BARFRESH FOOD GROUP INC. Debt Disclosure

Note 5. Debt

 

Line of Credit

 

In August 2024, the Company secured receivables financing of $1,500,000 (the “Barfresh Facility”), and amended the facility in September 2025 to increase the available financing to $2,500,000. In October 2025, the Company secured receivables financing of $1,500,000 for Arps Dairy (together with the Barfresh Facility, the “Credit Facilities”).

 

Under the Credit Facilities, the Company may borrow up to 90% of eligible customer account balances. Amounts outstanding bear interest at a rate based on the prime rate plus collateral fees, and are secured by accounts receivable and inventory. The weighted average rate was 8.35% and 8.70% on December 31, 2025 and 2024, respectively. The Credit Facilities expire on their respective annual anniversaries, and renew automatically, unless notice is given or received.

 

As of December 31, 2025, there was $1,149,000 drawn under the Credit Facilities, and $2,851,000 was available to borrow, subject to available collateral. Unamortized deferred financing discount amounted to $25,000 as of December 31, 2025.

 

Financing Agreements

 

In 2024 and 2025, the Company entered into financing agreements to purchase equipment and software as a service, with a weighted average imputed or stated interest of 23%. Amounts due under the agreements are due over a weighted average period of 28 months, with maturities as follows as of December 31, 2025:

 Schedule of Financing Agreements

2026		$	443,000
2027			387,000
2028			75,000
2029			125,000
2030			5,000
Total payments due			1,035,000
Less: interest			(269,000	)
Financing agreements			766,000
Less: current portion			(296,000	)
Financing agreements		$	470,000

 

 

Interest expense related to financing agreements amounted to $62,000 and $24,000 in 2025 and 2024, respectively.

 

Debt

 

The Company’s debt consists of amounts owed by Arps Dairy prior to the Acquisition, and includes the following:

 Schedule of Debt

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

 

Manager Note

 

The balance represents amounts due to a manager who was an Arps Dairy stockholder preceding the selling shareholders in the Acquisition (the “Manager Note”). The manager agreed to forgive one-half of the note payable in connection with the Acquisition, establishing the fair value of the note as of the Acquisition date (Note 11). The remaining balance was modified to require quarterly payments in either cash or Barfresh Shares, at Barfresh’ election, commencing no later than April 3, 2026, with full repayment due no later than October 3, 2026.

 

Advances from Former Stockholders

 

Prior to the Acquisition, Arps Dairy shareholders made advances from time to time to support working capital requirements. Concurrently with the close of the Acquisition, the advances were formalized and the Company assumed joint and several liability for the obligations. The Company issued notes in the aggregate principal amount of $800,000 to the selling shareholders, which consist of $400,000 of debt previously owed by Arps Dairy (the “Existing Loans”) and $400,000 representing advances used to reduce the outstanding balance of the revolving line of credit to $800,000 (the “New Advances”). The Existing Loans are non-interest bearing, and were converted into shares of the Barfresh’ common stock on February 10, 2026, prior to their maturity on April 3, 2026. Because New Advances were not paid by January 3, 2026, interest accrues at the rate of 7% per annum from October 3, 2025 through the April 3, 2026 maturity date. On March 5, 2026, the maturity date of the New Advances was extended to the earlier of October 1, 2026 or the receipt of financing secured by real estate owned by the Company. Additionally, the amendments provide that holder may elect to have interest paid in cash or shares valued at a 10% discount to the volume-weighted average price of the common stock over the ten trading days immediately preceding the payment.

 

Mortgage Note

 

Prior to the Acquisition, Arps Dairy was out of compliance with the financial covenants of its Mortgage Note held by a commercial bank. In association with and contingent upon the closing of the Acquisition, Barfresh and Arps Dairy entered into a Forbearance and Loan Modification Agreement (the “Forbearance”) with the bank. As a result of the Forbearance, the bank agreed that it will not exercise its legal or contractual rights and remedies against the Company, collateral or the guarantors through January 1, 2026. Additionally, the bank consented to the sale and transfer of ownership of the Company to Barfresh and required Barfresh to become a guarantor of the Mortgage Note on a joint and several basis with the former stockholders. The Forbearance obligated the Company to repay Arps Dairy’s revolving line of credit, and an equipment note as a condition to close the Acquisition. The Company paid loan modification and legal fees of approximately $25,000 for the Forbearance.

 

 

Barfresh issued 29,020 shares valued at approximately $97,000 in consideration for the continuing guarantee of the former Arps Dairy stockholders through the term of the Forbearance. The expense is included in interest expense in the accompanying statement of operations for the year ended December 31, 2025.

 

On January 20, 2026, effective January 1, 2026, the parties agreed to extend the Forbearance through February 1, 2026, with an option to further extend through March 1, 2026. The option was exercised, and the Company repaid the Mortgage Note on March 6, 2026, releasing all guarantor obligations of the former shareholders.

 

Convertible Notes

 

From July 2023 to March 2024, the Company executed subscription agreements for substantially all of a $2,000,000 privately placed convertible debt offering. The debt was available to be drawn in 25% increments, maturing on the anniversary of the draw, bearing interest at 10% per annum for the term, regardless of earlier payment or conversion, and was mandatorily convertible as to principal and interest into shares of the Company’s common stock at any time prior to maturity at the greater of $1.20 or 85% of the volume-weighted average price of the common stock for the ten trading days immediately preceding the written notice of the conversion (the “Conversion Price”). If the Company had not exercised the mandatory conversion, the holder of the debt had the option after six months and on up to four occasions to convert all or any portion of the principal and interest into shares of the Company’s common stock at the Conversion Price.

 

On October 23, 2023, the Company drew down $1,390,000 in convertible debt and converted a total of $1,207,000 of principal into 820,160 shares of common stock. Additionally, on December 19, 2023, the Company drew $470,000 in convertible debt and converted a total of $653,000 of principal and $4,000 of accrued interest into 495,331 shares of common stock. Finally, between March 27 and 29, 2024 the Company drew $136,000 in convertible debt and converted the total drawn into 124,208 shares, settling all debt. Debt drawdowns included the non-cash settlement of $30,000 and $71,000 in 2023 and 2024, respectively.