Sow Good Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS . SOW GOOD INC. CONDENSED BALANCE SHEETS June 30, December 31, 2021 2020 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 3,754,381 $ 1,912,729 Accounts receivable 1,074 – Investment in Allied Esports Entertainment, Inc. – 280,417 Prepaid expenses 42,209 56,427 Inventory 858,774 141,371 Total current assets 4,656,438 2,390,944 Property and equipment: Construction in progress – 1,639,690 Property and equipment 2,942,188 497,494 Less accumulated depreciation ( 67,664 ) ( 2,612 ) Total property and equipment, net 2,874,524 2,134,572 Security deposit 10,000 10,000 Right-of-use asset 1,361,927 1,394,202 Goodwill 6,411,327 6,411,327 Total assets $ 15,314,216 $ 12,341,045 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 164,530 $ 273,862 Accounts payable, related party – 51,253 Accrued expenses 182,859 257,806 Current portion of operating lease liabilities 42,858 39,870 Total current liabilities 390,247 622,791 Operating lease liabilities 1,377,828 1,399,868 Notes payable 150,000 262,925 Total liabilities 1,918,075 2,285,584 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, 3,978,194 and 2,742,890 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively 3,978 2,743 Additional paid-in capital 49,911,440 44,748,859 Common stock payable, consisting of 593,260 and 535,729 shares at June 30, 2021 and December 31, 2020, respectively 2,524,732 1,982,197 Accumulated deficit ( 39,044,009 ) ( 36,678,338 ) Total stockholders' equity 13,396,141 10,055,461 Total liabilities and stockholders' equity $ 15,314,216 $ 12,341,045 See accompanying notes to unaudited condensed financial statements. 1 SOW GOOD INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) For the Three Months For the Six Months Ended June 30, Ended June 30, 2021 2020 2021 2020 Revenues $ 7,076 $ – $ 7,076 $ – Cost of goods sold 4,899 – 4,899 – Gross profit 2,177 – 2,177 – Operating expenses: General and administrative expenses: Salaries and benefits 583,633 233,530 964,886 453,254 Salaries and benefits, stock-based 333,324 49,454 709,215 70,943 Professional services 60,694 111,872 162,593 196,856 Other general and administrative expenses 424,263 50,229 711,084 141,379 Total general and administrative expenses 1,401,914 445,085 2,547,778 862,432 Depreciation and amortization 60,056 379 65,052 650 Total operating expenses 1,461,970 445,464 2,612,830 863,082 Net operating loss ( 1,459,793 ) ( 445,464 ) ( 2,610,653 ) ( 863,082 ) Other income (expense): Interest expense, including $ 363,645 of warrants issued as a debt discount for the three and six months ending June 30, 2020, respectively ( 1,222 ) ( 367,652 ) ( 2,734 ) ( 382,761 ) Other income – 2 – 2 Gain on early extinguishment of debt – – 113,772 – Gain (loss) on investment in Allied Esports Entertainment, Inc. ( 96,779 ) 1,529,896 133,944 ( 682,956 ) Total other income (expense) ( 98,001 ) 1,162,246 244,982 ( 1,065,715 ) Net income (loss) $ ( 1,557,794 ) $ 716,782 $ ( 2,365,671 ) $ ( 1,928,797 ) Weighted average common shares outstanding - basic 3,963,682 1,600,424 3,813,555 1,600,424 Weighted average common shares outstanding - fully diluted 3,963,682 1,600,545 3,813,555 1,600,424 Net loss per common share - basic $ ( 0.39 ) $ 0.45 $ ( 0.62 ) $ ( 1.21 ) Net loss per common share - fully diluted $ ( 0.39 ) $ 0.45 $ ( 0.62 ) $ ( 1.21 ) See accompanying notes to unaudited condensed financial statements. 2 SOW GOOD INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) For the Three Months Ended June 30, 2020 Common Stock Additional Paid-in Common Stock Accumulated Total Stockholders' Shares Amount Capital Payable Deficit Equity Balance, March 31, 2020 1,600,464 $ 1,600 $ 37,340,992 $ – $ ( 34,002,978 ) $ 3,339,614 Common stock options granted to employees and directors for services – – 49,454 – – 49,454 Common stock warrants granted to employees and directors for personal guaranty on debt – – 112,440 – – 112,440 Net income for the three months ended June 30, 2020 – – – – 716,782 716,782 Balance, June 30, 2020 1,600,464 $ 1,600 $ 37,502,886 $ – $ ( 33,286,196 ) $ 4,218,290 For the Three Months Ended June 30, 2021 Additional Total Common Stock Paid-in Common Stock Accumulated Stockholders' Shares Amount Capital Payable Deficit Equity Balance, March 31, 2021 3,939,439 $ 3,939 $ 49,557,882 $ 72,869 $ ( 37,486,215 ) $ 12,148,475 Common stock sales for cash to officers and directors – – – 1,474,996 – 1,474,996 Common stock sales for cash – – – 997,140 – 997,140 Common stock issued to officers and directors for services 34,755 35 193,318 ( 20,273 ) – 173,080 Common stock issued to employees and consultants for services 4,000 4 19,996 – – 20,000 Common stock options granted to officers and directors for services – – 132,604 – – 132,604 Common stock options granted to employees for services – – 7,640 – – 7,640 Net loss for the three months ended June 30, 2021 – – – – ( 1,557,794 ) ( 1,557,794 ) Balance, June 30, 2021 3,978,194 $ 3,978 $ 49,911,440 $ 2,524,732 $ ( 39,044,009 ) $ 13,396,141 For the Six Months Ended June 30, 2020 Additional Total Common Stock Paid-in Common Stock Accumulated Stockholders' Shares Amount Capital Payable Deficit Equity Balance, December 31, 2019 1,600,464 $ 1,600 $ 37,054,503 $ – $ ( 31,357,399 ) $ 5,698,704 Common stock options granted to employees and directors for services – – 70,943 – – 70,943 Common stock warrants granted to employees and directors for personal guaranty on debt – – 377,440 – – 377,440 Net loss for the six months ended June 30, 2020 – – – – ( 1,928,797 ) ( 1,928,797 ) Balance, June 30, 2020 1,600,464 $ 1,600 $ 37,502,886 $ – $ ( 33,286,196 ) $ 4,218,290 For the Six Months Ended June 30, 2021 Additional Total Common Stock Paid-in Common Stock Accumulated Stockholders' Shares Amount Capital Payable Deficit Equity Balance, December 31, 2020 2,742,890 $ 2,743 $ 44,748,859 $ 1,982,197 $ ( 36,678,338 ) $ 10,055,461 Common stock issued on subscriptions payable for the purchase of S-FDF, LLC assets 500,973 501 1,853,099 ( 1,853,600 ) – – Common stock sales for cash to officers and directors 225,000 225 899,775 1,474,996 – 2,374,996 Common stock sales for cash 406,250 406 1,624,594 997,140 – 2,622,140 Common stock issued to officers and directors for services 99,081 99 503,652 ( 76,001 ) – 427,750 Common stock issued to employees and consultants for services 4,000 4 19,996 – – 20,000 Common stock options granted to officers and directors for services – – 237,776 – – 237,776 Common stock options granted to employees for services – – 23,689 – – 23,689 Net loss for the six months ended June 30, 2021 – – – – ( 2,365,671 ) ( 2,365,671 ) Balance, June 30, 2021 3,978,194 $ 3,978 $ 49,911,440 $ 2,524,732 $ ( 39,044,009 ) $ 13,396,141 See accompanying notes to unaudited condensed financial statements. 3 SOW GOOD INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) For the Six Months Ended June 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 2,365,671 ) $ ( 1,928,797 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 65,052 650 (Gain) loss on investment in Allied Esports Entertainment, Inc. ( 133,944 ) 682,956 Gain on early extinguishment of debt ( 113,772 ) – Common stock issued to officers and directors for services 427,750 – Common stock issued to consultants for services 20,000 – Amortization of stock options 261,465 70,943 Amortization of stock warrants issued as a debt discount – 377,440 Decrease (increase) in current assets: Accounts receivable ( 1,074 ) 505 Prepaid expenses 14,218 22,251 Inventory ( 717,403 ) – Right-of-use asset 32,275 – Increase (decrease) in current liabilities: Accounts payable ( 160,585 ) 57,472 Accrued expenses ( 74,100 ) 33,695 Lease liabilities ( 19,052 ) – Net cash used in operating activities ( 2,764,841 ) ( 682,885 ) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds received from sale of investment in Allied Esports Entertainment, Inc. securities 414,361 962,812 Purchase of property and equipment ( 805,004 ) – Net cash provided by (used in) investing activities ( 390,643 ) 962,812 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds received from notes payable – 802,025 Repayments on notes payable – ( 539,100 ) Proceeds received from the sale of common stock and subscriptions payable 4,997,136 – Net cash provided by financing activities 4,997,136 262,925 NET CHANGE IN CASH AND CASH EQUIVALENTS 1,841,652 542,852 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,912,729 108,756 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,754,381 $ 651,608 SUPPLEMENTAL INFORMATION: Interest paid $ – $ 4,895 Income taxes paid $ – $ – NON-CASH INVESTING AND FINANCING ACTIVITIES: Value of debt discounts attributable to warrants $ – $ 377,440 See accompanying notes to unaudited condensed financial statements. 4 SOW GOOD INC. Notes to Condensed Financial Statements (Unaudited) Note 1 – Organization and Nature of Business Effective January 21, 2021, we changed our name from Black Ridge Oil & Gas, Inc. to Sow Good Inc. (“SOWG,” “Sow Good,” or the “Company”). Our common stock is traded on the OTCQB under the trading symbol “SOWG”. At that time, 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. On May 5, 2021, we announced the launch of our direct-to-consumer freeze-dried consumer packaged good (CPG) food brand, Sow Good. Sow Good launches with its first line of non-GMO products including 6 ready-to-make smoothies and 9 snacks. The smoothie lineup offers a mix of both new and familiar flavors: Açaí of Relief (açaí, blueberry); Mint to Be (banana, coconut, mint); and Berry Apeeling (banana, strawberry). Sow Good packaged snack lineup includes single-ingredient fruits and vegetables such as Mon Cherry (cherries); Cool Beans (edamame); and What’s Apple’n (apples). Smoothies are $7.50 each and packaged snacks are $5.25 per bag. On July 23, 2021, we launched six new gluten-free granola products under the Sow Good brand. Sow Good’s granola products are made with health-conscious ingredients such as freeze-dried fruit, almonds, hemp hearts, and coconut oil. Granola products are initially being sold direct-to-consumer and will later be targeted to the business-to-business segment. Our unique food products are targeting the large, and growing, freeze-dried food products market. The global freeze-dried food products market is estimated by Technavio to total nearly $60B in 2020, with the United States representing almost 30% of the total. Technavio further projects market growth to continue at over 8% per year through 2024. With the extensive freeze-dried manufacturing and food product-focused business development experience of our senior management team, we believe we are well positioned to lead the Company's growth and development in the freeze-dried food industry. 5 Note 2 – Basis of Presentation and Significant Accounting Policies The interim condensed financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to not make the information presented misleading. These statements reflect all adjustments, which in the opinion of management, are necessary for fair presentation of the information contained therein. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. It is suggested that these interim condensed financial statements be read in conjunction with the audited financial statements for the year ended December 31, 2020, which were included in our Annual Report on Form 10-K. The Company follows the same accounting policies in the preparation of interim reports. Fair Value of Financial Instruments The Company discloses the fair value of certain assets and liabilities in accordance with ASC 820 – Fair Value Measurement (“ASC 820”). Under FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts payable and accrued expenses reported on the balance sheets are estimated by management to approximate fair value primarily due to the short-term nature of the instruments. The Company had no items that required fair value measurement on a recurring basis. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash in Excess of FDIC Limits The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) and the Securities Investor Protection Corporation (SIPC) up to $250,000 and $500,000, respectively, under current regulations. The Company had $ 2,968,617 of cash in excess of FIDC and SIPC insured limits at June 30, 2021, and has not experienced any losses in such accounts. 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: Schedule of estimated useful lives of assets 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 10 years 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 $ 65,052 and $ 650 for the six months ended June 30, 2021 and 2020, respectively. 6 Impairment of Long-Lived Assets Long-lived assets held and used by the Company are reviewed for possible impairment whenever events or circumstances indicate the carrying amount of an asset may not be recoverable or is impaired. Recoverability is assessed using undiscounted cash flows based upon historical results and current projections of earnings before interest and taxes. Impairment is measured using discounted cash flows of future operating results based upon a rate that corresponds to the cost of capital. Impairments are recognized in operating results to the extent that carrying value exceeds discounted cash flows of future operations. Our intellectual property is comprised of indefinite-lived brand names acquired and have been assigned an indefinite life as we currently anticipate that these brand names will contribute cash flows to the Company perpetually. We evaluate the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired. Inventory Inventory, consisting of raw materials, material overhead, labor, and manufacturing overhead, are stated at the lower of cost (first-in, first-out) or net realizable value and consists of the following: Schedule of inventory June 30, December 31, 2021 2020 Finished goods $ 84,059 $ – Raw materials 153,130 141,371 Work in progress 574,753 – Packaging materials 46,832 – Total Inventory $ 858,774 $ 141,371 No reserve for obsolete inventories has been recognized, and we have not yet commenced significant production. Goodwill The Company evaluates goodwill on an annual basis in the fourth quarter or more frequently if management believes indicators of impairment exist. Such indicators could include, but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, management conducts a quantitative goodwill impairment test. The impairment test involves comparing the fair value of the applicable reporting unit with its carrying value. The Company estimates the fair values of its reporting units using a combination of the income, or discounted cash flows, approach and the market approach, which utilizes comparable companies’ data. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The Company’s evaluation of goodwill completed during the year resulted in no impairment losses. Revenue Recognition The Company recognizes revenue in accordance with ASC 606 — Revenue from Contracts with Customers (“ASC” 606”). Under ASC 606, the Company recognizes revenue from the sale of its freeze-dried food products once operations commence, in accordance with a five-step model in which the Company will evaluate the transfer of promised goods or services and recognize revenue when customers obtain control of promised goods or services in an amount that reflects the consideration which the Company expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of ASC 606, the Company will perform the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The Company has elected, as a practical expedient, to account for the shipping and handling as fulfillment costs, rather than as a separate performance obligation. Revenue will be reported net of applicable provisions for discounts, returns and allowances. Methodologies for determining these provisions will be dependent on customer pricing and promotional practices. The Company will record reductions to revenue for estimated product returns and pricing adjustments in the same period that the related revenue is recorded. These estimates will be based on industry-based historical data, historical sales returns, if any, analysis of credit memo data, and other factors known at the time. 7 Basic 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 three and six months ended June 30, 2021 and 2020 are as follows: Schedule of Earnings Per Share, Basic and Diluted Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Weighted average common shares outstanding – basic 3,963,682 1,600,424 3,813,555 1,600,424 Plus: Potentially dilutive common shares: Common stock warrants – 121 – – Weighted average common shares outstanding – diluted 3,963,682 1,600,545 3,813,555 1,600,424 For the three months ended June 30, 2021, and the six months ended June 30, 2021 and 2020, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share. Stock options and warrants excluded from the calculation of diluted EPS because their effect was anti-dilutive were 765,144 and 378,871 as of June 30, 2021 and 2020, respectively. Stock-Based Compensation The Company accounts for equity instruments issued to employees in accordance with the provisions of ASC 718 Stock Compensation (ASC 718) and Equity-Based Payments to Non-employees pursuant to ASC 2018-07 (ASC 2018-07). All transactions in which the consideration provided in exchange for the purchase of goods or services consists of the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty’s performance is complete or the date at which a commitment for performance by the counterparty to earn the equity instruments is reached because of sufficiently large disincentives for nonperformance. Stock-based compensation was $ 709,215 and $ 70,943 , consisting entirely of expenses related to common stock and options issued for services for the six months ended June 30, 2021 and 2020, respectively, using the Black-Scholes options pricing model and an effective term of 6 to 6.5 years based on the weighted average of the vesting periods and the stated term of the option grants and the discount rate on 5 to 7 year U.S. Treasury securities at the grant date. In addition, $ 377,440 of expenses related to the amortization of warrants issued in consideration of personal guarantees provided for debt financing for the six months ended June 30, 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 118”) to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain effects of Tax Reform. The ultimate impact may differ from the provisional amount, possibly materially, as a result of additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued and actions the Company may take as a result of Tax Reform. 8 Uncertain Tax Positions In accordance with ASC 740, “Income Taxes” (“ASC 740”), the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be capable of withstanding examination by the taxing authorities based on the technical merits of the position. These standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These standards also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Various taxing authorities can periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions. In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established, is audited and fully resolved. The Company has not yet undergone an examination by any taxing authorities. The assessment of the Company’s tax position relies on the judgment of management to estimate the exposures associated with the Company’s various filing positions. Recent Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company's financial statements upon adoption. In August 2020, the FASB issued ASU No. 2020-06, Debt–Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging–Contracts in Entity’s Own Equity (Subtopic 815-40) : Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if converted method. The new guidance is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2021, with early adoption permitted. The adoption of ASU 2020-06 is not expected to have a material impact on the Company’s financial statements or related disclosures. In May 2020 , the SEC adopted final rules that amend the financial statement requirements for significant business acquisitions and dispositions. Among other changes, the final rules modify the significance tests and improve the disclosure requirements for acquired or to be acquired businesses and related pro forma financial information, the periods those financial statements must cover, and the form and content of the pro forma financial information. The final rules do not modify requirements for the acquisition and disposition of significant amounts of assets that do not constitute a business. The final rules were effective January 1, 2021. The Company has considered these final rules and updated its disclosures, as applicable. In November 2019, the FASB issued ASU 2019-12 – Income Taxes (“Topic 740” ): Simplifying the Accounting for Income Taxes . The amendments in ASU 2019 - 12 are part of an initiative to reduce complexity in accounting standards and simplify the accounting for income taxes by removing certain exceptions from Topic 740 and making minor improvements to the codification. ASU 2019 - 12 and its related amendments are effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 . The provisions of this update did not have a material impact on the Company’s financial position or results of operations. No other new accounting pronouncements, issued or effective during the period ended June 30, 2021, have had or are expected to have a significant impact on the Company’s financial statements. 9 Note 3 – Going Concern As shown in the accompanying financial statements, as of June 30, 2021, the Company has incurred recurring losses from operations resulting in an accumulated deficit of $ 39,044,009 , and had cash on hand of $ 3,754,381 . We are too early in our development stage to project revenue with a necessary level of certainty; therefore, we may not have sufficient funds to sustain our operations for the next twelve months and we may need to raise additional cash to fund our operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company has commenced sales and continues to develop its operations, and the Company raised an additional $ 564,661 from sale of common stock in July, as noted in our subsequent events footnote. In the event sales do not materialize at the expected rates, management would seek additional financing or would attempt to conserve cash by further reducing expenses. There can be no assurance that we will be successful in achieving these objectives. The financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. The financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. Our ability to scale production and distribution capabilities and further increase the value of our brands, is largely dependent on our success in raising additional capital. Note 4 – Business Combination, S-FDF On October 1, 2020, the Company completed its acquisition of S-FDF, LLC (the "Seller"), a Texas limited liability company, pursuant to an Asset Purchase Agreement, between the Company and the Seller, dated June 9, 2020, as subsequently amended effective October 1, 2020. In connection with the closing of the Asset Purchase Agreement, the Company acquired approximately $ 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. 10 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: Schedule of recognized identified assets and liabilities assumed 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: 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 acquired 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. 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. Schedule of unaudited pro forma For the Six Months Ended June 30, 2021 2020 (2) (Unaudited) (Unaudited) Revenues $ – $ – Net operating loss $ ( 2,610,653 ) $ ( 863,082 ) Net loss $ ( 2,365,671 ) $ ( 1,928,797 ) Weighted average common shares outstanding – basic and fully diluted 3,821,859 3,226,394 Net loss per common share – basic and fully diluted $ ( 0.62 ) $ ( 0.60 ) (2) S-FDF, LLC was formed on May 4, 2020, therefore pro forma operation for the six months ended June 30, 2020 are identical to the Company’s actual results, other than the basic and fully diluted net income per share amounts . 11 Note 5 – Related Party Issuance of Shares in Completion of Acquisition In connection with the closing of the Amended Asset Purchase Agreement between the Company and S-FDF, LLC, the Company was obligated to make certain adjustments to the common stock issued to Seller. The adjustment was based primarily on the fair value of AESE shares sold subsequent to the Asset Purchase Agreement. On December 31, 2020, the final number of shares to be issued to S-FDF, LLC was determined to be 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 Payable Awarded to Officers On June 30, 2021, the Company awarded 5,541 and 6,044 shares of common stock to Claudia and Ira Goldfarb , respectively, for services earned during June 30, 2021. The aggregate fair value of the shares was $ 25,156 and $ 27,440 for Claudia and Ira, respectively, based on the closing price of the Company’s common stock on the date of grant . The shares were subsequently issued on July 7, 2021, in satisfaction of the outstanding common stock payable. Issuance of Shares for Services On May 31, 2021, the Company issued 5,541 and 6,044 shares to Claudia and Ira Goldfarb , respectively , for their services for May 2021. The aggregate fair value of the shares was $ 26,320 and $ 28,709 for Claudia and Ira, respectively, based on the closing price of the Company’s common stock on the date of grant. On April 30, 2021, the Company issued 5,541 and 6,044 shares to Claudia and Ira Goldfarb , respectively , for their services for April 2021. The aggregate fair value of the shares was $ 31,307 and $ 34,148 for Claudia and Ira, respectively, based on the closing price of the Company’s common stock on the date of grant. On March 31, 2021, the Company awarded 5,541 and 6,044 shares of common stock to Claudia and Ira Goldfarb , respectively, for their services for March 2021. The aggregate fair value of the shares was $ 34,853 and $ 38,016 for Claudia and Ira, respectively, based on the closing price of the Company’s common stock on the date of grant . The shares were subsequently issued on April 6, 2021, in satisfaction of the outstanding common stock payable. 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. 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 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 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. Common Stock Sold for Cash, Subscriptions Payable On July 2, 2021, the Company entered into a Stock Purchase Agreement with multiple accredited investors to sell and issue to the purchasers, thereunder, an aggregate of 714,701 shares of the Company’s common stock at a price of $4.25 per Share. Proceeds to the Company from the sale of the Shares were $ 3,036,797 , of which $2,472,136 was received on June 30, 2021, which was recognized as a subscription payable as the underlying 581,675 shares were subsequently issued on July 9, 2021. A total of 407,204 of these shares, or proceeds of $1,730,621 were purchased by officers and directors, including 347,057 shares, or $1,474,996, received on June 30, 2021. 12 Common Stock Sold for Cash On February 5, 2021, the Company entered into a Stock Purchase Agreement with multiple accredited investors to sell and issue to the purchasers an aggregate 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 225,000 of these shares, or proceeds of $ 900,000 were purchased by officers and directors. Options Granted On April 22, 2021, Brad Burke was granted options to purchase 27,500 shares of the Company’s common stock, having an exercise price of $ 5.50 per share, exercisable over a ten-year term. The options will vest 60% on the third anniversary, and 20% each anniversary thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 193 % and a call option value of $5.4381, was $ 149,547 . The options were expensed over the vesting period, resulting in $ 5,736 of stock-based compensation expense during the six months ended June 30, 2021. 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 10 term. The options will vest in three equal annual installments beginning of January 27, 2022 and continuing on each of the two anniversaries thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 198 % and a call option value of $6.1794, was $ 149,239 . The options were expensed over the vesting period, resulting in $ 7,769 of stock-based compensation expense during the six months ended June 30, 2021. 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 10 term. The options will vest in three equal installments beginning of January 4, 2022 and continuing on each of the two anniversaries thereafter until fully vested. The aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 198 % and a call option value of $3.9412, was $ 591,178 . The options were expensed over the vesting period, resulting in $ 95,560 of stock-based compensation expense during the six months ended June 30, 2021. Lease Agreement Upon closing of the Asset Purchase Agreement, the Company assumed the Seller’s obligations under a real property lease for its 20,945 square foot facility in Irving, Texas, under which an entity owned entirely by Ira Goldfarb is the landlord. The lease term is through September 15, 2025, with two five-year options to extend, at a monthly lease term of $10,036, with approximately a 3% annual escalation of lease payments commencing September 15, 2021. Note 6 – Fair Value of Financial Instruments The Company discloses the fair value of certain assets and liabilities in accordance with ASC 820 – Fair Value Measurement (“ASC 820”). Under FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value. The Company has cash and cash equivalents and a revolving credit facility that must be measured under the fair value standard. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows: Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. 13 Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability. The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheets as of June 30, 2021 and December 31, 2020: Valuation of financial instruments at fair value Fair Value Measurements at June 30, 2021 Level 1 Level 2 Level 3 Assets Cash and cash equivalents $ 3,754,381 $ – $ – Goodwill 6,411,327 – – Total assets 10,165,708 – – Liabilities Notes payable – 150,000 – Total liabilities – 150,000 – $ 10,165,708 $ ( 150,000 ) $ – 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 ) $ – There were no transfers of financial assets or liabilities between Level 1 and Level 2 inputs for the six months ended June 30, 2021. Note 7 – Prepaid Expenses Prepaid expenses consist of the following: Schedule of prepaid expenses June 30, December 31, 2021 2020 Prepaid software licenses $ 10,689 $ 26,853 Prepaid insurance costs 11,065 11,325 Prepaid employee benefits 500 8,082 Prepaid office and other costs 19,955 10,167 Total prepaid expenses $ 42,209 $ 56,427 14 Note 8 – Property and Equipment Property and equipment at June 30, 2021 and December 31, 2020, consists of the following: Property and equipment June 30, December 31, 2021 2020 Office equipment $ 13,873 $ 5,042 Machinery 1,337,166 183,680 Software 70,000 49,000 Website 342,477 259,772 Leasehold improvements 1,178,672 – Construction in progress – 1,639,690 2,942,188 2,137,184 Less: Accumulated depreciation and amortization ( 67,664 ) ( 2,612 ) Total property and equipment, net $ 2,874,524 $ 2,134,572 Construction in progress consisted of costs incurred to build out our manufacturing facility in Irving Texas, along with the construction of our freeze driers. These costs have been capitalized as Leasehold Improvements and Machinery, respectively, upon completion. On September 30, 2020, the Company disposed of computer equipment no longer in service. No proceeds were received on the disposal of the equipment, resulting in a loss on disposal of fixed assets of $ 5,369 , which represented the net book value at the time of disposal. The Company recognized depreciation expense of $ 65,052 and $ 650 for the six months ended June 30, 2021 and 2020, respectively. Note 9 – 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”). The Company subsequently sold 2,148,399 shares for total net proceeds of $ 3,522,428 , sold warrants to purchase 505,000 Sponsor Warrants for total proceeds of $7 3,668 , and distributed 537,101 Sponsor Shares to employees and directors under the 2018 Management Incentive Plan. As of June 30, 2021, the Company had completely sold its investment in AESE’s common stock, resulting in gains (losses) on our investment in securities, as follows: Schedule of unrealized loss on investment June 30, June 30, 2021 2020 Net gain (loss) on investment in Allied Esports Entertainment, Inc. securities $ 133,944 $ ( 682,956 ) Less: Net gains and losses recognized on equity securities sold during the period ( 133,944 ) ( 138,696 ) Less: Gain on deferred compensation payable in shares of AESE – ( 263,179 ) Unrealized loss recognized on equity securities still held at the end of the period $ – $ ( 1,084,831 ) 15 Note 10 – Leases The Company leases its 20,945 square foot operating and office facility under a non-cancelable real property lease agreement that expires on 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: Schedule of components of lease expense For the Six Months Ended June 30, 2021 Operating lease cost: Fixed rent expense $ 73,440 Supplemental balance sheet information related to leases was as follows: Schedule of supplemental balance sheet information June 30, 2021 Operating leases: Operating lease assets $ 1,361,927 Current portion of operating lease liabilities $ 42,858 Noncurrent operating lease liabilities 1,377,828 Total operating lease liabilities $ 1,420,686 Weighted average remaining lease term: Operating leases 14.5 years Weighted average discount rate: Operating leases 5.75 % Supplemental cash flow and other information related to leases was as follows: Schedule of supplemental cash flow and other information For the Six Months Ended June 30, 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows used for operating leases $ 19,052 Leased assets obtained in exchange for lease liabilities: Total operating lease liabilities $ 1,420,686 16 The future minimum lease payments due under operating leases as of June 30, 2021 was as follows: Schedule of future minimum lease payments Fiscal Year Ending Minimum Lease December 31, Commitments 2021 (for the six months remaining) $ 61,422 2022 125,287 2023 129,046 2024 132,917 2025 1,690,905 Total 2,139,577 Less effects of discounting 718,891 Lease liability recognized $ 1,420,686 Note 11 – Notes Payable Notes payable consists of the following at June 30, 2021 and December 31, 2020, respectively: Schedule of notes payable June 30, 2021 December 31, 2020 On June 16, 2020, the Company entered into a loan authorization and loan agreement with the United States Small Business Administration (the “SBA”), as lender, pursuant to the SBA’s Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business (the “EIDL Loan Agreement”) encompassing a $ 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 $ 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 could have been repaid at any time without penalty. Under the Payroll Protection Program, the Company received loan forgiveness of $ 113,772 , consisting of $112,925 of principal and $847 of accrued interest, on January 19, 2021. The forgiveness amount was 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 was 40% of the amount of the PPP Note. – 112,925 Total notes payable 150,000 262,925 Less unamortized derivative discounts: – – Notes payable 150,000 262,925 Less: current maturities – – Notes payable, less current maturities $ 150,000 $ 262,925 17 The Company recognized $ 2,734 and $ 382,761 of interest expense, consisting of $ 2,734 and $ 5,321 of interest and $ 0 and $ 377,440 of stock-based warrant expense pursuant to the amortization of the debt discounts, during the six months ended June 30, 2021 and 2020, respectively. Note 12 – Changes in 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 June 30, 2021, a total of 3,978,194 shares of common stock have been issued. Issuance of Shares in Completion of Acquisition In connection with the closing of the Amended Asset Purchase Agreement between the Company and S-FDF, LLC, the Company was obligated to make certain adjustments to the common stock issued to Seller. The adjustment was based primarily on the fair value of AESE shares sold subsequent to the Asset Purchase Agreement. On December 31, 2020, the final number of shares to be issued to S-FDF, LLC was determined to be 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 Payable Awarded to Officers On June 30, 2021, the Company awarded 5,541 and 6,044 shares of common stock to Claudia and Ira Goldfarb , respectively, for services earned during June 30, 2021. The aggregate fair value of the shares was $ 25,156 and $ 27,440 for Claudia and Ira, respectively, based on the closing price of the Company’s common stock on the date of grant . The shares were subsequently issued on July 7, 2021, in satisfaction of the outstanding common stock payable. Issuance of Shares for Services On May 31, 2021, the Company issued 5,541 and 6,044 shares to Claudia and Ira Goldfarb , respectively , for their services for May 2021. The aggregate fair value of the shares was $ 26,320 and $ 28,709 for Claudia and Ira, respectively, based on the closing price of the Company’s common stock on the date of grant. 18 On May 25, 2021, the Company issued 2,000 shares to each of two advisory board members for their services. The total aggregate fair value of the shares was $ 20,000 , based on the closing price of the Company’s common stock on the date of grant. On April 30, 2021, the Company issued 5,541 and 6,044 shares to Claudia and Ira Goldfarb , respectively , for their services for April 2021. The aggregate fair value of the shares was $ 31,307 and $ 34,148 for Claudia and Ira, respectively, based on the closing price of the Company’s common stock on the date of grant. On March 31, 2021, the Company awarded 5,541 and 6,044 shares of common stock to Claudia and Ira Goldfarb , respectively, for their services for March 2021. The aggregate fair value of the shares was $ 34,853 and $ 38,016 for Claudia and Ira, respectively, based on the closing price of the Company’s common stock on the date of grant . The shares were subsequently issued on April 6, 2021, in satisfaction of the outstanding common stock payable. 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. 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 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 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. 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 225,000 of these shares, or proceeds of $ 900,000 were purchased by officers and directors. Common Stock Sold for Cash, Subscriptions Payable On July 2, 2021, the Company entered into a Stock Purchase Agreement with multiple accredited investors to sell and issue to the purchasers, thereunder, an aggregate of 714,701 shares of the Company’s common stock at a price of $4.25 per Share. Proceeds to the Company from the sale of the Shares were $3,036,797, of which $2,472,136 was received on June 30, 2021, which was recognized as a subscription payable as the underlying 581,675 shares were subsequently issued on July 9, 2021. A total of 407,204 of these shares, or proceeds of $1,730,621 were purchased by officers and directors, including 347,057 shares, or $ 1,474,996 , received on June 30, 2021. Note 13 – 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. 19 Outstanding Options Options to purchase an aggregate total of 658,844 shares of common stock at a weighted average strike price of $ 5.94 , exercisable over a weighted average life of 9.14 years were outstanding as of June 30, 2021. Options Granted On May 25, 2021, two advisory board members were granted options to purchase an aggregate 6,000 shares of the Company’s common stock, having an exercise price of $ 5.00 per share, exercisable over a 10 ten-year term. The options will vest 60% on the third anniversary, and 20% each anniversary thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 191 % and a call option value of $4.9272, was $ 29,562 . The options were expensed over the vesting period, resulting in $ 4,147 of stock-based compensation expense during the six months ended June 30, 2021. On April 22, 2021, Brad Burke was granted options to purchase 27,500 shares of the Company’s common stock, having an exercise price of $ 5.50 per share, exercisable over a 10 ten-year term. The options will vest 60% on the third anniversary, and 20% each anniversary thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 193 % and a call option value of $5.4381, was $ 149,547 . The options were expensed over the vesting period, resulting in $ 5,736 of stock-based compensation expense during the six months ended June 30, 2021. On April 22, 2021, a total of fifteen employees and consultants were granted options to purchase an aggregate 19,875 shares of the Company’s common stock, having an exercise price of $ 5.50 per share, exercisable over a 10 ten-year term. The options will vest 60% on the third anniversary, and 20% each anniversary thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 193 % and a call option value of $5.4381, was $ 108,082 . The options were expensed over the vesting period, resulting in $ 584 of stock-based compensation expense during the six months ended June 30, 2021. 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 10 ten-year term. The options will vest in three equal annual installments beginning of January 27, 2022 and continuing on each of the two anniversaries thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 198 % and a call option value of $6.1794, was $ 149,239 . The options were expensed over the vesting period, resulting in $ 7,769 of stock-based compensation expense during the six months ended June 30, 2021. 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 10 ten-year term. The options will vest in three equal installments beginning of January 4, 2022 and continuing on each of the two anniversaries thereafter until fully vested. The aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 198 % and a call option value of $3.9412, was $ 591,178 . The options were expensed over the vesting period, resulting in $95,560 of stock-based compensation expense during the six months ended June 30, 2021. The Company recognized a total of $ 261,465 , and $ 70,943 of compensation expense during the six months ended June 30, 2021 and 2020, respectively, related to common stock options issued to Officers, Directors, and Employees that are being amortized over the implied service term, or vesting period, of the options. The remaining unamortized balance of these options is $ 2,200,507 as of June 30, 2021. Options Exercised No options were exercised during the six months ended June 30, 2021 and 2020. Options Forfeited A total of 28,205 options with a weighted average exercise price of $ 50.74 were forfeited during the six months ended June 30, 2021. 20 Note 14 – 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 8.61 years were outstanding as of June 30, 2021. Warrants Granted No warrants were granted during the six months ended June 30, 2021 and 2020. Warrants Exercised No warrants were exercised during the six months ended June 30, 2021 and 2020. Note 15 – Income Taxes The Company accounts for income taxes under ASC Topic 740, Income Taxes, which provides for an asset and liability approach of accounting for income taxes. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences, using currently enacted tax laws, attributed to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts calculated for income tax purposes. Losses incurred during the period from April 9, 2011 (inception) to June 30, 2021 could be used to offset future tax liabilities. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized. As of June 30, 2021, net deferred tax assets were $ 5,981,775 , with no deferred tax liability, primarily related to net operating loss carryforwards. A valuation allowance of approximately $ 5,981,775 was applied to the net deferred tax assets. Therefore, the Company has no tax expense for 2021 to date. In accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no significant uncertain tax positions as of any date on, or before June 30, 2021. Note 16 – Commitments The Company is involved in various inquiries, administrative proceedings and litigation relating to matters arising in the normal course of business. The Company is not currently a defendant in any material litigation and is not aware of any threatened litigation that could have a material effect on the Company. Management is not able to estimate the minimum loss to be incurred, if any, as a result of the final outcome of the matters arising in the normal course of business but believes they are not likely to have a material adverse effect upon the Company’s financial position or results of operations and, accordingly, no provision for loss has been recorded. The Company periodically maintains cash balances at banks in excess of federally insured amounts. The extent of loss, if any, to be sustained as a result of any future failure of a bank or other financial institution is not subject to estimation at this time. Upon closing of the Asset Purchase Agreement, the Company assumed the Seller’s obligations under a real property lease for its 20,945 square foot facility in Irving, Texas, under which an entity owned entirely by Ira Goldfarb is the landlord. The lease term is through September 15, 2025, with two five-year options to extend, at a monthly lease term of $ 10,036 , with approximately a 3% annual escalation of lease payments commencing September 15, 2021. 21 The future minimum lease payments due under operating leases as of June 30, 2021 is as follows: Schedule of future minimum lease payments Fiscal Year Ending Minimum Lease December 31, Commitments 2021 (for the six months remaining) $ 61,422 2022 125,287 2023 129,046 2024 132,917 2025 1,690,905 Total 2,139,577 Less effects of discounting 718,891 Lease liability recognized $ 1,420,686 Note 17 – Subsequent Events The Company evaluates events that have occurred after the balance sheet date through the date these financial statements were issued. Common Stock Awarded to Officers On July 31, 2021, the Company issued 5,541 and 6,044 shares of common stock to Claudia and Ira Goldfarb , respectively, for their services during July 2021 . Common Stock Issued to Officers on Common Stock Payable On July 7, 2021, the Company issued 5,541 and 6,044 shares of common stock to Claudia and Ira Goldfarb , respectively, for their services earned during June 2021 in satisfaction of the outstanding common stock payable. Common Stock Sold for Cash On July 2, 2021, the Company entered into a Stock Purchase Agreement with multiple accredited investors to sell and issue to the purchasers, thereunder, an aggregate of 714,701 shares of the Company’s common stock at a price of $4.25 per Share. Proceeds to the Company from the sale of the Shares were $3,036,797, of which $2,472,136 was received on June 30, 2021, which was recognized as a subscription payable as the underlying 581,675 shares were subsequently issued on July 9, 2021. 22