☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Delaware | 87-1280343 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Class A Common Stock , $0.0001par value per share | RGF | Nasdaq Global Market |
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||
Emerging growth company | ☒ |
THE REAL GOOD FOOD COMPANY, INC.
TABLE OF CONTENTS
Page | ||||||||
PART I—FINANCIAL INFORMATION | ||||||||
Item 1. | Financial Statements (unaudited) | |||||||
1 | ||||||||
Consolidated Statements of Operations | 2 | |||||||
Consolidated Statements of Changes in Stockholders’ Equity/Deficit | 3 | |||||||
4 | ||||||||
5 | ||||||||
Item 2. | ||||||||
20 | ||||||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 25 | ||||||
Item | ||||||||
Item 1. | ||||||||
Item | ||||||||
Item | ||||||||
Item 3. | ||||||||
Item 4. | ||||||||
Item 5. | ||||||||
Item 6. | ||||||||
As of | ||||||||
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 10,339 | $ | 27,435 | ||||
Accounts receivable, net | 13,356 | 8,968 | ||||||
Inventories | 32,719 | 16,622 | ||||||
Other current assets | 5,257 | 9,927 | ||||||
Total current assets | 61,671 | 62,952 | ||||||
Property and equipment, net | 32,463 | 10,289 | ||||||
Operating lease right-of-use | 11,576 | 12,127 | ||||||
Deferred loan costs | 721 | 818 | ||||||
Goodwill | 12,486 | 12,486 | ||||||
Restricted cash | 2,310 | 2,310 | ||||||
Other non-current assets | 187 | 1,162 | ||||||
Total assets | $ | 121,414 | $ | 102,144 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 19,055 | $ | 15,205 | ||||
Operating lease liabilities | 1,555 | 1,040 | ||||||
Finance lease liabilities | 2,167 | 198 | ||||||
Business acquisition liabilities, current portion | 893 | 8,111 | ||||||
Accrued and other current liabilities | 4,690 | 6,763 | ||||||
Current portion of long-term debt | 348 | 328 | ||||||
�� | ||||||||
Total current liabilities | 28,708 | 31,645 | ||||||
Revolving line of credit/capex line | 44,679 | 17,501 | ||||||
Lease line of credit | 5,587 | 7,258 | ||||||
Long-term operating lease liabilities | 10,778 | 11,249 | ||||||
Long-term finance lease liabilities | 14,773 | 154 | ||||||
Long-term business acquisition liabilities | 3,116 | 3,352 | ||||||
Total liabilities | 107,641 | 71,159 | ||||||
Commitments and contingencies (Note 12) | 0 | 0 | ||||||
Stockholders’ Equity: | ||||||||
Class A common stock, $ 0.0001 par value - 100,000,000 shares authorized; 6,169,885 shares issued and outstanding as of June 30, 2022 and December 31, 2021 | 1 | 1 | ||||||
Class B common stock, $0.0001 par value - 25,000,000 shares authorized; 19,577,681 shares issued and outstanding as of June 30, 2022 and December 31, 2021 | 2 | 2 | ||||||
Additional paid-in capital | 53,125 | 49,693 | ||||||
Accumulated deficit | (15,098 | ) | (10,143 | ) | ||||
Total stockholders’ equity attributable to The Real Good Food Company, Inc. | 38,030 | 39,553 | ||||||
Non-controlling interest | (24,257 | ) | (8,568 | ) | ||||
Total stockholders’ equity attributable to The Real Good Food Company, Inc. | 13,773 | 30,985 | ||||||
Total liabilities and stockholders’ equity | $ | 121,414 | $ | 102,144 | ||||
As of | ||||||||
March 31, | December 31, | |||||||
2023 | 2022 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 550 | $ | 5,279 | ||||
Accounts receivable, net | 19,906 | 20,316 | ||||||
Inventories | 45,360 | 39,479 | ||||||
Other current assets | 1,278 | 1,026 | ||||||
Total current assets | 67,094 | 66,100 | ||||||
Property and equipment, net | 37,590 | 38,497 | ||||||
Operating lease right-of-use | 10,522 | 10,881 | ||||||
Deferred loan cost | 887 | 970 | ||||||
Goodwill | 12,486 | 12,486 | ||||||
Restricted Cash | 2,326 | 2,318 | ||||||
Other noncurrent assets | 187 | 187 | ||||||
Total assets | $ | 131,092 | $ | 131,439 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 22,906 | $ | 23,424 | ||||
Operating lease liabilities | 1,504 | 1,455 | ||||||
Finance lease liabilities | 3,229 | 3,310 | ||||||
Business acquisition liabilities, current portion | — | 946 | ||||||
Accrued and other current liabilities | 2,472 | 3,719 | ||||||
Current portion of long-term debt | 479 | 370 | ||||||
Total current liabilities | 30,590 | 33,224 | ||||||
Revolving line of credit/capex line | 59,768 | 59,481 | ||||||
Long-term operating lease liabilities | 9,632 | 10,030 | ||||||
Long-term finance lease liabilities | 23,269 | 24,099 | ||||||
Term loan | 20,000 | 10,000 | ||||||
Equipment loan | 7,645 | — | ||||||
Long-term Business acquisition liabilities | — | 2,405 | ||||||
Other long term liabilities | 191 | 302 | ||||||
Total Liabilities | 151,095 | 139,541 | ||||||
Commitments and contingencies (Note 11) | ||||||||
Stockholders’ Deficit/Equity: | ||||||||
Preferred stock, $0.0001 par value—10,000,000 shares authorized; no shares issued and outstanding as of March 31, 2023 and December 31, 2022 | — | — | ||||||
Class A common stock, $0.0001 par value—100,000,000 shares authorized; 7,187,951 and 6,424,840 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively | 1 | 1 | ||||||
Class B common stock, $0.0001 par value—25,000,000 shares authorized; and 18,677,681 and 19,377,681 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively | 2 | 2 | ||||||
Additional paid-in capital | 58,049 | 56,273 | ||||||
Accumulated deficit | (24,819 | ) | (21,126 | ) | ||||
Total stockholders’ equity attributable to The Real Good Food Company, Inc. | 33,233 | 35,150 | ||||||
Non-controlling interest | (53,236 | ) | (43,252 | ) | ||||
Total stockholders’ deficit | (20,003 | ) | (8,102 | ) | ||||
Total liabilities and stockholders’ equity | $ | 131,092 | $ | 131,439 | ||||
THREE MONTHS ENDED JUNE 30, | SIX MONTHS ENDED JUNE 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net sales | $ | 30,809 | $ | 18,685 | $ | 68,385 | $ | 35,463 | ||||||||
Cost of sales | 28,458 | 16,023 | 61,787 | 28,788 | ||||||||||||
Gross profit | 2,351 | 2,662 | 6,598 | 6,675 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling and distribution | 4,909 | 3,049 | 10,236 | 5,968 | ||||||||||||
Marketing | 1,172 | 755 | 2,958 | 1,387 | ||||||||||||
Administrative | 6,089 | 2,982 | 11,867 | 5,802 | ||||||||||||
Total operating expenses | 12,170 | 6,786 | 25,061 | 13,157 | ||||||||||||
Loss from operations | (9,819 | ) | (4,124 | ) | (18,463 | ) | (6,482 | ) | ||||||||
Interest expense | 1,291 | 1,440 | 2,181 | 3,483 | ||||||||||||
Change in fair value of convertible debt | — | 370 | — | 370 | ||||||||||||
Loss before income taxes | (11,110 | ) | (5,934 | ) | (20,644 | ) | (10,335 | ) | ||||||||
Income tax expense | — | — | — | — | ||||||||||||
Net loss | $ | (11,110 | ) | $ | (5,934 | ) | $ | (20,644 | ) | $ | (10,335 | ) | ||||
Less: net loss attributable to non-controlling interest | (8,449 | ) | — | (15,689 | ) | — | ||||||||||
Preferred return on Series A preferred units | — | 146 | — | 292 | ||||||||||||
Net loss attributable to The Real Good Food Company, Inc. | $ | (2,661 | ) | $ | (6,080 | ) | $ | (4,955 | ) | $ | (10,627 | ) | ||||
Net loss per common unit (basic and diluted) | $ | (0.43 | ) | $ | (0.69 | ) | $ | (0.80 | ) | $ | (1.21 | ) | ||||
Weighted-average common units outstanding (basic and diluted) | 6,169,885 | 8,800,132 | 6,169,885 | 8,800,132 | ||||||||||||
THREE MONTHS ENDED | ||||||||
MARCH 31, | ||||||||
2023 | 2022 | |||||||
Net sales | $ | 29,798 | $ | 37,576 | ||||
Cost of sales | 24,810 | 33,329 | ||||||
Gross profit | 4,988 | 4,247 | ||||||
Operating expenses: | ||||||||
Selling and distribution | 5,424 | 5,327 | ||||||
Marketing | 1,634 | 1,786 | ||||||
Administrative | 8,673 | 5,801 | ||||||
Total operating expenses | 15,731 | 12,914 | ||||||
Loss from operations | (10,743 | ) | (8,667 | ) | ||||
Interest expense | 3,282 | 890 | ||||||
Other income | (348 | ) | — | |||||
Loss before income taxes | (13,677 | ) | (9,557 | ) | ||||
Income tax expense | — | — | ||||||
Net Loss | $ | (13,677 | ) | $ | (9,557 | ) | ||
Less: net loss attributable to non-controlling interest | (9,984 | ) | (7,263 | ) | ||||
Net loss attributable to The Real Good Food Company, Inc. | $ | (3,693 | ) | $ | (2,294 | ) | ||
Net loss per common share (basic and diluted) | $ | (0.53 | ) | $ | (0.37 | ) | ||
Weighted-average common shares outstanding (basic and diluted) | 6,992,101 | 6,169,885 |
Class A Common Stock | Class B Common Stock | Additional Paid- in Capital | Accumulated Deficit | Non-Controlling Interest | Total Equity (Deficit) | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
Balance, December 31, 2021 | 6,169,885 | $ | 1 | 19,577,681 | $ | 2 | $ | 49,693 | $ | (10,143 | ) | $ | (8,568 | ) | $ | 30,985 | ||||||||||||||||
Net loss | — | — | — | — | — | (2,294 | ) | (7,240 | ) | (9,534 | ) | |||||||||||||||||||||
Equity-based compensation | — | — | — | — | 1,699 | — | — | 1,699 | ||||||||||||||||||||||||
Balance, March 31, 2022 | 6,169,885 | $ | 1 | 19,577,681 | $ | 2 | $ | 51,392 | $ | (12,437 | ) | $ | (15,808 | ) | $ | 23,150 | ||||||||||||||||
Class A Common Stock | Class B Common Stock | Additional Paid- in Capital | Accumulated Deficit | Non-Controlling Interest | Total Equity (Deficit) | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
Balance, December 31, 2022 | 6,424,840 | $ | 1 | 19,377,681 | $ | 2 | $ | 56,273 | $ | (21,126 | ) | $ | (43,252 | ) | $ | (8,102 | ) | |||||||||||||||
Net loss | — | — | — | — | — | (3,693 | ) | (9,984 | ) | (13,677 | ) | |||||||||||||||||||||
Conversion of Class B units | 700,000 | — | (700,000 | ) | — | — | — | — | — | |||||||||||||||||||||||
Equity-based compensation 1 | 63,111 | — | — | 1,776 | — | — | 1,776 | |||||||||||||||||||||||||
Balance, March 31, 2023 | 7,187,951 | $ | 1 | 18,677,681 | $ | 2 | $ | 58,049 | $ | (24,819 | ) | $ | (53,236 | ) | $ | (20,003 | ) | |||||||||||||||
1 | Net of $0.2 million for shares surrendered and cancelled in connection with income taxes related to equity compensation. |
THE REAL GOOD FOOD COMPANY, INC. | ||||||||||||||||||||||||||||||||||||||||
Unaudited Consolidated Statements of Stockholders’ Equity/Members’ Deficit | ||||||||||||||||||||||||||||||||||||||||
(In thousands except for share data) | ||||||||||||||||||||||||||||||||||||||||
Class A Common Stock | Class B Common Stock | |||||||||||||||||||||||||||||||||||||||
Members’ Equity | Members’ Accumulated Deficit | Shares | Amount | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Non-Controlling Interest | Total Equity | |||||||||||||||||||||||||||||||
Balance, March 31, 2022 | $ | — | $ | — | 6,169,885 | $ | 1 | 19,577,681 | $ | 2 | $ | 51,392 | $ | (12,437 | ) | $ | (15,808 | ) | $ | 23,150 | ||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (2,661 | ) | (8,449 | ) | (11,110 | ) | |||||||||||||||||||||||||||
Equity-based compensation | — | — | — | — | — | — | 1,733 | — | — | 1,733 | ||||||||||||||||||||||||||||||
Balance, June 30, 2022 | $ | — | $ | — | 6,169,885 | $ | 1 | 19,577,681 | $ | 2 | $ | 53,125 | $ | (15,098 | ) | $ | (24,257 | ) | $ | 13,773 | ||||||||||||||||||||
Class A Common Stock | Class B Common Stock | |||||||||||||||||||||||||||||||||||||||
Members’ Equity | Members’ Accumulated Deficit | Shares | Amount | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Non-Controlling Interest | Total Equity | |||||||||||||||||||||||||||||||
Balance, December 31, 2021 | $ | — | $ | — | 6,169,885 | $ | 1 | 19,577,681 | $ | 2 | $ | 49,693 | $ | (10,143 | ) | $ | (8,568 | ) | $ | 30,985 | ||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (4,955 | ) | (15,689 | ) | (20,644 | ) | |||||||||||||||||||||||||||
Equity-based compensation | — | — | — | — | — | — | 3,432 | — | — | 3,432 | ||||||||||||||||||||||||||||||
Balance, June 30, 2022 | $ | — | $ | — | 6,169,885 | $ | 1 | 19,577,681 | $ | 2 | $ | 53,125 | $ | (15,098 | ) | $ | (24,257 | ) | $ | 13,773 | ||||||||||||||||||||
Class A Common Stock | Class B Common Stock | |||||||||||||||||||||||||||||||||||||||
Members’ Equity | Members’ Accumulated Deficit | Shares | Amount | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Non-Controlling Interest | Total Equity | |||||||||||||||||||||||||||||||
Balance, December 31, 2020 | $ | 9,065 | $ | (39,232 | ) | — | $ | — | — | $ | — | $ | — | $ | — | $ | — | $ | (30,167 | ) | ||||||||||||||||||||
Net loss | — | (10,335 | ) | — | — | — | — | — | — | — | (10,335 | ) | ||||||||||||||||||||||||||||
Balance, June 30, 2021 | $ | 9,065 | $ | (49,567 | ) | — | $ | — | — | $ | — | $ | — | $ | — | $ | — | $ | (40,502 | ) | ||||||||||||||||||||
Class A Common Stock | Class B Common Stock | |||||||||||||||||||||||||||||||||||||||
Members’ Equity | Members’ Accumulated Deficit | Shares | Amount | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Non-Controlling Interest | Total Equity | |||||||||||||||||||||||||||||||
Balance, March 31, 2021 | $ | 9,065 | $ | (43,633 | ) | — | $ | — | — | $ | — | $ | — | $ | — | $ | — | $ | (34,568 | ) | ||||||||||||||||||||
Net loss | — | (5,934 | ) | — | — | — | — | — | — | — | (5,934 | ) | ||||||||||||||||||||||||||||
Balance, June 30, 2021 | $ | 9,065 | $ | (49,567 | ) | — | $ | — | — | $ | — | $ | — | $ | — | $ | — | $ | (40,502 | ) | ||||||||||||||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2023 | 2022 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (13,677 | ) | $ | (9,557 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 1,591 | 400 | ||||||
Amortization of loan costs | 83 | 50 | ||||||
Non-Cash interest and debt fees | 1,940 | 297 | ||||||
Equity Compensation expense | 1,943 | 1,699 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 410 | 2,053 | ||||||
Inventories | (5,881 | ) | (3,887 | ) | ||||
Other assets | (264 | ) | 1,794 | |||||
Accounts payable, accrued expenses and lease liabilities | (2,088 | ) | 962 | |||||
Net cash used in operating activities | (15,943 | ) | (6,189 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | (537 | ) | (3,647 | ) | ||||
Net cash used in investing activities | (537 | ) | (3,647 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from line of credit borrowings | 23,000 | 1,850 | ||||||
Payments on line of credit borrowings | (10,210 | ) | — | |||||
Payments on acquisition related Contingent consideration | — | (7,125 | ) | |||||
Payments on acquisition related term loan | (99 | ) | (202 | ) | ||||
Payments on finance lease liabilities | (932 | ) | (59 | ) | ||||
Net cash provided by (used in) financing activities | 11,759 | (5,536 | ) | |||||
Net decrease in cash and restricted cash | $ | (4,721 | ) | $ | (15,372 | ) | ||
Beginning cash and restricted cash | 7,597 | 29,745 | ||||||
Ending cash and restricted cash | $ | 2,876 | $ | 14,373 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest | $ | 1,631 | $ | 640 | ||||
Supplemental disclosures of noncash investing and financing activities: | ||||||||
Purchase of property and equipment in lease line of credit | $ | — | $ | 7,384 | ||||
Purchase of property and equipment in AP and accrued liabilities | $ | 343 | $ | 2,048 |
Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (20,644 | ) | $ | (10,335 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 804 | 447 | ||||||
Amortization of loan costs | 487 | 1,303 | ||||||
Non-cash interest and debt fees | 1,117 | 1,773 | ||||||
Equity compensation expense | 3,432 | — | ||||||
Remeasurement of contingent consideration in business combinations | — | 73 | ||||||
Change in fair value of convertible debt | — | 370 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, net | (4,388 | ) | (1,068 | ) | ||||
Inventories | (16,097 | ) | 3,677 | |||||
Other current and noncurrent assets | 5,645 | (279 | ) | |||||
Accounts payable and accrued expenses | 1,179 | 2,803 | ||||||
Operating and finance lease liabilities, current and long-term | (1,632 | ) | — | |||||
Net cash used in operating activities | (30,097 | ) | (1,236 | ) | ||||
Cash flows from investing activities: | ||||||||
Acquisition of business, net of cash acquired | — | (1,633 | ) | |||||
Purchase of property and equipment | (3,630 | ) | (895 | ) | ||||
Net cash used in investing activities | (3,630 | ) | (2,528 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from line of credit borrowings | 29,449 | — | ||||||
Payment on line of credit borrowings | (5,085 | ) | — | |||||
Payments on acquisition related contingent consideration | (7,125 | ) | — | |||||
Payments on acquisition related term loan | (502 | ) | — | |||||
Payments on finance lease liabilities | (106 | ) | (76 | ) | ||||
Proceeds from debt | — | 4,186 | ||||||
Proceeds from convertible notes | — | 35,000 | ||||||
Payments on debt | — | (34,242 | ) | |||||
Payments of deferred offering cost | — | (478 | ) | |||||
Net cash provided by financing activities | 16,631 | 4,390 | ||||||
Net (decrease) increase in cash and restricted cash | (17,096 | ) | 626 | |||||
Beginning cash and restricted cash | 29,745 | 28 | ||||||
Ending cash and restricted cash | $ | 12,649 | $ | 654 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest | $ | 1,500 | $ | 305 | ||||
Supplemental disclosures of noncash investing and financing activities: | ||||||||
Net liabilities assumed from business combination | $ | — | $ | 15,209 | ||||
Lease liabilities arising from obtaining right-of-use | $ | — | $ | 4,250 | ||||
Purchase of property and equipment in accounts payable and accrued liabilities | $ | 978 | $ | 77 | ||||
Deferred offering costs in accounts payable and accrued liabilities | $ | — | $ | 283 | ||||
Purchase of property and equipment in lease line of credit | $ | 18,370 | $ | — |
The Real Good Food Company, Inc. used all of the net proceeds it received from the IPO to acquire Class A units of RGF at a purchase price per Class A unit equal to the IPO price per share of Class A common stock, less underwriting discounts and commissions, collectively representing 24% of the economic interests and all of the voting interests in the Reorganization of RGF’s outstanding units, including both Class A units and Class B units, following the IPO. RGF in turn used all of the net proceeds it received from The Real Good Food Company, Inc. for its continuing operations; and |
The Real Good Food Company, Inc. became a holding company and the sole managing member of RGF, which has continued to operate the Company’s business. |
MARCH 31, | MARCH 31, | |||||||||||
(In thousands) | June 30, 2022 | 2023 | 2022 | |||||||||
Cash | $ | 10,339 | $ | 550 | $ | 12,063 | ||||||
Restricted cash | 2,310 | 2,326 | 2,310 | |||||||||
Total cash reported in statements of cash flows | $ | 12,649 | $ | 2,876 | $ | 14,373 | ||||||
Estimated Useful Lives | ||
Computers | 3 years | |
Office equipment | 5 years | |
Machinery and equipment | 5 – 10 years |
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||
(in 000s) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Entrees | $ | 26,733 | $ | 14,522 | $ | 59,978 | $ | 26,907 | ||||||||
Breakfast | 2,932 | 1,576 | 5,839 | 3,212 | ||||||||||||
Pizza and snacks | 1,144 | 2,587 | 2,568 | 5,344 | ||||||||||||
Total net sales | $ | 30,809 | $ | 18,685 | $ | 68,385 | $ | 35,463 | ||||||||
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
(in ‘000s) | ||||||||
Entrees | $ | 27,327 | $ | 33,245 | ||||
Breakfast | 2,299 | 2,907 | ||||||
Pizza and Snacks | 172 | 1,424 | ||||||
Total Net Sales | $ | 29,798 | $ | 37,576 | ||||
(In thousands) | AS OF MARCH 10, 2021 | |||
Inventories | $ | 500 | ||
Property and equipment | 3,577 | |||
Operating leases right-of-use | 3,157 | |||
Total identifiable assets | $ | 7,234 | ||
Operating lease labilities – current | $ | 174 | ||
(In thousands) | AS OF MARCH 10, 2021 | |||
Operating lease labilities – non-current | 2,777 | |||
Total liabilities assumed | $ | 2,951 | ||
Net identifiable assets acquired | $ | 4,283 | ||
Goodwill | 12,486 | |||
Total purchase price allocation | $ | 16,769 | ||
As of | ||||||||
(in thousands) | June 30, 2022 | December 31, 2021 | ||||||
Ingredients and supplies | $ | 15,886 | $ | 6,646 | ||||
Finished goods | 16,833 | 9,976 | ||||||
Total inventories | $ | 32,719 | $ | 16,622 | ||||
As of | ||||||||
March 31, | December 31, | |||||||
(in thousands) | 2023 | 2022 | ||||||
Ingredients and supplies | $ | 18,100 | $ | 16,753 | ||||
Finished Goods | 27,260 | 22,726 | ||||||
Total inventories | $ | 45,360 | $ | 39,479 | ||||
As of | As of | |||||||||||||||
(in thousands) | June 30, 2022 | December 31, 2021 | ||||||||||||||
(In thousands) | March 31, 2023 | December 31, 2022 | ||||||||||||||
Computer equipment | $ | 122 | $ | 106 | $ | 122 | $ | 122 | ||||||||
Vehicles | 164 | 69 | 164 | 164 | ||||||||||||
Machinery and equipment | 27,027 | 8,829 | 43,468 | 43,193 | ||||||||||||
Leasehold improvements and office equipment | 695 | 519 | 751 | 751 | ||||||||||||
Total property and equipment | 28,008 | 9,520 | $ | 44,505 | $ | 44,230 | ||||||||||
Less: accumulated depreciation | (2,722 | ) | (2,571 | ) | (7,377 | ) | (5,793 | ) | ||||||||
Subtotal | 25,286 | 6,949 | 37,128 | 38,437 | ||||||||||||
Construction in progress | 7,177 | 3,340 | 462 | 60 | ||||||||||||
Property and equipment, net | $ | 32,463 | $ | 10,289 | $ | 37,590 | $ | 38,497 | ||||||||
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||
(in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||||||
(in ‘000s) | ||||||||||||||||||||||||
Operating lease costs | $ | 432 | $ | 218 | $ | 1,024 | $ | 299 | $ | 603 | $ | 592 | ||||||||||||
Finance lease costs: | ||||||||||||||||||||||||
Amortization of ROU assets | 65 | 44 | 133 | 94 | 1,079 | 68 | ||||||||||||||||||
Interest on lease liabilities | 8 | 4 | 18 | 8 | 569 | 10 | ||||||||||||||||||
Short-term lease costs | — | — | 146 | 214 | 117 | 146 | ||||||||||||||||||
Total lease costs | $ | 505 | $ | 266 | $ | 1,321 | $ | 615 | $ | 2,368 | $ | 816 | ||||||||||||
As of March 31, | As of December 31, | |||||||||
2023 | 2022 | |||||||||
Assets | Balance Sheet Location | |||||||||
Operating lease right-of-use | Operating lease right-of-use | $ | 10,522 | $ | 10,881 | |||||
Finance lease right-of-use | Property and equipment, net | 26,597 | 27,392 | |||||||
Total lease assets | $ | 37,119 | $ | 38,273 | ||||||
Liabilities | ||||||||||
Current: | ||||||||||
Operating lease liabilities | Operating lease liabilities | $ | 1,504 | $ | 1,455 | |||||
Finance lease liabilities | Finance lease liabilities | 3,229 | 3,310 | |||||||
Noncurrent: | ||||||||||
Operating lease liabilities | Long term Operating lease liabilities | 9,632 | 10,030 | |||||||
Finance lease liabilities | Long term Finance lease liabilities | 23,269 | 24,099 | |||||||
Total lease liabilities | $ | 37,634 | $ | 38,894 | ||||||
As of June 30, | As of December 31, | |||||||||
(in thousands) | 2022 | 2021 | ||||||||
Assets | Balance Sheet Location | |||||||||
Operating lease right-of-use | Operating lease right-of-use | $ | 11,576 | $ | 12,127 | |||||
Finance lease right-of-use | Property and equipment, net | 17,563 | 822 | |||||||
Total lease assets | $ | 29,139 | $ | 12,949 | ||||||
Liabilities | ||||||||||
Current: | ||||||||||
Operating lease liabilities | Operating lease liabilities | $ | 1,555 | $ | 1,040 | |||||
Finance lease liabilities | Financing lease liabilities | 2,167 | 198 | |||||||
Noncurrent: | ||||||||||
Operating lease liabilities | Long term operating lease liabilities | 10,778 | 11,249 | |||||||
Finance lease liabilities | Long term finance lease liabilities | 14,773 | 154 | |||||||
Total lease liabilities | $ | 29,273 | $ | 12,641 | ||||||
Three Months Ended March 31, | ||||||||||
Supplemental Cash Flow Information: | ||||||||||
Cash paid for amounts included in the measurement of lease liabilities | ||||||||||
Operating cash flows from operating leases | $ | 592 | $ | 219 | ||||||
Operating cash flows from finance leases | $ | 569 | $ | 10 | ||||||
Financing cash flows from finance leases | $ | 932 | $ | 59 |
Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
(in thousands) | ||||||||
Supplemental cash flow information: | ||||||||
Cash paid for amounts included in the measurement of lease liabilities | ||||||||
Operating cash flows from operating leases | $ | 581 | $ | 212 | ||||
Operating cash flows from finance leases | $ | 18 | $ | 8 | ||||
Financing cash flows from finance lease | $ | 106 | $ | 76 | ||||
Supplemental noncash information on lease liabilities arising from obtaining right-of-use | $ | 18,370 | $ | 4,250 |
(in thousands) | Operating Leases | Finance Leases | ||||||||||||||||
Remaining of 2022 | $ | 1,142 | $ | 1,893 | ||||||||||||||
2023 | 2,341 | 3,221 | ||||||||||||||||
(in Thousands) | Operating Leases | Finance Leases | ||||||||||||||||
Remainder of 2023 | $ | 1,789 | $ | 3,977 | ||||||||||||||
2024 | 2,402 | 3,058 | 2,443 | 5,290 | ||||||||||||||
2025 | 2,456 | 3,058 | 2,470 | 5,290 | ||||||||||||||
2026 | 2,291 | 3,058 | 2,291 | 5,290 | ||||||||||||||
2027 | 2,176 | 5,290 | ||||||||||||||||
Thereafter | 5,161 | 7,390 | 2,985 | 9,107 | ||||||||||||||
Total future lease payments | 15,793 | 21,678 | 14,154 | 34,244 | ||||||||||||||
Less: imputed interest | (3,460 | ) | (4,738 | ) | ||||||||||||||
Less: Interest | (3,018 | ) | (7,746 | ) | ||||||||||||||
Present value of lease obligations | 12,333 | 16,940 | $ | 11,136 | $ | 26,498 | ||||||||||||
March 31, | December 31, | |||||||||||||||
Maturity Date | Interest Rate | 2023 | 2022 | |||||||||||||
PMC Revolver | November 2025 | Prime rate plus 4.25% | $ | 59,768 | $ | 55,181 | ||||||||||
PMC Capex line | N/A* | Prime rate plus 8.5% | — | 4,670 | ||||||||||||
PMC Equipment loan | August 2028 | Prime rate plus 6.1% | 8,125 | — | ||||||||||||
PMC Term Loan | August 2028 | Prime rate plus 7.85% | 20,000 | 10,000 | ||||||||||||
87,893 | 69,851 | |||||||||||||||
Less: Current maturities of long-term debt | 479 | 370 | ||||||||||||||
Long-term debt | $ | 87,414 | $ | 69,481 | ||||||||||||
(in thousands) | Maturity Date | Interest Rate | As of June 30, 2022 | As of December 31, 2021 | ||||||||
PMC Revolver | November 2025 | Prime rate plus 3.5% | $ | 39,920 | $ | 14,227 | ||||||
PMC CapEx Line | November 2025 | Prime rate plus 8.5% | 5,107 | 3,602 | ||||||||
PMC Lease Line of Credit | November 2025 | Prime rate plus 8.5% | 5,587 | 7,258 | ||||||||
50,614 | 250,87 | |||||||||||
Less: current maturities of long-term debt | 348 | 328 | ||||||||||
Long-term debt | $ | 50,266 | $ | 24,759 | ||||||||
* | The Capex line was consolidated into the Equipment loan February 2023 |
PMC Revolver | % | |||
PMC | % | |||
PMC | % |
Remainder of 2022 | $ | 600 | ||||||
2023 | 370 | |||||||
Remainder of 2023 | $ | 1,508 | ||||||
2024 | 417 | 4,299 | ||||||
2025 | 49,227 | 64,785 | ||||||
2026 | 5,841 | |||||||
2027 | 6,801 | |||||||
Thereafter | 4,659 | |||||||
Total payments outstanding | $ | 50,614 | $ | 87,893 | ||||
(in thousands) | Dollar Value | Effect of Reorganization | Post Reorganization | |||||||||
Common units | $ | 1,013 | $ | (1,013 | ) | $ | — | |||||
Series A preferred units | 7,337 | (7,337 | ) | — | ||||||||
Series Seed preferred units | 715 | (715 | ) | — | ||||||||
Members equity November 9, 2021 | — | — | 9,065 | |||||||||
Total | $ | 9,065 | $ | (9,065 | ) | $ | 9,065 | |||||
(in thousands) | FOR THE THREE MONTHS ENDED JUNE 30, | FOR THE SIX MONTHS ENDED JUNE 30, | ||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Numerator: | ||||||||||||||||
Net Loss (1) | $ | (11,110 | ) | $ | (5,934 | ) | $ | (20,644 | ) | $ | (10,335 | ) | ||||
Less: net loss attributable to non-controlling interest | (8,449 | ) | — | (15,689 | ) | — | ||||||||||
Less: Series A preferred dividends | — | 146 | — | 292 | ||||||||||||
Net loss attributable to common share/unitholders | $ | (2,661 | ) | $ | (6,080 | ) | $ | (4,955 | ) | $ | (10,627 | ) | ||||
Denominator: | ||||||||||||||||
Weighted-average shares/units outstanding (2) | 6,169,885 | 8,800,132 | 6,169,885 | 8,800,132 | ||||||||||||
Loss per common share/unit | $ | (0.43 | ) | $ | (0.69 | ) | $ | (0.80 | ) | $ | (1.21 | ) |
THREE MONTHS ENDED MARCH 31, | ||||||||
2023 | 2022 | |||||||
Numerator: | ||||||||
Net Loss | $ | (3,693 | ) | $ | (2,294 | ) | ||
Denominator: | ||||||||
Weighted-average shares outstanding | 6,992,101 | 6,169,885 | ||||||
Loss per common share | $ | (0.53 | ) | $ | (0.37 | ) |
Restricted Stock Units | Grant Date Fair Value | |||||||
Outstanding/Unvested as of December 31, 2021 | 1,113,410 | $ | 9.50 | |||||
Granted | 1,373,395 | $ | 6.26 | |||||
Outstanding/Unvested as of June 30, 2022 | 2,486,805 | — |
Restricted Stock Units | Weighted Average Grant Date Fair Value | |||||||
Outstanding/Unvested at December 31, 2022 | 2,384,896 | 7.66 | ||||||
Granted | 725,604 | 6.61 | ||||||
Forfeited | — | — | ||||||
Vested | (88,011 | ) | 6.26 | |||||
Outstanding/Unvested at March 31, 2023 | 3,022,489 | 7.45 | ||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis of our financial condition and results of operations (“MD&A”) is provided to assist readers in understanding our performance, as reflected in the results of our operations, our financial condition and our cash flows. The following discussion summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and cash flows as of and for the periods presented below. This MD&A contains “forward-looking statements, which are subject to considerable risks and uncertainties, and should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on
Our future results could differ materially from our historical performance as a result of various factors, such as those discussed in “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 20212022 (the “Annual Report”), filed with the Securities and Exchange Commission on March 30, 2022,31, 2023, and the section entitled “Forward-Looking Statements” within this Quarterly Report.
Overview of Our Business
We are a frozen food company that develops, markets, and manufactures foods that are designed to be high in protein, low in sugar, and gluten- and grain- free. We, along with
Since our inception, we have focused on creating health and wellness (“H&W”) products for the frozen food aisle, where we believe H&W brands are underrepresented compared to other categories. We compete in multiple large subcategories within the U.S. frozen food category, including frozen entrée and breakfast, which we consider our two core, strategic growth subcategories. Currently, we sell comfort foods such as our bacon wrapped stuffed chicken, chicken enchiladas, grain-free cheesy bread breakfast sandwiches, and various entrée bowls. All of our products are prepared with our proprietary ingredient systems and recipes, allowing us to provide consumers with delicious meals designed to be high in protein, low in sugar, and gluten and grain free.
On November 4, 2021, Real Good Foods, LLC (“RGF”), the successor to The Real Good Food Company LLC (the “Predecessor”), underwent a reorganization whereby the RGF become a subsidiary of The Real Good Food Company, Inc. (RGF, together with The Real Good Food Company, Inc., the “Company”). The Real Good Food Company, Inc. completed an initial public offering (“IPO”) on November 9, 2021, in which it issued and sold shares of its Class A common stock, $0.0001 par value per share, at an offering price of $12.00 per share. For periods subsequent to November 4, 2021, any references to the Company shall imply The Real Good Food Company, Inc., and its consolidated subsidiary.
Trends and Other Factors Affecting Our Business and Industry
Our results are impacted by economic and consumer trends, as well as pressures impacting food industry market dynamics, such as sourcing and supply chain constraints. Changes in trends in consumer buying patterns may impact the results of our operations. In recent years, there has been an increased focus on healthy eating and on consuming natural, organic and specialty foods. These trends have benefited the Company, as has the rise in
Components of Our Results of Operations
Net Sales
Our net sales are primarily derived from the sale of our products directly to our retail customers. Our products are sold to consumers through an increasing number of locations in retail channels, primarily in natural and conventional grocery, drug, club and mass merchandise stores. We sell a limited percentage of our products to consumers
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Gross Profit
Gross profit consists of our net sales less cost of sales. Our cost of sales primarily consists of the cost of ingredients for our products, direct and indirect labor
Operating Expense
Selling and Distribution Expense
Our products are shipped from our and
Marketing Expense
Marketing expense includes salaries and wages for marketing personnel, website costs, advertising costs, costs associated with consumer promotions, influencer and promotional agreements, product samples and sales ads incurred to acquire new customers and consumers, retain existing customers and consumers, and build our brand awareness.
Administrative Expense
Administrative expense includes salaries, wages, and bonuses for our management and general administrative personnel, research and development costs, depreciation
Non-Controlling Interest
As the sole managing member of RGF, The Real Good Food Company, Inc. operates and controls all of the business and affairs of RGF. Although it has a minority economic interest in RGF, The Real Good Food Company, Inc. has a majority voting interest in, and control the management of, RGF. Accordingly, it consolidates the financial results of RGF and reports
Segment Overview
Our chief operating decision maker, who is our Chief Executive Officer, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance, as well as for strategic operational decisions and managing the organization. For the periods presented, we have determined that we have one operating segment and one reportable segment. In addition, all of our assets are located within the U.S.
21
Seasonality
We experience mild seasonal earning characteristics, predominantly with products that experience lower sales volume in warm-weather months. For example, our bacon wrapped stuffed chicken experiences seasonal softness during months that consumers prefer to grill outdoors instead of preparing microwaveable meals. In addition, similar to other H&W brands, the highest percentage of our net sales tends to occur in the first and second quarters of the calendar year, when consumers are more likely to seek H&W brands. Further, certain of the ingredients we process, such as cauliflower and artichoke hearts, are agricultural crops with seasonal production cycles. These seasonal earning characteristics have not historically had a material impact on our net sales primarily due to the timing and strong growth of our total distribution points. The bulk of our distribution point gains are a function of retailer shelf-resets, which tend to occur during the third and fourth quarters of the calendar year, which helps to support year-round performance across our product offerings. As our business continues to grow, we expect the impact from seasonality to increase over time, with net sales growth occurring predominantly in the first and second quarters.
Results of Operations — Comparison of the Three Months Ended June 30,March 31, 2023 and 2022 and 2021
The following table details the results of our operations for the three months ended June 30,March 31, 2023 and 2022 and 2021 (dollars in thousands):
Three Months Ended June 30, | ||||||||||||||||
2022 | 2021 | $ Change | % Change | |||||||||||||
Net sales | $ | 30,809 | $ | 18,685 | $ | 12,124 | 64.9 | % | ||||||||
Cost of sales | 28,458 | 16,023 | 12,435 | 77.6 | % | |||||||||||
Gross profit | 2,351 | 2,662 | (311 | ) | (11.7 | )% | ||||||||||
Operating expenses | ||||||||||||||||
Selling and distribution | 4,909 | 3,049 | 1,860 | 61.0 | % | |||||||||||
Marketing | 1,172 | 755 | 417 | 55.2 | % | |||||||||||
Administrative | 6,089 | 2,982 | 3,107 | 104.2 | % | |||||||||||
Total operating expenses | 12,170 | 6,786 | 5,384 | 79.3 | % | |||||||||||
Loss from operations | (9,819 | ) | (4,124 | ) | (5,695 | ) | 138.1 | % | ||||||||
Interest expense | 1,291 | 1,440 | (149 | ) | (10.3 | )% | ||||||||||
Change in fair value of convertible debt | — | 370 | (370 | ) | (100.0 | )% | ||||||||||
Loss before income taxes | (11,110 | ) | (5,934 | ) | (5,176 | ) | 87.2 | % | ||||||||
Income tax expense | — | — | — | — | % | |||||||||||
Net loss | $ | (11,087 | ) | $ | (5,934 | ) | $ | (5,176 | ) | 87.2 | % | |||||
Less: net loss attributable to non-controlling interest | (8,449 | ) | — | |||||||||||||
Preferred return on Series A preferred units | — | 146 | ||||||||||||||
Net loss attributable to The Real Good Food Company, Inc. | $ | (2,661 | ) | $ | (6,080 | ) | ||||||||||
THREE MONTHS ENDED | ||||||||||||||||
MARCH 31, | ||||||||||||||||
2023 | 2022 | $ Change | % Change | |||||||||||||
Net sales | $ | 29,798 | $ | 37,576 | $ | (7,778 | ) | -20.7 | % | |||||||
Cost of sales | 24,810 | 33,329 | (8,519 | ) | -25.6 | % | ||||||||||
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Gross profit | 4,988 | 4,247 | 741 | 17.4 | % | |||||||||||
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Operating expenses: | ||||||||||||||||
Selling and distribution | 5,424 | 5,327 | 97 | 1.8 | % | |||||||||||
Marketing | 1,634 | 1,786 | (152 | ) | -8.5 | % | ||||||||||
Administrative | 8,673 | 5,801 | 2,872 | 49.5 | % | |||||||||||
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Total operating expenses | 15,731 | 12,914 | 2,817 | 21.8 | % | |||||||||||
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Loss from operations | (10,743 | ) | (8,667 | ) | (2,076 | ) | 24.0 | % | ||||||||
Interest expense | 3,282 | 890 | 2,392 | |||||||||||||
Other income | (348 | ) | — | (348 | ) | |||||||||||
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Loss before income taxes | (13,677 | ) | (9,557 | ) | (4,120 | ) | 43.1 | % | ||||||||
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Income tax expense | — | — | — | |||||||||||||
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Net Loss | $ | (13,677 | ) | $ | (9,557 | ) | $ | (4,120 | ) | 43.1 | % | |||||
Less: net loss attributable to non-controlling interest | (9,984 | ) | (7,263 | ) | ||||||||||||
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Net loss attributable to The Real Good Food Company, Inc. | $ | (3,693 | ) | $ | (2,294 | ) | ||||||||||
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Net Sales
Net sales for the three months ended June 30, 2022 increased $12.1March 31, 2023, decreased $7.8 million, or 64.9%20.7%, to $30.8$29.8 million compared to $18.7$37.6 million for the prior year period. This decrease was primarily due to the timing of certain promotional events, which positively impacted our net sales during the first quarter of 2022, that did not occur during the three months ended March 31, 2023. We expect these promotional events to occur in the later part of 2023. In addition, delays in transitioning to certain revised product offerings, owing to customer execution issues, also negatively impacted sales for the three months ended March 31, 2023, though to a lesser degree. We expect to fulfill the sales shortfall related to the foregoing, beginning in the second quarter of 2023, and more fully in the second half of 2023.
Cost of Sales
Cost of sales decreased approximately $8.5 million, or 25.6%, to $24.8 million during the three months ended March 31, 2023 compared to $33.3 million for the prior year period. This decrease was primarily due to the decrease in the sales volume of our products, as well as to decreases in certain raw material costs. We expect these raw material costs to continue to be lower throughout 2023 relative to the prior year. In addition, we experienced decreases in formulation costs during the three months ended March 31, 2023. These decreases in cost of sales were offset, in part, by increases in certain plant overhead costs.
22
Gross Profit
Gross profit increased $0.7 million to $5.0 million for the three months ended March 31, 2023, compared to $4.2 million for the prior year period. This increase was primarilyis due to strong growththe net decrease in sales volumes of our core products, driven by greater demand from our existing retail and club customers and to a lesser extent new customers.
Operating Expenses
Selling and Distribution Expense
The following table sets forth our selling and distribution expense for the periods indicated (dollar amounts in thousands):
Three Months Ended June 30, | ||||||||||||||||
2022 | 2021 | $ Change | % Change | |||||||||||||
Selling and distribution | $ | 4,909 | $ | 3,049 | $ | 1,860 | 61.0 | % | ||||||||
Percentage of net sales | 15.9 | % | 16.3 | % | (0.4 | )% |
THREE MONTHS ENDED | ||||||||||||||||
MARCH 31, | ||||||||||||||||
2023 | 2022 | $ change | % Change | |||||||||||||
Selling and distribution | $ | 5,424 | $ | 5,327 | $ | 97 | 1.8 | % | ||||||||
Percentage of net sales | 18.2 | % | 14.2 | % | 4.0 | % |
Selling and distribution expense increased $1.9 million, or 61.0%,remained relatively unchanged for the three months ended June 30, 2022,March 31, 2023, as compared to the prior year period. Selling and distribution expense increased primarily due to an increase in selling expenses related to the increase in sales, and, to a lesser extent, an increase in our freight costs. Selling and distribution expense decreased as a percentage of net sales dueprimarily owing to gaininga temporary increase in transportation costs related to a strategic decision to consolidate our carrier network. We expect this transition to be completed by the end of the second quarter of 2023. Additionally, a greater proportion of our sales during the period were to smaller customers which do not experience the economies of scale that our larger customers do with regards to our operations.
Marketing Expense
The following table sets forth our marketing expense for the periods indicated (dollar amounts in thousands):
Three Months Ended June 30, | ||||||||||||||||
2022 | 2021 | $ Change | % Change | |||||||||||||
Marketing | $ | 1,172 | $ | 755 | $ | 417 | 55.2 | % | ||||||||
Percentage of net sales | 3.8 | % | 4.0 | % | (0.2 | )% |
THREE MONTHS ENDED | ||||||||||||||||
MARCH 31, | ||||||||||||||||
2023 | 2021 | $ change | % Change | |||||||||||||
Marketing | $ | 1,634 | $ | 1,786 | ($ | 152 | ) | -8.5 | % | |||||||
Percentage of net sales | 5.5 | % | 4.8 | % | 0.7 | % |
Marketing expense increased $0.4 million, or 55.2%,remained relatively unchanged during the three months ended June 30, 2022,March 31, 2023, as compared to the prior year period. Marketing expense increasedrelates primarily due to an increase in advertising and promotional costs we incurredincur to increase household awareness of our brand as well as support our sales growth. Marketing expense decreased as a percentage of sales primarily as we decreased the intensity of the aforementioned efforts during the three months ended June 30, 2022.
Administrative Expense
The following table sets forth our administrative expense for the periods indicated (dollar amounts in thousands):
Three Months Ended June 30, | ||||||||||||||||
2022 | 2021 | $ Change | % Change | |||||||||||||
Administrative | $ | 6,089 | $ | 2,982 | $ | 3,107 | 104.2 | % | ||||||||
Percentage of net sales | 19.8 | % | 16.0 | % | 3.8 | % |
THREE MONTHS ENDED | ||||||||||||||||
MARCH 31, | ||||||||||||||||
2023 | 2021 | $ change | % Change | |||||||||||||
Administrative | $ | 8,673 | $ | 5,801 | $ | 2,872 | 49.5 | % | ||||||||
Percentage of net sales | 29.1 | % | 15.4 | % | 13.7 | % |
Administrative expense increased $3.1$2.9 million, or 103.4%49.5% during the three months ended June 30, 2022,March 31, 2023, as compared to the prior year period. This increase was primarily driven by expenses relatedresearch and development costs to being a publicly owned companysupport new product development for 2023 and beyond, as well as to increases in equity compensation expense and other personnel related expenses incurred in support our of growth. An increase in research and development costs also contributed toduring the increase compared to the prior year period.
Loss from Operations
As a result of the foregoing, loss from operations increased $5.7$2.1 million, or 138.1%24.0% to $9.8$10.7 million for the three months ended June 30, 2022,March 31, 2023, compared to a loss from operations of $4.1$8.7 million for the prior year period. Loss from operations as a percentage of sales was (31.8)(36.1)% for the current period, compared to (22.1)(23.1)% for the prior year period.
23
Interest Expense
Interest expense decreased $0.1 million, or 10.3%,increased $2.4 million. to $1.3$3.3 million during the three months ended June 30, 2022,March 31, 2023, as compared to $1.4$0.9 million for the prior year period. The decreaseincrease in interest expense during the 20222023 period, was primarily due to lower costshaving higher levels of borrowing and to a lesser extent having less debt as well as an increase in interest rates during the three months ended June 30, 2022March 31, 2023 as compared to the prior year period.
Other Income
Other income recognized during the three months ended March 31, 2023 related entirely to certain government payments related to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was granted to certain companies who did not decrease their workforce during the pandemic. There were no amounts recognized related to Other Income during the prior year period.
Net Loss
As a result of the foregoing, our net loss increased $5.2$4.1 million, or 87.2%43.1%, to $11.1$13.7 million during the three months ended June 30, 2022,March 31, 2023, compared to a net loss of $5.9$9.6 million for the prior year period.
Six Months Ended June 30, | ||||||||||||||||
2022 | 2021 | $ Change | % Change | |||||||||||||
Net sales | $ | 68,385 | $ | 35,463 | $ | 32,922 | 92.8 | % | ||||||||
Cost of sales | 61,787 | 28,788 | 32,999 | 114.6 | % | |||||||||||
Gross profit | 6,598 | 6,675 | (77 | ) | (1.2 | )% | ||||||||||
Operating expenses | ||||||||||||||||
Selling and distribution | 10,236 | 5,968 | 4,268 | 71.5 | % | |||||||||||
Marketing | 2,958 | 1,387 | 1,571 | 113.3 | % | |||||||||||
Administrative | 11,867 | 5,802 | 6,065 | 104.5 | % | |||||||||||
Total operating expenses | 25,061 | 13,157 | 11,904 | 90.5 | % | |||||||||||
Loss from operations | (18,463 | ) | (6,482 | ) | (11,981 | ) | 184.8 | % | ||||||||
Interest expense | 2,181 | 3,483 | (1,302 | ) | (37.4 | )% | ||||||||||
Change in fair value of convertible debt | — | 370 | (370 | ) | (100.0 | )% | ||||||||||
Loss before income taxes | (20,644 | ) | (10,335 | ) | (10,309 | ) | 99.7 | % | ||||||||
Income tax expense | — | — | — | — | % | |||||||||||
Net loss | $ | (20,644 | ) | $ | (10,335 | ) | $ | (10,309 | ) | 99.7 | % | |||||
Less: net loss attributable to non-controlling interest | (15,689 | ) | — | |||||||||||||
Preferred return on Series A preferred units | — | 292 | ||||||||||||||
Net loss attributable to The Real Good Food Company, Inc. | $ | (4,955 | ) | $ | (10,627 | ) | ||||||||||
Six Months Ended June 30, | ||||||||||||||||
2022 | 2021 | $ Change | % Change | |||||||||||||
Selling and distribution | $ | 10,236 | $ | 5,968 | $ | 4,268 | 71.5 | % | ||||||||
Percentage of net sales | 15.0 | % | 16.8 | % | (1.9 | )% |
Six Months Ended June 30, | ||||||||||||||||
2022 | 2021 | $ Change | % Change | |||||||||||||
Marketing | $ | 2,958 | $ | 1,387 | $ | 1,571 | 113.3 | % | ||||||||
Percentage of net sales | 4.3 | % | 3.9 | % | 0.4 | % |
Six Months Ended June 30, | ||||||||||||||||
2022 | 2021 | $ Change | % Change | |||||||||||||
Administrative | $ | 11,867 | $ | 5,802 | $ | 6,065 | 104.5 | % | ||||||||
Percentage of net sales | 17.4 | % | 16.4 | % | 1.0 | % |
Liquidity and Capital Resources
Our primary uses of cash are to fund working capital, operating expenses, promotional activities, debt service and capital expenditures related to our manufacturing facilities. Since our inception, we have dedicated substantially all of our resources to the commercialization of our products, the development of our brand and social media presence, and the growth of our operational infrastructure. Historically, we have financed our operations primarily through issuances of equity and debt securities and borrowings under our credit agreements and, to a lesser extent, through cash flows from our operations.
On August 14, 2022, RGF entered into theFebruary 28, 2023, we amended our debt agreement with PMC Amendment to, among other things (a)i) decrease the outstanding balance of the Company’s revolving credit facility by $10.0 million, resulting in an increase in availability by $10.0 million, which was achieved by converting $10.0 million of the maximumrevolving credit facility balance to a term loan increasing the term loan balance to $20.0 million at the date of the amendment, (ii) change the definition of “Borrowing Base” to allow for borrowing capacity underup to 85% of the Revolver from $50.0 millionvalue of the eligible assets which comprise the Borrowing Base (not to exceed $75.0 million (b) create the 2022 Term Loanin borrowing in the aggregate) and (iii) consolidate equipment loans for both the revolving Capex Line and termed portion, to one $8.1 million term loan, which commenced on February 28, 2023 and matures on August 31, 2028, with payments for first six months of that term being interest only, and payments of both principal amount of $10.0 million, and (c) amend the interest rates of the Revolver and CapEx Line.
As of June 30, 2022,March 31, 2023, we had $12.6$2.9 million in cash (which includes restricted cash of $2.3 million), current debt obligations of $0.3$0.5 million, and long-term debt obligations of $50.3 million. Additionally, as of June 30, 2022, we had current business acquisition liabilities of $0.9 million and long-term business acquisition liabilities of $3.1$87.4 million. We believe that our
Cash Flows
The following table summarizes our cash flows for the periods indicated (in thousands):
June 30, | ||||||||
(in 000s) | 2022 | 2021 | ||||||
Net cash used in operating activities | $ | (30,097 | ) | $ | (1,236 | ) | ||
Net cash used in investing activities | (3,630 | ) | (2,528 | ) | ||||
Net cash provided by financing activities | 16,631 | 4,390 | ||||||
Net (decrease) increase in cash and restricted cash | (17,096 | ) | 626 | |||||
Cash and restricted cash at beginning of period | 29,745 | 28 | ||||||
Cash and restricted cash at end of period | $ | 12,649 | $ | 654 | ||||
March 31, | ||||||||
2023 | 2022 | |||||||
(In thousands) | ||||||||
Net cash used in operating activities | $ | (15,943 | ) | $ | (6,189 | ) | ||
Net cash used in investing activities | (537 | ) | (3,647 | ) | ||||
Net cash provided by (used in) financing activities | 11,759 | (5,536 | ) | |||||
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Net (decrease)increase in cash and cash equivalents | (4,721 | ) | (15,372 | ) | ||||
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Cash and cash equivalents at end of period | $ | 2,876 | $ | 14,373 | ||||
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Net Cash Used in Operating Activities
Net cash used in operating activities was $30.1$15.9 million during the sixthree months ended June 30, 2022,March 31, 2023, as compared to net cash used in operating activities of $1.2$6.2 million for the sixthree months ended June 30, 2021.March 31, 2022. The increase in net cash used in operating activities
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is primarily due to the increase in our working capital and an increase in our net loss during the 20222023 period. The increase in working capital was primarily driven by an increase in inventory, to support growthour new product introductions, as well as an increase in accounts payable and create safety stockaccrued expenses during the three months ended March 31, 2023. Additionally, there was an increase in our accounts receivable for the three months ended March 31, 2023, which was attributable to avoid potential supply disruptions relateda greater proportion of our accounts receivable belonging to customers with longer payment terms relative to the start-up of our new facility in Bolingbrook, IL.
Net Cash Used in Investing Activities
During the sixthree months June 30,March 31, 2023 and 2022, and 2021, net cash used in investing activities was $3.6$0.5 million and $2.5$3.6 million, respectively. Cash used in investing activities during the sixthree months ended June 30, 2022March 31, 2023 was primarily related to equipment purchases.purchased for our manufacturing facilities. Our capital expenditures during the sixthree months ended June 30, 2021March 31, 2022 were primarily related to equipment for our City of Industry, CA facility.
Net Cash Provided by Financing Activities
Net cash provided by financing activities totaled $16.6$11.8 million during the sixthree months ended June 30, 2022,March 31, 2023, as compared to net cash providedused by financing activities of $4.4$5.5 million during the same period last year. This increase was primarily due to the $29.5 millionincreases in proceeds fromborrowing on our line ofrevolving credit borrowings, offset in part, with payments made toward acquisition related contingent consideration totaling $12.2 million.
Contractual Obligations
As of June 30, 2022,March 31, 2023, there were no material changes in payments due under contractual obligations from those disclosed in our Annual Report.
Off-Balance
We do not have
New Accounting Standards
For discussion of new accounting standards, see Note 2, “Summary of Significant Accounting Policies and New Accounting Standards,” in Part I, Item 1, of this Quarterly Report.
Critical Accounting Policies and Estimates
There were no material changes to the critical accounting policies and estimates as disclosed in the Company’s Annual Report on Form
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report contains forward-looking statements which are prospective in nature and are not based on historical facts, but rather on current expectations and projections of the management of the Company about future events and are therefore subject to risks and uncertainties. All statements other than statements of historical or current fact included in this report are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “outlook,” “potential,” “project,” “projection,” “plan,” “intend,” “seek,” “may,” “could,” “would,” “will,” “should,” “can,” “can have,” “likely,” the negatives thereof and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our expected net sales, cost of sales, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, or strategies are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected. Such statements are based on certain key assumptions, which could cause actual results to differ materially from those projected or implied in any forward-looking statements. For additional information of the risks and uncertainties that may impact our forward-looking statements, refer to the section entitled “Risk Factors” in our Annual Report.
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
We are a smaller reporting company as defined by Rule
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Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
We are required to maintain “disclosure controls and procedures” as such term is defined in
During the three months ended June 30, 2022,March 31, 2023, an evaluation was carried out under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules
Based upon thatthis evaluation as of June 30, 2022,March 31, 2023, our Chief Executive Officer and Chief Financial Officer each concluded that, as of the end of such period, our disclosure controls and procedurescontrols over financial reporting were not effective.
Remediation Efforts to Address Material Weakness
As previously disclosed in Item 9A in our Annual Report on Form 10-K, filed on March 31, 2023, in response to the material weaknesses identified during our 2022 year end assessment described above, we have hired and anticipate to continue to hire additional resources during this fiscal year, which we believe will help remediate certain weaknesses previously identified. In addition, we are in the process of implementing a new ERP system to address weaknesses identified with regards to our current accounting system. Although it is our intent to complete this process within sufficient time to remediate the material weakness by the end of 2023, we may encounter certain delays in the implementation of our new ERP system as well as face certain challenges with regards to having sufficient resources in place in the requisite time, and cannot provide any assurance regarding when these efforts will be complete.
Changes in Internal Control over Financial Reporting
Except for the changes described above there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the sixthree months ended June 30, 2022.
PART II - OTHER INFORMATION
Item 1. | Legal Proceedings |
Information required by this Item is incorporated herein by reference to Note 12 to the Financial Statements,
Item 1A. | Risk Factors |
In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in the section entitled “Risk Factors” in our Annual Report, which could materially affect our business, financial condition or future results.
There were no material changes in the Company’s risk factors from the risks disclosed in the Annual Report.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
Item 3. | Defaults Upon Senior Securities |
None.
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Item 4. | Mine Safety Disclosures |
Not applicable.
Item 5. | Other Information |
Not applicable.
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Item 6. | Exhibits |
Exhibit No. | Description of Exhibit | |
10.1* | Amendment Number Twenty Four dated as of February 28, 2023, by and between Real Good Foods, LLC and PMC Financial Services Group, LLC. | |
31.1* | Certification of Chief Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2* | Certification of Chief Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). | |
101.INS* | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). | |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
* | Filed herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
By: | /s/ Gerard Law | |||||
Gerard Law | ||||||
Chief Executive Officer | ||||||
(Principal Executive Officer) | ||||||
May 15, 2023 | ||||||
By: | /s/ Akshay Jagdale | |||||
Akshay Jagdale | ||||||
Chief Financial Officer | ||||||
(Principal Financial |
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