As filed with the Securities and Exchange Commission on July 27, 2016
Registration No. 333-211045
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 4 to
Form S-1
REGISTRATION STATEMENTUnder
UNDER THE SECURITIES ACT OF 1933
MOBILIS RELOCATION SERVICES INC.
Ecoark Holdings, Inc.
(NameExact name of small business issuerregistrant as specified in its charter)
Nevada | 3674 | 39-2075693 | ||
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(State or other jurisdiction of | (Primary Standard Industrial | (I.R.S. Employer |
Ecoark Holdings, Inc.
3333 Pinnacle Hills Parkway I Suite 410, Calgary, Alberta, T2R 1R5, Canada(403) 680-8994220
Rogers, AR 72758
(479) 259-2979
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)527 15th Avenue SW,
Randy May
Chief Executive Officer
Ecoark Holdings, Inc.
3333 Pinnacle Hills Parkway I Suite 410, Calgary, Alberta, T2R 1R5, Canada220
Rogers, AR 72758
(479) 259-2979(Address of principal place of business or intended place of business) Nevada Agency and Trust Company50 West Liberty Street, Suite 880, Reno, Nevada 89501(775) 322-0626
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Peter DiChiara, Esq.
Carmel, Milazzo & DiChiara LLP
With copies to:THE O’NEAL LAW FIRM, P.C.14835 E. Shea BoulevardSuite 103 PMB 494Fountain Hills, Arizona 85268Tel: (480) 812-5058Fax: (888) 353-8842
261 Madison Avenue, 9th Floor
New York, NY 10016
(212) 658-0458
Approximate date of commencement of proposed sale to the public:
As soon as practical after the effective date of this Registration Statement.
If any of the securities being registered on this formForm are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. x
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If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
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If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities AtAct registration statement number of the earlier effective registration statement for the same offering. ¨
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If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
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Indicate by check mark whether the registrant is a large accelerated filer, andan accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in ruleRule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company ☒ |
Large accelerated filer
¨ Accelerated Filer ¨ Non-accelerated filer ¨ Smaller Reporting Company x
CALCULATION OF REGISTRATION FEE
TITLE OF EACH | AMOUNT TO BE | PROPOSED | PROPOSED | AMOUNT OF |
Common Stock | 1,900,000 shares | $0.02 | $38,000 | $1.50 |
Title of Each Class of Securities to be Registered | Amount to be Registered (1) | Proposed Maximum Offering Price per Share (2) | Proposed Maximum Aggregate Offering Price | Amount of Registration Fee | ||||||||||||
Common Stock, $0.001 par value per share | 4,336,625 | $ | 18.00 | $ | 78,059,250 | $ | 7,860.57 | |||||||||
Total Common Stock underlying Warrants | 4,336,625 | $ | 18.00 | $ | 78,059,250 | $ | 7,860.57 | |||||||||
Total Registration Fee | $ | 156,118,500 | $ | 15,721.14 | # |
(1) |
(2) | Calculated in accordance with Rule |
# | Previously paid |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) OF THE SECURITIES ACT OFof the Securities Act of 1933, OR UNTIL THE RERGISTRATION SHALL BECOME EFFECTIVE ON SUCH A DATE AS THE COMMISSION, ACTING PURSUANT TO SECTIONas amended, or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), MAY DETERMINE.
may determine.
SUBJECT TO COMPLETION, Dated June 13, 2008PROSPECTUSMOBILIS RELOCATION SERVICES, INC.1,900,000 SHARESCOMMON STOCK
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION, DATED JULY 27, 2016 |
Ecoark Holdings, Inc.
8,673,250 Shares of Common Stock
This prospectus relates to the resale by the selling securityholders of Ecoark Holdings, Inc. named herein purchased in an offering of units which ended on April 28, 2016. In this offering, we offered units for $4.00 per unit, consisting of one share of common stock and a warrant to purchase one share of common stock for $5.00. The selling shareholders named in this prospectus are offering the 1,900,000securityholders may sell up to 8,673,250 shares of our common stock, offered throughpar value $0.001 per share. These shares include (i) 4,336,625 shares of issued and outstanding common stock currently held by the selling securityholders and (ii) 4,336,625 shares of common stock currently underlying certain warrants held by the selling securityholders which, in each case, were initially issued and sold in a private placement offering that closed on April 28, 2016 (collectively the “Private Offering”). The Company received $17.3 million from the Private Offering which it is using for general working capital purposes. The warrants entitle the holders thereof to purchase shares of common stock at an exercise price equal to $5.00 per share, subject to adjustment for stock splits or corporate reorganizations.
The registration of the shares of common stock hereunder does not mean that any of the selling securityholders will actually offer or sell the full number of shares being registered pursuant to this prospectus. The 1,900,000selling securityholders may sell the shares offeredof common stock to be registered hereby from time to time. We will, however, receive the exercise price of the warrants if and when the warrants are exercised for cash by the securityholders. The selling shareholders represent 55.88%securityholders may offer and sell the shares in a variety of transactions described under the total outstanding shares asheading “Plan of Distribution” beginning on page 16, including transactions on any stock exchange, market or facility on which the datecommon stock may be traded, in privately negotiated transactions or otherwise at market prices prevailing at the time of sale, at prices related to such market prices or at negotiated prices.
We are not selling any securities covered by this prospectus. Weprospectus and will not receive any of the proceeds from this offering.the sale by the selling securityholders. We have set an offeringwill, however, receive approximately $21.683 million from the selling securityholders if they exercise all of the warrants on a cash basis (assuming, in each case, no adjustments are made to the exercise price or number of shares issuable upon exercise of the warrants), which we expect we would use primarily for these securities of $0.02 per share of ourworking capital purposes. We are registering the common stock offered through this prospectus.
on behalf of the selling securityholders. We are bearing all of the expenses in connection with the registration of the shares of common stock, but all selling and other expenses incurred by the selling securityholders, including commissions and discounts, if any, attributable to the sale or disposition by such selling securityholders will be borne by them.
| Offering Price | Underwriting | Proceeds to Selling |
Per Share | $0.02 | None | $0.02 |
Total | $38,000 | None | $38,000 |
Our common stock is presently not tradedquoted on any market or securities exchange. The salesthe OTCQB maintained by the OTC Market Group Inc. under the symbol “EARK”. On July 25, 2016, the closing price toas reported by the public is fixed at 0.02OTC Market Group Inc. was $17.00 per share until such time asshare. This price will fluctuate based on the shares ofdemand for our common stock. We filed an application for our common stock are tradedto be listed on the NASD Over-The-Counter Bulletin Board electronic quotation service. Although we intend to apply for trading ofNASDAQ Capital Market.
Investing in our common stock on the NASD Over-The-Counter Bulletin Board electronic quotation service, public trading of our common stock may never materialize. If our common stock becomes traded on the NASD Over-The-Counter Bulletin Board electronic quotation service, then the sale price to the public will vary according to prevailing market prices or privately negotiated prices by the selling shareholders.The purchase of the securities offered through this prospectusand warrants involves a high degree of risk. See section“Risk Factors” beginning on page 4 of this Prospectus entitled “Risk Factors.”
prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacydetermined if this prospectus is truthful or accuracy of this prospectus.complete. Any representation to the contrary is a criminal offense.The
Prospectus dated , 2016
Business to Business Products and Services Provider
AppliedRetailKnowledge.
Intelleflex– Intelligent, On-Demand Solutions for Retailers and Companies that Ship and Store Products
Eco3D- 3D Mapping, Modeling, and Consulting Services for Retailers and Other Clients
Pioneer Products - Recovering Plastic Waste from Retail Supply Chains and Creating New Consumer Products with the Reclaimed Material
Magnolia Solar – Leveraging Nanotechnology to Increase the Performance of Retail Products
You should rely only on the information contained in this prospectus and any prospectus supplement prepared by or on behalf of us or to which we have referred you. We have not authorized anyone to provide you with information that is different. If anyone provides you with different or inconsistent information, you should not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. Therely upon it. This prospectus is not an offer to sell, these securities and it is not solicitingnor are the selling securityholders seeking an offer to buy, these securities in any state where thesuch offer or salesolicitation is not permitted.
The Date of This Prospectus Is: June 13, 2008
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Table of Contents
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Summary
As usedinformation in this prospectus unlessis complete and accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since these dates.
For investors outside the United States: neither we nor any of the selling securityholders have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of shares of our common stock and warrants and the distribution of this prospectus outside the United States.
Except as otherwise indicated herein or as the context otherwise requires, “we”, “us”, “our” “ Mobilis Relocation Services”, “Mobilis Relocation” or “Mobilis” refers to Mobilis Relocation Services, Inc. All dollar amountsreferences in this prospectus areto “Ecoark Holdings,” “the Company,” “we,” “us,” “our” and similar references refer to Ecoark Holdings, Inc.
On March 18, 2016, we effected a 1-for-250 reverse stock split. Unless context indicates or otherwise requires, all share numbers and share price data included in U.S. dollars unless otherwise stated. this prospectus have been adjusted to give effect to that reverse stock split.
The following summary highlights information contained elsewhere in this prospectus and is not completequalified in its entirety by the more detailed information and financial statements included elsewhere in this prospectus. This summary does not contain all of the information that may be importantyou should consider before investing in our common stock. Before you decide to you. Youinvest in our common stock, you should read and carefully consider the following summary together with the entire prospectus, beforeincluding our financial statements and the related notes thereto appearing elsewhere in this prospectus and the matters discussed in the sections in this prospectus entitled “Risk Factors,” “Summary Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Some of the statements in this prospectus constitute forward-looking statements that involve risks and uncertainties. See the section in this prospectus entitled “Special Note Regarding Forward-Looking Statements.” Our actual results could differ materially from those anticipated in such forward-looking statements as a result of certain factors, including those discussed in the “Risk Factors” and other sections of this prospectus.(Note: All dollar amounts, except for shares, included in this Prospectus are rounded to thousands.)
Our Company
Ecoark Holdings, Inc.
Ecoark Holdings, Inc. (“Ecoark Holdings”) is a Nevada corporation incorporated on November 19, 2007. Ecoark Holdings is an innovative, emerging growth company focused on the development and deployment of business solutions and products to the retail, agriculture, food service, commercial real estate and architecture, engineering and construction end markets. Ecoark Holdings has assembled a team and portfolio of proprietary, patented technologies to address the waste in operations, logistics and supply chain. Ecoark Holdings accomplishes this through two wholly-owned operating subsidiaries, Ecoark, Inc. (“Ecoark”) and Magnolia Solar, Inc (“Magnolia Solar”). Further, Ecoark has three operating entities: Intelleflex, Eco3D and Pioneer Products.
Our principal executive offices are located at 3333 Pinnacle Hills Parkway, Suite 220, Rogers, Arkansas 72758, and our telephone number is (479) 259-2979. Our website address is http://ecoarkusa.com/. Our website and the information contained on, or that can be accessed through, our website will not be deemed to be incorporated by reference in, and are not considered part of, this prospectus. You should not rely on any such information in making an investmentyour decision to purchase our common shares.
stock.
Mobilis Relocation Services, Inc.
On December 31, 2009, Ecoark Holdings, originally known as Mobilis Relocation Services, Inc. (“Mobilis”), entered into an Agreement of Merger and Plan of Reorganization with Magnolia Solar, a privately held Delaware corporation and Magnolia Solar Acquisition Corp. Upon closing of the transaction, under the Agreement of Merger and Plan of Reorganization, Magnolia Solar became a wholly-owned subsidiary of Mobilis. Thereafter, Mobilis changed its name to Magnolia Solar Corporation. The name was incorporated in the Statelater changed to Ecoark Holdings, Inc. as described below.
Acquisition of Nevada as a development stage company with a mission of becoming a leading resource for an individual or family’s relocation / moving needs. It aims to offer a high value service that combines a vast array of current information, contacts, links and other information regarding all aspects of a move, at a low cost. It will initially begin by offering a purely online presence, which will fill a gap in the current marketplace. We are still in our development stage and plan on commencing business operations in early 2009.We have not earned any revenues to date. We do not anticipate earning revenues until such time as we have completed our website and are able to accept business. As of March 31, 2008, we had $49,964 cash on hand and $1,441 liabilities. Accordingly our working capital position as of March 31, 2008 was $48,523. Since our inception through March 31, 2008, we have incurred a net loss of $4,477. We attribute our net loss to having no revenues to offset our expenses and the professional fees relatedEcoark, Inc.
Prior to the creationacquisition of Ecoark, Ecoark Holdings’ operations were through Magnolia Solar which operations are described below.
On January 29, 2016, Ecoark Holdings entered into an Agreement and operationPlan of our business.Our fiscal year ended is March 31.We were incorporated on November 19, 2007 underMerger (the “Merger Agreement”) with Ecoark. Pursuant to the lawsMerger Agreement, Ecoark merged with and into a subsidiary of Ecoark Holdings (the “Merger”). Ecoark and Magnolia Solar, Inc. continue as the subsidiaries and businesses of Ecoark Holdings.
Prior to the completion of the StateMerger on March 24, 2016, in a special shareholder meeting on March 18, 2016, the following actions to amend the Articles of Nevada. Our principal offices are located at Suite 410 – 527 15th Avenue SW, Calgary, Alberta, Canada. Our telephone number is (403) 680-8994.
The Offering
Incorporation were undertaken by Ecoark Holdings to:
1. | effect a change in the name of our company from Magnolia Solar Corporation to Ecoark Holdings Inc.; |
effect a reverse stock |
3. | effect an increase in the number of our |
4. | effect the creation of 5,000,000 shares of “blank check” preferred stock. |
After giving effect to the Merger and the issuance of common stock to the shareholders of Ecoark, the shareholders of Ecoark received 95.34% of the shares of Ecoark Holding’s common stock (27,705,941 shares out of 29,056,937 shares).
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Business Model
Ecoark Holdings
Ecoark Holdings operates through four subsidiaries:
Intelleflex®
Intelleflex's ZEST Data Services is a secure, multi-tenant cloud-based data collection platform for aggregating and real-time permission-based sharing and analysis of information. ZEST Fresh, a fresh food management solution that utilizes the ZEST Data Service platform, focuses on three primary value propositions – consistent food quality, reduced waste, and improved food safety. ZEST Fresh empowers workers with real-time analytic tools and alerts that improve efficiency while driving quality consistency through best practice adherence on every pallet. ZEST Delivery provides real-time monitoring and control for prepared food delivery containers, helping delivery and dispatch personnel ensure the quality and safety of delivered food.
Eco3D™
Eco3D is focused on transitioning businesses from 2D technology that has existed for hundreds of years, to a world of digital 3D. Eco3D incorporates a variety of 3D technologies to achieve customer goals and objectives. Utilizing several techniques, Eco3D can capture existing conditions – topography, buildings, exterior/interior spaces, etc. – in highly accurate detail that allows for 2D and 3D measurement. These measurements form the basis for analysis, design, documentation, and quality control. Eco3D offers solutions in multiple industries throughout the United States.
Pioneer Products
Pioneer Products began by creating new consumer products using plastic reclaimed from post-consumer and retailer’s waste streams. One of these products is Pioneer Products’ “close looped” 45-gallon trash can. Pioneer Products generates revenue from the sale of products such as plastic trash cans to 3,700 retail stores, including the largest retailers in the continental U.S. Pioneer Products’ competitors include large consumer products companies such as Rubbermaid and Hefty. A new product, office chairs, was introduced in 2016.
Building on a platform of proven retail success, Pioneer Products now leverages its solidified reputation and strategic network by acting as a broker for other products and companies that fit into its brand portfolio. Pioneer owns direct vendor relationships and vendor numbers with some of the largest retailers in the U.S. This vendor number facilitates introduction of a new product to a retailer. Pioneer Products recently announced a new strategic alliance with a large distributor of family brands that strengthens its platform. Additionally, Pioneer’s offerings enable Ecoark to play a key role in supporting and making good on some of the world’s largest retailer’s goals of retail-level sustainability: reduction of waste within its supply chain and operations.
On May 3, 2016, Sable Polymer Solutions, LLC was acquired by Ecoark Holdings and Pioneer Products for 2,000,000 shares of Ecoark Holdings common stock. Sable Polymer Solutions, LLC is a wholly-owned subsidiary of Pioneer Products.Sable Polymer Solutions specializes in the sale, purchase and processing of quality post-consumer and post-industrial plastic materials. It provides services to a variety of suppliers and customers throughout the plastics processing industry, from small extruders, molders and scrap collectors to multinational corporations. It has a reputation of consistent quality and service in the market place today.
Magnolia Solar
Magnolia Solar is principally engaged in the development and commercialization of its nanotechnology-based, high-efficiency, thin-film technology that can be deposited on a variety of substrates, including glass and flexible structures. Magnolia Solar believes that this technology has the potential to capture a larger part of the solar spectrum to produce high-efficiency solar cells, and incorporates a unique nanostructure-based antireflection coating technology to possibly further increase the solar cell's performance. If these goals are met, there is the potential of significantly reducing the cost per watt. Since its inception, Magnolia Solar has not generated material revenues or earnings as a result of its activities.
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Risks Associated with Our Business
Before you invest in our common stock and warrants, you should carefully consider all the information in this prospectus, including matters set forth under the heading “Risk Factors.” We believe that the following are some of the major risks and uncertainties that may affect us:
● | We have a | |
● | We have a history of | |
● | It is possible that we may require additional financing to continue to grow our business operations, which would dilute the ownership held by our stockholders. If we are unable to obtain additional financing our business operations may be harmed or discontinued, and if we do obtain additional financing our stockholders may suffer substantial dilution; | |
● | General economic conditions may adversely affect our business, operating results and financial condition; | |
● | If our | |
● | We rely heavily on sales to a small group of customers, and the loss of a significant number of contracts would impact our ability to reach profitability; | |
● | If we are unable to adequately compete with our competitors, some of whom may have greater resources with which to compete, it may impact our ability to effectively market | |
● | If we are unable to retain the | |
● | Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products, services and brand. |
The Offering
Common stock outstanding prior to this offering (1) | 36,021,210 shares, including shares registered hereunder to be sold by the selling |
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Common stock to be | 40,357,835 shares. |
Use of | We will not receive any proceeds from the sale of |
Summary Financial Information
The exercise price of each warrant is $5.00 per share, subject to adjustment for stock splits and corporate reorganizations. Each warrant is exercisable on or before December 31, 2018. Ecoark Holdings may require a warrant holder to exercise all, but not less than all of the | |
Risk factors | You should read the section of this prospectus entitled “Risk Factors” for a discussion of factors to carefully consider before deciding to invest in shares of our common stock and warrants. |
Risk Factors
In this offering, we offered units for $4.00 per unit consisting of one share of common stock and a warrant to purchase one share of common stock for $5.00. Through March 31, 2016, we received proceeds from subscriptions equal to $9,555 for 2,388,750 units. From April 1, 2016 through April 28, 2016, we received proceeds of $7,792 for 1,947,875 units. In total, we received proceeds of $17,347 for 4,336,625 units, consisting of 4,336,625 shares and 4,336,625 units.
(1) The number of shares of our common stock outstanding prior to this offering is based on 29,672,062 shares of common stock outstanding after the Merger, 2,000,000 shares issued to the holders of Sable Polymer Solutions, LLC and 4,336,625 shares issued to the selling securityholders.
(2) The total number of shares of our common stock underlying the warrants is 4,336,625.
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There are numerous risks affecting our business, some of which are beyond our control. An investment in our common stock involves a high degree of risk. You should carefully consider the risks described belowrisk and the other information in this prospectus before investing in our common stock.may not be appropriate for investors who cannot afford to lose their entire investment. If any of the following risks actually occur, our business, financial condition or operating results and financial condition could be seriouslymaterially harmed. TheThis could cause the trading price of our common stock when and if we trade at a later date, couldto decline, due to any of these risks, and you may lose all or part of your investment.
In addition to the risks outlined below, risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our business operations. Potential risks and uncertainties that could affect our operating results and financial condition include, without limitation, the following:
RISK FACTORS RELATING TO OUR OPERATIONS
Risks Related
We have experienced losses since our founding. A failure to obtain profitability and achieve consistent positive cash flows would have a significant adverse effect on our business.
We have incurred operating losses since our inception, including a reported net loss of $10,473 and $14,264 for the years ended December 31, 2015 and 2014, respectively. Cash used in operating activities for the years ended December 31, 2015 and 2014 were $7,671 and $8,012, respectively. We expect to continue to incur operating losses through at least fiscal 2016. As of December 31, 2015, we had cash and cash equivalents of $1,962, a working capital deficit of $2,153, an accumulated deficit of $36,587, and a stockholders’ deficit of $913. To Our Financial Conditiondate, we have funded our operations principally through the sale of our capital stock and Business Model
debt instruments. We will need to generate significant revenues to achieve profitability, and we cannot assure you that we will ever realize revenues at such levels. If we do achieve profitability in any period, we may not be able to sustain or increase our profitability on a quarterly or annual basis.
We may require additional financing to support our operations. Such financing may only be available on disadvantageous terms, or may not be available at all. Any new equity financing could have a substantial dilutive effect on our existing stockholders.
At December 31, 2015, we had cash and cash equivalents of $1,962, a working capital deficit of $2,153 and an accumulated deficit of $36,587. While we closed a $17,347 Private Offering on April 28, 2016, our cash position may decline in the future, and we may not be successful in maintaining an adequate level of cash resources. We may be required to seek additional debt or equity financing in order to support our growing operations. We may not be able to obtain additional financing on satisfactory terms, or at all, and any new equity financing could have a substantial dilutive effect on our existing stockholders. If we cannot obtain additional financing, we will not be able to conduct our business operations toachieve the extentsales growth that we become profitableOur current operating funds willneed to cover the initial stagesour costs, and our results of operations would be negatively affected.
We cannot predict our business plan; however, we currently do not have any operations andfuture results because we have no income. Because of thisa limited operating history.
Our direct wholly-owned subsidiaries, Ecoark and Magnolia Solar were formed on November 28, 2011 and January 8, 2008, respectively. Ecoark began realizing revenues from operations in 2012. Given our limited operating history, it may be difficult for you to evaluate our performance or prospects. You should consider the factuncertainties that we will incur significant legal and accounting costs necessarymay encounter as a company that should still be considered an early stage company. These uncertainties include:
● | our ability to market our services and products for a profit; |
● | our ability to recruit and retain skilled personnel; |
● | our ability to secure and retain key customers; and, |
● | our evolving business model. |
If we are not able to maintain a public corporation, we will require additional financing to complete our development activities. We currently do not have any
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Because we anticipate our operating expenses will increase prior to our earning revenues, we may never achieve profitabilityPrior to completion of our development stage, we anticipate that we will incur increased operating expenses without realizing any revenues. We therefore expect to incur significant losses into the foreseeable future. We recognize that ifIf we are unable to develop and generate significant revenues from our business development, we will not be able to earn profits or continue operations. There is no history upon which to base any assumption as to the likelihood that we will prove successful, and we may not be able to generate any revenues or ever achieve profitability. If we are unsuccessful in addressing these risks, our business will most likely fail.Because our president has only agreed to provide his services on a part-time basis, he may not be able or willing to devote a sufficient amount of time to our business operations, causing our business to failBecause we are in the development stage of our business, Mr. Zenith will not be spending a significant amount of time on our business. Mr. Zenith expects to expend approximately 15 hours per week on our business. Competing demands on Mr. Zenith's time may lead to a divergence between his interests and the interests of other shareholders. Mr. Zenith is the founder of a real estate investment management company where he focuses the majority of his time, and none of the work he will be undertaking will directly compete with Mobilis Relocation Services Inc.
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We have invested significant competitionresources in developing and marketing our business may failManyservices and products. Some of our services and products are often considered complex and often involve a new approach to the conduct of business by our customers. As a result, intensive marketing and sales efforts may be necessary to educate prospective customers regarding the uses and benefits of our services and products in order to generate additional demand. The market for our services and products may weaken, competitors have long operating histories, greater financial, technical, and marketing resources. Becausemay develop superior offerings or we face significant competition from other companies offering similar services, the current and possible increase in competition may result in price reductions, reduced gross margins, andfail to develop acceptable solutions to address new market conditions. Any one of these events could have a material adverse effect on our business, results of operations, cash flow and financial condition.
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Undetected errors or failures in our software or services could result in loss or delay in the market acceptance for our products or lost sales.
Because our software services and products, and the environments in which they operate, are complex, our software and products may contain errors that can be detected at any point in its lifecycle. While we continually test our services and products for errors, errors may be found at any time in the future. Detection of any significant errors may result in, among other things, loss of, or delay in, market acceptance and sales of our services and products, diversion of development resources, injury to our reputation, increased service and warranty costs, license terminations or renegotiations or costly litigation. Additionally, because our services and products support or rely on other systems and applications, any software or hardware errors or bugs in these systems or applications may result in errors in the performance of our service or products, and it may be difficult or impossible to determine where the error resides.
We may not be competitive, and increased competition could seriously harm our business.
Relative to us, some of our current competitors or potential competitors of our products and services may have one or more of the following advantages:
● | longer operating histories; |
● | greater financial, technical, marketing, sales and other resources; |
● | positive cash flows from operations; |
● | greater name recognition; |
● | a broader range of products to offer; |
● | an established intellectual property portfolio; |
● | a larger installed base of customers; and, |
● | competitive product pricing. |
Although no single competitive factor is dominant, current and potential competitors may establish cooperative relationships among themselves or with third parties to enhance their offerings that are competitive with our products and services, which may result in increased competition.
Sales to many of our target customers involve long sales and implementation cycles, which may cause revenues and operating results to vary significantly.
A prospective customer’s decision to purchase our services or products may often involve lengthy evaluation and product qualification processes. Throughout the sales cycle, we anticipate often spending considerable time educating and providing information to prospective customers regarding the use and benefits of our services and products. Budget constraints and the need for multiple approvals within these organizations may also delay the purchase decision. Failure to obtain the timely required approval for a particular project or purchase decision may delay the purchase of our services or products. As a result, we expect that the sales cycle for some of our services and products will typically range from 90 days to more than 360 days, depending on the availability of funding to the prospective customer. These long cycles may cause delays in any potential sale, and we may spend a large amount of time and resources on prospective customers who decide not to purchase our services or products, which could materially and adversely affect our business.
Additionally, some of our services and products are designed for corporate customers, which requires us to maintain a sales force that understands the needs of these customers, engages in extensive negotiations and provides high-level support to complete sales. If we do not successfully market our services and products to these targeted customers, our operating results will be below our expectations and the expectations of investors and market analysts, which would likely cause the price of our common stock to decline.
We will not be able to develop or continue our business if we fail to attract and retain key personnel.
Our future success depends on our ability to attract, hire, train and retain a number of highly skilled employees and on the service and performance of our senior management team and other key personnel. The loss of the services of our executive officers or other key employees could adversely affect our business. Competition for qualified personnel possessing the skills necessary to implement our strategy is intense, and we may fail to attract or retain the employees necessary to execute our business model successfully. We have obtained “key person” life insurance policies covering three of our employees.
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Our success will depend to a significant degree upon the continued contributions of our key management, engineering and other personnel, many of whom would be difficult to replace. In particular, we believe that our future success is highly dependent on Randy May, our Chief Executive Officer, Peter Mehring, President of Intelleflex and Ken Smerz, President of Eco3D. If Messrs. May, Mehring or Smerz, or any other key members of our management team, leave our employment, our business could suffer and the share price of our common stock would likely decline. Although we have entered into an employment agreement with each of Messrs. May, Mehring and Smerz, one or more of them may voluntarily terminate his services at any time.
If we do not protect our proprietary information and prevent third parties from making unauthorized use of our products and technology, our financial results could be harmed.
Most of our software and underlying technology is proprietary. We seek to protect our proprietary rights through a combination of confidentiality agreements and through copyright, patent, trademark, and trade secret laws. However, all of these measures afford only limited protection and may be challenged, invalidated, or circumvented by third parties. Any patent licensed by us or issued to us could be challenged, invalidated or circumvented or rights granted there under may not provide a competitive advantage to us. Furthermore, patent applications that we file may not result in issuance of a patent or, if a patent is issued, the patent may not be issued in a form that is advantageous to us. Despite our efforts to protect our intellectual property rights, others may independently develop similar products, duplicate our products or design around our patents and other rights. In addition, it is difficult to monitor compliance with, and enforce, our intellectual property in a cost-effective manner.
Third parties claiming that we infringe their proprietary rights could cause us to incur significant legal expenses and prevent us from selling our products and services.
From time to time, we might receive claims that we have infringed the intellectual property rights of others, including claims regarding patents, copyrights, and trademarks. Because of constant technological change in the markets in which we compete, the extensive patent coverage of existing technologies, and the rapid rate of issuance of new patents, it is possible that the number of these claims may grow.In addition, former employers of our former, current, or future employees may assert claims that such employees have improperly disclosed to us the confidential or proprietary information of these former employers. Any such claim, with or without merit, could result in costly litigation and distract management from day-to-day operations. If we are not successful in defending such claims, we could be required to stop selling, delay shipments of, or redesign our products, pay monetary amounts as damages, enter into royalty or licensing arrangements, or satisfy indemnification obligations that we have with some of our customers. We cannot assure you that any royalty or licensing arrangements that we may seek in such circumstances will be available to us on commercially reasonable terms or at all. We may incur significant expenditures to investigate, defend and settle claims related to the use of technology and intellectual property rights as part of our strategy to manage this risk.
Periods of sustained economic adversity and uncertainty could negatively affect our business, results of operations and financial condition.
Demand for our services and products depend in large part upon the level of capital and maintenance expenditures by many of our customers. Lower budgets could have a material adverse effect on the demand for our services and products, and our business, results of operations, cash flow and overall financial condition would suffer.
Disruptions in the financial markets may have an adverse impact on regional and world economies and credit markets, which could negatively impact the availability and cost of capital for us and our customers. These conditions may reduce the willingness or ability of our customers and prospective customers to commit funds to purchase our services or products, or their ability to pay for our services after purchase. These conditions could result in bankruptcy or insolvency for some customers, which would impact our revenue and cash collections. These conditions could also result in pricing pressure and less favorable financial terms in our contracts and our ability to access capital to fund our operations.
Patents, trademarks, copyrights and licenses are important to the Company’s business, and the inability to defend, obtain or renew such intellectual property could adversely affect the Company’s operating results.
The Company currently holds rights to patents and copyrights relating to certain aspects of its solar panel technology, Radio-Frequency Identification (“RFID”) technology, software, and services. In addition, the Company has registered, and/or has applied to register trademarks and service marks in the U.S. and a number of foreign countries for "Intelleflex," the Intelleflex logo, "ZEST," "ZEST Data Services," "ZEST Fresh," and numerous other trademarks and service marks. Although the Company believes the ownership of such patents, copyrights, trademarks and service marks is an important factor in its business and that its success does depend in part on the ownership thereof, the Company relies primarily on the innovative skills, technical competence, and marketing abilities of its personnel.
6 |
Many of the Company's products are designed to include intellectual property obtained from third-parties. While it may be necessary in the future to seek or renew licenses relating to various aspects of its products and business methods, the Company believes, based upon past experience and industry practice, such licenses generally could be obtained on commercially reasonable terms; however, there is no guarantee that such licenses could be obtained at all.
Failure of information technology systems and breaches in data security could adversely affect the Company's financial condition and operating results.
Information technology system failures and breaches of data security could disrupt the Company's operations by causing delays or cancellation of customer orders, impeding the manufacture or shipment of products, or resulting in the unintentional disclosure of customer or Company information. Management has taken steps to address these concerns by implementing sophisticated network security and internal control measures. There can be no assurance, however, that a system failure or data security breach will not have a material adverse effect on the Company's financial condition and operating results.
The Company is subject to risks associated with laws, regulations and industry-imposed standards related to wireless communications devices.
Laws and regulations related to wireless communications devices in the many jurisdictions in which the Company operates are extensive and subject to change. Such changes, which could include but are not limited to restrictions on production, manufacture, distribution, and use of the device, may have a material adverse effect on the Company's financial condition and operating results.
Wireless communication devices, such as RFID readers, are subject to certification and regulation by governmental and standardization bodies. These certification processes are extensive and time consuming, and could result in additional testing requirements, product modifications or delays in product shipment dates, which may have a material adverse effect on the Company's financial condition and operating results.
The Company relies on access to third-party patents and intellectual property, and the Company's future results could be materially adversely affected if it is alleged or found to have infringed intellectual property rights.
Many of the Company's products are designed to include third-party intellectual property, and it may be necessary in the future to seek or renew licenses relating to various aspects of its products and business methods. Although the Company believes that, based on past experience and industry practice, such licenses generally could be obtained on commercially reasonable terms, there is no assurance that the necessary licenses would be available on acceptable terms or at all.
Because of technological changes in the business software, web and device applications, sensors and sensor-based devices, and RFID and wireless communication industries, current extensive patent coverage, and the rapid issuance of new patents, it is possible that certain components of the Company's products and business methods may unknowingly infringe the patents or other intellectual property rights of third parties. From time to time, the Company has been notified that it may be infringing such rights. Responding to such claims, regardless of their merit, can consume significant time and expense. In certain cases, the Company may consider the desirability of entering into licensing agreements, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur. If there is a temporary or permanent injunction prohibiting the Company from marketing or selling certain products or a successful claim of infringement against the Company requires it to pay royalties to a third party, the Company's financial condition and operating results could be materially adversely affected.
The inability to obtain certain raw materials could adversely impact the Company’s ability to deliver on its contractual commitments which could negatively impact operations and cash flows.
Although most components essential to the Company's business are generally available from multiple sources, certain key components including, but not limited to, microprocessors, enclosures, certain RFID custom integrated circuits, and application-specific integrated circuits ("ASICs") are currently obtained by the Company from single or limited sources. Magnolia Solar is also developing nanostructured optical coating technology to improve the solar cell performance. The raw materials for this effort are glass, quartz, silicon wafers and nitrogen gas. Some key components, while currently available to the Company from multiple sources, are at times subject to industry-wide availability constraints and pricing pressures. If the supply of a key or single-sourced component to the Company were to be delayed or curtailed or in the event a key manufacturing vendor delayed shipment of completed products to the Company, the Company's ability to ship related products in desired quantities, and in a timely manner, could be adversely affected. The Company's business and financial performance could also be adversely affected depending on the time required to obtain sufficient quantities from the original source, or to identify and obtain sufficient quantities from an alternative source. Continued availability of these components may be affected if suppliers were to decide to concentrate on the production of common components instead of components customized to meet the Company's requirements. The Company attempts to mitigate these potential risks by working closely with these and other key suppliers on product introduction plans, strategic inventories, coordinated product introductions, and internal and external manufacturing schedules and levels. Consistent with industry practice, the Company acquires components through a combination of formal purchase orders, supplier contracts, and open orders based on projected demand information. However, adverse changes in the supply chain of the Company’s vendors may adversely impact the supply of key components.
7 |
Our solar products have never been sold on a commercial basis, and we do not know whether they will be accepted by the market.
According to the BP Statistical Review of World Energy published in 2015, the installed solar PV capacity was about 180 Gigawatt hours at the end of 2014. Total global production of electricity was about 23,536 terawatt hours in 2014. Thus, at the end of 2014 less than 1 percent electric power came from solar photovoltaic sources. Even with many advances in the solar photovoltaic technology, adoption of solar photovoltaic power technology by energy users remains low and the total solar electricity production capacity remains well below one percent of the world consumption of electricity. Thus, the solar energy market is at a relatively early stage of development and the extent to which solar modules will be widely adopted is uncertain. If our products are not accepted by the market, our business, prospects, results of operations and financial condition will suffer. Moreover, demand for solar modules in our targeted markets may not develop or may develop to a lesser extent than we anticipate. The development of a successful market for our proposed products and our ability to sell them at a lower price per watt may be affected by a number of factors, many of which are beyond our control, including, but not limited to:
● | failure to produce solar power products that compete favorably against other solar power products on the basis of cost, quality and performance; | |
● | competition from conventional energy sources and alternative distributed generation technologies, such as wind energy; | |
● | failure to develop and maintain successful relationships with suppliers, distributors and strategic partners; and | |
● | customer acceptance of our products. |
If our proposed products fail to gain sufficient market acceptance, our business plans, prospects, results of operations and financial condition may suffer.
Our ability to manufacture and distribute commercially viable solar cells is unproven, which could have a detrimental effect on our ability to generate or sustain revenues.
The technologies we will use to manufacture solar cells have never been utilized on a commercial basis. Our technology, while intended to create a highly efficient solar cells may never achieve technical or commercial viability. All of the tests conducted to date by us with respect to the technology have been performed in a limited scale environment and the same or similar results may not be obtainable at competitive costs on a large-scale commercial basis. We have never utilized technology under the conditions or in the volumes that will be required for us to be profitable and cannot predict all of the difficulties that may arise. Accordingly, our technology may not perform successfully on a commercial basis and may never generate any revenues or be profitable.
The reduction or elimination of government subsidies and economic incentives for on-grid solar electricity applications could reduce demand for our solar modules and harm our business plans.
The reduction, elimination or expiration of government subsidies and economic incentives for solar electricity could result in the diminished competitiveness of solar energy relative to conventional and non-solar renewable sources of energy, which would negatively affect the growth of the solar energy industry overall. We believe that the near-term growth of the market for on-grid applications, where solar energy is used to supplement the electricity a consumer purchases from the utility network, depends significantly on the availability and size of government and economic incentives. Currently the cost of solar electricity substantially exceeds the retail price of electricity in every significant market in the world. As a result, federal, state and local governmental bodies in many countries have provided subsidies in the form of tariffs, rebates, tax write-offs and other incentives to end-users, distributors, systems integrators and manufacturers of photovoltaic products. Many of these government incentives could expire, phase-out over time, exhaust the allocated funding or require renewal by the applicable authority. Even though the price of electricity from conventional sources continues to rise, a reduction, elimination or expiration of government subsidies and economic incentives for solar electricity could result in the diminished competitiveness of solar energy, which would in turn hurt our sales and financial condition.
8 |
RISK FACTORS RELATING TO OUR COMMON STOCK AND WARRANTS
We have a substantial number of authorized common and preferred shares available for future issuance that could cause dilution of our stockholders’ interest and adversely impact the rights of holders of our common stock.
We have a total of 100,000,000 shares of common stock and 5,000,000 shares of preferred stock authorized for issuance. As of July 25, 2016, we have 36,021,210 shares of common stock issued and outstanding (including the shares of common stock sold in the Offering) and no preferred shares issued or outstanding. As of July 25, 2016, we had 63,978,790 shares of common stock and 5,000,000 shares of preferred stock available for issuance. Further, out of the 63,978,790 unissued shares of common stock, as of July 25, 2016, we have reserved 4,336,625 shares of our common stock for issuance upon the exercise of outstanding warrants, 1,500,000 shares of our common stock upon conversion of outstanding convertible notes, and 5,497,142 additional shares available for future grants under our stock incentive plan and no shares reserved for conversion of our preferred stock. We may seek financing that could result in the issuance of additional shares of our capital stock and/or rights to acquire additional shares of our capital stock. We may also make acquisitions that result in issuances of additional shares of our capital stock. Those additional issuances of capital stock would result in a significant reduction of your percentage interest in us. Furthermore, the book value per share of our common stock may be reduced. This reduction would occur if the exercise price of any issued warrants, the conversion price of any convertible notes or the conversion ratio of any issued preferred stock is lower than the book value per share of our common stock at the time of such exercise or conversion.
The addition of a substantial number of shares of our common stock into the market or by the registration of any of our other securities under the Securities Act may significantly and negatively affect the prevailing market price for our common stock. The future sales of shares of our common stock issuable upon the exercise of outstanding warrants and options may have a depressive effect on the market price of our common stock, as such warrants and options would be more likely to be exercised at a time when the price of our common stock is greater than the exercise price.
We effected our 1-for-250 reverse stock split on March 18, 2016. However, we cannot assure you that we will be able to continue to comply with the minimum price requirements of the NASDAQ Capital Market.
We effected our 1-for-250 reverse stock split on March 18, 2016, with the intent to list the common stock on the NASDAQ Capital Market. We effectuated the reverse stock split in order to achieve the requisite increase in the market price of our common stock to be in compliance with the minimum price requirements of the NASDAQ Capital Market. We cannot assure you that the market price of our common stock following the reverse stock split will remain at the level required for continuing compliance with that requirement. It is not uncommon for the market price of a company’s common stock to decline in the period following a reverse stock split. If the market price of our common stock declines following the effectuation of the reverse stock split, the percentage decline may be greater than would occur in the absence of the reverse stock split. In any event, other factors unrelated to the number of shares of our common stock outstanding, such as negative financial or operational results, could adversely affect the market price of our common stock and jeopardize our ability to maintain the NASDAQ Capital Market’s minimum price requirements.
There may not be an active market for shares of our common stock.
Our common stock is quoted OTCQB maintained by the OTC Market Group Inc. under the symbol “EARK”. However, no assurance can be given that an active trading market for our common stock will develop and continue. As a result, you may find it more difficult to purchase, dispose of and obtain accurate quotations as to the value of our common stock. If we are unable to achieve the NASDAQ Capital Market listing requirements, our common stock would continue to trade on the OTCQB.
The reverse stock split may decrease the liquidity of the shares of our common stock.
The liquidity of the shares of our common stock may be affected adversely by the 1-for-250 reverse stock split given the reduced number of shares outstanding following the reverse stock split, especially if the market price of our common stock does not increase as a result of the reverse stock split.
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Following the reverse stock split, the resulting market price of our common stock may not attract new investors, including institutional investors, and may not satisfy the investing requirements of those investors. Consequently, the trading liquidity of our common stock may not improve.
Although we believe that a higher market price of our common stock may help generate greater or broader investor interest, we cannot assure you that the reverse stock split will attract new investors, including institutional investors. In addition, there can be no assurance that the market price of our common stock will satisfy the investing requirements of those investors. As a result, the trading liquidity of our common stock may not necessarily improve.
Our stock could be subject to volatility.
The market price of our common stock may fluctuate significantly in response to a number of factors, some of which are beyond our control, including:
● | actual or anticipated fluctuations in our quarterly and annual results; | |
● | changes in market valuations of companies in our industry; | |
● | announcements by us or our competitors of new strategies, significant contracts, acquisitions, strategic relationships, joint ventures, capital commitments or other material developments that may affect our prospects; | |
● | shortfalls in our operating results from levels forecasted by company management; | |
● | additions or departures of our key personnel; | |
● | sales of our capital stock in the future; | |
● | liquidity or cash flow constraints; and, | |
● | fluctuations in stock market prices and volume, which are particularly common for the securities of emerging technology companies, such as us. |
We may not pay dividends on our common stock in the foreseeable future.
We have not paid any dividends on our common stock. We might pay dividends in the future at the discretion of our Board of Directors. We are unlikely to pay dividends at any time in the foreseeable future; rather, we are likely to retain earnings, if any, to fund our operations and to develop and expand our business.
Future sales and issuances of our capital stock or rights to purchase capital stock could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to decline.
We may issue additional securities following the completion of this offering. Future sales and issuances of our capital stock or rights to purchase our capital stock could result in substantial dilution to our existing stockholders. We may sell common stock, convertible securities and other equity securities in one or more transactions at prices and in a manner as we may determine from time to time. If we sell any such securities in subsequent transactions, our stockholders may be materially diluted. New investors in such subsequent transactions could gain rights, preferences and privileges senior to those of holders of our common stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including: any projections of earnings, revenues or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “plan” or “anticipate” and other similar words. Such forward-looking statements may be contained in the sections “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” among other places in this prospectus.
Although we believe that the expectations reflected in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed. Our future financial condition and results of operations.
operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed in this prospectus. We do not intend, and undertake no obligation, to update any forward-looking statement.
10 |
We sold units to the selling securityholders for $4.00 per unit consisting of the Internet may adversely affect usAs Internet commerce continues to evolve there may be increased regulation by federal, state and/or foreign agencies. Any new regulations which restrict our business could harm or cause our business to fail.
Risks Related To This Offering
If a market for our common stock does not develop, shareholders may be unable to sell their sharesThere is currently no market for ourone share of common stock and a warrant to purchase one share of common stock for $5.00. Through March 31, 2016, we received proceeds from subscriptions equal to $9,555 for 2,388,750 units. From April 1, 2016 through April 28, 2016, we received proceeds of $7,792 for 1,947,875 units. In total, we received proceeds of $17,347 for 4,336,625 units, consisting of 4,336,625 shares and 4,336,625 warrants.
This prospectus covers the resale from time to time by the selling securityholders identified in the table below of up to an aggregate of (i) 4,336,625 shares issued pursuant to the conversion of certain convertible promissory notes and (ii) 4,336,625 issuable upon the exercise of warrants, in each case, issued in the Private Offering.
The exercise price of each warrant is $5.00 per share, subject to adjustment for stock splits and corporate reorganizations. Each warrant is exercisable on or before December 31, 2018. Ecoark Holdings may require a warrant holder to exercise all, but not less than all of the unexercised portion of the warrant, upon written notice that (i) the last reported sale price of common stock on each of 60 consecutive trading days exceeded $7.50 and (ii) the average daily trading volume (as reported on Bloomberg) of the common stock over the 60 consecutive trading period was not less than 100,000 shares on the trading market on which the common stock is listed or designated for quotation. In the event that the holder does not exercise the warrant, the holder shall forfeit any rights under the warrant, including the right to exercise the warrant to the extent not previously exercised and the warrant shall be treated as canceled for all purposes.
We are registering the shares of common stock hereby pursuant to the terms of the subscription agreement (the “Subscription Agreement”) among us and the investors in the Private Offering in order to permit the selling securityholders identified in the table below to offer the shares for resale from time to time. Because the shares of common stock issuable upon the exercise of our warrants are subject to adjustment if our shares of common stock are subdivided or combined (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise) the number of shares that will actually be issuable upon any exercise thereof may never develop. We currently planbe more or less than the number of shares being offered by this prospectus.
None of the selling securityholders are licensed broker-dealers or affiliates of licensed broker-dealers.
The table below (i) lists the selling securityholders and other information regarding the beneficial ownership (except with respect to apply for listingthe totals in Column 2, as determined under Section 13(d) of the Exchange Act and the rules and regulations thereunder) of our common stock onby each of the Over-the-Counter Bulletin Board electronic quotation serviceselling securityholders (including securities issued in transactions unrelated to the Private Offerings, if any); (ii) have been prepared based upon information furnished to us by the effectivenessselling securityholders; and (iii) to our knowledge, is accurate as of the date of this prospectus. The selling securityholders may sell all, some or none of their shares in this offering. The selling securityholders identified in the table below may have sold, transferred or otherwise disposed of some or all of theirs shares since the date of this prospectus in transactions exempt from or not subject to the registration requirements of the Securities Act. Information concerning the selling securityholders may change from time to time and, if necessary, we will amend or supplement this prospectus accordingly and as required.
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Common Shares Being Registered | ||||||||||||||||||||
Shares | Shares Underlying Warrants | Total | Shares Being Registered | Common Shares Owned After Sale | ||||||||||||||||
Stephen L. O'Bryan Declaration of Trust, 3-23-89 | 300,000 | 300,000 | 600,000 | 600,000 | 0 | |||||||||||||||
AMB Financial, LLC | 200,000 | 200,000 | 400,000 | 400,000 | 0 | |||||||||||||||
The Stephen D. Kleppe and Shirley R. Kleppe Trust Dated August 20, 2013 | 200,000 | 200,000 | 400,000 | 400,000 | 0 | |||||||||||||||
Well of Oath, LLC | 125,000 | 125,000 | 250,000 | 250,000 | 0 | |||||||||||||||
Dennis J. Loudermilk | 100,000 | 100,000 | 200,000 | 200,000 | 0 | |||||||||||||||
Kelly & Barry Schmidt JTWRS | 93,750 | 93,750 | 187,500 | 187,500 | 0 | |||||||||||||||
EA 2015 LLC | 75,000 | 75,000 | 150,000 | 150,000 | 0 | |||||||||||||||
The Verna Mae Gift Trust | 71,250 | 71,250 | 142,500 | 142,500 | 0 | |||||||||||||||
Matthews Family Revocable Trust | 65,000 | 65,000 | 130,000 | 130,000 | 0 | |||||||||||||||
John C. Thompson | 65,000 | 65,000 | 130,000 | 130,000 | 0 | |||||||||||||||
Lakeshore Capital, LLC | 62,500 | 62,500 | 125,000 | 125,000 | 0 | |||||||||||||||
Buckner Family Trust | 62,500 | 62,500 | 125,000 | 125,000 | 0 | |||||||||||||||
Roland and Lisa Emanuel | 62,500 | 62,500 | 125,000 | 125,000 | 0 | |||||||||||||||
Greg Dollarhyde | 50,000 | 50,000 | 100,000 | 100,000 | 0 | |||||||||||||||
Bryan S. Mick and Kelly S. Mick JTWRS | 50,000 | 50,000 | 100,000 | 100,000 | 0 | |||||||||||||||
Bryan & Carrie McDermott | 50,000 | 50,000 | 100,000 | 100,000 | 0 | |||||||||||||||
Kevin Olson | 50,000 | 50,000 | 100,000 | 100,000 | 0 | |||||||||||||||
Betaroan, LLC | 50,000 | 50,000 | 100,000 | 100,000 | 0 | |||||||||||||||
Laura Duke Revocable Trust | 50,000 | 50,000 | 100,000 | 100,000 | 0 | |||||||||||||||
Hames Family Trust | 50,000 | 50,000 | 100,000 | 100,000 | 0 | |||||||||||||||
MJ Strategies, LLC | 48,750 | 48,750 | 97,500 | 97,500 | 0 | |||||||||||||||
Jeffrey L. Augspurgor Trust UAD 10-23-03 | 42,500 | 42,500 | 85,000 | 85,000 | 0 | |||||||||||||||
LGMG, LLC | 37,500 | 37,500 | 75,000 | 75,000 | 0 | |||||||||||||||
The Oreste & Marie Living Trust | 37,500 | 37,500 | 75,000 | 75,000 | 0 | |||||||||||||||
Edward O. Battaglia TOD | 37,500 | 37,500 | 75,000 | 75,000 | 0 | |||||||||||||||
David Tyner | 31,250 | 31,250 | 62,500 | 62,500 | 0 | |||||||||||||||
Brian Brogger | 31,250 | 31,250 | 62,500 | 62,500 | 0 | |||||||||||||||
Jeffrey Rockacy | 31,250 | 31,250 | 62,500 | 62,500 | 0 | |||||||||||||||
Levlo Legacy, LLC | 30,000 | 30,000 | 60,000 | 60,000 | 0 | |||||||||||||||
Jonathan Lane Jeanes | 30,000 | 30,000 | 60,000 | 60,000 | 0 | |||||||||||||||
J & T Meadows Ltd | 30,000 | 30,000 | 60,000 | 60,000 | 0 | |||||||||||||||
Baisch Revocable Living Trust | 27,000 | 27,000 | 54,000 | 54,000 | 0 | |||||||||||||||
Marsh Revocable Trust | 25,000 | 25,000 | 50,000 | 50,000 | 0 | |||||||||||||||
Charles M. Beck Von Peccoz | 25,000 | 25,000 | 50,000 | 50,000 | 0 | |||||||||||||||
Giardino Family Trust | 25,000 | 25,000 | 50,000 | 50,000 | 0 | |||||||||||||||
John Spadar & Julia Singer JTWRS | 25,000 | 25,000 | 50,000 | 50,000 | 0 | |||||||||||||||
Michael Schultz | 25,000 | 25,000 | 50,000 | 50,000 | 0 | |||||||||||||||
Richard Adler | 25,000 | 25,000 | 50,000 | 50,000 | 0 | |||||||||||||||
Deborah A. Harwood | 25,000 | 25,000 | 50,000 | 50,000 | 0 | |||||||||||||||
Jill J. McCracken | 25,000 | 25,000 | 50,000 | 50,000 | 0 | |||||||||||||||
My voices, LLC | 25,000 | 25,000 | 50,000 | 50,000 | 0 | |||||||||||||||
John P. Fitzgerald | 25,000 | 25,000 | 50,000 | 50,000 | 0 | |||||||||||||||
Philip Lee Keesling | 25,000 | 25,000 | 50,000 | 50,000 | 0 | |||||||||||||||
Patrick & Brneda Simpkins | 25,000 | 25,000 | 50,000 | 50,000 | 0 | |||||||||||||||
William R. Taylor | 25,000 | 25,000 | 50,000 | 50,000 | 0 | |||||||||||||||
Timothy Doherty | 25,000 | 25,000 | 50,000 | 50,000 | 0 | |||||||||||||||
IRA Services Trust Company FBO David Rourke Sr. | 25,000 | 25,000 | 50,000 | 50,000 | 0 | |||||||||||||||
One Tree Hill Revocable Trust | 25,000 | 25,000 | 50,000 | 50,000 | 0 | |||||||||||||||
Richard G. Whittier | 25,000 | 25,000 | 50,000 | 50,000 | 0 | |||||||||||||||
Ling Family Trust 7-16-2009 | 25,000 | 25,000 | 50,000 | 50,000 | 0 | |||||||||||||||
Michael & Margo Hamsher | 25,000 | 25,000 | 50,000 | 50,000 | 0 | |||||||||||||||
Bowen Family Revocable Trust | 25,000 | 25,000 | 50,000 | 50,000 | 0 | |||||||||||||||
W-Y Transport Inc. Profit Sharing Trust | 25,000 | 25,000 | 50,000 | 50,000 | 0 | |||||||||||||||
Lewis Yarborough | 25,000 | 25,000 | 50,000 | 50,000 | 0 | |||||||||||||||
Parkhill Clinic For Women Profit Sharing Plan Acct #460695937 | 25,000 | 25,000 | 50,000 | 50,000 | 0 | |||||||||||||||
David Scott Smith | 22,500 | 22,500 | 45,000 | 45,000 | 0 | |||||||||||||||
Deborah A. Thomas | 20,000 | 20,000 | 40,000 | 40,000 | 0 | |||||||||||||||
Gary D. Post & Mary H. Post | 20,000 | 20,000 | 40,000 | 40,000 | 0 | |||||||||||||||
James & Mary Kate Dillon | 20,000 | 20,000 | 40,000 | 40,000 | 0 | |||||||||||||||
IRA Services Trust Company FBO Jarrod Sherman | 20,000 | 20,000 | 40,000 | 40,000 | 0 |
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Common Shares Being Registered | ||||||||||||||||||||
Shares | Shares Underlying Warrants | Total | Shares Being Registered | Common Shares Owned After Sale | ||||||||||||||||
Kelly Lawson | 20,000 | 20,000 | 40,000 | 40,000 | 0 | |||||||||||||||
Stephen & Colleen Blauer | 20,000 | 20,000 | 40,000 | 40,000 | 0 | |||||||||||||||
Roger Kraig Kemp | 19,625 | 19,625 | 39,250 | 39,250 | 0 | |||||||||||||||
Daniel & Julie Nelson | 18,750 | 18,750 | 37,500 | 37,500 | 0 | |||||||||||||||
Henry Cleve Stubblefield | 18,750 | 18,750 | 37,500 | 37,500 | 0 | |||||||||||||||
Monroe P. Guest | 18,750 | 18,750 | 37,500 | 37,500 | 0 | |||||||||||||||
The Jere and Marian Chrispens CRUT | 18,750 | 18,750 | 37,500 | 37,500 | 0 | |||||||||||||||
Zackery Holley | 18,750 | 18,750 | 37,500 | 37,500 | 0 | |||||||||||||||
BF or Rebecca C. Gibbons | 15,000 | 15,000 | 30,000 | 30,000 | 0 | |||||||||||||||
Closed Loop Waste, LLC | 13,750 | 13,750 | 27,500 | 27,500 | 0 | |||||||||||||||
Joseph & Janet Spano JTWRS | 13,750 | 13,750 | 27,500 | 27,500 | 0 | |||||||||||||||
Joseph L. Geierman Jr. and Joyce C. Geierman | 13,000 | 13,000 | 26,000 | 26,000 | 0 | |||||||||||||||
The Hordynski Family Trust | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Todd & Jenny Laddusaw | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Mark Hancock | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Jerry D. Reed | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
James Peterson & Jennifer A. Peterson | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Kevin Nichols | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Andrea J. Morneau Family Trust 9-12-06 | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Piece O'Cake LLC | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Cerebral Output, LLC | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Nancy Coleman | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Dean F. Eisma | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
IRA Services Trust Company CFBO James E. Cassidy | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Jason Rex Rivers | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
David Matthew Wilkett Cynthia Wilkett JT TEN TOD DTD | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Stephen L. Kass | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Capital Plus, LLC | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Steven & Carolyn Taraborelli | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
DWC Consultants, Inc | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Leonard E. & Susan J. Hinton | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
KGKBKR Inc. | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Lawrence Edmund Krynski | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Larry D. Durham | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Neil Adcock | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Carabello Family LLC | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
RC Moore | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Dean I. Creviston and Brenda S. Creviston Trust UA 5-17-09 | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
William W Cutter Trust | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Smith Family Revocable Living Trust | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
James S. Hodson | 12,500 | 12,500 | 25,000 | 25,000 | 0 |
13 |
Common Shares Being Registered | ||||||||||||||||||||
Shares | Shares Underlying Warrants | Total | Shares Being Registered | Common Shares Owned After Sale | ||||||||||||||||
RWT Trust | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
David Harris | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
The Kasner Revocable Living Trust | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Ashley Erin Mason & George L. Mallory Joint Tentants JT TEN | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Andrew Clemons | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Matt L. Mawby | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Frank E. French Jr. 1994 Trust | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
RJM Ventures, LLC | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Paul W. Mullins | 12,500 | 12,500 | 25,000 | 25,000 | 0 | |||||||||||||||
Darwin Jay McManus | 12,000 | 12,000 | 24,000 | 24,000 | 0 | |||||||||||||||
Paul Hagen | 11,000 | 11,000 | 22,000 | 22,000 | 0 | |||||||||||||||
The Diana Lyn Kietzman Living Trust UA 6-25-1998 | 10,000 | 10,000 | 20,000 | 20,000 | 0 | |||||||||||||||
Dawn Weerasinghe | 10,000 | 10,000 | 20,000 | 20,000 | 0 | |||||||||||||||
Barry Carter | 10,000 | 10,000 | 20,000 | 20,000 | 0 | |||||||||||||||
Millers Supermarket, Inc | 10,000 | 10,000 | 20,000 | 20,000 | 0 | |||||||||||||||
Jeffrey K. Latham | 10,000 | 10,000 | 20,000 | 20,000 | 0 | |||||||||||||||
Mark Breneman and Alyce Breneman | 10,000 | 10,000 | 20,000 | 20,000 | 0 | |||||||||||||||
Larry R. Thompson | 10,000 | 10,000 | 20,000 | 20,000 | 0 | |||||||||||||||
Shannon L. Clark | 10,000 | 10,000 | 20,000 | 20,000 | 0 | |||||||||||||||
Mark B. Schwanz | 10,000 | 10,000 | 20,000 | 20,000 | 0 | |||||||||||||||
Harlin F. or Lilla M. Hames | 10,000 | 10,000 | 20,000 | 20,000 | 0 | |||||||||||||||
Paul Reichert | 10,000 | 10,000 | 20,000 | 20,000 | 0 | |||||||||||||||
Don & Stacey Carter | 10,000 | 10,000 | 20,000 | 20,000 | 0 | |||||||||||||||
Robert & Martha Buhler | 10,000 | 10,000 | 20,000 | 20,000 | 0 | |||||||||||||||
P L J Investments, LLC | 10,000 | 10,000 | 20,000 | 20,000 | 0 | |||||||||||||||
N. Lee Dillow | 8,000 | 8,000 | 16,000 | 16,000 | 0 | |||||||||||||||
The JH Revocable Trust dated 1/14/2014 | 7,500 | 7,500 | 15,000 | 15,000 | 0 | |||||||||||||||
Dustin Weaver | 7,500 | 7,500 | 15,000 | 15,000 | 0 | |||||||||||||||
Kimberly R. Fairchild | 7,500 | 7,500 | 15,000 | 15,000 | 0 | |||||||||||||||
Corey Eschweiler | 7,500 | 7,500 | 15,000 | 15,000 | 0 | |||||||||||||||
Domenico Iriti | 7,500 | 7,500 | 15,000 | 15,000 | 0 | |||||||||||||||
Thomas A. Erdmier | 7,500 | 7,500 | 15,000 | 15,000 | 0 | |||||||||||||||
Oldham Properties Ltd. | 7,500 | 7,500 | 15,000 | 15,000 | 0 | |||||||||||||||
Thomas Kent Kelsay | 7,500 | 7,500 | 15,000 | 15,000 | 0 | |||||||||||||||
IRA Services Trust Company CFBO David Johnson IRA 346019 | 7,500 | 7,500 | 15,000 | 15,000 | 0 | |||||||||||||||
Gerald David Adkisson and Joel Adkisson Joint Tenants in Common | 7,500 | 7,500 | 15,000 | 15,000 | 0 | |||||||||||||||
William M. Wilson | 7,500 | 7,500 | 15,000 | 15,000 | 0 | |||||||||||||||
Tim & Mari Maroushek | 7,500 | 7,500 | 15,000 | 15,000 | 0 | |||||||||||||||
Marian L. Beck Von Peccoz | 7,000 | 7,000 | 14,000 | 14,000 | 0 | |||||||||||||||
Michael A. Simons 2002 Rev Trust 5/11/2002 | 7,000 | 7,000 | 14,000 | 14,000 | 0 | |||||||||||||||
Blue Oak Trust | 7,000 | 7,000 | 14,000 | 14,000 | 0 | |||||||||||||||
Donald Lovering | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Timothy L. Shugrue | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Ryan Coleman | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Sandra G. Williams | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Juliet McIver | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Jeremy Sanders and Melanie Phipps Sanders | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Susan Sullivan | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
The Margaret J. Baurer Living Trust Dated 2/27/2013 | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
IRA Services Trust Company CFBO Phillip Kuehne | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Hyland Family Trust | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
IRA Services Trust Company CFBO Lawrence Kistler Roth IRA | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Dennis Bridges | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Marie Hayman | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Cathy L. Aust Trust DTD 10-14-13 | 6,250 | 6,250 | 12,500 | 12,500 | 0 |
14 |
Common Shares Being Registered | ||||||||||||||||||||
Shares | Shares Underlying Warrants | Total | Shares Being Registered | Common Shares Owned After Sale | ||||||||||||||||
Gail H. Van Kleek Rev. Trust | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Richard A. Mickelsen | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Kurt Bachmayer & Lisa Dalke JTWRS | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Jordan Sherman | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Ralph Viscomi | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Shell Family Trust | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
John P Gannon Trust | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Troy & Kathleen Miller JTWRS | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Robert Munson & Kathy Munson | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Terry A. Merritt | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Kirk R. Mickelsen | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Brian J. Leonard & Jennifer A. Leonard | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Derek M Guirand | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
James Horosky | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Peter & Laura Burke JTWRS | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Martha J Leiby Rev Trsut 6-14-2005 | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
The Nanni Investment Tust 10/10/2008 | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
B& E Family, LLC | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Tom Sheehan | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Charles R. Bauer | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Charlotte Roehr | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Thomas M. O'Neill | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Dwain L. Owens & Jill A. Owens | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Paul A. Cohen | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Thomas Ryan & Mary Ann Cugini JTWRS | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Ruth A. Lorsung Revocable Trust Dtd. 2-17-2006 | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
IRA Services Trust Company CFBO: Jay Oliphant IRA Account No. IRA544978 | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Patsy and Michael Cluatre Joint Tennants | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Evan Kass SEP FBO Evan Kass | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Charles A. Lundby & Nancy M. Olsen | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Ryan E. Lawrence | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
The Rick & Christine Williams Family Trust | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Phil A. Albrecht Jr. | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Mark Lenhart | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
PENSCO Trust Company LLC Custodian FBO: Robert M. Sherba | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Matthew C. Johnson | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Joel A. Adkisson | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Richard Bacchiocchi IRA FBO IRA Services Trust Company Custodian | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Steven R. Batchelor | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Joseph Guidi | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Joe Don & Jennifer Joyce Irrevocable Trust | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Stephen M. Ford | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
The Elias E. Aupperle Trust | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Brevived, LLC | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Kenneth Harpell | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Scott Clark and Leslie Clark JTWRS | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Raymond D. Saenz III | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Diane Sutch | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Raymond Bills | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Thomas Liberis | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Arthur C. Hoover | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Lombardo Family Trust 11-08-2005 | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Lorenz Finison & Carmen Fields JTWRS | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Gallagher Family Trust | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Paul Arema | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
IRA Services Trust Company CFBO Robin Tanner | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Savvy Capital, LLC | 6,250 | 6,250 | 12,500 | 12,500 | 0 | |||||||||||||||
Gary Metzger (1) | 2,500 | 2,500 | 5,000 | 5,000 | 3,668,043 | |||||||||||||||
Total | 4,336,625 | 4,336,625 | 8,673,250 | 8,673,250 | 3,668,043 |
(1) Gary Metzger is a director of the Ecoark Holdings and shall own 10.2% of Ecoark Holdings common stock before and after the sale of the shares registered for him in this registration statement.
15 |
DETERMINATION OF OFFERING PRICE
The selling securityholders will determine at what price they may sell the shares of common stock offered by this prospectus, and such sales may be made at prevailing market prices, at prices related to the prevailing market price or at privately negotiated prices.
We are registering (i) the shares of common stock issued pursuant to the conversion of certain convertible promissory notes; and (ii) the shares of common stock issuable upon exercise of the warrants, in each case, issued in connection with the Private Offerings to permit the resale of these shares of common stock by the selling securityholders from time to time after the date of this prospectus. We will not receive any of the proceeds from the sale by the selling securityholders of the shares of common stock. We will bear all fees and expenses incident to our obligation to register the shares of common stock.
The selling securityholders may sell all or a portion of the shares of common stock held by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents. If the shares of common stock are sold through underwriters or broker-dealers, the selling securityholders will be responsible for underwriting discounts or commissions or agent’s commissions. The shares of common stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block transactions, pursuant to one or more of the following methods:
● | on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale; | |
● | in the over-the-counter market; | |
● | in transactions other than on these exchanges or systems or in the over-the-counter market; | |
● | through the writing or settlement of options, whether such options are listed on an options exchange or otherwise; | |
● | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; | |
● | block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; | |
● | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; | |
● | an exchange distribution in accordance with the rules of the applicable exchange; | |
● | privately negotiated transactions; | |
● | short sales effected after the date the registration statement of which this prospectus is a part is declared effective by the SEC; | |
● | broker-dealers may agree with a selling securityholder to sell a specified number of such shares at a stipulated price per share; | |
● | a combination of any such methods of sale; and, | |
● | any other method permitted pursuant to applicable law. |
The selling securityholders may also sell shares of common stock under Rule 144 promulgated under the Securities Act, if available, rather than under this prospectus. In addition, the selling securityholders may transfer the shares of common stock by other means not described in this prospectus. If the selling securityholders effect such transactions by selling shares of common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the selling securityholders or commissions from purchasers of the shares of common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved but, except as set forth in a supplement to this prospectus to the extent required, in the case of an agency transaction, will not be in excess of a customary brokerage commission in compliance with FINRA Rule 5110).
In connection with sales of the shares of common stock or otherwise, the selling securityholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the shares of common stock in the course of hedging in positions they assume. The selling securityholders may also sell shares of common stock short and deliver shares of common stock covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The selling securityholders may also loan or pledge shares of common stock to broker-dealers that in turn may sell such shares.
16 |
The selling securityholders may pledge or grant a security interest in some or all of the warrants or shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending, if necessary, the list of selling securityholders to include the pledgee, transferee or other successors in interest as selling securityholders under this prospectus. The selling securityholders also may transfer and donate the shares of common stock in other circumstances as permitted by their respective Subscription Agreement, the warrants and all applicable law, in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
To the extent required by the Securities Act and the rules and regulations thereunder, the selling securityholders and any broker-dealer participating in the distribution of the shares of common stock may be deemed to be “underwriters” within the meaning of the Securities Act. In such event, any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act. Selling securityholders who are deemed to be “underwriters” under the Securities Act (if any) will be subject to the prospectus delivery requirements of the Securities Act and may be subject to certain statutory liabilities of, including but not limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Exchange Act.
Each selling securityholder has informed us that it is not a registered broker-dealer and does not have any written or oral agreement or understanding, directly or indirectly, with any person to engage in a distribution of the common stock. Upon us being notified in writing by a selling securityholder that any material arrangement has been entered into with a broker-dealer for the distribution of common stock, a prospectus supplement, if required, will be distributed, which will set forth the aggregate amount of shares of common stock being distributed and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the selling securityholders and any discounts, commissions or concessions allowed or re-allowed or paid to broker-dealers.
Under the securities laws of some states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the shares of common stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.
Each selling securityholder may sell all, some or none of the shares of common stock registered pursuant to the registration statement of which this prospectus forms a part. However, our shares may never be traded onIf sold under the Over-the-Counter Bulletin Board electronic quotation service or, if traded,registration statement of which this prospectus forms a public market may never materialize. If our common stock is not traded on the Over-the-Counter Bulletin Board electronic quotation service or if a public market for our common stock does not develop, investors may not be able to re-sellpart, the shares of our common stock registered hereunder will be freely tradable in the hands of persons other than our affiliates that they have purchasedacquire such shares.
The selling securityholders and may lose all of their investment.If a market for our common stock develops, our stock price may be volatileIf a market for our common stock develops, we anticipate that the market price of our common stockany other person participating in such distribution will be subject to wide fluctuations in responseapplicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, to several factors, including:
Further, if our sales of any of the shares of common stock is traded onby the Over-the-Counter Bulletin Board electronic quotation service, ourselling securityholders and any other participating person. To the extent applicable, Regulation M may also restrict the ability of any person engaged in the distribution of the shares of common stock priceto engage in market-making activities with respect to the shares of common stock. All of the foregoing may be impacted by factors that are unrelated or disproportionate to our operating performance. These market fluctuations may adversely affect the market pricemarketability of ourthe shares of common stock and the ability of any person or entity to engage in market-making activities with respect to the shares of common stock.If
We will indemnify the selling shareholders sellagainst liabilities, including some liabilities under the Securities Act, in accordance with the applicable registration rights agreements to which they are a large number of shares all at onceparty, or in blocks, the market price of our shares would most likely declineThe selling shareholders are offering 1,900,000 shares of our common stock through this prospectus. Our common stock is presently not traded on any market or securities exchange, but should a market develop, shares sold at a price below the current market price at which the common stock is trading will cause that market price to decline. Moreover, the offer or sale of a large number of shares at any price may cause the market price to fall.
7
This prospectus contains forward-looking statements that involve risks and uncertainties. We use words such as anticipate, believe, plan, expect, future, intend and similar expressions to identify such forward-looking statements. The actual results could differ materially from our forward-looking statements. Our actual results are most likely to differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us described in this Risk Factors section and elsewhere in this prospectus.
We will not receive any proceeds from the sale of common stock under this prospectus. We will, however, receive approximately $21,683 from the selling securityholders if they exercise all of the warrants (assuming, in each case, no adjustments are made to the exercise price or number of shares issuable upon exercise of the warrants), which we expect we would use primarily for working capital purposes. The Company did receive $17,347 from the initial offering to the selling securityholders which it is using for general working capital purposes.
The holders of the warrants may exercise their warrants at any time at their own discretion, if at all, in accordance with the terms thereof until their expiration. As a result, we cannot plan on receiving any proceeds from the exercise of any of the warrants, nor can we plan on any specific uses of any proceeds we may receive beyond the purposes described herein. We have agreed to bear the expense (other than any underwriting discounts or commissions or agent’s commissions) in connection with the registration of the common stock being offered through this prospectushereby by the selling shareholders.
securityholders.
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DeterminationTable of Offering Price
Contents
Our common stock, from April 22, 2016, is quoted on the OTCQB market maintained by the OTC Market Group Inc. under the symbol “EARK”. We filed an application for our common stock to be listed on the NASDAQ Capital Market. Our common stock was quoted on the over the counter market from September 5, 2008 through February 5, 2010 under the symbol MBSV.OB. From February 6, 2010 to April 21, 2016, our common stock has been listed on the over the counter market under the symbol MGLT. Prior to February 8, 2010, there was no active market for our common stock. The $0.02 per share offeringfollowing table sets forth the high and low prices for our common stock for the periods indicated, as reported by the OTCQB. These prices have been retroactively adjusted for the reverse 1-for-250 stock split that occurred on March 18, 2016, in accordance with SAB Topic 4:C.
2016 | HIGH | LOW | ||||||
First Quarter | $ | 25.025 | $ | 8.65 | ||||
Second Quarter | $ | 22.00 | $ | 12.00 | ||||
Third Quarter (through July 25, 2016) | $ | 18.50 | $ | 17.00 |
2015 | HIGH | LOW | ||||||
First Quarter | $ | 18.75 | $ | 6.25 | ||||
Second Quarter | $ | 18.125 | $ | 7.50 | ||||
Third Quarter | $ | 12.50 | $ | 3.75 | ||||
Fourth Quarter | $ | 17.50 | $ | 2.50 |
FISCAL YEAR 2014 | HIGH | LOW | ||||||
First Quarter | $ | 20.00 | $ | 6.75 | ||||
Second Quarter | $ | 17.125 | $ | 6.25 | ||||
Third Quarter | $ | 20.00 | $ | 7.875 | ||||
Fourth Quarter | $ | 18.75 | $ | 3.75 |
Holders
As of July 25, 2016, the last reported sales price ofreported on the OTC Markets Inc. for our common stock was determined arbitrarily by us. There is no relationship whatsoever between this price and our assets, earnings, book value or any other objective criteria of value. We intend to apply to the Over-the-Counter Bulletin Board electronic quotation service for the trading of our common stock upon our becoming a reporting entity under the Securities Exchange Act of 1934 (the “Exchange Act”). If our common stock becomes so traded and a market for the stock develops, the actual price of stock will be determined by prevailing market prices at the time of sale or by private transactions negotiated by the selling shareholders named in this prospectus. The offering price would thus be determined by market factors and the independent decisions of the selling shareholders named in this prospectus.
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Dilution
The common stock to be sold by the selling shareholders is common stock that is currently issued and outstanding. Accordingly, there will be no dilution to our existing shareholders.
Selling Shareholders
The selling shareholders named in this prospectus are offering all of the 1,900,000 shares of common stock offered through this prospectus. The selling shareholders acquired the 1,900,000 shares of common stock offered through this prospectus from us at a price of $0.02$17.00 per share in an offering that was exempt from registration under Regulation S of the Securities Act of 1933, as amended (the “Securities Act”) and completed on March 31, 2008. We will file with the Securities and Exchange Commission prospectus supplements to specify the names of any successors to the selling shareholders specified in this registration statement who are able to use the prospectus included in this registration statement to resell the shares registered by this registration statement.The following table provides, asshare. As of the date of this prospectus, information regardingwe had approximately 625 holders of our common stock. The number of record holders was determined from the records of our transfer agent and does not include beneficial ownershipowners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. The transfer agent of our common stock held by each of the selling shareholders, including:
is Island Stock Transfer, located at 15550 Roosevelt Boulevard, Suite 301, Clearwater, Florida 33760.
Dividends
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Name Of Selling Stockholder | Shares | Total | Total Shares | Percent |
Brandon Antonini | 150,000 | 150,000 | Nil | Nil |
Amber Beierle | 25,000 | 25,000 | Nil | Nil |
Michael Boyd | 50,000 | 50,000 | Nil | Nil |
Beverly Brezer | 50,000 | 50,000 | Nil | Nil |
Wade Butler | 50,000 | 50,000 | Nil | Nil |
Christopher Cameron | 50,000 | 50,000 | Nil | Nil |
Curtis Cameron | 50,000 | 50,000 | Nil | Nil |
Floyd Campbell | 150,000 | 150,000 | Nil | Nil |
Simon Davies | 75,000 | 75,000 | Nil | Nil |
Sam Feldman | 50,000 | 50,000 | Nil | Nil |
Catherine Gauthier | 50,000 | 50,000 | Nil | Nil |
Cecil Horwitz | 150,000 | 150,000 | Nil | Nil |
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Ken Howard | 75,000 | 75,000 | Nil | Nil |
Michael Kordos | 150,000 | 150,000 | Nil | Nil |
Cory Krygier | 50,000 | 50,000 | Nil | Nil |
Jeremy Lee | 50,000 | 50,000 | Nil | Nil |
Craig Lister | 50,000 | 50,000 | Nil | Nil |
Josie Lorgna - Mosqueda | 25,000 | 25,000 | Nil | Nil |
Jonathan Macalino | 150,000 | 150,000 | Nil | Nil |
Matthew MacDonald | 25,000 | 25,000 | Nil | Nil |
Philip Mosqueda | 25,000 | 25,000 | Nil | Nil |
Ralph Platz | 75,000 | 75,000 | Nil | Nil |
Benjamin Prosser | 25,000 | 25,000 | Nil | Nil |
Jacob Prosser | 25,000 | 25,000 | Nil | Nil |
Alyssa Rabin | 50,000 | 50,000 | Nil | Nil |
Stacy Shaikin | 50,000 | 50,000 | Nil | Nil |
Craig Steinberg | 50,000 | 50,000 | Nil | Nil |
Daniel Weiner | 50,000 | 50,000 | Nil | Nil |
Drew Zenith | 75,000 | 75,000 | Nil | Nil |
Total | 1,900,000 | 1,900,000 | Nil | Nil |
Plan of Distribution
The selling shareholders may sell some or all of their common stock in one or more transactions, including block transactions:
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Description of Securities
GeneralOur authorized capital stock consists of 75,000,000 shares of common stock, with a par value of $0.001 per share. As of June 13, 2008, there were 3,400,000 shares of our common stock issued and outstanding held by thirty (30) stockholders of record. There are no preferred shares authorized or issued.
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Equity Compensation Plan Information
The following table sets forth equity compensation plan information as of common stock are notDecember 31, 2015.
Plan Category | Number of securities to be issued upon exercise of outstanding options (a) | Weighted-average exercise price of outstanding options (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||||||||
Equity compensation plans approved by security holders | 659,000 | $ | 2.50 | 4,838,142 | ||||||||
Total | $ |
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the financial statements and related notes included elsewhere in this prospectus. The information contained below may be subject to risk factors. We urge you to review carefully the section of this prospectus entitled “Risk Factors” for a more complete discussion of the risks associated with an investment in our securities. See “Special Note on Forward-Looking Statements.”
We sell the services and products discussed under the section of this prospectus entitled “Business.”
RESULTS OF OPERATIONS
Results of Operations for the Three Months Ended March 31, 2016 and 2015
Revenues
Revenues for the three months ended March 31, 2016 were $1,964 as compared to pre-emptive or subscription or conversion rights,$2,225 for the three months ended March 31, 2015. The 12% decrease was principally due to lower shipments of recycled plastic trash cans by Pioneer Products, offset by sales of a new product, office chairs and there are no redemption or sinking fund provisions applicablea small increase in service revenues. The lower shipments of plastic products were principally due to a difference in the timing of shipments at year-end 2015 versus 2014. Sales of the office chairs introduced in 2016 partially offset the decrease in sales of plastic products. Revenue from services of $757 in 2016 increased 2% from $742 achieved in 2015. Expansion of the 3D mapping, modeling and consulting business along with certain commission income drove the increase in service revenues.
Cost of Revenues and Gross Profit
Cost of revenues for the quarter ended March 31, 2016 was $1,459 as compared to $1,641 for the quarter ended March 31, 2015. The decrease was directly related to the Common Stock. All outstanding sharesdecrease in revenues. The decrease in gross profit from $584 in 2015 to $505 in 2016 was principally a result of common stock are,lower margins on service revenues as Eco3D expanded its mix of projects, some of which were executed at lower margins. Services achieved a gross margin of 70% in 2015 and 63% in 2016, with the decrease partly due to the mix of new projects. Total gross margin for the Company was steady at 26% in both 2016 and 2015. Margins for products decreased from 5% in 2015 to 2% in 2016 due to costs incurred for the introduction of the new products.
Operating Expenses
The Pioneer Products operational activities described above required relatively limited home office support. Therefore, most of the operating expenses below were allocated to the services segment. The services segment includes activities relating to Intelleflex for which the Company has invested considerable resources for support and funding.
Salaries and Salary Related Costs
Salaries for 2016 were $1,020, up 26% from $812 in 2015. The increase was related to a number of individuals who became employees compared with previous contractor status and the sharesexpansion of commonstaff at each operation.
Professional Fees and Consulting
Professional fees and consulting expenses for 2016 of $267 were down 64% from $750 incurred in 2015 as a result of the conversion of contractors to employees and a decrease in consulting expense. The reduction in consulting expense was achieved despite a number of costs incurred associated with the Company becoming a public entity in 2016.
General and Administrative
Other general and administrative expenses in 2016 were $517 down from $590 in 2015, partially due to lower marketing expenditures.
Depreciation and Amortization
Depreciation and amortization expense for 2016 was $75, compared to $416 for 2015. The 82% decrease resulted from certain customer list intangibles becoming fully amortized in September 2015.
Research and Development
Research and development expenses were down slightly from $777 in 2015 to $752 in 2016. The majority of these expenses related to the ZEST initiatives at Intelleflex.
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Interest Expense
Interest expense, net of interest income, for 2016 was $95 as compared to $206 for 2015. The 54% decrease was a result of lower interest accruing on the related party debt in 2016 because of a decrease in interest rates and lower outstanding balances.
Net Loss
Net loss for 2016 was $2,221 as compared to $2,967 in 2015. The $746 decrease in net loss was primarily due to a decrease in total operating expenses of $714 and a decrease in net interest expense of $111, offset by a decrease of $79 in gross profit.
Year Ended December 31, 2015 Compared to the Year Ended December 31, 2014
Magnolia Solar Results of Operations
Our revenues are derived from research and development grants and contracts awarded to the company by government and private sector.
Revenues
Currently we are in an early stage in our development and have recorded $160 of revenue for the year ended December 31, 2015 compared to $218 of revenue for the year ended December 31, 2014 a decrease of $58 or 26.8%. We anticipate emerging from the development stage in fiscal 2017. The revenue recorded is from research and development grants or contracts to develop solar cells using Magnolia’s technology.
Cost of Revenues
Cost of revenues for the year ended December 31, 2015 were $102 as compared to $135 for the year ended December 31, 2014, a decrease of $33 or 24.6%. Cost of revenues was comprised of direct labor, direct travel, materials, and subcontractors for the solar cell development. The decrease in cost of revenues for this period was attributable to reductions in direct labor due to work on some contracts being completed.
Operating Expenses
Indirect and Administrative Labor
Indirect and administrative labor expense for the year ended December 31, 2015 was $160 as compared to $199 for the year ended December 31, 2014, a decrease of $39 or 19.3%. Indirect labor and benefits were comprised of wages for the administrative staff, payroll taxes, health insurance, disability insurance, indirect travel, other administrative expenses, provision for vacation time, and stock offered hereby will be when issued, fullycompensation expense. The decrease in indirect and administrative expenses for this period was primarily attributable to a decrease in indirect labor, benefits and travel costs.
Professional Fees
Professional fees for the year ended December 31, 2015 were $150 as compared to $138 for the year ended December 31, 2014, an increase of $12 or 8.6%. Professional fees were comprised of accounting, business services, public relations, audit, and legal fees. The increase in professional fees for this period was attributable primarily to an increase in legal counsel costs incurred with the Ecoark transaction.
Depreciation and Amortization Expense
Depreciation and amortization expense for the year ended December 31, 2015 was $36 as compared to $36 for the year ended December 31, 2014, representing no increase or decrease. Depreciation and amortization expense was comprised of amortization of the license fee paid for the technology license, amortization of the debt issue, and non-assessable.Share Purchase WarrantsWedepreciation on the property and equipment.
General and Administrative
General and administrative expense for the year ended December 31, 2015 was $37 as compared to $44 for the year ended December 31, 2014, a decrease of $7 or 14.9%. General and administrative expense was comprised of expenses for office lease, computer, office supplies, dues and subscriptions, worker’s compensation, disability insurance, printing, telephone, business meals, repairs and maintenance, public relations, advertising, state taxes, business gifts and other miscellaneous items. The decrease in general and administrative expense for this period was attributable to general costs cuts, offset by bad debts expenses incurred.
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Interest Expense
Interest expense for the year ended December 31, 2015 was $240 as compared to $240 for the year ended December 31, 2014. Interest expense was comprised of interest incurred on outstanding long-term debt.
Net Loss
As a result of the aforesaid, our net loss was $566 for the year ended December 31, 2015, as compared to a loss of $574 for the year ended December 31, 2014, a decrease of $8 or 1.4%.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.
To date we have not issued and do not have outstanding any warrants to purchase shares offinanced our common stock.OptionsWe have not issued and do not have outstanding any options to purchase shares of our common stock.Convertible SecuritiesWe have not issued and do not have outstanding any securities convertible into sharesoperations through government grants, the sale of our common stock or any rights convertible or exchangeable into sharesand the issuance of debt.
At December 31, 2015 and December 31, 2014 we had cash of $46 and $25, respectively, and working capital deficit of $3,026 and $2,767, respectively. The decrease in working capital was due to decrease in accounts receivable and an increase in accrued expenses. The opinion of our common stock.
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Interests of Named Experts and Counsel
No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.John Kinross-Kennedy, C.P.A., our accountant, has audited our financial statements included in this prospectus and registration statement to the extentas of and for the periods set forth in his audit report. John Kinross-Kennedy, C.P.A. has presented his report with respect to our audited financial statements. The report of John Kinross-Kennedy, C.P.A. on the financial statements herein includesyear ended December 31, 2015 contains an explanatory paragraph that states that we have not generated revenues and have an accumulated deficit since inception which raisesregarding substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon raising capital from financing transactions.
Net cash provided by operating activities was $21 for the year ended December 31, 2015, as compared to net cash used in operating activities of $93 for the year ended December 31, 2014. The financial statements doincrease in net cash provided by operating activities was attributable to a decrease in accounts receivable and an increase in accounts payable.
There were no investing activities for the year ended December 31, 2015 or December 31, 2014. There was no cash used in investing activities because we did not add to plant and equipment.
There were no financing activities for the year ended December 31, 2015 or December 31, 2014. There were no capital raising transactions during the reporting period.
Since our inception, we have experienced negative cash flow from operations and expect to experience significant negative cash flow from operations in the future. In addition, we have $2,400 of original issue discount senior secured convertible notes that originally matured on December 31, 2014. On January 29, 2016, the Company entered into an agreement with holders of the notes to extend the maturity to June 30, 2016. Also on January 29, 2016, we entered into a Merger Agreement with Ecoark providing, among other things, for the acquisition of Ecoark by the Company in a share for share exchange pursuant to which it is contemplated that, immediately following the closing, Ecoark shareholders owned approximately 95% of the outstanding shares of the Company. The Company filed a 14A Proxy Statement to hold a shareholder meeting to vote on certain proposals to amend the Articles of Incorporation to increase of the authorized shares of common stock to 100,000,000 shares, to effect the creation of 5,000,000 shares of "blank check" preferred stock, to approve a reverse stock split of the common stock 1 for 250, and to change the name of the corporation to “Ecoark Holdings Inc.” After receiving the approval of the Company’s shareholders, the Merger was completed in March 2016. Under the January 29, 2016 agreement with their holders, the notes were converted to equity after the Merger was completed.
We will need to raise additional funds in the future so that we can expand our operations and repay our indebtedness due under the original issue senior secured notes. Therefore our continuation as a going concern is dependent on our ability to obtain necessary equity funding to continue operations. Financing transactions may include any adjustments that might result from the outcomeissuance of this uncertainty.The O’Neal Law Firm, P.C., our independent legal counsel, has provided an opinion onequity or debt securities, obtaining credit facilities, government grants or other financing mechanisms. However, the validitytrading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock.
The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we may have to curtail our development plans and possibly cease our operations altogether.
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DescriptionTable of Business
Contents
The following management’s discussion and analysis addresses the financial condition and results of operations of Ecoark, Inc. and its consolidated subsidiaries. Consistent with the financial statements included in Section F below, no amounts relating to Magnolia Solar are included.
Ecoark Results of Continuing Operations
Revenues
Net sales for the year ended December 31, 2015 were $7,868 as compared to $6,017 for the year ended December 31, 2014. The 31% increase was related to expanded operations, including a significant increase in service revenues and product sales. Product sales of $5,167 in 2015 increased 18% from the $4,378 achieved in 2014. The increase was principally due to increased sales of Pioneer Products’ plastic products manufactured from recycled and other material. Revenue from services of $2,701 in 2015 increased 65% from the $1,639 recorded in 2014. Expansion of the 3D mapping, modeling and consulting business drove the increase in service revenues as Eco3D increased the number of employees and projects completed for customers.
Cost of Revenues and Gross Profit
Cost of revenues for the year ended December 31, 2015 was $6,138 as compared to $5,024 for the year ended December 31, 2014. The increase was directly related to the increase in revenues. The improvement in gross profit from $993 in 2014 to $1,730 was principally achieved as a result of higher margin service revenues. Services achieved a gross margin of 56% in both 2015 and 2014. The increase in those revenues resulted in an increase in total gross margin from 17% in 2014 to 22% in 2015. Margins for products were 4% or less.
Operating Expenses
The Pioneer Products operational activities described above required relatively limited home office support. Therefore, most of the operating expenses below were allocated to the services segment. The services segment includes activities relating to Intelleflex for which the Company has invested considerable resources for support and funding.
Salaries and Salary Related Costs
Salaries for the year ended December 31, 2015 were $3,791, up 34% from $2,836 for the year ended December 31, 2014. The increase was related to the expanded operations referred to above regarding the increase in sales and an increase in stock based compensation. In addition, a number of individuals became employees compared with previous contractor status.
Professional Fees and Consulting
Professional fees and consulting expenses for the year ended December 31, 2015 of $3,651, were down 31% from $5,311 incurred for the year ended December 31, 2014 as a result of the conversion of contractors to employees and a decrease in consulting expense.
General and Administrative
Other general and administrative expenses for the year ended December 31, 2015 were $1,636 in line with $1,630 for the year ended December 31, 2014.
Depreciation and Amortization
Depreciation and amortization expense for the year ended December 31, 2015 was $1,226, compared to $1,708 for the year ended December 31, 2014. The 28% decrease resulted from certain customer list intangibles relating to Pioneer Products becoming fully amortized in September 2015 while 2014 included a full year of amortization.
Interest Expense
Interest expense, net of interest income, for the year ended December 31, 2015 was $785 as compared to $1,270 for the year ended December 31, 2014. The 38% decrease was a result of lower interest accruing on the related party debt in 2015 because of a decrease in interest rates.
Net Loss
Net loss for the year ended December 31, 2015 was $10,473 as compared to $14,264 for the year ended December 31, 2014. The $3,791 decrease in net loss was primarily from an increase of $737 in gross profit, a decrease in total operating expenses of $1,120, a decrease in interest expense of $485 and the $1,449 loss from discontinued operations in 2014 that did not exist in 2015.
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In General
November 2014, Ecoark sold its subsidiary, SA Concepts. In the sale, Ecoark sold the net assets in exchange for 2,000,000 Class A shares of stock. The value of the treasury stock in this transaction of $616 was equal to the value of the net assets of SA Concepts sold. Therefore, there was no gain or loss attributable to the disposal of this subsidiary. The operations of SA Concepts are reflected as loss from discontinued operations in the consolidated statements of operations.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.
To date we have financed our operations through sales of common stock and the issuance of debt.
At December 31, 2015 and December 31, 2014 we had cash of $1,962 and $2,220, respectively, and working capital deficit of $2,153 and $6,636, respectively. The increase in working capital was principally due to the decrease in the current portion of long-term debt-related parties resulting from the conversion of debt to equity. Ecoark is dependent upon raising capital from financing transactions.
Net cash used by operating activities was $7,671 for the year ended December 31, 2015, as compared to net cash used in operating activities of $8,012 for the year ended December 31, 2014. Cash used in operating activities is related to Ecoark’s net loss partially offset by non-cash expenses.
Net cash provided in financing activities in 2015 was $7,388, including $8,461 from the issuance of common stock less net repayments of long-term debt of $1,073. In 2014, $5,143 was received from the sale of common stock and $5,034 from net issuances of long-term debt.
Since our inception, Ecoark has experienced negative cash flow from operations and expects to experience significant negative cash flow from operations in the future. It will need to raise additional funds in the future so that it can expand its operations and repay its indebtedness. The inability to obtain additional capital may restrict its ability to grow and may reduce its ability to continue to conduct business operations.
At December 31, 2015 maturities of Ecoark’s long-term debt-related parties and long-term debt of $4,504 are due in 2016 and thus are included in current liabilities.
From March 28, 2016 to April 28, 2016, we sold 4,336,625 shares to 214 accredited investors through the Private Offering, which raised a total of $17,347 which it is using to retire debt, make capital investments and for general working capital purposes.
Off-Balance Sheet Arrangements
As of December 31, 2015, we had no off-balance sheet arrangements.
Recently Issued Accounting Standards
For information regarding the impact of recently issued accounting standards, see Note 1 to our financial statements for the year ended December 31, 2015, included in this prospectus.
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Ecoark Holdings, Inc.
Ecoark Holdings, Inc. (“Ecoark Holdings”) is a Nevada corporation incorporated on November 19, 2007. Ecoark Holdings is an innovative, emerging growth company focused on the development and deployment of business solutions and products to the retail, agriculture, food service, commercial real estate and architecture, engineering and construction end markets. Ecoark Holdings has assembled a team and portfolio of proprietary, patented technologies to address the waste in operations, logistics and supply chain. Ecoark Holdings accomplishes this through two wholly-owned operating subsidiaries, Ecoark, Inc. (“Ecoark”) and Magnolia Solar, Inc. (“Magnolia Solar”). Further, Ecoark has three operating entities: Intelleflex, Eco3D and Pioneer Products.
Our principal executive offices are located at 3333 Pinnacle Hills Parkway, Suite 220, Rogers, Arkansas 72758, and our telephone number is (479) 259-2979. Our website address is http://ecoarkusa.com/. Our website and the information contained on, or that can be accessed through, our website will not be deemed to be incorporated by reference in, and are not considered part of, this prospectus. You should not rely on any such information in making your decision to purchase our common stock.
On December 31, 2009, Ecoark Holdings, originally known as Mobilis Relocation Services, Inc. (“Mobilis”), entered into an Agreement of Merger and Plan of Reorganization with Magnolia Solar, Inc., a Delaware corporation and Magnolia Solar Acquisition Corp. Upon closing of the transaction, under the Agreement of Merger and Plan of Reorganization, Magnolia Solar, Inc. became a wholly-owned subsidiary of Mobilis. Thereafter, Mobilis changed its name to Magnolia Solar Corporation. The name was later changed to Ecoark Holdings, Inc. as described below.
Acquisition of Ecoark, Inc.
Prior to the acquisition of Ecoark, Ecoark Holdings’ operations were through Magnolia Solar which operations are described below.
On January 29, 2016, Ecoark Holdings entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Ecoark. Pursuant to the Merger Agreement, Ecoark merged with and into a subsidiary of Ecoark Holdings (the “Merger”). Ecoark and Magnolia Solar, Inc. continue as the subsidiaries and businesses of Ecoark Holdings.
Prior to the completion of the Merger on March 24, 2016, in a special shareholder meeting on March 18, 2016, the following actions to amend the Articles of Incorporation were undertaken by Ecoark Holdings to:
1. | effect a change in the name of our company from Magnolia Solar Corporation to Ecoark Holdings Inc.; |
2. | effect a reverse stock split of our common stock by a ratio of one-for-two hundred fifty shares (1 for 250); |
3. | effect an increase in the number of our authorized shares of common stock, par value $0.001 per share, to 100,000,000; and |
4. | effect the creation of 5,000,000 shares of “blank check” preferred stock. |
After giving effect to the Merger and the issuance of common stock to the shareholders of Ecoark, the shareholders of Ecoark received 95.34% of the shares of Ecoark Holding’s common stock (27,705,941 shares out of 29,056,937 shares).
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Business Model
Ecoark Holdings
Ecoark Holdings operates through four subsidiaries:
Intelleflex®
Intelleflex's ZEST Data Services is a secure, multi-tenant cloud-based data collection platform for aggregating and real-time permission-based sharing and analysis of information. ZEST Fresh, a fresh food management solution that utilizes the ZEST Data Service platform, focuses on three primary value propositions – consistent food quality, reduced waste, and improved food safety. ZEST Fresh empowers workers with real-time analytic tools and alerts that improve efficiency while driving quality consistency through best practice adherence on every pallet of delivered fresh food. ZEST Delivery provides real-time monitoring and control for prepared food delivery containers, helping delivery and dispatch personnel ensure the quality and safety of delivered food.
The ZEST Fresh value proposition is to reduce fresh food loss by improving quality consistency. In the US grocery market, it is reported that roughly 30% of post-harvest fresh food is lost or wasted, and therefore not consumed. Both fresh food producers and retailers bear significant expense when harvested food is either rejected due to early spoilage, or reduced in value due to early ripening. Intelleflex believes that a significant portion of this waste can be attributed to inconsistent quality or freshness based on variable post-harvest processing and handling. Fresh food producers and retailers manage food distribution and inventory based on the “Company”)harvest date, with the assumption that all food harvested on the same day will have the same freshness. However, studies have shown that post-harvest handling can have a significant effect on the actual remaining freshness, and if not properly accounted for, can result in food loss or spoilage ahead of expectations. ZEST Fresh empowers fresh food producers and retailers to significantly reduce the post-harvest loss by providing real time guidance to process adherence, intelligent distribution and best handling practices, thereby providing significant savings to fresh food producers and retailers.
ZEST Fresh is offered to fresh food producers and retailers with pricing based on the number of pallets managed by ZEST, typically from the field harvest through retail delivery. The ZEST service includes a re-usable wireless sensor device that travels with the pallet of fresh food from the field through retail delivery, continuously collecting product condition data. The collected pallet product data is analyzed in real time by the ZEST Fresh cloud application, with the fresh food producers and retailers accessing data through ZEST web and mobile applications. ZEST Fresh provides workers with real time feedback on the current handling or processing of each pallet, empowering best practice adherence to achieve maximum freshness. ZEST Fresh also provides real time updates as to actual product freshness for each pallet, enabling intelligent routing and inventory management of each pallet in a manner that ensures optimum delivered freshness.
ZEST Delivery manages prepared food delivery from the restaurant through to the customer. ZEST Delivery manages the delivery container environment, both monitoring and controlling the product condition. The value of ZEST Delivery is to manage prepared meals in an ideal state for consumption, while accommodating extended pre-staging or delivery times. Extended pre-staging times are associated with “instant delivery” services of prepared meals, where the meals are often pre-staged in a delivery area ahead of demand. While pre-staging enables fast demand response time, it can result in prepared meals being staged for extended periods. ZEST Delivery monitors and controls the delivery container environment to preserve the prepared meal in ideal, ready to consume condition. ZEST Delivery also provides the dispatcher with real time remote visibility to the condition of available meals, and confirming quality prior to dispatch. ZEST Delivery provides automated, real time visibility for a very distributed fleet of drivers, reflecting prepared meal food safety, quality and availability. ZEST Delivery is offered to meal delivery companies based on the quantity of delivery containers and frequency of use.
Eco3D™
Eco3d is a services based company that utilizes LiDAR laser scanning technology from to capture existing conditions from natural or man-made structures by creating a 3d data point cloud. These point clouds represent highly accurate dimensional data clearly identifying the X, Y, and Z location from the scanner that emitted millions of points of light from a single position. Eco3d then scans the same subject area from different positions to provide even more 3d data. The raw data is registered/meshed together to create a federated data set that is then used to create 2d deliverables or 3d models.
This process literally represents the fastest and most accurate form of non-contact 3d measurement known to man-kind. The value proposition that Eco3d provides it utilizing this technology to ultimately save money on labor and materials expense as it relates to project costs. Secondary, but significant additional propositions include measuring at a distance to maintain the safety of the workforce; helping QA/QC the structure for overall asset management over the life of the project; providing meta-data to be used in the maintenance of the structure; providing virtual design validation; and communicating the existing conditions to allow for prototype solutions.
Eco3d provides this measuring service throughout North America to any client who wants to improve their short term and long term operational efficiency. The primary markets are construction, manufacturing, real estate, retail, oil/gas, energy, high purity, and healthcare. All of these industries are at their infancy of utilizing this technology which also makes Eco3d, as the largest provider in America, their consultant on the integration of this new technology and proprietary processes. The revenue sources from these existing and target industries represent trillion dollar plus market opportunity. Furthermore, this technology will form the basis for the upcoming democratization of augmented reality and virtual reality. The opportunities for integration know no boundaries geographically, politically, or economically. As human beings we live in a 3 dimensional world and this is the fastest, least expensive, form or digitizing/computerizing technology.
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Pioneer Products
Pioneer Products began by creating new consumer products using plastic reclaimed from post-consumer and retailer’s waste streams. One of these products is Pioneer Products’ “close looped” 45-gallon trash can. Pioneer Products generates revenue from the sale of products such as plastic trash cans to 3,700 retail stores, including the largest retailers in the continental U.S. Pioneer Products’ competitors include large consumer products companies such as Rubbermaid and Hefty. A new product, office chairs, was incorporatedintroduced in Nevada2016.
Building on November 19, 2007,a platform of proven retail success, Pioneer Products now leverages its solidified reputation and strategic network by acting as a broker for other products and companies that fit into its brand portfolio. Pioneer owns direct vendor relationships and vendor numbers with some of the largest retailers in the U.S. This vendor number facilitates introduction of a new product to a retailer. Pioneer Products recently announced a new strategic alliance with a missionlarge distributor of becomingfamily brands that strengthens its platform. Additionally, Pioneer’s offerings enable Ecoark to play a leading resourcekey role in supporting and making good on some of the world’s largest retailer’s goals of retail-level sustainability: reduction of waste within its supply chain and operations.
On May 3, 2016, Sable Polymer Solutions, LLC was acquired by Ecoark Holdings and Pioneer Products for an individual or family’s relocation / moving needs.2,000,000 shares of Ecoark Holdings common stock. Sable Polymer Solutions, LLC is a wholly-owned subsidiary of Pioneer Products. Sable Polymer Solutions specializes in the sale, purchase and processing of quality post-consumer and post-industrial plastic materials. It aimsprovides services to offer a high valuevariety of suppliers and customers throughout the plastics processing industry, from small extruders, molders and scrap collectors to multinational corporations. It has a reputation of consistent quality and service – a tailored and complete relocation report that combines a vast array of current information, contacts, links and other information regarding all aspects of a move, at a low cost. It will initially begin by offering a purely online presence, and will fill a gap in the market forplace today.
Magnolia Solar Inc.
Magnolia Solar, Inc. is principally engaged in the following reasons.
development and commercialization of its nanotechnology-based, high-efficiency, thin-film technology that can be deposited on a variety of substrates, including glass and flexible structures. Magnolia Solar believes that this technology has the potential to capture a larger part of the solar spectrum to produce high-efficiency solar cells, and incorporates a unique nanostructure-based antireflection coating technology to possibly further increase the solar cell's performance. If these goals are met, there is the potential of significantly reducing the cost per watt. Since its inception, Magnolia Solar, Inc. has not generated material revenues or earnings as a result of its activities.
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Description of Magnolia Solar, Inc.
Magnolia Solar Inc.’s (“Magnolia Solar”) mission is to commercialize its nanotechnology-based, high efficiency, thin film solar cell technology that can be deposited on glass and other flexible substrates to convert sun’s energy to electricity. This photovoltaic (PV) technology has the ability to capture a larger part of the solar spectrum to produce high efficiency solar cells, and incorporates a unique nanostructure-based antireflection coating technology to further increase the solar cell’s efficiency thereby reducing the cost per watt.
Magnolia Solar has been issued five patents. In addition, Magnolia Solar has filed several patents to protect intellectual property and are adding key technical personnel to validate and commercialize these solar cell technologies. The goal is to increase our solar cells’ efficiency from the present thin film solar cell efficiency of about 11%-13% to those rivaling efficiencies of crystalline photovoltaic cells in a | ||
In addition to these developmental activities, Magnolia Solar also benefits from the critical technologies being developed by Magnolia Optical Technologies, Inc. (“Magnolia Optical”), a company controlled by two executive officers Ashok Sood and Yash Puri. Magnolia Optical has been at the forefront of pioneering the development of thin film, optical, and advanced solar cell technologies for high value services are costlyefficiency solar cells using nano-materials and today’s online offerings are really just simple conduits for other services. It is the goal of Mobilistechnologies to combine the best featuresuse Ultraviolet, Visible and Infrared part of the above approacheselectromagnetic spectrum for imaging sensors and provide consumers withsolar cell applications for Defense and Terrestrial Application. Magnolia Optical Technologies, Inc., a bestDelaware Corporation, has been in business since May 2000 and is a government-approved contractor for advanced technology developments. Magnolia Optical has, to date, received over $13 million of breed solution – not only with the most information, but also with highly detailed and relevant information. Because the process will be automated and online, this can be provided at a fraction of the cost of current high value offerings.This service will appeal to consumers for several reasons:
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While appearing to be a “relocation service”, navigating the Ace website essentially brings the reader to a moving estimate form, shown below.
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“Founded in 1984, we have continually sought to develop the advantages of merging real estate and relocation services. Our experienced team of Personal Relocation Counselors…” and “one of the most respected and fastest-growing relocation companies in the industry. Our services are backed by an extensive network of more than 8,600 qualified Windermere real estate brokers and associates.” “We can provide coordination and support for your move in many areas, including:
Relocation counselingLocal destination information includingschoolscommunitycost of living comparisonsand more!Nationwide home sale assistanceHome search at destination.”
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Magnolia Solar currently licenses core technology under development from Magnolia Optical. Under the license, Magnolia Solar has been granted an exclusive, fully paid, royalty free, worldwide license to use the intellectual property of Magnolia Optical relating to the design and fabrication of thin-film solar photovoltaic solar cells for the manufacture and sale of thin-film photovoltaic solar cell products and services. In consideration for the license grant, Magnolia Optical shareholders received, after giving effect to the Reverse Merger and Forward Split, 28,520 shares of common stock. The license has an initial term of ten years ending April 30, 2018 and shall automatically continue in effect thereafter unless terminated by either party. The license may be terminated for cause by either party.
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Technology
Magnolia Solar has developed thin-film photovoltaic technology that includes the use of nanotechnology-based components to substantially enhance solar cell efficiency. This technology utilizes higher absorption of the solar spectrum to produce high-efficiency solar cells. The goal is important to distinguish between attemptingincrease solar cell efficiency while using lower cost processes to minimize future production costs, with a goal of reaching less than one dollar per watt. Magnolia Solar plans to use low-cost substrates for solar cell fabrication that are substantially cheaper than conventional silicon substrates. Magnolia Solar plans to use either glass or polymer-based flexible substrates that are low cost and are available in large sizes, thereby bringing down the cost of thin film solar cells compared to those with silicon substrates.
Magnolia Solar has filed a series of U.S. utility and provisional patent applications. The utility patent applications claim the benefits of previously filed provisional applications. The utility and provisional patent applications filed over the past year detail a number of photovoltaic solar cell device designs and methods of manufacturing. The technologies related to these patent filings address the fundamental performance limitations in existing thin-film solar cells. The engineering employed in patent-pending technology is designed to increase the photovoltaic operating voltage while capturing a larger part of the solar spectrum, and the unique nanostructure-based optical coatings minimize reflection losses which enhances the light trapping within the photovoltaic devices. These technologies result in higher solar electric conversion efficiency by increasing both the voltage and current output of thin-film solar cells.
Government funding of some of research and development efforts imposed certain restrictions on the ability to commercialize results and could grant commercialization rights to the government. In some funding awards, the government is entitled to intellectual property rights arising from the related research. Such rights include a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced each subject invention developed under an award throughout the world by or on behalf of the government. Other rights include the right to require us to grant a license to the developed technology or products to a third party or, in some cases, if Magnolia Solar refuses, the government may grant the license itself, if the government determines that action is necessary because Magnolia Solar fails to achieve practical application of the technology, because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations, or to give the United States industry preference. Accepting government funding can also require that manufacturing of products developed with federal funding be conducted in the United States.
Industry Overview and Market Opportunity
Solar electric power or photovoltaic (PV) technology is the conversion of sunlight directly into electricity. The solar cells available today use semiconducting materials (similar to those used in computer chips and flat panel displays) such as silicon. These cells are the basic building blocks of complete systems. To provide useful amounts of power, the cells are wired together in varying numbers to create solar modules (also called solar panels).
A typical rooftop residential system may have one or two dozen modules. PV converts sunlight into electricity, with no moving parts, consuming no fuel, and creating no pollution. It is a distributed energy resource that can improve grid reliability, lower distribution and transmission costs, and be sited at the point of use with minimal or no environmental impact. In 2012, the worldwide solar PV module production was slightly below 30 GW. About 85% of these are made from silicon.
Magnolia Solar Cell and Anti-Reflection Coating Approach
Energetic radiation from the sun, reaching the Earth’s surface, includes ultra-violet, infrared and visible light. Our thin film solar cell design is being designed to enhance absorption in the UV spectrum and will be able to provide meaningful, completeelectricity more efficiently in hazy weather and independent information regarding moving / relocating versus an attempt to provide a service in a direct fashion. Thisvery hot days using IR energy. Magnolia Solar is where the “relocation” industry seems to be – virtually all sites appear oriented toward some form of service provision rather than an effort to enable consumers. While it difficult to generalize using a limited number of examples, extensive research by Mobilis has concluded that:
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Optical reflection losses limit the performance of a wide variety of photonic and photovoltaic devices. Magnolia Solar has demonstrated nanostructured optical coatings that can reduce reflection losses and enhance the performance of solar cells. Nanostructured optical coatings can be applied to the ConsumerThere are many benefits that Mobilis will offertop surface of semiconductor solar cells to consumers versus current offerings:
The basic underlying theory is that many consumers do not necessarily want to be pigeon-holed into particular service offerings by today’s relocation specialists – many simply desire a source of objective and extensive information.Examples of ContentThere are many elements involved in a major individual or family relocation and Mobilis intends to provide information of as many of these elements as possible. Summarized below are some representative areas.
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Revenue SourcesManagement of Mobilis believes that – in terms of online offerings – the relocation business offers a multitude of revenue opportunities, including:
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Marketing DetailsThe principal target market for Mobilis will be consumers and their families intending to engage in a major relocation. Although it is envisioned that this will normally be from one city to another, the service can also apply to those remaining in the same locale. It will be important to conduct a two-pronged approach to marketing - (1) to drive consumers / customers to the website, and (2) to establish relationships with service providers / vendors / advertisers. To drive consumers to the website:
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Light trapping can dramatically improve solar cell performance by increasing the optical path length of photons within the thin film absorber layers. To further enhance the performance of the art “search” strategies (i.e. keyword-based advertising,thin film solar cell, the bottom contact should also reflect unabsorbed light back into the CIGS thin film solar cell. Internal reflectors and major search engines).
To establish relationships with service providers:
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Magnolia Solar is developing next generation nanostructure based CIGS thin film solar cells. Our cell design takes advantage of quantum structures such as quantum dots to indirectly gathering informationenhance the solar cell efficiency beyond what is achievable today in CIGS thin film solar cells. Conventional solar cell modules are both heavy and rigid, typically employing fragile silicon wafers and thick panes of protective glass. While these panels are suitable for fixed installations on vendors, Mobilis willrooftops and fields, flexible photovoltaic modules can provide a mobile source of electrical power for a wide variety of emerging applications in both terrestrial and space environments. Magnolia Solar is developing flexible solar cell technologies for mobile and portable power applications. The goal is to demonstrate solar cell efficiency in flexible CIGS greater than 20 percent.
Intellectual Property
Success depends, in part, on the ability to maintain and protect proprietary technology and to conduct emailbusiness without infringing on the proprietary rights of others. Magnolia Solar relies primarily on a combination of patents and other direct marketing campaigns to them.
Patent No. | Title | |
8,865,506 | Roll-to-roll solution process method for fabricating CIGS solar cells and system for the same | |
8,895,838 | Multijunction solar cell employing extended heterojunction and step graded antireflection structures and methods for constructing the same | |
8,921,687 | High efficiency quantum well waveguide solar cells and methods for constructing the same | |
8,969,711 | Solar cell employing nanocrystalline superlattice material and amorphous structure and method of constructing the same | |
8,981,207 | High efficiency quantum dot sensitized thin film solar cell with absorber layer |
Remaining patent applications and any future patent applications might not result in a patent being issued with the scope of the claims Magnolia Solar seeks, or at all, and any patents Magnolia Solar may receive or have received may be challenged, invalidated, or declared unenforceable.
With respect to proprietary know-how that is not patentable and processes for which patents are difficult to enforce, Magnolia Solar relies on, among other things, trade secret protection and confidentiality agreements to safeguard our interests. Magnolia Solar believes that many elements of the PV technology involve proprietary know-how, technology, or data that are not covered by patents or patent applications, including technical processes, equipment designs, algorithms, and procedures. Magnolia Solar has taken security measures to protect these elements. All research and development personnel have entered into confidentiality and proprietary information agreements with us. Magnolia Solar also requires business partners to enter into confidentiality agreements before Magnolia Solar discloses any sensitive aspects of our technology or business plans.
Magnolia Solar has not been subject to any material intellectual property claims.
Competition
Magnolia Solar is currently in the development stage and does not sell a finished product. Since the end product will provide an energy source to convert the renewable solar energy to electricity, Magnolia Solar will face competition from all forms of renewable energy technologies, including wind, hydropower, geothermal, biomass, and tidal technologies, as well as from other approaches to convert sun light to electricity. There is intense competition in the renewable energy market, specifically in the solar photovoltaic sector. There are already many established companies that sell solar cells and modules. During 2015, Magnolia Solar estimates that there were several hundred manufacturers of solar cells and modules with aggregate installed capacity exceeding global demand. This had the result of a coupon / discountsignificant drop in the prices of solar modules throughout the year. One of the principal drivers of competition is price per watt, which is a function of the underlying technology and production capacity. In addition, some sovereign nations actively support competitors located in those countries. This allows competitors from those countries to Mobilissometimes price finished products below their costs. While some countries are taking steps to offset these subsidies by imposing tariffs on imports, the global competition remains very intense. Success in this highly competitive environment will depend on attaining high efficiencies at low costs, without the use of sustained government subsidies.
Customers
Magnolia Solar is still in the development stage and does not presently have any customers. Selected vendors willMagnolia Solar has used samples of anti-reflection coatings for evaluation. Magnolia Solar continues to pursue establishing relationships with various companies and explore collaborations with them. As Magnolia Solar exits the development stage, which is expected to occur in 2016, and commence the production of solar cells and/or anti-reflective coatings, Magnolia Solar expects to target federal civilian and military agencies and commercial customers including large corporations, non-governmental organizations, universities and solar powered electric generating stations.
Raw Materials
Magnolia Solar is developing high efficiency solar cells for defense and commercial applications. Under the Air Force Small Business Innovative Research (SBIR) Programs it has demonstrated thin film flexible solar cells using GaAs (Gallium Arsenide) based technology with very high efficiencies. Magnolia Solar is also developing nanostructured optical coating technology to improve the solar cell performance. The raw materials for this effort are glass, quartz, silicon wafers and nitrogen gas. The raw materials for growth and fabrication of these solar cells and the nanostructured optical coatings are also commonly used in the semiconductor industry and there are several suppliers of these materials and gases in the United States and overseas.
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Environmental, Health and Safety Regulations
Solar Energy Industry
Magnolia Solar believes that economic and national security issues, technological advances, environmental regulations seeking to limit emissions by fossil fuel, air pollution regulations restricting the release of greenhouse gasses, aging electricity transmission infrastructure and depletion and limited supply of fossil fuels, has made reliance on traditional sources of fuel for generating electricity less attractive. Government policies, in the form of both regulation and incentives, have accelerated the adoption of solar technologies by businesses and consumers. For example, in the U.S., California now requires that 33% of the retail demand for electricity provided by utilities must be givenprocured from renewable energy sources by 2020.
Government Subsidies and Incentives
Various subsidies and tax incentive programs exist at the opportunityfederal and state level to advertiseencourage the adoption of solar power including capital cost rebates, performance-based incentives, feed-in tariffs, tax credits and net metering. Capital cost rebates provide funds to customers based on the website.
Despite the benefits of solar power, there are also certain risks and challenges faced by solar power. Solar power is heavily dependent on government subsidies to promote acceptance by mass markets. Magnolia Solar believes that the near-term growth in the solar energy industry depends significantly on the availability and size of these government subsidies and on the ability of the industry to reduce the cost of generating solar electricity. The market for solar energy products is, and will continue to be, heavily dependent on public policies that support growth of solar energy. There can be no assurances that such policies will continue. Decrease in the level of rebates, incentives or other arrangementsgovernmental support for solar energy would have an adverse effect on the ability to sell products.
Description of Ecoark
Sales and Marketing
We sell our products and services through direct sales efforts and indirectly through distributors and resellers. Virtually all of our sales to-date have been derived from our direct sales efforts. However, we continue our efforts to establish a network of indirect sales channels.
Research and Development
We have devoted a substantial amount of our resources to software and hardware development activities in recent years. Total research and development expenses for the years ended December 31, 2015 and 2014 were $1,114 and $1,053, respectively, and $752 in the first quarter of 2016. We incurred no capitalized software development costs in the years ended December 31, 2015 and 2014 nor in 2016 to date.
Competition
The market for cloud-based, real-time supply chain analytic solutions is rapidly evolving with local providersnew competitors with competing technologies, including companies that have greater resources than Ecoark. Some of these companies have brand recognition, established relationships with retailers, and own the manufacturing process. There are currently hundreds of sustainability programs available in the market. These programs are offered through retailers, manufacturers, and service providers. Ecoark believes that, analyzing the competitive factors affecting the market for its solutions, its products compete favorably by offering an integrated supply chain solution, with other companies offering real-time supply chain analytic solutions.
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Intellectual Property
Ecoark and its subsidiaries have had 62 patents issued by the United States Patent and Trademark Office, with an additional 17 patent applications currently pending.
Employees
We had 97 full-time employees as of July 25, 2016, a substantial majority of whom are non-management personnel. None of our employees are represented by a labor union. We have not experienced any work stoppages and believe that we have satisfactory employee relations.
Government Regulation
The Company is subject to laws and regulations affecting its operations in a number of areas. These U.S. and foreign laws and regulations affect the Company’s activities including, but not limited to, in areas of labor, advertising, digital content, consumer protection, real estate, billing, e- commerce, promotions, quality of services, having a weaktelecommunications, wireless communications and media, television, intellectual property ownership and infringement, tax, import and export requirements, anti-corruption, foreign exchange controls and cash repatriation restrictions, data privacy requirements, anti-competition, environmental, health and safety.
By way of example, laws and regulations related to wireless communications in the many jurisdictions in which the Company operates are extensive and subject to change. Such changes could include, among others, restrictions on the production, manufacture, distribution and use of devices. These devices are also subject to certification and regulation by governmental and standardization bodies. These certification processes are extensive and time consuming, and could result in additional testing requirements, product modifications, or non-existent web presence.
Depending on funding, Mobilis may engage a competent Internet marketing individual / firm to assist
Compliance with these efforts.EmployeesWe havelaws, regulations and similar requirements may be onerous and expensive, and they may be inconsistent from jurisdiction to jurisdiction, further increasing the cost of compliance and doing business. Any such costs, which may rise in the future as a result of changes in these laws and regulations or in their interpretation, could individually or in the aggregate make the Company’s products and services less attractive to the Company’s customers, delay the introduction of new products in one or more regions, or cause the Company to change or limit its business practices. The Company has implemented policies and procedures designed to ensure compliance with applicable laws and regulations, but there can be no assurance that the Company’s employees, contractors, or agents will not violate such laws and regulations or the Company’s policies and procedures.
Magnolia Solar leases its Woburn, Massachusetts headquarters. Ecoark does not own any properties. It currently leases office and production space at the following locations: Rogers, Arkansas; Phoenix, Arizona; Salt Lake City, Utah; Flowery Branch, Georgia; Albany, New York and San Jose, California. The current property leases are considered adequate for its operations.
Ecoark Holdings, Ecoark and Magnolia Solar, Inc. are not parties to any lawsuit or administrative proceeding as of the date hereof. Its management is not aware of any lawsuits or administrative proceedings that are threatened or anticipated, and we are not considering the institution or prosecution of any legal proceeding as of the date hereof.
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Directors and Executive Officers
The following table sets forth the name, age and position of each of our directors and executive officers as of July 25, 2016.
Name | Age | Position | Year First Elected Director | |||
Directors | ||||||
Randy May | 52 | Chief Executive Officer and Chairman of the Board | 2016 | |||
Yash Puri | 68 | Chief Financial Officer and Director | 2009 | |||
Greg Landis | 54 | Secretary and Director | 2016 | |||
Gary Metzger | 64 | Director | 2016 | |||
John P. Cahill | 57 | Director | 2016 | |||
Terrence D. Matthews | 57 | Director | 2016 | |||
Charles Rateliff | 63 | Director | 2016 |
The following includes a brief biography for each of our directors and executive officers, with each director biography including information regarding the experiences, qualifications, attributes or skills that caused our Board of Directors to determine that each member of our Board of Directors should serve as a director as of the date of this prospectusprospectus. There are no family relationships among any of our directors or executive officers.
Directors
Randy S. May, Chief Executive Officer and Chairman of the Board
Ecoark, Inc. was incorporated on November 28, 2011. Since then, Randy May has served as CEO and Chairman of the Board of Ecoark, Inc. As CEO, Randy leads a strong management team that is working to deliver Ecoark’s mission of sustainable solutions through its subsidiaries and strategic partners. Under his leadership, Ecoark has completed three strategic acquisitions since 2012. Randy is a 25-year retail and supply-chain veteran with extensive experience in marketing, operational and executive roles.
Prior to Ecoark, Randy held a number of roles with Wal-Mart, the world's largest retailer based in Bentonville, Arkansas. From 1998-2004 Randy served as Divisional Manager for half the United States for one of such company’s specialty divisions. There, he was responsible for all aspects of strategic planning, finance, and operations for more than 1800 stores. He had complete P&L responsibility for more than $4 billion dollars of sales at the time. Under Randy’s leadership, the business grew sales and market share in a strong competitive market. As founder of Ecoark and Ecoark’s primary innovator, it is essential to have Mr. May on the Board of Directors.
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Dr. Yash R. Puri, Chief Financial Officer and Director
Dr. Yash R. Puri was appointed our Executive Vice President, Chief Financial Officer and as a Director on December 31, 2009. He brings many years of photovoltaic technology and applications experience both in the private sector and in academia. Dr. Puri brings experience in startup environment and growth management to the Magnolia team.
Previously from 1997 until 1999 Dr. Puri was VP of Finance for GT Equipment Technologies, Inc., (presently known as GT Advanced Technologies, Inc., NASDAQ: GTAT), equipment manufacturer serving the semiconductor and the photovoltaic industries. He helped this high technology startup, formed in 1994, to grow to revenue of about $20 million. The company won many rewards and much recognition; it was a New England finalist in the Ernst & Young Entrepreneur of the Year award. In this position, he was actively involved in running a high-technology business, and he successfully negotiated a $3.5 million line of credit with a major bank, established an audit relationship with one of the big-five accounting firms, established a foreign sales corporation, implemented a R&D credit program to reduce tax liabilities, and established company-wide management software to integrate manufacturing and financial operations. Near the end of his term there, he also successfully negotiated the company’s first subordinated debt issue.
Until recently, Dr. Puri was also a Professor of Finance and Chairman of the Finance Department at the University of Massachusetts Lowell. Dr. Puri was Principal Investigator of a photovoltaic commercialization project as well as several other thangrants, and has been a director of a technology commercialization program for engineering students, Chairman of the Management and Finance Department, and acting Associate Dean. In these positions, he successfully managed several externally funded projects and developed many years of experience in technology and growth management.
Dr. Puri holds a B.S. in Physics, a M.S. in Solid State Physics, and a M.B.A. from the University of Delhi. He also holds a M.B.A. in Finance and a D.B.A. in International Business from Indiana University, Bloomington. He has published many papers and has made numerous conference presentations.
As a co-founder of our president.subsidiary, Magnolia Solar, and many years of financial expertise in the photovoltaic industry, Dr. Puri’s experience and qualifications are essential to the Board of Directors.
Greg Landis:
Mr. Landis has served on the Board of Directors of Ecoark since 2011. Mr. Landis is a Certified Public Accountant and, since August 2009, has served as the principal of the accounting firm of Landis & Associates, PLLC in Bentonville, Arkansas. Mr. Landis is licensed as a CPA in Arkansas and is a member of the American Institute of Certified Public Accountants and the Arkansas Society of Certified Public Accountants. Previously, Mr. Landis has served as the Chief Financial Officer of banks in Kansas, Arkansas and Texas including organizations with over $2 billion in assets. Prior to these positions, he was a manager in the largest CPA firm in Kansas. Mr. Landis graduated from Wichita State University in 1985 with a Bachelor’s degree in Business Administration and a major in Accounting.
Gary Metzger:
Mr. Metzger has served on the Board of Directors of Ecoark since 2013. Mr. Metzger offers 40 years of product development, strategic planning, management, business development, and operational expertise. He had served as an executive at Amco International, Inc. and Amco Plastics Materials, Inc., where in 1986 he was named President for 24 years until Amco was sold to resin distribution giant Ravago Americas in December of 2011 at which time, he retired until joining the board of Ecoark. Mr. Metzger was co-owner of Amco Plastics Materials, Inc.
Mr. Metzger leadership and knowledge of manufacturing companies are an asset to the Board of Directors. In addition to his leadership functions, Mr. Metzger spearheaded research and development for recycled polymers, new alloy and bio-based polymer development, and introducing fragrance into polymer applications. He also developed encrypted item level bar code identification technology, anti-counterfeiting technologies, and antimicrobial technologies.
John P. Cahill:
Mr. Cahill is currently Counsel at the law firm of Chadbourne & Parke LLP and has served in that capacity from 2007. He is also a Principal at the Pataki-Cahill Group LLC, a strategic consulting firm focusing on the economic and policy implications of domestic energy needs, which he co-founded in March 2007. He served in various capacities in the administration of the Governor of New York, George E. Pataki (from 1997 to 2006), including Secretary and Chief of Staff to the Governor (2002 to 2006). He also serves on the board of directors of Sterling Bancorp, a company traded on the New York Stock Exchange. His extensive experience as an attorney in government and in business qualifies him as a member of the board.
Terrence D. Matthews:
Mr. Matthews has been Executive Vice President of JB Hunt Transport Services Inc. and President of their Intermodal segment since January 1, 2012. Mr. Matthews started with JB Hunt in 1986 where he was instrumental in the start-up of the Automotive Division. In 1989, he was responsible for the formation of the International Division overseeing operations in Canada and Mexico. From 1994 to 1996, he was appointed President of TMM/Hunt in Mexico City overseeing J.B. Hunt's Mexican joint venture. Returning to J.B. Hunt's corporate office in Lowell, Arkansas in 1996, Mr. Matthews was appointed to positions of increasing responsibility until appointed to the position he now holds. Mr. Matthew’s expertise in the logistics and the supply chain qualifies him to serve as a member of the board.
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Charles Rateliff:
Mr. Rateliff retired in 2005 from Walmart Stores Inc., as a Senior Vice President after a twenty-five year career. Since then, he has been an independent consultant for private investment firms. After receiving an MBA from the University of Arkansas, Mr. Rateliff was hired as an internal auditor for Walmart and within five years was promoted to assistant treasurer and treasurer. Over the course of Mr. Rateliff’s career at Walmart he worked across different departments including compliance, risk management, profit sharing and associate benefits. His financial expertise and broad business knowledge highly qualify him as a board member for our Company.
Significant Employees
Dr. Ashok K. Sood, President
Dr. Ashok Sood held the roles of President, Chief Executive Officer and as a Director of Magnolia Solar since its inception. Prior to joining Magnolia Solar, Dr. Sood had over 35-years’ experience in developing and managing solar cells, optical, and optoelectronics technology and products for a start-up company and several major corporations, including Lockheed-Martin, BAE Systems, Loral, Honeywell, and Mobil-Tyco Solar Energy Corporation ( Joint Venture between Mobil Oil and Tyco). Dr. Sood was instrumental in development and managed optical and optoelectronics technology/ Programs.
Recently, Dr. Sood has managed the development of new technologies for anti-reflective coatings for solar cells and defense applications. He has also been actively engaged in working with several solar cell technologies that broaden the solar spectrum absorption and improve both voltage and current output of the cells to enhance their efficiency. Previously, he has been leading design and development of optoelectronics devices using CdS, CdTe, HgCdTe, GaN, AlGaN, InGaN and ZnO for various defense applications, solar cells for space, and commercial applications. Dr. Sood has led many efforts resulting in DoD/NASA programs developing the technology / products and supporting their transition to manufacturing. He also led various industry and university teams bridging centers of excellence across the United States with industry led programs.
Since joining Magnolia, Dr. Sood has focused his efforts on using nanotechnology for developing high performance thin film detectors and solar cells. His understanding of technology and funding opportunities is an asset to Magnolia Solar.
Dr. Sood received his Ph.D. and M.S. in Engineering from the University of Pennsylvania and has an M.S. and a B.S. in Physics (Honors) from Delhi University in India. At the University of Pennsylvania, he attended Physics courses given by two Nobel Laureates. His Ph.D. dissertation was on the study of optoelectronic properties of PbS/CdS for detector and laser applications in the visible to near infrared spectral bands. Dr. Sood has also taken several management courses and also attended professional development programs organized by the Wharton School at the University of Pennsylvania.
Dr. Sood is a member of IEEE and the SPIE. He has chaired sessions on optical and nanotechnology at conferences of those organizations. He has also been on several expert panels for future direction of thin-film solar cells.
Roshan Weerasinghe – Chief Operations Officer
Mr. Weerasinghe started with Ecoark in 2014 and was promoted to Chief Operations Officer in 2015. He has experience that spans over 18 years at Wal-Mart, Ingersoll Rand Asia Pacific and Climate Control Technologies. Prior to joining Ecoark, he was the Senior Director of Compliance and Food Safety for Walmart China, working out of an office in Shenzhen, China. In 2011 and 2012, Mr. Weerasinghe had his own consulting business advising big box and small regional retailers.
He is an innovative, assertive and goal oriented executive who offers a distinguished background of successfully propelling quality programs and initiatives that spur operational growth and profitability. Mr. Weerasinghe has excellent cross-cultural communication skills honed through years of experience operating in diverse countries including United States, China, Brazil, India, Thailand, Malaysia, Mexico, and Vietnam.
Troy Richards – Chief Administrative Officer
Mr. Richards has served as an advisor to the Company since 2013. He became an employee in June 2016 serving as Chief Administrative Officer. Mr. Richards has extensive management and systems experience which includes 25 years as a franchisee of the Wendy’s Company. At the height of the business, Richard had over 400 employees throughout the state of Arizona and owned and operated over 30 restaurants.
Mr. Richards actively serves on the foundation board of the Translational Genomics Research Institute (“TGen”) and has been involved in TGen’s growth in many areas, including advanced adrenal cancer research and institution-wide marketing. Mr. Richards received the Karl Eller Fellowship Business Award at the University of Arizona. Other past recipients include the current governor of Arizona.
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Peter Mehring - President, Intelleflex
Mr. Mehring serves as President of Intelleflex Corporation since July 2009. Peter brings extensive experience in engineering, operations and general management at emerging companies and large enterprises. As President of Intelleflex, he has led the company’s efforts in pioneering on-demand data visibility and condition monitoring solutions for the fresh produce and pharmaceutical markets.
He was formerly Vice President of Macintosh hardware group at Apple Computer, Senior Vice President of Engineering at Echelon, and founder, General Manager and Vice President of R&D at UMAX. Mr. Mehring held Engineering Management positions at Radius, Power Computing Corporation, Sun Microsystems, and Wang Laboratories.
Ken Smerz – President, Eco3D
Mr. Smerz has served as President of Eco 3D since December 2013. Prior to this appointment as President of Eco3D, he served as President of Precision 3D from December 2009 to November 2013. Mr. Smerz has worked successfully the past 26 years within the commercial/industrial construction industry as a contractor and business executive throughout the western U.S. His ability to build a strong team and provide outstanding leadership has been the cornerstone to his success. He has also continually identified new business opportunities and utilizing his entrepreneurial spirit, he’s injected new bolt-on opportunities to his existing business platforms.
Board of Directors and Committees
Our Board of Directors currently consists of seven members. Members of our Board of Directors are elected annually and serve until a successor has been elected and qualified or their earlier death, resignation or removal. Our Board of Directors has determined that each of Messrs. Cahill, Matthews, Metzger and Rateliff are “independent," as defined by SEC rules adopted pursuant to the requirements of the Sarbanes-Oxley Act of 2002 and in accordance with Rule 4200(a)(15) of the Marketplace Rules of the NASDAQ Stock Market, Inc.
Our Board of Directors established an audit committee, a compensation committee, and a nominating committee, each of which operates pursuant to a separate charter adopted by our Board of Directors. Members serve on these committees until their resignation or until otherwise determined by our Board of Directors, and those committees are chaired by “independent directors”.
Director | Audit Committee | Compensation Committee | Nominating Committee | |||
Gary Metzger | X | X | X | |||
John P. Cahill* | X | |||||
Terrence D. Matthews | X | X | X | |||
Charles Rateliff | X |
Furthermore, for our audit committee, Charles Rateliff shall serve as an “audit committee financial expert” as defined under the applicable rules of the SEC and he has the requisite financial sophistication as defined under the applicable rules and regulations of the NASDAQ Stock Market, Inc. We conducthave also established a corporate governance committee on our board of directors.
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Audit Committee
The Audit Committee is currently comprised of “independent," directors as defined by SEC rules adopted pursuant to the requirements of the Sarbanes-Oxley Act of 2002 (“SOX”).
The duties and responsibilities of the Audit Committee are set forth in the Audit Committee’s charter. The Audit Committee oversees the financial reporting process for the Company on behalf of the Board of Directors and has other duties and functions as described in its charter.
The Company’s management has the primary responsibility for the Company’s financial statements and the reporting process. The Company’s independent registered public accounting firm is responsible for auditing the Company’s financial statements and expressing an opinion as to their conformity with accounting principles generally accepted in the United States.
Our Audit Committee serves to monitor our financial reporting process and internal control system; retains and pre-approves audit and any non-audit services to be performed by our independent registered accounting firm; directly consults with our independent registered public accounting firm; reviews and appraises the efforts of our independent registered public accounting firm; and provides an open avenue of communication among our independent registered public accounting firm, financial and senior management and the Board of Directors.
As of June 30, 2016 the Company’s unaffiliated market capitalization as defined by SEC Rule 12b-2 exceeded $75,000. As such the Company now has accelerated filer status beginning with its annual report to be filed on Form 10-K by March 16, 2017. In addition the Company is now subject to additional requirements of SOX section 404 which addresses internal controls over financial reporting (“ICFR”). The additional requirements include attestation by an independent auditor with respect to the Company’s ICFR.
Item 308 of SEC Regulation S-K addresses the SOX requirements described above including the responsibility of management to report on the effectiveness of ICFR. Management has undertaken several initiatives to improve its ICFR including implementation of a standard chart of accounts and a centralized, cloud-based accounting and Enterprise Resource Planning (“ERP”) system from NetSuite. That system was implemented at six Company entities in the first half of 2016 and is currently being implemented at the new subsidiary Sable Polymer Solutions.
In addition to the implementation of NetSuite, the Company hired additional experienced accounting staff and has scheduled a specific program to ensure compliance with SOX section 404 and further strengthen ICFR. The Company will more formally document risks relating to ICFR, design additional controls to address those risks, document the execution of the controls and have this tested by its independent registered public accounting firm. These activities will take place in the second half of 2016 with reporting to the Audit Committee.
Compensation Committee
The Compensation Committee is currently comprised of “independent," directors as defined by SEC rules adopted pursuant to the requirements of the Sarbanes-Oxley Act of 2002.
The duties and responsibilities of the Compensation Committee are set forth in the Compensation Committee’s charter adopted by the Board of Directors.
Among its duties, our Compensation Committee determines the compensation and benefits paid to our executive officers, including our President, Chief Executive Officer and our Executive Chairman. Our Compensation Committee reviews and determines salaries, bonuses and other forms of compensation paid to our executive officers and management, approves recipients of stock option awards and establishes the number of shares and other terms applicable to such awards. Our Compensation Committee also determines the compensation paid to our Board of Directors, including equity-based awards. More information about the compensation of our non-employee directors is set forth in the section of this annual report titled “Director Compensation.”
Nominating Committee
The Nominating Committee is currently comprised of “independent," directors as defined by SEC rules adopted pursuant to the requirements of the Sarbanes-Oxley Act of 2002.
The duties and responsibilities of the Nominating Committee are set forth in the Nominating Committee’s charter adopted by the Board of Directors.
Our Nominating Committee is charged with recommending the slate of director nominees for election to the Board of Directors, identifying and recommending candidates to fill vacancies on the Board of Directors. Among its duties and responsibilities, the Nominating Committee periodically evaluates and assesses the performance of the Board of Directors; reviews the qualifications of candidates for director positions; assists in identifying, interviewing and recruiting candidates for the Board of Directors; reviews the composition of each committee of the Board of Directors and presents recommendations for committee memberships; and reviews and recommends changes to the charter of the Nominating Committee and to the charters of other Board of Director committees.
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The process followed by the Nominating Committee to identify and evaluate candidates includes (i) requests to Board of Director members, our Chief Executive Officer, and others for recommendations; (ii) meetings from time to time to evaluate biographical information and background material relating to potential candidates and their qualifications; and (iii) interviews of selected candidates. The Nominating Committee also considers recommendations for nomination to the Board of Directors submitted by shareholders.
In evaluating the suitability of candidates to serve on the Board of Directors, including shareholder nominees, the Nominating Committee seeks candidates who are “independent," as defined by SEC rules adopted pursuant to the requirements of the Sarbanes-Oxley Act of 2002 and who meet certain selection criteria established by the Nominating Committee.
Board Attendance
Our Board held four meetings during the fiscal year ended December 31, 2015. All of our directors attended at least 75% of the meetings of our Board held in 2015. We encourage each of our directors to attend each annual meeting of stockholders, when such meetings are held. We did not hold an annual meeting of stockholders in 2015.
Role of the Board in Risk Oversight
We face a number of risks, including those described under the caption “Risk Factors” contained elsewhere in this prospectus. Our Board of Directors believes that risk management is an important part of establishing, updating and executing on our business largely throughstrategy. Our Board of Directors has oversight responsibility relating to risks that could affect the outsourcingcorporate strategy, business objectives, compliance, operations, and the financial condition and performance of expertsthe company. Our Board of Directors focuses its oversight on the most significant risks facing us and on our processes to identify, prioritize, assess, manage and mitigate those risks. Our Board of Directors receives regular reports from members of the company’s senior management on areas of material risk to us, including strategic, operational, financial, legal and regulatory risks. While our Board of Directors has an oversight role, management is principally tasked with direct responsibility for management and assessment of risks and the implementation of processes and controls to mitigate their effects on us.
Stockholder Communications with the Board
Stockholders and other interested parties may make their concerns known confidentially to the Board of Directors or the independent directors by sending an email to Brad Hoagland, CFA at bhoagland@ecoarkusa.com. Each communication should specify the applicable addressee or addressees to be contacted as well as the general topic of the communication. The Company will initially receive and process communications before forwarding them to the addressee. The Company generally will not forward to the directors a communication that it determines to be primarily commercial in each particular areanature or related to an improper or irrelevant topic, or that requests general information about the Company.
Code of Ethics
All Company employees and directors, including the Chief Executive Officer and the Chief Financial Officer, are required to abide by the Company’s Code of Conduct to ensure that the Company’s business is conducted in a consistently legal and ethical manner. The Code of Conduct forms the foundation of a comprehensive program that requires compliance with all corporate policies and procedures and seeks to foster an open relationship among colleagues that contributes to good business conduct and an abiding belief in the integrity of our business.Researchemployees. The Company’s policies and Development ExpendituresWe haveprocedures cover all areas of professional conduct, including employment policies, conflicts of interest, intellectual property, and the protection of confidential information, as well as strict adherence to all laws and regulations applicable to the conduct of the Company’s business.
Employees are required to report any conduct that they believe in good faith to be an actual or apparent violation of the Code of Conduct. The full text of the Code of Ethics is available on our website at www.ecoarkusa.com.
Corporate Governance Guidelines
Our corporate governance guidelines are designed to help ensure effective corporate governance. Our corporate governance guidelines cover topics including, but not incurred any material research limited to, director qualification criteria, director responsibilities, director compensation, director orientation and continuing education, communications from stockholders to the board, succession planning and the annual evaluations of the board and its committees. Our corporate governance guidelines are reviewed by the corporate governance committee of our board and revised when appropriate. The full text of our Corporate Governance Policy is available on our website at www.ecoarkusa.com.
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Summary Compensation Table
The table below sets forth, for the last two fiscal years, the compensation earned by each of our principal executive officer and principal financial officers during the last fiscal year (“named executive officers”). No other executive officer had annual compensation in excess of $100,000 during the last fiscal year.
Option | All Other | |||||||||||||||||||||||
Salary | Bonus | Awards | Compensation | Total | ||||||||||||||||||||
Name and Principal Position | Year | ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||
Dr. Ashok K. Sood | 2015 | 17,850 | 44,850 | (1) | 62,700 | |||||||||||||||||||
President | 2014 | 43,160 | 37,550 | (1) | 80,710 | |||||||||||||||||||
Dr. Yash R. Puri, | 2015 | 17,850 | 44,850 | (1) | 62,700 | |||||||||||||||||||
CFO | 2014 | 33,920 | 45,310 | (1) | 78,230 | |||||||||||||||||||
Randy May | 2015 | 207,692 | 207,692 | |||||||||||||||||||||
Chief Executive Officer | 2014 | 200,000 | 200,000 | |||||||||||||||||||||
Greg Landis | 2015 | 20,192 | 173,000 | (2) | 192,192 | |||||||||||||||||||
Corporate Secretary | 2014 | - | 245,000 | (2) | 245,000 |
(1) | Represents accrued but unpaid salary. |
(2) | Represents payments to Landis & Associates PLLC for accounting services. |
Outstanding Equity Awards at Fiscal Year-End
There were no outstanding unexercised options, unvested stock, and/or development expenditures sinceequity incentive plan awards issued to our incorporation.
named executive officers as of December 31, 2015.
Employment Contracts, Termination of Employment and Change in Control
None of the principal executive officers listed above are under employment contracts.
Director Compensation
Our directors did not receive monetary compensation for their service on the Board of Directors for the fiscal years ended December 31, 2015 and 2014. Directors may receive compensation for their services and reimbursement for their expenses as shall be determined from time to time by resolution of the Board.
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Subsidiaries
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
We do not currently havebelieve any subsidiaries.Patentsof our non-employee directors has a material relationship with us that could interfere with his ability to exercise independent judgment in carrying out his responsibilities. The Company’s Board of Directors has reviewed and TrademarksWe doapproved of each of the following transactions. The Company’s Code of Conduct governs the Board’s consideration of transactions which could give rise to a conflict of interest, mandating that each director disclose any potential conflict of interest and permitting the Board to determine that such director may not own, either legally or beneficially, any patent or trademark.
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The following is a summary of long-term debt with Randy May, the Chief Executive Officer, and entities he controls, as of December 31, 2015 and 2014:
2015 | 2014 | |||||||||||
Promissory note #1 – CEO | (a) | 62 | 227 | |||||||||
Promissory note #2 – CEO | (b) | – | 2,500 | |||||||||
Promissory note #3 – CEO | (c) | 1,217 | – | |||||||||
Note payable – Goldenhawk | (d) | – | 3,674 | |||||||||
Note payable - other | (e) | – | 1,600 | |||||||||
1,279 | 8,001 |
The highest balance of these notes during the 2015 fiscal year was $9,097.
(a) Note payable to the Company’s Chief Executive Officer (CEO), Randy May. In 2013 and 2014 the note was accruing interest at the rate of 10% through November 16, 2014. On November 16, 2014, the then outstanding principal of $1,174 and the accrued interest of $493 were combined with the office space necessaryoutstanding balances of other shareholder notes in the principal amount of $1,100 and accrued interest of $908 (see note (a)) to create a new note with a related company “Goldenhawk” referred to below. The new note payable from November 17, 2014 through December 31, 2014 was an unsecured note bearing interest at a rate of 6% per annum, maturing in November 2015. On November 30, 2015, after monthly payments were being made, and additional amounts funded in March 2015 and May 2015 totaling $600, the Company along with the $2,500 note, combined these amounts into a new one year promissory note in the amount of $3,197 due November 30, 2016. Payments of $30 were made on this point. Upon significant growthnote in the first quarter of 2016.
(b) Unsecured note payable with the Company’s CEO, bearing interest at 6% per annum. Quarterly interest payments were due commencing February 2015, with the note maturing in November 2015. Note was the result of the value of the 5,000 Class A Common Shares re-acquired on November 16, 2014 from the CEO in an effort to raise capital without further dilution to the current shareholders. See (c) above for details on the extension of this note.
(c) Note payable with the Company’s CEO commencing November 30, 2015 at an interest rate of 6% per annum (see note c). The beginning principal balance of $3,197 was reduced by $1,980 on December 31, 2015 in exchange for 550 shares of Series A General Common Shares that were Treasury Shares owned by the Company. The remaining principal balance matures in November 2016.
(d) Commencing November 16, 2014, this note had interest at the rate of 6% per annum, unsecured, with quarterly interest payments due commencing February 2015 and the note maturing in November 2015. Interest on this note was paid for the first 6 months, then the accrued interest was added to the principal and a new note was entered into on November 18, 2015, for a period of one year. This note along with the balance in the note referenced in (j) was converted to 1,503 shares of Series A General Common Shares that were Treasury Shares owned by the Company on December 31, 2015.
(e) Unsecured advances from related party Goldenhawk. This note was converted to Series A General Common Shares that were Treasury Shares owned by the Company (see (h)) on December 31, 2015.
During the years ended December 31, 2015 and 2014, Ecoark outsourced the accounting and finance function to Landis & Associates PLLC. Landis & Associates PLLC (“Landis PLLC”) is a professional limited liability company it may become necessarywhich is licensed as an Arkansas certified public accounting firm and is wholly owned by Greg Landis, our director and secretary. All payments to lease or acquireLandis PLLC were for accounting and finance work performed for Ecoark and its subsidiaries. In December 2015, Ecoark hired additional or alternative spaceaccounting staff and discontinued using the services provided by Landis PLLC.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers and persons who beneficially own more than ten percent (10%) of a registered class of our equity securities to accommodate our development activitiesfile reports of ownership and growth.
Legal Proceedings
We are not currently a party to any legal proceedings.Our agent for service of processchanges in Nevada is Nevada Agency and Trust Company, 50 West Liberty Street, Suite 880, Reno, Nevada 89501.
Market for Common Equity and Related Stockholder Matters
No Public Market for Common StockThere is presently no public market for our common stock. We anticipate making an application for tradingownership of our common stock on the Over-the-Counter Bulletin Board electronic quotation service upon the effectiveness of the registration statement of which this prospectus forms a part. However, we can provide no assurance that our shares will be traded on the Over-the-Counter Bulletin Board electronic quotation service or, if traded, that a public market will materialize.The Securities Exchange Commission has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generallyand other equity securities with the SEC on a pricetimely basis. Based solely upon a review of less than $5.00, other than securities registeredForms 3, 4 and 5 and amendments to these forms furnished to us, we believe all parties subject to the reporting requirements of Section 16(a) of the Exchange Act filed on certain national securities exchanges or quoted on the NASDAQ system, provided that current pricea timely basis all such required reports during and volume information with respect to transactions in suchour 2015 fiscal year.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information as of July 25, 2016, concerning beneficial ownership of our capital stock held by (1) each person or entity known by us to beneficially own more than 5% of any class of our voting securities, (2) each of our directors, (3) each of our named executive officers, and (4) all of our current directors and executive officers as a group. Beneficial ownership is provided bydetermined under the exchange or quotation system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the Commission, that: (a) contains a description of the natureSEC and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker'sgenerally includes voting or dealer's duties to the customer and of the rights and remedies available to the customerinvestment power with respect to securities. Percentages are calculated based on 36,021,210 shares of our common stock outstanding on July 25, 2016. The address for our officers and directors is 3333 Pinnacle Hills Parkway, Suite 220, Rogers, Arkansas 72758.
Beneficial Owner | Beneficial Ownership | Percentage Voting Power | ||||||
Randy S. May | 5,500,000 | 15.3 | % | |||||
Greg Landis | 505,248 | 1.4 | % | |||||
Gary Metzger (1) | 3,673,043 | 10.2 | % | |||||
Dr. Ashok Sood (2) | 128,428 | * | ||||||
Dr. Yash R. Puri | 140,540 | * | ||||||
Terrence D. Matthews (3) | 130,000 | * | ||||||
John P. Cahill | - | * | ||||||
Charles Rateliff | - | * | ||||||
Total Directors and Officers (8 persons) | 10,077,259 | 27.9 | % | |||||
5% Holders | ||||||||
The Hames Family Trust (4) | 2,050,000 | 5.7 | % | |||||
Total | 12,127,259 | 33.6 | % |
(1) Includes 2,500 warrants with an exercise price of $5.00 per share.
(2) Includes 126,606 shares owned by Dr. Sood and 1,822 shares owned by his wife.
(3) Consists of securities held by the Matthews Family Revocable Trust. Includes 65,000 warrants with an exercise price of $5.00 per share.
(4) Danny R. Hames is the trustee of The Hames Family Trust, the owner of the securities.
* Less than 1%.
We currently have two classes of outstanding equity securities, as more fully described below.
Common Stock
Holders of shares of our common stock are entitled to: (i) one vote per share on all matters requiring a violation to such duties or other requirementsshareholder vote; (ii) a ratable distribution of Securities' laws; (c) contains a brief, clear, narrative descriptiondividends, if and when, declared by our Board of Directors; and (iii) in the event of a dealer market, including bidliquidation, dissolution or winding up of Ecoark Holdings, to share ratable in all assets remaining after all of our indebtedness has been provided for or satisfied. Holders of Common Stock do not have preemptive rights to acquire any of our additional, unissued or treasury shares or our securities convertible into or carrying a right to subscribe for or acquire our shares of capital stock. Holders of Common Stock are not entitled to cumulative voting.
As of July 25, 2016, 36,021,210 shares of our common stock were issued and ask prices for penny stocksoutstanding.
Preferred Stock
Our authorized capital also consists of 5,000,000 shares of preferred stock, par value $0.001. The unissued preferred stock may be issued from time to time in one or more series, and the significanceour Board of the spread between the bidDirectors is authorized to issue such stock in one or more series and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type, size and format, as the Commission shall require by rule or regulation.The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with: (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c)fix from time to time the number of shares to which such bidbe included in any series and ask prices apply,the designations, powers, preferences and relative, participating, option or other comparable information relating to the depthspecial rights, and liquidityqualifications, limitations or restrictions thereof, of the market for
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Options
As of the date of this Registration Statement, we had thirty (30) shareholders of record.Rule 144 SharesNoneJuly 25, 2016, there are options outstanding that have been issued to our officers, directors, employees and independent contractors to purchase 659,000 shares of our common stock is currently available for resalepursuant to the public under Rule 144. In general, under Rule 144 as currently in effect, a person who has beneficially owned shares of a company's common stock for at least 180 days is entitled to sell his or her shares. However, Rule 144 is not available to shareholders for at least one year subsequent to an issuer that previously met the definition of Rule 144(i)(1)(i) having publicly filed, on Form 8K, the information required by Form 10.As of the date of this prospectus, no selling shareholder has held their shares for more than 180 days and it has not been at least one year since the company filed the Form 10 Information on Form 8K as contemplated by Rule 144(i)(2) and (3). Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about the company.
Ecoark, Inc. 2013 Stock Option GrantsTo date, we have not granted any stock options.
Plan.
Registration RightsWe have not
In connection with the Private Offering, we granted registration rights to the selling shareholders orpurchasers of our securities in the Private Offering. Pursuant to any other persons.Wethe terms of this Private Offering, we are payingrequired to file a registration statement with the expensesSEC that covers all of the offering because we seek to: (i)securities sold in the Public Offering.
Anti-takeover Effects of Certain Provisions of Our Certificate of Incorporation and Bylaws
Our certificate of incorporation contains provisions that could make it more difficult to acquire control of our company by means of a tender offer, open market purchases, a proxy contest or otherwise. A description of these provisions is set forth below.
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Preferred Stock
We believe that the availability of the preferred stock under our certificate of incorporation provides us with flexibility in addressing corporate issues that may arise. Having these authorized shares available for issuance allows us to issue shares of preferred stock without the expense and delay of a special stockholders’ meeting. The authorized shares of preferred stock, as well as shares of common stock, will be available for issuance without further action by our stockholders, unless action is required by applicable law or the rules of any stock exchange on which our securities may be listed. The Board of Directors has the power, subject to applicable law, to issue series of preferred stock that could, depending on the terms of the series, impede the completion of a merger, tender offer or other takeover attempt that some, or a majority, of the stockholders might believe to be in their best interests or in which stockholders might receive a premium for their stock over the then prevailing market price of the stock.
Special Meetings of Stockholders
Our bylaws provide that special meetings of stockholders may be called only by the Chairman of the Board or the President.
Anti-takeover Effects of Nevada Law
Business Combinations
The “business combination” provisions of Sections 78.411 to 78.444, inclusive, of the Nevada Revised Statutes, or NRS, prohibit a Nevada corporation with at least 200 stockholders from engaging in various “combination” transactions with any interested stockholder: for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the transaction is approved by the board of directors prior to the date the interested stockholder obtained such status; or after the expiration of the three-year period, unless:
- | the transaction is approved by the board of directors or a majority of the voting power held by disinterested stockholders, or |
- | if the consideration to be paid by the interested stockholder is at least equal to the highest of: (a) the highest price per share paid by the interested stockholder within the three years immediately preceding the date of the announcement of the combination or in the transaction in which it became an interested stockholder, whichever is higher, (b) the market value per share of common stock on the date of announcement of the combination and the date the interested stockholder acquired the shares, whichever is higher, or (c) for holders of preferred stock, the highest liquidation value of the preferred stock, if it is higher. |
A “combination” is defined to include mergers or consolidations or any sale, lease exchange, mortgage, pledge, transfer or other disposition, in one transaction or a series of transactions, with an “interested stockholder” having: (a) an aggregate market value equal to 5% or more of the aggregate market value of the assets of the corporation, (b) an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation, or (c) 10% or more of the earning power or net income of the corporation.
In general, an “interested stockholder” is a person who, together with affiliates and associates, owns (or within three years, did own) 10% or more of a corporation’s voting stock. The statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire our company even though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market price.
Control Share Acquisitions
The “control share” provisions of Sections 78.378 to 78.3793, inclusive, of the NRS, which apply only to Nevada corporations with at least 200 stockholders, including at least 100 stockholders of record who are Nevada residents, and which conduct business directly or indirectly in Nevada, prohibit an acquirer, under certain circumstances, from voting its shares of a target corporation’s stock after crossing certain ownership threshold percentages, unless the acquirer obtains approval of the target corporation’s disinterested stockholders. The statute specifies three thresholds: one-fifth or more but less than one-third, one-third but less than a majority, and a majority or more, of the outstanding voting power. Once an acquirer crosses one of the above thresholds, those shares in an offer or acquisition and acquired within 90 days thereof become “control shares” and such control shares are deprived of the right to vote until disinterested stockholders restore the right. These provisions also provide that if control shares are accorded full voting rights and the acquiring person has acquired a reporting companymajority or more of all voting power, all other stockholders who do not vote in favor of authorizing voting rights to the control shares are entitled to demand payment for the fair value of their shares in accordance with statutory procedures established for dissenters’ rights.
Transfer Agent and Registrar
Our independent stock transfer agent is Island Stock Transfer, Inc., 15500 Roosevelt Blvd., Suite 301, Clearwater, Florida 33760. Phone (727) 289-0010.
The validity of the Commission under the Securities Exchange Actshares of 1934; and (ii) enable our common stock to be traded onissued in this offering will be passed upon for us by our counsel, Carmel, Milazzo & DiChiara LLP, New York, New York.
KBL, LLP, independent registered public accounting firm, has audited Magnolia Solar’s and Ecoark’s financial statements at December 31, 2015 and 2014, and for each of the NASD over-the-counter bulletin board.two years in the period ended December 31, 2015, as set forth in their report. We plan to file a Form 8-Ahave included our financial statements in this prospectus and elsewhere in this registration statement in reliance on KBL, LLP’s report, given on their authority as experts in accounting and auditing.
40 |
We have filed with the Commission to cause us to becomeSEC a reporting company with the Commissionregistration statement on Form S-1 under the 1934 Act. We must be a reporting company underSecurities Act with respect to the 1934 Act in order thatshares of our common stock and warrants offered by this prospectus. This prospectus, which constitutes part of that registration statement, does not contain all of the information set forth in the registration statement or the accompanying exhibits and schedules. Some items included in the registration statement are omitted from this prospectus in accordance with the rules and regulations of the SEC. For further information with respect to us and the common stock offered in this prospectus, we refer you to the registration statement and the accompanying exhibits and schedules. Statements contained in this prospectus regarding the contents of any contract, agreement or any other document are summaries of the material terms of these contracts, agreements or other documents. With respect to each of these contracts, agreements or other documents filed as an exhibit to the registration statement, reference is eligiblemade to such exhibit for tradinga more complete description of the matter involved.
A copy of the registration statement and the accompanying exhibits and schedules and any other document we file may be inspected without charge and copied at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the NASD over-the-counter bulletin board. We believe that the registrationoperation of the resalepublic reference room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of shares on behalfthe SEC’s website is www.sec.gov.
We are subject to the information and periodic reporting requirements of existing shareholders may facilitate the development
26
41 |
27
Financial StatementsTable of Contents
Index to Financial Statements:Audited consolidated financial statements
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014; MARCH 31, 2016
Table of Contents
Ecoark, Inc. Consolidated Financial Statements for the Fiscal Years Ended December 31, 2015 and 2014 | |
Report of Independent Registered Public Accounting Firm | F-27 |
Balance Sheets | F-28 |
Statements of Operations | F-29 |
Statements of Changes in Stockholders’ Equity (Deficit) | F-30 |
Statements of Cash Flows | F-31 |
Notes to Financial Statements | F-32 |
Ecoark Holdings, Inc. Consolidated Financial Statements for the Three Months Ended March 31, 2016(Unaudited) | |
F-47 | |
Statements of Operations | F-48 |
Statement of Changes in Stockholders’ Equity (Deficit) | F-49 |
Statements of Cash Flows | F-50 |
Notes to Financial Statements | F-51 |
Sable Polymer Solutions, LLC Financial Statements for the Fiscal Years Ended December 31, 2015 and 2014 | |
Report of Independent Registered Public Accounting Firm | F-64 |
Balance Sheets | F-65 |
Statements of Operations | F-66 |
Statements of Changes in Member’s Equity (Deficit) | F-67 |
Statements of Cash Flows | F-68 |
Notes to Financial Statements | F-69 |
Sable Polymer Solutions, LLC Financial Statements for the Three Months Ended March 31, 2016 (Unaudited) | |
Balance Sheets | F-75 |
Statements of Operations | F-76 |
Statements of Cash Flows | F-77 |
Notes to Financial Statements | F-78 |
Ecoark Holdings, Inc. Pro Forma Unaudited Consolidated Financial Statements | |
Unaudited Proforma Consolidated Balance Sheet as of March 31, 2016 | F-86 |
Unaudited Proforma Consolidated Statement of Operations – Three Months Ended March 31, 2016 | F-87 |
Unaudited Proforma Consolidated Statement of Operations – Year Ended December 31, 2015 | F-88 |
Notes to Unaudited Proforma Consolidated Financial Statements | F-89 |
F-1 |
Report of Independent Registered Public Accounting Firm
To the period ended March 31, 2008, including:
29 Auditors’ Report30 Balance Sheet31 Statement of Operations32 Statement of Stockholders’ Equity33 Statement of Cash Flows34 Notes to Financial Statements
28
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To: The Board of Directors and ShareholdersMobilis Relocation Services Inc.Reno, NevadaIof
Magnolia Solar Corporation
We have audited the accompanying consolidated balance sheetsheets of Mobilis Relocation Services Inc.Magnolia Solar Corporation (the "Company") as of MarchDecember 31, 20082015 and 2014, and the related consolidated statements of operations, stockholders’ equitychanges in stockholders' deficit and cash flows for the periodyears then ended. These consolidated financial statements are the responsibility of the Company’s management. MyOur responsibility is to express an opinion on these consolidated financial statements based on my audit.Iour audits.
We conducted my auditour audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that Iwe plan and perform the auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. IWe believe that my audit providesour audits provide a reasonable basis for myour opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Magnolia Solar Corporation as of December 31, 2015 and 2014, and the results of its consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 21 to the consolidated financial statements, the Company is in process of completing a merger with another entity while they are continuing their development of their thin film solar cell technology and has incurred substantial losses as a result of this. The lack of profitable operations raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in this regard are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The consolidated financial statements were restated to reflect the retroactive treatment of the Company’s common stock in accordance with SAB Topic 4:C. This restatement had no effect on the Company’s net loss or total stockholders’ deficit.
KBL, LLP
/s/ KBL, LLP
New York, NY
February 26, 2016, except for Note 12 which is dated June 15, 2016
F-2 |
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2015 AND 2014
DECEMBER 31, | DECEMBER 31, | |||||||
2015 | 2014 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 45,870 | $ | 25,127 | ||||
Accounts receivable | 10,513 | 185,455 | ||||||
Prepaid expense | - | 1,417 | ||||||
Total current assets | 56,383 | 211,999 | ||||||
Fixed assets, net | 311 | 623 | ||||||
OTHER ASSETS | ||||||||
License with related party, net of accumulated amortization | 83,183 | 118,833 | ||||||
Total other assets | 83,183 | 118,833 | ||||||
TOTAL ASSETS | $ | 139,877 | $ | 331,455 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable and accrued expenses | $ | 682,029 | $ | 578,810 | ||||
Current portion of Original Issue Discount Senior Secured Convertible Promissory Note, net of discount | 2,400,000 | 2,400,000 | ||||||
Total current liabilities | 3,082,029 | 2,978,810 | ||||||
TOTAL LIABILITIES | 3,082,029 | 2,978,810 | ||||||
STOCKHOLDERS' DEFICIT | ||||||||
Common stock, $0.001 par value, 75,000,000 shares authorized, 189,737 and 158,909 shares issued and outstanding (Restated) | 190 | 159 | ||||||
Additional paid-in capital (Restated) | 2,539,048 | 2,267,935 | ||||||
Additional paid-in capital - warrants | 962,297 | 962,297 | ||||||
Accumulated deficit | (6,443,687 | ) | (5,877,746 | ) | ||||
Total stockholders' deficit | (2,942,152 | ) | (2,647,355 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 139,877 | $ | 331,455 |
The accompanying notes are an integral part of these consolidated financial statements.
F-3 |
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
YEAR ENDED DECEMBER 31, 2015 | YEAR ENDED DECEMBER 31, 2014 | |||||||
REVENUE – net | $ | 159,882 | $ | 218,270 | ||||
COST OF REVENUES | 102,069 | 135,356 | ||||||
GROSS PROFIT | 57,813 | 82,914 | ||||||
OPERATING EXPENSES | ||||||||
Indirect and administrative labor | 160,483 | 198,800 | ||||||
Professional fees | 150,179 | 138,260 | ||||||
Depreciation and amortization expense | 35,962 | 35,962 | ||||||
General and administrative | 37,145 | 43,629 | ||||||
Total operating expenses | 383,769 | 416,651 | ||||||
OTHER (INCOME) EXPENSE | ||||||||
Interest expense | 239,985 | 239,981 | ||||||
Total other (income) expense | 239,985 | 239,981 | ||||||
LOSS BEFORE PROVISION FOR INCOME TAXES | (565,941 | ) | (573,718 | ) | ||||
PROVISION FOR INCOME TAXES | - | - | ||||||
NET LOSS | $ | (565,941 | ) | $ | (573,718 | ) | ||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (RESTATED) | 171,932 | 149,880 | ||||||
NET LOSS PER SHARE (RESTATED) | $ | (3.29 | ) | $ | (3.83 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
F-4 |
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
Additional | Additional | |||||||||||||||||||||||
Common Stock | Paid-In | Paid-In | ||||||||||||||||||||||
(Restated) | Capital | Capital - | Accumulated | |||||||||||||||||||||
Shares | Amount | (Restated) | Warrants | Deficits | Total | |||||||||||||||||||
Balance - December 31, 2013 | 135,341 | $ | 135 | $ | 1,991,275 | $ | 962,297 | $ | (5,304,028 | ) | $ | (2,350,321 | ) | |||||||||||
Common shares issued for payment of interest | 22,546 | 23 | 239,977 | - | - | 240,000 | ||||||||||||||||||
Common shares issued for services rendered | 1,022 | 1 | 8,999 | - | - | 9,000 | ||||||||||||||||||
Stock based compensation | - | - | 27,684 | - | - | 27,684 | ||||||||||||||||||
Net loss for the year ended December 31, 2014 | - | - | - | - | (573,718 | ) | (573,718 | ) | ||||||||||||||||
Balance - December 31, 2014 | 158,909 | 159 | 2,267,935 | 962,297 | (5,877,746 | ) | (2,647,355 | ) | ||||||||||||||||
Common shares issued for payment of interest | 30,828 | 31 | 239,969 | - | - | 240,000 | ||||||||||||||||||
Common shares issued for services rendered | - | - | - | - | - | - | ||||||||||||||||||
Stock based compensation | - | - | 31,144 | - | - | 31,144 | ||||||||||||||||||
Net loss for the year ended December 31, 2015 | - | - | - | - | (565,941 | ) | (565,941 | ) | ||||||||||||||||
Balance - December 31, 2015 | 189,737 | $ | 190 | $ | 2,539,048 | $ | 962,297 | $ | (6,443,687 | ) | $ | (2,942,152 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
F-5 |
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
YEAR ENDED DECEMBER 31, 2015 | YEAR ENDED DECEMBER 31, 2014 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (565,941 | ) | $ | (573,718 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization expense | 35,962 | 35,962 | ||||||
Stock based compensation | 31,144 | 27,684 | ||||||
Common stock issued for services rendered | - | 9,000 | ||||||
Common stock issued for payment of interest | 240,000 | 240,000 | ||||||
Change in assets and liabilities: | ||||||||
Decrease in accounts receivable | 174,942 | 41,170 | ||||||
Decrease in prepaid expenses | 1,417 | - | ||||||
Increase in accounts payable and accrued expenses | 103,219 | 126,857 | ||||||
Total adjustments | 586,684 | 480,673 | ||||||
Net cash provided by (used in) operating activities | 20,743 | (93,045 | ) | |||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 20,743 | (93,045 | ) | |||||
CASH - BEGINNING OF YEAR | 25,127 | 118,172 | ||||||
CASH - END OF YEAR | $ | 45,870 | $ | 25,127 | ||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | - | $ | - | ||||
Income taxes | $ | 912 | $ | 1,222 | ||||
NON-CASH SUPPLEMENTAL INFORMATION: | ||||||||
Stock issued for services rendered | $ | - | $ | 9,000 | ||||
Stock issued for payment of interest | $ | 240,000 | $ | 240,000 | ||||
Stock based compensation | $ | 31,144 | $ | 27,684 |
The accompanying notes are an integral part of these consolidated financial statements.
F-6 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Note 1 – Organization and Nature of Business
Magnolia Solar Corporation (the “Registrant”) through its wholly-owned subsidiary, Magnolia Solar, Inc. (“Magnolia Solar” and together with the Registrant, “we,” “our,” “us,” or the “Company”) is focused on developing and commercializing thin film solar cell technologies that employ nanostructured materials and designs.
The Company is pioneering the development of thin film, high efficiency solar cells for applications such as power generation for electrical grids as well as for local applications, including lighting, heating, traffic control, irrigation, water distillation, and other residential, agricultural and commercial uses.
The Company’s technology takes multiple approaches to bringing cell efficiencies close to those realized in silicon based solar cells while also lowering manufacturing costs. The technology uses a different composition of materials than those used by competing thin film cell manufacturers; incorporates additional layers of material to absorb a wider spectrum of light; uses inexpensive substrate materials, such as glass and polymers, lowering the cost of the completed cell compared to silicon based solar cells; and is based on non-toxic materials that do not have adverse environmental effects.
Since 2010, the Company filed a series of U.S. utility patents relating to the technologies under development.
Reverse Merger
On November 19, 2007, the Registrant, formerly known as Mobilis Relocation Services, Inc. (“Mobilis”), was organized under the laws of the State of Nevada. Mobilis formed Magnolia Solar Acquisition Corp., a wholly-owned subsidiary incorporated in the State of Delaware. Mobilis filed a Certificate of Change to its Articles of Incorporation in order to affect a forward split of the number of authorized shares of common stock which they were authorized to issue, and of the then issued and outstanding shares in a ratio of 1.3157895:1. The forward split occurred in February 2010. All share and per share amounts have been reflected herein post-split.
On December 31, 2009, Mobilis entered into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) with Magnolia Solar, Inc., a privately held Delaware corporation incorporated on January 8, 2008, and Magnolia Solar Acquisition Corp. (“Acquisition Sub”). Upon closing of the transaction, under the Merger Agreement, Acquisition Sub merged with and into Magnolia Solar, and Magnolia Solar, as the surviving corporation, became a wholly-owned subsidiary of Mobilis. Thereafter, Mobilis changed its name to Magnolia Solar Corporation. The transaction was accounted for as a reverse merger, and the historical financial information is that of Magnolia Solar, Inc.
F-7 |
MAGNOLIA SOLAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Note 1 – Organization and Nature of Business (continued)
Going Concern
These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has been generating revenues from various development contracts with governmental agencies; however the Company has generated losses totaling $565,941 and $573,718 for the years ended December 31, 2015 and 2014, respectively. While the Company raised funds in a private placement that it consummated in 2009 (raising $990,000 in $2,660,000 of Original Issue Discount Senior Secured Convertible Promissory Notes (the “2009 Notes”)), at December 31, 2015 and December 31, 2014, it had cash of $45,870 and $25,127, respectively, and will need to raise additional funds to carry out its business plan.
The continuation of the Company as a going concern is dependent upon the ability of the Company to obtain necessary equity financing to continue operations.
On December 29, 2011, the 2009 Notes in the aggregate principal amount of $2,660,000 were amended. Pursuant to the terms of the amendment agreements, (i) 2009 Notes in the aggregate principal amount of $260,000 converted into an aggregate of 4,160 shares of common stock of the Company at an adjusted conversion price of $62.50 per share, (ii) 2009 Notes in the aggregate principal amount of $2,000,000 were amended to extend the maturity dates from December 31, 2011 to December 31, 2012 and 2009 Notes in the aggregate principal amount of the remaining $400,000 were amended to extend the maturity date from December 31, 2011 to December 31, 2013, (iii) 2009 Notes in the aggregate principal amount of $2,000,000 were amended to adjust the conversion price of such notes from $250.00 per share to $62.50 per share, (iv) 2009 Notes in the aggregate principal amount of $400,000 were amended to provide that such notes shall, from January 1, 2012 onwards, bear interest at the rate of 10% per annum payable on a quarterly basis, upon conversion and at maturity and that such interest may, at the option of the Company, be paid in cash or in shares of common stock of the Company at the interest conversion rate of 90% of the volume weighted average price of the common stock of the Company during the 20 trading days prior to the interest payment date, (v) an aggregate of 5,200 shares of common stock of the Company were issued to certain holders of the 2009 Notes, and (vi) the exercise price of the warrants to purchase an aggregate of 13,541 shares of common stock was adjusted from $312.50 per share to $125.00 per share.
F-8 |
MAGNOLIA SOLAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Note 1 – Organization and Nature of Business (continued)
Going Concern (continued)
On December 21, 2012 and June 27, 2013 the 2009 Notes as described in the preceding paragraph were amended. Pursuant to the terms of the amendment agreements, (i) 2009 Notes in the aggregate principal amount of $2,000,000 were amended to extend the maturity dates from December 31, 2012 to December 31, 2013, (ii) 2009 Notes in the aggregate principal amount of $2,000,000 were amended to provide that such notes shall, from January 1, 2013 onwards, bear interest at the rate of 10% per annum payable on a quarterly basis, upon conversion and at maturity and that such interest may, at the option of the Company, be paid in cash or in shares of common stock of the Company at the interest conversion rate of 90% of the volume weighted average price of the common stock of the Company during the 20 trading days prior to the interest payment date, and (iii) the exercise price of warrants to purchase an aggregate of 13,541 shares of common stock was adjusted from $125.00 per share to $62.50 per share.
On December 29 and 31, 2013, the 2009 Notes as described in the preceding paragraphs were amended. Pursuant to the terms of the amendment agreements, (i) 2009 Notes in the aggregate principal amount of $2,400,000 were amended to extend the maturity dates from December 31, 2013 to December 31, 2014, and (ii) the exercise price of the warrants to purchase an aggregate of 13,541 shares of common stock was adjusted from $62.50 per share to $25.00 per share. Additionally, the Company also agreed to extend the expiration date of the warrants to purchase an aggregate of 10,640 shares of common stock from December 31, 2014 to December 31, 2016.
There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to the Company. If the Company were to default on its indebtedness, then holders of the notes may foreclose on the debt and seize the Company's assets which may force the Company to suspend or cease operations altogether. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. These factors raise substantial doubt regarding the ability of the Company to continue as a going concern.
On January 29, 2016, the Company entered into a Merger Agreement with Ecoark, Inc. ("Ecoark") providing, among other things, for the acquisition of Ecoark by the Company in a share for share exchange pursuant to which it was contemplated that at the closing Ecoark shareholders would own approximately 95% of the outstanding shares of the Company. The Company filed a preliminary 14A Proxy Statement informing its shareholders of the Company’s intent to hold a shareholder meeting in order to vote on certain proposals to amend the Articles of Incorporation to increase of the authorized shares of common stock to 100,000,000 shares, to effect the creation of 5,000,000 shares of "blank check" preferred stock, to approve a reverse stock split of the common stock 1 for 250, and to change the name of the corporation to Ecoark Holdings Inc., the approval of which were conditions to closing the merger with Ecoark. The Company’s shareholders approved the proposals, and the merger was completed in March 2016. In accordance with SEC SAB Topic 4:C, the Company has given retroactive effect to the reverse split of the common stock 1 for 250 (see Note 12).
F-9 |
MAGNOLIA SOLAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Note 1 – Organization and Nature of Business (continued)
Going Concern (continued)
The Company may need to raise additional capital to expand operations to the point at which the Company can achieve profitability. The terms of equity or debt that may be raised may not be on terms acceptable by the Company. If adequate funds cannot be raised outside of the Company, the Company may suspend or cease operations altogether.
The development of renewable energy and energy efficiency marks a new era of energy exploration in the United States. The Company continues to explore low cost alternatives for energy solutions which are in line with United States government initiatives for renewable energy sources. The Company hopes that these factors will mitigate the current unstable factors in the United States economy.
Note 2 – Summary of Significant Accounting Policies
Basis of Accounting
The financial statements have been prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles.
Principles of Consolidation
The Company applies the guidance of Topic 810 “Consolidation” of the FASB Accounting Standards Codification to determine whether and how to consolidate another entity. Pursuant to ASC Paragraph 810-10-15-10 all majority-owned subsidiaries—all entities in which a parent has a controlling financial interest—shall be consolidated except (1) when control does not rest with the parent, the majority owner; (2) if the parent is a broker-dealer within the scope of Topic 940 and control is likely to be temporary; (3) consolidation by an investment company within the scope of Topic 946 of a non-investment-company investee. Pursuant to ASC Paragraph 810-10-15-8, the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation. The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other stockholders, or by court decree. The Company consolidates all less-than-majority-owned subsidiaries, if any, in which the parent’s power to control exists.
The consolidated financial statements include all accounts of the entities at December 31, 2015 as follows:
Name of consolidated subsidiary or entity | State or other jurisdiction of incorporation or organization | Date of incorporation or formation (date of acquisition, if applicable) | Attributable interest at December 31, 2015 and 2014 | ||||||
Magnolia Solar Inc. | Delaware, U.S.A. | January 8, 2008 | 100 | % |
All inter-company balances and transactions have been eliminated.
F-10 |
MAGNOLIA SOLAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Note 2 - Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Accounts Receivable
For financial reporting, current earnings are charged and an allowance is credited with a provision for doubtful accounts based on experience. Accounts deemed uncollectible are charged against this allowance. Receivables are reported on the balance sheet net of such allowance. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses. The Company believes no allowance for doubtful accounts is necessary at December 31, 2015 or December 31, 2014.
Property and Equipment
Property and equipment are stated at cost and are depreciated on a straight-line basis over their estimated useful lives (from three to seven years). Additions, renewals, and betterments, unless of a minor amount, are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.
Impairment of Long-Lived Assets
The Company reviews their recoverability of long-lived assets on a periodic basis whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment will be based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets. Fixed assets to be disposed of by sale will be carried at the lower of the then current carrying value or fair value less estimated costs to sell. The Company’s management has determined that the fair value of long-lived assets exceeds the book value and thus no impairment charge is necessary as of December 31, 2015 or December 31, 2014.
Fair Value of Financial Instruments
In accordance with ASC 820,Fair Value Measurements and Disclosures, the carrying amount reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. The Company does not utilize derivative instruments.
F-11 |
MAGNOLIA SOLAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Note 2 - Summary of Significant Accounting Policies (continued)
Income Taxes
The Company accounts for income taxes utilizing the liability method of accounting. Under the liability method, deferred taxes are determined based on differences between financial statement and tax bases of assets and liabilities at enacted tax rates in effect in years in which differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are expected to be realized.
Revenue Recognition
Revenue is recognized from private and public sector contracts that are time and material type contracts. These revenues are recognized in accordance with ASC 605,Revenue Recognition. The Company recognizes revenue when; (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller’s price to the buyer is fixed or determinable and (4) collectability is reasonably assured.
The Company assesses whether fees are fixed or determinable at the time of sale and recognizes revenue if all other revenue recognition requirements are met. The Company's standard payment terms are net 30 days. Payments that extend beyond 30 days from the contract date but that are due within twelve months are generally deemed to be fixed or determinable based on the Company's successful collection history on such arrangements, and thereby satisfy the required criteria for revenue recognition.
Revenue from inception to December 31, 2015 has been primarily from research and development grants or contracts to develop solar cells using the Company’s technology.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments and other short-term investments with an original maturity of three months or less, when purchased, to be cash equivalents. The Company had no cash equivalents as of December 31, 2015 or December 31, 2014.
Uncertainty in Income Taxes
The Company follows ASC 740-10,Accounting for Uncertainty in Income Taxes. This interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. Management evaluates their tax positions on an annual basis. The Company’s policy is to recognize both interest and penalties related to unrecognized tax benefits expected to result in payment of cash within one year are classified as accrued liabilities, while those expected beyond one year are classified as other liabilities. The Company has not recorded any interest or penalties since its inception.
The Company files income tax returns in the U.S. federal tax jurisdiction and various state tax jurisdictions. The tax years for 2012 to 2014 remain open for examination by federal and/or state tax jurisdictions. The Company is currently not under examination by any other tax jurisdictions for any tax year.
F-12 |
MAGNOLIA SOLAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Note 2 - Summary of Significant Accounting Policies (continued)
Loss Per Share of Common Stock
Basic net loss per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (EPS) include additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive for periods presented. The following is a reconciliation of the computation for basic and diluted EPS:
December 31, | December 31, | ||||||||
2015 | 2014 | ||||||||
Net loss | $ | (565,941 | ) | $ | (573,718 | ) | |||
Restated Weighted-average common shares outstanding (Basic) | 171,932 | 149,880 | |||||||
Weighted-average common stock | |||||||||
Equivalents | |||||||||
Stock options | 9,800 | 6,921 | |||||||
Warrants | 15,141 | 15,141 | |||||||
Weighted-average common shares outstanding (Diluted) | 196,873 | 171,942 |
Stock based compensation
The Company applies ASC No. 718 and ASC Subtopic No. 505-50,Equity-Based Payments to Non Employees, to options and other stock based awards issued to nonemployees. In accordance with ASC No. 718 and ASC Subtopic No. 505-50, the Company uses the Black-Scholes option pricing model to measure the fair value of the options at the measurement date.
Recently Issued Accounting Standards
During August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements—Going Concern.” The provisions of ASU No. 2014-15 require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company is currently assessing the impact of this ASU on the Company’s consolidated financial statements.
F-13 |
MAGNOLIA SOLAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Note 2 - Summary of Significant Accounting Policies (continued)
Recently Issued Accounting Standards (continued)
During May 2014, the FASB issued an Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers (Topic 606)". The objective of ASU 2014-09 is to (1) remove inconsistencies and weaknesses in revenue requirements, (2) provide a more robust framework for addressing revenue issues, (3) improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, (4) provide more useful information to users of financial statements through improved disclosure requirements, and (5) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The effective date of this ASU was subsequently changed with the issuance of ASU 2015-14 to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating the effect of this standard on its financial statements.
There were other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
Note 3 - Stockholders’ Deficit
The Company has 75,000,000 shares of common stock, par value of $0.001 per share authorized.
Shares
Prior to the Reverse Merger as discussed in Note 1, the Company issued 17,895 shares of common stock between January and March 2008 at prices ranging from $2.50 to $5.00 per share for a total of $53,000 cash.
In accordance with the Reverse Merger, the Company cancelled 7,895 shares of common stock and issued 85,230 shares to the former shareholders of Magnolia Solar, Inc. As a result of these transactions, as of December 31, 2009, there were 95,320 shares of common stock issued and outstanding.
The Company effectuated a 1.3157895 forward stock split in February 2010, in accordance with the Merger Agreement which resulted in 95,320 shares of common stock issued and outstanding.
F-14 |
MAGNOLIA SOLAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Note 3 - Stockholders’ Deficit (continued)
Shares (continued)
In February 2014, the Company issued 4,196 shares of common stock at its fair value price ($15.00 per share) in lieu of interest payment for a value of $60,000.
In March 2014, the Company issued 379 shares of common stock for consulting services for a value of $4,500 at a fair market value price of $12.50 per share.
In April 2014, the Company issued 8,276 shares of common stock at its fair value price ($7.50 per share) in lieu of interest payment for a value of $60,000.
In April 2014, the Company issued 643 shares of common stock for consulting services for a value of $4,500 at a fair market value price of $7.50 per share.
In August 2014, the Company issued 5,275 shares of common stock at its fair value price ($12.50 per share) in lieu of interest payment for a value of $60,000.
In October 2014, the Company issued 4,800 shares of common stock at its fair value price ($12.50 per share) in lieu of interest payment for a value of $60,000.
In March 2015, the Company issued 4,781 shares of common stock at its fair value price ($12.50 per share) in lieu of interest payment for a value of $60,000.
In April 2015, the Company issued 6,138 shares of common stock at its fair value price ($10.00 per share) in lieu of interest payment for a value of $60,000.
In July 2015, the Company issued 6,575 shares of common stock at its fair value price ($10.00 per share) in lieu of interest payment for a value of $60,000.
In October 2015, the Company issued 13,333 shares of common stock at its fair value price ($5.00 per share) in lieu of interest payment for a value of $60,000.
As of December 31, 2015, the Company had 189,737 shares issued and outstanding.
Warrants
Following the closing of the Reverse Merger in December 2009, the Company issued five-year callable warrants (the “2009 Warrants”) to purchase an aggregate of 10,640 shares of common stock exercisable at $312.50 per share to investors in a private placement (the “2009 Private Placement”) and further issued seven year placement agent warrants to purchase an aggregate of 2,901 shares of common stock exercisable at $262.50 per share. On December 29, 2011, the exercise price of both the 2009 Warrants and placement agent warrants was reduced to $125.00 per share.
F-15 |
MAGNOLIA SOLAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Note 3 - Stockholders’ Deficit (continued)
Warrants (continued)
On December 21, 2012, the exercise price of the 2009 Warrants and placement agent warrants were reduced to $62.50 per share. On December 23, 2013, the exercise price of the 2009 Warrants and placement agent warrants were further reduced to $25.00 per share. Additionally, the Company also agreed to extend the expiration date of the 2009 Warrants from December 31, 2014 to December 31, 2016.
On August 15, 2011, the Company issued 1,600 warrants for public relations services. The warrants vest immediately, and are for a term of 5 years with a strike price of $125.00 per share. The warrants have been valued at $59,534 and are reflected in the consolidated financial statements for the year ended December 31, 2014.
As of December 31, 2015, the following warrants are outstanding:
Balance – December 31, 2008 | - | - | |||||||
Issued – in the 26.6 units | 10,640 | $ | 25.00 | ||||||
Issued – to Placement Agent | 2,901 | $ | 25.00 | ||||||
Balance – December 31, 2009 | 13,541 | $ | 25.00 | ||||||
Balance – December 31, 2010 | 13,541 | $ | 25.00 | ||||||
Issued – for public relations | 1,600 | $ | 125.00 | ||||||
Balance – December 31, 2011 | 15,541 | $ | 35.00 | ||||||
Balance – December 31, 2012 | 15,541 | $ | 35.00 | ||||||
Balance – December 31, 2013 | 15,541 | $ | 35.00 | ||||||
Balance – December 31, 2014 | 15,541 | $ | 35.00 | ||||||
Balance – December 31, 2015 | 15,541 | $ | 35.00 |
Stock Options
In May 2014, the Company granted 9,800 shares of common stock under the 2013 Incentive Stock Option Plan. Under the 2013 Plan, the Company may grant options to purchase up to 22,000 shares of common stock to be granted to Company employees, officers, directors, consultants and advisors. The vesting provisions, exercise price and expiration dates will be established by the Board of Directors (the "Board") of the Company at the date of grant, but incentive stock options may be subject to earlier termination, as provided in the 2013 Plan. As of December 31, 2015, there were 9,343 shares available for future grant.
The fair value of each option grant was estimated on the date of grant using theBlack-Scholes option-pricing model.
F-16 |
MAGNOLIA SOLAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Note 3 - Stockholders’ Deficit (continued)
Stock Options (continued)
Expected volatility was calculated based upon the company’s observed median volatility. The risk-free interest rate assumption is based upon the United States Treasury Bond yield curve in effect at the time of grant for instruments with a similar expected life.
The Company recognized compensation cost related to stock-based compensation in the amount of $31,144, for the year ended December 31, 2015. The Company has not recognized any tax benefits or deductions related to the effects of employee stock-based compensation.
In addition, as of December 31, 2015, approximately $10,382 was related to non-vested options which will be recognized over a weighted-average period of approximately 3.42 years.
No options were exercised under all share-based compensation arrangements for the period ending December 31, 2015.
The following is a summary of stock option activity under the Company's stock option plan:
Number of Options/Shares | Range of Exercise Prices | Weighted- Average Exercise Price | |||||||||||
Outstanding as of December 31, 2014 | 9,800 | $ | 12.50 | $ | 12.50 | ||||||||
Options granted | - | $ | 0.00 | $ | 0.00 | ||||||||
Options exercised | - | $ | 0.00 | $ | 0.00 | ||||||||
Options forfeited/expired/cancelled | - | $ | 0.00 | $ | 0.00 | ||||||||
Outstanding as of December 31, 2015 | 9,800 | $ | 12.50 | $ | 12.50 | ||||||||
Exercisable as of December 31, 2015 | 8,330 | $ | 12.50 | $ | 12.50 | ||||||||
Exercisable as of December 31, 2014 | 3,920 | $ | 12.50 | $ | 12.50 |
F-17 |
MAGNOLIA SOLAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Note 3 - Stockholders’ Deficit (continued)
Stock Options (continued)
Information about stock options outstanding as of December 31, 2015 is as follows:
Exercise Price | Number of Options Outstanding | Weighted-Average Remaining Contractual Life (years) | Number of Options Exercisable | ||||||||||||
$ | 12.50 | 9,800 | 3.42 | 8,330 | |||||||||||
9,800 | 3.42 | 8,330 |
Note 4 - Property and Equipment
Property and equipment consisted of the following at December 31, 2015 and December 31, 2014:
December 31, | December 31, | ||||||||
2015 | 2014 | ||||||||
Office equipment and computers | $ | 6,106 | $ | 6,106 | |||||
Furniture and fixtures | 2,182 | 2,182 | |||||||
8,288 | 8,288 | ||||||||
Accumulated depreciation | (7,977 | ) | (7,665 | ) | |||||
$ | 311 | $ | 623 |
The Company incurred $312 and $312, respectively, in depreciation expense for the periods ended December 31, 2015 and 2014.
Note 5 - License Agreement with Related Party
The Company has entered into a 10-year, renewable, exclusive license with Magnolia Optical Technologies, Inc. (“Magnolia Optical”) on April 30, 2008 for the exclusive rights of the technology related to the application of Optical’s solar cell technology. Magnolia Optical shares common ownership with the Company.
The Company is amortizing the license fee of $356,500 over the 120 month term of the Agreement. Accumulated amortization as of December 31, 2015 and December 31, 2014 was $273,317 and $237,667, respectively. Amortization expense for each of the years ended December 31, 2015 and 2014 was $35,650, respectively. The Company’s management has determined that the fair value of the license exceeds the book value and thus no further impairment or amortization is necessary as of December 31, 2015 or December 31, 2014.
F-18 |
MAGNOLIA SOLAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Note 6 – Original Issue Discount Senior Secured Convertible Promissory Note
Original Notes
Following the closing of the Reverse Merger in December 2009, the Company issued 26.6 units in the 2009 Private Placement consisting of an aggregate of $2,660,000 of 2009 Notes and 2009 Warrants exercisable into an aggregate of 10,640 shares of common stock exercisable at $312.50 per share, for $50,000 per unit for aggregate proceeds to the Company of $990,000. In addition, placement agent warrants to purchase an aggregate of 2,901 shares of common stock exercisable at $262.50 per share were issued. The 2009 Notes are secured by a first-priority security interest in the assets of the Company. Holders of the 2009 Notes and warrants issued in the 2009 Private Placement also have the right to “piggyback” registration of the shares underlying the 2009 Notes and warrants.
Prior to the amendment and restatement of the 2009 Notes, the 2009 Notes were originally due December 31, 2011 and convertible at the option of the holder, into shares of the Company’s common stock at an initial conversion rate of $250.00 per share.
Amended Notes
On December 29, 2011, the Company entered into amendment agreements with holders of the 2009 Notes and 2009 Warrants. Pursuant to the terms of the amendment agreements, (i) 2009 Notes in the aggregate principal amount of $260,000 were converted into an aggregate of 4,160 shares of common stock of the Company at an adjusted conversion price of $62.50 per share, (ii) 2009 Notes in the aggregate principal amount of $2,000,000 were amended to extend the maturity dates from December 31, 2011 to December 31, 2012 and 2009 Notes in the aggregate principal amount of the remaining $400,000 were amended to extend the maturity date from December 31, 2011 to December 31, 2013, (iii) 2009 Notes in the aggregate principal amount of $2,000,000 were amended to adjust the conversion price of such notes from $250.00 per share to $62.50 per share, (iv) 2009 Notes in the aggregate principal amount of $400,000 were amended to provide that such notes shall, from January 1, 2012 onwards, bear interest at the rate of 10% per annum payable on a quarterly basis, upon conversion and at maturity and that such interest may, at the option of the Company, be paid in cash or in shares of common stock of the Company at the interest conversion rate of 90% of the volume weighted average price of the common stock of the Company during the 20 trading days prior to the interest payment date, (v) an aggregate of 5,200 shares of common stock of the Company were issued to certain holders of the 2009 Notes, and (vi) the exercise price of warrants to purchase an aggregate of 13,540 shares of common stock was adjusted from $312.50 per share to $125.00 per share.
F-19 |
MAGNOLIA SOLAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Note 6 – Original Issue Discount Senior Secured Convertible Promissory Note (continued)
Amended Notes (continued)
On December 21, 2012 and on June 27, 2013 the 2009 Notes as described in the preceding paragraph were amended. Pursuant to the terms of the amendment agreements, (i) 2009 Notes in the aggregate principal amount of $2,000,000 were amended to extend the maturity dates from December 31, 2012 to December 31, 2013, (ii) 2009 Notes in the aggregate principal amount of $2,000,000 were amended to provide that such notes shall, from January 1, 2013 onwards, bear interest at the rate of 10% per annum payable on a quarterly basis, upon conversion and at maturity and that such interest may, at the option of the Company, be paid in cash or in shares of common stock of the Company at the interest conversion rate of 90% of the volume weighted average price of the common stock of the Company during the 20 trading days prior to the interest payment date, and (iii) the exercise price of the warrants to purchase an aggregate of 13,541 shares of common stock was adjusted from $125.0 per share to $62.50 per share. Upon amendment of the notes, interest was calculated on the entire $2,400,000 of promissory notes at a rate of 10% per year. Interest expense was accrued in the amount of $60,000 per quarter and shares are issued in lieu of cash payments.
On December 29 and 31, 2013 the 2009 Notes as described in the preceding paragraph were amended. Pursuant to the terms of the amendment agreements, (i) 2009 Notes in the aggregate principal amount of $2,400,000 were amended to extend the maturity dates from December 31, 2013 to December 31, 2014, (ii) the exercise price of the warrants to purchase an aggregate of 13,541 shares of common stock was adjusted from $62.50 per share to $25.00 per share. Additionally, the Company also agreed to extend the expiration date of the warrants to purchase an aggregate of 10,640 shares of common stock from December 31, 2014 to December 31, 2016.
As of December 31, 2015, the Company issued 75,180 shares of its common stock in lieu of interest payments in the aggregate of $700,000 relating to the 2009 Notes in the aggregate principal of $2,400,000.
As of December 31, 2015, the entire $2,400,000 balance of the amended 2009 Notes remains outstanding. In the transaction, the Company recognized a discount of $1,670,000 which was amortized over the original life of the 2009 Notes. The discount represented the original issue discount. In addition, the Company determined that the value of the warrants in the transaction of $412,830 as a discount to the 2009 Notes. This discount was being amortized as well over the original life of the 2009 Notes.
The 2009 Notes mature on June 30, 2016 (these notes were extended on January 29, 2016 and will convert to equity if the merger is completed - see Note 11).
As of December 31, 2015, $2,400,000 of the 2009 Notes are classified as a current liability and the amounts have not been repaid as of the issuance of these financial statements. The modifications made to the debt instruments did not constitute a material modification under ASC 470-50.
F-20 |
MAGNOLIA SOLAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Note 7 – Provision for Income Taxes
Deferred income taxes are determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.
As of December 31, 2015, there is no provision for income taxes, current or deferred.
December 31, 2015 | |||||
Net operating losses | $ | 1,371,196 | |||
Valuation allowance | (1,371,196 | ) | |||
$ | - |
At December 31, 2015, the Company had a net operating loss carry forward in the amount of approximately $4,000,000 available to offset future taxable income through 2035. The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods.
A reconciliation of the Company’s effective tax rate as a percentage of income before taxes and federal statutory rate for the years ended December 31, 2015 and 2014 is summarized below.
Federal statutory rate | (34.0 | )% | |||
State income taxes, net of federal | 0.0 | ||||
Valuation allowance | 34.0 | ||||
0.0 | % |
F-21 |
MAGNOLIA SOLAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Note 8 – Commitments and Contingencies
Office Lease
The Company leases office facilities located in Woburn, MA under a lease agreement that expires December 30, 2016. The Company leased additional office facilities at a second location in Albany, NY under a lease agreement that was canceled effective October 31, 2015. Rent expense for the Company’s facilities for the years ended December 31, 2015 and December 31, 2014 totaled $15,009 and $18,143, respectively.
The future minimum lease payments due under the above mentioned non-cancelable lease agreement is as follows:
Year ending December 31, | |||||
2016 | $ | 4,212 | |||
$ | 4,212 |
Contract Related Fees
As part of the contract to develop its products, the Company has agreed to pay the contractor 1.5% of future New York state manufactured sales, and 5% of future non-New York state manufactured sales until the entire funds paid by the contractor have been repaid, or 15 years, whichever comes first. As of December 31, 2015, the Company has $1,251,885 of contract related expenses, all of which will be owed to the contractor, contingent upon the sale of the Company’s product. The Company has not accrued a liability as management has determined that it is not probable sales will occur prior to the 15 year expiration of the obligation.
Note 9 - Concentration of Credit Risk
The Company maintains its cash in one bank deposit account, which at times may exceed the federally insured limits of $250,000 that exist through December 31, 2015. At December 31, 2015, the Company did not have any uninsured deposits.
F-22 |
MAGNOLIA SOLAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Note 9 - Concentration of Credit Risk (continued)
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable. The Company extends credit based on the customers’ financial conditions. The Company does not require collateral or other security to support customer receivables. Credit losses, when realized, have been within the range of management’s expectations. To further reduce credit risk associated with accounts receivable, the Company performs periodic credit evaluations of its customers.
December 31, 2015 | December 31, 2014 | ||||||||
Concentrations in accounts receivable: | |||||||||
Customer A | 100 | % | * | ||||||
Customer B | * | 60 | % | ||||||
Customer C | * | 40 | % |
December 31, 2015 | December 31, 2014 | ||||||||
Concentrations in net revenue: | |||||||||
Customer A | 93 | % | 90 | % |
* Customer did not exceed 10% for the respective year.
Note 10 - Fair Value Measurements
The Company adopted certain provisions of ASC Topic 820. ASC 820 defines fair value, provides a consistent framework for measuring fair value under generally accepted accounting principles and expands fair value financial statement disclosure requirements. ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy:
Level 1 | Quoted prices in active markets for identical assets or liabilities. The Company's Level 1 assets consist of cash and cash equivalents. | |
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
F-23 |
MAGNOLIA SOLAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Note 10 - Fair Value Measurements (continued)
Financial assets and liabilities measured at fair value on a recurring basis are summarized below:
December 31, 2015 | |||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||
Cash | $ | 45,870 | $ | - | $ | - | $ | 45,870 | |||||||||
Total assets | $ | 45,870 | $ | - | $ | - | $ | 45,870 | |||||||||
Original Issue Discount Senior Secured Convertible Promissory Notes | $ | - | $ | - | $ | 2,400,000 | $ | 2,400,000 | |||||||||
Total liabilities | $ | - | $ | - | $ | 2,400,000 | $ | 2,400,000 |
December 31, 2014 | |||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||
Cash | $ | 25,127 | $ | - | $ | - | $ | 25,127 | |||||||||
Total assets | $ | 25,127 | $ | - | $ | - | $ | 25,127 | |||||||||
Original Issue Discount Senior Secured Convertible Promissory Notes | $ | - | $ | - | $ | 2,400,000 | $ | 2,400,000 | |||||||||
Total liabilities | $ | - | $ | - | $ | 2,400,000 | $ | 2,400,000 |
F-24 |
MAGNOLIA SOLAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Note 10 - Fair Value Measurements (continued)
Original Issue Discount Senior Secured Convertible Promissory Notes | |||||
Balance, January 1, 2014 | $ | 2,400,000 | |||
Realized gains (losses) | - | ||||
Unrealized gains (losses) relating to instruments still held at the reporting date | - | ||||
Purchases, sales, issuances and settlements, net | - | ||||
Discount on notes | - | ||||
Amortization of discount on notes | - | ||||
Conversion of notes to common stock | - | ||||
Balance, December 31, 2014 | $ | 2,400,000 | |||
Realized gains (losses) | - | ||||
Unrealized gains (losses) relating to instruments still held at the reporting date | - | ||||
Purchases, sales, issuances and settlements, net | - | ||||
Discount on notes | - | ||||
Amortization of discount on notes | - | ||||
Balance, December 31, 2015 | $ | 2,400,000 |
F-25 |
MAGNOLIA SOLAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Note 11 – Subsequent Events
On January 19, 2016, the Company issued 6,283 shares of common stock for payment in lieu of cash of interest equal to $60,000.
On January 29, 2016, the Company entered into a Merger Agreement with Ecoark providing, among other things, for the acquisition of Ecoark by the Company in a share for share exchange pursuant to which it is contemplated that at the closing Ecoark shareholders will own approximately 95% of the outstanding share of the Company. The Company filed a 14A and is awaiting approval from the SEC on certain proposals to amend the Articles of Incorporation to increase of the authorized shares of common stock to 100,000,000 shares, to effect the creation of 5,000,000 shares of "blank check" preferred stock, to approve a reverse stock split of the common stock 1 for 250, and to change the name of the corporation to Ecoark Holdings Inc. Upon approval by the SEC, it is anticipated that the merger will be completed in March 2016.
On January 29, 2016, the Company entered into an agreement with holders of the Notes Payable as mentioned in Note 6 to extend the term of the note to June 30, 2016. The notes will convert to equity if the merger is completed.
Management has evaluated subsequent events for the disclosure and/or recognition in the financial statements through February 26, 2016 except Note 12 which is dated June 15, 2016, the date that the financial statements were issued.
Note 12 – Restatement of Financial Statements
On March 18, 2016, the Company effected the reverse stock split of its common stock by a ratio of 1 for 250 described in Note 11. In accordance with SEC SAB Topic 4:C, the Company has given retroactive effect to the reverse split by adjusting the number of shares in the consolidated balance sheets, consolidated statements of operations, consolidated statement of changes in stockholders’ deficit and accompanying notes. The retroactive treatment changed the reported common stock and additional paid-in capital in the balance sheets, the weighted average number of shares outstanding and resulting net loss per share in the statements of operations, the number of shares and related dollar amounts in the statement of changes in stockholders’ deficit, and various disclosures regarding number of shares and related amounts in these notes to consolidated financial statements.There was no effect on the net loss or total stockholders’ deficit as a result of the restatement.
The change became effective on March 18, 2016 when the reverse split was approved.
The merger with Ecoark described in Notes 1 and 11 was completed on March 24, 2016.
F-26 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Directors of
EcoArk, Inc. and Subsidiaries
Rogers, Arkansas
We have audited the accompanying consolidated balance sheets of EcoArk, Inc. and Subsidiaries (the “Company”) as of December 31, 2015 and 2014 and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of EcoArk, Inc. and Subsidiaries as of December 31, 2015 and 2014, and the results of its statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered an initial losssustained operating losses and has not yet commenced operations. This raises substantiveneeds to obtain additional financing to continue the development of their products. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2.1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.In my opinion, based on my audit, the
The consolidated financial statements referredwere restated to above present fairly,reflect the retroactive treatment of the Company’s Class A, B, C, and D Common Shares in all material respects,accordance with Accounting Standards Codification 805-40-45. This restatement had no effect on the financial position of Mobilis Relocation Services Inc. as of March 31, 2008 and the results of its operations, itsCompany’s net loss or total stockholders’ equity and its cash flows(deficit).
/s/ KBL, LLP
New York, NY
March 28, 2016, except for the period ended MarchNote 15 which is dated July 26, 2016
F-27 |
ECOARK INC. AND SUBSIDIARIES
DECEMBER 31, 2008, in conformity with United States generally accepted accounting principles.The Company has determined that it is not required to have, nor was I engaged to perform, an audit of the effectiveness of its documented internal controls over financial reporting.John Kinross-KennedyCertified Public AccountantIrvine, CaliforniaJune 9, 2008
2015 AND 2014
29
(Dollars in thousands, except per share, data) | ||||||||
2015 | 2014 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 1,962 | $ | 2,220 | ||||
Accounts receivable, net of allowance | 972 | 884 | ||||||
Inventory, net of reserves | 743 | 903 | ||||||
Prepaid expenses | 161 | 151 | ||||||
Related party receivable | - | 100 | ||||||
Other current assets | 130 | 25 | ||||||
Total current assets | 3,968 | 4,283 | ||||||
Property and equipment, net | 363 | 462 | ||||||
Intangible assets, net | 852 | 1,904 | ||||||
Other assets | 25 | - | ||||||
Total non-current assets | 1,240 | 2,366 | ||||||
TOTAL ASSETS | $ | 5,208 | $ | 6,649 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
CURRENT LIABILITIES | ||||||||
Current portion of long-term debt | $ | 3,175 | $ | 3,027 | ||||
Current portion of long-term debt - related parties | 1,329 | 6,176 | ||||||
Note payable – bank | - | 250 | ||||||
Accounts payable | 1,074 | 967 | ||||||
Accrued expenses | 503 | 209 | ||||||
Accrued interest | 40 | 148 | ||||||
Deferred revenue | - | 142 | ||||||
Total current liabilities | 6,121 | 10,919 | ||||||
NON-CURRENT LIABILITIES | ||||||||
Long-term debt, net of current portion | - | 171 | ||||||
Long-term debt - related parties, net of current portion | - | 3,111 | ||||||
Total non-current liabilities | - | 3,282 | ||||||
COMMITMENTS AND CONTINGENCIES | - | - | ||||||
Total liabilities | 6,121 | 14,201 | ||||||
STOCKHOLDERS' EQUITY (DEFICIT) (Numbers of shares rounded to thousands) (Restated) | ||||||||
Preferred stock, $0.001 par value; 5,000 shares authorized, none issued | - | - | ||||||
Common stock $0.001 par value; 100,000 shares authorized; 27,706 and 27,643 issued and outstanding as of December 31, 2015 and 2014, respectively | 28 | 28 | ||||||
Additional paid-in-capital | 35,796 | 18,660 | ||||||
Subscription receivable | (55 | ) | (31 | ) | ||||
Accumulated deficit | (36,587 | ) | (26,085 | ) | ||||
Total stockholders' equity (deficit) before non-controlling interest | (818 | ) | (7,428 | ) | ||||
Non-controlling interest | (95 | ) | (124 | ) | ||||
Total stockholders' equity (deficit) | (913 | ) | (7,552 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 5,208 | $ | 6,649 |
The accompanying notes are an integral part of these consolidated financial statements.30
MOBILIS RELOCATION SERVICES INC. | ||||||
(A Development Stage Company) | ||||||
Statement of Operations | ||||||
| ||||||
For the period | ||||||
of Inception, | ||||||
For the three | For the | from Nov. 19, | ||||
months ended | period ended | 2007 through | ||||
March 31, | March 31, | March 31, | ||||
2008 | 2008 | 2008 | ||||
Revenues | $ - | $ - | $ - | |||
| ||||||
Costs and Expenses | ||||||
| ||||||
Royalties | ||||||
Consulting Expense | 3,000 | 3,000 | 3,000 | |||
Professional Fees | - | - | - | |||
Other General & Administrative | 1,477 | 1,477 | 1,477 | |||
| ||||||
Total Expenses | 4,477 | 4,477 | 4,477 | |||
|
| |||||
Operating Loss | (4,477) | (4,477) | (4,477) | |||
| ||||||
Net Income (Loss) | $ (4,477) | $ (4,477) | $ (4,477) | |||
=========== | =========== | ============ | ||||
| ||||||
Basic and Dilutive net loss per share | $ (0) | $ (0) | ||||
=========== | =========== | |||||
| ||||||
Weighted average number of shares | ||||||
outstanding, basic and diluted | 1,680,000 | 1,145,455 | ||||
=========== | =========== |
F-28 |
ECOARK INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(Dollars in thousands, except per share, data) | ||||||||
2015 | 2014 | |||||||
REVENUES | ||||||||
Revenue from product sales | $ | 5,167 | $ | 4,378 | ||||
Revenue from services | 2,701 | 1,639 | ||||||
7,868 | 6,017 | |||||||
COST OF REVENUES | ||||||||
Cost of product sales | 4,960 | 4,298 | ||||||
Cost of services | 1,178 | 726 | ||||||
6,138 | 5,024 | |||||||
GROSS PROFIT | 1,730 | 993 | ||||||
OPERATING EXPENSES: | ||||||||
Salaries and salary related costs, including stock based compensation | 3,791 | 2,836 | ||||||
Professional fees and consulting | 3,651 | 5,311 | ||||||
General and administrative | 1,636 | 1,630 | ||||||
Depreciation and amortization | 1,226 | 1,708 | ||||||
Research and development | 1,114 | 1,053 | ||||||
Total operating expenses | 11,418 | 12,538 | ||||||
Loss from operations | (9,688 | ) | (11,545 | ) | ||||
OTHER EXPENSE: | ||||||||
Interest expense, net of interest income | (785 | ) | (1,270 | ) | ||||
Loss from continuing operations before provision for income taxes | (10,473 | ) | (12,815 | ) | ||||
PROVISION FOR INCOME TAXES | - | - | ||||||
LOSS FROM CONTINUING OPERATIONS | (10,473 | ) | (12,815 | ) | ||||
DISCONTINUED OPERATIONS | ||||||||
Loss from discontinued operations | - | (1,449 | ) | |||||
Gain (loss) on disposal of operations | - | - | ||||||
LOSS FROM DISCONTINUED OPERATIONS | - | (1,449 | ) | |||||
NET LOSS | (10,473 | ) | (14,264 | ) | ||||
NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTEREST | 29 | (129 | ) | |||||
NET LOSS ATTRIBUTABLE TO CONTROLLING INTEREST | $ | (10,502 | ) | $ | (14,135 | ) | ||
NET LOSS PER SHARE (RESTATED) | ||||||||
Basic | $ | (0.36 | ) | $ | (0.51 | ) | ||
Diluted | $ | (0.36 | ) | $ | (0.51 | ) | ||
SHARES USED IN CALCULATION OF NET LOSS PER SHARE (RESTATED) | (Number of shares in thousands) | |||||||
Basic | 29,344 | 27,575 | ||||||
Diluted | 29,395 | 27,922 |
The accompanying notes are an integral part of these consolidated financial statements
F-29 |
ECOARK INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31,MOBILIS RELOCATION SERVICES INC. (A Development Stage Company) Statement of Stockholders' Equity (Deficit) For the period ended March 31, 2008 Accumulated Additional Deficit During Paid-in Development Shares Amount Capital Stage Total Balances at November 19, 2007 - $ - $ - $ - $ - Common stock issued for cash in January, 2008 at $0.01 per share 1,500,000 1,500 13,500 15,000 Common stock issued for cash in February, 2008 at $0.02 per share 800,000 800 15,200 16,000 Common stock issued for cash in March, 2008 at $0.02 per share 1,100,000 1,100 20,900 22,000 Net loss, period ended March 31, 2008 (4,477) (4,477) Balances at Dec. 31, 1983 3,400,000 $ 3,400 $ 49,600 $ (4,477) $ 48,523 ======== ======== ========= ========== =========
2015 AND 2014 (RESTATED)
(Dollar amounts and number of shares in thousand) | ||||||||||||||||||||||||||||||||||||
Preferred | Common | Additional Paid-In- | Subscription | Accumulated | Non- controlling | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Receivable | Deficit | Interest | Total | ||||||||||||||||||||||||||||
Balance at January 1, 2014 | - | $ | - | 24,135 | $ | 24 | $ | 12,880 | - | $ | (11,950 | ) | $ | 5 | $ | 959 | ||||||||||||||||||||
Shares issued for cash, net of expenses | - | - | 2,333 | 2 | 5,172 | $ | (31 | ) | - | - | 5,143 | |||||||||||||||||||||||||
Shares issued for services rendered | - | - | 1,175 | 2 | 2,936 | - | - | - | 2,938 | |||||||||||||||||||||||||||
Repurchase of treasury shares | - | - | - | - | (3,116 | ) | - | - | - | (3,116 | ) | |||||||||||||||||||||||||
Re-issuance of treasury shares for company formation | - | - | - | - | 28 | - | - | - | 28 | |||||||||||||||||||||||||||
Re-issuance of treasury shares for services rendered | - | - | - | - | 568 | - | - | - | 568 | |||||||||||||||||||||||||||
Stock based compensation - options | - | - | - | - | 192 | - | - | - | 192 | |||||||||||||||||||||||||||
Net loss for the year | - | - | - | - | - | - | (14,135 | ) | (129 | ) | (14,264 | ) | ||||||||||||||||||||||||
Balance at December 31, 2014 | - | - | 27,643 | 28 | 18,660 | (31 | ) | (26,085 | ) | (124 | ) | (7,552 | ) | |||||||||||||||||||||||
Re-issuance of treasury shares for cash, net of expenses | - | - | - | - | 8,485 | (55 | ) | - | - | 8,430 | ||||||||||||||||||||||||||
Shares issued for services rendered | - | - | 63 | - | 175 | - | - | - | 175 | |||||||||||||||||||||||||||
Collection of subscription receivable | - | - | - | - | - | 31 | - | - | 31 | |||||||||||||||||||||||||||
Re-issuance of treasury shares for services rendered | - | - | - | - | 719 | - | - | - | 719 | |||||||||||||||||||||||||||
Re-issuance of treasury shares for debt conversion | - | - | - | - | 7,391 | - | - | - | 7,391 | |||||||||||||||||||||||||||
Stock based compensation - options | - | - | - | - | 366 | - | - | - | 366 | |||||||||||||||||||||||||||
Net loss for the year | - | - | - | - | - | - | (10,502 | ) | 29 | (10,473 | ) | |||||||||||||||||||||||||
Balance at December 31, 2015 | - | $ | - | 27,706 | $ | 28 | $ | 35,796 | $ | (55 | ) | $ | (36,587 | ) | $ | (95 | ) | $ | (913 | ) |
The accompanying notes are an integral part of these consolidated financial statements
F-30 |
ECOARK INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS32
MOBILIS RELOCATION SERVICE INC | |||||||||
(A Development Stage Company) | |||||||||
Statements of Cash Flows | |||||||||
For the period | |||||||||
of Inception, | |||||||||
For the three | For the | from Nov. 19, | |||||||
months ended | period ended | 2007 through | |||||||
March 31, | March 31, | March 31, | |||||||
2008 | 2008 | 2008 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||
Net Income (Loss) | $ (4,477) | $ (4,477) | $ (4,477) | ||||||
Adjustments to reconcile net loss to net cash | |||||||||
used by operating activities: | |||||||||
Change in operating assets and liabilities: | |||||||||
Increase (Decrease) in accounts payable | 1,441 | 1,441 | 1,441 | ||||||
Net Cash provided by (used by) | |||||||||
Operating Activities | (3,036) | (3,036) | (3,036) | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||
Net Cash (used by) Investing Activities | - | - | - | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||
Proceeds from the sale of Common Stock | 53,000 | 53,000 | 53,000 | ||||||
Net Cash provided by Financing Activities | 53,000 | 53,000 | 53,000 | ||||||
NET INCREASE IN CASH | 49,964 | 49,964 | 49,964 | ||||||
CASH AT BEGINNING OF PERIOD | - | - | - | ||||||
CASH AT END OF PERIOD | $ 49,964 | $ 49,964 | $ 49,964 | ||||||
=========== | =========== | ============ | |||||||
CASH PAID FOR: | |||||||||
Interest | $ - | $ - | $ - | ||||||
Income Taxes | $ - | $ - | $ - |
(Dollars in thousands) | ||||||||
2015 | 2014 | |||||||
Cash flows from operating activities: | ||||||||
Net loss attributable to controlling interest | $ | (10,502 | ) | $ | (14,135 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 1,226 | 1,708 | ||||||
Stock-based compensation - options | 366 | 192 | ||||||
Shares of common stock issued for services rendered | 175 | 2,938 | ||||||
Shares of treasury stock re-issued for services rendered, company formation | 719 | 596 | ||||||
Change in non-controlling interest on cash | 29 | (129 | ) | |||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (88 | ) | (671 | ) | ||||
Inventory | 160 | 93 | ||||||
Prepaid expenses | (10 | ) | 13 | |||||
Other assets | (130 | ) | 38 | |||||
Accounts payable | 107 | 123 | ||||||
Accrued expenses | 294 | 103 | ||||||
Accrued interest | 125 | 977 | ||||||
Deferred revenue | (142 | ) | 142 | |||||
Net cash used in operating activities | (7,671 | ) | (8,012 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (60 | ) | (197 | ) | ||||
Collections (advances) on notes receivable - related party | 100 | (100 | ) | |||||
Acquisition of intangible assets | (15 | ) | - | |||||
Net cash provided by (used in) investing activities | 25 | (297 | ) | |||||
Cash flows from financing activities: | ||||||||
Proceeds from the issuance of common stock, net of fees | 31 | 5,143 | ||||||
Re-issuance of treasury shares for cash, net of expenses | 8,430 | - | ||||||
Proceeds from the issuances of long-term debt | - | 3,000 | ||||||
Repayments of debt | (273 | ) | (26 | ) | ||||
Proceeds from the issuances of long-term debt - related parties | 1,875 | 5,259 | ||||||
Repayments of long-term debt - related parties | (2,675 | ) | (3,199 | ) | ||||
Net cash provided by financing activities | 7,388 | 10,177 | ||||||
NET INCREASE (DECREASE) IN CASH | (258 | ) | 1,868 | |||||
Cash - beginning of the year | 2,220 | 352 | ||||||
Cash - end of the year | $ | 1,962 | $ | 2,220 | ||||
SUPPLEMENTAL DISCLOSURES: | ||||||||
Cash paid for interest | $ | 551 | $ | 23 | ||||
Cash paid for income taxes | $ | - | $ | 1 | ||||
SUMMARY OF NONCASH ACTIVITIES: | ||||||||
Treasury stock re-purchased for long-term debt related parties | $ | - | $ | 2,500 | ||||
Treasury stock re-purchased for release of guarantee | $ | 393 | $ | - | ||||
Treasury stock re-purchased for sale of net assets - SA Concepts | $ | - | $ | 616 | ||||
Treasury stock re-issued for debt conversion - related parties | $ | 7,391 | $ | - | ||||
Accrued interest converted into debt - related parties | $ | 235 | $ | 1,400 |
The accompanying notes are an integral part of these consolidated financial statements33
F-31 |
ECOARK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the Period ended March
(DOLLAR AMOUNTS and shares IN THOUSANDS, EXCEPT PER SHARE data)
YEARS ENDED DECEMBER 31, 2008
NOTE 1 - BUSINESS1: ORGANIZATION AND CONTINUED OPERATIONSMobilis Relocation Services Inc. was organized under the laws of the State of Nevada on November 19, 2007. The Company was formed for the purpose of engaging in all lawful businesses. The Company’s authorized capital consisted of 75,000,000 shares of $0.001 par value common voting stock.The financial statements presented include all adjustments which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the period presented in accordance with the accounting principles generally accepted in the United States of America. All adjustments are of a normal recurring nature.Current Business of the CompanyThe Company had no material business operations from inception November 19, 2007 to March 31, 2008. The company formed plans to offer a resource for individual or family relocation / moving needs. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESCash
Nature of Business and equivalentsCashOrganization
EcoArk Inc. and equivalentsSubsidiaries is an innovative and growth-oriented company founded in 2011 that develops and deploys intelligent technologies and products in order to meet the demand for sustainable, integrated solutions to contemporary business needs. EcoArk Inc. is a holding company that integrates the business of its subsidiaries (see detail below).
Eco3D, LLC (“Eco3D”) is located in Phoenix, Arizona and provides customers with the latest 3D technologies. Eco3D was formed by Ecoark in November 2013 and Ecoark owns 65% of the LLC. The remaining 35% is reflected as non-controlling interests. Eco3D provides 3D mapping, modeling, and consulting services for clients in retail, construction, healthcare, and multiple other industries throughout the United States and overseas. Eco3D is transitioning businesses from 2D technology that has existed for hundreds of years, to a world of digital 3D. Eco3D incorporates a variety of 3D technologies to achieve customer goals and objectives. Utilizing several techniques, Eco3D can capture existing conditions – topography, buildings, exterior/interior spaces, etc. – in highly accurate detail that allows for 2D and 3D measurement. These measurements form the basis for analysis, design, documentation, and quality control.
Eco360, LLC (“Eco360”) is located in Bentonville, Arkansas and is engaged in research and development activities. Eco360 was formed in November 2014 by Ecoark.
Pioneer Products, LLC (“Pioneer Products”) is located in Bentonville, Arkansas and is involved in the selling of recycled plastic products and other products. In addition to a strong and successful relationship with the world’s largest retailer, Pioneer Products also has vendor relationships with other key retailers. As such, Pioneer strategically leverages its role as a trusted supplier to these retailers with existing and new products. This subsidiary also recovers plastic waste from retail supply chains and creates new consumer products with the reclaimed materials. Pioneer Products was purchased by Ecoark in 2012.
Intelleflex Corporation (“Intelleflex”) is located in San Jose, California and provides food retailers and suppliers intelligent, on-demand solutions for retailers and companies that ship and store products for perishable food quality management. Intelleflex's ZEST Data Services is a secure, multi-tenant cloud-based data collection platform for aggregating and real-time permission-based sharing and analysis of information. ZEST Fresh, a fresh food management solution that utilizes the ZEST Data Service platform, focuses on three primary value propositions – consistent food quality, reduced waste, and improved food safety. ZEST Fresh empowers workers with real-time analytic tools and alerts that improve efficiency while driving quality consistency through best practice adherence on every pallet. ZEST Delivery provides real-time monitoring and control for prepared food delivery containers, helping delivery and dispatch personnel ensure the quality and safety of delivered food. Intelleflex was purchased by Ecoark in September 2013.
Principles of Consolidation
The consolidated financial statements include investments with initial maturitiesthe accounts of three months or less.Fair ValueEcoArk, Inc. and its subsidiaries, collectively referred to as “the Company”. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company is a holding company and holds one hundred percent of Financial Instruments
Eco360, Pioneer and Intelleflex. EcoArk owns 65% of Eco3D and the remaining 35% interest is owned by executives of Eco3D.
The Company applies the guidance of Topic 810 “Consolidation” of the Financial Accounting Standards Board issued Statement of Financial(FASB) Accounting Standards (“SFAS”) No. 107, “Disclosures About Fair ValueCodification (ASC) to determine whether and how to consolidate another entity. Pursuant to ASC Paragraph 810-10-15-10 all majority-owned subsidiaries—all entities in which a parent has a controlling financial interest—shall be consolidated except when control does not rest with the parent. Pursuant to ASC Paragraph 810-10-15-8, the usual condition for a controlling financial interest is ownership of Financial Instruments.” SFAS No. 107 requires disclosurea majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of fair value information about financial instruments when it is practicable to estimate that value. The carrying amountsmore than 50 percent of the Company’s financial instrumentsoutstanding voting shares of another entity is a condition pointing toward consolidation. The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other stockholders, or by court decree.
Noncontrolling Interests
In accordance with ASC 810-10-45,Noncontrolling Interests in Consolidated Financial Statements,the Company classifies noncontrolling interests as a component of Marchequity within the consolidated balance sheets. For the years ended December 31, 2008 approximate their respective fair values because2015 and 2014, net income or (loss) attributable to noncontrolling interests of the short-term nature of these instruments. Such instruments consist of cash, accounts payable$29 and accrued expenses. The fair value of related party payables($129), respectively, is not determinable.Income TaxesThe Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the Company’s net loss.
Basis of Presentation
The accompanying consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periodshave been prepared in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The Company generated deferred tax credits through net operating loss carryforwards. However, a valuation allowance of 100% has been established, as the realization of the deferred tax credits is not reasonably certain, based on going concern considerations outlined below.
34
F-32 |
ECOARK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS and liquidation of liabilities in the normal course of business. The Company had an initial operating loss of $4,477. The Company had a positive cash flow of $49,964, from the sale of stock in the period ended Marchshares IN THOUSANDS, EXCEPT PER SHARE data)
YEARS ENDED DECEMBER 31, 2008. The company has a shareholders’ equity of $48,523 at March 31, 2008. 2015 AND 2014
Reclassification
The Company has not yet established an ongoing sourcereclassified certain amounts in the 2014 consolidated financial statements to comply with the 2015 presentation. These changes principally consist of revenues sufficient to cover its operatingstating $1,053 of research and development costs and to allow it to continue as a going concern. The abilitycomponent of the Company to continueoperating expenses rather than as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease development of operations.In order to continue as a going concern, develop a reliable sourcecost of revenues and achieve a profitable level of operationshad no effect on the Company will need, among other things, additional capital resources. Management’s plans to continue as a going concern include raising additional capital through sales of common stock. In the interim, shareholders of the Company are committed to meeting its minimal operating expenses. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.Development-Stage CompanyThe Company is considered a development-stage company, having no operating revenues during the period presented, as defined by Statement of Financial Accounting Standards (“SFAS”) No. 7. SFAS No. 7 requires companies to report their operations, shareholders deficit and cash flows since inception through the date that revenues are generated from management’s intended operations, among other things. Management has defined inception as November 19, 2007. Since inception, the Company has incurred an operatingnet loss of $4,477, much of which related to consultants, as a means to generate working capital. The Company’s working capital has been generated through the sales of common stock. Management has provided financial data since November 19, 2007 “Inception” in the financial statements, as a means to provide readers of the Company’s financial information to make informed investment decisions.
for 2014.
Use of Estimates
The preparation of theconsolidated financial statements in conformity with accounting principles generally accepted in the United StatesU.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. These estimates include, but are not limited to, management’s estimate of provisions required for non-collectible accounts receivable, obsolete or slow-moving inventory, and determination of the fair value of stock awards issued. Actual results could differ from those estimates.
Cash
Cash consists of cash, demand deposits and money market funds with an original maturity of three months or less.
Inventory
Inventory is stated at the lower of cost or market. Inventory cost is determined by specific identification on a first in first out basis, and provisions are made to reduce slow-moving, obsolete, or unusable inventories to their estimated useful or scrap values.
Property and Equipment and Long-Lived Assets
Property and equipment is stated at cost. Depreciation on property and equipment is computed using the straight-line method over the estimated useful lives of the assets, which range from three to ten years for all classes of property and equipment, except leasehold improvements which are depreciated over the shorter of 10 years or the term of the lease.
FASB Codification Topic 360 “Property, Plant and Equipment” (ASC 360), requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The application of ASC 360 has not materially affected the Company’s reported earnings, financial condition or cash flows.
Intangible assets with definite useful lives are stated at cost less accumulated amortization. Intangible assets capitalized as of December 31, 2015 and 2014 represent the valuation of the Company-owned patents and customer lists. These intangible assets are being amortized on a straight-line basis over their estimated average useful lives of thirteen and a half years for the patents and three years for the customer lists. Expenditures on intangible assets through the Company’s filing of patent and trademark protection for Company-owned inventions are expensed as incurred.
The Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment review include the following:
1. Significant underperformance relative to expected historical or projected future operating results;
2. Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and
3. Significant negative industry or economic trends.
When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows. The Company tested the carrying value of its intangible assets for recoverability. The projected undiscounted cash flows exceeded the carrying value of these assets by a significant amount. The Company did not consider it necessary to record any impairment charges during the years ended December 31, 2015 and 2014.
Advertising Expense
The Company expenses advertising costs, as incurred. Advertising expenses for the years ended December 31, 2015 and 2014 are included in other general and administrative costs.
F-33 |
ECOARK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS and shares IN THOUSANDS, EXCEPT PER SHARE data)
YEARS ENDED DECEMBER 31, 2015 AND 2014
Software Costs
The Company accounts for software development costs in accordance with ASC 985.730, Software Research and Development, and ASC 985-20, Costs of Software to be Sold, Leased or Marketed. ASC 985-20 requires that costs related to the development of the Company’s productsbe capitalized as an asset when incurred subsequent to the point at which technological feasibility of the enhancement is established. ASC 985-20 specifies that “technological feasibility” can only be established by the completion of a “detailed program design” or if no such design is prepared, upon the completion of a “working model” of the software. The Company’s development process does not include a detailed program design. Management believes that such a design could be produced in the early stages of development but would entail significant wasted expense and delay. Consequently, ASC 985-20 requires that development costs be recorded as an expense until the completion of a “working model”. In the Company’s case, the completion of a working model does not occur until shortly before the time when the software is ready for sale.
Research and Development Costs
Research and development costs are expensed as incurred.
Subsequent Events
Subsequent events have been evaluated up through March 28, 2016 except for Note 15 which is dated June 15, 2016, the date the financial statements were issued in accordance with ASC 855-10-50-1.
Shipping and Handling Costs
The Company reports shipping and handling revenues and their associated costs in revenue and cost of revenue, respectively. Shipping revenues and costs for the years ended December 31, 2015 and 2014 were nominal and included in cost of product sales.
Revenue Recognition
In regards to product revenue, product revenue primarily consists of the sale of electronic hardware, recycled plastics products, and recycled furniture. These subsidiaries recognize revenue when the following criteria have been met:
Evidence of an arrangement exists. The Company considers a customer purchase order, service agreement, contract, or equivalent document to be evidence of an arrangement.
Delivery has occurred. The Company’s standard transfer terms are free on board (FOB) shipping point. Thus, delivery is considered to have occurred when title and risk of loss have passed to the customer at the time of shipment.
The fee is fixed or determinable.The Company considers the fee to be fixed or determinable if the fee is not subject to refund or adjustment and payment terms are standard, which is generally 30-60 days.
Collection is deemed reasonably assured. Collection is deemed reasonably assured if it is expected that the customer will be able to pay amounts under the arrangement as payments become due. If it is determined that collection is not reasonably assured, then revenue is deferred and recognized upon cash collection.
The Company for its software revenue will recognize revenues in accordance with ASC 985-605, Software Revenue Recognition.
Revenue from software license agreements is recognized when persuasive evidence of an agreement exists, delivery of the software has occurred, the fee is fixed or determinable, and collectability is probable. In software arrangements that include more than one element, the Company allocates the total arrangement fee among the elements based on the relative fair value of each of the elements.
License revenue allocated to software products generally is recognized upon delivery of the products or deferred and recognized in future periods to the extent that an arrangement includes one or more elements to be delivered at a future date and for which fair values have not been established. Revenue allocated to maintenance agreements is recognized ratably over the maintenance term and revenue allocated to training and other service elements is recognized as the services are performed. If evidence of fair value does not exist for all elements of a license agreement and post customer support (PCS) is the only undelivered element, then all revenue for the license arrangement is recognized ratably over the term of the agreement as license revenue. If evidence of fair value of all undelivered PCS elements exists but evidence does not exist for one or more delivered elements, then revenue is recognized using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue.
F-34 |
ECOARK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS and shares IN THOUSANDS, EXCEPT PER SHARE data)
YEARS ENDED DECEMBER 31, 2015 AND 2014
Cost of license revenue primarily includes product, delivery, and royalty costs. Cost of maintenance and service revenue consists primarily of labor costs for engineers performing implementation services, technical support, and training personnel as well as facilities and equipment costs.
The Company enters into arrangements that can include various combinations of software, services, and hardware. Where elements are delivered over different periods of time, and when allowed under U.S. GAAP, revenue is allocated to the respective elements based on their relative selling prices at the inception of the arrangement, and revenue is recognized as each element is delivered. The Company uses a hierarchy to determine the fair value to be used for allocating revenue to elements: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence, and (iii) best estimate of selling price (“ESP”). For software elements, the Company follows the industry specific software guidance which only allows for the use of VSOE in establishing fair value. Generally, VSOE is the price charged when the deliverable is sold separately or the price established by management for a product that is not yet sold if it is probable that the price will not change before introduction into the marketplace.
ESPs are established as best estimates of what the selling prices would be if the deliverables were sold regularly on a stand-alone basis. The process for determining ESPs requires judgment and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each deliverable.
When the arrangement with a customer includes significant production, modification, or customization of the software, we recognize the related revenue using the percentage-of-completion method in accordance with the accounting guidance and certain production-type contracts contained in ASC 605-35, Construction-Type and Production-Type Contracts. We use the percentage of completion method provided all of the following conditions exist:
● | the contract includes provisions that clearly specify the enforceable rights regarding goods or services to be provided and received by the parties, the consideration to be exchanged and the manner and terms of settlement; |
● | the customer can be expected to satisfy its obligations under the contract; |
● | the Company can be expected to perform its contractual obligations; and |
● | reliable estimates of progress towards completion can be made. |
We measure completion based on achieving milestones detailed in the agreements with the customers. Costs of providing services, including services accounted for in accordance with ASC 605-35, are expensed as incurred.
Accounts Receivable and Concentration of Credit Risk
The Company considers accounts receivable, net of allowance for returns and doubtful accounts, to be fully collectible. The allowance is based on management’s estimate of the overall collectability of accounts receivable, considering historical losses and economic conditions. Based on these same factors, individual accounts are charged off against the allowance when management determines those individual accounts are uncollectible. Credit extended to customers is generally uncollateralized. Past-due status is based on contractual terms. Management has determined that the allowance for doubtful accounts at December 31, 2015 and 2014 was $2 and $0, respectively.
Uncertain Tax Positions
The Company follows ASC 740-10, “Accounting for Uncertainty in Income Taxes”. This requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. Management evaluates their tax positions on an annual basis.
The Company files income tax returns in the U.S. federal tax jurisdiction and various state tax jurisdictions. The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they were filed.
Stock-Based Compensation
The Company follows ASC 718-10“Share Based Payments”. The Company calculates compensation expense for all awards granted, but not yet vested, based on the grant-date fair values. Stock-based compensation expense for all awards granted is based on the grant-date fair values. The Company recognizes these compensation costs, net of an estimated forfeiture rate, on a pro rata basis over the requisite service period of each vesting tranche of each award. The Company considers voluntary termination behavior as well as trends of actual option forfeitures when estimating the forfeiture rate.
F-35 |
ECOARK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS and shares IN THOUSANDS, EXCEPT PER SHARE data)
YEARS ENDED DECEMBER 31, 2015 AND 2014
The Company measures compensation expense for its non-employee stock-based compensation under ASC 505-50, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”. The fair value of the option issued is used to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to expense and additional paid-in capital.
Fair Value of Financial Instruments
ASC 825, "Financial Instruments," requires the Company to disclose estimated fair values for its financial instruments. Fair value estimates, methods, and assumptions are set forth below for the Company's financial instruments: The carrying amount of cash, accounts receivable, prepaid and other current assets, accounts payable and accrued expenses, and accounts payable to related parties, approximate fair value because of the short-term maturity of those instruments. The Company does not utilize derivative instruments.
Recoverability of Long-Lived Assets
The Company reviews recoverability of long-lived assets on a periodic basis whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets. Fixed assets to be disposed of by sale will be carried at the lower of the then current carrying value or fair value less estimated costs to sell.
Earnings (Loss) Per Share of Common Stock
Basic net income (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (EPS) include additional dilution from common stock equivalents, such as convertible notes, preferred stock, stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive for periods presented.
Fair Value Measurements
ASC 820, “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. ASC 820 classifies these inputs into the following hierarchy:
Level 1 inputs: Quoted prices for identical instruments in active markets.
Level 2 inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 inputs: Instruments with primarily unobservable value drivers.
Segment Information
The Company follows the provisions of ASC 280-10,“Disclosures about Segments of an Enterprise and Related Information”.This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions. For 2015 and 2014 the Company and its Chief Operating Decision Makers determined that the Company’s operations were divided into two segments: Products and Services. See Note 13 for segment information disclosures.
Related Party Transactions
Parties are considered to be related to the Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal stockholders of the Company, its management, members of the immediate families of principal stockholders of the Company and its management and other parties with which the Company may deal where one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions shall be recorded at fair value of the goods or services exchanged. Property purchased from a related party is recorded at the cost to the related party and any payment to or on behalf of the related party in excess of the cost is reflected as compensation or distribution to related parties depending on the transaction.
A related party receivable of $100 outstanding at December 31, 2014 was collected in August 2015.
F-36 |
ECOARK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS and shares IN THOUSANDS, EXCEPT PER SHARE data)
YEARS ENDED DECEMBER 31, 2015 AND 2014
Recently Issued Accounting Standards
In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, “Leases (Topic 842)”.ASU 2016-02 changes the accounting for leased assets, principally by requiring balance sheet recognition of assets under lease arrangements. It is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2018. The Company is currently in the process of evaluating the impact of the adoption of ASU 2016-02 on its consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis." ASU 2015-02 changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. It is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. The Company is currently in the process of evaluating the impact of the adoption of ASU 2015-02 on its consolidated financial statements.
In November 2014, the FASB issued ASU No. 2014-17, “Business Combinations – Pushdown Accounting.” The provisions of ASU 2014-17 require management to determining whether and at what threshold an acquiree (acquired entity) can reflect the acquirer’s accounting and reporting basis (pushdown accounting) in its separate financial statements. Since neither unit of this business combination is in the development stage, nor had recognizable revenues during this period the application of push down accounting would not be of significant value to the readers of these consolidated financial statements. The Company has not elected to apply pushdown accounting in its separate financial statements upon occurrence of this event.
During August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements—Going Concern.” The provisions of ASU 2014-15 require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company is currently assessing the impact of this ASU on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606), which supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition”, and most industry-specific guidance. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The amendments in ASU 2014-09 will be applied using one of two retrospective methods. The effective date will be the first quarter of the fiscal year ending December 31, 2018. The Company has not determined the potential effects on its financial statements.
There were other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
Going Concern
The Company commenced operations in 2011, and has experienced typical start-up costs and losses from operations resulting in an accumulated deficit of $36,587 since inception. The accumulated deficit as well as recurring losses of $10,502 and $14,135 for the years ended December 31, 2015 and 2014, and the working capital deficit of $2,153 as of December 31, 2015, have resulted in the uncertainty of the Company to continue as a going concern.
These consolidated financial statements of the Company have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period of time.
The Company plans to raise additional capital to carry out its business plan and following a reverse merger transaction in March 2016, the Company received $6,725 (see Note 14). The Company’s ability to raise additional capital through future equity and debt securities issuances is unknown. Obtaining additional financing, the successful development of the Company’s contemplated plan of operations, ultimately, to profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raises substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of the uncertainties.
F-37 |
ECOARK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS and shares IN THOUSANDS, EXCEPT PER SHARE data)
YEARS ENDED DECEMBER 31, 2015 AND 2014
NOTE 2:INVENTORY
Inventory, net of reserves, consisted of the following as of December 31, 2015 and 2014:
2015 | 2014 | |||||||
Inventory | $ | 1,363 | $ | 1,495 | ||||
Inventory Reserves | (620 | ) | (592 | ) | ||||
Total | $ | 743 | $ | 903 |
NOTE 3:PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31, 2015 and 2014:
2015 | 2014 | |||||||
Furniture and fixtures | $ | 110 | $ | 110 | ||||
Computers and software costs | 382 | 359 | ||||||
Machinery and equipment | 476 | 443 | ||||||
Leasehold improvements | 4 | 5 | ||||||
Total property and equipment | 972 | 917 | ||||||
Accumulated depreciation | (609 | ) | (455 | ) | ||||
Property and equipment, net | $ | 363 | $ | 462 |
Depreciation expense for the years ended December 31, 2015 and 2014 was $159 and $312, respectively. There was no impairment on these assets for this two-year period. The Company retired approximately $5 of fully depreciated property and equipment in 2015.
NOTE 4: INTANGIBLE ASSETS
The following is a summary of intangible assets as of December 31, 2015 and 2014:
2015 | 2014 | |||||||
Customer lists | $ | 3,980 | $ | 3,965 | ||||
Patents | 1,013 | 1,013 | ||||||
Total intangible assets | 4,993 | 4,978 | ||||||
Accumulated amortization | (4,141 | ) | (3,074 | ) | ||||
Intangible assets, net | $ | 852 | $ | 1,904 |
Amortization expense for the years ended December 31, 2015 and 2014 was $1,067 and $1,396, respectively. There was no impairment on these assets for this two-year period. Amortization amounts for the next five years are: $116, $116, $81, $75 and $75.
F-38 |
ECOARK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS and shares IN THOUSANDS, EXCEPT PER SHARE data)
YEARS ENDED DECEMBER 31, 2015 AND 2014
NOTE 5: LONG-TERM DEBT – RELATED PARTIES
The following is a summary of long-term debt – related parties as of December 31, 2015 and 2014:
2015 | 2014 | |||||||||
Promissory notes – shareholders | (a) | $ | - | $ | - | |||||
Promissory note – related party | (b) | 50 | 412 | |||||||
Promissory note #1 – CEO | (c) | 62 | 227 | |||||||
Promissory note #2 – CEO | (d) | - | 2,500 | |||||||
Promissory note #3 – CEO | (e) | 1,217 | - | |||||||
Note payable – various | (f) | - | 800 | |||||||
Note payable –SA Concepts | (g) | - | 74 | |||||||
Note payable – Goldenhawk | (h) | - | 3,674 | |||||||
Note payable - other | (i) | - | 1,600 | |||||||
Total | 1,329 | 9,287 | ||||||||
Less: current portion | (1,329 | ) | (6,176 | ) | ||||||
Long-term debt – related parties | $ | - | $ | 3,111 |
(a) | Note payable to shareholders commencing July 22, 2013 issued at an interest rate of 10% maturing September 22, 2013, secured by the fixed and intangible assets of Intelleflex. The principal balance of $1,100 remained outstanding accruing interest at the rate of 10% through November 16, 2014. On November 16, 2014 these notes along with accrued interest in the amount of $908, as well as principal of $1,174 and accrued interest of $493 (see note (c)) were grouped into new debt with a related company “Goldenhawk” referred to in (h). |
(b) | Unsecured note payable to former shareholder bearing interest at 5% per annum, with monthly principal and interest payments beginning in November 2014, maturing in November 2016. |
(c) | Note payable to the Company’s Chief Executive Officer (CEO), Randy May. In 2013 and 2014 the note was accruing interest at the rate of 10% through November 16, 2014. On November 16, 2014, the then outstanding principal of $1,174 and the accrued interest of $493 were combined with the outstanding balances of other shareholder notes in the principal amount of $1,100 and accrued interest of $908 (see note (a)) to create a new note with a related company “Goldenhawk” referred to in (h). The new note payable from November 17, 2014 through December 31, 2014 was an unsecured note bearing interest at a rate of 6% per annum, maturing in November 2015. On November 30, 2015, after monthly payments were being made, and additional amounts funded in March 2015 and May 2015 totaling $600, the Company along with the $2,500 (d below), combined these amounts into a new one year promissory note in the amount of $3,197 due November 30, 2016. Payments of $30 were made on this note in the first quarter of 2016. |
(d) | Unsecured note payable with the Company’s CEO, bearing interest at 6% per annum. Quarterly interest payments were due commencing February 2015, with the note maturing in November 2015. Note was the result of the value of the 5,000 Class A Common Shares re-acquired on November 16, 2014 from the CEO in an effort to raise capital without further dilution to the current shareholders. See (c) above for details on the extension of this note. |
(e) | Note payable with the Company’s CEO commencing November 30, 2015 at an interest rate of 6% per annum (see note c). The beginning principal balance of $3,197 was reduced by $1,980 on December 31, 2015 in exchange for 550 shares of Series A General Common Shares that were Treasury Shares owned by the Company. The remaining principal balance matures in November 2016. |
(f) | Various related party unsecured notes bearing interest at 10% per annum. Notes were to mature in January 2015, however were extended through August 2015 and fully paid off by August 2015. |
F-39 |
ECOARK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS and shares IN THOUSANDS, EXCEPT PER SHARE data)
YEARS ENDED DECEMBER 31, 2015 AND 2014
(g) | Note payable to SA Concepts upon sale of that Company on November 16, 2014. Original principal amount of $100. Note matured in March 2015 at which time it was paid off and there was no interest charged on this note. |
(h) | As noted in (a) and (c) above, this note commenced on November 16, 2014 as the result of the combination of two separate notes and accrued interest on those respective notes. Commencing November 16, 2014, this new note bears interest at the rate of 6% per annum, unsecured, with quarterly interest payments due commencing February 2015 and the note maturing in November 2015. Interest on this note was paid for the first 6 months, then the accrued interest was added to the principal and a new note was entered into on November 18, 2015, for a period of one year. This note along with the balance in the note referenced in (i) was converted to 1,503 shares of Series A General Common Shares that were Treasury Shares owned by the Company on December 31, 2015. |
(i) | Unsecured advances from related party Goldenhawk. This note was converted to Series A General Common Shares that were Treasury Shares owned by the Company (see (h)) on December 31, 2015. |
Interest expense on the long-term debt – related parties for the years ended December 31, 2015 and 2014 was $466 and $1,236, respectively.
NOTE 6: NOTE PAYABLE - BANK
The Company’s former subsidiary, SA Concepts, had a note payable with a bank that was due November 2014 at 5.5% interest per annum. The note was transferred to the Company upon the sale of SA Concepts. The note was secured by the property of the Company. This note was extended to February 2016 and was paid off in October 2015. The balance of this note at December 31, 2014 was $250.
NOTE 7: LONG-TERM DEBT
The following is a summary of long-term debt as of December 31, 2015 and 2014:
2015 | 2014 | |||||||||
Note payable – Celtic Bank | (a) | $ | 175 | $ | 198 | |||||
Note payable – B&B Merritt | (b) | 3,000 | 3,000 | |||||||
Total | 3,175 | 3,198 | ||||||||
Less: current portion | (3,175 | ) | (3,027 | ) | ||||||
Long-term debt | $ | - | $ | 171 |
(a) | Fifteen year note payable dated July 11, 2007 in the original principal amount of $1,250 with a bank guaranteed by the U.S. Small Business Administration with Pioneer, prior to the acquisition of Pioneer by the Company. Note accrued interest at the Prime Rate plus 2% (Prime rate 3.25% plus 2% for both December 31, 2015 and 2014). This note contained guarantees and first and second perfected security interests in personal property. The note was fully paid in January 2016. |
(b) | Note payable bearing interest at the rate of 10% per annum, unsecured, with quarterly interest payments commencing in January 2015, with the note maturing in October 2016. Upon maturity or anytime prior, so long as the Company has not exercised its right to prepay this note, the lender can exercise its option to convert this note to equity in the Company, with 30 day advance written notice, and acquire up to 1,500 unrestricted Class A Common Shares of the Company at $2.00 per share. The principal amount along with any accrued interest thereon, if converted to equity shall be deemed fully paid. As of December 31, 2015, no conversions of this debt have occurred. There was no bifurcation of the conversion option as the conversion is deemed to be conventional in nature. |
Interest expense on the long-term debt for the years ended December 31, 2015 and 2014 were $310 and $11, respectively.
F-40 |
ECOARK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS and shares IN THOUSANDS, EXCEPT PER SHARE data)
YEARS ENDED DECEMBER 31, 2015 AND 2014
NOTE 8: STOCKHOLDERS’ EQUITY (DEFICIT)
The capitalstructure of Ecoark, Inc. prior to the merger consisted of the four series of shares as described here.
On November 28, 2011, the Company was formed with three series’ of common stock authorizing a total of 50,000 shares as follows:
Series A General Common Shares – 38,000 authorized shares
Series B Common Shares – 10,000 authorized shares
Series C Common Shares – 2, 000 authorized shares
On April 29, 2013, the Certificate of Incorporation was amended to increase the authorized shares to 58,000 shares, designating a Series D Common Shares with an authorized limit of 8,000 shares.
On November 1, 2014, the Certificate of Incorporation was amended a second time to increase the authorized shares to 61,000 shares, increasing the Series C Common Shares authorized from 2,000 shares to 5,000 shares.
As a result of the merger transaction described in Note 14 and in accordance with ASC 805-40-45, the Company has given retroactive effect to certain share numbers and calculations by restating amounts (see Note 15).
Series A General Common Shares (“Series A Stock”) and Treasury Stock
The Series A Stock was incorporated with 38,000 shares authorized with a par value of $0.01.
Each share of Series A Stock represents the right to one (1) vote on all issues presented to shareholders for a vote. Series A shareholders will not have any cumulative voting rights.
Holders of Series A Stock shall be entitled to receive a dividend, if, when and as authorized and declared by the Board of Directors, out of assets of the Company legally available therefore.
Upon the voluntary or involuntary dissolution, liquidation or winding up on the affairs of the Company, after the payment in full of its debts and other liabilities, the remaining Company assets are to be distributed pro rata among the holders of the common stock.
All 38,000 shares of authorized Series A Stock were issued to the founders of the Company at par ($380) for services rendered to the Company in the start-up phase. As of December 31, 2015 and 2014, the 38,000 shares are issued, and there were 17,229 and 12,300 shares outstanding at December 31, 2015 and 2014, respectively.
The 1,771 and 6,700 share difference between issued shares and outstanding shares represent treasury stock. At various times in 2013 through 2014, the Company repurchased shares in various transactions, and re-issued some of these shares in other acquisitions of companies as well as for services rendered. The treasury stock is calculated at cost, and the value of the treasury stock at December 31, 2015 and 2014 are $928 and $3,514, respectively.
Series B Common Shares (“Series B Stock”)
The Series B Stock was incorporated with 10,000 shares authorized with a par value of $0.01.
Every fifty (50) shares of Series B Stock represent the right to one (1) vote on all issues presented to shareholders for a vote. Series B shareholders will not have any cumulative voting rights.
Holders of Series B Stock shall be entitled to receive a dividend, if, when and as authorized and declared by the Board of Directors, out of assets of the Company legally available therefore.
Upon the voluntary or involuntary dissolution, liquidation or winding up on the affairs of the Company, after the payment in full of its debts and other liabilities, the remaining Company assets are to be distributed pro rata among the holders of the common stock.
The Company issued 4,431 shares of Series B Stock in 2012 for $8,342. Of this amount the Company had a subscription receivable in the amount of $885 that was received in 2013. Additionally, in 2013, the Company issued 500 shares of Series B Stock for services valued at $800.
As of December 31, 2015 and 2014, the Company has 4,931 shares issued and outstanding.
F-41 |
ECOARK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS and shares IN THOUSANDS, EXCEPT PER SHARE data)
YEARS ENDED DECEMBER 31, 2015 AND 2014
Series C Common Shares (“Series C Stock”)
The Series C Stock was incorporated with 2,000 shares authorized with a par value of $0.01. On November 1, 2014, the Certificate of Incorporation was amended a second time to increase the authorized shares of the Series C Stock from 2,000 shares to 5,000 shares.
The Series C stockholders will have no voting rights.
Holders of Series C Stock shall be entitled to receive a dividend, if, when and as authorized and declared by the Board of Directors, out of assets of the Company legally available therefore.
Upon the voluntary or involuntary dissolution, liquidation or winding up on the affairs of the Company, after the payment in full of its debts and other liabilities, the remaining Company assets are to be distributed pro rata among the holders of the common stock.
In 2013, the Company issued 1,000 shares of Series C Stock for services rendered valued at $2,500; in 2014, the Company issued 675 shares of Series C Stock for services rendered valued at $1,688; and in 2015, the Company issued 63 shares of Series C Stock for services rendered valued at $175.
As of December 31, 2015 and 2014, the Company has 1,738 and 1,675 shares issued and outstanding.
Series D Common Shares (“Series D Stock”)
On April 29, 2013, the Certificate of Incorporation was amended to designate a new class of shares, Series D Stock with authorized shares of 8,000 shares.
The Series D Stock has a par value of $0.01.
Every fifty (50) shares of Series D Stock represent the right to one (1) vote on all issues presented to shareholders for a vote. Series B shareholders will not have any cumulative voting rights.
Holders of Series D Stock shall be entitled to receive a dividend, if, when and as authorized and declared by the Board of Directors, out of assets of the Company legally available therefore.
Upon the voluntary or involuntary dissolution, liquidation or winding up on the affairs of the Company, after the payment in full of its debts and other liabilities, the remaining Company assets are to be distributed pro rata among the holders of the common stock.
The Company issued 890 shares of Series D Stock in 2013 for $1,876. Additionally, in 2014, the Company issued 2,334 shares for $5,373 of which $31 is reflected was a subscription receivable and was collected in February 2015, and an additional 500 shares of Series D Stock for services valued at $1,250. No Series D Stock was issued in 2015.
As of December 31, 2015 and 2014, the Company has 3,723 shares issued and outstanding.
Series C Stock Options (“Series C Stock Options”)
On February 16, 2013, the Board of Directors approved the EcoArk Inc. 2013 Stock Option Plan (the “Plan”).The purposes of the Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees, directors and consultants, and to promote the success of the Company’s business. The Plan is expected to contribute to the attainment of these objectives by offering employees, directors and consultants the opportunity to acquire stock ownership interests in the Company, and other rights with respect to stock of the Company, and to thereby provide them with incentives to put forth maximum efforts for the success of the Company.
Awards under the Plan may only be granted in the form of nonstatutory stock options (“Options”) to purchase the Company's Series C Stock. The Company does not plan to register the Series C Stock under applicable securities laws and certificates evidencing shares of Series C Stock issued upon exercise may contain a legend restricting transfer thereof.
The maximum number of shares to be issued under the Plan is 5,000.
In May 2014, the Company granted 347 thousand Series C Stock Options to various employees and consultants of the Company. The Series C Stock Options have a term of 10 years, and the Series C Stock Options vest over a three-year period as follows: 25% immediately; 25% on the first anniversary date; 25% on the second anniversary date; and 25% on the third anniversary date. During 2015 the Company issued 313 thousand additional Series C Stock Options.
Management valued the Series C Stock Options utilizing the Black-Scholes Method, with the following criteria: stock price - $1.25; exercise price - $1.25; expected term – 10 years; discount rate – 0.25%; and volatility – 100%.
The Company records stock based compensation in accordance with ASC 718, and has recorded stock based compensation of $366 and $192 for the years ended December 31, 2015 and 2014, respectively.
The capital structure presented in the consolidated balance sheet gives retroactive effect to the merger transaction as described in Note 15.
F-42 |
ECOARK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS and shares IN THOUSANDS, EXCEPT PER SHARE data)
YEARS ENDED DECEMBER 31, 2015 AND 2014
NOTE 9: ACQUISITIONS
SA Concepts
On June 11, 2013, the Company, entered into a Stock Purchase Agreement (the “SPA”) with Sustainable Aerodynamic (“SA”) Concepts pursuant to which the Company issued from its shares held in Class A Stock 750 shares to three individuals valued at $426 to acquire 100% of SA Concepts. The Company sold this entity in November 2014. The acquisition was accounted for as a purchase of a business under ASC 805.
Intelleflex Corporation
On September 19, 2013, the Company acquired Intelleflex Corporation. The acquisition was accounted for as a purchase of a business under ASC 805.
The allocation of the purchase price was as follows
Cash | $ | 782 | ||
Inventory | 988 | |||
Prepaid expenses and other assets | 210 | |||
Fixed assets | 510 | |||
Intangible assets | 1,013 | |||
Accounts payable and other liabilities | (1,010 | ) | ||
Total | $ | 2,492 | ||
Cash | $ | 1,300 | ||
Retirement of debt | 1,192 | |||
Total consideration | $ | 2,492 |
The intangible assets represent acquired patents that were independently valued. The remaining useful life of these patents was 13.5 years as of the date purchased.
NOTE 10: COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases many of its operating and office facilities for various terms under long-term, non-cancelable operating lease agreements. These leases expire at various dates through 2018. Rent expense was approximately $412 and $415 for the years ended December 31, 2015 and 2014. Future minimum lease payments required under the operating leases are as follows: 2016 - $284, 2017 - $96, and 2018 - $68. In March 2016 the Company agreed to lease additional space adjoining its office in Phoenix, Arizona. This will increase the future minimum payments and extend them through 2019.
Settlement
In March 2016 the Company agreed to settle a dispute regarding a contract. The agreement requires the Company to pay $100 to certain parties within 30 days of the agreement. The amount was recorded as an operating expense and included in accrued expenses as of December 31, 2015.
F-43 |
ECOARK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS and shares IN THOUSANDS, EXCEPT PER SHARE data)
YEARS ENDED DECEMBER 31, 2015 AND 2014
NOTE 11: DISCONTINUED OPERATIONS
SA Concepts
In November 2014, the Company sold its subsidiary, SA Concepts. In the sale, the Company sold the net assets back to an original shareholder of SA Concepts for his return of 1,000 Class A shares of stock. The value of the treasury stock in this transaction of $616 was equal to the value of the net assets of SA Concepts sold. Therefore, there was no gain or loss attributable to the disposal of this subsidiary. The operations of SA Concepts for the year ended December 31, 2014 are reflected as loss from discontinued operations in the consolidated statements of operations in accordance with ASC 205-50.
The following table sets forth for the year ended December 31, 2014 selected financial data of the Company’s discontinued operations of its SA Concepts subsidiary.
Revenues | $ | 379 | ||
Cost of sales | 818 | |||
Gross (loss) | (439 | ) | ||
Operating and other non-operating expenses | 1,010 | |||
Loss from discontinued operations | (1,449 | ) | ||
Gain from sale of SA Concepts | - | |||
Loss from discontinued operations | $ | (1,449 | ) |
NOTE 12: PROVISION FOR INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31, 2015 and 2014 differs from the amount which would be expected as a result of applying the statutory tax rates to the losses before income taxes due primarily to the valuation allowance to fully reserve net deferred tax assets.
Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carry-forwards are expected to be available to reduce taxable income. As the achievement of required future taxable income is uncertain, the Company recorded a valuation allowance.
As of December 31, 2015 | As of December 31, 2014 | |||||||
Deferred tax assets: | ||||||||
Net operating loss before non-deductible items | $ | (36,028 | ) | $ | (25,892 | ) | ||
Tax rate | 34 | % | 34 | % | ||||
Total deferred tax assets | 12,250 | 8,803 | ||||||
Less: Valuation allowance | (12,250 | ) | (8,803 | ) | ||||
Net deferred tax assets | $ | - | $ | - |
As of December 31, 2015, the Company has a net operating loss carry forward of $36,028 expiring through 2035. The Company has provided a valuation allowance against the full amount of the deferred tax asset due to management’s uncertainty about its realization. Furthermore, the net operating loss carry forward may be subject to further limitation pursuant to Section 382 of the Internal Revenue Code. The valuation allowance was increased by $3,447 in 2015.
F-44 |
ECOARK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS and shares IN THOUSANDS, EXCEPT PER SHARE data)
YEARS ENDED DECEMBER 31, 2015 AND 2014
NOTE 13: SEGMENT INFORMATION AND CONCENTRATIONS
The Company follows the provisions of ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information”. This standard requires that companies disclose operating segments based on the manner in which Management disaggregates the Company in making operating decisions. As of December 31, 2015 and for the years ended December 31, 2015 and 2014, the Company operates in two segments. The segments are Products (principally consisting of Pioneer Products’ operations consisting of sales of recycled plastic products) and Services (principally consisting of Eco3D’s mapping, modeling and consulting services business plus costs associated with developing Intelleflex and Eco360 solutions). Home office costs are allocated to the two segments based on the relative support provided to those segments.
December 31, 2015 | Products | Services | Total | |||||||||
Segmented operating revenues | $ | 5,167 | $ | 2,701 | $ | 7,868 | ||||||
Cost of revenues | 4,960 | 1,178 | 6,138 | |||||||||
Gross profit | 207 | 1,523 | 1,730 | |||||||||
Total operating expenses net of depreciation and amortization, and interest expense, net | 178 | 10,014 | 10,192 | |||||||||
Depreciation and amortization | 992 | 234 | 1,226 | |||||||||
Interest expense, net | 10 | 775 | 785 | |||||||||
Net (loss) applicable to common shares | (973 | ) | (9,500 | ) | (10,473 | ) | ||||||
Non-controlling interest income | - | 29 | 29 | |||||||||
Net (loss) – controlling interest | $ | (973 | ) | $ | (9,529 | ) | $ | (10,502 | ) | |||
Segmented assets | ||||||||||||
Property and equipment, net | $ | - | $ | 363 | $ | 363 | ||||||
Intangible assets, net | $ | 15 | $ | 837 | $ | 852 | ||||||
Capital expenditures | $ | - | $ | 60 | $ | 60 |
December 31, 2014 | Products | Services | Total | |||||||||
Segmented operating revenues | $ | 4,378 | $ | 1,639 | $ | 6,017 | ||||||
Cost of revenues | 4,298 | 726 | 5,024 | |||||||||
Gross profit | 80 | 913 | 993 | |||||||||
Total operating expenses net of depreciation and amortization, interest expense, net and loss from discontinued operations | 200 | 10,630 | 10,830 | |||||||||
Depreciation and amortization | 1,322 | 386 | 1,708 | |||||||||
Interest expense, net | 11 | 1,259 | 1,270 | |||||||||
Loss from discontinued operations | 1,449 | - | 1,449 | |||||||||
Net (loss) applicable to common shares | (2,902 | ) | (11,362 | ) | (14,264 | ) | ||||||
Non-controlling interest loss | - | (129 | ) | (129 | ) | |||||||
Net (loss) – controlling interest | $ | (2,902 | ) | $ | (11,233 | ) | $ | (14,135 | ) | |||
Segmented assets | ||||||||||||
Property and equipment, net | $ | - | $ | 462 | $ | 462 | ||||||
Intangible assets, net | $ | 991 | $ | 913 | $ | 1,904 | ||||||
Capital expenditures | $ | - | $ | 197 | $ | 197 |
During the years ended December 31, 2015 and 2014, the Company had one major customer comprising 63% and 72% of sales. A major customer is defined as a customer that represents 10% or greater of total sales. Additionally, the Company had two customers as of December 31, 2015 and 2014 with accounts receivable balances of 32% and 54% of the total accounts receivable. The Company does not believe that the risk associated with these customers will have an adverse effect on the business.
The Company maintained cash balances in excess of the FDIC insured limit in both years. The Company does not consider this risk to be material.
F-45 |
ECOARK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS and shares IN THOUSANDS, EXCEPT PER SHARE data)
YEARS ENDED DECEMBER 31, 2015 AND 2014
NOTE 14: SUBSEQUENT EVENTS
During January 2016 the Company re-issued 50 Class A Treasury Shares. The Company re-issued those shares as it raised an additional $200.
On January 29, 2016, the Company entered into a Merger Agreement with Magnolia Solar Corporation (“MSC”) providing, among other things, for the acquisition of the Company by MSC in a share for share exchange pursuant to which it was contemplated that at the closing the Company shareholders would own approximately 95% of the outstanding shares of MSC. On March 18, 2016, in a special meeting called by MSC, the shareholders of MSC approved proposals necessary to complete the merger. Following the shareholder meeting, the name of MSC was changed to Ecoark Holdings, Inc. (EHI). Further, the Articles of Incorporation were amended to increase the authorized shares of common stock to 100,000 shares, to effect the creation of 5,000 shares of "blank check" preferred stock, and to approve a reverse stock split of the MSC common stock of 1 for 250.
On March 24, 2016, FINRA corporate action announced the reverse split and the name change which became effective in the market on March 28, 2016. Following that, EHI stock will trade under the symbol “EARK.” All actions to close the merger were completed in March 2016.
In conjunction with the merger, MSC offered up to 5,000 thousand units at a price of $4.00 per unit or a maximum of $20,000 in a private placement offering. Each unit consists of one share of MSC (now EHI) common stock (par value $0.001 per share) and a warrant to purchase one share of MSC (now EHI) common stock exercisable on or before December 31, 2018 at a price of $5.00 per share. The units are being offered to an unlimited number of Accredited Investors until the earlier of the date upon which subscriptions for the maximum offering have been received and accepted; March 31, 2016, subject to a 60-day extension at the option of EHI; or the date upon which the offering is terminated by EHI. On March 24, 2016 the Company received proceeds of $6,725 from EHI as a result of subscriptions to the offering.
NOTE 15: RESTATEMENT OF FINANCIAL STATEMENTS
As a result of the merger transaction described in Note 14 and in accordance with ASC 805-40-45, the Company has given retroactive effect to the transaction by adjusting the number of shares in the consolidated balance sheets, consolidated statements of operations, consolidated statement of changes in stockholders’ deficit and accompanying notes. The retroactive treatment changed the reported common shares and additional paid-in capital in the balance sheets, the shares used in the calculation of net loss per share and resulting net loss per share in the statements of operations, the number of shares and related dollar amounts in the statement of changes in stockholders’ equity (deficit), and various disclosures regarding number of shares and related amounts in these notes to consolidated financial statements. There was no effect on the net loss or total stockholders’ deficit as a result of the restatement.
The change became effective on March 24, 2016 when the merger closed.
The financial statements presented herein as of and for the two years ended December 31, 2015 represent the historical financial information of Ecoark, Inc., except for the capital structure which represents the historical amounts of Magnolia Solar Corporation, retroactively adjusted to reflect the legal capital structure of Magnolia Solar Corporation.
F-46 |
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2016 (UNAUDITED) AND DECEMBER 31, 2015
(Dollars in thousands, except per share data) | ||||||||
March 31, 2016 | December 31, 2015 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 8,848 | $ | 1,962 | ||||
Accounts receivable, net of allowance | 1,421 | 972 | ||||||
Inventory, net of reserves | 809 | 743 | ||||||
Prepaid expenses | 156 | 161 | ||||||
Other current assets | - | 130 | ||||||
Total current assets | 11,234 | 3,968 | ||||||
Property and equipment, net | 360 | 363 | ||||||
Intangible assets, net | 907 | 852 | ||||||
Other assets | 26 | 25 | ||||||
Total non-current assets | 1,293 | 1,240 | ||||||
TOTAL ASSETS | $ | 12,527 | $ | 5,208 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
CURRENT LIABILITIES | ||||||||
Current portion of long-term debt | $ | 3,000 | $ | 3,175 | ||||
Debt - related parties | 742 | 1,329 | ||||||
Accounts payable | 1,244 | 1,074 | ||||||
Accrued expenses | 687 | 503 | ||||||
Accrued interest | 58 | 40 | ||||||
Deferred revenue | 61 | - | ||||||
Total current liabilities | 5,792 | 6,121 | ||||||
COMMITMENTS AND CONTINGENCIES | - | - | ||||||
Total liabilities | 5,792 | 6,121 | ||||||
STOCKHOLDERS' EQUITY (DEFICIT) (Numbers of shares rounded to thousands) | ||||||||
Preferred stock, $0.001 par value; 5,000 shares authorized, none issued | - | - | ||||||
Common stock $0.001 par value; 100,000 shares authorized; 31,446 and 27,706 issued and outstanding as of March 31, 2016 and December 31, 2015, respectively | 31 | 28 | ||||||
Additional paid-in-capital (Restated) | 49,897 | 35,796 | ||||||
Subscription receivable | (4,290 | ) | (55 | ) | ||||
Accumulated deficit | (38,810 | ) | (36,587 | ) | ||||
Total stockholders' equity (deficit) before non-controlling interest | 6,828 | (818 | ) | |||||
Non-controlling interest | (93 | ) | (95 | ) | ||||
Total stockholders' equity (deficit) | 6,735 | (913 | ) | |||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 12,527 | $ | 5,208 |
See accompanying notes to the unaudited consolidated financial statements.
F-47 |
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(Dollars in thousands, except per share, data) | ||||||||
2016 | 2015 | |||||||
REVENUES | ||||||||
Revenue from product sales | $ | 1,207 | $ | 1,483 | ||||
Revenue from services | 757 | 742 | ||||||
1,964 | 2,225 | |||||||
COST OF REVENUES | ||||||||
Cost of product sales | 1,182 | 1,417 | ||||||
Cost of services | 277 | 224 | ||||||
1,459 | 1,641 | |||||||
GROSS PROFIT | 505 | 584 | ||||||
OPERATING EXPENSES: | ||||||||
Salaries and salary related costs, including stock based compensation | 1,020 | 812 | ||||||
Professional fees and consulting | 267 | 750 | ||||||
General and administrative | 517 | 590 | ||||||
Depreciation and amortization | 75 | 416 | ||||||
Research and development | 752 | 777 | ||||||
Total operating expenses | 2,631 | 3,345 | ||||||
Loss from operations | (2,126 | ) | (2,761 | ) | ||||
OTHER EXPENSE: | ||||||||
Interest expense, net of interest income | (95 | ) | (206 | ) | ||||
Loss before provision for income taxes | (2,221 | ) | (2,967 | ) | ||||
PROVISION FOR INCOME TAXES | - | - | ||||||
NET LOSS | (2,221 | ) | (2,967 | ) | ||||
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST | 2 | 51 | ||||||
NET LOSS ATTRIBUTABLE TO CONTROLLING INTEREST | $ | (2,223 | ) | $ | (3,018 | ) | ||
NET LOSS PER SHARE | ||||||||
Basic | $ | (0.08 | ) | $ | (0.13 | ) | ||
Diluted | $ | (0.08 | ) | $ | (0.13 | ) | ||
SHARES USED IN CALCULATION OF NET LOSS PER SHARE | (Number of shares in thousands) | |||||||
Basic | 27,847 | 22,513 | ||||||
Diluted | 27,847 | 22,513 |
See accompanying notes to the unaudited consolidated financial statements.
F-48 |
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED)
FOR THE PERIOD ENDED MARCH 31, 2016
(Dollar amounts and number of shares in thousands)
Additional | Non- | |||||||||||||||||||||||||||||||||||
Preferred | Common | Paid-In- | Subscription | Accumulated | controlling | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Receivable | Deficit | Interest | Total | ||||||||||||||||||||||||||||
Balance at December 31, 2015 (Restated) | - | $ | - | 27,706 | $ | 28 | $ | 35,796 | (55 | ) | $ | (36,587 | ) | $ | (95 | ) | $ | (913 | ) | |||||||||||||||||
Re-issuance of treasury shares for cash, net of expenses | - | - | 200 | 200 | ||||||||||||||||||||||||||||||||
Shares issued for cash in private placement, net of expenses | 2,389 | 2 | 13,843 | (4,290 | ) | 9,555 | ||||||||||||||||||||||||||||||
Shares held by Magnolia Solar Corporation at time of merger | 1,351 | 1 | 1 | |||||||||||||||||||||||||||||||||
Cancellation of treasury shares at time of merger | 58 | 58 | ||||||||||||||||||||||||||||||||||
Collection of subscription receivable | 55 | 55 | ||||||||||||||||||||||||||||||||||
Net loss for the period | (2,223 | ) | 2 | (2,221 | ) | |||||||||||||||||||||||||||||||
Balance at March 31, 2016 | - | $ | - | 31,446 | $ | 31 | $ | 49,897 | $ | (4,290 | ) | $ | (38,810 | ) | $ | (93 | ) | $ | 6,735 |
See accompanying notes to the unaudited consolidated financial statements.
F-49 |
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTs OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(Dollars in thousands) | ||||||||
2016 | 2015 | |||||||
Cash flows from operating activities: | ||||||||
Net loss attributable to controlling interest | $ | (2,223 | ) | $ | (3,018 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 75 | 416 | ||||||
Stock-based compensation - options | 28 | - | ||||||
Shares of common stock issued for services rendered | - | 231 | ||||||
Shares of treasury stock re-issued for services rendered | - | 498 | ||||||
Cash acquired in merger transaction | 14 | - | ||||||
Change in non-controlling interest on cash | 2 | 51 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (449 | ) | (174 | ) | ||||
Inventory | (66 | ) | 14 | |||||
Prepaid expenses | 5 | 18 | ||||||
Other assets | 130 | (20 | ) | |||||
Accounts payable | 152 | 283 | ||||||
Accrued expenses | 140 | 284 | ||||||
Accrued interest | 18 | 118 | ||||||
Deferred revenue | 61 | (142 | ) | |||||
Net cash used in operating activities | (2,113 | ) | (1,441 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (49 | ) | (8 | ) | ||||
Net cash used in investing activities | (49 | ) | (8 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from the issuance of common stock, net of fees | 9,555 | - | ||||||
Collection of subscription receivable | 55 | 31 | ||||||
Re-issuance of treasury shares for cash, net of expenses | 200 | 149 | ||||||
Proceeds from the issuances of debt | 185 | - | ||||||
Repayments of debt | (360 | ) | (176 | ) | ||||
Proceeds from the issuances of debt - related parties | 250 | |||||||
Repayments of debt - related parties | (587 | ) | (104 | ) | ||||
Net cash provided by financing activities | 9,048 | 150 | ||||||
NET INCREASE (DECREASE) IN CASH | 6,886 | (1,299 | ) | |||||
Cash - beginning of the period | 1,962 | 2,220 | ||||||
Cash - end of the period | $ | 8,848 | $ | 921 | ||||
SUPPLEMENTAL DISCLOSURES: | ||||||||
Cash paid for interest | $ | 77 | $ | 90 | ||||
Cash paid for income taxes | $ | - | $ | - | ||||
SUMMARY OF NONCASH ACTIVITIES: | ||||||||
Intangibles acquired in merger | $ | 77 | $ | - | ||||
Payables assumed in merger | $ | 59 | $ | - | ||||
Treasury stock re-purchased for release of guarantee | $ | - | $ | 393 |
See accompanying notes to the unaudited consolidated financial statements.
F-50 |
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2016
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business and Organization
Ecoark Holdings, Inc. (“Ecoark Holdings”) is an innovative and growth-oriented company founded in 2007 that develops and deploys intelligent technologies and products in order to meet the demand for sustainable, integrated solutions to contemporary business needs. Ecoark Holdings is a holding company that integrates the businesses of its subsidiaries to provide technological solutions in several industries that support ecological conservation through improvements in efficiency or reduction of waste.
Ecoark, Inc.(“Ecoark”) was founded in 2011 and is located in Rogers, Arkansas, the home office for Ecoark and Ecoark Holdings. Home office staff members are employees of Ecoark, which merged with Magnolia Solar on March 24, 2016 to create Ecoark Holdings as described further in Note 2 below. Ecoark is the parent company for Eco3D, Eco360, Pioneer Products and Intelleflex.
Eco3D, LLC (“Eco3D”) is located in Phoenix, Arizona and provides customers with the latest 3D technologies. Eco3D was formed by Ecoark in November 2013 and Ecoark owns 65% of the LLC. The remaining 35% is reflected as non-controlling interests. Eco3D provides 3D mapping, modeling, and consulting services for clients in retail, construction, healthcare, and multiple other industries throughout the United States and overseas. Eco3D is transitioning businesses from 2D technology that has existed for hundreds of years, to a world of digital 3D. Eco3D incorporates a variety of 3D technologies to achieve customer goals and objectives. Utilizing several techniques, Eco3D can capture existing conditions – topography, buildings, exterior/interior spaces, etc. – in highly accurate detail that allows for 2D and 3D measurement. These measurements form the basis for analysis, design, documentation, and quality control.
Eco360, LLC (“Eco360”) is located in Bentonville, Arkansas and is engaged in research and development activities. Eco360 was formed in November 2014 by Ecoark.
Pioneer Products, LLC (“Pioneer Products”) is located in Bentonville, Arkansas and is involved in the selling of recycled plastic products and other products. In addition to a strong and successful relationship with the world’s largest retailer, Pioneer Products also has vendor relationships with other key retailers. As such, Pioneer strategically leverages its role as a trusted supplier to these retailers with existing and new products. This subsidiary also recovers plastic waste from retail supply chains and creates new consumer products with the reclaimed materials. Pioneer Products was purchased by Ecoark in 2012.
Intelleflex Corporation (“Intelleflex”) is located in San Jose, California and provides food retailers and suppliers intelligent, on-demand solutions for retailers and companies that ship and store products for perishable food quality management. Intelleflex's ZEST Data Services is a secure, multi-tenant cloud-based data collection platform for aggregating and real-time permission-based sharing and analysis of information. ZEST Fresh, a fresh food management solution that utilizes the ZEST Data Service platform, focuses on three primary value propositions – consistent food quality, reduced waste, and improved food safety. ZEST Fresh empowers workers with real-time analytic tools and alerts that improve efficiency while driving quality consistency through best practice adherence on every pallet. ZEST Delivery provides real-time monitoring and control for prepared food delivery containers, helping delivery and dispatch personnel ensure the quality and safety of delivered food. Intelleflex was purchased by Ecoark in September 2013.
Magnolia Solar Inc.(“Magnolia Solar”) is located in Woburn, Massachusetts and is principally engaged in the development and commercialization of its nanotechnology-based, high-efficiency, thin-film technology that can be deposited on a variety of substrates, including glass and flexible structures. Magnolia merged with Ecoark on March 24, 2016 to create Ecoark Holdings as described further in Note 2 below.
Principles of Consolidation
The consolidated financial statements include the accounts of Ecoark Holdings and its direct and indirect subsidiaries, collectively referred to as “the Company”. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company is a holding company and holds one hundred percent of Eco360, Pioneer Products, Intelleflex and Magnolia Solar. Ecoark owns 65% of Eco3D and the remaining 35% interest is owned by executives of Eco3D.
F-51 |
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2016
The Company applies the guidance of Topic 810 “Consolidation” of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) to determine whether and how to consolidate another entity. Pursuant to ASC Paragraph 810-10-15-10 all majority-owned subsidiaries—all entities in which a parent has a controlling financial interest—shall be consolidated except when control does not rest with the parent. Pursuant to ASC Paragraph 810-10-15-8, the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation. The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other stockholders, or by court decree.
Noncontrolling Interests
In accordance with ASC 810-10-45,Noncontrolling Interests in Consolidated Financial Statements,the Company classifies noncontrolling interests as a component of equity within the consolidated balance sheets. For the three months ended March 31, 2016 and 2015, net income attributable to noncontrolling interests of $2 and $51, respectively, is included in the Company’s net loss.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with U.S generally accepted accounting principles (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (“SEC”). It is Management's opinion, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results to be expected for the full year. The accounting policies and procedures employed in the preparation of these consolidated financial statements have been derived from the audited financial statements of the Company for the fiscal year ended December 31, 2015, which are contained in the Company’s Form 8-K/A as filed with the SEC on May 10, 2016. The consolidated balance sheet as of December 31, 2015, contained herein, was derived from those consolidated financial statements. As a result of the merger transaction described in Note 2 and in accordance with ASC 805-40-45, the Company has given retroactive effect to certain share calculations by restating amounts for common shares and additional paid-in capital in the December 31, 2015 balance sheet.
Reclassification
The Company has reclassified certain amounts in the 2015 consolidated financial statements to comply with the 2016 presentation. These changes had no effect on the net loss for 2015.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. These estimates include, but are not limited to, Management’s estimate of provisions required for non-collectible accounts receivable, obsolete or slow-moving inventory, and determination of the fair value of stock awards issued. Actual results could differ from those estimates.
Cash
Cash consists of cash, demand deposits and money market funds with an original maturity of three months or less.
Inventory
Inventory is stated at the lower of cost or market. Inventory cost is determined by specific identification on a first in first out basis, and provisions are made to reduce slow-moving, obsolete, or unusable inventories to their estimated useful or scrap values. The Company establishes reserves for this purpose.
Property and Equipment and Long-Lived Assets
Property and equipment is stated at cost. Depreciation on property and equipment is computed using the straight-line method over the estimated useful lives of the assets, which range from three to ten years for all classes of property and equipment, except leasehold improvements which are depreciated over the shorter of 10 years or the term of the lease.
FASB Codification Topic 360 “Property, Plant and Equipment” (“ASC 360”), requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The application of ASC 360 has not materially affected the Company’s reported earnings, financial condition or cash flows.
F-52 |
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2016
Intangible assets with definite useful lives are stated at cost less accumulated amortization. Intangible assets capitalized as of March 31, 2016 and December 31, 2015 represent the valuation of the Company-owned patents and customer lists. These intangible assets are being amortized on a straight-line basis over their estimated average useful lives of thirteen and a half years for the patents and three years for the customer lists. Expenditures on intangible assets through the Company’s filing of patent and trademark protection for Company-owned inventions are expensed as incurred.
The Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment review include the following:
1. Significant underperformance relative to expected historical or projected future operating results;
2. Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and
3. Significant negative industry or economic trends.
When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows. The Company tested the carrying value of its intangible assets for recoverability. The projected undiscounted cash flows exceeded the carrying value of these assets by a significant amount. The Company did not consider it necessary to record any impairment charges during the three months ended March 31, 2016 and 2015.
Advertising Expense
The Company expenses advertising costs, as incurred. Advertising expenses for the three months ended March 31, 2016 and 2015 are included in general and administrative costs.
Software Costs
The Company accounts for software development costs in accordance with ASC 985-730,Software Research and Development, and ASC 985-20, Costs of Software to be Sold, Leased or Marketed. ASC 985-20 requires that costs related to the development of the Company’s productsbe capitalized as an asset when incurred subsequent to the point at which technological feasibility of the enhancement is established. ASC 985-20 specifies that “technological feasibility” can only be established by the completion of a “detailed program design” or if no such design is prepared, upon the completion of a “working model” of the software. The Company’s development process does not include a detailed program design. Management believes that such a design could be produced in the early stages of development but would entail significant wasted expense and delay. Consequently, ASC 985-20 requires that development costs be recorded as an expense until the completion of a “working model”. In the Company’s case, the completion of a working model does not occur until shortly before the time when the software is ready for sale.
Research and Development Costs
Research and development costs are expensed as incurred. These costs include internal salaries and related costs and professional fees for activities related to development.
Subsequent Events
Subsequent events were evaluated through the date the consolidated financial statements were filed.
Shipping and Handling Costs
The Company reports shipping and handling revenues and their associated costs in revenue and cost of revenue, respectively. Shipping revenues and costs for the three months ended March 31, 2016 and 2015 were nominal and are included in cost of product sales.
F-53 |
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2016
Revenue Recognition
In regards to product revenue, product revenue primarily consists of the sale of electronic hardware, recycled plastics products, and recycled furniture. These subsidiaries recognize revenue when the following criteria have been met:
Evidence of an arrangement exists. The Company considers a customer purchase order, service agreement, contract, or equivalent document to be evidence of an arrangement.
Delivery has occurred. The Company’s standard transfer terms are free on board (“FOB”) shipping point. Thus, delivery is considered to have occurred when title and risk of loss have passed to the customer at the time of shipment.
The fee is fixed or determinable.The Company considers the fee to be fixed or determinable if the fee is not subject to refund or adjustment and payment terms are standard, which is generally 30-60 days.
Collection is deemed reasonably assured. Collection is deemed reasonably assured if it is expected that the customer will be able to pay amounts under the arrangement as payments become due. If it is determined that collection is not reasonably assured, then revenue is deferred and recognized upon cash collection.
The Company for its software revenue will recognize revenues in accordance with ASC 985-605, Software Revenue Recognition.
Revenue from software license agreements is recognized when persuasive evidence of an agreement exists, delivery of the software has occurred, the fee is fixed or determinable, and collectability is probable. In software arrangements that include more than one element, the Company allocates the total arrangement fee among the elements based on the relative fair value of each of the elements.
License revenue allocated to software products generally is recognized upon delivery of the products or deferred and recognized in future periods to the extent that an arrangement includes one or more elements to be delivered at a future date and for which fair values have not been established. Revenue allocated to maintenance agreements is recognized ratably over the maintenance term and revenue allocated to training and other service elements is recognized as the services are performed. If evidence of fair value does not exist for all elements of a license agreement and post customer support (“PCS”) is the only undelivered element, then all revenue for the license arrangement is recognized ratably over the term of the agreement as license revenue. If evidence of fair value of all undelivered PCS elements exists but evidence does not exist for one or more delivered elements, then revenue is recognized using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue.
Cost of license revenue primarily includes product, delivery, and royalty costs. Cost of maintenance and service revenue consists primarily of labor costs for engineers performing implementation services, technical support, and training personnel as well as facilities and equipment costs.
The Company enters into arrangements that can include various combinations of software, services, and hardware. Where elements are delivered over different periods of time, and when allowed under U.S. GAAP, revenue is allocated to the respective elements based on their relative selling prices at the inception of the arrangement, and revenue is recognized as each element is delivered. The Company uses a hierarchy to determine the fair value to be used for allocating revenue to elements: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence, and (iii) best estimate of selling price (“ESP”). For software elements, the Company follows the industry specific software guidance which only allows for the use of VSOE in establishing fair value. Generally, VSOE is the price charged when the deliverable is sold separately or the price established by management for a product that is not yet sold if it is probable that the price will not change before introduction into the marketplace.
ESPs are established as best estimates of what the selling prices would be if the deliverables were sold regularly on a stand-alone basis. The process for determining ESPs requires judgment and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each deliverable.
F-54 |
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2016
When the arrangement with a customer includes significant production, modification, or customization of the software, we recognize the related revenue using the percentage-of-completion method in accordance with the accounting guidance and certain production-type contracts contained in ASC 605-35, Construction-Type and Production-Type Contracts. We use the percentage of completion method provided all of the following conditions exist:
● | the contract includes provisions that clearly specify the enforceable rights regarding goods or services to be provided and received by the parties, the consideration to be exchanged and the manner and terms of settlement; |
● | the customer can be expected to satisfy its obligations under the contract; |
● | the Company can be expected to perform its contractual obligations; and |
● | reliable estimates of progress towards completion can be made. |
We measure completion based on achieving milestones detailed in the agreements with the customers. Costs of providing services, including services accounted for in accordance with ASC 605-35, are expensed as incurred.
Accounts Receivable and Concentration of Credit Risk
The Company considers accounts receivable, net of allowance for returns and doubtful accounts, to be fully collectible. The allowance is based on Management’s estimate of the overall collectability of accounts receivable, considering historical losses and economic conditions. Based on these same factors, individual accounts are charged off against the allowance when Management determines those individual accounts are uncollectible. Credit extended to customers is generally uncollateralized. Past-due status is based on contractual terms. Management has determined that the allowance for doubtful accounts at March 31, 2016 and December 31, 2015 was $0 and $2, respectively.
Uncertain Tax Positions
The Company follows ASC 740-10, “Accounting for Uncertainty in Income Taxes”. This requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. Management evaluates their tax positions on an annual basis.
The Company files income tax returns in the U.S. federal tax jurisdiction and various state tax jurisdictions. The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they were filed.
Stock-Based Compensation
The Company follows ASC 718-10“Share Based Payments”. The Company calculates compensation expense for all awards granted, but not yet vested, based on the grant-date fair values. Stock-based compensation expense for all awards granted is based on the grant-date fair values. The Company recognizes these compensation costs, net of an estimated forfeiture rate, on a pro rata basis over the requisite service period of each vesting tranche of each award. The Company considers voluntary termination behavior as well as trends of actual option forfeitures when estimating the forfeiture rate.
The Company measures compensation expense for its non-employee stock-based compensation under ASC 505-50, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”. The fair value of the option issued is used to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to expense and additional paid-in capital.
Fair Value of Financial Instruments
ASC 825, "Financial Instruments," requires the Company to disclose estimated fair values for its financial instruments. Fair value estimates, methods, and assumptions are set forth below for the Company's financial instruments: The carrying amount of cash, accounts receivable, prepaid and other current assets, accounts payable and accrued expenses, and accounts payable to related parties, approximate fair value because of the short-term maturity of those instruments. The Company does not utilize derivative instruments.
Recoverability of Long-Lived Assets
The Company reviews recoverability of long-lived assets on a periodic basis whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets. Fixed assets to be disposed of by sale will be carried at the lower of the then current carrying value or fair value less estimated costs to sell.
F-55 |
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2016
Earnings (Loss) Per Share of Common Stock
Basic net income (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (“EPS”) include additional dilution from common stock equivalents, such as convertible notes, preferred stock, stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive for periods presented.
Fair Value Measurements
ASC 820, “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. ASC 820 classifies these inputs into the following hierarchy:
Level 1 inputs: Quoted prices for identical instruments in active markets.
Level 2 inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 inputs: Instruments with primarily unobservable value drivers.
Segment Information
The Company follows the provisions of ASC 280-10,“Disclosures about Segments of an Enterprise and Related Information”.This standard requires that companies disclose operating segments based on the manner in which Management disaggregates the Company in making internal operating decisions. In 2016 and 2015 the Company and its Chief Operating Decision Makers determined that the Company’s operations were divided into two segments: Products and Services. See Note 11 for segment information disclosures.
Related Party Transactions
Parties are considered to be related to the Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal stockholders of the Company, its management, members of the immediate families of principal stockholders of the Company and its management and other parties with which the Company may deal where one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions shall be recorded at fair value of the goods or services exchanged. Property purchased from a related party is recorded at the cost to the related party and any payment to or on behalf of the related party in excess of the cost is reflected as compensation or distribution to related parties depending on the transaction.
The Company entered into a 10-year, renewable, exclusive license with Magnolia Optical Technologies, Inc. (“Magnolia Optical”) on April 30, 2008 for the exclusive rights of the technology related to the application of Magnolia Optical’s solar cell technology. Magnolia Optical shares common Directors with the Company.
The Company recorded the net license fee of $77 in conjunction with the merger described in Note 2 below. Amortization will continue over the remaining 23 months of the term. The Company’s management has determined that the fair value of the license approximates the book value and thus no impairment is necessary as of March 31, 2016.
Recently Issued Accounting Standards
In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842)”.ASU 2016-02 changes the accounting for leased assets, principally by requiring balance sheet recognition of assets under lease arrangements. It is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2018. The Company is currently in the process of evaluating the impact of the adoption of ASU 2016-02 on its consolidated financial statements.
F-56 |
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2016
During August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements—Going Concern.” The provisions of ASU 2014-15 require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company is currently assessing the impact of this ASU on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606), which supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition”, and most industry-specific guidance. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The amendments in ASU 2014-09 will be applied using one of two retrospective methods. The effective date will be the first quarter of the fiscal year ending December 31, 2018. The Company has not determined the potential effects on its consolidated financial statements.
There were other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
Going Concern
The Company commenced operations in 2007, and has experienced typical start-up costs and losses from operations resulting in an accumulated deficit of $38,810 since inception. The accumulated deficit as well as recurring losses of $2,223 for the three months ended March 31, 2016, and $10,502 and $14,135 for the years ended December 31, 2015 and 2014, respectively and the working capital deficit of $2,153 as of December 31, 2015, have resulted in the uncertainty of the Company to continue as a going concern even though working capital increased to a surplus of $5,442 at March 31, 2016.
These consolidated financial statements of the Company have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period of time.
The Company plans to raise additional capital to carry out its business plan and following a reverse merger transaction on March 24, 2016, the Company received $9,555(see Note 2). The Company’s ability to raise additional capital through future equity and debt securities issuances is unknown. Obtaining additional financing, the successful development of the Company’s contemplated plan of operations, ultimately, to profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raises substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of the uncertainties.
F-57 |
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2016
NOTE 2: MERGER
On January 29, 2016, Ecoark entered into a Merger Agreement (“Merger Agreement”) with Magnolia Solar Corporation (“MSC”) providing, among other things, for the acquisition of the Company by MSC in a share for share exchange pursuant to which it was contemplated that at the closing Ecoark shareholders would own approximately 95% of the outstanding shares of MSC. On March 18, 2016, in a special meeting called by MSC, the shareholders of MSC approved proposals necessary to complete the Merger (“Merger”).
On March 24, 2016, the Merger was closed. Upon closing of the transaction, under the Merger Agreement, Magnolia Solar Acquisition Corporation merged with and into Ecoark, with Ecoark as the surviving corporation, which became a wholly-owned subsidiary of MSC. Thereafter, MSC changed its name to Ecoark Holdings, Inc. The transaction was accounted for as a reverse merger; for accounting purposes Ecoark acquired the assets and liabilities of Magnolia Solar effective March 24, 2016. The historical financial information presented prior to March 24, 2016 is that of Ecoark.
Further, the Articles of Incorporation were amended to increase the authorized shares of common stock to 100,000 shares, to effect the creation of 5,000 shares of "blank check" preferred stock, and to approve a reverse stock split of the MSC common stock of 1 for 250.
After the Merger, the Company had 29,057 shares of common stock issued and outstanding. The MSC’s shareholders and holders of debt, notes, warrants and options received an aggregate of 1,351 shares of the Company’s common stock and Ecoark’s shareholders received an aggregate of 27,706 shares of the Company’s common stock.
On March 24, 2016, FINRA corporate action announced the reverse split and the name change which became effective in the market on March 28, 2016. Following that, the Company stock trades under the symbol “EARK.” All actions to close the Merger were completed in March 2016.
In conjunction with the Merger, MSC offered units consisting of a share and a warrant at a price of $4.00 per unit for a maximum of $20,000 in a private placement offering. Each unit consists of one share of MSC (now Ecoark Holdings) common stock (par value $0.001 per share) and a warrant to purchase one share of MSC (now Ecoark Holdings) common stock exercisable on or before December 31, 2018 at a price of $5.00 per share. The units were offered to an unlimited number of Accredited Investors until the earlier of the date upon which subscriptions for the maximum offering had been received and accepted; March 31, 2016, subject to a 60-day extension at the option of Ecoark Holdings; or the date upon which the offering was terminated by the Company. Through March 31, 2016 the Company received proceeds of $9,555 as a result of subscriptions to the offering. The offering was terminated on April 28, 2016.
NOTE 3:INVENTORY
Inventory, net of reserves, consisted of the following as of March 31, 2016 (unaudited) and December 31, 2015:
March 31, 2016 | December 31, 2015 | |||||||
Inventory | $ | 1,429 | $ | 1,363 | ||||
Inventory Reserves | (620 | ) | (620 | ) | ||||
Total | $ | 809 | $ | 743 |
NOTE 4:PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of March 31, 2016 (unaudited) and December 31, 2015:
March 31, 2016 | December 31, 2015 | |||||||
Furniture and fixtures | $ | 114 | $ | 110 | ||||
Computers and software costs | 425 | 382 | ||||||
Machinery and equipment | 478 | 476 | ||||||
Leasehold improvements | 4 | 4 | ||||||
Total property and equipment | 1,021 | 972 | ||||||
Accumulated depreciation | (661 | ) | (609 | ) | ||||
Property and equipment, net | $ | 360 | $ | 363 |
Depreciation expense for the three months ended March 31, 2016 and 2015 was $52 and $67, respectively. There was no impairment on these assets in 2016 or 2015.
F-58 |
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2016
NOTE 5: INTANGIBLE ASSETS
The following is a summary of intangible assets as of March 31, 2016 (unaudited) and December 31, 2015:
March 31, 2016 | December 31, 2015 | |||||||
Customer lists | $ | 3,980 | $ | 3,980 | ||||
Patents and licenses | 1,090 | 1,013 | ||||||
Total intangible assets | 5,070 | 4,993 | ||||||
Accumulated amortization | (4,163 | ) | (4,141 | ) | ||||
Intangible assets, net | $ | 907 | $ | 852 |
Amortization expense for the three months ended March 31, 2016 and 2015 was $22 and $349, respectively. There was no impairment on these assets in 2016 or 2015.
NOTE 6: CURRENT PORTION OF LONG-TERM DEBT
The following is a summary of long-term debt as of March 31, 2016 (unaudited) and December 31, 2015:
March 31, 2016 | December 31, 2015 | |||||||||
Note payable – Celtic Bank | (a) | $ | - | $ | 175 | |||||
Note payable – B&B Merritt | (b) | 3,000 | 3,000 | |||||||
Total | $ | 3,000 | $ | 3,175 |
(a) | Fifteen year note payable dated July 11, 2007 in the original principal amount of $1,250 with a bank guaranteed by the U.S. Small Business Administration with Pioneer, prior to the acquisition of Pioneer by the Company. Note accrued interest at the Prime Rate plus 2% (Prime rate 3.25% plus 2% for 2015). The note was fully paid in January 2016. |
(b) | Note payable bearing interest at the rate of 10% per annum, unsecured, with quarterly interest payments commencing in January 2015, with the note maturing in October 2016. Upon maturity or anytime prior, so long as the Company has not exercised its right to prepay this note, the lender can exercise its option to convert this note to equity in the Company, with 30 day advance written notice, and acquire up to 3,000 unrestricted Class A Common Shares of Ecoark at $1.00 per share, which consistent with the Merger Agreement is now 1,500 shares of Ecoark Holdings at $2.00 per share. The principal amount along with any accrued interest thereon, if converted to equity shall be deemed fully paid. As of March 31, 2016, no conversions of this debt have occurred. There was no bifurcation of the conversion option as the conversion is deemed to be conventional in nature. |
Interest expense on the long-term debt for the three months ended March 31, 2016 and 2015 were $75 and $77, respectively.
F-59 |
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2016
NOTE 7: DEBT – RELATED PARTIES
The following is a summary of debt – related parties as of March 31, 2016 (unaudited) and December 31, 2015:
March 31, 2016 | December 31, 2015 | |||||||||||
Promissory note – related party | (a) | - | $ | 50 | ||||||||
Promissory note #1 – CEO | (b) | $ | 25 | 62 | ||||||||
Promissory note #2 – CEO | (c) | 717 | 1,217 | |||||||||
Total | $ | 742 | $ | 1,329 |
(a) | Unsecured note payable to former shareholder bearing interest at 5% per annum, with monthly principal and interest payments beginning in November 2014, maturing in November 2016. Note was paid in full in March 2016. |
(b) | Note payable to the Company’s Chief Executive Officer (CEO), Randy May. On November 30, 2015, after monthly payments were being made, and additional amounts funded in March 2015 and May 2015 totaling $600, the Company combined these amounts into a new one year promissory note in the amount of $3,197 due November 30, 2016. Payments of $37 were made on this note in the first quarter of 2016. |
(c) | Note payable with the Company’s CEO commencing November 30, 2015 at an interest rate of 6% per annum (see note b). The beginning principal balance of $3,197 was reduced by $1,980 on December 31, 2015 in exchange for 1,100 shares of Ecoark Series A General Common Shares that were Treasury Shares owned by the Company. The remaining principal balance matures in November 2016. Payments of $500 were made on this note in the first quarter of 2016. |
Interest expense on the debt – related parties for the three months ended March 31, 2016 and 2015 was $20 and $44, respectively.
NOTE 8: STOCKHOLDERS’ EQUITY (DEFICIT)
On March 24, 2016, Ecoark Series A, B, C, and D Common Shares were exchanged for Ecoark Holdings Common Shares as more fully described in Note 2 above. The Ecoark Common Shares, including Treasury Shares were canceled after the exchange.
As a result of the merger transaction and in accordance with ASC 805-40-45, the Company has given retroactive effect to certain share calculations by restating amounts for common shares and additional paid-in capital in the December 31, 2015 balance sheet.
Ecoark Holdings Preferred Stock
On March 18, 2016, the Company created 5,000 shares of “blank check” preferred stock. No preferred shares have been issued.
Ecoark Holdings Common Stock
As described in Note 2 above, 100,000 shares of common stock, par value $0.001 were authorized on March 18, 2016. At the merger, the Company had 29,057 shares of common stock issued and outstanding. The MSC’s shareholders and holders of debt, notes, warrants and options received an aggregate of 1,351 shares of the Company’s common stock and Ecoark’s shareholders received an aggregate of 27,706 shares of the Company’s common stock.The Company also issued 2,389 shares of the Company’s common stock pursuant to a private placement offering described in Note 2. See Note 12 below for issuances in April. Total shares issued and outstanding as of March 31, 2016 was 31,446.
Stock Options
On February 16, 2013, the Board of Directors of Ecoark approved the EcoArk Inc. 2013 Stock Option Plan (the “Plan”).The purposes of the Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees, directors and consultants, and to promote the success of the Company’s business. The Plan is expected to contribute to the attainment of these objectives by offering employees, directors and consultants the opportunity to acquire stock ownership interests in the Company, and other rights with respect to stock of the Company, and to thereby provide them with incentives to put forth maximum efforts for the success of the Company.
F-60 |
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2016
Awards under this Plan were only granted in the form of nonstatutory stock options (“Options”) to purchase the Company's Series C Stock prior to the merger with MSC. Upon the consummation of the merger, all outstanding stock options previously granted by Ecoark, were canceled and new stock options in Ecoark Holdings were issued as replacements, with the same terms of the originally issued Series C Stock Options granted by Ecoark under the 2013 Incentive Stock Option Plan (the “2013 Plan”). Under the 2013 Plan, the Company may grant options to purchase up to 5,500 shares of common stock to be granted to Company employees, officers, directors, consultants and advisors. The vesting provisions, exercise price and expiration dates will be established by the Board of Directors (the "Board") of the Company at the date of grant, but incentive stock options may be subject to earlier termination, as provided in the 2013 Plan.
In May 2014, Ecoark granted Stock Options to purchase 693 shares to various employees and consultants of Ecoark. The Stock Options had an exercise price of $1.25 per share and have a term of 10 years. The Stock Options vest over a three-year period as follows: 25% immediately; 25% on the first anniversary date; 25% on the second anniversary date; and 25% on the third anniversary date. During 2015 Ecoark issued additional Stock Options on 625 shares of common stock. Therefore, at the end of 2015, Stock Options were outstanding to purchase 1,318 shares of common stock. The total original number of 1,318 Ecoark Stock Options have been divided by two in conjunction with changes required by the Merger Agreement and converted to Stock Options of the Company, and at present options on 659 shares of the Company are outstanding with an adjusted exercise price of $2.50.
Management valued the Stock Options utilizing the Black-Scholes Method, with the following criteria: stock price - $2.50; exercise price - $2.50; expected term – 10 years; discount rate – 0.25%; and volatility – 100%.
The Company records stock based compensation in accordance with ASC 718, and has recorded stock based compensation of $28 and $91 for the three months ended March 31, 2016 and 2015, respectively.
The 2,450 Stock Options of MSC were converted into shares of common stock in accordance with the Merger Agreement with Ecoark.
Warrants
MSC had issued warrants for 3,785 shares that were converted into shares of common stock in accordance with the Merger Agreement with Ecoark.
In March 2016, the Company issued warrants for 2,389 shares in accordance with the private placement. As indicated in the subsequent events, the private placement was completed on April 28, 2016, and additional warrants were issued at the closing. These warrants have a strike price of $5.00 per share and expire on December 31, 2018. As of March 31, 2016, they are the only warrants the Company has outstanding.
NOTE 9: COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases many of its operating and office facilities for various terms under long-term, non-cancelable operating lease agreements. These leases expire at various dates through 2019. Rent expense was approximately $98 and $71 for the three months ended March 31, 2016 and 2015. Future minimum lease payments required under the operating leases are as follows: 2016 - $270, 2017 - $310, 2018 - $296 and 2019 - $155.
Contract Related Fees
Prior to the Merger, a subsidiary of the Company, as part of the contract to develop its products, has agreed to pay the contractor 1.5% of future New York state manufactured sales, and 5% of future non-New York state manufactured sales until the entire funds paid by the contractor have been repaid, or 15 years, whichever comes first. As of March 31, 2016, the subsidiary has $1,252 of contract related expenses, all of which will be owed to the contractor, contingent upon the sale of the subsidiary’s product related to that contract.
The Company has determined that a liability has not been accrued because management has determined that it is not probable sales will occur prior to the 15 year expiration of the obligation.
Settlement
In March 2016 the Company agreed to settle a dispute regarding a contract. The agreement required the Company to pay $100 to certain parties within 30 days of the agreement. The amount was recorded as an operating expense and included in accrued expenses as of March 31, 2016. The amount was paid in April 2016.
F-61 |
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2016
NOTE 10: PROVISION FOR INCOME TAXES
The provision (benefit) for income taxes for the three months ended March 31, 2016 and 2015 differs from the amount which would be expected as a result of applying the statutory tax rates to the losses before income taxes due primarily to the valuation allowance to fully reserve net deferred tax assets.
Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carry-forwards are expected to be available to reduce taxable income. As the achievement of required future taxable income is uncertain, the Company recorded a valuation allowance.
As of March 31, 2016 | As of December 31, 2015 | |||||||
Deferred tax assets: | ||||||||
Net operating loss before non-deductible items | $ | (38,244 | ) | $ | (36,028 | ) | ||
Tax rate | 34 | % | 34 | % | ||||
Total deferred tax assets | 13,003 | 12,250 | ||||||
Less: Valuation allowance | (13,003 | ) | (12,250 | ) | ||||
Net deferred tax assets | $ | - | $ | - |
As of March 31, 2016, the Company has a net operating loss carry forward of $38,244 expiring through 2036. The Company has provided a valuation allowance against the full amount of the deferred tax asset due to management’s uncertainty about its realization. Furthermore, the net operating loss carry forward may be subject to further limitation pursuant to Section 382 of the Internal Revenue Code. The valuation allowance was increased by $753 in the three months ended March 31, 2016.
nOTE 11: SEGMENT INFORMATION AND CONCENTRATIONS
The Company follows the provisions of ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information”. This standard requires that companies disclose operating segments based on the manner in which Management disaggregates the Company in making operating decisions. As of March 31, 2016 and for the three months ended March 31, 2016 and 2015, the Company operates in two segments. The segments are Products (principally consisting of Pioneer Products’ operations consisting of sales of recycled plastic products) and Services (principally consisting of Eco3D’s mapping, modeling and consulting services business plus costs associated with developing Intelleflex and Eco360 solutions). Home office costs are allocated to the two segments based on the relative support provided to those segments.
March 31, 2016 | Products | Services | Total | |||||||||
Segmented operating revenues | $ | 1,207 | $ | 757 | $ | 1.964 | ||||||
Cost of revenues | 1,182 | 277 | 1,459 | |||||||||
Gross profit | 25 | 480 | 505 | |||||||||
Total operating expenses net of depreciation and amortization, and interest expense, net | 59 | 2,497 | 2,556 | |||||||||
Depreciation and amortization | - | 75 | 75 | |||||||||
Interest expense, net | 1 | 94 | 95 | |||||||||
Net (loss) applicable to common shares | (35 | ) | (2,186 | ) | (2,221 | ) | ||||||
Non-controlling interest | - | 2 | 2 | |||||||||
Net (loss) – controlling interest | $ | (35 | ) | $ | (2,188 | ) | $ | (2,223 | ) | |||
Segmented assets | ||||||||||||
Property and equipment, net | $ | - | $ | 360 | $ | 360 | ||||||
Intangible assets, net | $ | 15 | $ | 892 | $ | 907 | ||||||
Capital expenditures | $ | - | $ | 49 | $ | 49 |
March 31, 2015 | Products | Services | Total | |||||||||
Segmented operating revenues | $ | 1,483 | $ | 742 | $ | 2,225 | ||||||
Cost of revenues | 1,417 | 224 | 1,641 | |||||||||
Gross profit | 66 | 518 | 584 | |||||||||
Total operating expenses net of depreciation and amortization, and interest expense, net | 45 | 2,884 | 2,929 | |||||||||
Depreciation and amortization | 332 | 84 | 416 | |||||||||
Interest expense, net | 2 | 204 | 206 | |||||||||
Net (loss) applicable to common shares | (313 | ) | (2,654 | ) | (2,967 | ) | ||||||
Non-controlling interest | - | 51 | 51 | |||||||||
Net (loss) – controlling interest | $ | (313 | ) | $ | (2,705 | ) | $ | (3,018 | ) | |||
Segmented assets | ||||||||||||
Property and equipment, net | $ | - | $ | 403 | $ | 403 | ||||||
Intangible assets, net | $ | 661 | $ | 894 | $ | 1,555 | ||||||
Capital expenditures | $ | - | $ | 8 | $ | 8 |
F-62 |
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2016
During the three months ended March 31, 2016 and 2015, the Company had one major customer comprising 62% and 65% of revenue. A major customer is defined as a customer that represents 10% or greater of total sales. Additionally, the Company had two customers as of March 31, 2016 and December 31, 2015 with accounts receivable balances of 46% and 32% of the total accounts receivable. The Company does not believe that the risk associated with these customers will have an adverse effect on the business.
The Company maintained cash balances in excess of the FDIC insured limit in both years. The Company does not consider this risk to be material.
nOTE 12: SUBSEQUENT EVENTS
The settlement referred to in Note 9 was paid in April 2016.
On April 28, 2016, the Company issued 625 shares of common stock to legal and other consultants who advised the Company on the Merger.
The private placement offering described in Note 2 was closed on April28, 2016. The offering raised $17,347 in capital. The company issued an additional 1,949 shares of its common stock and an additional 1,949 warrants on April 28, 2016. These warrants have a strike price of $5.00 per share and expire on December 31, 2018.
On May 3, 2016, the Company entered into a Share Exchange Agreement (the “Agreement”) by and among the Company, Pioneer Products, Sable Polymer Solutions, LLC, an Arkansas limited liability company (“Sable”), and the holder of all of Sable’s membership interests.
The Company issued 2,000 shares of the Company’s common stock (the “Shares”) in exchange for all of Sable’s membership interests. Sable will be a wholly-owned subsidiary of Pioneer Products.
The seller shall be subject to a lock-up agreement (the “Lock-Up Agreement”) that releases shares from the Lock-Up Agreement over a period of one year (the “Lock-Up Period”). Under the Lock-Up Agreement, the seller shall be permitted to sell 33.3% of the Shares received by the seller after the six-month anniversary of the closing of the transaction. Thereafter, an additional 33.3% of the Shares shall be released at the end of each subsequent three-month period until the end of the Lock-Up Period.
No cash was paid relating to the acquisition of Sable. Sable operates a polymer manufacturing facility north of Atlanta, Georgia.
The Company acquired the assets and liabilities noted below in exchange for the 2,000 shares and is accounting for the acquisition in accordance with ASC 805. Based on the fair values at the effective date of acquisition the purchase price was recorded as follows:
Cash | $ | 81 | ||
Receivables, net | 1,275 | |||
Inventory | 909 | |||
Property and equipment, net | 2,822 | |||
Intangible assets | 1,028 | |||
Goodwill | 1,238 | |||
Other assets | 36 | |||
Accounts payable and other liabilities | (981 | ) | ||
Notes payable and current debt | (2,251 | ) | ||
Long-term debt | (280 | ) | ||
$ | 3,877 |
The intangible assets represent customer lists and will be amortized over three years. The goodwill recognized reflects expected synergies from combining operations of Sable and the Company as well as intangible assets that do not qualify for separate recognition including polymer formulas and formulations. The goodwill is not expected to be deductible for tax purposes. The goodwill will not be amortized but will be tested annually for impairment.
The following table shows pro-forma results for the three months ended March 31, 2016 and 2015 as if the acquisition had occurred on January 1, 2015. These unaudited pro forma results of operations are based on the historical financial statements and related notes of Sable and the Company.
For the three months ended March 31, | ||||||||
2016 | 2015 | |||||||
Revenues | $ | 3,200 | $ | 4,412 | ||||
Net loss attributable to controlling interest | $ | 2,529 | $ | 3,104 | ||||
Net loss per share | $ | (0.08 | ) | $ | (0.13 | ) |
F-63 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Member of
Sable Polymer Solutions, LLC
Rogers, Arkansas
We have audited the accompanying balance sheets of Sable Polymer Solutions, LLC (the “Company”) as of December 31, 2015 and 2014 and the related statements of operations, changes in member’s equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sable Polymer Solutions, LLC as of December 31, 2015 and 2014, and the results of its statements of operations, changes in member’s equity (deficit), and cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has sustained operating losses and needs to obtain additional financing to continue the development of their product. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ KBL, LLP
New York, NY
June 10, 2016
F-64 |
BALANCE SHEETS
DECEMBER 31, 2015 and 2014
(Dollars in thousands) | ||||||||
December 31, 2015 | December 31, 2014 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 31 | $ | 80 | ||||
Accounts receivable, net of allowance | 1,025 | 977 | ||||||
Accounts receivable – related parties | - | 32 | ||||||
Inventory, net of reserves | 1,238 | 1,040 | ||||||
Prepaid expenses | 40 | - | ||||||
Other current assets | 25 | - | ||||||
Total current assets | 2,359 | 2,129 | ||||||
Property and equipment, net | 1,391 | 1,358 | ||||||
Total non-current assets | 1,391 | 1,358 | ||||||
TOTAL ASSETS | $ | 3,750 | $ | 3,487 | ||||
LIABILITIES AND MEMBER’S EQUITY (DEFICIT) | ||||||||
CURRENT LIABILITIES | ||||||||
Current portion of long-term debt | $ | 175 | $ | 166 | ||||
Note payable | 1,500 | 500 | ||||||
Advances - related parties | - | 1,929 | ||||||
Accounts payable | 470 | 721 | ||||||
Accounts payable – related parties | 63 | - | ||||||
Accrued expenses | 126 | 4 | ||||||
Accrued interest | 6 | 5 | ||||||
Total current liabilities | 2,340 | 3,325 | ||||||
NON-CURRENT LIABILITIES | ||||||||
Commitments and contingencies | - | - | ||||||
Long-term debt | 327 | 503 | ||||||
Total non-current liabilities | 327 | 503 | ||||||
Total liabilities | 2,667 | 3,828 | ||||||
MEMBER’S EQUITY (DEFICIT) | ||||||||
Member’s equity (deficit) | 1,083 | (341 | ) | |||||
Total member’s equity (deficit) | 1,083 | (341 | ) | |||||
TOTAL LIABILITIES AND MEMBER’S EQUITY (DEFICIT) | $ | 3,750 | $ | 3,487 |
The accompanying notes are an integral part of these financial statements
F-65 |
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(Dollars in thousands) | ||||||||
2015 | 2014 | |||||||
REVENUES | $ | 14,047 | $ | 10,821 | ||||
COST OF REVENUES | 14,635 | 11,020 | ||||||
GROSS (LOSS) | (588 | ) | (199 | ) | ||||
OPERATING EXPENSES: | ||||||||
General and administrative | 305 | 298 | ||||||
Depreciation and amortization | 266 | 213 | ||||||
Total operating expenses | 571 | 511 | ||||||
Loss from operations | (1,159 | ) | (710 | ) | ||||
OTHER INCOME (EXPENSE): | ||||||||
Other income, net of other expenses | 74 | - | ||||||
Loss on abandonment of leasehold improvements | (43 | ) | - | |||||
Interest expense | (77 | ) | (65 | ) | ||||
Total other income (expense) | (46 | ) | (65 | ) | ||||
NET LOSS | $ | (1,205 | ) | $ | (775 | ) |
The accompanying notes are an integral part of these financial statements
F-66 |
STATEMENT OF CHANGES IN MEMBER’S EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(Dollars in thousands) | ||||
Total | ||||
Balance at January 1, 2014 | $ | 434 | ||
Net loss for the year | (775 | ) | ||
Balance at December 31, 2014 | (341 | ) | ||
Conversion of related party note payable to equity | 2,629 | |||
Net loss for the year | (1,205 | ) | ||
Balance at December 31, 2015 | $ | 1,083 |
The accompanying notes are an integral part of these financial statements
F-67 |
STATEMENTs OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(Dollars in thousands) | ||||||||
2015 | 2014 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (1,205 | ) | $ | (775 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 266 | 213 | ||||||
Loss on abandonment of leasehold improvements | 43 | - | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (48 | ) | (275 | ) | ||||
Accounts receivable – related parties | 32 | (32 | ) | |||||
Inventory | (198 | ) | (84 | ) | ||||
Prepaid expenses | (40 | ) | - | |||||
Other current assets | (25 | ) | - | |||||
Accounts payable | (251 | ) | 119 | |||||
Accounts payable – related parties | 59 | - | ||||||
Accrued expenses | 125 | 2 | ||||||
Accrued interest | 1 | 5 | ||||||
Net cash used in operating activities | (1,241 | ) | (827 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (392 | ) | (619 | ) | ||||
Proceeds from sale of equipment | 50 | - | ||||||
Net cash used in investing activities | (342 | ) | (619 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from borrowings | 1,000 | 667 | ||||||
Repayments of debt | (166 | ) | - | |||||
Proceeds from advances - related parties | 700 | 753 | ||||||
Net cash provided by financing activities | 1,534 | 1,273 | ||||||
NET (DECREASE) IN CASH | (49 | ) | (173 | ) | ||||
Cash - beginning of the year | 80 | 253 | ||||||
Cash - end of the year | $ | 31 | $ | 80 | ||||
SUPPLEMENTAL DISCLOSURES: | ||||||||
Cash paid for interest | $ | 76 | $ | 60 | ||||
Cash paid for income taxes | $ | - | $ | - | ||||
SUMMARY OF NONCASH ACTIVITIES: | ||||||||
Advances from related parties contributed to capital | $ | 2,629 | $ | - |
The accompanying notes are an integral part of these financial statements
F-68 |
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
DECEMBER 31, 2015
NOTE1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business and Organization
Sable Polymer Solutions, LLC, an LLC formed in Arkansas on September 10, 2012 (“Sable” or the “Company”) has expertise in the recycling and reclamation of resin materials. It operates a plastics recycling plant in Flowery Branch, Georgia. Sable principally purchases plastic and resin materials and after conversions and reformulation sells those products. In addition to those product sales, the Company performs limited tolling services for other customers. The Company operated as a partnership until March 2013 when it became a single member LLC.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with U.S generally accepted accounting principles (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (the “Commission”). It is Management's opinion, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates include, but are not limited to, Management’s estimate of provisions required for non-collectible accounts receivable, an amount per pound of material processed for labor and overhead, and adjustments for lower of cost or market, obsolete or slow-moving inventory, which are shown net. Actual results could differ from those estimates.Earnings (Loss) Per ShareStatement
Cash
Cash consists of cash and demand deposits.
Inventory
Inventory is stated at the lower of cost or market. Inventory cost is determined on a first in first out basis, and provisions are made to reduce slow-moving, obsolete, or unusable inventories to their estimated useful or scrap values.
Property and Equipment and Long-Lived Assets
Property and equipment is stated at cost. Depreciation on property and equipment is computed using the straight-line method over the estimated useful lives of the assets, which range from two to ten years.
FASB Codification Topic 360 “Property, Plant and Equipment” (“ASC 360”), requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The application of ASC 360 has not materially affected the Company’s reported earnings, financial condition or cash flows.
The Company did not consider it necessary to record any impairment charges during the years ended December 31, 2015 and 2014.
Subsequent Events
Subsequent events were evaluated through the date the financial statements were issued.
Shipping and Handling Costs
The Company reports shipping and handling revenues and their associated costs in cost of revenue, respectively. Shipping revenues and costs for the years ended December 31, 2015 and 2014 were nominal and included in cost of revenues.
F-69 |
SABLE POLYMER SOLUTIONS, llc
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
DECEMBER 31, 2015
Revenue Recognition
Revenue primarily consists of the sale of recycled plastics products and is presented net of discounts and returns. Revenue is recognized when the following criteria have been met:
Evidence of an arrangement exists.The Company considers a customer purchase order, service agreement, contract, or equivalent document to be evidence of an arrangement.
Delivery has occurred. The Company’s standard transfer terms are free on board (FOB) shipping point. Thus, delivery is considered to have occurred when title and risk of loss have passed to the customer at the time of shipment.
The fee is fixed or determinable.The Company considers the fee to be fixed or determinable if the fee is not subject to refund or adjustment and payment terms are standard, which is generally 30-60 days.
Collection is deemed reasonably assured. Collection is deemed reasonably assured if it is expected that the customer will be able to pay amounts under the arrangement as payments become due. If it is determined that collection is not reasonably assured, then revenue is deferred and recognized upon cash collection.
Accounts Receivable and Concentration of Credit Risk
The Company considers accounts receivable, net of allowance for returns and doubtful accounts, to be fully collectible. The allowance is based on management’s estimate of the overall collectability of accounts receivable, considering historical losses and economic conditions. Based on these same factors, individual accounts are charged off against the allowance when management determines those individual accounts are uncollectible. Credit extended to customers is generally uncollateralized. Past-due status is based on contractual terms. Management has determined that the allowance for doubtful accounts at December 31, 2015 and 2014 was $23 and $0, respectively. Provision for doubtful accounts was $35 and $0 for the years ended December 31, 2015 and 2014, respectively.
Income Taxes
The Company is a limited liability company treated as a disregarded entity for federal and state income tax purposes with all income tax liabilities and/or benefits of the Company being passed through to the member. As such, no recognition of federal or state income taxes for the Company has been provided for in the accompanying financial statements. Any uncertain tax position taken by the member is not an uncertain position of the Company.
Fair Value of Financial Instruments
ASC 825, "Financial Instruments," requires the Company to disclose estimated fair values for its financial instruments. Fair value estimates, methods, and assumptions are set forth below for the Company's financial instruments: The carrying amount of cash, accounts receivable, prepaid and other current assets, accounts payable and accrued expenses, and accounts payable to related parties, approximate fair value because of the short-term maturity of those instruments. The Company does not utilize derivative instruments.
Recoverability of Long-Lived Assets
The Company reviews recoverability of long-lived assets on a periodic basis whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets. Fixed assets to be disposed of by sale will be carried at the lower of the then current carrying value or fair value less estimated costs to sell.
F-70 |
SABLE POLYMER SOLUTIONS, llc
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
DECEMBER 31, 2015
Fair Value Measurements
ASC 820, “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. ASC 820 classifies these inputs into the following hierarchy:
Level 1 inputs: Quoted prices for identical instruments in active markets.
Level 2 inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 inputs: Instruments with primarily unobservable value drivers.
Related Party Transactions
Parties are considered to be related to the Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal stockholders of the Company, its management, members of the immediate families of principal stockholders of the Company and its management and other parties with which the Company may deal where one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions shall be recorded at fair value of the goods or services exchanged. Property purchased from a related party is recorded at the cost to the related party and any payment to or on behalf of the related party in excess of the cost is reflected as compensation or distribution to related parties depending on the transaction.
A related party receivable of $32 was outstanding at December 31, 2014 related to freight charges paid on behalf of the related party. Related party payables of $63, net were outstanding at December 31, 2015 related to equipment purchases.
Recently Issued Accounting Standards
In February 2016, the FASB issued Accounting Standards Update (ASU) No. 128 “Earnings Per Share” requires presentation2016-02, “Leases (Topic 842)”.ASU 2016-02 changes the accounting for leased assets, principally by requiring balance sheet recognition of basic earnings per shareassets under lease arrangements. It is effective for annual reporting periods, and diluted earnings per share. Basic income (loss) per share (“Basic EPS”)interim periods within those years, beginning after December 15, 2018. The Company is computedcurrently in the process of evaluating the impact of the adoption of ASU 2016-02 on its financial statements.
In November 2014, the FASB issued ASU No. 2014-17, “Business Combinations – Pushdown Accounting.” The provisions of ASU 2014-17 require management to determining whether and at what threshold an acquiree (acquired entity) can reflect the acquirer’s accounting and reporting basis (pushdown accounting) in its separate financial statements. Since neither unit of this business combination is in the development stage, nor had recognizable revenues during this period the application of push down accounting would not be of significant value to the readers of these consolidated financial statements. The Company has not elected to apply pushdown accounting in its separate financial statements upon occurrence of this event.
During August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements—Going Concern.” The provisions of ASU 2014-15 require management to assess an entity’s ability to continue as a going concern by dividing net lossincorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to common stockholdersbe issued). The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company is currently assessing the impact of this ASU on the Company’s consolidated financial statements.
F-71 |
SABLE POLYMER SOLUTIONS, llc
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
DECEMBER 31, 2015
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606), which supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition”, and most industry-specific guidance. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The amendments in ASU 2014-09 will be applied using one of two retrospective methods. The effective date will be the first quarter of the fiscal year ending December 31, 2018. The Company has not determined the potential effects on its financial statements.
There were other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
Going Concern
The Company commenced operations in 2012, and has experienced typical start-up costs and losses from operations resulting in an accumulated deficit of $2,716 since inception. The accumulated deficit as well as recurring losses of $1,205 and $775 for the years ended December 31, 2015 and 2014, and the limited working capital surplus of $19 as of December 31, 2015, have resulted in the uncertainty of the Company to continue as a going concern.
These financial statements of the Company have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period of time.
The Company was acquired by Ecoark Holdings, Inc. on May 3, 2016 (see Note 10 below). The Company’s ability to raise additional funds is unknown. Obtaining additional financing, the successful development of the Company’s contemplated plan of operations, ultimately, to profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result from the outcome of the uncertainties.
NOTE 2:INVENTORY
Inventory, net of reserves, consisted of the following as of December 31, 2015 and 2014:
2015 | 2014 | |||||||
Raw Materials | $ | 702 | $ | 930 | ||||
Finished Goods | 536 | 110 | ||||||
Inventory | $ | 1,238 | $ | 1,040 |
NOTE 3:PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31, 2015 and 2014:
2015 | 2014 | |||||||
Furniture and fixtures | $ | 116 | $ | 116 | ||||
Computers and software costs | 4 | 3 | ||||||
Machinery and equipment | 1,834 | 1,539 | ||||||
Leasehold improvements | 25 | 48 | ||||||
Total property and equipment | 1,979 | 1,706 | ||||||
Accumulated depreciation, amortization | (588 | ) | (348 | ) | ||||
Property and equipment, net | $ | 1,391 | $ | 1,358 |
Depreciation expense for 2015 and 2014 was $266 and $213, respectively. There was no impairment on these assets for this two-year period. There was a loss on the abandonment of leasehold improvements of $43 for the year ended December 31, 2015. The Company also sold $71 of equipment that had $21 of accumulated depreciation in 2015 for $50.
F-72 |
SABLE POLYMER SOLUTIONS, llc
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
DECEMBER 31, 2015
NOTE 4: ACCOUNTS RECEIVABLE AND PAYABLE – RELATED PARTIES
The Company at times conducts business with related parties controlled by the weighted average numbersole member. At December 31, 2014 amounts receivable from related parties for these transactions was $32. At December 31, 2015 amounts owed to related parties was $63.
NOTE 5: NOTES PAYABLE
The Company has a note payable pursuant to a line of common shares outstanding duringcredit maintained with Generations Bank. The notes are secured by the period. Diluted earnings per share (“Diluted EPS”) is similarly calculated using the treasury stock method except that the denominator is increased to reflect the potential dilution that would
35
Interest expense on the notes for the periodyears ended MarchDecember 31, 2008.
2015 and 2014 was $44 and $24, respectively.
NOTE 6: ADVANCES – RELATED PARTIES
The advances – related parties represent non-interest bearing, unsecured, advances from the principal of the Company for working capital needs. The advances – related party had a balance outstanding at December 31, 2014 of $1,900 and there were $700 additional advances in 2015. On June 30, 2015, the principal of the Company converted $2,000 of the advances to a capital contribution in the Company. On December 31, 2015 the principal of the Company converted the remaining outstanding balance of $629 to a capital contribution in the Company.
NOTE 7: LONG-TERM DEBT
The following is a reconciliationsummary of long-term debt as of December 31, 2015 and 2014:
2015 | 2014 | |||||||||
Note payable – Generations Bank | (a) | $ | 258 | $ | 356 | |||||
Note payable – Generations Bank | (b) | 244 | 313 | |||||||
Total | 502 | 669 | ||||||||
Less: current portion | (175 | ) | (166 | ) | ||||||
Long-term debt | $ | 327 | $ | 503 |
(a) | Five year note payable dated May 3, 2013 in the original principal amount of $500 accruing interest at 5.5% with monthly payments of $10 and secured by the plant equipment of the Company and the guaranty of the principal of the Company. |
(b) | Five year note payable dated February 3, 2014 in the original principal amount of $367 accruing interest at 5.5% with monthly payments of $7 and secured by the plant equipment of the Company and the guaranty of the principal of the Company and an entity controlled by the principal of the Company. |
Interest expense on the long-term debt for the years ended December 31, 2015 and 2014 was $33 and $41, respectively. Principal payments required are as follows: 2016 - $175, 2017 - $185, 2018 - $128 and 2019 - $14.
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SABLE POLYMER SOLUTIONS, llc
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
DECEMBER 31, 2015
NOTE8: COMMITMENTS AND CONTINGENCIES
Operating Leases and Relocation
The Company leases its operating facilities under a long-term, non-cancelable operating lease agreement. In 2015 the Company relocated to a larger plant facility. The lease term for the new facility began on September 1, 2015 and expires on January 31, 2021. Four months of free rent were provided under the new lease, and rent expense is recorded on a straight-line basis over the lease term. Rent expense was $230 and $147 for 2015 and 2014, respectively. Future minimum lease payments required under the operating lease are as follows: 2016 - $300, 2017 - $300, 2018 -$300, 2019 - $300, 2020 - $300 and 2021 - $25.
When the Company moved from the previous facility $48 of leasehold improvements were written off resulting in a loss of $43. In addition, the Company incurred approximately $50 of direct costs and approximately $210 of labor costs associated with the move.
nOTE 9: CONCENTRATIONS
During the years ended December 31, 2015 and 2014, the Company had three and four major customers comprising 54% and 72% of sales, respectively. A major customer is defined as a customer that represents 10% or greater of total sales. Additionally, the Company had four and six customers as of December 31, 2015 and 2014 with accounts receivable balances of 57% and 99%, respectively, of the numeratorstotal accounts receivable.
In addition, during the years ended December 31, 2015 and denominators2014, the Company had one and two major vendors comprising 10% and 21% of purchases, respectively. A major vendor is defined as a vendor that represents 10% or greater of total purchases. Additionally, the Company had two and one vendor as of December 31, 2015 and 2014 with accounts payable balances of 32% and 10%, respectively, of total accounts payable.
The Company does not believe that the risk associated with these customers and vendors will have an adverse effect on the business.
nOTE 10: SUBSEQUENT EVENTS
On May 3, 2016, the Company entered into a Share Exchange Agreement (the “Agreement”) by and among Ecoark Holdings, Inc. (“Ecoark”), Pioneer Products (an indirect subsidiary of Ecoark), and the holder of all of Sable’s membership interests.
Ecoark issued 2,000,000 shares of its common stock in exchange for all of Sable’s membership interests. Sable became a wholly-owned subsidiary of Pioneer Products.
No cash was paid relating to the acquisition of Sable. In April 2016, Ecoark advanced $600 to Sable for working capital purposes.
F-74 |
BALANCE SHEETS (UNAUDITED)
MARCH 31, 2016 AND DECEMBER 31, 2015
(Dollars in thousands) | ||||||||
March 31, 2016 | December 31, 2015 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | - | $ | 31 | ||||
Accounts receivable, net of allowance | 1,303 | 1,025 | ||||||
Inventory, net of reserves | 1,367 | 1,238 | ||||||
Prepaid expenses | 14 | 40 | ||||||
Other current assets | 25 | 25 | ||||||
Total current assets | 2,709 | 2,359 | ||||||
Property and equipment, net | 1,321 | 1,391 | ||||||
Total non-current assets | 1,321 | 1,391 | ||||||
TOTAL ASSETS | $ | 4,030 | $ | 3,750 | ||||
LIABILITIES AND MEMBER’S EQUITY (DEFICIT) | ||||||||
CURRENT LIABILITIES | ||||||||
Current portion of long-term debt | $ | 178 | $ | 175 | ||||
Notes payable | 1,500 | 1,500 | ||||||
Cash overdraft | 388 | - | ||||||
Accounts payable | 615 | 470 | ||||||
Accounts payable – related parties | 63 | 63 | ||||||
Accrued expenses | 135 | 126 | ||||||
Accrued interest | 6 | 6 | ||||||
Total current liabilities | 2,885 | 2,340 | ||||||
NON-CURRENT LIABILITIES | ||||||||
Commitments and contingencies | - | - | ||||||
Long-term debt | 282 | 327 | ||||||
Total non-current liabilities | 282 | 327 | ||||||
Total liabilities | 3,167 | 2,667 | ||||||
MEMBER’S EQUITY (DEFICIT) | ||||||||
Member’s equity (deficit) | 863 | 1,083 | ||||||
Total member’s equity (deficit) | 863 | 1,083 | ||||||
TOTAL LIABILITIES AND MEMBER’S EQUITY (DEFICIT) | $ | 4,030 | $ | 3,750 |
The accompanying notes are an integral part of these unaudited financial statements
F-75 |
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(Dollars in thousands) | ||||||||
2016 | 2015 | |||||||
REVENUES | $ | 1,811 | $ | 2,892 | ||||
COST OF REVENUES | 1,859 | 2,862 | ||||||
GROSS PROFIT (LOSS) | (48 | ) | 30 | |||||
OPERATING EXPENSES: | ||||||||
General and administrative | 75 | 37 | ||||||
Depreciation and amortization | 70 | 61 | ||||||
Total operating expenses | 145 | 98 | ||||||
Loss from operations | (193 | ) | (68 | ) | ||||
OTHER INCOME (EXPENSE): | ||||||||
Interest expense | (27 | ) | (17 | ) | ||||
Total other income (expense) | (27 | ) | (17 | ) | ||||
NET LOSS | $ | (220 | ) | $ | (85 | ) |
The accompanying notes are an integral part of these unaudited financial statements
F-76 |
STATEMENTs OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(Dollars in thousands) | ||||||||
2016 | 2015 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (220 | ) | $ | (85 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 70 | 61 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (278 | ) | (192 | ) | ||||
Accounts receivable – related parties | - | 22 | ||||||
Inventory | (129 | ) | (491 | ) | ||||
Prepaid expenses | 26 | (9 | ) | |||||
Accounts payable | 145 | 463 | ||||||
Accounts payable – related parties | - | (4 | ) | |||||
Accrued expenses | 9 | 39 | ||||||
Accrued interest | - | 1 | ||||||
Net cash used in operating activities | (377 | ) | (195 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | - | (19 | ) | |||||
Net cash used in investing activities | - | (19 | ) | |||||
Cash flows from financing activities: | ||||||||
Increase in cash overdraft | 388 | 175 | ||||||
Repayments of debt | (42 | ) | (41 | ) | ||||
Net cash provided by financing activities | 346 | 134 | ||||||
NET (DECREASE) IN CASH | (31 | ) | (80 | ) | ||||
Cash - beginning of period | 31 | 80 | ||||||
Cash - end of period | $ | - | $ | - | ||||
SUPPLEMENTAL DISCLOSURES: | ||||||||
Cash paid for interest | $ | 27 | $ | 16 | ||||
Cash paid for income taxes | $ | - | $ | - |
The accompanying notes are an integral part of these unaudited financial statements
F-77 |
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
MARCH 31, 2016
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business and Organization
Sable Polymer Solutions, LLC, an LLC formed in Arkansas on September 10, 2012 (“Sable” or the “Company”) has expertise in the recycling and reclamation of resin materials. It operates a plastics recycling plant in Flowery Branch, Georgia. Sable principally purchases plastic and resin materials and after conversions and reformulation sells those products. In addition to those product sales, the Company performs limited tolling services for other customers. The Company operated as a partnership until March 2013 when it became a single member LLC.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with U.S generally accepted accounting principles (“GAAP”) and the rules and regulations of the basicUnited States Securities and diluted earnings per share computationsExchange Commission. It is Management's opinion that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for the period ended March 31, 2008.
Numerator:Basic and diluted net loss per share:Net Income (Loss) $ ( 4,477)DenominatorBasic and diluted weighted averagenumbera fair financial statement presentation. The results ofshares outstanding 1,145,455Basic and Diluted Net Loss Per Share$ 0.004
NOTE 3 – RELATED PARTY TRANSACTIONSOn January 10, 2008 the President and C.E.O., Zachary Zenith, purchased 1,500,000 shares of common stock of the Company at $0.01 per share.NOTE 4 - COMMITMENTS AND CONTINGENCIESThere were no commitments or contingencies inoperations for the three months ended March 31, 2008. NOTE 5 – CAPITAL STOCK TRANSACTIONSOn January 10, 2008, 1,500,000 shares were issued2016 are not necessarily indicative of the results to be expected for the full year. The accounting policies and procedures employed in the preparation of these financial statements have been derived from the audited financial statements of the Company for the fiscal year ended December 31, 2015. The consolidated balance sheet as of December 31, 2015, contained herein, was derived from those financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. These estimates include, but are not limited to, Management’s estimate of provisions required for non-collectible accounts receivable, an amount per pound of material processed for labor and overhead, and adjustments for lower of cost or market, obsolete or slow-moving inventory, which are shown net. Actual results could differ from those estimates.
Cash
Cash consists of cash and demand deposits.
Inventory
Inventory is stated at $0.01 per share.In February, 2008, 800,000 shares were issuedthe lower of cost or market. Inventory cost is determined on a first in first out basis, and provisions are made to reduce slow-moving, obsolete, or unusable inventories to their estimated useful or scrap values.
Property and Equipment and Long-Lived Assets
Property and equipment is stated at cost. Depreciation on property and equipment is computed using the straight-line method over the estimated useful lives of the assets, which range from two to ten years.
FASB Codification Topic 360 “Property, Plant and Equipment” (“ASC 360”), requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The application of ASC 360 has not materially affected the Company’s reported earnings, financial condition or cash at $0.02 per share.In March, 2008, 1,100,000 shares were issued for cash at $0.02 per share.Atflows.
The Company did not consider it necessary to record any impairment charges during the three months ended March 31, 2008 the Company had authorized 75,000,000 common shares, of which the total issued and outstanding was 3,400,000.NOTE 6 – LITIGATIONThere were no legal proceedings against the Company with respect to matters arising2016, nor in the ordinary courseyears ended December 31, 2015 and 2014.
Subsequent Events
Subsequent events were evaluated through the date the financial statements were issued.
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SABLE POLYMER SOLUTIONS, llc
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
MARCH 31, 2016
Shipping and Handling Costs
The Company reports shipping and handling revenues and their associated costs in cost of revenue. Shipping revenues and costs for the Company nor anythree months ended March 31, 2016 and 2015 were nominal and included in cost of its officers or directors is involved in any other litigation either as plaintiffs or defendants, and have no knowledge of any threatened or pending litigation against them or anyrevenues.
Revenue Recognition
Revenue primarily consists of the officerssale of recycled plastics products and is presented net of discounts and returns. Revenue is recognized when the following criteria have been met:
Evidence of an arrangement exists. The Company considers a customer purchase order, service agreement, contract, or directors.
36
Planequivalent document to be evidence of Operations
an arrangement.
Three Phase PlanMobilis plans
Delivery has occurred. The Company’s standard transfer terms are free on board (FOB) shipping point. Thus, delivery is considered to commence phase I that will be dedicatedhave occurred when title and risk of loss have passed to the following activities.
The fee is fixed or determinable.The Company considers the Mobilis website, which will include an ecommerce capability,
The budget for phase one is approximately $15,000 to $20,000 and is expectedfee to be complete by February 2009. Mobilis currently has sufficient fundsfixed or determinable if the fee is not subject to complete phase one of its plan of operations.The second phase of the operating plan will begin in March 2009refund or adjustment and will be continuous aspayment terms are standard, which is generally 30-60 days.
Collection is deemed reasonably assured. Collection is deemed reasonably assured if it will be focused on the build out of the website to additional market areas. It is expected that the Presidentcustomer will be able to pay amounts under the arrangement as payments become due. If it is determined that collection is not reasonably assured, then revenue is deferred and recognized upon cash collection.
Accounts Receivable and Concentration of Mobilis will head this effort. DueCredit Risk
The Company considers accounts receivable, net of allowance for returns and doubtful accounts, to be fully collectible. The allowance is based on management’s estimate of the overall collectability of accounts receivable, considering historical losses and economic conditions. Based on these same factors, individual accounts are charged off against the allowance when management determines those individual accounts are uncollectible. Credit extended to customers is generally uncollateralized. Past-due status is based on contractual terms. Management has determined that the allowance for doubtful accounts at both March 31, 2016 and December 31, 2015 was $23.
Income Taxes
The Company is a limited liability company treated as a disregarded entity for federal and state income tax purposes with all income tax liabilities and/or benefits of the Company being passed through to the naturemember. As such, no recognition of federal or state income taxes for the Company has been provided for in the accompanying financial statements. Any uncertain tax position taken by the member is not an uncertain position of the Company.
Fair Value of Financial Instruments
ASC 825, "Financial Instruments," requires the Company to disclose estimated fair values for its financial instruments. Fair value estimates, methods, and assumptions are set forth below for the Company's financial instruments: The carrying amount of cash, accounts receivable, prepaid and other current assets, accounts payable and accrued expenses, and accounts payable to related parties, approximate fair value because of the short-term maturity of those instruments. The Company does not utilize derivative instruments.
Recoverability of Long-Lived Assets
The Company reviews recoverability of long-lived assets on a periodic basis whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets. Fixed assets to be disposed of by sale will be carried at the lower of the then current carrying value or fair value less estimated costs involvedto sell.
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SABLE POLYMER SOLUTIONS, llc
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
MARCH 31, 2016
Fair Value Measurements
ASC 820, “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. ASC 820 classifies these inputs into the factfollowing hierarchy:
Level 1 inputs: Quoted prices for identical instruments in active markets.
Level 2 inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that Mr. Zenith willare not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 inputs: Instruments with primarily unobservable value drivers.
Related Party Transactions
Parties are considered to be related to the Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal stockholders of the Company, its management, members of the immediate families of principal stockholders of the Company and its management and other parties with which the Company may deal where one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions shall be recorded at fair value of the goods or services exchanged. Property purchased from a related party is recorded at the cost to the related party and any payment to or on behalf of the related party in excess of the cost is reflected as compensation or distribution to related parties depending on the transaction.
Related party payables related to equipment purchases of $63, net were outstanding at March 31, 2016 and December 31, 2015.
Recently Issued Accounting Standards
In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, “Leases (Topic 842)��.ASU 2016-02 changes the accounting for leased assets, principally by requiring balance sheet recognition of assets under lease arrangements. It is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2018. The Company is currently in the process of evaluating the impact of the adoption of ASU 2016-02 on its financial statements.
In November 2014, the FASB issued ASU No. 2014-17, “Business Combinations – Pushdown Accounting.” The provisions of ASU 2014-17 require management to determining whether and at what threshold an acquiree (acquired entity) can reflect the acquirer’s accounting and reporting basis (pushdown accounting) in its separate financial statements. Since neither unit of this business combination is in the development stage, nor had recognizable revenues during this period the application of push down accounting would not be receiving a salary atof significant value to the readers of these consolidated financial statements. The Company has not elected to apply pushdown accounting in its separate financial statements upon occurrence of this time, it is expected that expenses relatedevent.
During August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements—Going Concern.” The provisions of ASU 2014-15 require management to phase two to be less than approximately $5,000 - $10,000. The company currently has sufficient cash on hand to fund this phase of its plan of operations. The timeline will depend on the revenues and or funding at that time. If the company begins to generate sufficient revenues it will hire additional staff to facilitate a more rapid assembly of relevant content.If Mobilis is successful implementing its’ business plan and begins to produce meaningful revenues from the website, Management will institute phase three of the business plan, which may involve hiring additional staff to handle special requests and begin to deal with more personalized, complex demands by consumers. It is anticipated that much higher fees will be charged for this service. However, it is planned at this time that the nature of the service will remain the same – being the delivery of objective advice for consumers (as opposed to “pushing” the delivery of services) in order to continue to reinforce the “pure” Mobilis brand. Off-Balance Sheet ArrangementsWe have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
37
Changesconcern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and Disagreements with Accountants
We have had no changesother disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in or disagreements with our accountants.
Directors, Executive Officers, Promoters And Control Persons
Our executive officersthis ASU are effective for the annual period ending after December 15, 2016, and directorsfor annual periods and their respective ages asinterim periods thereafter. The Company is currently assessing the impact of June 13, 2008 are as follows:
this ASU on the Company’s consolidated financial statements.
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Set forth belowTable of Contents
SABLE POLYMER SOLUTIONS, llc
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
MARCH 31, 2016
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606), which supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition”, and most industry-specific guidance. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The amendments in ASU 2014-09 will be applied using one of two retrospective methods. The effective date will be the first quarter of the fiscal year ending December 31, 2018. The Company has not determined the potential effects on its financial statements.
There were other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
Going Concern
The Company commenced operations in 2012, and has experienced typical start-up costs and losses from operations resulting in an accumulated deficit of $2,936 since inception. The accumulated deficit as well as recurring losses of $220 for the three months ended March 31, 2016 and $1,205 and $775 for the years ended December 31, 2015 and 2014, respectively, and a working capital deficit of $176 as of March 31, 2016, have resulted in the uncertainty of the Company to continue as a going concern.
These financial statements of the Company have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period of time.
The Company was acquired by Ecoark Holdings, Inc. on May 3, 2016. The Company’s ability to raise additional funds is unknown. Obtaining additional financing, the successful development of the Company’s contemplated plan of operations, ultimately, to profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result from the outcome of the uncertainties.
NOTE 2:INVENTORY
Inventory, net of reserves, consisted of the following as of March 31, 2016 and December 31, 2015:
March 31, 2016 | December 31, 2015 | |||||||
Raw materials | $ | 544 | $ | 702 | ||||
Finished goods | 823 | 536 | ||||||
Inventory | $ | 1,367 | $ | 1,238 |
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SABLE POLYMER SOLUTIONS, llc
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
MARCH 31, 2016
NOTE 3:PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of March 31, 2016 and December 31, 2015:
March 31, 2016 | December 31, 2015 | |||||||
Furniture and fixtures | $ | 116 | $ | 116 | ||||
Computers and software costs | 4 | 4 | ||||||
Machinery and equipment | 1,834 | 1,834 | ||||||
Leasehold improvements | 25 | 25 | ||||||
Total property and equipment | 1,979 | 1,979 | ||||||
Accumulated depreciation, amortization | (658 | ) | (588 | ) | ||||
Property and equipment, net | $ | 1,321 | $ | 1,391 |
Depreciation expense for the three months ended March 31, 2016 and 2015 was $70 and $61, respectively. There was no impairment on these assets for the periods presented.
NOTE 4: ACCOUNTS PAYABLE – RELATED PARTIES
The Company at times conducts business with related parties controlled by the sole member. At March 31, 2016 and December 31, 2015 amounts owed to related parties were $63.
NOTE 5: NOTES PAYABLE
The Company has a note payable pursuant to a line of credit maintained with Generations Bank. The note is secured by the accounts receivable, inventory and equipment of the Company, with monthly interest only at 5.5%, and a balloon payment at maturity. The note at March 31, 2016 and December 31, 2015 originated July 15, 2015 with a maximum amount of $1,500 and is due in one year. The balance of the notes was $1,500 and $1,500 at both March 31, 2016 and December 31, 2015. Average amounts outstanding under the line of credit were $1,500 and $500 for the three months ended March 31, 2016 and 2015, respectively.
Interest expense on the notes for the three months ended March 31, 2016 and 2015 was $20 and $8, respectively.
NOTE 6: LONG-TERM DEBT
The following is a brief descriptionsummary of long-term debt as of March 31, 2016 and December 31, 2015:
March 31, 2016 | December 31, 2015 | |||||||||||
Note payable – Generations Bank | (a) | $ | 234 | $ | 258 | |||||||
Note payable – Generations Bank | (b) | 226 | 244 | |||||||||
Total | 460 | 502 | ||||||||||
Less: current portion | (178 | ) | (175 | ) | ||||||||
Long-term debt | $ | 282 | $ | 327 |
(a) | Five year note payable dated May 3, 2013 in the original principal amount of $500 accruing interest at 5.5% with monthly payments of $10 and secured by the plant equipment of the Company and the guaranty of the principal of the Company. |
(b) | Five year note payable dated February 3, 2014 in the original principal amount of $367 accruing interest at 5.5% with monthly payments of $7 and secured by the plant equipment of the Company and the guaranty of the principal of the Company and an entity controlled by the principal of the Company. |
F-82 |
SABLE POLYMER SOLUTIONS, llc
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
MARCH 31, 2016
Interest expense on the long-term debt for the three months ended March 31, 2016 and 2015 was $7 and $9, respectively. Principal payments required in the two years following March 31, 2017 are $188 and $94.
NOTE 7: COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its operating facilities under a long-term, non-cancelable operating lease agreement. In 2015 the Company relocated to a larger plant facility. The lease term for the new facility began on September 1, 2015 and expires on January 31, 2021. Four months of free rent were provided under the new lease, and rent expense is recorded on a straight-line basis over the lease term. Rent expense was $70 and $37 for the three months ended March 31, 2016 and 2015, respectively. Future minimum lease payments required under the operating lease are as follows: 2016 - $225, 2017 - $300, 2018 -$300, 2019 - $300, 2020 - $300 and 2021 - $25.
nOTE 8: CONCENTRATIONS
During the three months ended March 31, 2016 and 2015, the Company had two and three major customers comprising 62% and 63% of sales, respectively. A major customer is defined as a customer that represents 10% or greater of total sales. Additionally, the Company had three customers as of March 31, 2016 and December 31, 2015 with accounts receivable balances of 57% and 68%, respectively, of the backgroundtotal accounts receivable.
In addition, during the three months ended March 31, 2016 and business experience2015, the Company had two major vendors comprising 27% and 21% of eachpurchases, respectively. A major vendor is defined as a vendor that represents 10% or greater of total purchases. Additionally, the Company had one and two vendors as of March 31, 2016 and December 31, 2015 with accounts payable balances of 12% and 32%, respectively, of total accounts payable.
The Company does not believe that the risk associated with these customers and vendors will have an adverse effect on the business.
nOTE 9: SUBSEQUENT EVENTS
On May 3, 2016, the Company entered into a Share Exchange Agreement (the “Agreement”) by and among Ecoark Holdings, Inc. (“Ecoark”), Pioneer Products (an indirect subsidiary of Ecoark), and the holder of all of Sable’s membership interests.
Ecoark issued 2,000,000 shares of its common stock in exchange for all of Sable’s membership interests. Sable became a wholly-owned subsidiary of Pioneer Products.
No cash was paid relating to the acquisition of Sable. In April 2016, Ecoark advanced $600 to Sable for working capital purposes.
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ECOARK HOLDINGS, INC.
PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and number of shares in thousands)
The following unaudited pro forma consolidated financial statements (the “pro formas”) give effect to the acquisition on March 24, 2016 of the outstanding common shares of EcoArk Inc. and Subsidiaries, (“EcoArk”) by Magnolia Solar Corporation and a subsidiary (collectively “Magnolia”), with the surviving parent company now known as Ecoark Holdings, Inc. (“EARK”) The pro formas also give effect to the acquisition of Sable Polymer Solutions (“Sable”) by Ecoark Holdings, Inc. on May 3, 2016. The pro formas are based on estimates and assumptions set forth herein and in the notes to such pro forma statements.
The following unaudited pro forma consolidated statements of operations for the three months ended March 31, 2016 and for the year ended December 31, 2015 of Ecoark Holdings, Inc. give effect to the above as if the transactions had occurred at the beginning of the period. The unaudited pro forma consolidated balance sheet at March 31, 2016 assumes the effects of the above as if this transaction had occurred as of March 31, 2016.
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ECOARK HOLDINGS, INC.
PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma consolidated financial statements are based upon, and should be read in conjunction with Magnolia’s audited financial statements as of and for the year ended December 31, 2015 and 2014 and the audited consolidated financial statements of EcoArk as of and for the years ended December 31, 2015 and 2014, the audited financial statements of Sable as of and for the years ended December 31, 2015 and 2014, the unaudited interim financial statements of Ecoark Holdings, Inc. for the three months ended March 31, 2016, and the unaudited financial statements of Sable for the three months ended March 31, 2016.
The unaudited pro forma consolidated financial statements and notes thereto contain forward-looking statements that involve risks and uncertainties. Therefore, our actual results may vary materially from those discussed herein. The unaudited pro forma consolidated financial statements do not purport to be indicative of the results that would have been reported had such events actually occurred on the dates specified, nor is it indicative of our current executive officersfuture results.
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Ecoark Holdings, Inc. and directors.
Subsidiaries
Unaudited Proforma Consolidated Balance SheetZacharey Zenith. Mr. Zenith is our CEO, CFO, President, Secretary, Treasurer and sole director. Mr. Zenith has extensive experienceMarch 31, 2016 (Dollars in the real estate field. Following receipt of a BBA from the University of Winnipeg in 1994, Mr. Zenith completed the real estate 1000 course and worked as a
Thousands)
EARK | SABLE | ADJUSTMENTS | CONSOLIDATED | |||||||||||||||||||
ASSETS | ||||||||||||||||||||||
CURRENT ASSETS | ||||||||||||||||||||||
Cash | $ | 8,848 | $ | - | A | $ | 7,792 | $ | - | $ | 16,640 | |||||||||||
Accounts receivable, net of allowance | 1,421 | 1,303 | - | - | 2,724 | |||||||||||||||||
Inventory, net of reserves | 809 | 1,367 | - | B | 445 | 1,731 | ||||||||||||||||
Prepaid expenses | 156 | 14 | - | - | 170 | |||||||||||||||||
Other current assets | - | 25 | - | - | 25 | |||||||||||||||||
Total current assets | 11,234 | 2,709 | 7,792 | 445 | 21,290 | |||||||||||||||||
Property and equipment, net | 360 | 1,321 | B | 1,501 | - | 3,182 | ||||||||||||||||
Intangible assets, net | 907 | - | B | 1,028 | - | 1,935 | ||||||||||||||||
Goodwill | - | - | B | 1,238 | - | 1,238 | ||||||||||||||||
Other assets | 26 | - | - | - | 26 | |||||||||||||||||
Total non-current assets | 1,293 | 1,321 | 3,767 | - | 6,381 | |||||||||||||||||
TOTAL ASSETS | $ | 12,527 | $ | 4,030 | $ | 11,559 | $ | 445 | $ | 27,671 | ||||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||||||||||||||||
CURRENT LIABILITIES | ||||||||||||||||||||||
Current portion of long-term debt | $ | 3,000 | $ | 178 | - | - | $ | 3,178 | ||||||||||||||
Debt - related parties | 742 | - | - | - | 742 | |||||||||||||||||
Note payable | - | 1,500 | - | - | 1,500 | |||||||||||||||||
Cash overdraft | - | 388 | - | - | 388 | |||||||||||||||||
Accounts payable | 1,244 | 615 | - | - | 1,859 | |||||||||||||||||
Accounts payable - related parties | - | 63 | - | - | 63 | |||||||||||||||||
Accrued expenses | 687 | 135 | - | - | 822 | |||||||||||||||||
Accrued interest | 58 | 6 | - | - | 64 | |||||||||||||||||
Deferred revenue | 61 | - | - | - | 61 | |||||||||||||||||
Total current liabilities | 5,792 | 2,885 | - | - | 8,677 | |||||||||||||||||
NON-CURRENT LIABILITIES | ||||||||||||||||||||||
Long-term debt | - | 282 | - | - | 282 | |||||||||||||||||
Total non-current liabilities | - | 282 | - | - | 282 | |||||||||||||||||
COMMITMENTS AND CONTINGENCIES | - | - | - | - | - | |||||||||||||||||
Total liabilities | 5,792 | 3,167 | - | - | 8,959 | |||||||||||||||||
STOCKHOLDERS' EQUITY (Numbers of shares rounded to thousands) | ||||||||||||||||||||||
Common Stock | 31 | - | - | B | 2 | 33 | ||||||||||||||||
A | 1 | 1 | ||||||||||||||||||||
Additional paid-in-capital | 49,897 | - | - | B | 4,183 | 54,080 | ||||||||||||||||
A | 3,501 | 3,501 | ||||||||||||||||||||
Member's equity | - | 863 | B | 863 | - | - | ||||||||||||||||
Subscription receivable | (4,290 | ) | - | - | A | 4,290 | - | |||||||||||||||
Accumulated deficit | (38,810 | ) | - | - | - | (38,810) | ||||||||||||||||
Total stockholders' equity before non-controlling interest | 6,828 | 863 | 863 | 11,977 | 18,805 | |||||||||||||||||
Non-controlling interest | (93 | ) | - | - | - | (93) | ||||||||||||||||
Total stockholders' equity | 6,735 | 863 | 863 | 11,977 | 18,712 | |||||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 12,527 | $ | 4,030 | $ | 863 | $ | 11,977 | $ | 27,671 |
F-86 |
Ecoark Holdings, Inc. and Century 21 through 2003, when he completed an accredited Mortgage Broker licence course. In 2004, Mr. Zenith founded Alphabet Financial Corp. (“Alphabet”), a real estate investment management company thatSubsidiaries
Unaudited Proforma Consolidated Statement of Operations
Three Months Ended March 31, 2016 (Dollars in Thousands, Except per Share)
EARK | SABLE | ADJUSTMENTS | CONSOLIDATED | |||||||||||||||
REVENUES | ||||||||||||||||||
Revenue from product sales | $ | 1,207 | $ | 1,811 | C | $ | (575 | ) | $ | 2,443 | ||||||||
Revenue from services | 757 | - | - | 757 | ||||||||||||||
1,964 | 1,811 | (575 | ) | 3,200 | ||||||||||||||
COST OF REVENUES | ||||||||||||||||||
Cost of product sales | 1,182 | 1,859 | C | (575 | ) | 2,466 | ||||||||||||
Cost of services | 277 | - | - | 277 | ||||||||||||||
1,459 | 1,859 | (575 | ) | 2,743 | ||||||||||||||
GROSS PROFIT (LOSS) | 505 | (48 | ) | - | 457 | |||||||||||||
OPERATING EXPENSES: | ||||||||||||||||||
Salaries and salary related costs, including stock based compensation | 1,020 | - | - | 1,020 | ||||||||||||||
Professional fees and consulting | 267 | - | - | 267 | ||||||||||||||
General and administrative | 517 | 75 | - | 592 | ||||||||||||||
Depreciation and amortization | 75 | 70 | D | 86 | 231 | |||||||||||||
Research and development | 752 | - | - | 752 | ||||||||||||||
Total operating expenses | 2,631 | 145 | 86 | 2,862 | ||||||||||||||
Loss from operations | (2,126 | ) | (193 | ) | (86 | ) | (2,405 | ) | ||||||||||
OTHER EXPENSE: | ||||||||||||||||||
Interest expense, net of interest income | (95 | ) | (27 | ) | - | (122 | ) | |||||||||||
Loss from before provision for income taxes | (2,221 | ) | (220 | ) | (86 | ) | (2,527 | ) | ||||||||||
`` | ||||||||||||||||||
PROVISION FOR INCOME TAXES | - | - | - | - | ||||||||||||||
NET LOSS | (2,221 | ) | (220 | ) | (86 | ) | (2,527 | ) | ||||||||||
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST | 2 | - | - | 2 | ||||||||||||||
NET LOSS ATTRIBUTABLE TO CONTROLLING INTEREST | $ | (2,223 | ) | $ | (220 | ) | $ | (86 | ) | $ | (2,529 | ) | ||||||
NET LOSS PER SHARE | ||||||||||||||||||
Basic | $ | (0.08 | ) | $ | (0.08 | ) | ||||||||||||
Diluted | $ | (0.08 | ) | $ | (0.08 | ) | ||||||||||||
SHARES USED IN CALCULATION OF NET LOSS PER SHARE | (Number of shares in thousands) | |||||||||||||||||
Basic | 27,847 | E | 4,574 | 32,421 | ||||||||||||||
Diluted | 27,847 | E | 4,574 | 32,421 |
F-87 |
Ecoark Holdings, Inc. and Subsidiaries
Unaudited Proforma Consolidated Statement of Operations
Year Ended December 31, 2015 (Dollars in Thousands, Except per Share)
Magnolia | EcoArk | Sable | Adjustments | Consolidated | ||||||||||||||||||
Net Sales | $ | 160 | $ | 7,868 | $ | 14,047 | C | $ | (2,181 | ) | $ | 19,894 | ||||||||||
Cost of Sales | 102 | 6,138 | 14,635 | C | (2,181 | ) | 18,694 | |||||||||||||||
Gross Profit (Loss) | 58 | 1,730 | (588 | ) | - | 1,200 | ||||||||||||||||
Operating Expenses | ||||||||||||||||||||||
Salaries and related expenses | 161 | 3,791 | - | - | 3,952 | |||||||||||||||||
Professional fees | 150 | 3,651 | - | - | 3,801 | |||||||||||||||||
Other general and administrative expenses | 37 | 1,636 | 305 | - | 1,978 | |||||||||||||||||
Depreciation and amortization | 36 | 1,226 | 266 | D | 343 | 1,871 | ||||||||||||||||
Research and development | - | 1,114 | - | - | 1,114 | |||||||||||||||||
Total operating expenses | 384 | 11,418 | 571 | 343 | 12,716 | |||||||||||||||||
Total operating income (loss) | (326 | ) | (9,688 | ) | (1,159 | ) | (343 | ) | (11,516 | ) | ||||||||||||
Other income (loss) | (240 | ) | (785 | ) | (46 | ) | - | (1,071 | ) | |||||||||||||
Total income (loss) before income taxes | (566 | ) | (10,473 | ) | (1,205 | ) | (343 | ) | (12,587 | ) | ||||||||||||
Provision for income taxes | - | - | - | - | - | |||||||||||||||||
Net income (loss) | (566 | ) | (10,473 | ) | (1,205 | ) | (343 | ) | (12,587 | ) | ||||||||||||
Non-controlling interest | - | 29 | - | - | 29 | |||||||||||||||||
Net income (loss) - controlling interest | $ | (566 | ) | $ | (10,502 | ) | $ | (1,205 | ) | $ | (343 | ) | $ | (12,616 | ) | |||||||
Per share, basic and diluted | $ | (3.29 | ) | $ | (0.36 | ) | - | - | $ | (0.37 | ) | |||||||||||
Weighted average number of common shares outstanding (in thousands) | ||||||||||||||||||||||
Basic | 172 | 29,172 | - | E | 4,574 | 33,918 | ||||||||||||||||
Diluted | 172 | 29,223 | - | E | 4,574 | 33,969 |
F-88 |
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2016, FOR THE THREE MONTHS THEN ENDED AND FOR THE YEAR ENDED DECEMBER 31, 2015
(Dollars in thousands except per share)
NOTE A – ACCOUNTING TREATMENT APPLIED AS A RESULT OF THIS TRANSACTION
The acquisition of EcoArk is engaged in raising moneybeing accounted for real estate development and lending. Since that time, Alphabet has or is in the process of developing $25 million of single and muti family real estate located in Calgary’s inner city and as a private lenderreverse merger, whereby EcoArk is considered to manybe the accounting acquirer. Ecoark Holdings, Inc. acquired the assets and liabilities of Calgary’s mid size builders. Alphabet also manages over $30 million worthSable Polymer Solutions in exchange for 2,000,000 shares of residential and commercial real estate in Calgary. DirectorsOur bylaws authorize no less than one (1) director. We currently have one Director.Term of OfficeOur directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.Significant EmployeesWe have no significant employees other than our President. We do not believe we will require any additional employees until such time as the website is complete and begins obtaining significant postings. We are outsourcing in the meantime for the development of our website.
Executive Compensation
Compensation Discussion and AnalysisThe Company presently not does have employment agreements with any of its named executive officers and it has not established a system of executive compensation or any fixed policies regarding compensation of executive officers. Due to financial constraints typical of those faced by a development stage business, the company has not paid any cash and/or stock compensation to its named executive officers.Our current named executive officer holds substantial ownership in the Company and is motivated by a strong entrepreneurial interest in developing our operations and potential revenue base to the best of his ability. As our business and operations expand and mature, we may develop a formal system of compensation designed to attract, retain and motivate talented executives.
NOTE B – ADJUSTMENTS
39
(A) | To record additional proceeds from a private placement offering for shares of stock and additional issuances of stock for services rendered. |
(B) | To adjust Sable assets and liabilities to fair value, record intangible assets and the issuance of 2,000,000 shares. |
(C) | To eliminate sales and cost of sales between entities under common control. |
(D) | To record the estimated impact on depreciation and amortization expense from the fair value adjustments to property and equipment, net and intangible assets, net. The estimated impact reflects the amortization of identifiable acquired intangible assets with an estimated useful life of three years. No significant impact on depreciation expense is included because the increase in the fair value of property and equipment acquired is offset by differences in the estimated useful lives of the assets acquired. |
(E) | To record shares issued to Sable’s sole member and other shares issued related to Adjustment (A) above. |
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Narrative Disclosure to the Summary Compensation TableOur named executive officers do not currently receive any compensation from the Company for their service as officers of the Company.Outstanding Equity Awards At Fiscal Year-end TableThe table below summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officer outstanding as of the end of our last completed fiscal year.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END | |||||||||
OPTION AWARDS | STOCK AWARDS | ||||||||
Name | Number of | Number of | Equity | Option | Option | Number | Market | Equity | Equity |
Zacharey | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
DIRECTOR COMPENSATION | |||||||
Name | Fees | Stock | Option | Non-Equity | Non-Qualified | All | Total |
Zacharey | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
8,673,250 Shares of Common Stock
PRELIMINARY PROSPECTUS
Prospectus dated , 2016
Narrative Disclosure to the Director Compensation TableOur directors do not currently receive any compensation from the Company for their service as members of the Board of Directors of the Company.
PART II
Security OwnershipINFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Certain Beneficial OwnersIssuance and Management
Distribution.
The following table sets forth asthe costs and expenses, other than underwriting discounts and commissions, payable in connection with the registration of June 13, 2008, the beneficial ownership of our common stock by each executive officer and director, by each person known by us to beneficially own more than 5%hereunder. None of the our common stock andfollowing expenses are payable by the executiveselling security holders. All amounts are estimates, except the SEC registration fee.
Amount | ||||
SEC registration fee | $ | 15,722 | ||
Accountants’ fees and expenses | 10,000 | |||
Legal fees and expenses | 45,000 | |||
Miscellaneous | 5,000 | |||
Total | $ | 75,722 |
Item 14. Indemnification of Directors and Officers.
Section 78.138 of the NRS provides that a director or officer will not be individually liable unless it is proven that (i) the director’s or officer’s acts or omissions constituted a breach of his or her fiduciary duties, and (ii) such breach involved intentional misconduct, fraud or a knowing violation of the law.
Section 78.7502 of NRS permits a company to indemnify its directors and officers against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with a threatened, pending or completed action, suit or proceeding if the officer or director (i) is not liable pursuant to NRS 78.138 or (ii) acted in good faith and in a manner the officer or director reasonably believed to be in or not opposed to the best interests of the corporation and, if a criminal action or proceeding, had no reasonable cause to believe the conduct of the officer or director was unlawful.
Section 78.751 of NRS permits a Nevada company to indemnify its officers and directors against expenses incurred by them in defending a civil or criminal action, suit or proceeding as a group. Except as otherwise indicated, all sharesthey are owned directlyincurred and the percentage shown is basedin advance of final disposition thereof, upon receipt of an undertaking by or on 3,400,000 shares of common stock issued and outstanding on June 13, 2008.
Title of class | Name and address of | Amount of beneficial | Percent of class* |
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Common | Zacharey Zenith | 1,500,000 | 44.12% |
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Common | Total all executive | 1,500,000 | 44.12% |
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As used in this table, "beneficial ownership" means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). In addition, for purposes of this table, a person is deemed, as of any date, to have "beneficial ownership" of any security that such person has the right to acquire within 60 days after such date.The persons named above have full voting and investment power with respect to the shares indicated. Under the rulesbehalf of the Securities and Exchange Commission, a person (or group of persons) is deemed to be a "beneficial owner" of a security if he or she, directly or indirectly, has or
41
Disclosure of Commission Position of Indemnification for Securities Act Liabilities
In accordance with the provisions in our articles of incorporation, we will indemnify an officer, director, or former officer or director to repay the full extent permittedamount if it is ultimately determined by law.
a court of competent jurisdiction that such officer or director is not entitled to be indemnified by the company. Section 78.751 of NRS further permits the company to grant its directors and officers additional rights of indemnification under its articles of incorporation or bylaws or otherwise.
Section 78.752 of NRS provides that a Nevada company may purchase and maintain insurance or make other financial arrangements on behalf of any person who is or was a director, officer, employee or agent of the company, or is or was serving at the request of the company as a director, officer, employee or agent of another company, partnership, joint venture, trust or other enterprise, for any liability asserted against him and liability and expenses incurred by him in his capacity as a director, officer, employee or agent, or arising out of his status as such, whether or not the company has the authority to indemnify him against such liability and expenses.
Our Articles of Incorporation provide that no director or officer of our company will be personally liable to our company or any of its stockholders for damages for breach of fiduciary duty as a director or officer; provided, however, that the foregoing provision shall not eliminate or limit the liability of a director or officer (i) for acts or omissions which involve intentional misconduct, fraud or knowing violation of law, or (ii) the unlawful payment of dividends. In addition, our bylaws permit for the indemnification and insurance provisions in Chapter 78 of the NRS.
Insofar as indemnification by us for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to our directors, officers andor persons controlling personsour company pursuant to the foregoing provisions of our articles of incorporation and bylaws, or otherwise, we have been advised that in the opinion of the Securities and Exchange CommissionSEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification againstby such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of us in the successful defense of any action, suit or proceeding)proceeding is asserted by such director, officer or controlling person in connection with the securities being registered,offered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by itus is against public policy as expressed in the Se curitiesSecurities Act and will be governed by the final adjudication of such issue.
Certain Relationships and Related Transactions
At the present time, there is no pending litigation or proceeding involving a director, officer, employee or other agent of ours in which indemnification would be required or permitted. We issued 1,500,000 total sharesare not aware of common stock at a price of $0.01 per share to our president, Mr. Zenith for total consideration of $15,000 effective January 10, 2008. This issuance was made to Mr.Zenith, who is a sophisticated individual and wasany threatened litigation or proceeding, which may result in a position of access to relevant and material information regarding our operations. The shares were issued pursuant to Section 4(2) of the Securities Act of 1933 and are restricted shares as definedclaim for such indemnification.
Further, in the Securities Act.Family relationships between anynormal course of the selling shareholdersbusiness, we may have in our contracts indemnification clauses, written as either mutual where each party will indemnify, defend, and Zacharey Zenith our President and Sole Director:Drew Zenith Cousin
Available Information
Wehold each other harmless against losses arising from a breach of representations or covenants, or out of intellectual property infringement or other claims made against certain parties; or single where we have filed a Registration Statement on form S-1 under the Securities Act of 1933 with the Securities and Exchange Commission with respectagreed to the shares of our common stock offered through this prospectus. This Prospectus is filed as a part of that Registration Statement, but does not contain all of the information contained in the Registration Statement and exhibits. Statements made in the Registration Statement are summaries of the material terms of the referenced contracts, agreements or documents of the company. We refer you to our Registration Statement and each exhibit attached to it for a more detailed description of matters involving the company. You may inspect the Registration Statement, exhibits and schedules filed with the Securities and Exchange Commission at the Commission's principal office in Washington, D.C. Copies of all or any part of
hold certain parties harmless against losses etc.
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Dealer Prospectus Delivery Obligation
Until ______________, all dealers that effect in these securities whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
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Part IIInformation Not Required In the Prospectus
Item 13. Other Expenses Of Issuance And DistributionThe estimated costs of this offering are as follows:
Bylaws
Securities and Exchange | $ | 1.50 |
Federal Taxes | $ | 0 |
State Taxes and Fees | $ | 0 |
Transfer Agent Fees | $ | 0 |
Accounting fees and expenses | $ | 2,500 |
Legal fees and expenses | $ | 5,000 |
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Total | $ | 7,501.50 |
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The general effect of the extent of such indemnification by individual contracts with our directors and officers; and, provided, further, that we shall not be requiredforegoing is to indemnify a control person, officer or director from liability, thereby making us responsible for any directorexpenses or officer in connection with any proceeding (or part thereof) initiateddamages incurred by such control person, unless:
Our bylaws provide that we will advance to any person who wasofficer or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer, of the company, or is or was serving at the request of the company as a director or executive officer of another company, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefore, all expenses incurred by any director or officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under our bylaws or otherwise.Our bylaws provide that no advance shall be made by us to an officer of the company, except by reason of the fact that such officer is or was a director of the company in which event this paragraph shall not apply, in any action suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made: (a) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (b) ifbrought against them based on their conduct in such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such personcapacity, provided they did not believe to beengage in fraud or not opposed to the best interestscriminal activity.
II-1 |
Item 15. Recent Sales of Unregistered Securities.
From March 31, 2016 to April 28, 2016, we sold 4,336,625 shares to 214 accredited investors through the Private Offering, which raised a total of $17,347. A portion of the proceeds has been used to retire debt with the remainder to be used for working capital purposes. There was no underwriter, no underwriting discounts or commissions, no general solicitation, no advertisement, and resale restrictions are being imposed by placing a Rule 144 legend on the certificate(s). The Company relied on Rule 506 of Regulation D under the SecuritiesWe closed Act of 1933, as amended (the “Securities Act”), for the offer and sale as (i) the investors were accredited investors; and (ii) the Company did not use general solicitation or advertising to market the securities issued.
On April 28, 2016, the Company issued 625,000 shares to legal and other consultants who advised the Company on the merger. The transactions did not involve any public offering within the meaning of Section 4(a)(2) of the Securities Act, since (a) each of the transactions involved the offering of such securities to a substantially limited number of persons; (b) each person took the securities as an issueinvestment for his/her/its own account and not with a view to 1,500,000distribution; (c) each person had access to information equivalent to that which would be included in a registration statement on the applicable form under the Securities Act; and (d) each person had knowledge and experience in business and financial matters to understand the merits and risk of the investment.
On May 3, 2016, Ecoark Holdings entered into a Share Exchange Agreement by and among Ecoark Holdings, Pioneer Products, LLC, Sable Polymer Solutions, LLC, an Arkansas limited liability company (“Sable”), and the holder of all of Sable’s membership interests. Ecoark Holdings issued 2,000,000 shares of its common stock in exchange for all of Sable’s membership interests. Sable is a wholly-owned subsidiary of Pioneer. In connection with the shares of common stock on January 10, 2008 to our sole officer and director, Zacharey Zenith, at a price of $0.01 per share. The total proceeds received from this offering were $15,000. These shares were issued pursuant tounder the Agreement, the Company relied on Section 4(2) of the Securities Act of 1933, and are restricted shares as defined in the Securities Act. We didamended, for transactions not engage in any general solicitation or advertising.We completed an offering of 1,900,000 shares of our common stock atinvolving a price of $0.02 per share to a total of twenty nine (29) purchasers on March 31, 2008. The total amount we received from this offering was $38,000. The identity of the purchasers from this offering is included in the selling
public offering.
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Item 16. Exhibits
and Financial Statement Schedules.
(a) Exhibits See the Index to Exhibits attached to this registration statement, which is incorporated by reference herein. (b) Financial Statement Schedules No financial statement schedules are provided, because the information called for is not required or is shown either in the financial statements or the notes thereto.
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The undersigned registrant hereby undertakes:(1)
1. | To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: |
(i) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by Sectionsection 10(a)(3) of the Securities Act of 1933;
(ii) toTo reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii) toTo include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.(4) That, for the purpose of determining liability under the Securities Act to any purchaser, (a) If the Company is relying on Rule 430B:i. Each prospectus filed by the Company pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
2. | For the purposes of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
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3. | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
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4. | For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. |
Insofar as Indemnificationindemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons of the registrant pursuant to the foregoing provision,provisions above, or otherwise, the registrant haswe have been advised that in the opinion of the Securities and Exchange CommissionSEC such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities, (otherother than the payment by the registrantus of expenses incurred or paid by a director, officerone of our directors, officers, or controlling person of the registrantpersons in the successful defense of any action, suit or proceeding)proceeding, is asserted by such director, officerone of our directors, officers, or controlling personpersons in connection with the securities being registered, the registrantwe will, unless in the opinion of itsour counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is a gainstagainst public policy as expressed in the Securities Act, and we will be governed by the final adjudication of such issue.
SIGNATURES
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In accordance with
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filingduly caused this registration statement on Form S-1 and authorized this registration statement to be signed on its behalf by the undersigned, in Calgary, Alberta, Canada,thereunto duly authorized on June 13, 2008.
this 27th day of July, 2016.
| Ecoark Holdings, Inc. | |
By: | /s/ Randy May | |
| Randy May | |
| Chief Executive Officer |
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POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Zacharey Zenith as his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or any of them, or of their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons on behalf of theregistrant and in the capacities and on the dates stated.By: /s/ Zacharey Zenith Zacharey Zenith President, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer and sole Director June 13, 2008
indicated:
Signature | Title | Date | ||
/s/ Randy May | Chief Executive Officer and Chairman | July 27, 2016 | ||
Randy May | (Principal Executive Officer) | |||
/s/ Yash R. Puri | Chief Financial Officer and Director | July 27, 2016 | ||
Dr. Yash R. Puri | (Principal Financial and Accounting | |||
Officer) | ||||
/s/ Greg Landis | Secretary and Director | July 27, 2016 | ||
Greg Landis | ||||
/s/ Gary E. Metzger | Director | July 27, 2016 | ||
Gary E. Metzger |
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INDEX TO EXHIBITS
Exhibit Number | Description | |
2.1 | Merger Agreement between Magnolia Solar Corporation, Magnolia Solar Acquisition Corporation, and Ecoark, Inc. dated January 29, 2016 (Incorporated by reference to our Current Report on Form 8-K filed with the SEC on February 4, 2016) | |
3.1 | Articles of Incorporation (1) | |
3.2 | Certificate of Change (2) | |
3.3 | Amended and Restated Bylaws (2) | |
3.3.1 | Amendment to Restated Bylaws (3) | |
3.4 | Certificate of Amendment to Articles of Incorporation (4) | |
3.5 | Certificate of Amendment to Articles of Incorporation (5) | |
4.1 + | Magnolia Solar Corporation 2013 Incentive Stock Plan (Incorporated by reference to our Form S-8 filed with the SEC on February 7, 2013) | |
5.1# | Legal Opinion of Carmel, Milazzo & DiChiara LLP | |
10.1 | Termination Agreement and Mutual General Release dated as of March 26, 2015 between Magnolia Solar Corporation, Solar Silicon Resources Group and Auzminerals Resource Group Limited. (Incorporated by reference to our Annual Report on Form 10-K filed with the SEC on March 31, 2015) | |
10.2 | Agreement and Plan of Merger entered into by and between Magnolia Solar Corporation and Ecoark, Inc., dated January 29, 2016 (Incorporated by reference to our Current Report on Form 8-K filed with the SEC on February 4, 2016) | |
10.3 | Form of Modification Agreement between Magnolia Solar Corporation and holders of Original Issue Discount Senior Secured Convertible Notes and Warrants (Incorporated by reference to our current report on Form 8-K filed with the SEC on February 4, 2016) | |
10.4 | Form of Modification Agreement between Magnolia Solar Corporation and holders of Original Issue Discount Senior Secured Convertible Notes and Warrants (Incorporated by reference to our Current Report on Form 8-K filed with the SEC on February 4, 2016) | |
10.5 | Form of Subscription Agreement for Offering (Incorporated by reference to our Current Report on Form 8-K filed with the SEC on April 6, 2016) | |
10.6 | Form of Warrant for Offering (Incorporated by reference to our Current Report on Form 8-K filed with the SEC on May 4, 2016) | |
10.7 | Share Exchange Agreement with Sable Polymer Solutions (Incorporated by reference to our Current Report on Form 8-K filed with the SEC on May 9, 2016) | |
10.8 | Master License Agreement, dated April 30. 2008, between Magnolia Solar, Inc. and Magnolia Optical Technologies, Inc. (Incorporated by reference to our Form S-1/A filed with the SEC on June 17, 2016) | |
21 | List of Subsidiaries | |
23.1# | Consent of KBL LLP | |
23.2# | Consent of Carmel, Milazzo & DiChiara LLP (included in Exhibit 5.1). | |
24.1 | Power of Attorney (included on signature page) (Incorporated by reference to Registrant’s Registration Statement on Form S-1 filed with the Commission on April 29, 2015) | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Calculation Linkbase Documents | |
101.DEF | XBRL Taxonomy Linkbase Document | |
101.LAB | XBRL Taxonomy Label Linkbase Document | |
101.PRE | XBRL Taxonomy Presentation Linkbase Document |
* | To be filed by amendment |
# | Filed herewith |
+ | Indicates a management contract or compensatory plan |
(1) | Incorporated by reference to our Registration Statement on Form S-1 filed with the SEC on June 13, 2008. |
(2) | Incorporated by reference to our Current Report on Form 8-K filed with the SEC on January 7, 2010. |
(3) | Incorporated by reference to our Current Report on Form 8-K filed with the SEC on April 14, 2016. |
(4) | Incorporated by reference to our Current Report on Form 8-K filed with the SEC on January 7, 2010. |
(5) | Incorporated by reference to our Current Report on Form 8-K filed with the SEC on March 24, 2016. |
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