The following management's discussion and analysis of financial condition and results of operations describes the principal factors affecting the results of our operations, financial condition, and changes in financial condition. This discussion should be read in conjunction with the accompanying audited financial statements, and notes thereto, included elsewhere in this Report. The information contained in this discussion is subject to a number of risks and uncertainties. We urge you to review carefully the sections of this Report entitled "Item 1A - Risk Factors" on page 12 and "Cautionary Note Regarding Forward-Looking Statements" on page 62 for a more complete discussion of the risks and uncertainties associated with an investment in our securities. Overview
Ecoark Holdingsis a diversified holding company which, through wholly-owned or majority owned subsidiaries operates in three areas: (i) oil and gas, including exploration, production and drilling operations on approximately 30,000 cumulative acres of active mineral leases in Texas, Louisiana, and Mississippiand transportation and logistics services focused in the Southern states in the U.S., (ii) development and maintenance of post-harvest shelf-life and freshness food management technology and related intellectual property, and (iii) a recently launched Bitcoin mining business which is also designed to assist with electric power opportunities in a deregulated market which exists in Texas.
In fiscal 2022, the following key aspects of our business progressed and developments occurred:
? Revenues from our oil and gas business, which is conducted through Banner,
drilling programs and new customers for our transportation division;
? Agora’s Bitcoin mining business was launched after entering a number
related agreements, including the purchase of land and the supply
electric power in
? Agora has filed Agora’s registration statement for its IPO,
which offer was delayed due to the extra time needed to clear the
The company’s accounting policies for its bitcoin holdings with the personnel of the
In the current fiscal year, the Company sold the Series A preferred stock, a poison pill Warrant and Commitment Shares to DPL, a subsidiary of BitNile,
$12 million. The Company also previously operated a financial services segment through Trend Holdingsuntil June 17, 2022when (i) Trend Holdingsassigned Bitstream to Agora and Trend Exploration to Ecoark Holdings, and (ii) following those transactions, Agora, the Company's approximately 90% owned subsidiary, sold Trend Holdingsto a third party in exchange for a $4.25 millionsecured promissory loan secured by the assets of the purchaser and guaranteed by the subsidiaries that were sold. Following the above transactions, the Company's active subsidiaries include Banner, White River, Pinnacle Frac, Zest, and Agora. Prior to the June 17, 2022sale of Trend Holdings, all references to " Trend Holdings" or "Trend" are now synonymous with Agora for the periods covered by this Report.
For an overview of key developments during fiscal 2022 as well as more recent developments and plans of the Company and its subsidiaries, see “Item 1. – Activity”.
Key Terms and Metrics In connection with the management of our businesses, we identify, measure and assess a variety of operating metrics. In the Oil and Gas segment, the principal metrics we use in managing our businesses are set forth below: "Bbl" - Bbl means barrel of crude oil. Metric used by management to specify the unit of measure ("in barrels") from which the Company's midstream customers use to incrementally purchase oil from the Company. Barrels are used as a unit of measure universally across the oil industry so the Company's adoption of barrels to measure units of oil is a standard practice.
“Mbbl” – Mbbl means thousand barrels of oil. See comments on the “Bbl” metric. “Mbbl” is a standard for measuring larger quantities of barrels of oil in thousands of units.
"Production (Gross)" - Production (Gross) is defined as barrels of oil produced before accounting for working interests from non-mineral owning parties. Metric used by management to specify the total number of barrels of oil produced from a given oil well. Gross production includes both the barrels owned by the oil and gas mineral owners as well as the drilling and investing group who funded and drilled the well which are considered the working interest owners. Gross production is a standard term used universally across the oil industry, so the Company's adoption of this term is a standard practice. "Production (Net)" - Production (Net) is defined as the net barrels of oil produced after deducting the ownership portion owned by the mineral owning parties. Unless otherwise specified, management assumes that the mineral ownership portion of a well is 25%, so a 100% working interest would result in a 75% Net Production or Net Revenue interest after accounting for the ownership portion of oil production owned by the mineral owners.
Segment information for the years ended
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 Holdingsand the March 27, 2020acquisition of Banner Midstream consisted of three segments, Financial, Oil and Gas 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 Bitcoin mining business. Additionally, on July 1, 2021the Company will report its home office costs into the Oil and Gas segment, charge its Technology segment a monthly overhead fee, and has recorded typical overhead expenses in their Finance and Bitcoin Mining segments to account for this home office allocation. The Company classified their reporting segments in these three divisions through March 31, 2022, when the Company determined that pursuant to ASC 205-20-45-1E that the operations related to the Financial Services segment would be reclassified as held for sale as those criteria identified in the pronouncement had been satisfied as of June 8, 2022. Under ASC 855-10-55, the Company has reflected the reclassification of assets and liabilities of these entities as held for sale and the operations as discontinued operations as of and for the year ended March 31, 2022. As a result of this reclassification, the Company's segment reporting has removed the Financing segment for the years ended March 31, 2022and 2021, respectively. 45 Year Ended March 31, 2022 Bitcoin Mining Commodities Technology Total Segmented operating revenues $ 27,182 $ 25,572,463$ - $ 25,599,645Cost of revenues 183,590 13,272,323 - 13,455,913 Gross profit (loss) (156,408 ) 12,300,140 - 12,143,732 Total operating expenses and income taxes net of depreciation, amortization, depletion, accretion and impairment 6,945,688 19,407,433 2,944,567 29,297,688 Depreciation, amortization, depletion, accretion and impairment 62,629 7,001,507 291,905 7,356,041 Other (income) expense 117,616 (13,151,457 ) (1,098,118 ) (14,131,959 ) Income (loss) from continuing operations $ (7,282,341 ) $ (957,343 ) $ (2,138,354 ) $ (10,378,038 )Segmented assets as of March 31, 2022Property and equipment, net $ 7,226,370 $ 3,103,203$ - $ 10,329,573 Oil and Gas Properties/Capitalized drilling costs $ - $ 7,231,367$ - $ 7,231,367Intangible assets, net $ 19,267 $ 1,716,331$ - $ 1,735,598Goodwill $ - $ 7,001,247$ - $ 7,001,247Capital expenditures $ 7,281,772 $ 19,500$ - $ 7,301,272Year Ended March 31, 2021 Oil and Gas Technology Total Segmented operating revenues $ 15,084,532$ - $ 15,084,532Cost of revenues 14,726,936 - 14,726,936 Gross profit 357,596 - 357,596 Total operating expenses and income taxes net of depreciation, amortization, depletion and accretion 14,272,115 3,164,696 17,436,811 Depreciation, amortization, depletion and accretion 1,652,844 249,962 1,902,806 Other (income) expense 2,200,245 87,334 2,287,579 Loss from continuing operations $ (17,767,608 )$
Segmented assets as of
March 31, 2021Property and equipment, net $ 3,403,419 $ 291,905 $ 3,695,324Oil and Gas Properties/Capitalized drilling costs $ 14,918,531$
$ 14,918,531Intangible assets, net $ 2,065,145$ - $ 2,065,145Goodwill $ 7,001,247$ - $ 10,224,046Capital expenditures $ 616,733$ - $ 616,733
Significant Accounting Policies, Estimates and Assumptions
The critical accounting policies listed below are those that the Company deems most significant to its operations.
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. 46
Actual results could differ from these 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 PropertiesThe Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under the full cost method of accounting, all costs associated with acquisition, exploration and development of oil and gas reserves, including directly related overhead costs are capitalized. General and administrative costs related to production and general overhead are expensed as incurred. All capitalized costs of oil and gas properties, including the estimated future costs to develop proved reserves, are amortized on the unit of production method using estimates of proved reserves. Disposition of oil and gas properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in operations. Unproved properties and development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that the properties are impaired, the amount of the loss from operations before income taxes and the adjusted carrying amount of the unproved properties is amortized on the unit-of-production method.
Limitation of 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
SAB103, 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. 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. 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. 47
Accounting for the 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. Revenue Recognition The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
? Step 1: Identify the contract with the customer
? Step 2: Identify performance obligations in the contract
? Step 3: Determine the price of the transaction
? Step 4: Assign the transaction price to the performance obligations in the
? Step 5: Recognize revenue when the Company satisfies a performance obligation
In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606's definition of a "distinct" good or service (or bundle of goods or services) if both of the following criteria are met: The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct), and the entity's promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract). If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. When determining the transaction price, an entity must consider the effects of all of the following: ? Variable consideration
? Binding estimates of variable consideration
? The existence of a significant financing component in the contract
? Noncash consideration
? Consideration payable to a client
Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
48 The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The standalone selling price is the price at which the Company would sell a promised service separately to a customer. The relative selling price for each performance obligation is estimated using observable objective evidence if it is available. If observable objective evidence is not available, the Company uses its best estimate of the selling price for the promised service. In instances where the Company does not sell a service separately, establishing standalone selling price requires significant judgment. The Company estimates the standalone selling price by considering available information, prioritizing observable inputs such as historical sales, internally approved pricing guidelines and objectives, and the underlying cost of delivering the performance obligation. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate. Management judgment is required when determining the following: when variable consideration is no longer probable of significant reversal (and hence can be included in revenue); whether certain revenue should be presented gross or net of certain related costs; when a promised service transfers to the customer; and the applicable method of measuring progress for services transferred to the customer over time. The Company recognizes revenue upon satisfaction of its performance obligation at either a point in time in accordance with ASC 606-10-25-30 for its contracts in its Oil and Gas and Financial Services segments or over time in accordance with ASC 606-10-25-27 for its contracts
with mining pool operators. The Company accounts for incremental costs of obtaining a contract with a customer and contract fulfillment costs in accordance with ASC 340-40, Other Assets and Deferred Costs. These costs should be capitalized and amortized as the performance obligation is satisfied if certain criteria are met. The Company elected the practical expedient, to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that would otherwise have been recognized is one year or less, and expenses certain costs to obtain contracts when applicable. The Company recognizes an asset from the costs to fulfill 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 Company recognizes the cost of sales of a contract as expense when incurred or when a performance obligation is satisfied. The incremental costs of obtaining a contract are capitalized unless the costs would have been incurred regardless of whether the contract was obtained, are not considered recoverable, or the practical expedient applies. Bitcoin Mining
For the purposes of the following discussion of Bitcoin mining accounting policies, reference to “the Company” refers to Agora.
As consideration for providing computing power, the Company receives Bitcoin from the mining pool in which it participates. Income from Bitcoin mining (mining earnings are made up of the baseline block reward and transaction fees, defined as "rewards") which is measured based on the fair value of the Bitcoin received. Providing computing power in Bitcoin transaction verification services (known as "mining") is an output of the Company's ordinary activities. The provision of computing power is the only performance obligation in the Company's contracts with mining pool operators, its customers. The Company will recognize income from Bitcoin mining for the provision of computing power upon satisfaction of its performance obligation. As consideration for the provision of computing power, the Company is entitled to payment in Bitcoin, which is a form of noncash consideration. Noncash consideration is measured at fair value at contract inception. Fair value of the Bitcoin consideration is determined using the quoted price on the Company's primary trading platform of the Bitcoin at the beginning of the contract period, which is considered to be the beginning of each twenty-four-hour period (at contract inception). Specifically, fair value at contract inception is based on the market price at the beginning of the contract term, at the single Bitcoin level (one Bitcoin). This amount is recognized in revenue over the contract term as hash rate is provided. Changes in the fair value of the noncash consideration due to form of the consideration (changes in the market price of Bitcoin) are not included in the transaction price and hence are not included in revenue. Changes in fair value of the noncash consideration post-contract inception that are due to reasons other than form of consideration (other than changes in the market value of bitcoin) are measured based on the guidance on variable consideration, including the constraint on estimates of variable consideration. 49 Because the consideration to which the Company expects to be entitled for providing computing power is entirely variable, as well as being noncash consideration, the Company assesses the estimated amount of the variable noncash consideration to which it expects to be entitled for providing computing power at contract inception and subsequently, to determine when and to what extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur once the uncertainty associated with the variable consideration is subsequently resolved (the "constraint"). Only when significant revenue reversal is concluded probable of not occurring can estimated variable consideration be included in revenue. Based on evaluation of likelihood and magnitude of a reversal in applying the constraint, the estimated variable noncash consideration is constrained from inclusion in revenue until the end of the contract term, when the underlying uncertainties have been resolved and number of Bitcoin to which the Company is entitled becomes known.
Bitcoins are recorded on the consolidated balance sheet, as an intangible asset – Bitcoin.
The Company has entered into a Bitcoin mining pool with the mining pool operator F2Pool, to provide computing power to the mining pool. The arrangement is terminable at any time by either party and the Company's enforceable right to Bitcoin compensation only begins when the Company provides computing power
to the mining pool operator. The Company's performance obligation extends over the contract term given the Company's continuous provision of hash rate. This period of time corresponds with the period of service for which the mining pool operator determines compensation due the Company. Given cancelation terms of the contracts, all contracts effectively provide the Company with the option to renew for successive contract terms of twenty-four hours. The options to renew are not material rights because they are offered at the standalone selling price of computing power. In exchange for providing computing power, the Company is entitled to consideration equal to a fractional share of the fixed Bitcoin reward the mining pool operator receives (referred to as a "block reward") after such amount has been reduced by a digital asset transaction fee retained by the mining pool operator, and potentially network transaction fees. The Company's fractional share 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, over the contract term. The Company is entitled to compensation for providing computing power to a mining pool even if a block is not successfully placed. 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 cryptocurrency 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, network transaction fees, are their payment for doing so.
The terms of the agreement with the mining pool operator provide that neither party may challenge the terms of the settlement after thirty-five days of settlement.
For the mining pool in which the Company participates, the Company is entitled to a transaction price calculated by the Company's mining pool operator. Specifically, the mining pool operator determines the amount of block rewards to which the Company is entitled by using the Pay-Per-Shares-Plus (PPS+) payment method, retaining 2.5% to cover costs of operating the pool (the "digital asset transaction fee"), and includes network transaction fees as applicable. When the Company's number of Bitcoin reaches the minimum threshold of 0.005 Bitcoin, the Company receives a payout and the pool transfers the cryptocurrency consideration to the Company's designated wallet within 8 hours,
between 00:00 and 08:00 UTC. The PPS+ payment method pays miners for the number of shares they contribute to the pool (effectively, the amount of computing power provided to the pool) plus network transaction fees. Shares can be described as discrete amounts of valid work each miner or mining farm contributes to the pool. The value of each share contributed is determined by the Bitcoin's current network difficulty and the number of total shares contributed from miners and mining farms. Bitcoin rewards are received regardless if a pool successfully finds a block because the mining pool operator understands that, probabilistically, blocks will be successfully found in a statistically predictable manner by the pool depending on the total amount of hashing power (shares) contributed by the miners and mining farms and therefore, pays out as if a block was found. This is a strategy that provides regular payments to miners and allows consistent payouts. Network transaction fees, however, are paid out based on blocks actually found and solved and therefore the network transaction fee revenue is not consistently paid out. We expect that network transaction fees will be a very small contributor to total miner Bitcoin rewards. The Company's cost of Bitcoin revenue consists primarily of direct costs of earning the Bitcoins related to mining operations, namely electric power costs, other utilities, labor, insurance whether incurred directly from self-mining operations or reimbursed, including any revenue sharing arrangements under hosting agreements, but excluding depreciation and amortization, which are separately stated in the Company's Consolidated Statement of Operations. 50 Commodities The Company recognizes revenue 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.
Pinnacle Frac’s cost of sales includes all direct expenses incurred to generate revenue for the period. This includes, but is not limited to, direct employee labor, direct contract labor, and fuel.
Revenue from master service agreements is recognized when the performance obligation is satisfied. Typically, satisfaction of the performance obligation occurs when the load of frac sand is delivered to the customer’s site and that load is invoiced and successfully accepted by the Company’s factoring agent.
Bitcoin is included in current assets on the Consolidated Balance Sheets as indefinite life intangible assets. Bitcoin is carried at cost less depreciation.
The Company accounts for its Bitcoins as indefinite-lived intangible assets in accordance with Accounting Standards Codification ("ASC") 350, Intangibles -
Goodwilland Other. 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. The Company determines the fair value of its Bitcoins on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement, based on quoted prices on the active trading platform that the Company has determined is its principal market for Bitcoin (Level 1 inputs). The Company performs an analysis each day, comparing the carrying amount of the Company's Bitcoin with their fair value based on the lowest market price that day at the single Bitcoin level (one bitcoin). The excess, if any, represents a recognized impairment loss.. Impairment losses are recorded in the line item "Bitcoin impairment losses" in the Company's Consolidated Statements of Operations. 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. Bitcoin awarded to the Company through its mining activities are included as an adjustment to reconcile net loss to cash provided by (or used in) operating activities on the accompanying Consolidated Statements of Cash Flows. The sales (if any) of Bitcoin are included within investing activities in the accompanying Consolidated Statements of Cash Flows and any realized gains or losses (if any) from such sales are included in operating income in the Company's Consolidated Statement of Operations. The Company accounts for sales of Bitcoins in accordance with the first in first out (FIFO) method of accounting.
Bitcoin-related impairment losses are included in the Bitcoin Mining segment.
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 whose value drivers are mainly unobservable.
The carrying value of the Company’s financial instruments, such as cash, accounts payable and accrued liabilities, approximate their respective fair values due to the short-term nature of these financial instruments.
Bitcoin will consist of Bitcoin assets and will be presented in current assets. Fair value will be determined by taking the price of the coins from the trading platforms which Agora will most frequently use. 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 Holdingsand the March 27, 2020acquisition of Banner Midstream consisted of three segments, Financial, Oil and Gas 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 Bitcoin mining business. Additionally, on July 1, 2021the Company will report its home office costs into the Oil and Gas segment, charge its Technology segment a monthly overhead fee, and has recorded typical overhead expenses in their Finance and Bitcoin Mining segments to account for this home office allocation. The Company classified their reporting segments in these three divisions through March 31, 2022, when the Company determined that pursuant to ASC 205-20-45-1E that the operations related to the Financial Services segment would be reclassified as held for sale as those criteria identified in the pronouncement had been satisfied as of June 8, 2022. Under ASC 855-10-55, the Company has reflected the reclassification of assets and liabilities of these entities as held for sale and the operations as discontinued operations as of and for the year ended March 31, 2022. As a result of this reclassification, the Company's segment reporting has removed the Financing segment for the years ended March 31, 2022and 2021, respectively.
Derivative financial instruments
The Company does not currently use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks, but may explore hedging oil prices in the current fiscal year. Management evaluates all of the Company's financial instruments, including warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The Company generally uses a Black-Scholes model, as applicable, to value the derivative instruments at inception and subsequent valuation dates when needed. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is remeasured at the end of each reporting period. The Black-Scholes model is used to estimate the fair value of the derivative liabilities.
Recently issued accounting standards
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 does not believe this new guidance will have a material impact on its consolidated financial statements. 52 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 does not believe this new guidance will have a material impact on its consolidated financial statements.
The Company does not discuss recent statements that are not expected to have an impact or do not relate to its financial condition, results of operations, cash flows or disclosures.
Production Data The following tables set forth our production data for the years ended
March 31, 2022and 2021: Years Ended March 31, 2022 2021 Bbls Bbls Gross Net Gross Net Production Data: By State/County Mississippi Holmes 1,838 1,378 6 3 Amite 12,054 9,629 13,853 11,063 Wilkinson 13,619 10,560 10,964 8,765 Pike 1,327 1,019 752 611 28,838 22,586 25,575 20,442 Louisiana Catahoula 5,534 4,186 4,019 3,197 Concordia 8,626 4,407 6,650 3,128 Tensas 3,209 2,407 2,724 2,024 Lasalle 609 330 1,013 549 Avoyelles 44,558 30,371 12,166 8,469 62,536 41,701 26,572 17,367 Total 91,374 64,287 52,147 37,809 53 Results of Operations Fiscal year ended March 31, 2022compared to the fiscal year ended March 31, 2021Revenues 2022 2021 Revenue from continuing operations: Bitcoin mining $ 26,495$ - Oil and Gas Production 6,814,706 2,362,577 Transportation Services 18,457,567 12,318,309 Fuel Rebate 251,945 243,961 Equipment Rental and other 48,932 159,685 $ 25,599,645 $ 15,084,532
Oil, natural gas and natural gas liquids revenues. Our oil production revenues are based on the volumes of oil production sold and the average selling prices received for those volumes.
Years Ended March 31, 2022 2021 Revenues: Oil and natural gas sales, net of taxes
$ 6,769,419 $ 2,362,577Other 45,287 - Total revenues $ 6,814,706 $ 2,362,577Revenues for FY 2022 were $25,599,645as compared to $15,084,532for FY 2021. The increase was primarily due to an increase in revenues from its oil production and transportation services operations related to higher average oil prices during FY 2022, as well as an overall increase in production from 127 barrels of oil per day ("BOPD") in FY 2021 to 186 in BOPD in FY 2022, and additional customers added with respect to our transportation services business. Revenues were comprised of $25,572,463and $15,084,532in the oil and gas segment (including $18,457,567and $12,318,309in the transportation services business and $6,814,706and $2,362,577in the oil and gas production business, respectively), and $27,182and $0from the Bitcoin mining segment for FY 2022 and FY 2021, respectively. Additionally, revenue from fuel rebates were $251,945and $243,961, and revenue from equipment rental and other sources were $48,932and $159,685for FY 2022 and FY 2021, respectively, which amounts are also included in the oil and gas segment. There were no revenues from our technology segment during FY 2022 or FY 2021. The Company's Bitcoin operations began in FY 2022, and therefore no amounts are reflected for that segment for FY 2021. The equipment leasing has begun winding down and is expected to continue to be an immaterial portion of overall revenue in future periods.
Revenue cost and gross profit
The following table presents the revenue costs for fiscal years 2022 and 2021:
Years Ended March 31, 2022 2021 Total
$ 13,455,913 $ 14,726,93654
Cost of revenues for FY 2022 was
$13,455,913as compared to $14,726,936for FY 2021, primarily because of decreased owner operator and fuel expenses in the year ended March 31, 2022compared to the year ended March 31, 2021. The increase in gross profit margins to 47.4% in FY 2022 compared to 2.4% in FY 2021 was primarily due to the increase in revenues in the Company's oil and gas operations, which operates at a much higher gross margin than the Company's transportation business. Cost of revenues was comprised of $13,272,323and $14,726,936in the oil and gas segment and $183,590and $0in the Bitcoin mining segment for FY 2022 and FY 2021, respectively. There were no cost of revenues in the technology segment for FY 2022 and FY 2021. Operating Expenses The following table shows operating expenses by segment for FY 2022 and FY 2021: Year Ended March 31, 2022 2021 Segment Oil and gas segment $ 26,408,940 $ 15,924,959Technology segment 3,236,472 3,416,658 Bitcoin Segment 7,008,317 - Total $ 36,653,729 $ 19,339,617The following table shows operating expenses for continuing operations for FY 2022 and FY 2021: Years Ended March 31, 2022 2021 Operating Expenses Salaries and salaries related costs $ 12,091,385 $ 6,836,443Professional and consulting fees 1,271,247 1,381,774 Oilfield supplies and repairs 4,467,431 1,909,545 Selling, general and administrative costs 11,382,625 6,368,409 Depreciation, amortization, depletion, accretion, and impairment 7,348,813 1,902,806 Bitcoin impairment losses 7,228 - Research and development - 882,640 $ 36,568,729 $ 19,281,617The increase in total operating expenses was due principally to expenses incurred in establishing our Bitcoin mining operations within Agora and additional expenses related to preparing the Agora Registration Statement and planning for its upcoming spin-off. The remaining increase in operating expenses related to the Company's scaling of its oil and gas operations and transportations divisions, which increased in correlation with the revenues
of those business respectively. Increased oil prices in FY 2022 have aided our oil and gas production operations by increasing revenue as a result of the higher prices, but are also increasing drilling costs due to the increase in demand for ancillary drilling services.
Selling, general and administrative expenses
The following table presents selling, general and administrative expenses in continuing operations for fiscal years 2022 and 2021:
Years Ended March 31, 2022 2021 Selling, general and administrative costs Capital Raising Costs
$ 2,129,776 $ 772,661Insurance 3,229,679 1,550,684 Legal/Audit/Accounting expenses 1,411,284 1,341,661 Factoring expenses 417,338 317,609 Equipment Rental 633,062 71,048 Development Costs 151,805 - Other 3,409,681 2,314,746 $ 11,382,625 $ 6,368,40955 Selling, general and administrative expenses for FY 2022 were $11,382,625compared with $6,368,409for FY 2021. The increase in selling, general and administrative expenses for FY 2022 compared to FY 2021 related to additional expenses related to the commencement of operations in Agora. Insurance expense for FY 2021 included a one-time adjustment in oil and gas segment.
Salaries and salary-related costs
Salaries and salaries related costs were
$12,091,385for FY 2022 compared to $6,836,443for FY 2021, with the increase primarily due to the staffing of Agora and preparation of its initial public offering, which included procuring employees and management and related compensation for Agora as well as stock-based compensation expense related to Agora.
Oilfield supplies and repairs were
$4,467,431for FY 2022 compared to $1,909,545for FY 2021, with the increase primarily due to additional procedures performed related to the completion and production of the Deshotel well in addition to various workover procedures to increase production on existing wells.
Depreciation, amortization, depletion, accretion and depreciation
The following table shows the depreciation, depletion, accretion and impairment charges for the years ended
Years Ended March 31, 2022 2021 Depletion and impairment of proved oil and natural gas properties
$ 2,832,370 $ 739,036Depletion of drilled wells 1,961,477
Impairment of undeveloped oil and gas reserves 1,235,285 - Depreciation of sand frac transportation equipment 460,464
Depreciation of midstream assets 7,485 - Depreciation and impairment of technology segment assets 291,905
Depreciation of Bitstream mining assets 55,401 - Amortization of intangible assets 348,814
Asset retirement obligation accretion 155,612
Depreciation, amortization, depletion, accretion and impairment expense
$ 7,348,813 $ 1,902,806Depreciation, amortization, depletion, accretion and impairment expenses were comprised of $7,001,507and $1,652,844in the oil and gas segment; $55,401and $0in the Bitcoin mining segment, and $291,905and $249,962in the technology segment for FY 2022 and FY 2021, respectively. The increase in depletion of proved oil and natural gas properties of $2,093,334and the increase in depletion of drilled wells of $1,830,987for FY 2022 is primarily due to an adjustment of projected lifetime production at the Deshotel #24 well. Research and Development There were no research and development expense in FY 2022, compared to $882,640in FY 2021. The reduction in costs related primarily to the inactive status of Zest as the litigation affected its ability to operate with our limited cash. 56 Other Income (Expense) The following table shows other income (expense) for continuing operations for FY 2022 and FY 2021: Years Ended March 31, 2022 2021
Change in fair value of derivative liabilities
$ 15,386,301 $ (18,518,459 )Gain on exchange of warrants for common stock -
Loss on conversion of long-term debt and accrued expenses - (3,969,165 ) Loss on disposal of fixed assets - (104,938 ) Loss on abandonment of oil and gas property - (109,407 ) Loss on sale of oil and gas property and ARO (586,292 ) - Forgiveness of debt -
1 850 133
Interest expense, net of interest income (668,050
) (2,519,783 ) Other income (expense)
$ 14,131,959 $ (2,287,579 )Total other income was $14,131,959in FY 2022, compared to total other (expense) of $(2,287,579)in FY 2021. Change in fair value of derivative liabilities for FY 2022 was a non-cash gain of $15,386,301as compared to a non-cash loss of ( $18,518,459) for FY 2021. The income was a result of the decrease in our stock price in FY 2022 compared to an increase in our stock price in FY 2021 as well as the issuance of warrants in August 2021. There was a gain in FY 2021 from the extinguishment of the derivative liabilities that when converted to shares of common stock of $21,084,040. In addition, in FY 2021, there was a loss on the conversion of debt and other liabilities to shares of common stock of $3,969,165. The negative change in fair value of derivative liabilities in FY 2021 was offset by a non-cash gain on exchange of warrants for common stock of $21,084,040in FY 2021, with no corresponding gain or loss in FY 2022. Interest expense, net of interest income, for FY 2022 was $(668,050)as compared to $(2,519,783)for FY 2021. The decrease in interest expense was the result of a reduction in our long-term debt and interest incurred on the debt assumed in the Banner acquisition, the amortization of debt discount of $149,394as well as the value related to the granting of warrants for interest of $1,789,227. For FY 2022, value related to the granting of warrants for interest was $545,125.
Oil, natural gas and natural gas liquids costs and expenses
Years Ended March 31, 2022 2021 Costs and expenses (income): Production
$ 1,333,666 $ 5,705,958Exploration, abandonment, and impairment 397,198 7,420 Oilfield supplies and repairs 4,021,600 1,813,469 Oil & Gas production taxes 235,166 135,717 General and administrative 2,161,153 4,773,821 Depreciation and amortization 33,438 355,280 Depletion 4,793,847 739,037 Accretion 155,612 64,400 Impairment 1,235,285 - Loss on sale of oil and gas property 885,797 - Loss on abandonment of oil and gas property - 109,407 57
Net income (loss) from continuing operations
The following table shows net income (loss) from continuing operations for the years ended
Years Ended March 31, 2022 2021 Oil and gas Segment
$ (957,343 ) $ (17,767,608 )Bitcoin Mining Segment (7,282,341 ) - Technology Segment (2,138,354 )
(3,501,992 ) Net income (loss) from continuing operations
FY 2022 was (
$10,378,038) as compared to ( $21,269,600) for FY 2021. The $10,891,562decrease in net loss from continuing operations was primarily due to a $15,386,301increase in fair value of derivative liabilities caused by a decrease in our stock price, together with an increase in revenue to $25,599,645, in FY 2022. In FY 2021, revenue of $15,084,532and a gain on exchange of warrants for common stock of $21,084,040were offset primarily by a change in fair value of derivative liabilities of ( $18,518,459), loss on conversion of long-term debt of ( $3,969,165), and interest expense, net of interest income, of ( $2,519,783). Income (loss) from continuing operations was comprised of $325,005and ( $17,767,608) in the oil and gas segment; ( $7,282,341) and $0in the Bitcoin mining segment; and ( $2,138,354) and $(3,501,992)in the technology segment for FY 2022 and FY 2021, respectively. The difference in our oil and gas segment was primarily due to the commencement of production on the Deshotel well in addition to increased revenues in our transportation division.
Cash and capital resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are revenue generated from operations, levels of accounts receivable and accounts payable and capital expenditures. For FY 2022 and FY 2021, the Company had a net loss from continuing operations of (
$10,293,038) and ( $21,211,600), respectively, had a working capital deficit of $8,394,850and $11,846,156as of March 31, 2022and 2021, and has an accumulated deficit as of March 31, 2022of ( $158,868,204). As of July 1, 2022, the Company has $8,013,181in cash and cash equivalents. The increase in the working capital deficit is the result of the start-up of Agora's Bitcoin mining operation and the expansion of our oil and gas drilling programs in FY 2022. The Company believes this cash plus revenue from operations is sufficient to meet our cash needs for the 12 months following the filing of this Report. Net cash used in operating activities was ( $9,884,095) for FY 2022, as compared to ( $12,584,771) for FY 2021. Cash used in operating activities is related to the Company's net loss partially offset by non-cash expenses, including share-based compensation, change in non-controlling interest and the change in the fair value of the derivative liability and net losses incurred in the conversion of debt and liabilities to shares of common stock, as well as losses on the sale of fixed assets and disposal or abandonment of oil and gas properties. Net cash used in investing activities was ( $8,618,205) for FY 2022, compared to ( $6,385,565) for FY 2021. Net cash used in investing activities in FY 2022 related primarily to the purchase of fixed assets as well as power development costs for Agora's Bitcoin mining operations of ( $2,000,000) and oil and gas properties of $(303,500), offset by sale of fixed assets of $2,500and proceeds from the sale of oil and gas properties of $906,274. For FY 2021, the cash used in investing activities related to advancement of a note receivable of ( $275,000), the net purchases of fixed assets and oil and gas properties including drilling costs of $(3,414,023), and capitalized drilling costs ( $2,696,542). Net cash provided by financing activities for FY 2022 was $17,691,852which included $19,228,948(net of fees) raised via issuance of common stock and warrants in a registered direct offering and stock for the exercise of stock options, partially offset by $1,434,855in net repayments of debt including notes issued to related parties. This compared with FY 2021 net cash provided by financing activities of $19,782,269which included $7,666,303(net of fees) raised via issuance of common stock in a registered direct offering, stock for the exercise of warrants of $16,119,595, $501,958from the exercise of stock options, $2,470,209from proceeds received from debt from loans made by related and non-related parties, partially offset by ( $5,723,404) from payments on debt to both related and non-related parties and ( $1,130,068) in payments to prior owners. 58
To date, we have funded our operations by selling common stock, convertible preferred stock and other derivative securities and by issuing debt securities.
We expect that in the long term the revenue generated operations in our oil and gas segment will continue to provide liquidity to the Company moving forward. The Company's capital program for production enhancement and development is expected to be significantly focused on exploiting legacy acreage positions that are economically viable at today's oil prices. We anticipate that management's focus on legacy acreage enhancement and development will positively benefit the balance sheet by producing hydrocarbons during a time of increasing demand after the negative impacts of COVID-19 and other geopolitical and economic factors have driven up the prices of crude oil. We continue to identify drilling projects and our revenue continues to experience increases due to the price of oil, if and to the extent they remain at relatively high levels in future periods. Supply chain issues and inflationary concerns have not materially impacted our business to-date, however we plan to monitor these developments and adjust our business where management deems necessary. The amount and timing of our capital expenditures are largely discretionary and within the control of our management and Board of Directors. We could choose to defer a portion of these planned capital expenditures depending on a variety of factors, including but not limited to the success of our drilling activities, prevailing and anticipated prices for oil, the availability of necessary equipment, infrastructure and capital, the receipt and timing of required regulatory permits and approvals, seasonal conditions, drilling and acquisition costs and the level of participation by other interest owners. We currently continue to execute on our strategy to reinvest cash flow from operations to enhance, develop and increase oil production, strengthening our balance sheet. We intend to continue monitoring commodity prices and overall market conditions and can adjust capital deployment in response to changes in commodity prices and overall market conditions.
We monitor and adjust our projected capital expenditures for our operations in response to the results of our drilling activities, changes in prices, availability of financing, drilling and acquisition costs, industry conditions, the timing of regulatory approvals, the availability of rigs, contractual obligations, internally generated cash flow and other factors both within and outside our control. If we require additional capital, we may seek such capital through traditional reserve base borrowings, joint venture partnerships, production payment financing, asset sales, offerings of debt and/or equity securities or other means. There is no assurance that the needed capital will be available on acceptable terms or at all. If we are unable to obtain funds when needed or on acceptable terms, we may be required to curtail our drilling programs, which could result in a loss of acreage through lease expirations. In addition, we may not be able to complete acquisitions that may be favorable
to us or finance the capital. Well Opening Requirements
The Company has continuous drilling requirements to drill or re-complete a well on its 9,615
Peabody Blackhawklease every 270 days to keep the lease active. The Company drilled and completed a well in February 2022on this oil and gas mineral lease and extended the lease to at least November 2022. In February 2022, our cost to drill a well in this formation was approximately $200,000but depending on the formation drilled, the costs could be as high as approximately $2,000,000. In this event, we would likely seek significant partners to share the cost. We have already agreed to afford the BitNile subsidiary a 25% participation right in future wells we drill. Agora Line of Credit As of June 30, 2022, the Company has advanced a total of $5,614,367to Agora under a $7.5 millionterm line of credit note issued to the Company by Agora which bears interest at a rate of 10% per annum. Agora will be required to repay any sums we lend it on March 31, 2023with accrued interest. The Company has agreed to loan Agora $5 millionfrom the proceeds it received from the June 2022private placement transaction described below to fund Agora's Bitcoin mining business. Impairment
For fiscal years 2022 and 2021, the Company impaired undeveloped reserves totaling
June 2022Private Placement On June 8, 2022the Company entered into a Securities Purchase Agreement with DPL, pursuant to which the Company sold the Purchaser 1,200 shares of Series A, 102,881 Commitment Shares, and a Warrant to purchase shares of common stock (the "Warrant") for a total purchase price of $12,000,000. As of June 29, 2022, the Company has received the $12,000,000purchase price from DPL. Each share of Series A has a stated value of $10,000and is convertible into shares of common stock at a conversion price of $2.10per share, subject to certain adjustment provisions. The holder's conversion of the Series A is subject to a beneficial ownership limitation of 19.9% of the issued and outstanding common stock as of the issuance date of the Series A, unless and until the Company obtains shareholder and Nasdaq approval for the conversion of more than that amount, in order to comply with Nasdaq Rules. In addition, the conversion rights in general do not become effective until the first day after the record date for the shareholders meeting seeking such shareholder approval. There are also standard 4.99% and 9.9% beneficial ownership limitations. The Series A is entitled to vote with the common stock as a single class on an as-converted basis, subject to certain limitations. Initially, the holder may designate one director.
The holder of shares of the Series A is entitled to receive cumulative cash dividends at an annual rate of 12.6% of the stated value, which is equivalent to
$1,260per year per share, payable monthly beginning on the issuance date and continuing until the earlier of (a) June 8, 2024, and (b) the date on which the holder no longer holds any shares of Series A. If the Company fails to make one or more dividend payments, whether or not consecutive, a default dividend rate of 18% per annum will apply until all accumulated dividend payments have been made. Additionally, at any time beginning on or after June 8, 2024, the holder of Series A may cause the Company to redeem some or all of the shares of Series A it holds at a redemption price of $1,200per share, plus any accumulated
and unpaid dividends thereon. The Series A Certificate of Designation (the "Series A Certificate") subjects the Company to negative covenants restricting its ability to take certain actions without prior approval from the holder(s) of a majority of the outstanding shares of Series A for as long as the holder(s) continue to hold at least 25% (or such higher percentage as set forth in the Series A Certificate) of the Series A shares issued on the closing date of the financing. These restrictive covenants include the following actions by the Company, subject to certain exceptions and limitations:
(i) the payment or declaration of any dividend (other than under Series A
(ii) the investment, purchase or acquisition of any assets or share capital of any
entity for an amount that exceeds
$100,000in any one transaction or $250,000, in the aggregate;
(iii) the issuance of common stock or other securities convertible into
or exercisable or exchangeable for shares of common stock;
(iv) the occurrence of any debt, lien or obligation of security, in the aggregate
amount greater than
(v) the sale, rental, transfer or assignment of any of its valuable assets
calculated in accordance with GAAP of more than
(vi) increase in any way the compensation or benefits of any of its
directors, officers, employees; and
(vii) merger or consolidation with, or purchase of a substantial portion of
assets of, or by any other manner the acquisition or combination with any business or entity. 60
The Warrant issued to DPL is structured as a poison pill in order to insure the Company will spin-off its subsidiaries and favorably consider a proposed reverse merger. It provides the holder with the right to purchase a number of shares of common stock as would enable the holder together with its affiliates to beneficially own 49% of the Company's common stock, calculated on a fully diluted basis, at an exercise price of
$0.001per share, including the Commitment Shares and shares of common stock underlying the Series A unless sold. The Warrant becomes exercisable beginning after the completion by the Company of distributions to the Company's security holders or to any other subsidiary of the Company's equity ownership of its three principal subsidiaries: Agora, Banner, and Zest Labs(the "Distributions"), provided that as of such time (i) the Warrant has been approved by the Company's shareholders and Nasdaq, and (ii) the holder together with its affiliates does not beneficially own at least 50% of the Company's outstanding common stock. The Warrant is subject to forfeiture if (x) the Distributions have not occurred within two years, (y) the shareholder approvals have not been obtained following three meetings for such purpose, or (z) the holder and its affiliates collectively beneficially own 50% or more of the Company's outstanding common stock. However, in the event of the failure of the Company to complete the Distributions as contemplated by clause (x) or obtain shareholder approval as contemplated by clause (y) and provided the event contemplated by clause (z) has not occurred, the Warrant may be exercised notwithstanding anything in the Warrant to the contrary. The Warrant may be exercised on a cashless basis. The Warrant expires on June 8, 2027. The secured note from the sale of Trend is due June 16, 2025and bears interest at a rate of 5% per year, subject to increase to 10% while an event of default has occurred and is continuing. The Purchaser's obligations under the note are secured by a first lien secured interest in the assets of the Purchaser, and are also guaranteed by the Purchaser's newly acquired subsidiaries. 2018 Line of Credit On December 28, 2018, the Company entered into a $10,000,000credit facility that includes a loan and security agreement wherein the lender agreed to make one or more loans to the Company, and the Company may make a request for a loan or loans from the lender, subject to the terms and conditions. The Company is required to pay interest biannually on the outstanding principal amount of each loan calculated at an annual rate of 12%. Under the facility the Company may request draws from the lender up to $1,000,000with a cap of $10,000,000. In FY 2022, the Company borrowed $595,855, which includes $25,855in commitment fees, with the balance of $575,000being deposited directly into the Company. Interest incurred for FY 2022 and accrued as of March 31, 2022was $2,233. There were no advances in FY 2021. With the sale of Trend Holdings, we no longer can access this line of credit. Impact of Inflation
In 2022, data indicates a sharp rise in inflation in the
U.S.and globally. In the U.S., inflation has been triggered by constrained supplies and increasing demand of certain goods and services as recovery from the COVID-19 pandemic continues. The Company's revenues, capital and operating costs are influenced to a larger extent by specific price changes in the oil and natural gas industry and allied industries rather than by changes in general inflation. Crude oil prices generally reflect the balance between supply and demand, with crude oil prices being particularly sensitive to OPECproduction levels, the Biden Administration'sefforts to reduce drilling and transition away from fossil fuels and/or attitudes of traders concerning supply and demand in the future. Prices for oil and gas related services such as those we supply though Pinnacle Frac and truck drivers we procure to assist in those efforts are also affected by the worldwide prices for crude oil. As a result of increasing prices for oil and natural gas, in 2021 and thus far in 2022, higher costs for goods and services in the oil and gas industry are being observed. In response to recent inflationary pressures in the U.S., the Federal Reservecommenced interest rate hikes in calendar year 2022 in an effort to combat inflation. Because of these and other developments, a recession is expected in the coming months by many economic analysts, which may, among other things, reduce demand for our products and services as well as increase operating costs to the extent we are unable to procure required resources to continue our operations.
Due to the global volatility of oil prices, it is not possible to predict the future cost to the Company of the oil it produces or the services it uses or provides.
Off-balance sheet arrangements
Caution Regarding Forward-Looking Statements
This Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our oil and gas reserves, future operating results, including the expected increase in revenues from the energy business and continued losses and negative cash flows, anticipated or potential transactions with BitNile and/or its affiliates, expected substantial investments to fund our business and support growth, including expenditures related to the joint drilling venture, our Bitcoin mining operations through Agora and Agora's initial public offering, the planned spin-offs of certain of our other subsidiaries, expected use of proceeds of our recent financing with DPL and cash generated from our operations, future impact of reduced oil and gas prices or reduced demand, potential future expansion of our oil and gas asset portfolio or other strategic transactions, our beliefs regarding the classification of drivers and owner-operators as independent contractors, our plans with respect to loss reserves, the sufficiency of our aggregate insurance limits, our expectations with respect to future developments in our ongoing litigation, and future liquidity. All statements other than statements of historical facts contained in this Report, including statements regarding our future financial position, liquidity, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words "believe," "may," "estimate," "continue," "anticipate," "intend," "should," "plan," "could," "target," "potential," "is likely," "will," "expect" and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. The results anticipated by any or all of these forward-looking statements might not occur. Important factors, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements include oil and gas price volatility and the continuation of high oil prices, the impact of future strains of COVID-19, the Russian invasion of the
Ukraine, inflation and Federal Reserveinterest rate increases in response thereto on the economy including the potential for a recession which may result, supply chain shortages, the future prices of, and demand for, oil and gas, our ability to efficiently develop our current oil reserves and economically find or acquire additional recoverable reserves, general risks related to drilling operations, any further delays or difficulties in the completion of Agora's initial public offering or its listing on Nasdaq, regulatory or other delays with our planned spin-offs, including delays or challenges in obtaining the requisite approvals, future adverse regulatory changes with respect to oil and gas exploration and production, Bitcoin, and classification of independent contractors as employees, any issues which could result in unfavorable outcomes of one or both of our ongoing lawsuits, continued service of key management and employees, and the availability of capital on acceptable terms when needed or at all, including as the result of the recent climate change initiatives and economic volatility. Further information on the risks and uncertainties affecting our business is contained in Part I. Item 1A. - Risk Factors. Further, with respect to Agora and its operations, Agora's registration statement on Form S-1 (File No. 333-261246), as amended, sets forth additional risks and uncertainties specific to its business. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.
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