Enservco (ENSV) 10-K/A2023 FY Annual report (amended)

The information discussed in this Amendment includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements, other than statements of historical facts, included herein concerning, among other things, planned capital expenditures, future cash flows and borrowings, pursuit of potential acquisition opportunities, our financial position, business strategy and other plans and objectives for future operations, are forward-looking statements. These forward-looking statements are identified by their use of terms and phrases such as "may," "expect," "estimate," "project," "plan," "believe," "intend," "achievable," "anticipate," "will," "continue," "potential," "should," "could," and similar terms and phrases. Although we believe that the expectations reflected in these forward-looking statements are reasonable, they do involve certain assumptions, risks and uncertainties. Our results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, among others:

Finally, our future results will depend upon various other risks and uncertainties, including, but not limited to, those detailed in our filings with the Securities and Exchange Commission (the "SEC"). For additional information regarding risks and uncertainties, please read our filings with the SEC under the Exchange Act and the Securities Act, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere in this Amendment. Other than as required under securities laws, we do not assume a duty to update these forward-looking statements, whether due to new information, subsequent events or circumstances, changes in expectations or otherwise.

Richard A. Murphy, Age 54. Mr. Murphy became our Executive Chair and Chief Executive Officer on May 29, 2020 and has served as a director for the Company since 2016. Mr. Murphy currently serves as the managing member of Cross River Capital Management, LLC the general partner of Cross River Partners, L.P., currently the largest stockholder of the Company. Mr. Murphy founded Cross River Partners, L.P. in April of 2002. Cross River Partners, L.P. invests in micro-cap and small-cap companies with market capitalizations up to $1.5 billion at the time of initial investment. Mr. Murphy’s primary responsibility as managing member is investment research, analysis of investment opportunities, and coordinating final investment decisions for Cross River Partners, L.P. Prior to founding Cross River Partners, L.P., Mr. Murphy was an analyst and asset portfolio manager with SunAmerica Asset Management, LLC from 1998 to 2002. Mr. Murphy also worked as an associate investment banker at ING Barings in its food and agricultural division in 1998 and he worked at Chase Manhattan Bank from 1992 to 1996. He also sat on the Advisory Board of CMS Bankcorp, Inc. and currently sits on the Applied Investment Management Board for the University of Notre Dame. Mr. Murphy serves on the Board of Directors for MRI Holding Company, Inc., a restaurant company. Mr. Murphy received his MBA from the University of Notre Dame-Mendoza College of Business in 1998 and his bachelor’s degree in political science from Gettysburg College in 1992.

Mark Patterson, Age 61 Mr. Patterson was appointed Chief Financial Officer effective April 22, 2022. Mr. Patterson previously served as Executive Vice-President, Chief Financial Officer, and Chief Operating Officer of All-State Express from 2016 to 2020. He also previously served as Chief Financial Officer and acting Chief Executive Officer of Transcard LLC, a financial technology company, from 2013 to 2016, and on the Board of Directors and as Chief Financial Officer of Express 1 - Expedited Solutions (now known as XPO Logistics, Inc.) from 2005 to 2009.

Robert S. Herlin, Age 68 Mr. Herlin has served as a director for the Company since 2015. Mr. Herlin is also Chairman of Evolution Petroleum Corporation, Houston, Texas, a company with a class of securities registered pursuant to Section 12 of the Exchange Act. He has served as a director of Evolution Petroleum since its inception in 2003, was elected Chairman of its Board of Directors in 2009 and served as Chief Executive Officer from inception through 2015. Mr. Herlin also serves on the Board of Directors of Well Lift Inc., a private company that was spun off from Evolution Petroleum and is the owner and marketer of the GARP artificial lift technology. Mr. Herlin is also President of AVL Resources, LLC, a private energy company, and is actively engaged in new venture funding and advising. Mr. Herlin has 30 years of experience in engineering, energy transactions, operations and finance with small independents, larger independents and major integrated oil companies. Since 2003 until early 2010, Mr. Herlin also served as a non-active Partner with Tatum CFO, a financial advisory firm that provides executive officers on a part-time or full-time basis to clients. From 2001 to 2003, Mr. Herlin served as Senior Vice President and Chief Financial Officer of Intercontinental Towers Corporation, an international wireless infrastructure venture. Mr. Herlin also served on the Board of Directors of Boots and Coots, Inc., an oil field services company, from 2003 until its sale to Halliburton Company in September 2010. Prior to 2001, Mr. Herlin served in various officer capacities for upstream and downstream oil and gas companies, both private and public. Mr. Herlin served on the Engineering Advisory Board for the Brown School of Engineering at Rice University from 2013 to 2016 and currently serves on the Board of the Western North Carolina Pilots Association Foundation. . Mr. Herlin graduated with honors from Rice University with B.S. and M.E. degrees in chemical engineering and earned an MBA from Harvard University.

William A. Jolly, Age 69. Mr. Jolly has served as a director for the Company since 2015. Mr. Jolly serves as an area chairman for the C12 group, which provides peer advisory services for middle market companies. Mr. Jolly served as a principal with Scarsdale Equities, a FINRA member broker/dealer in New York City where he focused on providing innovative banking solutions for small cap companies for 10 years. Mr. Jolly spent over 15 years with Procter & Gamble managing brands and subsidiaries in the U.S. and throughout Asia. Mr. Jolly then became Vice President for the Consumer Division of Scott Paper in Asia Pacific until it was acquired by Kimberly Clark. Mr. Jolly serves on the advisory board of ZetrOZ Systems, which develops non-invasive medical devices to accelerate tissue healing and relieve pain. Mr. Jolly received his undergraduate degree from Duke University and his M.B.A. from the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill.

Kevin Chesser, Age 57. Mr. Chesser was appointed as a director on April 6, 2023. Mr. Chesser is a Certified Public Accountant with over 34 years of experience as a senior finance executive for public and private companies. For the past five years, he has provided CFO-level business consulting services focused on go-public transactions, financings, M&A and board advisory services within his own consulting firm. His prior experience includes 23 years of public accounting service with Deloitte LLP and Briggs & Veselka (now Crowe LLP), where he served as an audit partner and SEC practice leader. He holds a bachelor’s degree in accounting from Lamar University in Beaumont, Texas.

Marc A. Kramer, Age 56. Mr. Kramer is a transportation industry investor and operator with over 30 years of investment experience. For the past seven years, he has served as executive chairman of SOAR Transportation Group, of which he is a majority owner, a provider of asset based and non-asset transportation and logistics services serving shippers throughout the United States. Mr. Kramer’s previous experience includes founding AVC Partners, which focused on investing and growing businesses in the transportation and logistics industry, and serving as managing director for both H.I.G. Capital and Fenway Partners LLC. Mr. Kramer sits on private boards which focus on logistics and investment sectors of the transportation industry. He holds a bachelor’s degree in government and economics from Dartmouth College and a master’s of business administration from Harvard University.

The Board has established a standing Audit Committee in accordance with Section 3(a)(58)(A) of the Exchange Act and then Section 803(B) of the NYSE American LLC Company Guide as modified for smaller reporting companies by Section 801(h) of the NYSE American LLC Company Guide. The Audit Committee was established to oversee the Company’s corporate accounting and financial reporting processes and audits of its financial statements.

The members of our Audit Committee are Messrs. Chesser, Herlin and Jolly, each of whom meets the independence requirements under SEC Rule 10A-3(b)(1) and Section 802(a) of the NYSE American LLC Company Guide. The Board has determined that all current members of the Audit Committee are “financially literate” as interpreted by the Board in its business judgment. No members of the Audit Committee have been qualified as an audit committee financial expert, as defined in the applicable rules of the SEC, because the Board believes that the Company’s status as a smaller reporting company does not require expertise beyond financial literacy. The Audit Committee held nine meetings during the year ended December 31, 2023, and acted by written consent two times during 2023. Mr. Chesser is chairman of the Audit Committee.

The Audit Committee meets quarterly with our independent accountants and management to review the scope and results of the annual audit and to review our financial statements and related reporting matters prior to the submission of the financial statements to the Board. In addition, the Audit Committee meets with the independent auditors at least on a quarterly basis to review and discuss the annual audit or quarterly review of our financial statements.

We have adopted an Audit Committee Charter that deals with the establishment of the Audit Committee and sets out its duties and responsibilities. The Audit Committee reviews and reassesses the adequacy of the Audit Committee Charter on an annual basis. The Audit Committee Charter is available on our Company website at http://www.enservco.com.

Enservco has not established a nominating committee. Under Section 804(a) of the NYSE American Company Guide, if there is no nominating committee, nominations must be made by a majority of the independent directors. In accordance with this rule, the independent members of the Board are responsible for identifying and nominating appropriate persons to become members of the Board, as necessary. In identifying Board candidates, it is the Company’s goal to identify persons who it believes have appropriate expertise and experience to contribute to the oversight of the Company, while also reviewing other appropriate factors. Enservco believes that this method of identifying, evaluating, and nominating members to join the Board is appropriate given Enservco’s status as a smaller reporting company for SEC purposes.

Enservco has adopted a nomination procedure in its Bylaws by which eligible stockholders may nominate a person to the Board. That procedure is as follows:

The Board has established a standing Compensation Committee. The Board has appointed Messrs, Chesser, Jolly and Herlin to the Compensation Committee, each of whom the Board has determined is independent pursuant to the independence tests under the NYSE American Company Guide. The Compensation Committee is charged with reviewing and approving the terms and structure of the compensation of the Company’s executive officers. The Compensation Committee held one meeting during the year ended December 31, 2023.

Pursuant to the NYSE American Company Guide, the independent members of Enservco’s Board determine the compensation of our Chief Executive Officer. The Board believes that this is appropriate given that Enservco is a smaller reporting company and these compensation decisions are made by the independent directors. The process and procedures for establishing executive compensation are discussed in the “Executive Compensation” and “Compensation of Directors” sections located elsewhere in this Proxy Statement.

We have adopted a Compensation Committee Charter that provides for the establishment of the Compensation Committee and sets out its duties and responsibilities. The Compensation Committee reviews and reassesses the adequacy of the Compensation Committee Charter on an annual basis. The Compensation Committee Charter is available on our Company website at http://www.enservco.com.

The Board does not have an express policy regarding the separation of the roles of Chief Executive Officer and Board Chair as the Board believes it is in the best interests of the Company to make that determination based on the position and direction of the Company and the membership of the Board. The Board has not designated a lead independent director. The roles of Chief Executive Officer and Chair are presently combined, and Richard A. Murphy serves as the Executive Chair of the Board and Chief Executive Officer.

While management is charged with the day-to-day management of risks that Enservco faces, the Board and Audit Committee are responsible for oversight of risk management. The Board and the Audit Committee have responsibility for general oversight of risks facing the Company. Specifically, the Audit Committee reviews and assesses the adequacy of Enservco’s risk management policies and procedures with regard to identification of Enservco’s principal risks, both financial and non-financial, and review updates on these risks from our Chief Financial Officer and Chief Executive Officer. The Audit Committee also reviews and assess the adequacy of the implementation of appropriate systems to mitigate and manage the principal risks.

For Board service during 2023, non-equity compensation earned by non-employee directors has been accrued and not paid through the end of 2023. Each independent director accrued a quarterly fee of $12,500, with such amount earned on the last day of the quarter if at such time the independent director was still serving as a director.

In addition, on January 1^st of each year, the Company grants to each non-employee director a number of shares of restricted stock of the Company having a value equal to $30,000, calculated based on the closing price of the Company’s common stock on the business day prior to the grant date. The restricted stock will vest upon the earliest of the one-year anniversary of the grant date, or the date of the first annual meeting following the grant date, or the date on which a director resigns following a change in control of the Company. As Chair of the Board, Mr. Murphy did not earn any board fees due to his employment with the Company.

On April 2, 2024, the Board agreed to reduce the quarterly fees for each non-employee director to $7,500 per quarter, beginning the second quarter of 2024, and to increase the dollar amount paid in the restricted stock to $50,000, calculated based on the closing price on the Company’s Common Stock on the business day prior to the grant date starting January 1, 2025.

Section 16(a) of the Exchange Act requires Enservco’s directors and officers and any persons who own more than ten percent of Enservco’s equity securities, to file reports of ownership and changes in ownership with the SEC. All directors, officers and greater than ten percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) reports filed. Based solely on our review of the copies of Forms 3, 4 and any amendments thereto furnished to us during the fiscal year completed December 31, 2023, we believe that during the Company’s 2023 fiscal year all of our named executive officers, directors, and greater than ten percent stockholders filed the required reports on a timely basis under Section 16(a) of the Exchange Act.

On July 27, 2010, our Board adopted a Code of Business Conduct and Whistleblower Policy (the “Code of Conduct”) which the Board updated on May 29, 2013. The Code of Conduct applies to all of our officers and employees, including our principal executive officer, principal financial officer and principal accounting officer. Our Code of Conduct establishes standards and guidelines to assist our directors, officers, and employees in complying with both the Company’s corporate policies and with the law and is posted at our website: www.enservco.com. Additionally, a copy of our Code of Conduct was filed as an exhibit to our Current Report on Form 8-K dated July 27, 2010, and the amended Code of Conduct was filed as an exhibit to a Current Report on Form 8-K dated May 29, 2013.

The Company’s Board seeks to ensure that it is composed of members whose particular experience, qualifications, attributes, and skills, when taken together, will allow the Board to satisfy its oversight obligations effectively. The Company does not currently have a separate nominating (or similar) committee, and as further discussed above, given the Company’s small size, the Company does not yet believe such a committee is necessary. However, as the Company grows, it may consider establishing a separate nominating committee.

Under Section 804(a) of the NYSE American Company Guide, if there is no nominating committee, nominations must be made by a majority of the independent directors. In accordance with this rule, the independent members of the Board are responsible for identifying and appointing appropriate persons to become members of the Board, as necessary. In identifying Board candidates, it is the Company’s goal to identify persons who it believes have appropriate expertise and experience to contribute to the oversight of the Company, while also reviewing other appropriate factors. Enservco believes that this method of identifying, evaluating, and nominating members to join the Board is appropriate given Enservco’s status as a smaller reporting company.

The Board does not have a formal diversity policy. The Board considers candidates that will make the Board as a whole reflective of a range of talents, skills, diversity, and experience.

On June 22, 2016, our Board approved a new Insider Trading Policy. The Insider Trading Policy applies to all of our officers, directors, and employees. Our Insider Trading Policy is posted at our website: www.enservco.com. Additionally, a copy of our Insider Trading Policy was filed as an exhibit to our Current Report on Form 8-K dated June 22, 2016.

On August 16, 2013, our Board adopted the Company’s Policy on Trading Blackout Periods; Benefits Plans; and Section 16 Reporting (the “Blackout Policy”), which the Board amended on June 25, 2015. The Blackout Policy applies to all of our officers, directors, and employees. Our Blackout Policy is posted at our website: www.enservco.com. In addition, a copy of Blackout Policy was filed as an exhibit to our Current Report on Form 8-K, dated June 25, 2015.

Pursuant to the Company’s Insider Trading Policy, the Company’s directors, officers and employees are prohibited from engaging in short sales or other hedging transactions involving the Company’s securities. Transactions in certain derivatives of the Company’s securities may in some instances constitute a short sale. Section 16(c) of the Securities Exchange Act of 1934 prohibits officers and directors of the Company from engaging in short sales. Directors, officers and employees of the Company are also prohibited from keeping Company securities or derivatives thereof in a margin account and may not use either as collateral for a loan. The Company’s Code of Business Conduct and Ethics also advises that the Company’s Board has concluded that it is inappropriate for employees or members of the Board, or any designee of such persons, to purchase hedges in Company securities or derivatives thereof.

The following table sets forth the cash and non-cash compensation for the fiscal years ended December 31, 2023 and 2022 earned by or awarded to (i) the individual who served as the Company’s principal executive officer at any time during fiscal 2023, and (ii) the Company’s two most highly compensated executive officers who received compensation in excess of $100,000 during fiscal 2023. These individuals are referred to as our “named executive officers.”

The Compensation Committee reviews and approves the terms and structure of the compensation of the Company’s executive officers. The Compensation Committee considers various factors when evaluating and determining the terms and structure of the Company’s executive officer compensation, including the following:

Management is responsible for reviewing the base salary, annual bonus and long-term compensation levels for other Company employees, and the Company expects this practice to continue going forward. The entire Board remains responsible for significant changes to, or adoption, of new employee benefit plans.

The Company believes that the compensation environment for qualified professionals in the industry in which we operate is competitive. In order to compete in this environment, the compensation of our executive officers is primarily comprised of the following four components:

Base salary, paid in cash, is the first element of compensation to our officers. In determining base salaries for our key executive officers, the Company aims to set base salaries at a level we believe enables us to hire and retain individuals in a competitive environment and to reward individual performance and contribution to our overall business goals. The Board believes that base salary should be relatively stable over time, providing the executive a dependable, minimum level of compensation, which is approximately equivalent to compensation that may be paid by competitors for persons of similar abilities. The Board believes that base salaries for our executive officers are appropriate for persons serving as executive officers of public companies that are similar in size and complexity to the Company.

Mr. Murphy is the Company’s Executive Chair and CEO and Mr. Patterson is the Company’s CFO. Neither of these executive officers have written employment agreements with the Company, but they both have a base salary as well as standard benefits. Mr. Murphy has an annual salary of $175,00 per year and Mr. Patterson has an annual salary of $200,000 per year.

Historically, discretionary cash bonuses were another element of our compensation plan. These discretionary cash bonuses provided executive officers and other employees with the potential to receive a portion of their annual cash compensation as a cash bonus in order to encourage performance to achieve key corporate objectives and to be competitive from a total remuneration standpoint. We did not establish a set formula for determining or awarding discretionary cash bonuses to our other executives or employees. In determining whether to award bonuses and the amount of any bonuses, we have taken and expect to continue to take into consideration discretionary factors such as the individual’s current and expected future performance, level of responsibilities, retention considerations, and the total compensation package, as well as the Company’s overall performance including cash flow and other operational factors.

The Board did not award any discretionary bonuses to the named executive officers during 2023.

Each of the Company’s executive officers is eligible to be granted awards under the Company’s equity compensation plans. The Company believes that equity-based compensation helps align management and executives’ interests with the interests of our stockholders. Our equity incentives are also intended to reward the attainment of long-term corporate objectives by our executives. We also believe that grants of equity-based compensation are necessary to enable us to be competitive from a total remuneration standpoint. At the present time, we have one active equity incentive plan for our management and employees, the 2016 Stock Incentive Plan (the “2016 Plan”), and one dormant equity incentive plan for our management and employees, the 2010 Stock Incentive Plan (the “2010 Plan”), pursuant to which there are still outstanding awards.

Historically, in determining whether to grant awards and the amount of any awards, the Company took into consideration discretionary factors such as the individual’s current and expected future performance, level of responsibilities, retention considerations, and the total compensation package. In 2018, the Company adopted the Long-Term Incentive Plan (“LTIP”), which is intended to balance the short-term orientation of other compensation elements, further align management and shareholder interests, focus named executive officers on achievement of long-term results, and retain executive talent. The Company’s named executive officers and senior managers have been eligible to receive awards under the LTIP. All awards granted under the LTIP have been made pursuant to the 2016 Plan.

The Company has granted equity-based compensation to named executive officers as described below and as reflected in the table entitled “Outstanding Equity Awards at Fiscal Year-End.”

On April 15, 2022, Mark Patterson was granted a 300,000 share restricted stock award that was subject to transfer and forfeiture restrictions that lapsed in three equal installments of 100,000 restricted shares on each of July 1, 2022, January 1, 2023, and January 1, 2024, subject to his continuous service through each vesting date. Additionally, the Company granted Mr. Patterson a 45,000 share restricted stock award on April 22, 2022, which was subject to transfer and forfeiture restrictions that lapsed in three equal installments of 15,000 restricted shares on each of July 1, 2022, January 1, 2023, and January 1, 2024, subject to his continuous service through each vesting date. Mr. Patterson’s 45,000 share restricted stock award was issued pursuant to the 2016 Plan, whereas his 300,000 share restricted stock award was not.

Another element of the overall compensation is through providing our executive officers various employment benefits, such as the payment of health and life insurance premiums on behalf of the executive officers. Our executive officers are also eligible to participate in our 401(k) plan on the same basis as other employees and the Company historically has made matching contributions to the 401(k) plan, including for the benefit of our executive officers. In April 2020, the Company ceased all matching to all employees, including officers of its 401(k) plan.

In accordance with rules adopted by the Securities and Exchange Commission (“SEC”) pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, we provide the following disclosure regarding executive “Compensation Actually Paid” (“CAP”) and certain performance measures required for Smaller Reporting Companies for each of the fiscal years ended December 31, 2023, December 31, 2022 and December 31, 2021.

The following table sets forth the outstanding equity awards for each named executive officer at December 31, 2023. 

The following table sets forth as of May 6, 2024 certain information regarding beneficial ownership of the Company’s common stock by: (i) each person known to us to beneficially own more than 5% of the Company’s common stock; (ii) each of the our current named executive officers; (iii) each of our current directors and nominees for director; and (iv) all of our executive officers (as that term is defined under SEC rules) and directors as a group.

We have determined beneficial ownership in accordance with Rule 13d-3 under the Exchange Act. Beneficial ownership generally means having sole or shared voting or investment power with respect to securities. Unless otherwise indicated in the footnotes to the table, each stockholder named in the table below has sole voting and investment power with respect to the shares of common stock set forth opposite the stockholder’s name. We have based our calculation of the percentage of beneficial ownership on 27,636,500 shares of Company’s common stock outstanding on May 6, 2024.

 

The Board has adopted a written policy that establishes a framework for the review and approval or ratification of transactions between the Company and its related parties and/or their respective affiliated entities. We refer to this policy as our “Related Party Transactions Policy”. The Related Party Transactions Policy is available on our website at www.enservco.com.

Pursuant to this policy, “Related Parties” includes our executive officers and directors, any nominee for director, beneficial owners of 5% or greater of the Company’s voting securities, and the immediate family members any of the foregoing persons. An “Immediate Family Member” of a Related Party means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law, or any person sharing a household with the Related Party, other than a tenant or employee.

A “Related Party Transaction” includes:

Under the Related Party Transactions Policy, Related Party Transactions are prohibited, unless approved or ratified by the disinterested directors of the Company. A Related Party Transaction entered into without pre-approval is not invalid, unenforceable, or in violation of the policy, provided that such transaction is brought to the disinterested directors as promptly as reasonably practical after it is entered into, and such transaction is ratified.

The Company’s executive officers, directors, and nominees for director are required to promptly notify the Board and the Company’s legal counsel of any proposed Related Party Transaction. The Company’s disinterested directors will review such transaction, considering all relevant facts and circumstances, including the commercial reasonableness of the terms, the benefit and perceived benefit (or lack thereof) to the Company, opportunity costs of alternate transactions, the materiality and character of the Related Party’s direct or indirect interest, and the actual or apparent conflict of interest of the Related Party. The disinterested directors may not approve or ratify a Related Party Transaction unless they have determined that upon consideration of all relevant information, the proposed Related Party Transaction is in, or not inconsistent with, the best interests of the Company and its stockholders.

The following sets forth information regarding transactions between the Company (and its subsidiaries) and its officers, directors, nominees, and more than 5% stockholders since January 1, 2023.

Cross River Partners, L.P., an entity controlled by Richard A. Murphy, our CEO and Chairman, entered into the following transactions with the Company in 2023.

On March 28, 2023, the Company entered into a Note Conversion Agreement (the “Note Conversion Agreement”) with Cross River, that governs the terms and conditions of the conversion of the Amended and Restated Convertible Subordinated Promissory Note, dated as of March 22, 2022, issued by the Company to Cross River (the “March 2022 Convertible Note”) and the Convertible Subordinated Promissory Note, dated as of July 15, 2022, issued by the Company Cross River (the “July 2022 Convertible Note”). Pursuant to the terms and conditions of the Note Conversion Agreement, Cross River exercised the option to convert a portion of the principal and accrued but unpaid interest of the March 2022 Convertible Note in the amount of $1,051,050 into 2,275,000 shares of the Company’s common stock. At the 2023 stockholder meeting, which was held on June 23, 2023, the Company sought to seek stockholder approval for the conversion of (1) the remaining $148,950 under the March 2022 Convertible Note into 322,402 shares of common stock, and (2) the principal and accrued but unpaid interest of the July 2022 Convertible Note into 2,400,000 shares of common stock and 2,400,000 warrants to purchase shares of common stock.

On June 13, 2023, the stockholders of the Company approved at its 2023 Annual Meeting of Stockholders the issuance to Cross River of up to 5,122,402 additional shares of the Company’s common stock, including 2,400,000 shares of common stock issuable upon exercise of a five year warrant. Such shares are issuable to Cross River upon its conversion of certain convertible notes pursuant to a Note Conversion Agreement dated March 28, 2023, between the Company and Cross River.

On June 30, 2023, given that Company stockholder approval had been obtained, Cross River: 1) converted the remaining $148,950 principal balance of the convertible subordinated promissory note issued in March 2022 into 322,402 shares of Company common stock; 2) converted $1,200,000 principal balance of the convertible subordinated promissory note issued in July 2022 into 2,400,000 shares of Company common stock; and 3) received a five year warrant to acquire 2,400,000 shares of Company common stock with an exercise price of $.55 per share.

On September 1, 2023, the Company issued a Convertible Promissory Note in the aggregate principal amount of $750,000 to Cross River, an entity controlled by Richard Murphy, our Chief Executive Officer and Chairman, in exchange for a $750,000 loan to the Company (the “CR Note”). Also on September 1, 2023, the Company issued a Convertible Promissory Note in the aggregate principal amount of $50,000 to Kevin Chesser (“Chesser”), a director of the Company, in exchange for a $50,000 loan to the Company (the “KC Note” and together with CR Note, the “Convertible Notes”). The Company expects to use the gross proceeds for general corporate purposes.

The Convertible Notes have a one year term and accrue interest at 8.00% per annum. All outstanding principal and interest on the Convertible Notes is due on the one year anniversary of their issuance. The Company may prepay all or any portion of the outstanding principal or accrued but unpaid interest on the Convertible Notes without premium or penalty. If the Company closes on a convertible debt offering to the Convertible Notes, then the principal balance of the Convertible Notes, together with all accrued but unpaid interest, will be exchanged on a dollar for dollar basis into such note as offered in the Rapid Hot Financing. To the extent the Rapid Hot Financing is not closed by September 30, 2023, Cross River and Chesser will have the option to have their Convertible Note secured by the Company’s real property located in Killdeer, North Dakota.

On September 11, 2023, the Company and its wholly-owned subsidiary Heat Waves Hot Oil Service LLC entered into and closed on an Asset Purchase Agreement with OilServ, LLC, and its wholly-owned subsidiaries, Rapid Hot Flow, LLC, Rapid Pressure Services, LLC (collectively, “Rapid Hot”), pursuant to which the Company agreed to acquire certain assets and assume certain liabilities relating to Rapid Hot’s business of providing frac water heating services to the oil and gas industry in Ohio, Pennsylvania and West Virginia. Concurrent with such transaction, Steven A. Weyel, a principal of Rapid Hot, joined the Company’s Board. Mr, Weyel resigned from the Board April 29, 2024.

Also on September 11, 2023, pursuant to a Note Purchase Agreement (the “Note Purchase Agreement”), the Company issued Convertible Promissory Notes (the “New Convertible Notes”) in aggregate principal amount of $187,500 to Equigen II, LLC (“Equigen”), an entity owned by Steven A. Weyel.

Also on September 11, 2023, pursuant to the terms of certain promissory notes previously issued by the Company on September 1, 2023 (the “Prior Convertible Notes”), Cross River Partners, LP (“Cross River”), an entity controlled by Richard Murphy, our Chief Executive Officer and Chairman, exchanged its Prior Convertible Note in the aggregate principal amount of $750,000 for a New Convertible Note with the same principal amount, and Kevin Chesser, a director of the Company, exchanged his Prior Convertible Note in the aggregate principal amount of $50,000 for a New Convertible Note with the same principal amount.

Under the Note Purchase Agreement, within 45 days after the closing of the issuance of the New Convertible Notes, Cross River agreed to purchase an additional $250,000 in aggregate principal amount of New Convertible Notes, provided that Equigen and Angel Capital Partners, LP, an entity controlled by another principal of Rapid Hot contemporaneously invest an additional $312,500 in aggregate principal amount of New Convertible Notes.

The New Convertible Notes have an eighteen (18) month term and accrue interest at 16.00% per annum. All outstanding principal and interest on the New Convertible Notes is due on the eighteen (18) month anniversary of their issuance (the “Maturity Date”). The Company is required to make interest only payments on a quarterly basis at the end of each calendar quarter, beginning with the quarter ending December 31, 2023. The first quarterly interest payment is payable in shares of the Company’s common stock based on the five (5) day moving average of the closing sales price of the common stock on the NYSE American immediately prior to December 31, 2023. For calendar quarters beginning March 31, 2024, the Company is required to make quarterly interest payments in cash within ten (10) days of the close of the quarter. The New Convertible Notes may not be prepaid by the Company.

If the Company closes on a new offering of equity securities (the “Equity Financing”) of a minimum of $5,000,000 before the Maturity Date, then, subject to any NYSE American shareholder approval requirements, the principal amount, together with all accrued but unpaid interest of the New Convertible Notes, will automatically convert into shares of the same class and type at the same price and on the same terms and provisions as the securities issued to the other participants in the Equity Financing on the closing date of such Equity Financing; provided, however, at the option of the holder, the New Convertible Notes may convert into such equity, (a) at $0.50 per share if the security sold in the Equity Financing is common stock or (b) at a share price which is 25% less than the lowest price per share of shares sold in the Equity Financing. Subject to any NYSE American shareholder approval requirements, the holders may convert their Convertible Notes at any time into the Company’s common stock at a conversion price of $0.50 per share.

If a change of control of the Company or a sale substantial portion of any of its assets occurs prior to the Maturity Date, the holder may elect to receive either (i) the principal amount plus accrued interest plus a premium that is equal to 25% of the principal amount or (ii) the right to convert the principal amount plus accrued but unpaid interest into the Company’s common stock at a conversion price equal to a 25% discount to the five (5) day moving average of the closing sales price of the common stock on the NYSE American immediately prior to the transaction which results in a change of control of the Company.

 

The Company utilizes the definition of “independent director” as it is set forth in Section 803A(2) of the NYSE American Company Guide. Further, the Board considers all relevant facts and circumstances in its determination of independence of all members of the Board (including any relationships). Based on the foregoing criteria, Messrs. Chesser, Herlin, Jolly and Kramer are considered independent directors and have been confirmed as such by the Board.

Further information regarding enhanced independence standards applicable to directors who serve on the Company’s Audit Committee, and directors who participate in the determination of the compensation of our Chief Executive Officer, can be found in the Corporate Governance section elsewhere in this Proxy Statement, under the headings “Audit Committee” and “Compensation Committee.”

The Charter of our Board of Directors’ Audit Committee provides that the Audit Committee is responsible for the appointment, compensation, retention and oversight of the independent public accountants, and pre-approves all audit services and permissible non-audit services to be provided to the Company by the independent public accountants. The Audit Committee may, in its discretion, delegate the authority to pre-approve all audit services and permissible non-audit services to the Chair of the Audit Committee provided the Chair reports any delegated pre-approvals to the Audit Committee at the next meeting thereof. The Audit Committee has not, however, adopted any specific policies and procedures for the engagement of non-audit services.

The Audit Committee approved of Plante and PKF performing our audit and other consultation services provided for in 2022 and of PKF performing our audit and all other consultation services provided for the 2023 fiscal years as set forth in the table above.

None.

In accordance with Section 13 or 15(d) of the Securities Exchange Act 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: