ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2021 AND 2020
(in
thousands, except per share data)
|
|
2021
|
|
|
2020
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
CASH
FLOW FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
1,306
|
|
|
$
|
(11,664
|
)
|
Adjustments
to reconcile net income (loss) to net cash used in operating activities
|
|
|
|
|
|
|
|
|
Change
in non-controlling interest
|
|
|
(323
|
)
|
|
|
-
|
|
Depreciation,
amortization, depletion, and accretion
|
|
|
2,340
|
|
|
|
1,133
|
|
Impairment
of digital assets
|
|
|
1
|
|
|
|
-
|
|
Share-based
compensation
|
|
|
1,711
|
|
|
|
1,569
|
|
Bad
debt, net of recovery
|
|
|
-
|
|
|
|
184
|
|
Change
in fair value of derivative liabilities
|
|
|
(15,295
|
)
|
|
|
15,901
|
|
(Gain)
on disposal of oil and gas property
|
|
|
(18
|
)
|
|
|
-
|
|
Forgiveness of
debt
|
|
|
-
|
|
|
|
(1,850
|
)
|
(Gain)
loss on exchange of warrants
|
|
|
-
|
|
|
|
(19,338
|
)
|
Common
shares issued for services
|
|
|
881
|
|
|
|
485
|
|
Common
shares issued for services- Agora
|
|
|
2,281
|
|
|
|
-
|
|
Loss
on sale of fixed assets
|
|
|
-
|
|
|
|
105
|
|
Loss
on abandonment of oil and gas property
|
|
|
-
|
|
|
|
83
|
|
Warrants
granted for interest expense
|
|
|
545
|
|
|
|
2,042
|
|
Warrants
granted for commissions
|
|
|
744
|
|
|
|
308
|
|
Loss
on conversion of debt and liabilities to common stock
|
|
|
-
|
|
|
|
3,969
|
|
Amortization
of debt discount
|
|
|
-
|
|
|
|
149
|
|
Changes
in assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
420
|
|
|
|
(454
|
)
|
Inventory
|
|
|
(53
|
)
|
|
|
(129
|
)
|
Prepaid
expenses and other current assets
|
|
|
(304
|
)
|
|
|
(562
|
)
|
Intangible
assets - digital currencies
|
|
|
(17
|
)
|
|
|
-
|
|
Amortization
of right of use asset - financing leases
|
|
|
108
|
|
|
|
109
|
|
Amortization
of right of use asset - operating leases
|
|
|
137
|
|
|
|
104
|
|
Other
assets
|
|
|
-
|
|
|
|
(4
|
)
|
Interest
on lease liability - financing leases
|
|
|
(8
|
)
|
|
|
(11
|
)
|
Operating
lease expense
|
|
|
(148
|
)
|
|
|
(76
|
)
|
Accounts
payable
|
|
|
(1,056
|
)
|
|
|
1,116
|
|
Accrued
liabilities
|
|
|
(1,672
|
)
|
|
|
(906
|
)
|
Total
adjustments
|
|
|
(9,726
|
)
|
|
|
3,927
|
|
Net
cash used in operating activities of continuing operations
|
|
|
(8,420
|
)
|
|
|
(7,737
|
)
|
Net
cash used in discontinued operations
|
|
|
-
|
|
|
|
-
|
|
Net
cash used in operating activities
|
|
|
(8,420
|
)
|
|
|
(7,737
|
)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Advance
of note receivable
|
|
|
-
|
|
|
|
(275
|
)
|
Payment
of power development costs
|
|
|
(2,000
|
)
|
|
|
-
|
|
Purchases
of oil and gas properties, net of asset retirement obligations
|
|
|
(304
|
)
|
|
|
(3,335
|
)
|
Proceeds
from the sale of fixed assets
|
|
|
2
|
|
|
|
43
|
|
Purchase
of fixed assets
|
|
|
(7,085
|
)
|
|
|
(241
|
)
|
Net
cash used in investing activities of continuing operations
|
|
|
(9,387
|
)
|
|
|
(3,808
|
)
|
Net
cash used in discontinued operations
|
|
|
-
|
|
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(9,387
|
)
|
|
|
(3,808
|
)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds
from the issuance of common stock in a registered direct offering, net of fees
|
|
|
19,230
|
|
|
|
7,666
|
|
Proceeds
from exercise of warrants, net of fees
|
|
|
-
|
|
|
|
14,359
|
|
Proceeds
from exercise of stock options
|
|
|
28
|
|
|
|
349
|
|
Reduction
of finance lease liability
|
|
|
(98
|
)
|
|
|
(91
|
)
|
Proceeds
from notes payable - related parties
|
|
|
-
|
|
|
|
604
|
|
Repayments
of notes payable - related parties
|
|
|
(578
|
)
|
|
|
(1,429
|
)
|
Proceeds
from long-term debt
|
|
|
-
|
|
|
|
1,869
|
|
Repayment
of long-term debt
|
|
|
(1,227
|
)
|
|
|
(3,891
|
)
|
Repayment
to prior owners
|
|
|
-
|
|
|
|
(316
|
)
|
Net
cash provided by financing activities
|
|
|
17,355
|
|
|
|
19,120
|
|
|
|
|
|
|
|
|
|
|
NET
(DECREASE) INCREASE IN CASH AND RESTRICTED CASH
|
|
|
(452
|
)
|
|
|
7,575
|
|
|
|
|
|
|
|
|
|
|
CASH
AND RESTRICTED CASH - BEGINNING OF PERIOD
|
|
|
1,316
|
|
|
|
406
|
|
|
|
|
|
|
|
|
|
|
CASH
AND RESTRICTED CASH - END OF PERIOD
|
|
$
|
864
|
|
|
$
|
7,981
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES
|
|
|
|
|
|
|
|
|
Cash
paid for interest expense
|
|
$
|
156
|
|
|
$
|
404
|
|
Cash
paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
SUMMARY
OF NON-CASH ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
of assets of discontinued operations to current operations in fixed assets
|
|
$
|
194
|
|
|
$
|
-
|
|
Bifurcation
of derivative liability in registered direct offering
|
|
$
|
11,203
|
|
|
$
|
-
|
|
Recognition of non-controlling interest
|
|
$
|
30
|
|
|
$
|
-
|
|
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 liabilities 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
|
|
$
|
507
|
|
|
$
|
442
|
|
See
notes to 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, 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 and when separately disclosed, or where the context indicates otherwise.
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 preparing to launch a Bitcoin mining operation. 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 principal subsidiaries consist of Ecoark, Inc. (“Ecoark”), a Delaware corporation
which is the parent of Zest Labs, Inc. (“Zest Labs”), Banner Midstream Corp., a Delaware corporation (“Banner Midstream”)
and Agora Digital Holdings, Inc., a Nevada corporation (“Agora”) who was assigned the membership interest in Trend Discovery
Holdings LLC, a Delaware limited liability corporation (all references to “Trend Holdings” or “Trend” are now
synonymous with Agora) from the Company on September 17, 2021 upon its formation.
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 20,000 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-ins 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.
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)
DECEMBER 31, 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 pre-funded a majority of the cost, approximately $5,800, associated with
the drilling and completion of an initial deep horizontal well in the Austin Chalk formation of which $3,387 was expensed as drilling
costs. The Participation Agreement required the drilling costs that were paid into a designated escrow account at the commencement of
the drilling in January 2021, which it was. BlackBrush 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.
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 and/or maintain leasehold by paying its proportionate share of any
rental payments.
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.
On
August 16, 2021 the Company and Shamrock Upstream Energy, LLC, a wholly-owned subsidiary of the Company entered into an agreement with
a privately-held limited liability company to acquire working interests in the Luling Prospect for $250. No other assets were acquired
in this transaction, nor was there any recognized ARO for this working interest. 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.
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR
AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER
31, 2021
On
September 1, 2021 the Company and White River Energy, LLC, a wholly-owned subsidiary of the Company entered into an agreement with several
individuals to acquire working interests in the various leases in Concordia, LA for $54. No other assets were acquired in this transaction,
nor was there any recognized ARO for this working interest. 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.
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.
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.
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 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. In addition to other post-trial motions, Walmart, Inc. has filed a renewed motion for judgment as a matter
of law or, in the alternative, for remittitur or a new trial. As of the date of this Report, the court has not ruled on any of the post-trial
motions.
Trend
Holdings formed four subsidiaries: Bitstream Mining, LLC, a Texas Limited Liability Corp. (“Bitstream”) on May 16, 2021,
REStream Processing LLC, a Texas Limited Liability Corp (“REStream”) on May 16, 2021, Trend Discovery Exploration LLC, a
Texas Limited Liability Corp. (“Trend Exploration”) on May 27, 2021, and OTZI, LLC, a Delaware Limited Liability Corp. (“OTZI”)
on September 2, 2021, in addition to Barrier Crest, LLC (“Barrier Crest”) that was acquired along with Trend Capital Management,
Inc. (“TCM”) that was acquired by Ecoark on May 31, 2019.
The
Company assigned its membership interest in Trend Holdings and its related wholly owned subsidiaries to Agora on September 22, 2021,
for the sale of the initial one hundred shares for ten dollars. On October 1, 2021, the Company purchased 41,671 shares of Agora common
stock for $4,167 which Agora used to purchase equipment to commence the Bitstream operations.
Agora
was organized by Ecoark to enter the digital asset mining business. Because of regulatory uncertainty over digital assets being deemed
to be securities, Agora’s initial focus is on mining Bitcoin which the Securities and Exchange Commission (the “SEC”)
administratively determined is not a security. Because of regulatory concerns and the changing regulatory environment, Agora intends
to seek opportunities to engage with cryptocurrencies that do not involve the offer or sale of any securities.
On November 19, 2021 Agora filed a registration
statement on Form S-1 (File No. 333-261246) in connection with its initial public offering of 10,000,000 (ten million) units comprised
of shares of common stock and warrants to purchase an equal number of shares of common stock. The Agora registration statement has undergone
a series of amendments since its initial filing in November 2021 and has not yet been declared effective by the Securities and Exchange
Commission. In addition, in connection with Agora public offering, Agora has applied for its common stock and warrants to be listed on
The Nasdaq Capital Market.
Subject
to completion of the Agora public offering and Nasdaq uplisting described below, the Company intends to issue a stock dividend through
a pro rata distribution of Agora’s common stock to Ecoark’s common stockholders and holders of common stock equivalents.
Ecoark plans to distribute 80% of the Agora common stock it holds to its stockholders as of a future record date to be determined upon
completion of regulatory compliance. Ecoark plans to retain the remaining 20% ownership in Agora on its balance sheet. As a result of
the approval by the board of directors of the Company to divest Agora, the Company has accounted for this as a disposal other than by
sale. Assets to be disposed of other than by sale should continue to be classified as held and used until they are disposed of. Upon
disposal, the Company must assess whether the disposed of assets qualify for discontinued operations reporting. If so, the Company will
apply the presentation and disclosure requirements of ASC 205-20, and if not, the Company will apply the presentation and disclosure
requirements of ASC 360-10.
On
August 4, 2021, the Company’s common stock commenced trading on the Nasdaq Capital Market.
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR
AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER
31, 2021
On
October 6, 2021, the Company held a Special Meeting of Stockholders, at which the stockholders approved (a) an amendment to the Articles
of Incorporation to increase the number of shares of authorized common stock of the Company from 30,000 shares to 40,000 shares; (b)
an amendment to the Ecoark Holdings, Inc. 2017 Omnibus Incentive Plan to increase the number of shares of common stock authorized for
issuance under this plan from 800 shares to 1,300 shares; and (c) the issuance of 272 restricted stock units and an additional 64 restricted
stock units to the President and director of the Company under this plan, in exchange for the cancellation of 672 previously issued stock
options.
Overview
of Agora Digital Holdings, Inc.
Bitstream
Bitstream
was organized to be our principal cryptocurrency subsidiary. Bitstream has entered into a series of agreements including arranging for
a reliable and economical electric power source needed to efficiently mine Bitcoin, ordering miners, housing infrastructure and other
infrastructure to mine Bitcoin and locating a third-party hosting service to operate the miners and the service’s more advanced
miners. Agora has spent (and agreed to spend) between $12-$14 million in connection with agreements related to establishing and commencing
its operations including the agreements for land for Bitcoin mining, but not including future revenue sharing. Agora commenced initial
operations for the initial miners in November 2021 and the expectation is that by March 2022 the Bitmain S19 Pro miners supplied by the
hosting service will be fully operational.
Bitstream deploys and operates (or hires third parties to operate)
modularized data centers (facilities) with the sole purpose of mining digital assets, with Bitcoin initially as the focus. Agora is powering
these data centers by acquiring one or more long-term power contract to purchase electric power from the electric grid in Texas. As the
business’ operations grow, Bitstream intends to continuously add data center facilities by reinvesting their revenues. 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, Bitstream would be able to arbitrage power at favorable margins. Bitstream
will do this by temporarily shutting down their cryptocurrency mining operations and selling their purchased power back to the grid at
favorable margins. Last winter, during the blackout, the price per kWh exceeded $10 (ten dollars) at its peak imbalance, whereas Bitstream’s
power cost is expected to be $0.023 (two and three one-hundredths cents) per kWh.
Bitstream
has
|
●
|
entered
into a letter of intent to obtain a source of electric power in West Texas, including the initial 12 megawatts (“MW”)
of power with agreement by the retail power provider to increase the available capacity at the substation to 48 MW. We have also
entered into a second letter of intent for an additional 30 MW at a second location;
|
|
●
|
paid the power management
company $2,423 which includes $2,000 in power development fees and is negotiating definitive agreements (the “Power Agreement”)
which if executed will allow for the increase of the facility’s electrical capacity to up to 78 MW; and
|
|
●
|
ordered 5,000 used Canaan
Avalon 841 13 tera hash per second (“TH/s”) miners for $1,350, plus shipping costs to be delivered on 1,000-unit increments,
of which 4,000 miners have been delivered as of January 31, 2022; and
|
|
|
|
|
●
|
entered into a long-term
lease for 20 acres of land effective December 10, 2021, and a land purchase agreement for a separate 20 acres of land effective January
3, 2022.
|
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR
AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER
31, 2021
Mining
Equipment
Because Bitstream has secured a source for 48 MW of electrical power
with agreement by the power provider to increase the available capacity at the substations to 78 MW as more fully described below and
expects to increase the capacity through conditional and unconditional rights to a number of sites across West Texas to up to 372 MW assuming
this can be done on acceptable terms. In September 2021 Bitstream ordered 5,000 used Canaan Avalon 841 13 TH/s miners for $1,350. Delivery
of the first shipment of 2,000 of these miners occurred in October 2021. Bitstream’s plan is to use trailer or shipping container-like
units as housing infrastructure to house our miners. Bitstream will either build their own or partner with another third-party vendor
to build entry level housing infrastructure to deploy the initial mining equipment in November 2021.
In
August 2021, Bitstream entered into an agreement with a third party which will supply Bitstream with more advanced housing infrastructure
in exchange for approximately $375. Delivery of these enhanced housing infrastructure is expected in early 2022. On December 10, 2021
Bitstream executed a lease agreement for 20 acres of land near the power substation upon which Bitstream will place the housing infrastructure.
On January 3, 2022, the Company finalized a land purchase agreement for a separate parcel of 20 acres of land ($12.5 per acre) in West
Texas for $250. The Company has an option to sell back this land to the sellers at $0.4 per acre upon cessation of the land being used
as a data center.
In
September 2021, Bitstream entered into a binding agreement referred to as a Memorandum of Understanding with Elite Mining Inc. (the “Hosting
Company”) that will supply high speed miners, host the Company’s data center and operate the miners it installs. In Phase
1 which is a beta test phase, Bitstream paid $600 to the Hosting Company which will also supply 6 MW capacity’s worth of very high
speed and efficient miners. Bitstream has an option to purchase these high-speed miners at replacement cost (which may be higher than
current cost). The Hosting Company may provide hosting for third parties during Phase 1 which reduces the cash flow for Bitstream. This
agreement will also allow Bitstream to utilize a minimum of 25 MW of electricity under the initial power purchase agreement in Phase
2. Bitstream can terminate the hosting agreement as soon as Bitstream has secured sufficient capital to replace the hosted Bitmain S19
Pros with their own. Once Bitstream purchases the high-efficiency miners, the Hosting Company cannot host third parties.
The
Hosting Company uses immersion cooling, and other technological enhancements, for the miners it will install for Bitstream. Immersion
cooling is a technique where Bitcoin mining units are submerged in a dielectric fluid to keep the integrated circuits operating at lower
temperatures. When successful, this has the potential to: prolong equipment life, enhance hashing efficiencies, and provides the opportunity
to “overclock” the processors, i.e., running at speeds beyond factory specified design. Overclocking, including when assisted
by immersion cooling, is a technique that can be used to increase a miner’s overall hash rate.
Phase
2 is planned to begin in May 2022 which is subject to Bitstream agreeing to proceed. If Bitstream elects to enter Phase 2, it will be
required to loan the Hosting Company the funds to develop a production facility in Texas on terms to be negotiated. Bitstream will have
certain rights to the production facility capacity from Phase 2 and will pay the Hosting Company for its services.
In
October 2021 Bitstream secured an additional 36 MWs of electrical capacity at a different West Texas location. This supplements the Company’s
prior agreement to secure 12 MWs and as a result the Company will have a total of 48 MWs of electric power for immediate use and benefit
to Bitstream at that location. We have also entered into a second letter of intent for an additional 30 MW at a second location. Bitstream
also plans to participate in the Electric Reliability Council of Texas’ (“ERCOT”) responsive reserve market by relinquishing
its power back to the Texas grid as power stabilization events are needed. Additionally, Bitstream has procured mining infrastructure
to power the 42 MWs and expects the equipment and infrastructure to be delivered over the next 120 days. This mining infrastructure includes
twenty-one 2,600 kilo-volt amp (KVA) or similar transformers and the Company’s first shipment of Bitcoin mining application-specific
integrated circuits (“ASIC”). The Company has agreed to pay a total $3,376 for the new equipment and infrastructure as follows:
(i) $506 upon the order which has been paid, (ii) $506 by November 11, 2021 which has been paid, (iii) $816 by December 15, 2021 which
has been paid; and (iii) the remaining $1,857 by February 2022.
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR
AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER
31, 2021
In
connection with the increase in electrical capacity, Bitstream entered into a second binding letter of intent with the power management
company pursuant to which the Company has paid a total of $2,955, consisting of a $2,628 development fee and a $327 reimbursement for
payments made by the power management company to the electric utility to secure the power. In addition, the Company agreed to pay a total
of $450 upon the power management company signing a binding agreement to acquire or lease 20 or more acres of usable land for Bitstream’s
facility and construct a transmission line to the mining site.
Once
the business is operational, Bitstream intends to continuously add data center platforms by reinvesting cash and potentially utilizing
leverage to scale operations. All data centers will be remotely managed with onsite personnel for servicing and troubleshooting any operational
issues.
Barrier
Crest provides fund administration and related services for small hedge funds. Trend Capital Management
was founded in 2011. Trend Capital Management is the investment manager of and provides services and collects fees from Trend Discovery
LP (“Trend LP”) and Trend Discovery SPV I, LLC (“Trend SPV”), both of which invest in securities. Trend
Capital Management is not the beneficial owner of Ecoark securities held by Trend LP since it assigned to a third party not affiliated
with Ecoark the power to vote and dispose of Ecoark securities. The investment capital in Trend
LP and Trend SPV is from individual limited partners, and not from the Company.
Trend
Exploration was assigned an 80% working interest in fourteen wells from White River SPV 2, LLC and White River E&P LLC (“Assignors”)
on July 1, 2021. In accordance with ASC 205-20, there is a scope exception for oil and gas properties that use the full-cost method of
accounting. Under the full-cost method of accounting, all costs associated with property acquisition, exploration, and development activities
are capitalized to cost centers, which are established on a country-by-country basis. The definition of discontinued operations, however,
applies to disposals of components of an entity, which is defined as the lowest level for which identifiable cash flows are largely independent
of the cash flows of other assets and liabilities. As a result, the definition of discontinued operations will not be operable under
the full-cost method of accounting because of differences in the tracking and allocation of costs, which is at a much higher level. The
Company as a result has not reflected the working interest on the fourteen wells in discontinued operations. The Trend Exploration business
is identical to the business noted herein for Banner Midstream.
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, 2021. Therefore, the interim unaudited condensed consolidated financial
statements should be read in conjunction with that Annual Report on Form 10-K.
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 for the Company to acquire 100% of Trend Discovery Holdings, LLC pursuant to a merger of Trend with and
into the Company (the “Merger”). Trend Discovery Holdings, Inc. ceased doing business upon completion of the merger and Trend
Discovery Holdings LLC is the subsidiary of the Company. Upon the formation of Agora on September 17, 2021, Ecoark assigned the membership
interest they owned in Trend Holdings to Agora on September 22, 2021 when the Company purchased one hundred shares of Agora common stock
for ten dollars.
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR
AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER
31, 2021
Subject
to completion of the Agora public offering and Nasdaq uplisting described above, the Company intends to issue a stock dividend through
a pro rata distribution of Agora’s common stock to Ecoark’s common stockholders and holders of common stock equivalents.
Ecoark plans to distribute 80% of the Agora common stock it holds to its stockholders as of a future record date to be determined upon
completion of regulatory compliance. Ecoark plans to retain the remaining 20% ownership in Agora on its balance sheet. As a result of
the approval by the board of directors of the Company to divest Agora, the Company, has accounted for this as a disposal other than by
sale. Assets to be disposed of other than by sale should continue to be classified as held and used until they are disposed of. Upon
disposal, the Company must assess whether the disposed of assets qualify for discontinued operations reporting. If so, the Company will
apply the presentation and disclosure requirements of ASC 205-20, and if not, the Company will apply the presentation and disclosure
requirements of ASC 360-10.
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.
The
Company has utilized the guidance under ASC 810-10-55-4B, Case A for a Change that has resulted in the recognition of non-controlling
interest. On October 1, 2021, Agora issued restricted common stock to non-employee directors, management, employees and advisors. As
a result of the restricted common share issuances, the Company owns now owns less than 100% of Agora (approximately 90.1%), The Company
expects it will continue to control Agora until it completes the distribution of Agora common stock to its security holders described
above; after that event occurs, it may still have sufficient equity ownership to control Agora unless one or more third parties acquire
a larger equity position.
Pursuant
to 810-10-55-4M, the Company has provided below the effects of ASC 810-10-50-1A(d) to disclose the effects of the changes in the Company’s
ownership interest in Agora on the Company’s equity for the three months ended December 31, 2021:
Net income (loss)
attributable to the Company’s stockholders
|
|
$
|
4,602
|
|
Increase in the Company’s additional paid-in capital for the issuance of the 4,600 restricted common shares of Agora
|
|
|
2,281
|
|
Change
from net income (loss) attributable to the Company’s stockholders and transfers to noncontrolling interest
|
|
$
|
6,883
|
|
Reclassifications
The
Company has reclassified certain amounts in the December 31, 2020 unaudited condensed consolidated financial statements to be consistent
with the December 31, 2021 presentation.
Noncontrolling
Interests
In
accordance with ASC 810-10-45 Noncontrolling Interests in Consolidated Financial Statements, the Company classifies noncontrolling
interests as a component of equity within the consolidated balance sheet. In October 2021, with the issuance of restricted common stock
to directors, management and advisors, the Company no longer owns 100% of Agora. As of December 31, 2021, approximately 9.1% is reflected
as non-controlling interest of that entity.
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 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 $1,445 and $380 and $305 and $254 in depletion expense for the Company’s oil and gas properties for the nine and three months
ended December 31, 2021 and 2020, respectively.
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 difference between the book and tax basis of
our oil and natural gas properties. A ceiling test was performed as of December 31, 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)
DECEMBER 31, 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’s inception, with an offsetting
increase to proved 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.
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 nine and three months ended December
31, 2021 and 2020, 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)
DECEMBER 31, 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 will recognize income from digital currency mining from the provision of transaction services within digital currency networks,
commonly termed “cryptocurrency mining”. As consideration for those services, the Company will receive digital currency from
each specific network in which it participates (“coins”). Income from digital currency mining is measured based on the fair
value of the coins received. The fair value is determined using the spot price of the coin on the date of receipt. The coins are recorded
on the consolidated balance sheet, as intangible asset – digital currency, at their fair value less costs to sell and re-measured
each reporting date, if not sooner. Revaluation gains or losses on the sale of coins for traditional (fiat) currencies will be included
in the consolidated statements of operations.
The
Company has entered into digital asset mining pools by executing contracts, as amended from time to time, with the mining pool operators
to provide computing power to the mining pool. The contracts are terminable at any time by either party and the Company’s enforceable
right to compensation only begins when the Company provides computing power to the mining pool operator. In exchange for providing computing
power, the Company’s entitled to a fractional share of the fixed cryptocurrency reward the mining pool operator receives (less
digital asset transaction fees to the mining pool operator which are recorded as a component of cost of revenues), for successfully adding
a block to the blockchain. The terms of the agreement provides that neither party can dispute settlement terms after thirty-five days
following settlement. The Company’s fractional share of the cryptocurrency generated by the pool is based on the proportion of
computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants
in solving the current algorithm.
Providing
computing power in digital asset transaction verification services is an output of the Company’s ordinary activities. The provision
of providing such computing power is the only performance obligation on the Company in the Company’s contracts with mining pool
operators. The transaction consideration the Company receives, if any, is noncash consideration, which the Company measures at fair value
on the date received, which is not materially different than the fair value at contract inception or the time the Company has earned
the reward from the pools. The consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue
will not occur, the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve
an algorithm) and the Company receives confirmation of the consideration it will receive, at which time the revenue is recognized. There
is no significant financing component in these transactions.
Fair
value of the digital asset reward received is determined using the quoted price of the related digital asset at the time of receipt.
The block reward provides an incentive for Bitcoin miners to process transactions made with the cryptocurrency. Creating an immutable
record of these transactions is vital for the digital assets to work as intended. The blockchain is like a decentralized bank ledger,
one that cannot be altered after being created. The miners are needed to verify the transactions and keep this ledger up to date. Block
rewards, and to a lesser extent, transaction fees, are their payment for doing so. There is currently no specific definitive guidance
under GAAP or alternative accounting framework for the accounting for digital assets recognized as revenue and held, and management has
exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by
the FASB, the Company may be required to change its policies, which could have an effect on the Company’s consolidated financial
position and results from operations.
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR
AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER
31, 2021
The
Company’s cost of revenue for digital assets consists primarily of direct costs of earning the digital asset related to mining
operations, including mining pool fees, electric power costs, other utilities, labor, insurance whether incurred directly from self-mining
operations or reimbursed, including any revenue sharing arrangements under the hosting agreements, but excluding depreciation and amortization,
which are separately stated in the Company’s Consolidated Statement of Operations.
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.
For
Pinnacle Frac, accounts receivable is comprised of unsecured amounts due from customers that have been conveyed to a factoring agent
for both with and 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.
White
River has recognized an allowance for doubtful accounts of $209 and $209 as of December 31, 2021 and March 31, 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.
Digital
assets will consist of cryptocurrency denominated assets and will be included in non-current assets. Digital assets will be carried at
their fair value determined by the spot rate less costs to sell. The digital asset market is still a new market and is highly volatile;
historical prices are not necessarily indicative of future value; a significant change in the market prices for digital currencies would
have a significant impact on the Company’s earnings and financial position. Fair value will be determined by taking the price of
the coins from the exchanges which the Company will most frequently use.
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR
AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER
31, 2021
Digital
Assets
Digital
currencies will be included in non-current assets in the consolidated balance sheets as intangible assets with indefinite useful lives.
Digital assets are recorded at cost less impairment.
The
Company accounts for its digital assets as indefinite-lived intangible assets in accordance with ASC 350. An intangible asset with an
indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances
occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount
exceeds its fair value, which is measured using the quoted price of the digital currency at the time its fair value is being measured.
In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely
than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative
impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the
extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses
is not permitted.
The
Company determines the fair value of its Bitcoin on a nonrecurring basis in accordance with ASC 820, based on quoted (unadjusted) prices
on the active exchange that the Company has determined is its principal market for Bitcoin (Level 1 inputs). The Company performs an
analysis each quarter to identify whether events or changes in circumstances, principally decreases in the quoted (unadjusted) prices
on the active exchange, indicate that it is more likely than not that any of the assets are impaired. In determining if an impairment
has occurred, the Company considers the lowest price of one Bitcoin quoted on the active exchange at any time since acquiring the specific
Bitcoin held by the Company. If the carrying value of a Bitcoin exceeds that lowest price, an impairment loss has occurred with respect
to that Bitcoin in the amount equal to the difference between its carrying value and such lowest price.
Impairment
losses are recognized as “Digital asset impairment losses” in the Company’s Consolidated Statements of Operations in
the period in which the impairment is identified. The impaired digital assets are written down to their fair value at the time of impairment
and this new cost basis will not be adjusted upward for any subsequent increase in fair value. Gains (if any) are not recorded until
realized upon sale, at which point they would be presented net of any impairment losses in the Company’s Consolidated Statement
of Operations. In determining the gain to be recognized upon sale, the Company calculates the difference between the sales price and
the carrying value of the specific Bitcoin sold immediately prior to sale.
Any
impairment losses related to digital assets are included in the Digital Assets segment.
Impairment
of Long-lived Assets
Management
reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted
future cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
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 consisted of three segments, Financial, Commodities and Technology. Effective
July 1, 2021, the Company’s chief operating decision makers in discussion with the finance team determined that the Company would
add a fourth reporting segment to account for their Digital Asset mining business. Additionally, on July 1, 2021 the Company will report
its home office costs into the Commodity segment, charge its Technology segment a monthly overhead fee, and has recorded typical overhead
expenses in their Finance and Digital Asset segments to account for this home office allocation.
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR
AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER
31, 2021
Earnings (Loss) Per Share of Common Stock
Basic net income (loss) per common share is computed
using the weighted average number of common shares outstanding. Diluted earnings per share (“EPS”) include additional dilution
from common stock equivalents, such as convertible notes, preferred stock, stock issuable pursuant to the exercise of stock options and
warrants.
Common stock equivalents are not included in the
computation of diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive for periods presented,
so only the basic weighted average number of common shares are used in the computations.
The Company has adjusted the diluted EPS for warrants
classified as derivative liabilities in accordance with ASC 260-10-45 as follows:
|
|
Nine Months Ended
December 31,
|
|
|
Three Months Ended
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) to controlling interest
|
|
$
|
1,306
|
|
|
$
|
(11,664
|
)
|
|
$
|
4,602
|
|
|
$
|
532
|
|
Change in fair value of derivative liability
|
|
|
(15,295
|
)
|
|
|
15,901
|
|
|
|
(10,979
|
)
|
|
|
(481
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income (loss)
|
|
$
|
(13,989
|
)
|
|
$
|
4,237
|
|
|
$
|
(6,377
|
)
|
|
$
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding
|
|
|
24,728
|
|
|
|
24,103
|
|
|
|
26,364
|
|
|
|
25,453
|
|
Adjusted earnings (loss) per share
|
|
$
|
(0.57
|
)
|
|
$
|
0.21
|
|
|
$
|
(0.24
|
)
|
|
$
|
0.00
|
|
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 re-measured 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, 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 nine months ended December 31, 2021 and
2020, the Company had a net income (loss) of $983 and ($11,664), respectively, has a working capital deficit of $6,020 and $11,845 as
of December 31, 2021 and March 31, 2021, and has an accumulated deficit as of December 31, 2021 of $147,635. As of December 31, 2021,
the Company has $864 in cash and cash equivalents from continuing operations. The Company alleviated the substantial doubt regarding this
uncertainty as of March 31, 2020 which continues to be alleviated at December 31, 2021 as a result of the Company’s acquisition
of Banner Midstream on March 27, 2020, coupled with the raising of funds through the exercise of warrants and options and the sale of
common stock and warrants during the year ended March 31, 2021 and through the nine months ended December 31, 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 COVID-19 pandemic including
the current supply chain shortages.
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 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, 2021
Impact of COVID-19
The COVID-19 pandemic has 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
and booster rollouts and the emergence of virus mutations including Omicron.
COVID-19 did not have a material effect on the
Consolidated Statements of Operations or the Consolidated Balance Sheets for the nine and three months ended December 31, 2021 in contrast
to the material impact it had in the prior fiscal year.
COVID-19 has also contributed to the supply chain
disruptions which have not yet had a material effect for the Company. The Company will continue to monitor the supply chain shortages
affecting the world.
Because the federal government and some state
and local authorities are reacting to the current Omicron variant of COVID-19, it is creating uncertainty on whether these actions could
disrupt the operation of the Company’s business and have an adverse effect on the Company. The extent to which the COVID-19 outbreak
may 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
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 businesses 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. Of the $1,869 in PPP loans obtained this fiscal year, the Company was informed that
$1,850 (including $11 in accrued interest) had been forgiven in the three months ended December 31, 2020. The remaining $30 with accrued
interest of $2 was converted into a loan that is due in May 2022, with payments of $2 per month that commenced December 19, 2020. The
Company repaid this loan in full in September 2021.
NOTE 2: DISCONTINUED OPERATIONS
Pursuant to ASC 205-20, Presentation of Financial
Statements – Discontinued Operations, ASC-20-45-1B, paragraph 360-10-45-15,
As of April 1, 2021, all of the equipment assets
and accounts payable of Pinnacle Vac were transitioned into Capstone to continue servicing the debt. As a result, there are no assets
or liabilities of discontinued operations that remain, and no income or loss from discontinued operations for the nine and three months
ended December 31, 2021 and 2020.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 2021
NOTE 3: REVENUE
The following table disaggregates the Company’s revenue by major
source for the nine and three months ended December 31:
|
|
Three Months Ended
December 31,
|
|
|
Nine Months Ended
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services
|
|
$
|
175
|
|
|
$
|
165
|
|
|
$
|
523
|
|
|
$
|
359
|
|
Digital asset mining
|
|
|
17
|
|
|
|
-
|
|
|
|
17
|
|
|
|
-
|
|
Oil and Gas Production
|
|
|
1,748
|
|
|
|
641
|
|
|
|
4,585
|
|
|
|
1,317
|
|
Transportation Services
|
|
|
4,139
|
|
|
|
3,541
|
|
|
|
13,756
|
|
|
|
8,090
|
|
Fuel Rebate
|
|
|
48
|
|
|
|
80
|
|
|
|
202
|
|
|
|
157
|
|
Equipment Rental
|
|
|
8
|
|
|
|
38
|
|
|
|
42
|
|
|
|
133
|
|
|
|
$
|
6,135
|
|
|
$
|
4,465
|
|
|
$
|
19,125
|
|
|
$
|
10,056
|
|
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.
Collections of the amounts billed are typically
paid by the customers within 30 to 60 days.
NOTE 4: INVENTORIES
The Company’s inventory as of December 31,
2021 and March 31, 2021 of $165 and $122, respectively, consisted of crude oil of approximately 5,187 and 6,198 barrels of unsold crude
oil (these amounts are not rounded in thousands), 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 18). There were no amounts outstanding as of December 31, 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)
DECEMBER 31, 2021
NOTE 6: DIGITAL ASSETS
The Company commenced their digital asset mining operations in November
2021. During the period ended December 31, 2021, the Company mined 0.34422307 Bitcoins. The value of the Bitcoin mined was approximately
$17. During the period ended December 31, 2021, the Company recognized impairment of digital assets of $1, to bring the carrying value
of the digital assets down to its fair value. The carrying value at December 31, 2021 was $16, which represents the lowest fair value
of the Bitcoins at any time since their mining. The Company did not sell any of its digital assets at any point during the period ended
December 31, 2021.
NOTE 7: PROPERTY AND EQUIPMENT
Property and equipment consisted of the following
as of December 31, 2021 and March 31, 2021:
|
|
December 31,
2021
|
|
|
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
|
|
Mining technology equipment – Digital Asset
|
|
|
7,066
|
|
|
|
-
|
|
Machinery and equipment – Technology
|
|
|
200
|
|
|
|
200
|
|
Machinery and equipment – Commodities
|
|
|
3,596
|
|
|
|
3,385
|
|
Total property and equipment
|
|
|
13,971
|
|
|
|
6,694
|
|
Accumulated depreciation and impairment
|
|
|
(3,515
|
)
|
|
|
(2,999
|
)
|
Property and equipment, net
|
|
$
|
10,456
|
|
|
$
|
3,695
|
|
As of December 31, 2021 and 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 in April 2021 traded in a truck with
a value of $5 for a new truck with a value of $3 and received cash of $2 in the exchange.
Depreciation expense for the nine and three months ended December 31,
2021 and 2020 was $516 and $513, and $170 and $172, 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, 2021
NOTE 8: INTANGIBLE ASSETS AND GOODWILL
Intangible assets consisted of the following as
of December 31, 2021 and March 31, 2021:
|
|
December 31,
2021
|
|
|
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
|
|
|
(2,916
|
)
|
|
|
(2,655
|
)
|
Intangible assets, net
|
|
$
|
1,804
|
|
|
$
|
2,065
|
|
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 are 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 and three months
ended December 31, 2021 and 2020 was $261 and $214, and $87 and $72, respectively.
The following is the future amortization of the
intangibles as of December 31:
2022
|
|
$
|
280
|
|
2023
|
|
|
263
|
|
2024
|
|
|
263
|
|
2025
|
|
|
230
|
|
2026
|
|
|
205
|
|
Thereafter
|
|
|
563
|
|
|
|
$
|
1,804
|
|
In addition to the statutory based intangible
assets noted above, the Company recorded a total of $10,225 of goodwill in connection with the purchase of Trend and Banner Midstream.
Accordingly, goodwill was as follows as of December
31, 2021:
Acquisition – Trend Discovery
|
|
$
|
3,223
|
|
Acquisition – Banner Midstream
|
|
|
7,002
|
|
Goodwill – December 31, 2021
|
|
$
|
10,225
|
|
The Company assessed the criteria for impairment,
and there were no indicators of impairment present as of December 31, 2021, and therefore no impairment is necessary.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 2021
NOTE 9: POWER DEVELOPMENT FEE
The Company has paid $1,000 each under two separate
agreements for two different land sites to a non-related third party for a total of $2,000 in connection with the commencement of Bitstream’s
Bitcoin mining operations. The payments represent the fee for securing 48 MW and 30 MW, respectively of utility capacity as defined and
agreed by ERCOT West Load Zone in the Oncor Electric Delivery Company LLC (“Utility”) at the “one-span” tariff
rate classification of “6.1.1.1.5 Primary greater than 10kw”. If the Utility is unable to deliver these terms as defined in
the facilities extension agreement, the non-related third party is obligated to secure a new location for the Company with at least the
stated capacity and same rate tariff. The non-related third party secured the 48 MW and 30 MW of available capacity by signing a distribution
facilities extension agreement with the Utility and posting the required collateral. The $2,000 was used to purchase this right to the
distribution facilities extension agreement which gives the Company immediate access to the 78 MW electric capacity from the Utility.
The Company also reimbursed the utility deposits paid by the non-related
third party in connection with these agreements in the amount of $96 and $327, respectively. The power development fees are deemed non-refundable
unless the non-related third party cannot find a suitable location within 6 months. The Company and the non-related third party are still
negotiating a definitive power agreement.
The Company has classified these payments as “Power
Development Costs” as a noncurrent asset on the Consolidated Balance Sheets.
NOTE 10: ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
|
|
December 31,
2021
|
|
|
March 31,
2021
|
|
|
|
(unaudited)
|
|
|
|
|
Professional fees and consulting costs
|
|
$
|
116
|
|
|
$
|
801
|
|
Vacation and paid time off
|
|
|
162
|
|
|
|
107
|
|
Legal fees
|
|
|
91
|
|
|
|
86
|
|
Compensation
|
|
|
136
|
|
|
|
734
|
|
Interest
|
|
|
-
|
|
|
|
65
|
|
Insurance
|
|
|
956
|
|
|
|
1,013
|
|
Other
|
|
|
458
|
|
|
|
785
|
|
Total
|
|
$
|
1,919
|
|
|
$
|
3,591
|
|
During the year ended March 31, 2021, 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, and $814
was paid in cash 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)
DECEMBER 31, 2021
NOTE 11: WARRANT DERIVATIVE LIABILITIES
The Company issued common stock and warrants in
several private placements and two public offerings (“Derivative Warrant Instruments”) and 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).
The Company identified embedded features in some
of the warrant agreements which were 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; (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; 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 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 $13 as of December 31, 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 nine months ended
December 31, 2021. The fair value of the remaining warrants at December 31, 2021 is $133.
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 $10 as of December 31, 2021.
The fair value of the 200 warrants that remain
outstanding from the 250 warrants granted on September 24, 2020 as of December 31, 2021 is $21.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 2021
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 and $74 as of December 31, 2021.
On August 6, 2021, the Company closed a $20,000
registered direct offering in which H.C. Wainwright & Co., 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 are exercisable for a three- and one-half-year period beginning when
the Company increases its authorized common stock to 40,000 shares, which occurred on October 8, 2021. 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. The fair value
of the investor warrants was estimated to be $11,203 at inception and $3,908 as of December 31, 2021. The fair value of the placement
agent warrants was estimated to be $744 at inception and $251 as of December 31, 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, 2021 and
March 31, 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, 2021 and March 31, 2021 and at inception:
|
|
Nine Months Ended
December 31,
2021
|
|
Year Ended
March 31,
2021
|
|
Inception
|
Expected term
|
|
0.5 – 3.50 years
|
|
4.58 - 5 years
|
|
5.00 years
|
Expected volatility
|
|
110 - 113%
|
|
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
|
|
$2.00 - $12.95
|
|
$3.05 - $10.00
|
|
|
The Company’s remaining derivative liabilities
as of December 31, 2021 and March 31, 2021 associated with warrant offerings are as follows. All fully extinguished warrants liabilities
are not included in the chart below.
|
|
December 31,
2021
|
|
|
March 31,
2021
|
|
|
Inception
|
|
Fair value of 200 (originally 250) September 24, 2020 warrants
|
|
$
|
21
|
|
|
$
|
1,349
|
|
|
$
|
1,265
|
|
Fair value of 60 November 14, 2020 warrants
|
|
|
13
|
|
|
|
458
|
|
|
|
251
|
|
Fair value of 889 December 31, 2020 warrants
|
|
|
133
|
|
|
|
4,993
|
|
|
|
4,655
|
|
Fair value of 62 December 31, 2020 warrants
|
|
|
10
|
|
|
|
413
|
|
|
|
308
|
|
Fair value of 200 June 30, 2021 warrants
|
|
|
74
|
|
|
|
-
|
|
|
|
545
|
|
Fair value of 3,478 August 6, 2021 warrants
|
|
|
3,908
|
|
|
|
-
|
|
|
|
11,203
|
|
Fair value of 243 August 6, 2021 warrants
|
|
|
251
|
|
|
|
-
|
|
|
|
744
|
|
|
|
$
|
4,410
|
|
|
$
|
7,213
|
|
|
|
|
|
During the nine and three months ended December
31, 2021 and 2020 the Company recognized changes in the fair value of the derivative liabilities of $15,295 and $(15,901), and $10,979
and $481, respectively. In addition, the Company recognized $1,289 and $0 in expenses related to the warrants granted for the nine and
three months ended December 31, 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, 2021
Activity related to the warrant derivative liabilities
for the nine months ended December 31, 2021 is as follows:
Beginning balance as of March 31, 2021
|
|
$
|
7,213
|
|
Issuances of warrants – derivative liabilities
|
|
|
12,492
|
|
Warrants exchanged for common stock
|
|
|
(-
|
)
|
Change in fair value of warrant derivative liabilities
|
|
|
(15,295
|
)
|
Ending balance as of December 31, 2021
|
|
$
|
4,410
|
|
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 12: 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 nine and three months ended December 31,
2021 for the capitalized drilling costs was $511 and $92, respectively. As of December 31, 2021, the capitalized drilling costs were $2,056.
There were no such costs for the nine and three months ended December 31, 2020.
Oil and Gas Properties
The Company’s holdings in oil and gas mineral
lease (“OGML”) properties as of December 31, 2021 and March 31, 2021 are as follows:
Trend Exploration was assigned an 80% working
interest in fourteen wells from the Assignors on July 1, 2021.
|
|
December 31,
2021
|
|
|
March 31,
2021
|
|
|
|
(unaudited)
|
|
|
|
|
Total OGML Properties Acquired
|
|
$
|
11,727
|
|
|
$
|
12,352
|
|
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 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 18, 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.
As discussed in Note 18, 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 18, 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 18, 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 18, 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 18, 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 as well as the removal
of the asset retirement obligation of $1 which brought the total gain to $601.
Effective on July 1, 2021, the Company’s
subsidiary White River SPV 2, LLC closed on the sale of the Weyerhauser OGML Lease. The Company did not record a value for the property
as it was acquired in a group of properties on June 11, 2021 as the entire group of properties were purchased for $1. As a result, the
entire sales price of $112, which includes the sale of the existing inventory and related expenses of $12 on this well and removal of
the accumulated depletion, asset retirement obligation brought the total gain to $121.
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)
DECEMBER 31, 2021
The following table summarizes the Company’s
oil and gas activities by classification for the nine months ended December 31, 2021 and year ended March 31, 2021.
Activity Category
|
|
March 31,
2021
|
|
|
Adjustments (1)
|
|
|
December 31,
2021
|
|
Proved Developed Producing Oil and Gas Properties
|
|
|
|
|
|
|
|
|
|
Cost
|
|
$
|
7,223
|
|
|
$
|
-
|
|
|
$
|
7,223
|
|
Accumulated depreciation, depletion and amortization
|
|
|
(739
|
)
|
|
|
(929
|
)
|
|
|
(1,668
|
)
|
Changes in estimates
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
6,484
|
|
|
$
|
(929
|
)
|
|
$
|
5,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped and Non-Producing Oil and Gas Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
$
|
5,868
|
|
|
$
|
304
|
|
|
$
|
6,172
|
|
Changes in estimates
|
|
|
(-
|
)
|
|
|
(-
|
)
|
|
|
(-
|
)
|
Total
|
|
$
|
5,868
|
|
|
$
|
304
|
|
|
$
|
6,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total
|
|
$
|
12,352
|
|
|
$
|
(625
|
)
|
|
$
|
11,727
|
|
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 dispositions of reserves. For the nine months ended December 31, 2021, the Company acquired various leases in Concordia, LA and Caldwell, TX for $304, and sold a lease for $6 in Lasalle, LA.
In addition, on July 1, 2021, the Company assigned an 80% working interest in fourteen wells to their subsidiary, Trend Exploration.
|
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 2021
NOTE 13: LONG-TERM DEBT
Long-term debt consisted of the following as of
December 31, 2021 and March 31, 2021. All debt 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,
2021
|
|
|
March 31,
2021
|
|
|
|
(unaudited)
|
|
|
|
|
Note payable – Alliance Bank (a)
|
|
$
|
303
|
|
|
$
|
1,033
|
|
Commercial loan – Firstar Bank (b)
|
|
|
328
|
|
|
|
626
|
|
Auto loan 1 – Firstar Bank (c)
|
|
|
20
|
|
|
|
29
|
|
Auto loan 2 – Firstar Bank (d)
|
|
|
-
|
|
|
|
38
|
|
Auto loan 3 – Ally Bank (e)
|
|
|
27
|
|
|
|
34
|
|
Auto loan 4 – Ally Bank (f)
|
|
|
29
|
|
|
|
35
|
|
Auto loan 7 – Ally Bank (g)
|
|
|
-
|
|
|
|
69
|
|
Tractor loan 6 – Tab Bank (h)
|
|
|
134
|
|
|
|
180
|
|
Ecoark – PPP Loan (i)
|
|
|
-
|
|
|
|
24
|
|
Total long-term debt
|
|
|
841
|
|
|
|
2,068
|
|
Less: current portion
|
|
|
(698
|
)
|
|
|
(1,056
|
)
|
Long-term debt, net of current portion
|
|
$
|
143
|
|
|
$
|
1,012
|
|
(a)
|
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. On September 24, 2021, the Company repaid $550 of this amount as a condition of the underlying guarantee of the note.
|
(b)
|
Original loan date of February 28, 2018, due December 31, 2022 at 4.75%.
|
(c)
|
On July 20, 2018, entered into a long-term secured note payable for $56 for a service truck maturing July 20, 2023. The note is secured by the collateral purchased and accrued interest annually at 6.50% with principal and interest payments due monthly. There is no accrued interest as of December 31, 2021.
|
(d)
|
On August 3, 2018, entered into a long-term secured note payable for $73 for a service truck maturing August 3, 2023. The note is secured by the collateral purchased and accrued interest annually at 6.50% with principal and interest payments due monthly. The collateral underlying the loan was stolen in March 2021, and the Company received an insurance settlement in May 2021 and promptly used those proceeds to pay off the remainder of the loan balance.
|
(e)
|
On July 18, 2018, entered into a long-term secured note payable for $56 for a service truck maturing August 17, 2024. The note is secured by the collateral purchased and accrued interest annually at 9.00% with principal and interest payments due monthly. There is no accrued interest as of December 31, 2021.
|
(f)
|
On July 26, 2018, entered into a long-term secured note payable for $54 for a service truck maturing September 9, 2024. The note is secured by the collateral purchased and accrued interest annually at 7.99% with principal and interest payments due monthly. There is no accrued interest as of December 31, 2021.
|
(g)
|
On November 5, 2018, entered into four long-term secured notes payable for $140 maturing on November 5, 2021. The notes are secured by the collateral purchased and accrued interest annually at rates ranging between 6.89% and 7.87% with principal and interest payments due monthly. These loans were paid in full on the maturity date.
|
(h)
|
On November 7, 2018, entered into a long-term secured note payable for $301 maturing on November 22, 2023. The note is secured by the collateral purchased and accrued interest annually at 10.25% with principal and interest payments due monthly. There is no accrued interest as of December 31, 2021.
|
(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, were to be due in monthly installments of $2 through maturity in May 2022, however, the Company repaid the remaining balance of $15 on August 24, 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, 2021
The following is a list of maturities as of December
31:
2022
|
|
$
|
698
|
|
2023
|
|
|
127
|
|
2024
|
|
|
16
|
|
|
|
$
|
841
|
|
During the nine months ended December 31, 2021,
the Company repaid $1,227 in long-term debt.
During the year ended March 31, 2021, the Company
received proceeds of $1,869 in new long-term debt, repaid $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 year ended March 31, 2021.
Interest expense on long-term debt during the three and nine months
ended December 31, 2021 and 2020 are $19 and $113 and $66 and $362, respectively.
NOTE 14: NOTES PAYABLE - RELATED PARTIES
Notes payable to related parties consisted of
the following as of December 31, 2021 and March 31, 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,
2021
|
|
|
March 31,
2021
|
|
|
|
(unaudited)
|
|
|
|
|
Ecoark Holdings Board Member (a)
|
|
$
|
-
|
|
|
$
|
578
|
|
Total Notes Payable – Related Parties
|
|
|
-
|
|
|
|
578
|
|
Less: Current Portion of Notes Payable – Related Parties
|
|
|
(-
|
)
|
|
|
(578
|
)
|
Long-term debt, net of current portion
|
|
$
|
-
|
|
|
$
|
-
|
|
(a)
|
A board member advanced $578 to the Company through August 8, 2021, under the terms of notes payable that bears interest at rates ranging between 10% and 15% interest per annum. On August 9, 2021, the Company repaid the entire $578 to the board member with accrued interest of $43. Interest expense on the notes for the nine and three months ended December 31, 2021 and 2020 was $0 and $72 and $25 and $99, respectively.
|
An officer of the Company advanced $45 and was
repaid this amount during the nine months ended December 31, 2021.
During the year ended March 31, 2021, the Company
received proceeds of $954 in notes payable – related parties, repaid $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)
DECEMBER 31, 2021
NOTE 15: 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. The Company has designated Series B and C out of the total Preferred Shares
authorized.
The Company has entered into agreements to issue
preferred stock over the past several years. Currently as of December 31, 2021 and March 31, 2021, there are no shares of any series of
preferred stock issued and outstanding. The remaining shares of preferred shares were converted during the year ended March 31, 2021.
Ecoark Holdings Common Stock
The Company is authorized to issue 40,000 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 August 6, 2021, the Company’s board
of directors approved the increase of the authorized common shares to 40,000. The increase became effective on October 8, 2021, following
the approval in a Special Meeting of Ecoark’s Stockholders.
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 Series B Preferred Stock and Series C 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; one 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.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT
PER SHARE DATA)
DECEMBER 31, 2021
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.
In the three months ended March 31, 2021, the
Company issued 176 shares of common stock in 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 115 shares of common stock valued at $675 which had been accrued for at March 31, 2021 in consulting fees under a contract entered
into February 2, 2021. In addition, the Company issued 20 shares of common stock in exercise of stock options for cash ($28) and in a
cashless exercise.
In the three months ended September 30, 2021,
the Company issued 3,478 shares of common stock in a registered direct offering for $20,000, and 45 shares of common stock for services
rendered valued at $241. A portion of the shares ($149) issued are for future services and will be expensed upon completion of these services.
In the three months ended December 31, 2021, the
Company did not issue any shares of common stock.
Share-based compensation expense of $1,795 and
$1,569 and $577 and $419, respectively is included in selling, general and administrative expense in the condensed consolidated statements
of operations for the nine and three months ended December 31, 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. There
is $84 in share-based compensation expense for the three months ended December 31, 2021 that has been accrued as of December 31, 2021.
In order to have sufficient authorized capital
to raise the $20,000, on August 4, 2021, an officer and 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, on October 6, 2021, this officer
and director received 64 additional RSUs. The expense related to the modification of these grants is included in the share-based compensation
expense in the three months ended September 30, 2021.
As of December 31, 2021, 26,364 shares of common
stock were issued and 26,247 shares of common stock were outstanding, net of 117 treasury shares.
Agora Common Stock
Agora is authorized to issue 250,000 shares of
common stock, par value $0.001. On September 22, 2021, the Company purchased one hundred shares of Agora for ten dollars.
On October 1, 2021, the Company purchased 41,671
shares of Agora common stock for $4,167 which Agora used to purchase equipment to commence the Bitstream operations.
In addition, between October 1 and December 7,
2021, Agora issued 4,600 restricted common shares to its management team and directors. After issuance of these restricted shares, Ecoark
controls approximately 90.1% of Agora, and will recognize a non-controlling interest. The future stock-based compensation related to these
restricted shares that will be measured over a three-year period is $23,000. These restricted common shares were measured pursuant to
ASC 718-10-50 at an estimated value per share of $5.00 and consist of both service based and performance based criteria. The stock-based
compensation recognized for the nine and three months ended December 31, 2021 for these restricted shares is $2,281.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 2021
NOTE 16: COMMITMENTS AND CONTINGENCIES
Legal Proceedings
We are presently involved in the following legal
proceedings. 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 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. The Company has filed post-trial motions
to add an award for their attorneys’ fees as the prevailing party in the litigation. In addition to other post-trial motions,
Walmart, Inc. has filed a renewed motion for judgment as a matter of law or, in the alternative, for remittitur or a new trial. As of
the date of this Report, the court has not ruled on any of the post-trial motions.
|
|
●
|
On September 21, 2021, Ecoark Holdings, Inc. and Zest Labs, Inc. filed
a complaint against Deloitte Consulting, LLP (“Deloitte”) in the Eight Judicial District Court in Clark County, Nevada. The
complaint is for violation of the Nevada Uniform Trade Secret Act and will also be seeking a preliminary and permanent injunction, attorney’s
fees, and punitive damages. The damages at issue are in the hundreds of millions of dollars. Zest Labs, Inc. began working with Deloitte
in 2016, in a confidential matter in a pilot program that Zest Labs, Inc. had been engaged for by a large customer. Zest Labs, Inc. engaged
in significant discussions, presentations, demonstrations, and information downloads with Deloitte who specifically acknowledged that
this information was confidential. This complaint is in the very early stages, with motions filed on both sides and an initial hearing
set for March 8, 2022. The Company cannot reasonably determine the outcome and potential reward at this time.
|
On July 15, 2021, the Company and its directors
entered into a Settlement and Mutual Release resolving the legal 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.
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 funded 100% of the cost, approximately $5,800, associated with the drilling and completion of an initial deep horizontal
well in the Austin Chalk formation. The Participation Agreement required the drilling costs that were paid into a designated escrow account
at the commencement of the drilling in January 2021, which it was. BlackBrush 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.
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 and/or maintain leasehold by paying its proportionate share of any rental payments.
Bitstream Commitments on Purchase Obligations
As discussed in the overview of Bitstream in Note 1, Bitstream has
entered into a number of agreements for the procurement of land, electricity and equipment necessary to run its business. Bitstream has
estimated this commitment to be approximately $12-$14 million over the next three months inclusive of what has been spent to date.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 2021
NOTE 17: CONCENTRATIONS
Customer Concentration. Four and three
customers, all in the commodity segment accounted for more than 10% of the accounts receivable balance at December 31, 2021 and March
31, 2021 for a total of 75% and 76% of accounts receivable, respectively. In addition, two and one customers represent approximately 72%
and 61% of total revenues for the Company for the nine months ended December 31, 2021 and 2020, respectively. In addition, one and three
customers represent approximately 57% and 87% of total revenues for the Company for the three months ended December 31, 2021 and 2020,
respectively.
Supplier 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 18: ACQUISITIONS
The following represent acquisitions for the nine
months ended December 31, 2021 and year ended March 31, 2021.
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-ins 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)
DECEMBER 31, 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
|
|
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.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT
PER SHARE DATA)
DECEMBER 31, 2021
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
|
|
Luling Prospect
On August 16, 2021 the Company and Shamrock Upstream
Energy, LLC, a wholly-owned subsidiary of the Company entered into an agreement with a privately-held limited liability company to acquire
working interests in the Luling Prospect for $250. No other assets were acquired in this, nor was there any recognized ARO for this working
interest. The manager of the privately held limited liability company is related through marriage to the Chairman and CEO of the Company,
however the acquisition was determined to be at arms’ length. 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
|
|
$
|
250
|
|
|
|
$
|
250
|
|
Concordia Leases
On September 1, 2021 the Company and White River
Energy, LLC, a wholly-owned subsidiary of the Company entered into an agreement with several individuals to acquire working interests
in the various leases in Concordia, LA for $54. No other assets were acquired in this, nor was there any recognized ARO for this working
interest. 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.
Working interest in oil and gas wells
|
|
$
|
54
|
|
|
|
$
|
54
|
|
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 2021
NOTE
19: 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
nine months ended December 31, 2021 and 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)
|
|
December 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,410
|
|
|
$
|
15,295
|
|
Digital assets
|
|
|
16
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,213
|
|
|
$
|
(18,518
|
)
|
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 2021
NOTE 20: 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. Effective July 1, 2021, the Company’s
chief operating decision makers in discussion with the finance team determined that the Company would add a fourth reporting segment to
account for their Digital Asset mining business. Additionally, on July 1, 2021 the Company began reporting its home office costs into
the Commodity segment, charge its Technology segment a monthly overhead fee, and has recorded typical overhead expenses in their Finance
and Digital Asset segments to account for this home office allocation.
Nine Months Ended December 31, 2021
|
|
Digital
Assets
|
|
|
Commodities
|
|
|
Financial
|
|
|
Technology
|
|
|
Total
|
|
Segmented operating revenues
|
|
$
|
18
|
|
|
$
|
18,583
|
|
|
$
|
524
|
|
|
$
|
-
|
|
|
$
|
19,125
|
|
Cost of revenues
|
|
|
93
|
|
|
|
10,600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,693
|
|
Gross profit (loss)
|
|
|
(75
|
)
|
|
|
7,983
|
|
|
|
524
|
|
|
|
-
|
|
|
|
8,432
|
|
Total operating expenses net of depreciation, amortization, depletion, accretion and impairment
|
|
|
3,694
|
|
|
|
13,784
|
|
|
|
686
|
|
|
|
2,325
|
|
|
|
20,489
|
|
Depreciation, amortization, depletion, accretion and impairment
|
|
|
21
|
|
|
|
2,176
|
|
|
|
-
|
|
|
|
143
|
|
|
|
2,340
|
|
Other (income) expense
|
|
|
29
|
|
|
|
(14,094
|
)
|
|
|
(216
|
)
|
|
|
(1,099
|
)
|
|
|
(15,380
|
)
|
Income (loss) from continuing operations
|
|
$
|
(3,819
|
)
|
|
$
|
6,117
|
|
|
$
|
54
|
|
|
$
|
(1,369
|
)
|
|
$
|
983
|
|
Three Months Ended December 31, 2021
|
|
Digital
Assets
|
|
|
Commodities
|
|
|
Financial
|
|
|
Technology
|
|
|
Total
|
|
Segmented operating revenues
|
|
$
|
18
|
|
|
$
|
5,941
|
|
|
$
|
176
|
|
|
$
|
-
|
|
|
$
|
6,135
|
|
Cost of revenues
|
|
|
93
|
|
|
|
3,434
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,527
|
|
Gross profit (loss)
|
|
|
(75
|
)
|
|
|
2,507
|
|
|
|
176
|
|
|
|
-
|
|
|
|
2,608
|
|
Total operating expenses net of depreciation, amortization, depletion, accretion and impairment
|
|
|
3,286
|
|
|
|
4,254
|
|
|
|
415
|
|
|
|
732
|
|
|
|
8,687
|
|
Depreciation, amortization, depletion, accretion and impairment
|
|
|
21
|
|
|
|
549
|
|
|
|
-
|
|
|
|
32
|
|
|
|
602
|
|
Other (income) expense
|
|
|
29
|
|
|
|
(10,993
|
)
|
|
|
4
|
|
|
|
-
|
|
|
|
(10,960
|
)
|
Income (loss) from continuing operations
|
|
$
|
(3,411
|
)
|
|
$
|
8,697
|
|
|
$
|
(243
|
)
|
|
$
|
(764
|
)
|
|
$
|
4,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segmented assets as of December 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
7,045
|
|
|
$
|
3,262
|
|
|
$
|
-
|
|
|
$
|
149
|
|
|
$
|
10,456
|
|
Oil and Gas Properties/Capitalized drilling costs
|
|
$
|
-
|
|
|
$
|
13,783
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
13,783
|
|
Intangible assets, net
|
|
$
|
-
|
|
|
$
|
1,804
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,804
|
|
Goodwill
|
|
$
|
-
|
|
|
$
|
7,002
|
|
|
$
|
3,223
|
|
|
$
|
-
|
|
|
$
|
10,225
|
|
Capital expenditures
|
|
$
|
7,066
|
|
|
$
|
19
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,085
|
|
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT
PER SHARE DATA)
DECEMBER 31, 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
|
|
$
|
2,136
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,136
|
|
Goodwill
|
|
$
|
7,002
|
|
|
$
|
3,223
|
|
|
$
|
-
|
|
|
$
|
10,225
|
|
Capital expenditures
|
|
$
|
617
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
617
|
|
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 2021
NOTE 21: 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 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 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 re-measurement.
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 and digital asset segments. As of December 31, 2021, the value
of the unamortized lease right of use asset is $1,186, of which $337 is from financing leases (through maturity at June 30, 2024) and
$849 is from operating leases (through maturity at October 31, 2026). As of December 31, 2021, the Company’s lease liability was
$1,210, of which $330 is from financing leases and $880 is from operating leases.
Maturity of lease liability for the operating leases for the period ended December 31,
|
|
|
|
2022
|
|
$
|
329
|
|
2023
|
|
$
|
301
|
|
2024
|
|
$
|
87
|
|
2025
|
|
$
|
92
|
|
2026
|
|
$
|
82
|
|
Imputed interest
|
|
$
|
(11
|
)
|
Total lease liability
|
|
$
|
880
|
|
Disclosed as:
|
|
|
|
Current portion
|
|
$
|
326
|
|
Non-current portion
|
|
$
|
554
|
|
Maturity of lease liability for the financing leases for the period ended December 31,
|
|
|
|
2022
|
|
$
|
151
|
|
2023
|
|
$
|
143
|
|
2024
|
|
$
|
52
|
|
2025
|
|
$
|
-
|
|
Imputed interest
|
|
$
|
(16
|
)
|
Total lease liability
|
|
$
|
330
|
|
Disclosed as:
|
|
|
|
Current portion
|
|
$
|
144
|
|
Non-current portion
|
|
$
|
186
|
|
Amortization of the right of use asset for the period ended December 31,
|
|
|
|
2022
|
|
$
|
461
|
|
2023
|
|
$
|
416
|
|
2024
|
|
$
|
144
|
|
2025
|
|
$
|
88
|
|
2026
|
|
$
|
77
|
|
|
|
|
|
|
Total
|
|
$
|
1,186
|
|
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 2021
Total Lease Cost
Individual components of the total lease cost
incurred by the Company is as follows:
|
|
Three months ended
December 31,
2021
|
|
|
Nine months ended
December 31,
2021
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Operating lease expense
|
|
$
|
72
|
|
|
$
|
178
|
|
|
|
|
|
|
|
|
|
|
Finance lease expense
|
|
|
|
|
|
|
|
|
Depreciation of capitalized finance lease assets
|
|
|
57
|
|
|
|
127
|
|
Interest expense on finance lease liabilities
|
|
|
2
|
|
|
|
8
|
|
Total lease cost
|
|
$
|
131
|
|
|
$
|
313
|
|
|
|
Three months ended
December 31,
2020
|
|
|
Nine
months ended
December 31,
2020
|
|
|
|
|
(unaudited)
|
|
|
|
(unaudited)
|
|
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
|
|
NOTE
22: 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 nine months ended December 31, 2021 and year ended March 31, 2021:
|
|
December 31,
2021
|
|
|
March 31,
2021
|
|
|
|
(unaudited)
|
|
|
|
|
Balance, beginning of period
|
|
$
|
1,532
|
|
|
$
|
295
|
|
Accretion expense
|
|
|
118
|
|
|
|
64
|
|
Reclamation obligations settled
|
|
|
-
|
|
|
|
-
|
|
Disposition due to sale of property
|
|
|
(23
|
)
|
|
|
-
|
|
Additions
|
|
|
-
|
|
|
|
111
|
|
Changes in estimates
|
|
|
-
|
|
|
|
1,062
|
|
Balance, end of period
|
|
$
|
1,627
|
|
|
$
|
1,532
|
|
Total ARO at December 31, 2021 and March 31, 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 December 31, 2021 and March 31, 2021, respectively.
These values are discounted to present value at 10% per annum for the periods ended December 31, 2021 and March 31, 2021. The Company
disposed of a portion of their properties and wrote off the balance of ARO associated with that disposal of $23 in sales of some of the
Company’s properties.
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 2021
NOTE
23: RELATED PARTY TRANSACTIONS
On May 31, 2019 the Company acquired Trend Holdings.
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.
Trend Capital Management is the general partner
or manager of, and provides services and collects fees from entities including Trend LP and Trend SPV, respectively. However, Trend Capital
Management is not the investment manager of these entities, nor the beneficial owner of Ecoark securities held by Trend LP nor Trend SPV
since it assigned the sole power to vote and direct all investment activities which will impact the entities’ economic performance
to an independent third party not affiliated with Ecoark. The investment capital in Trend LP and Trend SPV is from individual limited
partners and members, and not from the Company. Trend Capital Management does not have the obligation to absorb losses or the right to
receive benefits that could be significant as a result of the entities’ performance. Trend Capital Management does not have any
ownership of or a controlling financial interest in Trend LP nor Trend SPV and therefore management has concluded consolidation of these
entities with Trend Capital Management is not required.
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. These notes along with all accrued interest were repaid in August 2021.
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 then 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.
On August 31, 2021, William B. Hoagland, the
Chief Financial Officer of the Company, and Chief Executive Officer of Agora, transferred 550 shares of Ecoark common stock to Trend
LP, of which Mr. Hoagland owns an approximately 25% of Trend LP. He also owns 39.6% of Trend SPV. Following
the transfer, Trend LP owns 713 shares of Ecoark common stock. Additionally, Trend SPV holds 344 shares of Ecoark common stock and 460
warrants to purchase Ecoark common stock.
Ecoark has made periodic loans to Agora to permit
it to begin its cryptocurrency mining business. On November 13, 2021, Agora issued Ecoark a $7.5 million term note which accrues
10% per annum interest and is due September 30, 2022. As of December 31, 2021, Agora owed principal of $4,459 and interest of $32
to Ecoark. These amounts have been eliminated in consolidation.
ECOARK HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 2021
NOTE
24: SUBSEQUENT EVENTS
Subsequent to December 31, 2021, the Company had
the following transactions:
On January 3, 2022, the Company finalized a land purchase agreement
for a parcel of 20 acres of land ($12.5 per acre) in West Texas for $250. This land purchase relates to a separate parcel from the 20
acre parcel covered by a lease agreement entered into by the Company in December 2021. The Company has an option to sell back the purchased
land to the sellers at $0.4 per acre upon cessation of the land being used as a data center. Additionally, we have already paid approximately
$1,100 to a power broker for 12 MW of electricity at this site, and we have committed to pay approximately $3,200 by completion of the
facility anticipated to be paid over the two-month period commencing January 2022 for the infrastructure and source of 30 MW of electricity
needed to operate at the capacity intended at our West Texas facilities
On February 2, 2022, Peter Mehring, a director
and executive officer, gave notice of his intent to resign as an executive officer and director effective on February 11, 2022. Mr. Mehring
resigned as a result of his entering into an Employment Agreement with a leading Internet service company. He also entered into a Consulting
Agreement with the Company.
Under the Consulting Agreement, Mr. Mehring will advise the Company
(including Zest Labs) on its current intellectual property litigation and matters relating to ZEST’s intellectual property as well
as provide transition services. The Consulting Agreement is for a one-year term. The Company agreed to pay Mr. Mehring $17 per month.
His unvested stock awards will continue to vest during the term and the expiration date on any stock awards will be extended for one year
following the termination.
Trend Exploration completed the auction of two
lots of overriding royalty interests (ORRIs). Trend Exploration posted them to EnergyNet and the auction ended February 3, 2022. The sale
is for the Mississippi ORRIs and the Louisiana ORRIs for a total of $335. The buyers in the auction have two business days to place funds
into escrow and then up to ten business days for the funds to leave escrow.