Filing identity and reporting period
The supplied filing is Ante5, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2011—not a filing identified as Sow Good Inc. The filing describes an early-stage oil and gas company focused on North Dakota’s Bakken and Three Forks trends, alongside legacy royalty and litigation-related assets. It reported 9,880 net mineral acres and interests in 21 gross producing wells (approximately 0.66 net wells).
Financial performance and position
| Metric | Quarter ended September 30, 2011 | Nine months ended September 30, 2011 |
|---|---|---|
| Oil and gas sales | $900,511 | $1,248,041 |
| Net loss | $338,212 | $804,449 |
| Net loss per share | $0.01 | $0.02 |
| Operating expenses | $1,269,452 | $2,292,294 |
| Cash used in operations | — | $1,006,208 |
| Cash used in investing | — | $9,992,295 |
- Quarterly production expenses and taxes were about 52% of oil and gas sales. Average oil sales price was $85.61 per barrel for the quarter; average production cost was $33.36 per barrel of oil equivalent.
- At September 30, cash and cash equivalents were $3.21 million; current assets were $4.56 million and current liabilities $2.80 million, yielding working capital of $1.76 million.
- Total assets were $31.35 million and total liabilities $5.04 million. The balance sheet shows no drawn debt; the company had a $10 million revolving credit facility available for eligible drilling projects.
- Property and equipment, net, was $20.73 million, primarily oil and gas properties. The company raised approximately $5.6 million net in a July equity offering. Common shares outstanding at September 30 were 47.40 million.
- The filing reports adjusted EBITDA of $205,324 for the quarter and negative $144,483 for the nine-month period; this is a non-GAAP measure and should be considered alongside GAAP results.
Changes versus comparable periods
- Oil and gas sales were zero in the 2010 comparison periods because the company began its oil and gas business in October 2010. The nine-month 2010 comparison covers only April 9 through September 30, following the company’s April 2010 spin-off, so it is not a like-for-like period.
- Third-quarter 2011 net loss was $338,212 versus $8,826 in the prior-year quarter. The filing attributes the change principally to the start and expansion of oil and gas operations, production costs, depletion, higher general and administrative expense, and the absence of a prior-year $140,861 settlement receipt.
- Cash declined from $8.58 million at December 31, 2010 to $3.21 million at September 30, 2011, while oil and gas property investment expanded. Working capital fell from $8.00 million to $1.76 million.
- Net mineral acres increased from approximately 3,712 at year-end 2010 to 9,880 at quarter-end. The company acquired acreage using cash and stock, and reported $4.94 million of oil and gas property acquisitions funded with common stock during the nine months.
Outlook, risks, and unusual items
- Management anticipated operating losses through the rest of 2011 and said 2011 revenue was not expected to exceed investment and operating costs. It expected additional financing to be needed for acreage acquisition and drilling; it anticipated drawing on the revolving facility in late 2011 or early 2012.
- The credit facility carries 19% annual interest, is secured by substantially all company assets, matures May 2, 2014, and requires cash coverage of 12 months of scheduled interest. The filing does not state a facility draw as of September 30.
- A producing well with a larger company interest suffered pump failure in late September. Management expected production to resume in the fourth quarter but warned the interruption would likely affect fourth-quarter revenue. It also cited regional transportation and byproduct-disposal congestion as raising production costs.
- The company held a contingent royalty receivable related to the former WPT business; its recoverability depends on payments from Peerless Media and related revenues. The filing describes a dispute with Peerless and pending arbitration, rescheduled for April 2012. It also reports a separate Deloitte & Touche case scheduled for trial in March 2012. Management said it was not relying on either potential recovery to fund near-term needs.
- The company had a capped indemnification obligation of up to $2.5 million for specified former-parent liabilities, generally terminating around April 15, 2012. It recorded $97,986 of indemnification expense in the nine-month period related to pre-spin-off tax obligations.
- Subsequent events included a CEO change effective November 9, 2011 and additional acreage purchases in October. The filing also disclosed substantial post-quarter stock-option grants, including 1 million options to the new CEO.
- Management reported disclosure controls were effective as of September 30, 2011 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the issuer: this document names Ante5, Inc., while the request identifies Sow Good Inc.
- Verify actual production, pump-failure repairs, fourth-quarter volumes, and whether transportation and disposal costs eased as management expected.
- Check whether and on what terms the company drew on the $10 million facility, including interest, collateral, cash-coverage covenants, and remaining availability.
- Assess the collectability and carrying value of the legacy royalty receivable, the Peerless arbitration, the Deloitte litigation, and the capped indemnification exposure.
- Review subsequent financing, acreage transactions, option and warrant dilution, and cash needs against the company’s stated expectation of further financing.