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 (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 November 18, 2022, there were
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
Table of Content
1
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2022 (UNAUDITED) AND MARCH 31, 2022
| SEPTEMBER 30, | MARCH 31, | |||||||
| 2022 | 2022 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash ($ |
$ | $ | ||||||
| Investment - White River Energy Corp | - | |||||||
| Current portion of secured note receivable and accrued interest 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 | ||||||||
| Power development costs | ||||||||
| Secured note receivable and accrued interest receivable, net of current portion | ||||||||
| 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 - operating leases | ||||||||
| Current liabilities of discontinued operations/held for sale | ||||||||
| Total current liabilities | ||||||||
| NON-CURRENT LIABILITIES | ||||||||
| 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 | ||||||||
| 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 | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
2
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX AND THREE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
| SIX MONTHS ENDED | THREE MONTHS ENDED | |||||||||||||||
| SEPTEMBER 30, | SEPTEMBER 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| CONTINUING OPERATIONS: | ||||||||||||||||
| REVENUES | $ | $ | $ | $ | ||||||||||||
| COST OF REVENUES | ||||||||||||||||
| GROSS LOSS | ( | ) | ( | ) | ||||||||||||
| 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 | ( | ) | ||||||||||||||
| Loss on disposal of fixed assets | ( | ) | ( | ) | ||||||||||||
| Interest expense, net of interest income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ||||||||||||||
| LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES AND DISCONTINUED OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| DISCONTINUED OPERATIONS: | ||||||||||||||||
| Loss from discontinued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on disposal of discontinued operations | ( | ) | ( | ) | ||||||||||||
| Total discontinued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| LOSS FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| PROVISION FOR INCOME TAXES | ||||||||||||||||
| NET LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST | ||||||||||||||||
| NET LOSS TO CONTROLLING INTEREST | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Less: Preferred Stock Dividends | ||||||||||||||||
| NET LOSS TO CONTROLLING INTEREST OF COMMON SHAREHOLDERS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NET LOSS PER SHARE - BASIC | ||||||||||||||||
| Continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Discontinued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
3
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
| Additional | ||||||||||||||||||||||||||||||||||||
| Preferred | Common Stock | Paid-In | Accumulated | Treasury | Non-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 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Shares issued for services rendered, net of amounts prepaid | ||||||||||||||||||||||||||||||||||||
| Shares issued in registered direct offering, net of amount allocated to derivative liability | ||||||||||||||||||||||||||||||||||||
| Share-based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Fractional adjustment | - | |||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance - September 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 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Shares issued in conversion of preferred stock to common stock | ||||||||||||||||||||||||||||||||||||
| Shares issued in settlement | - | ( | ) | |||||||||||||||||||||||||||||||||
| Shares issued by Agora Digital Holdings, Inc. for services rendered, net of amounts prepaid | - | - | ||||||||||||||||||||||||||||||||||
| Share-based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Disposal of subsidiaries in reverse merger transaction | - | - | - | |||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance - September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
4
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
| SEPTEMBER 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOW FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss 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 | ||||||||
| Loss on disposal of White River and Banner Midstream | ||||||||
| Gain on disposal of Trend Discovery Holdings | ( | ) | ||||||
| Common shares issued for services | ||||||||
| Common shares issued for services - Agora | ||||||||
| Amortization of discount | ||||||||
| Warrants granted for interest expense | ||||||||
| Warrants granted for commissions | ||||||||
| Development expenses reduced from refund of power development costs | ||||||||
| Commitment fees on long-term debt | ||||||||
| Changes in assets and liabilities | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Intangible assets - cryptocurrencies | ||||||||
| Amortization of right of use asset - operating leases | ||||||||
| Accrued interest receivable | ( | ) | ||||||
| Operating lease expense | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued liabilities | ( | ) | ||||||
| Total adjustments | ( | ) | ||||||
| Net cash used in operating activities of continuing operations | ( | ) | ( | ) | ||||
| Net cash provided by (used in) discontinued operations | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Proceeds from the sale of power development costs | ||||||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| Net cash provided by (used in) investing activities of continuing operations | ( | ) | ||||||
| Net cash used in investing activities of discontinued operations | ( | ) | ( | ) | ||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from the issuance of common stock in a registered direct offering, net of fees | ||||||||
| Proceeds from exercise of stock options | ||||||||
| 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 financing activities of continuing operations | ||||||||
| Net cash used in financing activities of discontinued operations | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| NET INCREASE IN 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 | $ | $ | ||||||
| Non-controlling interest recorded in consolidation of Enviro Technologies US, Inc. | $ | $ | ||||||
| Preferred shares converted into common stock | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
5
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ecoark Holdings Inc. (“Ecoark Holdings” or the “Company”) is a holding company, incorporated in the State of Nevada on November 19, 2007. Through September 30, 2022, Ecoark Holdings’ former wholly owned subsidiaries with the exception of Agora Digital Holdings, Inc., a Nevada corporation (“Agora”) and Zest Labs, Inc. (“Zest Labs”) have been divested. See below in this Note 1 and Note 2 “Discontinued Operations.” As a result of the divestitures, all assets and liabilities of the former subsidiaries have been reclassified to discontinued operations on the condensed consolidated balance sheet for March 31, 2022 and all operations of these companies have been reclassified to discontinued operations and gain on disposal on the condensed consolidated statements of operations for the six and three months ended September 30, 2022.
The Company’s principal subsidiaries consisted of Ecoark, Inc. (“Ecoark”), a Delaware corporation which was the parent of Zest Labs, Inc. (“Zest Labs”), Banner Midstream Corp., a Delaware corporation (“Banner Midstream”) and 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. Zest Labs, Inc. was formed in Nevada on August 2, 2022 and Zest Labs, Inc. Delaware merged into Zest Labs, Inc. Nevada on August 4, 2022.
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 White River Energy Corp (formerly Fortium Holdings Corp.) (“WREC”) which acquired White River Holdings Corp
on July 25, 2022, and Enviro Technologies US, Inc. (“Enviro”) which acquired Banner Midstream Corp. on September 7, 2022,
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)
SEPTEMBER 30, 2022
For a full description of the operations of White River as well as Pinnacle Frac and Capstone, refer to the Annual Report filed on Form 10-K for the year ended March 31, 2022 filed on July 7, 2022.
On July 25, 2022, the Company entered into and
closed a Share Exchange Agreement, by and among the Company, White River and WREC. As a result, White River became a wholly-owned subsidiary
of WREC and issued the Company non-voting Series A Convertible Preferred Stock (the “Series A”) which is convertible into
approximately
On August
23, 2022 the Company entered into a Share Exchange Agreement (the “Agreement”) with Enviro and Banner Midstream.
On April 9, 2021, a Little Rock, Arkansas jury awarded Ecoark and Zest
a total of $
7
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
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”) which was acquired along with Trend Capital Management, Inc. (“TCM”) which was acquired by Ecoark Holdings 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 during 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. In September 2022, Agora determined to become a power-centric hosting company and thus will focus its attention on generating revenues in this capacity.
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
On August 4, 2021, the Company’s common stock commenced trading on the Nasdaq Capital Market.
8
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
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
On September 9, 2022, the Company held an annual meeting of its stockholders,
and the stockholders approved the issuance of the shares of common stock issuable upon conversion of the Series A Redeemable Convertible
Preferred Stock sold on June 8, 2022. Additionally, the stockholders approved increasing authorized common stock to
Overview of Agora Digital Holdings, Inc.
Bitstream
Bitstream was organized to be our principal Bitcoin mining subsidiary. Bitstream 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. As discussed in this Note 1, Agora has refocused its efforts and will become a power-centric hosting company rather than a Bitcoin mining company and will not hold any Bitcoin in its digital wallets. To that end, Agora is presently in discussions with a third party regarding a potential joint venture in which the third party would provide mining equipment which Agora would host at its West Texas location and supply the electricity for the cryptocurrency mining. However, as of the date of this Report, no term sheet or definitive agreement has been executed by the prospective parties.
All significant accounting policies related to Pinnacle Frac, Capstone, 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
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 sold all divisions of Banner Midstream in July 2022 and September 2022 as discussed herein.
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.
9
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
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.
During
the six months ended September 30, 2022, Agora issued
The Company sold both White River and Banner Midstream
(Pinnacle/Capstone) in July and September 2022, respectively. These entities are no longer subsidiaries of the Company. The Company has
investments in WREC and Enviro that represent the shares it received for the sale of these entities. The investment in WREC is in non-voting
preferred shares, and Management has concluded that the Company is not the primary beneficiary in this transaction, and thus no consolidation
is required for White River as a variable interest entity. The Company currently owns
Reclassifications
The Company has reclassified certain amounts in the September 30, 2021 condensed consolidated financial statements to be consistent with the September 30, 2022 presentation, including the reclassification of Barrier Crest, TCM, White River, Pinnacle Frac, and Capstone assets and liabilities from continuing operations to held for sale and reclassifications of operations of Barrier Crest, TCM, White River, Pinnacle Frac, and Capstone to discontinued operations. The March 31, 2022 consolidated balance sheet has been reclassified to include the assets and liabilities sold for White River, Pinnacle Frac, and Capstone as well. Additionally, we have removed all rounding of amounts and shares from the September 30, 2021 presentation to conform to the September 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 and July 2022, with the issuance of restricted common stock to directors, management and advisors,
the Company no longer owns
10
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
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 |
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 |
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HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
| ● | 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.
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.
Although, Agora since March 3, 2022, has not recognized revenue from its mining operations, prior to this time, it recognized revenue upon satisfaction of its performance obligation 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.
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HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
Bitcoin Mining
The discussion here should be understood as being applicable while Agora was conducting mining operations which it ceased beginning March 3, 2022. On September 16, 2022, the Company determined to conduct operations as a power-centric hosting company, rather than a Bitcoin mining company. For the past revenue recognition, refer to the Company’s Annual Report on Form 10-K filed on July 7, 2022.
Hosting Revenues
Agora effective in September 2022 began efforts to generate revenue via hosting agreements. As of September 30, 2022 and the date of this Report, Agora has not executed any such agreements. If Agora generates hosting revenues, it will follow ASC 606 as outlined above and recognize revenue upon the completion of the performance obligations as stipulated under such hosting agreements. For the six months ended September 30, 2022 and 2021, no revenue has been recognized under hosting agreements.
All Bitcoin that is mined under these arrangements will be transmitted directly into the third-party digital wallets and the Company will not hold any Bitcoin in its accounts.
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.
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, investments, prepaid expenses, 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.
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HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
Bitcoin
Prior to March 3, 2022 when the Company was mining Bitcoin, it included the Bitcoin in current assets in the consolidated balance sheets as intangible assets with indefinite useful lives. Bitcoin was recorded at cost less impairment. For the past Bitcoin accounting policies, refer to the Company’s Annual Report on Form 10-K filed on July 7, 2022. As of September 30, 2022, the Company neither owns nor mines any Bitcoin, although it may in the future operate as a hosting company providing a mining location and electricity for third parties’ mining equipment and activities.
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. The Company classified its 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 six months ended September 30, 2021. Effective April 1, 2022, the Company has classified its segments in the Commodity Segment, Technology Segment and Bitcoin Mining Segment. It now charges 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, and on September 7, 2022, the Company sold the remaining part (Pinnacle Frac and Capstone) of the Commodities Segment. Under ASC 855-10-55, the Company has reflected the sale of these entities and the operations as discontinued operations as of and for the six months ended September 30, 2022. As a result of the sales of White River and Banner Midstream, and the immaterial nature of the operations of Zest Labs, the Company no longer segregates its operations as most of the continuing operations are related to Agora.
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.
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ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
Derivative Financial Instruments
The Company does not currently use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. 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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ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
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 six months ended September 30, 2022 and 2021,
the Company had a net loss to controlling interest of common shareholders of $(
The Company’s
financial statements are prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) applicable
to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The
Company sold its interests in Banner Midstream in two separate transactions on July 25, 2022 and September 7, 2022. In addition, it sold
the non-core business of Trend Discovery on June 17, 2022. The Company expects to distribute the common stock it received (or issuable
upon conversion of preferred stock) in the sales to its stockholders upon the effective registration statements for the two entities the
companies were sold to. See Note 13, “Mezzanine Equity” for information on the Company’s recent $
Impact of COVID-19
COVID-19 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.
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ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
COVID-19 did not have a material effect on the Consolidated Statements of Operations or the Consolidated Balance Sheets for the six months ended September 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.
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 has reflected the reclassification of assets and liabilities of these entities discontinued operations as of and for the period April 1, 2022 through July 31, 2022. The Company used July 31, 2022 as a cut-off as a majority of its revenue and expenses are billed on a monthly basis and it is more convenient to do so.
On September 7, 2022, the Company sold its transportation
business (Pinnacle Frac and Capstone) which is part of the Commodities segment. The Company has reflected the reclassification of assets
and liabilities of these entities discontinued operations as of and for the period April 1, 2022 through August 31, 2022. The Company
used August 31, 2022 as a cut-off as a majority of its revenue and expenses are billed on a monthly basis and it is more convenient to
do so. The shares the Company were issued by Enviro represent approximately
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ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
Current assets as of September 30, 2022 and March 31, 2022 – Discontinued Operations:
| September 30, 2022 | March 31, 2022 | |||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Prepaid expenses | ||||||||
| Enviro Technologies US Inc | ||||||||
| $ | $ | |||||||
Non-current assets as of September 30, 2022 and March 31, 2022 – Discontinued Operations:
| September 30, 2022 | March 31, 2022 | |||||||
| Goodwill | $ | $ | ||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | | |||||||
| Oil and gas properties, full cost-method | ||||||||
| Capitalized drilling costs, net of depletion | ||||||||
| Right of use asset – operating and financing leases | ||||||||
| Enviro Technologies US Inc. | ||||||||
| $ | $ | |||||||
Current liabilities as of September 30, 2022 and March 31, 2022 – Discontinued Operations:
| September 30, 2022 | March 31, 2022 | |||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Current portion of long-term debt | ||||||||
| Current portion of lease liability – operating and financing leases | | |||||||
| Enviro Technologies US Inc. | ||||||||
| $ | $ | |||||||
Non-current liabilities as of September 30, 2022 and March 31, 2022 – Discontinued Operations:
| September 30, 2022 | March 31, 2022 | |||||||
| Lease liabilities – operating and financing leases, net of current portion | $ | - | $ | |||||
| Long-term debt | - | |||||||
| Asset retirement obligations | - | |||||||
| Enviro Technologies US Inc. | ||||||||
| $ | $ | |||||||
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ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
The Company reclassified the following operations to discontinued operations for the six months ended September 30, 2022 and 2021, respectively.
| 2022 | 2021 | |||||||
| Revenue | $ | $ | ||||||
| Operating expenses | ||||||||
| Enviro Technologies US, Inc. – net loss | ( | ) | ||||||
| Other (income) loss | ( | ) | ||||||
| Net loss from discontinued operations | $ | ( | ) | $ | ( | ) | ||
The Company reclassified the following operations to discontinued operations for the three months ended September 30, 2022 and 2021, respectively.
| 2022 | 2021 | |||||||
| Revenue | $ | $ | ||||||
| Operating expenses | ||||||||
| Enviro Technologies US, Inc. – net loss | ( | ) | ||||||
| Other (income) loss | ( | ) | ||||||
| Net loss from discontinued operations | $ | ( | ) | $ | ( | ) | ||
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 | $ | $ | ||||||
The following represents the calculation of the loss on disposal of Banner Midstream Corp in two separate transactions – July 25, 2022 and September 7, 2022:
| 2022 | 2021 | |||||||
| Investment – White River Energy Corp./Enviro Technologies US, Inc. | $ | $ | ||||||
| Cash | ( | ) | ||||||
| Forgiveness of amounts due from subsidiaries | ( | ) | ||||||
| Reversal of investment booked on March 27, 2020 when acquired | ( | ) | ||||||
| Loss 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.
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ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
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. In the six months ended September 30, 2022 and 2021, the Company did not recognize revenue from continuing operations.
Bitcoin Mining
Prior to March 3, 2022, the Company recognized revenue for Bitcoin mining as follows:
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.
Effective September 16, 2022, Agora commenced efforts to become a power-centric hosting company and will recognize revenue, if any, in accordance with the provisions of ASC 606.
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ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
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 September 30, 2022, the Company has recognized $
NOTE 5: INVESTMENT – SERIES A CONVERTIBLE PREFERRED STOCK – WHITE RIVER ENERGY CORP
On July 25, 2022, the Company entered into a Share
Exchange Agreement pursuant to which that day it sold to WREC its oil and gas production business (White River) which is part of the Commodities
segment. The Company received
As of September 30, 2022, the Company has determined that Ecoark is not the primary beneficiary, and this transaction has not resulted in Ecoark controlling WREC as the preferred shares are unable to be converted until the effectiveness of the registration statement being filed for WREC, does not have the power to direct activities of WREC, control the Board of Directors of WREC and WREC is not reliant upon funding by Ecoark moving forward.
NOTE 6: INVESTMENT – COMMON STOCK – ENVIRO TECHNOLOGIES US, INC.
On August 23,
2022 the Company entered into a Share Exchange Agreement (the “Agreement”) with Enviro and Banner Midstream. Pursuant to the
Agreement, upon the terms and subject to the conditions set forth therein, the Company acquired
The Company has determined that this transaction has
resulted in Ecoark having a controlling interest in Enviro as the common shares issued represent
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ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
NOTE 7: BITCOIN
Agora commenced its Bitcoin mining operations
in November 2021. Through September 30, 2022,
The following table presents additional information about Agora’s Bitcoin holdings during the six months ended September 30, 2022:
| Beginning balance – April 1, 2022 | $ | | ||
| Gain on sale of Bitcoin | ||||
| Bitcoin converted into fiat currency | ( | ) | ||
| Bitcoin impairment losses | ( | ) | ||
| Ending balance – September 30, 2022 | $ |
NOTE 8: PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of September 30, 2022 and March 31, 2022:
| September 30, 2022 | March 31, 2022 | |||||||
| (unaudited) | ||||||||
| Zest Labs freshness hardware, equipment and computer costs | $ | | $ | | ||||
| Land | ||||||||
| Furniture | ||||||||
| Mining technology equipment– Bitcoin | ||||||||
| Machinery and equipment – Bitcoin | ||||||||
| Total property and equipment | ||||||||
| Accumulated depreciation and impairment | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
As of September 30, 2022, the Company performed
an evaluation of the recoverability of these long-lived assets. As a result of the evaluation, there was impairment of fixed assets necessary
in the amount of $
In September 2022, Agora renegotiated a settlement
with one of its vendors, and provided them transformers (in mining technology equipment) valued at $
Depreciation expense for the six months ended
September 30, 2022 and 2021 was $
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ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
NOTE 9: 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 $
On August 10, 2022, the Company had $
The Company has classified these payments as “Power Development Costs” as a noncurrent asset on the Consolidated Balance Sheets.
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.
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ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
See Note 13, “Mezzanine Equity” for the derivative liability recognized with respect to the warrant granted to Digital Power Lending, LLC.
On November 14, 2020, the Company granted
On December 30, 2020, the Company granted
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 September 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.
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ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
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 September 30, 2022, March 31, 2022 and at inception:
| Six
Months Ended September 30, 2022 | Year
Ended March 31, 2022 | Inception | ||||||||||
| Expected term | ||||||||||||
| Expected volatility | ||||||||||||
| Expected dividend yield | ||||||||||||
| Risk-free interest rate | ||||||||||||
| Market price | $ | $ |
The Company’s remaining derivative liabilities as of September 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.
| September 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 six months ended September 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 six months ended September 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 September 30, 2022 | $ |
Activity related to the warrant derivative liabilities for the six months ended September 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 September 30, 2021 | $ |
25
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
NOTE 11: LONG-TERM DEBT
Long-term debt included in continuing operations consisted of the following as of September 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.
| September 30, 2022 | March 31, 2022 | |||||||
| (unaudited) | ||||||||
| Credit facility -Trend Discovery SPV 1, LLC (a) | $ | $ | ||||||
| Auto loan – Ford (b) | ||||||||
| Total long-term debt | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Long-term debt, net of current portion | $ | $ | ||||||
| (a) |
| (b) |
26
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
The following is a list of maturities as of September 30:
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| $ |
During the six months ended September 30, 2022,
the Company received proceeds of $
During the six months ended September 30, 2021,
the Company repaid $
Interest expense on long-term debt during the
six months ended September 30, 2022 and 2021 are $
NOTE 12: NOTES PAYABLE - RELATED PARTIES
A Board member advanced $
An officer of the Company advanced $
27
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 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 has agreed not to vote at the shareholders meeting on the proposal to approve the issuance of the additional common stock issuable due to the reduced conversion price.
Dividend Rights
The holder of shares of the Ecoark Series A is
entitled to receive cumulative cash dividends at an annual rate of
28
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 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:
| (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.
29
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
Warrant
Prior to its cancellation, the Warrant, as amended, provided 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 was to vest and become exercisable into shares of the Company’s stock if as of June 8, 2024: (i) the Company had failed to complete the distributions to the Company’s security holders or to any other subsidiary of the Company’s equity ownership of its three principal subsidiaries: Agora, Banner Midstream and Zest Labs (or their principal subsidiaries) (the “Distributions”), and/or (ii) the Holder together with its affiliates does not beneficially own at least 50% of the Company’s outstanding common stock. Provided, the Company must retain 20% of its common stock of Agora. The Warrant was to be exercised on a cashless basis and expire on June 8, 2027.
On November 14, 2022,
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 $
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 and restated warrant.
30
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
NOTE 14: STOCKHOLDERS’ EQUITY (DEFICIT)
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 1:00 p.m., Eastern Time, on September 9, 2022, at which the shareholders of the Company approved 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. |
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
On
September 9, 2022, the shareholders approved the increase in authorized common stock to
31
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
In the three months ended June 30, 2021, the Company
issued
In the three months ended September 30, 2021,
the Company issued
In the three months ended June 30, 2022, the Company
issued
In the three months ended September 30, 2022,
the Company issued
As of September 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
On August 7, 2022, Agora issued
Of the
32
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
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 six months ended September 30, 2022 and 2021.
Share-based compensation for the six months ended
September 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 $
In order to have sufficient authorized capital
to raise the $
33
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
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, Inc. and Zest Labs, Inc. filed
a complaint against Walmart Inc. 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 and Zest a total of $ |
| ● | On September 21, 2021, Ecoark Holdings, Inc. and Zest Labs, Inc. 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, Inc. began working with Deloitte in 2016, in a confidential matter in a pilot program that Zest Labs, Inc. had been engaged for by Walmart. Zest Labs, Inc. engaged in significant discussions, presentations, demonstrations, and information downloads with Deloitte who specifically acknowledged that this information was confidential. Deloitte’s motion to dismiss was denied, it filed an answer denying substantive allegations and the parties are engaging in discovery. The Company cannot reasonably determine the outcome and potential reward at this time. |
| ● | On April 22, 2022, BitStream Mining and Ecoark Holdings were sued in
Travis County, Texas District Court (Docket #79176-0002) by Print Crypto Inc. in the amount of $ |
| ● | On July 15, 2022, BitStream Mining and two of their Management were
parties to a petition filed in Ward County District Court by 1155 Distributor Partners-Austin, LLC d/b/a Lonestar Electric Supply 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.
34
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
NOTE 16: CONCENTRATIONS
The Company occasionally maintains cash balances in excess of the FDIC insured limit. The Company does not consider this risk to be material.
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, prepaid expenses, other receivables, accounts payable and accrued liabilities, notes payable, and amounts due to related parties. The fair value of cash is determined based on Level 1 inputs. There were no transfers into or out of “Level 3” during the six months ended September 30, 2022 and 2021. The recorded values of all other financial instruments approximate its current fair values because of its 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) | |||||||||||||
| September 30, 2022 | ||||||||||||||||
| Warrant derivative liabilities | $ | $ | $ | $ | ||||||||||||
| Bitcoin | ( | ) | ||||||||||||||
| Investment – White River Energy Corp | ||||||||||||||||
| March 31, 2022 | ||||||||||||||||
| Warrant derivative liabilities | $ | $ | $ | $ | ||||||||||||
| Bitcoin | ( | ) | ||||||||||||||
35
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
The table below shows a reconciliation of the beginning and ending liabilities measured at fair value using significant unobservable inputs (Level 3):
| September 30, 2022 | ||||
| (unaudited) | ||||
| Beginning balances | $ | ( | ) | |
| Net change in unrealized (depreciation) appreciation included in earnings | ||||
| Purchases | ||||
| Sales | ||||
| Transfers in and out | ||||
| Ending balances | $ | |||
NOTE 18: LEASES
The Company has adopted ASU No. 2016-02, Leases
(Topic 842), as of April 1, 2019 and will account for its 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 a discount rate of
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.
As of September 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 September 30, | ||||
| 2023 | $ | |||
| 2024 | $ | |||
| 2025 | $ | |||
| 2026 | $ | |||
| 2027 | $ | |||
| Imputed interest | $ | ( | ) | |
| Total lease liability | $ | |||
| Disclosed as: | ||||
| Current portion | $ | |||
| Non-current portion | $ | |||
| Amortization of the right of use asset for the period ended September 30, | ||||
| 2023 | $ | |||
| 2024 | $ | |||
| 2025 | $ | |||
| 2026 | $ | |||
| 2027 | $ | |||
| Total | $ | |||
36
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
Total Lease Cost
Individual components of the total lease cost incurred by the Company is as follows:
| Operating lease expense – six months ended September 30, 2022 and 2021 | $ | $ | ||||||
| Operating lease expense – three months ended September 30, 2022 and 2021 | $ | $ |
NOTE 19: 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
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, William B. Hoagland, the then Chief Financial Officer of the Company, 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 $
37
ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
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
$
NOTE 20: SUBSEQUENT EVENTS
Subsequent to September 30, 2022, the Company had the following transactions:
On October 28, 2022, the Company and Ecoark, Inc. assigned all of its residual intellectual property rights and rights in the Zest Labs lawsuits to Zest Labs in connection with the anticipated spin-off of Zest Labs common stock to the Company’s stockholders. The Board of Directors subsequently determined not to proceed with the Zest Labs spin-off, however the assignment was not affected by that determination.
On November 14, 2022,
38
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.
Overview
Ecoark Holdings Inc. (“Ecoark Holdings,” “Ecoark” or the “Company”) is a holding company, incorporated in the State of Nevada on November 19, 2007. Through September 30, 2022, Ecoark Holdings’ former subsidiaries with the exception of Agora Digital Holdings, Inc., a Nevada corporation (“Agora”) and Zest Labs, Inc. (“Zest Labs”) have been divested. See Notes 1 and 2 to the financial statements included in this Report. As a result of the divestitures, all assets and liabilities of the former subsidiaries have been reclassified to discontinued operations on the condensed consolidated balance sheet for March 31, 2022 and all operations of these companies have been reclassified to discontinued operations and gain on disposal on the condensed consolidated statements of operations for the six and three months ended September 30, 2022.
Prior to the recent divestitures, the Company’s principal subsidiaries consisted of Ecoark, Inc., a Delaware corporation which was the parent of Zest Labs, Banner Midstream Corp., a Delaware corporation (“Banner Midstream”) and 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.
Recent Developments
During the period covered by this Report, the Company engaged in the following transactions:
| ● | On July 25, 2022 the Company sold White River Holdings Corp (“White River”) and with it its oil and gas production business to White River Energy Corp, formerly Fortium Holdings Corp. (“WREC”) in exchange for 1,200 shares of WREC’s non-voting Series A Convertible Preferred Stock (the “WREC Series A”). Subject to certain terms and conditions set forth in the Certificate of Designation of the WREC Series A, the WREC Series A will become convertible into 42,253,521 shares of WREC’s common stock upon such time as (A) WREC has filed a Form S-1, with the Securities and Exchange Commission (the “SEC”) and such Form S-1 has been declared effective, and (B) Ecoark elects to distribute shares of its common stock to its shareholders. | |
| ● | On August 23, 2022 the Company sold Banner Midstream, which consisted of its transportation business to Enviro Technologies US, Inc. (“Enviro”) in exchange for 12,996,958 shares of the Enviro common stock. | |
| ● | In September 2022, the Company announced a record date of September 30, 2022 for the spin-offs of common stock of Enviro and WREC to holders of the Company’s common stock and preferred stock (on an as-converted basis). |
The Company’s goal is to spin-off all of the Enviro common stock and WREC common stock to the Company’s shareholders in early calendar year 2023, although because of regulatory delays or other reasons 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 material discussions about any such acquisition, and our search for an operating business to acquire in ongoing.
Future Spin-Offs
As described in this Report, Ecoark’s goal is to spin-off certain of the capital stock it holds in operating businesses and acquire an operating business. This will entail the common stock of WREC underlying the WREC Series A and the Enviro common stock that the Company acquired in July and September 2022, respectively. While the Company previously planned on spinning off Zest Labs common stock in a similar fashion, the Company decided not to proceed with that spin-off. Due to market conditions, the Company decided it was inadvisable to seek to raise capital for Zest Labs which it needed to operate as a stand-alone public company. To protect the Company’s shareholders, it granted its shareholders of record as of September 30, 2022 the right to receive 95% of the net proceeds of the Zest Labs litigation with Walmart and Deloitte, which is describe under Note 15 to the financial statements contained in this Report. That right is part of the Zest Labs articles of incorporation.
39
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.
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 in early calendar year 2023, although we may not reach our goal by then. If it is necessary to maintain our Nasdaq listing, we may delay one spin-off until we can acquire one or more new businesses. 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 only remaining subsidiaries are Agora, which ceased mining Bitcoin but is now exploring operating as a hosting company for Bitcoin mining ventures, and Zest Labs which holds technology and related intellectual property rights for fresh food solutions, and is not operating due to ongoing litigation involving its technology an intellectual property.
Segment Reporting for the Three Months Ended September 30, 2022:
As a result of the sales of White River and Banner Midstream, and the immaterial nature of the operations of Zest Labs, the Company no longer segregates its operations as most of the continuing operations are related to Agora.
Key Trends
Impact of Inflation
In 2022, there has been a sharp rise in inflation in the U.S. and globally. Given our limited operations, the most significant future impact will be on employee salaries and benefits and electricity costs.
Impact of COVID-19
COVID-19 may continue to affect the economy and our business, 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 September 30, 2022 included in this Report.
COVID-19 has been a contributing factor in supply and labor shortages which have been pervasive in many industries. The extent to which a future 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.
Results of Operations For Continuing Operations For the Three Months Ended September 30, 2022 and 2021 Revenues
The discussion of our results of operations should be evaluated considering that our primary subsidiaries were sold in the three months ended September 30, 2022 and their results of operations are now treated as discontinued operations.
The Company had no revenue in either of the three months ended September 30, 2022 (“Q2 2023”) or 2021 (“Q2 2022”) as it was not operating as a Bitcoin mining company as it focuses on becoming a hosting company as reflected below. The Company is negotiating potential hosting agreements, however, none of been executed as of the date of this Report.
The Company’s Bitcoin operations began in the fiscal year ended March 31, 2022 and 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. The Company intends to refocus Agora, which given the Zest Labs litigation is expected to be its primary operating entity in the short-term, to operating as a hosting company providing infrastructure and energy to cryptocurrency mining enterprises. Unless and until we are successful in generating revenue for Agora or acquire another operating business, we expect our lack of revenue to persist.
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Cost of Revenues and Gross Profit
Cost of revenues for Q2 2023 was $88,212 as compared to $0 for Q2 2022. We expect cost of revenues to increase as and when we commence Agora’s planned hosting operations.
Operating Expenses
Total operating expenses were $7,607,202 for Q2 2023 compared to $4,166,386 for Q2 2022. The increase between periods were primarily related to an increase in salaries and salaries related costs to $3,707,971 in Q2 2023 from $1,370,841 in Q2 2022 arising from the stock-based compensation in Q2 2023 compared to Q2 2022, and to a lesser extent an approximately $1.6 million increase in impairment related to the miners that Agora had purchased as it has moved to a hosting model from a mining model for Bitcoin.
Other Income (Expense)
Total other income was $2,433,332 in Q2 2023, compared to total other (expense) of $(633,951) in Q2 2022. Change in fair value of derivative liabilities for Q2 2023 was a non-cash gain of $3,286,004 related to the changes in our stock price, partially offset by a loss on disposal of fixed assets of $(570,772) related to Agora’s settlement wherein mining equipment valued at $1,425,772 were exchanged with a vendor for a credit of $855,000; and interest expense, net of interest income of $(281,900). Change in fair value of derivative liabilities for Q2 2022 was a non-cash (loss) of $(630,142) related to the changes in our stock price.
Net Income (Loss) from Continuing Operations
Net loss from continuing operations for Q2 2023 was ($5,262,082) as compared to net (loss) from continuing operations of ($4,800,337) for Q2 2022. The increase was primarily due to the additional operating expenses as noted above offset by the change in the fair value of the derivative liability.
Results of Operations For Continuing Operations For the Six Months Ended September 30, 2022 and 2021 Revenues
The Company had no revenue in either of the six months ended September 30, 2022 (“H1 2023”) or 2021 (“H1 2022”) as it was not operating as it ceased its Bitcoin mining operations prior to H1 2023, and was not operating as a Bitcoin mining company as of the H1 2022.
Cost of Revenues and Gross Profit
Cost of revenues for H1 2023 was $182,074 as compared to $0 for H1 2022. We expect cost of revenues to increase as and when we commence Agora’s planned hosting operations.
Operating Expenses
Total operating expenses were $14,903,921 for H1 2023 compared to $6,082,158 for H1 2022. The increase between periods were primarily related to an increase in salaries and salaries related costs to $9,718,030 in H1 2023 from $2,344,854 in H1 2022 arising from the stock-based compensation of $9,217,208 in H1 2023 versus $767,000 in H1 2022, and to a lesser extent an approximately $1.6 million increase related to the impairment of the miners that Agora had purchased as it has moved to a hosting model from a mining model for Bitcoin.
Other Income (Expense)
Total other income was $2,002,972 in H1 2023, compared to total other income of $3,758,522 in H1 2022. Change in fair value of derivative liabilities for H1 2023 was a non-cash gain of $2,892,472, partially offset by a loss on disposal of fixed assets of $(570,772) related to Agora’s settlement wherein mining equipment valued at $1,425,772 were exchanged with a vendor for a credit of $855,000; and interest expense, net of interest income of $(318,728). Change in fair value of derivative liabilities for H1 2022 was a non-cash gain of $4,315,677, partially offset by interest expense, net of interest income of $(557,155).
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Net Income (Loss) from Continuing Operations
Net loss from continuing operations for H1 2023 was ($13,083,023) as compared to net loss from continuing operations of ($2,323,636) for H1 2022. The increase was primarily attributable to increases in salaries and salaries related costs and our H1 2023 impairment charge, partially offset by the change in the fair value of the derivative liabilities.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are revenue generated from operations, levels of accounts receivable and accounts payable and capital expenditures.
Net cash used in operating activities for continuing operations was $(11,009,363) for H1 2023, as compared to $(7,560,708) for H1 2022. Cash used in operating activities for H1 2023 was primarily caused by increases in common shares issued for services, partially offset by losses on disposal of former subsidiaries without similar amounts in H1 2022 as well as changes in accounts payable and accrued expenses from H1 2022 to H1 2023.
Net cash provided by investing activities was $139,732 for H1 2023 compared to net cash used in investing activities of $(4,547,868) for H1 2022. Net cash provided by investing activities in H1 2023 were comprised of proceeds received from the refund of the power development costs partially offset by purchases of fixed assets and discontinued operations, and the amounts used in H1 2022 related to the purchase of fixed assets as we commenced operations in Agora.
Net cash provided by financing activities for H1 2023 was $11,770,856 which comprised primarily of proceeds from our June 2022 sale of the Ecoark Series A, Commitment Shares described elsewhere in this Report. This compared with H1 2022 net cash provided by financing activities of $17,728,209 comprised primarily of the sale of our common stock in a registered direct offering.
As of November 11, 2022, the Company has $296,959 in cash and cash equivalents. The Company believes that the current cash on hand is not sufficient to conduct planned operations for one year from the issuance of the consolidated financial statements and may need to raise capital to support their operations.
To date we have financed our operations through sales of common stock, convertible preferred stock and other derivative securities and the issuance of debt. We may also issue common stock, preferred stock or other securities in connection with any business acquisition we undertake in the future following our planned spin-offs. Presently we may not raise capital without the consent of the Purchaser.
The Company’s financial statements are prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company sold its interests in Banner Midstream in two separate transactions on July 25, 2022 and September 7, 2022. In addition, it sold the non-core business of Trend Discovery on June 17, 2022. The Company expects to distribute the common stock it received (or issuable upon conversion of preferred stock) in the sales to its stockholders upon the effective registration statements for the two entities the companies were sold to. See Note 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. The Company believes that the current cash on hand is not sufficient to conduct planned operations for one year from the issuance of the consolidated financial statements and may need to raise capital to support their operations. As of September 30, 2022, the Company has not established an ongoing source of revenue sufficient to cover its operating costs and to allow it to continue as a going concern and will require additional financing to fund its future planned operations. The accompanying financial statements for the period ended September 30, 2022 have been prepared assuming the Company will continue as a going concern, but the ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes a revenue stream and becomes profitable. Management’s plans to continue as a going concern include raising additional capital through sales of equity securities and borrowing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. If the Company is not able to obtain the necessary additional financing on a timely basis, the Company will be required to delay, reduce or perhaps even cease the operation of its business. The ability of the Company to continue as a going concern is dependent upon its ability to successfully secure other sources of financing and attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Agora Line of Credit
As of November 11, 2022, the Company has advanced a total of $5,448,982 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.
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 $570,000 being deposited directly into the Company. In the six months ended September 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 $710,000 in the six months ended September 30, 2022. Interest incurred for the six months ended September 30, 2022 was $41,427, and accrued as of September 30, 2022 was $43,650. There were no advances in the six months ended September 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 planned spin-offs by us to our security holders of certain entities’ common stock and plans to file registration statements in connection therewith, our plans to acquire an operating business following or in connection with the completion of the planned spin-offs to avoid becoming a shell company and maintain our Nasdaq listing, the expected changes to Agora’s business, anticipated or potential transactions with BitNile and/or its affiliates, our expectations with respect to future developments in our ongoing litigation, and our liquidity. All statements other than statements of historical fact are “forward-looking statements” including: any projections of earnings, revenues or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.
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 our planned spin-offs any regulatory, registration or other delays or obstacles that may arise with respect thereto, our ability to negotiate a transaction with BitNile and obtain shareholder approval as required, risks and uncertainties relating to undisclosed liabilities or the integration of such entities with the acquiring entity if any such transaction closes, , due to a recessionary environment, inflation, or other factors beyond our control, our ability to refocus Agora into a hosting company, which may prove difficult based on our negotiations and agreements with vendors and challenges in securing our maintaining relationships with customers operating cryptocurrency mining businesses, the future price of Bitcoin and other cryptocurrencies if we host any mining for them, regulatory uncertainties and risks relating to other cryptocurrencies, 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, any issues which could result in unfavorable outcomes of one or both of our ongoing Zest Labs lawsuits, and the availability of capital on acceptable terms when needed or at all. 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. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.
Critical Accounting Policies, Estimates and Assumptions
The critical accounting policies listed below are those the Company deems most important to its 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.
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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 |
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.
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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. Although, Agora since March 3, 2022, has not recognized revenue from its mining operations, prior to this time, it recognized revenue upon satisfaction of its performance obligation 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.
Hosting Revenues
Agora effective in September 2022 began efforts to generate revenue via hosting agreements. As of September 30, 2022 and the date of this Report, Agora has not executed any such agreements. If Agora generates hosting revenues, it will follow ASC 606 as outlined above and recognize revenue upon the completion of the performance obligations as stipulated under such hosting agreements.
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.
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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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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 September 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.
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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
On November 14, 2022, the Company and the warrant holder canceled the warrant, as subsequently amended and restated, which was originally issued to the holder on June 8, 2022 in connection with a private sale by the Company to the holder of the warrant and preferred stock and common stock for a total purchase price of $12 million. The warrant cancellation was made in exchange for $100 as the Company has substantially met the conditions under Section 1(a) of the warrant. The warrant was filed as an exhibit 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 and restated warrant.
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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.
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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: November 21, 2022 | By: | /s/ Randy May |
| Randy May | ||
| Chief Executive Officer | ||
| Date: November 21, 2022 | By: | /s/ Jay Puchir |
| Jay Puchir | ||
| Chief Financial Officer | ||
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