The following discussion and analysis should be read in conjunction with our
financial statements and related notes (the "Financial Statements") included
elsewhere in this Quarterly Report on Form 10-Q (the "Quarterly Report") and the
section entitled "Risk Factors." Unless otherwise indicated, the terms "Tattooed
Chef," "the Company," "we," "us," or "our" refer to Tattooed Chef, Inc., a
Delaware corporation, together with its consolidated subsidiaries.



Special Note Regarding Forward-Looking Statements





This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act that
are not historical facts and involve risks and uncertainties that could cause
actual results to differ materially from those expected and projected. All
statements, other than statements of historical fact included in this Quarterly
Report including, without limitation, statements in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
regarding the Company's financial position, business strategy and the plans and
objectives of management for future operations, are forward-looking statements.
Words such as "expect," "believe," "anticipate," "intend," "estimate," "seek",
"expand" and variations and similar words and expressions are intended to
identify such forward-looking statements. Such forward-looking statements relate
to future events or future performance, but reflect management's current
beliefs, based on information currently available. A number of factors could
cause actual events, performance or results to differ materially from the
events, performance and results discussed in the forward-looking statements. For
information identifying important factors that could cause actual results to
differ materially from those anticipated in the forward-looking statements,
please refer to the Risk Factors section of the Company's Annual Report on Form
10-K for the period ending December 31, 2021 filed with the SEC and Part II,
Item 1A. Risk Factors herein. The Company's securities filings can be accessed
on the EDGAR section of the SEC's website at www.sec.gov. Except as expressly
required by applicable securities law, the Company disclaims any intention or
obligation to update or revise any forward-looking statements whether as a
result of new information, future events or otherwise. Factors that could cause
actual results to differ materially from those in the forward-looking statements
include, but are not limited to, the following:



? our ability to maintain the listing of our common stock on Nasdaq;

? our ability to raise capital in the future;

? our ability to acquire and integrate new operations successfully;

? market conditions and global and economic factors beyond our control, including

the potential adverse effects of the ongoing global coronavirus (COVID-19)

pandemic on capital markets, war (including the ongoing conflict in Ukraine),

climate change, general economic conditions, unemployment and our liquidity,


   operations and personnel;




? our ability to obtain raw materials on a timely basis or in quantities

sufficient to meet the demand for our products;

? our ability to grow our customer base;

? our ability to forecast and maintain an adequate rate of revenue growth and

appropriately plan its expenses;

? our expectations regarding future expenditures;


 ? our ability to attract and retain qualified employees and key personnel;

? our ability to retain relationship with third party suppliers;

? our ability to compete effectively in the competitive packaged food industry;


 ? our ability to protect and enhance our corporate reputation and brand;

? the impact of inflation; and






 ? the impact of future regulatory, judicial, and legislative changes on our
   industry.




                                       28





Overview



We are a rapidly growing plant-based food company offering a broad portfolio of
innovative frozen foods. We supply plant-based products to leading retailers in
the United States, with signature products such as ready-to-cook bowls, zucchini
spirals, riced cauliflower, acai and smoothie bowls, cauliflower crust pizza,
wood fire crusted pizza, handheld burritos, tortillas, chips, bars and
quesadillas. Our products are available both in private label and our Tattooed
Chef™ brand in the frozen food section of retail food stores.



Both NMFD and BCI, our new entities that were acquired in the second and fourth
quarters of 2021 (see Note 8 Business Combinations), currently primarily
manufacture private label products. NMFD is expected to manufacture both private
label and Tattooed Chef branded products during 2022. Our Mexican-style
plant-based Tattooed Chef branded products, including burritos, enchiladas, and
quesadillas, total 18 new SKUs, were introduced to the market during the six
months ended June 30, 2022. The Karsten facility is not currently in operation
and is expected to become active during the third quarter of 2022. The Karsten
facility is expected to manufacture Tattooed Chef branded salty snacks and other
alternative Tattooed Chef branded and private label products. BCI is also
expected to start manufacturing Tattooed Chef branded products during the third
quarter of 2022. We anticipate continued growth in Tattooed Chef branded
products primarily due to new product introductions, further expansion with
current customers, and increased sales to new retail customers. While we are
primarily focused on growing our branded business, we will continue to support
our current private label business and will evaluate new opportunities with
private label customers as they arise.



Results of Operations



The following table sets forth key statistics for the three and six months ended
June 30, 2022 and 2021:



                                        Three months Ended                                               Six months Ended
                                             June 30,                                                        June 30,

(in thousands) 2022 % of revenue 2021 % of revenue 2022 % of revenue 2021 % of revenue Net revenue $ 58,110

             100.0 %   $  50,270              100.0 %   $ 130,174             100.0 %   $ 102,739             100.0 %
Cost of goods
sold                  57,370              98.7 %      41,953               83.5 %     121,284              93.2 %      87,242              84.9 %
Gross profit             740               1.3 %       8,317              

16.5 %       8,890               6.8 %      15,497              15.1 %
Operating
expenses              24,346              41.9 %      16,419               32.7 %      49,139              37.7 %      30,615              29.8 %
Loss from
operations           (23,606 )           -40.6 %      (8,102 )            -16.1 %     (40,249 )           -30.9 %     (15,118 )           -14.7 %

Interest expense         (42 )            -0.1 %         (94 )             -0.2 %         (83 )            -0.1 %        (114 )            -0.1 %
Other (expense)
income                (2,334 )            -4.0 %         733                1.5 %      (2,945 )            -2.3 %      (1,948 )            -1.9 %
Loss before
provision for
income taxes         (25,982 )           -44.7 %      (7,463 )            -14.8 %     (43,277 )           -33.2 %     (17,180 )           -16.7 %
Income tax
expense                 (455 )            -0.8 %     (50,009 )            -99.5 %        (711 )            -0.5 %     (48,534 )           -47.2 %
Net loss             (26,437 )           -45.5 %     (57,472 )           -114.3 %     (43,988 )           -33.8 %     (65,714 )           -64.0 %



Results of Operations for the Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30, 2021.





Net revenue



Net revenue increased by $7.8 million, or 15.6%, to $58.1 million for the three
months ended June 30, 2022 as compared to $50.3 million for the comparable
period in 2021. The increase was due to an increase of $3.8 million in private
label products revenue primarily driven by the sales generated from NMFD and
BCI, an increase of $2.9 million in other revenues, mainly driven by the sales
of burritos, enchiladas, quesadillas and other products by NMFD to its
restaurant customers, and an increase of $1.1 million in Tattooed Chef branded
products.



Cost of goods sold



Cost of goods sold increased $15.4 million, or 36.7%, to $57.4 million for the
three months ended June 30, 2022 as compared to $42.0 million for the comparable
period in 2021. Cost of goods sold, as a percentage of revenue, increased to
98.7% for the three months ended June 30, 2022 from 83.5% for the three months
ended June 30, 2021. The increase of cost of goods sold in dollar amount is
primarily due to the increase in sales volume. The increase as a percentage of
revenue is primarily due to the increases in cost of freight, packaging, raw
materials, and labor due to inflation and the increase in fixed costs including
rent and depreciation expenses resulting from new leases assumed and fixed
assets acquired though the acquisitions completed during the second and fourth
quarters of 2021, as well as our newly leased facility in Vernon, California
that started on April 1, 2022. As these new facilities are not yet operating at
full capacity, the fixed cost as a percentage of revenue is higher than the
comparable period in 2021.



Gross Profit



Gross profit decreased $7.6 million, or 91.1%, to $0.7 million for the three
months ended June 30, 2022 as compared to $8.3 million for the comparable period
in 2021. Gross margin for the three months ended June 30, 2022 was 1.3%, as
compared to 16.5% for the three months ended June 30, 2021. We are in the
process of ramping production on new Tattooed Chef branded products utilizing
the facilities and equipment acquired through the NMFD transaction and the BCI
acquisitions. Moving forward, we expect Tattooed Chef branded products to be
manufactured by both plants. Therefore, we expect our fixed cost as a percentage
of revenue to decrease and our gross margin to increase once the facilities
operate at full capacity and achieve economies of scale. In addition, beginning
in the fourth quarter of 2022, we plan to implement the first ever price
increases for Tattooed Chef branded products.



                                       29





Operating expenses



Operating expenses increased $7.9 million, or 48.3%, to $24.3 million for the
three months ended June 30, 2022 as compared to $16.4 million for the comparable
period in 2021. The increase is primarily due to a $2.5 million increase in
marketing and promotional expenses, a $1.0 million increase in post-manufacture
cold storage expenses, a $1.1 million increase in stock compensation expense, a
$1.5 million increase in payroll related expenses, a $0.2 million increase in
ERP software implementation and a $2.2 million increase related to entities that
were acquired during the second and fourth quarter of 2021, partially offset by
a $1.8 million decrease in professional expenses.



The significant increase in marketing, promotional and post-manufacture cold
storage expenses is due to our heavy investment in the Tattooed Chef brand, in
order to increase distribution, raise brand awareness, and drive sales in the
new stores that are launching our products. The increase in payroll related
expenses is primarily due to our efforts to recruit and retain key employees who
will grow our business, expand the Tattooed Chef brand and meet the additional
compliance requirements of being a public company. The increase in stock
compensation expense is primarily due to the vesting of one restricted stock
grant to a marketing consultant on January 1, 2022 (this grant vests over two
years), plus the effect of a forfeiture of restricted stock upon a former
employee's termination during the three months ended June 30, 2021. The decrease
in professional expenses is primarily related to acquisitions that occurred
during the three months ended June 30, 2021.



Income tax expense



Income tax expense decreased $49.6 million, or 99.1%, to $0.5 million for the
three months ended June 30, 2022 as compared to $50.0 million for the comparable
period in 2021. The decrease was mainly driven by $50.0 million income tax
expense recognized during the comparable period of 2021 that resulted from a
whole valuation allowance recognition with respect to a deferred tax asset. We
continue to use a full valuation allowance established against our net deferred
tax assets in the U.S.



Net Loss



For the three months ended June 30, 2022, we had a net loss of $26.4 million,
compared to a net loss of $57.5 million for the three months ended June 30,
2021. The decrease in net loss was mainly driven by the $50.0 million income tax
expense in 2021 as discussed above, which was not present in 2022.



Results of Operations for the Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021.





Net revenue



Net revenue increased by $27.4 million, or 26.7%, to $130.2 million for the six
months ended June 30, 2022 as compared to $102.7 million for the comparable
period in 2021. The increase was due to an increase of $12.6 million in private
label products revenue, primarily driven by the sales generated from NMFD and
BCI, an increase of $8.7 million in Tattooed Chef branded products, and an
increase of $6.1 million in other revenues, mainly driven by the sales of
burritos, enchiladas, quesadillas and other products by NMFD to its restaurant
customers.



Cost of goods sold



Cost of goods sold increased $34.0 million, or 39.0%, to $121.3 million for the
six months ended June 30, 2022 as compared to $87.2 million for the comparable
period in 2021. Cost of goods sold, as a percentage of revenue, increased to
93.2% for the six months ended June 30, 2022 from 84.9% for the six months ended
June 30, 2021. The increase of cost of goods sold in dollar amount is primarily
due to the increase in sales volume. The increase as a percentage of revenue is
primarily due to the increases in cost of freight, packaging, raw materials, and
labor due to inflation and the increase in fixed costs including rent and
depreciation expenses resulting from new leases assumed and fixed assets
acquired though the acquisitions completed during the second and fourth quarters
of 2021, as well as our newly leased facility in Vernon that started on April 1,
2022. As these new facilities are not yet operating at full capacity, the fixed
cost as a percentage of revenue is higher than the comparable period in 2021.



                                       30





Gross Profit



Gross profit decreased $6.6 million, or 42.6%, to $8.9 million for the six
months ended June 30, 2022 as compared to $15.5 million for the comparable
period in 2021. Gross margin for the six months ended June 30, 2022 was 6.8%, as
compared to 15.1% for the six months ended June 30, 2021. We are in the process
of ramping production on new Tattooed Chef branded products by utilizing the
facilities and equipment acquired through the NMFD transaction and the BCI
acquisition. Moving forward, we expect Tattooed Chef branded products to be
manufactured by both plants. Therefore, we expect our fixed cost as a percentage
of revenue to decrease and our gross margin to increase once the facilities
operate at full capacity and achieve economies of scale. In addition, beginning
in the fourth quarter of 2022, we plan to implement the first ever price
increases for Tattooed Chef branded products.



Operating expenses



Operating expenses increased $18.5 million, or 60.5%, to $49.1 million for the
six months ended June 30, 2022 as compared to $30.6 million for the comparable
period in 2021. The increase is primarily due to a $6.9 million increase in
marketing and promotional expenses, a $2.1 million increase in post-manufacture
cold storage expenses, a $3.5 million increase in payroll related expenses, a
$0.3 million increase in ERP software implementation and a $4.6 million increase
related to entities that were acquired during the second and fourth quarters of
2021, partially offset by a $0.8 million decrease in stock compensation expense
and a $0.3 million decrease in professional expenses.



The significant increase in marketing, promotional and post-manufacture cold
storage expenses is due to our heavy investment in the Tattooed Chef brand, in
order to increase distribution, raise brand awareness, and drive sales in the
new stores that are launching our products. The increase in payroll related
expenses is primarily due to our efforts to recruit and retain key employees who
will grow our business, expand the Tattooed Chef brand and meet the additional
compliance requirements of being a public company. The decrease in stock
compensation expense is mainly driven by one restricted stock grant to a
marketing consultant during the first quarter of 2021, which was vested
immediately. The decrease in professional expenses is primarily related to
acquisitions that occurred during the six months ended June 30, 2021.



Income tax expense



Income tax expense decreased $47.8 million, or 98.5%, to $0.7 million for the
six months ended June 30, 2022 as compared to $48.5 million for the comparable
period in 2021. The decrease was mainly driven by $50.0 million income tax
expense recognized during the comparable period of 2021 resulted from a whole
valuation allowance recognition with respect to a deferred tax asset. We
continue to use a full valuation allowance established against our net deferred
tax assets in the U.S.



Net Loss



For the six months ended June 30, 2022, we had a net loss of $44.0 million,
compared to a net loss of $65.7 million for the six months ended June 30, 2021.
The decrease in net loss was mainly driven by $50.0 million income tax expense
in 2021 as discussed above, which was not present in 2022.



                                       31





Non-GAAP Financial Measures



We use non-GAAP financial information and believe it is useful to investors as
it provides additional information to facilitate comparisons of historical
operating results, identify trends in operating results, and provide additional
insight on how the management team evaluates the business. Our management team
uses Adjusted EBITDA to make operating and strategic decisions, evaluate
performance and comply with indebtedness related reporting requirements. Below
are details on this non-GAAP measure and the non-GAAP adjustments that the
management team makes in the definition of Adjusted EBITDA. The adjustments
generally fall within the categories of non-cash items, acquisition and
integration costs, business transformation initiatives, and infrequent or
unusual losses and gains in a non-recurring nature. We believe this non-GAAP
measure should be considered along with net income, the most closely related
GAAP financial measure. Reconciliations between Adjusted EBITDA and net income
are below, and discussion regarding underlying GAAP results throughout this
Management's Discussion and Analysis of Financial Condition and Results of
Operations.



As new events or circumstances arise, the definition of Adjusted EBITDA could
change. When the definitions change, we will provide the updated definition and
present the related non-GAAP historical results on a comparable basis.



We define EBITDA as net income before interest, taxes, depreciation. Adjusted
EBITDA further adjusts EBITDA by adding back non-cash compensation expenses,
non-recurring expenses, and other non-operational charges. Adjusted EBITDA is
one of the key performance indicators we use in evaluating our operating
performance and in making financial, operating, and planning decisions. We
believe Adjusted EBITDA is useful to the readers of this quarterly report on
Form 10-Q in the evaluation of our operating performance.



The following table provides a reconciliation from net income to Adjusted EBITDA for the three and six months ended June 30, 2022, and 2021:





                                                      Three Months Ended           Six Months Ended
                                                           June 30,                    June 30,
(in thousands)                                        2022          2021          2022          2021
Net loss                                            $ (26,437 )   $ (57,472 )   $ (43,988 )   $ (65,714 )
Interest expense                                           42            94            83           114
Income tax expense                                        455        50,009           711        48,534
Depreciation and amortization                           1,536           896         3,043         1,448
EBITDA                                                (24,404 )      (6,473 )     (40,151 )     (15,618 )
Adjustments
Stock compensation expense                              1,415           318         2,702         3,502

Loss (gain) on foreign currency forward contracts       2,049        (1,023 )       3,072         1,978
(Gain) loss on warrant remeasurement                     (461 )         371          (668 )          51
Unrealized foreign currency losses                        626             -

          626             -
Acquisition expenses                                      119           726           224           726
UMB ATM transaction                                         -            22             -            22
ERP related expenses                                      179             -           338             -
Total Adjustments                                       3,927           414         6,294         6,279
Adjusted EBITDA                                     $ (20,477 )   $  (6,059 )   $ (33,857 )   $  (9,339 )




Adjusted EBITDA was negative $20.5 million and negative $33.9 million for the
three and six months ended June 30, 2022, respectively, compared to adjusted
EBITDA of negative $6.1 million and negative $9.3 million for the three and six
months ended June 30, 2021, respectively. The decline in Adjusted EBITDA was
primarily due to a lower gross margin resulting primarily from inflation related
increases in costs that have not yet been recouped through product price
increases as well as the fixed cost of our new facilities that are currently
operating at low capacity, and a significant increase in spending on sales and
marketing expenses to support the growth in revenue and brand recognition for
Tattooed Chef.


Liquidity and Capital Resources


As of June 30, 2022, we had $27.7 million in cash and cash equivalents. The cash
outflow during the six months ended June 30, 2022 is primarily attributable to
$23.8 million in marketing and promotional spend to raise our brand awareness,
and $15.6 million capital expenditures. The capital expenditures are for
automation and robotic machinery to improve our production efficiency and reduce
labor cost. By evaluating our business projections and expenditure budgets for
2022 and 2023, we believe our cash on hand plus availability under our credit
facilities are sufficient to meet our current working capital and capital
expenditure requirements for a period of at least twelve months from the date of
this filing.



                                       32





Indebtedness



We are party to a revolving line of credit agreement, which has been amended
from time to time, pursuant to which a credit facility has been extended to us
until September 30, 2023 (the "Credit Facility"). The Credit Facility provides
us with up to $25.0 million in revolving credit. Under the Credit Facility, we
may borrow up to (a) 90% of the net amount of eligible accounts receivable;
plus, (b) the lower of: (i) sum of: (1) 50% of the net amount of eligible
inventory; plus (2) 45% of the net amount of eligible in-transit inventory; (ii)
$10.0 million; or (iii) 50% of the aggregate amount of revolving loans
outstanding, minus (c) the sum of all reserves. As of June 30, 2022, up to the
full $25.0 million was available for borrowing under the Credit Facility, of
which $0.6 million has been utilized for the letter of credit issuance leaving
$24.4 million of undrawn availability. Under the Credit Facility we must always
maintain minimum liquidity of not less than $10.0 million. Not less often than
monthly (or weekly during a Trigger Period), we must furnish to the lender a
Borrowing Base Certificate as of the close of business on the last business day
of each month (or week, as applicable). "Trigger Period" means the period of
time between (a) the date on which (i) an event of default has occurred, or (ii)
our liquidity is less than $20.0 million and (b) the date the event of default
has been cured or liquidity exceeds the minimum requirement. See Note 14 to the
condensed consolidated financial statements that appear elsewhere in this
Quarterly Report on Form 10-Q, for additional details regarding our
indebtedness. On August 5, 2022, we expanded the Credit Facility with the lender
from $25.0 million to $40.0 million and extended the maturity date from
September 2023 to September 2025.



Liquidity


We generally fund our short-term and long-term liquidity needs through a combination of cash on hand, cash flows generated from operations, and available borrowings under our Credit Facility (See "- Indebtedness" above). Our management regularly reviews certain liquidity measures to monitor performance.





Cash Flows



The following section presents the major components of net cash flows from and
used in operating, investing and financing activities for the six months ended
June 30, 2022 and 2021:



(in thousands)                      2022          2021
Cash (used in) provided by:
Operating activities              $ (50,064 )   $ (24,372 )
Investing activities                (15,610 )     (44,058 )
Financing activities                  1,261        76,728

Net (decrease) increase in cash $ (64,413 ) $ 8,298






Operating Activities



For six months ended June 30, 2022, net cash used in operating activities was
$50.1 million, primarily driven by the net loss of $44.0 million, partially
offset by non-cash items, which included depreciation expense of $3.0 million,
stock compensation expense of $2.7 million, unrealized forward contract loss of
$1.2 million, unrealized foreign currency losses of $0.6 million, and a gain on
the revaluation of warrant liability of $0.6 million. Working capital consumed
cash of $13.2 million driven by an $8.7 million increase in inventory, a $7.1
million increase in accounts receivable, a $3.5 million increase in prepaid
expenses, partially offset by a $6.1 million increase in accounts payable,
accrued expenses and other current liabilities.



For the six months ended June 30, 2021, net cash used in operating activities
was $24.4 million, primarily driven by the net loss of $65.7 million, partially
offset by non-cash items which include net change in deferred taxes of $47.5
million, stock compensation expense of $3.5 million, depreciation expense of
$1.5 million, and unrealized forward contract loss of $1.1 million. The net loss
is largely due to the income tax valuation allowance recorded as of period end.
Working capital consumed cash of $12.7 million driven by an $8.4 million
increase in inventory, a $3.6 million increase in prepaid expenses and other
current assets, a $2.3 million increase in accounts receivable due to increased
revenue, partially offset a $1.7 million increase in accounts payable, accrued
expenses and other current liabilities.



                                       33





Investing Activities



Net cash used in investing activities relates to capital expenditures to support
growth and investment in property, plant and equipment to expand production
capacity, tenant improvements, and to a lesser extent, replacement of existing
equipment.



For the six months ended June 30, 2022, net cash used in investing activities
was $15.6 million as compared to $44.1 million for the six months ended June 30,
2021. Cash used in both periods consisted primarily of capital expenditures to
improve efficiency and output from our current facilities and, in the 2021
period, included the expansion of existing production capacity through the
acquisition of NMFD and Karsten and assets from Esogel and Ferdifin.



Financing Activities


For the six months ended June 30, 2022, net cash provided by financing activities was $1.3 million, primarily from borrowings under our credit facilities, net of repayments.

For the six months ended June 30, 2021, net cash provided by financing activities was $76.7 million, primarily from $74.0 million due to warrant exercises and borrowings under the Credit Facility of $2.1 million to support working capital requirements to fund continued growth.

Critical Accounting Policies and Estimates


There have been no material changes to our critical accounting policies and
estimates from the information provided in Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations", included in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2021 ("Form
10-K").


Recent Accounting Pronouncements





The information required by this Item is incorporated herein by reference to the
Notes to Condensed Consolidated Financial Statements - Note 3. Recent Accounting
Pronouncements, in Part I, Item 1, of this Quarterly Report on Form 10-Q.

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