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
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 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, including equity financing or other means. 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 our business. 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.
The report of the Company’s
independent registered public accounting firm that accompanies its audited financial statements in this 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
financial statements do not include any adjustments that might result from the outcome of the going concern uncertainty.
Overview of 2020 results
Our 2020 results were largely
dominated by managing, searching for potential business combination candidates and ultimately closing the business combination with S-FDF,
LLC to enter into the freeze-dried foods business. We did not earn any revenues in 2020, compared to earning $466,595 in management fees
for the year ended December 31, 2019, from our management agreement with BRAC subsequent to the AESE transaction. We anticipate generating
revenues from our freeze-dried foods business in 2021.
Our general and administrative
expenses remained relatively consistent throughout 2020, driven primarily by salaries and benefits amounting to $1,477,124. Our stock-based
compensation of $1,104,096 consisted of $268,608 of stock issued to officers and directors, $458,048 of expense related to the amortization
of stock options and $377,440 of expense related to warrants issued to officers and directors as a debt discount for their personal guarantee
on a line of credit.
Application of Critical Accounting Policies
Our discussion and analysis
of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to impairment of property,
plant and equipment, intangible assets, deferred tax assets and fair value computation using the Black Scholes option pricing model. We
base our estimates on historical experience and on various other assumptions, such as the trading value of our common stock and estimated
future undiscounted cash flows, that we believe to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions. We believe that our estimates, including those for the above-described
items, are reasonable.
Critical Accounting Policies
The establishment and consistent
application of accounting policies is a vital component of accurately and fairly presenting our financial statements in accordance with
generally accepted accounting principles in the United States (GAAP), as well as ensuring compliance with applicable laws and regulations
governing financial reporting. While there are rarely alternative methods or rules from which to select in establishing accounting and
financial reporting policies, proper application often involves significant judgment regarding a given set of facts and circumstances
and a complex series of decisions.
Income Taxes
Deferred tax assets are recognized
for temporary differences in financial statement and tax basis amounts that will result in deductible amounts and carry-forwards in future
years. Deferred tax liabilities are recognized for temporary differences that will result in taxable amounts in future years. Deferred
tax assets and liabilities are measured using enacted tax law and tax rate(s) for the year in which we expect the temporary differences
to be deducted or settled. The effect of a change in tax law or rates on the valuation of deferred tax assets and liabilities is recognized
in income in the period of enactment. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it
is more likely than not that some portion or all of the deferred tax assets will not be realized. Significant future taxable income would
be required to realize this net tax asset.
Estimating the amount of the
valuation allowance is dependent on estimates of future taxable income, alternative minimum tax income, and changes in shareholder ownership
that would trigger limits on use of net operating losses under Internal Revenue Code Section 382.
Fair Value of Financial Instruments
Our cash and cash equivalents,
investments, accounts receivable and accounts payable are stated at cost which approximates fair value due to the short-term nature of
these instruments. In January 2010, the FASB issued an amendment to the accounting standards related to the disclosures about an
entity’s use of fair value measurements. Among these amendments, entities are required to provide enhanced disclosures about transfers
into and out of the Level 1 (fair value determined based on quoted prices in active markets for identical assets and liabilities)
and Level 2 (fair value determined based on significant other observable inputs) classifications, provide separate disclosures about
purchases, sales, issuances and settlements relating to the tabular reconciliation of beginning and ending balances of the Level 3
(fair value determined based on significant unobservable inputs) classification and provide greater disaggregation for each class of assets
and liabilities that use fair value measurements.
Use of Estimates
In accordance with accounting
principles generally accepted in the United States, management utilizes estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Results of Operations for the Years Ended December
31, 2020 and 2019.
The following table summarizes
selected items from the statement of operations for the years ended December 31, 2020 and 2019.
Years Ended December 31, Increase/
Operating expenses:
General and administrative:
Other income:
Loss on disposal of property and equipment (5,369 ) – 5,369
Provision for income taxes – – –
Net income (loss) from discontinued operations – (7,421,050 ) (7,421,050 )
Management Fee Revenue
The Company earned $466,595
in management fees for the year ended December 31, 2019, from its management agreement with BRAC subsequent to the Mergers. The Company
did not earn any management fees during the year ended December 31, 2020.
General and Administrative Expenses
Salaries and Benefits
Salaries and benefits for
the year ended December 31, 2020 were $1,477,124, compared to $1,172,745 for the year ended December 31, 2019, an increase of $304,379,
or 26%. The increase in salaries and benefits was primarily due to severance pay accrued pursuant to the separation agreements for the
former management team, as we transitioned to our new line of business.
Stock-based Compensation
Stock-based compensation expense
for the year ended December 31, 2020 was $726,656, compared to $100,526 for the year ended December 31, 2019, an increase of $626,130,
or 623%. Stock-based compensation consisted of stock options expense in both periods, in addition to $268,608 of expense related to the
issuance of common stock to officers and directors incurred during the year ended December 31, 2020. Amortization of stock options
increased as new options were granted toward the end of February 2020, with a five-year vesting period, and the vesting period was accelerated
pursuant to separation agreements entered into on September 30, 2020.
Deferred Compensation
Deferred compensation expense
for the year ended December 31, 2019 was $1,396,460, consisting of expense related to the 2018 Management Incentive Plan (the “2018
Plan”). There was no deferred compensation expense in the current period.
Professional Services
General and administrative
expenses related to professional services were $451,125 for the 2020 period, compared to $132,505 for the 2019 period, an increase of
$318,620, or 240%. The increase was primarily due to legal costs related to our asset purchase agreement with S-FDF,
LLC.
Other General and Administrative Expenses
Other general and administrative
expenses for the year ended December 31, 2020 were $350,875, compared to $259,968 for the year ended December 31, 2019, an increase of
$90,907, or 35%. The increase is attributable to increased administrative activity in the fourth quarter pursuant to the development of
our freeze-dried foods business.
Depreciation
Depreciation expense for the
year ended December 31, 2020 was $3,642, compared to $872 for year ended December 31, 2019. The increase is attributable to the significant
increase in capital expenditures incurred as we developed our freeze-dried foods production facility.
Other Income (Expense)
In the year ended December
31, 2020, other expense was $2,311,517, consisting of $386,164 of interest expense derived from operating loans, including $377,440 of
warrants issued as consideration to officers and directors in exchange for their personal guarantees, a loss on the disposal of equipment
of $5,369, and a net loss on investments in Allied Esports Entertainment, Inc. securities of $1,925,029, as offset by a $5,000 grant from
the Small Business Administration under their EIDL program and $45 of interest income.
In the year ended December
31, 2019, other income was $15,480,563, consisting of the gain upon deconsolidation of BRAC of $26,322,687 and an offsetting merger incentive
expense of $5,874,000 to recognize the cost related to transferring shares of AESE stock to the former owners of Allied Esports and WPT
and other investors as incentive to participate in the merger, and $51 of interest income, as offset by a net loss on investments in Allied
Esports Entertainment, Inc. securities of $4,968,175.
Provision for Income Taxes
The Company had no income
tax expense in the 2020 or 2019 periods, as the Company continues to reserve against any deferred tax assets due to the uncertainty of
realization of any benefit.
Net Loss from Discontinued
Operations
Net loss from discontinued
operations relates to the income and expenses of BRAC during the periods prior to deconsolidation. Net loss from discontinued operations
consisted of a loss of $7,421,050 during the year ended December 31, 2019. During the 2019 period, there were contingent closing
costs from BRAC’s underwriter and other investment bankers involved in the merger of $7,917,500. Interest from investments in the
trust account for the benefit of potential redeeming shareholders was $1,780,992 in 2019, due to trust account redemptions and the withdrawal
of the remaining assets at the time of the Mergers.
Liquidity and Capital Resources
The following table summarizes
our total current assets, liabilities and working capital at December 31, 2020 and 2019.
December 31,
As of December 31, 2020, we had working capital
of $1,768,153.
The following table summarizes
our cash flows during the years ended December 31, 2020 and 2019, respectively.
Years Ended December 31,
Net cash used in operating
activities was $1,743,409 and $9,709,780 for the years ended December 31, 2020 and 2019, respectively, a year over year
decreased use of $7,966,371. The decreased use was primarily due to a decrease of $8,618,568 in net losses in discontinued operations
of BRAC due primarily to the recognition of $7,917,500 of contingent fees upon BRAC’s business combination. Changes in working capital
from continuing operating activities resulted in an increase in cash of $340,735 during the year ended December 31, 2020, as compared
to an increase in cash of $7,360 for the same period in the previous year.
Net cash provided by investing
activities was $3,284,457 and $6,883,062 for the years ended December 31, 2020 and 2019, respectively. During the year ended
December 31, 2020, cash provided by investing activities consisted of $1,154,459 of cash received pursuant to our business combination
with S-FDF, LLC, and $3,181,735 of proceeds received from the sale of AESE securities, as offset by $257,626 of equipment purchases and
$794,111 paid on construction projects still in progress. In the comparative period, virtually all the cash was provided from discontinued
operations and was the result of transfers and withdrawals from the Trust Account, other than $6,046 of equipment purchases during 2019.
Net cash provided by financing
activities was $262,925 and $1,431,974 for the years ended December 31, 2020 and 2019, respectively. Net cash provided
by financing activities consisted of $802,025 of proceeds received from debt financing, including $112,925 of proceeds received under
the Paycheck Protection Program (“PPP”) that were forgiven in January of 2021, as offset by $539,100 of debt repayments in
2020. All of the 2019 activity was the result of activities in the discontinued operations of BRAC.
Satisfaction of our cash obligations for
the next 12 months
As of December 31, 2020,
our balance of cash and cash equivalents was $1,912,729 and we had 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.
We expect to incur significant
costs related to the development and operation of our freeze-dried foods business which will put a strain on our cash resources. Should
the Company be successful in launching its products, we may pursue the expansion of our production capabilities through the construction
of a second freeze drier. Adding a second freeze drier would require approximately $1 million of incremental capital and would likely
require the Company to identify additional sources of funding.
Our plan for satisfying our
cash requirements for the next twelve months is through cash on hand and additional financing in the form of equity or debt as needed.
On 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. 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.
Effects of inflation and pricing
We do not expect any significant
effects from inflation and pricing.
Contractual obligations and commitments
Upon closing of the Asset
Purchase Agreement, the Company assumed the Seller’s obligations under a real property lease for its 20,945 square foot facility
at 1440 N. Union Bower Rd. Irving, TX 75061, under which an entity owned entirely by Ira Goldfarb is the landlord. The lease term is through
September 15, 2025, with two five-year options to extend, at a monthly lease term of $10,036, with approximately a 3% annual escalation
of lease payments commencing September 15, 2021.
Summary of product and research and development
that we will perform for the term of our plan
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.
Expected purchase or sale of plant and significant
equipment
We anticipate the purchase
of significant property and equipment in 2021 as we complete our freeze-dried production facility.
Significant changes in the number of employees
As of December 31, 2020,
we had eighteen employees, our chief executive officer, Claudia Goldfarb, our Executive Chairman, Ira Goldfarb, our chief financial officer,
Brad Burke and fifteen other employees. 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. Currently, there are no organized labor
agreements or union agreements and we do not anticipate any in the future.
Off-Balance Sheet Arrangements
We do not have any off-balance
sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues, expenses,
results of operations liquidity, capital expenditures or capital resources that are material to investors.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Commodity Price Risk
We do not expect any significant
effects from commodity price risk.
Interest Rate Risk
We do not anticipate entering
into any transactions that would expose us to any direct interest rate risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA OF SOW GOOD, INC.
SOW GOOD, INC.
(FORMERLY BLACK RIDGE OIL & GAS, INC.)
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
CONTENTS
Report of Independent Registered Public Accounting Firm F-1
Statements of Operations for the years ended December 31, 2020 and 2019 F-3
Statements of Cash Flows for the years ended December 31, 2020 and 2019 F-5
Notes to the Financial Statements F-6
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and
Stockholders of Sow Good, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets
of Sow Good, Inc. (the Company) as of December 31, 2020 and 2019, and the related statements of operations, stockholders’ equity,
and cash flows for each of the years in the two-year period ended December 31, 2020, 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 as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year
period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
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
audits. 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 audits 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 audits, 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 audits 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 audits also included 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 audits provide a reasonable basis for our opinion.
Going Concern
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 suffered
a net loss from operations and the cash on hand would be insufficient to fund the Company over the next year, which raises substantial
doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 3.
The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Critical Audit Matters
The critical audit matters communicated below
are matters arising from the current period audit of the financial statements that were 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 critical audit matters 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 opinions
on the critical audit matters or on the accounts or disclosures to which they relate.
Business Combination, S-FDF
As discussed
in Note 4, the Company acquired S-FDF, LLC in an acquisition accounted for as a business combination, which required asset and liabilities
assumed to be measured at their acquisition date fair values. Significant judgment is exercised by the Company in determining the fair
value of assets acquired. Management engaged specialists, and the work of management’s specialists was used in performing the procedures
to evaluate the reasonableness purchase price allocation. Given these factors and due to significant judgements made by management, the
related audit effort in evaluating management's judgments in determining accounting for the business combination required a high degree
of auditor judgment.
As a basis
for using this work, the specialists’ qualifications were understood and the Company’s relationship with the specialists was
assessed. The procedures performed also included evaluation of the methods and assumptions used by the specialists, tests of the data
used by the specialists and an evaluation of the specialists’ findings. We evaluated and tested the Company’s significant
judgments that determine the recognition of goodwill.
M&K CPAS, PLLC
We have served as the Company’s auditor since 2010.
Houston, TX
SOW GOOD, INC.
(Formerly Black Ridge Oil & Gas, Inc.)
BALANCE SHEETS
December 31, December 31,
ASSETS
Current assets:
Investment in Allied Esports Entertainment, Inc. 280,417 6,982,300
Receivable from Allied Esports Entertainment, Inc. – 505
Property and equipment:
Construction in progress 1,639,690 –
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, related party 51,253 –
Current portion of operating lease liabilities 39,870 –
Operating lease liabilities 1,399,868 –
Commitments and contingencies – –
Stockholders' equity:
The accompanying notes are an integral part of
these financial statements.
SOW GOOD, INC.
(Formerly Black Ridge Oil & Gas, Inc.)
STATEMENTS OF OPERATIONS
For the Years
Ended December 31,
Management fee income $ – $ 466,595
Operating expenses:
General and administrative expenses:
Depreciation and amortization 3,642 872
Other income (expense):
Gain on deconsolidation of subsidiary – 20,448,687
Loss on disposal of property and equipment (5,369 ) –
Provision for income taxes – –
Net income (loss) from continuing operations, net of tax (5,320,939 ) 12,884,082
Net loss from discontinued operations – (7,421,050 )
Net income (loss) before non-controlling interest (5,320,939 ) 5,463,032
Net income (loss) attributable to Sow Good Inc. $ (5,320,939 ) $ 4,130,503
Weighted average common shares outstanding - fully diluted 1,886,951 1,600,417
Net income (loss) per common share - basic $ (2.82 ) $ 2.58
Net income (loss) per common share - fully diluted $ (2.82 ) $ 2.58
The accompanying notes are an integral part of these financial statements.
SOW GOOD, INC.
(Formerly Black Ridge Oil & Gas, Inc.)
STATEMENT OF STOCKHOLDERS' EQUITY
Shares Amount Capital Payable Deficit Equity Interest
Non-controlling interest disposed in deconsolidation – – – – – – (142,071,483 )
Net income attributable to Sow Good, Inc. – – – – (5,320,939 ) (5,320,939 ) –
The accompanying notes are an integral part of these financial statements.
SOW GOOD, INC.
(Formerly Black Ridge Oil & Gas, Inc.)
STATEMENTS OF CASH FLOWS
For the Years
Ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) attributable to Sow Good Inc. $ (5,320,939 ) $ 4,130,503
Net loss from discontinued operations – 7,421,050
Net income attributable to redeemable non-controlling interest – 1,332,529
Adjustments to reconcile net loss attributable to Sow Good, Inc.
to net cash used in operating activities:
Gain on deconsolidation of subsidiary – (20,448,687 )
Depreciation and amortization 3,642 872
Loss on disposal of property and equipment 5,369 –
Loss on investment in Allied Esports Entertainment, Inc. 2,123,688 4,968,175
Common stock issued to officers and directors for services 268,608 –
Amortization of stock warrants issued as a debt discount 377,440 –
Decrease (increase) in current assets:
Accounts receivable – 13
Accounts receivable, related party 505 (505 )
Right-of-use asset 15,934 –
Increase (decrease) in current liabilities:
Lease liabilities (9,323 ) –
Net cash used in operating activities of discontinued operations – (8,618,568 )
CASH FLOWS FROM INVESTING ACTIVITIES
Cash disposed in deconsolidation – (9,991,684 )
Cash received in business combination 1,154,459 –
Purchase of property and equipment (257,626 ) (6,046 )
Cash paid for construction in progress (794,111 ) –
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds received from notes payable 802,025 –
Repayments on notes payable (539,100 ) –
Net cash provided by financing activities from continuing operations 262,925 –
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 108,756 1,503,500
SUPPLEMENTAL INFORMATION:
Interest paid $ 4,895 $ –
Income taxes paid $ – $ –
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Value of debt discounts attributable to warrants $ 377,440 $ –
Fair value of net assets acquired in business combination $ 2,162,273 $ –
Fair value of common stock paid in business combination $ 8,573,600 $ –
Recognition of subsidiary equity upon deconsolidation $ – $ 8,498,212
The accompanying notes are an integral part of these financial statements.
SOW GOOD, INC.
(Formerly Black Ridge Oil & Gas, Inc.)
NOTES TO THE FINANCIAL STATEMENTS
Note 1 – Organization and Nature of
Business
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”. At
that time, our common stock started to be quoted on the OTCQB under the trading symbol “SOWG”, from the former trading
symbol “ANFC”. Prior to April 2, 2012, the Company name was Ante5, Inc., which became an independent company in April 2010.
We became a publicly traded company when our shares began trading on July 1, 2010. From October 2010 through August 2019, we had
been engaged in the business of acquiring oil and gas leases and participating in the drilling of wells in the Bakken and Three Forks
trends in North Dakota and Montana and /or managing similar assets for third parties.
On September 26, 2017, the Company finalized an
equity raise utilizing a rights offering and backstop agreement, raising net proceeds of $5,051,675 and issuing 1,439,400 shares. The
proceeds were used to sponsor a special purpose acquisition company, discussed below, with the remainder for general corporate purposes.
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. On December 19, 2018, BRAC entered into a business combination
agreement, which subsequently closed on August 9, 2019.
On October 1, 2020, the
Company completed its acquisition of S-FDF, LLC pursuant to an Asset Purchase Agreement. 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.
As of December 31, 2020, the Company owned 177,479
shares of Allied Esports Entertainment, Inc. (NASDAQ: AESE), the surviving entity after BRAC’s business combination (“Sponsor
Shares”), after selling 1,970,920 shares for total net proceeds of $3,108,067, selling warrants to purchase 505,000 shares of AESE
(NASDAQ: AESEW) (“Sponsor Warrants”) for total proceeds of $73,668, and distributing 537,101 Sponsor Shares on August 9,
2020 to employees and directors under the 2018 Management Incentive Plan, dated March 6, 2018.
Note 2 – Summary
of Significant Accounting Policies
Basis of Accounting
The accompanying financial statements have been
prepared in conformity with accounting principles generally accepted in the United States of America and the rules of the Securities and
Exchange Commission (SEC). All references to Generally Accepted Accounting Principles (“GAAP”) are in accordance with The
FASB Accounting Standards Codification (“ASC”) and the Hierarchy of Generally Accepted Accounting Principles.
Reclassifications
In the prior year, the income, expense and cash
flows from Black Ridge Acquisition Corp., a wholly-owned subsidiary formed on October 10, 2017, which was consolidated as a variable interest
entity through August 9, 2019, the date that BRAC completed a business combination with Allied Esports Entertainment, Inc. (“AESE”),
were consolidated and have been retrospectively classified as discontinued operations. In addition, prior period investment in Allied
Esports Entertainment, Inc. securities of $6,982,300 were reclassified from long term assets to current assets to conform to management’s
intent and ability to liquidate the asset.
SOW GOOD, INC.
(Formerly Black Ridge Oil & Gas, Inc.)
NOTES TO THE FINANCIAL STATEMENTS
Segment Reporting
FASB ASC 280-10-50 requires annual and interim
reporting for an enterprise’s operating segments and related disclosures about its products, services, geographic areas and major
customers. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn
revenues and expenses, and about which separate financial information is regularly evaluated by the chief operating decision maker in
deciding how to allocate resources. The Company operates as a single segment and will evaluate additional segment disclosure requirements
as it expands its operations.
Use
of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles 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.
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. For the purpose of the statements of cash flows, all highly liquid investments with an
original maturity of three months or less are considered to be cash equivalents. Cash equivalents are stated at cost plus accrued interest,
which approximates market value. There were no cash equivalents on hand at December 31, 2020 and 2019.
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 approximately $1,311,464 and $-0- in excess of FDIC and SIPC insured limits at December 31, 2020 and 2019, respectively. The Company
has not experienced any losses in such accounts.
Fair Value of Financial Instruments
Under FASB ASC 820-10-05, the Financial Accounting
Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about
fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard
did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts
payable and accrued expenses reported on the balance sheets are estimated by management to approximate fair value primarily due to the
short-term nature of the instruments. The Company had no items that required fair value measurement on a recurring
basis.
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
Office equipment 5 years
Furniture and fixtures 5 years
Machinery and equipment 7-10 years
Intangible assets Indefinite
Leasehold improvements Fully extended lease-term
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 was $3,642 and $872 for
the years ended December 31, 2020 and 2019, respectively.
SOW GOOD, INC.
(Formerly Black Ridge Oil & Gas, Inc.)
NOTES TO THE FINANCIAL STATEMENTS
Impairment
of Long-Lived Assets
Long-lived assets held and used by the Company
are reviewed for possible impairment whenever events or circumstances indicate the carrying amount of an asset may not be recoverable
or is impaired. Recoverability is assessed using undiscounted cash flows based upon historical results and current projections of earnings
before interest and taxes. Impairment is measured using discounted cash flows of future operating results based upon a rate that corresponds
to the cost of capital. Impairments are recognized in operating results to the extent that carrying value exceeds discounted cash flows
of future operations.
Our intellectual property
is comprised of indefinite-lived brand names acquired and have been assigned an indefinite life as we currently anticipate that these
brand names will contribute cash flows to the Company perpetually. We evaluate the recoverability of intangible assets periodically by
taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired.
Inventory
Inventory, consisting of raw materials, material
overhead, labor, and manufacturing overhead, are stated at the lower of cost (first-in, first-out) or net realizable value and consist
of the following:
December 31, December 31,
No reserve for obsolete inventories has been recognized,
and we have not yet commenced production.
Goodwill
The Company evaluates goodwill on an annual basis
in the fourth quarter or more frequently if management believes indicators of impairment exist. Such indicators could include, but are
not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse
action or assessment by a regulator. The Company first assesses qualitative factors to determine whether it is more likely than not that
the fair value of a reporting unit is less than its carrying amount, management conducts a quantitative goodwill impairment test. The
impairment test involves comparing the fair value of the applicable reporting unit with its carrying value. The Company estimates the
fair values of its reporting units using a combination of the income, or discounted cash flows, approach and the market approach, which
utilizes comparable companies’ data. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, an
impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.
The Company’s evaluation of goodwill completed during the year resulted in no impairment losses.
Revenue Recognition
The Company will recognize revenue in accordance
with ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company will recognize revenue from the sale of its freeze-dried
food products once operations commence, in accordance with a five-step model in which
the Company will evaluate the transfer of promised goods or services and recognize revenue when customers obtain control of promised goods
or services in an amount that reflects the consideration which the Company expects to be entitled to receive in exchange for those goods
or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of ASC 606, the Company
will perform the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations
in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the
contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The Company has elected, as a practical
expedient, to account for the shipping and handling as fulfillment costs, rather than as a separate performance obligation. Revenue will
be reported net of applicable provisions for discounts, returns and allowances. Methodologies for determining these provisions will be
dependent on customer pricing and promotional practices. The Company will record reductions to revenue for estimated product returns and
pricing adjustments in the same period that the related revenue is recorded. These estimates will be based on industry-based historical
data, historical sales returns, if any, analysis of credit memo data, and other factors known at the time. The Company recognized
management fee income as services were provided in 2019.
SOW GOOD, INC.
(Formerly Black Ridge Oil & Gas, Inc.)
NOTES TO THE FINANCIAL STATEMENTS
Revenue Concentration
All of the Company’s revenue earned came
from management fees earned through its management services agreement with BRAC, which ceased as of December 31, 2019.
Basic and Diluted Earnings (Loss) Per Share
Basic earnings (loss) per share (“EPS”)