ITEM 7. 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 Inc. is a U.S.-based consumer packaged goods company that pioneered the freeze dried candy category. Since commencing commercial sales in the first quarter of 2023, Sow Good developed and scaled a proprietary freeze drying manufacturing operation dedicated to transforming traditional candy and snacks into novel, intensely flavorful treats it markets under the "hyper dried, hyper crunchy, hyper flavorful" brand positioning.
Recent Strategic Transactions
On December 30, 2025, the Company completed a series of strategic transactions that fundamentally changed the nature of its operations. The Company sold substantially all of its manufacturing assets — including six proprietary freeze drying machines and other property and equipment with an aggregate net book value of approximately $10 million — to Trea Grove, LLC, a related party, for total consideration of $1.5 million. Concurrently, the Company entered into an exclusive Distribution Agreement with Trea Grove, LLC, pursuant to which Trea Grove serves as the exclusive worldwide distributor of Sow Good's remaining finished goods inventory, with the Company receiving 10% of gross receipts from customer sales. The Distribution Agreement has a term through July 31, 2026. Additionally, the Company completed a $3.0 million convertible preferred stock offering, the proceeds of which were used to pay down debt and for operational purposes.
As a result of these transactions, the Company no longer operates manufacturing facilities and has transitioned to a capital-light model for the duration of the Distribution Agreement. The Company's board and management are evaluating strategic alternatives for the business going forward.
On December 31, 2025, the Company entered into a Securities Purchase Agreement with David Lazar for the private placement of two tranches of convertible preferred stock (. The Company completed the sale of the first tranche by issuing 1,500,000 shares of Series AA Preferred Stock with proceeds to the Company of $3,000,000, which were used to pay down debt, reduce headcount, and for operational purposes. Pursuant to the Securities Purchase Agreement, the Company expects to consummate the sale of the second tranche with the issuance of 1,500,000 shares of Series AAA Preferred Stock for additional proceeds of $3,000,000 in March 2026. The terms of the Series AAA Preferred Stock are substantially similar to the terms of the Series AA Preferred Stock, except that the Series AAA Preferred Stock are redeemable at a price of $200 per share, and each share of Series AA Preferred Stock is initially convertible into 14 shares of Common Stock where each share of Series AAA Preferred Stock is initially convertible into 250 shares of Common Stock (subject to adjustment as provided in the Series AAA certificate of designations).
In connection with the Private Placement the Company experienced a leadership transition with (i) Claudia Goldfarb stepping down as Chief Executive Officer while remaining with the Company as Chief Operating Officer and a member of the Company’s board of directors (the “Board”), (ii) members of the Board Chris Ludeman and Joe Mueller resigning from the Board in connection with the private placement and strategic asset sale, (iii) David Lazar being appointed Chief Executive Officer and elected to the Board, serving as the Board’s Chairman and (iv) David Natan being elected to the Board and serving as Audit Committee Chairman following Mr. Ludeman’s resignation.
Products
Sow Good offers freeze dried candy and snack products. The freeze drying process removes up to 99% of moisture from products in their frozen state through the application of low heat in a near-vacuum environment, concentrating flavor and producing a uniquely crunchy texture with a long shelf life and natural preservation characteristics.
A Distinctive and Trusted Brand Name
We believe we have a distinctive brand that consumers trust and helps distinguish our product on crowded retail shelves. Since Sow Good’s inception, we have invested heavily to elevate the Sow Good brand by creating a distinctive and cohesive brand design that sparks consumer curiosity and a desire to sample additional flavors carried by Sow Good. In addition, we use premium packaging materials to communicate the high-quality nature of our products and differentiate ourselves from competitive offerings.
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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.
The State of the Freeze Dried Candy Category
While we observed the freeze dried candy category experience a significant rise in popularity during 2024 and the first half of 2025, we have observed market data showing a significant decline in sales in the freeze dried candy category toward the end of 2025. This decline could be the result of a number of factors, including the disjointed nature of freeze dried candy providers and the variance in quality, the arrival of large multinational market entrants and their desire to reduce competition in the space, or the exhaustion of consumer appetite of freeze dried candy. As a result of the slowdown in the market for freeze dried candy, the Company has transitioned to a capital-light model for the duration of the Distribution Agreement.
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 continue to 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 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 and distributors, such as Five Below, Albertsons and C&S Wholesale. 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.
Impact of inflation 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 war, 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.
Components of Results of Operations
Revenues
We recognize revenues from the sales of our freeze dried treats. The Company recognizes revenues when orders are shipped to customers.
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.
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Interest Income
Interest income consists primarily of the interest on short-term U.S Treasury Bonds.
Provision for Income Taxes
The Company recognized federal income tax of $0 for the twelve months ended December 31, 2025 and 2024, respectively. The Company’s effective tax rates for the twelve months ended December 31, 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 years ended December 31, 2025 and 2024, we have determined that we have one operating segment and one reportable segment.
Results of Operations for the Years Ended December 31, 2025 and December 31, 2024.
The following table summarizes selected items from the statement of operations for the years ended December 31, 2025 and December 31, 2024:
Year Ended
December 31, Increase /
Revenues $ - $ - $ - 0 %
Cost of goods sold - - - 0 %
Operating expenses:
General and administrative expenses:
Other expense:
Loss on impairment of long lived assets (57,602 )
Revenues
As a result of the Asset Sale Agreement and Distribution Agreement entered into on December 30 and December 31, 2025, respectively, the Company exited its manufacturing and omnichannel sales business for freeze dried candy and related products. Under the new business model, the Company operates as a commission-based distribution agent and earns a percentage of distributor gross receipts from sales of Sow Good-branded products. Because the prior manufacturing and product sales activities were discontinued as part of these transactions, all revenues associated with the sale of freeze dried candy and related products have been reclassified to loss from discontinued operations for all periods presented. Accordingly, the Company recognized no revenue from continuing operations for the twelve months ended December 31, 2025 and 2024.
Results of operations for the years ended December 31, 2025 and 2024 have been reclassified on our Statement of Operations as either a gain or loss on discontinued operations, net of tax. For the years ended December 31, 2025 and 2024, we reclassified a loss of $33.8 million and a gain of $8.1 million, respectively to discontinued operations.
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Cost of Goods Sold
As a result of the transactions described above, the Company no longer manufactures or sells products directly and therefore does not incur cost of goods sold in its continuing operations. All costs associated with the manufacturing and sale of freeze dried candy, including inventory write-downs, production costs, and related overhead previously included in cost of goods sold, have been reclassified to discontinued operations for all periods presented. These costs include charges recorded to write down finished goods and raw materials inventory associated with SKUs the Company no longer intends to produce or sell, as well as related overhead allocations associated with the discontinued manufacturing operations.
General and administrative expenses
Salaries and benefits
Salaries and benefits for the twelve months ended December 31, 2025 were $4.4 million, compared to $7.6 million for the twelve months ended December 31, 2024, a decrease of $3.2 million, or (42%), related to decreased headcount. Salaries and benefits included amortization of stock options granted to employees and officers for the twelve months ended December 31, 2025 of $1.4 million, compared to $4.4 million for the twelve months ended December 31, 2024, decrease of $3.0 million, or -68%, mainly due to forfeitures of unvested stock options during the fourth quarter of 2025. Salaries, payroll tax and benefits other than the amortization of stock options decreased $0.4 million, or 13% over the comparative period, as a result of decreased headcount. Severance cost of $2.4 million incurred in the fourth quarter of 2025 was included in discontinued operations.
Professional services
Professional services were $838.7 thousand for the twelve months ended December 31, 2025, compared to $1.6 million for the twelve months ended December 31, 2024, a decrease of $750.6 thousand, or (47%). The decrease was primarily driven by the absence of professional service costs related to the 2024 underwritten public offering and reduced services as a result of scaling down activities during the twelve months ended December 31, 2025.
Other general and administrative expenses
Other general and administrative expenses for the twelve months ended December 31, 2025 was $1.3 million, compared to $1.9 million for the twelve months ended December 31, 2024, a decrease of $531.1 thousand, or (29%). The decrease is primarily attributable to a decrease of $388,506 in travel and entertainment costs.
Depreciation
Depreciation of property and equipment was $33.1 thousand and $31.6 thousand for the twelve months ended December 31, 2025 and 2024, respectively.
Other expense
Other expense consisted primarily of interest expense on notes payable of $156.6 thousand and $741.2 thousand for the twelve months ended December 31, 2025 and 2024, respectively, and $57.6 thousand of impairment expense on long lived assets for the twelve months ended December 31, 2025. The decrease in interest expense compared to the prior year was primarily attributable to a reduction in the average outstanding balance of notes payable during the period. Certain interest expense related to discontinued operations was been included in gain (loss) on discontinued operations for all periods presented.
Net loss on continuing operations
Pretax net loss on continuing operations for the twelve months ended December 31, 2025 was $6.8 million, compared to a pretax net loss on continuing operations of $11.8 million during the twelve months ended December 31, 2024, a decreased loss of $5.0 million. The decreased net loss was due primarily to the decreased salaries and benefits of $3.3 million, decreased professional services of $956,375, and decreased other general and administrative costs of $531,112.
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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 twelve months ended December 31, 2025 and 2024, the Company recognized federal income tax expense of $0, and $0, respectively.
Liquidity and Capital Resources
The following table summarizes our total current assets, liabilities and working capital at December 31, 2025 and December 31, 2023.
December 31, December 31,
As of December 31, 2025, we had working capital of $2.8 million, compared to working capital of $20.2 million as of December 31, 2024. The decreased working capital is mainly attributable to decreases in inventory of approximately $20.4 million and cash of $2.2 million. As of December 31, 2025, our balance of cash and cash equivalents was $1.5 million, compared to $3.7 million at December 31, 2024. 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 Annual Report on Form 10-K for additional information.
Indebtedness
Promissory Notes and Warrants
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
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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 twelve months ended December 31, 2025 and 2024, respectively.
Year Ended
December 31,
Net cash provided by investing activities - (5,927,876 )
Net cash used in continuing operating activities was $4.3 million for the twelve months ended December 31, 2025, compared to $4.4 million of cash used in continuing operating activities twelve months ended December 31, 2024. The decrease in cash used in continuing operating activities of $0.6 million was primarily due to cash provided by changes in working capital. Cash used by discontinued operations was $0.6 million twelve months ended December 31, 2025 compared to cash used by discontinued operations of $13.2 million for the twelve months ended December 31, 2024.
Net cash used in investing activities of the continuing operation was $0 for twelve months ended December 31, 2025, and the twelve months ended December 31, 2024. Cash used in investing activities of discontinued operations during the twelve months ended December 31, 2025 was $0, compared to $5.9 million for the twelve months ended December 31, 2024, which was primarily used for additional freezers.
Net cash provided by financing activities for continuing operations was $3.0 million and $0 for the twelve months ended December 31, 2025 and 2024, respectively. Net cash provided by financing activities for the twelve months ended December 31, 2025 consisted of $3.0 million of proceeds from the sale of 1,500,000 convertible preferred shares at $2.00 per share. Cash used by discontinued operations was $943,868 during the twelve month period ended December 31, 2025. This cash was used to pay down related party long term convertible notes payable. Cash provided by financing activities of discontinued operations was $16.7 million for the twelve month period ended December 31, 2024. This cash was raised pursuant multiple private and public offerings, and the issuance of shares related to warrant exercises provided $5.3 million, in exchange for $5.2 million in repayment of notes payable, and $98,750 of repayment of interest during the twelve months ended December 31, 2024. In addition, another $1.6 million was used to repay borrowings during 2024.
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Contractual Obligations and Commitments
On July 1, 2023, the Company entered into a lease for 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 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 was required to provide a security deposit in the amount of $1,000,000 in connection with the Lease. Effective September 30, 2025, the Company agreed with Pinnacle to exit the facility on January 31, 2026. As a result of reducing the lease term by 42 months, the company reduced the related right-of-use asset by $10,397,922 and the lease liability by $11,829,536, resulting in a noncash gain $1,427,649, which is included in the loss from discontinued operations for the year ended December 31, 2025.
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. Effective September 30, 2025, the Company agreed with Prologis to exit the lease as of September 30, 2025. As a result of reducing the lease term by 39 months, the company derecognized the related right-of-use asset $2,325,675 and the lease liability of $2,673,619, resulting in a noncash gain of $347,853, which is included in the loss from discontinued operations for the year ended December 31, 2025.
The Company was 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, a related party. 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. Concurrently with the Asset Sale entered into on December 30, 2025, the company exited this lease and derecognized the related right-of-use asset $1,040,742 and the lease liability of $1,171,490, resulting in a noncash gain of $120,773, which is included in the loss from discontinued operations for the year ended December 31, 2025.
Off-Balance Sheet Arrangements
None.
Critical Accounting Policies and Estimates
The preparation of the Company’s financial statements requires management to make judgments and estimates due to uncertainties affecting the application of accounting policies. Different conditions or assumptions could lead to different reported amounts. The Company bases its estimates on historical experience and other reasonable assumptions. If actual results differ from these estimates, adjustments are recognized in the period they become known. Significant accounting policies are detailed in Note 2 of the Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Price Risk
We do not expect any significant effects from commodity price risk outside of inherent inflationary risks.
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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 any significant cash balances in foreign jurisdictions as of December 31, 2025. However, we anticipate that as our foreign operations grow, we will hold more cash in foreign jurisdictions, and thereby expose ourselves to greater currency fluctuation risk than we currently experience.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OF SOW GOOD INC.
SOW GOOD INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED December 31, 2025 and 2024
CONTENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID 1013) F-1
Statements of Operations for the years ended December 31, 2025 and 2024 F-4
Statements of Cash Flows for the years ended December 31, 2025 and 2024 F-6
Notes to the Financial Statements F-7
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Report of Independent Registered Public Accounting Firm
Stockholders and Board of Directors
Sow Good, Inc.
Irving, TX
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Sow Good, Inc. (“the Company”) as of December 31, 2025 and 2024, the related statements of operations, stockholders’ (deficit) equity, and cash flows for the years ended December 31, 2025 and 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for the years ended December 31, 2025 and 2024, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Uncertainty – See Also Critical Audit Matters Section Below
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses from operations, has a capital deficiency and does not have an established source of revenues sufficient to cover its operating costs, which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Discontinued Operations
As further discussed in Note 4 to the financial statements, on December 30, 2025, the Company sold substantially all of its manufacturing and operating assets to its former Executive Chairman and former Chief Executive Officer and exited its legacy business and no longer manufactures products. Accordingly, the results of the former manufacturing business have been classified as discontinued operations for all periods presented.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also includes evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinion on the critical audit matters or on the accounts or disclosures to which it relates.
Going Concern – Refer to Note 3 to the Financial Statements
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Critical Audit Matter Description
As described further in Note 3 to the financial statements, the Company has suffered recurring losses from operations, has capital deficiency and does not have an established source of revenues sufficient to cover its operating costs. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish its business plan and eventually attain profitable operations. Accordingly, the Company has determined that these factors raise substantial doubt as to the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. Management intends to continue to fund its business by way of public or private offerings of the Company’s stock or through loans from private investors, in order satisfy the Company’s obligations as they come due for at least one year from the financial statement issuance date. However, the Company has not concluded that these plans alleviate the substantial doubt related to its ability to continue as a going concern.
How the Critical Audit Matter was Addressed in the Audit
We determined the Company’s ability to continue as a going concern is a critical audit matter due to the estimation and uncertainty regarding the Company’s available capital and the risk of bias in management’s judgments and assumptions in their determination. Our audit procedures related to the Company’s assertion on its ability to continue as a going concern included the following, among others:
• We performed testing procedures such as analytical procedures to identify conditions and events that indicate that there could be substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.
• We reviewed and evaluated management's plans for dealing with adverse effects of these conditions and events.
• We inquired of Company management and reviewed company records to assess whether there are additional factors that contribute to the uncertainties disclosed.
/s/ Urish Popeck & Co., LLC
We have served as the Company's auditor since 2023.
Pittsburgh, Pennsylvania
March 31, 2026
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SOW GOOD INC.
BALANCE SHEETS
December 31, December 31,
ASSETS
Current assets:
Accounts receivable - related party 1,651,471 -
Other receivables 93,198 -
Assets of discontinued operation - 28,989,610
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Current portion of operating lease liabilities 78,171 125,987
Current liabilities related to discontinued operations 346,861 2,473,115
Operating lease liabilities - 79,575
Liabilities of discontinued operation - 15,113,553
Commitments and contingencies
Stockholders' (deficit) equity:
Total liabilities and stockholders' (deficit) equity $ 3,775,388 $ 54,695,731
The accompanying notes are an integral part of these financial statements.
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SOW GOOD INC.
STATEMENTS OF OPERATIONS
For the Year Ended
December 31,
Revenues $ - $ -
Operating expenses:
General and administrative expenses:
Other expense:
Loss on impairment of long lived assets (57,602 ) -
Loss from continuing operations before income tax (6,823,265 ) (11,831,129 )
Income tax provision - -
Income (loss) of discontinued operations, net of tax (33,818,241 ) 8,128,913
Continuing loss per common share - basic and diluted $ (0.58 ) $ (1.28 )
Net loss per common share - basic and diluted $ (3.44 ) $ (0.40 )
The accompanying notes are an integral part of these financial statements.
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SOW GOOD INC.
STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
For the Twelve Months Ended December 31, 2025
Additional Total
Preferred Stock Common Stock Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
For the Twelve Months Ended December 31, 2024
Additional Total
Preferred Stock Common Stock Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
The accompanying notes are an integral part of these financial statements.
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SOW GOOD INC.
STATEMENTS OF CASH FLOWS
For the Year Ended
December 31,
CASH FLOWS FROM OPERATING ACTIVITIES
Adjustments to reconcile net loss to net cash used in continuing operations:
Non-cash amortization of right-of-use asset and liability 123,721 114,281
Decrease (increase) in current assets:
Increase (decrease) in current liabilities:
Net cash (used in) discontinued operations 22,795 (5,073,068 )
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed asset additions and disposals, net - -
Cash paid for construction in progress - -
Net cash (used in) investing - continuing operations - -
Net cash (used in) investing - discontinued operations - (5,927,876 )
Cash used in investing $ - $ (5,927,876 )
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from preferred stock offering 3,000,000 -
Net cash provided by financing activities - continuing operations 3,000,000 -
NET INCRASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,248,995 ) 1,313,403
SUPPLEMENTAL INFORMATION:
NON-CASH INVESTING AND FINANCING ACTIVITIES DISCONTINUED OPERATIONS:
Interest received - discontinued operations - 43,639
Income taxes paid - discontinued operations - 130,000
Non-cash exercise of warrants - 5,299,113
The accompanying notes are an integral part of these financial statements.
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SOW GOOD INC.
Notes to Financial Statements
Note 1 – Organization and Nature of Business
Sow Good Inc. (“SOWG,” “Sow Good,” “us,” “our,” “we,” or the “Company”) is a U.S.-based company that, through a third-party distribution arrangement, participates in the commercialization of freeze-dried candy products. The Company historically operated as a manufacturer of freeze-dried consumer packaged goods, including candy, fruits, vegetables, and snack products.
Formerly Black Ridge Oil & Gas, Inc. (a business that participated in the acquisition and development of oil and gas leases and was acquired by the Company on October 1, 2020), the Company transitioned its focus to freeze-dried food products following the acquisition. At the time of the acquisition of Black Ridge Oil & Gas, Inc., the Company’s 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, Inc. was known as Ante5, Inc., a publicly traded company since July 1, 2010. Effective February 15, 2024, Sow Good Inc. reincorporated in the State of Delaware from the State of Nevada pursuant to a plan of conversion. On May 2, 2024, trading of the Company’s common stock commenced on the Nasdaq Capital Market.
In May 2021, the Company announced the launch of its first direct-to-consumer freeze-dried consumer packaged goods (“CPG”) line of non-GMO products, including ready-to-make smoothies, gluten-free granola, and snacks. In the first quarter of 2023, the Company launched a freeze-dried candy product line and subsequently discontinued its smoothie, snack, and granola products. The Company expanded manufacturing capacity during 2023 and 2024 through the construction and installation of multiple freeze-dryers to support anticipated growth in candy production.
During December 2025, the Company completed a strategic shift away from direct manufacturing and product sales and entered into a distribution agreement pursuant to which a third-party distributor serves as the exclusive distributor of the Company’s freeze-dried candy products. Under this arrangement, the distributor is responsible for commercialization, sales, marketing, fulfillment, and customer relationships, and the Company earns a contractual percentage of distributor gross receipts. As a result of this strategic shift, the Company no longer operates a manufacturing business and does not directly sell products to customers.
As of December 31, 2025, the Company’s business consists primarily of earning commission-based revenue from its distribution arrangement related to freeze-dried candy products.
Note 2 – Summary of Significant Accounting Policies
These financial statements are presented in accordance with United States generally accepted accounting principles ("GAAP”) and stated in US dollars, have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC”). These statements reflect all adjustments, which in the opinion of management, are necessary for fair presentation of the information contained therein. Except as otherwise disclosed, all such adjustments are of a normal recurring nature.
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. For further details on segment reporting, refer to Note 15 – Segment Reporting.
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.
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Notes to Financial Statements
Reclassifications
Certain amounts in the prior period financial statements have been reclassified to conform with the current 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 $1,189,975 at December 31, 2025. The Company had cash in excess of FDIC and SIPC insured limits of $1,837,840 at December 31, 2024. 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 $0, and $33,549 at December 31, 2025 and 2024.
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.
Accounts Receivable - Related Party
Related party receivables are $1,651,471 for the year ended December 31, 2025 and $0 for the year ended December 31, 2024. These receivables consisted of the $1,500,000 purchase price of the assets of Sow Good under the Asset Purchase Agreement, which was with Trea Grove, a company owned by Ira Goldfarb, and approximately $151,472 in withholding taxes due from Claudia and Ira Goldfarb related to fully vested shares granted as employee compensation.
Other Receivables
Other accounts receivable of $93,198 and $0 for the years ended December 31, 2025 and 2024 respectively, consisted primarily of a tax refund receivable from the State of Delaware for franchise taxes and interest receivable from investments, respectively.
Divestiture
On December 30, 2025, the Company entered into an Asset Purchase Agreement with Trea Grove LLC, an entity controlled by the Goldfarbs, a related party under common ownership (see Note 5 — Related Party Transactions). The Company evaluated the transferred set of assets, processes, and employees under ASC 805-10-55 and determined that the disposition of the manufacturing and omnichannel distribution business constituted a sale of a business. The transaction included the transfer of an assembled workforce, operational processes, manufacturing equipment, and leasehold improvements. In connection with the transaction, Trea Grove LLC
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Notes to Financial Statements
also assumed the lease of the Union Bower facility, a facility owned by the Goldfarbs. Accordingly, the transaction was accounted for as a sale of a business and the loss on divestiture was recognized upon closing in accordance with ASC 810-40. The results of operations of the disposed business have been reclassified as discontinued operations for all periods presented in the accompanying consolidated financial statements in accordance with ASC 205-20.
The table below summarizes the components of the transaction and the resulting gain on divestiture recognized in the Consolidated Statements of Operations:
Liabilities assumed by Trea Grove LLC 635,380
Less:
Assets sold:
Assets held for sale (713,256 )
Construction in process - freeze dryers (2,768,908 )
Leasehold improvements, net (1,459,067 )
Other property plant and equipment, net (1,778,534 )
Net loss on disposition of assets (8,658,598 )
Inventory
On December 30 and December 31, 2025, the Company entered into an Asset Purchase Agreement and a Distribution Agreement, respectively. As a result of these transactions, the Company transitioned from operating as a manufacturer and omnichannel seller of freeze-dried candy to operating as a commission-based distribution agent, earning a fixed percentage of distributor gross receipts from sales of Sow Good-branded products. In addition, the Company retained certain SKUs to market independently of the Distribution Agreement.
Inventory is stated at the lower of average cost or net realizable value, with cost determined using the first-in, first-out (“FIFO”) method. The Company evaluates inventory for potential obsolescence and excess quantities on a periodic basis.
In connection with the exit of its manufacturing and omnichannel distribution business, the Company recorded an impairment and write-off of inventory of $13,737,675 during the year ended December 31, 2025. Because the impaired inventory related entirely to the former manufacturing and direct-sales business, the impairment expense has been included in loss from discontinued operations for all periods presented.
As of December 31, 2025, the Company retained approximately $22,871 of inventory related to certain SKUs that were not transferred in the Asset Purchase Agreement. This inventory has been recorded at the lower of cost or net realizable value. Based on our Distribution Agreement with the Distributor, the net realizable value for units the Company expects to sell through its Distributor is 10% of the expected selling price of the Distributor.
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
Furniture and fixtures (years) 5
Machinery and equipment (years) 7 - 10
Leasehold improvements Lease-term or useful life
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Notes to Financial Statements
Construction in progress was included as assets sold under the Asset Purchase Agreement with Trea Grove on December 30, 2025. Construction in progress for the year ended December 31, 2024 was stated at cost and no depreciation expense was recorded on construction-in-progress until such time as the relevant assets were 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 expense included in continuing operations was $33,101 and $31,644, for the twelve months ended December 31, 2025 and 2024, respectively. Depreciation related to the assets used in the manufacture and sale of freeze-dried candy was reclassified to cost of goods sold, and has been included in the loss on discontinued operations.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). Following the sale of substantially all manufacturing and operating assets and the entry into a long-term Distribution Agreement effective December 31, 2025, the Company no longer manufactures products or sells goods to customers. Instead, the Company operates as a commission-based distribution agent and earns a fixed percentage of distributor gross receipts from sales of Sow Good-branded products.
For the year ended December 31, 2025, the Company recognized no revenue from continuing operations, as the Distribution Agreement became effective at year end and no commission revenue was earned during the period. Revenue recognized in prior periods under the Company’s former manufacturing and direct-sales business model has been reclassified to loss from discontinued operations for all periods presented and is not comparable to revenue that may be recognized under the Company’s current commission-based distribution model.
Under ASC 606, the Company has concluded that it acts as an agent in these arrangements because it does not control the underlying products prior to transfer to end customers, does not have primary responsibility for fulfillment, and does not bear inventory or credit risk. Accordingly, for the units of inventory sold under the Distribution Agreement, the Company recognizes revenue on a net basis in an amount equal to the commission to which it is entitled.
The Company’s performance obligation under the Distribution Agreement is to provide ongoing brand support and access to the Sow Good brand to its distribution partner. This performance obligation is satisfied over time. Commission revenue is recognized in the period in which the related underlying product sales occur and the distributor’s gross receipts are generated, as this corresponds to when the Company’s right to consideration becomes fixed and determinable.
The Company does not record revenue related to gross product sales, shipping, or handling activities, that are performed by the Distributor and third-party manufacturers. The Company also does not record provisions for product returns, discounts, or allowances, for items which are sold by our Distributor.
Advertising Costs
Amounts related to the Company’s former manufacturing and direct-sales business model have been reclassified to loss from discontinued operations for all periods presented.
The Company did not recognize any advertising costs under our commission-based distribution model.
Customer Concentration
Following the sale of substantially all manufacturing and operating assets and the transition to a capital light sales through a distributor model, the Company earns revenue mainly from a single distribution partner pursuant to a long-term Distribution Agreement. Trea Grove LLC, a related party, is expected to be the Company’s sole distributor of Sow Good-branded products going forward. The Company may also sell inventory independently from time to time.
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Notes to Financial Statements
For the year ended December 31, 2025, the Company recognized no revenue from continuing operations.
Supplier Concentration
Following the sale of substantially all manufacturing and operating assets and the transition to a capital light sales through a distributor model, the Company earns revenue mainly from a single distribution partner pursuant to a long-term Distribution Agreement. Trea Grove LLC, a related party, is expected to be the Company’s sole distributor of Sow Good-branded products going forward. The Company may also sell inventory independently from time to time.
Purchases from vendors relate primarily to corporate overhead, professional services, and other administrative costs. Amounts related to the Company’s former manufacturing and direct-sales business model have been reclassified to loss from discontinued operations for all periods presented.
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 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 stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation. Stock-based compensation for equity instruments issued to employees and non-employees is measured at fair value on the grant date and recognized as compensation expense over the requisite service period.
All transactions in which the consideration for goods or services is settled in equity instruments are accounted for based on the fair value of the equity instruments issued. The measurement date is the date at which the key terms and conditions of the award is reached.
The Company accounts for forfeitures as they occur. When an award is forfeited prior to completion of the requisite service period, any previously recognized compensation cost related to the unvested portion of the award is reversed in the period of forfeiture.
The fair value of service-based stock options is estimated using the Black-Scholes option-pricing model, with expected terms ranging from 2.3 to 7.3 years, determined based on either the weighted-average vesting period and contractual term or as calculated under the valuation model. The risk-free interest rate is based on U.S. Treasury securities with maturities commensurate with the expected term of the awards at the grant date.
The Company uses a Monte Carlo simulation model to estimate the fair value of performance-based and market-based stock options. Stock option expense is recognized on a straight-line basis over the requisite service period or the implied service period, as applicable. Amortization of options granted to members of the Board of Directors is included in other general and administrative expense. Amortization of options granted to officers and employees is included in salaries and benefits.
Stock-based compensation related to the issuance of shares of common stock to members of the Board of Directors for their services was $280,000 and $295,648 for the years ended December 31, 2025 and 2024, respectively, and is included in other general and administrative expense.
Stock-based compensation related to the issuance of shares of common stock to Officers of the Company for their services was $689,288 and $0 for the years ended December 31, 2025 and 2024, respectively, and is included in salaries and benefits.
Stock-based compensation related to the amortization of stock option grants was $1,427,945 and $4,511,657 for the years ended December 31, 2025 and 2024, respectively.
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SOW GOOD INC.
Notes to Financial Statements
As of December 31, 2025, the Company had $2,762,546 of total unrecognized stock-based compensation cost related to unvested awards, which is expected to be recognized over a weighted-average period of 1.4 years.
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 (“Topic 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.
Recent Accounting Pronouncements
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 adopted this standard during the current year.
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The ASU requires disclosures about specific types of expenses, including purchases of inventory, employee compensation, depreciation and amortization. The amendments in this ASU are effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements and related disclosures.
No other new accounting pronouncements, issued or effective during the year ended December 31, 2025, have had or are expected to have a significant impact on the Company’s financial statements.
Note 3 – Going Concern
As of December 31, 2025, the Company had an accumulated retained deficit of $103,083,717 and net losses from continuing operations of $6,823,265 and net losses from discontinued operations of $33,818,241, respectively, for the twelve months ended December 31, 2025. The Company had $1,474,445 cash on hand and working capital deficit of $2,794,664 at the twelve month period ended twelve months ended December 31, 2025. These conditions, combined with the Company’s history of operating losses, indicate that the Company may not have sufficient funds to sustain operations for the twelve months following the issuance of these financial statements. Accordingly, these factors raise substantial doubt about the Company’s ability to continue as a going concern.
During December 2025, the Company completed the sale of substantially all manufacturing assets and transitioned to a
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SOW GOOD INC.
Notes to Financial Statements
commission-based, asset-light distribution model under a long-term Distribution Agreement. The transaction generated cash proceeds and significantly reduced the Company’s capital requirements and working capital needs by eliminating manufacturing operations and inventory ownership. While this transition is expected to lower ongoing operating and capital expenditures, the resulting reduction in cash requirements is not expected, by itself, to be sufficient to overcome the Company’s existing liquidity shortfall without additional capital contributions or debt financing.
Management has implemented and continues to evaluate plans intended to improve the Company’s financial position and liquidity. These actions include the sale of manufacturing assets to a related party, ongoing strategic cost reductions and headcount rationalization, finalizing exits for leases associated with unused facilities, which were completed as of January 31, 2026, and pursuing additional capital-raising transactions.
In addition, management is evaluating potential partnership arrangements and capital-raising transactions, including debt and/or equity financings and sales of shares under the Company’s at-the-market equity program. There can be no assurance that these plans will be successfully implemented or will generate sufficient liquidity to allow the Company to continue operations.
The accompanying financial statements have been prepared on a going concern basis and do not include any adjustments that might result from the outcome of this uncertainty. The financial statements do not include any adjustments relating to the recoverability or classification of recorded asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
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SOW GOOD INC.
Notes to Financial Statements
Note 4 – Discontinued Operations
On December 30, 2025, the Company sold substantially all of its manufacturing and operating assets to its former Executive Chairman and former Chief Executive Officer and exited its legacy manufacturing and direct-sales business. In connection with this transaction, the Company entered into a long-term Distribution Agreement pursuant to which the Company now operates as a commission-based distribution agent and no longer manufactures products, owns significant inventory, or incurs costs related to product sourcing, production, warehousing, or distribution.
The sale of substantially all manufacturing and operating assets and the related exit of the legacy business represent a strategic shift that has a major effect on the Company’s operations and financial results. Accordingly, the results of the former manufacturing and direct-sales business have been classified as discontinued operations for all periods presented.
The assets and liabilities of the discontinued operations were disposed of or otherwise derecognized as of December 31, 2025, and no assets or liabilities of discontinued operations remain on the Company’s consolidated balance sheet as of that date.
Results of Discontinued Operations
The following table presents components of discontinued operations, net of tax for the years ended December 31, 2025 and 2024:
For the Year Ended
December 31,
Operating expenses:
General and administrative expenses:
Other income (expense):
Loss on early extinguishment of debt - (696,502 )
Gain on termination of leases 1,896,276 -
Loss on disposition of assets (8,658,598 ) -
Income tax provision - (123,579 )
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Notes to Financial Statements
Liabilities assumed by Trea Grove LLC 635,380
Less:
Assets sold:
Assets held for sale (713,256 )
Construction in process - freeze dryers (2,768,908 )
Leasehold improvements, net (1,459,067 )
Other property plant and equipment, net (1,778,534 )
Net loss on disposition of assets (8,658,598 )
Balance Sheet
The asset and related liabilities related to the discontinued operations were disposed or derecognized prior to December 31, 2025, therefore the assets and liabilities for the year ended December 31, 2025 represent those of the ongoing operation. Balance sheet amounts from the year ended December 31, 2024 have been reclassified as assets and liabilities related to discontinued operations. The following table represents the assets and liabilities reclassified from their December 31, 2024 presentation.
December 31,
Assets of discontinued operation
Total property and equipment, net - 11,673,520
Liabilities of discontinued operation December 31, 2024 December 31, 2024
Long term portion of operating lease liabilities - 15,113,554
During the year ended December 31, 2025, the Company recorded an impairment and write-off of approximately $13,737,675 of inventory that was determined to have no recoverable value. The write-off was initially recorded within cost of goods sold under the Company’s former manufacturing and direct-sales business model, and is included in the net income (loss) of discontinued operations on the Company's Statement of Operations.
During 2025, the Company exited multiple manufacturing and industrial facility leases associated with the discontinued business. As a result of lease termination and modification agreements, the Company recorded noncash gains of $1,896,276 related to the facility lease exits.
Revenue Reclassification
Revenue recognized in prior periods under the Company’s former manufacturing and direct-sales business model has been reclassified to loss from discontinued operations for all periods presented. For the year ended December 31, 2025, the Company recognized no revenue from continuing operations, as the Distribution Agreement became effective at year end and no commission
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Notes to Financial Statements
revenue was earned during the period.
Continuing Involvement
Following the disposition, the Company’s continuing involvement with the former business is limited to our role as an agent who receives commissions from Trea Grove in their role as a Distributor under the Distribution Agreement.
Note 5 – Related Party
During the year ended December 31, 2025, the Company entered into a series of transactions with related parties in connection with a strategic restructuring of its operations and capitalization.
Severance Payment to Related Party
On December 31, 2025, the Company entered into a settlement agreement and general and mutual release (the "Officer Settlement Agreement”) with Ira Goldfarb, the Company’s former executive chairman. Pursuant to the terms of the Officer Settlement Agreement, Mr. Goldfarb was entitled to receive from the Company a cash settlement payment, upon the Stockholder Meeting, of $1,250,000, less all applicable taxes and withholdings (the "Officer Settlement Payment”), in exchange for waiving his rights to contractual severance pursuant to his employment agreement. Payment of $1,250,000 was made to Mr. Goldfarb on January 5, 2026. Mr. Goldfarb continues to serve as a member of the Board of Directors.
On December 31, 2025, the Company entered into a settlement agreement and general and mutual release (the "Officer Settlement Agreement”) with Claudia Goldfarb, the Company’s former chief executive officer. Pursuant to the terms of the Officer Settlement Agreement, Mrs. Goldfarb is entitled to receive from the Company a cash settlement payment, upon the Stockholder Meeting, of $1,150,000, less all applicable taxes and withholdings (the "Officer Settlement Payment”), in exchange for waiving her rights to contractual severance pursuant to her employment agreement. Mrs. Goldfarb continued to be employed by the Company as its Chief Operations Officer and continues to serve on the Board of Directors.
Asset Sale to Related Party
On December 30, 2025, the Company entered into an Asset Purchase Agreement with Trea Grove, LLC (“Trea Grove”), a related party, pursuant to which the Company sold a significant portion of the assets related to its freeze-dried snacks and candy business, including real property improvements, proprietary and intellectual property rights, transferable governmental licenses and permits, and other specified assets. Trea Grove also assumed certain specified liabilities. Total cash consideration for the transaction was $1,500,000, payable in installments through March 31, 2026, the entire amount was recorded as a related party receivable at December 31, 2025. Subsequently, on January 5, 2026, $900,000 was netted from Mr. Goldfarb's severance payment of $1,250,000.
Distribution Agreement with Related Party
On December 31, 2025, the Company entered into a Distribution Agreement with Trea Grove, LLC (“Trea Grove”), an entity owned by Ira Goldfarb and Claudia Goldfarb, pursuant to which Trea Grove was appointed the exclusive distributor of certain Company products, including fruits, snacks, and candy, through July 31, 2026, unless extended. Under the Distribution Agreement, Trea Grove is responsible for customer communications, order management, billing, collections, shipping, logistics, and fulfillment. Trea Grove will remit to the Company ten percent (10%) of gross receipts from product sales. The agreement provides Trea Grove with a limited license to use the Company’s trademarks for distribution and marketing purposes.
Based on the terms of this exclusive Distribution Agreement, the Company has determined that it acts as an agent for purposes of revenue recognition under ASC 606, as the Company does not control the underlying products prior to transfer to end customers, does not have primary responsibility for fulfillment, and does not bear inventory or credit risk. Accordingly, the Company recognizes revenues related to the Distribution Agreement with Trea Gove on a net basis equal to the commission to which it is entitled. Subsequently, on March 18, 2026, the Company amended the Distribution Agreement to allow Sow Good to sell inventory independently as long as Trea Grove remained as the sole distributor.
Private Placement of Preferred Stock
On December 31, 2025, the Company entered into a Securities Purchase Agreement with David Lazar pursuant to which the Company agreed to issue and sell, in a private placement, shares of Series AA Convertible Non-Redeemable Preferred Stock and Series AAA Convertible Non-Redeemable Preferred Stock in two closings for aggregate gross proceeds of $6,000,000. The first closing occurred on December 31, 2025 for gross proceeds of $3,000,000. Mr. Lazar was appointed Chief Executive Officer and Chairman of the Board in connection with the transaction.
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Notes to Financial Statements
Convertible Notes Held by Related Parties Amended
During 2025, Claudia Goldfarb and Ira Goldfarb (the “Goldfarbs”) held Convertible Notes issued by the Company. In connection with the Securities Purchase Agreement executed on December 31, 2025, the Company and the Ira and Claudia Goldfarb agreed to amend the conversion terms of the notes to provide for a conversion price of $0.35 per share, replacing prior conversion price ranges of approximately $0.62 to $0.63 per share.
An aggregate principal amount of $1,404,914 of notes held by the Ira and Claudia Goldfarb will remain outstanding as a backstop for the Company’s operations (the “Backstop Loan”). The Backstop Loan remains a bona fide debt obligation of the Company and is not reduced or otherwise affected by operating losses, restructuring costs, or transaction expenses. On April 15, 2026, the Company and the Ira and Claudia Goldfarb are required to determine, in good faith, what portion of the outstanding balance, if any, will be repaid in cash and what portion, if any, will convert into shares of common stock at the agreed conversion price of $0.35 per share.
On February 12, 2026, the Ira and Claudia exercised the option to convert $289,483 of the outstanding Convertible Notes to 827,095 shares.
Use of Proceeds to Pay Related Party Debt and Settlement with an Officer
A portion of the net proceeds from the preferred stock issuance was used to repay $943,868 of principal and $70,365 in interest outstanding under notes payable to Lyle Berman, a related party.
On December 31, 2025, the Company entered into a settlement agreement and mutual release with Ira Goldfarb, the Company’s former Executive Chairman, pursuant to which Mr. Goldfarb is entitled to receive a cash settlement payment of $1,250,000, less applicable taxes and withholdings, upon the Company’s stockholder meeting, in exchange for waiving his contractual severance rights. Of this amount, $900,000 was retained by the Company and applied as Mr. Goldfarb’s down payment toward the purchase price of the manufacturing assets acquired by Trea Grove, LLC, an entity owned by Mr. Goldfarb. Mr. Goldfarb received the remaining $350,000.
Settlement Agreements with Directors
On December 31, 2025, the Company entered into settlement agreements and mutual releases with Joe Mueller and Chris Ludeman, former members of the Board of Directors.
Voting Agreements
On December 31, 2025, the Company entered into voting agreements with Ira Goldfarb, Claudia Goldfarb, and Lyle Berman, pursuant to which such parties agreed, for a two-year period, to vote their shares in favor of proposals recommended by the Company’s Board of Directors.
All related-party transactions were approved and authorized by a special committee consisting of disinterested members of the Company’s Board of Directors.
Related Party Debt Exchange
On April 28, 2025, the Company entered into an exchange agreement (the "Exchange Agreement”) with Lyle Berman, Claudia Goldfarb and Ira Goldfarb, as holders of the Company’s outstanding promissory notes (the "Outstanding Notes”) with an aggregate principal amount of $2,500,000, maturing August 23, 2025 at an interest rates of 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 $2,563,890, the aggregate principal amount of the Outstanding Notes, plus accrued and unpaid interest thereunder. In addition, the Company issued Convertible Notes of $239,928 at an interest rate of 6%, for the repayment of the Notes which matured on April 8, 2025. The combined $2,803,818 of 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 Notes 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, 2025. The
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SOW GOOD INC.
Notes to Financial Statements
entry into the Exchange Agreement, and the transactions contemplated therein, including entering into the Convertible Notes, was approved unanimously by the disinterested members of the Company’s board of directors, as well as the disinterested members of the Company’s audit committee, pursuant to the Company’s related party transaction policy.
On December 31, 2025, as part of the Securities Purchase Agreement, Ira and Claudia Goldfarb's Convertible Notes were amended to change the conversion price to $0.35 per share, and Mr. Berman was repaid $943,868 of principal and $70,365 in interest outstanding related to his Convertible Notes. Ira and Claudia Goldfarb converted 827,095 shares at a price of $0.35 per share on February 12, 2026.
Common Stock Issued
Common Stock Issued to Officers and Directors for Services
On January 15, 2026, the Company issued 138,888 shares of common stock to each of Lyle Berman and Ira Goldfarb for annual Director services to be rendered. The aggregate fair value of the common stock was $222,221, based on the closing price of the Company’s common stock on the date of grant. The shares were expensed upon issuance.
On August 1, 2025, the Company issued an aggregate 57,471 shares of common stock to Jeffery Rubin for annual Director services to be rendered. The aggregate fair value of the common stock was $50,000, based on the closing price of the Company’s common stock on the date of grant. The shares were expensed upon issuance.
On February 6, 2025, the Company issued an aggregate 82,436 shares of common stock amongst its four non-employee Directors and two advisory Directors for annual services to be rendered. The aggregate fair value of the common stock was $230,000, based on the closing price of the Company’s common stock on the date of grant. The shares were expensed upon issuance.
On June 5, 2025, the Board of Directors unanimously approved a revision to the annual compensation of Claudia Goldfarb, as Company's Chief Executive Officer, and Ira Goldfarb, the Company's former Executive Chairman, whereby Ms. Goldfarb and Mr. Goldfarb would receive approximately 28% and 32%, respectively, of their annual cash salary in shares of the Company's common stock under the Sow Good 2024 Stock Incentive Plan in lieu of cash payments. The number of shares issued in each case is calculated with a stock price equal to the most recent closing price of the Company's common stock, on June 4, 2025. Ms. Goldfarb received 167,362 shares valued at $128,869. Mr. Goldfarb received 259,070 shares valued at $199,638. Mrs. Goldfarb continues to be employed by the Company as its Chief Operations Officer.
On March 31, 2025, the Board of Directors unanimously approved a revision to the annual compensation of Claudia Goldfarb, the former Company's Chief Executive Officer, and Ira Goldfarb, the Company's former Executive Chairman, whereby Ms. Goldfarb and Mr. Goldfarb would receive approximately 28% and 32%, respectively, of their annual cash salary in shares of the Company's common stock under the Sow Good 2024 Stock Incentive Plan in lieu of cash payments. The number of shares issued in each case is calculated with a stock price equal to the most recent closing price of the Company's common stock, on March 31, 2025. Ms. Goldfarb received 158,416 shares valued at $160,000. Mr. Goldfarb received 198,202 shares valued at $200,000. Mrs. Goldfarb continues to be employed by the Company as its Chief Operations Officer.
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.
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SOW GOOD INC.
Notes to Financial Statements
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
Lyle A. Berman Revocable Trust, former Director 68,966 500,000
Brendon Fischer, former Chief Financial Officer 8,000 58,000
On December 31, 2024, Ira and Claudia Goldfarb purchased 12,374 shares of common stock jointly, at a share price of $2.05 pursuant to a Stock Purchase Agreement.
Common Stock Options Awarded to Officers and Directors
On June 3, 2025, the Company granted Donna Guy, Chief Financial Officer, options to purchase 7,500 shares of the Company's stock at an exercise price of $0.77 per share. Options vest 60% on the third anniversary of the grant, and 20% on each anniversary thereafter.
On January 29, 2025, the Company granted Brendon Fischer, former Interim Chief Financial Officer, options to purchase 11,250 shares of the Company’s common stock at an exercise price of $2.78 per share. On June 6, 2025, Mr. Fischer resigned from the Company and his options were forfeited. The reduction in share compensation related to Mr. Fischer's total forfeited options expensed through June 30, 2025 was $37,517.
Debt Financing and Related Warrants Granted
On April 28, 2025, the Company entered into an exchange agreement (the “Exchange Agreement”) with Lyle Berman, Claudia Goldfarb and Ira Goldfarb, as holders of the Company’s outstanding promissory notes (the “Outstanding Notes”) with an aggregate principal amount of $2,500,000, maturing August 23, 2025 at an interest rates of 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 $2,563,890, the aggregate principal amount of the Outstanding Notes, plus accrued and unpaid interest thereunder. In addition, the Company issued Convertible Notes of $239,928 at an interest rate of 6%, for the repayment of the Notes which matured on April 8, 2025. The combined $2,803,818 of 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 Notes 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, 2025. The entry into the Exchange Agreement, and the transactions contemplated therein, including entering into the Convertible Notes, was approved unanimously by the disinterested members of the Company’s board of directors, as well as the disinterested members of the Company’s audit committee, pursuant to the Company’s related party transaction policy.
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SOW GOOD INC.
Notes to Financial Statements
Leases
Prior to the December 30, 2025 sale of the Company's manufacturing business, the Company leased a 20,945 square foot facility in Irving, Texas, for which an entity owned entirely by Ira Goldfarb, our former Executive Chairman is the landlord. The lease term was through September 15, 2025, with two five-year options to extend, with a current monthly lease rate of $12,425, with approximately 3% annual escalation of lease payments, however the Company exited the lease concurrently with the asset sale.
At December 31, 2025 and December 31, 2024, $0 and $1,241,860 are included in liabilities of discontinued operations on our balance sheets in connection with this lease. For the twelve months ended December 31, 2025 and 2024 the Company expensed $146,896 in each of the periods and paid cash of $143,356 and $132,917, respectively.
Note 6 – 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:
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.
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. As a result of the Warrant Exercise Transaction, excluding the impact of deferred debt costs, the Company’s debt was reduced by $5,200,363, 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.
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SOW GOOD INC.
Notes to Financial Statements
The following schedule summarizes the valuation of financial instruments at fair value on a nonrecurring basis in the balances sheet as of December 31, 2025 and December 31, 2024:
CarryingValue EstimatedFair Value CarryingValue EstimatedFair Value
Liabilities
Note 7 – Inventory
Inventory
On December 30 and December 31, 2025, the Company entered into an Asset Purchase Agreement and a Distribution Agreement, respectively. As a result of these transactions, the Company transitioned from operating as a manufacturer and omnichannel seller of freeze-dried candy to operating as a commission-based distribution agent, earning a fixed percentage of distributor gross receipts from sales of Sow Good-branded products. Pursuant to the Asset Purchase Agreement, the Company retained certain SKUs to market independently of the Distribution Agreement.
Inventory is stated at the lower of average cost or net realizable value, with cost determined using the first-in, first-out (“FIFO”) method. The Company evaluates inventory for potential obsolescence and excess quantities on a periodic basis.
In connection with the exit of its manufacturing and omnichannel distribution business, the Company recorded an impairment and write-off of finished goods and work in process materials of $13,737,675 during the year ended December 31, 2025. Because the impaired inventory related entirely to the former manufacturing and direct-sales business, the impairment expense has been included in loss from discontinued operations for all periods presented.
As of December 31, 2025, the Company retained approximately $22,871 of inventory related to certain SKUs that were not transferred in the Asset Purchase Agreement. Inventory of $20,313,315 was included in the current assets of discontinued operations on the balance sheet for the year ended December 31, 2024.
Inventory at respective period ends is was follows:
Finished goods $ 22,871 $ -
Total inventory from continuing operations $ 22,871 $ -
Total inventory from discontinued operations $ - $ 20,313,315
Note 8 – Property and Equipment
Following the sale of substantially all manufacturing and operating assets and the transition to a commission-based distribution model, the Company no longer owns manufacturing facilities, production equipment, or construction-in-progress assets. Property and equipment as of December 31, 2025 consists primarily of office equipment and software.
For the years ended December 31, 2025 and 2024, substantially all depreciation expense related to assets of the former manufacturing and direct-sales business has been reclassified to loss from discontinued operations. Depreciation expense related to continuing operations, consisting primarily of office equipment, was $33,101 and $31,644 for the years ended December 31, 2025 and 2024, respectively, and is included in operating expenses. Depreciation related to the disposed assets is included in net gain or loss on discontinued operations. The Company determined that there were impairment indicators present, and tested the remaining assets for impairment as of December 31, 2025 and recorded an impairment of $57,602. This was determined based on the Company's assessment that the expected future cash flows of the assets did not exceed the net book value on an undiscounted basis.
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SOW GOOD INC.
Notes to Financial Statements
Property and equipment at consist of the following at December 31, 2025 and December 31, 2024:
Less: Accumulated depreciation and amortization (48,333 ) (95,365 )
Note 9 – 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 previously leased a 20,945 square foot facility under a non-cancelable real property lease agreement with an entity owned entirely by Ira Goldfarb, the Company’s former Executive Chairman. The lease required monthly base rent of $11,296, subject to annual escalations of approximately 3%, and included payment of property taxes, utilities, insurance, maintenance, and other occupancy costs. The lease expired on August 31, 2025, and was not renewed. The incremental borrowing rate at commencement was 5.75%. The lease was derecognized as of December 31, 2025, the Company recognized a $120,773 gain upon exit of the lease, this amount is included in net gain or loss on discontinued operations.
On May 22, 2024, the Company entered into an industrial lease with USCIF Pinnacle Building B LLC. The Company leased approximately 324,000 rentable square feet from the Lessor at 4024 Rock Quarry Road, Dallas, Texas for a term of approximately 62 months. The term of the lease commenced on May 22, 2024. The incremental borrowing rate for the lease at the time of commencement was 10.84%. Effective September 30, 2025, the Company agreed with Pinnacle to exit the facility on January 31, 2026. As a result of reducing the lease term by 42 months, the company reduced the related right-of-use asset by $10,397,922 and the lease liability by $11,829,536, resulting in a noncash gain $1,427,649, this amount is included in net gain or loss on discontinued operations.
On October 26, 2023, the Company entered into a lease agreement with Prologis, Inc., a Maryland corporation. 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. Effective September 30, 2025, the Company agreed with Prologis to exit the lease as of September 30, 2025. As a result of reducing the lease term by 39 months, the company derecognized the related right-of-use asset $2,325,675 and the lease liability of $2,673,619, resulting in a noncash gain of $347,853, this amount is included in net gain or loss on discontinued operations.
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SOW GOOD INC.
Notes to Financial Statements
In July 1, 2023, the Company entered into a lease for a 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. The incremental borrowing rate for the lease at the time of commencement was 8%. The lease expires July 31, 2026. this is the Company's only remaining lease obligation.
The components of lease expense were as follows:
For the Year Ended
December 31,
Right-of-Use lease cost:
Supplemental balance sheet information related to leases was as follows:
Operating lease:
Current portion of operating lease liability $ 78,171 $ 125,987
Noncurrent operating lease liability - 79,575
Weighted average remaining lease term:
Operating leases (in years) 0.6 4.8
Weighted average discount rate:
Supplemental cash flow and other information related to operating leases was as follows:
For the Year Ended
December 31,
Cash paid for amounts included in the measurement of lease liabilities:
The future minimum lease payments due under operating leases as of December 31, 2025 is as follows:
Fiscal Year Ending Minimum Lease
December 31, Commitments
Less effects of discounting (7,127 )
Lease liability recognized $ 425,032
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SOW GOOD INC.
Notes to Financial Statements
Note 10– Notes Payable, Related Parties
On April 28, 2025, the Company entered into an exchange agreement (the “Exchange Agreement”) with Lyle Berman, Claudia Goldfarb and Ira Goldfarb, as holders of the Company’s outstanding promissory notes (the “Outstanding Notes”) with an aggregate principal amount of $2,500,000, maturing August 23, 2025 and bearing interest at 8% per annum. Pursuant to the Exchange Agreement, the holders exchanged their Outstanding Notes for new senior convertible promissory notes (the “Convertible Notes”) in an aggregate principal amount of $2,563,890, representing the principal amount of the Outstanding Notes plus accrued and unpaid interest thereon. In addition, the Company issued Convertible Notes with an aggregate principal amount of $239,928 bearing interest at 6% per annum in connection with notes that matured on April 8, 2025. Convertible Notes were convertible, at the election of the holders, in whole or in part, into shares of the Company’s common stock at the fixed conversion prices specified in the applicable notes (ranging from $0.62 to $0.63 per share), subject to customary anti-dilution adjustments.
The combined $2,803,818 of Convertible Notes mature on April 30, 2030 and accrue simple interest at rates ranging from 6% to 8% per annum, payable semi-annually in arrears on May 1 and November 1, beginning November 1, 2025. At the Company’s election, accrued and unpaid interest on an interest payment date may be added to the principal amount of the applicable Convertible Note in lieu of cash payment.
The Convertible Notes are senior in right of payment to all existing and future indebtedness of the Company and are secured by a security interest in all existing and future assets of the Company. The Convertible Notes may be prepaid by the Company at any time upon ten days’ prior written notice.
The entry into the Exchange Agreement and the transactions contemplated thereby, including the issuance of the Convertible Notes, were approved unanimously by the disinterested members of the Company’s board of directors and the disinterested members of the Company’s audit committee in accordance with the Company’s related-party transaction policy.
Pursuant to Appendix C of the Securities Purchase Agreement entered into on December 31, 2025, $1,404,914 aggregate principal amount of notes held by Claudia and Ira Goldfarb will remain outstanding as a backstop for the Company’s operations (the “Backstop Loan”). The Backstop Loan will remain outstanding as a bona fide debt obligation of the Company and will not be reduced, impaired or otherwise affected by operating losses, restructuring costs or transaction expenses. On April 15, 2026, the Company and the Ira and Claudia Golfarb will determine, in good faith, what portion of the outstanding Backstop Loan balance, if any, will be repaid in cash and what portion, if any, will convert into shares of the Company’s common stock at an agreed conversion price of $0.35 per share.
On December 31, 2025, a portion of the net proceeds from the preferred stock issuance was used to repay $943,868 of principal and $70,365 in interest outstanding under notes payable to Lyle Berman, a related party.
Notes payable, related parties consists of the following at December 31, 2025 and December 31, 2024, respectively:
Notes payable, related parties, less current maturities $ - $ -
During the twelve months ended December 31, 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, this amount is included in net gain or loss on discontinued operations.
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SOW GOOD INC.
Notes to Financial Statements
Note 11 – Notes Payable
Notes payable consists of the following at December 31, 2025 and December 31, 2024, respectively:
Less unamortized debt discounts: - 13,470
Less: current maturities - 225,780
The Company used proceeds from the sale of manufacturing assets to pay down certain notes payable. Interest related to notes payable which were paid down as part of the sale of assets and discontinued operations were reclassified to loss from discontinued operations. Interest expenses related to notes payable, related parties, which were retained as part of the continued operations of the company for the twelve months ended December 31, 2025 and 2024, are as follows:
For the Year Ended
December 31,
Interest on notes payable, related parties $ 88,872 $ 338,651
Amortization of debt discounts on notes payable 60,847 372,138
Note 12 – Stockholders’ Equity
Preferred Stock
The Company has 20,000,000 authorized shares of $0.001 par value preferred stock. The Company is authorized to issue shares of preferred stock, par value $0.001 per share, in one or more series, with such rights, preferences, privileges and restrictions as may be determined by the Company’s Board of Directors.
On December 31, 2025, in connection with a Securities Purchase Agreement with an investor, the Company filed a Certificate of Designations, Preferences and Rights creating 1,500,000 shares of Series AA Convertible Non-Redeemable Preferred Stock (the “Series AA Preferred Stock”) and issued 1,500,000 shares of Series AA Preferred Stock at a stated value of $2.00 per share for aggregate gross proceeds of $3,000,000. A second closing for the issuance of 1,500,000 shares of Series AAA Convertible Non-Redeemable Preferred Stock at a stated value of $2.00 per share for aggregate gross proceeds of $3,000,000 is expected to occur following receipt of required stockholder approvals and satisfaction of other customary closing conditions. The terms of the Series AAA Preferred Stock are substantially similar to those of the Series AA Preferred Stock, except that each share of Series AAA Preferred Stock is initially convertible into a greater number of shares of common stock.
The Series AA Preferred Stock ranks senior to the Company’s common stock and any junior securities with respect to dividends and distributions upon liquidation, dissolution or winding up of the Company, and on parity with any series of preferred stock expressly designated as ranking on parity with the Series AA Preferred Stock.
The Series AA Preferred Stock does not bear a stated dividend rate. However, if the Company declares a dividend on its common stock, holders of Series AA Preferred Stock are entitled to receive dividends on an as-converted basis in the same form and manner as holders of common stock.
Subject to receipt of stockholder approvals and the filing of an amendment to the Company’s certificate of incorporation, each share of Series AA Preferred Stock is initially convertible, at the option of the holder, into 14 shares of common stock
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SOW GOOD INC.
Notes to Financial Statements
(equivalent to a conversion price of $0.14286 per share), subject to customary anti-dilution adjustments for stock splits, stock dividends, combinations, and similar events.
In the event of a liquidation, dissolution or winding up of the Company, holders of Series AA Preferred Stock are entitled to receive, prior and in preference to any distributions to holders of common stock, an amount per share equal to the greater of (i) the stated value of $2.00 per share plus any declared but unpaid dividends or (ii) the amount per share that would have been payable had such shares been converted into common stock immediately prior to such event.
The Series AA Preferred Stock generally has no voting rights, except as required by Delaware law and for certain protective provisions requiring the consent of holders of a majority of the outstanding Series AA Preferred Stock.
Common Stock Sold for Cash
On December 31, 2024, Ira and Claudia Goldfarb purchased 12,374 shares of common stock jointly, at a share price of $2.05 pursuant to a Stock Purchase Agreement.
On November 14, 2024 the Company filed a shelf registration to offer and sell from time to time in one or more offerings, up to $50.0 million in aggregate of common stock, preferred stock, debt securities, warrants, and units. As of December 31, 2025, 1,042,862 shares of our common stock have been issued under the registration netting aggregate proceeds of .
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.
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.
Common Stock Issued to Officers for Services
On June 5, 2025, the Board of Directors unanimously approved a revision to the annual compensation of Claudia Goldfarb, the Company's former Chief Executive Officer, and Ira Goldfarb, the Company's Executive Chairman, whereby Ms. Goldfarb and Mr. Goldfarb would receive approximately 28% and 32%, respectively, of their annual cash salary in shares of the Company's common stock under the Sow Good 2024 Stock Incentive Plan in lieu of cash payments. The number of shares issued in each case is calculated with a stock price equal to the most recent closing price of the Company's common stock, on June 4, 2025. Ms. Goldfarb received 167,362 shares valued at $128,869. Mr. Goldfarb received 198,202 shares valued at $199,638. Mrs. Goldfarb continues to be employed by the Company as its Chief Operations Officer.
On March 31, 2025, the Board of Directors unanimously approved a revision to the annual compensation of Claudia Goldfarb, the Company's former Chief Executive Officer, and Ira Goldfarb, the Company's Executive Chairman, whereby Ms. Goldfarb and Mr. Goldfarb would receive approximately 28% and 32%, respectively, of their annual cash salary in shares of the Company's common stock under the Sow Good 2024 Stock Incentive Plan in lieu of cash payments. The number of shares issued in each case is calculated with a stock price equal to the most recent closing price of the Company's common stock, on March 31, 2025. Ms. Goldfarb received 158,416 shares valued at $160,000. Mr. Goldfarb received 198,202 shares valued at $200,000. Mrs. Goldfarb continues to be employed by the Company as its Chief Operations Officer.
Common Stock Issued to Directors for Services
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SOW GOOD INC.
Notes to Financial Statements
On August 1, 2025, the Company issued an aggregate 64,614 shares of common stock to Jeffery Rubin for annual Director services to be rendered. The aggregate fair value of the common stock was $57,471, based on the closing price of the Company’s common stock on the date of grant. The shares were expensed upon issuance.
On February 6, 2025, the Company issued an aggregate 82,436 shares of common stock amongst its four non-employee Directors and two advisory Directors for annual services to be rendered. The aggregate fair value of the common stock was $230,000, based on the closing price of the Company’s common stock on the date of grant. The shares were expensed upon issuance.
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 common stock.
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. As a result of the Warrant Exercise Transaction, excluding the impact of deferred debt costs, the Company’s debt was reduced by $5,200,363, 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.
Note 13 – 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.