SEC Company Response from BARFRESH FOOD GROUP INC. (BRFH) (CIK 0001487197) (BRFH) — Nov 7, 2018
BARFRESH FOOD GROUP INC. (BRFH) (CIK 0001487197)
Date: Nov. 7, 2018 · CIK: 0001487197 · Accession: 0001493152-18-015380
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 000-55131
Referenced dates: November 2, 2018
Letter
VIA EDGAR CORRESPONDENCE Division of Corporation Finance Office of Natural Resources United States Securities Exchange Commission Re: Barfresh Food Group, Inc. Form 10-K for the Fiscal Year Ended December 31, 2017 Filed April 2, 2018 File No. 000-55131
Dear Mses. Nguyen and Majmudar:
This letter sets forth the responses of Barfresh Food Group, Inc. (“Barfresh” or the “company”) to your letter dated November 2, 2018, relating to the above captioned Annual Report. The comments of the staff of the U.S. Securities and Exchange Commission are set forth in bold text below, and the responses of the company are set forth in plain text immediately following each comment.
Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 20
1. We note that your research and development expenses include the salary of your director of manufacturing and product development, and consultants supporting that employee. Tell us the extent to which such costs are associated with manufacturing, and are thereby inventoriable based on the guidance in FASB ASC 330-10-30-1 through 8, and explain why these costs are not included in the cost of revenue measures that you report.
The functions performed by our Director of Manufacturing and Product Development and consultants that support that employee (hereinafter “Director”), are primarily focused on the creation of unique flavors for potential customers in our national account pipeline, and on the creation of new flavors for our general product portfolio. Additionally, the Director conducts product trials to determine qualification for certain government specifications of those products, and to support product claims. Hence, the title for this individual – “Director of Manufacturing and Product Development” – is not reflective of his specific duties, which are entirely focused on “product development” rather than manufacturing. Additionally, the Director works remotely, performing the majority of his tasks in a food laboratory located in his personal residence.
The Company utilizes independent third party contract manufacturers for the production of all of its products. Consequently cost of sales includes the cost of product purchased from the Company’s independent third party manufacturers. These costs are expensed to costs of sales as the product is sold.
Based on the above, we believe it is appropriate to exclude costs associated with the Director from the cost of revenue measures that we report.
Financial Statements
Note 2 – Property, Plant and Equipment, page F-102. We note that you are depreciating the cost of manufacturing equipment over seven years and that such costs are excluded from your cost of revenue and gross profit measures. If you intend to rely on the accommodation in SAB Topic 11:B, you should clarify the extent to which depreciation and amortization is attributable to your cost of revenue, and reposition the separately reported amount to be included in your gross profit measure.
We agree with your comment, and will provide the additional clarification in our next 10-K filing. We also note that given our exclusive utilization of contract manufacturers to make our products, that depreciation on our production equipment is immaterial. The language we plan to utilize for the “Cost of Goods Sold” line item in our next 10-K filing will follow the guidance in SAB Topic 11:B, and will state “Cost of Goods Sold (Exclusive of depreciation shown separately below)”.
* * *
We appreciate the Staff’s guidance and assistance in this matter. If you have any questions, please contact the undersigned and our legal counsel: Libertas Law Group Inc., Mark Abdou at (310) 359-8742; or Ruba Qashu at (949) 355-5405.
Very
truly yours,
Barfresh
Food Group, Inc.
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CORRESP
1
filename1.htm
November
7, 2018
VIA
EDGAR CORRESPONDENCE
Loan
Lauren Nguyen, Legal Branch Chief
Anuja
Majmudar, Attorney-Advisor
Division
of Corporation Finance
Office
of Natural Resources
United
States Securities Exchange Commission
Washington
D.C. 20549
Re:
Barfresh
Food Group, Inc.
Form
10-K for the Fiscal Year Ended December 31, 2017
Filed
April 2, 2018
File
No. 000-55131
Dear
Mses. Nguyen and Majmudar:
This
letter sets forth the responses of Barfresh Food Group, Inc. (“Barfresh” or the “company”) to your letter
dated November 2, 2018, relating to the above captioned Annual Report. The comments of the staff of the U.S. Securities and Exchange
Commission are set forth in bold text below, and the responses of the company are set forth in plain text immediately following
each comment.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations, page 20
1. We
note that your research and development expenses include the salary of your director
of manufacturing and product development, and consultants supporting that employee. Tell
us the extent to which such costs are associated with manufacturing, and are thereby
inventoriable based on the guidance in FASB ASC 330-10-30-1 through 8, and explain why
these costs are not included in the cost of revenue measures that you report.
The
functions performed by our Director of Manufacturing and Product Development and consultants that support that employee (hereinafter
“Director”), are primarily focused on the creation of unique flavors for potential customers in our national account
pipeline, and on the creation of new flavors for our general product portfolio. Additionally, the Director conducts product trials
to determine qualification for certain government specifications of those products, and to support product claims. Hence, the
title for this individual – “Director of Manufacturing and Product Development” – is not reflective of
his specific duties, which are entirely focused on “product development” rather than manufacturing. Additionally,
the Director works remotely, performing the majority of his tasks in a food laboratory located in his personal residence.
The
Company utilizes independent third party contract manufacturers for the production of all of its products. Consequently cost of
sales includes the cost of product purchased from the Company’s independent third party manufacturers. These costs are expensed
to costs of sales as the product is sold.
Based
on the above, we believe it is appropriate to exclude costs associated with the Director from the cost of revenue measures that
we report.
Financial
Statements
Note
2 – Property, Plant and Equipment, page F-102. We note that you are depreciating the cost of manufacturing
equipment over seven years and that such costs are excluded from your cost of revenue and gross profit measures. If you
intend to rely on the accommodation in SAB Topic 11:B, you should clarify the extent to which depreciation and amortization
is attributable to your cost of revenue, and reposition the separately reported amount to be included in your gross profit
measure.
We
agree with your comment, and will provide the additional clarification in our next 10-K filing. We also note that given our exclusive
utilization of contract manufacturers to make our products, that depreciation on our production equipment is immaterial. The language
we plan to utilize for the “Cost of Goods Sold” line item in our next 10-K filing will follow the guidance in SAB
Topic 11:B, and will state “Cost of Goods Sold (Exclusive of depreciation shown separately below)”.
* * *
We
appreciate the Staff’s guidance and assistance in this matter. If you have any questions, please contact the undersigned
and our legal counsel: Libertas Law Group Inc., Mark Abdou at (310) 359-8742; or Ruba Qashu at (949) 355-5405.
Very
truly yours,
Barfresh
Food Group, Inc.
/s/
Joseph Tesoriero
Joseph
Tesoriero, Chief Financial Officer
cc:
Mr.
Riccardo Delle Coste, Chief Executive Officer
Mark
Abdou, Esq.
Ruba
Qashu, Esq.