Edgar Filing: BARNWELL INDUSTRIES INC

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2014

[ ] 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)

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. x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o		Accelerated filer o
Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

As of August 8, 2014 there were 8,277,160 shares of common stock, par value $0.50, outstanding.

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BARNWELL INDUSTRIES, INC.

AND SUBSIDIARIES

INDEX

PART I.	FINANCIAL INFORMATION:

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets - June 30, 2014 and September 30, 2013	3

	Condensed Consolidated Statements of Operations - three and nine months ended June 30, 2014 and 2013	4

	Condensed Consolidated Statements of Comprehensive Income (Loss) - three and nine months ended June 30, 2014 and 2013	5

	Condensed Consolidated Statements of Cash Flows - nine months ended June 30, 2014 and 2013	6

	Condensed Consolidated Statements of Equity - three months ended June 30, 2014 and 2013	7

	Condensed Consolidated Statements of Equity - nine months ended June 30, 2014 and 2013	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 4.	Controls and Procedures	40

PART II.	OTHER INFORMATION:

Item 1A.	Risk Factors	41

Item 6.	Exhibits	42

	Signature	43

	Index to Exhibits	44

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30,			September 30,
	2014			2013
ASSETS
Current assets:
Cash and cash equivalents	$	10,255,000		$	7,828,000
Restricted cash	216,000			-
Accounts and other receivables, net of allowance for doubtful accounts of:
$35,000 at June 30, 2014; $43,000 at September 30, 2013	9,333,000			3,287,000
Prepaid expenses	273,000			230,000
Real estate held for sale	5,448,000			5,448,000
Other current assets	593,000			2,234,000

Total current assets	26,118,000			19,027,000

Restricted cash, net of current portion	1,676,000			-

Investments	7,145,000			2,381,000

Property and equipment	230,685,000			252,872,000
Accumulated depletion, depreciation, and amortization	(209,268,000		)	(211,566,000		)

Property and equipment, net	21,417,000			41,306,000

Total assets	$	56,356,000		$	62,714,000

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	2,777,000		$	4,415,000
Accrued capital expenditures	410,000			1,846,000
Accrued incentive and other compensation	1,168,000			1,652,000
Accrued operating and other expenses	2,865,000			2,670,000
Current portion of long-term debt	5,635,000			5,240,000
Other current liabilities	2,095,000			624,000

Total current liabilities	14,950,000			16,447,000

Long-term debt	10,399,000			11,400,000

Liability for retirement benefits	2,953,000			3,137,000

Asset retirement obligation	6,786,000			7,520,000

Deferred income taxes	1,627,000			1,890,000

Total liabilities	36,715,000			40,394,000

Commitments and contingencies (Note 12)

Equity:
Common stock, par value $0.50 per share; authorized, 20,000,000 shares:
8,445,060 issued at June 30, 2014 and September 30, 2013	4,223,000			4,223,000
Additional paid-in capital	1,307,000			1,289,000
Retained earnings	14,042,000			15,532,000
Accumulated other comprehensive income, net	1,659,000			2,991,000
Treasury stock, at cost:
167,900 shares at June 30, 2014 and September 30, 2013	(2,286,000		)	(2,286,000		)

Total stockholders’ equity	18,945,000			21,749,000
Non-controlling interests	696,000			571,000

Total equity	19,641,000			22,320,000

Total liabilities and equity	$	56,356,000		$	62,714,000

See Notes to Condensed Consolidated Financial Statements

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BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three months ended June 30,						Nine months ended June 30,
	2014			2013			2014			2013
Revenues:
Oil and natural gas	$	4,619,000		$	4,774,000		$	16,343,000		$	16,019,000
Contract drilling	1,548,000			248,000			4,475,000			1,668,000
Sale of interest in leasehold land, net	258,000			-			378,000			282,000
Gas processing and other	385,000			160,000			696,000			533,000

	6,810,000			5,182,000			21,892,000			18,502,000
Costs and expenses:
Oil and natural gas operating	2,111,000			2,406,000			6,774,000			7,448,000
Contract drilling operating	1,268,000			367,000			3,669,000			1,628,000
General and administrative	1,844,000			2,105,000			6,049,000			6,354,000
Depletion, depreciation, and amortization	1,296,000			1,372,000			5,364,000			6,383,000
Reduction of carrying value of assets	-			-			-			4,506,000
Interest expense	165,000			146,000			520,000			442,000

	6,684,000			6,396,000			22,376,000			26,761,000

Income (loss) before equity in loss of affiliates and income taxes	126,000			(1,214,000		)	(484,000		)	(8,259,000		)

Equity in loss of affiliates	(113,000		)	-			(376,000		)	-

Income (loss) before income taxes	13,000			(1,214,000		)	(860,000		)	(8,259,000		)

Income tax provision (benefit)	211,000			51,000			662,000			(1,285,000		)

Net loss	(198,000		)	(1,265,000		)	(1,522,000		)	(6,974,000		)

Less: Net earnings (loss) attributable to non-controlling interests	18,000			(40,000		)	(32,000		)	(59,000		)

Net loss attributable to Barnwell Industries, Inc.	$	(216,000	)	$	(1,225,000	)	$	(1,490,000	)	$	(6,915,000	)

Basic net loss per common share attributable to Barnwell Industries, Inc. stockholders	$	(0.03	)	$	(0.15	)	$	(0.18	)	$	(0.84	)

Diluted net loss per common share attributable to Barnwell Industries, Inc. stockholders	$	(0.03	)	$	(0.15	)	$	(0.18	)	$	(0.84	)

Weighted-average number of common shares outstanding:
Basic	8,277,160			8,277,160			8,277,160			8,277,160
Diluted	8,277,160			8,277,160			8,277,160			8,277,160

See Notes to Condensed Consolidated Financial Statements

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BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

	Three months ended							Nine months ended
	June 30,							June 30,
		2014			2013				2014			2013

Net loss		$	(198,000	)	$	(1,265,000	)		$	(1,522,000	)	$	(6,974,000	)

Other comprehensive income (loss):
Foreign currency translation adjustments, net of taxes of $0		356,000			(867,000		)		(1,345,000		)	(1,837,000		)
Retirement plans - amortization of accumulated other comprehensive (income) loss into net periodic benefit cost, net of taxes of $0		(3,000		)	64,000				13,000			194,000

Total other comprehensive income (loss)		353,000			(803,000		)		(1,332,000		)	(1,643,000		)

Total comprehensive income (loss)		155,000			(2,068,000		)		(2,854,000		)	(8,617,000		)

Less: Comprehensive income (loss) attributable to non-controlling interests		18,000			(40,000		)		(32,000		)	(59,000		)

Comprehensive income (loss) attributable to Barnwell Industries, Inc.		$	137,000		$	(2,028,000	)		$	(2,822,000	)	$	(8,558,000	)

See Notes to Condensed Consolidated Financial Statements

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BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine months ended
	June 30,
	2014				2013
Cash flows from operating activities:
Net loss		$	(1,522,000	)		$	(6,974,000	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Equity in loss of affiliates		376,000				-
Depletion, depreciation, and amortization		5,364,000				6,383,000
Reduction of carrying value of assets		-				4,506,000
Foreign exchange gain		(271,000		)		-
Retirement benefits expense		184,000				463,000
Accretion of asset retirement obligation		330,000				283,000
Deferred income tax benefit		(225,000		)		(1,220,000		)
Asset retirement obligation payments		(110,000		)		(174,000		)
Share-based compensation benefit		(209,000		)		(118,000		)
Retirement plan contributions		(354,000		)		(253,000		)
Sale of interest in leasehold land, net		(378,000		)		(282,000		)
Real estate held for sale		-				(139,000		)
Increase from changes in current assets and liabilities		1,302,000				1,389,000

Net cash provided by operating activities		4,487,000				3,864,000

Cash flows from investing activities:
Proceeds from sale of oil and natural gas assets		8,448,000				-
Proceeds from gas over bitumen royalty adjustments		12,000				39,000
Proceeds from sale of interest in leasehold land, net of fees paid		378,000				282,000
Payment to acquire interest in affiliates		(5,140,000		)		-
Capital expenditures - oil and natural gas		(3,382,000		)		(3,549,000		)
Capital expenditures - all other		(42,000		)		(2,000		)

Net cash provided by (used in) investing activities		274,000				(3,230,000		)

Cash flows from financing activities:
Proceeds from long-term debt borrowings		5,000,000				503,000
Repayments of long-term debt		(5,606,000		)		(888,000		)
Increase in restricted cash		(1,892,000		)		-
Distributions to non-controlling interests		(13,000		)		-
Contributions from non-controlling interests		170,000				153,000

Net cash used in financing activities		(2,341,000		)		(232,000		)

Effect of exchange rate changes on cash and cash equivalents		7,000				(132,000		)

Net increase in cash and cash equivalents		2,427,000				270,000
Cash and cash equivalents at beginning of period		7,828,000				8,845,000

Cash and cash equivalents at end of period		$	10,255,000			$	9,115,000

See Notes to Condensed Consolidated Financial Statements

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BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Three months ended June 30, 2014 and 2013

(Unaudited)

													Accumulated
						Additional							Other
	Shares		Common			Paid-In			Retained				Comprehensive				Treasury				Non-controlling				Total
	Outstanding		Stock			Capital			Earnings				Income				Stock				Interests				Equity
Balance at March 31, 2013		8,277,160		$	4,223,000		$	1,289,000		$	18,405,000			$	1,482,000			$	(2,286,000	)		$	578,000			$	23,691,000
Contributions from non-controlling interests																						38,000				38,000
Net loss										(1,225,000		)										(40,000		)		(1,265,000		)
Foreign currency translation adjustments, net of taxes of $0														(867,000		)										(867,000		)
Retirement plans - amortization of accumulated other comprehensive loss into net periodic benefit cost, net of taxes of $0														64,000												64,000
Balance at June 30, 2013		8,277,160		$	4,223,000		$	1,289,000		$	17,180,000			$	679,000			$	(2,286,000	)		$	576,000			$	21,661,000


Balance at March 31, 2014		8,277,160		$	4,223,000		$	1,299,000		$	14,258,000			$	1,306,000			$	(2,286,000	)		$	601,000			$	19,401,000
Distributions to non-controlling interests																						(13,000		)		(13,000		)
Contributions from non-controlling interests																						90,000				90,000
Net (loss) earnings										(216,000		)										18,000				(198,000		)
Share-based compensation							8,000																			8,000
Foreign currency translation adjustments, net of taxes of $0														356,000												356,000
Retirement plans - amortization of accumulated other comprehensive income into net periodic benefit cost, net of taxes of $0														(3,000		)										(3,000		)
Balance at June 30, 2014		8,277,160		$	4,223,000		$	1,307,000		$	14,042,000			$	1,659,000			$	(2,286,000	)		$	696,000			$	19,641,000

See Notes to Condensed Consolidated Financial Statements

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BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Nine months ended June 30, 2014 and 2013

(Unaudited)

													Accumulated
						Additional							Other
	Shares		Common			Paid-In			Retained				Comprehensive				Treasury				Non-controlling				Total
	Outstanding		Stock			Capital			Earnings				Income				Stock				Interests				Equity
Balance at September 30, 2012		8,277,160		$	4,223,000		$	1,289,000		$	24,095,000			$	2,322,000			$	(2,286,000	)		$	482,000			$	30,125,000
Contributions from non-controlling interests																						153,000				153,000
Net loss										(6,915,000		)										(59,000		)		(6,974,000		)
Foreign currency translation adjustments, net of taxes of $0														(1,837,000		)										(1,837,000		)
Retirement plans - amortization of accumulated other comprehensive loss into net periodic benefit cost, net of taxes of $0														194,000												194,000
Balance at June 30, 2013		8,277,160		$	4,223,000		$	1,289,000		$	17,180,000			$	679,000			$	(2,286,000	)		$	576,000			$	21,661,000


Balance at September 30, 2013		8,277,160		$	4,223,000		$	1,289,000		$	15,532,000			$	2,991,000			$	(2,286,000	)		$	571,000			$	22,320,000
Distributions to non-controlling interests																						(13,000		)		(13,000		)
Contributions from non-controlling interests																						170,000				170,000
Net loss										(1,490,000		)										(32,000		)		(1,522,000		)
Share-based compensation							18,000																			18,000
Foreign currency translation adjustments, net of taxes of $0														(1,345,000		)										(1,345,000		)
Retirement plans - amortization of accumulated other comprehensive loss into net periodic benefit cost, net of taxes of $0														13,000												13,000
Balance at June 30, 2014		8,277,160		$	4,223,000		$	1,307,000		$	14,042,000			$	1,659,000			$	(2,286,000	)		$	696,000			$	19,641,000

See Notes to Condensed Consolidated Financial Statements

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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 two 80%-owned joint ventures (Kaupulehu 2007, LLLP and Kaupulehu Investors, LLC). All significant intercompany accounts and transactions have been eliminated.

Barnwell’s investments in both unconsolidated entities in which a significant, but less than controlling, interest is held and in variable interest entities (“VIE”) 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, 2013 Annual Report on Form 10-K. The Condensed Consolidated Balance Sheet as of September 30, 2013 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 June 30, 2014, results of operations, comprehensive income (loss), and equity for the three and nine months ended June 30, 2014 and 2013, and cash flows for the nine months ended June 30, 2014 and 2013, have been made. The results of operations for the period ended June 30, 2014 are not necessarily indicative of the operating results for the full year.

Use of Estimates

The preparation of the 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.

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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 most recently filed Annual Report on Form 10-K.

Restricted Cash

Restricted cash consists of deposits for interest reserve and collateral for our land investment loan.

Equity Method Investments

Affiliated companies, which are limited partnerships or similar entities, in which Barnwell holds more than a 3% to 5% ownership interest, are accounted for as equity method investments. Equity method investment adjustments include Barnwell’s proportionate share of investee income or loss, adjustments to recognize certain differences between Barnwell’s carrying value and Barnwell’s equity in net assets of the investee at the date of investment, impairments and other adjustments required by the equity method. Gain or losses are realized when such investments are sold.

Investments in equity method investees are evaluated for impairment as events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the carrying amounts of the assets exceed their respective fair values, additional impairment tests are performed to measure the amounts of the impairment losses, if any. When an impairment test demonstrates that the fair value of an investment is less than its carrying value, management will determine whether the impairment is either temporary or other-than-temporary. Examples of factors which may be indicative of an other-than-temporary impairment include (a) the length of time and extent to which fair value has been less than carrying value, (b) the financial condition and near-term prospects of the investee, and (c) the intent and ability to retain the investment in the investee for a period of time sufficient to allow for any anticipated recovery in fair value. If the decline in fair value is determined by management to be other-than-temporary, the carrying value of the investment is written down to its estimated fair value as of the balance sheet date of the reporting period in which the assessment is made.

Variable Interest Entities

The consolidation of VIEs is required when an enterprise has a controlling financial interest and is therefore the VIE’s primary beneficiary. A controlling financial interest will have both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The determination of whether an entity is a VIE and, if so, whether the Company is primary beneficiary, may require significant judgment.

Barnwell analyzes its unconsolidated affiliates in which it has an investment to determine whether the unconsolidated entities are VIEs and, if so, whether the Company is the primary beneficiary. This analysis includes a qualitative review based on an evaluation of the design of the entity, its organizational structure, including decision making ability and financial agreements, as well as a quantitative review. At June 30, 2014, our unconsolidated affiliates that have been determined to be VIEs are accounted under the equity method because we do not have a controlling financial interest and are therefore not the VIE’s primary beneficiary (see Note 5).

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Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” This update requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The Company adopted the provisions of this ASU effective October 1, 2013. The adoption of this ASU impacted the presentation of Barnwell’s accumulated other comprehensive income footnote disclosures.

2. LOSS PER COMMON SHARE

Basic earnings (loss) per share excludes dilution and is computed by dividing net earnings (loss) attributable to Barnwell stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings (loss) per share includes the potentially dilutive effect of outstanding common stock options, to the extent their inclusion would be dilutive. Potentially dilutive shares are excluded from the computation of diluted earnings (loss) per share if their effect is anti-dilutive.

Potentially dilutive shares consist of the common shares issuable upon the exercise of outstanding stock options (both vested and non-vested) using the treasury stock method. Options to purchase 837,250 and 777,250 shares of common stock were excluded from the computation of diluted shares for the three and nine months ended June 30, 2014 and 2013, respectively, as their inclusion would have been antidilutive due to the net loss attributable to Barnwell stockholders.

Reconciliations between net loss attributable to Barnwell stockholders and common shares outstanding of the basic and diluted net loss per share computations are detailed in the following tables:

Three months ended June 30, 2014

Net Loss

Per-Share

(Numerator)

(Denominator)

Amount

Basic net loss per share

(216,000

)

8,277,160

(0.03

)

Effect of dilutive securities - common stock options

Diluted net loss per share

(216,000

)

8,277,160

(0.03

)

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	Nine months ended June 30, 2014
	Net Loss			Shares		Per-Share
	(Numerator)			(Denominator)		Amount
Basic net loss per share	$	(1,490,000	)		8,277,160	$	(0.18	)

Effect of dilutive securities - common stock options	-				-

Diluted net loss per share	$	(1,490,000	)		8,277,160	$	(0.18	)

	Three months ended June 30, 2013
	Net Loss			Shares		Per-Share
	(Numerator)			(Denominator)		Amount
Basic net loss per share	$	(1,225,000	)		8,277,160	$	(0.15	)

Effect of dilutive securities - common stock options	-				-

Diluted net loss per share	$	(1,225,000	)		8,277,160	$	(0.15	)

	Nine months ended June 30, 2013
	Net Loss			Shares		Per-Share
	(Numerator)			(Denominator)		Amount
Basic net loss per share	$	(6,915,000	)		8,277,160	$	(0.84	)

Effect of dilutive securities - common stock options	-				-

Diluted net loss per share	$	(6,915,000	)		8,277,160	$	(0.84	)

3. SHARE-BASED PAYMENTS

The Company’s share-based compensation benefit and related income tax effects are as follows:

	Three months ended							Nine months ended
	June 30,							June 30,
		2014			2013			2014			2013

Share-based compensation benefit		$	(19,000	)	$	(77,000	)	$	(209,000	)	$	(118,000	)

Income tax effect		$	-		$	-		$	-		$	-

Share-based compensation benefit recognized in losses for the three and nine months ended June 30, 2014 and 2013 are reflected in “General and administrative” expenses in the Condensed Consolidated Statements of Operations. There was no impact on income taxes for the three and nine months ended June 30, 2014 and 2013 due to a full valuation allowance on the related deferred tax asset.

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As of June 30, 2014, there was $89,000 of total unrecognized compensation cost related to nonvested share options. That cost is expected to be recognized over 3.4 years. The weighted-average grant date fair value of employee options granted during the nine months ended June 30, 2014 was $2.04 (no options were granted during the three months ended June 30, 2014 or during the three and nine months ended June 30, 2013).

Equity-classified Awards

The following assumptions were used in estimating fair value for equity-classified share options in the nine months ended June 30, 2014:

Expected volatility	55.6%
Expected dividends	0.0%
Expected term (in years)	10.0
Risk-free interest rate	3.0%
Expected forfeitures	None

The application of alternative assumptions could produce significantly different estimates of the fair value of share-based compensation, and consequently, the related costs reported in the Condensed Consolidated Statements of Operations.

A summary of the activity in Barnwell’s equity-classified share options from October 1, 2013 through June 30, 2014 is presented below:

							Weighted-
							Average
				Weighted-			Remaining
				Average			Contractual		Aggregate
				Exercise			Term		Intrinsic
Options	Shares		Price				(in years)		Value
Outstanding at October 1, 2013		60,000			$	8.62
Granted		30,000			3.01
Exercised		-
Expired/Forfeited		-
Outstanding at June 30, 2014		90,000			$	6.75		3.4	$	-

Exercisable at June 30, 2014		60,000			$	8.62		0.4	$	-

Total share-based compensation expense for equity-classified awards vested in the three and nine months ended June 30, 2014 was $8,000 and $18,000, respectively. There was no share-based compensation expense for equity-classified awards in the prior year periods.

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Liability-classified Awards

In December 2013, Barnwell granted non-qualified options with an exercise price equal to the closing market price of Barnwell’s stock on the date of grant, that vest annually over four years of continuous service, and that expire ten years from the date of grant. The non-qualified options have stock appreciation rights features that permit the holder to receive stock, cash or a combination thereof equal to the amount by which the fair market value, at the time of exercise of the option, exceeds the option price.

The following assumptions were used in estimating fair value for all liability-classified share options outstanding:

	Nine months ended June 30,
	2014	2013

Expected volatility range	34.1% to 57.1%	49.8% to 64.4%
Weighted-average volatility	50.1%	60.0%
Expected dividends	0.0%	0.0%
Expected term (in years)	0.4 to 9.5	1.4 to 6.5
Risk-free interest rate	0.1% to 2.5%	0.3% to 1.9%
Expected forfeitures	None	None

A summary of the activity in Barnwell’s liability-classified share options from October 1, 2013 through June 30, 2014 is presented below:

Weighted-

Average

Weighted-

Remaining

Average

Contractual

Aggregate

Exercise

Term

Intrinsic

Options

Price

(in years)