Revenue Performance - Total revenues decreased by $2,001,788, or 46.71%, to $2,283,703 for the three months ended June 30, 2023, from $4,285,491 for the same period in 2022[231]. - Revenues from the nutraceutical business decreased by $1,186,839, or 34.30%, to $2,273,087 for the three months ended June 30, 2023, from $3,459,926 for the same period in 2022, primarily due to cash constraints affecting the ability to pay for raw materials[232]. - Digital marketing revenues decreased by $814,949, or 98.71%, to $10,616 for the three months ended June 30, 2023, from $825,565 for the same period in 2022[233]. - Total revenues decreased by $4,052,107, or 46.36%, to $4,688,270 for the six months ended June 30, 2023, from $8,740,377 for the same period in 2022[247]. - Revenues from the nutraceutical business decreased by $2,702,585, or 38.41%, to $4,332,799 for the six months ended June 30, 2023, from $7,035,384 for the same period in 2022[248]. Profitability and Loss - Gross profit for the three months ended June 30, 2023, was $742,021, representing a gross margin of 32.49%, compared to $1,781,171 and a gross margin of 41.56% for the same period in 2022[231]. - The operating loss for the three months ended June 30, 2023, was $(4,059,845), or (177.77)% of revenues, compared to $(2,608,416), or (60.87)% of revenues, for the same period in 2022[231]. - Net loss for the three months ended June 30, 2023, was $(4,219,996), or (184.79)% of revenues, compared to $(3,385,285), or (78.99)% of revenues, for the same period in 2022[231]. - Gross profit decreased by $1,039,150, or 58.34%, to $742,021 for the three months ended June 30, 2023, from $1,781,171 for the same period in 2022[238]. - Net loss increased by $834,711, or 24.66%, to $4,219,996 for the three months ended June 30, 2023, compared to $3,385,285 for the same period in 2022[245]. - The company reported a net loss of $8,504,311 for the six months ended June 30, 2023, a decrease of $11,455,451, or 57.39%, compared to a net loss of $19,959,762 for the same period in 2022[262]. Operating Expenses - Total operating expenses increased to $4,801,866, or 210.27% of revenues, for the three months ended June 30, 2023, compared to $4,389,587, or 102.43% of revenues, for the same period in 2022[231]. - Total cost of revenues decreased by $962,638, or 38.44%, to $1,541,682 for the three months ended June 30, 2023, from $2,504,320 for the same period in 2022[234]. - Total cost of revenues decreased by $2,323,122, or 42.69%, to $3,118,521 for the six months ended June 30, 2023, from $5,441,643 for the same period in 2022[250]. - Gross profit decreased by $1,728,985, or 52.41%, to $1,569,749 for the six months ended June 30, 2023, from $3,298,734 for the same period in 2022[253]. Cash Flow and Financing - As of June 30, 2023, the company had cash of $0.4 million and a working capital deficiency of $9.6 million, raising substantial doubt about its ability to continue as a going concern[263][264]. - The company experienced net cash used in operating activities of $4,502,620 for the six months ended June 30, 2023, compared to $5,996,785 for the same period in 2022[270]. - Net cash provided by financing activities was $4,812,038 for the six months ended June 30, 2023, down from $6,966,744 in the same period in 2022[272]. - The company has engaged a middle market investment banking firm to facilitate raising additional capital through common and preferred stock placements and debt financing[265]. - The company completed a registered direct offering on May 5, 2023, raising total gross proceeds of $899,326 and net proceeds of $751,933[278]. - A second registered direct offering was completed on May 19, 2023, generating total gross proceeds of $1,585,057 and net proceeds of $1,074,377[281]. Debt and Obligations - As of June 30, 2023, the outstanding principal balance of original issue discount subordinated debentures was $4,402,947, with accrued interest of $675,197[283]. - The company has outstanding original issue discount secured subordinated notes with an outstanding principal balance of $2,242,853 and accrued interest of $179,428 as of June 30, 2023[284]. - The company issued a 6% secured subordinated promissory note of $3,000,000 on July 1, 2021, with a principal balance of $1,548,950 and accrued interest of $9,036 as of June 30, 2023[285]. - A total of $2,150,000 in secured subordinated promissory notes was issued on July 29, 2022, with an outstanding principal balance of $2,204,993 and accrued interest of $102,900 as of June 30, 2023[286]. - The company has a term loan agreement with Diamond Creek Capital for up to $3,000,000, with an outstanding principal balance of $750,000 and accrued interest of $52,864 as of June 30, 2023[289]. - The company entered into cash advance agreements totaling $592,236 with a required repayment amount of $994,460, with an outstanding amount of $139,540 as of June 30, 2023[298]. - An equipment financing loan of $146,765 was taken in May 2022, with an outstanding amount of $120,938 as of June 30, 2023[300]. - The company has a principal commitment of $300,000 under an EIDL loan with accrued interest of $33,906 as of June 30, 2023[305]. - The company received $261,164 in Paycheck Protection Program loans, with an outstanding balance of $197,457 and accrued interest of $9,422 as of June 30, 2023[306]. - The company made principal cash payments of $150,000 on the subordinated promissory note during the six months ended June 30, 2023[285]. - A gain on extinguishment of debt of $60,764 was recognized due to a settlement with a note holder[287]. Strategic Initiatives - The company is executing a buy-and-build strategy with the objective of aggregating companies generating a minimum of $300 million in revenues by the fourth quarter of 2026[219]. - The company has established a wholly owned subsidiary in Canada, Smart for Life Canada Inc., which sells retail products and acts as a distribution center for international customers[223]. - The company is in the process of finalizing an acquisition, with financing expected to exceed the required purchase amount, providing additional working capital[266]. Impairment and Accounting - The company recognized an impairment loss of $466,737 related to the affiliate relationship asset associated with Nexus due to decreased revenues that are not expected to recover[310]. - The impairment analysis was conducted in accordance with ASC 360 following a triggering event related to the Nexus subsidiary's performance[310]. - Management's discussion includes critical accounting policies that could materially affect reported financial position, results of operations, or cash flows[311]. - There were no applicable quantitative and qualitative disclosures about market risk reported[312].
Smart for Life(SMFL) - 2023 Q2 - Quarterly Report