Sow Good Inc. — filing identity requires verification
The supplied filing is a Form 10-K for Black Ridge Oil & Gas, Inc. (formerly Ante5, Inc.), not Sow Good Inc. It covers the fiscal year ended December 31, 2012, and was signed March 28, 2013. The company was an oil and gas exploration and production business focused on the Bakken and Three Forks formations in North Dakota and Montana. This is an annual comparison, not a standalone fourth-quarter report.
Financial and operating results
| Metric | 2012 | 2011 |
|---|---|---|
| Oil and gas sales | $6.02 million | $1.92 million |
| Net operating loss | $(1.32) million | $(4.00) million |
| Net income (loss) | $4.91 million | $(2.48) million |
| Cash from operating activities | $15.02 million | $(0.27) million |
| Cash and cash equivalents, year-end | $1.42 million | $1.40 million |
| Working capital, year-end | $2.88 million | $1.29 million |
| Revolving debt, year-end | $5.75 million | None reported |
| Stockholders’ equity, year-end | $31.59 million | $24.89 million |
- Production grew 227% to 73,933 BOE from 22,624 BOE. Oil production was 71,307 barrels; natural gas production was 15,756 Mcf.
- Average realized prices declined: oil to $83.27 per barrel from $86.91; gas to $5.39 per Mcf from $6.97. Reported BOE production costs fell to $8.79 from $23.33.
- Oil and gas sales increased 214%, primarily from higher production. Operating expenses were $7.35 million, including $3.53 million of general and administrative costs and $2.44 million of depletion. The filing does not present a conventional operating margin.
- Cash from operations included settlement-related and other working-capital effects. Management separately reported approximately $0.9 million of operating cash flow before net settlement proceeds.
- The company held approximately 12,256 net acres at year-end and reported 2.384 million BOE of proved reserves, up from approximately 0.5 million BOE in 2011. Pre-tax PV10 was $27.94 million; standardized discounted future net cash flows were $21.71 million.
Material changes and unusual items
- Two legacy-litigation settlements drove reported profitability: Peerless/ElectraWorks agreed to pay $13.5 million, including $11.0 million received in 2012 and $2.5 million due by December 31, 2013, plus up to $6.5 million contingent on specified online-poker developments. The company relinquished its royalty-stream rights.
- The Deloitte & Touche settlement generated $5.4 million of net proceeds received in 2012. Total 2012 settlement income was $17.02 million, with $5.87 million of settlement expenses. Management reported $6.36 million of settlement income net of related expenses and tax.
- Excluding settlement income net of settlement expenses and tax, adjusted net loss was $1.44 million in 2012, versus a $2.48 million net loss in 2011. Adjusted EBITDA was $13.58 million, but included $11.15 million of settlement income net of settlement expenses.
- No oil and gas ceiling-test impairment was recorded in 2012; a $2.39 million impairment was recorded in 2011. Interest expense rose to $1.19 million from $0.10 million, including financing-cost amortization.
- The company recorded a $438,539 expense for shares issued as a non-refundable deposit on an acreage acquisition later terminated. It also did not recognize revenue or costs from a disputed 110-acre Missouri River lease; management estimated unrecognized 2012 sales of about $468,000.
Liquidity, outlook, and risks
- A $20 million secured revolving facility had $16.5 million available, with $5.75 million drawn at year-end. It bears 9.25% interest, is secured by substantially all company assets, matures August 1, 2015, and requires quarterly principal payments tied to 90% of defined earnings. Further advances are subject to conditions; availability ends if the company has not completed an equity offering of at least $10 million by August 31, 2014.
- Management expected operating losses in the next 12 months and said 2013 revenues were not expected to exceed investment in well development and operating costs. It cited facility availability as funding for its 2013 acquisition and development plans; additional financing may still be needed.
- Year-end commitments included approximately $1.1 million of AFEs. Management reported no material off-balance-sheet arrangements and no material capital commitments for environmental compliance under then-current requirements.
- Key risks include dependence on third-party operators, volatile oil and gas prices, the need for capital, reserve-estimation and impairment uncertainty, lease expirations, environmental and hydraulic-fracturing regulation, infrastructure constraints, and a thinly traded OTC stock. The company also disclosed potential dilution from options, warrants, and future equity financing.
- The board and stockholders had approved a reverse split of up to 1-for-10, but the board had not made it effective as of the filing. The company gave no assurance that a split would secure a national exchange listing.
- The financial statements received an unqualified independent audit opinion. Management said disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation.
Investor verification priorities
- Confirm the issuer and filing match the intended investment: this document identifies Black Ridge Oil & Gas, not Sow Good Inc.
- Verify collection of the remaining $2.5 million Peerless/ElectraWorks payment and whether any contingent payment conditions were met; assess the settlement’s effect on reported earnings and cash flow.
- Review credit-facility availability, covenants, repayment requirements, collateral, and the equity-offering condition, alongside the company’s stated expectation of 2013 operating losses.
- Validate reserve estimates, development schedules and costs, and the assumptions underlying PV10 and standardized reserve values.
- Check the status and financial exposure of the disputed Missouri River lease, upcoming lease expirations, AFE commitments, and outstanding dilution from equity awards and warrants.