Sow Good Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS . SOW GOOD INC. CONDENSED BALANCE SHEETS March 31, December 31, 2023 2022 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 348,441 $ 276,464 Accounts receivable, net 13,954 191,022 Prepaid expenses 81,028 137,692 Inventory 2,182,825 1,972,879 Total current assets 2,626,248 2,578,057 Property and equipment: Construction in progress 2,699,579 2,487,673 Property and equipment 3,055,579 3,055,579 Less accumulated depreciation ( 584,475 ) ( 508,257 ) Total property and equipment, net 5,170,683 5,034,995 Security deposit 24,000 24,000 Right-of-use asset 1,244,207 1,261,525 Total assets $ 9,065,138 $ 8,898,577 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 289,541 $ 452,606 Accrued expenses 381,210 385,028 Current portion of operating lease liabilities 54,265 52,543 Total current liabilities 725,016 890,177 Operating lease liabilities 1,287,093 1,301,355 Notes payable, related parties, net of $ 3,230,987 and $ 2,692,757 of debt discounts at March 31, 2023 and December 31, 2022, respectively 4,214,013 3,502,243 Notes payable, net of $ 299,598 and $ 336,085 of debt discounts at March 31, 2023 and December 31, 2022, respectively 430,402 393,915 Total liabilities 6,656,524 6,087,690 Commitments and contingencies – – Stockholders' equity: Preferred stock, $ 0.001 par value, 20,000,000 shares authorized, no shares issued and outstanding – – Common stock, $ 0.001 par value, 500,000,000 shares authorized, 4,847,384 shares issued and outstanding 4,847 4,847 Additional paid-in capital 59,484,859 58,485,602 Accumulated deficit ( 57,081,092 ) ( 55,679,562 ) Total stockholders' equity 2,408,614 2,810,887 Total liabilities and stockholders' equity $ 9,065,138 $ 8,898,577 See accompanying notes to unaudited condensed financial statements. 3 SOW GOOD INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) For the Three Months Ended March 31, 2023 2022 Revenues $ 198,930 $ 48,372 Cost of goods sold 76,680 47,491 Gross profit 122,250 881 Operating expenses: General and administrative expenses: Salaries and benefits 544,553 916,155 Professional services 46,206 62,693 Other general and administrative expenses 358,467 405,076 Total general and administrative expenses 949,226 1,383,924 Depreciation and amortization 76,218 65,226 Total operating expenses 1,025,444 1,449,150 Net operating loss ( 903,194 ) ( 1,448,269 ) Other expense: Interest expense, including $ 370,678 and $ 59,724 of warrants issued as a debt discount for the three months ending March 31, 2023 and 2022, respectively ( 498,336 ) ( 103,793 ) Total other expense ( 498,336 ) ( 103,793 ) Net loss $ ( 1,401,530 ) $ ( 1,552,062 ) Weighted average common shares outstanding - basic and diluted 4,847,384 4,809,842 Net loss per common share - basic and diluted $ ( 0.29 ) $ ( 0.32 ) See accompanying notes to unaudited condensed financial statements. 4 SOW GOOD INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) Additional Total Common Stock Paid-in Common Stock Accumulated Stockholders' Shares Amount Capital Payable Deficit Equity Balance, December 31, 2021 4,809,070 $ 4,809 $ 54,342,027 $ 26,066 $ ( 43,552,494 ) $ 10,820,408 Common stock issued to officers and directors for services 11,585 12 26,054 ( 26,066 ) – – Common stock awarded to advisory board member for services – – – 10,000 – 10,000 Common stock options granted to officers and directors for services – – 121,740 – – 121,740 Common stock options granted to employees and advisors for services – – 12,521 – – 12,521 Net loss for the three months ended March 31, 2022 – – – – ( 1,552,062 ) ( 1,552,062 ) Balance, March 31, 2022 4,820,655 $ 4,821 $ 54,502,342 $ 10,000 $ ( 45,104,556 ) $ 9,412,607 Additional Total Common Stock Paid-in Common Stock Accumulated Stockholders' Shares Amount Capital Payable Deficit Equity Balance, December 31, 2022 4,847,384 $ 4,847 $ 58,485,602 $ – $ ( 55,679,562 ) $ 2,810,887 Common stock warrants granted to related parties pursuant to debt financing – – 872,421 – – 872,421 Common stock options granted to officers and directors for services – – 111,733 – – 111,733 Common stock options granted to employees and advisors for services – – 15,103 – – 15,103 Net loss for the three months ended March 31, 2023 – – – – ( 1,401,530 ) ( 1,401,530 ) Balance, March 31, 2023 4,847,384 $ 4,847 $ 59,484,859 $ – $ ( 57,081,092 ) $ 2,408,614 See accompanying notes to unaudited condensed financial statements. 5 SOW GOOD INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) For the Three Months Ended March 31, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 1,401,530 ) $ ( 1,552,062 ) Adjustments to reconcile net loss to net cash used in operating activities: Bad debts expense 8,997 – Depreciation and amortization 76,218 72,954 Common stock awarded to advisors for services – 10,000 Amortization of stock options 126,836 134,261 Amortization of stock warrants issued as a debt discount 370,678 59,724 Decrease (increase) in current assets: Accounts receivable 168,071 414 Prepaid expenses 56,664 12,673 Inventory ( 209,946 ) ( 319,959 ) Right-of-use asset 17,318 16,650 Increase (decrease) in current liabilities: Accounts payable ( 163,065 ) 55,256 Accrued expenses ( 3,818 ) 38,432 Lease liabilities ( 12,540 ) ( 10,941 ) Net cash used in operating activities ( 966,117 ) ( 1,482,598 ) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment – ( 44,726 ) Cash paid for construction in progress ( 211,906 ) – Cash paid for intangible assets – ( 3,616 ) Net cash used in investing activities ( 211,906 ) ( 48,342 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds received from notes payable, related parties 1,250,000 – Net cash provided by financing activities 1,250,000 – NET CHANGE IN CASH AND CASH EQUIVALENTS 71,977 ( 1,530,940 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 276,464 3,345,928 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 348,441 $ 1,814,988 SUPPLEMENTAL INFORMATION: Interest paid $ 23,492 $ – Income taxes paid $ – $ – NON-CASH INVESTING AND FINANCING ACTIVITIES: Value of debt discounts attributable to warrants $ 872,421 $ – See accompanying notes to unaudited condensed financial statements. 6 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, o ur 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 $ 2.5 million of capital from the sale of 631,250 newly issued shares at a share price of $ 4.00 in a private placement. The proceeds were used to find capital expenditures and working capital investment. 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 $ 3 million of capital from the sale of 714,701 newly issued shares at a share price of $ 4.25 in a private placement. Investors in the private placement included Sow Good’s Chief Executive Officer, Executive Chairman, and Chief Financial Officer, in addition to other Sow Good board members and a small group of accredited investors. The proceeds are being used to invest in inventory ahead of pursuing larger business-to-business relationships, as well as funding incremental capital expenditures and general operating expenses. 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. Granola products are initially being sold direct-to-consumer and will later be targeted to the business-to-business segment. On December 31, 2021, we sold an aggregate $ 2,075,000 of promissory notes and warrants to purchase an aggregate 311,250 shares of common stock to related parties, 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 proceeds will be used for working capital investment and to ramp up our freeze-dried consumer packaged goods business. On April 8, 2022, we sold an aggregate $ 3,700,000 of promissory notes and warrants to purchase an aggregate 925,000 shares of common stock, including $ 3,120,000 and warrants to purchase an aggregate 780,000 shares of common stock, to related parties . The warrants are exercisable at a price of $ 2.35 per share over a ten-year term. These proceeds were used for working capital investment and to ramp up our freeze dried consumer packaged goods business. 7 SOW GOOD INC. Notes to Condensed Financial Statements (Unaudited) On August 23, 2022, we closed on an offering to sell up to $ 2,500,000 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, 2022 to the Maturity Date. On various dates from September 29, 2022 through March 7, 2023, the Company received aggregate proceeds of $ 2,250,000 from two of the Company’s Directors on the sale of these notes and warrants. In 2022, we commenced the construction of our second and third freeze driers in anticipation of the increased production demands for our products and freeze-drying expertise. We expect to place these additional freeze driers in service during the second quarter of 2023. In the first quarter of 2023, we launched a freeze-dried candy product offering that we expect will be a major driver of our growth going forward. As of May 19, 2023, we have 14 candy product lines for sale. 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. 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) and the Securities Investor Protection Corporation (SIPC) up to $250,000 and $500,000, respectively, under current regulations. The Company had $ 175,245 of cash in excess of FIDC and SIPC insured limits at March 31, 2023, and has not experienced any losses in such accounts. 8 SOW GOOD INC. Notes to Condensed Financial Statements (Unaudited) 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: Schedule of estimated useful lives of assets Software 3 years, or over the life of the agreement Website 3 years Office equipment 5 years Furniture and fixtures 5 years Machinery and equipment 7-10 years Leasehold improvements Fully extended lease-term 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 $ 76,218 and $ 72,954 for the three months ended March 31, 2023 and 2022, respectively. For the three months ended March 31, 2022, $ 7,728 of the depreciation expense was allocated to inventory overhead, resulting in $ 65,226 of depreciation expense. 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: Schedule of inventory March 31, December 31, 2023 2022 Finished goods $ 353,140 $ 384,241 Packaging materials 472,579 416,663 Work in progress 861,123 864,460 Raw materials 495,983 307,515 Total inventory $ 2,182,825 $ 1,972,879 No reserve for obsolete inventories has been recognized. 9 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 $ 8,997 at March 31, 2023. Basic and Diluted Earnings (Loss) Per Share 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. 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 (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 $ 126,836 and $ 144,261 , consisting entirely of expenses related to common stock and options issued for services for the three months ended March 31, 2023 and 2022, respectively, 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. In addition, $ 370,678 and $ 59,724 of expenses related to the amortization of warrants issued in consideration for debt financing for the three months ended March 31, 2023 and 2022, respectively. 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. 10 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 October 2021, the FASB issued Accounting Standards Update (“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 March 31, 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 March 31, 2023, the Company has incurred recurring losses from operations resulting in an accumulated deficit of $ 57,081,092 , and had cash on hand of $ 348,441 . 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 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. On April 25, 2023 and May 11, 2023, we raised an aggregate $ 1.6 million from the sale of Promissory Notes and Warrants, including $ 1,200,000 received from related parties, resulting in approximately $ 1.9 million of cash on hand as of May 22, 2023. 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. Note 4 – Related Party Debt Financing On August 23, 2022, we closed on an offering to sell up to $ 2,500,000 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, 2022 to the Maturity Date. On various dates between January 5, 2023 and March 7, 2023, the Company received aggregate proceeds of $ 1,250,000 from two of the Company’s Directors on the sale of these notes and warrants. 11 SOW GOOD INC. Notes to Condensed Financial Statements (Unaudited) 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. The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheets as of March 31, 2023 and December 31, 2022: Valuation of financial instruments at fair value Fair Value Measurements at March 31, 2023 Level 1 Level 2 Level 3 Assets Cash and cash equivalents $ 348,441 $ – $ – Total assets 348,441 – – Liabilities Notes payable, related parties, net of $3,230,987 of debt discounts – 4,214,013 – Notes payable, net of $299,598 of debt discounts – 430,402 – Total liabilities – 4,644,415 – $ 348,441 $ 4,644,415 $ – Fair Value Measurements at December 31, 2022 Level 1 Level 2 Level 3 Assets Cash and cash equivalents $ 276,464 $ – $ – Total assets 276,464 – – Liabilities Notes payable, related parties, net of $2,692,757 of debt discounts – 3,502,243 – Notes payable, net of $336,085 of debt discounts – 393,915 – Total liabilities – 3,896,158 – $ 276,464 $ 3,896,158 $ – There were no transfers of financial assets or liabilities between Level 1 and Level 2 inputs for the three months ended March 31, 2023. 12 SOW GOOD INC. Notes to Condensed Financial Statements (Unaudited) Note 6 – Prepaid Expenses Prepaid expenses consist of the following: Schedule of prepaid expenses March 31, December 31, 2023 2022 Prepaid software licenses $ 21,379 $ 36,424 Prepaid insurance costs 14,088 16,746 Trade show advances 23,901 18,707 Prepaid rent – 27,043 Prepaid office and other costs 21,660 38,772 Total prepaid expenses $ 81,028 $ 137,692 Note 7 – Property and Equipment Property and equipment at March 31, 2023 and December 31, 2022, consists of the following: Property and equipment March 31, December 31, 2023 2022 Office equipment $ 13,872 $ 13,872 Machinery 1,643,010 1,643,010 Software 70,000 70,000 Website 71,589 71,589 Leasehold improvements 1,257,108 1,257,108 Construction in progress 2,699,579 2,487,673 5,755,158 5,543,252 Less: Accumulated depreciation and amortization ( 584,475 ) ( 508,257 ) Total property and equipment, net $ 5,170,683 $ 5,034,995 Construction in progress consists of costs incurred to build our second and third freeze driers, and to build out our offices within our facility in Irving, Texas. These costs will be capitalized as Machinery and Leasehold Improvements, respectively, upon completion. The Company recognized depreciation of $ 76,218 and $ 72,954 for the three months ended March 31, 2023 and 2022, respectively. For the three months ended March 31, 2022, $ 7,728 of the depreciation expense was allocated to inventory overhead, resulting in $ 65,226 of depreciation expense. 13 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 August 31, 2025 , with two five-year options to extend, at a monthly lease term of $ 10,036 , with approximately a 3% annual escalation of lease payments commencing September 15, 2021, subject to the ASU 2016-02. In the locations in which it is economically feasible to continue to operate, management expects to enter into a new lease upon expiration. The operating and office facility lease contains provisions requiring payment of property taxes, utilities, insurance, maintenance and other occupancy costs applicable to the leased premise. As the Company’s leases do not provide implicit discount rates, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The components of lease expense were as follows: Schedule of components of lease expense For the Three Months Ended March 31, 2023 2022 Operating lease cost: Amortization of right-of-use asset $ 17,318 $ 16,649 Interest on lease liability 19,402 20,071 Total operating lease cost $ 36,720 $ 36,720 Supplemental balance sheet information related to leases was as follows: Schedule of supplemental balance sheet information March 31, December 31, 2023 2022 Operating lease: Operating lease assets $ 1,244,207 $ 1,261,525 Current portion of operating lease liability $ 54,265 52,543 Noncurrent operating lease liability 1,287,093 1,301,355 Total operating lease liability $ 1,341,358 $ 1,353,898 Weighted average remaining lease term: Operating leases 13 years 13.3 years Weighted average discount rate: Operating lease 5.75 % 5.75 % 14 SOW GOOD INC. Notes to Condensed Financial Statements (Unaudited) Supplemental cash flow and other information related to operating leases was as follows: Schedule of supplemental cash flow and other information For the Three Months Ended March 31, 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows used for operating leases $ 12,540 $ 10,941 The future minimum lease payments due under operating leases as of March 31, 2023 is as follows: Schedule of future minimum lease payments Fiscal Year Ending Minimum Lease December 31, Commitments 2023 (for the nine months remaining) $ 97,104 2024 132,917 2025 136,905 2026 141,012 2027 and thereafter 1,412,988 Total $ 1,920,926 Less effects of discounting 579,568 Lease liability recognized $ 1,341,358 15 SOW GOOD INC. Notes to Condensed Financial Statements (Unaudited) Note 9 – Notes Payable, Related Parties Notes payable, related parties consists of the following at March 31, 2023 and December 31, 2022, respectively: Schedule of Notes payable, related parties March 31, December 31, 2023 2022 On March 7, 2023, the Company received $ 250,000 pursuant to a note and warrant purchase agreement from the Lyle A. Berman Revocable Trust, as beneficially controlled by one of the Company’s Directors, as lender. The unsecured note matures on August 23, 2025 . The note bears interest at 8% per annum, payable on January 1, 2025. The noteholder also received warrants to purchase 62,500 shares of common stock, exercisable at $2.60 per share over a ten-year term. $ 250,000 $ – On March 2, 2023, the Company received $ 250,000 pursuant to a note and warrant purchase agreement from a trust held by the Company’s Chairman, Mr. Goldfarb, as lender. The unsecured note matures on August 23, 2025 . The note bears interest at 8% per annum, payable on January 1, 2025. The noteholder also received warrants to purchase 62,500 shares of common stock, exercisable at $2.60 per share over a ten-year term. 250,000 – On February 1, 2023, the Company received $ 500,000 pursuant to a note and warrant purchase agreement from a trust held by the Company’s Chairman, Mr. Goldfarb, as lender. The unsecured note matures on August 23, 2025 . The note bears interest at 8% per annum, payable on January 1, 2025. The noteholder also received warrants to purchase 125,000 shares of common stock, exercisable at $2.60 per share over a ten-year term. 500,000 – On January 5, 2023, the Company received $ 250,000 pursuant to a note and warrant purchase agreement from the Lyle A. Berman Revocable Trust, as beneficially controlled by one of the Company’s Directors, as lender. The unsecured note matures on August 23, 2025 . The note bears interest at 8% per annum, payable on January 1, 2025. The noteholder also received warrants to purchase 62,500 shares of common stock, exercisable at $2.60 per share over a ten-year term. 250,000 – On December 21, 2022, the Company received $ 250,000 pursuant to a note and warrant purchase agreement from the Lyle A. Berman Revocable Trust, as beneficially controlled by one of the Company’s Directors, as lender. The unsecured note matures on August 23, 2025 . The note bears interest at 8% per annum, payable on January 1, 2025. The noteholder also received warrants to purchase 62,500 shares of common stock, exercisable at $2.60 per share over a ten-year term. 250,000 250,000 16 SOW GOOD INC. Notes to Condensed Financial Statements (Unaudited) On September 29, 2022, the Company received $ 500,000 pursuant to a note and warrant purchase agreement from a trust held by the Company’s Chairman, Mr. Goldfarb, as lender. The unsecured note matures on August 23, 2025 . The note bears interest at 8% per annum, payable on January 1, 2025. The noteholder also received warrants to purchase 125,000 shares of common stock, exercisable at $2.60 per share over a ten-year term. 500,000 500,000 On September 29, 2022, the Company received $ 250,000 pursuant to a note and warrant purchase agreement from the Lyle A. Berman Revocable Trust, as beneficially controlled by one of the Company’s Directors, as lender. The unsecured note matures on August 23, 2025 . The note bears interest at 8% per annum, payable on January 1, 2025. The noteholder also received warrants to purchase 62,500 shares of common stock, exercisable at $2.60 per share over a ten-year term. 250,000 250,000 On April 8, 2022, the Company received $ 2,000,000 pursuant to a note and warrant purchase agreement from a trust held by the Company’s Chairman, Mr. Goldfarb, as lender. The unsecured note bears interest at 6% per annum, compounded semi-annually, and was payable in cash semi-annually on June 30 th and December 31 st . On August 23, 2022, the note was 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 note matures on April 8, 2025 . The noteholder also received warrants to purchase 500,000 shares of common stock, exercisable at $2.35 per share over a ten-year term. 2,000,000 2,000,000 On April 8, 2022, the Company received $ 100,000 pursuant to a note and warrant purchase agreement with the Company’s Chairman and CEO, Mr. & Mrs. Goldfarb, as lenders. The unsecured note bears interest at 6% per annum, compounded semi-annually, and was payable in cash semi-annually on June 30 th and December 31 st . On August 23, 2022, the note was 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 note matures on April 8, 2025 . The noteholder also received warrants to purchase 25,000 shares of common stock, exercisable at $2.35 per share over a ten-year term. 100,000 100,000 On April 8, 2022, the Company received $ 100,000 pursuant to a note and warrant purchase agreement with IG Union Bower LLC, an entity owned by Ira Goldfarb, the Company’s Chairman, as lender. The unsecured note bears interest at 6% per annum, compounded semi-annually, and was payable in cash semi-annually on June 30 th and December 31 st . On August 23, 2022, the note was 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 note matures on April 8, 2025 . The noteholder also received warrants to purchase 25,000 shares of common stock, exercisable at $2.35 per share over a ten-year term. 100,000 100,000 On April 8, 2022, the Company received $ 920,000 pursuant to a note and warrant purchase agreement from the Lyle A. Berman Revocable Trust, as beneficially controlled by one of the Company’s Directors, as lender. The unsecured note bears interest at 6% per annum, compounded semi-annually, and was payable in cash semi-annually on June 30 th and December 31 st . On August 23, 2022, the note was 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 note matures on April 8, 2025 . The noteholder also received warrants to purchase 230,000 shares of common stock, exercisable at $2.35 per share over a ten-year term. 920,000 920,000 17 SOW GOOD INC. Notes to Condensed Financial Statements (Unaudited) On December 31, 2021, the Company received $ 1,500,000 pursuant to a note and warrant purchase agreement with the Company’s Chairman and CEO, Mr. & Mrs. Goldfarb, as lenders. The unsecured note bears interest at 8% per annum, compounded semi-annually, and shall be payable in cash semi-annually on June 30 th and December 31 st . The note matures on December 31, 2024 . The noteholders also received warrants to purchase 225,000 shares of common stock, exercisable at $2.21 per share over a ten-year term. 1,500,000 1,500,000 On December 31, 2021, the Company received $ 500,000 pursuant to a note and warrant purchase agreement from the Lyle A. Berman Revocable Trust, as beneficially controlled by one of the Company’s Directors, as lender. The unsecured note bears interest at 8% per annum, compounded semi-annually, and shall be payable in cash semi-annually on June 30 th and December 31 st . The note matures on December 31, 2024 . The noteholder also received warrants to purchase 75,000 shares of common stock, exercisable at $2.21 per share over a ten-year term. 500,000 500,000 On December 31, 2021, the Company received $ 25,000 pursuant to a note and warrant purchase agreement from the Company’s former CFO, Bradley K. Burke, as lender. The unsecured note bears interest at 8% per annum, compounded semi-annually, and shall be payable in cash semi-annually on June 30 th and December 31 st . The note matures on December 31, 2024 . The noteholder also received warrants to purchase 3,750 shares of common stock, exercisable at $2.21 per share over a ten-year term. 25,000 25,000 On December 31, 2021, the Company received $ 50,000 pursuant to a note and warrant purchase agreement from the Cesar J. Gutierrez Living Trust, as beneficially controlled by the brother of the Company’s CEO, as lender. The unsecured note bears interest at 8% per annum, compounded semi-annually, and shall be payable in cash semi-annually on June 30 th and December 31 st . The note matures on December 31, 2024 . The noteholder also received warrants to purchase 7,500 shares of common stock, exercisable at $2.21 per share over a ten-year term. 50,000 50,000 Total notes payable, related parties 7,445,000 6,195,000 Less unamortized debt discounts: 3,230,987 2,692,757 Notes payable 4,214,013 3,502,243 Less: current maturities – – Notes payable, related parties, less current maturities $ 4,214,013 $ 3,502,243 The Company recorded total discounts of $ 4,382,782 of debt discounts on warrants granted to the related parties on various dates from December 31, 2021 through March 7, 2023. The discounts are being amortized to interest expense over the term of the notes, until repayment, using the straight-line method, which closely approximates the effective interest method. The Company recorded $ 334,191 and $ 59,724 of stock-based interest expense pursuant to the amortization of discounts during the three months ended March 31, 2023 and 2022, respectively. The Company recognized $ 117,556 and $ 42,575 of interest expense for the three months ended March 31, 2023 and 2022, respectively. 18 SOW GOOD INC. Notes to Condensed Financial Statements (Unaudited) Note 10 – Notes Payable Notes payable consists of the following at March 31, 2023 and December 31, 2022, respectively: Schedule of notes payable March 31, December 31, 2023 2022 On April 8, 2022, the Company received $ 80,000 pursuant to a note and warrant purchase agreement from an accredited investor, as lender. The unsecured note bears interest at 6% per annum, compounded semi-annually, and was payable in cash semi-annually on June 30 th and December 31 st . On August 23, 2022, the note was 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 note matures on April 8, 2025 . The noteholders also received warrants to purchase 20,000 shares of common stock, exercisable at $2.35 per share over a ten-year term. $ 80,000 $ 80,000 On April 8, 2022, the Company received $ 500,000 pursuant to a note and warrant purchase agreement from an accredited investor, as lender. The unsecured note bears interest at 6% per annum, compounded semi-annually, and was payable in cash semi-annually on June 30 th and December 31 st . On August 23, 2022, the note was 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 note matures on April 8, 2025 . The noteholders also received warrants to purchase 125,000 shares of common stock, exercisable at $2.35 per share over a ten-year term. 500,000 500,000 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 $ 150,000 Promissory Note issued to the SBA (the “EIDL Note”)(together with the EIDL Loan Agreement, the “EIDL Loan”), bearing interest at 3.75% per annum. In connection with entering into the EIDL Loan, the Company also executed a security agreement, dated June 16, 2020, between the SBA and the Company (the “EIDL Security Agreement”) pursuant to which the EIDL Loan is secured by a security interest on all of the Company’s assets. Under the EIDL Note, the Company is required to pay principal and interest payments of $731 every month beginning June 16, 2022, as extended. All remaining principal and accrued interest is due and payable on June 16, 2050 . The EIDL Note may be repaid at any time without penalty. $ 150,000 $ 150,000 Total notes payable 730,000 730,000 Less unamortized debt discounts: 299,598 336,085 Notes payable 430,402 393,915 Less: current maturities – – Notes payable, less current maturities $ 430,402 $ 393,915 The Company recorded total discounts of $ 444,330 , consisting of debt discounts on warrants granted to accredited investors on April 8, 2022. The discounts are being amortized to interest expense over the term of the notes, until repayment, using the straight-line method, which closely approximates the effective interest method. The Company recorded $ 36,487 of stock-based interest expense pursuant to the amortization of discounts during the three months ended March 31, 2023. The Company recognized $ 8,581 and $ 1,494 of interest expense on notes payable for the three months ended March 31, 2023 and 2022, respectively. 19 SOW GOOD INC. Notes to Condensed Financial Statements (Unaudited) Note 11 – Changes in Stockholders’ Equity Preferred Stock The Company has 20,000,000 authorized shares of $ 0.001 par value preferred stock. No shares have been issued to date. Common Stock The Company has 500,000,000 authorized shares of $ 0.001 par value common stock. As of March 31, 2023, a total of 4,847,384 shares of common stock have been issued. Note 12 – Options 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 590,991 shares of common stock at a weighted average strike price of $ 4.53 , exercisable over a weighted average life of 7.9 years were outstanding as of March 31, 2023. The Company recognized a total of $ 126,836 and $ 134,261 of compensation expense during the three months ended March 31, 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 $ 1,076,675 as of March 31, 2023. Options Exercised No options were exercised during the three months ended March 31, 2023 and 2022. Note 13 – Warrants Outstanding Warrants Warrants to purchase an aggregate total of 1,903,750 shares of common stock at a weighted average strike price of $ 2.49 , exercisable over a weighted average life of 9.1 years were outstanding as of March 31, 2023. 20 SOW GOOD INC. Notes to Condensed Financial Statements (Unaudited) Warrants Granted On March 7, 2023 , warrants to purchase an aggregate 62,500 shares of common stock were issued to the Lyle A. Berman Revocable Trust, as beneficially controlled by one of the Company’s Directors, 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. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 138 % and a weighted average call option value of $3.65, was $ 228,154 . The warrants are being expensed over the life of the loans, resulting in $ 6,084 of stock-based compensation expense during the three months ended March 31, 2023. As of March 31, 2023, a total of $ 222,070 of unamortized expenses are expected to be expensed over the remaining life of the outstanding debts. On March 2, 2023 , warrants to purchase an aggregate 62,500 shares of common stock were issued to a trust held by the Company’s Chairman, Mr. Goldfarb, 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. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 139 % and a weighted average call option value of $3.66, was $ 228,464 . The warrants are being expensed over the life of the loans, resulting in $ 7,321 of stock-based compensation expense during the three months ended March 31, 2023. As of March 31, 2023, a total of $ 221,143 of unamortized expenses are expected to be expensed over the remaining life of the outstanding debts. On February 1, 2023 , warrants to purchase an aggregate 125,000 shares of common stock were issued to a trust held by the Company’s Chairman, Mr. Goldfarb, pursuant to a private placement debt offering in which aggregate proceeds of $ 500,000 were received in exchange for promissory notes and warrants to purchase an aggregate 125,000 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 $ 2.60 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. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 138 % and a weighted average call option value of $2.21, was $ 276,462 . The warrants are being expensed over the life of the loans, resulting in $ 17,168 of stock-based compensation expense during the three months ended March 31, 2023. As of March 31, 2023, a total of $ 259,294 of unamortized expenses are expected to be expensed over the remaining life of the outstanding debts. On January 5, 2023 , warrants to purchase an aggregate 62,500 shares of common stock were issued to the Lyle A. Berman Revocable Trust, as beneficially controlled by one of the Company’s Directors, 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. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 140 % and a weighted average call option value of $2.23, was $ 139,341 . The warrants are being expensed over the life of the loans, resulting in $ 12,325 of stock-based compensation expense during the three months ended March 31, 2023. As of March 31, 2023, a total of $ 127,016 of unamortized expenses are expected to be expensed over the remaining life of the outstanding debts. 21 SOW GOOD INC. Notes to Condensed Financial Statements (Unaudited) 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 March 31, 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 March 31, 2023, net deferred tax assets were $ 8,877,000 , with no deferred tax liability, primarily related to net operating loss carryforwards. A valuation allowance of approximately $ 8,877,000 was applied to the net deferred tax assets. Therefore, the Company has no tax expense for 2023 to date. 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 March 31, 2023. 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 September 15, 2025 , with two five-year options to extend, at a monthly lease term of $ 10,036 , with approximately a 3% annual escalation of lease payments commencing September 15, 2021. 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: Debt Financing Received on September 2022 Note Agreement On April 11, 2023, the Company received $250,000 pursuant to a note and warrant purchase agreement from the Lyle A. Berman Revocable Trust, as beneficially controlled by one of the Company’s Directors, as lender. The unsecured note matures on August 23, 2025. The note bears interest at 8% per annum, payable on January 1, 2025. The noteholder also received warrants to purchase 62,500 shares of common stock, exercisable at $2.60 per share over a ten-year term. 22 SOW GOOD INC. Notes to Condensed Financial Statements (Unaudited) May 2023 Debt Financing In connection with a private placement, dated April 25, 2023 (the "Offering"), on May 11, 2023, the Company entered into a Note and Warrant Purchase Agreement (the "Purchase Agreement") with one of our directors (the "Purchaser") to sell and issue to the Purchaser up to $100,000 in the May 2023 Promissory Note (the "Note") and (ii) a ten-year warrant (the "Warrant") to purchase up to 25,000 shares (the "Warrant Shares" and together with the Note and Warrant, the "Securities") of the Company's common stock, representing 25,000 warrant shares per $100,000 of notes purchased. The Note Purchase Agreement, Note, and Warrant are based on substantially similar terms as the April 2023 Note Purchase Agreement, promissory notes, and warrants issued on April 25, 2023 as part of the Offering. The Note is a (1) year note. Interest on the Note accrues at a rate of 8% per annum, payable in cash semi-annually on June 30 and December 31, with appropriate pro rata adjustments made for any partial interest accrual period, and the outstanding principal amount of the Note matures and becomes due and payable on the Maturity Date (as defined in the Note to be May 11, 2024, unless accelerated by an Event of Default). Loans (as defined in the Note) may be advanced to the Company from time to time from May 11, 2023 to the Maturity Date, upon prior written notice from Company. The Warrant is issued to the Purchaser as they advance Loans to the Company, in accordance with the terms of the Note. Upon issuance, the Warrant is exercisable immediately and for a period of 10 years at a price of $2.50 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. Assuming full advance of the Loans and full exercise of the Warrant, further proceeds to the Company from the exercise of the Warrant Shares is calculated as $50,000. April 2023 Debt Financing On April 25, 2023, the Company closed a private placement (the “Offering”) and concurrently entered into a Note and Warrant Purchase Agreement (the “Purchase Agreement”) with multiple accredited investors (the “Purchasers”) to sell and issue to the Purchasers, (i) an aggregate of up to $1,500,000 in the April 2023 Promissory Notes (the “Notes”) and (ii) ten-year warrants (the “Warrants”) to purchase up to an aggregate of 375,000 shares (the “Warrant Shares”, and together with the Notes and Warrants, the “Securities”) of the Company’s common stock, par value $0.001 per share, representing 25,000 warrant shares per $100,000 of Notes purchased. A total of $1.3 million was received on various dates from May 1, 2023 through May 11, 2023, including $900,0000 received from related parties. The Notes are one (1) year notes. Interest on the Notes accrues at a rate of 8% per annum, payable in cash semi-annually on June 30 and December 31, with appropriate pro rata adjustments made for any partial interest accrual period, and the outstanding principal amount of the Notes matures and becomes due and payable on the Maturity Date (as defined in the notes to be April 25, 2024, unless accelerated by an Event of Default). Loans (as defined in the Notes) may be advanced to the Company from time to time from April 25, 2023 to the Maturity Date, upon prior written notice from Company. The Warrants are issued to the Purchasers as they advance Loans to the Company, in accordance with the terms of the Note. Upon issuance, the Warrants are exercisable immediately and for a period of 10 years at a price of $2.50 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. Assuming full advance of the Loans and full exercise of the Warrants, further proceeds to the Company from the exercise of the Warrant Shares is calculated as $750,000. The Offering closed simultaneously with execution of the Purchase Agreement. 23