See accompanying notes to unaudited condensed
consolidated financial statements.
See accompanying
notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed
consolidated financial statements.
See accompanying
notes to unaudited condensed consolidated financial statements.
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 initial public offering (“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 will not be limited to a particular industry or geographic region
although it intends to focus its search 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 initial public offering and over-allotment, the Company owns
22% of the outstanding common stock of BRAC and manages BRAC’s operations via a management services agreement.
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
|
|
State of Incorporation
|
|
Relationship
|
Black Ridge Oil and Gas, Inc.
|
|
Nevada
|
|
Parent
|
Black Ridge Acquisition Corp.
|
|
Delaware
|
|
Subsidiary
(1)
|
(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 March 31, 2019 and December 31, 2018
were $638,654 and $2,312, respectively, all held within the trust account.
BLACK RIDGE
OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
Restricted cash and securities held
in Trust Account
The Company had $638,654 of cash equivalents
and $141,389,088 of marketable securities on March 31, 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.
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 $520,305 and $1,119,770 in excess of FDIC and SIPC insured limits at March 31, 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 that are not oil
and gas properties 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, other than oil and gas properties, 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 $443 and $2,558 for the three months ended March 31, 2019
and 2018, respectively.
Revenue Recognition
The Company recognizes management fee income
as services are provided.
BLACK RIDGE
OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
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 $27,931 and $85,833 for the three months ended March 31, 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.
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 March 31, 2019, the Company had an unrestricted cash balance of $826,525 and total working capital of $136,939.
Liabilities including current income taxes and franchise fees of BRAC totaling $686,789 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 Initial Public Offering 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 Initial
Public Offering, 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.
BRAC’s management
has broad discretion with respect to the specific application of the net proceeds of the IPO and private placement, although substantially
all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There is no assurance
that the BRAC will be able to complete a Business Combination successfully. 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”). Placing funds
in the Trust Account may not protect those funds from third party claims against BRAC. Although BRAC will seek to have all vendors,
service providers, prospective target businesses or other entities it engages, execute agreements with BRAC waiving any claim of
any kind in or to any monies held in the Trust Account, there is no guarantee that such persons will execute such agreements. The
Trust Account is maintained by a third party trustee. The remaining net proceeds (not held in the Trust Account) may be used to
pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses.
Additionally, the interest earned on the Trust Account balance may be released to BRAC for any amounts that are necessary to pay
BRAC’s income and other tax obligations and up to $50,000 that may be used to pay for the costs of liquidating BRAC. BROG
has agreed that it will be liable to ensure that the proceeds in the Trust Account are not reduced below $10.05 per share by the
claims of target businesses or claims of vendors or other entities that are owed money by BRAC for services rendered or contracted
for or products sold to BRAC, but there is no assurance that BROG will be able to satisfy its indemnification obligations if it
is required to do so. Additionally, the agreement entered into by BROG specifically provides for two exceptions to the indemnity
it has given: it will have no liability (1) as to any claimed amounts owed to a target business or vendor or other entity who has
executed an agreement with BRAC waiving any right, title, interest or claim of any kind they may have in or to any monies held
in the Trust Account, or (2) as to any claims for indemnification by the underwriters of the IPO against certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
Initial Business Combination
Pursuant to the Nasdaq Capital Markets
listing rules, BRAC’s initial Business Combination must be with a target business or businesses whose collective fair market
value is at least equal to 80% of the balance in the Trust Account at the time of the execution of a definitive agreement for such
Business Combination, although this may entail simultaneous acquisitions of several target businesses. The fair market value of
the target will be determined by BRAC’s board of directors based upon one or more standards generally accepted by the financial
community (such as actual and potential sales, earnings, cash flow and/or book value). The target business or businesses that BRAC
acquires may have a collective fair market value substantially in excess of 80% of the Trust Account balance. In order to consummate
such a Business Combination, BRAC may issue a significant amount of its debt or equity securities to the sellers of such business
and/or seek to raise additional funds through a private offering of debt or equity securities. If BRAC’s securities are not
listed on NASDAQ after the IPO, BRAC would not be required to satisfy the 80% requirement. However, BRAC intends to satisfy the
80% requirement even if BRAC’s securities are not listed on NASDAQ at the time of the initial Business Combination.
BLACK RIDGE
OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
BRAC will provide the public stockholders,
who are the holders of the common stock which was sold as part of the Units in the IPO, whether they are purchased in the IPO or
in the aftermarket, or “Public Shares”, including BROG to the extent that it purchases such Public Shares (“Public
Stockholders”), with an opportunity to redeem all or a portion of their Public Shares of BRAC’s Common stock, irrespective
of whether they vote for or against the proposed transaction or if BRAC conducts a tender offer, upon the completion of the initial
Business Combination either (1) in connection with a stockholder meeting called to approve the Business Combination, or (ii) by
means of a tender offer, 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 $10.24 per Public Share. 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
and in the case of a stockholder vote, a majority of the outstanding shares voted are voted in favor of the Business Combination.
The decision as to whether BRAC will seek stockholder approval of a proposed Business Combination or conduct a tender offer will
be made by BRAC, solely in its discretion, based on a variety of factors such as the timing of the transaction and whether the
terms of the transaction would otherwise require it to seek stockholder approval under the law or stock exchange listing requirement.
If a stockholder vote is not required and BRAC decides not to hold a stockholder vote for business or other legal reasons, BRAC
will, pursuant to the proposed amended and restated certificate of incorporation, (i) conduct the redemptions pursuant to Rule
13e-4 and Regulation 14E of the Exchange Act, which regulate issuer tender offers, and (ii) file tender offer documents with the
SEC prior to completing the initial Business Combination which contain substantially the same financial and other information about
the initial Business Combination and the redemption rights as is required under Regulation 14A of the Exchange Act, which regulates
the solicitation of proxies.
BROG has agreed to vote its Founder Shares
and any Public Shares purchased during or 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 during or 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. However, if BROG (or any of BRAC’s executive officers, directors or affiliates) acquires Public
Shares in or after the IPO, it will be entitled to liquidating distributions from the Trust Account with respect to such Public
Shares in the event BRAC does not complete the initial Business Combination within such applicable time period.
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.
Failure to Consummate a Business Combination
If BRAC is unable to complete the initial
Business Combination within the Combination Period, BRAC must: (i) cease all operations except for the purpose of winding up, (ii)
as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price,
payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest (which interest shall be
net of franchise fees and income taxes payable divided by the number of then outstanding Public Shares, which redemption will completely
extinguish Public Stockholders’ rights as stockholders (including the right to receive further liquidation distributions,
if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval
of BRAC’s remaining stockholders and BRAC’s Board of Directors, dissolve and liquidate, subject in the case of clauses
(ii) and (iii) to BRAC’s obligations under Delaware law to provide for claims of creditors and the requirements of other
applicable law.
BLACK RIDGE
OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
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 $30,000 to BROG for such services for the three months ended March
31, 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.
Note 6 – Prepaid Expenses
Prepaid expenses consist of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Prepaid insurance costs
|
|
$
|
14,461
|
|
|
$
|
28,751
|
|
Prepaid employee benefits
|
|
|
11,822
|
|
|
|
11,865
|
|
Prepaid office and other costs
|
|
|
74,118
|
|
|
|
13,319
|
|
Total prepaid expenses
|
|
$
|
100,401
|
|
|
$
|
53,935
|
|
Note 7 – Property and Equipment
Property and equipment at March 31, 2019 and December 31, 2018,
consisted of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Property and equipment
|
|
$
|
128,965
|
|
|
$
|
128,156
|
|
Less: Accumulated depreciation and amortization
|
|
|
(127,374
|
)
|
|
|
(126,931
|
)
|
Total property and equipment, net
|
|
$
|
1,591
|
|
|
$
|
1,225
|
|
The Company recognized depreciation expense of $443 and $2,558
for the three month periods ended March 31, 2019 and 2018, respectively.
BLACK RIDGE
OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
Note 8 – Related Party Transactions
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:
|
|
Percentage of BRAC Shares Owned by the
|
Name
|
|
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%
|
The Company currently owns 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. 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. The Company will recognize no expense related to the Awards until a business combination
is probable.
The Company has recognized no expense related to the plan as
the grant of shares is contingent on a future event.
BRAC 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 March 31, 2019, BROG has loaned BRAC, in the form of a
convertible promissory notes, an aggregate $650,000 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 initial public offering, 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 note,
it would receive 65,000 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 initial public offering. The issuance of the notes was exempt pursuant to Section 4(a)(2) of
the Securities Act of 1933, as amended.
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 March 31, 2019 and December 31, 2018:
|
|
Fair Value Measurements at March 31, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Restricted cash and investments held in trust
|
|
$
|
142,027,742
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Cash and cash equivalents
|
|
|
826,525
|
|
|
|
–
|
|
|
|
–
|
|
Total assets
|
|
|
142,854,267
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total liabilities
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
$
|
142,854,267
|
|
|
$
|
–
|
|
|
$
|
–
|
|
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 three months ended March 31, 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 March 31, 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 three
months ended March 31, 2019 and 2018.
The Company recognized a total of $27,931,
and $85,833 of compensation expense during the three months ended March 31, 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 $99,853 as of March 31, 2019.
Options Exercised
No options were exercised during the three
months ended March 31, 2019 and 2018.
Options Forfeited
A total of 125,000 options expired and were forfeited during
the three months ended March 31, 2019. No options were forfeited during the three months ended March 31, 2018.
BLACK RIDGE
OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
Note 12 – Warrants
Warrants Granted
No warrants were granted during the three
months ended March 31, 2019 and 2018.
Warrants Exercised
No warrants were exercised during the three months ended March
31, 2019 and 2018.
Outstanding Warrants
The Company issued 435,000
warrants (of which 390,000 are outstanding as of March 31, 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 Initial Public Offering
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 Initial Public Offering
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
Initial Public Offering 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 Initial Public Offering 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.
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 Initial Public Offering. 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 Initial Public Offering, 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 Initial Public Offering, 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.
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.
|
BLACK RIDGE
OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
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 Initial Public Offering 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 Initial Public Offering. The Units issuable upon exercise of this option are identical to
those offered in the Initial Public Offering. BRAC accounted for the unit purchase option, inclusive of the receipt of $100 cash
payment, as an expense of the Initial Public Offering 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 Initial Public Offering except to any underwriter
and selected dealer participating in the Initial Public Offering 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.
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.
BLACK RIDGE
OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
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 35.9% for BRAC.
For BROG, losses incurred during the period
from April 9, 2011 (inception) to March 31, 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 March 31, 2019, net deferred tax assets were $9,735,771,
with no deferred tax liability, primarily related to net operating loss carryforwards. A valuation allowance of approximately $9,735,771
was applied to the net deferred tax assets. Therefore BROG has no tax expense for 2019 to date.
For BRAC, the tax expense of $186,579 and
$94,677 for the three months ended March 31, 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 March
31, 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 will 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).
Registration rights
The holders of BROG’s shares of BRAC
issued and outstanding on the date of BRAC’s Initial Public Offering, 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.
BLACK RIDGE
OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
Note 16 – BRAC’s Proposed
Business Combination
Business Combination Agreement
On December 19, 2018, BRAC entered into the Business Combination
Agreement by and among BRAC, Black Ridge Merger Sub, Corp., a Delaware corporation and wholly-owned subsidiary of BRAC formed on
December 19, 2018 (“Merger Sub”), Allied Esports, Ourgame, Noble, and Primo.
Subject to the 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 will 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”),
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’s common stock and (ii) an aggregate of 3,800,003 warrants to purchase shares of common stock
of BRAC. BRAC will also pay Ourgame $35,000,000 to satisfy certain obligations owed to it by Allied Esports assumed in the transaction.
In addition to the consideration described above, the former
owners of Allied Esports and WPT will be entitled to receive their pro rata portion of an aggregate of an additional 3,846,153
shares of 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”).
Proposed Changes to the Capital Structure
BRAC is seeking shareholder approval to
amend its charter to increase the authorized shares of BRAC’s common stock to 65,000,000 shares.
Conditions to Consummation of the Business
Combination
Consummation of the transactions contemplated by the Agreement
is subject to certain closing conditions including, among others, (i) approval by the stockholders of BRAC and Ourgame, and (ii)
that BRAC have available cash in an amount not less than $80,000,000 after payment to stockholders who elect to redeem their shares
of common stock in accordance with the provisions of BRAC’s Charter Documents.
BLACK RIDGE
OIL & GAS, INC.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
Termination
The Agreement may be terminated at any
time prior to the consummation of the Agreement (whether or not the approval of BRAC’s shareholders has been obtained) by
mutual written consent of the Company and Ourgame and Noble and in certain other limited circumstances, including if the Proposed
Business Combination has not been consummated by July, 10, 2019.
Note 17 – Subsequent
Events
The Company evaluates events that have
occurred after the balance sheet date through the date these financial statements were issued. No events occurred of a material
nature that would have required adjustments to or disclosures in these financial statements.