UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For quarterly period ended
or
For the transition period from _______________ to ______________
Commission File Number
(Exact name of registrant as specified in its charter)
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
Issuer’s telephone Number:
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.
| ☒ | 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
| ☒ | 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 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 | ☐ | |
| ☒ | 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 | ☐ | ☒ |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| OTCQB |
The number of shares of registrant’s common stock outstanding as of August 14, 2023 was .
TABLE OF CONTENTS
| 2 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SOW GOOD INC.
CONDENSED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses | ||||||||
| Inventory | ||||||||
| Total current assets | ||||||||
| Property and equipment: | ||||||||
| Construction in progress | ||||||||
| Property and equipment | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | ||||||||
| Security deposit | ||||||||
| Right-of-use asset | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Current maturities of notes payable, related parties,
net of $ | ||||||||
| Current maturities of notes payable,
net of $ | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities | ||||||||
| Notes payable, related parties,
net of $ | ||||||||
| Notes payable, net of $ | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders' equity: | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued and outstanding | ||||||||
| Common stock, $ par value, shares authorized, shares issued and outstanding | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
See accompanying notes to unaudited condensed financial statements.
| 3 |
SOW GOOD INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months | For the Six Months | |||||||||||||||
| Ended June 30, | Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit (loss) | ( | ) | ( | ) | ||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative expenses: | ||||||||||||||||
| Salaries and benefits | ||||||||||||||||
| Professional services | ||||||||||||||||
| Other general and administrative expenses | ||||||||||||||||
| Total general and administrative expenses | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Net operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other expense: | ||||||||||||||||
| Interest expense, including $ | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
| Net loss per common share - basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
See accompanying notes to unaudited condensed financial statements.
| 4 |
SOW GOOD INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
| For the Three Months Ended June 30, 2023 | ||||||||||||||||||||||||
| Additional | Common | Total | ||||||||||||||||||||||
| Common Stock | Paid-in | Stock | Accumulated | Stockholders' | ||||||||||||||||||||
| Shares | Amount | Capital | Payable | Deficit | Equity | |||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common stock issued to officers and directors for services | ||||||||||||||||||||||||
| Common stock warrants granted to related parties pursuant to debt financing | – | |||||||||||||||||||||||
| Common stock warrants granted to note holders pursuant to debt financing | – | |||||||||||||||||||||||
| Common stock options granted to officers and directors for services | – | |||||||||||||||||||||||
| Common stock options granted to employees and advisors for services | – | |||||||||||||||||||||||
| Net loss for the three months ended June 30, 2023 | – | ( | ) | ( | ) | |||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| For the Three Months Ended June 30, 2022 | ||||||||||||||||||||||||
| Additional | Common | Total | ||||||||||||||||||||||
| Common Stock | Paid-in | Stock | Accumulated | Stockholders' | ||||||||||||||||||||
| Shares | Amount | Capital | Payable | Deficit | Equity | |||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common stock warrants granted to related parties pursuant to debt financing | – | |||||||||||||||||||||||
| Common stock warrants granted to note holders pursuant to debt financing | – | |||||||||||||||||||||||
| Common stock issued to officers and directors for services | ||||||||||||||||||||||||
| Common stock issued to advisory board for services | ( | ) | ||||||||||||||||||||||
| Common stock options granted to officers and directors for services | – | |||||||||||||||||||||||
| Common stock options granted to employees and advisors for services | – | |||||||||||||||||||||||
| Net loss for the three months ended June 30, 2022 | – | ( | ) | ( | ) | |||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
(continued)
| 5 |
SOW GOOD INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
| For the Six Months Ended June 30, 2023 | ||||||||||||||||||||||||
| Additional | Common | Total | ||||||||||||||||||||||
| Common Stock | Paid-in | Stock | Accumulated | Stockholders' | ||||||||||||||||||||
| Shares | Amount | Capital | Payable | Deficit | Equity | |||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common stock issued to officers and directors for services | ||||||||||||||||||||||||
| Common stock warrants granted to related parties pursuant to debt financing | – | |||||||||||||||||||||||
| Common stock warrants granted to note holders pursuant to debt financing | – | |||||||||||||||||||||||
| Common stock options granted to officers and directors for services | – | |||||||||||||||||||||||
| Common stock options granted to employees and advisors for services | – | |||||||||||||||||||||||
| Net loss for the six months ended June 30, 2023 | – | ( | ) | ( | ) | |||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| For the Six Months Ended June 30, 2022 | ||||||||||||||||||||||||
| Additional | Common | Total | ||||||||||||||||||||||
| Common Stock | Paid-in | Stock | Accumulated | Stockholders' | ||||||||||||||||||||
| Shares | Amount | Capital | Payable | Deficit | Equity | |||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common stock warrants granted to related parties pursuant to debt financing | – | |||||||||||||||||||||||
| Common stock warrants granted to note holders pursuant to debt financing | – | |||||||||||||||||||||||
| Common stock issued to officers and directors for services | ( | ) | ||||||||||||||||||||||
| Common stock issued to advisory board for services | ||||||||||||||||||||||||
| Common stock options granted to officers and directors for services | – | |||||||||||||||||||||||
| Common stock options granted to employees and advisors for services | – | |||||||||||||||||||||||
| Net loss for the six months ended June 30, 2022 | – | ( | ) | ( | ) | |||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
See accompanying notes to unaudited condensed financial statements.
| 6 |
SOW GOOD INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Six Months | ||||||||
| Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Bad debts expense | ||||||||
| Depreciation and amortization | ||||||||
| Common stock issued to officers and directors for services | ||||||||
| Common stock awarded to advisors and consultants for services | ||||||||
| Amortization of stock options | ||||||||
| Amortization of stock warrants issued as a debt discount | ||||||||
| Decrease (increase) in current assets: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Security deposits | ( | ) | ( | ) | ||||
| Right-of-use asset | ||||||||
| Increase (decrease) in current liabilities: | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ||||||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Cash paid for construction in progress | ( | ) | ||||||
| Cash paid for intangible assets | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds received from notes payable, related parties | ||||||||
| Proceeds received from notes payable | ||||||||
| Net cash provided by financing activities | ||||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL INFORMATION: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Value of debt discounts attributable to warrants | $ | $ | ||||||
See accompanying notes to unaudited condensed financial statements.
| 7 |
SOW GOOD INC.
Notes to Condensed Financial Statements
(Unaudited)
Note 1 – Organization and Nature of Business
Effective January 21, 2021, we changed our name from Black Ridge Oil & Gas, Inc. to Sow Good Inc. (“SOWG,” “Sow Good,” or the “Company”) to pursue the freeze dried fruits and vegetables business as acquired with our October 1, 2020 acquisition of S-FDF, LLC. Our common stock is traded on the OTCQB under the trading symbol “SOWG”. At that time, our common stock started to be quoted on the OTCQB under the trading symbol “SOWG”, from the former trading symbol “ANFC”. Prior to April 2, 2012, the Company name was Ante5, Inc., which became an independent company in April 2010. We became a publicly traded company when our shares began trading on July 1, 2010. From October 2010 through August 2019, we had been engaged in the business of acquiring oil and gas leases and participating in the drilling of wells in the Bakken and Three Forks trends in North Dakota and Montana and/or managing similar assets for third parties.
On October 1, 2020, the Company completed its acquisition of S-FDF, LLC pursuant to an Asset Purchase Agreement. In connection with the closing of the Asset Purchase Agreement, the Company acquired approximately $2.2 million in cash and certain assets and agreements related to the Seller’s freeze-dried fruits and vegetables business for human consumption and entered into certain employment and registration rights agreements.
On February 5, 2021,
the Company raised over $
On May 5, 2021, the Company announced the launch of our direct-to-consumer freeze-dried consumer packaged goods (CPG) food brand, Sow Good. Sow Good launched with its first line of non-GMO products including 6 ready-to-make smoothies and 9 snacks.
On July 7, 2021,
the Company raised over $
On July 23, 2021, we launched six new gluten-free granola products under the Sow Good brand. Sow Good’s granola products are made with health-conscious ingredients such as freeze-dried fruit, almonds, hemp hearts, and coconut oil.
On December 31, 2021,
we sold an aggregate $
On
April 8, 2022, we sold an aggregate $
| 8 |
SOW GOOD INC.
Notes to Condensed Financial Statements
(Unaudited)
On August 23, 2022, we
closed on an offering to sell up to $
In the first quarter of 2023, the Company launched a freeze-dried candy product line with a 9-SKU offering that is projected to continue being a major driver of growth. And, in the second quarter of 2023, we completed the construction of our second and third freeze driers to facilitate the increased production demands for our recently launched candy products. Furthermore, the significant and rising demand for our freeze-dried candy products has led us to begin construction of our fourth and fifth freeze drier, which we expect to be completed in the first quarter of 2024.
On
April 25, 2023 and May 11, 2023, Sow Good raised an aggregate $
Note 2 – Basis of Presentation and Significant Accounting Policies
The interim condensed financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to not make the information presented misleading.
These statements reflect all adjustments, which in the opinion of management, are necessary for fair presentation of the information contained therein. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. It is suggested that these interim condensed financial statements be read in conjunction with the audited financial statements for the year ended December 31, 2022, which were included in our Annual Report on Form 10-K. The Company follows the same accounting policies in the preparation of interim reports.
Fair Value of Financial Instruments
The Company discloses the fair value of certain assets and liabilities in accordance with ASC 820 – Fair Value Measurement (“ASC 820”). Under FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts payable and accrued expenses reported on the balance sheets are estimated by management to approximate fair value primarily due to the short-term nature of the instruments. The Company had no items that required fair value measurement on a recurring basis.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
| 9 |
SOW GOOD INC.
Notes to Condensed Financial Statements
(Unaudited)
Cash in Excess of FDIC Limits
The Company maintains its cash in bank deposit
accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC)
up to $250,000 under current regulations. The Company had $
Property and Equipment
Property and equipment are stated at the lower of cost or estimated net recoverable amount. The cost of property, plant and equipment is depreciated using the straight-line method based on the lesser of the estimated useful lives of the assets or the lease term based on the following life expectancy:
| Software | |
| Website | |
| Office equipment | |
| Furniture and fixtures | |
| Machinery and equipment | |
| Leasehold improvements |
Repairs and maintenance expenditures are charged
to operations as incurred. Major improvements and replacements, which extend the useful life of an asset, are capitalized and depreciated
over the remaining estimated useful life of the asset. When assets are retired or sold, the cost and related accumulated depreciation
and amortization are eliminated and any resulting gain or loss is reflected in operations. Depreciation was $
Impairment of Long-Lived Assets
Long-lived assets held and used by the Company are reviewed for possible impairment whenever events or circumstances indicate the carrying amount of an asset may not be recoverable or is impaired. Recoverability is assessed using undiscounted cash flows based upon historical results and current projections of earnings before interest and taxes. Impairment is measured using discounted cash flows of future operating results based upon a rate that corresponds to the cost of capital. Impairments are recognized in operating results to the extent that carrying value exceeds discounted cash flows of future operations.
Our intellectual property is comprised of indefinite-lived brand names acquired and have been assigned an indefinite life as we currently anticipate that these brand names will contribute cash flows to the Company perpetually. We evaluate the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired.
Inventory
Inventory, consisting of raw materials, material overhead, labor, and manufacturing overhead, are stated at the average cost or net realizable value and consists of the following:
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Finished goods | $ | $ | ||||||
| Packaging materials | ||||||||
| Work in progress | ||||||||
| Raw materials | ||||||||
| Total inventory | $ | $ | ||||||
During the six months ending June 30, 2023, the
Company wrote down $
| 10 |
SOW GOOD INC.
Notes to Condensed Financial Statements
(Unaudited)
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606 — Revenue from Contracts with Customers (“ASC” 606”). Under ASC 606, the Company recognizes revenue from the sale of its freeze-dried food products, in accordance with a five-step model in which the Company evaluates the transfer of promised goods or services and recognizes revenue when customers obtain control of promised goods or services in an amount that reflects the consideration which the Company expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The Company has elected, as a practical expedient, to account for the shipping and handling as fulfillment costs, rather than as a separate performance obligation. Revenue is reported net of applicable provisions for discounts, returns and allowances. Methodologies for determining these provisions are dependent on customer pricing and promotional practices. The Company records reductions to revenue for estimated product returns and pricing adjustments in the same period that the related revenue is recorded. These estimates are based on industry-based historical data, historical sales returns, if any, analysis of credit memo data, and other factors known at the time.
Accounts Receivable
Accounts receivable are carried at their estimated
collectible amounts. Trade accounts receivable are periodically evaluated for collectability based on past credit history with customers
and their current financial condition. The Company had an allowance for doubtful accounts of $
The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the periods presented, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.
The Company accounts for equity instruments issued
to employees in accordance with the provisions of ASC 718 Stock Compensation (ASC 718) and Equity-Based Payments to Non-employees pursuant
to ASC 2018-07 (ASC 2018-07). All transactions in which the consideration provided in exchange for the purchase of goods or services consists
of the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the
equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued
is the earlier of the date on which the counterparty’s performance is complete or the date at which a commitment for performance
by the counterparty to earn the equity instruments is reached because of sufficiently large disincentives for nonperformance. Stock-based
compensation was $ and $, consisting of $ and $ of stock options expense, using the Black-Scholes options
pricing model and an effective term of 6 to 6.5 years based on the weighted average of the vesting periods and the stated term of the
option grants and the discount rate on 5 to 7 year U.S. Treasury securities at the grant date, incurred in the six months ended June 30,
2023 and 2022, respectively, and $ and $ of expense related to shares of common stock issued to officers and consultants
for services rendered in the six months ended June 30, 2023 and 2022, respectively. In addition, $
Income Taxes
The Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.
| 11 |
SOW GOOD INC.
Notes to Condensed Financial Statements
(Unaudited)
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company's financial statements upon adoption.
In July 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-03 to amend various SEC paragraphs in the Accounting Standards Codification to primarily reflect the issuance of SEC Staff Accounting Bulletin No. 120. ASU No. 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock.” ASU 2023-03 amends the ASC for SEC updates pursuant to SEC Staff Accounting Bulletin No. 120; SEC Staff Announcement at the March 24, 2022 Emerging Issues Task Force (“EITF”) Meeting; and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. These updates were immediately effective and did not have a significant impact on our financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which creates an exception to the general recognition and measurement principle for contract assets and contract liabilities from contracts with customers acquired in a business combination. The new guidance will require companies to apply the definition of a performance obligation under accounting standard codification (“ASC”) Topic 606 to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business combination. Under current GAAP, an acquirer in a business combination is generally required to recognize and measure the assets it acquires and the liabilities it assumes at fair value on the acquisition date. The new guidance will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. These amendments are effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The adoption of ASU 2021-08 is not expected to have a material impact on the Company’s financial statements or related disclosures.
No other new accounting pronouncements, issued or effective during the period ended June 30, 2023, have had or are expected to have a significant impact on the Company’s financial statements.
Note 3 – Going Concern
As shown in the accompanying financial statements,
as of June 30, 2023, the Company has incurred recurring losses from operations resulting in an accumulated deficit of $
In the event sales do not materialize at the expected rates, management would seek additional financing or would attempt to conserve cash by further reducing expenses. There can be no assurance that we will be successful in achieving these objectives.
The financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. The financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. Our ability to scale production and distribution capabilities and further increase the value of our brands, is largely dependent on our success in raising additional capital.
| 12 |
SOW GOOD INC.
Notes to Condensed Financial Statements
(Unaudited)
Note 4 – Related Party
Debt Financing
On May 11, 2023, the
Company received proceeds of $
On April 25, 2023, we
closed on an offering to sell up to $
On August 23, 2022, we
closed on an offering to sell up to $
Common Stock Issued to Directors for Services
On June 1, 2023,
the Company issued an aggregate shares of common stock amongst its five non-employee Directors for annual services to be rendered.
The aggregate fair value of the common stock was $
Note 5 – Fair Value of Financial Instruments
The Company discloses the fair value of certain assets and liabilities in accordance with ASC 820 – Fair Value Measurement (“ASC 820”). Under FASB ASC 820-10-5, 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 (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.
The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
| 13 |
SOW GOOD INC.
Notes to Condensed Financial Statements
(Unaudited)
The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheets as of June 30, 2023 and December 31, 2022:
| Fair Value Measurements at June 30, 2023 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||
| Total assets | ||||||||||||
| Liabilities | ||||||||||||
| Notes payable, related parties, net of $3,727,295 of debt discounts | ||||||||||||
| Notes payable, net of $569,203 of debt discounts | ||||||||||||
| Total liabilities | ||||||||||||
| $ | $ | $ | ||||||||||
| Fair Value Measurements at December 31, 2022 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||
| Total assets | ||||||||||||
| Liabilities | ||||||||||||
| Notes payable, related parties, net of $2,692,757 of debt discounts | ||||||||||||
| Notes payable, net of $336,085 of debt discounts | ||||||||||||
| Total liabilities | ||||||||||||
| $ | $ | $ | ||||||||||
There were no transfers of financial assets or liabilities between Level 1 and Level 2 inputs for the three months ended June 30, 2023.
| 14 |
SOW GOOD INC.
Notes to Condensed Financial Statements
(Unaudited)
Note 6 – Prepaid Expenses
Prepaid expenses consist of the following:
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Prepaid software licenses | $ | $ | ||||||
| Prepaid insurance costs | ||||||||
| Trade show advances | ||||||||
| Prepaid rent | ||||||||
| Prepaid office and other costs | ||||||||
| Total prepaid expenses | $ | $ | ||||||
Note 7 – Property and Equipment
Property and equipment at June 30, 2023 and December 31, 2022, consists of the following:
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Office equipment | $ | $ | ||||||
| Machinery | ||||||||
| Software | ||||||||
| Website | ||||||||
| Leasehold improvements | ||||||||
| Construction in progress | ||||||||
| Less: Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Construction in progress consisted of costs incurred
to build our second and third freeze driers, and to build out our offices within our facility in Irving, Texas. A total of $
The Company recognized depreciation of $
| 15 |
SOW GOOD INC.
Notes to Condensed Financial Statements
(Unaudited)
Note 8 – Leases
The Company leases its 20,945 square foot operating
and office facility under a non-cancelable real property lease agreement that expires on
The components of lease expense were as follows:
| For the Six Months Ended | ||||||||
| June 30, | ||||||||
| 2023 | 2022 | |||||||
| Operating lease cost: | ||||||||
| Amortization of right-of-use asset | $ | $ | ||||||
| Interest on lease liability | ||||||||
| Total operating lease cost | $ | $ | ||||||
Supplemental balance sheet information related to leases was as follows:
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Operating lease: | ||||||||
| Operating lease assets | $ | $ | ||||||
| Current portion of operating lease liability | $ | |||||||
| Noncurrent operating lease liability | ||||||||
| Total operating lease liability | $ | $ | ||||||
| Weighted average remaining lease term: | ||||||||
| Operating leases | ||||||||
| Weighted average discount rate: | ||||||||
| Operating lease | ||||||||
Supplemental cash flow and other information related to operating leases was as follows:
| June 30, | ||||||||
| For the Six Months Ended | ||||||||
| 2023 | 2022 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows used for operating leases | $ | $ | ||||||
| 16 |
SOW GOOD INC.
Notes to Condensed Financial Statements
(Unaudited)
The future minimum lease payments due under operating leases as of June 30, 2023 is as follows:
| Fiscal Year Ending | Minimum Lease | |||
| December 31, | Commitments | |||
| 2023 (for the six months remaining) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 and thereafter | ||||
| Total | $ | |||
| Less effects of discounting | ||||
| Lease liability recognized | $ | |||
Note 9 – Notes Payable, Related Parties
Notes payable, related parties consists of the following at June 30, 2023 and December 31, 2022, respectively:
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| On May 11, 2023, the Company received $ | $ | $ | ||||||
| On April 25, 2023, the Company received $ | ||||||||
| 17 |
SOW GOOD INC.
Notes to Condensed Financial Statements
(Unaudited)
| On April 25, 2023, the Company received $ | ||||||||
| On April 11, 2023, the Company received $ | ||||||||
| On March 7, 2023, the Company received $ | ||||||||
| On March 2, 2023, the Company received $ | ||||||||
| On February 1, 2023, the Company received $ | ||||||||
| On January 5, 2023, the Company received $ | ||||||||
| On December 21, 2022, the Company received $ | ||||||||
| 18 |
SOW GOOD INC.
Notes to Condensed Financial Statements
(Unaudited)
| On September 29, 2022, the Company received $ |
||||||||
| On September 29, 2022, the Company received $ |
||||||||
| On April 8, 2022, the Company received $ |
||||||||
| On April 8, 2022, the Company received $ |
||||||||
| On April 8, 2022, the Company received $ |
||||||||
| On April 8, 2022, the Company received $ |
| 19 |
SOW GOOD INC.
Notes to Condensed Financial Statements
(Unaudited)
| On December 31, 2021, the Company received $ | ||||||||
| On December 31, 2021, the Company received $ | ||||||||
| On December 31, 2021, the Company received $ | ||||||||
| On December 31, 2021, the Company received $ | ||||||||
| Total notes payable, related parties | ||||||||
| Less unamortized debt discounts: | ||||||||
| Notes payable | ||||||||
| Less: current maturities | ||||||||
| Notes payable, related parties, less current maturities | $ | $ | ||||||
The Company recorded total discounts of $
The Company recognized $
| 20 |
SOW GOOD INC.
Notes to Condensed Financial Statements
(Unaudited)
Note 10 – Notes Payable
Notes payable consists of the following at June 30, 2023 and December 31, 2022, respectively:
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| On April 25, 2023, the Company received $ |
$ | $ | ||||||
| On April 8, 2022, the Company received $ |
||||||||
| On April 8, 2022, the Company received $ |
||||||||
| On June 16, 2020, the Company entered into a loan authorization and loan agreement with the United States Small Business Administration (the “SBA”), as lender, pursuant to the SBA’s Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business (the “EIDL Loan Agreement”) encompassing a $ |
$ | $ | ||||||
| Total notes payable | ||||||||
| Less unamortized debt discounts: | ||||||||
| Notes payable | ||||||||
| Less: current maturities | ||||||||
| Notes payable, less current maturities | $ | $ | ||||||
The Company recorded total discounts of $
The Company recognized $
| 21 |
SOW GOOD INC.
Notes to Condensed Financial Statements
(Unaudited)
Note 11 – Changes in Stockholders’ Equity
Preferred Stock
The Company has authorized shares of $ par value preferred stock. No shares have been issued to date.
Common Stock
The Company has authorized shares of $ par value common stock. As of June 30, 2023, a total of shares of common stock have been issued.
Common Stock Issued to Directors for Services
On June 1, 2023,
the Company issued an aggregate shares of common stock amongst its five non-employee Directors for annual services to be rendered.
The aggregate fair value of the common stock was $
The 2020 Equity Plan was approved by written consent of a majority of shareholders of record as of November 12, 2019 and adopted by the Board on December 5, 2019, as provided in the definitive information statement filed with Securities and Exchange Commission on January 10, 2020 (the “DEF 14C”). The description of the 2020 Equity Plan is qualified in its entirety by the text of the 2020 Equity Plan, a copy of which was attached as Annex C to the DEF 14C. On September 29, 2020, January 4, 2021, and March 19, 2021, the Board of Directors adopted and approved amendments that in aggregate increase the number of shares reserved for issuance under the 2020 Equity Plan to an aggregate total of 814,150 shares and such amendments were approved by a majority of shareholders of record on September 3, 2021.
Outstanding Options
Options to purchase an aggregate total of
shares of common stock at a weighted average strike price of $
The Company recognized a total of $ and $ of compensation expense during the six months ended June 30, 2023 and 2022, respectively, related to common stock options issued to Officers, Directors, Employees and Advisors that are being amortized over the implied service term, or vesting period, of the options. The remaining unamortized balance of these options is $ as of June 30, 2023.
Options Granted
On June 5, 2023, a total of nineteen employees
and consultants were granted options to purchase an aggregate shares of the Company’s common stock, having an exercise price
of $
Options Exercised
options were exercised during the six months ended June 30, 2023 and 2022.
| 22 |
SOW GOOD INC.
Notes to Condensed Financial Statements
(Unaudited)
Note 13 – Warrants
Outstanding Warrants
Warrants to purchase an aggregate total of
Warrants Granted
On May 11, 2023,
warrants to purchase an aggregate
On April 25, 2023,
warrants to purchase an aggregate
On April 25, 2023,
warrants to purchase an aggregate
| 23 |
SOW GOOD INC.
Notes to Condensed Financial Statements
(Unaudited)
On April 25, 2023,
warrants to purchase an aggregate
On April 11, 2023,
warrants to purchase an aggregate
On March 7, 2023,
warrants to purchase an aggregate
On March 2, 2023,
warrants to purchase an aggregate
| 24 |
SOW GOOD INC.
Notes to Condensed Financial Statements
(Unaudited)
On February 1, 2023,
warrants to purchase an aggregate
On January 5, 2023,
warrants to purchase an aggregate
Note 14 – Income Taxes
The Company accounts for income taxes under ASC Topic 740, Income Taxes, which provides for an asset and liability approach of accounting for income taxes. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences, using currently enacted tax laws, attributed to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts calculated for income tax purposes.
Losses incurred during the period from April 9,
2011 (inception) to June 30, 2023 could be used to offset future tax liabilities. Accounting standards require the consideration
of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits
of deferred tax assets will not be realized. As of June 30, 2023, net deferred tax assets were $
In accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no significant uncertain tax positions as of any date on or before June 30, 2023.
| 25 |
SOW GOOD INC.
Notes to Condensed Financial Statements
(Unaudited)
Note 15 – Commitments
Legal Proceedings
The Company may be subject from time to time to various inquiries, administrative proceedings and litigation relating to matters arising in the normal course of business. The Company is not currently a defendant in any material litigation and is not aware of any threatened litigation that could have a material effect on the Company. Management is not able to estimate the minimum loss to be incurred, if any, as a result of the final outcome of the matters arising in the normal course of business but believes they are not likely to have a material adverse effect upon the Company’s financial position or results of operations and, accordingly, no provision for loss has been recorded.
Cash in Excess of FDIC Limits
The Company periodically maintains cash balances at banks in excess of federally insured amounts. The extent of loss, if any, to be sustained as a result of any future failure of a bank or other financial institution is not subject to estimation at this time.
Lease Commitments
Upon closing of the Asset Purchase Agreement,
the Company assumed the Seller’s obligations under a real property lease for its 20,945 square foot facility in Irving, Texas, under
which an entity owned entirely by Ira Goldfarb is the landlord. The lease term is through
Note 16 – Subsequent Events
The Company evaluates events that have occurred after the balance sheet date through the date these financial statements were issued. No events occurred of a material nature that would have required adjustments to or disclosures in these financial statements except as follows:
Escrowed Cash
As of August 14, 2023, the Company is holding $1,100,000 in escrow related to a financing that will need to be returned if terms and conditions of the financing are not completed on or before August 31, 2023.
Options Granted
On July 13, 2023, an employee was granted options to purchase an aggregate 10,000 shares of the Company’s common stock, having an exercise price of $4.87 per share, exercisable over a 10-year term. The options will vest 60% on the third anniversary, and 20% each anniversary thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 134% and a call option value of $4.53, was $45,296.
On July 6, 2023, two employees were granted options to purchase an aggregate 6,000 shares of the Company’s common stock, having an exercise price of $4.18 per share, exercisable over a 10-year term. The options will vest 60% on the third anniversary, and 20% each anniversary thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 134% and a call option value of $3.89, was $23,353.
| 26 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Cautionary Statements
We are including the following discussion to inform our existing and potential security holders generally of some of the risks and uncertainties that can affect our company and to take advantage of the “safe harbor” protection for forward-looking statements that applicable federal securities law affords.
From time to time, our management or persons acting on our behalf may make forward-looking statements to inform existing and potential security holders about our company. All statements other than statements of historical facts included in this report regarding our financial position, business strategy, plans and objectives of management for future operations and industry conditions are forward-looking statements. When used in this report, forward-looking statements are generally accompanied by terms or phrases such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “target,” “plan,” “intend,” “seek,” “goal,” “will,” “should,” “may” or other words and similar expressions that convey the uncertainty of future events or outcomes. Items making assumptions regarding actual or potential future sales, market size, collaborations, trends or operating results also constitute such forward-looking statements.
Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward-looking statements include the following:
| · | volatility or decline of our stock price; | |
| · | low trading volume and illiquidity of our common stock; | |
| · | potential fluctuation in quarterly results; | |
| · | inability to maintain adequate liquidity to meet our financial obligations; | |
| · | failure to obtain sufficient sales and distributions for our freeze dried product offerings; | |
| · | supply chain disruption and delay; | |
| · | transportation, labor, and raw material cost increases; | |
| · | litigation, disputes and legal claims involving outside parties; and | |
| · | risks related to our ability to be traded on the OTCQB and meeting trading requirements |
We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. Accordingly, results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made.
Readers are urged not to place undue reliance on these forward-looking statements. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the United States Securities and Exchange Commission (the “SEC”) which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those expected or projected.
Overview and Outlook
Sow Good is an innovative, highly adaptive leader in the freeze dried food industry in both the direct-to-consumer and business-to-business sales channels. Beginning in the plant-based, better-for-you space in 2021, the Company built-out its manufacturing facility and completed construction of its first freeze drier. In the first quarter of 2023, anticipating rising market trends and a significant opportunity with disrupting the candy category, Sow Good launched its freeze dried candy line. The Company has entered into partnerships with major retailers such as FYE, Big Lots, and Hy-Vee, and has a growing pipeline of other large retailers. With this launch, Sow Good constructed an additional two freeze driers during the second quarter of 2023 to meet the rapidly increasing retail demand. With its continuous growth and consistent sell-out within retailers, Sow Good anticipates freeze dried candy to be a major driver of its growth and has begun the process of constructing an additional fourth and fifth freeze drier to meet anticipated demand.
| 27 |
Going Concern Uncertainty
As of June 30, 2023, the Company had incurred recurring losses from operations resulting in an accumulated deficit of $60,401,992, and had cash on hand of $293,024. We are too early in our development stage to project revenue with a necessary level of certainty; therefore, we may not have sufficient funds to sustain our operations for the next twelve months and we may need to raise additional cash to fund our operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company has commenced sales and continues to develop its operations. In the event sales do not materialize at the expected rates, management would seek additional financing or would attempt to conserve cash by further reducing expenses. There can be no assurance that we will be successful in achieving these objectives.
The Company has incurred recurring losses from operations resulting in an accumulated deficit, experienced net negative cash flows from operations, and, as set forth above, the Company’s cash on hand may not be sufficient to sustain operations. We continue to pursue sources of additional capital through various financing transactions or arrangements, including equity financing or other means. We may not be successful in identifying suitable financing transactions in a sufficient time period or at all, and we may not obtain the capital we require by other means. If we do not succeed in raising additional capital, our resources may not be sufficient to fund our business. Our ability to scale production and distribution capabilities and further increase the value of our brands, is largely dependent on our success in raising additional capital.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. The unaudited financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Results of Operations for the Three Months Ended June 30, 2023 and 2022
The following table summarizes selected items from the statement of operations for the three months ended June 30, 2023 and 2022, respectively.
| Three Months Ended | ||||||||||||
| June 30, | Increase / | |||||||||||
| 2023 | 2022 | (Decrease) | ||||||||||
| Revenues | $ | 1,315,347 | $ | 244,943 | $ | 1,070,404 | ||||||
| Cost of goods sold | 2,695,820 | 150,603 | 2,545,217 | |||||||||
| Gross profit (loss) | (1,380,473 | ) | 94,340 | (1,474,813 | ) | |||||||
| Operating expenses: | ||||||||||||
| General and administrative expenses: | ||||||||||||
| Salaries and benefits | 538,916 | 1,242,900 | (703,984 | ) | ||||||||
| Professional services | 63,329 | 53,295 | 10,034 | |||||||||
| Other general and administrative expenses | 483,260 | 487,789 | (4,529 | ) | ||||||||
| Total general and administrative expenses | 1,085,505 | 1,783,984 | (698,479 | ) | ||||||||
| Depreciation and amortization | 7,413 | 67,693 | (60,280 | ) | ||||||||
| Total operating expenses | 1,092,918 | 1,851,677 | (758,759 | ) | ||||||||
| Net operating loss | (2,473,391 | ) | (1,757,337 | ) | 716,054 | |||||||
| Other expense: | ||||||||||||
| Interest expense | (847,509 | ) | (355,452 | ) | 492,057 | |||||||
| Total other expense | (847,509 | ) | (355,452 | ) | 492,057 | |||||||
| Net loss | $ | (3,320,900 | ) | $ | (2,112,789 | ) | $ | 1,208,111 | ||||
| 28 |
Revenues
Revenues consist primarily of online freeze dried foods product sales. The revenues were $1,315,347 for the three months ended June 30, 2023, compared to $244,943 for the three months ended June 30, 2022, an increase of $1,070,404, or 437%. Revenues increased as we pivoted to sales of our freeze dried candy and expanded our business-to-business sales during the current period, compared to the same period in the prior year.
Cost of Goods Sold
Cost of goods sold for the three months ended June 30, 2023 were $2,695,820, compared to $150,603 for the three months ended June 30, 2022, an increase of $2,545,217, or 1,690%. Cost of goods sold, primarily consisting of material costs and labor on the sales of freeze dried food products and a one-time inventory write down of $1,919,686 as we disposed of non-candy freeze dried products to pivot exclusively to our better selling candy products. Our gross profit margin was approximately negative 105% during the quarter, compared to 39% during the comparative period, and would have been 41%, compared to 39%, without the inventory impairment. Cost of goods sold and our gross profit decreased primarily due to this inventory impairment.
General and administrative expenses
Salaries and benefits
Salaries and benefits for the three months ended June 30, 2023 were $538,916, compared to $1,242,900 for the three months ended June 30, 2022, a decrease of $703,984, or 57%. Salaries and benefits included stock-based compensation expense for the three months ended June 30, 2023 of $257,070, compared to $431,370 for the three months ended June 30, 2022, a decrease of $174,300, or 40%. Stock-based compensation consists of $131,841 and $386,372 of stock options expense incurred in the three months ended June 30, 2023 and 2022, respectively, and $125,229 and $44,998 of expense related to shares of common stock issued to officers and consultants for services rendered in the three months ended June 30, 2023 and 2022, respectively. The decrease in salaries and benefits was primarily due to decreased personnel, in addition to our CEO absorbing the role of interim CFO.
Professional services
Professional services were $63,329 for the 2023 period, compared to $53,295 for the 2022 period, an increase of $10,034, or 19%. The increase was primarily due to increased recruiting fees in the current period.
Other general and administrative expenses
Other general and administrative expenses for the three months ended June 30, 2023 was $483,260, compared to $487,789 for the three months ended June 30, 2022, a decrease of $4,529, or 1%. The decrease is primarily attributable to decreased administrative infrastructure as we continue to scale the production and sales of our freeze dried products.
Depreciation
Depreciation expense for the three months ended June 30, 2023 was $7,413, compared to $67,693 for the three months ended June 30, 2022, a decrease of $60,280, or 89%. The decrease is attributable to increased overhead allocations to inventory during the current period, compared to the prior period.
| 29 |
Other expense
In the three months ended June 30, 2023, other expense was $847,509, consisting of $163,365 of interest expense, including interest on our EIDL loan with the SBA and loans from our officers and directors, and $684,144 related to the amortization of warrants issued as a debt discount on the loans from our officers and directors. During the comparative three months ended June 30, 2022, other expense was $355,452, consisting of $93,378 of interest expense, including interest on our EIDL loan with the SBA and loans from our officers and directors, and $262,074 related to the amortization of warrants issued as a debt discount on the loans from our officers and directors. Interest expense increased by $492,057, or 138%, primarily due to the increased amortization of warrants issued in-the-money on loans from our officers and directors in the current period.
Net loss
Net loss for the three months ended June 30, 2023 was $3,320,900, compared to $2,112,789 during the three months ended June 30, 2022, an increased net loss of $1,208,111, or 57%. The increased net loss was due primarily to $1,919,686 of inventory impairment and $492,057 of increased interest expense on debt financing issued with in-the-money warrants during the current period, as partially offset by $703,984 of improved labor costs and $1,070,404 of increased revenues over the comparative period.
Results of Operations for the Six Months Ended June 30, 2023 and 2022
The following table summarizes selected items from the statement of operations for the six months ended June 30, 2023 and 2022, respectively.
| Six Months Ended | ||||||||||||
| June 30, | Increase / | |||||||||||
| 2023 | 2022 | (Decrease) | ||||||||||
| Revenues | $ | 1,514,277 | $ | 293,315 | $ | 1,220,962 | ||||||
| Cost of goods sold | 2,772,500 | 198,094 | 2,574,406 | |||||||||
| Gross profit (loss) | (1,258,223 | ) | 95,221 | (1,353,444 | ) | |||||||
| Operating expenses: | ||||||||||||
| General and administrative expenses: | ||||||||||||
| Salaries and benefits | 1,083,469 | 2,159,055 | (1,075,586 | ) | ||||||||
| Professional services | 109,535 | 115,988 | (6,453 | ) | ||||||||
| Other general and administrative expenses | 841,727 | 892,865 | (51,138 | ) | ||||||||
| Total general and administrative expenses | 2,034,731 | 3,167,908 | (1,133,177 | ) | ||||||||
| Depreciation and amortization | 83,631 | 132,919 | (49,288 | ) | ||||||||
| Total operating expenses | 2,118,362 | 3,300,827 | (1,182,465 | ) | ||||||||
| Net operating loss | (3,376,585 | ) | (3,205,606 | ) | (170,979 | ) | ||||||
| Other expense: | ||||||||||||
| Interest expense | (1,345,845 | ) | (459,245 | ) | 886,600 | |||||||
| Total other expense | (1,345,845 | ) | (459,245 | ) | 886,600 | |||||||
| Net loss | $ | (4,722,430 | ) | $ | (3,664,851 | ) | $ | 1,057,579 | ||||
| 30 |
Revenues
Revenues consist primarily of online freeze dried foods product sales. The revenues were $1,514,277 for the six months ended June 30, 2023, compared to $293,315 for the six months ended June 30, 2022, an increase of $1,220,962, or 416%. Revenues increased as we pivoted to sales of our freeze dried candy and expanded our business-to-business sales during the current period, compared to the same period in the prior year.
Cost of Goods Sold
Cost of goods sold for the six months ended June 30, 2023 were $2,772,500, compared to $198,094 for the six months ended June 30, 2022, an increase of $2,574,406, or 1,300%. Cost of goods sold, primarily consisting of material costs and labor on the sales of freeze dried food products and a one-time inventory write down of $1,919,686 as we disposed of non-candy freeze dried products to pivot exclusively to our better selling candy products. Our gross profit margin was approximately negative 83% during the current period, compared to 32% during the comparative period, and would have been 44%, compared to 32%, without the inventory impairment. Cost of goods sold and our gross profit decreased primarily due to this inventory impairment.
General and administrative expenses
Salaries and benefits
Salaries and benefits for the six months ended June 30, 2023 were $1,083,469, compared to $2,159,055 for the six months ended June 30, 2022, a decrease of $1,075,586, or 50%. Salaries and benefits included stock-based compensation expense for the six months ended June 30, 2023 of $383,906, compared to $575,631 for the six months ended June 30, 2022, a decrease of $191,725, or 33%. Stock-based compensation consists of $258,677 and $520,633 of stock options expense incurred in the six months ended June 30, 2023 and 2022, respectively, and $125,229 and $54,998 of expense related to shares of common stock issued to officers and consultants for services rendered in the six months ended June 30, 2023 and 2022, respectively. The decrease in salaries and benefits was primarily due to decreased personnel, in addition to our CEO absorbing the role of interim CFO.
Professional services
Professional services were $109,535 for the 2023 period, compared to $115,988 for the 2022 period, a decrease of $6,453, or 6%. The decrease was primarily due to legal fees incurred in connection with creating our brand in the comparative period that were not necessary in the current period.
Other general and administrative expenses
Other general and administrative expenses for the six months ended June 30, 2023 was $841,727, compared to $892,865 for the six months ended June 30, 2022, a decrease of $51,138, or 6%. The decrease is primarily attributable to decreased administrative infrastructure as we continue to scale the production and sales of our freeze dried products.
Depreciation
Depreciation expense for the six months ended June 30, 2023 was $83,631, compared to $132,919 for the six months ended June 30, 2022, a decrease of $49,288, or 37%. The decrease is attributable to increased overhead allocations to inventory during the current period, compared to the prior period.
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Other expense
In the six months ended June 30, 2023, other expense was $1,345,845, consisting of $291,023 of interest expense, including interest on our EIDL loan with the SBA and loans from our officers and directors, and $1,054,822 related to the amortization of warrants issued as a debt discount on the loans from our officers and directors. During the comparative six months ended June 30, 2022, other expense was $459,245, consisting of $137,447 of interest expense on our EIDL loan with the SBA and loans from our officers and directors, and $321,798 related to the amortization of warrants issued as a debt discount on the loans from our officers and directors. Interest expense increased by $886,600, or 193%, primarily due to the increased amortization of warrants issued in-the-money on loans from our officers and directors in the current period.
Net loss
Net loss for the six months ended June 30, 2023 was $4,722,430, compared to $3,664,851 during the six months ended June 30, 2022, an increased net loss of $1,057,579, or 29%. The increased net loss was due primarily to $1,919,686 of inventory impairment and $886,600 of increased interest expense on debt financing issued with in-the-money warrants during the current period, as partially offset by $1,075,586 of improved labor costs and $1,220,962 of increased revenues over the comparative period.
Liquidity and Capital Resources
The following table summarizes our total current assets, liabilities and working capital at June 30, 2023 and December 31, 2022, respectively.
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Current Assets | $ | 2,058,508 | $ | 2,578,057 | ||||
| Current Liabilities | $ | 1,383,976 | $ | 890,177 | ||||
| Working Capital | $ | 674,532 | $ | 1,687,880 | ||||
As of June 30, 2023, we had working capital of $674,532.
The following table summarizes our cash flows during the six months ended June 30, 2023 and 2022, respectively.
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (2,421,260 | ) | $ | (2,274,361 | ) | ||
| Net cash used in investing activities | (362,180 | ) | (2,015,033 | ) | ||||
| Net cash provided by financing activities | 2,800,000 | 3,700,000 | ||||||
| Net change in cash and cash equivalents | $ | 16,560 | $ | (589,394 | ) | |||
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Net cash used in operating activities was $2,421,260 and $2,274,361 for the six months ended June 30, 2023 and 2022, respectively, a period over period increase of $146,899. The increase was primarily due to increased inventory purchases, as partially offset by our increased revenues and diminished labor costs that began to improve our operations.
Net cash used in investing activities were $362,180 and $2,015,033 for the six months ended June 30, 2023 and 2022, respectively, a period over period decrease of $1,652,853. Cash used in investing activities were comprised of $3621,80 of fixed asset additions, as we completed our 2nd and 3rd freeze dried freezers and finalized our office leasehold improvements during the six months ended June 30, 2023, compared to $2,009,104 of fixed asset purchases and $5,929 of purchases on trademarks during the six months ended June 30, 2022.
Net cash provided by financing activities were $2,800,000 for the six months ended June 30, 2023, which was comprised of $2,400,000 of debt financing received from our officers and directors and $400,000 received from others under the same terms, compared to $3,700,000, comprised of $3,120,000 of debt financing received from our officers and directors and $580,000 received from others under the same terms, for the six months ended June 30, 2022.
Satisfaction of our cash obligations for the next 12 months
As of June 30, 2023, our balance of cash was $293,024 and we had total working capital of $674,532. Based on projections of cash expenditures in the Company’s current business plan, the cash on hand as of June 30, 2023 would be insufficient to sustain operations over the next year. We expect to incur significant costs related to the development and operation of our freeze dried foods business which will put a strain on our cash resources. Our plan for satisfying our cash requirements for the next twelve months is through cash on hand and additional financing in the form of equity or debt as needed. Our ability to scale production and distribution capabilities and further increase the value of our brands is largely dependent on our success in raising additional capital.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of financial conditions and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements required us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates.
Our critical accounting policies are more fully described in Note 2 of the footnotes to our financial statements appearing elsewhere in this Form 10-Q, and Note 2 of the footnotes to the financial statements provided in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item
ITEM 4. CONTROLS AND PROCEDURES.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
Our management, under the direction of our Chief Executive Officer and Interim Chief Financial Officer, who is one and the same, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such terms are defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2023. As part of such evaluation, management considered the matters discussed below relating to internal control over financial reporting. Based on this evaluation, our Chief Executive Officer and Interim Chief Financial Officer, has concluded that the Company’s disclosure controls and procedures were ineffective as of June 30, 2023 to ensure that the information required to be disclosed in our Exchange Act reports was recorded, processed, summarized and reported on a timely basis. As a small Company with limited resources that is mainly focused on the development and sales of our freeze dried products, the Company does not employ a sufficient number of staff in its finance department to possess an optimal segregation of duties or to provide optimal levels of oversight. This has resulted in certain audit adjustments and management believes that there may be a possibility for a material misstatement to occur in future periods while it employs the current number of personnel in its finance department.
To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
There have been no changes in the Company’s internal control over financial reporting during the three-month period ended June 30, 2023 that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Other than routine legal proceedings incident to our business, there are no material legal proceedings to which we are a party or to which any of our property is subject.
ITEM 1A. RISK FACTORS.
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The following issuances of our securities during the three-month period ended June 30, 2023 were exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(a)(2) thereof and/or Rule 506 of Regulation D promulgated thereunder.
On June 1, 2023, we issued a total of 20,699 shares of common stock, restricted in accordance with Rule 144, among five non-employee board members for services rendered.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
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ITEM 6. EXHIBITS.
| Exhibit | Description | |
| 3.1 | Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Form 8-K filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on December 12, 2012) | |
| 3.2 | Bylaws (incorporated by reference to Exhibit 3.2 of the Form 8-K filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on December 12, 2012) | |
| 3.3 | Certificate of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the Form 8-K filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on February 21, 2020) | |
| 3.4 | Articles of Merger (incorporated by reference to Exhibit 3.01 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on January 22, 2021) | |
| 4.1 | Form of Common Stock Warrant (incorporated by reference to Exhibit 4.1 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on August 25, 2022) | |
| 4.2 | Form of Common Stock Warrant (incorporated by reference to Exhibit 4.1 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on April 14, 2022) | |
| 4.3 | Form of Common Stock Warrant (incorporated by reference to Exhibit 4.1 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on May 1, 2023) | |
| 4.4 | Form of Common Stock Warrant (incorporated by reference to Exhibit 4.1 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on May 15, 2023) | |
| 10.1 | Amended Employment Agreement, dated January 4, 2021, between Claudia Goldfarb and Sow Good Inc. (incorporated by reference to Exhibit 10.20 of the Form 10-K filed with the Securities and Exchange Commission by Sow Good Inc. on March 31, 2021) | |
| 10.2 | Amended Employment Agreement, dated January 4, 2021, between Ira Goldfarb and Sow Good Inc. (incorporated by reference to Exhibit 10.21 of the Form 10-K filed with the Securities and Exchange Commission by Sow Good Inc. on March 31, 2021) | |
| 10.3 | Amendment to 2020 Stock Incentive Plan adopted in October 2020 (incorporated by reference to Exhibit 10.4 of the Form 10-Q filed with the Securities and Exchange Commission by Sow Good Inc. on May 13, 2021) | |
| 10.4 | Amendment to 2020 Stock Incentive Plan adopted in January 2021 (incorporated by reference to Exhibit 10.5 of the Form 10-Q filed with the Securities and Exchange Commission by Sow Good Inc. on May 13, 2021) | |
| 10.5 | Amendment to 2020 Stock Incentive Plan adopted in March 2021 (incorporated by reference to Exhibit 10.6 of the Form 10-Q filed with the Securities and Exchange Commission by Sow Good Inc. on May 13, 2021) | |
| 10.6 | Note and Warrant Purchase Agreement, dated April 8, 2022, by and among the Company and the Purchasers named therein (incorporated by reference to Exhibit 10.1 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on April 14, 2022) | |
| 10.7 | Form of 2022 Promissory Note (incorporated by reference to Exhibit 10.2 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on April 14, 2022) | |
| 10.8 | Note and Warrant Purchase Agreement, dated August 23, 2022 (incorporated by reference to Exhibit 10.1 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on August 25, 2022) | |
| 10.9 | Form of August 2022 Promissory Note (incorporated by reference to Exhibit 10.2 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on August 25, 2022) | |
| 10.10 | First Amendment to April 2022 Promissory Notes, dated August 23, 2022 (incorporated by reference to Exhibit 10.3 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on August 25, 2022) | |
| 10.11 | Note and Warrant Purchase Agreement, dated April 25, 2023, by and among the Company and the Purchasers named therein (incorporated by reference to Exhibit 10.1 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on May 1, 2023) | |
| 10.12 | Form of April 2023 Promissory Note (incorporated by reference to Exhibit 10.2 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on May 1, 2023) | |
| 10.13 | Note and Warrant Purchase Agreement, dated May 11, 2023, by and among the Company and the Purchasers named therein (incorporated by reference to Exhibit 10.1 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on May 15, 2023) | |
| 10.14 | Form of May 2023 Promissory Note (incorporated by reference to Exhibit 10.2 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on May 15, 2023) | |
| 31.1* | Section 302 Certification of Chief Executive Officer and Interim Chief Financial Officer | |
| 32.1* | Section 906 Certification of Chief Executive Officer and Interim Chief Financial Officer | |
| 101.INS* | XBRL Instance Document | |
| 101.SCH* | XBRL Schema Document | |
| 101.CAL* | XBRL Calculation Linkbase Document | |
| 101.DEF* | XBRL Definition Linkbase Document | |
| 101.LAB* | XBRL Labels Linkbase Document | |
| 101.PRE* | XBRL Presentation Linkbase Document |
*Filed herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SOW GOOD INC. | ||
| Dated: August 14, 2023 | By: | /s/ Claudia Goldfarb |
| Claudia Goldfarb, Chief Executive Officer and Interim Chief Financial Officer (Principal Executive Officer and Principal Financial Officer) | ||
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