|• BLACK RIDGE OIL & GAS AMENDMENT NO.1 TO FORM 10-Q • CERTIFICATION • CERTIFICATION • CERTIFICATION • CERTIFICATION|
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Amendment No. 1)
x QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 2012
o TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from _______________ to ______________
Commission File Number 000-53952
(Formerly Ante5, Inc.)
(Name of registrant in its charter)
10275 Wayzata Blvd. Suite 310, Minnetonka, Minnesota 55305
(Address of principal executive offices) (Zip Code)
Issuer’s telephone Number: (952) 426-1241
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
The number of shares of registrant’s common stock outstanding as of May 14, 2012 was 47,979,990.
We are filing this Amendment No. 1 on Form 10-Q/A (this “Amendment”) to correct the disclosures identified below, filed with the SEC on May 15, 2012. Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, this Amendment contains the complete text of the information incorporated into Part I, Item 2, as amended.
Item 2 of our Form 10-Q filed on May 15, 2012 is amended and restated to correct the Non-GAAP Financial Measures, Adjusted EBITDA table information included in such filing. Except as described above, we have not modified or updated other disclosures presented in our Form 10-Q filed on May 15, 2012. This Amendment merely corrects disclosures previously made. The correction of the disclosures does not have any impact on our financial statements. This Amendment does not amend, update or change the financial statement or any other disclosures in the Form 10-Q filed on May 15, 2012 and does not reflect events occurring after May 15, 2012. This Amendment should be read in conjunction with our filings with the SEC subsequent to the filing of the Form 10-Q filed on May 15, 2012.
We are including the following discussion to inform our existing and potential security holders generally of some of the risks and uncertainties that can affect our company and to take advantage of the “safe harbor” protection for forward-looking statements that applicable federal securities law affords.
From time to time, our management or persons acting on our behalf may make forward-looking statements to inform existing and potential security holders about our company. All statements other than statements of historical facts included in this report regarding our financial position, business strategy, plans and objectives of management for future operations and industry conditions are forward-looking statements. When used in this report, forward-looking statements are generally accompanied by terms or phrases such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “target,” “plan,” “intend,” “seek,” “goal,” “will,” “should,” “may” or other words and similar expressions that convey the uncertainty of future events or outcomes. Items making assumptions regarding actual or potential future sales, market size, collaborations, trends or operating results also constitute such forward-looking statements.
Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward-looking statements include the following:
We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. Accordingly, results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made.
Readers are urged not to place undue reliance on these forward-looking statements. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the United States Securities and Exchange Commission (the “SEC”) which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those expected or projected.
Overview and Outlook
We are an oil and natural gas exploration and production company. Our properties are located in North Dakota. Our corporate strategy is the acquisition, exploration, development and production of crude oil and natural gas properties, primarily in the Bakken and Three Forks trends in North Dakota and Montana. As of March 31, 2012, we controlled the rights to mineral leases covering approximately 20,000 net acres for prospective drilling to the Bakken and/or Three Forks formations, including 8,655 net acres under contract. Looking forward, we are pursuing the following objectives:
We also inherited material interests from our former parent company prior to our spin off. These historical interests relate to our former parent company’s business as WPT Enterprises, Inc., when it created internationally branded products through the development, production and marketing of televised programming based on gaming themes. The primary historical gaming asset is our license agreement with a subsidiary of PartyGaming, PLC, an international online casino gaming company. We are entitled to royalty payments from that license agreement. We manage our historical interests to monetize them. Effective April 2, 2012, we changed our name to Black Ridge Oil & Gas, Inc. Our common stock is still currently traded on the OTCBB under the trading symbol “ANFC.”
On March 22, 2012, we entered into an asset purchase agreement with Twin City Technical, LLC, a North Dakota limited liability company, and Irish Oil and Gas, Inc., a Nevada corporation, which we collectively refer to as the Sellers, dated March 21, 2012, to acquire all of the Sellers’ right, title and interest in and to certain oil and gas mineral leases comprising approximately 8,655 net acres of undeveloped oil and gas properties primarily located in McKenzie, Mountrail, Williams, Burke, Divide, Dunn Counties, and other associated positions in North Dakota, in consideration for a total of $24,235,036 of cash payable in full at the closing, plus an aggregate of 577,025 shares of the Company’s common stock, which shares of common stock were issued as a deposit on April 30, 2012, and were presented in other assets and as a subscription payable as of March 31, 2012 at the fair value of $438,539, based on the closing stock price on the date of the agreement. The closing of the purchase and sale of the assets is expected to occur upon the satisfaction or waiver of the conditions set forth in the asset purchase agreement, but no later than June 1, 2012, unless the Sellers and us mutually agree in writing to extend the closing date. Among other things, closing is conditioned on the Company having obtained sufficient capital to pay the cash portion of the purchase price. Prior to this transaction, the Sellers and the Company have completed sales of mineral leases as reported from time to time in our Form 8-K reports filed with the Securities and Exchange Commission.
Our Board of Directors approved changing the corporate name to Black Ridge Oil & Gas, Inc. The name change became effective on April 2, 2012. The Company’s common stock continues to trade on the OTCBB using the ticker symbol “ANFC”.
Increase in Capitalization
We intend to amend our Certificate of Incorporation to increase the number of authorized shares of our common stock from 100,000,000 to 500,000,000 shares because we believe that for us to grow our business, increasing the number of authorized shares of common stock will allow us to acquire other businesses in the future or raise capital. This may require us to issue a significant number of additional shares of our common stock. The number of our authorized shares of preferred stock will remain at 20,000,000. This action has been approved by our stock holders, and will become effective upon filing of an amendment to our certificate of Incorporation with Delaware Secretary of State’s office.
Potential Reverse Stock Split
Our Board approved resolutions authorizing the Company to implement a reverse stock split of the Company’s outstanding shares of Common Stock at a ratio of up to 1:10 and any related amendment to the Company’s certificate of incorporation. Our stockholders have also approved the amendment by written consent.
Our Board of Directors or a committee of the Board of Directors has the authority to decide whether to implement a reverse stock split and the exact amount of the split within the foregoing range, if it is to be implemented. If the reverse split is implemented, the number of issued and outstanding shares of Common Stock would be reduced in accordance with the exchange ratio selected by the Board of Directors or a committee thereof. The total number of authorized shares of Common Stock will be reduced proportionately as a result of the reverse stock split and the total number of shares of authorized preferred stock will remain unchanged at 20,000,000 shares.
We believe that a reverse split would, among other things, (i) better enable the Company to obtain a listing on a national securities exchange, (ii) facilitate higher levels of institutional stock ownership, where investment policies generally prohibit investments in lower-priced securities and (iii) better enable the Company to raise funds to finance its planned operations. There can be no assurance however that we will be able to obtain a listing on a national securities exchange even if we implement the reverse stock split.
AS OF THE DATE OF THIS FILING, OUR BOARD HAS NOT TAKEN ANY ACTION TO MAKE THE POTENTIAL REVERSE STOCK SPLIT EFFECTIVE.
The following table presents information about our produced oil and gas volumes during the three months ended March 31, 2012 and 2011, respectively. As of March 31, 2012, we controlled approximately 20,000 net acres in the Williston Basin, including 8,655 net acres under contract. In addition, the Company owned working interests in 50 gross wells representing 1.70 net wells that are preparing to drill, drilling, awaiting completion, complete or producing.
Depletion of Oil and Natural Gas Properties
Our depletion expense is driven by many factors including certain exploration costs involved in the development of producing reserves, production levels and estimates of proved reserve quantities and future developmental costs. The following table presents our depletion expenses for the three months ended March 31, 2012 and 2011, respectively.
Productive Oil Wells
The following table summarizes gross and net productive oil wells by state at March 31, 2012 and 2011, respectively. A net well represents our percentage ownership of a gross well. The following table does not include wells in which our interest is limited to royalty and overriding royalty interests. The following table also does not include wells which were awaiting completion, in the process of completion or awaiting flow back subsequent to fracture stimulation.
Exploratory Oil Wells
The following table summarizes gross and net exploratory wells as of March 31, 2012. The wells are at various stages of completion and the costs incurred are included in unevaluated oil and gas properties on our balance sheet.
Results of Operations for the Three Months Ended March 31, 2012 and 2011.
The following table summarizes selected items from the statement of operations for the three months ended March 31, 2012 and 2011, respectively.
We recognized $666,206 in revenues from sales of crude oil and natural gas for the three months ended March 31, 2012 compared to revenues of $96,940 for the three months ended March 31, 2011, an increase of $569,266, or 587%. These revenues are due to the drilling and development of producing wells. We had 37 gross producing wells as of March 31, 2012, and an additional 13 wells that were either in the drilling preparation, drilling, awaiting completion, or completing stages, compared to 7 gross producing wells, and an additional 10 wells that were either in the drilling preparation, drilling, awaiting completion, or completing stages as of March 31, 2011. In late September of 2011 one of the wells in which we hold a larger interest experienced pump failure. The operator restarted production on this well in November of 2011. The well continued operating at less than the pump jack’s full capacity through the three months ended March 31, 2012.
Production expenses and taxes
Our production expenses of $144,151 and production taxes of $75,432 for the three months ended March 31, 2012, and $5,623 and $9,430 for the three months ended March 31, 2011, are comprised of certain production costs involved in the development of producing reserves in the Bakken formation. Combined, they represent approximately 33% and 16% of the oil and gas sales for the three months ended March 31, 2012 and 2011, respectively. Our production expenses and taxes are greater than the comparative period due to our rapid expansion and increased acreage holdings. The expenses during the three months ended March 31, 2011 are greater than expected primarily as a result of transportation costs in the Bakken region due to congestion and delays in transporting the disposal of byproducts in the drilling process, in addition, we believe the well that is responsible for the majority of these additional costs is not currently producing at the pump jack’s full capacity. We anticipate these additional costs related to well water disposal will dissipate in the future as additional waste treatment facilities are opened.
General and administrative expenses
General and administrative expenses for the three months ended March 31, 2012 were $713,891, compared to $368,877 for the three months ended March 31, 2011, an increase of $345,014, or 94%. Our increase in general and administrative expenses was primarily due to increased compensation as a result of hiring additional employees and professionals needed to support our expanding operations as we grew our oil and gas operations.
Depletion of oil and natural gas properties
Our depletion expense is driven by many factors, including certain exploration costs involved in the development of producing reserves, production levels and estimates of proved reserve quantities and future developmental costs. We recognized depletion expense of $286,903 for the three months ended March 31, 2012, compared to $36,148 for the three months ended March 31, 2011, an increase of $250,755, or 694%. The increase was due primarily due to our expansion and acquisitions of oil & gas properties during 2011.
Depreciation expense for the three months ended March 31, 2012 was $6,850, compared to $3,122 for the three months ended March 31, 2011, an increase of $3,728, or 119%. The increased depreciation expense was due to the additional depreciation associated with the purchase of office equipment in 2011. We anticipate quarterly depreciation of approximately $7,000 during 2012 due primarily to additional depreciation on capitalized websites.
Net operating loss
The net operating loss for the three months ended March 31, 2012 was $561,818, compared to $326,380 for the three months ended March 31, 2011, an increase of $235,438, or 72%. Our net operating loss consisted primarily of oil & gas production costs, professional fees, officer salaries and depletion expense, netted against our oil and gas income, incurred as we expanded our oil and gas business.
Other income and (expenses)
Other income and (expenses) for the three months ended March 31, 2012 was ($353,223), compared to $1,156 for the three months ended March 31, 2011, a decrease of $354,379. The net other income and (expenses) for the three months ended March 31, 2012 consisted of $42 of interest income earned on money market accounts, $353,265 of interest expense, consisting of $38,000 of accrued interest on our $2,000,000 draw from our PrenAnte5 Credit Agreement, and $315,265 of amortized finance charges related to obtaining this $10 million financing facility, including $269,281 of amortized warrant costs and $45,984 of amortized deferred financing costs for the three months ended March 31, 2012. Amortization of these warrants and deferred financing costs were accelerated during the three months ended March 31, 2012 due to the termination of the PrenAnte5 credit facility on April 12, 2012. Our net other income and (expenses) for the three months ended March 31, 2011 consisted of $1,156 of interest income earned on money market accounts.
The net loss for the three months ended March 31, 2012 was $760,857, compared to $50,924 for the three months ended March 31, 2011, an increase of $709,933, or 1,394%. Our net loss consisted primarily of oil & gas production costs, professional fees, officer salaries and amortization of warrants and deferred financing fees related to our PrenAnte5 credit facility, netted against our oil and gas income and change in provision for income taxes, as we aggressively expanded our oil and gas operations. Our net loss increased primarily due to the accelerated amortization of warrant costs and deferred financing costs during the three months ended March 31, 2012 due to the termination of the PrenAnte5 credit facility on April 12, 2012, and our increased oil & gas operations during the three months ended March 31, 2012 compared to our relatively new oil & gas operations during the three months ended March 31, 2011.
Non-GAAP Financial Measures
In addition to reporting net income (loss) as defined under GAAP, we also present Adjusted EBITDA. We define Adjusted EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation, depletion and amortization, (iv) accretion of abandonment liability, and (v) non-cash expenses relating to share based payments recognized under ASC Topic 718. We believe the use of non-GAAP financial measures provides useful information to investors regarding our current financial performance, however, Adjusted EBITDA does not represent, and should not be considered an alternative to GAAP measurements. We believe this measure is useful in evaluating our fundamental core operating performance. Specifically, we believe the non-GAAP Adjusted EBITDA results provide useful information to both management and investors by excluding certain expenses that our management believes are not indicative of our core operating results. Although we use adjusted EBITDA to manage our business, including the preparation of our annual operating budget and financial projections, we believe that non-GAAP financial measures have limitations and do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP financial measures. A reconciliation of Adjusted EBITDA to Net Income, GAAP, is included below:
Black Ridge Oil & Gas, Inc.
Reconciliation of Adjusted EBITDA
Liquidity and capital resources
The following table summarizes our total current assets, liabilities and working capital at March 31, 2012 and December 31, 2011, respectively.
While we have raised capital to meet our working capital and financing needs in the past, additional financing will be required in order to meet our current and projected cash requirements for the operation of our oil and gas business. As of March 31, 2012, we had negative working capital of $(3,384,875).
Revolving Credit Facility
On April 4, 2012, the Company entered into a new Secured Revolving Credit Agreement with Dougherty Funding LLC as Lender (the “Credit Facility”). Under the terms of the Credit Facility, up to $10,000,000 maximum is available from time to time (i) to fund, or to reimburse the Company for, the Company’s pro-rata share of development and production costs for oil wells that relate to the Company’s oil and gas leasehold interests for which there is a valid and enforceable Authorization for Expenditure and that are incurred from and after the date of the Credit Facility, and (ii) to reimburse the Company for amounts that the Company paid from its own funds or from funds that it borrowed under its previous credit facility from Prenante5, LLC as agent pursuant to the Revolving Credit and Security Agreement dated May 2, 2011 (the “Previous Credit Facility”). Availability under the Credit Facility is subject to payoff of the Previous Credit Facility and release of liens thereunder and other conditions precedent.
Interest on the unpaid principal balance of the Credit Facility shall accrue and be payable monthly at the following per annum rates (i) unless, and except to the extent that, clause (ii) applies, 9.0%; and (ii) if the Company does not raise equity funds in excess of $10,000,000 and if the then outstanding unpaid principal balance of the Credit Facility exceeds $5,000,000, 9.5% on such balance in excess of $5,000,000. The Company must also pay the Lender quarterly a commitment fee in an amount equal to 0.25% of the average non-advanced line of credit for the previous quarter.
The Credit Facility is secured by substantially all of the Company’s assets and has typical representations and warranties, covenants, and events of default, including, subject to certain exceptions, incurrence of additional indebtedness. The Credit Agreement requires that the Company meet certain conditions to obtain additional advances under the Credit Facility, including providing certain documentation related to the Company’s oil and gas properties. The Lender has the right to approve advances for properties which are not held by production. In addition, the Company must maintain available cash and specified cash equivalents in an amount that is not less than the greater of (i) $300,000 and (ii) 12 months’ then-regularly scheduled payments of interest on the outstanding amount of advances.
The Credit Facility will mature on March 31, 2014. The maturity date may be extended two times, each time for an additional one- year period, at the written request of the Company given to the Lender no earlier than sixty (60) days prior to the expiration of the then-existing maturity date provided that (i) as of both the date of the Borrower’s written request and such then-existing maturity date, the Company meets specified conditions similar to those for initial draws under the Credit Facility and the Company pays to the Lender on the first business day of the extended period an extension fee in the amount of $100,000.
We took our fist draw on April 12, 2012 of $2,450,000, and used $2,051,722 of the proceeds to repay and terminate our outstanding PrenAnte5 line of credit, including interest of $51,722.
We anticipate that we may incur operating losses in the next twelve months. Although our revenues are expected to grow as our wells are placed into production, our revenues are not expected to exceed our investment and operating costs in 2012. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development. Such risks for us include, but are not limited to, potential failure to earn revenues or to sufficiently monetize certain claims that we have for payments that are owed to us; an inability to identify investment and expansion targets; and dissipation of existing assets. To address these risks, we must, among other things, seek growth opportunities through investment and acquisitions in the oil and gas industry, effectively monitor and manage our claims for payments that are owed to us, implement and successfully execute our business strategy, respond to competitive developments, and attract, retain and motivate qualified personnel. We cannot assure that we will be successful in addressing such risks, and the failure to do so could have a material adverse effect on our business prospects, financial condition and results of operations.
Satisfaction of our cash obligations for the next 12 months.
As of March 31, 2012, our balance of cash and cash equivalents was $1,458,575. Our plan for satisfying our cash requirements for the next twelve months, in addition to our revenues from oil and gas sales, is through sale of shares of our common stock, third party financing, and/or traditional bank financing. We will specifically need to raise additional debt or equity financing in order to execute a subsequent purchase of certain oil and gas mineral leases comprising approximately 8,655 net acres of undeveloped oil and gas properties, in consideration for a total of $24,235,036 of cash payable in full at the closing, plus an aggregate of 577,025 shares of the Company’s common stock, which shares of common stock were issued as a deposit on April 30, 2012, and were presented in other assets and as a subscription payable as of March 31, 2012 at the fair value of $438,539, based on the closing stock price on the date of the agreement. The closing of the purchase and sale of the assets is expected to occur upon the satisfaction or waiver of the conditions set forth in the asset purchase agreement, but no later than June 1, 2012, unless the Sellers and us mutually agree in writing to extend the closing date. Among other things, closing is conditioned on the Company having obtained sufficient capital to pay the cash portion of the purchase price. We may realize proceeds from our Royalty Stream payable to us by Peerless Media, Ltd. or from our lawsuit against Deloitte Touche, although we are not currently relying on those revenue sources because of our disputes with them. Furthermore, royalties in excess of the minimum guarantee on the Royalty Stream are contingent on revenues earned by Peerless Media under the World Poker Tour brand name. There is no assurance as to whether, or when, we will be paid royalties under our agreement with Peerless Media, Ltd.
Off-Balance Sheet Arrangements
In connection with the transfer of the WPT and other assets to us, we assumed certain liabilities of Ante4 relating to the previous WPT business. We also agreed to indemnify Ante4 and related individuals from (a) liabilities and expenses relating to operations of Ante4 prior to the effective date of the merger between Ante4 and Plains Energy Investments, Inc., (b) operation or ownership of Ante5’s assets after the merger effective date, and (c) certain tax liabilities of Ante4. Our obligation to indemnify Ante4 for operations before the merger and such tax liabilities is limited to $2.5 million in the aggregate and terminated on or about April 15, 2012, subject to customary exceptions from these limitations.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of financial conditions and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements required us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments, including those described below. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates.
While our significant accounting policies are more fully described in notes to our financial statements appearing elsewhere in this Form 10-Q, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we used in the preparation of our financial statements.
We have accounted for stock-based compensation under the provisions of FASB Accounting Standards Codification (ASC) 718-10-55 (Prior authoritative literature: FASB Statement 123(R), Share-Based Payment). This statement requires us to record any expense associated with the fair value of stock-based compensation. We used the Black-Scholes option valuation model to calculate stock based compensation at the date of grant. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in these assumptions can materially affect the fair value estimate.
Full Cost Method
We follow the full cost method of accounting for oil and gas operations whereby all costs related to the exploration and development of oil and gas properties are initially capitalized into a single cost center (“full cost pool”). Such costs include land acquisition costs, geological and geophysical expenses, carrying charges on non-producing properties, costs of drilling directly related to acquisitions, and exploration activities.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.