Business context and reporting period
This is an unaudited Form 10-Q for the quarter and nine months ended September 30, 2020, filed November 12, 2020. The supplied filing identifies the registrant as Black Ridge Oil & Gas, Inc. (OTCQB: ANFC), not Sow Good Inc.; investors should verify the entity and filing attribution.
Black Ridge had ceased its oil-and-gas activities and, after its sponsored SPAC’s 2019 merger, had no management-fee revenue in 2020. It held publicly traded Allied Esports Entertainment, Inc. (AESE) shares and was pursuing a new freeze-dried fruit and vegetable business. On October 1, 2020, after quarter-end, it completed an asset purchase of S-FDF, LLC.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $0 | $153,279 | $0 | $153,279 |
| Operating expenses | $981,553 | $3,226,116 | $1,844,635 | $4,068,696 |
| Operating loss | $(981,553) | $(3,072,837) | $(1,844,635) | $(3,915,417) |
| Net income (loss) attributable to Black Ridge | $(2,492,204) | $11,175,456 | $(4,421,001) | $9,874,432 |
| Basic and diluted EPS | $(1.56) | $6.98 | $(2.76) | $6.17 |
- At September 30, cash was $417,109; current assets were $2,685,000, current liabilities $373,101, and working capital $2,311,899. Total assets were $2,685,000, total liabilities $636,026, and stockholders’ equity $2,048,974.
- Assets included $2,242,207 of AESE securities, down from $6,982,300 at December 31, 2019. The company reported a nine-month net loss on AESE securities of $2,186,557.
- Notes payable totaled $262,925: a $150,000 SBA EIDL loan and a $112,925 PPP loan. The EIDL bears 3.75% interest and is secured by company assets; PPP forgiveness was not assured. A prior Cadence Bank loan was repaid.
- Nine-month operating cash outflow was $1,111,648; investing inflow was $1,157,076, principally AESE-security sale proceeds; financing inflow was $262,925. Cash increased $308,353 to $417,109.
- Margins are not meaningful because the company reported no revenue in 2020. The filing does not provide a useful operating-margin comparison for the prospective food business.
Material changes versus prior comparable periods
- Revenue fell to zero after the BRAC management-services agreement ended following the August 2019 merger. Operating expenses declined year over year, mainly because 2019 included substantial stock-based compensation, but the company remained loss-making.
- Prior-year results included a $26.3 million gain on deconsolidation, a $5.9 million merger incentive expense, AESE investment gains, and discontinued BRAC operations. These unusual items make prior-year net income an unsuitable indicator of recurring performance.
- In 2020, investment losses and interest expense replaced much of the prior-year nonrecurring income. Nine-month interest expense was $384,456, including $377,440 of warrant-related debt discount amortization.
- The company completed a 1-for-300 reverse stock split in February 2020. Common shares outstanding at September 30 were 1,600,424.
Outlook, risks, contingencies, and unusual items
- Going concern: Management stated that recurring losses, a $35,778,400 accumulated deficit, and limited cash raise substantial doubt about the company’s ability to continue as a going concern. It expected to rely on selling AESE shares and/or obtaining debt or equity financing; success was not assured.
- S-FDF transaction: The October 1 acquisition brought $2.5 million in cash and certain freeze-dried food business assets and agreements in exchange for 1,120,000 shares, subject to possible adjustment. The purchase agreement requires a $4 million company contribution under specified terms; the filing warns that additional capital may be needed.
- The freeze-dried food business was described as a startup with no meaningful operating history, no commercial product launch, and no established distributor or retail relationships. Risks include execution, financing, distribution, competition, consumer demand, fruit supply and pricing, food safety, and product liability.
- COVID-19 could affect operations, financing availability, AESE share value, and the ability to launch the acquired business. The company also cited the volatility and illiquidity of its stock and AESE shares.
- The filing reports no material litigation, no defaults upon senior securities, and no off-balance-sheet arrangements. Management concluded disclosure controls were effective as of September 30, 2020.
- No financial guidance or quantified operating forecast for the food business was provided.
Most important facts for investors to verify
- Confirm that this Black Ridge Oil & Gas filing is the intended filing for Sow Good Inc.; the names do not match in the supplied materials.
- Reconcile AESE holdings: the filing gives 1,779,529 shares in several places but states 1,799,529 shares elsewhere.
- Reconcile AESE sale disclosures: the financial statements report $1,157,076 of proceeds; narrative sections separately cite $1,083,408 for shares plus $73,668 for warrants, and the liquidity discussion gives a different share count. Confirm actual quantities and proceeds.
- Assess available funding and the ability to meet the $4 million S-FDF contribution requirement, including any share-sale or financing conditions and potential dilution.
- Confirm PPP forgiveness status, debt terms and collateral, and the company’s post-acquisition cash, liabilities, and operating performance.