Quarterly report pursuant to Section 13 or 15(d)

2. Basis of Presentation and Significant Accounting Policies (Policies)

v3.10.0.1
2. Basis of Presentation and Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2018
Accounting Policies [Abstract]  
Principles of Consolidation

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. (“BRAC”)   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

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

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 resulting from its previous ownership of oil and gas production assets.

Cash and Cash Equivalents

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 September 30, 2018 and December 31, 2017 were $623 and $39,742, respectively, all held within the trust account.

Cash in Excess of FDIC Insured Limits

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 $1,822,733 and $977,089 in excess of FDIC and SIPC insured limits at September 30, 2018 and December 31, 2017, respectively. The Company has not experienced any losses in such accounts.

Restricted cash and securities held in Trust Account

Restricted cash and securities held in Trust Account

The Company had $623 of cash equivalents and $140,579,824 of marketable securities on September 30, 2018 and $39,742 of cash equivalents and $138,940,611 of marketable securities on December 31, 2017 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.

Income Taxes

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

Basic and Diluted Loss Per Share

The basic net loss per share is computed by dividing the net income (loss) (the numerator) by the weighted average number of common shares outstanding for the period (the denominator). Diluted net income (loss) per common share is computed by dividing the net income (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, 2018 and 2017 are as follows:

 

    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2018     2017     2018     2017  
Weighted average common shares outstanding – basic     479,821,911       64,438,566       479,807,318       53,526,470  
Plus: Potentially dilutive common shares:                                
Stock options and warrants     221,053             237,953        
Weighted average common shares outstanding – diluted     480,042,964       64,438,566       480,045,271       53,526,470  

 

Stock options and warrants excluded from the calculation of diluted EPS because their effect was anti-dilutive were 10,835,300 and 11,380,000 for the three months ended September 30, 2018 and 2017, respectively, and 10,835,300 and 11,380,000 for the nine months ended September 30, 2018 and 2017, respectively.

Fair Value of Financial Instruments

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

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 $7,650 and $8,291 for the nine months ended September 30, 2018 and 2017, respectively.

Revenue Concentration

Revenue Concentration

All of the Company’s revenue in 2017 was earned from management fees earned through its management services agreement with Black Ridge Holding Company, LLC (“BRHC”). The management services agreement with BRHC was cancelled by BRHC effective June 30, 2017.

Revenue Recognition

Revenue Recognition

The Company recognizes management fee income as services are provided.

Stock-Based Compensation

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 $244,664 and $473,053 for the nine months ended September 30, 2018 and 2017, 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

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

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, 2017.