Business context and reporting period
Entity mismatch: The supplied filing is Black Ridge Oil & Gas, Inc. (ticker ANFC), not Sow Good Inc. It is a Form 10-K for the fiscal year ended December 31, 2019, filed March 25, 2020; it does not report a standalone 2019 fourth quarter.
Black Ridge had sponsored and managed Black Ridge Acquisition Corp. (BRAC). BRAC’s business combination with Allied Esports and World Poker Tour closed August 9, 2019, and BRAC became Allied Esports Entertainment, Inc. (AESE). Black Ridge then began a strategic review of alternatives for itself. Its principal disclosed asset was 2,685,500 AESE shares, with 537,100 shares committed to employees and directors under an incentive plan.
Financial results and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $466,595 | $0 |
| Operating expenses | $3,063,076 | $1,875,816 |
| Operating loss | $(2,596,481) | $(1,875,816) |
| Net income (loss) attributable to Black Ridge | $9,098,678 | $(344,014) |
| Net cash used in operating activities | $(9,709,780) | $(187,936) |
| Cash at year-end | $108,756 | $1,503,500 |
| Working capital | $(1,289,995) | $898,097 |
2019 net income was driven by a $20.45 million non-cash gain on deconsolidation of BRAC, partly offset by a $7.42 million loss from discontinued operations. The company recorded a $4.97 million unrealized loss on its AESE investment in other comprehensive income; the investment was reported at $6.98 million at year-end. Revenue consisted entirely of management fees from AESE, and the management services agreement ended December 31, 2019. Profit margins are not representative of recurring operations given the deconsolidation gain and discontinued operations.
At December 31, 2019, total assets were $7.15 million and total liabilities were $1.45 million, including $1.40 million of deferred compensation; the balance sheet reported no long-term liabilities. The filing states the company had no present revenue source at year-end and that cash on hand was insufficient for the next 12 months. The auditor’s opinion includes an explanatory going-concern paragraph. The statements were prepared on a going-concern basis without adjustments for the uncertainty.
Material changes and unusual items
- BRAC ceased to be consolidated after the August 9, 2019 merger. Black Ridge recognized the deconsolidation gain and thereafter held AESE shares as an investment.
- Operating expenses increased by $1.19 million year over year, primarily because of $1.40 million in deferred compensation under the 2018 Management Incentive Plan. Salaries and benefits were $1.17 million, versus $1.20 million in 2018.
- Operating cash use increased substantially. The filing attributes most of the consolidated 2019 cash outflow to BRAC discontinued operations, including merger-related contingent fees; therefore, it should not be read as cash burn solely from continuing operations.
- After year-end, the company completed a 1-for-300 reverse stock split, effective February 21, 2020. On February 26, 2020, it granted 240,000 options under its 2020 Equity Plan.
- On March 12, 2020, Black Ridge obtained a $700,000 bank loan, bearing interest at 0.5 percentage points over prime and due March 9, 2021. It is secured by 500,000 AESE shares and supported by limited guarantees from executives and directors; warrants were issued to the guarantors.
Outlook, risks, and contingencies
Management said it was pursuing additional capital through debt, equity, joint ventures, or other arrangements and was exploring strategic alternatives, including a merger, acquisition, or business combination. No transaction or operating forecast was assured. The subsequent $700,000 loan provides financing but is secured by AESE shares and does not eliminate the filing’s stated funding and going-concern risks.
Key risks include failure to obtain sufficient capital, the uncertain outcome and cost of the strategic review, volatility and limited liquidity of the OTCQB-traded stock, potential dilution, reliance on key personnel and strategic relationships, and possible Investment Company Act implications arising in part from the AESE shareholding. The company disclosed no material litigation, significant contractual payment commitments, or material off-balance-sheet arrangements. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an internal-control attestation.
Most important facts for investors to verify
- Confirm the issuer identity: this filing is for Black Ridge Oil & Gas, not Sow Good Inc., and covers the full fiscal year rather than Q4 alone.
- Assess the company’s ability to fund operations after year-end, including the terms, collateral, guarantees, and use of proceeds of the $700,000 Cadence Bank loan.
- Verify the current value, liquidity, lock-up status, and any restrictions on the 2,685,500 AESE shares, including the 537,100 shares committed under the incentive plan.
- Separate recurring operating performance and continuing-operation cash needs from the one-time deconsolidation gain and BRAC discontinued-operation activity.
- Check subsequent developments in the strategic review, AESE-related debt repayment or conversion conditions, and any further equity issuance or dilution.