UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For quarterly period ended
or
For the transition period from _______________ to ______________
Commission File Number
(Exact name of registrant as specified in its charter)
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
Issuer’s telephone Number: (
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.
| No ☐ |
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
| No ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See 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 | ☐ | |
| ☐ | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Yes ☐ |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| OTCQB |
The number of shares of registrant’s common stock outstanding as of August 13, 2021 was .
TABLE OF CONTENTS
| i |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SOW GOOD INC.
CONDENSED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Investment in Allied Esports Entertainment, Inc. | ||||||||
| Prepaid expenses | ||||||||
| Inventory | ||||||||
| Total current assets | ||||||||
| Property and equipment: | ||||||||
| Construction in progress | ||||||||
| Property and equipment | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | ||||||||
| Security deposit | ||||||||
| Right-of-use asset | ||||||||
| Goodwill | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable, related party | ||||||||
| Accrued expenses | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities | ||||||||
| Notes payable | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders' equity: | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued and outstanding | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Common stock payable, consisting of and shares at June 30, 2021 and December 31, 2020, respectively | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
See accompanying notes to unaudited condensed financial statements.
| 1 |
SOW GOOD INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months | For the Six Months | |||||||||||||||
| Ended June 30, | Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative expenses: | ||||||||||||||||
| Salaries and benefits | ||||||||||||||||
| Salaries and benefits, stock-based | ||||||||||||||||
| Professional services | ||||||||||||||||
| Other general and administrative expenses | ||||||||||||||||
| Total general and administrative expenses | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Net operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense, including $ | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income | ||||||||||||||||
| Gain on early extinguishment of debt | ||||||||||||||||
| Gain (loss) on investment in Allied Esports Entertainment, Inc. | ( | ) | ( | ) | ||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ||||||||||||
| Net income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average common shares outstanding - basic | ||||||||||||||||
| Weighted average common shares outstanding - fully diluted | ||||||||||||||||
| Net loss per common share - basic | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Net loss per common share - fully diluted | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
See accompanying notes to unaudited condensed financial statements.
| 2 |
SOW GOOD INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
| For the Three Months Ended June 30, 2020 | ||||||||||||||||||||||||
| Common Stock | Additional Paid-in | Common Stock | Accumulated | Total Stockholders' | ||||||||||||||||||||
| Shares | Amount | Capital | Payable | Deficit | Equity | |||||||||||||||||||
| Balance, March 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common stock options granted to employees and directors for services | – | |||||||||||||||||||||||
| Common stock warrants granted to employees and directors for personal guaranty on debt | – | |||||||||||||||||||||||
| Net income for the three months ended June 30, 2020 | – | |||||||||||||||||||||||
| Balance, June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| For the Three Months Ended June 30, 2021 | ||||||||||||||||||||||||
| Additional | Total | |||||||||||||||||||||||
| Common Stock | Paid-in | Common Stock | Accumulated | Stockholders' | ||||||||||||||||||||
| Shares | Amount | Capital | Payable | Deficit | Equity | |||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common stock sales for cash to officers and directors | ||||||||||||||||||||||||
| Common stock sales for cash | ||||||||||||||||||||||||
| Common stock issued to officers and directors for services | ( | ) | ||||||||||||||||||||||
| Common stock issued to employees and consultants for services | ||||||||||||||||||||||||
| Common stock options granted to officers and directors for services | – | |||||||||||||||||||||||
| Common stock options granted to employees for services | – | |||||||||||||||||||||||
| Net loss for the three months ended June 30, 2021 | – | ( | ) | ( | ) | |||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| For the Six Months Ended June 30, 2020 | ||||||||||||||||||||||||
| Additional | Total | |||||||||||||||||||||||
| Common Stock | Paid-in | Common Stock | Accumulated | Stockholders' | ||||||||||||||||||||
| Shares | Amount | Capital | Payable | Deficit | Equity | |||||||||||||||||||
| Balance, December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common stock options granted to employees and directors for services | – | |||||||||||||||||||||||
| Common stock warrants granted to employees and directors for personal guaranty on debt | – | |||||||||||||||||||||||
| Net loss for the six months ended June 30, 2020 | – | ( | ) | ( | ) | |||||||||||||||||||
| Balance, June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| For the Six Months Ended June 30, 2021 | ||||||||||||||||||||||||
| Additional | Total | |||||||||||||||||||||||
| Common Stock | Paid-in | Common Stock | Accumulated | Stockholders' | ||||||||||||||||||||
| Shares | Amount | Capital | Payable | Deficit | Equity | |||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common stock issued on subscriptions payable for the purchase of S-FDF, LLC assets | ( | ) | ||||||||||||||||||||||
| Common stock sales for cash to officers and directors | ||||||||||||||||||||||||
| Common stock sales for cash | ||||||||||||||||||||||||
| Common stock issued to officers and directors for services | ( | ) | ||||||||||||||||||||||
| Common stock issued to employees and consultants for services | ||||||||||||||||||||||||
| Common stock options granted to officers and directors for services | – | |||||||||||||||||||||||
| Common stock options granted to employees for services | – | |||||||||||||||||||||||
| Net loss for the six months ended June 30, 2021 | – | ( | ) | ( | ) | |||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
See accompanying notes to unaudited condensed financial statements.
| 3 |
SOW GOOD INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Six Months | ||||||||
| Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| (Gain) loss on investment in Allied Esports Entertainment, Inc. | ( | ) | ||||||
| Gain on early extinguishment of debt | ( | ) | ||||||
| Common stock issued to officers and directors for services | ||||||||
| Common stock issued to consultants for services | ||||||||
| Amortization of stock options | ||||||||
| Amortization of stock warrants issued as a debt discount | ||||||||
| Decrease (increase) in current assets: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses | ||||||||
| Inventory | ( | ) | ||||||
| Right-of-use asset | ||||||||
| Increase (decrease) in current liabilities: | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Lease liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Proceeds received from sale of investment in Allied Esports Entertainment, Inc. securities | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds received from notes payable | ||||||||
| Repayments on notes payable | ( | ) | ||||||
| Proceeds received from the sale of common stock and subscriptions payable | ||||||||
| Net cash provided by financing activities | ||||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | ||||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL INFORMATION: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Value of debt discounts attributable to warrants | $ | $ | ||||||
See accompanying notes to unaudited condensed financial statements.
| 4 |
SOW GOOD INC.
Notes to Condensed Financial Statements
(Unaudited)
Note 1 – Organization and Nature of Business
Effective January 21, 2021, we changed our name from Black Ridge Oil & Gas, Inc. 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 $
On October
10, 2017, the Company’s sponsored special purpose acquisition company, Black Ridge Acquisition Corp. (“BRAC”), completed
an IPO raising $
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 $
On May 5, 2021, we announced the launch of our direct-to-consumer freeze-dried consumer packaged good (CPG) food brand, Sow Good. Sow Good launches with its first line of non-GMO products including 6 ready-to-make smoothies and 9 snacks. The smoothie lineup offers a mix of both new and familiar flavors: Açaí of Relief (açaí, blueberry); Mint to Be (banana, coconut, mint); and Berry Apeeling (banana, strawberry). Sow Good packaged snack lineup includes single-ingredient fruits and vegetables such as Mon Cherry (cherries); Cool Beans (edamame); and What’s Apple’n (apples). Smoothies are $7.50 each and packaged snacks are $5.25 per bag.
On July 23, 2021, we launched six new gluten-free granola products under the Sow Good brand. Sow Good’s granola products are made with health-conscious ingredients such as freeze-dried fruit, almonds, hemp hearts, and coconut oil. Granola products are initially being sold direct-to-consumer and will later be targeted to the business-to-business segment. 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. With the extensive freeze-dried manufacturing and food product-focused business development experience of our senior management team, we believe we are well positioned to lead the Company's growth and development in the freeze-dried food industry.
| 5 |
Note 2 – Basis of Presentation and Significant Accounting Policies
The interim condensed financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to not make the information presented misleading.
These statements reflect all adjustments, which in the opinion of management, are necessary for fair presentation of the information contained therein. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. It is suggested that these interim condensed financial statements be read in conjunction with the audited financial statements for the year ended December 31, 2020, which were included in our Annual Report on Form 10-K. The Company follows the same accounting policies in the preparation of interim reports.
Fair Value of Financial Instruments
The Company discloses the fair value of certain assets and liabilities in accordance with ASC 820 – Fair Value Measurement (“ASC 820”). 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.
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.
Cash in Excess of FDIC 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 $
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 | |
| Office equipment | |
| Furniture and fixtures | |
| Machinery and equipment | |
| Intangible assets | |
| Leasehold improvements |
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 $
| 6 |
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 consists of the following:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Finished goods | $ | $ | ||||||
| Raw materials | ||||||||
| Work in progress | ||||||||
| Packaging materials | ||||||||
| Total Inventory | $ | $ | ||||||
No reserve for obsolete inventories has been recognized, and we have not yet commenced significant 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 recognizes revenue in accordance with ASC 606 — Revenue from Contracts with Customers (“ASC” 606”). Under ASC 606, the Company recognizes revenue from the sale of its freeze-dried food products 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.
| 7 |
Basic earnings (loss) per share (“EPS”) are computed by dividing net income (the numerator) by the weighted average number of common shares outstanding for the period (the denominator). Diluted EPS is computed by dividing net income by the weighted average number of common shares and potential common shares outstanding (if dilutive) during each period. Potential common shares include stock options, warrants and restricted stock. The number of potential common shares outstanding relating to stock options, warrants and restricted stock is computed using the treasury stock method.
The reconciliation of the denominators used to calculate basic EPS and diluted EPS for the three and six months ended June 30, 2021 and 2020 are as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Weighted average common shares outstanding – basic | ||||||||||||||||
| Plus: Potentially dilutive common shares: | ||||||||||||||||
| Common stock warrants | ||||||||||||||||
| Weighted average common shares outstanding – diluted | ||||||||||||||||
For the three months ended June 30, 2021, and the six months ended June 30, 2021 and 2020, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share. Stock options and warrants excluded from the calculation of diluted EPS because their effect was anti-dilutive were and as of June 30, 2021 and 2020, respectively.
The Company accounts for equity instruments issued
to employees in accordance with the provisions of ASC 718 Stock Compensation (ASC 718) and Equity-Based Payments to Non-employees pursuant
to ASC 2018-07 (ASC 2018-07). All transactions in which the consideration provided in exchange for the purchase of goods or services consists
of the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the
equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued
is the earlier of the date on which the counterparty’s performance is complete or the date at which a commitment for performance
by the counterparty to earn the equity instruments is reached because of sufficiently large disincentives for nonperformance. Stock-based
compensation was $ and $, consisting entirely of expenses related to common stock and options issued for services for the
six months ended June 30, 2021 and 2020, respectively, using the Black-Scholes options pricing model and an effective term of 6 to 6.5
years based on the weighted average of the vesting periods and the stated term of the option grants and the discount rate on 5 to 7 year
U.S. Treasury securities at the grant date. In addition, $
Income Taxes
The Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.
On December 22, 2017 the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Reform”) was signed into law. As a result of Tax Reform, the U.S. statutory rate was lowered from 35% to 21% effective January 1, 2018, among other changes. ASC Topic 740 requires companies to recognize the effect of tax law changes in the period of enactment; therefore, the Company was required to value its deferred tax assets and liabilities at the new rate. The SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain effects of Tax Reform. The ultimate impact may differ from the provisional amount, possibly materially, as a result of additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued and actions the Company may take as a result of Tax Reform.
| 8 |
Uncertain Tax Positions
In accordance with ASC 740, “Income Taxes” (“ASC 740”), the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be capable of withstanding examination by the taxing authorities based on the technical merits of the position. These standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These standards also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
Various taxing authorities can periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions. In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established, is audited and fully resolved. The Company has not yet undergone an examination by any taxing authorities.
The assessment of the Company’s tax position relies on the judgment of management to estimate the exposures associated with the Company’s various filing positions.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company's financial statements upon adoption.
In August 2020, the FASB issued ASU No. 2020-06, Debt–Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging–Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if converted method. The new guidance is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2021, with early adoption permitted. The adoption of ASU 2020-06 is not expected to have a material impact on the Company’s financial statements or related disclosures.
In May 2020, the SEC adopted final rules that amend the financial statement requirements for significant business acquisitions and dispositions. Among other changes, the final rules modify the significance tests and improve the disclosure requirements for acquired or to be acquired businesses and related pro forma financial information, the periods those financial statements must cover, and the form and content of the pro forma financial information. The final rules do not modify requirements for the acquisition and disposition of significant amounts of assets that do not constitute a business. The final rules were effective January 1, 2021. The Company has considered these final rules and updated its disclosures, as applicable.
In November 2019, the FASB issued ASU 2019-12 – Income Taxes (“Topic 740”): Simplifying the Accounting for Income Taxes. The amendments in ASU 2019-12 are part of an initiative to reduce complexity in accounting standards and simplify the accounting for income taxes by removing certain exceptions from Topic 740 and making minor improvements to the codification. ASU 2019-12 and its related amendments are effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The provisions of this update did not have a material impact on the Company’s financial position or results of operations.
No other new accounting pronouncements, issued or effective during the period ended June 30, 2021, have had or are expected to have a significant impact on the Company’s financial statements.
| 9 |
Note 3 – Going Concern
As shown in the accompanying financial
statements, as of June 30, 2021, the Company has incurred recurring losses from operations resulting in an accumulated deficit of
$
In the event sales do not materialize at the expected rates, management would seek additional financing or would attempt to conserve cash by further reducing expenses. There can be no assurance that we will be successful in achieving these objectives.
The financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. The financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. 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.
Note 4 – Business Combination, S-FDF
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 $
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.
| 10 |
This acquisition was
accounted for as a business combination under the purchase method of accounting. The purchase resulted in the recognition of $
| October 1, 2020 | ||||
| Consideration: | ||||
| Fair value of 1,620,973 shares of common stock | $ | |||
| Liabilities assumed: | ||||
| Accounts payable | ||||
| Accrued expenses | ||||
| Lease liabilities | ||||
| Total consideration | $ | |||
| Fair value of identifiable assets acquired: | ||||
| Cash | $ | |||
| Other receivables | ||||
| Prepaid expenses | ||||
| Property and equipment | ||||
| Construction in progress | ||||
| Security deposit | ||||
| Right-of-use asset | ||||
| Total fair value of assets acquired | ||||
| Consideration paid in excess of fair value (Goodwill)(1) | $ | |||
| (1) |
Pro Forma Results
The following table sets forth the unaudited pro forma results of the Company as if the acquisition of S-FDF, LLC was effective on the first day of each of the periods presented. These combined results are not necessarily indicative of the results that may have been achieved had the companies always been combined.
| For the Six Months Ended June 30, | ||||||||
| 2021 | 2020(2) | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Revenues | $ | $ | ||||||
| Net operating loss | $ | ( | ) | $ | ( | ) | ||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Weighted average common shares outstanding – basic and fully diluted | ||||||||
| Net loss per common share – basic and fully diluted | $ | ( | ) | $ | ( | ) | ||
| (2) |
| 11 |
Note 5 – Related Party
Issuance of Shares in Completion of Acquisition
In connection with the closing of the Amended Asset Purchase Agreement between the Company and S-FDF, LLC, the Company was obligated to make certain adjustments to the common stock issued to Seller. The adjustment was based primarily on the fair value of AESE shares sold subsequent to the Asset Purchase Agreement. On December 31, 2020, the final number of shares to be issued to S-FDF, LLC was determined to be shares and a common stock payable was recognized in the amount of $, the fair value of the common stock based on the closing price of the Company’s common stock on the date of grant. On January 4, 2021, the shares were issued in settlement of the common stock payable.
Common Stock Payable Awarded to Officers
On June 30, 2021,
the Company awarded and shares of common stock to Claudia and Ira Goldfarb, respectively, for services earned during
June 30, 2021. The aggregate fair value of the shares was $
Issuance of Shares for Services
On May 31, 2021,
the Company issued and shares to Claudia and Ira Goldfarb, respectively,
for their services for May 2021. The aggregate fair value of the shares was $
On April 30, 2021,
the Company issued and shares to Claudia and Ira Goldfarb, respectively,
for their services for April 2021. The aggregate fair value of the shares was $
On March 31, 2021,
the Company awarded and shares of common stock to Claudia and Ira Goldfarb, respectively, for their services for March
2021. The aggregate fair value of the shares was $
On February 28, 2021,
the Company issued and shares to Claudia and Ira Goldfarb, respectively,
for their services for February 2021. The aggregate fair value of the shares was $
On January 31, 2021,
the Company issued and shares to Claudia and Ira Goldfarb, respectively,
for their services for January 2021. The aggregate fair value of the shares was $
On January 27, 2021, upon Benjamin Oehler’s resignation, the Company appointed Chris Ludeman as a member of the Board of Directors of the Company, and appointed him to the Company’s Audit Committee as Chairperson. Pursuant to his appointment, Mr. Ludeman was issued
On January 7, 2021, the Company issued an aggregate and shares of common stock to Claudia and Ira Goldfarb, respectively, for services from October 2020 through December 31, 2020 in satisfaction of the outstanding common stock payable.
Common Stock Sold for Cash, Subscriptions Payable
On July 2, 2021, the Company entered into a Stock
Purchase Agreement with multiple accredited investors to sell and issue to the purchasers, thereunder, an aggregate of 714,701 shares
of the Company’s common stock at a price of $4.25 per Share. Proceeds to the Company from the sale of the Shares were $
| 12 |
Common Stock Sold for Cash
On February 5, 2021, the Company entered into
a Stock Purchase Agreement with multiple accredited investors to sell and issue to the purchasers an aggregate shares of the Company’s
common stock at a price of $ per share for total proceeds of $
Options Granted
On April 22, 2021, Brad Burke was granted options
to purchase shares of the Company’s common stock, having an exercise price of $ per share, exercisable over a ten-year
term. The options will vest 60% on the third anniversary, and 20% each anniversary thereafter until fully vested. The estimated value
using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $5.4381, was $
On January 27, 2021, Chris Ludeman was
granted options to purchase
shares of the Company’s common stock, having an exercise price of $
per share, exercisable over a ten-year term. The options will vest in three equal annual installments beginning of January 27,
2022 and continuing on each of the two anniversaries thereafter until fully vested. The estimated value using the Black-Scholes
Pricing Model, based on a volatility rate of % and a call option value of $6.1794, was $
On January 4, 2021, Claudia and Ira Goldfarb
were each granted options to purchase
shares of the Company’s common stock, having an exercise price of $
per share, exercisable over a ten-year term. The options will vest in three equal installments beginning of January 4, 2022 and
continuing on each of the two anniversaries thereafter until fully vested. The aggregate estimated value using the Black-Scholes
Pricing Model, based on a volatility rate of % and a call option value of $3.9412, was $
Lease Agreement
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 in Irving, Texas, under which an entity owned entirely by Ira Goldfarb is the landlord. The lease term is through September 15, 2025, with two five-year options to extend, at a monthly lease term of $10,036, with approximately a 3% annual escalation of lease payments commencing September 15, 2021.
Note 6 – Fair Value of Financial Instruments
The Company discloses the fair value of certain assets and liabilities in accordance with ASC 820 – Fair Value Measurement (“ASC 820”). Under FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.
The Company has cash and cash equivalents and a revolving credit facility that must be measured under the fair value standard. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
| 13 |
Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheets as of June 30, 2021 and December 31, 2020:
| Fair Value Measurements at June 30, 2021 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||
| Goodwill | ||||||||||||
| Total assets | ||||||||||||
| Liabilities | ||||||||||||
| Notes payable | ||||||||||||
| Total liabilities | ||||||||||||
| $ | $ | ( | ) | $ | ||||||||
| Fair Value Measurements at December 31, 2020 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||
| Investment in Allied Esports Entertainment, Inc. | ||||||||||||
| Goodwill | ||||||||||||
| Total assets | ||||||||||||
| Liabilities | ||||||||||||
| Notes payable | ||||||||||||
| Total liabilities | ||||||||||||
| $ | $ | ( | ) | $ | ||||||||
There were no transfers of financial assets or liabilities between Level 1 and Level 2 inputs for the six months ended June 30, 2021.
Note 7 – Prepaid Expenses
Prepaid expenses consist of the following:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Prepaid software licenses | $ | $ | ||||||
| Prepaid insurance costs | ||||||||
| Prepaid employee benefits | ||||||||
| Prepaid office and other costs | ||||||||
| Total prepaid expenses | $ | $ | ||||||
| 14 |
Note 8 – Property and Equipment
Property and equipment at June 30, 2021 and December 31, 2020, consists of the following:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Office equipment | $ | $ | ||||||
| Machinery | ||||||||
| Software | ||||||||
| Website | ||||||||
| Leasehold improvements | ||||||||
| Construction in progress | ||||||||
| Less: Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Construction in progress consisted of costs incurred to build out our manufacturing facility in Irving Texas, along with the construction of our freeze driers. These costs have been capitalized as Leasehold Improvements and Machinery, respectively, upon completion.
On September 30, 2020, the Company disposed of
computer equipment no longer in service. No proceeds were received on the disposal of the equipment, resulting in a loss on disposal of
fixed assets of $
The Company recognized depreciation expense of
$
Note 9 – Investment in Allied Esports Entertainment, Inc.
Following the close of BRAC’s merger, the
Company retained shares of AESE common stock with a value, based on the closing stock of $4.45 on the merger, of $
As of June 30, 2021, the Company had completely sold its investment in AESE’s common stock, resulting in gains (losses) on our investment in securities, as follows:
| June 30, | June 30, | |||||||
| 2021 | 2020 | |||||||
| Net gain (loss) on investment in Allied Esports Entertainment, Inc. securities | $ | $ | ( | ) | ||||
| Less: Net gains and losses recognized on equity securities sold during the period | ( | ) | ( | ) | ||||
| Less: Gain on deferred compensation payable in shares of AESE | ( | ) | ||||||
| Unrealized loss recognized on equity securities still held at the end of the period | $ | $ | ( | ) | ||||
| 15 |
Note 10 – Leases
The Company leases its 20,945 square foot operating
and office facility under a non-cancelable real property lease agreement that expires on
The components of lease expense were as follows:
| For the Six | ||||
| Months Ended | ||||
| June 30, | ||||
| 2021 | ||||
| Operating lease cost: | ||||
| Fixed rent expense | $ | |||
Supplemental balance sheet information related to leases was as follows:
| June 30, | ||||
| 2021 | ||||
| Operating leases: | ||||
| Operating lease assets | $ | |||
| Current portion of operating lease liabilities | $ | |||
| Noncurrent operating lease liabilities | ||||
| Total operating lease liabilities | $ | |||
| Weighted average remaining lease term: | ||||
| Operating leases | ||||
| Weighted average discount rate: | ||||
| Operating leases | ||||
Supplemental cash flow and other information related to leases was as follows:
| For the Six | ||||
| Months Ended | ||||
| June 30, | ||||
| 2021 | ||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||
| Operating cash flows used for operating leases | $ | |||
| Leased assets obtained in exchange for lease liabilities: | ||||
| Total operating lease liabilities | $ | |||
| 16 |
The future minimum lease payments due under operating leases as of June 30, 2021 was as follows:
| Fiscal Year Ending | Minimum Lease | |||
| December 31, | Commitments | |||
| 2021 (for the six months remaining) | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Total | ||||
| Less effects of discounting | ||||
| Lease liability recognized | $ | |||
Note 11 – Notes Payable
Notes payable consists of the following at June 30, 2021 and December 31, 2020, respectively:
| June 30, 2021 | December 31, 2020 | |||||||
| On June 16, 2020, the Company entered into a loan authorization and loan agreement with the United States Small Business Administration (the “SBA”), as lender, pursuant to the SBA’s Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business (the “EIDL Loan Agreement”) encompassing a $ | $ | $ | ||||||
| On April 24, 2020, the Company entered into a loan agreement with Kensington Bank (“Kensington”), as lender (the “Loan Agreement”) encompassing a $ | ||||||||
| Total notes payable | ||||||||
| Less unamortized derivative discounts: | ||||||||
| Notes payable | ||||||||
| Less: current maturities | ||||||||
| Notes payable, less current maturities | $ | $ | ||||||
| 17 |
The Company recognized $
Note 12 – Changes in Stockholders’ Equity
Reverse Stock Split
| · | Stockholders owning 300 or more shares of Common Stock received (1) one share of Common Stock for every 300 shares owned and (2) cash in lieu of fractional shares upon the surrender of such stockholder’s shares; | |
| · | Stockholders owning between 25 and 300 shares of Common Stock had their ownership of shares of Common Stock rounded up to one share; and | |
| · | Stockholders owning fewer than 25 shares of Common Stock received cash in lieu of fractional shares upon the surrender of such stockholders’ shares and no longer own shares of Common Stock. |
Any cash payment in lieu of fractional shares were based on the volume weighted average of the closing sales prices of the Company’s Common Stock on the OTCQB operated by OTC Markets Group Inc. (the “OTCQB”) during regular trading hours for the five consecutive trading days immediately preceding the Effective Date, which was $0.018 per share prior to the effects of the reverse stock split.
The Company was authorized to issue 500,000,000 shares of common stock prior to the Reverse Stock Split, which remains unaffected. The Reverse Stock Split did not have any effect on the stated par value of the common stock, or the Company’s authorized preferred stock. Unless otherwise stated, all share and per share information in this Interim Report has been retroactively adjusted to reflect the Reverse Stock Split.
Preferred Stock
The Company has authorized shares of $ par value preferred stock. No shares have been issued to date.
Common Stock
The Company has authorized shares of $ par value common stock. As of June 30, 2021, a total of shares of common stock have been issued.
Issuance of Shares in Completion of Acquisition
In connection with the closing of the Amended Asset Purchase Agreement between the Company and S-FDF, LLC, the Company was obligated to make certain adjustments to the common stock issued to Seller. The adjustment was based primarily on the fair value of AESE shares sold subsequent to the Asset Purchase Agreement. On December 31, 2020, the final number of shares to be issued to S-FDF, LLC was determined to be shares and a common stock payable was recognized in the amount of $, the fair value of the common stock based on the closing price of the Company’s common stock on the date of grant. On January 4, 2021, the shares were issued in settlement of the common stock payable.
Common Stock Payable Awarded to Officers
On June 30, 2021,
the Company awarded and shares of common stock to Claudia and Ira Goldfarb, respectively, for services earned during
June 30, 2021. The aggregate fair value of the shares was $
Issuance of Shares for Services
On May 31, 2021,
the Company issued and shares to Claudia and Ira Goldfarb, respectively,
for their services for May 2021. The aggregate fair value of the shares was $
| 18 |
On May 25, 2021,
the Company issued shares to each of two advisory board members for their services.
The total aggregate fair value of the shares was $
On April 30, 2021,
the Company issued and shares to Claudia and Ira Goldfarb, respectively,
for their services for April 2021. The aggregate fair value of the shares was $
On March 31, 2021,
the Company awarded and shares of common stock to Claudia and Ira Goldfarb, respectively, for their services for March
2021. The aggregate fair value of the shares was $
On February 28, 2021,
the Company issued and shares to Claudia and Ira Goldfarb, respectively,
for their services for February 2021. The aggregate fair value of the shares was $
On January 31, 2021,
the Company issued and shares to Claudia and Ira Goldfarb, respectively,
for their services for January 2021. The aggregate fair value of the shares was $
On January 27, 2021,
upon Benjamin Oehler’s resignation, the Company appointed Chris Ludeman as a member of the Board of Directors of the Company,
and appointed him to the Company’s Audit Committee as Chairperson. Pursuant to his appointment, Mr. Ludeman was issued shares of common stock for his services to be rendered. The aggregate fair value of the common stock was $
On January 7, 2021, the Company issued an aggregate and shares of common stock to Claudia and Ira Goldfarb, respectively, for services from October 2020 through December 31, 2020 in satisfaction of the outstanding common stock payable.
Common Stock Sold for Cash
On February 5, 2021, the Company entered into
a Stock Purchase Agreement with multiple accredited investors to sell and issue to the Purchasers an aggregate shares of the Company’s
common stock at a price of $ per share for total proceeds of $
Common Stock Sold for Cash, Subscriptions Payable
On July 2, 2021, the Company entered into a Stock
Purchase Agreement with multiple accredited investors to sell and issue to the purchasers, thereunder, an aggregate of 714,701 shares
of the Company’s common stock at a price of $4.25 per Share. Proceeds to the Company from the sale of the Shares were $3,036,797,
of which $2,472,136 was received on June 30, 2021, which was recognized as a subscription payable as the underlying 581,675 shares were
subsequently issued on July 9, 2021. A total of 407,204 of these shares, or proceeds of $1,730,621 were purchased by officers and directors,
including shares, or $
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, as provided in the definitive information statement filed with Securities and Exchange Commission on January 10, 2020 (the “DEF 14C”). The description of the 2020 Equity Plan is qualified in its entirety by the text of the 2020 Equity Plan, a copy of which was attached as Annex C to the DEF 14C.
| 19 |
Outstanding Options
Options to purchase an aggregate total of
shares of common stock at a weighted average strike price of $
Options Granted
On May 25, 2021, two advisory board members
were granted options to purchase an aggregate
shares of the Company’s common stock, having an exercise price of $
per share, exercisable over a ten-year term. The options will vest 60% on the third anniversary, and 20% each anniversary
thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of %
and a call option value of $4.9272, was $
On April 22, 2021, Brad Burke was granted
options to purchase
shares of the Company’s common stock, having an exercise price of $
per share, exercisable over a ten-year term. The options will vest 60% on the third anniversary, and 20% each anniversary
thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of %
and a call option value of $5.4381, was $
On April 22, 2021, a total of fifteen
employees and consultants were granted options to purchase an aggregate
shares of the Company’s common stock, having an exercise price of $
per share, exercisable over a ten-year term. The options will vest 60% on the third anniversary, and 20% each anniversary
thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of %
and a call option value of $5.4381, was $
On January 27, 2021, Chris Ludeman was
granted options to purchase
shares of the Company’s common stock, having an exercise price of $
per share, exercisable over a ten-year term. The options will vest in three equal annual installments beginning of January 27,
2022 and continuing on each of the two anniversaries thereafter until fully vested. The estimated value using the Black-Scholes
Pricing Model, based on a volatility rate of %
and a call option value of $6.1794, was $
On January 4, 2021, Claudia and Ira Goldfarb
were each granted options to purchase shares of the Company’s common stock, having an exercise price of $ per
share, exercisable over a ten-year term. The options will vest in three equal installments beginning of January 4, 2022 and
continuing on each of the two anniversaries thereafter until fully vested. The aggregate estimated value using the Black-Scholes
Pricing Model, based on a volatility rate of % and a call option value of $3.9412, was $
The Company recognized a total of $, and $ of compensation expense during the six months ended June 30, 2021 and 2020, respectively, related to common stock options issued to Officers, Directors, and Employees that are being amortized over the implied service term, or vesting period, of the options. The remaining unamortized balance of these options is $ as of June 30, 2021.
Options Exercised
options were exercised during the six months ended June 30, 2021 and 2020.
Options Forfeited
A total of options with a weighted average exercise price of $ were forfeited during the six months ended June 30, 2021.
| 20 |
Note 14 – Warrants
Outstanding Warrants
Warrants to purchase an aggregate total of
Warrants Granted
warrants were granted during the six months ended June 30, 2021 and 2020.
Warrants Exercised
Note 15 – Income Taxes
The Company accounts for income taxes under ASC Topic 740, Income Taxes, which provides for an asset and liability approach of accounting for income taxes. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences, using currently enacted tax laws, attributed to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts calculated for income tax purposes.
Losses incurred during the period from April
9, 2011 (inception) to June 30, 2021 could be used to offset future tax liabilities. Accounting standards require the consideration of
a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits
of deferred tax assets will not be realized. As of June 30, 2021, net deferred tax assets were $
In accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no significant uncertain tax positions as of any date on, or before June 30, 2021.
Note 16 – Commitments
The Company is involved in various inquiries, administrative proceedings and litigation relating to matters arising in the normal course of business. The Company is not currently a defendant in any material litigation and is not aware of any threatened litigation that could have a material effect on the Company. Management is not able to estimate the minimum loss to be incurred, if any, as a result of the final outcome of the matters arising in the normal course of business but believes they are not likely to have a material adverse effect upon the Company’s financial position or results of operations and, accordingly, no provision for loss has been recorded.
The Company periodically maintains cash balances at banks in excess of federally insured amounts. The extent of loss, if any, to be sustained as a result of any future failure of a bank or other financial institution is not subject to estimation at this time.
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 in Irving, Texas, under
which an entity owned entirely by Ira Goldfarb is the landlord. The lease term is through September 15, 2025, with two five-year options
to extend, at a monthly lease term of $
| 21 |
The future minimum lease payments due under operating leases as of June 30, 2021 is as follows:
| Fiscal Year Ending | Minimum Lease | |||
| December 31, | Commitments | |||
| 2021 (for the six months remaining) | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Total | ||||
| Less effects of discounting | ||||
| Lease liability recognized | $ | |||
Note 17 – Subsequent Events
The Company evaluates events that have occurred after the balance sheet date through the date these financial statements were issued.
Common Stock Awarded to Officers
On July 31, 2021, the Company issued 5,541 and 6,044 shares of common stock to Claudia and Ira Goldfarb, respectively, for their services during July 2021.
Common Stock Issued to Officers on Common Stock Payable
On July 7, 2021, the Company issued 5,541 and 6,044 shares of common stock to Claudia and Ira Goldfarb, respectively, for their services earned during June 2021 in satisfaction of the outstanding common stock payable.
Common Stock Sold for Cash
On July 2, 2021, the Company entered into a Stock Purchase Agreement with multiple accredited investors to sell and issue to the purchasers, thereunder, an aggregate of 714,701 shares of the Company’s common stock at a price of $4.25 per Share. Proceeds to the Company from the sale of the Shares were $3,036,797, of which $2,472,136 was received on June 30, 2021, which was recognized as a subscription payable as the underlying 581,675 shares were subsequently issued on July 9, 2021.
| 22 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Cautionary 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:
| · | the effect of the coronavirus (“COVID-19”) pandemic on our ability to obtain funding through various financing transactions or arrangements; |
| · | volatility or decline of our stock price; |
| · | low trading volume and illiquidity of our common stock; |
| · | potential fluctuation in quarterly results; |
| · | low trading volume and price of our investment in AESE Shares; |
| · | inability to maintain adequate liquidity to meet our financial obligations; |
| · | failure to obtain sufficient sales and distributions of our freeze-dried fruit product offerings; |
| · | litigation, disputes and legal claims involving outside parties; and |
| · | risks related to our ability to be traded on the OTCQB and meeting trading requirements |
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.
Readers are urged not to place undue reliance on these forward-looking statements. 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.
Overview and Outlook
On March 20, 2021, our first freeze drier successfully completed its production testing. The company is now producing its own freeze-dried fruits and vegetables from individual quick freeze (IQF) raw materials. Freeze dried food production also continues to be supplemented by our relationships with co-manufacturing partners. 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.
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As of May, 2021, we have launched our direct-to-consumer freeze-dried consumer packaged goods (CPG) food brand, under our Sow Good brand. Sow Good launches with its first line of non-GMO products including six ready-to-make smoothies and nine snacks. The smoothie lineup offers a mix of both new and familiar flavors: Açaí of Relief (açaí, blueberry); Mint to Be (banana, coconut, mint); and Berry Apeeling (banana, strawberry). Sow Good packaged snack lineup includes single-ingredient fruits and vegetables such as Mon Cherry (cherries); Cool Beans (edamame); and What’s Apple’n (apples).
On July 23, 20201, we launched six new gluten-free granola products under the Sow Good brand. Sow Good’s granola products are made with health-conscious ingredients such as freeze-dried fruit, almonds, hemp hearts, and coconut oil. Granola products are initially being sold direct-to-consumer and will later be targeted to the business-to-business segment. 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. With the extensive freeze-dried manufacturing and food product-focused business development experience of our senior management team, we believe we are well positioned to lead the Company's growth and development in the freeze-dried food industry.
Going Concern Uncertainty
As of June 30, 2021, the Company has incurred recurring losses from operations resulting in an accumulated deficit of $39,044,009, and had cash on hand of $3,754,381. We are too early in our development stage to project revenue with a necessary level of certainty; therefore, we may not have sufficient funds to sustain our operations for the next twelve months and we may need to raise additional cash to fund our operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company has commenced sales and continues to develop its operations, and the Company raised an additional $564,661 from sale of common stock in July, as noted in our subsequent events footnote. In the event sales do not materialize at the expected rates, management would seek additional financing or would attempt to conserve cash by further reducing expenses. There can be no assurance that we will be successful in achieving these objectives.
The Company has incurred recurring losses from operations resulting in an accumulated deficit, experienced net negative cash flows from operations, and, as set forth above, the Company’s cash on hand may not be sufficient to sustain operations. 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 financing 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 accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. The unaudited financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
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Results of Operations for the Three Months Ended June 30, 2021 and 2020.
The following table summarizes selected items from the statement of operations for the three months ended June 30, 2021 and 2020, respectively.
| Three Months Ended | ||||||||||||
| June 30, | Increase / | |||||||||||
| 2021 | 2020 | (Decrease) | ||||||||||
| Revenues | $ | 7,076 | $ | – | $ | 7,076 | ||||||
| Cost of goods sold | 4,899 | – | 4,899 | |||||||||
| Gross Profit | 2,177 | – | 2,177 | |||||||||
| Operating expenses: | ||||||||||||
| General and administrative expenses: | ||||||||||||
| Salaries and benefits | 583,633 | 233,530 | 350,103 | |||||||||
| Salaries and benefits, stock-based | 333,324 | 49,454 | 283,870 | |||||||||
| Professional services | 60,694 | 111,872 | (51,178 | ) | ||||||||
| Other general and administrative expenses | 424,263 | 50,229 | 374,034 | |||||||||
| Total general and administrative expenses | 1,401,914 | 445,085 | 956,829 | |||||||||
| Depreciation and amortization | 60,056 | 379 | 59,677 | |||||||||
| Total operating expenses | 1,461,970 | 445,464 | 1,016,506 | |||||||||
| Net operating loss | (1,459,793 | ) | (445,464 | ) | 1,014,329 | |||||||
| Other income (expense) | ||||||||||||
| Interest expense, including $363,645 of warrants issued as a debt discount for the three months ending June 30, 2020 | (1,222 | ) | (367,652 | ) | (366,430 | ) | ||||||
| Other income | – | 2 | (2 | ) | ||||||||
| Gain (loss) on investment in Allied Esports Entertainment, Inc. securities | (96,779 | ) | 1,529,896 | (1,626,675 | ) | |||||||
| Total other income (expense) | (98,001 | ) | 1,162,246 | (1,260,247 | ) | |||||||
| Net income (loss) | $ | (1,557,794 | ) | $ | 716,782 | $ | (2,274,576 | ) | ||||
Revenues
Revenues commenced during the three months ended June 30, 2021, which were generated by online sales of our freeze-dried foods products. These revenues were minimal, as we test launched our products. The Company did not earn any revenues during the comparative three months ended June 30, 2020. We anticipate increased revenues over the remainder of the year, although there can be no assurance.
Cost of Goods Sold
Cost of goods sold for the three months ended June 30, 2021 were $4,899, primarily consisting of material costs and labor on the sales of freeze-dried food products, resulting in a gross profit of approximately 31% during the quarter. The Company did not have any cost of goods sold during the comparative three months ended June 30, 2020.
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General and administrative expenses
Salaries and benefits
Salaries and benefits for the three months ended June 30, 2021 were $583,633, compared to $233,530 for the three months ended June 30, 2020, an increase of $350,103, or 150%. The increase in salaries and benefits was primarily due to increased operations as we developed our freeze-dried food operations.
Salaries and benefits, stock-based
Salaries and benefits, stock-based compensation expense for the three months ended June 30, 2021 was $333,324, compared to $49,454 for the three months ended June 30, 2020, an increase of $283,870, or 574%. Stock-based compensation consists of $140,244 and $21,489 of stock options expense incurred in the three months ended June 30, 2021 and 2020, respectively, and $193,080 of expense related to shares of common stock issued to officers and consultants in the current period for services rendered. Stock-based compensation increased as management accepted stock-based compensation in lieu of cash while the Company developed its freeze-dried food operations.
Professional services
Professional services were $60,694 for the 2021 period, compared to $111,872 for the 2020 period, a decrease of $51,178, or 46%. The decrease was primarily due to legal fees incurred in connection with our asset purchase agreement with S-FDF, LLC in the comparative period that were not necessary in the current period.
Other general and administrative expenses
Other general and administrative expenses for the three months ended June 30, 2021 was $424,263, compared to $50,229 for the three months ended June 30, 2020, an increase of $374,034, or 745%. The increase is primarily attributable to increased administrative infrastructure as we seek to scale the production and sales of our freeze-dried products.
Depreciation
Depreciation expense for the three months ended June 30, 2021 was $60,056, compared to $379 for the three months ended June 30, 2020, an increase of $59,677, or 15,746%. The increase is attributable to the addition of new equipment placed in service in 2020 and 2021.
Other income (expense)
In the three months ended June 30, 2021, other expense was $98,001, consisting of $1,222 of interest expense on operating loans from the EIDL program, and a $96,779 loss on investments in Allied Esports Entertainment, Inc. securities. During the comparative three months ended June 30, 2020, other income was $1,162,246, consisting of $4,007 of interest expense derived from the business loans the Company received from Cadence Bank, N.A and RBC Capital Markets, LLC and additional operating loans from the PPP and EIDL programs, and $363,645 of expense related to the amortization of warrants issued in consideration of personal guarantees provided for debt financing, along with a net gain on investments in Allied Esports Entertainment, Inc. securities of $1,529,896.
Net income (loss)
Net loss for the three months ended June 30, 2021 was $1,557,794, compared to net income of $716,782 during the three months ended June 30, 2020, an increased net loss of $2,274,576, or 317%. The increased net loss was due primarily to current costs associated with the development of our freeze-dried food operations, and our loss on investments in Allied Esports Entertainment, Inc. securities, compared to our prior period gain on investments.
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Results of Operations for the Six Months Ended June 30, 2021 and 2020.
The following table summarizes selected items from the statement of operations for the six months ended June 30, 2021 and 2020, respectively.
| Six Months Ended | ||||||||||||
| June 30, | Increase / | |||||||||||
| 2021 | 2020 | (Decrease) | ||||||||||
| Revenues | $ | 7,076 | $ | – | $ | 7,076 | ||||||
| Cost of goods sold | 4,899 | – | 4,899 | |||||||||
| Gross Profit | 2,177 | – | 2,177 | |||||||||
| Operating expenses: | ||||||||||||
| General and administrative expenses: | ||||||||||||
| Salaries and benefits | 964,886 | 453,254 | 511,632 | |||||||||
| Salaries and benefits, stock-based | 709,215 | 70,943 | 638,272 | |||||||||
| Professional services | 162,593 | 196,856 | (34,263 | ) | ||||||||
| Other general and administrative expenses | 711,084 | 141,379 | 569,705 | |||||||||
| Total general and administrative expenses | 2,547,778 | 862,432 | 1,685,346 | |||||||||
| Depreciation and amortization | 65,052 | 650 | 64,402 | |||||||||
| Total operating expenses | 2,612,830 | 863,082 | 1,749,748 | |||||||||
| Net operating loss | (2,610,653 | ) | (863,082 | ) | 1,747,571 | |||||||
| Other income (expense) | ||||||||||||
| Interest expense, including $363,645 of warrants issued as a debt discount for the three months ending June 30, 2020 | (2,734 | ) | (382,761 | ) | (380,027 | ) | ||||||
| Other income | – | 2 | (2 | ) | ||||||||
| Gain on early extinguishment of debt | 113,772 | – | 113,772 | |||||||||
| Gain (loss) on investment in Allied Esports Entertainment, Inc. securities | 133,944 | (682,956 | ) | 816,900 | ||||||||
| Total other income (expense) | 244,982 | (1,065,715 | ) | 1,310,697 | ||||||||
| Net loss | $ | (2,365,671 | ) | $ | (1,928,797 | ) | $ | 436,874 | ||||
Revenues
Revenues commenced during the six months ended June 30, 2021, which were generated by online sales of our freeze-dried foods products. These revenues were minimal, as we test launched our products. The Company did not earn any revenues during the comparative six months ended June 30, 2020. We anticipate increased revenues over the remainder of the year, although there can be no assurance.
Cost of Goods Sold
Cost of goods sold for the six months ended June 30, 2021 were $4,899, primarily consisting of material costs and labor on the sales of freeze-dried food products, resulting in a gross profit of approximately 31% during the quarter. The Company did not have any cost of goods sold during the comparative six months ended June 30, 2020.
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General and administrative expenses
Salaries and benefits
Salaries and benefits for the six months ended June 30, 2021 were $964,886, compared to $453,254 for the six months ended June 30, 2020, an increase of $511,632, or 113%. The increase in salaries and benefits was primarily due to increased operations as we developed our freeze-dried food operations.
Salaries and benefits, stock-based
Salaries and benefits, stock-based compensation expense for the six months ended June 30, 2021 was $709,215, compared to $70,943 for the six months ended June 30, 2020, an increase of $638,272, or 900%. Stock-based compensation consists of $261,465 and $70,943 of stock options expense incurred in the six months ended June 30, 2021 and 2020, respectively, and $447,750 of expense related to shares of common stock issued to officers and consultants in the current period for services rendered. Stock-based compensation increased as management accepted stock-based compensation in lieu of cash while the Company developed its freeze-dried food operations.
Professional services
Professional services were $162,593 for the 2021 period, compared to $196,856 for the 2020 period, a decrease of $34,263, or 17%. The decrease was primarily due to legal fees incurred in connection with our asset purchase agreement with S-FDF, LLC in the comparative period that were not necessary in the current period.
Other general and administrative expenses
Other general and administrative expenses for the six months ended June 30, 2021 was $711,084, compared to $141,379 for the six months ended June 30, 2020, an increase of $569,705, or 403%. The increase is primarily attributable to increased administrative infrastructure as we seek to scale the production and sales of our freeze-dried products.
Depreciation
Depreciation expense for the six months ended June 30, 2021 was $65,052, compared to $650 for the six months ended June 30, 2020, an increase of $64,402, or 9,908%. The increase is attributable to the addition of new equipment placed in service in 2020 and 2021.
Other income (expense)
In the six months ended June 30, 2021, other income was $244,982, consisting of a gain on investments in Allied Esports Entertainment, Inc. securities of $133,944 and a gain on early extinguishment of debt of $113,772 related to the forgiveness of the PPP loan, as offset by $2,734 of interest expense derived from the operating loans the Company received from the PPP and EIDL programs. During the comparative six months ended June 30, 2020, other expense was $1,065,715, consisting of $382,761 of interest expense derived from the business loans the Company received from Cadence Bank, N.A, RBC Capital Markets, LLC and additional operating loans from the PPP and EIDL programs, including $377,440 of expense related to the amortization of warrants issued in consideration of personal guarantees provided for debt financing, along with a net loss on investments in Allied Esports Entertainment, Inc. of $682,956, as offset by $2 of interest income.
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Net loss
Net loss for the six months ended June 30, 2021 was $2,365,671, compared to $1,928,797 during the six months ended June 30, 2020, an increase of $436,874, or 23%. The increased net loss was due primarily by increased stock-based compensation and costs associated with the development of our freeze-dried food operations, as partially offset by our gain on early extinguishment of debt and gain on investments in Allied Esports Entertainment, Inc. securities, compared to our prior period loss on investments.
Liquidity and Capital Resources
The following table summarizes our total current assets, liabilities and working capital at June 30, 2021 and December 31, 2020, respectively.
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Current Assets | $ | 4,656,438 | $ | 2,390,944 | ||||
| Current Liabilities | $ | 390,247 | $ | 622,791 | ||||
| Working Capital | $ | 4,266,191 | $ | 1,768,153 | ||||
As of June 30, 2021, we had working capital of $4,266,191.
The following table summarizes our cash flows during the six months ended June 30, 2021 and 2020, respectively.
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| Net cash used in operating activities | $ | (2,764,841 | ) | $ | (682,885 | ) | ||
| Net cash provided by (used in) investing activities | (390,643 | ) | 962,812 | |||||
| Net cash provided by financing activities | 4,997,136 | 262,925 | ||||||
| Net change in cash and cash equivalents | $ | 1,841,652 | $ | 542,852 | ||||
Net cash used in operating activities was $2,764,841 and $682,885 for the six months ended June 30, 2021 and 2020, respectively, a period over period increase of $2,081,956. The increase was primarily due to an increase of $717,403 in inventory purchases, as well as, increased costs as we moved our operations from Minnesota to Texas to develop our new freeze-dried food business.
Net cash used in investing activities were $390,643 for the six months ended June 30, 2021. Cash used in investing activities were comprised of $805,004 of fixed asset purchases, as partially offset by $414,361 of proceeds received from the sale of investments in Allied Esports Entertainment, Inc. securities during the six months ended June 30, 2021, as we built out our freeze-dried foods warehouse and equipment.
Net cash provided by financing activities was $4,997,136 and $262,925 for the six months ended June 30, 2021 and 2020, respectively. All of the 2021 activity was the result of the $4,997,136 we raised from the sale of an aggregate 631,250 shares of the Company’s common stock at $4.00 per share, and another 581,675 shares we sold at $4.25 per share, compared to $262,925 of net proceeds received and repayments on notes payable in the comparative six months ended June 30, 2020.
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Satisfaction of our cash obligations for the next 12 months
As of June 30, 2021, our balance of cash was $3,754,381 and we had total working capital of $4,266,191. Based on projections of cash expenditures in the Company’s current business plan, the cash on hand as of June 30, 2021 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. 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.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of financial conditions and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements required us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates.
Our critical accounting policies are more fully described in Note 2 of the footnotes to our financial statements appearing elsewhere in this Form 10-Q, and Note 2 of the footnotes to the financial statements provided in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item
ITEM 4. CONTROLS AND PROCEDURES.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
Our management, under the direction of our Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such terms are defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2021. As part of such evaluation, management considered the matters discussed below relating to internal control over financial reporting. Based on this evaluation our management, including the Company’s Chief Executive Officer and Chief Financial Officer, has concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2021 to ensure that the information required to be disclosed in our Exchange Act reports was recorded, processed, summarized and reported on a timely basis.
There have been no changes in the Company’s internal control over financial reporting during the six-month period ended June 30, 2021 that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Other than routine legal proceedings incident to our business, there are no material legal proceedings to which we are a party or to which any of our property is subject.
ITEM 1A. RISK FACTORS.
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The following issuances of our securities during the three-month period ended June 30, 2021 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.
Common Stock Issued for Services
On May 31, 2021, we issued 6,044 shares of common stock, restricted in accordance with Rule 144, to Ira Goldfarb, our Executive Chairman, for services rendered.
On May 31, 2021, we issued 5,541 shares of common stock, restricted in accordance with Rule 144, to Claudia Goldfarb, our Chief Executive Officer, for services rendered.
On May 25, 2021, we issued a total of 4,000 shares of common stock, restricted in accordance with Rule 144, for advisory board services among two newly appointed advisors.
On April 30, 2021, we issued 6,044 shares of common stock, restricted in accordance with Rule 144, to Ira Goldfarb, our Executive Chairman, for services rendered.
On April 30, 2021, we issued 5,541 shares of common stock, restricted in accordance with Rule 144, to Claudia Goldfarb, our Chief Executive Officer, for services rendered.
On April 6, 2021, we issued 6,044 shares of common stock, restricted in accordance with Rule 144, to Ira Goldfarb, our Executive Chairman, for services rendered.
On April 6, 2021, we issued 5,541 shares of common stock, restricted in accordance with Rule 144, to Claudia Goldfarb, our Chief Executive Officer, for services rendered.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
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ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
| Exhibit | Description | |
| 3.1 | Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Form 8-K filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on December 12, 2012) | |
| 3.2 | Bylaws (incorporated by reference to Exhibit 3.2 of the Form 8-K filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on December 12, 2012) | |
| 3.3 | Certificate of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the Form 8-K filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on February 21, 2020) | |
| 3.4 | Articles of Merger (incorporated by reference to Exhibit 3.01 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on January 22, 2021) | |
| 10.1 | Amended Employment Agreement, dated January 4, 2021, between Claudia Goldfarb and Sow Good Inc. (incorporated by reference to Exhibit 10.20 of the Form 10-K filed with the Securities and Exchange Commission by Sow Good Inc. on March 31, 2021) | |
| 10.2 | Amended Employment Agreement, dated January 4, 2021, between Claudia Goldfarb and Sow Good Inc. (incorporated by reference to Exhibit 10.21 of the Form 10-K filed with the Securities and Exchange Commission by Sow Good Inc. on March 31, 2021) | |
| 10.3 | Stock Purchase Agreement, dated February 5, 2021, by and among the Company and the Purchasers named therein (incorporated by reference to Exhibit 10.1 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on February 5, 2021) | |
| 10.4 | Amendment to 2020 Stock Incentive Plan adopted in October 2020 (incorporated by reference to Exhibit 10.4 of the Form 10-Q filed with the Securities and Exchange Commission by Sow Good Inc. on May 13, 2021) | |
| 10.5 | Amendment to 2020 Stock Incentive Plan adopted in January 2021 (incorporated by reference to Exhibit 10.4 of the Form 10-Q filed with the Securities and Exchange Commission by Sow Good Inc. on May 13, 2021) | |
| 10.6 | Amendment to 2020 Stock Incentive Plan adopted in March 2021 (incorporated by reference to Exhibit 10.4 of the Form 10-Q filed with the Securities and Exchange Commission by Sow Good Inc. on May 13, 2021) | |
| 10.7 | Stock Purchase Agreement, dated June 30, 2021, by and among the Company and the Purchasers named therein (incorporated by reference to Exhibit 10.1 of the Form 8-K filed with the Securities and Exchange Commission by Sow Good Inc. on July 7, 2021) | |
| 31.1* | Section 302 Certification of Chief Executive Officer | |
| 31.2* | Section 302 Certification of Chief Financial Officer | |
| 32.1* | Section 906 Certification of Chief Executive Officer | |
| 32.2* | Section 906 Certification of Chief Financial Officer | |
| 101.INS* | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104* | Cover Page Interactive Data File (formatted in IXBRL, and included in exhibit 101). |
*Filed herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SOW GOOD INC. | ||
| Dated: August 16, 2021 | By: | /s/ Claudia Goldfarb |
| Claudia Goldfarb, Chief Executive Officer (Principal Executive Officer) | ||
| By: | /s/ Brad Burke | |
| Chief Financial Officer (Principal Financial Officer) | ||
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