Business context and reporting period
This is an unaudited Form 10-Q for the quarter and six months ended June 30, 2012, filed August 14, 2012. The filing identifies the registrant as Black Ridge Oil & Gas, Inc. (formerly Ante5, Inc.), not Sow Good Inc.; verify the company and filing match the requested metadata. Black Ridge focused on non-operating oil and gas interests in North Dakota’s Bakken and Three Forks, and also held a legacy gaming-royalty asset. Its corporate name changed effective April 2, 2012; its stock continued to trade as ANFC.
Financial highlights
| Metric | Three months ended June 30, 2012 | Six months ended June 30, 2012 |
|---|---|---|
| Oil and gas sales | $1.381 million, up 451% year over year | $2.047 million, up 489% |
| Operating loss | $672,123 | $1.234 million |
| Net loss | $617,445, versus $415,313 | $1.378 million, versus $466,237 |
| Net loss per share | $0.01 | $0.03 |
| Operating cash flow | Not separately reported for the quarter | $105,960 provided, versus $584,209 used |
| Capital investment cash flow | Not separately reported for the quarter | $6.164 million used in investing activities |
At June 30, cash and equivalents were $872,332; current assets were $4.338 million and current liabilities $11.015 million, producing negative working capital of $6.677 million. Total assets were $42.250 million, total liabilities $17.525 million, and stockholders’ equity $24.725 million. Revolver borrowings were $5.825 million, up from zero at year-end. The company reported no gross margin measure; operating expenses exceeded oil and gas sales in both comparison periods.
Changes versus prior comparable periods
- Six-month oil and gas production rose to 25,561 Boe from 3,860 Boe; producing wells increased to 48 gross (1.83 net) from 11 gross (0.45 net). The company reported approximately 11,213 net acres.
- Production and taxes represented about 24% of six-month sales, versus 16% a year earlier. Management cited expansion, transportation congestion and drilling-waste disposal costs; it expected some disposal costs to ease as facilities opened.
- Six-month general and administrative expense increased 127% to $1.952 million. Depletion rose to $815,000 from $105,000, while interest expense increased to $526,168 from $25,490.
- Cash declined from $1.401 million at December 31, 2011 to $872,332. Investing outflows were largely funded by $5.529 million net financing inflows, including revolver draws.
Outlook, risks and unusual items
- Management anticipated operating losses over the next 12 months and said 2012 revenue was not expected to exceed investment and operating costs. It stated that additional financing would be required, with possible funding from equity, third-party or bank financing, in addition to oil and gas revenue.
- The Dougherty secured revolving facility provides up to $10 million, bears interest generally at 9% (with a 9.5% rate on specified balances above $5 million under stated conditions), and matures March 31, 2014. It is secured by substantially all assets and includes covenants and minimum-cash requirements. A further $1.45 million was drawn July 17, after quarter-end; the filing said $2.725 million remained available.
- A $438,539 nonrefundable stock deposit for an acreage acquisition that was terminated was expensed in the quarter. Accelerated amortization of costs and warrants on the terminated prior credit facility contributed to higher interest expense.
- Black Ridge excluded revenue and costs for a 110-acre North Dakota lease tied to a well in production while the operator litigated the state’s mineral ownership. The company estimated approximately $137,000 of additional first-half sales would have been recognized absent the dispute; the state was required to refund the lease purchase price if the operator prevailed.
- The legacy contingent-consideration receivable was $5.673 million gross at June 30, with a stated $878,650 allowance and $5.389 million net after related royalties payable. The company’s current-portion estimate was $2.136 million and depended in part on a minimum payment guarantee and estimated future royalties. Management said future royalty payments were uncertain and was not relying on them to fund near-term needs.
- Other risks cited include commodity-price volatility, drilling and reserve uncertainty, cost overruns, access to capital, lease risks and potential defaults or disputes. The filing lists no legal proceedings, but describes the state lease litigation and disputes relating to potential legacy royalty and other claims.
- Stockholders had approved an increase in authorized common shares from 100 million to 500 million, subject to filing a charter amendment. A reverse split of up to 1-for-10 was authorized but had not been implemented as of the filing.
Important facts for investors to verify
- Confirm that this Black Ridge Oil & Gas filing—not a Sow Good Inc. filing—is the intended document.
- Review the Dougherty facility’s remaining availability, borrowing conditions, covenants, collateral and subsequent draw, in light of negative working capital and stated financing needs.
- Track the state mineral-rights litigation, related revenue recognition and any potential recovery of the lease purchase price.
- Assess the collectability and timing of the contingent-consideration receivable and whether royalty payments exceed the minimum guarantee.
- Separate recurring operating costs from the terminated-acquisition charge and accelerated financing-cost amortization when evaluating losses and cash needs.
- Check the status and potential dilution implications of the authorized-share increase and possible reverse split.