UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FormFORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2021April 30, 2022
☐ 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: 000-56142
|
(Exact name of registrant as specified in its charter) |
Delaware |
| 82-1091922 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
| (Zip Code) |
(321) 802-2474(904) 454-2111
Registrant’s telephone number, including area code
(Former name and address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated | ☐ | Smaller reporting company | ☒ |
(Do not check if 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 Exchange Act). Yes ☐ No ☒
As of AugustMay 31, 2021,2022, the Company had 8,602,5309,104,038 shares of common stock, $0.0001 par value outstanding.
Transitional Small Business Disclosure Format Yes ☐ No ☒
Everything Blockchain, Inc.
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Table of |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Interim Condensed Consolidated Financial Statements and Notes to Interim Financial Statements
General
The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with the instructions to Form 10-Q. Therefore, they do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders’ equity in conformity with generally accepted accounting principles. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements included in the Company’s original S-1 filing and the annual audit for the year ended January 31, 2021. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the three and six months ended July 31, 2021April 30, 2022, are not necessarily indicative of the results that can be expected for the year ending January 31, 2022.
Please see Risk Factors2023 or any other reporting period. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10K10-K for the year ended January 31, 2022 filed with the Securities and Exchange Commission (the “SEC”) on June 5, 2020May 10, 2022 (the “Annual Report”) concerning Covid-19 for further information..
3 |
Table of |
Everything Blockchain, Inc. | Everything Blockchain, Inc. | Everything Blockchain, Inc. | ||||||||||||||
Consolidated Balance Sheets (Amounts in thousands, except share and per share data) | Consolidated Balance Sheets (Amounts in thousands, except share and per share data) | Consolidated Balance Sheets (Amounts in thousands, except share and per share data) | ||||||||||||||
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ASSETS | ASSETS | ASSETS | ||||||||||||||
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| As of |
| ||||||||||||
|
| As of |
|
| April 30, |
| January 31, |
| ||||||||
|
| July 31, |
| January 31, |
|
| 2022 |
|
| 2022 |
| |||||
|
| 2021 |
|
| 2021 |
|
| (unaudited) |
| |||||||
|
| (unaudited) |
| |||||||||||||
Current Assets |
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| |||||||||||
Current assets |
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| |||||||||||
Cash |
| $ | 819 |
| $ | 0 |
|
| $ | 1,699 |
| $ | 1,062 |
| ||
Accounts receivable, net |
| 30 |
| 0 |
|
| 58 |
| 11 |
| ||||||
Interest receivable |
| 0 |
| 90 |
| |||||||||||
Inventory |
| 83 |
| 60 |
| |||||||||||
Current cryptocurrencies, net |
| 3,412 |
| 123 |
|
| 3,032 |
| 3,152 |
| ||||||
Inventory |
| 4 |
| 0 |
| |||||||||||
Prepaid expenses |
|
| 3,136 |
|
|
| 1 |
|
| 2,750 |
| 2,918 |
| |||
Other assets |
|
| 53 |
|
|
| 36 |
| ||||||||
Total current assets |
|
| 7,401 |
|
|
| 214 |
|
|
| 7,675 |
|
|
| 7,239 |
|
Property, plant and equipment, net |
|
| 6,112 |
|
|
| 0 |
|
| 971 |
| 1,001 |
| |||
Cryptocurrency, net |
| 0 |
| 98 |
| |||||||||||
Goodwill |
| 1,319 |
| 0 |
|
| 17,823 |
| 17,823 |
| ||||||
Intangible assets, net |
| 2,205 |
| 0 |
|
| 3,418 |
| 3,119 |
| ||||||
Loan receivable |
|
| 0 |
|
|
| 1,400 |
| ||||||||
Other assets |
|
| 463 |
|
|
| 463 |
| ||||||||
Total assets |
| $ | 17,037 |
|
| $ | 1,712 |
|
| $ | 30,350 |
|
| $ | 29,645 |
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LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||
Current liabilities | Current liabilities |
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| ||||||||||
Accounts payable and accrued expenses |
| $ | 231 |
| $ | 6 |
|
| $ | 994 |
| $ | 744 |
| ||
Accounts payable related party |
| 421 |
| 13 |
|
| 18 |
| 24 |
| ||||||
Current portion of long-term debt |
| 35 |
| 0 |
|
| 282 |
| 282 |
| ||||||
Reserve for legal settlements |
| 154 |
| 154 |
|
| 154 |
| 154 |
| ||||||
Deferred revenue |
|
| 151 |
|
|
| 0 |
|
|
| 260 |
|
|
| 108 |
|
Total current liabilities |
| $ | 992 |
|
| $ | 173 |
|
| $ | 1,708 |
|
| $ | 1,312 |
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Long-term liabilities |
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|
| 0 |
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Debt |
|
| 553 |
|
|
| 0 |
|
| 263 |
| 271 |
| |||
Deferred income taxes |
|
| 203 |
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|
| 617 |
| ||||||||
Total long-term liabilities |
| $ | 553 |
|
|
| 0 |
|
| $ | 466 |
|
| $ | 888 |
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Total Liabilities |
| $ | 1,545 |
|
| $ | 173 |
| ||||||||
Total liabilities |
| $ | 2,174 |
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| $ | 2,200 |
| ||||||||
Stockholders' equity | Stockholders' equity |
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Series A Preferred stock, $0.0001 par value: 1,000,000 shares authorized; 200,000 shares issued and outstanding as of July 31, 2021; 150,000 shares issued and outstanding as of January 31, 2021 |
| 0 |
| 0 |
| |||||||||||
Series B Preferred stock, $0.0001 par value: 1,000,000 shares authorized; 400,000 shares issued and outstanding as of July 31, 2021; 650,000 shares issued and outstanding as of January 31, 2021 |
| 0 |
| 0 |
| |||||||||||
Common stock, $0.0001 par value, 200,000,000 shares authorized; 8,475,792 and 5,974,125 shares issued and outstanding, as of July 31, 2021 and January 31, 2021, respectively. |
| 1 |
| 1 |
| |||||||||||
Series A Preferred stock, $0.0001 par value: 1,000,000 shares authorized; 200,000 shares issued and outstanding as of April 30, 2022 and January 31, 2022 |
| 0 |
| 0 |
| |||||||||||
Series B Preferred stock, $0.0001 par value: 1,500,000 shares authorized; 400,000 shares issued and outstanding as of April 30, 2022 and January 31, 2022 |
| 0 |
| 0 |
| |||||||||||
Series C Preferred stock, $0.0001 par value: 2,000,000 shares authorized; 250,000 shares issued and outstanding as of April 30, 2022; 0 shares issued and outstanding as of January 31, 2022 |
| 0 |
| 0 |
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Common stock, $0.0001 par value, 200,000,000 shares authorized; |
| 1 |
| 1 |
| |||||||||||
9,104,038 and 8,604,038 shares issued and outstanding as |
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of April 30, 2022 and January 31, 2022, respectively. |
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Treasury stock |
| (1,599 | ) |
| 0 |
|
| (1,599 | ) |
| (1,599 | ) | ||||
Additional paid-in capital |
| 67,190 |
| 54,946 |
|
| 82,319 |
| 80,134 |
| ||||||
Accumulated deficit |
|
| (50,101 | ) |
|
| (53,408 | ) |
|
| (52,545 | ) |
|
| (51,091 | ) |
Total stockholders' equity |
| $ | 15,492 |
|
| $ | 1,539 |
|
| $ | 28,176 |
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| $ | 27,445 |
|
Total liabilities and stockholders' equity |
| $ | 17,037 |
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| $ | 1,712 |
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| $ | 30,350 |
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| $ | 29,645 |
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See accompanying notes to consolidated financial statements. |
See accompanying notes to consolidated financial statements.
4 |
Table of |
Everything Blockchain, Inc. | Everything Blockchain, Inc. | Everything Blockchain, Inc. | ||||||||||||||||||||||
Consolidated Statements of Operations (Amounts in thousands, except per share data) | ||||||||||||||||||||||||
Consolidated Statements of Income (Amounts in thousands, except share and per share data) | Consolidated Statements of Income (Amounts in thousands, except share and per share data) | |||||||||||||||||||||||
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| For the three months ended |
| For the six months ended |
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| For the Three Months Ended |
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|
| July 31, |
| July 31, |
|
| April 30, |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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| 2022 |
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| 2021 |
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| (unaudited) |
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Revenue from services |
| $ | 259 |
| $ | 0 |
| $ | 1,385 |
| $ | 0 |
| |||||||||||
Other revenue |
|
| 5,175 |
|
|
| 0 |
|
|
| 5,312 |
|
|
| 0 |
| ||||||||
Total revenue |
|
| 5,434 |
|
|
| 0 |
|
|
| 6,697 |
|
|
| 0 |
| ||||||||
Revenue |
| $ | 255 |
| $ | 1,081 |
| |||||||||||||||||
Cost of sales |
|
| 2,746 |
|
|
| 0 |
|
|
| 2,746 |
|
|
| 0 |
|
|
| 15 |
|
|
| 0 |
|
Gross profit |
|
| 2,688 |
|
|
| 0 |
|
|
| 3,951 |
|
|
| 0 |
|
| $ | 240 |
|
| $ | 1,081 |
|
Selling, general, and administrative |
| 115 |
| 1,069 |
| 827 |
| 49,281 |
|
| 1,093 |
| 140 |
| ||||||||||
Stock based compensation |
| 803 |
| 0 |
| |||||||||||||||||||
Depreciation and amortization |
|
| 23 |
|
|
| 0 |
|
|
| 23 |
|
|
| 0 |
|
|
| 50 |
|
|
| 0 |
|
Total operating expenses |
|
| 138 |
|
|
| 1,069 |
|
|
| 850 |
|
|
| 49,281 |
|
| $ | 1,946 |
|
| $ | 140 |
|
Operating income (loss) |
| 2,550 |
| (1,069 | ) |
| 3,101 |
| (49,281 | ) | ||||||||||||||
Other income (expense) |
|
| (8 | ) |
|
| (7 | ) |
|
| 206 |
|
|
| (13 | ) | ||||||||
Income (loss) from operations |
| (1,706 | ) |
| 941 |
| ||||||||||||||||||
Other income (expense), net |
|
| (160 | ) |
|
| (174 | ) | ||||||||||||||||
Income (loss) before income taxes |
| $ | (1,866 | ) |
| $ | 767 |
| ||||||||||||||||
Income tax benefit |
|
| 412 |
|
|
| 0 |
| ||||||||||||||||
Net income (loss) |
| $ | 2,542 |
|
| $ | (1,076 | ) |
|
| 3,307 |
|
| $ | (49,294 | ) |
| $ | (1,454 | ) |
| $ | 767 |
|
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Basic and diluted income (loss) per share: |
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Basic income (loss) per share |
| $ | 0.38 |
| $ | (0.18 | ) |
| $ | 0.52 |
| $ | (6.31 | ) |
| $ | (0.17 | ) |
| $ | 0.13 |
| ||
Diluted income (loss) per share |
| $ | 0.28 |
| $ | (0.18 | ) |
| $ | 0.39 |
| $ | (6.31 | ) |
| $ | (0.17 | ) |
| $ | 0.13 |
| ||
Weighted average shares outstanding - basic |
| 6,649,188 |
| 5,881,902 |
| 6,325,407 |
| 7,806,248 |
|
|
| 8,665,836 |
|
| $ | 5,993,443 |
| |||||||
Weighted average shares outstanding - diluted |
|
| 8,948,026 |
|
|
| 5,881,902 |
|
|
| 8,441,939 |
|
|
| 7,806,248 |
|
|
| 8,665,836 |
|
| $ | 5,993,443 |
|
| ||||||||||||||||||||||||
See accompanying notes to consolidated financial statements. |
See accompanying notes to consolidated financial statements.
5 |
Table of |
Everything Blockchain, INC | ||||||||||||||||||||||||||||||||
Consolidated Statements of Stockholders’ Equity (Amounts in thousands except than share amount) | ||||||||||||||||||||||||||||||||
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| Additional |
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Accumulated |
|
| Total Stockholders' |
| ||||||||
|
| Preferred Stock |
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| Common Stock |
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| Treasury |
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| Paid-in |
|
| Income |
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| Equity |
| ||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Stock |
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| Capital |
|
| (Deficit) |
|
| (Deficit) |
| ||||||||
|
| (unaudited) |
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Balance – January 31, 2021 |
|
| 800,000 |
|
| $ | 0 |
|
|
| 5,974,125 |
|
| $ | 1 |
|
| $ | 0 |
|
| $ | 54,946 |
|
| $ | (53,408 | ) |
| $ | 1,539 |
|
Shares issued |
|
| - |
|
|
| 0 |
|
|
| 261,667 |
|
|
| 0 |
|
|
| 0 |
|
|
| 392 |
|
|
| 0 |
|
|
| 392 |
|
Shares issued for services |
|
| - |
|
|
| 0 |
|
|
| 390,000 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,752 |
|
|
| 0 |
|
|
| 1,752 |
|
Shares issued for acquisitions |
|
| - |
|
|
| 0 |
|
|
| 1,750,000 |
|
|
| 0 |
|
|
| 0 |
|
|
| 8,000 |
|
|
| 0 |
|
|
| 8,000 |
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Warrant exercise |
|
| - |
|
|
| 0 |
|
|
| 100,000 |
|
|
| 0 |
|
|
| 0 |
|
|
| 100 |
|
|
| 0 |
|
|
| 100 |
|
Issuance of Series A Preferred for services |
|
| 50,000 |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,000 |
|
|
| 0 |
|
|
| 2,000 |
|
Conversion of note receivable |
|
| (250,000 | ) |
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| (1,598 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (1,598 | ) |
Net income |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,307 |
|
|
| 3,307 |
|
Balance – July 31, 2021 |
|
| 600,000 |
|
| $ | - |
|
|
| 8,475,792 |
|
| $ | 1 |
|
| $ | (1,598 | ) |
| $ | 67,190 |
|
| $ | (50,101 | ) |
| $ | 15,492 |
|
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Balance – January 31, 2020 |
|
| - |
|
| $ | 0 |
|
|
| 10,460 |
|
| $ | 1 |
|
| $ | 0 |
|
| $ | 3,501 |
|
| $ | (4,109 | ) |
| $ | (607 | ) |
Conversion of common to series B preferred |
|
| 500 |
|
|
| 0 |
|
|
| (5,000 | ) |
|
| (1 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (1 | ) |
Conversion of accounts payable |
|
| - |
|
|
| 0 |
|
|
| 246 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,662 |
|
|
| 0 |
|
|
| 1,662 |
|
Issuance of Series A preferred |
|
| 150 |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 40,138 |
|
|
| 0 |
|
|
| 40,138 |
|
Issuance of series B preferred |
|
| 150 |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 6,548 |
|
|
| 0 |
|
|
| 6,548 |
|
Imputed Interest |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 8 |
|
|
| 0 |
|
|
| 8 |
|
Interest receivable – related party |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 28 |
|
|
| 0 |
|
|
| 28 |
|
Shares issued for services |
|
| - |
|
|
| 0 |
|
|
| 154 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,038 |
|
|
| 0 |
|
|
| 1,038 |
|
Sale of assets to related party |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,900 |
|
|
| 0 |
|
|
| 1,900 |
|
Net loss |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
|
|
|
|
| (49,294 | ) |
|
| (49,294 | ) |
Balance – July 31, 2020 |
|
| 800 |
|
| $ | 0 |
|
|
| 5,860 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 54,824 |
|
| $ | (53,403 | ) |
| $ | 1,421 |
|
|
|
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See accompanying notes to consolidated financial statements. |
Everything Blockchain, Inc. | ||||||||||||||||||||||||||||||||
Consolidated Statements of Stockholders’ Equity (Amounts in thousands) | ||||||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
| Total Stockholders' |
| ||||||||||||||
|
| Preferred Stock |
|
| Common Stock |
|
| Treasury |
|
| Paid-in |
|
| Accumulated |
|
| Equity |
| ||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Stock |
|
| Capital |
|
| Deficit |
|
| (Deficit) |
| ||||||||
|
| (unaudited) |
| |||||||||||||||||||||||||||||
Balance – January 31, 2021 |
|
| 800 |
|
| $ | 0 |
|
|
| 5,974 |
|
| $ | 1 |
|
| $ | 0 |
|
| $ | 54,946 |
|
| $ | (53,408 | ) |
| $ | 1,539 |
|
Warrant exercise |
|
| - |
|
|
| 0 |
|
|
| 100 |
|
|
| 0 |
|
|
| 0 |
|
|
| 100 |
|
|
| 0 |
|
|
| 100 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 767 |
|
|
| 767 |
|
Balance – April 30, 2021 |
|
| 800 |
|
| $ | 0 |
|
|
| 6,074 |
|
| $ | 1 |
|
| $ | 0 |
|
| $ | 55,046 |
|
| $ | (52,641 | ) |
| $ | 2,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – January 31, 2022 |
|
| 600 |
|
| $ | 0 |
|
|
| 8,604 |
|
| $ | 1 |
|
| $ | (1,599 | ) |
| $ | 80,134 |
|
| $ | (51,091 | ) |
| $ | 27,445 |
|
Issuance of Series C preferred |
|
| 250 |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,000 |
|
|
| 0 |
|
|
| 1,000 |
|
Warrant exercise |
|
| - |
|
|
| 0 |
|
|
| 500 |
|
|
| 0 |
|
|
| 0 |
|
|
| 500 |
|
|
| 0 |
|
|
| 500 |
|
Stock based compensation |
|
| - |
|
|
| 0 |
|
|
|
|
|
|
| 0 |
|
|
| 0 |
|
|
| 685 |
|
|
| 0 |
|
|
| 685 |
|
Net loss |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (1,454 | ) |
|
| (1,454 | ) |
Balance – April 30, 2022 |
|
| 850 |
|
| $ | 0 |
|
|
| 9,104 |
|
| $ | 1 |
|
| $ | (1,599 | ) |
| $ | 82,319 |
|
| $ | (52,545 | ) |
| $ | 28,176 |
|
See accompanying notes to consolidated financial statements.
6 |
Table of |
Everything Blockchain, Inc. | Everything Blockchain, Inc. | Everything Blockchain, Inc. | ||||||||||||||
Consolidated Statements of Cash Flows (Amounts in thousands) | Consolidated Statements of Cash Flows (Amounts in thousands) | Consolidated Statements of Cash Flows (Amounts in thousands) | ||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
|
| For the Six Months Ended July 31, |
|
| For the Three Months Ended April 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
|
| (unaudited) |
|
| (unaudited) |
| ||||||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Net (Loss) |
| $ | 3,307 |
| $ | (49,294 | ) | |||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
| |||||||||||
Net Income (Loss) |
| $ | (1,454 | ) |
| $ | 767 |
| ||||||||
Adjustments to reconcile net income (loss) to net |
|
|
|
|
| |||||||||||
cash provided by (used in) operating activities: |
|
|
|
|
| |||||||||||
Stock based compensation |
| 0 |
| 49,191 |
|
| 803 |
| 0 |
| ||||||
Deferred income tax benefit |
| (415 | ) |
| 0 |
| ||||||||||
Reverse of bad debt |
| (233 | ) |
| 0 |
|
| 0 |
| (233 | ) | |||||
Realized loss on investment in cryptocurrency, net |
| 85 |
| 0 |
| |||||||||||
Loss on cryptocurrency impairment |
| 16 |
| 0 |
| |||||||||||
Realized net (gain) loss on investment in cryptocurrency |
| (26 | ) |
| 17 |
| ||||||||||
Fair value adjustment to cryptocurrency |
| (2,435 | ) |
| 0 |
|
| 147 |
| 0 |
| |||||
Amortization and depreciation |
| 23 |
| 0 |
|
| 50 |
| 0 |
| ||||||
Imputed interest |
| 0 |
| 8 |
| |||||||||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
| ||||||
Accounts receivable, net |
| 4 |
| 0 |
|
| (48 | ) |
| 0 |
| |||||
Interest receivable |
| (32 | ) |
| 0 |
| ||||||||||
Inventory |
| (4 | ) |
| 0 |
|
| (23 | ) |
| 0 |
| ||||
Prepaid expenses |
| (26 | ) |
| 0 |
|
| 51 |
| 1 |
| |||||
Intangible assets |
| (2 | ) |
| 0 |
| ||||||||||
Other assets |
| (17 | ) |
| 0 |
| ||||||||||
Accounts payable to related party |
| 408 |
| 43 |
|
| (6 | ) |
| 634 |
| |||||
Accrued interest |
| 0 |
| 3 |
|
| 0 |
| (11 | ) | ||||||
Accounts payable, accrued expenses and taxes payable |
| (241 | ) |
| 18 |
| ||||||||||
Accounts payable and accrued expenses |
| 250 |
| 19 |
| |||||||||||
Deferred revenue |
|
| (93 | ) |
|
| 0 |
|
|
| 152 |
|
|
| 200 |
|
Net cash provided by (used in) operating activities |
|
| 777 |
|
|
| (31 | ) |
|
| (536 | ) |
|
| 1,394 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Acquisition of cryptocurrencies, net |
| (268 | ) |
| 0 |
|
| 0 |
| (1,953 | ) | |||||
Proceeds from sale of cryptocurrencies |
| 74 |
| 0 |
| |||||||||||
Acquisitions, net of cash received |
|
| (23 | ) |
|
| 0 |
| ||||||||
Capital expenditures |
|
| (319 | ) |
|
| 0 |
| ||||||||
Net cash used in investing activities |
|
| (217 | ) |
|
| 0 |
|
|
| (319 | ) |
|
| (1,953 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash Flows From Financing Activities: |
|
|
|
|
| |||||||||||
Cash flows from financing activities: |
|
|
|
|
| |||||||||||
Borrowing from related party |
| 0 |
| 31 |
|
| 0 |
| 500 |
| ||||||
Payment to related party |
| (500 | ) |
| 0 |
| ||||||||||
Proceeds from debt |
| 266 |
| 0 |
| |||||||||||
Payment of debt |
| (8 | ) |
| 0 |
| ||||||||||
Proceeds from issuance of Series C Preferred Stock |
| 1,000 |
| 0 |
| |||||||||||
Proceeds from exercise of warrants |
| 500 |
| 0 |
| |||||||||||
Proceeds from issuance of stock, net |
|
| 493 |
|
|
| 0 |
|
|
| 0 |
|
|
| 100 |
|
Net cash provided by financing activities |
|
| 259 |
|
|
| 31 |
| ||||||||
Net cash provided by (used in) financing activities |
|
| 1,492 |
|
|
| 600 |
| ||||||||
Net Change in Cash |
| 819 |
| 0 |
|
| 637 |
| 41 |
| ||||||
Cash at Beginning of Year |
|
| 0 |
|
|
| 0 |
| ||||||||
Cash at End of Year |
| $ | 819 |
|
| $ | 0 |
| ||||||||
Cash, beginning of period |
|
| 1,062 |
|
|
| 0 |
| ||||||||
Cash, end of period |
| $ | 1,699 |
|
| $ | 41 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Supplemental Disclosure of Cash Flows Information: |
|
|
|
|
|
|
|
|
|
| ||||||
Cash paid for interest |
| $ | 3 |
| $ | 0 |
|
| $ | 13 |
| $ | 0 |
| ||
Cash paid for income taxes |
| $ | 0 |
| $ | 0 |
|
| $ | 3 |
| $ | 0 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||||
Non-cash Investing and Financing Activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Loan of cryptocurrency |
| $ | 500 |
| $ | 0 |
|
| $ | 0 |
| $ | 500 |
| ||
Cryptocurrency received for payment under contract |
| 240 |
| 0 |
| |||||||||||
Fair value of assets in acquisitions |
| 9,433 |
| 0 |
| |||||||||||
Fair value of liabilities assumed in acquisitions |
| 791 |
| 0 |
| |||||||||||
Accounts receivable settlement for Render Payment |
| 233 |
| 0 |
|
| 0 |
| 233 |
| ||||||
Conversion of note receivable in exchange for common stock and preferred stock |
| 1,598 |
| 0 |
| |||||||||||
Issuance of stock for services |
| 1,110 |
| 0 |
| |||||||||||
Issuance of Series A Preferred for services |
| 2,000 |
| 0 |
| |||||||||||
Conversion of accounts payable to related party to common stock |
|
|
| 195 |
| |||||||||||
Sale of software to related party |
|
|
| 1,900 |
| |||||||||||
Interest receivable – related party |
|
|
| 28 |
| |||||||||||
|
|
|
|
|
| |||||||||||
See accompanying notes to consolidated financial statements. |
See accompanying notes to consolidated financial statements.
7 |
Table of |
Everything Blockchain, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Organization and Basis of Presentation
The accompanying unaudited consolidated financial statements of Everything Blockchain, Inc. and its consolidated subsidiaries (collectively, the “Company”, “we”, “our”), have been prepared in accordance with generally accepted accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the SEC. All significant intercompany accounts and transactions have been eliminated.eliminated in consolidation.
Description of Business
The Company’s early model was to earn revenue through social media advertising, fees, and services. Under this plan, the Company developed its white label software solution for BOTS under the 420 Cloud brand. After multiple attempts to secure acceptanceis primarily engaged in the market, the Company discontinued this operation during the fiscal year ended January 31, 2020.
In April 2020 the Company divestedbusiness of consulting and sold its white label software solutiondeveloping blockchain and changed direction of its business. The Company has become a developer, engineer, and consultant in the industry of blockchain technologies.cybersecurity related solutions.
Subsidiaries of the Company
On April 26, 2021, in a settlement agreement with Render Payment, LLC (“Render”) owners, the Company became the sole owner of Render in exchange for an outstanding accounts receivable the company impaired in 2019. The settlement was considered a related party transaction and conducted as an arm’s length transaction approved by board members not associated with Render. As part of the transaction the Company recognized other income of $233,000 as fair market value of the assets obtained under the settlement. The Company received two vehicles with FMV of $49,000 each and the Render Payment, Processing Software with an FMV of $135,000.
On June 30, 2021, the Company acquired all of the equity interests of Mercury, Inc.LLC (“Mercury”Render”), pursuant to a Purchase Agreement dated April 24, 2021. Upon the closing of the transaction (the “Mercury Acquisition”), Mercury became a wholly owned subsidiary of the Company. The Company has utilized Mercury, which is located in Idaho, as its hosting solution since May 2020. The Company with Mercury will launch its mining operations in the western United States. The Company will commence mining for Bitcoins, Ethereum, and other alternative cryptocurrencies. For information on the Mercury Acquisition refer to “Note 4. Mercury Acquisition”.
On June 21, 2021, the Company acquired all of the equity interests of 832 Energy Technology Consultants, LLC (“832”), pursuant to a Purchase Agreement. Upon. On June 30, 2021, the closingCompany acquired all of the transaction (the “832 Acquisition”), 832 became a wholly owned subsidiaryequity interests of the Company. 832, which is located in Texas, has developed many innovations in the areas of distributed computing, artificial intelligence and blockchain. 832 was granted a full patent for its innovations in blockchain. For information on the 832 Acquisition refer to “Note 5. 832 Acquisition”Mercury, Inc. (“Mercury”).
On July 31, 2021, the Company acquired all of the equity interests of Vengar Technologies LLC (“Vengar”), pursuant to a Purchase Agreement. Upon the closing of the transaction (the “Vengar Acquisition”), Vengar became a wholly owned subsidiary of the Company. Vengar, which is located in Florida, has developed a zero trust protection software that the Company plans to integrate into its blockchain solutions. For information on the Vengar Acquisition refer to “Note 6. Vengar Acquisition”.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries of Render, 832, Mercury, Vengar, and Everything Blockchain Technology Corporation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The most significant estimates and judgments relate to:to revenue recognition; sales returns and other allowances; allowance for doubtful accounts; valuation of inventory; valuation and recoverability of long-lived assets; property and equipment; contingencies; and income taxes.
On a regular basis, management reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.
8 |
Table of |
Revenue Recognition Policies
Services revenue. We generate services revenue via consulting services and software development. The Company is engaged in developing, engineering, and designing blockchain projects, to include platforms and cryptocurrencies for customers.
Subscription revenue. We generate revenue from subscriptions through staking of our current crypto assets. Our primary token being staked is a hybrid Proof of Work (“POW”) and Proof of Stake (“POS”) system. Stakers, in this particular token are paid inflation based both on the duration of the stake (contract length), as well as based on the volume / quantity of tokens staked. Rewards / interest / inflation are paid in the native token. We also participate in networks with POW consensus algorithms, through creating or validating blocks on the network. In exchange for participating in the consensus mechanism of these networks, the Company earns rewards in the form of the native token of the network. Each block creation or validation is a performance obligation. Revenue is recognized at the point when the block creation or validation is complete, and the rewards are available for transfer. Revenue is measured based on the number of tokens received and the fair value of the token at the date of recognition.
Product revenue. We generate product revenue through customized product development.
We recognize revenue when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We determine revenue recognition through the following steps:
· | identification of the contract, or contracts, with a customer; | |
· | identification of the performance obligations in the contract; | |
· | determination of the transaction price; | |
· | allocation of the transaction price to the performance obligations in the contract; and | |
· | recognition of revenue when, or as, we satisfy a performance obligation. |
Concentration of Credit Risk and Significant Customers
Financial instruments which potentially subject the Company to a concentration of credit risk consist principally of temporary cash investments and accounts receivable.
Concentrations of credit risk with respect to trade receivables and commodities are limited due to the Company’s diverse group of customers. The Company establishes an allowance for doubtful accounts when events and circumstances regarding the collectability of its receivables or the selling of its commodities warrant based upon factors such as the credit risk of specific customers, historical trends, other information and past bad debt history. The outstanding balances are stated net of an allowance for doubtful accounts.
Revenues from one customer represent $1,000,000 and $0$1.0 million of the Company's revenue for the six-month periodsthree months ended July 31, 2021 and 2020, respectively.April 30, 2021.
Our cash balances are maintained in accounts held by major banks and financial institutions located in the United States. The Company may occasionally maintain amounts on deposit with a financial institution that are in excess of the federally insured limit of $250,000. The risk is managed by maintaining all deposits in high-quality financial institutions. The Company had $0.6$1.3 million and $0.1 million in excess of federally insured limits on JulyApril 30, 2022 and January 31, 2021.2022, respectively.
Our cryptocurrency balances are maintained in accounts held by institutions located in and outside the United States. The Company maintains amounts on deposit that often exceed coverage from third party insured limit of up to $1,000,000. The risk is managed by maintaining multiple accounts with various accounts held in a cold storage wallet. The Company had $2.8 million in excess of amounts protected by insurance.
9 |
Table of contents |
Cash and Cash Equivalents
The Company includes in cash and cash equivalents all short-term, highly liquid investments that mature within three months of the date of purchase. ForCash equivalents consist principally of investments in interest-bearing demand deposit accounts and liquidity funds with financial institutions and are stated at cost, which approximates fair value. The Company had no cash management purposes, the Company concentrates its cash holdings in an account at Radius Bank.equivalents as of April 30, 2022 and January 31, 2022.
Basic and Diluted Net Earnings (Loss) Per Share
The Company follows ASC Topic 260 – Earnings Per Share, and FASB 2015-06, Earnings Per Share to account for earnings per share. Basic earnings per share (“EPS”) calculations are determined by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per shareEPS calculations are determined by dividing net income (loss) by the weighted average number of common shares outstanding plus the dilutive effect, calculated using (i) the “treasury stock” method for warrants and (ii) the “if converted” method for the preferred stock if their inclusion would not have been anti-dilutive.
Fair Value Measurements
The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
The following are the hierarchical levels of inputs to measure fair value:
- Level 1: | Quoted prices in active markets for identical instruments; |
- Level 2: | Other significant observable inputs (including quoted prices in active markets for similar instruments); |
- Level 3: | Significant unobservable inputs (including assumptions in determining the fair value of certain investments). |
The carrying values for cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued liabilities, and deferred revenue approximate their fair value due to their short maturities.
Note 3. Going Concern
The Company's consolidated financial statements are prepared in accordance with GAAP, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Because the business is new and has a limited history, no certainty of continuation can be stated. The accompanying financial statements for the three and six months ended July 31,April 30, 2022 and 2021 and 2020 have been prepared to assume that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
The Company has had historically negative cash flow and net losses. Though the year ended January 31, 2022 resulted in positive cash flow and net income, there are no assurances the Company will generate a profit or obtain positive cash flow in the future. The Company has sustained its solvency through the support of its shareholder Overwatch Partners, Inc. (“Overwatch”), which raise substantial doubt about its ability to continue as a going concern.
Management is taking steps to raise additional funds to address its operating and financial cash requirements to continue operations in the next twelve months. Management has devoted a significant amount of time to the raising of capital from additional debt and equity financing. However, the Company’s ability to continue as a going concern is dependent upon raising additional funds through debt and equity financing and generating revenue. There are no assurances the Company will receive the necessary funding or generate the revenue necessary to fund operations. The financial statements contain no adjustments for the outcome of this uncertainty.
Note 4. Mercury Acquisition
On June 30, 2021, the Company acquired all the equity interests of Mercury. This acquisition is consistent with the Company’s strategy of expanding its cryptocurrency business. The purchase price consisted of 450,000 shares of common stock valued at $1.3 million and $0.1 million of cash.
This business combination has been accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair market values as of the acquisition date.
The purchase price recognized in our financial statements consisted of the following (amounts in thousands):
Cash |
| $ | 65 |
|
Common stock |
|
| 1,350 |
|
Total purchase price |
| $ | 1,415 |
|
The Company’s purchase price allocation is as follows (amounts in thousands):
Cash |
| $ | 74 |
|
Accounts receivable |
|
| 33 |
|
Property, plant & equipment |
|
| 740 |
|
Goodwill |
|
| 1,319 |
|
Accounts payable and accrued expenses |
|
| (426 | ) |
Deferred revenue |
|
| (3 | ) |
Notes payable |
|
| (322 | ) |
Total purchase price |
| $ | 1,415 |
|
The goodwill recorded reflects the value to the Company of Mercury’s mining operations.
The operations of Mercury are included in the consolidated statement of operations as of July 1, 2021. During the three and six months ended July 31, 2021, the Company recorded revenue of $0.1 million and net loss of $0 related to Mercury.
Note 5. 832 Acquisition
On June 21, 2021, the Company acquired all the equity interests of 832. This acquisition is consistent with the Company’s strategy of expanding its blockchain business. The purchase price consisted of 300,000 shares of common stock valued at $1.5 million.
This business combination has been accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair market values as of the acquisition date.
The purchase price recognized in our financial statements consisted of the following (amounts in thousands):
Common stock |
| $ | 1,542 |
|
Total purchase price |
| $ | 1,542 |
|
The Company’s preliminary purchase price allocation is as follows (amounts in thousands):
Cash |
| $ | 20 |
|
Intangible assets |
|
| 1,542 |
|
Accounts payable and accrued expenses |
|
| (20 | ) |
Total preliminary purchase price |
| $ | 1,542 |
|
Intangible assets consist of blockchain source code.
The final purchase price and the allocation thereof will not be known until the valuation of intangible assets is completed.
The operations of 832 are included in the consolidated statement of operations as of June 21, 2021. During the three and six months ended July 31, 2021, the Company recorded revenue of $0.1 million and net income of $0 related to 832.
Note 6. Vengar Acquisition
On July 31, 2021, the Company acquired all the equity interests of Vengar. This acquisition is consistent with the Company’s strategy of expanding its blockchain business. The purchase price consisted of 1,000,000 shares of common stock valued at $5.7 million and $0.1 million of cash.
This business combination has been accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair market values as of the acquisition date.
The purchase price recognized in our financial statements consisted of the following (amounts in thousands):
Cash |
| $ | 50 |
|
Common stock |
|
| 5,750 |
|
Total purchase price |
| $ | 5,800 |
|
10 |
Table of |
The Company’s preliminary purchase price allocation is as follows (amounts in thousands):
Cash |
| $ | 27 |
|
Property, plant & equipment |
|
| 5,285 |
|
Intangible assets |
|
| 527 |
|
Accounts payable and accrued expenses |
|
| (39 | ) |
Total preliminary purchase price |
| $ | 5,800 |
|
Intangible assets consist of patents.
The final purchase price and the allocation thereof will not be known until the valuation of intangible assets is completed.
The operations of Vengar will not be included in the consolidated statement of operations until August 1, 2021.
Note 7. Revenue
Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We determine revenue recognition through the following steps:
|
| |
|
| |
|
| |
|
| |
|
|
There was no revenue for the three and six months ended July 31, 2020. The following table presents revenue of the Company disaggregated by revenue source (in thousands):
Revenue | ||||||||
|
|
|
| |||||
Net revenue |
| For the Three Months Ended July 31, 2021 |
|
| For the Six Months Ended July 31, 2021 |
| ||
Transactional revenue |
|
|
|
|
|
| ||
Consulting and services revenue |
| $ | 215 |
|
| $ | 1,255 |
|
Total transaction revenue |
|
| 215 |
|
|
| 1,255 |
|
Subscription and services revenue |
|
|
|
|
|
|
|
|
Staking revenue |
|
| 44 |
|
|
| 130 |
|
Total subscription and services revenue |
|
| 44 |
|
|
| 130 |
|
Total net revenue |
|
| 259 |
|
|
| 1,385 |
|
Other revenue |
|
|
|
|
|
|
|
|
Fair value adjustment to cryptocurrency |
|
| 2,247 |
|
|
| 2,358 |
|
Crypto asset sales revenue |
|
| 2,907 |
|
|
| 2,907 |
|
Interest income |
|
| 21 |
|
|
| 47 |
|
Total other revenue |
|
| 5,175 |
|
|
| 5,312 |
|
Total revenue |
| $ | 5,434 |
|
| $ | 6,697 |
|
Transaction revenue
The Company charges a fee for its services at the transactional level. Currently the Company is engaged in developing, engineering, and designing blockchain projects, to include platforms and cryptocurrencies for customers. We typically treat all revenue generated from third parties for services as transaction revenue.
Subscription and service revenue
Subscription and service revenue primarily consist of staking revenue. The Company participates in networks with proof-of-stake consensus algorithms, through creating or validating blocks on the network. In exchange for participating in the consensus mechanism of these networks, the Company earns rewards in the form of the native token of the network. Each block creation or validation is a performance obligation. Revenue is recognized at the point when the block creation or validation is complete, and the rewards are available for transfer. Revenue is measured based on the number of tokens received and the fair value of the token at the date of recognition.
Other revenues
The Company includes interest income as a part of revenue when generated from non-cash equivalents as other revenue within net revenue. Interest earned on cash and cash equivalents is included in corporate interest income, within other income.
Other revenue also includes the sale of crypto assets. The Company records the total value of the sale in other revenue and the cost of the crypto assets in cost of sales within the consolidated statements of operations.
86% of the revenue generated by the Company has come from customer in the European theatre.
Note 8. Notes
On March 17, 2021 the Company entered into a loan agreement for $500,000 with Epic Industry Corp (“Epic”), a wholly owned company of Michael Hawkins, the Company’s CFO. The loan was financed with $500,000 of GUSD cryptocurrency tokens, a stable coin. The interest rate is 3% per annum. The Company paid off the loan during the quarter ended July 31, 2021.
Note 9. Related Party Transactions
On July 6, 2021, the Company entered into a settlement agreement with BOTS, Inc. Under the settlement agreement, BOTS agreed to return 250,000 shares of Series B Preferred stock to the treasury of the Company, in exchange for the assignment of the $1.4 million promissory note owed by First Bitcoin Capital Corp to the Company, along with all interest owed to date on the promissory note. In addition, the Company transferred 20,726,120 BIT tokens to BOTS. This was a related party transaction and was conducted at arm’s length. (See Note 10 – Stockholder’s Equity)
During the quarter ended July 31, 2021, the Company issued 50,000 shares of Series A Preferred Stock to Epic. (See Note 10 – Stockholder’s Equity)
During the three months ending April 30, 2021 and year ended January 31, 2021 Overwatch Partners paid multiple different expenses on behalf of the Company, which the Company treats as an account payable to related party. The total amount owed by the Company to Overwatch Partners as of July 31, 2021 was $11,717. The amount owed for the year ended January 31, 2021 was $12,862.
On April 12, 2021 Epic exercised the warrant it had and purchased 100,000 shares of common stock in exchange for $100,000. (See Note 10 – Stockholders’ Equity)
During the quarter ended April 30, 2021, the Company issued seven warrants to its officers and directors for the purchase of up to a total of 1,100,000 common shares of stock at $2.21 per share. (See Note 15 – Warrants)
On March 17, 2021 the Company borrowed $500,000 from Epic. (See Note 8 – Notes)
On April 29, 2020 the Company converted 5,000,000 shares of common stock owned by BOTS, Inc., into 500,000 shares of Series B Preferred stock. (see Note 10 – Stockholders’ Equity)
On April 22, 2020 the Company converted $104,987 outstanding accounts payable to Paul Rosenberg into 130,128 shares of common stock of the company at $0.75 per share. (See Note 10 – Stockholders’ Equity)
On April 17, 2020 the Company issued 50,000 shares of Series A Preferred Stock to Epic and 100,000 shares of Series A Preferred Stock to Overwatch Partners, Inc. (See Note 10 – Stockholders’ Equity)
On April 17, 2020 the Company issued 150,000 shares of Series B Preferred Stock to Paul Rosenberg. (See Note 10 – Stockholders’ Equity)
Note 10. Stockholders’ Equity4. Intangible Assets
Common StockIntangible assets consist of the following:
|
| As of April 30, 2022 |
| |||||||||
|
| Gross Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
| |||
|
| (in thousands) |
| |||||||||
IP/Technology |
| $ | 3,369 |
|
| $ | 0 |
|
| $ | 3,369 |
|
Non-compete agreements |
|
| 82 |
|
|
| 33 |
|
|
| 49 |
|
Total Intangibles |
| $ | 3,451 |
|
|
| 33 |
|
| $ | 3,418 |
|
As of July 31, 2021 and January 31, 2021, the Company had 200 million common shares authorized, with 8,475,792 and 5,974,125 common shares at a par value of $0.0001 issued and outstanding, respectively.
|
| As of January 31, 2022 |
| |||||||||
|
| Gross Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
| |||
|
| (in thousands) |
| |||||||||
IP/Technology |
| $ | 3,060 |
|
| $ | 0 |
|
| $ | 3,060 |
|
Non-compete agreements |
|
| 82 |
|
|
| 23 |
|
|
| 59 |
|
Total Intangibles |
| $ | 3,142 |
|
|
| 23 |
|
| $ | 3,119 |
|
On July 31, 2021 the Company issued 1,000,000 shares of common stock as part of the Vengar Acquisition.
On June 30, 2021 the Company issued 300,000 shares of common stock to Chris Carter for as part of his employment contract for a three year period. The shares shall be fully earned upon completion of his three-year contract.
On June 24, 2021 the Company issued 5,000 shares of common stock each to Sophie Grinevald and Bill Regan who will provide financial and accounting services to the Company for a probationary period of three months.
On June 21, 2021 the Company issued 300,000 shares of common stock as part of the 832 Acquisition.
On June 30, 2021 the Company issued 450,000 shares of common stock as part of the Mercury Acquisition.
On May 23, 2021 the Company entered into an Investor Relations agreement with RedChip Companies.Company’s IP/Technology is still being developed so no amortization has been recorded. The term of the agreement is for one year. The Company will pay $12,500 per month plus issue 75,000 shares of common stock.
On May 23, 2021 the Company issued 5,000 shares of common stock to Sara Moline who will provide services as an executive assistant for the Company for a probationary period of three months.
On April 12, 2021 Epic exercised the warrant it had and purchased 100,000 shares of common stock in exchange for $100,000. Epic elected to issue the shares in the name of Timothy R Schucker and Anastasia Hawkins JTWROS, the daughter and son-in-law of Michael Hawkins.
On April 22, 2020 the Company converted the following accounts payable into shares of common stock at the rate of $0.75 per share. Based upon the stock price of $6.75 on April 22, 2020 the Company recorded the following stock-based compensation as part of the accounts payable conversion action ($ in thousands):
Name |
| AP Balance |
|
| Shares Issued |
|
| FMV |
|
| Stock Based Compensation |
| ||||
Paul Rosenberg |
| $ | 105 |
|
|
| 130,128 |
|
| $ | 878 |
|
| $ | 773 |
|
Brandy Craig |
| $ | 69 |
|
|
| 88,455 |
|
| $ | 597 |
|
| $ | 528 |
|
Law Offices of Carl G Hawkins |
| $ | 6 |
|
|
| 8,504 |
|
| $ | 57 |
|
| $ | 51 |
|
Thomas G Amon |
| $ | 15 |
|
|
| 19,230 |
|
| $ | 130 |
|
| $ | 115 |
|
Total |
| $ | 195 |
|
|
| 246,317 |
|
| $ | 1,662 |
|
| $ | 1,467 |
|
Preferred Stock
Series A Preferred
As of July 31, 2021 and January 31, 2021, the Company had 1 million Series A Preferred shares, par value $0.0001, authorized, with 200,000 and 150,000 Series A Preferred shares issued and outstanding, respectively. The Series A Preferred stock converts into common stock after 2 years since its issuance. The conversion rate for every 1 share of Series A Preferred stock is 50 shares of common stock. Each share of Series A Preferred stock votes 1,000 shares of common stock, has no redemption rights, receives no dividends, and has preference in dissolutionnon-compete agreements are amortized over Common Stock.
During the quarter ended July 31, 2021, the Company issued 50,000 shares of Series A Preferred Stock to Epic. The issuance was done as a prepayment for services to generate sales for the Company. The shares are earned as sales generated by Epic achieve certain sales targets.
During the quarter ended April 30, 2020 the Company sold 150,000 shares of Series A Preferred Stock to Epic at par value for a total payment of $15. Epic, through its sole shareholder directed the Company to issue 100,000 shares of Series A Preferred stock to Overwatch Partners, Inc., with the remaining 50,000 shares to Epic. The Company recorded the transaction at FMV of $41,068,419 with the difference assigned as stock-based compensation. The Company valued the stock under ASC 820 utilizing the Option Pricing Method to value conversion rights, and the Market Approach to value the voting control.
Series B Preferred
As of July 31, 2021 and January 31, 2021, the Company had 1 million Series B Preferred shares, par value $0.0001, authorized, with 400,000 and 650,000 Series B Preferred shares issued and outstanding, respectively. The conversion rate for every 1 share of Series B Preferred stock is 10 shares of common stock. Each share of Series B Preferred stock votes 50 shares of common stock, has no redemption rights, receives no dividends, and has preference in dissolution over Common Stock and Series A Preferred.
On July 6, 2021, the Company entered into a settlement agreement with BOTS, Inc. Under the settlement agreement, BOTS agreed to return 250,000 shares of Series B Preferred stock to the treasury of the Company, in exchange for the assignment of the $1.4 million promissory note owed by First Bitcoin Capital Corp to the Company, along with all interest owed to date on the promissory note. In addition, the Company transferred 20,726,120 BIT tokens to BOTS. This was a related party transaction and was conducted at arm’s length.
During the quarter ended April 30, 2020 the Company issued 150,000 shares of Series B Preferred stock to Paul Rosenberg in exchange for 60 cryptocurrency ATM machines. Par value of $15 was recorded as inventory with the FMV of $6,629,300 minus the par value being recorded as stock-based compensation. The Company valued the stock under ASC 820 utilizing the Option Pricing Method to value conversion rights, and the Market Approach to value the voting control.
On April 29, 2020 the Company converted 5,000,000 shares of common stock owned by BOTS, Inc., into 500,000 shares of Series B Preferred stock. BOTS is restricted from converting the Series B Preferred stock into common stock for a period of 24 months from the conversion. There was no gain or loss on conversion due to conversion terms. During the quarter ending July 31, 2021 BOTS returned to the treasury of the Company 250,000 shares of Series B Preferred stock in exchange for certain assets held by the Company (see Note 16). In addition, BOTS exchanged 125,000 shares of Series B Preferred stock with Epic Industry Corp and Paul Rosenberg in exchange for 50 million shares of BOTS stock held by Epic Industry Corp and Paul Rosenberg, for a total of 100 million BOTS common shares.two years.
Note 11. Basic Income per Share
Basic Income Per Share - The computation of basic and diluted income (loss) per common share is based on the weighted average number of shares outstanding during each period. The basic income per share for the three and six months ended July 31, 2021 was $0.38 and $0.52 per share, respectively. The loss per share for the three and six months ended July 31, 2020 was $(0.18) and $(6.31) per share, respectively.
Note 12. Discontinued Operations
On April 20, 2020, the Company impaired the 420Cloud software, which was made effective on January 31, 2018. The Company recognized $800 in expenses in discontinued operations for the three and six months ended July 31, 2020.
Note 13. Commitments and Contingencies5. Cryptocurrency Assets
The Company reports and accounts for its commitments and contingencies in accordancetransacts business with ASC 440 – Commitments and ASC 450 – Contingencies. We recognize a loss on a contingency when it is probable a loss will incur and that the amount of the loss can be reasonably estimated. The Company recognized $0 as a loss on contingencies in the three and six months ended July 31, 2021 and 2020.
Note 14. Legal Proceedings
The Company may be subject to legal proceedings and claims arising from contracts or other matters from time to time in the ordinary course of business. Management is not aware of any pending or threatened litigation where the ultimate disposition or resolution could have a material adverse effect on the Company’s financial position, results of operations or liquidity.
Note 15. Warrants
On July 31, 2021 the Company issued warrants to two officers of the Company (Toney Jennings and Brandon Hart) for the purchase of up to a total of 400,000 shares of common stock at $5.05 per share. Each warrant holder was authorized to purchase up to 200,000 shares of common stock. Under the vesting schedule 50,000 shares are vested upon signing and 50,000 per year for three consecutive years. The warrants expire on July 30, 2026 at 5:00 PM Eastern Standard Time.
On June 21, 2021 the Company issued a warrant to one officer of the Company (Cedric Harris) for the purchase of up to a total of 200,000shares of common stock at $5.25 per share. Under the vesting schedule 50,000 shares are vested upon signing and 50,000 per year for three consecutive years. The warrants expire on June 20, 2026 at 5:00 PM Eastern Standard Time.
On March 11, 2021 the Company issued warrants to three officers of the Company (Robert Adams, Eric Jaffe, and Michael Hawkins) for the purchase of up to a total consolidated 600,000 shares of common stock at $2.21 per share. Each warrant holder was authorized to purchase up to 200,000 shares of common stock. Under the vesting schedule 50,000 shares are vested upon signing and 50,000 per year for three consecutive years. The warrants expire on January 31, 2026 at 5:00 PM Eastern Standard Time.
On February 1, 2021 the Company issued warrants to four directors of the Company (Mark Gilroy, Michael Hawkins, Paul Rosenberg, and Robert Adams) for the purchase of up to a total consolidated 500,000 shares of common stock at $2.21 per share. Each warrant holder was authorized to purchase up to 125,000 shares of common stock. Under the vesting schedule 50,000 shares are vested upon signing and 25,000 per year for three consecutive years. The warrants expire on January 31, 2026 at 5:00 PM Eastern Standard Time.
On November 1, 2017 the Company issued 7 warrants to officers, directors, and investors for the purchase of up to 3,000,000 shares of common stock at $1.00 per share. The warrants expire on November 1, 2022 at 5:00 PM Eastern Standard Time. The warrants contain participation rights to any registration statement filed by the Company. In April 2020 the Company cancelled one warrant that authorized the purchase of up to 250,000 shares of common stock. Warrants have been exercised four times for a total of 175,000 shares of common stock for $175,000, which was paid $135,000 in cash and $40,000 as a reduction to accounts payable.
A summary of warrant activity for six months ended July 31, 2021 is as follows:
|
|
|
| Weighted |
| |||
|
|
|
| Average |
| |||
|
|
|
| Conversion |
| |||
|
| Shares |
|
| Price |
| ||
|
|
|
|
|
|
| ||
Warrants outstanding at January 31, 2021 |
|
| 2,675,000 |
|
| $ | 1.00 |
|
|
|
|
|
|
|
|
|
|
Exercised |
|
| (100,000 | ) |
|
| 1.00 |
|
Granted |
|
| 1,700,000 |
|
|
| 3.24 |
|
Warrants outstanding at July 31, 2021 |
|
| 4,275,000 |
|
| $ | 1.89 |
|
Note 16: Sale of Assets to Related Party
On May 13, 2020 the Company sold its 420 Cloud Software to First Bitcoin Capital, Inc., for the purchase price of $1.9 million. The $1.9 million was paid through the transfer of $0.5 million in BIT cryptocurrency and a $1.4 million convertible promissory note. The Company received 122,968,776.18 BIT tokens at the price of $0.004066098 per token. The convertible promissory note has a simple interest fee of 9% per year and may be converted into First Bitcoin Capital Corp stock at a 10% discount to market or in additional BIT cryptocurrency tokens. The Note has no expiration date. The convertible note receivable is currently convertible into stock that is thinly traded on the OTC Markets and since it was related party the credit is to equity. On July 6, 2021, the $1.4 million convertible promissory note was exchanged as part of the settlement agreement with BOTS, Inc. (See Note 9 – Related Party Transactions)
Note 17. Cryptocurrency Assets
assets. The Company records cryptocurrency assets as an intangible asset with infinite life. We classify cryptocurrency that have a market value and substantial liquidity as current intangible assets, which we value at fair market value in accordance with Statement No. 157. Cryptocurrencies that do not trade on a market or have limited liquidity are classified as non-current intangible assets and are recorded on a cost basis. The following chart shows our cryptocurrency assets as(in thousands):
Current Assets | ||||||||
|
| As of |
| |||||
|
| April 30, 2022 |
|
| January 31, 2022 |
| ||
Coin Symbol |
| FMV |
| |||||
BTC |
| $ | 267 |
|
| $ | 272 |
|
ETH |
|
| 1 |
|
|
| 1 |
|
GUSD |
|
| 1 |
|
|
| 0 |
|
HEX |
|
| 2,763 |
|
|
| 2,879 |
|
|
| $ | 3,032 |
|
| $ | 3,152 |
|
During the three months ended April 30, 2022, the Company recorded in other income (expense) fair market value expense adjustments of July 31,$0.1 million. For the three months ended April 30, 2021, and January 31, 2021:the Company recorded in other income (expense) net expenses related to cryptocurrencies of $0.4 million.
Table of |
Cryptocurrency Holdings | ||||||||
Current Assets (in thousands) | ||||||||
|
| As of |
|
| As of |
| ||
|
| July 31, 2021 |
|
| January 31, 2021 |
| ||
Coin Symbol |
| FMV |
|
| FMV |
| ||
BTC |
| $ | 298 |
|
| $ | 0 |
|
ETH |
|
| 1 |
|
|
| 0 |
|
GUSD |
|
| 1 |
|
|
| 0 |
|
HEX |
|
| 3,112 |
|
|
| 123 |
|
|
| $ | 3,412 |
|
| $ | 123 |
|
|
|
|
|
|
|
|
|
|
Non-Current Assets (in thousands) | ||||||||
|
| As of |
|
| As of |
| ||
|
| July 31, 2021 |
|
| January 31, 2021 |
| ||
Coin Symbol |
| Cost Basis |
|
| Cost Basis |
| ||
PRES |
| $ | 0 |
|
| $ | 15 |
|
BIT |
|
| 0 |
|
|
| 83 |
|
|
| $ | 0 |
|
| $ | 98 |
|
Note 6. Property, Plant and Equipment
Property, plant and equipment consisted of the following (in thousands):
|
| As of |
| |||||
|
| April 30, 2022 |
|
| January 31, 2022 |
| ||
Land |
| $ | 36 |
|
| $ | 36 |
|
Buildings and building improvements |
|
| 339 |
|
|
| 329 |
|
Machinery and equipment |
|
| 208 |
|
|
| 208 |
|
Furniture, fixtures and office equipment |
|
| 69 |
|
|
| 69 |
|
Computer equipment and computer software |
|
| 238 |
|
|
| 238 |
|
Vehicles |
|
| 181 |
|
|
| 181 |
|
|
|
| 1,071 |
|
|
| 1,061 |
|
Less: Accumulated depreciation |
|
| (100 | ) |
|
| (60 | ) |
Total property, plant and equipment, net |
| $ | 971 |
|
| $ | 1,001 |
|
Note 18. Reclassifications7. Debt
On March 17, 2021, the Company entered into a loan agreement for $500,000 with Epic Industry Corp (“Epic”), a wholly owned company of Michael Hawkins, the Company’s Chairman of the board of directors. The loan was financed with $500,000 of GUSD cryptocurrency tokens, a stable coin. The interest rate was 3% per annum. The Company paid off the loan during the quarter ended July 31, 2021.
As of April 30, 2022, Mercury’s outstanding debt of $0.5 million had a weighted average interest rate of 6.2%. The debt consists primarily of term loans and a line of credit with various financial institutions, and such debt is collateralized by the assets of Mercury. The debt has maturity dates ranging from 2022 through 2037.
Note 8. Commitments and Contingencies
The Company reports and accounts for its commitments and contingencies in accordance with ASC 440 – Commitments and ASC 450 – Contingencies. We recognize a loss on a contingency when it is probable a loss will incur and that the amount of the loss can be reasonably estimated. NaN loss contingencies have been recorded for the three months ended April 30, 2022 and 2021.
Note 9. Legal Proceedings
The Company may be subject to legal proceedings and claims arising from contracts or other matters from time to time in the ordinary course of business. Management is not aware of any pending or threatened litigation where the ultimate disposition or resolution could have a material adverse effect on the Company’s financial position, results of operations or liquidity.
Cease and Desist Notice
On November 2, 2021, the Company received a cease and desist notice (the “Notice”) from First Genesis, Inc. (“First Genesis”). The Notice alleges, among other things, that Cedric Harris, the Company’s Chief Research Officer, and the Company were using First Genesis’ intellectual property. Mr. Harris, through 832, developed First Genesis’ intellectual property and has been providing First Genesis with consulting services. 832’s intellectual property, which Mr. Harris also developed, is an entirely independent work of art than that which was created by Mr. Harris in his capacity with First Genesis. We believe that the alleged claims from First Genesis are without merit and the Company will continue to vigorously defend against the allegations in the Notice. The Company timely responded to the Notice and has not received a response from First Genesis, or any other communication from First Genesis, since.
Lawsuit – District Court of Travis County, Texas, 353rd Judicial District
On February 9, 2022, a plaintiff filed a lawsuit against numerous parties, one of which included the Company in the caption. The complaint failed to include the Company in any claim made in the complaint. The Company’s verified denial was filed on March 17, 2022. The Company filed its motion to be dismissed from the case subsequent to its verified denial, and was summarily dismissed from the case on May 23, 2022. The Company has until June 15, 2022 to motion the court for fees and costs compensated by the plaintiff, and the Company expects to submit this motion timely.
12 |
Table of contents |
Note 10. Related Parties and Related Party Transactions
Related party balance sheet items (in thousands) | ||||||||
|
| As of April 30, 2022 |
|
| As of January 31, 2022 |
| ||
|
|
|
|
| ||||
Prepaid expenses |
| $ | 2,000 |
|
| $ | 2,000 |
|
Accounts payable and accrued expenses |
|
| 0 |
|
|
| 24 |
|
Loans payable |
|
| 18 |
|
|
| 24 |
|
Related party income statement items (in thousands) | ||||||||
|
| As of April 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
|
|
|
| ||||
Consulting expenses |
| $ | 30 |
|
| $ | 0 |
|
Payroll expenses |
|
| 195 |
|
|
| 114 |
|
During the quarter ended July 31, 2021, the Company issued 50,000 shares of Series A Preferred Stock to Epic. The issuance was done as a prepayment for services to generate sales for the Company. The shares are earned as sales generated by Epic achieve certain sales targets.
Note 11. Stockholders’ Equity
Common Stock
As of April 30, 2022 and January 31, 2022, the Company had 200,000,000 common shares authorized, with 9,104,038 and 8,604,038 common shares at a par value of $0.0001 issued and outstanding, respectively.
On April 19, 2022, two warrants were exercised for a total of 500,000 shares of common stock resulting in the Company receiving $0.5 million.
During the quarter ended April 30, 2022, stock based compensation expense related to stock grants was $117,000, which consisted of grants to employee of $75,000 and consultants of $42,000. During the quarter ended April 30, 2021, there was no stock based compensation expense associated with stock grants.
Preferred Stock
Series A Preferred Stock
As of April 30, 2022 and January 31, 2022, the Company had 1 million Series A Preferred shares, par value $0.0001, authorized, with 200,000 Series A Preferred shares issued and outstanding. The Series A Preferred stock converts into common stock at the option of the holder of the Series A Preferred. The conversion rate for every 1 share of Series A Preferred stock is 50 shares of common stock. Each share of Series A Preferred stock entitles the holder to 1,000 votes. Holders of Series A Preferred are entitled to share ratably in dividends, if any are declared. There are no redemption rights. In the event of dissolution, the holders of Series A Preferred are entitled to share pro rata all assets remaining after payment in full of all liabilities.
During the quarter ended July 31, 2021, the Company reclassified some componentsissued 50,000 shares of its revenue and other income. SomeSeries A Preferred Stock to Epic. The issuance was done as a prepayment for services to generate sales for the Company. The shares are earned as sales generated by Epic achieve certain sales targets.
Effective April 17, 2022, 150,000 shares of Series A Preferred Stock are eligible to be converted into common stock at the option of the reclassifications impactedholder of the presentationSeries A Preferred Stock. Effective June 16, 2023, the remaining 50,000 shares of revenue and other income previously reported in our Quarterly Report on Form 10-Q forSeries A Preferred Stock will be eligible to be converted into common stock at the period endedoption of the holder of the Series A Preferred Stock.
Series B Preferred Stock
As of April 30, 2021. There were no adjustments to2022 and January 31, 2022, the combined total revenueCompany had 1.5 million Series B Preferred shares, par value $0.0001, authorized, with 400,000 Series B Preferred shares issued and other income generated just a reclassificationoutstanding. The Series B Preferred stock converts into common stock at the option of the typeholder of revenue or income generated.the Series B Preferred, after twenty-four months of ownership. The changesconversion rate for every 1 share of Series B Preferred stock is 10 shares of common stock. Each share of Series B Preferred stock entitles the holder to 100 votes. Holders of Series B Preferred are entitled to share ratably in our consolidated Statementsdividends, if any are declared. There are no redemption rights. In the event of Operationsdissolution, the holders of Series B Preferred are summarized, below.entitled to share pro rata all assets remaining after payment in full of all liabilities.
|
| As previously presented April 30, 2021 |
|
| Revised April 30, 2021 |
|
| Reclassification |
| |||
Revenue |
| $ | 1,081 |
|
|
| 1,127 |
|
|
| 46 |
|
Other Revenue |
|
| 72 |
|
|
| 136 |
|
|
| 64 |
|
Total |
| $ | 1,153 |
|
| $ | 1,263 |
|
| $ | 110 |
|
Other income |
|
| 110 |
|
|
| - |
|
|
| (110 | ) |
Total |
| $ | 1,263 |
|
| $ | 1,263 |
|
| $ | - |
|
Effective April 29, 2022, all shares of Series B Preferred Stock are eligible to be converted into common stock at the option of the holder of the Series B Preferred Stock.
Note 19. Subsequent EventsSeries C Preferred Stock
As of April 30, 2022, the Company had 2 million Series C Preferred shares, par value $0.0001, authorized, with 250,000 Series C Preferred shares issued and outstanding.
On August 9, 2021, Eric Jaffe exercised his warrantsMarch 17, 2022, the Board approved the conversion of 50,0002,000,000 shares of blank check preferred stock into 2,000,000 shares of Series C Preferred Stock, par value $0.0001. The Series C Preferred Stock shall rank senior to the Company’s common stock, Series A Preferred Stock, and Series B Preferred Stock. Each holder of Series C Preferred Stock is entitled to one (1) vote for each share of Series C Preferred Stock held on all matters submitted to a vote of stockholders. Each share of Series C Preferred Stock shall be convertible, at the exercise pricediscretion of $2.12 per share on a cashless basis, resulting in the issuanceholders, after six months of 42,246ownership, into shares of common stock. The number of common shares issued shall be at the rate of 30% less than the volume-weighted average price or $5.00 per share whichever is less.
On September 13, 2021April 19, 2022, the Law OfficesCompany sold 250,000 shares of Carl G Hawkins exercised their warrant acquiring 40,000Series C Preferred Stock for $1.0 million. Effective October 19, 2022, all shares of Series C Preferred Stock will be eligible to be converted into common stock at the strike price of $1.00 per share through the conversionoption of the accounts payable owed byholder of the Company for services provided. The shares were issued in the name of Carl G Hawkins.Series C Preferred Stock.
Table of |
Note 12. Warrants
On April 19, 2022, two warrants were exercised for a total of 500,000 shares of common stock resulting in the Company receiving $0.5 million.
On April 19, 2022, the holder of the 250,000 shares of Series C Preferred Stock received a warrant to purchase 25,000 shares of common stock at the price of $9.00 per share.
A summary of warrant activity for three months ended April 30, 2022 is as follows:
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| Weighted |
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| Average |
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| Conversion |
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| Shares |
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| Price |
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Warrants outstanding at January 31, 2022 |
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| 4,991,000 |
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| $ | 2.83 |
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Exercised |
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| (500,000 | ) |
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| 1.00 |
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Granted |
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| 25,000 |
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| 9.00 |
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Warrants outstanding at April 30, 2022 |
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| 4,516,000 |
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| $ | 3.07 |
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During the quarter ended April 30, 2022, stock based compensation expense related to warrant grants was $685,000, which consisted of grants to employees of $407,000, directors of $209,000, and consultants of $66,000. During the quarter ended April 30, 2021, there was no stock based compensation expense associated with warrant grants.
Note 13. Income Taxes
Our consolidated effective income tax rate for the three months ended April 30, 2022 was 22%.
Note 14. Net Income (Loss) Per Common Share
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| For the Months Ended April 30, |
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| 2022 |
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| 2021 |
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| (in thousands, except per share data) |
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Numerator: |
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Net income (loss) |
| $ | (1,454 | ) |
| $ | 767 |
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Denominator: |
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Weighted average common shares outstanding |
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| 8,666 |
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| 5,993 |
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Effect of dilutive securities: |
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Warrants |
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| - |
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| - |
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Preferred stock |
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| - |
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| - |
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Diluted shares outstanding |
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| 8,666 |
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| 5,993 |
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Basic: Net income (loss) per common share |
| $ | (0.17 | ) |
| $ | 0.13 |
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Diluted: Net income (loss) per common share |
| $ | (0.17 | ) |
| $ | 0.13 |
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Note 15. Subsequent Events
In accordance with ASC 855-10, Company management reviewed all material events through the date of this report and determined that there are no additional material subsequent events to report.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition, results of operations and cash flows in conjunction with our consolidated financial statements and the related notes presented in this report and in our Annual Report.
FORWARD-LOOKING STATEMENTS
Certain statements in this section contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this report and not clearly historical in nature are forward-looking, and the words “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “intends,” “potential,” and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) generally are intended to identify forward-looking statements. Any statements in this report that are not historical facts are forward-looking statements. Actual results may differ materially from those discussed from time to time in the Company's SEC filings. The Company undertakes no obligation to update or revise any forward-looking statement for events or circumstances after the date on which such statement is made except as required by law.
EXECUTIVE OVERVIEW
The executive overview of the MD&A highlights selected information and does not contain all of the information that is important to readers of this Quarterly Report on Form 10Q.
The Company is primarily engaged in the business of consulting and developing blockchain and cybersecurity related solutions. Our strong resultstechnology platform provides the building blocks to power blockchain-related applications for organizations seeking to tap into the threebenefits of blockchain to solve critical business issues. Our patent--pending advances in blockchain engineering deliver the essential elements needed for real-world business use: speed, security, and six months endedenergy efficiency. Currently, our lines of business are EB Advise, EB Build and EB Control.
On June 21, 2021, we acquired all of the equity interests of 832. On June 30, 2021, we acquired all of the equity interests of Mercury. On July 31, 2021, reflect the strengthwe acquired all of the crypto price cycle we entered in Q4 2020. We saw many crypto assets reach all time high prices, high levelsequity interests of volatility, and increased interest across the entire blockchain. Crypto market capitalization reached nearly $2 trillion at the end of the second quarter compared to $1 trillion at the end of last quarter of the last fiscal year. We were well positioned to take advantage of this market trend.Vengar.
Our involvement is certain development projects since revamping our operations in April 2020 has provided substantial amounts of cryptocurrencies at entry point levels during initial roll out of new platforms and products. Accepting these payments in cryptocurrencies has opened the doors to staking and interest earning at unprecedented rates within the markets which has compounded our growth. While we accept certain and inherent risks associated with the volatility of the current blockchain markets, our involvement with clients birthing new products limits our risks to time, effort, and energy risks which shields us from the blockchain markets rise and falls. While we are not immune to the variances within the market, our basis of entry is often low and as such can withstand the day-to-day valuations of the market.
Despite our strong results, the rapid expansion of blockchain also creates challenges for us. Competition is increasing as new market entrants join the blockchain every month. Our competitors are supporting certain crypto assets that are experiencing large trading volume and growth in market capitalization that we do not currently participate in, as well as offering new products and services that we are developing and/or do not offer. We welcome these challenges as they indicate that the market we serve is growing rapidly, but we also have to continue to move quickly to address them, and that inspires us towards action and growth.
HISTORY AND BACKGROUND
Company Name
On May 23, 2021, the Company changed its name from OBITX, Inc., to Everything Blockchain, Inc.
The Company is headquartered in Fleming Island, Florida.
Change of Control
On April 17, 2020 shares of Series A Preferred stock were issued to two parties effecting the Company’s change of control.
Business Model
The Company’s early model was to earn revenue through social media advertising, fees, and services. Under this plan, the Company developed its white label software solution for BOTS under the 420 Cloud brand. After multiple attempts to secure acceptance in the market, the Company discontinued this operation during the fiscal year ended January 31, 2020.
In April 2020 the Company divested and sold its white label software solution and changed direction of its business. The Company has become a developer, engineer, and consultant in the industry of blockchain technologies.
GENERAL OVERVIEW
Our current website can be found at www.obitx.com, which is not incorporated as part of this Form 10Q. In addition, we have acquired the domain www.everythingblockchain.io, which is not incorporated as part of this Form 10Q.
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Table of contents |
EMPLOYEES AND CONSULTANTS
As of July 31, 2021,April 30, 2022, the Company has 2421 employees. There are currently 9 consultants who fulfill a majority of the sales and marketing aspects of the business operations.
Available Information
All reports of the Company filed with the SEC are available free of charge through the SEC’s Web sitewebsite at www.sec.gov. In addition, the public may read and copy materials filed by the Company at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. The public may also obtain additional information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.
Factors Affecting Comparability of Financial Information
Our historical results of operations for the three months ended April 30, 2022, may not be comparable with our results of operations for the three months ended April 30, 2021, for the reasons discussed below.
832’s operations are included in our historical operating results as of June 21, 2021. Mercury’s operations are included in our historical operating results as of July 1, 2021. Vengar’s operations are included in our historical operating results as of August 1, 2021.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates, including those related to uncollectible receivables, inventory valuation, deferred compensation and contingencies.
We base our estimates on historical performance and on various other assumptions that we believe to be reasonable under the circumstances. These estimates allow us to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. If actual results or events differ materially from those contemplated by us in making these estimates, our reported financial condition and results of operations for future periods could be materially affected. No material change has occurred to our critical accounting policies and estimates from the information provided in the Annual Report.
Results of Operations
Our operating results for the three and six months ended July 31,April 30, 2022 and 2021 and 2020 are summarized as follows (in thousands):follows:
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| For the Three Months Ended July 31, |
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| For the Six Months Ended July 31, |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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| (in thousands) |
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Revenue |
| $ | 5,434 |
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| $ | - |
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| $ | 6,698 |
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| $ | - |
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Cost of sales |
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| 2,746 |
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| - |
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|
| 2,746 |
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|
| - |
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Gross profit |
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| 2,688 |
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|
| - |
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|
| 3,951 |
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|
| - |
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Total operating expenses |
|
| 138 |
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|
| 1,069 |
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|
| 850 |
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|
| 49,281 |
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Operating income (loss) |
| $ | 2,550 |
|
| $ | (1,069 | ) |
| $ | 3,101 |
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| $ | (49,281 | ) |
Results of Operations for the three and six months ended July 31, 2021 and 2020
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| For the Three Months Ended April 30, |
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| 2022 |
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| 2021 |
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| (in thousands) |
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Revenue |
| $ | 255 |
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| $ | 1,081 |
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Cost of sales |
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| 15 |
|
|
| - |
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Gross profit |
|
| 240 |
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|
| 1,081 |
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Selling, general, administrative |
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| 1,093 |
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|
| 140 |
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Stock based compensation |
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| 803 |
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|
| - |
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Depreciation and amortization |
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| 50 |
|
|
| - |
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Total operating expenses |
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| 1,946 |
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|
| 140 |
|
Income (loss) from operations |
|
| (1,706 | ) |
|
| 941 |
|
Other income (expense), net |
|
| (160 | ) |
|
| (174 | ) |
Income (loss) before income taxes |
|
| (1,866 | ) |
|
| 767 |
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Income tax benefit |
|
| 412 |
|
|
| - |
|
Net income (loss) |
| $ | (1,454 | ) |
| $ | 767 |
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Revenue
We generated $5.4 million in revenueRevenue for the three months ended July 31, 2021April 30, 2022 was $0.3 million as compared to no revenue$1.1 million for the three months ended July 31, 2020.April 30, 2021. Revenue generated for the quarterthree months ended July 31, 2021April 30, 2022 primarily consisted of $0.2$216,000 from consulting services and $27,000 from staking of cryptocurrency. Revenue for the three months ended April 30, 2021 consisted of $1.04 million from consulting services $2.2 million from fair value adjustment to the cryptocurrencies, and $2.9 million from cryptocurrency sales.
We generated $6.7 million in revenue for the six months ended July 31, 2021 as compared to no revenue for the six months ended July 31, 2020. Revenue generated for the six months ended July 31, 2021 primarily consisted of $1.3 million from consulting services, $0.1 million$41,000 from staking $2.3 million from fair value adjustment to the cryptocurrencies, and $3.0 million from cryptocurrency sales.of cryptocurrency.
Table of |
Cost of Sales
Cost of sales for the three months ended July 31, 2021April 30, 2022 was $2.7 million as compared to no cost of sales for the three months ended July 31, 2020. Cost of sales for the three months ended July 31, 2021$15,000, which primarily consisted of cost of cryptocurrency of $0.6 millionproduct costs and $2.1 million in labor cost and commissions.
Cost of sales for the six months ended July 31, 2021 was $2.7 million as compared to no cost of sales for the six months ended July 31, 2020. Cost of sales for the six months ended July 31, 2021 primarily consisted of cost of cryptocurrency of of $0.6 million and $2.1 million in labor cost and commissions.commissions from Mercury.
Gross Profit
Gross profit for the three months ended July 31, 2021April 30, 2022 was $2.6$0.2 million as compared to $0$1.1 million for the three months ended July 31, 2020.
Gross profit for the six months ended July 31, 2021 was $3.8 million as compared to $0 for the six months ended July 31, 2020.April 30, 2021.
Operating Expenses
Operating expenses primarily consist primarily of selling, general and administrative expenses and amortization and depreciation expense. Selling, general and administrative expenses includeprimarily consist of personnel costs, consultant fees, bank charges, telephoneprofessional fees, computer and internet expenses, marketing expenses, utilities expenses, meals and entertainment, computer and internet expenses, postage and delivery, office supplies, professional fees,and reporting fees, and other miscellaneous fees.
Our operatingOperating expenses decreased by $1.0for the three months ended April 30, 2022 were $1.9 million compared to $0.1 million for the three months ended July 31, 2021,April 30, 2021. The primary reason for the increase was due to stock based compensation of $0.8 million and the acquisitions of 832, Mercury, and Vengar.
Income (Loss) from $1.1Operations
Loss from operations for the three months ended April 30, 2022 was $1.7 million compared to income from operations of $0.9 million for the three months ended July 31, 2020.April 30, 2021. The primary reasonreasons for the decrease in income from operations was due to stock-based compensation of $1.0 million, which was recorded for the three months ended July 31, 2020.decrease in revenue and increase in operating expenses as discussed above.
OurAdjusted EBITDA
The Company reports all financial information required in accordance with GAAP. The Company believes, however, that evaluating its ongoing operating expenses decreasedresults will be enhanced if it also discloses certain non-GAAP information.
Adjusted EBITDA, which is a non-GAAP financial measure, is defined by $48.5 millionthe Company as net income (loss) plus net interest income, income tax (benefit) expense, depreciation and amortization, and stock based compensation.
Adjusted EBITDA should not be considered an alternative to $0.8 million for the six months ended July 31, 2021, from $49.3 million for the six months ended July 31, 2020. net income, operating income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. In addition, Adjusted EBITDA presented by other companies may not be comparable to our presentation, since each company may define these terms differently.
The primary reason for the decrease was duetable below reconciles Adjusted EBITDA, which is a non-GAAP financial measure, to stock-based compensationnet income (loss).
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| For the Three Months Ended April 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
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| (in thousands) |
| |||||
Net income (loss) |
| $ | (1,454 | ) |
| $ | 767 |
|
Add: |
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|
|
|
|
|
|
|
Income tax benefit |
|
| (412 | ) |
|
| - |
|
Stock based compensation |
|
| 803 |
|
|
| - |
|
Depreciation and amortization expense |
|
| 50 |
|
|
| - |
|
Net interest (income) expense |
|
| 13 |
|
|
| (10 | ) |
Adjusted EBITDA |
| $ | (1,000 | ) |
| $ | 757 |
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Analysis of $49.2 million, which was recorded for the six months ended July 31, 2020.Cash Flows
Operating Income (Loss)Activities
OurNet cash used in operating income increased by $3.6 million to a net profit of $2.5activities was $0.5 million for the three months ended July 31, 2021 as compared to aApril 30, 2022. We had net loss of $1.1$1.5 million, which included stock based compensation of $0.8 million and fair value adjustments to cryptocurrency of $0.1 million.
Net cash provided by operating activities was $1.4 million for the three months ended July 31, 2020. The primary reasons for the increase in operatingApril 30, 2021. We had net income was due to the increase in revenue and decrease in stock-based compensation as discussed above.of $0.8 million.
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Table of contents |
Investing Activities
Our operating income increased by $52.3 million to a net profit of $3.0Net cash used in investing activities was $0.3 million for the sixthree months ended July 31, 2021 asApril 30, 2022, compared to a net losscash used in investing activities of $49.3$2.0 million for the sixthree months ended July 31, 2020. The primary reasonsApril 30, 2021. During the three months ended April 30, 2022, we had capital expenditures of $0.3 million. During the three months ended April 30, 2021, we purchased $2.0 million of cryptocurrency.
Financing Activities
Net cash provided by financing activities was $1.5 million for the increasethree months ended April 30, 2022, compared to $0.6 million for the three months ended April 30, 2021. During the three months ended April 30, 2022, we sold 250,000 shares of Series C Preferred Stock for $1.0 million and two warrants were exercised for a total of 500,000 shares of common stock resulting in operating income was due to the increase in revenueCompany receiving $0.5 million. During the three months ended April 30, 2021, we borrowed $0.5 million from a related party and decrease in stock-based compensation as discussed above.received proceeds from issuance of common stock of $0.1 million.
Liquidity and Capital Resources
During the sixthree months ended July 31, 2021April 30, 2022, we gained $0.8$0.6 million in cash. Our cash on hand as July 31, 2021of April 30, 2022 was $0.8$1.7 million. Based on our revenues, cash on hand and current monthly burn rate, the Company can sustain its operations going forward.
SourcesWe fund operations primarily through cash on hand and Usescash from sales of Cash
Operating Activities
Net cash provided by operating activities was $0.8 million for the six months ended July 31, 2021. We had net income of $3.3 million, which included fair value adjustment to cryptocurrencies of $2.4 million.and common stock.
Net cash provided by operating activities was $0 for the six months ended July 31, 2020. We had net loss of $49.3 million, which included stock-based compensation of $49.2
On March 17, 2022, the Board approved the conversion of 2,000,000 shares of blank check preferred stock into 2,000,000 shares of Series C Preferred Stock, par value $0.0001. On April 19, 2022, the Company sold 250,000 shares of Series C Preferred Stock for $1.0 million.
Off-Balance Sheet Arrangements
We did not have
Going Concern
Our financial statements are prepared in accordance with GAAP, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Because the business is relatively new and has a short history and relatively few sales, no certainty of continuation can be stated. The accompanying consolidated financial statements for the three
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company and therefore, we are not required to provide information required by this Item of Form 10-Q.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures.
We carried out an evaluation, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of January 31,
Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their desired control objectives. Additionally, in evaluating and implementing possible controls and procedures, management is required to apply its reasonable judgment. Based on the evaluation described above, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report because we did not document our Sarbanes-Oxley Act Section 404 internal controls and procedures.
As funds become available to us, we expect to implement additional measures to improve disclosure controls and procedures such as implementing and documenting our internal controls procedures.
Changes in internal controls over financial reporting
There have been no changes in our internal control over financial reporting during the quarter ended
Limitations on the Effectiveness of Controls
A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The Company’s management, including its
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any legal proceedings which management believes will have a material effect upon the financial condition of the Company, nor are any such material legal proceedings anticipated.
Item 1A. Risk Factors
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On
Item 3. Defaults Upon Senior Securities
There have been no events that are required to be reported under this Item.
Item 4. Mine Safety Disclosures
There have been no events that are required to be reported under this Item.
Item 5. Other Information
There have been no events that are required to be reported under this Item.
Item 6. Exhibits
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.
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