Filing summary
Identity discrepancy: The request identifies Sow Good Inc., but the supplied Form 10-Q is for Black Ridge Oil & Gas, Inc. (formerly Ante5, Inc.), an oil and gas company. The summary below reflects the filing text, not Sow Good Inc.
Business context and reporting period
Unaudited quarterly report for the three and six months ended June 30, 2013, compared with the corresponding 2012 periods. Black Ridge holds non-operating interests in oil and gas properties, primarily in North Dakota and Montana’s Bakken and Three Forks areas. At quarter-end it reported approximately 11,891 net acres and 81 gross (2.82 net) producing wells.
Financial and operating performance
| Metric | Q2 2013 | Six months 2013 |
|---|---|---|
| Oil and gas sales | $2.15 million | $4.06 million |
| Net income (loss) | ($297,300) | $16,513 |
| Net cash from operations | Not separately stated | $1.01 million |
| Capital spending and other investing cash flows | Not separately stated | ($2.95 million) |
| Cash at June 30 | $1.57 million | |
| Revolving credit debt at June 30 | $7.86 million | |
| Working capital at June 30 | $1.92 million |
Q2 production was 25,741 Boe, up 47% year over year; six-month production was 47,543 Boe, versus 25,561 Boe in 2012. Q2 realized prices were $88.02 per barrel of oil and $5.48 per Mcf of natural gas. Q2 production cost was $10.47 per Boe. Adjusted EBITDA, a non-GAAP measure, was $1.23 million for Q2 and $2.21 million for the six-month period.
Changes versus prior comparable periods
- Sales increased 56% in Q2 and 98% for the first six months, reflecting higher production and, in Q2, a 6% increase in average realized price per Boe.
- Q2 net loss narrowed to $297,300 from $617,445; for the six months, the company reported net income of $16,513 versus a $1.38 million loss.
- Six-month operating cash flow rose to $1.01 million from $106,000. Investing cash use declined to $2.95 million from $6.16 million, while net financing cash flow declined to $2.09 million from $5.53 million.
- Q2 production expenses rose 121% year over year and increased to $10.47 per Boe from $6.95; management cited workovers and higher water hauling and disposal costs. Six-month depletion expense increased 93% to $1.57 million as production and properties expanded.
- General and administrative expense fell 53% in Q2 and 39% for the six months, partly because 2012 included a $438,539 noncash charge for stock issued in connection with an acquisition that was not completed.
- Interest expense increased, including accelerated amortization of debt issuance and warrant costs tied to the anticipated termination of the existing facility.
Liquidity, financing, outlook and risks
At June 30, current assets were $7.44 million and current liabilities were $5.53 million. The balance sheet included a $2.5 million settlement receivable due on or before December 31, 2013. The company also had approximately $3.6 million of additional well-development AFE commitments beyond amounts already paid or accrued.
After quarter-end, on August 8, 2013, Black Ridge entered into a $50 million senior revolving facility with an initial borrowing base of $7 million, and a second-lien term facility of up to $75 million with initial availability of $25 million. The facilities were intended to refinance the Dougherty debt and support acquisitions, development and working capital. The subordinated facility carries cash interest of 9% plus a floating component and 4% PIK interest, as well as fees and potential prepayment premiums. Both facilities include financial covenants; the lenders also require hedging of 50%–75% of future oil production on currently producing wells. The filing says the company planned to repay and terminate the Dougherty facility after the required notice period; subsequent funding and repayment are not established by this filing.
Management expected revenues to grow as wells entered production but stated revenues were not expected to exceed investment in development and operating costs throughout 2013. It expected credit availability to fund its 2013 plans. No specific production or earnings guidance was provided. Commodity-price volatility, drilling and production outcomes, cost overruns, access to capital, and the ability to acquire and develop acreage are identified risks. The filing reports no material pending litigation, but notes ongoing third-party litigation over the state’s ownership of similar Missouri River riparian acreage. The company excluded revenue and costs for its related well interest pending resolution; it estimated the excluded six-month 2013 amounts at $252,000 of sales and $55,000 of production expenses and taxes.
A potential reverse stock split of up to 1-for-10 had been approved by the board and stockholders, but the board had not made it effective as of the filing date. The filing also describes up to $6.5 million of contingent settlement payments dependent on future online-poker legislation and licensing. As of June 30, no derivative agreements had been entered into.
Important facts for investors to verify
- Confirm the filing’s registrant: the supplied document is for Black Ridge Oil & Gas, Inc., not Sow Good Inc.
- Verify funding, borrowing-base availability, and repayment of the Dougherty facility under the post-quarter-end refinancing; stated facility maximums are not the same as committed borrowing availability.
- Monitor collection of the $2.5 million settlement receivable and any eligibility for contingent settlement payments.
- Assess cash needs against development commitments, production growth, rising per-Boe production costs, and the new facilities’ interest, fees, covenants, and hedging requirements.
- Review the Missouri River acreage litigation and the potential financial effect of the company’s excluded well interest.
- Reconcile the filing’s tax presentation: the statements label the tax line “provision,” while the six-month result and MD&A describe the $526,701 amount as a tax benefit.