Sow Good Inc.(SOWG) - 2023 Q2 - Quarterly Report

FORM 10-Q Filing Information This section presents the filing information for SOW GOOD INC.'s Quarterly Report (Form 10-Q) for the period ended June 30, 2023 - SOW GOOD INC. filed a Quarterly Report (Form 10-Q) for the period ended June 30, 2023[1] - The registrant is classified as a Non-accelerated filer and a Smaller reporting company[2] Common Stock Information as of August 14, 2023 | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------ | :---------------- | :---------------------------------------- | | Common Stock | SOWG | OTCQB | Outstanding Shares: 4,868,083 shares of common stock outstanding as of August 14, 2023 Table of Contents This section outlines the report's structure, providing an organized list of all chapters and sub-sections for navigation PART I - FINANCIAL INFORMATION This part presents the unaudited condensed financial statements and management's discussion and analysis of the company's financial condition and results of operations ITEM 1. FINANCIAL STATEMENTS (Unaudited) This section presents the unaudited condensed financial statements for Sow Good Inc., including the balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with detailed notes explaining the company's accounting policies, financial instruments, debt, equity, and other commitments Condensed Balance Sheets This section provides a comparative overview of the company's financial position at June 30, 2023, and December 31, 2022 Condensed Balance Sheet Highlights (June 30, 2023 vs. December 31, 2022) | Metric | June 30, 2023 | December 31, 2022 | | :------------------------- | :------------ | :---------------- | | Total Assets | $8,585,740 | $8,898,577 | | Total Liabilities | $7,790,899 | $6,087,690 | | Total Stockholders' Equity | $794,841 | $2,810,887 | | Current Assets | $2,058,508 | $2,578,057 | | Current Liabilities | $1,383,976 | $890,177 | | Inventory | $918,969 | $1,972,879 | | Property and equipment, net| $5,241,759 | $5,034,995 | - Total assets decreased by approximately $312,837, primarily due to a significant decrease in inventory and construction in progress, partially offset by an increase in property and equipment[6] - Total liabilities increased by approximately $1,703,209, driven by a substantial rise in notes payable to related parties and accrued expenses[6] - Total stockholders' equity decreased by approximately $2,016,046, mainly due to the accumulated deficit increasing from $(55,679,562) to $(60,401,992)[6] Condensed Statements of Operations This section details the company's financial performance, including revenues, costs, and net loss, for the three and six months ended June 30, 2023 and 2022 Key Financial Performance (Three Months Ended June 30) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :----------------- | :------------ | :------------ | :------------ | :--------- | | Revenues | $1,315,347 | $244,943 | $1,070,404 | 437.0% | | Cost of Goods Sold | $2,695,820 | $150,603 | $2,545,217 | 1690.0% | | Gross Profit (Loss)| $(1,380,473) | $94,340 | $(1,474,813) | -1563.3% | | Operating Expenses | $1,092,918 | $1,851,677 | $(758,759) | -41.0% | | Net Operating Loss | $(2,473,391) | $(1,757,337) | $716,054 | 40.7% | | Interest Expense | $(847,509) | $(355,452) | $492,057 | 138.4% | | Net Loss | $(3,320,900) | $(2,112,789) | $1,208,111 | 57.2% | | EPS (Basic & Diluted)| $(0.68) | $(0.44) | $(0.24) | 54.5% | Key Financial Performance (Six Months Ended June 30) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :----------------- | :------------ | :------------ | :------------ | :--------- | | Revenues | $1,514,277 | $293,315 | $1,220,962 | 416.3% | | Cost of Goods Sold | $2,772,500 | $198,094 | $2,574,406 | 1300.0% | | Gross Profit (Loss)| $(1,258,223) | $95,221 | $(1,353,444) | -1421.4% | | Operating Expenses | $2,118,362 | $3,300,827 | $(1,182,465) | -35.8% | | Net Operating Loss | $(3,376,585) | $(3,205,606) | $(170,979) | 5.3% | | Interest Expense | $(1,345,845) | $(459,245) | $886,600 | 193.0% | | Net Loss | $(4,722,430) | $(3,664,851) | $1,057,579 | 28.9% | | EPS (Basic & Diluted)| $(0.97) | $(0.76) | $(0.21) | 27.6% | Statements of Changes in Stockholders' Equity This section outlines the changes in the company's stockholders' equity, including common stock issuances, warrant grants, and net loss, for the three and six months ended June 30, 2023 and 2022 Changes in Stockholders' Equity (Three Months Ended June 30, 2023) | Item | Common Stock Shares | Common Stock Amount | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders' Equity | | :------------------------------------------ | :------------------ | :------------------ | :------------------------- | :------------------ | :------------------------- | | Balance, March 31, 2023 | 4,847,384 | $4,847 | $59,484,859 | $(57,081,092) | $2,408,614 | | Common stock issued to officers/directors | 20,699 | $21 | $125,208 | – | $125,229 | | Common stock warrants granted (related parties) | – | – | $1,075,904 | – | $1,075,904 | | Common stock warrants granted (note holders) | – | – | $374,153 | – | $374,153 | | Common stock options granted (officers/directors) | – | – | $112,974 | – | $112,974 | | Common stock options granted (employees/advisors) | – | – | $18,867 | – | $18,867 | | Net loss for the period | – | – | – | $(3,320,900) | $(3,320,900) | | Balance, June 30, 2023 | 4,868,083 | $4,868 | $61,191,965 | $(60,401,992) | $794,841 | Changes in Stockholders' Equity (Six Months Ended June 30, 2023) | Item | Common Stock Shares | Common Stock Amount | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders' Equity | | :------------------------------------------ | :------------------ | :------------------ | :------------------------- | :------------------ | :------------------------- | | Balance, December 31, 2022 | 4,847,384 | $4,847 | $58,485,602 | $(55,679,562) | $2,810,887 | | Common stock issued to officers/directors | 20,699 | $21 | $125,208 | – | $125,229 | | Common stock warrants granted (related parties) | – | – | $1,948,325 | – | $1,948,325 | | Common stock warrants granted (note holders) | – | – | $374,153 | – | $374,153 | | Common stock options granted (officers/directors) | – | – | $224,707 | – | $224,707 | | Common stock options granted (employees/advisors) | – | – | $33,970 | – | $33,970 | | Net loss for the period | – | – | – | $(4,722,430) | $(4,722,430) | | Balance, June 30, 2023 | 4,868,083 | $4,868 | $61,191,965 | $(60,401,992) | $794,841 | Condensed Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2023 and 2022 Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2023 | 2022 | | :------------------------ | :------------ | :------------ | | Operating Activities | $(2,421,260) | $(2,274,361) | | Investing Activities | $(362,180) | $(2,015,033) | | Financing Activities | $2,800,000 | $3,700,000 | | Net Change in Cash | $16,560 | $(589,394) | | Cash at Beginning of Period | $276,464 | $3,345,928 | | Cash at End of Period | $293,024 | $2,756,534 | - Net cash used in operating activities increased by $146,899, primarily due to increased inventory purchases, partially offset by higher revenues and lower labor costs[13][14][145] - Net cash used in investing activities decreased significantly by $1,652,853, as the company completed its second and third freeze driers and office leasehold improvements in 2023, compared to higher fixed asset and trademark purchases in 2022[14][146] - Net cash provided by financing activities decreased by $900,000, with $2,800,000 raised in 2023 from debt financing (related parties and others) compared to $3,700,000 in 2022[14][147] Notes to the Condensed Financial Statements This section provides detailed explanations and disclosures regarding the accounting policies, financial instruments, debt, equity, and other commitments presented in the financial statements Note 1 – Organization and Nature of Business This note describes Sow Good Inc.'s business transformation, product launches, and capital raising activities - Sow Good Inc. (formerly Black Ridge Oil & Gas, Inc.) pivoted to the freeze-dried fruits and vegetables business in October 2020[15][16] - The company launched its direct-to-consumer freeze-dried CPG food brand, Sow Good, in May 2021, offering smoothies and snacks, and expanded with gluten-free granola products in July 2021[17][19] - In Q1 2023, Sow Good launched a freeze-dried candy product line, which is projected to be a major growth driver, leading to the construction of second and third freeze driers in Q2 2023, and plans for fourth and fifth by Q1 2024[24] - The company raised capital through private placements and promissory notes in 2021, 2022, and 2023, including $1.3 million in April/May 2023, with proceeds used for capital expenditures, working capital, and inventory[17][18][20][21][23][25] Note 2 – Basis of Presentation and Significant Accounting Policies This note outlines the accounting principles and policies used in preparing the interim financial statements, including cash management, inventory valuation, and stock-based compensation - Interim condensed financial statements are unaudited, prepared in accordance with US GAAP and SEC rules, with certain information condensed or omitted[26] - The company maintains cash in bank deposit accounts, with $45,420 exceeding FDIC insured limits at June 30, 2023[31] - Inventory is stated at average cost or net realizable value; during the six months ended June 30, 2023, the company wrote down $1,919,686 of non-candy freeze-dried inventory to focus on better-selling candy products[35] - Stock-based compensation expense for the six months ended June 30, 2023, totaled $383,906, including $258,677 from stock options and $125,229 from common stock issued for services, plus $1,054,822 from amortization of warrants issued as debt discounts[39] Note 3 – Going Concern This note addresses the company's ability to continue operations, highlighting its accumulated deficit and reliance on future capital raises - As of June 30, 2023, the company had an accumulated deficit of $60,401,992 and cash on hand of $293,024, raising substantial doubt about its ability to continue as a going concern[45] - The company's ability to sustain operations for the next twelve months and scale production is dependent on raising additional capital, as current funds are insufficient[45][47] Note 4 – Related Party This note details financial transactions and equity issuances involving the company's related parties, including directors and officers - In April and May 2023, the company raised an aggregate of $1.3 million from promissory notes and warrants, including $900,000 from related parties (directors, chairman, CEO's brother)[25][49][50] - On June 1, 2023, 20,699 shares of common stock with an aggregate fair value of $125,229 were issued to five non-employee directors for annual services[52] Note 5 – Fair Value of Financial Instruments This note provides a breakdown of the fair value measurements for the company's financial instruments, categorized by valuation input levels Fair Value of Financial Instruments (June 30, 2023) | Instrument | Level 1 | Level 2 | Level 3 | | :------------------------------ | :------------ | :------------ | :------ | | Cash and cash equivalents | $293,024 | – | – | | Notes payable, related parties | – | $4,867,705 | – | | Notes payable | – | $560,797 | – | Fair Value of Financial Instruments (December 31, 2022) | Instrument | Level 1 | Level 2 | Level 3 | | :------------------------------ | :------------ | :------------ | :------ | | Cash and cash equivalents | $276,464 | – | – | | Notes payable, related parties | – | $3,502,243 | – | | Notes payable | – | $393,915 | – | Note 6 – Prepaid Expenses This note details the composition and changes in the company's prepaid expenses, including software licenses, insurance, and rent Prepaid Expenses (June 30, 2023 vs. December 31, 2022) | Category | June 30, 2023 | December 31, 2022 | | :------------------------ | :------------ | :---------------- | | Prepaid software licenses | $60,961 | $36,424 | | Prepaid insurance costs | $14,284 | $16,746 | | Trade show advances | $25,728 | $18,707 | | Prepaid rent | $13,340 | $27,043 | | Prepaid office and other | $5,530 | $38,772 | | Total | $119,843 | $137,692 | - Total prepaid expenses decreased from $137,692 at December 31, 2022, to $119,843 at June 30, 2023, primarily due to decreases in prepaid rent and office/other costs, partially offset by an increase in prepaid software licenses[59] Note 7 – Property and Equipment This note provides a breakdown of the company's property and equipment, including machinery, leasehold improvements, and construction in progress, along with depreciation details Property and Equipment, Net (June 30, 2023 vs. December 31, 2022) | Category | June 30, 2023 | December 31, 2022 | | :------------------------ | :------------ | :---------------- | | Machinery | $4,357,267 | $1,643,010 | | Leasehold improvements | $1,392,704 | $1,257,108 | | Construction in progress | – | $2,487,673 | | Total property and equipment, net | $5,241,759 | $5,034,995 | - Construction in progress of $2,487,673 at December 31, 2022, was capitalized as Machinery ($2,705,524) and Leasehold Improvements ($135,596) during the six months ended June 30, 2023, as the second and third freeze driers and office build-outs were placed in service[60] - Depreciation expense for the six months ended June 30, 2023, was $155,416, with $71,785 allocated to inventory overhead, resulting in $83,631 recognized as depreciation expense[61] Note 8 – Leases This note describes the company's operating lease for its facility, including lease terms, costs, and future minimum commitments - The company leases its 20,945 square foot operating and office facility under a non-cancelable real property lease expiring August 31, 2025, with two five-year extension options[63] Operating Lease Costs (Six Months Ended June 30) | Cost Component | 2023 | 2022 | | :----------------------------- | :-------- | :-------- | | Amortization of right-of-use asset | $34,817 | $33,457 | | Interest on lease liability | $38,624 | $39,984 | | Total Operating Lease Cost | $73,441 | $73,441 | Future Minimum Lease Commitments (as of June 30, 2023) | Fiscal Year Ending December 31 | Minimum Lease Commitments | | :----------------------------- | :------------------------ | | 2023 (remaining six months) | $64,843 | | 2024 | $132,917 | | 2025 | $136,905 | | 2026 | $141,012 | | 2027 and thereafter | $1,412,988 | | Total | $1,888,665 | | Less effects of discounting | $560,028 | | Lease liability recognized | $1,328,637 | Note 9 – Notes Payable, Related Parties This note details the company's debt obligations to related parties, including new notes issued, interest rates, and associated warrants - Total notes payable to related parties increased from $6,195,000 at December 31, 2022, to $8,595,000 at June 30, 2023, with new notes issued in 2023 totaling $2,400,000[69][71][73][74] - These notes bear interest rates of 6% or 8% per annum and are often accompanied by warrants to purchase common stock, with exercise prices ranging from $2.21 to $2.60 per share[69][71][73] - The company recorded $913,787 of stock-based interest expense for the six months ended June 30, 2023, due to the amortization of debt discounts on warrants granted to related parties[74] Note 10 – Notes Payable This note outlines the company's debt obligations to non-related parties, including an EIDL loan and other notes with associated warrants - Total notes payable (non-related parties) increased from $730,000 at December 31, 2022, to $1,130,000 at June 30, 2023, primarily due to a new $400,000 note issued in April 2023[77] - The notes include an EIDL loan from the SBA for $150,000 at 3.75% interest, maturing in June 2050, and other notes with 6% or 8% interest, often with warrants[77] - The company recorded $141,035 of stock-based interest expense for the six months ended June 30, 2023, from the amortization of debt discounts on warrants granted to accredited investors[77] Note 11 – Changes in Stockholders' Equity This note provides details on the company's common stock, including authorized and outstanding shares, and issuances to non-employee directors - As of June 30, 2023, the company had 4,868,083 shares of common stock issued and outstanding, with 500,000,000 authorized[79] - On June 1, 2023, 20,699 shares of common stock, valued at $125,229, were issued to five non-employee directors for services rendered[80] Note 12 – Options This note details the company's outstanding common stock options, including strike prices, weighted average life, and stock-based compensation expense - As of June 30, 2023, 637,396 common stock options were outstanding, with a weighted average strike price of $4.64 and a weighted average life of 7.8 years[82] - Stock-based compensation expense from options was $258,677 for the six months ended June 30, 2023, with a remaining unamortized balance of $1,207,685[83] - On June 5, 2023, 46,405 options were granted to employees and consultants at an exercise price of $6.05, valued at $262,851 using the Black-Scholes model, vesting over three years[84] Note 13 – Warrants This note provides information on the company's outstanding common stock warrants, including strike prices, weighted average life, and related debt discount amortization - As of June 30, 2023, 2,291,250 common stock warrants were outstanding, with a weighted average strike price of $2.50 and a weighted average life of 9 years[87] - Warrants issued in Q2 2023 related to debt financing included 25,000 shares to a director, 12,500 shares to a related trust, 187,500 shares to the Chairman's trust, and 100,000 shares to an accredited investor, all exercisable at $2.50 per share[88][89][90][92] - These warrants were issued in-the-money, fully vested, and resulted in significant stock-based compensation expense from debt discount amortization for the six months ended June 30, 2023[88][89][90][92][93][94][95][96][97] Note 14 – Income Taxes This note discusses the company's deferred tax assets and the application of a full valuation allowance, resulting in no income tax expense - As of June 30, 2023, net deferred tax assets were $9,384,000, primarily from net operating loss carryforwards[99] - A full valuation allowance of approximately $9,384,000 was applied to the net deferred tax assets, resulting in no tax expense for 2023 to date[99] Note 15 – Commitments This note outlines the company's various commitments, including potential litigation, cash balances exceeding insured limits, and lease obligations - The company is not currently a defendant in any material litigation and is not aware of any threatened litigation that could materially affect its financial position[102] - The company periodically holds cash balances exceeding federally insured amounts, with the extent of potential loss not estimable[103] - The company has lease commitments for its Irving, Texas facility, with the lease term through September 15, 2025, and two five-year extension options[104] Note 16 – Subsequent Events This note discloses significant events that occurred after the balance sheet date, including a financing escrow and new option grants - As of August 14, 2023, the company is holding $1,100,000 in escrow related to a financing that must be completed by August 31, 2023, or the funds will be returned[105] - In July 2023, options to purchase an aggregate of 16,000 shares of common stock were granted to employees, with exercise prices of $4.87 and $4.18, vesting over three years[106][107] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial condition and results of operations, including an overview of its business, a discussion of its going concern uncertainty, and a detailed analysis of revenues, costs, and expenses for the three and six months ended June 30, 2023 and 2022, along with liquidity and capital resources Cautionary Statements This section highlights the forward-looking nature of the report and the inherent risks and uncertainties that could impact actual results - The report includes forward-looking statements subject to inherent risks and uncertainties that could cause actual results to differ materially[111] - Key risks include stock price volatility, low trading volume, potential fluctuation in quarterly results, inability to maintain adequate liquidity, failure to obtain sufficient sales, supply chain disruptions, cost increases, litigation, and risks related to OTCQB trading requirements[111] Overview and Outlook This section provides a high-level summary of Sow Good's business, its position in the freeze-dried food industry, and future growth strategies - Sow Good is an innovative leader in the freeze-dried food industry, operating in both direct-to-consumer and business-to-business channels[113] - The company launched its freeze-dried candy line in Q1 2023, which is expected to be a major growth driver, leading to the construction of additional freeze driers to meet rapidly increasing retail demand and partnerships with major retailers[113] Going Concern Uncertainty This section discusses the significant doubt about the company's ability to continue as a going concern due to its accumulated deficit and insufficient cash - As of June 30, 2023, the company had an accumulated deficit of $60,401,992 and cash on hand of $293,024, raising substantial doubt about its ability to continue as a going concern[114] - Management is actively seeking additional capital through various financing transactions (equity or debt) to fund operations and scale production, as current resources are insufficient[115] Results of Operations (Three Months) This section analyzes the company's financial performance for the three months ended June 30, 2023, compared to the prior year, focusing on revenue, cost of goods sold, and net loss Financial Performance (Three Months Ended June 30) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :----------------- | :------------ | :------------ | :------------ | :--------- | | Revenues | $1,315,347 | $244,943 | $1,070,404 | 437.0% | | Cost of Goods Sold | $2,695,820 | $150,603 | $2,545,217 | 1690.0% | | Gross Profit (Loss)| $(1,380,473) | $94,340 | $(1,474,813) | -1563.3% | | Operating Expenses | $1,092,918 | $1,851,677 | $(758,759) | -41.0% | | Net Operating Loss | $(2,473,391) | $(1,757,337) | $716,054 | 40.7% | | Interest Expense | $(847,509) | $(355,452) | $492,057 | 138.4% | | Net Loss | $(3,320,900) | $(2,112,789) | $1,208,111 | 57.2% | - Revenues increased by 437% to $1,315,347, driven by the pivot to freeze-dried candy sales and expanded business-to-business channels[120] - Cost of goods sold surged by 1,690% to $2,695,820, primarily due to a one-time inventory write-down of $1,919,686 for non-candy products, resulting in a negative gross profit margin of 105% (would have been 41% without impairment)[121] - Salaries and benefits decreased by 57% due to reduced personnel and the CEO absorbing the interim CFO role, while interest expense increased by 138% due to higher amortization of warrants issued as debt discounts[122][127] - Net loss increased by 57% to $3,320,900, mainly due to the inventory impairment and increased interest expense, partially offset by higher revenues and improved labor costs[128] Results of Operations (Six Months) This section analyzes the company's financial performance for the six months ended June 30, 2023, compared to the prior year, focusing on revenue, cost of goods sold, and net loss Financial Performance (Six Months Ended June 30) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :----------------- | :------------ | :------------ | :--------- | :--------- | | Revenues | $1,514,277 | $293,315 | $1,220,962 | 416.3% | | Cost of Goods Sold | $2,772,500 | $198,094 | $2,574,406 | 1300.0% | | Gross Profit (Loss)| $(1,258,223) | $95,221 | $(1,353,444) | -1421.4% | | Operating Expenses | $2,118,362 | $3,300,827 | $(1,182,465) | -35.8% | | Net Operating Loss | $(3,376,585) | $(3,205,606) | $(170,979) | 5.3% | | Interest Expense | $(1,345,845) | $(459,245) | $886,600 | 193.0% | | Net Loss | $(4,722,430) | $(3,664,851) | $1,057,579 | 28.9% | - Revenues increased by 416% to $1,514,277, driven by the shift to freeze-dried candy and expanded business-to-business sales[132] - Cost of goods sold increased by 1,300% to $2,772,500, primarily due to a $1,919,686 inventory write-down, resulting in a negative gross profit margin of 83% (would have been 44% without impairment)[133] - Salaries and benefits decreased by 50% due to reduced personnel, and interest expense increased by 193% due to higher amortization of warrants issued as debt discounts[134][138] - Net loss increased by 29% to $4,722,430, mainly due to the inventory impairment and increased interest expense, partially offset by improved labor costs and higher revenues[139] Liquidity and Capital Resources This section assesses the company's ability to meet its short-term and long-term financial obligations, including working capital, cash flows, and future funding plans Working Capital (June 30, 2023 vs. December 31, 2022) | Metric | June 30, 2023 | December 31, 2022 | | :---------------- | :------------ | :---------------- | | Current Assets | $2,058,508 | $2,578,057 | | Current Liabilities | $1,383,976 | $890,177 | | Working Capital | $674,532 | $1,687,880 | Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2023 | 2022 | | :------------------------ | :------------ | :------------ | | Operating Activities | $(2,421,260) | $(2,274,361) | | Investing Activities | $(362,180) | $(2,015,033) | | Financing Activities | $2,800,000 | $3,700,000 | | Net Change in Cash | $16,560 | $(589,394) | - As of June 30, 2023, the company had $293,024 in cash and $674,532 in working capital, which is insufficient to sustain operations for the next twelve months[141][148] - The company plans to satisfy future cash requirements through existing cash and additional equity or debt financing, as its ability to scale production and distribution depends on raising more capital[148] Off-Balance Sheet Arrangements This section confirms the absence of any off-balance sheet arrangements that could materially affect the company's financial position - The company has no off-balance sheet arrangements[149] Critical Accounting Policies and Estimates This section highlights the key accounting policies and estimates that require significant management judgment in the preparation of the financial statements - The financial statements are prepared in accordance with GAAP, requiring management to make estimates and judgments that affect reported amounts[150] - Critical accounting policies are detailed in Note 2 of the footnotes to the financial statements in this Form 10-Q and the Annual Report on Form 10-K[151] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, Sow Good Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is exempt from providing market risk disclosures as it qualifies as a 'smaller reporting company'[153] ITEM 4. CONTROLS AND PROCEDURES Management concluded that the company's disclosure controls and procedures were ineffective as of June 30, 2023, primarily due to limited finance staff and lack of optimal segregation of duties. Despite these material weaknesses, additional procedures were performed to ensure the financial statements fairly present the company's financial position - Management, under the direction of the CEO and Interim CFO, concluded that disclosure controls and procedures were ineffective as of June 30, 2023[154] - Material weaknesses identified include insufficient finance staff for optimal segregation of duties and oversight, leading to potential material misstatements in future periods[154] - Despite the weaknesses, management performed additional analyses to ensure the financial statements fairly present the company's financial position, results of operations, and cash flows[155] - No changes in internal control over financial reporting materially affected or are reasonably likely to materially affect the company's internal control during the three-month period ended June 30, 2023[156] PART II - OTHER INFORMATION This part contains additional information not included in the financial statements, such as legal proceedings, risk factors, equity sales, and exhibits ITEM 1. LEGAL PROCEEDINGS Sow Good Inc. is not currently involved in any material legal proceedings, nor is it aware of any threatened litigation that could significantly impact its business - The company is not a party to any material legal proceedings and is unaware of any threatened litigation that could have a material effect on its operations[158] ITEM 1A. RISK FACTORS As a smaller reporting company, Sow Good Inc. is not required to provide a detailed discussion of risk factors in this report - The company is exempt from providing risk factor information as it qualifies as a 'smaller reporting company'[159] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section details the unregistered issuance of common stock to non-employee directors for services rendered during the three-month period ended June 30, 2023 - On June 1, 2023, 20,699 shares of common stock were issued to five non-employee board members for services rendered, exempt from registration requirements[160] ITEM 3. DEFAULTS UPON SENIOR SECURITIES Sow Good Inc. reported no defaults upon senior securities during the period - There were no defaults upon senior securities[161] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to Sow Good Inc.'s operations - This item is not applicable to the company[161] ITEM 5. OTHER INFORMATION Sow Good Inc. reported no other information requiring disclosure under this item - No other information is reported under this item[161] ITEM 6. EXHIBITS This section lists all exhibits filed as part of the Form 10-Q, including organizational documents, warrant forms, employment agreements, stock incentive plan amendments, and promissory note agreements - The exhibits include various corporate documents such as Certificate of Incorporation, Bylaws, Articles of Merger, Common Stock Warrant forms, Employment Agreements, and amendments to the 2020 Stock Incentive Plan[164] - Promissory Note and Warrant Purchase Agreements from 2022 and 2023 are also listed as exhibits[164] - Certifications under Section 302 and Section 906, along with XBRL documents, are filed herewith[164] SIGNATURES The report is duly signed on behalf of Sow Good Inc. by its Chief Executive Officer and Interim Chief Financial Officer - The report was signed by Claudia Goldfarb, Chief Executive Officer and Interim Chief Financial Officer, on August 14, 2023[165]