UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________________ to ______________________

Commission File Number: 001-42037

 

SOW GOOD INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	27-2345075
( State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1440 N Union Bower Rd, Irving, TX	75061
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (214) 623-6055

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.001 per share	SOWG	NASDAQ

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. 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an 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	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐

The number of shares of registrant’s common stock outstanding as of August 12, 2024 was 10,245,388

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION	4
Item 1.	Financial Statements (Unaudited)	4
	Condensed Balance Sheets as of June 30, 2024 (Unaudited) and December 31, 2023	4
	Unaudited Condensed Statements of Operations for the Three and Six Months Ended June 30, 2024 and 2023	5
	Unaudited Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2024 and 2023	6
	Unaudited Condensed Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023	7
	Notes to the Condensed Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39
PART II.	OTHER INFORMATION	41
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	43
	Signatures	44

2

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:

•our ability to compete successfully in the highly competitive industry in which we operate;

•our ability to maintain and enhance our brand;

•our ability to successfully implement our growth strategies related to launching new products;

•the effectiveness and efficiency of our marketing programs;

•our ability to manage current operations and to manage future growth effectively;

•our future operating performance;

•our ability to attract new customers or retain existing customers;

•our ability to protect and maintain our intellectual property;

•the government regulations to which we are subject;

•failure to obtain sufficient sales and distributions for our freeze dried product offerings;

•the potential for supply chain disruption and delay;

•the potential for transportation, labor, and raw material cost increases; and

•other risks and uncertainties included in our “Risk Factors.”

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. We have based these forward-looking statements and statements of belief on our current expectations and assumptions about future events as of the date of this report. 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.

3

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

SOW GOOD INC.

CONDENSED BALANCE SHEETS

	June 30,			December 31,
	2024			2023
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	14,373,035		$	2,410,037
Accounts receivable, net		6,197,037			2,578,259
Inventory		10,319,489			4,123,246
Prepaid inventory		1,150,132			563,131
Prepaid expenses		170,081			563,164
Total current assets		32,209,774			10,237,837
Property and equipment:
Construction in progress		1,886,721			1,522,465
Property and equipment		8,151,216			6,287,422
Less accumulated depreciation		(1,334,386	)		(967,602	)
Total property and equipment, net		8,703,551			6,842,285
Security deposit		1,357,956			346,616
Right-of-use asset		17,918,843			4,061,820
Total assets	$	60,190,124		$	21,488,558
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,781,925		$	853,535
Accrued interest		330,894			860,693
Accrued expenses		1,378,807			648,947
Income tax payable - current		257,918			-
Current portion of operating lease liabilities		1,701,079			550,941
Current maturities of notes payable, related parties, net of $47,053 and $431,854 of debt discounts at June 30, 2024 and December 31, 2023, respectively		632,084			2,543,146
Current maturities of notes payable, net of $38,558 and $86,062 of debt discounts as of June 30, 2024 and December 31, 2023, respectively		200,692			313,938
Total current liabilities		6,283,399			5,771,200
Operating lease liabilities		16,783,997			3,671,729
Notes payable, related parties, net of $542,918 and $1,448,858 of debt discounts as of June 30, 2024 and December 31, 2023, respectively		1,957,082			4,171,142
Notes payable, net of $0 and $135,962 of debt discounts as of June 30, 2024 and December 31, 2023, respectively		150,000			594,038
Total liabilities		25,174,478			14,208,109
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value, 20,000,000 shares authorized, no shares issued and outstanding		-		-
Common stock, $0.001 par value, 500,000,000 shares authorized, 10,245,388 and 6,029,371 shares issued and outstanding as of June 30, 2024 and December 31, 2023		10,245			6,029
Additional paid-in capital		89,899,666			66,014,415
Accumulated deficit		(54,894,265	)		(58,739,995	)
Total stockholders' equity		35,015,646			7,280,449
Total liabilities and stockholders' equity	$	60,190,124		$	21,488,558

The accompanying notes are an integral part of these condensed financial statements.

4

SOW GOOD INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2024			2023			2024			2023
Revenues	$	15,648,046		$	1,315,346		$	27,054,369		$	1,514,277
Cost of goods sold		6,640,917			2,896,259			13,417,798			2,980,262
Gross profit		9,007,129			(1,580,913	)		13,636,571			(1,465,985	)
Operating expenses:
General and administrative expenses:
Salaries and benefits		2,123,572			319,608			4,474,130			831,197
Professional services		594,278			63,330			1,062,104			109,535
Other general and administrative expenses		1,399,244			500,381			2,271,507			884,491
Total general and administrative expenses		4,117,094			883,319			7,807,741			1,825,223
Depreciation and amortization		4,939			9,159			14,477			85,377
Total operating expenses		4,122,033			892,478			7,822,218			1,910,600
Net operating income (loss)		4,885,096			(2,473,391	)		5,814,353			(3,376,585	)
Other income (expense):
Interest income		4,130			-			4,130			-
Interest expense		(599,664	)		(847,509	)		(1,018,333	)		(1,345,845	)
Loss on early extinguishment of debt		(696,502	)		-			(696,502	)		-
Total other income (expense)		(1,292,036	)		(847,509	)		(1,710,705	)		(1,345,845	)
Income (loss) before income tax		3,593,060			(3,320,900	)		4,103,648			(4,722,430	)
Provision for income tax		(257,918	)		-			(257,918	)		-
Net income (loss)	$	3,335,142		$	(3,320,900	)	$	3,845,730		$	(4,722,430	)
Weighted average common shares outstanding - basic		9,624,999			4,854,208			7,845,382			4,850,815
Net income (loss) per common share - basic	$	0.35		$	(0.68	)	$	0.49		$	(0.97	)
Weighted average common shares outstanding - diluted		11,385,708			4,854,208			9,408,247			4,850,815
Net income (loss) per common share - diluted	$	0.29		$	(0.68	)	$	0.41		$	(0.97	)

The accompanying notes are an integral part of these condensed financial statements.

5

SOW GOOD INC.

STATEMENT OF STOCKHOLDERS' EQUITY

(Unaudited)

	For the Three Months Ended June 30, 2024
					Additional					Total
	Common Stock				Paid-in		Accumulated			Stockholders'
	Shares		Amount		Capital		Deficit			Equity
Balance, March 31, 2024		6,575,562		6,576		71,123,634		(58,229,407	)		12,900,803
Common stock issued in public offering, net of offering costs		1,380,000		1,380		11,973,596	–				11,974,976
Common stock issued in private placement offering				-		-	–				-
Common stock issued to directors for services		617		1		9,476		-			9,477
Proceeds from exercise of stock options and warrants		2,289,209		2,288		5,670,680	–				5,672,968
Common stock options granted to directors and advisors for services	–		–			28,962	–				28,962
Common stock options granted to officers and employees for services	–		–			1,093,318	–				1,093,318
Net income for the three months ended June 30, 2024	–		–		–			3,335,142			3,335,142
Balance, June 30, 2024		10,245,388	$	10,245	$	89,899,666	$	(54,894,265	)	$	35,015,646

	For the Three Months Ended June 30, 2023
					Additional					Total
	Common Stock				Paid-in		Accumulated			Stockholders'
	Shares		Amount		Capital		Deficit			Equity
Balance, March 31, 2023		4,847,384	$	4,847	$	59,484,859	$	(57,081,092	)	$	2,408,614
Common stock issued to directors for services		20,699		21		125,208	–				125,229
Common stock options granted to directors and advisors for services	–		–			28,975	–				28,975
Common stock options granted to officers and employees for services	–		–			102,866	–				102,866
Common stock warrants granted to related party note holders pursuant to debt financing	–		–			1,075,904	–				1,075,904
Common stock warrants granted to note holders pursuant to debt financing	–		–			374,153	–				374,153
Net loss for the three months ended June 30, 2023	–		–		–			(3,320,900	)		(3,320,900	)
Balance, June 30, 2023		4,868,083	$	4,868	$	61,191,965	$	(60,401,992	)	$	794,841

	For the Six Months Ended June 30, 2024
					Additional					Total
	Common Stock				Paid-in		Accumulated			Stockholders'
	Shares		Amount		Capital		Deficit			Equity
Balance, December 31, 2023		6,029,371	$	6,029	$	66,014,415	$	(58,739,995	)	$	7,280,449
Common stock issued in public offering, net of offering costs		1,380,000		1,380		11,973,596	–				11,974,976
Common stock issued in private placement offering		515,597		516		3,737,484	–				3,738,000
Common stock issued to directors for services		31,211		32		295,616	–				295,648
Proceeds from exercise of stock options and warrants		2,289,209		2,288		5,670,680	–				5,672,968
Common stock options granted to directors and advisors for services	–		–			57,608	–				57,608
Common stock options granted to officers and employees for services	–		–			2,150,267	–				2,150,267
Net income for the six months ended June 30, 2024	–		–		–			3,845,730			3,845,730
Balance, June 30, 2024		10,245,388	$	10,245	$	89,899,666	$	(54,894,265	)	$	35,015,646

	For the Six Months Ended June 30, 2023
					Additional					Total
	Common Stock				Paid-in		Accumulated			Stockholders'
	Shares		Amount		Capital		Deficit			Equity
Balance, December 31, 2022		4,847,384	$	4,847	$	58,485,602	$	(55,679,562	)	$	2,810,887
Common stock issued to directors for services		20,699		21		125,208	–				125,229
Common stock options granted to directors and advisors for services	–		–			57,633	–				57,633
Common stock options granted to officers and employees for services	–		–			201,044	–				201,044
Common stock warrants granted to related party note holders pursuant to debt financing	–		–			1,948,325	–				1,948,325
Common stock warrants granted to note holders pursuant to debt financing	–		–			374,153	–				374,153
Net loss for the three months ended June 30, 2023	–		–		–			(4,722,430	)		(4,722,430	)
Balance, June 30, 2023		4,868,083	$	4,868	$	61,191,965	$	(60,401,992	)	$	794,841

The accompanying notes are an integral part of these condensed financial statements.

6

SOW GOOD INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Six Months Ended
	June 30,
	2024			2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	3,845,730		$	(4,722,430	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Bad debts expense		20,760			185,485
Depreciation and amortization		366,784			155,416
Non-cash amortization of right-of-use asset and liability		405,383			9,556
Common stock issued to directors for services		295,648			125,229
Amortization of stock options		2,207,875			258,677
Amortization of stock warrants issued as a debt discount		777,704			1,054,822
Loss on early extinguishment of debt		696,502			-
Decrease (increase) in current assets:
Accounts receivable		(3,639,538	)		(721,135	)
Prepaid expenses		393,083			17,849
Inventory		(6,783,244	)		1,053,910
Security deposits		(1,011,340	)		(34,765	)
Increase (decrease) in current liabilities:
Accounts payable		928,390			(76,257	)
Income tax payable		257,918			-
Accrued interest		(431,049	)		265,338
Accrued expenses		729,860			7,045
Net cash provided by (used in) operating activities		(939,534	)		(2,421,260	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(1,863,794	)		(362,180	)
Cash paid for construction in progress		(364,256	)		-
Net cash used in investing activities		(2,228,050	)		(362,180	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from common stock offerings, net of offering costs of $859,024		15,712,976			-
Proceeds from the exercise of warrants and options		373,855			-
Proceeds received from notes payable, related parties		-			2,400,000
Proceeds received from notes payable		-			400,000
Repayments of borrowings		(956,249	)		-
Net cash provided by financing activities		15,130,582			2,800,000
NET CHANGE IN CASH AND CASH EQUIVALENTS		11,962,998			16,560
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		2,410,037			276,464
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	14,373,035		$	293,024
SUPPLEMENTAL INFORMATION:
Interest paid	$	770,428		$	25,685
Interest received	$	4,130			-
Income taxes paid		-			-
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Non-cash exercise of warrants	$	5,299,113			-
Repayment of interest	$	(98,750	)		-
Repayments of borrowings	$	(5,200,363	)		-
Reclassification of construction in progress to property and equipment	$	1,651,305			-
Value of debt discounts attributable to warrants		-		$	2,322,478

The accompanying notes are an integral part of these condensed financial statements.

7

SOW GOOD INC.

Notes to Condensed Financial Statements

(Unaudited)

Note 1 – Organization and Nature of Business

Effective January 21, 2021, we changed our name from Black Ridge Oil & Gas, Inc. (business acquired with our October 1, 2020 acquisition of S-FDF, LLC) to Sow Good Inc. (“SOWG,” “Sow Good,” or the “Company”) to pursue the production of freeze dried fruits and vegetables, a business we later expanded to include freeze dried candy. At that time, our common stock began to be quoted on the OTCQB under the trading symbol “SOWG,” from the former trading symbol “ANFC.” Prior to April 2, 2012, Black Ridge Oil & Gas was known as Ante5, Inc., a publicly traded company since July 1, 2010. From October 2010 through August 2019, Ante5, Inc. and Black Ridge Oil & Gas, Inc. participated in the acquisition and development of oil and gas leases.

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 its first line of non-GMO products including ready-to-make smoothies, gluten-free granola and snacks.

After launching a freeze dried candy product line in the first quarter of 2023, the Company now has seventeen SKU offerings of candy, and five crunch ice cream SKU as of June 30, 2024, that are projected to continue being a major driver of growth. After launching our freeze dried candy product line we discontinued our smoothie, snack and granola products. During the second quarter of 2023, the Company completed the construction of our second and third freeze driers and to facilitate the increased production demands for our recently launched candy products. The significant and rising demand for our freeze dried candy products has led us to add a fourth freeze drier in the first quarter of 2024, our fifth freeze drier in the second quarter of 2024 and begin construction of our sixth freeze drier, which we expect to be completed in the third quarter of 2024.

Effective February 15, 2024, Sow Good Inc. reincorporated to the State of Delaware from the State of Nevada under the name Sow Good Inc. pursuant to a plan of conversion (the “Plan of Conversion”), dated February 15, 2024 (the “Reincorporation”). The Reincorporation was effected by the Company filing (i) articles of conversion (the “Articles of Conversion”) with the Secretary of State of the State of Nevada, (ii) a certificate of conversion (the “Certificate of Conversion”) with the Secretary of State of the State of Delaware and (iii) a certificate of incorporation (the “Certificate of Incorporation”) with the Secretary of State of the State of Delaware. In connection with the Reincorporation the Company also adopted Amended and Restated Bylaws (the “Bylaws”).

Upon effectiveness of the Reincorporation:

•‎the affairs of the Company ceased to be governed by the Nevada Revised Statutes, as amended, the Company’s existing articles of incorporation and the Company’s existing bylaws, and the affairs of the Company became subject to the Delaware General Corporation Law, as amended, the Certificate of Incorporation and the Bylaws;

•the shares of Sow Good’s issued and outstanding common stock, with a par value $0.001 per share, converted into shares of the equivalent class of the Company’s Common Stock, each with a par value $0.001 per share, on a 1 share of common stock to 1 share of common stock basis;

•each director and officer of Sow Good will continue to hold his or her respective position with the Company;

•each employee benefit, stock option or other similar plan of Sow Good will continue to be an employee benefit, stock option or other similar plan of the Company; and

•the Company will continue to file periodic reports and other documents with the SEC.

Note 2 – Summary of Significant Accounting Policies

The accompanying unaudited interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and stated in U.S. dollars, consistent in all material respects with those applied in our financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Because these financial statements address interim periods, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Such interim financial information is unaudited but reflects all adjustments that in the opinion of management are necessary for the fair presentation of the interim periods presented. The results of operations presented in this Quarterly Report on Form 10-Q are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or for any future periods. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited financial statements and footnotes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

8

SOW GOOD INC.

Notes to Condensed Financial Statements

(Unaudited)

Segment Reporting

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.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP 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.

Reclassifications

Certain amounts in the prior period financial statements have been reclassified to conform with the current period presentation.

Environmental Liabilities

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.

Cash and Cash Equivalents

Cash equivalents include money market accounts which have maturities of three months or less. Cash equivalents are stated at cost plus accrued interest, which approximates market value.

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 had cash in excess of FDIC and SIPC insured limits of $13,520,622 at June 30, 2024. The Company had cash in excess of FDIC and SIPC insured limits of $1,837,840 at December 31, 2023. The Company has not experienced any losses in such accounts.

Accounts Receivable

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 an allowance for doubtful accounts of $9,380 at June 30, 2024 and no allowance for doubtful accounts at December 31, 2023.

The Company estimates its reserve based on historical loss information. The Company believes that historical loss information is a reasonable base on which to determine expected credit losses for trade receivables held at the reporting date because the composition of the trade receivables at the reporting date is consistent with that used in developing the historical credit-loss percentages. However, the Company will continue to monitor and adjust the historical loss rates to reflect the effects of current conditions and forecasted changes.

Inventory

Inventory is valued at the lower of average cost or net realizable value. The cost of substantially all of the Company’s inventory has been determined by the first-in, first-out (FIFO) method.

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 (years)	3
Office equipment (years)	5

9

SOW GOOD INC.

Notes to Condensed Financial Statements

(Unaudited)

Furniture and fixtures (years)	5
Machinery and equipment (years)	7 - 10
Leasehold improvements	Lease-term or useful life

Construction in progress is stated at cost, which predominately relates to the cost of freezers and equipment not yet placed into service. No depreciation expense is recorded on construction-in-progress until such time as the relevant assets are completed and put into use.

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 of property and equipment was $199,789 and $79,198, of which and $194,850 and $70,039 was allocated to cost of goods sold, for the three months ended June 30, 2024 and 2023, respectively. 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, for the six months ended June 30, 2024 and 2023, 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. For the six months ended June 30, 2024 and 2023, shipping and handling costs of $502,196 and $87,977, respectively, are included in cost of goods sold. 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.

Customer Concentration

For the six months ended June 30, 2024, our top three customers were responsible for 35.1%, 21.0%, and 18.7% of our revenues, respectively. For the three months ended June 30, 2024, our top three customers were responsible for 30.3%, 23.1%, and 21.8% of our revenues. Our top five customers accounted for 81% of our revenues during each of the three and six months ended June 30, 2024.

For the six months ended June 30, 2023, our top three customers were responsible for 30.0%, 18.6%, and 14.5% of our revenues, respectively. For the three months ended June 30, 2023 our top three customers were responsible for 34.6%, 20.6% and 10.5% of our revenues. respectively. Our top five customers accounted for 78% and 79% of our revenues during the three and six months ended June 30, 2023, respectively.

Supplier Concentration

For the six months ended June 30, 2024, three suppliers accounted for 69% of our purchases from vendors. For the three months ended June 30, 2024 three suppliers accounted for 76% of our purchases from vendors.

For the six months ended June 30, 2023, three suppliers accounted for 79% of our purchases from vendors. For the three months ended June 30, 2023 three suppliers accounted for 83% of our purchases from vendors.

The Company considers these vendors to be critical suppliers of candy for our freeze dried candy production.

Basic and Diluted Earnings (Loss) Per Share

The basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted average number of common shares outstanding. Diluted net income (loss) per common share is computed by dividing the net income (loss) adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the

10

SOW GOOD INC.

Notes to Condensed Financial Statements

(Unaudited)

periods where potential dilutive securities would have an anti-dilutive effect and they were not included in the calculation of diluted net loss per common share.

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 – Compensation – Stock Compensation (“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 related to the issuance of shares of common stock for services consisted of $9,477 and $125,229 for the three months ended June 30, 2024 and 2023, respectively. Stock-based compensation related to the issuance of shares of common stock for services consisted of $295,648 and $125,229 for the six months ended June 30, 2024 and 2023, respectively.

Stock-based compensation related to amortization of stock option grants consisted of $1,122,280 and $131,841 for the three months ended June 30, 2024 and 2023, respectively. Stock-based compensation related to amortization of stock option grants consisted of $2,207,875 and $258,677 for the six months ended June 30, 2024 and 2023, respectively. The Company uses a Monte Carlo simulation to value its performance-based and market-based stock options. The fair values of service based stock options are determined using the Black-Scholes options pricing model and an effective term of 2.3 to 7.3 years based on either the weighted average of the vesting periods and the stated term of the option grants or as calculated under the options valuation model, 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.

Income Taxes

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.

Uncertain Tax Positions

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.

11

SOW GOOD INC.

Notes to Condensed Financial Statements

(Unaudited)

Recent Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure, to require a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Public entities with a single reportable segment are required to provide the new disclosures and all the disclosures required under ASC 280. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, on a retrospective basis. The Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to enhance the transparency and decision-usefulness of income tax disclosures, particularly in the rate reconciliation table and disclosures about income taxes paid. The ASU’s amendments are effective for annual periods beginning after December 15, 2024 on a prospective basis. Early adoption is permitted. The Company is currently evaluating the impact of adopting this ASU on its financial statements and related disclosures.

No other new accounting pronouncements, issued or effective during the six month ended June 30, 2024, have had or are expected to have a significant impact on the Company’s financial statements.

Note 3 – Related Party

Common Stock Sold for Cash

On March 28, 2024, the Company raised $3,738,000 of capital from the sale of 515,597 newly issued shares of common stock at a share price of $7.25 in a private placement exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(a)(2) thereof. The stock sales included purchases by the following related parties:

	Shares		Amount
Ira and Claudia Goldfarb, Executive Chairman and CEO, respectively	17,242	$	125,000
Lyle A. Berman Revocable Trust, Director	68,966		500,000
Bradley Berman, Director	30,000		217,500
Edward Shensky	13,794		100,000
Brendon Fischer	8,000		58,000
Cesar J. Gutierrez	10,345		75,000
Alexandria Gutierrez	3,449		25,000
Ava Gutierrez	3,449		25,000
Brett Goldfarb	3,449		25,000
	158,694	$	1,150,500

On November 20, 2023, the Company entered into a Stock Purchase Agreement with multiple accredited investors to sell and issue to the purchasers, thereunder, an aggregate of 426,288 shares of the Company’s common stock at a price of $6.50 per share, resulting in total proceeds received of $2,770,872. The stock sales included purchases by the following related parties:

	Shares		Amount
Ira and Claudia Goldfarb, Executive Chairman and CEO, respectively	23,077	$	150,000
Bradley Berman, Director	10,000		65,000
Joe Mueller, Director	5,000		32,500
Alexandria Gutierrez	4,615		29,998
Cesar J. Gutierrez Living Trust	3,977		25,851
	46,669	$	303,348

12

SOW GOOD INC.

Notes to Condensed Financial Statements

(Unaudited)

On August 25, 2023, the Company entered into a Stock Purchase Agreement with multiple accredited investors to sell and issue to the purchasers, thereunder, an aggregate of 735,000 shares of the Company’s common stock at a price of $5.00 per Share, resulting in total proceeds received of $3,675,000. The stock sales included purchases by the following related parties:

	Shares		Amount
Ira and Claudia Goldfarb, Executive Chairman and CEO, respectively	100,000	$	500,000
Ira Goldfarb Irrevocable Trust	40,000		200,000
Lyle A. Berman Revocable Trust, Director	40,000		200,000
Bradley Berman, Director	10,000		50,000
Alexandria Gutierrez	5,000		25,000
	195,000	$	975,000

Common Stock Issued to Officers and Directors for Services

On February 9, 2024, the Company issued an aggregate 23,534 shares of common stock amongst its five non-employee Directors and three advisory Directors for annual services to be rendered. The aggregate fair value of the common stock was $519,280, based on the closing price of the Company’s common stock on the date of grant. The shares were expensed upon issuance.

On January 11, 2024, the Company issued an aggregate 7,060 shares of common stock amongst its five non-employee Directors for annual services to be rendered. The aggregate fair value of the common stock was $56,480, based on the closing price of the Company’s common stock on the date of grant. The shares were expensed upon issuance.

On June 1, 2023, the Company issued an aggregate 20,699 shares of common stock amongst its five non-employee Directors for annual services to be rendered. The aggregate fair value of the common stock was $125,230, based on the closing price of the Company’s common stock on the date of grant. The shares were expensed upon issuance.

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. The shares were expensed upon issuance.

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.

Common Stock Options Awarded to Officers and Directors

On December 15, 2023, pursuant to the respective A&R Employment Agreements of Ira Goldfarb and Claudia Goldfarb, and the terms of the 2020 Equity Incentive Plan, Mr. Goldfarb was granted stock options entitling him to purchase up to 500,000 shares of common stock, and Mrs. Goldfarb was granted stock options entitling her to purchase 450,000 shares of common stock, at an exercise price of $9.75 per share. The shares will vest equally over a five-year period from grant date. In the case of a Change of Control (as defined in their respective A&R Employment Agreements) all shares granted in the Initial Option Grant will vest immediately.

Additionally, on December 15, 2023, pursuant to their respective A&R Employment Agreements, Mr. Goldfarb was granted additional stock options entitling him to purchase up to 500,000 shares of common stock, and Mrs. Goldfarb was granted an additional 450,000 options to purchase shares of common stock, at an exercise price of $40.00. The shares will vest upon the Company’s stock price trading on a national securities exchange operated by Nasdaq or the New York Stock Exchange with a closing transaction price above $40.00 per share for a period of twenty consecutive trading days. In the case of a Change of Control (as defined in the A&R Employment Agreements) all shares granted in the additional option grant will vest immediately.

On November 13, 2023, the Company appointed Keith Terreri as Chief Financial Officer, and granted options to purchase 27,000 shares of common stock having an exercise price of $6.19 per share. On March 2, 2024, Mr. Terreri tendered his resignation effective as of March 4, 2024. None of Mr. Terreri’s options were vested at the time his resignation was effective, so in accordance with the Terreri Employment Agreement, all 27,000 of his options are forfeited.

On July 22, 2022, pursuant to the Company’s 2020 Stock Incentive 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.

13

SOW GOOD INC.

Notes to Condensed Financial Statements

(Unaudited)

On April 11, 2022, pursuant to the Company’s 2020 Equity Plan, Mr. Mueller was 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 April 1, 2022, the Company granted options to purchase 27,500 shares of the Company’s common stock, having an exercise price of $2.75 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 406% and a call option value of $2.64, was $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 $72,692 of stock-based compensation expense during the year ended December 31, 2023. Pursuant to the Separation Agreement and Release, the vesting of an aggregate 47,500, with a weighted average exercise price of $4.87, of Mr. Burke’s previously awarded options were also accelerated to be fully vested.

Debt Financing and Related Warrants Granted

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. This term loan was 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. The notes matured on May 11, 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, 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 matured 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 Executive 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.

On April 11, 2023, 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 December 21, 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 August 23, 2022, we closed on a private placement for 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 to sell an aggregate $3,700,000 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 $3,700,000. 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

14

SOW GOOD INC.

Notes to Condensed Financial Statements

(Unaudited)

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. The fair value of the warrants was allocated to debt discount and amortized as interest over the term of the notes.

Leases

The Company leases a 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, with a current monthly lease rate of $10,967, with approximately 3% annual escalation of lease payments.

At June 30, 2024 and December 31, 2023, included in the operating lease liabilities was $1,272,625 and $1,301,354 in connection with this lease. For the six-months ended June 30, 2024 and June 30, 2023 the Company expensed $73,441 in each of the periods and paid cash of $65,800 and $63,884, respectively. For the three-months ended June 30, 2024 and June 30, 2023 the Company expensed $36,720 in each of the periods and paid cash of $32,900 and $31,942, respectively.

Note 4 – Fair Value of Financial Instruments

The Company's financial statements are prepared in accordance with ASC 820, “Fair Value Measurement,” which requires the measurement of certain financial instruments at fair value. The Company's financial instruments primarily consist of cash and cash equivalents, and accounts receivable, which approximate fair value due to their short-term nature, and Term Loans issued in connection with detachable warrants, which are carried on the balance sheet net of the unamortized portion of the related discounts. For financial instruments or investments that are required to be reported at fair value on a recurring or nonrecurring basis under GAAP, the applicable guidance for fair value measurement requires the Company to include the determination of the appropriate fair value hierarchy level for each instrument. The fair value hierarchy levels consist of the following:

Level 1: Quoted Prices in Active Markets for Identical Assets or Liabilities - This level represents the highest degree of observability, where fair values are based on quoted market prices for identical assets or liabilities in active markets.

Level 2: Inputs Other Than Quoted Prices Included within Level 1 - Fair values in this level are based on inputs other than quoted market prices but are still observable, such as quoted market prices for similar assets or liabilities, or inputs derived from market data.

Level 3: Unobservable Inputs - This level includes fair values for which there are no observable inputs and relies on the reporting entity's own assumptions and estimates. These fair values are considered the least reliable and most subjective.

Detachable common stock warrants issued in connection with debt may be recorded as either liabilities or equity depending on the applicable accounting guidance. The Company determined that warrants issued in connection with our notes payable met the definition of a freestanding financial instrument and qualified for treatment as permanent equity. Warrants recorded as equity are recorded at the fair market value determined at issuance date, and are not remeasured after that. We utilized the Black-Scholes valuation model to estimate the fair value of warrants granted at issuance date. The initial measurement of the fair value of the notes considers the present value of future cash flows, discounted at the current market rate of interest at the issuance date, and time to liquidity. The Company allocated the value of warrants between the relative fair value of the notes payable without the warrants, and the warrants themselves at the time of issuance. The allocated portion of the warrants was treated as a debt discount, and amortized over the term of the note. The amortization of the debt discount is recognized as interest expense. When a notes payable are issued at a discount, wherein a significant portion of the issuance is between related parties, the valuation of the notes and the discount involve significant judgment and the use of unobservable inputs, classifying it into Level 3 of the fair value hierarchy, requiring a nonrecurring fair value measurement. Changes other than additions, settlements, or discount amortization, in the fair value of the notes payable, net of discounts do not impact net income or cash flows.

15

SOW GOOD INC.

Notes to Condensed Financial Statements

(Unaudited)

The following schedule summarizes the valuation of financial instruments at fair value on a nonrecurring basis in the balances sheet as of June 30, 2024 and December 31, 2023:

	June 30, 2024				December 31, 2023
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Liabilities
Notes payable, related parties, net of debt discounts	$	2,589,166	$	2,935,820	$	6,714,288	$	7,008,684
Notes payable, net of debt discounts		350,692		276,158		907,976		953,847
Total liabilities	$	2,939,858	$	3,211,978	$	7,622,264	$	7,962,531

Note 5 – Inventory

Inventory

As of June 30, 2024 the Company's inventory consisted of raw materials, material overhead, labor, and manufacturing overhead, categorized as follows:

	June 30,		December 31,
	2024		2023
Finished goods	$	1,436,574	$	222,051
Packaging materials		1,247,513		815,883
Inventory in transit		2,568,537		571,970
Work in progress		3,610,687		691,290
Raw materials		1,456,178		1,822,052
Total inventory	$	10,319,489	$	4,123,246

Prepaid Inventory

The company had reported a total of $1,150,132 and $563,131 in prepaid inventory as of June 30, 2024 and December 31, 2023, respectively. Prepaid inventory primarily consists of deposits and advance payments to suppliers for the purchase of raw materials and finished goods expected to be received and utilized in production within the next financial period, which have not been shipped as of the balance sheet date.

The Company accounts for prepaid inventory at cost, which includes all charges necessary to bring the inventory items to their present location and condition. Upon shipment of the inventory, these amounts are reclassified from prepaid inventory to the appropriate inventory accounts on the balance sheet.

Note 6 – Prepaid Expenses

Prepaid expenses consist of the following at June 30, 2024 and December 31, 2023:

	June 30,		December 31,
	2024		2023
Prepaid professional costs	$	-	$	382,524
Prepaid software licenses		53,077	$	35,252
Prepaid insurance costs		52,623	$	48,305
Trade shows and marketing services		64,381	$	29,964
Prepaid rent		-	$	67,119
Total prepaid expenses	$	170,081	$	563,164

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Notes to Condensed Financial Statements

(Unaudited)

Note 7 – Property and Equipment

Property and equipment at consist of the following at June 30, 2024 and December 31, 2023:

	June 30,			December 31,
	2024			2023
Machinery	$	6,466,411		$	4,714,626
Leasehold improvements		1,439,767			1,409,767
Software		70,000			70,000
Website		71,589			71,589
Office equipment		103,449			21,440
Construction in progress		1,886,721			1,522,465
		10,037,937			7,809,887
Less: Accumulated depreciation and amortization		(1,334,386	)		(967,602	)
Total property and equipment, net	$	8,703,551		$	6,842,285

Construction in progress consists of costs incurred to build out our manufacturing facilities in Texas, along with the construction of our freeze driers. These costs will be capitalized as Leasehold Improvements and Machinery, respectively, upon completion.

For the three months ended June 30, 2024 and 2023, respectively, depreciation of property and equipment was $199,789 and $79,198, of which and $194,850 and $70,039 was allocated to cost of goods sold, resulting in net depreciation expense of $4,939 included in operating expense. For the six months ended June 30, 2024 and 2023, respectively, 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, resulting in net depreciation expense of $14,477 included in operating expense.

Note 8 – Leases

The Company determines if an arrangement is a finance lease or operating lease at inception and recognizes right-of-use (“ROU”) assets and lease liabilities at commencement date based on the present value of the lease payments over the lease term. For operating leases, our right-of-use assets are amortized on a straight-line basis over the lease term with rent expense recorded to operating expenses. The Company has elected the practical expedient of not separating lease components from nonlease components. The depreciable life of related leasehold improvements is based on the shorter of the useful life or the lease term.

The Company leases its 20,945 square foot facility under a non-cancelable real property lease agreement that expires on August 31, 2025, with two five-year options to extend, at a monthly lease rate of $10,036, with approximately a 3% annual escalation of lease payments commencing September 15, 2021, under which an entity owned entirely by Ira Goldfarb, the Company's Executive Chairman, is the landlord. The 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. The incremental borrowing rate for the lease at the time of commencement was 5.75%.

On July 1, 2023, the Company leased additional warehouse space in Irving, Texas, of approximately 9,000 feet under a 37-month lease at a rate of $8,456 per month, with approximately a 4% annual escalation of lease payments. The 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. The incremental borrowing rate for the lease at the time of commencement was 8%.

On October 26, 2023, the Company entered into a lease agreement with Prologis, Inc., a Maryland corporation, which the Company intends to use as production space. The Company leased approximately 51,264 square feet in Dallas, Texas for an initial term of approximately five years and two months. The lease commenced on November 1, 2023. The base rent payments started at approximately $42,500 per month in the first year, and increase each year, up to approximately $51,700 per month during the last year of the initial term. The Company is also responsible for operating expenses of the premises, which start at $7,835 per month, with an

17

SOW GOOD INC.

Notes to Condensed Financial Statements

(Unaudited)

annual escalation of 4.3%. As a deposit on the lease, the Company is required to provide a letter of credit to the Landlord in the amount of $300,000. The lease may be extended for a period of five years, at the option of the Company, at a rate to be based on a fair market rent rate determined at the time of the extension. The incremental borrowing rate for the lease at the time of commencement was 9.38%.

On January 19, 2024, Sow Good Inc., the Company entered into a sublease agreement with Papsa Merx S. de R.S. de C.V., a corporation registered in Mexico City, Mexico. 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 for a term of approximately seventeen months, which the Company intends to use as office space. The Term of the Lease Agreement commenced on February 1, 2024. The Sublease Agreement provides for rent payments at fixed price of $5,250 USD per month plus the corresponding Value Added Tax 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 $5,250 USD in connection with the Sublease Agreement. The Sublease Agreement does not have a renewal period. The incremental borrowing rate for the lease at the time of commencement was 10.68%.

On May 22, 2024, the Company entered into an industrial lease (the “Lease”) with USCIF Pinnacle Building B LLC, a Delaware limited liability company. Pursuant to the terms of the Lease, the Company will lease approximately 324,000 rentable square feet from the Lessor at 4024 Rock Quarry Road, Dallas, Texas for a term of approximately 62 months, which the Company intends to use as industrial and manufacturing space. The Term of the Lease commenced on May 22, 2024. The Lease provides for graduated rent payments starting at $122,175 per month, increasing up to $297,289.14 per month by the end of the Lease, plus taxes, insurance and common area maintenance costs. The Company has provided a security deposit in the amount of $1,000,000 in connection with the Lease. The Lease may be renewed upon the extension in writing between the Company and the Lessor for a period of up to 60 months. The incremental borrowing rate for the lease at the time of commencement was 10.84%.

The components of lease expense were as follows:

	For the Six Months Ended
	June 30,
	2024		2023
Right-of-Use lease cost:
Amortization of right-of-use asset	$	593,272	$	34,817

Supplemental balance sheet information related to leases was as follows:

	June 30,			December 31,
	2024			2023
Operating lease:
Operating lease assets	$	17,918,843		$	4,061,820
Current portion of operating lease liability	$	1,701,079		$	550,941
Noncurrent operating lease liability		16,783,997			3,671,729
Total operating lease liability	$	18,485,076		$	4,222,670
Weighted average remaining lease term:
Operating leases (in years)		5.1			5.9
Weighted average discount rate:
Operating lease		10.30	%		8.20	%

Supplemental cash flow and other information related to operating leases was as follows:

	For the Six Months Ended
	June 30,
	2024		2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases	$	755,073	$	25,261

18

SOW GOOD INC.

Notes to Condensed Financial Statements

(Unaudited)

The future minimum lease payments due under operating leases as of June 30, 2024 is as follows:

Fiscal Year Ending	Minimum Lease
December 31,	Commitments
2024 (for the six months remaining)	$	1,624,289
2025		4,314,293
2026		4,894,962
2027		5,004,433
2028 and thereafter		8,509,236
Total	$	24,347,212
Less effects of discounting		(5,862,136	)
Lease liability recognized	$	18,485,076

Note 9– Notes Payable, Related Parties

Notes payable, related parties consists of the following at June 30, 2024 and December 31, 2023, respectively:

	June 30,		December 31,
	2024		2023
On May 11, 2023, the Company received $100,000 pursuant to a note and warrant purchase agreement from Bradley Berman, one of the Company’s Directors, on behalf of the Bradley Berman Irrevocable Trust, as lender. The note bears interest at 8% per annum, payable in cash semi-annually on June 30 and December 31, with appropriate pro rata adjustments made for any partial interest accrual period. The noteholder also received warrants to purchase 25,000 shares of common stock, exercisable at $2.50 per share over a ten-year term. The warrants were exercised on April 15, 2024, and the proceeds were used to partially repay the note. The unsecured note matured on May 11, 2024.	$	-	$	100,000
On April 25, 2023, the Company received $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 note bears interest at 8% per annum, payable in cash semi-annually on June 30 and December 31, with appropriate pro rata adjustments made for any partial interest accrual period. The noteholder also received warrants to purchase 12,500 shares of common stock, exercisable at $2.50 per share over a ten-year term. The warrants were exercised on April 15, 2024, and the proceeds were used to partially repay the note. The unsecured note matured on April 25, 2024.		-		50,000
On April 25, 2023, the Company received $750,000 pursuant to a note and warrant purchase agreement from a trust held by the Company’s Chairman, Mr. Goldfarb, as lender. The note bears interest at 8% per annum, payable in cash semi-annually on June 30 and December 31, with appropriate pro rata adjustments made for any partial interest accrual period. The noteholder also received warrants to purchase 187,500 shares of common stock, exercisable at $2.50 per share over a ten-year term. The warrants were exercised on April 15, 2024, and the proceeds were used to partially repay the note. The unsecured note matured on April 25, 2024.		-		750,000
On April 11, 2023, the Company received $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 August 23, 2025. The note bears interest at 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. The warrants were exercised on April 15, 2024.		250,000		250,000
On March 7, 2023, the Company received $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 August 23, 2025. The note bears interest at 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. The warrants were exercised on April 15, 2024.		250,000		250,000
On March 2, 2023, the Company received $250,000 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 August 23, 2025. The note bears interest at 8% per annum, payable on January 1, 2025. The noteholder also received		250,000		250,000

19

SOW GOOD INC.

Notes to Condensed Financial Statements

(Unaudited)

warrants to purchase 62,500 shares of common stock, exercisable at $2.60 per share over a ten-year term. The warrants were exercised on April 15, 2024.
On February 1, 2023, the Company received $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 August 23, 2025. The note bears interest at 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. The warrants were exercised on April 15, 2024.	500,000	500,000
On January 5, 2023, the Company received $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 August 23, 2025. The note bears interest at 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. The warrants were exercised on April 15, 2024.	250,000	250,000
On December 31, 2022, the Company received $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 August 23, 2025. The note bears interest at 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. The warrants were exercised on April 15, 2024.	250,000	250,000
On September 29, 2022, the Company received $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 August 23, 2025. The note bears interest at 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. The warrants were exercised on April 15, 2024.	500,000	500,000
On September 29, 2022, the Company received $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 August 23, 2025. The note bears interest at 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. The warrants were exercised on April 15, 2024.	250,000	250,000
On April 8, 2022, the Company received $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 6% per annum, compounded semi-annually, and was payable in cash semi-annually on June 30th and December 31st. The noteholder also received warrants to purchase 500,000 shares of common stock, exercisable at $2.35 per share over a ten-year term. The warrants were exercised on April 15, 2024 and proceeds from certain warrant exercises were used to repay the note.	-	2,000,000
On April 8, 2022, the Company received $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 6% per annum, compounded semi-annually, and was payable in cash semi-annually on June 30th and December 31st. The noteholder also received warrants to purchase 25,000 shares of common stock, exercisable at $2.35 per share over a ten-year term. The warrants were exercised on April 15, 2024 and proceeds were used to repay the note.	-	100,000
On April 8, 2022, the Company received $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 6% per annum, compounded semi-annually, and was payable in cash semi-annually on June 30th and December 31st. The noteholder also received warrants to purchase 25,000 shares of common stock, exercisable at $2.35 per share over a ten-year term. The warrants were exercised on April 15, 2024 and proceeds were used to repay the note.	-	100,000
On April 8, 2022, the Company received $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 6% per annum, compounded semi-annually, and was payable in cash semi-annually on June 30th and December 31st. The noteholder also received warrants to purchase 230,000 shares of common stock, exercisable at $2.35 per share over a ten-year term.The warrants were exercised on April 15, 2024 and proceeds were used to repay the note.	-	920,000

20

SOW GOOD INC.

Notes to Condensed Financial Statements

(Unaudited)

On December 31, 2021, the Company received $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 8% per annum, compounded semi-annually, and shall be payable in cash semi-annually on June 30th and December 31st. The note matures on 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. The warrants were exercised on April 15, 2024 and proceeds were used to partially repay the note.		629,000		1,500,000
On December 31, 2021, the Company received $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 8% per annum, compounded semi-annually, and shall be payable in cash semi-annually on June 30th and December 31st. The noteholder also received warrants to purchase 75,000 shares of common stock, exercisable at $2.21 per share over a ten-year term. The warrants were exercised on April 15, 2024 and proceeds were used to repay the note.		-		500,000
On December 31, 2021, the Company received $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 8% per annum, compounded semi-annually, and shall be payable in cash semi-annually on June 30th and December 31st. The note matures on 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. The warrants were exercised on April 15, 2024 and proceeds were used to partially repay the note.		16,712		25,000
On December 31, 2021, the Company received $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 8% per annum, compounded semi-annually, and shall be payable in cash semi-annually on June 30th and December 31st. The note matures on 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. The warrants were exercised on April 15, 2024 and proceeds were used to partially repay the note.		33,425		50,000
Total notes payable, related parties		3,179,137		8,595,000
Less unamortized debt discounts:		589,971		1,880,712
Notes payable		2,589,166		6,714,288
Less: current maturities		632,084		2,543,146
Notes payable, related parties, less current maturities	$	1,957,082	$	4,171,142

In the three and six month period ended June 30, 2024, the Company recorded $696,502 of loss on the early extinguishments of debt related to the accelerated amortization of debt discounts related to the Warrant Exercise Transaction. In the three and six month period ended June 30, 2023, the Company recognized no loss on the early extinguishment of debt related to the accelerated amortization of debt discounts.

21

SOW GOOD INC.

Notes to Condensed Financial Statements

(Unaudited)

Note 10 – Notes Payable

Notes payable consists of the following at June 30, 2024 and December 31, 2023, respectively:

	June 30,		December 31,
	2024		2023
On April 25, 2023, the Company received $400,000 pursuant to a note and warrant purchase agreement from an accredited investor, as lender. The note bears interest at 8% per annum, payable in cash semi-annually on June 30 and December 31, with appropriate pro rata adjustments made for any partial interest accrual period. The noteholder also received warrants to purchase 100,000 shares of common stock, exercisable at $2.50 per share over a ten-year term. The warrants were exercised on April 15, 2024, and the proceeds were used to partially repay the note. The remaining portion of the note matured on April 25, 2024.	$	-	$	400,000
On April 8, 2022, the Company received $80,000 pursuant to a note and warrant purchase agreement from an accredited investor, as lender. The unsecured note bears interest at 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 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. The warrants were exercised on April 15, 2024, and the proceeds were used to partially repay the note.		33,000		80,000
On April 8, 2022, the Company received $500,000 pursuant to a note and warrant purchase agreement from an accredited investor, as lender. The unsecured note bears interest at 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 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. The warrants were exercised on April 15, 2024, and the proceeds were used to partially repay the note.		206,250		500,000
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 $150,000 Promissory Note issued to the SBA (the “EIDL Note”)(together with the EIDL Loan Agreement, the “EIDL Loan”), bearing interest at 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, 2022, as extended. All remaining principal and accrued interest is due and payable on June 16, 2050. The EIDL Note may be repaid at any time without penalty.	$	150,000	$	150,000
Total notes payable		389,250		1,130,000
Less unamortized debt discounts:		38,558		222,024
Notes payable		350,692		907,976
Less: current maturities		200,692		313,938
Notes payable, less current maturities	$	150,000	$	594,038

22

SOW GOOD INC.

Notes to Condensed Financial Statements

(Unaudited)

The Company recognized interest expense related to notes payable, related parties, and other notes payable for the three and six months ended June 30, 2024 and 2023, as follows:

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Interest on notes payable, related parties	$	83,673	$	147,561	$	221,325	$	267,676
Amortization of debt discounts on notes payable, related parties		364,912		579,808		594,238		913,999
Interest on notes payable		6,326		14,280		14,918		20,302
Amortization of debt discounts on notes payable		142,560		104,336		183,466		140,823
Interest - other		2,193		1,524		4,386		3,045
Total interest expense	$	599,664	$	847,509	$	1,018,333	$	1,345,845

Note 11 – Stockholders’ Equity

Preferred Stock

The Company has 20,000,000 authorized shares of $0.001 par value preferred stock. No shares have been issued to date.

Warrant Exercise Transaction

On April 15, 2024, the Company issued 2,186,250 shares of its common stock in connection with the exercise of warrants that were issued between December 2021 and May 2023 (the "Warrants”), with exercise prices varying from $2.21 to $2.60 (the "Warrant Exercise”). None of the Warrants were amended prior to or in connection with the Warrant Exercise. Each of the exercising holders of warrants (collectively, the "Holders”), received its warrants in connection with the incurrence by the Company of indebtedness pursuant to various tranches of promissory notes issued between December 2021 and May 2023 (collectively, the "Notes”). The Warrants were classified as permanent equity at inception. Due to a redemption feature in the Warrants allowing the Company to redeem the Warrants for $0.001 per Warrant if the daily volume weighted average price per share over thirty consecutive trading days is above $9.00, the Company received indications of intent to exercise Warrants from various Holders given the recent increase in trading price of the Company's common stock. With authorization from the Company's Board of Directors, each of the Holders was provided an opportunity to, and agreed to, amend certain of such Holder’s Notes (the "Notes Amendment”) to allow for the partial prepayment of principal in an aggregate amount equal to the exercise price of such Holder’s Warrants. In addition to the Notes Amendment, certain of the Holders elected use a portion of the accrued but unpaid interest under such Holder’s Notes to pay the exercise price of the Warrants. Certain of the Notes were repaid in full as a result of the Warrant Exercise and thereby did not need to be amended pursuant to the Notes Amendment (the Warrant Exercise, whether by partial or full repayment of principal, or by election to use a portion of accrued but unpaid interest under the Notes, together with the Notes Amendment, the "Warrant Exercise Transaction”). As a result of the Warrant Exercise Transaction, excluding the impact of deferred debt costs, the Company’s debt was reduced by $5,200,362, accrued interest payable was reduced by $98,750, common equity was increased by $5,299,112 and the Company issued an aggregate of 2,186,250 shares of common stock.

Certain of the Notes totaling $3,620,000 were fully repaid and the related debt discounts of $696,502 were fully expensed as a loss on the extinguishment of debt in the three month period ended June 30, 2024. The Notes subject to the Notes Amendment were partially repaid, this payment totaled $1,580,363, and the ratable portion of the related debt discounts totaling $215,773 was included as amortized interest in the three month period ended June 30, 2024. The remaining debt discounts will continue to be amortized as interest over the remaining term of the Notes. The Notes Amendment only allowed for the partial prepayment of principal and did not change any other terms of the Notes, and the present value of expected cash flows over the remaining life of the Notes remains substantially unchanged by the modification of these Notes.

Common Stock Sold for Cash

On May 2, 2024, the Company priced its registered underwritten public offering of 1,200,000 shares of the Company’s common stock, par value $0.001 at a price of $10.00 per share. In addition, the Company granted the underwriters a 30-day overallotment option to purchase up to 180,000 additional shares of common stock and issued to the underwriters warrants to purchase 120,000 shares of Common Stock. On May 1, 2024, the Company received approval to list its common stock on the Nasdaq Capital Market stock exchange ("Nasdaq”). Trading on Nasdaq commenced on May 2, 2024. On May 9, 2024, the underwriters purchased all of the Additional Shares pursuant to the full exercise of their overallotment option. Including proceeds from the Additional Shares, the proceeds from the public offering were approximately $11,974,976 net of offering expenses and underwriting discounts and commissions.

23

SOW GOOD INC.

Notes to Condensed Financial Statements

(Unaudited)

On March 28, 2024, the Company raised $3,738,000 of capital from the sale of 515,597 newly issued shares of common stock at a share price of $7.25 in a private placement exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(a)(2) thereof. A total of 158,694 of these shares, or proceeds of $1,150,500 were purchased by officers, directors, and related parties.

On November 20, 2023, the Company entered into a Stock Purchase Agreement with multiple accredited investors to sell and issue to the purchasers, thereunder, an aggregate of 426,288 shares of the Company’s common stock at a price of $6.50 per share. Proceeds to the Company from the sale of the shares were $2,770,848. A total of 46,669 of these shares, or proceeds of $303,348 were purchased by officers and directors.

On August 25, 2023, the Company entered into a Stock Purchase Agreement with multiple accredited investors to sell and issue to the purchasers, thereunder, an aggregate of 735,000 shares of the Company’s common stock at a price of $5.00 per share. Proceeds to the Company from the sale of the shares were $3,675,000. A total of 195,000 of these shares, or proceeds of $975,000 were purchased by officers and directors.

Common Stock Issued to Directors for Services

On February 9, 2024, the Company issued an aggregate 23,534 shares of common stock amongst its five non-employee Directors and three advisory Directors for annual services to be rendered. The aggregate fair value of the common stock was $519,280, based on the closing price of the Company’s common stock on the date of grant. The shares were expensed upon issuance.

On January 11, 2024, the Company issued an aggregate 7,060 shares of common stock amongst its five non-employee Directors for annual services to be rendered. The aggregate fair value of the common stock was $56,480, based on the closing price of the Company’s common stock on the date of grant. The shares were expensed upon issuance.

On January 5, 2024, the Company appointed Edward Shensky as a member of the Board of Directors of the Company effective immediately. Pursuant to the Company’s Non-Employee Director Compensation Plan, Mr. Shensky received annualized compensation of $25,000, paid in cash or common stock.

On June 1, 2023, the Company issued an aggregate 21,095 shares of common stock amongst its five directors for annual services to be rendered. The aggregate fair value of the common stock was $125,230, based on the closing price of the Company’s common stock on the date of grant. The shares were expensed upon issuance.

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. The fair value of the shares was $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 8,064 shares of common stock as compensation. The fair value of the shares was $24,998, based on the closing price of the Company’s common stock on the date of grant.

Common Stock Awarded to Advisory Panel Members

On April 20, 2022, the Company awarded an aggregate total of 8,000 shares of common stock to two advisory panel members for services. The 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 March 25, 2022, the Company awarded 4,255 shares of common stock to a newly appointed advisory panel member for services. The fair value of the shares was $10,000, based on the closing price of the Company’s common stock on the date of grant.

Note 12 – Options

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 of Directors 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 January 8, 2024, our stockholders took

24

SOW GOOD INC.

Notes to Condensed Financial Statements

(Unaudited)

action by written consent to ratify the amendment to the 2020 Stock Incentive Plan (the “2020 Plan”) approved by the Board of Directors on December 15, 2023. On December 15, 2023, our Board of Directors approved an amendment to the 2020 Plan to effect an increase in the number of shares that remain available for issuance under the 2020 Plan by an additional 2,150,000 shares up to an aggregate of 2,272,954 shares available for issuance under the 2020 Plan (the “2020 Plan Amendment”). Before the 2020 Plan Amendment, the number of shares available for issuance under the 2020 Plan would be too limited to effectively operate as an incentive and retention tool for employees, officers, directors, non-employee directors and consultants of the Company and its affiliates (as defined in the 2020 Plan). The 2020 Plan and the approved increase will enable us to continue our policy of equity ownership by employees, officers, directors, non-employee directors and consultants of the Company and its affiliates as an incentive to contribute to the creation of long-term value for our stockholders.

Amendment to the 2020 Stock Incentive Plan

On January 8, 2024, our stockholders took action by written consent to ratify the amendment to the 2020 Stock Incentive Plan (the “2020 Plan”) approved by the Board of Directors on December 15, 2023. On December 15, 2023, our Board approved an amendment to the 2020 Plan to effect an increase in the number of shares that remain available for issuance under the 2020 Plan by an additional 2,150,000 shares up to an aggregate of 2,272,954 shares available for issuance under the 2020 Plan (the “2020 Plan Amendment”). Before the 2020 Plan Amendment, the number of shares available for issuance under the 2020 Plan would be too limited to effectively operate as an incentive and retention tool for employees, officers, directors, non-employee directors and consultants of the Company and its affiliates (as defined in the 2020 Plan). The 2020 Plan and the approved increase enabled us to continue our policy of equity ownership by employees, officers, directors, non-employee directors and consultants of the Company and its affiliates as an incentive to contribute to the creation of long-term value for our stockholders.

2024 Stock Incentive Plan

Effective February 15, 2024, the Board of Directors adopted the 2024 Plan (the “2024 Plan”) under which a total of 3,000,000 share of our common stock have been reserved for issuance of Incentive Stock Options, or ISOs, Non-Qualified Stock Options, or NSOs, restricted share awards, stock unit awards, SARs, other stock-based awards, performance-based stock awards, (collectively, “stock awards”) and cash-based awards (stock awards and cash-based awards are collectively referred to as “awards”). ISOs may be granted only to our employees, including officers, and the employees of our parent or subsidiaries. All other awards may be granted to our employees, officers, our non-employee directors, and consultants and the employees and consultants of our subsidiaries, and affiliates.

Outstanding Options

Options to purchase an aggregate total of 2,610,442 shares of common stock were outstanding as of June 30, 2024, respectively, at a weighted average strike price of $15.99. The weighted average life of exercisable outstanding options was 9.0 years as of June 30, 2024.

The Company recognized compensation expense related to common stock options that are being amortized over the implied service term, or vesting period, of the options during the three and six months ended June 30, 2024 and 2023, as follows:

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Directors	$	28,962	$	28,658	$	57,608	$	57,633
Officers		1,030,032		79,644		2,044,628		158,412
Employees		63,286		23,222		105,639		42,632
Total amortized options expense	$	1,122,280	$	131,841	$	2,207,875	$	258,677

The remaining unamortized balance of these options is $13,509,032 as of June 30, 2024 and the weighted-average period over which these awards are expected to be recognized is approximately 3 years.

Options Granted

During the six months ended June 30, 2024, 21 employees were granted options to purchase an aggregate of 101,911 shares of the Company's common stock, having a weighted average exercise price of $15.99, 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

25

SOW GOOD INC.

Notes to Condensed Financial Statements

(Unaudited)

Pricing Model, based on a volatility rate of 94 to 95% and an average call option value of $12.88, was $1,312,561. The options are being expensed over the vesting period.

Options Cancelled or Forfeited

An aggregate 47,000 options with a weighted average strike price of $5.43 per share were forfeited by former employees during the six months ended June 30, 2024.

Options Expired

During the six months ended June 30, 2024, options expirations consisted of 333 options with a $195.00 strike price, and 14,491 options with a $5.41 strike price.

Options Exercised

A total of 50,459 options were exercised during the three months period ended June 30, 2024. No options were exercised during the six months ended June 30, 2023. Proceeds from options exercises during the six months ended June 30, 2024 amounted to $163,854.

Options Exercisable

There were 367,302 options exercisable as of June 30, 2024.

Note 13 – Warrants

Warrants Exercised

A total of 2,186,250 warrants related to the issuance of debt were fully exercised at an average price of $2.50, and the proceeds were used to repay certain Notes Payable. The debt discounts relating to the warrants were either written off as a loss on early extinguishment of debt, to the extent that the related Notes Payable were fully retired, or amortized to interest expense for those Notes which were partially extinguished. The Company realized a loss on early extinguishment of debt of $696,502 for the three and six month periods ended June 30, 2024. Interest expense related to debt discount amortization was $777,704 and $1,054,822 for the six months ended June 30, 2024 and 2023, respectively. Another 52,500 warrants were exercised at an exercise price of $4.00 during the period.

Warrants Granted

On May 6, 2024, the Company issued a press release announcing the pricing of its registered underwritten public offering. In connection with the public offering, the Company issued to the underwriters warrants to purchase 138,000 shares of Common Stock. The grant was equal to 10% of the number of shares sold in this offering by Roth, (a total of 1,380,000 shares). The Representative’s Warrants will be exercisable upon issuance, will have an exercise price equal to 120%, (or $12.00) of the initial public offering price and will terminate fifth anniversary of the effective date of the registration statement. The Representative’s Warrants and the underlying shares of common stock are deemed compensation by the Financial Industry Regulatory Authority, Inc. (“FINRA”) and will therefore be subject to FINRA Rule 5110(g)(1). In accordance with FINRA Rule 5110(g)(1), neither the Representative’s Warrants nor any shares issued upon exercise of the Representative's Warrants may be sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such securities by any person, for a period of 180 days immediately following the date of effectiveness or commencement of sales of the offering pursuant to which the Representative’s Warrants are being issued, subject to certain exceptions. The fair value of the warrants, was determined using the Black-Scholes option pricing model, and was recorded through additional paid in capital as an offset of the offering proceeds.

Outstanding Warrants

Warrants to purchase an aggregate total of 190,500 shares of common stock at a weighted average strike price of $9.80, exercisable over a weighted average life of 5 years, were outstanding as of June 30, 2024.

No warrants were cancelled or expired during the six months ended June 30, 2024.

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SOW GOOD INC.

Notes to Condensed Financial Statements

(Unaudited)

Note 14 - Earnings Per Share

Basic and diluted earnings per share for the three and six months ended June 30, 2024 and June 30, 2023:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2024		2023			2024		2023
Net income (loss) attributable to common shareholders	$	3,335,142	$	(3,320,900	)	$	3,845,730	$	(4,722,430	)
Basic weighted average shares		9,624,999		4,854,208			7,845,382		4,850,815
Basic income (loss) per share	$	0.35	$	(0.68	)	$	0.49	$	(0.97	)
Diluted weighted average shares		11,385,708		4,854,208			9,408,247		4,850,815
Diluted income (loss) per share	$	0.29	$	(0.68	)	$	0.41	$	(0.97	)

The table below includes information related to stock options and warrants that were outstanding at the end of each respective the three and six month periods ended June 30, 2024 and June 30, 2023. For periods in which the Company incurred a net loss, these amounts are not included in weighted average dilutive shares because their impact would be anti-dilutive. For the three and six month periods ended June 30, 2024, there were 950,333 options with a strike price greater than the average share price for the respective periods, which have been excluded from the weighted average shares because including them would have been antidilutive under the treasury method.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Weighted average stock options		2,609,041		632,426		2,608,985		600,796
Weighted average price of stock options	$	6.92	$	4.81	$	6.92	$	4.81
Weighted average warrants		451,385		1,357,866		1,502,403		1,010,337
Weighted average price of warrants	$	9.80	$	2.47	$	9.80	$	2.47
Average price of common stock	$	17.29	$	4.97	$	12.86	$	4.06

Note 15 – Income Taxes

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.

The Company recognized income tax expense of $257,918 and $0 for the periods ended June 30, 2024 and 2023, respectively.

As of June 30, 2024, the Company has a net operating loss carryover of approximately $39,392,756. 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 (“NOL”) carryover begins to expire in 2031. 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 estimated net operating loss as of June 30, 2024 , approximately $13,921,485 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. As of June 30, 2024, the Company is decreasing its

27

SOW GOOD INC.

Notes to Condensed Financial Statements

(Unaudited)

valuation allowance from $12,984,109 to $12,345,665 due to a decrease in the net estimated deferred tax assets. At this time, the Company believes it is more likely than not that the benefit of the remaining net deferred tax assets will not be realized, the Company will continue to evaluate this valuation allowance quarterly.

The Company filed annual US Federal income tax returns and annual income tax returns for the state of Minnesota through 2020. Following the 2020 tax year, the Company has filed annual state franchise tax returns for the state of Texas. We are not subject to income tax examinations by tax authorities for years before 2020 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 June 30, 2024. 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. The Company has found no significant uncertain tax positions as of any date on or before June 30, 2024.

Note 16 – Subsequent Events

Management has evaluated events and transactions subsequent to the balance sheet date through the date of this report (the day the financial statements were available to be issued) for potential recognition or disclosure in the financial statements. Management has not identified any items requiring recognition or disclosure.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated historical financial statements and the notes to those statements that appear elsewhere in this report. Certain statements in the discussion contain forward-looking statements based upon current expectations that involve risks and uncertainties, such as plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors.

Overview and Outlook

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.”

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.

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.

Sow Good is led by co-founders Claudia and Ira Goldfarb, who have over a decade of manufacturing experience with an extensive freeze drying background, dedication to job creation, and proven track record of identifying and growing niche trends into everyday categories. Under their leadership, our revenues have grown from $1.3 million during the three month ended June 30, 2023 to approximately $15.6 million for the three month ended June 30, 2024.

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.

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

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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.

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.

Key Factors Affecting our Performance

We believe the growth of our business and our future success is dependent upon many factors. While the factors and trends described below present significant opportunities for us, they also pose important challenges that we must successfully address to enable us to sustain the growth of our business and improve our results of operations. These factors and trends in our business have driven fluctuations in revenues over the periods presented and are expected to be key drivers of our results of operations and liquidity position for the foreseeable future.

Ability to Meet Customer Demand through Production Capacity Expansion

Our customers consistently seek higher quantities of our treats than we can supply. In order for us to meet existing demand, we are actively expanding our internal production capacity and co-manufacturing arrangements. The speed and efficiency at which we are able to expand our production capacity, either internally or through co-manufacturing arrangements, will impact our results of operations. Our ability to grow and meet future demand will be affected by our ability to properly plan for additional production capacity and co-manufacturing arrangements.

Consumer Trends

We compete in the freeze dried candy and non-chocolate confections segments of the greater food industry. 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. While we believe our products are designed to provide alternatives for consumers looking for innovative treats, we also believe our candy products have broad appeal due to our uncompromising approach to developing a product line suited to a wide base of consumer tastes. We believe our ability to attract the robust and growing consumer base seeking the novel, crunchy and hyper flavorful experience our products provide will allow us to add distribution points with our retail customers and increase our revenues, which we believe will help us scale and increase our gross margin from sales of our products.

Ability to Grow Our Customer Base in Retail and Traditional Wholesale Distribution Channels

We are currently growing our customer base in a variety of physical retail and traditional wholesale distribution channels. 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, CB Distributors and Nassau Distributors. We continue to increase our shelf presence, SKU portfolio and number of stores with existing customers. In addition, given the nascent state of the freeze dried candy segment and the number of potential retailer and wholesaler customers, we also believe there is a significant growth opportunity with customer acquisition in both the retail and wholesale channels, domestically and internationally. Customer acquisition in these channels depends on, among other things, our go-to-market function and our ability to meet the demand of customers who require large volumes of products.

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Ability to Optimize Our Liquidity Position While Scaling

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.

Growth of Our Team and Facilities

As of June 30, 2024, we had 226 full-time personnel who work across various functional areas within our business, including manufacturing, sales, marketing, and administration.

On May 29, 2024, we announced a major expansion with a long-term lease for a new 324,000 square foot production facility in Dallas, Texas. This strategic expansion is set to significantly increase the Company’s production capacity, accelerating the Company's ability to meet the increasing demand for its innovative freeze dried treats.

The state-of-the-art Dallas facility dedicates approximately 306,600 square feet to production, packaging and distribution, while reserving 17,400 square feet for office space. The new facility will streamline logistics and distribution, centralizing all future in-house production expansions.

We have also significantly expanded our accounting functions, as well as our executive team, to support our rapid growth, particularly since March 2023. Growing our production capacity has accounted for a majority of the increase in employee headcount over that period as we scale our self-manufacturing capacity at our two Texas facilities, and we anticipate that commencing operations at the new facility will continue to accelerate this growth. As we expand our manufacturing capacity and corporate functions, our headcount will continue to increase for the foreseeable future. Additionally, we have increased, and will continue to increase our accounting headcount as a result of the ever increasing demands as a public reporting company.

We also expect to continue to increase our headcount across various functional areas as we expand our business operations, which could substantially increase our selling and distribution expense, marketing expense, and administrative expense. The anticipated increase in the size of our workforce may also require us to expand our current facilities or obtain new facilities, which will in turn necessitate additional capital expenditures and further increase our operational expense. However, while we expect to grow our headcount over time, we may experience challenges hiring and retaining a sufficient number of employees.

Ability to Expand Our Product Line

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.

Impact of inflation on operations.

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, we may face limits on the ability to source some of the candy for our freeze dried candy products.

Seasonality

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

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temporary decrease in shipments of our treats during summer months, which we believe is consistent with the greater candy industry trend.

Components of Results of Operations

Revenues

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

Cost of Goods Sold

Our cost of goods sold consists primarily of facilities costs, material costs, and labor on the production of freeze dried treats.

Operating Expenses

Our operating expenses consist of general and administrative expenses, which includes salaries and benefits expenses, professional services expenses and other general and administrative expenses, intangible asset impairment losses and goodwill impairment losses.

We expect our general and administrative expenses will increase as our business grows.

Interest Expense

Interest expense consists primarily of the cash interest expense on outstanding debt and the amortization of the debt discount created upon the issuance of warrants in connection with debt.

Provision for Income Taxes

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.

Segment Overview

Our chief operating decision makers, who are our Chief Executive Officer and our Executive Chairman, review financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance, as well as for strategic operational decisions and managing the organization. For each of the three month periods ended June 30, 2024 and 2023, we have determined that we have one operating segment and one reportable segment.

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Results of Operations for the Three Months Ended June 30, 2024 and June 30, 2023.

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

	Three Months Ended
	June 30,						Increase /
	2024			2023			(Decrease)			% Change
Revenues	$	15,648,046		$	1,315,346		$	14,332,700			1,090	%
Cost of goods sold		6,640,917			2,896,259			3,744,658			129	%
Gross profit (loss)		9,007,129			(1,580,913	)		10,588,042			670	%
Operating expenses:
General and administrative expenses:
Salaries and benefits		2,123,572			319,608			1,803,964			564	%
Professional services		594,278			63,330			530,948			838	%
Other general and administrative expenses		1,399,244			500,381			898,863			180	%
Total general and administrative expenses		4,117,094			883,319			3,233,775			366	%
Depreciation and amortization		4,939			9,159			(4,220	)		(46	%)
Total operating expenses		4,122,033			892,478			3,229,555			362	%
Net operating income (loss)		4,885,096			(2,473,391	)		7,358,487			298	%
Other income (expense):
Interest income		4,130			-			(4,130	)		100	%
Interest expense		(599,664	)		(847,509	)		(247,845	)		(29	%)
Loss on early extinguishment of debt		(696,502	)		-			696,502			100	%
Total other income (expense)		(1,292,036	)		(847,509	)		444,527			52	%
Net income (loss) before tax provision	$	3,593,060		$	(3,320,900	)	$	6,913,960			208	%

Comparison of the three months ended June 30, 2024 and June 30, 2023

Revenues

Sales of freeze dried candy for the period ended June 30, 2024 were $15.6 million, compared to $1.3 million for the three months ended June 30, 2023, an increase of $14.3 million, or 1,090%. Revenues increased on higher sales volumes driven primarily by new customer additions and an improvement in sales price and mix, compared to the same period in the prior year.

Cost of Goods Sold

Cost of goods sold for the three months ended June 30, 2024 were $6.6 million, compared to $2.9 million for the three months ended June 30, 2023, an increase of $3.7 million, or 129%. Cost of goods sold, primarily consisted of material costs and labor related to the sales of freeze dried candy products. Cost of goods sold increased as we increased sales. Costs of goods sold in the comparative period of 2023 included $1.9 million in write-offs of obsolete inventory.

Gross Profit

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.

Operating Expenses

Salaries and Benefits

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.

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Professional Services

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.

Other General and Administrative Expenses

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.

Depreciation

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.

Other Income (Expense)

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.

Net Income (Loss)

Net income for the three months ended June 30, 2024 was $3.6 million, compared to net loss of $3.3 million during the three months ended June 30, 2023, an increase in earnings of $6.9 million, or 208.2%. The transition to net income from net loss was primarily due the increase in gross profit of $10.6 million, or 670% and increased operating expenses of only $3.2 million or 361.9%, as a result of the conversion to freeze dried candy products after the first three months of 2023.

Provision for Income Taxes

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.

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Results of Operations for the Six Months Ended June 30, 2024 and June 30, 2023.

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

	Six Months Ended
	June 30,						Increase /
	2024			2023			(Decrease)			% Change
Revenues	$	27,054,369		$	1,514,277		$	25,540,092			1,687	%
Cost of goods sold		13,417,798			2,980,262			10,437,536			350	%
Gross profit (loss)		13,636,571			(1,465,985	)		15,102,556			1,030	%
Operating expenses:
General and administrative expenses:
Salaries and benefits		4,474,130			831,197			3,642,933			438	%
Professional services		1,062,104			109,535			952,569			870	%
Other general and administrative expenses		2,271,507			884,491			1,387,016			157	%
Total general and administrative expenses		7,807,741			1,825,223			5,982,518			328	%
Depreciation and amortization		14,477			85,377			(70,900	)		(83	%)
Total operating expenses		7,822,218			1,910,600			5,911,618			309	%
Net operating income (loss)		5,814,353			(3,376,585	)		9,190,938			272	%
Other income (expense):
Interest income		4,130			-			4,130			100	%
Interest expense		(1,018,333	)		(1,345,845	)		327,512			(24	%)
Loss on early extinguishment of debt		(696,502	)		-			(696,502	)		100	%
Total other income (expense)		(1,710,705	)		(1,345,845	)		(364,860	)		27	%
Net income (loss) before tax provision	$	4,103,648		$	(4,722,430	)	$	8,826,078			187	%

Revenues

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.

Cost of Goods Sold

Cost of goods sold for the six months ended June 30, 2024 were $13.4 million, compared to $3 million for the six months ended June 30, 2023, an increase of $10.4 million, or 350%. Cost of goods sold, primarily consists of material costs and labor on the sales of freeze dried food products. During the prior year comparative period, cost of goods sold included a one-time inventory write down of $1.9 million as we disposed of non-candy freeze dried products to pivot exclusively to our better selling candy products. Our gross profit margin was 50% during the current period, compared to a loss margin of (97)% during the comparative period.

General and administrative expenses

Salaries and benefits

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.

Professional services

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.

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Other general and administrative expenses

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.

Depreciation

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.

Other expense

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.

Net income (loss)

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.

Provision for Income Taxes

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.

Liquidity and Capital Resources

The following table summarizes our total current assets, liabilities and working capital at June 30, 2024 and December 31, 2023.

	June 30,		December 31,
	2024		2023
Current Assets	$	32,209,774	$	10,237,837
Current Liabilities	$	6,283,399	$	5,771,200
Working Capital	$	25,926,375	$	4,466,637

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.

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.

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Indebtedness

Promissory Notes and Warrants

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.

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.

On April 11, 2023, 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. The fair value of the warrants was allocated as a debt discount and amortized over the life of the loan.

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.

On August 23, 2022, the Company closed on a private placement for up to $2.5 million 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 $0.25 million and $0.75 million from two of the Company’s directors 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 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

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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.

Cash Flows

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

	Six Months Ended
	June 30,
	2024			2023
Net cash provided by (used in) operating activities	$	(939,534	)	$	(2,421,260	)
Net cash used in investing activities		(2,228,050	)		(362,180	)
Net cash provided by financing activities		15,130,582			2,800,000
Net change in cash and cash equivalents	$	11,962,998		$	16,560

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.

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 2nd and 3rd freezers and improve our office space.

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.

Contractual Obligations and Commitments

The Company is a party to 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 $10.0 thousand, with approximately a 3% annual escalation of lease payments commencing September 15, 2021.

On October 26, 2023, the Company entered into a lease agreement (the “2023 Lease Agreement”) with Prologis, Inc., a Maryland corporation (the “Landlord”). Pursuant to the terms of the 2023 Lease Agreement, beginning on November 1, 2023 the Company leases approximately 51,264 rentable square feet at Stemmons 10, 308 Mockingbird Lane, Dallas, TX 75247 for a term of approximately five years and two months (the “Initial Term”), which the Company intends to use as warehousing and distribution space. The 2023 Lease Agreement provides for base rent payments starting at approximately $42.5 thousand per month (taking into consideration an initial phase-in of the base rent obligation) in the first year of the Initial Term, and increase each year, up to approximately $51.7 thousand per month during the last year of the Initial Term. The 2023 Lease Agreement may be extended for a period of five years, at the option of the Company, at a rate to be based on a fair market rent rate determined at the time of the extension.

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

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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.

On May 22, 2024, the Company entered into an industrial lease (the “Lease”) with USCIF Pinnacle Building B LLC, a Delaware limited liability company. Pursuant to the terms of the Lease, the Company will lease approximately 324,000 rentable square feet from the Lessor at 4024 Rock Quarry Road, Dallas, Texas for a term of approximately 62 months, which the Company intends to use as industrial and manufacturing space. The term of the Lease commenced on May 22, 2024. The Lease provides for graduated rent payments starting at $122,175 per month, and increasing up to $297,289.14 per month by the end of the Lease, plus taxes, insurance and common area maintenance costs. The Company is required to provide a security deposit in the amount of $1,000,000 in connection with the Lease. The Lease may be renewed upon the extension in writing between the Company and the Lessor for a period of up to 60 months.

Off-Balance Sheet Arrangements

None.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of financial conditions and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements required us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates.

Our critical accounting policies are more fully described in Note 2 of the footnotes to our financial statements appearing elsewhere in this Form 10-Q, and Note 2 of the footnotes to the financial statements provided in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Item 3. 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 are not a party to agreements that subject us to floating rates of interest and do not anticipate entering into any transactions that would expose us to any direct interest rate risk.

Foreign Currency Risk

We did not hold a material amount of cash in foreign jurisdictions as of June 30, 2024. However, we anticipate that as our foreign operations grow, we may hold more cash in foreign jurisdictions, particularly Mexico, Colombia and China, and possibly expose ourselves to greater currency fluctuation risk than we currently experience.

Item 4. Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure the information we are required to disclose in the reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based on her evaluation as of June 30, 2024, our Chief Executive Officer, Claudia Goldfarb, and our Interim Chief Financial Officer, Brendon Fischer concluded that our disclosure controls and

39

procedures are effective to accomplish their objectives and to ensure the information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Interim Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in the Company’s internal control over financial reporting during the six months ended June 30, 2024 that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time in the ordinary course of business, we are a party to various types of legal proceedings. We do not believe that these proceedings, individually or in the aggregate, will have a material adverse effect on our financial position, results of operations or cash flows.

Item 1A. Risk Factors.

As a smaller reporting company, we are not required to provide the information required by this Item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following issuances of our securities during the six months ended June 30, 2024 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.

On March 28, 2024, the Company raised $3,738,078 of capital from the sale of 515,597 newly issued shares of common stock at a share price of $7.25 in a private placement exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(a)(2) thereof. Investors in the private placement included Sow Good’s Chief Executive Officer and Executive Chairman, in addition to certain other Sow Good board members, related parties, and accredited investors. The proceeds were used in funding incremental capital expenditures and general operating expenses.

On May 2, 2024, the Company priced its registered underwritten public offering of 1,200,000 shares of the Company’s common stock, par value $0.001 at a price of $10.00 per share. In addition, the Company granted the underwriters a 30-day overallotment option to purchase up to 180,000 additional shares of common stock and issued to the underwriters warrants to purchase 120,000 shares of Common Stock. On May 1, 2024, the Company received approval to list its common stock on the Nasdaq Capital Market stock exchange (“Nasdaq”). Trading on Nasdaq commenced on May 2, 2024. On May 9, 2024, the underwriters purchased all of the Additional Shares pursuant to the full exercise of their overallotment option. Including proceeds from the Additional Shares, the proceeds from the public offering were approximately $11,974,976 net of offering expenses and underwriting discounts and commissions. The proceeds are currently anticipated to be used for general corporate purposes, which may include capital expenditures for the expansion of our production capacity, funding working and growth capital, the expansion of our sales and marketing function and the reduction of certain tranches of our indebtedness.

On April 15, 2024, the Company issued 2,186,250 shares of its common stock in connection with the exercise of warrants that were issued between December 2021 and May 2023 (the “Warrants”), with exercise prices varying from $2.21 to $2.60 (the “Warrant Exercise”). None of the Warrants were amended prior to or in connection with the Warrant Exercise. Each of the exercising holders of warrants (collectively, the "Holders”), received its warrants in connection with the incurrence by the Company of indebtedness pursuant to various tranches of promissory notes issued between December 2021 and May 2023 (collectively, the “Notes”). The Warrants were classified as permanent equity at inception. Due to a redemption feature in the Warrants allowing the Company to redeem the Warrants for $0.001 per Warrant if the daily volume weighted average price per share over thirty consecutive trading days is above $9.00, the Company received indications of intent to exercise Warrants from various Holders given the recent increase in trading price of the Company's common stock. With authorization from the Company's Board of Directors, each of the Holders was provided an opportunity to, and agreed to, amend certain of such Holder’s Notes (the “Notes Amendment”) to allow for the partial prepayment of principal in an aggregate amount equal to the exercise price of such Holder’s Warrants. In addition to the Notes Amendment, certain of the Holders elected use a portion of the accrued but unpaid interest under such Holder’s Notes to pay the exercise price of the Warrants. Certain of the Notes were repaid in full as a result of the Warrant Exercise and thereby did not need to be amended pursuant to the Notes Amendment (the Warrant Exercise, whether by partial or full repayment of principal, or by election to use a portion of accrued but unpaid interest under the Notes, together with the Notes Amendment, the “Warrant Exercise Transaction”). As a result of the Warrant Exercise Transaction, excluding the impact of deferred debt costs, the Company’s debt was reduced by $5,200,362, accrued interest payable was reduced by $98,750, common equity was increased by $5,299,112 and the Company issued an aggregate of 2,186,250 shares of common stock.

During the fiscal quarter ended June 30, 2024, the Company issued 50,459 shares of common stock upon the exercise of stock options by employees, directors, and consultants under its 2020 Stock Option Plan. The aggregate proceeds from the exercise of these options were approximately $163,854. The proceeds are currently anticipated to be used for general corporate purposes, which may include capital expenditures for the expansion of our production capacity, funding working and growth capital, the expansion of our sales and marketing function and the reduction of certain tranches of our indebtedness.

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During the fiscal quarter ended June 30, 2024, the Company issued 52,500 shares of common stock upon the exercise of warrants by directors, and consultants under issued in 2020 as compensation for personal guarantees of debt. The aggregate proceeds from the exercise of these warrants were approximately $210,000. The proceeds are currently anticipated to be used for general corporate purposes, which may include capital expenditures for the expansion of our production capacity, funding working and growth capital, the expansion of our sales and marketing function and the reduction of certain tranches of our indebtedness.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

Exhibit No	Description
2.1	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)
2.2	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)
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 February 22, 2024)
3.2	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.4 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on February 22, 2024)
3.3	Articles of Conversion (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 22, 2024)
3.4	Certificate of Conversion (incorporated by reference to Exhibit 3.2 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on February 22, 2024)
4.1	Form of Common Stock Certificate of Sow Good Inc. (incorporated by reference to Exhibit 4.1 of the Form 10-K filed with the Securities and Exchange Commission by Sow Good Inc. on March 22, 2024)
4.2	Description of Securities (incorporated by reference to Exhibit 4.1 of the Form 10-K filed with the Securities and Exchange Commission by Sow Good Inc. on March 22, 2024)
31.1*	Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a)
31.2*	Certification of Chief Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a)
32.1**	Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**	Certification of Chief Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents
104*	Cover Page Interactive Data File (embedded within the Inline XBRL Document and included in Exhibit 101)

* Filed herewith.

** The certifications attached as Exhibit 32.1 and 32.2 accompanying this Quarterly Report on Form 10-Q are deemed furnished and not filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SOW GOOD INC.
Date: August 14, 2024	By:	/s/ Claudia Goldfarb
		Claudia Goldfarb, Chief Executive Officer (Principal Executive Officer)
Date: August 14, 2024	By:	/s/ Brendon Fischer
		Brendon Fischer, Interim Chief Financial Officer (Principal Financial Officer)

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