SMFL.OTC.PinkSmart for Life, INC
10-Q: Smart for Life Reports Q2 2024 Results: Revenue Declines Amid Restructuring Efforts
Sentiment:
Quarterly Report
Smart for Life's Q2 2024 revenue decreased by 34.25% year-over-year, reflecting ongoing challenges and strategic shifts.
Capital raiseManagement believes that currently available resources will not be sufficient to fund our planned expenditures over the next 12 months from the date hereof.Accordingly, we will be dependent upon the raising of additional capital through placement of common stock and/or debt financing in order to implement our business plan.There is no assurance that we will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on our financial condition.
Worse than expectedThe company's revenue decreased by 34.25% year-over-year, indicating a decline in business activity.The company has a working capital deficiency of $9.7 million, raising substantial doubt about its ability to continue as a going concern.The company's cash position remains low at $31,703.
Summary
- Smart for Life, Inc. reported a net loss of $2,211,021 for the three months ended June 30, 2024, compared to a net loss of $4,219,996 for the same period in 2023.
- Revenue decreased by 34.25% to $877,799 for the quarter, primarily due to lower nutraceutical product sales.
- The company's nutraceutical business revenue decreased by 33.72% to $877,799, attributed to cash constraints and inability to procure raw materials.
- Digital marketing revenue was negligible at $115, reflecting a shift in subsidiary focus.
- Cost of revenues decreased by 53.82% to $471,715, aligning with the revenue decline.
- Gross profit increased by 29.57% to $406,084, with gross profit margin improving to 46.26% from 23.48% year-over-year.
- General and administrative expenses decreased by 77.34% to $319,736, driven by lower advertising costs and insurance rates.
- Compensation expenses decreased by 59.96% to $514,684 due to headcount reduction.
- Professional services expenses decreased by 68.87% to $285,289 due to decreased legal fees, investor relations efforts, and audit fees.
- The company had $1,174,119 in total other expense, net, for the three months ended June 30, 2024, as compared to total other expense, net, of $89,176 for the three months ended June 30, 2023.
- The company's cash position as of June 30, 2024, was $31,703.
- The company has a working capital deficiency of $9.7 million, raising substantial doubt about its ability to continue as a going concern.
Sentiment
Score: 3
Explanation: The document presents a mixed picture with some improvements in cost management but significant concerns about revenue decline and the company's ability to continue as a going concern. The need for additional capital raises further contributes to the negative sentiment.
Positives
- Net loss decreased from $4,219,996 to $2,211,021 year-over-year.
- Gross profit margin improved from 23.48% to 46.26% year-over-year.
- General and administrative expenses decreased by 77.34% year-over-year.
- Compensation expenses decreased by 59.96% year-over-year.
- Professional services expenses decreased by 68.87% year-over-year.
Negatives
- Revenue decreased by 34.25% year-over-year.
- The company has a working capital deficiency of $9.7 million, raising substantial doubt about its ability to continue as a going concern.
- Cash position remains low at $31,703.
- The company was not in compliance with all debt covenants as of June 30, 2024.
Risks
- The company's ability to continue as a going concern is in substantial doubt due to recurring losses and a working capital deficiency.
- The company is dependent on raising additional capital through equity or debt financing.
- There is no assurance that the company will be successful with future financing ventures.
- The company was not in compliance with all debt covenants as of June 30, 2024.
- The company's disclosure controls and procedures were not effective as of June 30, 2024, due to material weaknesses in internal control over financial reporting.
Future Outlook
Management believes that currently available resources will not be sufficient to fund our planned expenditures over the next 12 months from the date hereof. Accordingly, we will be dependent upon the raising of additional capital through placement of common stock and/or debt financing in order to implement our business plan.
Industry Context
The report reflects challenges faced by smaller companies in the nutraceutical and digital marketing sectors, particularly regarding access to capital and maintaining operational efficiency. The company's restructuring efforts and focus on cost reduction are common strategies in response to these challenges.
Comparison to Industry Standards
- Given the limited information, a detailed comparison to industry standards is challenging.
- However, the company's gross margin of 46.26% is within the typical range for nutraceutical companies, but the low revenue and high operating expenses indicate significant inefficiencies compared to industry leaders.
- Comparable companies in the nutraceutical space, such as Herbalife Nutrition and Nu Skin Enterprises, typically have higher revenue and more stable financial performance.
- In the digital marketing sector, companies like Awin and CJ Affiliate demonstrate more robust revenue streams and profitability compared to Nexus Offers' performance.
Legal Proceedings
- On September 9, 2024, the SEC issued an order against the Company which found that the Company entered into two separation agreements with former employees that each contained language violating Rule 21F-17(a) of the Securities Exchange Act of 1934, as amended.
- The order imposes a civil money penalty against the Company for the two noted violations in the total amount of $19,500, to be paid in four installments over the course of 360 days from the date of the order and according to the schedule set forth in the order.
Related Party Transactions
- The Company entered into debt with related parties which are reflected in Note 8.
- The Company is party to a management services agreement with Trilogy Capital Group, LLC (Trilogy), a company controlled by the Company's Executive Chairman.
- For the six months ended June 30, 2024 and 2023, the Company paid Trilogy $0 and $27,547, respectively, for services rendered under a consulting agreement which are reflected in the statements of operations as consulting fees related parties.
Stakeholder Impact
- Shareholders face significant risk due to the company's financial instability and potential need for dilutive financing.
- Employees may be affected by ongoing cost-cutting measures and potential restructuring.
- Customers may experience disruptions in product availability due to supply chain challenges and financial constraints.
- Suppliers may face increased credit risk due to the company's financial difficulties.
- Creditors face increased risk of default due to the company's financial instability.
Next Steps
- The company will be dependent upon the raising of additional capital through placement of common stock and/or debt financing in order to implement our business plan.
- The company is performing a full review of its internal control procedures.
- The company has implemented, and plan to continue to implement, new controls and new processes.
- The company has hired and plan to continue to hire additional qualified personnel and establish more robust processes to support our internal control over financial reporting, including clearly defined roles and responsibilities.
Key Dates
| Date | Description |
|---|---|
| 2017-02-07 | Smart for Life, Inc. was originally formed in the State of Delaware. |
| 2018-03-08 | Smart for Life acquired 51% of Millenium Natural Manufacturing Corp. and Millenium Natural Health Products, Inc. |
| 2019-10-08 | Smart for Life entered into an agreement to acquire the remaining 49% of Millenium Natural Manufacturing Corp. and Millenium Natural Health Products, Inc. |
| 2020-06-30 | The Company entered into a promissory note with the U.S. Small Business Administration with a principal amount of $300,000. |
| 2020-09-30 | The name of Millenium Natural Manufacturing Corp. was changed to Bonne Sante Natural Manufacturing, Inc. |
| 2020-09-30 | The Company adopted its 2020 Incentive Plan. |
| 2020-11-24 | Millenium Natural Health Products Inc. was merged into BSNM. |
| 2021-02-28 | The Company received an additional $261,164 in PPP loans under the CARES Act. |
| 2021-07-01 | Smart for Life acquired Doctors Scientific Organica, LLC d/b/a Smart for Life, Oyster Management Services, Ltd., Lawee Enterprises, L.L.C. and U.S. Medical Care Holdings, L.L.C. |
| 2021-07-01 | The Company issued a 6% secured subordinated promissory note in the principal amount of $3,000,000 to a related party, Sasson E. Moulavi (Dr. Moulavi), in connection with the acquisition of DSO. |
| 2021-08-27 | Smart for Life transferred all of the equity interests of Oyster Management Services, Ltd., Lawee Enterprises, L.L.C. and U.S. Medical Care Holdings, L.L.C. to Doctors Scientific Organica, LLC. |
| 2021-11-08 | Smart for Life acquired 100% of Nexus Offers, Inc. |
| 2021-11-08 | The Company issued a 5% secured subordinated promissory note in the principal amount of $1,900,000 to related parties, Justin Francisco and Steven Rubert, in connection with the acquisition of Nexus. |
| 2021-12-06 | Smart for Life acquired 100% of GSP Nutrition Inc. |
| 2022-01-31 | The Company adopted its 2022 Equity Inventive Plan, as amended. |
| 2022-05-19 | Smart for Life acquired Lavi Enterprises, LLC. |
| 2022-07-29 | Smart for Life acquired Ceautamed Worldwide, LLC and its wholly-owned subsidiaries Wellness Watchers Global, LLC and Greens First Female LLC. |
| 2022-07-29 | The Company entered into a securities purchase agreement with an accredited investor, pursuant to which it sold an original issue discount secured subordinated note in the principal amount of $2,272,727 to such investor. |
| 2022-07-29 | The Company issued secured subordinated convertible promissory notes in the aggregate principal amount of $2,150,000 in connection with the acquisition of Ceautamed, which are partially with a related party. |
| 2022-07-29 | The Company issued secured subordinated promissory notes in the aggregate principal amount of $1,300,000 in connection with the acquisition of Ceautamed, which are partially with a related party. |
| 2022-08-15 | Smart for Life entered into a joint venture with a seller of Ceautamed to form Smart Acquisition Group, LLC. |
| 2022-11-28 | The Company entered into letter agreements with the holders of most of the notes to amend the terms of these notes. |
| 2022-12-13 | Oyster Management Services, Ltd. was converted to a limited liability company known as Oyster Management Services, L.L.C. |
| 2023-04-20 | The Company entered into an amendment to the loan agreement, which provided that the Company would make a payment towards the reduction of principal in the amount of $250,000 within two business days of certain events, which did not occur. |
| 2023-08-02 | The Company effected a 1-for-3 reverse stock split of its authorized and outstanding common stock. |
| 2023-09-22 | We dissolved this subsidiary. |
| 2023-10-27 | The Company effected a 1-for-3 reverse stock split of its authorized and outstanding common stock. |
| 2024-01-08 | The retail store location was closed. |
| 2024-01-29 | The Company entered into an asset purchase agreement pursuant to which the Company agreed to sell nearly all of the assets of Ceautamed for a 49% ownership interest in a new limited liability company, First Health FL LLC, or First Health. |
| 2024-02-06 | $123,930 of principal was converted into 121,500 shares of common stock. |
| 2024-02-21 | The Company received a judgement on an original issue discount subordinated debenture dated August 26, 2022, whereby the outstanding amount of the debenture was amended to $399,306, inclusive of legal fees. |
| 2024-02-21 | $100,400 of principal was converted into 125,500 shares of common stock. |
| 2024-02-28 | $126,028 of principal was converted into 128,600 shares of common stock. |
| 2024-02-29 | The outstanding balance and accrued interest of $1,038,592 and $167,667, respectively, was converted into 12,063 shares of series C preferred stock and 53,659 shares of common stock. |
| 2024-04-22 | The Company effected a 1-for-7 reverse stock split of its authorized and outstanding common stock. |
| 2024-05-30 | The Company entered into a memorandum of understanding with the holder and the parties executed a conversion agreement to convert a portion of the outstanding balance of the debenture totaling $256,765 into 79,840 shares of common stock and the outstanding balance of $142,540 to be exchanged for prepaid warrants exercisable for 44,322 warrant shares. |
| 2024-06-03 | The closing of this transaction was completed, and the Company issued the New Warrants. |
| 2024-10-01 | The 51% owner of First Health elected to exercise the option to purchase the remaining 49% interest in First Health from the Company. |
| 2024-10-02 | The Company delivered the remaining 49% interest in First Health to such owner. |
| 2024-11-30 | In November 2024 we relocated the operations of BSNM from Doral, Florida to Riviera Beach, Florida. |
| 2025-03-21 | On March 21, 2025, the Nasdaq Stock Market LLC (Nasdaq) filed a Form 25 with the U.S. Securities and Exchange Commission to complete the delisting of the Company's common stock from The Nasdaq Capital Market, which became effective on March 31, 2025. |
| 2025-03-31 | The delisting of the Company's common stock from The Nasdaq Capital Market became effective. |
| 2025-05-23 | As of May 23, 2025, there were 7,090,728 shares of the registrants common stock issued and outstanding. |
Keywords
financial results, Q2 2024, Smart for Life, revenue, net loss, nutraceutical, debt, going concern, working capital, expenses, acquisitions
Disclaimer:The information provided here is for general informational purposes only and does not constitute financial advice, recommendation, or endorsement of any kind. It may contain errors or omissions. You should not rely on this information to make financial decisions. Always seek the advice of a qualified financial professional before making any investment or financial decisions. Use of this information is at your own risk.