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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 4/14/23 Sow Good Inc. 10-K 12/31/22 92:7.4M GlobalOne Filings Inc/FA |
Document/Exhibit Description Pages Size
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2: EX-31.1 Certification -- §302 - SOA'02 HTML 27K
3: EX-32.1 Certification -- §906 - SOA'02 HTML 23K
9: R1 Cover HTML 86K
10: R2 Balance Sheets HTML 128K
11: R3 Balance Sheets (Parenthetical) HTML 47K
12: R4 Statements of Operations HTML 92K
13: R5 Statements of Operations (Parenthetical) HTML 43K
14: R6 Statement of Stockholders' Equity HTML 83K
15: R7 Statements of Cash Flows HTML 123K
16: R8 Organization and Nature of Business HTML 41K
17: R9 Summary of Significant Accounting Policies HTML 69K
18: R10 Going Concern HTML 29K
19: R11 Related Party HTML 109K
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26: R18 Notes Payable HTML 53K
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29: R21 Warrants HTML 69K
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32: R24 Gain on Investment in Allied Esports HTML 32K
Entertainment, Inc.
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34: R26 Subsequent Events HTML 27K
35: R27 Summary of Significant Accounting Policies HTML 117K
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39: R31 Prepaid Expenses (Tables) HTML 30K
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45: R37 Options (Tables) HTML 53K
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Entertainment, Inc. (Tables)
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49: R41 Organization and Nature of Business (Details HTML 50K
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(Details - Estimated Useful Lives)
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(Details - Inventory)
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54: R46 Schedule of stock sales by related parties HTML 48K
(Details)
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62: R54 Leases (Details - Supplemental balance sheet HTML 36K
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(Details - Gains and losses on investment )
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Entertainment, Inc. (Details Narrative)
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
i ☒ ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: i i December 31, 2022 /
Commission file number i 000-53952
(Exact name of registrant as specified in its charter)
| i Nevada | i 27-2345075 |
| (State of Incorporation) | (I.R.S. Employer Identification No.) |
i 1440 N Union Bower Rd, i Irving, i TX i 75061
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Act:
|
Title of Each Class |
Trading Symbol |
Name of Each Exchange On Which Registered |
| i COMMON STOCK | i SOWG | OTCQB |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ i No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ i No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. i Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). i Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| i Non-accelerated filer | ☒ | Smaller reporting company | i ☒ | |
| Emerging growth company | i ☐ |
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ i No ☒
The aggregate market value of voting stock held by non-affiliates of the registrant was approximately $ i 7,292,925 as of June 30, 2022 (computed by reference to the last sale price of a share of the registrant’s Common Stock on that date as reported by OTC Bulletin Board).
There were shares outstanding of the registrant’s common stock as of April 12, 2023.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING 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. You should consider carefully the statements in “Item 1A. Risk Factors” and other sections of this report, which describe factors that could cause our actual results to differ from those set forth in the forward-looking statements.
Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. 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.
| i |
| ii |
Overview
Effective January 21, 2021, we changed our name from Black Ridge Oil & Gas, Inc. to Sow Good Inc. (“SOWG,” “Sow Good,” or the “Company”). Our common stock is traded on the OTCQB under the trading symbol “SOWG”.
The Company produces a line of freeze-dried snacks, smoothies, soups and granola. We are marketing our line of products via our direct-to-consumer focused website, as well as via the business-to-business sales channel. We have also recently launched a freeze-dried candy product offering that we expect will be a major driver of our growth going forward.
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.
Our business operates under two distinct brands, Sow Good and Sustain Us. Our unique food products are targeted to the large, and growing, freeze-dried food products market.
With the extensive freeze-dried manufacturing and food product-focused business development experience of our senior management team, we believe we are well positioned to lead the Company's growth and development in the freeze-dried food industry.
S-FDF Business Combination
On October 1, 2020, the Company completed its acquisition of S-FDF, LLC (the "Seller"), a Texas limited liability company, pursuant to an Asset Purchase Agreement, between the Company and the Seller, dated June 9, 2020, as subsequently amended effective October 1, 2020. 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. The Company did not assume any liabilities of Seller or any liabilities, liens, or encumbrances pertaining to or encumbering the Purchased Assets, except for those related to agreements or arrangements specified in the Asset Purchase Agreement. The Seller transferred the Purchased Assets to the Company in exchange for the issuance of 1,120,000 shares of the Company’s common stock to the Seller. The number of Seller Shares to be issued was subject to adjustment, as specified in the Asset Purchase Agreement, as amended, based on the extent to which the amount of cash proceeds held by the Company, as derived from the sale of the Company’s holdings of Allied Esports Entertainment Inc. ("AESE") Shares, were less than $5 million or greater than $6 million on the date specified in the Asset Purchase Agreement, which resulted in the issuance of an additional 500,973 Seller Shares that were issued on January 4, 2021. The combined issuances represented approximately 46% of the Company’s issued and outstanding common stock, on a fully diluted basis. Black Ridge Oil & Gas, Inc. was determined to be the acquiror of the business combination.
Pursuant to its obligations under the Asset Purchase Agreement, on the Closing Date the Company, (a) created three new seats on the Company’s Board of Directors and appointed the Seller’s principals, Ira Goldfarb and Claudia Goldfarb, and a third person designated by the Goldfarbs, Greg Creed, as directors, (b) entered into employment agreements with Ira Goldfarb and Claudia Goldfarb, (c) delivered a registration rights agreement with respect to the Seller Shares and any shares of common stock delivered as part of the employment compensation for Ira Goldfarb or Claudia Goldfarb, and (d) amended the Company’s 2020 Stock Incentive Plan to increase the number of shares of common stock reserved thereunder. At closing, the Company also assumed the Seller’s obligations under a real property lease for its facility in Irving, Texas under which an entity owned entirely by Ira Goldfarb is the landlord.
| 1 |
BRAC Business Combination
On October 10, 2017, the Company’s sponsored special purpose acquisition company, Black Ridge Acquisition Corp. (“BRAC”), completed an IPO raising $138,000,000 of gross proceeds (including proceeds from the exercise of an over-allotment option by the underwriters on October 18, 2017). In addition, the Company purchased 445,000 BRAC units at $10.00 per unit in a private placement transaction for a total contribution of $4,450,000 in order to fulfill its obligations in sponsoring BRAC, a blank check company formed for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities. BRAC’s efforts to identify a prospective target business were not limited to a particular industry or geographic region. Following the IPO and over-allotment, BROG owned 22% of the outstanding common stock of BRAC and managed BRAC’s operations via a management services agreement through December 31, 2019. On December 19, 2018, BRAC entered into a business combination agreement, which subsequently closed on August 9, 2019. BRAC was renamed Allied Esports Entertainment, Inc. following the merger, or “AESE”, and referred to herein, as such.
Going Concern Uncertainty
As of December 31, 2022, the Company had a cash balance of $276,464 and total working capital of $1,687,880. 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.
We continue to pursue sources of additional capital through various financing transactions or arrangements, equity or debt financing or other means. 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.
We may not be successful in identifying suitable funding 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 or expand our business.
The report of the Company’s independent registered public accounting firm that accompanies its audited financial statements in the Company’s Annual Report on Form 10-K contains an explanatory paragraph regarding the substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of the going concern uncertainty.
Business
The Company produces a line of freeze-dried snacks, smoothies, soups and granola. We are marketing our line of products via our direct-to-consumer focused website, as well as via the business-to-business sales channel. We have also recently launched a freeze-dried candy product offering that we expect will be a major driver of our growth going forward.
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.
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 market.
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.
| 2 |
Principal Agreements Affecting Our Ordinary Business
Our principal agreements for our continuing operations take the form of employment agreements, whereby our management is compensated through a variety of forms, including cash and equity.
Employees
We currently have 31 full time employees. We may hire additional technical or administrative personnel as appropriate. We are using and will continue to use the services of independent consultants and contractors to perform various professional services for us or on behalf of our partners. We believe that this use of third-party service providers enhances our ability to contain general and administrative expenses.
Office Locations
Our executive offices are located at 1440 N Union Bower Rd, Irving, TX 75061. Our office space is included in our production facility, which consists of approximately 20,945 square feet leased pursuant to a lease agreement through September 15, 2025, with two five-year options to extend, under which an entity owned entirely by Ira Goldfarb is the landlord.
Financial Information about Segments and Geographic Areas
We have not segregated our operations into segments or geographic areas.
Available Information – Reports to Security Holders
Our website addresses are www.thisissowgood.com and www.sowginc.com. We make available on our www.sowginc.com website, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports after we electronically file those materials with, or furnish those materials to, the SEC. Electronic filings with the SEC are also available on the SEC internet website at www.sec.gov.
We also post to our website our Audit Committee Charter and our Code of Ethics, in addition to all pertinent company contact information.
Risks Related to Our Business
Our freeze-dried foods business is essentially a start-up, and does not have any meaningful history of operations.
The assets we purchased under the Asset Purchase Agreement were of a development stage business without any major customers or history of operations upon which to forecast future business trends. We cannot guarantee that we will become profitable. As a developing company, we will need to adopt and implement a plan to increase awareness of our products, secure distribution channels, and foster and strengthen our supply, manufacturing and distribution relationships. It is likely our strategic priorities will need to evolve over time and our business would be materially and adversely effected if we do not properly adapt our strategies to our changing needs and changes in the market.
As our operations develop and grow, we expect to experience significant increases in our working capital requirements. These conditions raise doubt over our ability to meet all of our obligations over the next twelve months if we are unable to obtain additional capital. Even if we obtain additional capital and achieve profitability, given the competitive and evolving nature of the industry in which we operate, we may be unable to sustain or increase profitability and our failure to do so would adversely affect the Company’s business, including our ability to raise additional funds.
| 3 |
We have very limited internal distribution and marketing capabilities and are only in the early stages of building our distribution network.
We have launched our freeze-dried food products commercially, but continue to make efforts at expanding our sales and distribution. In order to be successful, we will need to establish a direct-to-consumer platform and/or relationships with numerous retail outlets through which our products can be sold. We have extremely limited internal marketing and distribution capabilities and resources. There can be no assurance that we will be successful in establishing a meaningful distribution network or direct to consumer platform or that if the same is established that such network or platform will result in profitable sales of our products.
We may need additional financing in the future, which may not be available when needed or may be costly and dilutive.
We may require additional financing to support our working capital needs in the future. The amount of additional capital we may require, the timing of our capital needs and the availability of financing to fund those needs will depend on a number of factors, including our strategic initiatives and operating plans, the performance of our business and the market conditions for debt or equity financing. Additionally, the amount of capital required will depend on our ability to meet our sales goals and otherwise successfully execute our operating plan. Although we believe various debt and equity financing alternatives will be available to us to support our working capital needs, financing arrangements on acceptable terms may not be available to us when needed. Additionally, these alternatives may require significant cash payments for interest and other costs or could be highly dilutive to our existing shareholders. Any such financing alternatives may not provide us with sufficient funds to meet our long-term capital requirements.
A worsening of economic conditions or a decrease in consumer spending may adversely impact our ability to implement our business strategy.
Our success depends to a significant extent on discretionary consumer spending, which is influenced by general economic conditions and the availability of discretionary income. There is no certainty regarding economic conditions in the United States, and credit and financial markets and confidence in economic conditions could deteriorate at any time. Accordingly, we may experience declines in revenue during economic turmoil or during periods of uncertainty. In addition, sustained periods of inflation may result in a decline in the amount of discretionary spending and otherwise hamper our gross margins. Any material decline in the amount of discretionary spending, leading cost-conscious consumers to be more selective in food products purchased, could have a material adverse effect on our revenue, results of operations, business and financial condition.
Fluctuations in various food and supply costs, particularly related to fruit, could adversely affect our operating results.
Supplies and prices of the ingredients that we are going to use to be affected by a variety of factors, such as weather, seasonal fluctuations, demand, politics and economics in the production areas.
These factors subject us to shortages or interruptions in product supplies, which could adversely affect our revenue and profits. In addition, the price of fruit, which is currently our main ingredient in our products, can be highly volatile. The fruit of the quality we seek tends to trade on a negotiated basis, depending on supply and demand at the time of the purchase. An increase in pricing of any fruit that we are going to use in our products could have a significant adverse effect on our profitability. We cannot assure you that we will be able to secure our fruit supply. In addition, we may face limits on the ability to source some of the candy for our freeze-dried candy products.
In addition, our costs are affected by general inflationary pressures related to transportation and shipping costs, particularly to the extent we have additional retail sales and smaller order quantities. We are also subject to a reduction in our profitability due to increased labor costs for our employees. As we look to expand our distribution and market, we may not be able to increase our sales prices to absorb these costs. We cannot provide assurances that we will be able to maintain profitability consistent with our goals.
As we consider adding additional freeze driers, we also anticipate that the costs for this equipment will be more than as well as the lead time to receive the equipment once ordered will be longer than we have planned. This could increase our capital needs and also delay our ability to ramp up production in a timely manner to correspond to demand.
| 4 |
Our success depends on our ability to correctly predict, identify, and interpret changes in consumer preferences and demand, to offer new products to meet those changes, and to respond to competitive innovation.
Consumer preferences for food and beverage products change continually and rapidly. Our success depends on our ability to predict, identify, and interpret the tastes and dietary habits of consumers and to offer products that appeal to consumer preferences. If we do not offer products that appeal to consumers, our sales and market share will decrease, which could materially and adversely affect our product sales, financial condition, and operating results.
We must distinguish between short-term trends and long-term changes in consumer preferences. If we do not accurately predict which shifts in consumer preferences will be long-term, or if we fail to introduce new and improved products to satisfy those preferences, our sales could decline.
Our business depends substantially on the continuing efforts of our senior management and other key personnel, and our business may be severely disrupted if we lose their services.
Our future success heavily depends on the continued service of our senior management and other key employees. If one or more of our senior executives is unable or unwilling to continue to work for us in his or her present position, we may have to spend a considerable amount of time and resources searching, recruiting, and integrating a replacement into our operations, which would substantially divert management’s attention from our business and severely disrupt our business. This may also adversely affect our ability to execute our business strategy.
We may be unable to attract and retain qualified, experienced, highly skilled personnel, which could adversely affect the implementation of our business plan.
Our success depends to a significant degree upon our ability to attract, retain and motivate skilled and qualified personnel. As we become a more mature company in the future, we may find recruiting and retention efforts more challenging. If we do not succeed in attracting, hiring and integrating excellent personnel, we may be unable to grow effectively. The loss of any key employee, including members of our senior management team, and our inability to attract highly skilled personnel with sufficient experience in our industries could harm our business.
Our ability to maintain and expand our distribution network and attract consumers, distributors, retailers and brokers will depend on a number of factors, some of which are outside our control.
Some of these factors include:
| · | the level of demand for our brands and products types; | |
| · | our ability to price our products at levels competitive with those of competing products; and | |
| · | our ability to deliver products in the quantity and at the time ordered by consumers, distributors, retailers and brokers. |
We may not be able to successfully manage all or any of these factors in any of our current or prospective geographic areas of distribution. Our inability to achieve success with regards to any of these factors in a geographic distribution area will have a material adverse effect on our relationships in that particular geographic area, thus limiting our ability to maintain or expand our market, which will likely adversely affect our revenues and financial results.
| 5 |
If we do not adequately manage our inventory levels, our operating results could be adversely affected.
We will need to maintain adequate inventory levels to be able to deliver products on a timely basis. Our inventory supply depends on our ability to correctly estimate demand for our products. Our ability to estimate demand for our products is imprecise, particularly for new products. If we materially underestimate demand for our products or are unable to maintain sufficient inventory of raw materials, we might not be able to satisfy demand on a short-term basis. If we overestimate demand for our products, we may end up with too much inventory, resulting in higher storage costs and increased trade spend. If we fail to manage our inventory to meet demand, we could damage our relationships with our customers and retailers and could delay or lose sales opportunities, which would unfavorably impact our future sales and adversely affect our operating results.
We are highly dependent on Ira and Claudia Goldfarb, our Executive Chairman and the Chief Executive Officer, and our other executive officers and employees. The loss of one or more of them, upon whose knowledge, leadership and technical expertise we rely, would harm our ability to execute our business plan.
Our success depends heavily upon the continued contributions of Ira and Claudia Goldfarb, our Executive Chairman and Chief Executive Officer, respectively, whose knowledge, leadership and technical expertise would be difficult to replace. If we were to lose their services, our ability to execute our business plan would be harmed and we may be forced to cease operations until such time as we are able to suitably replace them. Any of our executive officers may terminate their employment with our company at any time.
We may not be able to effectively manage our growth, which may harm our profitability.
Our strategy envisions the expansion of our business. If we fail to effectively manage our growth, our financial results could be adversely affected. Growth may place a strain on our management systems and resources. We must continue to refine and expand our business capabilities, our systems and processes and our access to financing sources. As we grow, we must continue to hire, train, supervise and manage new employees. We cannot assure that we will be able to:
| · | meet our capital needs; | |
| · | expand our systems effectively or efficiently or in a timely manner; | |
| · | allocate our human resources optimally; | |
| · | identify and engage qualified employees and consultants, or retain valued employees and consultants; or | |
| · | incorporate effectively the components of any business that we may acquire in our effort to achieve growth. |
If we are unable to manage our growth, our financial condition and results of operations may be materially adversely affected.
Risks Related to Our Industry
The challenges of competing with other freeze-dried food businesses may result in reductions in our revenue and operating margins.
We will compete with many companies on the basis of taste, quality and price of product offered, and customer service. Our success depends, in part, upon the popularity of our products and our ability to develop new items that appeal to a broad range of consumers. Shifts in consumer preferences away from products like ours, our inability to develop new items that appeal to a broad range of consumers, or changes in our offerings that eliminate products popular with some consumers could harm our business. We compete with other manufacturers of freeze-dried foods, frozen foods, convenience foods, health foods and packaged goods. Many of our competitors or potential competitors have substantially greater financial and other resources than we do, which may allow them to react to changes in the market quicker than we can. In addition, aggressive pricing by our competitors or the entrance of new competitors into our markets, could reduce our revenue and operating margins. We also compete with other employers in our markets for workers and may become subject to higher labor costs as a result of such competition. Recently there has been a significant increase in labor costs.
| 6 |
Concerns over food safety and public health may affect our operations by increasing our costs and negatively impacting demand for our products.
We could be adversely affected by diminishing confidence in the safety and quality of certain food products or ingredients. As a result, we may elect or be required to incur additional costs aimed at increasing consumer confidence in the safety of our products. Our success depends on our ability to maintain the quality of our existing and new products. Product quality issues, real or imagined, or allegations of product contamination, even if false or unfounded, could tarnish the image of our brands and may cause consumers to choose other products.
Product liability exposure may expose us to significant liability.
We may face an inherent business risk of exposure to product liability and other claims and lawsuits in the event that the development or use of our technology or prospective products is alleged to have resulted in adverse effects. We may not be able to avoid significant liability exposure. Although we believe our insurance coverage to be adequate, we may not have sufficient insurance coverage, and we may not be able to obtain sufficient coverage at a reasonable cost. An inability to obtain product liability insurance at acceptable cost or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of our products. A product liability claim could hurt our financial performance. Even if we ultimately avoid financial liability for this type of exposure, we may incur significant costs in defending ourselves that could hurt our financial performance and condition.
Risks Related to our Common Stock
The market price of our common stock is, and is likely to continue to be, highly volatile and subject to wide fluctuations.
The market price of our common stock is likely to continue to be highly volatile and could be subject to wide fluctuations in response to a number of factors, some of which are beyond our control, including but not limited to:
| · | dilution caused by our issuance of additional shares of common stock and other forms of equity securities, which we expect to make in connection with future capital financings to fund our operations and growth, to attract and retain valuable personnel and in connection with future strategic partnerships with other companies; | |
| · | quarterly variations in our revenues and operating expenses as we commence our production and sales; | |
| · | changes in the valuation of similarly situated companies, both in our industry and in other industries; | |
| · | challenges associated with timely SEC filings; | |
| · | illiquidity and lack of marketability by being an OTC traded stock; | |
| · | changes in analysts’ estimates affecting our company, our competitors and/or our industry; | |
| · | changes in the accounting methods used in or otherwise affecting our industry; | |
| · | additions and departures of key personnel; | |
| · | fluctuations in interest rates and the availability of capital in the capital markets; and | |
| · | significant sales of our common stock, including sales by selling shareholders following the registration of shares under a prospectus. |
These and other factors are largely beyond our control, and the impact of these risks, singly or in the aggregate, may result in material adverse changes to the market price of our common stock and our results of operations and financial condition.
| 7 |
Our operating results may fluctuate significantly, and these fluctuations may cause the price of our common stock to decline.
Our operating results will likely vary in the future primarily as the result of fluctuations in our revenues and operating expenses, including the expenses that we incur and other factors. If our results of operations do not meet the expectations of current or potential investors, the price of our common stock may decline.
Shareholders will experience dilution upon the exercise of outstanding warrants and options and issuance of common stock under our incentive plans.
As of December 31, 2022, we had options for 2,000 shares of common stock outstanding under our 2012 Amended and Restated Stock Incentive Plan, options for an additional 1,000 shares of common stock outstanding under our 2016 Non-Qualified Stock Option Plan and options for another 587,991 shares of common stock under our 2020 Stock Incentive Plan (the “2020 Equity Plan”), for a total of 590,991 outstanding options and a cumulative total of 260,671 available shares that could be issued under our stock incentive plans. If the holders of outstanding options exercise those options or our compensation committee or full board of directors determines to grant additional stock awards under our incentive plan, shareholders may experience dilution in the net tangible book value of our common stock. Further, the sale or availability for sale of the underlying shares in the marketplace as a result of the exercise of existing options and the grant of additional options could depress our stock price.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
Executive Offices
Our executive offices are located at 1440 N Union Bower Rd, Irving, TX 75061. Our office space is included in our production facility, which consists of approximately 20,945 square feet leased pursuant to a lease agreement through September 15, 2025, with two five-year options to extend, under which an entity owned entirely by Ira Goldfarb is the landlord.
Research and Development
We anticipate performing product research and development as required for our products and distribution under our new plan of operation. The Company currently has one full-time employee dedicated to product research and development. The Company’s research and development activities primarily consist of product formulation, nutritional analysis, and taste analysis.
Delivery Commitments
We do not currently have any delivery commitments under our plan of operation.
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against us, which may materially affect us.
ITEM 4. MINE SAFETY DISCLOSURES
None.
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock
There is a limited public market for our common stock. Shares of our common stock trade on the over-the-counter market and are quoted on the OTCQB tier of the OTC Markets under the symbol “SOWG”. As of March 31, 2023, the closing price of our common stock was $4.20.
Quotations on the OTCQB reflect inter-dealer prices, without retail markup, mark-down, or commission and may not necessarily represent actual transactions.
The following table sets forth, for the fiscal quarters indicated, the high and low bid information for our common stock, as reported on the OTC Markets. The following quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
| High | Low | |||||||
| Fiscal Year Ended December 31, 2022 | ||||||||
| First Quarter | $ | 3.05 | $ | 1.71 | ||||
| Second Quarter | $ | 4.50 | $ | 1.85 | ||||
| Third Quarter | $ | 4.05 | $ | 1.91 | ||||
| Fourth Quarter | $ | 3.54 | $ | 1.75 | ||||
| Fiscal Year Ended December 31, 2021 | ||||||||
| First Quarter | $ | 7.00 | $ | 3.66 | ||||
| Second Quarter | $ | 6.50 | $ | 4.40 | ||||
| Third Quarter | $ | 7.00 | $ | 2.57 | ||||
| Fourth Quarter | $ | 4.40 | $ | 1.06 | ||||
As of March 31, 2023, there were approximately 365 record holders of our common stock, not including shares held in “street name” in brokerage accounts which is unknown. As of March 31, 2023, there were 4,847,384 shares of common stock outstanding on record.
Equity Compensation Plan Information
Effective December 5, 2019, the 2020 Stock Incentive Plan (the “2020 Plan”) was approved by our Board. Amongst other things, the 2020 Plan authorized a total of 320,000 shares of our common stock. Subsequently, on October 1, 2020, January 4, 2021 and again on March 19, 2021, the Board approved an increase in the number of shares of common stock reserved under the 2020 Plan, from 320,000 shares to a total of 814,150 shares. The increase was approved by a majority of shareholders of record on September 3, 2021. The following table sets forth certain information regarding our 2020 Plan as of December 31, 2022:
| Number of securities to be issued upon exercise of outstanding stock options | Weighted-average exercise price of outstanding stock options |
Number of securities remaining available for future issuance under the 2020 Plan | ||
| 612,142 | $4.37 | 202,008 |
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For the fiscal years ended December 31, 2022 and 2021, we issued 137,597 and 257,975 stock options pursuant to the 2020 Plan. There were 60,975 and 161,606 options cancelled or forfeited pursuant to the 2020 Plan during the years ended December 31, 2022 and 2021, respectively.
Effective December 12, 2016, the 2016 Non-Qualified Stock Option Plan (the “2016 Plan”) was approved by our Board. Amongst other things, the 2016 Plan authorized a total of 12,712 shares of our common stock. The following table sets forth certain information regarding our 2016 Plan as of December 31, 2022:
| Number of securities to be issued upon exercise of outstanding stock options | Weighted-average exercise price of outstanding stock options |
Number of securities remaining available for future issuance under the 2016 Plan | ||
| 3,000 | $12.00 | 9,712 |
For the fiscal years ended December 31, 2022 and 2021, we issued no stock options pursuant to the 2016 Plan. There were 1,000 options cancelled or forfeited pursuant to the 2016 Plan during the year ended December 31, 2021.
Effective March 2, 2012, the 2012 Amended and Restated Stock Incentive Plan (the “2012 Plan”) was approved by our Board and the holders of a majority of our outstanding shares, replacing the Ante5, Inc. 2010 Stock Incentive Plan. Amongst other things, the 2012 Plan increased the number of shares reserved under the Plan to a total of 25,000 shares of our common stock. The following table sets forth certain information regarding the 2012 Plan as of December 31, 2022:
| Number of securities to be issued upon exercise of outstanding stock options | Weighted-average exercise price of outstanding stock options |
Number of securities remaining available for future issuance under the 2012 Plan | ||
| 2,000 | $113.52 | 22,800 |
For the fiscal years ended December 31, 2022 and 2021, we issued no stock options pursuant to the 2012 Plan. There were 667 and 1,666 options cancelled or forfeited pursuant to the 2012 Plan during the years ended December 31, 2022 and 2021, respectively.
Warrants
On December 21, 2022, warrants to purchase an aggregate 62,500 shares of common stock were issued to a director pursuant to a private placement debt offering in which aggregate proceeds of $250,000 were received in exchange for promissory notes and warrants to purchase an aggregate 62,500 shares of common stock, representing 25,000 warrant shares per $100,000 of promissory notes. The warrants are fully vested and exercisable over a period of 10 years at a price of $2.60 per share. The Company may redeem outstanding warrants prior to their expiration, at a price of $0.01 per share, provided that the volume weighted average sale price per share of Common Stock equals or exceeds $9.00 per share for thirty (30) consecutive trading days ending on the third business day prior to the mailing of notice of such redemption.
On September 29, 2022, warrants to purchase an aggregate 187,500 shares of common stock were issued to directors pursuant to a private placement debt offering in which aggregate proceeds of $750,000 were received in exchange for promissory notes and warrants to purchase an aggregate 187,500 shares of common stock, representing 25,000 warrant shares per $100,000 of promissory notes. The warrants are fully vested and exercisable over a period of 10 years at a price of $2.60 per share. The Company may redeem outstanding warrants prior to their expiration, at a price of $0.01 per share, provided that the volume weighted average sale price per share of Common Stock equals or exceeds $9.00 per share for thirty (30) consecutive trading days ending on the third business day prior to the mailing of notice of such redemption.
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On April 8, 2022, warrants to purchase an aggregate 925,000 shares of common stock were issued pursuant to a private placement debt offering in which aggregate proceeds of $3,700,000 were received in exchange for promissory notes and warrants to purchase an aggregate 925,000 shares of common stock, representing 25,000 warrant shares per $100,000 of promissory notes. The warrants are fully vested and exercisable over a period of 10 years at a price of $2.35 per share. The Company may redeem outstanding warrants prior to their expiration, at a price of $0.01 per share, provided that the volume weighted average sale price per share of Common Stock equals or exceeds $9.00 per share for thirty (30) consecutive trading days ending on the third business day prior to the mailing of notice of such redemption. A total of 780,000 of the warrants were issued to officers or directors.
On December 31, 2021, the Company closed a private placement and concurrently entered into a Note and Warrant Purchase Agreement with related parties to sell an aggregate $2,075,000 of promissory notes and warrants to purchase an aggregate 311,250 shares of common stock, representing 15,000 warrant shares per $100,000 of promissory notes. The warrants are exercisable at a price of $2.21 per share over a ten-year term. The officers, directors and related parties receiving grants and the amounts of such grants were as follows:
| Stock Warrant | ||||
| Name and Title at Time of Grant | Shares Granted | |||
| Ira and Claudia Goldfarb, Chairman and Chief Executive Officer | 225,000 | |||
| Brad Burke, Chief Financial Officer | 3,750 | |||
| Lyle Berman, Director | 75,000 | |||
| Cesar J. Gutierrez, brother of the Company’s Chief Executive Officer | 7,500 | |||
| Total: | 311,250 | |||
There were no warrants exercised, forfeited or expired during the years ended December 31, 2022 and 2021. A total of 1,591,250 warrants were outstanding as of December 31, 2022 with a weighted average exercise price of $2.47 and a weighted average life of 9.2 years.
Unregistered Issuance of Equity Securities
The following issuances of our securities during the three-month period ended December 31, 2022 were exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(a)(2) thereof and/or Rule 506 of Regulation D promulgated thereunder.
None.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial statements and notes to those statements. In addition to historical information, the following discussion and other parts of this annual report contain forward-looking information that involves risks and uncertainties.
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Overview and Outlook
Effective January 21, 2021, we changed our name from Black Ridge Oil & Gas, Inc. to Sow Good Inc. Our common stock is quoted on the OTCQB under the trading symbol “SOWG”.
The Company produces a line of freeze-dried snacks, smoothies, soups and granola. We are marketing our line of products via our direct-to-consumer focused website, as well as via the business-to-business sales channel. We have also recently launched a freeze-dried candy product offering that we expect will be a major driver of our growth going forward.
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.
Our business operates under two distinct brands, Sow Good and Sustain Us. Our unique food products are target the large, and growing, freeze-dried food products market. 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.
S-FDF Business Combination
On October 1, 2020, the Company completed its acquisition of S-FDF, LLC (the "Seller"), a Texas limited liability company, pursuant to an Asset Purchase Agreement, between the Company and the Seller, dated June 9, 2020, as subsequently amended effective October 1, 2020. 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. The Company did not assume any liabilities of Seller or any liabilities, liens, or encumbrances pertaining to or encumbering the Purchased Assets, except for those related to agreements or arrangements specified in the Asset Purchase Agreement. The Seller transferred the Purchased Assets to the Company in exchange for the issuance of 1,120,000 shares of the Company’s common stock to the Seller. The number of shares to be issued to Seller was subject to adjustment, as specified in the Asset Purchase Agreement, as amended, based on the extent to which the amount of cash proceeds held by the Company, as derived from the sale of the Company’s holdings of AESE Shares, were less than $5 million or greater than $6 million on the date specified in the Asset Purchase Agreement, which resulted in the issuance of an additional 500,973 Seller Shares that were issued on January 4, 2021. The combined issuances represented approximately 46% of the Company’s issued and outstanding common stock, on a fully diluted basis. Black Ridge Oil & Gas, Inc. was determined to be the acquiror of the business combination.
Pursuant to its obligations under the Asset Purchase Agreement, on the Closing Date the Company, (a) created three new seats on the Company’s Board of Directors and appointed the Seller’s principals, Ira Goldfarb and Claudia Goldfarb, and a third person designated by the Goldfarbs, Greg Creed, as directors, (b) entered into employment agreements with Ira Goldfarb and Claudia Goldfarb, (c) delivered a registration rights agreement with respect to the shares to be issued to Seller and any shares of common stock delivered as part of the employment compensation for Ira Goldfarb or Claudia Goldfarb, and (d) amended the Company’s 2020 Stock Incentive Plan to increase the number of shares of common stock reserved thereunder. At closing, the Company also assumed the Seller’s obligations under a real property lease for its facility in Irving, Texas under which an entity owned entirely by Ira Goldfarb is the landlord.
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Going Concern Uncertainty
As of December 31, 2022, the Company had a cash balance of $276,464 and total working capital of $1,687,880. 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.
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 funding 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 report of the Company’s independent registered public accounting firm that accompanies its audited financial statements in this Annual Report on Form 10-K contains an explanatory paragraph regarding the substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of the going concern uncertainty.
Overview of 2022 results
We earned $428,132 of revenue in 2022, as we began to ramp up our direct-to-consumer website for our Sow Good brand and began to provide products to big box retailers.
Our general and administrative expenses totaled $10,731,281 in 2022, including salaries and benefits expenses of $3,662,313 and goodwill and intangible asset impairment losses of $5,197,470, including $4,887,297 of losses on our 2020 acquisition of S-FDF, LLC. Salaries and benefits and other general expenses increased slightly throughout the year due to inflationary pressures.
Our stock-based compensation of $862,079 consisted of $49,998 of stock issued to officers and directors, $30,000 of stock issued to employees and consultants, and $782,081 of expense related to the amortization of stock options for the year ended December 31, 2022.
Application of Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to impairment of property, plant and equipment, intangible assets, deferred tax assets and fair value computation using the Black Scholes option pricing model. We base our estimates on historical experience and on various other assumptions, such as the trading value of our common stock and estimated future undiscounted cash flows, that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that our estimates, including those for the above-described items, are reasonable.
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Critical Accounting Policies
The establishment and consistent application of accounting policies is a vital component of accurately and fairly presenting our financial statements in accordance with generally accepted accounting principles in the United States (GAAP), as well as ensuring compliance with applicable laws and regulations governing financial reporting. While there are rarely alternative methods or rules from which to select in establishing accounting and financial reporting policies, proper application often involves significant judgment regarding a given set of facts and circumstances and a complex series of decisions.
Cash in Excess of FDIC Insured 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 didn’t have any cash in excess of FDIC and SIPC insured limits at December 31, 2022. The Company had approximately $2,813,000 in excess of FDIC and SIPC insured limits at December 31, 2021. The Company has not experienced any losses in such accounts.
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:
| 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 expense was $299,553, including $25,500 capitalized as inventory overhead and expensed to cost of goods sold, and $208,448 for the years ended December 31, 2022 and 2021, respectively.
Impairment of Long-Lived Assets
Long-lived assets held and used by the Company are reviewed for possible impairment whenever events or circumstances indicate the carrying amount of an asset may not be recoverable or is impaired. Recoverability is assessed using undiscounted cash flows based upon historical results and current projections of earnings before interest and taxes. Impairment is measured using discounted cash flows of future operating results based upon a rate that corresponds to the cost of capital. Impairments are recognized in operating results to the extent that carrying value exceeds discounted cash flows of future operations.
Our intellectual property is comprised of indefinite-lived brand names acquired and have been assigned an indefinite life as we currently anticipate that these brand names will contribute cash flows to the Company perpetually. We evaluate the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired. Impairment analysis on intangible assets resulted in a loss of $310,173 for the year ended December 31, 2022.
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Inventory
Inventory, consisting of raw materials, material overhead, labor, and manufacturing overhead, are stated at the average cost or net realizable value and consist of the following:
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Finished goods | $ | 384,241 | $ | 273,135 | ||||
| Packaging materials | 416,663 | 95,436 | ||||||
| Work in progress | 864,460 | 613,063 | ||||||
| Raw materials | 307,515 | 470,263 | ||||||
| Total inventory | $ | 1,972,879 | $ | 1,451,897 | ||||
No reserve for obsolete inventories has been recognized. We have not yet commenced significant production.
Goodwill
The Company evaluates goodwill on an annual basis in the fourth quarter or more frequently if management believes indicators of impairment exist. Such indicators could include, but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, management conducts a quantitative goodwill impairment test. The impairment test involves comparing the fair value of the applicable reporting unit with its carrying value. The Company estimates the fair values of its reporting units using a combination of the income, or discounted cash flows, approach and the market approach, which utilizes comparable companies’ data. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The Company’s evaluation of goodwill completed at year-end resulted in an impairment loss of $4,887,297 and $1,524,030 for the years ended December 31, 2022 and 2021, respectively.
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.
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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 $862,079 and $1,377,379 for the years ended December 31, 2022 and 2021, respectively. Stock-based compensation consisted of $79,998 and $834,047 related to the issuance of shares of common stock for services for the years ended December 31, 2022 and 2021, respectively. Amortization of the fair values of stock options issued for services and compensation totaled $782,081 and $543,332 for the years ended December 31, 2022 and 2021, respectively. The fair values of stock options were determined 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, and are being amortized over the related implied service term, or vesting period. In addition, $925,839 of expenses related to the amortization of warrants issued in consideration for debt financing, using the Black-Scholes options pricing model and an effective term of 5 years based on the weighted average of the vesting periods and the stated term of the warrant grants and the discount rate on 5 year U.S. Treasury securities at the grant date were recognized as interest expense for the year ended December 31, 2022.
Results of Operations for the Years Ended December 31, 2022 and 2021.
The following table summarizes selected items from the statement of operations for the years ended December 31, 2022 and 2021.
| Years Ended December 31, | Increase/ | |||||||||||
| 2022 | 2021 | Decrease | ||||||||||
| Revenues | $ | 428,132 | $ | 88,440 | $ | 339,692 | ||||||
| Cost of goods sold | 308,293 | 81,311 | 226,982 | |||||||||
| Gross Profit | 119,839 | 7,129 | 112,710 | |||||||||
| Operating expenses: | ||||||||||||
| General and administrative: | ||||||||||||
| Salaries and benefits | 3,662,313 | 3,473,661 | 188,652 | |||||||||
| Professional services | 245,546 | 357,945 | (112,399 | ) | ||||||||
| Other general and administrative | 1,625,952 | 1,550,970 | 74,982 | |||||||||
| Intangible asset impairment | 310,173 | – | 310,173 | |||||||||
| Goodwill impairment | 4,887,297 | 1,524,030 | 3,363,267 | |||||||||
| Total general and administrative | 10,731,281 | 6,906,606 | 3,824,675 | |||||||||
| Depreciation and amortization | 274,053 | 208,448 | 65,605 | |||||||||
| Total operating expenses: | 11,005,334 | 7,115,054 | 3,890,280 | |||||||||
| Net operating loss | (10,885,495 | ) | (7,107,925 | ) | 3,777,570 | |||||||
| Other income (expense): | ||||||||||||
| Interest expense | (1,277,965 | ) | (5,911 | ) | 1,272,054 | |||||||
| Gain (loss) on disposal of property and equipment | 36,392 | (8,036 | ) | 44,428 | ||||||||
| Gain on early extinguishment of debt | – | 113,772 | (113,772 | ) | ||||||||
| Gain (loss) on investment in Allied Esports Entertainment, Inc. | – | 133,944 | (133,944 | ) | ||||||||
| Total other income (expense) | (1,241,573 | ) | 233,769 | 1,475,342 | ||||||||
| Net loss | $ | (12,127,068 | ) | $ | (6,874,156 | ) | $ | 5,252,912 | ||||
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Revenues
Revenues for the year ended December 31, 2022 were $428,132, compared to $88,440 for the year ended December 31, 2021, an increase of $339,692, or 384%. Revenues increased as we ramped up sales on our product lines and expanded our business-to-business sales during 2022, compared to the same period in the prior year. We had minimal revenues during the comparative period, as we had commenced sales midway through 2021.
Cost of Goods Sold
Cost of goods sold for the year ended December 31, 2022 were $308,293, compared to $81,311 for the year ended December 31, 2021, an increase of $226,982, or 279%. Cost of goods sold, primarily consisted of material costs and labor on the sales of freeze-dried food products, resulted in a gross profit of approximately 28% and 8% during the year ended December 31, 2022, compared to the year ended December 31, 2021. Cost of goods sold and our gross profit increased as we began to realize economies of scale pursuant to our increased sales.
General and Administrative Expenses
Salaries and Benefits
Salaries and benefits for the year ended December 31, 2022 were $3,662,313, compared to $3,473,661 for the year ended December 31, 2021, an increase of $188,652, or 5%. Salaries and benefits included stock-based compensation expense of $862,079 for the year ended December 31, 2022, compared to $1,377,379 for the year ended December 31, 2021, a decrease of $515,300, or 37%. Stock-based compensation consists of $782,081 and $543,332 of stock options expense incurred in the years ended December 31, 2022 and 2021, respectively, and $79,998 and $834,047 of expense related to shares of common stock issued to officers and consultants for services rendered in the years ended December 31, 2022 and 2021, respectively. The increase in salaries and benefits was primarily due to inflationary pressures, as diminished by decreased stock-based compensation awards.
Professional Services
General and administrative expenses related to professional services were $245,546 for the 2022 period, compared to $357,945 for the 2021 period, a decrease of $112,399, or 31%. The decrease was primarily due to decreased 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 year ended December 31, 2022 were $1,625,952, compared to $1,550,970 for the year ended December 31, 2021, an increase of $74,982, or 5%. The increase is primarily attributable to increased administrative infrastructure as we seek to scale the production and sales of our freeze-dried products.
Intangible Asset Impairment
Intangible asset impairment losses of $310,173, for the year ended December 31, 2022, related to impairment of our licensing and trademark assets, as our sales have not ramped up quickly enough to support the carrying value.
| 17 |
Goodwill Impairment
Goodwill impairment losses related to our 2020 acquisition of S-FDF, LLC was $4,887,297 and $1,524,030 for the years ended December 31, 2022 and 2021.
Depreciation
Depreciation expense for the year ended December 31, 2022 was $274,053, compared to $208,448 for year ended December 31, 2021, an increase of $65,605 or 31%. The increase is attributable to the significant increase in capital expenditures incurred as we developed our freeze-dried foods production facility and placed it into service.
Other Income (Expense)
In the year ended December 31, 2022, other expense was $1,241,573, consisting of $1,277,965 of interest expense derived from operating loans, as offset by a gain on the disposal of equipment of $36,392.
In the year ended December 31, 2021, other income was $233,769, consisting of a gain on early extinguishment of debt of $113,772 related to forgiveness of our PPP loan and a net gain on investments in Allied Esports Entertainment, Inc. securities of $133,944, as offset by $5,911 of interest expense derived from operating loans, and a loss on the disposal of equipment of $8,036.
Provision for Income Taxes
The Company had no income tax expense in the 2022 or 2021 periods, as the Company continues to reserve against any deferred tax assets due to the uncertainty of realization of any benefit.
Net Loss
Net loss for the year ended December 31, 2022 was $12,127,068, compared to $6,874,156 during the year ended December 31, 2021, an increase of $5,252,912, or 76%. The increased net loss was primarily due to our loss on impairment of intangible assets and goodwill related to our 2022 acquisition of S-FDF, LLC.
Liquidity and Capital Resources
The following table summarizes our total current assets, liabilities and working capital at December 31, 2022 and 2021.
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Current Assets | $ | 2,578,057 | $ | 4,891,264 | ||||
| Current Liabilities | $ | 890,177 | $ | 403,057 | ||||
| Working Capital | $ | 1,687,880 | $ | 4,488,207 | ||||
| 18 |
As of December 31, 2022, we had working capital of $1,687,880.
The following table summarizes our cash flows during the years ended December 31, 2022 and 2021, respectively.
| Years Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities | $ | (5,146,635 | ) | $ | (5,551,261 | ) | ||
| Net cash provided by (used in) investing activities | (2,622,829 | ) | (653,051 | ) | ||||
| Net cash provided by financing activities | 4,700,000 | 7,637,511 | ||||||
| Net change in cash and cash equivalents | $ | (3,069,464 | ) | $ | 1,433,199 | |||
Net cash used in operating activities was $5,146,635 and $5,551,261 for the years ended December 31, 2022 and 2021, respectively, a year over year decreased use of $404,626. The decreased use was primarily due to increased revenues. Changes in working capital from continuing operating activities resulted in a decrease in cash of $2,800,327 during the year ended December 31, 2022, as compared to $1,547,282 for the same period in the previous year.
Net cash used in investing activities was $2,622,829 for the year ended December 31, 2022, compared to $653,051 for the year ended December 31, 2021, a year over year increased use of $1,969,778. During the year ended December 31, 2022, cash used in investing activities consisted of $193,184 paid for the purchase of property and equipment, $2,487,673 of payments for the construction of the Company’s second and third freeze dryers and expansion of its operations facility, as well as, $5,929 paid for the purchase of intangible assets, as offset by $63,957 of proceeds received from the disposal of property and equipment. During the year ended December 31, 2021, cash used in investing activities consisted of $982,818 paid for the purchase of property and equipment and $84,594 paid for the purchase of intangible assets, as offset by $414,361 of proceeds received from the sale of AESE securities.
Net cash provided by financing activities was $4,700,000 and $7,637,511 for the years ended December 31, 2022 and 2021, respectively. Net cash provided by financing activities the year ended December 31, 2022 consisted of $4,700,000 of proceeds received from debt financing, including $4,120,000 received from related parties. Net cash provided by financing activities consisted of $2,075,000 of proceeds received from related party debt financing, and $5,562,511 we raised from the sale of an aggregate 631,250 shares of the Company’s common stock at $4.00 per share, and the sale of an aggregate 714,701 shares sold at $4.25 per share, during the year ended December 31, 2021.
Satisfaction of our cash obligations for the next 12 months
As of December 31, 2022, our balance of cash and cash equivalents was $276,464 and we had total working capital of $1,687,880. 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.
We continue to pursue sources of additional capital through various financing transactions or arrangements, equity or debt financing or other means. 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.
We may not be successful in identifying suitable funding 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 or expand our business.
| 19 |
Effects of inflation and pricing
We expect supplies and prices of the ingredients that we are going to use to be affected by a variety of factors, such as weather, seasonal fluctuations, demand, politics and economics in the producing countries.
These factors subject us to shortages or interruptions in product supplies, which could adversely affect our revenue and profits. In addition, the price of fruit, which is currently our main ingredient in our products, can be highly volatile. The fruit of the quality we seek tends to trade on a negotiated basis, depending on supply and demand at the time of the purchase. An increase in pricing of any fruit that we are going to use in our products could have a significant adverse effect on our profitability. We cannot assure you that we will be able to secure our fruit supply. In addition, we may face limits on the ability to source some of the candy for our freeze-dried candy products.
Contractual obligations and commitments
Upon closing of the Asset Purchase Agreement, the Company assumed the Seller’s obligations under a real property lease for its 20,945 square foot facility at 1440 N. Union Bower Rd. Irving, TX 75061, under which an entity owned entirely by Ira Goldfarb is the landlord. The lease term is through September 15, 2025, with two five-year options to extend, at a monthly lease term of $10,036, with approximately a 3% annual escalation of lease payments commencing September 15, 2021.
Summary of product and research and development that we will perform for the term of our plan
We anticipate performing product research and development as required for our products and distribution under our new plan of operation. The Company currently has one full-time employee dedicated to product research and development. The Company’s research and development activities primarily consist of product formulation, nutritional analysis, and taste analysis.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues, expenses, results of operations liquidity, capital expenditures or capital resources that are material to investors.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Price Risk
We do not expect any significant effects from commodity price risk outside of inherent inflationary risks.
Interest Rate Risk
We do not anticipate entering into any transactions that would expose us to any direct interest rate risk.
| 20 |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OF SOW GOOD INC.
SOW GOOD INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
CONTENTS
| 21 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of SOW GOOD INC.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of SOW GOOD INC. (the Company) as of December 31, 2022 and 2021, and the related statements of operations, stockholders’ equity, and cash flows for the two-year period then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered net losses from operations, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are discussed in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and the significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe our audits provide a reasonable basis for our opinion.
| F-1 |
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.
As discussed in Note 1 to the financial statements, the Company issues stock-based compensation in accordance with ASC 718, Compensation.
Auditing management’s calculation of the fair value of stock-based compensation can be a significant judgment given the fact that the Company uses management estimates on various inputs to the calculation.
To evaluate the appropriateness of the fair value determined by management, we examined and evaluated the inputs management used in calculating the fair value of the stock-based compensation.
/s/ M&K CPAS, PLLC
| i M&K CPAS, PLLC | |
| We have served as the Company’s auditor since 2010. | |
| i Houston, TX | |
| April 14, 2023 | |
| F-2 |
SOW GOOD INC.
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | i 276,464 | $ | i 3,345,928 | ||||
| Accounts receivable | i 191,022 | i 12,382 | ||||||
| Prepaid expenses | i 137,692 | i 81,057 | ||||||
| Inventory | i 1,972,879 | i 1,451,897 | ||||||
| Total current assets | i 2,578,057 | i 4,891,264 | ||||||
| Property and equipment: | ||||||||
| Construction in progress | i 2,487,673 | i – | ||||||
| Property and equipment | i 3,055,579 | i 2,891,352 | ||||||
| Less accumulated depreciation | ( i 508,257 | ) | ( i 210,096 | ) | ||||
| Total property and equipment, net | i 5,034,995 | i 2,681,256 | ||||||
| Security deposit | i 24,000 | i 10,000 | ||||||
| Right-of-use asset | i 1,261,525 | i 1,329,089 | ||||||
| Intangible assets | i – | i 304,244 | ||||||
| Goodwill | i – | i 4,887,297 | ||||||
| Total assets | $ | i 8,898,577 | $ | i 14,103,150 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | i 452,606 | $ | i 279,337 | ||||
| Accrued expenses | i 385,028 | i 77,750 | ||||||
| Current portion of operating lease liabilities | i 52,543 | i 45,970 | ||||||
| Total current liabilities | i 890,177 | i 403,057 | ||||||
| Operating lease liabilities | i 1,301,355 | i 1,353,898 | ||||||
| Notes payable, related parties, net of $ i 2,692,757 and $ i 699,213 of debt discounts at December 31, 2022 and 2021, respectively | i 3,502,243 | i 1,375,787 | ||||||
| Notes payable, net of $ i 336,085 of debt discounts at December 31, 2022 | i 393,915 | i 150,000 | ||||||
| Total liabilities | i 6,087,690 | i 3,282,742 | ||||||
| Commitments and contingencies | – | – | ||||||
| Stockholders' equity: | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued and outstanding | i – | i – | ||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding at December 31, 2022 and 2021, respectively | i 4,847 | i 4,809 | ||||||
| Additional paid-in capital | i 58,485,602 | i 54,342,027 | ||||||
| Common stock payable, consisting of shares at December 31, 2021 | i – | i 26,066 | ||||||
| Accumulated deficit | ( i 55,679,562 | ) | ( i 43,552,494 | ) | ||||
| Total stockholders' equity | i 2,810,887 | i 10,820,408 | ||||||
| Total liabilities and stockholders' equity | $ | i 8,898,577 | $ | i 14,103,150 | ||||
The accompanying notes are an integral part of these financial statements.
| F-3 |
SOW GOOD INC.
| For the Years | ||||||||
| Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenues | $ | i 428,132 | $ | i 88,440 | ||||
| Cost of goods sold | i 308,293 | i 81,311 | ||||||
| Gross profit | i 119,839 | i 7,129 | ||||||
| Operating expenses: | ||||||||
| General and administrative expenses: | ||||||||
| Salaries and benefits | i 3,662,313 | i 3,473,661 | ||||||
| Professional services | i 245,546 | i 357,945 | ||||||
| Other general and administrative expenses | i 1,625,952 | i 1,550,970 | ||||||
| Intangible asset impairment | i 310,173 | i – | ||||||
| Goodwill impairment | i 4,887,297 | i 1,524,030 | ||||||
| Total general and administrative expenses | i 10,731,281 | i 6,906,606 | ||||||
| Depreciation and amortization | i 274,053 | i 208,448 | ||||||
| Total operating expenses | i 11,005,334 | i 7,115,054 | ||||||
| Net operating loss | ( i 10,885,495 | ) | ( i 7,107,925 | ) | ||||
| Other income (expense): | ||||||||
| Interest expense, including $ i 925,839 and $ i 607,320 of warrants issued as a debt discount for the years ended December 31, 2022 and 2021, respectively | ( i 1,277,965 | ) | ( i 5,911 | ) | ||||
| Gain (loss) on disposal of property and equipment | i 36,392 | ( i 8,036 | ) | |||||
| Gain on early extinguishment of debt | i – | i 113,772 | ||||||
| Gain on investment in Allied Esports Entertainment, Inc. | i – | i 133,944 | ||||||
| Total other income (expense) | ( i 1,241,573 | ) | i 233,769 | |||||
| Net loss | $ | ( i 12,127,068 | ) | $ | ( i 6,874,156 | ) | ||
| Weighted average common shares outstanding - basic and diluted | ||||||||
| Net loss per common share - basic and diluted | $ | ) | $ | ) | ||||
The accompanying notes are an integral part of these financial statements.
| F-4 |
SOW GOOD INC.
STATEMENT OF STOCKHOLDERS' EQUITY
| Additional | Common | Total | ||||||||||||||||||||||
| Common Stock | Paid-in | Stock | Accumulated | Stockholders' | ||||||||||||||||||||
| Shares | Amount | Capital | Payable | Deficit | Equity | |||||||||||||||||||
| Balance, December 31, 2020 | i 2,742,890 | $ | i 2,743 | $ | i 44,748,859 | $ | i 1,982,197 | $ | ( i 36,678,338 | ) | $ | i 10,055,461 | ||||||||||||
| Common stock issued on subscriptions payable for the purchase of S-FDF, LLC assets | i 500,973 | i 501 | i 1,853,099 | ( i 1,853,600 | ) | – | – | |||||||||||||||||
| Common stock sales for cash to officers and directors | i 496,911 | i 497 | i 2,055,128 | – | – | i 2,055,625 | ||||||||||||||||||
| Common stock sales for cash | i 849,040 | i 849 | i 3,506,037 | – | – | i 3,506,886 | ||||||||||||||||||
| Common stock issued to officers and directors for services | i 215,256 | i 215 | i 916,363 | ( i 102,531 | ) | – | i 814,047 | |||||||||||||||||
| Common stock issued to employees and consultants for services | i 4,000 | i 4 | i 19,996 | – | – | i 20,000 | ||||||||||||||||||
| Common stock options granted to officers and directors for services | – | – | i 498,027 | – | – | i 498,027 | ||||||||||||||||||
| Common stock options granted to employees for services | – | – | i 45,305 | – | – | i 45,305 | ||||||||||||||||||
| Common stock warrants granted to related parties as a debt discount | – | – | i 699,213 | – | – | i 699,213 | ||||||||||||||||||
| Net loss | – | – | – | – | ( i 6,874,156 | ) | ( i 6,874,156 | ) | ||||||||||||||||
| Balance, December 31, 2021 | i 4,809,070 | $ | i 4,809 | $ | i 54,342,027 | $ | i 26,066 | $ | ( i 43,552,494 | ) | $ | i 10,820,408 | ||||||||||||
| Common stock warrants granted to related parties pursuant to debt financing | – | – | i 2,811,138 | – | – | i 2,811,138 | ||||||||||||||||||
| Common stock warrants granted to note holders pursuant to debt financing | – | – | i 444,330 | – | – | i 444,330 | ||||||||||||||||||
| Common stock issued to officers and directors for services | i 26,059 | i 26 | i 76,038 | ( i 26,066 | ) | – | i 49,998 | |||||||||||||||||
| Common stock issued to advisory board for services | i 12,255 | i 12 | i 29,988 | – | – | i 30,000 | ||||||||||||||||||
| Common stock options granted to officers and directors for services | – | – | i 645,127 | – | – | i 645,127 | ||||||||||||||||||
| Common stock options granted to employees and advisors for services | – | – | i 136,954 | – | – | i 136,954 | ||||||||||||||||||
| Net loss | – | – | – | – | ( i 12,127,068 | ) | ( i 12,127,068 | ) | ||||||||||||||||
| Balance, December 31, 2022 | i 4,847,384 | $ | i 4,847 | $ | i 58,485,602 | $ | – | $ | ( i 55,679,562 | ) | $ | i 2,810,887 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
| F-5 |
SOW GOOD INC.
| For the Years | ||||||||
| Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( i 12,127,068 | ) | $ | ( i 6,874,156 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Bad debts expense | i 4,404 | i – | ||||||
| Depreciation and amortization | i 299,553 | i 208,448 | ||||||
| (Gain) loss on disposal of property and equipment | ( i 36,392 | ) | i 8,036 | |||||
| Loss on impairment of intangible assets | i 310,173 | i – | ||||||
| Loss on impairment of goodwill | i 4,887,297 | i 1,524,030 | ||||||
| Gain on investment in Allied Esports Entertainment, Inc. | i – | ( i 133,944 | ) | |||||
| Gain on early extinguishment of debt | i – | ( i 113,772 | ) | |||||
| Common stock issued to officers and directors for services | i 49,998 | i 814,047 | ||||||
| Common stock awarded to advisors and consultants for services | i 30,000 | i 20,000 | ||||||
| Amortization of stock options | i 782,081 | i 543,332 | ||||||
| Amortization of stock warrants issued as a debt discount | i 925,839 | i – | ||||||
| Decrease (increase) in current assets: | ||||||||
| Accounts receivable | ( i 183,044 | ) | ( i 12,382 | ) | ||||
| Prepaid expenses | ( i 56,635 | ) | ( i 24,630 | ) | ||||
| Inventory | ( i 520,982 | ) | ( i 1,310,526 | ) | ||||
| Security deposits | ( i 14,000 | ) | i – | |||||
| Right-of-use asset | i 67,564 | i 65,113 | ||||||
| Increase (decrease) in current liabilities: | ||||||||
| Accounts payable | i 173,269 | ( i 45,778 | ) | |||||
| Accrued expenses | i 307,278 | ( i 179,209 | ) | |||||
| Lease liabilities | ( i 45,970 | ) | ( i 39,870 | ) | ||||
| Net cash used in operating activities | ( i 5,146,635 | ) | ( i 5,551,261 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Proceeds received from disposal of property and equipment | i 63,957 | i – | ||||||
| Proceeds received from sale of investment in Allied Esports Entertainment, Inc. securities | i – | i 414,361 | ||||||
| Purchase of property and equipment | ( i 193,184 | ) | ( i 982,818 | ) | ||||
| Cash paid for construction in progress | ( i 2,487,673 | ) | i – | |||||
| Cash paid for intangible assets | ( i 5,929 | ) | ( i 84,594 | ) | ||||
| Net cash used in investing activities | ( i 2,622,829 | ) | ( i 653,051 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds received from notes payable, related parties | i 4,120,000 | i 2,075,000 | ||||||
| Proceeds received from notes payable | i 580,000 | i – | ||||||
| Proceeds received from the sale of common stock | i – | i 5,562,511 | ||||||
| Net cash provided by financing activities | i 4,700,000 | i 7,637,511 | ||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | ( i 3,069,464 | ) | i 1,433,199 | |||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | i 3,345,928 | i 1,912,729 | ||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | i 276,464 | $ | i 3,345,928 | ||||
| SUPPLEMENTAL INFORMATION: | ||||||||
| Interest paid | $ | i 134,444 | $ | i 4,895 | ||||
| Income taxes paid | $ | i – | $ | i – | ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Value of debt discounts attributable to warrants | $ | i 3,255,468 | $ | i 699,213 | ||||
The accompanying notes are an integral part of these financial statements.
| F-6 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
i
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, our 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 September 26, 2017, the Company finalized an equity raise utilizing a rights offering and backstop agreement, raising net proceeds of $5,051,675 and issuing 1,439,400 shares. The proceeds were used to sponsor a special purpose acquisition company, discussed below, with the remainder for general corporate purposes.
On October 10, 2017, the Company’s sponsored special purpose acquisition company, Black Ridge Acquisition Corp. (“BRAC”), completed an IPO raising $138,000,000 of gross proceeds (including proceeds from the exercise of an over-allotment option by the underwriters on October 18, 2017). In addition, the Company purchased 445,000 BRAC units at $10.00 per unit in a private placement transaction for a total contribution of $4,450,000 in order to fulfill its obligations in sponsoring BRAC, a blank check company formed for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities. BRAC’s efforts to identify a prospective target business were not limited to a particular industry or geographic region. Following the IPO and over-allotment, BROG owned 22% of the outstanding common stock of BRAC and managed BRAC’s operations via a management services agreement. On December 19, 2018, BRAC entered into a business combination agreement, which subsequently closed on August 9, 2019.
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 $ i 2.5 million of capital from the sale of newly issued shares at a share price of $ 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 $ i 3 million of capital from the sale of newly issued shares at a share price of $ 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.
| F-7 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
On December 31, 2021, we sold an aggregate $ i 2,075,000 of promissory notes and warrants to purchase an aggregate i 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 $ i 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 $ i 3,700,000 of promissory notes and warrants to purchase an aggregate i 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 $ i 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.
On August 23, 2022, we closed on an offering to sell up to $ i 2,500,000 of promissory notes and warrants to purchase an aggregate i 625,000 shares of the Company’s common stock, exercisable over a ten-year period at a price of $ i 2.60 per share, representing 25,000 warrant shares per $100,000 of Notes purchased. The notes mature on i August 23, 2025. Interest on the notes accrue at a rate of i 8% per annum, payable on January 1, 2025. Loans may be advanced to the Company from time to time from August 23, 2023 to the Maturity Date. On December 21, 2022 and September 29, 2022, the Company received aggregate proceeds of $ i 250,000 and $ i 750,000 from two of the Company’s Directors on the sale of these notes and warrants.
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Note 2 – Summary of Significant Accounting Policies
i
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (SEC). All references to Generally Accepted Accounting Principles (“GAAP”) are in accordance with The FASB Accounting Standards Codification (“ASC”) and the Hierarchy of Generally Accepted Accounting Principles.
i
FASB ASC 280-10-50 requires annual and interim reporting for an enterprise’s operating segments and related disclosures about its products, services, geographic areas and major customers. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and expenses, and about which separate financial information is regularly evaluated by the chief operating decision maker in deciding how to allocate resources. The Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations.
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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.
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The Company was formerly a direct owner of assets in the oil and gas industry. The oil and gas industry is subject, by its nature, to environmental hazards and clean-up costs. At this time, management knows of no substantial losses from environmental accidents or events which would have a material effect on the Company.
| F-8 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
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Fair Value of Financial Instruments
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 receivable, prepaid expenses, inventory, 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.
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Cash equivalents include money market accounts which have maturities of three months or less. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. Cash equivalents are stated at cost plus accrued interest, which approximates market value. There were i i no / cash equivalents on hand at December 31, 2022 and 2021.
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Cash in Excess of FDIC Insured 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 didn’t have any cash in excess of FDIC and SIPC insured limits at December 31, 2022. The Company had approximately $ i 2,813,000 in excess of FDIC and SIPC insured limits at December 31, 2021. The Company has not experienced any losses in such accounts.
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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 no allowance for doubtful accounts for either of the periods presented, as all accounts receivable had been subsequently collected.
i
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:
i| Schedule of estimated useful lives of assets | |
| Software | i 3 years, or over the life of the agreement |
| Website | i 3 years |
| Office equipment | i 5 years |
| Furniture and fixtures | i 5 years |
| Machinery and equipment | i 7-10 years |
| Leasehold improvements | i 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 expense was $ i 299,553, including $ i 25,500 capitalized as inventory overhead and expensed to cost of goods sold, and $ i 208,448 for the years ended December 31, 2022 and 2021, respectively.
| F-9 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
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Impairment of Long-Lived Assets
Long-lived assets held and used by the Company are reviewed for possible impairment whenever events or circumstances indicate the carrying amount of an asset may not be recoverable or is impaired. Recoverability is assessed using undiscounted cash flows based upon historical results and current projections of earnings before interest and taxes. Impairment is measured using discounted cash flows of future operating results based upon a rate that corresponds to the cost of capital. Impairments are recognized in operating results to the extent that carrying value exceeds discounted cash flows of future operations.
Our intellectual property is comprised of indefinite-lived brand names acquired and have been assigned an indefinite life as we currently anticipate that these brand names will contribute cash flows to the Company perpetually. We evaluate the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired. Impairment analysis on intangible assets resulted in a loss of $ i 310,173 for the year ended December 31, 2022.
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Inventory, consisting of raw materials, material overhead, labor, and manufacturing overhead, are stated at the average cost or net realizable value and consist of the following:
i| Schedule of inventory | ||||||||
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Finished goods | $ | i 384,241 | $ | i 273,135 | ||||
| Packaging materials | i 416,663 | i 95,436 | ||||||
| Work in progress | i 864,460 | i 613,063 | ||||||
| Raw materials | i 307,515 | i 470,263 | ||||||
| Total inventory | $ | i 1,972,879 | $ | i 1,451,897 | ||||
No reserve for obsolete inventories has been recognized. We have not yet commenced significant production.
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The Company evaluates goodwill on an annual basis in the fourth quarter or more frequently if management believes indicators of impairment exist. Such indicators could include, but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, management conducts a quantitative goodwill impairment test. The impairment test involves comparing the fair value of the applicable reporting unit with its carrying value. The Company estimates the fair values of its reporting units using a combination of the income, or discounted cash flows, approach and the market approach, which utilizes comparable companies’ data. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The Company’s evaluation of goodwill completed at year-end resulted in an impairment loss of $ i 4,887,297 and $ i 1,524,030 for the years ended December 31, 2022 and 2021, respectively.
| F-10 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
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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.
i
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.
i
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 $ and $ for the years ended December 31, 2022 and 2021, respectively. Stock-based compensation consisted of $ and $ related to the issuance of shares of common stock for services for the years ended December 31, 2022 and 2021, respectively. Amortization of the fair values of stock options issued for services and compensation totaled $ and $ for the years ended December 31, 2022 and 2021, respectively. The fair values of stock options were determined 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, and are being amortized over the related implied service term, or vesting period. In addition, $ i 925,839 of expenses related to the amortization of warrants issued in consideration of personal guarantees provided for debt financing, using the Black-Scholes options pricing model and an effective term of 5 years based on the weighted average of the vesting periods and the stated term of the warrant grants and the discount rate on 5 year U.S. Treasury securities at the grant date were recognized as interest expense for the year ended December 31, 2022.
| F-11 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
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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.
On December 22, 2017 the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Reform”) was signed into law. As a result of Tax Reform, the U.S. statutory rate was lowered from 35% to 21% effective January 1, 2018, among other changes. ASC Topic 740 requires companies to recognize the effect of tax law changes in the period of enactment; therefore, the Company was required to value its deferred tax assets and liabilities at the new rate. The SEC issued Staff Accounting Bulletin No. 118 (“SAB 108”) to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain effects of Tax Reform. The ultimate impact may differ from the provisional amount, possibly materially, as a result of additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued and actions the Company may take as a result of Tax Reform.
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In accordance with ASC 740, “Income Taxes” (“ASC 740”), the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be capable of withstanding examination by the taxing authorities based on the technical merits of the position. These standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These standards also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
Various taxing authorities can periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions. In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established, is audited and fully resolved. The Company has not yet undergone an examination by any taxing authorities.
The assessment of the Company’s tax position relies on the judgment of management to estimate the exposures associated with the Company’s various filing positions.
i
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.
| F-12 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity Classified Written Call Options. ASU 2021-04 addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. ASU 2021-04 is effective for fiscal years beginning after December 15, 2021 and interim periods within those fiscal years, with early adoption permitted. The adoption of ASU 2021-04 has not had a material impact on the Company’s financial statements or related disclosures.
In March 2020, the FASB issued ASU 2020-04 establishing Topic 848, Reference Rate Reform. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance is optional and is effective between March 12, 2020 and December 31, 2022. The guidance may be elected over time as reference rate reform activities occur. We are currently evaluating the impact that the expected market transition from the London Interbank Offered Rate, commonly referred to as LIBOR, to alternative references rates will have on our financial statements as well as the applicability of the aforementioned expedients and exceptions provided in ASU 2020-04.
No other new accounting pronouncements, issued or effective during the year ended December 31, 2022, have had or are expected to have a significant impact on the Company’s financial statements.
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As shown in the accompanying financial statements, as of December 31, 2022, the Company had a cash balance of $ i 276,464 and working capital of $ i 1,687,880. 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 continues to pursue sources of additional capital through debt and financing transactions or arrangements, including equity financing or other means. We may not be successful in identifying suitable funding 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 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. These 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.
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Debt Financing
On August 23, 2022, we closed on an offering to sell up to $ i 2,500,000 of promissory notes and warrants to purchase an aggregate i 625,000 shares of the Company’s common stock, exercisable over a ten-year period at a price of $ i 2.60 per share, representing 25,000 warrant shares per $100,000 of Notes purchased. The notes mature on i August 23, 2025. Interest on the Notes accrue at a rate of i 8% per annum, payable on January 1, 2025. Loans may be advanced to the Company from time to time from August 23, 2023 to the Maturity Date. On December 21, 2022 and September 29, 2022, the Company received aggregate proceeds of $ i 250,000 and $ i 750,000 from two of the Company’s Directors on the sale of these notes and warrants.
| F-13 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
On April 8, 2022, the Company closed a private placement and concurrently entered into a Note and Warrant Purchase Agreement (the “Purchase Agreement”) to sell an aggregate $3,700,000 of Promissory Notes (the “Notes”) and warrants (the “Warrants”) to purchase an aggregate i 925,000 shares of common stock, representing 25,000 warrant shares per $100,000 of promissory notes. Accrued interest on the Notes was payable semi-annually beginning September 30, 2022 at the rate of i 6% per annum, but on August 23, 2022, the notes were amended to update the terms of the interest payment to be payable at the earlier of the maturity date or January 1, 2025, rather than being paid semi-annually. The principal amount of the Notes mature and become due and payable on i April 8, 2025. The Warrants are exercisable immediately and for a period of i 10 years at a price of $ i 2.35 per share. Proceeds to the Company from the sale of the Securities were $ i 3,700,000. 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 exercise thereof, further proceeds to the Company from the exercise of the Warrant Shares is calculated as $ i 2,173,750. The Offering closed simultaneously with execution of the Purchase Agreement. Of the aggregate $3,700,000 of Notes, a total of $ i 3,120,000 of Notes were sold to officers or directors, along with i 780,000 of the Warrants.
Common Stock Sold for Cash
On July 2, 2021, the Company entered into a Stock Purchase Agreement with multiple accredited investors to sell and issue to the purchasers, thereunder, an aggregate of shares of the Company’s common stock at a price of $4.25 per Share, resulting in total proceeds received of $ i 3,037,511. The stock sales included purchases by the following related parties:
iSchedule of stock sales by related parties
| Shares | Amount | |||||||
| Ira and Claudia Goldfarb JTWRO, Chairman and CEO, respectively | i 58,824 | $ | i 250,000 | |||||
| Brad Burke, former CFO | i 5,882 | i 25,000 | ||||||
| Lyle A. Berman Roevocable Trust, Director | i 117,647 | i 500,000 | ||||||
| Bradley Berman, Director | i 12,500 | i 53,125 | ||||||
| Christopher R. & Lynda M. Ludeman JTWROS, Director | i 47,058 | i 200,000 | ||||||
| Greg Creed Trustee FBO Creed Revocable Living Trust, former Director | i 30,000 | i 127,500 | ||||||
| i 271,911 | $ | i 1,155,625 | ||||||
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On February 5, 2021, the Company entered into a Stock Purchase Agreement with multiple accredited investors to sell and issue to the purchasers an aggregate shares of the Company’s common stock at a price of $4.00 per share for total proceeds of $ i 2,525,000. The stock sales included purchases by the following related parties:
iSchedule of stock sales by related parties
| Shares | Amount | |||||||
| Brad Burke, former CFO | i 12,500 | $ | i 50,000 | |||||
| Lyle Berman Trustee FBO Lyle A. Berman Revocable Trust, Director | i 100,000 | i 400,000 | ||||||
| Bradley Berman, Director | i 12,500 | i 50,000 | ||||||
| Christopher R. & Lynda M. Ludeman JTWROS, Director | i 50,000 | i 200,000 | ||||||
| Greg Creed Trustee FBO Creed Revocable Living Trust, former Director | i 50,000 | i 200,000 | ||||||
| i 225,000 | $ | i 900,000 | ||||||
| F-14 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
Common Stock Issued to Officers for Services, Common Stock Payable
On December 31, 2021, the Company awarded and shares of common stock to Claudia and Ira Goldfarb, respectively, for services earned during December 31, 2021. The aggregate fair value of the shares was $ and $ for Claudia and Ira, respectively, based on the closing price of the Company’s common stock on the date of grant. The shares were subsequently issued on March 25, 2022, in satisfaction of the outstanding common stock payable.
Common Stock and Options Awarded to Officers and Directors
On July 22, 2022, the Company accepted Mr. Joseph Lahti’s resignation from the Board of Directors and appointed Tim Creed as a member of the Board. Pursuant to the Company’s Non-Employee Director Compensation Plan, Mr. Creed received shares of common stock as compensation. Pursuant to the Company’s 2020 Stock Incentive Plan (the “2020 Equity Plan”), Mr. Creed was also granted options to purchase shares of the Company’s common stock at an exercise price of $ per share. These options will vest % as of July 22, 2023 and 20% each anniversary thereafter until fully vested.
On April 11, 2022, the Company appointed Joe Mueller as a member of the Board of Directors and Audit Committee. Pursuant to the Company’s Non-Employee Director Compensation Plan, Mr. Mueller received shares of common stock as compensation. Pursuant to the Company’s 2020 Equity Plan, Mr. Mueller was also granted options to purchase shares of the Company’s common stock at an exercise price of $ per share. These options will vest % as of April 11, 2023 and 20% each anniversary thereafter until fully vested.
On April 1, 2022, the Company granted options to purchase shares of the Company’s common stock, having an exercise price of $ per share, exercisable over a -year term, to the Company’s then Chief Financial Officer. The options were to vest 60% on the third anniversary, and 20% each anniversary thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $2.6433, was $ i 72,692. The options were being expensed over the vesting period, however, pursuant to a Separation Agreement and Release, dated May 3, 2022, the vesting terms of the options were accelerated to be fully vested, resulting in $ of stock-based compensation expense during the year ended December 31, 2022. Pursuant to the Separation Agreement and Release, the vesting of an aggregate , with a weighted average exercise price of $, of Mr. Burke’s previously awarded options were also accelerated to be fully vested.
On various dates between January 31, 2021 and December 31, 2021, the Company issued an aggregate and shares in monthly increments of 5,541 and 6,044 shares to Claudia and Ira Goldfarb, respectively, for their services. The aggregate fair value of the shares was $ i 290,792 and $ i 317,188 for Claudia and Ira, respectively, based on the closing price of the Company’s common stock on the dates of grant.
On May 25, 2021, the Company issued shares to each of two advisory board members for their services. The total aggregate fair value of the shares was $ i 20,000, based on the closing price of the Company’s common stock on the date of grant.
On January 27, 2021, upon Benjamin Oehler’s resignation, the Company appointed Chris Ludeman as a member of the Board of Directors of the Company, and appointed him to the Company’s Audit Committee as Chairperson. Pursuant to his appointment, Mr. Ludeman was issued shares of common stock for his services to be rendered. The aggregate fair value of the common stock was $ i 40,000, based on the closing price of the Company’s common stock on the date of grant.
On January 7, 2021, the Company issued an aggregate and shares of common stock to Claudia and Ira Goldfarb, respectively, for services from October 2020 through December 31, 2020 in satisfaction of the outstanding common stock payable at December 31, 2020. The aggregate fair value of the shares was $ i 61,505 and $ i 67,092 for Claudia and Ira, respectively, based on the closing price of the Company’s common stock on the date of grant, was presented as Common Stock Payable as of December 31, 2020.
| F-15 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
On December 8, 2021, the Company issued an aggregate shares of common stock amongst its five Directors for annual services to be rendered. The aggregate fair value of the common stock was $ i 125,000, based on the closing price of the Company’s common stock on the date of grant. The shares were expensed upon issuance.
On December 8, 2021, the Company issued an additional shares to Mr. Chris Ludeman, for Audit Committee Chair services. The fair value of the common stock was $ i 15,000, based on the closing price of the Company’s common stock on the date of grant. The shares were expensed upon issuance.
On April 22, 2021, Brad Burke was granted options to purchase shares of the Company’s common stock, having an exercise price of $ per share, exercisable over a -year term. The options were to vest 60% on the third anniversary, and 20% each anniversary thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $, was $. The options were being expensed over the vesting period, however, pursuant to a Separation Agreement and Release, dated May 3, 2022, the vesting terms of the options were accelerated to be fully vested, resulting in $ and $ of stock-based compensation expense during the years ended December 31, 2022 and 2021, respectively.
On January 27, 2021, Chris Ludeman was granted options to purchase shares of the Company’s common stock, having an exercise price of $ per share, exercisable over a 10-year term. The options will vest in three equal annual installments beginning of January 27, 2022 and continuing on each of the two anniversaries thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $6.1794, was $ i 149,239.
On January 4, 2021, Claudia and Ira Goldfarb were each granted options to purchase shares of the Company’s common stock, having an exercise price of $ per share, exercisable over a 10-year term. The options will vest in three equal installments beginning of January 4, 2022 and continuing on each of the two anniversaries thereafter until fully vested. The aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $3.9412, was $ i 591,178.
Warrants Granted
On December 31, 2021, the Company closed a private placement and concurrently entered into a Note and Warrant Purchase Agreement with related parties to sell an aggregate $ i 2,075,000 of promissory notes, bearing 8% interest, and warrants to purchase an aggregate i 311,250 shares of common stock, representing 15,000 warrant shares per $100,000 of promissory notes. The warrants are exercisable at a price of $ i 2.21 per share over a ten-year term. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 198% and a call option value of $2.25, was $ i 699,213. The warrants will be expensed as a debt discount over the life of the loans. The officers, directors and related parties receiving grants and the amounts of such grants were as follows:
i| Schedule of warrants granted to related parties | ||||||||
| Promissory | Stock Warrant | |||||||
| Name and Title at Time of Grant | Note | Shares Granted | ||||||
| Ira and Claudia Goldfarb, Chairman and Chief Executive Officer | $ | i 1,500,000 | i 225,000 | |||||
| Brad Burke, Chief Financial Officer | i 25,000 | i 3,750 | ||||||
| Lyle Berman, Director | i 500,000 | i 75,000 | ||||||
| Cesar J. Gutierrez, brother of the Company’s Chief Executive Officer | i 50,000 | i 7,500 | ||||||
| Total: | $ | i 2,075,000 | i 311,250 | |||||
Lease Agreement
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, from IG Union Bower, LLC (“Union Bower”), an entity owned entirely by Ira Goldfarb, under which Union Bower is the landlord. The lease term is through i September 15, 2025, with two five-year options to extend, at a monthly lease term of $ i 10,036, with approximately a 3% annual escalation of lease payments commencing September 15, 2021.
| F-16 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
Departure of CFO
On April 30, 2022, Mr. Brad Burke resigned as the Company’s Chief Financial Officer, and the Company’s Chief Executive Officer, Claudia Goldfarb, was appointed as the interim Chief Financial Officer. On May 3, 3022, the Company entered into a Separation Agreement and Release, which entitled Mr. Burke to receive an amount equal to the base salary that he would have received for a three-month period (“Severance Pay”), and the accelerated vesting of options to purchase an aggregate shares of common stock with a weighted average exercise price of $ per share, along with an extension of the time period to exercise such stock option agreements to the fifth anniversary of the separation.
/ i
Note 5 – Fair Value of Financial Instruments
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 has cash and cash equivalents and a revolving credit facility that must be measured under the fair value standard. 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 balances sheet as of December 31, 2022 and 2021:
i| Valuation of financial instruments at fair value | ||||||||||||
| Fair Value Measurements at December 31, 2022 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash and cash equivalents | $ | i 276,464 | $ | i – | $ | i – | ||||||
| Total assets | i 276,464 | i – | i – | |||||||||
| Liabilities | ||||||||||||
| Notes payable, related parties, net of $2,692,757 of debt discounts | i – | i 3,502,243 | i – | |||||||||
| Notes payable, net of $336,085 of debt discounts | i – | i 393,915 | i – | |||||||||
| Total liabilities | i – | i 3,896,158 | i – | |||||||||
| $ | i 276,464 | $ | i 3,896,158 | $ | i – | |||||||
| F-17 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
| Fair Value Measurements at December 31, 2021 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash and cash equivalents | $ | i 3,345,928 | $ | i – | $ | i – | ||||||
| Intangible assets | i – | i 304,244 | i – | |||||||||
| Goodwill | i – | i 4,887,297 | i – | |||||||||
| Total assets | i 3,345,928 | i 5,191,541 | i – | |||||||||
| Liabilities | ||||||||||||
| Notes payable, related parties, net of $699,213 of debt discounts | i – | i 1,375,787 | i – | |||||||||
| Notes payable | i – | i 150,000 | i – | |||||||||
| Total liabilities | i – | i 1,525,787 | i – | |||||||||
| $ | i 3,345,928 | $ | i 3,665,754 | $ | i – | |||||||
There were no transfers of financial assets or liabilities between Level 1 and Level 2 inputs for the years ended December 31, 2022 and 2021.
/ i
Prepaid expenses consist of the following:
i| Schedule of prepaid expenses | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Prepaid software licenses | $ | i 36,424 | $ | i 28,314 | ||||
| Prepaid insurance costs | i 16,746 | i 11,179 | ||||||
| Trade show advances | i 18,707 | i 22,728 | ||||||
| Prepaid rent | i 27,043 | i – | ||||||
| Prepaid office and other costs | i 38,772 | i 18,836 | ||||||
| Total prepaid expenses | $ | i 137,692 | $ | i 81,057 | ||||
| F-18 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
/ i
Note 7 – Property and Equipment
Property and equipment at December 31, 2022 and 2021, consisted of the following:
i| Property and equipment | ||||||||
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Office equipment | $ | i 13,872 | $ | i 13,872 | ||||
| Machinery | i 1,643,010 | i 1,478,022 | ||||||
| Software | i 70,000 | i 70,000 | ||||||
| Website | i 71,589 | i 71,589 | ||||||
| Leasehold improvements | i 1,257,108 | i 1,257,869 | ||||||
| Construction in progress | i 2,487,673 | i – | ||||||
| i 5,543,252 | i 2,891,352 | |||||||
| Less: Accumulated depreciation and amortization | ( i 508,257 | ) | ( i 210,096 | ) | ||||
| Total property and equipment, net | $ | i 5,034,995 | $ | i 2,681,256 | ||||
Construction in progress consists of costs incurred to build out our manufacturing facility in Irving Texas, along with the construction of our freeze driers. These costs will be capitalized as Leasehold Improvements and Machinery, respectively, upon completion.
On July 1, 2022, the Company disposed of certain leasehold improvements that were damaged. The Company received proceeds on the disposal of $ i 62,308 pursuant to a settlement with the manufacturer, resulting in a gain on the disposal of property and equipment of $ i 36,392, which represented the proceeds received, less the net book value at the time of disposal.
On December 31, 2021, the Company disposed of packaging equipment no longer in service. i No proceeds were received on the disposal of the equipment, resulting in a loss on disposal of fixed assets of $ i 8,036, which represented the net book value at the time of disposal.
Depreciation of property and equipment was $ i 299,553, including $ i 25,500 capitalized as inventory overhead and expensed to cost of goods sold, and $ i 208,448 for the years ended December 31, 2022 and 2021, respectively.
/ i
The Company leases its 20,945 square foot operating and office facility under a non-cancelable real property lease agreement that expires on i August 31, 2025, with two five-year options to extend, at a monthly lease term of $ i 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.
| F-19 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
The components of lease expense were as follows:
i| Schedule of components of lease expense | ||||||||
| For the Year Ended | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Operating lease cost: | ||||||||
| Amortization of right-of-use asset | $ | i 67,564 | $ | i 65,113 | ||||
| Interest on lease liability | i 79,317 | i 81,768 | ||||||
| Total operating lease cost | $ | i 146,881 | $ | i 146,881 | ||||
Supplemental balance sheet information related to leases was as follows:
i| Schedule of supplemental balance sheet information | ||||||||
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Operating lease: | ||||||||
| Operating lease assets | $ | i 1,261,525 | $ | i 1,329,089 | ||||
| Current portion of operating lease liability | $ | i 52,543 | $ | i 45,970 | ||||
| Noncurrent operating lease liability | i 1,301,355 | i 1,353,898 | ||||||
| Total operating lease liability | $ | i 1,353,898 | $ | i 1,399,868 | ||||
| Weighted average remaining lease term: | ||||||||
| Operating leases | i 13.3 years | i 14.0 years | ||||||
| Weighted average discount rate: | ||||||||
| Operating lease | i 5.75% | i 5.75% | ||||||
Supplemental cash flow and other information related to operating leases was as follows:
i| Schedule of supplemental cash flow and other information | ||||||||
| For the Year Ended | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows used for operating leases | $ | i 45,970 | $ | i 39,870 | ||||
| Leased assets obtained in exchange for lease liabilities: | ||||||||
| Total operating lease liabilities | $ | i – | $ | i 1,431,463 | ||||
| F-20 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
The future minimum lease payments due under operating leases as of December 31, 2022 is as follows:
i // i
Intangible assets consist of the following:
i| Schedule of Intangible assets | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Licenses | $ | i – | $ | i 2,500 | ||||
| Branding, Sow Good | i – | i 159,083 | ||||||
| Branding, Sustain Us | i – | i 48,399 | ||||||
| Trademarks and patents | i – | i 94,262 | ||||||
| Total intangible assets | $ | i – | $ | i 304,244 | ||||
We evaluate the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired. Impairment analysis on intangible assets resulted in a loss of $ i 310,173 for the year ended December 31, 2022.
| F-21 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
/ i
Note 10 – Notes Payable, Related Parties
Notes payable, related parties consists of the following at December 31, 2022 and 2021, respectively:
i| Schedule of Notes payable, related parties | ||||||||
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| On December 21, 2022, the Company received $ i 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 i August 23, 2025. The note bears interest at i 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. | $ | i 250,000 | $ | i – | ||||
| On September 29, 2022, the Company received $ i 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 i August 23, 2025. The note bears interest at i 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. | i 500,000 | i – | ||||||
| On September 29, 2022, the Company received $ i 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 i August 23, 2025. The note bears interest at i 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. | i 250,000 | i – | ||||||
| On April 8, 2022, the Company received $ i 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 i 6% per annum, compounded semi-annually, and was payable in cash semi-annually on June 30th and December 31st. 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 i 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. | i 2,000,000 | i – | ||||||
| On April 8, 2022, the Company received $ i 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 i 6% per annum, compounded semi-annually, and was payable in cash semi-annually on June 30th and December 31st. 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 i 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. | i 100,000 | i – | ||||||
| On April 8, 2022, the Company received $ i 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 i 6% per annum, compounded semi-annually, and was payable in cash semi-annually on June 30th and December 31st. 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 i 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. | i 100,000 | i – | ||||||
| F-22 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
| On April 8, 2022, the Company received $ i 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 i 6% per annum, compounded semi-annually, and was payable in cash semi-annually on June 30th and December 31st. 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 i 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. | i 920,000 | i – | ||||||
| On December 31, 2021, the Company received $ i 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 i 8% per annum, compounded semi-annually, and shall be payable in cash semi-annually on June 30th and December 31st. The note matures on i 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. | i 1,500,000 | i 1,500,000 | ||||||
| On December 31, 2021, the Company received $ i 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 i 8% per annum, compounded semi-annually, and shall be payable in cash semi-annually on June 30th and December 31st. The note matures on i 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. | i 500,000 | i 500,000 | ||||||
| On December 31, 2021, the Company received $ i 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 i 8% per annum, compounded semi-annually, and shall be payable in cash semi-annually on June 30th and December 31st. The note matures on i 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. | i 25,000 | i 25,000 | ||||||
| On December 31, 2021, the Company received $ i 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 i 8% per annum, compounded semi-annually, and shall be payable in cash semi-annually on June 30th and December 31st. The note matures on i 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. | i 50,000 | i 50,000 | ||||||
| Total notes payable, related parties | i 6,195,000 | i 2,075,000 | ||||||
| Less unamortized debt discounts: | i 2,692,757 | i 699,213 | ||||||
| Notes payable | i 3,502,243 | i 1,375,787 | ||||||
| Less: current maturities | i – | i – | ||||||
| Notes payable, related parties, less current maturities | $ | i 3,502,243 | $ | i 1,375,787 |
/
| F-23 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
The Company recorded total discounts of $ i 2,811,138 and $ i 699,213, consisting of debt discounts on warrants granted to the related parties during the years ended December 31, 2022 and 2021, respectively. 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 $ i 817,594 of stock-based interest expense pursuant to the amortization of discounts during the year ended December 31, 2022.
The Company recognized $ i 320,580 of interest expense for the year ended December 31, 2022. i No interest expense was recognized during the year ended December 31, 2021.
/ i
Notes payable consists of the following at December 31, 2022 and 2021, respectively:
i| Schedule of notes payable | ||||||||
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| On April 8, 2022, the Company received $ i 80,000 pursuant to a note and warrant purchase agreement from an accredited investor, as lender. The unsecured note bears interest at i 6% per annum, compounded semi-annually, and was payable in cash semi-annually on June 30th and December 31st. 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 i 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. | $ | i 80,000 | $ | i – | ||||
| On April 8, 2022, the Company received $ i 500,000 pursuant to a note and warrant purchase agreement from an accredited investor, as lender. The unsecured note bears interest at i 6% per annum, compounded semi-annually, and was payable in cash semi-annually on June 30th and December 31st. 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 i 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. | i 500,000 | i – | ||||||
| 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 $ i 150,000 Promissory Note issued to the SBA (the “EIDL Note”)(together with the EIDL Loan Agreement, the “EIDL Loan”), bearing interest at i 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, 2021. All remaining principal and accrued interest is due and payable on i June 16, 2050. The EIDL Note may be repaid at any time without penalty. | i 150,000 | i 150,000 | ||||||
| Total notes payable | i 730,000 | i 150,000 | ||||||
| Less: unamortized debt discounts | i 336,085 | i – | ||||||
| Notes payable | i 393,915 | i – | ||||||
| Less: current maturities | i – | i – | ||||||
| Notes payable, less current maturities | $ | i 393,915 | $ | i 150,000 | ||||
| F-24 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
The Company recorded total discounts of $ i 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 $ i 108,245 of stock-based interest expense pursuant to the amortization of discounts during the year ended December 31, 2022.
The Company recognized $ i 31,546 and $ i 5,911 of interest expense for the years ended December 31, 2022 and 2021, respectively.
The Company recognized interest expense for the years ended December 31, 2022 and 2021, as follows:
i| Schedule of recognized interest expense on notes payable | ||||||||
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Interest on notes payable, related parties | $ | i 320,580 | $ | i – | ||||
| Amortization of debt discounts on notes payable, related parties | i 817,594 | i – | ||||||
| Interest on notes payable | i 31,546 | i 5,911 | ||||||
| Amortization of debt discounts on notes payable | i 108,245 | i – | ||||||
| Total interest expense | $ | i 1,277,965 | $ | i 5,911 | ||||
/ i
Note 12 – Stockholders’ Equity
Preferred Stock
The Company has authorized shares of $ par value preferred stock. No shares have been issued to date.
Common Stock Sold for Cash
On July 2, 2021, the Company entered into a Stock Purchase Agreement with multiple accredited investors to sell and issue to the purchasers, thereunder, an aggregate of shares of the Company’s common stock at a price of $4.25 per Share. Proceeds to the Company from the sale of the Shares were $ i 3,037,511. A total of of these shares, or proceeds of $ i 1,155,625 were purchased by officers and directors.
On February 5, 2021, the Company entered into a Stock Purchase Agreement with multiple accredited investors to sell and issue to the Purchasers an aggregate shares of the Company’s common stock at a price of $4.00 per share for total proceeds of $ i 2,525,000. A total of of these shares, or proceeds of $ i 900,000 were purchased by officers and directors.
Common Stock Issued to Directors for Services
On July 22, 2022, the Company accepted Mr. Joseph Lahti’s resignation from the Board of Directors and appointed Tim Creed as a member of the Board. Pursuant to the Company’s Non-Employee Director Compensation Plan, Mr. Creed received shares of common stock as compensation. The fair value of the shares was $ i 25,000, based on the closing price of the Company’s common stock on the date of grant.
On April 11, 2022, the Company appointed Joe Mueller as a member of the Board of Directors and Audit Committee. Pursuant to the Company’s Non-Employee Director Compensation Plan, Mr. Mueller received shares of common stock as compensation. The fair value of the shares was $ i 24,998, based on the closing price of the Company’s common stock on the date of grant.
| F-25 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
On December 8, 2021, the Company issued an aggregate shares of common stock amongst its five Directors for annual services to be rendered. The aggregate fair value of the common stock was $ i 125,000, based on the closing price of the Company’s common stock on the date of grant. The shares were expensed upon issuance.
On December 8, 2021, the Company issued an additional shares to Mr. Chris Ludeman for Audit Committee Chair services. The fair value of the common stock was $ i 15,000, based on the closing price of the Company’s common stock on the date of grant. The shares were expensed upon issuance.
On October 1, 2020, the Company issued an aggregate shares of common stock amongst its five Directors for annual services to be rendered. The aggregate fair value of the common stock was $ i 125,010, based on the closing price of the Company’s common stock on the date of grant. The shares were expensed upon issuance.
On October 1, 2020, the Company issued an additional shares to Mr. Benjamin Oehler, for former Audit Committee Chair services. The fair value of the common stock was $ i 15,000, based on the closing price of the Company’s common stock on the date of grant. The shares were expensed upon issuance.
Common Stock Awarded to Advisory Board Members
On April 20, 2022, the Company awarded an aggregate total of shares of common stock to two advisory board members for services. The aggregate fair value of the shares was $ i 20,000, based on the closing price of the Company’s common stock on the date of grant.
On March 25, 2022, the Company awarded shares of common stock to a newly appointed advisory board member for services. The fair value of the shares was $ i 10,000, based on the closing price of the Company’s common stock on the date of grant.
Issuance of Shares for Services
On various dates between January 31, 2021 and December 31, 2021, the Company issued an aggregate and shares in monthly increments of 5,541 and 6,044 shares to Claudia and Ira Goldfarb, respectively, for their services. The aggregate fair value of the shares was $ i 290,792 and $ i 317,188 for Claudia and Ira, respectively, based on the closing price of the Company’s common stock on the dates of grant.
On May 25, 2021, the Company issued shares to each of two advisory board members for their services. The total aggregate fair value of the shares was $ i 20,000, based on the closing price of the Company’s common stock on the date of grant.
On January 27, 2021, upon Benjamin Oehler’s resignation, the Company appointed Chris Ludeman as a member of the Board of Directors of the Company, and appointed him to the Company’s Audit Committee as Chairperson. Pursuant to his appointment, Mr. Ludeman was issued shares of common stock for his services to be rendered. The aggregate fair value of the common stock was $ i 40,000, based on the closing price of the Company’s common stock on the date of grant.
Common Stock Issued to Officers for Services, Common Stock Payable
On December 31, 2021, the Company awarded and shares of common stock to Claudia and Ira Goldfarb, respectively, for services earned during December 31, 2021. The aggregate fair value of the shares was $ and $ for Claudia and Ira, respectively, based on the closing price of the Company’s common stock on the date of grant. The shares were subsequently issued on March 25, 2022, in satisfaction of the outstanding common stock payable.
On January 7, 2021, the Company issued an aggregate and shares of common stock to Claudia and Ira Goldfarb, respectively, for services from October 2020 through December 31, 2020 in satisfaction of the outstanding common stock payable at December 31, 2020. The aggregate fair value of the shares was $ i 61,505 and $ i 67,092 for Claudia and Ira, respectively, based on the closing price of the Company’s common stock on the date of grant, was presented as Common Stock Payable as of December 31, 2020.
| F-26 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
/ i
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 shares of common stock at a weighted average strike price of $ i 4.53, exercisable over a weighted average life of years were outstanding as of December 31, 2022.
Options Granted
On July 22, 2022, the Company appointed Tim Creed as a member of the Board. Pursuant to the Company’s 2020 Equity Plan, Mr. Creed was granted options to purchase shares of the Company’s common stock at an exercise price of $ per share. These options will vest % as of July 22, 2023 and 20% each anniversary thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $3.6166, was $ i 87,346. The options are being expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2022. As of December 31, 2022, a total of $ of unamortized expenses are expected to be expensed over the vesting period.
On April 11, 2022, the Company appointed Joe Mueller as a member of the Board of Directors and Audit Committee. Pursuant to the Company’s 2020 Equity Plan, Mr. Mueller was granted options to purchase shares of the Company’s common stock at an exercise price of $ per share. These options will vest % as of April 11, 2023 and 20% each anniversary thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $2.6433, was $ i 71,423. The options are beingexpensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2022. As of December 31, 2022, a total of $ of unamortized expenses are expected to be expensed over the vesting period.
On April 1, 2022, a total of nineteen employees and consultants were granted options to purchase an aggregate shares of the Company’s common stock, having an exercise price of $ per share, exercisable over a 10-year term. The options will vest 60% on the third anniversary, and 20% each anniversary thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $2.6433, was $ i 95,099. The options are being expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2022. As of December 31, 2022, a total of $ of unamortized expenses are expected to be expensed over the vesting period.
On April 1, 2022, the Company granted options to purchase shares of the Company’s common stock, having an exercise price of $ per share, exercisable over a 10-year term, to the Company’s then Chief Financial Officer. The options were to vest 60% on the third anniversary, and 20% each anniversary thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $2.6433, was $ i 72,692. The options were being expensed over the vesting period, however, pursuant to a Separation Agreement and Release, dated May 3, 2022, the vesting terms of the options were accelerated to be fully vested, resulting in $ of stock-based compensation expense during the year ended December 31, 2022. Pursuant to the Separation Agreement and Release, the vesting of an aggregate , with a weighted average exercise price of $, of Mr. Burke’s previously awarded options were also accelerated to be fully vested.
| F-27 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
On March 30, 2022, a total of sixteen employees and consultants were granted options to purchase an aggregate shares of the Company’s common stock, having an exercise price of $ per share, exercisable over a 10-year term. The options will vest 60% on the third anniversary, and 20% each anniversary thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $2.6435, was $ i 51,380. The options are being expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2022. As of December 31, 2022, a total of $ of unamortized expenses are expected to be expensed over the vesting period.
On March 25, 2022, a newly appointed advisory board member was granted options to purchase an aggregate shares of the Company’s common stock, having an exercise price of $ per share, exercisable over a 10-year term. The options will vest 20% on each anniversary over a five-year period, until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $2.2584, was $ i 14,413. The options are being expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2022. As of December 31, 2022, a total of $ of unamortized expenses are expected to be expensed over the vesting period.
On December 8, 2021, a total of eight employees and consultants were granted options to purchase an aggregate shares of the Company’s common stock, having an exercise price of $ per share, exercisable over a 10-year term. The options will vest 60% on the third anniversary, and 20% each anniversary thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $2.9731, was $ i 55,094. The options are being expensed over the vesting period, resulting in $ and $ of stock-based compensation expense during the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, a total of $ of unamortized expenses are expected to be expensed over the vesting period.
On August 27, 2021, a total of twelve employees and consultants were granted options to purchase an aggregate shares of the Company’s common stock, having an exercise price of $ per share, exercisable over a 10-year term. The options will vest 60% on the third anniversary, and 20% each anniversary thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $5.9316, was $ i 70,693. The options are being expensed over the vesting period, resulting in $ and $ of stock-based compensation expense during the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, a total of $ of unamortized expenses are expected to be expensed over the vesting period.
On May 25, 2021, two advisory board members were granted options to purchase an aggregate shares of the Company’s common stock, having an exercise price of $ per share, exercisable over a 10-year term. The options will vest 60% on the third anniversary, and 20% each anniversary thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $4.9272, was $ i 29,562. The options are being expensed over the vesting period, resulting in $ and $ of stock-based compensation expense during the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, a total of $ of unamortized expenses are expected to be expensed over the vesting period.
On April 22, 2021, Brad Burke was granted options to purchase shares of the Company’s common stock, having an exercise price of $ per share, exercisable over a 10-year term. The options will vest 60% on the third anniversary, and 20% each anniversary thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $5.4381, was $ i 149,547. The options were being expensed over the vesting period, however, pursuant to a Separation Agreement and Release, dated May 3, 2022, the vesting terms of the options were accelerated to be fully vested, resulting in $ and $ of stock-based compensation expense during the years ended December 31, 2022 and 2021, respectively.
| F-28 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
On April 22, 2021, a total of fifteen employees and consultants were granted options to purchase an aggregate shares of the Company’s common stock, having an exercise price of $ per share, exercisable over a 10-year term. The options will vest 60% on the third anniversary, and 20% each anniversary thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $5.4381, was $ i 108,082. The options were expensed over the vesting period, resulting in $ and $ of stock-based compensation expense during the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, a total of $ of unamortized expenses are expected to be expensed over the vesting period.
On January 27, 2021, Chris Ludeman was granted options to purchase shares of the Company’s common stock, having an exercise price of $ per share, exercisable over a 10-year term. The options will vest in three equal annual installments beginning of January 27, 2022 and continuing on each of the two anniversaries thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $6.1794, was $ i 149,239. The options are being expensed over the vesting period, resulting in $ and $ of stock-based compensation expense during the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, a total of $ of unamortized expenses are expected to be expensed over the vesting period.
On January 4, 2021, Claudia and Ira Goldfarb were each granted options to purchase shares of the Company’s common stock, having an exercise price of $ per share, exercisable over a 10-year term. The options will vest in three equal installments beginning of January 4, 2022 and continuing on each of the two anniversaries thereafter until fully vested. The aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $3.9412, was $ i 591,178. The options are being expensed over the vesting period, resulting in $ and $ of stock-based compensation expense during the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, a total of $ of unamortized expenses are expected to be expensed over the vesting period.
The Company recognized a total of $, and $ of compensation expense during the years ended December 31, 2022 and 2021, respectively, related to common stock options issued to Employees and Directors that are being amortized over the implied service term, or vesting period, of the options. The remaining unamortized balance of these options is $ as of December 31, 2022.
Options Cancelled or Forfeited
An aggregate and options with a weighted average strike price of $ and $ per share were forfeited by former employees during the years ended December 31, 2022 and 2021, respectively.
Options Expired
options expired during the years ended December 31, 2022 and 2021.
Options Exercised
options were exercised during the years ended December 31, 2022 and 2021.
| F-29 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
The following is a summary of information about the Stock Options outstanding at December 31, 2022.
i /
The following is a summary of activity of outstanding stock options:
i| Schedule of option activity | ||||||||
| Weighted | ||||||||
| Average | ||||||||
| Number | Exercise | |||||||
| of Shares | Prices | |||||||
| Balance, December 31, 2020 | i 459,524 | $ | i 8.70 | |||||
| Options granted | i 257,975 | i 4.36 | ||||||
| Options cancelled | ( i 176,312 | ) | ( i 12.66 | ) | ||||
| Balance, December 31, 2021 | i 541,187 | i 6.77 | ||||||
| Options granted | i 137,597 | i 2.99 | ||||||
| Options cancelled | ( i 87,793 | ) | ( i 7.11 | ) | ||||
| Balance, December 31, 2022 | i 590,991 | $ | i 4.53 | |||||
| Exercisable, December 31, 2022 | i 160,199 | $ | i 5.02 | |||||
/ i
Outstanding Warrants
Warrants to purchase an aggregate total of i 1,591,250 shares of common stock at a $ i 2.47 strike price, exercisable over a weighted average life of i 9.16 years were outstanding as of December 31, 2022.
| F-30 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
Warrants Granted
On December 21, 2022, warrants to purchase an aggregate i 62,500 shares of common stock were issued to a director pursuant to a private placement debt offering in which aggregate proceeds of $ i 250,000 were received in exchange for promissory notes and warrants to purchase an aggregate i 62,500 shares of common stock, representing warrant shares per $ i 100,000 of promissory notes. The warrants are fully vested and exercisable over a period of years at a price of $ i 2.60 per share. The Company may redeem outstanding warrants prior to their expiration, at a price of $ 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 % and a weighted average call option value of $3.15, was $ i 196,942. The warrants are being expensed over the life of the loans, resulting in $ of stock-based compensation expense during the year ended December 31, 2022. As of December 31, 2022, a total of $ of unamortized expenses are expected to be expensed over the remaining life of the outstanding debts.
On September 29, 2022, warrants to purchase an aggregate i 187,500 shares of common stock were issued to directors pursuant to a private placement debt offering in which aggregate proceeds of $ i 750,000 were received in exchange for promissory notes and warrants to purchase an aggregate i 187,500 shares of common stock, representing warrant shares per $ i 100,000 of promissory notes. The warrants are fully vested and exercisable over a period of years at a price of $ i 2.60 per share. The Company may redeem outstanding warrants prior to their expiration, at a price of $ 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 % and a weighted average call option value of $1.9441, was $ i 364,512. The warrants are being expensed over the life of the loans, resulting in $ of stock-based compensation expense during the year ended December 31, 2022. As of December 31, 2022, a total of $ of unamortized expenses are expected to be expensed over the remaining life of the outstanding debts.
On April 8, 2022, warrants to purchase an aggregate i 925,000 shares of common stock were issued pursuant to a private placement debt offering in which aggregate proceeds of $ i 3,700,000 were received in exchange for promissory notes and warrants to purchase an aggregate 925,000 shares of common stock, representing warrant shares per $ i 100,000 of promissory notes. The warrants are fully vested and exercisable over a period of years at a price of $ i 2.35 per share. The Company may redeem outstanding warrants prior to their expiration, at a price of $ per share, provided that the volume weighted average sale price per share of Common Stock equals or exceeds $9.00 per share for thirty (30) consecutive trading days ending on the third business day prior to the mailing of notice of such redemption. A total of of the warrants were issued to officers or directors. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a weighted average call option value of $2.9443, was $ i 2,694,014. The warrants are being expensed over the life of the loans, resulting in $ of stock-based compensation expense during the year ended December 31, 2022. As of December 31, 2022, a total of $ of unamortized expenses are expected to be expensed over the lives of outstanding debts.
On December 31, 2021, the Company closed a private placement and concurrently entered into a Note and Warrant Purchase Agreement with related parties to sell an aggregate $ i 2,075,000 of promissory notes and warrants to purchase an aggregate shares of common stock, representing 15,000 warrant shares per $100,000 of promissory notes. The warrants are exercisable at a price of $per share over a ten-year term. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $2.25, was $ i 699,213. The warrants are being expensed over the life of the loans, resulting in $of stock-based compensation expense during the year ended December 31, 2022. As of December 31, 2022, a total of $of unamortized expenses are expected to be expensed over the lives of outstanding debts. The officers, directors and related parties receiving grants and the amounts of such grants were as follows:
i| Schedule of debt discount life loans | ||||
| Stock Warrant | ||||
| Name and Title at Time of Grant | Shares Granted | |||
| Ira and Claudia Goldfarb, Chairman and Chief Executive Officer | i 225,000 | |||
| Brad Burke, Chief Financial Officer | i 3,750 | |||
| Lyle Berman, Director | i 75,000 | |||
| Cesar J. Gutierrez, brother of the Company’s Chief Executive Officer | i 7,500 | |||
| Total: | i 311,250 | |||
| F-31 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
A total of warrants with a weighted average exercise price of $ per share expired during the year ended December 31, 2022. No warrants were exercised, cancelled or expired during the years ended December 31, 2022 and 2021, otherwise.
The following is a summary of activity of outstanding warrants:
i| Schedule of warrant activity | ||||||||
| Weighted | ||||||||
| Average | ||||||||
| Number | Exercise | |||||||
| of Shares | Prices | |||||||
| Balance, December 31, 2020 | i 106,300 | $ | i 3.99 | |||||
| Warrants granted | i 311,250 | i 2.21 | ||||||
| Balance, December 31, 2021 | i 417,550 | i 2.66 | ||||||
| Warrants granted | i 1,175,000 | i 2.40 | ||||||
| Warrants expired | ( i 1,300 | ) | ( i 3.00 | ) | ||||
| Balance, December 31, 2022 | i 1,591,250 | $ | i 2.47 | |||||
| Exercisable, December 31, 2022 | i 1,591,250 | $ | i 2.47 | |||||
/ i
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 i September 15, 2025, with two five-year options to extend, at a monthly lease term of $ i 10,036, with approximately a 3% annual escalation of lease payments commencing September 15, 2021.
| F-32 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
/ i
Note 16 – Gain on Early Extinguishment of Debt
During the year ended December 31, 2021, the Company recognized a gain on early extinguishment of debt of $ i 113,772, consisting of the forgiveness of $ i 112,925 of principal and $ i 847 of interest, on our PPP loan pursuant to Payroll Protection Program established as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).
/ i
Note 17 – Gain on Investment in Allied Esports Entertainment, Inc.
Following the close of BRAC’s merger, the Company retained 2,685,500 shares of AESE common stock with a value, based on the closing stock of $4.45 on the merger, of $11,950,475, and tradeable warrants to purchase 505,000 shares of AESE (NASDAQ: AESEW) (“Sponsor Warrants”), of which the Company had sold its last remaining 177,479 shares for total net proceeds of $414,361 as of December 31, 2021, and still owned 177,479 shares as of December 31, 2020, after selling 1,970,920 shares for total net proceeds of $3,108,067, selling warrants to purchase 505,000 Sponsor Warrants for total proceeds of $73,668, and distributing 537,101 Sponsor Shares on August 10, 2020 to employees and directors under the 2018 Management Incentive Plan.
As of December 31, 2021, the Company had sold all of its shares in AESE common stock, and as of December 31, 2020, the market value of the Company’s investment in AESE’s common stock was $ i 280,417, based on the closing stock price of $1.58 per share, resulting in losses on our investment in securities, as follows:
i| Schedule of unrealized loss on investment | ||||||||
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Net gain (loss) on investment in Allied Esports Entertainment, Inc. securities | $ | i – | $ | i 133,944 | ||||
| Less: Net gains and losses recognized on equity securities sold during the period | i – | ( i 133,944 | ) | |||||
| Unrealized losses recognized on equity securities still held at the end of the period | $ | i – | $ | i – | ||||
/ i
We account for income taxes under the provisions of ASC Topic 740, Income taxes, which provides for an asset and liability approach for income taxes. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences, using currently enacted tax laws, attributable to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts calculated for income tax purposes.
Our provision for income taxes for the years ended December 31, 2022 and 2021 consisted of the following:
i| Schedule of components of income tax expense | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Current taxes | $ | i – | $ | i – | ||||
| Deferred taxes | i – | i – | ||||||
| Net income tax provision (benefit) | $ | i – | $ | i – | ||||
| F-33 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
The effective income tax rate for the years ended December 31, 2022 and 2021 consisted of the following:
i| Schedule of effective income tax rate | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Federal statutory income tax rate | i 21.00% | i 21.00% | ||||||
| State income taxes | i 0.00% | i 0.00% | ||||||
| Permanent differences | i 0.10% | i 0.10% | ||||||
| Change in effective state income tax rate | i 0.00% | i 0.00% | ||||||
| True up prior year tax return | ( i 0.50% | ) | ( i 0.50% | ) | ||||
| Change in valuation allowance | ( i 20.60% | ) | ( i 20.60% | ) | ||||
| Net effective income tax rate | i 0.00% | i 0.00% | ||||||
The components of the deferred tax assets and liabilities as of December 31, 2022 and 2021 are as follows:
i| Schedule of deferred tax assets and liabilities | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Deferred tax assets: | ||||||||
| Federal and state net operating loss carryovers | $ | i 8,681,830 | $ | i 7,575,182 | ||||
| Stock compensation | i 862,079 | i 2,221,408 | ||||||
| Stock-based debt discounts | i 925,839 | i – | ||||||
| Goodwill and intangibles | i 5,197,470 | i 210,959 | ||||||
| Reorganization costs | i – | i 28,135 | ||||||
| Total deferred tax assets | $ | i 15,667,218 | $ | i 10,035,684 | ||||
| Deferred tax liabilities: | ||||||||
| Property and equipment | ( i 149,777 | ) | ( i 279,737 | ) | ||||
| Unrealized gain on investment in Allied Esports Entertainment, Inc. | i – | ( i 2,850,375 | ) | |||||
| Total deferred liabilities | ( i 149,777 | ) | ( i 3,130,112 | ) | ||||
| Net deferred tax assets (liabilities) | i 15,517,441 | i 6,905,572 | ||||||
| Less: valuation allowance | ( i 15,517,441 | ) | ( i 6,905,572 | ) | ||||
| Deferred tax assets (liabilities) | $ | i – | $ | i – | ||||
| F-34 |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
As of December 31, 2022, the Company has a net operating loss carryover of approximately $ i 41,300,000. Under existing Federal law, a portion of the net operating loss may be utilized to offset taxable income through the year ended December 31, 2037. A portion of the net operating loss carryover begins to expire in 2030. For tax years beginning after December 31, 2017, pursuant to the enactment of the Tax Cuts and Jobs Act (“TCJA”) net operating losses now carry forward indefinitely but are limited to offsetting 80% of taxable income in a tax year. Of the total net operating loss as of December 31, 2022, approximately $ i 4,240,000 of the Company’s NOL is subject to the TCJA net operating loss provisions.
ASC Topic 740 provides that a valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. In 2021, The Company increased its valuation allowance from i 6,905,572 to $ i 15,517,441 to adjust for the increase in net deferred tax assets primarily due to an increase in the net operating loss carryovers. The Company believes it is more likely than not that the benefit of these remaining assets will not be realized.
The Company filed annual US Federal income tax returns and annual income tax returns for the state of Minnesota through 2020. Going forward, it will file annual state income tax returns for the state of Texas. We are not subject to income tax examinations by tax authorities for years before 2016 for all returns. Income taxing authorities have conducted no formal examinations of our past federal or state income tax returns and supporting records.
The Company adopted the provisions of ASC Topic 740 regarding uncertainty in income taxes. The Company has found no significant uncertain tax positions as of any date on or before December 31, 2022.
/ i
The Company evaluates events that have occurred after the balance sheet date through the date hereof, which these financial statements were issued. No events occurred of a material nature that would have required adjustments to or disclosure in these financial statements except as follows:
Debt Financing
On various dates from January 5, 2023 to March 7, 2023, the Company received aggregate proceeds of $1,250,000 from two of the Company’s Directors on the sale of an offering entered into on September 29, 2022, 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. The Company issued aggregate warrants to purchase 312,500 shares of common stock pursuant to the advances received on this offering.
| F-35 |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures that is designed to ensure that information required to be disclosed by us in the reports we file or furnish to the SEC under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Interim Chief Financial Officer, who is one and the same, to allow timely decisions regarding required disclosures.
As of December 31, 2022, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Interim Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined) in Exchange Act Rules 13a –15(e). Based upon that evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Our Chief Executive Officer and Interim Chief Financial Officer do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our Chief Executive Officer and Interim Chief Financial Officer have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Management’s Annual Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. All internal control systems, no matter how well designed, have inherent limitations. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
| 22 |
We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Interim Chief Financial Officer, of the effectiveness of our internal controls over financial reporting as of December 31, 2022. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control — Integrated Framework (2013).” Based on this assessment, management believes that, as of December 31, 2022, our internal control over financial reporting was ineffective based on those criteria. As a small Company with limited resources that is mainly focused on the development and sales of our freeze dried products, the Company does not employ a sufficient number of staff in its finance department to possess an optimal segregation of duties or to provide optimal levels of oversight. This has resulted in certain audit adjustments and management believes that there may be a possibility for a material misstatement to occur in future periods while it employs the current number of personnel in its finance department.
To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting through the date of this report or during the quarter ended December 31, 2022, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Independent Registered Accountant’s Internal Control Attestation
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to applicable law.
None.
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The following table lists our executive officers and directors as of March 31, 2023:
| Name | Age | Position | ||
| Claudia Goldfarb | 47 | Chief Executive Officer, Interim Chief Financial Officer, Director | ||
| Ira Goldfarb | 65 | Chairman of the Board of Directors | ||
| Bradley Berman(1) | 52 | Director | ||
| Joe Mueller(1) | 53 | Director | ||
| Lyle Berman(1) | 81 | Director | ||
| Tim Creed(1) | 36 | Director | ||
| Chris Ludeman(1) | 64 | Director |
(1) Member of audit committee.
Claudia Goldfarb has been our chief executive officer since October 1, 2020 and became our interim chief financial officer on April 1, 2022. Mrs. Goldfarb is the co-founder of the freeze-dried foods business which the Company acquired. Mrs. Goldfarb previously served as Prairie Dog Pet Products, LLC’s President from 2016 to 2020 and Chief Operating Officer from 2012 to 2016. During Mrs. Goldfarb’s tenure at Prairie Dog Pet Products she was responsible for managing four food manufacturing facilities with over 300 employees and 200,000 sq. feet of manufacturing space. Mrs. Goldfarb’s expertise in product research and development is underscored by her successful launch of over 200 unique products. She has also served as Chief Operating Officer of the pet apparel company, PGT Holdings, from 2010-2012. Mrs. Goldfarb co-founded and served as the Chief Executive Officer of Operation Ava, Inc. Previously, Mrs. Goldfarb served as a Project Development Consultant for the North American Development Bank, specializing in infrastructure development and financing on the US-Mexican Border. Mrs. Goldfarb has spent the last 10 years specializing in product development, implementing best-in-class quality food systems, and freeze-dried pet food manufacturing.
Mr. Ira Goldfarb, who is our Chairman of the Board of Directors, is Mrs. Claudia Goldfarb’s husband.
Mrs. Goldfarb’s qualifications:
| · | Leadership experience – Mrs. Goldfarb is the CEO of Sow Good Inc. She was previously the President of Prairie Dog Pet Products and, prior to that role, the company’s Chief Operating Officer. | |
| · | Finance experience – Mrs. Goldfarb served as a Project Development Consultant for the North American Development Bank, specializing in infrastructure development and financing on the US-Mexican border. | |
| · | Industry experience – Mrs. Goldfarb was responsible for managing four food manufacturing facilities for Prairie Dog Pet Products, which over 300 employees and 200,000 sq. feet of manufacturing space. Over her career, Mrs. Goldfarb has launched over 200 unique products, underscoring her expertise in product research and development. |
Ira Goldfarb has been our chairman since October 1, 2020. Mr. Goldfarb is the co-founder of the freeze-dried foods business which the Company acquired. Mr. Goldfarb previously founded Prairie Dog Pet Products, LLC in 2012 and served as its Chief Executive Officer until 2020 when he sold the company to Kinderhook Industries. Prairie Dog Pet Products is a leading freeze-dried pet food and treat manufacturing company based in Grand Prairie, Texas. Previously, Mr. Goldfarb was Chief Executive Officer of PGT Holdings from 2010-2012 and founder and Chief Executive Officer of DS Retail Holdings, LLC from 2006 until 2013. In 2009 Mr. Goldfarb co-founded and funded Operation Ava Inc., the second largest dog and cat rescue group in Pennsylvania. Operation Ava saved over 2,000 animals each year from euthanasia. Mr. Goldfarb has extensive experience in both the retail and manufacturing industries spanning over 30 years; he first specialized in the leather fashion industry then in the pet food industry with a focus on dehydrated and freeze-dried products. He has also founded, developed, and sold numerous companies to public and private groups. Mr. Goldfarb is the husband of Claudia Goldfarb.
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Mrs. Claudia Goldfarb, who is our Chief Executive Officer, is Mr. Ira Goldfarb’s wife.
Mr. Goldfarb’s qualifications:
| · | Leadership experience – Mr. Goldfarb is the Executive Chairman of Sow Good Inc. He previously founded Prairie Dog Pet Products in 2012 and served as the company’s CEO until 2020. | |
| · | Industry experience – Prairie Dog Pet Products is a leading freeze-dried pet food and treat manufacturing company. Mr. Goldfarb has extensive experience in both the retail and manufacturing industries over his greater than 30-year career. He first specialized in the leather fashion industry before focusing on the pet food industry with an emphasis on dehydrated and freeze-dried products |
Bradley Berman has been a director since our inception and was our chairman from November 12, 2010 until October 1, 2020. He was our chief executive officer from November 12, 2010 to November 9, 2011, our chief financial officer between November 12, 2010 and November 15, 2010, and our corporate secretary from November 12, 2010 to February 22, 2011. Mr. Berman has been a director of Allied Esports Entertainment Inc. (AESE) (fka Black Ridge Acquisition Corp.) since May 2017. Mr. Berman is the president of King Show Games, Inc., a company he founded in 1998. Mr. Berman has worked in various capacities in casino gaming from 1992 to 2004 for Grand Casinos, Inc. and then Lakes Entertainment, Inc., achieving the position of Vice President of Gaming, after which he assumed a lesser role in that company. Mr. Berman was a director of Voyager Oil and Gas, Inc. (formerly Ante4 and WPT) from August 2004 to November 2010.
Mr. Lyle Berman, who is one of our directors, is Mr. Brad Berman’s father.
Mr. Berman’s qualifications:
| · | Leadership experience – Mr. Berman was our chairman from November 12, 2010 until October 1, 2020 and was our chief executive officer from November 12, 2010 to November 9, 2011 and he is the founder and president of King Show Games, Inc. | |
| · | Finance experience – Mr. Berman is the founder and president of King Show Games, Inc. | |
| · | Education experience - Mr. Berman attended Mankato State University in Minnesota and University of Nevada at Las Vegas in Nevada concentrating in business and computer science. |
Joe Mueller has been a director of the Company since April 11, 2022. Mr. Mueller is the Vice President of Industry and Customer Development for Kellogg Company, where he leads Kellogg Company’s external engagement strategy, and represents Kellogg across the global industry. He also serves as a board member for the American Heart Association. During his more than three decades in the consumer packaged goods industry, Mr. Mueller has served in several key management roles, including serving as the vice president of sales of various divisions within Kellogg, including its Walmart, Keurig Green Mountain, Breakfast, and Health & Wellness teams. In these roles, Mr. Mueller was responsible for marketing strategy, product development, and sales organization, alongside regularly interfacing with key corporate leaders. Prior to his executive roles, Mr. Mueller managed retail stores across the country and worked in several sales positions at Kellogg.
Mr. Mueller's qualifications:
| · | Leadership experience –Mr. Mueller is the Vice President of Industry and Customer Development for Kellogg Company, with responsibilities for the Kellogg Company's global engagement strategy. | |
| · | Industry experience – During his three decades in the consumer goods industry and with Kellogg, Mr. Mueller has served in several management roles. | |
| · | Education experience – Mr. Mueller earned his Bachelor of Science degree in Marketing and Management from Missouri State University and completed his MBA from the University of Phoenix. |
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Lyle Berman has been a director of the Company since October 26, 2016. Mr. Berman began his career with Berman Buckskin, his family's leather business. He helped grow the business into a major specialty retailer with 27 outlets. After selling Berman Buckskin to WR Grace in 1979, Mr. Berman continued as President and Chief Executive Officer and led the company to become one the country's largest retail leather chains, with over 200 stores nationwide. In 1990, Mr. Berman participated in the founding of Grand Casinos, Inc. Mr. Berman is credited as one of the early visionaries in the development of casinos outside of the traditional gaming markets of Las Vegas and Atlantic City. In less than five years, the company opened eight casino resorts in four states. In 1994, Mr. Berman financed the initial development of Rainforest Cafe. He served as the Chairman and CEO from 1994 until 2000. In October 1995, Mr. Berman was honored with the B'nai B'rith "Great American Traditions Award." In April 1996, he received the Gaming Executive of the Year Award; in 2004, Mr. Berman was inducted into the Poker Hall of Fame; and in 2009, he received the Casino Lifetime Achievement Award from Raving Consulting & Casino Journal.
Mr. Bradley Berman, who is also on the Board of Directors, is Mr. Lyle Berman’s son.
Mr. Berman’s qualifications:
Mr. Berman currently serves on the following Boards:
| · | Redstone American Grill | |
| · | Augeo Affinity Marketing | |
| · | Epika, Inc | |
| · | Mill City Ventures, LTD |
Mr. Berman has served on the following Boards:
| · | Chairman of the Board and CEO of Lakes Entertainment, Inc., (1999 – 2015) | |
| · | Executive Chairman of the Board of WPT Enterprises, Inc. (later known as Voyager Oil & Gas, Inc. and Emerald Oil, Inc.) (2002 – 2013) | |
| · | Director of PokerTek, Inc. (2005 – 2014) Chairman of the Board (2005 – 2011) | |
| · | Director of Allied Esports Entertainment Inc. (AESE) (fka Black Ridge Acquisition Corp.) (2017 – 2023) | |
| · | Chairman of the Board and CEO, Rainforest Café (1994 – 2000) | |
| · | Chairman of the Board and CEO, Grand Casinos (1991 – 1998) | |
| · | Director, Golden Entertainment (2015 – 2022) |
Education experience – Mr. Berman holds a degree in Business Administration from the University of Minnesota
Tim Creed has been a director of the Company since July 22, 2022. Mr. Creed is the Co-Founder and Partner of Creed UnCo, LLC, a consulting company focused on brand management and franchising. Mr. Creed utilizes his years of experience working in the food, pet care, and automotive industries to help brands grow, scale, and sustain their businesses. Prior to consulting, Mr. Creed spent over a decade at Mars, Inc., working in human resources, sales management, and e-commerce. While there, he served as the Digital Commerce Lead for Mars' KIND products, and was responsible for their international growth. Most recently, Mr. Creed was Director of eCommerce for international tire and mobility company, Bridgestone, Inc.
Mr. Creed's qualifications:
| · | Leadership experience –Mr. Creed is the Co-Founder and Partner of Creed UnCo, LLC and provides consulting services for brand management and franchising. | |
| · | Industry experience – During his fifteen years in the food, pet care, and automotive industries, Mr. Creed has served in a variety of management, sales, and human resources roles. | |
| · | Education experience – Mr. Creed earned his Bachelor of Science degrees in both Psychology and Management from Macquarie University. |
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Chris Ludeman has been our director and has served as Chairperson of the Audit Committee since January 27, 2021. Chris Ludeman is Global President of Capital Markets for CBRE, the world’s leading commercial real estate services firm and one of the largest U.S.-based public companies. Mr. Ludeman drives the company’s advisory business for investors, including responsibility for equity sales, debt and structured finance and real estate investment banking, both globally and in the Americas. He serves as a member of the Global Operating Committee and the Americas Operations Management Board.
During his more than three decades in the real estate services industry and with CBRE, Mr. Ludeman has served in several key management roles, including serving as the president of various businesses including Brokerage, Transaction Management and Global Corporate Services. In these roles, Mr. Ludeman was responsible for all transaction units in the Americas as well as corporate outsourcing functions such as facilities management, project management, lease administration, transaction management and research and consulting. Prior to his national and international roles Mr. Ludeman served in several regional and local market leadership positions across the United States.
Mr. Ludeman’s qualifications:
| · | Leadership experience –Mr. Ludeman is Global President of Capital Markets for CBRE, with responsibility for equity sales, debt and structured finance and real estate investment banking, both globally and in the Americas. | |
| · | Industry experience – During his more than three decades in the real estate services industry and with CBRE, Mr. Ludeman has served in several key management roles, including serving as the president of various businesses including Brokerage, Transaction Management and Global Corporate Services. | |
| · | Education experience – Mr. Ludeman earned a Bachelor of Arts degree from the University of California, Santa Barbara. |
No director is required to make any specific amount or percentage of his business time available to us. Each of our officers intends to devote such amount of his or her time to our affairs as is required or deemed appropriate.
CORPORATE GOVERNANCE
Director Selection Process
The Company does not have a standing nominating committee, but rather the Board of Directors as a whole considers director nominees. The Board of Directors has determined this is appropriate given the size of the Board of Directors and the Company’s current size. The Board will consider candidates suggested by its members, other directors, senior management and stockholders in anticipation of upcoming elections and actual or expected board vacancies. The Board of Directors has not adopted a formal diversity policy or established specific minimum criteria or qualifications because from time to time the needs of the Board and the Company may change. All candidates, including those recommended by stockholders, are evaluated on the same basis in light of the entirety of their credentials and the needs of the Board of Directors and the Company. Of particular importance is the candidate’s wisdom, integrity, ability to make independent analytical inquiries, understanding of the business environment in which the Company operates, as well as his or her potential contribution to the diversity of the Board of Directors and his or her willingness to devote adequate time to fulfill his or her duties as a director. The Board of Directors will consider director candidates recommended by the Company’s stockholders. Stockholders may recommend director candidates by contacting the Chairman of the Board as provided under the heading “Communications with the Board of Directors.” The Company did not employ a search firm or pay fees to other third parties in connection with seeking or evaluating board nominee candidates.
Board and Committee Meetings
During the year ended December 31, 2022, the Board of Directors held four meetings and the Audit Committee held four meetings. The Company does not have a separate Compensation Committee. Each of our elected Directors attended at least 75% of all meetings of the Board of Directors and the committees on which he served during the year.
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Annual Meeting Attendance
The Company did not hold an annual meeting of stockholders in 2022. If the Company holds an annual meeting of stockholders in the future, the Board of Directors will encourage Directors to attend such annual meeting.
Board Leadership Structure
Our Board of Directors has no formal policy with respect to separation of the positions of Chairman and Chief Executive Officer or with respect to whether the Chairman should be a member of management or an independent director, and believes that these are matters that should be discussed and determined by the Board from time to time based on the position and direction of the Company and the membership of the Board. The Board has determined that having Ira Goldfarb serve as Chairman and Claudia Goldfarb as the CEO is in the best interest of the Company’s stockholders at this time.
Risk Management
Our Board of Directors believes that risk management is an important component of the Company’s corporate strategy. The Board, as a whole, oversees our risk management process, and discusses and reviews with management major policies with respect to risk assessment and risk management. The Board is regularly informed through its interactions with management and committee reports about risks we currently face, as well as the most likely areas of future risk, in the course of our business including economic, financial, operational, legal and regulatory risks.
Communications with the Board of Directors
Stockholders and other interested persons seeking to communicate directly with the Board of Directors, the independent directors as a group or the Audit Committee of the Board of Directors, should submit their written comments c/o Corporate Secretary at our principal executive offices at 1440 N Union Bower Rd, Irving, TX 75061 and should indicate in the address whether the communication is intended for the Chairman of the Board, the Independent Directors or a Committee Chair. The Chairman of the Board will review any such communication at the next regularly scheduled Board of Directors meeting unless, in his or her judgment, earlier communication to the Board of Directors is warranted.
At the direction of the Board of Directors, we reserve the right to screen all materials sent to its directors for potential security risks, harassment purposes or routine solicitations.
Code of Ethics
Our Board of Directors has adopted a Code of Ethics which applies to our directors, Chief Executive Officer, Chief Financial Officer and other Company employees who perform similar functions.
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ITEM 11. EXECUTIVE COMPENSATION
Compensation Overview
We currently qualify as a “smaller reporting company” as such term is defined in Rule 405 of the Securities Act and Item 10 of Regulation S-K. Accordingly, and in accordance with relevant SEC rules and guidance, we have elected, with respect to the disclosures required by Item 402 (Executive Compensation) of Regulation S-K, to comply with the disclosure requirements applicable to smaller reporting companies. The following Compensation Overview is not comparable to the “Compensation Discussion and Analysis” that is required of SEC reporting companies that are not smaller reporting companies.
The following Compensation Overview describes the material elements of compensation for our executive officers identified in the Summary Compensation Table (“Named Executive Officers”), and executive officers that we may hire in the future. As more fully described below, our board of directors reviews and recommends policies, practices, and procedures relating to the total direct compensation of our executive officers, including the Named Executive Officers, and the establishment and administration of certain of our employee benefit plans to our board of directors.
Compensation Program Objectives and Rewards
Our compensation philosophy is based on the premise of attracting, retaining, and motivating exceptional leaders, setting high goals, working toward the common objectives of meeting the expectations of customers and stockholders, and rewarding outstanding performance. Following this philosophy, we consider all relevant factors in determining executive compensation, including the competition for talent, our desire to link pay with performance, the use of equity to align executive interests with those of our stockholders, individual contributions, teamwork, and each executive’s total compensation package. We strive to accomplish these objectives by compensating all executives with compensation packages consisting of a combination of competitive base salary and incentive compensation.
The compensation received by our Named Executive Officers is based primarily on the levels at which we can afford to retain them and their responsibilities and individual contributions. Our compensation policy also reflects our strategy of minimizing general and administration expenses and utilizing independent professional consultants. Our board of directors apply the compensation philosophy and policies described below to determine the compensation of Named Executive Officers.
The primary purpose of the compensation and benefits we consider is to attract, retain, and motivate highly talented individuals who will engage in the behavior necessary to enable us to succeed in our mission, while upholding our values in a highly competitive marketplace. Different elements are designed to engender different behaviors, and the actual incentive amounts which may be awarded to each Named Executive Officer are subject to the annual review of our board of directors who will make recommendations regarding compensation to our board of directors. The following is a brief description of the key elements of our planned executive compensation structure.
| · | Base salary and benefits are designed to attract and retain employees over time. | |
| · | Incentive compensation awards are designed to focus employees on the business objectives for a particular year. | |
| · | Equity incentive awards, such as stock options and non-vested stock, focus executives’ efforts on the behaviors within the recipients’ control that they believe are designed to ensure our long-term success as reflected in increases to our stock prices over a period of several years, growth in our profitability and other elements. | |
| · | Severance and change in control plans are designed to facilitate a company’s ability to attract and retain executives as we compete for talented employees in a marketplace where such protections are commonly offered. |
Benchmarking
We have not yet adopted benchmarking but may do so in the future. When making compensation decisions, our board of directors may compare each element of compensation paid to our Named Executive Officers against a report showing comparable compensation metrics from a group that includes both publicly-traded and privately-held companies. Our board believes that while such peer group benchmarks are a point of reference for measurement, they are not necessarily a determining factor in setting executive compensation. Each executive officer’s compensation relative to the benchmark varies based on the scope of responsibility and time in the position. We have not yet formally established our peer group for this purpose.
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The Elements of The Company’s Compensation Program
Base Salary
Executive officer base salaries are based on job responsibilities and individual contribution. Our board of directors review the base salaries of our executive officers, including our Named Executive Officers, considering factors such as corporate progress toward achieving objectives (without reference to any specific performance-related targets) and individual performance experience and expertise. Claudia Goldfarb, Ira Goldfarb and Brad Burke are our only Named Executive Officers that have an employment agreement with us.
| · | We entered into an employment agreement with Claudia Goldfarb on October 1, 2020, which was amended on January 4, 2021, under which she serves as our Chief Executive Officer. Pursuant to the employment agreement, we pay Mrs. Goldfarb (a) for the period beginning on October 1, 2020 and ending December 31, 2021, the issuance of 5,541 shares of the Company’s common stock per month, and (b) beginning on January 1, 2022, a base salary payable in monthly increments in an amount equal to the base salary of $292,500 per year through at least October 1, 2025, subject to annual 10% increases. | |
| · | We entered into an employment agreement with Ira Goldfarb on October 1, 2020, which was amended on January 4, 2021, under which he serves as our Executive Chairman of the Board. Pursuant to the employment agreement, we pay Mr. Goldfarb (a) for the period beginning on the Closing Date and ending December 31, 2021, the issuance of 6,044 shares of the Company’s common stock per month, and (b) beginning on January 1, 2022, a base salary payable in monthly increments in an amount equal to the base salary of $330,000 per year through at least October 1, 2025, subject to annual 10% increases. |
Additional factors reviewed by our board of directors in determining appropriate base salary levels and raises include subjective factors related to corporate and individual performance. For the year ended December 31, 2022, all executive officer base salary decisions were approved by the board of directors.
We do not make matching contributions to the 401(k) Plan.
Incentive Compensation Awards
Other than the Management Incentive Plan Awards described below, no bonuses were granted in 2022 or 2021.
If our revenue grows and bonuses become affordable and justifiable, we expect to use the following parameters in justifying and quantifying bonuses for our Named Executive Officers and other officers of the Company: (1) the growth in our revenue, (2) the growth in our earnings before interest, taxes, depreciation and amortization, as adjusted (“EBITDA”), and (3) our stock price. The board has not adopted specific performance goals and target bonus amounts, but may do so in the future.
Equity Incentive Awards
Effective June 10, 2010, as amended on February 22, 2011 and March 2, 2012, our board of directors adopted the Amended and Restated 2012 Stock Incentive Plan (the 2012 Plan) under which a total of 25,000 shares of our common stock (as adjusted for the reverse stock split) have been reserved for issuance as restricted stock or pursuant to the grant and exercise of stock options. The 2012 Plan has been approved by the holders of a majority of our outstanding shares.
Effective December 12, 2016, our board of directors adopted the 2016 Non-Qualified Stock Option Plan (the 2016 Plan) under which a total of 12,712 shares of our common stock (as adjusted for the reverse stock split) have been reserved for issuance pursuant to the grant and exercise of non-qualified stock options.
Effective December 5, 2019, as amended on October 1, 2020, January 4, 2021 and again on March 19, 2021, our board of directors adopted the 2020 Stock Incentive Plan (the “2020 Plan”) under which a total of 814,150 shares of our common stock have been reserved for issuance pursuant to the grant and exercise of stock options. The amendments were approved by a majority of shareholders of record on September 3, 2021.
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Benefits and Prerequisites
At this stage of our business, we have benefits that are generally comparable to those offered by other small private and public companies and no prerequisites for our employees. Other than a 401(k) Plan, we do not have any other retirement plan for our Named Executive Officers. We may adopt these plans and confer other fringe benefits for our executive officers in the future.
Executive Officer Compensation
The following table sets forth the total compensation paid in all forms to our named executive officers of the Company during the periods indicated:
| Summary Compensation Table | ||||||||||||||||||||||||||||||||
Name and Principal Position | Year | Salary | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Non-Qualified Deferred Compensation Earnings | All Other Compensation | Total | ||||||||||||||||||||||||
| Ira Goldfarb,(1) | 2022 | $ | 331,269 | $ | – | $ | – | $ | – | $ | – | $ | – | $ | 331,269 | |||||||||||||||||
| Executive Chairman | 2021 | $ | – | $ | 330,788 | $ | 295,589 | $ | – | $ | – | $ | – | $ | 626,377 | |||||||||||||||||
| Claudia Goldfarb,(2) | 2022 | $ | 293,625 | $ | – | $ | – | $ | – | $ | – | $ | – | $ | 293,625 | |||||||||||||||||
| Chief Executive Officer | 2021 | $ | – | $ | 303,259 | $ | 295,589 | $ | – | $ | – | $ | – | $ | 598,848 | |||||||||||||||||
| Brad Burke, (3) | 2022 | $ | 159,409 | $ | – | $ | 72,692 | $ | – | $ | – | $ | – | $ | 232,101 | |||||||||||||||||
| Former Chief Financial Officer | 2021 | $ | 275,000 | $ | – | $ | – | $ | – | $ | – | $ | – | $ | 454,547 | |||||||||||||||||
____________________
| (1) | Mr. Goldfarb was appointed Executive Chairman of the Board of Directors on October 1, 2020. We have agreed to compensate Mr. Goldfarb a total of $330,000 in cash per year commencing on January 1, 2022, and 6,044 shares per month through December 31, 2021. On January 4, 2021, we issued 18,133 shares for Mr. Goldfarb’s services in 2020, and a total of 72,528 shares during 2021, of which 6,044 shares were subsequently issued on March 24, 2022. On October 2, 2020, we granted Mr. Goldfarb an option to purchase 50,000 shares of common stock at an exercise price of $5.25 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 533% and a call option value of $5.2102, was $260,509. On December 28, 2020, we granted Mr. Goldfarb an option to purchase 16,500 shares of common stock at an exercise price of $4.00 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 201% and a call option value of $3.9657, was $65,435. On January 4, 2021, we granted Mr. Goldfarb an option to purchase 75,000 shares of common stock at an exercise price of $3.70 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 198% and a call option value of $3.9412, was $295,589. | |
| (2) | Mrs. Goldfarb was appointed Chief Executive Officer on October 1, 2020. We have agreed to compensate Mrs. Goldfarb a total of $292,500 in cash per year commencing on January 1, 2022, and 5,541 shares per month through December 31, 2021. On January 4, 2021, we issued 16,623 shares for Mrs. Goldfarb’s services in 2020, and a total of 66,492 shares during 2021, of which 5,541 shares were subsequently issued on March 24, 2022. On October 2, 2020, we granted Mrs. Goldfarb an option to purchase 50,000 shares of common stock at an exercise price of $5.25 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 533% and a call option value of $5.2102, was $260,509. On December 28, 2020, we granted Mrs. Goldfarb an option to purchase 16,500 shares of common stock at an exercise price of $4.00 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 201% and a call option value of $3.9657, was $65,435. On January 4, 2021, we granted Mrs. Goldfarb an option to purchase 75,000 shares of common stock at an exercise price of $3.70 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 198% and a call option value of $3.9412, was $295,589. | |
| (3) | Mr. Burke served as the Company’s Chief Financial Officer from December 28, 2020 through April 30, 2022, after serving as Interim Chief Financial Officer on an independent contractor basis from October 1, 2020. We had agreed to compensate Mr. Burke a total of $275,000 in cash per year. On April 1, 2022, we granted Mr. Burke an option to purchase 27,500 shares of common stock at an exercise price of $2.75 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 406% and a call option value of $2.6433, was $72,692. On April 21, 2021, we granted Mr. Burke an option to purchase 27,500 shares of common stock at an exercise price of $5.50 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 193% and a call option value of $5.4381, was $149,547. |
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Employment Agreements
Other than as described above, we have not entered into any employment agreements with our executive officers to date. We may enter into employment agreements with them in the future.
Outstanding Equity Awards
The following table sets forth information with respect to unexercised stock options, stock that has not vested, and equity incentive plan awards held by our executive officers at December 31, 2022.
| Outstanding Option Awards at Fiscal Year-End | ||||||||||||||
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price | Option Expiration Date | ||||||||||
| Ira Goldfarb, Executive Chairman | 25,000 | 50,000 | (1) | $ | 3.70 | January 3, 2031 | ||||||||
| -0- | 16,500 | (2) | $ | 4.00 | December 27, 2030 | |||||||||
| -0- | 50,000 | (3) | $ | 5.25 | October 1, 2030 | |||||||||
| Claudia Goldfarb, Chief Executive Officer | 25,000 | 50,000 | (1) | $ | 3.70 | January 3, 2031 | ||||||||
| -0- | 16,500 | (2) | $ | 4.00 | December 27, 2030 | |||||||||
| -0- | 50,000 | (3) | $ | 5.25 | October 1, 2030 | |||||||||
(1) Options granted on January 4, 2021, vests annually over three years.
(2) Options granted on December 28, 2020, vests 60% on third anniversary, 20% on fourth, and 20% on fifth anniversary.
(3) Options granted on October 2, 2020, vests 60% on third anniversary, 20% on fourth, and 20% on fifth anniversary.
Option Exercises and Stock Vested
None of our executive officers exercised any stock options or acquired stock through vesting of an equity award during the year ended December 31, 2022.
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Director Compensation
The following table summarizes the compensation paid or accrued by us to our directors that are not Named Executive Officers for the year ended December 31, 2022.
| Name | Fees Earned or Paid in Cash | Stock Award | Option Awards | Non-Equity Incentive Compensation | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All other Compensation | Total | |||||||||||||||||||||
| Bradley Berman | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||||||
| Chris Ludeman | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||||||
| Lyle Berman | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||||||
| Joe Mueller(1) | $ | – | $ | 24,998 | $ | 71,423 | $ | – | $ | – | $ | – | $ | 96,421 | ||||||||||||||
| Tim Creed(1) | $ | – | $ | 25,000 | $ | 87,346 | $ | – | $ | – | $ | – | $ | 112,346 | ||||||||||||||
(1) On April 11, 2022, we issued Mr. Mueller a total of 8,064 shares of common stock for annual director services. The fair value of the common stock was $24,998 based on the closing price of the Company’s common stock on the date of grant. On April 11, 2022, we granted Mr. Mueller an option to purchase 24,151 shares of common stock at an exercise price of $3.10 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 153% and a call option value of $2.9574, was $71,423.
(2) On July 22, 2022, we issued Mr. Creed a total of 6,410 shares of common stock for annual director services. The fair value of the common stock was $25,000 based on the closing price of the Company’s common stock on the date of grant. On July 22, 2022, we granted Mr. Creed an option to purchase 24,151 shares of common stock at an exercise price of $3.90 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 137% and a call option value of $3.6166, was $87,346.
Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors.
Our Board has not yet recommended policy for board compensation, however stock grants and option awards have been granted to independent directors upon joining the board. The Company has not paid cash fees to directors and has no formal compensation arrangements with its directors. While there is no set policy regarding board compensation, this may be subject to change by the directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding beneficial ownership of our common stock as of March 31, 2023, based on information obtained from the persons named below or as filed with the SEC, with respect to the beneficial ownership of shares of our common stock by: (i) each person who is known by us to own beneficially more than 5% of our common stock; (ii) each director; (iii) each named executive officer; and (iv) all of our directors and executive officers as a group. On March 31, 2023, we had 4,847,384 shares of common stock outstanding.
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As used in the table below and elsewhere in this form, the term “beneficial ownership” with respect to a security consists of sole or shared voting power, including the power to vote or direct the vote and/or sole or shared investment power, including the power to dispose or direct the disposition, with respect to the security through any contract, arrangement, understanding, relationship, or otherwise, including a right to acquire such power(s) during the next 60 days following March 31, 2023. Inclusion of shares in the table does not, however, constitute an admission that the named stockholder is a direct or indirect beneficial owner of those shares. Unless otherwise indicated, (i) each person or entity named in the table has sole voting power and investment power (or shares that power with that person’s spouse) with respect to all shares of capital stock listed as owned by that person or entity, and (ii) the address of each person or entity named in the table is c/o Sow Good Inc., 1440 N Union Bower Rd, Irving, TX 75061.
| Name, Title and Address of Beneficial Owner | Number of Shares Beneficially Owned(1) | Percentage of Ownership | ||||||
| Claudia Goldfarb, Chief Executive Officer, Interim, Chief Financial Officer, Director (2) | 2,062,912 | 40.1% | ||||||
| Ira Goldfarb, Chairman of Board(3) | 2,907,958 | 48.6% | ||||||
| Bradley Berman, Director(4) | 279,053 | 5.7% | ||||||
| Lyle Berman, Director(5) | 1,278,194 | 23.5% | ||||||
| Joe Mueller | 8,064 | *% | ||||||
| Tim Creed, Director | 6,410 | *% | ||||||
| Chris Ludeman, Director(6) | 132,892 | 2.7% | ||||||
| All Directors and Executive Officers as a Group (7 persons) | 4,686,862 | 70.1% | ||||||
Morris Goldfarb(7) 512 Seventh Avenue, 35th FL | 357,799 | 7.4% | ||||||
__________________
| * | Indicates beneficial ownership of less than 1%. | |
| (1) | Except as pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned. The total number of issued and outstanding shares and the total number of shares owned by each person does not include unexercised warrants and stock options owned by parties other than for whom the calculation is presented, and is calculated as of March 31, 2023. | |
| (2) | Includes 1,620,973 shares held in the name of S-FDF, LLC, which is an entity that Claudia owns with her spouse, Ira Goldfarb, 58,824 shares held in joint tenancy, 50,000 shares which may be purchased pursuant to stock options exercisable within 60 days of March 31, 2023, and 250,000 shares which may be purchased pursuant to warrants exercisable within 60 days of March 31, 2023 that are jointly held with her spouse, Ira Goldfarb. | |
| (3) | Includes 1,620,973 shares held in the name of S-FDF, LLC, which is an entity that Ira owns with his spouse, Claudia Goldfarb, 58,824 shares held in joint tenancy, and 50,000 shares which may be purchased pursuant to stock options exercisable within 60 days of March 31, 2023. Also includes 1,087,500 shares which may be purchased pursuant to warrants exercisable within 60 days of March 31, 2023, 250,000 of which are jointly held with his spouse, Claudia Goldfarb, 812,500 of which are held by Mr. Goldfarb's irrevocable trust, and 25,000 of which are held by IG Union Bower, for which Mr. Goldfarb is the beneficial owner. | |
| (4) | Includes 16,157 shares which may be purchased pursuant to stock options exercisable within 60 days of March 31, 2023, and 26,250 shares which may be purchased pursuant to warrants exercisable within 60 days of March 31, 2023. Also includes 23,735 shares held by certain trusts for the children of Mr. Bradley Berman, and 6,196 shares owned by Mr. Bradley Berman’s spouse. | |
| (5) | Includes 15,824 shares which may be purchased pursuant to stock options exercisable within 60 days of March 31, 2022, and 581,250 shares which may be purchased pursuant to warrants exercisable within 60 days of March 31, 2023. Does not include 123,910 shares held by trusts for the children of Mr. Lyle Berman, for which Mr. Gary Raimist is trustee. | |
| (6) | Includes 97,058 shares held by Christopher R. & Lynda M. Ludeman JTWROS. Includes 16,101 shares which may be purchased pursuant to stock options exercisable within 60 days of March 31, 2023. | |
| (7) | Includes 150,000 shares held by Sirrom, LLC, for which Morris Goldfarb is the beneficial ownership. |
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related Party Transactions
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, 2023 to the Maturity Date. On December 21, 2022 and September 29, 2022, the Company received aggregate proceeds of $250,000 and $750,000 from two of the Company’s Directors on the sale of these notes and warrants.
On April 8, 2022, the Company closed a private placement and concurrently entered into a Note and Warrant Purchase Agreement (the “Purchase Agreement”) to sell an aggregate $3,700,000 of Promissory Notes (the “Notes”) and warrants (the “Warrants”) to purchase an aggregate 925,000 shares of common stock, representing 25,000 warrant shares per $100,000 of promissory notes. Accrued interest on the Notes was payable semi-annually beginning September 30, 2022 at the rate of 6% per annum, but on August 23, 2022, the notes were amended to update the terms of the interest payment to be payable at the earlier of the maturity date or January 1, 2025, rather than being paid semi-annually. The principal amount of the Notes mature and become due and payable on April 8, 2025. The Warrants are exercisable immediately and for a period of 10 years at a price of $2.35 per share. Proceeds to the Company from the sale of the Securities were $3,700,000. 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 exercise thereof, further proceeds to the Company from the exercise of the Warrant Shares is calculated as $2,173,750. The Offering closed simultaneously with execution of the Purchase Agreement. Of the aggregate $3,700,000 of Notes, a total of $3,120,000 of Notes were sold to officers or directors, along with 780,000 of the Warrants.
Common Stock Sold for Cash
On July 2, 2021, the Company entered into a Stock Purchase Agreement with multiple accredited investors to sell and issue to the purchasers, thereunder, an aggregate of 714,701 shares of the Company’s common stock at a price of $4.25 per Share. Proceeds to the Company from the sale of the Shares were $3,037,511, of which $2,472,136 was received on June 30, 2021, and the other $565,375 was received in July 9, 2021. The shares were all issued on July 9, 2021. A total of 407,204 of these shares, or proceeds of $1,730,621 were purchased by officers and directors, including 347,057 shares, or $1,474,996, received on June 30, 2021.
On February 5, 2021, the Company entered into a Stock Purchase Agreement with multiple accredited investors to sell and issue to the purchasers an aggregate 631,250 shares of the Company’s common stock at a price of $4.00 per share for total proceeds of $2,525,000. A total of 225,000 of these shares, or proceeds of $900,000 were purchased by officers and directors.
Common Stock Issued to Officers for Services, Common Stock Payable
On December 31, 2021, the Company awarded 5,541 and 6,044 shares of common stock to Claudia and Ira Goldfarb, respectively, for services earned during December 31, 2021. The aggregate fair value of the shares was $12,467 and $13,599 for Claudia and Ira, respectively, based on the closing price of the Company’s common stock on the date of grant. The shares were subsequently issued on March 25, 2022, in satisfaction of the outstanding common stock payable.
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Common Stock Issued to Officers for Services
On various dates between January 31, 2021 and December 31, 2021, the Company issued an aggregate 60,951 and 66,484 shares in monthly increments of 5,541 and 6,044 shares to Claudia and Ira Goldfarb, respectively, for their services. The aggregate fair value of the shares was $290,792 and $317,188 for Claudia and Ira, respectively, based on the closing price of the Company’s common stock on the dates of grant.
On January 7, 2021, the Company issued an aggregate 16,623 and 18,133 shares of common stock to Claudia and Ira Goldfarb, respectively, for services from October 2020 through December 31, 2020 in satisfaction of the outstanding common stock payable at December 31, 2020. The aggregate fair value of the shares was $61,505 and $67,092 for Claudia and Ira, respectively, based on the closing price of the Company’s common stock on the date of grant, was presented as Common Stock Payable as of December 31, 2020.
Common Stock Issued to Directors for Services
On July 22, 2022, the Company accepted Mr. Joseph Lahti’s resignation from the Board of Directors and appointed Tim Creed as a member of the Board. Pursuant to the Company’s Non-Employee Director Compensation Plan, Mr. Creed received 6,410 shares of common stock as compensation. Pursuant to the Company’s 2020 Stock Incentive Plan (the “2020 Equity Plan”), Mr. Creed was also granted options to purchase 24,151 shares of the Company’s common stock at an exercise price of $3.90 per share. These options will vest 20% as of July 22, 2023 and 20% each anniversary thereafter until fully vested.
On April 11, 2022, the Company appointed Joe Mueller as a member of the Board of Directors and Audit Committee. Pursuant to the Company’s Non-Employee Director Compensation Plan, Mr. Mueller received 8,064 shares of common stock as compensation. Pursuant to the Company’s 2020 Equity Plan, Mr. Mueller was also granted options to purchase 24,151 shares of the Company’s common stock at an exercise price of $3.10 per share. These options will vest 20% as of April 11, 2023 and 20% each anniversary thereafter until fully vested.
On March 25, 2022, a newly appointed advisory board member was granted options to purchase an aggregate 6,382 shares of the Company’s common stock, having an exercise price of $2.35 per share, exercisable over a 10-year term. The options will vest 20% on each anniversary over a five-year period, until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 406% and a call option value of $2.2584, was $14,413.
On December 8, 2021, the Company issued an aggregate 41,665 shares of common stock amongst its five Directors for annual services to be rendered. The aggregate fair value of the common stock was $125,000, based on the closing price of the Company’s common stock on the date of grant. The shares were expensed upon issuance.
On December 8, 2021, the Company issued an additional 5,000 shares to Mr. Chris Ludeman, for Audit Committee Chair services. The fair value of the common stock was $15,000, based on the closing price of the Company’s common stock on the date of grant. The shares were expensed upon issuance.
On May 25, 2021, the Company issued 2,000 shares to each of two advisory board members for their services. The total aggregate fair value of the shares was $20,000, based on the closing price of the Company’s common stock on the date of grant.
On January 27, 2021, upon Benjamin Oehler’s resignation, the Company appointed Chris Ludeman as a member of the Board of Directors of the Company, and appointed him to the Company’s Audit Committee as Chairperson. Pursuant to his appointment, Mr. Ludeman was issued 6,400 shares of common stock for his services to be rendered. The aggregate fair value of the common stock was $40,000, based on the closing price of the Company’s common stock on the date of grant.
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Options Granted for Services to Officers and Directors
On May 25, 2021, two advisory board members were granted options to purchase an aggregate 6,000 shares of the Company’s common stock, having an exercise price of $5.00 per share, exercisable over a 10-year term. The options will vest 60% on the third anniversary, and 20% each anniversary thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 191% and a call option value of $4.9272, was $29,562.
On January 27, 2021, one of our Directors, Mr. Chris Ludeman, was granted options to purchase 24,151 shares of the Company’s common stock, having an exercise price of $6.25 per share, exercisable over a 10-year term. The options will vest in three equal annual installments beginning of January 27, 2022 and continuing on each of the two anniversaries thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 198% and a call option value of $6.1794, was $149,239. The options are being expensed over the vesting period, resulting in $22,815 of stock-based compensation expense during the year ended December 31, 2021. As of December 31, 2021, a total of $126,424 of unamortized expenses are expected to be expensed over the vesting period.
On January 4, 2021, our CEO and Chairman, Claudia and Ira Goldfarb, were each granted options to purchase 75,000 shares of the Company’s common stock, having an exercise price of $3.70 per share, exercisable over a 10-year term. The options will vest in three equal installments beginning of January 4, 2022 and continuing on each of the two anniversaries thereafter until fully vested. The aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 198% and a call option value of $3.9412, was $591,178. The options are being expensed over the vesting period, resulting in $194,900 of stock-based compensation expense during the year ended December 31, 2021. As of December 31, 2021, a total of $396,278 of unamortized expenses are expected to be expensed over the vesting period.
Warrants Granted
On December 31, 2021, the Company closed a private placement and concurrently entered into a Note and Warrant Purchase Agreement with related parties to sell an aggregate $2,075,000 of promissory notes, bearing 8% interest, and warrants to purchase an aggregate 311,250 shares of common stock, representing 15,000 warrant shares per $100,000 of promissory notes. The warrants are exercisable at a price of $2.21 per share over a ten-year term. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 198% and a call option value of $2.25, was $699,213. The warrants will be expensed as a debt discount over the life of the loans. The officers, directors and related parties receiving grants and the amounts of such grants were as follows:
| Promissory | Stock Warrant | |||||||
| Name and Title at Time of Grant | Note | Shares Granted | ||||||
| Ira and Claudia Goldfarb, Chairman and Chief Executive Officer | $ | 1,500,000 | 225,000 | |||||
| Brad Burke, Chief Financial Officer | 25,000 | 3,750 | ||||||
| Lyle Berman, Director | 500,000 | 75,000 | ||||||
| Cesar J. Gutierrez, brother of the Company’s Chief Executive Officer | 50,000 | 7,500 | ||||||
| Total: | $ | 2,075,000 | 311,250 | |||||
In consideration for four officers and director’s willingness to serve as guarantors of the Cadence Loan, the Company issued warrants to each of the Guarantors (the “Guarantor Warrants”) for the purchase of the Company’s common stock on March 12, 2020. The Guarantor Warrants entitle each Guarantor to purchase 26,250 shares of the Company's common stock (the “Warrant Shares”) at an exercise price of $4.00 per share. The Guarantor Warrants expire on March 12, 2030. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 146% and a call option value of $3.59, was $377,440. The warrants were expensed as a debt discount during the year ended December, 31, 2020. The officers and directors receiving grants and the amounts of such grants were as follows:
| Stock Warrant | ||||
| Name and Title at the Time of Grant | Shares Granted | |||
| Ken DeCubellis, former Chief Executive Officer and former Interim Chief Financial Officer | 26,250 | |||
| Bradley Berman, Director | 26,250 | |||
| Lyle Berman, Director | 26,250 | |||
| Benjamin Oehler, former Director | 26,250 | |||
| Total: | 105,000 | |||
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Lease Agreement
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.
Review and Approval of Transactions with Related Persons
The Audit Committee has adopted a related party transaction policy whereby any proposed transaction between the Company and any officer or director, any stockholder owning in excess of 5% of the Company’s stock, immediate family member of an officer or director, or an entity that is substantially owned or controlled by one of these individuals, must be approved by a majority of the disinterested members of the Audit Committee. The only exceptions to this policy are for transactions that are available to all employees of the Company generally or involve less than $25,000. If the proposed transaction involves executive or director compensation, it must be approved by the Compensation Committee. Similarly, if a significant opportunity is presented to any of the Company’s officers or directors, such officer or director must first present the opportunity to the Board for consideration.
At each meeting of the Audit Committee, the Audit Committee meets with the Company's management to discuss any proposed related party transactions. A majority of disinterested members of the Audit Committee must approve a transaction for the Company to enter into it. If approved, management will update the Audit Committee with any material changes to the approved transaction at its regularly scheduled meetings.
Director Independence
Our Common Stock is currently quoted on the OTC Bulletin Board. As such, we are not currently subject to corporate governance standards of listed companies, which require, among other things, that the majority of the board of directors be independent. We are not currently subject to corporate governance standards defining the independence of our directors, and we have chosen to define an “independent” director in accordance with the NASDAQ Global Market’s requirements for independent directors. Our Board of Directors has determined that each of our directors, other than Ira and Claudia Goldfarb, is “independent” in accordance with the NASDAQ Global Market’s requirements. Thus, a majority of the current Board of Directors is independent.
Our Board of Directors will review at least annually the independence of each director. During these reviews, our Board of Directors will consider transactions and relationships between each director (and his or her immediate family and affiliates) and us and our management to determine whether any such transactions or relationships are inconsistent with a determination that the director was independent. The Board of Directors will conduct its annual review of director independence and to determine if any transactions or relationships exist that would disqualify any of the individuals who then served as a director under the rules of the NASDAQ Stock Market, or require disclosure under SEC rules.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
M&K CPAS, PLLC (“M&K”) was the Company’s independent registered public accounting firm for the years ended December 31, 2022 and 2021 and has served the Company as its independent registered public accounting firm since our inception.
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Audit and Non-Audit Fees
The following table presents fees for professional services rendered by M&K for the audit of the Company’s annual financial statements for the years ended December 31, 2022 and 2021.
| Years Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Audit fees(1) | $ | 53,248 | $ | 48,265 | ||||
| Audit related fees | – | – | ||||||
| Tax fees | – | – | ||||||
| All other fees | – | – | ||||||
| Total | $ | 53,248 | $ | 48,265 | ||||
_________________________________
| (1) | Audit fees were principally for audit services and work performed in the preparation and review of the Company’s quarterly reports on Form 10-Q. |
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of the Independent Registered Public Accounting Firm
The Audit Committee is responsible for appointing, setting compensation for, and overseeing the work of the Company’s independent registered public accounting firm. The Audit Committee has established a policy regarding pre-approval of all audit and permissible non-audit services provided by the independent registered public accounting firm, and all such services were approved by the Audit Committee in the years ended December 31, 2022 and 2021.
The Audit Committee assesses requests for services by the independent registered public accounting firm using several factors. The Audit Committee will consider whether such services are consistent with the Public Company Accounting Oversight Board’s and SEC’s rules on auditor independence. In addition, the Audit Committee will determine whether the independent registered public accounting firm is best positioned to provide the most effective and efficient service based upon the members’ familiarity with the Company’s business, people, culture, accounting systems, risk profile and whether the service might enhance the Company’s ability to manage or control risk or improve audit quality.
Report of the Audit Committee
The primary purpose of the Audit Committee is to assist the Board of Directors in its general oversight of the Company’s financial reporting process. The Audit Committee’s function is more fully described in its charter, which can be found on the Company’s website at www.sowginc.com. The Committee reviews the charter on an annual basis. The Board of Directors has determined that each member of the Committee is independent in accordance with the NASDAQ Global Market’s requirements for independent directors. The Board of Directors has also determined that Chris Ludeman qualifies as an “audit committee financial expert” within the meaning of Item 407(d)(5) of Regulation S-K. Management has the primary responsibility for the financial statements and reporting process. The independent registered public accounting firm is responsible for auditing those financial statements and expressing an opinion on the fairness of the audited financial statements based on the audit conducted in accordance with the standards of the Public Company Accounting Oversight Board.
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In connection with the Audit Committee’s responsibilities set forth in its charter, the Audit Committee has:
| Reviewed and discussed the audited financial statements for the year ended December 31, 2022 with management and M&K CPAS, PLLC, the Company’s independent auditors; |
| Discussed with M&K CPAS, PLLC the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board ("PCAOB") and the SEC; and |
| Received the written disclosures and the letter from M&K CPAS, PLLC required by the applicable requirements of the PCAOB regarding M&K CPAS, PLLC’s communications with the audit committee concerning independence, and has discussed with M&K CPAS, PLLC its independence. |
The Audit Committee also considered, as it determined appropriate, tax matters and other areas of financial reporting and the audit process over which the Audit Committee has oversight.
Based on the Audit Committee’s review and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for filing with the SEC.
| THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS |
| Chris Ludeman, Chairman |
| Joe Mueller |
| Lyle Berman |
|
Tim Creed |
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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Exhibits
| Exhibit No | Description |
| 2.1 | Distribution Agreement by and between Ante4, Inc. (now Voyager Oil & Gas, Inc.) and Ante5, Inc. (now Sow Good Inc.), dated April 16, 2010 (incorporated by reference to Exhibit 10.1 of the Form 8-K filed with the Securities and Exchange Commissioner by Voyager Oil & Gas, Inc. on April 19, 2010) |
| 2.2 | Certificate of Ownership and Merger (incorporated by reference to Exhibit 3.3 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on April 3, 2012) |
| 2.3 | Plan and Agreement of Merger by and between Black Ridge Oil & Gas, Inc. and Black Ridge Oil & Gas, Inc., dated December 10, 2012 (incorporated by reference to Exhibit 2.1 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on December 12, 2012) |
| 2.4 | Agreement and Plan of Merger by and between Sow Good Inc. and Black Ridge Oil & Gas, Inc., dated January 20, 2021 (incorporated by reference to Exhibit 2.1 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on January 22, 2021) |
| 3.1 | Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on December 12, 2012) |
| 3.2 | Certificate of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on February 21, 2020) |
| 3.3 | Bylaws (incorporated by reference to Exhibit 3.2 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on December 12, 2012) |
| 3.4 | Articles of Merger by and between Sow Good Inc. and Black Ridge Oil & Gas, Inc., dated January 20, 2021 (incorporated by reference to Exhibit 3.1 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on January 22, 2021) |
| 4.1 | Black Ridge Oil & Gas, Inc. 2012 Amended and Restated Stock Incentive Plan (incorporated by reference from Schedule 14C filed with the Securities and Exchange Commission by Sow Good Inc. on March 26, 2012) |
| 4.2 | Black Ridge Oil & Gas Amendment of 2012 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on September 27, 2012) |
| 4.3 | Form of Stock Incentive Agreement (incorporated by reference to Exhibit 10.2 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on September 27, 2012) |
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| 4.4 | 2016 Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 99.1 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on December 14, 2016) |
| 4.5 | Form of Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 99.2 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on December 14, 2016) |
| 4.6 | 2018 Stock Management Incentive Plan (incorporated by reference to Exhibit 10.1 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on March 6, 2018) |
| 4.7 | Form of 2018 Management Incentive Award Agreement (incorporated by reference to Exhibit 10.2 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on March 6, 2018) |
| 4.8 | 2020 Stock Incentive Plan (incorporated by reference to Annex C of the DEF 14C filed with the Securities and Exchange Commission by Sow Good Inc. on January 10, 2020) |
| 4.9 | Amendment to 2020 Stock Incentive Plan, dated October 1, 2020 (incorporated by reference to Exhibit 4.9 of the Form 10-K filed with the Securities and Exchange Commission by Sow Good Inc. on March 31, 2021) |
| 4.10 | Amendment to 2020 Stock Incentive Plan, dated January 4, 2021 (incorporated by reference to Exhibit 4.10 of the Form 10-K filed with the Securities and Exchange Commission by Sow Good Inc. on March 31, 2021) |
| 4.11 | Amendment to 2020 Stock Incentive Plan, dated March 19, 2021 (incorporated by reference to Exhibit 4.11 of the Form 10-K filed with the Securities and Exchange Commission by Sow Good Inc. on March 31, 2021) |
| 4.12 | Form of 2020 Incentive Stock Option Grant Agreement (incorporated by reference to Exhibit 99.1 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on February 26, 2020) |
| 4.13 | Form of 2020 Non-Qualified Stock Option Grant Agreement (incorporated by reference to Exhibit 99.2 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on February 26, 2020) |
| 4.14 | Description of Securities (incorporated by reference to Exhibit 4.14 of the Form 10-K filed with the Securities and Exchange Commission by Sow Good Inc. on March 31, 2021) |
| 4.15 | Form of Common Stock Warrant (incorporated by reference to Exhibit 4.1 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on January 4, 2022) |
| 4.16 | Form of April 2022 Common Stock Warrant (incorporated by reference to Exhibit 4.1 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on April 14, 2022) |
| 42 |
| 43 |
None.
| 44 |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Dated: April 14, 2023 | SOW GOOD INC. |
| By: /s/ Claudia Goldfarb | |
| Claudia Goldfarb, Chief Executive Officer | |
| (Principal Executive Officer) |
| 45 |
Each of the undersigned members of the Board of Directors of SOW GOOD INC., whose signature appears below hereby constitutes and appoints Claudia Goldfarb, such person’s true and lawful attorney-in-fact and agent with full power of substitution and resubstitution for such person and in such name, place and stead, in any and all capacities, to sign the Form 10-K for the year ended December 31, 2022 (the “Annual Report”) of SOW GOOD INC. and any or all amendments to such Annual Report, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, and Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed by the following persons in the capacities indicated on the dates indicated.
| By: /s/ Claudia Goldfarb | Dated: April 14, 2023 |
| Claudia Goldfarb, Chief Executive Officer and Interim Chief Financial Officer | |
| (Principal Executive Officer) | |
| By: /s/ Ira Goldfarb | Dated: April 14, 2023 |
| Ira Goldfarb, Executive Chairman | |
| By: /s/ Bradley Berman | Dated: April 14, 2023 |
| Bradley Berman, Director | |
| By: /s/ Lyle Berman | Dated: April 14, 2023 |
| Lyle Berman, Director | |
| By: /s/ Joe Mueller | Dated: April 14, 2023 |
| Joe Mueller, Director | |
| By: /s/ Chris Ludeman | Dated: April 14, 2023 |
| Chris Ludeman, Director | |
| By: /s/ Tim Creed | Dated: April 14, 2023 |
| Tim Creed, Director |
| 46 |
| This ‘10-K’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 12/31/37 | ||||
| 1/3/31 | ||||
| 12/27/30 | ||||
| 10/1/30 | ||||
| 3/12/30 | ||||
| 10/1/25 | ||||
| 9/15/25 | ||||
| 8/31/25 | ||||
| 8/23/25 | ||||
| 4/8/25 | ||||
| 1/1/25 | ||||
| 12/31/24 | ||||
| 8/23/23 | ||||
| 7/22/23 | ||||
| Filed on: | 4/14/23 | |||
| 4/12/23 | ||||
| 4/11/23 | ||||
| 3/31/23 | NT 10-K | |||
| 3/7/23 | ||||
| 1/5/23 | ||||
| For Period end: | 12/31/22 | NT 10-K | ||
| 12/21/22 | ||||
| 12/15/22 | ||||
| 9/30/22 | 10-Q | |||
| 9/29/22 | ||||
| 8/25/22 | 4, 8-K | |||
| 8/23/22 | 4, 8-K | |||
| 7/22/22 | 3, 4, 8-K | |||
| 7/1/22 | ||||
| 6/30/22 | 10-Q | |||
| 5/3/22 | 8-K | |||
| 4/30/22 | 8-K | |||
| 4/20/22 | ||||
| 4/14/22 | 4, 8-K | |||
| 4/11/22 | 3, 4, 8-K | |||
| 4/8/22 | 4, 8-K | |||
| 4/1/22 | 4 | |||
| 3/31/22 | 10-Q | |||
| 3/30/22 | ||||
| 3/25/22 | 4 | |||
| 3/24/22 | ||||
| 1/27/22 | ||||
| 1/4/22 | 8-K | |||
| 1/1/22 | ||||
| 12/31/21 | 10-K, 4, 8-K | |||
| 12/15/21 | ||||
| 12/8/21 | ||||
| 9/15/21 | ||||
| 9/3/21 | ||||
| 8/27/21 | ||||
| 7/23/21 | ||||
| 7/9/21 | ||||
| 7/7/21 | 4, 8-K, D | |||
| 7/2/21 | 4, 8-K | |||
| 6/30/21 | 10-Q | |||
| 6/16/21 | ||||
| 5/25/21 | ||||
| 5/5/21 | ||||
| 4/22/21 | 4 | |||
| 4/21/21 | ||||
| 3/31/21 | 10-K, 10-Q | |||
| 3/19/21 | 8-K | |||
| 2/5/21 | 4, 8-K | |||
| 1/31/21 | ||||
| 1/27/21 | 3, 4, 8-K | |||
| 1/22/21 | 8-K | |||
| 1/21/21 | ||||
| 1/7/21 | ||||
| 1/4/21 | 4, 8-K | |||
| 12/31/20 | 10-K | |||
| 12/28/20 | 4, 8-K | |||
| 10/6/20 | 3, 8-K | |||
| 10/2/20 | ||||
| 10/1/20 | 3, 4 | |||
| 9/29/20 | ||||
| 8/11/20 | 10-Q | |||
| 8/10/20 | 4 | |||
| 6/17/20 | SC 13D/A | |||
| 6/16/20 | 8-K | |||
| 6/9/20 | ||||
| 3/12/20 | 4 | |||
| 2/26/20 | 4, 8-K | |||
| 2/21/20 | 8-K | |||
| 1/10/20 | DEF 14C | |||
| 12/31/19 | 10-K, 10-K/A, PRE 14C | |||
| 12/5/19 | ||||
| 11/12/19 | ||||
| 8/9/19 | 4/A, 8-K | |||
| 12/19/18 | 8-K | |||
| 3/6/18 | 8-K | |||
| 1/1/18 | ||||
| 12/31/17 | 10-K, 5, NT 10-K | |||
| 12/22/17 | S-1 | |||
| 10/18/17 | 8-K | |||
| 10/10/17 | 8-K | |||
| 9/26/17 | 4, 8-K | |||
| 12/14/16 | 4, 4/A, 8-K | |||
| 12/12/16 | 4, 4/A, 8-K | |||
| 10/26/16 | 3, 4, 8-K | |||
| 3/28/13 | 10-K, 8-K | |||
| 12/12/12 | 8-K | |||
| 9/27/12 | 4, 8-K | |||
| 4/3/12 | 424B3, 8-K | |||
| 4/2/12 | 8-K | |||
| 3/26/12 | 8-K, PRE 14C | |||
| 3/2/12 | ||||
| 11/9/11 | 3, 4 | |||
| 8/22/11 | S-1 | |||
| 2/22/11 | 4, 8-K, 8-K/A | |||
| 11/15/10 | 3, 8-K | |||
| 11/12/10 | 3, 4, 8-K | |||
| 7/1/10 | ||||
| 6/10/10 | 10-12G/A, 3, 3/A | |||
| 4/19/10 | ||||
| List all Filings | ||||