The following discussion should be read in conjunction with our financial statements and notes to those statements. In addition to historical information, the following discussion and other parts of this annual report contain forward-looking information that involves risks and uncertainties.
11 Overview and Outlook
Effective
The Company produces a line of freeze-dried snacks, smoothies, soups and granola. We are marketing our line of products via our direct-to-consumer focused website, as well as via the business-to-business sales channel. We have also recently launched a freeze-dried candy product offering that we expect will be a major driver of our growth going forward.
In 2022, we commenced the construction of our second and third freeze driers in anticipation of the increased production demands for our products and freeze-drying expertise. We expect to place these additional freeze driers in service during the second quarter of 2023.
Our business operates under two distinct brands,
S-FDF Business Combination
On
Pursuant to its obligations under the Asset Purchase Agreement, on the Closing
Date the
12 Going Concern Uncertainty
As of
We continue to pursue sources of additional capital through various financing transactions or arrangements, including equity financing or other means. We may not be successful in identifying suitable funding transactions in a sufficient time period or at all, and we may not obtain the capital we require by other means. If we do not succeed in raising additional capital, our resources may not be sufficient to fund our business. Our ability to scale production and distribution capabilities and further increase the value of our brands, is largely dependent on our success in raising additional capital.
The report of the Company's independent registered public accounting firm that accompanies its audited financial statements in this Annual Report on Form 10-K contains an explanatory paragraph regarding the substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of the going concern uncertainty.
Overview of 2022 results
We earned
Our general and administrative expenses totaled
Our stock-based compensation of
Application of Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted in
13 Critical Accounting Policies
The establishment and consistent application of accounting policies is a vital
component of accurately and fairly presenting our financial statements in
accordance with generally accepted accounting principles in
Cash in Excess of FDIC Insured Limits
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. Accounts are guaranteed by the
Property and Equipment
Property and equipment are stated at the lower of cost or estimated net recoverable amount. The cost of property, plant and equipment is depreciated using the straight-line method based on the lesser of the estimated useful lives of the assets or the lease term based on the following life expectancy:
Software 3 years, or over the life of the agreement Website 3 years Office equipment 5 years Furniture and fixtures 5 years Machinery and equipment 7-10 years Leasehold improvements Fully extended lease-term
Repairs and maintenance expenditures are charged to operations as incurred.
Major improvements and replacements, which extend the useful life of an asset,
are capitalized and depreciated over the remaining estimated useful life of the
asset. When assets are retired or sold, the cost and related accumulated
depreciation and amortization are eliminated and any resulting gain or loss is
reflected in operations. Depreciation expense was
Impairment of Long-Lived Assets
Long-lived assets held and used by the Company are reviewed for possible impairment whenever events or circumstances indicate the carrying amount of an asset may not be recoverable or is impaired. Recoverability is assessed using undiscounted cash flows based upon historical results and current projections of earnings before interest and taxes. Impairment is measured using discounted cash flows of future operating results based upon a rate that corresponds to the cost of capital. Impairments are recognized in operating results to the extent that carrying value exceeds discounted cash flows of future operations.
Our intellectual property is comprised of indefinite-lived brand names acquired
and have been assigned an indefinite life as we currently anticipate that these
brand names will contribute cash flows to the Company perpetually. We evaluate
the recoverability of intangible assets periodically by taking into account
events or circumstances that may warrant revised estimates of useful lives or
that indicate the asset may be impaired. Impairment analysis on intangible
assets resulted in a loss of
14 Inventory
Inventory, consisting of raw materials, material overhead, labor, and manufacturing overhead, are stated at the average cost or net realizable value and consist of the following:
December 31, December 31, 2022 2021 Finished goods$ 384,241 $ 273,135 Packaging materials 416,663 95,436 Work in progress 864,460 613,063 Raw materials 307,515 470,263 Total inventory$ 1,972,879 $ 1,451,897
No reserve for obsolete inventories has been recognized. We have not yet commenced significant production.
Goodwill
The Company evaluates goodwill on an annual basis in the fourth quarter or more
frequently if management believes indicators of impairment exist. Such
indicators could include, but are not limited to (1) a significant adverse
change in legal factors or in business climate, (2) unanticipated competition,
or (3) an adverse action or assessment by a regulator. The Company first
assesses qualitative factors to determine whether it is more likely than not
that the fair value of a reporting unit is less than its carrying amount,
management conducts a quantitative goodwill impairment test. The impairment test
involves comparing the fair value of the applicable reporting unit with its
carrying value. The Company estimates the fair values of its reporting units
using a combination of the income, or discounted cash flows, approach and the
market approach, which utilizes comparable companies' data. If the carrying
amount of a reporting unit exceeds the reporting unit's fair value, an
impairment loss is recognized in an amount equal to that excess, limited to the
total amount of goodwill allocated to that reporting unit. The Company's
evaluation of goodwill completed at year-end resulted in an impairment loss of
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606 - Revenue from Contracts with Customers ("ASC" 606"). Under ASC 606, the Company recognizes revenue from the sale of its freeze-dried food products, in accordance with a five-step model in which the Company evaluates the transfer of promised goods or services and recognizes revenue when customers obtain control of promised goods or services in an amount that reflects the consideration which the Company expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The Company has elected, as a practical expedient, to account for the shipping and handling as fulfillment costs, rather than as a separate performance obligation. Revenue is reported net of applicable provisions for discounts, returns and allowances. Methodologies for determining these provisions are dependent on customer pricing and promotional practices. The Company records reductions to revenue for estimated product returns and pricing adjustments in the same period that the related revenue is recorded. These estimates are based on industry-based historical data, historical sales returns, if any, analysis of credit memo data, and other factors known at the time.
15 Stock-Based Compensation
The Company accounts for equity instruments issued to employees in accordance
with the provisions of ASC 718 Stock Compensation (ASC 718) and Equity-Based
Payments to Non-employees pursuant to ASC 2018-07 (ASC 2018-07). All
transactions in which the consideration provided in exchange for the purchase of
goods or services consists of the issuance of equity instruments are accounted
for based on the fair value of the consideration received or the fair value of
the equity instrument issued, whichever is more reliably measurable. The
measurement date of the fair value of the equity instrument issued is the
earlier of the date on which the counterparty's performance is complete or the
date at which a commitment for performance by the counterparty to earn the
equity instruments is reached because of sufficiently large disincentives for
nonperformance. Stock-based compensation was
Results of Operations for the Years Ended
The following table summarizes selected items from the statement of operations
for the years ended
Years Ended December 31, Increase/ 2022 2021 Decrease Revenues$ 428,132 $ 88,440 $ 339,692 Cost of goods sold 308,293 81,311 226,982 Gross Profit 119,839 7,129 112,710 Operating expenses: General and administrative: Salaries and benefits 3,662,313 3,473,661 188,652 Professional services 245,546 357,945 (112,399 ) Other general and administrative 1,625,952 1,550,970 74,982 Intangible asset impairment 310,173 - 310,173 Goodwill impairment 4,887,297 1,524,030 3,363,267 Total general and administrative 10,731,281 6,906,606 3,824,675 Depreciation and amortization 274,053 208,448 65,605 Total operating expenses: 11,005,334 7,115,054 3,890,280 Net operating loss (10,885,495 ) (7,107,925 ) 3,777,570 Other income (expense): Interest expense (1,277,965 ) (5,911 ) 1,272,054 Gain (loss) on disposal of property and equipment 36,392 (8,036 ) 44,428 Gain on early extinguishment of debt - 113,772 (113,772 ) Gain (loss) on investment in Allied Esports Entertainment, Inc. - 133,944 (133,944 ) Total other income (expense) (1,241,573 ) 233,769 1,475,342 Net loss$ (12,127,068 ) $ (6,874,156 ) $ 5,252,912 16 Revenues
Revenues for the year ended
Cost of Goods Sold
Cost of goods sold for the year ended
General and Administrative Expenses
Salaries and Benefits
Salaries and benefits for the year ended
Professional Services
General and administrative expenses related to professional services were
Other General and Administrative Expenses
Other general and administrative expenses for the year ended
Intangible Asset Impairment
Intangible asset impairment losses of
17 Goodwill Impairment
Depreciation
Depreciation expense for the year ended
Other Income (Expense)
In the year ended
In the year ended
Provision for Income Taxes
The Company had no income tax expense in the 2022 or 2021 periods, as the Company continues to reserve against any deferred tax assets due to the uncertainty of realization of any benefit.
Net Loss
Net loss for the year ended
Liquidity and Capital Resources
The following table summarizes our total current assets, liabilities and working
capital at
December 31, 2022 2021 Current Assets$ 2,578,057 $ 4,891,264 Current Liabilities$ 890,177 $ 403,057 Working Capital$ 1,687,880 $ 4,488,207 18
As of
The following table summarizes our cash flows during the years ended
Years Ended December 31, 2022 2021 Net cash used in operating activities$ (5,146,635 ) $ (5,551,261 )
Net cash provided by (used in) investing activities (2,622,829 ) (653,051 ) Net cash provided by financing activities
4,700,000 7,637,511 Net change in cash and cash equivalents$ (3,069,464 ) $ 1,433,199
Net cash used in operating activities was
Net cash used in investing activities was
Net cash provided by financing activities was
Satisfaction of our cash obligations for the next 12 months
As of
We continue to pursue sources of additional capital through various financing transactions or arrangements, equity or debt financing or other means. Our ability to scale production and distribution capabilities and further increase the value of our brands, is largely dependent on our success in raising additional capital.
We may not be successful in identifying suitable funding transactions in a sufficient time period or at all, and we may not obtain the capital we require by other means. If we do not succeed in raising additional capital, our resources may not be sufficient to fund or expand our business.
19
Effects of inflation and pricing
We expect supplies and prices of the ingredients that we are going to use to be affected by a variety of factors, such as weather, seasonal fluctuations, demand, politics and economics in the producing countries.
These factors subject us to shortages or interruptions in product supplies, which could adversely affect our revenue and profits. In addition, the price of fruit, which is currently our main ingredient in our products, can be highly volatile. The fruit of the quality we seek tends to trade on a negotiated basis, depending on supply and demand at the time of the purchase. An increase in pricing of any fruit that we are going to use in our products could have a significant adverse effect on our profitability. We cannot assure you that we will be able to secure our fruit supply. In addition, we may face limits on the ability to source some of the candy for our freeze-dried candy products.
Contractual obligations and commitments
Upon closing of the Asset Purchase Agreement, the Company assumed the Seller's
obligations under a real property lease for its 20,945 square foot facility at
Summary of product and research and development that we will perform for the term of our plan
We anticipate performing product research and development as required for our products and distribution under our new plan of operation. The Company currently has one full-time employee dedicated to product research and development. The Company's research and development activities primarily consist of product formulation, nutritional analysis, and taste analysis.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues, expenses, results of operations liquidity, capital expenditures or capital resources that are material to investors.
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