Filing summary
Registrant discrepancy: The supplied filing is for Black Ridge Oil & Gas, Inc. (OTCQB: ANFC), not Sow Good Inc. Investors should verify the filing and company identification before relying on this summary.
Business context and reporting period
This unaudited Form 10-Q covers the quarter and six months ended June 30, 2017, and was filed August 8, 2017. After transferring its oil and gas assets and related debt to Black Ridge Holding Company, LLC (BRHC) in a 2016 restructuring, the company earned management fees and retained a minority interest in BRHC. BRHC terminated the management services agreement effective June 30, 2017, after selling its oil and gas assets.
Financial performance and position
- Quarter revenue: $500,000, all management fees, versus $49,451 in the 2016 quarter. Operating expenses were $605,494 and net loss was $105,494, compared with 2016 net income of $38.1 million.
- Six-month revenue: $1.0 million versus $49,451. Operating expenses were $1.253 million and net loss was $258,211, compared with 2016 net income of $30.2 million.
- Comparability: 2016 results included a $41.6 million restructuring gain and losses from discontinued oil and gas operations. The 2017 periods had no such restructuring gain or discontinued-operation results.
- Cash flow: For the six months, operating activities provided $146,511; investing activities provided $2,160; and financing activities used $167,646, primarily for deferred offering costs. Cash declined $18,975 to $47,294.
- Liquidity: At June 30, current assets were $93,485 and current liabilities were $70,385, leaving working capital of $23,100. Total assets were $329,795 and total liabilities were $70,385.
- Debt and equity: No long-term liabilities or debt were reported on the June 30 balance sheet. The company had 47,979,990 common shares outstanding; accumulated deficit was $35.0 million.
- Margins: The filing does not present a clear margin measure; reported operating expenses exceeded revenue in both 2017 periods.
Material changes and unusual items
- Management fees rose because the 2017 periods reflect full quarters under the BRHC services agreement, while the 2016 comparison included only nine days after the restructuring closed.
- Six-month general and administrative expense decreased to $1.248 million from $1.300 million, mainly due to lower travel, investor relations and office costs. Salaries and stock compensation were broadly stable.
- The company reported a $4,714 loss on disposal of property and equipment in the first half of 2017.
- The company’s 3.78% BRHC interest was agreed to be purchased by Chambers affiliates for an estimated $1.0 million in cash. The filing does not establish that the sale proceeds had been received by June 30.
Outlook, risks and contingencies
- On August 3, 2017, a rights offering became effective: eligible holders could buy up to nine shares per right at $0.012 per share. Maximum gross proceeds were estimated at approximately $5.182 million. Proceeds were intended primarily to sponsor a SPAC; remaining funds were expected by management to support operations for at least 24 months, subject to the offering and planned use of proceeds.
- Management said it expected to meet near-term cash needs through short-term borrowing, the expected BRHC-interest sale proceeds, the rights offering and potential management fees from new partners. It also continued to pursue distressed oil and gas acquisitions, but reported no completed new acquisitions with joint venture partners.
- On July 7, 2017, after quarter-end, the company borrowed $500,000 from Cadence Bank at 4.5% annual interest, due October 7, 2017. The note is secured by the company’s deposit account and contractual rights to payment for its BRHC interest.
- Management cited risks including limited liquidity, failure to collect amounts owed, difficulty obtaining capital or partners, stock illiquidity and volatility, acquisition execution, and exchange-listing requirements. The company reported no material litigation and no off-balance-sheet arrangements.
- Management concluded disclosure controls were effective as of June 30, 2017 and reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the registrant: the supplied document identifies Black Ridge Oil & Gas, Inc., not Sow Good Inc.
- Check completion and actual proceeds of the BRHC-interest sale and the rights offering, including the offering’s dilution and use of proceeds.
- Review the terms, collateral and repayment of the $500,000 post-quarter-end note, and the company’s liquidity after June 30.
- Assess the impact of the terminated BRHC management agreement on future revenue and whether replacement fees or acquisitions materialized.
- Distinguish recurring operating results from the one-time 2016 restructuring gain and discontinued oil and gas results when comparing periods.