Sow Good Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OF SOW GOOD, INC. SOW GOOD, INC. (FORMERLY BLACK RIDGE OIL & GAS, INC.) FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 CONTENTS Report of Independent Registered Public Accounting Firm F-1 Balance Sheets as of December 31, 2020 and 2019 F-2 Statements of Operations for the years ended December 31, 2020 and 2019 F-3 Statement of Stockholders’ Equity for the years ended December 31, 2020 and 2019 F-4 Statements of Cash Flows for the years ended December 31, 2020 and 2019 F-5 Notes to the Financial Statements F-6 18 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Sow Good, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of Sow Good, Inc. (the Company) as of December 31, 2020 and 2019, and the related statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company suffered a net loss from operations and the cash on hand would be insufficient to fund the Company over the next year, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Business Combination, S-FDF As discussed in Note 4, the Company acquired S-FDF, LLC in an acquisition accounted for as a business combination, which required asset and liabilities assumed to be measured at their acquisition date fair values. Significant judgment is exercised by the Company in determining the fair value of assets acquired. Management engaged specialists, and the work of management’s specialists was used in performing the procedures to evaluate the reasonableness purchase price allocation. Given these factors and due to significant judgements made by management, the related audit effort in evaluating management's judgments in determining accounting for the business combination required a high degree of auditor judgment. As a basis for using this work, the specialists’ qualifications were understood and the Company’s relationship with the specialists was assessed. The procedures performed also included evaluation of the methods and assumptions used by the specialists, tests of the data used by the specialists and an evaluation of the specialists’ findings. We evaluated and tested the Company’s significant judgments that determine the recognition of goodwill. M&K CPAS, PLLC We have served as the Company’s auditor since 2010. Houston, TX March 31, 2021 F- 1 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) BALANCE SHEETS December 31, December 31, 2020 2019 ASSETS Current assets: Cash and cash equivalents $ 1,912,729 $ 108,756 Investment in Allied Esports Entertainment, Inc. 280,417 6,982,300 Receivable from Allied Esports Entertainment, Inc. – 505 Prepaid expenses 56,427 47,151 Inventory 141,371 – Total current assets 2,390,944 7,138,712 Property and equipment: Property and equipment 497,494 134,202 Less accumulated depreciation (2,612 ) (127,803 ) Construction in progress 1,639,690 – Total property and equipment, net 2,134,572 6,399 Security deposit 10,000 – Right-of-use asset 1,394,202 – Goodwill 6,411,327 – Total assets $ 12,341,045 $ 7,145,111 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 273,862 $ 35,727 Accounts payable, related party 51,253 – Accrued expenses 257,806 14,220 Deferred compensation – 1,396,460 Current portion of operating lease liabilities 39,870 – Total current liabilities 622,791 1,446,407 Operating lease liabilities 1,399,868 – Notes payable 262,925 – Total liabilities 2,285,584 1,446,407 Commitments and contingencies – – Stockholders' equity: Preferred stock, $0.001 par value, 20,000,000 shares authorized, no shares issued and outstanding – – Common stock, $0.001 par value, 500,000,000 shares authorized, 2,742,890 and 1,599,555 shares issued and outstanding at December 31, 2020 and 2019, respectively 2,743 1,600 Additional paid-in capital 44,748,859 37,054,503 Common stock payable, consisting of 535,729 shares at December 31, 2020 1,982,197 – Accumulated deficit (36,678,338 ) (31,357,399 ) Total stockholders' equity 10,055,461 5,698,704 Total liabilities and stockholders' equity $ 12,341,045 $ 7,145,111 The accompanying notes are an integral part of these financial statements. F- 2 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) STATEMENTS OF OPERATIONS For the Years Ended December 31, 2020 2019 Management fee income $ – $ 466,595 Operating expenses: General and administrative expenses: Salaries and benefits 1,477,124 1,172,745 Stock-based compensation 726,656 100,526 Deferred compensation – 1,396,460 Professional services 451,125 132,505 Other general and administrative expenses 350,875 259,968 Total general and administrative expenses 3,005,780 3,062,204 Depreciation and amortization 3,642 872 Total operating expenses 3,009,422 3,063,076 Net operating loss (3,009,422 ) (2,596,481 ) Other income (expense): Gain on deconsolidation of subsidiary – 20,448,687 Interest expense, including $377,440 of warrants issued as a debt discount for the year ended December 31, 2020 (386,164 ) – Other income 5,045 51 Loss on disposal of property and equipment (5,369 ) – Loss on investment in Allied Esports Entertainment, Inc. (1,925,029 ) (4,968,175 ) Total other income (expense) (2,311,517 ) 15,480,563 Net income (loss) before provision for income taxes (5,320,939 ) 12,884,082 Provision for income taxes – – Net income (loss) from continuing operations, net of tax (5,320,939 ) 12,884,082 Net loss from discontinued operations – (7,421,050 ) Net income (loss) before non-controlling interest (5,320,939 ) 5,463,032 Less net income attributable to redeemable non-controlling interest – (1,332,529 ) Net income (loss) attributable to Sow Good Inc. $ (5,320,939 ) $ 4,130,503 Weighted average common shares outstanding - basic 1,886,951 1,599,555 Weighted average common shares outstanding - fully diluted 1,886,951 1,600,417 Net income (loss) per common share - basic $ (2.82 ) $ 2.58 Net income (loss) per common share - fully diluted $ (2.82 ) $ 2.58 The accompanying notes are an integral part of these financial statements. F- 3 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) STATEMENT OF STOCKHOLDERS' EQUITY Common Stock Additional Paid-in Common Stock Accumulated Total Stockholders' Redeemable Non-controlling Shares Amount Capital Payable Deficit Equity Interest Balance, December 31, 2018 1,599,555 $ 1,600 $ 36,953,977 $ – $ (35,487,902 ) $ 1,467,675 $ 140,738,954 Common stock options granted for services to employees and directors – – 100,526 – – 100,526 – Non-controlling interest disposed in deconsolidation – – – – – – (142,071,483 ) Net income attributable to Sow Good, Inc. – – – – 4,130,503 4,130,503 1,332,529 Balance, December 31, 2019 1,599,555 $ 1,600 $ 37,054,503 $ – $ (31,357,399 ) $ 5,698,704 $ – Common stock issued for services to employees and directors 23,335 23 139,988 128,597 – 268,608 – Common stock issued for the purchase of S-FDF, LLC assets 1,120,000 1,120 6,718,880 1,853,600 – 8,573,600 – Common stock options granted for services to employees and directors – – 458,048 – – 458,048 – Common stock warrants granted to employees and directors for personal guaranty on debt – – 377,440 – – 377,440 – Net income attributable to Sow Good, Inc. – – – – (5,320,939 ) (5,320,939 ) – Balance, December 31, 2020 2,742,890 $ 2,743 $ 44,748,859 $ 1,982,197 $ (36,678,338 ) $ 10,055,461 $ – The accompanying notes are an integral part of these financial statements. F- 4 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) attributable to Sow Good Inc. $ (5,320,939 ) $ 4,130,503 Net loss from discontinued operations – 7,421,050 Net income attributable to redeemable non-controlling interest – 1,332,529 Adjustments to reconcile net loss attributable to Sow Good, Inc. to net cash used in operating activities: Gain on deconsolidation of subsidiary – (20,448,687 ) Depreciation and amortization 3,642 872 Loss on disposal of property and equipment 5,369 – Loss on investment in Allied Esports Entertainment, Inc. 2,123,688 4,968,175 Common stock issued to officers and directors for services 268,608 – Amortization of stock options 458,048 100,526 Amortization of stock warrants issued as a debt discount 377,440 – Deferred compensation – 1,396,460 Decrease (increase) in current assets: Accounts receivable – 13 Accounts receivable, related party 505 (505 ) Prepaid expenses 158,596 (4,466 ) Inventory (141,371 ) – Right-of-use asset 15,934 – Increase (decrease) in current liabilities: Accounts payable 152,275 3,789 Accrued expenses 164,119 8,529 Lease liabilities (9,323 ) – Net cash used in operating activities of continuing operations (1,743,409 ) (1,091,212 ) Net cash used in operating activities of discontinued operations – (8,618,568 ) Net cash used in operating activities (1,743,409 ) (9,709,780 ) CASH FLOWS FROM INVESTING ACTIVITIES Cash disposed in deconsolidation – (9,991,684 ) Cash received in business combination 1,154,459 – Purchase of property and equipment (257,626 ) (6,046 ) Cash paid for construction in progress (794,111 ) – Proceeds received from sale of investment in Allied Esports Entertainment, Inc. securities 3,181,735 – Net cash provided by (used in) investing activities of continuing operations 3,284,457 (9,997,730 ) Net cash provided by investing activities of discontinued operations – 16,880,792 Net cash provided by investing activities 3,284,457 6,883,062 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds received from notes payable 802,025 – Repayments on notes payable (539,100 ) – Net cash provided by financing activities from continuing operations 262,925 – Net cash provided by financing activities from discontinued operations – 1,431,974 Net cash provided by financing activities 262,925 1,431,974 NET CHANGE IN CASH AND CASH EQUIVALENTS 1,803,973 (1,394,744 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 108,756 1,503,500 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,912,729 $ 108,756 SUPPLEMENTAL INFORMATION: Interest paid $ 4,895 $ – Income taxes paid $ – $ – NON-CASH INVESTING AND FINANCING ACTIVITIES: Value of debt discounts attributable to warrants $ 377,440 $ – Value of investment in securities distributed to board members and employees $ 1,133,281 $ – Fair value of net assets acquired in business combination $ 2,162,273 $ – Fair value of common stock paid in business combination $ 8,573,600 $ – Recognition of subsidiary equity upon deconsolidation $ – $ 8,498,212 Non-cash investing and financing activities in discontinued operations $ – $ 229,914,415 The accompanying notes are an integral part of these financial statements. F- 5 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) NOTES TO THE FINANCIAL STATEMENTS Note 1 – Organization and Nature of Business Effective January 21, 2021, we changed our name from Black Ridge Oil & Gas, Inc. to Sow Good Inc. (“SOWG,” “Sow Good,” or the “Company”). Our common stock is traded on the OTCQB under the trading symbol “SOWG”. At that time, o ur common stock started to be quoted on the OTCQB under the trading symbol “SOWG”, from the former trading symbol “ANFC”. Prior to April 2, 2012, the Company name was Ante5, Inc., which became an independent company in April 2010. We became a publicly traded company when our shares began trading on July 1, 2010. From October 2010 through August 2019, we had been engaged in the business of acquiring oil and gas leases and participating in the drilling of wells in the Bakken and Three Forks trends in North Dakota and Montana and /or managing similar assets for third parties. On September 26, 2017, the Company finalized an equity raise utilizing a rights offering and backstop agreement, raising net proceeds of $5,051,675 and issuing 1,439,400 shares. The proceeds were used to sponsor a special purpose acquisition company, discussed below, with the remainder for general corporate purposes. On October 10, 2017, the Company’s sponsored special purpose acquisition company, Black Ridge Acquisition Corp. (“BRAC”), completed an IPO raising $138,000,000 of gross proceeds (including proceeds from the exercise of an over-allotment option by the underwriters on October 18, 2017). In addition, the Company purchased 445,000 BRAC units at $10.00 per unit in a private placement transaction for a total contribution of $4,450,000 in order to fulfill its obligations in sponsoring BRAC, a blank check company formed for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities. BRAC’s efforts to identify a prospective target business were not limited to a particular industry or geographic region. Following the IPO and over-allotment, BROG owned 22% of the outstanding common stock of BRAC and managed BRAC’s operations via a management services agreement. On December 19, 2018, BRAC entered into a business combination agreement, which subsequently closed on August 9, 2019. On October 1, 2020, the Company completed its acquisition of S-FDF, LLC pursuant to an Asset Purchase Agreement. In connection with the closing of the Asset Purchase Agreement, the Company acquired approximately $2.2 million in cash and certain assets and agreements related to the Seller’s freeze-dried fruits and vegetables business for human consumption and entered into certain employment and registration rights agreements. As of December 31, 2020, the Company owned 177,479 shares of Allied Esports Entertainment, Inc. (NASDAQ: AESE), the surviving entity after BRAC’s business combination (“Sponsor Shares”), after selling 1,970,920 shares for total net proceeds of $3,108,067, selling warrants to purchase 505,000 shares of AESE (NASDAQ: AESEW) (“Sponsor Warrants”) for total proceeds of $73,668, and distributing 537,101 Sponsor Shares on August 9, 2020 to employees and directors under the 2018 Management Incentive Plan, dated March 6, 2018. Note 2 – Summary of Significant Accounting Policies Basis of Accounting The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (SEC). All references to Generally Accepted Accounting Principles (“GAAP”) are in accordance with The FASB Accounting Standards Codification (“ASC”) and the Hierarchy of Generally Accepted Accounting Principles. Reclassifications In the prior year, the income, expense and cash flows from Black Ridge Acquisition Corp., a wholly-owned subsidiary formed on October 10, 2017, which was consolidated as a variable interest entity through August 9, 2019, the date that BRAC completed a business combination with Allied Esports Entertainment, Inc. (“AESE”), were consolidated and have been retrospectively classified as discontinued operations. In addition, prior period investment in Allied Esports Entertainment, Inc. securities of $6,982,300 were reclassified from long term assets to current assets to conform to management’s intent and ability to liquidate the asset. F- 6 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) NOTES TO THE FINANCIAL STATEMENTS Segment Reporting FASB ASC 280-10-50 requires annual and interim reporting for an enterprise’s operating segments and related disclosures about its products, services, geographic areas and major customers. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and expenses, and about which separate financial information is regularly evaluated by the chief operating decision maker in deciding how to allocate resources. The Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Environmental Liabilities The Company was formerly a direct owner of assets in the oil and gas industry. The oil and gas industry is subject, by its nature, to environmental hazards and clean-up costs. At this time, management knows of no substantial losses from environmental accidents or events which would have a material effect on the Company. Cash and Cash Equivalents Cash equivalents include money market accounts which have maturities of three months or less. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. Cash equivalents are stated at cost plus accrued interest, which approximates market value. There were no cash equivalents on hand at December 31, 2020 and 2019. Cash in Excess of FDIC Insured Limits The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) and the Securities Investor Protection Corporation (SIPC) up to $250,000 and $500,000, respectively, under current regulations. The Company had approximately $1,311,464 and $-0- in excess of FDIC and SIPC insured limits at December 31, 2020 and 2019, respectively. The Company has not experienced any losses in such accounts. Fair Value of Financial Instruments Under FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts payable and accrued expenses reported on the balance sheets are estimated by management to approximate fair value primarily due to the short-term nature of the instruments. The Company had no items that required fair value measurement on a recurring basis. Property and Equipment Property and equipment are stated at the lower of cost or estimated net recoverable amount. The cost of property, plant and equipment is depreciated using the straight-line method based on the lesser of the estimated useful lives of the assets or the lease term based on the following life expectancy: Software 3 years, or over the life of the agreement Office equipment 5 years Furniture and fixtures 5 years Machinery and equipment 7-10 years Intangible assets Indefinite Leasehold improvements Fully extended lease-term Repairs and maintenance expenditures are charged to operations as incurred. Major improvements and replacements, which extend the useful life of an asset, are capitalized and depreciated over the remaining estimated useful life of the asset. When assets are retired or sold, the cost and related accumulated depreciation and amortization are eliminated and any resulting gain or loss is reflected in operations. Depreciation expense was $3,642 and $872 for the years ended December 31, 2020 and 2019, respectively. F- 7 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) NOTES TO THE FINANCIAL STATEMENTS Impairment of Long-Lived Assets Long-lived assets held and used by the Company are reviewed for possible impairment whenever events or circumstances indicate the carrying amount of an asset may not be recoverable or is impaired. Recoverability is assessed using undiscounted cash flows based upon historical results and current projections of earnings before interest and taxes. Impairment is measured using discounted cash flows of future operating results based upon a rate that corresponds to the cost of capital. Impairments are recognized in operating results to the extent that carrying value exceeds discounted cash flows of future operations. Our intellectual property is comprised of indefinite-lived brand names acquired and have been assigned an indefinite life as we currently anticipate that these brand names will contribute cash flows to the Company perpetually. We evaluate the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired. Inventory Inventory, consisting of raw materials, material overhead, labor, and manufacturing overhead, are stated at the lower of cost (first-in, first-out) or net realizable value and consist of the following: December 31, December 31, 2020 2019 Raw materials $ 141,371 $ – No reserve for obsolete inventories has been recognized, and we have not yet commenced production. Goodwill The Company evaluates goodwill on an annual basis in the fourth quarter or more frequently if management believes indicators of impairment exist. Such indicators could include, but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, management conducts a quantitative goodwill impairment test. The impairment test involves comparing the fair value of the applicable reporting unit with its carrying value. The Company estimates the fair values of its reporting units using a combination of the income, or discounted cash flows, approach and the market approach, which utilizes comparable companies’ data. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The Company’s evaluation of goodwill completed during the year resulted in no impairment losses. Revenue Recognition The Company will recognize revenue in accordance with ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company will recognize revenue from the sale of its freeze-dried food products once operations commence, in accordance with a five-step model in which the Company will evaluate the transfer of promised goods or services and recognize revenue when customers obtain control of promised goods or services in an amount that reflects the consideration which the Company expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of ASC 606, the Company will perform the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The Company has elected, as a practical expedient, to account for the shipping and handling as fulfillment costs, rather than as a separate performance obligation. Revenue will be reported net of applicable provisions for discounts, returns and allowances. Methodologies for determining these provisions will be dependent on customer pricing and promotional practices. The Company will record reductions to revenue for estimated product returns and pricing adjustments in the same period that the related revenue is recorded. These estimates will be based on industry-based historical data, historical sales returns, if any, analysis of credit memo data, and other factors known at the time. The Company recognized management fee income as services were provided in 2019. F- 8 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) NOTES TO THE FINANCIAL STATEMENTS Revenue Concentration All of the Company’s revenue earned came from management fees earned through its management services agreement with BRAC, which ceased as of December 31, 2019. Basic and Diluted Earnings (Loss) Per Share Basic earnings (loss) per share (“EPS”) 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 years ended December 31, 2020 and 2019 are as follows: Years Ended December 31, 2020 2019 Weighted average common shares outstanding – basic 1,886,951 1,599,555 Plus: Potentially dilutive common shares: Stock options and warrants – 862 Weighted average common shares outstanding – diluted 1,886,951 1,600,417 For 2020 and 2019, 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 565,824 and 34,204 of December 31, 2020 and 2019, respectively. Stock-Based Compensation Under FASB ASC 718-10-30-2, all share-based payments to employees, including grants of employee stock options, are to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The Company recognized $268,608 of stock-based compensation for the issuance of shares of common stock for services in 2020. Amortization of the fair values of stock options issued for services and compensation totaled $458,048 and $100,526 for the years ended December 31, 2020 and 2019, respectively. The fair values of stock options were determined 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 and are being amortized over the related implied service term, or vesting period. In addition, $377,440 of expenses related to the amortization of warrants issued in consideration of personal guarantees provided for debt financing, using the Black-Scholes options pricing model and an effective term of 5 years based on the weighted average of the vesting periods and the stated term of the warrant grants and the discount rate on 5 year U.S. Treasury securities at the grant date were recognized as interest expense for the year ended December 31, 2020. 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 108”) 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. F- 9 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) NOTES TO THE FINANCIAL STATEMENTS 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 July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases . The amendments in ASU 2018-10 provide additional clarification and implementation guidance on certain aspects of the previously issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) and have the same effective and transition requirements as ASU 2016-02. Upon the effective date, ASU 2018-10 will supersede the current lease guidance in ASC Topic 840, Leases. Under the new guidance, lessees will be required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees will be required to recognize a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2018-10 is effective for private companies and emerging growth public companies for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. The Company adopted this guidance effective January 1, 2019, and the standard did not have a material impact on the Company’s financial statements and related disclosures until the closing of the asset purchase with S-FDF, LLC on October 1, 2020. Note 3 – Going Concern As shown in the accompanying financial statements, as of December 31, 2020, the Company had a cash balance of $1,912,729 and working capital of $1,768,153. The Company has no revenue source presently. Based on projections of cash expenditures in the Company’s current business plan, the cash on hand would be insufficient to sustain operations over the next year. On February 5, 2021, we raised $2.525 million from the sale of an aggregate 631,250 shares of the Company’s common stock at $4.00 per share, resulting in approximately $2.7 million of cash on hand and $650,000 of liquid securities for a combined liquidity of $3.35 million as of March 19, 2021. The Company continues to pursue sources of additional capital through debt and financing transactions or arrangements, including equity financing or other means. We may not be successful in identifying suitable funding transactions in a sufficient time period or at all, and we may not obtain the capital we require by other means. If we do not succeed in raising additional capital, our resources may not be sufficient to fund our business. Our ability to scale production and distribution capabilities and further increase the value of our brands, is largely dependent on our success in raising additional capital. The 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. These 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. F- 10 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) NOTES TO THE FINANCIAL STATEMENTS 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 $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. This acquisition was accounted for as a business combination under the purchase method of accounting. The purchase resulted in the recognition of $6,411,327 of goodwill, which is evaluated annually for impairment, unless circumstances change that require an earlier determination. According to the purchase method of accounting, the Company recognized the identifiable assets acquired and liabilities assumed as follows: October 1, 2020 Consideration: Fair value of 1,620,973 shares of common stock $ 8,573,600 Liabilities assumed: Accounts payable 137,113 Accrued expenses 79,467 Lease liabilities 1,449,061 Total consideration $ 10,239,241 Fair value of identifiable assets acquired assumed: Cash $ 1,154,459 Other receivables 17,348 Prepaid expenses 150,524 Property and equipment 239,868 Construction in progress 845,579 Security deposit 10,000 Right-of-use asset 1,410,136 Total fair value of assets assumed 3,827,914 Consideration paid in excess of fair value (Goodwill) (1) $ 6,411,327 ___________ (1) The consideration paid in excess of the net fair value of assets acquired and liabilities assumed was recognized as goodwill. The book value of the net assets acquired was determined to represent the fair market value, and no additional intangible assets were evidenced. F- 11 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) NOTES TO THE FINANCIAL STATEMENTS 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 Years Ended December 31, 2020 2019 (2) (Unaudited) (Unaudited) Revenues $ – $ 466,595 Net operating loss $ (3,346,407 ) $ (2,596,481 ) Net income (loss) $ (5,657,924 ) $ 4,130,503 Weighted average common shares outstanding - basic 3,507,924 3,220,528 Weighted average common shares outstanding - fully diluted 3,507,924 3,221,390 Net income (loss) per common share - basic $ (1.61 ) $ 1.28 Net income (loss) per common share - fully diluted $ (1.61 ) $ 1.28 (2) S-FDF, LLC was formed on May 4, 2020, therefore pro forma operation for 2019 are identical to the Company’s actual results, other than the basic and fully diluted net income per share amounts . Note 5 – BRAC’s IPO, Consolidation of BRAC and Non-controlling Interest BRAC’s IPO The registration statement for the BRAC’s IPO was declared effective on October 4, 2017. The registration statement was initially declared effective for 10,000,000 units (“Units” and, with respect to the common stock included in the Units being offered, the “Public Shares”), but the offering was increased to 12,000,000 Units pursuant to Rule 462(b) under the Securities Act of 1933, as amended. On October 10, 2017, the Company consummated the Initial Public Offering of 12,000,000 units, generating gross proceeds of $120,000,000. Simultaneous with the closing of the IPO, BRAC sold 400,000 units (the “Placement Units”) at a price of $10.00 per Unit in a private placement to BROG, generating gross proceeds of $4,000,000. BROG’s investment in BRAC’s common stock was eliminated in consolidation prior to the BRAC’s merger on August 9, 2019. Transaction costs relating to the IPO amounted to $2,882,226, consisting of $2,400,000 of underwriting fees and $482,226 of other costs. Following the closing of the IPO on October 10, 2017, an amount of $120,600,000 ($10.05 per Unit) from the net proceeds of the sale of the Units in the IPO and the Placement Units was placed in a trust account (“Trust Account”) and invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund selected by BRAC meeting the conditions of paragraphs (d)(2), (d)(3) and (d)(4) of Rule 2a-7 of the Investment Company Act, as determined by BRAC, until the earlier of: (i) the consummation of a Business Combination or (ii) the distribution of the Trust Account, as described below. On October 18, 2017, in connection with the underwriters’ exercise of their over-allotment option in full, BRAC sold an additional 1,800,000 Units and sold an additional 45,000 Placement Units to BROG at $10.00 per Unit, generating total proceeds of $18,450,000. Transaction costs for underwriting fees on the sale of the over-allotment units were $360,000. Following the closing, an additional $18,090,000 of the net proceeds ($10.05 per Unit) was placed in the Trust Account, bringing the total aggregate proceeds held in the Trust Account to $138,690,000 ($10.05 per Unit). BROG’s investment in BRAC’s common stock was eliminated in consolidation prior to the BRAC’s merger on August 9, 2019. Upon the closing of the IPO, $10.05 per Unit sold in the IPO, including some of the proceeds of the Private Placements was deposited in a trust account (“Trust Account”) to be held until the earlier of (i) the consummation of its initial Business Combination or (ii) BRAC’s failure to consummate a Business Combination within 21 months from the consummation of the IPO (the “Combination Period”). F- 12 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) NOTES TO THE FINANCIAL STATEMENTS The Extension Meeting On July 9, 2019, BRAC held a special meeting of its stockholders (the “Meeting”). At the Meeting, BRAC’s stockholders considered a proposal to adopt and approve an amendment to BRAC’s amended and restated certificate of incorporation (the “Charter”) to extend the date that BRAC had to consummate a business combination (the “Extension”) to August 10, 2019. The amendment was approved by the stockholders and filed with the Secretary of State of the State of Delaware on July 9, 2019. In connection with this vote, the holders of 9,246,727 shares of BRAC’s common stock properly exercised their right to convert their shares into cash at a conversion price of approximately $10.29 per share resulting in $95,125,574 in Trust Account assets being distributed back to shareholders. In connection with the Extension, BROG loaned $30,000 to BRAC to be placed in the Trust Account for the benefit of the public shares that were not converted. The loan was non-interest bearing and evidenced by a promissory note issued by BRAC on the same date. The loan was repaid on August 12, 2019. Business Combination Agreement On December 19, 2018, BRAC entered into the Business Combination Agreement with Merger Sub, Allied Esports, Ourgame, Noble and Primo. The Business Combination Agreement was amended on August 5, 2019 and the Business Combination Agreement as amended is referred to as the Amended Business Combination Agreement. The merger closed on August 9, 2019 (the “Closing Date”). Subject to the Amended Business Combination Agreement, (i) Noble merged with and into Allied Esports (the “Redomestication Merger”) with Allied Esports being the surviving entity in such merger and (ii) immediately after the Redomestication Merger, Merger Sub merged with into Allied Esports with Allied Esports being the surviving entity of such merger (the “Transaction Merger” and together with the Redomestication Merger, the “Mergers”). The Mergers resulted in BRAC acquiring two of Ourgame’s global esports and entertainment assets, Allied Esports and WPT. Allied Esports is a premier esports entertainment company with a global network of dedicated esports properties and content production facilities. WPT is the creator of the World Poker Tour® (WPT®) – the premier name in internationally televised gaming and entertainment with brand presence in land-based tournaments, television, online and mobile. The transactions strategically combined the globally recognized Allied Esports brand with the three-pronged business model of the iconic World Poker Tour, featuring in-person experiences, multiplatform content and interactive services, to leverage the high-growth opportunities in the global esports industry. The Business Combination Agreement, which original called for a debt repayment to Ourgame of $35,000,000 was amended to call for BRAC to (i) assume $10,000,000 of the debt obligations of Ourgame and Noble (including an additional $1,200,000 of accrued interest) and (ii) repay Ourgame the remaining balance of $23,800,000 by paying $3,500,000 in cash to Ourgame and its designees, issuing to Ourgame and its designees 2,928,679 shares of BRAC’s common stock and Ourgame retaining $1,000,000 of the proceeds of such loans to pay its transaction expenses incurred in the Merger. In connection with entering into the Amendment, BROG, as BRAC’s founder, agreed to transfer an aggregate of 600,000 shares of BRAC’s common stock held by it to Ourgame. Additionally, In July and August 2019, BRAC and BROG entered into several share purchase agreements (the “Purchase Agreements”) with several parties (collectively referred to as the “Purchasers”). Pursuant to the Purchase Agreements, the Purchasers agreed to purchase an aggregate of $18,000,000 of shares of BRAC’s common stock in open market or privately negotiated transactions. If the Purchasers were unable to purchase the full $18,000,000 of shares of common stock in open market or privately negotiated transactions, BRAC will issue to the Purchasers newly issued shares at the Closing at a per-share price equal to the per-share amount held in BRAC’s trust account ($10.30 per share), and having an aggregate value equal to the difference between $18,000,000 and the dollar amount of shares purchased by them in the open market or in privately negotiated transactions. At the Closing, BRAC agreed to issue to the Purchasers 1.5 shares of common stock for every 10 shares purchased by them under the Purchase Agreements. Additionally, BROG agreed to transfer an aggregate of 720,000 shares held by it of BRAC common stock to the Purchasers. Pursuant to the Purchase Agreements, BRAC is required to file a registration statement with the SEC as promptly as practicable following the closing of the merger to register the resale of any securities purchased by the Purchasers that are not already registered and cause such registration statement to become effective as soon as possible. The Purchasers included a $3 million investment from Lyle Berman, a member of the board of directors of both BRAC and BROG and the largest shareholder of BROG. Additionally, $5 million will be held in an escrow account and its usage will be limited to specific capital projects. Consummation of the transactions contemplated by the Amended Business Combination Agreement was subject to certain closing conditions including, among others, (i) approval by the stockholders of BRAC, and (ii) that BRAC have available cash in an amount not less than $22,000,000 after payment to stockholders who elect to redeem their shares of common stock in accordance with the provisions of BRAC’s charter documents. This second condition was waived by Ourgame prior to the close. F- 13 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) NOTES TO THE FINANCIAL STATEMENTS Consolidation of BRAC and Non-controlling Interest The Company determined that BRAC, following its IPO, was a VIE and that the Company is the primary beneficiary of the VIE. The Company determined that, due to the redemption feature associated with the IPO shares, that the IPO shareholders are indirectly protected from the operating expenses of BRAC and BROG had the power to direct the activities of BRAC through the date at which BRAC affords the stockholders the opportunity to vote to approve a proposed business combination. Therefore, the consolidated financial statements contain the operations of the BRAC from its inception on May 9, 2017 through the date of the merger, when BRAC was determined to no longer be a VIE. BRAC’s IPO shareholders are reflected in our Consolidated Financial Statements as a redeemable non-controlling interest prior to the merger. The non-controlling interest was recorded at fair value on October 10, 2017, with an addition on October 18, 2017 as a result of the underwriters’ exercise of their over-allotment option. During the period in which BRAC was consolidated, the net earnings attributable to the IPO shareholders are subtracted from the net gain (loss) for any period to arrive at the net loss attributable to the Company and the non-controlling interest on the balance sheet is adjusted to include the net earnings attributable to the IPO shareholders. Deconsolidation of BRAC Additionally, US GAAP (ASC 810-10-40) provides guidance on “Derecognition” of a previously consolidated entity or entities. Under this guidance, the Company shall account for the deconsolidation of a subsidiary or derecognition of a group of assets specified in ASC 810-10-40-3A by recognizing a gain or loss in net income attributable to the parent, measured as the difference between the combination of: a) The fair value of: · any consideration received. In this case, the Company received no consideration. · any retained non-controlling investment in the former subsidiary or group of assets at the date the subsidiary is deconsolidated, or the group of assets is derecognized. In this case the fair value of the BRAC common stock at the close of the business combination was $11,950,475, and; b) The carrying amount of the former subsidiaries assets and liabilities or the carrying amount of the group of assets. With the above guidance the Company determined that the effect of the deconsolidation of BRAC produced a non-cash adjustment, resulting in a gain of $20,448,687. Intercompany Transactions and Eliminations BROG was paid a management fee by AESE of $10,000 per month as part of an administrative services agreement, which commenced October 5, 2017 and ended on the date of the merger, for general and administrative services including the cost of office space and personnel dedicated to AESE. BROG was also reimbursed for any out-of-pocket expenses, particularly travel, incurred in connection with activities on AESE’s behalf, including but not limited to identifying potential target businesses and performing due diligence on suitable business combinations. AESE paid a total of $72,903 to BROG for such services in 2019, prior to the merger and while AESE remained a VIE and was consolidated and included in our loss on discontinued operations. The management services income of BROG and the management services expense of AESE as well as any balances due between the companies for such services or reimbursements were eliminated in consolidation. Management fees earned by BROG of $466,595 subject to the management services agreement between AESE and BROG in effect subsequent to the merger were not eliminated. F- 14 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) NOTES TO THE FINANCIAL STATEMENTS Note 6 – Related Party Common Stock Awarded Pursuant to Business Combination On October 1, 2020, the Company issued 1,120,000 shares of common stock to S-FDF, LLC, a Texas limited liability company co-owned by Claudia and Ira Goldfarb, pursuant to an Asset Purchase Agreement, between the Company and the Seller. The issuance represented 41.18% of the Company’s issued and outstanding common stock at the time. The fair value of the common stock was $6,720,000 based on the closing price of the Company’s common stock on the date of grant. The number of Seller Shares to be issued was subject to adjustment, as specified in the amended Asset Purchase Agreement, 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. This resulted in 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. The fair value of the 500,673 shares was $1,853,600, based on the closing price of the Company’s common stock on the date of grant, was presented as Common Stock Payable as of December 31, 2020. Common Stock Issued to Officers for Services, Common Stock Payable On January 4, 2021, the Board amended Claudia and Ira Goldfarb’s employment agreements to issue shares of common stock in equal monthly increments of 5,541 and 6,044 shares, respectively, following each month of employment from October 2020 through December 31, 2021. The Company awarded an aggregate 16,623 and 18,133 shares of common stock to Claudia and Ira, respectively, for their services from October through December 31, 2020 as a common stock payable. The aggregate fair value of the shares was $61,505 and $67,092 for Claudia and Ira, respectively, based on the closing price of the Company’s common stock on the date of grant , was presented as Common Stock Payable as of December 31, 2020 . The shares were subsequently issued on January 4, 2021. Common Stock Issued to Directors for Services On October 1, 2020, the Company issued an aggregate 20,835 shares of common stock amongst its five Directors for annual services to be rendered. The aggregate fair value of the common stock was $125,010, based on the closing price of the Company’s common stock on the date of grant. The shares were expensed upon issuance. On October 1, 2020, the Company issued an additional 2 ,500 shares to Mr. Benjamin Oehler, for Audit Committee Chair services. The fair value of the common stock was $15,000, based on the closing price of the Company’s common stock on the date of grant. The shares were expensed upon issuance. Management Incentive Plan On March 1, 2018, the Board of Directors (the “Board”) of the Company approved and adopted the Black Ridge Gas, Inc. 2018 Management Incentive Plan (the “Plan”) and the form of 2018 Management Incentive Plan Award Agreement (the “Award Agreement”). In connection with the approval of the Plan and Award Agreement, the Board approved the issuance of awards (the “Awards”) to certain individuals including officers and directors (the “Grantees”), representing a percentage of the shares of BRAC held by the Company as of the date of closing of a business combination for the acquisition of a target business as described in the BRAC prospectus dated October 4, 2017, as follows: Percentage of BRAC Shares Owned by the Name Company Granted to the Grantee Bradley Berman 1.6% Lyle Berman 1.6% Benjamin Oehler 1.6% Joe Lahti 1.6% Kenneth DeCubellis 4.0% Michael Eisele 2.8% James Moe 2.1% F- 15 Following the AESE merger on August 9, 2019, the Company owned 2,685,500 shares of AESE common stock and 505,000 warrants to purchase AESE (NASDAQ: AESEW). During the year ended December 31, 2020, the Company sold some of these securities, resulting in gross proceeds of $3,181,735, consisting of 1,970,920 shares of common stock for total proceeds of $3,108,067, and the sale of warrants to purchase 505,000 shares for total proceeds of $73,668. The Company also distributed 537,101 Sponsor Shares on August 9, 2020 to employees and directors under the 2018 Management Incentive Plan. Employees and directors were required to remain in their positions for a one-year period from the AESE merger, with certain exceptions, to receive the granted shares. The AESE Plan Shares had a fair market value of $1,133,281 on August 10, 2020, when the shares were distributed. The Company recognized $1,396,460 of compensation expense related to the Plan during the year ended December 31, 2019. 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. Shares Transferred to Purchasers of BRAC Common Stock As presented in Note 5, in July and August 2019, BRAC and BROG entered into several share purchase agreements (the “Purchase Agreements”) with several parties (collectively referred to as the “Purchasers”). Pursuant to the Purchase Agreements, the Purchasers agreed to purchase an aggregate of $18,000,000 of shares of BRAC’s common stock in open market or privately negotiated transactions. If the Purchasers were unable to purchase the full $18,000,000 of shares of common stock in open market or privately negotiated transactions, BRAC will issue to the Purchasers newly issued shares at the Closing at a per-share price equal to the per-share amount held in BRAC’s trust account ($10.30 per share), and having an aggregate value equal to the difference between $18,000,000 and the dollar amount of shares purchased by them in the open market or in privately negotiated transactions. At the Closing, BRAC agreed to issue to the Purchasers 1.5 shares of common stock for every 10 shares purchased by them under the Purchase Agreements. Additionally, the Company agreed to transfer an aggregate of 720,000 shares held by it of BRAC common stock to the Purchasers. The Purchasers included a $3 million investment from Lyle Berman, a member of the board of directors of both BRAC and BROG and the largest shareholder of BROG. Mr. Berman received 43,800 bonus shares of BRAC common stock issued by BRAC and 120,000 shares of BRAC common stock transferred from the Company. Note 7 – Fair Value of Financial Instruments 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. 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. F- 16 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) NOTES TO THE FINANCIAL STATEMENTS The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balances sheet as of December 31,2020 and 2019: Fair Value Measurements at December 31, 2020 Level 1 Level 2 Level 3 Assets Cash and cash equivalents $ 1,912,729 $ – $ – Investment in Allied Esports Entertainment, Inc. 280,417 – – Goodwill 6,411,327 – – Total assets 8,604,473 – – Liabilities Notes payable – 262,925 – Total liabilities – 262,925 – $ 8,604,473 $ (262,925 ) $ – Fair Value Measurements at December 31, 2019 Level 1 Level 2 Level 3 Assets Cash and cash equivalents $ 108,756 $ – $ – Investment in Allied Esports Entertainment, Inc. 6,982,300 – – Total assets 7,091,056 – – Liabilities None – – – Total liabilities – – – $ 7,091,056 $ – $ – There were no transfers of financial assets or liabilities between Level 1 and Level 2 inputs for the years ended December 31, 2020 and 2019. Note 8 – Prepaid Expenses Prepaid expenses consist of the following: December 31, 2020 2019 Prepaid software licenses $ 26,853 $ – Prepaid insurance costs 11,325 21,090 Prepaid employee benefits 8,082 11,587 Prepaid office and other costs 10,167 14,474 Total prepaid expenses $ 56,427 $ 47,151 F- 17 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) NOTES TO THE FINANCIAL STATEMENTS Note 9 – Property and Equipment Property and equipment at December 31, 2020 and 2019, consisted of the following: December 31, December 31, 2020 2019 Office equipment $ 5,042 $ 134,202 Machinery 183,680 – Software 49,000 – Website 259,772 – Construction in progress 1,639,690 – 2,137,184 134,202 Less: Accumulated depreciation and amortization (2,612 ) (127,803 ) Total property and equipment, net $ 2,134,572 $ 6,399 Construction in progress consists of costs incurred to build out our manufacturing facility in Irving Texas, along with the construction of our freeze driers. These costs will be 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 $5,369, which represented the net book value at the time of disposal. Depreciation of property and equipment was $3,642 and $872 for the years ended December 31, 2020 and 2019, respectively. Note 10 – Investment in Allied Esports Entertainment, Inc. Following the close of BRAC’s merger, the Company retained 2,685,500 shares of AESE common stock with a value, based on the closing stock of $4.45 on the merger, of $11,950,475, and tradeable warrants to purchase 505,000 shares of AESE (NASDAQ: AESEW) (“Sponsor Warrants”), of which the Company still owned 177,479 shares as of December 31, 2020, after selling 1,970,920 shares for total net proceeds of $3,108,067, selling warrants to purchase 505,000 Sponsor Warrants for total proceeds of $73,668, and distributing 537,101 Sponsor Shares on August 10, 2020 to employees and directors under the 2018 Management Incentive Plan. As noted above, in Note 6 - Related Party Transactions, 20% or 537,101, of the shares were released to employees on August 10, 2020. Therefore, the Company recorded compensation expense and recorded a deferred compensation liability of $1,396,460 to recognize the commitment to employees in 2019. As of December 31, 2020, the market value of the Company’s investment in AESE’s common stock was $280,417, based on the closing stock price of $1.58 per share, resulting in losses on our investment in securities, as follows: December 31, December 31, 2020 2019 Net loss on investment in Allied Esports Entertainment, Inc. securities $ (1,925,029 ) $ (4,968,175 ) Less: Net gains and losses recognized on equity securities sold during the period (1,764,200 ) – Unrealized losses recognized on equity securities still held at the end of the period $ (160,829 ) $ (4,968,175 ) F- 18 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) NOTES TO THE FINANCIAL STATEMENTS Note 11 – Leases The Company leases its 20,945 square foot operating and office facility under a non -cancelable real property lease agreement that expires on August 31, 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, subject to the ASU 2016-02. In the locations in which it is economically feasible to continue to operate, management expects to enter into a new lease upon expiration. The operating and office facility lease contains provisions requiring payment of property taxes, utilities, insurance, maintenance and other occupancy costs applicable to the leased premise. As the Company’s leases do not provide implicit discount rates, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The components of lease expense were as follows: For the Year Ended December 31, 2020 Operating lease cost: Fixed rent expense $ 81,720 Supplemental balance sheet information related to leases was as follows: December 31, 2020 Operating leases: Operating lease assets $ 1,394,202 Current portion of operating lease liabilities $ 39,870 Noncurrent operating lease liabilities 1,399,868 Total operating lease liabilities $ 1,439,738 Weighted average remaining lease term: Operating leases 14.98 years Weighted average discount rate: Operating leases 5.75% Supplemental cash flow and other information related to leases was as follows: For the Year Ended December 31, 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows used for operating leases $ 9,323 Leased assets obtained in exchange for lease liabilities: Total operating lease liabilities $ 1,431,463 The future minimum lease payments due under operating leases as of December 31 , 2020 is as follows: Fiscal Year Ending Minimum Lease December 31, Commitments 2021 $ 121,638 2022 125,287 2023 129,046 2024 132,917 2025 1,690,905 $ 2,199,793 Less effects of discounting 760,055 Lease liability recognized $ 1,439,738 F- 19 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) NOTES TO THE FINANCIAL STATEMENTS Note 12 – Notes Payable Notes payable consists of the following at December 31, 2020 and 2019, respectively: December 31, December 31, 2020 2019 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 $150,000 Promissory Note issued to the SBA (the “EIDL Note”)(together with the EIDL Loan Agreement, the “EIDL Loan”), bearing interest at 3.75% per annum. In connection with entering into the EIDL Loan, the Company also executed a security agreement, dated June 16, 2020, between the SBA and the Company (the “EIDL Security Agreement”) pursuant to which the EIDL Loan is secured by a security interest on all of the Company’s assets. Under the EIDL Note, the Company is required to pay principal and interest payments of $731 every month beginning June 16, 2021. All remaining principal and accrued interest is due and payable on June 16, 2050. The EIDL Note may be repaid at any time without penalty. $ 150,000 $ – On April 24, 2020, the Company entered into a loan agreement with Kensington Bank (“Kensington”), as lender (the “Loan Agreement”) encompassing a $112,925 Promissory Note issued to Kensington (the “PPP Note”) pursuant to Payroll Protection Program established as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which provides loans to qualifying businesses and is administered by the U.S. Small Business Administration (the “SBA”). The PPP Note bears interest at 1.00% per annum, with interest payable monthly beginning November 24, 2020, and principal due in full on April 24, 2022. The PPP Note may be repaid at any time without penalty. Under the Payroll Protection Program, the Company will be eligible for loan forgiveness up to the full amount of the PPP Note and any accrued interest. The forgiveness amount will be equal to the amount that the Company spends during the 24-week period beginning April 24, 2020 on payroll costs, payment of rent on any leases in force prior to February 15, 2020 and payment on any utility for which service began before February 15, 2020. The maximum amount of loan forgiveness for non-payroll expenses is 40% of the amount of the PPP Note. On January 19, 2021, the Company received forgiveness, as authorized by Section 1106 of the Cares Act in the amount of $113,772, consisting of $112,925 of principal and $847 of interest. 112,925 – On November 25, 2019, the Company entered into a credit account agreement (“Margin Account”) with RBC Capital Markets, LLC (“RBC”). The Margin Account enables the Company to borrow against the Company’s AESE shares that are held in an account with RBC. The advances received on margin bear interest at rates of between 1.00% and 2.75% over the Base Lending Rate, depending on the average outstanding debit balance. The Base Lending Rate is internally determined by RBC using Broker Call, Prime Rate as determined by commercial banks utilized by RBC CM, Fed Funds, RBC CM’s cost of funds, and other commercially recognized rates of interest. The margin loans are collateralized by the underlying AESE shares. A total of $122,100 was borrowed on the Margin Account over various dates between January 29, 2020 and March 6, 2020. The outstanding balance was repaid in full on, or about, March 12, 2020 out of the proceeds of the loan from Cadence Bank, described below. – – On March 12, 2020, the Company entered into a business loan agreement with Cadence Bank, N.A. (“Cadence”), as lender encompassing a $700,000 Promissory Note issued to Cadence (the “Note”), a Security Agreement by the Company in favor of Cadence and limited commercial guarantees by the Company’s Chief Executive Officer and Interim Chief Financial Officer, who is one in the same, and members of the Company’s Board of Directors (the “Guarantors”) (collectively, the “Cadence Loan”). The Note carried interest at a rate of 0.50 percentage points over the prime rate, as published in the Wall Street Journal, payable monthly, and was due on March 9, 2021. The Note could be repaid at any time without penalty. The Note was secured by all of the Company’s rights, title and interests in and to 500,000 shares of the common stock of Allied Esports Entertainment Inc. (NASDAQ: AESE) currently owned by the Company and held in the Company’s brokerage account with RBC Capital Markets, LLC. On March 26, 2020, the Company subsequently entered into a separate letter agreement with the Guarantors (the “Letter Agreement”), which provides that if the Company defaults or fails to make any payment due under the Cadence Loan and the Guarantors are required to make payment to Cadence pursuant to the Guarantees, then the Company agrees to issue additional equity interests or rights to Guarantors reflecting ninety-five percent (95%) of the outstanding equity of the Company at the time of such default to participating Guarantors who have made the payments to Cadence. All equity issuances will be subject to any third party or shareholder approvals required at the time of issuance. A total of $417,000 was advanced on the loan and subsequently repaid in full on June 30, 2020. – – Total notes payable 262,925 – Less unamortized derivative discounts: – – Notes payable 262,925 – Less: current maturities – – Notes payable, less current maturities $ 262,925 $ – F- 20 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) NOTES TO THE FINANCIAL STATEMENTS The Company recorded total discounts of $377,440, consisting of debt discounts on warrants granted to four officers and directors for warrants issued in consideration of personal guarantees provided for debt financing incurred during the year ended December 31, 2020. The discounts were amortized to stock-based compensation expense over the term of the note, until repayment, using the straight-line method, which closely approximated the effective interest method. The Company recorded $377,440 of stock-based compensation expense pursuant to the amortization of note discounts during the year ended December 31, 2020. The Company recognized $384,456 of interest expense, consisting of $8,724 of interest and $377,440 of stock-based warrant expense pursuant to the amortization of the debt discount on the business loans during the year ended December 31, 2020. Note 13 – Stockholders’ Equity Reverse Stock Split On February 21, 2020, the Company effected a 1-for-300 reverse stock split (the “Reverse Stock Split”) . No fractional shares were issued. Instead, the Company issued the following to any stockholder who otherwise would have received a fractional share as a result of the 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 20,000,000 authorized shares of $0.001 par value preferred stock. No shares have been issued to date. Common Stock The Company has 500,000,000 authorized shares of $0.001 par value common stock. As of December 31, 2020, a total of 12,742,890 shares of common stock have been issued. Common Stock Awarded Pursuant to Business Combination On October 1, 2020, the Company issued 1,120,000 shares of common stock to S-FDF, LLC, a Texas limited liability company, pursuant to an Asset Purchase Agreement, between the Company and the Seller. The issuance represented 41.18% of the Company’s issued and outstanding common stock at the time. The fair value of the common stock was $6,720,000 based on the closing price of the Company’s common stock on the date of grant. The number of Seller Shares to be issued was subject to adjustment, as specified in the amended Asset Purchase Agreement, 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. This resulted in 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. The fair value of the 500,673 shares was $1,853,600, based on the closing price of the Company’s common stock on the date of grant, was presented as Common Stock Payable as of December 31, 2020. F- 21 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) NOTES TO THE FINANCIAL STATEMENTS Common Stock Issued to Officers for Services, Common Stock Payable On January 4, 2021, the Board amended Claudia and Ira Goldfarb’s employment agreements to issue shares of common stock in equal monthly increments of 5,541 and 6,044 shares, respectively, following each month of employment from October 2020 through December 31, 2021. The Company awarded an aggregate 16,623 and 18,133 shares of common stock to Claudia and Ira, respectively, for their services from October through December 31, 2020 as a common stock payable. The aggregate fair value of the shares was $61,505 and $67,092 for Claudia and Ira, respectively, based on the closing price of the Company’s common stock on the date of grant , was presented as Common Stock Payable as of December 31, 2020 . The shares were subsequently issued on January 4, 2021. Common Stock Issued to Directors for Services On October 1, 2020, the Company issued an aggregate 20,835 shares of common stock amongst its five Directors for annual services to be rendered. The aggregate fair value of the common stock was $125,010, based on the closing price of the Company’s common stock on the date of grant. The shares were expensed upon issuance. On October 1, 2020, the Company issued an additional 2 ,500 shares to Mr. Benjamin Oehler, for Audit Committee Chair services. The fair value of the common stock was $15,000, based on the closing price of the Company’s common stock on the date of grant. The shares were expensed upon issuance. No shares were issued during 2019. Note 14 – Options The 2020 Equity Plan was approved by written consent of a majority of shareholders of record as of November 12, 2019 and adopted by the Board 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. Outstanding Options Options to purchase an aggregate total of 459,524 shares of common stock at a weighted average strike price of $8.70, exercisable over a weighted average life of 9.22 years were outstanding as of December 31, 2020. Options Granted On December 28, 2020, (a) Mr. Burke was granted options to purchase 20,000 shares of the Company’s common stock, (b) Ira Goldfarb was granted options to purchase 16,500 shares of the Company’s common stock, and (c) Claudia Goldfarb was granted options to purchase 16,500 shares of the Company’s common stock, each grant having an exercise price of $4.00 per share, which represents the closing price of the Company’s shares on the OTCQB marketplace on December 28, 2020 (collectively, the “Executive Option Grants”). The Executive Option Grants will vest 60% as of January 1, 2024 and 20% each anniversary thereafter until fully vested. The aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 201.05% and a call option value of $3.9657, was $210,185. The options are being expensed over the vesting period, resulting in $ 344 of stock-based compensation expense during the year ended December 31, 2020. As of December 31, 2020, a total of $209,841 of unamortized expenses are expected to be expensed over the vesting period . On December 28, 2020, two employees were granted options to purchase an aggregate 6,750 shares of the Company’s common stock, each grant having an exercise price of $4.00 per share, which represents the closing price of the Company’s shares on the OTCQB marketplace on December 28, 2020. The option grants will vest 60% as of January 1, 2024 and 20% each anniversary thereafter until fully vested. The aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 201.05% and a call option value of $3.9657, was $26,769. The options are being expensed over the vesting period, resulting in $44 of stock-based compensation expense during the year ended December 31, 2020. As of December 31, 2020, a total of $26,725 of unamortized expenses are expected to be expensed over the vesting period . F- 22 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) NOTES TO THE FINANCIAL STATEMENTS On October 2, 2020, the Company’s Board of Directors granted an aggregate amount of 115,250 stock options pursuant to the 2020 Equity Plan to purchase shares of the Company’s common stock to several officers, directors, and employees at an exercise price of $5.25 per share, which represents the closing price of the Company’s shares on the OTCQB marketplace on October 2, 2020. The options are exercisable over a ten-year term, and vest 60% on the 3 rd anniversary of the grant date and 20% each anniversary thereafter, until fully vested. The aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 532.91% and a call option value of $5.2102, was $600,473. The options are being expensed over the vesting period, resulting in $27,667 of stock-based compensation expense during the year ended December 31, 2020. As of December 31, 2020, a total of $572,806 of unamortized expenses are expected to be expensed over the vesting period. The officers and directors receiving grants and the amounts of such grants were as follows: Stock Option Name and Title at Time of Grant Shares Granted Ira Goldfarb, Chairman of the Board and Director 50,000 Claudia Goldfarb, Chief Executive Officer 50,000 Total: 100,000 On October 1, 2020, Mr. Greg Creed was granted options to purchase 24,151 shares of the Company’s common stock at an exercise price of $6.00 per share, which represented the closing price of the Company’s shares on the OTCQB marketplace on October 1, 2020. These options will vest 60% as of January 1, 2024 and 20% each anniversary thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 552.14% and a call option value of $5.9660, was $144,084. The options are being expensed over the vesting period, resulting in $6,633 of stock-based compensation expense during the year ended December 31, 2020. As of December 31, 2020, a total of $137,451 of unamortized expenses are expected to be expensed over the vesting period. On February 26, 2020, the Company’s Board of Directors granted an aggregate amount of 240,000 stock options pursuant to the 2020 Equity Plan to purchase shares of the Company’s common stock to several officers, directors, and employees at an exercise price of $5.41 per share, which represents the closing price of the Company’s shares on the OTCQB marketplace on February 20, 2020. The aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 147.98% and a call option value of $3.7354, was $896,506. The options are being expensed over the vesting period, resulting in $408,964 of stock-based compensation expense during the year ended December 31, 2020. As of December 31, 2020, a total of $487,541 of unamortized expenses are expected to be expensed over the vesting period. The officers and directors receiving grants and the amounts of such grants were as follows: Stock Option Name and Title at Time of Grant Shares Granted Ken DeCubellis, Chief Executive Officer and Interim Chief Financial Officer 60,377 Michael Eisele, Chief Operating Officer 42,264 Bradley Berman, Chairman of the Board and Director 24,151 Joseph Lahti, Director 24,151 Benjamin Oehler, Director 24,151 Lyle Berman, Director 24,151 Total: 199,245 All of the stock options granted under the 2020 Equity Plan presented in the table above will vest in five equal installments, commencing one year from the date of grant on February 26, 2021, and continuing for the next four anniversaries thereof until fully vested. The Company recognized a total of $458,048, and $100,526 of compensation expense during the years ended December 31, 2020 and 2019, respectively, related to common stock options issued to Employees and Directors that are being amortized over the implied service term, or vesting period, of the options. The remaining unamortized balance of these options is $1,434,364 as of December 31, 2020. No options were granted during the year ended December 31, 2019. F- 23 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) NOTES TO THE FINANCIAL STATEMENTS Options Cancelled or Forfeited An aggregate 13,164 and 1,284 options with a weighted average strike price of $107.94 and $27.18 per share were forfeited by former employees during the years ended December 31, 2020 and 2019, respectively. Options Expired An aggregate 666 and 457 options with a weighted average strike price of $195.00 and $90.51 per share expired during the years ended December 31, 2020 and 2019, respectively. Options Exercised No options were exercised during the years ended December 31, 2020 and 2019. The following is a summary of information about the Stock Options outstanding at December 31, 2020. Shares Underlying Shares Underlying Options Outstanding Options Exercisable Weighted Shares Average Weighted Shares Weighted Underlying Remaining Average Underlying Average Range of Options Contractual Exercise Options Exercise Exercise Prices Outstanding Life Price Exercisable Price $4.00 - $300.00 459,524 9.22 years $8.70 163,769 $14.78 The following is a summary of activity of outstanding stock options: Weighted Average Number Exercise of Shares Prices Balance, December 31, 2018 35,945 $ 87.00 Options expired (457 ) (9.51 ) Options cancelled (1,284 ) (27.18 ) Balance, December 31, 2019 34,204 89.31 Options expired (666 ) (195.00 ) Options cancelled (13,165 ) (107.94 ) Options granted 439,151 5.21 Balance, December 31, 2020 459,524 $ 8.70 Exercisable, December 31, 2020 163,769 $ 14.78 F- 24 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) NOTES TO THE FINANCIAL STATEMENTS Note 15 – Warrants Outstanding Warrants Warrants to purchase an aggregate total of 106,300 shares of common stock at a $3.99 strike price, exercisable over a weighted average life of 9.1 years were outstanding as of December 31, 2020. Warrants Granted In consideration for four officers and director’s willingness to serve as guarantors of the Cadence Loan, the Company issued warrants to each of the Guarantors (the “Guarantor Warrants”) for the purchase of the Company’s common stock on March 12, 2020. The Guarantor Warrants entitle each Guarantor to purchase 26,250 shares of the Company's common stock (the “Warrant Shares”) at an exercise price of $4.00 per share. The Guarantor Warrants expire on March 12, 2030. The officers and directors receiving grants and the amounts of such grants were as follows: Stock Warrant Name and Title at the Time of Grant Shares Granted Ken DeCubellis, Chief Executive Officer and Interim Chief Financial Officer 26,250 Bradley Berman, Chairman of the Board and Director 26,250 Lyle Berman, Director 26,250 Benjamin Oehler, Director 26,250 Total: 105,000 No warrants were granted during the year ended December 31, 2019. No warrants were exercised, cancelled or expired during the years ended December 31, 2020 and 2019. The following is a summary of activity of outstanding warrants: Weighted Average Number Exercise of Shares Prices Balance, December 31, 2018 1,300 $ 3.00 No change – – Balance, December 31, 2019 1,300 3.00 Warrants granted 105,000 4.00 Balance, December 31, 2020 106,300 $ 3.99 Exercisable, December 31, 2020 106,300 $ 3.99 F- 25 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) NOTES TO THE FINANCIAL STATEMENTS Note 16 – Income Taxes We account for income taxes under the provisions of ASC Topic 740, Income taxes, which provides for an asset and liability approach for income taxes. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences, using currently enacted tax laws, attributable to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts calculated for income tax purposes. Our provision for income taxes for the years ended December 31, 2020 and 2019 consisted of the following: December 31, 2020 2019 Current taxes $ – $ – Deferred taxes – – Net income tax provision (benefit) $ – $ – The effective income tax rate for the years ended December 31, 2020 and 2019 consisted of the following: December 31, 2020 2019 Federal statutory income tax rate 21.0% 21.0% State income taxes 7.7% 7.7% Permanent differences 0.1% 0.1% Change in effective state income tax rate (7.41% ) – Change in valuation allowance (13.26% ) (28.8% ) Net effective income tax rate 0.0% 0.0% The components of the deferred tax assets and liabilities as of December 31, 2020 and 2019 are as follows: December 31, 2020 2019 Deferred tax assets: Federal and state net operating loss carryovers $ 6,424,323 $ 7,692,561 Stock compensation 1,932,158 2,327,142 Property and equipment – 34 Deferred compensation – 401,371 Reorganization costs 28,135 38,508 Total deferred tax assets $ 8,384,616 $ 10,459,616 Deferred tax liabilities: Property and equipment $ (29,514 ) $ – Unrealized gain on investment in Allied Esports Entertainment, Inc. (2,865,274 ) (4,449,409 ) Total deferred liabilities (2,894,788 ) (4,449,409 ) Net deferred tax assets (liabilities) 5,489,828 6,010,207 Less: valuation allowance (5,489,828 ) (6,010,207 ) Deferred tax assets (liabilities) $ – $ – F- 26 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) NOTES TO THE FINANCIAL STATEMENTS As of December 31, 2020, the Company has a net operating loss carryover of approximately $30,592,014. Under existing Federal law, a portion of the net operating loss may be utilized to offset taxable income through the year ended December 31, 2037. A portion of the net operating loss carryover begins to expire in 2030. For tax years beginning after December 31, 2017, pursuant to the enactment of the Tax Cuts and Jobs Act (“TCJA”) net operating losses now carry forward indefinitely but are limited to offsetting 80% of taxable income in a tax year. Of the total net operating loss as of December 31, 2020, approximately $4,837,882 of the Company’s NOL is subject to the TCJA net operating loss provisions. ASC Topic 740 provides that a valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. In 2020, BROG decreased its valuation allowance from $6,010,207 to $5,489,828 to adjust for the decrease in net deferred tax assets primarily due to an unrealized gain recorded for book purposes related to the investment in Allied Esports Entertainment, Inc. The Company believes it is more likely than not that the benefit of these remaining assets will not be realized. The Company did not place a valuation allowance on deferred tax asset for BRAC related to the capitalized merger and acquisition costs. The Company filed annual US Federal income tax returns and annual income tax returns for the state of Minnesota through 2020. Going forward, it will file annual state income tax returns for the state of Texas. We are not subject to income tax examinations by tax authorities for years before 2015 for all returns. Income taxing authorities have conducted no formal examinations of our past federal or state income tax returns and supporting records. The Company adopted the provisions of ASC Topic 740 regarding uncertainty in income taxes. The Company has found no significant uncertain tax positions as of any date on or before December 31, 2020. Note 17 – 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 $10,036, with approximately a 3% annual escalation of lease payments commencing September 15, 2021. The future minimum lease payments due under operating leases as of December 31 , 2020 is as follows: Fiscal Year Ending Minimum Lease December 31, Commitments 2021 $ 121,638 2022 125,287 2023 129,046 2024 132,917 2025 1,690,905 $ 2,199,793 Less effects of discounting 760,055 Lease liability recognized $ 1,439,738 F- 27 SOW GOOD, INC. (Formerly Black Ridge Oil & Gas, Inc.) NOTES TO THE FINANCIAL STATEMENTS Note 18 – Subsequent Events The Company evaluates events that have occurred after the balance sheet date through the date hereof, which these financial statements were issued. No events occurred of a material nature that would have required adjustments to or disclosure in these financial statements except as follows: 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 500,973 shares and a common stock payable was recognized in the amount of $1,853,600 , 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 500,973 shares were issued in settlement of the common stock payable. Common Stock Issued to Officers on Common Stock Payable On January 7, 2021, the Company issued an aggregate 16,623 and 18,133 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. Issuance of Shares for Services On January 27, 2021, upon Benjamin Oehler’s resignation, the Company a ppointed 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 6,400 shares of common stock for his services to be rendered. The aggregate fair value of the common stock was $40,000, based on the closing price of the Company’s common stock on the date of grant. On January 31, 2021, the Company issued 5,541 and 6,044 shares to Claudia and Ira Goldfarb , respectively , for their services for January 2021. The aggregate fair value of the shares was $29,035 and $31,671 for Claudia and Ira, respectively, based on the closing price of the Company’s common stock on the date of grant. On February 28, 2021, the Company issued 5,541 and 6,044 shares to Claudia and Ira Goldfarb , respectively , for their services for February 2021. The aggregate fair value of the shares was $38,787 and $42,308 for Claudia and Ira, respectively, based on the closing price of the Company’s common stock on the date of grant. 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 631,250 shares of the Company’s common stock at a price of $4.00 per share for total proceeds of $2,525,000. A total of 300,000 of these shares, or proceeds of $1,200,000 were purchased by related parties. Options Granted On January 4, 2021, Claudia and Ira Goldfarb were each granted options to purchase 75,000 shares of the Company’s common stock, having an exercise price of $3.70 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. On January 27, 2021, Chris Ludeman was granted options to purchase 24,151 shares of the Company’s common stock, having an exercise price of $6.25 per share, exercisable over a ten-year term. The options will vest in five equal annual installments. F- 28 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.