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.
26
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. Based 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. Our plan for satisfying our cash requirements for the next twelve
months is through cash on hand and additional financing in the form of equity or
debt as needed. 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.
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