UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
For
the quarterly period ended
OR
For the transition period from _______ to _______
Commission File Number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
(The Nasdaq Capital Market) |
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files).
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
As of August 12, 2022, there were
Ecoark Holdings, Inc.
INDEX
i
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
Table of Content
1
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2022 (UNAUDITED) AND MARCH 31, 2022
| JUNE 30, | MARCH 31, | |||||||
| 2022 | 2022 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash ($ | $ | $ | ||||||
| Accounts receivable | ||||||||
| Intangible assets, cryptocurrencies | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Current assets held for sale | ||||||||
| Total current assets | ||||||||
| NON-CURRENT ASSETS: | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Power development costs | ||||||||
| Secured note receivable and accrued interest receivable | ||||||||
| Goodwill | ||||||||
| Right of use assets - financing leases | ||||||||
| Right of use assets - operating leases | ||||||||
| Other assets | ||||||||
| Non-current assets of discontinued operations/held for sale | ||||||||
| Total non-current assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| LIABILITIES | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Warrant derivative liabilities | ||||||||
| Current portion of long-term debt | ||||||||
| Current portion of lease liability - financing leases | ||||||||
| Current portion of lease liability - operating leases | ||||||||
| Current liabilities of discontinued operations/held for sale | ||||||||
| Total current liabilities | ||||||||
| NON-CURRENT LIABILITIES | ||||||||
| Lease liability - financing leases, net of current portion | ||||||||
| Lease liability - operating leases, net of current portion | ||||||||
| Long-term debt, net of current portion | ||||||||
| Non-current liabilities of discontinued operations/held for sale | ||||||||
| Total non-current liabilities | ||||||||
| Total Liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| MEZZANINE EQUITY | ||||||||
| Series A Convertible Redeemable Preferred Stock, $ | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Series A Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury stock, at cost | ( | ) | ( | ) | ||||
| Total stockholders’ equity before non-controlling interest | ||||||||
| Non-controlling interest | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
See notes to condensed consolidated financial statements.
2
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021
| JUNE 30, | ||||||||
| 2022 | 2021 | |||||||
| CONTINUING OPERATIONS: | ||||||||
| REVENUES | $ | $ | ||||||
| COST OF REVENUES | ||||||||
| GROSS PROFIT | ||||||||
| OPERATING EXPENSES | ||||||||
| Salaries and salaries related costs | ||||||||
| Professional and consulting fees | ||||||||
| Selling, general and administrative costs | ||||||||
| Depreciation, amortization, and impairment | ||||||||
| Cryptocurrency impairment losses | ||||||||
| Total operating expenses | ||||||||
| LOSS FROM CONTINUING OPERATIONS BEFORE OTHER INCOME (EXPENSE) | ( | ) | ( | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Change in fair value of derivative liabilities | ( | ) | ||||||
| Gain (loss) on disposal of fixed assets | ( | ) | ||||||
| Interest expense, net of interest income | ( | ) | ( | ) | ||||
| Total other income (expense) | ( | ) | ||||||
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES AND DISCONTINUED OPERATIONS | ( | ) | ||||||
| DISCONTINUED OPERATIONS: | ||||||||
| (Loss) income from discontinued operations | ( | ) | ||||||
| Gain on disposal of discontinued operations | ||||||||
| Total discontinued operations | ( | ) | ||||||
| (LOSS) INCOME FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES | ( | ) | ||||||
| PROVISION FOR INCOME TAXES | ||||||||
| NET (LOSS) INCOME | ( | ) | ||||||
| NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST | ||||||||
| NET (LOSS) INCOME TO CONTROLLING INTEREST | $ | ( | ) | $ | ||||
| Less: Preferred Stock Dividends | ||||||||
| NET (LOSS) INCOME TO CONTROLLING INTEREST OF COMMON SHAREHOLDERS | $ | ( | ) | $ | ||||
| NET (LOSS) INCOME PER SHARE - BASIC | ||||||||
| Continuing operations | $ | ( | ) | $ | ||||
| Discontinued operations | ( | ) | ||||||
| $ | ( | ) | $ | |||||
| WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC | ||||||||
| NET (LOSS) PER SHARE - DILUTED (see NOTE 1) | $ | ( | ) | $ | ( | ) | ||
| WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED (see NOTE 1) | ||||||||
See notes to condensed consolidated financial statements.
3
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021
| Additional | Non- | |||||||||||||||||||||||||||||||||||
| Preferred | Common Stock | Paid-In | Accumulated | Treasury | controlling | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Stock | Interest | Total | ||||||||||||||||||||||||||||
| Balance - March 31, 2021 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||||||||||
| Shares issued in the exercise of stock options, including cashless exercises | - | |||||||||||||||||||||||||||||||||||
| Shares issued for services rendered, net of amounts prepaid | - | |||||||||||||||||||||||||||||||||||
| Share-based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Net income for the period | - | - | ||||||||||||||||||||||||||||||||||
| Balance - June 30, 2021 | - | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||||||||
| Balance - March 31, 2022 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||||
| Shares issued for commitment for preferred stock offering, net of expenses | - | |||||||||||||||||||||||||||||||||||
| Shares issued by Agora Digital Holdings, Inc. for services rendered, net of amounts prepaid | - | - | ||||||||||||||||||||||||||||||||||
| Share-based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Balance - June 30, 2022 | - | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021
| JUNE 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOW FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss) income to net cash used in operating activities | ||||||||
| Change in non-controlling interest | ( | ) | ||||||
| Depreciation, amortization, and impairment | ||||||||
| Cryptocurrency impairment losses | ||||||||
| Share-based compensation | ||||||||
| Change in fair value of derivative liabilities | ( | ) | ||||||
| Loss on disposal of fixed assets | ||||||||
| (Gain) on disposal of Trend Discovery Holdings | ( | ) | ||||||
| Common shares issued for services | ||||||||
| Common shares issued for services - Agora | ||||||||
| Warrants granted for interest expense | ||||||||
| Commitment fees on long-term debt | ||||||||
| Changes in assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Amortization of right of use asset - financing leases | ||||||||
| Amortization of right of use asset - operating leases | ||||||||
| Accrued interest receivable | ( | ) | ||||||
| Interest on lease liability - financing leases | ( | ) | ( | ) | ||||
| Operating lease expense | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accrued liabilities | ( | ) | ||||||
| Total adjustments | ( | ) | ||||||
| Net cash used in operating activities of continuing operations | ( | ) | ( | ) | ||||
| Net cash (used in) provided by discontinued operations | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITES | ||||||||
| Proceeds from the sale of fixed assets | ||||||||
| Net cash provided by investing activities of continuing operations | ||||||||
| Net cash provided by investing activities of discontinued operations | ||||||||
| Net cash provided by investing activities | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITES | ||||||||
| Proceeds from exercise of stock options | ||||||||
| Reduction of finance lease liability | ( | ) | ( | ) | ||||
| Proceeds from notes payable - related parties | ||||||||
| Repayments of notes payable - related parties | ( | ) | ||||||
| Proceeds from long-term debt | ||||||||
| Repayment of long-term debt | ( | ) | ( | ) | ||||
| Proceeds from the sale of preferred stock | ||||||||
| Net cash provided by (used in) financing activities of continuing operations | ( | ) | ||||||
| Net cash provided by financing activities of discontinued operations | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH | ( | ) | ||||||
| CASH - BEGINNING OF PERIOD | ||||||||
| CASH - END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES | ||||||||
| Cash paid for interest expense | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| SUMMARY OF NON-CASH ACTIVITIES: | ||||||||
| Reclassification of assets of discontinued operations to current operations in fixed assets | $ | $ | ||||||
| Lease liability recognized for ROU asset | $ | $ | ||||||
| Issuance costs on mezzanine equity | $ | $ | ||||||
See notes to condensed consolidated financial statements.
5
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ecoark Holdings Inc. (“Ecoark Holdings” or the “Company”) is a diversified holding company, incorporated in the State of Nevada on November 19, 2007. Through Ecoark Holdings’ wholly owned subsidiaries, the Company has operations in three areas: (i) oil and gas transportation services, (ii) post-harvest shelf-life and freshness food management technology, and (iii) Bitcoin mining. The Company recently sold its financial services business, and on July 25, 2022, sold all of its oil and gas production business to Fortium Holdings, Inc. (“Fortium”) in exchange for Fortium convertible preferred stock. See below in this Note 1 and Note 21 – “Subsequent Events.” Since this disposal represents a strategic shift that will have a major effect on the Company’s operation and financial results, the Company has reclassified the assets and liabilities related to this business as assets and liabilities held for sale and reclassified the operations of this business as discontinued operations as of June 30, 2022 and for the three months ended June 30, 2022 and 2021. The Company also reclassified the assets and liabilities of this business as assets and liabilities held for sale as of March 31, 2022. See Note 2, “Discontinued Operations” and Note 21, “Subsequent Events” for further information regarding these transactions. Since the acquisition of Banner Midstream Corp. on March 27, 2020, which comprises the exploration, production and drilling operations, the Company focused its efforts to a considerable extent on expanding its exploration and production footprint and capabilities by acquiring real property and working interests in oil and gas mineral leases. The Company’s principal subsidiaries consist of Ecoark, Inc. (“Ecoark”), a Delaware corporation which is the parent of Zest Labs, Inc. (“Zest Labs”), Banner Midstream Corp., a Delaware corporation (“Banner Midstream”) and Agora Digital Holdings, Inc., a Nevada corporation (“Agora”) which was assigned the membership interest in Trend Discovery Holdings LLC, a Delaware limited liability corporation (all references to “Trend Holdings” or “Trend” are now synonymous with Agora) from the Company on September 17, 2021 upon its formation, which includes Bitstream Mining, LLC, the Company’s Bitcoin mining subsidiary.
As
disclosed in these Notes, the Company has decided it is in the best interests of its shareholders that it divest all of its operating
assets through a series of spin-offs or stock dividends to the Company’s shareholders. It intends to do so either by engaging in
business combinations with existing public companies which have trading symbols and markets like Fortium or by direct dividends. The Company’s
plan is also driven by the dividends it must pay to an investor which provided $
On March 27, 2020, the Company and Banner Energy Services Corp., a Nevada corporation (“Banner Parent”), entered into a Stock Purchase and Sale Agreement (the “Banner Purchase Agreement”) to acquire Banner Midstream Corp., a Delaware corporation (“Banner Midstream”). Pursuant to the acquisition, Banner Midstream became a wholly-owned subsidiary of the Company and Banner Parent received shares of the Company’s common stock in exchange for all of the issued and outstanding shares of Banner Midstream.
Banner
Midstream had four operating subsidiaries: Pinnacle Frac Transport LLC (“Pinnacle Frac”), Capstone Equipment Leasing LLC
(“Capstone”), White River Holdings Corp. (“White River”), and Shamrock Upstream Energy LLC (“Shamrock”).
Pinnacle Frac provides transportation of frac sand and logistics services to major hydraulic fracturing and drilling operations. Capstone
procures and finances equipment to oilfield transportation service contractors. White River is and Shamrock was engaged in oil and gas
exploration, production, and drilling operations on over
6
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
For a full description of the operations of White River, refer to the Annual Report filed on Form 10-K for the year ended March 31, 2022 filed on July 7, 2022. White River is now part of our assets and liabilities held for sale and discontinued operations as of June 30, 2022. Shamrock sold off its assets and was inactive as of June 30, 2022.
On July 25, 2022, the Company entered into and closed a Share Exchange Agreement, by and among the Company, White River and Fortium. As a result, White River became a wholly-owned subsidiary of Fortium and issued the Company non-voting Series A Convertible Preferred Stock (the “Series A”) which convert into approximately 82% of Fortium’s common stock. The Series A is only convertible after the Company elects to spin-off Fortium common stock to the Company’s shareholders and a Registration Statement covering the spin-off has been declared effective. The Company’s Executive Chairman is also the Executive Chairman of Fortium and the Company’s Chief Financial Officer is the Chief Executive Officer of Fortium. The former Chief Executive Officer and director of Fortium is the son-in-law of the Company’s Executive Chairman. He resigned from all positions and the new Board of Directors (the “Board”) of Fortium includes the Company’s Executive Chairman and the Executive Chairman’s daughter as well as three other designees of the Company.
Effective
with the opening of trading on December 17, 2020, the Company effected a one-for-five reverse split of its issued and outstanding common
stock and a simultaneous proportionate reduction of its authorized common stock. The reverse stock split was implemented without obtaining
stockholder approval as permitted by Nevada law, and the authorized common stock was proportionately reduced to
On
April 9, 2021, a Little Rock, Arkansas jury awarded Ecoark and Zest a total of $
Trend Holdings formed four subsidiaries including: Bitstream Mining, LLC, a Texas limited liability company (“Bitstream”) on May 16, 2021. In addition, Trend Holdings owned Barrier Crest, LLC (“Barrier Crest”) that was acquired along with Trend Capital Management, Inc. (“TCM”) that was acquired by Ecoark on May 31, 2019. On June 17, 2022, Agora sold Trend Holdings to an entity formed by the investment manager of Trend Discovery LP and Trend Discovery SPV and sold Trend Discovery Exploration LLC (“Trend Exploration”) to the Company. See Note 2, “Discontinued Operations”. The Company reclassified the operations of Barrier Crest and TCM, as discontinued operations as the disposal represents a strategic shift that will have a major effect on the Company’s operations and financial results as of March 31, 2022. The Company made this determination for these segments to be held for sale as the criteria established under ASC 205-20-45-1E have been satisfied as of June 8, 2022. Under ASC 855-10-55, the Company has reflected the reclassification of assets and liabilities of these entities as held for sale and the operations as discontinued operations as of and for the year ended March 31, 2022. The Company accounted for this sale as a disposal of the business under ASC 205-20-50-1(a) upon the closing of the sale on June 17, 2022 at which time the gain was recognized.
The Company assigned its membership interest in Trend Holdings and its related wholly owned subsidiaries to Agora on September 22, 2021, for the sale of the initial 100 shares for $10. On October 1, 2021, the Company purchased 41,671,121 shares of Agora common stock for $4,167,112 which Agora used to purchase equipment to commence the Bitstream operations.
Agora was organized by Ecoark Holdings to enter the Bitcoin mining business. Because of regulatory uncertainty over Bitcoin being deemed to be securities, Agora’s initial focus is on mining Bitcoin which we believe is not a security. Because of regulatory concerns and the changing regulatory environment, Agora intends to seek opportunities to engage with cryptocurrencies that do not involve the offer or sale of any securities. Because of the plunge in the price of Bitcoin and the type of miners Agora acquired pending its attempt to close an initial public offering, Agora determined it was not presently feasible to conduct Bitcoin mining operations and temporarily ceased such activities on March 3, 2022.
8
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
On November 19, 2021 Agora filed a registration statement
on Form S-1 (File No. 333-261246) in connection with its initial public offering of
As a result of the approval by the Company’s Board to divest Agora, the Company has accounted for this as a disposal other than by sale. Assets to be disposed of other than by sale should continue to be classified as held and used until they are disposed of. Upon disposal, the Company must assess whether the disposed of assets qualify for discontinued operations reporting. If so, the Company will apply the presentation and disclosure requirements of ASC 205-20, and if not, the Company will apply the presentation and disclosure requirements of ASC 360-10. Regardless of the outcome of the proposed initial public offering, Ecoark intends to spin-off Agora to its shareholders either directly or through a business combination.
On August 4, 2021, the Company’s common stock commenced trading on the Nasdaq Capital Market.
On
October 6, 2021, the Company held a Special Meeting of Stockholders, at which the stockholders approved (a) an amendment to the Articles
of Incorporation to increase the number of shares of authorized common stock of the Company from
9
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
Overview of Agora Digital Holdings, Inc.
Bitstream
Bitstream
was organized to be our principal Bitcoin mining subsidiary. Bitstream has entered into a series of agreements and arrangements including
arranging for a reliable and economical electric power source needed to efficiently mine Bitcoin, order miners, housing infrastructure
and other infrastructure to mine Bitcoin and locate a third-party hosting service to operate the miners and the service’s more
advanced miners. Agora has spent (and agreed to spend) between $
All significant accounting policies related to White River, Shamrock, Barrier Crest and Trend Discovery Capital Management have been removed as these entities are reflected in discontinued operations. For full details on the policies refer to the Annual Report on Form 10-K for the year ended March 31, 2022 filed on July 7, 2022.
Principles of Consolidation
On
May 31, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Trend Discovery Holdings
Inc., a Delaware corporation for the Company to acquire
As a result of the approval by the Board to divest Agora, the Company, has accounted for this as a disposal other than by sale. Assets to be disposed of other than by sale should continue to be classified as held and used until they are disposed of. Upon disposal, the Company must assess whether the disposed of assets qualify for discontinued operations reporting.
If so, the Company will apply the presentation and disclosure requirements of ASC 205-20, and if not, the Company will apply the presentation and disclosure requirements of ASC 360-10.
10
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
On March 27, 2020, the Company and Banner Parent, entered into the Banner Purchase Agreement to acquire Banner Midstream. Pursuant to the acquisition, Banner Midstream became a wholly owned subsidiary of the Company and Banner Parent received shares of the Company’s common stock in exchange for all of the issued and outstanding shares of Banner Midstream.
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—are 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
The Company has utilized the guidance under ASC 810-10-55-4B, Case A for a Change that has resulted in the recognition of non-controlling interest. On October 1, 2021, Agora issued restricted common stock to non-employee directors, management, employees and advisors. As a result of the restricted common share issuances, the Company owns now owns less than 100% of Agora (approximately 90.1%), The Company expects it will continue to control Agora until it completes the distribution of Agora common stock to its security holders described above; after that event occurs, it may still have sufficient equity ownership to control Agora unless one or more third parties acquire a larger equity position.
There were no changes in the three months ended June 30, 2022 related to the non-controlling interest the Company has in Agora.
Reclassifications
The Company has reclassified certain amounts in the June 30, 2021 condensed consolidated financial statements to be consistent with the June 30, 2022 presentation, including the reclassification of Barrier Crest, TCM, and White River assets and liabilities from continuing operations to held for sale and reclassifications of operations of Barrier Crest, TCM, and White River to discontinued operations. The March 31, 2022 consolidated balance sheet has been reclassified to include the assets and liabilities held for sale for White River as well. Additionally, we have removed all rounding of amounts and shares from the June 30, 2021 presentation to conform to the June 30, 2022 presentation. These changes had no impact on the Company’s financial position or result of operations for the periods presented.
11
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
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 sheet. In October 2021, with the issuance of restricted common stock
to directors, management and advisors, the Company no longer owns
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 uncollectible accounts receivable, fair value of assets held for sale and assets and liabilities acquired, impaired value of equipment and intangible assets, including goodwill, asset retirement obligations, estimates of discount rates in lease, liabilities to accrue, fair value of derivative liabilities associated with warrants, cost incurred in the satisfaction of performance obligations, permanent and temporary differences related to income taxes and determination of the fair value of stock awards.
Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.
The following five steps are applied to achieve that core principle:
| ● | Step 1: Identify the contract with the customer |
| ● | Step 2: Identify the performance obligations in the contract |
| ● | Step 3: Determine the transaction price |
| ● | Step 4: Allocate the transaction price to the performance obligations in the contract |
| ● | Step 5: Recognize revenue when the Company satisfies a performance obligation |
12
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met: The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct), and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).
If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.
The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. When determining the transaction price, an entity must consider the effects of all of the following:
| ● | Variable consideration |
| ● | Constraining estimates of variable consideration |
| ● | The existence of a significant financing component in the contract |
| ● | Noncash consideration |
| ● | Consideration payable to a customer |
Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The standalone selling price is the price at which the Company would sell a promised service separately to a customer. The relative selling price for each performance obligation is estimated using observable objective evidence if it is available. If observable objective evidence is not available, the Company uses its best estimate of the selling price for the promised service. In instances where the Company does not sell a service separately, establishing standalone selling price requires significant judgment.
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The Company estimates the standalone selling price by considering available information, prioritizing observable inputs such as historical sales, internally approved pricing guidelines and objectives, and the underlying cost of delivering the performance obligation. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.
Management judgment is required when determining the following: when variable consideration is no longer probable of significant reversal (and hence can be included in revenue); whether certain revenue should be presented gross or net of certain related costs; when a promised service transfers to the customer; and the applicable method of measuring progress for services transferred to the customer over time.
The Company recognizes revenue upon satisfaction of its performance obligation at a point in time in accordance with ASC 606-10-25-30 for its contracts in its Commodities segment or over time in accordance with ASC 606-10-25-27 for its contracts with mining pool operators.
The Company accounts for incremental costs of obtaining a contract with a customer and contract fulfillment costs in accordance with ASC 340-40, Other Assets and Deferred Costs. These costs should be capitalized and amortized as the performance obligation is satisfied if certain criteria are met. The Company elected the practical expedient, to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that would otherwise have been recognized is one year or less, and expenses certain costs to obtain contracts when applicable. The Company recognizes an asset from the costs to fulfill a contract only if the costs relate directly to a contract, the costs generate or enhance resources that will be used in satisfying a performance obligation in the future and the costs are expected to be recovered. The Company recognizes the cost of sales of a contract as expense when incurred or when a performance obligation is satisfied. The incremental costs of obtaining a contract are capitalized unless the costs would have been incurred regardless of whether the contract was obtained, are not considered recoverable, or the practical expedient applies.
Bitcoin Mining
The discussion here should be understood as being applicable while Agora was conducting mining operations which it temporarily ceased beginning March 3, 2022, and will apply at such time as it mines again. As consideration for providing computing power, Agora received Bitcoin from the mining pool in which it participates. Income from Bitcoin mining (mining earnings are made up of the baseline block reward and transaction fees, defined as “rewards”) which is measured based on the fair value of the Bitcoin received.
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Providing computing power in Bitcoin transaction verification services (known as “mining”) is an output of Agora’s ordinary activities. The provision of computing power is the only performance obligation in Agora’s contracts with mining pool operators, its customers. At such time as Agora re-commences mining activities, it will recognize income from Bitcoin mining for the provision of computing power upon satisfaction of its performance obligation. As consideration for the provision of computing power, Agora is entitled to payment in Bitcoin, which is a form of noncash consideration. Noncash consideration is measured at fair value at contract inception. Fair value of the Bitcoin consideration is determined using the quoted price on Agora’s primary trading platform of the Bitcoin at the beginning of the contract period, which is considered to be the beginning of each twenty-four-hour period (at contract inception). Specifically, fair value at contract inception is based on the market price at the beginning of the contract term, at the single Bitcoin level (one Bitcoin). This amount is recognized in revenue over the contract term as hash rate is provided. Changes in the fair value of the noncash consideration due to form of the consideration (changes in the market price of Bitcoin) are not included in the transaction price and hence are not included in revenue. Changes in fair value of the noncash consideration post-contract inception that are due to reasons other than form of consideration (other than changes in the market value of bitcoin) are measured based on the guidance on variable consideration, including the constraint on estimates of variable consideration.
Because the consideration to which Agora expects to be entitled for providing computing power is entirely variable, as well as being noncash consideration, the Company assesses the estimated amount of the variable noncash consideration to which it expects to be entitled for providing computing power at contract inception and subsequently, to determine when and to what extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur once the uncertainty associated with the variable consideration is subsequently resolved (the “constraint”). Only when significant revenue reversal is concluded probable of not occurring can estimated variable consideration be included in revenue. Based on evaluation of likelihood and magnitude of a reversal in applying the constraint, the estimated variable noncash consideration is constrained from inclusion in revenue until the end of the contract term, when the underlying uncertainties have been resolved and number of Bitcoin to which Agora is entitled becomes known.
Bitcoin is recorded on the consolidated balance sheet, as intangible asset — Bitcoin.
Agora has entered into a Bitcoin mining pool with the mining pool operator F2Pool, to provide computing power to the mining pool. The arrangement is terminable at any time by either party and Agora’s enforceable right to Bitcoin compensation only begins when Agora provides computing power to the mining pool operator.
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Agora’s performance obligation extends over the contract term given the Company’s continuous provision of hash rate. This period of time corresponds with the period of service for which the mining pool operator determines compensation due Agora. Given cancelation terms of the contracts, all contracts effectively provide Agora with the option to renew for successive contract terms of twenty-four hours. The options to renew are not material rights because they are offered at the standalone selling price of computing power. In exchange for providing computing power, Agora is entitled to consideration equal to a fractional share of the fixed Bitcoin reward the mining pool operator receives (referred to as a “block reward”) after such amount has been reduced by a digital asset transaction fee retained by the mining pool operator, and potentially network transaction fees. Agora’s fractional share is based on the proportion of computing power Agora contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm, over the contract term. Agora is entitled to compensation for providing computing power to a mining pool even if a block is not successfully placed. The block reward provides an incentive for Bitcoin miners to process transactions made with Bitcoin. Creating an immutable record of these transactions is vital for Bitcoin to work as intended. The blockchain is like a decentralized bank ledger, one that cannot be altered after being created. The miners are needed to verify the transactions and keep this ledger up to date. Block rewards, and to a lesser extent, network transaction fees, are their payment for doing so.
The terms of the agreement with the mining pool operator provide that neither party can dispute settlement terms after thirty-five days following settlement.
For the mining pool in which Agora participates, Agora is entitled to a transaction price, calculated by Agora’s mining pool operator. Specifically, the mining pool operator determines the amount of block rewards to which Agora is entitled by using the Pay-Per-Shares-Plus (PPS+) payment method, retaining 2.5% to cover costs of operating the pool (the “digital asset transaction fee”), and includes network transaction fees as applicable. When Agora’s number of Bitcoin reaches the minimum threshold of 0.005 Bitcoin, Agora receives a payout and the pool transfers the Bitcoin consideration to Agora’s designated wallet within 8 hours, between 00:00 and 08:00 UTC.
The PPS+ payment method pays miners for the number of shares they contribute to the pool (effectively, the amount of computing power provided to the pool) plus network transaction fees. Shares can be described as discrete amounts of valid work each miner or mining farm contributes to the pool. The value of each share contributed is determined by the Bitcoin’s current network difficulty and the number of total shares contributed from miners and mining farms. Bitcoin rewards are received regardless if a pool successfully found a block because the mining pool operator understands that, probabilistically, blocks will be successfully found in a statistically predictable manner by the pool depending on the total amount of hashing power (shares) contributed by the miners and mining farms and therefore, pays out as if a block was found. This is a strategy that provides regular payments to miners and allows consistent payouts.
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Network transaction fees, however, are paid out based on blocks actually found and solved and therefore the network transaction fee revenue is not consistently paid out. We expect that network transaction fees will be a very small contributor to total miner Bitcoin rewards.
Agora’s cost of Bitcoin revenue consists primarily of direct costs of earning the Bitcoin related to mining operations, namely electric power costs, other utilities, labor, insurance whether incurred directly from self-mining operations or reimbursed, including any revenue sharing arrangements under hosting agreements, but excluding depreciation and amortization, which are separately stated in the Company’s Consolidated Statement of Operations.
Commodities
The Company recognized revenue for their proportionate share of oil and gas drilling revenue when: (i) the Company receives notification of the successful sale of a load of crude oil to a buyer; (ii) the buyer will provide a price based on the average monthly price of crude oil in the most recent month; and (iii) cash is received the following month from the crude oil buyer.
Cost of sales for Pinnacle Frac includes all direct expenses incurred to produce the revenue for the period. This includes, but is not limited to, direct employee labor, direct contract labor and fuel.
Revenue under master service agreements is recorded upon the performance obligation being satisfied. Typically, the satisfaction of the performance obligation occurs upon the frac sand load being delivered to the customer site and this load being successfully invoiced and accepted by the Company’s factoring agent.
Accounts Receivable and Concentration of Credit Risk
The Company considers accounts receivable, net of allowance for doubtful accounts, to be fully collectible. The allowance is based on management’s estimate of the overall collectability of accounts receivable, considering historical losses, credit insurance 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, however credit insurance is obtained for some customers. Past-due status is based on contractual terms.
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For
Pinnacle Frac, accounts receivable is comprised of unsecured amounts due from customers that have been conveyed to a factoring agent
for both with and without recourse.
Fair Value Measurements
ASC 820 Fair Value Measurements defines fair value, establishes a framework for measuring fair value in accordance with U.S. generally accepted accounting principles (“GAAP”), and expands disclosure about fair value measurements. ASC 820 classifies these inputs into the following hierarchy:
| Level 1 inputs: Quoted prices for identical instruments in active markets. |
| 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. |
The carrying values of the Company’s financial instruments such as cash, accounts payable, and accrued expenses approximate their respective fair values because of the short-term nature of those financial instruments.
Bitcoin assets will be presented in current assets. Fair value will be determined by taking the price of the coins from the trading platforms which Agora will most frequently use.
Bitcoin
Bitcoin is included in current assets in the consolidated balance sheets as intangible assets with indefinite useful lives. Bitcoin is recorded at cost less impairment.
The Company accounts for Agora’s Bitcoin as indefinite-lived intangible assets in accordance with Accounting Standards Codification (“ASC”) 350, Intangibles – Goodwill and Other. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value.
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The Company determines the fair value of Agora’s Bitcoin on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement, based on quoted prices on the active trading platform that Agora has determined is its principal market for Bitcoin (Level 1 inputs). Agora performs an analysis each day comparing the carrying amount of the Agora’s Bitcoin with their fair value based on the lowest market price that day at the single Bitcoin level (one bitcoin). The excess, if any, represents a recognized impairment loss. Impairment losses are recorded in the line item “Bitcoin impairment losses” in the Company’s Consolidated Statements of Operations.
To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted. Bitcoin awarded to Agora through its mining activities are included as an adjustment to reconcile net loss to cash provided by (or used in) operating activities on the accompanying Consolidated Statements of Cash Flows. The sales (if any) of Bitcoin are included within investing activities in the accompanying Consolidated Statements of Cash Flows and any realized gains or losses (if any) from such sales are included in operating income in the Company’s Consolidated Statement of Operations. The Company accounts for sales of Bitcoin in accordance with the first in first out (FIFO) method of accounting.
Impairment losses related to Bitcoin is included in the Bitcoin Mining segment.
Impairment of Long-lived Assets
Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the undiscounted future cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Segment Information
The Company follows the provisions of ASC 280-10 Segment Reporting. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions. The Company and its chief operating decision makers determined that the Company’s operations effective with the May 31, 2019, acquisition of Trend Holdings and the March 27, 2020 acquisition of Banner Midstream consisted of three segments, Financial, Commodities and Technology. Effective July 1, 2021, the Company’s chief operating decision makers in discussion with the finance team determined that the Company would add a fourth reporting segment to account for their Bitcoin mining business. Additionally, on July 1, 2021 the Company now reports its home office costs into the Commodity segment, and charged its Technology segment a monthly overhead fee, and has recorded typical overhead expenses in their Bitcoin Mining segments to account for this home office allocation.
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The Company classified their reporting segments in these three divisions through March 31, 2022, when the Company determined that pursuant to ASC 205-20-45-1E that the operations related to the Financial Services segment would be reclassified as held for sale as those criteria identified in the pronouncement had been satisfied as of June 8, 2022. Under ASC 855-10-55, the Company has reflected the reclassification of assets and liabilities of these entities as held for sale and the operations as discontinued operations as of and for the year ended March 31, 2022. As a result of this reclassification, the Company’s segment reporting has removed the Financing segment for the three months ended June 30, 2021. Effective April 1, 2022, the Company has classified their segments in the Commodity Segment, Technology Segment and Bitcoin Mining Segment. They now charge a monthly overhead charge to the Technology Segment and to the Transportation component and Oil and Gas Production component (each part of the Commodities Segment). On July 25, 2022, the Company sold its oil and gas production business (White River) which is part of the Commodities segment. The Company determined that pursuant to ASC 205-20-45-1E that the operations related to White River’s oil and gas production business would be reclassified as held for sale as those criteria identified in the pronouncement had been satisfied as of July 25, 2022. Under ASC 855-10-55, the Company has reflected the reclassification of assets and liabilities of these entities as held for sale and the operations as discontinued operations as of and for the three months ended June 30, 2022.
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 (loss) 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, so only the basic weighted average number of common shares are used in the computations.
The Company has adjusted the diluted EPS for the three months ended June 30, 2021 for warrants classified as derivative liabilities in accordance with ASC 260-10-45 as follows. No calculation is necessary for the three months ended June 30, 2022 because to do so would be anti-dilutive.
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| June 30, 2021 | ||||
| Diluted EPS: | ||||
| Net income to controlling interest | $ | |||
| Change in fair value of derivative liability | ( | ) | ||
| Adjusted net loss | $ | ( | ) | |
| Weighted Average Shares Outstanding | ||||
| Adjusted (loss) per share | $ | ( | ) | |
Derivative Financial Instruments
The Company does not currently use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks, but may explore hedging oil prices in the current fiscal year. Management evaluates all of the Company’s financial instruments, including warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The Company generally uses a Black-Scholes model, as applicable, to value the derivative instruments at inception and subsequent valuation dates when needed. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-measured at the end of each reporting period. The Black-Scholes model is used to estimate the fair value of the derivative liabilities.
Recently Issued Accounting Standards
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contract’s in an Entity’s Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU simplifies the diluted net income per share calculation in certain areas.
The ASU is effective for annual and interim periods beginning after December 31, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company does not believe this new guidance will have a material impact on its consolidated financial statements.
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In May 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-04 “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815- 40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” which clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. An entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as follows: i) for a modification or an exchange that is a part of or directly related to a modification or an exchange of an existing debt instrument or line-of-credit or revolving-debt arrangements (hereinafter, referred to as a “debt” or “debt instrument”), as the difference between the fair value of the modified or exchanged written call option and the fair value of that written call option immediately before it is modified or exchanged; ii) for all other modifications or exchanges, as the excess, if any, of the fair value of the modified or exchanged written call option over the fair value of that written call option immediately before it is modified or exchanged. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. The Company does not believe this new guidance will have a material impact on its consolidated financial statements.
The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
Liquidity
For
the three months ended June 30, 2022 and 2021, the Company had a net income (loss) of $(
See
Note 13, “Mezzanine Equity” for information on the Company’s recent $
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The Company’s ability to raise additional capital will also be impacted by the SEC’s proposed climate change rules which are expected to become effective in the 2023 fiscal year and may also be impacted by the COVID-19 pandemic including the current supply chain shortages.
The Company believes that the current cash on hand and anticipated cash from operations is sufficient to conduct planned operations for one year from the issuance of the consolidated financial statements.
Impact of COVID-19
COVID-19 has had a profound effect on the U.S. and global economy and may continue to affect the economy and the industries in which we operate, depending on the vaccine and booster rollouts and the emergence of virus mutations.
COVID-19 did not have a material effect on the Consolidated Statements of Operations or the Consolidated Balance Sheets for the three months ended June 30, 2022 or year ended March 31, 2022 in contrast to the material impact it had in the prior fiscal year.
COVID-19 has also contributed to the supply chain disruptions which have not yet had a material effect for the Company. The Company will continue to monitor the supply chain shortages affecting its business.
The extent to which COVID-19 may impact the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) includes, among other things, provisions relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act also established a Paycheck Protection Program (“PPP”), whereby certain small businesses are eligible for a loan to fund payroll expenses, rent and related costs. We had received funding under the PPP, and a majority of that has been forgiven.
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NOTE 2: DISCONTINUED OPERATIONS
On
June 17, 2022, the Company sold Trend Discovery to an entity formed by the investment manager
of Trend Discovery LP and Trend Discovery SPV for a three-year $
On July 25, 2022, the Company sold its oil and gas production business (White River) which is part of the Commodities segment. The Company determined that pursuant to ASC 205-20-45-1E that the operations related to the oil and gas production business would be reclassified as held for sale as those criteria identified in the pronouncement had been satisfied as of July 25, 2022. Under ASC 855-10-55, the Company has reflected the reclassification of assets and liabilities of these entities as held for sale and the operations as discontinued operations as of and for the three months ended June 30, 2022.
Current assets as of June 30, 2022 and March 31, 2022 – Discontinued Operations:
| June 30, 2022 | March 31, 2022 | |||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Prepaid expenses | ||||||||
| $ | $ | |||||||
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Non-current assets as of June 30, 2022 and March 31, 2022 – Held for Sale / Discontinued Operations:
| June 30, 2022 | March 31, 2022 | |||||||
| Goodwill | $ | $ | ||||||
| Property and equipment, net | ||||||||
| Oil and gas properties, full cost-method | ||||||||
| Capitalized drilling costs, net of depletion | ||||||||
| Right of use asset – operating leases | ||||||||
| $ | $ | |||||||
Current liabilities as of June 30, 2022 and March 31, 2022 – Held for Sale / Discontinued Operations:
| June 30, 2022 | March 31, 2022 | |||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Current portion of long-term debt | ||||||||
| Current portion of lease liability – operating leases | ||||||||
| $ | $ | |||||||
Non-current liabilities as of June 30, 2022 and March 31, 2022 – Held for Sale / Discontinued Operations:
| June 30, 2022 | March 31, 2022 | |||||||
| Lease liabilities – operating leases, net of current portion | $ | $ | ||||||
| Long-term debt | ||||||||
| Asset retirement obligations | ||||||||
| $ | $ | |||||||
The Company reclassified the following operations to discontinued operations for the three months ended June 30, 2022 and 2021, respectively.
| 2022 | 2021 | |||||||
| Revenue | $ | $ | ||||||
| Operating expenses | ||||||||
| Other (income) loss | ( | ) | ( | ) | ||||
| Net (loss) income from discontinued operations | $ | ( | ) | $ | ||||
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The following represents the calculation of the gain on disposal of Trend Discovery at June 17, 2022:
| 2022 | 2021 | |||||||
| Secured Note Receivable | $ | $ | ||||||
| Cash | ( | ) | ||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Goodwill | ( | ) | ||||||
| Other assets | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Gain on disposal of discontinued operations | $ | $ | ||||||
As of April 1, 2021, all of the equipment assets and accounts payable of Pinnacle Vac Services LLC (“Pinnacle Vac”) were transitioned into Capstone to continue servicing the debt.
NOTE 3: REVENUE
The Company recognizes revenue when it transfers promised services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those services.
The following table disaggregates the Company’s revenue by major source for the three months ended June 30 for continuing operations:
| 2022 | 2021 | |||||||
| Revenue from continuing operations: | (unaudited) | (unaudited) | ||||||
| Bitcoin mining | $ | $ | ||||||
| Transportation Services | ||||||||
| Fuel Rebate | ||||||||
| Equipment Rental and other | ||||||||
| $ | $ | |||||||
There were no significant contract asset or contract liability balances for all periods presented. The Company elected the practical expedients in paragraphs 606-10-50-14 and 50-14A and does not disclose the amount of transaction price allocated to remaining performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed, or variable consideration related to future service periods.
Collections of the amounts billed are typically paid by the customers within 30 to 60 days.
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Bitcoin Mining
Providing computing power to solve complex cryptographic algorithms in support of Bitcoin blockchains, in a process known as “solving a block”, is an output of the Company’s ordinary activities. The provision of computing power is the only performance obligation in the Company’s contracts with mining pool operators, its customers. When the Company engaged in mining, satisfied its performance obligation over time as it provides computing power.
The contract term is short, limited to the period of time the Company’s miners were contributing to the mining pool computational operations in support of the blockchain, measured in “hash rate” or “hashes per second”. The contract term was the payout period under the Company’s mining pool contracts, which is a twenty-four-hour period. After each contract period, the Company had the right to renew the contract for subsequent, successive payout periods.
Bitcoin received in exchange for providing computing power represents noncash consideration. The fair value of the noncash consideration determined at contract inception was recognized in revenue as the Company performed over the contract term using an output method based on hash rate contributed. Changes in the fair value of the noncash consideration post-contract consideration due to reasons other than form of consideration (that is, other than the price of bitcoin or ether) were estimated under the expected value method but constrained from inclusion in the transaction price (and hence revenue) until end of the contract term when the uncertainty has been resolved and amount was known.
The Company received payment for its provision of hash rate under the Pay-Per-Shares-Plus (“PPS+”) payment method. The payment method contains two components, (1) the block rewards issued by the blockchain network and paid by the mining pool operator, and (2) transaction fees generated from (paid by) blockchain users and distributed (paid out) to individual miners by the mining pool operator. The pool, as a collective entity, develops its own technology that, on one end, gathers individual miner’s hash rate, and on the other end contributes hash rate to the network to compete for block rewards from the network.
For PPS+, as long as individual miners contribute hash rate to the pool, the Company (as an individual miner) is entitled to receive its corresponding amount of block rewards based on the mining pool’s calculation methodology, which is standard across pool operators.
Block rewards are the new coins awarded to Bitcoin miners by the network (bitcoin for the bitcoin network) and is a theoretical number calculated by the mining pool operator based on inputs including difficulty level, network hash rate, and block rewards (for example, 6.25 for Bitcoin). Transaction fees refers to the total fees paid by users of the network to execute transactions.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
Digital asset transaction fees are payable to the mining pool operator to cover the costs of maintaining the pool and are deducted from the block reward payout. This fee was deducted from the block reward the Company received and recorded as a reduction of revenue because it does not represent payment for a distinct good or service.
NOTE 4: SENIOR SECURED PROMISSORY NOTE RECEIVABLE
Agora
was issued a Senior Secured Promissory Note by Trend Ventures, LP (“Trend Ventures Note”) on June 16, 2022. The Trend Ventures
Note was the consideration paid to Agora for the acquisition of Trend Discovery Holdings. The Trend Ventures Note is in the principal
amount of $
As
of June 30, 2022, the Company has recognized $
NOTE 5: BITCOIN
Agora
commenced their Bitcoin mining operations in November 2021. Through June 30, 2022,
The following table presents additional information about Agora’s Bitcoin holdings during the three months ended June 30, 2022:
| Beginning balance – April 1, 2022 | $ | |||
| Bitcoin mined at initial fair value | ||||
| Bitcoin impairment losses | ( | ) | ||
| Ending balance – June 30, 2022 | $ |
28
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
NOTE 6: PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of June 30, 2022 and March 31, 2022:
| June 30, 2022 | March 31, 2022 | |||||||
| (unaudited) | ||||||||
| Zest Labs freshness hardware, equipment and computer costs | $ | $ | ||||||
| Land | ||||||||
| Buildings | ||||||||
| Leasehold improvements – Pinnacle Frac | ||||||||
| Mining technology equipment– Bitcoin | ||||||||
| Machinery and equipment – Bitcoin | ||||||||
| Machinery and equipment – Commodities | ||||||||
| Total property and equipment | ||||||||
| Accumulated depreciation and impairment | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
As of March 31, 2022, the Company performed an evaluation of the recoverability of these long-lived assets. As a result of the evaluation, there was no impairment of the fixed assets necessary.
On
April 1, 2021, the Company placed back in service equipment of $
On April 11, 2022, the Company sold equipment of $2,557,172, that had accumulated depreciation of $1,027,148 for a net value of $1,530,024 for $580,000. The result was a loss on sale of $950,024.
Depreciation
expense for the three months ended June 30, 2022 and 2021 was $
29
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
NOTE 7: INTANGIBLE ASSETS AND GOODWILL
Intangible assets consisted of the following as of June 30, 2022 and March 31, 2022:
| June 30, 2022 | March 31, 2022 | |||||||
| (unaudited) | ||||||||
| Patents | $ | $ | ||||||
| Customer relationships | ||||||||
| Non-compete agreements – Banner Midstream | ||||||||
| Outsourced vendor relationships | ||||||||
| Non-compete agreements – Zest Labs | ||||||||
| Total intangible assets | ||||||||
| Accumulated amortization and impairment | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
Amortization
expense for the three months ended June 30, 2022 and 2021 was $
The following is the future amortization of the intangibles as of June 30:
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| $ |
In
addition to the statutory based intangible assets noted above, the Company recorded a total of $
The Company assessed the criteria for impairment, and there were no indicators of impairment present as of March 31, 2022, and therefore no impairment is necessary. There have been no indicators of impairment present in the three months ended June 30, 2022.
The
goodwill from the Trend acquisition of $
30
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
NOTE 8: POWER DEVELOPMENT COST
Agora
has paid $
The
$
Bitstream
also reimbursed the utility deposits paid by the non-related third party in connection with these agreements in the amount of $
The Company has classified these payments as “Power Development Costs” as a noncurrent asset on the Consolidated Balance Sheets.
NOTE 9: ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
| June 30, 2022 | March 31, 2022 | |||||||
| (unaudited) | ||||||||
| Professional fees and consulting costs | $ | $ | ||||||
| Vacation and paid time off | ||||||||
| Legal fees | ||||||||
| Compensation | ||||||||
| Interest | ||||||||
| Insurance | ||||||||
| Dividend | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
31
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
NOTE 10: WARRANT DERIVATIVE LIABILITIES
The Company issued common stock and warrants in several private placements and two public offerings (“Derivative Warrant Instruments”) and some of these warrants have been classified as liabilities. The Derivative Warrant Instruments have been accounted for utilizing ASC 815 “Derivatives and Hedging.” The Company has incurred a liability for the estimated fair value of Derivative Warrant Instruments. The estimated fair value of the Derivative Warrant Instruments has been calculated using the Black-Scholes fair value option-pricing model with key input variables provided by management, as of the date of issuance, with changes in fair value recorded as gains or losses on revaluation in other income (expense).
The Company identified embedded features in some of the warrant agreements which were classified as a liability. These embedded features included (a) the implicit right for the holders to request that the Company settle the warrants in registered shares. Since maintaining an effective registration of shares is potentially outside the control of the Company, these warrants were classified as liabilities as opposed to equity; (b) included the right for the holders to request that the Company cash settle the warrant instruments from the holder by paying to the holder an amount of cash equal to the Black-Scholes value of the remaining unexercised portion of the Derivative Warrant Instruments on the date of the consummation of a fundamental transaction; and (c) certain price protections in the agreements. The accounting treatment of derivative financial instruments requires that the Company treat the whole instrument as liability and record the fair value of the instrument as derivatives as of the inception date of the instrument and to adjust the fair value of the instrument as of each subsequent balance sheet date.
On
November 14, 2020, the Company granted
On
December 30, 2020, the Company granted
32
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
The
fair value of the
On
June 30, 2021, the Company granted
On
August 6, 2021, the Company closed a $
The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of June 30, 2022 and 2021. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate.
Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each warrant is estimated using the Black-Scholes valuation model. The following assumptions were used on June 30, 2022, March 31, 2022 and at inception:
| Three Months Ended June 30, 2022 | Year Ended March 31, 2022 | Inception | ||||||||||
| Expected term | ||||||||||||
| Expected volatility | % | % | % | |||||||||
| Expected dividend yield | ||||||||||||
| Risk-free interest rate | % | % | % | |||||||||
| Market price | $ | $ | ||||||||||
33
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
The Company’s remaining derivative liabilities as of June 30, 2022 and March 31, 2022 associated with warrant offerings are as follows. All fully extinguished warrants liabilities are not included in the chart below.
| June 30, 2022 (unaudited) | March 31, 2022 | Inception | ||||||||||
| Fair value of 200,000 (originally 250,000) September 24, 2020 warrants | $ | $ | $ | |||||||||
| Fair value of 60,000 November 14, 2020 warrants | ||||||||||||
| Fair value of 888,889 December 31, 2020 warrants | ||||||||||||
| Fair value of 62,222 December 31, 2020 warrants | ||||||||||||
| Fair value of 200,000 June 30, 2021 warrants | ||||||||||||
| Fair value of 3,478,261 August 6, 2021 warrants | ||||||||||||
| Fair value of 243,478 August 6, 2021 warrants | ||||||||||||
| $ | $ | |||||||||||
During
the three months ended June 30, 2022 and 2021 the Company recognized changes in the fair value of the derivative liabilities of $(
Activity related to the warrant derivative liabilities for the three months ended June 30, 2022 is as follows:
| Beginning balance as of March 31, 2022 | $ | |||
| Issuances of warrants – derivative liabilities | ||||
| Warrants exchanged for common stock | ||||
| Change in fair value of warrant derivative liabilities | ||||
| Ending balance as of June 30, 2022 | $ |
Activity related to the warrant derivative liabilities for the three months ended June 30, 2021 is as follows:
| Beginning balance as of March 31, 2021 | $ | |||
| Issuances of warrants – derivative liabilities | ||||
| Warrants exchanged for common stock | ||||
| Change in fair value of warrant derivative liabilities | ( | ) | ||
| Ending balance as of June 30, 2021 | $ |
34
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
NOTE 11: LONG-TERM DEBT
Long-term debt consisted of the following as of June 30, 2022 and March 31, 2022. All debt instruments repaid during the year ended March 31, 2022 are not included in the below chart and the chart only reflects those instruments that had a balance owed as of these dates.
| June 30, 2022 | March 31, 2022 | |||||||
| (unaudited) | ||||||||
| Credit facility -Trend Discovery SPV 1, LLC (a) | $ | $ | ||||||
| Note payable – Alliance Bank (b) | ||||||||
| Commercial loan – Firstar Bank (c) | ||||||||
| Auto loan 1 – Firstar Bank (d) | ||||||||
| Auto loan 4 – Ally Bank (e) | ||||||||
| Tractor loan 6 – Tab Bank (f) | ||||||||
| Auto loan – Ford (g) | ||||||||
| Total long-term debt | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Long-term debt, net of current portion | $ | $ | ||||||
| (a) | On
December 28, 2018, the Company entered into a $ |
| (b) | Original
loan date of June 14, 2019 with an original maturity date of |
35
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
| (c) | Original
loan date of February 28, 2018, due |
| (d) | On July 20, 2018, entered into a long-term secured note payable for $ |
| (e) | On July 26, 2018, entered into a long-term secured note payable for $ |
| (f) | On November 7, 2018, entered into a long-term secured note payable for $ |
| (g) | On February 16, 2022, entered into long-term secured note payable for $ |
The following is a list of maturities as of June 30:
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| $ |
During
the three months ended June 30, 2022, the Company received proceeds of $
During
the three months ended June 30, 2021, the Company repaid $
Interest
expense on long-term debt during the three months ended June 30, 2022 and 2021 are $
36
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
NOTE 12: NOTES PAYABLE - RELATED PARTIES
Notes payable to related parties consisted of the following as of March 31, 2022 and 2021. All notes payable to related parties instruments repaid during the year ended March 31, 2022 are not included in the below chart and the chart only reflects those instruments that had a balance owed as of these dates.
A
Board member advanced $
An
officer of the Company advanced $
37
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
NOTE 13: MEZZANINE EQUITY
On
June 8, 2022, the Company entered into a Securities Purchase Agreement (the “Agreement”) with Digital Power Lending, LLC,
a California limited liability company (the “Purchaser”), pursuant to which the Company sold the Purchaser
Ecoark Series A
Conversion Rights
Each
share of Ecoark Series A has a stated value of $
Voting Rights
The
Ecoark Series A is entitled to vote with the common stock as a single class on an as-converted basis, subject to applicable law and the
Nasdaq Rules. In addition, as long as the holder continues to hold at least
The
holders of record of the shares of common stock and of any other class or series of voting stock (including the Ecoark Series A), exclusively
and voting together as a single class, are entitled to elect the balance of the total number of directors of the Company. The Purchaser
is not eligible to vote at the shareholders meeting on the proposal to approve the issuance of more than
Dividend Rights
The
holder of shares of the Ecoark Series A is entitled to receive cumulative cash dividends at an annual rate of
38
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
If
the Company fails to make one or more dividend payments, whether or not consecutive, a default dividend rate of
Liquidation Rights
The
shares of Ecoark Series A have a liquidation preference over the common stock and any subsequent series of junior preferred stock of
$
Redemption
At
any time beginning on or after June 8, 2024, the holder of Ecoark Series A may cause the Company to redeem some or all of the shares
of Ecoark Series A it holds at a redemption price of $
Negative Covenants and Approval Rights
The Ecoark Series A Certificate of Designation (the “Certificate”) subjects the Company to negative covenants restricting its ability to take certain actions without prior approval from the holder(s) of a majority of the outstanding shares of Ecoark Series A for as long as the holder(s) continue to hold at least 25% (or such higher percentage as set forth in the Certificate (as defined below)) of the Ecoark Series A shares issued on the closing date under the Agreement. These restrictive covenants include the following actions by the Company, subject to certain exceptions and limitations:
(i) payment or declaration of any dividend (other than pursuant to the Ecoark Series A Certificate);
(ii) investment in, purchase or acquisition of any assets or capital stock of any entity for an amount that exceeds $100,000 in any one transaction or $250,000, in the aggregate;
(iii) issuance of any shares of common stock or other securities convertible into or exercisable or exchangeable for shares of common stock;
(iv) incurrence of indebtedness, liens, or guaranty obligations, in an aggregate amount in excess of $50,000 in any individual transaction or $100,000 in the aggregate with customary exceptions.
(v) sale, lease, transfer or disposal of any of its properties having a value calculated in accordance with GAAP of more than $50,000;
39
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
(vi) increase in any manner the compensation or fringe benefits of any of its directors, officers, employees; and
(vii) merger or consolidation with, or purchase a substantial portion of the assets of, or by any other manner the acquisition or combination with any business or entity.
The above and other negative covenants in the Series A Certificate do not apply to a reverse merger with an entity with securities quoted on a market operated by OTC Markets or listed on a national securities exchange.
Warrant
Based upon the terms of the Warrant, the Company has concluded the Warrant is classified as a liability pursuant to ASC 480. However, since the vesting and exercise of the Warrant is subject to shareholder approval, which is outside the control of the Company, the Company has concluded that, when and if the Warrant vests, the Company will account for the Warrant as a liability pursuant to ASC 480.
Registration Rights
Pursuant
to the Agreement, the Company has agreed to register the sale by the Purchaser of up to
The
value of the Commitment Shares of $
40
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
The description above is not a substitute for reviewing the full text of the referenced documents, which were attached as exhibits to the Company’s Current Report on Form 8-K as filed with the SEC on June 9, 2022 and the Company’s Current Report on Form 8-K as filed with the SEC on July 15, 2022 when we filed the Amended Warrant and the Second Amendment to the Ecoark Series A Certificate.
NOTE 14: STOCKHOLDERS’ EQUITY (DEFICIT)
Ecoark Holdings Preferred Stock
On
March 18, 2016, the Company created
As
of March 31, 2022, there were no shares of any series of preferred stock issued and outstanding. On June 8, 2022, as noted in Note 13,
“Mezzanine Equity”, the Company issued
Ecoark Holdings Common Stock
In
the three months ended June 30, 2021, the Company issued
41
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
In
the three months ended June 30, 2022, the Company issued
As
of June 30, 2022,
Agora Common Stock
Agora is authorized to issue 250,000,000 shares of common stock, par value $0.001. On September 22, 2021, the Company purchased 100 shares of Agora for $10.
On
October 1, 2021, the Company purchased
In
addition, between October 1 and December 7, 2021, Agora issued
Of
the
42
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
The
performance grants vest as follows:
The
Company recognized $
The
Company accounts for stock-based payments in accordance with ASC 718, Compensation — Stock Compensation (“ASC 718”).
During the year ended March 31, 2022, in addition to the value measured by the
Share-based Compensation Expense
Share-based compensation for employees is included in salaries and salary related costs and directors and services are included in professional fees and consulting in the consolidated statement of operations for the three months ended June 30, 2022 and 2021.
Share-based
compensation for the three months ended June 30, 2022 and 2021 for stock options and RSUs granted under the 2013 Incentive Stock Plan
and 2017 Omnibus Incentive Stock Plan and non-qualified stock options were $
There is $
43
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
In
order to have sufficient authorized capital to raise the $
NOTE 15: COMMITMENTS AND CONTINGENCIES
Legal Proceedings
We are presently involved in the following legal proceedings. To the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties or businesses are subject, which would reasonably be likely to have a material adverse effect on the Company.
| ● | On August 1, 2018, Ecoark Holdings and Zest filed a complaint against Walmart Inc. (“Walmart”) in the United States District Court for the Eastern District of Arkansas, Western Division. The complaint includes claims for violation of the Arkansas Trade Secrets Act, violation of the Federal Defend Trade Secrets Act, breach of contract, unfair competition, unjust enrichment, breach of the covenant of good faith and fair dealing, conversion and fraud. On April 9, 2021, a Little Rock, Arkansas jury awarded Ecoark Holdings and Zest a total of $
On
May 21, 2021, Walmart filed a motion a motion for judgment as a matter of law (“JMOL”) containing six categories of relief.
On June 15, 2022, the Court entered an order on Walmart’s motion denying five of Walmart’s categories of relief sought and
granting one which reduced the judgment by $ |
44
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
Walmart also filed a motion seeking post-trial discovery of plaintiff’s privileged work-product materials. The Court granted Walmart’s motion and in its June 15 Order the Court required the plaintiffs to produce 52 documents which the plaintiffs contend include privileged material, including mental impressions and opinions of its counsel. Because the June 15 Order denied plaintiffs motion for leave to file an interlocutory appeal on this discovery issue, plaintiffs on June 21, 2022, filed a petition in the United States Court of Appeals for the Eighth Circuit for a writ of mandamus.
| ● | On September 21, 2021, Ecoark Holdings and Zest Labs filed a complaint against Deloitte Consulting, LLP (“Deloitte”) in the Eight Judicial District Court in Clark County, Nevada. The complaint is for violation of the Nevada Uniform Trade Secret Act and will also be seeking a preliminary and permanent injunction, attorney’s fees, and punitive damages. The damages at issue are in the hundreds of millions of dollars. Zest Labs began working with Deloitte in 2016, in a confidential matter in a pilot program that Zest Labs had been engaged for by a large customer. Zest Labs engaged in significant discussions, presentations, demonstrations, and information downloads with Deloitte who specifically acknowledged that this information was confidential. Deloitte filed an answer in due course. Discovery commenced in July 2022 with a trial anticipated in late calendar 2023. The Company cannot reasonably determine the outcome r at this time. |
| ● | On April 22, 2022, BitStream Mining and Ecoark Holdings had a petition filed in Travis County District Court (Docket #79176-0002) by Print Crypto Inc. in the amount of $ |
In the opinion of management, there are no legal matters involving us that would have a material adverse effect upon the Company’s financial condition, results of operations or cash flows.
45
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
Bitstream Commitments on Purchase Obligations
As
discussed in the overview of Bitstream in Note 1, Bitstream has entered into a number of agreements for the procurement of land, electricity
and equipment. Bitstream has estimated this commitment to be approximately $
NOTE 16: CONCENTRATIONS
Customer
Concentration.
Supplier Concentration. Certain of the raw materials, components and equipment used by the Company in the manufacture of its products are available from single-sourced vendors. Shortages could occur in these essential materials and components due to an interruption of supply or increased demand in the industry. If the Company were unable to procure certain materials, components or equipment at acceptable prices, it would be required to reduce its manufacturing operations, which could have a material adverse effect on its results of operations. In addition, the Company may make prepayments to certain suppliers or enter into minimum volume commitment agreements. Should these suppliers be unable to deliver on their obligations or experience financial difficulty, the Company may not be able to recover these prepayments.
The Company occasionally maintains cash balances in excess of the FDIC insured limit. The Company does not consider this risk to be material.
Commodity price risk
Included in discontinued operations, we are exposed to fluctuations in commodity prices for oil and natural gas. Commodity prices are affected by many factors, including but not limited to, supply and demand.
46
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
NOTE 17: FAIR VALUE MEASUREMENTS
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by U.S. generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:
Level 1 – quoted prices for identical instruments in active markets;
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Financial instruments consist principally of cash, accounts receivable and other receivables, accounts payable and accrued liabilities, notes payable, and amounts due to related parties. The fair value of cash is determined based on Level 1 inputs. There were no transfers into or out of “Level 3” during the three months ended June 30, 2022 and 2021. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. The Company records the fair value of the of the warrant derivative liabilities disclosed in accordance with ASC 815, Derivatives and Hedging. The fair values of the derivatives were calculated using the Black-Scholes Model. The fair value of the derivative liabilities is revalued on each balance sheet date with corresponding gains and losses recorded in other income (expense) in the consolidated statement of operations. The following table presents assets and liabilities that are measured and recognized at fair value on a recurring basis as of:
| Level 1 | Level 2 | Level 3 | Total Gains and (Losses) | |||||||||||||
| June 30, 2022 | ||||||||||||||||
| Warrant derivative liabilities | $ | $ | $ | $ | ( | ) | ||||||||||
| Bitcoin | ( | ) | ||||||||||||||
| March 31, 2022 | ||||||||||||||||
| Warrant derivative liabilities | $ | $ | $ | $ | ||||||||||||
| Bitcoin | ( | ) | ||||||||||||||
47
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
NOTE 18: SEGMENT INFORMATION
The
Company follows the provisions of ASC 280-10 Segment Reporting. This standard requires that companies disclose operating
segments based on the manner in which management disaggregates the Company in making internal operating decisions. The Company and its
chief operating decision makers determined that the Company’s operations effective with the May 31, 2019, acquisition of Trend
Holdings and the March 27, 2020 acquisition of Banner Midstream consisted of
On July 25, 2022, the Company sold its oil and gas production business (White River) which was part of the Commodities segment. The Company determined that pursuant to ASC 205-20-45-1E that the operations related to the oil and gas production business would be reclassified as held for sale as those criteria identified in the pronouncement had been satisfied as of July 25, 2022. Under ASC 855-10-55, the Company has reflected the reclassification of assets and liabilities of these entities as held for sale and the operations as discontinued operations as of and for the three months ended June 30, 2022.
48
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
The charts below represent the continuing operations of the Company before the non-controlling interest, provision for income taxes and preferred stock dividends.
| Three Months Ended June 30, 2022 | Bitcoin Mining | Commodities | Technology | Total | ||||||||||||
| Segmented operating revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit (loss) | ( | ) | ||||||||||||||
| Total operating expenses net of depreciation, amortization, and impairment | ||||||||||||||||
| Depreciation, amortization, and impairment | ||||||||||||||||
| Other (income) expense | ||||||||||||||||
| Loss from continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Segmented assets as of June 30, 2022 | ||||||||||||||||
| Property and equipment, net | $ | $ | $ | $ | ||||||||||||
| Intangible assets, net | $ | $ | $ | $ | ||||||||||||
| Goodwill | $ | $ | $ | $ | ||||||||||||
| Three Months Ended June 30, 2021 | Commodities | Technology | Total | |||||||||
| Segmented operating revenues | $ | $ | $ | |||||||||
| Cost of revenues | ||||||||||||
| Gross profit | ||||||||||||
| Total operating expenses net of depreciation, amortization, and impairment | ||||||||||||
| Depreciation, amortization, and impairment | ||||||||||||
| Other (income) expense | ( | ) | ( | ) | ||||||||
| Income (loss) from continuing operations | $ | $ | ( | ) | $ | |||||||
49
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
NOTE 19: LEASES
The
Company has adopted ASU No. 2016-02, Leases (Topic 842), as of April 1, 2019 and will account for their leases in terms of the
right of use assets and offsetting lease liability obligations under this pronouncement. The Company had had only short-term leases up
through the acquisition of Banner Midstream. The Company acquired a right of use asset and lease liability on March 27, 2020. The Company
recorded these amounts at present value, in accordance with the standard, using discount rates ranging between
The Company has chosen to implement this standard using the modified retrospective model approach with a cumulative-effect adjustment, which does not require the Company to adjust the comparative periods presented when transitioning to the new guidance. The Company has also elected to utilize the transition related practical expedients permitted by the new standard. The modified retrospective approach provides a method for recording existing leases at adoption and in comparative periods that approximates the results of a modified retrospective approach. Adoption of the new standard did not result in an adjustment to retained earnings for the Company.
The
Company’s portfolio of leases contains both finance and operating leases that relate primarily to the commodity and Bitcoin mining
segments. As of June 30, 2022, the value of the unamortized lease right of use asset is $
| Maturity of lease liability for the operating leases for the period ended June 30, | ||||
| 2023 | $ | |||
| 2024 | $ | |||
| 2025 | $ | |||
| 2026 | $ | |||
| 2027 | $ | |||
| Imputed interest | $ | ( | ) | |
| Total lease liability | $ | |||
| Disclosed as: | ||||
| Current portion | $ | |||
| Non-current portion | $ | |||
| Maturity of lease liability for the financing leases for the period ended June 30, | ||||
| 2023 | $ | |||
| 2024 | $ | |||
| Imputed interest | $ | ( | ) | |
| Total lease liability | $ | |||
| Disclosed as: | ||||
| Current portion | $ | |||
| Non-current portion | $ | |||
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ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
| Amortization of the right of use asset for the period ended June 30, | ||||
| 2023 | $ | |||
| 2024 | $ | |||
| 2025 | $ | |||
| 2026 | $ | |||
| 2027 | $ | |||
| Total | $ | |||
Total Lease Cost
Individual components of the total lease cost incurred by the Company is as follows:
| Three months ended June 30, 2022 | Three months ended June 30, 2021 | |||||||
| (unaudited) | (unaudited) | |||||||
| Operating lease expense | $ | $ | ||||||
| Finance lease expense | ||||||||
| Depreciation of capitalized finance lease assets | ||||||||
| Interest expense on finance lease liabilities | ||||||||
| Total lease cost | $ | $ | ||||||
NOTE 20: RELATED PARTY TRANSACTIONS
Trend Capital Management was founded in 2011 and through June 30, 2021, was Trend Holding’s primary asset. Trend Capital Management is not the investment manager of these entities, nor the beneficial owner of Ecoark securities held by Trend Discovery LP (“Trend LP”) nor Trend Discovery SPV I, LLC (“Trend SPV”) since it assigned the power to vote and dispose of securities to a third party not affiliated with Ecoark. The investment capital in Trend LP and Trend SPV is from individual limited partners and members, and not from the Company. Trend Capital Management does not have the obligation to absorb losses or the right to receive benefits that could be significant as a result of the entities’ performance. Trend Capital Management does not have any ownership of or a controlling financial interest in Trend LP nor Trend SPV and therefore management has concluded consolidation of these entities with Trend Capital Management is not required. Trend Capital Management provides services and collects fees from entities which include Trend LP and Trend SPV.
51
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
Trend Discovery which held Barrier Crest and Trend Capital Management was sold on June 17, 2022.
Jay
Puchir, the Company’s Chief Financial Officer, Secretary and Treasurer, served as a consultant to the Company from May 2019 to
March 2020 and was paid solely in stock options totaling
Gary
Metzger, a director, advanced $
In
the Banner Midstream acquisition, Randy S. May, Chief Executive Officer and Chairman, was the holder of approximately $
On
August 31, 2021,
Ecoark
Holdings has made periodic loans to Agora to permit it to begin its Bitcoin mining business. On November 13, 2021, Agora issued
Ecoark Holdings a $
On February 2, 2022, Peter Mehring, a director and executive officer, gave notice of his intent to resign as an executive officer and director effective on February 11, 2022. Mr. Mehring resigned as a result of his entering into an Employment Agreement with a leading Internet service company. He also entered into a Consulting Agreement with the Company.
52
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2022
Under
the Consulting Agreement, Mr. Mehring will advise the Company (including Zest Labs) on its current intellectual property litigation and
matters relating to Zest Lab’s intellectual property as well as provide transition services. The Consulting Agreement is for a
one-year term. The Company agreed to pay Mr. Mehring $
Between
February 1 and March 1, 2022, Trend Exploration assigned several working interests to Sky3D, LLC, a limited liability company controlled
by Randy May, our Chief Executive Officer, in connection with non-interest bearing loans made by Mr. May to us in the amount of $
On
April 1, 2022, White River assigned several wells to Third Arm, LLC, a related party. The Company received $
NOTE 21: SUBSEQUENT EVENTS
Subsequent to June 30, 2022, the Company had the following transactions:
On July 26, 2022, the Company filed a Definitive Proxy Statement with respect to its 2022 Annual Meeting of the Shareholders, being held virtually at t 1:00 p.m., Eastern Time, on September 9, 2022, at which the shareholders of the Company are being asked to approve the following proposals:
| (1) | Approve for purposes of complying with Listing Rule 5635 of the Nasdaq Stock Market, the issuance by the Company of shares of the Company’s Common Stock pursuant to the terms of the private placement financing transaction pursuant to the Securities Purchase Agreement dated June 8, 2022 between the Company and Digital Power Lending, LLC, a California limited liability company, without giving effect to any beneficial ownership limitations contained therein; | |
| (2) | Approve an amendment to the Company’s Articles of Incorporation to increase the number of shares of Common Stock the Company is authorized to issue from |
| (3) | Elect four members to the Company’s Board of Directors for a one-year term expiring at the next annual meeting of stockholders; |
| (4) | Ratify the selection of RBSM LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2023; and |
| (5) | Approve the adjournment of the Annual Meeting to a later date or time, if necessary, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the Annual Meeting, there are not sufficient votes to approve any of the other proposals before the Annual Meeting. |
On
July 25, 2022, the Company entered into a Share Exchange Agreement pursuant to which that day it sold to Fortium its oil and gas production
business (White River) which is part of the Commodities segment. The Company determined that pursuant to ASC 205-20-45-1E that the operations
related to the oil and gas production business would be reclassified as held for sale as those criteria identified in the pronouncement
had been satisfied as of July 25, 2022. Under ASC 855-10-55, the Company has reflected the reclassification of assets and liabilities
of these entities as held for sale and the operations as discontinued operations as of and for the three months ended June 30, 2022.
The Company will receive
On August 11,
2022
53
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and notes thereto presented in this Report as well as our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended March 31, 2022.
Dollar amounts and number of shares in this Item 2 are expressed in thousands, except per share amounts and when separately disclosed, or where the context indicates otherwise.
Overview
Ecoark Holdings, Inc. (“Ecoark,” “Ecoark Holdings,” or the “Company”) is a diversified holding company which, through wholly-owned or majority owned subsidiaries operates in three areas: (i) oil and gas transportation and logistics services focused in the Southern states in the U.S., (ii) development and maintenance of post-harvest shelf-life and freshness food management technology and related intellectual property, and (iii) Agora Digital Holdings, Inc. (“Agora”) which was engaged in the Bitcoin mining business until late in the fiscal year ended March 31, 2022. Agora’s business is also designed to assist with electric power opportunities in a deregulated market which exists in Texas.
The Company also previously operated a financial services segment through Trend Holdings until June 17, 2022 when (i) Trend Holdings assigned Bitstream Mining LLC (“Bitstream”) to Agora and Trend Exploration to Ecoark Holdings, and (ii) following those transactions, Agora, the Company’s approximately 90% owned subsidiary, sold Trend Holdings to a third party in exchange for a $4.25 million secured promissory loan secured by the assets of the purchaser and guaranteed by the subsidiaries that were sold. As a result of the transaction, Agora’s sole operating subsidiary is Bitstream through which it mines Bitcoin.
Following the period covered by this Report, on July 25, 2022 the Company sold White River Holdings Corp. (“White River”), its indirect wholly-owned subsidiary, and with it its oil and gas production business to Fortium Holdings Corp. (“Fortium”) in exchange for 1,200 shares of Fortium’s non-voting Series A Convertible Preferred Stock (the “Fortium Series A”). Subject to certain terms and conditions set forth in the Certificate of Designation of the Fortium Series A, the Fortium Series A will become convertible into 42,253,521 shares of Fortium’s common stock upon such time as (A) Fortium has filed a Form S-1 or Form 10, or other applicable form, with the Securities and Exchange Commission (the “SEC”) and such Form S-1 or other registration statement has been declared effective, or such Form 10 or other applicable form is no longer subject to comments from the Staff of the SEC, and (B) Ecoark elects to distribute shares of its common stock to its shareholders. Fortium is a holding company which following the transaction now operates primarily in oil and gas drilling through White River, and is also in the early stages of operations in the online sporting goods space through Norr LLC, and is developing a business plan for the commencement of operations as a retail distributor of cannabis products in California through Elysian Premium Corp. The cannabis operations are subject to full payment of and receipt of regulatory for the Company’s purchase of two cannabis licenses in California under an agreement entered into in October 2021.
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The Company’s goal is to spin-off all of its active subsidiaries and Fortium to the Company’s shareholders by December 31, 2022, although because of regulatory delays we may not meet that deadline. At the same time, we expect to acquire another business so we do not become a shell corporation. This will result in a change of control and may or may not be subject to shareholder approval. As of the date of this Report, we have not had any discussions about any such acquisition.
June 2022 Private Placement
On June 8, 2022 the Company entered into a Securities Purchase Agreement with Digital Power Lending, LLC (“DPL”), pursuant to which the Company sold DPL 1,200 shares of Series A Convertible Redeemable Preferred Stock (the “Ecoark Series A”) , 102,881 Commitment Shares, and a warrant to purchase shares of common stock (the “Warrant”) in exchange for $12,000,000. DPL is a subsidiary of BitNile Holdings, Inc. (NYSE American: NILE]) (“BitNile”).
Each share of Ecoark Series A has a stated value of $10,000 and is convertible into shares of common stock at a conversion price of $2.10 per share, subject to certain adjustment provisions. The holder’s conversion of the Series A is subject to a beneficial ownership limitation of 19.9% of the issued and outstanding common stock as of any conversion date of the Ecoark Series A, unless the Company obtains shareholder and Nasdaq approval for the conversion of more than that amount, in order to comply with Nasdaq Rules. In addition, the conversion rights in general did not become effective until July 23, 2022, the first day after the record date for the shareholders meeting seeking such shareholder approval. There are also standard 4.99% and 9.9% beneficial ownership limitations. The Ecoark Series A is entitled to vote with the common stock as a single class on an as-converted basis, subject to certain limitations. Initially, the holder may designate one director.
The holder of shares of the Ecoark Series A is entitled to receive cumulative cash dividends at an annual rate of 12.6% of the stated value, which is equivalent to $1,260 per year per share, payable monthly beginning on the issuance date and continuing until the earlier of (a) June 8, 2024, and (b) the date on which the holder no longer holds any shares of Ecoark Series A. If the Company fails to make one or more dividend payments, whether or not consecutive, a default dividend rate of 18% per annum will apply until all accumulated dividend payments have been made. Additionally, at any time beginning on or after June 8, 2024, the holder of Ecoark Series A may cause the Company to redeem some or all of the shares of Ecoark Series A it holds at a redemption price of $1,200 per share, plus any accumulated and unpaid dividends thereon.
55
The Ecoark Series A Certificate of Designation (the “Series A Certificate”) subjects the Company to negative covenants restricting its ability to take certain actions without prior approval from the holder(s) of a majority of the outstanding shares of Ecoark Series A for as long as the holder(s) continue to hold at least 25% (or such higher percentage as set forth in the Series A Certificate) of the Ecoark Series A shares issued on the closing date of the financing. These restrictive covenants include the following actions by the Company, subject to certain exceptions and limitations:
| (i) | payment or declaration of any dividend (other than pursuant to the Series A Certificate); |
| (ii) | investment in, purchase or acquisition of any assets or capital stock of any entity for an amount that exceeds $100,000 in any one transaction or $250,000, in the aggregate; |
| (iii) | issuance of any shares of common stock or other securities convertible into or exercisable or exchangeable for shares of common stock; |
| (iv) | incurrence of indebtedness, liens, or guaranty obligations, in an aggregate amount in excess of $50,000 in any individual transaction or $100,000 in the aggregate; |
| (v) | sale, lease, transfer or disposal of any of its properties having a value calculated in accordance with GAAP of more than $50,000; |
| (vi) | increase in any manner the compensation or fringe benefits of any of its directors, officers, employees; and |
| (vii) | merger or consolidation with, or purchase a substantial portion of the assets of, or by any other manner the acquisition or combination with any business or entity. |
The above and other negative covenants in the Series A Certificate do not apply to a reverse merger with an entity with securities quoted on a market operated by OTC Markets or listed on a national securities exchange.
The Warrant issued to DPL is structured as a poison pill in order to insure the Company will spin-off its subsidiaries and favorably consider a proposed business combination. The Amended Warrant provides the Purchaser or its assignees (together, the “Holder”) with the right to purchase a number of shares of common stock as would enable the Holder together with its affiliates to beneficially own 49% of our common stock (the “Warrant Shares”) calculated on a fully diluted basis at an exercise price of $0.001 per share, including the Commitment Shares and Conversion Shares unless sold. Subject to shareholder approval, the Amended Warrant will vest and become exercisable if on June 8, 2024: (i) the Holder (together with its affiliates) beneficially owns less than 50% of our outstanding common stock (on a fully diluted basis) and (ii) the Company has failed to complete the Distributions. Provided, we must retain 20% of our common stock of Agora. The Amended Warrant may be exercised on a cashless basis and expires on June 8, 2027. In the event that the Company or its transfer agent fails to issue the shares of common stock within three business days following delivery of a notice of exercise, the Amended Warrant provides that the Company must pay the Holder a fee of $2.4 million.
Future Spin-Offs
As described in this Report, Ecoark’s goal is to spin-off all of its active subsidiaries and acquire an operating business. The first spin-off is expected to be of the Fortium common stock underlying the Fortium Series A. Ecoark plans to also distribute its ownership of Banner, Zest and Agora shares to Ecoark’s security holders either directly or through a business combination with a third party. To that end, on August 11, 2022 Ecoark executed a definitive agreement with HUMBL, Inc. to transfer up to 100% of the issued and outstanding common stock of its majority owned subsidiary Agora to HUMBL in exchange for up to 6,000 shares of Series C preferred stock valued at $10,000 per share which will be filed prior to closing. The definitive agreement has certain closing conditions which have yet to be fulfilled at the time of this filing including a closing condition whereby Ecoark is required to source a minimum of $10,000,000 in capital for HUMBL prior to the transfer of ownership of Agora to HUMBL. Furthermore, on August 11, 2022, the Company entered into a non-binding letter of intent to divest Banner, in an all-stock transaction to a public company also engaged in oilfield services, although there can be no assurances the letter of intent will result in the execution of a definitive agreement or the closing of a business combination. Upon the successful closing of all business combinations or stock dividends of the subsidiaries described above, Ecoark plans to move forward with the acquiring companies to have registration statements filed with the SEC to register the shares of capital stock for each such entity and then execute a stock dividend to distribute 100% of such capital stock to Ecoark’s shareholders of record as of one or more future to be determined record dates.
At some point, Ecoark expects that BitNile or an affiliate will present a reverse merger candidate to it which will prevent Ecoark from becoming a shell or losing its Nasdaq listing. However, the parties have only engaged in very preliminary discussions. What the acquisition target will be and what the consideration will be has not been discussed. The Ecoark Board of Directors intends to obtain a valuation from a nationally recognized valuation firm and advice from investment bankers consistent with the exercise of their fiduciary duty.
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To date, discussions between BitNile have centered upon Ecoark being able to spin-off to its shareholders each of our subsidiaries, either directly or through the business combinations. Our current plans are to expedite the spin-offs and complete them by December 31, 2022, although we may not reach our goal by then. In order to avoid the harsh terms of the Warrant issued to the BitNile subsidiary, we expect that the spin-offs will occur on or before June 7, 2024. BitNile files reports with the SEC which investors are encouraged to review at www.SEC.gov/EDGAR, which reports are not incorporated herein by reference.
Following the above transactions, the Company’s active subsidiaries include Banner Midstream Corp. (“Banner” or “Banner Midstream”), Pinnacle Frac Transport LLC (“Pinnacle Frac”), Capstone Equipment Leasing LLC (“Capstone”), Zest Labs, Inc. (“Zest Labs”), and Agora as well as all of Agora’s subsidiaries as discussed herein from the Company on September 17, 2021 upon its formation.
The following is an overview of our operating subsidiaries as of June 30, 2022:
Banner Midstream Corp
The Company entered the oil and gas industry following the previously disclosed acquisition of Banner in March 2020. Below are descriptions of the Company’s subsidiaries and operations through Banner.
Pinnacle Frac
Through Pinnacle Frac, the Company provides transportation of frac sand and logistics services to major hydraulic fracturing and drilling operations. Our transportation services entail using third party drivers who assist in transporting sand and related materials to customers’ locations for the customers’ hydraulic fracturing, or fracking. The logistics services Pinnacle Frac provides for its customers’ fracking and drilling enterprises, include the operation of a 24/7 dispatch service center based in Texas through which we dispatch the trucks for hauling frac sand and related equipment. Pinnacle Frac uses independent third party owner-operators of trucks to service its customers in their fracking operations by transporting materials, mainly frac sand. Our transportation and logistics services operations are primarily centered in the Southern United States, although we also occasionally service fracking operations in the Northeastern United States.
White River
Through White River, we were engaged in oil and gas exploration, production, and drilling operations on over 30,000 cumulative acres of active mineral leases in Texas, Louisiana, and Mississippi. As described above, White River and our oil and gas exploration, production and drilling operations were sold in July 2022. Shamrock Upstream Energy LLC (“Shamrock”) is a Banner Midstream subsidiary which previously was engaged in oil drilling. We have sold all of its properties and it is now inactive.
57
Zest Labs
Through its wholly-owned subsidiary Zest Labs, the Company has developed intellectual property that can offer freshness management solutions for fresh food growers, suppliers, processors, distributors, grocers and restaurants. Our efforts with respect to the freshness food management solution have to a considerable degree been focused on preparing for trial and appeals in our previously disclosed lawsuit against Walmart, Inc. and Deloitte Consulting.
Agora Digital Holdings, Inc.
Following the Company’s sale of Trend Holdings sale, Agora’s only operating subsidiary, Bitstream, engaged in the mining of Bitcoin. For this reason, and because of the substantial investments the Company has made in Bitstream (and Trend Holdings prior to the sale) through loans to Agora totaling $4,760,759 which are outstanding and mature in March 2023, set forth below is an overview of Bitstream’s developments, planned operations and the Bitcoin assets and industry in which it operates.
Bitstream
Bitstream was organized to be our Bitcoin mining subsidiary. Bitstream has entered into a series of agreements including procuring land to install Bitcoin mining equipment, arranging for a reliable and economical electric power source needed to efficiently mine Bitcoin, ordering miners, housing infrastructure and other infrastructure to mine Bitcoin and locating a third-party hosting service to operate the miners and the service’s more advanced miners. Agora has spent (and agreed to spend) between $12 - $14 million in connection with these agreements, not including future revenue sharing. Agora brought online entry level miners that began operating in early November 2021, with plans to obtain more productive Bitmain S19 Pro miners from the hosting service provider in the year ending March 31, 2023 if Agora can obtain the necessary capital and subject to a material increase in the market price of Bitcoin. Bitstream temporarily ceased mining on March 3, 2022.
Transportation Services Segment
For the three months ended June 30, 2022, the Company’s consolidated revenues from continuing operations consisted almost exclusively of the revenues from, and most of our expenses were related to, the Transportation services segment. In our Transportation services segment, our activities are almost exclusively directed at our frac sand logistics business, Pinnacle Frac, and we expect a majority of our revenues to be derived from that business for the near future.
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Segment Reporting for the Three Months Ended June 30, 2022 and 2021:
Prior to August 26, 2021, the Company operated in three segments. The segments are Financial Services (Trend Holdings), Technology (Zest Labs), and Transportation Services (Banner Midstream). Effective July 1, 2021, the Company’s chief operating decision makers in discussion with the finance team determined that the Company would add a fourth reporting segment to account for their Digital Asset mining business. Additionally, beginning on July 1, 2021 the Company began reporting its home office costs into the Commodity segment, charging its Technology segment a monthly overhead fee, and has recorded typical overhead expenses in their Finance and Digital Asset segments to account for this home office allocation.
| Three Months Ended June 30, 2022 | Bitcoin Mining | Commodities | Technology | Total | ||||||||||||
| Segmented operating revenues | $ | - | $ | 5,418,655 | $ | - | $ | 5,418,655 | ||||||||
| Cost of revenues | 93,861 | 4,514,011 | - | 4,607,872 | ||||||||||||
| Gross profit (loss) | (93,861 | ) | 904,644 | - | 810,783 | |||||||||||
| Total operating expenses net of depreciation, amortization, and impairment | 6,312,064 | 2,292,264 | 454,573 | 9,058,901 | ||||||||||||
| Depreciation, amortization, and impairment | 45,097 | 112,830 | - | 157,927 | ||||||||||||
| Other (income) expense | 121,134- | 1,266,528 | - | 1,387,662 | ||||||||||||
| Loss from continuing operations | $ | (6,572,156 | ) | $ | (2,766,978 | ) | $ | (454,573 | ) | $ | (9,793,707 | ) | ||||
| Segmented assets as of June 30, 2022 | ||||||||||||||||
| Property and equipment, net | $ | 7,190,396 | $ | 928,127 | $ | - | $ | 8,118,523 | ||||||||
| Intangible assets, net | $ | 10,145 | $ | 1,652,088 | $ | - | $ | 1,662,233 | ||||||||
| Goodwill | $ | - | $ | 4,900,873 | $ | - | $ | 4,900,873 | ||||||||
| Three Months Ended June 30, 2021 | Commodities | Technology | Total | |||||||||
| Segmented operating revenues | $ | 5,156,213 | $ | - | $ | 5,156,213 | ||||||
| Cost of revenues | 3,597,941 | - | 3,597,941 | |||||||||
| Gross profit | 1,558,272 | - | 1,558,272 | |||||||||
| Total operating expenses net of depreciation, amortization, and impairment | 3,021,721 | 251,626 | 3,273,347 | |||||||||
| Depreciation, amortization, and impairment | 196,263 | 55,916 | 252,179 | |||||||||
| Other (income) expense | (4,360,320 | ) | - | (4,360,320 | ) | |||||||
| Income (loss) from continuing operations | $ | 2,700,608 | $ | (307,542 | ) | $ | 2,393,066 | |||||
First Quarter 2023 Highlights
| ● | In June 2022, Agora sold Trend Discovery Holdings, LLC to a third party purchaser in exchange for a $4.25 million senior secured promissory note issued by the purchaser, and Agora thereby became solely focused on Bitcoin mining through Bitstream. |
| ● | In June 2022, we raised $12 million from the sale of Series A Convertible Preferred Stock, commitment shares of common stock and a Warrant to support our operational requirements and strategic objectives. |
| ● | Subsequent to June 30, 2022, the Company sold White River, which comprised the oil and gas operations at June 30, 2022 to Fortium Holdings, Inc. (“Fortium”). See Notes 1 and 21 of the Consolidated Financial Statements. |
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Key Trends
Impact of Inflation
In 2022, data indicates a sharp rise in inflation in the U.S. and globally. In the U.S., inflation has been triggered by constrained supplies and increasing demand of certain goods and services as recovery from the COVID-19 pandemic continues. The Company’s revenues, capital and operating costs are influenced to a larger extent by specific price changes in the oil and natural gas industry and allied industries rather than by changes in general inflation. Crude oil prices generally reflect the balance between supply and demand, with crude oil prices being particularly sensitive to OPEC production levels, the Biden Administration’s efforts to reduce drilling and transition away from fossil fuels and/or attitudes of traders concerning supply and demand in the future. Prices for oil and gas related services such as those we supply though Pinnacle Frac and truck drivers we procure to assist in those efforts are also affected by the worldwide prices for crude oil. As a result of increasing prices for oil and natural gas, in 2021 and thus far in 2022, higher costs for goods and services in the oil and gas industry are being observed.
In response to recent inflationary pressures in the U.S., the Federal Reserve commenced interest rate hikes in calendar year 2022 in an effort to combat inflation. Because of these and other developments, a recession is expected in the coming months by many economic analysts, which may, among other things, reduce demand for our products and services as well as increase operating costs to the extent we are unable to procure required resources to continue our operations.
As a result of the overall volatility of oil prices, it is not possible to predict the Company’s future cost of oil it produces or services it uses or provides.
Impact of COVID-19
The COVID-19 pandemic previously had a profound effect on the U.S. and global economy and may continue to affect the economy and the industries in which we operate, depending on the vaccine rollouts and the emergence of virus mutations as well as the impact of supply chain disruptions.
COVID-19 did not have a material effect on the Consolidated Statements of Operations or the Consolidated Balance Sheets for the fiscal quarter ended June 30, 2022 included in this Form 10-Q in contrast to the material impact it had in the prior fiscal year.
Because of the possibility of new variants of the virus and any governmental or economic reactions that may result, there is inherent uncertainty on whether any such developments could disrupt the operation of the Company’s business and have an adverse effect on the Company. For example, outbreaks in early calendar year 2022 arising from the more contagious Omicron variant resulted in labor shortages including with respect to truck drivers. Additionally, the pandemic has been a contributing factor in supply shortages which have been pervasive in many industries. The extent to which the COVID-19 outbreak and other adverse developments may impact the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.
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Results of Operations For Continuing Operations For the Three Months Ended June 30, 2022 and 2021
Revenues
The following table shows revenues for the three months ended June 30, 2022 and 2021:
| Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Revenue from continuing operations: | ||||||||
| Bitcoin mining | $ | - | $ | - | ||||
| Transportation Services | 5,348,225 | 5,037,994 | ||||||
| Fuel Rebate | 63,095 | 92,406 | ||||||
| Equipment Rental and Other | 7,335 | 25,813 | ||||||
| Total | $ | 5,418,655 | $ | 5,156,213 | ||||
Revenues for the fiscal quarter ended June 30, 2022 (“Q1 2023”) were $5,418,655 as compared to $5,156,213 for the fiscal quarter ended June 30, 2021 (“Q1 2022”).
Revenues were comprised of $5,348,225 in the transportation services segment, with no revenue from the Bitcoin mining segment for Q1 2023 and Q1 2022, respectively. Additionally, revenue from fuel rebates were $63,095 and $92,406, and revenue from equipment rental and other sources were $7,335 and $25,813 for Q1 2023 and Q1 2022, respectively. There were no revenues from our technology segment during Q1 2023 or Q1 2022.
Due to the sale of Trend and White River, which together constituted all of the Company’s revenue generating oil and gas production activities, as of July 25, 2022, the Company’s former oil and gas exploration, production and drilling operations are now treated as discontinued operations, and therefore are not included in the revenue from continuing operations for Q1 2023 and Q1 2022.
The Company’s Bitcoin operations began in the fiscal year ended March 31, 2022 and temporarily ceased on March 3, 2022 due to the low price of Bitcoin and the inability of Agora to timely complete its initial public offering which created a working capital issue. Therefore no amounts are reflected for that segment for the quarters ended June 30, 2022 and 2012.
Cost of Revenues and Gross Profit
The following table shows costs of revenues for the three months ended June 30, 2022 and 2021:
| Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Total | $ | 4,607,872 | $ | 3,597,941 | ||||
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Cost of revenues for Q1 2023 was $4,607,872 as compared to $3,597,941 for Q1 2022, primarily because of higher costs related to independent third party owner-operator trucks and higher fuel costs. The decrease in gross profit margins to 14.9% in Q1 2023 compared to 30.2% in Q1 2022 was primarily due to costs related to independent third party owner-operator costs and costs related to Bitcoin mining segment. .. Cost of revenues was comprised of $4,514,010 and $3,597,941 in the transportation services segment and $93,861 and $0 in the Bitcoin mining segment for Q1 2023 and Q1 2022, respectively. There were no cost of revenues in the technology segment for Q1 2023 and Q1 2022.
Operating Expenses
The following table shows operating expenses by segment for the three months ended June 30, 2022 and 2021:
| Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Segment | ||||||||
| Transportation Services segment | $ | 2,405,094 | $ | 3,217,984 | ||||
| Technology segment | 454,573 | 307,542 | ||||||
| Bitcoin segment | 6,357,161 | - | ||||||
| Total | $ | 9,216,828 | $ | 3,525,526 | ||||
The following table shows operating expenses for the three months ended June 30, 2022 and 2021:
| Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Operating Expenses | ||||||||
| Salaries and salaries related costs | $ | 6,273,380 | $ | 1,286,711 | ||||
| Professional and consulting fees | 253,476 | 130,486 | ||||||
| Selling, general and administrative costs | 2,532,045 | 1,856,150 | ||||||
| Depreciation, amortization, depletion, and accretion | 148,805 | 252,179 | ||||||
| Cryptocurrency impairment cost | 9,122 | - | ||||||
| $ | 9,216,828 | $ | 3,525,526 | |||||
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Selling, General and Administrative
The following table shows selling, general and administrative expenses for the three months ended June 30, 2022 and 2021:
| Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Selling, General and Administrative Costs | ||||||||
| Capital Raising Costs | $ | 25,000 | $ | 275,000 | ||||
| Insurance | 559,007 | 672,281 | ||||||
| Legal/Audit/Accounting | 662,822 | 259,812 | ||||||
| Factoring Expense | 96,401 | 120,291 | ||||||
| Equipment Rental | 116,566 | 116,741 | ||||||
| Development Costs | 391,103 | - | ||||||
| Other | 681,146 | 412,025 | ||||||
| $ | 2,532,045 | $ | 1,856,150 | |||||
Depreciation and Amortization
The following table shows depreciation and amortization expenses for the three months ended June 30, 2022 and 2021:
| Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Depreciation of sand frac transportation equipment | $ | 48,587 | $ | 109,059 | ||||
| Depreciation of technology segment assets | - | 55,916 | ||||||
| Depreciation of Bitstream mining assets | 35,975 | - | ||||||
| Amortization of intangible assets | 64,243 | 87,204 | ||||||
| Depreciation and amortization expense | $ | 148,805 | $ | 252,179 | ||||
Total depreciation and amortization expense was $148,805 in Q1 2023, compared to $252,179 in Q1 2022. The change was primarily due to the sale of several trucks and trailers in our sand frac transportation business in Q1 2023, assets being fully depreciated in Q1 2023 compared to Q1 2022 in the technology segment, and depreciation in Bitstream mining in Q1 2023 compared to none in Q1 2022.
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Other Income (Expense)
The following table shows other income (expense) for the three months ended June 30, 2022 and 2021:
| Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Change in fair value of derivative liabilities | $ | (393,532 | ) | $ | 4,945,819 | |||
| Gain (loss) on disposal of fixed assets | (950,024 | ) | - | |||||
| Interest expense, net of interest income | (44,106 | ) | (585,499 | ) | ||||
| Other income (expense) | $ | (1,387,662 | ) | $ | 4,360,320 | |||
Total other (expense) was $(1,387,662) in Q1 2023, compared to total other income of $4,360,320 in Q1 2022. Change in fair value of derivative liabilities for Q1 2023 was a non-cash loss of $(393,532) as compared to a non-cash gain of $4,945,819 for Q1 2022.
There was a (loss) on disposal of fixed assets of $(950,024) as a result of sale of multiple company owned tractors and trailers. Proceeds from sale were $580,000. Many of the trucks/trailers were non-operating. There was no corresponding gain or loss in Q1 2022.
Interest expense, net of interest income, for Q1 2023 was $(44,106) as compared to $(585,499) for Q1 2022. The decrease in interest expense was the result of the value related to the granting of warrants for interest of $545,125 in Q1 2022.
Net Income (loss)
The following table shows net income (loss) from continuing operations for the three months ended June 30, 2022 and 2021:
| Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Transportation Services Segment | $ | (2,766,978 | ) | $ | 2,700,608 | |||
| Bitcoin Segment | (6,572,156 | ) | - | |||||
| Technology Segment | (454,573 | ) | (307,542 | ) | ||||
| Net Income (loss) | $ | (9,793,707 | ) | $ | 2,393,066 | |||
Net (loss) from continuing operations for Q1 2023 was $(9,793,707) as compared to net income from continuing operations of $2,393,066 for Q1 2022. The decrease was primarily due to an increase in salaries and salaries related costs arising from compensation of Agora employees and consultants in connection with the development of our Bitcoin mining operations. The decrease was also due to a net expense of $393,532 in the change in fair value of derivative liabilities in Q1 2023 compared to $4,945,819 income in Q1 2022.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are revenue generated from operations, levels of accounts receivable and accounts payable and capital expenditures.
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Net cash used in operating activities for continuing operations was $(3,749,215) for the quarter ended June 30, 2022, as compared to $(751,258) for the same quarter of 2021. Cash used in operating activities for the quarter ended June 30, 2022 was primarily caused by the $10,196,534 net loss from continuing operations including $6,572,156 related to Agora’s operations offset by $5,215,287 in non cash compensation related to the issuances Agora restricted common stock for services.
Net cash provided by investing activities was $974,399 for the quarter ended June 30, 2022, compared to $2,500 for the quarter ended June 30, 2021. Net cash used in investing activities in the quarter ended June 30, 2022 were comprised of proceeds received from the sale of equipment.
Net cash provided by financing activities for the quarter ended June 30, 2022 was $11,577,814 which comprised net proceeds from our June 2022 sale of the Ecoark Series A, Commitment Shares and the Warrant as more particularly described below under “June 2022 Private Placement.” This compared with the quarter ended June 30, 2021 net cash used in financing activities of $217,514.
As of August 8, 2022, the Company has $2,660,651 in cash and cash equivalents. The Company believes this cash plus revenue from operations from our transportation services business is sufficient to meet our cash needs for the 12 months following the filing of this Report.
To date we have financed our operations through sales of common stock, convertible preferred stock and other derivative securities and the issuance of debt.
Agora Line of Credit
As of August 2, 2022, the Company has advanced a total of $5,889,057 to Agora under a $7.5 million term line of credit note issued to the Company by Agora which bears interest at a rate of 10% per annum. Agora will be required to repay any sums we lend it on March 31, 2023 with accrued interest.
Trend Ventures Note
The secured note from the sale of Trend is due June 16, 2025 and bears interest at a rate of 5% per year, subject to increase to 10% while an event of default has occurred and is continuing. The purchaser’s obligations under the note are secured by a first lien secured interest in the assets of the purchaser, and are also guaranteed by the Purchaser’s newly acquired subsidiaries.
2018 Line of Credit
On December 28, 2018, the Company entered into a $10,000,000 credit facility that includes a loan and security agreement (the “Agreement”) where the lender agreed to make one or more loans to the Company, and the Company may make a request for a loan or loans from the lender, subject to the terms and conditions. The Company is required to pay interest biannually on the outstanding principal amount of each loan calculated at an annual rate of 12%. The loans are evidenced by demand notes executed by the Company. The Company is able to request draws from the lender up to $1,000,000 with a cap of $10,000,000. In the year ended March 31, 2022, the Company borrowed $595,855, which includes $25,855 in commitment fees, with the balance of $575,000 being deposited directly into the Company. In the three months ended June 30, 2022, the Company borrowed $505,181, which includes $17,681 in commitment fees, with the balance of $487,500 being deposited directly into the Company, and repaid $585,000 in the three months ended June 30, 2022. Interest incurred for the three months ended June 30, 2022 was $25,864, and accrued as of June 30, 2022 was $28,086. There were no advances in the three months ended June 30, 2021. With the sale of Trend Holdings, we no longer can access this line of credit.
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Cautionary Note Regarding Forward Looking Statements
This Report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the potential terms, timing and success of the closings of the various transactions and the planned spin-offs by us to our security holders of certain subsidiaries or other entity’s capital stock (either directly or through one or more business combinations) and plans to file registration statements in connection therewith, including with respect to a definitive agreement with HUMBL and Agora, a non-binding letter of intent with Banner and an undisclosed public company and the planned spin-off of Fortium common stock underlying the Fortium Series A, the expected revenues of our transportation services business, future operating results following our discontinued oil and gas drilling business as a result of the sale of White River to Fortium, anticipated or potential transactions with BitNile and/or its affiliates, expected substantial investments to fund our business and support growth, our Bitcoin mining operations through Agora and Agora’s initial public offering which may be abandoned particularly if the HUMBL transaction closes, expected use of proceeds of our recent financing with DPL and cash generated from our, our expectations with respect to future developments in our ongoing litigation, and future liquidity. 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. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.
The results anticipated by any or all of these forward-looking statements might not occur. Important factors, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements include the ability to complete and timelines of business combinations with and our planned spin-offs of the capital stock of our subsidiaries and certain other entities and any regulatory, registration or other delays or obstacles that may arise with respect thereto, including delays or challenges in obtaining the requisite approvals, any inability to close the Agora or Banner business combinations, including the requirement under the HUMBL agreement that we secure at least $10 million in financing for HUMBL which we may be unable to accomplish due to a recessionary environment, inflation, the declined price of Bitcoin, or other factors beyond our control, risks and uncertainties relating to undisclosed liabilities or the integration of such entities with the acquiring entity if any such transaction closes, a possible drop in value of stock prices prior to any planned distribution to our shareholders, failure to meet Nasdaq continued listing requirements, the impact of future strains of COVID-19, the Russian invasion of the Ukraine, inflation and Federal Reserve interest rate increases in response thereto on the economy including the potential for a recession which may result, supply chain shortages, the future prices of, and demand for, oil and gas and Bitcoin, future adverse regulatory changes with respect to the oil and gas industry we serve, Bitcoin, and classification of independent contractors as employees, any issues which could result in unfavorable outcomes of one or both of our ongoing lawsuits, continued service of key management and employees, and the availability of capital on acceptable terms when needed or at all, including as the result of the recent climate change initiatives and economic volatility. In addition, with respect to the Agora transaction and planned spin-off, Agora had substantial difficulty clearing accounting comments with the SEC Staff and never heard back from the office of chief accountant after several weeks. There can be no assurance that a registration statement by Ecoark or HUMBL will be declared effective or clear comments, as the case may be, without which the spin-off of Agora or HUMBL stock cannot occur. Further, it is unclear when Ecoark shareholder approval will be required or if it will be obtained, and further Nasdaq may delist us as a result of our planned spin offs or acquisition activities. Further information on the risks and uncertainties affecting our business is contained in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022 under Part I. Item 1A. – Risk Factors. Further, with respect to Agora and its operations, Agora’s registration statement on Form S-1 (File No. 333-261246), as amended, sets forth additional risks and uncertainties specific to its business. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.
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Critical Accounting Policies, Estimates and Assumptions
The critical accounting policies listed below are those the Company deems most important to their operations.
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 uncollectible accounts receivable, fair value of assets held for sale and assets and liabilities acquired, impaired value of equipment and intangible assets, including goodwill, asset retirement obligations, estimates of discount rates in lease, liabilities to accrue, fair value of derivative liabilities associated with warrants, cost incurred in the satisfaction of performance obligations, permanent and temporary differences related to income taxes and determination of the fair value of stock awards.
Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
| ● | Step 1: Identify the contract with the customer |
| ● | Step 2: Identify the performance obligations in the contract |
| ● | Step 3: Determine the transaction price |
| ● | Step 4: Allocate the transaction price to the performance obligations in the contract |
| ● | Step 5: Recognize revenue when the Company satisfies a performance obligation |
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In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met: The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct), and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).
If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.
The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. When determining the transaction price, an entity must consider the effects of all of the following:
| ● | Variable consideration |
| ● | Constraining estimates of variable consideration |
| ● | The existence of a significant financing component in the contract |
| ● | Noncash consideration |
| ● | Consideration payable to a customer |
Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The standalone selling price is the price at which the Company would sell a promised service separately to a customer. The relative selling price for each performance obligation is estimated using observable objective evidence if it is available. If observable objective evidence is not available, the Company uses its best estimate of the selling price for the promised service. In instances where the Company does not sell a service separately, establishing standalone selling price requires significant judgment. The Company estimates the standalone selling price by considering available information, prioritizing observable inputs such as historical sales, internally approved pricing guidelines and objectives, and the underlying cost of delivering the performance obligation. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.
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Management judgment is required when determining the following: when variable consideration is no longer probable of significant reversal (and hence can be included in revenue); whether certain revenue should be presented gross or net of certain related costs; when a promised service transfers to the customer; and the applicable method of measuring progress for services transferred to the customer over time. The Company recognizes revenue upon satisfaction of its performance obligation at either a point in time in accordance with ASC 606-10-25-30 for its contracts in its Oil and Gas and Financial Services segments or over time in accordance with ASC 606-10-25-27 for its contracts with mining pool operators.
The Company accounts for incremental costs of obtaining a contract with a customer and contract fulfillment costs in accordance with ASC 340-40, Other Assets and Deferred Costs. These costs should be capitalized and amortized as the performance obligation is satisfied if certain criteria are met. The Company elected the practical expedient, to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that would otherwise have been recognized is one year or less, and expenses certain costs to obtain contracts when applicable. The Company recognizes an asset from the costs to fulfill a contract only if the costs relate directly to a contract, the costs generate or enhance resources that will be used in satisfying a performance obligation in the future and the costs are expected to be recovered. The Company recognizes the cost of sales of a contract as expense when incurred or when a performance obligation is satisfied. The incremental costs of obtaining a contract are capitalized unless the costs would have been incurred regardless of whether the contract was obtained, are not considered recoverable, or the practical expedient applies.
Bitcoin Mining
For purposes of the following discussion of Bitcoin mining accounting policies, reference to “the Company” refers to Agora. As stated earlier, Agora temporarily ceased Bitcoin mining on March 3, 2022 and does not expect to resume its mining operations until the price of Bitcoin rebounds and Agora has sufficient capital to purchase state of the art miners. Currently, Agora management continues discussions with third party miners about some joint venture using Agora’s access to less expensive power.
As consideration for providing computing power, the Company receives Bitcoin from the mining pool in which it participates. Income from Bitcoin mining (mining earnings are made up of the baseline block reward and transaction fees, defined as “rewards”) which is measured based on the fair value of the Bitcoin received.
Providing computing power in Bitcoin transaction verification services (known as “mining”) is an output of the Company’s ordinary activities. The provision of computing power is the only performance obligation in the Company’s contracts with mining pool operators, its customers. The Company will recognize income from Bitcoin mining for the provision of computing power upon satisfaction of its performance obligation. As consideration for the provision of computing power, the Company is entitled to payment in Bitcoin, which is a form of noncash consideration. Noncash consideration is measured at fair value at contract inception. Fair value of the Bitcoin consideration is determined using the quoted price on the Company’s primary trading platform of the Bitcoin at the beginning of the contract period, which is considered to be the beginning of each twenty-four-hour period (at contract inception). Specifically, fair value at contract inception is based on the market price at the beginning of the contract term, at the single Bitcoin level (one Bitcoin). This amount is recognized in revenue over the contract term as hash rate is provided. Changes in the fair value of the noncash consideration due to form of the consideration (changes in the market price of Bitcoin) are not included in the transaction price and hence are not included in revenue. Changes in fair value of the noncash consideration post-contract inception that are due to reasons other than form of consideration (other than changes in the market value of bitcoin) are measured based on the guidance on variable consideration, including the constraint on estimates of variable consideration.
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Because the consideration to which the Company expects to be entitled for providing computing power is entirely variable, as well as being noncash consideration, the Company assesses the estimated amount of the variable noncash consideration to which it expects to be entitled for providing computing power at contract inception and subsequently, to determine when and to what extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur once the uncertainty associated with the variable consideration is subsequently resolved (the “constraint”). Only when significant revenue reversal is concluded probable of not occurring can estimated variable consideration be included in revenue. Based on evaluation of likelihood and magnitude of a reversal in applying the constraint, the estimated variable noncash consideration is constrained from inclusion in revenue until the end of the contract term, when the underlying uncertainties have been resolved and number of Bitcoin to which the Company is entitled becomes known.
Bitcoins are recorded on the consolidated balance sheet, as intangible asset — Bitcoin.
The Company has entered into a Bitcoin mining pool with the mining pool operator F2Pool, to provide computing power to the mining pool. The arrangement is terminable at any time by either party and the Company’s enforceable right to Bitcoin compensation only begins when the Company provides computing power to the mining pool operator.
The Company’s performance obligation extends over the contract term given the Company’s continuous provision of hash rate. This period of time corresponds with the period of service for which the mining pool operator determines compensation due the Company. Given cancelation terms of the contracts, all contracts effectively provide the Company with the option to renew for successive contract terms of twenty-four hours. The options to renew are not material rights because they are offered at the standalone selling price of computing power. In exchange for providing computing power, the Company is entitled to consideration equal to a fractional share of the fixed Bitcoin reward the mining pool operator receives (referred to as a “block reward”) after such amount has been reduced by a digital asset transaction fee retained by the mining pool operator, and potentially network transaction fees. The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm, over the contract term. The Company is entitled to compensation for providing computing power to a mining pool even if a block is not successfully placed. The block reward provides an incentive for Bitcoin miners to process transactions made with the cryptocurrency. Creating an immutable record of these transactions is vital for the cryptocurrency to work as intended. The blockchain is like a decentralized bank ledger, one that cannot be altered after being created. The miners are needed to verify the transactions and keep this ledger up to date. Block rewards, and to a lesser extent, network transaction fees, are their payment for doing so.
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The terms of the agreement with the mining pool operator provide that neither party can dispute settlement terms after thirty-five days following settlement.
For the mining pool in which the Company participates, the Company is entitled to a transaction price calculated by the Company’s mining pool operator. Specifically, the mining pool operator determines the amount of block rewards to which the Company is entitled by using the Pay-Per-Shares-Plus (PPS+) payment method, retaining 2.5% to cover costs of operating the pool (the “digital asset transaction fee”), and includes network transaction fees as applicable. When the Company’s number of Bitcoin reaches the minimum threshold of 0.005 Bitcoin, the Company receives a payout and the pool transfers the cryptocurrency consideration to the Company’s designated wallet within 8 hours, between 00:00 and 08:00 UTC.
The PPS+ payment method pays miners for the number of shares they contribute to the pool (effectively, the amount of computing power provided to the pool) plus network transaction fees. Shares can be described as discrete amounts of valid work each miner or mining farm contributes to the pool. The value of each share contributed is determined by the Bitcoin’s current network difficulty and the number of total shares contributed from miners and mining farms. Bitcoin rewards are received regardless if a pool successfully finds a block because the mining pool operator understands that, probabilistically, blocks will be successfully found in a statistically predictable manner by the pool depending on the total amount of hashing power (shares) contributed by the miners and mining farms and therefore, pays out as if a block was found. This is a strategy that provides regular payments to miners and allows consistent payouts.
Network transaction fees, however, are paid out based on blocks actually found and solved and therefore the network transaction fee revenue is not consistently paid out. We expect that network transaction fees will be a very small contributor to total miner Bitcoin rewards.
The Company’s cost of Bitcoin revenue consists primarily of direct costs of earning the Bitcoins related to mining operations, namely electric power costs, other utilities, labor, insurance whether incurred directly from self-mining operations or reimbursed, including any revenue sharing arrangements under hosting agreements, but excluding depreciation and amortization, which are separately stated in the Company’s Consolidated Statement of Operations.
Commodities
The Company recognizes revenue for their proportionate share of revenue when: (i) the Company receives notification of the successful sale of a load of crude oil to a buyer; (ii) the buyer will provide a price based on the average monthly price of crude oil in the most recent month; and (iii) cash is received the following month from the crude oil buyer. As stated earlier, with the sale of White River, the Company no longer has any oil wells.
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Cost of sales for Pinnacle Frac includes all direct expenses incurred to produce the revenue for the period. This includes, but is not limited to, direct employee labor, direct contract labor and fuel.
Revenue under master service agreements is recorded upon the performance obligation being satisfied. Typically, the satisfaction of the performance obligation occurs upon the frac sand load being delivered to the customer site and this load being successfully invoiced and accepted by the Company’s factoring agent.
Bitcoin
Bitcoin is included in current assets in the consolidated balance sheets as intangible assets with indefinite useful lives. Bitcoin is recorded at cost less impairment.
The Company accounts for its Bitcoins as indefinite-lived intangible assets in accordance with Accounting Standards Codification (“ASC”) 350, Intangibles – Goodwill and Other. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. The Company determines the fair value of its Bitcoins on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement, based on quoted prices on the active trading platform that the Company has determined is its principal market for Bitcoin (Level 1 inputs). The Company performs an analysis each day, comparing the carrying amount of the Company’s Bitcoin with their fair value based on the lowest market price that day at the single Bitcoin level (one bitcoin). The excess, if any, represents a recognized impairment loss. Impairment losses are recorded in the line item “Bitcoin impairment losses” in the Company’s Consolidated Statements of Operations.
To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted. Bitcoin awarded to the Company through its mining activities are included as an adjustment to reconcile net loss to cash provided by (or used in) operating activities on the accompanying Consolidated Statements of Cash Flows. The sales (if any) of Bitcoin are included within investing activities in the accompanying Consolidated Statements of Cash Flows and any realized gains or losses (if any) from such sales are included in operating income in the Company’s Consolidated Statement of Operations. The Company accounts for sales of Bitcoins in accordance with the first in first out (FIFO) method of accounting.
Impairment losses related to Bitcoin is included in the Bitcoin Mining segment.
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Fair Value Measurements
ASC 820 Fair Value Measurements defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosure about fair value measurements. ASC 820 classifies these inputs into the following hierarchy:
Level 1 inputs: Quoted prices for identical instruments in active markets.
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.
The carrying values of the Company’s financial instruments such as cash, accounts payable, and accrued expenses approximate their respective fair values because of the short-term nature of those financial instruments.
Bitcoin will consist of Bitcoin assets and will be presented in current assets. Fair value will be determined by taking the price of the coins from the trading platforms which Agora will most frequently use.
Segment Information
The Company follows the provisions of ASC 280-10 Segment Reporting. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions. The Company and its chief operating decision makers determined that the Company’s operations effective with the May 31, 2019, acquisition of Trend Holdings and the March 27, 2020 acquisition of Banner Midstream consisted of three segments, Financial, Commodities and Technology. Effective July 1, 2021, the Company’s chief operating decision makers in discussion with the finance team determined that the Company would add a fourth reporting segment to account for their Bitcoin mining business. Additionally, on July 1, 2021 the Company now reports its home office costs into the Commodity segment, and charged its Technology segment a monthly overhead fee, and has recorded typical overhead expenses in their Bitcoin Mining segments to account for this home office allocation. The Company classified their reporting segments in these three divisions through March 31, 2022, when the Company determined that pursuant to ASC 205-20-45-1E that the operations related to the Financial Services segment would be reclassified as held for sale as those criteria identified in the pronouncement had been satisfied as of June 8, 2022. Under ASC 855-10-55, the Company has reflected the reclassification of assets and liabilities of these entities as held for sale and the operations as discontinued operations as of and for the year ended March 31, 2022. As a result of this reclassification, the Company’s segment reporting has removed the Financing segment for the three months ended June 30, 2021. Effective April 1, 2022, the Company has classified their segments in the Commodity Segment, Technology Segment and Bitcoin Mining Segment. They now charge a monthly overhead charge to the Technology Segment and to the Transportation component and Oil and Gas Production component (each part of the Commodities Segment).
On July 25, 2022, the Company entered into an agreement to sell their oil and gas production business (White River) which is part of the Commodities segment. The Company determined that pursuant to ASC 205-20-45-1E that the operations related to the oil and gas production business would be reclassified as held for sale as those criteria identified in the pronouncement had been satisfied as of July 22, 2022. Under ASC 855-10-55, the Company has reflected the reclassification of assets and liabilities of these entities as held for sale and the operations as discontinued operations as of and for the three months ended June 30, 2022.
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Derivative Financial Instruments
The Company does not currently use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks, but may explore hedging oil prices in the current fiscal year. Management evaluates all of the Company’s financial instruments, including warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The Company generally uses a Black-Scholes model, as applicable, to value the derivative instruments at inception and subsequent valuation dates when needed. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is remeasured at the end of each reporting period. The Black-Scholes model is used to estimate the fair value of the derivative liabilities.
Recently Issued Accounting Standards
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contract’s in an Entity’s Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU simplifies the diluted net income per share calculation in certain areas.
The ASU is effective for annual and interim periods beginning after December 31, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company does not believe this new guidance will have a material impact on its consolidated financial statements.
In May 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-04 “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815- 40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” which clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. An entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as follows: i) for a modification or an exchange that is a part of or directly related to a modification or an exchange of an existing debt instrument or line-of-credit or revolving-debt arrangements (hereinafter, referred to as a “debt” or “debt instrument”), as the difference between the fair value of the modified or exchanged written call option and the fair value of that written call option immediately before it is modified or exchanged; ii) for all other modifications or exchanges, as the excess, if any, of the fair value of the modified or exchanged written call option over the fair value of that written call option immediately before it is modified or exchanged. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. The Company does not believe this new guidance will have a material impact on its consolidated financial statements.
The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
74
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officers, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on such evaluation, our principal executive and financial officers have concluded that as of the end of the period covered by this report the Company’s disclosure controls and procedures were effective.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Principal Financial Officer (Principal Financial and Accounting Officer), as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no material changes in our internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
75
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Other than discussed below, during the period covered by this report, there were no material developments in the legal proceedings disclosed in our Annual Report on Form 10-K for the year ended March 31, 2022.
ITEM 1A. RISK FACTORS
Investing in our common stock involves a high degree of risk. Investors should review the risk factors described in our Annual Report on Form 10-K for the year ended March 31, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
| * | Certain schedules and other attachments have been omitted. The Company undertakes to furnish the omitted schedules and attachments to the Securities and Exchange Commission upon request. |
| ** | This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K. |
Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our stockholders who make a written request to our Corporate Secretary at Ecoark Holdings, Inc., 303 Pearl Parkway Suite #200, San Antonio, Texas 78215.
77
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Ecoark Holdings, Inc. | ||
| Date: August 12, 2022 | By: | /s/ Randy May |
| Randy May | ||
| Chief Executive Officer | ||
| Date: August 12, 2022 | By: | /s/ Jay Puchir |
| Jay Puchir | ||
| Chief Financial Officer | ||
78
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Randy May, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ecoark Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 12, 2022
| /s/ Randy May |
|
Randy May Chief Executive Officer
|
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Jay Puchir, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ecoark Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 12, 2022
| /s/ Jay Puchir |
|
Jay Puchir Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Ecoark Holdings, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Randy May, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| 1. | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Randy May |
|
Randy May Chief Executive Officer
Dated: August 12, 2022 |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Ecoark Holdings, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jay Puchir, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| 1. | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Jay Puchir |
|
Jay Puchir Chief Financial Officer |
Dated: August 12, 2022
Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) - USD ($) |
Jun. 30, 2022 |
Mar. 31, 2022 |
|---|---|---|
| Pledged as collateral for credit (in Dollars) | $ 85,000 | $ 85,000 |
| Series A convertible redeemable preferred stock, par value (in Dollars per share) | $ 0.001 | $ 0.001 |
| Series A convertible redeemable preferred stock, shares authorized | 5,000,000 | 5,000,000 |
| Series A convertible redeemable preferred stock, shares issued | 1,200 | 0 |
| Series A convertible redeemable preferred stock, shares outstanding | 1,200 | 0 |
| Common stock, par value (in Dollars per share) | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 40,000,000 | 40,000,000 |
| Common stock, shares issued | 26,466,980 | 26,364,099 |
| Common stock, shares outstanding | 26,350,000 | 26,247,000 |
| Series A Preferred Stock | ||
| Preferred stock, par value (in Dollars per share) | $ 0.001 | $ 0.001 |
| Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
| Preferred stock, shares issued | 1,200 | 0 |
| Preferred stock, shares outstanding | 1,200 | 0 |
Organization and Summary of Significant Accounting Policies |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ecoark Holdings Inc. (“Ecoark Holdings” or the “Company”) is a diversified holding company, incorporated in the State of Nevada on November 19, 2007. Through Ecoark Holdings’ wholly owned subsidiaries, the Company has operations in three areas: (i) oil and gas transportation services, (ii) post-harvest shelf-life and freshness food management technology, and (iii) Bitcoin mining. The Company recently sold its financial services business, and on July 25, 2022, sold all of its oil and gas production business to Fortium Holdings, Inc. (“Fortium”) in exchange for Fortium convertible preferred stock. See below in this Note 1 and Note 21 – “Subsequent Events.” Since this disposal represents a strategic shift that will have a major effect on the Company’s operation and financial results, the Company has reclassified the assets and liabilities related to this business as assets and liabilities held for sale and reclassified the operations of this business as discontinued operations as of June 30, 2022 and for the three months ended June 30, 2022 and 2021. The Company also reclassified the assets and liabilities of this business as assets and liabilities held for sale as of March 31, 2022. See Note 2, “Discontinued Operations” and Note 21, “Subsequent Events” for further information regarding these transactions. Since the acquisition of Banner Midstream Corp. on March 27, 2020, which comprises the exploration, production and drilling operations, the Company focused its efforts to a considerable extent on expanding its exploration and production footprint and capabilities by acquiring real property and working interests in oil and gas mineral leases. The Company’s principal subsidiaries consist of Ecoark, Inc. (“Ecoark”), a Delaware corporation which is the parent of Zest Labs, Inc. (“Zest Labs”), Banner Midstream Corp., a Delaware corporation (“Banner Midstream”) and Agora Digital Holdings, Inc., a Nevada corporation (“Agora”) which was assigned the membership interest in Trend Discovery Holdings LLC, a Delaware limited liability corporation (all references to “Trend Holdings” or “Trend” are now synonymous with Agora) from the Company on September 17, 2021 upon its formation, which includes Bitstream Mining, LLC, the Company’s Bitcoin mining subsidiary.
As disclosed in these Notes, the Company has decided it is in the best interests of its shareholders that it divest all of its operating assets through a series of spin-offs or stock dividends to the Company’s shareholders. It intends to do so either by engaging in business combinations with existing public companies which have trading symbols and markets like Fortium or by direct dividends. The Company’s plan is also driven by the dividends it must pay to an investor which provided $12 million on June 8, 2022. The Company’s goal is to complete these spin-offs in calendar 2022 and acquire a new business prior to the last spin-off so it does not become a shell corporation. Because all spin-offs require the transactions or the subsidiaries to be registered with the Securities and Exchange Commission, the Company may not complete all spin-offs in 2022.
On March 27, 2020, the Company and Banner Energy Services Corp., a Nevada corporation (“Banner Parent”), entered into a Stock Purchase and Sale Agreement (the “Banner Purchase Agreement”) to acquire Banner Midstream Corp., a Delaware corporation (“Banner Midstream”). Pursuant to the acquisition, Banner Midstream became a wholly-owned subsidiary of the Company and Banner Parent received shares of the Company’s common stock in exchange for all of the issued and outstanding shares of Banner Midstream.
Banner Midstream had four operating subsidiaries: Pinnacle Frac Transport LLC (“Pinnacle Frac”), Capstone Equipment Leasing LLC (“Capstone”), White River Holdings Corp. (“White River”), and Shamrock Upstream Energy LLC (“Shamrock”). Pinnacle Frac provides transportation of frac sand and logistics services to major hydraulic fracturing and drilling operations. Capstone procures and finances equipment to oilfield transportation service contractors. White River is and Shamrock was engaged in oil and gas exploration, production, and drilling operations on over 30,000 cumulative acres of active mineral leases in Texas, Louisiana, and Mississippi. White River was the operating subsidiary of Banner Midstream that has been reclassified to assets and liabilities held for sale and discontinued operations.
For a full description of the operations of White River, refer to the Annual Report filed on Form 10-K for the year ended March 31, 2022 filed on July 7, 2022. White River is now part of our assets and liabilities held for sale and discontinued operations as of June 30, 2022. Shamrock sold off its assets and was inactive as of June 30, 2022.
On July 25, 2022, the Company entered into and closed a Share Exchange Agreement, by and among the Company, White River and Fortium. As a result, White River became a wholly-owned subsidiary of Fortium and issued the Company non-voting Series A Convertible Preferred Stock (the “Series A”) which convert into approximately 82% of Fortium’s common stock. The Series A is only convertible after the Company elects to spin-off Fortium common stock to the Company’s shareholders and a Registration Statement covering the spin-off has been declared effective. The Company’s Executive Chairman is also the Executive Chairman of Fortium and the Company’s Chief Financial Officer is the Chief Executive Officer of Fortium. The former Chief Executive Officer and director of Fortium is the son-in-law of the Company’s Executive Chairman. He resigned from all positions and the new Board of Directors (the “Board”) of Fortium includes the Company’s Executive Chairman and the Executive Chairman’s daughter as well as three other designees of the Company.
Effective with the opening of trading on December 17, 2020, the Company effected a one-for-five reverse split of its issued and outstanding common stock and a simultaneous proportionate reduction of its authorized common stock. The reverse stock split was implemented without obtaining stockholder approval as permitted by Nevada law, and the authorized common stock was proportionately reduced to 40,000,000 shares. All share and per share figures are reflected on a post-split basis herein.
On April 9, 2021, a Little Rock, Arkansas jury awarded Ecoark and Zest a total of $115 million in damages which includes $65 million in compensatory damages and $50 million in punitive damages and found Walmart Inc. (“Walmart”) liable on three counts. The federal jury found that Walmart misappropriated Zest’s trade secrets, failed to comply with a written contract, and acted willfully and maliciously in misappropriating Zest’s trade secrets See Note 15 – Commitments and Contingencies – Legal Proceedings.
Trend Holdings formed four subsidiaries including: Bitstream Mining, LLC, a Texas limited liability company (“Bitstream”) on May 16, 2021. In addition, Trend Holdings owned Barrier Crest, LLC (“Barrier Crest”) that was acquired along with Trend Capital Management, Inc. (“TCM”) that was acquired by Ecoark on May 31, 2019. On June 17, 2022, Agora sold Trend Holdings to an entity formed by the investment manager of Trend Discovery LP and Trend Discovery SPV and sold Trend Discovery Exploration LLC (“Trend Exploration”) to the Company. See Note 2, “Discontinued Operations”. The Company reclassified the operations of Barrier Crest and TCM, as discontinued operations as the disposal represents a strategic shift that will have a major effect on the Company’s operations and financial results as of March 31, 2022. The Company made this determination for these segments to be held for sale as the criteria established under ASC 205-20-45-1E have been satisfied as of June 8, 2022. Under ASC 855-10-55, the Company has reflected the reclassification of assets and liabilities of these entities as held for sale and the operations as discontinued operations as of and for the year ended March 31, 2022. The Company accounted for this sale as a disposal of the business under ASC 205-20-50-1(a) upon the closing of the sale on June 17, 2022 at which time the gain was recognized.
The Company assigned its membership interest in Trend Holdings and its related wholly owned subsidiaries to Agora on September 22, 2021, for the sale of the initial 100 shares for $10. On October 1, 2021, the Company purchased 41,671,121 shares of Agora common stock for $4,167,112 which Agora used to purchase equipment to commence the Bitstream operations.
Agora was organized by Ecoark Holdings to enter the Bitcoin mining business. Because of regulatory uncertainty over Bitcoin being deemed to be securities, Agora’s initial focus is on mining Bitcoin which we believe is not a security. Because of regulatory concerns and the changing regulatory environment, Agora intends to seek opportunities to engage with cryptocurrencies that do not involve the offer or sale of any securities. Because of the plunge in the price of Bitcoin and the type of miners Agora acquired pending its attempt to close an initial public offering, Agora determined it was not presently feasible to conduct Bitcoin mining operations and temporarily ceased such activities on March 3, 2022.
On November 19, 2021 Agora filed a registration statement on Form S-1 (File No. 333-261246) in connection with its initial public offering of 10,000,000 units comprised of shares of common stock and warrants to purchase an equal number of shares of common stock. The Agora registration statement has undergone a series of amendments since its initial filing in November 2021 and has not yet been declared effective by the Securities and Exchange Commission (“SEC”). In addition, in connection with Agora public offering, Agora has applied for its common stock and warrants to be listed on The Nasdaq Capital Market. Agora has encountered extensive review of its accounting disclosure policies by the Staff of the Securities and Exchange Commission as the Staff seeks to impose uniformity upon the industry. These delays and the fall of the price of Bitcoin has made the feasibility of the initial public offering uncertain.
As a result of the approval by the Company’s Board to divest Agora, the Company has accounted for this as a disposal other than by sale. Assets to be disposed of other than by sale should continue to be classified as held and used until they are disposed of. Upon disposal, the Company must assess whether the disposed of assets qualify for discontinued operations reporting. If so, the Company will apply the presentation and disclosure requirements of ASC 205-20, and if not, the Company will apply the presentation and disclosure requirements of ASC 360-10. Regardless of the outcome of the proposed initial public offering, Ecoark intends to spin-off Agora to its shareholders either directly or through a business combination.
On August 4, 2021, the Company’s common stock commenced trading on the Nasdaq Capital Market.
On October 6, 2021, the Company held a Special Meeting of Stockholders, at which the stockholders approved (a) an amendment to the Articles of Incorporation to increase the number of shares of authorized common stock of the Company from 30,000,000 shares to 40,000,000 shares; (b) an amendment to the Ecoark Holdings 2017 Omnibus Incentive Plan to increase the number of shares of common stock authorized for issuance under this plan from 800,000 shares to 1,300,000 shares; and (c) the issuance of 272,252 restricted stock units and an additional 63,998 restricted stock units to the then President of Zest Labs and director of the Company under this Plan, in exchange for the cancellation of 672,499 previously issued stock options.
Overview of Agora Digital Holdings, Inc.
Bitstream
Bitstream was organized to be our principal Bitcoin mining subsidiary. Bitstream has entered into a series of agreements and arrangements including arranging for a reliable and economical electric power source needed to efficiently mine Bitcoin, order miners, housing infrastructure and other infrastructure to mine Bitcoin and locate a third-party hosting service to operate the miners and the service’s more advanced miners. Agora has spent (and agreed to spend) between $12-$14 million in connection with these agreements, not including future revenue sharing.
All significant accounting policies related to White River, Shamrock, Barrier Crest and Trend Discovery Capital Management have been removed as these entities are reflected in discontinued operations. For full details on the policies refer to the Annual Report on Form 10-K for the year ended March 31, 2022 filed on July 7, 2022.
Principles of Consolidation
On May 31, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Trend Discovery Holdings Inc., a Delaware corporation for the Company to acquire 100% of Trend Discovery Holdings, LLC pursuant to a merger of Trend with and into the Company (the “Merger”). Trend Discovery Holdings, Inc. ceased doing business upon completion of the merger and Trend Discovery Holdings LLC is the subsidiary of the Company. Upon the formation of Agora on September 17, 2021, Ecoark assigned the membership interest they owned in Trend Holdings to Agora on September 22, 2021 when the Company purchased 100 shares of Agora common stock for $10.
As a result of the approval by the Board to divest Agora, the Company, has accounted for this as a disposal other than by sale. Assets to be disposed of other than by sale should continue to be classified as held and used until they are disposed of. Upon disposal, the Company must assess whether the disposed of assets qualify for discontinued operations reporting.
If so, the Company will apply the presentation and disclosure requirements of ASC 205-20, and if not, the Company will apply the presentation and disclosure requirements of ASC 360-10.
On March 27, 2020, the Company and Banner Parent, entered into the Banner Purchase Agreement to acquire Banner Midstream. Pursuant to the acquisition, Banner Midstream became a wholly owned subsidiary of the Company and Banner Parent received shares of the Company’s common stock in exchange for all of the issued and outstanding shares of Banner Midstream.
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—are 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.
The Company has utilized the guidance under ASC 810-10-55-4B, Case A for a Change that has resulted in the recognition of non-controlling interest. On October 1, 2021, Agora issued restricted common stock to non-employee directors, management, employees and advisors. As a result of the restricted common share issuances, the Company owns now owns less than 100% of Agora (approximately 90.1%), The Company expects it will continue to control Agora until it completes the distribution of Agora common stock to its security holders described above; after that event occurs, it may still have sufficient equity ownership to control Agora unless one or more third parties acquire a larger equity position.
There were no changes in the three months ended June 30, 2022 related to the non-controlling interest the Company has in Agora.
Reclassifications
The Company has reclassified certain amounts in the June 30, 2021 condensed consolidated financial statements to be consistent with the June 30, 2022 presentation, including the reclassification of Barrier Crest, TCM, and White River assets and liabilities from continuing operations to held for sale and reclassifications of operations of Barrier Crest, TCM, and White River to discontinued operations. The March 31, 2022 consolidated balance sheet has been reclassified to include the assets and liabilities held for sale for White River as well. Additionally, we have removed all rounding of amounts and shares from the June 30, 2021 presentation to conform to the June 30, 2022 presentation. These changes had no impact on the Company’s financial position or result of operations for the periods presented.
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 sheet. In October 2021, with the issuance of restricted common stock to directors, management and advisors, the Company no longer owns 100% of Agora. As of June 30, 2022 and March 31, 2022, approximately 9.1% is reflected as non-controlling interest of that entity.
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 uncollectible accounts receivable, fair value of assets held for sale and assets and liabilities acquired, impaired value of equipment and intangible assets, including goodwill, asset retirement obligations, estimates of discount rates in lease, liabilities to accrue, fair value of derivative liabilities associated with warrants, cost incurred in the satisfaction of performance obligations, permanent and temporary differences related to income taxes and determination of the fair value of stock awards.
Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.
The following five steps are applied to achieve that core principle:
In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met: The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct), and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).
If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.
The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. When determining the transaction price, an entity must consider the effects of all of the following:
Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The standalone selling price is the price at which the Company would sell a promised service separately to a customer. The relative selling price for each performance obligation is estimated using observable objective evidence if it is available. If observable objective evidence is not available, the Company uses its best estimate of the selling price for the promised service. In instances where the Company does not sell a service separately, establishing standalone selling price requires significant judgment.
The Company estimates the standalone selling price by considering available information, prioritizing observable inputs such as historical sales, internally approved pricing guidelines and objectives, and the underlying cost of delivering the performance obligation. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.
Management judgment is required when determining the following: when variable consideration is no longer probable of significant reversal (and hence can be included in revenue); whether certain revenue should be presented gross or net of certain related costs; when a promised service transfers to the customer; and the applicable method of measuring progress for services transferred to the customer over time.
The Company recognizes revenue upon satisfaction of its performance obligation at a point in time in accordance with ASC 606-10-25-30 for its contracts in its Commodities segment or over time in accordance with ASC 606-10-25-27 for its contracts with mining pool operators.
The Company accounts for incremental costs of obtaining a contract with a customer and contract fulfillment costs in accordance with ASC 340-40, Other Assets and Deferred Costs. These costs should be capitalized and amortized as the performance obligation is satisfied if certain criteria are met. The Company elected the practical expedient, to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that would otherwise have been recognized is one year or less, and expenses certain costs to obtain contracts when applicable. The Company recognizes an asset from the costs to fulfill a contract only if the costs relate directly to a contract, the costs generate or enhance resources that will be used in satisfying a performance obligation in the future and the costs are expected to be recovered. The Company recognizes the cost of sales of a contract as expense when incurred or when a performance obligation is satisfied. The incremental costs of obtaining a contract are capitalized unless the costs would have been incurred regardless of whether the contract was obtained, are not considered recoverable, or the practical expedient applies.
Bitcoin Mining
The discussion here should be understood as being applicable while Agora was conducting mining operations which it temporarily ceased beginning March 3, 2022, and will apply at such time as it mines again. As consideration for providing computing power, Agora received Bitcoin from the mining pool in which it participates. Income from Bitcoin mining (mining earnings are made up of the baseline block reward and transaction fees, defined as “rewards”) which is measured based on the fair value of the Bitcoin received.
Providing computing power in Bitcoin transaction verification services (known as “mining”) is an output of Agora’s ordinary activities. The provision of computing power is the only performance obligation in Agora’s contracts with mining pool operators, its customers. At such time as Agora re-commences mining activities, it will recognize income from Bitcoin mining for the provision of computing power upon satisfaction of its performance obligation. As consideration for the provision of computing power, Agora is entitled to payment in Bitcoin, which is a form of noncash consideration. Noncash consideration is measured at fair value at contract inception. Fair value of the Bitcoin consideration is determined using the quoted price on Agora’s primary trading platform of the Bitcoin at the beginning of the contract period, which is considered to be the beginning of each twenty-four-hour period (at contract inception). Specifically, fair value at contract inception is based on the market price at the beginning of the contract term, at the single Bitcoin level (one Bitcoin). This amount is recognized in revenue over the contract term as hash rate is provided. Changes in the fair value of the noncash consideration due to form of the consideration (changes in the market price of Bitcoin) are not included in the transaction price and hence are not included in revenue. Changes in fair value of the noncash consideration post-contract inception that are due to reasons other than form of consideration (other than changes in the market value of bitcoin) are measured based on the guidance on variable consideration, including the constraint on estimates of variable consideration.
Because the consideration to which Agora expects to be entitled for providing computing power is entirely variable, as well as being noncash consideration, the Company assesses the estimated amount of the variable noncash consideration to which it expects to be entitled for providing computing power at contract inception and subsequently, to determine when and to what extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur once the uncertainty associated with the variable consideration is subsequently resolved (the “constraint”). Only when significant revenue reversal is concluded probable of not occurring can estimated variable consideration be included in revenue. Based on evaluation of likelihood and magnitude of a reversal in applying the constraint, the estimated variable noncash consideration is constrained from inclusion in revenue until the end of the contract term, when the underlying uncertainties have been resolved and number of Bitcoin to which Agora is entitled becomes known.
Bitcoin is recorded on the consolidated balance sheet, as intangible asset — Bitcoin.
Agora has entered into a Bitcoin mining pool with the mining pool operator F2Pool, to provide computing power to the mining pool. The arrangement is terminable at any time by either party and Agora’s enforceable right to Bitcoin compensation only begins when Agora provides computing power to the mining pool operator.
Agora’s performance obligation extends over the contract term given the Company’s continuous provision of hash rate. This period of time corresponds with the period of service for which the mining pool operator determines compensation due Agora. Given cancelation terms of the contracts, all contracts effectively provide Agora with the option to renew for successive contract terms of twenty-four hours. The options to renew are not material rights because they are offered at the standalone selling price of computing power. In exchange for providing computing power, Agora is entitled to consideration equal to a fractional share of the fixed Bitcoin reward the mining pool operator receives (referred to as a “block reward”) after such amount has been reduced by a digital asset transaction fee retained by the mining pool operator, and potentially network transaction fees. Agora’s fractional share is based on the proportion of computing power Agora contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm, over the contract term. Agora is entitled to compensation for providing computing power to a mining pool even if a block is not successfully placed. The block reward provides an incentive for Bitcoin miners to process transactions made with Bitcoin. Creating an immutable record of these transactions is vital for Bitcoin to work as intended. The blockchain is like a decentralized bank ledger, one that cannot be altered after being created. The miners are needed to verify the transactions and keep this ledger up to date. Block rewards, and to a lesser extent, network transaction fees, are their payment for doing so.
The terms of the agreement with the mining pool operator provide that neither party can dispute settlement terms after thirty-five days following settlement.
For the mining pool in which Agora participates, Agora is entitled to a transaction price, calculated by Agora’s mining pool operator. Specifically, the mining pool operator determines the amount of block rewards to which Agora is entitled by using the Pay-Per-Shares-Plus (PPS+) payment method, retaining 2.5% to cover costs of operating the pool (the “digital asset transaction fee”), and includes network transaction fees as applicable. When Agora’s number of Bitcoin reaches the minimum threshold of 0.005 Bitcoin, Agora receives a payout and the pool transfers the Bitcoin consideration to Agora’s designated wallet within 8 hours, between 00:00 and 08:00 UTC.
The PPS+ payment method pays miners for the number of shares they contribute to the pool (effectively, the amount of computing power provided to the pool) plus network transaction fees. Shares can be described as discrete amounts of valid work each miner or mining farm contributes to the pool. The value of each share contributed is determined by the Bitcoin’s current network difficulty and the number of total shares contributed from miners and mining farms. Bitcoin rewards are received regardless if a pool successfully found a block because the mining pool operator understands that, probabilistically, blocks will be successfully found in a statistically predictable manner by the pool depending on the total amount of hashing power (shares) contributed by the miners and mining farms and therefore, pays out as if a block was found. This is a strategy that provides regular payments to miners and allows consistent payouts.
Network transaction fees, however, are paid out based on blocks actually found and solved and therefore the network transaction fee revenue is not consistently paid out. We expect that network transaction fees will be a very small contributor to total miner Bitcoin rewards.
Agora’s cost of Bitcoin revenue consists primarily of direct costs of earning the Bitcoin related to mining operations, namely electric power costs, other utilities, labor, insurance whether incurred directly from self-mining operations or reimbursed, including any revenue sharing arrangements under hosting agreements, but excluding depreciation and amortization, which are separately stated in the Company’s Consolidated Statement of Operations.
Commodities
The Company recognized revenue for their proportionate share of oil and gas drilling revenue when: (i) the Company receives notification of the successful sale of a load of crude oil to a buyer; (ii) the buyer will provide a price based on the average monthly price of crude oil in the most recent month; and (iii) cash is received the following month from the crude oil buyer.
Cost of sales for Pinnacle Frac includes all direct expenses incurred to produce the revenue for the period. This includes, but is not limited to, direct employee labor, direct contract labor and fuel.
Revenue under master service agreements is recorded upon the performance obligation being satisfied. Typically, the satisfaction of the performance obligation occurs upon the frac sand load being delivered to the customer site and this load being successfully invoiced and accepted by the Company’s factoring agent.
Accounts Receivable and Concentration of Credit Risk
The Company considers accounts receivable, net of allowance for doubtful accounts, to be fully collectible. The allowance is based on management’s estimate of the overall collectability of accounts receivable, considering historical losses, credit insurance 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, however credit insurance is obtained for some customers. Past-due status is based on contractual terms.
For Pinnacle Frac, accounts receivable is comprised of unsecured amounts due from customers that have been conveyed to a factoring agent for both with and without recourse. Pinnacle Frac receives an advance from the factoring agent of 98% of the amount invoiced to the customer within one business day. The Company recognizes revenue for 100% of the gross amount invoiced, records an expense for the 2% finance charge by the factoring agent, and realizes cash for the 98% net proceeds received.
Fair Value Measurements
ASC 820 Fair Value Measurements defines fair value, establishes a framework for measuring fair value in accordance with U.S. generally accepted accounting principles (“GAAP”), and expands disclosure about fair value measurements. ASC 820 classifies these inputs into the following hierarchy:
The carrying values of the Company’s financial instruments such as cash, accounts payable, and accrued expenses approximate their respective fair values because of the short-term nature of those financial instruments.
Bitcoin assets will be presented in current assets. Fair value will be determined by taking the price of the coins from the trading platforms which Agora will most frequently use.
Bitcoin
Bitcoin is included in current assets in the consolidated balance sheets as intangible assets with indefinite useful lives. Bitcoin is recorded at cost less impairment.
The Company accounts for Agora’s Bitcoin as indefinite-lived intangible assets in accordance with Accounting Standards Codification (“ASC”) 350, Intangibles – Goodwill and Other. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value.
The Company determines the fair value of Agora’s Bitcoin on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement, based on quoted prices on the active trading platform that Agora has determined is its principal market for Bitcoin (Level 1 inputs). Agora performs an analysis each day comparing the carrying amount of the Agora’s Bitcoin with their fair value based on the lowest market price that day at the single Bitcoin level (one bitcoin). The excess, if any, represents a recognized impairment loss. Impairment losses are recorded in the line item “Bitcoin impairment losses” in the Company’s Consolidated Statements of Operations.
To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted. Bitcoin awarded to Agora through its mining activities are included as an adjustment to reconcile net loss to cash provided by (or used in) operating activities on the accompanying Consolidated Statements of Cash Flows. The sales (if any) of Bitcoin are included within investing activities in the accompanying Consolidated Statements of Cash Flows and any realized gains or losses (if any) from such sales are included in operating income in the Company’s Consolidated Statement of Operations. The Company accounts for sales of Bitcoin in accordance with the first in first out (FIFO) method of accounting.
Impairment losses related to Bitcoin is included in the Bitcoin Mining segment.
Impairment of Long-lived Assets
Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the undiscounted future cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Segment Information
The Company follows the provisions of ASC 280-10 Segment Reporting. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions. The Company and its chief operating decision makers determined that the Company’s operations effective with the May 31, 2019, acquisition of Trend Holdings and the March 27, 2020 acquisition of Banner Midstream consisted of three segments, Financial, Commodities and Technology. Effective July 1, 2021, the Company’s chief operating decision makers in discussion with the finance team determined that the Company would add a fourth reporting segment to account for their Bitcoin mining business. Additionally, on July 1, 2021 the Company now reports its home office costs into the Commodity segment, and charged its Technology segment a monthly overhead fee, and has recorded typical overhead expenses in their Bitcoin Mining segments to account for this home office allocation.
The Company classified their reporting segments in these three divisions through March 31, 2022, when the Company determined that pursuant to ASC 205-20-45-1E that the operations related to the Financial Services segment would be reclassified as held for sale as those criteria identified in the pronouncement had been satisfied as of June 8, 2022. Under ASC 855-10-55, the Company has reflected the reclassification of assets and liabilities of these entities as held for sale and the operations as discontinued operations as of and for the year ended March 31, 2022. As a result of this reclassification, the Company’s segment reporting has removed the Financing segment for the three months ended June 30, 2021. Effective April 1, 2022, the Company has classified their segments in the Commodity Segment, Technology Segment and Bitcoin Mining Segment. They now charge a monthly overhead charge to the Technology Segment and to the Transportation component and Oil and Gas Production component (each part of the Commodities Segment). On July 25, 2022, the Company sold its oil and gas production business (White River) which is part of the Commodities segment. The Company determined that pursuant to ASC 205-20-45-1E that the operations related to White River’s oil and gas production business would be reclassified as held for sale as those criteria identified in the pronouncement had been satisfied as of July 25, 2022. Under ASC 855-10-55, the Company has reflected the reclassification of assets and liabilities of these entities as held for sale and the operations as discontinued operations as of and for the three months ended June 30, 2022.
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 (loss) 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, so only the basic weighted average number of common shares are used in the computations.
The Company has adjusted the diluted EPS for the three months ended June 30, 2021 for warrants classified as derivative liabilities in accordance with ASC 260-10-45 as follows. No calculation is necessary for the three months ended June 30, 2022 because to do so would be anti-dilutive.
Derivative Financial Instruments
The Company does not currently use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks, but may explore hedging oil prices in the current fiscal year. Management evaluates all of the Company’s financial instruments, including warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The Company generally uses a Black-Scholes model, as applicable, to value the derivative instruments at inception and subsequent valuation dates when needed. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-measured at the end of each reporting period. The Black-Scholes model is used to estimate the fair value of the derivative liabilities.
Recently Issued Accounting Standards
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contract’s in an Entity’s Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU simplifies the diluted net income per share calculation in certain areas.
The ASU is effective for annual and interim periods beginning after December 31, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company does not believe this new guidance will have a material impact on its consolidated financial statements.
In May 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-04 “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815- 40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” which clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. An entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as follows: i) for a modification or an exchange that is a part of or directly related to a modification or an exchange of an existing debt instrument or line-of-credit or revolving-debt arrangements (hereinafter, referred to as a “debt” or “debt instrument”), as the difference between the fair value of the modified or exchanged written call option and the fair value of that written call option immediately before it is modified or exchanged; ii) for all other modifications or exchanges, as the excess, if any, of the fair value of the modified or exchanged written call option over the fair value of that written call option immediately before it is modified or exchanged. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. The Company does not believe this new guidance will have a material impact on its consolidated financial statements.
The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
Liquidity
For the three months ended June 30, 2022 and 2021, the Company had a net income (loss) of $(10,196,534) and $2,559,525, respectively, has a working capital deficit of $864,794 and $8,394,850 as of June 30, 2022 and March 31, 2022, and has an accumulated deficit as of June 30, 2022 of $(169,064,738). As of June 30, 2022, the Company has $8,325,121 in cash and cash equivalents which includes $3,000,000 transferred to White River prior to the Fortium sale.
See Note 13, “Mezzanine Equity” for information on the Company’s recent $12 million convertible preferred stock financing. That financing has restrictive covenants that require approval of the investor for the Company to engage in any equity or debt financing, and it is not likely approval for any financing will be obtained unless from such investor.
The Company’s ability to raise additional capital will also be impacted by the SEC’s proposed climate change rules which are expected to become effective in the 2023 fiscal year and may also be impacted by the COVID-19 pandemic including the current supply chain shortages.
The Company believes that the current cash on hand and anticipated cash from operations is sufficient to conduct planned operations for one year from the issuance of the consolidated financial statements.
Impact of COVID-19
COVID-19 has had a profound effect on the U.S. and global economy and may continue to affect the economy and the industries in which we operate, depending on the vaccine and booster rollouts and the emergence of virus mutations.
COVID-19 did not have a material effect on the Consolidated Statements of Operations or the Consolidated Balance Sheets for the three months ended June 30, 2022 or year ended March 31, 2022 in contrast to the material impact it had in the prior fiscal year.
COVID-19 has also contributed to the supply chain disruptions which have not yet had a material effect for the Company. The Company will continue to monitor the supply chain shortages affecting its business.
The extent to which COVID-19 may impact the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) includes, among other things, provisions relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act also established a Paycheck Protection Program (“PPP”), whereby certain small businesses are eligible for a loan to fund payroll expenses, rent and related costs. We had received funding under the PPP, and a majority of that has been forgiven. |
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| DISCONTINUED OPERATIONS | NOTE 2: DISCONTINUED OPERATIONS
On June 17, 2022, the Company sold Trend Discovery to an entity formed by the investment manager of Trend Discovery LP and Trend Discovery SPV for a three-year $4,250,000 secured note (see Note 4). Each of the Trend Discovery subsidiaries including Barrier Crest guaranteed the note and provided Agora with a first lien on its assets. The Company accounted for this sale as a disposal of the business under ASC 205-20-50-1(a). The Company had reclassified the operations of Barrier Crest and Trend Discovery Capital Management (the other entities were inactive) as discontinued operations as the disposal represents a strategic shift that will have a major effect on the Company’s operations and financial results. The Company made this determination for these segments to be held for sale as the criteria established under ASC 205-20-45-1E had been satisfied as of June 8, 2022. Under ASC 855-10-55, the Company has reflected the reclassification of assets and liabilities of these entities as held for sale and the operations as discontinued operations as of and for the year ended March 31, 2022 as well as for the period April 1, 2022 through June 17, 2022. The Company accounted for this sale as a disposal of the business under ASC 205-20-50-1(a) on June 17, 2022 at which time the gain was recognized. As a result of this reclassification, the Company identified the following assets and liabilities that were reclassified from continuing operations to discontinued operations as they are discontinued.
On July 25, 2022, the Company sold its oil and gas production business (White River) which is part of the Commodities segment. The Company determined that pursuant to ASC 205-20-45-1E that the operations related to the oil and gas production business would be reclassified as held for sale as those criteria identified in the pronouncement had been satisfied as of July 25, 2022. Under ASC 855-10-55, the Company has reflected the reclassification of assets and liabilities of these entities as held for sale and the operations as discontinued operations as of and for the three months ended June 30, 2022.
Current assets as of June 30, 2022 and March 31, 2022 – Discontinued Operations:
Non-current assets as of June 30, 2022 and March 31, 2022 – Held for Sale / Discontinued Operations:
Current liabilities as of June 30, 2022 and March 31, 2022 – Held for Sale / Discontinued Operations:
Non-current liabilities as of June 30, 2022 and March 31, 2022 – Held for Sale / Discontinued Operations:
The Company reclassified the following operations to discontinued operations for the three months ended June 30, 2022 and 2021, respectively.
The following represents the calculation of the gain on disposal of Trend Discovery at June 17, 2022:
As of April 1, 2021, all of the equipment assets and accounts payable of Pinnacle Vac Services LLC (“Pinnacle Vac”) were transitioned into Capstone to continue servicing the debt. |
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| REVENUE | NOTE 3: REVENUE
The Company recognizes revenue when it transfers promised services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those services.
The following table disaggregates the Company’s revenue by major source for the three months ended June 30 for continuing operations:
There were no significant contract asset or contract liability balances for all periods presented. The Company elected the practical expedients in paragraphs 606-10-50-14 and 50-14A and does not disclose the amount of transaction price allocated to remaining performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed, or variable consideration related to future service periods.
Collections of the amounts billed are typically paid by the customers within 30 to 60 days.
Bitcoin Mining
Providing computing power to solve complex cryptographic algorithms in support of Bitcoin blockchains, in a process known as “solving a block”, is an output of the Company’s ordinary activities. The provision of computing power is the only performance obligation in the Company’s contracts with mining pool operators, its customers. When the Company engaged in mining, satisfied its performance obligation over time as it provides computing power.
The contract term is short, limited to the period of time the Company’s miners were contributing to the mining pool computational operations in support of the blockchain, measured in “hash rate” or “hashes per second”. The contract term was the payout period under the Company’s mining pool contracts, which is a twenty-four-hour period. After each contract period, the Company had the right to renew the contract for subsequent, successive payout periods.
Bitcoin received in exchange for providing computing power represents noncash consideration. The fair value of the noncash consideration determined at contract inception was recognized in revenue as the Company performed over the contract term using an output method based on hash rate contributed. Changes in the fair value of the noncash consideration post-contract consideration due to reasons other than form of consideration (that is, other than the price of bitcoin or ether) were estimated under the expected value method but constrained from inclusion in the transaction price (and hence revenue) until end of the contract term when the uncertainty has been resolved and amount was known.
The Company received payment for its provision of hash rate under the Pay-Per-Shares-Plus (“PPS+”) payment method. The payment method contains two components, (1) the block rewards issued by the blockchain network and paid by the mining pool operator, and (2) transaction fees generated from (paid by) blockchain users and distributed (paid out) to individual miners by the mining pool operator. The pool, as a collective entity, develops its own technology that, on one end, gathers individual miner’s hash rate, and on the other end contributes hash rate to the network to compete for block rewards from the network.
For PPS+, as long as individual miners contribute hash rate to the pool, the Company (as an individual miner) is entitled to receive its corresponding amount of block rewards based on the mining pool’s calculation methodology, which is standard across pool operators.
Block rewards are the new coins awarded to Bitcoin miners by the network (bitcoin for the bitcoin network) and is a theoretical number calculated by the mining pool operator based on inputs including difficulty level, network hash rate, and block rewards (for example, 6.25 for Bitcoin). Transaction fees refers to the total fees paid by users of the network to execute transactions.
Digital asset transaction fees are payable to the mining pool operator to cover the costs of maintaining the pool and are deducted from the block reward payout. This fee was deducted from the block reward the Company received and recorded as a reduction of revenue because it does not represent payment for a distinct good or service. |
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Senior Secured Promissory Note Receivable |
3 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Receivables [Abstract] | |
| SENIOR SECURED PROMISSORY NOTE RECEIVABLE | NOTE 4: SENIOR SECURED PROMISSORY NOTE RECEIVABLE
Agora was issued a Senior Secured Promissory Note by Trend Ventures, LP (“Trend Ventures Note”) on June 16, 2022. The Trend Ventures Note was the consideration paid to Agora for the acquisition of Trend Discovery Holdings. The Trend Ventures Note is in the principal amount of $4,250,000, bears interest at the rate of 5% per annum, and matures June 16, 2025. Under Trend Ventures Note, Trend Ventures, LP has agreed to make interest-only payments, in arrears on a monthly basis commencing on June 30, 2022 and continuing thereafter until June 16, 2023. Beginning on June 30, 2023, Trend Ventures, LP agreed to make 24 consecutive equal monthly payments of principal each in an amount which would fully amortize the principal, plus accrued interest. All principal and any unpaid accrued interest will be due and payable on or before the maturity date. The Trend Ventures Note will be granted a first lien senior secured interest as set forth in the Security Agreement executed on the same date as the Trend Ventures Note, by and among Trend Ventures, LP, its future subsidiaries (each a Guarantor) and Agora dated as of June 16, 2022.
As of June 30, 2022, the Company has recognized $8,385 in interest income and accrued interest receivable. |
Bitcoin |
3 Months Ended | ||||||||||||||||||||
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Jun. 30, 2022 | |||||||||||||||||||||
| Bitcoin [Abstract] | |||||||||||||||||||||
| BITCOIN | NOTE 5: BITCOIN
Agora commenced their Bitcoin mining operations in November 2021. Through June 30, 2022, Agora mined 0.57361732 Bitcoins (none in the three months ended June 30, 2022). Agora temporarily ceased Bitcoin mining on March 3, 2022. The value of the Bitcoin mined was $26,495 of which $16,351 has been impaired through June 30, 2022. During the three months ended June 30, 2022, the Company recognized Bitcoin impairment losses of $9,122, to bring the carrying value of the Bitcoin down to its fair value. The carrying value at June 30, 2022 was $10,145, which represents the lowest fair value of the Bitcoins at any time since their mining. Agora did not sell any of its Bitcoin at any point during this period.
The following table presents additional information about Agora’s Bitcoin holdings during the three months ended June 30, 2022:
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Property and Equipment |
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Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PROPERTY AND EQUIPMENT | NOTE 6: PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of June 30, 2022 and March 31, 2022:
As of March 31, 2022, the Company performed an evaluation of the recoverability of these long-lived assets. As a result of the evaluation, there was no impairment of the fixed assets necessary.
On April 1, 2021, the Company placed back in service equipment of $201,388 with accumulated depreciation of $7,484 which were part of discontinued operations related to Pinnacle Vac. These assets are equipment related to Capstone who is servicing the debt related to the assets. The Company has $6,720,809 in assets that have not placed into service as of March 31, 2022.
The Company in April 2021 traded in a truck with a value of $5,447 for a new truck with a value of $2,532 and received cash of $2,500 in the exchange. In February 2022, the Company traded in a vehicle valued at $51,806 for a new vehicle valued at $91,132.
On April 11, 2022, the Company sold equipment of $2,557,172, that had accumulated depreciation of $1,027,148 for a net value of $1,530,024 for $580,000. The result was a loss on sale of $950,024.
Depreciation expense for the three months ended June 30, 2022 and 2021 was $84,561 and $164,975, respectively. |
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Intangible Assets and Goodwill |
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| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INTANGIBLE ASSETS AND GOODWILL | NOTE 7: INTANGIBLE ASSETS AND GOODWILL
Intangible assets consisted of the following as of June 30, 2022 and March 31, 2022:
Amortization expense for the three months ended June 30, 2022 and 2021 was $64,243 and $87,204, respectively.
The following is the future amortization of the intangibles as of June 30:
In addition to the statutory based intangible assets noted above, the Company recorded a total of $7,001,247 of goodwill in connection with the purchase of Banner Midstream. Of this amount, $2,100,374 is included in assets held for sale as it relates to the oil and gas production business.
The Company assessed the criteria for impairment, and there were no indicators of impairment present as of March 31, 2022, and therefore no impairment is necessary. There have been no indicators of impairment present in the three months ended June 30, 2022.
The goodwill from the Trend acquisition of $3,222,799 had been reclassified to non-current assets held for sale as of March 31, 2022. With the June 2022 sale of Trend, this amount was written down and included in gain from disposal in the three months ended June 30, 2022. |
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Power Development Cost |
3 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Power Development Fee [Abstract] | |
| POWER DEVELOPMENT COST | NOTE 8: POWER DEVELOPMENT COST
Agora has paid $1,000,000 each under two separate agreements for two different land sites to a non-related third party for a total of $2,000,000 in connection with the commencement of Bitstream’s Bitcoin mining operations. The payments represent the fee for securing 48 MW and 30 MW, respectively of utility capacity as defined and agreed by ERCOT West Load Zone in the Oncor Electric Delivery Company LLC (“Utility”) at the “one-span” tariff rate classification of “6.1.1.1.5 Primary greater than 10kw”. If the Utility is unable to deliver these terms as defined in the facilities extension agreement, the non-related third party is obligated to secure a new location for Bitstream with at least the stated capacity and same rate tariff. The non-related third party secured the 48 MW and 30 MW of available capacity by signing a distribution facilities extension agreement with the Utility and posting the required collateral.
The $2,000,000 was used to purchase this right to the distribution facilities extension agreement which gives Bitstream immediate access to the 78 MW electric capacity from the Utility.
Bitstream also reimbursed the utility deposits paid by the non-related third party in connection with these agreements in the amount of $96,000 and $326,500, respectively. The power development fees are deemed non-refundable unless the non-related third party cannot find a suitable location within 6 months. Bitstream and the non-related third party are still negotiating a definitive power agreement.
The Company has classified these payments as “Power Development Costs” as a noncurrent asset on the Consolidated Balance Sheets. |
Accrued Liabilities |
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| Accrued Liabilities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACCRUED LIABILITIES | NOTE 9: ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
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Warrant Derivative Liabilities |
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| Warrant Derivative Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| WARRANT DERIVATIVE LIABILITIES | NOTE 10: WARRANT DERIVATIVE LIABILITIES
The Company issued common stock and warrants in several private placements and two public offerings (“Derivative Warrant Instruments”) and some of these warrants have been classified as liabilities. The Derivative Warrant Instruments have been accounted for utilizing ASC 815 “Derivatives and Hedging.” The Company has incurred a liability for the estimated fair value of Derivative Warrant Instruments. The estimated fair value of the Derivative Warrant Instruments has been calculated using the Black-Scholes fair value option-pricing model with key input variables provided by management, as of the date of issuance, with changes in fair value recorded as gains or losses on revaluation in other income (expense).
The Company identified embedded features in some of the warrant agreements which were classified as a liability. These embedded features included (a) the implicit right for the holders to request that the Company settle the warrants in registered shares. Since maintaining an effective registration of shares is potentially outside the control of the Company, these warrants were classified as liabilities as opposed to equity; (b) included the right for the holders to request that the Company cash settle the warrant instruments from the holder by paying to the holder an amount of cash equal to the Black-Scholes value of the remaining unexercised portion of the Derivative Warrant Instruments on the date of the consummation of a fundamental transaction; and (c) certain price protections in the agreements. The accounting treatment of derivative financial instruments requires that the Company treat the whole instrument as liability and record the fair value of the instrument as derivatives as of the inception date of the instrument and to adjust the fair value of the instrument as of each subsequent balance sheet date.
On November 14, 2020, the Company granted 60,000 two-year warrants exercisable at $7.75 per share in exchange for the early conversion of a portion of the September 24, 2020 warrants. The fair value of the November 14, 2020 warrants was estimated to be $251,497 at inception, and $3,666 as of June 30, 2022.
On December 30, 2020, the Company granted 888,889 two-year warrants, with a strike price of $10.00, in the registered direct offering. The fair value of those warrants was estimated to be $4,655,299 at inception. During the three months ended March 31, 2021, 176,000 warrants were exercised for $1,760,000, and no shares were exercised during the year ended March 31, 2022 and three months ended June 30, 2022. The fair value of the remaining warrants at June 30, 2022 is $44,726.
On December 30, 2020, the Company granted 62,222 two-year warrants to the placement agent as additional compensation in connection with the registered direct offering closed December 31, 2020, exercisable at a strike price of $11.25 per share. The fair value of those warrants was estimated to be $308,205 at inception and $2,849 as of June 30, 2022.
The fair value of the 200,000 warrants that remain outstanding from the 250,000 warrants granted on September 24, 2020 as of June 30, 2022 is $1,127.
On June 30, 2021, the Company granted 200,000 two-year warrants with a strike price of $10.00 per share, pursuant to a purchase agreement entered into the same day with the warrant holder. The fair value of those warrants was estimated to be $545,125 at inception, on June 30, 2021 and $54,291 as of June 30, 2022.
On August 6, 2021, the Company closed a $20,000,000 registered direct offering. The Company sold 3,478,261 shares of common stock and 3,478,261 warrants at $5.75 per share. The warrants are exercisable through April 8, 2025. The Company also issued the placement agent 243,478 warrants exercisable at $7.1875 per share. Further information on the offering and compensation to the placement agent is contained in the prospectus supplement dated August 4, 2021. The fair value of the investor warrants was estimated to be $11,201,869 at inception and $4,331,296 as of June 30, 2022. The fair value of the placement agent warrants was estimated to be $744,530 at inception and $274,207 as of June 30, 2022.
The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of June 30, 2022 and 2021. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate.
Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each warrant is estimated using the Black-Scholes valuation model. The following assumptions were used on June 30, 2022, March 31, 2022 and at inception:
The Company’s remaining derivative liabilities as of June 30, 2022 and March 31, 2022 associated with warrant offerings are as follows. All fully extinguished warrants liabilities are not included in the chart below.
During the three months ended June 30, 2022 and 2021 the Company recognized changes in the fair value of the derivative liabilities of $(393,532) and $4,945,819, respectively. In addition, the Company recognized $0 and $545,125 in expenses related to the warrants granted for the three months ended June 30, 2022 and 2021.
Activity related to the warrant derivative liabilities for the three months ended June 30, 2022 is as follows:
Activity related to the warrant derivative liabilities for the three months ended June 30, 2021 is as follows:
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Long-Term Debt |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LONG-TERM DEBT | NOTE 11: LONG-TERM DEBT
Long-term debt consisted of the following as of June 30, 2022 and March 31, 2022. All debt instruments repaid during the year ended March 31, 2022 are not included in the below chart and the chart only reflects those instruments that had a balance owed as of these dates.
The following is a list of maturities as of June 30:
During the three months ended June 30, 2022, the Company received proceeds of $487,500, repaid $1,029,848, secured notes payable for trucks valued at $149,937, and incurred $17,681 in commitment fees added to the credit facility with Trend Discovery SPV 1, LLC.
During the three months ended June 30, 2021, the Company repaid $213,957.
Interest expense on long-term debt during the three months ended June 30, 2022 and 2021 are $38,018 and $22,860, respectively. |
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Notes Payable - Related Parties |
3 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Notes Payable - Related Parties [Abstract] | |
| NOTES PAYABLE - RELATED PARTIES | NOTE 12: NOTES PAYABLE - RELATED PARTIES
Notes payable to related parties consisted of the following as of March 31, 2022 and 2021. All notes payable to related parties instruments repaid during the year ended March 31, 2022 are not included in the below chart and the chart only reflects those instruments that had a balance owed as of these dates.
A Board member advanced $577,500 to the Company through August 8, 2021, under the terms of notes payable that bears interest at rates ranging between 10% and 15% interest per annum. On August 9, 2021, the Company repaid the entire $577,500 to the Board member with accrued interest of $42,535. Interest expense on the notes for the three months ended June 30, 2021 was $17,514.
An officer of the Company advanced $116,000 and was repaid this amount during the year ended March 31, 2022, and $25,000 was advanced and repaid during the year ended March 31, 2022 from an officer of Agora. In the three months ended June 30, 2022, the Company’s Chief Executive Officer and Chief Financial Officer advanced a total of $591,000 which was fully repaid in the same period; and an officer of Agora advanced $25,000 which was fully repaid in the same period. These were short-term advances and no interest was charged as the amounts were outstanding for just a few weeks. |
Mezzanine Equity |
3 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Mezzanine Equity [Abstract] | |
| MEZZANINE EQUITY | NOTE 13: MEZZANINE EQUITY
On June 8, 2022, the Company entered into a Securities Purchase Agreement (the “Agreement”) with Digital Power Lending, LLC, a California limited liability company (the “Purchaser”), pursuant to which the Company sold the Purchaser 1,200 shares of Series A Convertible Redeemable Preferred Stock (the “Ecoark Series A”), 102,881 shares of common stock (the “Commitment Shares”) and a warrant to purchase shares of common stock (the “Warrant,” and together with the Ecoark Series A and the Commitment Shares, the “Securities”) for a total purchase price of $12,000,000. The Purchaser is a subsidiary of BitNile Holdings, Inc. [NYSE American: NILE]. The Company determined that the classification of the Ecoark Series A is Mezzanine Equity as the option to convert the shares belongs to the Purchaser. A description of the material transaction components are as follows:
Ecoark Series A
Conversion Rights
Each share of Ecoark Series A has a stated value of $10,000 and is convertible into shares of common stock at a conversion price of $2.10 per share, subject to certain adjustment provisions. The holder’s conversion of the Ecoark Series A is subject to a beneficial ownership limitation of 19.9% of the issued and outstanding common stock as of any conversion date of the Ecoark Series A, unless and until the Company obtains shareholder and The Nasdaq Stock Market (“Nasdaq”) approval for the conversion of more than that amount, in order to comply with Nasdaq Rules. In addition, the conversion rights in general did not become effective until July 23, 2022, which is one day after the record date for the shareholders meeting seeking such shareholder approval. The shares of Ecoark Series A as amended are also subject to a 4.99% beneficial ownership limitation, which may be increased to up to 9.9% by the holder by giving 61 days’ notice to the Company.
Voting Rights
The Ecoark Series A is entitled to vote with the common stock as a single class on an as-converted basis, subject to applicable law and the Nasdaq Rules. In addition, as long as the holder continues to hold at least 25% of the shares of Ecoark Series A issued to it on the issuance date, the holder is entitled to elect a number of directors to the Company’s Board equal to a percentage determined by (i) the number of Ecoark Series A beneficially owned by the holder, calculated on an “as converted” basis, (ii) divided by the sum of the number of shares of common stock outstanding plus the number of Ecoark Series A outstanding on an “as converted” basis; and such director(s) so elected may only be removed without cause by the affirmative vote of the holder. Initially, the Purchaser may designate one director.
The holders of record of the shares of common stock and of any other class or series of voting stock (including the Ecoark Series A), exclusively and voting together as a single class, are entitled to elect the balance of the total number of directors of the Company. The Purchaser is not eligible to vote at the shareholders meeting on the proposal to approve the issuance of more than 19.9% of shares outstanding on June 8, 2022.
Dividend Rights
The holder of shares of the Ecoark Series A is entitled to receive cumulative cash dividends at an annual rate of 12.6% of the stated value, which is equivalent to $1,260 per year per share, payable monthly beginning on the issuance date and continuing until the earlier of (a) June 8, 2024, and (b) the date on which the holder no longer holds any shares of Ecoark Series A.
If the Company fails to make one or more dividend payments, whether or not consecutive, a default dividend rate of 18% per annum will apply until all accumulated dividend payments have been made.
Liquidation Rights
The shares of Ecoark Series A have a liquidation preference over the common stock and any subsequent series of junior preferred stock of $1,200 per share of Ecoark Series A, plus accrued but unpaid dividends.
Redemption
At any time beginning on or after June 8, 2024, the holder of Ecoark Series A may cause the Company to redeem some or all of the shares of Ecoark Series A it holds at a redemption price of $1,200 per share, plus any accumulated and unpaid dividends thereon.
Negative Covenants and Approval Rights
The Ecoark Series A Certificate of Designation (the “Certificate”) subjects the Company to negative covenants restricting its ability to take certain actions without prior approval from the holder(s) of a majority of the outstanding shares of Ecoark Series A for as long as the holder(s) continue to hold at least 25% (or such higher percentage as set forth in the Certificate (as defined below)) of the Ecoark Series A shares issued on the closing date under the Agreement. These restrictive covenants include the following actions by the Company, subject to certain exceptions and limitations:
(i) payment or declaration of any dividend (other than pursuant to the Ecoark Series A Certificate);
(ii) investment in, purchase or acquisition of any assets or capital stock of any entity for an amount that exceeds $100,000 in any one transaction or $250,000, in the aggregate;
(iii) issuance of any shares of common stock or other securities convertible into or exercisable or exchangeable for shares of common stock;
(iv) incurrence of indebtedness, liens, or guaranty obligations, in an aggregate amount in excess of $50,000 in any individual transaction or $100,000 in the aggregate with customary exceptions.
(v) sale, lease, transfer or disposal of any of its properties having a value calculated in accordance with GAAP of more than $50,000;
(vi) increase in any manner the compensation or fringe benefits of any of its directors, officers, employees; and
(vii) merger or consolidation with, or purchase a substantial portion of the assets of, or by any other manner the acquisition or combination with any business or entity.
The above and other negative covenants in the Series A Certificate do not apply to a reverse merger with an entity with securities quoted on a market operated by OTC Markets or listed on a national securities exchange.
Warrant
The Warrant, as amended and filed on July 15, 2022, provides the Purchaser or its assignees (the “Holder”) with the right to purchase a number of shares of common stock as would enable the holder together with its affiliates to beneficially own 49% of the Company’s common stock, calculated on a fully diluted basis, at an exercise price of $0.001 per share, including the Commitment Shares and Conversion Shares unless sold. Subject to shareholder approval, the Warrant shall vest and becomes exercisable into shares of the Company’s stock if as of June 8, 2024: (i) the Company has failed to complete the distributions to the Company’s security holders or to any other subsidiary of the Company’s equity ownership of its three principal subsidiaries: Agora, Banner Midstream and Zest Labs (or their principal subsidiaries) (the “Distributions”), and/or (ii) the Holder together with its affiliates does not beneficially own at least 50% of the Company’s outstanding common stock. Provided, the Company must retain 20% of its common stock of Agora. The Warrant may be exercised on a cashless basis and expires on June 8, 2027. In the event that the Company or its transfer agent fails to issue the shares of common stock within three business days following delivery of a notice of exercise, the Warrant provides that the Company must pay the Holder a fee of $2.4 million. The Warrant shall not be exercisable prior to vesting.
Based upon the terms of the Warrant, the Company has concluded the Warrant is classified as a liability pursuant to ASC 480. However, since the vesting and exercise of the Warrant is subject to shareholder approval, which is outside the control of the Company, the Company has concluded that, when and if the Warrant vests, the Company will account for the Warrant as a liability pursuant to ASC 480.
Registration Rights
Pursuant to the Agreement, the Company has agreed to register the sale by the Purchaser of up to 5,246,456 shares of common stock, representing the Commitment Shares issued at the closing plus 5,143,575 of the shares of common stock issuable upon conversion of the Ecoark Series A. This amount equals 19.9% of the Company’s outstanding common stock immediately prior to the closing. The Company registered the sale by filing a prospectus supplement pursuant to the Company’s registration statement on Form S-3 (File No. 333-249532), originally filed with the SEC on October 16, 2020, as amended, which became effective on December 29, 2020, and the base prospectus included therein.
The value of the Commitment Shares of $193,416 were considered issuance costs and have been reflected in the total for Mezzanine Equity of $11,806,584 as of June 30, 2022.
The description above is not a substitute for reviewing the full text of the referenced documents, which were attached as exhibits to the Company’s Current Report on Form 8-K as filed with the SEC on June 9, 2022 and the Company’s Current Report on Form 8-K as filed with the SEC on July 15, 2022 when we filed the Amended Warrant and the Second Amendment to the Ecoark Series A Certificate. |
Stockholders’ Equity (Deficit) |
3 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Stockholders' Equity Note [Abstract] | |
| STOCKHOLDERS’ EQUITY (DEFICIT) | NOTE 14: STOCKHOLDERS’ EQUITY (DEFICIT)
Ecoark Holdings Preferred Stock
On March 18, 2016, the Company created 5,000,000 shares of “blank check” preferred stock, par value $0.001.
As of March 31, 2022, there were no shares of any series of preferred stock issued and outstanding. On June 8, 2022, as noted in Note 13, “Mezzanine Equity”, the Company issued 1,200 Series A Preferred shares, and as of June 30, 2022, there are 1,200 shares of preferred stock issued and outstanding.
Ecoark Holdings Common Stock
The Company is authorized to issue 40,000,000 shares of common stock, par value $0.001. Effective with the opening of trading on December 17, 2020, the Company implemented a one-for-five reverse split of its issued and outstanding common stock and a simultaneous proportionate reduction of its authorized common stock. All share and per share figures are reflected on a post-split basis herein. Effective December 29, 2020, the Company amended its articles of incorporation to reduce its authorized common stock from 40,000,000 shares to 30,000,000 shares. On August 6, 2021, the Company’s board of directors approved the increase of the authorized common shares to 40,000,000. The increase became effective on October 8, 2021, following the approval in a Special Meeting of Ecoark Holdings’ Stockholders.
In the three months ended June 30, 2021, the Company issued 114,796 shares of common stock which had been accrued for at March 31, 2021 in consulting fees under a contract entered into February 2, 2021. In addition, the Company issued 20,265 shares of common stock for the exercise of stock options.
In the three months ended June 30, 2022, the Company issued 102,881 shares of common stock which were the commitment shares in the BitNile transaction as discussed in Note 13.
As of June 30, 2022, 26,466,980 shares of common stock were issued and 26,349,865 shares of common stock were outstanding, net of 117,115 treasury shares.
Agora Common Stock
Agora is authorized to issue 250,000,000 shares of common stock, par value $0.001. On September 22, 2021, the Company purchased 100 shares of Agora for $10.
On October 1, 2021, the Company purchased 41,671,121 shares of Agora common stock for $4,167,112 which Agora used to purchase equipment to commence the Bitstream operations.
In addition, between October 1 and December 7, 2021, Agora issued 4,600,000 restricted common shares to its management, non-employee directors, employees and advisors. After issuance of these shares, Ecoark controls approximately 90% of Agora. The future stock-based compensation related to these shares that will be measured consists of $12,166,680 over a three-year period in service-based grants ($9,611,145 in year one, $1,861,096 in year two, and $694,436 in year 3) and $10,833,320 in performance based grants ($5,416,660 for the deployment of 20 MW in the State of Texas, and $5,416,660 for the deployment of 40 MW in the State of Texas) for a total of $23,000,000. These restricted common shares were measured pursuant to ASC 718-10-50 at an estimated value per share of $5.00, and consist of both service based and performance based criteria.
Of the 4,600,000 restricted shares of common stock — 2,433,336 shares of restricted stock are considered service grants and 2,166,664 are considered performance grants. The service grants vest over three years as follows: 1,550,010 restricted common shares in one year; 466,665 restricted common shares in two years and 416,661 restricted common shares in three years. On April 12, 2022, Agora upon board of director approval accelerated 250,000 restricted shares that were service based grants with Agora’s former Chief Financial Officer. Only awards granted to management directly related to the Bitcoin mining operation have awards that contain both service and performance conditions. The remaining awards granted, contain only service-based conditions.
The performance grants vest as follows: 1,083,332 restricted common shares upon Agora deploying a 20 MW power contract in Texas; and 1,083,332 restricted common shares upon the Company deploying a 40 MW power contract in Texas. As of March 31, 2022, none of the performance criteria are probable as no contracts have been signed as the proper funding has not been secured, therefore no compensation expense is recognized in accordance with ASC 718-10-25-20 related to the performance grants. On April 12, 2022, Agora upon board of director approval accelerated the vesting of 250,000 restricted shares for deploying a 20 MW power contract in Texas; and 250,000 restricted shares for deploying a 40 MW power contract in Texas with Agora’s former Chief Financial Officer. All remaining performance grants remain unvested.
The Company recognized $5,215,287 in stock-based compensation for the three months ended June 30, 2022, which represented $2,090,287 in service grants related, and $3,125,000 in the accelerated vesting of the former CFO’s grants ($625,000 in service based grants and $2,500,000 in performance grants). The unrecognized stock-based compensation expense as of June 30, 2022 is $8,333,320 in performance based grants and $4,767,637 in service based grants for a total of $13,100,957.
The Company accounts for stock-based payments in accordance with ASC 718, Compensation — Stock Compensation (“ASC 718”). During the year ended March 31, 2022, in addition to the value measured by the 4,600,000 restricted stock grants, stock-based compensation consists primarily of RSUs granted to a Company employee while employed by Ecoark Holdings. The Company measures compensation expense for RSUs based on the fair value of the award on the date of grant. The grant date fair value is based on the closing market price of Ecoark Holdings’ common stock on the date of grant.
Share-based Compensation Expense
Share-based compensation for employees is included in salaries and salary related costs and directors and services are included in professional fees and consulting in the consolidated statement of operations for the three months ended June 30, 2022 and 2021.
Share-based compensation for the three months ended June 30, 2022 and 2021 for stock options and RSUs granted under the 2013 Incentive Stock Plan and 2017 Omnibus Incentive Stock Plan and non-qualified stock options were $182,561 and $399,173, respectively.
There is $182,561 in share-based compensation expense for the three months ended June 30, 2022, and $129,620 in share-based compensation is accrued as of June 30, 2022.
In order to have sufficient authorized capital to raise the $20,000,000, on August 4, 2021, a then officer and director of the Company agreed to cancel stock options in exchange for a lesser number of restricted stock units, subject to future vesting. In accordance with the restricted stock agreement, the director was granted 272,252 RSUs that vest over 12 quarterly increments, in exchange for cancelling 672,499 stock options. In addition, on October 6, 2021, this officer and director received 63,998 additional RSUs. The expense related to the modification of these grants is included in the share-based compensation expense in the year ended March 31, 2022. |
Commitments and Contingencies |
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Jun. 30, 2022 | ||||||||||
| Commitments and Contingencies Disclosure [Abstract] | ||||||||||
| COMMITMENTS AND CONTINGENCIES | NOTE 15: COMMITMENTS AND CONTINGENCIES
Legal Proceedings
We are presently involved in the following legal proceedings. To the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties or businesses are subject, which would reasonably be likely to have a material adverse effect on the Company.
Walmart also filed a motion seeking post-trial discovery of plaintiff’s privileged work-product materials. The Court granted Walmart’s motion and in its June 15 Order the Court required the plaintiffs to produce 52 documents which the plaintiffs contend include privileged material, including mental impressions and opinions of its counsel. Because the June 15 Order denied plaintiffs motion for leave to file an interlocutory appeal on this discovery issue, plaintiffs on June 21, 2022, filed a petition in the United States Court of Appeals for the Eighth Circuit for a writ of mandamus.
In the opinion of management, there are no legal matters involving us that would have a material adverse effect upon the Company’s financial condition, results of operations or cash flows.
Bitstream Commitments on Purchase Obligations
As discussed in the overview of Bitstream in Note 1, Bitstream has entered into a number of agreements for the procurement of land, electricity and equipment. Bitstream has estimated this commitment to be approximately $12-$14 million inclusive of what has been spent to date. |
Concentrations |
3 Months Ended |
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Jun. 30, 2022 | |
| Risks and Uncertainties [Abstract] | |
| CONCENTRATIONS | NOTE 16: CONCENTRATIONS
Customer Concentration. Two and two customers, all in the commodity segment accounted for more than 10% of the accounts receivable balance at June 30, 2022 and March 31, 2022 for a total of 100% and 88% of accounts receivable, respectively. In addition, three and two customers represent approximately 72% and 96% of total revenues for the Company for the three months ended June 30, 2022 and 2021, respectively.
Supplier Concentration. Certain of the raw materials, components and equipment used by the Company in the manufacture of its products are available from single-sourced vendors. Shortages could occur in these essential materials and components due to an interruption of supply or increased demand in the industry. If the Company were unable to procure certain materials, components or equipment at acceptable prices, it would be required to reduce its manufacturing operations, which could have a material adverse effect on its results of operations. In addition, the Company may make prepayments to certain suppliers or enter into minimum volume commitment agreements. Should these suppliers be unable to deliver on their obligations or experience financial difficulty, the Company may not be able to recover these prepayments.
The Company occasionally maintains cash balances in excess of the FDIC insured limit. The Company does not consider this risk to be material.
Commodity price risk
Included in discontinued operations, we are exposed to fluctuations in commodity prices for oil and natural gas. Commodity prices are affected by many factors, including but not limited to, supply and demand. |
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| Fair Value Measurements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FAIR VALUE MEASUREMENTS | NOTE 17: FAIR VALUE MEASUREMENTS
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by U.S. generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:
Level 1 – quoted prices for identical instruments in active markets;
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Financial instruments consist principally of cash, accounts receivable and other receivables, accounts payable and accrued liabilities, notes payable, and amounts due to related parties. The fair value of cash is determined based on Level 1 inputs. There were no transfers into or out of “Level 3” during the three months ended June 30, 2022 and 2021. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. The Company records the fair value of the of the warrant derivative liabilities disclosed in accordance with ASC 815, Derivatives and Hedging. The fair values of the derivatives were calculated using the Black-Scholes Model. The fair value of the derivative liabilities is revalued on each balance sheet date with corresponding gains and losses recorded in other income (expense) in the consolidated statement of operations. The following table presents assets and liabilities that are measured and recognized at fair value on a recurring basis as of:
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Segment Information |
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| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SEGMENT INFORMATION | NOTE 18: SEGMENT INFORMATION
The Company follows the provisions of ASC 280-10 Segment Reporting. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions. The Company and its chief operating decision makers determined that the Company’s operations effective with the May 31, 2019, acquisition of Trend Holdings and the March 27, 2020 acquisition of Banner Midstream consisted of three segments, Financial, Commodities and Technology. Effective July 1, 2021, the Company’s chief operating decision makers in discussion with the finance team determined that the Company would add a fourth reporting segment to account for their Bitcoin mining business. Additionally, on July 1, 2021 the Company now reports its home office costs into the Commodity segment, and charged its Technology segment a monthly overhead fee, and has recorded typical overhead expenses in their Bitcoin Mining segments to account for this home office allocation. The Company classified their reporting segments in these three divisions through March 31, 2022, when the Company determined that pursuant to ASC 205-20-45-1E that the operations related to the Financial Services segment would be reclassified as held for sale as those criteria identified in the pronouncement had been satisfied as of June 8, 2022. Under ASC 855-10-55, the Company has reflected the reclassification of assets and liabilities of these entities as held for sale and the operations as discontinued operations as of and for the year ended March 31, 2022. As a result of this reclassification, the Company’s segment reporting has removed the Financing segment for the three months ended June 30, 2021. Effective April 1, 2022, the Company has classified their segments in the Commodity Segment, Technology Segment and Bitcoin Mining Segment. They now charge a monthly overhead charge to the Technology Segment and to the Transportation component and Oil and Gas Production component (each part of the Commodities Segment).
On July 25, 2022, the Company sold its oil and gas production business (White River) which was part of the Commodities segment. The Company determined that pursuant to ASC 205-20-45-1E that the operations related to the oil and gas production business would be reclassified as held for sale as those criteria identified in the pronouncement had been satisfied as of July 25, 2022. Under ASC 855-10-55, the Company has reflected the reclassification of assets and liabilities of these entities as held for sale and the operations as discontinued operations as of and for the three months ended June 30, 2022.
The charts below represent the continuing operations of the Company before the non-controlling interest, provision for income taxes and preferred stock dividends.
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Leases |
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| Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LEASES | NOTE 19: LEASES
The Company has adopted ASU No. 2016-02, Leases (Topic 842), as of April 1, 2019 and will account for their leases in terms of the right of use assets and offsetting lease liability obligations under this pronouncement. The Company had had only short-term leases up through the acquisition of Banner Midstream. The Company acquired a right of use asset and lease liability on March 27, 2020. The Company recorded these amounts at present value, in accordance with the standard, using discount rates ranging between 2.5% and 11.36%. The right of use asset is composed of the sum of all lease payments, at present value, and is amortized straight line over the life of the expected lease term. For the expected term of the lease the Company used the initial terms ranging between 42 and 60 months. Upon the election by the Company to extend the lease for additional years, that election will be treated as a lease modification and the lease will be reviewed for re-measurement.
The Company has chosen to implement this standard using the modified retrospective model approach with a cumulative-effect adjustment, which does not require the Company to adjust the comparative periods presented when transitioning to the new guidance. The Company has also elected to utilize the transition related practical expedients permitted by the new standard. The modified retrospective approach provides a method for recording existing leases at adoption and in comparative periods that approximates the results of a modified retrospective approach. Adoption of the new standard did not result in an adjustment to retained earnings for the Company.
The Company’s portfolio of leases contains both finance and operating leases that relate primarily to the commodity and Bitcoin mining segments. As of June 30, 2022, the value of the unamortized lease right of use asset is $744,619, of which $264,535 is from financing leases (through maturity at June 30, 2024) and $480,084 is from operating leases (through maturity at October 31, 2026). As of June 30, 2022, the Company’s lease liability was $744,631, of which $259,170 is from financing leases and $485,461 is from operating leases.
Total Lease Cost
Individual components of the total lease cost incurred by the Company is as follows:
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Related Party Transactions |
3 Months Ended |
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Jun. 30, 2022 | |
| Related Party Transactions [Abstract] | |
| RELATED PARTY TRANSACTIONS | NOTE 20: RELATED PARTY TRANSACTIONS
Trend Capital Management was founded in 2011 and through June 30, 2021, was Trend Holding’s primary asset. Trend Capital Management is not the investment manager of these entities, nor the beneficial owner of Ecoark securities held by Trend Discovery LP (“Trend LP”) nor Trend Discovery SPV I, LLC (“Trend SPV”) since it assigned the power to vote and dispose of securities to a third party not affiliated with Ecoark. The investment capital in Trend LP and Trend SPV is from individual limited partners and members, and not from the Company. Trend Capital Management does not have the obligation to absorb losses or the right to receive benefits that could be significant as a result of the entities’ performance. Trend Capital Management does not have any ownership of or a controlling financial interest in Trend LP nor Trend SPV and therefore management has concluded consolidation of these entities with Trend Capital Management is not required. Trend Capital Management provides services and collects fees from entities which include Trend LP and Trend SPV.
Trend Discovery which held Barrier Crest and Trend Capital Management was sold on June 17, 2022.
Jay Puchir, the Company’s Chief Financial Officer, Secretary and Treasurer, served as a consultant to the Company from May 2019 to March 2020 and was paid solely in stock options totaling 40,000 stock options at an exercise price of $3.15 per share. In addition, any outstanding notes with Mr. Puchir have been repaid along with all accrued interest.
Gary Metzger, a director, advanced $577,500 to the Company through March 31, 2020, under the terms of notes payable that bears interest at rates ranging between 10% and 15% interest per annum. These notes along with all accrued interest were repaid in August 2021.
In the Banner Midstream acquisition, Randy S. May, Chief Executive Officer and Chairman, was the holder of approximately $1,242,000 in notes payable by Banner Midstream and its subsidiaries, which were assumed by the Company in the transaction. Additionally, Mr. May held a note payable by Banner Energy in the amount of $2,000,000 in principal and accrued interest, which was converted into 2,740,000 shares of common stock (on a pre-reverse stock split basis) as a result of the transaction. Neither of these amounts remain outstanding.
On August 31, 2021, William B. Hoagland, the then Chief Financial Officer of the Company, and now Chief Executive Officer of Agora, transferred 550,000 shares of Ecoark Holdings common stock to Trend LP, of which Mr. Hoagland owns an approximately 25% of Trend LP. Additionally, Trend SPV holds 344,000 shares of Ecoark Holdings common stock and 460,000 warrants to purchase Ecoark Holdings common stock.
Ecoark Holdings has made periodic loans to Agora to permit it to begin its Bitcoin mining business. On November 13, 2021, Agora issued Ecoark Holdings a $7.5 million term note which accrues 10% per annum interest and is due September 30, 2022. As of June 30, 2022, Agora owed principal of $5,614,367 and interest of $273,537 to Ecoark Holdings. These amounts have been eliminated in consolidation.
On February 2, 2022, Peter Mehring, a director and executive officer, gave notice of his intent to resign as an executive officer and director effective on February 11, 2022. Mr. Mehring resigned as a result of his entering into an Employment Agreement with a leading Internet service company. He also entered into a Consulting Agreement with the Company.
Under the Consulting Agreement, Mr. Mehring will advise the Company (including Zest Labs) on its current intellectual property litigation and matters relating to Zest Lab’s intellectual property as well as provide transition services. The Consulting Agreement is for a one-year term. The Company agreed to pay Mr. Mehring $16,667 per month. His unvested stock awards will continue to vest during the term and the expiration date on any stock awards will be extended for one year following the termination.
Between February 1 and March 1, 2022, Trend Exploration assigned several working interests to Sky3D, LLC, a limited liability company controlled by Randy May, our Chief Executive Officer, in connection with non-interest bearing loans made by Mr. May to us in the amount of $727,737. These loans included $227,737 paid to drill an oil well on a 9,615 acre lease on which the Company is required to drill a well every 270 days and working capital loans. In exchange, Sky3D, LLC assigned the Company a 2.5% working interest in an oil well owned Sky3D, LLC and the loans were cancelled. This transaction occurred because both Agora and Trend Exploration lacked the capital to pay for required drilling by the due date. In exchange, Trend Exploration assigned a small percentage of the ORRI interest to a White River entity. The Company has a $96,000 net receivable due from Sky3D, LLC for expenses incurred on the wells assigned to them.
On April 1, 2022, White River assigned several wells to Third Arm, LLC, a related party. The Company received $999,999 in cash in this transaction. The assignment resulted in a loss of $159,961 which is included in loss from discontinued operations. |
Subsequent Events |
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| Subsequent Events [Abstract] | |||||||||||||||||||
| SUBSEQUENT EVENTS | NOTE 21: SUBSEQUENT EVENTS
Subsequent to June 30, 2022, the Company had the following transactions:
On July 26, 2022, the Company filed a Definitive Proxy Statement with respect to its 2022 Annual Meeting of the Shareholders, being held virtually at t 1:00 p.m., Eastern Time, on September 9, 2022, at which the shareholders of the Company are being asked to approve the following proposals:
On July 25, 2022, the Company entered into a Share Exchange Agreement pursuant to which that day it sold to Fortium its oil and gas production business (White River) which is part of the Commodities segment. The Company determined that pursuant to ASC 205-20-45-1E that the operations related to the oil and gas production business would be reclassified as held for sale as those criteria identified in the pronouncement had been satisfied as of July 25, 2022. Under ASC 855-10-55, the Company has reflected the reclassification of assets and liabilities of these entities as held for sale and the operations as discontinued operations as of and for the three months ended June 30, 2022. The Company will receive 1,200 of Fortium’s Series A Convertible Preferred Stock, which becomes convertible into 42,253,521 shares of Fortium common stock upon such time as (A) Fortium has filed a Form S-1 or Form 10, or other applicable form, with the SEC and such Form S-1 or other registration statement has been declared effective, or such Form 10 or other applicable form is no longer subject to comments from the Staff of the SEC, and (B) Ecoark elects to distribute shares of its common stock to its shareholders. The transaction was previously disclosed in the Company’s Current Report on Form 8-K filed on July 29, 2022.
On August 11, 2022 the Company executed a definitive agreement with HUMBL, Inc. (“HUMBL”) (OTC: HMBL) to transfer up to 100% of the issued and outstanding common stock of its majority owned subsidiary Agora Digital Holdings, Inc. (“Agora Digital”) to HUMBL in exchange for up to 6,000 shares of Series C preferred stock valued at $10,000 per share which will be filed prior to closing. The definitive agreement has certain closing conditions which have yet to be fulfilled at the time of this filing including a closing condition whereby the Company is required to source a minimum of $10,000,000 in capital for HUMBL prior to the transfer of ownership of Agora Digital to HUMBL. The definitive agreement contemplates that some or all of Agora’s minority shareholders, which consists of Agora’s directors, officers and consultants (some of whom are also directors and officers of the Company including our Chief Executive Officer and Chief Financial Officer) owning a total of up to 5,000,000 of the outstanding shares of Agora common stock, may also execute the agreement and exchange their shares of Agora common stock for the HUMBL Series C. Additional details will be provided at a future date via a Form 8-K to be filed by the Company with the definitive agreement and other transaction documents. |
Accounting Policies, by Policy (Policies) |
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| Principles of Consolidation | Principles of Consolidation
On May 31, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Trend Discovery Holdings Inc., a Delaware corporation for the Company to acquire 100% of Trend Discovery Holdings, LLC pursuant to a merger of Trend with and into the Company (the “Merger”). Trend Discovery Holdings, Inc. ceased doing business upon completion of the merger and Trend Discovery Holdings LLC is the subsidiary of the Company. Upon the formation of Agora on September 17, 2021, Ecoark assigned the membership interest they owned in Trend Holdings to Agora on September 22, 2021 when the Company purchased 100 shares of Agora common stock for $10.
As a result of the approval by the Board to divest Agora, the Company, has accounted for this as a disposal other than by sale. Assets to be disposed of other than by sale should continue to be classified as held and used until they are disposed of. Upon disposal, the Company must assess whether the disposed of assets qualify for discontinued operations reporting.
If so, the Company will apply the presentation and disclosure requirements of ASC 205-20, and if not, the Company will apply the presentation and disclosure requirements of ASC 360-10.
On March 27, 2020, the Company and Banner Parent, entered into the Banner Purchase Agreement to acquire Banner Midstream. Pursuant to the acquisition, Banner Midstream became a wholly owned subsidiary of the Company and Banner Parent received shares of the Company’s common stock in exchange for all of the issued and outstanding shares of Banner Midstream.
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—are 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.
The Company has utilized the guidance under ASC 810-10-55-4B, Case A for a Change that has resulted in the recognition of non-controlling interest. On October 1, 2021, Agora issued restricted common stock to non-employee directors, management, employees and advisors. As a result of the restricted common share issuances, the Company owns now owns less than 100% of Agora (approximately 90.1%), The Company expects it will continue to control Agora until it completes the distribution of Agora common stock to its security holders described above; after that event occurs, it may still have sufficient equity ownership to control Agora unless one or more third parties acquire a larger equity position.
There were no changes in the three months ended June 30, 2022 related to the non-controlling interest the Company has in Agora.
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| Reclassifications | Reclassifications
The Company has reclassified certain amounts in the June 30, 2021 condensed consolidated financial statements to be consistent with the June 30, 2022 presentation, including the reclassification of Barrier Crest, TCM, and White River assets and liabilities from continuing operations to held for sale and reclassifications of operations of Barrier Crest, TCM, and White River to discontinued operations. The March 31, 2022 consolidated balance sheet has been reclassified to include the assets and liabilities held for sale for White River as well. Additionally, we have removed all rounding of amounts and shares from the June 30, 2021 presentation to conform to the June 30, 2022 presentation. These changes had no impact on the Company’s financial position or result of operations for the periods presented.
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| Noncontrolling Interests | 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 sheet. In October 2021, with the issuance of restricted common stock to directors, management and advisors, the Company no longer owns 100% of Agora. As of June 30, 2022 and March 31, 2022, approximately 9.1% is reflected as non-controlling interest of that entity.
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| Use of Estimates | 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 uncollectible accounts receivable, fair value of assets held for sale and assets and liabilities acquired, impaired value of equipment and intangible assets, including goodwill, asset retirement obligations, estimates of discount rates in lease, liabilities to accrue, fair value of derivative liabilities associated with warrants, cost incurred in the satisfaction of performance obligations, permanent and temporary differences related to income taxes and determination of the fair value of stock awards.
Actual results could differ from those estimates.
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| Revenue Recognition | Revenue Recognition
The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.
The following five steps are applied to achieve that core principle:
In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met: The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct), and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).
If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.
The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. When determining the transaction price, an entity must consider the effects of all of the following:
Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The standalone selling price is the price at which the Company would sell a promised service separately to a customer. The relative selling price for each performance obligation is estimated using observable objective evidence if it is available. If observable objective evidence is not available, the Company uses its best estimate of the selling price for the promised service. In instances where the Company does not sell a service separately, establishing standalone selling price requires significant judgment.
The Company estimates the standalone selling price by considering available information, prioritizing observable inputs such as historical sales, internally approved pricing guidelines and objectives, and the underlying cost of delivering the performance obligation. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.
Management judgment is required when determining the following: when variable consideration is no longer probable of significant reversal (and hence can be included in revenue); whether certain revenue should be presented gross or net of certain related costs; when a promised service transfers to the customer; and the applicable method of measuring progress for services transferred to the customer over time.
The Company recognizes revenue upon satisfaction of its performance obligation at a point in time in accordance with ASC 606-10-25-30 for its contracts in its Commodities segment or over time in accordance with ASC 606-10-25-27 for its contracts with mining pool operators.
The Company accounts for incremental costs of obtaining a contract with a customer and contract fulfillment costs in accordance with ASC 340-40, Other Assets and Deferred Costs. These costs should be capitalized and amortized as the performance obligation is satisfied if certain criteria are met. The Company elected the practical expedient, to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that would otherwise have been recognized is one year or less, and expenses certain costs to obtain contracts when applicable. The Company recognizes an asset from the costs to fulfill a contract only if the costs relate directly to a contract, the costs generate or enhance resources that will be used in satisfying a performance obligation in the future and the costs are expected to be recovered. The Company recognizes the cost of sales of a contract as expense when incurred or when a performance obligation is satisfied. The incremental costs of obtaining a contract are capitalized unless the costs would have been incurred regardless of whether the contract was obtained, are not considered recoverable, or the practical expedient applies.
Bitcoin Mining
The discussion here should be understood as being applicable while Agora was conducting mining operations which it temporarily ceased beginning March 3, 2022, and will apply at such time as it mines again. As consideration for providing computing power, Agora received Bitcoin from the mining pool in which it participates. Income from Bitcoin mining (mining earnings are made up of the baseline block reward and transaction fees, defined as “rewards”) which is measured based on the fair value of the Bitcoin received.
Providing computing power in Bitcoin transaction verification services (known as “mining”) is an output of Agora’s ordinary activities. The provision of computing power is the only performance obligation in Agora’s contracts with mining pool operators, its customers. At such time as Agora re-commences mining activities, it will recognize income from Bitcoin mining for the provision of computing power upon satisfaction of its performance obligation. As consideration for the provision of computing power, Agora is entitled to payment in Bitcoin, which is a form of noncash consideration. Noncash consideration is measured at fair value at contract inception. Fair value of the Bitcoin consideration is determined using the quoted price on Agora’s primary trading platform of the Bitcoin at the beginning of the contract period, which is considered to be the beginning of each twenty-four-hour period (at contract inception). Specifically, fair value at contract inception is based on the market price at the beginning of the contract term, at the single Bitcoin level (one Bitcoin). This amount is recognized in revenue over the contract term as hash rate is provided. Changes in the fair value of the noncash consideration due to form of the consideration (changes in the market price of Bitcoin) are not included in the transaction price and hence are not included in revenue. Changes in fair value of the noncash consideration post-contract inception that are due to reasons other than form of consideration (other than changes in the market value of bitcoin) are measured based on the guidance on variable consideration, including the constraint on estimates of variable consideration.
Because the consideration to which Agora expects to be entitled for providing computing power is entirely variable, as well as being noncash consideration, the Company assesses the estimated amount of the variable noncash consideration to which it expects to be entitled for providing computing power at contract inception and subsequently, to determine when and to what extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur once the uncertainty associated with the variable consideration is subsequently resolved (the “constraint”). Only when significant revenue reversal is concluded probable of not occurring can estimated variable consideration be included in revenue. Based on evaluation of likelihood and magnitude of a reversal in applying the constraint, the estimated variable noncash consideration is constrained from inclusion in revenue until the end of the contract term, when the underlying uncertainties have been resolved and number of Bitcoin to which Agora is entitled becomes known.
Bitcoin is recorded on the consolidated balance sheet, as intangible asset — Bitcoin.
Agora has entered into a Bitcoin mining pool with the mining pool operator F2Pool, to provide computing power to the mining pool. The arrangement is terminable at any time by either party and Agora’s enforceable right to Bitcoin compensation only begins when Agora provides computing power to the mining pool operator.
Agora’s performance obligation extends over the contract term given the Company’s continuous provision of hash rate. This period of time corresponds with the period of service for which the mining pool operator determines compensation due Agora. Given cancelation terms of the contracts, all contracts effectively provide Agora with the option to renew for successive contract terms of twenty-four hours. The options to renew are not material rights because they are offered at the standalone selling price of computing power. In exchange for providing computing power, Agora is entitled to consideration equal to a fractional share of the fixed Bitcoin reward the mining pool operator receives (referred to as a “block reward”) after such amount has been reduced by a digital asset transaction fee retained by the mining pool operator, and potentially network transaction fees. Agora’s fractional share is based on the proportion of computing power Agora contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm, over the contract term. Agora is entitled to compensation for providing computing power to a mining pool even if a block is not successfully placed. The block reward provides an incentive for Bitcoin miners to process transactions made with Bitcoin. Creating an immutable record of these transactions is vital for Bitcoin to work as intended. The blockchain is like a decentralized bank ledger, one that cannot be altered after being created. The miners are needed to verify the transactions and keep this ledger up to date. Block rewards, and to a lesser extent, network transaction fees, are their payment for doing so.
The terms of the agreement with the mining pool operator provide that neither party can dispute settlement terms after thirty-five days following settlement.
For the mining pool in which Agora participates, Agora is entitled to a transaction price, calculated by Agora’s mining pool operator. Specifically, the mining pool operator determines the amount of block rewards to which Agora is entitled by using the Pay-Per-Shares-Plus (PPS+) payment method, retaining 2.5% to cover costs of operating the pool (the “digital asset transaction fee”), and includes network transaction fees as applicable. When Agora’s number of Bitcoin reaches the minimum threshold of 0.005 Bitcoin, Agora receives a payout and the pool transfers the Bitcoin consideration to Agora’s designated wallet within 8 hours, between 00:00 and 08:00 UTC.
The PPS+ payment method pays miners for the number of shares they contribute to the pool (effectively, the amount of computing power provided to the pool) plus network transaction fees. Shares can be described as discrete amounts of valid work each miner or mining farm contributes to the pool. The value of each share contributed is determined by the Bitcoin’s current network difficulty and the number of total shares contributed from miners and mining farms. Bitcoin rewards are received regardless if a pool successfully found a block because the mining pool operator understands that, probabilistically, blocks will be successfully found in a statistically predictable manner by the pool depending on the total amount of hashing power (shares) contributed by the miners and mining farms and therefore, pays out as if a block was found. This is a strategy that provides regular payments to miners and allows consistent payouts.
Network transaction fees, however, are paid out based on blocks actually found and solved and therefore the network transaction fee revenue is not consistently paid out. We expect that network transaction fees will be a very small contributor to total miner Bitcoin rewards.
Agora’s cost of Bitcoin revenue consists primarily of direct costs of earning the Bitcoin related to mining operations, namely electric power costs, other utilities, labor, insurance whether incurred directly from self-mining operations or reimbursed, including any revenue sharing arrangements under hosting agreements, but excluding depreciation and amortization, which are separately stated in the Company’s Consolidated Statement of Operations.
Commodities
The Company recognized revenue for their proportionate share of oil and gas drilling revenue when: (i) the Company receives notification of the successful sale of a load of crude oil to a buyer; (ii) the buyer will provide a price based on the average monthly price of crude oil in the most recent month; and (iii) cash is received the following month from the crude oil buyer.
Cost of sales for Pinnacle Frac includes all direct expenses incurred to produce the revenue for the period. This includes, but is not limited to, direct employee labor, direct contract labor and fuel.
Revenue under master service agreements is recorded upon the performance obligation being satisfied. Typically, the satisfaction of the performance obligation occurs upon the frac sand load being delivered to the customer site and this load being successfully invoiced and accepted by the Company’s factoring agent.
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| Accounts Receivable and Concentration of Credit Risk | Accounts Receivable and Concentration of Credit Risk
The Company considers accounts receivable, net of allowance for doubtful accounts, to be fully collectible. The allowance is based on management’s estimate of the overall collectability of accounts receivable, considering historical losses, credit insurance 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, however credit insurance is obtained for some customers. Past-due status is based on contractual terms.
For Pinnacle Frac, accounts receivable is comprised of unsecured amounts due from customers that have been conveyed to a factoring agent for both with and without recourse. Pinnacle Frac receives an advance from the factoring agent of 98% of the amount invoiced to the customer within one business day. The Company recognizes revenue for 100% of the gross amount invoiced, records an expense for the 2% finance charge by the factoring agent, and realizes cash for the 98% net proceeds received.
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| Fair Value Measurements | Fair Value Measurements
ASC 820 Fair Value Measurements defines fair value, establishes a framework for measuring fair value in accordance with U.S. generally accepted accounting principles (“GAAP”), and expands disclosure about fair value measurements. ASC 820 classifies these inputs into the following hierarchy:
The carrying values of the Company’s financial instruments such as cash, accounts payable, and accrued expenses approximate their respective fair values because of the short-term nature of those financial instruments.
Bitcoin assets will be presented in current assets. Fair value will be determined by taking the price of the coins from the trading platforms which Agora will most frequently use.
Bitcoin
Bitcoin is included in current assets in the consolidated balance sheets as intangible assets with indefinite useful lives. Bitcoin is recorded at cost less impairment.
The Company accounts for Agora’s Bitcoin as indefinite-lived intangible assets in accordance with Accounting Standards Codification (“ASC”) 350, Intangibles – Goodwill and Other. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value.
The Company determines the fair value of Agora’s Bitcoin on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement, based on quoted prices on the active trading platform that Agora has determined is its principal market for Bitcoin (Level 1 inputs). Agora performs an analysis each day comparing the carrying amount of the Agora’s Bitcoin with their fair value based on the lowest market price that day at the single Bitcoin level (one bitcoin). The excess, if any, represents a recognized impairment loss. Impairment losses are recorded in the line item “Bitcoin impairment losses” in the Company’s Consolidated Statements of Operations.
To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted. Bitcoin awarded to Agora through its mining activities are included as an adjustment to reconcile net loss to cash provided by (or used in) operating activities on the accompanying Consolidated Statements of Cash Flows. The sales (if any) of Bitcoin are included within investing activities in the accompanying Consolidated Statements of Cash Flows and any realized gains or losses (if any) from such sales are included in operating income in the Company’s Consolidated Statement of Operations. The Company accounts for sales of Bitcoin in accordance with the first in first out (FIFO) method of accounting.
Impairment losses related to Bitcoin is included in the Bitcoin Mining segment.
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| Impairment of Long-lived Assets | Impairment of Long-lived Assets
Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the undiscounted future cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
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| Segment Information | Segment Information
The Company follows the provisions of ASC 280-10 Segment Reporting. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions. The Company and its chief operating decision makers determined that the Company’s operations effective with the May 31, 2019, acquisition of Trend Holdings and the March 27, 2020 acquisition of Banner Midstream consisted of three segments, Financial, Commodities and Technology. Effective July 1, 2021, the Company’s chief operating decision makers in discussion with the finance team determined that the Company would add a fourth reporting segment to account for their Bitcoin mining business. Additionally, on July 1, 2021 the Company now reports its home office costs into the Commodity segment, and charged its Technology segment a monthly overhead fee, and has recorded typical overhead expenses in their Bitcoin Mining segments to account for this home office allocation.
The Company classified their reporting segments in these three divisions through March 31, 2022, when the Company determined that pursuant to ASC 205-20-45-1E that the operations related to the Financial Services segment would be reclassified as held for sale as those criteria identified in the pronouncement had been satisfied as of June 8, 2022. Under ASC 855-10-55, the Company has reflected the reclassification of assets and liabilities of these entities as held for sale and the operations as discontinued operations as of and for the year ended March 31, 2022. As a result of this reclassification, the Company’s segment reporting has removed the Financing segment for the three months ended June 30, 2021. Effective April 1, 2022, the Company has classified their segments in the Commodity Segment, Technology Segment and Bitcoin Mining Segment. They now charge a monthly overhead charge to the Technology Segment and to the Transportation component and Oil and Gas Production component (each part of the Commodities Segment). On July 25, 2022, the Company sold its oil and gas production business (White River) which is part of the Commodities segment. The Company determined that pursuant to ASC 205-20-45-1E that the operations related to White River’s oil and gas production business would be reclassified as held for sale as those criteria identified in the pronouncement had been satisfied as of July 25, 2022. Under ASC 855-10-55, the Company has reflected the reclassification of assets and liabilities of these entities as held for sale and the operations as discontinued operations as of and for the three months ended June 30, 2022.
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| Earnings (Loss) Per Share of Common Stock | 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 (loss) 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, so only the basic weighted average number of common shares are used in the computations.
The Company has adjusted the diluted EPS for the three months ended June 30, 2021 for warrants classified as derivative liabilities in accordance with ASC 260-10-45 as follows. No calculation is necessary for the three months ended June 30, 2022 because to do so would be anti-dilutive.
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| Derivative Financial Instruments | Derivative Financial Instruments
The Company does not currently use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks, but may explore hedging oil prices in the current fiscal year. Management evaluates all of the Company’s financial instruments, including warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The Company generally uses a Black-Scholes model, as applicable, to value the derivative instruments at inception and subsequent valuation dates when needed. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-measured at the end of each reporting period. The Black-Scholes model is used to estimate the fair value of the derivative liabilities.
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| Recently Issued Accounting Standards | Recently Issued Accounting Standards
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contract’s in an Entity’s Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU simplifies the diluted net income per share calculation in certain areas.
The ASU is effective for annual and interim periods beginning after December 31, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company does not believe this new guidance will have a material impact on its consolidated financial statements.
In May 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-04 “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815- 40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” which clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. An entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as follows: i) for a modification or an exchange that is a part of or directly related to a modification or an exchange of an existing debt instrument or line-of-credit or revolving-debt arrangements (hereinafter, referred to as a “debt” or “debt instrument”), as the difference between the fair value of the modified or exchanged written call option and the fair value of that written call option immediately before it is modified or exchanged; ii) for all other modifications or exchanges, as the excess, if any, of the fair value of the modified or exchanged written call option over the fair value of that written call option immediately before it is modified or exchanged. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. The Company does not believe this new guidance will have a material impact on its consolidated financial statements.
The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
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| Liquidity | Liquidity
For the three months ended June 30, 2022 and 2021, the Company had a net income (loss) of $(10,196,534) and $2,559,525, respectively, has a working capital deficit of $864,794 and $8,394,850 as of June 30, 2022 and March 31, 2022, and has an accumulated deficit as of June 30, 2022 of $(169,064,738). As of June 30, 2022, the Company has $8,325,121 in cash and cash equivalents which includes $3,000,000 transferred to White River prior to the Fortium sale.
See Note 13, “Mezzanine Equity” for information on the Company’s recent $12 million convertible preferred stock financing. That financing has restrictive covenants that require approval of the investor for the Company to engage in any equity or debt financing, and it is not likely approval for any financing will be obtained unless from such investor.
The Company’s ability to raise additional capital will also be impacted by the SEC’s proposed climate change rules which are expected to become effective in the 2023 fiscal year and may also be impacted by the COVID-19 pandemic including the current supply chain shortages.
The Company believes that the current cash on hand and anticipated cash from operations is sufficient to conduct planned operations for one year from the issuance of the consolidated financial statements.
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| Impact of COVID-19 | Impact of COVID-19
COVID-19 has had a profound effect on the U.S. and global economy and may continue to affect the economy and the industries in which we operate, depending on the vaccine and booster rollouts and the emergence of virus mutations.
COVID-19 did not have a material effect on the Consolidated Statements of Operations or the Consolidated Balance Sheets for the three months ended June 30, 2022 or year ended March 31, 2022 in contrast to the material impact it had in the prior fiscal year.
COVID-19 has also contributed to the supply chain disruptions which have not yet had a material effect for the Company. The Company will continue to monitor the supply chain shortages affecting its business.
The extent to which COVID-19 may impact the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) includes, among other things, provisions relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act also established a Paycheck Protection Program (“PPP”), whereby certain small businesses are eligible for a loan to fund payroll expenses, rent and related costs. We had received funding under the PPP, and a majority of that has been forgiven. |
Organization and Summary of Significant Accounting Policies (Tables) |
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Discontinued Operations (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discontinued Operations and Disposal Groups [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of current assets |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of non-current assets |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of current liabilities |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of non-current liabilities |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of operations to discontinued operations |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of calculation of the gain on disposal of trend discovery |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of revenue by major source |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bitcoin (Tables) |
3 Months Ended | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | |||||||||||||||||||||
| Bitcoin [Abstract] | |||||||||||||||||||||
| Schedule of additional information about agora’s bitcoin holdings |
|
Property and Equipment (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of property and equipment |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets and Goodwill (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of intangible assets |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of future amortization of the intangibles |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued Liabilities (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accrued Liabilities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of accrued liabilities |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Warrant Derivative Liabilities (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrant Derivative Liabilities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of convertible notes and warrants estimated using Black-Scholes |
|
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| Schedule of warrant derivative liabilities activity |
|
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| Schedule of warrant derivative liabilities |
|
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Long-Term Debt (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of long-term debt |
|
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| Schedule of maturities |
|
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Fair Value Measurements (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Measurements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of assets and liabilities that are measured and recognized at fair value on a recurring basis |
|
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Segment Information (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of continuing operations of the company before the non-controlling interest, provision for income taxes and preferred stock dividends |
|
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Leases (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of maturity of operating lease liability |
|
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| Schedule of maturity of financing leases liability |
|
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| Schedule of amortization of the right of use asset |
|
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| Schedule of total lease cost |
|
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Organization and Summary of Significant Accounting Policies (Details) - Schedule of ownership interest in equity - USD ($) |
3 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Diluted EPS: | ||
| Net income to controlling interest | $ 2,559,525 | |
| Change in fair value of derivative liability | (4,945,819) | |
| Adjusted net loss | $ (2,386,294) | |
| Weighted Average Shares Outstanding (in Shares) | 26,372,172 | |
| Adjusted (loss) per share (in Dollars per share) | $ (0.41) | $ (0.09) |
Discontinued Operations (Details) |
1 Months Ended |
|---|---|
|
Jun. 17, 2022
USD ($)
| |
| Discontinued Operations and Disposal Groups [Abstract] | |
| Investment sold amount | $ 4,250,000 |
Discontinued Operations (Details) - Schedule of current assets - USD ($) |
Jun. 30, 2022 |
Mar. 31, 2022 |
|---|---|---|
| Schedule of current assets [Abstract] | ||
| Cash | $ 62,858 | $ 291,673 |
| Accounts receivable | 795,178 | 658,481 |
| Inventory | 136,007 | 107,026 |
| Prepaid expenses | 519,262 | 313,593 |
| Total current assets | $ 1,513,305 | $ 1,370,773 |
Discontinued Operations (Details) - Schedule of non-current assets - USD ($) |
Jun. 30, 2022 |
Mar. 31, 2022 |
|---|---|---|
| Schedule of non-current assets [Abstract] | ||
| Goodwill | $ 2,100,374 | $ 5,323,173 |
| Property and equipment, net | 1,182,034 | 596,464 |
| Oil and gas properties, full cost-method | 5,536,495 | 6,626,793 |
| Capitalized drilling costs, net of depletion | 348,725 | 604,574 |
| Right of use asset – operating leases | 207,842 | 226,417 |
| Total non-current assets | $ 9,375,470 | $ 13,377,421 |
Discontinued Operations (Details) - Schedule of current liabilities - USD ($) |
Jun. 30, 2022 |
Mar. 31, 2022 |
|---|---|---|
| Schedule of current liabilities [Abstract] | ||
| Accounts payable and accrued expenses | $ 659,660 | $ 985,447 |
| Current portion of long-term debt | 41,414 | |
| Current portion of lease liability – operating leases | 156,259 | 148,206 |
| Total current liabilities | $ 857,333 | $ 1,133,653 |
Discontinued Operations (Details) - Schedule of non-current liabilities - USD ($) |
Jun. 30, 2022 |
Mar. 31, 2022 |
|---|---|---|
| Schedule of non-current liabilities [Abstract] | ||
| Lease liabilities – operating leases, net of current portion | $ 70,762 | $ 100,215 |
| Long-term debt | 103,853 | |
| Asset retirement obligations | 746,061 | 1,303,751 |
| Total non-current liabilities | $ 920,676 | $ 1,403,966 |
Discontinued Operations (Details) - Schedule of operations to discontinued operations - USD ($) |
3 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Schedule of operations to discontinued operations [Abstract] | ||
| Revenue | $ 1,741,106 | $ 1,722,779 |
| Operating expenses | 3,781,504 | 2,155,181 |
| Other (income) loss | (397,956) | (598,860) |
| Net (loss) income from discontinued operations | $ (1,642,442) | $ 166,458 |
Discontinued Operations (Details) - Schedule of calculation of the gain on disposal of trend discovery - USD ($) |
Jun. 30, 2022 |
Mar. 31, 2021 |
|---|---|---|
| Schedule of calculation of the gain on disposal of trend discovery [Abstract] | ||
| Secured Note Receivable | $ 4,250,000 | |
| Cash | (27,657) | |
| Accounts receivable | (222,400) | |
| Prepaid expenses | (99,566) | |
| Goodwill | (3,222,799) | |
| Other assets | (284) | |
| Accounts payable and accrued expenses | 34,211 | |
| Gain on disposal of discontinued operations | $ 711,505 |
Revenue (Details) - Schedule of revenue by major source - USD ($) |
3 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Revenue (Details) - Schedule of revenue by major source [Line Items] | ||
| Total Revenues | $ 5,418,655 | $ 5,156,213 |
| Bitcoin Mining [Member] | ||
| Revenue (Details) - Schedule of revenue by major source [Line Items] | ||
| Total Revenues | ||
| Transportation Services [Member] | ||
| Revenue (Details) - Schedule of revenue by major source [Line Items] | ||
| Total Revenues | 5,348,225 | 5,037,994 |
| Fuel Rebate [Member] | ||
| Revenue (Details) - Schedule of revenue by major source [Line Items] | ||
| Total Revenues | 63,095 | 92,406 |
| Equipment Rental and Other [Member] | ||
| Revenue (Details) - Schedule of revenue by major source [Line Items] | ||
| Total Revenues | $ 7,335 | $ 25,813 |
Senior Secured Promissory Note Receivable (Details) |
3 Months Ended |
|---|---|
|
Jun. 30, 2022
USD ($)
| |
| Receivables [Abstract] | |
| Principal amount | $ 4,250,000 |
| Bears interest rate | 5.00% |
| Interest income and accrued interest receivable | $ 8,385 |
Bitcoin (Details) |
3 Months Ended |
|---|---|
|
Jun. 30, 2022
USD ($)
| |
| Bitcoin [Abstract] | |
| Bitcoins description | Agora mined 0.57361732 Bitcoins |
| Bitcoins value | $ 26,495 |
| Impaired amount | 16,351 |
| Bitcoin impairment losses | 9,122 |
| Carrying value | $ 10,145 |
Bitcoin (Details) - Schedule of additional information about agora’s bitcoin holdings |
3 Months Ended |
|---|---|
|
Jun. 30, 2022
USD ($)
| |
| Schedule of additional information about agora’s bitcoin holdings [Abstract] | |
| Beginning balance – April 1, 2022 | $ 19,267 |
| Bitcoin mined at initial fair value | |
| Bitcoin impairment losses | (9,122) |
| Ending balance – June 30, 2022 | $ 10,145 |
Property and Equipment (Details) - USD ($) |
1 Months Ended | 3 Months Ended | |||||
|---|---|---|---|---|---|---|---|
Apr. 11, 2022 |
Apr. 02, 2021 |
Feb. 28, 2022 |
Apr. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
Mar. 31, 2022 |
|
| Property and Equipment [Abstract] | |||||||
| Public utilities, property, plant and equipment, plant in service | $ 201,388 | ||||||
| Accumulated depreciation | $ 7,484 | ||||||
| Assets | $ 6,720,809 | ||||||
| Cash exchange, description | In February 2022, the Company traded in a vehicle valued at $51,806 for a new vehicle valued at $91,132. | The Company in April 2021 traded in a truck with a value of $5,447 for a new truck with a value of $2,532 and received cash of $2,500 in the exchange. | |||||
| Accumulated depreciation description | On April 11, 2022, the Company sold equipment of $2,557,172, that had accumulated depreciation of $1,027,148 for a net value of $1,530,024 for $580,000. The result was a loss on sale of $950,024. | ||||||
| Depreciation expense | $ 84,561 | $ 164,975 | |||||
Intangible Assets and Goodwill (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Intangible Assets and Goodwill (Details) [Line Items] | ||
| Amortization expense | $ 64,243 | $ 87,204 |
| Assets held for sale | 2,100,374 | |
| Reclassified to non-current assets | 3,222,799 | |
| Banner Midstream [Member] | ||
| Intangible Assets and Goodwill (Details) [Line Items] | ||
| Incurred goodwill | $ 7,001,247 | |
Intangible Assets and Goodwill (Details) - Schedule of intangible assets - USD ($) |
Jun. 30, 2022 |
Mar. 31, 2022 |
|---|---|---|
| Finite-Lived Intangible Assets [Line Items] | ||
| Total intangible assets | $ 4,719,623 | $ 4,719,623 |
| Accumulated amortization and impairment | (3,067,535) | (3,003,292) |
| Intangible assets, net | 1,652,088 | 1,716,331 |
| Patents [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Total intangible assets | 1,012,672 | 1,012,672 |
| Customer relationships [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Total intangible assets | 2,100,000 | 2,100,000 |
| Non-compete agreements – Banner Midstream [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Total intangible assets | 250,000 | 250,000 |
| Outsourced vendor relationships [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Total intangible assets | 1,016,736 | 1,016,736 |
| Non-compete agreements – Zest Labs [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Total intangible assets | $ 340,215 | $ 340,215 |
Intangible Assets and Goodwill (Details) - Schedule of future amortization of the intangibles |
Jun. 30, 2022
USD ($)
|
|---|---|
| Schedule of future amortization of the intangibles [Abstract] | |
| 2023 | $ 259,103 |
| 2024 | 264,512 |
| 2025 | 251,129 |
| 2026 | 214,923 |
| 2027 | 201,111 |
| Thereafter | 461,310 |
| Intangible assets, net | $ 1,652,088 |
Power Development Cost (Details) |
3 Months Ended |
|---|---|
|
Jun. 30, 2022
USD ($)
| |
| Power Development Cost (Details) [Line Items] | |
| Paid in agreements | $ 1,000,000 |
| Total of third party amount | 2,000,000 |
| Purchase of extension agreement | 2,000,000 |
| Minimum [Member] | |
| Power Development Cost (Details) [Line Items] | |
| Related party amount | 96,000 |
| Maximum [Member] | |
| Power Development Cost (Details) [Line Items] | |
| Related party amount | $ 326,500 |
Accrued Liabilities (Details) - Schedule of accrued liabilities - USD ($) |
3 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 30, 2022 |
Mar. 31, 2022 |
|
| Schedule of accrued liabilities [Abstract] | ||
| Professional fees and consulting costs | $ 553,995 | $ 394,660 |
| Vacation and paid time off | 111,088 | 101,954 |
| Legal fees | 342,363 | 68,723 |
| Compensation | 302,128 | 245,179 |
| Interest | 28,087 | 2,223 |
| Insurance | 1,973,224 | 384,394 |
| Dividend | 43,151 | |
| Other | 431,417 | 532,291 |
| Total | $ 3,785,453 | $ 1,729,424 |
Warrant Derivative Liabilities (Details) - Schedule of warrant derivative liabilities - USD ($) |
3 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Schedule of warrant derivative liabilities [Abstract] | ||
| Beginning balance | $ 4,318,630 | $ 7,213,407 |
| Issuances of warrants – derivative liabilities | 545,125 | |
| Warrants exchanged for common stock | ||
| Change in fair value of warrant derivative liabilities | 393,532 | (4,945,819) |
| Ending balance | $ 4,712,162 | $ 2,812,713 |
Long-Term Debt (Details) - USD ($) |
1 Months Ended | 3 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|---|
Apr. 11, 2022 |
Sep. 24, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
Feb. 16, 2022 |
Dec. 28, 2018 |
Nov. 07, 2018 |
Jul. 26, 2018 |
Jul. 20, 2018 |
|
| Long-Term Debt (Details) [Line Items] | |||||||||
| Credit facility amount | $ 10,000,000 | ||||||||
| Annual rate percentage | 12.00% | ||||||||
| Debt description | The Company is able to request draws from the lender up to $1,000,000 with a cap of $10,000,000. In the year ended March 31, 2022, the Company borrowed $595,855, which includes $25,855 in commitment fees, with the balance of $575,000 being deposited directly into the Company. In the three months ended June 30, 2022, the Company borrowed $505,181, which includes $17,681 in commitment fees, with the balance of $487,500 being deposited directly into the Company, and repaid $585,000 in the three months ended June 30, 2022. Interest incurred for the three months ended June 30, 2022 was $25,864, and accrued as of June 30, 2022 was $28,087. There were no advances in the three months ended June 30, 2021. | ||||||||
| Original maturity date | Apr. 14, 2020 | ||||||||
| Maturity date | Apr. 14, 2025 | Feb. 13, 2028 | Nov. 22, 2023 | Sep. 09, 2024 | Jul. 20, 2023 | ||||
| Loan amount | $ 1,238,500 | ||||||||
| Loan percentage | 4.95% | ||||||||
| Repaid amount | $ 550,000 | $ 213,957 | |||||||
| Debt instrument due date | Dec. 31, 2022 | ||||||||
| Debt percentage | 4.75% | 5.79% | 10.25% | 7.99% | 6.50% | ||||
| Proceeds from the sale of equipment | $ 580,000 | ||||||||
| Long term secured note payable | $ 80,325 | $ 301,148 | $ 55,268 | $ 56,300 | |||||
| Commitment fees | $ 17,681 | ||||||||
| Interest expense | 38,018 | $ 22,860 | |||||||
| Long Term Loans [Member] | |||||||||
| Long-Term Debt (Details) [Line Items] | |||||||||
| Repaid amount | 1,029,848 | ||||||||
| Proceeds from the sale of equipment | $ 580,000 | ||||||||
| Long term secured note payable | 149,937 | ||||||||
| Proceeds received | 487,500 | ||||||||
| Commitment fees | $ 17,681 | ||||||||
Long-Term Debt (Details) - Schedule of long-term debt - USD ($) |
Jun. 30, 2022 |
Mar. 31, 2022 |
||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Debt Instrument [Line Items] | ||||||||||||||||
| Total long-term debt | $ 796,339 | $ 1,316,335 | ||||||||||||||
| Less: current portion | (719,911) | (1,181,021) | ||||||||||||||
| Long-term debt, net of current portion | 76,428 | 135,314 | ||||||||||||||
| Credit facility -Trend Discovery SPV 1, LLC [Member] | ||||||||||||||||
| Debt Instrument [Line Items] | ||||||||||||||||
| Total long-term debt | [1] | 516,036 | 595,855 | |||||||||||||
| Note payable – Alliance Bank [Member] | ||||||||||||||||
| Debt Instrument [Line Items] | ||||||||||||||||
| Total long-term debt | [2] | 169,341 | 236,755 | |||||||||||||
| Commercial loan – Firstar Bank [Member] | ||||||||||||||||
| Debt Instrument [Line Items] | ||||||||||||||||
| Total long-term debt | [3] | 245,217 | ||||||||||||||
| Auto loan 1 – Firstar Bank [Member] | ||||||||||||||||
| Debt Instrument [Line Items] | ||||||||||||||||
| Total long-term debt | [4] | 13,792 | 16,839 | |||||||||||||
| Auto loan 4 – Ally Bank [Member] | ||||||||||||||||
| Debt Instrument [Line Items] | ||||||||||||||||
| Total long-term debt | [5] | 20,615 | 23,012 | |||||||||||||
| Tractor loan 6 – Tab Bank [Member] | ||||||||||||||||
| Debt Instrument [Line Items] | ||||||||||||||||
| Total long-term debt | [6] | 118,332 | ||||||||||||||
| Auto loan – Ford [Member] | ||||||||||||||||
| Debt Instrument [Line Items] | ||||||||||||||||
| Total long-term debt | [7] | $ 76,555 | $ 80,325 | |||||||||||||
| ||||||||||||||||
Long-Term Debt (Details) - Schedule of maturities |
Jun. 30, 2022
USD ($)
|
|---|---|
| Schedule of maturities [Abstract] | |
| 2023 | $ 719,911 |
| 2024 | 24,083 |
| 2025 | 13,195 |
| 2026 | 13,980 |
| 2027 | 14,811 |
| Thereafter | 10,359 |
| Total | $ 796,339 |
Notes Payable - Related Parties (Details) - USD ($) |
3 Months Ended | 12 Months Ended | |||
|---|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Mar. 31, 2022 |
Aug. 09, 2021 |
Aug. 08, 2021 |
|
| Notes Payable - Related Parties (Details) [Line Items] | |||||
| Advances | $ 577,500 | ||||
| Bears interest rate | 5.00% | ||||
| Re-payment | $ 577,500 | ||||
| Accrued interest | $ 42,535 | ||||
| Interest expense | $ 17,514 | ||||
| Amount issued | $ 116,000 | ||||
| Advanced and repaid | $ 25,000 | ||||
| Repaid existing notes payable – related parties | $ 591,000 | ||||
| Converted in existing notes payable – related parties | $ 25,000 | ||||
| Minimum [Member] | |||||
| Notes Payable - Related Parties (Details) [Line Items] | |||||
| Bears interest rate | 10.00% | ||||
| Maximum [Member] | |||||
| Notes Payable - Related Parties (Details) [Line Items] | |||||
| Bears interest rate | 15.00% | ||||
Mezzanine Equity (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Jun. 08, 2022 |
Jun. 30, 2022 |
|
| Mezzanine Equity (Details) [Line Items] | ||
| Common stock shares issued (in Shares) | 102,881 | |
| Total purchase price | $ 12,000,000 | |
| Convertible shares amount | $ 10,000 | |
| Conversion price (in Dollars per share) | $ 2.1 | |
| Beneficial ownership limitation | 19.90% | |
| Beneficial ownership limitation description | The shares of Ecoark Series A as amended are also subject to a 4.99% beneficial ownership limitation, which may be increased to up to 9.9% by the holder by giving 61 days’ notice to the Company. | |
| Holders percentage. | 25.00% | |
| Outstanding common stock percentage | 19.90% | 19.90% |
| Annual rate | 12.60% | |
| Equivalent amount | $ 1,260 | |
| Dividend rate | 18.00% | |
| Junior preferred stock | $ 1,200 | |
| Redemption price | $ 1,200 | |
| Negative covenants and approval rights description | The Ecoark Series A Certificate of Designation (the “Certificate”) subjects the Company to negative covenants restricting its ability to take certain actions without prior approval from the holder(s) of a majority of the outstanding shares of Ecoark Series A for as long as the holder(s) continue to hold at least 25% (or such higher percentage as set forth in the Certificate (as defined below)) of the Ecoark Series A shares issued on the closing date under the Agreement. These restrictive covenants include the following actions by the Company, subject to certain exceptions and limitations: (i) payment or declaration of any dividend (other than pursuant to the Ecoark Series A Certificate); (ii) investment in, purchase or acquisition of any assets or capital stock of any entity for an amount that exceeds $100,000 in any one transaction or $250,000, in the aggregate; (iii) issuance of any shares of common stock or other securities convertible into or exercisable or exchangeable for shares of common stock; (iv) incurrence of indebtedness, liens, or guaranty obligations, in an aggregate amount in excess of $50,000 in any individual transaction or $100,000 in the aggregate with customary exceptions. (v) sale, lease, transfer or disposal of any of its properties having a value calculated in accordance with GAAP of more than $50,000; (vi) increase in any manner the compensation or fringe benefits of any of its directors, officers, employees; and (vii) merger or consolidation with, or purchase a substantial portion of the assets of, or by any other manner the acquisition or combination with any business or entity. | |
| Warrant description | The Warrant, as amended and filed on July 15, 2022, provides the Purchaser or its assignees (the “Holder”) with the right to purchase a number of shares of common stock as would enable the holder together with its affiliates to beneficially own 49% of the Company’s common stock, calculated on a fully diluted basis, at an exercise price of $0.001 per share, including the Commitment Shares and Conversion Shares unless sold. Subject to shareholder approval, the Warrant shall vest and becomes exercisable into shares of the Company’s stock if as of June 8, 2024: (i) the Company has failed to complete the distributions to the Company’s security holders or to any other subsidiary of the Company’s equity ownership of its three principal subsidiaries: Agora, Banner Midstream and Zest Labs (or their principal subsidiaries) (the “Distributions”), and/or (ii) the Holder together with its affiliates does not beneficially own at least 50% of the Company’s outstanding common stock. Provided, the Company must retain 20% of its common stock of Agora. The Warrant may be exercised on a cashless basis and expires on June 8, 2027. In the event that the Company or its transfer agent fails to issue the shares of common stock within three business days following delivery of a notice of exercise, the Warrant provides that the Company must pay the Holder a fee of $2.4 million. | |
| Commitment shares issued (in Shares) | 5,246,456 | |
| Common stock issuable (in Shares) | 5,143,575 | |
| Commitment Shares | $ 193,416 | |
| Mezzanine Equity | $ 11,806,584 | |
| Series A Convertible Redeemable Preferred Stock [Member] | ||
| Mezzanine Equity (Details) [Line Items] | ||
| Purchaser shares (in Shares) | 1,200 |
Commitments and Contingencies (Details) - USD ($) |
1 Months Ended | 3 Months Ended | ||
|---|---|---|---|---|
Apr. 09, 2021 |
Jun. 15, 2022 |
Apr. 22, 2022 |
Jun. 30, 2022 |
|
| Commitments and Contingencies (Details) [Line Items] | ||||
| Damages value | $ 115,000,000 | |||
| Compensatory damages | 65,000,000 | |||
| Punitive damages | $ 50,000,000 | |||
| Granting judgment | $ 5,000,000 | |||
| Purchased equipment | $ 256,733.28 | |||
| Minimum [Member] | ||||
| Commitments and Contingencies (Details) [Line Items] | ||||
| Estimated commitment | $ 12,000,000 | |||
| Maximum [Member] | ||||
| Commitments and Contingencies (Details) [Line Items] | ||||
| Estimated commitment | $ 14,000,000 | |||
Concentrations (Details) |
3 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Risks and Uncertainties [Abstract] | |
| Concentration risk, description | Two and two customers, all in the commodity segment accounted for more than 10% of the accounts receivable balance at June 30, 2022 and March 31, 2022 for a total of 100% and 88% of accounts receivable, respectively. In addition, three and two customers represent approximately 72% and 96% of total revenues for the Company for the three months ended June 30, 2022 and 2021, respectively. |
Segment Information (Details) |
1 Months Ended |
|---|---|
May 31, 2019 | |
| Segment Reporting [Abstract] | |
| Number of segments | 3 |
Leases (Details) |
3 Months Ended |
|---|---|
|
Jun. 30, 2022
USD ($)
| |
| Leases (Details) [Line Items] | |
| Leases, description | The right of use asset is composed of the sum of all lease payments, at present value, and is amortized straight line over the life of the expected lease term. For the expected term of the lease the Company used the initial terms ranging between 42 and 60 months. |
| Unamortized lease right of use asset | $ 744,619 |
| Lease liability | $ 744,631 |
| Minimum [Member] | |
| Leases (Details) [Line Items] | |
| Discount rate percentage | 2.50% |
| Maximum [Member] | |
| Leases (Details) [Line Items] | |
| Discount rate percentage | 11.36% |
| Operating Leases [Member] | |
| Leases (Details) [Line Items] | |
| Unamortized lease right of use asset | $ 264,535 |
| Lease liability | 485,461 |
| Financing Leases [Member] | |
| Leases (Details) [Line Items] | |
| Unamortized lease right of use asset | 480,084 |
| Lease liability | $ 259,170 |
Leases (Details) - Schedule of maturity of operating lease liability - USD ($) |
Jun. 30, 2022 |
Mar. 31, 2022 |
|---|---|---|
| Schedule of maturity of operating lease liability [Abstract] | ||
| 2023 | $ 175,701 | |
| 2024 | 130,966 | |
| 2025 | 96,157 | |
| 2026 | 99,042 | |
| 2027 | 33,337 | |
| Imputed interest | (49,742) | |
| Total lease liability | 485,461 | |
| Current portion | 153,330 | $ 169,512 |
| Non-current portion | $ 332,131 | $ 378,515 |
Leases (Details) - Schedule of maturity of financing leases liability - USD ($) |
Jun. 30, 2022 |
Mar. 31, 2022 |
|---|---|---|
| Schedule of maturity of financing leases liability [Abstract] | ||
| 2023 | $ 146,982 | |
| 2024 | 118,677 | |
| Imputed interest | (6,489) | |
| Total lease liability | 259,170 | |
| Current portion | 141,934 | $ 145,174 |
| Non-current portion | $ 117,236 | $ 149,884 |
Leases (Details) - Schedule of amortization of the right of use asset |
Jun. 30, 2022
USD ($)
|
|---|---|
| Schedule of amortization of the right of use asset [Abstract] | |
| 2023 | $ 301,289 |
| 2024 | 236,557 |
| 2025 | 85,565 |
| 2026 | 90,101 |
| 2027 | 31,107 |
| Total | $ 744,619 |
Leases (Details) - Schedule of total lease cost - USD ($) |
3 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Schedule of total lease cost [Abstract] | ||
| Operating lease expense | $ 52,140 | $ 19,942 |
| Finance lease expense | ||
| Depreciation of capitalized finance lease assets | 56,576 | 34,838 |
| Interest expense on finance lease liabilities | 1,934 | 2,984 |
| Total lease cost | $ 110,650 | $ 57,764 |
Subsequent Events (Details) - shares |
Aug. 11, 2022 |
Jun. 30, 2022 |
Mar. 31, 2022 |
|---|---|---|---|
| Subsequent Events (Details) [Line Items] | |||
| Common stock, shares authorized | 40,000,000 | 40,000,000 | |
| Convertible preferred stock | 1,200 | ||
| Convertible shares | 42,253,521 | ||
| Subsequent Event [Member] | |||
| Subsequent Events (Details) [Line Items] | |||
| Subsequent description | the Company executed a definitive agreement with HUMBL, Inc. (“HUMBL”) (OTC: HMBL) to transfer up to 100% of the issued and outstanding common stock of its majority owned subsidiary Agora Digital Holdings, Inc. (“Agora Digital”) to HUMBL in exchange for up to 6,000 shares of Series C preferred stock valued at $10,000 per share which will be filed prior to closing. The definitive agreement has certain closing conditions which have yet to be fulfilled at the time of this filing including a closing condition whereby the Company is required to source a minimum of $10,000,000 in capital for HUMBL prior to the transfer of ownership of Agora Digital to HUMBL. The definitive agreement contemplates that some or all of Agora’s minority shareholders, which consists of Agora’s directors, officers and consultants (some of whom are also directors and officers of the Company including our Chief Executive Officer and Chief Financial Officer) owning a total of up to 5,000,000 of the outstanding shares of Agora common stock, may also execute the agreement and exchange their shares of Agora common stock for the HUMBL Series C. Additional details will be provided at a future date via a Form 8-K to be filed by the Company with the definitive agreement and other transaction documents. | ||
| Minimum [Member] | |||
| Subsequent Events (Details) [Line Items] | |||
| Common stock, shares authorized | 40,000,000 | ||
| Maximum [Member] | |||
| Subsequent Events (Details) [Line Items] | |||
| Common stock, shares authorized | 100,000,000 |