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 "Risk Factors" and "Forward-Looking Statements" for a more complete
discussion of the risks and uncertainties associated with an investment in our
securities.
Dollar amounts and numbers of shares that follow in this Item 7 are presented in
thousands, except per share amounts.
OVERVIEW
Ecoark Holdings is a diversified holding company, incorporated in the state of
Nevada on November 19, 2007. Through Ecoark Holdings wholly owned subsidiaries,
the Company has operations in three areas: (i) oil and gas, including
exploration, production and drilling operations on over 20,000 cumulative acres
of active mineral leases in Texas, Louisiana, and Mississippi and transportation
services, (ii) post-harvest shelf-life and freshness food management technology,
and (iii) financial services including investing in a select number of early
stage startups. The Company's subsidiaries include Banner Midstream, White
River, Shamrock, Pinnacle Frac, Capstone, Zest Labs and Trend Holdings.
Through Pinnacle Frac the Company provides transportation of frac sand and
logistics services to major hydraulic fracturing and drilling operations.
Capstone procures and finances equipment to oilfield transportation service
contractors. These two operating subsidiaries of Banner Midstream are revenue
producing entities.
39
Through White River and Shamrock, we 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.
While the Company's consolidated financial information for the fiscal ended
March 31, 2021 reflects the operating results of Banner Midstream which
currently comprises the Company's exploration and production and transportation
business, Banner Midstream's operating results are not included in the Company's
consolidated financial information for the fiscal ended March 31, 2020. The
operating results of Trend Holdings are included in the Company's consolidated
financial information beginning May 31, 2019.
Fiscal Year 2021 Highlights
During the fiscal year ended March 31, 2021, the Company 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.
On June 11, 2020, the Company acquired certain energy assets from SR Acquisition
I, LLC for $1 as part of the ongoing bankruptcy reorganization of Sanchez Energy
Corporation. The transaction includes the transfer of 262 total wells in
Mississippi and Louisiana, approximately 9,000 acres of active mineral leases,
and drilling production materials and equipment. The 262 total wells include 57
active producing wells, 19 active disposal wells, 136 shut-in with future
utility wells, and 50 shut-in pending plugging wells. Included in the assignment
are 4 wells in the Tuscaloosa Marine Shale formation.
On June 18, 2020, the Company acquired certain energy assets from SN TMS, LLC
for $1 as part of the ongoing bankruptcy reorganization of Sanchez Energy
Corporation. The transaction includes the transfer of wells, active mineral
leases, and drilling production materials and equipment.
On August 14, 2020, the Company entered into an Asset Purchase Agreement (the
"Asset Purchase Agreement") by and among the Company, White River E&P LLC, a
Texas Limited Liability Company and a wholly-owned subsidiary of the Company
Rabb Resources, LTD. and Claude Rabb, the sole owner of Rabb Resources, LTD.
Pursuant to the Asset Purchase Agreement, the Company completed the acquisition
of certain assets of Rabb Resources, LTD. The acquired assets consisted of
certain real property and working interests in oil and gas mineral leases. The
Company in June 2020 previously provided for bridge financing to Rabb Resources,
LTD under the $225 Senior Secured Convertible Promissory Note. As consideration
for entering into the Asset Purchase Agreement, the Company agreed to pay Rabb
Resources, LTD. A total of $3,500 consisting of (i) $1,500 in cash, net of $304
in outstanding 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.
On September 4, 2020, White River SPV 3, LLC, a wholly-owned subsidiary of
Banner Midstream entered into an Agreement and Assignment of Oil, Gas and
Mineral Lease with a privately held limited liability company (the "Assignor").
Under the Lease Assignment, the Assignor assigned a 100% working interest (75%
net revenue interest) in a certain oil and gas lease covering in excess of 1,600
acres (the "Lease"), and White River paid $1,500 in cash to the Assignor. The
Company accounted for this acquisition as an asset acquisition under ASC 805 and
that the Company has early adopted the amendments of Regulation S-X dated May
21, 2020 and has concluded that this acquisition was not significant.
Accordingly, as a result of the amendment, the presentation of the historical
financial statements under Rule 3-05 and related pro forma information under
Article 11 of Regulation S-X, respectively, were not required to be presented.
On October 9, 2020, the Company and White River SPV, entered into a
Participation Agreement (the "Participation Agreement") by and among the
Company, White River SPV, BlackBrush Oil & Gas, L.P. ("BlackBrush") and
GeoTerre, LLC, an unrelated privately-held limited liability company (the
"Assignor"), to conduct drilling of wells in the Austin Chalk formation.
Pursuant to the Participation Agreement, the Company and White River SPV have
agreed, among other things, to pre-fund 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 has been expensed
as drilling costs. The Participation Agreement requires the estimated amount of
the drilling costs that were paid into a designated escrow account by the
commencement of drilling in January 2021. BlackBrush has agreed to assign to the
other parties to the Participation Agreement, subject to certain exceptions and
limitations specified therein, specified portions of its leasehold working
interest in certain Austin Chalk formation units. The Participation Agreement
provides for an initial allocation of the working interests and net revenue
interests among the assignor, BlackBrush and the Company and then a
re-allocation upon payout or payment of drilling and completion costs for each
well drilled. 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.
40
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.
Reverse Stock Split
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.
The reverse stock split was effected 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.
Ratification of Authorized Capital Increase
At the special meeting held on December 29, 2020, the stockholders of the
Company ratified the previously approved increase of the number of shares of
common stock the Company is authorized to issue from 30,000 shares to 40,000
shares.
Authorized Capital Reduction
Effective December 29, 2020, the Company amended its articles of incorporation
to reduce its authorized common stock from 40,000 to 30,000.
Registered Direct Offering of Common Stock and Warrants
On December 31, 2020, the Company completed a registered direct offering,
whereby the Company issued 889 shares of common stock and 889 accompanying
warrants to purchase common stock to one institutional investor under the
effective Form S-3 at $9.00 per share and accompanying warrant for a total of
$8,000 in gross proceeds, before placement agent fees and other offering
expenses. The warrants are exercisable for a two-year term at a strike price of
$10.00 per share. The Company granted 62 warrants to the placement agent as
compensation in addition to the $560 cash commission received by the placement
agent. The placement agent warrants are exercisable at $11.25 per share and
expire on January 2, 2023.
41
Our principal executive offices are located at 303 Pearl Parkway, Suite 200, San
Antonio, TX 78215, and our telephone number is (800) 762-7293. Our website
address is http://ecoarkusa.com/. Our website and the information contained on,
or that can be accessed through, our website is not deemed to be incorporated by
reference in and are not considered part of this report.
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 rollouts and the emergence of virus mutations.
COVID-19 did not have a material effect on the Consolidated Statements of
Operations or the Consolidated Balance Sheets included in this Form 10-K.
However, it did have a material impact on our management's ability to operate
effectively. The impact included the difficulties of working remotely from home
including slow Internet connection, the inability of our accounting and
financial officers to collaborate as effectively as they would otherwise have in
an office environment and issues arising from mandatory state quarantines.
While it is not possible at this time to estimate with sufficient certainty the
continued impact that COVID-19 could have on the Company's business, future
outbreaks and the measures taken by federal, state, local and foreign
governments could disrupt the operation of the Company's business. The COVID-19
outbreak and mitigation measures have also had and may continue to have an
adverse impact on global and domestic economic conditions, including reducing
the demand for oil, which could have an adverse effect on the Company's business
and financial condition, including on its potential to conduct financings on
terms acceptable to the Company, if at all. In addition, the Company has taken
temporary precautionary measures intended to help minimize the risk of the virus
to its employees, including temporarily requiring employees to work remotely,
and discouraging employee attendance at in-person work-related meetings, which
could negatively affect the Company's business. The extent to which the COVID-19
outbreak impacts the Company's results will depend on future developments that
are highly uncertain and cannot be predicted, including new information that may
emerge concerning the severity of the virus and the actions to contain its
impact.
The CARES Act includes, among other things, provisions relating to payroll tax
credits and deferrals, net operating loss carryback periods, alternative minimum
tax credits and technical corrections to tax depreciation methods for qualified
improvement property. The CARES Act also established a Paycheck Protection
Program ("PPP"), whereby certain small business are eligible for a loan to fund
payroll expenses, rent and related costs. We had received funding under the PPP,
and a majority of that as indicated in our Consolidated Statement of Operations
has been forgiven.
Critical Accounting Policies, Estimates and Assumptions
The critical accounting policies listed below are those the Company deems most
important to their operations.
42
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.
43
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 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.
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.
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.
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 years ended March 31, 2021 and 2020, respectively.
44
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.
The Company recognizes revenue under ASC 606 when: (i) the Company receives
notification of the successful sale of a load of crude oil to a buyer; (ii) the
buyer will provide a price based on the average monthly price of crude oil in
the most recent month; and (iii) cash is received the following month from the
crude oil buyer.
The Company accounts for contract costs in accordance with ASC Topic 340-40,
Contracts with Customers. The Company recognizes the cost of sales of a contract
as expense when incurred or at the time a performance obligation is satisfied.
The Company recognizes an asset from the costs to fulfil a contract only if the
costs relate directly to a contract, the costs generate or enhance resources
that will be used in satisfying a performance obligation in the future and the
costs are expected to be recovered. The incremental costs of obtaining a
contract are capitalized unless the costs would have been incurred regardless of
whether the contract was obtained.
Cost of sales for Pinnacle Frac includes all direct expenses incurred to produce
the revenue for the period. This includes, but is not limited to, direct
employee labor, direct contract labor and fuel.
Fair Value Measurements
ASC 820 Fair Value Measurements defines fair value, establishes a framework for
measuring fair value in accordance with GAAP, and expands disclosure about fair
value measurements. ASC 820 classifies these inputs into the following
hierarchy:
Level 1 inputs: Quoted prices for identical instruments in active markets.
Level 2 inputs: Quoted prices for similar instruments in active markets; quoted
prices for identical or similar instruments in markets that are not active; and
model-derived valuations whose inputs are observable or whose significant value
drivers are observable.
Level 3 inputs: Instruments with primarily unobservable value drivers.
45
Segment Information
The Company follows the provisions of ASC 280-10 Segment Reporting. This
standard requires that companies disclose operating segments based on the manner
in which management disaggregates the Company in making internal operating
decisions. The Company and its chief operating decision makers determined that
the Company's operations effective with the May 31, 2019, acquisition of Trend
Holdings and the March 27, 2020 acquisition of Banner Midstream now consist of
three segments, Trend Holdings (Finance), Banner Midstream (Commodities) and
Zest Labs (Technology).
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow,
market, or foreign currency risks. Management evaluates all of the Company's
financial instruments, including warrants, to determine if such instruments are
derivatives or contain features that qualify as embedded derivatives. The
Company generally uses a Black-Scholes model, as applicable, to value the
derivative instruments at inception and subsequent valuation dates when needed.
The classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is remeasured at the end of each
reporting period. The Black-Scholes model is used to estimate the fair value of
the derivative liabilities.
Recently Issued Accounting Standards
In August 2020, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") No. 2020-06, Debt with Conversion and Other
Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in 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.
46
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.
RESULTS OF OPERATIONS
Fiscal year ended March 31, 2021 compared to the fiscal year ended March 31,
2020
As the Company acquired Trend Holdings and Banner Midstream during the year
ended March 31, 2020 the latter of which was acquired on March 27, 2020, many of
the variances between operating revenues and operating expenditures are the
result of these acquisitions and the periods are not comparable.
Revenues
Revenues for the year ended March 31, 2021 were $15,563 as compared to $581 for
the year ended March 31, 2020, an increase of $14,982. The increase was
primarily due to the addition of the oil and gas operations as the result of the
Banner Midstream acquisition on March 27, 2020. Revenues were comprised of $478
and $175 in the financial segment; $0 and $173 in the technology segment; and
$15,085 and $233 in the commodity segment for the years ended March 31, 2021 and
2020, respectively.
Cost of Revenues and Gross Profit
Cost of revenues for the year ended March 31, 2021 was $14,727 as compared to
$259 for the year ended March 31, 2020, an increase of $14,468. The increase was
primarily due to the addition of the oil and gas operations as the result of the
Banner Midstream acquisition on March 27, 2020. Cost of Revenues was comprised
of $0 and $0 in the financial segment; $0 and $165 in the technology segment;
and $14,727 and $94 in the commodity segment for the years ended March 31, 2021
and 2020, respectively. Gross margins decreased from 45% for the year ended
March 31, 2020 to 5% for the year ended March 31, 2021 due to costs involved
with executing the projects and changes in inventory of crude oil.
Operating Expenses
Operating expenses for the year ended March 31, 2021 were $19,437 as compared to
$10,129 for the year ended March 31, 2020, an increase of $9,308. Operating
expenses were comprised of $476 and $729 in the financial segment; $3,415 and
$9,330 in the technology segment; and $15,546 and $70 in the commodity segment
for the years ended March 31, 2021 and 2020, respectively. The $9,308 increase
was due principally to the expenses, including wages and consulting fees,
related to the addition of the oil and gas operations as the result of the
Banner Midstream acquisition on March 27, 2020 and the depreciation, depletion,
amortization and accretion for Banner Midstream in 2021 and 2020, partially
offset by the reduction in the Zest Labs selling expenses.
Selling, General and Administrative
Selling, general and administrative expenses for the year ended March 31, 2021
were $8,405 compared with $1,370 for the year ended March 31, 2020. Cost
reduction initiatives were focused on salary related and professional fees for
the technology segment offset by the costs incurred for Banner Midstream as this
was acquired in March 2020.
Depreciation, Amortization, Depletion and Accretion
Depreciation, amortization, depletion and accretion expenses for the year ended
March 31, 2021 were $1,902 compared to $286 for the year ended March 31, 2020.
Depreciation, amortization, depletion and accretion expenses were comprised of
$0 and $0 in the financial segment; $250 and $282 in the technology segment; and
$1,652 and $4 in the commodity segment for the years ended March 31, 2021 and
2020, respectively. The $1,616 increase resulted primarily from the acquisition
of Banner Midstream and the depletion and accretion is the result of the oil and
gas properties maintained by Banner Midstream. The technology and financing
segment do not have depletion or accretion.
47
Research and Development
Research and development expense decreased 64% to $883 in the year ended March
31, 2021 compared with $2,472 in the year ended March 31, 2020. The $1,589
reduction in costs related primarily to the maturing of development of the Zest
Labs freshness solutions.
Other Income (Expense)
Change in fair value of derivative liabilities for the year ended March 31, 2021
was a non-cash loss of ($18,518) as compared to a non-cash loss of ($369) for
the year ended March 31, 2020. The $18,149 decrease was a result of the
fluctuation in the stock price in the year ended March 31, 2021 compared to the
year ended March 31, 2020. In addition, there was a non-cash gain in the year
ended March 31, 2021 from the extinguishment of the derivative liabilities that
when converted to shares of common stock of $21,084 compared to ($2,099) in the
prior year. In the year ended March 31, 2021, there was a non-cash loss on the
conversion of debt and other liabilities to shares of common stock of $3,969, a
gain on forgiveness of debt of PPP loans of $1,850 and a loss on the sale of
fixed assets and abandonment of oil and gas properties of $105 and $109,
respectively.
Interest expense, net of interest income, for the year ended March 31, 2021 was
$2,520 as compared to $422 for the year ended March 31, 2020. The increase was
the result of the interest incurred on the debt assumed in the Banner Midstream
acquisition as well as the value related to the granting of warrants for
interest of $2,042 and the amortization of debt discount of $149.
Net Loss
Net loss from continuing operations for the year ended March 31, 2021 was
$20,888 as compared to $12,137 for the year ended March 31, 2020. The $8,751
increase in net loss was primarily due to the non-cash changes in the fair value
of the derivative liability and the non-cash losses incurred on the conversion
of debt to equity, offset by the non-cash gain on the exchange of warrants for
common stock and forgiveness of debt of the PPP loans described herein. The net
income (loss) was comprised of ($15) and ($554) in the financial segment;
($3,502) and ($11,637) in the technology segment; and net loss of ($17,371) and
$52 in the commodity segment for the year ended March 31, 2021 and 2020,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of a company to generate funds to support its current
and future operations, satisfy its obligations, and otherwise operate on an
ongoing basis. Significant factors in the management of liquidity are funds
generated by operations, levels of accounts receivable and accounts payable and
capital expenditures.
Net cash used in operating activities was ($12,639) for the year ended March 31,
2021, as compared to net cash used in operating activities of ($5,490) for the
year ended March 31, 2020. Cash used in operating activities is related to the
Company's net loss partially offset by non-cash expenses, including share-based
compensation and the change in the fair value of the derivative liability and
net losses incurred in the conversion of debt and liabilities to shares of
common stock as well as losses on the sale of fixed assets and abandonment of
oil and gas properties.
Net cash used in investing activities was ($6,358) for the year ended March 31,
2021, as compared to ($775) net cash used in investing activities for the year
ended March 31, 2020. Net cash used in investing activities in 2021 related to
the advancement of a note receivable of $275, and the net purchases of fixed
assets and oil and gas properties including drilling costs of $2,697.
Net cash provided by financing activities for the year ended March 31, 2021 was
$19,907 that included $24,287 (net of fees) raised via issuance of common stock
in a direct registered offering, stock for the exercise of warrants and stock
options, offset by proceeds and repayments of long-term debt and notes payable
including related parties of $4,380. This compared with the year ended March 31,
2020 amounts of $6,427 provided by financing that included $1,137 provided
through the credit facility, $2,000 from the exercise of warrants, $2,980 from
proceeds received from the sale of preferred stock and $403 from proceeds from
advances from related parties.
To date we have financed our operations through sales of common stock and the
issuance of debt.
48
In addition to these transactions, the Company in the period from April 1, 2020
through March 31, 2021, entered into the following transactions:
(a) On April 16, 2020, the Company received $386 in Payroll Protection Program
funding related to Ecoark Holdings, and the Company also received on April
13, 2020, $1,482 in Payroll Protection Program funds for Pinnacle Frac LLC,
a subsidiary of Banner Midstream. All but $29 has been forgiven as of
December 31, 2020.
(b) On May 1, 2020, an institutional investor elected to convert its remaining
shares of Series B Preferred shares into 32 common shares.
(c) On April 1 and May 5, 2020, two institutional investors elected to convert
their 1 Series C Preferred share into 276 common shares.
(d) On May 10, 2020, the Company received approximately $6,294 from accredited
institutional investors holding 276 warrants issued on November 13, 2019
with an exercise price of $3.65 and holding 1,176 warrants with an exercise
price of $4.50. The Company agreed to issue to these investors an additional
number of warrants as a condition of their agreement to exercise the
November 2019 warrants.
(e) 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 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.
At March 31, 2021 we had cash (including restricted cash) of $1,316, and $1,194
as of June 22, 2021. We had a working capital deficit of $11,845 and $16,689 as
of March 31, 2021 and 2020, respectively. The decrease in the working capital
deficit is the result of the non-cash change in the fair value of the derivative
liabilities offset by the repayment and conversion of debt and liabilities to
shares of common stock. These liabilities were assumed in the Banner Midstream
acquisition in March 2020. The Company believes it has adequate capital
resources to meet its cash requirements during the next 12 months.
The Company raised approximately $16,119 in warrant exercises in the year ended
March 31, 2021 as well as $8,001 in a registered direct offering. We expect that
the revenue generating operations of Banner Midstream will continue to improve
the liquidity of the Company moving forward. However, going forward, the effect
of the pandemic on the capital markets may limit our ability to raise additional
capital on the terms acceptable to us at the time we need it, if at all. As
disclosed in the consolidated financial statements, COVID-19 has had an impact
on our management's ability to operate effectively. The challenges related to
remote work and travel restrictions that we as a smaller company have faced in
striving to meet our disclosure obligations in a timely manner while taking the
steps to protect the health and safety of our employees have impacted, and may
continue to further impact, our ability to raise additional capital.
The Company 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 as part of
their Participation Agreement with Blackbrush Oil & Gas, L.P. The Company paid
the amount of the drilling costs into a designated escrow account which occurred
in January 2021.
On April 9, 2021, a Little Rock, Arkansas jury awarded Ecoark and Zest a total
of $115 million in damages. See "Part I. Item 3. Legal Proceedings" for further
information. However, due to expected appeals, the Company does not expect to
receive the proceeds until approximately 2025.
Off-Balance Sheet Arrangements
As of March 31, 2021 and 2020, we had no off-balance sheet arrangements.
© Edgar Online, source Glimpses
RISKON INTERNATIONAL, INC. 
