What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2024-03-22 compared with 2023-04-14 · 378 added, 109 removed, 20 unchanged (96% of the section changed)

MARKET FOR REGISTRANT’S COMMON

EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

There is a limited public

market for our common stock.

Shares of our common stock trade on the over-the-counter market and are quoted on the OTCQB tier of the OTC

Markets under the symbol “SOWG”.

As of March 31, 2023, the closing price of our common stock was $4.20.

Quotations on the OTCQB reflect

inter-dealer prices, without retail markup, mark-down, or commission and may not necessarily represent actual transactions.

The following table sets forth,

for the fiscal quarters indicated, the high and low bid information for our common stock, as reported on the OTC Markets.

The following

quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

There is a limited public market for our common stock.

Shares of our common stock trade on the over-the-counter market and are quoted on the OTCQB tier of the OTC Markets under the symbol “SOWG.” On March 20, 2024, the closing price of our common stock was $7.50.

Quotations on the OTCQB reflect inter-dealer prices, without retail markup, mark-down, or commission and may not necessarily represent actual transactions.

The following table sets forth, for the fiscal quarters indicated, the high and low bid information for our common stock, as reported on the OTC Markets.

The following quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

Fiscal Year Ended December 31, 2023

8 unchanged sentences

Fourth Quarter

As of March 31, 2023,

there were approximately 365 record holders of our common stock, not including shares held in “street name” in brokerage accounts

which is unknown.

As of March 31, 2023, there were 4,847,384 shares of common stock outstanding on record.

As of March 20, 2024, there were approximately 378 record holders of our common stock, not including shares held in “street name” in brokerage accounts which is unknown, and 6,059,962 shares of common stock outstanding on record.

Dividend Policy

Since the inception of the Company, we have not declared or paid, and do not anticipate declaring or paying in the foreseeable future, any cash dividends on our common stock.

Any future determination to declare and pay cash dividends will be at the discretion of our board of directors in accordance with applicable laws and will depend on, among other things, our financial condition, results of operations, cash requirements, contractual restrictions and such other factors as our Board of Directors deems relevant.

Our ability to pay dividends in the future may also be limited by covenants of any future outstanding indebtedness we incur.

Equity Compensation Plan Information

Effective December

5, 2019, the 2020 Stock Incentive Plan (the “2020 Plan”) was approved by our Board.

Amongst other things, the

2020 Plan authorized a total of 320,000 shares of our common stock.

Subsequently, on October 1, 2020, January 4, 2021 and again on

March 19, 2021, the Board approved an increase in the number of shares of common stock reserved under the 2020 Plan, from

320,000 shares to a total of 814,150 shares.

The increase was approved by a majority of shareholders of record on September 3, 2021.

Effective February 15, 2024, the 2024 Stock Incentive Plan (the “2024 Plan”) was approved by the Board and certain stockholders who hold a majority of the aggregate issued and outstanding shares of the Company’s voting stock took action by written consent to approve the 2024 Plan.

The initial aggregate number of shares of the Company’s common stock available for issuance under the 2024 Plan is equal to 3,000,000 shares of common stock including the number of reserved shares not issued or subject to outstanding grants under each of the prior incentive plans as of the effective date.

Effective December 5, 2019, the 2020 Stock Incentive Plan (the “2020 Plan”) was approved by our Board.

Amongst other things, the 2020 Plan authorized a total of 320,000 shares of our common stock.

Subsequently, on October 1, 2020, January 4, 2021 and again on March 19, 2021, the Board approved an increase in the number of shares of common stock reserved under the 2020 Plan, from 320,000 shares to a total of 814,150 shares.

On December 15, 2023, our Board approved an amendment to the 2020 Plan (the “2020 Plan Amendment”) to effect an increase in the number of shares that remain available for issuance under the 2020 Plan by an additional 2,150,000 shares up to an aggregate of 2,964,150 shares available for issuance under the 2020 Plan.

The following table sets forth certain information regarding our 2020 Plan as of December 31, 2023:

For the fiscal years ended December 31, 2023 and 2022, we issued 2,050,905 and 138,597 stock options pursuant to the 2020 Plan.

There were 45,233 and 60,975 options cancelled or forfeited pursuant to the 2020 Plan during the years ended December 31, 2023 and 2022, respectively.

Number of securities to be issued upon exercise of outstanding stock options

Weighted-average exercise price of

outstanding stock options

Number of securities remaining available for

future issuance under the 2020 Plan

For the fiscal years ended

December 31, 2022 and 2021, we issued 137,597 and 257,975 stock options pursuant to the 2020 Plan.

There were 60,975 and

161,606 options cancelled or forfeited pursuant to the 2020 Plan during the years ended December 31, 2022 and 2021, respectively.

Effective December 12, 2016,

the 2016 Non-Qualified Stock Option Plan (the “2016 Plan”) was approved by our Board.

Amongst other things, the 2016

Plan authorized a total of 12,712 shares of our common stock.

The following table sets forth certain information regarding our 2016 Plan

as of December 31, 2022:

Weighted-average exercise price of outstanding stock options

Number of securities remaining available for future issuance under the 2020 Plan

Effective December 12, 2016, the 2016 Non-Qualified Stock Option Plan (the “2016 Plan”) was approved by our Board.

Amongst other things, the 2016 Plan authorized a total of 12,712 shares of our common stock.

The following table sets forth certain information regarding our 2016 Plan as of December 31, 2023:

Number of securities to be issued upon exercise of outstanding stock options

Weighted-average exercise price of

outstanding stock options

Number of securities remaining available for

future issuance under the 2016 Plan

For the fiscal years ended

December 31, 2022 and 2021, we issued no stock options pursuant to the 2016 Plan.

There were 1,000 options cancelled or

forfeited pursuant to the 2016 Plan during the year ended December 31, 2021.

Effective March 2, 2012,

the 2012 Amended and Restated Stock Incentive Plan (the “2012 Plan”) was approved by our Board and the holders of a majority

of our outstanding shares, replacing the Ante5, Inc.

Weighted-average exercise price of outstanding stock options

Number of securities remaining available for future issuance under the 2016 Plan

For the fiscal years ended December 31, 2023 and 2022, we issued no stock options pursuant to the 2016 Plan.

There were 0 and 1,000 options cancelled or forfeited pursuant to the 2016 Plan during the years ended December 31, 2023 and 2022.

Effective March 2, 2012, the 2012 Amended and Restated Stock Incentive Plan (the “2012 Plan”) was approved by our Board and the holders of a majority of our outstanding shares, replacing the Ante5, Inc.

2010 Stock Incentive Plan.

Amongst other things, the 2012 Plan increased

the number of shares reserved under the Plan to a total of 25,000 shares of our common stock.

The following table sets forth certain information

regarding the 2012 Plan as of December 31, 2022:

Amongst other things, the 2012 Plan increased the number of shares reserved under the Plan to a total of 25,000 shares of our common stock.

The following table sets forth certain information regarding the 2012 Plan as of December 31, 2023:

Number of securities to be issued upon exercise of outstanding stock options

Weighted-average exercise price of

outstanding stock options

Number of securities remaining available for

future issuance under the 2012 Plan

For the fiscal years ended

December 31, 2022 and 2021, we issued no stock options pursuant to the 2012 Plan.

There were 667 and 1,666 options cancelled

or forfeited pursuant to the 2012 Plan during the years ended December 31, 2022 and 2021, respectively.

On December 21, 2022 ,

warrants to purchase an aggregate 62,500 shares of common stock were issued to a director pursuant to a private placement debt offering

in which aggregate proceeds of $250,000 were received in exchange for promissory notes and warrants to purchase an aggregate 62,500 shares

of common stock, representing 25,000 warrant shares per $100,000 of promissory notes.

The warrants are fully vested and exercisable

over a period of 10 years at a price of $2.60 per share.

The Company may redeem outstanding warrants prior to their expiration, at a price

of $0.01 per share, provided that the volume weighted average sale price per share of Common Stock equals or exceeds $9.00 per share for

thirty (30) consecutive trading days ending on the third business day prior to the mailing of notice of such redemption.

On September 29, 2022 ,

warrants to purchase an aggregate 187,500 shares of common stock were issued to directors pursuant to a private placement debt offering

in which aggregate proceeds of $750,000 were received in exchange for promissory notes and warrants to purchase an aggregate 187,500 shares

of common stock, representing 25,000 warrant shares per $100,000 of promissory notes.

The warrants are fully vested and exercisable

over a period of 10 years at a price of $2.60 per share.

The Company may redeem outstanding warrants prior to their expiration, at a price

of $0.01 per share, provided that the volume weighted average sale price per share of Common Stock equals or exceeds $9.00 per share for

thirty (30) consecutive trading days ending on the third business day prior to the mailing of notice of such redemption.

On April 8, 2022, warrants

to purchase an aggregate 925,000 shares of common stock were issued pursuant to a private placement debt offering in which aggregate proceeds

of $3,700,000 were received in exchange for promissory notes and warrants to purchase an aggregate 925,000 shares of common stock, representing

25,000 warrant shares per $100,000 of promissory notes.

The warrants are fully vested and exercisable over a period of 10 years at a price

of $2.35 per share.

The Company may redeem outstanding warrants prior to their expiration, at a price of $0.01 per share, provided that

the volume weighted average sale price per share of Common Stock equals or exceeds $9.00 per share for thirty (30) consecutive trading

days ending on the third business day prior to the mailing of notice of such redemption.

A total of 780,000 of the warrants were issued

to officers or directors.

December 31, 2021, the Company closed a private placement and concurrently entered into a Note and Warrant Purchase Agreement with related

parties to sell an aggregate $2,075,000 of promissory notes and warrants to purchase an aggregate 311,250 shares of common stock, representing

15,000 warrant shares per $100,000 of promissory notes.

Weighted-average exercise price of outstanding stock options

Number of securities remaining available for future issuance under the 2012 Plan

For the fiscal years ended December 31, 2023 and 2022, we issued no stock options pursuant to the 2012 Plan.

There were 667 and 1,666 options cancelled or forfeited pursuant to the 2012 Plan during the years ended December 31, 2023 and 2022, respectively.

Outstanding Warrants

Warrants to purchase an aggregate total of 2,291,250 shares of common stock at a weighted average strike price of $2.50, exercisable over a weighted average life of 8.51 years were outstanding as of December 31, 2023.

As of December 31, 2023 , the unamortized debt discounts related to these warrants were $2.1 million, which will be expensed over the life of the outstanding debts, which mature from April 24, 2024 to August 23, 2025.

Amortization of warrants included in interest expense was $1.2 million and $925.8 thousand for the years ended December 31, 2023 and 2022, respectively.

The warrants are being expensed over the life of the loans.

Warrants Granted

On May 11, 2023, we closed on an offering to sell $100,000 of promissory notes and warrants to purchase an aggregate 25,000 shares of the Company’s common stock, exercisable over a ten-year period at a price of $2.50 per share, representing 25,000 warrant shares per $100,000 of notes purchased.

The notes mature on May 11, 2024.

The Company may redeem outstanding warrants prior to their expiration, at a price of $0.01 per share, provided that the volume weighted average sale price per share of common stock equals or exceeds $9.00 per share for thirty (30) consecutive trading days ending on the third business day prior to the mailing of notice of such redemption.

On May 11, 2023, the Company received aggregate proceeds of $100.0 thousand from one of the Company’s Directors on the sale of these notes and warrants.

On April 25, 2023, we closed on an offering to sell up to $1.2 million of promissory notes and warrants to purchase an aggregate 300,000 shares of the Company’s common stock, exercisable over a ten-year period at a price of $2.50 per share, representing 25,000 warrant shares per $100,000 of notes purchased.

The notes mature on April 25, 2024.

On April 25, 2023, the Company received aggregate proceeds of $800.0 thousand from two of the Company’s Directors and $400.0 thousand from one accredited investor on the sale of these notes and warrants.

On April 11, 2023, warrants to purchase an aggregate 62,500 shares of common stock were issued to a director pursuant to a private placement debt offering in which aggregate proceeds of $250,000 were received in exchange for promissory notes and warrants to purchase an aggregate 62,500 shares of common stock, representing 25,000 warrant shares per $100,000 of promissory notes.

The warrants are fully vested and exercisable over a period of 10 years at a price of $2.60 per share.

The Company may redeem outstanding warrants prior to their expiration, at a price of $0.01 per share, provided that the volume weighted average sale price per share of Common Stock equals or exceeds $9.00 per share for thirty (30) consecutive trading days ending on the third business day prior to the mailing of notice of such redemption.

On December 21, 2022, the Company closed a private placement and concurrently entered into a note and warrant purchase agreement with related parties to sell an aggregate $2.075 million of promissory notes and warrants to purchase an aggregate 311,250 shares of common stock, representing 15,000 warrant shares per $100,000 of promissory notes.

The warrants are exercisable at a price of $2.21 per share over a ten-year term.

The officers, directors and related parties receiving grants and the amounts of such grants were as follows:

Stock Warrant

Name and Title at Time of Grant

Shares Granted

Ira and Claudia Goldfarb, Chairman and Chief Executive Officer

Brad Burke, Chief Financial Officer

Lyle Berman, Director

Gutierrez, brother of the Company’s Chief Executive Officer

There were no warrants

exercised, forfeited or expired during the years ended December 31, 2022 and 2021.

A total of 1,591,250 warrants were outstanding

as of December 31, 2022 with a weighted average exercise price of $2.47 and a weighted average life of 9.2 years.

On August 23, 2022, we closed on an offering to sell up to $2.5 million of promissory notes and warrants to purchase an aggregate 625,000 shares of the Company’s common stock, exercisable over a ten-year period at a price of $2.60 per share, representing 25,000 warrant shares per $100,000 of notes purchased.

The notes mature on August 23, 2025.

Loans may be advanced to the Company from time to time from August 23, 2022 to the Maturity Date.

On various dates from September 29, 2022 through March 7, 2023, the Company received aggregate proceeds of $2.25 million from two of the Company’s Directors on the sale of these notes and warrants.

On April 8, 2022, warrants to purchase an aggregate 925,000 shares of common stock were issued pursuant to a private placement debt offering in which aggregate proceeds of $3.7 million were received in exchange for promissory notes and warrants to purchase an aggregate 925,000 shares of common stock, representing 25,000 warrant shares per $100,000 of promissory notes.

The warrants are fully vested and exercisable over a period of ten years at a price of $2.35 per share.

A total of 780,000 of the warrants were issued to officers or directors.

Unregistered Issuance of Equity Securities

The following issuances of

our securities during the three-month period ended December 31, 2022 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.

The following issuances of our securities during the year ended December 31, 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 November 20, 2023 the Company entered into a stock purchase agreement with multiple accredited investors to sell and issue to the purchasers, thereunder, an aggregate of 426,288 shares of the Company’s common stock at a price of $6.50 per share in a private placement exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(a)(2) thereof.

Proceeds to the Company from the sale of the shares were $2.8 million.

Investors in the private placement included Sow Good’s Chief Executive Officer and Executive Chairman, in addition to certain other Sow Good Board members and accredited investors.

The proceeds were used in funding incremental capital expenditures and general operating expenses.

On August 30, 2023, the Company raised $3.7 million of capital from the sale of 735,000 newly issued shares of common stock at a share price of $5.00 in a private placement exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(a)(2) thereof.

Investors in the private placement included Sow Good’s Chief Executive Officer and Executive Chairman, in addition to certain other Sow Good Board members and accredited investors.

The proceeds were used in funding incremental capital expenditures and general operating expenses.

SELECTED FINANCIAL DATA.

Not applicable.

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated historical financial statements and the notes to those statements that appear elsewhere in this report.

Certain statements in the discussion contain forward-looking statements based upon current expectations that involve risks and uncertainties, such as plans, objectives, expectations and intentions.

Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors.

Overview and Outlook

Sow Good is a trailblazing U.S.-based freeze dried candy and snack manufacturer dedicated to providing consumers with innovative and explosively flavorful freeze dried treats.

Sow Good has harnessed the power of our proprietary freeze drying technology and product-specialized manufacturing facility to transform traditional candy into a novel and exciting everyday confectionaries subcategory that we call freeze dried candy.

We began commercializing our freeze dried candy products in the first quarter of 2023, and as of December 31, 2023, we have fourteen stock keeping units (“SKUs”) in our Sow Good Candy line of treats and four SKUs in our Sow Good Crunch Cream line.

We sell our treats using an omnichannel strategy primarily focused on the wholesale and retail channels with less than 2% of sales coming from e-commerce as of December 31, 2023.

As of December 31, 2023, our treats are offered for sale in over 5,850 brick-and-mortar retail outlets in the United States.

The rapid demand growth for our delectable treats since their retail debut in March 2023 highlights our consumers’ excitement for our novel and explosively flavorful treats that “satisfy your sweet tooth in fewer bites.”

We have custom-built a 20,945 square foot freeze drying facility in Irving, Texas, and have entered into additional co-manufacturing arrangements in China and Colombia, that together allow us to freeze dry fourteen million units per year to our demanding quality and safety specifications.

Freeze drying removes up to 99% of moisture from a product in its frozen state by applying a small amount of heat in an extremely low air pressure, near outer space-like environment, through the use of massive vacuum chambers, resulting in moisture being removed from the product at the speed of sound.

This process of removing moisture from the product, which can take up to twenty-four hours, concentrates its flavor, creating a “hyper dried, hyper crunchy, and hyper flavorful” snackable treat.

Our commitment to providing the most flavorful and crunchy treats extends into the product packaging process, where our 194 employees dedicated to hand-packaging, as of December 31, 2023 put our treats through our hand-packed precision packaging process in vigilantly managed low humidity conditions to protect our treats from reintroduction to moisture.

We have built four bespoke freeze driers using proprietary technology tailored specifically to our products, creating a truly state-of-the-art facility in Irving, Texas.

We are in the process of fabricating and operationalizing two additional freeze driers, which we anticipate will come online in our Irving, Texas facility in the third quarter of 2024.

In addition, due to strong customer demand, we have entered into co-manufacturing arrangements with third-party manufacturers whose freeze drying facilities meet our exacting production, sanitation and allergen control requirements, as well as our food quality and safety standards.

Currently, all of our products manufactured by third parties are shipped to our facilities in Texas for packaging.

However, we are actively searching for additional packaging facilities and additional internal freeze driers for further increased capacity.

Sow Good is led by co-founders Claudia and Ira Goldfarb, who have over a decade of manufacturing experience with an extensive freeze drying background, dedication to job creation, and proven track record of identifying and growing niche trends into everyday categories.

Under their leadership, our revenues have grown from $428.1 thousand during the year ended December 31, 2022 to approximately $16.1 million for the year ended December 31, 2023, with approximately $14.6 million of that being recorded in the six-month period ended December 31, 2023.

We believe the candy category is stagnant, repetitive, and in need of revitalization to reengage and captivate consumers seeking innovative ways to satisfy their sweet cravings.

We see our market opportunity as existing at the intersection of two burgeoning categories:

freeze dried candy and non-chocolate confections.

According to the NCA, the non-chocolate confections market grew 13.8% in sales in 2022, exceeding $10 billion, and according to Grand View Research is forecasted to grow at a compounded annual growth rate of 5.8% from 2023 to 2030.

We believe the nascent freeze dried candy market is poised for exponential growth given increasing consumer preferences for novel and distinctive candy products.

According to the NCA, approximately 61% of shoppers occasionally or frequently seek out products they have never purchased before.

Given our exceptional performance in retail launches, surging customer demand, and increasing production capacity, we are confident that we can catapult freeze dried candy from a trendy spark on social media to a stable, top-performing consumer confectionary category in retail.

Our products have launched in retailers nationwide from convenience and grocery stores to big-box retailers, such as Five Below, Target, Misfits Market/Imperfect Foods, TJX Canada, Big Lots, Hy-Vee, Cracker Barrel, and Circle K.

In addition, we sell a substantial portion of our products through distributors such as Redstone Foods, CB Distributors and Alpine Foods.

Video reviews of Sow Good’s products that are organically generated by TikTok users have amassed over 4.5 million views as of December 31, 2023.

We believe there is a significant growth opportunity in increasing our shelf presence, SKU portfolio, and number of stores with our existing customers.

For many of these customers, we launched with a limited number of SKUs and are now significantly outpacing initial sales projections.

As we scale production, we will have the ability to increase the availability of our products to these customers in current locations and distribution to more of their stores, while also broadening our SKU portfolio offerings.

Bolstering our distribution will be a key growth driver for Sow Good so more of our products are available wherever our consumers choose to shop, whether it be a retail store, convenience store, or directly online.

To further support our retail launches with existing customers and strengthen our brand name, we are also introducing our product displays with distinctive designs and product highlights to enhance our visibility in current stores and educate new consumers on the advantages of freeze dried treats.

We believe this strategy will capture the attention of new consumers, further educate and attract current consumers, and ultimately, increase sales for our retailers.

Our highly differentiated omnichannel distribution strategy has three key components:

retailers, e-commerce, and distributors.

In aggregate, this omnichannel strategy provides us with a diverse set of consumers and customer partners, leading to a larger TAM opportunity than is normally available to products sold only in grocery stores, along with an opportunity to develop a direct relationship with our customers at our website, www.thisissowgood.com .

This platform is already set up but with some items set as out of stock until we have additional production capacity.

Key Factors Affecting our Performance

We believe the growth of our business and our future success is dependent upon many factors.

While the factors and trends described below present significant opportunities for us, they also pose important challenges that we must successfully address to enable us to sustain the growth of our business and improve our results of operations.

These factors and trends in our business have driven fluctuations in revenues over the periods presented and are expected to be key drivers of our results of operations and liquidity position for the foreseeable future.

Ability to Meet Customer Demand through Production Capacity Expansion

Our customers consistently seek higher quantities of our treats than we can supply.

In order for us to meet existing demand, we are actively expanding our internal production capacity and co-manufacturing arrangements.

The speed and efficiency at which we are able to expand our production capacity, either internally or through co-manufacturing arrangements, will impact our results of operations.

Our ability to grow and meet future demand will be affected by our ability to properly plan for additional production capacity and co-manufacturing arrangements.

Consumer Trends

We compete in the freeze dried candy and non-chocolate confections segments of the greater food industry.

We believe the nascent freeze dried candy market is poised for exponential growth given increasing consumer preferences for novel and distinctive candy products.

According to the NCA, approximately 61% of shoppers occasionally or frequently seek out products they have never purchased before.

While we believe our products are designed to provide alternatives for consumers looking for innovative treats, we also believe our candy products have broad appeal due to our uncompromising approach to developing a product line suited to a wide base of consumer tastes.

We believe our ability to attract the robust and growing consumer base seeking the novel, crunchy and hyper flavorful experience our products provide will allow us to add distribution points with our retail customers and increase our revenues, which we believe will help us scale and increase our gross margin from sales of our products.

Ability to Grow Our Customer Base in Retail and Traditional Wholesale Distribution Channels

We are currently growing our customer base in a variety of physical retail and traditional wholesale distribution channels.

In addition, we sell a substantial portion of our products through distributors such as Redstone, CB Distributors and Alpine Foods.

We continue to increase our shelf presence, SKU portfolio and number of stores with existing customers.

In addition, given the nascent state of the freeze dried candy segment and the number of potential retailer and wholesaler customers, we also believe there is a significant growth opportunity with customer acquisition in both the retail and wholesale channels.

Customer acquisition in these channels depends on, among other things, our go-to-market function and our ability to meet the demand of customers who require large volumes of products.

Ability to Optimize Our Liquidity Position While Scaling

Our primary focus is developing our production capacity, which requires significant working capital for inventory and supply chain management, and capital expenditures for additional freeze driers domestically and our expansion outside the United States.

Our ability to effectively manage our liquidity position while increasing production capabilities will impact our cash flow and capitalization, including the need for additional working capital through future equity offerings or debt arrangements.

Growth of Our Team

As of December 31, 2023, we had 225 full-time personnel who work across various functional areas within our business, including manufacturing, sales, marketing, and administration.

We have significantly expanded our manufacturing and accounting functions, as well as our executive team, to support our rapid growth, particularly since March 2023.

Growing our production capacity has accounted for a majority of the increase in employee headcount over that period as we scale our self-manufacturing capacity at our Irving, Texas facility, and we anticipate that commencing operations at additional facilities will continue to accelerate this growth.

As we expand our manufacturing capacity and corporate functions, our headcount will continue to increase for the foreseeable future.

Additionally, we have increased, and will continue to increase our accounting headcount as a result of the ever increasing demands as a public reporting company.

We also expect to continue to increase our headcount across various functional areas as we expand our business operations, which could substantially increase our selling and distribution expense, marketing expense, and administrative expense.

The anticipated increase in the size of our workforce may also require us to expand our current facilities or obtain new facilities, which will in turn necessitate additional capital expenditures and further increase our operational expense.

However, while we expect to grow our headcount over time, we may experience challenges hiring and retaining a sufficient number of employees.

Ability to Expand Our Product Line

Our goal is to substantially expand our product line over time to increase our growth opportunity and reduce product-specific risks through SKU diversification into multiple products.

Our pace of growth will be partially affected by the cadence and magnitude of new product launches over time.

We believe the commercialization of these new products will require us to hire additional employees within our product design and commercialization team, thereby increasing our marketing expense, as well as research and development costs within our administrative expense.

Impact of inflation on operations.

We expect supplies and prices of the ingredients that we are going to use to be affected by a variety of factors, such as weather, seasonal fluctuations, demand, politics and economics in the producing countries.

These factors subject us to shortages or interruptions in product supplies, which could adversely affect our revenue and profits.

In addition, we may face limits on the ability to source some of the candy for our freeze dried candy products.

Because we are early in our lifecycle of growth, it is difficult to discern the exact magnitude of seasonality affecting our business.

While any evidence of seasonality is currently not discernable because of our growth, we anticipate certain holiday cycles such as Halloween, Christmas, Easter and Valentine’s Day contributing to revenue fluctuations within a given year.

Components of Results of Operations

We derive revenues from the sales of our freeze dried treats.

Cost of Goods Sold

Our cost of goods sold consists primarily of material costs and labor on the production of freeze dried treats.

Operating Expenses

Our operating expenses consist of general and administrative expenses, which includes salaries and benefits expenses, professional services expenses and other general and administrative expenses, intangible asset impairment losses and goodwill impairment losses.

We expect our general and administrative expenses will increase as our business grows.

Interest Expense

Interest expense consists primarily of the cash interest expense on outstanding debt and the amortization of the debt discount created upon the issuance of warrants in connection with debt.

Provision for Income Taxes

Due to our history of operating losses and expectation of future operating losses, we do not expect any significant income tax expenses and benefits for the foreseeable future.

Segment Overview

Our chief operating decision makers, who are our Chief Executive Officer and our Executive Chairman, review financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance, as well as for strategic operational decisions and managing the organization.

For each of the years ended December 31, 2023 and 2022, we have determined that we have one operating segment and one reportable segment.

We earned $16.1 million of revenue in 2023, primarily through sales to distributors and big box retailers.

Our general and administrative expenses totaled $5.9 million in 2023, including salaries and benefits expenses of $3.4 million.

Our stock-based compensation of $0.8 million consisted of $125.2 thousand of stock issued to officers and directors and $0.7 million of expense related to the amortization of stock options for the year ended December 31, 2023.

Results of Operations for the Years Ended December 31, 2023 and 2022.

Comparison of the years ended December 31, 2023 and December 31, 2022

The following table summarizes selected items from the statement of operations for the years ended December 31, 2023 and 2022.

Years Ended December 31,

Cost of goods sold

Operating expenses:

General and administrative:

Salaries and benefits

Professional services

Other general and administrative

Intangible asset impairment

Goodwill impairment

Total general and administrative

Depreciation and amortization

Total operating expenses:

Net operating loss

Other income (expense):

Interest expense

Gain on disposal of property and equipment

Total other expense

Years Ended December 31,

Revenues for the year ended December 31, 2023 were $16.1 million, which consist primarily of freeze dried candy product sales, compared to $428.1 thousand for the year ended December 31, 2022, an increase of $15.6 million, or 3,654%.

Revenues increased as we pivoted to sales of our freeze dried candy, put additional freezers into production, and expanded our business-to-business sales during the current period, compared to the same period in the prior year.

Cost of Goods Sold

Years Ended December 31,

Cost of goods sold

Cost of goods sold for the year ended December 31, 2023 were $11.2 million, compared to $308.3 thousand for the year ended December 31, 2022, an increase of $10.9 million, or 3,529%.

Cost of goods sold, primarily consisted of material costs and labor on the sales of freeze dried candy products and a one-time inventory write down of approximately $1.4 million as we disposed of non-candy freeze dried products to pivot exclusively to our better selling candy products.

Cost of goods sold increased in 2023 as we began to realize economies of scale pursuant to our increased sales.

Years Ended December 31,

Gross profit for the year ended December 31, 2023 was approximately $4.9 million compared to approximately $120.0 thousand for the year ended December 31, 2022, an increase of approximately $4.8 million or 3,973%.

Our gross profit increased primarily due to significantly increased revenues.

Our gross profit margin was 30% during the year ended December 31, 2023, compared to 28% for the year ended December 31, 2022.

Gross profit margin increased in 2023 as we began to realize economies of scale pursuant to our increased sales.

Operating Expenses

Years Ended December 31,

Operating expenses:

General and administrative:

Salaries and benefits

Professional services

Other general and administrative

Intangible asset impairment

Goodwill impairment

Total general and administrative

Depreciation and amortization

Total operating expenses:

Salaries and Benefits

Salaries and benefits for the year ended December 31, 2023 were $3.4 million, compared to $3.7 million for the year ended December 31, 2022, a decrease of $270.5 thousand, or 7%.

Salaries and benefits included stock-based compensation expense of $836.3 thousand for the year ended December 31, 2023, compared to $888.1 thousand for the year ended December 31, 2022, a decrease of $51.9 thousand, or 5.8%.

Stock-based compensation consists of $711.0 thousand and $782.1 thousand of stock options expense incurred in the years ended December 31, 2023 and 2022, respectively, and $125.2 thousand and $106.0 thousand of expense related to shares of common stock issued to officers and consultants for services rendered in the years ended December 31, 2023 and 2022, respectively.

The decrease in salaries and benefits was primarily due to the absence of accelerated vesting and recognition of stock-based compensation awards upon resignation of the former chief financial officer in the year ended December 31, 2022, partially offset by increases in headcount to support operations in the current period.

Professional Services

General and administrative expenses related to professional services were $688.0 thousand for the year ended December 31, 2023, compared to $245.5 thousand for the year ended December 31, 2022, an increase of $442.5 thousand, or 180%.

The increase was primarily due to increased legal fees incurred in connection with capital raises in August and November 2023 and in preparation for our conversion to a Delaware corporation.

Other General and Administrative Expenses

Other general and administrative expenses for the year ended December 31, 2023 were $1.9 million, compared to $1.6 million for the year ended December 31, 2022, an increase of $228.2 thousand, or 14.0%.

The increase is primarily attributable to increased administrative infrastructure as we seek to scale the production and sales of our freeze dried products.

Intangible Asset Impairment

We did not have any intangible asset impairment losses for the year ended December 31, 2023.

Intangible asset impairment losses of $310.2 thousand for the year ended December 31, 2022, related to the complete impairment of our licensing and trademark assets, as our sales during 2022 did not ramp up quickly enough to support the carrying value.

Goodwill Impairment

We did not have any goodwill impairment losses for the year ended December 31, 2023.

Goodwill impairment losses for the year ended December 31, 2022 were $4.9 million and were related to our 2020 acquisition of S-FDF, LLC.

There were no goodwill impairment losses for the year ended December 31, 2023.

Years Ended December 31,

Depreciation expense for the year ended December 31, 2023 was $168.3 thousand, compared to $274.1 thousand for year ended December 31, 2022, a decrease of $105.8 thousand or 39%.

The decrease is attributable to an increased amount of book depreciation allocated to cost of goods sold, $291.1 thousand for the year ended December 31, 2023 as compared to $25.5 thousand for year ended December 31, 2022

Other Income (Expense)

Years Ended December 31,

Other expense

In the year ended December 31, 2023, other expense was $1.8 million, consisting of interest expense derived from operating loans and the amortization of warrants issued as a debt discount.

For the year ended December 31, 2022, other expense was $1.2 million consisting of interest expense derived from operating loans and the amortization of warrants issued as a debt discount, as offset by a gain on the disposal of equipment of $36.4 thousand.

Interest expense increased by approximately $0.6 million or 48%, primarily due to the increased amortization of warrants issued in-the-money on loans from our officers and directors in the current period.

Years Ended December 31,

Net loss for the year ended December 31, 2023 was $3.1 million, compared to $12.1 million during the year ended December 31, 2022, a decrease of $9.1 million, or 75%.

The decrease in net loss was primarily due the increase in gross profit of $4.8 million coupled with decreased operating loss in 2023 due to the absence of 2022 loss on impairment of intangible assets of $310.2 thousand and goodwill of $4.9 million related to our 2022 acquisition of S-FDF, LLC.

Provision for Income Taxes

The Company had no income tax expense in the 2023 or 2022 periods, as we maintain a full valuation allowance related to our net deferred tax assets, primarily due to our historical net loss position.

Due to our history of operating losses and expectation of future operating losses, we do not expect any significant income tax expenses or benefits for the foreseeable future.

Liquidity and Capital Resources

The following table summarizes our total current assets, liabilities and working capital at December 31, 2023 and 2022.

Current Assets

Current Liabilities

Working Capital

As of December 31, 2023, we had working capital of $4.5 million, compared to working capital of $1.7 million as of December 31, 2022.

The increased working capital is mainly attributable to increases in cash, accounts receivable, and inventory, partially offset by increased accounts payable.

As of December 31, 2023, our balance of cash and cash equivalents was $2.4 million and we had total working capital of $4.5 million.

We expect to incur significant costs related to the development and operation of our freeze dried candy business.

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.

Promissory Notes and Warrants

On May 11, 2023, the Company received proceeds of $100,000 from Bradley Berman, one of the Company’s directors, on behalf of the Bradley Berman Irrevocable Trust, from the sale of notes and warrants pursuant to an offering to sell up to $1,500,000 of promissory notes and warrants to purchase an aggregate 375,000 shares of the Company’s common stock, exercisable over a ten-year period at a price of $2.50 per share, representing 25,000 warrant shares per $100,000 of notes purchased.

The notes mature on May 11, 2024.

Interest on the notes accrue at a rate of 8% per annum, payable in cash semi-annually on June 30 and December 31.

On April 25, 2023, we closed on an offering to sell up to $1,500,000 of promissory notes and warrants to purchase an aggregate 375,000 shares of the Company’s common stock, exercisable over a ten-year period at a price of $2.50 per share, representing 25,000 warrant shares per $100,000 of notes purchased.

The notes mature on April 25, 2024.

Interest on the notes accrue at a rate of 8% per annum, payable in cash semi-annually on June 30 and December 31.

On April 25, 2023, the Company received proceeds of $750,000 and $50,000 from the Company’s Chairman, Mr.

Goldfarb, and the Cesar J.

Gutierrez Living Trust, as beneficially controlled by the brother of the Company’s CEO, respectively, on the sale of these notes and warrants.

The warrants are fully vested and exercisable over a period of 10 years at a price of $2.60 per share.

The warrants are exercisable at a price of $2.21 per share over a ten-year term.

On August 23, 2022, the Company closed on an offering to sell up to $2.5 million of promissory notes and warrants to purchase an aggregate 625,000 shares of the Company’s common stock, exercisable over a ten-year period at a price of $2.60 per share, representing 25,000 warrant shares per $100,000 of notes purchased.

The notes mature on August 23, 2025.

Interest on the notes accrue at a rate of 8% per annum, payable on January 1, 2025.

Loans may be advanced to the Company from time to time from August 23, 2023 to the maturity date.

On December 21, 2022 and September 29, 2022, the Company received aggregate proceeds of $0.25 million and $0.75 million from two of the Company’s directors on the sale of these notes and warrants.

On April 8, 2022, the Company closed a private placement and concurrently entered into a note and warrant purchase agreement to sell an aggregate $3.7 million of promissory notes and warrants to purchase an aggregate 925,000 shares of common stock, representing 25,000 warrant shares per $100,000 of promissory notes.

Accrued interest on the notes was payable semi-annually beginning September 30, 2022 at the rate of 6% per annum, but on August 23, 2022, the notes were amended to update the terms of the interest payment to be payable at the earlier of the maturity date or January 1, 2025, rather than being paid semi-annually.

The principal amount of the notes mature and become due and payable on April 8, 2025.

The warrants are exercisable immediately and for a period of 10 years at a price of $2.35 per share.

Proceeds to the Company from the sale of the securities were $3.7 million.

Assuming full exercise thereof, further proceeds to the Company from the exercise of the warrant shares is calculated as approximately $2.2 million.

The offering closed simultaneously with execution of the purchase agreement.

Of the aggregate $3.7 million of notes, a total of $3,120,000 of notes were sold to officers or directors, along with 780,000 of the warrants.

The following table summarizes our cash flows during the years ended December 31, 2023 and 2022, respectively.

Years Ended December 31,

Net cash used in operating activities

Net cash provided by (used in) investing activities

Net cash provided by financing activities

Net change in cash and cash equivalents

Net cash used in operating activities was $4.8 million and $5.1 million for the years ended December 31, 2023 and 2022, respectively, a decrease of $301.0 thousand.

The decreased use of cash was primarily due to increased revenues of $15.6 million, partially offset by changes in working capital from operating activities which resulted in an increased use of cash of $5.4 million during the year ended December 31, 2023, as compared to $294.1 thousand for the same period in the previous year, mainly due to increased use of cash for inventory of $3.1 million and increased accounts receivable of $2.4 million.

Net cash used in investing activities was $2.3 million for the year ended December 31, 2023, compared to $2.6 million for the year ended December 31, 2022, a decrease of $356.2 thousand.

During the year ended December 31, 2023, cash used in investing activities consisted of $2.3 million used for additional freezers.

During the year ended December 31, 2022, cash used in investing activities primarily consisted of $2.6 million of payments for the construction of the Company’s second and third freeze dryers and expansion of its operations facility.

Net cash provided by financing activities was $9.2 million and $4.7 million for the years ended December 31, 2023 and 2022, respectively, an increase of $4.5 million.

Net cash provided by financing activities the year ended December 31, 2023 consisted of $2.8 million of proceeds from notes payable, $2.4 million of which were related parties, and $6.4 million of proceeds from private placement offerings to accredited investors and related parties in August and November.

Net cash provided by financing activities during the year ended December 31, 2022 consisted of $4.7 million of proceeds received from debt financing, including $4.1 million received from related parties.

Contractual Obligations and 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 at 1440 N.

Union Bower Rd., Irving, TX 75061, under which an entity owned entirely by Ira Goldfarb is the landlord.

The lease term is through September 15, 2025, with two five-year options to extend, at a monthly lease term of $10.0 thousand, with approximately a 3% annual escalation of lease payments commencing September 15, 2021.

On October 26, 2023, the Company entered into a lease agreement (the “2023 Lease Agreement”) with Prologis, Inc., a Maryland corporation (the “Landlord”).

Pursuant to the terms of the 2023 Lease Agreement, beginning on November 1, 2023 the Company leases approximately 51,264 rentable square feet at Stemmons 10, 308 Mockingbird Lane, Dallas, TX 75247 for a term of approximately five years and two months (the “Initial Term”), which the Company intends to use as warehousing and distribution space.

The 2023 Lease Agreement provides for base rent payments starting at approximately $42.5 thousand per month (taking into consideration an initial phase-in of the base rent obligation) in the first year of the Initial Term, and increase each year, up to approximately $51.7 thousand per month during the last year of the Initial Term.

The 2023 Lease Agreement may be extended for a period of five years, at the option of the Company, at a rate to be based on a fair market rent rate determined at the time of the extension.

On January 19, 2024, the Company entered into a sublease agreement (the “Sublease Agreement”) with Papsa Merx S.

de C.V., a corporation registered in Mexico City, Mexico (the “Sublessor”).

Pursuant to the terms of the Sublease Agreement, the Company will sublease approximately 141 rentable square meters at Av.

Roble 660, Valle del Campestre, 66265 San Pedro Garza García Municipality, Nuevo León, 66269 (the “Premises”) for a term of approximately seventeen months (the “Term”), which the Company intends to use as office space.

The Term of the Lease Agreement will commence on February 1, 2024 (the “Sublease Commencement Date”).

The Sublease Agreement provides for rent payments at fixed price of $5.25 thousand per month plus the corresponding Value Added Tax (“VAT”) for the duration of the Term.

The Company is also responsible for operating expenses of the Premises, which includes a maintenance fee, electricity and internet services.

The Company is required to provide a deposit of guarantee in the amount of $5.25 thousand in connection with the Sublease Agreement.

The Sublease Agreement does not have a renewal period.

Off-Balance Sheet Arrangements

Critical Accounting Policies and Estimates

Note 2 to the Consolidated Financial Statements in this Form 10-K for fiscal year 2023 includes a summary of the significant accounting policies or methods used in the preparation of our Consolidated Financial Statements, and Note 6 to the Consolidated Financial Statements in this Form 10-K includes a summary of inventory.

Some of those significant accounting policies or methods require us to make estimates and assumptions that affect the amounts reported by us.

We believe the following items require the most significant judgments and often involve complex estimates.

The preparation of financial statements in conformity with United States 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 amounts of revenues and expenses during the reporting period.

We base our estimates and judgments on historical experience, current market conditions, and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results could differ from these estimates under different assumptions or conditions.

The most significant estimates and assumptions are discussed below.

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.

Impairment analysis on intangible assets resulted in a loss of $310.2 thousand for the year ended December 31, 2022, which represented a complete impairment of our intangible assets.

The Company did not have any intangible asset impairment losses for the year ended December 31, 2023.

Inventory, consisting of raw materials, material overhead, labor, and manufacturing overhead, are stated at the average cost or net realizable value and consist of the following:

Finished goods

Packaging materials

Inventory in transit

Work in progress

Raw materials

Total inventory

The Company evaluates goodwill on an annual basis in the fourth quarter or more frequently if management believes indicators of impairment exist.

Such indicators could include, but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator.

The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, management conducts a quantitative goodwill impairment test.

The impairment test involves comparing the fair value of the applicable reporting unit with its carrying value.

The Company estimates the fair values of its reporting units using a combination of the income, or discounted cash flows, approach and the market approach, which utilizes comparable companies’ data.

If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

The Company’s evaluation of goodwill completed at year-end resulted in an impairment loss of $4.9 million for the year ended December 31, 2022, which represented a complete impairment of our goodwill.

The Company did not have any goodwill impairment losses for the year ended December 31, 2023.

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.

Stock-Based Compensation

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 – Compensation – Stock Compensation (“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 $836.3 thousand and $888.1 thousand for the years ended December 31, 2023 and 2022, respectively.

Stock-based compensation consisted of $125.2 thousand and $106.0 thousand related to the issuance of shares of common stock for services for the years ended December 31, 2023 and 2022, respectively.

Amortization of the fair values of stock options issued for services and compensation totaled $711.0 thousand and $782.1 thousand for the years ended December 31, 2023 and 2022, respectively.

The fair values of stock options were determined using either the Black-Scholes or Monte-Carlo simulation options pricing models, using a range of effective terms from 2.274 to 7.3 years.

In addition, $1.2 million of expenses related to the amortization of warrants issued in consideration for debt financing.

Warrants were fair-valued upon issuance using the Black-Scholes options pricing model and an effective term of 5 years and the discount rate on 5 year U.S.

Treasury securities at the grant date.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity