventions, or information developed
through the Company’s business activities;
(e)
disclosure or other misuse of Confidential Information of any kind obtained through Executive’s connection with the Company;
(f)
appropriation by Executive or the diversion to others, directly or indirectly, of any business opportunity in which it is known
or could reasonably be anticipated that the Company would be interested; and
(g)
ownership, directly or indirectly, of a material interest in an enterprise in competition with the Company, or acting as an owner,
director, principal, officer, partner, consultant, employee, agent, servant, or otherwise of any enterprise which is in competition
with the Company.
7.
ARBITRATION OF DISPUTES. Except as expressly prohibited by law and except for the Company’s right to seek injunctive
relief as set forth in Section 5(f), all disputes between the Company and Executive (“Arbitratable Disputes”), including
disputes under Section 3 and Section 4, are to be resolved by final and binding arbitration in accordance with this Section 7.
This section shall remain in effect after the termination of this Agreement or Executive’s employment.
(a)
Scope of Agreement. This arbitration agreement applies to, among other things, disputes concerning Executive’s employment
with or termination from the Company and the validity, interpretation, enforceability or effect of this Agreement or alleged violations
of it.
(b)
The Arbitration. The arbitration shall take place under the auspices of the American Arbitration Association (“AAA”)
in its office nearest to the location where Executive last worked for the Company and conducted in accordance with the AAA’s
National Rules for the Resolution of Employment Disputes then in effect before an experienced employment law arbitrator licensed
to practice law in that jurisdiction who has been selected in accordance with such rules. The arbitrator may not modify or change
this Agreement in any way except as expressly set forth herein. The arbitration shall be governed by the substantive law of Colorado
(excluding where it mandates the use of another jurisdiction’s laws).
(c)
Fees and Expenses. Regardless of which party initiates the arbitration, the Company shall pay that portion of the initial
filing fee that exceeds the filing fee for commencing an action in a state or federal court in Colorado, after which each party
shall pay the fees of their attorneys, the expenses of its witnesses, and any other costs and expenses that the party incurs in
connection with the arbitration. All other costs of the arbitration, including the fees of the arbitrator, the cost of any record
or transcript of the arbitration, administrative fees and other fees and costs shall be paid one-half by the Company and one-half
by Executive. Notwithstanding the foregoing, if Executive prevails in any arbitration proceeding, the Company shall reimburse
Executive for all fees, expenses and other costs incurred by Executive in connection with the proceedings.
(d)
Exclusive Remedy. The arbitration in this manner shall be the exclusive remedy for any Arbitratable Dispute.
(e)
Judicial Enforcement. Nothing in this Section 7 shall preclude any party to this agreement from seeking judicial enforcement
of an arbitrator’s award. Judgment may be entered on the arbitrator’s award in any court having jurisdiction. In the
event that Executive is required to seek judicial enforcement of an arbitrator’s award, the Company shall reimburse Executive
for any fees, expenses or costs associated with such action.
8.
TAXES; SECTION 409A.
(a)
The Company shall withhold taxes from payments it makes pursuant to this Agreement as it reasonably determines to be required
by applicable law.
(b)
This Agreement is intended to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (“Section
409A”), including the exceptions thereto, and shall be construed and administered in accordance with such intent.
Notwithstanding any other provision of this Agreement, payments provided under this Agreement may only be made upon an event and
in a manner that complies with Section 409A or an applicable exemption. Any payments under this Agreement that may be excluded
from Section 409A either as separation pay due to an involuntary separation from service or as a short-term deferral shall be
excluded from Section 409A to the maximum extent possible. For purposes of Section 409A, each installment payment provided under
this Agreement shall be treated as a separate payment. Any payments to be made under this Agreement in connection with a termination
of employment shall only be made if such termination of employment constitutes a “separation from service” under Section
409A.
(c)
Notwithstanding any other provision of this Agreement, if at the time of Executive’s termination of employment, he is a
“specified employee”, determined in accordance with Section 409A, any payments and benefits provided under this Agreement
that constitute “nonqualified deferred compensation” subject to Section 409A that are provided to Executive on account
of his separation from service shall not be paid until the first payroll date to occur following the six-month anniversary of
Executive’s termination date (“Specified Employee Payment Date”). The
aggregate amount of any payments that would otherwise have been made during such six-month period shall be paid in a lump sum
on the Specified Employee Payment Date with interest (determined using the prime rate published by the Wall Street Journal
on the date of Executive’s separation from service) and thereafter, any remaining payments shall be paid without delay
in accordance with their original schedule. If Executive dies before the Specified Employee Payment Date, any delayed payments
shall be paid to Executive’s estate in a lump sum within 30 days of Executive’s death.
(d)
To the extent required by Section 409A and without limiting any other requirement set forth in this Agreement, each reimbursement
or in-kind benefit provided under this Agreement shall be provided in accordance with the following: (i) the amount of expenses
eligible for reimbursement, or in-kind benefits provided, during each calendar year cannot affect the expenses eligible for reimbursement,
or in-kind benefits to be provided, in any other calendar year; (ii) any reimbursement of an eligible expense shall be paid to
Executive on or before the last day of the calendar year following the calendar year in which the expense was incurred; and (iii)
any right to reimbursements or in-kind benefits under this Agreement shall not be subject to liquidation or exchange for another
benefit.
9.
CODE SECTION 280G.
(a)
Notwithstanding any other provision of this Agreement or any other plan, arrangement or agreement to the contrary, if any of the
payments or benefits provided or to be provided by the Company or its affiliates to Executive or for Executive’s benefit
pursuant to the terms of this Agreement or otherwise (“Covered Payments”)
constitute parachute payments (“Parachute Payments”) within the meaning of
Code Section 280G and would, but for this Section 9 be subject to the excise tax imposed under Code Section 4999 (or any successor
provision thereto) or any similar tax imposed by state or local law or any interest or penalties with respect to such taxes (collectively,
the “Excise Tax”), then prior to making the Covered Payments, a calculation
shall be made comparing (i) the Net Benefit (as defined below) to Executive of the Covered Payments after payment of the Excise
Tax to (ii) the Net Benefit to Executive if the Covered Payments are limited to the extent necessary to avoid being subject to
the Excise Tax. Only if the amount calculated under (i) above is less than the amount under (ii) above will the Covered Payments
be reduced to the minimum extent necessary to ensure that no portion of the Covered Payments is subject to the Excise Tax (that
amount, the “Reduced Amount”). “Net Benefit” shall mean
the present value of the Covered Payments net of all federal, state, local, foreign income, employment and excise taxes.
(b)
To the extent the Covered Payments must be reduced pursuant to Section 9(a) above, the Covered Payments shall be reduced in a
manner that maximizes Executive’s economic position. In applying this principle, the reduction shall be made in a manner
consistent with the requirements of Section 409A, and where two economically equivalent amounts are subject to reduction but payable
at different times, such amounts shall be reduced on a pro rata basis but not below zero.
(c)
Any determination required under this Section 9 shall be made in writing in good faith by an independent accounting firm selected
by the Company that is reasonably acceptable to Executive (the “Accountants”),
which shall provide detailed supporting calculations to the Company and Executive as requested by the Company or Executive. The
Company and Executive shall provide the Accountants with such information and documents as the Accountants may reasonably request
in order to make a determination under this Section 9. For purposes of making the calculations and determinations required by
this Section 9, the Accountants may rely on reasonable, good faith assumptions and approximations concerning the application of
Code Sections 280G and 4999. The Accountants’ determinations shall be final and binding on the Company and Executive. The
Company shall be responsible for all fees and expenses incurred by the Accountants in connection with the calculations required
by this Section 9.
10.
AMENDMENT. No provisions of this Agreement may be modified, waived or discharged except by a written document signed by a
duly authorized Company officer and Executive. A waiver of any conditions or provisions of this Agreement in a given instance
shall not be deemed a waiver of such conditions or provisions at any other time in the future.
11.
NOTICES. For all purposes of this Agreement, all communications, including but not limited to notices, consents, request or
approvals, required, permitted, or which may be given hereunder shall be in writing and either delivered personally to an officer
of the addressee or mailed to those addresses provided on the signature page below, by certified or registered mail, postage prepaid,
by facsimile transmission or electronic mail (with receipt confirmed) and shall be deemed given (i) when so delivered personally;
(ii) if mailed, five (5) days after the time of mailing; or (iii) if faxed or sent by electronic mail, twenty four (24) hours
after the confirmed transmission of the fax or electronic mail.
12.
CHOICE OF LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws
of Colorado (excluding any that mandate the use of another jurisdiction’s laws).
13.
SUCCESSORS. This Agreement shall be binding upon, and shall inure to the benefit of, Executive and his estate, but Executive
may not assign or pledge this Agreement or any rights arising under it, except to the extent permitted under the terms of the
benefit plans in which he participates. The Company shall not assign this Agreement to any affiliate or to a successor to substantially
all the business unless such affiliate or successor agrees to enter into a written agreement acceptable to Executive providing
for the affiliate’s or successor’s assumption of obligations under this Agreement.
14.
VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and effect.
15.
COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original
but all of which together shall constitute the same instrument.
16.
HEADINGS. The section headings have been inserted for purposes of convenience and shall not be used for interpretive purposes.
17.
GENDER AND PLURALS. Wherever the context so requires, the masculine gender includes the feminine or neuter, and the singular
number includes the plural and conversely.
18.
ENTIRE AGREEMENT. All oral or written agreements or representations, express or implied, with respect to the subject matter
of this Agreement are set forth in this Agreement. All prior written employment agreements between Executive and the Company are
declared null and void, and have no further effect.
(Signatures
on following page)
IN
WITNESS WHEREOF, the parties have executed this Agreement through their duly authorized representatives as of the Effective
Date set forth above.
“COMPANY” |
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“EXECUTIVE” |
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BARFRESH FOODS
GROUP INC., |
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a
Delaware corporation |
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By: |
/s/ Arnold Tinter |
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/s/
Riccardo Delle Coste |
Name: |
Arnold Tinter |
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RICCARDO DELLE
COSTE |
Title: |
Chief Financial Officer/ Secretary |
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ANNEX
A – General Release of Claims
GENERAL
RELEASE AGREEMENT
This
General Release Agreement (the “Agreement”) is entered into by and between Barfresh Food Group, Inc., a Delaware
corporation (the “Company”), and Riccardo Delle Coste (“Executive”).
WHEREAS,
the Company and Executive are parties to an Employment Agreement (“Employment Agreement”) entered into on April
__, 2015, whereby Executive is entitled to certain severance benefits from Company in exchange for executing this Agreement;
WHEREAS,
Executive’s employment with Company [will terminate][terminated] effective [DATE] (“Termination Date”),
pursuant to Section [INSERT SECTION] of the Employment Agreement;
WHEREAS,
the parties desire to settle all claims and issues arising out of or in any way related to the acts, transactions or occurrences
between Executive and the Company to date;
WHEREFORE,
in consideration of the promises and the mutual covenants set forth below, the parties agree as follows:
1.
Consideration. In consideration for executing this Agreement and in exchange for the promises, covenants, releases and
waivers herein, provided that Executive has not revoked the Agreement as set forth below, the Company will provide Executive with
the severance payments and/or benefits described in Section [INSERT SECTION] of the Employment Agreement. The severance payments
and/or benefits described in Section [INSERT SECTION] shall commence or be paid, as applicable, on the first payroll period following
the “Release Effective Date” (as defined below), and the first payment shall include all payments that would have
been made from the Termination Date. In addition, Executive shall be reimbursed for (i) any remaining charges for Company expenses
on Executive’s personal credit cards incurred prior to the Termination Date and (ii) any outstanding and unpaid business
expenses incurred by the Executive through the Termination Date, in each case in accordance with Company policy. Executive understands
and agrees that the severance payments and/or benefits are in addition to anything of value to which Executive is otherwise entitled
from the Company if she does not execute this Agreement.
2.
Tax Treatment. All payments and benefits provided to Executive pursuant to Paragraph 1 of this Agreement are subject to
any applicable employment or tax withholdings or deductions. In addition, the parties hereby agree that it is their intention
that all payments or benefits provided under this Agreement comply with Section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”), and this Agreement shall be interpreted accordingly. In no event shall the timing of
the Executive’s execution of this Agreement, directly or indirectly, result in the Executive designating the calendar year
of payment, and if a payment that is subject to execution of the Agreement could be made in more than one taxable year, payment
shall be made in the later taxable year. Notwithstanding the foregoing, the Company does not guarantee the tax treatment of any
payments or benefits under this Agreement, including, without limitation, under the Code, federal, state or local laws.
3.
Releases.
|
(a) | In
consideration for the consideration described above, to which Executive is not otherwise
entitled, as a full and final settlement, Executive, for Executive and Executive’s
heirs, executors, administrators, successors and assigns, hereby releases and forever
discharges the Company, its current and former parents, direct or indirect equity holders,
subsidiaries, affiliated or related entities and their respective officers and directors
(hereinafter collectively referred to as “Releasees”) from all causes
of action, claims, charges, complaints, liabilities, obligations, promises, covenants,
agreements, contracts, suits, judgments, damages, or demands, in law or in equity of
any nature whatsoever, known or unknown, suspected or unsuspected, which Executive ever
had or now has regarding any matter arising on or before the date of Executive’s
execution of this Agreement including those arising directly or indirectly out of or
in any way connected with Executive’s employment with the Company, including, but
not limited to, claims relating to Executive’s employment, or termination thereof,
discrimination based upon race, color, age, sex, sexual orientation, age, marital status,
religion, national origin, handicap, disability, or any other protected category, or
retaliation, any contracts (express or implied), any claim for or involving equitable
relief or recovery of punitive, compensatory, or other damages or monies, wages, vacation
pay, employee fringe benefits, attorneys’ fees, libel, slander, and any other tort.
Executive understands and agrees that this Release includes any claim that could arise
under Title VII of the Civil Rights Act of 1964; the Age Discrimination in Employment
Act of 1967; the Older Workers Benefit Act; the Civil Rights Act of 1866; the Equal Pay
Act; the Pregnancy Discrimination Act; the Americans With Disabilities Act of 1990; 42
U.S.C. § 1981; the Employee Retirement Income Security Act of 1974; the Family and
Medical Leave Act of 1993; the Civil Rights Act of 1991; the Worker Adjustment and Retraining
Notification Act of 1988; the Genetic Information Nondiscrimination Act, the Employee
Retirement Income Security Act, the False Claims Act; the Corporate and Criminal Fraud
Accountability Act of 2002, 18 U.S.C. § 1514A, also known as the Sarbanes Oxley
Act; any claim under the Colorado Anti-Discrimination Act; the California Labor Code
(including the California Private Attorney General Act), California Business & Professions
Code, California Wage Orders, City of Los Angeles Living Wage Ordinance; and any other
federal, state or local laws, rules or regulations, whether equal employment opportunity
laws, rules or regulations or otherwise, or any right under any pension, welfare, or
equity plans. |
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| |
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(b) | Executive
acknowledges reading and understanding the meaning and effect of section 1542 of the
California Civil Code which in its entirety states: |
A
general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time
of executing the release, which if known by him or her must have materially affected his or her settlement with the creditor.
Executive
waives and relinquishes any right or benefit that Executive may have under section 1542 of the California Civil Code and understands
that by signing this Release, Executive is giving up claims that Executive may not presently know or suspect to exist.
|
(c) | Notwithstanding
the broad scope of this release, this release is not intended to bar (i) any claims that,
as a matter of law, whether by statute or otherwise, may not be waived, such as claims
for workers’ compensation benefits or unemployment insurance benefits, (ii) any
claims with respect to indemnification under the Company’s by-laws, charter or
any other operative agreements or with respect to coverage arising under any D&O
policy in effect, (iii) any claims by the Executive for any matter arising under this
Agreement or (iv) any claims by the Executive in his capacity as a shareholder of the
Company or with respect to any equity interest he may own or control in the Company.
Nothing in this Agreement is intended to interfere with Executive’s right to file
a charge or participate in an administrative investigation or proceeding; provided,
however, that Executive expressly releases and waives her right to recovery of any
type in any administrative or court action, whether local, state or federal, and whether
brought by her or on her behalf, related in any way to the matters released herein. |
| (d) | By
signing this
Agreement and accepting the consideration described in Paragraph 1, Executive understands
and acknowledges that Executive is waiving any right to sue the Releasees for any claims
released by this Agreement. |
| | |
| (e) | The
Company for itself and its current and former parents, direct or indirect equity holders,
members, subsidiaries, affiliated or related entities and their respective members, shareholders,
officers, directors, successors and assigns (collectively, the “Company Releasors”)
hereby release and forever discharge the Executive from all causes of action, claims,
charges, complaints, liabilities, obligations, promises, covenants, agreements, contracts,
suits, judgments, damages, or demands, in law or in equity of any nature whatsoever,
known or unknown, suspected or unsuspected, which the Company Releasors ever had or now
have regarding any matter relating to Executive’s employment with or equity interest
in the Company arising on or before the date of Executive’s execution of this Agreement
including, but not limited to, any claim for or involving equitable relief or recovery
of punitive, compensatory, or other damages or monies, attorneys’ fees, libel,
slander, and any other tort; provided, that, the foregoing release by the
Company Releasors is not intended to and does not bar any claims by the Company Releasors
for any matters arising (i) under this Agreement or the Termination Agreement, (ii) from
events, acts or omissions occurring after the parties’ execution of this Agreement;
or (iii) from any acts of Executive involving criminal activity or fraud. |
4.
Non-Admission Clause. This Agreement does not constitute
an admission by the Company or Executive (or any Releasee or Company Releasor) of a violation of any federal, state, or local
law, statute, rule or regulation or any common law right.
5.
Representations. By Executive’s signature below, Executive represents that: (i) Executive is not aware of any unpaid
wages, vacation, bonuses, expense reimbursements or other amounts owed to Executive by the Company, other than that specifically
provided for in this Agreement; and (ii) Executive has not filed any charge or claim or initiated any proceedings against any
of the Releasees in any forum or with any municipal, state or federal agency charged with the enforcement of any law.
6.
Confidentiality of this Agreement. Except as provided by law, Executive and the Company shall keep the existence and terms
of this Agreement confidential and shall not disclose to any third party, except in the case of the Executive, to the Executive’s
immediate family, tax and legal advisors and as required by law, and except in the case of the Company, in connection with the
Company’s disclosure obligations to its tax, accounting and legal advisors, to any officer, director, manager or employee
with a business need to know, and as required by law.
7.
Non-Disparagement/Statements. Executive covenants and agrees that he will not make any disparaging or derogatory comments
about the business or reputation of the Releasees, except where the making of any truthful statements may be required by law or
is necessary to enforce his rights under this Agreement. The Company covenants and agrees that it shall not, and the management
employees of the Company shall be instructed not to, make any disparaging or derogatory comments concerning the Executive, except
where the making of any truthful statements may be required by law or necessary to enforce its rights under this Agreement.
8.
Governing Law. The construction, interpretation and performance of this Agreement shall be governed by the laws of the
State of Colorado, without regard to its conflicts of law provisions. Executive agrees to and hereby consents and waives any objection
to the exclusive jurisdiction of any and all state and federal courts located in the State of Colorado in connection with any
proceeding concerning this Agreement.
9.
Headings. The paragraph headings in this Agreement are for
convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provision hereof.
10.
Severability. If any provision or portion thereof contained in this Agreement is held to be invalid or unenforceable,
the remainder of this Agreement will be considered severable, shall not be affected and shall remain in full force and effect.
Specifically, the invalidity of any such provision shall have no effect upon, and shall not impair the enforceability of
the release language set forth in Paragraph 3.
11.
Binding on Successors. The parties agree that this Agreement shall be binding on, and inure to the benefit of, Executive’s
and the Company’s respective successors, heirs and/or assigns.
12.
Entire Agreement; Counterparts. This Agreement constitutes the entire agreement between Executive and the Company on the
subject matter herein and supersedes and cancels any prior written and oral agreements between Executive and the Company regarding
such subject matter, except the surviving provisions of the Employment Agreement. No amendment of this Agreement or waiver of
any of its provisions shall be effective unless agreed to in writing by Executive and the Company. This Agreement may be executed
in two or more counterparts, which when taken together, shall constitute an original agreement. Executed originals transmitted
by electronically as PDF files (or their equivalent) shall have the same force and effect as a signed original. Unless otherwise
defined herein, capitalized terms have the meaning set forth in the Employment Agreement.
13.
Acknowledgments: Without detracting in any respect from any other provision of this Agreement, Executive acknowledges and
agrees that:
|
(a) | this
Agreement constitutes a knowing and voluntary waiver of all rights or claims Executive
has or may have against Releasees as set forth herein, including any claims under the
Age Discrimination in Employment Act; and Executive has no physical or mental impairment
of any kind that has interfered with Executive’s ability to read and understand
the meaning of this Agreement or its terms, and that Executive is not acting under the
influence of any medication or mind-altering chemical of any type in entering into this
Agreement; |
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(b) | by
entering into this Agreement, Executive does not waive rights or claims that may arise
after the date of Executive’s execution of this Agreement, including without limitation
any rights or claims that Executive may have to secure enforcement of the terms and conditions
of this Agreement; |
|
(c) | the
consideration provided to Executive under this Agreement is in addition to anything of
value to which Executive is already entitled; |
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(d) | Executive
is advised to consult with an attorney regarding this Agreement; and |
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| |
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(e) | Executive
was informed that Executive had at least twenty-one (21) days in which to review and
consider this Agreement, and to consult with an attorney regarding the terms and effect
of this Agreement. |
14.
Right to Revoke. Executive may revoke this Agreement within seven (7) days from the date Executive signs this Agreement,
in which case this Agreement shall be null and void and of no force or effect on either the Company or Executive. Any revocation
must be in writing and received by the undersigned by 5:00 p.m. on or before the seventh day after this Agreement is executed
by Executive. For purposes of this Agreement, the “Release Effective Date” shall be the eighth (8th)
day following the Termination Date, so long as the Executive has not revoked this Agreement in a timely manner prior to such date.
[Signature
Page Follows]
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Sincerely, |
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Barfresh
Food Group Inc. |
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By: |
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Name:
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Title: |
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EXECUTIVE
EXPRESSLY ACKNOWLEDGES, REPRESENTS, AND WARRANTS THAT EXECUTIVE HAS READ THIS AGREEMENT CAREFULLY; THAT EXECUTIVE FULLY UNDERSTANDS
THE TERMS, CONDITIONS, AND SIGNIFICANCE OF THIS AGREEMENT; THAT THE COMPANY HAS ADVISED EXECUTIVE TO CONSULT WITH AN ATTORNEY
CONCERNING THIS AGREEMENT; THAT EXECUTIVE UNDERSTANDS THAT THIS AGREEMENT HAS BINDING LEGAL EFFECT; AND THAT EXECUTIVE HAS EXECUTED
THIS AGREEMENT FREELY, KNOWINGLY AND VOLUNTARILY.
PLEASE
READ CAREFULLY. THIS AGREEMENT HAS IMPORTANT LEGAL CONSEQUENCES.
|
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Riccardo Delle Coste |
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Date: |
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EMPLOYMENT
AGREEMENT
This
Amended and Restated Employment Agreement (“Agreement”) is made as of July 6, 2015, by and between Smoothie Inc.,
a Colorado corporation (the “Company”) and Joe Cugine, an individual (the “Executive”). This Agreement
amends, restates and supersedes in its entirety that certain Employment Agreement entered into by and between the parties dated
April 27, 2015 to correct certain clerical errors.
RECITALS
WHEREAS,
Company desires to employ Executive on the terms set forth in this Agreement;
WHEREAS,
Executive desires to be employed by the Company on the terms set forth in this Agreement;
WHEREAS,
the Company is the wholly owned operating subsidiary of Barfresh Food Group, Inc., a Delaware corporation (“BRFH”);
WHEREAS,
Executive and the Company are parties to that certain Stock Award Agreement dated April 16, 2015 (“Stock Award
Agreement”) pursuant to which Executive was the recipient of an award of 1,000,000 shares of common stock of BRFH (“BRFH
Shares”)
NOW,
THEREFORE, for good and valuable consideration of the mutual benefits and obligations set forth in this agreement,
the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
1.
TERM OF EMPLOYMENT/AT-WILL EMPLOYMENT. Executive’s employment under this Agreement shall commence on April 27, 2015
(the “Effective Date”) and continue until terminated as provided hereunder (the “Term”). Executive and
the Company agree that Executives employment with the Company constitutes at-will employment.
2.
NATURE OF DUTIES. During the Term, Executive shall serve as the President of the Company. As such, Executive shall
devote his full business time and effort to the performance of his duties for the Company, which he shall perform faithfully and
to the best of his ability. Executive shall have all of the customary powers and duties associated with his position. Executive
shall be subject to the Company’s policies, procedures and approval practices, as generally in effect from time to time
for all employees of the Company. Executive will report directly to the Company’s Chief Executive Officer. Notwithstanding
the foregoing, nothing contained herein shall preclude the Executive from: (a) serving on the boards of directors of other companies
or organizations with the approval of the Company (not to be unreasonably withheld) or serving on the boards of directors of not-for-profit
companies or organizations without the approval of the Company; (b) investing in and managing passive investments; or (c) pursuing
his personal, financial and legal affairs provided that such activity does not interfere with the performance of the Executive’s
obligations under this Agreement.
3.
COMPENSATION AND RELATED MATTERS.
(a)
Base Salary. During the Term, Executive shall receive an annual base salary (“Base Salary”) at the rate of
$300,000, subject to a 5% annual increase. The term “Base Salary” as used in this Agreement shall mean, at any point
in time, Executive’s annual base salary at such time. The Base Salary shall be payable in substantially equal semi-monthly
installments and shall in no way limit or reduce the obligations of the Company hereunder.
(b)
Performance Bonuses. In addition to the Base Salary, Executive shall receive annual performance bonuses (collectively,
the “Performance Bonuses”) as follows:
(i)
a bonus equal to 50% of Executive’s Base Salary for that calendar year, based on targets determined by the board of directors
of the Company after consultation with Executive, which amount will be paid no later than March 15 of the following year; and
(ii)
a bonus equal to 25% of Executive’s Base Salary for that calendar year, based on targets determined by the board of directors
of the Company after consultation with Executive, which amount will be paid in three (3) equal annual installments, with the first
installment due no later than March 15 of the following year and subsequent payments no later than March 31 of the following applicable
year.
(c)
Incentive Compensation. In addition to Base Salary and Performance Bonuses, Executive is eligible to receive incentive
compensation in accordance with the 2015 Equity Incentive Plan (“Plan”) of the Company’s parent company, Barfresh
Food Group, Inc., a Delaware corporation (“BRFH”) and subject to the approval of the board of directors of each of
the Company and BRFH and applicable securities laws, as set forth below:
(i)
Stock Option Grant. Executive shall receive options (“BRFH Options”) to purchase 500,000 shares of common stock
of BRFH (“BRFH Shares”) at an exercise price of $0.50 per share, subject to applicable securities laws and vesting
as follows: 50% of the Stock Option Grant shall vest on the second anniversary of the Effective Date and the remainder shall vest
on the third anniversary of the Effective Date. BRFH Options shall have a term of 8 years from the date of grant.
(ii)
Performance Options. In addition to the BRFH Option, Executive shall receive additional “Performance Options”
to purchase BRFH Shares on an annual basis, as follows:
| (1) | an
option to purchase 250,000 BRFH Shares at an exercise price equal to the closing bid
price on the date of the grant, which will vest in equal increments on each of the first,
second and third anniversaries of the date of grant; and |
| (2) | an
option to purchase up to 250,000 additional BRFH Shares (based on targets determined
by the board of directors of the Company after consultation with Executive) at an exercise
price equal to the closing bid price on the date of the grant, with performance targets
established within 90 days of the date of grant to allow incremental vesting on each
of the first, second and third anniversaries of the date of grant. |
Performance
Options shall have a term of 8 years from the date of grant.
Notwithstanding
anything contained herein to the contrary, all BRFH Shares, BRFH Options and Performance Options shall vest immediately upon a
Change of Control of BRFH as defined in the Plan, except that for purposes of this Agreement, a Change of Control shall be defined
by replacing the term “Company” in each place in which it occurs in Sections 3(e)(i) and (ii) of the Plan with the
phrase “Company or Smoothie, Inc.” or the resignation or termination of Riccardo Delle Coste as the Chief Executive
Officer and Chairman of the Board of Directors of BRFH. For clarity and notwithstanding anything else provided in this Agreement,
vesting of BRFH Shares, BRFH Options and Performance Options that have been granted shall not accelerate other than upon a Change
of Control or “Discharge Other Than for Cause”, subject to Section 4(c) below.
(a)
Expenses. Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him during
the Term (in accordance with the policies and procedures then in effect and established by the Company for its senior executive
officers) in performing services hereunder, provided that Executive properly accounts therefore in accordance with Company policy.
(b)
Other Benefits. Executive shall be entitled to participate in or receive benefits generally made available to the employees
of the Company (401(k), etc.) or as explicitly provided hereunder. Any other benefits must be agreed to in writing by the Chief
Executive Officer of BRFH.
(c)
Vacations. Commencing 90 days after the Effective Date, Executive shall be entitled to 15 days paid vacation in each calendar
year, pro-rated for any partial year. Executive may only accrue up to 15 days of paid vacation at any time.
4.
TERMINATION.
(a)
Discharge for Cause. The Company may terminate Executive’s employment at any time if it believes in good faith that
it has Cause to terminate his employment. As used herein, “Cause” means (i) Executive’s conviction in any court
of competent jurisdiction of an act of fraud or dishonesty, the purpose or effect of which materially and adversely affects the
Group, (ii) Executive’s failure or refusal to attempt in good faith to perform his job duties under this Agreement or to
follow the reasonable directions of the Board (other than by reason of physical or mental illness, injury, or condition); provided
however, in each instance Executive must be provided notice from the Board of his failure to do so and an opportunity to cure
such breach within 10 business days or such longer time as prescribed in the written notice or reasonably required to cure any
such breach, and/or (iii) Executive becoming barred or prohibited by any governmental or regulatory agency from holding his position
with the Company or fulfilling his duties hereunder or subjecting the Company to “bad actor disqualification” under
Rule 506(d) of the Securities Act of 1933. Upon Executive’s discharge for Cause, the Company shall pay to Executive any
unpaid accrued Base Salary, Performance Bonuses, expense reimbursements and vacation days, and all of Executive’s BRFH Options
and Performance Options shall terminate; provided however, in exchange for execution of a release by Executive, Executive shall
have a period of 90 days from the date of termination to exercise any vested BRFH Options and Performance Options.
(b)
Termination for Disability. Except as prohibited by applicable law and, if required by applicable law, subject to the Company
providing Executive with reasonable accommodations, the Company may terminate Executive’s employment on account of Disability.
“Disability” means a physical or mental illness, injury, or condition that prevents Executive from performing substantially
all of his duties under this Agreement for at least 30 consecutive calendar days or for at least 45 calendar days, whether or
not consecutive, in any 365 calendar day period. If Company terminates Executive due to a Disability, Company shall pay Executive
any unpaid accrued Base Salary, Performance Bonuses, expense reimbursements and vacation days; provided however, in exchange for
Executive’s execution of a release in accordance with Section 4(h), Executive’s Base Salary shall be continued for
3 months after the date of termination and all of Executive’s vested BRFH Options and vested Performance Options shall be
exercisable for a period of 90 days from the date of termination.
(c)
Discharge Other Than for Cause. The Company may terminate Executive’s employment at any time for any reason, and
without advance notice. If the Company discharges Executive other than for Cause, the Company shall pay to Executive any accrued
unpaid Base Salary Performance Bonuses, expense reimbursements and vacation days, and Executive’s BRFH Options and Performance
Options shall terminate; provided however, in exchange for Executive’s execution of a release in accordance with Section
4(h), Executive shall be entitled to the following special benefits: (A) continuation of executive’s Base Salary for a period
of 12 months after termination; (B) all of Executive’s outstanding BRFH Options shall immediately vest and become exercisable
for a period of 90 days from the date of termination; (C) all of Executive’s outstanding Performance Options shall immediately
vest and become exercisable and Executive shall have a period of 90 days from the date of termination to exercise any of his Performance
Options, pursuant to the terms of the Plan; and (D) all of the BRFH Shares shall vest and be issued to Executive.
(d)
Resignation Other Than for Good Reason. Executive promises not to resign his employment unless he has Good Reason to do
so, and, in any event, not without giving the Company at least 60 days’ advance written notice. If Executive resigns “other
than for Good Reason”, the Company may accept his resignation effective on the date set forth in his notice. Upon Executive’s
resignation other than for Good Reason, the Company shall pay Executive any accrued unpaid Base Salary, Performance Bonuses, expense
reimbursements and vacation days and Executive’s BRFH Options and Performance Options shall terminate; provided however,
in exchange for 60 days’ advance written notice of Executive’s resignation and Executive’s execution of a release
in accordance with Section 4(h), Executive shall be entitled to the following special benefits: Executive shall have a period
of 90 days from the date of termination to exercise any vested BRFH Options and vested Performance Options.
(e)
Resignation for Good Reason. If Executive resigns for Good Reason, his employment will end on his last date of work, the
Company shall pay to Executive any accrued unpaid Base Salary, Performance Bonuses, expense reimbursements and vacation days and
Executive’s vested and unvested BRFH Options and Performance Options shall terminate; provided however, in exchange for
Executive’s execution of a release in accordance with Section 4(h), Executive shall be entitled to the following special
benefits: (A) all of Executive’s outstanding BRFH Options shall immediately vest and become exercisable for a period of
90 days, (B) Executive shall have a period of 90 days from the date of termination to exercise any vested Performance Options
and (C) all of the BRFH Shares shall vest and be issued to Executive. “Good Reason” means the resignation or termination
of Riccardo Delle Coste as the Chief Executive Officer and Chairman of the Board of Directors of BRFH.
(f)
Death. If Executive dies, the Company shall pay to Executive any accrued unpaid Base Salary, Performance Bonuses, expense
reimbursements and vacation days accrued prior to termination of employment, and, in exchange for execution of a release by Executive’s
estate in accordance with Section 4(h), Executive’s vested BRFH Options and vested Performance Options shall be exercisable
for a period of 90 days from the date of termination by Executive’s estate.
(g)
Disputes Under This Section. All disputes relating to this Agreement, including disputes relating to this Section 4, shall
be resolved by final and binding arbitration under Section 7.
(h)
Execution of Release. Executive will only receive special benefits set forth in this Section 4 that are conditioned upon
his execution of a general release if Executive signs the form submitted by the Company (substantially in the Form attached hereto
as Annex A) within 21 days after his employment ends (or such other time frame set forth in the release) and he does not subsequently
properly revoke the release.
(i)
Termination of Options. Notwithstanding anything contained herein to the contrary, no BRFH Option or Performance Option
is exercisable after expiration of its 8-year term.
5.
CONFIDENTIALITY. During the term of Executive’s employment, in exchange for his promises to use such information solely
for the Company’s benefit, the Company will provide Executive with Confidential Information concerning, among other things,
its business, operations, customers, vendors, owners, investors, and business partners. “Confidential Information”
refers to information not generally known by others in the form in which it is used by the Company, and which gives the Company
a competitive advantage over other companies which do not have access to this information, including secret, confidential, or
proprietary information or trade secrets of the Company and its subsidiaries and affiliates, conveyed orally or reduced to a tangible
form in any medium, including information concerning the operations, future plans, customers, business models, strategies, and
business methods of the Company and its subsidiaries and affiliates, as well as information about the Company’s customers,
clients and business partners and their respective operations and confidential information. “Confidential Information”
does not include: (a) information that: (i) Executive knew prior to his employment with the Company or any predecessor company;
(ii) subsequently came into Executive’s possession other than through his work for the Company or any predecessor company
and not as a result of a breach of any duty owed to the Company; or (iii) is generally known within the relevant industry; or
(b) any prior knowledge, information or know-how which Executive legally obtained from a source other than the Company.
(a)
Promise Not to Disclose. Executive promises never to use or disclose any Confidential Information before it has become
generally known within the relevant industry through no fault of Executive. Notwithstanding this paragraph, Executive may disclose
Confidential Information: (i) during his employment for the benefit of the Company; (ii) as required to do so by court order,
subpoena, or otherwise as required by law, provided that upon receiving such order, subpoena, or request and prior to disclosure,
to the extent permitted by law Executive shall provide written notice to the Company of such order, subpoena, or request and of
the content of any testimony or information to be disclosed and shall cooperate fully with the Company to lawfully resist disclosure
of the information; and (iii) to an attorney for the purpose of securing professional advice.
(b)
Promise Not to Solicit. Executive agrees that, during his employment with the Company and for 12 months after his termination
for any reason (together, the “Restricted Period”): (1) as to any client or business partner of the Company with whom
Executive had dealings or about whom Executive acquired confidential information during his employment, Executive will not solicit,
attempt to solicit, assist others to solicit, or accept any unsolicited request from the client or business partner to do business
with any person or entity other than the Company or its affiliates; and (2) Executive will not solicit, attempt to solicit, assist
others to solicit, hire, or assist others to hire for employment any person who is, or within the preceding 12 months was, an
officer, manager, employee, or consultant of the Company. Executive agrees that the restrictions set forth in this paragraph do
not and will not prohibit him from engaging in his livelihood and do not foreclose him working with clients or business partners
not identified in this paragraph.
(c)
Promise Not to Engage in Certain Employment. Executive agrees that, during the Restricted Period, he will not, without
the prior written consent of the Company, accept any employment; provide any services, advice or information; or assist or engage
in any activity (whether as an employee, consultant, or in any other capacity, whether paid or unpaid) with any business or other
entity in the business, directly or indirectly, for profit or not, of developing, with a majority of its revenue derived from
distributing or marketing compounds or technologies for the manufacture and distribution of smoothies, or smoothie-like beverages
in the United States or elsewhere.
(d)
Return of Information. When Executive’s employment with the Company ends, he will promptly deliver to the Company,
or, at its written instruction, destroy, all documents, data, drawings, manuals, letters, notes, reports, electronic mail, recordings,
and copies of the same, of or pertaining to it or any other Group member in his possession or control. Notwithstanding the foregoing,
Executive may retain his personal effects, files, benefit information, or other property to the extent such materials do not contain
any of the Company’s Confidential Information. In addition, during his employment with the Company or the Group and subsequently,
Executive agrees to meet with Company personnel and, based on knowledge or insights he gained during his employment with the Company
and the Group, answer any question they may have related to the Company or the Group as reasonably requested.
(e)
Intellectual Property. Intellectual property (including such things as all ideas, concepts, inventions, plans, developments,
software, data, configurations, materials (whether written or machine-readable), designs, drawings, illustrations, and photographs,
that may be protectable, in whole or in part, under any patent, copyright, trademark, trade secret, or other intellectual property
law), developed, created, conceived, made, or reduced to practice during Executive’s employment with the Company (except
intellectual property that has no relation to the Group or any Group customer that Executive developed, etc., purely on his own
time and at his own expense), shall be the sole and exclusive property of the Company, and Executive does now assign all rights,
title, and interest in any such intellectual property to the Company.
(f)
Enforcement of This Section. This Section 5 shall survive the termination of this Agreement or Executive’s employment
for any reason. Executive acknowledges that: (a) this section’s terms are reasonable and necessary to protect the Company’s
legitimate interests; (b) this section’s restrictions will not prevent him from earning or seeking a livelihood; (c) this
section’s restrictions shall apply wherever permitted by law; and (d) the violation of any of this section’s terms
would irreparably harm the Company. Accordingly, Executive agrees that, if he violates any of the provisions of this section,
the Company or any Group member shall be entitled to, in addition to other remedies available to it, an injunction to be issued
by any court of competent jurisdiction restraining Executive from committing or continuing any such violation, without the need
to prove the inadequacy of money damages or post any bond or for any other undertaking.
6.
CONFLICT OF INTEREST. In keeping with Executive’s fiduciary duties to the Company, Executive agrees that while employed
by the Company he shall not, acting alone or in conjunction with others, directly or indirectly, become involved in a conflict
of interest or, upon discovery thereof, allow such a conflict to continue. Moreover, Executive agrees that he shall immediately
disclose to the Company any facts that might involve any reasonable possibility of a conflict of interest. It is agreed that any
direct or indirect interest, connection with or benefit from any outside activities, where such interest might in any way adversely
affect the Company, involves a possible conflict of interest. Circumstances in which a conflict of interest on the part of Executive
might arise, and which must be reported immediately by Executive to the Company, include, but are not limited to, the following:
(a)
ownership of a material interest in any supplier, contractor, subcontractor, customer, or other entity with which the Company
does business;
(b)
acting in any capacity, including director, officer, partner, consultant, employee, distributor, agent, or the like for a supplier,
contractor, subcontractor, customer, or other entity with which the Company does business;
(c)
accepting, directly or indirectly, payment, service, or loans from a supplier, contractor, subcontractor, customer, or other entity
with which the Company does business, including, but not limited to, gifts, trips, entertainment, or other favors of more than
a nominal value;
(d)
misuse of the Company’s information or facilities to which Executive has access in a manner which will be detrimental to
the Company’s interest, such as utilization for Executive’s own benefit of know-how, inventions, or information developed
through the Company’s business activities;
(e)
disclosure or other misuse of Confidential Information of any kind obtained through Executive’s connection with the Company;
(f)
appropriation by Executive or the diversion to others, directly or indirectly, of any business opportunity in which it is known
or could reasonably be anticipated that the Company would be interested; and
(g)
ownership, directly or indirectly, of a material interest in an enterprise in competition with the Company, or acting as an owner,
director, principal, officer, partner, consultant, employee, agent, servant, or otherwise of any enterprise which is in competition
with the Company.
7.
ARBITRATION OF DISPUTES. Except as expressly prohibited by law and except for the Company’s right to seek injunctive
relief as set forth in Section 5(f), all disputes between the Company and Executive (“Arbitratable Disputes”), including
disputes under Section 3 and Section 4, are to be resolved by final and binding arbitration in accordance with this Section 7.
This section shall remain in effect after the termination of this Agreement or Executive’s employment.
(a)
Scope of Agreement. This arbitration agreement applies to, among other things, disputes concerning Executive’s employment
with or termination from the Company; the validity, interpretation, enforceability or effect of this Agreement or alleged violations
of it; claims of discrimination under federal or state law; or other statutory or common law claims.
(b)
The Arbitration. The arbitration shall take place under the auspices of the American Arbitration Association (“AAA”)
in its office nearest to the location where Executive last worked for the Company and conducted in accordance with the AAA’s
National Rules for the Resolution of Employment Disputes then in effect before an experienced employment law arbitrator licensed
to practice law in that jurisdiction who has been selected in accordance with such rules. The arbitrator may not modify or change
this Agreement in any way except as expressly set forth herein. The arbitration shall be governed by the substantive law of Colorado
(excluding where it mandates the use of another jurisdiction’s laws).
(c)
Fees and Expenses. Regardless of which party initiates the arbitration, the Company shall pay that portion of the initial
filing fee that exceeds the filing fee for commencing an action in a state or federal court in Colorado, after which each party
shall pay the fees of their attorneys, the expenses of its witnesses, and any other costs and expenses that the party incurs in
connection with the arbitration. All other costs of the arbitration, including the fees of the arbitrator, the cost of any record
or transcript of the arbitration, administrative fees and other fees and costs shall be paid one-half by the Company and one-half
by the Executive. Notwithstanding the foregoing, the arbitrator may, in his or her discretion, award reasonable attorney’s
fees (in addition to any other damages, expenses or relief awarded) to the prevailing party.
(d)
Exclusive Remedy. The arbitration in this manner shall be the exclusive remedy for any Arbitratable Dispute.
(e)
Judicial Enforcement. Nothing in this Section 7 shall preclude any party to this agreement from seeking judicial enforcement
of an arbitrator’s award. Judgment may be entered on the arbitrator’s award in any court having jurisdiction.
8.
CODE SECTION 280G.
(a)
Notwithstanding any other provision of this Agreement or any other plan, arrangement or agreement to the contrary, if any of the
payments or benefits provided or to be provided by the Company or its affiliates to Executive or for Executive’s benefit
pursuant to the terms of this Agreement or otherwise (“Covered Payments”)
constitute parachute payments (“Parachute Payments”) within the meaning of
Code Section 280G and would, but for this Section 8 be subject to the excise tax imposed under Code Section 4999 (or any successor
provision thereto) or any similar tax imposed by state or local law or any interest or penalties with respect to such taxes (collectively,
the “Excise Tax”), then prior to making the Covered Payments, a calculation
shall be made comparing (i) the Net Benefit (as defined below) to Executive of the Covered Payments after payment of the Excise
Tax to (ii) the Net Benefit to Executive if the Covered Payments are limited to the extent necessary to avoid being subject to
the Excise Tax. Only if the amount calculated under (i) above is less than the amount under (ii) above will the Covered Payments
be reduced to the minimum extent necessary to ensure that no portion of the Covered Payments is subject to the Excise Tax (that
amount, the “Reduced Amount”). “Net Benefit” shall mean
the present value of the Covered Payments net of all federal, state, local, foreign income, employment and excise taxes.
(b)
To the extent the Covered Payments must be reduced pursuant to Section 8(a) above, the Covered Payments shall be reduced in a
manner that maximizes Executive’s economic position. In applying this principle, the reduction shall be made in a manner
consistent with the requirements of Section 409A, and where two economically equivalent amounts are subject to reduction but payable
at different times, such amounts shall be reduced on a pro rata basis but not below zero.
(c)
Any determination required under this Section 8 shall be made in writing in good faith by an independent accounting firm selected
by the Company that is reasonably acceptable to Executive (the “Accountants”),
which shall provide detailed supporting calculations to the Company and Executive as requested by the Company or Executive. The
Company and Executive shall provide the Accountants with such information and documents as the Accountants may reasonably request
in order to make a determination under this Section 8. For purposes of making the calculations and determinations required by
this Section 8, the Accountants may rely on reasonable, good faith assumptions and approximations concerning the application of
Code Sections 280G and 4999. The Accountants’ determinations shall be final and binding on the Company and Executive. The
Company shall be responsible for all fees and expenses incurred by the Accountants in connection with the calculations required
by this Section 8.
(d)
Notwithstanding the provisions of the Plan, equity awards under Section 3(c) and any other payments payable to Executive under
this or any other Agreement upon or related to a Change of Control (as defined in the Plan, and as modified herein) that are considered
to be “excess parachute payments” under Section 280G of the United States Internal Revenue Code of 1986 (the “Code”)
will not be subject to the 280G “cut-back” provisions set forth in Section 14(d) of the Plan shall not apply to Executive.
9.
AMENDMENT. No provisions of this Agreement may be modified, waived or discharged except by a written document signed by a
duly authorized Company officer and Executive. A waiver of any conditions or provisions of this Agreement in a given instance
shall not be deemed a waiver of such conditions or provisions at any other time in the future.
10.
NOTICES. For all purposes of this Agreement, all communications, including but not limited to notices, consents, request or
approvals, required, permitted, or which may be given hereunder shall be in writing and either delivered personally to an officer
of the addressee or mailed to those addresses provided on the signature page below, by certified or registered mail, postage prepaid,
by facsimile transmission or electronic mail (with receipt confirmed) and shall be deemed given (i) when so delivered personally;
(ii) if mailed, five (5) days after the time of mailing; or (iii) if faxed or sent by electronic mail, twenty four (24) hours
after the confirmed transmission of the fax or electronic mail.
11.
CHOICE OF LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws
of Colorado (excluding any that mandate the use of another jurisdiction’s laws).
12.
SUCCESSORS. This Agreement shall be binding upon, and shall inure to the benefit of, Executive and his estate, but Executive
may not assign or pledge this Agreement or any rights arising under it, except to the extent permitted under the terms of the
benefit plans in which he participates. Without Executive’s consent, the Company may assign this Agreement to any affiliate
or to a successor to substantially all the business and assets of the Company.
13.
TAXES. The Company shall withhold taxes from payments it makes pursuant to this Agreement as it reasonably determines to be
required by applicable law.
14.
VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and effect.
15.
COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original
but all of which together shall constitute the same instrument.
16.
HEADINGS. The Section headings have been inserted for purposes of convenience and shall not be used for interpretive purposes.
17.
GENDER AND PLURALS. Wherever the context so requires, the masculine gender includes the feminine or neuter, and the singular
number includes the plural and conversely.
18.
ENTIRE AGREEMENT. All oral or written agreements or representations, express or implied, with respect to the subject matter
of this Agreement are set forth in this Agreement and the Stock Award Agreement. All other prior written or oral employment or
equity award agreements between Executive and the Company are declared null and void, and have no further effect.
(Signatures
on following page)
IN
WITNESS WHEREOF, the parties have executed this Agreement through their duly authorized representatives as of the Effective
Date set forth above.
“COMPANY” |
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SMOOTHIE
INC., |
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“EXECUTIVE”
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a
Colorado corporation |
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By: |
/s/
Riccardo Delle Coste |
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/s/
Joe Cugine |
Name: |
Riccardo Delle
Coste |
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JOE CUGINE |
Title: |
Chief Executive
Officer |
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ANNEX
A – General Release of Claims
GENERAL
RELEASE AGREEMENT
This
General Release Agreement (the “Agreement”) is entered into by and between Barfresh Food Group, Inc., a Delaware
corporation (the “Company”), and Joe Cugine (“Executive”).
WHEREAS,
the Company and Executive are parties to an Employment Agreement (“Employment Agreement”) entered into on April
__, 2015, whereby Executive is entitled to certain severance benefits from Company in exchange for executing this Agreement;
WHEREAS,
Executive’s employment with Company [will terminate][terminated] effective [DATE] (“Termination Date”),
pursuant to Section [INSERT SECTION] of the Employment Agreement;
WHEREAS,
the parties desire to settle all claims and issues arising out of or in any way related to the acts, transactions or occurrences
between Executive and the Company to date;
WHEREFORE,
in consideration of the promises and the mutual covenants set forth below, the parties agree as follows:
1.
Consideration. In consideration for executing this Agreement and in exchange for the promises, covenants, releases and
waivers herein, provided that Executive has not revoked the Agreement as set forth below, the Company will provide Executive with
the severance payments and/or benefits described in Section [INSERT SECTION] of the Employment Agreement. The severance payments
and/or benefits described in Section [INSERT SECTION] shall commence or be paid, as applicable, on the first payroll period following
the “Release Effective Date” (as defined below), and the first payment shall include all payments that would have
been made from the Termination Date. In addition, Executive shall be reimbursed for (i) any remaining charges for Company expenses
on Executive’s personal credit cards incurred prior to the Termination Date and (ii) any outstanding and unpaid business
expenses incurred by the Executive through the Termination Date, in each case in accordance with Company policy. Executive understands
and agrees that the severance payments and/or benefits are in addition to anything of value to which Executive is otherwise entitled
from the Company if she does not execute this Agreement.
2.
Tax Treatment. All payments and benefits provided to Executive pursuant to Paragraph 1 of this Agreement are subject to
any applicable employment or tax withholdings or deductions. In addition, the parties hereby agree that it is their intention
that all payments or benefits provided under this Agreement comply with Section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”), and this Agreement shall be interpreted accordingly. In no event shall the timing of
the Executive’s execution of this Agreement, directly or indirectly, result in the Executive designating the calendar year
of payment, and if a payment that is subject to execution of the Agreement could be made in more than one taxable year, payment
shall be made in the later taxable year. Notwithstanding the foregoing, the Company does not guarantee the tax treatment of any
payments or benefits under this Agreement, including, without limitation, under the Code, federal, state or local laws.
3.
Releases.
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(a) |
In
consideration for the consideration described above, to which Executive is not otherwise entitled, as a full and final settlement,
Executive, for Executive and Executive’s heirs, executors, administrators, successors and assigns, hereby releases and
forever discharges the Company, its current and former parents, direct or indirect equity holders, subsidiaries, affiliated
or related entities and their respective officers and directors (hereinafter collectively referred to as “Releasees”)
from all causes of action, claims, charges, complaints, liabilities, obligations, promises, covenants, agreements, contracts,
suits, judgments, damages, or demands, in law or in equity of any nature whatsoever, known or unknown, suspected or unsuspected,
which Executive ever had or now has regarding any matter arising on or before the date of Executive’s execution of this
Agreement including those arising directly or indirectly out of or in any way connected with Executive’s employment
with the Company, including, but not limited to, claims relating to Executive’s employment, or termination thereof,
discrimination based upon race, color, age, sex, sexual orientation, age, marital status, religion, national origin, handicap,
disability, or any other protected category, or retaliation, any contracts (express or implied), any claim for or involving
equitable relief or recovery of punitive, compensatory, or other damages or monies, wages, vacation pay, employee fringe benefits,
attorneys’ fees, libel, slander, and any other tort. Executive understands and agrees that this Release includes any
claim that could arise under Title VII of the Civil Rights Act of 1964; the Age Discrimination in Employment Act of 1967;
the Older Workers Benefit Act; the Civil Rights Act of 1866; the Equal Pay Act; the Pregnancy Discrimination Act; the Americans
With Disabilities Act of 1990; 42 U.S.C. § 1981; the Employee Retirement Income Security Act of 1974; the Family and
Medical Leave Act of 1993; the Civil Rights Act of 1991; the Worker Adjustment and Retraining Notification Act of 1988; the
Genetic Information Nondiscrimination Act, the Employee Retirement Income Security Act, the False Claims Act; the Corporate
and Criminal Fraud Accountability Act of 2002, 18 U.S.C. § 1514A, also known as the Sarbanes Oxley Act; any claim under
the Colorado Anti-Discrimination Act; the California Labor Code (including the California Private Attorney General Act), California
Business & Professions Code, California Wage Orders, City of Los Angeles Living Wage Ordinance; and any other federal,
state or local laws, rules or regulations, whether equal employment opportunity laws, rules or regulations or otherwise, or
any right under any pension, welfare, or equity plans. |
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(b) |
Executive
acknowledges reading and understanding the meaning and effect of section 1542 of the California Civil Code which in its entirety
states: |
A
general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time
of executing the release, which if known by him or her must have materially affected his or her settlement with the creditor.
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Executive
waives and relinquishes any right or benefit that Executive may have under section 1542 of the California Civil Code and understands
that by signing this Release, Executive is giving up claims that Executive may not presently know or suspect to exist. |
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(c) |
Notwithstanding
the broad scope of this release, this release is not intended to bar (i) any claims that, as a matter of law, whether by statute
or otherwise, may not be waived, such as claims for workers’ compensation benefits or unemployment insurance benefits,
(ii) any claims with respect to indemnification under the Company’s by-laws, charter or any other operative agreements
or with respect to coverage arising under any D&O policy in effect, (iii) any claims by the Executive for any matter arising
under this Agreement or (iv) any claims by the Executive in his capacity as a shareholder of the Company or with respect to
any equity interest he may own or control in the Company. Nothing in this Agreement is intended to interfere with Executive’s
right to file a charge or participate in an administrative investigation or proceeding; provided, however, that Executive
expressly releases and waives her right to recovery of any type in any administrative or court action, whether local, state
or federal, and whether brought by her or on her behalf, related in any way to the matters released herein. |
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(d) |
By
signing this Agreement and accepting the consideration described in Paragraph 1, Executive understands and acknowledges that
Executive is waiving any right to sue the Releasees for any claims released by this Agreement. |
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(e) |
The
Company for itself and its current and former parents, direct or indirect equity holders, members, subsidiaries, affiliated
or related entities and their respective members, shareholders, officers, directors, successors and assigns (collectively,
the “Company Releasors”) hereby release and forever discharge the Executive from all causes of action,
claims, charges, complaints, liabilities, obligations, promises, covenants, agreements, contracts, suits, judgments, damages,
or demands, in law or in equity of any nature whatsoever, known or unknown, suspected or unsuspected, which the Company Releasors
ever had or now have regarding any matter relating to Executive’s employment with or equity interest in the Company
arising on or before the date of Executive’s execution of this Agreement including, but not limited to, any claim for
or involving equitable relief or recovery of punitive, compensatory, or other damages or monies, attorneys’ fees, libel,
slander, and any other tort; provided, that, the foregoing release by the Company Releasors is not intended
to and does not bar any claims by the Company Releasors for any matters arising (i) under this Agreement or the Termination
Agreement, (ii) from events, acts or omissions occurring after the parties’ execution of this Agreement; or (iii) from
any acts of Executive involving criminal activity or fraud. |
4.
Non-Admission Clause. This Agreement does not constitute an admission by the Company or Executive (or any Releasee or Company
Releasor) of a violation of any federal, state, or local law, statute, rule or regulation or any common law right.
5.
Representations. By Executive’s signature below, Executive represents that: (i) Executive is not aware of any unpaid
wages, vacation, bonuses, expense reimbursements or other amounts owed to Executive by the Company, other than that specifically
provided for in this Agreement; and (ii) Executive has not filed any charge or claim or initiated any proceedings against any
of the Releasees in any forum or with any municipal, state or federal agency charged with the enforcement of any law.
6.
Confidentiality of this Agreement. Except as provided by law, Executive and the Company shall keep the existence and terms
of this Agreement confidential and shall not disclose to any third party, except in the case of the Executive, to the Executive’s
immediate family, tax and legal advisors and as required by law, and except in the case of the Company, in connection with the
Company’s disclosure obligations to its tax, accounting and legal advisors, to any officer, director, manager or employee
with a business need to know, and as required by law.
7.
Non-Disparagement/Statements. Executive covenants and agrees that he will not make any disparaging or derogatory comments
about the business or reputation of the Releasees, except where the making of any truthful statements may be required by law or
is necessary to enforce his rights under this Agreement. The Company covenants and agrees that it shall not, and the management
employees of the Company shall be instructed not to, make any disparaging or derogatory comments concerning the Executive, except
where the making of any truthful statements may be required by law or necessary to enforce its rights under this Agreement.
8.
Governing Law. The construction, interpretation and performance of this Agreement shall be governed by the laws of the
State of Colorado, without regard to its conflicts of law provisions. Executive agrees to and hereby consents and waives any objection
to the exclusive jurisdiction of any and all state and federal courts located in the State of Colorado in connection with any
proceeding concerning this Agreement.
9.
Headings. The paragraph headings in this Agreement are for convenience of reference only and shall not be deemed to alter
or affect the meaning or interpretation of any provision hereof.
10.
Severability. If any provision or portion thereof contained in this Agreement is held to be invalid or unenforceable, the
remainder of this Agreement will be considered severable, shall not be affected and shall remain in full force and effect. Specifically,
the invalidity of any such provision shall have no effect upon, and shall not impair the enforceability of the release language
set forth in Paragraph 3.
11.
Binding on Successors. The parties agree that this Agreement shall be binding on, and inure to the benefit of, Executive’s
and the Company’s respective successors, heirs and/or assigns.
12.
Entire Agreement; Counterparts. This Agreement constitutes the entire agreement between Executive and the Company on the
subject matter herein and supersedes and cancels any prior written and oral agreements between Executive and the Company regarding
such subject matter, except the surviving provisions of the Employment Agreement. No amendment of this Agreement or waiver of
any of its provisions shall be effective unless agreed to in writing by Executive and the Company. This Agreement may be executed
in two or more counterparts, which when taken together, shall constitute an original agreement. Executed originals transmitted
by electronically as PDF files (or their equivalent) shall have the same force and effect as a signed original. Unless otherwise
defined herein, capitalized terms have the meaning set forth in the Employment Agreement.
13.
Acknowledgments: Without detracting in any respect from any other provision of this Agreement, Executive acknowledges and
agrees that:
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(a) |
this
Agreement constitutes a knowing and voluntary waiver of all rights or claims Executive has or may have against Releasees as
set forth herein, including any claims under the Age Discrimination in Employment Act; and Executive has no physical or mental
impairment of any kind that has interfered with Executive’s ability to read and understand the meaning of this Agreement
or its terms, and that Executive is not acting under the influence of any medication or mind-altering chemical of any type
in entering into this Agreement; |
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(b) |
by
entering into this Agreement, Executive does not waive rights or claims that may arise after the date of Executive’s
execution of this Agreement, including without limitation any rights or claims that Executive may have to secure enforcement
of the terms and conditions of this Agreement; |
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(c) |
the
consideration provided to Executive under this Agreement is in addition to anything of value to which Executive is already
entitled; |
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(d) |
Executive
is advised to consult with an attorney regarding this Agreement; and |
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(e) |
Executive
was informed that Executive had at least twenty-one (21) days in which to review and consider this Agreement, and to consult
with an attorney regarding the terms and effect of this Agreement. |
14.
Right to Revoke. Executive may revoke this Agreement within seven (7) days from the date Executive signs this Agreement,
in which case this Agreement shall be null and void and of no force or effect on either the Company or Executive. Any revocation
must be in writing and received by the undersigned by 5:00 p.m. on or before the seventh day after this Agreement is executed
by Executive. For purposes of this Agreement, the “Release Effective Date” shall be the eighth (8th)
day following the Termination Date, so long as the Executive has not revoked this Agreement in a timely manner prior to such date.
[Signature
Page Follows]
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Sincerely, |
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Barfresh
Food Group Inc. |
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By: |
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Name: |
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Title: |
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EXECUTIVE
EXPRESSLY ACKNOWLEDGES, REPRESENTS, AND WARRANTS THAT EXECUTIVE HAS READ THIS AGREEMENT CAREFULLY; THAT EXECUTIVE FULLY UNDERSTANDS
THE TERMS, CONDITIONS, AND SIGNIFICANCE OF THIS AGREEMENT; THAT THE COMPANY HAS ADVISED EXECUTIVE TO CONSULT WITH AN ATTORNEY
CONCERNING THIS AGREEMENT; THAT EXECUTIVE UNDERSTANDS THAT THIS AGREEMENT HAS BINDING LEGAL EFFECT; AND THAT EXECUTIVE HAS EXECUTED
THIS AGREEMENT FREELY, KNOWINGLY AND VOLUNTARILY.
PLEASE
READ CAREFULLY. THIS AGREEMENT HAS IMPORTANT LEGAL CONSEQUENCES.
EMPLOYMENT
AGREEMENT
This
Employment Agreement (“Agreement”) is made as of May 18, 2015, by and between Barfresh Food Group, Inc., a Delaware
corporation (the “Company”) and Joseph S. Tesoriero, an individual (the “Executive”).
RECITALS
WHEREAS,
Company desires to employ Executive on the terms set forth in this Agreement; and
WHEREAS,
Executive desires to be employed by the Company on the terms set forth in this Agreement.
NOW,
THEREFORE, for good and valuable consideration of the mutual benefits and obligations set forth in this agreement,
the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
1.
TERM OF EMPLOYMENT/AT-WILL EMPLOYMENT. Executive’s employment under this Agreement shall commence on May 18,
2015 (the “Effective Date”) and continue until terminated as provided hereunder (the “Term”). Executive
and the Company agree that Executives employment with the Company constitutes at-will employment.
2.
NATURE OF DUTIES. During the Term, Executive shall serve as the Chief Financial Officer of the Company. Executive’s
duties shall be performed at the Company’s headquarters located in Beverly Hills, California. As such, Executive shall devote
his full business time and effort to the performance of his duties for the Company, which he shall perform faithfully and to the
best of his ability. Executive shall have all of the customary powers and duties associated with his position. Executive shall
be subject to the Company’s policies, procedures and approval practices, as generally in effect from time to time for all
employees of the Company. Executive will report to the Company’s Chief Executive Officer.
3.
COMPENSATION AND RELATED MATTERS.
(a)
Base Salary. During the Term, Executive shall receive an annual base salary (“Base Salary”) at the rate
of $250,000, subject to a 5% annual increase. The term “Base Salary” as used in this Agreement shall mean, at any
point in time, Executive’s annual base salary at such time. The Base Salary shall be payable in substantially equal semi-monthly
installments and shall in no way limit or reduce the obligations of the Company hereunder.
(b)
Performance Bonuses. In addition to the Base Salary, Executive shall receive (i) a bonus equal to 50% of Executive’s
Base Salary for that calendar year, based on targets determined by the board of directors of the Company, which amount will be
paid no later than March 15 of the following year; and (ii) a bonus equal to 25% of Executive’s Base Salary for that calendar
year, based on targets determined by the board of directors of the Company, which amount will be paid in three (3) equal annual
installments commencing March 15 of the following year ((i) and (ii) collectively “Performance Bonuses”). Performance
targets for the 2015 calendar year shall be established within 90 days of the Effective Date; performance targets for subsequent
years shall be established by March 31, 2015 of each subsequent year.
(c)
Incentive Compensation. In addition to Base Salary and Performance Bonuses, Executive is eligible to receive incentive
compensation in accordance with the Company’s 2015 Equity Incentive Plan (“Plan”) and the following specific
awards shall be granted on the Effective Date:
(i)
Restricted Share Grant. On the Effective Date, the Company shall issue to Executive 350,000 shares of unregistered
common stock of the Company, which shall vest (become non-forfeitable) as to 50% of the award on the second anniversary of the
Effective Date, and as to the remaining 50% of the award on the third anniversary of the Effective Date (the “BRFH Shares”).
(ii)
Stock Option Grant. On the Effective Date, Executive shall receive an option to purchase 500,000 BRFH Shares at an
exercise price (“BRFH Options”) at an exercise price based on the closing price of the common stock on the Effective
Date, vesting as follows: 250,000 BRFH Options shall vest on each of the second and third anniversaries of the Effective Date
during Executive’s continued employment by the Company pursuant to this Agreement. BRFH Options shall have a term of 8 years
from the date of grant.
(iii)
Performance Options. In addition to the BRFH Shares and BRFH Options, Executive shall receive additional “Performance
Options” to purchase BRFH Shares on an annual basis on the anniversary of the Effective Date, as follows:
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(1) |
an
option to purchase 175,000 BRFH Shares at an exercise price equal to the closing bid price on the date of the grant, which
will vest in equal increments on each of the first, second and third anniversaries of the date of grant; and |
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(2) |
an
option to purchase up to 175,000 additional BRFH Shares at an exercise price equal to the closing bid price on the date of
the grant, the actual number of options available for exercise will be determined based on targets reasonably determined by
the board of directors of the Company (the “Board”), with performance targets established within 90 days of the
date of grant to allow incremental vesting on each of the first, second and third anniversaries of the date of grant. |
Performance
Options shall have a term of 8 years from the date of grant.
Notwithstanding
anything contained herein to the contrary, all BRFH Shares, BRFH Options and Performance Options that have been granted shall
vest immediately upon a Change of Control, as defined in the Plan. For clarity and notwithstanding anything else provided in this
Agreement, vesting of BRFH Shares, BRFH Options and Performance Options that have been granted shall not accelerate other than
upon a Change of Control, as defined in the Plan, and “Discharge Other Than for Cause” subject to Section 4(c) below.
(d)
Expenses. Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him during
the Term (in accordance with the policies and procedures then in effect and established by the Company for its senior executive
officers) in performing services hereunder, provided that Executive properly accounts therefore in accordance with Company policy.
(e)
Other Benefits. Executive shall be entitled to participate in or receive benefits generally made available to the employees
of the Company (401(k), etc.) or as explicitly provided hereunder. Any other benefits must be agreed to in writing by the Chief
Executive Officer of BRFH.
(f)
Vacations. Commencing 90 days after the Effective Date, Executive shall be entitled to 15 days paid vacation in each
calendar year, pro-rated for any partial year. Executive may only accrue up to 26 days of paid vacation at any time.
4.
TERMINATION.
(a)
Discharge for Cause. The Company may terminate Executive’s employment at any time if it believes in good faith
that it has Cause to terminate his employment. As used herein, “Cause” means (i) Executive’s conviction in any
court of competent jurisdiction of an act of fraud or dishonesty, the purpose or effect of which materially and adversely affects
the Group, (ii) Executive’s failure or refusal to attempt in good faith to perform his job duties under this Agreement or
to follow the reasonable directions of the Board (other than by reason of physical or mental illness, injury, or condition); provided
however, in each instance Executive must be provided notice from the Board of his failure to do so and an opportunity to cure
such breach within 10 business days or such longer time as prescribed in the written notice or reasonably required to cure any
such breach, and/or (iii) Executive becoming barred or prohibited by any governmental or regulatory agency from holding his position
with the Company or fulfilling his duties hereunder or subjecting the Company to “bad actor disqualification” under
Rule 506(d) of the Securities Act of 1933. Upon Executive’s discharge for Cause, the Company shall pay to Executive any
unpaid accrued Base Salary, Performance Bonuses, expense reimbursements and vacation days, and all of Executive’s BRFH Options
and Performance Options shall terminate; provided however, in exchange for execution of a release by Executive, Executive shall
have a period of 90 days from the date of termination to exercise any vested BRFH Options and Performance Options.
(b)
Termination for Disability. Except as prohibited by applicable law and, if required by applicable law, subject to the
Company providing Executive with reasonable accommodations, the Company may terminate Executive’s employment on account
of Disability. “Disability” means a physical or mental illness, injury, or condition that prevents Executive from
performing substantially all of his duties under this Agreement for at least 30 consecutive calendar days or for at least 45 calendar
days, whether or not consecutive, in any 365 calendar day period. If Company terminates Executive due to a Disability, Company
shall pay Executive any unpaid Base Salary, Performance Bonuses, expense reimbursements and vacation days accrued prior to termination
of employment; provided however, in exchange for Executive’s execution of a release in accordance with Section 4(g), Executive’s
Base Salary shall be continued for 3 months after the date of termination and all of Executive’s vested BRFH Options and
vested Performance Options shall be exercisable for a period of 90 days from the date of termination.
(c)
Discharge Other Than for Cause. The Company may terminate Executive’s employment at any time for any reason,
and without advance notice. If the Company discharges Executive other than for Cause, the Company shall pay to Executive any accrued
unpaid Base Salary, Performance Bonuses, expense reimbursements and vacation days accrued prior to termination of employment,
and Executive’s BRFH Options and Performance Options shall terminate; provided however, in exchange for Executive’s
execution of a release in accordance with Section 4(g), Executive shall be entitled to the following special benefits: (A) continuation
of executive’s Base Salary for a period of 6 months after termination; (B) all of Executive’s BRFH Shares shall immediately
vest; (C) all of Executive’s outstanding BRFH Options shall immediately vest and become exercisable for a period of 90 date
from the date of termination; and (D) all of Executive’s outstanding Performance Options shall immediately vest and become
exercisable for a period of 90 date from the date of termination.
(d)
Resignation. Executive promises not to resign his employment without giving the Company at least 60 days’ advance
written notice. If Executive resigns, for no reason or for any reason, the Company may accept his resignation effective on the
date set forth in his notice or the date of the Company’s receipt of his notice. Upon Executive’s resignation, the
Company shall pay Executive any unpaid Base Salary, Performance Bonuses, expense reimbursements and vacation days accrued prior
to termination of employment. Executive’s BRFH Options and Performance Options shall terminate; provided however, in exchange
for 60 days’ advance written notice of Executive’s resignation and Executive’s execution of a release in accordance
with Section 4(g), Executive shall be entitled to the following special benefits: Executive shall have a period of 90 days from
the date of termination to exercise any vested BRFH Options and vested Performance Options, pursuant to the terms of the Plan.
(e)
Death. If Executive dies, the Company shall pay to Executive any accrued unpaid Base Salary, Performance Bonuses, expense
reimbursements and vacation days accrued prior to termination of employment, and, in exchange for execution of a release by Executive’s
estate in accordance with Section 4(g), Executive’s vested BRFH Options and vested Performance Options shall be exercisable
for a period of 90 days from the date of termination by Executive’s estate.
(f)
Disputes Under This Section. All disputes relating to this Agreement, including disputes relating to this Section 4,
shall be resolved by final and binding arbitration under Section 7.
(g)
Execution of Release. Executive will only receive special benefits set forth in this Section 4 that are conditioned
upon his execution of a general release if Executive signs the form submitted by the Company (substantially in the Form attached
hereto as Annex A) within 21 days after his employment ends (or such other time frame set forth in the release) and he does not
subsequently properly revoke the release.
(h)
Termination of Options. Notwithstanding anything contained herein to the contrary, no BRFH Option or Performance Option
is exercisable after expiration of its 8-year term.
5.
CONFIDENTIALITY. During the term of Executive’s employment, in exchange for his promises to use such information
solely for the Company’s benefit, the Company will provide Executive with Confidential Information concerning, among other
things, its business, operations, customers, vendors, owners, investors, and business partners. “Confidential Information”
refers to information not generally known by others in the form in which it is used by the Company, and which gives the Company
a competitive advantage over other companies which do not have access to this information, including secret, confidential, or
proprietary information or trade secrets of the Company and its subsidiaries and affiliates, conveyed orally or reduced to a tangible
form in any medium, including information concerning the operations, future plans, customers, business models, strategies, and
business methods of the Company and its subsidiaries and affiliates, as well as information about the Company’s customers,
clients and business partners and their respective operations and confidential information. “Confidential Information”
does not include: (a) information that: (i) Executive knew prior to his employment with the Company or any predecessor company;
(ii) subsequently came into Executive’s possession other than through his work for the Company or any predecessor company
and not as a result of a breach of any duty owed to the Company; or (iii) is generally known within the relevant industry; or
(b) any prior knowledge, information or know-how which Executive legally obtained from a source other than the Company.
(a)
Promise Not to Disclose. Executive promises never to use or disclose any Confidential Information before it has become
generally known within the relevant industry through no fault of Executive. Notwithstanding this paragraph, Executive may disclose
Confidential Information: (i) during his employment for the benefit of the Company; (ii) as required to do so by court order,
subpoena, or otherwise as required by law, provided that upon receiving such order, subpoena, or request and prior to disclosure,
to the extent permitted by law Executive shall provide written notice to the Company of such order, subpoena, or request and of
the content of any testimony or information to be disclosed and shall cooperate fully with the Company to lawfully resist disclosure
of the information; and (iii) to an attorney for the purpose of securing professional advice.
(b)
Promise Not to Solicit. Executive agrees that, during his employment with the Company and for 12 months after her termination
for any reason (together, the “Restricted Period”): (1) Executive will not, on Executive’s own behalf or on
behalf of any other person, firm, or corporation, call on any of the customers or business partners of the Group, for the purpose
of soliciting or providing to any of the customers or business partners smoothies or smoothie-like beverages, and the Executive
will not, in any way, directly or indirectly, on Executive’s own behalf, or on behalf of any other person, firm, or corporation,
solicit, divert, or take away any customer or business partner of the Group; and (2) Executive will not solicit, attempt to solicit,
assist others to solicit, hire or assist others to hire for employment any person who is, or within the preceding 6 months was,
an officer, manager, employee or consultant of the Company. Executive agrees that the restrictions set forth in this paragraph
do not and will not prohibit him from engaging in his livelihood and do not foreclose him working with customers or business partners
not identified in this paragraph. Executive further agrees that he will not furnish to or for the benefit of any competitor of
the Group, the name of any person who is employed by the Group.
(c)
Promise Not to Engage in Certain Employment. Executive agrees and covenants that because of the confidential and sensitive
nature of the Confidential Information and because the use of the Confidential Information in certain circumstances may cause
irrevocable damage to the Group, Executive will not, during Restricted Period, engage, directly or indirectly, in any business,
enterprise, or employment that is directly competitive with the Group’s business of developing, distributing or marketing
compounds or technologies for the manufacture and distribution of smoothies, or smoothie-like beverages, in the United States
or elsewhere.
(d)
Return of Information. When Executive’s employment with the Company ends, he will promptly deliver to the Company,
or, at its written instruction, destroy, all documents, data, drawings, manuals, letters, notes, reports, electronic mail, recordings,
and copies of the same, of or pertaining to it or any other Group member in his possession or control. Notwithstanding the foregoing,
Executive may retain his personal effects, files, benefit information, or other property to the extent such materials do not contain
any of the Company’s Confidential Information. In addition, during his employment with the Company or the Group and subsequently,
Executive agrees to meet with Company personnel and, based on knowledge or insights he gained during his employment with the Company
and the Group, answer any question they may have related to the Company or the Group as reasonably requested.
(e)
Intellectual Property. Intellectual property (including such things as all ideas, concepts, inventions, plans, developments,
software, data, configurations, materials (whether written or machine-readable), designs, drawings, illustrations, and photographs,
developed, created, conceived, made, or reduced to practice during Executive’s employment with the Company (except intellectual
property that has no relation to the Group or any Group customer that Executive developed, etc., purely on his own time and at
his own expense), shall be the sole and exclusive property of the Company, and Executive does now assign all rights, title, and
interest in any such intellectual property to the Company.
(f)
Enforcement of This Section. This Section 5 shall survive the termination of this Agreement or Executive’s employment
for any reason. Executive acknowledges that: (a) this section’s terms are reasonable and necessary to protect the Company’s
legitimate interests; (b) this section’s restrictions will not prevent him from earning or seeking a livelihood; (c) this
section’s restrictions shall apply wherever permitted by law; and (d) the violation of any of this section’s terms
would irreparably harm the Company. Accordingly, Executive agrees that, if he violates any of the provisions of this section,
the Company or any Group member shall be entitled to, in addition to other remedies available to it, an injunction to be issued
by any court of competent jurisdiction restraining Executive from committing or continuing any such violation, without the need
to prove the inadequacy of money damages or post any bond or for any other undertaking. Executive further agrees and stipulates
that the agreements and covenants not to compete contained in Section 5(c) are fair and reasonable in light of all the facts and
circumstances of the relationship between Executive and the Company; however, Executive and the Company are aware that in certain
circumstances courts have refused to enforce certain agreements not to compete. Therefore, in furtherance of the provisions of
the preceding paragraph, Executive and the Company agree that if a court or arbitrator should decline to enforce the provisions
of Section 5(c), Section 5(c) must be considered modified to restrict Executive’s competition with the Group to the maximum
extent, in both time and geography, which the court or arbitrator finds enforceable.
6.
CONFLICT OF INTEREST. In keeping with Executive’s fiduciary duties to the Company, Executive agrees that while employed
by the Company he shall not, acting alone or in conjunction with others, directly or indirectly, become involved in a conflict
of interest or, upon discovery thereof, allow such a conflict to continue. Moreover, Executive agrees that he shall immediately
disclose to the Company any facts that might involve any reasonable possibility of a conflict of interest. It is agreed that any
direct or indirect interest, connection with or benefit from any outside activities, where such interest might in any way adversely
affect the Company, involves a possible conflict of interest. Circumstances in which a conflict of interest on the part of Executive
might arise, and which must be reported immediately by Executive to the Company, include, but are not limited to, the following:
(a)
ownership of a material interest in any supplier, contractor, subcontractor, customer, or other entity with which the Company
does business;
(b)
acting in any capacity, including director, officer, partner, consultant, employee, distributor, agent, or the like for a
supplier, contractor, subcontractor, customer, or other entity with which the Company does business;
(c)
accepting, directly or indirectly, payment, service, or loans from a supplier, contractor, subcontractor, customer, or other
entity with which the Company does business, including, but not limited to, gifts, trips, entertainment, or other favors of more
than a nominal value;
(d)
misuse of the Company’s information or facilities to which Executive has access in a manner which will be detrimental
to the Company’s interest, such as utilization for Executive’s own benefit of know-how, inventions, or information
developed through the Company’s business activities;
(e)
disclosure or other misuse of Confidential Information of any kind obtained through Executive’s connection with the
Company;
(f)
appropriation by Executive or the diversion to others, directly or indirectly, of any business opportunity in which it is
known or could reasonably be anticipated that the Company would be interested; and
(g)
ownership, directly or indirectly, of a material interest in an enterprise in competition with the Company, or acting as an
owner, director, principal, officer, partner, consultant, employee, agent, servant, or otherwise of any enterprise which is in
competition with the Company.
7.
ARBITRATION OF DISPUTES. Except as expressly prohibited by law and except for the Company’s right to seek injunctive
relief as set forth in Section 5 (f), all disputes between the Company and Executive (“Arbitratable Disputes”), including
disputes under Section 3 and Section 4, are to be resolved by final and binding arbitration in accordance with this Section 7.
This section shall remain in effect after the termination of this Agreement or Executive’s employment.
(a)
Scope of Agreement. This arbitration agreement applies to, among other things, disputes concerning Executive’s
employment with or termination from the Company; the validity, interpretation, enforceability or effect of this Agreement or alleged
violations of it; claims of discrimination under federal or state law; or other statutory or common law claims.
(b)
The Arbitration. The arbitration shall take place under the auspices of the American Arbitration Association (“AAA”)
in one of its offices located in Los Angeles County, California and conducted in accordance with the AAA’s National Rules
for the Resolution of Employment Disputes then in effect before an experienced employment law arbitrator licensed to practice
law in that jurisdiction who has been selected in accordance with such rules. The arbitrator may not modify or change this Agreement
in any way except as expressly set forth herein. The arbitration shall be governed by the substantive law of California (excluding
where it mandates the use of another jurisdiction’s laws).
(c)
Fees and Expenses. Regardless of which party initiates the arbitration, the Company shall pay that portion of the initial
filing fee that exceeds the filing fee for commencing an action in a state or federal court in California, after which each party
shall pay the fees of their attorneys, the expenses of its witnesses, and any other costs and expenses that the party incurs in
connection with the arbitration. All other costs of the arbitration, including the fees of the arbitrator, the cost of any record
or transcript of the arbitration, administrative fees and other fees and costs shall be paid one-half by the Company and one-half
by the Executive. Notwithstanding the foregoing, the arbitrator may, in his or her discretion, award reasonable attorney’s
fees (in addition to any other damages, expenses or relief awarded) to the prevailing party.
(d)
Exclusive Remedy. The arbitration in this manner shall be the exclusive remedy for any Arbitratable Dispute.
(e)
Judicial Enforcement. Nothing in this Section 7 shall preclude any party to this agreement from seeking judicial enforcement
of an arbitrator’s award. Judgment may be entered on the arbitrator’s award in any court having jurisdiction.
8.
CODE SECTION 280G.
(a)
Notwithstanding any other provision of this Agreement or any other plan, arrangement or agreement to the contrary, if any
of the payments or benefits provided or to be provided by the Company or its affiliates to Executive or for Executive’s
benefit pursuant to the terms of this Agreement or otherwise (“Covered Payments”) constitute parachute payments
(“Parachute Payments”) within the meaning of Code Section 280G and would, but for this Section 8 be subject
to the excise tax imposed under Code Section 4999 (or any successor provision thereto) or any similar tax imposed by state or
local law or any interest or penalties with respect to such taxes (collectively, the “Excise Tax”), then prior
to making the Covered Payments, a calculation shall be made comparing (i) the Net Benefit (as defined below) to Executive of the
Covered Payments after payment of the Excise Tax to (ii) the Net Benefit to Executive if the Covered Payments are limited to the
extent necessary to avoid being subject to the Excise Tax. Only if the amount calculated under (i) above is less than the amount
under (ii) above will the Covered Payments be reduced to the minimum extent necessary to ensure that no portion of the Covered
Payments is subject to the Excise Tax (that amount, the “Reduced Amount”). “Net Benefit” shall
mean the present value of the Covered Payments net of all federal, state, local, foreign income, employment and excise taxes.
(b)
To the extent the Covered Payments must be reduced pursuant to Section 8(a) above, the Covered Payments shall be reduced in
a manner that maximizes Executive’s economic position. In applying this principle, the reduction shall be made in a manner
consistent with the requirements of Section 409A, and where two economically equivalent amounts are subject to reduction but payable
at different times, such amounts shall be reduced on a pro rata basis but not below zero.
(c)
Any determination required under this Section 8 shall be made in writing in good faith by an independent accounting firm selected
by the Company that is reasonably acceptable to Executive (the “Accountants”), which shall provide detailed
supporting calculations to the Company and Executive as requested by the Company or Executive. The Company and Executive shall
provide the Accountants with such information and documents as the Accountants may reasonably request in order to make a determination
under this Section 8. For purposes of making the calculations and determinations required by this Section 8, the Accountants may
rely on reasonable, good faith assumptions and approximations concerning the application of Code Sections 280G and 4999. The Accountants’
determinations shall be final and binding on the Company and Executive. The Company shall be responsible for all fees and expenses
incurred by the Accountants in connection with the calculations required by this Section 8.
(d)
Notwithstanding the provisions of the Plan, equity awards under Section 3(c) and any other payments payable to Executive under
this or any other Agreement upon or related to a Change of Control (as defined in the Plan, and as modified herein) that are considered
to be “excess parachute payments” under Section 280G of the United States Internal Revenue Code of 1986 (the “Code”)
will not be subject to the 280G “cut-back” provisions set forth in Section 14(d) of the Plan shall not apply to Executive.
9.
AMENDMENT. No provisions of this Agreement may be modified, waived or discharged except by a written document signed by
a duly authorized Company officer and Executive. A waiver of any conditions or provisions of this Agreement in a given instance
shall not be deemed a waiver of such conditions or provisions at any other time in the future.
10.
NOTICES. For all purposes of this Agreement, all communications, including but not limited to notices, consents, request
or approvals, required, permitted, or which may be given hereunder shall be in writing and either delivered personally to an officer
of the addressee or mailed to those addresses provided on the signature page below, by certified or registered mail, postage prepaid,
by facsimile transmission or electronic mail (with receipt confirmed) and shall be deemed given (i) when so delivered personally;
(ii) if mailed, five (5) days after the time of mailing; or (iii) if faxed or sent by electronic mail, twenty four (24) hours
after the confirmed transmission of the fax or electronic mail.
11.
CHOICE OF LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws
of California (excluding any that mandate the use of another jurisdiction’s laws).
12. SUCCESSORS.
This Agreement shall be binding upon, and shall inure to the benefit of, Executive and his estate, but Executive may not assign
or pledge this Agreement or any rights arising under it, except to the extent permitted under the terms of the benefit plans in
which he participates. Without Executive’s consent, the Company may assign this Agreement to any affiliate or to a successor
to substantially all the business and assets of the Company.
13.
TAXES. The Company shall withhold taxes from payments it makes pursuant to this Agreement as it reasonably determines
to be required by applicable law.
14.
VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and effect.
15.
COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original
but all of which together shall constitute the same instrument.
16.
HEADINGS. The Section headings have been inserted for purposes of convenience and shall not be used for interpretive purposes.
17.
GENDER AND PLURALS. Wherever the context so requires, the masculine gender includes the feminine or neuter, and the singular
number includes the plural and conversely.
18.
ENTIRE AGREEMENT. All oral or written agreements or representations, express or implied, with respect to the subject matter
of this Agreement are set forth in this Agreement. All prior written employment agreements between Executive and the Company are
declared null and void, and have no further effect.
(Signatures
on following page)
IN
WITNESS WHEREOF, the parties have executed this Agreement through their duly authorized representatives as of the Effective
Date set forth above.
“COMPANY” |
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“EXECUTIVE” |
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BARFRESH
FOOD GROUP INC., |
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a
Delaware corporation |
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By: |
/s/ Riccardo Delle Coste |
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/s/
JOSEPH S. TESORIERO |
Name:
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Riccardo Delle
Coste |
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JOSEPH S. TESORIERO |
Title: |
Chief Executive
Officer |
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ANNEX
A – General Release of Claims
GENERAL
RELEASE AGREEMENT
This
General Release Agreement (the “Agreement”) is entered into by and between Barfresh Food Group, Inc., a Delaware
corporation (the “Company”), and Joseph S. Tesoriero (“Executive”).
WHEREAS,
the Company and Executive are parties to an Employment Agreement (“Employment Agreement”) entered into on May
__, 2015, whereby Executive is entitled to certain severance benefits from Company in exchange for executing this Agreement;
WHEREAS,
Executive’s employment with Company [will terminate][terminated] effective [DATE] (“Termination Date”),
pursuant to Section [INSERT SECTION] of the Employment Agreement;
WHEREAS,
the parties desire to settle all claims and issues arising out of or in any way related to the acts, transactions or occurrences
between Executive and the Company to date;
WHEREFORE,
in consideration of the promises and the mutual covenants set forth below, the parties agree as follows:
1.
Consideration. In consideration for executing this Agreement and in exchange for the promises, covenants, releases and
waivers herein, provided that Executive has not revoked the Agreement as set forth below, the Company will provide Executive with
the severance payments and/or benefits described in Section [INSERT SECTION] of the Employment Agreement. The severance payments
and/or benefits described in Section [INSERT SECTION] shall commence or be paid, as applicable, on the first payroll period following
the “Release Effective Date” (as defined below), and the first payment shall include all payments that would have
been made from the Termination Date. In addition, Executive shall be reimbursed for (i) any remaining charges for Company expenses
on Executive’s personal credit cards incurred prior to the Termination Date and (ii) any outstanding and unpaid business
expenses incurred by the Executive through the Termination Date, in each case in accordance with Company policy. Executive understands
and agrees that the severance payments and/or benefits are in addition to anything of value to which Executive is otherwise entitled
from the Company if she does not execute this Agreement.
2.
Tax Treatment. All payments and benefits provided to Executive pursuant to Paragraph 1 of this Agreement are subject to
any applicable employment or tax withholdings or deductions. In addition, the parties hereby agree that it is their intention
that all payments or benefits provided under this Agreement comply with Section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”), and this Agreement shall be interpreted accordingly. In no event shall the timing of
the Executive’s execution of this Agreement, directly or indirectly, result in the Executive designating the calendar year
of payment, and if a payment that is subject to execution of the Agreement could be made in more than one taxable year, at the
option of Executive, payment shall be made in the later taxable year. Notwithstanding the foregoing, the Company does not guarantee
the tax treatment of any payments or benefits under this Agreement, including, without limitation, under the Code, federal, state
or local laws.
3. Releases.
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(a) |
In
consideration for the consideration described above, to which Executive is not otherwise entitled, as a full and final settlement,
Executive, for Executive and Executive’s heirs, executors, administrators, successors and assigns, hereby releases and
forever discharges the Company, its current and former parents, direct or indirect equity holders, subsidiaries, affiliated
or related entities and their respective officers and directors (hereinafter collectively referred to as “Releasees”)
from all causes of action, claims, charges, complaints, liabilities, obligations, promises, covenants, agreements, contracts,
suits, judgments, damages, or demands, in law or in equity of any nature whatsoever, known or unknown, suspected or unsuspected,
which Executive ever had or now has regarding any matter arising on or before the date of Executive’s execution of this
Agreement including those arising directly or indirectly out of or in any way connected with Executive’s employment
with the Company, including, but not limited to, claims relating to Executive’s employment, or termination thereof,
discrimination based upon race, color, age, sex, sexual orientation, age, marital status, religion, national origin, handicap,
disability, or any other protected category, or retaliation, any contracts (express or implied), any claim for or involving
equitable relief or recovery of punitive, compensatory, or other damages or monies, wages, vacation pay, employee fringe benefits,
attorneys’ fees, libel, slander, and any other tort. Executive understands and agrees that this Release includes any
claim that could arise under Title VII of the Civil Rights Act of 1964; the Age Discrimination in Employment Act of 1967;
the Older Workers Benefit Act; the Civil Rights Act of 1866; the Equal Pay Act; the Pregnancy Discrimination Act; the Americans
With Disabilities Act of 1990; 42 U.S.C. § 1981; the Employee Retirement Income Security Act of 1974; the Family and
Medical Leave Act of 1993; the Civil Rights Act of 1991; the Worker Adjustment and Retraining Notification Act of 1988; the
Genetic Information Nondiscrimination Act, the Employee Retirement Income Security Act, the False Claims Act; the Corporate
and Criminal Fraud Accountability Act of 2002, 18 U.S.C. § 1514A, also known as the Sarbanes Oxley Act; the California
Labor Code (including the California Private Attorney General Act), California Business & Professions Code, California
Wage Orders, City of Los Angeles Living Wage Ordinance; and any other federal, state or local laws, rules or regulations,
whether equal employment opportunity laws, rules or regulations or otherwise, or any right under any pension, welfare, or
equity plans. |
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(b) |
Executive
acknowledges reading and understanding the meaning and effect of section 1542 of the California Civil Code which in its entirety
states: |
A
general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time
of executing the release, which if known by him or her must have materially affected his or her settlement with the creditor.
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Executive
waives and relinquishes any right or benefit that Executive may have under section 1542 of the California Civil Code and understands
that by signing this Release, Executive is giving up claims that Executive may not presently know or suspect to exist. |
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(c) |
Notwithstanding
the broad scope of this release, this release is not intended to bar (i) any claims that, as a matter of law, whether by statute
or otherwise, may not be waived, such as claims for workers’ compensation benefits or unemployment insurance benefits,
(ii) any claims with respect to indemnification under the Company’s by-laws, charter or any other operative agreements
or with respect to coverage arising under any D&O policy in effect, (iii) any claims by the Executive for any matter arising
under this Agreement or (iv) any claims by the Executive in his capacity as a shareholder of the Company or with respect to
any equity interest he may own or control in the Company. Nothing in this Agreement is intended to interfere with Executive’s
right to file a charge or participate in an administrative investigation or proceeding; provided, however, that Executive
expressly releases and waives her right to recovery of any type in any administrative or court action, whether local, state
or federal, and whether brought by her or on her behalf, related in any way to the matters released herein. |
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(d) |
By
signing this Agreement and accepting the consideration described in Paragraph 1, Executive understands and acknowledges that
Executive is waiving any right to sue the Releasees for any claims released by this Agreement. |
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(e) |
The
Company for itself and its current and former parents, direct or indirect equity holders, members, subsidiaries, affiliated
or related entities and their respective members, shareholders, officers, directors, successors and assigns (collectively,
the “Company Releasors”) hereby release and forever discharge the Executive from all causes of action,
claims, charges, complaints, liabilities, obligations, promises, covenants, agreements, contracts, suits, judgments, damages,
or demands, in law or in equity of any nature whatsoever, known or unknown, suspected or unsuspected, which the Company Releasors
ever had or now have regarding any matter relating to Executive’s employment with or equity interest in the Company
arising on or before the date of Executive’s execution of this Agreement including, but not limited to, any claim for
or involving equitable relief or recovery of punitive, compensatory, or other damages or monies, attorneys’ fees, libel,
slander, and any other tort; provided, that, the foregoing release by the Company Releasors is not intended
to and does not bar any claims by the Company Releasors for any matters arising (i) under this Agreement or the Termination
Agreement, (ii) from events, acts or omissions occurring after the parties’ execution of this Agreement; or (iii) from
any acts of Executive involving criminal activity or fraud. |
4.
Non-Admission Clause. This Agreement does not constitute an admission by the Company or Executive (or any Releasee or Company
Releasor) of a violation of any federal, state, or local law, statute, rule or regulation or any common law right.
5.
Representations. By Executive’s signature below, Executive represents that: (i) Executive is not aware of any unpaid
wages, vacation, bonuses, expense reimbursements or other amounts owed to Executive by the Company, other than that specifically
provided for in this Agreement; and (ii) Executive has not filed any charge or claim or initiated any proceedings against any
of the Releasees in any forum or with any municipal, state or federal agency charged with the enforcement of any law.
6.
Confidentiality of this Agreement. Except as provided by law, Executive and the Company shall keep the existence and terms
of this Agreement confidential and shall not disclose to any third party, except in the case of the Executive, to the Executive’s
immediate family, tax and legal advisors and as required by law, and except in the case of the Company, in connection with the
Company’s disclosure obligations to its tax, accounting and legal advisors, to any officer, director, manager or employee
with a business need to know, and as required by law.
7.
Non-Disparagement/Statements. Executive covenants and agrees that he will not make any disparaging or derogatory comments
about the business or reputation of the Releasees, except where the making of any truthful statements may be required by law or
is necessary to enforce his rights under this Agreement. The Company covenants and agrees that it shall not, and the management
employees of the Company shall be instructed not to, make any disparaging or derogatory comments concerning the Executive, except
where the making of any truthful statements may be required by law or necessary to enforce its rights under this Agreement.
8.
Governing Law. The construction, interpretation and performance of this Agreement shall be governed by the laws of the
State of California, without regard to its conflicts of law provisions. Executive agrees to and hereby consents and waives any
objection to the exclusive jurisdiction of any and all state and federal courts located in the State of California in connection
with any proceeding concerning this Agreement.
9.
Headings. The paragraph headings in this Agreement are for convenience of reference only and shall not be deemed to alter
or affect the meaning or interpretation of any provision hereof.
10.
Severability. If any provision or portion thereof contained in this Agreement is held to be invalid or unenforceable, the
remainder of this Agreement will be considered severable, shall not be affected and shall remain in full force and effect. Specifically,
the invalidity of any such provision shall have no effect upon, and shall not impair the enforceability of the release language
set forth in Paragraph 3.
11.
Binding on Successors. The parties agree that this Agreement shall be binding on, and inure to the benefit of, Executive’s
and the Company’s respective successors, heirs and/or assigns.
12.
Entire Agreement; Counterparts. This Agreement constitutes the entire agreement between Executive and the Company on the
subject matter herein and supersedes and cancels any prior written and oral agreements between Executive and the Company regarding
such subject matter, except the surviving provisions of the Employment Agreement. No amendment of this Agreement or waiver of
any of its provisions shall be effective unless agreed to in writing by Executive and the Company. This Agreement may be executed
in two or more counterparts, which when taken together, shall constitute an original agreement. Executed originals transmitted
by electronically as PDF files (or their equivalent) shall have the same force and effect as a signed original. Unless otherwise
defined herein, capitalized terms have the meaning set forth in the Employment Agreement.
13.
Acknowledgments: Without detracting in any respect from any other provision of this Agreement, Executive acknowledges and
agrees that:
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(a) |
this
Agreement constitutes a knowing and voluntary waiver of all rights or claims Executive has or may have against Releasees as
set forth herein, including any claims under the Age Discrimination in Employment Act; and Executive has no physical or mental
impairment of any kind that has interfered with Executive’s ability to read and understand the meaning of this Agreement
or its terms, and that Executive is not acting under the influence of any medication or mind-altering chemical of any type
in entering into this Agreement; |
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(b) |
by
entering into this Agreement, Executive does not waive rights or claims that may arise after the date of Executive’s
execution of this Agreement, including without limitation any rights or claims that Executive may have to secure enforcement
of the terms and conditions of this Agreement; |
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(c) |
the
consideration provided to Executive under this Agreement is in addition to anything of value to which Executive is already
entitled; |
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(d) |
Executive
is advised to consult with an attorney regarding this Agreement; and |
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(e) |
Executive
was informed that Executive had at least twenty-one (21) days in which to review and consider this Agreement, and to consult
with an attorney regarding the terms and effect of this Agreement. |
14.
Right to Revoke. Executive may revoke this Agreement within seven (7) days from the date Executive signs this Agreement,
in which case this Agreement shall be null and void and of no force or effect on either the Company or Executive. Any revocation
must be in writing and received by the undersigned by 5:00 p.m. on or before the seventh day after this Agreement is executed
by Executive. For purposes of this Agreement, the “Release Effective Date” shall be the eighth (8th)
day following the Termination Date, so long as the Executive has not revoked this Agreement in a timely manner prior to such date.
[Signature
Page Follows]
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Sincerely, |
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Barfresh
Food Group Inc. |
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By: |
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Name: |
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Title: |
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EXECUTIVE
EXPRESSLY ACKNOWLEDGES, REPRESENTS, AND WARRANTS THAT EXECUTIVE HAS READ THIS AGREEMENT CAREFULLY; THAT EXECUTIVE FULLY UNDERSTANDS
THE TERMS, CONDITIONS, AND SIGNIFICANCE OF THIS AGREEMENT; THAT THE COMPANY HAS ADVISED EXECUTIVE TO CONSULT WITH AN ATTORNEY
CONCERNING THIS AGREEMENT; THAT EXECUTIVE UNDERSTANDS THAT THIS AGREEMENT HAS BINDING LEGAL EFFECT; AND THAT EXECUTIVE HAS EXECUTED
THIS AGREEMENT FREELY, KNOWINGLY AND VOLUNTARILY.
PLEASE
READ CAREFULLY. THIS AGREEMENT HAS IMPORTANT LEGAL CONSEQUENCES.
/s/
Joseph S. Tesoriero |
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Joseph
S. Tesoriero |
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Date: |
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Exhibit
21.1
SUBSIDIARIES
(1) Barfresh,
Inc., a Nevada corporation, wholly owned subsidiary
(2) Smoothie,
Inc., a Colorado corporation, wholly owned subsidiary
Exhibit
31.1
Certification
of
Principal
Executive Officer
Pursuant
to 18 U.S.C. 1350
(Section
302 of the Sarbanes-Oxley Act of 2002)
I,
Riccardo Delle Coste, certify that:
1.
I have reviewed this annual report on Form 10-K of Barfresh Food Group Inc., a Delaware corporation (“Annual Report”);
2.
Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this Annual Report;
3.
Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this Annual Report;
4.
The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d)
Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during
the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control
over financial reporting; and
5.
The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's
board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial
information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business
issuer's internal control over financial reporting.
July
7, 2015
By: |
/s/ Riccardo
Delle Coste |
|
Name: |
Riccardo Delle Coste |
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Title: |
Principal Executive Officer |
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Exhibit
31.2
Certification
of
Principal
Financial Officer
Pursuant
to 18 U.S.C. 1350
(Section
302 of the Sarbanes-Oxley Act of 2002)
I,
Arnold Tinter, certify that:
1.
I have reviewed this annual report on Form 10-K of Barfresh Food Group Inc., a Delaware corporation (“Annual Report”);
2.
Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this Annual Report;
3.
Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this Annual Report;
4.
The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d)
Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during
the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control
over financial reporting; and
5.
The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's
board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial
information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business
issuer's internal control over financial reporting.
July
7, 2015
By: |
/s/ Arnold
Tinter |
|
Name: |
Arnold Tinter |
|
Title: |
Principal Financial Officer |
|
Exhibit
32.1
CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Annual Report of Barfresh Food Group Inc., a Delaware corporation, on Form 10-K for the year ended March 31,
2015 as filed with the Securities and Exchange Commission on the date hereof (the “Annual Report”), I, Riccardo Delle
Coste, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:
1.
The Annual Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and
2.
The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Date:
July 7, 2015
By: |
/s/ Riccardo
Delle Coste |
|
Name: |
Riccardo Delle Coste |
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Title: |
Chief Executive Officer (Principal Executive Officer) |
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Exhibit
32.2
CERTIFICATION
OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Annual Report of Barfresh Food Group Inc., a Delaware corporation, on Form 10-K for the year ended March 31,
2015, as filed with the Securities and Exchange Commission on the date hereof (the “Annual Report”), I, Arnold Tinter,
Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that:
1.
The Annual Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and
2.
The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Date:
July 7, 2015
By: |
/s/ Arnold
Tinter |
|
Name: |
Arnold Tinter |
|
Title: |
Principal Financial Officer |
|