UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
FORMForm 10-Q
(Mark One)
☒ Quarterly Report Pursuant to SectionQUARTERLY REPORT PURSUANT TO SECTION 13 orOR 15(d) of the Securities Exchange Act ofOF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2020June 30, 2021
OR
☐ Transition Report Pursuant to SectionTRANSITION REPORT PURSUANT TO SECTION 13 orOR 15(d) of the Securities Exchange Act ofOF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File No.Number 000-53361
ECOARK HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 30-0680177 | |
| (State or other jurisdiction of incorporation or organization) | ( Identification No.) | |
| 303 Pearl Parkway, Suite 200, San Antonio, TX | 78215 | |
| (Address of principal executive offices) | (Zip Code) |
303 Pearl Parkway Suite 200, San Antonio, TX 78215
(Address of principal executive offices) (Zip Code)
(800) 762-7293
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common Stock | ZEST | The Nasdaq Stock Market LLC (The Nasdaq Capital Market) |
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001 per share
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☐ | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
ThereAs of August 13, 2021, there were 22,470,40126,349,099 shares of the Registrant’s $0.001common stock, par value common stock outstanding as of February 12, 2021.$0.001 per share, outstanding.
Ecoark Holdings, Inc.
INDEX
i
PART I — FINANCIAL INFORMATION
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020JUNE 30, 2021
Table of Contents
1
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(inJUNE 30, 2021 (UNAUDITED) AND MARCH 31, 2021
(in thousands, except per share data)
| December 31, | March 31, | |||||||
| 2020 | 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash ($85 and $85 pledged as collateral for credit as of December 31, 2020 and March 31, 2020, respectively and $250 and $50 restricted at December 31, 2020 and March 31, 2020, respectively) | $ | 7,981 | $ | 406 | ||||
| Accounts receivable, net of allowance of $709 and $500 as of December 31, 2020 and March 31, 2020, respectively | 417 | 172 | ||||||
| Note receivable, net of allowance of $0 and $25 as of December 31, 2020 and March 31, 2020, respectively | - | - | ||||||
| Inventories – Crude Oil | 129 | - | ||||||
| Prepaid expenses and other current assets | 1,512 | 676 | ||||||
| Total current assets | 10,039 | 1,254 | ||||||
| NON-CURRENT ASSETS | ||||||||
| Property and equipment, net | 3,921 | 3,965 | ||||||
| Intangible assets, net | 2,136 | 2,350 | ||||||
| Oil and gas properties, full cost-method | 11,795 | 6,135 | ||||||
| Goodwill | 10,225 | 10,225 | ||||||
| Right of use assets – financing leases | 480 | 589 | ||||||
| Right of use assets – operating leases | 480 | 142 | ||||||
| Non-current assets of discontinued operations | 249 | 249 | ||||||
| Other assets | - | 7 | ||||||
| Total non-current assets | 29,286 | 23,662 | ||||||
| TOTAL ASSETS | $ | 39,325 | $ | 24,916 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 1,867 | $ | 751 | ||||
| Accrued liabilities | 1,738 | 3,036 | ||||||
| Due to prior owners | 814 | 2,358 | ||||||
| Warrant derivative liabilities | 6,343 | 2,775 | ||||||
| Current portion of long-term debt | 789 | 6,401 | ||||||
| Notes payable – related parties | 772 | 2,172 | ||||||
| Current portion of lease liability – financing leases | 140 | 137 | ||||||
| Current portion of lease liability – operating leases | 204 | 85 | ||||||
| Current liabilities of discontinued operations | 228 | 228 | ||||||
| Total current liabilities | 12,895 | 17,943 | ||||||
| NON-CURRENT LIABILITIES | ||||||||
| Lease liability – financing leases, net of current portion | 331 | 436 | ||||||
| Lease liability – operating leases, net of current portion | 321 | 74 | ||||||
| Long-term debt, net of current portion | 1,488 | 421 | ||||||
| Asset retirement obligations | 431 | 295 | ||||||
| Total liabilities | 15,466 | 19,169 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS’ EQUITY (Numbers of shares rounded to thousands) | ||||||||
| - | - | |||||||
| Preferred stock, $0.001 par value; 5,000 shares authorized; none and 1(Series C) issued and outstanding as of December 31, 2020 and March 31, 2020, respectively | - | - | ||||||
| Common stock, $0.001 par value; 30,000 shares authorized, 22,470 shares issued and 22,353 shares outstanding as of December 31, 2020, and 40,000 shares authorized, 17,175 shares issued and 17,058 shares outstanding as of March 31, 2020 | 22 | 17 | ||||||
| Additional paid-in-capital | 165,195 | 135,424 | ||||||
| Accumulated deficit | (139,687 | ) | (128,023 | ) | ||||
| Treasury stock, at cost | (1,671 | ) | (1,671 | ) | ||||
| Total stockholders’ equity | 23,859 | 5,747 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 39,325 | $ | 24,916 | ||||
| JUNE 30, | MARCH 31, | |||||||
| 2021 | 2021 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash ($85 and $85 pledged as collateral for credit as of June 30, 2021 and March 31, 2021, respectively and $250 restricted as of June 30, 2021 and March 31, 2021, respectively) | $ | 842 | $ | 1,316 | ||||
| Accounts receivable, net of allowance of $209 and $109 as of June 30, 2021 and March 31, 2021, respectively | 1,047 | 1,136 | ||||||
| Inventories - Crude Oil | 115 | 122 | ||||||
| Prepaid expenses and other current assets | 2,603 | 1,995 | ||||||
| Total current assets | 4,607 | 4,569 | ||||||
| NON-CURRENT ASSETS: | ||||||||
| Property and equipment, net | 3,714 | 3,695 | ||||||
| Intangible assets, net | 1,978 | 2,065 | ||||||
| Oil and gas properties, full cost-method | 11,908 | 12,352 | ||||||
| Capitalized drilling costs, net of depletion | 2,293 | 2,567 | ||||||
| Goodwill | 10,225 | 10,225 | ||||||
| Right of use assets - financing leases | 409 | 445 | ||||||
| Right of use assets - operating leases | 456 | 479 | ||||||
| Non-current assets of discontinued operations | - | 194 | ||||||
| Total non-current assets | 30,983 | 32,022 | ||||||
| TOTAL ASSETS | $ | 35,590 | $ | 36,591 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| LIABILITIES | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 3,192 | $ | 3,614 | ||||
| Accrued liabilities | 4,005 | 3,591 | ||||||
| Warrant derivative liabilities | 2,813 | 7,213 | ||||||
| Current portion of long-term debt | 953 | 1,056 | ||||||
| Note payable - related parties | 578 | 578 | ||||||
| Current portion of lease liability - financing leases | 142 | 141 | ||||||
| Current portion of lease liability - operating leases | 218 | 212 | ||||||
| Current liabilities of discontinued operations | - | 9 | ||||||
| Total current liabilities | 11,901 | 16,414 | ||||||
| NON-CURRENT LIABILITIES | ||||||||
| Lease liability - financing leases, net of current portion | 259 | 295 | ||||||
| Lease liability - operating leases, net of current portion | 276 | 309 | ||||||
| Long-term debt, net of current portion | 901 | 1,012 | ||||||
| Asset retirement obligations | 1,563 | 1,532 | ||||||
| Total non-current liabilities | 2,999 | 3,148 | ||||||
| Total Liabilities | 14,900 | 19,562 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT) (Numbers of shares rounded to thousands) | ||||||||
| Preferred stock, $0.001 par value; 5,000 shares authorized; 0 shares issued and outstanding as of June 30, 2021 and March 31, 2021, respectively | - | - | ||||||
| Common stock, $0.001 par value, 30,000 shares authorized, 22,840 and 22,723 shares issued and 22,840 and 22,705 shares outstanding as of June 30, 2021 and March 31, 2021, respectively | 23 | 23 | ||||||
| Additional paid in capital | 168,690 | 167,588 | ||||||
| Accumulated deficit | (146,352 | ) | (148,911 | ) | ||||
| Treasury stock, at cost | (1,671 | ) | (1,671 | ) | ||||
| Total stockholders’ equity | 20,690 | 17,029 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 35,590 | $ | 36,591 | ||||
See notes to consolidated financial statements.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 2021 AND 2020
(in thousands, except per share data)
| THREE MONTHS ENDED JUNE 30, | ||||||||
| 2021 | 2020 | |||||||
| (unaudited) | (unaudited) | |||||||
| CONTINUING OPERATIONS: | ||||||||
| REVENUES | $ | 6,879 | $ | 2,313 | ||||
| COST OF REVENUES | 3,942 | 1,093 | ||||||
| GROSS PROFIT | 2,937 | 1,220 | ||||||
| OPERATING EXPENSES | ||||||||
| Salaries and salaries related costs | 1,569 | 2,012 | ||||||
| Professional and consulting fees | 137 | 262 | ||||||
| Oilfield supplies and repairs | 344 | 5 | ||||||
| Selling, general and administrative costs | 2,272 | 605 | ||||||
| Depreciation, amortization, depletion, and accretion | 1,016 | 301 | ||||||
| Research and development | - | 230 | ||||||
| Total operating expenses | 5,338 | 3,415 | ||||||
| LOSS FROM OPERATIONS BEFORE OTHER INCOME (EXPENSES) | (2,401 | ) | (2,195 | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Change in fair value of derivative liabilities | 4,945 | (17,393 | ) | |||||
| Gain (loss) on exchange of warrants for common stock | - | 1,630 | ||||||
| Loss on conversion of long-term debt and accrued expenses | - | (2,194 | ) | |||||
| Gain (loss) on disposal of fixed assets | - | (105 | ) | |||||
| Loss on abandonment of oil and gas property | - | (83 | ) | |||||
| Gain on disposal of ARO related to sale of oil and gas property | 7 | - | ||||||
| Gain on sale of oil and gas property | 592 | - | ||||||
| Interest expense, net of interest income | (584 | ) | (841 | ) | ||||
| Total other income (expense) | 4,960 | (18,986 | ) | |||||
| INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE BENEFIT (PROVISION) FOR INCOME TAXES | 2,559 | (21,181 | ) | |||||
| DISCONTINUED OPERATIONS: | ||||||||
| Loss from discontinued operations | - | - | ||||||
| Gain on disposal of discontinued operations | - | - | ||||||
| Total discontinued operations | - | - | ||||||
| INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE BENEFIT (PROVISION) FOR INCOME TAXES | 2,559 | (21,181 | ) | |||||
| BENEFIT (PROVISION) FOR INCOME TAXES | - | - | ||||||
| NET INCOME (LOSS) | $ | 2,559 | $ | (21,181 | ) | |||
| NET INCOME (LOSS) PER SHARE - BASIC | $ | 0.112 | $ | (1.154 | ) | |||
| WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC | 22,804 | 18,357 | ||||||
| NET INCOME (LOSS) PER SHARE - DILUTED | $ | 0.097 | $ | (1.154 | ) | |||
| WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED | 26,372 | 18,357 | ||||||
See notes to consolidated financial statements.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 2021 AND 2020
(Dollar amounts and number of shares in thousands)
| Additional | ||||||||||||||||||||||||||||||||
| Preferred | Common Stock | Paid-In | Accumulated | Treasury | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Stock | Total | |||||||||||||||||||||||||
| Balance - March 31, 2020 | 1 | $ | - | 17,175 | $ | 17 | $ | 135,424 | $ | (128,023 | ) | $ | (1,671 | ) | $ | 5,747 | ||||||||||||||||
| Shares issued in the exercise of warrants, net of expenses | - | - | 1,531 | 2 | 6,674 | - | - | 6,676 | ||||||||||||||||||||||||
| Shares issued in the exercise of stock options | - | - | 89 | - | 349 | - | - | 349 | ||||||||||||||||||||||||
| Shares issued in conversion of debt and accrued interest | - | - | 524 | 1 | 3,941 | - | - | 3,942 | ||||||||||||||||||||||||
| Shares issued in conversion of accounts payable and accrued expenses | - | - | 93 | - | 677 | - | - | 677 | ||||||||||||||||||||||||
| Conversion of preferred shares (Series C) to common shares | (1 | ) | - | 308 | - | - | - | - | - | |||||||||||||||||||||||
| Share-based compensation | - | - | - | - | 1,114 | - | - | 1,114 | ||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | (21,181 | ) | - | (21,181 | ) | ||||||||||||||||||||||
| Balance - June 30, 2020 | - | $ | - | 19,720 | $ | 20 | $ | 148,179 | $ | (149,204 | ) | $ | (1,671 | ) | $ | (2,676 | ) | |||||||||||||||
| Balance - March 31, 2021 | - | $ | - | 22,705 | $ | 23 | $ | 167,588 | $ | (148,911 | ) | $ | (1,671 | ) | $ | 17,029 | ||||||||||||||||
| Shares issued in the exercise of stock options, including cashless exercises | - | - | 20 | - | 28 | - | - | 28 | ||||||||||||||||||||||||
| Shares issued for services rendered | - | - | 115 | - | 675 | - | - | 675 | ||||||||||||||||||||||||
| Share-based compensation | - | - | - | - | 399 | - | - | 399 | ||||||||||||||||||||||||
| Net income for the period | - | - | - | - | - | 2,559 | - | 2,559 | ||||||||||||||||||||||||
| Balance - June 30, 2021 | - | $ | - | 22,840 | $ | 23 | $ | 168,690 | $ | (146,352 | ) | $ | (1,671 | ) | $ | 20,690 | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| CONTINUING OPERATIONS: | ||||||||||||||||
| REVENUES | $ | 4,465 | $ | 140 | $ | 10,056 | $ | 219 | ||||||||
| COST OF REVENUES | 3,218 | 67 | 6,644 | 128 | ||||||||||||
| GROSS PROFIT | 1,247 | 73 | 3,412 | 91 | ||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Selling, general and administrative | 4,710 | 2,232 | 11,970 | 5,464 | ||||||||||||
| Depreciation, amortization, depletion and accretion | 509 | 68 | 1,133 | 216 | ||||||||||||
| Research and development | 264 | 424 | 630 | 2,109 | ||||||||||||
| Total operating expenses | 5,483 | 2,724 | 13,733 | 7,789 | ||||||||||||
| Loss from continuing operations before other income (expense) | (4,236 | ) | (2,651 | ) | (10,321 | ) | (7,698 | ) | ||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||
| Change in fair value of derivative liabilities | 481 | (2,376 | ) | (15,901 | ) | (2,392 | ) | |||||||||
| Gain (loss) on exchange of warrants for common stock | 2,755 | (220 | ) | 19,338 | (1,059 | ) | ||||||||||
| Loss on conversion of long-term debt and accrued expenses | - | - | (3,969 | ) | - | |||||||||||
| Forgiveness of debt | 1,850 | - | 1,850 | - | ||||||||||||
| Gain (loss) on disposal of fixed assets | - | 16 | (105 | ) | 16 | |||||||||||
| Loss on abandonment of oil and gas property | - | - | (83 | ) | - | |||||||||||
| Interest expense, net of interest income | (318 | ) | (188 | ) | (2,473 | ) | (323 | ) | ||||||||
| Total other income (expenses) | 4,768 | (2,768 | ) | (1,343 | ) | (3,758 | ) | |||||||||
| INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES | 532 | (5,419 | ) | (11,664 | ) | (11,456 | ) | |||||||||
| DISCONTINUED OPERATIONS: | ||||||||||||||||
| Loss from discontinued operations | - | - | - | - | ||||||||||||
| Gain on disposal of discontinued operations | - | - | - | 2 | ||||||||||||
| Total discontinued operations | - | - | - | 2 | ||||||||||||
| PROVISION FOR INCOME TAXES | - | - | - | - | ||||||||||||
| NET INCOME (LOSS) | $ | 532 | $ | (5,419 | ) | $ | (11,664 | ) | $ | (11,454 | ) | |||||
| NET EARNINGS (LOSS) PER SHARE | ||||||||||||||||
| Basic: Continuing operations | $ | 0.02 | $ | (0.40 | ) | $ | (0.58 | ) | $ | (0.93 | ) | |||||
| Discontinued operations | - | - | - | - | ||||||||||||
| Total | $ | 0.02 | $ | (0.40 | ) | $ | (0.58 | ) | $ | (0.93 | ) | |||||
| Diluted: Continuing operations | $ | 0.02 | $ | (0.40 | ) | $ | (0.58 | ) | $ | (0.93 | ) | |||||
| Discontinued operations | - | - | - | - | ||||||||||||
| Total | $ | 0.02 | $ | (0.40 | ) | $ | (0.58 | ) | $ | (0.93 | ) | |||||
| SHARES USED IN CALCULATION OF NET EARNINGS (LOSS) PER SHARE | ||||||||||||||||
| Basic | 21,300 | 13,508 | 19,950 | 12,268 | ||||||||||||
| Diluted | 24,192 | 13,508 | 19,950 | 12,268 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ECOARK HOLDINGS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)
NINE MONTHS ENDED DECEMBER 31, 2020 AND 2019
(in thousands)
| Preferred | Common | Additional Paid-In- | Accumulated | Treasury | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Stock | Total | |||||||||||||||||||||||||
| Balances at March 31, 2019 | - | $ | - | 10,515 | $ | 11 | $ | 113,352 | $ | (115,886 | ) | $ | (1,671 | ) | $ | (4,194 | ) | |||||||||||||||
| Shares issued in acquisition of Trend Holdings | - | - | 1,100 | 1 | 3,235 | - | - | 3,236 | ||||||||||||||||||||||||
| Share-based compensation | - | - | - | - | 582 | - | - | 582 | ||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | (1,646 | ) | - | (1,646 | ) | ||||||||||||||||||||||
| Balances at June 30, 2019 | - | - | 11,615 | 12 | 117,169 | (117,532 | ) | (1,671 | ) | (2,022 | ) | |||||||||||||||||||||
| Shares issued in exchange for warrants | - | - | 855 | 1 | 3,292 | - | - | 3,293 | ||||||||||||||||||||||||
| Shares issued for services rendered | - | - | 60 | - | 211 | - | - | 211 | ||||||||||||||||||||||||
| Preferred stock issuance | 2 | - | - | - | 404 | - | - | 404 | ||||||||||||||||||||||||
| Share-based compensation | - | - | - | - | 630 | - | - | 630 | ||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | (4,389 | ) | - | (4,389 | ) | ||||||||||||||||||||||
| Balances at September 30, 2019 | 2 | - | 12,530 | 13 | 121,706 | (121,921 | ) | (1,671 | ) | (1,873 | ) | |||||||||||||||||||||
| Preferred shares converted to common stock | (2 | ) | - | 752 | 1 | (1 | ) | - | - | - | ||||||||||||||||||||||
| Shares issued in exchange for warrants | - | - | 448 | - | 2,186 | - | - | 2,186 | ||||||||||||||||||||||||
| Shares issued for services rendered | - | - | 50 | - | 253 | - | - | 253 | ||||||||||||||||||||||||
| Shares issued for services to be rendered | - | - | 50 | - | 247 | - | - | 247 | ||||||||||||||||||||||||
| Preferred shares issued for cash | 1 | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Share-based compensation | - | - | - | - | 1,345 | - | - | 1,345 | ||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | (5,419 | ) | - | (5,419 | ) | ||||||||||||||||||||||
| Balances at December 31, 2019 | 1 | $ | - | 13,830 | $ | 14 | $ | 125,736 | $ | (127,340 | ) | $ | (1,671 | ) | $ | (3,261 | ) | |||||||||||||||
| Balances at March 31, 2020 | 1 | $ | - | 17,175 | $ | 17 | $ | 135,424 | $ | (128,023 | ) | $ | (1,671 | ) | $ | 5,747 | ||||||||||||||||
| Shares issued in the conversion of long-term debt and accrued interest | - | - | 525 | 1 | 3,941 | - | - | 3,942 | ||||||||||||||||||||||||
| Shares issued in the conversion of accounts payable and accrued expenses | - | - | 93 | - | 677 | - | - | 677 | ||||||||||||||||||||||||
| Preferred shares converted into common shares | (1 | ) | - | 308 | - | (- | ) | - | - | - | ||||||||||||||||||||||
| Shares issued in the exercise of warrants, net of expenses | - | - | 1,532 | 2 | 6,674 | - | - | 6,676 | ||||||||||||||||||||||||
| Shares issued in the exercise of stock options | - | - | 89 | - | 349 | - | - | 349 | ||||||||||||||||||||||||
| Share-based compensation | - | - | - | - | 1,114 | - | - | 1,114 | ||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | (21,181 | ) | - | (21,181 | ) | ||||||||||||||||||||||
| Balances at June 30, 2020 | - | - | 19,722 | 20 | 148,179 | (149,204 | ) | (1,671 | ) | (2,676 | ) | |||||||||||||||||||||
| Shares issued in the conversion of long-term debt and accrued interest | - | - | 192 | - | 2,635 | - | - | 2,635 | ||||||||||||||||||||||||
| Shares issued for services rendered | - | - | 30 | - | 485 | - | - | 485 | ||||||||||||||||||||||||
| Shares issued in acquisition of oil and gas reserves and fixed assets | - | - | 171 | - | 2,750 | - | - | 2,750 | ||||||||||||||||||||||||
| Shares issued in the exercise of warrants | - | - | 1,088 | 1 | 5,575 | - | - | 5,576 | ||||||||||||||||||||||||
| Shares issued in the exercise of cash less stock options | - | - | 1 | - | - | - | - | - | ||||||||||||||||||||||||
| Share-based compensation | - | - | - | - | 36 | - | - | 36 | ||||||||||||||||||||||||
| Net income for the period | - | - | - | - | - | 8,985 | - | 8,985 | ||||||||||||||||||||||||
| Balances at September 30, 2020 | - | - | 21,204 | 21 | 159,660 | (140,219 | ) | (1,671 | ) | 17,791 | ||||||||||||||||||||||
| Shares issued in the exercise of warrants | - | - | 376 | - | 2,106 | - | - | 2,106 | ||||||||||||||||||||||||
| Common share issued for cash (net of expenses and allocation to derivative liability) | - | - | 889 | 1 | 3,010 | - | - | 3,011 | ||||||||||||||||||||||||
| Share-based compensation | - | - | - | - | 419 | - | - | 419 | ||||||||||||||||||||||||
| Share adjustment – reverse split | - | - | 1 | - | - | - | - | - | ||||||||||||||||||||||||
| Net income for the period | - | - | - | - | 532 | - | 532 | |||||||||||||||||||||||||
| Balances at December 31, 2020 | - | $ | - | 22,470 | $ | 22 | $ | 165,195 | $ | (139,687 | ) | $ | (1,671 | ) | $ | 23,859 | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 2021 AND 2020
(in thousands)thousands, except per share data)
| Nine Months Ended | ||||||||
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| (Dollars in thousands) | ||||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (11,664 | ) | $ | (11,454 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation, amortization, depletion and accretion | 1,133 | 216 | ||||||
| Share-based compensation | 1,569 | 2,556 | ||||||
| Common stock issued for services | 485 | 463 | ||||||
| Change in fair value of derivative liabilities | 15,901 | 2,392 | ||||||
| Interest expense on warrant derivative liabilities | - | 107 | ||||||
| Forgiveness of debt | (1,850 | ) | - | |||||
| Bad debt | 209 | - | ||||||
| (Gain) loss on exchange of warrants | (19,338 | ) | 1,059 | |||||
| Commitment fees on credit facility advances | - | 38 | ||||||
| Gain (loss) on sale of fixed assets | 105 | (16 | ) | |||||
| Loss on abandonment of oil and gas property | 83 | - | ||||||
| Warrants granted for interest expense | 2,042 | - | ||||||
| Warrants granted for commissions | 308 | - | ||||||
| Recovery of bad debt | (25 | ) | - | |||||
| Loss on conversion of debt and liabilities to common stock | 3,969 | - | ||||||
| Amortization of debt discount | 149 | - | ||||||
| Gain on sale of discontinued operations | - | (2 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (454 | ) | 424 | |||||
| Inventories | (129 | ) | - | |||||
| Prepaid expenses and other current assets | (562 | ) | 760 | |||||
| Amortization of right of use asset – financing leases | 109 | - | ||||||
| Amortization of right of use assets – operating leases | 104 | - | ||||||
| Other assets | (4 | ) | 3 | |||||
| Interest on lease liability – financing leases | (102 | ) | - | |||||
| Interest on lease liability – operating leases | (76 | ) | - | |||||
| Accounts payable | 1,116 | (1,048 | ) | |||||
| Accrued liabilities | (906 | ) | (90 | ) | ||||
| Net cash used in operating activities of continuing operations | (7,828 | ) | (4,592 | ) | ||||
| Net cash used in discontinued operations | - | (- | ) | |||||
| Net cash used in operating activities | (7,828 | ) | (4,592 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Cash received in acquisition of Trend Holdings | - | 3 | ||||||
| Advance of note receivable | (275 | ) | - | |||||
| Purchases of oil and gas properties | (3,335 | ) | - | |||||
| Proceeds from the sale of fixed assets | 43 | 16 | ||||||
| Proceeds received from sale of Magnolia | - | 5 | ||||||
| Purchases of fixed assets | (241 | ) | (- | ) | ||||
| Net cash (used in) provided by investing activities of continuing operations | (3,808 | ) | 24 | |||||
| Net cash used in investing activities of discontinued operations | - | (- | ) | |||||
| Net cash (used in) provided by investing activities | (3,808 | ) | 24 | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from exercise of warrants, net of fees | 14,359 | - | ||||||
| Proceeds from exercise of stock options | 349 | - | ||||||
| Proceeds from issuance of common stock, net of fees | 7,666 | - | ||||||
| Proceeds from notes payable – related parties | 604 | 403 | ||||||
| Proceeds from long-term debt | 1,869 | - | ||||||
| Repayment of long-term debt | (3,891 | ) | - | |||||
| Repayment to prior owners | (316 | ) | - | |||||
| Repayment of notes payable – related parties | (1,429 | ) | - | |||||
| Proceeds from issuance of preferred stock, net of fees | - | 2,980 | ||||||
| Proceeds from credit facility | - | 1,047 | ||||||
| Net cash provided by financing activities | 19,211 | 4,430 | ||||||
| NET INCREASE (DECREASE) IN CASH | 7,575 | (138 | ) | |||||
| Cash and restricted cash - beginning of period | 406 | 244 | ||||||
| Cash and restricted cash - end of period | $ | 7,981 | $ | 106 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | 404 | $ | - | ||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| SUMMARY OF NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Exchange of common stock for warrants | $ | - | $ | 5,479 | ||||
| Issuance of shares for prepaid expenses | $ | - | $ | 247 | ||||
| Preferred stock converted into common stock | $ | 2 | $ | - | ||||
| Conversion of long-term debt and notes payable and accrued interest into common stock | $ | 6,577 | $ | - | ||||
| Conversion of accounts payable and accrued expenses into common stock | $ | 677 | $ | - | ||||
| Shares issued for acquisition of oil and gas reserves and fixed assets, net of asset retirement obligations | $ | 2,750 | $ | - | ||||
| Note receivable offset against oil and gas reserves in acquisition of Rabb | $ | 304 | $ | - | ||||
| Lease liability recognized for ROU asset | $ | 442 | $ | - | ||||
| Assets acquired via acquisition of Trend Holdings.: | ||||||||
| Current assets | $ | - | $ | 12 | ||||
| Goodwill | $ | - | $ | 3,222 | ||||
| 2021 | 2020 | |||||||
| (unaudited) | (unaudited) | |||||||
| CASH FLOW FROM OPERATING ACTIVIITIES | ||||||||
| Net income (loss) | $ | 2,559 | $ | (21,181 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Depreciation, amortization, depletion, and accretion | 1,016 | 301 | ||||||
| Share-based compensation | 399 | 1,114 | ||||||
| Bad debt, net of recovery | - | 41 | ||||||
| Change in fair value of derivative liabilities | (4,945 | ) | 17,393 | |||||
| (Gain) on disposal of ARO related to sale of oil and gas property | (7 | ) | - | |||||
| (Gain) loss on exchange of warrants | - | (1,630 | ) | |||||
| Common shares issued for services | 675 | - | ||||||
| (Gain) loss on sale of fixed assets | - | 105 | ||||||
| Loss on abandonment of oil and gas property | - | 83 | ||||||
| Warrants granted for interest expense | 545 | 524 | ||||||
| (Gain) loss on conversion of debt and liabilities to common stock | - | 2,194 | ||||||
| Amortization of debt discount | - | 149 | ||||||
| Changes in assets and liabilities | ||||||||
| Accounts receivable | 89 | (118 | ) | |||||
| Inventory | 7 | (248 | ) | |||||
| Prepaid expenses and other current assets | (608 | ) | (1,262 | ) | ||||
| Amortization of right of use asset - financing leases | 36 | 39 | ||||||
| Amortization of right of use asset - operating leases | 23 | 20 | ||||||
| Interest on lease liability - financing leases | (35 | ) | (34 | ) | ||||
| Interest on lease liability - operating leases | (27 | ) | (21 | ) | ||||
| Accounts payable | (431 | ) | (52 | ) | ||||
| Accrued liabilities | 414 | (252 | ) | |||||
| Total adjustments | (2,849 | ) | 18,346 | |||||
| Net cash used in operating activities of continuing operations | (290 | ) | (2,835 | ) | ||||
| Net cash used in discontinued operations | - | (2 | ) | |||||
| Net cash used in operating activities | (290 | ) | (2,837 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITES | ||||||||
| Advance of note receivable | - | (200 | ) | |||||
| Purchases of oil and gas properties, net of asset retirement obligations | - | (2 | ) | |||||
| Proceeds from the sale of fixed assets | 2 | 43 | ||||||
| Purchase of fixed assets | - | (50 | ) | |||||
| Net cash provided by (used in) investing activities | 2 | (209 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITES | ||||||||
| Proceeds from exercise of warrants, net of fees | - | 6,677 | ||||||
| Proceeds from exercise of stock options | 28 | 349 | ||||||
| Proceeds from notes payable - related parties | - | 400 | ||||||
| Repayments of notes payable - related parties | - | (1,042 | ) | |||||
| Proceeds from long-term debt | - | 1,869 | ||||||
| Repayment of long-term debt | (214 | ) | (3,554 | ) | ||||
| Repayment to prior owners | - | (266 | ) | |||||
| Net cash (used in) provided by financing activities | (186 | ) | 4,433 | |||||
| NET (DECREASE) INCREASE IN CASH AND RESTRICTED CASH | (474 | ) | 1,387 | |||||
| CASH AND RESTRCITED CASH - BEGINNING OF PERIOD | 1,316 | 406 | ||||||
| CASH AND RESTRICTED CASH - END OF PERIOD | $ | 842 | $ | 1,793 | ||||
| SUPPLEMENTAL DISCLOSURES | ||||||||
| Cash paid for interest expense | $ | 23 | $ | 333 | ||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| SUMMARY OF NON-CASH ACTIVITIES: | ||||||||
| Reclassification of assets of discontinued operations to current operations in fixed assets | $ | 194 | $ | - | ||||
| Preferred stock converted into common stock | $ | - | $ | 2 | ||||
| Conversion of long-term debt and notes payable and accrued interest into common stock | $ | - | $ | 3,942 | ||||
| Conversion of accounts payable and accrued liabilities into common stock | $ | - | $ | 677 | ||||
The accompanyingSee notes are an integral part of these unaudited condensedto consolidated financial statements.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)DECEMBER 31, 2020
JUNE 30, 2021
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Dollar amounts and numbers of shares that follow in this report are presented in thousands, except per share amounts.
Ecoark Holdings Inc. (“Ecoark Holdings” or the “Company”) is a diversified holding company, incorporated in the stateState of Nevada on November 19, 2007. Through Ecoark Holdings wholly owned subsidiaries, the Company has operations in three areas: (i) oil and gas, including exploration, production and drilling operations on over 20,000 cumulative acres of active mineral leases in Texas, Louisiana, and Mississippi and transportation services, (ii) post-harvest shelf-life and freshness food management technology, and (iii) financial services including investments in a select number of early stage startups each year. Since the acquisition of Banner Midstream Corp. on March 27, 2020, which currently comprises the exploration, production and drilling operations, the Company has focused its efforts to a considerable extent on expanding its exploration and production footprint and capabilities by acquiring real property and working interests in oil and gas mineral leases. The Company’s subsidiaries consist of Ecoark, Inc. (“Ecoark”), a Delaware corporation which is the parent of Zest Labs, Inc. (“Zest Labs”), 440IoT Inc., a Nevada corporation (“440IoT”), Banner Midstream Corp., a Delaware corporation (“Banner Midstream”) and Trend Discovery Holdings Inc., a Delaware corporation (“Trend Holdings”).
On March 27, 2020, the Company and Banner Energy Services Corp., a Nevada corporation (“Banner Parent”), entered into a Stock Purchase and Sale Agreement (the “Banner Purchase Agreement”) to acquire Banner Midstream Corp., a Delaware corporation (“Banner Midstream”). Pursuant to the acquisition, Banner Midstream became a wholly-owned subsidiary of the Company and Banner Parent received shares of the Company’s common stock in exchange for all of the issued and outstanding shares of Banner Midstream.
Banner Midstream has four operating subsidiaries: Pinnacle Frac Transport LLC (“Pinnacle Frac”), Capstone Equipment Leasing LLC (“Capstone”), White River Holdings Corp. (“White River”), and Shamrock Upstream Energy LLC (“Shamrock”). Pinnacle Frac provides transportation of frac sand and logistics services to major hydraulic fracturing and drilling operations. Capstone procures and finances equipment to oilfield transportation service contractors. These two operating subsidiaries of Banner Midstream are revenue producing entities. White River and Shamrock are engaged in oil and gas exploration, production, and drilling operations on over 10,00020,000 cumulative acres of active mineral leases in Texas, Louisiana, and Mississippi.
On June 11, 2020, the Company acquired certain energy assets from SR Acquisition I, LLC for $1 as part of the ongoing bankruptcy reorganization of Sanchez Energy Corporation. The transaction includes the transfer of 262 total wells in Mississippi and Louisiana, approximately 9,000 acres of active mineral leases, and drilling production materials and equipment. The 262 total wells include 57 active producing wells, 19 active disposal wells, 136 shut-in with future utility wells, and 50 shut-in pending plugging wells. Included in the assignment are 4 wells in the Tuscaloosa Marine Shale formation. One of the leases acquired in this transaction was sold in November 2020.
On June 18, 2020, the Company acquired certain energy assets from SN TMS, LLC for $1 as part of the ongoing bankruptcy reorganization of Sanchez Energy Corporation. The transaction includes the transfer of wells, active mineral leases, and drilling production materials and equipment.
ECOARK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)DECEMBER 31, 2020
On August 14, 2020, the Company entered into an Asset Purchase Agreement by and among the Company, White River E&P LLC, a Texas Limited Liability Company and a wholly-owned subsidiary of the Company Rabb Resources, LTD. and Claude Rabb, the sole owner of Rabb Resources, LTD. Pursuant to the Asset Purchase Agreement, the Company completed the acquisition of certain assets of Rabb Resources, LTD. The acquired assets consisted of certain real property and working interests in oil and gas mineral leases. The Company in June 2020 previously provided for bridge financing to Rabb Resources, LTD under the $225 Senior Secured Convertible Promissory Note. As consideration for entering into the Asset Purchase Agreement, the Company agreed to pay Rabb Resources, LTD. A total of $3,500 consisting of (i) $1,500 in cash, net of $304 in outstanding amounts related to the note receivable and accrued interest receivable, and (ii) $2,000 payable in common stock of the Company, which based on the closing price of the common stock as of the date of the Asset Purchase Agreement equaled 103 shares. The Company accounted for this acquisition as an asset acquisition under ASC 805 and that the Company has early adopted the amendments of Regulation S-X dated May 21, 2020 and has concluded that this acquisition was not significant. Accordingly, as a result of the amendment, the presentation of the Rabb Resources, LTD historical financial statements under Rule 3-05 and related pro forma information under Article 11 of Regulation S-X, respectively, were not required to be presented.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2021
On September 4, 2020, White River SPV 3, LLC, a wholly-owned subsidiary of Banner Midstream entered into an Agreement and Assignment of Oil, Gas and Mineral Lease with a privately held limited liability company (the “Assignor”). Under the Lease Assignment, the Assignor assigned a 100% working interest (75% net revenue interest) in a certain oil and gas lease covering in excess of 1,600 acres (the “Lease”), and White River paid $1,500 in cash to the Assignor. The Company accounted for this acquisition as an asset acquisition under ASC 805 and that the Company has early adopted the amendments of Regulation S-X dated May 21, 2020 and has concluded that this acquisition was not significant. Accordingly, as a result of the amendment, the presentation of the historical financial statements under Rule 3-05 and related pro forma information under Article 11 of Regulation S-X, respectively, were not required to be presented.
On October 9, 2020, the Company and White River SPV, entered into a Participation Agreement (the “Participation Agreement”) by and among the Company, White River SPV, BlackBrush Oil & Gas, L.P. (“BlackBrush”) and GeoTerre, LLC, an unrelated privately-held limited liability company (the “Assignor”), to conduct drilling of wells in the Austin Chalk formation.
Pursuant to the Participation Agreement, the Company and White River SPV have agreed, among other things, to fund 100%pre-funded a majority of the cost, estimated to be approximately $4,700,$5,800, associated with the drilling and completion of an initial deep horizontal well in the Austin Chalk formation.formation of which $3,387 was expensed as drilling costs. The Participation Agreement requires the estimated amount ofrequired the drilling costs to bethat were paid into a designated escrow account byat the commencement of the drilling in January 2021.2021, which it was. BlackBrush has agreed to assign to the other parties to the Participation Agreement, subject to certain exceptions and limitations specified therein, specified portions of its leasehold working interest in certain Austin Chalk formation units. The Participation Agreement provides for an initial allocation of the working interests and net revenue interests among the assignor, BlackBrush and the Company and then a re-allocation upon payout or payment of drilling and completion costs for each well drilled. Prior to payout, the Company will own 90% of the working interest and 67.5% of the net revenue interest in each well. Following payout, the Company will own 70% of working interest and 52.5% net revenue interest in each well. BlackBrush also agreed to share with the Company certain seismic information relating to other wells in which the Company has no interests.
ECOARK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)DECEMBER 31, 2020
The Parties to the Participation Agreement, except for the Company, had previously entered into a Joint Operating Agreement, dated September 4, 2020 (the “Operating Agreement”) establishing an area of mutual interest, including the Austin Chalk formation, and governing the parties’ rights and obligations with respect to drilling, completion and operation of wells therein. The Participation Agreement and the Operating Agreement require, among other things, that White River SPV and the Company drill and complete at least one horizontal Austin Chalk well with a certain minimum lateral each calendar year.year and/or maintain leasehold by paying its proportionate share of any rental payments.
In connection with the transactions contemplated by the Participation Agreement, on October 12, 2020 White River SPV entered into an Agreement and Assignment of Oil, Gas and Mineral Lease (the “Lease Assignment”) with the Assignor. Under the Lease Assignment, the Assignor assigned to White River SPV a 100% working interest (75% net revenue interest) in a certain oil and gas lease covering in excess of 400 acres (the “Lease”), and White River SPV paid approximately $600 to the Assignor. White River SPV had previously entered into an agreement with the Assignor for the assignment to White River SPV of a 100% working interest in a certain oil and gas lease covering in excess of 1,600 acres in exchange for $1,500.
On September 30, 2020, the Company and White River Energy, LLC (“White River Energy”), a wholly-owned subsidiary of the Company entered into three Asset Purchase Agreements (the “Asset Purchase Agreements”) with privately-held limited liability companies to acquire working interests in the Harry O’Neal oil and gas mineral lease (the “O’Neal OGML”), the related well bore, crude oil inventory and equipment. Immediately prior to the acquisition, White River Energy owned an approximately 61% working interest in the O’Neal OGML oil well and a 100% working interest in any future wells.
The purchase prices of these leases were $126, $312 and $312, respectively, totaling $750. The consideration paid to the Sellers was in the form of 68 shares of common stock. The Company accounted for this acquisition as an asset acquisition under ASC 805 and that the Company has early adopted the amendments of Regulation S-X dated May 21, 2020 and has concluded that this acquisition was not significant. Accordingly, as a result of the amendment, the presentation of the historical financial statements under Rule 3-05 and related pro forma information under Article 11 of Regulation S-X, respectively, were not required to be presented.
In February and March 2021, the Company acquired additional leases for $916 under the Blackbrush/Deshotel lease related to the Participation Agreement.
Effective with the opening of trading on December 17, 2020, the Company effected a one-for-five reverse split of its issued and outstanding common stock and a simultaneous proportionate reduction of its authorized common stock. The reverse stock split was implemented without obtaining stockholder approval as permitted by Nevada law, and the authorized common stock was proportionately reduced to 40,000 shares. All share and per share figures are reflected on a post-split basis herein.
Effective December 29, 2020, the Company amended its Articles of Incorporation to reduce the authorized common stock from 40,000 shares to 30,000 shares.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2021
On December 31, 2020, the Company completed a registered direct offering, whereby the Company issued 889 shares of common stock and 889 accompanying warrants to one institutional investor under the effective Form S-3 at $9.00 per share and accompanying warrant for a total of $8,000 in gross proceeds, before placement agent fees and other offering expenses. The warrants are exercisable for a two-year term at a strike price of $10.00 per share. The Company granted 62 warrants to the placement agent as compensation in addition to the $560 cash commission received by the placement agent. The placement agent warrants are exercisable at $11.25 per share and expire on January 2, 2023.
ECOARK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)DECEMBER 31, 2020On April 9, 2021, a Little Rock, Arkansas jury awarded Ecoark and Zest a total of $115 million in damages which includes $65 million in compensatory damages and $50 million in punitive damages and found Walmart Inc. liable on three counts. The federal jury found that Walmart Inc. misappropriated Zest’s trade secrets, failed to comply with a written contract, and acted willfully and maliciously in misappropriating Zest’s trade secrets. The Company has filed post-trial motions to add an award for their attorneys’ fees as the prevailing party in the litigation.
Trend formed three subsidiaries, Bitstream Mining, LLC, a Texas Limited Liability Corp. on May 16, 2021, ReStream Processing LLC, a Texas Limited Liability Corp. on May 16, 2021, and Trend Discovery Exploration LLC, a Texas Limited Liability Corp. on May 27, 2021.
The Company plans to enter the digital asset mining business through its newly formed wholly-owned subsidiary BitStream Mining LLC (“BitStream”). The Company expects that BitStream will deploy and operate modularized data centers with the sole purpose of mining digital assets, with Bitcoin as the main focus. The Company anticipates powering these data centers by acquiring a long-term power contract to purchase electric power from the electric grid in Texas. Once the business is operational, the Company intends to continuously add data center platforms by reinvesting cash and potentially utilizing leverage in order to scale operations. All data centers will be remotely managed with onsite personnel for servicing and troubleshooting any operational issues. BitStream plans to utilize the energy to power its energy intensive operations of digital asset mining. Additionally, if Texas experiences another power shortage during the winter or summer months from extreme weather conditions, the Company would be able to arbitrage power at favorable margins.
Principles of Consolidation
The condensed consolidated financial statements of Ecoark Holdings and its subsidiaries and the accompanying notes included in this Quarterly Report on Form 10-Q are unaudited. In the opinion of management, all adjustments necessary for the fair presentation of the condensed consolidated financial statements have been included. Such adjustments are of a normal, recurring nature.
The unaudited condensed consolidated financial statements, and the accompanying notes, are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and do not contain certain information included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020.2021. Therefore, the interim unaudited condensed consolidated financial statements should be read in conjunction with that Annual Report on Form 10-K.
In May 2018, the Ecoark Holdings Board approved a plan to sell key assets of Pioneer (including the assets of Sable) and Magnolia Solar. Both of these subsidiaries were sold in May 2019.
On May 31, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Trend Discovery Holdings Inc., a Delaware corporation (“Trend Holdings”) for the Company to acquire 100% of Trend Holdings pursuant to a merger of Trend Holdings with and into the Company (the “Merger”). The Merger was completed, and Trend Holdings is now included in the consolidated financial statements.
On March 27, 2020, the Company and Banner Parent, entered into the Banner Purchase Agreement to acquire Banner Midstream. Pursuant to the acquisition, Banner Midstream became a wholly-owned subsidiary of the Company and Banner Parent received shares of the Company’s common stock in exchange for all of the issued and outstanding shares of Banner Midstream.
The Company applies the guidance of Topic 810 Consolidation of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) to determine whether and how to consolidate another entity. Pursuant to ASC Paragraph 810-10-15-10 all majority-owned subsidiaries—all entities in which a parent has a controlling financial interest—are consolidated except when control does not rest with the parent. Pursuant to ASC Paragraph 810-10-15-8, the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation. The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other stockholders, or by court decree.
Reclassifications
The Company has reclassified certain amounts in the December 31, 2019June 30, 2020 unaudited condensed consolidated financial statements to be consistent with the December 31, 2020June 30, 2021 presentation. Reclassifications relating to the discontinued operations are described in Note 2. The reclassifications had no impact on net loss or net cash flows for the three and nine months ended December 31, 2020 and 2019.
9
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)DECEMBER 31, 2020
JUNE 30, 2021
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. 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 consolidated financial statements and reported amounts of revenues and expenses during the reporting period. These estimates include, but are not limited to, management’s estimate of provisions required for uncollectible accounts receivable, fair value of assets held for sale and assets and liabilities acquired, impaired value of equipment and intangible assets, including goodwill, asset retirement obligations, estimates of discount rates in lease, liabilities to accrue, fair value of derivative liabilities associated with warrants, cost incurred in the satisfaction of performance obligations, permanent and temporary differences related to income taxes and determination of the fair value of stock awards.
Actual results could differ from those estimates.
The estimates of proved, probable and possible oil and gas reserves are used as significant inputs in determining the depletion of oil and gas properties and the impairment of proved and unproved oil and gas properties. There are numerous uncertainties inherent in the estimation of quantities of proven, probable and possible reserves and in the projection of future rates of production and the timing of development expenditures. Similarly, evaluations for impairment of proved and unproved oil and gas properties are subject to numerous uncertainties including, among others, estimates of future recoverable reserves and commodity price outlooks. Actual results could differ from the estimates and assumptions utilized.
Oil and Gas Properties
The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under the full cost method of accounting, all costs associated with acquisition, exploration and development of oil and gas reserves, including directly related overhead costs are capitalized. General and administrative costs related to production and general overhead are expensed as incurred.
All capitalized costs of oil and gas properties, including the estimated future costs to develop proved reserves, are amortized on the unit of production method using estimates of proved reserves. Disposition of oil and gas properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in operations. Unproved properties and development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that the properties are impaired, the amount of the loss from operations before income taxes and the adjusted carrying amount of the unproved properties is amortized on the unit-of-production method.
There was $380$718 and $0$53 in depreciation, depletion and amortization expense for the Company’s oil and gas properties for the nine months ended December 31, 2020 and 2019, respectively, and $254 and $0, for the three months ended December 31,June 30, 2021 and 2020, and 2019, respectively.
10
ECOARK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)DECEMBER 31, 2020
Limitation on Capitalized Costs
Under the full-cost method of accounting, we are required, at the end of each reporting period, to perform a test to determine the limit on the book value of our oil and gas properties (the “Ceiling” test). If the capitalized costs of our oil and natural gas properties, net of accumulated amortization and related deferred income taxes, exceed the Ceiling, the excess or impairment is charged to expense. The expense may not be reversed in future periods, even though higher oil and gas prices may subsequently increase the Ceiling. The Ceiling is defined as the sum of: (a) the present value, discounted at 10% and assuming continuation of existing economic conditions, of (1) estimated future gross revenues from proved reserves, which is computed using oil and gas prices determined as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month hedging arrangements pursuant to SABStaff Accounting Bulletin (“SAB”) 103, less (2) estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves; plus, (b) the cost of properties being amortized; plus, (c) the lower of cost or estimated fair value of unproven properties included in the costs being amortized; net of (d) the related tax effects related to the difference between the book and tax basis of our oil and natural gas properties. A ceiling test was performed as of December 31, 2020June 30, 2021 and there was no indication of impairment on the oil and gas properties.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2021
Oil and Gas Reserves
Reserve engineering is a subjective process that is dependent upon the quality of available data and interpretation thereof, including evaluations and extrapolations of well flow rates and reservoir pressure. Estimates by different engineers often vary sometimes significantly. In addition, physical factors such as results of drilling, testing and production subsequent to the date of an estimate, as well as economic factors such as changes in product prices, may justify revision of such estimates. Because proved reserves are required to be estimated using recent prices of the evaluation, estimated reserve quantities can be significantly impacted by changes in product prices.
Joint Interest Activities
Certain of our exploration, development and production activities are conducted jointly with other entities and, accordingly, the consolidated financial statements reflect only our proportionate interest in such activities.
Inventories
Crude oil, products and merchandise inventories are carried at the lower of cost (last-in-first-out (LIFO)) or net realizable value. Inventory costs include expenditures and other charges directly and indirectly incurred in bringing the inventory to its existing condition and location.
Accounting for Asset Retirement Obligation
Asset retirement obligations (“ARO”) primarily represent the estimated present value of the amount the Company will incur to plug, abandon and remediate its producing properties at the projected end of their productive lives, in accordance with applicable federal, state and local laws. The Company determined its ARO by calculating the present value of the estimated cash flows related to the obligation. The retirement obligation is recorded as a liability at its estimated present value as of the obligation��sobligation’s inception, with an offsetting increase to proved properties.properties or to exploration costs in cost of revenue.
Revenue Recognition
The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers.
The Company accounts for a contract when it has been approved and committed to, each party’s rights regarding the goods or services to be transferred have been identified, the payment terms have been identified, the contract has commercial substance, and collectability is probable. Revenue is generally recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities.
ECOARK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)DECEMBER 31, 2020
Revenue recognition for multiple-element arrangements requires judgment to determine if multiple elements exist, whether elements can be accounted for as separate units of accounting, and if so, the fair value for each of the elements.
Revenue from software license agreements of Zest Labs is recognized over time or at a point in time depending on the evaluation of when the customer obtains control of the promised goods or services over the term of the agreement. For agreements where the software requires continuous updates to provide the intended functionality, revenue is recognized over the term of the agreement. For software as a service (“SaaS”) contracts that include multiple performance obligations, including hardware, perpetual software licenses, subscriptions, term licenses, maintenance and other services, the Company allocates revenue to each performance obligation based on estimates of the price that would be charged to the customer for each promised product or service if it were sold on a standalone basis. For contracts for new products and services where standalone pricing has not been established, the Company allocates revenue to each performance obligation based on estimates using the adjusted market assessment approach, the expected cost plus a margin approach or the residual approach as appropriate under the circumstances. Contracts are typically on thirty-day payment terms from when the Company satisfies the performance obligation in the contract. The Company did not have material revenue from software license agreements in the ninethree months ended December 31,June 30, 2021 and 2020, and 2019, respectively.
Revenue under master service agreements is recorded upon the performance obligation being satisfied. Typically, the satisfaction of the performance obligation occurs upon the frac sand load being delivered to the customer site and this load being successfully invoiced and accepted by the Company’s factoring agent.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2021
The Company recognizes revenue under ASC 606 for their proportionate share of revenue when: (i) the Company receives notification of the successful sale of a load of crude oil to a buyer; (ii) the buyer will provide a price based on the average monthly price of crude oil in the most recent month; and (iii) cash is received the following month from the crude oil buyer.
The Company accounts for contract costs in accordance with ASC Topic 340-40, Contracts with Customers. The Company recognizes the cost of sales of a contract as expense when incurred or at the time a performance obligation is satisfied. The Company recognizes an asset from the costs to fulfil a contract only if the costs relate directly to a contract, the costs generate or enhance resources that will be used in satisfying a performance obligation in the future and the costs are expected to be recovered. The incremental costs of obtaining a contract are capitalized unless the costs would have been incurred regardless of whether the contract was obtained.
Cost of sales for Pinnacle Frac includes all direct expenses incurred to produce the revenue for the period. This includes, but is not limited to, direct employee labor, direct contract labor and fuel.
Accounts Receivable and Concentration of Credit Risk
The Company considers accounts receivable, net of allowance for doubtful accounts, to be fully collectible. The allowance is based on management’s estimate of the overall collectability of accounts receivable, considering historical losses, credit insurance and economic conditions. Based on these same factors, individual accounts are charged off against the allowance when management determines those individual accounts are uncollectible. Credit extended to customers is generally uncollateralized, however credit insurance is obtained for some customers. Past-due status is based on contractual terms.
ECOARK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)DECEMBER 31, 2020
For Pinnacle Frac, accounts receivable is comprised of unsecured amounts due from customers that have been conveyed to a factoring agent without recourse. Pinnacle Frac receives an advance from the factoring agent of 98% of the amount invoiced to the customer within one business day. The Company recognizes revenue for 100% of the gross amount invoiced, records an expense for the 2% finance charge by the factoring agent, and realizes cash for the 98% net proceeds received. The Company has recognized an allowance for doubtful accounts of $709$209 and $500$109 as of December 31, 2020June 30, 2021 and March 31, 2020,2021, respectively.
Fair Value Measurements
ASC 820 Fair Value Measurements defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosure about fair value measurements. ASC 820 classifies these inputs into the following hierarchy:
Level 1 inputs: Quoted prices for identical instruments in active markets.
Level 2 inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 inputs: Instruments with primarily unobservable value drivers.
Segment Information
The Company follows the provisions of ASC 280-10 Segment Reporting. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions. The Company and its chief operating decision makers determined that the Company’s operations effective with the May 31, 2019, acquisition of Trend Holdings and the March 27, 2020 acquisition of Banner Midstream now consist of three segments, Trend Holdings (Finance), Banner Midstream (Commodities)Financial, Commodities and Zest Labs (Technology).Technology.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. Management evaluates all of the Company’s financial instruments, including warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The Company generally uses a Black-Scholes model, as applicable, to value the derivative instruments at inception and subsequent valuation dates when needed. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is remeasured at the end of each reporting period. The Black-Scholes model is used to estimate the fair value of the derivative liabilities.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)DECEMBER 31, 2020
JUNE 30, 2021
Recently Issued Accounting Standards
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contract’s in an Entity’s Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU simplifies the diluted net income per share calculation in certain areas. The ASU is effective for annual and interim periods beginning after December 31, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements.
In May 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-04 “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815- 40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” which clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. An entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as follows: i) for a modification or an exchange that is a part of or directly related to a modification or an exchange of an existing debt instrument or line-of-credit or revolving-debt arrangements (hereinafter, referred to as a “debt” or “debt instrument”), as the difference between the fair value of the modified or exchanged written call option and the fair value of that written call option immediately before it is modified or exchanged; ii) for all other modifications or exchanges, as the excess, if any, of the fair value of the modified or exchanged written call option over the fair value of that written call option immediately before it is modified or exchanged. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
Liquidity
For the ninethree months ended December 31,June 30, 2021 and 2020, and 2019, the Company had a net lossincome (loss) of $11,664$2,559 and $11,454,($21,181), respectively, has a working capital deficit of $2,856$7,294 and $11,845 as of DecemberJune 30, 2021 and March 31, 2020,2021, and has an accumulated deficit as of December 31, 2020June 30, 2021 of $139,687.$146,352. As of December 31, 2020,June 30, 2021, the Company has $7,981$842 in cash and cash equivalents. The Company alleviated the substantial doubt regarding this uncertainty as of March 31, 2020 which continues to be alleviated at December 31, 2020June 30, 2021 as a result of the Company’s acquisition of Banner Midstream on March 27, 2020, which bring revenue generating subsidiaries with reserves of oil properties over $6,000 and existing customer relationships over $2,000, coupled with the raising of $14,359 infunds through the exercise of warrants, $349 in the exercise of options and $7,666 in a registered direct offering, net of fees of $334 incommon stock during the nineyear ended March 31, 2021 and through the three months ended December 31, 2020.June 30, 2021.
If the Company raises additional funds by issuing equity securities, its stockholders would experience dilution. Additional debt financing, if available, may involve covenants restricting its operations or its ability to incur additional debt. Any additional debt financing or additional equity that the Company raises may contain terms that are not favorable to it or its stockholders and require significant debt service payments, which diverts resources from other activities. If the Company is unable to obtain additional financing, it may be required to significantly scale back its business and operations. The Company’s ability to raise additional capital will be impacted by the heightened societal and regulatory focus on climate change and may also be impacted by the recent outbreak of COVID-19.COVID-19 pandemic.
The Company believes that the current cash on hand and anticipated cash from operations is sufficient to conduct planned operations for one year from the issuance of the unaudited condensed consolidated financial statements.
Impact of COVID-19
The recent outbreak of COVID-19, which has been declared by the World Health Organization to be a pandemic, has spread across the globe and is impacting worldwide economic activity. The COVID-19 public health epidemic prevented the Company from conducting business activities at full capacity for an indefinite period of time, including due to risk of spread of the disease within these groups or due to shutdowns requested or mandated by governmental authorities.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)DECEMBER 31, 2020
JUNE 30, 2021
Impact of COVID-19
The COVID-19 pandemic previously had a profound effect on the U.S. and global economy and may continue to affect the economy and the industries in which we operate, depending on the vaccine rollouts and the emergence of virus mutations.
COVID-19 did not have a material effect on the Condensed Consolidated Statements of Operations or the Condensed Consolidated Balance Sheets included in this Form 10-Q. However, it did have a10-Q in contrast to the material impact on our management’s ability to operate effectively and meet some of our filing deadlines. The impact includedit had in the difficulties of working remotely from home including slow Internet connection, the inability of our accounting and financial officers to collaborate as effectively as they would otherwise have in an office environment and issues arising from mandatory state quarantines.prior fiscal year.
WhileBecause the federal government and some state and local authorities are reacting to the current Delta variant of COVID-19, it is not possible at this time to estimate with sufficient certainty the impact that COVID-19 could havecreating uncertainty on the Company’s business, the continued spread of COVID-19 and the measures taken by federal, state, local and foreign governmentswhether these actions could disrupt the operation of the Company’s business. The COVID-19 outbreakbusiness and mitigation measures have also had and may continue to have an adverse impact on global and domestic economic conditions, which could have an adverse effect on the Company’s business and financial condition, including on its potential to conduct financings on terms acceptable to the Company, if at all. In addition, the Company has taken temporary precautionary measures intended to help minimize the risk of the virus to its employees, including temporarily requiring employees to work remotely, and discouraging employee attendance at in-person work-related meetings, which could negatively affect the Company’s business. These measures are continuing.Company. The extent to which the COVID-19 outbreak impactsmay impact the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES ActAct”) includes, among other things, provisions relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act also established a Paycheck Protection Program (“PPP”), whereby certain small business are eligible for a loan to fund payroll expenses, rent and related costs. We had received funding under the PPP, and a majority of that has been forgiven.
In April 2020, the Company and one of its subsidiaries entered into PPP loans with financial institutions, See Notes 11 (u) and (v). Of the $1,869 in PPP loans obtained this fiscal year, the Company was informed that $1,850 (including $11 in accrued interest) has been forgiven in the three months ended December 31, 2020. The remaining $30 with accrued interest of $2 will bewas converted into a loan that is due in May 2022, with payments of $2 per month that commenced December 19, 2020.
NOTE 2: DISCONTINUED OPERATIONS
Pursuant to ASC 205-20, Presentation of Financial Statements – Discontinued Operations, ASC-20-45-1B, paragraph 360-10-45-15, Pinnacle Vac will be disposed of other than by sale via an abandonment and termination of operations with no intent to classify the entity or assets as Available for Sale. Pursuant to ASC 205-20-45-3A, the results of operations of Pinnacle Vac from inception to discontinuation of operations will be reclassified to a separate component of income, below Net Income/(Loss), as a Loss on Discontinued Operations.
AllAs of April 1, 2021, all of the equipment assets and accounts payable of Pinnacle Vac and the related loan liabilities will be subsequentlywere transitioned into Capstone to continue servicing the debt. The remaining currentAs a result, there are no assets of Pinnacle Vac will be used to settle any outstanding currentor liabilities of Pinnacle Vac. A loss contingency will be recorded if any of the outstanding liabilities or obligations of Pinnacle Vac resulting from this abandonment are reasonably estimable and likely to be incurred.
Banner Midstream made the decision to discontinue the operations of its wholly owned subsidiary, Pinnacle Vac Service LLC (“Pinnacle Vac”), effective October 31, 2018 due to the inability of Pinnacle Vac’s management to develop a sustainable, profitable business model. The managerial staff of Pinnacle Vac was terminated on November 15, 2018 and Pinnacle Vac’s rental facility at Sligo Rd. was vacated on November 15, 2018.
ECOARK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)DECEMBER 31, 2020
Carrying amounts of major classes of assets and liabilities included as part of discontinued operations in the condensed consolidated balance sheet as of December 31, 2020 for Pinnacle Vac consisted of the following:
| Current asset | ||||
| Cash | $ | - | ||
| Total current assets | $ | - | ||
| Property and equipment, net | $ | 249 | ||
| Non-current assets | $ | 249 | ||
| Accounts payable | $ | 228 | ||
| Current liabilities | $ | 228 | ||
There wasthat remain, and no income (loss)or loss from discontinued operations for the three and nine months ended December 31, 2020June 30, 2021 and 2019, respectively.2020.
After consideration of all the evidence, both positive and negative, management has recorded a full valuation allowance due to the uncertainty of realizing income tax benefit for all periods presented, and the income tax provision for all periods presented was considered immaterial. Thus, no separate tax provision or benefit relating to discontinued operations is included here or on the face of the condensed consolidated statements of operations.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2021
NOTE 3: REVENUE
The following table disaggregates the Company’s revenue by major source for the nine and three months ended December 31:June 30, 2021 and 2020:
| Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Revenue: | ||||||||||||||||
| Software as a Service (“SaaS”) | $ | - | $ | - | $ | - | $ | 28 | ||||||||
| Professional Services | - | 140 | - | 191 | ||||||||||||
| Financial Services | 165 | - | 359 | - | ||||||||||||
| Oil and Gas Production | 641 | - | 1,317 | - | ||||||||||||
| Transportation Services | 3,541 | - | 8,090 | - | ||||||||||||
| Fuel Rebate | 80 | - | 157 | - | ||||||||||||
| Equipment Rental | 38 | - | 133 | - | ||||||||||||
| $ | 4,465 | $ | 140 | $ | 10,056 | $ | 219 | |||||||||
| Three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| (unaudited) | (unaudited) | |||||||
| Revenue: | ||||||||
| Financial Services | $ | 148 | $ | 90 | ||||
| Oil and Gas Production | 1,568 | 151 | ||||||
| Transportation Services | 5,040 | 1,974 | ||||||
| Fuel Rebate | 97 | 46 | ||||||
| Equipment Rental | 26 | 52 | ||||||
| $ | 6,879 | $ | 2,313 | |||||
There were no significant contract asset or contract liability balances for all periods presented. The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 2020
Subsequent to the acquisitions of Trend Discovery and Banner Midstream, the Company in 2020 recorded revenues for financial services and oil and gas services and production.production and transportation. For both of these entities, revenues are billed upon the completion of the performance obligations.
Collections of the amounts billed are typically paid by the customers within 30 to 60 days.
NOTE 4: INVENTORIES
The Company’s inventoriesinventory as of $129June 30, 2021 and March 31, 2021 of $115 and $122, respectively, consisted of crude oil of approximately 5,3244,721 and 6,198 barrels of unsold crude oil, respectively, using the lower of cost (LIFO) or net realizable value.
NOTE 5: NOTE RECEIVABLE
The Company entered into a $225 senior secured convertible promissory note on June 18, 2020 with Rabb Resources, LTD. The Company had an existing note in the amount of $25 that had not been secured, and rolled an additional $200 into Rabb Resources, LTD, whereby the entire amount became secured. The note was non-interest bearing if paid or converted within forty-five days of the issuance date of June 18, 2020 (August 2, 2020, which is the maturity date). If not paid or converted, the note bore interest at 11% per annum, paid in cash on a quarterly basis.
This note was convertible into shares of Rabb Resources, LTD. based on a valuation of Rabb Resources, LTD. into shares of that company at a value of the $225. The Company advanced an additional $50 on July 8, 2020 and $25 on August 7, 2020 to bring the total note receivable to $300. This amount plus the accrued interest receivable of $4 was due as of August 14, 2020.
On August 14, 2020, the Company entered into an Asset Purchase Agreement with Rabb Resources, LTD. which included the acquisition of real property. The purchase price for this acquisition was $3,500, of which $1,196 was paid in cash (after applying the outstanding principal of the note receivable and accrued interest receivable against the $1,500 agreed upon cash consideration) and the balance was paid in common stock of the Company. The Company accounted for this acquisition as an asset purchase (see Note 16). There arewere no amounts outstanding as of SeptemberJune 30, 2020.2021 and March 31, 2021, respectively.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2021
NOTE 6: PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31, 2020June 30, 2021 and March 31, 2020:2021:
| December 31, 2020 | March 31, 2020 | |||||||
| Zest Labs freshness hardware | $ | 2,493 | $ | 2,493 | ||||
| Computers and software costs | 222 | 222 | ||||||
| Land | 140 | - | ||||||
| Buildings | 236 | - | ||||||
| Leasehold improvements – Pinnacle Frac | 18 | 18 | ||||||
| Machinery and equipment - Technology | 200 | 200 | ||||||
| Machinery and equipment – Commodity | 3,458 | 3,405 | ||||||
| Total property and equipment | 6,767 | 6,338 | ||||||
| Accumulated depreciation and impairment | (2,846 | ) | (2,373 | ) | ||||
| Property and equipment, net | $ | 3,921 | $ | 3,965 | ||||
June 30, | March 31, 2021 | |||||||
| (unaudited) | ||||||||
| Zest Labs freshness hardware | $ | 2,493 | $ | 2,493 | ||||
| Computers and software costs | 222 | 222 | ||||||
| Land | 140 | 140 | ||||||
| Buildings | 236 | 236 | ||||||
| Leasehold improvements – Pinnacle Frac | 18 | 18 | ||||||
| Machinery and equipment – Technology | 200 | 200 | ||||||
| Machinery and equipment – Commodities | 3,577 | 3,385 | ||||||
| Total property and equipment | 6,886 | 6,694 | ||||||
| Accumulated depreciation and impairment | (3,172 | ) | (2,999 | ) | ||||
| Property and equipment, net | $ | 3,714 | $ | 3,695 | ||||
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 2020
As of December 31, 2020June 30, 2021 and March 31, 2020, the Company performed an evaluation of the recoverability of these long-lived assets. The analysis resulted in no impairment as of related to these assets.
On April 1, 2021, the Company placed back in service equipment of $201 with accumulated depreciation of $7 which were part of discontinued operations related to Pinnacle Vac. These assets are equipment related to Capstone who is servicing the debt related to the assets.
The Company acquired $3,423 in propertyApril 2021 traded in a truck with a value of $5 for a new truck with a value of $3, and equipment on March 27, 2020received cash of $2 in the acquisition of Banner Midstream. In addition, $376 of land and buildings were acquired in the Rabb Resources acquisition.exchange.
Depreciation expense for the nine months ended December 31, 2020 and 2019 was $513 and $216, respectively, and $172 and $68 for the three months ended December 31,June 30, 2021 and 2020 was $173 and 2019,$170, respectively. During the nine months ended December 31, 2020, the Company disposed of $188 worth of equipment that had a net value of $148 for cash proceeds of $43, resulting in a loss on disposal of $105.
NOTE 7: INTANGIBLE ASSETS AND GOODWILL
Intangible assets consisted of the following as of December 31, 2020June 30, 2021 and March 31, 2020: 2021:
| December 31, 2020 | March 31, 2020 | |||||||
| Patents | $ | 1,013 | $ | 1,013 | ||||
| Customer relationships | 2,100 | 2,100 | ||||||
| Non-compete agreements – Banner Midstream | 250 | 250 | ||||||
| Outsourced vendor relationships | 1,017 | 1,017 | ||||||
| Non-compete agreements – Zest Labs | 340 | 340 | ||||||
| Total intangible assets | 4,720 | 4,720 | ||||||
| Accumulated amortization and impairment | (2,584 | ) | (2,370 | ) | ||||
| Intangible assets, net | $ | 2,136 | $ | 2,350 | ||||
June 30, | March 31, 2021 | |||||||
| (unaudited) | ||||||||
| Patents | $ | 1,013 | $ | 1,013 | ||||
| Customer relationships | 2,100 | 2,100 | ||||||
| Non-compete agreements – Banner Midstream | 250 | 250 | ||||||
| Outsourced vendor relationships | 1,017 | 1,017 | ||||||
| Non-compete agreements – Zest Labs | 340 | 340 | ||||||
| Total intangible assets | 4,720 | 4,720 | ||||||
| Accumulated amortization and impairment | (2,742 | ) | (2,655 | ) | ||||
| Intangible assets, net | $ | 1,978 | $ | 2,065 | ||||
All intangible assets prior to the acquisition of Banner Midstream were fully impaired as of March 31, 2019. Those intangible assets related to the outsourced vendor relationships and non-compete agreements were recorded as part of the acquisition of 440labs.
In the acquisition of Banner Midstream, the Company acquired the customer relationships and non-compete agreements valued at $2,350. The estimated useful lives of the customer relationships is ten years based on the estimated cash flows from those customer contracts, and the estimated useful lives of the non-compete agreement is five years amortized over a straight-line method.
Amortization expense for the nine months ended December 31, 2020 and 2019 was $214 and $0, respectively, and $72 and $0 for the three months ended December 31,June 30, 2021 and 2020 was $87 and 2019,$71, respectively.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2021
The following is the future amortization of the intangibles as of December 31:June 30:
| 2021 | $ | 333 | ||
| 2022 | 280 | |||
| 2023 | 263 | |||
| 2024 | 263 | |||
| 2025 | 230 | |||
| Thereafter | 767 | |||
| $ | 2,136 |
| 2022 | $ | 326 | |||
| 2023 | 259 | ||||
| 2024 | 265 | ||||
| 2025 | 251 | ||||
| 2026 | 215 | ||||
| Thereafter | 662 | ||||
| $ | 1,978 |
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 2020
In addition to the statutory based intangible assets noted above, the Company incurredrecorded a total of $10,225 of goodwill in connection with the purchase of Trend and Banner MidstreamMidstream.
Accordingly, goodwill was as follows:follows as of June 30, 2021:
| Acquisition – Trend Discovery | $ | 3,223 | ||
| Acquisition – Banner Midstream | 7,002 | |||
| Goodwill – December 31, 2020 and March 31, 2020 | $ | 10,225 |
| Acquisition – Trend Discovery | $ | 3,223 | ||
| Acquisition – Banner Midstream | 7,002 | |||
| Goodwill – March 31, 2021 | $ | 10,225 |
The Company assessed the criteria for impairment, and there were no indicators of impairment present as of December 31, 2020,June 30, 2021, and therefore no impairment is necessary.
NOTE 8: ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
| December 31, 2020 | March 31, 2020 | |||||||
| Professional fees and consulting costs | $ | 67 | $ | 106 | ||||
| Vacation and paid time off | 114 | 126 | ||||||
| Legal fees | 24 | 503 | ||||||
| Compensation | 86 | 865 | ||||||
| Interest | 383 | 673 | ||||||
| Insurance | 631 | 548 | ||||||
| Other | 433 | 215 | ||||||
| Total | $ | 1,738 | $ | 3,036 | ||||
| June 30, 2021 | March 31, 2021 | |||||||
| (unaudited) | ||||||||
| Professional fees and consulting costs | $ | 75 | $ | 801 | ||||
| Vacation and paid time off | 133 | 107 | ||||||
| Legal fees | 66 | 86 | ||||||
| Compensation | 298 | 734 | ||||||
| Interest | 82 | 65 | ||||||
| Insurance | 2,293 | 1,013 | ||||||
| Other | 1,058 | 785 | ||||||
| Total | $ | 4,005 | $ | 3,591 | ||||
On March 27, 2020,During the Company assumed $2,362 of liabilities in the acquisition of Banner Midstream, and in addition, assumed $2,362 of liabilities in amounts that are due to prior owners of Banner Midstream and their subsidiaries. These amounts are non-interest bearing and due on demand. As of December 31, 2020 andyear ended March 31, 2020, $814 and $2,358 of2021, the amounts due to prior owners is currently due. The Company converted $1,228 of amounts due to prior owners into shares of common stock which resulted in a loss on conversion of $1,248, in the nine months ended December 31, 2020. The remainingand $814 was paid in Januarycash in the year ended March 31, 2021.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2021
NOTE 9: WARRANT DERIVATIVE LIABILITIES
The Company issued common stock and warrants in several private placements in March 2017, May 2017, March 2018 and August 2018. The March and May 2017 and March and August 2018 warrants (collectively the “Derivative(“Derivative Warrant Instruments”) areand some of these warrants have been classified as liabilities. The Derivative Warrant Instruments have been accounted for utilizing ASC 815 “Derivatives and Hedging.” The Company has incurred a liability for the estimated fair value of Derivative Warrant Instruments. The estimated fair value of the Derivative Warrant Instruments has been calculated using the Black-Scholes fair value option-pricing model with key input variables provided by management, as of the date of issuance, with changes in fair value recorded as gains or losses on revaluation in other income (expense).
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 2020
The Company identified embedded features in some of the March and May 2017 warrantswarrant agreements which caused the warrants to bewere classified as a liability. These embedded features included (a) the implicit right for the holders to request that the Company settle the warrants in registered shares. Since maintaining an effective registration of shares is potentially outside the control of the Company, these warrants were classified as liabilities as opposed to equity. The accounting treatment of derivative financial instruments requires that the Company treat the whole instrument as liability and record the fair value of the instrument as derivatives as of the inception date of the instrument and to adjust the fair value of the instrument as of each subsequent balance sheet date.
On October 28, 2019, the Company issued 449 shares of the Company’s common stock to investors in exchange for the March and May 2017 warrants. Upon the issuance of the 449 shares, the March and May 2017 warrants were extinguished. The fair value of the shares issued was $2,186, and the fair value of the warrants was $1,966 resulting in a loss of $220 that was recognized on the exchange.
The Company identified embedded features in the March and August 2018 warrants which caused the warrants to be classified as a liability. These embedded featuresequity; (b) included the right for the holders to request that the Company cash settle the warrant instruments from the holder by paying to the holder an amount of cash equal to the Black-Scholes value of the remaining unexercised portion of the Derivative Warrant Instruments on the date of the consummation of a fundamental transaction.transaction; and (c) certain price protections in the agreements. The accounting treatment of derivative financial instruments requires that the Company treat the whole instrument as liability and record the fair value of the instrument as derivatives as of the inception date of the instrument and to adjust the fair value of the instrument as of each subsequent balance sheet date.
On July 12, 2019, the March and August 2018 warrants were exchanged for 855 shares of Company common stock, and all of those warrants were extinguished. The fair value of the shares issued was $3,293, and the fair value of the warrants was $2,454 resulting in a loss of $839 that was recognized on the exchange.
As described further in Note 13 below, on August 22, 2019 the Company issued warrants that can be exercised in exchange for 784 shares of Company common stock to investors that invested in shares of Company preferred stock. The fair value of those warrants was estimated to be $1,576 at inception and on January 26, 2020, the Company entered into letter agreements with accredited institutional investors holding the warrants issued with the Company’s Series B Convertible Preferred Stock on August 21, 2019.
Pursuant to the letter agreements, the investors agreed to a cash exercise of 784 warrants at a price of $2.55 per share. The Company additionally, granted 1,176 warrants at $4.50. On January 27, 2020, the Company received approximately $2,000 in cash from the exercise of the August 2019 warrants and issued the January 2020 warrants to the investors, which have an exercise price of $4.50 and may be exercised within five years of issuance. This transaction resulted in a loss on extinguishment of $1,038.
On November 11, 2019, the Company issued warrants that can be exercised to purchase a number of shares of common stock of the Company equal to the number of shares of common stock issuable upon conversion of the Series C Preferred Stock purchased by the investors.
The fair value of those warrants was estimated to be $1,107 at inception and $543 as of March 31, 2020. The Company recognized $107 of interest expense related to the fair value of the warrants at inception that exceeded the proceeds received for the preferred stock on November 11, 2019.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 2020
On April 15, 2020, the Company granted 40 warrants with an exercise price of $3.65 per share to extend the maturity date of the Senior Secured Debt acquired in the Banner Midstream acquisition to May 31, 2020. The Company does not believe this transaction constitutes an accounting extinguishment of debt due to a material modification of the debt instrument. The fair value of those warrants was estimated to be $84 at inception and $357 as of September 30, 2020. These warrants were exercised in the three months ended December 31, 2020.
On April 15, 2020, the Company granted 10 warrants with an exercise price of $3.65 to extend the maturity date of the Senior Secured Debt acquired in the Banner Midstream acquisition to May 31, 2020. The Company does not believe this transaction constitutes an accounting extinguishment of debt due to a material modification of the debt instrument. The fair value of those warrants was estimated to be $21 at inception and $89 as of September 30, 2020. These warrants were exercised in the three months ended December 31, 2020.
On April 15 and 16, 2020, the Company received $438 in proceeds in a loan provided by Trend Discovery SPV I. Since they were the borrower and responsible for repayment of these amounts the Company granted 200 warrants at $3.65 for collateral for the loan. The fair value of those warrants was estimated to be $419 at inception and $2,753 as of June 30, 2020. These warrants were exercised in the three months ended September 30, 2020.
On May 10, 2020, the November 2019 and January 2020 warrants were exchanged for 1,452 shares of Company common stock, and all of those warrants were extinguished resulting in a gain on extinguishment of $1,630.
On May 10, 2020, the Company issued warrants that can be exercised to purchase a number of shares of common stock of the Company. The fair value of those warrants was estimated to be $6,115 at inception and $15,620 as of June 30, 2020.
During the three months ended September 30, 2020, 881 of the May 10, 2020 of the warrants were exchanged for 881 shares of common stock of the Company for $4,847 cash. The fair value of the 295 warrants that remain as of September 30, 2020 is $2,493. In addition, on September 1, 2020, 200 April 16, 2020 warrants were exercised into 200 shares of the Company’s common stock for $730 in cash.
On September 24, 2020, the Company granted 250 warrants, for the early conversion of the April 15, 2020 warrants at a strike price of $9.65 with a term of two-years. The fair value of those warrants was estimated to be $1,265 at inception and $1,425 as of September 30, 2020. As a result of the November 14, 2020 warrant grant, the strike price was recalculated to $7.75 as there were price protections included in the warrant agreement. As a result of the closing of the registered direct offering on December 29, 2020, the grantee of the warrants waived the lowering of the strike price and the strike price reverted back to $9.65.
On November 14, 2020, the Company granted 60 warrants, for the early conversion of a portion of the September 24, 2020 warrants, with a strike price of $7.75 per share with a term of two-years. The fair value of those warrants was estimated to be $251 at inception, and $350$150 as of December 31, 2020.June 30, 2021.
On December 30, 2020, the Company granted 889 warrants, in the direct registered offering under the effective Form S-3, with a strike price of $10.00 with a term of two-years (maturity January 2, 2023). The fair value of those warrants was estimated to be $4,655 at inception and $4,653 as of December 31, 2020. During the three months ended March 31, 2021, 176 warrants were exercised for $1,760, and no shares were exercised during the three months ended June 30, 2021. The fair value of the remaining warrants at June 30, 2021 is $1,609.
On December 30, 2020, the Company granted 62 warrants to the placement agent as additional compensation in connection with the registered direct offering closed December 31, 2020, exercisable at a strike price of $11.25 per share for a term of two-years (expiring January 2, 2023). The fair value of those warrants was estimated to be $308 at inception and $308$106 as of December 31, 2020.June 30, 2021.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 2020
During the three months ended December 31, 2020, the remaining May 10, 2020 warrants were exchanged for 295 shares of common stock of the Company for $1,623 cash. In addition, on November 13, 2020, 50 September 24, 2020 warrants were exercised into 50 shares of the Company’s common stock for $483 in cash, and on November 23, 2020, 50 April 15, 2020 warrants were exercised under a cashless exercise provision. The fair value of the 200 warrants that remain outstanding from the 250 warrants granted on September 24, 2020 as of December 31, 2020June 30, 2021 is $1,032.$403.
On June 30, 2021, the Company granted 200 warrants, subject to a purchase agreement entered into the same day with the warrant holder, with a strike price of $10.00 per share with a term of two-years. The fair value of those warrants was estimated to be $545 at inception, on June 30, 2021.
The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of December 31, 2020June 30, 2021 and March 31, 2020.2021. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate.
Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each warrant is estimated using the Black-Scholes valuation model. The following assumptions were used on December 31, 2020,June 30, 2021 and March 31, 20202021 and at inception:
June 30, 2021 | Year Ended March 31, 2021 | Inception | ||||||||||
| Expected term | –0.5 – 2 years | 4.58 - 5 years | 5.00 years | |||||||||
| Expected volatility | 112% | 94 - 101% | 91% - 107% | |||||||||
| Expected dividend yield | - | - | - | |||||||||
| Risk-free interest rate | 0.61 - 1.74% | 0.61 - 1.74% | 1.50% - 2.77% | |||||||||
| Market price | $3.25 - $12.95 | $3.05 - $10.00 | ||||||||||
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2021
The Company’s remaining derivative liabilities as of June 30, 2021 and March 31, 2021 associated with the warrantswarrant offerings are as follows: follows. All fully extinguished warrants liabilities are not included in the chart below.
| December 31, 2020 | March 31, 2020 | Inception | ||||||||||
| Fair value of 276 November 11, 2019 warrants | $ | - | $ | 543 | $ | 1,107 | ||||||
| Fair value of 1,176 January 27, 2020 warrants | - | 2,232 | 3,701 | |||||||||
| Fair value of 40 April 15, 2020 warrants | - | - | 84 | |||||||||
| Fair value of 10 April 15, 2020 warrants | - | - | 21 | |||||||||
| Fair value of 200 April 16, 2020 warrants | - | - | 419 | |||||||||
| Fair value of 1,176 May 10, 2020 warrants | - | - | 6,115 | |||||||||
| Fair value of 250 September 24, 2020 warrants | 1,032 | - | 1,265 | |||||||||
| Fair value of 60 November 14, 2020 warrants | 350 | - | 251 | |||||||||
| Fair value of 889 December 31, 2020 warrants | 4,653 | - | 4,655 | |||||||||
| Fair value of 62 December 31, 2020 warrants | 308 | - | 308 | |||||||||
| $ | 6,343 | $ | 2,775 | |||||||||
| June 30, 2021 | March 31, 2021 | Inception | ||||||||||
| Fair value of 200 (originally 250) September 24, 2020 warrants | $ | 403 | $ | 1,349 | $ | 1,265 | ||||||
| Fair value of 60 November 14, 2020 warrants | 150 | 458 | 251 | |||||||||
| Fair value of 889 December 31, 2020 warrants | 1,609 | 4,993 | 4,655 | |||||||||
| Fair value of 62 December 31, 2020 warrants | 106 | 413 | 308 | |||||||||
| Fair value of 200 June 30, 2021 warrants | 545 | - | 545 | |||||||||
| $ | 2,813 | $ | 7,213 | |||||||||
During the ninethree months ended December 31,June 30, 2021 and 2020 and 2019 the Company recognized changes in the fair value of the derivative liabilities of $(15,901)$4,945 and $(2,392)$(17,393), respectively, and $481 and ($2,376) forrespectively. In addition, the three months ended December 31, 2020 and 2019, respectively. The March and May 2017Company recognized $545 in derivative expense related to the June 30, 2021 warrants March and August 2018 warrants, the August and November 2019 warrants, and the January 2020, April 16, 2020 and May 10, 2020 warrants were exchanged and thus were no longer outstanding as of December 31, 2020.granted.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 2020
Activity related to the warrant derivative liabilities for the ninethree months ended December 31, 2020June 30, 2021 is as follows:
| Beginning balance as of March 31, 2020 | $ | 2,775 | ||
| Issuances of warrants – derivative liabilities | 13,118 | |||
| Warrants exchanged for common stock | (25,451 | ) | ||
| Change in fair value of warrant derivative liabilities | 15,901 | |||
| Ending balance as of December 31, 2020 | $ | 6,343 |
| Beginning balance as of March 31, 2021 | $ | 7,213 | ||
| Issuances of warrants – derivative liabilities | 545 | |||
| Warrants exchanged for common stock | (- | ) | ||
| Change in fair value of warrant derivative liabilities | (4,945 | ) | ||
| Ending balance as of June 30, 2021 | $ | 2,813 |
Activity related to the warrant derivative liabilities for the year ended March 31, 2021 is as follows:
| Beginning balance as of March 31, 2020 | $ | 2,775 | ||
| Issuances of warrants – derivative liabilities | 13,118 | |||
| Warrants exchanged for common stock | (27,198 | ) | ||
| Change in fair value of warrant derivative liabilities | 18,518 | |||
| Ending balance as of March 31, 2021 | $ | 7,213 |
NOTE 10: CAPITALIZED DRILLING COSTS AND OIL AND GAS PROPERTIES
Capitalized Drilling Costs
In January 2021, the Company commenced a drilling program on their Deshotel 24H well included in their proved reserves. The Company incurred $6,084 in costs related to this program of which $3,387 was expensed directly as drilling costs. The Company, pursuant to ASC 932 will amortize the remaining $2,697 of these costs, under the full-cost method based on the units of production method. Depletion expense for the three months ended June 30, 2021 for the capitalized drilling costs was $274. As of June 30, 2021, the capitalized drilling costs were $2,293. There were no such costs for the three months ended June 30, 2020.
Oil and Gas Properties
The Company’s holdings in oil and gas mineral lease (“OGML”) properties as of December 31, 2020June 30, 2021 and March 31, 2020 are as follows:2021 are:
June 30, | March 31, 2021 | |||||||
| (unaudited) | ||||||||
| Total OGML Properties Acquired | $ | 11,908 | $ | 12,352 | ||||
| December 31, 2020 | March 31, 2020 | |||||||
| Property acquired from Banner Midstream | $ | 5,895 | $ | 6,135 | ||||
| Asset purchase – June 2020 | 1 | - | ||||||
| Properties acquired from Rabb Resources | 3,002 | - | ||||||
| Purchase – September 4, 2020 | 1,500 | - | ||||||
| Purchase – September 30, 2020 | 760 | - | ||||||
| Purchase – October 1, 2020 | 22 | - | ||||||
| Purchase – October 9, 2020 | 615 | - | ||||||
| Total OGML Properties | $ | 11,795 | $ | 6,135 | ||||
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2021
The Company acquired the following from Banner Midstream on March 27, 2020:
Cherry et al OGML including shallow drilling rights was acquired by Shamrock from Hartoil Company on July 1, 2018.
O’Neal Family OGML and Weyerhaeuser OGML including shallow drilling rights were acquired by White River on July 1, 2019 from Livland, LLC and Hi-Tech Onshore Exploration, LLC respectively in exchange for a $125 drilling credit to be applied by Livland, LLC on subsequent drilling operations.
Taliaferro Family OGML including shallow drilling rights was acquired by White River on June 10, 2019 from Lagniappe Operating, LLC.
Kingrey Family OGML including both shallow and deep drilling rights was entered into by White River and the Kingrey Family on April 3, 2019.
Peabody Family OGML including both shallow and deep drilling rights was acquired by White River on June 18, 2019 from SR Acquisition I, LLC, a subsidiary of Sanchez Energy Corporation, for a 1% royalty retained interest in conjunction with White River executing a lease saving operation in June 2019.
As discussed in Note 16, the Company acquired certain leases on June 11, 2020 and June 18, 2020 in Mississippi and Louisiana valued at $2. These assets were paid entirely in cash. In addition, the Company impaired $83 of property as it let certain leases lapse.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 2020
As discussed in Note 16, on August 14, 2020, the Company entered into an Asset Purchase Agreement with Rabb Resources, LTD which included the acquisition of real property. The purchase price for this acquisition was $3,500. Of this amount, $3,224, is reflected as Oil and Gas Properties.
As discussed in Note 16, on September 4, 2020, the Company entered into a Lease Assignment agreement. The purchase price for this acquisition was $1,500. Of this amount, $1,500, is reflected as Oil and Gas Properties.
As discussed in Note 16, on September 30, 2020, the Company entered into three Asset Purchase Agreements. The purchase prices for these acquisitions were $750. Of this amount, $760, is reflected as Oil and Gas Properties.
As discussed in Note 16, on October 1, 2020, the Company entered into three Asset Purchase Agreements. The purchase price for these acquisitions were $22. Of this amount, $22, is reflected as Oil and Gas Properties.
As discussed in Note 16, on October 9, 2020, the Company entered into three Asset Purchase Agreements. The purchase price for these acquisitions were $615. Of this amount, $615, is reflected as Oil and Gas Properties.
In February and March 2021, the Company acquired additional leases for $916 under the Blackbrush/Deshotel lease related to the Participation Agreement.
On May 13, 2021, the Company’s subsidiaries White River Energy LLC and White River Operating LLC entered into a Letter Agreement for a .60 of 8/8th Earned Working Interest with TSEA Partners LLC (“TSEA”) for their Harry O’Neal 20-10 lease in Holmes County, MS (“Letter Agreement”). Under the terms of the Letter Agreement, TSEA paid $600 to the Company to transfer the working interest to TSEA and TSEA received a $300 drilling or workover credit to use towards any authority for expenditure at Horseshoe Field. There were no amounts valued as oil and gas properties for this particular property, and as a result, the entire $600 is reflected as a gain on sale of property.
The Company had an analysis completed by an independent petroleum consulting company in March 2021 to complete the acquisition analysis within the required one-year period. There were no adjustments required from the original asset allocation on March 27, 2020.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2021
The following table summarizes the Company’s oil and gas activities by classification for the ninethree months ended DecemberJune 30, 2021 and year ended March 31, 2020. There was no activity for the nine months ended December 31, 2019:2021.
| Activity Category | March 31, 2020 | Adjustments (1) | December 31, 2020 | |||||||||
| Proved Developed Producing Oil and Gas Properties | ||||||||||||
| Cost | $ | 167 | $ | 520 | $ | 687 | ||||||
| Accumulated depreciation, depletion and amortization | - | (37 | ) | (37 | ) | |||||||
| Total | $ | 167 | $ | 483 | $ | 650 | ||||||
| Undeveloped and Non-Producing Oil and Gas Properties | ||||||||||||
| Cost | $ | 5,968 | $ | 5,520 | $ | 11,488 | ||||||
| Accumulated depreciation, depletion and amortization | - | (343 | ) | (343 | ) | |||||||
| Total | $ | 5,968 | $ | 5,177 | $ | 11,145 | ||||||
| Grand Total | $ | 6,135 | $ | 5,660 | $ | 11,795 | ||||||
| Activity Category | March 31, 2021 | Adjustments (1) | June 30, 2021 | |||||||||
| Proved Developed Producing Oil and Gas Properties | ||||||||||||
| Cost | $ | 7,223 | $ | - | $ | 7,223 | ||||||
| Accumulated depreciation, depletion and amortization | (739 | ) | (444 | ) | (1,183 | ) | ||||||
| Changes in estimates | - | - | - | |||||||||
| Total | $ | 6,484 | $ | (444 | ) | $ | 6,040 | |||||
| Undeveloped and Non-Producing Oil and Gas Properties | ||||||||||||
| Cost | $ | 5,868 | $ | - | $ | 5,868 | ||||||
| Changes in estimates | (- | ) | (- | ) | (- | ) | ||||||
| Total | $ | 5,868 | $ | (- | ) | $ | 5,868 | |||||
| Grand Total | $ | 12,352 | $ | (444 | ) | $ | 11,908 | |||||
| Activity Category | March 31, 2020 | Adjustments (1) | March 31, 2021 | |||||||||
| Proved Developed Producing Oil and Gas Properties | ||||||||||||
| Cost | $ | 167 | $ | 737 | $ | 904 | ||||||
| Accumulated depreciation, depletion and amortization | - | (739 | ) | (739 | ) | |||||||
| Changes in estimates | - | 6,319 | 6,319 | |||||||||
| Total | $ | 167 | $ | 6,317 | $ | 6,484 | ||||||
| Undeveloped and Non-Producing Oil and Gas Properties | ||||||||||||
| Cost | $ | 5,968 | $ | 6,219 | $ | 12,187 | ||||||
| Changes in estimates | - | (6,319 | ) | (6,319 | ) | |||||||
| Total | $ | 5,968 | $ | (100 | ) | $ | 5,868 | |||||
| Grand Total | $ | 6,135 | $ | 6,217 | $ | 12,352 | ||||||
| (1) | Relates to acquisitions and |
24
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2021
DECEMBER 31, 2020
NOTE 11: LONG-TERM DEBT
Long-term debt consisted of the following as of December 31, 2020June 30, 2021 and March 31, 2020:
| December 31, 2020 | March 31, 2020 | |||||||
| Credit facility – Trend Discovery SPV 1, LLC (a) | $ | - | $ | - | ||||
| Senior secured bridge loan – Banner Midstream (b) | - | 2,222 | ||||||
| Note payable – LAH 1 (c) | - | 110 | ||||||
| Note payable – LAH 2 (d) | - | 77 | ||||||
| Note payable – Banner Midstream 1 (e) | - | 303 | ||||||
| Note payable – Banner Midstream 2 (f) | - | 397 | ||||||
| Note payable – Banner Midstream 3 (g) | - | 500 | ||||||
| Merchant Cash Advance (MCA) loan – Banner Midstream 1 (h) | - | 361 | ||||||
| MCA loan – Banner Midstream 2 (i) | - | 175 | ||||||
| MCA loan – Banner Midstream 3 (j) | - | 28 | ||||||
| Note payable – Banner Midstream – Alliance Bank (k) | 1,090 | 1,239 | ||||||
| Commercial loan – Pinnacle Frac – Firstar Bank (l) | 705 | 952 | ||||||
| Auto loan 1 – Pinnacle Vac – Firstar Bank (m) | 31 | 40 | ||||||
| Auto loan 2 – Pinnacle Frac – Firstar Bank (n) | 40 | 52 | ||||||
| Auto loan 3 – Pinnacle Vac – Ally Bank (o) | 36 | 42 | ||||||
| Auto loan 4 – Pinnacle Vac – Ally Bank (p) | 38 | 47 | ||||||
| Auto loan 5 – Pinnacle Vac – Ally Bank (q) | 37 | 44 | ||||||
| Auto loan 7 – Capstone – Ally Bank (r) | 77 | 97 | ||||||
| Tractor loan 6 – Capstone – Tab Bank (s) | 194 | 235 | ||||||
| Equipment loan – Shamrock – Workover Rig (t) | - | 50 | ||||||
| Ecoark – PPP Loan (u) | 29 | - | ||||||
| Pinnacle Frac Transport – PPP Loan (v) | - | - | ||||||
| Total long-term debt | 2,277 | 6,971 | ||||||
| Less: debt discount | (- ) | (149 | ) | |||||
| Less: current portion | (789 | ) | (6,401 | ) | ||||
| Long-term debt, net of current portion | $ | 1,488 | $ | 421 | ||||
25
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 2020
An additional $1,137 was advanced2021. All debt instruments repaid during the year ended March 31, 2020; and $38 of commitment fees, to bring the balance of the notes payable to $2,525 at March 31, 2020. Loans made pursuant to the Agreement2021 are secured by a security interestnot included in the Company’s collateral held withbelow chart and the lender and guaranteed by the Company’s subsidiary, Zest Labs.
The Company pays to the lenderchart only reflects those instruments that had a commitment fee on the principal amount of each loan requested thereunder in the amount of 3.5% of the amount thereof. The Company also paid an arrangement fee of $300 to the lender which was paid upon execution of the Agreement. The aforementioned fees were and are netted from proceeds advanced and are recorded as interest expense. Zest Labs is a plaintiff in a litigation styled as Zest Labs, Inc. vs Walmart, Inc., Case Number 4:18-cv-00500 filed in the United States District Court for the Eastern District of Arkansas (the “Zest Litigation”). The Company agrees that within five days of receipt by Zest Labs or the Company of any settlement proceeds from the Zest Litigation, the Company will pay or cause to be paid over to lender an additional fee in an amount equal to (i) 0.50 multiplied by (ii) the highest aggregate principal balance of the loans over the life of the loans through the date of the payment from settlement proceeds; provided, however, that such additional fee shall not exceed the amount of the settlement proceeds.
Subject to customary carve-outs, the Agreement contains customary negative covenants and restrictions for agreements of this type on actions by the Company including, without limitation, restrictions on indebtedness, liens, investments, loans, consolidation, mergers, dissolution, asset dispositions outside the ordinary course of business, change in business and restriction on use of proceeds. In addition, the Agreement requires compliance by the Company of covenants including, but not limited to, furnishing the lender with certain financial reports and protecting and maintaining its intellectual property rights. The Agreement contains customary events of default, including, without limitation, non-payment of principal or interest, violation of covenants, inaccuracy of representations in any material respect and cross defaults with certain other indebtedness and agreements.
Interest expense on the note for the nine months ended December 31, 2020 and 2019 was $0 and $193, respectively.
On March 31, 2020, the Company converted all principal and interest in the Trend Discovery SPV I, LLC credit facility into shares of the Company’s common stock. The conversion of $2,525 of principal and $290 of accrued interest resulted in the issuance of 771 shares of common stock at a value of $2.95 per share. This transaction resulted in a gain on conversion of $541. As a result of the conversion, there are no amounts outstandingowed as of March 31, 2020.these dates.
June 30, | March 31, 2021 | |||||||
| (unaudited) | ||||||||
| Note payable – Alliance Bank (a) | $ | 976 | $ | 1,033 | ||||
| Commercial loan – Firstar Bank (b) | 546 | 626 | ||||||
| Auto loan 1 – Firstar Bank (c) | 25 | 29 | ||||||
| Auto loan 2 – Firstar Bank (d) | - | 38 | ||||||
| Auto loan 3 – Ally Bank (e) | 31 | 34 | ||||||
| Auto loan 4 – Ally Bank (f) | 33 | 35 | ||||||
| Auto loan 7 – Ally Bank (g) | 58 | 69 | ||||||
| Tractor loan 6 – Tab Bank (h) | 165 | 180 | ||||||
| Ecoark – PPP Loan (i) | 19 | 24 | ||||||
| Total long-term debt | 1,853 | 2,068 | ||||||
| Less: current portion | (953 | ) | (1,056 | ) | ||||
| Long-term debt, net of current portion | $ | 901 | $ | 1,012 | ||||
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 2020
| Original loan date of June 14, 2019 with an original maturity date of April 14, 2020. The Company extended this loan for $1,239 at 4.95% with a new maturity date of April 14, 2025. |
| Original loan date of February 28, 2018, due |
| On July 20, 2018, |
| On August 3, 2018, |
| On July 18, 2018, |
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 2020
| On July 26, 2018, |
| On November 5, 2018, |
| On November 7, 2018, |
| (i) | |
| PPP loan received by Ecoark Holdings Inc. in April 2020. Loan bears interest at 1% per annum and matures April 2022. On November 19, 2020, the Company received confirmation that $356 in principal and $2 in accrued interest has been forgiven, and this amount has been reflected in forgiveness of debt. The remaining $29, will be due in monthly installments of $2 through maturity in May 2022. | |
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2021
The following is a list of maturities as of December 31:June 30:
| 2021 | $ | 789 | ||
| 2022 | 723 | |||
| 2023 | 380 | |||
| 2024 | 293 | |||
| 2025 | 92 | |||
| $ | 2,277 |
| 2022 | $ | 953 | ||
| 2023 | 352 | |||
| 2024 | 315 | |||
| 2025 | 233 | |||
| $ | 1,853 |
During the ninethree months ended DecemberJune 30, 2021, the Company repaid $214 in long-term debt.
During the year ended March 31, 2020,2021, the Company received proceeds of $1,869 in new long-term debt, repaid $3,891$4,100 in existing long-term debt, converted $830 in existing long-term debt that resulted in a loss on conversion of $1,337, and had $1,850 forgiven in long-term debt and accrued interest. In addition, the Company converted $65 of accrued interest and paid $361 in accrued interest during this period. The Company recognized a loss of $146 on conversion of the accrued interest to common stock in the nineyear ended March 31, 2021.
Interest expense on long-term debt during the three months ended December 31, 2020.
June 30, 2021 and 2020 are $25 and $69, respectively.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 2020
NOTE 12: NOTES PAYABLE - RELATED PARTIES
Notes payable to related parties consisted of the following as of December 31, 2020June 30, 2021 and March 31, 2020:2021. All notes payable to related parties instruments repaid during the year ended March 31, 2021 are not included in the below chart and the chart only reflects those instruments that had a balance owed as of these dates.
| December 31, 2020 | March 31, 2020 | |||||||
| Ecoark Holdings Board Member (a) | $ | 578 | $ | 578 | ||||
| Ecoark Holdings Officers (b) | 61 | 1,242 | ||||||
| Banner Midstream Officers (c) | 133 | 152 | ||||||
| Ecoark Holdings – common ownership (d) | - | 200 | ||||||
| Total Notes Payable – Related Parties | 772 | 2,172 | ||||||
| Less: Current Portion of Notes Payable – Related Parties | (772 | ) | (2,172 | ) | ||||
| Long-term debt, net of current portion | $ | - | $ | - | ||||
June 30, | March 31, 2021 | |||||||
| (unaudited) | ||||||||
| Ecoark Holdings Board Member (a) | $ | 578 | $ | 578 | ||||
| Total Notes Payable – Related Parties | 578 | 578 | ||||||
| Less: Current Portion of Notes Payable – Related Parties | (578 | ) | (578 | ) | ||||
| Long-term debt, net of current portion | $ | — | $ | — | ||||
| (a) | A board member advanced |
During the nine monthsyear ended DecemberMarch 31, 2020,2021, the Company received proceeds of $604$954 in notes payable – related parties, repaid $1,429$1,973 in existing notes payable – related parties, and converted $575 in existing notes payable – related parties that resulted in a loss on conversion of $1,239. In addition, the Company converted $15 of accrued interest during this period.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2021
DECEMBER 31, 2020
NOTE 13: STOCKHOLDERS’ EQUITY (DEFICIT)
Ecoark Holdings Preferred Stock
On March 18, 2016, the Company created 5,000 shares of “blank check” preferred stock, par value $0.001. On August 21, 2019 (the “Effective Date”),The Company has designated Series B and C out of the total Preferred Shares authorized.
The Company and two accredited investorshas entered into a Securities Purchase Agreement pursuantagreements to whichissue preferred stock over the Company soldpast several years. Currently as of June 30, 2021 and issued to the investors an aggregate of 2March 31, 2021, there are no shares of Series B Convertible Preferred Stock, par value $0.001 per share at a priceany series of $5,000 per share.
Pursuant to the Securities Purchase Agreement, the Company issued to each investor a warrant (a “Warrant”) to purchase a number of shares of common stock of the Company, par value $0.001 per share (“Common Stock”), equal to the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock purchased by the investor. Each Warrant has an exercise price equal to $2.55, subject to full ratchet price anti-dilution provisions in accordance with the terms of the Warrants (the “Exercise Price”) and is exercisable for five years after the Effective Date. In addition, if the market price of the Common Stock on the 11 month anniversary of the closing date of the offering is less than $2.55, holder of the warrants shall be entitled to receive additional shares of common stock based on the number of shares of common stock that would have been issuable upon conversion of the Series B Convertible Preferred Stock had the initial conversion price been equal to the market price at such time (but not less than $1.25) less the number of shares of commonpreferred stock issued or issuable upon exercise of the Series B Convertible Preferred Stock based on the $2.55 conversion price.
The Company also agreed to amend the current exercise price of the warrants that the investors received in connection with the Securities Purchase Agreements dated March 14, 2017 (the “March Warrants”) and May 22, 2017 (the “May Warrants” and, together with the March Warrants, the “Existing Securities”).outstanding. The Existing Securities have a current exercise price of $2.95, which was amended from $12.50 on July 12, 2019. The current exercise price for the Existing Securities shall be amended to reduce the exercise price to $2.55 on August 21, 2019, subject to adjustment pursuant to the provisions of the Existing Securities.
Each share of the Series B Preferred Stock has a par value of $0.001 per share and a stated value equal to $5,000 (the “Stated Value”) and is convertible at any time at the option of the holder into the number of shares of Common Stock determined by dividing the stated value by the conversion price of $2.55, subject to certain limitations and adjustments (the “Conversion Price”).
The Company received gross proceeds from the Private Placement of $2,000, before deducting transaction costs, fees and expenses payable by the Company. The Company intends to use the net proceeds of the Private Placement to support the Company’s general working capital requirements.
On August 21, 2019, the Company issued 60 shares of common stock to advisors that assisted with the securities purchase agreement and exchange agreement.
On October 15, 2019, nearly all the Series B Preferred Stock shares were converted into 752 shares of Common Stock.
On November 11, 2019, the Company and two accredited investors entered into a securities purchase agreement (the “Securities Purchase Agreement”) pursuant to which the Company sold and issued to the investors an aggregate of 1 share of Series C Convertible Preferred Stock, par value $0.001 per share (the “Series C Preferred Stock”), at a price of $5,000 per share (the “Private Placement”).
ECOARK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)DECEMBER 31, 2020
Pursuant to the Securities Purchase Agreement, the Company issued to each investor a warrant (a “Warrant”) to purchase a number of shares of common stock of the Company, par value $0.001 per share (“Common Stock”), equal to the number of shares of Common Stock issuable upon conversion of the Series C Preferred Stock purchased by the Investor. Each Warrant has an exercise price equal to $3.65, subject to full ratchet price anti-dilution provisions in accordance with the terms of the Warrants (the “Exercise Price”) and is exercisable for five years after the Effective Date. In addition, if the market price of the Common Stock for the five trading days prior to July 22, 2020 is less than $3.65, holder of the warrants shall be entitled to receive additional shares of common stock based on the number of shares of common stock that would have been issuable upon conversion of the Series C Convertible Preferred Stock had the initial conversion price been equal to the market price at such time (but not less than $1.25) less the number of shares of common stock issued or issuable upon exercise of the Series C Convertible Preferred Stock based on the $3.65 conversion price.
Each share of the Series C Preferred Stock has a par value of $0.001 per share and a stated value equal to $5,000 (the “Stated Value”) and is convertible at any time at the option of the holder into the number of shares of Common Stock determined by dividing the stated value by the conversion price of $3.65, subject to certain limitations and adjustments (the “Conversion Price”).
The Company received gross proceeds from the Private Placement of $1,000. The Company intends to use the net proceeds of the Private Placement to support the Company’s general working capital requirements.
In April 2020, the remaining shares of preferred stock in these transactionsshares were converted into 308 shares of common stock.during the year ended March 31, 2021.
On November 12, 2020, the Company filed with the Secretary of State of the State of Nevada, a Certificate of Designation of Preferences, Rights and Limitations of Series A-1 Preferred Stock, par value $0.001 (“Series A-1 Preferred Stock”). The Certificate of Designation of the Series A-1 Preferred Stock was effective upon the filing to the Secretary of State of the State of Nevada. The Company has authorized one share of the Series A-1 Preferred Stock, and this share was issued on November 12, 2020. On November 27, 2020, the one share of Series A-1 Preferred Stock was redeemed. After the redemption, the Company filed a Certificate of Withdrawal with the State of Nevada, which was effective upon this filing and had the effect of amending the Company’s articles of incorporation to eliminate all references to the Series A-1 Preferred Stock.
The material terms of the Series A-1 Preferred Stock prior to the withdrawal was as follows:
Voting Rights
The Series A-1 Preferred Stock shall have the right to vote and/or consent solely on a proposal to amend the Company’s Articles of Incorporation to increase the number of shares of the Company’s common stock, that the Company is authorized to issue and to ratify the issuance of certain shares issued by the Company in excess of 100,000 shares or other issuances authorized by the stockholders voting together with the common stockholders as one class. With respect to any regular or special meeting of the stockholders to consider the Proposals, the holder of the Series A-1 Preferred Stock shall be entitled to the same notice of any regular or special meeting of the stockholders as may or shall be given to holders of Common Stock entitled to vote at such meetings. Solely with respect to such proposals, the Series A-1 Preferred Stock shall have voting power equal to 51% of the number of votes eligible to vote on the proposals at any special or annual meeting of the Company’s stockholders (with the power to take action by written consent in lieu of a stockholders meeting). The Series A-1 Preferred Stock shall not have the right to vote and/or consent on any matter other than the proposals.
ECOARK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)DECEMBER 31, 2020
Automatic Cancellation
Any Series A-1 Preferred Stock issued and outstanding on the record date fixed by the Board of Directors or determined in accordance with the bylaws of the Company to vote and/or consent to the proposals shall be automatically surrendered to the Company and cancelled for no consideration upon the earlier of (i) the effectiveness of the amendment to the Company’s Articles of Incorporation that is authorized by stockholder approval of such Authorized Share Increase Proposal or (ii) the approval of the Ratification Proposal. Upon such surrender and cancellation, all rights of the Series A-1 Preferred Stock shall cease and terminate, and the Series A-1 Preferred Stock shall be retired and shall not be reissued.
Ecoark Holdings Common Stock
The Company is authorized to issue 30,000 shares of common stock, par value $0.001. Effective with the opening of trading on December 17, 2020, the Company implemented a one-for-five reverse split of its issued and outstanding common stock and a simultaneous proportionate reduction of its authorized common stock. All share and per share figures are reflected on a post-split basis herein. Effective December 29, 2020, the Company amended its articles of incorporation to reduce its authorized common stock from 40,000 shares to 30,000 shares.
On May 31, 2019, the Company acquired Trend Discovery Holdings, Inc. for 1,100 shares of common stock. The value of this transaction was $3,237.
In the three months ended June 30, 2020, the Company issued 308 shares of common stock in April and May 2020 to convert the remaining shares of preferredSeries B Preferred Stock and Series C shares;Preferred Stock; 1,531 shares of common stock in the exercise of warrants; 89 shares in the exercise of stock options; 93 shares of common stock in the conversion of accounts payable and accrued expenses; and 524 shares of common stock in the conversion of long-term debt, notes payable – related parties and accrued interest.
In the three months ended September 30, 2020, the Company issued 1,088 shares of common stock in the exercise of warrants; 1 sharesone share in the exercise of stock options; 31 shares of common stock for services rendered; 171 shares of common stock to acquire assets; and 192 shares of common stock in the conversion of long-term debt, notes payable – related parties and accrued interest.
In the three months ended December 31, 2020, the Company issued 376 shares of common stock in the exercise of warrants.
On December 31, 2020, the Company completed a registered direct offering of common stock and warrants, whereby the Company issued 889 shares of common stock and 889 accompanying warrants to purchase common stock to one institutional investor under the effective Form S-3 at $9.00 per share and accompanying warrant for a total of $8,000 in gross proceeds, before placement agent fees and other offering expenses. The warrants are exercisable for a two-year term at a strike price of $10.00 per share. The Company granted 62 warrants to the placement agent as compensation in addition to the $560 cash commission received by the placement agent. The placement agent warrants are exercisable at $11.25 per share and expire on January 2, 2023.
As of DecemberIn the three months ended March 31, 2020, 22,4702021, the Company issued 176 shares of common stock werein the exercise of warrants for $1,760, and 59 shares for the exercise of stock options for $153.
In the three months ended June 30, 2021, the Company issued and 22,353115 shares of common stock were outstanding, net of 117 treasury shares. As ofvalued at $675 which had been accrued for at March 31, 2020, 17,1752021 in consulting fees under a contract entered into February 2, 2021. In addition, the Company issued 20 shares of common stock were issuedin exercise of stock options for cash ($28) and 17,058 shares of common stock were outstanding, net of 117 treasury shares.in a cashless exercise.
ECOARK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)DECEMBER 31, 2020
Share-based Compensation
Share-based compensation expense of $399 and $1,114 is included in selling, general and administrative expense in the condensed consolidated statements of operations as follows: for the three months ended June 30, 2021 and 2020, respectively for the 2013 Incentive Stock Plan, 2017 Omnibus Incentive Plan and for the Company’s Non-Qualified Stock Options. There were no expenses related to warrant grants in these periods.
As of June 30, 2021, 22,840 shares of common stock were issued and 22,723 shares of common stock were outstanding, net of 117 treasury shares.
| 2013 Incentive Stock Plan | 2017 Omnibus Incentive Plan | Non-Qualified Stock Options | Common Stock | Total | ||||||||||||||||
| Nine months ended December 31, 2020 | ||||||||||||||||||||
| Employees/Directors | $ | - | $ | 277 | $ | 1,069 | $ | 479 | $ | 1,825 | ||||||||||
| Services | - | 25 | 198 | 6 | 229 | |||||||||||||||
| $ | - | $ | 302 | $ | 1,267 | $ | 485 | $ | 2,054 | |||||||||||
| Nine months ended December 31, 2019 | ||||||||||||||||||||
| Employees/Directors | $ | - | $ | 700 | $ | 1,529 | $ | - | $ | 2,229 | ||||||||||
| Amortization of services cost | - | 175 | 152 | 463 | 790 | |||||||||||||||
| $ | - | $ | 875 | $ | 1,681 | $ | 463 | $ | 3,019 | |||||||||||
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2021
NOTE 14: COMMITMENTS AND CONTINGENCIES
Legal Proceedings
We are presently involved in the following legal proceedingsproceeding in Arkansas and Florida.Arkansas. To the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties or businesses are subject, which would reasonably be likely to have a material adverse effect on the Company.
| ● | On August 1, 2018, Ecoark Holdings, Inc. and Zest Labs, Inc. filed a complaint against Walmart Inc. in the United States District Court for the Eastern District of Arkansas, Western Division. The complaint includes claims for violation of the Arkansas Trade Secrets Act, violation of the Federal Defend Trade Secrets Act, breach of contract, unfair competition, unjust enrichment, breach of the covenant of good faith and fair dealing, conversion and fraud. On April 9, 2021, a Little Rock, Arkansas jury awarded Ecoark |
ECOARK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)DECEMBER 31, 2020
In the opinion of management, there are no legal matters involving us that would have a material adverse effect upon the Company’s financial condition, results of operations or cash flows.
Joint Participation Agreement
On October 9, 2020, the Company and White River SPV, entered into a Participation Agreement (the “Participation Agreement”) by and among the Company, White River SPV, BlackBrush Oil & Gas, L.P. (“BlackBrush”) and GeoTerre, LLC, an unrelated privately-held limited liability company (the “Assignor”), to conduct drilling of wells in the Austin Chalk formation.
Pursuant to the Participation Agreement, the Company and White River SPV have agreed, among other things, to fundfunded 100% of the cost, estimated to be approximately $4,700,$5,800, associated with the drilling and completion of an initial deep horizontal well in the Austin Chalk formation. The Participation Agreement requires the estimated amount ofrequired the drilling costs to bethat were paid into a designated escrow account byat the commencement of the drilling in January 2021.2021, which it was. BlackBrush has agreed to assign to the other parties to the Participation Agreement, subject to certain exceptions and limitations specified therein, specified portions of its leasehold working interest in certain Austin Chalk formation units. The Participation Agreement provides for an initial allocation of the working interests and net revenue interests among the assignor, BlackBrush and the Company and then a re-allocation upon payout or payment of drilling and completion costs for each well drilled. Prior to payout, the Company will own 90% of the working interest and 67.5% of the net revenue interest in each well. Following payout, the Company will own 70% of working interest and 52.5% net revenue interest in each well. BlackBrush also agreed to share with the Company certain seismic information relating to other wells in which the Company has no interests.
The Parties to the Participation Agreement, except for the Company, had previously entered into a Joint Operating Agreement, dated September 4, 2020 (the “Operating Agreement”) establishing an area of mutual interest, including the Austin Chalk formation, and governing the parties’ rights and obligations with respect to drilling, completion and operation of wells therein. The Participation Agreement and the Operating Agreement require, among other things, that White River SPV and the Company drill and complete at least one horizontal Austin Chalk well with a certain minimum lateral each calendar year.year and/or maintain leasehold by paying its proportionate share of any rental payments.
In connection with the transactions contemplated by the Participation Agreement, on October 12, 2020 White River SPV entered into an Agreement and Assignment of Oil, Gas and Mineral Lease (the “Lease Assignment”) with the Assignor. Under the Lease Assignment, the Assignor assigned to White River SPV a 100% working interest (75% net revenue interest) in a certain oil and gas lease covering in excess of 400 acres (the “Lease”), and White River SPV paid approximately $600 to the Assignor. White River SPV had previously entered into an agreement with the Assignor for the assignment to White River SPV of a 100% working interest in a certain oil and gas lease covering in excess of 1,600 acres in exchange for $1,500.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)DECEMBER 31, 2020
JUNE 30, 2021
NOTE 15: CONCENTRATIONS
FourCustomer Concentration. Three and twothree customers, all in the commodity segment accounted for more than 10% of the accounts receivable balance at December 31, 2020June 30, 2021 and March 31, 20202021 for a total of 58%66% and 63%76% of accounts receivable, respectively. In addition, one customer representsthree and two customers represent approximately 61%88% and 64% of total revenues for the Company for the nine months ended December 31, 2020 and 2019, respectively, and three customers and one customer represents approximately 87% and 63%81% of total revenues for the Company for the three months ended December 31,June 30, 2021 and 2020, and 2019, respectively.
Supplier Concentration.Concentration. Certain of the raw materials, components and equipment used by the Company in the manufacture of its products are available from single-sourced vendors. Shortages could occur in these essential materials and components due to an interruption of supply or increased demand in the industry. If the Company were unable to procure certain materials, components or equipment at acceptable prices, it would be required to reduce its manufacturing operations, which could have a material adverse effect on its results of operations. In addition, the Company may make prepayments to certain suppliers or enter into minimum volume commitment agreements. Should these suppliers be unable to deliver on their obligations or experience financial difficulty, the Company may not be able to recover these prepayments.
The Company occasionally maintains cash balances in excess of the FDIC insured limit. The Company does not consider this risk to be material.
Commodity price risk
We are exposed to fluctuations in commodity prices for oil and natural gas. Commodity prices are affected by many factors, including but not limited to, supply and demand.
NOTE 16: ACQUISITIONS
Trend Discovery Holdings, Inc.
On May 31, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Trend Discovery Holdings Inc., a Delaware corporation (“Trend Holdings”)The following represent acquisitions for the Company to acquire 100% of Trend Holdings pursuant to a merger of Trend Holdings with and into the Company (the “Merger”). The Merger was completed as agreed in the Merger Agreement, the Company is the surviving entity in the Merger and the separate corporate existence of Trend Holdings has ceased to exist. Pursuant to the Merger, each of the 1,000 issued and outstanding shares of common stock of Trend Holdings was converted into 1,100 shares of the Company’s common stock. No cash was paid relating to the acquisition.
The Company acquired the assets and liabilities noted below in exchange for the 1,100 shares and accounted for the acquisition in accordance with ASC 805. Based on the fair values at the effective date of acquisition the purchase price was recorded as follows:
| Cash | $ | 3 | ||
| Receivables | 10 | |||
| Other assets | 1 | |||
| Goodwill | 3,223 | |||
| $ | 3,237 |
ECOARK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)DECEMBER 31, 2020
The Acquisition has been accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price was allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values. The fair value measurements utilize estimates based on key assumptions of the Acquisition, and historical and current market data. The excess of the purchase price over the total of estimated fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed is recognized as goodwill. In order to ultimately determine the fair values of tangible and intangible assets acquired and liabilities assumed for Trend Holdings, we have engaged a third-party independent valuation specialist. The Company has recognized the purchase price allocations based on historical inputs and data as of May 31, 2019.
The allocation of the purchase price is based on the best information available, amongst other things: (i) the valuation of the fair values and useful lives of tangible assets acquired; (ii) valuations and useful lives for intangible assets; (iii) valuation of accounts payable and accrued expenses; and (iv) the fair value of non-cash consideration.
The Company had an independent valuation consultant confirm the valuation of Trend Holdings and the allocation of the intangible assets.
The goodwill is not expected to be deductible for tax purposes.
Banner Midstream
On March 27, 2020, the Company and Banner Parent, entered into the Banner Purchase Agreement to acquire Banner Midstream. Pursuant to the acquisition, Banner Midstream became a wholly-owned subsidiary of the Company and Banner Parent received shares of the Company’s common stock in exchange for all of the issued and outstanding shares of Banner Midstream.
The Company issued 1,789 shares of common stock (which Banner Parent issued to certain of its noteholders) and assumed $11,774 in debt and lease liabilities of Banner Midstream. The Company’s Chief Executive Officer and another director recused themselves from all board discussions on the acquisition of Banner Midstream as they are stockholders and/or noteholders of Banner Midstream. The transaction was approved by all of the disinterested members of the Board of Directors of the Company. The Chairman and CEO of Banner Parent is a former officer of the Company and is currently the Principal Accounting Officer of the Company and Chief Executive Officer and President of Banner Midstream.
ECOARK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)DECEMBER 31, 2020
The Company acquired the assets and liabilities noted below in exchange for the 1,789 shares and accounted for the acquisition in accordance with ASC 805. Based on the fair values at the effective date of acquisition the purchase price was recorded as follows (subject to adjustment):
| Cash (including restricted cash) | $ | 205 | ||
| Accounts receivables | 110 | |||
| Prepaid expenses and other current assets | 585 | |||
| Machinery and equipment | 3,426 | |||
| Oil and gas properties | 6,135 | |||
| Customer relationships | 2,100 | |||
| Trade name | 250 | |||
| Right of use assets | 731 | |||
| Assets of discontinued operations | 249 | |||
| Goodwill | 7,002 | |||
| Intercompany advance | (1,000 | ) | ||
| Accounts payable | (268 | ) | ||
| Accrued liabilities | (2,362 | ) | ||
| Due to prior owners | (2,362 | ) | ||
| Lease liabilities | (732 | ) | ||
| Liabilities of discontinued operations | (228 | ) | ||
| Asset retirement obligation | (295 | ) | ||
| Notes payable – related parties | (1,844 | ) | ||
| Long-term debt | (6,836 | ) | ||
| $ | 4,866 |
The consideration paid for Banner Midstream was in the form of 1,789 shares of stock at a fair value of $2.72 per share or $4,866. The Company had an independent valuation consultant perform a valuation of Banner Midstream.
The Acquisition has been accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price was allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values. The fair value measurements utilize estimates based on key assumptions of the Acquisition, and historical and current market data. The excess of the purchase price over the total of the estimated fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed is recognized as goodwill. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for Banner Midstream, we have engaged a third-party independent valuation specialist. The Company has estimated the preliminary purchase price allocations based on historical inputs and data as of March 27, 2020. The preliminary allocation of the purchase price is based on the best information available and is pending, amongst other things: (i) the finalization of the valuation of the fair values and useful lives of tangible assets acquired; (ii) the finalization of the valuations and useful lives for the reserves and intangible assets acquired; (iii) finalization of the valuation of accounts payable and accrued expenses; and (iv) finalization of the fair value of non-cash consideration.
During the measurement period (which is the period required to obtain all necessary information that existed at the acquisition date, or to conclude that such information is unavailable, not to exceed one year), additional assets or liabilities may be recognized, or there could be changes to the amounts of assets or liabilities previously recognized on a preliminary basis, if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of these assets or liabilities as of that date.
The goodwill is not expected to be deductible for tax purposes.
ECOARK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)DECEMBER 31, 2020
The following table shows the unaudited pro-forma results for the ninethree months ended DecemberJune 30, 2021 and year ended March 31, 2019, as if the acquisitions had occurred on April 1, 2019. These unaudited pro forma results of operations are based on the historical financial statements and related notes of Trend Holdings, Banner Midstream (which includes White River and Shamrock) and the Company.2021.
| Nine Months Ended December 31, 2019 | ||||
| (Unaudited) | ||||
| Revenues | $ | 7,788 | ||
| Net loss | $ | (15,540 | ) | |
| Net loss per share | $ | (1.27 | ) | |
Energy Assets
On June 11, 2020, the Company acquired certain energy assets from SR Acquisition I, LLC for $1 as part of the ongoing bankruptcy reorganization of Sanchez Energy Corporation. The transaction includes the transfer of 262 total wells in Mississippi and Louisiana, approximately 9,000 acres of active mineral leases, and drilling production materials and equipment. The 262 total wells include 57 active producing wells, 19 active disposal wells, 136 shut-in with future utility wells, and 50 shut-in pending plugging wells. Included in the assignment are 4 wells in the Tuscaloosa Marine Shale formation.
On June 18, 2020, the Company acquired certain energy assets from SN TMS, LLC for $1 as part of the ongoing bankruptcy reorganization of Sanchez Energy Corporation. The transaction includes the transfer of wells, active mineral leases, and drilling production materials and equipment.
The Company accounted for these acquisitions as an asset acquisition under ASC 805 and that the Company has early adopted the amendments of Regulation S-X dated May 21, 2020 and has concluded that this acquisition was not significant. Accordingly, as a result of the amendment, the presentation of the Rabb Resources, LTD. historical financial statements under Rule 3-05 and related pro forma information under Article 11 of Regulation S-X, respectively, were not required to be presented.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2021
Rabb Resources
On August 14, 2020, the Company entered into an Asset Purchase Agreement by and among the Company, White River E&P LLC, a Texas Limited Liability Company and a wholly-owned subsidiary of the Company Rabb Resources, LTD. and Claude Rabb, the sole owner of Rabb Resources, LTD. Pursuant to the Asset Purchase Agreement, the Company completed the acquisition of certain assets of Rabb Resources, LTD. The acquired assets consisted of certain real property and working interests in oil and gas mineral leases. The Company in June 2020 previously provided for bridge financing to Rabb Resources, LTD under the $225 Senior Secured Convertible Promissory Note. As consideration for entering into the Asset Purchase Agreement, the Company agreed to pay Rabb Resources, LTD. A total of $3,500 consisting of (i) $1,500 in cash, net of $304 in outstanding amounts related to the note receivable and accrued interest receivable, and (ii) $2,000 payable in common stock of the Company, which based on the closing price of the common stock as of the date of the Asset Purchase Agreement equaled 103 shares. The Company accounted for this acquisition as an asset acquisition under ASC 805 and that the Company has early adopted the amendments of Regulation S-X dated May 21, 2020 and has concluded that this acquisition was not significant. Accordingly, as a result of the amendment, the presentation of the Rabb Resources, LTD. historical financial statements under Rule 3-05 and related pro forma information under Article 11 of Regulation S-X, respectively, were not required to be presented.
| Building | $ | 236 | ||
| Land | 140 | |||
| Oil and Gas Properties | 3,224 | |||
| Asset retirement obligation | (100 | ) | ||
| $ | 3,500 |
ECOARK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)DECEMBER 31, 2020
| Building | $ | 236 | ||
| Land | 140 | |||
| Oil and Gas Properties | 3,224 | |||
| Asset retirement obligation | (100 | ) | ||
| $ | 3,500 |
Unrelated Third Party
On September 4, 2020, White River SPV 3, LLC, a wholly-owned subsidiary of Banner Midstream entered into an Agreement and Assignment of Oil, Gas and Mineral Lease with GeoTerre Operating, LLC, a privately held limited liability company (the “Assignor”). Under the Lease Assignment, the Assignor assigned a 100% working interest (75% net revenue interest) in a certain oil and gas lease covering in excess of 1,600 acres (the “Lease”), and White River paid $1,500 in cash to the Assignor. The Company accounted for this acquisition as an asset acquisition under ASC 805 and that the Company has early adopted the amendments of Regulation S-X dated May 21, 2020 and has concluded that this acquisition was not significant. Accordingly, as a result of the amendment, the presentation of the historical financial statements under Rule 3-05 and related pro forma information under Article 11 of Regulation S-X, respectively, were not required to be presented.
O’Neal Family
On September 30, 2020, the Company and White River Energy, LLC entered into three asset purchase agreements (the “Asset Purchase Agreements”) with privately-held limited liability companies to acquire working interests in the Harry O’Neal oil and gas mineral lease (the “O’Neal OGML”), the related well bore, crude oil inventory and equipment. Immediately prior to the acquisition, White River Energy owned an approximately 61% working interest in the O’Neal OGML oil well and a 100% working interest in any future wells.
The purchase prices of these leases were $126, $312 and $312, respectively, totaling $750. The consideration paid to the Sellers was in the form of 68 shares of common stock. The Company accounted for this acquisition as an asset acquisition under ASC 805 and that the Company has early adopted the amendments of Regulation S-X dated May 21, 2020 and has concluded that this acquisition was not significant. Accordingly, as a result of the amendment, the presentation of the historical financial statements under Rule 3-05 and related pro forma information under Article 11 of Regulation S-X, respectively, were not required to be presented.
| Oil and Gas Properties | $ | 760 | ||
| Asset retirement obligation | (10 | ) | ||
| $ | 750 |
| Oil and Gas Properties | $ | 760 | ||
| Asset retirement obligation | (10 | ) | ||
| $ | 750 |
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)DECEMBER 31, 2020
JUNE 30, 2021
NOTE 17: FAIR VALUE MEASUREMENTS
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by U.S. generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:
Level 1 – quoted prices for identical instruments in active markets;
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Financial instruments consist principally of cash, accounts receivable and other receivables, accounts payable and accrued liabilities, notes payable, and amounts due to related parties. The fair value of cash is determined based on Level 1 inputs. There were no transfers into or out of “Level 3” during the ninethree months ended December 31, 2020June 30, 2021 and 2019.2020. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. The Company records the fair value of the of the warrant derivative liabilities disclosed in accordance with ASC 815, Derivatives and Hedging. The fair values of the derivatives were calculated using the Black-Scholes Model. The fair value of the derivative liabilities is revalued on each balance sheet date with corresponding gains and losses recorded in other income (expense) in the consolidated statement of operations. The following table presents assets and liabilities that are measured and recognized at fair value on a recurring basis as of:
| Level 1 | Level 2 | Level 3 | Total Gains and (Losses) | |||||||||||||
| June 30, 2021 | ||||||||||||||||
| Warrant derivative liabilities | - | - | $ | 2,813 | $ | 4,945 | ||||||||||
| March 31, 2021 | ||||||||||||||||
| Warrant derivative liabilities | - | - | $ | 7,213 | $ | (18,518 | ) | |||||||||
| December 31 2020 | Level 1 | Level 2 | Level 3 | Total Gains and (Losses) | ||||||||||||
| Warrant derivative liabilities | - | - | $ | 6,343 | $ | (15,901 | ) | |||||||||
| March 31, 2020 | ||||||||||||||||
| Warrant derivative liabilities | - | - | $ | 2,775 | $ | (369 | ) | |||||||||
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2021
NOTE 18: SEGMENT INFORMATION
The Company follows the provisions of ASC 280-10 Disclosures about Segments of an Enterprise and Related Information. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making operating decisions. As of December 31,June 30, 2021 and 2020, and for the ninethree months ended December 31,June 30, 2021 and 2020, the Company operated in three3 segments. The segments are Financial Services (Trend Holdings), Technology (Zest Labs (which includes the operations of 440IoT Inc.))Labs), and Commodities (Banner Midstream). As of December 31, 2019 and for the nine months ended December 31, 2019, the Company operated in two segments only (Technology and Financial).
| Three Months Ended June 30, 2021 | Commodities | Financial | Technology | Total | ||||||||||||
| Segmented operating revenues | $ | 6,731 | $ | 148 | $ | - | $ | 6,879 | ||||||||
| Cost of revenues | 3,942 | - | - | 3,942 | ||||||||||||
| Gross profit | 2,789 | 148 | - | 2,937 | ||||||||||||
| Total operating expenses net of depreciation, amortization, depletion and accretion | 3,514 | 154 | 654 | 4,322 | ||||||||||||
| Depreciation, amortization, depletion and accretion | 960 | - | 56 | 1,016 | ||||||||||||
| Other (income) expense | (3,641 | ) | (220 | ) | (1,099 | ) | (4,960 | ) | ||||||||
| Income (loss) from continuing operations | $ | 1,956 | $ | 214 | $ | 389 | $ | 2,559 | ||||||||
| Segmented assets as of June 30, 2021 | ||||||||||||||||
| Property and equipment, net | $ | 3,478 | $ | - | $ | 236 | $ | 3,714 | ||||||||
| Oil and Gas Properties/Capitalized drilling costs | $ | 14,201 | $ | - | $ | - | $ | 14,201 | ||||||||
| Intangible assets, net | $ | 1,978 | $ | - | $ | - | $ | 1,978 | ||||||||
| Goodwill | $ | 7,002 | $ | 3,223 | $ | - | $ | 10,225 | ||||||||
| Capital expenditures | $ | - | $ | - | $ | - | $ | - | ||||||||
| Three Months Ended June 30, 2020 | Commodities | Financial | Technology | Total | ||||||||||||
| Segmented operating revenues | $ | 2,223 | $ | 90 | $ | - | $ | 2,313 | ||||||||
| Cost of revenues | 1,093 | - | - | 1,093 | ||||||||||||
| Gross profit | 1,130 | 90 | - | 1,220 | ||||||||||||
| Total operating expenses net of depreciation, amortization, and impairment | 2,066 | 129 | 919 | 3,114 | ||||||||||||
| Depreciation and amortization | 238 | - | 63 | 301 | ||||||||||||
| Other expense | 13,738 | 875 | 4,373 | 18,986 | ||||||||||||
| Loss from continuing operations | $ | (14,912 | ) | $ | (914 | ) | $ | (5,355 | ) | $ | (21,181 | ) | ||||
| Segmented assets as of June 30, 2020 | ||||||||||||||||
| Property and equipment, net | $ | 3,219 | $ | - | $ | 478 | $ | 3,697 | ||||||||
| Oil and Gas Properties/Capitalized drilling costs | $ | 6,001 | $ | - | $ | - | $ | 6,001 | ||||||||
| Intangible assets, net | $ | 2,279 | $ | - | $ | - | $ | 2,279 | ||||||||
| Goodwill | $ | 7,002 | $ | 3,223 | $ | - | $ | 10,225 | ||||||||
| Capital expenditures | $ | 50 | $ | - | $ | - | $ | 50 | ||||||||
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)DECEMBER 31, 2020
JUNE 30, 2021
| Nine Months Ended December 31, 2020 | Commodities | Financial | Technology | Total | ||||||||||||
| Segmented operating revenues | $ | 9,697 | $ | 359 | $ | - | $ | 10,056 | ||||||||
| Cost of revenues | 6,644 | - | - | 6,644 | ||||||||||||
| Gross profit | 3,053 | 359 | - | 3,412 | ||||||||||||
| Total operating expenses net of depreciation, amortization, depletion and accretion | 9,916 | 331 | 2,353 | 12,600 | ||||||||||||
| Depreciation, amortization, depletion and accretion | 945 | - | 188 | 1,133 | ||||||||||||
| Other (income) expense | 1,501 | (26 | ) | (132 | ) | 1,343 | ||||||||||
| Income (loss) from continuing operations | $ | (9,309 | ) | $ | 54 | $ | (2,409 | ) | $ | (11,664 | ) | |||||
| Three Months Ended December 31, 2020 | Commodities | Financial | Technology | Total | ||||||||||||
| Segmented operating revenues | $ | 4,300 | $ | 165 | $ | - | $ | 4,465 | ||||||||
| Cost of revenues | 3,218 | - | - | 3,218 | ||||||||||||
| Gross profit | 1,082 | 165 | - | 1,247 | ||||||||||||
| Total operating expenses net of depreciation, amortization, depletion and accretion | 3,965 | 137 | 872 | 4,974 | ||||||||||||
| Depreciation, amortization, depletion and accretion | 447 | - | 62 | 509 | ||||||||||||
| Other (income) expense | (3,769 | ) | (166 | ) | (833 | ) | (4,768 | ) | ||||||||
| Income (loss) from continuing operations | $ | 439 | $ | 194 | $ | (101 | ) | $ | 532 | |||||||
| Segmented assets as of December 31, 2020 | ||||||||||||||||
| Property and equipment, net | $ | 3,567 | $ | - | $ | 354 | $ | 3,921 | ||||||||
| Oil and Gas Properties | $ | 11,795 | $ | - | $ | - | $ | 11,795 | ||||||||
| Intangible assets, net | $ | 9,138 | $ | 3,223 | $ | - | $ | 12,361 | ||||||||
| Capital expenditures | $ | 617 | $ | - | $ | - | $ | 617 | ||||||||
| Nine Months Ended December 31, 2019 | Commodities | Financial | Technology | Total | ||||||||||||
| Segmented operating revenues | $ | - | $ | 95 | $ | 124 | $ | 219 | ||||||||
| Cost of revenues | - | - | 128 | 128 | ||||||||||||
| Gross profit (loss) | - | 95 | (4 | ) | 91 | |||||||||||
| Total operating expenses net of depreciation, amortization, depletion and accretion | - | 406 | 7,167 | 7,573 | ||||||||||||
| Depreciation, amortization, depletion and accretion | - | - | 216 | 216 | ||||||||||||
| Other (income) expense | - | - | 3,758 | 3,758 | ||||||||||||
| Loss from continuing operations | $ | - | $ | (311 | ) | $ | (11,145 | ) | $ | (11,456 | ) | |||||
ECOARK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)DECEMBER 31, 2020
| Three Months Ended December 31, 2019 | Commodities | Financial | Technology | Total | ||||||||||||
| Segmented operating revenues | $ | - | $ | 44 | $ | 96 | $ | 140 | ||||||||
| Cost of revenues | - | - | 67 | 67 | ||||||||||||
| Gross profit | - | 44 | 29 | 73 | ||||||||||||
| Total operating expenses net of depreciation, amortization, depletion and accretion | - | 206 | 2,450 | 2,656 | ||||||||||||
| Depreciation, amortization, depletion and accretion | - | - | 68 | 68 | ||||||||||||
| Other (income) expense | - | - | 2,768 | 2,768 | ||||||||||||
| Loss from continuing operations | $ | - | $ | (162 | ) | $ | (5,257 | ) | $ | (5,419 | ) | |||||
| Segmented assets as of December 31, 2019 | ||||||||||||||||
| Property and equipment, net | $ | - | $ | - | $ | 608 | $ | 608 | ||||||||
| Oil and Gas Properties | $ | - | $ | - | $ | - | $ | - | ||||||||
| Intangible assets, net | $ | - | $ | 3,223 | $ | - | $ | 3,223 | ||||||||
| Capital expenditures | $ | - | $ | - | $ | - | $ | - | ||||||||
NOTE 19: LEASES
The Company has adopted ASU No. 2016-02, Leases (Topic 842), as of April 1, 2019 and will account for their leases in terms of the right of use assets and offsetting lease liability obligations under this pronouncement. The Company had had only short-term leases up through the acquisition of Banner Midstream. The Company acquired a right of use asset and lease liability of $731 and $732, respectively on March 27, 2020. The Company recorded these amounts at present value, in accordance with the standard, using discount rates ranging between 2.5% and 6.8%11.36%. The right of use asset is composed of the sum of all lease payments, at present value, and is amortized straight line over the life of the expected lease term. For the expected term of the lease the Company used the initial terms ranging between 42 and 60 months. Upon the election by the Company to extend the lease for additional years, that election will be treated as a lease modification and the lease will be reviewed for remeasurement. This lease will be treated as an operating lease under the new standard. In addition, the Company entered into a new thirty-nine39 month operating lease for office space in September 2020, a new 36 month operating lease in March 2021, as well as two new 36 month operating leases in June 2021 which also isare all included in the right of use asset and lease liabilities.
The Company has chosen to implement this standard using the modified retrospective model approach with a cumulative-effect adjustment, which does not require the Company to adjust the comparative periods presented when transitioning to the new guidance. The Company has also elected to utilize the transition related practical expedients permitted by the new standard. The modified retrospective approach provides a method for recording existing leases at adoption and in comparative periods that approximates the results of a modified retrospective approach. Adoption of the new standard did not result in an adjustment to retained earnings for the Company.
The Company’s portfolio of leases contains both finance and operating leases that relate primarily to the commodity segment. As of December 31, 2020,June 30, 2021, the value of the unamortized lease right of use asset is $960,$865, of which $480$409 is from financing leases (through maturity at June 30, 2024) and $480$456 is from operating leases (through maturity at November 30, 2023)in May 31, 2024). As of December 31, 2020,June 30, 2021, the Company’s lease liability was $996,$895, of which $471$401 is from financing leases and $525$494 is from operating leases.
| Maturity of lease liability for the operating leases for the period ended June 30, | ||||
| 2022 | $ | 226 | ||
| 2023 | $ | 218 | ||
| 2024 | $ | 64 | ||
| 2025 | $ | - | ||
| Imputed interest | $ | (14 | ) | |
| Total lease liability | $ | 494 | ||
| Disclosed as: | ||||
| Current portion | $ | 218 | ||
| Non-current portion | $ | 276 | ||
| Maturity of lease liability for the financing leases for the period ended June 30, | ||||
| 2022 | $ | 151 | ||
| 2023 | $ | 147 | ||
| 2024 | $ | 118 | ||
| 2025 | $ | - | ||
| Imputed interest | $ | (15 | ) | |
| Total lease liability | $ | 401 | ||
| Disclosed as: | ||||
| Current portion | $ | 142 | ||
| Non-current portion | $ | 259 | ||
| Amortization of the right of use asset for the period ended June 30, | ||||
| 2022 | $ | 346 | ||
| 2023 | $ | 320 | ||
| 2024 | $ | 199 | ||
| Total | $ | 865 | ||
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)DECEMBER 31, 2020
JUNE 30, 2021
| Maturity of lease liability for the operating leases for the period ended December 31, | ||||
| 2021 | $ | 204 | ||
| 2022 | $ | 184 | ||
| 2023 | $ | 139 | ||
| 2024 | $ | - | ||
| Imputed interest | $ | (2 | ) | |
| Total lease liability | $ | 525 | ||
| Disclosed as: | ||||
| Current portion | $ | 204 | ||
| Non-current portion | $ | 321 | ||
| Maturity of lease liability for the financing leases for the period ended December 31, | |||||
| 2021 | $ | 145 | |||
| 2022 | $ | 150 | |||
| 2023 | $ | 153 | |||
| 2024 | $ | 41 | |||
| Imputed interest | $ | (18 | ) | ||
| Total lease liability | $ | 471 | |||
| Disclosed as: | ||||
| Current portion | $ | 140 | ||
| Non-current portion | $ | 331 | ||
| Amortization of the right of use asset for the period ended December 31, | |||||
| 2021 | $ | 332 | |||
| 2022 | $ | 313 | |||
| 2023 | $ | 263 | |||
| 2024 | $ | 52 | |||
| 2025 | $ | - | |||
| Total | $ | 960 | |||
43
ECOARK HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)DECEMBER 31, 2020
Total Lease Cost
Individual components of the total lease cost incurred by the Company is as follows:
| Three months ended December 31, 2020 | Nine months ended December 31, 2020 | |||||||
| Operating lease expense | $ | 54 | $ | 106 | ||||
| Finance lease expense | ||||||||
| Depreciation of capitalized finance lease assets | 34 | 103 | ||||||
| Interest expense on finance lease liabilities | 3 | 11 | ||||||
| Total lease cost | $ | 91 | $ | 220 | ||||
Three months ended | Three months ended | |||||||
| (unaudited) | (unaudited) | |||||||
| Operating lease expense | $ | 54 | $ | 20 | ||||
| Finance lease expense | ||||||||
| Depreciation of capitalized finance lease assets | 35 | 35 | ||||||
| Interest expense on finance lease liabilities | 3 | 4 | ||||||
| Total lease cost | $ | 92 | $ | 59 | ||||
NOTE 20: ASSET RETIREMENT OBLIGATIONS
In conjunction with the approval permitting the Company to resume drilling in the existing fields, the Company has recorded an asset retirement obligation (“ARO”) based upon the plan submitted in connection with the permit. The ARO results from the Company’s responsibility to abandon and reclaim their net share of all working interest properties and facilities. The following table summarizes activity in the Company’s ARO for the periodsthree months ended DecemberJune 30, 2021 and year ended March 31, 20202021:
June 30, | March 31, 2021 | |||||||
| (unaudited) | ||||||||
| Balance, beginning of period | $ | 1,532 | $ | 295 | ||||
| Accretion expense | 38 | 64 | ||||||
| Reclamation obligations settled | - | - | ||||||
| Disposition due to sale of property | (7 | ) | - | |||||
| Additions | - | 111 | ||||||
| Changes in estimates | - | 1,062 | ||||||
| Balance, end of period | $ | 1,563 | $ | 1,532 | ||||
Total ARO at June 30, 2021 and March 31, 2020:2021 shown in the table above consists of amounts for future plugging and abandonment liabilities on our wellbores and facilities based on third-party estimates of such costs, adjusted for inflation for the periods ended June 30, 2021 and March 31, 2021, respectively. These values are discounted to present value at 10% per annum for the periods ended June 30, 2021 and March 31, 2021. The Company disposed of a portion of one of their properties and wrote off the balance of ARO associated with that disposal of $7.
| December 31, 2020 | March 31, 2020 | |||||||
| Balance, beginning of period | $ | 295 | $ | - | ||||
| Accretion expense | 26 | - | ||||||
| ARO liability acquired in Banner Midstream acquisition | - | 295 | ||||||
| Reclamation obligations settled | - | - | ||||||
| Additions and changes in estimates | 110 | - | ||||||
| Balance, end of period | $ | 431 | $ | 295 | ||||
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2021
NOTE 21: RELATED PARTY TRANSACTIONS
On May 31, 2019 the Company entered into an Agreement and Plan of Merger with Trend Discovery Holdings Inc., a Delaware corporation (“Trend Holdings”) pursuant to which the Company acquired 100% of Trend Holdings in a merger with the Company as the surviving entity. Pursuant to the merger, the one thousand issued and outstanding shares of common stock of Trend Holdings were converted into 1,100 shares of the Company’s Common Stock with an approximate dollar value of $3,237 based on the closing price per share of Common Stock on the closing date of the merger. William B. Hoagland, the Company’s Chief Financial Officer, was President and a principal stockholder of Trend Holdings and received 550 shares of Common Stock, pursuant to the merger.
Jay Puchir, the Company’s Treasurer, served as a consultant to the Company from May 2019 to March 2020 and was paid solely in stock options totaling 40 stock options at an exercise price of $3.15 per share. In addition, any outstanding notes with Mr. Puchir have been repaid along with all accrued interest.
Gary Metzger, a director, advanced $578 to the Company through March 31, 2020, under the terms of notes payable that bears interest at rates ranging between 10% and 15% interest per annum.
On March 27, 2020, the Company issued 1,789 shares of its common stock to Banner Energy Services, Inc. (“Banner Energy”) and assumed approximately $11,774 in debt and lease liabilities of Banner Midstream. The Company’s Chief Executive Officer and another director, John Cahill, recused themselves from all board discussions on the acquisition of Banner Midstream as they were stockholders and/or noteholders of Banner Midstream. The transaction was approved by all of the disinterested members of the Board. The Chairman and CEO of Banner Energy is the Treasurer of the Company and Chief Executive Officer and President of Banner Midstream. Included in the shares issued in this transaction, John Cahill received 164 shares of common stock and Jay Puchir received 548 shares of common stock. At the time of this transaction, Mr. Cahill and his brother were also members of Shamrock Upstream Energy LLC, a subsidiary of Banner Midstream.
In the Banner Midstream acquisition, Randy S. May, Chief Executive Officer and Chairman, was the holder of approximately $1,242 in notes payable by Banner Midstream and its subsidiaries, which were assumed by the Company in the transaction. Additionally, Mr. May held a note payable by Banner Energy in the amount of $2,000 in principal and accrued interest, which was converted into 2,740 shares of Common Stock (on a pre-reverse stock split basis) as a result of the transaction. Neither of these amounts remain outstanding.
NOTE 21:22: SUBSEQUENT EVENTS
Subsequent to December 31, 2020,June 30, 2021, the Company had the following transactions:
In JanuaryOn July 1, 2021, the Company paid $814 in amounts due to Shamrock sellers that were owed from March 27, 2020,entered into a Consulting Agreement with a consultant and repaid $194 in notes payable to related parties.issued the consultant 30 shares of common stock.
On January 15, 2021, Simon Abrahms filed a notice of dismissal without prejudice of the class action lawsuit which was filed in the United States District Court of the District of Nevada on November 9, 2020 against the Company and members of its Board of Directors. This lawsuit is discussed in more detail in the Company’s revised definitive proxy statement on Schedule 14A filed on December 11, 2020. The Company’s stockholders ratified the corporate action giving rise to this litigation at a special meeting that was held on December 29, 2020. As a result, the Company expects that its sole remaining liability is to reimburse the plaintiff for his reasonable attorneys’ fees.
On JanuaryJuly 15, 2021, the Company commencedand its directors entered into a Settlement and Mutual Release resolving the drillinglegal fees it agreed to pay when it settled a class action that was settled without any financial consequences other than paying agreed upon legal fees. The Company paid $50 to the Plaintiff’s attorneys.
On August 6, 2021, the Company closed a $20,000 registered direct offering in which H.C. Wainwright LLC acted as the exclusive placement agent. The Company sold 3,478 shares of common stock and 3,478 warrants at $5.75 per share. The warrants will be exercisable for a three- and one-half-year period beginning when the Company increases its authorized common stock to 40,000 shares. The Company also issued the placement agent 243 warrants exercisable at $7.1875 per share over the same period as the investor warrants but expiring on the earlier of the three- and one-half year anniversary of the date the placement agent warrants first become exercisable and August 4, 2026. Further information on the offering and compensation to the placement agent is contained in the prospectus supplement dated August 4, 2021.
In order to have sufficient authorized capital to raise the $20,000, on August 4, 2021, a director of the Company agreed to cancel stock options in exchange for a lesser number of restricted stock units, subject to future vesting. In accordance with the restricted stock agreement, the director was granted 272 RSUs that vest over 12 quarterly increments, in exchange for cancelling 672 stock options. In addition, upon shareholder approval of an oil well (“JV Drill”) with a budgeted authority for expenditure (“AFE”) totaling $4,640.amendment to the Ecoark Holdings, Inc. 2017 Omnibus Incentive Plan, this director will receive 64 additional RSUs.
On February 12,August 4, 2021, the Company executed an agreement to acquire an 80% working interest in an additional 1,218 acres of oil and gas mineral leases inCompany’s common stock commenced trading on the leasehold area contiguous to the current JV Drill project. On February 12, 2021, the Company made a payment of $225 to fund the portion of the lease to be recorded in Avoyelles Parish, Louisiana. The Company owes a final payment of $353 on March 15, 2021 for the portion of the lease to be recorded in St. Landry Parish, Louisiana.Nasdaq Capital Market.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and notes thereto presented in this report as well as our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended March 31, 2021.
Effective with the opening of trading on December 17, 2020, the Company implemented a one-for-five reverse split of its issued and outstanding common stock and a simultaneous proportionate reduction of its authorized common stock. All share and per share figures are reflected on a post-split basis herein.
Dollar amounts and number of shares belowin this Item 2 are expressed in thousands, except per share and per barrel amounts.
OVERVIEW
Ecoark Holdings Inc. (“Ecoark Holdings” or the “Company”) is a diversified holding company, incorporated in the state of Nevada on November 19, 2007. Through Ecoark Holdings wholly owned subsidiaries, the Company has operations in three areas: (i) oil and gas, including exploration, production and drilling operations on over 20,000 cumulative acres of active mineral leases in Texas, Louisiana, and Mississippi and transportation services, (ii) post-harvest shelf-life and freshness food management technology, and (iii) financial services including investing in a select number of early stage startups each year. and a recently launched proposed cryptocurrency mining business designed to assist with electric power opportunities in a deregulated market which exists in Texas.
The Company’s subsidiaries consist of Ecoark, Inc. (“Ecoark”), a Delaware corporation which is the parent of Zest Labs, Inc. (“Zest Labs”), 440IoT Inc., a Nevada corporation (“440IoT”), Banner Midstream Corp., a Delaware corporation (“Banner Midstream”) and Trend Discovery Holdings Inc., a Delaware corporation (“Trend Holdings”).
See Note 16 to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for the information regarding the merger with Trend Discovery Holdings Inc. in May 2019 and the acquisition ofinclude Banner Midstream Corp. (“Banner Midstream”) in March 2020.
Banner Midstream has four operating subsidiaries:, White River Holdings Corp. (“White River”), Shamrock Upstream Energy LLC (“Shamrock”), Pinnacle Frac Transport LLC (“Pinnacle Frac”), Capstone Equipment Leasing LLC (“Capstone”), White River Holdings Corp.Zest Labs, Inc. (“White River”Zest Labs”), and Shamrock Upstream Energy LLCTrend Discovery Holdings Inc. (“Shamrock”Trend Holdings”).
Through Pinnacle Frac the Company provides transportation of frac sand and logistics services to major hydraulic fracturing and drilling operations. Capstone procures and finances equipment to oilfield transportation service contractors. These two operating subsidiaries of Banner Midstream are revenue producing entities.
Through White River and Shamrock, we are engaged in oil and gas exploration, production, and drilling operations on over 10,00020,000 cumulative acres of active mineral leases in Texas, Louisiana, and Mississippi.
SinceZest Labs’ goal is to offer freshness management solutions for fresh food growers, suppliers, processors, distributors, grocers and restaurants. Our efforts with respect to the acquisition of Banner Midstream on March 27, 2020, which currently comprises the exploration, production and drilling operations, the Company has focused its effortsfreshness food management solution have to a considerable extentdegree been focused on expanding its explorationpreparing for trial and production footprint and capabilities by acquiring real property and working interestsappeals in oil and gas mineral leases.our previously disclosed lawsuit against Walmart, Inc.
OnThrough Trend Holdings we provide financial services and collect fees from entities which invest in securities. Trend also owns a subsidiary which launched our new cryptocurrency mining business.
Commodities Segment
For the three months ended June 11, 2020,30, 2021, the Company acquired certain energy assets from SR Acquisition I, LLC for $1 as partCompany’s consolidated revenues consisted almost exclusively of the ongoing bankruptcy reorganizationrevenues from, and most of Sanchez Energy Corporation. The transaction includes the transfer of 262 total wells in Mississippi and Louisiana, approximately 9,000 acres of active mineral leases, and drilling production materials and equipment. The 262 total wells include 57 active producing wells, 19 active disposal wells, 136 shut-in with future utility wells, and 50 shut-in pending plugging wells. Included in the assignment are 4 wells in the Tuscaloosa Marine Shale formation.
On June 18, 2020, the Company acquired certain energy assets from SN TMS, LLC for $1 as part of the ongoing bankruptcy reorganization of Sanchez Energy Corporation. The transaction includes the transfer of wells, active mineral leases, and drilling production materials and equipment.
On August 14, 2020, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) by and among the Company, White River E&P LLC, a Texas Limited Liability Company and a wholly-owned subsidiary of the Company Rabb Resources, LTD. and Claude Rabb, the sole owner of Rabb Resources, LTD. Pursuant to the Asset Purchase Agreement, the Company completed the acquisition of certain assets of Rabb Resources, LTD. The acquired assets consisted of certain real property and working interests in oil and gas mineral leases. The Company in June 2020 previously provided for bridge financing to Rabb Resources, LTD under the $225 Senior Secured Convertible Promissory Note. As consideration for entering into the Asset Purchase Agreement, the Company agreed to pay Rabb Resources, LTD. A total of $3,500 consisting of (i) $1,500 in cash, net of $304 in outstanding amountsour expenses were related to, the note receivableCommodities segment. In our Commodities segment, our activities are primarily directed at the conventional enhancement and accrued interest receivable,development of all productive formations throughout our Louisiana and (ii) $2,000 payable in common stockMississippi leasehold positions of the Company, which basedover 20,000 acres. We intend to continue to enhance and develop our reserves and increase production through exploration activities on the closing priceour prolific inventory of the common stock as of the date of the Asset Purchase Agreement equaled 103 shares. The Company accounted for this acquisition as an asset acquisition under ASC 805 and that the Company has early adopted the amendments of Regulation S-X dated May 21, 2020 and has concluded that this acquisition was not significant. Accordingly, as a result of the amendment, the presentation of the Rabb Resources, LTD historical financial statements under Rule 3-05 and related pro forma information under Article 11 of Regulation S-X, respectively, were not required to be presented.potential drilling locations.
On September 4, 2020, White River SPV 3, LLC, a wholly-owned subsidiary of Banner Midstream entered into an AgreementKey Terms and Assignment of Oil, Gas and Mineral Lease with a privately held limited liability company (the “Assignor”). Under the Lease Assignment, the Assignor assigned a 100% working interest (75% net revenue interest) in a certain oil and gas lease covering in excess of 1,600 acres (the “Lease”), and White River paid $1,500 in cash to the Assignor. The Company accounted for this acquisition as an asset acquisition under ASC 805 and that the Company has early adopted the amendments of Regulation S-X dated May 21, 2020 and has concluded that this acquisition was not significant. Accordingly, as a result of the amendment, the presentation of the historical financial statements under Rule 3-05 and related pro forma information under Article 11 of Regulation S-X, respectively, were not required to be presented.Metrics
On October 9, 2020, the Company and White River SPV, entered into a Participation Agreement (the “Participation Agreement”) by and among the Company, White River SPV, BlackBrush Oil & Gas, L.P. (“BlackBrush”) and GeoTerre, LLC, an unrelated privately-held limited liability company (the “Assignor”), to conduct drilling of wells in the Austin Chalk formation.
Pursuant to the Participation Agreement, the Company and White River SPV have agreed, among other things, to fund 100% of the cost, estimated to be approximately $4,700, associated with the drilling and completion of an initial deep horizontal well in the Austin Chalk formation. The Participation Agreement requires the estimated amount of the drilling costs to be paid into a designated escrow account by the commencement of drilling in January 2021. BlackBrush has agreed to assign to the other parties to the Participation Agreement, subject to certain exceptions and limitations specified therein, specified portions of its leasehold working interest in certain Austin Chalk formation units. The Participation Agreement provides for an initial allocation of the working interests and net revenue interests among the assignor, BlackBrush and the Company and then a re-allocation upon payout or payment of drilling and completion costs for each well drilled. Following payout, the Company will own 70% of working interest and 52.5% net revenue interest in each well. BlackBrush also agreed to share with the Company certain seismic information relating to other wells in which the Company has no interests.
The Parties to the Participation Agreement, except for the Company, had previously entered into a Joint Operating Agreement, dated September 4, 2020 (the “Operating Agreement”) establishing an area of mutual interest, including the Austin Chalk formation, and governing the parties’ rights and obligations with respect to drilling, completion and operation of wells therein. The Participation Agreement and the Operating Agreement require, among other things, that White River SPV and the Company drill and complete at least one horizontal Austin Chalk well with a certain minimum lateral each calendar year.
In connection with the transactions contemplatedmanagement of our businesses, we identify, measure and assess a variety of operating metrics. In the Commodities segment, the principal metrics we use in managing our businesses are set forth below:
“Bbl” – Bbl means barrel of crude oil. Metric used by management to specify the unit of measure (“in barrels”) from which the Company’s midstream customers use to incrementally purchase oil from the Company. Barrels are used as a unit of measure universally across the oil industry so the Company’s adoption of barrels to measure units of oil is a standard practice.
“Mbbl” – Mbbl means a thousand barrels of oil. See comments on “Bbl” metric. “Mbbl” is a standard for measuring larger quantities of barrels of oil in thousands of units.
“Production (Gross)” – Production (Gross) is defined as barrels of oil produced before accounting for working interests from non-mineral owning parties. Metric used by management to specify the total number of barrels of oil produced from a given oil well. Gross production includes both the barrels owned by the Participation Agreement, on October 12, 2020 White River SPV entered into an Agreementoil and Assignmentgas mineral owners as well as the drilling and investing group who funded and drilled the well which are considered the working interest owners. Gross production is a standard term used universally across the oil industry, so the Company’s adoption of Oil, Gas and Mineral Lease (the “Lease Assignment”) withthis term is a standard practice.
“Production (Net)” – Production (Net) is defined as the Assignor. Undernet barrels of oil produced after deducting the Lease Assignment,ownership portion owned by the Assignor assigned to White River SPVmineral owning parties. Unless otherwise specified, management assumes that the mineral ownership portion of a well is 25%, so a 100% working interest (75% net revenue interest)would result in a certain oil and gas lease covering in excess of 400 acres (the “Lease”), and White River SPV paid approximately $600 to the Assignor. White River SPV had previously entered into an agreement with the Assignor75% Net Production or Net Revenue interest after accounting for the assignment to White River SPVownership portion of a 100% working interest in a certain oil and gas lease covering in excess of 1,600 acres in exchange for $1,500.production owned by the mineral owners.
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Segment Reporting for the Three Months Ended June 30, 2021 and 2020:
| Three Months Ended June 30, 2021 | Commodities | Financial | Technology | Total | ||||||||||||
| Segmented Operating Revenues | $ | 6,731 | $ | 148 | $ | - | $ | 6,879 | ||||||||
| Cost of revenues | 3,942 | - | - | 3,942 | ||||||||||||
| Gross profit (loss) | 2,789 | 148 | - | 2,937 | ||||||||||||
| Total operating expenses, net of depreciation, amortization, depletion and accretion | 3,514 | 154 | 654 | 4,322 | ||||||||||||
| Depreciation, amortization, depletion and accretion | 960 | - | 56 | 1,016 | ||||||||||||
| Other (income) expense | (3,641 | ) | (220 | ) | (1,099 | ) | (4,960 | ) | ||||||||
| Loss from continuing operations | $ | 1,956 | $ | 214 | $ | 389 | $ | 2,559 | ||||||||
| Segmented assets as of June 30, 2021 | ||||||||||||||||
| Property and equipment, net | $ | 3,478 | $ | - | $ | 236 | $ | 3,714 | ||||||||
| Oil and Gas Properties | $ | 14,121 | $ | - | $ | - | $ | 14,121 | ||||||||
| Intangible assets, net | $ | 1,978 | $ | - | $ | - | $ | 1,978 | ||||||||
| Goodwill | $ | 7,002 | $ | 3,223 | $ | - | $ | 10,225 | ||||||||
| Capital expenditures | $ | - | $ | - | $ | - | $ | - | ||||||||
| Three Months Ended June 30, 2020 | Commodities | Financial | Technologies | Total | ||||||||||||
| Segmented Operating Revenues | $ | 2,223 | $ | 90 | $ | - | $ | 2,313 | ||||||||
| Cost of revenues | 1,093 | - | - | 1,093 | ||||||||||||
| Gross profit (loss) | 1,130 | 90 | - | 1,220 | ||||||||||||
| Total operating expenses, net of depreciation, amortization, depletion and accretion | 2,066 | 129 | 919 | 3,114 | ||||||||||||
| Depreciation, amortization, depletion and accretion | 238 | - | 63 | 301 | ||||||||||||
| Other (income) expense | 13,738 | 875 | 4,373 | 18,986 | ||||||||||||
| Loss from continuing operations | $ | (14,912 | ) | $ | (914 | ) | $ | (5,355 | ) | $ | (21,181 | ) | ||||
| Segmented assets as of June 30, 2020 | ||||||||||||||||
| Property and equipment, net | $ | 3,219 | $ | - | $ | 478 | $ | 3,697 | ||||||||
| Oil and Gas Properties | $ | 6,001 | $ | - | $ | - | $ | 6,001 | ||||||||
| Intangible assets, net | $ | 2,279 | $ | - | $ | - | $ | 2,279 | ||||||||
| Goodwill | $ | 7,002 | $ | 3,223 | $ | - | $ | 10,225 | ||||||||
| Capital expenditures | $ | 50 | $ | - | $ | - | $ | 50 | ||||||||
| ● | Revenue for three months ended June 30, 2021 were $6,879, increase of $4,566 compared to same period in prior year. |
| ● | We recorded net income of $2,559 for the first quarter ended June 30, 2021. |
| ● | Our average production was 348 Gross (240 Net) Bbl/d during the three months ended June 30, 2021. |
| ● | During the three months ended June 30, 2021, we had no new drilling activity. |
| ● | As of June 30, 2021, we had approximately $842 of cash on hand. |
Need for capital continued to be a concern during the three months ended June 30, 2021. On September 30, 2020, the Company and White River Energy, LLC (“White River Energy”), a wholly-owned subsidiary ofMay 13, 2021, the Company entered into three asset purchase agreements (the “Asset Purchase Agreements”a Letter Agreement for a .60 of 8/8th Earned Working Interest with TSEA Partners LLC (“TSEA”) with privately-held limited liability companies to acquire working interests infor the Harry O’Neal oil and gas mineral20-10 lease (the “O’Neal OGML”in Holmes County, MS (“Letter Agreement”),. Under the related well bore, crude oil inventory and equipment. Immediately priorterms of the Letter Agreement, TSEA paid $600 to the acquisition, White River Energy owned an approximately 61%Company to transfer the working interest in the O’Neal OGMLto TSEA and TSEA received a $300 drilling or workover credit to use towards any authority for expenditure at Horseshoe Field.
Key Trends
Commodity Prices
In early March 2020, oil wellprices dropped sharply and a 100% working interest in any future wells.
The purchase prices of these leases were $126, $312 and $312, respectively, totaling $750. The consideration paidcontinued to the Sellers was in the form of 68 shares of common stock. The Company accounted for this acquisition as an asset acquisition under ASC 805 and that the Company has early adopted the amendments of Regulation S-X dated May 21, 2020 and has concluded that this acquisition was not significant. Accordingly,decline, briefly reaching negative levels as a result of multiple factors affecting the amendment,supply and demand in global oil and natural gas markets, including (i) actions taken by OPEC members and other exporting nations impacting commodity price and production levels and (ii) a significant decrease in demand due to the presentationongoing COVID-19 pandemic. However, certain restrictions on conducting business that were implemented in response to the COVID-19 pandemic have been lifted as improved treatments and vaccinations for COVID-19 have been rolled-out globally since late 2020. As a result, oil and natural gas market prices have improved in response to the increase in demand. However, as of the historical financial statements under Rule 3-05date of this report oil and natural gas prices have experienced increased volatility due to the uncertainty related pro forma information under Article 11to the Delta variant of Regulation S-X, respectively, were not requiredthe virus.
During 2020 and 2021, the posted NYMEX WTI price for crude oil ranged from $(37.63) to be presented.$76.98 per Bbl. On June 30, 2021, the NYMEX WTI price for crude oil was $73.47 per Bbl. Commodity prices have historically been volatile and we cannot predict events which may lead to future fluctuations in these prices.
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Reverse Stock Split
Impact of COVID-19
Effective with
The COVID-19 pandemic previously had a profound effect on the opening of trading on December 17, 2020,U.S. and global economy and may continue to affect the Company implemented a one-for-five reverse split of its issued and outstanding common stock and a simultaneous proportionate reduction of its authorized common stock. The reverse stock split was effected without obtaining stockholder approval as permitted by Nevada law,economy and the authorized common stock was proportionately reduced to 40,000 shares. All share and per share figures are reflectedindustries in which we operate, depending on a post-split basis herein.
Ratification of Authorized Capital Increase
At the special meeting held on December 29, 2020, the stockholders of the Company ratified the previously approved increase of the number of shares of common stock the Company is authorized to issue from 20,000 shares to 40,000 shares.
Authorized Capital Reduction
Effective December 29, 2020, the Company amended its articles of incorporation to reduce its authorized common stock from 40,000 to 30,000.
Registered Direct Offering of Common Stock and Warrants
On December 30, 2020, the Company completed a registered direct offering, whereby the Company issued 889 shares of common stock and 889 accompanying warrants to purchase common stock to one institutional investor under the effective Form S-3 at $9.00 per share and accompanying warrant for a total of $8,000 in gross proceeds, before placement agent fees and other offering expenses. The warrants are exercisable for a two-year term at a strike price of $10.00 per share. The Company granted 62 warrants to the placement agent as compensation in addition to the $560 cash commission received by the placement agent. The placement agent warrants are exercisable at $11.25 per share and expire on January 2, 2023.
Our principal executive offices are located at 303 Pearl Parkway, Suite 200, San Antonio, TX 78215, and our telephone number is (800) 762-7293. Our website address is http://ecoarkusa.com/. Our websitevaccine rollouts and the information contained on, or that can be accessed through, our website will not be deemed to be incorporated by reference in and are not considered partemergence of this report.
Impact of COVID-19
The recent outbreak of COVID-19, which has been declared by the World Health Organization to be a pandemic, has spread across the globe and is impacting worldwide economic activity. The COVID-19 public health epidemic prevented the Company from conducting business activities at full capacity for an indefinite period of time, including due to risk of spread of the disease within these groups or due to shutdowns requested or mandated by governmental authorities. virus mutations.
COVID-19 did not have a material effect on the Unaudited Condensed Consolidated Statements of Operations or the Unaudited Condensed Consolidated Balance Sheets included in this Form 10-Q. However, it did have a10-Q in contrast to the material impact on our management’s abilityit had in the prior fiscal year.
Because the federal government and some state and local authorities are reacting to operate effectively. The impact included the difficultiescurrent Delta variant of working remotely from home including slow Internet connection, the inability of our accounting and financial officers to collaborate as effectively as they would otherwise have in an office environment and issues arising from mandatory state quarantines.
WhileCOVID-19, it is not possible at this time to estimate with sufficient certainty the impact that COVID-19 could havecreating uncertainty on the Company’s business, the continued spread of COVID-19 and the measures taken by federal, state, local and foreign governmentswhether these actions could disrupt the operation of the Company’s business. The COVID-19 outbreakbusiness and mitigation measures have also had and may continue to have an adverse impact on global and domestic economic conditions, which could have an adverse effect on the Company’s business and financial condition, including on its potential to conduct financings on terms acceptable to the Company, if at all. In addition, the Company has taken temporary precautionary measures intended to help minimize the risk of the virus to its employees, including temporarily requiring employees to work remotely, and discouraging employee attendance at in-person work-related meetings, which could negatively affect the Company’s business. These measures are continuing.Company. The extent to which the COVID-19 outbreak impactsmay impact the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.
The CARES Act includes, among other things, provisions relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act also established a Paycheck Protection Program (“PPP”), whereby certain small business are eligible for a loan to fund payroll expenses, rent and related costs. We had received funding under the PPP, and a majority of that as indicated in our Unaudited Consolidated Statement of Operations has been forgiven.
Our Proposed Digital Asset Mining Business
The Company plans to enter the digital asset mining business through its newly formed wholly-owned subsidiary BitStream Mining LLC (“BitStream”). We expect that BitStream will deploy and operate modularized data centers with the sole purpose of mining digital assets, with Bitcoin as the main focus. We anticipate powering these data centers by acquiring a long-term power contract to purchase electric power from the electric grid in Texas. Once the business is operational, we intend to continuously add data center platforms by reinvesting cash and potentially utilizing leverage in order to scale operations. All data centers will be remotely managed with onsite personnel for servicing and troubleshooting any operational issues. BitStream plans to utilize the energy to power its energy intensive operations of digital asset mining. Additionally, if Texas experiences another power shortage during the winter or summer months from extreme weather conditions, we would be able to arbitrage power at favorable margins.
As of the date of this report, we have not commenced this business other than to engage in exploratory discussions to acquire a long-term power contract, including discussions with a number of key players in this industry. For the risks and uncertainties related to the proposed digital asset mining business, see the prospectus supplement filed on August 5, 2021.
Critical Accounting Policies, Estimates and Assumptions
In reading and understandingThe critical accounting policies listed below are those the Company’s discussionCompany deems most important to their operations.
Use of resultsEstimates
The preparation of operations, liquidity and capital resources, one should be aware of key policies, judgmentsconsolidated financial statements in conformity with accounting principles generally accepted in the U.S. 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 consolidated financial statements and reported amounts of revenues and expenses during the reporting period. These estimates include, but are importantnot limited to, management’s estimate of provisions required for uncollectible accounts receivable, fair value of assets held for sale and assets and liabilities acquired, impaired value of equipment and intangible assets, including goodwill, asset retirement obligations, estimates of discount rates in lease, liabilities to accrue, fair value of derivative liabilities associated with warrants, cost incurred in the satisfaction of performance obligations, permanent and temporary differences related to income taxes and determination of the fair value of stock awards.
Actual results could differ from those estimates.
The estimates of proved, probable and possible oil and gas reserves are used as significant inputs in determining the depletion of oil and gas properties and the impairment of proved and unproved oil and gas properties. There are numerous uncertainties inherent in the estimation of quantities of proven, probable and possible reserves and in the projection of future rates of production and the timing of development expenditures. Similarly, evaluations for impairment of proved and unproved oil and gas properties are subject to numerous uncertainties including, among others, estimates of future recoverable reserves and commodity price outlooks. Actual results could differ from the estimates and assumptions utilized.
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Oil and Gas Properties
The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under the full cost method of accounting, all costs associated with acquisition, exploration and development of oil and gas reserves, including directly related overhead costs are capitalized. General and administrative costs related to production and general overhead are expensed as incurred.
All capitalized costs of oil and gas properties, including the estimated future costs to develop proved reserves, are amortized on the unit of production method using estimates of proved reserves. Disposition of oil and gas properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in operations. Unproved properties and development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that the properties are impaired, the amount of the loss from operations before income taxes and the adjusted carrying amount of the unproved properties is amortized on the unit-of-production method.
Limitation on Capitalized Costs
Under the full-cost method of accounting, we are required, at the end of each reporting period, to perform a test to determine the limit on the book value of our oil and gas properties (the “Ceiling” test). If the capitalized costs of our oil and natural gas properties, net of accumulated amortization and related deferred income taxes, exceed the Ceiling, the excess or impairment is charged to expense. The expense may not be reversed in future periods, even though higher oil and gas prices may subsequently increase the Ceiling. The Ceiling is defined as the sum of: (a) the present value, discounted at 10% and assuming continuation of existing economic conditions, of (1) estimated future gross revenues from proved reserves, which is computed using oil and gas prices determined as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month hedging arrangements pursuant to Staff Accounting Bulletin (“SAB”) 103, less (2) estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves; plus, (b) the cost of properties being amortized; plus, (c) the lower of cost or estimated fair value of unproven properties included in the costs being amortized; net of (d) the related tax effects related to the portrayaldifference between the book and tax basis of financial conditionsour oil and results. The Company has recently entered intonatural gas properties.
Oil and Gas Reserves
Reserve engineering is a subjective process that is dependent upon the commodity business through its acquisitionquality of Banner Midstream. The Company has included several new accounting policies relatedavailable data and interpretation thereof, including evaluations and extrapolations of well flow rates and reservoir pressure. Estimates by different engineers often vary sometimes significantly. In addition, physical factors such as results of drilling, testing and production subsequent to this segmentthe date of this business.
Our revenues from periods prior to fiscal 2020 were generated principally from the sale of hardware. In the nine months ended December 31, 2020, revenues were principally from professional services from our financing segmentan estimate, as well as economic factors such as changes in product prices, may justify revision of such estimates. Because proved reserves are required to be estimated using recent prices of the evaluation, estimated reserve quantities can be significantly impacted by changes in product prices.
Inventories
Crude oil, products and gas servicesmerchandise inventories are carried at the lower of cost (last-in-first-out (LIFO)) or net realizable value. Inventory costs include expenditures and other charges directly and indirectly incurred in bringing the inventory to its existing condition and location.
Accounting for Asset Retirement Obligation
Asset retirement obligations (“ARO”) primarily represent the estimated present value of the amount the Company will incur to plug, abandon and remediate its producing properties at the projected end of their productive lives, in accordance with applicable federal, state and local laws. The Company determined its ARO by calculating the present value of the estimated cash flows related to our production, transportationthe obligation. The retirement obligation is recorded as a liability at its estimated present value as of the obligation’s inception, with an offsetting increase to proved properties or to exploration costs in cost of revenues.
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Revenue Recognition
The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers.
The Company accounts for a contract when it has been approved and logisticscommitted to, each party’s rights regarding the goods or services to be transferred have been identified, the payment terms have been identified, the contract has commercial substance, and collectability is probable. Revenue is generally recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities.
Revenue recognition for multiple-element arrangements requires judgment to determine if multiple elements exist, whether elements can be accounted for as separate units of accounting, and if so, the fair value for each of the elements.
Revenue from software license agreements of Zest Labs is recognized over time or at a point in time depending on the evaluation of when the customer obtains control of the promised goods or services over the term of the agreement. For agreements where the software requires continuous updates to provide the intended functionality, revenue is recognized over the term of the agreement. For software as a service business contained(“SaaS”) contracts that include multiple performance obligations, including hardware, perpetual software licenses, subscriptions, term licenses, maintenance and other services, the Company allocates revenue to each performance obligation based on estimates of the price that would be charged to the customer for each promised product or service if it were sold on a standalone basis. For contracts for new products and services where standalone pricing has not been established, the Company allocates revenue to each performance obligation based on estimates using the adjusted market assessment approach, the expected cost plus a margin approach or the residual approach as appropriate under the circumstances. Contracts are typically on thirty-day payment terms from when the Company satisfies the performance obligation in Banner Midstream.the contract. The Company did not have material revenue from software license agreements in the three months ended June 30, 2021 and 2020, respectively.
A significant percentageRevenue under master service agreements is recorded upon the performance obligation being satisfied. Typically, the satisfaction of our operatingthe performance obligation occurs upon the frac sand load being delivered to the customer site and this load being successfully invoiced and accepted by the Company’s factoring agent.
The Company recognizes their proportionate share of revenue under ASC 606 when: (i) the Company receives notification of the successful sale of a load of crude oil to a buyer; (ii) the buyer will provide a price based on the average monthly price of crude oil in the most recent month; and (iii) cash is received the following month from the crude oil buyer.
The Company accounts for contract costs in accordance with ASC Topic 340-40, Contracts with Customers. The Company recognizes the cost of sales of a contract as expense when incurred or at the time a performance obligation is satisfied. The Company recognizes an asset from the costs to fulfil a contract only if the costs relate directly to a contract, the costs generate or enhance resources that will be used in satisfying a performance obligation in the future and the costs are expected to be recovered. The incremental costs of obtaining a contract are capitalized unless the costs would have been incurred regardless of whether the contract was obtained.
Cost of sales for Pinnacle Frac includes all direct expenses results from non-cash share-based compensation, which is typical of technology companies as well as costs relatedincurred to our exploration and driver costs.
Forproduce the share-based compensation, we have granted shares, options and warrants to employees, consultants and investors as incentives to generate successrevenue for the period. This includes, but is not limited to, direct employee labor, direct contract labor and fuel.
Fair Value Measurements
ASC 820 Fair Value Measurements defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosure about fair value measurements. ASC 820 classifies these inputs into the following hierarchy:
Level 1 inputs: Quoted prices for identical instruments in active markets.
Level 2 inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 inputs: Instruments with primarily unobservable value drivers.
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Segment Information
The Company insteadfollows the provisions of making cash payments. The accounting calculations for this type of compensation can be complex and are derived from models likeASC 280-10 Segment Reporting. This standard requires that companies disclose operating segments based on the Black-Scholes option pricing model that requires judgmentmanner in which management disaggregates the Company in making assumptionsinternal operating decisions. The Company and developing estimates.
We have also invested heavily in research and development expenses. Those investments have required cash payments principally for the development of our software solutions and the testing of those solutions in our labs and on some customer projects. We have not capitalized any ofits chief operating decision makers determined that development effort, so there are no research and development costs to amortize in the future.
We have been conservative in our treatment of income taxes. Our historical losses have resulted in net operating losses for tax purposes. Applying accounting policies, we have recorded a “valuation allowance” against both current and future tax benefits of the losses. We will not recognize any benefits until such time as we are assured that we will generate taxable income.
RESULTS OF OPERATIONS
Overview
The discussion below addresses the Company’s operations and liquidity which were impacted byeffective with the May 31, 2019, acquisition of Trend Holdings in May 2019 and the March 27, 2020 acquisition of Banner Midstream now consist of three segments, Trend Holdings (Finance), Banner Midstream (Commodities) and Zest Labs (Technology).
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. Management evaluates all of the Company’s financial instruments, including warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The Company generally uses a Black-Scholes model, as applicable, to value the derivative instruments at inception and subsequent valuation dates when needed. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is remeasured at the end of each reporting period. The Black-Scholes model is used to estimate the fair value of the derivative liabilities.
Recently Issued Accounting Standards
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in March 2020Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contract’s in an Entity’s Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as described above.
Results of Operationsa single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the Three Months Endedderivative scope exception, which will permit more equity contracts to qualify for it. The ASU simplifies the diluted net income per share calculation in certain areas. The ASU is effective for annual and interim periods beginning after December 31, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and 2019interim periods within those fiscal years. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04 “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815- 40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” which clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. An entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as follows: i) for a modification or an exchange that is a part of or directly related to a modification or an exchange of an existing debt instrument or line-of-credit or revolving-debt arrangements (hereinafter, referred to as a “debt” or “debt instrument”), as the difference between the fair value of the modified or exchanged written call option and the fair value of that written call option immediately before it is modified or exchanged; ii) for all other modifications or exchanges, as the excess, if any, of the fair value of the modified or exchanged written call option over the fair value of that written call option immediately before it is modified or exchanged. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
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Revenues
Production Data
Revenues
The following tables set forth our production data for the three months ended December 31, 2020 were $4,465 as compared to $140June 30, 2021 and 2020:
| Three Months Ended June 30, | ||||||||||||||||
| 2021 | 2020 | |||||||||||||||
| Bbls | Bbls | |||||||||||||||
| Gross | Net | Gross | Net | |||||||||||||
| Production Data: | ||||||||||||||||
| By State/County | ||||||||||||||||
| Mississippi | ||||||||||||||||
| Holmes Cty | 8 | 6 | - | - | ||||||||||||
| Amite | 3,512 | 2,795 | 1,325 | 1,055 | ||||||||||||
| Wilkinson | 3,619 | 2,808 | 860 | 679 | ||||||||||||
| Pike | 295 | 221 | 2 | 2 | ||||||||||||
| 7,433 | 5,829 | 2,188 | 1,736 | |||||||||||||
| Louisiana | ||||||||||||||||
| Catahoula | 1,835 | 899 | 299 | 251 | ||||||||||||
| Concordia | 1,059 | 619 | - | - | ||||||||||||
| Tensas | 1,026 | 770 | 72 | 54 | ||||||||||||
| Lasalle | 473 | 256 | 143 | 77 | ||||||||||||
| Avoyelles | 19,844 | 13,471 | 379 | 287 | ||||||||||||
| 24,237 | 16,015 | 894 | 669 | |||||||||||||
| Total | 31,670 | 21,845 | 3,082 | 2,405 | ||||||||||||
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Revenues
The following table shows revenues for the three months ended December 31, 2019, an increaseJune 30, 2021 and 2020:
| Three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Oil and Gas Operations | $ | 1,568 | $ | 151 | ||||
| Transportation Services and Other Revenue | 5,163 | 2,072 | ||||||
| Financial Segment | 148 | 90 | ||||||
| Technology Segment | - | - | ||||||
| Total | $ | 6,879 | $ | 2,313 | ||||
Oil, Natural Gas and Natural Gas Liquids Revenues. Our revenues are a function of $4,325. The increase was primarily due to the addition of the oil production volumes sold and gas operations as the result of the Banner Midstream acquisition on March 27, 2020. Revenues were comprised of $165 and $44 in the financing segment; $0 and $96 in the technology segment; and $4,300 and $0 in the commodity segmentaverage sales prices received for those volumes.
| Three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Revenues: | ||||||||
| Oil and natural gas sales, net of taxes | $ | 1,550 | $ | 151 | ||||
| Other | 18 | - | ||||||
| Total revenues | $ | 1,568 | $ | 151 | ||||
Our oil revenues for the three months ended December 31,June 30, 2021 increased by $1,399, or 926%, to $1,550 from $151 during the three months ended June 30, 2020. The increase in oil production during the three months ended June 30, 2021 as compared to the same period in 2020 and 2019, respectively.resulted in $1,067 of the total increase due to more wells operational in 2021 versus 2020. The remaining revenue increase of $332 was due to an increase in oil prices during the three months ended June 30, 2021 as compared to the same period in 2020.
Average daily production sold increased by 89 barrels of oil per day (“BOPD”) to 243 BOPD during the three months ended June 30, 2021 from 154 BOPD during the three months ended June 30, 2020.
Cost of Revenues and Gross Profit
CostThe following table shows costs of revenues for the three months ended December 31, 2020 was $3,218 as compared to $67 for the three months ended December 31, 2019, anJune 30, 2021 and 2020:
| Three Months Ended June 30, | |||||||||
| 2021 | 2020 | ||||||||
| Total | $ | 3,942 | $ | 1,093 | |||||
The increase in cost of $3,151. The increaserevenue was primarily due to the additionincreased owner operator and fuel expenses of the oil and gas operations as the result of the Banner Midstream acquisition on March 27,$3,561 for three months ended June 30, 2021 compared to $1,316 for three months ended June 30, 2020. Cost of Revenues was comprised of $0 and $0 in the financing segment; $0 and $67 in the technology segment; and $3,218 and $0 in the commodity
Operating Expenses
The following table shows operating expenses by segment for the three months ended December 31, 2020June 30, 2021 and 2019, respectively. Gross margins decreased from 52% for the three months ended December 31, 2019 to 28% for the three months December 31, 2020 due to changes in inventory of crude oil.2020:
| Three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Segment | ||||||||
| Commodity segment | $ | 4,474 | $ | 2,304 | ||||
| Technology segment | 710 | 982 | ||||||
| Financial Segment | 154 | 129 | ||||||
| Total | $ | 5,338 | $ | 3,415 | ||||
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Operating Expenses
OperatingThe following table shows operating expenses for the three months ended December 31, 2020 were $5,483 as compared to $2,724 for the three months ended December 31, 2019, an increase of $2,759. Operating expenses were comprised of $137June 30, 2021 and $206 in the financing segment; $934 and $2,518 in the technology segment; and $4,412 and $0 in the commodity segment for the three months ended December 31, 2020 and 2019, respectively. The $2,759 increase was due principally to the expenses, including wages and consulting fees, related to the addition of the oil and gas operations as the result of the Banner Midstream acquisition on March 27, 2020 and the depreciation, depletion, amortization and accretion for Banner Midstream in 2020, partially offset by the reduction in the Zest Labs selling expenses.2020:
| Three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Operating Expenses | ||||||||
| Salaries and salaries related costs | $ | 1,569 | $ | 2,012 | ||||
| Professional and consulting fees | 137 | 262 | ||||||
| Oilfield supplies and repairs | 344 | 5 | ||||||
| Selling, general and administrative costs | 2,272 | 605 | ||||||
| Depreciation, amortization, depletion, and accretion | 1,016 | 301 | ||||||
| Research and development | - | 230 | ||||||
| $ | 5,338 | $ | 3,415 | |||||
Selling, General and Administrative
Selling,The following table shows selling, general and administrative expenses for the three months ended December 31, 2020 were $4,710 compared with $2,232June 30, 2021 and 2020:
| Three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Selling, general and administrative costs | ||||||||
| Insurance | 672 | (260 | ) | |||||
| Legal/Audit/Accounting expenses | 274 | 309 | ||||||
| Factoring expenses | 120 | 36 | ||||||
| Equipment Rental | 117 | 13 | ||||||
| Other | 1,089 | 507 | ||||||
| $ | 2,272 | $ | 605 | |||||
Insurance expense for the three months ended December 31, 2019. Cost reduction initiatives were focused on salary related and professional fees for the technology segment offset by the costs incurred for Banner Midstream as this was acquiredJune 30, 2020 included a one-time adjustment in March 2020. These were offset by changes in share-based compensation which for the three month period ended December 31, 2020 were not comparable to 2019.commodity segment.
Depreciation, Amortization, Depletion and Accretion
Depreciation,The following table shows depreciation, amortization, depletion and accretion expenses for the three months ended December 31, 2020 were $509 compared to $68June 30, 2021 and 2020:
| Three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Depletion of proved oil and natural gas properties | $ | 444 | $ | 54 | ||||
| Depletion of drilled wells | 274 | - | ||||||
| Depreciation of sand frac transportation equipment | 109 | 105 | ||||||
| Depreciation of midstream assets | 8 | 1 | ||||||
| Depreciation of technology segment assets | 56 | 63 | ||||||
| Amortization of intangible assets | 87 | 71 | ||||||
| Asset retirement obligation accretion | 38 | 7 | ||||||
| Depreciation, depletion and amortization expense | $ | 1,016 | $ | 301 | ||||
The increase in depletion of proved oil and natural gas properties of $390 for the three months ended December 31, 2019. Depreciation, amortization, depletion and accretion expenses were comprised of $0 and $0 in the financing segment; $62 and $68 in the technology segment; and $447 and $0 in the commodity segment forJune 30, 2021 as compared to the three months ended December 31,June 30, 2020 and 2019, respectively. The $441 increase resultedis primarily from the acquisitiondue to full quarter of Banner Midstream and theoperations in 2021 compared to less than one month in 2020. Increase in depletion and accretion is the result of the oil and gas properties maintained by Banner Midstream. The technology and financing segment do not have depletion or accretion.drilled wells due to completion of Deshotel #24 well in March 2021.
Research and Development
Research and development expense decreased 38% to $264from $230 in the three months ended December 31,June 30, 2020 compared with $424to zero in the three months ended December 31, 2019.June 30, 2021. The $160$230 reduction in costs related primarilyis due to the maturingcompletion of the development of the Zest Labs freshness solutions.
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Other Income (Expense)
The following table shows other income (expense) for the three months ended June 30, 2021 and 2020:
| Three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Change in fair value of derivative liabilities | $ | 4,945 | $ | (17,393 | ) | |||
| Gain (loss) on exchange of warrants for common stock | - | 1,630 | ||||||
| Loss on conversion of long-term debt and accrued expenses | - | (2,194 | ) | |||||
| Gain (loss) on disposal of fixed assets | - | (105 | ) | |||||
| Loss on abandonment of oil and gas property | - | (83 | ) | |||||
| Gain on disposal of ARO related to sale of oil and gas property | 7 | - | ||||||
| Gain on sale of oil and gas property | 592 | - | ||||||
| Interest expense, net of interest income | (584 | ) | (841 | ) | ||||
| Other income (expense) | $ | 4,960 | $ | (18,986 | ) | |||
Change in fair value of derivative liabilities for the three months ended December 31, 2020June 30, 2021 was a non-cash gain of $481 as compared to a non-cash loss of ($2,376) for the three months ended December 31, 2019.June 30, 2020. The $2,857$22,338 increase was a result of the fluctuation in the stock price in the three months ended December 31, 2020at June 30, 2021 compared to the three months ended December 31, 2019. In addition, thereJune 30, 2020.
There was a non-cash gain in the three monthsperiod ended December 31,June 30, 2020 from the extinguishment of the derivative liabilities that when converted to shares of common stock of $2,755 compared to ($220)$1,630. In addition, in the three months ended December 31, 2019. In the period ended December 31,June 30, 2020, there was a forgivenessloss on the conversion of debt relatedand other liabilities to the PPP loans in the amountshares of $1,850.common stock of $2,194.
Interest expense, net of interest income, for the three months ended December 31,June 30, 2020 was $318 as compared to $188 for the three months ended December 31, 2019. The increase was the result of the interest incurred on the debt assumed in the Banner Midstream acquisition, the amortization of debt discount of $149 as well as the value related to the granting of warrants for interest of $252.$524. For the three months ended June 30, 2021, value related to the granting of warrants for interest was $545.
Oil, Natural Gas and Natural Gas Liquids Costs and Expenses
| Three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Costs and expenses (income): | ||||||||
| Production | $ | 295 | $ | (245 | ) | |||
| Exploration, abandonment, and impairment | 225 | - | ||||||
| Oilfield supplies and repairs | 99 | - | ||||||
| Oil & Gas production taxes | 44 | 10 | ||||||
| General and administrative | 420 | - | ||||||
| Depreciation and amortization | 8 | 1 | ||||||
| Depletion | 718 | 53 | ||||||
| Accretion | 38 | 7 | ||||||
| Gain on sale of oil and gas property | (600 | ) | - | |||||
| Loss on abandonment of oil and gas property | - | 82 | ||||||
Net Income (Loss)(loss)
The following table shows other income (expense) for the three months ended June 30, 2021 and 2020:
| Three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Commodities Segment | $ | 1,956 | $ | (14,912 | ) | |||
| Financial Segment | 214 | (914 | ) | |||||
| Technology Segment | 389 | (5,355 | ) | |||||
| Net Income (loss) | $ | 2,559 | $ | (21,181 | ) | |||
Net income from continuing operations for the three months ended December 31, 2020 was $532 as compared to a net loss of ($5,419) for the three months ended December 31, 2019. The $5,951 increase in net income wasJune 30, 2021 increased primarily due to the non-cash changes in the fair value of the derivative liability of $22,338 and the non-cash losses incurred on the conversion of debt and expense to equity in three months ended June 30, 2020, offset by the non-cash gain on the exchange of warrants for common stock described herein as well as the forgiveness of debt on the PPP loans. The net income (loss) was comprised of $194 and ($162) in the financing segment; ($101) and ($5,257) in the technology segment; and net income of $439 and $0 in the commodity segment for the three months ended December 31, 2020 and 2019, respectively.June 30, 2020.
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Results of Operations for the Nine Months Ended December 31, 2020 and 2019
LIQUIDITY AND CAPITAL RESOURCES
Revenues
Revenues for the nine months ended December 31, 2020 were $10,056 as compared to $219 for the nine months ended December 31, 2019, an increase of $9,837. The increase was primarily due to the addition of the oil and gas operations as the result of the Banner Midstream acquisition on March 27, 2020. Revenues were comprised of $359 and $96 in the financing segment; $0 and $123 in the technology segment; and $9,697 and $0 in the commodity segment for the nine months ended December 31, 2020 and 2019, respectively.
Cost of Revenues and Gross Profit
Cost of revenues for the nine months ended December 31, 2020 was $6,644 as compared to $128 for the nine months ended December 31, 2019, an increase of $6,516. The increase was primarily due to the addition of the oil and gas operations as the result of the Banner Midstream acquisition on March 27, 2020. Cost of Revenues was comprised of $0 and $0 in the financing segment; $0 and $128 in the technology segment; and $6,644 and $0 in the commodity segment for the nine months ended December 31, 2020 and 2019, respectively. Gross margins decreased from 42% for the nine months ended December 31, 2019 to 34% for the nine months ended December 31, 2020 due to costs involved with executing the projects and changes in inventory of crude oil.
Operating Expenses
Operating expenses for the nine months ended December 31, 2020 were $13,733 as compared to $7,789 for the nine months ended December 31, 2019, an increase of $5,944. Operating expenses were comprised of $331 and $406 in the financing segment; $2,541 and $7,383 in the technology segment; and $10,861 and $0 in the commodity segment for the nine months ended December 31, 2020 and 2019, respectively. The $5,944 increase was due principally to the expenses, including wages and consulting fees, related to the addition of the oil and gas operations as the result of the Banner Midstream acquisition on March 27, 2020 and the depreciation, depletion, amortization and accretion for Banner Midstream in 2020, partially offset by the reduction in the Zest Labs selling expenses.
Selling, General and Administrative
Selling, general and administrative expenses for the nine months ended December 31, 2020 were $11,970 compared with $5,464 for the nine months ended December 31, 2019. Cost reduction initiatives were focused on salary related and professional fees for the technology segment offset by the costs incurred for Banner Midstream as this was acquired in March 2020.
Depreciation, Amortization, Depletion and Accretion
Depreciation, amortization, depletion and accretion expenses for the nine months ended December 31, 2020 were $1,133 compared to $216 for the nine months ended December 31, 2019. Depreciation, amortization, depletion and accretion expenses were comprised of $0 and $0 in the financing segment; $188 and $216 in the technology segment; and $945 and $0 in the commodity segment for the nine months ended December 31, 2020 and 2019, respectively. The $917 increase resulted primarily from the acquisition of Banner Midstream and the depletion and accretion is the result of the oil and gas properties maintained by Banner Midstream. The technology and financing segment do not have depletion or accretion.
Research and Development
Research and development expense decreased 70% to $630 in the nine months ended December 31, 2020 compared with $2,109 in the nine months ended December 31, 2019. The $1,479 reduction in costs related primarily to the maturing of development of the Zest Labs freshness solutions.
Other Income (Expense)
Change in fair value of derivative liabilities for the nine months ended December 31, 2020 was a non-cash loss of ($15,901) as compared to a non-cash loss of ($2,392) for the nine months ended December 31, 2019. The $13,509 decrease was a result of the fluctuation in the stock price in the nine months ended December 31, 2020 compared to the nine months ended December 31, 2019. In addition, there was a non-cash gain in the nine months ended December 31, 2020 from the extinguishment of the derivative liabilities that when converted to shares of common stock of $19,338 compared to ($1,059) in the prior year period. In the period ended December 31, 2020, there was a non-cash loss on the conversion of debt and other liabilities to shares of common stock of $3,969, a gain on forgiveness of debt of PPP loans of $1,850 and a loss on the sale of fixed assets and abandonment of oil and gas properties of $105 and $83, respectively.
Interest expense, net of interest income, for the nine months ended December 31, 2020 was $2,473 as compared to $323 for the nine months ended December 31, 2019. The increase was the result of the interest incurred on the debt assumed in the Banner Midstream acquisition as well as the value related to the granting of warrants for interest of $2,042 and the amortization of debt discount of $149.
Net Loss
Net loss from continuing operations for the nine months ended December 31, 2020 was $11,664 as compared to $11,456 for the nine months ended December 31, 2019. The $208 decrease in net loss was primarily due to the non-cash changes in the fair value of the derivative liability and the non-cash losses incurred on the conversion of debt to equity, offset by the non-cash gain on the exchange of warrants for common stock and forgiveness of debt of the PPP loans described herein. The net income (loss) was comprised of $54 and ($311) in the financing segment; ($2,409) and ($11,145) in the technology segment; and net loss of ($9,309) and $0 in the commodity segment for the nine months ended December 31, 2020 and 2019, respectively.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.
Net cash used in operating activities was ($7,828)290) for the ninethree months ended December 31, 2020,June 30, 2021, as compared to net cash used in operating activities of ($4,592)2,837) for the ninethree months ended December 31, 2019.June 30, 2020. Cash used in operating activities is related to the Company’s net lossincome (loss) partially offset by non-cash expenses, including share-based compensation and the change in the fair value of the derivative liability and net losses incurred in the conversion of debt and liabilities to shares of common stock as well as losses on the sale of fixed assets and abandonment of oil and gas properties.
Net cash provided by (used in) investing activities was $2 for the three months ended June 30, 2021, as compared to ($209) net cash used in investing activities was ($3,808) for the ninethree months ended December 31, 2020, as compared to $24 net cash provided for the nine months ended December 31, 2019.June 30, 2020. Net cash used in investing activities in 20202021 related to the sale of fixed assets of $2. For the three months ended June 30, 2020, the cash used in investing activities related to advancement of a note receivable of $275,$200, and the net purchases of fixed assets and oil and gas properties.properties including drilling costs of $9.
Net cash used in financing activities for the three months ended June 30, 2021 was $186 that included $214 in repayments of debt offset by $28 in proceeds received from the exercise of stock options. This compared with the cash provided by financing activities forin the ninethree months ended December 31,June 30, 2020 was $19,211of $4,433 that included $22,374 (net of fees) raised via issuance of common stock in a direct registered offering, stock for$6,677 from the exercise of warrants, and$349 form the exercise of stock options, offset by proceeds and repayments of long-term debt and notes payable including related parties of $3,163. This compared with the nine months ended December 31, 2019 amounts of $4,430 provided by financing that included $1,047 provided through the credit facility, $2,980$2,269 from proceeds received from the sale of preferred stockdebt form related and $403non-related parties offset by $4,596 from proceeds from advances frompayments on debt to both related parties.and non-related parties and $266 in payments to prior owners.
To date we have financed our operations through sales of common stock and the issuance of debt.
In addition to these transactions, the Company in the period from April 1, 2020 through December 31, 2020, entered into the following transactions:
At December 31, 2020June 30, 2021 we had cash (including restricted cash) of $7,981,$842, and $3,955$17,100 as of February 1,August 9, 2021. We had a working capital deficit of $2,856$7,338 and $16,689$11,845 as of December 31, 2020June 30, 2021 and March 31, 2020,2021, respectively. The decrease in the working capital deficit is the result of the non-cash change in the fair value of the derivative liabilities and repayments of long-term debt offset by the repaymentnet changes in accounts payable and conversionaccrued expenses.
On August 6, 2021, the Company closed a registered direct offering (the “Offering”) of debt3,478 shares of the Company’s common stock and liabilitieswarrants to purchase 3,478 shares of common stock. These liabilities were assumedstock (the “Warrants”) to institutional investors at a purchase price per share and accompanying Warrant of $5.75 and received net proceeds of approximately $18,249 after deducting fees payable to the placement agent and offering expenses payable by the Company. We intend to use approximately $7,000 of the net proceeds from this offering to pay the expenses related to our new drilling projects for previously announced drilling program, approximately $3,000 to invest in the Banner Midstreamdevelopment of the prospective digital asset mining operation in March 2020. Texas, approximately $1,000 to fund potential new intellectual property litigation legal fees and filings, and the remaining balance for additional to be determined growth capital projects, working capital, and general corporate purposes.
The Warrants have an exercise price equal to $5.75 per share, are exercisable on the effective date of an increase in the number of shares of the Company’s authorized common stock to 40,000 (the “Authorized Share Increase Date”) and will expire three and one-half years after the initial exercise date.
The Company believes it has adequate capital resources to meet its cash requirements during the next 12 months.
The Company raised approximately $14,359 in warrant exercisesWe expect that in the nine months ended December 31, 2020 as well as $8,001 in a registered direct offering. We expect thatlong term the revenue generating operations of Banner Midstreamin our Commodities segment will continue to improve the liquidity of the Company moving forward. However, going forward,The Company’s capital program for production enhancement and development is expected to be significantly focused on exploiting legacy acreage positions that are economically viable at today’s oil prices. We anticipate that management’s focus on legacy acreage enhancement and development will positively benefit the effectbalance sheet by producing hydrocarbons during a time of increasing demand after the pandemic on the capital markets may limit our ability to raise additional capital on the terms acceptable to us at the time we need it, if at all. As disclosed in Note 1, COVID-19 has had an impact on our management’s ability to operate effectively. The challenges related to remote work and travel restrictions that we as a smaller company have faced in striving to meet our disclosure obligations in a timely manner while taking the steps to protect the health and safetynegative impacts of our employees have impacted, and may continue to further impact, our ability to raise additional capital.COVID-19.
The Company has agreedamount and timing of our capital expenditures are largely discretionary and within our control. We could choose to fund 100%defer a portion of these planned capital expenditures depending on a variety of factors, including but not limited to the cost, estimated to be approximately $4,700, associated withsuccess of our drilling activities, prevailing and anticipated prices for oil, the availability of necessary equipment, infrastructure and capital, the receipt and timing of required regulatory permits and approvals, seasonal conditions, drilling and completionacquisition costs and the level of an initial deep horizontal wellparticipation by other interest owners. We currently continue to execute on our strategy to reinvest cash flow from operations to enhance, develop and increase oil production, strengthening our balance sheet. We intend to continue monitoring commodity prices and overall market conditions and can adjust capital deployment in response to changes in commodity prices and overall market conditions.
We monitor and adjust our projected capital expenditures in response to the Austin Chalk formation as partresults of their Participation Agreement with Blackbrush Oil & Gas, L.P. The Company paidour drilling activities, changes in prices, availability of financing, drilling and acquisition costs, industry conditions, the amounttiming of regulatory approvals, the availability of rigs, contractual obligations, internally generated cash flow and other factors both within and outside our control. If we require additional capital, we may seek such capital through traditional reserve base borrowings, joint venture partnerships, production payment financing, asset sales, offerings of debt and/or equity securities or other means. There is no assurance that the needed capital will be available on acceptable terms or at all. If we are unable to obtain funds when needed or on acceptable terms, we may be required to curtail our drilling costs intoprograms, which could result in a designated escrow account byloss of acreage through lease expirations. In addition, we may not be able to complete acquisitions that may be favorable to us or finance the commencement of the drilling, which occurred in January 2021.capital.
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Contractual Obligations
Our contractual obligations are included in our Notes to the Unaudited Condensed Consolidated Financial Statements. To the extent that funds generated from our operations, together with our existing capital resources, are insufficient to meet future requirements, we will be required to obtain additional funds through equity or debt financings. No assurance can be given that any additional financing will be made available to us or will be available on acceptable terms should such a need arise.
Off-Balance Sheet Arrangements
As December 31, 2020of June 30, 2021 and March 31, 2020,2021, we had no off-balance sheet arrangements.
Cautionary Note Regarding Forward Looking Statements
This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the expected increase in revenues from oil and gas operations, the proposed digital assets mining business, the expected use of proceeds from the Offering, including the new drilling projects, the digital asset mining business and prospective future litigation, our capital program for production enhancement and development, our anticipated capital expenditures, and future liquidity. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including: any projections of earnings, revenues or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.
The results anticipated by any or all of these forward-looking statements might not occur. Important factors that could cause actual results to differ from those in the forward-looking statements include, among other things, volatility of oil prices, the risks arising from the new impact of the COVID-19 pandemic, including its future effect on the U.S. and global economies including the oil and on our Company,gas market, competition, government regulation or action, the costs and results of drilling activities, risks inherent in drilling operations, availability of equipment, services, resources and personnel required to conduct operating activities, ability to replace reserves and uncertainties related to reserve estimates, the Company’s ability to raise additional capital on acceptable terms when needed, uncertainties related to ongoing litigation, risks related to potential impact of natural disasters, risks and uncertainties related to the proposed digital asset mining business, and cybersecurity risks. Further information on our risk factors is contained in our filings with the SEC, including our Annual Report on Form 10-K for the year ended March 31, 20202021 and registration statement on Form S-3 filed on October 16, 2020, as amended by Amendment No. 1 filed on December 22, 2020, and Amendment No. 2 filed on December 28, 2020.our prospectus supplement dated August 4, 2021. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officers, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on such evaluation, our principal executive and financial officers have concluded that as of the end of the period covered by this report the Company’s disclosure controls and procedures were effective.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Principal Financial Officer (Principal Financial and Accounting Officer), as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
DuringThere were no material changes in our internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2020, we remediatedJune 30, 2021 that have materially affected, or are reasonably likely to materially affect, our previously identified material weakness. This material weakness related to improper segregation of duties. We addressed our lack of segregation of duties by hiring additional personnel in our accounting and financing departments to ensure that proper controls are adhered to. With the changes in force, we believe that there is effective internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except as set forthOther than discussed below, during the period covered by this Quarterly Report on Form 10-Qreport, there have beenwere no material changes todevelopments in the description of legal proceedings set forthdisclosed in our Annual Report on Form 10-K for the year ended March 31, 2020.
On August 1, 2018, the Company and Zest Labs filed a complaint against Walmart Inc. in the United States District Court for the Eastern District of Arkansas, Western Division. The complaint includes claims for violation of the Arkansas Trade Secrets Act, violation of the Federal Defend Trade Secrets Act, breach of contract, unfair competition, unjust enrichment, breach of the covenant of good faith and fair dealing, conversion and fraud. The Company and Zest Labs are seeking monetary damages and other related relief to the extent it is deemed proper by the court. The Company does not believe that expenses incurred in pursuing the complaint have had a material effect on the Company’s net income or financial condition for the fiscal year ended March 31, 2020 or any individual fiscal quarter. On October 22, 2018, the Court issued an order initially setting a trial date of June 1, 2020, which has been delayed due to COVID-19. The trial date has been rescheduled to March 29, 2021.
On January 15, 2021, Simon Abrahms filed a notice of dismissal without prejudice of the class action lawsuit which was filed in the United States District Court of the District of Nevada on November 9, 2020 against the Company and members of its Board of Directors. This lawsuit is discussed in more detail in the Company’s revised definitive proxy statement on Schedule 14A filed on December 11, 2020. The Company’s stockholders ratified the corporate action giving rise to this litigation at a special meeting that was held on December 29, 2020. As a result, the Company expects that its sole remaining liability is to reimburse the plaintiff for his reasonable attorneys’ fees.
| ● | On August 1, 2018, Ecoark Holdings, Inc. and Zest Labs, Inc. filed a complaint against Walmart Inc. in the United States District Court for the Eastern District of Arkansas, Western Division. The complaint includes claims for violation of the Arkansas Trade Secrets Act, violation of the Federal Defend Trade Secrets Act, breach of contract, unfair competition, unjust enrichment, breach of the covenant of good faith and fair dealing, conversion and fraud. On April 9, 2021, a Little Rock, Arkansas jury awarded Ecoark and Zest a total of $115 million in damages which includes $65 million in compensatory damages and $50 million in punitive damages and found Walmart Inc. liable on three claims. The federal jury found that Walmart Inc. misappropriated Zest’s trade secrets, failed to comply with a written contract, and acted willfully and maliciously in misappropriating Zest’s trade secrets. We expect Walmart to continue to vigorously defend the litigation and to oppose the verdict in post-trial motions and an appeal. On April 27, 2021, we filed with the United States District Court for the Eastern District of Arkansas, Central Division a motion for attorneys’ fees in the amount of $46,000,000 or alternatively, $13,536,803, pre-judgment interest in the amount of $16,700,548 and 0.06% post-judgment interest, accruing from April 13, 2021. |
ITEM 1A. RISK FACTORS
SeeInvestors should review new risk factors includedcontained in the registration statement on Form S-3 filed on October 16, 2020, as amended by Amendment No. 1 filed on December 22, 2020 and Amendment No. 2 filed on December 28, 2020, and theour prospectus supplement filed on December 30, 2020.dated August 4, 2021 in addition to those disclosed in our Form 10-K for the year ended March 31, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On November 16, 2020,June 30, 2021, the Company issued to Randy May,an employee (i) 10 shares of common stock upon exercise of stock options for cash and received proceeds in the Chief Executive Officer, one shareamount of $28, and (ii) 10 shares of common stock upon cashless exercise of 20 stock options.
On June 30, 2021, the newly designated Series A-1 Preferred Stock, par value $0.001Company issued 200 warrants (the “Warrants”) pursuant to a Purchase Agreement, dated June 30, 2021, by and between the Company and an investor for a total consideration of $545. The Warrants are two-year warrants immediately exercisable at the strike price of $10.00 per share (the “Series A-1 Preferred Stock”) in exchange for one dollar. share.
On July 1, 2021, the Company issued 30 shares to a consultant.
The issuance of the Series A-1 Preferred Stockabove shares was exempt from registrationnot registered under the Securities Act pursuant toin reliance on the exemption from registration contained in Section 4(a)(2) of the Securities Act and Rule 506(b) promulgated thereunder.Act.
On November 27, 2020, the one share of Series A-1 Preferred Stock was redeemed. After the redemption, the Company filed with the Secretary of State of Nevada a Certificate of Withdrawal with respect to the Series A-1 Preferred Stock, which was effective upon filing.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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| Incorporated by Reference | Filed or Furnished | ||||||||||
| Exhibit No. | Exhibit Description | Form | Date | Number | Herewith | ||||||
| 3.1 | Articles of Incorporation, as amended | 10-Q | 2/12/21 | 3.1 | |||||||
| 3.2 | Amended and Restated Bylaws | 8-K | 4/28/17 | 3.1 | |||||||
| 31.1 | Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 | Filed | |||||||||
| 31.2 | Certification of Principal Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 | Filed | |||||||||
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Furnished* | |||||||||
| 32.2 | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Furnished* | |||||||||
| 101.INS | Inline XBRL Instance Document. | Filed | |||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | Filed | |||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | Filed | |||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | Filed | |||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | Filed | |||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | Filed | |||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | Filed | |||||||||
| This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K. |
Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our stockholdersshareholders who make a written request to our Corporate Secretary at Ecoark Holdings, Inc., 303 Pearl Parkway Suite #200, San Antonio, Texas 78215.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Ecoark Holdings, Inc. | ||
| Date: | By: | /s/ RANDY MAY |
| Randy May | ||
| Chief Executive Officer | ||
| Date: | By: | /s/ WILLIAM B. HOAGLAND |
| William B. Hoagland | ||
| Chief Financial Officer | ||
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