Notes to
Condensed Consolidated Financial Statements
(Unaudited)
Note 1 – Organization and Nature
of Business
Effective April 2, 2012, Ante5, Inc. changed
its corporate name to Black Ridge Oil & Gas, Inc., and continues to be quoted on the OTCQB under the trading symbol “ANFC”.
Black Ridge Oil & Gas, Inc. (formerly Ante5, Inc.) (the “Company”) became an independent company in April 2010.
We became a publicly traded company when our shares began trading on July 1, 2010. Since October 2010, we had been engaged
in the business of acquiring oil and gas leases and participating in the drilling of wells in the Bakken and Three Forks trends
in North Dakota and Montana.
The
Company is focused on acquiring, investing in, and managing the oil and gas assets for our partners. We continue to pursue asset
acquisitions in all major onshore unconventional shale formations that may be acquired with capital from our existing joint venture
partners or other capital providers.
On September 26, 2017, the Company finalized
an equity raise utilizing a rights offering and backstop agreement, raising net proceeds of $5,051,675 and issuing 431,819,910
shares. The proceeds were used to sponsor the Company’s obligations sponsoring a special purpose acquisition company, discussed
below, with the remainder for general corporate purposes.
On
October 10, 2017, the Company’s sponsored special purpose acquisition company, Black Ridge Acquisition Corp. (“BRAC”),
completed an IPO raising $138,000,000 of gross proceeds (including proceeds from the exercise of an over-allotment option by the
underwriters on October 18, 2017). In addition, the Company purchased 445,000 BRAC units at $10.00 per unit in a private placement
transaction for a total contribution of $4,450,000 in order to fulfill its obligations in sponsoring BRAC.
BRAC is a blank
check company formed for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization,
reorganization or other similar business combination with one or more businesses or entities. BRAC’s efforts to identify
a prospective target business were not limited to a particular industry or geographic region, but the initial focus of its search
was for target businesses in the energy or energy-related industries with an emphasis on opportunities in the upstream oil and
gas industry in North America. Following the IPO and over-allotment, the Company owned 22% of the outstanding common stock of BRAC
and managed BRAC’s operations via a management services agreement.
On December 19, 2018, BRAC entered into
a business combination agreement which is which is outlined in Note 16. The business combination closed on August 9, as discussed
in Note 17.
Note 2 – Basis of Presentation
and Significant Accounting Policies
The interim condensed consolidated financial
statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US
dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to not make the information presented misleading.
These statements reflect all adjustments,
which in the opinion of management, are necessary for fair presentation of the information contained therein. Except as otherwise
disclosed, all such adjustments are of a normal recurring nature. It is suggested that these interim condensed financial statements
be read in conjunction with the audited financial statements for the year ended December 31, 2018, which were included
in our Annual Report on Form 10-K. The Company follows the same accounting policies in the preparation of interim reports.
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
Principles of Consolidation
The accompanying consolidated financial
statements include the accounts of the following entities:
Name of entity
|
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State of
Incorporation
|
|
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|
Relationship
|
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Black Ridge Oil and Gas, Inc.
|
|
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Nevada
|
|
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Parent
|
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Black Ridge Acquisition Corp.
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Delaware
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Subsidiary
(1)
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(1)
Wholly-owned subsidiary through
October 10, 2017, the date of BRAC’s IPO, following which it is consolidated as a variable interest entity.
The Company has determined that BRAC, following
its IPO, is a variable interest entity (“VIE”) and that the Company is the primary beneficiary of the VIE. The Company
determined that, due to the redemption feature associated with the IPO shares, that the IPO shareholders are indirectly protected
from the operating expenses of BRAC and it has the power to direct the activities of BRAC through the date at which BRAC affords
the stockholders the opportunity to vote to approve a proposed business combination. Therefore, these consolidated financial statements
herein contain the operations of BRAC from its inception on May 9, 2017. BRAC’s IPO shareholders are reflected in our Consolidated
Financial Statements as a non-controlling interest. The non-controlling interest was recorded at fair value on October 10, 2017,
with an addition on October 18, 2017 as a result of the underwriters’ exercise of their over-allotment option. All significant
inter-company transactions have been eliminated in the preparation of these financial statements.
The parent company, Black Ridge Oil &
Gas, Inc. and Black Ridge Acquisition Corp. will be collectively referred to herein as the “Company” or “Black
Ridge”. The Company’s headquarters is in Minneapolis, Minnesota and substantially all of its operations are in the
United States.
Use of Estimates
The preparation of financial statements
in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Environmental Liabilities
The Company was formerly a direct owner
of assets in the oil and gas industry. The oil and gas industry is subject, by its nature, to environmental hazards and clean-up
costs. At this time, management knows of no substantial losses from environmental accidents or events which would have a material
effect on the Company.
Cash and Cash Equivalents
Cash equivalents include money market accounts
which have maturities of three months or less. For the purpose of the statements of cash flows, all highly liquid investments with
an original maturity of three months or less are considered to be cash equivalents. Cash equivalents are stated at cost plus accrued
interest, which approximates market value. Cash equivalents on hand at June 30, 2019 and December 31, 2018 were
$0 and $2,312, respectively, all held within the trust account.
Restricted cash and securities held
in Trust Account
The Company had $0 of cash equivalents
and $142,048,087 of marketable securities on June 30, 2019 and $2,312 of cash equivalents and $141,304,995 of marketable securities
on December 31, 2018 held in the Trust Account which is restricted for the benefit of the BRAC’s IPO shareholders to be available
for those shareholders in the event they elect to redeem their shares following an approved business combination or upon the dissolution
of BRAC.
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
Cash in Excess of FDIC Insured Limits
The Company maintains its cash in bank
deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance
Corporation (FDIC) and the Securities Investor Protection Corporation (SIPC) up to $250,000 and $500,000, respectively, under current
regulations. The Company had approximately $0 and $1,119,770 in excess of FDIC and SIPC insured limits at June 30, 2019 and December
31, 2018, respectively. The Company has not experienced any losses in such accounts.
Income Taxes
The Company recognizes deferred tax assets
and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using the enacted
tax rates and laws that are expected to be in effect when the differences are expected to be recovered. The Company provides a
valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.
Basic and Diluted Loss Per Share
The basic net loss per share is computed
by dividing the net loss (the numerator) by the weighted average number of common shares outstanding for the period (the denominator).
Diluted net loss per common share is computed by dividing the net loss by the weighted average number of common shares and potential
common shares outstanding (if dilutive) during each period. Potential common shares include stock options, warrants and restricted
stock. The number of potential common shares outstanding relating to stock options, warrants and restricted stock is computed using
the treasury stock method. For the periods presented, potential dilutive securities had an anti-dilutive effect and were not included
in the calculation of diluted net loss per common share.
Fair Value of Financial Instruments
Under FASB ASC 820-10-05, the Financial
Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The
adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying
amounts of cash, accounts payable and accrued expenses reported on the balance sheets are estimated by management to approximate
fair value primarily due to the short term nature of the instruments. The Company had no items that required fair value measurement
on a recurring basis.
Property and Equipment
Property and equipment are recorded at
cost and depreciated using the straight-line method over their estimated useful lives of three to seven years. Expenditures for
replacements, renewals, and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Long-lived
assets are evaluated for impairment to determine if current circumstances and market conditions indicate the carrying amount may
not be recoverable. The Company has not recognized any impairment losses on non-oil and gas long-lived assets. Depreciation expense
was $623 and $5,115 for the six months ended June 30, 2019 and 2018, respectively.
Revenue Recognition
The Company recognizes management fee income
as services are provided.
Stock-Based
Compensation
The Company adopted FASB guidance on stock
based compensation upon inception at April 9, 2010. Under FASB ASC 718-10-30-2, all share-based payments to employees, including
grants of employee stock options, are recognized in the income statement based on their fair values. Expense related to common
stock and stock options issued for services and compensation totaled $55,818 and $166,763 for the six months ended June 30, 2019
and 2018, respectively, using the Black-Scholes options pricing model and an effective term of 6 to 6.5 years based on the weighted
average of the vesting periods and the stated term of the option grants and the discount rate on 5 to 7 year U.S. Treasury securities
at the grant date.
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
Uncertain Tax Positions
Effective upon inception at April 9, 2010,
the Company adopted standards for accounting for uncertainty in income taxes. These standards prescribe a recognition threshold
and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken
in a tax return. These standards also provide guidance on de-recognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition.
Various taxing authorities may periodically
audit the Company’s income tax returns. These audits include questions regarding the Company’s tax filing positions,
including the timing and amount of deductions and the allocation of income to various tax jurisdictions. In evaluating the exposures
connected with these various tax filing positions, including state and local taxes, the Company records allowances for probable
exposures. A number of years may elapse before a particular matter, for which an allowance has been established, is audited and
fully resolved. Black Ridge Oil & Gas, Inc. has not yet undergone an examination by any taxing authorities.
The assessment of the Company’s tax
position relies on the judgment of management to estimate the exposures associated with the Company’s various filing positions.
Recent Accounting Pronouncements
New accounting pronouncements are issued
by the Financial Accounting Standards Board (“FASB”) that are adopted by the Company as of the specified effective
date. If not discussed below, management believes there have been no developments to recently issued accounting standards, including
expected dates of adoption and estimated effects on our financial statements, from those disclosed in our Annual Report on Form
10-K for the year ended December 31, 2018.
In July 2018, the FASB issued ASU No. 2018-10,
Codification
Improvements to Topic 842, Leases
. The amendments in ASU 2018-10 provide additional clarification and implementation guidance
on certain aspects of the previously issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) and have the same effective
and transition requirements as ASU 2016-02. Upon the effective date, ASU 2018-10 will supersede the current lease guidance in ASC
Topic 840, Leases. Under the new guidance, lessees will be required to recognize for all leases, with the exception of short-term
leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted
basis. Concurrently, lessees will be required to recognize a right-of-use asset, which is an asset that represents the lessee’s
right to use, or control the use of, a specified asset for the lease term. ASU 2018-10 is effective for private companies and emerging
growth public companies for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted.
The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into
after, the beginning of the earliest comparative periods presented in the financial statements. The Company adopted this guidance
effective January 1, 2019, and the standard did not have a material impact on the Company’s combined financial statements
and related disclosures.
Note 3 – Going Concern
As shown in the accompanying financial
statements, as of June 30, 2019, the Company had an unrestricted cash balance of $268,067 and total working capital of $101,535.
Liabilities including current income taxes and franchise fees of BRAC totaling $119,553 may be paid out of the Trust Account Assets.
The Company has no revenue source presently. Based on projections of cash expenditures in the Company’s current business
plan, the cash on hand would be insufficient to fund the Company’s general and administrative expenses over the next year.
The Company continues to pursue sources
of additional capital through various management fee agreements and financing transactions or arrangements, including joint venturing
of projects, equity financing or other means. We may not be successful in identifying suitable funding transactions in a sufficient
time period or at all, and we may not obtain the capital we require by other means. If we do not succeed in raising additional
capital, our resources may not be sufficient to fund our business.
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
The
financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s
ability to continue as a going concern. These financial statements also do not include any adjustments relating to the recoverability
and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the
Company be unable to continue as a going concern.
Note 4 – Rights Offering and Formation
of Black Ridge Acquisition Corp.
The Company filed a Registration Statement
on Form S-1 (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) to register
the issuance of 431,819,910 shares of common stock in the Rights Offering that was declared effective by the SEC on August 3, 2017.
Pursuant to the Rights Offering, the Company distributed, on a pro rata basis, one right for each share of common stock owned by
shareholders on August 2, 2017 (the “Record Date”). Each right permitted a shareholder to purchase up to nine shares
of common stock at a subscription price of $0.012 per share. The Rights Offering expired on September 8, 2017 (the “Expiration
Date”).
In connection with the Rights Offering,
the Company also entered into a Standby Purchase Agreement (the “Backstop Agreement”) with a consortium of investors,
including members of the Company’s board of directors and our Chief Executive Officer (collectively, the “Backstop
Purchasers”), who agree to purchase up to $2.9 million of the unsubscribed shares following the completion of the rights
offering.
On September 26, 2017, the Company completed
the Rights Offering, raising gross proceeds of $5,181,839 and issued 431,819,910 shares in connection with the exercise of rights
in connection with the Rights Offering and related Backstop Agreement. Under the Rights Offering the Company’s current shareholders
exercised rights to purchase 199,811,421 shares of stock for a total of $2,397,737. Under the Backstop Agreement, the Backstop
Purchasers purchased 232,008,489 shares of stock for a total of $2,784,102. Additionally, as part of the Backstop agreement, the
Company issued 435,000 warrants to purchase its common stock at $0.01 to participants in the Backstop Agreement. The warrants fair
value was estimated to be $10,135. Officers and directors of the Company purchased 173,843,308 shares between the Rights Offering
and as participants of the Backstop Agreement for $2,086,120 and received 179,376 warrants to purchase shares of common stock at
$0.01 per share for their participation in the Backstop Agreement. The remaining 257,976,602 shares were purchased by non-related
parties for proceeds of $2,965,555. The warrants issued to related parties fair value was estimated to be $4,179. The Company incurred
$130,164 in costs associated with raising capital, which has been netted against stockholders’ equity.
On October 10, 2017 and October 18, 2017,
in connection with the underwriter exercising its over-allotment option, the Company used $4,450,000 of the net proceeds of the
Rights Offering to fulfill its obligation as sponsor of BRAC, as part of BRAC’s IPO. BRAC was formed on May 9, 2017 with
the purpose of becoming the special acquisition company as a wholly owned subsidiary of the Company with an initial equity contribution
of $25,000. After the IPO, the Company retained ownership of 22% of BRAC’s common stock. The remaining proceeds from the
Rights Offering following the sponsorship are being used for general corporate purposes.
Note 5 – BRAC’s IPO, Consolidation
of BRAC and Non-controlling Interest
BRAC’s IPO
The registration statement for the BRAC’s
IPO was declared effective on October 4, 2017. The registration statement was initially declared effective for 10,000,000 units
(“Units” and, with respect to the common stock included in the Units being offered, the “Public Shares”),
but the offering was increased to 12,000,000 Units pursuant to Rule 462(b) under the Securities Act of 1933, as amended. On October
10, 2017, the Company consummated the IPO of 12,000,000 units, generating gross proceeds of $120,000,000.
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
Simultaneous with the closing of the IPO,
BRAC sold 400,000 units (the “Placement Units”) at a price of $10.00 per Unit in a private placement to BROG, generating
gross proceeds of $4,000,000. BROG’s investment in BRAC’s common stock is eliminated in consolidation.
Transaction costs relating to the IPO amounted
to $2,882,226, consisting of $2,400,000 of underwriting fees and $482,226 of other costs.
Following the closing of the IPO on October
10, 2017, an amount of $120,600,000 ($10.05 per Unit) from the net proceeds of the sale of the Units in the IPO and the Placement
Units was placed in a trust account (“Trust Account”) and is invested in U.S. government securities, within the meaning
set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with
a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund selected by
the Company meeting the conditions of paragraphs (d)(2), (d)(3) and (d)(4) of Rule 2a-7 of the Investment Company Act, as determined
by the Company, until the earlier of: (i) the consummation of a Business Combination or (ii) the distribution of the Trust Account,
as described below.
On October 18, 2017, in connection with
the underwriters’ exercise of their over-allotment option in full, BRAC sold an additional 1,800,000 Units and sold an additional
45,000 Placement Units to BROG at $10.00 per Unit, generating total proceeds of $18,450,000. Transaction costs for underwriting
fees on the sale of the over-allotment units were $360,000. Following the closing, an additional $18,090,000 of the net proceeds
($10.05 per Unit) was placed in the Trust Account, bringing the total aggregate proceeds held in the Trust Account to $138,690,000
($10.05 per Unit). BROG’s investment in BRAC’s common stock is eliminated in consolidation.
Upon the closing of the IPO, $10.05 per
Unit sold in the IPO, including some of the proceeds of the Private Placements was deposited in a trust account (“Trust Account”)
to be held until the earlier of (i) the consummation of its initial Business Combination or (ii) BRAC’s failure to consummate
a Business Combination within 21 months from the consummation of the IPO (the “Combination Period”).
Initial Business Combination
Pursuant to the Nasdaq Capital Markets
listing rules, BRAC’s initial Business Combination had to be with a target business or businesses whose collective fair market
value was at least equal to 80% of the balance in the Trust Account, net of tax obligations, at the time of the execution of a
definitive agreement for such Business Combination.
BRAC will provide the holders of the Public
Shares (“Public Stockholders”) with an opportunity to redeem all or a portion of their Public Shares in connection
with a stockholder meeting called to approve the Business Combination, irrespective of whether they vote for or against the proposed
Business Combination, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account
including interest (net of franchise and income taxes payable), divided by the number of then outstanding Public Shares. The amount
in the Trust Account, net of franchise and income taxes payable, currently amounts to approximately $10.29 per Public Share. The
common stock subject to redemption was recorded at a redemption value and classified as temporary equity upon the completion of
the IPO, in accordance with Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from
Equity”. BRAC will proceed with a Business Combination only if BRAC has net tangible assets of at least $5,000,001 upon such
consummation of a Business Combination a majority of the outstanding shares voted are voted in favor of the Business Combination.
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
BROG has agreed to vote its Founder Shares
(as described in Note 4) and any Public Shares purchased after the IPO in favor of the initial Business Combination, and BRAC’s
executive officers and directors have also agreed to vote any Public Shares purchased after the IPO in favor of the Initial Business
Combination. BROG entered into a letter agreement, pursuant to which it agreed to waive its redemption rights with respect to the
Founder Shares, shares included in the Placement Units and Public Shares in connection with the completion of the initial Business
Combination. In addition, BROG has agreed to waive its rights to liquidating distributions from the Trust Account with respect
to the Founder Shares and shares included in the Placement Units if BRAC fails to complete the initial Business Combination within
the prescribed time frame.
Proposed Business Combination
On December 19, 2018, BRAC entered into
a business combination agreement (the “Business Combination Agreement”) with Allied Esports Entertainment, Inc. (“Allied
Esports”), Ourgame International Holdings Ltd. (“Ourgame”), Noble Link Global Limited, a wholly-owned subsidiary
of Ourgame (“Noble”), and Primo Vital Ltd., also a wholly-owned subsidiary of Ourgame (“Primo”), pursuant
to which BRAC will acquire two of Ourgame’s global esports and entertainment assets, Allied Esports International, Inc. (“Allied
Esports”) and WPT Enterprises, Inc. (“WPT”) . See Note 16.
Consolidation of BRAC and Non-controlling
Interest
The Company has determined that BRAC, following
its IPO, is a VIE and that the Company is the primary beneficiary of the VIE. The Company determined that, due to the redemption
feature associated with the IPO shares, that the IPO shareholders are indirectly protected from the operating expenses of BRAC
and BROG has the power to direct the activities of BRAC through the date at which BRAC affords the stockholders the opportunity
to vote to approve a proposed business combination. Therefore, these consolidated financial statements contain the operations of
the BRAC from its inception on May 9, 2017. BRAC’s IPO shareholders are reflected in our Consolidated Financial Statements
as a redeemable non-controlling interest. The non-controlling interest was recorded at fair value on October 10, 2017, with an
addition on October 18, 2017 as a result of the underwriters’ exercise of their over-allotment option. The net earnings attributable
to the IPO shareholders are subtracted from the net gain (loss) for any period to arrive at the net loss attributable to the Company
and the non-controlling interest on the balance sheet is adjusted to include the net earnings attributable to the IPO shareholders.
Intercompany transactions and eliminations
BROG is paid a management fee by BRAC of
$10,000 per month as part of an administrative services agreement, which commenced October 5, 2017, for general and administrative
services including the cost of office space and personnel dedicated to BRAC. BROG is reimbursed for any out-of-pocket expenses,
particularly travel, incurred in connection with activities on BRAC’s behalf, including but not limited to identifying potential
target businesses and performing due diligence on suitable business combinations. There is no cap or ceiling on the reimbursement
of out-of-pocket expenses incurred by BRAC. BRAC paid a total of $60,000 to BROG for such services for the six months ended June
30, 2019. The management services income of BROG and the management services expense of BRAC as well as any balances due between
the companies for such services or reimbursements were eliminated in consolidation.
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
Note 6 – Prepaid Expenses
Prepaid expenses consist of the following:
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June 30,
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December 31,
|
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2019
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2018
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Prepaid insurance costs
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$
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21,679
|
|
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$
|
28,751
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Prepaid employee benefits
|
|
|
11,822
|
|
|
|
11,865
|
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Prepaid office and other costs
|
|
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74,637
|
|
|
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13,319
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Total prepaid expenses
|
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$
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108,138
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|
|
$
|
53,935
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Note 7 – Property and Equipment
Property and equipment at June 30, 2019 and December 31, 2018,
consisted of the following:
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June 30,
|
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December 31,
|
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|
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2019
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|
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2018
|
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Property and equipment
|
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$
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128,965
|
|
|
$
|
128,156
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|
Less: Accumulated depreciation and amortization
|
|
|
(127,554
|
)
|
|
|
(126,931
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)
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Total property and equipment, net
|
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$
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1,411
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|
|
$
|
1,225
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|
The Company recognized depreciation expense of $623 and $5,115
for the six month periods ended June 30, 2019 and 2018, respectively.
Note 8 – Related Party Transactions
On March 1, 2018, the Board of Directors
(the “Board”) of the Company approved and adopted the Black Ridge Oil & Gas, Inc. 2018 Management Incentive Plan
(the “Plan”) and the form of 2018 Management Incentive Plan Award Agreement (the “Award Agreement”).
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
In connection with the approval of the
Plan and Award Agreement, the Board approved the issuance of awards (the “Awards”) to certain individuals including
officers and directors (the “Grantees”), representing a percentage of the shares of BRAC held by the Company as of
the date of closing of a business combination for the acquisition of a target business as described in the BRAC prospectus dated
October 4, 2017, as follows:
|
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Percentage of BRAC Shares Owned by the
|
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Name
|
|
Company to be Granted to the Grantee
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Bradley Berman
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1.6%
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Lyle Berman
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1.6%
|
|
Benjamin Oehler
|
|
|
1.6%
|
|
Joe Lahti
|
|
|
1.6%
|
|
Kenneth DeCubellis
|
|
|
4.0%
|
|
Michael Eisele
|
|
|
2.8%
|
|
James Moe
|
|
|
2.1%
|
|
As of June 30, 2019, the Company owned
3,895,000 shares of BRAC common stock and has rights to an additional 44,500 shares that would be issued on the date of the closing
of a business combination. Additionally, as a result of convertible loans to BRAC (see below), the Company may receive up to 82,500
additional shares (75,000 units representing 75,000 shares of BRAC common stock and rights to 7,500 shares) upon conversion of
the notes. The actual number of shares of BRAC stock granted to the Grantees will be determined on the date of closing of a business
combination and will be issued one year from that date. As of June 30, 2019 the Company has recognized no expense related to the
plan as the grant of shares is contingent on a future event. As described in Note 17 – Subsequent Events, following the
Business Combination, the number of BRAC shares owed by the Company was reduced to 2,685,500. As a result, 537,100 of the 2,685,500
shares of BRAC common stock owned by the company are committed to employees and directors of the Company related to the Plan and
Award Agreement discussed above.
BRAC Convertible Loans
In order to finance transaction costs in
connection with an intended initial business combination, BROG, and its officers, directors or their affiliates may, but are not
obligated to, loan BRAC funds as may be required. If BRAC consummates an initial business combination, BRAC would repay such loaned
amounts. In the event that the initial business combination does not close, BRAC may use a portion of the working capital held
outside the trust account to repay such loaned amounts, but no proceeds from BRAC’s trust account would be used for such
repayment. Up to $1,500,000 of such loans may be convertible into units of the post business combination entity at a price of $10.00
per unit at the option of the lender. The units would be identical to the Placement Units.
As of June 30, 2019, BROG has loaned BRAC,
in the form of a convertible promissory notes, an aggregate $750,000 to cover expenses related to a proposed business combination.
The notes are unsecured, non-interest bearing and payable at the consummation by BRAC of a merger, share exchange, asset acquisition,
or other similar business combination, with one or more businesses or entities (a “Business Combination”). Upon consummation
of a Business Combination, the principal balance of the notes may be converted, at BROG’s option, to units at a price of
$10.00 per unit. The terms of the units are identical to the units issued by BRAC in its IPO, except the warrants included
in such units will be non-redeemable and may be exercised on a cashless basis, in each case so long as they continue to be held
by BROG or its permitted transferees. If BROG converts the entire principal balance of the convertible promissory notes, it would
receive 75,000 units. If a Business Combination is not consummated, the notes will not be repaid by BRAC and all amounts owed thereunder
by BRAC will be forgiven except to the extent that BRAC has funds available to it outside of its trust account established in connection
with the IPO. The issuance of the notes was exempt pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. See Note
16.
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
Note 9 – Fair Value of Financial Instruments
The Company adopted FASB ASC 820-10 upon
inception at April 9, 2010. Under FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price).
The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability
of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value,
and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.
The Company had revolving credit facilities
that must be measured under the new fair value standard. The Company’s financial assets and liabilities are measured using
inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level 1 - Inputs are unadjusted
quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement
date.
Level 2 - Inputs include quoted
prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets
that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield
curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means
(market corroborated inputs).
Level 3 - Unobservable inputs
that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
The following schedule summarizes the valuation
of financial instruments at fair value on a recurring basis in the balance sheets as of June 30, 2019 and December 31, 2018:
|
|
Fair Value Measurements at June 30, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Restricted cash and investments held in trust
|
|
$
|
142,048,087
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Cash and cash equivalents
|
|
|
268,067
|
|
|
|
–
|
|
|
|
–
|
|
Total assets
|
|
|
142,316,154
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
$
|
142,316,154
|
|
|
$
|
–
|
|
|
$
|
–
|
|
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
|
|
Fair Value Measurements at December 31, 2018
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Restricted cash and investments held in trust
|
|
$
|
141,307,307
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Cash and cash equivalents
|
|
|
1,503,500
|
|
|
|
–
|
|
|
|
–
|
|
Total assets
|
|
|
142,810,807
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
$
|
142,810,807
|
|
|
$
|
–
|
|
|
$
|
–
|
|
There were no transfers of financial assets
or liabilities between Level 1 and Level 2 inputs for the six months ended June 30, 2019.
Note 10 – Stockholders’
Equity
Preferred Stock
The Company has 20,000,000 authorized shares
of $0.001 par value preferred stock. No shares have been issued to date.
Common Stock
The Company has 500,000,000 authorized
shares of $0.001 par value common stock. As of June 30, 2019 and December 31, 2018, 479,844,900 shares of common stock have been
issued.
Note 11 – Options
Options Granted
No options were granted during the six
months ended June 30, 2019 and 2018.
The Company recognized a total of $55,818,
and $166,763 of compensation expense during the six months ended June 30, 2019 and 2018, respectively, related to common stock
options issued to Employees and Directors that are being amortized over the implied service term, or vesting period, of the options.
The remaining unamortized balance of these options is $71,966 as of June 30, 2019.
Options Exercised
No options were exercised during the six
months ended June 30, 2019 and 2018.
Options Forfeited
A total of 134,000 options expired and were forfeited during
the six months ended June 30, 2019. A total of 22,000 options were forfeited during the six months ended June 30, 2018.
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
Note 12 – Warrants
Warrants Granted
No warrants were granted during the six
months ended June 30, 2019 and 2018.
Warrants Exercised
No warrants were exercised during the six months ended June
30, 2019 and 2018.
Outstanding Warrants
The Company issued 435,000 warrants (of
which 390,000 are outstanding as of June 30, 2019) to purchase shares at $0.01 per share to participants of the Backstop Agreement
on September 22, 2017. The Company accounted for the warrants as an expense of the Rights Offering which resulted in a charge directly
to stockholders’ equity. The Company estimated the fair value of these warrants to be approximately $10,135 (or $.0233 per
warrant) using the Black-Scholes option-pricing model. The fair value of the warrants was estimated as of the date of grant using
the following assumptions: (1) expected volatility of 388%, (2) risk-free interest rate of 1.89% and (3) expected life of five
years.
Note 13 - BRAC Rights and Warrants
Initial Public Offering
Pursuant to its IPO and including the subsequent
over-allotment option exercised by the underwriter, BRAC sold 13,800,000 Units at a purchase price of $10.00 per Unit. Each Unit
consists of one share of common stock, one right (“Public Right”) and one warrant (“Public Warrant”). Each
Public Right will convert into one-tenth (1/10) of one share of common stock upon consummation of a Business Combination. Each
Public Warrant entitles the holder to purchase one share of common stock at an exercise price of $11.50.
Private Placement
Simultaneous with the IPO and over-allotment
option exercise, BROG purchased an aggregate of 445,000 Placement Units at a price of $10.00 per Unit (or an aggregate purchase
price of $4,450,000). Each Placement Unit consists of one share of common stock (“Placement Share”), one right (“Placement
Right”) and one warrant (each, a “Placement Warrant”) to purchase one share of the common stock at an exercise
price of $11.50 per share. The proceeds from the Placement Units were added to the proceeds from the IPO held in the Trust Account.
If BRAC does not complete a Business Combination within the Combination Period, the proceeds of the sale of the Placement Units
will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Placement Rights
and Placement Warrants will expire worthless.
The Placement Units are identical to the
Units sold in the IPO except that the Placement Warrants (i) are not redeemable by BRAC and (ii) may be exercised for cash or on
a cashless basis, so long as they are held by BROG or any of its permitted transferees. In addition, the Placement Units and their
component securities may not be transferable, assignable or salable until after the consummation of a Business Combination, subject
to certain limited exceptions.
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
Rights
Each holder of a right will receive one-tenth
(1/10) of one share of common stock upon consummation of a Business Combination, even if a holder of such right converted all ordinary
shares held by it in connection with a Business Combination. No fractional shares will be issued upon exchange of the rights. No
additional consideration will be required to be paid by a holder of rights in order to receive its additional shares upon consummation
of a Business Combination as the consideration related thereto has been included in the Unit purchase price paid for by investors
in the IPO. If BRAC enters into a definitive agreement for a Business Combination in which BRAC will not be the surviving entity,
the definitive agreement will provide for the holders of rights to receive the same per share consideration the holders of the
shares of common stock will receive in the transaction on an as-converted into shares of common stock basis and each holder of
rights will be required to affirmatively covert its rights in order to receive 1/10 of a share of common stock underlying each
right (without paying additional consideration). The shares of common stock issuable upon exchange of the rights will be freely
tradable (except to the extent held by affiliates of BRAC).
If BRAC is unable to complete a Business
Combination within the Combination Period and BRAC liquidates the funds held in the Trust Account, holders of rights will not receive
any of such funds with respect to their rights, nor will they receive any distribution from BRAC’s assets held outside of
the Trust Account with respect to such rights, and the rights will expire worthless. Further, there are no contractual penalties
for failure to deliver securities to the holders of the rights upon consummation of a Business Combination. Additionally, in no
event will BRAC be required to net cash settle the rights. Accordingly, the rights may expire worthless.
The rights included in the Private Units
sold in the Private Placement are identical to the rights included in the Units sold in the IPO, except that, among others, the
rights including the shares issuable upon exchange of such rights, are being purchased pursuant to an exemption from the registration
requirements of the Securities Act and will become tradable only after certain conditions are met or the resale of such rights
(including underlying securities) is registered under the Securities Act.
Warrants
Warrants may only be exercised for a whole
number of shares. No fractional shares will be issued upon exercise of the Warrants. The Warrants will become exercisable on the
later of (a) 30 days after the consummation of a Business Combination or (b) October 10, 2018. No Warrants will be exercisable
for cash unless BRAC has an effective and current registration statement covering the shares of common stock issuable upon exercise
of the Warrants and a current prospectus relating to such shares. Notwithstanding the foregoing, if a registration statement covering
the shares of common stock issuable upon the exercise of the Warrants is not effective within 30 days from the consummation of
a Business Combination, the holders may, until such time as there is an effective registration statement and during any period
when BRAC shall have failed to maintain an effective registration statement, exercise the Warrants on a cashless basis pursuant
to an available exemption from registration under the Securities Act. If an exemption from registration is not available, holders
will not be able to exercise their Warrants on a cashless basis. The Warrants will expire five years from the consummation of a
Business Combination or earlier upon redemption or liquidation.
The Private Warrants will be identical
to the Warrants underlying the Units sold in the IPO, except the Private Warrants will be exercisable for cash (even if a registration
statement covering the shares of common stock issuable upon exercise of such Private Warrants is not effective) or on a cashless
basis, at the holder’s option, and will not be redeemable by BRAC, in each case so long as they are still held by BROG or
its affiliates.
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
BRAC may call the Warrants for redemption
(excluding the Private Warrants but including any outstanding Warrants issued upon exercise of the unit purchase option issued
to EarlyBirdCapital), in whole and not in part, at a price of $.01 per Warrant:
|
·
|
at any time while the Warrants are exercisable,
|
|
·
|
upon not less than 30 days’ prior written notice of redemption to each Warrant holder,
|
|
·
|
if, and only if, the reported last sale price of the shares of common stock equals or exceeds $18.00 per share, for any 20 trading days within a 30 trading day period ending on the third business day prior to the notice of redemption to Warrant holders, and
|
|
·
|
if, and only if, there is a current registration statement in effect with respect to the shares of common stock underlying such Warrants at the time of redemption and for the entire 30-day redemption period and continuing each day thereafter until the date of redemption.
|
If BRAC calls the Warrants for redemption,
management will have the option to require all holders that wish to exercise the Warrants to do so on a “cashless basis,”
as described in the warrant agreement.
The exercise price and number of shares
of common stock issuable upon exercise of the Warrants may be adjusted in certain circumstances including in the event of a stock
dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However, the Warrants will not be
adjusted for issuances of shares of common stock at a price below its exercise price. Additionally, in no event will BRAC be required
to net cash settle the Warrants. If BRAC is unable to complete a Business Combination within the Combination Period and BRAC liquidates
the funds held in the Trust Account, holders of Warrants will not receive any of such funds with respect to their Warrants, nor
will they receive any distribution from BRAC’s assets held outside of the Trust Account with respect to such Warrants. Accordingly,
the Warrants may expire worthless.
Unit Purchase Option
On October 10, 2017, BRAC sold to the underwriter
and its designees, for $100, an option to purchase up to 600,000 Units exercisable at $11.50 per Unit (or an aggregate exercise
price of $6,900,000) commencing on the later of the first anniversary of the effective date of the registration statement related
to the IPO and the consummation of a Business Combination. The unit purchase option may be exercised for cash or on a cashless
basis, at the holder’s option, and expires five years from the effective date of the registration statement related to the
IPO. The Units issuable upon exercise of this option are identical to those offered in the IPO. BRAC accounted for the unit purchase
option, inclusive of the receipt of $100 cash payment, as an expense of the IPO resulting in a charge directly to stockholders’
equity. BRAC estimated the fair value of this unit purchase option to be approximately $1,778,978 (or $2.97 per Unit) using the
Black-Scholes option-pricing model. The fair value of the unit purchase option granted to the underwriters was estimated as of
the date of grant using the following assumptions: (1) expected volatility of 35%, (2) risk-free interest rate of 1.94% and (3)
expected life of five years. The option and such units purchased pursuant to the option, as well as the common stock underlying
such units, the rights included in such units, the common stock that is issuable for the rights included in such units, the warrants
included in such units, and the shares underlying such warrants, have been deemed compensation by FINRA and are therefore subject
to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA’s NASDAQ Conduct Rules. Additionally, the option may not be sold,
transferred, assigned, pledged or hypothecated for a one-year period (including the foregoing 180-day period) following the date
of IPO except to any underwriter and selected dealer participating in the IPO and their bona fide officers or partners. The option
grants to holders demand and “piggy back” rights for periods of five and seven years, respectively, from the effective
date of the registration statement with respect to the registration under the Securities Act of the securities directly and indirectly
issuable upon exercise of the option. BRAC will bear all fees and expenses attendant to registering the securities, other than
underwriting commissions which will be paid for by the holders themselves. The exercise price and number of units issuable upon
exercise of the option may be adjusted in certain circumstances including in the event of a stock dividend, or BRAC’s recapitalization,
reorganization, merger or consolidation. However, the option will not be adjusted for issuances of ordinary shares at a price below
its exercise price.
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
Note 14 – Income Taxes
The Company accounts for income taxes under
ASC Topic 740,
Income Taxes,
which provides for an asset and liability approach of accounting for income taxes. Under this
approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences, using currently enacted
tax laws, attributed to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts calculated for income tax purposes.
BROG and BRAC file returns independently
and do not file as a consolidated group. We currently estimate that our effective tax rate for the year ending December 31, 2019
will be 0% for BROG and 36.5% for BRAC.
For BROG, losses incurred during the period
from April 9, 2011 (inception) to June 30, 2019 could be used to offset future tax liabilities. Accounting standards require the
consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component
or all of the benefits of deferred tax assets will not be realized. As of June 30, 2019, net deferred tax assets were $9,960,622,
with no deferred tax liability, primarily related to net operating loss carryforwards. A valuation allowance of approximately $9,960,622
was applied to the net deferred tax assets. Therefore BROG has no tax expense for 2019 to date.
For BRAC, the tax expense of $386,455 and
$243,226 for the six months ended June 30, 2019 and 2018, respectively, was primarily driven by the Company’s interest income
offset by general and administrative expenses resulting in income before provision for income taxes.
In accordance with FASB ASC 740, the Company
has evaluated its tax positions and determined there are no significant uncertain tax positions as of any date on, or before June
30, 2019.
Note 15 – Commitments
The Company from time to time may be involved
in various inquiries, administrative proceedings and litigation relating to matters arising in the normal course of business. The
Company is not aware of any inquiries or administrative proceedings and is not currently a defendant in any material litigation
and is not aware of any threatened litigation that could have a material effect on the Company.
The Company periodically maintains cash
balances at banks in excess of federally insured amounts. The extent of loss, if any, to be sustained as a result of any future
failure of a bank or other financial institution is not subject to estimation at this time.
BRAC’s agreements with underwriters
BRAC engaged the underwriters as advisors
in connection with its Initial Business Combination to assist it in holding meetings with its shareholders to discuss the potential
business combination and the target business’ attributes, introduce it to potential investors that are interested in purchasing
its securities, assist it in obtaining shareholder approval for the business combination and assist it with its press releases
and public filings in connection with the business combination. BRAC has agreed to pay its underwriters a cash fee for such services
upon the consummation of its initial business combination in an amount equal to 3.5% of the gross proceeds of its offering (exclusive
of any applicable finders’ fees which might become payable).
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
Registration rights
The holders of BROG’s shares of
BRAC issued and outstanding on the date of BRAC’s IPO, as well as the holders of the private units and any units BROG, and
its officers, directors or their affiliates may be issued in payment of working capital loans made to BRAC (and all underlying
securities), are entitled to registration rights pursuant to a registration rights agreement dated October 4, 2017. The holders
of a majority of these securities are entitled to make up to two demands that BRAC register such securities. The holders of the
majority of the BROG’s shares can elect to exercise these registration rights at any time commencing three months prior
to the date on which these shares of BRAC’s common stock are to be released from escrow. The holders of a majority of the
private units and units issued to BROG, and its officers, directors or their affiliates in payment of working capital loans made
to us (or underlying securities) can elect to exercise these registration rights at any time after BRAC consummates a business
combination. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements
filed subsequent to our consummation of a business combination. The Company would bear the expenses incurred in connection with
the filing of any such registration statements. This fee was amended to a payment in stock as described in Note 17.
Note 16 – BRAC’s Proposed
Business Combination
Business Combination Agreement
On December 19, 2018, BRAC entered into
the Business Combination Agreement with Merger Sub, Allied Esports, Ourgame, Noble and Primo. The Business Combination Agreement
was amended on August 5, 2019 and the Business Combination Agreement as amended is referred to as the Amended Business Combination
Agreement. The merger closed on August 9, 2019 (see Note 17 - Subsequent Events).
Subject to the Amended Business Combination
Agreement, (i) Noble will merge with and into Allied Esports (the “Redomestication Merger”) with Allied Esports being
the surviving entity in such merger and (ii) immediately after the Redomestication Merger, Merger Sub will merge with and into
Allied Esports with Allied Esports being the surviving entity of such merger (the “Transaction Merger” and together
with the Redomestication Merger, the “Mergers”).
The Mergers result in BRAC acquiring two
of Ourgame’s global esports and entertainment assets, Allied Esports and WPT. Allied Esports is a premier esports entertainment
company with a global network of dedicated esports properties and content production facilities. WPT is the creator of the World
Poker Tour® (WPT®) – the premier name in internationally televised gaming and entertainment with brand presence in
land-based tournaments, television, online and mobile. The proposed transaction will seek to strategically combine the globally
recognized Allied Esports brand with the three-pronged business model of the iconic World Poker Tour, featuring in-person experiences,
multiplatform content and interactive services, to leverage the high-growth opportunities in the global esports industry.
Upon consummation of the Mergers (the “Closing”),
the BRAC will issue to the former owners of Allied Esports and WPT (i) an aggregate of 11,602,754 shares of common stock, par value
$0.0001 per share, of BRAC common stock and (ii) an aggregate of 3,800,003 warrants to purchase shares of common stock of the BRAC.
In addition to the consideration described
above, the former owners of Allied Esports and WPT will receive their pro rata portion of an aggregate of an additional 3,846,153
shares of the BRAC’s common stock if the last sales price of BRAC’s common stock equals or exceeds $13.00 per share
(as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for thirty (30) consecutive days at any
time during the five (5) year period commencing on the date of the Closing (the “Closing Date”).
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
The Business Combination Agreement, which
original called for a debt repayment to Ourgame of $35,000,000 was amended to call for BRAC to (i) assume $10,000,000 of the debt
obligations of Ourgame and Noble (including an additional $1,200,000 of accrued interest) and (ii) repay Ourgame the remaining
balance of $23,800,000 by paying $3,500,000 in cash to Ourgame and its designees, issuing to Ourgame and its designees 2,928,679
shares of BRAC’s common stock and Ourgame retaining $1,000,000 of the proceeds of such loans to pay its transaction expenses
incurred in the Merger. In connection with entering into the Amendment, BROG, as BRAC’s founder, agreed to transfer an aggregate
of 600,000 shares of BRAC’s common stock held by it to Ourgame.
Conditions to Consummation of the Business Combination
Consummation of the transactions contemplated
by the Amended Business Combination Agreement is subject to certain closing conditions including, among others, (i) approval by
the stockholders of BRAC, and (ii) that BRAC have available cash in an amount not less than $22,000,000 after payment to stockholders
who elect to redeem their shares of common stock in accordance with the provisions of BRAC’s charter documents. This second
condition was waived by Ourgame prior to the close.
Termination
The Amended Business Combination Agreement
could be terminated at any time prior to the Closing Date (whether before or after BRAC’s shareholder vote has been obtained)
by mutual written consent of BRAC and Ourgame and Noble and in certain other limited circumstances, including if the proposed Business
Combination has not been consummated by August 9, 2019 (as amended in BRAC’s charter). The Business Combination closed on
August 9, 2019 (see Note 17 - Subsequent Events).
Note 17 – Subsequent Events
The Extension Meeting
On July 9, 2019, BRAC held a
special meeting of its stockholders (the “Meeting”). At the Meeting, BRAC’s stockholders considered a proposal
to adopt and approve an amendment to BRAC’s amended and restated certificate of incorporation (the “Charter”)
to extend the date that BRAC has to consummate a business combination (the “Extension”) to August 10, 2019. The amendment
was approved by the stockholders.
In connection with this vote,
the holders of 9,246,727 shares of BRAC’s common stock properly exercised their right to convert their shares into cash at
a conversion price of approximately $10.29 per share resulting in $95,125,574 in Trust Account assets being distributed back to
shareholders. In connection with the Extension, BROG, loaned $30,000 to BRAC to be placed in the Trust Account for the benefit
of the public shares that were not converted. The loan is non-interest bearing and is evidenced by a promissory note issued by
BRAC on the same date.
BRAC filed the amendment to the Charter
with the Secretary of State of the State of Delaware on July 9, 2019.
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
Amendment to the Business Combination
Agreement
On August 5, 2019, BRAC entered into an
amendment (the “Amendment”) to the Business Combination Agreement. The Amendment reduced the closing condition originally
contained in the Business Combination Agreement requiring BRAC to have minimum cash on hand following the proper exercise of conversion
rights by the holders of public shares from at least $80,000,000 to $22,000,000. This condition was waived by Ourgame prior to
the close of the Business Combination. The Business Combination Agreement also originally provided for BRAC to repay $35,000,000
of indebtedness of Allied Esports and the World Poker Tour owed to Ourgame in cash at the closing of the transactions (the “Closing”).
Pursuant to the Amendment, the parties agreed that instead of paying the full $35,000,000 in cash at the Closing, BRAC would (i)
assume $10,000,000 of the debt obligations of Ourgame and Noble (including an additional $1,200,000 of accrued interest) and (ii)
repay Ourgame the remaining balance of $23,800,000 by paying $3,500,000 in cash to Ourgame and its designees, issuing to Ourgame
and its designees 2,928,679 shares of BRAC’s common stock and Ourgame retaining $1,000,000 of the proceeds of such loans
to pay its transaction expenses incurred in the Merger. In connection with entering into the Amendment, BROG agreed to transfer
an aggregate of 600,000 shares of BRAC’s common stock held by it to Ourgame.
In connection with the execution of the
Amendment, the parties entered into an amendment and acknowledgment agreement (“Acknowledgment Agreement”) whereby
the terms of the previously issued convertible notes (“Notes”) of Allied Esports and WPT (collectively “AEII/WPT”)
whereby bridge holders provided $14 million to be used for the operations of AEII/WPT were amended. Pursuant to the Acknowledgement
Agreement, the bridge holders agreed to defer repayment of the Notes to one year and two weeks following the Closing (the “Maturity
Date”). In consideration of agreeing to the deferred repayment, the bridge holders will be paid an additional six months
of interest (i.e., a total of 18 months interest) to the extent any bridge holder elects not to convert their Note to equity.
BRAC agreed to assume the debt under the Notes as part of the mergers contemplated by the Agreement, and agreed that the debt
will be secured by all the assets of BRAC following the Closing. BROG, as the Sponsor, also agreed that it will not make any further
transfer of its securities of BRAC, subject to certain exceptions, until the debt is repaid. The Notes are convertible at any
time by a holder between the Closing and the Maturity Date at the “Conversion Price.” The “Conversion Price”
is the lesser of $8.50 per share or the price at which shares are issued to Ourgame or its affiliates in connection with the mergers.
In July and August 2019, BRAC and BROG
also entered into several share purchase agreements (the “Purchase Agreements”) with several parties (collectively
referred to as the “Purchasers”). Pursuant to the Purchase Agreements, the Purchasers agreed to purchase an aggregate
of $18,000,000 of shares of BRAC’s common stock in open market or privately negotiated transactions. If the Purchasers are
unable to purchase the full $18,000,000 of shares of common stock in open market or privately negotiated transactions, BRAC will
issue to the Purchasers newly issued shares at the Closing at a per-share price equal to the per-share amount held in BRAC’s
trust account (currently approximately $10.30 per share), and having an aggregate value equal to the difference between $18,000,000
and the dollar amount of shares purchased by them in the open market or in privately negotiated transactions. One of the agreements
also contains certain restrictions on the use of cash from the purchase. At the Closing, BRAC agreed to issue to the Purchasers
1.5 shares of common stock for every 10 shares purchased by them under the Purchase Agreements. Additionally, BROG agreed to transfer
an aggregate of 720,000 shares of BRAC common stock held by it to the Purchasers. Pursuant to the Purchase Agreements, BRAC is
required to file a registration statement with the SEC as promptly as practicable following Closing to register the resale of
any securities purchased by the Purchasers that are not already registered and cause such registration statement to become effective
as soon as possible. The Purchasers included a $3 million investment from Lyle Berman, a member of the board of directors of both
BRAC and BROG and the largest shareholder of BROG. Additionally, $5 million will be held in an escrow account and its usage will
be limited to specific capital projects.
Closing of the Business Combination
Commensurate with the Business Combination
the BROG converted $600,000 of convertible loans to BRAC into 60,000 units (comprised 66,000 shares after conversion of stock rights
and 60,000 warrants with terms similar to the IPO warrants). The remaining $150,000 in convertible loans were returned in cash
by BRAC to BROG. Additionally, the underwriter agreed to an amendment to its agreement, modifying its payment due at the close
of the Business Combination to $4 million, $2 million on cash and $2 million in equity. Other advisors used in the transaction
agreed to accept payment for $3.8 million in contingent fees in BRAC equity.
Upon, the close of the Business Combination,
BROG owned 2,685,500 shares of BRAC stock, representing approximately 11.6% of the outstanding shares of BRAC. As per the Black
Ridge Oil & Gas, Inc. 2018 Management Incentive Plan, 20% of the shares, or 537,100 shares, owned by BROG are committed to
employees and directors of the Company. Additionally, as the conditions warranting BROG’s treatment of BRAC as a VIE have
been eliminated, BROG will no longer be accounted for as a VIE and consolidated for financial statement reporting purposes from
the date of the closing of the Business Combination forward.
Consulting Agreement
On August 19,
2019, the Company entered into a consulting service agreement with Allied Esports Entertainment, Inc. under which, the Company
has agreed to provide certain services required by Allied Esports, including, without limitation, administrative and accounting
services through December 31, 2019. Under the Consulting Agreement, the Company is entitled to specified payment for
the Consulting Services to be paid on the date of execution and the first day of each following month with expected aggregate total
payments of approximately $349,000 over the term of the Consulting Agreement.