Company Quick10K Filing
Barnwell Industries
Price0.59 EPS-1
Shares8 P/E-0
MCap5 P/FCF-2
Net Debt-5 EBIT-13
TEV0 TEV/EBIT-0
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-12-31 Filed 2021-02-16
10-K 2020-09-30 Filed 2020-12-16
10-Q 2020-06-30 Filed 2020-08-13
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10-K 2017-09-30 Filed 2017-12-21
10-Q 2017-06-30 Filed 2017-08-09
10-Q 2017-03-31 Filed 2017-05-11
10-Q 2016-12-31 Filed 2017-02-09
10-K 2016-09-30 Filed 2016-12-20
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10-Q 2016-03-31 Filed 2016-05-12
10-Q 2015-12-31 Filed 2016-02-12
10-K 2015-09-30 Filed 2015-12-16
10-Q 2015-06-30 Filed 2015-08-12
10-Q 2015-03-31 Filed 2015-05-13
10-Q 2014-12-31 Filed 2015-02-13
10-K 2014-09-30 Filed 2014-12-18
10-Q 2014-06-30 Filed 2014-08-12
10-Q 2014-03-31 Filed 2014-05-12
10-Q 2013-12-31 Filed 2014-02-14
10-K 2013-09-30 Filed 2013-12-16
10-Q 2013-06-30 Filed 2013-08-13
10-Q 2013-03-31 Filed 2013-05-14
10-Q 2012-12-31 Filed 2013-02-13
10-K 2012-09-30 Filed 2012-12-12
10-Q 2012-06-30 Filed 2012-08-10
10-Q 2012-03-31 Filed 2012-05-11
10-Q 2011-12-31 Filed 2012-02-10
10-K 2011-09-30 Filed 2011-12-13
10-Q 2011-06-30 Filed 2011-08-12
10-Q 2011-03-31 Filed 2011-05-13
10-Q 2010-12-31 Filed 2011-02-11
10-K 2010-09-30 Filed 2010-12-15
10-Q 2010-06-30 Filed 2010-08-11
10-Q 2010-03-31 Filed 2010-05-14
10-Q 2009-12-31 Filed 2010-02-12
8-K 2020-08-11
8-K 2020-07-08
8-K 2020-06-23
8-K 2020-05-14
8-K 2020-04-14
8-K 2020-04-03
8-K 2020-04-02
8-K 2020-04-02
8-K 2020-02-26
8-K 2020-02-11
8-K 2020-01-13
8-K 2020-01-10
8-K 2019-12-16
8-K 2019-12-03
8-K 2019-08-12
8-K 2019-05-13
8-K 2019-03-19
8-K 2019-03-07
8-K 2019-03-05
8-K 2019-02-13
8-K 2018-12-19
8-K 2018-11-15
8-K 2018-08-29
8-K 2018-08-10
8-K 2018-07-19
8-K 2018-05-14
8-K 2018-03-05
8-K 2018-02-12
8-K 2018-02-06

BRN 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 4. Controls and Procedures
Part II - Other Information
Item 6. Exhibits
EX-31.1 exhibit311123120.htm
EX-31.2 exhibit312123120.htm
EX-32 exhibit32123120.htm

Barnwell Industries Earnings 2020-12-31

Balance SheetIncome StatementCash Flow
705642281402012201420172020
Assets, Equity
10.07.14.21.2-1.7-4.62012201420172020
Rev, G Profit, Net Income
10.06.02.0-2.0-6.0-10.02012201420172020
Ops, Inv, Fin

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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 December 31, 2020
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) 

Delaware 72-0496921
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1100 Alakea Street, Suite 2900, 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 February 8, 2021 there were 8,277,160 shares of common stock, par value $0.50, outstanding.



BARNWELL INDUSTRIES, INC.
AND SUBSIDIARIES
 
INDEX 
 
 
 
 
 
 
 
 
 
 




PART I - FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, 2020September 30, 2020
ASSETS  
Current assets:
Cash and cash equivalents$5,334,000 $4,584,000 
Accounts and other receivables, net of allowance for doubtful accounts of:
  $362,000 at December 31, 2020; $341,000 at September 30, 2020
2,034,000 2,176,000 
Income taxes receivable448,000 472,000 
Asset held for sale699,000 699,000 
Other current assets1,464,000 1,556,000 
Total current assets9,979,000 9,487,000 
Asset for retirement benefits843,000 771,000 
Investments88,000 901,000 
Operating lease right-of-use assets227,000 249,000 
Property and equipment76,217,000 73,431,000 
Accumulated depletion, depreciation, and amortization(73,313,000)(69,657,000)
Property and equipment, net2,904,000 3,774,000 
Total assets$14,041,000 $15,182,000 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $1,257,000 $2,104,000 
Accrued capital expenditures336,000 542,000 
Accrued compensation390,000 408,000 
Accrued operating and other expenses1,032,000 1,325,000 
Current portion of operating lease liabilities116,000 111,000 
Current portion of asset retirement obligation605,000 647,000 
Other current liabilities873,000 1,227,000 
Total current liabilities4,609,000 6,364,000 
Long-term debt98,000 58,000 
Operating lease liabilities115,000 143,000 
Liability for retirement benefits4,858,000 4,829,000 
Asset retirement obligation5,787,000 5,547,000 
Deferred income tax liabilities233,000 194,000 
Total liabilities15,700,000 17,135,000 
Commitments and contingencies
Equity:
Common stock, par value $0.50 per share; authorized, 20,000,000 shares:
    8,445,060 issued at December 31, 2020 and September 30, 2020
4,223,000 4,223,000 
Additional paid-in capital1,350,000 1,350,000 
Accumulated deficit(3,313,000)(3,897,000)
Accumulated other comprehensive loss, net(1,636,000)(1,435,000)
Treasury stock, at cost: 167,900 shares at December 31, 2020 and September 30, 2020
(2,286,000)(2,286,000)
Total stockholders' deficit(1,662,000)(2,045,000)
Non-controlling interests3,000 92,000 
Total deficit(1,659,000)(1,953,000)
Total liabilities and equity$14,041,000 $15,182,000 
See Notes to Condensed Consolidated Financial Statements
3


BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three months ended
December 31,
 20202019
Revenues:
Oil and natural gas$1,887,000 $2,141,000 
Contract drilling1,942,000 2,646,000 
Sale of interest in leasehold land485,000  
Gas processing and other73,000 63,000 
 4,387,000 4,850,000 
Costs and expenses:
Oil and natural gas operating1,435,000 1,213,000 
Contract drilling operating1,108,000 1,814,000 
General and administrative1,185,000 1,496,000 
Depletion, depreciation, and amortization276,000 705,000 
Impairment of assets630,000  
Interest expense1,000  
 4,635,000 5,228,000 
Loss before equity in income (loss) of affiliates and income taxes(248,000)(378,000)
Equity in income (loss) of affiliates1,054,000 (43,000)
Earnings (loss) before income taxes806,000 (421,000)
Income tax provision (benefit)63,000 (2,000)
Net earnings (loss)743,000 (419,000)
Less: Net earnings (loss) attributable to non-controlling interests159,000 (5,000)
Net earnings (loss) attributable to Barnwell Industries, Inc.$584,000 $(414,000)
Basic and diluted net earnings (loss) per common share attributable to Barnwell Industries, Inc. stockholders$0.07 $(0.05)
Weighted-average number of common shares outstanding:
Basic and diluted8,277,160 8,277,160 
 
See Notes to Condensed Consolidated Financial Statements
4


BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three months ended
December 31,
 20202019
Net earnings (loss)$743,000 $(419,000)
Other comprehensive (loss) income:
Foreign currency translation adjustments, net of taxes of $0
(234,000)5,000 
Retirement plans:
Amortization of accumulated other comprehensive loss into net periodic benefit cost, net of taxes of $0
33,000 60,000 
Net actuarial gains arising during the period, net of taxes of $0
 880,000 
Curtailment gain, net of taxes of $0
 1,699,000 
Total other comprehensive (loss) income(201,000)2,644,000 
Total comprehensive income542,000 2,225,000 
Less: Comprehensive (income) loss attributable to non-controlling interests(159,000)5,000 
Comprehensive income attributable to Barnwell Industries, Inc.$383,000 $2,230,000 
 
See Notes to Condensed Consolidated Financial Statements

5


BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)
Three months ended December 31, 2020 and 2019
(Unaudited)
 
Shares
Outstanding
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
(Accumulated Deficit)
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Non-controlling
Interests
Total
Equity (Deficit)
Balance at September 30, 20198,277,160 $4,223,000 $1,350,000 $859,000 $(2,917,000)$(2,286,000)$100,000 $1,329,000 
Net loss— — — (414,000)— — (5,000)(419,000)
Foreign currency translation adjustments, net of taxes of $0
— — — — 5,000 — — 5,000 
Retirement plans:
Amortization of accumulated other comprehensive loss into net periodic benefit cost, net of taxes of $0
— — — — 60,000 — — 60,000 
Net actuarial gains arising during the period, net of taxes of $0
— — — — 880,000 — — 880,000 
Curtailment gain, net of taxes of $0
— — — — 1,699,000 — — 1,699,000 
Balance at December 31, 20198,277,160 $4,223,000 $1,350,000 $445,000 $(273,000)$(2,286,000)$95,000 $3,554,000 
Balance at September 30, 20208,277,160 $4,223,000 $1,350,000 $(3,897,000)$(1,435,000)$(2,286,000)$92,000 $(1,953,000)
Net earnings— — — 584,000 — — 159,000 743,000 
Foreign currency translation adjustments, net of taxes of $0
— — — — (234,000)— — (234,000)
Distributions to non-controlling interests— — — — — — (248,000)(248,000)
Retirement plans:
Amortization of accumulated other comprehensive loss into net periodic benefit cost, net of taxes of $0
— — — — 33,000 — — 33,000 
Balance at December 31, 20208,277,160 $4,223,000 $1,350,000 $(3,313,000)$(1,636,000)$(2,286,000)$3,000 $(1,659,000)

See Notes to Condensed Consolidated Financial Statements

6


BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) 
Three months ended
December 31,
 20202019
Cash flows from operating activities:  
Net earnings (loss)$743,000 $(419,000)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Equity in (income) loss of affiliates(1,054,000)43,000 
Depletion, depreciation, and amortization276,000 705,000 
Impairment of assets630,000  
Sale of interest in leasehold land, net of fees paid(426,000) 
Distributions of income from equity investees1,054,000  
Retirement benefits (income) expense(8,000)71,000 
Accretion of asset retirement obligation137,000 134,000 
Non-cash rent (income) expense(1,000)30,000 
Deferred income tax expense (benefit)39,000 (9,000)
Asset retirement obligation payments(38,000)(2,000)
Retirement plan contributions and payments(2,000)(2,000)
Bad debt expense7,000  
Decrease from changes in current assets and liabilities(1,277,000)(1,917,000)
Net cash provided by (used in) operating activities80,000 (1,366,000)
Cash flows from investing activities:  
Proceeds from sale of interest in leasehold land, net of fees paid426,000  
Distribution from equity investees in excess of earnings813,000  
Proceeds from sale of oil and natural gas assets 594,000 
Capital expenditures - oil and natural gas(364,000)(1,444,000)
Capital expenditures - all other (13,000)
Net cash provided by (used in) investing activities875,000 (863,000)
Cash flows from financing activities:  
Borrowings on long-term debt31,000  
Distributions to non-controlling interests(248,000) 
Net cash used in financing activities(217,000) 
Effect of exchange rate changes on cash and cash equivalents12,000 15,000 
Net increase (decrease) in cash and cash equivalents750,000 (2,214,000)
Cash and cash equivalents at beginning of period4,584,000 4,613,000 
Cash and cash equivalents at end of period$5,334,000 $2,399,000 
 
See Notes to Condensed Consolidated Financial Statements
7


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) and a 75%-owned land investment partnership (KD Kona 2013 LLLP). 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, 2020 Annual Report on Form 10-K, as amended by our Form 10-K/A Amendment No. 1. The Condensed Consolidated Balance Sheet as of September 30, 2020 has been derived from audited consolidated financial statements.
 
In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at December 31, 2020, results of operations, comprehensive income, equity (deficit) and cash flows for the three months ended December 31, 2020 and 2019, have been made. The results of operations for the period ended December 31, 2020 are not necessarily indicative of the operating results for the full year.

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
8


reserves, and the carrying value of other assets, and such assumptions may impact the amount at which such items are recorded.

Significant Accounting Policies
 
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 most recently filed Annual Report on Form 10-K, as amended by our Form 10-K/A Amendment No. 1.

Recently Adopted Accounting Pronouncements
 
In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-13, “Fair Value Measurement: Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement,” which provides changes to certain fair value disclosure requirements. The Company adopted the provisions of this Accounting Standards Update (“ASU”) effective October 1, 2020. The adoption of this update did not have an impact on Barnwell's consolidated financial statements.

In October 2018, the FASB issued ASU No. 2018-17, “Consolidation: Targeted Improvements to Related Party Guidance for Variable Interest Entities,” which modifies the guidance related to indirect interests held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interest. The Company adopted the provisions of this ASU effective October 1, 2020. The adoption of this update did not have an impact on Barnwell's consolidated financial statements.

2.                                   GOING CONCERN

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business for the twelve-month period following the date of issuance of these condensed consolidated financial statements.

    Our ability to sustain our business in the future will depend on sufficient oil and natural gas operating cash flows, which are highly sensitive to volatile oil and natural gas prices, sufficient contract drilling operating cash flows, which are subject to large changes in demand, and sufficient future land investment segment proceeds and distributions from the Kukio Resort Land Development Partnerships, the timing of which are both highly uncertain and not within Barnwell’s control. A sufficient level of such cash inflows are necessary to fund discretionary oil and natural gas capital expenditures, which must be economically successful to provide sufficient returns, as well as fund our non-discretionary outflows such as oil and natural gas asset retirement obligations and ongoing operating and general and administrative expenses.

    We have experienced a trend of losses and negative operating cash flows in three of the last four years. Due to uncertainties regarding oil prices and the continuing impacts and uncertainties of the COVID-19 pandemic, we now face a greater uncertainty about our cash inflows as described above, which in turn leads to substantial doubt regarding our ability to make the required discretionary cash outflows for the capital expenditures necessary to convert our proved undeveloped reserves to proved developed reserves. Furthermore, because of the greater uncertainty about our cash inflows described above, there is substantial doubt about our ability to fund our non-discretionary cash outflows and thus substantial doubt about our ability to continue as a going concern for one year from the date of the filing of this report.
9



Prior to and during fiscal 2021, the Company investigated potential sources of funding, including non-core oil and natural gas property sales, however, no probable sources of such funding have yet been secured. Additionally, in fiscal 2020, the Company listed its corporate office on the 29th floor of a commercial office building in downtown Honolulu, Hawaii for sale to generate liquidity in order to help mitigate the substantial doubt about our ability to continue as a going concern. However, the Company’s ability to sell its corporate office at an appropriate time or for a sufficient price is outside of the Company's control and is therefore not probable. Because of this uncertainty as well as the continuing uncertainties regarding the potential duration and depth of the impacts of the COVID-19 pandemic on our business as described above, substantial doubt about our ability to continue as a going concern for one year from the date of the filing of this report exists. These financial statements do not include any adjustments that might result from the outcome of these uncertainties.

3.    EARNINGS (LOSS) PER COMMON SHARE
 
Basic earnings (loss) per share is computed using the weighted-average number of common shares outstanding for the period. Diluted earnings (loss) 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. Potentially dilutive shares are excluded from the computation of diluted earnings (loss) per share if their effect is anti-dilutive.
 
There were no options outstanding at December 31, 2020. Options to purchase 60,000 shares of common stock were excluded from the computation of diluted shares for the three months ended December 31, 2019, as their inclusion would have been anti-dilutive.
 
Reconciliations between net earnings (loss) attributable to Barnwell stockholders and common shares outstanding of the basic and diluted net earnings (loss) per share computations are detailed in the following tables:
 Three months ended December 31, 2020
 Net Earnings
(Numerator)
Shares
(Denominator)
Per-Share
Amount
Basic net earnings per share$584,000 8,277,160 $0.07 
Effect of dilutive securities -   
common stock options   
Diluted net earnings per share$584,000 8,277,160 $0.07 

 Three months ended December 31, 2019
 Net Loss (Numerator)Shares
(Denominator)
Per-Share
Amount
Basic net loss per share$(414,000)8,277,160 $(0.05)
Effect of dilutive securities -   
common stock options   
Diluted net loss per share$(414,000)8,277,160 $(0.05)

10


4.    ASSET HELD FOR SALE
 
The Company's Honolulu corporate office is currently listed for sale. Accordingly, the Company has designated this property as an asset held for sale and the carrying value in the aggregate amount of $699,000 is included in “Asset held for sale” on the Company's Condensed Consolidated Balance Sheets at December 31, 2020 and September 30, 2020.

5.    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. The partnerships derive income from the sale of residential parcels, of which 15 lots remain to be sold at Increment I as of December 31, 2020, as well as from commissions on real estate sales by the real estate sales office. Two ocean front parcels approximately two to three acres in size fronting the ocean were developed within Increment II by KD II, of which one was sold in fiscal 2017 and one was sold in fiscal 2016. The remaining acreage within Increment II is not yet under development, and there is no assurance that development of such acreage will in fact occur.

    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.

    Barnwell has the right to receive distributions from the Kukio Resort Land Development Partnerships via its its non-controlling interests in KD Kona and KKM, based on its respective partnership sharing ratios of 75% and 34.45%, respectively. Additionally, Barnwell was entitled to a preferred return from KKM on any allocated equity in income of the Kukio Resort Land Development Partnerships in excess of its partnership sharing ratio for cumulative distributions to all of its partners in excess of $45,000,000 from those partnerships. Cumulative distributions from the Kukio Resort Land Development Partnerships have reached the $45,000,000 threshold and in the quarter ended December 31, 2020, the Kukio Resort Land Development Partnerships made distributions in excess of the threshold out of the proceeds from the sale of two lots in Increment I. Accordingly, Barnwell received a total of $459,000 in preferred return payments, which is reflected as an additional equity pickup in the "Equity in income (loss) of affiliates" line item on the accompanying Condensed Consolidated Statement of Operations for the three months ended December 31, 2020. The preferred return payments received during the quarter ended
11


December 31, 2020 brought the cumulative preferred return total to $656,000, which is the total amount Barnwell was entitled to, and thus there is no more preferred return outstanding as of December 31, 2020.
During the three months ended December 31, 2020, Barnwell received net cash distributions in the amount of $1,712,000 from the Kukio Resort Land Development Partnerships after distributing $155,000 to non-controlling interests. Of the $1,712,000 of net cash distributions received from the Kukio Resort Land Development Partnerships, $459,000 represented a payment of the preferred return from KKM, as discussed above. There were no cash distributions from the Kukio Resort Land Development Partnerships for the three months ended December 31, 2019.
Barnwell's share of the operating results of its equity affiliates was income of $1,054,000 for the three months ended December 31, 2020, which includes the $459,000 payment of the preferred return from KKM discussed above, as compared to a loss of $43,000 for the three months ended December 31, 2019. The equity in the underlying net assets of the Kukio Resort Land Development Partnerships exceeds the carrying value of the investment in affiliates by approximately $263,000 as of December 31, 2020, which is attributable to differences in the value of capitalized development costs and a note receivable. The basis difference will be recognized as the partnerships sell lots and recognize the associated costs and sell memberships for the Kuki`o Golf and Beach Club for which the receivable relates. The basis difference adjustment of $20,000, for the three months ended December 31, 2020, increased equity in income of affiliates. There was an immaterial basis difference adjustment for the three months ended December 31, 2019.

Summarized financial information for the Kukio Resort Land Development Partnerships is as follows:
Three months ended
December 31,
20202019
Revenue$8,120,000 $1,766,000 
Gross profit$3,998,000 $796,000 
Net earnings (loss)$2,612,000 $(168,000)

As of December 31, 2020 and September 30, 2020, Barnwell's non-current investment in Kukio Resort Land Development Partnerships was $88,000 and $901,000, respectively.

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 16).
 
With respect to Increment I, Kaupulehu Developments is entitled to receive payments from KD I based on the following percentages of the gross receipts from KD I’s sales of single-family residential lots in Increment I: 10% of such aggregate gross proceeds greater than $100,000,000 up to $300,000,000; and 14% of such aggregate gross proceeds in excess of $300,000,000. The total amount of gross proceeds from single-family lot sales was $224,500,000 through December 31, 2020. Two single-family lots were sold during the three months ended December 31, 2020 and 15 single-family lots, of the 80 lots developed within Increment I, remained to be sold as of December 31, 2020.

12


Under the terms of the Increment II agreement with KD II, Kaupulehu Developments is entitled to 15% of the distributions of KD II, the cost of which is to be solely borne by KDK out of its 55% ownership interest in KD II, plus a priority payout of 10% of KDK’s cumulative net profits derived from Increment II sales subsequent to Phase 2A, up to a maximum of $3,000,000 as to the priority payout. Such interests are limited to distributions or net profits interests and Barnwell will not have any partnership interests in KD II or KDK through its interest in Kaupulehu Developments. The arrangement also gives Barnwell rights to three single-family residential lots in Phase 2A of Increment II, and four single-family residential lots in phases subsequent to Phase 2A when such lots are developed by KD II, all at no cost to Barnwell. Barnwell is committed to commence construction of improvements within 90 days of the transfer of the four lots in the phases subsequent to Phase 2A as a condition of the transfer of such lots. Also, in addition to Barnwell’s existing obligations to pay professional fees to certain parties based on percentages of its gross receipts, Kaupulehu Developments is also obligated to pay an amount equal to 0.72% and 0.20% of the cumulative net profits of KD II to KD Development, LLC and a pool of various individuals, respectively, all of whom are partners of KKM and are unrelated to Barnwell, in compensation for the agreement of these parties to admit the new development partner for Increment II. Such compensation will be reflected as the obligation becomes probable and the amount of the obligation can be reasonably estimated.

The following table summarizes Increment I revenues from KD I and the amount of fees directly related to such revenues:
 Three months ended
December 31,
 20202019
Sale of interest in leasehold land:
Revenues - sale of interest in leasehold land$485,000 $ 
Fees - included in general and administrative expenses(59,000) 
Sale of interest in leasehold land, net of fees paid$426,000 $ 

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.
     
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. 

6.    OIL AND NATURAL GAS PROPERTIES

Dispositions

There were no oil and natural gas property dispositions during the three months ended December 31, 2020.

In the quarter ended December 31, 2019, Barnwell entered into a purchase and sale agreement with an independent third party and sold its interests in properties located in the Progress area of Alberta, Canada. The sales price per the agreement was adjusted for customary purchase price adjustments to
13


$594,000 in order to, among other things, reflect an economic effective date of October 1, 2019. The proceeds were credited to the full cost pool, with no gain or loss recognized, as the sale did not result in a significant alteration of the relationship between capitalized costs and proved reserves.

Acquisitions

There were no significant amounts paid for oil and natural gas property acquisitions during the three months ended December 31, 2020, and 2019.

Impairment of Oil and Natural Gas Properties

    Under the full cost method of accounting, the Company performs quarterly oil and natural gas ceiling test calculations. There was a $630,000 ceiling test impairment during the three months ended December 31, 2020. There was no ceiling test impairment during the three months ended December 31, 2019.

    Changes in the mandated 12-month historical rolling average first-day-of-the-month prices for oil, natural gas and natural gas liquids prices, the value of reserve additions as compared to the amount of capital expenditures to obtain them, and changes in production rates and estimated levels of reserves, future development costs and the estimated market value of unproved properties, impact the determination of the maximum carrying value of oil and natural gas properties. The ceiling test calculation as of December 31, 2019 included management’s estimation that the Company had the ability to fund all of the future capital expenditures necessary over the next five years to develop proved undeveloped reserves in the Twining area of Alberta, Canada. However, due to the impact on oil prices and the extreme uncertainties created by the COVID-19 pandemic on the Company's financial outlook, management is no longer reasonably certain that the Company will have the financial resources necessary to make any of the capital expenditures necessary to develop the proved undeveloped reserves. Therefore, the proved undeveloped reserves have been excluded from the quarterly ceiling test calculations subsequent to December 31, 2019.

    As discussed above, the ceiling test mandates the use of the 12-month historical rolling average first-day-of-the-month prices. If the 12-month historical rolling average first-day-of-the-month prices decline from the 12-month historical rolling average first-day-of-the-month prices used in the December 31, 2020 ceiling calculation, the Company could incur further impairment write-downs in future periods in the absence of any offsetting factors that are not currently known or projected.

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

In December 2019, the Company’s Board of Directors approved a resolution to freeze all future benefit accruals for all participants under the Company’s Pension Plan and SERP effective December 31, 2019. Consequently, current participants in the Pension Plan and SERP no longer accrue new benefits under the plans and new employees of the Company are no longer eligible to enter the Pension Plan and
14


SERP as participants after December 31, 2019. The freezing of the Pension Plan and SERP triggered a curtailment which required a remeasurement of the projected benefit obligations of the Pension Plan and SERP and resulted in an $880,000 actuarial gain in accumulated other comprehensive loss and a $1,699,000 reduction in unrecognized pension benefit costs that were previously included in accumulated other comprehensive loss, with a corresponding benefit in other comprehensive income which were recorded in the quarter ended December 31, 2019.

The following table details the components of net periodic benefit income (cost) for Barnwell’s retirement plans:
 Pension PlanSERPPostretirement Medical
 Three months ended December 31,
 202020192020201920202019
Service cost$ $50,000 $ $3,000 $ $ 
Interest cost65,000 83,000 13,000 18,000 18,000 20,000 
Expected return on plan assets(137,000)(163,000)    
Amortization of prior service cost (credit) 1,000  (1,000)  
Amortization of net actuarial loss 10,000 35,000  5,000 23,000 20,000 
Curtailment cost (income) 53,000  (53,000)  
Net periodic benefit (income) cost$(62,000)$59,000 $13,000 $(28,000)$41,000 $40,000 

The net periodic benefit (income) cost, including service 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 2021. The SERP and Postretirement Medical plans are unfunded, and Barnwell funds benefits when payments are made. Expected payments under the Postretirement Medical plan and the SERP for fiscal 2021 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 earnings (loss) before income taxes, after adjusting the earnings (loss) for non-controlling interests, are as follows:
Three months ended
December 31,
 20202019
United States$1,422,000 $(147,000)
Canada(775,000)(269,000)
 $647,000 $(416,000)
 
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The components of the income tax provision (benefit) are as follows:
Three months ended
December 31,
 20202019
Current$24,000 $7,000 
Deferred39,000 (9,000)
 $63,000 $(2,000)

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.

On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act (the “Act”), an omnibus spending bill to fund the federal government that also includes an array of COVID-related tax relief for individuals and businesses. The tax-related measures contained in the Act revise and expand provisions enacted earlier in the year by the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security Act. The Act also extends a number of expiring tax provisions. Additionally, the Act provides for a 100% deduction for certain business meals incurred in calendar years 2021 and 2022. The Company determined that income tax effects related to the passage of the Act were not material to the financial statements for the three months ended December 31, 2020.

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9.    REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

    The following tables provides information about disaggregated revenue by revenue streams, reportable segments, geographical region, and timing of revenue recognition for the three months ended December 31, 2020 and 2019.
Three months ended December 31, 2020
Oil and natural gasContract drillingLand investmentOtherTotal
Revenue streams:
Oil$1,380,000 $ $ $ $1,380,000 
Natural gas375,000    375,000 
Natural gas liquids132,000    132,000 
Drilling and pump 1,942,000   1,942,000 
Contingent residual payments  485,000  485,000 
Other   73,000 73,000 
Total revenues before interest income$1,887,000 $1,942,000 $485,000 $73,000 $4,387,000 
Geographical regions:
United States$ $1,942,000 $485,000 $ $2,427,000 
Canada1,887,000   73,000 1,960,000 
Total revenues before interest income$1,887,000 $1,942,000 $485,000 $73,000 $4,387,000 
Timing of revenue recognition:
Goods transferred at a point in time$1,887,000 $ $485,000 $73,000 $2,445,000 
Services transferred over time 1,942,000   1,942,000 
Total revenues before interest income$1,887,000 $1,942,000 $485,000 $73,000 $4,387,000 

Three months ended December 31, 2019
Oil and natural gasContract drillingLand investmentOtherTotal
Revenue streams:
Oil$1,725,000 $ $ $ $1,725,000 
Natural gas322,000    322,000 
Natural gas liquids94,000    94,000 
Drilling and pump 2,646,000   2,646,000 
Contingent residual payments     
Other   56,000 56,000 
Total revenues before interest income$2,141,000 $2,646,000 $ $56,000 $4,843,000 
Geographical regions:
United States$ $2,646,000 $ $7,000 $2,653,000 
Canada2,141,000   49,000 2,190,000 
Total revenues before interest income$2,141,000 $2,646,000 $ $56,000 $4,843,000 
Timing of revenue recognition:
Goods transferred at a point in time$2,141,000 $ $ $56,000 $2,197,000 
Services transferred over time 2,646,000   2,646,000 
Total revenues before interest income$2,141,000 $2,646,000 $ $56,000 $4,843,000 


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Contract Balances
    The following table provides information about accounts receivables, contract assets and contract liabilities from contracts with customers:
December 31, 2020September 30, 2020
Accounts receivables from contracts with customers$