Jeffs’ Brands (JFBR) - 2023 Q2 - Quarterly Report

Condensed Consolidated Financial Statements This section presents the unaudited interim financial position, results of operations, changes in equity, and cash flows of Jeffs' Brands Ltd. for the six months ended June 30, 2023 Condensed Consolidated Balance Sheets As of June 30, 2023, total assets decreased slightly to $15.0 million from $15.8 million at year-end 2022, primarily due to a reduction in cash and cash equivalents, partially offset by increases in inventory, intangible assets, and new investments Condensed Consolidated Balance Sheet Highlights (USD in thousands) | Account | June 30, 2023 (Unaudited) | December 31, 2022 (Audited) | | :--- | :--- | :--- | | Total Current Assets | 5,386 | 11,034 | | Cash and cash equivalents | 2,153 | 8,137 | | Inventory | 2,542 | 1,791 | | Total Non-Current Assets | 9,629 | 4,741 | | Intangible assets, net | 6,136 | 4,452 | | Investment in SciSparc Nutraceuticals Inc. | 2,944 | - | | TOTAL ASSETS | 15,015 | 15,775 | | Total Current Liabilities | 1,771 | 640 | | Total Non-Current Liabilities | 1,963 | 2,314 | | TOTAL LIABILITIES | 3,734 | 2,954 | | TOTAL SHAREHOLDERS' EQUITY | 11,281 | 12,821 | Condensed Consolidated Statements of Operations For the six months ended June 30, 2023, revenues increased by 65% to $3.9 million, but gross profit decreased due to faster growth in cost of sales, leading to a widened operating loss of $2.0 million and a net loss of $1.8 million Statement of Operations Summary (USD in thousands, except per share data) | Metric | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :--- | :--- | :--- | | Revenues | 3,871 | 2,343 | | Gross Profit | 373 | 410 | | Operating Loss | (1,967) | (1,098) | | Net Loss | (1,828) | (1,526) | | Loss per share (basic and diluted) | (0.22) | (0.53) | - General and administrative expenses more than doubled to $2,067 thousand from $891 thousand in the prior-year period, significantly impacting the operating loss[6] Condensed Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity decreased from $12.8 million at year-end 2022 to $11.3 million as of June 30, 2023, primarily due to the $1.8 million net loss, partially offset by the issuance of ordinary shares to SciSparc Ltd Changes in Shareholders' Equity for Six Months Ended June 30, 2023 (USD in thousands) | Description | Amount | | :--- | :--- | | Balance at December 31, 2022 | 12,821 | | Net loss for the period | (1,828) | | Issuance of ordinary shares to SciSparc Ltd. | 288 | | Balance at June 30, 2023 | 11,281 | Condensed Consolidated Statements of Cash Flows For the first six months of 2023, the company experienced a significant net decrease in cash and cash equivalents of $5.9 million, driven by $1.2 million used in operating activities and $4.7 million used in investing activities Cash Flow Summary (USD in thousands) | Cash Flow Activity | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | (1,169) | (1,054) | | Net cash used in investing activities | (4,683) | (3) | | Net cash from (used in) financing activities | (86) | 731 | | Net Decrease in Cash | (5,938) | (326) | - Significant cash outflows for investing activities included $2,993 thousand for the purchase of SciSparc Nutraceuticals Inc. and $1,682 thousand for the purchase of another intangible asset (Fort Products Ltd.)[11] Notes to the Condensed Consolidated Financial Statements The notes provide detailed explanations of the company's operations, accounting policies, and significant events, including acquisitions, share exchanges, concentration risks, liquidity, intangible assets, derivative liabilities, and related-party transactions Note 1 — General Information Jeffs' Brands Ltd. primarily acquires and operates virtual stores on Amazon.com, facing significant concentration risk due to platform reliance and limited suppliers, yet management expects sufficient cash flows despite a $1.8 million net loss and negative operating cash flow in H1 2023 - The Group's primary business is acquiring, improving, and operating virtual stores (Brands) on the Amazon.com website[14] - The company is exposed to concentration risk due to its heavy reliance on the Amazon platform and a small number of suppliers[18][19] - For the six months ended June 30, 2023, the Group incurred a net loss of $1,828 thousand and used $1,169 thousand in cash from operations[21] Note 2 — Basis of Presentation and Significant Accounting Policies The unaudited interim condensed financial statements are prepared in accordance with U.S. GAAP, applying accounting policies consistent with the prior annual statements, and involve management estimates and assumptions - The financial statements are prepared in accordance with U.S. GAAP for interim financial information[23] - Significant accounting policies are identical to those applied in the financial statements for the year ended December 31, 2022[29] Note 3 — Significant Events During the Period During the first half of 2023, the company acquired a 49% stake in SciSparc Nutraceuticals Inc. for approximately $3.0 million, acquired Fort Products Ltd. for approximately $2.4 million, conducted a share exchange with SciSparc Ltd., and received a Nasdaq non-compliance notice regarding its minimum bid price - Acquired approximately 49% of SciSparc Nutraceuticals Inc. (Wellution) for about $3.0 million in cash, accounted for as an asset purchase using the equity method[34] - Acquired all issued and outstanding share capital of Fort Products Ltd., a seller of pest control products, for approximately £2 million (approx. $2.4 million)[42] - Received a non-compliance notification from Nasdaq on May 30, 2023, for failing to meet the $1.00 minimum bid price requirement[45] Note 4 — Intangible Assets The company's intangible assets, primarily 'Brands', increased to a net balance of $6.1 million as of June 30, 2023, from $4.5 million at year-end 2022, driven by a $2.0 million recognition from the Fort Acquisition, with $347 thousand in amortization expense for the period Intangible Assets (Brands) Summary (USD in thousands) | Date | Gross Amount | Accumulated Amortization | Net Balance | | :--- | :--- | :--- | :--- | | June 30, 2023 | 7,814 | (1,678) | 6,137 | | Dec 31, 2022 | 5,783 | (1,331) | 4,452 | - On March 9, 2023, the company recognized $2,031 thousand in intangible assets from the Fort Acquisition, which is being amortized over 10 years[46] Note 5 — Derivative Liabilities The company's derivative liability from 'Additional Warrants' with a revenue-sharing feature decreased from $2.2 million at year-end 2022 to $1.9 million as of June 30, 2023, resulting in a non-cash gain of $341 thousand for the period - The derivative liability stems from Additional Warrants that entitle holders to a semi-annual 'Revenue Sharing Payment' of approximately 2.3% of the company's revenues[48] Change in Fair Value of Derivative Liability (USD in thousands) | Description | Amount | | :--- | :--- | | Balance as of December 31, 2022 | (2,216) | | Change in fair value | 341 | | Balance as of June 30, 2023 | (1,875) | Note 6 — Related Parties — Transactions and Balances During the first half of 2023, the company engaged in various related-party transactions, including $560 thousand in total expenses for consulting and inventory storage, and $158 thousand in other income from management services provided to Wellution - The company paid consulting fees of $95 thousand and inventory storage fees of $313 thousand to Pure Capital Ltd. and its affiliate[53] - The company earned $158 thousand in other income from a consulting agreement with Wellution, where it provides management services for a monthly fee of $20 thousand plus a signing bonus[53][54] - Balances with related parties as of June 30, 2023, included $158 thousand in receivables from Wellution and $135 thousand in total liabilities to various related entities[57] Note 7 — Subsequent Events On September 5, 2023, shareholders approved a reverse stock split of ordinary shares, with the board of directors retaining discretion to implement the split at a ratio between 1:2 and 1:10 on a future date - Shareholders approved a reverse stock split on September 5, 2023, at a ratio between 1:2 and 1:10, to be implemented at the board's discretion[58]