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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q 
              Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2023
or
              Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number 1-5103 
BARNWELL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter) 
Delaware72-0496921
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1100 Alakea Street, Suite 500, Honolulu, Hawaii
96813
(Address of principal executive offices)(Zip code)
(808) 531-8400
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
 Common Stock, $0.50 par valueBRNNYSE American

Indicate by check mark 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   ☐ No

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     ☒ Yes   ☐ No

Indicate by check mark 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
Non-accelerated filerSmaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).           Yes   ☒ No
 
As of August 4, 2023 there were 9,990,778 shares of common stock, par value $0.50, outstanding.



BARNWELL INDUSTRIES, INC.
AND SUBSIDIARIES
 
INDEX 
 
 
 
 
 
 6
 
 
 
 




PART I - FINANCIAL INFORMATION


ITEM 1.    FINANCIAL STATEMENTS

BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30,
2023
September 30,
2022
ASSETS  
Current assets:
Cash and cash equivalents$2,572,000 $12,804,000 
Accounts and other receivables, net of allowance for doubtful accounts of:
   $250,000 at June 30, 2023; $231,000 at September 30, 2022
3,286,000 4,361,000 
Income taxes receivable51,000  
Other current assets3,238,000 2,932,000 
Total current assets9,147,000 20,097,000 
Asset for retirement benefits3,581,000 3,385,000 
Operating lease right-of-use assets75,000 132,000 
Property and equipment:
Oil and natural gas properties, full cost method of accounting:
Proved properties81,102,000 67,883,000 
Drilling rigs and other property and equipment7,236,000 6,923,000 
Total property and equipment88,338,000 74,806,000 
Accumulated depletion, impairment, depreciation, and amortization(66,006,000)(61,205,000)
Total property and equipment, net22,332,000 13,601,000 
Total assets$35,135,000 $37,215,000 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $1,408,000 $1,462,000 
Accrued capital expenditures1,699,000 1,655,000 
Accrued compensation616,000 999,000 
Accrued operating and other expenses1,672,000 1,576,000 
Current portion of asset retirement obligation1,607,000 1,327,000 
Other current liabilities564,000 1,908,000 
Total current liabilities7,566,000 8,927,000 
Long-term debt  44,000 
Operating lease liabilities58,000 117,000 
Liability for retirement benefits1,713,000 1,649,000 
Asset retirement obligation7,641,000 7,129,000 
Deferred income tax liabilities89,000 188,000 
Total liabilities17,067,000 18,054,000 
Commitments and contingencies
Equity:
Common stock, par value $0.50 per share; authorized, 40,000,000 shares:
    10,158,678 issued at June 30, 2023; 10,124,587 issued at September 30, 2022
5,079,000 5,062,000 
Additional paid-in capital7,602,000 7,351,000 
Retained earnings6,406,000 7,720,000 
Accumulated other comprehensive income, net1,251,000 1,294,000 
Treasury stock, at cost: 167,900 shares at June 30, 2023 and September 30, 2022
(2,286,000)(2,286,000)
Total stockholders’ equity
18,052,000 19,141,000 
Non-controlling interests16,000 20,000 
Total equity18,068,000 19,161,000 
Total liabilities and equity$35,135,000 $37,215,000 

See Notes to Condensed Consolidated Financial Statements
3


BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three months ended
June 30,
Nine months ended
June 30,
 2023202220232022
Revenues:  
Oil and natural gas$4,503,000 $7,292,000 $13,415,000 $16,345,000 
Contract drilling1,134,000 736,000 4,583,000 2,430,000 
Sale of interest in leasehold land  265,000 1,295,000 
Gas processing and other38,000  162,000 91,000 
 5,675,000 8,028,000 18,425,000 20,161,000 
Costs and expenses:  
Oil and natural gas operating3,006,000 2,397,000 7,717,000 6,439,000 
Contract drilling operating1,082,000 872,000 4,340,000 2,770,000 
General and administrative1,328,000 1,713,000 5,627,000 5,784,000 
Depletion, depreciation, and amortization1,257,000 814,000 2,858,000 1,915,000 
Interest expense1,000 1,000 1,000 1,000 
Foreign currency gain(121,000) (201,000) 
Gain on sale of assets  (551,000) 
 6,553,000 5,797,000 19,791,000 16,909,000 
(Loss) earnings before equity in income of affiliates and income taxes(878,000)2,231,000 (1,366,000)3,252,000 
Equity in income of affiliates 433,000 538,000 3,400,000 
(Loss) earnings before income taxes(878,000)2,664,000 (828,000)6,652,000 
Income tax (benefit) provision(163,000)75,000 (87,000)325,000 
Net (loss) earnings(715,000)2,589,000 (741,000)6,327,000 
Less: Net earnings attributable to non-controlling interests2,000 58,000 124,000 671,000 
Net (loss) earnings attributable to Barnwell Industries, Inc.$(717,000)$2,531,000 $(865,000)$5,656,000 
Basic and diluted net (loss) earnings per common share attributable to Barnwell Industries, Inc. stockholders$(0.07)$0.25 $(0.09)$0.59 
Weighted-average number of common shares outstanding:  
Basic and diluted9,975,044 9,956,687 9,962,806 9,657,532 
 
See Notes to Condensed Consolidated Financial Statements

4


BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
 
Three months ended
June 30,
Nine months ended
June 30,
 2023202220232022
Net (loss) earnings$(715,000)$2,589,000 $(741,000)$6,327,000 
Other comprehensive (loss) income:  
Foreign currency translation adjustments, net of taxes of $0
15,000 (108,000)17,000 (121,000)
Retirement plans:
Amortization of accumulated other comprehensive gain into net periodic benefit cost, net of taxes of $0
(20,000) (60,000) 
Total other comprehensive loss(5,000)(108,000)(43,000)(121,000)
Total comprehensive (loss) income(720,000)2,481,000 (784,000)6,206,000 
Less: Comprehensive income attributable to non-controlling interests(2,000)(58,000)(124,000)(671,000)
Comprehensive (loss) income attributable to Barnwell Industries, Inc.$(722,000)$2,423,000 $(908,000)$5,535,000 
 
See Notes to Condensed Consolidated Financial Statements

5


BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Three months ended June 30, 2023 and 2022
(Unaudited)
 
Shares
Outstanding
Common
Stock
Additional
Paid-In
Capital
Retained EarningsAccumulated
Other
Comprehensive (Loss) Income
Treasury
Stock
Non-controlling
Interests
Total
Equity
Balance at March 31, 20229,956,687 $5,062,000 $7,121,000 $5,481,000 $19,000 $(2,286,000)$64,000 $15,461,000 
Net earnings— — — 2,531,000 — — 58,000 2,589,000 
Foreign currency translation adjustments, net of taxes of $0
— — — — (108,000)— — (108,000)
Distributions to non-controlling interests— — — — — — (72,000)(72,000)
Share-based compensation— — 114,000— — — — 114,000
Balance at June 30, 20229,956,687 $5,062,000 $7,235,000 $8,012,000 $(89,000)$(2,286,000)$50,000 $17,984,000 
Balance at March 31, 20239,956,687 $5,062,000 $7,541,000 $7,273,000 $1,256,000 $(2,286,000)$18,000 $18,864,000 
Net (loss) earnings — — — (717,000)— — 2,000 (715,000)
Foreign currency translation adjustments, net of taxes of $0
— — — — 15,000 — — 15,000 
Distributions to non-controlling interests— — — — — — (4,000)(4,000)
Share-based compensation— — (12,000)— — — — (12,000)
Issuance of common stock for services34,091 17,000 73,000 — — — — 90,000 
Dividends declared, $0.015 per share
— — — (150,000)— — — (150,000)
Retirement plans:
Amortization of accumulated other comprehensive gain into net periodic benefit cost, net of taxes of $0
— — — — (20,000)— — (20,000)
Balance at June 30, 20239,990,778 $5,079,000 $7,602,000 $6,406,000 $1,251,000 $(2,286,000)$16,000 $18,068,000 

See Notes to Condensed Consolidated Financial Statements

6


BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Nine months ended June 30, 2023 and 2022
(Unaudited)
 
Shares
Outstanding
Common
Stock
Additional
Paid-In
Capital
Retained EarningsAccumulated
Other
Comprehensive (Loss) Income
Treasury
Stock
Non-controlling
Interests
Total
Equity
Balance at September 30, 20219,445,625 $4,807,000 $4,590,000 $2,356,000 $32,000 $(2,286,000)$8,000 $9,507,000 
Net earnings— — — 5,656,000 — — 671,000 6,327,000 
Foreign currency translation adjustments, net of taxes of $0
— — — — (121,000)— — (121,000)
Distributions to non-controlling interests— — — — — — (629,000)(629,000)
Share-based compensation— — 541,000 — — — — 541,000 
Issuance of common stock for services1,595 — 3,000 — — — — 3,000 
Issuance of common stock, net of costs509,467 255,000 2,101,000 — — — — 2,356,000 
Balance at June 30, 20229,956,687 $5,062,000 $7,235,000 $8,012,000 $(89,000)$(2,286,000)$50,000 $17,984,000 
Balance at September 30, 20229,956,687 $5,062,000 $7,351,000 $7,720,000 $1,294,000 $(2,286,000)$20,000 $19,161,000 
Net (loss) earnings — — — (865,000)— — 124,000 (741,000)
Foreign currency translation adjustments, net of taxes of $0
— — — — 17,000 — — 17,000 
Distributions to non-controlling interests— — — — — — (128,000)(128,000)
Share-based compensation— — 178,000— — — — 178,000
Issuance of common stock for services34,091 17,000 73,000 — — — — 90,000 
Dividends declared, $0.045 per share
— — — (449,000)— — — (449,000)
Retirement plans:
Amortization of accumulated other comprehensive gain into net periodic benefit cost, net of taxes of $0
— — — — (60,000)— — (60,000)
Balance at June 30, 20239,990,778 $5,079,000 $7,602,000 $6,406,000 $1,251,000 $(2,286,000)$16,000 $18,068,000 

See Notes to Condensed Consolidated Financial Statements

7


BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) 
Nine months ended
June 30,
 20232022
Cash flows from operating activities:  
Net (loss) earnings$(741,000)$6,327,000 
Adjustments to reconcile net (loss) earnings to net cash  
provided by operating activities:  
Equity in income of affiliates(538,000)(3,400,000)
Depletion, depreciation, and amortization2,858,000 1,915,000 
Gain on sale of assets(551,000) 
Sale of interest in leasehold land, net of fees paid(233,000)(1,137,000)
Distributions of income from equity investees319,000 3,170,000 
Retirement benefits income(189,000)(204,000)
Non-cash rent income(19,000)(1,000)
Accretion of asset retirement obligation596,000 562,000 
Deferred income tax benefit(99,000)(53,000)
Asset retirement obligation payments(896,000)(780,000)
Share-based compensation expense178,000 541,000 
Common stock issued for services90,000 3,000 
Retirement plan contributions and payments(2,000)(2,000)
Bad debt expense (recovery)18,000 (27,000)
Foreign currency gain(201,000) 
Decrease from changes in current assets and liabilities(433,000)(1,245,000)
Net cash provided by operating activities157,000 5,669,000 
Cash flows from investing activities: 
Distribution from equity investees in excess of earnings219,000 230,000 
Proceeds from sale of interest in leasehold land, net of fees paid233,000 1,137,000 
Proceeds from the sale of contract drilling assets 687,000 
Payments to acquire oil and natural gas properties (1,563,000)
Capital expenditures - oil and natural gas(10,022,000)(6,541,000)
Capital expenditures - all other(305,000)(13,000)
Net cash used in investing activities(9,875,000)(6,063,000)
Cash flows from financing activities:  
Distributions to non-controlling interests(128,000)(629,000)
Payment of dividends(449,000) 
Proceeds from issuance of stock, net of costs 2,356,000 
Net cash (used in) provided by financing activities(577,000)1,727,000 
Effect of exchange rate changes on cash and cash equivalents63,000 (38,000)
Net (decrease) increase in cash and cash equivalents(10,232,000)1,295,000 
Cash and cash equivalents at beginning of period12,804,000 11,279,000 
Cash and cash equivalents at end of period$2,572,000 $12,574,000 
 
See Notes to Condensed Consolidated Financial Statements
8


BARNWELL INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Principles of Consolidation
 
The condensed consolidated financial statements include the accounts of Barnwell Industries, Inc. and all majority-owned subsidiaries (collectively referred to herein as “Barnwell,” “we,” “our,” “us,” or the “Company”), including a 77.6%-owned land investment general partnership (Kaupulehu Developments), a 75%-owned land investment partnership (KD Kona 2013 LLLP), and a variable interest entity (Teton Barnwell Fund I, LLC) for which the Company is deemed to be the primary beneficiary. All significant intercompany accounts and transactions have been eliminated.
 
    Undivided interests in oil and natural gas exploration and production joint ventures are consolidated on a proportionate basis. Barnwell’s investments in both unconsolidated entities in which a significant, but less than controlling, interest is held and in variable interest entities in which the Company is not deemed to be the primary beneficiary are accounted for by the equity method.
 
Unless otherwise indicated, all references to “dollars” in this Form 10-Q are to U.S. dollars.
 
Unaudited Interim Financial Information
 
The accompanying unaudited condensed consolidated financial statements and notes have been prepared by Barnwell in accordance with the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. These condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in Barnwell’s September 30, 2022 Annual Report on Form 10-K, as amended by our Form 10-K/A Amendment No. 1 (our “2022 Annual Report”). The Condensed Consolidated Balance Sheet as of September 30, 2022 has been derived from audited consolidated financial statements.
 
In the opinion of management, all adjustments (which include only normal recurring adjustments, with the exception of an out-of-period adjustment for the nine months ended June 30, 2023 as described below) necessary to present fairly the financial position at June 30, 2023, results of operations, comprehensive (loss) income, and equity for the three and nine months ended June 30, 2023 and 2022, and cash flows for the nine months ended June 30, 2023 and 2022, have been made. The results of operations for the period ended June 30, 2023 are not necessarily indicative of the operating results for the full year.

Out-of-Period Adjustment

During the three months ended December 31, 2022, errors were identified related to estimates of accrued oil and natural gas sales and accrued professional fees for the year ended September 30, 2022. Accordingly, the Company recorded out-of-period adjustments in the three months ended December 31,
9


2022 for the rollover effect of those differences which were immaterial to the results of that quarter. For the nine months ended June 30, 2023, the rollover effect of those out-of-period adjustments both decreased oil and natural gas revenues and increased general and administrative expenses by a total of $147,000, which accordingly increased our net loss before income taxes and net loss for the nine months ended June 30, 2023 by the same amount. In addition, during the three months ended June 30, 2023, an error was identified that resulted from actual state income taxes in our fiscal 2022 state tax returns being $106,000 lower than the amounts recorded as fiscal 2022 state income taxes in our income tax provision at September 30, 2022. The net effect of all of the out-of-period adjustments above amounted to a $41,000 increase in our net loss for the nine months ended June 30, 2023. The net earnings per basic and diluted share attributable to Barnwell stockholders would have been $0.01 lower for the year ended September 30, 2022 and the net loss per basic and diluted share attributable to Barnwell stockholders would have been $0.01 lower for the nine months ended June 30, 2023 had the amounts been reflected in the periods to which they relate. Based upon an evaluation of all relevant quantitative and qualitative factors, and after considering the provisions of Staff Accounting Bulletin (SAB) No. 99, “Materiality,” and SAB 108, management believes these out-of-period correcting adjustments were not material to the Company’s results for the nine months ended June 30, 2023 or the Company’s trend of operating results. We evaluated the impact of these out-of-period adjustments on the results of our previously issued financial statements for the year ended September 30, 2022, first quarter ended December 31, 2022, and third quarter ended June 30, 2023 and concluded that the impact was not material as well.

Use of Estimates in the Preparation of Condensed Consolidated Financial Statements
 
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management of Barnwell to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ significantly from those estimates. Significant assumptions are required in the valuation of deferred tax assets, asset retirement obligations, share-based payment arrangements, obligations for retirement plans, contract drilling estimated costs to complete, proved oil and natural gas reserves, and the carrying value of other assets, and such assumptions may impact the amount at which such items are recorded.

Significant Accounting Policies

Other than as set forth below, there have been no changes to Barnwell's significant accounting policies as described in the Notes to Consolidated Financial Statements included in Item 8 of the Company's 2022 Annual Report.

Share-based Compensation

Share-based compensation cost for Barnwell’s equity-classified stock options and restricted stock units is measured at fair value and is recognized as an expense over the requisite service period. For stock options, Barnwell utilizes a closed-form valuation model to determine the fair value of each option award. Expected volatilities are based on the historical volatility of Barnwell’s stock over a period consistent with that of the expected terms of the options. The expected terms of the options represent expectations of future employee exercise and are estimated based on factors such as vesting periods, contractual expiration dates, historical trends in Barnwell’s stock price, and historical exercise behavior. If the Company does not have sufficient historical data regarding employee exercise behavior, the “simplified method” as permitted by the SEC’s Staff Accounting Bulletin No. 110, Share-Based Payment is utilized to estimate the expected terms of the options. The risk-free rates for periods within the contractual life of the
10


options are based on the yields of U.S. Treasury instruments with terms comparable to the estimated option terms. Expected dividends are based on historical dividend payments. For restricted stock units, Barnwell utilizes the closing market price of the Company’s common stock on the day prior to the date of grant reduced by the present value of the dividends expected to be paid on the underlying shares of common stock during the requisite service period (as these awards are not entitled to receive dividends until vested) to determine the fair value of each restricted stock unit award. The Company's policy is to recognize forfeitures as they occur.

2.    (LOSS) EARNINGS PER COMMON SHARE
 
Basic (loss) earnings per share is computed using the weighted-average number of common shares outstanding for the period. Diluted (loss) earnings per share is calculated using the treasury stock method to reflect the assumed issuance of common shares for all potentially dilutive securities, which consist of outstanding stock options and nonvested restricted stock units. Potentially dilutive shares are excluded from the computation of diluted (loss) earnings per share if their effect is anti-dilutive.

For the three months ended June 30, 2023, options to purchase 493,022 shares of common stock and 37,312 restricted stock units were excluded from the computation of diluted shares as their inclusion would have been anti-dilutive. For the nine months ended June 30, 2023, options to purchase 574,341 shares of common stock and 12,301 restricted stock units were excluded from the computation of diluted shares as their inclusion would have been anti-dilutive. For the three and nine months ended June 30, 2022, options to purchase 615,000 shares of common stock were excluded from the computation of diluted shares as their inclusion would have been anti-dilutive.
 
Reconciliations between net (loss) earnings attributable to Barnwell stockholders and common shares outstanding of the basic and diluted net (loss) earnings per share computations are detailed in the following tables:
 Three months ended June 30, 2023
 Net Loss
(Numerator)
Shares
(Denominator)
Per-Share
Amount
Basic net loss per share$(717,000)9,975,044 $(0.07)
Effect of dilutive securities -   
common stock options and restricted stock units   
Diluted net loss per share$(717,000)9,975,044 $(0.07)
 Nine months ended June 30, 2023
 Net Loss
(Numerator)
Shares
(Denominator)
Per-Share
Amount
Basic net loss per share$(865,000)9,962,806 $(0.09)
Effect of dilutive securities -   
common stock options and restricted stock units   
Diluted net loss per share$(865,000)9,962,806 $(0.09)
11


 Three months ended June 30, 2022
 Net Earnings
(Numerator)
Shares
(Denominator)
Per-Share
Amount
Basic net earnings per share$2,531,000 9,956,687 $0.25 
Effect of dilutive securities -   
common stock options   
Diluted net earnings per share$2,531,000 9,956,687 $0.25 
 Nine months ended June 30, 2022
 Net Earnings
(Numerator)
Shares
(Denominator)
Per-Share
Amount
Basic net earnings per share$5,656,000 9,657,532 $0.59 
Effect of dilutive securities -   
common stock options   
Diluted net earnings per share$5,656,000 9,657,532 $0.59 

3.    INVESTMENTS
 
Investment in Kukio Resort Land Development Partnerships
 
On November 27, 2013, Barnwell, through a wholly-owned subsidiary, entered into two limited liability limited partnerships, KD Kona 2013 LLLP (“KD Kona”) and KKM Makai, LLLP (“KKM”), and indirectly acquired a 19.6% non-controlling ownership interest in each of KD Kukio Resorts, LLLP, KD Maniniowali, LLLP and KD Kaupulehu, LLLP (“KDK”) for $5,140,000. These entities, collectively referred to hereinafter as the “Kukio Resort Land Development Partnerships,” own certain real estate and development rights interests in the Kukio, Maniniowali and Kaupulehu portions of Kukio Resort, a private residential community on the Kona coast of the island of Hawaii, as well as Kukio Resort’s real estate sales office operations. KDK holds interests in KD Acquisition, LLLP (“KD I”) and KD Acquisition II, LP, formerly KD Acquisition II, LLLP (“KD II”). KD I is the developer of Kaupulehu Lot 4A Increment I (“Increment I”), and KD II is the developer of Kaupulehu Lot 4A Increment II (“Increment II”). Barnwell’s ownership interests in the Kukio Resort Land Development Partnerships is accounted for using the equity method of accounting.

In March 2019, KD II admitted a new development partner, Replay Kaupulehu Development, LLC (“Replay”), a party unrelated to Barnwell, in an effort to move forward with development of the remainder of Increment II at Kaupulehu. KDK and Replay hold ownership interests of 55% and 45%, respectively, of KD II and Barnwell has a 10.8% indirect non-controlling ownership interest in KD II through KDK, which is accounted for using the equity method of accounting. Barnwell continues to have an indirect 19.6% non-controlling ownership interest in KD Kukio Resorts, LLLP, KD Maniniowali, LLLP, and KD I.

The partnerships derive income from the sale of residential parcels in Increment I, of which only one lot remains to be sold as of June 30, 2023, as well as from commissions on real estate sales by the real estate sales office and revenues resulting from the sale of private club memberships.

12


Increment II is not yet under development, and there is no assurance that development of such acreage will occur. No definitive development plans have been made by KD II, the developer of Increment II, as of the date of this report.

    Barnwell has the right to receive distributions from the Kukio Resort Land Development Partnerships via its non-controlling interest in KD Kona and KKM, based on its respective partnership sharing ratios of 75% and 34.45%, respectively. No cash distributions were received during the three months ended June 30, 2023. During the three months ended June 30, 2022, Barnwell received cash distributions of $433,000 from the Kukio Resort Land Development Partnerships resulting in a net amount of $385,000 after distributing $48,000 to non-controlling interests. During the nine months ended June 30, 2023, Barnwell received cash distributions of $538,000 from the Kukio Resort Land Development Partnerships resulting in a net amount of $478,000, after distributing $60,000 to non-controlling interests. During the nine months ended June 30, 2022, Barnwell received cash distributions of $3,400,000 from the Kukio Resort Land Development Partnerships resulting in a net amount of $3,028,000 after distributing $372,000 to non-controlling interests.

Equity in income of affiliates was nil and $538,000 for the three and nine months ended June 30, 2023, respectively, as compared to equity in income of affiliates of $433,000 and $3,400,000 for the three and nine months ended June 30, 2022, respectively.

Summarized financial information for the Kukio Resort Land Development Partnerships is as follows:
Three months ended June 30,
20232022
Revenue$2,703,000 $4,574,000 
Gross profit$1,694,000 $3,004,000 
Net earnings$951,000 $2,209,000 
Nine months ended June 30,
20232022
Revenue$7,699,000 $23,492,000 
Gross profit$4,854,000 $16,151,000 
Net earnings$2,176,000 $13,845,000 

In the quarter ended June 30, 2021, the Company received cumulative distributions from the Kukio Resort Land Development Partnerships in excess of our investment balance and in accordance with applicable accounting guidance, the Company suspended its equity method earnings recognition and the Kukio Resort Land Development Partnerships investment balance was reduced to zero with the distributions received in excess of our investment balance recorded as equity in income of affiliates because the distributions are not refundable by agreement or by law and the Company is not liable for the obligations of or otherwise committed to provide financial support to the Kukio Resort Land Development Partnerships. The Company will record future equity method earnings only after our share of the Kukio Resort Land Development Partnerships’ cumulative earnings in excess of distributions during the suspended period exceeds our share of the Kukio Resort Land Development Partnerships’ income recognized for the excess distributions, and during this suspended period any distributions received will be recorded as equity in income of affiliates. Accordingly, the amount of equity in income of affiliates recognized in the nine months ended June 30, 2023 was equivalent to the $538,000 of distributions received in that period.
13



Cumulative distributions received from the Kukio Resort Land Development Partnerships in excess of our investment balance was $993,000 at June 30, 2023 and $958,000 at September 30, 2022.

Sale of Interest in Leasehold Land
 
Kaupulehu Developments has the right to receive payments from KD I and KD II resulting from the sale of lots and/or residential units within Increment I and Increment II by KD I and KD II (see Note 17).
 
With respect to Increment I, Kaupulehu Developments is entitled to receive payments from KD I based on 10% of the gross receipts from KD I’s sales of single-family residential lots in Increment I. One single-family lot was sold during the nine months ended June 30, 2023 and one single-family lot, of the 79 lots developed within Increment I, remained to be sold as of June 30, 2023.

    The following table summarizes the Increment I revenues from KD I and the amount of fees directly related to such revenues:
 Three months ended
June 30,
Nine months ended
June 30,
 2023202220232022
Sale of interest in leasehold land:  
Revenues - sale of interest in leasehold land$ $ $265,000 $1,295,000 
Fees - included in general and administrative expenses  (32,000)(158,000)
Sale of interest in leasehold land, net of fees paid$ $ $233,000 $1,137,000 

There is no assurance with regards to the amounts of future payments from Increment I or Increment II to be received, or that the remaining acreage within Increment II will be developed. No definitive development plans have been made by KD II, the developer of Increment II, as of the date of this report.

Investment in Leasehold Land Interest - Lot 4C
 
Kaupulehu Developments holds an interest in an area of approximately 1,000 acres of vacant leasehold land zoned conservation located adjacent to Lot 4A, which currently has no development potential without both a development agreement with the lessor and zoning reclassification. The lease terminates in December 2025. 

14


4.    CONSOLIDATED VARIABLE INTEREST ENTITY
 
In February 2021, Barnwell Industries, Inc. established a new wholly-owned subsidiary named BOK Drilling, LLC (“BOK”) for the purpose of indirectly investing in oil and natural gas exploration and development in Oklahoma. BOK and Gros Ventre Partners, LLC (“Gros Ventre”) entered into the Limited Liability Agreement (the “Teton Operating Agreement”) of Teton Barnwell Fund I, LLC (“Teton Barnwell”), an entity formed for the purpose of directly entering into such oil and natural gas investments. Under the terms of the Teton Operating Agreement, the profits of Teton Barnwell are split between BOK and Gros Ventre at 98% and 2%, respectively, and as the manager of Teton Barnwell, Gros Venture is paid an annual asset management fee equal to 1% of the cumulative capital contributions made to Teton Barnwell as compensation for its management services. BOK is responsible for 100% of the capital contributions made to Teton Barnwell.

The Company has determined that Teton Barnwell is a variable interest entity (“VIE”) as the entity is structured with non-substantive voting rights and that the Company is the primary beneficiary. This is due to the fact that even though Teton Barnwell has a unanimous consent voting structure, BOK is responsible for 100% of the capital contributions required to fund Teton Barnwell’s future oil exploration and development investments pursuant to the Teton Operating Agreement and thus, BOK has the power to steer the decisions that most significantly impact Teton Barnwell’s economic performance and has the obligation to absorb any potential losses that could be significant to Teton Barnwell. As BOK is the primary beneficiary of the VIE, Teton Barnwell’s operating results, assets and liabilities are consolidated by the Company.

The following table summarizes the carrying value of the assets and liabilities of Teton Barnwell that are consolidated by the Company. Intercompany balances are eliminated in consolidation and thus, are not reflected in the table below.
June 30,
2023
September 30,
2022
ASSETS 
Cash and cash equivalents$87,000 $623,000 
Accounts and other receivables228,000 606,000 
Oil and natural gas properties, full cost method of accounting:
Proved properties, net566,000 655,000 
Total assets$881,000 $1,884,000 
LIABILITIES
Accounts payable $3,000 $15,000 
Accrued operating and other expenses13,000 26,000 
Total liabilities$16,000 $41,000 

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5.    ASSET HELD FOR SALE
 
In September 2022, the Company entered into a purchase and sale agreement with an independent third party for the sale of a contract drilling segment drilling rig and received a payment of $551,000, net of related costs. At September 30, 2022, the legal title for the drilling rig had not yet transferred to the buyer and therefore, the Company did not record a sale during the year ended September 30, 2022. The proceeds received from the buyer was recognized as a deposit and recorded in “Other Current Liabilities” on the Company's Consolidated Balance Sheet at September 30, 2022. No amount was recorded as assets held for sale at September 30, 2022 as the drilling rig was fully depreciated and therefore had a net book value of zero. In October 2022, the legal title for the drilling rig was transferred to the buyer and as a result, the Company recognized a $551,000 gain on the sale of the drilling rig during the nine months ended June 30, 2023.

6.    OIL AND NATURAL GAS PROPERTIES

Fiscal 2023 Investments and Acquisitions

In December 2022, Barnwell Texas, LLC (“Barnwell Texas”), a new wholly-owned subsidiary of the Company, entered into a purchase and sale agreement with an independent third party whereby Barnwell Texas acquired a 22.3% non-operated working interest in oil and natural gas leasehold acreage in the Permian Basin in Texas for cash consideration of $806,000. In connection with the purchase of such leasehold interests, Barnwell Texas acquired a 15.4% non-operated working interest in two oil wells in the Wolfcamp Formation in Loving and Ward Counties, Texas and has paid $4,293,000 for its share of the costs to drill, complete and equip the wells through the nine months ended June 30, 2023. The two Texas wells began producing in late April 2023. Additionally, in connection with the entry into this agreement, the Company is obligated to pay a broker’s fee of 5.0% of the capital invested under this arrangement to Four Pines Exploration LLC - Exploration - Series 1 (“Four Pines”). Four Pines is controlled by Mr. Colin O’Farrell who is an affiliate of Teton Barnwell (see Note 17 for additional details). As of June 30, 2023, the Company has paid $255,000 in broker fees to Four Pines related to this arrangement.

Fiscal 2022 Acquisitions

In the quarter ended December 31, 2021, Barnwell acquired working interests in oil and natural gas properties located in the Twining area of Alberta, Canada, for cash consideration of $317,000.

In the quarter ended March 31, 2022, Barnwell acquired additional working interests in oil and natural gas properties located in the Twining area of Alberta, Canada for consideration of $1,246,000. The purchase price per the agreement was adjusted for customary purchase price adjustments to reflect the economic activity from the effective date to the closing date. Barnwell also assumed $1,500,000 in asset retirement obligations associated with the acquisition.

7.    RETIREMENT PLANS
 
Barnwell sponsors a noncontributory defined benefit pension plan (“Pension Plan”) covering substantially all of its U.S. employees and a noncontributory Supplemental Executive Retirement Plan (“SERP”), which covers certain current and former employees of Barnwell for amounts exceeding the limits allowed under the Pension Plan.

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The following tables detail the components of net periodic benefit (income) cost for Barnwell’s retirement plans:
 Pension PlanSERP
 Three months ended June 30,
 2023202220232022
Interest cost$102,000 $73,000 $22,000 $15,000 
Expected return on plan assets(167,000)(156,000)  
Amortization of net actuarial gain  (20,000) 
Net periodic benefit (income) cost$(65,000)$(83,000)$2,000 $15,000 
 Pension PlanSERP
 Nine months ended June 30,
 2023202220232022
Interest cost$305,000 $218,000 $66,000 $45,000 
Expected return on plan assets(500,000)(467,000)  
Amortization of net actuarial gain  (60,000) 
Net periodic benefit (income) cost$(195,000)$(249,000)$6,000 $45,000 

The net periodic benefit (income) cost is included in “General and administrative” expenses in the Company's Condensed Consolidated Statements of Operations.

Currently, no contributions are expected to be made to the Pension Plan during fiscal 2023. The SERP plan is unfunded and Barnwell funds benefits when payments are made. Expected payments under the SERP for fiscal 2023 are not material. Fluctuations in actual equity market returns as well as changes in general interest rates will result in changes in the market value of plan assets and may result in increased or decreased retirement benefits costs and contributions in future periods.

8.    INCOME TAXES
 
The components of (loss) earnings before income taxes, after adjusting the (loss) earnings for non-controlling interests, are as follows:
Three months ended
June 30,
Nine months ended
June 30,
 2023202220232022
United States$(477,000)$(271,000)$(1,734,000)$1,637,000 
Canada(403,000)2,877,000 782,000 4,344,000 
 $(880,000)$2,606,000 $(952,000)$5,981,000 

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The components of the income tax (benefit) provision are as follows:
Three months ended
June 30,
Nine months ended
June 30,
 2023202220232022
Current$(121,000)$126,000 $12,000 $378,000 
Deferred(42,000)(51,000)(99,000)(53,000)
 $(163,000)$75,000 $(87,000)$325,000 

Consolidated taxes do not bear a customary relationship to pretax results due primarily to the fact that the Company is taxed separately in Canada based on Canadian source operations and in the U.S. based on consolidated operations, and essentially all deferred tax assets, net of relevant offsetting deferred tax liabilities, are not estimated to have a future benefit as tax credits or deductions. Income from our non-controlling interest in the Kukio Resort Land Development Partnerships is treated as non-unitary for state of Hawaii unitary filing purposes, thus unitary Hawaii losses provide limited sheltering of such non-unitary income. Income from our investment in the Oklahoma oil venture is 100% allocable to Oklahoma. As such, Barnwell receives no benefit from consolidated or unitary losses and, therefore, is subject to Oklahoma state taxes. Consolidated taxes also include the impacts of favorable state jurisdiction provision to tax return true-ups. In addition, net operating loss carryforwards, the benefit of which had not previously been recognized due to the Company's continuing full valuation allowance, are estimated to be partially utilized in the Canadian tax jurisdiction in the current year periods as the recognized benefit is now considered more likely to occur than not.

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9.    REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

    The following tables provide information about disaggregated revenue by revenue streams, reportable segments, geographical region, and timing of revenue recognition for the three and nine months ended June 30, 2023 and 2022.
Three months ended June 30, 2023
Oil and natural gasContract drillingLand investmentOtherTotal
Revenue streams:
Oil$3,423,000 $ $ $ $3,423,000 
Natural gas622,000    622,000 
Natural gas liquids458,000    458,000 
Drilling and pump 1,134,000   1,134,000 
Other   13,000 13,000 
Total revenues before interest income$4,503,000 $1,134,000 $ $13,000 $5,650,000 
Geographical regions:
United States$869,000 $1,134,000 $ $1,000 $2,004,000 
Canada3,634,000   12,000 3,646,000 
Total revenues before interest income$4,503,000 $1,134,000 $ $13,000 $5,650,000 
Timing of revenue recognition:
Goods transferred at a point in time$4,503,000 $ $ $13,000 $4,516,000 
Services transferred over time 1,134,000   1,134,000 
Total revenues before interest income$4,503,000 $1,134,000 $ $13,000 $5,650,000 

Three months ended June 30, 2022
Oil and natural gasContract drillingLand investmentOtherTotal
Revenue streams:
Oil$4,951,000 $ $ $ $4,951,000 
Natural gas1,652,000    1,652,000 
Natural gas liquids689,000    689,000 
Drilling and pump 736,000   736,000 
Total revenues before interest income$7,292,000 $736,000 $ $ $8,028,000 
Geographical regions:
United States$840,000 $736,000 $ $ $1,576,000 
Canada6,452,000    6,452,000 
Total revenues before interest income$7,292,000 $736,000 $ $ $8,028,000 
Timing of revenue recognition:
Goods transferred at a point in time$7,292,000 $ $ $ $7,292,000 
Services transferred over time 736,000   736,000 
Total revenues before interest income$7,292,000 $736,000 $ $ $8,028,000 

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Nine months ended June 30, 2023
Oil and natural gasContract drillingLand investmentOtherTotal
Revenue streams:
Oil$9,696,000 $ $ $ $9,696,000 
Natural gas2,540,000    2,540,000 
Natural gas liquids1,179,000    1,179,000 
Drilling and pump 4,583,000   4,583,000 
Contingent residual payments  265,000  265,000 
Other   85,000 85,000 
Total revenues before interest income$13,415,000 $4,583,000 $265,000 $85,000 $18,348,000 
Geographical regions:
United States$1,695,000 $4,583,000 $265,000 $9,000 $6,552,000 
Canada11,720,000   76,000 11,796,000 
Total revenues before interest income$13,415,000 $4,583,000 $265,000 $85,000 $18,348,000 
Timing of revenue recognition:
Goods transferred at a point in time$13,415,000 $ $265,000 $85,000 $13,765,000 
Services transferred over time 4,583,000