BARNWELL INDUSTRIES INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Statement Relevant to Forward-Looking Information For the Purpose Of “Safe Harbor” Provisions Of The Private Securities Litigation Reform Act of 1995 This Form 10-Q, and the documents incorporated herein by reference, contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). A forward-looking statement is one which is based on current expectations of future events or conditions and does not relate to historical or current facts. These statements include various estimates, forecasts, projections of Barnwell’s future performance, statements of Barnwell’s plans and objectives, and other similar statements. All such statements we make are forward-looking statements made under the safe harbor of the PSLRA, except to the extent such statements relate to the operations of a partnership or limited liability company. Forward-looking statements include phrases such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “predicts,” “estimates,” “assumes,” “projects,” “may,” “will,” “will be,” “should,” or similar expressions. Although Barnwell believes that its current expectations are based on reasonable assumptions, it cannot assure that the expectations contained in such forward-looking statements will be achieved. Forward-looking statements involve risks, uncertainties and assumptions which could cause actual results to differ materially from those contained in such statements. The risks, uncertainties and other factors that might cause actual results to differ materially from Barnwell’s expectations are set forth in the “Forward-Looking Statements” and “Risk Factors” sections of Barnwell’s 2024 Annual Report. Investors should not place undue reliance on these forward-looking statements, as they speak only as of the date of filing of this Form 10-Q, and Barnwell expressly disclaims any obligation or undertaking to publicly release any updates or revisions to any forward-looking statements contained herein. Critical Accounting Policies and Estimates Management has determined that our most critical accounting policies and estimates are those related to the full-cost ceiling calculation and depletion of our oil and natural gas properties and the calculation of our income taxes, all of which are discussed in our 2024 Annual Report. There have been no significant changes to these critical accounting policies and estimates during the three and six months ended March 31, 2025. We continue to monitor our accounting policies to ensure proper application of current rules and regulations. Current Outlook 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 potentially volatile oil and natural gas prices, timely repayment of the note receivable from the buyers of our contract drilling segment, and the amount and timing of costs incurred related to the shareholder consent solicitation and ongoing proxy contest. A 28 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 to grow reserves and production or at a minimum replace declining production from aging wells. Such a level of oil and natural gas capital expenditures may require funding from external debt or equity sources that are not currently in place, but those sources may not be feasible or sufficient. In addition, we will need sufficient cash flows to fund our non-discretionary outflows such as oil and natural gas asset retirement obligations and ongoing operating and general and administrative expenses. Due to the recent shareholder consent solicitation and the ongoing proxy contest costs incurred and estimated to be incurred and the impacts of recently imposed tariffs which have caused a reduction in oil prices and have had an impact on the U.S. economy as a whole, we now face a greater uncertainty about our oil and natural gas operating cash inflows as described above, which in turn limits 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. The Company is investigating potential sources of funding, including debt financing, non-core oil and natural gas property sales and the partial or complete sale of its remaining interests in the Kukio Resort Land Development Partnerships, however, no probable timing or amounts of such funding have yet been secured. Because of this uncertainty as well as uncertainties regarding the potential duration and depth of the impacts of recently legislated tariffs on the economy as a whole, which in turn affects oil prices and 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. Impact of Recently Issued Accounting Standards on Future Filings In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which expands reportable segment disclosure requirements on an annual and interim basis, primarily through enhanced disclosures about significant segment expenses. This ASU is effective for annual reporting periods beginning after December 15, 2023 (our fiscal 2025) and interim periods within fiscal years beginning after December 15, 2024 (our fiscal 2026), with early adoption permitted. The Company is currently evaluating the impact of this standard on Barnwell’s consolidated financial statements but does not expect that the adoption of this update will have a material impact on Barnwell's consolidated financial statements. In December 2023, the FASB issued ASU No. 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which requires disclosure of incremental income tax information within the tax rate reconciliation and expanded disclosures of income taxes paid both in the U.S. and foreign jurisdiction, among other disclosure requirements. This ASU is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this standard on Barnwell’s consolidated financial statements . In November 2024, the FASB issued ASU No. 2024-03 “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses,” which requires public companies to disclose specified information about 29 certain costs and expenses in the notes to the financial statements at interim and annual reporting periods. This ASU is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of this standard on Barnwell’s consolidated financial statements. Overview As disclosed in Note 3 “Discontinued Operations,” on March 14, 2025, the Company entered into and completed the sale of its wholly-owned subsidiary, Water Resources. Water Resources drilled water wells and installed and repaired water pumping systems in Hawaii and represented our contract drilling segment. As a result of the sale, the Company has classified the related assets and liabilities and the results of its contract drilling business as discontinued operations in the condensed consolidated financial statements for all periods presented. Accordingly, Barnwell’s continuing operations is engaged in the following lines of business: 1) acquiring, developing, producing and selling oil and natural gas in Canada and the U.S. (oil and natural gas segment) and 2) leasehold land interests in Hawaii (land investment segment). Oil and Natural Gas Segment Barnwell is involved in the acquisition and development of oil and natural gas properties in Canada where we initiate and participate in acquisition and developmental operations for oil and natural gas on properties in which we have an interest, and evaluate proposals by third parties with regard to participation in exploratory and developmental operations elsewhere. Additionally, through its wholly-owned subsidiaries, Barnwell is involved in several non-operated oil and natural gas investments in Oklahoma and Texas. Land Investment Segment Through Barnwell’s 77.6% interest in Kaupulehu Developments, 75% interest in KD Kona, and 34.45% non-controlling interest in KKM Makai, the Company’s land investment interests include the following: • The right to receive percentage of sales payments from KD I resulting from the sale of single-family residential lots by KD I, within Increment I of the Kaupulehu Lot 4A area located in the North Kona District of the island of Hawaii. However, in the quarter ended March 31, 2024, the last two remaining single-family lots of the 80 lots developed within Increment I were sold and there are no more lots available for sale in Increment I. Kaupulehu Developments was entitled to receive payments from KD I based on 10% of the gross receipts from KD I’s sales at Increment I. • The right to receive 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. Such interests are limited to distributions or net profits interests and Barnwell does not have any partnership interest in KD II or KDK through its interest in Kaupulehu Developments. Barnwell also has 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 30 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. 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. No definitive development plans have been made by KD II, the developer of Increment II, as of the date of this report. • An indirect 19.6% non-controlling ownership interest in KD Kukio Resorts, LLLP, KD Maniniowali, LLLP and KD I and an indirect 10.8% non-controlling ownership interest in KD II through KDK. 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 was the developer of Kaupulehu Lot 4A Increments I and II. The partnerships derive income from the sale of residential parcels in Increment I, which is now completely sold, as well as from commissions on real estate resales by the real estate sales office and revenues resulting from the sale of private club memberships, a few of which remain available for sale. The Kukio Resort Land Development Partnerships have remaining Increment I obligations to complete project amenities, infrastructure, beautification, and restoration of certain areas and therefore has yet to fully recognize its deferred profit on the Increment I project as a whole. The Increment I deferred profit at March 31, 2025 for the Kukio Resort Land Development Partnerships as a whole was approximately $4,100,000; the recognition of which is dependent upon the completion of the Increment I obligations. The Kukio Resort Land Development Partnerships have accrued estimated costs of these obligations of approximately $2,700,000. The Kukio Resort Land Development Partnerships currently appears to have the ability to fund those obligations but there are no assurances that it can ultimately do so in the future if unforeseen events occur. The Kukio Resort Land Development Partnerships will recognize the Increment I deferred revenue and costs of sales on a percentage completion basis as the cash outlays to complete the remaining project obligations are made. The Kukio Resort Land Development Partnerships’ deferred profit and accrued costs to complete are not reflected in Barnwell’s Condensed Consolidated Balance Sheets as we account for our investment in the Kukio Resort Land Development Partnerships under the equity method of accounting. No percentage of sales payments will be earned by Barnwell on any future recognition of Increment I deferred profit as such payments were already fully earned and received based on cash received by the Kukio Resort Land Development Partnerships as the Increment I lots were sold. • Approximately 1,000 acres of vacant leasehold land zoned conservation in the Kaupulehu Lot 4C area, which currently has no development potential without both a development agreement with the lessor and zoning reclassification. The lease terminates in December 2025. 31 Results of Operations Summary of Results From Continuing Operations The net loss from continuing operations attributable to Barnwell for the three months ended March 31, 2025 totaled $1,538,000, a $232,000 increase from a net loss from continuing operations attributable to Barnwell of $1,306,000 for the three months ended March 31, 2024. The following factors affected the results of operations for the three months ended March 31, 2025 as compared to the prior year period: • General and administrative expenses increased $906,000 due to $978,000 in new fees related to a shareholder consent solicitation and proxy contest in the current year period as compared to the same period in the prior year; • Equity in income from affiliates decreased $1,071,000 and land investment segment operating results, before non-controlling interests’ share of such profits, decreased $500,000 due to the Kukio Resort Land Development Partnerships' sale of two lots in the prior year period, whereas there were no lots sold in the current year period; and • A $1,625,000 decrease in the ceiling test impairment which was $1,677,000 in the prior year period compared to a ceiling test impairment of $52,000 in the current year period, and a $589,000 decrease in oil and natural gas depletion in the current year period as compared to the same period in the prior year, partially offset by a decrease in operating results primarily from decreased production. The net loss from continuing operations attributable to Barnwell for the six months ended March 31, 2025 totaled $3,136,000, a $1,480,000 increase from a net loss from continuing operations attributable to Barnwell of $1,656,000 for the six months ended March 31, 2024. The following factors affected the results of operations for the six months ended March 31, 2025 as compared to the prior year period: • General and administrative expenses increased $749,000 due to $941,000 in new fees related to a shareholder consent solicitation and proxy contest, partially offset by a reduction in compensation costs in the current year period as compared to the same period in the prior year; • Equity in income from affiliates decreased $1,071,000 and land investment segment operating results, before non-controlling interests’ share of such profits, decreased $500,000 due to the Kukio Resort Land Development Partnerships' sale of two lots in the prior year period, whereas there was no lots sold in the current year period; and • A $1,012,000 decrease in the ceiling test impairment which was $1,677,000 in the prior year period compared to a ceiling test impairment of $665,000 in the current year period, and a $1,143,000 decrease in oil and natural gas depletion in the current year period as compared to the same period in the prior year, partially offset by a decrease in operating results primarily from decreased production. 32 General Barnwell conducts operations in the U.S. and Canada. Consequently, Barnwell is subject to foreign currency translation and transaction gains and losses due to fluctuations of the exchange rates between the Canadian dollar and the U.S. dollar. Barnwell cannot accurately predict future fluctuations of the exchange rates and the impact of such fluctuations may be material from period to period. To date, we have not entered into foreign currency hedging transactions. Foreign currency gains or losses on intercompany loans and advances that are not considered long-term investments in nature because management intends to settle these intercompany balances in the future are included in our statements of operations. The average exchange rate of the Canadian dollar to the U.S. dollar decreased 6% and 4% in the three and six months ended March 31, 2025, respectively, as compared to the same periods in the prior year. The exchange rate of the Canadian dollar to the U.S. dollar decreased 6% at March 31, 2025, as compared to September 30, 2024. Accordingly, the assets, liabilities, stockholders’ equity and revenues and expenses of Barnwell’s subsidiaries operating in Canada have been adjusted to reflect the change in the exchange rates. Other comprehensive income and losses are not included in net earnings and net loss. Other comprehensive loss due to foreign currency translation adjustments, net of taxes, for the three months ended March 31, 2025 was $3,000, a $19,000 change from other comprehensive loss due to foreign currency translation adjustments, net of taxes, of $22,000 for the same period in the prior year. Other comprehensive income due to foreign currency translation adjustments, net of taxes, for the six months ended March 31, 2025 was $90,000, a $82,000 change from other comprehensive income due to foreign currency translation adjustments, net of taxes, of $8,000 for the same period in the prior year. There were no taxes on other comprehensive income (loss) due to foreign currency translation adjustments in the three and six months ended March 31, 2025 and 2024 due to a full valuation allowance on the related deferred tax asset. Oil and Natural Gas The following tables set forth Barnwell’s average prices per unit of production and net production volumes. Production amounts reported are net of royalties. Average Price Per Unit Three months ended Increase March 31, (Decrease) 2025 2024 $ % Natural Gas (Mcf)* $ 1.84 $ 1.91 $ (0.07) (4 %) Oil (Bbls)** $ 61.02 $ 60.62 $ 0.40 1 % Natural gas liquids (Bbls)** $ 32.43 $ 30.06 $ 2.37 8 % Average Price Per Unit Six months ended Increase March 31, (Decrease) 2025 2024 $ % Natural Gas (Mcf)* $ 1.43 $ 1.87 $ (0.44) (24 %) Oil (Bbls)** $ 63.39 $ 64.09 $ (0.70) (1 %) Natural gas liquids (Bbls)** $ 29.61 $ 29.60 $ 0.01 — % 33 Net Production Three months ended Increase March 31, (Decrease) 2025 2024 Units % Natural Gas (Mcf)* 253,000 334,000 (81,000) (24 %) Oil (Bbls)** 43,000 50,000 (7,000) (14 %) Natural gas liquids (Bbls)** 14,000 16,000 (2,000) (13 %) Net Production Six months ended Increase March 31, (Decrease) 2025 2024 Units % Natural Gas (Mcf)* 551,000 713,000 (162,000) (23 %) Oil (Bbls)** 91,000 108,000 (17,000) (16 %) Natural gas liquids (Bbls)** 29,000 34,000 (5,000) (15 %) _______________________________________ * Mcf = 1,000 cubic feet. Natural gas price per unit is net of pipeline charges. ** Bbl = stock tank barrel equivalent to 42 U.S. gallons The oil and natural gas segment generated a $752,000 operating profit before general and administrative expenses in the three months ended March 31, 2025, an increase in operating results of $1,957,000 as compared to the $1,205,000 operating loss before general and administrative expenses generated during the same period of the prior year primarily due to a decrease of $1,625,000 in the ceiling test impairment and a $589,000 decrease in oil and natural gas depletion in the current year period, partially offset by a decrease in operating results primarily from decreased production. The oil and natural gas segment generated a $636,000 operating profit before general and administrative expenses in the six months ended March 31, 2025, an increase in operating results of $960,000 as compared to the $324,000 operating loss before general and administrative expenses generated during the same period of the prior year primarily due to a decrease of $1,012,000 in the ceiling test impairment and a $1,143,000 decrease in oil and natural gas depletion in the current year period, partially offset by a decrease in operating results primarily from decreased production. The following table sets forth Barnwell’s oil and natural gas segment operating (loss) profit before general and administrative expenses by geographic location: Three months ended March 31, Six months ended March 31, 2025 2024 2025 2024 Operating profit (loss) (before general and administrative expenses) Canada (1) $ 653,000 $ (1,511,000) $ 1,055,000 $ (975,000) United States (2) 99,000 306,000 (419,000) 651,000 Total operating profit (loss) $ 752,000 $ (1,205,000) $ 636,000 $ (324,000) ________________________ (1) The operating loss for Canada for the three and six months ended March 31, 2024 includes a non-cash ceiling test impairment of $1,677,000. (2) The operating profit (loss) for the United States for the three and six months ended March 31, 2025 includes a non-cash ceiling test impairment of $52,000 and $665,000, respectively. 34 Oil and natural gas revenues decreased $601,000 (15%) and $1,834,000 (20%) for the three and six months ended March 31, 2025, respectively, as compared to the same periods in the prior year, primarily due to decreases in natural gas, oil, and natural gas liquids production in the current year periods as compared to the same periods in the prior year. The decreases in production are primarily the result of natural declines as the wells age. In July 2024, the Company amended the sales price on 1,055 gross Mcf per day of the Canadian natural gas it will sell during the period from November 1, 2024 to March 31, 2025 to a fixed index price before differentials of $2.64 Canadian dollars per Mcf, with remaining volumes continuing to be sold at spot prices. This per day volume of natural gas under this fixed index price contract was equivalent to approximately 39% of Canadian natural gas gross production per day for the six months ended March 31, 2025. In February 2025, the Company amended the sales price on 1,055 gross Mcf per day of the Canadian natural gas it will sell during the period from April 1, 2025 to October 31, 2025 to a fixed index price before differentials of $1.95 Canadian dollars per Mcf, with remaining volumes continuing to be sold at spot prices. This per day volume of natural gas under this fixed index price contract that will affect the period from April 1, 2025 to June 30, 2025, is equivalent to approximately 39% of Canadian natural gas gross production per day for the six months ended March 31, 2025. These natural gas contracts were eligible for and elected as normal purchase and normal sales exception contracts and were thus excluded from derivative accounting. Oil and natural gas operating expenses decreased $344,000 (15%) and $639,000 (12%) for the three and six months ended March 31, 2025, respectively, as compared to the same periods in the prior year, primarily due decreases in production in the current year periods as compared to the same periods in the prior year. Additionally, the decrease in oil and natural gas operating expenses for the six months ended March 31, 2025, was partially offset by an increase in workovers in the current year period, as compared to the same period in the prior year. Oil and natural gas segment depletion decreased $589,000 (44%) and $1,143,000 (41%) for the three and six months ended March 31, 2025, respectively, as compared to the same periods in the prior year. The decreases were due to decreases in the depletion rate and due to decreases in production in the current year periods as compared to the same periods in the prior year. The depletion rate decreased as a result of a decrease in the depletable base from significant ceiling test impairments between the prior year periods and the current year periods. 35 Sale of Interest in Leasehold Land Kaupulehu Developments was entitled to receive a percentage of the gross receipts from the sales of lots and/or residential units in Increment I by KD I. The following table summarizes the revenues received from KD I and the amount of fees directly related to such revenues: Three months ended March 31, Six months ended March 31, 2025 2024 2025 2024 Sale of interest in leasehold land: Revenues - sale of interest in leasehold land $ — $ 500,000 $ — $ 500,000 Fees - included in general and administrative expenses — (61,000) — (61,000) Sale of interest in leasehold land, net of fees paid $ — $ 439,000 $ — $ 439,000 No lots were sold during the three and six months ended March 31, 2025. During the three and six months ended March 31, 2024, Barnwell received $500,000 in percentage of sales payments from KD I from the sale of the last two single-family lots within Increment I. There is an Increment II owned by KD II in which the Company has a 10.8% indirect non-controlling ownership interest. There is no assurance with regards to the amounts of future sales from Increment II 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. General and Administrative Expenses General and administrative expenses increased $906,000 (72%) for the three months ended March 31, 2025 as compared to the same period in the prior year. The increase was due to $978,000 in new fees for legal services, proxy solicitation, proxy advisory, and public relations costs related to a shareholder consent solicitation and proxy contest in the current year period as compared to the same period in the prior year. The increase was partially offset by decreases in compensation and other costs in the current year period as compared to the same period in the prior year. General and administrative expenses increased $749,000 (29%) for the six months ended March 31, 2025 as compared to the same period in the prior year. The increase was due to $941,000 in new fees for legal services, proxy solicitation, proxy advisory, and public relations costs related to a shareholder consent solicitation and proxy contest in the current year period as compared to the same period in the prior year. The increase was partially offset by decreases in compensation and other costs in the current year period as compared to the same period in the prior year. The aforementioned shareholder proxy contest is continuing as of the date of this report and thus related costs will continue to be incurred until the matter is resolved. Accordingly, general and administrative expenses will continue to be affected by this matter beyond March 31, 2025. The Company is unable to estimate the amount of such future costs as the matter is ongoing and such costs will depend upon the future actions to be taken, which are yet to be determined. 36 Depletion, Depreciation, and Amortization Depletion, depreciation, and amortization decreased $588,000 (44%) and $1,143,000 (41%) for the three and six months ended March 31, 2025, respectively, as compared to the same periods in the prior year, primarily due to decreases in the depletion rate and decreases in production, as discussed in the “Oil and natural gas” section above. Impairment of Assets Under the full cost method of accounting, the Company performs quarterly oil and natural gas ceiling test calculations. Changes in the 12-month rolling average first-day-of-the-month prices for oil, natural gas and natural gas liquids prices (except where prices are defined by contractual arrangements), 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 market value of unproved properties, impact the determination of the maximum carrying value of oil and natural gas properties. During the three and six months ended March 31, 2025, the Company incurred a non-cash ceiling test impairment for our U.S. oil and natural gas properties of $52,000 and $665,000, respectively. During the three and six months ended March 31, 2024, the Company incurred a non-cash ceiling test impairment for our Canadian oil and natural gas properties of $1,677,000. As discussed above, the ceiling test uses a 12-month historical rolling average first-day-of-the-month prices. As such, declines in the 12-month historical rolling average first-day-of-the-month prices used in our ceiling test calculation in future periods could result in impairment write-downs in future periods in the absence of any offsetting factors that are not currently known or projected. Based on the oil and gas prices for April 1 and May 1 of 2025, the oil prices and natural gas prices used in the 12-month historical rolling first-day-of-the-month average oil price for the ceiling test at June 30, 2025 will be lower than at March 31, 2025. Whereas we believe our Canadian full cost pool is below the ceiling limit, our U.S. full cost pool had no ceiling excess at March 31, 2025, and thus a further impairment charge is more likely than not for our U.S full cost pool in the quarter ending June 30, 2025. The Company is currently unable to estimate a range of the amount of any potential future impairment write-downs as variables that impact the ceiling limitation are dependent upon actual results of activity through the end of June 2025. Foreign Currency (Gain) Loss During the three and six months ended March 31, 2025, there was a $10,000 foreign currency gain and a $341,000 foreign currency loss, respectively, as compared to foreign currency losses of $128,000 and $2,000 during the three and six months ended March 31, 2024, respectively, due to the effects of foreign exchange rate changes on intercompany loans and advances as a result of changes in the exchange rate between the U.S. dollar against the Canadian dollar. The foreign currency losses or gains from intercompany balances are included in our condensed consolidated statement of operations as the intercompany balances were not considered long-term in nature because management estimates that these intercompany balances will be settled in the future. 37 Equity in Income of Affiliates Equity in income of affiliates was nil for the three and six months ended March 31, 2025, as compared to equity in income of affiliates of $1,071,000 for the three and six months ended March 31, 2024. The decrease in partnership income is primarily due to the Kukio Resort Land Development Partnerships' sale of the last two lots in Increment I in the prior year period, whereas there were no lots sold in the current year period. No cash distributions were received during the three and six months ended March 31, 2025. During the three and six months ended March 31, 2024, Barnwell received cash distributions of $1,071,000 (resulting in a net amount of $953,000, after distributing $118,000 to non-controlling interests) from the Kukio Resort Land Development Partnerships. 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, no equity in income of affiliates was recognized in the six months ended March 31, 2025. Cumulative distributions received from the Kukio Resort Land Development Partnerships in excess of our investment balance was $31,000 at March 31, 2025 and $373,000 at September 30, 2024. Income Taxes Barnwell’s effective consolidated income tax rate from continuing operations, after adjusting loss from continuing operations before income taxes for non-controlling interests, was (12)% and (6)% for the three and six months ended March 31, 2025, respectively, as compared to (8)% and (11)% for the three and six months ended March 31, 2024, respectively. 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. The Company operates two subsidiaries in Canada, one of which is a U.S. corporation operating as a branch in Canada that is treated as a non-resident for Canadian tax purposes and thus has operating results that cannot be offset against or combined with the other Canadian subsidiary that files as a resident for Canadian tax purposes. 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 38 and, therefore, is subject to Oklahoma state taxes. Our operations in Texas are subject to a franchise tax assessed by the state of Texas, however no significant amounts have been incurred to date. Net Earnings Attributable to Non-controlling Interests Earnings and losses attributable to non-controlling interests represent the non-controlling interests’ share of revenues and expenses related to the various partnerships and joint ventures in which Barnwell has controlling interests and consolidates. Net loss attributable to non-controlling interests totaled nil and $2,000 for the three and six months ended March 31, 2025, respectively, as compared to net earnings attributable to non-controlling interests of $222,000 and $224,000 for the same periods in the prior year. The changes of $222,000 (100%) and $226,000 ( 101%) for the three and six months, respectively, are primarily due to decreases in the amount of equity in income of affiliates and percentage of sales revenues received in the current year periods as compared to the same periods in the prior year. Net Earnings (Loss) From Discontinued Operations Net earnings from discontinued operations was $331,000 and $12,000 during the three and six months ended March 31, 2025, respectively, as compared to net loss from discontinued operations of $466,000 and $780,000 during the three and six months ended March 31, 2024, respectively. On March 14, 2025, the Company completed the sale of Water Resources, which represented the Company’s contract drilling segment. The financial results of the Company’s contract drilling business has been presented as discontinued operations in the condensed consolidated financial statements for all periods presented. See Note 3 “Discontinued Operations” for further discussion and additional disclosures related to discontinued operations. Liquidity and Capital Resources The Company has presented cash flows from discontinued operations in the accompanying Condensed Consolidated Statement of Cash Flows separately after the presentation of cash flows from operating, investing, and financing activities of continuing operations. See Note 3 “Discontinued Operations” for further discussion and additional disclosures related to discontinued operations. The focus of this section, “Liquidity and Capital Resources,” is on the cash flows from continuing operations, which affects future liquidity and capital resources as the Company no longer has any significant continuing involvement with the discontinued operations after the sale. At March 31, 2025, Barnwell had a working capital deficit of $57,000. Barnwell’s primary sources of liquidity are cash on hand and cash flow generated by our oil and natural gas operations, as cash flow from our land investment segment, if any, are expected to be intermittent and not significant to our liquidity. Cash Flows From Continuing Operations Cash flows used in continuing operations totaled $854,000 for the six months ended March 31, 2025, as compared to cash flows provided by continuing operations of $3,000,000 for the same period in the prior year. This $3,854,000 decrease in operating cash flows was primarily due to lower operating results for the oil and natural gas segment in the current year period as compared to the same period in the 39 prior year, and a distribution of income from the Kukio Resort Land Development Partnerships in the prior year period as compared to none in the current year period. The change was also due to the effect of changes in current assets and liabilities, which was a decrease in operating cash flows of $423,000 in the current year period as compared to an increase of $333,000 in the prior year period. Cash flows used in investing activities from continuing operations totaled $2,272,000 during the six months ended March 31, 2025, as compared to cash flows used in investing activities from continuing operations of $1,185,000 during the same period of the prior year. This $1,087,000 change in investing cash flows was due to $1,017,000 more in cash paid for investments in oil and natural gas properties and $163,000 in cash divested from the sale of discontinued operations, net of proceeds, in the current year as compared to the same period in the prior year, partially offset by a $250,000 dividend received from discontinued operations and $282,000 of proceeds from the sale of oil and natural gas properties in Canada in the current year period; there were no such amounts in the same period of the prior year. In addition, there was $439,000 of proceeds received by the land investment segment in the prior year period, as compared to none in the current year period. Cash flows used in financing activities from continuing operations totaled $15,000 for the six months ended March 31, 2025, as compared to cash flows used in financing activities from continuing operations of $223,000 for the six months ended March 31, 2024. The $208,000 change in financing cash flows was due to a decrease of $223,000 in distributions to non-controlling interests, partially offset by $15,000 in repayments for insurance premium financing in the current year period as compared to none the same period in the prior year. 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 potentially volatile oil and natural gas prices, timely repayment of the note receivable from the buyers of our contract drilling segment, and the amount and timing of costs incurred related to the shareholder consent solicitation and ongoing proxy contest. 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 to grow reserves and production or at a minimum replace declining production from aging wells. Such a level of oil and natural gas capital expenditures may require funding from external debt or equity sources that are not currently in place, but those sources may not be feasible or sufficient. In addition, we will need sufficient cash flows to fund our non-discretionary outflows such as oil and natural gas asset retirement obligations and ongoing operating and general and administrative expenses. Due to the recent shareholder consent solicitation and the ongoing proxy contest costs incurred and estimated to be incurred and the impacts of recently imposed tariffs which have caused a reduction in oil prices and have had an impact on the U.S. economy as a whole, we now face a greater uncertainty about our oil and natural gas operating cash inflows as described above, which in turn limits 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 40 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. The Company is investigating potential sources of funding, including debt financing, non-core oil and natural gas property sales and the partial or complete sale of its remaining interests in the Kukio Resort Land Development Partnerships, however, no probable timing or amounts of such funding have yet been secured. Because of this uncertainty as well as uncertainties regarding the potential duration and depth of the impacts of recently legislated tariffs on the economy as a whole, which in turn affects oil prices and 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. Oil and Natural Gas Capital Expenditures Barnwell’s oil and natural gas capital expenditures, including accrued capital expenditures and excluding acquisitions and additions and revisions to estimated asset retirement obligations, totaled $68,000 and $382,000 for the three and six months ended March 31, 2025, respectively, as compared to $560,000 and $1,055,000 for the same periods in the prior year. Barnwell estimates that investments in oil and natural gas properties for fiscal 2025 will range from $500,000 to $1,000,000. This estimated amount may increase or decrease as dictated by cash flows and management's assessment of the oil and natural gas environment and prospects. Oil and Natural Gas Property Dispositions There were no significant oil and natural gas property dispositions during the six months ended March 31, 2025. The $282,000 of proceeds from sale of oil and natural gas properties included in the Condensed Consolidated Statement of Cash Flows for the six months ended March 31, 2025 represents proceeds that were credited to our cash in October 2024 from a sale of properties that closed in late September 2024.