Business context and reporting period
This summary reflects the supplied Form 10-Q for the three months ended March 31, 2020, filed May 15, 2020. The filing identifies the registrant as Black Ridge Oil & Gas, Inc. (OTCQB: ANFC), not Sow Good Inc.; verify that this is the intended filing. Black Ridge had ended its oil-and-gas operations and was evaluating strategic alternatives after its sponsored SPAC merged into Allied Esports Entertainment, Inc. (AESE). It held 2,685,500 AESE shares at quarter-end.
Financial results and condition
| Metric | Q1 2020 | Q1 2019 or prior date |
|---|---|---|
| Revenue | $0 | $30,000 |
| Operating expenses | $417,618 | $430,750 |
| Operating loss | $(417,618) | $(400,750) |
| Net loss attributable to Black Ridge | $(2,645,579), or $(1.65) per share | $(670,337), or $(0.42) per share |
| Operating cash flow | $(321,659) | $(741,799) |
| Cash at period-end | $52,097 | $108,756 at Dec. 31, 2019 |
| Working capital | $(882,749) | $(1,289,995) at Dec. 31, 2019 |
| Total liabilities | $973,450 | $1,446,407 at Dec. 31, 2019 |
| Total stockholders’ equity | $3,339,614 | $5,698,704 at Dec. 31, 2019 |
No meaningful revenue margin is available because Q1 2020 revenue was zero. The net loss included a $2,212,852 loss on the AESE investment, whose reported value fell from $6,982,300 at year-end 2019 to $4,216,235 at March 31, 2020. Cash used in investing activities was zero; financing provided $265,000 net. The filing reports no long-term liabilities. Current notes payable were shown at $13,795 net of $251,205 in unamortized discounts, against $265,000 of total notes payable before discounts.
Material changes and unusual items
- Revenue fell to zero because the management-services agreement ended after the BRAC-AESE merger; Q1 2019 included $30,000 of management fees.
- Operating expenses decreased $13,132 year over year, with lower salaries and stock compensation partly offset by higher professional-services and other administrative costs.
- The company recorded a $2,212,852 net investment loss on AESE shares, including a $2,766,065 decline in the value of its holdings partly offset by a $553,213 gain from revaluing shares committed to employees and directors.
- On March 12, 2020, Black Ridge entered into a $700,000 Cadence Bank note, due March 9, 2021, bearing interest at 0.50 percentage points above prime and secured by 500,000 AESE shares. The filing says $265,000 was drawn; the company also repaid $122,100 previously borrowed on margin. Four directors or officers received warrants for guarantees, and a separate agreement provides for potential equity rights representing 95% of the company if guarantors pay after a default.
- A 1-for-300 reverse stock split took effect February 21, 2020. The company reported 1,600,424 common shares outstanding at March 31 and May 12, 2020.
- After quarter-end, the company obtained a $112,925 Paycheck Protection Program loan, dated April 24, at 1% interest and due April 24, 2022. Forgiveness was conditional; the filing gives no assurance it would be granted.
Outlook, risks and controls
Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing $52,097 of cash, negative working capital, recurring operating losses, and a $34,002,978 accumulated deficit. It was seeking additional debt or equity financing, with no assurance of success, and expected potential business-combination costs to strain cash. Plans for some or all remaining AESE shares could include distribution of proceeds after the lock-up expires in August 2020, subject to AESE’s repayment or conversion of specified bridge financing.
The filing identifies COVID-19-related uncertainty, reduced access to capital, volatile AESE and company share prices, illiquidity, and the risk of failing to find a strategic transaction. The company also reported ineffective disclosure controls and a material weakness in accounting for unrealized changes in AESE equity securities. It said prior 2019 and September 2019 filings were restated to correct presentation under ASU 2016-01, and described planned training, outside-expert consultation, and enhanced reviews.
Important facts to verify
- Confirm the issuer and filing match the requested Sow Good Inc. summary; the supplied filing is for Black Ridge Oil & Gas, Inc.
- Confirm the Cadence facility’s actual draw, outstanding principal, and reconciliation of the $265,000 face amount, $251,205 discount, and $13,795 balance-sheet carrying value.
- Verify the loan-guarantee agreement’s potential 95% equity consequence and required approvals.
- Confirm the date and conditions for distributing employee-committed AESE shares; the filing gives differing August dates in different passages.
- Monitor cash needs, financing availability, going-concern disclosures, and whether the PPP loan qualified for forgiveness.
- Track remediation of the material weakness and any further restatements or accounting changes affecting AESE investment gains and losses.