UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: JuneSeptember 30, 2023
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 001-40701
BITNILE METAVERSE,RISKON INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 30-0680177 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 303 Pearl Parkway, Suite 200, San Antonio, TX | 78215 | (800) 762-7293 | ||
| (Address of principal executive offices) | (Zip Code) | (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
| Common Stock, $0.001 par value per share | The Nasdaq Stock Market LLC (The Nasdaq Capital Market) |
Securities registered pursuant to Section 12(g) of the Act: None
IndicateIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the ExchangeExchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☐ | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 2,359,3063,555,247 shares of common stock as of August 18,November 20, 2023.
TABLE OF CONTENTS
i
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties. Words such as “anticipates,” “expects,” “intends,” “goals,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “may,” “will,” “would,” “should,” “could,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, uncertain events or assumptions, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on management’s expectations as of the date of this filing and involve many risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include those described throughout this report and our Annual Report on Form 10-K for the year ended March 31, 2023, particularly the “Risk Factors” sections of such reports. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements in this Form 10-Q do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been completed as of the date of filing of this Quarterly Report on Form 10-Q. In addition, the forward-looking statements in this Form 10-Q are made as of the date of this filing, and we do not undertake, and expressly disclaim any duty to update such statements, whether as a result of new information, new developments or otherwise, except to the extent that disclosure may be required by law.
ii
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BITNILE METAVERSE,RISKON INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2023 | March 31, 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 2,005 | $ | 66,844 | ||||
| Accounts receivable | 3,900 | - | ||||||
| Investment - White River Energy Corp. (“WTRV”) | 9,224,785 | 9,224,785 | ||||||
| Prepaid expenses and other current assets | 807,197 | 1,215,065 | ||||||
| Current assets of discontinued operations held for sale | 1,384,224 | 1,297,801 | ||||||
| TOTAL CURRENT ASSETS | 11,422,111 | 11,804,495 | ||||||
| Property and equipment, net | 4,399,504 | 4,432,403 | ||||||
| Intangible assets, net | 6,100,356 | 6,204,339 | ||||||
| Right-of-use assets, operating leases | 307,913 | 339,304 | ||||||
| Other noncurrent assets | 10,905 | 10,905 | ||||||
| Non-current assets of discontinued operations/held for sale | 417,237 | 984,071 | ||||||
| TOTAL ASSETS | $ | 22,658,026 | $ | 23,775,517 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 10,406,830 | $ | 6,225,887 | ||||
| Dividends payable | 1,597,222 | - | ||||||
| Accrued liabilities | 1,351,251 | 1,643,494 | ||||||
| Convertible note - derivative liability | 323,085 | - | ||||||
| Preferred stock and warrant derivative liabilities, net | 2,895,664 | 19,862,226 | ||||||
| Current portion of long-term debt | 324,737 | 323,818 | ||||||
| Advances - former parent of Bitnile.com, Inc. | 6,564,541 | 5,782,643 | ||||||
| Current portion of convertible note payable | 241,096 | - | ||||||
| Current portion of lease liability - operating leases | 100,142 | 110,120 | ||||||
| Current liabilities of discontinued operations/held for sale | 3,591,359 | 2,952,257 | ||||||
| TOTAL CURRENT LIABILITIES | 27,395,927 | 36,900,445 | ||||||
| LONG TERM LIABILITIES | ||||||||
| Operating lease liability, non-current | 215,150 | 235,856 | ||||||
| Long-term debt net of current portion | 196,816 | 205,554 | ||||||
| Non-current liabilities of discontinued operations/held for sale | 364,076 | 377,786 | ||||||
| TOTAL LIABILITIES | 28,171,969 | 37,719,641 | ||||||
| STOCKHOLDER’S DEFICIT: | ||||||||
| Preferred stock, $0.001 par value, 5,000,000 shares authorized Series A Preferred stock, 882 shares issued and outstanding as of June 30 and March 31, 2023 | - | - | ||||||
| Series B Preferred stock, 8,637.5 shares issued and outstanding as of June 30 and March 31, 2023 | - | - | ||||||
| Series C Preferred stock, 1,362.5 shares issued and outstanding as of June 30 and March 31, 2023 | - | - | ||||||
| Common Stock, $0.001 par value, 3,333,333 shares authorized, 2,359,306 and 1,383,832 shares issued and outstanding as of June 30, 2023 and March 31, 2023, respectively | 2,359 | 1,384 | ||||||
| Additional paid-in capital | 202,031,061 | 199,062,577 | ||||||
| Accumulated deficit | (202,731,837 | ) | (208,677,438 | ) | ||||
| Total stockholders’ deficit before non-controlling interest | (698,417 | ) | (9,613,477 | ) | ||||
| Non-controlling interest | (4,815,526 | ) | (4,330,647 | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | (5,513,943 | ) | (13,944,124 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 22,658,026 | $ | 23,775,517 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
BITNILE METAVERSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Hospitality and VIP experience revenue | $ | 45,150 | $ | - | ||||
| Cost of revenue | 86,300 | 93,862 | ||||||
| Gross loss | (41,150 | ) | (93,862 | ) | ||||
| Operating expenses: | ||||||||
| Depreciation, amortization and impairment | 136,882 | 45,097 | ||||||
| Bad debt | 53,415 | - | ||||||
| Selling, general and administration | 10,160,441 | 1,688,064 | ||||||
| Salaries and professional consulting fees | 1,841,711 | 6,542,948 | ||||||
| Total operating expenses | 12,192,449 | 8,276,109 | ||||||
| Operating loss | (12,233,599 | ) | (8,369,971 | ) | ||||
| Other income (expense) | ||||||||
| Change in fair value of warrant derivative liabilities | 2,197,348 | (393,532 | ) | |||||
| Change in fair value of preferred stock derivative liabilities | 17,893,969 | - | ||||||
| Change in fair value of convertible note derivative liability | 1,029,237 | - | ||||||
| Derivative expense | (182,077 | ) | - | |||||
| Amortization of original issue discount | (241,096 | ) | - | |||||
| Dividend expense | (1,597,222 | ) | - | |||||
| Interest expense, net of interest income | (262,535 | ) | (36,828 | ) | ||||
| Total other income (expense) | 18,837,624 | (430,360 | ) | |||||
| Income (loss) from continuing operations before discontinued operations | 6,604,025 | (8,800,331 | ) | |||||
| Discontinued operations | ||||||||
| Loss from discontinued operations | (1,143,303 | ) | (2,635,818 | ) | ||||
| Gain on disposal of discontinued operations | - | 711,505 | ||||||
| Total loss discontinued operations | (1,143,303 | ) | (1,924,313 | ) | ||||
| Net income (loss) | 5,460,722 | (10,724,644 | ) | |||||
| Net loss attributable to non-controlling interest | 484,879 | 571,261 | ||||||
| Net income (loss) to controlling interest | 5,945,601 | (10,153,383 | ) | |||||
| Less preferred stock dividends | - | 43,151 | ||||||
| Net income (loss) to controlling interest of common shareholders | $ | 5,945,601 | $ | (10,196,534 | ) | |||
| Net income (loss) per share – basic and diluted (See Note 1) | ||||||||
| Net income (loss) continuing operations: | $ | 3.65 | $ | (10.00 | ) | |||
| Net loss discontinued operations: | $ | (0.63 | ) | $ | (2.19 | ) | ||
| Net income (loss) per share | 3.02 | (12.19 | ) | |||||
| Weighted average common shares – basic and diluted (See Note 1) | 1,807,020 | 879,632 | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
BITNILE METAVERSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED JUNE 30, 2023 AND 2022
(UNAUDITED)
| Common Stock | Additional Paid in | Accumulated | Non-controlling | Total Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | interest | Deficit | |||||||||||||||||||
| Balance, March 31, 2023 | 1,383,832 | $ | 1,384 | $ | 199,062,577 | $ | (208,677,438 | ) | $ | (4,330,647 | ) | $ | (13,944,124 | ) | ||||||||||
| Shares issued for cash under ATM, net of fees | 935,452 | 935 | 1,779,505 | - | - | 1,780,440 | ||||||||||||||||||
| Shares issued for preferred stock dividends | 40,022 | 40 | 300,118 | - | - | 300,158 | ||||||||||||||||||
| Shares issued by Agora Digital Holdings, Inc. for services rendered, net of amounts prepaid | - | - | 630,206 | - | - | 630,206 | ||||||||||||||||||
| Share-based compensation | - | - | 258,655 | - | - | 258,655 | ||||||||||||||||||
| Net income (loss) | - | - | - | 5,945,601 | (484,879 | ) | 5,460,722 | |||||||||||||||||
| Balance, June 30, 2023 | 2,359,306 | $ | 2,359 | $ | 202,031,061 | $ | (202,731,837 | ) | $ | (4,815,526 | ) | $ | (5,513,943 | ) | ||||||||||
| Common Stock | Additional Paid in | Accumulated | Treasury | Non-controlling | Total Stockholders’ | |||||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Stock | interest | Deficit | ||||||||||||||||||||||
| Balance, March 31, 2022 | 878,803 | $ | 879 | $ | 183,271,546 | $ | (158,868,204 | ) | $ | (1,670,575 | ) | $ | (599,058 | ) | $ | 22,134,588 | ||||||||||||
| Shares issued for commitment for preferred stock offering, net of expenses | 3,429 | 3 | 193,413 | - | - | - | 193,416 | |||||||||||||||||||||
| Shares issued by Agora Digital Holdings, Inc. for services rendered, net of amounts prepaid | - | - | 5,215,287 | - | - | - | 5,215,287 | |||||||||||||||||||||
| Share-based compensation | - | - | 182,561 | - | - | - | 182,561 | |||||||||||||||||||||
| Net loss | - | - | - | (10,153,383 | ) | - | (571,261 | ) | (10,724,644 | ) | ||||||||||||||||||
| Preferred dividends | - | - | - | (43,151 | ) | - | - | (43,151 | ) | |||||||||||||||||||
| Balance, June 30, 2022 | 882,232 | $ | 882 | $ | 188,862,807 | $ | (169,064,738 | ) | $ | (1,670,575 | ) | $ | (1,170,319 | ) | $ | 16,958,057 | ||||||||||||
| September 30, 2023 | March 31, 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 1,554 | $ | 66,844 | ||||
| Accounts receivable | 63,700 | - | ||||||
| Investment - White River Energy Corp. (“WTRV”) | 9,224,785 | 9,224,785 | ||||||
| Prepaid expenses and other current assets | 449,398 | 1,210,157 | ||||||
| Current assets of discontinued operations held for sale | 60,860 | 1,302,709 | ||||||
| TOTAL CURRENT ASSETS | 9,800,297 | 11,804,495 | ||||||
| Property and equipment, net | 471,329 | 4,432,403 | ||||||
| Intangible assets, net | 5,996,372 | 6,204,339 | ||||||
| Right-of-use assets, operating leases | 276,136 | 339,304 | ||||||
| Other non-current assets | - | 10,905 | ||||||
| Non-current assets of discontinued operations/held for sale | 259,790 | 984,071 | ||||||
| TOTAL ASSETS | $ | 16,803,924 | $ | 23,775,517 | ||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 9,134,059 | $ | 6,225,887 | ||||
| Dividends payable | 3,150,680 | - | ||||||
| Accrued liabilities | 2,863,118 | 1,026,079 | ||||||
| Derivative liabilities | 2,200,951 | 19,862,226 | ||||||
| Current portion of long-term debt | 325,699 | 323,818 | ||||||
| Advances - former parent of Bitnile.com, Inc. (“BNC”) | 11,453,163 | 5,782,643 | ||||||
| Current portion of convertible note payable | 3,397,567 | - | ||||||
| Current portion of lease liability - operating leases | 69,073 | 110,120 | ||||||
| Current liabilities of discontinued operations/held for sale | 1,750,910 | 3,569,672 | ||||||
| TOTAL CURRENT LIABILITIES | 34,345,220 | 36,900,445 | ||||||
| LONG TERM LIABILITIES | ||||||||
| Operating lease liability, non-current | 215,150 | 235,856 | ||||||
| Long-term debt net of current portion | 187,782 | 205,554 | ||||||
| Non-current liabilities of discontinued operations/held for sale | 1,108,955 | 377,786 | ||||||
| TOTAL LIABILITIES | 35,857,107 | 37,719,641 | ||||||
| SHAREHOLDERS’ DEFICIT: | ||||||||
| Preferred stock, $0.001 par value, 5,000,000 shares authorized; Series A Preferred stock, 882 shares issued and outstanding as of September 30, 2023 and March 31, 2023 | - | - | ||||||
| Series B Preferred stock, 8,637.5 shares issued and outstanding as of September 30, 2023 and March 31, 2023 | - | - | ||||||
| Series C Preferred stock, 1,362.5 shares issued and outstanding as of September 30, 2023 and March 31, 2023 | - | - | ||||||
| Common Stock, $0.001 par value, 500,000,000 shares authorized, 2,359,306 and 1,383,832 shares issued and outstanding as of September 30, 2023 and March 31, 2023, respectively | 2,359 | 1,384 | ||||||
| Additional paid-in capital | 203,752,371 | 199,062,577 | ||||||
| Accumulated deficit | (217,249,742 | ) | (208,677,438 | ) | ||||
| Total shareholders’ deficit before non-controlling interest | (13,495,012 | ) | (9,613,477 | ) | ||||
| Non-controlling interest | (5,558,171 | ) | (4,330,647 | ) | ||||
| TOTAL SHAREHOLDERS’ DEFICIT | (19,053,183 | ) | (13,944,124 | ) | ||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT | $ | 16,803,924 | $ | 23,775,517 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
BITNILE METAVERSE,RISKON INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSOPERATIONS
(UNAUDITED)
| For the Three Months Ended June 30, | ||||||||
| Cash flows from operating activities: | 2023 | 2022 | ||||||
| Net income (loss) | $ | 5,460,722 | $ | (10,724,644 | ) | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Change in non-controlling interest | (484,879 | ) | (571,261 | ) | ||||
| Amortization of discount | 241,096 | - | ||||||
| Depreciation, amortization, impairment, depletion, and accretion | 136,882 | 35,975 | ||||||
| Impairment - digital assets | - | 9,122 | ||||||
| Legal costs for ATM facility | 110,000 | - | ||||||
| Share-based compensation | 258,655 | 182,561 | ||||||
| Change in fair value of warrant derivative liabilities | (2,197,348 | ) | 393,532 | |||||
| Change in fair value of preferred stock derivative liabilities | (17,893,969 | ) | - | |||||
| Change in fair value of convertible note derivative liability | (1,029,237 | ) | - | |||||
| Derivative (income) expense | 182,077 | - | ||||||
| Shares issued for preferred dividend | 300,158 | - | ||||||
| Common stock issued for services - Agora Digital Holdings, Inc. | 630,206 | 5,215,287 | ||||||
| Commitment fees on long-term debt | - | 17,681 | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | (3,900 | ) | - | |||||
| Prepaid expenses | 407,868 | 490,491 | ||||||
| Accrued interest receivable | - | (8,385 | ) | |||||
| Dividends payable | 1,597,222 | - | ||||||
| Amortization of right of use asset - operating leases | 31,391 | 29,914 | ||||||
| Accounts payable | 4,180,943 | 144,528 | ||||||
| Accrued expenses | 192,636 | 1,006,473 | ||||||
| Operating lease liability | (30,684 | ) | (28,541 | ) | ||||
| Total adjustments | (13,370,883 | ) | 6,917,377 | |||||
| Net cash used in operating activities of continued operations | (7,910,161 | ) | (3,807,267 | ) | ||||
| Net cash provided by (used in) discontinued operations | 1,105,803 | (4,706,432 | ) | |||||
| Net cash used in operating activities | (6,804,358 | ) | (8,513,699 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Discontinued operations | - | 5,083,299 | ||||||
| Cash provided by investing activities | - | 5,083,299 | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from former parent of Bitnile.com, Inc. | 781,898 | - | ||||||
| Redemption of preferred stock | (1,205,000 | ) | - | |||||
| Proceeds from note - related party | - | 616,000 | ||||||
| Payments on note - related party | - | (616,000 | ) | |||||
| Payments of long-term debt | (7,819 | ) | (588,769 | ) | ||||
| Proceeds from long-term debt | - | 487,500 | ||||||
| Proceeds from the sale of common stock under ATM, net | 1,780,440 | - | ||||||
| Proceeds from convertible note | 5,390,000 | - | ||||||
| Proceeds from the exercise of warrants into common stock | - | 12,000,000 | ||||||
| Net cash provided by financing activities of continuing operations | 6,739,519 | 11,898,731 | ||||||
| Net cash used in financing activities of discontinued operations | - | (291,141 | ) | |||||
| Net cash provided by financing activities | 6,739,519 | 11,607,590 | ||||||
| Net (decrease) increase in cash and cash equivalents | (64,839 | ) | 8,177,190 | |||||
| Cash at beginning of period | 66,844 | 85,073 | ||||||
| Cash at end of period | $ | 2,005 | $ | 8,262,263 | ||||
| SUPPLEMENTAL DISCLOSURES | ||||||||
| Cash paid for interest expense | $ | 11,173 | $ | 1,602 | ||||
| SUMMARY OF NON-CASH ACTIVITIES | ||||||||
| Issuance costs on mezzanine equity | $ | - | $ | 193,416 | ||||
| Reclassification of convertible notes and warrants to derivative liability | $ | 5,682,077 | $ | - | ||||
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Hospitality and VIP experience revenue | $ | 17,700 | $ | - | $ | 62,850 | $ | - | ||||||||
| Gaming revenue | 1,500 | - | 1,500 | - | ||||||||||||
| Cost of revenue | 28,422 | 88,212 | 114,722 | 182,074 | ||||||||||||
| Gross loss | (9,222 | ) | (88,212 | ) | (50,372 | ) | (182,074 | ) | ||||||||
| Operating expenses: | ||||||||||||||||
| Depreciation, amortization and impairment | 4,032,157 | 1,668,555 | 4,169,039 | 1,713,651 | ||||||||||||
| Bad debt | 55,548 | - | 108,963 | - | ||||||||||||
| Selling, general and administration | 7,030,891 | 1,621,728 | 16,864,801 | 2,460,929 | ||||||||||||
| Salaries and professional consulting fees | 2,619,762 | 3,625,044 | 4,211,660 | 9,582,893 | ||||||||||||
| Total operating expenses | 13,738,358 | 6,915,327 | 25,354,463 | 13,757,473 | ||||||||||||
| Operating loss | (13,747,580 | ) | (7,003,539 | ) | (25,404,835 | ) | (13,939,547 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Change in fair value of derivative liabilities | 1,862,290 | 3,286,004 | 22,982,843 | 2,892,472 | ||||||||||||
| Dividend expense | (1,553,458 | ) | - | (3,150,680 | ) | - | ||||||||||
| Amortization of discounts | (2,161,211 | ) | - | (2,584,384 | ) | - | ||||||||||
| Loss on disposal of fixed assets | - | (570,772 | ) | - | (570,772 | ) | ||||||||||
| Interest income (expense), net of interest income | 41,499 | (281,900 | ) | (221,036 | ) | (318,728 | ) | |||||||||
| Total other (expense) income | (1,810,880 | ) | 2,433,332 | 17,026,743 | 2,002,972 | |||||||||||
| Loss from continuing operations before discontinued operations | (15,558,460 | ) | (4,570,207 | ) | (8,378,092 | ) | (11,936,575 | ) | ||||||||
| Discontinued operations | ||||||||||||||||
| Loss from discontinued operations | (385,242 | ) | (7,629,448 | ) | (2,104,888 | ) | (11,699,050 | ) | ||||||||
| Gain (loss) on disposal of discontinued operations | 683,152 | (12,534,900 | ) | 683,152 | (11,823,395 | ) | ||||||||||
| Total gain (loss) discontinued operations | 297,910 | (20,164,348 | ) | (1,421,736 | ) | (23,522,445 | ) | |||||||||
| Net loss | (15,260,550 | ) | (24,734,555 | ) | (9,799,828 | ) | (35,459,020 | ) | ||||||||
| Net loss attributable to non-controlling interest | 742,645 | 1,748,947 | 1,227,524 | 2,320,208 | ||||||||||||
| Net loss to controlling interest | (14,517,905 | ) | (22,985,608 | ) | (8,572,304 | ) | (33,138,812 | ) | ||||||||
| Less preferred stock dividends | - | 341,325 | - | 384,476 | ||||||||||||
| Net loss to controlling interest of common shareholders | $ | (14,517,905 | ) | $ | (23,326,933 | ) | $ | (8,572,304 | ) | $ | (33,523,288 | ) | ||||
| Net loss per share – basic and diluted | ||||||||||||||||
| Net loss continuing operations | $ | (6.59 | ) | $ | (5.07 | ) | $ | (4.02 | ) | $ | (13.40 | ) | ||||
| Net gain (loss) discontinued operations | $ | 0.13 | $ | (22.35 | ) | $ | (0.68 | ) | $ | (26.40 | ) | |||||
| Net loss per share | $ | (6.47 | ) | $ | (27.42 | ) | $ | (4.70 | ) | $ | (39.80 | ) | ||||
| Weighted average common shares – basic and diluted | 2,359,306 | 902,115 | 2,084,672 | 890,959 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
RISKON INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(UNAUDITED)
| Common Stock | Additional Paid in | Accumulated | Non-controlling | Total Shareholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | interest | Deficit | |||||||||||||||||||
| Balance, March 31, 2023 | 1,383,832 | $ | 1,384 | $ | 199,062,577 | $ | (208,677,438 | ) | $ | (4,330,647 | ) | $ | (13,944,124 | ) | ||||||||||
| Shares issued for cash under at-the-market (“ATM”), net of fees | 935,452 | 935 | 1,779,505 | - | - | 1,780,440 | ||||||||||||||||||
| Shares issued for preferred stock dividends | 40,022 | 40 | 300,118 | - | - | 300,158 | ||||||||||||||||||
| Shares issued by Agora Digital Holdings, Inc. (“Agora”) for services rendered, net of amounts prepaid | - | - | 630,206 | - | - | 630,206 | ||||||||||||||||||
| Share-based compensation | - | - | 258,655 | - | - | 258,655 | ||||||||||||||||||
| Net income | - | - | - | 5,945,601 | (484,879 | ) | 5,460,722 | |||||||||||||||||
| Balance, June 30, 2023 | 2,359,306 | 2,359 | 202,031,061 | (202,731,837 | ) | (4,815,526 | ) | (5,513,943 | ) | |||||||||||||||
| Shares issued by Agora for services rendered, net of amounts prepaid | - | - | 1,721,310 | - | - | 1,721,310 | ||||||||||||||||||
| Net loss for the period | - | - | - | (14,517,905 | ) | (742,645 | ) | (15,260,550 | ) | |||||||||||||||
| Balance, September 30, 2023 | 2,359,306 | $ | 2,359 | $ | 203,752,371 | $ | (217,249,742 | ) | $ | (5,558,171 | ) | $ | (19,053,183 | ) | ||||||||||
| Common Stock | Additional Paid in | Accumulated | Treasury | Non-controlling | Total Shareholders’ | |||||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Stock | interest | Deficit | ||||||||||||||||||||||
| Balance, March 31, 2022 | 878,803 | $ | 879 | $ | 183,246,061 | $ | (158,868,204 | ) | $ | (1,670,575 | ) | $ | (599,058 | ) | $ | 22,134,588 | ||||||||||||
| Shares issued for commitment for preferred stock offering, net of expenses | 3,429 | 3 | 193,413 | - | - | - | 193,416 | |||||||||||||||||||||
| Shares issued by Agora for services rendered, net of amounts prepaid | - | - | 5,215,287 | - | - | - | 5,215,287 | |||||||||||||||||||||
| Share-based compensation | - | - | 182,561 | - | - | - | 182,561 | |||||||||||||||||||||
| Net loss | - | - | - | (10,153,204 | ) | - | (571,261 | ) | (10,724,465 | ) | ||||||||||||||||||
| Preferred dividends | - | - | - | (43,151 | ) | - | - | (43,151 | ) | |||||||||||||||||||
| Balance, June 30, 2022 | 882,232 | 882 | 188,862,807 | (169,064,559 | ) | (1,670,575 | ) | (1,170,319 | ) | 16,958,236 | ||||||||||||||||||
| Shares issued in conversion of preferred stock to common stock | 42,540 | 43 | 2,636,761 | - | - | - | 2,636,804 | |||||||||||||||||||||
| Shares issued in settlement | 14,430 | 14 | (625,589 | ) | - | 1,670,575 | - | 1,045,000 | ||||||||||||||||||||
| Shares issued by Agora for services rendered, net of amounts prepaid | - | - | 2,956,922 | - | - | - | 2,956,922 | |||||||||||||||||||||
| Share-based compensation | 160,040 | 160,040 | ||||||||||||||||||||||||||
| Disposal of subsidiaries in reverse merger transactions | - | - | - | 28,871,171 | - | 532,949 | 29,404,120 | |||||||||||||||||||||
| Net loss | - | - | - | (22,985,608 | ) | - | (1,748,947 | ) | (24,734,555 | ) | ||||||||||||||||||
| Preferred stock dividends | - | - | - | (341,325 | ) | - | - | (341,325 | ) | |||||||||||||||||||
| Balance, September 30, 2022 | 939,202 | $ | 939 | $ | 193,990,941 | $ | (163,520,321 | ) | $ | - | $ | (2,386,317 | ) | $ | 28,085,242 | |||||||||||||
The accompanying notes are an integral part of these unauditodensed consolidated financial statements.
4
RISKON INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Six Months Ended September 30, | ||||||||
| Cash flows from operating activities: | 2023 | 2022 | ||||||
| Net loss | $ | (8,572,304 | ) | $ | (33,523,288 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Change in non-controlling interest | (1,227,524 | ) | (2,320,208 | ) | ||||
| Amortization of discount | 2,584,384 | 41,086 | ||||||
| Depreciation, amortization and impairment | 4,169,039 | 1,713,651 | ||||||
| Legal costs for ATM facility | 110,000 | - | ||||||
| Share-based compensation | 258,655 | 342,601 | ||||||
| (Gain) loss on disposal of Zest Labs, Inc. (“Zest Labs”) and other fixed assets | (683,152 | ) | 570,772 | |||||
| Loss on disposal of WTRV and Banner Midstream Corp. (“Banner Midstream”) | - | 12,534,900 | ||||||
| Gain on disposal of Trend Discovery Holdings, LLC (“Trend Discovery”) | - | (711,505 | ) | |||||
| Common shares issued for services | - | 1,045,000 | ||||||
| Development expenses reduced from refund of power development costs | - | 155,292 | ||||||
| Change in fair value of derivative liabilities | (22,982,843 | ) | (2,892,472 | ) | ||||
| Shares issued for preferred dividend | 300,158 | - | ||||||
| Common stock issued for services - Agora | 2,351,518 | 8,172,208 | ||||||
| Commitment fees on long-term debt | - | 17,681 | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | (63,700 | ) | - | |||||
| Prepaid expenses and other current assets | 774,119 | 111,050 | ||||||
| Accrued interest receivable | - | (61,979 | ) | |||||
| Amortization of right of use asset - operating leases | 63,168 | 60,187 | ||||||
| Accounts payable | 2,375,644 | 631,723 | ||||||
| Accrued expenses | 1,751,903 | 616,521 | ||||||
| Dividends payable | 3,150,680 | - | ||||||
| Operating lease | (61,753 | ) | (57,440 | ) | ||||
| Total adjustments | (7,129,704 | ) | 19,969,068 | |||||
| Net cash used in operating activities of continued operations | (15,702,008 | ) | (13,554,220 | ) | ||||
| Net cash provided by discontinued operations | 2,176,649 | 2,544,857 | ||||||
| Net cash used in operating activities | (13,525,359 | ) | (11,009,363 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Proceeds from the sale of power development costs | - | 844,708 | ||||||
| Purchase of fixed assets | - | (40,074 | ) | |||||
| Net cash provided by investing activities of continuing operations | - | 804,634 | ||||||
| Net cash used in investing activities of discontinued operations | - | (664,902 | ) | |||||
| Net cash provided by investing activities | - | 139,732 | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from former parent of BNC | 7,510,520 | - | ||||||
| Redemption of preferred stock | (1,205,000 | ) | - | |||||
| Proceeds from note - related party | - | 616,000 | ||||||
| Payments on note - related party | - | (616,000 | ) | |||||
| Payments of long-term debt | (15,891 | ) | (716,644 | ) | ||||
| Proceeds from long-term debt | - | 487,500 | ||||||
| Proceeds from the sale of common stock under ATM, net | 1,780,440 | - | ||||||
| Proceeds from convertible note | 5,390,000 | - | ||||||
| Proceeds from the sale of preferred stock | - | 12,000,000 | ||||||
| Net cash provided by financing activities of continuing operations | 13,460,069 | 11,770,856 | ||||||
| Net cash used in financing activities of discontinued operations | - | - | ||||||
| Net cash provided by financing activities | 13,460,069 | 11,770,856 | ||||||
| Net (decrease) increase in cash and cash equivalents | (65,290 | ) | 901,225 | |||||
| Cash at beginning of period | 66,844 | 85,073 | ||||||
| Cash at end of period | $ | 1,554 | $ | 986,298 | ||||
| SUPPLEMENTAL DISCLOSURES | ||||||||
| Cash paid for interest expense | $ | 8,018 | $ | 11,173 | ||||
| SUMMARY OF NON-CASH ACTIVITIES | ||||||||
| Issuance costs on mezzanine equity | $ | - | $ | 193,416 | ||||
| Reclassification of convertible notes and warrants to derivative liability | $ | 4,686,817 | $ | - | ||||
| Non-controlling interest recorded in consolidation of Enviro Technologies US, Inc. | $ | - | $ | 532,949 | ||||
| Preferred shares converted into common stock | $ | - | $ | 2,636,827 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BITNILE METAVERSE,RISKON INTERNATIONAL, INC. AND SUBSIDIAIRES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSJUNESEPTEMBER 30, 2023
(UNAUDITED)
1. DESCRIPTION OF BUSINESS
Overview
On March 15, 2023, Ecoark Holdings Inc. changed its name to BitNile Metaverse Inc. and subsequently on November 1, 2023, it changed its name to RiskOn International, Inc (“BitNile Metaverse”ROI” or the “Company”). The Company is a holding company, incorporated in the State of Nevada on November 19, 2007. On February 8, 2023, the Company entered into a Share Exchange Agreement (the “SEA”) by and among Ault Alliance, Inc. (“AAI”), the former owner of 100% of BitNile.com, Inc. (“BNC”),BNC and a significant shareholder of the Company, and the minority stockholdersshareholders of BNC (the “Minority Shareholders”). BNC was transferred to the Company upon the closing of the SEA. The SEA provides that, subject to the terms and conditions set forth therein, the Company will acquire all of the outstanding shares of capital stock of BNC as well as the common stocksecurities of Earnity, Inc. (“Earnity”) beneficially owned by BNC (which represents approximately 19.9% of the outstanding common stock of Earnity Inc. as of the date of the SEA), in exchange for the following: (i) 8,637.5 shares of newly designated Series B Convertible Preferred Stock of the Company to be issued to AAI (the “Series B”), and (ii) 1,362.5 shares of newly designated Series C Convertible Preferred Stock of the Company to be issued to the Minority Shareholders (the “Series C,” and together with the Series B, the “Preferred Stock”). The Series B and the Series C, the terms of which are summarized in more detail below, each have a stated value of $10,000 per share (the “Stated Value”), for a combined stated value of $100,000,000, and subject to adjustment are convertible into a total of up to 13,333,333 shares of the Company’s common stock, which represent approximately 92.4% of the Company outstanding common stock on a fully diluted basis.stock. The Company has independently valued the Preferred Stock as of the date of acquisition. The combined value of the Preferred Stock issued to AAI was $53,913,000 using a blended fair value of the discounted cash flow method and option pricing method. See Note 5 for the details on the asset purchase as BNC did not meet the accounting definition of a business and Note 17 for details on the Series B and C Preferred Stock.
Through JuneSeptember 30, 2023, the Company’s former wholly owned subsidiaries, with the exception of Agora, Digital Holdings, Inc., a Nevada corporation (“Agora”) and Zest Labs, Inc. (“Zest Labs”) have been treated for accounting purposes as divested. Please refer to our Annual Report for the year ended March 31, 2023 (“2023 Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on July 14, 2023 for details on all of our prior subsidiaries that were divested in the year ended March 31, 2023 and an overview of the business conducted in those subsidiaries. This quarterly report on Form 10-Q (the “Report”) includes only those subsidiaries as of JuneSeptember 30, 2023. The comparative financial statements for the three and six months ended JuneSeptember 30, 2022 reflect the operations of those subsidiaries that were sold during the year ended March 31, 2023 as discontinued operations in the condensed consolidated statements of operations and as assets and liabilities of discontinued operations on the condensed consolidated balance sheets.
The Company’s former subsidiary Zest Labs, along with the Company and Zest Labs Holdings, LLC (owned by Gary Metzger, a current board member of the Company and therefore a related party) (the “Purchaser”), entered into a stock purchase agreement dated August 25, 2023, whereby the Purchaser purchased 100% of the issued and outstanding common stock of Zest Labs from the Company in exchange for the Purchaser agreeing to distribute any net proceeds from any new or ongoing intellectual property litigation or the sale or licensing of any intellectual property of Zest Labs to the Company’s shareholders of record as of November 15, 2022. The Company recorded a gain on disposal of Zest Labs of $683,152 in this transaction. Zest Labs is no longer a subsidiary of the Company, and all of the assets and liabilities of have been assumed by the Purchaser.
The BitNile.com metaverse (the “Metaverse”) represents a significant development in the online metaverse landscape, offering immersive, interconnected digital experiences that are inclusive, engaging, and dynamic. By integrating various elements such as virtual markets, real world goods marketplaces and VIP experiences, gaming, social activities, sweepstakes, gambling, and more, the Company aims to revolutionize the way people interact online. The Company’s growing virtual world, BitNile.com (the “Platform”) is accessible via any device using any web browser, without requiring permissions, downloads, or apps, and the Platform can be enjoyed without the need for bulky and costly virtual reality headsets.
Our
The Platform games operate on a free-to-play model, whereby game players may collect coins free of charge through the passage of time and if a game player wishes to obtain coins above and beyond the level of free coins available to that player, the player may purchase additional coin packages (“Freemium” gaming model). Once obtained, Nile Tokens (“NT”) and Nile Coins (“NC”), (either free or purchased), cannot be redeemed for cash nor exchanged for anything outside of the Metaverse. When coins are used and played in the games, the game player could “win” and would be awarded additional coins or could “lose” and lose the future use of those coins. We haveThe Company has concluded that the coins represent both consumable goods and durables, because 1) the game player does not receive any additional benefit from the game and is not entitled to any additional rights once the coins are consumed and 2) because once coins are used for the purchase of durable goods, those goods will continue to benefit the player throughout their gaming life cycle.
In December 2022, Agora entered into a Master Services Agreement (“MSA”) with Sentinum, Inc. (formerly, BitNile, Inc.), a Nevada corporation and wholly owned subsidiary of AAI (“Sentinum”), governing the relationship between the parties and the services provided by Agora to the Company, which include providing the Company with digital asset mining hosting services in exchange for a monthly fee to be set out in applicable service orders. The terms of that MSA have not been met due to lack of capital by the Company to bring its 12MW of hosting power online.
The Company holds no cryptocurrency and is not an owner of any digital wallets containing currencies other than fiat currency.
5
2. LIQUIDITY AND GOING CONCERN
For the three and six months ended JuneSeptember 30, 2023, and 2022, the Company had a net income (loss)loss to controlling interest of common stockholdersshareholders of $5,945,601$(14,517,905) and $(10,196,534)$(8,572,304), respectively,respectively. In addition, the Company had negativea working capital deficit of $(15,973,816)$(24,544,923) and $(25,095,950) as of JuneSeptember 30, 2023 and March 31, 2023, respectively, and had an accumulated deficit as of JuneSeptember 30, 2023 of $(202,731,837)$(217,249,742). As of JuneSeptember 30, 2023, the Company had $2,005$1,554 in cash and cash equivalents.
The Company’s financial statements are prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company sold its interests in Banner Midstream in two separate transactions on July 25, 2022 and September 7, 2022. In addition, it sold the non-core business of Trend Discovery on June 17, 2022. The Company expects to distribute the common stock it received (or issuable upon conversion of preferred stock) in the sales to its stockholdersshareholders upon the effective registration statements for the two entities the companies were sold to. See Note 17, “Preferred Stock” for information on the Company’s recent $12 million convertibleSeries A preferred stock financing. Thatissued to Ault Lending, LLC (formerly Digital Power Lending, LLC) (“Ault Lending”) in conjunction with a $12,000,000 financing has restrictive covenants that require approvalin June 2022, and the Company’s Series B and C preferred stock issued to AAI in conjunction with the purchase of the investor formajority of the Company to engage in any equity or debt financing.issued and outstanding stock of BNC.
The Company believes that the current cash on hand is not sufficient to conduct planned operations for one year from the issuance of the condensed consolidated financial statements, and it needs to raise capital to support its operations, raising substantial doubt about its ability to continue as a going concern. The accompanying financial statements for the periodthree and six month periods ended JuneSeptember 30, 2023 have been prepared assuming the Company will continue as a going concern, but the ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes continued revenue streams and becomes profitable. Management’s plans to continue as a going concern include raising additional capital through sales of equity securities and borrowing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. If the Company is not able to obtain the necessary additional financing on a timely basis, the Company will be required to delay, reduce or perhaps even cease the operation of its business. The ability of the Company to continue as a going concern is dependent upon its ability to successfully secure other sources of financing and attain profitable operations. The Company raised approximately $3,500,000 in an At-the-Market capital raise during the fourth fiscal quarter of the year ended March 31, 2023 and the threesix months ended JuneSeptember 30, 2023. In addition, on April 27, 2023, the Company sold $6.875 million of principal face amount senior secured convertible notes with an original issue discount to sophisticated investors for gross proceeds to the Company of $5.5 million. The notes mature on April 27, 2024 and are secured by all of the assets of the Company and certain of its subsidiaries, including BNC.
On October 30, 2023, the registration statement related to the $100,000,000 equity line of credit purchase agreement was declared effective by the SEC. See Note 19, “Commitments and Contingencies”, for more information. On November 8, 2023, the Company issued a term note (“Term Note”) in a principal amount of $660,000 with an institutional investor and received $600,000 in proceeds. See Note 22, “Subsequent Events,” for more information.
3. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Regulation S-X and do not include all the information and disclosures required by generally accepted accounting principles in the United States of America (“GAAP”). The Company has made estimates and judgments affecting the amounts reported in the Company’s condensed consolidated financial statements and the accompanying notes. The actual results experienced by the Company may differ materially from the Company’s estimates. The condensed consolidated financial information is unaudited but reflects all normal adjustments that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements in the Company’s 2023 Annual Report on Form 10-K for the year ended March 31, 2023, filed with the Securities and Exchange Commission (the “SEC”)SEC on July 14, 2023. The consolidated balance sheet as of March 31, 2023 was derived from the Company’s audited 2023 financial statements contained in the above referenced 2023 Annual Report. Results of the three and six months ended JuneSeptember 30, 2023 are not necessarily indicative of the results to be expected for the full year ending March 31, 2024.
Reclassifications
The Company has reclassified certain amounts in the June 30, 2022 condensed consolidated financial statements to be consistent with the June 30, 2023 presentation, including the reclassification of our prior subsidiaries that were sold as discontinued operations. These changes had no impact on the Company’s financial position or result of operations for the periods presented.
6
Noncontrolling Interests
In accordance with Accounting Standards Codification (“ASC”) 810-10-45 Noncontrolling Interests in Consolidated Financial Statements, the Company classifies noncontrolling interests as a component of equity within the condensed consolidated balance sheet. In October 2021 and July 2022, with the issuance of restricted common stock to directors, management and advisors, the Company no longer owns 100% of Agora. As of JuneSeptember 30, 2023 and 2022, approximately 11% and 9.1%, respectively, is reflected as non-controlling interest of that entity. In addition, we havethe Company reflected 34% of Wolf Energy Services, Inc. (“Wolf Energy”) as noncontrolling interests as the Company currently represents approximately 66% of the voting interests in Wolf Energy.
Significant Accounting Policies
Other than as noted below, there have been no material changes to the Company’s significant accounting policies previously disclosed in the 2023 Annual Report.
Gaming Revenue
Gaming revenue will beis recognized from the Metaverse website primarily through the sale of tokens or coins that provide the end user with interactive entertainment (game play) and durable goods principally for the PC and mobile platforms. The Company primarily offers the following:
| 1. | Metaverse access – Provide access to main game content. |
| 2. | Sale of NTs – NT’s can be used for additional digital game play |
| 3. | Sale of NCs –NC’s can be used to participate in games of skill, buy durable goods, etc. all within the digital | |
| 4. | Rewarded – SweepCoins (“SC”) – Users can use SC to enter sweepstakes type games with a potential to win both digital goods and real world cash |
While the revenue received from the sale of NT and NC’s (collectively the “coins”) is currently nominal, we believethe Company believes that ourits operation of the BitNile.com website could be a scalable source of revenue in the future. Additionally, we expectthe Company expects the website will be a mechanism to help increase ourits brand reputation and recognition by participants, which we believethe Company believes will result in the acquisition and monetization of new users to the site.
During the three and six month periods ended JuneSeptember 30, 2023 and 2022, wethe Company recognized no revenues$1,500 of revenue from Metaverse coin sales.
Hospitality and VIP Services Revenue
Hospitality revenue currently consists of revenue from services provided to groups at certain social functions and sporting events. WeThe Company also sellsells real world VIP experiences and one-of-a-kind products. Hospitality and VIP service revenue is generated through contracts with customers whereby the customer agrees to pay a contract rate, determined based on common industry prices, for the services we provide.the Company provides.
The Company recognizes revenue when performance obligations to provide food and services are satisfied at the point in time when the food and services are received by the customer, which is when the event is held and services are complete.
The Company recognizes revenue on a gross basis due to the fact that we haveit has control over the food and services and the ability to direct the offerings to multiple end consumers while also ultimately determining the relative pricing offered for the services. For certain events, weThe Company also useuses certain subcontractors that we selectit selects and hirehires to help transfer services to the end customer. We haveThe Company has evaluated ourits agreements with ourits food and service subcontractors and based on the preceding, wethe Company determined that the Companyit is the principal in such arrangements and the third-party food and service suppliers are the agent in accordance with ASC 606, Revenue from Contracts with Customers. As the principal, the Company recognizes revenue in the gross amount and as such, recognizes any fees paid to subcontractors as cost of revenues. Any future changes in these arrangements or to the Company’s games and related method of distribution may result in a different conclusion.
Concentrations
The Company occasionally maintains cash balances in excess of the Federal Deposit Insurance Corporation insured limit. The Company does not consider this risk to be material.
7
Segment Reporting
As of June 30, 2023 Agora has not been able to secure additional funding to be able to provide services and infrastructure to Sentinum as the MSA previously entered into contemplated. As Agora has not engaged in any business activities, it is uncertain if financing will be obtained in order to build out the hosting facility to be able to engage in business activities and there are no operations for management to evaluate Agora as an operating segment, the Company does not segregate its operations as most of the continuing operations relate to BNC.
Net Income (Loss)Loss Per Share
Basic net income (loss)loss per common share is computed using the weighted average number of common shares outstanding. Diluted earnings (loss)loss per share (“EPS”) includeincludes additional dilution from common stock equivalents, such as convertible notes, preferred stock, stock issuable pursuant to the exercise of stock options and warrants.
Common stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive for periods presented, so only the basic weighted average number of common shares are used in the computations.
During the three months ended the Company reported net income which was the result of the change in fair value of the derivative liabilities. Removing the mark to market impact leads to a net loss which is anti-dilutive in nature. Therefore, there will be no dilutive impact resulting from the change in the fair value of the derivative liabilities since all dilutive instruments are out of the money.
Recently Issued Accounting Standards
The Company does not expect that any recently issued accounting guidance will have a significant effect on its condensed consolidated financial statements.
8
4. DISCONTINUED OPERATIONS
As discussed in Note 1 and in ourthe 2023 Annual Report, during the year ended March 31, 2023, wethe Company sold all of ourits subsidiaries, other than Agora and Zest Labs. OurOn August 25, 2023, the Company sold 100% of the issued and outstanding stock of Zest Labs to the Purchaser (see Note 1). The Company’s loss from discontinued operations includes Banner Midstream Corp, Trend Discovery, and Trend DiscoveryZest Labs for the three and six months ended JuneSeptember 30, 2022, which waswere sold in twothree separate transactions on July 25, 2022, and September 7, 2022.2022 and August 25, 2023, respectively. In addition on June 17, 2022, Agora sold all of its non-Bitcoin operations to a third party. We reflectThe Company reflects the assets and liabilities of Wolf Energy Services, Inc. as discontinued operations, as we havethe Company has a 66% voting interest in this companyWolf Energy that will be part of ourthe Company’s dividend to theits shareholders upon the effective S-1 registration itWolf Energy has filed with the SEC.
Current assets as of JuneSeptember 30, 2023 and March 31, 2023–2023 – Discontinued Operations:
| June 30, 2023 | March 31, 2023 | |||||||
| Wolf Energy Services, Inc. | $ | 1,384,224 | $ | 1,297,801 | ||||
| $ | 1,384,224 | $ | 1,297,801 | |||||
| September 30, 2023 | March 31, 2023 | |||||||
| Wolf Energy | $ | 60,860 | $ | 1,297,801 | ||||
| Prepaid expenses | - | 4,908 | ||||||
| $ | 60,860 | $ | 1,302,709 | |||||
Non-current assets as of JuneSeptember 30, 2023 and March 31, 2023 – Discontinued Operations:
| June 30, 2023 | March 31, 2023 | |||||||
| Wolf Energy Services, Inc. | $ | 417,237 | $ | 984,071 | ||||
| $ | 417,237 | $ | 984,071 | |||||
| September 30, 2023 | March 31, 2023 | |||||||
| Wolf Energy | $ | 259,790 | $ | 984,071 | ||||
| $ | 259,790 | $ | 984,071 | |||||
Current liabilities as of JuneSeptember 30, 2023 and March 31, 2023–2023 – Discontinued Operations:
| June 30, 2023 | March 31, 2023 | |||||||
| Wolf Energy Services, Inc. | $ | 3,591,359 | $ | 2,952,257 | ||||
| $ | 3,591,259 | $ | 2,952,257 | |||||
| September 30, 2023 | March 31, 2023 | |||||||
| Wolf Energy | $ | 1,750,910 | $ | 2,952,257 | ||||
| Zest Accounts payable | - | 532,279 | ||||||
| Zest Accrued expenses | - | 85,136 | ||||||
| $ | 1,750,910 | $ | 3,569,672 | |||||
Non-current liabilities as of JuneSeptember 30, 2023 and March 31, 2023–2023 – Discontinued Operations:
| June 30, 2023 | March 31, 2023 | |||||||
| Wolf Energy Services, Inc. | $ | 364,076 | $ | 377,786 | ||||
| $ | 364,076 | $ | 377,786 | |||||
| September 30, 2023 | March 31, 2023 | |||||||
| Wolf Energy | $ | 1,108,955 | $ | 377,786 | ||||
| $ | 1,108,955 | $ | 377,786 | |||||
The Company reclassified the following operations to discontinued operations for the three monthsand six month periods ended JuneSeptember 30, 2023 and 2022, respectively.2022.
| 2023 | 2022 | |||||||
| Revenue | $ | - | $ | 7,034,839 | ||||
| Operating expenses | - | 9,271,487 | ||||||
| Wolf Energy Services, Inc. – net loss | (1,143,303 | ) | - | |||||
| Other loss | - | 399,170 | ||||||
| Net loss from discontinued operations | $ | (1,143,303 | ) | $ | (2,635,818 | ) | ||
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | $ | - | $ | 3,795,607 | $ | - | $ | 10,955,153 | ||||||||
| Operating expenses | - | 7,259,381 | 576,343 | 18,256,453 | ||||||||||||
| Wolf Energy – net loss | (385,242 | ) | (3,826,919 | ) | (1,528,545 | ) | (3,836,919 | ) | ||||||||
| Other loss | - | (338,755 | ) | - | (560,831 | ) | ||||||||||
| Net loss from discontinued operations | $ | (385,242 | ) | $ | (7,629,448 | ) | $ | (2,104,888 | ) | $ | (11,699,050 | ) | ||||
The following represents the calculation of the gain on disposal of Trend Discovery at June 17, 2022:
| Secured note receivable | $ | 4,250,000 | ||
| Cash | (27,657 | ) | ||
| Accounts receivable | (222,400 | ) | ||
| Prepaid expenses | (99,566 | ) | ||
| Goodwill | (3,222,799 | ) | ||
| Other assets | (284 | ) | ||
| Accounts payable and accrued expenses | 34,211 | |||
| Gain on disposal of discontinued operations | $ | 711,505 |
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5. ASSET PURCHASEBUSINESS COMBINATIONS/DIVESTITURES
BNC
On March 7, 2023, the Company acquired BNC from AAI. The Company accounted for this acquisition as an asset purchase as BNC did not meet the definition of a business as discussed in ASC 805 and ASUAccounting Standards Update (“ASU”) 2017-01.
The Company acquired the assets and liabilities of BNC noted below at fair value.
| Prepaid expenses | $ | 620,616 | $ | 620,616 | ||||
| Property and equipment | 330,190 | 330,190 | ||||||
| Intangible assets | 6,239,000 | 6,239,000 | ||||||
| Accounts payable and accrued expenses | (3,186,513 | ) | (3,186,513 | ) | ||||
| Due to BitNile.com former parent | (4,404,350 | ) | ||||||
| Due to BNC former parent | (4,404,350 | ) | ||||||
| Notes payable | (170,222 | ) | (170,222 | ) | ||||
| $ | (571,279 | ) | ||||||
| Total assets and liabilities | $ | (571,279 | ) | |||||
The consideration paid for the acquisition of BNC was as follows (see Note 17):
| Series B and Series C Preferred Stock | $ | 53,913,000 | ||
| Total consideration | $ | 53,913,000 |
The Acquisitionacquisition has been accounted for as a purchase of assets. The Company recognized a loss on the acquisition as of March 7, 2023 of $54,484,279 as a result of this acquisition in the condensed consolidated Statementsstatements of operationsoperations.
Zest Labs
On August 25, 2023, the Company sold 100% of the issued and outstanding stock of Zest Labs to the Purchaser (see Note 1) in consideration for the Purchaser agreeing to distribute any net proceeds from any new or ongoing intellectual property litigation or the sale or licensing of any intellectual property of Zest Labs to the Company’s shareholders of record as of November 15, 2022.
The Company sold the assets and liabilities of Zest Labs noted below at fair value.
| Prepaid expenses | $ | 2,454 | ||
| Accounts payable and accrued expenses | (685,606 | ) | ||
| Total assets and liabilities | $ | (683,152 | ) |
The Company recorded a gain on March 7,disposal of Zest Labs of $683,152 for the six and three months ended September 30, 2023.
6. REVENUE
The Company recognizes revenue when it transfers promised services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those services. For the three months ended June 30, 2023 the Company recognized $45,150 of revenue from hospitality and VIP experience services.
As part of each of the Company’s social functionfunctions or event, there isevents, the Company offers the option to request catering services for an additional charge. TheFor the three and six months ended September 30, 2023 the Company recognized $19,200 and $64,350, respectively, of revenue from hospitality and VIP experience services revenues were $45,150and gaming and $0 respectively, for the three months ended June 30, 2023 andin 2022.
WeThe Company had related party hospitality service sales of $41,250$17,700 and $62,850 for the three and six month period ended September 30, 2023, respectively, and $0 for the three and six month period ended JuneSeptember 30, 2023 and 2022, respectively.2022.
7. SENIOR SECURED PROMISSORY NOTE RECEIVABLE
Agora was issued a Senior Secured Promissory Note by Trend Ventures, LP (“Trend Ventures Note”) on June 16, 2022. The Trend Ventures Note was the consideration paid to Agora for the acquisition of Trend Discovery Holdings.Discovery. The Trend Ventures Note is in the principal amount of $4,250,000, bears interest at the rate of 5% per annum, and was to mature June 16, 2025. Under the Trend Ventures Note, Trend Ventures, LP has agreed to make interest-only payments, in arrears on a monthly basis commencing on June 30, 2022 and continuing thereafter until June 16, 2023. Beginning on June 30, 2023, Trend Ventures, LP agreed to make 24 consecutive equal monthly payments of principal each in an amount which would fully amortize the principal, plus accrued interest. All principal and any unpaid accrued interest will be due and payable on or before the maturity date. The Trend Ventures Note will be granted a first lien senior secured interest as set forth in the Security Agreementa security agreement executed on the same date as the Trend Ventures Note, by and among Trend Ventures, LP, its future subsidiaries (each a guarantor) and Agora dated as of June 16, 2022. Trend has not made any interest payments on the Trend Ventures Note.
On May 15, 2023, Agora and Trend Ventures, LP entered into a First Amendment of Senior Secured Promissory Note (“First Amendment”), to amend the $4,250,000 senior secured promissory note entered into June 16, 2022.Trend Ventures Note. The First Amendment amended the following clauses of the original note:Trend Ventures Note: (a) the principal amount was amended from $4,250,000 to $4,443,870, which includes all of the accrued interest through May 15, 2023; (b) the maturity date was amended from June 16, 2025 to May 15, 2025; and (c) the interest rate shall remain at 5%, and any additional accrued interest under the Default Ratedefault rate shall be mutually waived by both parties. No payments on either principal or interest shall be due until the new maturity date.
As of JuneSeptember 30, 2023, the Company has established a full reserve for the principal and accrued interest receivable.
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8. INVESTMENT – SERIES A CONVERTIBLE PREFERRED STOCK – WTRV
On July 25, 2022, the Company entered into a Share Exchange Agreement pursuant to which that day it sold to WTRV its oil and gas production business, which iswas part of the Commoditiescommodities segment. The Company received 1,200 shares of WTRV’s Series A Convertible Preferred Stock, which becomes convertible into 42,253,521 shares of WTRV common stock upon such time as (A) WTRV has filed a Form S-1 with the SEC and such Form S-1 has been declared effective, or is no longer subject to comments from the Staff of the SEC, and (B) the Company elects to distribute shares of itsWTRV’s common stock to its stockholders. Basedshareholders. The S-1 was declared effective by the SEC on the lower of cost or market, the value of the investment was determined to be $30,000,000. As of June 30,September 29, 2023, WTRV has not had its registration statement declared effective. The Company engaged an independent valuation consultant who has determined there is a $20,775,215 loss on this investment andfile number 333-268707, but the Company has subsequently markednot yet elected to convert the investment down to $9,224,785Series A preferred stock as it is still determining next steps on the previously proposed distribution of March 31, 2023 and has reflected this in the consolidated statement of operations for the year ended March 31, 2023 based on various approaches and methods of valuation including the market approach and the precedent transaction method. There has been no further write down of this investment as of June 30, 2023.shares.
As of JuneSeptember 30, 2023, the Company has determined that it is not the primary beneficiary, and this transaction has not resulted in the Company controlling WTRV as the preferred shares are unable to behave not yet been converted untilinto common stock, and the effectiveness of the registration statement being filed for WTRV,Company does not have the power to direct activities of WTRV, control the Boardboard of Directorsdirectors of WTRV and WTRV is not reliant upon funding by the Company moving forward; therefore the Company concluded that WTRV is not a variable interest entity or VIE, as of JuneSeptember 30, 2023.
9. INVESTMENT – COMMON STOCK – WOLF ENERGY SERVICES, INC.
On August 23, 2022, the Company entered into a Share Exchange Agreement (the “Agreement”) with Wolf Energy and Banner Midstream. Pursuant to the Agreement, upon the terms and subject to the conditions set forth therein, the Company acquired 51,987,832 shares of Wolf Energy common stock in exchange for all of the capital stock of Banner Midstream owned by the Company, which represents 100% of the issued and outstanding shares (the “Exchange”).shares. Following the closing of the Agreement, which occurred on September 7, 2022, Banner Midstream continues as a wholly owned subsidiary of Wolf Energy. Based on the lower of cost or market, the value of the investment was determined to be $5,328,753. On September 7, 2022, the Exchange was completed, and Banner Midstream became a wholly owned subsidiary of Wolf Energy. The Company has determined that as of JuneSeptember 30, 2023, there is no loss on this investment.
The Company has determined that this transaction has resulted in the Company having a controlling interest in Wolf Energy as the common stock issued represents approximately 66% of the voting common stock of Wolf Energy common stock outstanding at JuneSeptember 30, 2023 and March 31, 2023. Since the Company will be distributing to its stockholdersshareholders a stock dividend to all common and preferred stockholdersshareholders with a stock dividend date of September 30, 2022, the Company has reflected Wolf Energy, in discontinued operations as the Company intends to hold no shares and thus no voting interest upon the effectiveness of a registration statement for Wolf Energy, and the investment has been eliminated in the consolidation.
10. INVESTMENT – EARNITY INC.
As part of the acquisition of BitNile.com,BNC, the Company acquired BNC’s 19.9% ownership in Earnity, Inc., a company that aimed to democratize access to the broadest array of cryptocurrency assets in a secure, educational, and community-oriented platform to global customers. In the purchase of BNC, the Company allocated no value to this investment. Additionally, subsequentSubsequent to the acquisition of the Company’s acquisition of BNC, Earnity Inc. has permanently ceased operations.
11. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of JuneSeptember 30, 2023 and March 31, 2023:
| June 30, 2023 | March 31, 2023 | |||||||
| Zest Labs freshness hardware, equipment and computer costs | $ | 2,915,333 | $ | 2,915,333 | ||||
| Land | 125,000 | 125,000 | ||||||
| Furniture | 40,074 | 40,074 | ||||||
| Auto – BNC | 220,786 | 220,786 | ||||||
| Equipment – BNC | 109,404 | 109,404 | ||||||
| Mining technology equipment– Bitcoin | 5,639,868 | 5,639,868 | ||||||
| Auto – Bitcoin | 91,132 | 91,132 | ||||||
| Total property and equipment | 9,141,597 | 9,141,597 | ||||||
| Accumulated depreciation and impairment | (4,742,093 | ) | (4,709,194 | ) | ||||
| Property and equipment, net | $ | 4,399,504 | $ | 4,432,403 | ||||
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As of June 30, 2023, the Company performed an evaluation of the recoverability of these long-lived assets. There has been no impairment for the three months ended June 30, 2023 and 2022.
| September 30, 2023 | March 31, 2023 | |||||||
| (unaudited) | ||||||||
| Zest Labs freshness hardware, equipment and computer costs | $ | - | $ | 2,915,333 | ||||
| Land | 125,000 | 125,000 | ||||||
| Furniture | - | 40,074 | ||||||
| Auto – BNC | 232,406 | 220,786 | ||||||
| Equipment – BNC | 174,404 | 109,404 | ||||||
| Mining technology equipment– Bitcoin | - | 5,639,868 | ||||||
| Auto – Bitcoin | 91,132 | 91,132 | ||||||
| Total property and equipment | 622,942 | 9,141,597 | ||||||
| Accumulated depreciation and impairment | (151,613 | ) | (4,709,194 | ) | ||||
| Property and equipment, net | $ | 471,329 | $ | 4,432,403 | ||||
Depreciation expense for the three and six months ended JuneSeptember 30, 2023 was $32,420 and $65,319, respectively. Depreciation expense for the three and six months ended September 30, 2022 was $32,899$15,661 and $35,975,$48,560, respectively. On August 25, 2023, the Company sold 100% of the issued and outstanding common stock of Zest Labs, and all the assets and liabilities of Zest Labs were assumed by the Purchaser as discussed in Note 1. The net amount of property and equipment recorded in the sale was $0.
Effective September 30, 2023, the Company impaired $5,679,942 of gross fixed assets related to Agora and Bitstream Mining LLC (“Bitstream”) that had $1,784,189 in accumulated depreciation. The $3,895,753 of net property and equipment remaining was impaired as the Company deemed the assets without value as they have been unable to commence mining operations, either for themselves or from others through hosting arrangements, and is not expected to.
On November 1, 2023, both Agora and Bitstream filed petitions for Chapter 7 bankruptcy in the United States Bankruptcy Court for the Western District of Texas, cases 23-51490 and 23-51491, respectively.
12. INTANGIBLE ASSETS
Intangible assets consisted of the following as of JuneSeptember 30, 2023 and March 31, 2023:
| June 30, 2023 | March 31, 2023 | September 30, 2023 | March 31, 2023 | |||||||||||||
| Trademarks | $ | 5,097,000 | $ | 5,097,000 | $ | 5,097,000 | $ | 5,097,000 | ||||||||
| Developed technology | 1,142,000 | 1,142,000 | 1,142,000 | 1,142,000 | ||||||||||||
| Accumulated amortization - trademarks | (113,268 | ) | (28,317 | ) | (198,217 | ) | (28,317 | ) | ||||||||
| Accumulated amortization - developed technology | (25,376 | ) | (6,344 | ) | (44,411 | ) | (6,344 | ) | ||||||||
| Intangible assets, net | $ | 6,100,356 | $ | 6,204,339 | $ | 5,996,372 | $ | 6,204,339 | ||||||||
On March 7, 2023, the Company acquired trademarks and developed technology in the acquisition of BNC. These intangible assets were valued by an independent valuation consultant utilizing various methods including the discounted cash flow and option-pricing methods, and the estimated remaining useful life of these assets was estimated to be fifteen years.
Amortization expense for the three and six months ended JuneSeptember 30, 2023 and 2022 was $103,983 and $207,967, respectively, and $0 respectively. for the three and six months ended September 30, 2022.
On August 25, 2023, the Company sold 100% of the issued and outstanding common stock of Zest Labs, and all the assets and liabilities of Zest Labs were assumed by the Purchaser as discussed in Note 1. The net amount of property and equipment recorded in the sale was $0.
Amortization expense for the next five years and in the aggregate is as follows:
| 2024 | $ | 415,933 | ||||||
| Remaining fiscal year 2024 | $ | 207,967 | ||||||
| 2025 | 415,933 | 415,933 | ||||||
| 2026 | 415,933 | 415,933 | ||||||
| 2027 | 415,933 | 415,933 | ||||||
| 2028 | 415,933 | 415,933 | ||||||
| Thereafter | 4,020,691 | 4,124,673 | ||||||
| $ | 6,100,356 | $ | 5,996,372 | |||||
13. ACCRUED EXPENSES
Accrued expenses consisted of the following as of JuneSeptember 30, 2023 and March 31, 2023:
| June 30, 2023 | March 31, 2023 | September 30, 2023 | March 31, 2023 | |||||||||||||
| Professional fees and consulting costs | $ | 788,230 | $ | 703,869 | $ | 354,488 | $ | 790,214 | ||||||||
| Vacation and paid time off | 120,375 | 77,919 | ||||||||||||||
| Legal fees | 48,019 | 171,481 | ||||||||||||||
| Platform hosting fees | 1,000,000 | - | ||||||||||||||
| Compensation vacation and paid time off | 353,633 | 138,262 | ||||||||||||||
| Sponsorship | 200,000 | 500,000 | 200,000 | 500,000 | ||||||||||||
| Compensation | 60,343 | 60,343 | ||||||||||||||
| Interest | 70,429 | 61,722 | 79,232 | 61,722 | ||||||||||||
| Accrued legal contingencies | 414,027 | - | ||||||||||||||
| Other | 63,855 | 68,160 | 461,738 | 68,160 | ||||||||||||
| Total | $ | 1,351,251 | $ | 1,643,494 | $ | 2,863,118 | $ | 1,558,358 | ||||||||
14. WARRANT DERIVATIVE LIABILITIES
The Company identified embedded features in some of the warrant agreements which were classified as a liability. These embedded features included (a) the implicit right for the holders to request that the Company settle the warrants in registered shares. Since maintaining an effective registration of shares is potentially outside the control of the Company, these warrants were classified as liabilities as opposed to equity; (b) the right for the holders to request that the Company cash settle the warrant instruments from the holder by paying to the holder an amount of cash equal to the Black-Scholes value of the remaining unexercised portion of the Derivative Warrant Instrumentsderivative warrant instruments on the date of the consummation of a fundamental transaction; and (c) certain price protections in the agreements. The accounting treatment of derivative financial instruments requires that the Company treat the whole instrument as a liability and record the fair value of the instrument as derivatives as of the inception date of the instrument and to adjust the fair value of the instrument as of each subsequent balance sheet date.
12
We haveThe Company has only included descriptions of warrants that are still outstanding as of JuneSeptember 30, 2023.
On August 6, 2021, the Company closed a $20,000,000 registered direct offering. The Company sold 115,942 shares of common stock and 115,942 warrants at $172.50 per share. The warrants are exercisable through April 8, 2025. The Company also issued the placement agent 8,116 warrants exercisable at $215,625$215.625 per share. Further information on the offering and compensation to the placement agent is contained in the prospectus supplement dated August 4, 2021. The fair value of the investor warrants was estimated to be $11,201,869 at inception and $123$11 as of JuneSeptember 30, 2023. The fair value of the placement agent warrants was estimated to be $744,530 at inception and $6$0 as of JuneSeptember 30, 2023.
On April 27, 2023, the Company closed a $6,875,000 senior secured convertible promissory note and with the senior secured convertible note, the Company granted the noteholders 2,728,1752,100,905 warrants that expire five years from the issuance date and have a strike price of $3.28. The warrants contain a rachet provision which the Company has determined meets the criteria for accounting treatment as a derivative liability. The Company recorded a discount on the convertible note of $4,329,755, which represents the derivative liability at inception of the warrants. The fair value of the warrants was estimated to be $2,138,542$1,109,372 as of JuneSeptember 30, 2023.
The Company determined ourits derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of JuneSeptember 30, 2023 and March 31, 2023. The Black-Scholes model requires six basic data inputs: the exercise or strike price,price; time to expiration,expiration; the risk-free interest rate,rate; the current stock price,price; the estimated volatility of the stock price in the future,future; and the dividend rate.
Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each warrant is estimated using the Black-Scholes valuation model. The following assumptions were used on JuneSeptember 30, 2023 and March 31, 2023 and at inception:
2023 | Year Ended March 31, 2023 | Inception | ||||||||||
| Expected term | 1 – 5 years | 0.25 – 1.85 years | 5.00 years | |||||||||
| Expected volatility | 110 – | 107 – | 91% – | |||||||||
| Expected dividend yield | - | - | - | |||||||||
| Risk-free interest rate | 3.48 – | 2.98 – 3.88% | 1.50% – | |||||||||
| Market price | $0.99 – $4.50 | $5.40 – $39.00 |
The Company’s remaining derivative liabilities as of JuneSeptember 30, 2023 and March 31, 2023 associated with warrant offerings were as follows.
| June 30, 2023 | March 31, 2023 | September 30, 2023 | March 31, 2023 | |||||||||||||
| Fair value of 115,942 August 6, 2021 warrants | $ | 123 | $ | 5,974 | $ | 11 | $ | 5,974 | ||||||||
| Fair value of 8,116 August 6, 2021 warrants | 6 | 290 | - | 290 | ||||||||||||
| Fair value of 2,728,175 April 27, 2023 warrants | 2,138,542 | - | ||||||||||||||
| Fair value of 2,100,905 April 27, 2023 warrants | 1,109,372 | - | ||||||||||||||
| $ | 2,138,671 | $ | 6,264 | $ | 1,109,383 | $ | 6,264 | |||||||||
During the threesix months ended JuneSeptember 30, 2023 and 2022, the Company recognized changes in the fair value of the derivative liabilities of $2,197,348$2,231,127 and $(393,532),$2,892,472, respectively.
Activity related to the warrant derivative liabilities for the three months ended June 30, 2023 was as follows:
| Beginning balance as of March 31, 2023 | $ | 6,264 | ||
| Issuances of warrants – derivative liabilities | 4,329,755 | |||
| Warrants exchanged for common stock | - | |||
| Change in fair value of warrant derivative liabilities | (2,197,348 | ) | ||
| Ending balance as of June 30, 2023 | $ | 2,138,671 |
13
Activity related to the warrant derivative liabilities for the threesix months ended JuneSeptember 30, 2023 was as follows:
| Beginning balance as of March 31, 2023 | $ | 6,264 | ||
| Issuances of warrants – derivative liabilities | 3,334,246 | |||
| Warrants exchanged for common stock | - | |||
| Change in fair value of warrant derivative liabilities | (2,231,127 | ) | ||
| Ending balance as of September 30, 2023 | $ | 1,109,383 |
Activity related to the warrant derivative liabilities for the six months ended September 30, 2022 was as follows:
| Beginning balance as of March 31, 2022 | $ | 4,318,630 | $ | 4,318,630 | ||||
| Issuances of warrants – derivative liabilities | - | - | ||||||
| Warrants exchanged for common stock | - | - | ||||||
| Change in fair value of warrant derivative liabilities | (393,532 | ) | (2,892,472 | ) | ||||
| Ending balance as of June 30, 2022 | $ | 3,925,098 | ||||||
| Ending balance as of September 30, 2022 | $ | 1,426,158 | ||||||
15. LONG-TERM DEBT
Long-term debt included in continuing operations consisted of the following as of JuneSeptember 30, 2023 and March 31, 2023. All debt instruments repaid during the year ended March 31, 2023 are not included in the below chart and the chart only reflects those instruments that had a balance owed as of these dates. 2023:
| June 30, 2023 | March 31, 2023 | September 30, 2023 | March 31, 2023 | |||||||||||||
| Credit facility -Trend Discovery SPV 1, LLC (a) | $ | 291,036 | $ | 291,036 | $ | 291,036 | $ | 291,036 | ||||||||
| Auto loan – Ford (b) | 65,111 | 68,114 | 62,064 | 68,114 | ||||||||||||
| Auto loan – Cadillac (c) | 165,406 | 170,222 | 160,381 | 170,222 | ||||||||||||
| Total long-term debt | 521,553 | 529,372 | 513,481 | 529,372 | ||||||||||||
| Less: current portion | (324,737 | ) | (323,818 | ) | (325,699 | ) | (323,818 | ) | ||||||||
| Long-term debt, net of current portion | $ | 196,816 | $ | 205,554 | $ | 187,782 | $ | 205,554 | ||||||||
| (a) | On December 28, 2018, the Company entered into a $10,000,000 credit facility that includes a loan and security agreement where the lender agreed to make one or more loans to the Company, and the Company may make a request for a loan or loans from the lender, subject to the terms and conditions. The Company is required to pay interest biannually on the outstanding principal amount of each loan calculated at an annual rate of 12%. The loans are evidenced by demand notes executed by the Company. The Company is able to request draws from the lender up to $1,000,000 with a cap of $10,000,000. In the year ended March 31, 2022, the Company borrowed $595,855, which |
| (b) | On February 16, 2022, the Company entered into a long-term secured note payable for $80,324 for a service truck maturing February 13, 2028. The note is secured by the collateral purchased and accrues interest annually at 5.79% with principal and interest payments due monthly. There is no accrued interest as of |
| (c) | On March 6, 2023, in the acquisition of BNC, the Company assumed an auto loan for a Cadillac in the amount of $170,222. The loan bears interest at 14.18% and matures December 2028. |
The following is a list of maturities by fiscal year as of June 30:September 30, 2023:
| 2024 | $ | 324,737 | ||||||
| Remaining 2024 | $ | 325,699 | ||||||
| 2025 | 37,719 | 38,804 | ||||||
| 2026 | 42,277 | 43,512 | ||||||
| 2027 | 47,464 | 48,869 | ||||||
| 2028 | 48,349 | 45,884 | ||||||
| Thereafter | 21,007 | 10,713 | ||||||
| $ | 521,553 | $ | 513,481 | |||||
Interest expense on long-term debt during the three and six months ended JuneSeptember 30, 2023 was $9,735 and $25,528, respectively. Interest expense on long-term debt during the three and six months ended September 30, 2022 were $15,793was $32,379 and $11,754,$44,133, respectively.
16. NOTES PAYABLE
Related Parties
AAI advanced the Company $781,898$781,897 and $7,510,520 during the three and six months ended JuneSeptember 30, 2023.2023, respectively. The advances were used for working capital purposes, were unsecured, interest-free and had no fixed terms of repayment as of JuneSeptember 30, 2023.
14
Convertible Notes
On April 27, 2023, the Company sold $6.875 million of principal face amount senior secured convertible notes with an original issue discount to sophisticated investors for gross proceeds to the Company of $5.5 million. The notes mature on April 27, 2024 and are secured by all of the assets of the Company and certain of its subsidiaries, including BNC. There is no interest on the convertible notes unless there is an event of default. The notes are convertible into shares of common stock at $3.28, however there is a rachet provision in the convertible note that enables the holders of the notes to receive a lower conversion rate upon future issuances by the Company that fall below the $3.28 price. The conversion option meets the criteria of a derivative instrument, and the convertible note has been discounted $5,500,000$4,686,817 for the day one derivative liability. In addition, the Company has recorded $1,375,000 in original issue discount, which is being amortized overusing the interest method forover the term of the note. Amortization of the original issue discount related to the convertible note was $241,096$345,628 and $586,724 for the three and six months ended JuneSeptember 30, 2023. Amortization of the conversion option and warrant derivative instruments related to the convertible note was $1,997,660 for the six months ended September 30, 2023.
| Beginning balance as of March 31, 2023 | $ | - | ||
| Issuance of convertible notes | 6,875,000 | |||
| Less: Original issue discount - inception | (1,375,000 | ) | ||
| Amortization of original issue discount | 241,096 | |||
| Less: Debt discount – reclassification to derivative liability | (5,500,000 | ) | ||
| Ending balance as of June 30, 2023 | $ | 241,096 |
| Beginning balance as of March 31, 2023 | $ | - | ||
| Issuance of convertible notes | 6,875,000 | |||
| Less: original issue discount - inception | (1,375,000 | ) | ||
| Amortization of discounts | 2,584,384 | |||
| Less: debt discount – reclassification to derivative liability (*) | (4,686,817 | ) | ||
| Ending balance as of September 30, 2023 | $ | 3,397,567 |
| (*) | This amount also includes discount related to the warrants issued with the convertible note (see Note 14). |
Activity related to the convertible note derivative liabilities for the threesix months ended JuneSeptember 30, 2023 iswas as follows:
| Beginning balance as of March 31, 2023 | $ | - | $ | - | ||||
| Issuances of convertible note – derivative liabilities | 1,352,322 | 1,352,322 | ||||||
| Change in fair value of convertible note derivative liabilities | (1,029,237 | ) | (1,278,650 | ) | ||||
| Ending balance as of June 30, 2023 | $ | 323,085 | ||||||
| Ending balance as of September 30, 2023 | $ | 73,672 | ||||||
17. PREFERRED STOCK
BitNile MetaverseRiskOn International Series A
On June 8, 2022, the Company entered into a Securities Purchase Agreement (the “Series A Agreement”) with Ault Lending, LLC (formerly Digital Power Lending, LLC), a California limited liability company (the “Purchaser”), pursuant to which the Company sold the PurchaserAult Lending 1,200 shares of Series A Convertible Redeemable Preferred Stock (the “BitNile Metaverse“RiskOn International Series A”), 3,429 shares of common stock (the “Commitment Shares”) and a warrant to purchase shares of common stock (the “Warrant,” and together with the BitNile MetaverseRiskOn International Series A and the Commitment Shares, the “Securities”) for a total original purchase price of $12,000,000. The PurchaserAult Lending is a subsidiary of AAI. The Company determined that the classification of the BitNile MetaverseRiskOn International Series A was mezzanine equity as the option to convert the shares belongsbelong to the Purchaser.Ault Lending. A description of the material transaction components are as follows:
Conversion Rights
Prior to the November 2022 amendment described below, each share of BitNile MetaverseRiskOn International Series A had a stated value of $10,000 and was convertible into shares of common stock at a conversion price of $63.00 per share, subject to customary adjustment provisions. The holder’s conversion of the BitNile MetaverseRiskOn International Series A was subject to a beneficial ownership limitation of 19.9% of the issued and outstanding common stock as of any conversion date of the BitNile MetaverseRiskOn International Series A, unless and until the Company obtains stockholdershareholder and The Nasdaq Stock Market (“Nasdaq”) approval for the conversion of more than that amount, in order to comply with Nasdaq Rules. StockholderShareholder approval was obtained on September 9, 2022. In addition, the conversion rights in general did not become effective until July 23, 2022, which is one day after the record date for the stockholdersshareholders meeting seeking such stockholdershareholder approval at the September 9, 2022 meeting. The shares of BitNile MetaverseRiskOn International Series A as amended are also subject to a 4.99% beneficial ownership limitation, which may be increased to up to 9.9% by the holder by giving 61 days’ notice to the Company.
On November 28, 2022, the Company, following an agreement with the Purchaser, the CompanyAult Lending, amended the Certificate of Designations of Rights, Preferences and Limitations (the “Certificate”) of the BitNile MetaverseRiskOn International Series A previously issued to the PurchaserAult Lending to: (i) increase the stated value of the BitNile MetaverseRiskOn International Series A from $10,000 to $10,833.33; (ii) provide for the dividends payable under the BitNile MetaverseRiskOn International Series A to be payable in common stock rather than cash effective November 1, 2022,2022; and (iii) reduce the conversion price of the BitNile MetaverseRiskOn International Series A from $63.00 to the lesser of (a) $30.00 or (b) the higher of (1) 80% of the 10-day daily volume weighted average price, or (2) $7.50. The amendment on November 28, 2022 constituted a modification to the classification of the BitNile MetaverseRiskOn International Series A from mezzanine equity to liability. The Company determined, in accordance with ASC 470-50-40, that the amendment would be accounted for as a debt modification as opposed to a debt extinguishment as the amendment did not meet the 10% threshold when comparing the present value of the remaining cash flows to the value to the original terms of the BitNile MetaverseRiskOn International Series A. As a result of this modification, the Company recognized a debt modification expense of $879,368. Upon reclassification to preferred stock liability, the Company analyzed the terms and determined that the preferred stock liability was considered a derivative liability and measured the derivative liability at inception (November 28, 2022). This measurement resulted in a gain of $2,878,345.
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As described in Note 19 “Commitments and Contingencies”, Nasdaq is alleging that the November 2022 amendment to the Series A violated its voting and stockholder approval requirements, and has also done so with regard to the recent BNC transaction, although the Company plans to seek stockholder approval for both transactions subject to Nasdaq approval therefore and make any modifications Nasdaq requires.
Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of the preferred stock liability is estimated using the Black-Scholes valuation model. The following assumptions were used for the three months ended Juneon September 30, 2023 and year ended March 31, 2023:
| September 30, 2023 | March 31, 2023 | |||||||
| Expected term | 1.66 – 2.00 years | 1.66 – 2.00 years | ||||||
| Expected volatility | 108 – | 108 – | ||||||
| Expected dividend yield | - | - | ||||||
| Risk-free interest rate | 3.48 – | 3.48 – | ||||||
| Market price | $1.15 – $22.80 | $3.60 – $22.80 |
As described in Note 19 “Commitments and Contingencies”, on November 2, 2023, the Company received a notice in the form of a letter (“Deficiency Letter”) from the Staff of the Nasdaq stating that the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2) because the bid price for the Company’s common stock had closed below $1.00 per share for the previous 31 consecutive business days. See Note 22, “Subsequent Events”, for more information.
Negative Covenants and Approval Rights
The BitNile Metaverse Series A Certificate of Designation (the “Certificate”) subjects the Company to negative covenants restricting its ability to take certain actions without prior approval from the holder(s) of a majority of the outstanding shares of BitNile MetaverseRiskOn International Series A for as long as the holder(s) continue to hold at least 25% (or such higher percentage as set forth in the Certificate (as defined below))Certificate) of the BitNile MetaverseRiskOn International Series A shares issued on the closing date under the Series A Agreement. These restrictive covenants include the following actions by the Company, subject to certain exceptions and limitations:
| (i) | payment or declaration of any dividend (other than pursuant to the |
| (ii) | investment in, purchase or acquisition of any assets or capital stock of any entity for an amount that exceeds $100,000 in any one transaction or $250,000, in the aggregate; |
| (iii) | issuance of any shares of common stock or other securities convertible into or exercisable or exchangeable for shares of common stock; |
| (iv) | incurrence of indebtedness, liens, or guaranty obligations, in an aggregate amount in excess of $50,000 in any individual transaction or $100,000 in the aggregate with customary |
| (v) | sale, lease, transfer or disposal of any of its properties having a value calculated in accordance with GAAP of more than $50,000; |
| (vi) | increase in any manner the compensation or fringe benefits of any of its directors, officers, employees; and |
| (vii) | merger or consolidation with, or purchase a substantial portion of the assets of, or by any other manner the acquisition or combination with any business or entity. |
The above and other negative covenants in the Series A Certificate do not apply to a reverse merger with an entity with securities quoted on a market operated by OTC Markets or listed on a national securities exchange.
Warrant
Prior to its cancellation, the Warrant, as amended, provided the PurchaserAult Lending or its assignees (the “Holder”) with the right to purchase a number of shares of common stock as would enable the holderHolder, together with its affiliates, to beneficially own 49% of the Company’s common stock, calculated on a fully diluted basis, at an exercise price of $0.03 per share, including the Commitment Shares and Conversion Sharesconversion shares unless sold. Subject to stockholdershareholder approval, the Warrant was to vest and become exercisable into shares of the Company’s stock if, as of June 8, 2024: (i) the Company had failed to complete the distributions to the Company’s security holders or to any other subsidiary of the Company’s equity ownership of its three principal subsidiaries: Agora, Banner Midstream and Zest Labs (or their principal subsidiaries) (the “Distributions”), and/or (ii) the Holder together with its affiliates does not beneficially own at least 50% of the Company’s outstanding common stock. Provided,stock, provided however, that the Company must retain 20% of its common stock of Agora. The Warrant was to be exercised on a cashless basis and expire on June 8, 2027.
On November 14, 2022, the Company and the Warrant holderHolder canceled the warrant which was originally issued to the holder on June 8, 2022, as subsequently amended and restated,Warrant in exchange for $100 as$100. As the Company hashad substantially met the conditions under Section 1(a) of the Warrant, therefore, the Company did not compute any derivative liability on the warrants.Warrant.
Registration Rights
Pursuant to the Series A Agreement, the Company has agreed to register the sale by the PurchaserAult Lending of up to 174,882 shares of common stock, representing the Commitment Shares issued at the closing plus 171,453 of the shares of common stock issuable upon conversion of the BitNile MetaverseRiskOn International Series A. This amount equals 19.9% of the Company’s outstanding common stock immediately prior to the closing. The Company registered the sale by filing a prospectus supplement pursuant to the Company’s registration statement on Form S-3 (File No. 333-249532), originally filed with the SEC on October 16, 2020, as amended, which became effective on December 29, 2020, and the base prospectus included therein. On January 23, 2023, the PurchaserAult Lending agreed to reduce its secondary offering of shares of ourthe Company’s common stock issuable upon conversion of the RiskOn International Series A by $3,500,000. See Note 18 “Stockholders’“Shareholders’ Deficit.”
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The description above is not a substitute for reviewing the full text of the referenced documents, which were attached as exhibits to the Company’s Current ReportReports on Form 8-K as filed with the SEC on June 9, 2022, and the Company’s Current Report on Form 8-K as filed with the SEC on July 15, 2022 when we filed the amended and restated warrant, and the aforementioned amendment filed on November 29, 2022.
Preferred Stock Derivative Liability
BitNile MetaverseRiskOn International Series A
As discussed herein, the Company determined that the BitNile MetaverseRiskOn International Series A upon the amendment on November 28, 2022, constituted a derivative liability under ASC 815.815, Derivatives and Hedging (“ASC 815”). As a result of this classification, the Company determined that on November 28, 2022 (inception), the value of the derivative liability was $7,218,319.
On December 9, 2022, the BitNile MetaverseRiskOn International Series A holder converted 50 shares of BitNile MetaverseRiskOn International Series A into 38,015 common shares that resulted in a loss on conversion of $3,923.
The derivative liability for the BitNile MetaverseRiskOn International Series A was remeasured at JuneSeptember 30, 2023 and iswas valued at $169,323,$55,415, resulting in a gain of $1,490,879$1,604,787 in the change in fair value.value for the six month period ended September 30, 2023.
In addition, during March 2023 the Company advanced $635,000 and $1,205,000 during the threesix months ended JuneSeptember 30, 2023 to a third-party related to an obligation by the BitNile MetaverseRiskOn International Series A shareholder and this amount will be reflected as a redemption upon the dividend that will be paid to the Company’s shareholders of record as of September 30, 2022 for the WTRV and Wolf Energy Services Corp. divestitures. In addition, $635,000 was advanced in the year ended March 31, 2023. The $1,840,000 has been reclassified to advances to former owners of BitNile.com.
Activity related to the preferred stock derivative liabilities for the threesix months ended JuneSeptember 30, 2023 iswas as follows:
| Beginning balance as of March 31, 2023 | $ | 1,025,202 | $ | 1,025,202 | ||||
| Reclassification – advances former owners of BitNile.com | 1,840,000 | |||||||
| Advances to third-party that will be considered redemption of Series A | (1,205,000 | ) | (1,205,000 | ) | ||||
| Change in fair value of preferred stock derivative liabilities | (1,490,879 | ) | (1,604,787 | ) | ||||
| Ending balance as of June 30, 2023 | $ | (1,670,677 | ) | |||||
| Ending balance as of September 30, 2023 | $ | 55,415 | ||||||
BitNile MetaverseRiskOn International Series B and C
On February 8, 2023, the Company entered into the SEA by and among AAI, a significant shareholder and the owner of approximately 86% of BNC, and the Minority Stockholders.Shareholders. The SEA provided that, subject to the terms and conditions set forth therein, the Company was to acquire the assets and assume the liabilities of BNC as well as the common stocksecurities of Earnity Inc. beneficially owned by BNC (which represents approximately 19.9% of the outstanding common stock of Earnity Inc. as of the date of the SEA) which has no value, in exchange for the following: (i) 8,637.5 shares of Series B, and (ii) 1,362.5 shares of Series C. The Preferred Stock, the terms of which are summarized in more detail below, have a combined Stated Value of $100,000,000, and subject to adjustment, are,and subject to Nasdaq and shareholder approval, convertible into a total of up to 13,333,333 shares of the Company’s common stock, which represent approximately 92.4% of the Company’s outstanding common stock on a fully diluted basis.stock. The Company has independently valued the Preferred Stock as of the date of acquisition. The combined value of the Preferred Stock issued to AAI was $53,913,000 using a blended fair value of the discounted cash flow method and option pricing method.
The terms of the Preferred Stock as set forth in the Certificates of Designations of the Rights, Preferences and Limitations of each such series of Preferred Stock (each, a “Certificate,” and together the “Certificates”) are essentially identical except the Series B is super voting and must approve any modification of various negative covenants and certain other corporate actions as more particularly described below.
Pursuant to the Series B Certificate, each share of Series B is convertible into a number of shares of the Company’s common stock determined by dividing the Stated Value by $7.50, or 1,333 shares of common stock. The conversion price is subject to certain adjustments, including potential downward adjustment if the Company closes a qualified financing resulting in at least $25,000,000 in gross proceeds at a price per share that is lower than the conversion price. The Series B holders are entitled to receive dividends at a rate of 5% of the Stated Value per annum from issuance until February 7, 2033 (the “Dividend Term”). During the first two years of the Dividend Term, dividends will be payable in additional shares of Series B rather than cash, and thereafter dividends will be payable in either additional shares of Series B or cash as each holder may elect. If the Company fails to make a dividend payment as required by the Series B Certificate, the dividend rate will be increased to 12% for as long as such default remains ongoing and uncured. Each share of Series B also has an $11,000 liquidation preference in the event of a liquidation, change of control event, dissolution or winding up of the Company, and ranks senior to all other capital stock of the Company with respect thereto other than the Series C with which the Series B shares equal ranking. Each share of Series B is entitled to vote with the Company’s common stock at a rate of 300 votes per share of common stock into which the Series B is convertible.
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In addition, for as long as at least 25% of the shares of Series B remain outstanding, AAI (and any transferees) has consent rights with respect to certain corporate events, including reclassifications, fundamental transactions, stock redemptions or repurchases, increases in the number of directors, and declarations or payment of dividends, and further the Company is subject to certain other negative covenants, including covenants against issuing additional shares of capital stock or derivative securities, incurring indebtedness, engaging in related party transactions, selling of properties having a value of over $50,000, altering the number of directors, and discontinuing the business of any subsidiary, subject to certain exceptions and limitations.
The terms, rights, preferences and limitations of the Series CareC are substantially the same as those of the Series B, except that the Series B holdsC does not hold negative covenant and consent rights, and Series C holders vote with the Company’s common stock on an as-converted basis.rights. The Company is required to maintain a reserve of authorized and unissued shares of common stock equal to 200% of the shares of common stock issuable upon conversion of the Preferred Stock, which is initially 26,666,667 shares.
Pending stockholdershareholder approval of the transaction, the Preferred Stock combined are subject to a 19.9% beneficial ownership limitation. That limitation includes shares of Series A issued to Ault Lending, a wholly owned subsidiary of AAI, on June 8, 2022 and any common stock held by AAI. Certain other rights are subject to stockholdershareholder approval as described below. The SEA provides that the Company will seek stockholdershareholder approval following the closing. The entire transaction is subject to compliance with Nasdaq Rules and the voting rights provision of the B/C Certificates each containcontains a savings clause that nothing shall violate such Rules. Nasdaq may nonetheless disregard the savings clause.
Under the SEA, effective at the closing AAI is entitled to appoint three of the Company’s directors, and following receipt of approval from the Company’s stockholders, a majority of the Company’s directors. The SEA also provides the holders of Preferred Stock with most favored nations rights in the event the Company offers securities with more favorable terms than the Preferred Stock for as long as the Preferred Stock remains outstanding. Under the SEA, while any Preferred Stock is outstanding, the Company is prohibited from redeeming or declaring or paying dividends on outstanding securities other than the Preferred Stock. Further, the SEA prohibits the Company from issuing or amending securities at a price per share below the conversion price of the Preferred Stock, or to engage in variable rate transactions, for a period of 12 months following the closing.
The SEA further providesprovided that following the closing the Company will prepare and distribute a proxy statement and hold a meeting of its stockholdersshareholders to approve each of the following: (i) the SEA and the transactions contemplated thereby, (ii) a ratification of the Third Certificate Designations of Rights, Preferences, and Limitations of the Series A, (iii) a reverse stock split with a range of between 1-for 21-for-2 and 1-for-20, (iv) a change in the Company’s name to BNC,BitNile Metaverse, Inc., (v) an increase of the Company’s authorized common stock to 1,000,000,000 shares of common stock; and (vi) any other proposals to which the Partiesparties shall mutually agree. In addition, pursuant to the SEA the Company agreed to use its reasonable best efforts to effect its previously announceannounced spin-offs of the common stock of Wolf Energy and WTRV held by or issuable to the Company, use its best efforts to complete one or more financings resulting in total gross proceeds of $100,000,000 on terms acceptable to AAI, and financially support the ongoing Zest Labs litigation. The holders of the Preferred Stock will not participate in the aforementioned spin-offs and distribution. In connection with the SEA, the Company and AAI also agreed that the net litigation proceeds from the Zest Labs litigation that was ongoing as of November 15, 2022 would be held in a trust for the benefit of the Company’s stockholdersshareholders of record as of such date.
In connection with the SEA, the Company also entered into a Registration Rights Agreement with AAI and the Minority Shareholders pursuant to which the Company agreed to file a registration statement on Form S-3 or Form S-1 with the SEC registering the resale by the holders of the Preferred Stock and/or the shares of common stock issuable upon conversion of the Preferred Stock, to be initially filed within 15 days of the closing, and to use its best efforts to cause such registration statement to be declared effective by the SEC within 45 days thereafter, subject to certain exceptions and limitations.
The SEA contains certain representations and warranties made by each of the Company, AAI and the Minority Shareholders. Upon the closing, which is subject to the closing conditions set forth in the SEA, including among other conditions the parties obtaining a fairness opinion from a national independent valuation firm and satisfactory completion of due diligence by each of the Company and AAI, BNC will continue as a wholly owned subsidiary of the Company. BNC’s principal business entails the development and operation of a metaverse platform, the beta for which launched on March 1, 2023. This transaction closed on March 7, 2023.
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The Company determined that the Preferred Stock constituted a derivative liability under ASC 815 on the date of inception March 7, 2023. As a result of this classification, the Company determined that on March 7, 2023 (inception), the value of the derivative liability was $42,426,069.
The derivative liability for the preferred stock Preferred Stock was remeasured at JuneSeptember 30, 2023 and is valued at $2,427,669$962,481, resulting in a gain of $16,403,090$17,868,279 in the change in fair value for the threesix months ended JuneSeptember 30, 2023. The Company has accrued $1,597,222$2,847,222 in dividends on the Series B and C Preferred stockStock as of JuneSeptember 30, 2023.
Activity related to the preferred stock derivative liabilities for the Preferred Stock for the threesix months ended JuneSeptember 30, 2023 iswas as follows:
| Beginning balance as of March 31, 2023 | $ | 18,830,760 | $ | 18,830,760 | ||||
| Change in fair value of preferred stock derivative liabilities | (16,403,090 | ) | (17,868,279 | ) | ||||
| Ending balance as of June 30, 2023 | $ | 2,427,670 | ||||||
| Ending balance as of September 30, 2023 | $ | 962,481 | ||||||
On April 4, 2023, the Company entered into an agreement with Ault Lending LLC (“Ault”) and WTRV pursuant to which the Company agreed to advance to WTRV payments of up to $3.25 million (the “Amounts”), and WTRV agreed to accept the Amounts as payment of Ault’sAult Lending’s $3.25 million payable to WTRV from Ault’sAult Lending’s exercise of participation rights in oil and gas exploration and drilling ventures which WTRV granted Ault Lending in connection with its acquisition of White River Holdings Corp. in July 2022. The parties agreed that the Amounts will be treated as a credit to the sums owed to WTRV, and the Company and Ault Lending agreed that in lieu of repayment of the Amounts advanced to WTRV, Ault Lending will permit the Company to redeem shares of the Company’sRiskOn International Series A Convertible Redeemable Preferred Stock (the “Series A”) held by Ault by dividing the Amounts by the stated value of such shares, or one share of RiskOn International Series A for each $10,833.33$10,833 advanced to WTRV. The redemption cannot occur until the previously announced spin-offs by the Company of shares of common stock of WTRV and Wolf Energy Services Inc. occuroccurs, which would permit Ault Lending to receive its full dividends thereunder.
18. STOCKHOLDERS’SHAREHOLDERS’ DEFICIT
BitNile Metaverse Preferred StockRiskOn International Series A
As of March 31, 2022, there were no shares of any series of preferred stock issued and outstanding. On June 8, 2022, as noted in Note 17, “Preferred Stock”, the Company issued 1,200 shares of RiskOn International Series A, and as of JuneSeptember 30, 2023 and March 31, 2023, there arewere 882 shares of preferred stockRiskOn International Series A issued and outstanding.
As of JuneSeptember 30, 2023 and March 31, 2023, the Company hashad issued Series B and Series C, as noted in Note 17, and has 8,637.5 and 1,362.5 shares of Series B and Series C, respectively, outstanding, which were issued March 7, 2023.
BitNile Metaverse Common Stock
The Company is authorized to issue 3,333,333500,000,000 shares of common stock, par value $0.001, which followed stockholdershareholder approval on September 9, 2022.October 16, 2023. On May 4, 2023, the Company amended its Articles of Incorporation to reflect a 1-for-30 reverse stock split. The Company also reduced its authorized shares on a 1-for-30 basis going from 100,000,000 authorized shares down to 3,333,333 authorized shares. All share and per share figures are reflected on a post-split basis herein.
In the threesix months ended JuneSeptember 30, 2022, the Company issued 3,429 shares of common stock, which were the commitment shares in the AAI transaction as discussed in Note 17.
On January 24, 2023, the Company entered into an At-The-Market (“ATM”)ATM Issuance Sales Agreement (the “Agreement”“ATM Agreement”) with Ascendiant Capital Markets, LLC (“Ascendiant”), pursuant to which the Company maycould issue and sell from time to time, through Ascendiant, shares of the Company’s common stock, par value $0.001 per share (the “Shares”), with offering proceeds of up to $3,500,000. The ATM was terminated on June 16, 2023 after having raised approximately $3,500,000.
Under the ATM Agreement, Ascendiant was entitled to compensation of 3% of the gross proceeds from the sales of the Shares sold under the ATM Agreement. The Company also reimbursed Ascendiant for certain specified expenses, including the fees and disbursements of its legal counsel, in an amount not to exceed $30,000 as well as up to $2,500 for each quarterly and annual bring-down while the ATM Agreement was ongoing.
As of JuneSeptember 30, 2023, there were 163,393 unsold shares of the Company’s common stock being held by a custodian in an account owned by the Company which had not been sold during the ATM offering. It is the Company’s policy not to consider or classify these shares as issued or outstanding as weit continues to own and control these shares.
Sales of the Shares, if any, may be made by any method permitted by law deemed to be an “at-the-market” offering as defined in Rule 415 of the Securities Act of 1933 (the “Securities Act”), including without limitation sales made directly on or through The Nasdaq Capital Market, the trading market for the Company’s common stock, on any other existing trading market in the United States for the Company’s common stock, to or through a market maker, directly to Ascendiant as principal for its account in negotiated transactions at market prices prevailing at the time of sale or at prices related to such prevailing market prices, in privately negotiated transactions, in block trades, or through a combination of any such methods of sale. Ascendiant will use commercially reasonable efforts to sell on the Company’s behalf all of the Shares requested to be sold by the Company, consistent with its normal trading and sales practices, subject to the terms of the Agreement. Under the Agreement, Ascendiant will be entitled to compensation of 3% of the gross proceeds from the sales of the Shares sold under the Agreement. The Company also agreed to reimburse Ascendiant for certain specified expenses, including the fees and disbursements of its legal counsel, in an amount not to exceed $30,000 as well as up to $2,500 for each quarterly and annual bring-down while the Agreement is ongoing.
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The Shares were being offered and sold pursuant to a prospectus supplement filed with the Securities and Exchange Commission (the “SEC”) on January 24, 2023 and the accompanying base prospectus which is part of the Company’s effective Registration Statement on Form S-3 (File No. 333-249532) (the “Registration Statement”).
In the threesix months ended JuneSeptember 30, 2023, the Company issued 40,022 shares for payment of a preferred stock dividend of $300,158, and 935,452 shares in the ATM, for which weit received $1,780,440. There was no common stock activity for the three months ended September 30, 2023.
As of JuneSeptember 30, 2023 and March 31, 2023, 2,359,306 and 1,383,832 shares of common stock were issued and outstanding, respectively.
Agora Common Stock
Agora is authorized to issue 250,000,000 shares of common stock, par value $0.001. On September 22, 2021, the Company purchased 100 shares of Agora for $10.
On October 1, 2021, the Company purchased 41,671,121 shares of Agora common stock for $4,167,112 which Agora used to purchase equipment to commence the Bitstream operations.
In addition, between October 1 and December 7, 2021, Agora issued 4,600,000 restricted common shares to its management, non-employee directors, employees and advisors. After issuance of these shares, the Company controls approximately 90% of Agora. The future stock-basedshare-based compensation related to these shares that will be measured consists of $12,166,680 over a three-year period in service-based grants ($9,611,145 in year one, $1,861,096 in year two, and $694,436 in year 3) and $10,833,320 in performance-based grants ($5,416,660 for the deployment of 20 MW in the State of Texas, and $5,416,660 for the deployment of 40 MW in the State of Texas) for a total of $23,000,000. These restricted common shares were measured pursuant to ASC 718-10-50 at an estimated value per share of $5.00 and consist of both service-based and performance-based criteria.
On August 7, 2022, Agora issued 400,000 shares of common stock to its management, non-employee directors, employees and advisors. After issuance of these shares, the Company controlled approximately 89% of Agora. The future stock-basedshare-based compensation related to these shares that will be measured consists of $2,000,000 ranging from immediate vesting through the three-year anniversary in service-based grants. These restricted common shares were measured pursuant to ASC 718-10-50 at an estimated value per share of $5.00 and consist of service-based criteria only.
Of the 5,000,000 restricted shares of common stock — 2,833,336 shares of restricted stock are considered service grants and 2,166,664 are considered performance grants.
The performance grants vest as follows: 1,083,332 restricted common shares upon Agora deploying a 20 MW power contract in Texas; and 1,083,332 restricted common shares upon the Company deploying a 40 MW power contract in Texas. As of December 31, 2022, none of the performance criteria are probable as no contracts have been signed as the proper funding has not been secured, therefore no compensation expense is recognized in accordance with ASC 718-10-25-20 related to the performance grants. On April 12, 2022, Agora upon board of director approval accelerated the vesting of 250,000 restricted shares for deploying a 20 MW power contract in Texas; and 250,000 restricted shares for deploying a 40 MW power contract in Texas with Agora’s former Chief Financial Officer. All remaining performance grants remain unvested.
The Company recognized $630,206$1,721,310 and $5,215,287$2,351,518 in stock-basedshare-based compensation for the three and six months ended JuneSeptember 30, 2023, respectively. The Company recognized $2,956,922 and $8,172,209 in share-based compensation for the three and six months ended September 30, 2022, respectively. The unrecognized stock-basedshare-based compensation expense as of JuneSeptember 30, 2023 is $8,333,320 in performance based grants and $1,721,312$0 in service based grants for a total of $10,054,632.$8,333,320. It is very unlikely that the criteria established for the recognition of the performance grants will ever be satisfied.
The Company accounts for stock-basedshare-based payments in accordance with ASC 718, Compensation — Stock Compensation (“ASC 718”). During the year ended March 31, 2022, in addition to the value measured by the 4,600,000 restricted stock grants, stock-based compensation consists primarily of restricted stock units granted to a Company employee while employed by the Company. The Company measures compensation expense for restricted stock units based on the fair value of the award on the date of grant. The grant date fair value is based on the closing market price of the Company’s common stock on the date of grant.
Share-based Compensation Expense
Share-based compensation for employees is included in salaries and salary related costs and directors and services are included in professional fees and consulting in the condensed consolidated statement of operations for the three and six months ended JuneSeptember 30, 2023 and 2022.
Share-based compensation for the three and six months ended JuneSeptember 30, 2023 for stock options and restricted stock units granted under the 2013 Incentive Stock Plan and 2017 Omnibus Incentive Stock Plan and non-qualified stock options were $0 and $258,655, respectively. Share-based compensation for the three and six months ended September 30, 2022 for stock options and restricted stock units granted under the 2013 Incentive Stock Plan and 2017 Omnibus Incentive Stock Plan and non-qualified stock options were $258,655$160,040 and $182,561,$342,601, respectively.
There is $438,231was $535,731 in share-based compensation accrued as of JuneSeptember 30, 2023 for BitNile Metaverse and $237,499 accrued in Agora for a total of $675,730.the Company.
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19. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
We areThe Company is presently involved in the following legal proceedings. To the best of ourthe Company’s knowledge, no governmental authority is contemplating any proceeding to which we arethe Company is a party or to which any of ourits properties or businesses are subject, which would reasonably be likely to have a material adverse effect on the Company.
| ● | On August 1, 2018, |
| ● | On April 22, 2022, BitStream |
| ● | On July 15, 2022, |
| ● | On October 17, 2022, |
In the opinion of management, there are no additional legal matters involving us that would have a material adverse effect upon the Company’s financial condition, results of operations or cash flows.
Nasdaq Compliance
On December 27, 2022,July 18, 2023, the Company received a letter (the “Letter”) from Nasdaq notifying the Company of its noncompliance with stockholder approval requirements set forth in Listing Rule 5635(d), which requires stockholder approval for transactions, other than public offerings, involving the issuance of 20% or more of the pre-transaction shares outstanding at less than the Minimum Price (as defined therein). Additionally, the letter indicates that the Company violated Nasdaq’s voting rights rule set forth in Listing Rule 5640. The matters described in the letter relate to an amendment to the Certificate of Designation of Rights, Preferences and LimitationsQualifications staff (the “Certificate”“Staff”) of the Series A, shares of which were issued byNasdaq Stock Market LLC (“Nasdaq”) indicating that the Company on June 8, 2022Company’s shareholders’ equity as reported in a private placement transaction which was previously disclosed on a Currentthe 2023 Annual Report on Form 8-K filed on June 9, 2022. Specifically,did not satisfy the Company amended the Certificate on November 28, 2022 to: (i) increase the stated value of the Series A from $10,000 to $10,833.33; (ii) providecontinued listing requirement under Nasdaq Listing Rule 5550(b)(1) for the dividends payable underNasdaq Capital Market, which requires that a listed company’s shareholders’ equity be at least $2.5 million. As reported in the Series A to be payable in Common Stock rather than cash effective beginning November 1, 2022, and (iii) reduce2023 Annual Report, the conversion priceCompany’s shareholders’ equity as of the Series A from $63.00 to the lesser of (1) $30.00 and (2) the higher of (A) 80% of the 10-day daily volume weighted average price and (B) $7.50 (the “Amendment”). March 31, 2023 was approximately $(13.9) million.
According to the letter,Letter, the Company was required to obtain stockholder approval to effect the Amendment because the Series A as amended provides for the potential issuance of 1,733,333 shares of Common Stock at less than the Minimum Price under Listing Rule 5635(d), and the Amendment also violates Listing Rule 5640 by providing the holder of the Series A with voting rights on an as-converted basis with the Series A convertible into Common Stock at a discount, thereby violating Listing Rule 5640.
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In the letter, the Company was providedhad 45 calendar days from the date of the letter,Letter, or until February 10,September 1, 2023, to submit a plan to regain compliance with Nasdaq Listing Rule 5550(b)(1). If the referenced Listing Rules, and if suchCompany’s compliance plan is accepted by Nasdaq, then Nasdaq may, in its discretion, grant the Company can receive an extension of up to 180 calendar days from the date of the letterLetter, or until January 14, 2024, to evidence compliance. However, ifIf Nasdaq does not accept the Company’s plan, is not accepted bythen Nasdaq or is not sufficiently executed to regain compliance and remedy the matters set forth in themay issue a staff delisting determination letter whereby the Company’s Common Stockcommon stock will be subject to delisting. In connection withThe Company would have the letter theopportunity to appeal that decision to a Nasdaq hearings panel. The Company submitted a compliance plan, which was also requested to furnish Nasdaq with certain documentssubsequently amended and information related to its sale of WTRV.
In connection with the December 27th letter, the Company was also requested to provide certain documents and information related to its sale of WTRV, including as it pertainsrestated, to the $30,000,000 in preferred stock value being carried onStaff, but as of the date of this filing, Nasdaq has not determined whether or not to accept the Company’s balance sheet as consideration forplan.
If the sale of the entity. According to the correspondence, the request was made under Listing Rule 5250 which provides that a listed company will provide Nasdaq with requested information deemed necessary to make a determination regarding such company’s continued listing.
Further, on December 30, 2022, the Company received another letter from the Nasdaq notifying the Company of its noncompliance with Listing Rule 5550(a)(2) by failing to maintain a minimum bid price for its Common Stock of at least $1.00 per share for 30 consecutive business days and providing the Company with a 180 calendar day grace period to regain compliance with the Listing Rule 5550(a)(2), subject to a potential 180 calendar day extension, as described below. To regain compliance, the Company’s Common Stock must have a minimum closing bid price of at least $1.00 per share for at least 10 consecutive business days within the grace period which ended on June 28, 2023. To qualify for the additional grace period, the Company will be required to meet the continued listing requirement for the market value of its publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and will need to provide written notice of its intention to cure the deficiency during the second grace period, by effecting a reverse stock split if necessary, which would also require stockholder approval unless completed with a proportionate reduction in our authorized Common Stock under our Articles of Incorporation.
On January 26, 2023, Nasdaq sent an email to the Company raising 13 questions concerning the WTRV transaction, WTRV’s business, seeking verification that the Company had in fact transferred $3 million to WTRV last July and questioning the time allocations of the two senior executive officers of the Company and WTRV, among other things. The Company responded on February 15.
The Company provided responses to Nasdaq on January 11, 2023, February 10, 2023 and February 15, 2023.
If our Common Stock is delisted from Nasdaq, wethe Company could face significant material adverse consequences, including:
| ● | it may adversely affect |
| ● | a limited availability of market quotations for |
| ● | reduced liquidity with respect to |
| ● | a determination that |
| ● | being in default under the transaction documents entered into with the investors in the April 27, 2023 financing. |
If we arethe Company is unable to rectify any of the above-described Nasdaq issues, for failure to timely obtain stockholder approval, a delisting willwould subject usthe Company and our stockholdersits shareholders to the above and other adverse consequences and could also delay us from effecting the announced spin-offs of common stock of WTRV and Wolf Energy certain entities as described elsewhere in this Report. See “Risk Factors” contained elsewhere in this Report.above.
On June 21, 2023, the Company received a letter from the Listing Qualifications staff of Nasdaq (the “Letter”) notifying the Company that the Staff has determined that the Company has violated Nasdaq’s voting rights rule set forth in Listing Rule 5640 (the “Voting Rights Rule”). The alleged violation of the Voting Rights Rule relates to the issuance of (i) 8,637.5 shares of the Series B, and (ii) 1,362.5 shares of the Series C in connection with the acquisition of BNC as well as the securities of Earnity, Inc. beneficially owned by BNC (collectively, the “Assets”) pursuant to the SEA by and among the Company, AAI and the minority stockholders of BNC, which was previously disclosed on Current Reports on Form 8-K filed by the Company on February 14, 2023 and March 10, 2023. The Series B and C Preferred Stock has a collective stated value of $100,000,000 (the “Stated Value”), and votes on an as-converted basis, representing approximately 92.4% of the Company’s outstanding voting power on a fully diluted basis at the time of issuance.
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According to the Letter, because the Preferred Stock was not issued for cash, the Staff compared the value of the Assets to the Stated Value and determined that the value of the Assets was less than the Stated Value and that the voting rights attributable to the Series B and C Preferred Stock has the effect of disparately reducing the voting rights of the Company’s existing shareholders. The Staff looked at the total assets and stockholders’ equity of BNC as of March 5, 2023, as well as the market capitalization of AAI prior to entering into the Agreement and immediately after closing of the transaction in determining, in Staff’s opinion, the value of the Assets. The Letter did not make any reference to the projections prepared by AAI as to the future potential of the business of BNC nor to the independent valuation obtained by the Company prior to closing of the transaction, which supported the Stated Value of the Preferred Stock for the total value of the Assets, both of which the Company provided to the Staff prior to receipt of the Letter.
According to the Letter, Nasdaq determined that the voting rights of the Series B and C Preferred Stock, voting on an as-converted basis, are below the minimum price per share of the Company’s common stock at the time of the issuance of the Series B and C Preferred Stock. Additionally, Nasdaq determined that the Series B provides the holder the right to appoint a majority of the Company’s board of directors when such representation is not justified by the relative contribution of the Series B pursuant to the Agreement.
Under the Voting Rights Rule, a company cannot create a new class of security that votes at a higher rate than an existing class of securities or take any other action that has the effect of restricting or reducing the voting rights of an existing class of securities. As such, according to the Letter, the issuance of the Series B and C Preferred Stock violated the Voting Rights Rule because the holders of the Series B and C Preferred Stock are entitled to vote on an as-converted basis, thus having greater voting rights than holders of common stock, and the Series B is entitled to a disproportionate representation on the Company’s board of directors.
According to the Letter, the Company has 45 calendar days from the date of the Letter, or until August 7, 2023, to submit a plan to regain compliance with the Voting Rights Rule, and if such plan is accepted by Nasdaq, the Company can receive an extension of up to 180 calendar days from the date of the Letter to evidence compliance. However, if the Company’s plan is not accepted by Nasdaq, the Company’s common stock will be subject to delisting. The Company would have the right to appeal that decision to a hearings panel. On July 28, 2023, the Company responded and submitted a plan to regain compliance with the Voting Rights Rule.
On May 8, 2023, the Company received a letter from the Listing Qualifications staff (the “Staff”) of the Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that the Staff has determined to delist the Company’s common stock, par value $0.001 per share (the “Common Stock”) from The Nasdaq Capital Market, effective May 17, 2023, pursuant to Listing Rule 5810(c)(3)(A)(iii), as the Company’s common stock traded below $0.10 per share for 10 consecutive trading days.
On May 12, 2023, the Company issued a press release announcing a 1-for-30 reverse stock split of its outstanding common stock which will be effective for trading purposes as of the commencement of trading on May 15, 2023.
On May 26, 2023, the Company received a letter from Nasdaq stating that the Company’s bid price deficiency had been cured.
ELOC
On June 5,August 24, 2023, the Company entered into a purchase agreement (the “ELOC Purchase Agreement”) with Arena Business Results, LLCSolutions Global SPC II Ltd on behalf of and for the account of Segregated Portfolio #3 – SPC #3 (“Arena”), which provides that, upon the terms and subject to the conditions and limitations set forth therein, we havethe Company has the right to direct Arena to purchase up to an aggregate of $100,000,000 of shares of our common stock over the 36-month term of the ELOC Purchase Agreement. Under the ELOC Purchase Agreement, after the satisfaction of certain commencement conditions, including, without limitation, the effectiveness of the Registration Statement (as defined in the ELOC Purchase Agreement), we havethe Company has the right to present Arena with an advance notice (each, an “Advance Notice”) directing Arena to purchase any amount up to the Maximum Advance Amount (as described below)defined in the ELOC Purchase Agreement). On October 30, 2023, the Registration Statement related to the ELOC Purchase Agreement was declared effective by the SEC.
Non-cancelable Obligations
In the course of ourBNC’s gaming business in association with ourits Platform, the Company entershas entered into non-cancelable obligations with certain parties to purchase services, such as technology and the hosting of our metaverse platform.the Platform. As of JuneSeptember 30, 2023, the Company had outstanding non-cancelable purchase obligations with terms of one year or longer aggregating $4,000,000$3,000,000 and obligations with terms less than one year of $2,000,000.
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20. FAIR VALUE MEASUREMENTS
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by U.S. generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:
Level 1 – quoted prices for identical instruments in active markets;
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Financial instruments consist principally of cash, prepaid expenses, other receivables, accounts payable and accrued liabilities, notes payable, and amounts due to related parties. The fair value of cash is determined based on Level 1 inputs. There were no transfers into or out of “Level 3” during the three or six months ended JuneSeptember 30, 2023 and 2022. The recorded values of all other financial instruments approximate itstheir current fair values because of their nature and respective relatively short maturity dates or durations.
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. The Company records the fair value of the of the warrant derivative liabilities disclosed in accordance with ASC 815, Derivatives and Hedging.815. The fair values of the derivatives were calculated using the Black-Scholes Model. The fair value of the derivative liabilities is revalued on each balance sheet date with corresponding gains and losses recorded in other income (expense) in the condensed consolidated statement of operations. The following table presents assets and liabilities that arewere measured and recognized at fair value on a recurring basis as of:
| Level 1 | Level 2 | Level 3 | Total Gains and (Losses) | |||||||||||||
| June 30, 2023 | ||||||||||||||||
| Warrant derivative liabilities | $ | - | $ | - | $ | 2,138,671 | $ | 2,197,348 | ||||||||
| Convertible note | - | - | 323,085 | 1,029,237 | ||||||||||||
| Preferred stock derivative liabilities | - | - | 756,992 | 17,893,969 | ||||||||||||
| Investment – WTRV | - | - | 9,224,785 | - | ||||||||||||
| March 31, 2023 | ||||||||||||||||
| Warrant derivative liabilities | - | $ | - | $ | 6,264 | $ | 4,312,366 | |||||||||
| Preferred stock derivative liabilities | - | - | 19,855,962 | 28,611,760 | ||||||||||||
| Bitcoin | - | - | - | (9,122 | ) | |||||||||||
| Investment – WTRV | - | - | 9,224,785 | (20,775,215 | ) | |||||||||||
| Level 1 | Level 2 | Level 3 | Total Gains and (Losses) | |||||||||||||
| September 30, 2023 | ||||||||||||||||
| Derivative liabilities | $ | - | $ | - | $ | 2,200,951 | $ | 22,982,843 | ||||||||
| Investment – WTRV | - | - | 9,224,785 | - | ||||||||||||
| March 31, 2023 | ||||||||||||||||
| Derivative liabilities | - | $ | - | $ | 19,862,226 | $ | 32,924,126 | |||||||||
| Bitcoin | - | - | - | (9,122 | ) | |||||||||||
| Investment – WTRV | - | - | 9,224,785 | (20,775,215 | ) | |||||||||||
The table below shows a reconciliation of the beginning and ending liabilities measured at fair value using significant unobservable inputs (Level 3) for the threesix months ended JuneSeptember 30, 2023:
| Beginning balance as of March 31, 2023 | $ | (10,637,441 | ) | |
| Issuance – convertible notes with warrants | (5,682,077 | ) | ||
| Net change in unrealized (depreciation) appreciation included in earnings | 21,120,554 | |||
| Ending balance as of June 30, 2023 | $ | 4,801,036 |
The balances in the derivative liabilities are net of $1,840,000 which is related to Series A preferred shares to be redeemed.
| Beginning balance as of March 31, 2023 | $ | (10,637,441 | ) | |
| Issuance – convertible notes with warrants | (4,686,817 | ) | ||
| Net change in unrealized (depreciation) appreciation included in earnings | 22,982,843 | |||
| Ending balance as of September 30, 2023 | $ | 7,658,585 |
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21. LEASES
As of June 30, 2023, the value of the unamortized lease right of use asset is $307,913 (through maturity at October 31, 2026). As of June 30, 2023, the Company’s lease liability was $315,292.
Maturity of lease liability for the operating leases for the period ended June 30,
| 2024 | $ | 113,356 | ||
| 2025 | 96,157 | |||
| 2026 | 99,042 | |||
| 2027 | 33,338 | |||
| Imputed interest | (26,601 | ) | ||
| Total lease liability | $ | 315,292 | ||
| Current portion | $ | 100,142 | ||
| Non-current portion | $ | 215,150 |
Amortization of the right of use asset for the period ended June 30,
| 2024 | $ | 101,140 | ||
| 2025 | $ | 85,565 | ||
| 2026 | $ | 90,101 | ||
| 2027 | $ | 31,107 | ||
| Total | $ | 307,913 |
Total Lease Cost
Operating lease expenses for the three months ended both June 30, 2023 and 2022 were $35,588.
22. RELATED PARTY TRANSACTIONS
In connection with the hospitality services we offer,the Company offers, the Company and certain customers enter into separate arrangements with respect to sponsorships we provideit provides in addition to a number of ongoing commercial relationships, including license Agreements.agreements.
As of September 30, 2023 and March 31, 2023, the Company had related party receivables of $62,200 and $0, respectively. All receivables at September 30, 2023 were attributable to a single customer.
See Note 8 for the investment in WTRV and Note 17 for the preferred stock issued in the year ended March 31, 2023 with a significant shareholder. OurThe Company’s Chief Executive Officer and Chief Financial Officer hold similar positions in WTRV.
In the threesix month period ended JuneSeptember 30, 2023, the Company was advanced an additional $781,898$7,510,520 from AAI. As
The Company’s former subsidiary Zest Labs, along with the Company and Zest Labs Holdings, LLC (owned by Gary Metzger, a current board member of June 30,the Company and therefore a related party) (the “Purchaser”), entered into a stock purchase agreement dated August 25, 2023, $6,564,541 remains outstanding.whereby the Purchaser purchased 100% of the issued and outstanding common stock of Zest Labs from the Company in exchange for the Purchaser agreeing to distribute any net proceeds from any new or ongoing intellectual property litigation or the sale or licensing of any intellectual property of Zest Labs to the Company’s shareholders of record as of November 15, 2022. The Company recorded a gain on disposal of Zest Labs of $683,152 in this transaction. Zest Labs is no longer a subsidiary of the Company, and all of the assets and liabilities of have been assumed by the Purchaser.
Revenues and Accounts Receivable
WeThe Company had related party hospitality service sales of $17,700 and $41,150 for the three and six months ended September 30, 2023, respectively, and $0 as ofin the three month periodand six months ended JuneSeptember 30, 2023 and 2022, respectively.2022.
Allocation of General Corporate Expenses
AAI provides use of certain assets, human resources and other executive services to the Company. The accompanying financial statements include allocations of these expenses. The allocation method calculates the appropriate share of costs to the Company by using the percentage of time spent working on and building the Company’s business. The Company believes the allocation methodology used is reasonable and has been consistently applied, and results in an appropriate allocation of costs incurred. However, these allocations may not be indicative of the cost had the Company been a stand-alone entity or of future services. AAI allocated $888,267$507,576 and $0$1,395,842 of costs for the three and six months ended JuneSeptember 30, 2023, respectively, and 2022, respectively.$0 for the three and six months ended September 30, 2022.
22. SUBSEQUENT EVENTS
Chapter 7 Bankruptcy Filing of Agora and Bitstream
On November 1, 2023, both Agora and Bitstream, filed voluntary petitions for relief under Chapter 7 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Western District of Texas. The bankruptcy cases are being administered under case numbers 23-51490 and 23-51491, respectively. The cases are still pending before the court.
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S-1 Registration Statement
On October 30, 2023, the Registration Statement related to the ELOC Purchase Agreement was declared effective by the SEC. In conjunction with the ELOC Purchase Agreement, there were an indeterminable number of shares of the Company’s common stock to be issued to the Buyer equal to $4,000,000 to be issued as consideration for the Buyer’s irrevocable commitment to purchase shares of common stock (“Commitment Fee Shares”). $1 million of Commitment Fee Shares were due to be issued on each of (i) one business day after the effectiveness of the Registration Statement, and (ii) the three, six and nine months after the date of effectiveness. As of November 16, 2023, the Company received requests from the Buyer and subsequently issued 455,418 shares of common stock registered under this S-1 towards the Commitment Fee Shares.
S-3 Registration Statement and Subsequent Conversions
On October 19, 2023, the registration statement registering the shares of common stock issuable upon conversion of the senior secured convertible notes issued in April 2023 was declared effective by the SEC. As of November 16, 2023, the Company received conversion notices converting an aggregate of $264,650 of the senior secured convertible notes and subsequently issued an aggregate of 503,652 shares of common stock.
Name and Ticker Symbol Change
Effective November 1, 2023, the Company changed its name from BitNile Metaverse, Inc., to RiskOn International, Inc. and changed its ticker symbol from BNMV to ROI. The change in both name and ticker are underscored by the Company’s commitment to developing a vertically integrated community while creating a seamless and enriched user experience.
Changes in Board of Directors Composition
On October 13, 2023, the Company appointed Robert O. Smith to its Board of Directors. Mr. Smith will serve as lead independent director and as Chairman of the Audit Committee. Mr. Smith replaces Steve Nelson who departed the Board of Directors on September 30, 2023; Mr. Nelson’s resignation was not the result of any disagreement with the Company, or its management on any matter relating to the Company’s operations, policies or practices.
Changes in Authorized Shares
On October 16, 2023, the Company, upon obtaining shareholder approval, filed a certificate of amendment to its Articles of Incorporation increasing its authorized shares of common stock from 3,333,333 to 500,000,000.
Nasdaq Compliance
On November 2, 2023, the Company received a notice in the form of a letter (“Deficiency Letter”) from the Staff of the Nasdaq stating that the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2) because the bid price for the Company’s common stock had closed below $1.00 per share for the previous 31 consecutive business days.
In accordance with Nasdaq listing rule 5810(c)(3)(A), the Company has 180 calendar days, or until April 30, 2024, to regain compliance. The Deficiency Letter states that to regain compliance, the bid price for the Company’s common stock must close at $1.00 per share or more (the “Minimum Bid Price”) for a minimum of 10 consecutive business days during the compliance period ending April 30, 2024. In the event that the Company does not regain compliance within this 180-day period, the Company may be eligible to seek an additional compliance period of 180 calendar days if it meets the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the Minimum Bid Price, and provides written notice to Nasdaq of its intent to cure the deficiency during this second compliance period, by effecting a reverse stock split, if necessary. However, if it appears to the Nasdaq Staff that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, Nasdaq will provide notice to the Company that its common stock will be subject to delisting. At that time, the Company may appeal any such delisting determination to a Nasdaq hearings panel.
Term Note Agreement
On November 8, 2023, the Company entered into a term note (“Term Note”) agreement for a principal amount of $660,000 with an institutional investor. After accounting for an original issue discount of $60,000, the Company received proceeds of $600,000. The Term Note has a maturity date of January 7, 2024 and shall accrue interest at a rate of 10% per annum.
Series D Preferred Purchase Agreement, Related Party
On November 14, 2023, the Company entered into a securities purchase agreement (the “SPA”) with AAI, pursuant to which the Company agreed to sell to AAI 603.44 shares of newly designated Series D Convertible Preferred Stock (“Series D shares”) for a total purchase price of $15,085,931. This transaction closed on November 15, 2023. The purchase price was paid by the cancellation of $15,085,931 of cash advances made by the Purchaser to the Company between January 1, 2023 and November 9, 2023. The Series D shares each have a stated value of $25,000 per share. Each Series D share is convertible into a number of shares of the Company’s common stock determined by dividing the Stated Value by $0.51 (the “Conversion Price”), or an aggregate of 29,580,392 shares of Common Stock. The Conversion Price is subject to adjustment in the event of an issuance of Common Stock at a price per share lower than the Conversion Price then in effect, as well as upon customary stock splits, stock dividends, combinations or similar events. As the Conversion Price represents a premium to the closing price of the Common Stock on the date of execution of the Agreement, the conversion of the Preferred Shares is not subject to limitations on conversion.
Common Stock Issuance
On November 17, 2023, the Company issued 73,361 shares of common stock for Series A Preferred dividends.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended March 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on July 14, 2023.
Overview
On March 15, 2023, Ecoark Holdings, Inc. changed its name to BitNile Metaverse, Inc. (“BitNile Metaverse” or the; subsequently, on November 1, 2023 it changed its name to RiskOn International, Inc. (the “Company”) and is a holding company incorporated in the State of Nevada on November 19, 2007. On February 8, 2023, the Company entered into a Share Exchange Agreement (the “SEA”) by and among Ault Alliance, Inc. (“AAI”), the owner of approximately 86% of BNC,BitNile.com, Inc. (“BNC”), a significant shareholder of the Company, and the minority stockholdersshareholders of BNC (the “Minority Shareholders”). The SEA provides that, subject to the terms and conditions set forth therein, the Company will acquire all of the outstanding shares of capital stock of BNC as well as the common stocksecurities of Earnity, Inc. beneficially owned by BNC (which represents approximately 19.9% of the outstanding common stocksecurities of Earnity, Inc. as of the date of the SEA), in exchange for the following: (i) 8,637.5 shares of newly designated Series B Convertible Preferred Stock of the Company to be issued to Ault (the “Series B”), and (ii) 1,362.5 shares of newly designated Series C Convertible Preferred Stock of the Company to be issued to the Minority Shareholders (the “Series C,” and together with the Series B, the “Preferred Stock”). The Series B and the Series C, the terms of which are summarized in more detail below, each have a stated value of $10,000 per share (the “Stated Value”), for a combined stated value of $100,000,000, and subject to adjustment are convertible into a total of up to 13,333,333 shares of the Company’s common stock, which represent approximately 92.4% of the Company outstanding common stock on a fully diluted basis.stock. The Company has independently valued the Series B and Series C as of the date of acquisition. The combined value of the shares issued to Ault was $53,913,000 using a blended fair value of the discounted cash flow method and option pricing method. See Note 5 for the details on the asset purchase as BNC did not meet the accounting definition of a business and Note 17 for details on the Series B and C Preferred Stock.
Through JuneSeptember 30, 2023,2022, the Company’s former wholly owned subsidiaries with the exception of Agora Digital Holdings, Inc., a Nevada corporation (“Agora”) and Zest Labs, Inc. (“Zest Labs”) have been treated for accounting purposes as divested. Please refer to our Annual Report for the year ended March 31, 2023 (“2023 Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on July 14, 2023 for details on all of our prior subsidiaries that were divested in the year ended March 31, 2023 and an overview of the business conducted in those subsidiaries. This report includes only those subsidiaries asOn August 28, 2023, we executed a spin-off of June 30, 2023.Zest Labs, which owns intellectual property relating to agriculture shelf life and freshness management, pursuant to a stock purchase agreement whereby we sold all of the outstanding shares of Zest Labs, Inc. to Zest Labs Holding, LLC. The comparative financial statements for the three and six months ended JuneSeptember 30, 2022 reflect the operations of those subsidiaries that were sold during the year ended March 31, 2022 as discontinued operations in the condensed consolidated statements of operations and as assets and liabilities of discontinued operations on the condensed consolidated balance sheets.
Through BNC, we are primarily engaged in the development and operation of an online metaverse platform (the “Metaverse”). The Metaverse represents groundbreakinga significant development in the online metaverse landscape, offering immersive, interconnected digital experiences that are inclusive, engaging, and dynamic. By integrating various elements such as virtual markets, real world goods marketplaces and VIP experiences, gaming, social activities, sweepstakes, gambling, and more, the Company aims to revolutionize the way people interact online. The Company’s rapidly growingOur virtual world, BNC (the “Platform”)located at BitNile.com, is accessible via any device using any web browser, without requiring permissions, downloads, or apps, and the Platformplatform can be enjoyed without the need for bulky and costly virtual reality headsets.
Our games operate on a free-to-play model, whereby game players may collect coins free of charge through the passage of time and, if a game player wishes to obtain coins above and beyond the level of free coins available to that player, the player may purchase additional coin packages (“Freemium” gaming model). Once obtained, Nile Tokens (“NT”) and Nile Coins (“NC”), (either free or purchased) cannot be redeemed for cash noror exchanged for anything outside of the Metaverse.metaverse. When coins are used and played in the games, the game player could “win” and would be awarded additional coins or could “lose” and lose the future use of those coins. We have concluded that the coins represent both consumable goods and durables, because 1) the game player does not receive any additional benefit from the game and is not entitled to any additional rights once the coins are consumed and 2) because once coins are used for the purchase of durable goods, those goods will continue to benefit the player throughout their gaming life cycle.
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Our Hospitality services currently consists of catering services provided to groups at certain social functionscurrent and sporting events. We also sell real world VIPplanned products and experiences and one-of-a-kind products.
The Company’s metaverse business strategy revolves around creating a seamless, all-encompassing Platform that caters to various user needs and interests. The Platform’s strategic pillars include:are:
| ● | ||
The Company targets a broad audience, including:
The Company offers an extensive range of products and experiences, including:
| ● | Real world goods | |
| ● | ||
| ● | Sweepstakes | |
| ● | Contests of | |
| ● | Building private | |
| ● | ||
| ● |
Our Business Strategy
The metaverse industry is experiencing rapid growth and expansion, driven by advancements in technology, increased interest in virtual experiences and the rise of digital economies. Key trends include:Our business strategy revolves around creating a seamless, all-encompassing platform that caters to various user needs and interests.
The strategic pillars for the growth of our BitNile.com metaverse platform include (i) leveraging cutting-edge technology to offer a user-friendly, browser-based platform compatible with virtual reality headsets and other modern devices for an enhanced experience, (ii) providing a diverse range of products and experiences that caters to users with different interests and preferences, (iii) fostering global connections and a sense of community among users, encouraging socialization and collaboration, and (iv) focusing on continuous innovation to stay ahead of industry trends and customer expectations.
We expect to generate revenue in fiscal 2024 through the sale of tokens or coins that provide our end users with interactive entertainment (game play) and durable goods principally for the personal computer and mobile platforms.
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Competition
Competition
The Company faces competition from existing metaverse platforms and new entrants. Key competitors include:
| ● | Established metaverse platforms, such as Decentraland, The Sandbox, and Second Life, as well as companies that | |
| ● | Gaming-focused platforms, like Fortnite and Roblox; and | |
| ● | Social media platforms that integrate metaverse elements, such as Facebook’s Horizon Workrooms. |
Regulatory Environment
Regulatory Environment
The Company operates within a complex and evolving regulatory landscape, with key considerations including:
| ● | Data privacy and protection regulations, such as GDPR and CCPA; | |
| ● | Compliance with gaming and gambling regulations in various jurisdictions; and | |
| ● | Intellectual property rights and digital asset ownership. |
Recent Developments
During the current fiscal year ending March 31, 2024, the Company engaged in the following transactions:
| ● | The Company raised approximately $3,500,000 in an At-the-Market capital raise during the fourth fiscal quarter of the year ended March 31, 2023 and the three months ended June 30, 2023. The ATM was terminated on June 16, 2023 after having raised approximately $3,500,000. |
| ● | On April 27, 2023, the Company closed a $6,875,000 senior secured convertible promissory note (see Note 14), and with the senior secured convertible note, the Company granted the noteholders |
| ● | On May 4, 2023, the Company amended |
| ● | On May 8, 2023, the Company received a letter from the Listing Qualifications staff (the “Staff”) of the Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that the Staff has determined to delist the Company’s common stock, par value $0.001 per share (the “Common Stock”) from The Nasdaq Capital Market, effective May 17, 2023, pursuant to Listing Rule 5810(c)(3)(A)(iii), as the Company’s common stock traded below $0.10 per share for 10 consecutive trading days. On May 12, 2023, the Company issued a press release announcing a 1-for-30 reverse stock split of its outstanding common stock which |
| ● | On May 15, 2023, Agora and Trend Ventures, LP entered into a First Amendment of Senior Secured Promissory Note (“First Amendment”), to amend the $4,250,000 senior secured promissory note entered into June 16, 2022. The First Amendment amended the following clauses of the original note: (a) the principal amount was amended from $4,250,000 to |
| ● | On June 21, 2023, the Company received a letter from the Listing Qualifications staff of Nasdaq notifying the Company that the Staff has determined that the Company has violated Nasdaq’s voting rights rule set forth in Listing Rule 5640 (the “Voting Rights Rule”). The alleged violation of the Voting Rights Rule relates to the issuance of (i) 8,637.5 shares of the Series B, and (ii) 1,362.5 shares of the Series C in connection with the acquisition of BNC as well as the securities of Earnity, Inc. beneficially owned by BNC (collectively, the “Assets”) pursuant to the SEA by and among the Company, AAI and the minority shareholders of BNC, which was previously disclosed on Current Reports on Form 8-K filed by the Company on February 14, 2023 and March 10, 2023. |
| ● | On July 18, 2023, the Company received a letter from the Listing Qualifications staff of Nasdaq indicating that the Company’s shareholders’ equity as reported in the 2023 Annual Report did not satisfy the continued listing requirement under Nasdaq Listing Rule 5550(b)(1) for the Nasdaq Capital Market, which requires that a listed company’s shareholders’ equity be at least $2.5 million. As reported in the 2023 Annual Report, the Company’s shareholders’ equity as of March 31, 2023 was approximately $(13.9) million. According to the letter, the Company had 45 calendar days from the date of the letter to submit a plan to regain compliance with Nasdaq Listing Rule 5550(b)(1). If the Company’s compliance plan is accepted by Nasdaq, then Nasdaq may, in its discretion, grant the Company up to 180 calendar days from the date of the Letter, or until January 14, 2024, to evidence compliance. If Nasdaq does not accept the Company’s plan, then Nasdaq may issue a staff delisting determination letter whereby the Company’s common stock will be subject to delisting. The Company would have the opportunity to appeal that decision to a Nasdaq hearings panel. The Company submitted a compliance plan, which was subsequently amended and restated, to the staff, but as of the date of this filing, Nasdaq has not determined whether or not to accept the Company’s plan. |
| ● | On |
| ● | On August 25, 203, we, Zest Labs and Zest Labs Holdings, LLC (owned by Gary Metzger, a current board member of our company) (the “Purchaser”), entered into a stock purchase agreement, whereby the Purchaser purchased 100% of the issued and outstanding common stock of Zest Labs from us in exchange for the Purchaser agreeing to distribute any net proceeds from any new or ongoing intellectual property litigation or the sale or licensing of any intellectual property of Zest Labs to our shareholders of record as of November 15, 2022. |
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| ● | On September 28, 2023, the Company amended the Certificate of Designations for each of the Series B Preferred Stock and the Series C Preferred Stock to eliminate all voting rights of these series of preferred stock. On October 16, 2023, Nasdaq notified the Company that it had regained compliance with the Voting Rights Rule. |
| ● | On In accordance with Nasdaq listing rule 5810(c)(3)(A), the Company has 180 calendar days, or until April 30, 2024, to regain compliance. The Deficiency Letter states that to regain compliance, the bid price for the Company’s common stock must close at $1.00 per share or more (the “Minimum Bid Price”) for a minimum of 10 consecutive business days during the compliance period ending April 30, 2024. In the event that the Company does not regain compliance within this 180-day period, the Company may be eligible to seek an additional compliance period of 180 calendar days if it meets the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the Minimum Bid Price, and provides written notice to Nasdaq of its intent to cure the deficiency during this second compliance period, by effecting a reverse stock split, if necessary. However, if it appears to the Nasdaq Staff that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, Nasdaq will provide notice to the Company that |
| ● | On November 14, 2023, we entered into a Securities Purchase Agreement (the |
AccordingThe purchase price was paid by the cancellation of $15,085,930.69 of cash advances made by AAI to us between January 1, 2023 and November 9, 2023.
The terms of the Preferred Shares as set forth in the Certificates of Designations of the Rights, Preferences and Limitations of the Series D Convertible Preferred Stock (the “Certificate”). The Preferred Shares each have a stated value of $25,000 per share (the “Stated Value”). Pursuant to the Letter, because theCertificate, each Preferred Stock was not issued for cash, the Staff compared the valueShare is convertible into a number of the Assets toshares of our common stock determined by dividing the Stated Value and determined thatby $0.51 (the “Conversion Price”). The Conversion Price is subject to adjustment in the valueevent of an issuance of common stock at a price per share lower than the Assets was less thanConversion Price then in effect, as well as upon customary stock splits, stock dividends, combinations or similar events.
The Preferred Shares holders are entitled to receive dividends at a rate of 10% of the Stated Value per annum from issuance until November 14, 2033 (the “Dividend Term”). During the first two years of the Dividend Term, dividends will be payable, in our option, in additional Preferred Shares rather than cash, and thatthereafter dividends will be payable in either additional Preferred Shares or cash as the voting rights attributablemajority holder may elect. If the Company fails to make a dividend payment as required by the Certificate, the dividend rate will be increased to 15% for as long as such default remains ongoing and uncured. Each Preferred Share also has a $25,000 liquidation preference in the event of a liquidation, change of control event, dissolution or winding up of our company, and ranks senior to all our other capital stock with respect thereto other than the existing Series B Preferred Stock and Series C Preferred Stock, has the effect of disparately reducing the voting rights of the Company’s existing shareholders. The Staff looked at the total assets and stockholders’ equity of BNC as of March 5, 2023, as well as the market capitalization of AAI prior to entering into the Agreement and immediately after closing of the transaction in determining, in Staff’s opinion, the value of the Assets. The Letter did not make any reference to the projections prepared by AAI as to the future potential of the business of BNC nor to the independent valuation obtained by the Company prior to closing of the transaction,with which supported the Stated Value of the Preferred Stock for the total value of the Assets, both of which the Company provided to the Staff prior to receipt of the Letter.
Shares shall have equal ranking.
According to the Letter, Nasdaq determined that the voting rights of the Series B and CEach Preferred Stock, voting on an as-converted basis, are below the minimum price per share of the Company’s common stock at the time of the issuance of the Series B and C Preferred Stock. Additionally, Nasdaq determined that the Series B provides the holder the right to appoint a majority of the Company’s board of directors when such representationShare is not justified by the relative contribution of the Series B pursuant to the Agreement.
Under the Voting Rights Rule, a company cannot create a new class of security that votes at a higher rate than an existing class of securities or take any other action that has the effect of restricting or reducing the voting rights of an existing class of securities. As such, according to the Letter, the issuance of the Series B and C Preferred Stock violated the Voting Rights Rule because the holders of the Series B and C Preferred Stock are entitled to vote, on an as-converted basis, thus having greater voting rights than holderswith the common stock at a rate of 0.9 votes per share of common stock into which the Preferred Share is convertible.
In addition, for as long as at least 25% of the Preferred Shares remain outstanding, AAI must consent with respect to certain corporate events, including reclassifications, fundamental transactions, stock redemptions or repurchases, increases in the number of directors, and declarations or payment of dividends, and further we are subject to certain negative covenants, including covenants against issuing additional shares of capital stock or derivative securities, incurring indebtedness, engaging in related party transactions, selling of properties having a value of over $50,000, altering the Series B is entitlednumber of directors, and discontinuing the business of any subsidiary, subject to certain exceptions and limitations.
The Agreement provides the holders of Preferred Shares with most favored nations rights in the event we offer securities with more favorable terms than the Preferred Shares for as long as the Preferred Shares remain outstanding. Under the Agreement, while any Preferred Shares are outstanding, we are prohibited from redeeming or declaring or paying dividends on outstanding securities other than the Preferred Shares. Further, the Agreement prohibits us from issuing or amending securities at a disproportionate representationprice per share below the Conversion Price, or to engage in variable rate transactions, for a period ending on the Company’s boardearlier of directors.(i) four (4) years from the Closing Date and (ii) the date that AAI holds less than 250 Preferred Shares.
According to the Letter, the Company has 45 calendar days from the date of the Letter, or until August 7, 2023, to submit a plan to regain compliance with the Voting Rights Rule, and if such plan is accepted by Nasdaq, the Company can receive an extension of up to 180 calendar days from the date of the Letter to evidence compliance. However, if the Company’s plan is not accepted by Nasdaq, the Company’s common stock will be subject to delisting. The Company would have the right to appeal that decision to a hearings panel. On July 28, 2023, the Company responded and submitted a plan to regain compliance with the Voting Rights Rule.
Segment Reporting for the Three and Six Months Ended JuneSeptember 30, 2023 and 2022
As a result of the sales of WTRV and Banner Midstream, and the immaterial nature of the operations of Zest Labs the Companyand Agora, we no longer segregates its operations as most of the continuing operations are related to Agora.segregate our operations.
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Results of Operations
The discussion of our results of operations should be evaluated considering that our primary subsidiaries were sold in the year ended March 31, 2023 and their results of operations are now treated as discontinued operations. Accordingly, period to period comparisons may not be meaningful.
Continuing Operations For the Three Months Ended JuneSeptember 30, 2023 and 2022
| Three Months Ended September 30, | Change | Change | ||||||||||||||
| 2023 | 2022 | ($) | (%) | |||||||||||||
| Hospitality and VIP experience revenue | $ | 17,700 | $ | - | $ | 17,700 | 100 | % | ||||||||
| Gaming revenue | 1,500 | - | 1,500 | 100 | % | |||||||||||
| Cost of revenue | 28,422 | 88,212 | (59,790 | ) | -68 | % | ||||||||||
| Gross loss | (9,222 | ) | (88,212 | ) | 78,990 | 90 | % | |||||||||
| Operating expenses: | ||||||||||||||||
| Depreciation, amortization and impairment | 4,032,157 | 1,668,555 | 2,363,602 | 142 | % | |||||||||||
| Bad debt | 55,548 | - | 55,548 | 100 | % | |||||||||||
| Selling, general and administration | 7,030,891 | 1,621,728 | 5,409,163 | 334 | % | |||||||||||
| Salaries and professional consulting fees | 2,619,762 | 3,625,044 | (1,005,282 | ) | -28 | % | ||||||||||
| Total operating expenses | 13,738,358 | 6,915,327 | 6,823,031 | 99 | % | |||||||||||
| Operating loss | (13,747,580 | ) | (7,003,539 | ) | (6,744,041 | ) | -96 | % | ||||||||
| Other (expense) income | ||||||||||||||||
| Change in fair value of warrant derivative liabilities | 1,862,290 | 3,286,004 | (1,423,714 | ) | -43 | % | ||||||||||
| Dividend expense | (1,553,458 | ) | - | 1,553,458 | 100 | % | ||||||||||
| Amortization of discounts | (2,161,211 | ) | - | 2,161,211 | 100 | % | ||||||||||
| Loss on disposal of fixed assets | - | (570,772 | ) | (570,772 | ) | -100 | % | |||||||||
| Interest expense, net of interest income | 41,499 | (281,900 | ) | 323,399 | -115 | % | ||||||||||
| Total other (expense) income | (1,810,880 | ) | 2,433,332 | (4,244,212 | ) | -174 | % | |||||||||
| Loss from continuing operations before discontinued operations | (15,558,460 | ) | (4,570,207 | ) | (10,988,253 | ) | -240 | % | ||||||||
| Discontinued operations | ||||||||||||||||
| Loss from discontinued operations | (385,242 | ) | (7,629,448 | ) | ||||||||||||
| Gain (loss) on disposal of discontinued operations | 683,152 | (12,534,900 | ) | |||||||||||||
| Total gain (loss) discontinued operations | 297,910 | (20,164,348 | ) | |||||||||||||
| Net loss | $ | (15,260,550 | ) | $ | (24,734,555 | ) | ||||||||||
| Three Months Ended June 30, | ||||||||||||||||
| 2023 | 2022 | Change ($) | Change (%) | |||||||||||||
| Hospitality and VIP experience revenue | $ | 45,150 | $ | - | $ | 45,150 | 100 | % | ||||||||
| Cost of revenue | 86,300 | 93,862 | (7,562 | ) | -8 | % | ||||||||||
| Gross loss | (41,150 | ) | (93,862 | ) | 52,712 | 56 | % | |||||||||
| Operating expenses: | ||||||||||||||||
| Depreciation, amortization and impairment | 136,882 | 45,097 | 91,785 | 204 | % | |||||||||||
| Bad debt | 53,415 | - | 53,415 | 100 | % | |||||||||||
| Selling, general and administration | 10,160,441 | 1,688,064 | 8,472,377 | 502 | % | |||||||||||
| Salaries and professional consulting fees | 1,841,711 | 6,542,948 | (4,701,237 | ) | -72 | % | ||||||||||
| Total operating expenses | 12,192,449 | 8,276,109 | 3,916,340 | 47 | % | |||||||||||
| Operating loss | (12,233,599 | ) | (8,369,971 | ) | (3,863,628 | ) | 46 | % | ||||||||
| Other income (expense) | ||||||||||||||||
| Change in fair value of warrant derivative liabilities | 2,197,348 | (393,532 | ) | 2,590,880 | -658 | % | ||||||||||
| Change in fair value of preferred stock derivative liabilities | 17,893,969 | - | 17,893,969 | 100 | % | |||||||||||
| Change in fair value of convertible note derivative liability | 1,029,237 | - | 1,029,237 | 100 | % | |||||||||||
| Derivative expense | (182,077 | ) | - | (182,077 | ) | 100 | % | |||||||||
| Amortization of original issue discount | (241,096 | ) | - | (241,096 | ) | 100 | % | |||||||||
| Dividend expense | (1,597,222 | ) | - | (1,597,222 | ) | 100 | % | |||||||||
| Interest expense, net of interest income | (262,535 | ) | (36,828 | ) | (225,707 | ) | 613 | % | ||||||||
| Total other income (expense) | 18,837,624 | (430,360 | ) | 19,267,894 | 4848 | % | ||||||||||
| Income (loss) from continuing operations before discontinued operations | 6,604,025 | (8,800,331 | ) | 15,404,356 | 193 | % | ||||||||||
| Discontinued operations | ||||||||||||||||
| Loss from discontinued operations | (1,143,303 | ) | (2,635,818 | ) | ||||||||||||
| Gain on disposal of discontinued operations | - | 711,505 | ||||||||||||||
| Total loss discontinued operations | (1,143,303 | ) | (1,924,313 | ) | ||||||||||||
| Net income (loss) | $ | 5,460,722 | $ | (10,724,644 | ) | |||||||||||
Revenue and Gross Loss
During the three-month period ended JuneSeptember 30, 2023, we had increased revenues of $45,150$19,200 and decreased gross loss of $52,712$78,990 compared to the three monththree-month period ended JuneSeptember 30, 2022, primarily due to prior year salary and wage expenses coupled with the hospitality and VIP experience sales, thatwhich began in the three monththree-month period ended JuneSeptember 30, 2023. Additionally, the Company ceased its Bitcoin mining in the year ended March 31, 2023.
Operating Loss and Operating Expenses
During the three months ended JuneSeptember 30, 2023, our operating loss increased by $3,863,628 compared to$7 million, from $7 million for the three-month period ended JuneSeptember 30, 2022, to $14 million for the three-month period ended September 30, 2023, primarily due to increased advertising expenses and platform hosting fees coupled with increased travel, legal and management expenses of approximately $5 million and $2 million, respectively.
Loss from Continuing Operations
We had increased loss from continuing operations for the period of approximately $11 million, from $5 million for the three-month period ended September 30, 2022, to $16 million for the three-month period ended September 30, 2023, due to the increase of our operating loss of approximately $7 million, the amortization of derivative discounts expense of $2 million and dividend expenses of approximately $2 million.
Continuing Operations For the Six Months Ended September 30, 2023 and 2022
| Six Months Ended September 30, | Change | Change | ||||||||||||||
| 2023 | 2022 | ($) | (%) | |||||||||||||
| Hospitality and VIP experience revenue | $ | 62,850 | $ | - | $ | 62,850 | 100 | % | ||||||||
| Gaming revenue | 1,500 | - | 1,500 | 100 | % | |||||||||||
| Cost of revenue | 114,722 | 182,074 | (67,352 | ) | -37 | % | ||||||||||
| Gross loss | (50,372 | ) | (182,074 | ) | 131,702 | 72 | % | |||||||||
| Operating expenses: | ||||||||||||||||
| Depreciation, amortization and impairment | 4,169,039 | 1,713,651 | 2,455,388 | 143 | % | |||||||||||
| Bad debt | 108,963 | - | 108,963 | 100 | % | |||||||||||
| Selling, general and administration | 16,864,801 | 2,460,929 | 14,403,872 | 585 | % | |||||||||||
| Salaries and professional consulting fees | 4,211,660 | 9,582,893 | (5,371,233 | ) | -56 | % | ||||||||||
| Total operating expenses | 25,354,463 | 13,757,473 | 11,596,990 | 84 | % | |||||||||||
| Operating loss | (25,404,835 | ) | (13,939,547 | ) | (11,465,288 | ) | -82 | % | ||||||||
| Other income (expense) | ||||||||||||||||
| Change in fair value of derivative liabilities | 22,982,843 | 2,892,472 | 20,090,371 | 695 | % | |||||||||||
| Dividend expense | (3,150,680 | ) | - | 3,150,680 | 100 | % | ||||||||||
| Amortization of discounts | (2,584,384 | ) | - | 2,584,834 | 100 | % | ||||||||||
| Loss on disposal of fixed assets | - | (570,772 | ) | (570,772 | ) | -100 | % | |||||||||
| Interest expense, net of interest income | (221,036 | ) | (318,728 | ) | (97,692 | ) | -31 | % | ||||||||
| Total other income | 17,026,743 | 2,002,972 | 15,023,771 | 750 | % | |||||||||||
| Loss from continuing operations before discontinued operations | (8,378,092 | ) | (11,936,575 | ) | (3,558,483 | ) | -30 | % | ||||||||
| Discontinued operations | ||||||||||||||||
| Loss from discontinued operations | (2,104,888 | ) | (11,699,050 | ) | ||||||||||||
| Gain (loss) on disposal of discontinued operations | 683,152 | (11,823,395 | ) | |||||||||||||
| Total loss from discontinued operations | (1,421,736 | ) | (23,522,445 | ) | ||||||||||||
| Net loss | $ | (9,799,828 | ) | $ | (35,459,020 | ) | ||||||||||
Revenue and Gross Loss
During the six-month period ended September 30, 2023, we had increased revenues of $64,350 and decreased gross loss of $131,702 compared to the six-month period ended September 30, 2022, primarily due to prior year salary and wage expenses coupled with hospitality and VIP experience sales, which began in the six-month period ended September 30, 2023.
Operating Loss and Operating Expenses
During the six months ended September 30, 2023, our operating loss increased by $11 million, from $14 million for the six-month period ended September 30, 2022, to $25 million for the six-month period ended September 30, 2023, primarily due to advertising and hospitality expenses, platform hosting fees and travel expenses of approximately $7$11 million, $1$2 million and $1$2 million, respectively. These increased expenses were partially offset by decreaseda decrease in salaries and professional fees of approximately $5$4 million.
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Income (Loss)Loss from Continuing Operations
The CompanyWe had increased incomedecreased loss from continuing operations for the period of approximately $15.4$4 million, from $12 million for the six-month period ended September 30, 2022, to $8 million for the six-month period ended September 30, 2023, due to the gain of $19.3$18 million of other income and (expenses) primarily due to a gainchange in the fair value of derivative liabilities and derivative incomea gain on disposal of approximately $21 milliondiscontinued operations in 2023, partially offset by the increase ofincreased dividend expenses coupled with our increased operating loss of approximately $4 million.$3 million and $11 million, respectively.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are revenue generated from operations, levels of accounts receivable, and accounts payable and capital expenditures.
Net cash used in operating activities of continuing operations was approximately $8$16 million for the threesix month period ended JuneSeptember 30, 2023, as compared to approximately $4$14 million in the prior year period. The $4$2 million increase in the current period was primarily due to the change in the fair value of derivative liabilities of approximately $21 million and decreased common shares issued for services of approximately $5$23 million, partially offset by decreased accounts payableno loss on disposal of WTRV and Banner Midstream of $12 million, depreciation amortization and impairment of approximately $4 million and dividends payable, gain on disposal of discontinued operations and legal expenses of $5 million.
Net cash provided by investing activities decreased due to no cash being provided in the current year period by discontinued operations.
Net cash provided by financing activities decreasedincreased by approximately $5$2 million primarily, due to nothe proceeds from parent of $7 million and the proceeds from the sale of common stock and convertible notes of $7 million in the current year period offset by proceeds from the proceeds related to the sale of preferred stock which wasof $12 million in the prior year period partially offset by proceeds from the convertible note of approximately $5 million coupled with the proceeds related to the ATM of approximately $2 million.period.
As of JuneSeptember 30, 2023, the Company has $2,005we had $1,554 in cash and cash equivalents. The Company believesWe believe that the current cash on hand is not sufficient to conduct planned operations for one year from the issuance of the condensed consolidated financial statements, and it needswe need to raise capital to support itsour operations, raising substantial doubt about itsour ability to continue as a going concern. The Company hasWe recently acquired BNC and hashave generated nominal revenue as of JuneSeptember 30, 2023. The accompanying financial statements for the three and six month periodperiods ended JuneSeptember 30, 2023 have been prepared assuming the Companywe will continue as a going concern, but theour ability of the Company to continue as a going concern is dependent on the Companyour obtaining adequate capital to fund operating losses until it establisheswe establish continued revenue streams and becomesbecome profitable. Management’s plans to continue as a going concern include raising additional capital through sales of equity securities and borrowing. However, management cannot provide any assurances that the Companywe will be successful in accomplishing any of itsour plans. If the Company is not ablewe are unable to obtain the necessary additional financing on a timely basis, the Companywe will be required to delay, reduce or perhaps even cease the operation of itsour business. TheOur ability of the Company to continue as a going concern is dependent upon itsour ability to successfully secure other sources of financing and attain profitable operations. In the Company’sour fourth fiscal quarter ended March 31, 2023, the Companywe raised $1,715,439 from the sales of itsour common stock related to an “At-the-Market” (“ATM”) offering, with an additional approximate $1,800,000 raised in the this first fiscal quarter of 2024. In addition, on April 27, 2023, the Companywe sold $6.875 million of principal face amount senior secured convertible notes with an original issue discount to sophisticated investors for gross proceeds to the company of $5.5 million. The notes mature on April 27, 2024 and are secured by all of theour assets of the Company and certain of itsour subsidiaries, including BNC. The proceeds received have gone towards working capital until the Companywe can generate the necessary funds from theirour operations. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary if the Company iswe are unable to continue as a going concern. See “Risk Factors” included in our Annual Report for the year ended March 31, 2023 (“2023 Annual Report”)Report filed with the Securities and Exchange Commission (“SEC”)SEC on July 14, 2023.
Cautionary Note Regarding Forward Looking Statements
This Report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding closing the SEA with Ault, the potential terms, timing and success of the planned spin-offs by us to our security holders of WTRV’s and Wolf Energy’s common stock, our ability to raise capital, our plans to maintain our Nasdaq listing, the expected changes to Agora’s business, our expectations with respect to future developments in our ongoing litigation, and our liquidity. All statements other than statements of historical fact are “forward-looking statements” including: any projections of earnings, revenues or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.
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The results anticipated by any or all of these forward-looking statements might not occur. Important factors, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements include the possibility that the BNC platform may not create positive operating cash flows, the non-acceptance of such platform by consumers, the acceptance of advertisers and others may not be as expected, the lack of the ability to complete, timelines of our planned spin-offs and any regulatory, registration or other delays and uncertainties due to factors beyond our control, the inability to obtain stockholder approval of (i) the acquisition of BNC and the issuance of more than 19.9% of our common stock to Ault, the potential for a recession which may result, supply chain shortages, any issues which could result in unfavorable outcomes of one or both of our ongoing Zest Labs lawsuits, the outcome of the lawsuits against Agora, and the availability of capital on acceptable terms when needed or at all including all risks relating to the capital markets in general and small public companies in particular. Further information on the risks and uncertainties affecting our business is contained in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023 under Part I. Item 1A. – Risk Factors. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.
Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The accounting principles we use require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and amounts of income and expenses during the reporting periods presented. We believe in the quality and reasonableness of our critical accounting policies; however, materially different amounts may be reported under different conditions or using assumptions different from those that we have applied. The accounting policies that have been identified as critical to our business operations and to understanding the results of our operations pertain to valuation of inventories, accruals of certain liabilities including product warranties, and useful lives of assets.
Recently Issued Accounting Pronouncements
Our management has considered all recent accounting pronouncements issued since the last audit of our financial statements. Our management believes that these recent pronouncements will not have a significant effect on our financial statements.
Critical Accounting Estimates
Fair Value Measurements
ASC 820, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosure about fair value measurements. ASC 820 classifies these inputs into the following hierarchy:
Level 1 inputs: Quoted prices for identical instruments in active markets.markets;
Level 2 inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.observable; and
Level 3 inputs: Instruments with primarily unobservable value drivers.
The carrying values of the Company’sour financial instruments such as cash, accounts payable, and accrued expenses approximate their respective fair values because of the short-term nature of those financial instruments.
Derivative Financial Instruments
The Company doesWe do not currently use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks but may explore hedging oil pricesand do not expect to in the current fiscal year. Management evaluates all of the Company’sour financial instruments, including warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The CompanyWe generally uses a Black-Scholes model, as applicable, to value the derivative instruments at inception and subsequent valuation dates when needed. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, isare remeasured at the end of each reporting period. The Black-Scholes model is used to estimate the fair value of the derivative liabilities.
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Recently Issued Accounting Standards
In October 2021, the Financial Accounting Standards Board (“FASB”) issued accounting standards update 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. The guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. The guidance should be applied prospectively to acquisitions occurring on or after the effective date. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. The Company doesWe do not expect this guidance to have a material impact on itsour condensed consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses, which requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The guidance is effective for fiscal years beginning after December 15, 2019. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), which pushes back the effective date for public business entities that are smaller reporting companies, as defined by the SEC, to fiscal years beginning after December 15, 2022. Early adoption is permitted. The adoption of ASU 2016-13 beginningwhich began April 1, 2023, did not have a material impact on our condensed consolidated financial statements.
The Company does not discussOur management has considered all recent accounting pronouncements issued since the last audit of our financial statements. Our management believes that these recent pronouncements that arewill not anticipated to have an impacta significant effect on or are unrelated to itsour financial condition, results of operations, cash flows or disclosures.statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officers,We have evaluated the effectiveness of ourestablished disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based upon their evaluation, our principal executive officer and our principal financial officer concluded that, solely as a result of the material weaknesses identified by management and described in our 2023 Annual Report, our disclosure controls and procedures were not effectivedesigned to ensure that material information relating to the Company required to be disclosed byin the Company in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and to ensure that such information is accumulated and communicated to management, including our Chief Executive Officerthe principal executive officer and Chief Financial Officer, as appropriateprincipal financial officer, to allow timely decisions regarding required disclosure.
ChangesOur principal executive officer and principal financial officer, with the assistance of other members of the Company’s management, have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Internal Control Over Financial Reporting
Except forRules 13a-15(e) and 15d-15(e) under the material weaknesses identifiedExchange Act) as of the end of the period covered by managementthis quarterly report. Based upon our evaluation, each of our principal executive officer and described in our 2023 Annual Report, there were no changes in ourprincipal financial officer has concluded that the Company’s internal control over financial reporting duringwas not effective as of the quarterend of the period covered by this Quarterly Report on Form 10-Q because the Company has not yet completed its remediation of the material weaknesses previously identified and disclosed in the Company’s Annual Report on Form 10-K for the year ended June 30,March 31, 2023, that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.the end of its most recent fiscal year.
Management has identified the following material weaknesses:
| 1. | The Company does not have sufficient segregation of duties within accounting functions; |
| 2. | Lack of formal review procedures including multiple level of review over accounting financial reporting process due to the small size of its accounting staff; |
| 3. | The Company does not have sufficient written documentation of our internal control policies and procedures; and |
| 4. | The Company’s financial reporting is carried out with the assistance of an outside financial consultant. |
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Planned Remediation
Management continues to work to improve its controls related to our material weaknesses. Management will continue to implement measures to remediate material weaknesses, such that these controls are designed, implemented, and operating effectively. We plan to rectify these weaknesses by implementing written policies and procedures for our internal control of financial reporting, and hiring additional accounting personnel at such time as we have sufficient financial and human capital resources to do so. In order to achieve the timely implementation of the above, management has commenced the following actions and will continue to assess additional opportunities for remediation on an ongoing basis:
Revenue Recognition. We intend on enhancing the design of existing controls and implementing new controls over the review of the application and recording of revenue for customer contracts under the guidance outlined in ASC 606. We also intend on implementing more thorough reviews of contracts by evaluating contractual terms and determining whether certain contracts should be consolidated, involve related parties and the proper timing of revenue recognition. These reviews will include more comprehensive contractual analysis from our legal team while ensuring qualified resources are involved and adequate oversight is performed during the internal technical accounting review process.
Accounts Receivable. We intend on enhancing the design of existing controls and implementing new controls over the processing and review of accounts receivable billings. We plan to supplement our accounting staff with more experienced personnel. We will also evaluate information system capabilities in order to reduce the manual calculations within this business process.
Complex Financial Instruments. We will design and implement controls to properly identify and implement the proper accounting treatment and classifications of our complex financial instruments to ensure our equity accounting and treatment is in accordance with U.S. generally accepted accounting principles. We intend to accomplish this by implementing more thorough reviews of certain details regarding all rights, penalties, record holders and negative covenants of the financial instruments in order to apply the correct accounting guidance (liabilities vs. equity vs. temporary equity).
Fair value estimates. We will design and implement additional control activities to ensure controls related to fair value estimates (including controls that validate the reasonableness, completeness and accuracy of information, data and assumptions), are properly designed, implemented and documented.
While these actions and planned actionsThese material weaknesses will not be considered to be remediated until the applicable remediated controls are subject to ongoing management evaluation and will require validation and testing of the design and operating effectiveness of internal controls overfor a sustainedsufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Despite the existence of these material weaknesses, we believe that the condensed consolidated financial reporting cycles, we are committed tostatements included in the continuous improvementperiod covered by this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles.
Changes in Internal Controls Over Financial Reporting
Except as detailed above, during the fiscal quarter ended September 30, 2023, there were no significant changes in our internal control over financial reporting. We will continuereporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected or are reasonably likely to diligently reviewmaterially affect our internal control over financial reporting.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the period covered by this report, there were no material developments in the legal proceedings disclosed in our Annual Report on Form 10-K for the year ended March 31, 2023.
ITEM 1A. RISK FACTORS
Investing in our common stock involves a high degree of risk. Investors should reviewThere are no updates or changes to the risk factors describedset forth in our Annual Report on Form 10-K for the year ended March 31, 2023. In addition, investors should consider2023, as supplemented by the risk factors described below.
Although we reported net incomeset forth in our Quarterly Report on Form 10-Q for the three months ended June 30, 2023, such results are unrelated to our actual performance.
During the first quarter ended June 30, 2023, we reported net operating income from continuing operations of approximately $6.6 million. Investors should consider that the income arose from GAAP which provides that our derivative liabilities operate inversely to our stock price. If our stock price in a given quarter goes down, we recognize non-cash income. Conversely if our stock price goes up, we report a non-cash loss.
There is substantial doubt about our ability to continue as a going concern.
The Company’s financial statements are prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company sold its interests in Banner Midstream in two separate transactions on July 25, 2022 and September 7, 2022. In addition, it sold the non-core business of Trend Discovery on June 17, 2022. The Company expects to distribute the common stock it received (or issuable upon conversion of preferred stock) in the sales to its stockholders upon the effective registration statements for the two entities the companies were sold to. See Note 17, “Preferred Stock” for information on the Company’s recent $12 million convertible preferred stock financing. That financing has restrictive covenants that require approval of the investor for the Company to engage in any equity or debt financing.2023.
The Company believes that the current cash on hand is not sufficient to conduct planned operations for one year from the issuance of the condensed consolidated financial statements, and it needs to raise capital to support their operations, raising substantial doubt about its ability to continue as a going concern. The Company has recently acquired BNC and generated nominal revenues as of June 30, 2023. The accompanying financial statements for the period ended June 30, 2023 have been prepared assuming the Company will continue as a going concern, but the ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes continued revenue streams and becomes profitable. Management’s plans to continue as a going concern include raising additional capital through sales of equity securities and borrowing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. If the Company is not able to obtain the necessary additional financing on a timely basis, the Company will be required to delay, reduce or perhaps even cease the operation of its business. The ability of the Company to continue as a going concern is dependent upon its ability to successfully secure other sources of financing and attain profitable operations. The Company raised approximately $3,500,000 in an At-the-Market capital raise during the fourth fiscal quarter of the year ended March 31, 2023 and the three months ended June 30, 2023. The ATM was terminated on June 16, 2023 after having raised approximately $3,500,000. In addition, on April 27, 2023, the Company sold $6.875 million of principal face amount senior secured convertible notes with an original issue discount to sophisticated investors for gross proceeds to the company of $5.5 million. The notes mature on April 27, 2024 and are secured by all of the assets of the Company and certain of its subsidiaries, including BNC.
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Nasdaq has recently provided us with correspondence containing violation notices and questions arising from certain of our prior transactions, the result of which could be our common stock being delisted from Nasdaq.
On December 27, 2022, the Company received a letter from Nasdaq notifying the Company of its noncompliance with stockholder approval requirements set forth in Listing Rule 5635(d), which requires stockholder approval for transactions, other than public offerings, involving the issuance of 20% or more of the pre-transaction shares outstanding at less than the Minimum Price (as defined therein). Additionally, the letter indicates that the Company violated Nasdaq’s voting rights rule set forth in Listing Rule 5640. The matters described in the letter relate to an amendment to the Certificate of Designation of Rights, Preferences and Limitations (the “Certificate”) of the Series A, shares of which were issued by the Company on June 8, 2022 in a private placement transaction which was previously disclosed on a Current Report on Form 8-K filed on June 9, 2022. Specifically, the Company amended the Certificate on November 28, 2022 to: (i) increase the stated value of the Series A from $10,000 to $10,833.33; (ii) provide for the dividends payable under the Series A to be payable in Common Stock rather than cash effective beginning November 1, 2022, and (iii) reduce the conversion price of the Series A from $63.00 to the lesser of (1) $30.00 and (2) the higher of (A) 80% of the 10-day daily volume weighted average price and (B) $7.50 (the “Amendment”). According to the letter, the Company was required to obtain stockholder approval to effect the Amendment because the Series A as amended provides for the potential issuance of 1,733,333 shares of Common Stock at less than the Minimum Price under Listing Rule 5635(d), and the Amendment also violates Listing Rule 5640 by providing the holder of the Series A with voting rights on an as-converted basis with the Series A convertible into Common Stock at a discount, thereby violating Listing Rule 5640.
In the letter, the Company was provided 45 calendar days from the date of the letter, or until February 10, 2023, to submit a plan to regain compliance with the referenced Listing Rules, and if such plan is accepted by Nasdaq, the Company can receive an extension of up to 180 calendar days from the date of the letter to evidence compliance. However, if the Company’s plan is not accepted by Nasdaq, or is not sufficiently executed to regain compliance and remedy the matters set forth in the letter, the Company’s Common Stock will be subject to delisting. In connection with the letter the Company was also requested to furnish Nasdaq with certain documents and information related to its sale of WTRV.
In connection with the December 27th letter, the Company was also requested to provide certain documents and information related to its sale of WTRV, including as it pertains to the $30,000,000 in preferred stock value being carried on the Company’s balance sheet as consideration for the sale of the entity. According to the correspondence, the request was made under Listing Rule 5250 which provides that a listed company will provide Nasdaq with requested information deemed necessary to make a determination regarding such company’s continued listing.
Further, on December 30, 2022, the Company received another letter from the Nasdaq notifying the Company of its noncompliance with Listing Rule 5550(a)(2) by failing to maintain a minimum bid price for its Common Stock of at least $1.00 per share for 30 consecutive business days and providing the Company with a 180 calendar day grace period to regain compliance with the Listing Rule 5550(a)(2), subject to a potential 180 calendar day extension, as described below. To regain compliance, the Company’s Common Stock must have a minimum closing bid price of at least $1.00 per share for at least 10 consecutive business days within the grace period which ended on June 28, 2023. To qualify for the additional grace period, the Company will be required to meet the continued listing requirement for the market value of its publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and will need to provide written notice of its intention to cure the deficiency during the second grace period, by effecting a reverse stock split if necessary, which would also require stockholder approval unless completed with a proportionate reduction in our authorized Common Stock under our Articles of Incorporation.
On January 26, 2023, Nasdaq sent an email to the Company raising 13 questions concerning the WTRV transaction, WTRV’s business, seeking verification that the Company had in fact transferred $3 million to WTRV last July and questioning the time allocations of the two senior executive officers of the Company and WTRV, among other things. The Company responded on February 15, 2023.
The Company provided responses to Nasdaq on January 11, 2023, February 10, 2023 and February 15, 2023.
If our Common Stock is delisted from Nasdaq, we could face significant material adverse consequences, including:
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If we are unable to rectify any of the above-described Nasdaq issues, for failure to timely obtain stockholder approval, a delisting will subject us and our stockholders to the above and other adverse consequences and could also delay us from effecting the announced spin-offs of common stock of WTRV and Wolf Energy certain entities as described elsewhere in this Report.
On June 21, 2023, the Company received a letter from the Listing Qualifications staff of Nasdaq notifying the Company that the Staff has determined that the Company has violated Nasdaq’s voting rights rule set forth in Listing Rule 5640 (the “Voting Rights Rule”). The alleged violation of the Voting Rights Rule relates to the issuance of (i) 8,637.5 shares of the Series B, and (ii) 1,362.5 shares of the Series C in connection with the acquisition of BNC as well as the securities of Earnity, Inc. beneficially owned by BNC (collectively, the “Assets”) pursuant to the SEA by and among the Company, AAI and the minority stockholders of BNC, which was previously disclosed on Current Reports on Form 8-K filed by the Company on February 14, 2023 and March 10, 2023. The Series B and C Preferred Stock has a collective stated value of $100,000,000 (the “Stated Value”), and votes on an as-converted basis, representing approximately 92.4% of the Company’s outstanding voting power on a fully diluted basis at the time of issuance.
According to the Letter, because the Preferred Stock was not issued for cash, the Staff compared the value of the Assets to the Stated Value and determined that the value of the Assets was less than the Stated Value and that the voting rights attributable to the Series B and C Preferred Stock has the effect of disparately reducing the voting rights of the Company’s existing shareholders. The Staff looked at the total assets and stockholders’ equity of BNC as of March 5, 2023, as well as the market capitalization of AAI prior to entering into the Agreement and immediately after closing of the transaction in determining, in Staff’s opinion, the value of the Assets. The Letter did not make any reference to the projections prepared by AAI as to the future potential of the business of BNC nor to the independent valuation obtained by the Company prior to closing of the transaction, which supported the Stated Value of the Preferred Stock for the total value of the Assets, both of which the Company provided to the Staff prior to receipt of the Letter.
According to the Letter, Nasdaq determined that the voting rights of the Series B and C Preferred Stock, voting on an as-converted basis, are below the minimum price per share of the Company’s common stock at the time of the issuance of the Series B and C Preferred Stock. Additionally, Nasdaq determined that the Series B provides the holder the right to appoint a majority of the Company’s board of directors when such representation is not justified by the relative contribution of the Series B pursuant to the Agreement.
Under the Voting Rights Rule, a company cannot create a new class of security that votes at a higher rate than an existing class of securities or take any other action that has the effect of restricting or reducing the voting rights of an existing class of securities. As such, according to the Letter, the issuance of the Series B and C Preferred Stock violated the Voting Rights Rule because the holders of the Series B and C Preferred Stock are entitled to vote on an as-converted basis, thus having greater voting rights than holders of common stock, and the Series B is entitled to a disproportionate representation on the Company’s board of directors.
According to the Letter, the Company has 45 calendar days from the date of the Letter, or until August 7, 2023, to submit a plan to regain compliance with the Voting Rights Rule, and if such plan is accepted by Nasdaq, the Company can receive an extension of up to 180 calendar days from the date of the Letter to evidence compliance. However, if the Company’s plan is not accepted by Nasdaq, the Company’s common stock will be subject to delisting. The Company would have the right to appeal that decision to a hearings panel. On July 28th, the Company responded and submitted a plan to regain compliance with the Voting Rights Rule.
On May 8, 2023, the Company received a letter from the Listing Qualifications staff (the “Staff”) of the Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that the Staff has determined to delist the Company’s common stock, par value $0.001 per share (the “Common Stock”) from The Nasdaq Capital Market, effective May 17, 2023, pursuant to Listing Rule 5810(c)(3)(A)(iii), as the Company’s common stock traded below $0.10 per share for 10 consecutive trading days.
On May 12, 2023, the Company issued a press release announcing a 1-for-30 reverse stock split of its outstanding common stock which will be effective for trading purposes as of the commencement of trading on May 15, 2023.
On May 26, 2023, the Company received a letter from Nasdaq stating that the Company’s bid price deficiency had been cured, and that the Company was in compliance with all applicable listing standards.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, AND USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
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| * | Certain schedules and other attachments have been omitted. The Company undertakes to furnish the omitted schedules and attachments to the Securities and Exchange Commission upon request. |
| ** | This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K. |
Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our stockholders who make a written request to our Corporate Secretary at BitNile Metaverse, Inc., 303 Pearl Parkway Suite #200, San Antonio, Texas 78215.
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SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: | By: | /s/ Randy May |
| Randy May | ||
| Chief Executive Officer | ||
| Date: | By: | /s/ Jay Puchir |
| Jay Puchir | ||
| Chief Financial Officer | ||
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