The Real Good Food pany(RGF) - 2023 Q1 - Quarterly Report

Financial Performance - Net sales for Q1 2023 decreased by $7.8 million, or 20.7%, to $29.8 million compared to $37.6 million in Q1 2022, primarily due to the timing of promotional events [127]. - Cost of sales decreased by $8.5 million, or 25.6%, to $24.8 million in Q1 2023, attributed to lower sales volume and decreases in certain raw material costs [129]. - Gross profit increased by $0.7 million to $5.0 million in Q1 2023, compared to $4.2 million in the prior year period, due to the decrease in cost of sales [130]. - Loss from operations increased by $2.1 million, or 24.0%, to $10.7 million in Q1 2023, with a loss margin of (36.1)% compared to (23.1)% in Q1 2022 [134]. - Net loss increased by $4.1 million, or 43.1%, to $13.7 million for the three months ended March 31, 2023, compared to a net loss of $9.6 million in the prior year period [137]. Expenses - Administrative expenses rose by $2.9 million, or 49.5%, to $8.7 million in Q1 2023, driven by research and development costs for new product development [133]. - Interest expense increased by $2.4 million to $3.3 million in Q1 2023, primarily due to higher debt levels and increased interest rates [135]. - Selling and distribution expenses were $5.4 million in Q1 2023, a slight increase of 1.8% from $5.3 million in Q1 2022, with a percentage of net sales rising to 18.2% [131]. - Marketing expenses decreased by $152,000, or 8.5%, to $1.6 million in Q1 2023, representing 5.5% of net sales [132]. Cash Flow and Financing - Net cash used in operating activities was $15.9 million for the three months ended March 31, 2023, compared to $6.2 million for the same period in 2022, primarily due to increased working capital and net loss [142]. - Cash and cash equivalents at the end of the period were $2.9 million, down from $14.4 million in the prior year [141]. - Net cash provided by financing activities totaled $11.8 million during the three months ended March 31, 2023, compared to a net cash used of $5.5 million in the same period last year [145]. - As of March 31, 2023, long-term debt obligations amounted to $87.4 million [140]. - The company amended its debt agreement to decrease the outstanding balance of the revolving credit facility by $10.0 million, increasing availability by the same amount [139]. Future Outlook - The company expects to fulfill sales shortfalls from Q1 2023 in the second quarter and more fully in the second half of 2023 [128]. - The company anticipates lower raw material costs to continue throughout 2023 compared to the prior year [129]. - Future capital expenditures are expected to be approximately $2.0 million to $5.0 million to enhance production capabilities during the remainder of 2023 [140]. Internal Controls and Systems - The increase in working capital was driven by higher inventory levels to support new product introductions and an increase in accounts payable and accrued expenses [143]. - The company is in the process of remediating a material weakness in internal controls over financial reporting and disclosure controls [154]. - The company plans to implement a new ERP system to address identified weaknesses in the current accounting system, with an intent to complete this by the end of 2023 [155].