| Basis of Presentation and Summary of Significant Accounting Policies | 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. On June 21,
2016 we closed on a debt restructuring transaction with our secured lenders as described in Note 3 – Debt Restructuring.
Through June 30, 2017 we had also been managing the oil and gas assets relinquished during the debt restructuring in which we
continued to have an indirect minority interest. Our management services agreement related to those same oil and gas assets was
terminated on April 3, 2017, effective June 30, 2017. 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
25, 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 in 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 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 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, 2016,
which were included in our Annual Report on Form 10-K. The Company follows the same accounting policies in the preparation
of interim reports. Principles
of Consolidation The accompanying
consolidated financial statements include the accounts of the following entities, all of which are under common control and ownership:
Name
of entity State
of Incorporation Relationship
Black Ridge Oil and Gas, Inc. Nevada Parent
Black Ridge Acquisition Corp. Delaware Subsidiary (1) (1) The consolidated
financial statements herein contain the operations of the wholly-owned subsidiary listed above. All significant inter-company
transactions have been eliminated in the preparation of theses financial statements. The parent company, Black Ridge Oil &
Gas, Inc. and subsidiary, 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. Reclassifications As discussed
in Note 3 – Debt Restructuring, income, expense and cash flows from the restructured operations for the three and nine months
ended September 30, 2016 have been reclassified as net loss and cash flows from discontinued operations. 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 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. No cash equivalents were on hand at September 30, 2017
and December 31, 2016. 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 $4,460,346 and $-0- in excess of FDIC and SIPC insured
limits at September 30, 2017 and December 31, 2016, respectively. As of September 30, 2017, the Company
had not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts. Website Development Costs The Company
accounts for website development costs in accordance with ASC 350-50, “Accounting for Website Development Costs” (“ASC
350-50”), wherein website development costs are segregated into three activities:
1) Initial
stage (planning), whereby the related costs are expensed.
2) Development
(web application, infrastructure, graphics), whereby the related costs are capitalized
and amortized once the website is ready for use. Costs for development content of the
website may be expensed or capitalized depending on the circumstances of the expenditures.
3) Post-implementation
(after site is up and running: security, training, administration), whereby the related
costs are expensed as incurred. Upgrades are usually expensed, unless they add additional
functionality. We have capitalized
a total of $56,660 of website development costs from inception through September 30, 2017. We depreciate our website development
costs on a straight line basis over the estimated useful life of the assets, which is currently three years. We have recognized
depreciation expense on these website costs of $-0- and $-0- for the nine months ended September 30, 2017 and 2016, respectively,
as all website development costs have been fully depreciated. 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. The reconciliation
of the denominators used to calculate basic EPS and diluted EPS for the three and nine months ended September 30, 2017 and 2016
are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Weighted
average common shares outstanding – basic 64,438,566 47,979,990 53,526,470 47,979,990
Plus: Potentially dilutive common shares:
Stock options and warrants – – – 75,122
Weighted
average common shares outstanding – diluted 64,438,566 47,979,990 53,526,470 48,055,112 Stock options
and warrants excluded from the calculation of diluted EPS because their effect was anti-dilutive were 11,380,000 and 7,043,500
for the three months ended September 30, 2017 and 2016, respectively, and 11,380,000 and 6,906,500 for the nine months ended September
30, 2017 and 2016, respectively. 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 $8,291 and $10,848 for the
nine months ended September 30, 2017 and 2016, respectively. Revenue Recognition The Company
recognizes management fee income as services are provided. The Company
recognized oil and gas revenues from its former interests in producing wells when production was delivered to, and title was transferred
to, the purchaser and to the extent the selling price is reasonably determinable. Oil and gas revenues are reflected as a component
of discontinued operations on the statements of operations. Asset Retirement Obligations The Company
records the fair value of a liability for an asset retirement obligation in the period in which the well is spud or the asset
is acquired and a corresponding increase in the carrying amount of the related long-lived asset. The liability is accreted to
its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. If the liability
is settled for an amount other than the recorded amount, a gain or loss is recognized. The expense related to accretion of the
discount on the asset retirement liability is reflected as a component of discontinued operations on the statement of operations
for the nine months ended September 30, 2016. Full Cost Method The Company
followed the full cost method of accounting for oil and gas operations in 2016 whereby all costs related to the exploration and
development of oil and gas properties were initially capitalized into a single cost center ("full cost pool"). The Company
had no oil and gas operations in 2017 as they were disposed as part of the debt restructuring transaction on June 21, 2016 described
in Note 3 – Debt Restructuring. Capitalized costs included land acquisition costs, geological and geophysical expenses,
carrying charges on non-producing properties, costs of drilling directly related to acquisition, and exploration activities. Internal
costs that were capitalized were directly attributable to acquisition, exploration and development activities and did not include
costs related to the production, general corporate overhead or similar activities. Costs associated with production and general
corporate activities were expensed in the period incurred. Capitalized costs for the nine month period ended September 30, 2016
are summarized as follows:
Nine Months Ended
September 30, 2016
Capitalized Certain Payroll and Other Internal Costs $ –
Capitalized Interest Costs 7,219
Total $ 7,219 Proceeds
from sales of proved properties were credited to the full cost pool, with no gain or loss recognized, unless such a sale would
significantly alter the relationship between capitalized costs and the proved reserves attributable to these costs. A significant
alteration would typically involve a sale of 20% or more of the proved reserves related to a single full cost pool. The Company
assessed all items classified as unevaluated property on a quarterly basis for possible impairment or reduction in value. The
assessment included consideration of the following factors, among others: intent to drill; remaining lease term; geological and
geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development
if proved reserves are assigned. During any period in which these factors indicate an impairment, the cumulative drilling costs
incurred to date for such property and all or a portion of the associated leasehold costs were transferred to the full cost pool
and were then subject to amortization. Capitalized
costs associated with impaired properties and properties having proved reserves, estimated future development costs, and asset
retirement costs under FASB ASC 410-20-25 were depleted and amortized on the unit-of-production method based on the estimated
gross proved reserves as determined by independent petroleum engineers. The costs of unproved properties were withheld from the
depletion base until such time as they are either developed or abandoned. Capitalized
costs of oil and gas properties (net of related deferred income taxes) could not exceed an amount equal to the present value,
discounted at 10% per annum, of the estimated future net cash flows from proved oil and gas reserves plus the cost of unproved
properties (adjusted for related income tax effects). When capitalized costs exceeded this ceiling, impairment was recognized.
The present value of estimated future net cash flows was computed by applying the arithmetic average first day price of oil and
natural gas for the preceding twelve months to estimated future production of proved oil and gas reserves as of the end of the
period, less estimated future expenditures to be incurred in developing and producing the proved reserves and assuming continuation
of existing economic conditions. Such present value of proved reserves' future net cash flows excludes future cash outflows associated
with settling asset retirement obligations. When this comparison indicated an excess carrying value, the excess was charged to
earnings as an impairment expense. The Company recognized an impairment loss of $5,219,000 during the nine months ended September
30, 2016. The impairment loss is reflected as a component of discontinued operations on the statement of operations for the period. 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 $473,053 and $473,472 for
the nine months ended September 30, 2017 and 2016, 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. Derivative
Instruments and Price Risk Management During the
2016 period, while the Company had oil and gas operations, the Company entered into derivative contracts, including price swaps,
caps and floors, which required payments to (or receipts from) counterparties based on the differential between a fixed price
and a variable price for a fixed quantity of crude oil without the exchange of underlying volumes. The notional amounts of these
financial instruments were based on a portion of the expected production from existing wells. Any realized
gains and losses were recorded to gain (loss) on settled derivatives and unrealized gains or losses as a result of mark-to market
valuations were recorded to gain (loss) on the mark-to-market of derivatives and are included as a component of loss from discontinued
operations on the statements of operations. 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, 2016. |
