What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-14 compared with 2023-05-22 · 162 added, 87 removed, 159 unchanged (61% of the section changed)

46 unchanged sentences

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 anticipation 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 third quarter of

2022, we saw a significant increase in demand for our products from large business-to-business customers.

We are marketing our line of

products via our direct-to-consumer focused website, as well as via the business-to-business sales channel.

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.

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

We expect to place these additional freeze driers in service during the second quarter of 2023.

April 25, 2023 and May 11, 2023, we raised an aggregate $1.55 million from the sale of Promissory Notes and Warrants, including

$1.15 million received from related parties, resulting in approximately $1.9 million of cash on hand as of May 19, 2023.

Our business operates

under two distinct brands, Sow Good and Sustain Us.

Our unique food products are targeting the large, and growing, freeze-dried food products

With the extensive freeze-dried

manufacturing and food product-focused business development experience of our senior management team, including recent additions, we believe

we are well positioned to lead the Company's growth and development in the freeze-dried food industry.

Sow Good is an innovative,

highly adaptive leader in the freeze dried food industry in both the direct-to-consumer and business-to-business sales channels.

in the plant-based, better-for-you space in 2021, the Company built-out its manufacturing facility and completed construction of its first

freeze drier.

In the first quarter of 2023, anticipating rising market trends and a significant opportunity with disrupting the candy

category, Sow Good launched its freeze dried candy line.

The Company has entered into partnerships with major retailers such as FYE, Big

Lots, and Hy-Vee, and has a growing pipeline of other large retailers.

With this launch, Sow Good constructed an additional two freeze

driers during the second quarter of 2023 to meet the rapidly increasing retail demand.

With its continuous growth and consistent sell-out

within retailers, Sow Good anticipates freeze dried candy to be a major driver of its growth and has begun the process of constructing

an additional fourth and fifth freeze drier to meet anticipated demand.

Going Concern Uncertainty

As of March 31, 2023,

As of June 30, 2023,

the Company had incurred recurring losses from operations resulting in an accumulated deficit of $60,401,992, and had cash on hand of

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succeed in raising additional capital, our resources may not be sufficient to fund our business.

April 25, 2023 and May 11, 2023, we raised an aggregate $1.55 million from the sale of Promissory Notes and Warrants, including

$1.15 million received from related parties, resulting in approximately $1.9 million of cash on hand as of May 19, 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.

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

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Results of Operations for the Three Months

Ended March 31, 2023 and 2022

Ended June 30, 2023 and 2022

The following table summarizes

selected items from the statement of operations for the three months ended March 31, 2023 and 2022, respectively.

selected items from the statement of operations for the three months ended June 30, 2023 and 2022, respectively.

Three Months Ended

Cost of goods sold

Gross profit (loss)

Operating expenses:

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of online freeze dried foods product sales.

The revenues were $198,930 for the three months ended March 31, 2023, compared to $48,372

for the three months ended March 31, 2022, an increase of $150,558, or 311%.

Revenues increased as we ramped up sales on our product

lines and expanded our business-to-business sales during the first quarter of 2023, compared to the same period in the prior year.

The revenues were $1,315,347 for the three months ended June 30, 2023, compared to $244,943

for the three months ended June 30, 2022, an increase of $1,070,404, or 437%.

Revenues increased as we pivoted to sales of our freeze

dried candy and expanded our business-to-business sales during the current period, compared to the same period in the prior year.

Cost of Goods Sold

Cost of goods sold for the

three months ended March 31, 2023 were $76,680, compared to $47,491 for the three months ended March 31, 2022, an increase of

$29,189, or 61%.

Cost of goods sold, primarily consisting of material costs and labor on the sales of freeze dried food products, resulted

in a gross profit margin of approximately 61% during the quarter, compared to 2% during the comparative period.

Cost of goods sold and

our gross profit increased as we began to realize economies of scale pursuant to our increased sales.

three months ended June 30, 2023 were $2,695,820, compared to $150,603 for the three months ended June 30, 2022, an increase

of $2,545,217, or 1,690%.

Cost of goods sold, primarily consisting of material costs and labor on the sales of freeze dried food products

and a one-time inventory write down of $1,919,686 as we disposed of non-candy freeze dried products to pivot exclusively to our better

selling candy products.

Our gross profit margin was approximately negative 105% during the quarter, compared to 39% during the comparative

period, and would have been 41%, compared to 39%, without the inventory impairment.

Cost of goods sold and our gross profit decreased

primarily due to this inventory impairment.

General and administrative expenses

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Salaries and benefits for

the three months ended March 31, 2023 were $544,553, compared to $916,155 for the three months ended March 31, 2022, a decrease

the three months ended June 30, 2023 were $538,916, compared to $1,242,900 for the three months ended June 30, 2022, a decrease

of $703,984, or 57%.

Salaries and benefits included stock-based compensation expense for the three months ended March 31, 2023 of

$126,836, compared to $144,261 for the three months ended March 31, 2022, a decrease of $17,425, or 12%.

Salaries and benefits included stock-based compensation expense for the three months ended June 30, 2023 of

$257,070, compared to $431,370 for the three months ended June 30, 2022, a decrease of $174,300, or 40%.

Stock-based compensation

consists of $126,836 and $134,261 of stock options expense incurred in the three months ended March 31, 2023 and 2022, respectively, and

$10,000 of expense related to shares of common stock issued to officers and consultants for services rendered in the three months ended

March 31, 2022.

The decrease in salaries and benefits was primarily due to decreased personnel, in addition to our CEO absorbing the role

of interim CFO.

consists of $131,841 and $386,372 of stock options expense incurred in the three months ended June 30, 2023 and 2022, respectively,

and $125,229 and $44,998 of expense related to shares of common stock issued to officers and consultants for services rendered in the

three months ended June 30, 2023 and 2022, respectively.

The decrease in salaries and benefits was primarily due to decreased personnel,

in addition to our CEO absorbing the role of interim CFO.

Professional services

Professional services were

$46,206 for the 2023 period, compared to $62,693 for the 2022 period, a decrease of $16,487, or 26%.

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.

$63,329 for the 2023 period, compared to $53,295 for the 2022 period, an increase of $10,034, or 19%.

The increase was primarily

due to increased recruiting fees in the current period.

Other general and administrative expenses

Other general and administrative

expenses for the three months ended March 31, 2023 was $358,467, compared to $405,076 for the three months ended March 31, 2022,

expenses for the three months ended June 30, 2023 was $483,260, compared to $487,789 for the three months ended June 30, 2022,

a decrease of $4,529, or 1%.

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Depreciation expense for the

three months ended March 31, 2023 was $76,218, compared to $65,226 for the three months ended March 31, 2022, an increase of

$10,992, or 17%.

The increase is attributable to the addition of new equipment placed in service during prior periods.

three months ended June 30, 2023 was $7,413, compared to $67,693 for the three months ended June 30, 2022, a decrease of $60,280,

The decrease is attributable to increased overhead allocations to inventory during the current period, compared to the prior period.

Other expense

In the three months ended

March 31, 2023, other expense was $498,336, consisting of $127,658 of interest expense on our EIDL loan with the SBA and loans from

our officers and directors, and $370,678 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, 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.

June 30, 2023, other expense was $847,509, consisting of $163,365 of interest expense, including interest on our EIDL loan with the

SBA and loans from our officers and directors, and $684,144 related to the amortization of warrants issued as a debt discount on the loans

from our officers and directors.

During the comparative three months ended June 30, 2022, other expense was $355,452, consisting

of $93,378 of interest expense, including interest on our EIDL loan with the SBA and loans from our officers and directors, and $262,074

related to the amortization of warrants issued as a debt discount on the loans from our officers and directors.

Interest expense increased

by $492,057, or 138%, primarily due to the increased amortization of warrants issued in-the-money on loans from our officers and directors

in the current period.

Net loss for the three months

ended March 31, 2023 was $1,401,530, compared to $1,552,062 during the three months ended March 31, 2022, a decreased net loss

ended June 30, 2023 was $3,320,900, compared to $2,112,789 during the three months ended June 30, 2022, an increased net loss

of $1,208,111, or 57%.

The decreased net loss was due primarily to $150,558 of increased revenues and $371,602 of improved labor costs,

as partially offset by $394,543 of increased interest expense over the comparative period.

The increased net loss was due primarily to $1,919,686 of inventory impairment and $492,057 of increased interest

expense on debt financing issued with in-the-money warrants during the current period, as partially offset by $703,984 of improved labor

costs and $1,070,404 of increased revenues over the comparative period.

Results of Operations for the Six Months Ended

June 30, 2023 and 2022

The following table summarizes

selected items from the statement of operations for the six months ended June 30, 2023 and 2022, respectively.

Six Months Ended

Cost of goods sold

Gross profit (loss)

Operating expenses:

General and administrative expenses:

Salaries and benefits

Professional services

Other general and administrative expenses

Total general and administrative expenses

Depreciation and amortization

Total operating expenses

Net operating loss

Other expense:

Interest expense

Total other expense

$ (4,722,430 )

$ (3,664,851 )

Revenues consist primarily

of online freeze dried foods product sales.

The revenues were $1,514,277 for the six months ended June 30, 2023, compared to $293,315

for the six months ended June 30, 2022, an increase of $1,220,962, or 416%.

Revenues increased as we pivoted to sales of our freeze

dried candy and expanded our business-to-business sales during the current period, compared to the same period in the prior year.

Cost of Goods Sold

Cost of goods sold for the

six months ended June 30, 2023 were $2,772,500, compared to $198,094 for the six months ended June 30, 2022, an increase of

$2,574,406, or 1,300%.

Cost of goods sold, primarily consisting of material costs and labor on the sales of freeze dried food products

and a one-time inventory write down of $1,919,686 as we disposed of non-candy freeze dried products to pivot exclusively to our better

selling candy products.

Our gross profit margin was approximately negative 83% during the current period, compared to 32% during

the comparative period, and would have been 44%, compared to 32%, without the inventory impairment.

Cost of goods sold and our gross profit

decreased primarily due to this inventory impairment.

General and administrative expenses

Salaries and benefits

Salaries and benefits for

the six months ended June 30, 2023 were $1,083,469, compared to $2,159,055 for the six months ended June 30, 2022, a decrease

of $1,075,586, or 50%.

Salaries and benefits included stock-based compensation expense for the six months ended June 30, 2023 of

$383,906, compared to $575,631 for the six months ended June 30, 2022, a decrease of $191,725, or 33%.

Stock-based compensation consists

of $258,677 and $520,633 of stock options expense incurred in the six months ended June 30, 2023 and 2022, respectively, and $125,229

and $54,998 of expense related to shares of common stock issued to officers and consultants for services rendered in the six months ended

June 30, 2023 and 2022, respectively.

The decrease in salaries and benefits was primarily due to decreased personnel, in addition

to our CEO absorbing the role of interim CFO.

Professional services

Professional services were

$109,535 for the 2023 period, compared to $115,988 for the 2022 period, a decrease of $6,453, or 6%.

The decrease was primarily due

to legal fees incurred in connection with creating our brand in the comparative period that were not necessary in the current period.

Other general and administrative expenses

Other general and administrative

expenses for the six months ended June 30, 2023 was $841,727, compared to $892,865 for the six months ended June 30, 2022, a

decrease of $51,138, or 6%.

The decrease is primarily attributable to decreased administrative infrastructure as we continue to scale

the production and sales of our freeze dried products.

Depreciation expense for the

six months ended June 30, 2023 was $83,631, compared to $132,919 for the six months ended June 30, 2022, a decrease of $49,288,

The decrease is attributable to increased overhead allocations to inventory during the current period, compared to the prior period.

Other expense

In the six months ended June 30,

2023, other expense was $1,345,845, consisting of $291,023 of interest expense, including interest on our EIDL loan with the SBA and loans

from our officers and directors, and $1,054,822 related to the amortization of warrants issued as a debt discount on the loans from our

officers and directors.

During the comparative six months ended June 30, 2022, other expense was $459,245, consisting of $137,447

of interest expense on our EIDL loan with the SBA and loans from our officers and directors, and $321,798 related to the amortization

of warrants issued as a debt discount on the loans from our officers and directors.

Interest expense increased by $886,600, or 193%, primarily

due to the increased amortization of warrants issued in-the-money on loans from our officers and directors in the current period.

Net loss for the six months

ended June 30, 2023 was $4,722,430, compared to $3,664,851 during the six months ended June 30, 2022, an increased net loss

of $1,057,579, or 29%.

The increased net loss was due primarily to $1,919,686 of inventory impairment and $886,600 of increased interest

expense on debt financing issued with in-the-money warrants during the current period, as partially offset by $1,075,586 of improved labor

costs and $1,220,962 of increased revenues over the comparative period.

Liquidity and Capital Resources

The following table summarizes

our total current assets, liabilities and working capital at March 31, 2023 and December 31, 2022, respectively.

our total current assets, liabilities and working capital at June 30, 2023 and December 31, 2022, respectively.

Current Assets

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Working Capital

As of March 31, 2023,

As of June 30, 2023,

we had working capital of $674,532.

The following table summarizes

our cash flows during the three months ended March 31, 2023 and 2022, respectively.

Three Months Ended

our cash flows during the six months ended June 30, 2023 and 2022, respectively.

Six Months Ended

Net cash used in operating activities

$ (2,421,260 )

$ (2,274,361 )

Net cash used in investing activities

1 unchanged sentence

Net change in cash and cash equivalents

$ (1,530,940 )

Net cash used in operating

activities was $966,117 and $1,482,598 for the three months ended March 31, 2023 and 2022, respectively, a period over period

decrease of $516,481.

The decrease was primarily due to our increased revenues and diminished labor costs that began to improve our operations.

Net cash used in investing

activities were $211,906 and $48,342 for the three months ended March 31, 2023 and 2022, respectively, a period over period

activities was $2,421,260 and $2,274,361 for the six months ended June 30, 2023 and 2022, respectively, a period over period

increase of $146,899.

Cash used in investing activities were comprised of $211,906 of construction in progress payments as we continued

to build out our 2 nd and 3 rd freeze dried freezers and improve our office space during the three months ended March 31,

2023, compared to $44,726 of fixed asset purchases and $3,616 of purchases on trademarks during the three months ended March 31,

The increase was primarily due to increased inventory purchases, as partially offset by our increased revenues and

diminished labor costs that began to improve our operations.

Net cash used in investing

activities were $362,180 and $2,015,033 for the six months ended June 30, 2023 and 2022, respectively, a period over period

decrease of $1,652,853.

Cash used in investing activities were comprised of $3621,80 of fixed asset additions, as we completed our 2 nd

and 3 rd freeze dried freezers and finalized our office leasehold improvements during the six months ended June 30, 2023,

compared to $2,009,104 of fixed asset purchases and $5,929 of purchases on trademarks during the six months ended June 30, 2022.

Net cash provided by financing

activities were $1,250,000 for the three months ended March 31, 2023, which was comprised entirely of debt financing received from

our officers and directors.

There was no cash provided by financing activities during the comparative three months ended March 31,

activities were $2,800,000 for the six months ended June 30, 2023, which was comprised of $2,400,000 of debt financing received from

our officers and directors and $400,000 received from others under the same terms, compared to $3,700,000 ,

comprised of $3,120,000 of debt financing received from our officers and directors and $580,000 received from others under the same terms,

for the six months ended June 30, 2022.

Satisfaction of our cash obligations for

the next 12 months

As of March 31, 2023,

As of June 30, 2023,

our balance of cash was $293,024 and we had total working capital of $674,532.

B ased on projections

of cash expenditures in the Company’s current business plan, the cash on hand as of March 31, 2023 would be insufficient to

of cash expenditures in the Company’s current business plan, the cash on hand as of June 30, 2023 would be insufficient to

sustain operations over the next year.

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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 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.

to scale production and distribution capabilities and further increase the value of our brands is largely dependent on our success in

raising additional capital .

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

22 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis