Filing summary: Black Ridge Oil & Gas, Inc. (10-Q, quarter ended September 30, 2019)
Entity mismatch: The request identifies Sow Good Inc., but the supplied filing is for Black Ridge Oil & Gas, Inc. (ticker ANFC). This summary reflects the supplied filing, not Sow Good.
Business context and reporting period
The filing covers the three and nine months ended September 30, 2019. Black Ridge had historically pursued oil and gas activities and sponsored Black Ridge Acquisition Corp. (BRAC). BRAC completed its merger on August 9, 2019, became Allied Esports Entertainment, Inc. (AESE), and was deconsolidated. Black Ridge then held 2,685,500 AESE shares, approximately 12.4% of AESE at the time described in the filing, and began a strategic review of its own alternatives.
Financial performance and position
| Metric | Q3 2019 | Nine months 2019 |
|---|---|---|
| Revenue | $153,279 | $153,279 |
| Operating loss | $(3,072,837) | $(3,915,417) |
| Net income attributable to Black Ridge | $9,080,766 | $7,779,742 |
| Net cash used in operating activities, including discontinued operations | Not separately stated for the quarter | $(9,759,160) |
- Reported net income was driven principally by a $26.3 million noncash gain on BRAC deconsolidation, partly offset by $5.9 million of merger incentive expense. Discontinued operations recorded a $8.2 million Q3 loss and a $7.4 million nine-month loss.
- At September 30, cash was $64,613; current assets were $270,646 and current liabilities were $2,891,279, yielding reported negative working capital of $2,620,633. The filing has a minor inconsistency elsewhere, citing negative working capital of $2,620,033.
- Total assets were $14.3 million, including a $14.0 million AESE investment. Total liabilities were $2.9 million, primarily current liabilities, including $2.8 million of deferred compensation. The balance sheet reports no long-term liabilities; MD&A says the company had no long-term debt.
- The AESE investment’s market-price increase generated $2.1 million of unrealized gain in other comprehensive income. The shares committed under the incentive plan are subject to transfer to employees and directors, with the related liability adjusted to market value.
- Common shares outstanding were 479,844,900 at September 30 and November 12, 2019. Basic and diluted earnings per share were reported as $0.02 for both the quarter and nine-month period.
Material changes versus prior periods
- Revenue was $153,279 in 2019 versus none in the comparable 2018 periods, reflecting post-merger management fees. The AESE consulting agreement provided for $313,316 of fees from October through December 2019 and did not continue into 2020.
- Operating expenses rose substantially: Q3 general and administrative expense was $3.2 million versus $461,377 in Q3 2018, largely because of $2.8 million in stock and deferred compensation expense related to the management incentive plan.
- Q3 2018 included $2.25 million in settlement income; nine-month 2018 net income also benefited from settlement income. In 2019, the deconsolidation gain and merger-related charges materially changed reported earnings.
- Cash fell from $1.50 million at December 31, 2018 to $64,613 at September 30, 2019. Nine-month operating cash flow changed from $473,366 provided in 2018 to $9.76 million used in 2019; the filing attributes much of the change to BRAC merger costs and discontinued operations.
Outlook, risks, and unusual items
- Going concern: Management states that cash on hand is insufficient to fund general and administrative expenses for the next year. It is pursuing management-fee arrangements, joint ventures, and equity or debt financing, but says it may not obtain needed capital. The filing references substantial doubt about the company’s ability to continue as a going concern.
- Strategic outlook: Black Ridge was evaluating a merger, acquisition, or business combination and considering how to use or distribute its remaining AESE shares. The shares were subject to a lock-up through August 9, 2020; 537,100 shares were committed to officers and directors under the incentive plan.
- Risks: The filing identifies low trading volume and possible penny-stock rules, share-price volatility, liquidity and collection risks, inability to acquire or grow a new business, litigation, exchange-listing requirements, and risks relating to AESE shareholdings.
- Other matters: Management said disclosure controls were effective as of September 30, 2019, with no material change in internal control reported. The company reported no material litigation, defaults on senior securities, or off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm the issuer: the supplied document is Black Ridge Oil & Gas, Inc., not Sow Good Inc.
- Assess near-term funding needs, the status of financing efforts, and the effect of management fees ending after December 2019.
- Review the AESE shareholding, lock-up, incentive-plan share commitments, and the valuation and liquidity risks of that investment.
- Separate recurring operating performance and cash needs from the one-time deconsolidation gain, merger charges, and discontinued-operation results.
- Clarify the filing’s $600 difference in its working-capital figures and confirm the treatment and settlement timing of the $2.8 million deferred-compensation liability.