The accompanying notes are an integral part of these financial statements.
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, our
common stock started to be quoted on the OTCQB under the trading symbol “SOWG”, from the former trading symbol “ANFC”.
Prior to April 2, 2012, the Company name was Ante5, Inc., which became an independent company in April 2010. We became a publicly traded
company when our shares began trading on July 1, 2010. From October 2010 through August 2019, we had been engaged in the business
of acquiring oil and gas leases and participating in the drilling of wells in the Bakken and Three Forks trends in North Dakota and Montana
and /or managing similar assets for third parties.
On September 26, 2017, the Company finalized an
equity raise utilizing a rights offering and backstop agreement, raising net proceeds of $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.
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.
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
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.
On
April 8, 2022, we sold an aggregate $3,700,000 of promissory notes and warrants to purchase an aggregate 925,000 shares of common
stock, including $3,120,000 and warrants to purchase an aggregate 780,000 shares of common stock, to related parties.
The warrants are exercisable at a price of $2.35 per share over a ten-year term. These proceeds were used for working capital investment
and to ramp up our freeze dried consumer packaged goods business.
On August 23, 2022, we
closed on an offering to sell up to $2,500,000 of promissory notes and warrants to purchase an aggregate 625,000 shares of the Company’s
common stock, exercisable over a ten-year period at a price of $2.60 per share, representing 25,000 warrant shares per $100,000 of Notes
purchased. The notes mature on August 23, 2025. Interest on the notes accrue at a rate of 8% per annum, payable on January 1, 2025.
Loans may be advanced to the Company from time to time from August 23, 2023 to the Maturity Date. On December 21, 2022 and September 29,
2022, the Company received aggregate proceeds of $250,000 and $750,000 from two of the Company’s Directors on the sale of these
notes and warrants.
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.
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.
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, 2022 and 2021.
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
didn’t have any cash in excess of FDIC and SIPC insured limits at December 31, 2022. The Company had approximately $2,813,000 in
excess of FDIC and SIPC insured limits at December 31, 2021. 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 $299,553, including
$25,500 capitalized as inventory overhead and expensed to cost of goods sold, and $208,448 for the years ended December 31, 2022
and 2021, respectively.
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.
Impairment analysis on intangible assets resulted in a loss of $310,173 for the year ended December 31, 2022.
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, | |
| |
2022 | | |
2021 | |
Finished goods | |
$ | 384,241 | | |
$ | 273,135 | |
Packaging materials | |
| 416,663 | | |
| 95,436 | |
Work in progress | |
| 864,460 | | |
| 613,063 | |
Raw materials | |
| 307,515 | | |
| 470,263 | |
Total inventory | |
$ | 1,972,879 | | |
$ | 1,451,897 | |
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 at year-end resulted in an impairment loss of $4,887,297 and $1,524,030 for the years
ended December 31, 2022 and 2021, respectively.
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 $862,079
and $1,377,379
for the years ended December 31, 2022 and 2021, respectively. Stock-based compensation consisted of $79,998
and $834,047
related to the issuance of shares of common stock for services for the years ended December 31, 2022 and 2021,
respectively. Amortization of the fair values of stock options issued for services and compensation totaled $782,081
and $543,332
for the years ended December 31, 2022 and 2021, 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, $925,839
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, 2022.
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 October 2021, the FASB issued Accounting Standards
Update (“ASU”) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from
Contracts with Customers, which creates an exception to the general recognition and measurement principle for contract assets and
contract liabilities from contracts with customers acquired in a business combination. The new guidance will require companies to apply
the definition of a performance obligation under accounting standard codification (“ASC”) Topic 606 to recognize and measure
contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business
combination. Under current GAAP, an acquirer in a business combination is generally required to recognize and measure the assets it acquires
and the liabilities it assumes at fair value on the acquisition date. The new guidance will result in the acquirer recording acquired
contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic
606. These amendments are effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The adoption of
ASU 2021-08 is not expected to have a material impact on the Company’s financial statements or related disclosures.
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
In May 2021, the FASB issued ASU No. 2021-04,
Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation (Topic
718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting
for Certain Modifications or Exchanges of Freestanding Equity Classified Written Call Options. ASU 2021-04 addresses issuer’s
accounting for certain modifications or exchanges of freestanding equity-classified written call options. ASU 2021-04 is effective for
fiscal years beginning after December 15, 2021 and interim periods within those fiscal years, with early adoption permitted. The adoption
of ASU 2021-04 has not had a material impact on the Company’s financial statements or related disclosures.
In March 2020, the FASB issued ASU 2020-04 establishing
Topic 848, Reference Rate Reform. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact
debt, leases, derivatives and other contracts. The guidance is optional and is effective between March 12, 2020 and December 31, 2022.
The guidance may be elected over time as reference rate reform activities occur. We are currently evaluating the impact that the expected
market transition from the London Interbank Offered Rate, commonly referred to as LIBOR, to alternative references rates will have on
our financial statements as well as the applicability of the aforementioned expedients and exceptions provided in ASU 2020-04.
No other new accounting pronouncements, issued
or effective during the year ended December 31, 2022, 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, 2022, the Company had a cash balance of $276,464 and working capital of $1,687,880. 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.
Note
4 – Related Party
Debt Financing
On August 23, 2022, we
closed on an offering to sell up to $2,500,000 of promissory notes and warrants to purchase an aggregate 625,000 shares of the Company’s
common stock, exercisable over a ten-year period at a price of $2.60 per share, representing 25,000 warrant shares per $100,000 of Notes
purchased. The notes mature on August 23, 2025. Interest on the Notes accrue at a rate of 8% per annum, payable on January 1, 2025.
Loans may be advanced to the Company from time to time from August 23, 2023 to the Maturity Date. On December 21, 2022 and September 29,
2022, the Company received aggregate proceeds of $250,000 and $750,000 from two of the Company’s Directors on the sale of these
notes and warrants.
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
On April
8, 2022, the Company closed a private placement and concurrently entered into a Note and Warrant
Purchase Agreement (the “Purchase Agreement”) to sell an aggregate $3,700,000
of Promissory Notes (the “Notes”) and warrants (the “Warrants”)
to purchase an aggregate 925,000 shares of common stock, representing 25,000 warrant shares per
$100,000 of promissory notes. Accrued interest on the Notes was payable semi-annually beginning September 30, 2022 at the rate
of 6% per annum, but on August 23, 2022, the notes were amended to update the terms of the interest payment to be payable at the
earlier of the maturity date or January 1, 2025, rather than being paid semi-annually. The principal amount of the Notes mature and become
due and payable on April 8, 2025. The Warrants are exercisable immediately and for a period of 10 years at a price of $2.35 per share.
Proceeds to the Company from the sale of the Securities were $3,700,000. The Company may redeem outstanding warrants prior to their expiration,
at a price of $0.01 per share, provided that the volume weighted average sale price per share of Common Stock equals or exceeds $9.00
per share for thirty (30) consecutive trading days ending on the third business day prior to the mailing of notice of such redemption.
Assuming full exercise thereof, further proceeds to the Company from the exercise of the Warrant Shares is calculated as $2,173,750. The
Offering closed simultaneously with execution of the Purchase Agreement. Of the aggregate $3,700,000 of Notes, a total of $3,120,000 of
Notes were sold to officers or directors, along with 780,000 of the Warrants.
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 stock sales by related parties
|
|
Shares |
|
|
Amount |
|
Ira and Claudia Goldfarb JTWRO, Chairman and CEO, respectively |
|
|
58,824 |
|
|
$ |
250,000 |
|
Brad Burke, former CFO |
|
|
5,882 |
|
|
|
25,000 |
|
Lyle A. Berman Roevocable Trust, Director |
|
|
117,647 |
|
|
|
500,000 |
|
Bradley Berman, Director |
|
|
12,500 |
|
|
|
53,125 |
|
Christopher R. & Lynda M. Ludeman JTWROS, Director |
|
|
47,058 |
|
|
|
200,000 |
|
Greg Creed Trustee FBO Creed Revocable Living Trust, former Director |
|
|
30,000 |
|
|
|
127,500 |
|
|
|
|
271,911 |
|
|
$ |
1,155,625 |
|
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 by related parties
|
|
Shares |
|
|
Amount |
|
Brad Burke, former 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. & Lynda M. Ludeman JTWROS, Director |
|
|
50,000 |
|
|
|
200,000 |
|
Greg Creed Trustee FBO Creed Revocable Living Trust, former Director |
|
|
50,000 |
|
|
|
200,000 |
|
|
|
|
225,000 |
|
|
$ |
900,000 |
|
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
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 25, 2022, in satisfaction of the outstanding common stock payable.
Common Stock and Options Awarded to Officers
and Directors
On July 22, 2022, the
Company accepted Mr. Joseph Lahti’s resignation from the Board of Directors and appointed Tim Creed as a member of the Board. Pursuant
to the Company’s Non-Employee Director Compensation Plan, Mr. Creed received 6,410 shares of common stock as compensation. Pursuant
to the Company’s 2020 Stock Incentive Plan (the “2020 Equity Plan”), Mr. Creed was also granted options to purchase
24,151 shares of the Company’s common stock at an exercise price of $3.90 per share. These options will vest 20% as of July 22,
2023 and 20% each anniversary thereafter until fully vested.
On April 11, 2022, the
Company appointed Joe Mueller as a member of the Board of Directors and Audit Committee. Pursuant to the Company’s Non-Employee
Director Compensation Plan, Mr. Mueller received 8,064 shares of common stock as compensation. Pursuant to the Company’s 2020 Equity
Plan, Mr. Mueller was also granted options to purchase 24,151 shares of the Company’s common stock at an exercise price of $3.10
per share. These options will vest 20% as of April 11, 2023 and 20% each anniversary thereafter until fully vested.
On April 1, 2022, the Company granted options
to purchase 27,500 shares of the Company’s common stock, having an exercise price of $2.75 per share, exercisable over a 10-year
term, to the Company’s then Chief Financial Officer. The options were to 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 406% and a call
option value of $2.6433, was $72,692. The options were being expensed over the vesting period, however, pursuant to a Separation
Agreement and Release, dated May 3, 2022, the vesting terms of the options were accelerated to be fully vested, resulting
in $72,692 of stock-based compensation expense during the year ended December 31, 2022. Pursuant to the Separation
Agreement and Release, the vesting of an aggregate 47,500, with a weighted average exercise price of $4.87, of Mr. Burke’s previously
awarded options were also accelerated to be fully vested.
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 appointed Chris Ludeman as a member of the Board of Directors of the Company,
and appointed him to the Company’s Audit Committee as Chairperson. Pursuant to his appointment, Mr. Ludeman was issued
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.
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
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 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 were to vest 60% on the third anniversary, and 20% each anniversary thereafter until fully vested. The estimated value
using the Black-Scholes Pricing Model, based on a volatility rate of 193% and a call option value of $5.4381, was $149,547. The options
were being expensed over the vesting period, however, pursuant to a Separation Agreement and Release,
dated May 3, 2022, the vesting terms of the options were accelerated to be fully vested, resulting in $128,733 and $20,814
of stock-based compensation expense during the years ended December 31, 2022 and 2021, respectively.
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.
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.
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 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 warrants granted to related parties | |
| | | |
| | |
| |
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 | |
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, from
IG Union Bower, LLC (“Union Bower”), an entity owned entirely by Ira Goldfarb, under which Union Bower 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.
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
Departure of CFO
On April
30, 2022, Mr. Brad Burke resigned as the Company’s Chief Financial Officer, and the Company’s Chief Executive Officer, Claudia
Goldfarb, was appointed as the interim Chief Financial Officer. On May 3, 3022, the Company entered into a Separation Agreement and Release,
which entitled Mr. Burke to receive an amount equal to the base salary that he would have received for a three-month period (“Severance
Pay”), and the accelerated vesting of options to purchase an aggregate 75,000 shares of common stock with a weighted average exercise
price of $4.09 per share, along with an extension of the time period to exercise such stock option agreements to the fifth anniversary
of the separation.
Note 5 – 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.
The following schedule summarizes the valuation
of financial instruments at fair value on a recurring basis in the balances sheet as of December 31, 2022 and 2021:
Valuation of financial instruments at fair value | |
| | | |
| | | |
| | |
| |
Fair Value Measurements at December 31, 2022 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | |
Assets | |
| | |
| | |
| |
Cash and cash equivalents | |
$ | 276,464 | | |
$ | – | | |
$ | – | |
Total assets | |
| 276,464 | | |
| – | | |
| – | |
Liabilities | |
| | | |
| | | |
| | |
Notes payable, related parties, net of $2,692,757 of debt discounts | |
| – | | |
| 3,502,243 | | |
| – | |
Notes payable, net of $336,085 of debt discounts | |
| – | | |
| 393,915 | | |
| – | |
Total liabilities | |
| – | | |
| 3,896,158 | | |
| – | |
| |
$ | 276,464 | | |
$ | 3,896,158 | | |
$ | – | |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
| |
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 | | |
$ | – | |
There were no transfers of financial assets or
liabilities between Level 1 and Level 2 inputs for the years ended December 31, 2022 and 2021.
Note 6 – Prepaid Expenses
Prepaid expenses consist of the following:
Schedule of prepaid expenses | |
| | | |
| | |
| |
December 31, | |
| |
2022 | | |
2021 | |
Prepaid software licenses | |
$ | 36,424 | | |
$ | 28,314 | |
Prepaid insurance costs | |
| 16,746 | | |
| 11,179 | |
Trade show advances | |
| 18,707 | | |
| 22,728 | |
Prepaid rent | |
| 27,043 | | |
| – | |
Prepaid office and other costs | |
| 38,772 | | |
| 18,836 | |
Total prepaid expenses | |
$ | 137,692 | | |
$ | 81,057 | |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
Note 7 – Property and Equipment
Property and equipment at December 31, 2022 and 2021, consisted of
the following:
Property and equipment | |
| | | |
| | |
| |
December 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
Office equipment | |
$ | 13,872 | | |
$ | 13,872 | |
Machinery | |
| 1,643,010 | | |
| 1,478,022 | |
Software | |
| 70,000 | | |
| 70,000 | |
Website | |
| 71,589 | | |
| 71,589 | |
Leasehold improvements | |
| 1,257,108 | | |
| 1,257,869 | |
Construction in progress | |
| 2,487,673 | | |
| – | |
| |
| 5,543,252 | | |
| 2,891,352 | |
Less: Accumulated depreciation and amortization | |
| (508,257 | ) | |
| (210,096 | ) |
Total property and equipment, net | |
$ | 5,034,995 | | |
$ | 2,681,256 | |
Construction in progress consists of costs incurred
to build out our manufacturing facility in Irving Texas, along with the construction of our freeze driers. These costs will be capitalized
as Leasehold Improvements and Machinery, respectively, upon completion.
On July 1, 2022, the Company disposed of certain
leasehold improvements that were damaged. The Company received proceeds on the disposal of $62,308 pursuant to a settlement with the manufacturer,
resulting in a gain on the disposal of property and equipment of $36,392, which represented the proceeds received, less the net book value
at the time of disposal.
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.
Depreciation of property and equipment was $299,553, including $25,500
capitalized as inventory overhead and expensed to cost of goods sold, and $208,448 for the years ended December 31, 2022 and 2021, respectively.
Note 8 – 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.
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
The components of lease expense were as follows:
Schedule of components of lease expense | |
| | | |
| | |
| |
For the Year Ended | |
| |
December 31, | |
| |
2022 | | |
2021 | |
Operating lease cost: | |
| | | |
| | |
Amortization of right-of-use asset | |
$ | 67,564 | | |
$ | 65,113 | |
Interest on lease liability | |
| 79,317 | | |
| 81,768 | |
Total operating lease cost | |
$ | 146,881 | | |
$ | 146,881 | |
Supplemental balance sheet information related
to leases was as follows:
Schedule of supplemental balance sheet information | |
| | | |
| | |
| |
December 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
Operating lease: | |
| | | |
| | |
Operating lease assets | |
$ | 1,261,525 | | |
$ | 1,329,089 | |
| |
| | | |
| | |
Current portion of operating lease liability | |
$ | 52,543 | | |
$ | 45,970 | |
Noncurrent operating lease liability | |
| 1,301,355 | | |
| 1,353,898 | |
Total operating lease liability | |
$ | 1,353,898 | | |
$ | 1,399,868 | |
| |
| | | |
| | |
Weighted average remaining lease term: | |
| | | |
| | |
Operating leases | |
| 13.3 years | | |
| 14.0 years | |
| |
| | | |
| | |
Weighted average discount rate: | |
| | | |
| | |
Operating lease | |
| 5.75% | | |
| 5.75% | |
Supplemental cash flow and other information
related to operating leases was as follows:
Schedule of supplemental cash flow and other information | |
| | | |
| | |
| |
For the Year Ended | |
| |
December 31, | |
| |
2022 | | |
2021 | |
Cash paid for amounts included in the measurement of lease liabilities: | |
| | |
| |
Operating cash flows used for operating leases | |
$ | 45,970 | | |
$ | 39,870 | |
| |
| | | |
| | |
Leased assets obtained in exchange for lease liabilities: | |
| | | |
| | |
Total operating lease liabilities | |
$ | – | | |
$ | 1,431,463 | |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
The future minimum lease payments due under operating leases as of
December 31, 2022 is as follows:
Schedule of future minimum lease payments |
| | |
Fiscal Year Ending |
Minimum Lease | |
December 31, |
Commitments | |
2023 |
$ | 129,046 | |
2024 |
| 132,917 | |
2025 |
| 136,905 | |
2026 |
| 141,012 | |
2027 and thereafter |
| 1,412,988 | |
Total |
$ | 1,952,868 | |
Less effects of discounting |
| 598,970 | |
Lease liability recognized |
$ | 1,353,898 | |
Note 9 – Intangible Assets
Intangible assets consist of the following:
Schedule of Intangible assets | |
| | | |
| | |
| |
December 31, | |
| |
2022 | | |
2021 | |
Licenses | |
$ | – | | |
$ | 2,500 | |
Branding, Sow Good | |
| – | | |
| 159,083 | |
Branding, Sustain Us | |
| – | | |
| 48,399 | |
Trademarks and patents | |
| – | | |
| 94,262 | |
Total intangible assets | |
$ | – | | |
$ | 304,244 | |
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. Impairment analysis on intangible assets resulted in a loss of $310,173 for the year ended December 31,
2022.
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
Note 10 – Notes Payable, Related Parties
Notes payable, related parties consists of the
following at December 31, 2022 and 2021, respectively:
Schedule of Notes payable, related parties |
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
On December 21, 2022, the Company received $250,000 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 matures on August 23, 2025. The note bears interest at 8% per annum, payable on January 1, 2025. The noteholder also received warrants to purchase 62,500 shares of common stock, exercisable at $2.60 per share over a ten-year term. |
|
$ |
250,000 |
|
|
$ |
– |
|
|
|
|
|
|
|
|
|
|
On September 29, 2022, the Company received $500,000 pursuant to a note and warrant purchase agreement from a trust held by the Company’s Chairman, Mr. Goldfarb, as lender. The unsecured note matures on August 23, 2025. The note bears interest at 8% per annum, payable on January 1, 2025. The noteholder also received warrants to purchase 125,000 shares of common stock, exercisable at $2.60 per share over a ten-year term. |
|
|
500,000 |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
On September 29, 2022, the Company received $250,000 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 matures on August 23, 2025. The note bears interest at 8% per annum, payable on January 1, 2025. The noteholder also received warrants to purchase 62,500 shares of common stock, exercisable at $2.60 per share over a ten-year term. |
|
|
250,000 |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
On April 8, 2022, the Company received $2,000,000 pursuant to a note and warrant purchase agreement from a trust held by the Company’s Chairman, Mr. Goldfarb, as lender. The unsecured note bears interest at 6% per annum, compounded semi-annually, and was payable in cash semi-annually on June 30th and December 31st. On August 23, 2022, the note was amended to update the terms of the interest payment to be payable at the earlier of the maturity date or January 1, 2025, rather than being paid semi-annually. The note matures on April 8, 2025. The noteholder also received warrants to purchase 500,000 shares of common stock, exercisable at $2.35 per share over a ten-year term. |
|
|
2,000,000 |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
On April 8, 2022, the Company received $100,000 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 6% per annum, compounded semi-annually, and was payable in cash semi-annually on June 30th and December 31st. On August 23, 2022, the note was amended to update the terms of the interest payment to be payable at the earlier of the maturity date or January 1, 2025, rather than being paid semi-annually. The note matures on April 8, 2025. The noteholder also received warrants to purchase 25,000 shares of common stock, exercisable at $2.35 per share over a ten-year term. |
|
|
100,000 |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
On April 8, 2022, the Company received $100,000 pursuant to a note and warrant purchase agreement with IG Union Bower LLC, an entity owned by Ira Goldfarb, the Company’s Chairman, as lender. The unsecured note bears interest at 6% per annum, compounded semi-annually, and was payable in cash semi-annually on June 30th and December 31st. On August 23, 2022, the note was amended to update the terms of the interest payment to be payable at the earlier of the maturity date or January 1, 2025, rather than being paid semi-annually. The note matures on April 8, 2025. The noteholder also received warrants to purchase 25,000 shares of common stock, exercisable at $2.35 per share over a ten-year term. |
|
|
100,000 |
|
|
|
– |
|
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
On April 8, 2022, the Company received $920,000 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 6% per annum, compounded semi-annually, and was payable in cash semi-annually on June 30th and December 31st. On August 23, 2022, the note was amended to update the terms of the interest payment to be payable at the earlier of the maturity date or January 1, 2025, rather than being paid semi-annually. The note matures on April 8, 2025. The noteholder also received warrants to purchase 230,000 shares of common stock, exercisable at $2.35 per share over a ten-year term. |
|
|
920,000 |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
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 30th and December 31st. 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 |
|
|
|
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 30th and December 31st. 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 |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
On December 31, 2021, the Company received $25,000 pursuant to a note and warrant purchase agreement from the Company’s former 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 30th and December 31st. 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 |
|
|
|
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 30th and December 31st. 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 |
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
Total notes payable, related parties |
|
|
6,195,000 |
|
|
|
2,075,000 |
|
Less unamortized debt discounts: |
|
|
2,692,757 |
|
|
|
699,213 |
|
Notes payable |
|
|
3,502,243 |
|
|
|
1,375,787 |
|
Less: current maturities |
|
|
– |
|
|
|
– |
|
Notes payable, related parties, less current maturities |
|
$ |
3,502,243 |
|
|
$ |
1,375,787 |
|
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
The Company recorded total discounts of $2,811,138
and $699,213, consisting of debt discounts on warrants granted to the related parties during the years ended December 31, 2022 and 2021,
respectively. The discounts are being amortized to interest expense over the term of the notes, until repayment, using the straight-line
method, which closely approximates the effective interest method. The Company recorded $817,594 of stock-based interest expense pursuant
to the amortization of discounts during the year ended December 31, 2022.
The Company recognized $320,580 of interest expense
for the year ended December 31, 2022. No interest expense was recognized during the year ended December 31, 2021.
Note 11 – Notes Payable
Notes payable consists of the following at December
31, 2022 and 2021, respectively:
Schedule of notes payable | |
| | | |
| | |
| |
December 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
On April 8, 2022, the Company received $80,000 pursuant to a note and warrant purchase agreement from an accredited investor, as lender. The unsecured note bears interest at 6% per annum, compounded semi-annually, and was payable in cash semi-annually on June 30th and December 31st. On August 23, 2022, the note was amended to update the terms of the interest payment to be payable at the earlier of the maturity date or January 1, 2025, rather than being paid semi-annually. The note matures on April 8, 2025. The noteholders also received warrants to purchase 20,000 shares of common stock, exercisable at $2.35 per share over a ten-year term. | |
$ | 80,000 | | |
$ | – | |
| |
| | | |
| | |
On April 8, 2022, the Company received $500,000 pursuant to a note and warrant purchase agreement from an accredited investor, as lender. The unsecured note bears interest at 6% per annum, compounded semi-annually, and was payable in cash semi-annually on June 30th and December 31st. On August 23, 2022, the note was amended to update the terms of the interest payment to be payable at the earlier of the maturity date or January 1, 2025, rather than being paid semi-annually. The note matures on April 8, 2025. The noteholders also received warrants to purchase 125,000 shares of common stock, exercisable at $2.35 per share over a ten-year term. | |
| 500,000 | | |
| – | |
| |
| | | |
| | |
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 | |
| |
| | | |
| | |
Total notes payable | |
| 730,000 | | |
| 150,000 | |
Less: unamortized debt discounts | |
| 336,085 | | |
| – | |
Notes payable | |
| 393,915 | | |
| – | |
Less: current maturities | |
| – | | |
| – | |
Notes payable, less current maturities | |
$ | 393,915 | | |
$ | 150,000 | |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
The Company recorded total discounts of $444,330,
consisting of debt discounts on warrants granted to accredited investors on April 8, 2022. The discounts are being amortized to interest
expense over the term of the notes, until repayment, using the straight-line method, which closely approximates the effective interest
method. The Company recorded $108,245 of stock-based interest expense pursuant to the amortization of discounts during the year ended
December 31, 2022.
The Company recognized $31,546 and $5,911 of interest
expense for the years ended December 31, 2022 and 2021, respectively.
The Company recognized interest expense for the
years ended December 31, 2022 and 2021, as follows:
Schedule of recognized interest expense on notes payable | |
| | | |
| | |
| |
December 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Interest on notes payable, related parties | |
$ | 320,580 | | |
$ | – | |
Amortization of debt discounts on notes payable, related parties | |
| 817,594 | | |
| – | |
Interest on notes payable | |
| 31,546 | | |
| 5,911 | |
Amortization of debt discounts on notes payable | |
| 108,245 | | |
| – | |
Total interest expense | |
$ | 1,277,965 | | |
$ | 5,911 | |
Note 12 – Stockholders’ Equity
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 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 Directors for Services
On July 22, 2022, the
Company accepted Mr. Joseph Lahti’s resignation from the Board of Directors and appointed Tim Creed as a member of the Board. Pursuant
to the Company’s Non-Employee Director Compensation Plan, Mr. Creed received 6,410 shares of common stock as compensation. The
fair value of the shares was $25,000, based on the closing price of the Company’s common stock on the date of grant.
On April 11, 2022, the
Company appointed Joe Mueller as a member of the Board of Directors and Audit Committee. Pursuant to the Company’s Non-Employee
Director Compensation Plan, Mr. Mueller received 8,064 shares of common stock as compensation. The fair value of the shares was $24,998,
based on the closing price of the Company’s common stock on the date of grant.
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
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.
Common Stock Awarded to Advisory Board Members
On April
20, 2022, the Company awarded an aggregate total of 8,000 shares of common stock to
two advisory board members for services. The 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 March
25, 2022, the Company awarded 4,255 shares of common stock to a newly appointed advisory
board member for services. The fair value of the shares was $10,000, based on the closing price of the Company’s common stock on
the date of grant.
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 appointed Chris Ludeman as a member of the Board of Directors of the Company,
and appointed him to the Company’s Audit Committee as Chairperson. Pursuant to his appointment, Mr. Ludeman was issued
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.
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 25, 2022, in satisfaction of the outstanding common stock payable.
On
January 7, 2021, the Company issued an aggregate 16,623 and 18,133 shares of common stock to Claudia and Ira Goldfarb,
respectively, for services from October 2020 through December 31, 2020 in satisfaction of the outstanding common
stock payable 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.
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
Note 13 – Options
The 2020 Equity Plan
was approved by written consent of a majority of shareholders of record as of November 12, 2019 and adopted by the Board on December
5, 2019, as provided in the definitive information statement filed with Securities and Exchange Commission on January 10, 2020 (the “DEF
14C”). The description of the 2020 Equity Plan is qualified in its entirety by the text of the
2020 Equity Plan, a copy of which was attached as Annex C to the DEF 14C. 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 590,991
shares of common stock at a weighted average strike price of $4.53, exercisable over a weighted average life of 8.1 years were outstanding
as of December 31, 2022.
Options Granted
On July 22, 2022, the
Company appointed Tim Creed as a member of the Board. Pursuant to the Company’s 2020 Equity Plan, Mr. Creed was granted options
to purchase 24,151 shares of the Company’s common stock at an exercise price of $3.90 per share. These options will vest 20% as
of July 22, 2023 and 20% each anniversary thereafter until fully vested. The estimated value using the Black-Scholes Pricing Model, based
on a volatility rate of 137% and a call option value of $3.6166, was $87,346. The options are being expensed over the vesting period,
resulting in $7,753 of stock-based compensation expense during the year ended December 31, 2022. As of December 31, 2022, a
total of $79,593 of unamortized expenses are expected to be expensed over the vesting period.
On April 11, 2022, the
Company appointed Joe Mueller as a member of the Board of Directors and Audit Committee. Pursuant to the Company’s 2020 Equity Plan,
Mr. Mueller was granted options to purchase 24,151 shares of the Company’s common stock at an exercise price of $3.10 per share.
These options will vest 20% as of April 11, 2023 and 20% each anniversary thereafter until fully vested. The estimated value using
the Black-Scholes Pricing Model, based on a volatility rate of 406% and a call option value of $2.6433, was $71,423. The options are being
expensed over the vesting period, resulting in $10,763 of stock-based compensation expense during the year ended December 31, 2022.
As of December 31, 2022, a total of $60,660 of unamortized expenses are expected to be expensed over the vesting period.
On April 1, 2022, a total of nineteen employees
and consultants were granted options to purchase an aggregate 35,977 shares of the Company’s common stock, having an exercise price
of $2.75 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 406% and a call option value
of $2.6433, was $95,099. The options are being expensed over the vesting period, resulting in $13,859 of stock-based compensation expense
during the year ended December 31, 2022. As of December 31, 2022, a total of $70,420 of unamortized expenses are expected to
be expensed over the vesting period.
On April 1, 2022, the Company granted options
to purchase 27,500 shares of the Company’s common stock, having an exercise price of $2.75 per share, exercisable over a 10-year
term, to the Company’s then Chief Financial Officer. The options were to 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 406% and a call
option value of $2.6433, was $72,692. The options were being expensed over the vesting period, however, pursuant to a Separation
Agreement and Release, dated May 3, 2022, the vesting terms of the options were accelerated to be fully vested, resulting
in $72,692 of stock-based compensation expense during the year ended December 31, 2022. Pursuant to the Separation
Agreement and Release, the vesting of an aggregate 47,500, with a weighted average exercise price of $4.87, of Mr. Burke’s previously
awarded options were also accelerated to be fully vested.
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
On March 30, 2022, a total of sixteen employees
and consultants were granted options to purchase an aggregate 19,436 shares of the Company’s common stock, having an exercise price
of $2.75 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 407% and a call option value
of $2.6435, was $51,380. The options are being expensed over the vesting period, resulting in $7,096 of stock-based compensation expense
during the year ended December 31, 2022. As of December 31, 2022, a total of $26,756 of unamortized expenses are expected to
be expensed over the vesting period.
On March 25, 2022, a newly appointed advisory
board member was granted options to purchase an aggregate 6,382 shares of the Company’s common stock, having an exercise price of
$2.35 per share, exercisable over a 10-year term. The options will vest 20% on each anniversary over a five-year period, until fully vested.
The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 406% and a call option value of $2.2584, was
$14,413. The options are being expensed over the vesting period, resulting in $2,220 of stock-based compensation expense during the year
ended December 31, 2022. As of December 31, 2022, a total of $12,193 of unamortized expenses are expected to be expensed over
the vesting period.
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 $4,636 and $693 of stock-based compensation
expense during the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, a total of $6,260 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 $8,252 and $4,883 of stock-based compensation
expense during the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, a total of $21,679 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 $5,912 and $3,564 of stock-based compensation expense during
the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, a total of $20,086 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
were being expensed over the vesting period, however, pursuant to a Separation Agreement and Release,
dated May 3, 2022, the vesting terms of the options were accelerated to be fully vested, resulting in $128,733 and $20,814
of stock-based compensation expense during the years ended December 31, 2022 and 2021, respectively.
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 $14,658 and $13,361 of stock-based compensation
expense during the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, a total of $47,638 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 $29,848 and
$22,815 of stock-based compensation expense during the years ended December 31, 2022 and 2021, respectively. As of December 31,
2022, a total of $96,576 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 $197,060
and $194,900 of stock-based compensation expense during the years ended December 31, 2022 and 2021, respectively. As of December 31,
2022, a total of $199,218 of unamortized expenses are expected to be expensed over the vesting period.
The Company recognized a total of $782,081, and
$543,332 of compensation expense during the years ended December 31, 2022 and 2021, 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 $1,203,511 as of December 31, 2022.
Options Cancelled or Forfeited
An aggregate 61,642 and 176,312 options with a
weighted average strike price of $5.87 and $12.66 per share were forfeited by former employees during the years ended December 31, 2022
and 2021, respectively.
Options Expired
No options expired during the years ended December 31, 2022
and 2021.
Options Exercised
No options were exercised during the years ended
December 31, 2022 and 2021.
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
The following is a summary of information about
the Stock Options outstanding at December 31, 2022.
Schedule of options outstanding and exercisable | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares Underlying Options Outstanding | | |
| Shares Underlying
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 | |
$2.35 - $195.00 | |
| 590,991 | | |
| 8.1 years | | |
$ | 4.53 | | |
| 160,199 | | |
$ | 5.02 | |
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, 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 | |
Options granted | |
| 137,597 | | |
| 2.99 | |
Options cancelled | |
| (87,793 | ) | |
| (7.11 | ) |
Balance, December 31, 2022 | |
| 590,991 | | |
$ | 4.53 | |
| |
| | | |
| | |
Exercisable, December 31, 2022 | |
| 160,199 | | |
$ | 5.02 | |
Note 14 – Warrants
Outstanding Warrants
Warrants to purchase an aggregate total of 1,591,250
shares of common stock at a $2.47 strike price, exercisable over a weighted average life of 9.16 years were outstanding as of December
31, 2022.
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
Warrants Granted
On December 21, 2022,
warrants to purchase an aggregate 62,500 shares of common stock were issued to a director pursuant to a private placement debt offering
in which aggregate proceeds of $250,000 were received in exchange for promissory notes and warrants to purchase an aggregate 62,500 shares
of common stock, representing 25,000 warrant shares per $100,000 of promissory notes. The warrants are fully vested and exercisable
over a period of 10 years at a price of $2.60 per share. The Company may redeem outstanding warrants prior to their expiration, at a price
of $0.01 per share, provided that the volume weighted average sale price per share of Common Stock equals or exceeds $9.00 per share for
thirty (30) consecutive trading days ending on the third business day prior to the mailing of notice of such redemption. The estimated
value using the Black-Scholes Pricing Model, based on a volatility rate of 316% and a weighted average call option value of $3.15, was
$196,942. The warrants are being expensed over the life of the loans, resulting in $2,018 of stock-based compensation expense during the
year ended December 31, 2022. As of December 31, 2022, a total of $194,924 of unamortized expenses are expected to be expensed
over the remaining life of the outstanding debts.
On September 29, 2022,
warrants to purchase an aggregate 187,500 shares of common stock were issued to directors pursuant to a private placement debt offering
in which aggregate proceeds of $750,000 were received in exchange for promissory notes and warrants to purchase an aggregate 187,500 shares
of common stock, representing 25,000 warrant shares per $100,000 of promissory notes. The warrants are fully vested and exercisable
over a period of 10 years at a price of $2.60 per share. The Company may redeem outstanding warrants prior to their expiration, at a price
of $0.01 per share, provided that the volume weighted average sale price per share of Common Stock equals or exceeds $9.00 per share for
thirty (30) consecutive trading days ending on the third business day prior to the mailing of notice of such redemption. The estimated
value using the Black-Scholes Pricing Model, based on a volatility rate of 140% and a weighted average call option value of $1.9441, was
$364,512. The warrants are being expensed over the life of the loans, resulting in $32,355 of stock-based compensation expense during
the year ended December 31, 2022. As of December 31, 2022, a total of $332,157 of unamortized expenses are expected to be expensed
over the remaining life of the outstanding debts.
On April 8, 2022, warrants to purchase an aggregate
925,000 shares of common stock were issued pursuant to a private placement debt offering in which aggregate proceeds of $3,700,000 were
received in exchange for promissory notes and warrants to purchase an aggregate 925,000 shares of common stock, representing 25,000 warrant
shares per $100,000 of promissory notes. The warrants are fully vested and exercisable over a period of 10 years at a price of $2.35 per
share. The Company may redeem outstanding warrants prior to their expiration, at a price of $0.01 per share, provided that the volume
weighted average sale price per share of Common Stock equals or exceeds $9.00 per share for thirty (30) consecutive trading days ending
on the third business day prior to the mailing of notice of such redemption. A total of 780,000 of the warrants were issued to officers
or directors. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 154% and a weighted average call
option value of $2.9443, was $2,694,014. The warrants are being expensed over the life of the loans, resulting in $656,301 of stock-based
compensation expense during the year ended December 31, 2022. As of December 31, 2022, a total of $2,037,713 of unamortized
expenses are expected to be expensed over the lives of outstanding debts.
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 are being expensed over the life of the loans, resulting in $235,165
of stock-based compensation expense during the year ended December 31, 2022. As of December 31, 2022, a total of $464,048
of unamortized expenses are expected to be expensed over the lives of outstanding debts. 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 | |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
A total of 1,300 warrants with a weighted average
exercise price of $3.00 per share expired during the year ended December 31, 2022. No warrants were exercised, cancelled or expired
during the years ended December 31, 2022 and 2021, otherwise.
The following is a summary of activity of outstanding
warrants:
Schedule of warrant activity | |
| | | |
| | |
| |
| | |
Weighted | |
| |
| | |
Average | |
| |
Number | | |
Exercise | |
| |
of Shares | | |
Prices | |
Balance, December 31, 2020 | |
| 106,300 | | |
$ | 3.99 | |
Warrants granted | |
| 311,250 | | |
| 2.21 | |
Balance, December 31, 2021 | |
| 417,550 | | |
| 2.66 | |
Warrants granted | |
| 1,175,000 | | |
| 2.40 | |
Warrants expired | |
| (1,300 | ) | |
| (3.00 | ) |
Balance, December 31, 2022 | |
| 1,591,250 | | |
$ | 2.47 | |
| |
| | | |
| | |
Exercisable, December 31, 2022 | |
| 1,591,250 | | |
$ | 2.47 | |
Note 15 – 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.
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
Note 16 – Gain on Early Extinguishment
of Debt
During the year ended December 31, 2021, the Company
recognized a gain on early extinguishment of debt of $113,772, consisting of the forgiveness of $112,925 of principal and $847 of interest,
on our PPP loan pursuant to Payroll Protection Program established as part of the Coronavirus Aid, Relief, and Economic Security Act (the
“CARES Act”).
Note 17 – Gain on 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, | |
| |
2022 | | |
2021 | |
Net gain (loss) on investment in Allied Esports Entertainment, Inc. securities | |
$ | – | | |
$ | 133,944 | |
Less: Net gains and losses recognized on equity securities sold during the period | |
| – | | |
| (133,944 | ) |
Unrealized losses recognized on equity securities still held at the end of the period | |
$ | – | | |
$ | – | |
Note 18 – 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, 2022 and 2021 consisted of the following:
Schedule of components of income tax expense | |
| | | |
| | |
| |
December 31, | |
| |
2022 | | |
2021 | |
Current taxes | |
$ | – | | |
$ | – | |
Deferred taxes | |
| – | | |
| – | |
Net income tax provision (benefit) | |
$ | – | | |
$ | – | |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
The effective income tax rate for the years ended
December 31, 2022 and 2021 consisted of the following:
Schedule of effective income tax rate | |
| | | |
| | |
| |
December 31, | |
| |
2022 | | |
2021 | |
Federal statutory income tax rate | |
| 21.00% | | |
| 21.00% | |
State income taxes | |
| 0.00% | | |
| 0.00% | |
Permanent differences | |
| 0.10% | | |
| 0.10% | |
Change in effective state income tax rate | |
| 0.00% | | |
| 0.00% | |
True up prior year tax return | |
| (0.50% | ) | |
| (0.50% | ) |
Change in valuation allowance | |
| (20.60% | ) | |
| (20.60% | ) |
Net effective income tax rate | |
| 0.00% | | |
| 0.00% | |
The components of the deferred tax assets and
liabilities as of December 31, 2022 and 2021 are as follows:
Schedule of deferred tax assets and liabilities | |
| | | |
| | |
| |
December 31, | |
| |
2022 | | |
2021 | |
Deferred tax assets: | |
| | | |
| | |
Federal and state net operating loss carryovers | |
$ | 8,681,830 | | |
$ | 7,575,182 | |
Stock compensation | |
| 862,079 | | |
| 2,221,408 | |
Stock-based debt discounts | |
| 925,839 | | |
| – | |
Goodwill and intangibles | |
| 5,197,470 | | |
| 210,959 | |
Reorganization costs | |
| – | | |
| 28,135 | |
Total deferred tax assets | |
$ | 15,667,218 | | |
$ | 10,035,684 | |
| |
| | | |
| | |
Deferred tax liabilities: | |
| | | |
| | |
Property and equipment | |
| (149,777 | ) | |
| (279,737 | ) |
Unrealized gain on investment in Allied Esports Entertainment, Inc. | |
| – | | |
| (2,850,375 | ) |
Total deferred liabilities | |
| (149,777 | ) | |
| (3,130,112 | ) |
| |
| | | |
| | |
Net deferred tax assets (liabilities) | |
| 15,517,441 | | |
| 6,905,572 | |
Less: valuation allowance | |
| (15,517,441 | ) | |
| (6,905,572 | ) |
Deferred tax assets (liabilities) | |
$ | – | | |
$ | – | |
SOW GOOD INC.
NOTES TO THE FINANCIAL STATEMENTS
As of December 31, 2022, the Company
has a net operating loss carryover of approximately $41,300,000. 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, 2022, approximately $4,240,000 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 6,905,572 to $15,517,441 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, 2022.
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:
Debt Financing
On various dates from
January 5, 2023 to March 7, 2023, the Company received aggregate proceeds of $1,250,000 from two of the Company’s Directors on the
sale of an offering entered into on September 29, 2022, to sell up to $2,500,000 of promissory notes and warrants to purchase an
aggregate 625,000 shares of the Company’s common stock, exercisable over a ten-year period at a price of $2.60 per share, representing
25,000 warrant shares per $100,000 of Notes purchased. The notes mature on August 23, 2025. Interest on the Notes accrue at a rate of
8% per annum, payable on January 1, 2025. The Company issued aggregate warrants to purchase 312,500 shares of common stock pursuant
to the advances received on this offering.