Sow Good Inc.: Form 10-Q for the period ended Jun 30, 2025

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 Quarterly Report on Form 10-Q and our audited financial statements and the notes to those statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. 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. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q titled “Risk Factors.” The information included herein represents our estimates and assumptions as of the date of this filing. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. Factors that might cause or contribute to actual results or performance being materially different from those expressed or implied by such forward-looking statements include, but are not limited to, those set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in Item 1A. Risk Factors in the 2024 Annual Report on 10-K.

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, 2025, we have twenty-one stock keeping units (“SKUs”) and eight holiday SKUs in our Sow Good Candy line of treats and three SKUs in our Sow Good Crunch Cream line, which consists of freeze dried ice cream bars and sandwiches. 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, 2025. As of June 30, 2025, our treats are offered for sale in approximately 5,000 brick-and-mortar retail outlets in the United States.

We have custom-built a 20,945 square foot freeze drying facility in Irving, Texas. 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 freeze drying process and expertise allow us to easily expand our manufacturing into other freeze dried snacks, such as yogurt snacks. 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 six bespoke freeze driers using proprietary technology tailored specifically to our products which allows us to freeze dry up to 24 million units of freeze dried candy per year, creating a truly state-of-the-art facility in Irving, Texas. We have six additional freeze driers, which we can have operational, as needed.

Sow Good, co-founded by Claudia and Ira Goldfarb, brings over a decade of manufacturing expertise to the consumer packaged goods (“CPG”) sector, specializing in advanced freeze-drying technology. With experience across pet, baby, and candy products, they have a proven track record of transforming niche trends into everyday consumer staples. Leveraging our proprietary technology, Sow Good delivers innovative, high-quality products with a long shelf life and natural preservation. Beyond product innovation, they are committed to job creation and positive community impact, making Sow Good a forward-thinking force in the industry.

Our products are sold in retailers nationwide from convenience and grocery stores to big-box retailers, such as Five Below, H-E-B, Kroger, Albertsons, and Ace Hardware. In addition, we sell a substantial portion of our products through distributors such as C&S Wholesale and Dutch Valley Food Distributors. In addition, we have expanded our market to two Middle East distributors, Sugary Trading and Festival Sweets. We believe there is a significant growth opportunity in increasing our shelf presence, SKU portfolio, and number of stores with our existing customers. We aim to have the ability to increase the availability of our products to these customers in current locations and distribution to more of their stores, while also broadening our SKU portfolio offerings. Bolstering our distribution and sales force will be a key growth driver for Sow Good so more of our products are available wherever our consumers choose to shop, whether it be a retail store, convenience store, or directly online. To further support our retail launches with existing customers and strengthen our brand name, we provide our product displays with distinctive designs and product highlights to enhance our visibility in current stores and educate new consumers on the value 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 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, which may lead to a larger total addressable market opportunity than is normally available to products sold only in grocery stores, along with an opportunity to develop a direct relationship with our customers at our website, www.thisissowgood.com (http://www.thisissowgood.com) and our social media pages.

Key Factors Affecting our Performance

Our future success is dependent upon many factors. While the factors and trends described below present opportunities for us, they also pose significant challenges that we must successfully address to enable us to sustain and grow 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 Compete Against Competitors with Greater Resources and Market Clout

We operate in a highly competitive industry against competitors with significantly greater financial and other resources. We have become aware of certain of our competitors using their status in the market and marketing spend to limit our current and future customers from purchasing our products or reducing our shelf space. This caused the loss of significant customers with resulted in a significant reduction in revenue and an increase in our inventory. Our ability to keep our current customers, or grow our SKU portfolio on their shelves, and expand our sales with new customers will depend on our competitors’ ability to leverage their market status and financial resources to limit our access to consumers and our ability to compete with these larger competitors.

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

We are currently seeking to grow 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, H-E-B, Kroger, Albertsons, and Ace Hardware. In addition, we sell a substantial portion of our products through distributors such as C&S Wholesale and Dutch Valley Food Distributors. In addition, we have expanded our market to two Middle East distributors. 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.

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, including freeze dried products beyond our freeze dried treats, such as yogurt snacks and jerky. Our pace of growth will be partially affected by the cadence and magnitude of new product launches over time. We believe the commercialization of any new products will require us to hire additional employees within our product design and commercialization team, thereby increasing our marketing expense, as well as research and development costs within our administrative expense.

Impact of Inflation, Tariff and Trade Policies and Other Factors on Our Supply Chain and 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 macroeconomic trends, including tariff and trade policies. 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 as a public company, it is difficult to discern the exact magnitude of seasonality affecting our business from a demand standpoint. While evidence of any demand seasonality remains difficult to assess, we anticipate certain holiday cycles such as Halloween, Christmas, Easter and Valentine’s Day contributing to revenue fluctuations within a given year. In addition, candy purchasing in summer months may be reduced due to a variety of factors including greater levels of health consciousness during warm weather. Operationally, heat waves from July through October of 2024 presented challenges in transporting our freeze-dried treats in the summer months. These conditions led to reduced shipments, higher inventory levels, and a decline in revenue. Additionally, some candy transported via external distribution channels during the extreme summer heat melted, impacting its shelf performance. We worked to remove affected products from shelves and replace them promptly to support recovery in product velocity. In the short term, these measures have impacted our market reputation, sell-through rates, and operational results. As a result, we anticipate an annual temporary decrease in shipments of our treats during summer months.

Components of Results of Operations

Revenues

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

Cost of Goods Sold

Our cost of goods sold, which may include inventory write-downs, 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.

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.

Interest Income

Interest income consists primarily of the interest on short-term U.S Treasury Bonds.

Provision for Income Taxes

The Company recognized a federal income tax expense of $0 and $257,918, for the six months ended June 30, 2025 and 2024, respectively. The Company’s effective tax rates for the three months ended June 30, 2025 and 2024 differed from the federal statutory tax rate of 21% primarily due to a valuation allowance for the Company’s deferred tax assets and permanent differences.

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 six months ended June 30, 2025 and 2024, we have determined that we have one operating segment and one reportable segment.

Results of Operations for the Three Months Ended June 30, 2025 and June 30, 2024.

The following table summarizes selected items from the statement of operations for the three-month periods ended June 30, 2025 and June 30, 2024:

Comparison of the three months ended June 30, 2025 and June 30, 2024

Revenues

Sales of freeze dried candy for the three months ended June 30, 2025 were $1.86 million, compared to $15.6 million for the three months ended June 30, 2024, a decrease of $13.8 million, or 88%, driven by significantly reduced demand due in large part to increased competitive and market pressure by large competitors.

Cost of Goods Sold

Cost of goods sold for the three months ended June 30, 2025 were $1.99 million, compared to $6.6 million for the three months ended June 30, 2024, a decrease of $4.7 million, or 70%. The decrease in cost of goods sold is primarily related to the decline in revenue.

Gross Profit

Gross profit for the three months ended June 30, 2025 was $(0.1) million compared to gross profit of $9.0 million for the three months ended June 30, 2024, a decrease of $9.1 million, or 101%. Gross profit decreased over the comparative period due to a decrease in revenues of $13.8 million, partially offset by a decrease in the cost of goods sold of $4.7 million.

Our gross margin loss was (7%) during the three months ended June 30, 2025, compared to a gross margin profit of 58% for the three months ended June 30, 2024. Our gross margin decreased due to lower sales, and increased cost of goods sold as a percentage of revenues, due to the allocation increased overhead costs over less revenues.

Operating Expenses

Salaries and Benefits

Salaries and benefits for the three months ended June 30, 2025 were $1.9 million, compared to $2.1 million for the three months ended June 30, 2024, a decrease of $408.0 thousand, or 9%. The decrease in salaries and benefits was mainly due to a decrease in bonus compensation of approximately $450,000 compared to the prior year period. Salaries and benefits included stock-based compensation expense of $1.1 million for both of the three-month periods ended June 30, 2025, and 2024. Stock-based compensation consists of stock options expense for employees and officers of the Company.

Professional Services

Professional services were $258.2 thousand for the three months ended June 30, 2025, compared to $594.3 thousand for the three months ended June 30, 2024, a decrease of $336. thousand, or 57%. The decrease was primarily due to decreased legal service expenses compared to the prior year period.

Other General and Administrative Expenses

Other general and administrative expenses for the three months ended June 30, 2025 were $1.7 million, compared to $1.4 million for the three months ended June 30, 2024, an increase of $346.4 thousand, or 25%, primarily due to increased facilities costs related to the company’s new facility, to the extent they are not allocated to inventory.

Depreciation

Depreciation of property and equipment for the three months ended June 30, 2025 and 2024, respectively, was $266.3 thousand and $167.4 thousand, of which $257.7 thousand and $162.4 thousand was allocated to cost of goods sold, which resulted in net depreciation expense of $8.6 thousand and $4.9 thousand, respectively.

Other Income (Expense)

In the three months ended June 30, 2025, other expense of $113.2 thousand consisted of interest expense derived from notes payable and the amortization of warrants issued as a debt discount, net of interest income on cash deposits. During the period ended June 30, 2024, other income consisted of interest expense of $1.7 million. Interest expense decreased due to decreased amortization on notes payable discounts as notes get closer to maturity.

Net Income (Loss)

Pretax net loss for the three months ended June 30, 2025 was $4.2 million, compared to pretax net income of $3.59 million during the three months ended June 30, 2024, decrease in earnings of $7.8 million, or 217%. The transition to pretax net loss from pretax net income was primarily due the decrease in gross profit of $9.1 million, or 101% partially offset by decreased operating expenses of $177.8 thousand or 4%.

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 the periods ended June 30, 2025 and 2024, the Company recognized federal income tax provisions of $0 and $257.9 thousand, respectively.

Comparison of the six months ended June 30, 2025 and June 30, 2024

The following table summarizes selected items from the statement of operations for the three-month periods ended June 30, 2025 and June 30, 2024:

Revenues

Sales of freeze dried candy for the six months ended June 30, 2025 were $4.3 million, compared to $27.1 million for the six months ended June 30, 2024, a decrease of $22.7 million or 84%, driven by significantly reduced demand due in large part to increased competitive and market pressure by large competitors.

Cost of Goods Sold

Cost of goods sold for the six months ended June 30, 2025 were $3.4 million, compared to $13.4 million for the six months ended June 30, 2024, a decrease of $10.1 million , or 75%. The decrease in cost of goods sold is primarily related to the decline in revenue. Cost of goods sold increased as a percentage of revenues due to higher occupancy costs compared to the prior year period.

Gross Profit

Gross profit for the six months ended June 30, 2025 was $973.0 thousand compared to gross profit of $13.6 million for the six months ended June 30, 2024, a decrease of $12.7 million, or 93%. Gross profit decreased over the comparative period due to decreased revenues of $22.7 million partially offset by lower cost of goods sold of $10.1 million.

Our gross profit margin was 22.5% during the six months ended June 30, 2025, compared to 50.40% for the six months ended June 30, 2024. Our gross profit margin decreased as sales decreased while overhead costs included in cost of goods sold increased over the prior year period.

Operating Expenses

Salaries and Benefits

Salaries and benefits for the three months ended June 30, 2025 were $3.9 million, compared to $4.5 million for the six months ended June 30, 2024, a decrease of $599.9 thousand, or 13%. The decrease in salaries and benefits was mainly due to a decrease in bonus compensation of approximately $850,000 and headcount reductions. Salaries and benefits included stock-based compensation expense of $2.5 million for both of the six-month periods ending June 30, 2025, and 2024. Stock-based compensation consists of stock options expense for employees and officers of the Company and share grants awarded to certain executives of the Company in lieu of salary, which are being amortized over the service period.

Professional Services

Professional services were $450.6 thousand for the six months ended June 30, 2025, compared to $1.1 million for the six months ended June 30, 2024, a decrease of $611.6 thousand, or 58%. The decrease was primarily due to heightened legal service expenses related to the public offering of common stock and Nasdaq listing in the prior year period.

Other General and Administrative Expenses

Other general and administrative expenses for the six months ended June 30, 2025 were $3.1 million, compared to $2.3 million for the six months ended June 30, 2024, an increase of $848.6 thousand or 37%, primarily due to increased facilities costs related to the company’s new facility, to the extent they are not allocated to inventory.

Depreciation

Depreciation of property and equipment for the six months ended June 30, 2025 and 2024, respectively, was $518.7 thousand and $371.7 thousand, of which $501.5 thousand and $357.3 thousand was allocated to cost of goods sold, which resulted in net depreciation expense of $17.2 thousand and $14.5 thousand, respectively.

Other Income (Expense)

In the six months ended June 30, 2025, other expense of $268.5 thousand consisted of interest expense derived from notes payable and the amortization of warrants issued as a debt discount, net of interest income on cash deposits. During the six months ended June 30, 2024, other income consisted of interest expense of $1.7 million. Interest expense decreased due to decreased amortization on notes payable discounts as a $5.2 million of debt was paid down during the second quarter of 2024.

Net Income (Loss)

Pretax net loss for the six months ended June 30, 2025 was $6.8 million, compared to pretax net income of $4.1 million during the six months ended June 30, 2024, a decrease in earnings of $10.9 million or 265%. The transition to pretax net loss from pretax net income was primarily due the decrease in gross profit of $12.7 million, or 93%, while operating expenses decreased $360.1 thousand, or 5%.

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 the periods ended June 30, 2025 and 2024, the Company recognized federal income tax provisions of $0 and $257.9 thousand, respectively.

Liquidity, Going Concern and Capital Resources

The following table summarizes our total current assets, liabilities and working capital at June 30, 2025 and December 31, 2024.

As of June 30, 2025, we had working capital of $17.4 million, compared to working capital of $17.7 million as of December 31, 2024. The decreased working capital is mainly attributable a decrease in cash of $2.8 million, partially offset by a decrease in current notes payable as a result of the Notes Exchange. As of June 30, 2025, our balance of cash and cash equivalents was $959.4 thousand, compared to $3.7 million at December 31, 2024. We expect to continue to incur significant capital expenditures related to the development and operation of our freeze dried candy business. Our ability to resume our production levels and distribution capabilities and further increase the value of our brands is in part 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, however we will require additional financing in the form of equity or debt which may not be available on favorable terms, or at all. We may not have sufficient funds to sustain our operations for the next twelve months. These factors raise substantial doubt about our ability to continue as a going concern. See Note 3 – “Going Concern” of the notes to consolidated financial statements in this Quarterly Report on Form 10-Q for additional information.

Indebtedness

On April 28, 2025, the Company restructured its outstanding current debt through the issuance of Convertible Notes in a dollar-for-dollar exchange. On April 28, 2025, the Company entered into an exchange agreement (the “Exchange Agreement”) with related party holders of the Company’s outstanding promissory notes (the “Outstanding Notes”) with an aggregate principal amount of $2.7 million, maturity dates ranging from April 8, 2025 to August 23, 2025 and interest rates ranging from 6% to 8%. Pursuant to the Exchange Agreement, holders exchanged their Outstanding Notes for new senior convertible promissory notes (the “Convertible Notes”) in an amount equal to $2.8 million, the aggregate principal amount of the Outstanding Notes, plus accrued and unpaid interest thereunder. The Convertible Notes have a maturity date of April 30, 2030 and will pay interest semiannually in arrears on May 1 and November 1 beginning on November 1, 2025. At the Company’s election, interest payable on an interest payment date may be added to the principal amount of the Convertible Note on the applicable interest payment date and will no longer be owed to holders of the Convertible Notes. The Convertible Notes are convertible at the election of the holders, in whole or in part, into shares of common stock based on a price per share equal to the average closing price of such common stock for the five trading days immediately prior to the execution of and entry into the Convertible Notes, with such conversion prices ranging from $0.62 to $0.63. The Convertible Notes are senior in right of payment to all existing and future debt obligations of the Company and will be secured by all existing and future assets of the Company. The Convertible Notes are redeemable by the Company at any time upon ten days’ notice and at the option the holders for the principal amount thereof plus interest, beginning on January 1, 2026.

Cash Flows

The following table summarizes our cash flows during the six months ended June 30, 2025 and 2024, respectively.

Net cash used in operating activities was $2.0 million for the six months ended June 30, 2025, compared to $0.9 million of cash used in operating activities six months ended June 30, 2024. The increase in cash used in operating activities was primarily due to increases in inventory and accounts receivable.

Net cash used in investing activities was $108.0 thousand for the six months ended June 30, 2025, compared to $630.3 thousand for the six months ended June 30, 2024, a decrease of $522.5 thousand. Cash used in investing activities was primarily used to build out additional freezers and to improve our office space.

Net cash provided by financing activities was $0 and $15.1 million for the six months ended June 30, 2025 and 2024, respectively. Net cash provided by financing activities for the six months ended June 30, 2024 consisted of 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.

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. 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 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.

On January 19, 2024, the Company entered into a sublease agreement (the “Sublease Agreement”) with Papsa Merx S. de R.S. de C.V., a corporation registered in Mexico City, Mexico (the “Sublessor”). Pursuant to the terms of the Sublease Agreement, the Company will sublease approximately 141 rentable square meters at Av. Roble 660, Valle del Campestre, 66265 San Pedro Garza García Municipality, Nuevo León, 66269 (the “Premises”) for a term of approximately seventeen months (the “Term”), which the Company intends to use as office space. The Term of the Lease Agreement will commence on February 1, 2024. The Sublease Agreement provides for rent payments at fixed price of $5.25 thousand 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 $5.25 thousand in connection with the Sublease Agreement. The Sublease Agreement does not have a renewal period.

On October 26, 2023, the Company entered into a lease agreement (the “2023 Lease Agreement”) with Prologis, Inc., a Maryland corporation. 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.

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, 2024.

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, 2025. 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.

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2025, as such term is defined in Rules 13a-15(e) and 15d-15(e) under Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on thisevaluations as of June 30, 2025, our Chief Executive Officer, Claudia Goldfarb, and our Chief Financial Officer, Donna Guy concluded that our disclosure controls and procedures are effective.

There have been no changes in the Company’s internal control over financial reporting during the six months ended June 30, 2025 that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

Significant tariffs could increase Costs, decrease margin, and materially adversely affect the business.

Significant tariffs on certain products could materially increase the costs of our business. These additional costs may not be able to be fully passed along to our customers. These additional costs could materially adversely affect our margins. To the extent that tariffs cause any adverse impacts on global supply chains, it could further materially affect the ability of our ability to timely source our raw materials. If, as a result of tariffs, the United States’ economy experiences a recession or other economic slowdown, the demand for our products may decline materially.

There is substantial doubt about our ability to continue as a going concern.

Our financial statements as of June 30, 2025 have been prepared under the assumption that we will continue as a going concern for the next twelve months. As of June 30, 2025, we had cash and cash equivalents of $959.4 thousand and an accumulated deficit of $69.2 million. We do not believe that our cash and cash equivalents are sufficient to fund operations and capital expenditures to reach larger scale revenue generation from our product offerings. As a result of our financial condition and other factors described herein, there is substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern will depend on our ability to obtain additional funding, as to which no assurances can be given. We continue to analyze various alternatives, including potentially obtaining debt or equity financings or other arrangements. Our future success depends on our ability to raise capital. We cannot be certain that raising additional capital, whether through selling additional debt or equity securities or obtaining a line of credit or other loan, will be available to us or, if available, will be on terms acceptable to us, and, to the extent it is obtained, it would likely have rights, preferences, and privileges senior to those of holders of our common stock and would further dilute our current stockholders. Our ability to raise capital is also constrained by the price of and demand for our common stock. The inclusion of disclosures expressing substantial doubt about our ability to continue as a going concern could also materially adversely affect our stock price and our ability to raise new capital. If we are unable to obtain funds when needed or on acceptable terms, we may be required to curtail our current development programs, cut operating costs, forgo future development and other opportunities, or even terminate our operations in which case our investors could lose some or all of their investment.

Our failure to meet the continued listing requirements of Nasdaq could result in a delisting of our securities.

On May 14, 2025, we received a letter from Nasdaq indicating that the listing of the Company’s common stock was not in compliance with Nasdaq Listing Rule 5550(a)(2), as the closing bid price of our common stock was less than $1.00 per share over a consecutive 30- trading-day period. Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), we have a period of 180 calendar days, or until November 10, 2025, to regain compliance with the minimum bid price requirement, with the possibility of extension for an additional 180 calendar days if we meet Nasdaq’s continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market with the exception of the minimum bid price requirement. In addition, we would be required to provide written notice of our intention to cure the deficiency during such additional compliance period, by effecting a reverse stock split, if necessary

We can regain compliance if our common stock is at least $1.00 for a minimum of 10 consecutive business days (unless Nasdaq exercises its discretion to extend the 10-day period) at any time during the 180 day compliance period (or additional compliance period, if applicable) (the “Nasdaq Listing Requirement”).

If it appears to Nasdaq that we will not be able to cure the deficiency in connection with the minimum bid price requirement, or if we are otherwise not eligible for the additional compliance period, and we do not regain compliance by September 30, 2025 for the minimum bid price requirement, Nasdaq will provide written notification to us that our shares of common stock are subject to delisting. At that time, we may appeal the delisting determination to a hearings panel pursuant to the procedures set forth in the applicable Nasdaq Listing Rules.

The notice is a notice of deficiency, not delisting, and does not currently affect the listing or trading of our common stock on Nasdaq, which continues to trade under the symbol “SOWG.” However, as of June 30, 2025, we did not meet the Nasdaq Listing Requirement, and we may not meet that requirement before the end of the compliance period (or additional compliance period, if applicable).

We continue to actively monitor the closing bid price of our common stock and are evaluating available options, including by effecting the 1-for-3 reverse stock split that was approved by the Company’s stockholders at the Company’s 2025 Annual Meeting of Stockholders held on June 13, 2025, and intend to take appropriate steps to maintain our listing on Nasdaq. However, there can be no assurance that we will be able to regain compliance with the minimum bid price requirement.

Such a delisting would likely have a negative effect on the price of the securities and would impair your ability to sell or purchase the securities when you wish to do so. In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our securities to become listed again, stabilize the market price or improve the liquidity of our securities, prevent our securities from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements. Additionally, if our securities are not listed on, or become delisted from, Nasdaq for any reason, and are quoted on the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of our securities may be more limited than if we were quoted or listed on Nasdaq or another national securities exchange. You may be unable to sell your securities unless a market can be established or sustained.

These are not the only risks we face. You should carefully consider these risk factors, together with the risk factors set forth in Item 1A of our Annual Report on Form 10-K. There have been no other material changes from the risk factors previously disclosed in the Company’s most recent Annual Report on Form 10-K for the year ended December 31, 2024.