Sow Good Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OF SOW GOOD INC. SOW GOOD INC. FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 CONTENTS Report of Independent Registered Public Accounting Firm F-1 Balance Sheets as of December 31, 2021 and 2020 F-2 Statements of Operations for the years ended December 31, 2021 and 2020 F-3 Statement of Stockholders’ Equity for the years ended December 31, 2021 and 2020 F-4 Statements of Cash Flows for the years ended December 31, 2021 and 2020 F-5 Notes to the Financial Statements F-6 22 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, 2021 and 2020, and the related statements of operations, stockholders’ equity, and cash flows for the two-year period then ended, 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, 2021 and 2020, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. 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 has suffered net losses from operations, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are discussed in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. 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 audits 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 the 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. F- 1 Critical Audit Matters The critical audit matter communicated below is a matter 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 matter below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which they relate. As discussed in Note 1 to the financial statements, the Company issues stock-based compensation in accordance with ASC 718, Compensation. Auditing management’s calculation of the fair value of stock-based compensation can be a significant judgment given the fact that the Company uses management estimates on various inputs to the calculation. To evaluate the appropriateness of the fair value determined by management, we examined and evaluated the inputs management used in calculating the fair value of the stock-based compensation. /s/ M&K CPAS, PLLC M&K CPAS, PLLC We have served as the Company’s auditor since 2010. Houston, TX March 29, 2022 2738 F- 2 SOW GOOD INC. BALANCE SHEETS December 31, December 31, 2021 2020 ASSETS Current assets: Cash and cash equivalents $ 3,345,928 $ 1,912,729 Accounts receivable 12,382 – Investment in Allied Esports Entertainment, Inc. – 280,417 Prepaid expenses 81,057 56,427 Inventory 1,451,897 141,371 Total current assets 4,891,264 2,390,944 Property and equipment: Construction in progress – 1,639,690 Property and equipment 2,891,352 277,844 Less accumulated depreciation ( 210,096 ) ( 2,612 ) Total property and equipment, net 2,681,256 1,914,922 Security deposit 10,000 10,000 Right-of-use asset 1,329,089 1,394,202 Intangible assets 304,244 219,650 Goodwill 4,887,297 6,411,327 Total assets $ 14,103,150 $ 12,341,045 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 279,337 $ 273,862 Accounts payable, related party – 51,253 Accrued expenses 77,750 257,806 Current portion of operating lease liabilities 45,970 39,870 Total current liabilities 403,057 622,791 Operating lease liabilities 1,353,898 1,399,868 Notes payable, related parties, net of $ 699,213 of debt discounts at December 31, 2021 1,375,787 – Notes payable 150,000 262,925 Total liabilities 3,282,742 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, 4,809,070 and 2,742,890 shares issued and outstanding at December 31, 2021 and 2020, respectively 4,809 2,743 Additional paid-in capital 54,342,027 44,748,859 Common stock payable, consisting of 11,585 and 535,729 shares at December 31, 2021 and 2020, respectively 26,066 1,982,197 Accumulated deficit ( 43,552,494 ) ( 36,678,338 ) Total stockholders' equity 10,820,408 10,055,461 Total liabilities and stockholders' equity $ 14,103,150 $ 12,341,045 The accompanying notes are an integral part of these financial statements. F- 3 SOW GOOD INC. STATEMENTS OF OPERATIONS For the Years Ended December 31, 2021 2020 Revenues $ 88,440 $ – Cost of goods sold 81,311 – Gross profit 7,129 – Operating expenses: General and administrative expenses: Salaries and benefits 3,473,661 2,203,780 Professional services 357,945 451,125 Other general and administrative expenses 1,550,970 350,875 Goodwill impairment 1,524,030 – Total general and administrative expenses 6,906,606 3,005,780 Depreciation and amortization 208,448 3,642 Total operating expenses 7,115,054 3,009,422 Net operating loss ( 7,107,925 ) ( 3,009,422 ) Other income (expense): Interest expense, including $ 377,440 of warrants issued as a debt discount for the year ended December 31, 2020 ( 5,911 ) ( 386,164 ) Other income – 5,045 Loss on disposal of property and equipment ( 8,036 ) ( 5,369 ) Gain on early extinguishment of debt 113,772 – Gain (loss) on investment in Allied Esports Entertainment, Inc. 133,944 ( 1,925,029 ) Total other income (expense) 233,769 ( 2,311,517 ) Net loss $ ( 6,874,156 ) $ ( 5,320,939 ) Weighted average common shares outstanding - basic and fully diluted 4,262,184 1,886,951 Net loss per common share - basic and fully diluted $ ( 1.61 ) $ ( 2.82 ) The accompanying notes are an integral part of these financial statements. F- 4 SOW GOOD INC. STATEMENT OF STOCKHOLDERS' EQUITY Additional Common Total Common Stock Paid-in Stock Accumulated Stockholders' Shares Amount Capital Payable Deficit Equity 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 loss – – – – ( 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 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 496,911 497 2,055,128 – – 2,055,625 Common stock sales for cash 849,040 849 3,506,037 – – 3,506,886 Common stock issued to officers and directors for services 215,256 215 916,363 ( 102,531 ) – 814,047 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 – – 498,027 – – 498,027 Common stock options granted to employees for services – – 45,305 – – 45,305 Common stock warrants granted to related parties as a debt discount – – 699,213 – – 699,213 Net loss – – – – ( 6,874,156 ) ( 6,874,156 ) Balance, December 31, 2021 4,809,070 $ 4,809 $ 54,342,027 $ 26,066 $ ( 43,552,494 ) $ 10,820,408 The accompanying notes are an integral part of these financial statements. F- 5 SOW GOOD INC. STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 6,874,156 ) $ ( 5,320,939 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 208,448 3,642 Loss on disposal of property and equipment 8,036 5,369 Loss on impairment of goodwill 1,524,030 – (Gain) loss on investment in Allied Esports Entertainment, Inc. ( 133,944 ) 2,123,688 Gain on early extinguishment of debt ( 113,772 ) – Common stock issued to officers and directors for services 814,047 268,608 Common stock issued to consultants for services 20,000 – Amortization of stock options 543,332 458,048 Amortization of stock warrants issued as a debt discount – 377,440 Decrease (increase) in current assets: Accounts receivable ( 12,382 ) 505 Prepaid expenses ( 24,630 ) 158,596 Inventory ( 1,310,526 ) ( 141,371 ) Right-of-use asset 65,113 15,934 Increase (decrease) in current liabilities: Accounts payable ( 45,778 ) 152,275 Accrued expenses ( 179,209 ) 164,119 Lease liabilities ( 39,870 ) ( 9,323 ) Net cash used in operating activities ( 5,551,261 ) ( 1,743,409 ) CASH FLOWS FROM INVESTING ACTIVITIES Cash received in business combination – 1,154,459 Purchase of property and equipment ( 982,818 ) ( 257,626 ) Purchase of intangible assets ( 84,594 ) – Cash paid for construction in progress – ( 794,111 ) Proceeds received from sale of investment in Allied Esports Entertainment, Inc. securities 414,361 3,181,735 Net cash provided by (used in) investing activities ( 653,051 ) 3,284,457 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds received from notes payable, related parties 2,075,000 – Proceeds received from notes payable – 802,025 Repayments on notes payable – ( 539,100 ) Proceeds received from the sale of common stock 5,562,511 – Net cash provided by financing activities 7,637,511 262,925 NET CHANGE IN CASH AND CASH EQUIVALENTS 1,433,199 1,803,973 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,912,729 108,756 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,345,928 $ 1,912,729 SUPPLEMENTAL INFORMATION: Interest paid $ – $ 4,895 Income taxes paid $ – $ – NON-CASH INVESTING AND FINANCING ACTIVITIES: Value of debt discounts attributable to warrants $ 699,213 $ 377,440 Value of investment in securities distributed to board members and employees $ – $ 1,133,281 Fair value of non-cash net assets acquired in business combination $ – $ 1,007,814 Fair value of common stock paid in business combination $ – $ 8,573,600 The accompanying notes are an integral part of these financial statements. F- 6 SOW GOOD 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”) to pursue the freeze-dried fruits and vegetables business as acquired with our October 1, 2020 acquisition of S-FDF, LLC. 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 February 5, 2021, the Company raised over $ 2.5 million of capital from the sale of 631,250 newly issued shares at a share price of $ 4.00 in a private placement. The proceeds were used to find capital expenditures and working capital investment. On May 5, 2021, the Company announced the launch of our direct-to-consumer freeze-dried consumer packaged goods (CPG) food brand, Sow Good. Sow Good launched with its first line of non-GMO products including 6 ready-to-make smoothies and 9 snacks. On July 7, 2021, the Company raised over $ 3 million of capital from the sale of 714,701 newly issued shares at a share price of $ 4.25 in a private placement. Investors in the private placement included Sow Good’s Chief Executive Officer, Executive Chairman, and Chief Financial Officer, in addition to other Sow Good board members and a small group of accredited investors. The proceeds are being used to invest in inventory ahead of pursuing larger business-to-business relationships, as well as funding incremental capital expenditures and general operating expenses. F- 7 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS 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. On December 31, 2021, we sold an aggregate $ 2,075,000 of promissory notes and warrants to purchase an aggregate 311,250 shares of common stock to related parties, representing 15,000 warrant shares per $ 100,000 of promissory notes. The warrants are exercisable at a price of $ 2.21 per share over a ten-year term. The proceeds will be used for working capital investment and to ramp up our freeze-dried consumer packaged goods business. 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, intangible assets were presented within property and equipment. This asset has been separately stated in the prior year to conform to the current year presentation. In addition, stock-based compensation was separately stated in our operating expenses in the prior year. These costs have been combined with salaries and benefits to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or retained earnings. 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. F- 8 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS 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 receivable, prepaid expenses, inventory, 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. 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, 2021 and 2020. 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 $ 2,813,000 and $ 1,311,000 in excess of FDIC and SIPC insured limits at December 31, 2021 and 2020, respectively. The Company has not experienced any losses in such accounts. Accounts Receivable Accounts receivable are carried at their estimated collectible amounts. Trade accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition. The Company had no allowance for doubtful accounts for either of the periods presented, as all accounts receivable had been subsequently collected. 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 Website 3 years Office equipment 5 years Furniture and fixtures 5 years Machinery and equipment 7-10 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 $ 208,448 and $ 3,642 for the years ended December 31, 2021 and 2020, respectively. F- 9 SOW GOOD 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 average cost or net realizable value and consist of the following: Schedule of inventory December 31, December 31, 2021 2020 Finished goods $ 273,135 $ – Packaging materials 95,436 – Work in progress 613,063 – Raw materials 470,263 141,371 Total inventory $ 1,451,897 $ 141,371 No reserve for obsolete inventories has been recognized. 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 an impairment loss of $ 1,524,030 for the year ended December 31, 2021. F- 10 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS 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, in accordance with a five-step model in which the Company evaluates the transfer of promised goods or services and recognizes 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 performs 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 is reported net of applicable provisions for discounts, returns and allowances. Methodologies for determining these provisions are dependent on customer pricing and promotional practices. The Company records reductions to revenue for estimated product returns and pricing adjustments in the same period that the related revenue is recorded. These estimates are based on industry-based historical data, historical sales returns, if any, analysis of credit memo data, and other factors known at the time. Basic and Diluted Earnings (Loss) Per Share The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the periods presented, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share. 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 $ 1,377,379 and $ 726,656 for the years ended December 31, 2021 and 2020, respectively. Stock-based compensation consisted of $ 834,047 and $ 268,608 related to the issuance of shares of common stock for services for the years ended December 31, 2021 and 2020, respectively. Amortization of the fair values of stock options issued for services and compensation totaled $ 543,332 and $ 458,048 for the years ended December 31, 2021 and 2020, 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. F- 11 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS 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. 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. F- 12 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS 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 year ended December 31, 2021, have had or are expected to have a significant impact on the Company’s financial statements. Note 3 – Going Concern As shown in the accompanying financial statements, as of December 31, 2021, the Company had a cash balance of $ 3,345,928 and working capital of $ 4,488,207 . 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. In the event sales do not materialize at the expected rates, management would seek additional financing or would attempt to conserve cash by further reducing expenses. There can be no assurance that we will be successful in achieving these objectives. The Company 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- 13 SOW GOOD 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. The Company recognized an impairment loss of $ 1,524,030 during the year ended December 31, 2021, in accordance with this annual evaluation. 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 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- 14 SOW GOOD 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. Schedule of unaudited pro forma For the Years Ended December 31, 2021 2020 (Unaudited) (Unaudited) Revenues $ 88,440 $ – Net operating loss $ ( 7,107,925 ) $ ( 3,346,407 ) Net loss $ ( 6,874,156 ) $ ( 5,657,924 ) Weighted average common shares outstanding – basic and fully diluted 4,262,184 3,507,924 Net loss per common share – basic and fully diluted $ ( 1.61 ) $ ( 1.61 ) Note 5 – Related Party 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, resulting in total proceeds received of $ 3,037,511 . The stock sales included purchases by the following related parties: Schedule of purchases by parties Shares Amount Ira and Claudia Goldfarb JTWRO, Chairman and CEO, respectively 58,824 $ 250,000 Brad Burke, CFO 5,882 25,000 Lyle A. Berman Roevocable Trust, Director 117,647 500,000 Bradley Berman, Director 12,500 53,125 Christopher R. & Linda M. Ludeman JTWROS, Director 47,058 200,000 Greg Creed Trustee FBO Creed Revocable Living Trust, Director 30,000 127,500 271,911 $ 1,155,625 F- 15 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS 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 . The stock sales included purchases by the following related parties: Schedule of stock sales from Stock Purchase Agreement Shares Amount Brad Burke, CFO 12,500 $ 50,000 Lyle Berman Trustee FBO Lyle A. Berman Revocable Trust, Director 100,000 400,000 Bradley Berman, Director 12,500 50,000 Christopher R. & Linda M. Ludeman JTWROS, Director 50,000 200,000 Greg Creed Trustee FBO Creed Revocable Living Trust, Director 50,000 200,000 225,000 $ 900,000 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 December 31, 2021, the Company awarded 5,541 and 6,044 shares of common stock to Claudia and Ira Goldfarb , respectively, for services earned during December 31, 2021. The aggregate fair value of the shares was $ 12,467 and $ 13,599 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 March 24, 2022, in satisfaction of the outstanding common stock payable. Common Stock Issued to Officers for Services On various dates between January 31, 2021 and December 31, 2021, the Company issued an aggregate 60,951 and 66,484 shares in monthly increments of 5,541 and 6,044 shares to Claudia and Ira Goldfarb , respectively , for their services. The aggregate fair value of the shares was $ 290,792 and $ 317,188 for Claudia and Ira, respectively, based on the closing price of the Company’s common stock on the dates of grant. 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. F- 16 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS 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 at December 31, 2020. 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 . Common Stock Issued to Directors for Services On December 8, 2021, the Company issued an aggregate 41,665 shares of common stock amongst its five Directors for annual services to be rendered. The aggregate fair value of the common stock was $ 125,000 , based on the closing price of the Company’s common stock on the date of grant. The shares were expensed upon issuance. On December 8, 2021, the Company issued an additional 5,000 shares to Mr. Chris Ludeman, 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. 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. Options Granted for Services to Officers and Directors 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 -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 are being expensed over the vesting period, resulting in $ 20,814 of stock-based compensation expense during the year ended December 31, 2021. As of December 31, 2021, a total of $ 128,733 of unamortized expenses are expected to be expensed over the vesting period. On January 27, 2021, one of our Directors, Mr. 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 -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 are being expensed over the vesting period, resulting in $ 22,815 of stock-based compensation expense during the year ended December 31, 2021. As of December 31, 2021, a total of $ 126,424 of unamortized expenses are expected to be expensed over the vesting period. F- 17 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS On January 4, 2021, our CEO and Chairman, 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 -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 are being expensed over the vesting period, resulting in $ 194,900 of stock-based compensation expense during the year ended December 31, 2021. As of December 31, 2021, a total of $ 396,278 of unamortized expenses are expected to be expensed over the vesting period. 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 $ 41,923 and $ 344 of stock-based compensation expense during the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, a total of $ 167,918 of unamortized expenses are expected to be expensed over the vesting period. 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 $ 104,485 and $ 27,667 of stock-based compensation expense during the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, a total of $ 421,760 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: Schedule of grants 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, one of our Directors, 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 $ 26,605 and $ 6,633 of stock-based compensation expense during the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, a total of $ 110,846 of unamortized expenses are expected to be expensed over the vesting period. F- 18 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS 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 $ 105,792 and $ 408,964 of stock-based compensation expense during the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, a total of $ 227,936 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: Schedule of officers and directors receiving grants Stock Option Name and Title at Time of Grant Shares Granted Ken DeCubellis, former Chief Executive Officer and former Interim Chief Financial Officer 60,377 Michael Eisele, former Chief Operating Officer 42,264 Bradley Berman, Director 24,151 Joseph Lahti, Director 24,151 Benjamin Oehler, former 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. Warrants Granted On December 31, 2021, the Company closed a private placement and concurrently entered into a Note and Warrant Purchase Agreement with related parties to sell an aggregate $ 2,075,000 of promissory notes, bearing 8 % interest, and warrants to purchase an aggregate 311,250 shares of common stock, representing 15,000 warrant shares per $100,000 of promissory notes. The warrants are exercisable at a price of $ 2.21 per share over a 10 ten-year term. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 198% and a call option value of $2.25, was $ 699,213 . The warrants will be expensed as a debt discount over the life of the loans. The officers, directors and related parties receiving grants and the amounts of such grants were as follows: Schedule of related parties receiving warrant grants Promissory Stock Warrant Name and Title at Time of Grant Note Shares Granted Ira and Claudia Goldfarb, Chairman and Chief Executive Officer $ 1,500,000 225,000 Brad Burke, Chief Financial Officer 25,000 3,750 Lyle Berman, Director 500,000 75,000 Cesar J. Gutierrez, brother of the Company’s Chief Executive Officer 50,000 7,500 Total: $ 2,075,000 311,250 F- 19 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS 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 estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 146% and a call option value of $3.59, was $ 377,440 . The warrants were expensed as a debt discount during the year ended December, 31, 2020. The officers and directors receiving grants and the amounts of such grants were as follows: Schedule of warrants grants Stock Warrant Name and Title at the Time of Grant Shares Granted Ken DeCubellis, former Chief Executive Officer and former Interim Chief Financial Officer 26,250 Bradley Berman, Director 26,250 Lyle Berman, Director 26,250 Benjamin Oehler, former Director 26,250 Total: 105,000 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 Company Granted to the Grantee Name Percentage of BRAC Owned by the 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- 20 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS 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. 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 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- 21 SOW GOOD 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, 2021 and 2020: Valuation of financial instruments at fair value Fair Value Measurements at December 31, 2021 Level 1 Level 2 Level 3 Assets Cash and cash equivalents $ 3,345,928 $ – $ – Intangible assets – 304,244 – Goodwill – 4,887,297 – Total assets 3,345,928 5,191,541 – Liabilities Notes payable, related parties, net of $699,213 of debt discounts – 1,375,787 – Notes payable – 150,000 – Total liabilities – 1,525,787 – $ 3,345,928 $ 3,665,754 $ – 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 – – Intangible assets – 219,650 – Goodwill – 6,411,327 – Total assets 2,193,146 6,630,977 – Liabilities Notes payable – 262,925 – Total liabilities – 262,925 – $ 2,193,146 $ 6,368,052 $ – There were no transfers of financial assets or liabilities between Level 1 and Level 2 inputs for the years ended December 31, 2021 and 2020. F- 22 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS Note 7 – Prepaid Expenses Prepaid expenses consist of the following: Schedule of prepaid expenses December 31, 2021 2020 Prepaid software licenses $ 28,314 $ 26,853 Prepaid insurance costs 11,179 11,325 Trade show advances 22,728 – Prepaid employee benefits – 8,082 Prepaid office and other costs 18,836 10,167 Total prepaid expenses $ 81,057 $ 56,427 Note 8 – Property and Equipment Property and equipment at December 31, 2021 and 2020, consisted of the following: Property and equipment December 31, December 31, 2021 2020 Office equipment $ 13,872 $ 5,042 Machinery 1,478,022 183,680 Software 70,000 49,000 Website 71,589 40,122 Leasehold improvements 1,257,869 – Construction in progress – 1,639,690 2,891,352 1,917,534 Less: Accumulated depreciation and amortization ( 210,096 ) ( 2,612 ) Total property and equipment, net $ 2,681,256 $ 1,914,922 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 were capitalized as Leasehold Improvements and Machinery, respectively, upon completion. On December 31, 2021, the Company disposed of packaging 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 $ 8,036 , which represented the net book value at the time of disposal. 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 $ 208,448 and $ 3,642 for the years ended December 31, 2021 and 2020, respectively. F- 23 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS 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”), of which the Company had sold its last remaining 177,479 shares for total net proceeds of $ 414,361 as of December 31, 2021, and 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 of December 31, 2021, the Company had sold all of its shares in AESE common stock, and 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: Schedule of unrealized loss on investment December 31, December 31, 2021 2020 Net gain (loss) on investment in Allied Esports Entertainment, Inc. securities $ 133,944 $ ( 1,925,029 ) Less: Net gains and losses recognized on equity securities sold during the period ( 133,944 ) 1,764,200 Unrealized losses recognized on equity securities still held at the end of the period $ – $ ( 160,829 ) 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 Year Ended December 31, 2021 Operating lease cost: Fixed rent expense $ 146,881 F- 24 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS Supplemental balance sheet information related to leases was as follows: Schedule of supplemental balance sheet information December 31, 2021 Operating leases: Operating lease assets $ 1,329,089 Current portion of operating lease liabilities $ 45,970 Noncurrent operating lease liabilities 1,353,898 Total operating lease liabilities $ 1,399,868 Weighted average remaining lease term: Operating leases 13.98 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 Year Ended December 31, 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows used for operating leases $ 39,870 Leased assets obtained in exchange for lease liabilities: Total operating lease liabilities $ 1,431,463 F- 25 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS The future minimum lease payments due under operating leases as of December 31, 2021 is as follows: Schedule of future minimum lease payments Fiscal Year Ending Minimum Lease December 31, Commitments 2022 $ 125,287 2023 129,046 2024 132,917 2025 136,905 2026 and thereafter 1,554,000 Total $ 2,078,155 Less effects of discounting 678,287 Lease liability recognized $ 1,399,868 Note 11 – Intangible Assets Intangible assets consist of the following: Schedule of Intangible assets December 31, 2021 2020 Licenses $ 2,500 $ 2,500 Branding, Sow Good 159,083 150,672 Branding, Sustain Us 48,399 – Trademarks and patents 94,262 66,478 Total intangible assets $ 304,244 $ 219,650 F- 26 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS Note 12 – Notes Payable, Related Parties Notes payable, related parties consists of the following at December 31, 2021 and 2020, respectively: Schedule of Notes payable, related parties December 31, December 31, 2021 2020 On December 31, 2021, the Company received $ 1,500,000 pursuant to a note and warrant purchase agreement with the Company’s Chairman and CEO, Mr. & Mrs. Goldfarb, as lenders. The unsecured note bears interest at 8 % per annum, compounded semi-annually, and shall be payable in cash semi-annually on June 30 th and December 31 st . The note matures on December 31, 2024 . The noteholders also received warrants to purchase 225,000 shares of common stock, exercisable at $2.21 per share over a ten-year term. $ 1,500,000 $ – On December 31, 2021, the Company received $ 500,000 pursuant to a note and warrant purchase agreement from the Lyle A. Berman Revocable Trust, as beneficially controlled by one of the Company’s Directors, as lender. The unsecured note bears interest at 8 % per annum, compounded semi-annually, and shall be payable in cash semi-annually on June 30 th and December 31 st . The note matures on December 31, 2024 . The noteholder also received warrants to purchase 75,000 shares of common stock, exercisable at $2.21 per share over a ten-year term. 500,000 – On December 31, 2021, the Company received $ 25,000 pursuant to a note and warrant purchase agreement from the Company’s CFO, Bradley K. Burke, as lender. The unsecured note bears interest at 8 % per annum, compounded semi-annually, and shall be payable in cash semi-annually on June 30 th and December 31 st . The note matures on December 31, 2024 . The noteholder also received warrants to purchase 3,750 shares of common stock, exercisable at $2.21 per share over a ten-year term. 25,000 – On December 31, 2021, the Company received $ 50,000 pursuant to a note and warrant purchase agreement from the Cesar J. Gutierrez Living Trust, as beneficially controlled by the brother of the Company’s CEO, as lender. The unsecured note bears interest at 8 % per annum, compounded semi-annually, and shall be payable in cash semi-annually on June 30 th and December 31 st . The note matures on December 31, 2024 . The noteholder also received warrants to purchase 7,500 shares of common stock, exercisable at $2.21 per share over a ten-year term. 50,000 – Total notes payable, related parties 2,075,000 – Less unamortized debt discounts: 699,213 – Notes payable 1,375,787 – Less: current maturities – – Notes payable, related parties, less current maturities $ 1,375,787 $ – The Company recorded total discounts of $ 699,213 , consisting of debt discounts on warrants granted to the related parties during the year ended December 31, 2021. The discounts will be amortized to interest expense over the term of the notes, until repayment, using the straight-line method, which closely approximates the effective interest method. No interest expense was recognized during the years ended December 31, 2021 and 2020. F- 27 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS Note 13 – Notes Payable Notes payable consists of the following at December 31, 2021 and 2020, respectively: Schedule of notes payable December 31, December 31, 2021 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 1.0 % 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: current maturities – – Notes payable, less current maturities $ 150,000 $ 262,925 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 interest 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 interest expense pursuant to the amortization of note discounts during the year ended December 31, 2020. The Company recognized $ 5,911 and $ 384,456 of interest expense for the years ended December 31, 2021 and 2020, respectively. Interest expense included $ 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. F- 28 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS Note 14 – 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, 2021, a total of 4,809,070 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- 29 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS 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 $3,037,511. A total of 271,911 of these shares, or proceeds of $1,155,625 were purchased by officers and directors. 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 Issued to Officers for Services, Common Stock Payable On December 31, 2021, the Company awarded 5,541 and 6,044 shares of common stock to Claudia and Ira Goldfarb , respectively, for services earned during December 31, 2021. The aggregate fair value of the shares was $12,467 and $13,599 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 March 24, 2022, in satisfaction of the outstanding common stock payable. Common Stock Issued to Directors for Services On December 8, 2021, the Company issued an aggregate 41,665 shares of common stock amongst its five Directors for annual services to be rendered. The aggregate fair value of the common stock was $125,000, based on the closing price of the Company’s common stock on the date of grant. The shares were expensed upon issuance. On December 8, 2021, the Company issued an additional 5,000 shares to Mr. Chris Ludeman, 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. 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 former 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. Issuance of Shares for Services On various dates between January 31, 2021 and December 31, 2021, the Company issued an aggregate 60,951 and 66,484 shares in monthly increments of 5,541 and 6,044 shares to Claudia and Ira Goldfarb , respectively , for their services. The aggregate fair value of the shares was $290,792 and $317,188 for Claudia and Ira, respectively, based on the closing price of the Company’s common stock on the dates of grant. 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 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 at December 31, 2020. 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 . F- 30 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS Note 15 – 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. On September 29, 2020, January 4, 2021, and March 19, 2021, the Board of Directors adopted and approved amendments that in aggregate increase the number of shares reserved for issuance under the 2020 Equity Plan to an aggregate total of 814,150 shares and such amendments were approved by a majority of shareholders of record on September 3, 2021. Outstanding Options Options to purchase an aggregate total of 541,187 shares of common stock at a weighted average strike price of $ 6.77 , exercisable over a weighted average life of 8.82 years were outstanding as of December 31, 2021. Options Granted On December 8, 2021, a total of eight employees and consultants were granted options to purchase an aggregate 18,531 shares of the Company’s common stock, having an exercise price of $ 3.00 per share, exercisable over a 10-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 199 % and a call option value of $2.9731, was $ 55,094 . The options are being expensed over the vesting period, resulting in $ 693 of stock-based compensation expense during the year ended December 31, 2021. As of December 31, 2021, a total of $ 54,401 of unamortized expenses are expected to be expensed over the vesting period. On August 27, 2021, a total of twelve employees and consultants were granted options to purchase an aggregate 11,918 shares of the Company’s common stock, having an exercise price of $ 6.00 per share, exercisable over a 10-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 $5.9316, was $ 70,693 . The options are being expensed over the vesting period, resulting in $ 4,883 of stock-based compensation expense during the year ended December 31, 2021. As of December 31, 2021, a total of $ 65,810 of unamortized expenses are expected to be expensed over the vesting period. 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-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 are being expensed over the vesting period, resulting in $ 3,564 of stock-based compensation expense during the year ended December 31, 2021. As of December 31, 2021, a total of $ 25,998 of unamortized expenses are expected to be expensed over the vesting period. 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-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 are being expensed over the vesting period, resulting in $ 20,814 of stock-based compensation expense during the year ended December 31, 2021. As of December 31, 2021, a total of $ 128,733 of unamortized expenses are expected to be expensed over the vesting period. F- 31 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS 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-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 $ 13,361 of stock-based compensation expense during the year ended December 31, 2021. As of December 31, 2021, a total of $ 70,990 of unamortized expenses are expected to be expensed over the vesting period. 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-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 are being expensed over the vesting period, resulting in $ 22,815 of stock-based compensation expense during the year ended December 31, 2021. As of December 31, 2021, a total of $ 126,424 of unamortized expenses are expected to be expensed over the vesting period. 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-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 are being expensed over the vesting period, resulting in $ 194,900 of stock-based compensation expense during the year ended December 31, 2021. As of December 31, 2021, a total of $ 396,278 of unamortized expenses are expected to be expensed over the vesting period. 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 $ 41,923 and $ 344 of stock-based compensation expense during the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, a total of $ 167,918 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 $ 3,497 and $ 44 of stock-based compensation expense during the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, a total of $ 10,297 of unamortized expenses are expected to be expensed over the vesting period. F- 32 SOW GOOD 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 $ 104,485 and $ 27,667 of stock-based compensation expense during the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, a total of $ 421,760 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: Schedule of options granted 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 $ 26,605 and $ 6,633 of stock-based compensation expense during the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, a total of $ 110,846 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 $ 105,792 and $ 408,964 of stock-based compensation expense during the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, a total of $ 227,936 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, former Director 24,151 Lyle Berman, Director 24,151 Total: 199,245 F- 33 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS 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 $ 543,332 , and $ 458,048 of compensation expense during the years ended December 31, 2021 and 2020, 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 $ 1,807,391 as of December 31, 2021. Options Cancelled or Forfeited An aggregate 176,312 and 13,164 options with a weighted average strike price of $ 12.66 and $ 107.94 per share were forfeited by former employees during the years ended December 31, 2021 and 2020, respectively. Options Expired An aggregate 666 options with a weighted average strike price of $ 195.00 per share expired during the year ended December 31, 2020. Options Exercised No options were exercised during the years ended December 31, 2021 and 2020. The following is a summary of information about the Stock Options outstanding at December 31, 2021. Schedule of options outstanding and exercisable Shares Underlying Shares Underlying Options Outstanding Options Exercisable Range of Exercise Prices Shares Underlying Options Outstanding Weighted Average Remaining Contractual Life Weighted Average Exercise Price Shares Underlying Options Exercisable Weighted Average Exercise Price $ 3.00 - $ 195.00 541,187 8.82 years $ 6.77 24,984 $ 15.09 F- 34 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS The following is a summary of activity of outstanding stock options: Schedule of option activity Weighted Average Number Exercise of Shares Prices Balance, December 31, 2019 34,204 $ 89.31 Options granted 439,151 5.21 Options expired ( 666 ) ( 195.00 ) Options cancelled ( 13,165 ) ( 107.94 ) Balance, December 31, 2020 459,524 8.70 Options granted 257,975 4.36 Options cancelled ( 176,312 ) ( 12.66 ) Balance, December 31, 2021 541,187 $ 6.77 Exercisable, December 31, 2021 24,984 $ 15.09 Note 16 – Warrants Outstanding Warrants Warrants to purchase an aggregate total of 417,550 shares of common stock at a $ 2.66 strike price, exercisable over a weighted average life of 9.52 years were outstanding as of December 31, 2021. Warrants Granted On December 31, 2021, the Company closed a private placement and concurrently entered into a Note and Warrant Purchase Agreement with related parties to sell an aggregate $ 2,075,000 of promissory notes and warrants to purchase an aggregate 311,250 shares of common stock, representing 15,000 warrant shares per $100,000 of promissory notes. The warrants are exercisable at a price of $ 2.21 per share over a ten-year term. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 198 % and a call option value of $2.25, was $ 699,213 . The warrants will be expensed as a debt discount over the life of the loans. The officers, directors and related parties receiving grants and the amounts of such grants were as follows: Schedule of debt discount life loans Stock Warrant Name and Title at Time of Grant Shares Granted Ira and Claudia Goldfarb, Chairman and Chief Executive Officer 225,000 Brad Burke, Chief Financial Officer 3,750 Lyle Berman, Director 75,000 Cesar J. Gutierrez, brother of the Company’s Chief Executive Officer 7,500 Total: 311,250 F- 35 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS 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 estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 146 % and a call option value of $3.59, was $ 377,440 . The warrants were expensed as a debt discount during the year ended December, 31, 2020. The officers and directors receiving grants and the amounts of such grants were as follows: Schedule of stock warrants, shares granted 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, former Director 26,250 Total: 105,000 No warrants were exercised, cancelled or expired during the years ended December 31, 2021 and 2020. The following is a summary of activity of outstanding warrants: Schedule of warrant activity Weighted Average Number Exercise of Shares Prices Balance, December 31, 2019 1,300 $ 3.00 Warrants granted 105,000 4.00 Balance, December 31, 2020 106,300 3.99 Warrants granted 311,250 2.21 Balance, December 31, 2021 417,550 $ 2.66 Exercisable, December 31, 2021 417,550 $ 2.66 F- 36 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS Note 17 – 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, 2021 and 2020 consisted of the following: Schedule of components of income tax expense December 31, 2021 2020 Current taxes $ – $ – Deferred taxes – – Net income tax provision (benefit) $ – $ – The effective income tax rate for the years ended December 31, 2021 and 2020 consisted of the following: Schedule of effective income tax rate December 31, 2021 2020 Federal statutory income tax rate 21.0 0% 21.00 % State income taxes 0.00 % 7.70 % Permanent differences 0.10 % 0.10 % Change in effective state income tax rate 0.00 % ( 7.41 % ) True up prior year tax return ( 0.50 % ) 0.00 % Change in valuation allowance ( 20.60 % ) ( 13.26 % ) Net effective income tax rate 0.00 % 0.00 % F- 37 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS The components of the deferred tax assets and liabilities as of December 31, 2021 and 2020 are as follows: Schedule of deferred tax assets and liabilities December 31, 2021 2020 Deferred tax assets: Federal and state net operating loss carryovers $ 7,575,182 $ 6,424,323 Stock compensation 2,221,408 1,932,158 Property and equipment – – Goodwill and intangibles 210,959 – Reorganization costs 28,135 28,135 Total deferred tax assets $ 10,035,684 $ 8,384,616 Deferred tax liabilities: Property and equipment ( 279,737 ) ( 29,514 ) Unrealized gain on investment in Allied Esports Entertainment, Inc. ( 2,850,375 ) ( 2,865,274 ) Total deferred liabilities ( 3,130,112 ) ( 2,894,788 ) Net deferred tax assets (liabilities) 6,905,572 5,489,828 Less: valuation allowance ( 6,905,572 ) ( 5,489,828 ) Deferred tax assets (liabilities) $ – $ – As of December 31, 2021, the Company has a net operating loss carryover of approximately $ 36,000,000 . 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, 2021, approximately $ 5,600,000 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 2021, the Company increased its valuation allowance from $5,489,828 to $6,905,572 to adjust for the increase in net deferred tax assets primarily due to an increase in the net operating loss carryovers. The Company believes it is more likely than not that the benefit of these remaining assets will not be realized. 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 2016 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, 2021. F- 38 SOW GOOD INC. NOTES TO THE FINANCIAL STATEMENTS Note 18 – Commitments Legal Proceedings The Company may be subject from time to time to 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. Cash in Excess of FDIC Limits 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. Lease Commitments Upon closing of the Asset Purchase Agreement, the Company assumed the Seller’s obligations under a real property lease for its 20,945 square foot facility 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, 2021 is as follows: Fiscal Year Ending Minimum Lease December 31, Commitments 2022 $ 125,287 2023 129,046 2024 132,917 2025 136,905 2026 and thereafter 1,554,000 Total $ 2,078,155 Less effects of discounting 678,287 Lease liability recognized $ 1,399,868 Note 19 – 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: Common Stock Issued to Officers on Common Stock Payable On March 24, 2022, the Company issued an aggregate 5,541 and 6,044 shares of common stock to Claudia and Ira Goldfarb , respectively, for services for December 31, 2021 in satisfaction of the outstanding common stock payable. F- 39 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.