Results of Operations Comparison of fiscal years ended December 31, 2022 and 2021 The following table details the results of our operations for the twelve months ended December 31, 2022 and 2021 (dollars in thousands): YearEnded December 31, 2022 2021 $ Change % Change Netsales .................................. $141,588 $ 84,085 $ 57,503 68.4% Costofsales ........................... 128,339 73,791 54,549 73.9% Grossprofit ................................ 13,249 10,294 2,955 28.7% Operating expenses: Selling and distribution . . . . . . . . . . . . . . . 20,607 14,965 5,642 37.7% Marketing ......................... 6,020 20,649 (14,628) -70.8% Administrative...................... 25,011 27,792 (2,781) -10.0% Total operating expenses . . . . . . . . . . 51,638 63,406 (11,767) -18.6% Lossfromoperations......................... (38,389) (53,112) 14,722 -27.7% Interestexpense............................. 7,421 5,365 2,056 38.3% Otherincome ............................... (144) (309) 165 Change in fair value of convertible debt . . . . . . . . . . — 8,925 (8,925) Lossbeforeincometaxes ..................... (45,666) (67,093) 21,426 -31.9% Incometaxexpense .......................... — — — NetLoss .................................. $ (45,666) $(67,093) $ 21,426 -31.9% Less: net loss attributable to non-controlling interest .............................. (34,684) (32,117) Less: net loss prior to the reorganization . . . . . — (24,833) Preferred return on Series A preferred units . . . — — Net loss attributable to The Real Good Food Company,Inc. ............................ $ (10,983) $(10,143) Net Sales Net sales for the year ended December 31, 2022 increased $57.5 million, or 68.4% to $141.6 million compared to $84.1 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. In addition, a decrease in sales promotions also contributed to the dollar increase in net sales. Cost of Sales Cost of sales increased approximately $54.5 million, or 73.9%, to $128.3 million, during the year ended December 31, 2022, as compared to $73.8 million for the prior year period, primarily due to the 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. We do not expect these cost pressures to continue to this degree beyond this current quarter given that the Bolingbrook facility continues to move towards reaching greater efficiency, and that the costs for certain commodities continues to normalize, such as Chicken and Cheese, etc. 42
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