Acquisition Strategy - The company aims to aggregate companies generating a minimum of $300 million in revenues within the next thirty-six months through a buy-and-build strategy[178]. - The acquisition of Ceautamed was completed for an aggregate purchase price of $8.6 million, which includes $3 million in cash and various secured subordinated promissory notes[188]. - The company has expanded its product offerings through acquisitions, including GSP Nutrition Inc., which specializes in sports nutrition products marketed under the Sports Illustrated Nutrition brand[184]. - The company has completed multiple acquisitions, including Doctors Scientific Organica, LLC, and Nexus Offers, Inc., to enhance its product portfolio and market reach[181][183]. - The company plans to acquire multiple companies aggregating a minimum of $100 million in annualized revenues over the next 24 months, requiring additional capital ranging from $20 million to $60 million[235]. Financial Performance - Total revenues for the three months ended June 30, 2022, were $4,285,491, an increase of $3,430,358, or 401.15%, compared to $855,133 for the same period in 2021, primarily due to acquisitions[211]. - Revenues from the nutraceutical business were $3,459,926 for the three months ended June 30, 2022, including $2,780,038 from DSO and GSP, while excluding these acquisitions, revenues decreased by $175,245, or 20.49%[212]. - Total revenues for the six months ended June 30, 2022, were $8,740,377, an increase of $7,313,736, or 512.65%, compared to $1,426,641 for the same period in 2021, primarily due to acquisitions[224]. - Revenues from the nutraceutical business were $7,035,384 for the six months ended June 30, 2022, which included $5,762,863 from acquisitions, while excluding these, revenues decreased by $154,120, or 10.80%[224]. Costs and Expenses - Total cost of revenues increased to $2,504,320 for the three months ended June 30, 2022, from $846,187 in 2021, an increase of $1,658,133, or 195.95%, mainly due to acquisitions[214]. - The total cost of revenues increased to $5,441,643 for the six months ended June 30, 2022, from $1,396,337 in 2021, an increase of $4,045,306, or 289.71%, mainly due to acquisitions[225]. - General and administrative expenses rose to $3,959,495 for the three months ended June 30, 2022, an increase of $3,065,493, or 342.90%, compared to $894,002 in 2021, largely due to increased headcount and advertising expenses[218]. - General and administrative expenses rose to $8,325,915 for the six months ended June 30, 2022, an increase of $6,766,559, or 433.93%, compared to $1,559,356 in 2021[230]. Profitability - Gross profit for the three months ended June 30, 2022, was $1,781,171, an increase of $1,772,225, or 19,810.25%, compared to $8,946 in 2021, driven by acquisitions[217]. - Gross profit for the six months ended June 30, 2022, was $3,298,734, an increase of $3,268,430, or 10,785.47%, compared to $30,304 in 2021[228]. - The company reported a net loss of $3,385,195 for the three months ended June 30, 2022, compared to a net loss of $960,722 in 2021[210]. - The company reported a net loss of $19,959,672 for the six months ended June 30, 2022, compared to a net loss of $1,741,363 for the same period in 2021, representing an increase of $18,218,309, or 1,046.21%[233]. Cash Flow and Financing - Net cash used in operating activities was $5,996,785 for the six months ended June 30, 2022, compared to $1,478,627 for the same period in 2021[239]. - Net cash provided by financing activities was $6,996,774 for the six months ended June 30, 2022, compared to $1,323,678 for the same period in 2021, primarily from IPO proceeds[241]. - The company completed its IPO on February 18, 2022, selling 1,440,000 units at a purchase price of $9.10 per unit, resulting in total gross proceeds of $14,404,128[243]. - After deducting underwriting commissions and expenses, the net proceeds from the IPO were approximately $12,763,000, which will be used to pay off certain debt and for working capital[243]. Debt and Liabilities - The company has outstanding debt of $2,250,000 from 12% unsecured subordinated convertible debentures, which are due on November 30, 2022[248]. - The company issued original issue discount subordinated debentures totaling $1,755,883 with a 15% discount, resulting in a total purchase price of $1,500,000[250]. - As of June 30, 2022, the outstanding principal balance of the revolving lines of credit was $914,000, with interest rates of 8.99% and 7.99%[257]. - The company entered into a cash advance agreement for $350,000, with a required repayment amount of $490,000[258]. Operational Insights - The company operates a network platform in affiliate marketing, compensating third-party digital marketers to generate traffic for its products[179]. - The company primarily generates product revenues through the manufacturing and packaging of nutraceutical products, recognizing revenue upon transfer of control to customers[266]. - Nexus generates advertising revenues through sales of listed products by product vendors, with revenue recognized upon sale, net of fraudulent traffic or disputed transactions[268]. - The company bills customers weekly for sales generated by digital marketers, with no significant financing components or unsatisfied performance obligations reported as of June 30, 2022[269]. Asset Management - Inventory is valued at the lower of cost or net realizable value, with an allowance for obsolescence established for slow-moving inventory[270]. - Property and equipment are recorded at cost, with depreciation and amortization provided over estimated useful lives ranging from 3 to 7 years[271]. - Goodwill is subject to annual impairment tests, with no impairments recognized during the three and six months ended June 30, 2022 and 2021[272]. - Long-lived assets are assessed for impairment when evidence indicates that the carrying amount may not be recoverable, with no impairments reported as of June 30, 2022[273]. - Right-of-use assets and lease liabilities are recorded for leases longer than 12 months, with lease liabilities recognized based on the present value of remaining lease payments[274]. - Stock-based compensation expenses are recognized over the vesting period based on the fair value of the award at grant date, using the Black-Scholes option pricing model[275]. Regulatory and Market Conditions - The company remains an emerging growth company, allowing it to rely on certain exemptions from disclosure requirements under the JOBS Act[207]. - The COVID-19 pandemic continues to create uncertainty and may impact the company's operations and financial results due to supply chain disruptions and changes in consumer behavior[206].
Smart for Life(SMFL) - 2022 Q2 - Quarterly Report