Strategic Shift to In-House Production

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• The company is undergoing a fundamental transformation from a co-manufacturer dependent model to controlling its own production to mitigate cultured dairy supply chain shortages.

• Performance fell short of expectations due to a slower-than-planned productivity ramp at the acquired Arps Dairy facility, which faced infrastructure and equipment limitations.

• Management strategically exited the ice cream mix business temporarily to prioritize capacity and improvement efforts for core Barfresh branded products.

• Higher operational costs were driven by necessary repairs and maintenance to stabilize the aging Arps facility's infrastructure under increased production loads.

• Revenue growth of 190% was primarily driven by the Arps Dairy acquisition, which provided the necessary scale to re-engage customers lost during previous supply interruptions.

• The education channel remains the primary strategic focus, with management working to earn back customer trust ahead of the 2026-2027 school year implementation.

• Strategic positioning involves utilizing the Arps facility as a bridge to the new 44,000-square-foot Defiance, Ohio plant, which is expected to normalize production economics.

Operational Milestones and Revised Outlook

• Revised full-year 2026 revenue guidance of $23 million to $26 million reflects a more conservative view of production ramps and the removal of ice cream mix revenue.

• Management expects to reach adjusted EBITDA breakeven to negative $0.5 million in the second half of 2026 as throughput efficiencies improve, though they have revised the full-year 2026 adjusted EBITDA guidance to a loss of $1 million to $2 million.

• Partial commissioning of core products at the new Defiance facility is targeted for the end of 2026, which is expected to drive a meaningful step-change in margins.

• The company plans to utilize a $2.4 million equipment grant before the end of 2026 and seek new mortgage and equipment financing to complete the Defiance project.

• Future margin expansion is dependent on three pillars: reaching target per-case manufacturing rates, potential product reformulations, and the eventual return of the ice cream business.

Structural and Financial Risk Factors

• The Arps facility required $1.8 million in higher-than-planned processing spend to address equipment reliability and infrastructure gaps.

• Construction costs for the new Defiance facility have increased beyond initial estimates, requiring management to potentially adjust their economic approach.

• The company successfully paid off the existing mortgage on the Defiance property using convertible note proceeds and now owns the asset free and clear.

• A $0.8 million headwind was identified due to material cost increases, which management aims to mitigate through ingredient cost savings and reformulations.