UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10−Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _____________

Commission File Number: 001-41290

SMART FOR LIFE, INC.

(Exact name of registrant as specified in its charter)

Nevada		81-5360128
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

990 Biscayne Blvd, Suite 505, Miami, FL		33132
(Address of principal executive offices)		(Zip Code)

(786) 749-1221

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.0001 per share		SMFL		N/A⁽¹⁾

(1)

On March 21, 2025, the Nasdaq Stock Market LLC (“Nasdaq”) filed a Form 25 with the U.S. Securities and Exchange Commission to complete the delisting of the Company’s common stock from The Nasdaq Capital Market, which became effective on March 31, 2025. The deregistration of the common stock under Section 12(b) of the Act will be effective 90 days, or such shorter period as the U.S. Securities and Exchange Commission may determine, after filing of the Form 25. The common stock is currently quoted on the OTC Pink Market maintained by the OTC Markets Group, Inc. under the symbol “SMFL.”

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of June 10, 2025, there were 7,090,728 shares of the registrant’s common stock issued and outstanding.

Smart for Life, Inc.

Quarterly Report on Form 10-Q

Period Ended September 30, 2024

TABLE OF CONTENTS

PART I
FINANCIAL INFORMATION

Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	41

PART II
OTHER INFORMATION
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	43

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

SMART FOR LIFE, INC.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

		Page

Condensed Consolidated Balance Sheets as of September 30, 2024 (unaudited) and December 31, 2023		2
Condensed Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2024 and 2023 (unaudited)		3
Condensed Consolidated Statement of Changes in Stockholders’ Equity (deficit) for the Three and Nine Months ended September 30, 2024 and 2023 (unaudited)		4
Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2024 and 2023 (unaudited)		6
Notes to Unaudited Condensed Consolidated Financial Statements		7

SMART FOR LIFE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2024 AND DECEMBER 31, 2023

	September 30, 2024			December 31, 2023
	(Unaudited)
ASSETS
Current assets:
Cash	$	35,608		$	154,666
Accounts receivable, net		98,036			128,304
Inventory		747,172			1,424,989
Related party receivable, net		711,644			325,942
Prepaid expenses and other current assets		68,433			152,752
Current assets of discontinued operations		—			145,057
Total current assets		1,660,893			2,331,710

Property and equipment, net		163,170			264,937
Intangible assets, net		6,713,077			7,135,748
Goodwill		3,045,000			3,045,000
Deposits and other assets		66,291			98,945
Operating lease right-of-use assets		1,077,311			2,164,862
Assets of discontinued operations		—			4,618,025
Total other assets		11,064,849			17,327,517
Total assets	$	12,725,742		$	19,659,227

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	3,624,886		$	4,078,434
Accrued expenses		2,860,657			4,093,419
Accrued expenses, related parties		504,059			264,141
Contract liabilities		409,820			500,820
Preferred stock dividends payable		—			450,562
Operating lease liability, current		229,192			1,104,443
Debt, current, net of debt discounts		2,179,952			10,702,731
Debt, current – related party		41,211			—
Current liabilities of discontinued operations		—			861,358
Total current liabilities		9,849,777			22,055,908

Long-term liabilities:
Operating lease liability, noncurrent		919,494			1,152,900
Debt, noncurrent, net of debt issuance cost		809,225			2,190,615
Debt, noncurrent – related party		208,789			—
Liabilities of discontinued operations, noncurrent		—			647,258
Total long-term liabilities		1,937,508			3,990,773
Total liabilities		11,787,285			26,046,681

Commitments and contingencies

Stockholders’ Equity (Deficit)
Series B Preferred Stock, $0.0001 par value, 5,000,000 shares authorized, 17,985 and 26,239 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively		2			3
Series C Preferred Stock, $0.0001 par value, 5,000,000 shares authorized, 10,709 and 0 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively		1			—
Common Stock, $0.0001 par value, 7,936,508 shares authorized, 7,090,728 and 373,526 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively		709			37
Additional paid in capital		76,948,974			61,280,662
Accumulated deficit		(76,011,229	)		(67,668,156	)
Total stockholders’ equity (deficit)		938,457			(6,387,454	)
Total liabilities and stockholders’ equity (deficit)	$	12,725,742		$	19,659,227

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

SMART FOR LIFE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

(UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
Revenues
Products	$	1,269,373		$	2,239,556		$	2,625,965		$	4,824,906
Advertising		—			5,999			115			361,470
Total revenues		1,269,373			2,245,555			2,626,080			5,186,376
Cost of revenues
Products		751,317			1,408,646			1,494,279			3,389,788
Advertising		—			522			—			279,037
Total cost of revenues		751,317			1,409,168			1,494,279			3,668,825
Gross profit		518,056			836,387			1,131,801			1,517,551
Operating expenses
General and administrative		428,554			1,174,348			1,390,638			3,580,098
Compensation – administrative		570,126			1,907,195			1,460,524			4,527,332
Professional services		422,842			348,598			1,566,484			1,568,896
Consulting fees – related parties		—			19,139			—			46,686
Impairment of intangible assets		—			—			—			466,737
Depreciation and amortization expense		300,636			303,538			946,888			700,723
Total operating expenses		1,722,158			3,752,818			5,364,534			10,890,472
Operating loss		(1,204,102	)		(2,916,431	)		(4,232,733	)		(9,372,921	)
Other income (expense)
Other income (expense)		(179,536	)		19,820			(241,298	)		324,672
Gain on debt extinguishment		194,114			16,021			286,510			205,727
Loss on sale of subsidiaries		—			—			(132,491	)		—
Interest expense		(2,046,324	)		(1,105,289	)		(4,112,464	)		(3,028,915	)
Total other income (expense)		(2,031,746	)		(1,069,448	)		(4,199,743	)		(2,498,516	)
Loss from continuing operations	$	(3,235,848	)	$	(3,985,879	)	$	(8,432,476	)	$	(11,871,437	)
Income (loss) from discontinued operations	$	(30	)	$	(358,228	)	$	89,403		$	(976,982	)
Net loss	$	(3,235,878	)	$	(4,344,107	)	$	(8,343,073	)	$	(12,848,419	)
Loss per share continuing operations, basic and diluted	$	(0.94	)	$	(6.89	)	$	(3.52	)	$	(38.93	)
(Loss) earnings per share discontinued operations, basic and diluted	$	(0.00	)	$	(0.62	)	$	0.04		$	(3.20	)
Loss per share, basic and diluted	$	(0.94	)	$	(7.51	)	$	(3.49	)	$	(42.13	)
Weighted average shares outstanding, basic and diluted		3,457,980			578,686			2,392,793			304,950

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

SMART FOR LIFE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024, AND 2023

(UNAUDITED)

For the Three and Nine Months Ended September 30, 2024

	Preferred Stock						Common Stock						Additional Paid-In			Accumulated
	Shares			Amount			Shares			Amount			Capital			Deficit			Total
Balance, January 1, 2024		26,239		$	3			373,526		$	37		$	61,280,662		$	(67,668,156	)	$	(6,387,454	)
Exercise of warrants		—			—			3,572			—			38,000			—			38,000
Stock-based compensation		—			—			—			—			27,613			—			27,613
Conversion of series B preferred stock to common stock		(6,727	)		(1	)		10,678			1			—			—			—
Conversion of series C preferred stock to common stock		(16,688	)		(2	)		238,399			24			(22	)		—			—
Common stock issued for services		—			—			9,377			1			91,249			—			91,250
Common stock issued for conversion of notes payable		—			—			285,305			29			1,695,834			—			1,695,863
Series C preferred stock issued for conversion of notes payable		36,507			4			—			—			3,650,676			—			3,650,680
Conversion of Series A dividends to common stock		—			—			102,172			10			450,554			—			450,564
Net loss		—			—			—			—			—			(2,896,174	)		(2,896,174	)
Balance, March 31, 2024		39,331		$	4			1,023,029		$	102		$	67,234,566		$	(70,564,330	)	$	(3,329,658	)
Exercise of warrants		—			—			183,370			18			569,885			—			569,903
Conversion of series C preferred stock to common stock		(10,088	)		(1	)		144,120			14			(13	)		—			—
Common stock issued for conversion of notes payable		—			—			1,069,759			107			3,499,004			—			3,499,111
Cashless Warrants exercised for debt settlement		—			—			44,322			4			142,536			—			142,540
Stock-based compensation		—			—			—			—			26,747			—			26,747
Net loss		—			—			—			—			—			(2,211,021	)		(2,211,021	)
Balance, June 30, 2024		29,243			3			2,464,600			246			71,472,724			(72,775,351	)		(1,302,378	)
Series B preferred stock converted to debt		(1,527	)		—			—			—			(340,412	)		—			(340,412	)
Series C preferred stock converted to debt		(6,419	)		—			—			—			(641,878	)		—			(641,878	)
Common stock issued from conversion of debt		—			—			4,582,864			458			6,251,078			—			6,251,536
Common stock issued for debt settlement		—			—			203,301			20			184,730			—			184,750
Series C preferred stock issued for return of common stock		7,397			—			(105,670	)		(10	)		10			—			—
Cancelation of stock		—			—			(54,367	)		(5	)		5			—			—
Stock based compensation		—			—			—			—			22,717			—			22,717
Net loss		—			—			—			—			—			(3,235,878	)		(3,235,878	)
Balance, September 30, 2024		28,694		$	3			7,090,728		$	709		$	76,948,974		$	(76,011,229	)	$	938,457

	Preferred Stock					Common Stock				Additional Paid-In			Accumulated
	Shares			Amount		Shares		Amount		Capital			Deficit			Total

Balance, January 1, 2023		1,000		$	—		77,614	$	8	$	42,630,425		$	(44,992,415	)	$	(2,361,984	)
Exercise of warrants		—			—		978		—		119			—			119
Stock based compensation		—			—		—		—		52,473			—			52,473
Net loss		—			—		—		—		—			(4,284,315	)		(4,284,316	)
Balance, March 31, 2023		1,000			—		78,592		8		42,683,017			(49,276,730	)		(6,593,707	)
Conversion of notes and interest		29,398			3		—		—		6,462,688			—			6,462,691
Conversion of preferred stock		(1,000	)		—		477		—		—			—			—
Stock based compensation		—			—		—		—		27,735			—			27,735
Stock issued for debt amendment fee		—			—		160		—		99,199			—			99,199
Conversion of board fees		135			—		—		—		30,000			—			30,000
Conversion of accrued compensation		5,285			1		—		—		1,178,310			—			1,178,311
Exercise of warrants		—			—		41,839		4		5,425,017			—			5,425,021
Shares issued for cash, net		—			—		13,738		1		2,151,309			—			2,151,310
Net loss		—			—		—		—		—			(4,219,996	)		(4,219,996	)
Balance, June 30, 2023		34,818			4		134,806	$	13	$	58,057,275		$	(53,496,726	)	$	4,560,564
Stock issued for debt amendment fee		—			—		2,155		—		50,000			—			50,000
Stock issued for exercise of warrants		—			—		18,517		2		(2	)		—			—
Stock based compensation		—			—		—		—		685,380			—			685,380
Net loss		—			—		—		—		—			(4,344,107	)		(4,344,107	)
Balance, September 30, 2023		34,818		$	4		155,478	$	15	$	58,792,653		$	(57,840,833	)	$	951,836

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

SMART FOR LIFE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

(UNAUDITED)

	Nine Months Ended September 30,
	2024			2023
Cash flows from operating activities:
Net loss	$	(8,343,073	)	$	(12,848,419	)
Adjustments to reconcile net loss to net cash used in operating activities:
Debt issuance cost		222,446			901,389
Loss on sales of subsidiaries		132,491			—
Depreciation and amortization expense		946,888			700,723
Gain on extinguishment of debt		(286,510	)		(205,727	)
Impairment on intangible assets		—			466,737
Stock-based compensation		318,327			914,787
Non-cash finance fees		2,055,084			—
Non-cash expenses paid with debt		202,698			—
Non-cash operating lease costs, net		(21,106	)		16,595
Provision for bad debt		—			193,330
Changes in operating assets and liabilities:
Accounts receivable, net		30,268			(42,183	)
Inventory		677,817			596,437
Prepaid expenses and other current assets		84,320			173,439
Deposits and other assets		32,654			10,713
Accounts payable		1,054,830			164,409
Accrued expenses		1,242,320			2,018,441
Accrued expenses, related parties		239,918			389,657
Contract liabilities		(91,000	)		(79,705	)
Discontinued operations		984,844			676,667
Net cash used in operating activities		(516,784	)		(5,952,710	)

Cash flows from investing activities:
Additions to property and equipment		(5,343	)		—
Net cash used in investing activities		(5,343	)		—

Cash flows from financing activities:
Receipts from related parties		1,778,442			147,621
Payments to related parties		(1,914,146	)		(25,586	)
Proceeds from issuance of common stock, net		—			2,151,310
Proceeds from warrant exercise		607,903			5,425,112
Proceeds from debt		163,500			2,706,791
Repayments on debt		(232,630	)		(4,507,644	)
Net cash provided by financing activities		403,069			5,897,604

Net decrease in cash		(119,058	)		(55,106	)
Cash, beginning of period		154,666			60,790
Cash, end of period	$	35,608		$	5,684

Supplemental disclosure of cash flow information:
Interest paid	$	18,232		$	274,439

Non-cash investing and financing activities:
Non-cash debt issuance	$	250,000		$	—
Non-cash conversion of accounts payable to debt	$	1,268,261		$	—
Conversion of notes payable to equity	$	7,899,435		$	—
Conversion of interest to equity		2,564,788		$	—
Conversion of preferred dividends to common stock	$	450,500		$	—
Conversion of preferred stock to promissory note	$	3,650,680		$	—
Warrants exercised for debt settlement	$	142,540		$	—
Stock issued to settle accounts payable	$	34,750		$	—
Conversion of preferred stock to common stock	$	39		$	—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

SMART FOR LIFE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023

(UNAUDITED)

Note 1 — Description of Business

Smart for Life, Inc., formerly Bonne Santé Group, Inc. (“SMFL”), is a Nevada corporation which was originally formed in the State of Delaware on February 7, 2017 and converted to a Nevada corporation on April 10, 2023. Structured as a global holding company, it is engaged in the development, marketing, manufacturing, acquisition, operation and sale of a broad spectrum of nutraceutical and related products with an emphasis on health and wellness.

On March 8, 2018, SMFL acquired 51% of Millenium Natural Manufacturing Corp. and Millenium Natural Health Products, Inc. On October 8, 2019, SMFL entered into an agreement to acquire the remaining 49% of these companies, subject to certain conditions which were subsequently met. On September 30, 2020, the name of Millenium Natural Manufacturing Corp. was changed to Bonne Sante Natural Manufacturing, Inc. (“BSNM”), and on November 24, 2020, Millenium Natural Health Products Inc. was merged into BSNM. Based in Doral, Florida, BSNM operates a 22,000 square-foot FDA-certified manufacturing facility. It manufactures nutritional products for a significant number of customers. On March 6, 2024, the Company entered into a sale and leaseback agreement relating to BSNM as more fully described under Note 2.

On July 1, 2021, SMFL acquired Doctors Scientific Organica, LLC d/b/a Smart for Life, Oyster Management Services, Ltd., Lawee Enterprises, L.L.C. and U.S. Medical Care Holdings, L.L.C. On August 27, 2021, SMFL transferred all of the equity interests of Oyster Management Services, Ltd., Lawee Enterprises, L.L.C. and U.S. Medical Care Holdings, L.L.C. to Doctors Scientific Organica, LLC. On May 19, 2022, SMFL acquired Lavi Enterprises, LLC. On the same date, SMFL transferred all of the equity interests of Lavi Enterprises, LLC to Doctors Scientific Organica, LLC. On December 13, 2022, Oyster Management Services, Ltd. was converted to a limited liability company known as Oyster Management Services, L.L.C. As a result of the foregoing, Oyster Management Services, L.L.C., Lawee Enterprises, L.L.C., U.S. Medical Care Holdings, L.L.C. and Lavi Enterprises, LLC are now wholly owned subsidiaries of Doctors Scientific Organica, LLC (collectively, “DSO”). Based in Riviera Beach, Florida, DSO operates a 30,000 square-foot FDA-certified manufacturing facility. DSO manufactures and sells weight management foods and related products. Additionally, DSO provides manufacturing services for other customers.

On August 24, 2021, Smart for Life Canada Inc. (“DSO Canada”) was established as a wholly owned subsidiary of Doctors Scientific Organica, LLC in Canada. SMFL Canada sells retail products through a retail store location in Montreal Canada and the same location also acts as distribution center for international direct to consumer and big box customers. On January 8, 2024, the retail store location was closed.

On November 8, 2021, SMFL acquired 100% of Nexus Offers, Inc. (“Nexus”). Nexus is a network platform in the affiliate marketing space. Affiliate marketing is an advertising model in which a product vendor compensates third-party digital marketers to generate traffic or leads for the product vendor’s products and services. The third-party digital marketers are referred to as affiliates, and the commission fee incentivizes them to find ways to promote the products being sold by the product vendor. Based in Miami, Florida, Nexus operates virtually.

On December 6, 2021, SMFL acquired 100% of GSP Nutrition Inc. (“GSP”). GSP is a sports nutrition company that offers nutritional supplements for athletes and active lifestyle consumers. Based in Miami, Florida, GSP operates virtually.

On July 29, 2022, SMFL acquired Ceautamed Worldwide, LLC and its wholly-owned subsidiaries Wellness Watchers Global, LLC and Greens First Female LLC (collectively, “Ceautamed”). Ceautamed is based in Boca Raton, Florida and owns the Greens First line of branded products which have been specifically marketed to the healthcare provider sector. On January 29, 2024, the Company entered into an asset purchase agreement pursuant to which the Company agreed to sell nearly all of the assets of Ceautamed for a 49% ownership interest in a new limited liability company, First Health FL LLC, or First Health. The agreement included an option for the 51% owner to purchase the remaining 49% for $1.00 at an unspecified future date. On October 1, 2024, such owner elected to exercise the option, effective as of October 2, 2024, paid to the Company the option price of $1.00, and the Company delivered the remaining 49% interest in First Health to such owner.

On August 15, 2022, SMFL entered into a joint venture with a seller of Ceautamed to form Smart Acquisition Group, LLC. This subsidiary was 50% owned by the Company and 50% owned by Stuart Benson, the former owner and principal of Ceautamed. This company was formed to expand M&A growth initiatives through the identification, negotiation, financing and acquisition of companies by SMFL. On September 22, 2023, we dissolved this subsidiary.

SMART FOR LIFE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023

(UNAUDITED)

Note 2 — Summary of Significant Accounting Policies

Principles of Consolidation

The condensed consolidated financial statements reflect the consolidated operations of SMFL and its wholly owned subsidiaries DSO, DSO Canada, Nexus, GSP and BSNM (collectively, the “Company”), and are prepared in the United States Dollars in accordance with generally accepted accounting principles in the United States of America (“GAAP”). Ceautamed has been deemed to be a discontinued operation. Intercompany balances and transactions have been eliminated in consolidation.

Reclassifications

Certain prior period amounts have been reclassified to conform with the current year presentation.

Reclassifications - Discontinued Operations to Continued Operations

The 2023 financials have been reclassified from reporting BSNM as discontinued operations to continued operations due to a change in the plan of the sale / leaseback of BSNM. In December 2023, with the board’s approval, the Company planned to sell BSNM. The Company had a buyer, who signed an offer letter, but was unable to work out the economics of the deal and therefore had not closed the transaction. Following this, in October 2024, management and the board revised its decision to sell BSNM and continue operating the business line. Also in October 2024, the Company started moving most of the equipment and much of the usable inventory to its Riviera Beach facility. The Company also surrendered the BSNM facility in November 2024 back to the landlord. As a result, the classification of BSNM has been revised in accordance with Accounting Standards Codification (“ASC”) 360-10, Property, Plant, and Equipment. The results of BSNM have been reclassified from discontinued operations to continuing operations for all periods presented to ensure comparability of the financial statements. The impact of the reclassification on previously reported amounts is summarized below:

1. Reclassification of $505,643 of operating income, $834,487 in cost of goods sold, $1,167,481 in expenses and $58,808 in other expense from discontinued operations to continuing operations.

2. Adjustment to depreciation and amortization expenses, as BSNM is no longer classified as held for sale.

3. Reclassification of $1,401,300 in assets and $3,062,749 in liability balances to reflect continuing operations.

The comparative financial statements for the years ended December 31, 2023 and 2024, have been adjusted accordingly.

Ceautamed has been deemed to be a discontinued operation (see Note 3).

These reclassifications did not impact previously reported net income, earnings per share, or the Company’s consolidated financial position.

SMART FOR LIFE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023

(UNAUDITED)

Basis of Presentation

The Company’s fiscal year end is December 31. The Company uses the accrual method of accounting. The accompanying unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements. The balance sheet as of December 31, 2023 has been derived from audited consolidated financial statements.

The accompanying unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2024 and 2023 have been prepared in accordance with GAAP for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements.

The unaudited financial information included in this report includes all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary to reflect a fair statement of the results for the interim periods. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results of the full fiscal year.

The condensed consolidated financial statements included in this report should be read in conjunction with the financial statements and notes thereto included in the Company’s financial statements for the fiscal year ended December 31, 2023.

On April 24, 2023, the Company effected a 1-for-50 reverse stock split of its issued and outstanding common stock. The impact of this transaction is reflected within all common stock, options, and warrant information retrospectively in these condensed consolidated financial statements.

On August 2, 2023, the Company effected a 1-for-3 reverse stock split of its authorized and outstanding common stock. The impact of this transaction is reflected within all common stock, options, and warrant information retrospectively in these consolidated financial statements. As a result of the reverse stock split, the Company’s authorized common stock decreased to 166,666,667 shares.

On October 27, 2023, the Company effected a 1-for-3 reverse stock split of its authorized and outstanding common stock. The impact of this transaction is reflected within all common stock, options, and warrant information retrospectively in these consolidated financial statements. As a result of the reverse stock split, the Company’s authorized common stock decreased to 55,555,556 shares.

On April 22, 2024, the Company effected a 1-for-7 reverse stock split of its authorized and outstanding common stock. The impact of this transaction is reflected within all common stock, options, and warrant information retrospectively in these consolidated financial statements. As a result of the reverse stock split, the Company’s authorized common stock decreased to 7,936,508 shares.

Liquidity, Capital Resources and Going Concern

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has sustained recurring losses and has a deficiency in working capital of approximately $8.2 million at September 30, 2024, which raises substantial doubt about its ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

SMART FOR LIFE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023

(UNAUDITED)

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates include, among other items, assessing the collectability of receivables, the realization of deferred taxes, useful lives and recoverability of tangible and intangible assets, assumptions used in the valuation of options, the computation of revenue based on the proportional delivery of services, and accruals for commitments and contingencies. Some of these estimates can be subjective and complex and, consequently, actual results could differ materially from those estimates.

Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three (3) months or less to be cash equivalents. At September 30, 2024 and December 31, 2023, there were no cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts

The Company’s accounts receivable consists primarily of receivables from customers. The balance is presented net of an allowance for expected credit losses. The Company monitors the financial condition of its customers and records the allowance for expected credit losses on receivables when it believes customers are unable to make their required payments based on factors such as delinquencies and aging trends. The allowance for expected credit loss is the Company’s best estimate of the amount of probable credit losses related to existing accounts receivable. Accounts receivable are presented net of an allowance for expected credit losses of $22,686 and $22,686 at September 30, 2024 and December 31, 2023, respectively.

Inventory

Inventory consists of raw materials, packaging materials, and finished goods and is valued at the lower of cost (first-in, first-out) (replacement cost or net realizable value). An allowance for inventory obsolescence is provided for slow moving or obsolete inventory to write down historical cost to net realizable value. The Company primarily performs its manufacturing for functional foods and nutraceuticals in the form of bars, cookies, powders, tablets and capsules.

The allowance for obsolescence is an estimate established through charges to cost of goods sold. Management’s judgment in determining the adequacy of the allowance is based upon several factors which include, but are not limited to, analysis of slow-moving inventory, analysis of the selling price of inventory, the predetermined shelf life of the product, and management’s judgment with respect to current economic conditions. Given the nature of the inventory, it is reasonably possible the Company’s estimate of the allowance for obsolescence will change in the near term.

Property and Equipment

Property and equipment are recorded at cost. Expenditures for major betterments and additions are charged to the asset accounts, while replacements, maintenance and repairs which do not improve or extend the lives of the respective assets are charged to expense as incurred. The Company provides for depreciation and amortization over the estimated useful lives of various assets using the straight-line method ranging from 3-7 years.

Goodwill

The Company allocates goodwill to reporting units based on the reporting unit expected to benefit from the business combination. The Company evaluates its reporting units on an annual basis and, if necessary, reassign goodwill using a relative fair value allocation approach. Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on December 31 and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.

No goodwill impairments were recognized during the three and nine months ended September 30, 2024 and 2023.

Intangible Assets

Intangible assets consist of customer contracts, developed technology, non-compete agreements, license agreements, and intellectual property acquired in the acquisitions of BSNM, DSO, Nexus, GSP, and Ceautamed. The Company amortizes intangible assets with finite lives on a straight-line basis over their estimated useful lives which ranges from 3 to 15 years.

SMART FOR LIFE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023

(UNAUDITED)

Long-Lived Assets

The Company assesses potential impairments to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. An impairment loss is recognized when the undiscounted cash flows expected to be generated by an asset (or group of assets) is less than its carrying amount. Any required impairment loss is measured as the amount by which the asset’s carrying value exceeds its fair value and is recorded as a reduction in the carrying value of the related asset and a charge to operating results.

Lease Right-of-Use Assets and Liabilities

The Company records a right-of-use asset and lease liability on the condensed consolidated balance sheets for all leases with terms longer than 12 months. Leases are classified either as finance or operating with the classification affecting the pattern of expense recognition.

Related Parties

The Company follows ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions (see Note 13).

Debt Issuance Costs

In accordance with ASC 835-30, Other Presentation Matters, the Company has reported debt issuance cost as a deduction from the carrying amount of debt and amortizes these costs using the effective interest method over the term of the debt as interest expense.

SMART FOR LIFE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023

(UNAUDITED)

Fair Value Measurement

Under ASC Topic 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). ASC Topic 820 establishes a hierarchy for inputs to valuation techniques used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that reflect assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. There are three levels to the hierarchy based on the reliability of inputs, as follows:

Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets and liabilities in markets that are not active.

Level 3 - Unobservable inputs for the asset or liability. The degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3.

The Company’s cash and cash equivalents are measured using Level 1 inputs and include cash on hand, deposits in banks, certificates of deposit and money market funds. Due to their short-term nature, the carrying amounts reported in the consolidated balance sheets approximate the fair value of cash and cash equivalents.

The Company has certain assets that are measured at fair value on a non-recurring basis including those described in Note 6, and are adjusted to fair value only when the carrying values are more than the fair values. The categorization of the framework used to price the assets is considered a Level 3 measurement due to the subjective nature of the unobservable inputs used to determine the fair value.

Certain nonfinancial assets and liabilities are measured at fair value on a non-recurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. The estimated fair value of financial instruments is determined using the best available market information and appropriate valuation methodologies. Considerable judgment is necessary, however, in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange, or the value that ultimately will be realized upon maturity or disposition. In the evaluation of the estimated value of such assets, data for determining the value of the estimates are utilized based on the relevant facts and circumstances. The use of different market assumptions may have a material effect on the estimated fair value amounts.

Revenue Recognition

The Company evaluates and recognizes revenues by:

●

identifying the contract(s) with the customer,

●

identifying the performance obligations in the contract,

●

determining the transaction price,

SMART FOR LIFE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023

(UNAUDITED)

●

allocating the transaction price to performance obligations in the contract; and

●

recognizing revenue as each performance obligation is satisfied through the transfer of a promised good or service to a customer (i.e., “transfer of control”).

Products (BSNM, DSO, GSP, and Ceautamed)

The Company generates product revenues by manufacturing and packaging of nutraceutical products as a contract manufacturer for customers. The majority of the Company’s revenue is recognized when it satisfies a single performance obligation by transferring control of its products to a customer. Control is generally transferred when the Company’s products are either shipped or delivered based on the terms contained within the underlying contracts or agreements. The Company’s general payment terms are short-term in duration. For the three months ended September 30, 2024 and 2023, revenue was made up of contract manufacturing of $19,475 and $467,177, online marketing of $1,249,898 and $1,537,044, wholesale of $0 and $201,940, and direct marketing of $0 and $33,394, respectively. For the nine months ended September 30, 2024 and 2023, revenue was made up of contract manufacturing of $19,475 and 1,990,579, online marketing of $2,603,989 and $2,549,532, wholesale of $0 and $185,698, and direct marketing of $2,500 and $91,882, respectively. The Company does not have significant financing components or payment terms. The Company records deferred revenues for prepaid amounts from customers due to no performance obligations being met at such time. The Company had unsatisfied performance obligations of $405,762 and $496,762 at September 30, 2024 and December 31, 2023, respectively.

Distribution expenses to transport the Company’s products, where applicable, and warehousing expense after manufacture are accounted for within operating expenses.

Advertising /Marketing (Nexus)

Nexus generates advertising revenue when sales of listed products are sold by product vendors through its network as a result of the marketing efforts of digital marketers. The products on the network come from several different customers, which pay Nexus a specific amount per sale, the amount of which is dictated by the customer. The revenue is recognized upon the sale of a product by the customer, net of fraudulent traffic or disputed transactions. A portion of the specific amount received by Nexus for that sale is paid out to the digital marketer as a commission, which is recorded in cost of sales.

Nexus’ general payment terms are short-term in duration. Nexus does not have significant financing components or payment terms. Nexus had unsatisfied performance obligations of $4,058 at September 30, 2024 and December 31, 2023.

Freight

Freight costs for the nine months ended September 30, 2024 and 2023 amounted to $147,844 and $115,337, respectively. Freight costs for the three months ended September 30, 2024 and 2023 were $74,139 and $26,170, respectively.

Advertising

Advertising costs are expensed as incurred. Advertising costs for the nine months ended September 30, 2024 and 2023 were $362,577 and $1,349,648, respectively. Advertising costs for the three months ended September 30, 2024 and 2023 were $184,981 and $472,854, respectively.

Paycheck Protection Program

The Company records Paycheck Protection Program (“PPP”) loan proceeds in accordance with ASC 470, “Debt.” Debt is extinguished when either the debtor pays the creditor or the debtor is legally released from being the primary obligor, either judicially or by the creditor.

Stock-based Compensation

The Company recognizes expense for stock options and warrants granted over the vesting period based on the fair value of the award at the grant date and valued using a Black-Scholes option pricing model to determine the fair market value of the stock options and warrants. Forfeitures are reduced from options and warrants outstanding and the Company calculates the amount of tax benefit available by tracking each stock option award on an employee-by-employee basis and on a grant-by-grant basis. The Company then compares the recorded expense to the tax deduction received for each stock option and warrant grant. The Company’s policy is to recognize forfeitures as they occur.

SMART FOR LIFE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023

(UNAUDITED)

Income Taxes

The Company accounts for income taxes under the provisions of ASC 740, “Income Taxes.” The Company records a liability for uncertain tax positions when it is probable that a loss has been incurred and the amount can be reasonably estimated. At September 30, 2024 and December 31, 2023, the Company had no liabilities for uncertain tax positions. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. The Company’s tax years subject to examination by tax authorities generally remain open for three (3) years from the date of filing.

The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. Due to the continued losses, the Company has recorded a full valuation allowance at the end of September 30, 2024 and December 31, 2023.

Employee Retention Credits

In accordance with the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), the Company filed for Employee Retention Credits for applicable periods in 2020 and 2021. As amounts to be refunded are subject to IRS calculations, and the timing for processing of the credits are unknown, the Company recognizes as other income amounts refunded upon the receipt of the payment. During the nine months ended September 30, 2024 and 2023 the Company received $0 and $586,556, respectively.

Recent Accounting Standards Adopted

On August 5, 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, “Debt – Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40),” which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in GAAP. This ASU is effective for fiscal years beginning after December 31, 2023. The adoption of this guidance did not materially impact the financial statements.

Recent Accounting Standards Not Yet Effective

In December 2023, the FASB issued ASU No. 2023-09, “Improvements to Income Tax Disclosures”. The ASU is intended to improve the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation, as well as income taxes paid disaggregated by jurisdiction. The ASU is effective for annual periods beginning after December 15, 2024 and should be applied on a prospective basis, but retrospective application is permitted. We are currently assessing the impact that this ASU will have on the Company’s financial statements.

In March 2024, the FASB issued ASU 2024-02, “Codification Improvements – Amendments to Remove References to the Concept Statements”. The ASU is part of the Board’s standing project to make “Codification updates for technical corrections such as conforming amendments, clarifications to guidance, simplifications to wording or the structure of guidance, and other minor improvements.” We are currently assessing the impact that this ASU will have on the Company’s financial statements.

In November 2024, the FASB issued ASU No. 2024-03, “Disaggregation of Income Statement Expenses”. The ASU is intended to improve financial reporting by requiring disaggregated disclosure of certain costs and expenses. The ASU is effective for fiscal years beginning after December 15, 2026 and for interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The ASU may be applied on either a prospective or retrospective basis. We are currently assessing the impact that this ASU will have on the Company’s financial statements.

The Company has reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a material impact on the Company’s financial statements.

SMART FOR LIFE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023

(UNAUDITED)

Note 3 — Discontinued Operations

ASC 360, “Property, Plant, and Equipment” requires that a long-lived asset (disposal group) to be sold shall be classified as held for sale in the period in which a set of criteria have been met, including criteria that the sale of the asset (disposal group) is probable, and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. On January 29, 2024, the Company contributed nearly all of the assets of Ceautamed into First Health for a 49% ownership of First Health.

For comparability purposes, certain prior period line items relating to the assets held for sale have been reclassified and presented as discontinued operations for all periods presented in the accompanying consolidated statements of operations, consolidated statements of cash flows, and the consolidated balance sheets.

In accordance with ASC 205-20-S99, “Allocation of Interest to Discontinued Operations,” the Company elected to not allocate consolidated interest expense to discontinued operations where the debt is not directly attributable to or related to discontinued operations.

The following information presents the major classes of line item of assets and liabilities included as part of discontinued operations in the consolidated balance sheets as of September 30, 2024 and December 31, 2023:

	September 30, 2024		December 31, 2023
ASSETS
Current assets:
Cash	$	—	$	29,872
Accounts receivable, net				18,688
Inventory		—		89,997
Prepaid expenses and other current assets		—		6,500
Total current assets		—		145,057

Property and equipment, net		—		4,188
Intangible assets, net		—		3,765,962
Operating lease right-of-use assets		—		702,818
Total other assets		—		4,472,968
Total assets	$	—	$	4,618,025

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	—	$	528,129
Accrued expenses		—		109,623
Contract liabilities		—		99,408
Lease liability, current		—		72,431
Debt, current, net of debt discounts

SEC Form 10-Q filed by Smart for Life Inc.