Sow Good Inc. 10-K

ITEM 1. BUSINESS Overview Effective January 21, 2021, we changed our name from Black Ridge Oil & Gas, Inc. to Sow Good Inc. (“SOWG,” “Sow Good,” or the “Company”). Our common stock is traded on the OTCQB under the trading symbol “SOWG”. The Company is focused on entering into the freeze-dried food products market. Sow Good is an emerging consumer products platform focused on manufacturing and marketing freeze-dried snacks, smoothies and soups. Sow Good will launch its line of freeze-dried snacks, smoothies and soups, and its direct-to-consumer focused website, to coincide with initial production from its state-of-the-art facility located in Irving, Texas. S-FDF Business Combination On October 1, 2020, the Company completed its acquisition of S-FDF, LLC (the "Seller"), a Texas limited liability company, pursuant to an Asset Purchase Agreement, between the Company and the Seller, dated June 9, 2020, as subsequently amended effective October 1, 2020. In connection with the closing of the Asset Purchase Agreement, the Company acquired approximately $2.2 million in cash and certain assets and agreements related to the Seller’s freeze-dried fruits and vegetables business for human consumption and entered into certain employment and registration rights agreements. The Company did not assume any liabilities of Seller or any liabilities, liens, or encumbrances pertaining to or encumbering the Purchased Assets, except for those related to agreements or arrangements specified in the Asset Purchase Agreement. The Seller transferred the Purchased Assets to the Company in exchange for the issuance of 1,120,000 shares of the Company’s common stock to the Seller. The number of Seller Shares to be issued was subject to adjustment, as specified in the Asset Purchase Agreement, as amended, based on the extent to which the amount of cash proceeds held by the Company, as derived from the sale of the Company’s holdings of Allied Esports Entertainment Inc. ("AESE") Shares, were less than $5 million or greater than $6 million on the date specified in the Asset Purchase Agreement, which resulted in the issuance of an additional 500,973 Seller Shares that were issued on January 4, 2021. The combined issuances represented approximately 46% of the Company’s issued and outstanding common stock, on a fully diluted basis. Black Ridge Oil & Gas, Inc. was determined to be the acquiror of the business combination. Pursuant to its obligations under the Asset Purchase Agreement, on the Closing Date the Company, (a) created three new seats on the Company’s Board of Directors and appointed the Seller’s principals, Ira Goldfarb and Claudia Goldfarb, and a third person designated by the Goldfarbs, Greg Creed, as directors, (b) entered into employment agreements with Ira Goldfarb and Claudia Goldfarb, (c) delivered a registration rights agreement with respect to the Seller Shares and any shares of common stock delivered as part of the employment compensation for Ira Goldfarb or Claudia Goldfarb, and (d) amended the Company’s 2020 Stock Incentive Plan to increase the number of shares of common stock reserved thereunder. At closing, the Company also assumed the Seller’s obligations under a real property lease for its facility in Irving, Texas under which an entity owned entirely by Ira Goldfarb is the landlord. BRAC Business Combination On October 10, 2017, the Company’s sponsored special purpose acquisition company, Black Ridge Acquisition Corp. (“BRAC”), completed an IPO raising $138,000,000 of gross proceeds (including proceeds from the exercise of an over-allotment option by the underwriters on October 18, 2017). In addition, the Company purchased 445,000 BRAC units at $10.00 per unit in a private placement transaction for a total contribution of $4,450,000 in order to fulfill its obligations in sponsoring BRAC, a blank check company formed for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities. BRAC’s efforts to identify a prospective target business were not limited to a particular industry or geographic region. Following the IPO and over-allotment, BROG owned 22% of the outstanding common stock of BRAC and managed BRAC’s operations via a management services agreement through December 31, 2019. On December 19, 2018, BRAC entered into a business combination agreement, which subsequently closed on August 9, 2019. BRAC was renamed Allied Esports Entertainment, Inc. following the merger, or “AESE”, and referred to herein, as such. 1 Going Concern Uncertainty As of December 31, 2020, the Company had a cash balance of $1,912,729 and total working capital of $1,768,153. Based on projections of cash expenditures in the Company’s current business plan, the cash on hand as of December 31, 2020 would be insufficient to sustain operations over the next year. On February 5, 2021, we raised $2.525 million from the sale of an aggregate 631,250 shares of the Company’s common stock at $4.00 per share, resulting in approximately $2.7 million of cash on hand and $650,000 of liquid securities for a combined liquidity of $3.35 million as of March 19, 2021. We continue to pursue sources of additional capital through various financing transactions or arrangements, equity or debt financing or other means. Our ability to scale production and distribution capabilities and further increase the value of our brands, is largely dependent on our success in raising additional capital. We may not be successful in identifying suitable funding transactions in a sufficient time period or at all, and we may not obtain the capital we require by other means. If we do not succeed in raising additional capital, our resources may not be sufficient to fund or expand our business. The Company’s current business plan projects the commencement of sales in the first half of 2021. We may be unable to obtain additional funding if we are unsuccessful in launching our products. The report of the Company’s independent registered public accounting firm that accompanies its audited financial statements in the Company’s Annual Report on Form 10-K contains an explanatory paragraph regarding the substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of the going concern uncertainty. Business We intend to launch our line of freeze-dried snacks, smoothies and soups, and our direct-to-consumer focused website, to coincide with initial production from our state-of-the-art facility located in Irving, Texas in the first half of 2021. Our business will operate under two distinct brands, Sow Good and Sustain Us. Our unique food products are targeting the large, and growing, freeze-dried food products market. The global freeze-dried food products market is estimated by Technavio to total nearly $60B in 2020, with the United States representing almost 30% of the total. Technavio further projects market growth to continue at over 8% per year through 2024. On March 20, 2021, our first freeze drier successfully completed its production testing. In addition, we completed the build-out of our production facility in March, and have finalized products and packaging, while delivering samples to potential B2B customers. With the extensive freeze-dried manufacturing and food product-focused business development experience of our senior management team, including recent additions, we believe we are well positioned to lead the Company's growth and development in the freeze-dried food industry. Principal Agreements Affecting Our Ordinary Business Our principal agreements for our continuing operations take the form of employment agreements, whereby our management is compensated through a variety of forms, including cash and equity . Employees We currently have seventeen full time employees. We may hire additional technical or administrative personnel as appropriate. We expect a significant change in the number of full-time employees over the next 12 months based upon our currently-projected business plan, as we commence production. We are using and will continue to use the services of independent consultants and contractors to perform various professional services for us or on behalf of our partners. We believe that this use of third-party service providers enhances our ability to contain general and administrative expenses. 2 Office Locations Our executive offices are located at 1440 N Union Bower Rd, Irving, TX 75061. Our office space is included in our production facility, which consists of approximately 20,945 square feet leased pursuant to a lease agreement through September 15, 2025, with two five-year options to extend, under which an entity owned entirely by Ira Goldfarb is the landlord . Financial Information about Segments and Geographic Areas We have not segregated our operations into segments or geographic areas. Available Information – Reports to Security Holders Our website address is www.thisissowgood.com. We still make available on our www.blackridgeoil.com website, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports after we electronically file those materials with, or furnish those materials to, the SEC, however, we expect to transition these to the new website in the near term. Electronic filings with the SEC are also available on the SEC internet website at www.sec.gov. We also post to our website our Audit Committee Charter and our Code of Ethics, in addition to all pertinent company contact information.