10-K
1
sowgood_10k-2020.htm
FORM 10-K
Table of Contents
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2020
☐ TRANSITION REPORT
UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
from _________ to _________
Commission file number 000-53952
SOW GOOD INC.
(Exact name of registrant as specified in its
charter)
(State of Incorporation) (I.R.S. Employer Identification No.)
1440 N Union Bower Rd, Irving, TX 75061
(Address of principal executive offices) (Zip Code)
(214) 623-6055
Registrant’s telephone number, including
area code
Securities registered pursuant
to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
N/A N/A
Securities registered pursuant to Section 12(g)
of the Act:
Title of Each Class Trading Symbol Name of Each Exchange On Which Registered
COMMON STOCK SOWG OTCQB
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
No ☒
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
No ☒
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No
☐
Indicate by check mark whether the registrant has
submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§229.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☒ No ☐
Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth
company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has
filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report. ☐
Indicate by check mark whether the Registrant is
a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No ☒
The aggregate market value of voting stock held
by non-affiliates of the registrant was approximately $5,492,165 as of June 30, 2020 (computed by reference to the last sale price
of a share of the registrant’s Common Stock on that date as reported by OTC Bulletin Board).
There were 3,939,439 shares outstanding of the
registrant’s common stock as of March 29, 2021.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS
We are including the following
discussion to inform our existing and potential security holders generally of some of the risks and uncertainties that can affect our
company and to take advantage of the “safe harbor” protection for forward-looking statements that applicable federal securities
law affords.
From time to time, our management
or persons acting on our behalf may make forward-looking statements to inform existing and potential security holders about our company.
All statements other than statements of historical facts included in this report regarding our financial position, business strategy,
plans and objectives of management for future operations and industry conditions are forward-looking statements. When used in this report,
forward-looking statements are generally accompanied by terms or phrases such as “estimate,” “project,” “predict,”
“believe,” “expect,” “anticipate,” “target,” “plan,” “intend,”
“seek,” “goal,” “will,” “should,” “may” or other words and similar expressions
that convey the uncertainty of future events or outcomes. Items making assumptions regarding actual or potential future sales, market
size, collaborations, trends or operating results also constitute such forward-looking statements.
Forward-looking statements
involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results
to differ materially from those set forth in the forward-looking statements include the following:
· volatility or decline of our stock price;
· low trading volume and illiquidity of our common stock;
· potential fluctuation in quarterly results;
· inability to maintain adequate liquidity to meet our financial obligations;
· litigation, disputes and legal claims involving outside parties; and
We have based these forward-looking
statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions
to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks and uncertainties,
most of which are difficult to predict and many of which are beyond our control. Accordingly, results actually achieved may differ materially
from expected results in these statements. Forward-looking statements speak only as of the date they are made. You should consider carefully
the statements in “Item 1A. Risk Factors” and other sections of this report, which describe factors that could cause our actual
results to differ from those set forth in the forward-looking statements.
Readers are urged not to place
undue reliance on these forward-looking statements, which speak only as of the date of this report. We assume no obligation to update
any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than
as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by
us in our reports filed with the United States Securities and Exchange Commission (the “SEC”) which attempt to advise interested
parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more
of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially
from those expected or projected.
i
TABLE OF CONTENTS
PART 1
ITEM 1 Business 1
ITEM 1A Risk Factors 3
ITEM 1B Unresolved Staff Comments 8
ITEM 2 Properties 8
ITEM 3 Legal Proceedings 8
ITEM 4 Mine Safety Disclosures 8
PART II
ITEM 6 Selected Financial Data 10
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk 18
ITEM 8 Financial Statements and Supplementary Data 18
ITEM 9A Controls and Procedures 19
ITEM 9B Other Information 20
PART III
ITEM 10 Directors, Executive Officers, and Corporate Governance 21
ITEM 11 Executive Compensation 25
ITEM 14 Principal Accounting Fees and Services 35
PART IV
ITEM 15 Exhibits, Financial Statement Schedules 37
SIGNATURES 40
ii
PART I
ITEM 1. BUSINESS
Overview
Effective January 21, 2021,
we changed our name from Black Ridge Oil & Gas, Inc. to Sow Good Inc. (“SOWG,” “Sow Good,” or the “Company”).
Our common stock is traded on the OTCQB under the trading symbol “SOWG”.
The
Company is focused on entering into the freeze-dried food products market. Sow
Good is an emerging consumer products platform focused on manufacturing and marketing freeze-dried snacks, smoothies and soups. Sow Good
will launch its line of freeze-dried snacks, smoothies and soups, and its direct-to-consumer focused website, to coincide with initial
production from its state-of-the-art facility located in Irving, Texas.
S-FDF Business Combination
On
October 1, 2020, the Company completed its acquisition of S-FDF, LLC (the "Seller"), a Texas limited liability company, pursuant
to an Asset Purchase Agreement, between the Company and the Seller, dated June 9, 2020, as subsequently amended effective October 1,
2020. In connection with the closing of the Asset Purchase Agreement, the Company acquired approximately $2.2 million in cash and
certain assets and agreements related to the Seller’s freeze-dried fruits and vegetables business for human consumption and entered
into certain employment and registration rights agreements. The Company did not assume any liabilities of Seller or any liabilities, liens,
or encumbrances pertaining to or encumbering the Purchased Assets, except for those related to agreements or arrangements specified in
the Asset Purchase Agreement. The Seller transferred the Purchased Assets to the Company in exchange for the issuance of 1,120,000 shares
of the Company’s common stock to the Seller. The number of Seller Shares to be issued was subject to adjustment, as specified in
the Asset Purchase Agreement, as amended, based on the extent to which the amount of cash proceeds held by the Company, as derived from
the sale of the Company’s holdings of Allied Esports Entertainment Inc. ("AESE") Shares, were less than $5 million
or greater than $6 million on the date specified in the Asset Purchase Agreement, which resulted in the issuance of an additional
500,973 Seller Shares that were issued on January 4, 2021. The combined issuances represented approximately 46% of the Company’s
issued and outstanding common stock, on a fully diluted basis. Black Ridge Oil & Gas, Inc. was determined to be the acquiror of the
business combination.
Pursuant
to its obligations under the Asset Purchase Agreement, on the Closing Date the Company, (a) created three new seats on the Company’s
Board of Directors and appointed the Seller’s principals, Ira Goldfarb and Claudia Goldfarb, and a third person designated by the
Goldfarbs, Greg Creed, as directors, (b) entered into employment agreements with Ira Goldfarb and Claudia Goldfarb, (c) delivered a registration
rights agreement with respect to the Seller Shares and any shares of common stock delivered as part of the employment compensation for
Ira Goldfarb or Claudia Goldfarb, and (d) amended the Company’s 2020 Stock Incentive Plan to increase the number of shares of common
stock reserved thereunder. At closing, the Company also assumed the Seller’s obligations under a real property lease for its facility
in Irving, Texas under which an entity owned entirely by Ira Goldfarb is the landlord.
BRAC Business Combination
On
October 10, 2017, the Company’s sponsored special purpose acquisition company, Black Ridge Acquisition Corp. (“BRAC”),
completed an IPO raising $138,000,000 of gross proceeds (including proceeds from the exercise of an over-allotment option by the underwriters
on October 18, 2017). In addition, the Company purchased 445,000 BRAC units at $10.00 per unit in a private placement transaction for
a total contribution of $4,450,000 in order to fulfill its obligations in sponsoring BRAC, a blank check company formed for the purpose
of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business
combination with one or more businesses or entities. BRAC’s efforts to identify a prospective target business were not limited to
a particular industry or geographic region. Following the IPO and over-allotment, BROG owned 22% of the outstanding common stock of BRAC
and managed BRAC’s operations via a management services agreement through December 31, 2019. On December 19, 2018, BRAC entered
into a business combination agreement, which subsequently closed on August 9, 2019. BRAC was renamed Allied Esports Entertainment,
Inc. following the merger, or “AESE”, and referred to herein, as such.
Going Concern Uncertainty
As of December 31, 2020, the
Company had a cash balance of $1,912,729 and total working capital of $1,768,153. Based on projections of cash expenditures in the Company’s
current business plan, the cash on hand as of December 31, 2020 would be insufficient to sustain operations over the next year. On February
5, 2021, we raised $2.525 million from the sale of an aggregate 631,250 shares of the Company’s common stock at $4.00 per share,
resulting in approximately $2.7 million of cash on hand and $650,000 of liquid securities for a combined liquidity of $3.35 million as
of March 19, 2021.
We continue to pursue sources
of additional capital through various financing transactions or arrangements, equity or debt financing or other means. Our ability to
scale production and distribution capabilities and further increase the value of our brands, is largely dependent on our success in raising
additional capital.
We may not be successful in
identifying suitable funding transactions in a sufficient time period or at all, and we may not obtain the capital we require by other
means. If we do not succeed in raising additional capital, our resources may not be sufficient to fund or expand our business.
The Company’s current
business plan projects the commencement of sales in the first half of 2021. We may be unable to obtain additional funding if we are unsuccessful
in launching our products.
The report of the Company’s
independent registered public accounting firm that accompanies its audited financial statements in the Company’s Annual Report on
Form 10-K contains an explanatory paragraph regarding the substantial doubt about the Company’s ability to continue as a going
concern. The consolidated financial statements do not include any adjustments that might result from the outcome of the going concern
uncertainty.
Business
We intend to launch
our line of freeze-dried snacks, smoothies and soups, and our direct-to-consumer focused website, to coincide with initial production
from our state-of-the-art facility located in Irving, Texas in the first half of 2021.
Our business
will operate under two distinct brands, Sow Good and Sustain Us. Our unique food products are targeting the large, and growing,
freeze-dried food products market. The global freeze-dried food products market is estimated by Technavio to total nearly
$60B in 2020, with the United States representing almost 30% of the total. Technavio further projects market growth
to continue at over 8% per year through 2024.
On March 20, 2021,
our first freeze drier successfully completed its production testing. In addition, we completed the build-out of our production facility
in March, and have finalized products and packaging, while delivering samples to potential B2B customers.
With the extensive
freeze-dried manufacturing and food product-focused business development experience of our senior management team, including recent additions,
we believe we are well positioned to lead the Company's growth and development in the freeze-dried food industry.
Principal Agreements Affecting Our Ordinary
Business
Our principal agreements for
our continuing operations take the form of employment agreements, whereby our management is compensated through a variety of forms, including
cash and equity.
Employees
We
currently have seventeen full time employees. We may hire additional technical
or administrative personnel as appropriate. We expect a significant change in the number of full-time employees over the next 12 months
based upon our currently-projected business plan, as we commence production. We are using and will continue to use the services of independent
consultants and contractors to perform various professional services for us or on behalf of our partners. We believe that this use of
third-party service providers enhances our ability to contain general and administrative expenses.
Office Locations
Our executive offices are
located at 1440 N Union Bower Rd, Irving, TX 75061. Our office space is included in our production facility, which consists of approximately
20,945 square feet leased pursuant to a lease agreement through September 15, 2025, with two five-year options to extend, under
which an entity owned entirely by Ira Goldfarb is the landlord.
Financial Information about Segments and Geographic
Areas
We have not segregated our
operations into segments or geographic areas.
Available Information – Reports to Security
Holders
Our website address is www.thisissowgood.com.
We still make available on our www.blackridgeoil.com website, free of charge, our annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and amendments to those reports after we electronically file those materials with, or furnish those
materials to, the SEC, however, we expect to transition these to the new website in the near term. Electronic filings with the SEC are
also available on the SEC internet website at www.sec.gov.
We also post to our website
our Audit Committee Charter and our Code of Ethics, in addition to all pertinent company contact information.
ITEM 1A. RISK FACTORS
Risks Due to COVID-19
The outbreak of the coronavirus
(“COVID-19”) has negatively impacted and could continue to negatively impact the global economy. In addition, the COVID-19
pandemic could disrupt or otherwise negatively impact global credit markets, our operations.
The significant outbreak of
COVID-19 has resulted in a widespread health crisis, which has negatively impacted and could continue to negatively impact the global
economy. In addition, the global and regional impact of the outbreak, including official or unofficial quarantines and governmental restrictions
on activities taken in response to such event, could have a negative impact on our operations and our ability to source products and launch
our operations and distribution network.
The COVID-19 outbreak could
disrupt or otherwise negatively impact credit and equity markets, which could adversely affect the availability and cost of capital. Such
impacts could limit our ability to obtain additional funding through various financing transactions or arrangements, including equity
or debt financing or other means.
Social distancing, travel
bans and quarantines have limited access in certain respects to our management, support staff, professional advisors and our independent
auditors. These factors, in turn, may not only impact our operations, financial condition and our overall ability to react timely to mitigate
the impact of this event. Also, it may hamper our efforts to comply with our filing obligations with the Securities and Exchange Commission.
In addition, it could impact the ability to complete construction and commence operations of the S-FDF business.
The extent and potential short
and long-term impact of the COVID-19 outbreak on our business will depend on future developments, including the duration, severity and
spread of the virus, actions that may be taken by governmental authorities and the impact on the financial markets, all of which are highly
uncertain and cannot be predicted. These and other potential impacts of an epidemic, pandemic or other health crisis, such as COVID-19,
could therefore materially and adversely affect our business, financial condition and results of operations.
Risks Related to Our Business
Our freeze-dried foods
business is essentially a start-up, and does not have any meaningful history of operations.
The assets we purchased under
the Asset Purchase Agreement were of a development stage business without any major customers or history of operations upon which to forecast
future business trends. We cannot guarantee that we will become profitable. As a developing company, we will need to adopt and implement
a plan to increase awareness of our products, secure distribution channels, and foster and strengthen our supply, manufacturing and distribution
relationships. It is likely our strategic priorities will need to evolve over time and our business would be materially and adversely
effected if we do not properly adapt our strategies to our changing needs and changes in the market.
As our operations develop
and grow, we expect to experience significant increases in our working capital requirements. These conditions raise doubt over our ability
to meet all of our obligations over the next twelve months if we are unable to obtain additional capital. Even if we obtain additional
capital and achieve profitability, given the competitive and evolving nature of the industry in which we operate, we may be unable to
sustain or increase profitability and our failure to do so would adversely affect the Company’s business, including our ability
to raise additional funds.
We have very limited internal
distribution and marketing capabilities and are only in the early stages of building our distribution network.
We have not yet launched our
freeze-dried food products commercially. In order to be successful, we will need to establish a direct-to-consumer platform and/or relationships
with numerous retail outlets through which our products can be sold. While our products have been introduced into a limited number of
potential consumers and customers on a trial basis, to date, we have not entered into any relationships with distributors and retail outlets
for the sale of our products and have not yet generated revenues through sales. We have extremely limited internal marketing and distribution
capabilities and resources. There can be no assurance that we will be successful in establishing a meaningful distribution network or
direct to consumer platform or that if the same is established that such network or platform will result in profitable sales of our products.
We may need additional
financing in the future, which may not be available when needed or may be costly and dilutive.
We may require additional
financing to support our working capital needs in the future. The amount of additional capital we may require, the timing of our capital
needs and the availability of financing to fund those needs will depend on a number of factors, including our strategic initiatives and
operating plans, the performance of our business and the market conditions for debt or equity financing. Additionally, the amount of capital
required will depend on our ability to meet our sales goals and otherwise successfully execute our operating plan. Although we believe
various debt and equity financing alternatives will be available to us to support our working capital needs, financing arrangements on
acceptable terms may not be available to us when needed. Additionally, these alternatives may require significant cash payments for interest
and other costs or could be highly dilutive to our existing shareholders. Any such financing alternatives may not provide us with sufficient
funds to meet our long-term capital requirements.
A worsening of economic
conditions or a decrease in consumer spending may adversely impact our ability to implement our business strategy.
Our success depends to a significant
extent on discretionary consumer spending, which is influenced by general economic conditions and the availability of discretionary income.
There is no certainty regarding economic conditions in the United States, and credit and financial markets and confidence in economic
conditions could deteriorate at any time. Accordingly, we may experience declines in revenue during economic turmoil or during periods
of uncertainty. Any material decline in the amount of discretionary spending, leading cost-conscious consumers to be more selective in
food products purchased, could have a material adverse effect on our revenue, results of operations, business and financial condition.
Fluctuations in various
food and supply costs, particularly related to fruit, could adversely affect our operating results.
Supplies and prices of the
ingredients that we are going to use to can be affected by a variety of factors, such as weather, seasonal fluctuations, demand, politics
and economics in the producing countries.
These factors subject us to
shortages or interruptions in product supplies, which could adversely affect our revenue and profits. In addition, the price of fruit,
which is currently our main ingredient in our products, can be highly volatile. The fruit of the quality we seek tends to trade on a negotiated
basis, depending on supply and demand at the time of the purchase. An increase in pricing of any fruit that we are going to use in our
products could have a significant adverse effect on our profitability. We cannot assure you that we will be able to secure our fruit supply.
Our success depends on
our ability to correctly predict, identify, and interpret changes in consumer preferences and demand, to offer new products to meet those
changes, and to respond to competitive innovation.
Consumer preferences for food
and beverage products change continually and rapidly. Our success depends on our ability to predict, identify, and interpret the tastes
and dietary habits of consumers and to offer products that appeal to consumer preferences, including with respect to health and wellness.
If we do not offer products that appeal to consumers, our sales and market share will decrease, which could materially and adversely affect
our product sales, financial condition, and operating results.
We must distinguish between
short-term trends and long-term changes in consumer preferences. If we do not accurately predict which shifts in consumer preferences
will be long-term, or if we fail to introduce new and improved products to satisfy those preferences, our sales could decline.
Our business depends substantially
on the continuing efforts of our senior management and other key personnel, and our business may be severely disrupted if we lose their
services.
Our future success heavily
depends on the continued service of our senior management and other key employees. If one or more of our senior executives is unable or
unwilling to continue to work for us in his or her present position, we may have to spend a considerable amount of time and resources
searching, recruiting, and integrating a replacement into our operations, which would substantially divert management’s attention
from our business and severely disrupt our business. This may also adversely affect our ability to execute our business strategy.
Our senior management’s
limited experience managing a publicly traded company may divert management’s attention from operations and harm our business.
Our senior management team
has relatively limited experience managing a publicly traded company and complying with federal securities laws, including compliance
with recently adopted disclosure requirements on a timely basis. Our management will be required to design and implement appropriate programs
and policies in responding to increased legal, regulatory compliance and reporting requirements, and any failure to do so could lead to
the imposition of fines and penalties and harm our business.
We may be unable to attract
and retain qualified, experienced, highly skilled personnel, which could adversely affect the implementation of our business plan.
Our success depends to a significant
degree upon our ability to attract, retain and motivate skilled and qualified personnel. As we become a more mature company in the future,
we may find recruiting and retention efforts more challenging. If we do not succeed in attracting, hiring and integrating excellent personnel,
we may be unable to grow effectively. The loss of any key employee, including members of our senior management team, and our inability
to attract highly skilled personnel with sufficient experience in our industries could harm our business.
Our ability to maintain
and expand our distribution network and attract consumers, distributors, retailers and brokers will depend on a number of factors, some
of which are outside our control.
Some of these factors include:
· the level of demand for our brands and products types;
We may not be able to successfully
manage all or any of these factors in any of our current or prospective geographic areas of distribution. Our inability to achieve success
with regards to any of these factors in a geographic distribution area will have a material adverse effect on our relationships in that
particular geographic area, thus limiting our ability to maintain or expand our market, which will likely adversely affect our revenues
and financial results.
If we do not adequately
manage our inventory levels, our operating results could be adversely affected.
We will need to maintain adequate
inventory levels to be able to deliver products on a timely basis. Our inventory supply depends on our ability to correctly estimate demand
for our products. Our ability to estimate demand for our products is imprecise, particularly for new products. If we materially underestimate
demand for our products or are unable to maintain sufficient inventory of raw materials, we might not be able to satisfy demand on a short-term
basis. If we overestimate demand for our products, we may end up with too much inventory, resulting in higher storage costs and increased
trade spend. If we fail to manage our inventory to meet demand, we could damage our relationships with our customers and retailers and
could delay or lose sales opportunities, which would unfavorably impact our future sales and adversely affect our operating results.
We are highly dependent
on Ira and Claudia Goldfarb, our Executive Chairman and the chief executive officer, and our other executive officers and employees. The
loss of one or more of them, upon whose knowledge, leadership and technical expertise we rely, would harm our ability to execute our business
plan.
Our success depends heavily upon the continued
contributions of Ira and Claudia Goldfarb, our executive chairman and chief executive officer, respectively, whose knowledge, leadership
and technical expertise would be difficult to replace, with the support of Brad Burke, our chief financial officer. If we were to lose
their services, our ability to execute our business plan would be harmed and we may be forced to cease operations until such time as we
are able to suitably replace them. Any of our executive officers may terminate their employment with our company at any time.
We may not be able to effectively
manage our growth, which may harm our profitability.
Our strategy envisions the
expansion of our business. If we fail to effectively manage our growth, our financial results could be adversely affected. Growth may
place a strain on our management systems and resources. We must continue to refine and expand our business capabilities, our systems and
processes and our access to financing sources. As we grow, we must continue to hire, train, supervise and manage new employees. We cannot
assure that we will be able to:
meet our capital needs;
expand our systems effectively or efficiently or in a timely manner;
allocate our human resources optimally;
If we are unable to manage our growth, our financial
condition and results of operations may be materially adversely affected.
Risks Related to Our Industry
The challenges of competing
with other freeze-dried food businesses may result in reductions in our revenue and operating margins.
We will compete with many
companies on the basis of taste, quality and price of product offered, and customer service. Our success depends, in part, upon the popularity
of our products and our ability to develop new items that appeal to a broad range of consumers. Shifts in consumer preferences away from
products like ours, our inability to develop new items that appeal to a broad range of consumers, or changes in our offerings that eliminate
products popular with some consumers could harm our business. We compete with other manufacturers of freeze-dried foods, frozen foods,
convenience foods, health foods and packaged goods. Many of our competitors or potential competitors have substantially greater financial
and other resources than we do, which may allow them to react to changes in the market quicker than we can. In addition, aggressive pricing
by our competitors or the entrance of new competitors into our markets, could reduce our revenue and operating margins. We also compete
with other employers in our markets for workers and may become subject to higher labor costs as a result of such competition.
Concerns over food safety
and public health may affect our operations by increasing our costs and negatively impacting demand for our products.
We could be adversely affected
by diminishing confidence in the safety and quality of certain food products or ingredients. As a result, we may elect or be required
to incur additional costs aimed at increasing consumer confidence in the safety of our products. Our success depends on our ability to
maintain the quality of our existing and new products. Product quality issues, real or imagined, or allegations of product contamination,
even if false or unfounded, could tarnish the image of our brands and may cause consumers to choose other products.
Product liability exposure
may expose us to significant liability.
We may face an inherent business
risk of exposure to product liability and other claims and lawsuits in the event that the development or use of our technology or prospective
products is alleged to have resulted in adverse effects. We may not be able to avoid significant liability exposure. Although we believe
our insurance coverage to be adequate, we may not have sufficient insurance coverage, and we may not be able to obtain sufficient coverage
at a reasonable cost. An inability to obtain product liability insurance at acceptable cost or to otherwise protect against potential
product liability claims could prevent or inhibit the commercialization of our products. A product liability claim could hurt our financial
performance. Even if we ultimately avoid financial liability for this type of exposure, we may incur significant costs in defending ourselves
that could hurt our financial performance and condition.
Risks Related to our Common Stock
The market price of our
common stock is, and is likely to continue to be, highly volatile and subject to wide fluctuations.
The market price of our common
stock is likely to continue to be highly volatile and could be subject to wide fluctuations in response to a number of factors, some of
which are beyond our control, including but not limited to:
• challenges associated with timely SEC filings;
• illiquidity and lack of marketability by being an OTC traded stock;
• changes in the accounting methods used in or otherwise affecting our industry;
• additions and departures of key personnel;
These and other factors are
largely beyond our control, and the impact of these risks, singly or in the aggregate, may result in material adverse changes to the market
price of our common stock and our results of operations and financial condition.
Our operating results may
fluctuate significantly, and these fluctuations may cause the price of our common stock to decline.
Our operating results will
likely vary in the future primarily as the result of fluctuations in our revenues and operating expenses, including the expenses that
we incur and other factors. If our results of operations do not meet the expectations of current or potential investors, the price of
our common stock may decline.
Shareholders will experience
dilution upon the exercise of outstanding warrants and options and issuance of common stock under our incentive plans.
As of December 31, 2020,
we had options for 12,027 shares of common stock outstanding under our 2012 Amended and Restated Stock Incentive Plan and options
for an additional 8,347 shares of common stock outstanding under our 2016 Non-Qualified Stock Option Plan. In addition, our 2020 Stock
Incentive Plan (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 on December 5, 2019, and on October 1, 2020, January 4, 2021 and again on March
19, 2021, the Board approved an increase in the number of shares of common stock reserved under the 2020 Plan, from 320,000 shares to
a total of 814,150 shares. The increase remains subject to shareholder approval, to be provided, if at all, by October 1, 2021. As
of December 31, 2020, we had options for 439,151 shares of common stock outstanding under our 2020 Equity Plan. If the holders
of outstanding options exercise those options or our compensation committee or full board of directors determines to grant additional
stock awards under our incentive plan, shareholders may experience dilution in the net tangible book value of our common stock. Further,
the sale or availability for sale of the underlying shares in the marketplace as a result of the exercise of existing options and the
grant of additional options could depress our stock price.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Executive Offices
Our executive offices are
located at 1440 N Union Bower Rd, Irving, TX 75061. Our office space is included in our production facility, which consists of approximately
20,945 square feet leased pursuant to a lease agreement through September 15, 2025, with two five-year options to extend, under
which an entity owned entirely by Ira Goldfarb is the landlord.
Research and Development
We anticipate performing product
research and development as required for our products and distribution under our new plan of operation. The Company currently has one
full-time employee dedicated to product research and development. The Company’s research and development activities primarily consist
of product formulation, nutritional analysis, and taste analysis.
Delivery Commitments
We do not currently have any
delivery commitments under our plan of operation.
ITEM 3. LEGAL PROCEEDINGS
From
time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However,
litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may
harm our business. We are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened
against us, which may materially affect us.
ITEM 4. MINE SAFETY DISCLOSURES
None.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock
The Company changed its ticker
symbol from “ANFC” to “SOWG”, effective as of the opening of trading on January 22, 2021.
Quotations on the OTCQB reflect
inter-dealer prices, without retail markup, mark-down, or commission and may not necessarily represent actual transactions.
Effective February 21, 2020,
our common stock underwent a 1-for-300 reverse split, which is retrospectively reflected throughout this Form 10-K.
As of March 22, 2021,
there were approximately 341 record holders of our common stock, not including shares held in “street name” in brokerage accounts
which is unknown. As of March 22, 2021, there were 3,939,439 shares of common stock outstanding on record.
Equity Compensation Plan Information
Effective December 5, 2019,
the 2020 Stock Incentive Plan (the “2020 Plan”) was approved by our Board. Amongst other things, the 2020 Plan authorized
a total of 320,000 shares of our common stock. Subsequently, on October 1, 2020, January 4, 2021 and again
on March 19, 2021, the Board approved an increase in the number of shares of common stock reserved under the 2020 Plan, from 320,000 shares
to a total of 814,150 shares. The increase remains subject to shareholder approval, to be provided, if at all, by October 1, 2021.
The following table sets forth certain information regarding our 2020 Plan as of December 31, 2020:
For the fiscal years ended
December 31, 2020 and 2019, we issued 439,151 and -0- stock options pursuant to the 2020 Plan. There were no options cancelled
or forfeited pursuant to the 2020 Plan during the years ended December 31, 2020 and 2019, respectively.
Effective December 12, 2016,
the 2016 Non-Qualified Stock Option Plan (the “2016 Plan”) was approved by our Board. Amongst other things, the 2016
Plan authorized a total of 12,712 shares of our common stock. The following table sets forth certain information regarding our 2016 Plan
as of December 31, 2020:
For the fiscal years ended
December 31, 2020 and 2019, we issued no stock options pursuant to the 2016 Plan. There were 3,699 and 833 options cancelled
or forfeited pursuant to the 2016 Plan during the years ended December 31, 2020 and 2019, respectively.
Effective March 2,
2012, the 2012 Amended and Restated Stock Incentive Plan (the “2012 Plan”) was approved by our Board and the
holders of a majority of our outstanding shares, replacing the Ante5, Inc. 2010 Stock Incentive Plan. Amongst other
things, the 2012 Plan increased the number of shares reserved under the Plan to a total of 25,000 shares of our common stock. The
following table sets forth certain information regarding the 2012 Plan as of December 31, 2020:
For the fiscal years ended
December 31, 2020 and 2019, we issued no stock options pursuant to the 2012 Plan. There were 10,131 and 908 options cancelled
or forfeited pursuant to the 2012 Plan during the years ended December 31, 2020 and 2019, respectively.
Warrants
In
consideration for four of our officers and directors’ willingness to serve as guarantors of the Cadence Loan, the Company issued
warrants to each of the Guarantors (the “Guarantor Warrants”) for the purchase of the Company’s common stock on March
12, 2020. The Guarantor Warrants entitle each Guarantor to purchase 26,250 shares of the Company's common stock (the “Warrant Shares”)
at an exercise price of $4.00 per share. The Guarantor Warrants expire on March 12, 2030. No warrants were granted during the fiscal
year ended December 31, 2019. The officers and directors receiving grants and the amounts of such grants were
as follows:
Stock Warrant
Name and Title at Time of Grant Shares Granted
Bradley Berman, Chairman of the Board and Director 26,250
Lyle Berman, Director 26,250
Benjamin Oehler, Director 26,250
There were
no warrants exercised, forfeited or expired during the years ended December 31, 2020 and 2019. A total of 106,300
warrants were outstanding as of December 31, 2020 with a weighted average exercise price of $3.99 and a weighted average life of 9.1
years.
Unregistered Issuance of Equity Securities
The following issuances of
our securities during the three-month period ended December 31, 2020 were exempt from the registration requirements of the Securities
Act of 1933 pursuant to Section 4(a)(2) thereof and/or Rule 506 of Regulation D promulgated thereunder.
On
October 1, 2020, we issued a total of 1,120,000 shares of common stock, restricted in accordance with Rule 144,
to S-FDF, LLC, a Texas limited liability company, pursuant to an asset purchase agreement.
On October 1, 2020,
we issued a total of 23,335 shares of common stock, restricted in accordance with Rule 144, among six board members for services rendered.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable.
ITEM 7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should
be read in conjunction with our financial statements and notes to those statements. In addition to historical information, the following
discussion and other parts of this annual report contain forward-looking information that involves risks and uncertainties.
Overview and Outlook
Effective January 21, 2021,
we changed our name from Black Ridge Oil & Gas, Inc. to Sow Good Inc. Our common stock is quoted on the OTCQB under the trading symbol
“SOWG”.
We intend to launch
our line of freeze-dried snacks, smoothies and soups, and our direct-to-consumer focused website, to coincide with initial production
from our state-of-the-art facility located in Irving, Texas in the first half of 2021.
Our business
will operate under two distinct brands, Sow Good and Sustain Us. Our unique food products are targeting the large, and growing,
freeze-dried food products market. The global freeze-dried food products market is estimated by Technavio to total nearly $60B
in 2020, with the United States representing almost 30% of the total. Technavio further projects market growth to continue
at over 8% per year through 2024.
On March 20, 2021,
our first freeze drier successfully completed its production testing. In addition, we completed the build-out of our production facility
in March, and have finalized products and packaging, while delivering samples to potential B2B customers.
With the extensive
freeze-dried manufacturing and food product-focused business development experience of our senior management team, including recent additions,
we believe we are well positioned to lead the Company's growth and development in the freeze-dried food industry.
S-FDF Business Combination
On
October 1, 2020, the Company completed its acquisition of S-FDF, LLC (the "Seller"), a Texas limited liability company, pursuant
to an Asset Purchase Agreement, between the Company and the Seller, dated June 9, 2020, as subsequently amended effective October 1,
2020. In connection with the closing of the Asset Purchase Agreement, the Company acquired approximately $2.2 million in cash and
certain assets and agreements related to the Seller’s freeze-dried fruits and vegetables business for human consumption and entered
into certain employment and registration rights agreements. The Company did not assume any liabilities of Seller or any liabilities, liens,
or encumbrances pertaining to or encumbering the Purchased Assets, except for those related to agreements or arrangements specified in
the Asset Purchase Agreement. The Seller transferred the Purchased Assets to the Company in exchange for the issuance of 1,120,000 shares
of the Company’s common stock to the Seller. The number of shares to be issued to Seller was subject to adjustment, as specified
in the Asset Purchase Agreement, as amended, based on the extent to which the amount of cash proceeds held by the Company, as derived
from the sale of the Company’s holdings of AESE Shares, were less than $5 million or greater than $6 million on the date
specified in the Asset Purchase Agreement, which resulted in the issuance of an additional 500,973 Seller Shares that were issued on January
4, 2021. The combined issuances represented approximately 46% of the Company’s issued and outstanding common stock, on a fully diluted
basis. Black Ridge Oil & Gas, Inc. was determined to be the acquiror of the business combination.
Pursuant
to its obligations under the Asset Purchase Agreement, on the Closing Date the Company, (a) created three new seats on the Company’s
Board of Directors and appointed the Seller’s principals, Ira Goldfarb and Claudia Goldfarb, and a third person designated by the
Goldfarbs, Greg Creed, as directors, (b) entered into employment agreements with Ira Goldfarb and Claudia Goldfarb, (c) delivered a registration
rights agreement with respect to the shares to be issued to Seller and any shares of common stock delivered as part of the employment
compensation for Ira Goldfarb or Claudia Goldfarb, and (d) amended the Company’s 2020 Stock Incentive Plan to increase the number
of shares of common stock reserved thereunder. At closing, the Company also assumed the Seller’s obligations under a real property
lease for its facility in Irving, Texas under which an entity owned entirely by Ira Goldfarb is the landlord.
BRAC Business Combination
On
October 10, 2017, the Company’s sponsored special purpose acquisition company, Black Ridge Acquisition Corp. (“BRAC”),
completed an IPO raising $138,000,000 of gross proceeds (including proceeds from the exercise of an over-allotment option by the underwriters
on October 18, 2017). In addition, the Company purchased 445,000 BRAC units at $10.00 per unit in a private placement transaction for
a total contribution of $4,450,000 in order to fulfill its obligations in sponsoring BRAC, a blank check company formed for the purpose
of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business