UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended:
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from:
Commission
file number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
Issuer’s
telephone number: (
Securities registered pursuant to Section 12(b) of the Act: None
Indicate
by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐
As of March 13, 2024, the issuer had shares of common stock, $0.0001 par value per share, outstanding.
TABLE OF CONTENTS
| 2 |
TABLE OF CONTENTS
| F-1 |
WHITE RIVER ENERGY CORP
(FORMERLY FORTIUM HOLDINGS CORP.)
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2023 (UNAUDITED) AND MARCH 31, 2023
| DECEMBER 31, | MARCH 31, | |||||||
| 2023 | 2023 | |||||||
| (UNAUDITED) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash (including $ | $ | $ | ||||||
| Accounts receivable, net of allowance for doubtful accounts | ||||||||
| Accounts receivable - related parties | ||||||||
| Receivable - Participation Agreement, net of allowance for doubtful accounts | ||||||||
| Inventories - Crude Oil | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| NON-CURRENT ASSETS: | ||||||||
| Property and equipment, net | ||||||||
| Right of use asset - operating lease | ||||||||
| Right of use asset - financing lease | ||||||||
| Oil and gas properties, full cost-method | ||||||||
| Unevaluated wells in progress | ||||||||
| Other assets | ||||||||
| Total non-current assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| LIABILITIES | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Deferred tax credits | ||||||||
| Derivative liabilities | ||||||||
| Deferred drilling costs | ||||||||
| Related party advances | ||||||||
| Series C Preferred Stock | ||||||||
| Convertible notes payable, net of discount | ||||||||
| Current portion of long-term debt | ||||||||
| Current portion of lease liability - operating lease | ||||||||
| Current portion of lease liability - financing lease | ||||||||
| Total current liabilities | ||||||||
| NON-CURRENT LIABILITIES | ||||||||
| Lease liability - operating lease, net of current portion | ||||||||
| Lease liability - financing lease, net of current portion | ||||||||
| Long-term debt, net of current portion | ||||||||
| Asset retirement obligations | ||||||||
| Total non-current liabilities | ||||||||
| Total Liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| TEMPORARY EQUITY - Non-controlling interest | ||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Preferred stock, $ par value, shares authorized | ||||||||
| Series A - shares issued and outstanding | ||||||||
| Series B - shares issued and outstanding | ||||||||
| Series C - and shares issued and outstanding | ||||||||
| Series D - and shares issued and outstanding | ||||||||
| Common stock, $ par value, shares authorized and and shares issued and and shares outstanding | ||||||||
| Subscription receivable | ( | ) | ||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total White River Energy Corp stockholders’ deficit | ( | ) | ( | ) | ||||
| Non-controlling interest | ||||||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
| F-2 |
WHITE RIVER ENERGY CORP
(FORMERLY FORTIUM HOLDINGS CORP.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE NINE AND THREE MONTHS ENDED DECEMBER 31, 2023 AND 2022
| NINE MONTHS ENDED | THREE MONTHS ENDED | |||||||||||||||
| DECEMBER 31, | DECEMBER 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| REVENUES | $ | $ | $ | $ | ||||||||||||
| COSTS AND EXPENSES | ||||||||||||||||
| Lease operating expenses | ||||||||||||||||
| Salaries and salaries related costs | ||||||||||||||||
| Professional and consulting fees | ||||||||||||||||
| Selling, general and administrative costs | ||||||||||||||||
| Impairment - investment | ||||||||||||||||
| Depreciation, amortization, impairment, depletion, and accretion | ||||||||||||||||
| Total costs and expenses | ||||||||||||||||
| LOSS FROM OPERATIONS BEFORE OTHER INCOME (EXPENSE) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Change in fair value of derivative liabilities | ( | ) | ( | ) | ||||||||||||
| Derivative expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Amortization of debt discount - Convertible Note | ( | ) | ( | ) | ||||||||||||
| Amortization of discount - Series C Preferred Stock | ( | ) | ||||||||||||||
| Gain on disposal of fixed assets | ||||||||||||||||
| Gain on disposal of wells | ||||||||||||||||
| Other income | ||||||||||||||||
| Amortization of original issue discount of convertible note | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest expense, net of interest income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| DISCONTINUED OPERATIONS: | ||||||||||||||||
| Loss from discontinued operations | ( | ) | ||||||||||||||
| Loss on disposal of discontinued operations | ( | ) | ||||||||||||||
| Total discontinued operations | ( | ) | ||||||||||||||
| LOSS FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| PROVISION FOR INCOME TAXES | ||||||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST | ||||||||||||||||
| NET LOSS ATTRIBUTABLE TO WHITE RIVER ENERGY CORP | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NET (LOSS) EARNINGS PER SHARE - BASIC | ||||||||||||||||
| Continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Discontinued operations | ( | ) | ||||||||||||||
| NET (LOSS) EARNINGS PER SHARE | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC (*) | ||||||||||||||||
| NET (LOSS) EARNINGS PER SHARE - DILUTED | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED (*) | ||||||||||||||||
| (*) |
| F-3 |
WHITE RIVER ENERGY CORP
(FORMERLY FORTIUM HOLDINGS CORP.)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)
FOR THE NINE MONTHS ENDED DECEMBER 31, 2023 AND 2022
Series A Preferred Stock | Series D Preferred Stock | Common Stock | Subscription | Additional Paid-In | Accumulated | Non-controlling | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Receivable | Capital | Deficit | Interest | Total | ||||||||||||||||||||||||||||||||||
| Balance - March 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||||||||
| Advances from Ecoark Holdings, Inc. to White River Holdings Corp, net | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance - June 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||||||||
| Advances from Ecoark Holdings, Inc. to White River Holdings Corp, net | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| To reflect the reverse merger of White River Holdings Corp, net | - | - | ||||||||||||||||||||||||||||||||||||||||||
| To record contribution of capital by RiskOn International, Inc. | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance - September 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||||||||
| Preferred shares issued in PIPE, net of classification as liability | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued in consulting agreement | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance - December 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||||||||
| Balance - March 31, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||||||||
| Preferred shares issued in PIPE, net of classification as liability | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance - June 30, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||||||||
| Preferred shares issued in PIPE, net of classification as liability | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of Series C Preferred stock to common stock | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Reclassification of non-controlling interest to temporary equity | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance - September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||||||
| Preferred shares issued in PIPE, net of classification as liability | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Common stock and warrants issued in PIPE | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued in joint venture | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Series D shares issued for conversion of common stock * | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Series D shares issued for services | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Proceeds from subscription receivable | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Reclassification of derivative liability upon extinguishment of convertible notes | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Gain on sale to related parties | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance - December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||||||
| * |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-4 |
WHITE RIVER ENERGY CORP
(FORMERLY FORTIUM HOLDINGS CORP.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED DECEMBER 31, 2023 AND 2022
| 2023 | 2022 | |||||||
| CASH FLOW FROM OPERATING ACTIVITIES FROM OPERATIONS | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash (used in) operating activities | ||||||||
| Depreciation, amortization, depletion, accretion and impairment | ||||||||
| Share-based compensation | ||||||||
| Bad debt | ||||||||
| Fees paid in termination of note payable | ||||||||
| Loss on disposal of Norr and Elysian | ||||||||
| (Gain) on disposal of fixed assets | ( | ) | ( | ) | ||||
| (Gain) on disposal of oil and gas properties | ( | ) | ||||||
| Impairment of investment on tax credits | ||||||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Common and preferred stock issued for services | ||||||||
| Derivative expense | ||||||||
| Amortization of discounts - convertible notes | ||||||||
| Expense recorded for advances from related parties | ||||||||
| Commissions expensed for non-controlling interest | ||||||||
| Amortization of discount - Series C Preferred Stock | ||||||||
| Changes in assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Accounts receivable - related parties | ( | ) | ||||||
| Receivable - Participation Agreement | ( | ) | ||||||
| Inventory | ||||||||
| Prepaid expenses and other assets | ( | ) | ( | ) | ||||
| Advances from issuance of tax credits | ||||||||
| Amortization of right of use asset - operating leases | ||||||||
| Amortization of right of use asset - financing leases | ||||||||
| Deferred drilling costs | ( | ) | ||||||
| Contribution from RiskOn International, Inc. | ||||||||
| Operating lease expense | ( | ) | ( | ) | ||||
| Accrued payable and accrued liabilities | ( | ) | ||||||
| Total adjustments | ||||||||
| Net cash used in operating activities of continuing operations | ( | ) | ( | ) | ||||
| Net cash used in discontinued operations | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Additions of oil and gas properties | ( | ) | ( | ) | ||||
| Investments in tax credits | ( | ) | ||||||
| Advances on note receivable | ( | ) | ||||||
| Payments received from note receivable | ||||||||
| Proceeds from the disposal of fixed assets | ||||||||
| Proceeds from the sale of oil and gas properties | ||||||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Increase (decrease) in cash overdraft | ( | ) | ||||||
| Repayments of advances from related parties | ( | ) | ||||||
| Advances from related parties | ||||||||
| Repayment of convertible note | ( | ) | ||||||
| Proceeds from Series C Preferred Stock, net | ||||||||
| Proceeds from RiskOn International, Inc. in acquisition of White River | ||||||||
| Proceeds from long-term debt | ||||||||
| Repayment of long-term debt and note payable | ( | ) | ( | ) | ||||
| Payment of lease liability | ( | ) | ( | ) | ||||
| Proceeds from purchases of limited partnership interests | ||||||||
| Proceeds from sale of common stock and warrants in PIPE | ||||||||
| Proceeds from issuance of convertible note | ||||||||
| Net cash provided by financing activities | ||||||||
| NET INCREASE IN CASH AND RESTRICTED CASH | ||||||||
| CASH AND RESTRCITED CASH - BEGINNING OF PERIOD | ||||||||
| CASH AND RESTRICTED CASH - END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES | ||||||||
| Cash paid for interest expense | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| SUMMARY OF NON-CASH ACTIVITIES: | ||||||||
| Net assets acquired from Fortium Holdings Corp. | $ | $ | ||||||
| Bifurcation of derivative liability from convertible note | $ | $ | ||||||
| ROU asset acquired for lease liability - financing leases | $ | $ | ||||||
| Gain on sale of oil wells to related party | $ | $ | ||||||
| Fixed assets acquired for long-term debt and accounts payable | $ | $ | ||||||
| Conversion of Series C Preferred Stock to Common Stock | $ | $ | ||||||
| Derivative liability recognized in issuance of convertible note | $ | $ | ||||||
| Subscription receivable recognized for Series C funding | $ | $ | ||||||
| Common stock issued for investment in joint venture | $ | $ | ||||||
| Derivative liability extinguished upon repayment of convertible note | $ | $ | ||||||
| F-5 |
WHITE RIVER ENERGY CORP
(FORMERLY FORTIUM HOLDINGS CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 2023
NOTE 1: DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The terms “we,” “us,” “our,” and the “Company” refer to White River Energy Corp.
On September 19, 2022, the Company changed its name from Fortium Holdings Corp. to White River Energy Corp. On September 28, 2022, the Board of Directors and holders of the majority outstanding voting power approved the changing of the fiscal year of the Company from December 31 to March 31, and approved increasing the authorized capital to shares consisting of shares of common stock (from ) and shares of preferred stock. The Company filed a Certificate of Amendment to the Articles of Incorporation with the Nevada Secretary of State on September 29, 2022, and the changes became effective upon filing.
The Company executed a Share Exchange Agreement (the “Exchange Agreement”) on July 25, 2022 and pursuant to the Exchange Agreement that day acquired % of the outstanding shares of capital stock of White River Holdings Corp, a Delaware corporation (“White River Holdings” or “Holdings”) from RiskOn International, Inc. (formerly Ecoark Holdings, Inc. (“Ecoark”)), Holding’s sole stockholder. In exchange the Company issued Ecoark shares of the newly designated non-voting Series A Convertible Preferred Stock (the “Series A”). The Series A will become convertible into approximately shares of the Company’s common stock upon such time as (A) the Company has filed a Form S-1, with the Securities and Exchange Commission (the “SEC”) and such Form S-1 has been declared effective (which occurred on September 29, 2023), and (B) Ecoark elects to distribute shares of the Company’s common stock to Ecoark’s stockholders. The Series A has a stated value of $ million and has a liquidation preference over the common stock and any subsequent series of junior preferred stock equal to the stated value, plus any accrued but unpaid dividends; the Series A, however, does not have any of the voting rights of common stockholders. The transaction was accounted for as a share exchange, whereby Holdings is considered the accounting acquirer. Since the share exchange occurred with a non-shell public company, the transaction included the purchase of the non-controlling interest of Fortium Holdings Corp. Except as expressly indicated in these footnotes to the contrary or where the context clearly dictates otherwise, references to “Fortium Holdings Corp.” refers to the predecessor of the Company before the Holdings share exchange was effected in July 2022.
Holdings has operations in oil and gas, including exploration, production and drilling operations on over 30,000 cumulative acres of active mineral leases Louisiana, and Mississippi.
On
July 29, 2022, the Company filed a Certificate of Designation with the Nevada Secretary of State designating a new series of
preferred stock as Series B Preferred Stock (the “Series B”).
| F-6 |
On
October 25, 2022, the Company filed a Certificate of Designation of the Rights, Preferences and Limitations (the “Series C Certificate
of Designation”) of Series C Convertible Preferred Stock (the “Series C”) with the Nevada Secretary of State. The Series
C Certificate of Designation provides for the issuance of up to shares of Series C. From October 25, 2022 through March 31, 2023,
the Company sold Units for $
On March 18, 2021, the Company formed Norr LLC (“Norr”), a Nevada limited liability company and wholly-owned subsidiary of the Company, and commenced operations as a sports equipment and apparel manufacturer and retailer.
On September 9, 2021, the Company formed Elysian, a Colorado corporation and wholly-owned subsidiary, for the purpose of engaging in cannabis operations.
In
September 2022, the Company sold both Norr and Elysian pursuant to a Membership Interest Purchase Agreement (“MIPA”) for
Norr, and a Stock Purchase Agreement for Elysian. These entities were sold to non-related third parties for $
On September 16, 2022, the Board of Directors and stockholders approved the name change of the Company from Fortium Holdings Corp. to White River Energy Corp. All paperwork was submitted to both the State of Nevada and to the Financial Industry Regulatory Authority (“FINRA”) on September 20, 2022 and subsequently approved.
The Company has reflected the operations of both Norr and Elysian post-combination in discontinued operations and have reflected the loss on disposal of these companies in the Statements of Operations.
On November 27, 2023, the Company formed White River Native CDFI LLC, a Texas limited liability company (“JV Entity”) and entered into an Operating Agreement with our joint venture partner (“JV Partner”) (see Note 3). Under the terms of the Operating Agreement, the Company has full operational control of the JV Entity and owns 100% of the membership interests. The JV Partner is entitled to receive 51% economic benefit in the event of the sale of the JV Entity (with the Company receiving the remaining 49% of such economic benefit), and the JV Partner is entitled to receive 20% net income of the JV Entity prior to any such sale, with the Company receiving the remaining 80% of net income.
Basis of Presentation
The Company’s unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (GAAP). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB).
All adjustments considered necessary for a fair presentation have been included. These adjustments consist of normal and recurring accruals, as well as non-recurring charges.
As
the acquisition of Holdings resulted in the owner of Holdings gaining control over the combined entity after the transaction, and the
stockholders of the Company continuing only as passive investors, the transaction was not considered a business combination under the
ASC. Instead, this transaction was considered to be a capital transaction of the legal acquiree (Holdings) and was equivalent to the
issuance of shares by Holdings for the net monetary assets of the Company, except for the purchase of the shares of issued
and outstanding common shares of Fortium Holdings Corp., which were considered as purchase consideration resulting in $
The condensed consolidated financial statements, and the accompanying notes, are prepared in accordance with GAAP and do not contain certain information included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2023. Therefore, the interim condensed consolidated financial statements should be read in conjunction with those reports. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year due to various factors.
| F-7 |
All adjustments considered necessary for a fair presentation have been included. These adjustments consist of normal and recurring accruals, as well as non-recurring charges.
Principles of Consolidation
The Company prepares its consolidated financial statements on the accrual basis of accounting. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts, balances and transactions have been eliminated in the consolidation.
The Company applies the guidance of Topic 810 Consolidation of the FASB ASC to determine whether and how to consolidate another entity. Pursuant to ASC Paragraph 810-10-15-10 all majority-owned subsidiaries—all entities in which a parent has a controlling financial interest—are consolidated except when control does not rest with the parent.
Pursuant to ASC Paragraph 810-10-15-8, the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation. The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other stockholders, or by court decree.
The
Company’s wholly-owned subsidiary, White River Energy Partners Management I, LLC (formerly White River E&P Management 1, LLC)
is the general partner and the only managing partner of the White River Energy Partners I, LP (formerly White River E&P 1, LP) (“WR
Fund”) has control over the WR Fund, and has the power to deploy the investments from WR Fund into the Company for the various
drilling projects they undertake. The name changes became effective May 30, 2023. The Limited Partnership Agreement dated October 31,
2022 was amended by the Amended and Restated Limited Partnership Agreement effective on August 17, 2023 (dated August 15, 2023) (the
“Partnership Agreement”). A subsidiary of the Company is the managing partner of WR Fund. The Company’s subsidiary,
the managing general partner contributed $
All
distributions from the WR Fund should be made only from revenues of the WR Fund and not from capital contributions or borrowed funds,
unless otherwise determined by the Company’s subsidiary, the managing general partner. The managing general partner shall have
the discretion to determine on a monthly basis whether any additional distribution shall be made and the amount, if any, of such distribution.
The distributions shall be paid:
Any profit or loss in the WR Fund shall be allocated to the partners in such amounts as may be necessary or appropriate to cause the capital balance of each partner to equal, (a) the amounts such partners would receive if all assets on hand at the end of such year were sold for the gross asset value reflected for such assets on the books of the WR Fund, any partner that was obligated to contribute any amount to the WR Fund, or otherwise contributed such amount to the WR Fund, all liabilities of the WR Fund were satisfied in cash in accordance with their terms, and any remaining cash was distributed to the partners in accordance with the provisions for distributions; minus (b) an amount equal to such partner’s allocable share of the partnership minimum gain and nonrecourse debt minimum gain as computed on the last day of such fiscal year or other period in accordance with the applicable regulations, subject to allocations for organization and offering expenses, lease acquisition costs, depletion deductions with respect to oil and gas properties, all intangible drilling costs deductible under Section 263(c) of the Internal Revenue Code, and profits resulting from operations as determined by the managing general partner. Losses allocated to any unit holder for any taxable year shall not exceed the maximum amount of losses that may be allocated to such unit holder without causing such partner to have an adjusted capital account deficit at the end of such taxable year. All losses in excess of the limitation shall be allocated solely to the other partners. If no other partners receive an additional allocation of losses, such additional losses shall be allocated solely to the general partners as determined by the managing partner. The managing partner shall have the discretion to allocate and reallocate profit and loss so as to conform each partner’s capital account to such unit holder’s rights to distributions, insofar as reasonably possible.
| F-8 |
The consolidated financial statements include the results of the WR Fund and the Company has eliminated all intercompany transactions. The WR Fund will incur direct expenses related to both the annual management fee and oil production from the working interests it owns in oil and gas wells; the managing partner, however, does not plan to charge any indirect costs such as audit, tax, legal, or fund administration to the WR Fund.
As discussed in Note 1, the Company formed and consolidated the JV Entity effective November 27, 2023.
Reclassifications
The Company has reclassified certain amounts in the December 31, 2022 condensed consolidated financial statements to be consistent with the December 31, 2023 presentation. These changes had no impact on the Company’s financial position or result of operations for the periods presented.
Cash and Cash Equivalents
Cash
equivalents include demand deposits with banks and all highly liquid investments with original maturities of three months or less. The
Company maintains balances in financial institutions where deposits exceed the federally insured deposit limit of
$
The Company’s restricted cash is in the form of certificates of deposit that secure our oil and gas properties.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP 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, cost allocation percentages, 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 and conversion options, 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.
| F-9 |
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. Costs associated with unevaluated properties are excluded from the full-cost pool until the Company has made a determination as to the existence of proved reserves. The Company reviews its unevaluated properties at the end of each quarter to determine whether the costs incurred should be transferred to the full-cost pool and thereby subject to amortization. Additionally, the Company assesses all properties classified as unevaluated properties on a quarterly basis for possible impairment. During any period in which these factors indicate impairment, the cumulative drilling costs incurred to date for such properties are transferred to the full-cost pool and are then subject to depletion and the full-cost ceiling test limitation.
There
was $
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
Oil and Gas Reserves
Reserve engineering is a subjective process that is dependent upon the quality of available data and interpretation thereof, including evaluations and extrapolations of well flow rates and reservoir pressure. Estimates by different engineers often vary sometimes significantly. In addition, physical factors such as results of drilling, testing and production subsequent to the date of an estimate, as well as economic factors such as changes in product prices, may justify revision of such estimates. Because proved reserves are required to be estimated using recent prices of the evaluation, estimated reserve quantities can be significantly impacted by changes in product prices.
Joint Interest Activities
Certain of our exploration, development and production activities are conducted jointly with other entities and, accordingly, the consolidated financial statements reflect only our proportionate interest in such activities.
| F-10 |
Inventories
Crude oil is 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
The Company follows the provisions of ASC Topic 410, “Asset Retirement and Environmental Obligations” which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The standard requires that the Company recognize the fair value of a liability for an asset retirement obligation (“ARO”) in the period in which it is incurred. The ARO is capitalized as part of the carrying value of the assets to which it is associated and depreciated over the useful life of the asset. The ARO and the related asset retirement cost are recorded when an asset is first drilled, constructed or purchased. The asset retirement cost is determined and discounted to present value using a credit-adjusted risk-free rate over the estimated economic life of the oil and gas properties. After initial recording, the liability is periodically adjusted to reflect (1) new liabilities incurred, (2) liabilities settled during the period, (3) accretion expense, and (4) revisions to estimated future cash flow requirements resulting from changes in the estimated future costs or the estimated economic useful lives of the oil and gas properties. Subsequent adjustments in the cost estimate are reflected in the ARO liability and the amounts continue to be amortized over the useful life of the related long-lived assets.
Accounts Receivable and Concentration of Credit Risk
When
the Company records an allowance for doubtful accounts it is based on management’s estimate of the overall collectability of accounts
receivable, considering historical losses, credit insurance and economic conditions. Based on these same factors, individual accounts
are charged off against the allowance when management determines those individual accounts are uncollectible. Credit extended to customers
is generally uncollateralized. Past-due status is based on contractual terms. Substantially all of the Company’s accounts receivable
result from joint interest billings to its working interest partners. As of December 31, 2023 and March 31, 2023, the Company had established
$
Impairment of Long-lived Assets and Goodwill
ASC 360 requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company has adopted Accounting Standard Update (“ASU”) 2017-04 Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment.
The Company reviews recoverability of long-lived assets on a periodic basis whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets.
Fixed assets and intangible assets with finite useful lives are stated at cost less accumulated amortization and impairment.
The Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment review include the following:
1. Significant underperformance relative to expected historical or projected future operating results;
2. Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and
3. Significant negative industry or economic trends.
| F-11 |
When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows. The Company impaired all of their goodwill in the year ended March 31, 2023.
Property and Equipment and Long-Lived Assets
Property and equipment is stated at cost. Depreciation on property and equipment is computed using the straight-line method over the estimated useful lives of the assets.
Fair Value Measurements
The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices in active markets.
Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly.
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The carrying values of the Company’s financial instruments such as cash, accounts receivable, prepaid expenses, accounts payable, and accrued expenses approximate their respective fair values because of the short-term nature of those financial instruments.
Revenue Recognition
The Company accounts for revenue in accordance with ASC Topic 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 the performance obligations in the contract
● Step 3: Determine the transaction price
● Step 4: Allocate the transaction price to the performance obligations in the contract
● 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.
| F-12 |
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
● Constraining estimates of variable consideration
● The existence of a significant financing component in the contract
● Noncash consideration
● Consideration payable to a customer
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. The transaction price is allocated to each performance obligation on a relative standalone selling price basis. 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.
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.
All revenue is recorded at a point in time.
In continuing operations, the Company only recognizes revenue from one source, oil and gas production and services.
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; and (ii) the buyer will provide a price based on the average monthly price of crude oil in the most recent month.
The Company has accounted for stock-based compensation arrangements in accordance with Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718”). This guidance addresses all forms of share-based payment awards including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights, as well as share grants and other awards issued to employees and non-employees under free-standing arrangements. These awards are recorded at costs that are measured at fair value on the awards’ grant dates, based on the estimated number of awards that are expected to vest and will result in charges to operations.
Deferred Tax Credits
The Company accounts for their tax credits under ASC 740. Upon purchase of the tax credit, the Company recognizes the acquired credit as a deferred tax asset and measures it under ASC 740. The difference between the purchase price of the credit and the measurement of the acquired credit as a deferred credit. The deferred credit is recognized in income tax expense in proportion to the reversal of the associated deferred tax asset. Reversal of the deferred tax credit is generally included in determining the Company’s estimated annual effective tax rate unless it is acquired in an annual period after the tax year in which it is utilized.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. Management evaluates all of the Company’s financial instruments, including warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The Company generally uses a Black-Scholes model, as applicable, to value the derivative instruments at inception and subsequent valuation dates when needed. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-measured at the end of each reporting period. The Black-Scholes model is used to estimate the fair value of the derivative liabilities.
| F-13 |
Basic net income (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (“EPS”) include additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants and conversions of preferred stock into common stock. Common stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive for periods presented, so only basic weighted average number of common shares are used in the computations.
Recently Issued Accounting Pronouncements
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 has determined this new guidance will not have a material impact on its consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt-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 Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for convertible instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. ASU 2020-06 also requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. This standard will be effective for smaller reporting companies in fiscal years beginning after December 15, 2023, with early adoption permitted. The Company early adopted the new standard beginning April 1, 2023 and the adoption did not have a material impact on our consolidated financial statements.
In June 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires an entity to utilize a new impairment model known as the current expected credit loss (CECL) model to estimate its lifetime “expected credit loss” for financial assets held. ASU 2016-13 requires a cumulative effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates, which defers the effective date of ASU 2016-13 to fiscal years beginning after December 15, 2022 for all entities except SEC reporting companies that are not smaller reporting companies. The Company adopted this new accounting guidance effective April 1, 2023 and the adoption did not have a material impact on our consolidated financial statements.
The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
Going Concern and Liquidity
The accompanying financial statements for the nine months ended December 31, 2023 have been prepared assuming the Company will continue as a going concern, but the ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes a revenue stream and becomes profitable. Management’s plans to continue as a going concern include raising additional capital through sales of equity securities and borrowing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The Company has incurred a net loss from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. If the Company is not able to obtain the necessary additional financing on a timely basis, the Company will be required to delay, and reduce the scope of the Company’s development and operations. Continuing as a going concern is dependent upon its ability to successfully secure other sources of financing and attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
From
October 1, 2023 through December 31, 2023 the Company (i) raised approximately $
| F-14 |
NOTE 2: MERGER
The acquisition of Holdings was considered a reverse merger. In accordance with ASC 805-40-45-1, the consolidated financial statements prepared following a reverse acquisition are issued under the name of the legal parent (White River Energy Corp) but described in the notes to the financial statements as a continuation of the financial statements of the legal subsidiary (Holdings), with one adjustment, which is to retroactively adjust the accounting acquirer’s legal capital to reflect the legal capital of the accounting acquiree (White River Energy Corp). That adjustment is required to reflect the capital of the legal parent. Comparative information presented in the consolidated financial statements also is retroactively adjusted to reflect the legal capital of the legal parent.
Under ASC 805-40-45-2, the consolidated financial statements represent the continuation of the legal subsidiary except for the capital structure, as follows:
| (a) | The assets and liabilities of the legal subsidiary recognized and measured at their pre-combination carrying amounts; | |
| (b) | The assets and liabilities of the legal parent recognized and measured in accordance with the guidance in this topic applicable to business combinations (ASC 805); | |
| (c) | The retained earnings and other equity balances of the legal subsidiary before the business combination; | |
| (d) | The amount recognized as issued equity interests in the consolidated financial statements determined by adding the issued equity interest of the legal subsidiary outstanding immediately before the business combination to the fair value of the legal parent determined in accordance with the guidance in ASC 805 applicable to business combinations. However, the equity structure reflects the equity structure of the legal parent, including the equity interests the legal parent issued to affect the combination. Accordingly, the equity structure of the legal subsidiary is restated using the exchange ratio established in the acquisition agreement to reflect the number of shares of the legal parent issued in the reverse acquisition. |
Fortium
Holdings Corp. issued Ecoark shares of Series A valued at $
On July 25, 2022, the Company completed the share exchange transaction with Holdings. As a result of this transaction, which is accounted for as a share exchange, Holdings is a wholly owned subsidiary of the Company (the “Merger”). In accordance with the terms of the Merger, at the effective time of the Merger, the outstanding shares of the common stock of Holdings were exchanged for the shares of Series A of the Company. This exchange of shares and the resulting controlling ownership of the Company constitutes a reverse acquisition and purchase accounting being applied to the net assets acquired from Fortium Holdings Corp. under ASC 805 due to Holdings being the accounting acquirer and Fortium Holdings Corp., being deemed an acquired business as they were not a shell corporation. This requires financial reporting from the Merger close date forward to reflect only the historic consolidated results of Holdings and to include the consolidated results for the Company and subsidiaries from July 25, 2022 forward.
| F-15 |
The previously existing businesses of the Company at the time of the Merger, consisting of Norr and Elysian, were sold within 60 days of the Merger taking place.
The estimated allocation of the purchase price of the assets acquired and liabilities assumed for the acquisition by Holdings of Fortium Holdings Corp. via the reverse acquisition are set forth below in accordance with the guidance under ASC 805:
| Purchase Price Allocation of Fortium Holdings Corp. | ||||
| Current assets – inventory and deposits | $ | |||
| Accounts payable and accrued expenses | ( | ) | ||
| Goodwill | ||||
| Purchase price | $ | |||
This
allocation is based on management’s estimated fair value of the Fortium Holdings Corp assets and liabilities as of July 25, 2022
utilizing the guidance in ASC 820-10-35 which included the measurement based on a known level one input regarding the applicable share
price as well as the level of activity in the Company and the fact that the value was driven off of a business no longer included in
the Company’s current operations. Fortium Holdings Corp. assets were derived from a total value of $
The following table shows the unaudited pro-forma results for the nine months ended December 31, 2022, as if the acquisitions had occurred on April 1, 2022.
Nine Months Ended December 31, 2022 | ||||
| (Unaudited) | ||||
| Revenues | $ | |||
| Net loss | $ | ( | ) | |
| Net loss per share | $ | ( | ) | |
The condensed consolidated statements of operations and cash flows represent the operations of Holdings for the nine months ended December 31, 2022 include cost allocations from Holding’s former parent Ecoark as discussed below.
Cost Allocations
The consolidated financial statements of Holdings have been prepared in connection with the expected separation and have been derived from the consolidated financial statements and accounting records of Ecoark operated on a standalone basis during the periods presented and were prepared in accordance with GAAP.
The consolidated financial statements reflect allocations of certain Ecoark corporate, infrastructure and shared services expenses, including centralized research, legal, human resources, payroll, finance and accounting, employee benefits, real estate, insurance, information technology, telecommunications, treasury, and other income and expenses for interest expense on debt that portions were used for Holdings, changes in derivative liabilities on the books of Ecoark for Warrants granted in offerings of which proceeds went towards the operations of Holdings, and conversions of debt. Where possible, these charges were allocated based on direct usage, with the remainder allocated on a pro rata basis of headcount, asset, or other allocation methodologies that are considered to be a reasonable reflection of the utilization of services provided or the benefit received by the Company during the periods presented pursuant to SAB Topic 1.B.1. The allocations may not, however, reflect the expense the Company would have incurred as a standalone company for the periods presented. These costs also may not be indicative of the expenses that the Company will incur in the future or would have incurred if the Company had obtained these services from a third party.
| F-16 |
Management believes the assumptions underlying our financial statements, including the assumptions regarding the allocation of general corporate expenses from the former parent company are reasonable. Nevertheless, our financial statements may not include all of the actual expenses and income that would have been incurred had we operated as a standalone company during the periods presented and may not reflect our results of operations, financial position and cash flows had we operated as a standalone company during the periods presented.
Actual costs that would have been incurred if we had operated as a standalone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.
NOTE 3: JOINT VENTURE AGREEMENT
On
November 22, 2023, the Company entered into JV Agreement with the JV Partner, pursuant to which the JV partner sold the Company
$
| (i) |
shares vested due to the sale of credits (“Credit Sales”) totaling at least
$ | |
| (ii) | shares vest upon the completion of either $ in net proceeds off derived from the establishment of the Company’s use of the Credits as collateral and pledging them towards a credit instrument such as a secured promissory note or secured line of credit (a “Credit Instrument”) or the 1st tranche in Credit Sales yielding at least $ in net proceeds after broker fees; | |
| (iii) | shares vest upon the completion of either $ in net proceeds off of the Credit Instrument or the 2nd tranche in Credit Sales yielding at least $ in net proceeds after broker fees; | |
| (iv) | shares vest upon the completion of either $ in net proceeds off of the Credit Instrument or the 3rd tranche in Credit Sales yielding at least $ in net proceeds after broker fees; | |
| (v) | shares vest upon the completion of either $ in net proceeds off of the Credit Instrument or the 4th tranche in Credit Sales yielding at least $ in net proceeds after broker fees; | |
| (vi) | shares vest upon the completion of either $ in net proceeds off of the Credit Instrument or the 5th tranche in Credit Sales yielding at least $ in net proceeds after broker fees; | |
| (vii) | shares shall vest upon the transfer of the 2nd tranche of $ in Credits; | |
| (viii) | shares shall vest upon the transfer of the 3rd tranche of $ in Credits; and | |
| (ix) | shares shall vest upon the transfer of the 4th tranche of $ in Credits. |
The initial $ of Credits were transferred in the name of the Company on November 28, 2023. Through December 31, 2023 a total of $ billion in tax credits have been transferred to the Company in two tranches pursuant to the JV Agreement.
Under
the JV Agreement, the Company agreed to use the net proceeds from the monetization of the initial $
The
JV Agreement provides for the formation of a joint venture in which the Company formed the JV Entity under the following terms:
Pursuant
to the terms in the JV Agreement, the JV Partner transferred $
From
November 28, 2023 through December 31, 2023, the Company sold $
| F-17 |
NOTE 4: PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31, 2023 (unaudited) and March 31, 2023:
| December 31, 2023 | March 31, 2023 | |||||||
| (unaudited) | ||||||||
| Land | $ | $ | ||||||
| Buildings ( | ||||||||
| Machinery and equipment ( | ||||||||
| Total property and equipment | ||||||||
| Accumulated depreciation and impairment | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense for the nine months ended December 31, 2023 and 2022 was $
In
July 2023, the Company received $
In
August 2023, the Company sold a vehicle with a net value of $
In
August 2023, the Company disposed of $
NOTE 5: OIL AND GAS PROPERTIES
Activity in the nine months ended December 31, 2023 consist of the following:
As
of October 1, 2023, the Company sold their entire working interest in the Deshotel 24H #1 well to a third party. The Company is keeping
the mineral lease and 3D seismic for future drilling projects and only selling the well bore. The working interest being sold includes
the
On
October 1, 2023, Sky 3D, LLC, a company controlled by the Company’s Chief Executive Officer, Randy May, purchased two oil field
assets from the Company for $
Activity in the year ended March 31, 2023 consist of the following:
For
the nine months ended December 31, 2022, the Company received proceeds of $
On October 6, 2022, the Company assigned 10% of their working interest in the Harry O’Neal 20-9 well to two related parties, pursuant to the vesting of various performance conditions in the employment contracts of Mr. Randy May and Mr. Jay Puchir. There were no recognized reserves booked for this well.
On October 10, 2022, the Company entered into a settlement agreement with a Harry O’Neal working interest owner whereby they granted them a 50% working interest in the Harry O’Neal 20-9 well in exchange for a full release of claims from all prior investments. There were no recognized reserves booked for this well.
The
WR Fund received limited partnership interests during the year ended March 31, 2023 in the amount of $
The following table summarizes the Company’s oil and gas activities by classification as of December 31, 2023 (unaudited) and March 31, 2023.
Oil and Gas Properties – Full-Cost Method
| December 31, 2023 | March 31, 2023 | |||||||
| (unaudited) | ||||||||
| Oil and gas properties – full-cost pool | $ | $ | ||||||
| Accumulated, depletion and impairment | ( | ) | ( | ) | ||||
| Oil and gas properties, net | $ | $ | ||||||
| F-18 |
There
was $
Unevaluated Wells in Progress
The following table summarizes the Company’s unevaluated wells in progress for the nine months ended December 31, 2023 and 2022.
| December 31, 2023 | December 31, 2022 | |||||||
| (unaudited) | (unaudited) | |||||||
| Balance – beginning of period | $ | $ | ||||||
| Exploration costs | ||||||||
| Assignments | ( | ) | ||||||
| Balance – end of period | $ | $ | ||||||
During the nine months ended December 31, 2023, the Company conducted two drilling projects (a) Peabody AMI 12 #18, and (b) Denmiss #1. The Company anticipates completion of these projects in its fourth fiscal quarter ending March 31, 2024. The exploration costs above represent the costs incurred for the nine months ended December 31, 2023 on those two projects. The Company reviews its unevaluated properties at the end of each quarter to determine whether the costs incurred should be transferred to the full-cost pool and thereby subject to amortization.
NOTE 6: ASSET RETIREMENT OBLIGATIONS
In conjunction with the approval permitting the Company to resume drilling in the existing fields, the Company has recorded an asset retirement obligation (“ARO”) based upon the plan submitted in connection with the permit. The ARO results from the Company’s responsibility to abandon and reclaim their net share of all working interest properties and facilities.
The following table summarizes activity in the Company’s ARO for the nine months ended December 31, 2023 and 2022 (unaudited):
| December 31, 2023 | December 31, 2022 | |||||||
| (unaudited) | (unaudited) | |||||||
| Balance, beginning of period | $ | $ | ||||||
| Accretion expense | ||||||||
| Reclamation obligations settled | ||||||||
| Disposition due to sale of property | ( | ) | ( | ) | ||||
| Additions | ||||||||
| Changes in estimates | ||||||||
| Balance, end of period | $ | $ | ||||||
Total
ARO at December 31, 2023 and 2022 shown in the table above consists of amounts for future plugging and abandonment liabilities on our
wellbores and facilities based on third-party estimates of such costs, adjusted for inflation for the nine months ended December 31,
2023 and 2022, respectively. These values are discounted to present value at
| F-19 |
NOTE 7: LONG-TERM DEBT
Long-term debt consisted of the following as of December 31, 2023 (unaudited) and March 31, 2023.
| December 31, 2023 | March 31, 2023 | |||||||
| (unaudited) | ||||||||
| Truck loan – Amur Capital (a) | $ | $ | ||||||
| Truck loan – Mitsubishi (b) | ||||||||
| Tractor loan – Simmons Bank(c) | ||||||||
| Loan – Simmons Bank(e) | ||||||||
| Rig Loan – North Mill(f) | ||||||||
| Loan – Amur Capital(d) | ||||||||
| Auto loan – TD Auto(g) | ||||||||
| Total long-term debt | ||||||||
| Less: current portion | ( | ) | ( | |||||
| Long-term debt, net of current portion | $ | $ | ||||||
| (a) | |
| (b) | |
| (c) | |
| (d) | |
| (e) | |
| (f) | |
| (g) |
| F-20 |
The following is a list of maturities as of December 31:
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| $ |
Interest
expense on long-term debt during the nine months ended December 31, 2023 and 2022 are $
NOTE 8: SENIOR SECURED CONVERTIBLE PROMISSORY NOTE
Convertible Note Transaction
On
December 20, 2022, the Company entered into a Securities Purchase Agreement (the “SPA”) with an accredited investor (the
“Purchaser”) whereby the Purchaser lent the Company an aggregate of $
Pursuant to the SPA, the Company, its direct and indirect subsidiaries, and Jay Puchir and Randy May, executive officers of the Company, entered into Guarantee Agreements (the “Guarantee”) with the Purchaser pursuant to which each subsidiary and Messrs. Puchir and May personally guaranteed to the Purchaser the payment of the Note. In addition, Messrs. Puchir and May pledged the shares of the Company’s common stock they hold or have the right to acquire in the anticipated distribution of the Company’s common stock by Ecoark as collateral to secure the Company’s obligations under the Note, and each individual also executed affidavits of confession to that effect. The affidavits of confession signed by Messrs. Puchir and May in connection with their Guarantees permitted the Purchaser to obtain a judgment against them personally upon the occurrence of an event of default without having to file a lawsuit.
The
Note was due
The
Note was convertible into shares of the Company’s common stock at any time following the issuance date at the Purchaser’s
option at a conversion price equal to the lesser of (i) $ per share and (ii) the average of the five-closing prices of the common
stock immediately prior to the date of conversion, subject to certain adjustments (including based on the issuance of lower priced securities)
and beneficial ownership limitations. Upon an event of default, the Purchaser was entitled to convert the Note at a reduced conversion
price equal to
| F-21 |
In addition, pursuant to the SPA, the Company entered into a Registration Rights Agreement with each Purchaser in which the Purchasers are entitled to “piggyback” registration rights, pursuant to which the Company has agreed to include the underlying shares of common stock from the conversion of the Note in a registration statement, if the Company files a registration statement for another purpose, subject to certain terms and conditions.
On
May 10, 2023, the Company entered into an amendment with the holder of the Note dated December 16, 2022, and the designated counterparty
under that certain Letter Agreement dated December 16, 2022 pursuant to which the Note and Consulting Agreement (as described below under
“Consulting Agreement”) were amended as follows:
The
conversion terms of the Note required the Company to bifurcate the conversion option from the host and classify the conversion option
as a derivative liability under ASC 815. The value of the derivative liability at inception was $
On
August 10, 2023, the Company entered into a second amendment to the SPA and Note pursuant to which the maturity date of the Note was
extended to December 16, 2023. In connection with this amendment, the Company also entered into a new SPA with the same lender and borrowed
an additional $
The
conversion terms of the Note 2 required the Company to bifurcate the conversion option from the host and classify the conversion option
as a derivative liability under ASC 815. The value of the derivative liability at inception was $
During
the nine months ended December 31, 2023, the Company incurred interest expense of $
Consulting Agreement
On
December 20, 2022, the Company entered into a Consulting Agreement with an affiliate of the Purchaser described above (the “Consultant”),
pursuant to which the Company agreed to issue shares shares of common stock, subject to upward adjustment to the extent the
closing price per share of the Company’s common stock is below $ as of (i) the date a registration statement registering the
resale by the Consultant of its shares of common stock is declared effective by the SEC (the “Effective Date”), and/or (ii)
The
Company entered into an amendment dated September 30, 2023 to the Consulting Agreement dated December 16, 2022, with Centrecourt Asset
Management LLC (“Centrecourt”) and Smithline Family Trust I (the “Trust”), pursuant to which the parties agreed
as follows: (i) the Consulting Agreement was amended to provide that Centrecourt or its designee(s) are entitled to receive shares
of common stock and shares of a newly designated Series D Convertible Preferred Stock (the “Series D”) convertible
into shares of common stock (subject to adjustment as provided in the Consulting Agreement as amended), rather than
shares of common stock, and (ii) the Trust exchanged of the shares of common stock it held for the shares of Series
D issuable under the Consulting Agreement as amended, convertible into an equivalent number of shares of common stock. The
shares of common stock that were previously issued to and subsequently exchanged by the Trust for the corresponding shares of Series
D are now being held by the Company as treasury stock. The agreement was executed October 9, 2023, and the Series D was approved by the
Board of Directors and filed with the State of Nevada on October 4, 2023. On October 19, 2023, the Company issued Series D shares
for services valued at $
| F-22 |
NOTE 9: DERIVATIVE LIABILITIES
The Company issued Units consisting of Series C Preferred Stock and Warrants in a PIPE financing (see Note 10) and two Notes payable (see Note 8) in two transactions (“Derivative Instruments”). The Series C Warrants as well as the conversion option on the Notes payable contained characteristics that required the Company to classify them as derivative liabilities. The Derivative Instruments have been accounted for utilizing ASC 815 “Derivatives and Hedging.”
The Company identified embedded features in some of the agreements which were classified as liabilities. These embedded features included a variable conversion price that would convert those instruments into a variable number of common shares. The accounting treatment of derivative financial instruments requires that the Company treat the instrument as liability and record the fair value of the instrument as derivatives as of the inception date of the instrument and to adjust the fair value of the instrument as of each subsequent balance sheet date.
The Company determined the derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value. The Black-Scholes model requires six basic data inputs: the exercise or strike price, expected term, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate.
Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each derivative instrument is estimated using the Black-Scholes valuation model. The following assumptions were used during the nine months ended December 31, 2023 and 2022:
Nine Months Ended December 31, 2023 |
Nine Months Ended December 31, 2022 |
|||||||
| Expected term | – years | – years | ||||||
| Expected volatility | - | % | - | % | ||||
| Expected dividend yield | ||||||||
| Risk-free interest rate | – | % | – | % | ||||
| Exercise price | $ | - | $ | |||||
| Market price | – $ | $ - $ |
Derivative liabilities as of December 31, 2023 (unaudited) and March 31, 2023 are as follows.
| December 31, 2023 | March 31, 2023 | |||||||
| (unaudited) | ||||||||
| Fair value of Warrants issued in connection with Series C Preferred Stock (see Note 10) | $ | $ | ||||||
| Fair value of conversion option on convertible notes payable (see Note 8) | ||||||||
| $ | $ | |||||||
Activity related to the derivative liabilities for the nine months ended December 31, 2023 is as follows:
| Beginning balance as of March 31, 2023 | $ | |||
| Issuances of Series C Warrants – derivative liabilities | ||||
| Issuance of Note 2 (see Note 8) | ||||
| Change in fair value of derivative liabilities | ||||
| Extinguishment of derivative liability upon repayment of convertible notes | ( | ) | ||
| Ending balance as of December 31, 2023 | $ |
The
change in fair value of the derivative liability for the nine months ended December 31, 2023 was $
| F-23 |
NOTE 10: STOCKHOLDERS’ EQUITY (DEFICIT)
On September 28, 2022, the Company increased its authorized capital to shares consisting of shares of common stock (from ) and shares of preferred stock. See Note 1.
The
Company executed the Exchange Agreement on July 25, 2022 and pursuant to the Exchange Agreement that day acquired
The
Series A has a stated value of $
On July 29, 2022, the Company filed a Certificate of Designation with the Nevada Secretary of State designating a new series of preferred stock, the Series B. See Note 1 under “Description of Business” for more details on the Series B.
On October 25, 2022, the Company filed a Certificate of Designation of the Rights, Preferences and Limitations of Series C Convertible Preferred Stock (the “Series C Certificate of Designation”) with the Nevada Secretary of State. The Series C Certificate of Designation provides for the issuance of up to shares of Series C. See Note 1 under “Description of Business” and the below section in Note 9 “Series C Convertible Preferred Stock” for more details on the Series C.
From
October 19, 2022 through September 30, 2023, the Company entered into Securities Purchase Agreements (each a “Purchase Agreement”)
pursuant to which the Company sold
In June 2023, the Company issued shares to its three non-employee directors that were earned through March 31, 2023.
On
July 27, 2023, the Company granted shares of common stock to a business development advisor for services rendered. The shares
were valued at $ per share ($
On September 29, 2023, the Company issued shares of common stock in the conversion of the Series C shares.
On
October 13, 2023, the Company initiated an offering for a $
On November 22, 2023, the Company issued shares of common stock to the JV Partner as discussed in Note 3 under the JV Agreement.
On
November 28, 2023, the Company issued shares at $ per share ($
Restricted Stock Units
From
July 25, 2022 through August 15, 2022, the Company entered into advisor agreements with directors, management and consultants pursuant
to which the Company agreed to issue a total of restricted shares of common stock at prices ranging from $ to $ per
share (combined value of $
| F-24 |
In the three months ended June 30, 2023, the Company granted RSUs to advisors and management that are service-based grants that expire at various times through March 31, 2033.
In the three months ended September 30, 2023, the Company granted RSUs to advisors and management that are service-based grants that expire at various times through September 30, 2028.
In the three months ended December 31, 2023, the Company granted RSUs to advisors and management that are service-based grants that expire at various times through September 30, 2033. In addition, one of the Company’s officers and directors, Alisa Horgan terminated her service with the Company. Upon the termination and separation agreement, RSUs were forfeited by Ms. Horgan.
The Company has expensed $ (including $ to non-employee directors) in stock-based compensation for the nine months ended December 31, 2023 related to all of the Company’s grants. The Company has unrecognized stock-based compensation of $ as of December 31, 2023 that will be expensed through September 30, 2033 for management and advisors.
| RSUs | Weighted Average Grant Price |
Weighted Average Remaining Contractual Term |
Aggregate Intrinsic Value |
|||||||||||||
| Outstanding at March 31, 2023 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Vested | ( |
) | ( |
) | ||||||||||||
| Exercised | - | - | ||||||||||||||
| Forfeited or expired | ( |
) | ( |
) | - | - | ||||||||||
| Outstanding at December 31, 2023 | $ | $ | ||||||||||||||
Series C Convertible Preferred Stock
On October 25, 2022, the Company filed the Series C Certificate of Designation. The Certificate of Designation provides for the issuance of up to shares of Series C.
The Company evaluated ASC 480-10-25-14 and determined that the Series C is a financial instrument that embodies an unconditional obligation that the issuer must or may settle by issuing a variable number of its equity shares and shall be classified as a liability.
The Company evaluated ASC 480-10-55-22 and determined the Series C offering was considered a “share settled debt” and was measured at amortized cost and has been expensed immediately.
Details of the Series C:
Dividends: If declared by the Board of Directors.
Conversion: Upon the earlier to occur of (i) the effectiveness of a registration statement on Form S-1 registering the sale by the Holders of the shares of common stock into which such Series C is convertible and (ii) December 31, 2023 (“Conversion Date”).
Conversion
Price:
Negative
Covenants: Certain restrictions are imposed if more than
| F-25 |
Fundamental Transaction Clause: Present, without the distribution of cash.
Voting Rights: Reserved on “as converted basis.”
The
Company recognized amortization of the discount on the issuance of the Series C in the amount of $
Series D Convertible Preferred Stock
The
Series D has a stated value of $
The Company entered into an amendment dated September 30, 2023 to the Consulting Agreement dated December 16, 2022, with Centrecourt Asset Management LLC (“Centrecourt”) and Smithline Family Trust I (the “Trust”), pursuant to which the parties agreed as follows: (i) the Consulting Agreement was amended to provide that Centrecourt or its designee(s) are entitled to receive shares of common stock and shares of a newly designated Series D Convertible Preferred Stock (the “Series D”) convertible into shares of common stock (subject to adjustment as provided in the Consulting Agreement as amended), rather than shares of common stock, and (ii) the Trust exchanged of the shares of common stock it held for the shares of Series D issuable under the Consulting Agreement as amended, convertible into an equivalent number of shares of common stock. The shares of common stock that were previously issued to and subsequently exchanged by the Trust for the corresponding shares of Series D are now being held by the Company as treasury stock. The agreement was executed October 9, 2023, and the Series D was approved by the Board of Directors and filed with the State of Nevada on October 4, 2023.
On
October 18, 2023, the Company entered into an agreement with the Trust pursuant to which the Company agreed to issue the Trust an additional
shares Series D which, subject to a beneficial ownership limitation, is convertible into shares of common stock in exchange
for the Trust and its affiliates’ waiver of certain rights under the
On October 19, 2023, following approval of the Board of Directors, the Company filed a Certificate of Amendment to the Certificate of Designation of Preferences, Rights, and Limitations of the Series D with the Nevada Secretary of State to increase the number of authorized shares of Series D from shares to shares.
Stock Options
The Company’s Board of Directors approved the adoption of the 2016 Stock-Based Compensation Plan (the “2016 Plan”) on May 12, 2016.
There have been no stock options granted since 2018.
Number of Options |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term |
||||||||||
| Balance outstanding at March 31, 2023 | $ | |||||||||||
| Granted | - | |||||||||||
| Exercised | - | |||||||||||
| Forfeited | - | |||||||||||
| Expired | - | |||||||||||
| Cancelled | - | |||||||||||
| Balance outstanding at December 31, 2023 | $ | |||||||||||
| Exercisable at December 31, 2023 | $ | |||||||||||
Warrants
As
discussed herein, the Company issued
In
addition, the Company issued Warrants in the PIPE 2 Offering as of December 31, 2023. Each warrant will be exercisable at
$ per share for a period of
| F-26 |
The following table reflects Warrant activity:
| Warrants | Shares | Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term |
Aggregate Intrinsic Value |
||||||||||||
| Outstanding at March 31, 2023 | $ | $ | ||||||||||||||
| Granted | - | |||||||||||||||
| Exercised | - | - | ||||||||||||||
| Forfeited or expired | - | - | ||||||||||||||
| Outstanding at December 31, 2023 | $ | $ | ||||||||||||||
| Exercisable at December 31, 2023 | $ | $ | ||||||||||||||
NOTE 11: LEASES
The
Company has adopted ASU No. 2016-02, Leases (Topic 842) and as such accounted for our leases in terms of the right of use assets
and offsetting lease liability obligations under this pronouncement. The Company had had only short-term leases through this acquisition.
The Company recorded these amounts at present value, in accordance with the standard, using discount rates ranging between
The Company has chosen to implement this standard using the modified retrospective model approach with a cumulative-effect adjustment, which does not require the Company to adjust the comparative periods presented when transitioning to the new guidance. The Company has also elected to utilize the transition related practical expedients permitted by the new standard. The modified retrospective approach provides a method for recording existing leases at adoption and in comparative periods that approximates the results of a modified retrospective approach. Adoption of the new standard did not result in an adjustment to retained earnings for the Company.
The
Company’s portfolio of leases contains operating and financing leases. As of December 31, 2023, the value of the unamortized lease
right of use asset was $
| Maturity of lease liability for the operating leases for the period ended December 31, | ||||
| 2024 | $ | |||
| Imputed interest | $ | ( | ) | |
| Total lease liability | $ |
| Disclosed as: | ||||
| Current portion | $ | |||
| Non-current portion | $ |
| Maturity of lease liability for the financing leases for the period ended December 31, | ||||
| 2024 | $ | |||
| 2025 | $ | |||
| 2026 | $ | |||
| Imputed interest | $ | ( | ) | |
| Total lease liability | $ | |||
| Disclosed as: | ||||
| Current portion | $ | |||
| Non-current portion | $ |
| Amortization of the right of use asset for the period ended December 31, | ||||
| 2024 | $ | |||
| 2025 | $ | |||
| 2026 | $ | |||
| Total | $ |
| F-27 |
Total Lease Cost
Individual components of the total lease cost incurred by the Company is as follows:
Nine Months ended December 31, 2023 |
Nine Months ended December 31, 2022 |
|||||||
| (unaudited) | (unaudited) | |||||||
| Operating lease expense | $ | $ | ||||||
| Financing lease expense | ||||||||
| Depreciation of capitalized finance lease assets | ||||||||
| Interest expense on finance lease liabilities | ||||||||
| $ | $ | |||||||
NOTE 12: RELATED PARTY TRANSACTIONS
On
September 1, 2022, the Company assigned 10% working interests in a well to two related parties that are controlled by officers of the
Company (Sky3D, LLC, and Atikin Investments LLC) pursuant to the vesting of various performance conditions in the employment contracts
of Randy May and Jay Puchir. In addition, two entities related to directors are working interest owners in wells the Company operates.
As of December 31, 2023 and March 31, 2023, the Company is owed $
The May Family Foundation controls 5.3% of the outstanding common stock of the Company as of December 31, 2023. Additionally, Atikin Investments LLC, an entity which is controlled by Jay Puchir, our Chief Executive Officer, controls % of the outstanding common stock as of that date. Alisa Horgan, the daughter of Randy May, our new Executive Chairman, became a director and officer of the Company following the Holdings acquisition. Ms. Horgan resigned her positions and as an employee on December 1, 2023. Her husband Richard Horgan was formerly the Company’s Chief Executive Officer and director, and presently serves as the Company’s Senior Vice President of M&A. Mr. May was the Chief Executive Officer and Mr. Puchir was the Chief Financial Officer of Ecoark until they both resigned from their roles with that entity effective January 29, 2024. Each of Messrs. May, Horgan and Puchir disclaim beneficial ownership of the securities held by The May Family Foundation except to the extent of any pecuniary interest therein.
All
amounts due to Ecoark were exchanged for the shares of Series A and classified as a capital transaction with the adjustment to
additional paid in capital as they were from a related party. The historical cost basis as of the date of the merger with White River
Holdings that have been reclassified to additional paid in capital was $
Ecoark
had previously entered into a written Participation Agreement with Ault Energy, LLC (“Ault Energy”), a subsidiary of
Ault Alliance, Inc. (“Ault”). After we acquired Ecoark’s oil and gas exploration and drilling business, we orally
agreed to provide Ault Energy with similar rights. In furtherance of this understanding, we entered into written Participation
Agreements with Ault Energy. As a result of delays in Ault Energy meeting its payment obligations, on April 4, 2023 we entered into
an agreement with Ecoark and with Ault (dated March 29, 2023) under which the parties agreed we were owed $
Based upon Ecoark’s public filings with the SEC, Ecoark has limited cash resources and we are uncertain if it will make any further payments although Ault’s Executive Chairman has in the past assured us Ecoark will pay us. We cannot predict with certainty if and when we will receive the remaining balance due or any portion thereof from Ault for these participation rights.
Due to Ault Energy’s failure to make timely payments of the full amounts, the Company has concluded that Ault Energy’s participation rights are no longer enforceable except for amounts previously paid and for which all other obligations of Ault Energy have been satisfied. The Company is under no obligation to offer Ault Energy participation rights in the future, although it may do so voluntarily. We are seeking a replacement source of capital for one or more investors to acquire Ault Energy’s interests in the affected wells. As another option, if we are unable to collect payment, we may seek to exercise creditors’ remedies for the unpaid amounts.
The April 4th agreement was approved by the independent directors of the Company and Ecoark with Mr. May and his daughter abstaining as directors of the Company, and Mr. May also abstained as an Ecoark director.
| F-28 |
On
April 30, 2023, the Company purchased supplies to be used in the current drilling projects for $
The
Company from time to time will borrow amounts from related parties, principally Mr. May and to a lesser extent, its Chief Financial Officer.
During the nine months ended December 31, 2023 the Company borrowed $
On
July 27, 2023, the Company purchased supplies to be used in the current drilling projects for $
Commencing August 2023, the Company commenced drilling a well that we operate only for Sky3D, LLC pursuant to the Operating Agreement dated August 1, 2023 between the Company and Sky3D, LLC. This was a lease saving operation, and the Board of Directors of the Company approved a credit to the joint interest billing receivable established for amounts previously recognized as proceeds received for the drilling of this particular well. All drilling costs are included in the joint interest billing receivable for Sky 3D, LLC.
On
October 1, 2023, Sky 3D, LLC, a related party, purchased two oil field assets from the Company for $
NOTE 13: FAIR VALUE MEASUREMENTS
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by U.S. generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:
Level 1 – quoted prices for identical instruments in active markets;
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Financial instruments consist principally of cash, accounts receivable and other receivables, accounts payable and accrued liabilities, notes payable, and amounts due to related parties. The fair value of cash is determined based on Level 1 inputs. There were no transfers into or out of “Level 3” during the nine months ended December 31, 2023 and 2022. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
| Level 1 | Level 2 | Level 3 | ||||||||||
| December 31, 2023 | ||||||||||||
| Derivative liabilities | $ | $ | $ | |||||||||
| March 31, 2023 | ||||||||||||
| Derivative liabilities | $ | $ | $ | |||||||||
The table in Note 9 shows a reconciliation of the beginning and ending liabilities measured at fair value using significant unobservable inputs (Level 3) for the nine months ended December 31, 2023.
NOTE 14: COMMITMENTS
Participation Agreements
The Company had entered into a number of Participation Agreements with third parties. We refer you to the Annual Report on Form 10-K for the year ended March 31, 2023 filed with the SEC on June 29, 2023 for all Participation Agreements entered into as of March 31, 2023. The Company has not executed any Participation Agreements during the nine months ended December 31, 2023.
| F-29 |
White River Fund
The
WR Fund financial statements are consolidated with the Company’s Consolidated Financial Statements since a subsidiary of the Company
is the general partner of the WR Fund as discussed in Note 1 under “Principles of Consolidation.” The WR Fund is a closed-end
private fund where general partners and limited partners invest into WR Fund and the WR Fund then purchases direct working interests
in various oil and gas drilling projects of the Company. Subject to available cash, the Company will offer to purchase all outstanding
WR Fund partnership interests (other than its subsidiary).
The WR Fund invested in two drilling projects in the Company during the year ended March 31, 2023. The first drilling project, the Peabody AMI 12 No 18, hit oil in January 2023 and the second oil project, the Denmiss No 1 well was spudded in August 2023. The Company is still evaluating the economic viability of the Peabody AMI 12 No. 18 well.
On
July 13, 2023, White River Private Capital Management (the “Manager”) and the WR Fund entered into a Managing Broker-Dealer
Agreement (the “Agreement”) with Emerson Equity LLC (the “Broker”), pursuant to which the Broker agreed to serve
as the managing broker-dealer to assist in selling partnership units of the WR Fund in a private placement offering for gross proceeds
of up to $
Employment Agreements and RSUs
The Company’s Board of Directors approved Executive Employment Agreements pursuant to which our executive officers are entitled to the following compensation and other rights:
Randy
May, our Chief Executive Officer, is receiving an annual base salary of $
(A)
an overriding royalty interest or carried working interest to be held in perpetuity from either the Company or its subsidiaries equal
to
(B)
a
| F-30 |
Jay
Puchir, our Chief Financial Officer, is receiving an annual base salary of $
(A)
a
(B)
a
Alisa
Horgan, our former Chief Administrative Officer and a former member of our Board of Directors and Mr. May’s daughter, received
an annual base salary of $
Mrs.
Horgan’s husband, Richard Horgan, Senior Vice President of M&A and our former Chief Executive Officer, is receiving an annual
base salary of $
Each of the above Agreements are also subject to the following severance provisions:
In the event of termination by the Company without “cause” or resignation by the officer for “good reason,” each officer is entitled to receive 2.99 years’ base salary, immediate vesting of unvested equity awards and continued benefits for six months.
In case of termination or adverse change in title upon a change of control, each officer is entitled to receive 2.99 years’ base salary, immediate vesting of unvested equity awards, continued benefits for 18 months and 100% of the existing target bonus, if any, for that fiscal year when the change of control occurs.
Further,
upon the officer’s death or disability, as defined, during the officer’s term of employment, the officer’s estate or
the officer, as applicable, becomes entitled to, among other things, a $
In the event an officer’s employment is terminated at the end of the term upon the notice of non-renewal and the officer remains employed until the end of the term, the officer will be entitled to receive six months’ base salary and continued benefits for six months.
In addition, the Company agreed to the following compensation for each non-employee director:
(A) an
(B)
an
| F-31 |
The
director compensation set forth above is subject to upward adjustment upon the successful uplisting of the Company to a national securities
exchange, whereupon the RSU Grant will be increased to $
In addition, the Company entered into indemnification agreements with each of its officers and directors.
The Company entered into five-year Employment Agreements effective May 2023 with Colin Cosgrove and Zackery Holley. Zackery Holley’s Employment Agreement was terminated effective January 2, 2024. See Note 18.
Mr.
Cosgrove, as Chief Executive Officer of the WR Fund Manager, receives a monthly base salary of $
Mr.
Holley, as Executive Vice President of the WR Fund Manager, received a monthly base salary of $
Mr. Cosgrove is eligible for quarterly bonuses as determined by Mr. Puchir with the approval of Mr. May. Mr. Cosgrove received a grant of RSUs with vested, vesting each May beginning in 2024 for four years and the balance of RSUs vesting on May 2028, subject in all cases to continued employment on each applicable vesting date. Mr. Cosgrove has % participation rights in future wells drilled by the Company except for the WR Fund, which rights apply to future investment partnerships the Company sponsors.
See Note 10 for applicable ASC 718 disclosures related to these grants.
Legal Matters
The
Company is a party to two separate actions in the United States District Court, Western District of Louisiana (Alexandria Division) filed
on December 30, 2021. In each complaint the plaintiffs namely, in one case Steve H. Crooks and Era Lea Crooks (Case No. 1:21-CV-04457)
(“Louisiana Case 1”) and in the other case Ricky Shirley and Dana Shirley (Case No. 1:21-CV-04458) (“Louisiana Case
2”), as plaintiffs who own property in Louisiana filed complaint against multiple defendants, who are involved in oil and gas drilling
and production, including White River Operating, LLC (the “Operator”). The other defendants in Louisiana Case 1 are Sanchez
Oil & Gas Corporation and Day Town Operating LLC. The other defendants in Louisiana Case 2 are Sanchez Oil & Gas Corporation,
Day Town Operating LLC, Pryme Energy, LLC, Belle Exploration, Inc. and Kepco Operating, Inc. The complaints allege that the Operator
and the other defendants acted in bad faith in removing minerals from the plaintiffs’ property, and the plaintiffs seek to recover
all proceeds from the Operator on the sale of production without deducting any costs. The two cases combined total $
The Company is the operator of leases that relate to a lawsuit filed in the 7th Judicial District Court, Concordia Parish, Louisiana filed by Ravenwood Lands of Louisiana, L.L.C. et. al. v. Chevron U.S. Inc., et. al (Docket No. 54134; Div. “A,” 7th JDC; Parish of Concordia; State of Louisiana). The Company received a verbal demand to plug wells that have no future utility in Concordia Parish to avoid being named in a lawsuit. In August 2022, the plaintiff filed the lawsuit alleging an environmental tort for contamination of groundwater and soil on plaintiffs’ lands, which lawsuit did not name the Company as a defendant although the Company had performed certain work, including the plugging and abandonment of a well, removal of certain equipment and upgrades at one of its tank battery facilities on the property. Moreover, the Company executed a tolling agreement that suspended the statute of limitations, which has been amended twice and currently expires April 15, 2024.
On
October 1, 2023, Sky 3D, LLC, a company controlled by the Company’s Chief Executive Officer, Randy May, purchased two oil field
assets from the Company for $
| F-32 |
NOTE 15: CONCENTRATIONS
Customer
Concentration. Four and four customers accounted for more than 10% of the accounts receivable balance at December 31, 2023 and March
31, 2023 for a total of
Supplier Concentration. Certain of the raw materials, components and equipment used by the Company in the manufacture of its products are available from single-sourced vendors. Shortages could occur in these essential materials and components due to an interruption of supply or increased demand in the industry. If the Company were unable to procure certain materials, components or equipment at acceptable prices, it would be required to reduce its manufacturing operations, which could have a material adverse effect on its results of operations. In addition, the Company may make prepayments to certain suppliers or enter into minimum volume commitment agreements. Should these suppliers be unable to deliver on their obligations or experience financial difficulty, the Company may not be able to recover these prepayments.
The Company occasionally maintains cash balances in excess of the FDIC insured limit. The Company does not consider this risk to be material.
Commodity price risk
We are exposed to fluctuations in commodity prices for oil and natural gas. Commodity prices are affected by many factors, including but not limited to, supply and demand.
NOTE 16: DISCONTINUED OPERATIONS
In September 2022, the Company sold both Norr and Elysian. See Note 1 under “Description of Business” for more details on the sale of Norr and Elysian.
The
Company accounted for these sales as a disposal of the business under ASC 205-20-50-1(a) on September 20, 2022 and September 21, 2022
respectively at which time a loss was recognized. As a result of the Merger with Holdings, the current assets of $
The Company reclassified the following operations to discontinued operations for the nine months ended December 31, 2022.
| 2023 | 2022 | |||||||
| Revenue | $ | $ | ||||||
| Operating expenses | ||||||||
| Other (income) loss | ||||||||
| Net loss from discontinued operations | $ | $ | ( | ) | ||||
NOTE 17: REDEEMABLE NON-CONTROLLING INTERESTS
The ownership interests of the WR Fund investors Company are classified as non-controlling interests. These non-controlling interests consist of outside parties that have certain redemption rights that, if exercised, require the Company to purchase the parties’ ownership interests. These interests are classified and reported as redeemable non-controlling interests and are reflected as temporary equity on the consolidated balance sheet as of September 30, 2023, and have been adjusted to their approximate redemption values, after the attribution of net income or loss, pursuant to Paragraph 16C of ASC 480-10-S99-3A.
The WR Fund is governed by the Limited Partnership Agreement, which was entered into in October 31, 2022 and was amended and restated on August 17, 2023 pursuant to an Amended and Restated Limited Partnership Agreement dated August 15, 2023. Under the Amended and Restated Limited Agreement, the Company has agreed, subject to its cash availability, to offer to redeem the partnership interest of all investor partners in the WR Fund within 90 days of the earlier of (i) 42 months after termination of the offering, or (ii) June 30, 2027 by purchasing their respective partnership units at a determined value using the “PV20” valuation methodology generated by an independent valuation firm, subject to the cash availability of the Company. The Company had extended the term of the WR Fund’s offering to December 31, 2023. The WR Fund offering closed on December 31, 2023. The partners will have the option to (i) accept the redemption payment, (ii) remain as a partner or (iii) elect to become partners in a subsequent fund formed by us having similar economic terms to the WR Fund by rolling their net redemption amount into such subsequent fund and receiving partnership interests therein in satisfaction of their ownership of the WR Fund.
The
reclassification was made at the carrying amount pursuant to Paragraph 12C of ASC 480-10-S99-3A, and subsequently adjusted to the PV20
valuation when the wells are brought online and this valuation can be measured pursuant to Paragraph 15 of ASC 480-10-S99-3A. The Company
has presented in temporary equity the initial amount of $
NOTE 18: SUBSEQUENT EVENTS
The following events occurred from January 1, 2024 through the date of filing:
Zack Holley resigned effective January 2, 2024. Mr. Holley was issued the shares of common stock underlying RSUs he originally received and effectively agreed to forfeit the remainder of shares of common stock underlying RSUs.
In January 2024, we raised an additional $
from the sale of units in the second PIPE offering which terminated on January 31, 2024 for which shares of common stock and
Between January 1, 2024 and March 13, 2024, we raised an additional $
On February 16, 2024, the Company entered into a letter of intent with the JV Partner, as described under Note 3,
and a third party intermediary setting forth the terms of the Company’s contemplated purchase of $
In February 2024, shares of Series A Preferred Stock were converted into common shares.
In February 2024, the Company issued 350,000 shares of common stock for vested RSUs in settlement agreements with certain terminated employees.
In
March 2024, the Company (i) amended the compensation and other terms with respect to the Company’s independent directors, (ii)
entered into new amended Employment Agreements with the Chief Executive Officer and Chief Financial Officer, (iii) designated
shares of a new series of preferred stock as “Series E Convertible Preferred Stock,” (iv) sold additional Credits, (v) entered
into an agreement in principle to purchase $
| F-33 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward Looking Statements
This Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our joint venture and our ability to monetize the federal income tax credits received thereunder, our prospective purchase of additional tax credits and other potential developments with respect to the tax credits and joint venture, plans and expectations with respect to trends and developments in our oil drilling and related activities, and the sufficiency of our working capital. 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 the SEC’s recently adopted climate change rules on us including enhanced regulatory compliance costs, challenges we will face in connection with our joint venture including potential issues with the tax credits we are monetizing and high costs and resources necessary to pursue carbon-neutral and carbon-zero status particularly given our operations in the oil and gas industry, geopolitical conflicts including those in Israel and Ukraine, inflation and Federal Reserve interest rate increases in response thereto on the economy and the capital markets including a possible recession which could result, 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, and general risks related to drilling operations, together with those risk factors contained in our final Prospectus dated September 29, 2023 as filed with the SEC, as may be amended or supplemented from time-to-time (File No. 333- 268707). We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.
Company Overview
White River Energy Corp (“White River” or the “Company”) operates in the oil and gas industry, with a focus on exploration, production and drilling operations on approximately 34,000 cumulative acres of active mineral leases in Louisiana and Mississippi through White River Holdings Corp. (“White River Holdings”).
On November 22, 2023, the Company entered into a joint venture agreement (the “JV Agreement” or the “JVA”) with a third party joint venture partner (the “JV Partner”), pursuant to which the Company has received a total of $5,500,000,000 of United States federal income tax credits issued to a Native American tribe (referred to in this Report as “Credits” or “tax credits”) in exchange for certain consideration including profit participation and 10,000,000 shares of the Company’s restricted common stock, subject to the vesting and performance conditions set forth therein. The Company agreed to certain covenants, undertakings and arrangements under the Joint Venture Agreement, including with respect to the use of proceeds from monetization of the Credits and undertakings to achieve carbon-neutral and carbon-zero status. See Note 3 to the financial statements contained in this Report and below under “Liquidity and Capital Resources.”
On November 27, 2023, the Company formed White River Native CDFI LLC, a Texas limited liability company (“JV Entity”). Under the terms of the Operating Agreement, the Company has full operational control of the JV Entity and owns 100% of the membership interests. The JV Partner is entitled to receive 51% economic benefit in the event of the sale of the JV Entity (with the Company receiving the remaining 49% of such economic benefit), and the JV Partner is entitled to receive 20% net income of the JV Entity prior to any such sale, with the Company receiving the remaining 80% of net income. The JV Entity is consolidated in our financial statements.
On February 16, 2024, the Company entered into a letter of intent with the JV Partner, as described under Note 3, and a third party intermediary setting forth the terms of the Company’s contemplated purchase of $13 billion of Credits in exchange for $3 million cash, 10 million shares of the Company’s restricted common stock, which will vest upon the receipt of a valid registration number for the Credits from the U.S. Treasury. On February 16, 2024, the Company paid a $1.25 million deposit towards the cash portion of the purchase price to the intermediary, which is in the process of working to provide the Company with a certificate for the Credits as well as a registration number. The transactions contemplated by the letter of intent are subject to negotiation and execution of a definitive purchase agreement with respect to the Credits.
The Company has agreed in principle to purchase an additional $50 billion in Credits from the counterparty under the JVA, in exchange for $2 million cash and shares of Series E convertible preferred stock into 50 million shares of common stock, subject to the beneficial ownership limitation. The transaction is subject to negotiation and execution of a definitive purchase agreement with respect to the Credits. On March 12, 2024, the Company received a registration number for the February 16, 2024 purchase and this $50 billion purchase of Credits. The cumulative total of Credits that the Company has received totaled $64 billion. The JV partner has now fulfilled all previous written and verbal agreements to the Company for Credits.
White River also manages White River Energy Partners I LP (the “WR Fund”), which is consolidated for accounting purposes by the Company as White River Energy Partners Management I LLC, the Company’s subsidiary (the “Manager”), is the only managing general partner of the WR Fund and has the power to deploy the investments from the WR Fund into the Company for the various drilling projects they undertake.
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Oil and Gas Properties
As of December 31, 2023, our oil and gas acreage was comprised of approximately 34,000 cumulative acres of active mineral leases in Louisiana and Mississippi. During the nine months ended December 31, 2023 period and continuing presently, we continue to focus on expanding our exploration and production footprint and capabilities by acquiring real property and working interests in oil and gas mineral leases and drilling exploratory wells.
The Company has received an analysis from an independent petroleum consulting company as of March 31, 2023 and 2022. We have impaired certain reserves on our oil and gas properties when necessary pursuant to our full cost ceiling test calculations.
The following is an overview of our oil and gas properties portfolio in Louisiana and Mississippi:
Louisiana properties
| - | Blackhawk & Coochie Oil Field | |
| - | Five Mile Bayou Oil Field | |
| - | Lake Ophelia Oil Field | |
| - | Lake St John Oil Field | |
| - | North Bayou Jack Oil Field | |
| - | Tew Lake Oil Field |
Mississippi properties:
| - | Pisgah Oil Field | |
| - | Horseshoe Lake Oil Field | |
| - | Butler Oil Field | |
| - | Thanksgiving Oil Field | |
| - | 2312 Prospect | |
| - | Wildcat Oil Field |
Business Update
During the period covered by this Report, the Company has continued its efforts to grow its oil and gas exploration and drilling business. As of February 29, 2024, the Company has 5 productive wells in operation. On October 1, 2023, the Company sold interests in 6 productive wells.
As described further below under “Liquidity and Capital Resources,” the Company has also continued to pursue capital raising transactions, directly through the sale of its own securities and through WR Fund, as well as through related party advances, to meet its working capital needs and fund its operations and growth initiatives.
Key Terms and Metrics
In connection with the management of our businesses, we identify, measure and assess a variety of operating metrics. The principal metrics we use in managing our business 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.
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“Mbbl” – Mbbl means a thousand barrels of oil. See comments on “Bbl” metric. “Mbbl” is a standard for measuring larger quantities of barrels of oil in thousands of units.
“Production (Gross)” – Production (Gross) is defined as barrels of oil produced before accounting for working interests from non-mineral owning parties. Metric used by management to specify the total number of barrels of oil produced from a given oil well. Gross production includes both the barrels owned by the 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.
Oil and Natural Gas Reserves
As of December 31, 2023 all of our proved oil and natural gas reserves and unevaluated wells in progress were located in the United States, specifically in Mississippi and Louisiana.
For more information on our oil and natural gas reserves, we refer you to our Annual Report on Form 10-K filed with the SEC on June 29, 2023.
Drilling and other exploratory activities
During the nine months ended December 31, 2023, we undertook three drilling programs in Holmes County, MS, Concordia Parish, LA and Rankin County, MS.
Present activities
The Company is assessing all of its properties at the present time to determine any future drilling activities to commence.
Delivery commitments
The Company is not currently committed to provide a fixed and determinable quantity of oil and gas in the near future under existing contracts or agreements.
Results of Operations
Results of Operations for the nine months ended December 31, 2023 compared to the nine months ended December 31, 2022
White River Holdings has included in their historical consolidated financial statements certain operating expenses and other income (expense) from RiskOn International, Inc., previously known as Ecoark Holdings, Inc. (“Ecoark”) that have been allocated to them in the nine months ended December 31, 2022 which are part of the Condensed Consolidated Statements of Operations. The allocations represented charges incurred by Ecoark for certain general and administrative expenses. Where possible, these charges were allocated based on direct usage, with the remainder allocated on a pro rata basis of headcount, asset, or other allocation methodologies that are considered to be a reasonable reflection of the utilization of services provided or the benefit received by the Company during the periods presented pursuant to SAB Topic 1.B.1. The allocations may not, however, reflect the expense White River Holdings would have incurred as a standalone company for the periods presented. These costs also may not be indicative of the expenses that White River Holdings will incur in the future or would have incurred if White River Holdings had obtained these services from a third party. There were no allocations in the nine months ended December 31, 2023.
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Revenues
There were revenues for the nine months ended December 31, 2023 of $395,411 compared to the nine months ended December 31, 2022 of $616,972, with the decrease primarily related to the sales of wells that occurred in the fiscal quarter ended December 31, 2023 that resulted in less production for the Company, notwithstanding the higher average oil prices in 2023 compared to 2022.
We expect our revenues to decline as we sold our working interest in Deshotels 24H unless the production for our unevaluated wells that we expect to complete in the coming months produce oil at levels that exceed our current production for the past two years.
Costs and Expenses
The following table shows costs and expenses for the nine months ended December 31, 2023 compared to the nine months ended December 31, 2022:
| 2023 | 2022 | |||||||
| Costs and Expenses | ||||||||
| Lease operating expenses | $ | 187,486 | $ | 505,228 | ||||
| Salaries and salaries related costs | 12,660,080 | 4,861,432 | ||||||
| Professional and consulting fees | 4,431,541 | 2,821,430 | ||||||
| Selling, general and administrative costs | 4,880,578 | 9,943,659 | ||||||
| Impairment – investment | 10,000,000 | - | ||||||
| Depreciation, amortization, depletion, accretion and impairment (a) | 1,047,046 | 6,406,201 | ||||||
| $ | 33,206,731 | $ | 24,537,950 | |||||
Costs and expenses for the nine months ended December 31, 2023 totaled $33,206,731 compared to $24,537,950 for the nine months ended December 31, 2022. The significant changes from 2022 to 2023 were primarily the result of stock-based compensation of $7,922,795 (included in salaries and salaries related costs) in 2023 versus $1,727,404 in 2022, bad debt expense related to joint interest billing receivables and receivables under participation agreements of $2,206,759 in 2023, additional management salaries, and professional fees incurred in 2023 related to our SEC filings, including our registration statement on Form S-1 for Ecoark’s spin-off of our common stock and the PIPE offering which was declared effective by the SEC on September 29, 2023 as well as our second PIPE offering in the fiscal quarter ended December 31, 2023 and the impairment of our investment in the JV Entity of $10,000,000. In addition in 2022, the Company recognized $5,917,843 in goodwill impairment.
| (a) | The following is the composition of our depreciation, amortization, depletion, accretion and impairment for the nine months ended December 31, 2023 and 2022. |
| 2023 | 2022 | |||||||
| Impairment – oil and gas reserves | $ | 617,600 | $ | 28,265 | ||||
| Impairment – goodwill | - | 5,917,843 | ||||||
| Depletion | 97,996 | 284,414 | ||||||
| Accretion | 83,927 | 52,063 | ||||||
| Depreciation | 247,523 | 123,616 | ||||||
| $ | 1,047,046 | $ | 6,406,201 | |||||
The impairment charges were the result of the ceiling test calculations we perform every quarter. The depletion changes are the result of less wells producing from 2022 to 2023. The depreciation increase in 2023 is the result of the purchase of our own drilling and workover rigs that are being depreciated in 2023 that we did not have until the fiscal quarter ended December 31, 2022.
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We expect our costs and expenses to continue to increase in our current fiscal year ending March 31, 2024 as a result of an anticipated increase in drilling projects as well as anticipated increases in stock-based compensation related to RSUs granted in December 2022 as well more recent equity grants including those in the nine months ended December 31, 2023. The Company is currently incurring charges on the equity grants which could cost increase our non-cash equity compensation over the next five years due to stock grant vesting terms. The significant cost relates to salaries, benefits and equity grants.
Other Income (Expense)
The following table shows other income (expense) for the nine months ended December 31, 2023 and 2022:
| 2023 | 2022 | |||||||
| Change in fair value of derivative liabilities | $ | (78,208,463 | ) | $ | 3,451,752 | |||
| Derivative expense | (3,263,470 | ) | (10,124,521 | ) | ||||
| Gain on disposal of fixed assets | 173,949 | 2,974,293 | ||||||
| Other income | 329,039 | - | ||||||
| Gain on disposal of wells | 775,267 | - | ||||||
| Amortization of original issue discount | (217,141 | ) | (6,525 | ) | ||||
| Amortization of debt discount on convertible note | (913,278 | ) | - | |||||
| Amortization of discount on Series C Preferred Stock | (1,145,441 | ) | - | |||||
| Interest expense, net of interest income | (2,098,048 | ) | (9,108 | ) | ||||
| $ | (84,567,586 | ) | $ | (3,714,109 | ) | |||
Total other expense was ($84,567,586) in 2023 compared to other expense of ($3,714,109) in 2022. The increase was primarily related to the non-cash change in the fair value of the derivative liability of ($81,660,215) resulting from changes in our stock price, the non-cash derivative expense related to the warrants issued in connection with the PIPE offering for ($3,263,470), and the non-cash amortization of debt discount, original issue discount on the convertible note and amortization of discount related to the previously outstanding Series C preferred stock (all of which has since automatically converted), which were partially offset by gains on disposal of fixed assets, wells, and other income in 2023 as compared to 2022.
Net Loss
Net loss from continuing operations for the nine months ended December 31, 2023 was $117,378,906 as compared to net loss from continuing operations of $27,635,087 for the nine months ended December 31, 2022. The increase in net loss was primarily due to the non-cash items discussed above.
Results of Operations for the three months ended December 31, 2023 compared to the three months ended December 31, 2022
Revenues
There were revenues for the three months ended December 31, 2023 of $13,070 compared to the three months ended December 31, 2022 of $260,231, with the decrease primarily related to fewer wells in production offset by higher oil prices in 2022.
We expect our revenues to decline in the short term, as we sold our working interest in several wells in October 2023 unless the production for our unevaluated wells that we expect to complete in the coming months produce oil at levels that exceed our current production for the past two years.
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Costs and Expenses
The following table shows costs and expenses for the three months ended December 31, 2023 compared to the three months ended December 31, 2022:
| 2023 | 2022 | |||||||
| Costs and Expenses | ||||||||
| Lease operating expenses | $ | 12,728 | $ | 212,685 | ||||
| Salaries and salaries related costs | 3,878,613 | 2,540,366 | ||||||
| Professional and consulting fees | 2,239,129 | 2,502,156 | ||||||
| Selling, general and administrative costs | 593,691 | 4,465,761 | ||||||
| Impairment – investment | 10,000,000 | - | ||||||
| Depreciation, amortization, depletion, accretion and impairment (a) | 101,651 | 196,308 | ||||||
| $ | 16,825,812 | $ | 9,917,276 | |||||
Costs and expenses for the three months ended December 31, 2023 totaled $16,825,812 compared to $9,917,276 for the three months ended December 31, 2022. The changes from 2022 to 2023 were the result of stock-based compensation of $1,784,840 (included in salaries and salaries related costs) in 2023 versus $1,069,469 in 2022, additional management salaries, and professional fees incurred in 2023 related to our SEC filings and the impairment on the investment in the JV Entity of $10,000,000. These increases were offset by the changes in depreciation, depletion, accretion and impairment most of which was depletion in 2022 as well as decreases in our administrative costs as 2022 was the result of the initial period that the Company was a stand-alone public company, post reverse merger with Ecoark.
| (a) | The following is the composition of our depreciation, amortization, depletion, accretion and impairment for the three months ended December 31, 2023 and 2022. |
| 2023 | 2022 | |||||||
| Depletion | $ | - | $ | 110,720 | ||||
| Accretion | 21,276 | 16,504 | ||||||
| Depreciation | 80,375 | 69,084 | ||||||
| $ | 101,651 | $ | 196,308 | |||||
The depletion changes are the result of less wells producing from 2022 to 2023. The depreciation increase in 2023 is the result of the purchase of our own drilling and workover rigs that are being depreciated in 2023 which we did not have until the middle of the fiscal quarter ended December 31, 2022.
We expect our costs and expenses to continue increase in our current fiscal year ending March 31, 2024 as a result of an anticipated increase in drilling projects as well as anticipated increases in stock-based compensation related to the granted RSUs in December 2022 as well more recent equity grants including those in the nine months ended December 31, 2023. The Company is currently incurring charges on the equity grants which could increase our non-cash equity compensation over the next five years due to stock grant vesting terms. The significant cost relates to salaries, benefits and equity grants.
Other Income (Expense)
The following table shows other income (expense) for the three months ended December 31, 2023 and 2022:
| 2023 | 2022 | |||||||
| Change in fair value of derivative liabilities | $ | (72,288,763 | ) | $ | 3,451,752 | |||
| Derivative expense | - | (10,124,521 | ) | |||||
| Gain on disposal of fixed assets | - | 1,611,151 | ||||||
| Gain on disposal of wells | 775,267 | - | ||||||
| Amortization of original issue discount | - | (6,525 | ) | |||||
| Amortization of debt discount on convertible note | (203,420 | ) | - | |||||
| Interest expense, net of interest income | (1,882,861 | ) | (4,985 | ) | ||||
| $ | (73,599,777 | ) | $ | (5,073,128 | ) | |||
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Total other expense was ($73,599,777) in 2023 compared to other expense of ($5,073,128) in 2022. The increase was primarily the change in the derivative liability in 2023 versus 2022, offset by the derivative expense related to the warrants issued in connection with the PIPE offering in 2022, the amortization of debt discount, and amortization of the original issue discount on the convertible note offset by gains on disposal of fixed assets, disposal of wells, and the added interest expense in 2023 as a result of prepaying the convertible notes.
Net Loss
Net loss from continuing operations for the three months ended December 31, 2023 was $90,412,519 as compared to net loss from continuing operations of $14,730,173 for the three months ended December 31, 2022. The increase in net loss was primarily due to the non-cash items discussed above.
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 revenue generated from operations, levels of accounts receivable and accounts payable and capital expenditures.
Nine months ended December 31, 2023 and nine months ended December 31, 2022
Net cash (used in) operating activities was $(5,331,174) for the 2023 period, as compared to net cash (used in) operating activities of ($6,422,633) for the 2022 period. In the 2023 period, the net cash used in operating activities was caused by the net loss offset by non-cash items such as depreciation, depletion, impairment, stock-based compensation, derivative expense and the change in fair value of the derivative liability as well as the net changes in our assets and liabilities including the proceeds of $6,475,000 from the sale of tax credits (which are being treated by the Company as advances for accounting purposes) that yielded an offset to the loss of approximately $107.2 million in the 2023 period versus an offset of $16.4 million in the 2022 period.
Cash used in operating activities for the 2022 period was primarily caused by White River Holdings net loss partially offset by adjustments including depreciation, amortization, depletion and accretion, share-based compensation, bad debt expenses, changes in derivative liabilities and derivative expenses and loss on the disposal of two small subsidiaries as amounts allocated from Ecoark and changes in amounts due to Ecoark
Net cash (used in) investing activities for the 2023 period was $(344,161) compared to net cash (used in) investing activities of $(310,640) for the 2022 period. In the 2023 period, the cash used in investing activities primarily related to purchases of oil and gas properties, net of asset retirement obligations, and purchases of fixed assets as well as a $500,000 investment made in purchasing tax credits. Net cash used in investing activities in the 2022 period were comprised of proceeds from the sale of oil and gas properties as we sold various leases that had large plugging liabilities, partially offset by purchases of oil and gas properties, net of asset retirement obligations.
Net cash provided by financing activities for the 2023 period was $11,655,496 related to proceeds received from related party advances, common stock and warrants, purchases of limited partnership interests in the White River Energy Partners 1 Fund, and our Series C preferred stock offset by repayment of long-term debt, including related party advances. Net cash provided by financing activities for the 2022 period was $7,697,662 arising from proceeds received from long-term debt, convertible notes, and the Series C offering as well as proceeds received from Ecoark of $3,000,000.
Available Cash
As of March 13, 2024, the Company has approximately $11,388,283 in cash and cash equivalents.
The accompanying financial statements for the nine months ended December 31, 2023 have been prepared assuming the Company will continue as a going concern, but the ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes a revenue stream and becomes profitable. Management’s plans to continue as a going concern include raising additional capital through sales of equity securities and borrowing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. If the Company is not able to obtain the necessary additional financing on a timely basis, the Company will be required to delay, and reduce the scope of the Company’s development and operations. Continuing as a going concern is dependent upon its ability to successfully secure other sources of financing and attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
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As described in “Part II – Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds,” from December 27, 2023 through January 31, 2024, the Company raised $13,439,080 in the sale of units consisting of common stock and warrants.
WR Fund’s offering closed on December 31, 2023. While the Company had previously planned to launch a second larger fund, the Company has subsequently determined not to proceed with additional funds, due in part to its inability to acquire a broker-dealer as previously contemplated.
As of March 13, 2024, the Company has sold $48,300,000 of tax credits for total gross proceeds of $24,150,000. Under the JV Agreement, the Company agreed to use the net proceeds from the monetization of the initial $500,000,000 of credits as follows: (i) first, to pay off all tax liabilities on the Company’s balance sheet (approximately $10,000,000 as of the date of the Agreement); (ii) second, to fund potential acquisitions and other partnerships and joint ventures (up to $100,000,000); (iii) third, to purchase existing oil production including proven undeveloped reserves (up to $100,000,000); (iv) fourth, to fund a drilling program to extract oil from the Company’s oil and gas mineral leases (up to $240,000,000); and (v) fifth, to enter into midstream operations including crude oil storage tank farm and commodities trading (the remaining net proceeds estimated to be approximately $50,000,000).
With respect to the JV Entity, under the JV Agreement the JV Partner is entitled to receive 20% of any net profits from the JV Entity, with the Company receiving the remaining 80%.
On February 16, 2024, the Company entered into a letter of intent with the counterparty to the JV Agreement and a third party intermediary setting forth the terms of the Company’s contemplated purchase of $13 billion of United States federal income tax credits in exchange for $3 million cash and 10 million shares of the Company’s restricted common stock, which will vest upon the receipt of a valid registration number for the tax credits from the U.S. Treasury. On February 16, 2024, the Company paid a $1.25 million deposit towards the cash portion of the purchase price to the intermediary, which is in the process of working to provide the Company with a certificate for the tax credits as well as a registration number. The transactions contemplated by the letter of intent are subject to negotiation and execution of a definitive purchase agreement with respect to the Credits. Additionally, on February 22, 2024, the Company received a registration number for the first two tranches of tax credits it received in November 2023 and December 2023 pursuant to the JV Agreement. The Company has hired a Washington, D.C. law firm/lobbying firm to perform due diligence on its behalf with respect to the tax credits, and if possible, issue a tax opinion, which firm is in the process of conducting its review. However, no assurances can be given that such an opinion will be provided, and the tax credits and our transactions involving them remain subject to various risks and uncertainties.
As described under “Part II – Item 5 – Other Information,” the Company has agreed in principle to purchase an additional $50 billion in Credits from the counterparty under the JVA, in exchange for $2 million cash and shares of Series E convertible preferred stock into 50 million shares of common stock, subject to the beneficial ownership limitation. The cumulative total of Credits that the Company has received totaled $64 billion. The JV partner has now fulfilled all previous written and verbal agreements to the Company for Credits.
The Company has raised and intends to continue to raise capital through sales of its tax credits to conduct extensive diligence in the drilling of various projects on their mineral leases.
The Company does not anticipate any further purchases of tax credits.
Critical Accounting Policies, Estimates and Assumptions
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses. We evaluate our estimates and assumptions on an ongoing basis and base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for the judgments we make about the carrying value of assets and liabilities that are not readily apparent from other sources. Because these estimates can vary depending on the situation, actual results may differ from these estimates. Making estimates and judgments about future events is inherently unpredictable and is subject to significant uncertainties.
There have been no material changes to our critical accounting policies and estimates as compared to those disclosed in our Form 10-K. For a description of our critical accounting policies and estimates, see Part I, Item 1, Note 1, “Description of Business, Basis of Presentation and Summary of Significant Accounting Policies” in our notes to the consolidated financial statements in this Report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
We are required to maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Exchange Act. Based on their evaluation as of the end of the period covered by this Report, Mr. Randy May, our Chief Executive Officer and Mr. Jay Puchir, our Chief Financial Officer have concluded that our disclosure controls and procedures were not effective to ensure that the information relating to our company, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure as a result of material weaknesses in our internal control over financial reporting.
Changes in Internal Control over Financial Reporting.
There have been no changes in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II: OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
From time-to-time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of the date of this Report, all such litigation required to be disclosed has previously been disclosed.
ITEM 1A – RISK FACTORS
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
All unregistered sales of equity securities which are responsive to this item have previously been disclosed, except for the following:
From December 27, 2023 through January 31, 2024, the Company raised $13,439,080 by entering into Securities Purchase Agreements (each a “SPA”) with accredited investors (the “Purchasers”) whereby the Purchasers purchased a total of 17,296,115 Units from the Company, with each Unit consisting of one share of the Company’s common stock (for a total of 17,296,115 shares of common stock) and five-year warrants to two shares of Common Stock (the “Warrants”) (for a total of 34,592,230 Warrants), at a purchase price of $0.777 per Unit.
Each Warrant is exercisable at $1.00 per share for a period of five years from the earlier of (i) the effectiveness of a registration statement registering the resale of the common stock issuable upon exercise of such Warrants and (ii) December 31, 2023. The Company also entered into a Registration Rights Agreement with the Purchasers under which the Company agreed to register the sale by the Purchasers of the shares of Common Stock and Warrants by filing a registration statement on Form S-1 within 30 days after the final closing of the offering, and to cause such registration statement to be declared effective within 60 days thereafter.
The net proceeds from the offering, after offering expenses and related costs, will primarily be used for growth capital, working capital, repayment of indebtedness, the purchase of oil and gas mineral leases, and drilling oil of wells.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5 - OTHER INFORMATION
Amended Employment Agreements and Compensation Terms
On March 8, 2024, the Board of Directors (the “Board”) of the Company approved the following amended compensation and other terms with respect to the Company’s independent directors. In addition, with approval of the Board, the Company entered into new amended Employment Agreements with the Chief Executive Officer and Chief Financial Officer (the “Amended Employment Agreements”). The material terms of these arrangements are summarized below.
Independent Directors
The Board granted each independent director of the Company the following: (i) 1,000,000 restricted stock units (“RSUs”) vesting quarterly at 50,000 RSUs per quarter; and (ii) $300,000 cash fees per year vesting at $75,000 per quarter; in each case for the next 20 quarters subject to continued service as a director on each applicable vesting date.
In addition, the Board granted to each independent director the right to purchase Credits at a purchase price of $0.50 per $1.00 of Credits, provided that each director is limited to purchasing a number Credits amounting to the director’s taxable income for the current or prior year resulting in a net $0 federal tax liability.
Chief Executive Officer and Chief Financial Officer
The Amended Employment Agreements for each of Randy May, the Company’s Chief Executive Officer and Chairman of the Board, and Jay Puchir, the Company’s Chief Financial Officer include the following amended or additional compensation:
| (i) | Annual base salary increase to $1,000,000, subject to future sales of at least $25 million of Credits; | |
| (ii) | Signing bonus of $1,000,000, grossed up for applicable federal, state, and local taxes by the Company’s payroll provider, and to be paid on the execution of this agreement; | |
| (iii) | Additional grant of 5,000,000 RSUs vesting in five equal annual increments in accordance with the terms set forth in the Amended Employment Agreements including continued provision of services for the Company; | |
| (iv) | Up to 15% participation rights in oil and gas drilling ventures in which the Company undertakes or participates; | |
| (v) | A one-half of 1% commission on gross proceeds from sales of Credits generated by the applicable executive officer; and | |
| (vi) | The right to purchase Credits at a purchase price of $0.50 per $1.00 of Credits, provided that each such executive be limited to purchasing a number Credits amounting to such executive officer’s taxable income for the current or prior year resulting in a net $0 federal tax liability. |
Copies of the Amended Employment Agreements with each such executive officer are filed as Exhibits 10.7 and 10.8 to this Report. The foregoing descriptions do not purport to be complete, and are qualified in their entirety by the complete text of such Amended Employment Agreements, which are incorporated herein by reference.
Designation of Series E Convertible Preferred Stock
On March 13, 2024, following approval of the Board of Directors, the Company filed with the Nevada Secretary of State the Certificate of Designation authorizing the issuance of up to 50,000 shares of Series E Convertible Preferred Stock and setting forth the rights, preferences and limitations of such Series E.
The Series E has a stated value of $5,000 per share, and is convertible into a number of shares of common stock determined by dividing the stated value by the conversion price of $1.00, subject to a 4.99% beneficial ownership limitation which may be increased to 9.99% upon 61 days’ notice. The Series E does not carry any voting rights or other special rights or preferences.
The foregoing description of the terms of the Series E does not purport to be complete and is qualified in its entirety by reference to the full text of Certificate of Designation for the Series E, a copy of which is filed as Exhibit 3.8 to this Report.
Other Officer Appointments
On March 1, 2024, the Company’s Board appointed Jack Corona, as Chief Executive Officer of White River Operating LLC, the Company’s indirect subsidiary, and Elizabeth Boyce as Treasurer of the Company.
Tax Credit Sales
From November 29, 2023 to March 13, 2024, the Company entered into Tax Credit Purchase Agreements (each, an “Agreement”) with third party purchasers pursuant to which the Company sold a total of $48,300,000 of United States federal trust fund tax credits in exchange for $24,150,000, which credits the Company had acquired through a joint venture agreement as previously disclosed in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 29, 2023.
Potential Tax Credit Purchase
The Company has agreed in principle to purchase an additional $50 billion in Credits from the counterparty under the JVA, in exchange for $2 million cash and shares of Series E convertible into 50 million shares of common stock, subject to the beneficial ownership limitation. The transaction is subject to negotiation and execution of a definitive purchase agreement with respect to the Credits. On March 12, 2024, the Company received a registration number the third and fourth tranche of Credits totaling $58.5 billion. The cumulative total of Credits that the Company has received or agreed to purchase is $64 billion, which includes the first and second tranches for which a registration number was received on February 22, 2024. The JV partner has now fulfilled all previous written and verbal agreements to the Company for the Credits, and following completion of the transactions described above, the Company does not anticipate purchasing further Credits.
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ITEM 6 – EXHIBITS
*This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.
+ Certain schedules, appendices and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the Securities and Exchange Commission staff upon request.
^ Management contract or compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| WHITE RIVER ENERGY CORP | ||
| Dated: March 15, 2024 | By: | /s/ Randy May |
| Randy May | ||
| Chief Executive Officer (Principal Executive Officer) | ||
| By: | /s/ Jay Puchir | |
| Jay Puchir | ||
| Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | ||
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