Quarterly Report for Quarter Ending June 30, 2022 (Form 10-Q)

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☒	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, $0.0001 par value per share		RGF		Nasdaq Global Market

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☒		Smaller reporting company		☒
Emerging growth company		☒

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				Page
PART I-FINANCIAL INFORMATION
Item 1.		Financial Statements (unaudited)
		Consolidated Balance Sheets			3
		Consolidated Statements of Operations			4
		Consolidated Statements of Changes in Stockholders' Equity/Members' Deficit			5
		Consolidated Statements of Cash Flows			6
		Notes to Consolidated Financial Statements			7
Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			33
Item 4.		Controls and Procedures			33
PART II-OTHER INFORMATION			34
Item 1.		Legal Proceedings			34
Item 1A.		Risk Factors			34
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			34
Item 3.		Defaults Upon Senior Securities			34
Item 4.		Mine Safety Disclosures			34
Item 5.		Other Information			34
Item 6.		Exhibits			35
SIGNATURES			36

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		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 assets			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)
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

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		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

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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	)

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		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 assets		$	-			$	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			$	-

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•

Project Clean, Inc. changed its name to The Real Good Food Company, Inc. on October 7, 2021;

•

The Real Good Food Company, Inc. adopted an amended and restated certificate of incorporation to, among other things, provide for Class A common stock and Class B common stock;

•

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.

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(In thousands)		June 30, 2022
Cash		$	10,339
Restricted cash			2,310
Total cash reported in statements of cash flows		$	12,649

		Estimated Useful Lives
Computers		3 years
Office equipment		5 years
Machinery and equipment		5 - 10 years

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		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

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(In thousands)		AS OF MARCH 10, 2021
Inventories		$	500
Property and equipment			3,577
Operating leases right-of-use assets			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

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		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
(in thousands)		June 30, 2022			December 31, 2021
Computer equipment		$	122			$	106
Vehicles			164				69
Machinery and equipment			27,027				8,829
Leasehold improvements and office equipment			695				519
Total property and equipment			28,008				9,520
Less: accumulated depreciation			(2,722	)			(2,571	)
Subtotal			25,286				6,949
Construction in progress			7,177				3,340
Property and equipment, net		$	32,463			$	10,289

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		Three Months Ended June 30,			Six Months Ended June 30,
(in thousands)		2022			2021			2022			2021
Operating lease costs		$	432			$	218			$	1,024			$	299
Finance lease costs:
Amortization of ROU assets			65				44				133				94
Interest on lease liabilities			8				4				18				8
Short-term lease costs			-				-				146				214
Total lease costs		$	505			$	266			$	1,321			$	615

				As of June 30,			As of December 31,
(in thousands)				2022			2021
Assets		Balance Sheet Location
Operating lease right-of-use assets		Operating lease right-of-use assets		$	11,576			$	12,127
Finance lease right-of-use assets		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

		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 assets		$	18,370			$	4,250

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(in thousands)		Operating Leases		Finance Leases
Remaining of 2022			$	1,142				$	1,893
2023				2,341					3,221
2024				2,402					3,058
2025				2,456					3,058
2026				2,291					3,058
Thereafter				5,161					7,390
Total future lease payments				15,793					21,678
Less: imputed interest				(3,460	)				(4,738	)
Present value of lease obligations				12,333					16,940

(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

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PMC Revolver			7.4	%
PMC CapEx Line			12.4	%
PMC Lease Line of Credit			12.4	%

Remainder of 2022		$	600
2023			370
2024			417
2025			49,227
Total payments outstanding		$	50,614

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(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	)

(1)

Net loss per this table represents net loss attributable to the Real Good Food Company, Inc., for the three and six months ended June 30, 2022, and net loss attributable to RGF, the predecessor company, for the three and six months ended June 30, 2021.

(2)

Amounts for the 2022 represent shares of Class A common stock outstanding. Amounts for 2021 represent Common Units outstanding.

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		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				-

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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 (this "Quarterly Report").

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, 2021 (the "Annual Report"), filed with the Securities and Exchange Commission on March 30, 2022, 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 breakfast sandwiches, entrées, and other products, which are primarily sold in the U.S. frozen food category, excluding frozen and refrigerated meat. Our customers include retailers, which primarily sell their products through natural and conventional grocery, drug, club, and mass merchandise stores throughout the United States. We also sell our products through our which includes sales through our website, as well as sales through our retail customers' online platforms.

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 as a result of the (the "Pandemic"). However, consumer spending may shift to the food-away-from-home industry as the impacts of the Pandemic subsides. We believe the trend positively affected our sales, given the increase in demand of our retail customers during 2021, which we expect to continue throughout 2022. However, commodity cost challenges have persisted due to supply and recent supply chain disruptions, and as such we are experiencing increases in costs for certain ingredients in our products[, which has negatively impacted our gross profit margin]. In addition, the effects of the avian flu have adversely impacted the cost of chicken and eggs, and created challenges with regards to sourcing. We expect these sourcing and supply chain challenges to continue throughout the year, which will continue to negatively impact our cost of sales and gross profit margin.

25

In addition to the above, we believe that changes in work patterns, such as work being performed outside of the traditional office setting, will continue to contribute to The Pandemic also drove significant growth in e-commerce utilization by grocery consumers, and we expect that trend to continue as well. However, should such demand persist, we may face significant competition by new market entrants within our industry.

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 where consumers pick up their product at a retailer following an online sale, and through our own website and third-party websites. We record net sales as gross sales net of discounts, allowances, coupons, slotting fees, and trade advertising that we offer our customers. Such amounts are estimated and recorded as a reduction in total gross sales in order to arrive at reported net sales.

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 plant and equipment cost, other manufacturing overhead expense, and depreciation and amortization expense, as well as the cost of packaging our products. Our gross profit margin is impacted by a number of factors, including changes in the cost of ingredients, cost and availability of labor, and factors impacting our ability to efficiently manufacture our products, including through investments in production capacity and automation.

Operating Expense

Selling and Distribution Expense

Our products are shipped from our and directly to customers' or to third-party logistics providers by truck and rail. Distribution expense includes third-party freight and warehousing costs, as well as salaries and wages, bonuses, and incentives for our distribution personnel. Selling expense includes salaries and wages, commissions, bonuses, and incentives for our sales personnel, broker fees, and sales-related travel and entertainment expenses.

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 and equipment, professional fees to service providers including accounting and legal, costs associated with the implementation and utilization of our new enterprise resource planning system, insurance, and other operating expenses.

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 on its consolidated statements of operations, representing the portion of net income or loss attributable to the other members of RGF. The ownership percentages during the period are used to calculate the net income or loss attributable to The Real Good Food Company, Inc. and holders.

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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.

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, 2022 and 2021

The following table details the results of our operations for the three months ended June 30, 2022 and 2021 (dollars in thousands):

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Net Sales

Net sales for the three months ended June 30, 2022 increased $12.1 million, or 64.9%, to $30.8 million compared to $18.7 million for the prior year period. This increase was primarily due to strong growth 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.

Cost of Sales

Cost of sales increased approximately $12.4 million, or 77.6%, to $28.5 million during the three months ended June 30, 2022 compared to $16.0 million for the prior year period. This increase was primarily due to an increase in the sales volume of our products and raw material costs, as well as an increase in plant manufacturing costs related to the start-up of our new manufacturing facility in Bolingbrook, IL. The increase in raw material costs was primarily due to supply chain pressures related to the impact of the pandemic. The increases in costs were partially offset by the increase in sales of our self-manufactured products, which yield a higher margin, as well as higher net price realization.

Gross Profit

Gross profit decreased $0.3 million to $2.4 million for the three months ended June 30, 2022, compared to $2.7 million for the prior year period. This decrease is primarily due to higher manufacturing costs and the impacts of higher raw material costs.

Operating Expenses

Selling and Distribution Expense

The following table sets forth our selling and distribution expense for the periods indicated (dollar amounts in thousands):

Selling and distribution expense increased $1.9 million, or 61.0%, for the three months ended June 30, 2022, 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 due to gaining economies of scale with regards to our operations.

Marketing Expense

The following table sets forth our marketing expense for the periods indicated (dollar amounts in thousands):

Marketing expense increased $0.4 million, or 55.2%, during the three months ended June 30, 2022, as compared to the prior year period. Marketing expense increased primarily due to an increase in advertising and promotional costs we incurred 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.

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Administrative Expense

The following table sets forth our administrative expense for the periods indicated (dollar amounts in thousands):

Administrative expense increased $3.1 million, or 103.4% during the three months ended June 30, 2022, as compared to the prior year period. This increase was primarily driven by expenses related to being a publicly owned company as well as to equity compensation expense and other personnel related expenses incurred in support our of growth. An increase in research and development costs also contributed to the increase compared to the prior year period.

Loss from Operations

As a result of the foregoing, loss from operations increased $5.7 million, or 138.1% to $9.8 million for the three months ended June 30, 2022, compared to a loss from operations of $4.1 million for the prior year period. Loss from operations as a percentage of sales was (31.8)% for the current period, compared to (22.1)% for the prior year period.

Interest Expense

Interest expense decreased $0.1 million, or 10.3%, to $1.3 million during the three months ended June 30, 2022, as compared to $1.4 million for the prior year period. The decrease in interest expense during the 2022 period, was primarily due to lower costs of borrowing and to a lesser extent having less debt during the three months ended June 30, 2022 as compared to the prior year period.

Net Loss

As a result of the foregoing, our net loss increased $5.2 million, or 87.2%, to $11.1 million during the three months ended June 30, 2022, compared to a net loss of $5.9 million for the prior year period.

Results of Operations - Comparison of the Six Months Ended June 30, 2022 and 2021

The following table details the results of our operations for the six months ended June 30, 2022 and 2021 (dollars in thousands):

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Net Sales

Net sales for the six months ended June 30, 2022 increased $32.9 million, or 92.8% to $68.4 million compared to $35.5 million for the prior year period. This increase was primarily due to strong growth 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. Higher price realization also contributed to the increase in net sales.

Cost of Sales

Cost of sales increased approximately $33.0 million, or 114.6%, to $61.8 million, during the six months ended June 30, 2022, as compared to $28.8 million for the prior year period, primarily due to an increase in the sales volume of our products, as well as to an increase in manufacturing costs related to start-up costs associated with our new manufacturing in Bolingbrook, IL and an increase in labor and raw material costs. The increase in labor and raw material costs increased primarily due to labor shortages and supply chain pressures related to the impact of the pandemic. The increases in costs were partially offset by the increase in sales of our self-manufactured products, which yield a higher margin, as well as higher price increases realization.

Gross Profit

Gross profit decreased $0.1 million to $6.6 million for the six months ended June 30, 2022, compared to $6.7 million for the prior year period. This decrease is primarily due to the impacts of increased manufacturing costs and higher labor raw material costs.

Operating Expenses

Selling and Distribution Expense

The following table sets forth our selling and distribution expense for the periods indicated (dollar amounts in thousands):

Selling and distribution expense increased $4.3 million, or 71.5%, for the six months ended June 30, 2022, 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 industry freight rates. Selling and distribution expense decreased as a percentage of net sales due to gaining economies of scale with regards to our operations and successful execution of the company's strategy to reduce distribution costs.

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Marketing Expense

The following table sets forth our marketing expense for the periods indicated (dollar amounts in thousands):

Marketing expense increased $1.6 million, or 113.3%, during the six months ended June 30, 2022, as compared to the prior year period. Marketing expense increased primarily due to an increase in advertising and promotional costs we incurred to increase household awareness of our brand as well as support our sales growth. Marketing expense increased as a percentage of sales primarily as we increased the intensity of the aforementioned efforts during the six months ended June 30, 2022.

Administrative Expense

The following table sets forth our administrative expense for the periods indicated (dollar amounts in thousands):

Administrative expense increased $6.1 million, or 104.5%, during the six months ended June 30, 2022, as compared to the prior year period. This increase was primarily driven by expenses related to being a publicly owned company as well as to equity compensation expense and other personnel related expenses incurred in support our of growth. Additionally, we incurred approximately $1.0 million in expenses to bring our new manufacturing facility in Bolingbrook in full operation.

Loss from Operations

As a result of the foregoing, loss from operations increased $12.0 million, or 184.8%, to $18.5 million for the six months ended June 30, 2022, compared to a loss from operations of $6.5 million for the prior year period. Loss from operations as a percentage of sales was (27.0)% for the current period, compared to (18.3)% for the prior year period.

Interest Expense

Interest expense decreased $1.3 million, or 37.4%, to $2.2 million during the six months ended June 30, 2022, as compared to $3.5 million for the prior year period. The decrease in interest expense during the 2022 period, was primarily due to lower costs of borrowing as well as having significantly less debt during the six months ended June 30, 2022 as compared to the prior year period.

Net Loss

As a result of the foregoing, our net loss increased $10.3 million, or 99.7%, to $20.6 million during the six months ended June 30, 2022, compared to a net loss of $10.3 million for the prior year period.

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 the PMC Amendment to, among other things, (a) increase the maximum borrowing capacity under the Revolver from $50.0 million to $75.0 million, (b) create the 2022 Term Loan in the principal amount of $10.0 million, and (c) amend the interest rates of the Revolver and CapEx Line.

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As of June 30, 2022, we had $12.6 million in cash (which includes restricted cash of $2.3 million), current debt obligations of $0.3 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 million. We believe that our cash received from operations, together with borrowing capacity under our credit facilities, will provide sufficient financial flexibility to meet working capital requirements and to fund capital expenditures and debt service requirements for the remainder of 2022 as well as the foreseeable future. We expect to make future capital expenditures of approximately $0.5 million in connection with the enhancement of our current production capabilities during the remainder of 2022.

Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands):

Net Cash Used in Operating Activities

Net cash used in operating activities was $30.1 million during the six months ended June 30, 2022, as compared to net cash used in operating activities of $1.2 million for the six months ended June 30, 2021. The increase in net cash used in operating activities is primarily due to the increase in our working capital and an increase in our net loss during the 2022 period. The increase in working capital was primarily driven by an increase in inventory to support growth and create safety stock to avoid potential supply disruptions related to the start-up of our new facility in Bolingbrook, IL.

Net Cash Used in Investing Activities

During the six months June 30, 2022 and 2021, net cash used in investing activities was $3.6 million and $2.5 million, respectively. Cash used in investing activities during the six months ended June 30, 2022 was primarily related to equipment purchases. Our capital expenditures during the six months ended June 30, 2021 were primarily related our City of Industry, CA facility.

Net Cash Provided by Financing Activities

Net cash provided by financing activities totaled $16.6 million during the six months ended June 30, 2022, as compared to net cash provided by financing activities of $4.4 million during the same period last year. This increase was primarily due to the $29.5 million in proceeds from our line of credit borrowings, offset in part, with payments made toward acquisition related contingent consideration totaling $12.2 million.

Contractual Obligations

As of June 30, 2022, there were no material changes in payments due under contractual obligations from those disclosed in our Annual Report.

Sheet Arrangements

We do not have arrangements.

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.

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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 for the year ended December 31, 2021.

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 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and are not required to provide the information under this item.

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 the Exchange Act. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

During the three months ended June 30, 2022, 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 the Exchange Act). Based upon that evaluation as of June 30, 2022, our Chief Executive Officer and Chief Financial Officer each concluded that, as of the end of such period, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

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 six months ended June 30, 2022.

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PART II - OTHER INFORMATION

Information required by this Item is incorporated herein by reference to Note 12 to the Financial Statements, , in Part I, Item 1, of this Quarterly Report.

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.

None.

None.

Not applicable.

On August 14, 2022, RGF entered into the PMC Amendment to, among other things, (a) increase the maximum borrowing capacity under the Revolver from $50.0 million to $75.0 million (the "Revolver Increase"); (b) create the 2022 Term Loan in the principal amount of $10.0 million, which will bear interest at an annual rate equal to the Prime Rate in effect from time to time plus 7.85%, with payments due over 60 months commencing on September 30, 2022; and (c) amend the interest rates of the Revolver and CapEx Line to the Prime Rate in effect from time to time plus 4.25% per annum, where "Prime Rate" means the greater of (i) the prime rate announced from time to time by Wells Fargo Bank, N.A., or (ii) 5.5% per annum.

In connection with entering into the PMC Amendment and consummating the transactions contemplated thereby, RGF paid PMC one-time loan fees of $250.0 thousand and 150.0 thousand for the Revolver Increase and 2022 Term Loan, respectively. In addition, the PMC Amendment implemented a new administrative fee accruing monthly in arrears under the Credit Facility, and amended certain other fees under the Credit Facility.

The foregoing description does not constitute a complete summary of the PMC Amendment and is qualified in its entirety by reference to the full text of the PMC Amendment, a copy of which will be filed with the Company's Quarterly Report on Form 10-Q for the fiscal quarter ending September 30, 2022.

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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.