Sow Good Inc. quarterly report, Q1 FY2017

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Filing summary

Important identity discrepancy: The supplied metadata names Sow Good Inc., but the filing text is a Form 10-Q for Black Ridge Oil & Gas, Inc. (OTCQB: ANFC), a Nevada company. Verify the filing and issuer before relying on this summary.

Business context and reporting period

This unaudited quarterly report covers the three months ended March 31, 2017; the comparable period is the three months ended March 31, 2016. After a June 2016 debt restructuring, Black Ridge had transferred its oil and gas operations and related debt to Black Ridge Holding Company, LLC (BRHC), retaining a minority interest and earning management fees. The filing says the company continued to pursue distressed-asset opportunities.

Financial results and position

  • Revenue: $500,000 in Q1 2017, entirely management fee income, versus no continuing-operations revenue in Q1 2016. The fee was $500,000 per quarter under the BRHC management agreement.
  • Expenses and loss: Operating expenses were $648,003, including $644,903 of general and administrative costs. Operating loss was $148,003; a $4,714 loss on disposal of equipment brought net loss to $152,717. Basic and diluted loss per share was reported as $0.00 after rounding.
  • Prior-period comparison: Q1 2016 net loss was $7,915,513, including $7,226,719 from discontinued operations. That discontinued-operations loss included a $5,219,000 oil-and-gas impairment and $1,434,646 of interest expense; the periods are therefore not directly comparable.
  • Cash flow: Operating cash flow was positive $68,600 and investing cash flow was positive $2,160; there was no financing cash flow. Cash increased $70,760 to $137,029.
  • Liquidity and debt: Current assets were $198,454 and current liabilities $64,340, yielding working capital of $134,114 and a current ratio of about 3.1. Total liabilities were $64,340; the balance sheet showed no long-term debt. The former credit-facility obligations had been transferred to BRHC in the 2016 restructuring.
  • Other balance-sheet items: Total assets were $269,752; stockholders’ equity was $205,412. The company reported 47,979,990 common shares outstanding at May 4, 2017.

Changes, outlook, and risks

  • General and administrative expense declined by $40,006 (about 6%) year over year, mainly from lower professional-services and other administrative costs; salaries were broadly stable. Stock compensation was $159,492.
  • On April 3, 2017, BRHC notified the company that it was terminating the management agreement, effective June 30, 2017, and had arranged to transfer its oil-and-gas assets to a third party in exchange for a preferred membership interest in the acquiring entity. Black Ridge said it would receive management fees through June 30 and that Chambers affiliates had agreed to buy its BRHC interest for an estimated approximately $1.0 million. A subsequent $1.1 million Chambers contribution reduced Black Ridge’s stated BRHC ownership from 3.88% to 3.78%.
  • Management said expected cash needs over the next 12 months would be met through remaining management fees, proceeds from the BRHC-interest sale, and potential fees from new partners. No quantified earnings or revenue guidance was provided. The filing does not establish whether the estimated buyout proceeds were received.
  • Risks cited include limited liquidity, failure to collect amounts owed, difficulty obtaining new business or oil-and-gas opportunities, insufficient client or partner capital, legal disputes, and illiquidity or volatility in the company’s stock. The company disclosed past covenant noncompliance and a going-concern paragraph in its 2015 audit report; covenant waivers were obtained in connection with the restructuring.
  • Management reported disclosure controls were effective as of March 31, 2017, with no material change in internal control over financial reporting during the quarter. The company reported no material legal proceedings and no off-balance-sheet arrangements.

Key facts for investors to verify

  1. Confirm that this Black Ridge Oil & Gas filing—not a Sow Good Inc. filing—is the intended document.
  2. Verify completion, timing, and final proceeds of the agreed BRHC-interest purchase, and the effect of BRHC’s asset transfer on the value of the retained interest.
  3. Assess the company’s revenue and liquidity after the management agreement ended, including whether new partners or fee-generating arrangements were secured.
  4. Review the 2016 debt restructuring terms, BRHC distribution waterfall, and potential dilution from further Chambers contributions.
  5. Reconcile the reported cash balance and working capital with expected near-term operating costs and the stated cash-sufficiency plan.