Business Strategy and Operations - The company aims to aggregate companies generating a minimum of $300 million in revenues by Q4 2026 through a buy-and-build strategy[184]. - The company operates a network platform in affiliate marketing, compensating third-party digital marketers to generate traffic for its products[185]. - The company has established a wholly owned subsidiary in Canada, Smart for Life Canada Inc., to sell retail products and act as a distribution center[188]. - The company has acquired multiple entities, including GSP Nutrition Inc. and Ceautamed Worldwide, LLC, to expand its product offerings in the health and wellness sector[190][191]. - The company has developed proprietary products aimed at promoting optimal health and wellness, including hunger-suppressing functional foods[187]. - The company’s branded vitamins and supplements are sold through various channels, including Amazon, contributing significantly to online growth[187]. Financial Performance - Total revenues decreased by $2,050,319, or 46.02%, to $2,404,567 for the three months ended March 31, 2023, compared to $4,454,886 for the same period in 2022[208]. - Revenues from the nutraceutical business decreased by $1,515,747, or 42.39%, to $2,059,712 for the three months ended March 31, 2023, primarily due to cash constraints affecting raw material purchases[210]. - Revenues from the digital marketing business decreased by $534,572, or 60.79%, to $344,855 for the three months ended March 31, 2023, attributed to cash constraints impacting affiliate advertisers[211]. - Total cost of revenues decreased by $1,360,485, or 46.32%, to $1,576,838 for the three months ended March 31, 2023, from $2,937,323 for the same period in 2022[212]. - Gross profit decreased by $689,834, or 45.46%, to $827,729 for the three months ended March 31, 2023, with a gross profit margin of 34.42%[215]. - The company reported a net loss of $4,284,315 for the three months ended March 31, 2023, compared to a net loss of $16,574,477 for the same period in 2022[209]. - The net loss for Q1 2023 was $4,284,315, down 74.15% from $16,574,477 in Q1 2022, indicating improved financial performance[222]. Expenses and Cost Management - General and administrative expenses decreased by $626,648, or 36.39%, to $1,095,207 for the three months ended March 31, 2023, representing 45.55% of revenues[216]. - Compensation expenses decreased by $531,461, or 26.52%, to $1,472,374 for the three months ended March 31, 2023, accounting for 61.23% of revenues[217]. - Professional services expenses decreased by $336,735, or 52.55%, to $303,996 for the three months ended March 31, 2023, representing 12.64% of revenues[218]. - Depreciation and amortization increased to $691,210, or 28.75% of revenues, for the three months ended March 31, 2023, compared to $423,010, or 9.50% of revenues, for the same period in 2022[220]. Cash Flow and Liquidity - As of March 31, 2023, the company had cash of $86,194 and a working capital deficiency of $15 million, raising concerns about its ability to continue as a going concern[224]. - Net cash used in operating activities for Q1 2023 was $378,715, significantly lower than $4,212,202 in Q1 2022, showing improved cash management[227]. - Net cash provided by financing activities in Q1 2023 was $395,195, a decrease from $5,574,127 in Q1 2022, highlighting reduced financing activity[229]. Debt and Financial Obligations - The company has issued subordinated debentures totaling $4,764,099 as of March 31, 2023, with an interest rate of 17.5% per annum[234]. - An original issue discount secured subordinated note of $2,272,727 was sold to fund the acquisition of Ceautamed, bearing interest at 16% per annum[235]. - The outstanding principal balance of acquisition notes related to DSO was $3,050,000 as of March 31, 2023, with accrued interest of $324,317[236]. - The company issued secured subordinated convertible promissory notes totaling $2,150,000 for the acquisition of Ceautamed, with a conversion price of $6.25[238]. - As of March 31, 2023, the outstanding principal balance of secured subordinated promissory notes related to Ceautamed was $2,204,993, with accrued interest of $75,031[239]. - The company issued secured subordinated promissory notes totaling $1,300,000 for the acquisition of Ceautamed, with an interest rate of 5% per annum, increasing to 10% upon default[240]. - As of March 31, 2023, the outstanding principal balance of the notes related to Ceautamed was $1,148,000, with accrued interest of $92,011[240]. - The company entered into a loan agreement for a term loan of up to $3,000,000, with an outstanding principal balance of $1,075,000 and accrued interest of $69,475 as of March 31, 2023[241]. - The company has outstanding cash advances totaling $22,124 from a June 2022 agreement for $341,150, with a required repayment amount of $490,000[247]. - As of March 31, 2023, the outstanding principal balance of revolving lines of credit was $412,184, with interest rates ranging from 7.99% to 8.99%[253]. - The company has a principal commitment of $300,000 under the EIDL loan, with accrued interest of $31,063 as of March 31, 2023[255]. - The company received $261,164 in PPP loans, with an outstanding balance of $197,457 and accrued interest of $8,923 as of March 31, 2023[256]. - The company has no off-balance sheet arrangements that could affect its financial condition[258]. - The company has no purchase obligations with any suppliers, focusing on obligations under existing loans and pricing structures[257]. - The company is negotiating an extension for a remaining note of $100,000, indicating ongoing financial management efforts[240]. Corporate Changes - A reverse stock split was executed on April 24, 2023, reducing outstanding common stock from 40,440,129 shares to 822,303 shares[193]. - The company completed a registered direct offering on May 2, 2023, raising total gross proceeds of $899,326 and net proceeds of $751,933[195]. - A second registered direct offering on May 17, 2023, resulted in total gross proceeds of $1,585,057 and net proceeds of $1,074,377[199]. - The company’s domicile changed from Delaware to Nevada, increasing the authorized shares from 100 million to 500 million[194].
Smart for Life(SMFL) - 2023 Q1 - Quarterly Report