Black Ridge Oil & Gas, Inc. — FY 2017 Form 10-K
Entity note: The request identifies Sow Good Inc., but the supplied filing is for Black Ridge Oil & Gas, Inc. This summary reflects the filing provided. It covers the fiscal year ended December 31, 2017, with 2016 comparisons; it is not a quarterly-only report.
Business context and reporting period
Black Ridge shifted from managing oil-and-gas assets for Black Ridge Holding Company, LLC (BRHC) to sponsoring and managing Black Ridge Acquisition Corp. (BRAC), a newly public special-purpose acquisition company. BRHC terminated its management agreement effective June 30, 2017, and was dissolved in October. The company reported seven full-time employees and continued to seek oil-and-gas investments and management opportunities.
BRAC raised $138 million gross in its October 2017 IPO. Black Ridge retained approximately 22% of BRAC’s common stock and consolidated BRAC as a variable-interest entity because it concluded it was BRAC’s primary beneficiary. Consequently, the consolidated balance sheet includes substantial IPO trust assets and redeemable non-controlling interest; these amounts should not be read as unrestricted parent-company resources.
Financial results and liquidity
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue, primarily management fees | $1.000 million | $1.049 million |
| Operating expenses | $2.452 million | $2.527 million |
| Operating loss | $1.452 million | $1.478 million |
| Net income (loss), consolidated | $(0.212) million | $29.946 million |
| Net income (loss) attributable to Black Ridge | $(0.393) million | $29.946 million |
| Cash flow from operating activities | $(0.792) million | $2.953 million |
| Cash and cash equivalents at year-end | $1.477 million | $0.066 million |
| Working capital at year-end | $1.380 million | $0.117 million |
Operating expenses were about 245% of revenue in 2017, compared with about 241% in 2016. Salaries and benefits were $1.322 million; stock compensation was $0.575 million. Total assets were $140.557 million, including $138.980 million of restricted cash and investments in BRAC’s trust account. Total liabilities were $0.187 million; no debt was reported at year-end. A $500,000 short-term note borrowed in July was repaid in September.
2017 investing cash outflow was $137.606 million, principally reflecting the trust-account deposit; financing cash inflow was $139.810 million, principally from BRAC’s IPO and Black Ridge’s equity raise. In 2016, reported net income included a $41.621 million gain on debt restructuring, while discontinued oil-and-gas operations recorded a $10.197 million loss, including a $5.219 million impairment. The 2016 net income is therefore not a straightforward measure of recurring performance.
Material changes, outlook and risks
- Black Ridge issued 431.8 million shares through a rights offering and backstop at $0.012 per share, raising $5.182 million gross (net proceeds were $5.052 million). Outstanding shares increased from 48.0 million at year-end 2016 to 479.8 million at year-end 2017. $4.45 million was used to purchase BRAC placement units.
- 2017 management-fee revenue came from BRHC through June 30. BRAC paid Black Ridge $10,000 per month under an administrative services agreement beginning in October; intercompany fees are eliminated in consolidation.
- Management planned to rely on BRAC management fees, new partners and management agreements, joint ventures, and additional equity or debt financing. No quantified earnings or revenue guidance was provided.
- The auditor’s report includes a going-concern explanatory paragraph. Management stated that cash on hand was insufficient to cover the next year’s cash needs, and the company had no present revenue source in the going-concern note. Additional funding may not be available in time or at all.
- Key risks include dependence on raising capital and finding partners, limited and illiquid OTCQB trading, significant dilution, oil-and-gas market and partner risks, BRAC’s ability to complete a business combination by its July 10, 2019 deadline, conflicts arising from shared management, and possible Investment Company Act issues. BRAC’s trust funds are restricted for public shareholders and are not ordinary operating liquidity.
- The filing reports no material litigation and no significant contractual payment commitments at year-end. Management assessed disclosure controls and internal control over financial reporting as effective; the auditor did not attest to internal-control effectiveness.
Important facts for investors to verify
- Reconcile the filing’s cash figures: the financial statements and MD&A report $1,477,089 at December 31, 2017, while one risk-factor passage states $1,447,089.
- Assess unrestricted parent-company cash, expected BRAC management-fee receipts, cash burn, and the timing and terms of any required financing; distinguish these from BRAC trust assets.
- Review the substantial dilution from the rights offering, insider/backstop participation, outstanding options and warrants, and subsequent 2018 incentive awards tied to Black Ridge’s BRAC shares.
- Evaluate BRAC’s search progress, redemption exposure, remaining funds outside the trust, business-combination deadline, and the effect of any transaction on Black Ridge’s ownership and liquidity.
- Confirm the filing identity and issuer: the supplied report is Black Ridge Oil & Gas, Inc., not Sow Good Inc.