Notes to
Condensed 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” and “BROG”) became an independent
company in April 2010. We became a publicly traded company when our shares began trading on July 1, 2010. From October 2010
through August 2019, 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 and /or managing similar assets for third parties.
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 1,439,400 shares.
The proceeds were used to sponsor 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, 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. Following the IPO and over-allotment,
BROG 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 and the business combination closed on August 9, 2019.
The Company currently owns 2,368,532 shares
of Allied Esports Entertainment, Inc. (NASDAQ: AESE), the surviving entity after BRAC’s business combination (“Sponsor
Shares”), after selling 316,968 shares for a total of $962,812, and warrants to purchase 505,000 shares of AESE (NASDAQ:
AESEW) (“Sponsor Warrants”). Of the remaining Sponsor Shares, 537,100 are subject to distribution rights to officers
and directors under the 2018 Management Incentive Plan dated March 6, 2018.
On June 9,
2020, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”), between the Company
and S-FDF, LLC, a Texas limited liability company (the “Seller”), pursuant to which the Company will acquire $2.5
million in cash and certain assets and agreements related to the Seller’s freeze dried fruits and vegetables
business for human consumption (the “Purchased Assets”) and enter into certain employment and registration rights
agreements. The Company will not assume any liabilities of Seller or any liabilities, liens, or encumbrances pertaining to or
encumbering the Purchased Assets except for those related to agreements or arrangements specified in the Asset Purchase
Agreement.
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Financial Statements
(Unaudited)
Subject to the
terms of Asset Purchase Agreement, Seller will transfer the Purchased Assets to the Company in exchange for the issuance of 1,120,000
shares of the Company’s common stock to the Seller representing 41.18% of the Company’s issued and outstanding common
stock (the “Seller Shares”). The amount of Seller Shares to be issued is subject to adjustment, as specified in the
Asset Purchase Agreement, based on the extent to which the amount of cash proceeds held by the Company, as derived from the sale
of the Company’s holdings of Sponsor Shares, are less than $5 million or greater
than $6 million on the date specified in the Asset Purchase Agreement (the “Final Determination Date”). The Final
Determination Date will be the first anniversary of the closing of the Asset Purchase Agreement if closing occurs by January 1,
2021, and the Company has contributed $4 million to the business in the form of proceeds from either the sale of Sponsor Shares,
proceeds from a financing secured by the AESE Shares, proceeds from an equity or convertible debt financing, legal fees paid in
connection with the Asset Purchase Agreement or expenses incurred by the Company after August 1, 2020 (the “Company Contribution”).
If the Company Contribution is less than $4 million on January 1, 2021, then the Final Determination Date will be January 1, 2021.
The Company expects to close the transaction on or about October 1, 2020, subject to extension by mutual agreement of the
parties.
The Asset Purchase
Agreement may be terminated in the event of a material breach of the provisions of the Asset Purchase Agreement, by mutual consent
of the Company and Seller, by either the Company or Seller after October 31, 2020 absent a material breach or failure to comply
with the provisions of the Asset Purchase Agreement, or by either party upon payment of a $5 million termination fee.
Note 2 – Basis of Presentation
and Significant Accounting Policies
The interim condensed 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, 2019, which were included
in our Annual Report on Form 10-K/A. The Company follows the same accounting policies in the preparation of interim reports.
Reclassifications
In the prior year, the income, expense
and cash flows from Black Ridge Acquisition Corp., a wholly-owned subsidiary formed on October 10, 2017, which
was consolidated as a variable interest entity through August 9, 2019, the date that BRAC completed a business combination with
Allied Esports Entertainment, Inc. (“AESE”), were consolidated and have been retrospectively classified as discontinued
operations. In addition, prior period investment in Allied Esports Entertainment, Inc. securities of $6,982,300 were reclassified
from long term assets to current assets to conform to current period presentation.
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Financial Statements
(Unaudited)
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. Oil and gas companies are subject, by their nature, to environmental hazard 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 in Excess of FDIC 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 $44,718 of cash in excess of SIPC insured limits at June 30, 2020. 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 Earnings (Loss) Per Share
Basic earnings (loss) per share (“EPS”)
are computed by dividing net income (the numerator) by the weighted average number of common shares outstanding for the period
(the denominator). Diluted EPS is computed by dividing net income 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.
The reconciliation of the denominators
used to calculate basic EPS and diluted EPS for the three months ended June 30, 2020 and 2019 are as follows:
|
|
Three Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Weighted average common shares outstanding – basic
|
|
|
1,600,424
|
|
|
|
1,600,424
|
|
Plus: Potentially dilutive common shares:
|
|
|
|
|
|
|
|
|
Common stock warrants
|
|
|
121
|
|
|
|
–
|
|
Weighted average common shares outstanding – diluted
|
|
|
1,600,545
|
|
|
|
1,600,424
|
|
For the six months ended June 30, 2020
and 2019, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss
per common share. Stock options and warrants excluded from the calculation of diluted EPS because their effect was anti-dilutive
were 378,871 and 36,788 as of June 30, 2020 and 2019, respectively.
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Financial Statements
(Unaudited)
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. Depreciation expense was $650 and $623 for the six months ended June 30, 2020 and 2019, respectively.
Revenue Recognition
The Company recognizes revenue in accordance
with ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognized revenue from management services
through our previously consolidated Special Purpose Acquisition Company (“SPAC”), Black Ridge Acquisition Corp. until
December 31, 2019.
Revenue was primarily generated from BRAC
in the form of management services performed within the state of Minnesota on a fixed fee basis. Revenue from the performance
of those services was recognized upon completion of the services, at which time the services were delivered to the customer, and
collectability of the fee was reasonably assured. We typically required payment within thirty days of the completion of services.
Management estimates an allowance for doubtful accounts based on the aging of its receivables.
Stock-Based
Compensation
The Company accounts for equity instruments
issued to employees in accordance with the provisions of ASC 718 Stock Compensation (ASC 718) and Equity-Based Payments to Non-employees
pursuant to ASC 2018-07 (ASC 2018-07). All transactions in which the consideration provided in exchange for the purchase of goods
or services consists of the issuance of equity instruments are accounted for based on the fair value of the consideration received
or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value
of the equity instrument issued is the earlier of the date on which the counterparty’s performance is complete or the date
at which a commitment for performance by the counterparty to earn the equity instruments is reached because of sufficiently large
disincentives for nonperformance. Stock-based compensation was $70,943 and $55,818, consisting entirely of expenses related to
common stock options issued for services for the six months ended June 30, 2020 and 2019, 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. In addition, $377,440
of expenses related to the amortization of warrants issued in consideration of personal guarantees provided for debt financing
for the six months ended June 30, 2020, using the Black-Scholes options pricing model and an effective term of 5 years based on
the weighted average of the vesting periods and the stated term of the warrant grants and the discount rate on 5 year U.S. Treasury
securities at the grant date were recognized as interest expense for the six months ended June 30, 2020.
Uncertain Tax Positions
In accordance with ASC 740, “Income
Taxes” (“ASC 740”), the Company recognizes the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be capable of withstanding examination by the taxing authorities based on the technical
merits of the position. 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.
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Financial Statements
(Unaudited)
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
From time to time, 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/A for the year ended December 31, 2019.
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, 2020, the Company has incurred recurring losses from operations resulting in an accumulated deficit
of $33,286,196. As of June 30, 2020, the Company’s cash on hand may not be sufficient to sustain operations. These factors
raise substantial doubt about the Company’s ability to continue as a going concern. The Company is currently seeking sources
of capital to fund the requirements of the Asset Purchase Agreement. The Company intends to sell its AESE shares to continue as
a going concern, however, there can be no assurance the share price will be sufficient to sustain operations, therefore the Company
may be dependent upon its ability to secure equity and/or debt financing and there are also no assurances that the Company will
be successful; therefore, without sufficient financing it would be unlikely for the Company to continue as a going concern.
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. The 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.
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Financial Statements
(Unaudited)
Note 4 – Related Party
On March 1, 2018, the Board of Directors
(the “Board”) of the Company approved and adopted the Black Ridge Gas, Inc. 2018 Management Incentive Plan (the “Plan”)
and the form of 2018 Management Incentive Plan Award Agreement (the “Award Agreement”).
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:
Name
|
|
Percentage
of BRAC Shares Owned by the Company Granted to the Grantee
|
Bradley Berman
|
|
1.6%
|
Lyle Berman
|
|
1.6%
|
Benjamin Oehler
|
|
1.6%
|
Joe Lahti
|
|
1.6%
|
Kenneth DeCubellis
|
|
4.0%
|
Michael Eisele
|
|
2.8%
|
James Moe
|
|
2.1%
|
Following the AESE merger on August 9,
2019, the Company owned 2,685,500 shares of AESE common stock. During the quarter ending June 30, 2020, the Company sold 316,968
shares for a total of $962,812, leaving 2,368,532 shares owned in AESE common stock. Of these 2,368,532 shares, 537,100 shares
(the “AESE Plan Shares”) are committed to employees and directors of the Company. Employees and directors are required
to remain in their positions for a one-year period from the AESE merger, with certain exceptions, to receive the granted shares.
The AESE Plan Shares had a fair market value of $1,133,281 on June 30, 2020. The Company recognized $1,396,460 of compensation
expense related to the Plan during the year ended December 31, 2019. For the six months ended June 30, 2020, the Company recognized
a gain of $263,179 related to the reduction in the value of the shares to be paid to employees on August 10, 2020, which was
offset against the Company’s loss on the investment in AESE shares due to changes in the AESE market price between December
31, 2019 and June 30, 2020. Subsequent adjustments will be required each quarter to adjust the deferred compensation liability
until the shares can be transferred to the employees.
Note 5 – Fair Value of Financial
Instruments
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 has cash and cash equivalents
and a revolving credit facility that must be measured under the 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.
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Financial Statements
(Unaudited)
The following schedule summarizes the valuation
of financial instruments at fair value on a recurring basis in the balance sheets as of June 30, 2020 and December 31, 2019:
|
|
Fair Value Measurements at June 30, 2020
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
651,608
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Investment in Allied Esports Entertainment, Inc. securities
|
|
|
5,073,353
|
|
|
|
–
|
|
|
|
–
|
|
Total assets
|
|
|
5,724,961
|
|
|
|
–
|
|
|
|
–
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
–
|
|
|
|
(262,925
|
)
|
|
|
–
|
|
Total liabilities
|
|
|
–
|
|
|
|
(262,925
|
)
|
|
|
–
|
|
|
|
$
|
5,724,961
|
|
|
$
|
(262,925
|
)
|
|
$
|
–
|
|
|
|
Fair Value Measurements at December 31, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
108,756
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Investment in Allied Esports Entertainment, Inc.
|
|
|
6,982,300
|
|
|
|
–
|
|
|
|
–
|
|
Total assets
|
|
|
7,091,056
|
|
|
|
–
|
|
|
|
–
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total liabilities
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
$
|
7,091,056
|
|
|
$
|
–
|
|
|
$
|
–
|
|
There were no transfers of financial assets
or liabilities between Level 1 and Level 2 inputs for the six months ended June 30, 2020.
Note 6 – Prepaid Expenses
Prepaid expenses consist of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Prepaid insurance costs
|
|
$
|
3,012
|
|
|
$
|
21,090
|
|
Prepaid employee benefits
|
|
|
8,492
|
|
|
|
11,587
|
|
Prepaid office and other costs
|
|
|
13,396
|
|
|
|
14,474
|
|
Total prepaid expenses
|
|
$
|
24,900
|
|
|
$
|
47,151
|
|
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Financial Statements
(Unaudited)
Note 7 – Property and Equipment
Property and equipment at June 30, 2020 and December 31, 2019,
consisted of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Property and equipment
|
|
$
|
134,202
|
|
|
$
|
134,202
|
|
Less: Accumulated depreciation and amortization
|
|
|
(128,453
|
)
|
|
|
(127,803
|
)
|
Total property and equipment, net
|
|
$
|
5,749
|
|
|
$
|
6,399
|
|
The Company recognized depreciation expense of $650 and $623
for the six-month periods ended June 30, 2020 and 2019, respectively.
Note 8 – Investment in Allied
Esports Entertainment, Inc.
Following the close of BRAC’s merger,
the Company retained 2,685,500 shares of Allied Esports Entertainment Inc. (NASDAQ: AESE) common stock with a value, based on the
closing stock of $4.45 on the merger, of $11,950,475, and tradeable warrants to purchase 505,000 shares of AESE (NASDAQ: AESEW)
(“Sponsor Warrants”), of which the Company currently owns 2,368,532 shares, after selling 316,968 shares for a total
of $962,812 during the second quarter of 2020, and the warrants to purchase 505,000 Sponsor Warrants. As noted in Note 4 - Related
Party Transactions, 20% or 537,100, of the shares are committed to be released to employees one year from the date of the merger,
or on August 10, 2020. Therefore, the Company recorded a deferred compensation liability of $1,133,281 to recognize the commitment
to employees as of June 30, 2020.
As of June 30, 2020, the market value of
the Company’s investment in AESE’s common stock was $4,997,603, based on the closing stock price of $2.11 per share,
and the investment in AESEW was $75,750, based on the closing warrant price of $0.15 per warrant, for a total investment in AESE
securities of $5,073,353, resulting in gains and losses on our investment in securities, as follows:
Net loss on investment in Allied Esports Entertainment, Inc. securities for the six months ended June 30, 2020
|
|
$
|
(682,956
|
)
|
Less: Net gains and losses recognized during 2020 on equity securities sold during the period
|
|
|
(138,696
|
)
|
Less: Gain on deferred compensation payable in shares of AESE
|
|
|
(263,179
|
)
|
Unrealized loss recognized during 2020 on equity securities still held at June 30, 2020
|
|
$
|
(1,084,831
|
)
|
On January 2, 2020, the Company deposited
500,000 shares of its holdings of AESE pursuant to its brokerage account agreement with RBC Capital Markets, LLC. These shares
were subsequently used as collateral for the $700,000 promissory note, described below, pursuant to a commercial pledge and security
agreement, dated March 10, 2020. On February 10, 2020, an additional 66,000 of AESE shares were deposited into this brokerage account.
Under this standard brokerage agreement, the Company will be able to borrow funds secured by the value of the AESE shares pursuant
to a standard margin account arrangement. During the second quarter of 2020, the Company sold 316,968 of these shares for total
proceeds of $962,812, resulting in a gain on investment of $363,813. The value of the remaining 249,032 deposited AESE shares is
$525,458 based on a closing price of $2.11 as of June 30, 2020.
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Financial Statements
(Unaudited)
Note 9 – Notes Payable
Notes payable consists of the following
at June 30, 2020 and December 31, 2019, respectively:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
On June 16, 2020, the Company entered into a loan authorization and loan agreement with the United States Small Business Administration (the “SBA”), as lender, pursuant to the SBA’s Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business (the “EIDL Loan Agreement”) encompassing a $150,000 Promissory Note issued to the SBA (the “EIDL Note”)(together with the EIDL Loan Agreement, the “EIDL Loan”), bearing interest at 3.75% per annum. In connection with entering into the EIDL Loan, the Company also executed a security agreement, dated June 16, 2020, between the SBA and the Company (the “EIDL Security Agreement”) pursuant to which the EIDL Loan is secured by a security interest on all of the Company’s assets. Under the EIDL Note, the Company is required to pay principal and interest payments of $731 every month beginning June 16, 2021. All remaining principal and accrued interest is due and payable on June 16, 2050. The EIDL Note may be repaid at any time without penalty.
|
|
$
|
150,000
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
On April 24, 2020, the Company entered into a loan agreement with Kensington Bank (“Kensington”), as lender (the “Loan Agreement”) encompassing a $112,925 Promissory Note issued to Kensington (the “PPP Note”) pursuant to Payroll Protection Program established as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which provides loans to qualifying businesses and is administered by the U.S. Small Business Administration (the “SBA”). The PPP Note bears interest at 1.00% per annum, with interest payable monthly beginning November 24, 2020, and principal due in full on April 24, 2022. The PPP Note may be repaid at any time without penalty. Under the Payroll Protection Program, the Company will be eligible for loan forgiveness up to the full amount of the PPP Note and any accrued interest. The forgiveness amount will be equal to the amount that the Company spends during the 24-week period beginning April 24, 2020 on payroll costs, payment of rent on any leases in force prior to February 15, 2020 and payment on any utility for which service began before February 15, 2020. The maximum amount of loan forgiveness for non-payroll expenses is 40% of the amount of the PPP Note. No assurance is provided that the Company will obtain forgiveness under the PPP Note in whole or in part.
|
|
|
112,925
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
On November 25, 2019, the Company entered into a credit account agreement (“Margin Account”) with RBC Capital Markets, LLC (“RBC”). The Margin Account enables the Company to borrow against the Company’s AESE shares that are held in an account with RBC. The advances received on margin bear interest at rates of between 1.00% and 2.75% over the Base Lending Rate, depending on the average outstanding debit balance. The Base Lending Rate is internally determined by RBC using Broker Call, Prime Rate as determined by commercial banks utilized by RBC CM, Fed Funds, RBC CM’s cost of funds, and other commercially recognized rates of interest. The margin loans are collateralized by the underlying AESE shares. A total of $122,100 was borrowed on the Margin Account over various dates between January 29, 2020 and March 6, 2020. The outstanding balance was repaid in full on, or about, March 12, 2020 out of the proceeds of the loan from Cadence Bank, described below.
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
On March 12, 2020, the Company entered into a business loan agreement with Cadence Bank, N.A. (“Cadence”), as lender encompassing a $700,000 Promissory Note issued to Cadence (the “Note”), a Security Agreement by the Company in favor of Cadence and limited commercial guarantees by the Company’s Chief Executive Officer and Interim Chief Financial Officer, who is one in the same, and members of the Company’s Board of Directors (the “Guarantors”) (collectively, the “Cadence Loan”). The Note carried interest at a rate of 0.50 percentage points over the prime rate, as published in the Wall Street Journal, payable monthly, and was due on March 9, 2021. The Note could be repaid at any time without penalty. The Note was secured by all of the Company’s rights, title and interests in and to 500,000 shares of the common stock of Allied Esports Entertainment Inc. (NASDAQ: AESE) currently owned by the Company and held in the Company’s brokerage account with RBC Capital Markets, LLC. On March 26, 2020, the Company subsequently entered into a separate letter agreement with the Guarantors (the “Letter Agreement”), which provides that if the Company defaults or fails to make any payment due under the Cadence Loan and the Guarantors are required to make payment to Cadence pursuant to the Guarantees, then the Company agrees to issue additional equity interests or rights to Guarantors reflecting ninety-five percent (95%) of the outstanding equity of the Company at the time of such default to participating Guarantors who have made the payments to Cadence. All equity issuances will be subject to any third party or shareholder approvals required at the time of issuance. A total of $417,000 was advanced on the loan and subsequently repaid in full on June 30, 2020.
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
|
262,925
|
|
|
|
–
|
|
Less unamortized derivative discounts:
|
|
|
–
|
|
|
|
–
|
|
Notes payable
|
|
|
262,925
|
|
|
|
–
|
|
Less: current maturities
|
|
|
–
|
|
|
|
–
|
|
Notes payable, less current maturities
|
|
$
|
262,925
|
|
|
$
|
–
|
|
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Financial Statements
(Unaudited)
The Company recorded total discounts of
$377,440, consisting of debt discounts on warrants granted to four officers and directors for warrants issued in consideration
of personal guarantees provided for debt financing incurred during the six months ended June 30, 2020. The discounts were amortized
to stock-based compensation expense over the term of the note, until repayment, using the straight-line method, which closely approximated
the effective interest method. The Company recorded $377,440 of stock-based compensation expense pursuant to the amortization of
note discounts during the six months ended June 30, 2020.
The Company recognized $382,761 of interest
expense, consisting of $5,321 of interest and $377,440 of stock-based warrant expense pursuant to the amortization of the debt
discount on the business loans during the six months ended June 30, 2020.
Note 10 – Changes in Stockholders’
Equity
Reverse Stock Split
On February 21, 2020, the Company effected
a 1-for-300 reverse stock split (the “Reverse Stock Split”). No fractional shares were issued. Instead, the Company
issued the following to any stockholder who otherwise would have received a fractional share as a result of the Reverse Stock Split:
|
·
|
Stockholders owning 300 or more shares of Common Stock received (1) one share of Common Stock for every 300 shares owned and (2) cash in lieu of fractional shares upon the surrender of such stockholder’s shares;
|
|
·
|
Stockholders owning between 25 and 300 shares of Common Stock had their ownership of shares of Common Stock rounded up to one share; and
|
|
·
|
Stockholders owning fewer than 25 shares of Common Stock received cash in lieu of fractional shares upon the surrender of such stockholders’ shares and no longer own shares of Common Stock.
|
Any cash payment in lieu of fractional
shares were based on the volume weighted average of the closing sales prices of the Company’s Common Stock on the OTCQB
operated by OTC Markets Group Inc. (the “OTCQB”) during regular trading hours for the five consecutive trading days
immediately preceding the Effective Date, which was $0.018 per share prior to the effects of the reverse stock split.
The Company was authorized to issue 500,000,000
shares of common stock prior to the Reverse Stock Split, which remains unaffected. The Reverse Stock Split did not have any effect
on the stated par value of the common stock, or the Company’s authorized preferred stock. Unless otherwise stated, all share
and per share information in this Interim Report has been retroactively adjusted to reflect the Reverse Stock Split.
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, 2020, and December 31, 2019, a total of 1,600,424 shares of common
stock have been issued.
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Financial Statements
(Unaudited)
Note 11 – Options
The 2020 Equity Plan was approved by written
consent of a majority of shareholders of record as of November 12, 2019 and adopted by the Board on December 5, 2019, as provided
in the definitive information statement filed with Securities and Exchange Commission on January 10, 2020 (the “DEF 14C”).
The description of the 2020 Equity Plan is qualified in its entirety by the text of the 2020 Equity Plan, a copy of which was attached
as Annex C to the DEF 14C.
Outstanding Options
Options to purchase an aggregate total
of 273,871 shares of common stock at a weighted average strike price of $16.32, exercisable over a weighted average life of nine
years were outstanding as of June 30, 2020.
Options Granted
On February 26, 2020, the Company’s
Board of Directors granted an aggregate amount of 240,000 stock options pursuant to the 2020 Equity Plan to purchase shares of
the Company’s common stock to several officers, directors, and employees at an exercise price of $5.41 per share, which represents
the closing price of the Company’s shares on the OTCQB marketplace on February 20, 2020. The officers and directors
receiving grants and the amounts of such grants were as follows:
|
|
Stock Option
|
|
Name and Title
|
|
Shares Granted
|
|
Ken DeCubellis, Chief Executive Officer and Interim Chief Financial Officer
|
|
|
60,377
|
|
Michael Eisele, Chief Operating Officer
|
|
|
42,264
|
|
Bradley Berman, Chairman of the Board and Director
|
|
|
24,151
|
|
Joseph Lahti, Director
|
|
|
24,151
|
|
Benjamin Oehler, Director
|
|
|
24,151
|
|
Lyle Berman, Director
|
|
|
24,151
|
|
Total:
|
|
|
199,245
|
|
All of the stock options granted under
the 2020 Equity Plan presented in the table above will vest in five equal installments, commencing one year from the date of grant
on February 26, 2021, and continuing for the next four anniversaries thereof until fully vested.
No options were granted during the six
months ended June 30, 2019.
The Company recognized a total of $70,943,
and $55,818 of compensation expense during the six months ended June 30, 2020 and 2019, 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 $839,958 as of June 30, 2020.
Options Exercised
No options were exercised during the six
months ended June 30, 2020 and 2019.
Options Forfeited
A total of 333 options with a weighted
average exercise price of $90, and 457 options with a weighted average exercise price of $9.83 expired and were forfeited during
the six months ended June 30, 2020 and 2019, respectively.
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Financial Statements
(Unaudited)
Note 12 – Warrants
Outstanding Warrants
Warrants to purchase an aggregate total
of 1,300 shares of common stock at a $3.00 strike price, exercisable until September 22, 2022 were outstanding as of June 30, 2020.
Warrants Granted
In consideration for four officers and
director’s willingness to serve as guarantors of the Cadence Loan, the Company issued warrants to each of the Guarantors
(the “Guarantor Warrants”) for the purchase of the Company’s common stock on March 12, 2020. The Guarantor Warrants
entitle each Guarantor to purchase 26,250 shares of the Company's common stock (the “Warrant Shares”) at an exercise
price of $4.00 per share. The Guarantor Warrants expire on March 12, 2030. No warrants were granted during the comparative six
months ended June 30, 2019. The officers and directors receiving grants and the amounts of such grants were as follows:
|
|
Stock Warrant
|
|
Name and Title
|
|
Shares Granted
|
|
Ken DeCubellis, Chief Executive Officer and Interim Chief Financial Officer
|
|
|
26,250
|
|
Bradley Berman, Chairman of the Board and Director
|
|
|
26,250
|
|
Lyle Berman, Director
|
|
|
26,250
|
|
Benjamin Oehler, Director
|
|
|
26,250
|
|
Total:
|
|
|
105,000
|
|
Warrants Exercised
No warrants were exercised during the six
months ended June 30, 2020 and 2019.
Note 13 – 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.
BLACK RIDGE OIL & GAS, INC.
Notes to
Condensed Financial Statements
(Unaudited)
Losses incurred during the period from
April 9, 2011 (inception) to June 30, 2020 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, 2020, net deferred tax assets were $6,564,319, with no deferred
tax liability, primarily related to net operating loss carryforwards. A valuation allowance of approximately $6,564,319 was applied
to the net deferred tax assets. Therefore, BROG has no tax expense for 2020 to date.
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, 2020.
Note 14 – 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.
Note 15 – Subsequent Events
The Company evaluates events that have
occurred after the balance sheet date through the date these financial statements were issued.
On July 9, 2020, the Company sold an additional
20,000 shares of AESE stock in accordance with the 10b5-1 plan, dated June 15, 2020 at an average price of $2.50 per share, resulting
in total proceeds of $50,000.
On August 10, 2020, the Company sold another
113,000 shares of AESE stock in accordance with the 10b5-1 plan. The shares were sold at an average price of $2.0191 per share,
resulting in total proceeds of $228,158. Of these share sales, 101,098 shares were sold on behalf of the employees out of the 2018
Management Incentive Plan (“MIP”) in order to cover payroll tax withholdings, and the remaining 11,902 shares, were
sold by the Company to fund the employer’s portion of payroll taxes. The remaining 436,002 shares of the 537,100 shares previously
committed under the MIP are being distributed to employees. After the distribution and recent sales, the Company still holds 1,799,530
shares of AESE common stock.