Item 2. Management’s Discussion and Analysis
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.
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Overview and Outlook
We continue to sell our products
online via our direct-to-consumer channels, in addition to our growing pipeline of business-to-business customers. In March of 2021, we
completed the construction of our first freeze drier and, in antiparticipation of the increased production demands for our products and
freeze-drying expertise, we are in the development process of our second and third freeze driers.
During the first quarter of
2022, we expanded our ‘Sustain Us’ brand, which offers a line of granolas, snacks, and soups that are marketed toward outdoor
adventure activities, everyday snacking and meal prep needs, and long-term food storage. During 2021, we completed build-out of our production
facility and launched our direct-to-consumer freeze dried consumer packaged goods (CPG) food brand, under our Sow Good brand. Sow Good
launched eleven ready-to-blend smoothies, nine fruit snacks, and six vegetable snacks. The smoothie lineup offers a mix of both new and
familiar flavors: Açaí of Relief (açaí, blueberry); Mint to Be (banana, coconut, mint); and Berry Apeeling
(banana, strawberry). Sow Good’s packaged snack lineup includes fruits and vegetables such as Mon Cherry (cherries) and What’s
the Dill (sweet potato chips with dill). We also launched four 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 fruits, almonds, and hemp hearts. Our unique food products
are targeting the large, and growing, freeze dried food market.
With the extensive freeze
dried manufacturing and business development experience of our senior management team, we are confident that we are well positioned to
lead the Company's growth and development in the freeze dried food industry.
Going Concern Uncertainty
As of March 31, 2022, the
Company had incurred recurring losses from operations resulting in an accumulated deficit of $45,104,556, and had cash on hand of $1,814,988.
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.
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Results of Operations for the Three Months
Ended March 31, 2022 and 2021
The following table summarizes
selected items from the statement of operations for the three months ended March 31, 2022 and 2021, respectively.
Three Months Ended
March 31,
Increase /
2022
2021
(Decrease)
Revenues
$
48,372
$
–
$
48,372
Cost of goods sold
47,491
–
47,491
Gross Profit
881
–
881
Operating expenses:
General and administrative expenses:
Salaries and benefits
916,155
757,144
159,011
Professional services
62,693
101,899
(39,206
)
Other general and administrative expenses
405,076
286,821
118,255
Total general and administrative expenses
1,383,924
1,145,864
238,060
Depreciation and amortization
65,226
4,996
60,230
Total operating expenses
1,449,150
1,150,860
298,290
Net operating loss
(1,448,269
)
(1,150,860
)
297,409
Other income (expense)
Interest expense
(103,793
)
(1,512
)
102,281
Gain on early extinguishment of debt
–
113,772
(113,772
)
Gain on investment in Allied Esports Entertainment, Inc. securities
–
230,723
(230,723
)
Total other income (expense)
(103,793
)
342,983
(446,776
)
Net loss
$
(1,552,062
)
$
(807,877
)
$
744,185
Revenues
Revenues consist primarily
of online freeze-dried foods product sales. The revenues were $48,372 for the three months ended March 31, 2022, as we continued
to launch our product lines. The Company did not earn any revenues during the comparative three months ended March 31, 2021. We anticipate
increased revenues over the remainder of the year, although there can be no assurance.
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Cost of Goods Sold
Cost of goods sold for the
three months ended March 31, 2022 were $47,491, primarily consisting of material costs and labor on the sales of freeze-dried food products,
resulting in a gross profit of approximately 2% during the quarter. The Company did not have any cost of goods sold during the comparative
three months ended March 31, 2021.
General and administrative expenses
Salaries and benefits
Salaries and benefits for
the three months ended March 31, 2022 were $916,155, compared to $757,144 for the three months ended March 31, 2021, an increase
of $159,011, or 21%, Salaries and benefits included stock-based compensation expense for the three months ended March 31, 2022 of $144,261,
compared to $375,891 for the three months ended March 31, 2021, a decrease of $231,630, or 62%. Stock-based compensation consists
of $134,261 and $121,221 of stock options expense incurred in the three months ended March 31, 2022 and 2021, respectively, and $10,000
and $254,670 of expense related to shares of common stock issued to officers and consultants for services rendered in the three months
ended March 31, 2022 and 2021, respectively. The increase in salaries and benefits was primarily due to increased operations as we developed
our freeze-dried food operations, as partially offset by a reduction in stock-based compensation, as management accepted stock-based compensation
in lieu of cash in the comparative period.
Professional services
Professional services were
$62,693 for the 2022 period, compared to $101,899 for the 2021 period, a decrease of $39,206, or 38%. 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 three months ended March 31, 2022 was $405,076, compared to $286,821 for the three months ended March 31, 2021,
an increase of $118,255, or 41%. The increase is primarily attributable to increased administrative infrastructure as we seek to scale
the production and sales of our freeze-dried products.
Depreciation
Depreciation expense for
the three months ended March 31, 2022 was $65,226, compared to $4,996 for the three months ended March 31, 2021, an increase
of $60,230, or 1,206%. The increase is attributable to the addition of new equipment placed in service throughout 2021.
Other income (expense)
In the three months ended
March 31, 2022, other expense was $103,793, consisting of $44,069 of interest expense on our EIDL loan with the SBA and loans from our
officers and directors, and $59,724 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 March 31, 2021, other income, on a net basis, was $342,983, consisting of a
$113,772 gain on early extinguishment of debt and a net gain on investments in Allied Esports Entertainment, Inc. securities of $230,723,
as offset by $1,512 of interest expense derived from the operating loans the Company received from the PPP and EIDL programs.
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Net loss
Net loss for the three months
ended March 31, 2022 was $1,552,062, compared to $807,877 during the three months ended March 31, 2021, an increased net loss of
$744,185, or 92%. The increased net loss was due primarily to $297,409 of increased operating losses over the prior year, as we ramped
up our operations, and prior years gains of $113,772 and $230,723 on the forgiveness of our PPP loan and gains on the sale of our investments
in Allied Esports Entertainment, Inc. securities in the comparative period.
Liquidity and Capital Resources
The following table summarizes
our total current assets, liabilities and working capital at March 31, 2022 and December 31, 2021, respectively.
March 31,
December 31,
2022
2021
Current Assets
$
3,667,196
$
4,891,264
Current Liabilities
$
498,344
$
403,057
Working Capital
$
3,168,852
$
4,488,207
As of March 31, 2022, we
had working capital of $3,168,852.
The following table summarizes
our cash flows during the three months ended March 31, 2022 and 2021, respectively.
Three Months Ended
March 31,
2022
2021
Net cash used in operating activities
$ (1,482,598 )
$ (1,194,871 )
Net cash used in investing activities
(48,342 )
(696,745 )
Net cash provided by financing activities
–
2,525,000
Net change in cash and cash equivalents
$ (1,530,940 )
$ 633,384
Net cash used in operating
activities was $1,482,598 and $1,194,871 for the three months ended March 31, 2022 and 2021, respectively, a period over period increase
of $287,727. The increase was primarily due to our increased net loss.
Net cash used in investing
activities were $48,342 and $696,745 for the three months ended March 31, 2022 and 2021, respectively, a period over period decrease
of $648,403. Cash used in investing activities were comprised of $44,726 of fixed asset purchases, as we built out our freeze-dried foods
warehouse and equipment, and $3,616 of purchases on trademarks during the three months ended March 31, 2022, compared to $38,208 of fixed
asset purchases, along with $658,537 of construction in progress costs incurred during the three months ended March 31, 2021.
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There were no financing activities
during the three months ended March 31, 2022. Net cash provided by financing activities was $2,525,000 for the three months ended
March 31, 2021. All of the 2021 activity was the result of the $2,525,000 we raised from the sale
of an aggregate 631,250 shares of the Company’s common stock at $4.00 per share, and another $3,037,511 raised from the sale of
an aggregate 714,701 shares sold at $4.25 per share .
Satisfaction of our cash obligations for
the next 12 months
As of March 31, 2022, our
balance of cash was $1,814,988 and we had total working capital of $3,168,852. B ased on projections
of cash expenditures in the Company’s current business plan, the cash on hand as of March 31, 2022 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. Should the Company be successful in launching its products, we may pursue
the expansion of our production capabilities through the construction of a third freeze drier. Adding a third freeze drier would require
approximately $1 million of incremental capital and would likely require the Company to identify additional sources of funding .
O ur 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. On April 8, 2022, we raised $3.7 million from the sale of Promissory
Notes and Warrants, including $3,120,000 received from related parties, resulting in approximately $4.4 million of cash on hand as
of May 1, 2022. 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, 2021.
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
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