Business context and reporting period
This is an unaudited Form 10-Q for the three months ended March 31, 2012. The filing identifies the registrant as Ante5, Inc., renamed Black Ridge Oil & Gas, Inc. effective April 2, 2012—not Sow Good Inc. The filing describes an early-stage, non-operating oil and gas company focused on acquiring leases and participating in Bakken and Three Forks development in North Dakota; it also retains a legacy gaming royalty asset.
Key financial results
| Metric | Q1 2012 | Q1 2011 / comparison |
|---|---|---|
| Oil and gas sales | $666,206 | $96,940; up 587% |
| Operating expenses | $1,228,024 | $423,320 |
| Operating loss | $561,818 | $326,380 |
| Interest expense | $353,265 | None reported |
| Net loss | $760,857 ($0.02 per share) | $50,924 (reported per-share loss rounded to $0.00) |
| Adjusted EBITDA, non-GAAP | $239,516 | $(152,735) |
| Cash from operations | $498,058 | $(398,125) |
| Cash used in investing | $(2,440,624) | $(2,514,947) |
| Cash from financing | $2,000,000 | $7,800 |
Oil production was 7,621 barrels and natural gas production 2,548 Mcf, or 8,046 Boe, compared with 1,161 barrels, 560 Mcf, and 1,254 Boe, respectively. Average realized prices were $85.43 per barrel of oil and $5.94 per Mcf of gas. Production costs and taxes together were about 33% of sales, versus 16% in Q1 2011.
At March 31, cash and cash equivalents were $1,458,575; total assets were $35.4 million, total liabilities $10.4 million, and stockholders’ equity $25.1 million. Current liabilities of $7.5 million exceeded current assets of $4.1 million, leaving negative working capital of $3,384,875. The balance sheet reported $2.0 million drawn on a line of credit. Net oil and gas properties were $27.2 million. The contingent consideration receivable was reported at $5.8 million gross, with a $878,650 allowance; its estimated current portion was $2.103 million.
Changes and material developments
- Revenue rose substantially with production and a larger well base: 37 gross productive wells versus 7 a year earlier. Operating costs and depletion also increased as the business expanded.
- Net loss increased mainly because of higher operating costs and $315,265 of amortized financing charges, including warrant and deferred financing cost amortization, as well as $38,000 of accrued interest.
- Oil and gas properties increased from $20.9 million net at year-end 2011 to $27.2 million. Cash capital spending on properties was $2.44 million; the filing also disclosed $6.60 million of property purchases payable after quarter-end.
- Cash increased by $57,434 during the quarter, but operating and financing cash inflows did not cover investing outflows without the $2.0 million credit-line draw.
- On March 22, the company agreed to acquire approximately 8,655 net acres for $24,235,036 cash plus 577,025 shares. The share deposit was issued April 30; closing was expected by June 1, subject to conditions including obtaining sufficient capital. The transaction had not closed as of the filing date.
Outlook, financing, and risks
- Management anticipated operating losses over the next 12 months and stated that 2012 revenue was not expected to exceed investment and operating costs. It expected revenue to grow as wells entered production.
- The company said additional debt or equity financing would be needed for its cash requirements and specifically to fund the acreage acquisition. Its March 31 cash balance was $1.46 million.
- The prior $10 million credit facility was terminated April 12, 2012; the company repaid $2,000,000 principal plus $51,722 interest. A new secured facility with Dougherty Funding, entered into April 4, provides up to $10 million, bears generally 9% annual interest (with a 9.5% rate on certain balances above $5 million under specified conditions), and is secured by substantially all assets. The first draw was $2.45 million on April 12. The facility matures March 31, 2014, subject to extension conditions, and includes a minimum available-cash requirement and other covenants.
- Key risks include commodity-price volatility, financing and acquisition execution, drilling and reserve uncertainty, cost overruns, lease loss, reliance on operators, and uncertainty in collecting legacy royalty payments. Management said it was not relying on potential royalty proceeds or a Deloitte lawsuit for near-term funding. The filing’s Legal Proceedings item says “None.”
- The board and stockholders had approved authority for a potential reverse split of up to 1-for-10, but the board had not made it effective by the filing date. The company also intended to increase authorized common shares from 100 million to 500 million; this could enable future issuance and dilution.
Important facts for investors to verify
- Whether the $24.2 million acreage acquisition closed, how it was financed, and the resulting dilution and obligations.
- Availability, draws, collateral, covenants, and cash-reserve requirements under the Dougherty facility.
- The filing contains inconsistent current-asset detail: the balance sheet reports other current assets of $94,062, while Note 3 lists deferred financing costs and prepaid expenses totaling $532,601. Confirm the correct figures.
- Collectability and timing of the contingent gaming royalty receivable, including the guaranteed minimum payment and related allowance.
- Whether the authorized-share increase or reverse split was implemented and the effect on existing shareholders.