Business context and reporting period
Identity discrepancy: The request identifies Sow Good Inc., but the supplied Form 10-Q is for Black Ridge Oil & Gas, Inc. (OTCQB: ANFC), a Nevada corporation. The filing covers the quarter and nine months ended September 30, 2017; its financial statements are unaudited.
Black Ridge had transferred its oil and gas assets and related debt to Black Ridge Holding Company, LLC (BRHC) in a 2016 restructuring. During 2017, it focused on investing in and managing oil and gas assets for partners and sponsoring Black Ridge Acquisition Corp. (BRAC), a special purpose acquisition company (SPAC).
Financial performance and position
| Metric | Three months ended Sep. 30, 2017 | Nine months ended Sep. 30, 2017 |
|---|---|---|
| Revenue | $0 | $1,000,000 |
| Operating expenses | $571,764 | $1,825,261 |
| Operating loss | $571,764 | $825,261 |
| Net loss | $580,477 | $838,688 |
| Operating cash flow | Not stated separately | $(246,679) |
- Nine-month revenue was management fees; the BRHC management agreement ended effective June 30, 2017. No quarterly revenue was recorded in Q3, so a quarterly operating margin is not meaningful.
- At September 30, cash was $4,721,876, current assets $4,761,996, current liabilities $94,975, and working capital $4,667,021. Total assets were $4,979,652.
- The company reported no long-term liabilities. A $500,000 Cadence Bank note issued in July was repaid in full on September 14; reported interest and related costs were $8,713.
- Financing activities provided $4,900,126 in the first nine months, mainly from the rights offering and backstop. Cash increased by $4,655,607 from year-end 2016.
- Approximately $4,460,346 of September 30 cash exceeded FDIC and SIPC insured limits, according to the filing.
Material changes versus the prior comparable period
- Q3 revenue declined from $500,000 in 2016 to zero in 2017 after the BRHC management agreement ended. Nine-month management-fee revenue rose from $549,451 to $1,000,000, reflecting the timing of fees in the comparison periods.
- Q3 net loss increased from $103,501 to $580,477. Nine-month results moved from net income of $30,062,793 in 2016 to a net loss of $838,688 in 2017. The prior-year result included a $41,621,150 debt-restructuring gain and a $10,197,374 loss from discontinued operations; those items make the comparison unusually distorted.
- Nine-month operating expenses fell to $1,825,261 from $1,910,434. Management attributed lower professional and other general and administrative expenses to the company’s simplified structure.
- Shares outstanding increased from 47,979,990 at December 31, 2016 to 479,799,900 at September 30, 2017, following issuance of 431,819,910 shares in the rights offering and backstop.
Outlook, commentary, risks and subsequent events
- The company reported no specific earnings or revenue guidance. It planned to meet cash needs after its BRAC sponsorship through proceeds from the BRHC interest sale and management fees from new partners; both sources and their timing carry uncertainty.
- The rights offering raised $5,181,839 gross. After quarter-end, $4,450,000 of net proceeds was used for the company’s BRAC sponsorship. BRAC completed an IPO raising $138 million gross, including the over-allotment, and Black Ridge retained 22% ownership and a management role.
- BRHC was dissolved after quarter-end. Black Ridge received cash and receivables and sold distributed assets for cash; the filing reports total proceeds of $1,083,039 and a gain of $1,030,185.
- Management cited risks including limited liquidity, failure to obtain new partners or acquisitions, failure of BRAC to complete a business combination, stock-price volatility and illiquidity, and legal or third-party disputes. The company had no material litigation disclosed and reported no off-balance-sheet arrangements.
- The company reported effective disclosure controls as of September 30, 2017, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer: the supplied filing is for Black Ridge Oil & Gas, Inc., not Sow Good Inc.
- Verify post-quarter cash uses and receipts, including the $4.45 million BRAC sponsorship and BRHC liquidation proceeds, against subsequent filings.
- Assess the dilution from the rights offering and backstop, and the terms and potential impact of warrants issued to backstop participants.
- Review the status, value, restrictions and business-combination prospects of Black Ridge’s 22% BRAC interest.
- Evaluate whether new management-fee revenue or other financing can sustain operations after the BRHC agreement ended; the filing provides no quantified forward guidance.