Sow Good Inc

Previous wording

Sow Good is a trailblazing U.S.-based freeze dried candy and snack manufacturer dedicated to providing consumers with innovative and explosively flavorful freeze dried treats. Sow Good has harnessed the power of our proprietary freeze drying technology and product-specialized manufacturing facility to transform traditional candy into a novel and exciting everyday confectioneries subcategory that we call freeze dried candy. We began commercializing our freeze dried candy products in the first quarter of 2023, and as of June 30, 2024, we have seventeen stock keeping units (“SKUs”) in our Sow Good Candy line of treats and five SKUs in our Sow Good Crunch Cream line. We sell our treats using an omnichannel strategy primarily focused on the wholesale and retail channels with less than 2% of sales coming from e-commerce as of June 30, 2024. As of June 30, 2024, our treats are offered for sale in over 5,850 brick-and-mortar retail outlets in the United States. The rapid demand growth for our delectable treats since their retail debut in March 2023 highlights our consumers’ excitement for our novel and explosively flavorful treats that “satisfy your sweet tooth in fewer bites.”

Current wording

Sow Good is a trailblazing U.S.-based freeze dried candy and snack manufacturer dedicated to providing consumers with innovative and explosively flavorful freeze dried treats. Sow Good has harnessed the power of our proprietary freeze drying technology and product-specialized manufacturing facility to transform traditional candy into a novel and exciting everyday confectioneries subcategory that we call freeze dried candy. We began commercializing our freeze dried candy products in the first quarter of 2023, and as of September 30, 2024, we have twenty-one stock keeping units (“SKUs”) in our Sow Good Candy line of treats and three SKUs in our Sow Good Crunch Cream line. We sell our treats using an omnichannel strategy primarily focused on the wholesale and retail channels with less than 2% of sales coming from e-commerce as of September 30, 2024. As of September 30, 2024, our treats are offered for sale in over 6,000 brick-and-mortar retail outlets in the United States. The rapid demand growth for our delectable treats since their retail debut in March 2023 highlights our consumers’ excitement for our novel and explosively flavorful treats that “satisfy your sweet tooth in fewer bites.”

Previous wording

We have custom-built a 20,945 square foot freeze drying facility in Irving, Texas, and have entered into additional co-manufacturing arrangements in China and Colombia, that together allow us to freeze dry up to thirty million units per year to our demanding quality and safety specifications. Freeze drying removes up to 99% of moisture from a product in its frozen state by applying a small amount of heat in an extremely low air pressure, near outer space-like environment, through the use of massive vacuum chambers, resulting in moisture being removed from the product at the speed of sound. This process of removing moisture from the product, which can take up to twenty-four hours, concentrates its flavor, creating a “hyper dried, hyper crunchy, and hyper flavorful” snackable treat. Our commitment to providing the most flavorful and crunchy treats extends into the product packaging process, where our employees are dedicated to hand-packaging our treats through our precision packaging process in vigilantly managed low humidity conditions to protect our treats from reintroduction to moisture.

Current wording

We have custom-built a 20,945 square foot freeze drying facility in Irving, Texas, and have entered into additional co-manufacturing arrangements in China and Colombia. Freeze drying removes up to 99% of moisture from a product in its frozen state by applying a small amount of heat in an extremely low air pressure, near outer space-like environment, through the use of massive vacuum chambers, resulting in moisture being removed from the product at the speed of sound. This process of removing moisture from the product, which can take up to twenty-four hours, concentrates its flavor, creating a “hyper dried, hyper crunchy, and hyper flavorful” snackable treat. Our commitment to providing the most flavorful and crunchy treats extends into the product packaging process, where our employees are dedicated to hand-packaging our treats through our precision packaging process in vigilantly managed low humidity conditions to protect our treats from reintroduction to moisture.

Previous wording

We have built five bespoke freeze driers using proprietary technology tailored specifically to our products, creating a truly state-of-the-art facility in Irving, Texas. We are in the process of fabricating and operationalizing our sixth freeze drier, which we anticipate will come online in our Irving, Texas facility in the third quarter of 2024. We have placed deposits on six additional freeze driers, which we aim to have operational within the next nine months in our new 324,000 square foot facility in Dallas Texas. In addition, due to strong customer demand, we have entered into co-manufacturing arrangements with third-party manufacturers whose freeze drying facilities meet our exacting production, sanitation and allergen control requirements, as well as our food quality and safety standards. Currently, all of our products manufactured by third parties are shipped to our facilities in Texas for packaging.

Current wording

We have built six bespoke freeze driers using proprietary technology tailored specifically to our products which allows us to freeze dry up to 24 million units of freeze dried candy per year, creating a truly state-of-the-art facility in Irving, Texas. We have placed deposits on six additional freeze driers, which we aim to have operational within the next nine months in our new 324,000 square foot facility in Dallas, Texas. In addition, due to strong customer demand, we have entered into co-manufacturing arrangements with third-party manufacturers whose freeze drying facilities meet our exacting production, sanitation and allergen control requirements, as well as our food quality and safety standards. Currently, all of our products manufactured by third parties are shipped to our facilities in Texas for packaging.

Previous wording

We believe the candy category is stagnant, repetitive, and in need of revitalization to reengage and captivate consumers seeking innovative ways to satisfy their sweet cravings. We see our market opportunity existing at the intersection of two categories: the burgeoning freeze dried candy and non-chocolate confections. According to the NCA, the non-chocolate confections market grew 13.8% in sales in 2022, exceeding $10 billion, and according to Grand View Research is forecasted to grow at a compounded annual growth rate of 5.8% from 2023 to 2030. We believe the nascent freeze dried candy market is poised for exponential growth given increasing consumer preferences for novel and distinctive candy products. According to the NCA, approximately 61% of shoppers occasionally or frequently seek out products they have never purchased before. Given our exceptional performance in retail launches, surging customer demand, and increasing production capacity, we are confident that we can catapult freeze dried candy from a trendy spark on social media to a stable, top-performing consumer confectionery category in retail.

Current wording

We believe the candy category is stagnant, repetitive, and in need of revitalization to reengage and captivate consumers seeking innovative ways to satisfy their sweet cravings. We see our market opportunity existing at the intersection of two categories: the burgeoning freeze dried candy and non-chocolate confections. According to the NCA, the non-chocolate confections market grew 13.8% in sales in 2022, exceeding $10 billion, and according to Grand View Research is forecasted to grow at a compounded annual growth rate of 5.8% from 2023 to 2030. We believe the nascent freeze dried candy market is poised for exponential growth given increasing consumer preferences for novel and distinctive candy products. According to the NCA, approximately 61% of shoppers occasionally or frequently seek out products they have never purchased before.

Previous wording

Our products have launched in retailers nationwide from convenience and grocery stores to big-box retailers, such as Five Below, Target, Misfits Market/Imperfect Foods, TJX Canada, Big Lots, Hy-Vee, Cracker Barrel, Circle K, 7/11, HEB Kroger and Albertsons. In addition, we sell a substantial portion of our products through distributors such as Redstone Foods, CB Distributors and Nassau Distributors. We believe there is a significant growth opportunity in increasing our shelf presence, SKU portfolio, and number of stores with our existing customers. For many of these customers, we launched with a limited number of SKUs and are now significantly outpacing initial sales projections. As we scale production, we will have the ability to increase the availability of our products to these customers in current locations and distribution to more of their stores, while also broadening our SKU portfolio offerings. Bolstering our distribution will be a key growth driver for Sow Good so more of our products are available wherever our consumers choose to shop, whether it be a retail store, convenience store, or directly online. To further support our retail launches with existing customers and strengthen our brand name, we are also introducing our product displays with distinctive designs and product highlights to enhance our visibility in current stores and educate new consumers on the advantages of freeze dried treats. We believe this strategy will capture the attention of new consumers, further educate and attract current consumers, and ultimately, increase sales for our retailers.

Current wording

Our products have launched in retailers nationwide from convenience and grocery stores to big-box retailers, such as Five Below, Target, Misfits Market/Imperfect Foods, TJX Canada, Big Lots, Hy-Vee, Cracker Barrel, Circle K, 7/11, HEB Kroger and Albertsons. In addition, we sell a substantial portion of our products through distributors such as Redstone Foods, CB Distributors and Nassau Distributors. We believe there is a significant growth opportunity in increasing our shelf presence, SKU portfolio, and number of stores with our existing customers. For many of these customers, we launched with a limited number of SKUs, with those SKUs routinely outpacing initial sales projections. As we scale production, we will have the ability to increase the availability of our products to these customers in current locations and distribution to more of their stores, while also broadening our SKU portfolio offerings. Bolstering our distribution and sales force will be a key growth driver for Sow Good so more of our products are available wherever our consumers choose to shop, whether it be a retail store, convenience store, or directly online. To further support our retail launches with existing customers and strengthen our brand name, we are also introducing our product displays with distinctive designs and product highlights to enhance our visibility in current stores and educate new consumers on the advantages of freeze dried treats. We believe this strategy will capture the attention of new consumers, further educate and attract current consumers, and ultimately, increase sales for our retailers.

Previous wording

Our highly differentiated omnichannel distribution strategy has three key components: retailers, e-commerce, and distributors. In aggregate, this omnichannel strategy provides us with a diverse set of consumers and customer partners, leading to a larger TAM opportunity than is normally available to products sold only in grocery stores, along with an opportunity to develop a direct relationship with our customers at our website, www.thisissowgood.com.

Current wording

Our highly differentiated omnichannel distribution strategy has three key components: retailers, e-commerce, and distributors. In aggregate, this omnichannel strategy provides us with a diverse set of consumers and customer partners, leading to a larger total addressable market opportunity than is normally available to products sold only in grocery stores, along with an opportunity to develop a direct relationship with our customers at our website, www.thisissowgood.comand our social medial pages.

Previous wording

Our primary focus is developing our production capacity, which requires significant working capital for inventory and supply chain management, and capital expenditures for additional freeze driers domestically and our expansion outside the United States. Our ability to effectively manage our liquidity position while increasing production capabilities will impact our cash flow and capitalization, including the need for additional working capital through future equity offerings or debt arrangements.

Current wording

Our primary focus is developing our production capacity and our customer base, which requires significant working capital for inventory and supply chain management, capital expenditures for additional freeze driers, expansion outside the United States, and additional sales and marketing expenditures. Our ability to effectively manage our liquidity position while increasing production capabilities and marketing efforts will impact our cash flow and capitalization, including the need for additional working capital through future equity offerings or debt arrangements.

Previous wording

Our goal is to substantially expand our product line over time to increase our growth opportunity and reduce product-specific risks through SKU diversification into multiple products. Our pace of growth will be partially affected by the cadence and magnitude of new product launches over time. We believe the commercialization of these new products will require us to hire additional employees within our product design and commercialization team, thereby increasing our marketing expense, as well as research and development costs within our administrative expense.

Current wording

Our goal is to substantially expand our product line over time to increase our growth opportunity and reduce product-specific risks through SKU diversification into multiple products, including freeze dried products beyond our freeze dried treats. Our pace of growth will be partially affected by the cadence and magnitude of new product launches over time. We believe the commercialization of any new products will require us to hire additional employees within our product design and commercialization team, thereby increasing our marketing expense, as well as research and development costs within our administrative expense.

Previous wording

Because we are early in our lifecycle of growth, it is difficult to discern the exact magnitude of seasonality affecting our business from a demand standpoint. While evidence of any demand seasonality is currently difficult to assess because of our growth, we anticipate certain holiday cycles such as Halloween, Christmas, Easter and Valentine’s Day contributing to revenue fluctuations within a given year. In addition, we have become aware of external data showing a general trend in candy consumer behavior regarding reduced candy purchasing in summer months due to a variety of factors including greater levels of health consciousness during warm weather. Operationally, we have seen increased difficulty with the transportation of our freeze dried treats due to recent heat waves in July and August, resulting in temporarily reduced shipments and increased inventory levels. We do anticipate a return to a normal cadence with the seasonal reduction in temperatures to a level where our treats can be shipped without damage. As a result, we anticipate an annual temporary decrease in shipments of our treats during summer months, which we believe is consistent with the greater candy industry trend.

Current wording

Because we are early in our lifecycle of growth, it is difficult to discern the exact magnitude of seasonality affecting our business from a demand standpoint. While evidence of any demand seasonality is currently difficult to assess because of our growth, we anticipate certain holiday cycles such as Halloween, Christmas, Easter and Valentine’s Day contributing to revenue fluctuations within a given year. In addition, we have become aware of external data showing a general trend in candy consumer behavior regarding reduced candy purchasing in summer months due to a variety of factors including greater levels of health consciousness during warm weather. Operationally, recent heat waves from July through October have presented challenges in transporting our freeze-dried treats. These conditions led to reduced shipments, higher inventory levels, and a decline in revenue. Additionally, some candy transported via external distribution channels during the extreme summer heat melted, impacting its shelf performance. We are actively working to remove affected products from shelves and replace them promptly to support recovery in product velocity. In the short term, these measures will impact our market reputation, sell-through rates, and operational results as we address these unforeseen challenges. We do anticipate a return to a normal cadence with the seasonal reduction in temperatures to a level where our treats can be shipped without damage. As a result, we anticipate an annual temporary decrease in shipments of our treats during summer months, which we believe is consistent with the greater candy industry trend.

Previous wording

We derive revenues from the sales of our freeze dried treats.

Current wording

We derive revenues from the sales of our freeze dried treats. The Company recognizes revenues when orders are shipped to customers.

Previous wording

Gross profit for the three months ended June 30, 2024 was $9.0 million, compared to gross loss of $1.6 million for the three months ended June 30, 2023, an increase of $10.6 million, or 670%. Our gross profit increased primarily due to significantly increased revenues, coupled with lower cost of goods sold as a percentage of sales. Our gross profit margin was 58% during the three months ended June 30, 2024, compared to (120)% for the three months ended June 30, 2023. Gross profit margin increased over the comparative period due to increased sales and production scale, raw material cost improvements and the inclusion of a large write-off of obsolete inventory during the comparative period of 2023.

Current wording

Our gross profit margin was 16% during the three months ended September 30, 2024, compared to 27% for the three months ended September 30, 2023. Our gross profit margin decreased primarily due to higher cost of goods sold as a percentage of sales.

Previous wording

Salaries and benefits for the three months ended June 30, 2024 were $2.1 million, compared to $319.6 thousand for the three months ended June 30, 2023, an increase of $1.8 million, or 564.4%. Salaries and benefits included stock-based compensation expense of $1.1 million for the three months ended June 30, 2024, compared to $131.8 thousand for the three months ended June 30, 2023, an increase of $1.0 million. Stock-based compensation consists of stock options expense for employees and officers of the Company. The increase in salaries and benefits was primarily due to the amortization of stock options granted in December 2023.

Current wording

Salaries and benefits for the three months ended September 30, 2024 were $1.9 million, compared to $618.9 thousand for the three months ended September 30, 2023, an increase of $1.3 million, or 203%. Salaries and benefits included stock-based compensation expense of $1.2 million for the three months ended September 30, 2024, compared to $111.5 thousand for the three months ended September 30, 2023, an increase of $1.0 million. Stock-based compensation consists of stock options expense for employees and officers of the Company. The increase in salaries and benefits was mainly due to the amortization of performance shares granted December 15, 2023.

Previous wording

General and administrative expenses related to professional services were $594.3 thousand for the three months ended June 30, 2024, compared to $63.3 thousand for the three months ended June 30, 2023, an increase of $530.9 thousand, or 838.4%. The increase was primarily due to increased professional service expenses as the Company scaled up the business and invested in system and process improvements and increases in professional fees in connection with our underwritten public offering and Nasdaq listing.

Current wording

General and administrative expenses related to professional services were $320.3 thousand for the three months ended September 30, 2024, compared to $294.7 thousand for the three months ended September 30, 2023, an increase of $25.6 thousand, or 9%. The increase was primarily due to increased professional service expenses as the Company scaled up the business and invested in system and process improvements.

Previous wording

Other general and administrative expenses for the three months ended June 30, 2024 were $1.4 million, compared to $500.4 thousand for the three months ended June 30, 2023, an increase of $0.9 million, or 179.6%. Other General and Administrative expense includes facilities costs to the extent they are not allocated to inventory, travel related to the public offering, and marketing and advertising costs. Share compensation to members of the Board of Directors is also included, which totaled $9.5 thousand for the three months ended June 30, 2024 compared to $125.2 thousand for the three months ended June 30, 2023.

Current wording

Other general and administrative expenses for the three months ended September 30, 2024 were $1.6 million, compared to $74.7 thousand for the three months ended September 30, 2023, an increase of $1.5 million, or 2052%. Other General and Administrative expense compared to the prior year period was primarily due to a $741.6 thousand increase in facilities costs to the extent they are not allocated to inventory related to the company’s new facility, a $325.4 thousand increase in bad debt expense due to a customer bankruptcy versus a recovery of bad debt in the prior year period, and a $265.2 thousand increase in marketing and advertising costs.

Previous wording

Depreciation of property and equipment was $199.8 thousand and $79.2 thousand, of which and $194.9 and $70 thousand was allocated to cost of goods sold, which resulted in net depreciation expense of $5 thousand and $9.2 thousand for the three months ended June 30, 2024 and 2023, respectively.

Current wording

Depreciation of property and equipment for the three months ended September 30, 2024 and 2023, respectively, was $216.2 thousand and $150.7 thousand, of which $207.6 thousand and $141.4 thousand was allocated to cost of goods sold, which resulted in net depreciation expense of $8.6 thousand and $9.3 thousand, respectively.

Previous wording

In the three months ended June 30, 2024, other expense consisted mainly of interest expense derived from notes payable and the amortization of warrants issued as a debt discount of $599.7 thousand and a loss on early extinguishment of $696.5 thousand. During the period ended June 30, 2023, interest expense on notes payable $847.5 thousand.

Current wording

In the three months ended September 30, 2024, other expense consisted mainly of interest expense derived from notes payable and the amortization of warrants issued as a debt discount of $225.1 thousand. During the period ended September 30, 2023, interest expense on notes payable was a net credit of $3.6 thousand, due to adjustments to amortized interest during the three month period ended September 30, 2023.

Previous wording

The Company maintains a full valuation allowance related to our net deferred tax assets, primarily due to our historical net loss position. For each of the six month periods ended June 30, 2024 and 2023, the Company recognized federal income tax of $257,918, and $0, respectively.

Current wording

The Company maintains a full valuation allowance related to our net deferred tax assets, primarily due to our historical net loss position. For the month periods ended September 30, 2024 and 2023, the Company recognized federal income tax benefit of tax of $62.3 thousand and a provision of $0, respectively.

Previous wording

The following table summarizes selected items from the statement of operations for the six month periods ended June 30, 2024 and June 30, 2023:

Current wording

The following table summarizes selected items from the statement of operations for the nine month periods ended September 30, 2024 and September 30, 2023:

Previous wording

Sales of freeze dried candy were $27.1 million for the six months ended June 30, 2024, compared to $1.5 million for the six months ended June 30, 2023, an increase of $25.5 million, or 1,687%. Revenues increased over the comparative period due to the pivot to freeze dried candy, the installation of new freezers, and addition of new retail customers in the current period.

Current wording

Sales of freeze dried candy were $30.6 million for the nine months ended September 30, 2024, compared to $6.5 million for the nine months ended September 30, 2023, an increase of $24.1 million, or 367%. Revenues increased over the comparative period due to the pivot to freeze dried candy, the increased capacity from the installation of new freezers, and addition of new retail customers in the current period.

Previous wording

Salaries and benefits for the six months ended June 30, 2024 were $4.5 million, compared to $831.2 thousand for the six months ended June 30, 2023, an increase of $3.6 million, or 438%. Salaries and benefits included stock-based compensation expense for the six months ended June 30, 2024 and 2023 of $2.2 million, compared to $258.7 thousand for the six months ended June 30, 2023, an increase of $1.9 million, or 754%, mainly due to the amortization of performance shares granted December 15, 2023. Other increases in salaries and benefits were cash bonuses of $850 thousand, and wages and payroll tax increases of $822.0 thousand over the comparative period, as a result of sales growth.

Current wording

Salaries and benefits for the nine months ended September 30, 2024 were $6.4 million, compared to $1.5 million for the nine months ended September 30, 2023, an increase of $4.9 million, or 338%. Salaries and benefits included stock-based compensation expense for the nine months ended September 30, 2024 and 2023 of $3.3 million, compared to $307.4 thousand for the nine months ended September 30, 2023, an increase of $3.0 million, or 939%, mainly due to the amortization of performance shares granted December 15, 2023. Other increases in salaries and benefits were cash bonuses of $850.0 thousand, and wages and payroll tax increases of $375.9 thousand over the comparative period, as a result of sales growth.

Previous wording

Professional services were $1.1 million for the 2024 period, compared to $109.5 thousand for the 2023 period, an increase of $952.6 thousand, or 870%. The increase was primarily due to an increase of $750 thousand in legal fees in connection with our underwritten public offering and Nasdaq listing and $130 thousand incurred in connection with the company growth.

Current wording

Professional services were $1.4 million for the nine months ended September 30, 2024, compared to $404.3 thousand for the nine months ended September 30, 2023, an increase of $978.1 thousand, or 242%. The increase was primarily due to an increase of $896.0 thousand in legal fees in connection with our underwritten public offering and Nasdaq listing and $263.0 thousand incurred in connection with the company growth, partially offset by a decrease of $180.0 thousand in other professional services costs.

Previous wording

Other general and administrative expenses for the six months ended June 30, 2024 was $2.3 million, compared to $884.5 thousand for the six months ended June 30, 2023, an increase of $1.4 million, or 157%. The increase is primarily attributable to higher facilities and marketing costs driven by company growth.

Current wording

Other general and administrative expenses for the nine months ended September 30, 2024 was $3.9 million, compared to $1.0 million for the nine months ended September 30, 2023, an increase of $2.9 million, or 304%. The increase is primarily attributable to higher facilities and marketing costs driven by company growth.

Previous wording

Depreciation of property and equipment was $366,784 and $155,416, of which and $352,307 and $70,040 was allocated to cost of goods sold, which resulted in net depreciation expense of $14,477 and $85,377 for the six months ended June 30, 2024 and 2023, respectively.

Current wording

Depreciation of property and equipment was $582.9 thousand and $306.1 thousand, of which and $559.9 thousand and $211.5 thousand was allocated to cost of goods sold, which resulted in net depreciation expense of $23.1 thousand and $94.6 thousand for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

In the six months ended June 30, 2024, other expense was $1.7 million, consisting of $1.0 million of interest expense on our notes payable and $696.5 thousand of loss on early extinguishment of debt. During the comparative six months ended June 30, 2023, other expense was $1.3 million, consisting of interest expense on our notes payable. Interest expense decreased by $327.5 thousand or 24%, due to full and partial repayments of notes payable during the three months ended June 30, 2024, which resulted in a loss on early extinguishment of debt, and decreased the principal upon which stated interest is calculated.

Current wording

In the nine months ended September 30, 2024, other expense was $1.9 million, consisting of $1.2 million of interest expense on our notes payable and $696.5 thousand of loss on early extinguishment of debt. During the comparative nine months ended September 30, 2023, other expense was $1.3 million, consisting of interest expense on our notes payable. Interest expense decreased by $100.0 thousand or (8%), due to full and partial repayments of notes payable during the nine months ended September 30, 2024, which resulted in a loss on early extinguishment of debt, and decreased the principal upon which stated interest is calculated.

Previous wording

Net income for the six months ended June 30, 2024 was $4.1 million, compared to a net loss of $4.7 million during the six months ended June 30, 2023, a positive change of $8.8 million. The increased net income was due primarily to higher revenues coupled with positive margins.

Current wording

Pretax net income for the nine months ended September 30, 2024 was $661.4 thousand, compared to a pretax net loss of $4.4 million during the nine months ended September 30, 2023, a positive change of $5.0 million. The increased net income was due primarily to higher revenues coupled with increased margins.

Previous wording

The Company maintains a full valuation allowance related to our net deferred tax assets, primarily due to our historical net loss position. For each of the three month periods ended June 30, 2024 and 2023, the Company recognized federal income tax of $257,918, and $0, respectively.

Current wording

The Company maintains a full valuation allowance related to our net deferred tax assets, primarily due to our historical net loss position. For each of the nine month periods ended September 30, 2024 and 2023, the Company recognized federal income tax of $195,603, and $0, respectively.

Previous wording

As of June 30, 2024, we had working capital of $26.0 million, compared to working capital of $4.5 million as of December 31, 2023. The increased working capital is mainly attributable to increases in cash, accounts receivable, and inventory, partially offset by increased accounts payable. As of June 30, 2024, our balance of cash and cash equivalents was $14.4 million, compared to $2.4 million at December 31, 2023. We expect to incur significant capital expenditures related to the development and operation of our freeze dried candy business. Our ability to scale production and distribution capabilities and further increase the value of our brands is largely dependent on our success in deploying additional capital. Our plan for satisfying our cash requirements for the next twelve months is through cash on hand and additional financing in the form of equity or debt as needed.

Current wording

As of September 30, 2024, we had working capital of $19.7 million, compared to working capital of $4.5 million as of December 31, 2023. The increased working capital is mainly attributable to increases in cash of $4.5 million, accounts receivable of $1.3 million, and inventory of $15.3 million, partially offset by the increase in the current portion of our lease liability of $1.6 million, and accrued expenses of $1.2 million. As of September 30, 2024, our balance of cash and cash equivalents was $6.9 million, compared to $2.4 million at December 31, 2023. We expect to continue to incur significant capital expenditures related to the development and operation of our freeze dried candy business. Our ability to scale production and distribution capabilities and further increase the value of our brands is largely dependent on our success in deploying additional capital. Our plan for satisfying our cash requirements for the next twelve months is through cash on hand and additional financing in the form of equity or debt as needed.

Previous wording

On May 2, 2024 we priced a registered underwritten public offering of 1,200,000 shares of our common stock at a price of $10.00 per share. On May 9, the underwriters exercised an overallotment option for the purchase of an additional 180,000 shares of our common stock. Together with the sale of the additional shares sold pursuant to the overallotment option, the offering netted approximately $12.0 million in proceeds, after offering costs.

Current wording

On May 2, 2024 we priced a registered underwritten public offering of 1,200,000 shares of our common stock at a price of $10.00 per share. On May 9, the underwriters exercised an overallotment option for the purchase of an additional 180,000 shares of our common stock. Together with the sale of the additional shares sold pursuant to the overallotment option, the offering netted approximately $12.0 million in proceeds, after underwriting discounts and offering costs.

Previous wording

On May 11, 2023, the Company received proceeds of $100,000 from Bradley Berman, one of the Company’s directors, on behalf of the Bradley Berman Irrevocable Trust, from the sale of notes and warrants pursuant to an offering to sell up to $1,500,000 of promissory notes and warrants to purchase an aggregate 375,000 shares of the Company’s common stock, exercisable over a ten-year period at a price of $2.50 per share, representing 25,000 warrant shares per $100,000 of notes purchased. On April 15, 2024, in connection with the Warrant Exercise Transaction, the promissory note’s aggregate principal amount was reduced to $37,500. The related proportional amount of unamortized debt discount of $9,991 as of April 15, 2024 is included as amortized interest for the three and six months ended June 30, 2024.

Current wording

On May 11, 2023, the Company received proceeds of $100,000 from Bradley Berman, one of the Company’s directors, on behalf of the Bradley Berman Irrevocable Trust, from the sale of notes and warrants pursuant to an offering to sell up to $1,500,000 of promissory notes and warrants to purchase an aggregate 375,000 shares of the Company’s common stock, exercisable over a ten-year period at a price of $2.50 per share, representing 25,000 warrant shares per $100,000 of notes purchased. On April 15, 2024, in connection with the Warrant Exercise Transaction, the promissory note’s aggregate principal amount was reduced to $37,500. The related proportional amount of unamortized debt discount of $9,991 as of April 15, 2024 is included as amortized interest for the three and nine months ended September 30, 2024.

Previous wording

On April 25, 2023, we closed on a private placement for up to $1,500,000 of promissory notes and warrants to purchase an aggregate 375,000 shares of the Company’s common stock, exercisable over a ten-year period at a price of $2.50 per share, representing 25,000 warrant shares per $100,000 of notes purchased. The notes mature on April 25, 2024. Interest on the notes accrue at a rate of 8% per annum, payable in cash semi-annually on June 30 and December 31. On April 25, 2023, the Company received proceeds of $750,000 and $50,000 from the Company’s Chairman, Mr. Goldfarb, and the Cesar J. Gutierrez Living Trust, as beneficially controlled by the brother of the Company’s CEO, respectively, on the sale of these notes and warrants. The fair value of the warrants was allocated as a debt discount and amortized over the life of the loan. On April 15, 2024, in connection with the Warrant Exercise Transaction, the promissory notes’ aggregate principal amount was reduced to $918,750. The related proportional amount of unamortized debt discount of $40,416 as of April 15, 2024 is included as amortized interest for the three and six months ended June 30, 2024.

Current wording

On April 25, 2023, we closed on a private placement for up to $1,500,000 of promissory notes and warrants to purchase an aggregate 375,000 shares of the Company’s common stock, exercisable over a ten-year period at a price of $2.50 per share, representing 25,000 warrant shares per $100,000 of notes purchased. The notes mature on April 25, 2024. Interest on the notes accrue at a rate of 8% per annum, payable in cash semi-annually on June 30 and December 31. On April 25, 2023, the Company received proceeds of $750,000 and $50,000 from the Company’s Chairman, Mr. Goldfarb, and the Cesar J. Gutierrez Living Trust, as beneficially controlled by the brother of the Company’s CEO, respectively, on the sale of these notes and warrants. The fair value of the warrants was allocated as a debt discount and amortized over the life of the loan. On April 15, 2024, in connection with the Warrant Exercise Transaction, the promissory notes’ aggregate principal amount was reduced to $918,750. The related proportional amount of unamortized debt discount of $40,416 as of April 15, 2024 is included as amortized interest for the three and nine months ended September 30, 2024.

Previous wording

On December 31, 2022, 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 million 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. On April 15, 2024, in connection with the Warrant Exercise Transaction, the promissory note’s aggregate principal amount was reduced to $679,138. The related proportional amount of unamortized debt discount of $92,729, as of April 15, 2024, and $51,372 of unamortized debt discount related to a fully repaid note are included in interest expense and loss on early extinguishment of debt, respectively, for the three and six months ended June 30, 2024.

Current wording

On December 31, 2022, 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 million 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. On April 15, 2024, in connection with the Warrant Exercise Transaction, the promissory note’s aggregate principal amount was reduced to $679,138. The related proportional amount of unamortized debt discount of $92,729, as of April 15, 2024, and $51,372 of unamortized debt discount related to a fully repaid note are included in interest expense and loss on early extinguishment of debt, respectively, for the three and nine months ended September 30, 2024.

Previous wording

On April 8, 2022, the Company closed a private placement and concurrently entered into a note and warrant purchase agreement to sell an aggregate $3.7 million of 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. 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 $3.7 million. 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 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 approximately $2.2 million. The offering closed simultaneously with execution of the purchase agreement. Of the aggregate $3.7 million of notes, a total of $3,120,000 of notes were sold to officers or directors, along with 780,000 of the warrants. On April 15, 2024, in connection with the Warrant Exercise Transaction, of which a significant portion was with related parties, the promissory notes’ aggregate principal amount was reduced to $239,250. The related proportional amount of unamortized debt discount of $72,638 as of April 15, 2024, was included as interest expense for the three and six months ended June 30, 2024, and $645,130 of unamortized debt discount related to fully repaid notes, was included as loss on extinguishment of debt for the three and six months ended June 30, 2024.

Current wording

On April 8, 2022, the Company closed a private placement and concurrently entered into a note and warrant purchase agreement to sell an aggregate $3.7 million of 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. 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 $3.7 million. 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 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 approximately $2.2 million. The offering closed simultaneously with execution of the purchase agreement. Of the aggregate $3.7 million of notes, a total of $3,120,000 of notes were sold to officers or directors, along with 780,000 of the warrants. On April 15, 2024, in connection with the Warrant Exercise Transaction, of which a significant portion was with related parties, the promissory notes’ aggregate principal amount was reduced to $239,250. The related proportional amount of unamortized debt discount of $72,638 as of April 15, 2024, was included as interest expense for the three and nine months ended September 30, 2024, and $645,130 of unamortized debt discount related to fully repaid notes, was included as loss on extinguishment of debt for the three and nine months ended September 30, 2024.

Previous wording

The following table summarizes our cash flows during the six months ended June 30, 2024 and 2023, respectively.

Current wording

The following table summarizes our cash flows during the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Net cash used in operating activities was $1.0 million for the six months ended June 30, 2024, compared to $2.4 million of cash used in operating activities six months ended June 30, 2023. The decrease in cash used by operating activities was primarily due to increased operating income of $8.8 million, partially offset by changes in working capital from operating activities which resulted in an increased use of cash of $9.0 million compared to the six months ended June 30, 2023, mainly due to increased use of cash for inventory of $6.8 million, increased accounts receivable of $3.6 million, and a $1.0 million security deposit on a new facility.

Current wording

Net cash used in operating activities was $6.1 million for the nine months ended September 30, 2024, compared to $3.3 million of cash used in operating activities nine months ended September 30, 2023. The increase in cash used in operating activities was primarily due to increased inventory.

Previous wording

Net cash used in investing activities was $2.2 million for six months ended June 30, 2024, compared to $362.2 thousand for the six months ended June 30, 2023, an increase of $1.8 million. During the six months ended June 30, 2024, cash used in investing activities was used for additional freezers. Cash used in investing activities for the six months ended June 30, 2023 was used to build out our 2 nd and 3 rd freezers and improve our office space.

Current wording

Net cash used in investing activities was $4.5 million for nine months ended September 30, 2024, compared to $1.3 million for the nine months ended September 30, 2023, an increase of $3.2 million. During the nine months ended September 30, 2024, cash used in investing activities was primarily used for additional freezers. Cash used in investing activities for the nine months ended September 30, 2023 was used to build out freezers and improve our office space.

Previous wording

Net cash provided by financing activities was $15.2 million and $2.8 million for the six months ended June 30, 2024 and 2023, respectively, an increase of $12.4 million. Net cash provided by financing activities for the six months ended June 30, 2024 consisted of $12.0 million of net proceeds from a public offering of 1,380,000 shares at a price of $10.00 per share completed on May 9, 2024, and net proceeds of $3.7 million from private placement offerings to accredited investors and related parties from the issuance of 515,597 shares at $7.25 per share on March 28, 2024. Proceeds from warrant and options exercises totaled $5.7 million during the three months ended June 30, 2024, of which was used to pay down notes payable totaling approximately $6.2 million during the three months ended June 30, 2024. Net cash provided by financing activities were $2.8 million for the six months ended June 30, 2023, which was comprised entirely of debt financing received from our officers, directors and other non-related parties.

Current wording

Net cash provided by financing activities was $15.1 million and $6.5 million for the nine months ended September 30, 2024 and 2023, respectively. Net cash provided by financing activities for the nine months ended September 30, 2024 consisted of $12.0 million of net proceeds from a public offering of 1,380,000 shares at a price of $10.00 per share completed on May 9, 2024, and net proceeds of $3.7 million from private placement offerings to accredited investors and related parties from the issuance of 515,597 shares at $7.25 per share on March 28, 2024. Proceeds from warrant and options exercises totaled $5.7 million during the nine months ended September 30, 2024, which was used to pay down notes payable totaling approximately $6.2 million nine months ended September 30, 2024. Net cash provided by financing activities for the nine months ended September 30, 2023 was comprised of debt financing received from our officers, directors and other non-related parties of $2.8 million, and cash proceeds from the issuance of 735,000 shares of common stock of $3.7 million.

Previous wording

Municipality, Nuevo León, 66269 (the “Premises”) for a term of approximately seventeen months (the “Term”), which the Company intends to use as office space. The Term of the Lease Agreement will commence on February 1, 2024 (the “Sublease Commencement Date”). The Sublease Agreement provides for rent payments at fixed price of $5.25 thousand per month plus the corresponding Value Added Tax (“VAT”) for the duration of the Term. The Company is also responsible for operating expenses of the Premises, which includes a maintenance fee, electricity and internet services. The Company is required to provide a deposit of guarantee in the amount of $5.25 thousand in connection with the Sublease Agreement. The Sublease Agreement does not have a renewal period.

Current wording

On January 19, 2024, the Company entered into a sublease agreement (the “Sublease Agreement”) with Papsa Merx S. de R.S. de C.V., a corporation registered in Mexico City, Mexico (the “Sublessor”). Pursuant to the terms of the Sublease Agreement, the Company will sublease approximately 141 rentable square meters at Av. Roble 660, Valle del Campestre, 66265 San Pedro Garza García Municipality, Nuevo León, 66269 (the “Premises”) for a term of approximately seventeen months (the “Term”), which the Company intends to use as office space. The Term of the Lease Agreement will commence on February 1, 2024 (the “Sublease Commencement Date”). The Sublease Agreement provides for rent payments at fixed price of $5.25 thousand per month plus the corresponding Value Added Tax (“VAT”) for the duration of the Term. The Company is also responsible for operating expenses of the Premises, which includes a maintenance fee, electricity and internet services. The Company is required to provide a deposit of guarantee in the amount of $5.25 thousand in connection with the Sublease Agreement. The Sublease Agreement does not have a renewal period.