Company Strategy and Acquisitions - 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 [224]. - The company plans to acquire multiple companies over the next 24 months, targeting a minimum of $100 million in annualized revenues [268]. - The company intends to pay no more than 60% cash on any acquisition, with a target of 50% [268]. - The company acquired Ceautamed for an aggregate purchase price of $9,750,000, which includes $4,875,000 in cash and convertible and non-convertible promissory notes [243]. - The purchase price for Ceautamed is based on a six and one-half (6.5) times multiple of estimated adjusted EBITDA for the calendar year 2021 [244]. - The company has engaged a firm to prepare a quality of earnings report on Ceautamed and its subsidiaries as part of the acquisition process [244]. Financial Performance - Total revenues for the year ended December 31, 2021, were $9,022,593, an increase of $7,062,998, or 360.43%, compared to $1,959,595 for 2020 [260]. - Gross profit for 2021 was $2,897,960, representing an increase of $2,769,994, or 2,164.63%, from $127,966 in 2020 [262]. - Net loss for the year ended December 31, 2021, was $7,765,523, an increase of $4,596,505, or 145.05%, compared to a net loss of $3,169,018 in 2020 [266]. - General and administrative expenses increased by $5,557,769, or 298.31%, to $7,420,856 in 2021 from $1,863,087 in 2020 [263]. - Total cost of revenues for 2021 was $6,124,633, an increase of $4,293,004, or 234.38%, from $1,831,629 in 2020 [261]. - The cost of revenues as a percentage of revenues decreased from 93.47% in 2020 to 67.88% in 2021, indicating improved purchasing power [261]. Cash Flow and Financing Activities - Net cash used in operating activities was $5,019,113 for the year ended December 31, 2021, compared to $1,903,116 for 2020, reflecting a significant increase in operational losses [272]. - Net cash used in investing activities was $8,241,383 for the year ended December 31, 2021, primarily due to acquisitions of DSO and Nexus totaling $8,100,000 [273]. - Net cash provided by financing activities was $12,980,640 for the year ended December 31, 2021, a substantial increase from $2,486,265 in 2020, driven by private placements and note payables [274]. - The company completed a private placement of 6,000 shares of Series A convertible preferred stock for gross proceeds of $6,000,000 on July 1, 2021, followed by an additional $2,000,000 on August 18, 2021 [275]. - The company issued 12% unsecured subordinated convertible debentures totaling $2,250,000 on November 5, 2021, with an outstanding principal balance of $2,214,000 as of December 31, 2021 [276]. - A 5% secured subordinated convertible promissory note of $1,900,000 was issued for the acquisition of Nexus, with the outstanding principal balance also at $1,900,000 as of December 31, 2021 [278]. - The company entered into a loan agreement for a term loan of up to $3,000,000, with an outstanding principal balance of $2,750,000 as of December 31, 2021 [283]. - The company has outstanding principal balances of $5,993,720 for various unsecured promissory notes as of December 31, 2021, up from $3,312,971 in 2020 [286]. - The company received $239,262 in PPP loans in May 2020 and an additional $261,164 in February 2021, both with outstanding balances as of December 31, 2021 [291][292]. Operational Challenges and Market Conditions - The COVID-19 pandemic continues to create significant volatility and uncertainty regarding the company's operations and financial results [250]. - As of December 31, 2021, the company had cash of $205,093, indicating a need for additional funds to execute its business plan [267]. - The company expects to require between $20 million to $60 million in additional capital to execute its business plan over the next 24 months [268]. Accounting and Revenue Recognition - Revenue recognition is evaluated based on ASC 606, with no impact on retained earnings from the adoption of the new standard [296]. - The company primarily generates revenue through the manufacturing and packaging of nutraceutical products, recognizing revenue upon transfer of control to customers [297]. - Nexus generates revenue through sales by product vendors, with revenue recognized net of fraudulent traffic or disputed transactions [299]. - Nexus' general payment terms are short-term, with weekly billing for sales generated by digital marketers [300]. - The company does not have significant financing components or payment terms in its revenue recognition processes [297][300]. Assets and Inventory Management - Goodwill increased by $1.3 million in 2021 due to the acquisition of DSO, while identifiable intangible assets increased by $16.0 million from acquisitions [303]. - No goodwill impairments were recognized during 2021, and there were no impairments of long-lived assets at December 31, 2021 [303][304]. - Inventory is valued at the lower of cost or net realizable value, with an allowance for obsolescence based on slow-moving inventory and current economic conditions [301]. Stock-Based Compensation - Stock-based compensation expenses are recognized over the vesting period, calculated using the Black-Scholes option pricing model [306].
Smart for Life(SMFL) - 2021 Q4 - Annual Report