By: Tomas Ronolski - AllPennyStocks.com News

Friday, June 28, 2013

Hundreds of developmental companies in the public domain have products on the market, but getting them to make a significant market penetration is obviously the challenge. Picking one, or several, of those companies that genuinely has a shot at generating substantial cash flow and profits is certainly a daunting task that even the best of small and microcap analysts has trouble getting right on a steady basis. A company that may be on the path to success is Barfresh Food Group, Inc. (OTCQB:BRFH), a maker of ready-to-drink beverages, such as smoothies, shakes and frappes, operating in Australia and the United States. Barfresh started trading on the OTC markets in April 2012 at 80 cents per share and, after a brief climb to $1.18, slid to a base area around 22 cents early this year. After holding the base for more than four months, the trend looks to be turning with the stock price recently rising over the 50 day moving average and now pushing above a resistance point at 33 cents in Friday trading.

Founded in Australia, the company has patents and patents pending protecting its pre-packaging methodology which when adding a little water, includes all the necessary ingredients (including fresh fruit) to make smoothies in a flash. Barfresh is a drink of choice at some well-known quick-service restaurants in Australia, such as Subway and Dunkin’ Donuts, and is starting to make inroads to greater distribution in the United States.

To date, Barfresh is in more than 1,000 of the more than 17,000 quick-service restaurants (QSR) in Australia. That’s about a 6 percent market penetration. With more than 200,000 QSRs in the U.S., a similar penetration would equate to roughly 12,000 restaurants. Now, or course, that is merely a comparison and a significant “if”.

Barfresh notes on its website, that 43 percent of US consumers from ages 2 and up fuel themselves with beverages, rather than food until 11 AM. Soft drink sales have been on the decline and healthy alternative drink sales have been on the upswing, with retail sales of bagged frozen smoothies growing 16 percent on a dollar basis from 2011 to 2012. The current smoothie beverage industry is estimated at about $3.5 billion.

On Friday, Barfresh announced that it has opened distribution and received its first order from Sysco Corporation (NYSE:SYY), a global leader in the marketing and distributing of food products to restaurants and a broad range of other facilities and customers. With over 400,000 outlets, Sysco generates annual sales in excess of $30 billion. According to Barfresh, the first order will be shipped to Sysco’s Riverside, California facility.

"This new distribution with a global market leader is a very important step in our growth in the United States and Canada. This will not only enable Barfresh to efficiently service a number of new customers coming on board in the California market but provide a solid foundation for Barfresh's growth with other significant customers in its pipeline," said Riccardo Delle Coste, chief executive at Barfresh in Friday’s statement.

Over the past year, Barfresh has also announced a series of agreements to put their product into leading QSR chains in the States, but these agreements are still in the developmental stage as of the last SEC filing for Barfresh in February. Investors should be on the lookout for a new filing to define the status of these agreements in the near future.

Of course, investors should always be looking at revenue and expenses. As the company was just starting operations, revenue through the nine months ended December 31 was a mere $7,488. Operating loss for the period was $1.23 million, which was essentially all general and administrative expenses. Upstarts take time to get off the ground, but the business model is already intact in Australia and it looks to be taking shape in North America. Over the next year it will be time to see how much it flourishes and how the previously announced agreements, as well as this new one with Sysco, translate into sales and profits.

Proper due diligence is, as always, encouraged.

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