The following discussion should be read in conjunction with the financial
information included elsewhere in this Quarterly Report on Form 10-Q (this
"Report"), including our unaudited condensed consolidated financial statements
and the related notes and with our audited consolidated financial statements and
related notes included in our Annual Report on Form 10-K for the year ended
December 31, 2022, as filed with the SEC on March 2, 2023, and other reports
that we file with the SEC from time to time.

References in this Quarterly Report on Form 10-Q to "us", "we", "our" and similar terms refer to Barfresh Food Group Inc.

Cautionary Note Regarding Forward-Looking Statements





This discussion includes forward-looking statements, as that term is defined in
the federal securities laws, based upon current expectations that involve risks
and uncertainties, such as plans, objectives, expectations, and intentions.
Actual results and the timing of events could differ materially from those
anticipated in these forward-looking statements as a result of a number of
factors. Words such as "anticipate", "estimate", "plan", "continuing",
"ongoing", "expect", "believe", "intend", "may", "will", "should", "could" and
similar expressions are used to identify forward-looking statements.



We caution you that these statements are not guarantees of future performance or
events and are subject to a number of uncertainties, risks and other influences,
many of which are beyond our control, which may influence the accuracy of the
statements and the projections upon which the statements are based. Any one or
more of these uncertainties, risks and other influences could materially affect
our results of operations and whether forward-looking statements made by us
ultimately prove to be accurate. Our actual results, performance and
achievements could differ materially from those expressed or implied in these
forward-looking statements. We undertake no obligation to publicly update or
revise any forward-looking statements, whether from new information, future

events or otherwise.



Critical Accounting Policies

Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP").





Results of Operations

Results of Operation for Three Months Ended March 31, 2023 as Compared to the Three Months Ended March 31, 2022

Revenue and cost of revenue





Revenue decreased $435,000, or 17%, from $2,526,000 in 2022 to $2,091,000 in
2023. The decline in revenue was due to limited supply due to our product
withdrawal resulting from the quality complaints with product purchased from the
Manufacturer. We anticipate that our revenues will be adversely impacted as a
result of the dispute unless and until new sources of reliable supply at
sufficient volume can be identified and developed, the timing of which is
uncertain.



Cost of revenue for 2023 was $1,236,000 as compared to $1,762,000 in 2022. Our
gross profit was $855,000 (41%) and $764,000 (30%) for 2023 and 2022,
respectively. Cost of revenue declined as a result of the 17% decrease in
revenue, partially offset by lower costs relative to revenue on the smoothie
carton product, resulting in the 1,100-basis point gross margin improvement.



13

Selling, marketing and distribution expense





Our operations were primarily directed towards increasing sales and expanding
our distribution network.



                                Three months ended       Three months ended
                                    March 31,                March 31,
                                       2023                     2022                 Change         Percent
Sales and marketing            $            356,000     $            289,000     $   67,000              23 %
Storage and outbound freight                311,000                  386,000        (75,000 )           -19 %
                               $            667,000     $            675,000     $   (8,000 )            -1 %

Selling, marketing and distribution expense decreased approximately $8,000 (1%) from approximately $675,000 in 2022 to $667,000 in 2023.





Sales and marketing expense increased approximately $67,000 (23%) from
approximately $289,000 in 2022 to $356,000 in 2023. The increase in sales and
marketing expense was primarily the result of the retention of outside service
providers to assist with sales and initiatives, including, beginning in the
third quarter of 2022, brokers specializing in the school market. Additionally,
the Company increased its product sampling and advertising in conjunction with
the launch of its smoothie carton product.



Storage and outbound freight expense decreased approximately $75,000 (19%) from
approximately $386,000 in 2022 to $311,000 in 2023. The decrease was the result
of the 17% decrease in revenue and distribution efficiencies.

General and administrative expense





                                Three months         Three months
                              ended March 31,      ended March 31,
                                    2023                 2022               Change         Percent
Personnel costs               $        489,000     $        309,000     $  180,000              58 %
Stock based compensation               209,000               85,000        124,000             146 %
Legal, professional and
consulting fees                        115,000              161,000        (46,000 )           -29 %
Director fees paid in cash              25,000               25,000              -               0 %
Research and development                21,000               31,000        (10,000 )           -32 %
Other general and
administrative expenses                135,000              212,000        (77,000 )           -36 %
                              $        994,000     $        823,000     $  171,000              21 %

General and administrative expense increased approximately $171,000 (21%) from approximately $823,000 in 2022 to $994,000 in 2023.





Personnel cost represents the cost of employees including salaries, bonuses,
employee benefits and employment taxes and continues to be our largest cost.
Personnel cost increased by approximately $180,000 (58%) from approximately
$309,000 to $489,000 and stock-based compensation increased by approximately
$124,000 (146%) from $85,000 to $209,000. The increase in personnel cost and
stock-based compensation resulted primarily from modification of our 2022
performance stock unit program, with partial cash settlement.

Legal, professional, and consulting fees decreased approximately $46,000 (29%) from approximately $161,000 in 2022 to $115,000 in 2023. The decrease was primarily due to a reduction in temporary labor, partially offsetting the increase in personnel costs.

Research and development expense decreased approximately $10,000 (32%) from approximately $31,000 in 2022 to $21,000 in 2023 as a result of vendor credits related to development activities.





Other expense decreased approximately $77,000 (36%) from approximately $212,000
in 2022 to $135,000 in 2023. In 2022, we incurred approximately $102,000 in
one-time costs related to the uplist of our common stock to the NASDAQ Stock
Market. In 2023, we incurred approximately $25,000 in inventory disposal costs
related to our dispute with the Manufacturer.



14






Net loss



We had net losses of approximately $910,000 and $895,000 for the three-month
periods ended March 31, 2023 and 2022, respectively. The increase of
approximately $15,000, was the result of the aforementioned changes in revenue,
cost and expenses.

Liquidity and Capital Resources

As of March 31, 2023, we had working capital of $1,250,000 compared with $1,801,000 at December 31, 2022. The decrease in working capital is primarily due to the operating loss for the three months ended March 31, 2023.

During the three months ended March 31, 2023, we used $1,242,000 in operations.





The impact of COVID-19 on the Company is constantly evolving. The direct impact
to our operations had begun to take effect at the close of the first quarter
ended March 31, 2020. Specifically, our business was impacted by dining bans
targeted at restaurants to reduce the size of public gatherings. Such bans
precluded our single serve products from being served at those establishments
for a number of weeks, and in some instances, resulted in abandoned product
launches. Furthermore, many school districts closed regular attendance for a
period of time thereby disrupting sales of product into that channel. More
recently, we have experienced a disruption in the supply chain for manufacturing
our products due to COVID-19. The developments surrounding COVID-19 remain fluid
and dynamic, and consequently, will require the Company to continue to monitor
news headlines from government and health officials, as well as the business
community.



On June 1, 2021, the Company completed a private placement of 1,282,051 shares
of its common stock at $4.68 per share, resulting in gross proceeds of
$6,000,000. In addition, holders of debt converted a total of $399,000 in
principal and $234,000 in interest into 133,991 shares of common stock and debt
in the amount of $840,000 was retired, leaving the Company with no debt.



Our liquidity needs will depend on how quickly we are able to profitably ramp up
sales, as well as our ability to control and reduce variable operating expenses,
and to continue to control and reduce fixed overhead expense. Our recent
business developments with the Manufacturer impact our supply chain and will
result in increased legal cost and are expected to have a negative impact on our
financial position, results of operations and cash flow.



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 equity or in the form of debt. There are no assurances
that we will be able to generate the necessary capital to carry out our current
plan of operations.

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 expense, results of operations, liquidity, capital
expenditures or capital resources that are material to stockholders.

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