UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
For the quarterly period ended:
For the transition period from _______ to _______
Commission File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) | (Zip Code) | (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
The Nasdaq Stock Market LLC (The |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
State the number of shares outstanding of each
of the issuer’s classes of common stock, as of the latest practicable date:
TABLE OF CONTENTS
i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BITNILE METAVERSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2023 | March 31, 2023 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Accounts receivable | ||||||||
Investment - White River Energy Corp. (“WTRV”) | ||||||||
Prepaid expenses and other current assets | ||||||||
Current assets of discontinued operations held for sale | ||||||||
TOTAL CURRENT ASSETS | ||||||||
Property and equipment, net | ||||||||
Intangible assets, net | ||||||||
Right-of-use assets, operating leases | ||||||||
Other noncurrent assets | ||||||||
Non-current assets of discontinued operations/held for sale | ||||||||
TOTAL ASSETS | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | $ | ||||||
Dividends payable | ||||||||
Accrued liabilities | ||||||||
Convertible note - derivative liability | ||||||||
Preferred stock and warrant derivative liabilities, net | ||||||||
Current portion of long-term debt | ||||||||
Advances - former parent of Bitnile.com, Inc. | ||||||||
Current portion of convertible note payable | ||||||||
Current portion of lease liability - operating leases | ||||||||
Current liabilities of discontinued operations/held for sale | ||||||||
TOTAL CURRENT LIABILITIES | ||||||||
LONG TERM LIABILITIES | ||||||||
Operating lease liability, non-current | ||||||||
Long-term debt net of current portion | ||||||||
Non-current liabilities of discontinued operations/held for sale | ||||||||
TOTAL LIABILITIES | ||||||||
STOCKHOLDER’S DEFICIT: | ||||||||
Preferred stock, $ | ||||||||
Series B Preferred stock, | ||||||||
Series C Preferred stock, | ||||||||
Common Stock, $ | ||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total stockholders’ deficit before non-controlling interest | ( | ) | ( | ) | ||||
Non-controlling interest | ( | ) | ( | ) | ||||
TOTAL STOCKHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
BITNILE METAVERSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended June 30, | ||||||||
2023 | 2022 | |||||||
Hospitality and VIP experience revenue | $ | $ | ||||||
Cost of revenue | ||||||||
Gross loss | ( | ) | ( | ) | ||||
Operating expenses: | ||||||||
Depreciation, amortization and impairment | ||||||||
Bad debt | ||||||||
Selling, general and administration | ||||||||
Salaries and professional consulting fees | ||||||||
Total operating expenses | ||||||||
Operating loss | ( | ) | ( | ) | ||||
Other income (expense) | ||||||||
Change in fair value of warrant derivative liabilities | ( | ) | ||||||
Change in fair value of preferred stock derivative liabilities | ||||||||
Change in fair value of convertible note derivative liability | ||||||||
Derivative expense | ( | ) | ||||||
Amortization of original issue discount | ( | ) | ||||||
Dividend expense | ( | ) | ||||||
Interest expense, net of interest income | ( | ) | ( | ) | ||||
Total other income (expense) | ( | ) | ||||||
Income (loss) from continuing operations before discontinued operations | ( | ) | ||||||
Discontinued operations | ||||||||
Loss from discontinued operations | ( | ) | ( | ) | ||||
Gain on disposal of discontinued operations | ||||||||
Total loss discontinued operations | ( | ) | ( | ) | ||||
Net income (loss) | ( | ) | ||||||
Net loss attributable to non-controlling interest | ||||||||
Net income (loss) to controlling interest | ( | ) | ||||||
Less preferred stock dividends | ||||||||
Net income (loss) to controlling interest of common shareholders | $ | $ | ( | ) | ||||
Net income (loss) per share – basic and diluted (See Note 1) | ||||||||
Net income (loss) continuing operations: | $ | $ | ( | ) | ||||
Net loss discontinued operations: | $ | ( | ) | $ | ( | ) | ||
Net income (loss) per share | ( | ) | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
BITNILE METAVERSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED JUNE 30, 2023 AND 2022
(UNAUDITED)
Common Stock | Additional Paid in | Accumulated | Non-controlling | Total Stockholders’ | ||||||||||||||||||||
Shares | Amount | Capital | Deficit | interest | Deficit | |||||||||||||||||||
Balance, March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
Shares issued for cash under ATM, net of fees | ||||||||||||||||||||||||
Shares issued for preferred stock dividends | ||||||||||||||||||||||||
Shares issued by Agora Digital Holdings, Inc. for services rendered, net of amounts prepaid | - | |||||||||||||||||||||||
Share-based compensation | - | |||||||||||||||||||||||
Net income (loss) | - | ( | ) | |||||||||||||||||||||
Balance, June 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) |
Common Stock | Additional Paid in | Accumulated | Treasury | Non-controlling | Total Stockholders’ | |||||||||||||||||||||||
Shares | Amount | Capital | Deficit | Stock | interest | Deficit | ||||||||||||||||||||||
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 | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
Preferred dividends | - | ( | ) | ( | ) | |||||||||||||||||||||||
Balance, June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
BITNILE METAVERSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended June 30, | ||||||||
Cash flows from operating activities: | 2023 | 2022 | ||||||
Net income (loss) | $ | $ | ( | ) | ||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Change in non-controlling interest | ( | ) | ( | ) | ||||
Amortization of discount | ||||||||
Depreciation, amortization, impairment, depletion, and accretion | ||||||||
Impairment - digital assets | ||||||||
Legal costs for ATM facility | ||||||||
Share-based compensation | ||||||||
Change in fair value of warrant derivative liabilities | ( | ) | ||||||
Change in fair value of preferred stock derivative liabilities | ( | ) | ||||||
Change in fair value of convertible note derivative liability | ( | ) | ||||||
Derivative (income) expense | ||||||||
Shares issued for preferred dividend | ||||||||
Common stock issued for services - Agora Digital Holdings, Inc. | ||||||||
Commitment fees on long-term debt | ||||||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable | ( | ) | ||||||
Prepaid expenses | ||||||||
Accrued interest receivable | ( | ) | ||||||
Dividends payable | - | |||||||
Amortization of right of use asset - operating leases | ||||||||
Accounts payable | ||||||||
Accrued expenses | ||||||||
Operating lease liability | ( | ) | ( | ) | ||||
Total adjustments | ( | ) | ||||||
Net cash used in operating activities of continued operations | ( | ) | ( | ) | ||||
Net cash provided by (used in) discontinued operations | ( | ) | ||||||
Net cash used in operating activities | ( | ) | ( | ) | ||||
Cash flows from investing activities: | ||||||||
Discontinued operations | ||||||||
Cash provided by investing activities | ||||||||
Cash flows from financing activities: | ||||||||
Proceeds from former parent of Bitnile.com, Inc. | ||||||||
Redemption of preferred stock | ( | ) | ||||||
Proceeds from note - related party | ||||||||
Payments on note - related party | ( | ) | ||||||
Payments of long-term debt | ( | ) | ( | ) | ||||
Proceeds from long-term debt | ||||||||
Proceeds from the sale of common stock under ATM, net | ||||||||
Proceeds from convertible note | ||||||||
Proceeds from the exercise of warrants into common 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 (decrease) increase in cash and cash equivalents | ( | ) | ||||||
Cash at beginning of period | ||||||||
Cash at end of period | $ | $ | ||||||
SUPPLEMENTAL DISCLOSURES | ||||||||
Cash paid for interest expense | $ | $ | ||||||
SUMMARY OF NON-CASH ACTIVITIES | ||||||||
Issuance costs on mezzanine equity | $ | $ | ||||||
Reclassification of convertible notes and warrants to derivative liability | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
BITNILE METAVERSE, INC. AND SUBSIDIAIRES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
(UNAUDITED)
1. DESCRIPTION OF BUSINESS
Overview
On March 15, 2023, Ecoark Holdings Inc. changed
its name to BitNile Metaverse Inc. (“BitNile Metaverse” or the “Company”). The Company is a holding company, incorporated
in the State of Nevada on November 19, 2007. On February 8, 2023, the Company entered into a Share Exchange Agreement (the “SEA”)
by and among Ault Alliance, Inc. (“AAI”), the former owner of
Through June 30, 2023, the Company’s former wholly owned subsidiaries with the exception of Agora Digital Holdings, Inc., a Nevada corporation (“Agora”) and Zest Labs, Inc. (“Zest Labs”) have been treated for accounting purposes as divested. Please refer to our Annual Report for the year ended March 31, 2023 (“2023 Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on July 14, 2023 for details on all of our prior subsidiaries that were divested in the year ended March 31, 2023 and an overview of the business conducted in those subsidiaries. This quarterly report on Form 10-Q (the “Report”) includes only those subsidiaries as of June 30, 2023. The comparative financial statements for the three months ended June 30, 2022 reflect the operations of those subsidiaries that were sold during the year ended March 31, 2023 as discontinued operations in the condensed consolidated statements of operations and as assets and liabilities of discontinued operations on the condensed consolidated balance sheets.
The BitNile.com metaverse (the “Metaverse”) represents a significant development in the online metaverse landscape, offering immersive, interconnected digital experiences that are inclusive, engaging, and dynamic. By integrating various elements such as virtual markets, real world goods marketplaces and VIP experiences, gaming, social activities, sweepstakes, gambling, and more, the Company aims to revolutionize the way people interact online. The Company’s growing virtual world, BitNile.com (the “Platform”) is accessible via any device using any web browser, without requiring permissions, downloads, or apps, and the Platform can be enjoyed without the need for bulky and costly virtual reality headsets.
Our games operate on a free-to-play model, whereby game players may collect coins free of charge through the passage of time and if a game player wishes to obtain coins above and beyond the level of free coins available to that player, the player may purchase additional coin packages (“Freemium” gaming model). Once obtained, Nile Tokens (“NT”) and Nile Coins (“NC”), (either free or purchased) cannot be redeemed for cash nor exchanged for anything outside of the Metaverse. When coins are used and played in the games, the game player could “win” and would be awarded additional coins or could “lose” and lose the future use of those coins. We have concluded that the coins represent both consumable goods and durables, because 1) the game player does not receive any additional benefit from the game and is not entitled to any additional rights once the coins are consumed and 2) because once coins are used for the purchase of durable goods, those goods will continue to benefit the player throughout their gaming life cycle.
In December 2022, Agora entered into a Master Services Agreement (“MSA”) with Sentinum, Inc. (formerly, BitNile, Inc.), a Nevada corporation and wholly owned subsidiary of AAI (“Sentinum”), governing the relationship between the parties and the services provided by Agora to the Company, which include providing the Company with digital asset mining hosting services in exchange for a monthly fee to be set out in applicable service orders. The terms of that MSA have not been met due to lack of capital by the Company to bring its 12MW of hosting power online.
The Company holds no cryptocurrency and is not an owner of any digital wallets containing currencies other than fiat currency.
5
2. LIQUIDITY AND GOING CONCERN
For the three months ended June 30, 2023 and 2022,
the Company had a net income (loss) to controlling interest of common stockholders 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 17, “Preferred Stock” for information on the Company’s recent $
The Company believes
that the current cash on hand is not sufficient to conduct planned operations for one year from the issuance of the condensed consolidated
financial statements, and it needs to raise capital to support its operations, raising substantial doubt about its ability to continue
as a going concern. The accompanying financial statements for the period ended June 30, 2023 have been prepared assuming the Company will
continue as a going concern, but the ability of the Company to continue as a going concern is dependent on the Company obtaining adequate
capital to fund operating losses until it establishes continued revenue streams and becomes profitable. Management’s plans to continue
as a going concern include raising additional capital through sales of equity securities and borrowing. However, management cannot provide
any assurances that the Company will be successful in accomplishing any of its plans. If the Company is not able to obtain the necessary
additional financing on a timely basis, the Company will be required to delay, reduce or perhaps even cease the operation of its business.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully secure other sources of financing
and attain profitable operations. The Company raised approximately $
3. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Regulation S-X and do not include all the information and disclosures required by generally accepted accounting principles in the United States of America (“GAAP”). The Company has made estimates and judgments affecting the amounts reported in the Company’s condensed consolidated financial statements and the accompanying notes. The actual results experienced by the Company may differ materially from the Company’s estimates. The condensed consolidated financial information is unaudited but reflects all normal adjustments that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements in the Company’s 2023 Annual Report on Form 10-K for the year ended March 31, 2023, filed with the Securities and Exchange Commission (the “SEC”) on July 14, 2023. The consolidated balance sheet as of March 31, 2023 was derived from the Company’s audited 2023 financial statements contained in the above referenced 2023 Annual Report. Results of the three months ended June 30, 2023, are not necessarily indicative of the results to be expected for the full year ending March 31, 2024.
Reclassifications
The Company has reclassified certain amounts in the June 30, 2022 condensed consolidated financial statements to be consistent with the June 30, 2023 presentation, including the reclassification of our prior subsidiaries that were sold as discontinued operations. These changes had no impact on the Company’s financial position or result of operations for the periods presented.
6
Noncontrolling Interests
In accordance with Accounting Standards Codification
(“ASC”) 810-10-45 Noncontrolling Interests in Consolidated Financial Statements, the Company classifies noncontrolling
interests as a component of equity within the 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
Significant Accounting Policies
Other than as noted below, there have been no material changes to the Company’s significant accounting policies previously disclosed in the 2023 Annual Report.
Gaming Revenue
Gaming revenue will be recognized from the Metaverse website primarily through the sale of tokens or coins that provide the end user with interactive entertainment (game play) and durable goods principally for the PC and mobile platforms. The Company primarily offers the following:
1. | Metaverse access – Provide access to main game content. |
2. | Sale of NTs – NT’s can be used for additional digital game play only |
3. | Sale of NCs –NC’s can be used to participate in games of skill, buy durable goods, etc. all within the digital platform | |
4. | SweepCoins (“SC”) – Users can use SC to enter sweepstakes type games with a potential to win both digital goods and real world cash and prizes. |
While the revenue received from the sale of NT and NC’s (collectively the “coins”) is currently nominal, we believe that our operation of the BitNile.com website could be a scalable source of revenue in the future. Additionally, we expect the website will be a mechanism to help increase our brand reputation and recognition by participants, which we believe will result in the acquisition and monetization of new users to the site.
During the three month periods ended June 30, 2023 and 2022 we recognized no revenues from Metaverse coin sales.
Hospitality and VIP Services Revenue
Hospitality revenue currently consists of revenue from services provided to groups at certain social functions and sporting events. We also sell real world VIP experiences and one-of-a-kind products. Hospitality and VIP service revenue is generated through contracts with customers whereby the customer agrees to pay a contract rate, determined based on common industry prices, for the services we provide.
The Company recognizes revenue when performance obligations to provide food and services are satisfied at the point in time when the food and services are received by the customer, which is when the event is held and services are complete.
The Company recognizes revenue on a gross basis due to the fact that we have control over the food and services and the ability to direct the offerings to multiple end consumers while also ultimately determining the relative pricing offered for the services. For certain events we also use certain subcontractors that we select and hire to help transfer services to the end customer. We have evaluated our agreements with our food and service subcontractors and based on the preceding, we determined that the Company is the principal in such arrangements and the third-party food and service suppliers are the agent in accordance with ASC 606 Revenue from Contracts with Customers. As the principal, the Company recognizes revenue in the gross amount and as such, recognizes any fees paid to subcontractors as cost of revenues. Any future changes in these arrangements or to the Company’s games and related method of distribution may result in a different conclusion.
Concentrations
The Company occasionally maintains cash balances in excess of the Federal Deposit Insurance Corporation insured limit. The Company does not consider this risk to be material.
7
Segment Reporting
As of June 30, 2023 Agora has not been able to secure additional funding to be able to provide services and infrastructure to Sentinum as the MSA previously entered into contemplated. As Agora has not engaged in any business activities, it is uncertain if financing will be obtained in order to build out the hosting facility to be able to engage in business activities and there are no operations for management to evaluate Agora as an operating segment, the Company does not segregate its operations as most of the continuing operations relate to BNC.
Net Income (Loss) Per Share
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.
During the three months ended the Company reported net income which was the result of the change in fair value of the derivative liabilities. Removing the mark to market impact leads to a net loss which is anti-dilutive in nature. Therefore, there will be no dilutive impact resulting from the change in the fair value of the derivative liabilities since all dilutive instruments are out of the money.
Recently Issued Accounting Standards
The Company does not expect that any recently issued accounting guidance will have a significant effect on its condensed consolidated financial statements.
8
4. DISCONTINUED OPERATIONS
As discussed in Note 1 and in our 2023 Annual
Report, during the year ended March 31, 2023, we sold all of our subsidiaries other than Agora and Zest Labs. Our loss from discontinued
operations includes Banner Midstream Corp and Trend Discovery for the three months ended June 30, 2022 which was sold in two separate
transactions on July 25, 2022 and September 7, 2022. In addition on June 17, 2022, Agora sold all of its non-Bitcoin operations to a third
party. We reflect the assets and liabilities of Wolf Energy Services, Inc. as discontinued operations as we have a
June 30, 2023 | March 31, 2023 | |||||||
Wolf Energy Services, Inc. | $ | $ | ||||||
$ | $ |
June 30, 2023 | March 31, 2023 | |||||||
Wolf Energy Services, Inc. | $ | $ | ||||||
$ | $ |
June 30, 2023 | March 31, 2023 | |||||||
Wolf Energy Services, Inc. | $ | $ | ||||||
$ | $ |
June 30, 2023 | March 31, 2023 | |||||||
Wolf Energy Services, Inc. | $ | $ | ||||||
$ | $ |
2023 | 2022 | |||||||
Revenue | $ | $ | ||||||
Operating expenses | ||||||||
Wolf Energy Services, Inc. – net loss | ( | ) | ||||||
Other loss | ||||||||
Net loss from discontinued operations | $ | ( | ) | $ | ( | ) |
Secured note receivable | $ | |||
Cash | ( | ) | ||
Accounts receivable | ( | ) | ||
Prepaid expenses | ( | ) | ||
Goodwill | ( | ) | ||
Other assets | ( | ) | ||
Accounts payable and accrued expenses | ||||
Gain on disposal of discontinued operations | $ |
9
5. ASSET PURCHASE
On March 7, 2023, the Company acquired BNC from AAI. The Company accounted for this acquisition as an asset purchase as BNC did not meet the definition of a business as discussed in ASC 805 and ASU 2017-01.
Prepaid expenses | $ | |||
Property and equipment | ||||
Intangible assets | ||||
Accounts payable and accrued expenses | ( | ) | ||
Due to BitNile.com former parent | ( | ) | ||
Notes payable | ( | ) | ||
$ | ( | ) |
Series B and Series C Preferred Stock | $ | |||
Total consideration | $ |
The Acquisition has been accounted for as a purchase
of assets. The Company recognized a loss on the acquisition of $
6. REVENUE
The Company recognizes revenue when it transfers
promised services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those
services. For the three months ended June 30, 2023 the Company recognized $
As part of each social function or event, there
is the option to request catering services for an additional charge. The hospitality and VIP services revenues were
We had related party hospitality service sales of
$
7. SENIOR SECURED PROMISSORY NOTE RECEIVABLE
Agora was issued a Senior Secured Promissory
Note by Trend Ventures, LP (“Trend Ventures Note”) on June 16, 2022. The Trend Ventures Note was the consideration paid to
Agora for the acquisition of Trend Discovery Holdings. The Trend Ventures Note is in the principal amount of $
On May 15, 2023, Agora
and Trend Ventures, LP entered into a First Amendment of Senior Secured Promissory Note (“First Amendment”), to amend the
$
As of June 30, 2023, the Company has established a full reserve for the principal and accrued interest receivable.
10
8. INVESTMENT – SERIES A CONVERTIBLE PREFERRED STOCK – WTRV
On July 25, 2022, the Company entered into a Share
Exchange Agreement pursuant to which that day it sold to WTRV its oil and gas production business which is part of the Commodities segment.
The Company received
As of June 30, 2023, the Company has determined that it is not the primary beneficiary, and this transaction has not resulted in the Company controlling WTRV as the preferred shares are unable to be converted until the effectiveness of the registration statement being filed for WTRV, does not have the power to direct activities of WTRV, control the Board of Directors of WTRV and WTRV is not reliant upon funding by the Company moving forward; therefore the Company concluded that WTRV is not a variable interest entity, or VIE, as of June 30, 2023.
9. INVESTMENT – COMMON STOCK – WOLF ENERGY SERVICES, INC.
On August 23, 2022 the Company entered into a
Share Exchange Agreement (the “Agreement”) with Wolf Energy and Banner Midstream. Pursuant to the Agreement, upon the terms
and subject to the conditions set forth therein, the Company acquired
The Company has determined that this transaction
has resulted in the Company having a controlling interest in Wolf Energy as the common stock issued represents approximately
10. INVESTMENT – EARNITY, INC.
As part of the acquisition of BitNile.com, the
Company acquired BNC’s
11. PROPERTY AND EQUIPMENT
June 30, 2023 | March 31, 2023 | |||||||
Zest Labs freshness hardware, equipment and computer costs | $ | $ | ||||||
Land | ||||||||
Furniture | ||||||||
Auto – BNC | ||||||||
Equipment – BNC | ||||||||
Mining technology equipment– Bitcoin | ||||||||
Auto – Bitcoin | ||||||||
Total property and equipment | ||||||||
Accumulated depreciation and impairment | ( | ) | ( | ) | ||||
Property and equipment, net | $ | $ |
11
As of June 30, 2023, the Company performed an evaluation of the recoverability of these long-lived assets. There has been no impairment for the three months ended June 30, 2023 and 2022.
Depreciation expense for the three months ended
June 30, 2023 and 2022 was $
12. INTANGIBLE ASSETS
June 30, 2023 | March 31, 2023 | |||||||
Trademarks | $ | $ | ||||||
Developed technology | ||||||||
Accumulated amortization - trademarks | ( | ) | ( | ) | ||||
Accumulated amortization - developed technology | ( | ) | ( | ) | ||||
Intangible assets, net | $ | $ |
On March 7, 2023, the Company acquired trademarks
and developed technology in the acquisition of BNC. These intangible assets were valued by an independent valuation consultant utilizing
various methods including the discounted cash flow and option-pricing methods, and the estimated remaining useful life of these assets
was estimated to be
Amortization expense for the three months ended
June 30, 2023 and 2022 was $
2024 | $ | |||
2025 | ||||
2026 | ||||
2027 | ||||
2028 | ||||
Thereafter | ||||
$ |
13. ACCRUED EXPENSES
June 30, 2023 | March 31, 2023 | |||||||
Professional fees and consulting costs | $ | $ | ||||||
Vacation and paid time off | ||||||||
Legal fees | ||||||||
Sponsorship | ||||||||
Compensation | ||||||||
Interest | ||||||||
Other | ||||||||
Total | $ | $ |
14. WARRANT DERIVATIVE LIABILITIES
The Company identified embedded features in some of the warrant agreements which were classified as a liability. These embedded features included (a) the implicit right for the holders to request that the Company settle the warrants in registered shares. Since maintaining an effective registration of shares is potentially outside the control of the Company, these warrants were classified as liabilities as opposed to equity; (b) the right for the holders to request that the Company cash settle the warrant instruments from the holder by paying to the holder an amount of cash equal to the Black-Scholes value of the remaining unexercised portion of the Derivative Warrant Instruments on the date of the consummation of a fundamental transaction; and (c) certain price protections in the agreements. The accounting treatment of derivative financial instruments requires that the Company treat the whole instrument as a liability and record the fair value of the instrument as derivatives as of the inception date of the instrument and to adjust the fair value of the instrument as of each subsequent balance sheet date.
12
We have only included descriptions of warrants that are still outstanding as of June 30, 2023.
On August 6, 2021, the Company closed a $
On April 27, 2023, the Company closed a $
The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of June 30, 2023 and March 31, 2023. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate.
Changes to these inputs could produce a significantly
higher or lower fair value measurement.
Three Months Ended June 30, 2023 | Year Ended March 31, 2023 | Inception | ||||||||||
Expected term | ||||||||||||
Expected volatility | ||||||||||||
Expected dividend yield | ||||||||||||
Risk-free interest rate | ||||||||||||
Market price | $ | $ |
June 30, 2023 | March 31, 2023 | |||||||
Fair value of 115,942 August 6, 2021 warrants | $ | $ | ||||||
Fair value of 8,116 August 6, 2021 warrants | ||||||||
Fair value of 2,728,175 April 27, 2023 warrants | ||||||||
$ | $ |
During the three months ended June 30, 2023 and
2022 the Company recognized changes in the fair value of the derivative liabilities of $
Beginning balance as of March 31, 2023 | $ | |||
Issuances of warrants – derivative liabilities | ||||
Warrants exchanged for common stock | ||||
Change in fair value of warrant derivative liabilities | ( | ) | ||
Ending balance as of June 30, 2023 | $ |
13
Beginning balance as of March 31, 2022 | $ | |||
Issuances of warrants – derivative liabilities | ||||
Warrants exchanged for common stock | ||||
Change in fair value of warrant derivative liabilities | ( | ) | ||
Ending balance as of June 30, 2022 | $ |
15. LONG-TERM DEBT
June 30, 2023 | March 31, 2023 | |||||||
Credit facility -Trend Discovery SPV 1, LLC (a) | $ | $ | ||||||
Auto loan – Ford (b) | ||||||||
Auto loan – Cadillac (c) | ||||||||
Total long-term debt | ||||||||
Less: current portion | ( | ) | ( | ) | ||||
Long-term debt, net of current portion | $ | $ |
(a) |
(b) |
(c) |
2024 | $ | |||
2025 | ||||
2026 | ||||
2027 | ||||
2028 | ||||
Thereafter | ||||
$ |
Interest expense on long-term debt during the
three months ended June 30, 2023 and 2022 were $
16. NOTES PAYABLE
Related Parties
AAI advanced the Company $
14
Convertible Notes
On April 27, 2023, the Company sold $
Beginning balance as of March 31, 2023 | $ | |||
Issuance of convertible notes | ||||
Less: Original issue discount - inception | ( |
) | ||
Amortization of original issue discount | ||||
Less: Debt discount – reclassification to derivative liability | ( |
) | ||
Ending balance as of June 30, 2023 | $ |
Beginning balance as of March 31, 2023 | $ | |||
Issuances of convertible note – derivative liabilities | ||||
Change in fair value of convertible note derivative liabilities | ( | ) | ||
Ending balance as of June 30, 2023 | $ |
17. PREFERRED STOCK
BitNile Metaverse Series A
On June 8, 2022, the Company entered into a Securities Purchase Agreement
(the “Series A Agreement”) with Ault Lending, LLC (formerly Digital Power Lending, LLC), a California limited liability company
(the “Purchaser”), pursuant to which the Company sold the Purchaser
Conversion Rights
Prior to the November 2022 amendment described
below, each share of BitNile Metaverse Series A had a stated value of $
15
As described in Note 19 “Commitments and Contingencies”, Nasdaq is alleging that the November 2022 amendment to the Series A violated its voting and stockholder approval requirements, and has also done so with regard to the recent BNC transaction, although the Company plans to seek stockholder approval for both transactions subject to Nasdaq approval therefore and make any modifications Nasdaq requires.
Changes to these inputs could produce a significantly higher or lower
fair value measurement. The fair value of the preferred stock liability is estimated using the Black-Scholes valuation model.
June 30, 2023 | March 31, 2023 | |||
Expected term | ||||
Expected volatility | ||||
Expected dividend yield | ||||
Risk-free interest rate | ||||
Market price | $ | $ |
Negative Covenants and Approval Rights
The BitNile Metaverse Series A Certificate of Designation (the “Certificate”)
subjects the Company to negative covenants restricting its ability to take certain actions without prior approval from the holder(s) of
a majority of the outstanding shares of BitNile Metaverse Series A for as long as the holder(s) continue to hold at least
(ii) | investment in, purchase or acquisition of any assets or capital stock of any entity for an amount that exceeds $100,000 in any one transaction or $250,000, in the aggregate; |
(iii) | issuance of any shares of common stock or other securities convertible into or exercisable or exchangeable for shares of common stock; |
(iv) | incurrence of indebtedness, liens, or guaranty obligations, in an aggregate amount in excess of $50,000 in any individual transaction or $100,000 in the aggregate with customary exceptions. |
(v) | sale, lease, transfer or disposal of any of its properties having a value calculated in accordance with GAAP of more than $50,000; |
(vi) | increase in any manner the compensation or fringe benefits of any of its directors, officers, employees; and |
(vii) | merger or consolidation with, or purchase a substantial portion of the assets of, or by any other manner the acquisition or combination with any business or entity. |
The above and other negative covenants in the Series A Certificate do not apply to a reverse merger with an entity with securities quoted on a market operated by OTC Markets or listed on a national securities exchange.
Warrant
On November 14, 2022, the Company and the Warrant holder canceled the
warrant which was originally issued to the holder on June 8, 2022, as subsequently amended and restated, in exchange for $
Registration Rights
Pursuant to the Series A Agreement, the Company has agreed to register
the sale by the Purchaser of up to
16
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, and the aforementioned amendment filed on November 29, 2022.
Preferred Stock Derivative Liability
BitNile Metaverse Series A
As discussed herein, the Company determined that the BitNile Metaverse
Series A upon the amendment on November 28, 2022, constituted a derivative liability under ASC 815. As a result of this classification,
the Company determined that on November 28, 2022 (inception), the value of the derivative liability was $
On December 9, 2022, the BitNile Metaverse Series A holder converted
The derivative liability for the BitNile Metaverse Series A was remeasured
at June 30, 2023 and is valued at $
In addition, during March 2023 the Company advanced $
Beginning balance as of March 31, 2023 | $ | |||
Advances to third-party that will be considered redemption of Series A | ( | ) | ||
Change in fair value of preferred stock derivative liabilities | ( | ) | ||
Ending balance as of June 30, 2023 | $ | ( | ) |
BitNile Metaverse Series B and C
On February 8, 2023, the Company entered into the SEA by and among
AAI, a significant shareholder, the owner of approximately
The terms of the Preferred Stock as set forth in the Certificates of Designations of the Rights, Preferences and Limitations of each such series of Preferred Stock (each, a “Certificate,” and together the “Certificates”) are essentially identical except the Series B is super voting and must approve any modification of various negative covenants and certain other corporate actions as more particularly described below.
Pursuant to the Series
B Certificate, each share of Series B is convertible into a number of shares of the Company’s common stock determined by dividing
the Stated Value by $
17
In addition, for as
long as at least
The terms, rights, preferences
and limitations of the Series Care substantially the same as those
of the Series B, except that the Series B holds negative covenant and consent rights, and Series C holders vote with the Company’s
common stock on an as-converted basis. The Company is required to maintain a reserve of authorized and unissued shares of common stock
equal to
Pending stockholder approval
of the transaction, the Preferred Stock combined are subject to a
Under the SEA, effective at the closing AAI is entitled to appoint three of the Company’s directors, and following receipt of approval from the Company’s stockholders, a majority of the Company’s directors. The SEA also provides the holders of Preferred Stock with most favored nations rights in the event the Company offers securities with more favorable terms than the Preferred Stock for as long as the Preferred Stock remains outstanding. Under the SEA, while any Preferred Stock is outstanding, the Company is prohibited from redeeming or declaring or paying dividends on outstanding securities other than the Preferred Stock. Further, the SEA prohibits the Company from issuing or amending securities at a price per share below the conversion price of the Preferred Stock, or to engage in variable rate transactions, for a period of 12 months following the closing.
The SEA further provides that following the closing the Company will
prepare and distribute a proxy statement and hold a meeting of its stockholders to approve each of the following: (i) the SEA and the
transactions contemplated thereby, (ii) a ratification of the Third Certificate Designations of Rights, Preferences, and Limitations of
the Series A, (iii) a reverse stock split with a range of between 1-for 2 and 1-for-20, (iv) a change in the Company’s name to BNC,
(v) an increase of the Company’s authorized common stock to
In connection with the SEA, the Company also entered into a Registration Rights Agreement with AAI and the Minority Shareholders pursuant to which the Company agreed to file a registration statement on Form S-3 or Form S-1 with the SEC registering the resale by the holders of the Preferred Stock and/or the shares of common stock issuable upon conversion of the Preferred Stock, to be initially filed within 15 days of the closing, and to use its best efforts to cause such registration statement to be declared effective by the SEC within 45 days thereafter, subject to certain exceptions and limitations.
The SEA contains certain representations and warranties made by each of the Company, AAI and the Minority Shareholders. Upon the closing, which is subject to the closing conditions set forth in the SEA, including among other conditions the parties obtaining a fairness opinion from a national independent valuation firm and satisfactory completion of due diligence by each of the Company and AAI, BNC will continue as a wholly owned subsidiary of the Company. BNC’s principal business entails the development and operation of a metaverse platform, the beta for which launched on March 1, 2023. This transaction closed on March 7, 2023.
18
The Company determined that the Preferred Stock constituted a derivative
liability under ASC 815 on the date of inception March 7, 2023. As a result of this classification, the Company determined that on March
7, 2023 (inception), the value of the derivative liability was $
The derivative liability for the preferred stock Preferred Stock was
remeasured at June 30, 2023 and is valued at $
Beginning balance as of March 31, 2023 | $ | |||
Change in fair value of preferred stock derivative liabilities | ( | ) | ||
Ending balance as of June 30, 2023 | $ |
On April 4, 2023, the Company entered into an agreement with Ault Lending,
LLC (“Ault”) and WTRV pursuant to which the Company agreed to advance to WTRV payments of up to $
18. STOCKHOLDERS’ DEFICIT
BitNile Metaverse Preferred Stock
As of March 31, 2022, there were
As of June 30, 2023 and March 31, 2023, the Company
has issued Series B and Series C as noted in Note 17 and has
BitNile Metaverse Common Stock
The Company is authorized to issue
In the three months ended June 30, 2022, the Company issued
On January 24, 2023,
the Company entered into an At-The-Market (“ATM”) Issuance Sales Agreement (the “Agreement”) with Ascendiant
Capital Markets, LLC (“Ascendiant”), pursuant to which the Company may issue and sell from time to time, through Ascendiant,
shares of the Company’s common stock, par value $
As of June 30, 2023 there
were
Sales of the Shares,
if any, may be made by any method permitted by law deemed to be an “at-the-market” offering as defined in Rule 415 of the
Securities Act of 1933 (the “Securities Act”), including without limitation sales made directly on or through The Nasdaq
Capital Market, the trading market for the Company’s common stock, on any other existing trading market in the United States for
the Company’s common stock, to or through a market maker, directly to Ascendiant as principal for its account in negotiated transactions
at market prices prevailing at the time of sale or at prices related to such prevailing market prices, in privately negotiated transactions,
in block trades, or through a combination of any such methods of sale. Ascendiant will use commercially reasonable efforts to sell on
the Company’s behalf all of the Shares requested to be sold by the Company, consistent with its normal trading and sales practices,
subject to the terms of the Agreement. Under the Agreement, Ascendiant will be entitled to compensation of
19
The Shares were being offered and sold pursuant to a prospectus supplement filed with the Securities and Exchange Commission (the “SEC”) on January 24, 2023 and the accompanying base prospectus which is part of the Company’s effective Registration Statement on Form S-3 (File No. 333-249532) (the “Registration Statement”).
In the three months ended June 30, 2023, the
Company issued
As of June 30, 2023 and March 31, 2023,
Agora Common Stock
Agora is authorized to issue
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
The performance grants vest as follows:
The Company recognized $
The Company accounts for stock-based payments in accordance with ASC 718,
Compensation — Stock Compensation (“ASC 718”). During the year ended March 31, 2022, in addition to the
value measured by the
Share-based Compensation Expense
Share-based compensation for employees is included in salaries and salary related costs and directors and services are included in professional fees and consulting in the consolidated statement of operations for the three months ended June 30, 2023 and 2022.
Share-based compensation for the three months ended June 30, 2023 and
2022 for stock options and restricted stock units granted under the 2013 Incentive Stock Plan and 2017 Omnibus Incentive Stock Plan and
non-qualified stock options were $
There is $
20
19. 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, BitNile Metaverse and Zest Labs 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 BitNile Metaverse and Zest Labs a total of $ |
● | On April 22, 2022, BitStream Mining and BitNile Metaverse 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 $ |
● | On October 17, 2022, BitStream Mining was a party to a petition filed in Ward County District Court by VA Electrical Contractors, LLC 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.
Nasdaq Compliance
21
In the letter, the Company was provided 45 calendar days from the date of the letter, or until February 10, 2023, to submit a plan to regain compliance with the referenced Listing Rules, and if such plan is accepted by Nasdaq, the Company can receive an extension of up to 180 calendar days from the date of the letter to evidence compliance. However, if the Company’s plan is not accepted by Nasdaq, or is not sufficiently executed to regain compliance and remedy the matters set forth in the letter, the Company’s Common Stock will be subject to delisting. In connection with the letter the Company was also requested to furnish Nasdaq with certain documents and information related to its sale of WTRV.
In
connection with the December 27th letter, the Company was also requested to provide certain documents and information related
to its sale of WTRV, including as it pertains to the $
Further,
on December 30, 2022, the Company received another letter from the Nasdaq notifying the Company of its noncompliance with Listing Rule
5550(a)(2) by failing to maintain a minimum bid price for its Common Stock of at least $
On
January 26, 2023, Nasdaq sent an email to the Company raising 13 questions concerning the WTRV transaction, WTRV’s business, seeking
verification that the Company had in fact transferred $
The Company provided responses to Nasdaq on January 11, 2023, February 10, 2023 and February 15, 2023.
If our Common Stock is delisted from Nasdaq, we could face significant material adverse consequences, including:
● | it may adversely affect the Company’s ability to raise capital which it needs to stay operational; |
● | a limited availability of market quotations for our Common Stock; |
● | reduced liquidity with respect to our Common Stock; |
● | a determination that our shares of Common Stock are a “penny stock” which will require broker-dealers trading in our Common Stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our Common Stock; and |
● | being in default under the transaction documents entered into with the investors in the April 27, 2023 financing. |
If we are unable to rectify any of the above-described Nasdaq issues, for failure to timely obtain stockholder approval, a delisting will subject us and our stockholders to the above and other adverse consequences and could also delay us from effecting the announced spin-offs of common stock of WTRV and Wolf Energy certain entities as described elsewhere in this Report. See “Risk Factors” contained elsewhere in this Report.
On
June 21, 2023, the Company received a letter from the Listing Qualifications staff of Nasdaq (the “Letter”) notifying the
Company that the Staff has determined that the Company has violated Nasdaq’s voting rights rule set forth in Listing Rule 5640
(the “Voting Rights Rule”). The alleged violation of the Voting Rights Rule relates to the issuance of (i)
22
According to the Letter, because the Preferred Stock was not issued for cash, the Staff compared the value of the Assets to the Stated Value and determined that the value of the Assets was less than the Stated Value and that the voting rights attributable to the Series B and C Preferred Stock has the effect of disparately reducing the voting rights of the Company’s existing shareholders. The Staff looked at the total assets and stockholders’ equity of BNC as of March 5, 2023, as well as the market capitalization of AAI prior to entering into the Agreement and immediately after closing of the transaction in determining, in Staff’s opinion, the value of the Assets. The Letter did not make any reference to the projections prepared by AAI as to the future potential of the business of BNC nor to the independent valuation obtained by the Company prior to closing of the transaction, which supported the Stated Value of the Preferred Stock for the total value of the Assets, both of which the Company provided to the Staff prior to receipt of the Letter.
According to the Letter, Nasdaq determined that the voting rights of the Series B and C Preferred Stock, voting on an as-converted basis, are below the minimum price per share of the Company’s common stock at the time of the issuance of the Series B and C Preferred Stock. Additionally, Nasdaq determined that the Series B provides the holder the right to appoint a majority of the Company’s board of directors when such representation is not justified by the relative contribution of the Series B pursuant to the Agreement.
Under the Voting Rights Rule, a company cannot create a new class of security that votes at a higher rate than an existing class of securities or take any other action that has the effect of restricting or reducing the voting rights of an existing class of securities. As such, according to the Letter, the issuance of the Series B and C Preferred Stock violated the Voting Rights Rule because the holders of the Series B and C Preferred Stock are entitled to vote on an as-converted basis, thus having greater voting rights than holders of common stock, and the Series B is entitled to a disproportionate representation on the Company’s board of directors.
According to the Letter, the Company has 45 calendar days from the date of the Letter, or until August 7, 2023, to submit a plan to regain compliance with the Voting Rights Rule, and if such plan is accepted by Nasdaq, the Company can receive an extension of up to 180 calendar days from the date of the Letter to evidence compliance. However, if the Company’s plan is not accepted by Nasdaq, the Company’s common stock will be subject to delisting. The Company would have the right to appeal that decision to a hearings panel. On July 28, 2023, the Company responded and submitted a plan to regain compliance with the Voting Rights Rule.
On
May 8, 2023, the Company received a letter from the Listing Qualifications staff (the “Staff”) of the Nasdaq Stock Market
LLC (“Nasdaq”) notifying the Company that the Staff has determined to delist the Company’s common stock, par value
$
On May 12, 2023, the Company issued a press release announcing a 1-for-30 reverse stock split of its outstanding common stock which will be effective for trading purposes as of the commencement of trading on May 15, 2023.
On May 26, 2023, the Company received a letter from Nasdaq stating that the Company’s bid price deficiency had been cured.
ELOC
On
June 5, 2023, the Company entered into a purchase agreement (the “ELOC Purchase Agreement”) with Arena Business Results,
LLC (“Arena”), which provides that, upon the terms and subject to the conditions and limitations set forth therein, we have
the right to direct Arena to purchase up to an aggregate of $
Non-cancelable Obligations
In
the course of our gaming business in association with our Platform, the Company enters into non-cancelable obligations with certain parties
to purchase services, such as technology and the hosting of our metaverse platform. As of June 30, 2023 the Company had outstanding non-cancelable
purchase obligations with terms of one year or longer aggregating $
23
20. FAIR VALUE MEASUREMENTS
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by U.S. generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:
Level 1 – quoted prices for identical instruments in active markets;
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Financial instruments consist principally of cash, prepaid expenses, other receivables, accounts payable and accrued liabilities, notes payable, and amounts due to related parties. The fair value of cash is determined based on Level 1 inputs. There were no transfers into or out of “Level 3” during the three months ended June 30, 2023 and 2022. The recorded values of all other financial instruments approximate its current fair values because of their nature and respective relatively short maturity dates or durations.
Fair
value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined
with precision. Changes in assumptions could significantly affect the estimates. The Company records the fair value of the of the warrant
derivative liabilities disclosed in accordance with ASC 815, Derivatives and Hedging. The fair values of the derivatives were
calculated using the Black-Scholes Model. The fair value of the derivative liabilities is revalued on each balance sheet date with corresponding
gains and losses recorded in other income (expense) in the condensed consolidated statement of operations.
Level 1 | Level 2 | Level 3 | Total Gains and (Losses) | |||||||||||||
June 30, 2023 | ||||||||||||||||
Warrant derivative liabilities | $ | $ | $ | $ | ||||||||||||
Convertible note | ||||||||||||||||
Preferred stock derivative liabilities | ||||||||||||||||
Investment – WTRV | ||||||||||||||||
March 31, 2023 | ||||||||||||||||
Warrant derivative liabilities | $ | $ | $ | |||||||||||||
Preferred stock derivative liabilities | ||||||||||||||||
Bitcoin | ( | ) | ||||||||||||||
Investment – WTRV | ( | ) |
Beginning balance as of March 31, 2023 | $ | ( | ) | |
Issuance – convertible notes with warrants | ( | ) | ||
Net change in unrealized (depreciation) appreciation included in earnings | ||||
Ending balance as of June 30, 2023 | $ |
The
balances in the derivative liabilities are net of $
24
21. LEASES
As
of June 30, 2023, the value of the unamortized lease right of use asset is $
2024 | $ | |||
2025 | ||||
2026 | ||||
2027 | ||||
Imputed interest | ( | ) | ||
Total lease liability | $ | |||
Current portion | $ | |||
Non-current portion | $ |
2024 | $ | |||
2025 | $ | |||
2026 | $ | |||
2027 | $ | |||
Total | $ |
Total Lease Cost
Operating
lease expenses for the three months ended both June 30, 2023 and 2022 were $
22. RELATED PARTY TRANSACTIONS
In connection with the hospitality services we offer, the Company and certain customers enter into separate arrangements with respect to sponsorships we provide in addition to a number of ongoing commercial relationships, including license Agreements.
See Note 8 for the investment in WTRV and Note 17 for the preferred stock issued in the year ended March 31, 2023 with a significant shareholder. Our Chief Executive Officer and Chief Financial Officer hold similar positions in WTRV.
In
the three month period ended June 30, 2023 the Company was advanced an additional $
Revenues and Accounts Receivable
We
had related party hospitality service sales of $
Allocation of General Corporate Expenses
AAI
provides use of certain assets, human resources and other executive services to the Company. The accompanying financial statements include
allocations of these expenses. The allocation method calculates the appropriate share of costs to the Company by using the percentage
of time spent working on and building the Company’s business. The Company believes the allocation methodology used is reasonable
and has been consistently applied, and results in an appropriate allocation of costs incurred. However, these allocations may not be
indicative of the cost had the Company been a stand-alone entity or of future services. AAI allocated $
25
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended March 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on July 14, 2023.
Overview
On March 15, 2023, Ecoark Holdings Inc. changed its name to BitNile Metaverse Inc. (“BitNile Metaverse” or the “Company”) and is a holding company incorporated in the State of Nevada on November 19, 2007. On February 8, 2023, the Company entered into a Share Exchange Agreement (the “SEA”) by and among Ault Alliance, Inc. (“AAI”), the owner of approximately 86% of BNC, Inc. (“BNC”), a significant shareholder of the Company, and the minority stockholders of BNC (the “Minority Shareholders”). The SEA provides that, subject to the terms and conditions set forth therein, the Company will acquire all of the outstanding shares of capital stock of BNC as well as the common stock of Earnity, Inc. beneficially owned by BNC (which represents approximately 19.9% of the outstanding common stock of Earnity, Inc. as of the date of the SEA), in exchange for the following: (i) 8,637.5 shares of newly designated Series B Convertible Preferred Stock of the Company to be issued to Ault (the “Series B”), and (ii) 1,362.5 shares of newly designated Series C Convertible Preferred Stock of the Company to be issued to the Minority Shareholders (the “Series C,” and together with the Series B, the “Preferred Stock”). The Series B and the Series C, the terms of which are summarized in more detail below, each have a stated value of $10,000 per share (the “Stated Value”), for a combined stated value of $100,000,000, and subject to adjustment are convertible into a total of up to 13,333,333 shares of the Company’s common stock, which represent approximately 92.4% of the Company outstanding common stock on a fully diluted basis. The Company has independently valued the Series B and Series C as of the date of acquisition. The combined value of the shares issued to Ault was $53,913,000 using a blended fair value of the discounted cash flow method and option pricing method. See Note 5 for the details on the asset purchase as BNC did not meet the accounting definition of a business and Note 17 for details on the Series B and C Preferred Stock.
Through June 30, 2023, the Company’s former wholly owned subsidiaries with the exception of Agora Digital Holdings, Inc., a Nevada corporation (“Agora”) and Zest Labs, Inc. (“Zest Labs”) have been treated for accounting purposes as divested. Please refer to our Annual Report for the year ended March 31, 2023 (“2023 Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on July 14, 2023 for details on all of our prior subsidiaries that were divested in the year ended March 31, 2023 and an overview of the business conducted in those subsidiaries. This report includes only those subsidiaries as of June 30, 2023. The comparative financial statements for the three months ended June 30, 2022 reflect the operations of those subsidiaries that were sold during the year ended March 31, 2022 as discontinued operations in the condensed consolidated statements of operations and as assets and liabilities of discontinued operations on the condensed consolidated balance sheets.
The Metaverse represents groundbreaking development in the online metaverse landscape, offering immersive, interconnected digital experiences that are inclusive, engaging, and dynamic. By integrating various elements such as virtual markets, real world goods marketplaces and VIP experiences, gaming, social activities, sweepstakes, gambling, and more, the Company aims to revolutionize the way people interact online. The Company’s rapidly growing virtual world, BNC (the “Platform”) is accessible via any device using any web browser, without requiring permissions, downloads, or apps, and the Platform can be enjoyed without the need for bulky and costly virtual reality headsets.
Our games operate on a free-to-play model, whereby game players may collect coins free of charge through the passage of time and if a game player wishes to obtain coins above and beyond the level of free coins available to that player, the player may purchase additional coin packages (“Freemium” gaming model). Once obtained, Nile Tokens (“NT”) and Nile Coins (“NC”), (either free or purchased) cannot be redeemed for cash nor exchanged for anything outside of the Metaverse. When coins are used and played in the games, the game player could “win” and would be awarded additional coins or could “lose” and lose the future use of those coins. We have concluded that the coins represent both consumable goods and durables, because 1) the game player does not receive any additional benefit from the game and is not entitled to any additional rights once the coins are consumed and 2) because once coins are used for the purchase of durable goods, those goods will continue to benefit the player throughout their gaming life cycle.
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Our Hospitality services currently consists of catering services provided to groups at certain social functions and sporting events. We also sell real world VIP experiences and one-of-a-kind products.
The Company’s metaverse business strategy revolves around creating a seamless, all-encompassing Platform that caters to various user needs and interests. The Platform’s strategic pillars include:
● | Leveraging cutting-edge technology to offer a user-friendly, browser-based platform compatible with VR headsets and other modern devices; | |
● | Providing a diverse range of products and real world VIP experiences that cater to users with different interests and preferences; | |
● | Fostering global connections and a sense of community among users, encouraging socialization and collaboration; and | |
● | Ensuring continuous innovation to stay ahead of industry trends and customer expectations. |
The Company targets a broad audience, including:
● | Tech-savvy individuals seeking immersive digital experiences; | |
● | Gamers of all skill levels interested in a diverse array of gaming options; | |
● | Collectors and traders of digital assets, such as virtual real estate, digital art, and unique collectibles; | |
● | Shoppers seeking a convenient, intuitive platform for purchasing real world goods; and | |
● | Users seeking social interaction and global connectivity in a virtual environment. |
The Company offers an extensive range of products and experiences, including:
● | Virtual markets: Sales of digital assets the Company as well as third party vendors like virtual real estate, digital art, user customizations, and unique collectibles; | |
● | Real world goods marketplaces: A platform for shopping a diverse range of real world products and VIP experiences; | |
● | Gaming: a selection of gaming options, including participation in games, sweepstakes, and social gaming experiences; | |
● | Sweepstakes gaming: A dedicated gaming zone for sweepstakes gaming, offering opportunities to win virtual and real money; | |
● | Contests of skill: competitions where users can showcase their talents and win prizes; | |
● | Building private spaces: A feature allowing users to construct and customize their dream homes or private spaces; | |
● | Social hubs for users to interact with individuals from around the world; and | |
● | Unique virtual and real world experiences, such as live and virtual concerts, conferences, and other events. |
The metaverse industry is experiencing rapid growth and expansion, driven by advancements in technology, increased interest in virtual experiences, and the rise of digital economies. Key trends include:
● | The integration of virtual and physical worlds; | |
● | The emergence of virtual economies and markets; and | |
● | The growing importance of socialization and community-building in digital spaces. |
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Competition
The Company faces competition from existing metaverse platforms and new entrants. Key competitors include:
● | Established metaverse platforms, such as Decentraland, The Sandbox, and Second Life, as well as companies that focus on development of metaverse tools and platforms such as META; | |
● | Gaming-focused platforms, like Fortnite and Roblox; and | |
● | Social media platforms that integrate metaverse elements, such as Facebook’s Horizon Workrooms. |
Regulatory Environment
The Company operates within a complex and evolving regulatory landscape, with key considerations including:
● | Data privacy and protection regulations, such as GDPR and CCPA; | |
● | Compliance with gaming and gambling regulations in various jurisdictions; and | |
● | Intellectual property rights and digital asset ownership. |
Recent Developments
During the current fiscal year ending March 31, 2024, the Company engaged in the following transactions:
● | The Company raised approximately $3,500,000 in an At-the-Market capital raise during the fourth fiscal quarter of the year ended March 31, 2023 and the three months ended June 30, 2023. The ATM was terminated on June 16, 2023 after having raised approximately $3,500,000. |
● | On April 27, 2023, the Company closed a $6,875,000 senior secured convertible promissory note (see Note 14), and with the senior secured convertible note, the Company granted the noteholders 2,728,175 warrants that expire five years from the issuance date and have a strike price of $3.28. The warrants due contain a rachet provision which the Company has determined meets the criteria for treatment as a derivative liability. The Company recorded a discount on the convertible note of $4,329,755 which represents the derivative liability at inception of the warrants. The fair value of the warrants was estimated to be $2,138,542 as of June 30, 2023. |
● | On May 4, 2023, the Company amended their Certificate of Incorporation for a 1-for-30 reverse stock split. The Company also reduced their authorized shares on a 1-for-30 basis going from 100,000,000 authorized shares down to 3,333,333 authorized shares. The Company has reflected this reverse split retroactively in their condensed consolidated financial statements pursuant to SAB Topic 4C. |
● | On May 8, 2023, the Company received a letter from the Listing Qualifications staff (the “Staff”) of the Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that the Staff has determined to delist the Company’s common stock, par value $0.001 per share (the “Common Stock”) from The Nasdaq Capital Market, effective May 17, 2023, pursuant to Listing Rule 5810(c)(3)(A)(iii), as the Company’s common stock traded below $0.10 per share for 10 consecutive trading days. On May 12, 2023, the Company issued a press release announcing a 1-for-30 reverse stock split of its outstanding common stock which will be effective for trading purposes as of the commencement of trading on May 15, 2023. On May 26, 2023, the Company received a letter from Nasdaq stating that the Company’s bid price deficiency had been cured. |
● | On May 15, 2023, Agora and Trend Ventures, LP entered into a First Amendment of Senior Secured Promissory Note (“First Amendment”), to amend the $4,250,000 senior secured promissory note entered into June 16, 2022. The First Amendment amended the following clauses of the original note: (a) the principal amount was amended from $4,250,000 to $4,443,869.86, which includes all of the accrued interest through May 15, 2023; (b) the maturity date was amended from June 16, 2025 to May 15, 2025; and (c) the interest rate shall remain at 5%, and any additional accrued interest under the Default Rate shall be mutually waived by both parties. No payments on either principal or interest shall be due until the new maturity date. As of June 30, 2023, the Company has established a full reserve for the principal and accrued interest receivable. |
● | On June 5, 2023, the Company entered into a purchase agreement (the “ELOC Purchase Agreement”) with Arena Business Results, LLC (“Arena”), which provides that, upon the terms and subject to the conditions and limitations set forth therein, we have the right to direct Arena to purchase up to an aggregate of $100,000,000 of shares of our common stock over the 36-month term of the ELOC Purchase Agreement. Under the ELOC Purchase Agreement, after the satisfaction of certain commencement conditions, including, without limitation, the effectiveness of the Registration Statement (as defined in the ELOC Purchase Agreement), we have the right to present Arena with an advance notice (each, an “Advance Notice”) directing Arena to purchase any amount up to the Maximum Advance Amount. |
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● | On June 21, 2023, the Company received a letter from the Listing Qualifications staff of Nasdaq notifying the Company that the Staff has determined that the Company has violated Nasdaq’s voting rights rule set forth in Listing Rule 5640 (the “Voting Rights Rule”). The alleged violation of the Voting Rights Rule relates to the issuance of (i) 8,637.5 shares of the Series B, and (ii) 1,362.5 shares of the Series C in connection with the acquisition of BNC as well as the securities of Earnity, Inc. beneficially owned by (collectively, the “Assets”) pursuant to the SEA by and among the Company, AAI and the minority stockholders of BNC, which was previously disclosed on Current Reports on Form 8-K filed by the Company on February 14, 2023 and March 10, 2023. The Series B and C Preferred Stock has a collective stated value of $100,000,000 (the “Stated Value”), and votes on an as-converted basis, representing approximately 92.4% of the Company’s outstanding voting power on a fully diluted basis at the time of issuance. |
According to the Letter, because the Preferred Stock was not issued for cash, the Staff compared the value of the Assets to the Stated Value and determined that the value of the Assets was less than the Stated Value and that the voting rights attributable to the Series B and C Preferred Stock has the effect of disparately reducing the voting rights of the Company’s existing shareholders. The Staff looked at the total assets and stockholders’ equity of BNC as of March 5, 2023, as well as the market capitalization of AAI prior to entering into the Agreement and immediately after closing of the transaction in determining, in Staff’s opinion, the value of the Assets. The Letter did not make any reference to the projections prepared by AAI as to the future potential of the business of BNC nor to the independent valuation obtained by the Company prior to closing of the transaction, which supported the Stated Value of the Preferred Stock for the total value of the Assets, both of which the Company provided to the Staff prior to receipt of the Letter.
According to the Letter, Nasdaq determined that the voting rights of the Series B and C Preferred Stock, voting on an as-converted basis, are below the minimum price per share of the Company’s common stock at the time of the issuance of the Series B and C Preferred Stock. Additionally, Nasdaq determined that the Series B provides the holder the right to appoint a majority of the Company’s board of directors when such representation is not justified by the relative contribution of the Series B pursuant to the Agreement.
Under the Voting Rights Rule, a company cannot create a new class of security that votes at a higher rate than an existing class of securities or take any other action that has the effect of restricting or reducing the voting rights of an existing class of securities. As such, according to the Letter, the issuance of the Series B and C Preferred Stock violated the Voting Rights Rule because the holders of the Series B and C Preferred Stock are entitled to vote on an as-converted basis, thus having greater voting rights than holders of common stock, and the Series B is entitled to a disproportionate representation on the Company’s board of directors.
According to the Letter, the Company has 45 calendar days from the date of the Letter, or until August 7, 2023, to submit a plan to regain compliance with the Voting Rights Rule, and if such plan is accepted by Nasdaq, the Company can receive an extension of up to 180 calendar days from the date of the Letter to evidence compliance. However, if the Company’s plan is not accepted by Nasdaq, the Company’s common stock will be subject to delisting. The Company would have the right to appeal that decision to a hearings panel. On July 28, 2023, the Company responded and submitted a plan to regain compliance with the Voting Rights Rule.
Segment Reporting for the Three Months Ended June 30, 2023 and 2022
As a result of the sales of WTRV and Banner Midstream, and the immaterial nature of the operations of Zest Labs, the Company no longer segregates its operations as most of the continuing operations are related to Agora.
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Results of Operations
The discussion of our results of operations should be evaluated considering that our primary subsidiaries were sold in the year ended March 31, 2023 and their results of operations are now treated as discontinued operations. Accordingly, period to period comparisons may not be meaningful.
Continuing Operations For the Three Months Ended June 30, 2023 and 2022
Three Months Ended June 30, | ||||||||||||||||
2023 | 2022 | Change ($) | Change (%) | |||||||||||||
Hospitality and VIP experience revenue | $ | 45,150 | $ | - | $ | 45,150 | 100 | % | ||||||||
Cost of revenue | 86,300 | 93,862 | (7,562 | ) | -8 | % | ||||||||||
Gross loss | (41,150 | ) | (93,862 | ) | 52,712 | 56 | % | |||||||||
Operating expenses: | ||||||||||||||||
Depreciation, amortization and impairment | 136,882 | 45,097 | 91,785 | 204 | % | |||||||||||
Bad debt | 53,415 | - | 53,415 | 100 | % | |||||||||||
Selling, general and administration | 10,160,441 | 1,688,064 | 8,472,377 | 502 | % | |||||||||||
Salaries and professional consulting fees | 1,841,711 | 6,542,948 | (4,701,237 | ) | -72 | % | ||||||||||
Total operating expenses | 12,192,449 | 8,276,109 | 3,916,340 | 47 | % | |||||||||||
Operating loss | (12,233,599 | ) | (8,369,971 | ) | (3,863,628 | ) | 46 | % | ||||||||
Other income (expense) | ||||||||||||||||
Change in fair value of warrant derivative liabilities | 2,197,348 | (393,532 | ) | 2,590,880 | -658 | % | ||||||||||
Change in fair value of preferred stock derivative liabilities | 17,893,969 | - | 17,893,969 | 100 | % | |||||||||||
Change in fair value of convertible note derivative liability | 1,029,237 | - | 1,029,237 | 100 | % | |||||||||||
Derivative expense | (182,077 | ) | - | (182,077 | ) | 100 | % | |||||||||
Amortization of original issue discount | (241,096 | ) | - | (241,096 | ) | 100 | % | |||||||||
Dividend expense | (1,597,222 | ) | - | (1,597,222 | ) | 100 | % | |||||||||
Interest expense, net of interest income | (262,535 | ) | (36,828 | ) | (225,707 | ) | 613 | % | ||||||||
Total other income (expense) | 18,837,624 | (430,360 | ) | 19,267,894 | 4848 | % | ||||||||||
Income (loss) from continuing operations before discontinued operations | 6,604,025 | (8,800,331 | ) | 15,404,356 | 193 | % | ||||||||||
Discontinued operations | ||||||||||||||||
Loss from discontinued operations | (1,143,303 | ) | (2,635,818 | ) | ||||||||||||
Gain on disposal of discontinued operations | - | 711,505 | ||||||||||||||
Total loss discontinued operations | (1,143,303 | ) | (1,924,313 | ) | ||||||||||||
Net income (loss) | $ | 5,460,722 | $ | (10,724,644 | ) |
Revenue and Gross Loss
During the three-month period ended June 30, 2023, we had increased revenues of $45,150 and decreased gross loss of $52,712 compared to the three month period ended June 30, 2022, primarily due to hospitality and VIP experience sales that began in the three month period ended June 30, 2023. Additionally, the Company ceased its Bitcoin mining in the year ended March 31, 2023.
Operating Loss and Operating Expenses
During the three months ended June 30, 2023, our operating loss increased by $3,863,628 compared to the three-month period ended June 30, 2022, primarily due to increased advertising and hospitality expenses, platform hosting fees and travel expenses of approximately $7 million, $1 million and $1 million, respectively. These increased expenses were partially offset by decreased salaries and professional fees of approximately $5 million.
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Income (Loss) from Continuing Operations
The Company had increased income from operations for the period of approximately $15.4 million due to the gain of $19.3 million of other income and (expenses) primarily due to a gain in the fair value of derivative liabilities and derivative income of approximately $21 million in 2023, partially offset by the increase of our operating loss of approximately $4 million.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are revenue generated from operations, levels of accounts receivable and accounts payable and capital expenditures.
Net cash used in operating activities of continuing operations was approximately $8 million for the three month period ended June 30, 2023, as compared to approximately $4 million in the prior year period. The $4 million increase in the current period was primarily due to the change in the fair value of derivative liabilities of approximately $21 million and decreased common shares issued for services of approximately $5 million partially offset by decreased accounts payable of approximately $4 million.
Net cash provided by investing activities decreased due to no cash being provided in the current year period by discontinued operations.
Net cash provided by financing activities decreased by approximately $5 million primarily due to no proceeds from the sale of preferred stock which was $12 million in the prior year period partially offset by proceeds from the convertible note of approximately $5 million coupled with the proceeds related to the ATM of approximately $2 million.
As of June 30, 2023, the Company has $2,005 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 condensed consolidated financial statements, and it needs to raise capital to support its operations, raising substantial doubt about its ability to continue as a going concern. The Company has recently acquired BNC and has generated nominal revenue as of June 30, 2023. The accompanying financial statements for the three month period ended June 30, 2023 have been prepared assuming the Company will continue as a going concern, but the ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes continued revenue streams and becomes profitable. Management’s plans to continue as a going concern include raising additional capital through sales of equity securities and borrowing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. If the Company is not able to obtain the necessary additional financing on a timely basis, the Company will be required to delay, reduce or perhaps even cease the operation of its business. The ability of the Company to continue as a going concern is dependent upon its ability to successfully secure other sources of financing and attain profitable operations. In the Company’s fourth fiscal quarter ended March 31, 2023, the Company raised $1,715,439 from the sales of its common stock related to an “At-the-Market” (“ATM”) offering, with an additional approximate $1,800,000 raised in the this first fiscal quarter of 2024. In addition, on April 27, 2023, the Company sold $6.875 million of principal face amount senior secured convertible notes with an original issue discount to sophisticated investors for gross proceeds to the company of $5.5 million. The notes mature on April 27, 2024 and are secured by all of the assets of the Company and certain of its subsidiaries, including BNC. The proceeds received have gone towards working capital until the Company can generate the necessary funds from their operations. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. See “Risk Factors” included in our Annual Report for the year ended March 31, 2023 (“2023 Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on July 14, 2023.
Cautionary Note Regarding Forward Looking Statements
This Report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding closing the SEA with Ault, the potential terms, timing and success of the planned spin-offs by us to our security holders of WTRV’s and Wolf Energy’s common stock, our ability to raise capital, our plans to maintain our Nasdaq listing, the expected changes to Agora’s business, our expectations with respect to future developments in our ongoing litigation, and our liquidity. All statements other than statements of historical fact are “forward-looking statements” including: any projections of earnings, revenues or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.
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The results anticipated by any or all of these forward-looking statements might not occur. Important factors, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements include the possibility that the BNC platform may not create positive operating cash flows, the non-acceptance of such platform by consumers, the acceptance of advertisers and others may not be as expected, the lack of the ability to complete, timelines of our planned spin-offs and any regulatory, registration or other delays and uncertainties due to factors beyond our control, the inability to obtain stockholder approval of (i) the acquisition of BNC and the issuance of more than 19.9% of our common stock to Ault, the potential for a recession which may result, supply chain shortages, any issues which could result in unfavorable outcomes of one or both of our ongoing Zest Labs lawsuits, the outcome of the lawsuits against Agora, and the availability of capital on acceptable terms when needed or at all including all risks relating to the capital markets in general and small public companies in particular. Further information on the risks and uncertainties affecting our business is contained in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023 under Part I. Item 1A. – Risk Factors. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.
Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The accounting principles we use require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and amounts of income and expenses during the reporting periods presented. We believe in the quality and reasonableness of our critical accounting policies; however, materially different amounts may be reported under different conditions or using assumptions different from those that we have applied. The accounting policies that have been identified as critical to our business operations and to understanding the results of our operations pertain to valuation of inventories, accruals of certain liabilities including product warranties, and useful lives of assets.
Recently Issued Accounting Pronouncements
Our management has considered all recent accounting pronouncements issued since the last audit of our financial statements. Our management believes that these recent pronouncements will not have a significant effect on our financial statements.
Critical Accounting Estimates
Fair Value Measurements
ASC 820 Fair Value Measurements defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosure about fair value measurements. ASC 820 classifies these inputs into the following hierarchy:
Level 1 inputs: Quoted prices for identical instruments in active markets.
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.
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.
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Recently Issued Accounting Standards
In October 2021, the Financial Accounting Standards Board (“FASB”) issued accounting standards update 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. The guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. The guidance should be applied prospectively to acquisitions occurring on or after the effective date. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. The Company does not expect this guidance to have a material impact on its condensed consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses, which requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The guidance is effective for fiscal years beginning after December 15, 2019. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), which pushes back the effective date for public business entities that are smaller reporting companies, as defined by the SEC, to fiscal years beginning after December 15, 2022. Early adoption is permitted. The adoption of ASU 2016-13 beginning April 1, 2023 did not have a material impact on our condensed 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officers, have 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 upon their evaluation, our principal executive officer and our principal financial officer concluded that, solely as a result of the material weaknesses identified by management and described in our 2023 Annual Report, our disclosure controls and procedures were not effective to ensure that material information relating to the Company required to be disclosed by the Company in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and to ensure that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
Except for the material weaknesses identified by management and described in our 2023 Annual Report, there were no changes in our internal control over financial reporting during the quarter ended June 30, 2023 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
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Remediation
Revenue Recognition. We intend on enhancing the design of existing controls and implementing new controls over the review of the application and recording of revenue for customer contracts under the guidance outlined in ASC 606. We also intend on implementing more thorough reviews of contracts by evaluating contractual terms and determining whether certain contracts should be consolidated, involve related parties and the proper timing of revenue recognition. These reviews will include more comprehensive contractual analysis from our legal team while ensuring qualified resources are involved and adequate oversight is performed during the internal technical accounting review process.
Accounts Receivable. We intend on enhancing the design of existing controls and implementing new controls over the processing and review of accounts receivable billings. We plan to supplement our accounting staff with more experienced personnel. We will also evaluate information system capabilities in order to reduce the manual calculations within this business process.
Complex Financial Instruments. We will design and implement controls to properly identify and implement the proper accounting treatment and classifications of our complex financial instruments to ensure our equity accounting and treatment is in accordance with U.S. generally accepted accounting principles. We intend to accomplish this by implementing more thorough reviews of certain details regarding all rights, penalties, record holders and negative covenants of the financial instruments in order to apply the correct accounting guidance (liabilities vs. equity vs. temporary equity).
Fair value estimates. We will design and implement additional control activities to ensure controls related to fair value estimates (including controls that validate the reasonableness, completeness and accuracy of information, data and assumptions), are properly designed, implemented and documented.
While these actions and planned actions are subject to ongoing management evaluation and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles, we are committed to the continuous improvement of our internal control over financial reporting. We will continue to diligently review our internal control over financial reporting.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the period covered by this report, there were no material developments in the legal proceedings disclosed in our Annual Report on Form 10-K for the year ended March 31, 2023.
ITEM 1A. RISK FACTORS
Investing in our common stock involves a high degree of risk. Investors should review the risk factors described in our Annual Report on Form 10-K for the year ended March 31, 2023. In addition, investors should consider the risk factors described below.
Although we reported net income for the three months ended June 30, 2023, such results are unrelated to our actual performance.
During the first quarter ended June 30, 2023, we reported net operating income from continuing operations of approximately $6.6 million. Investors should consider that the income arose from GAAP which provides that our derivative liabilities operate inversely to our stock price. If our stock price in a given quarter goes down, we recognize non-cash income. Conversely if our stock price goes up, we report a non-cash loss.
There is substantial doubt about our ability to continue as a going concern.
The Company’s financial statements are prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company sold its interests in Banner Midstream in two separate transactions on July 25, 2022 and September 7, 2022. In addition, it sold the non-core business of Trend Discovery on June 17, 2022. The Company expects to distribute the common stock it received (or issuable upon conversion of preferred stock) in the sales to its stockholders upon the effective registration statements for the two entities the companies were sold to. See Note 17, “Preferred Stock” for information on the Company’s recent $12 million convertible preferred stock financing. That financing has restrictive covenants that require approval of the investor for the Company to engage in any equity or debt financing.
The Company believes that the current cash on hand is not sufficient to conduct planned operations for one year from the issuance of the condensed consolidated financial statements, and it needs to raise capital to support their operations, raising substantial doubt about its ability to continue as a going concern. The Company has recently acquired BNC and generated nominal revenues as of June 30, 2023. The accompanying financial statements for the period ended June 30, 2023 have been prepared assuming the Company will continue as a going concern, but the ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes continued revenue streams and becomes profitable. Management’s plans to continue as a going concern include raising additional capital through sales of equity securities and borrowing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. If the Company is not able to obtain the necessary additional financing on a timely basis, the Company will be required to delay, reduce or perhaps even cease the operation of its business. The ability of the Company to continue as a going concern is dependent upon its ability to successfully secure other sources of financing and attain profitable operations. The Company raised approximately $3,500,000 in an At-the-Market capital raise during the fourth fiscal quarter of the year ended March 31, 2023 and the three months ended June 30, 2023. The ATM was terminated on June 16, 2023 after having raised approximately $3,500,000. In addition, on April 27, 2023, the Company sold $6.875 million of principal face amount senior secured convertible notes with an original issue discount to sophisticated investors for gross proceeds to the company of $5.5 million. The notes mature on April 27, 2024 and are secured by all of the assets of the Company and certain of its subsidiaries, including BNC.
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Nasdaq has recently provided us with correspondence containing violation notices and questions arising from certain of our prior transactions, the result of which could be our common stock being delisted from Nasdaq.
On December 27, 2022, the Company received a letter from Nasdaq notifying the Company of its noncompliance with stockholder approval requirements set forth in Listing Rule 5635(d), which requires stockholder approval for transactions, other than public offerings, involving the issuance of 20% or more of the pre-transaction shares outstanding at less than the Minimum Price (as defined therein). Additionally, the letter indicates that the Company violated Nasdaq’s voting rights rule set forth in Listing Rule 5640. The matters described in the letter relate to an amendment to the Certificate of Designation of Rights, Preferences and Limitations (the “Certificate”) of the Series A, shares of which were issued by the Company on June 8, 2022 in a private placement transaction which was previously disclosed on a Current Report on Form 8-K filed on June 9, 2022. Specifically, the Company amended the Certificate on November 28, 2022 to: (i) increase the stated value of the Series A from $10,000 to $10,833.33; (ii) provide for the dividends payable under the Series A to be payable in Common Stock rather than cash effective beginning November 1, 2022, and (iii) reduce the conversion price of the Series A from $63.00 to the lesser of (1) $30.00 and (2) the higher of (A) 80% of the 10-day daily volume weighted average price and (B) $7.50 (the “Amendment”). According to the letter, the Company was required to obtain stockholder approval to effect the Amendment because the Series A as amended provides for the potential issuance of 1,733,333 shares of Common Stock at less than the Minimum Price under Listing Rule 5635(d), and the Amendment also violates Listing Rule 5640 by providing the holder of the Series A with voting rights on an as-converted basis with the Series A convertible into Common Stock at a discount, thereby violating Listing Rule 5640.
In the letter, the Company was provided 45 calendar days from the date of the letter, or until February 10, 2023, to submit a plan to regain compliance with the referenced Listing Rules, and if such plan is accepted by Nasdaq, the Company can receive an extension of up to 180 calendar days from the date of the letter to evidence compliance. However, if the Company’s plan is not accepted by Nasdaq, or is not sufficiently executed to regain compliance and remedy the matters set forth in the letter, the Company’s Common Stock will be subject to delisting. In connection with the letter the Company was also requested to furnish Nasdaq with certain documents and information related to its sale of WTRV.
In connection with the December 27th letter, the Company was also requested to provide certain documents and information related to its sale of WTRV, including as it pertains to the $30,000,000 in preferred stock value being carried on the Company’s balance sheet as consideration for the sale of the entity. According to the correspondence, the request was made under Listing Rule 5250 which provides that a listed company will provide Nasdaq with requested information deemed necessary to make a determination regarding such company’s continued listing.
Further, on December 30, 2022, the Company received another letter from the Nasdaq notifying the Company of its noncompliance with Listing Rule 5550(a)(2) by failing to maintain a minimum bid price for its Common Stock of at least $1.00 per share for 30 consecutive business days and providing the Company with a 180 calendar day grace period to regain compliance with the Listing Rule 5550(a)(2), subject to a potential 180 calendar day extension, as described below. To regain compliance, the Company’s Common Stock must have a minimum closing bid price of at least $1.00 per share for at least 10 consecutive business days within the grace period which ended on June 28, 2023. To qualify for the additional grace period, the Company will be required to meet the continued listing requirement for the market value of its publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and will need to provide written notice of its intention to cure the deficiency during the second grace period, by effecting a reverse stock split if necessary, which would also require stockholder approval unless completed with a proportionate reduction in our authorized Common Stock under our Articles of Incorporation.
On January 26, 2023, Nasdaq sent an email to the Company raising 13 questions concerning the WTRV transaction, WTRV’s business, seeking verification that the Company had in fact transferred $3 million to WTRV last July and questioning the time allocations of the two senior executive officers of the Company and WTRV, among other things. The Company responded on February 15, 2023.
The Company provided responses to Nasdaq on January 11, 2023, February 10, 2023 and February 15, 2023.
If our Common Stock is delisted from Nasdaq, we could face significant material adverse consequences, including:
● | it may adversely affect the Company’s ability to raise capital which it needs to stay operational; |
● | a limited availability of market quotations for our Common Stock; |
● | reduced liquidity with respect to our Common Stock; |
● | a determination that our shares of Common Stock are a “penny stock” which will require broker-dealers trading in our Common Stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our Common Stock; and |
● | being in default under the transaction documents entered into with the investors in the April 27, 2023 financing. |
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If we are unable to rectify any of the above-described Nasdaq issues, for failure to timely obtain stockholder approval, a delisting will subject us and our stockholders to the above and other adverse consequences and could also delay us from effecting the announced spin-offs of common stock of WTRV and Wolf Energy certain entities as described elsewhere in this Report.
On June 21, 2023, the Company received a letter from the Listing Qualifications staff of Nasdaq notifying the Company that the Staff has determined that the Company has violated Nasdaq’s voting rights rule set forth in Listing Rule 5640 (the “Voting Rights Rule”). The alleged violation of the Voting Rights Rule relates to the issuance of (i) 8,637.5 shares of the Series B, and (ii) 1,362.5 shares of the Series C in connection with the acquisition of BNC as well as the securities of Earnity, Inc. beneficially owned by BNC (collectively, the “Assets”) pursuant to the SEA by and among the Company, AAI and the minority stockholders of BNC, which was previously disclosed on Current Reports on Form 8-K filed by the Company on February 14, 2023 and March 10, 2023. The Series B and C Preferred Stock has a collective stated value of $100,000,000 (the “Stated Value”), and votes on an as-converted basis, representing approximately 92.4% of the Company’s outstanding voting power on a fully diluted basis at the time of issuance.
According to the Letter, because the Preferred Stock was not issued for cash, the Staff compared the value of the Assets to the Stated Value and determined that the value of the Assets was less than the Stated Value and that the voting rights attributable to the Series B and C Preferred Stock has the effect of disparately reducing the voting rights of the Company’s existing shareholders. The Staff looked at the total assets and stockholders’ equity of BNC as of March 5, 2023, as well as the market capitalization of AAI prior to entering into the Agreement and immediately after closing of the transaction in determining, in Staff’s opinion, the value of the Assets. The Letter did not make any reference to the projections prepared by AAI as to the future potential of the business of BNC nor to the independent valuation obtained by the Company prior to closing of the transaction, which supported the Stated Value of the Preferred Stock for the total value of the Assets, both of which the Company provided to the Staff prior to receipt of the Letter.
According to the Letter, Nasdaq determined that the voting rights of the Series B and C Preferred Stock, voting on an as-converted basis, are below the minimum price per share of the Company’s common stock at the time of the issuance of the Series B and C Preferred Stock. Additionally, Nasdaq determined that the Series B provides the holder the right to appoint a majority of the Company’s board of directors when such representation is not justified by the relative contribution of the Series B pursuant to the Agreement.
Under the Voting Rights Rule, a company cannot create a new class of security that votes at a higher rate than an existing class of securities or take any other action that has the effect of restricting or reducing the voting rights of an existing class of securities. As such, according to the Letter, the issuance of the Series B and C Preferred Stock violated the Voting Rights Rule because the holders of the Series B and C Preferred Stock are entitled to vote on an as-converted basis, thus having greater voting rights than holders of common stock, and the Series B is entitled to a disproportionate representation on the Company’s board of directors.
According to the Letter, the Company has 45 calendar days from the date of the Letter, or until August 7, 2023, to submit a plan to regain compliance with the Voting Rights Rule, and if such plan is accepted by Nasdaq, the Company can receive an extension of up to 180 calendar days from the date of the Letter to evidence compliance. However, if the Company’s plan is not accepted by Nasdaq, the Company’s common stock will be subject to delisting. The Company would have the right to appeal that decision to a hearings panel. On July 28th, the Company responded and submitted a plan to regain compliance with the Voting Rights Rule.
On May 8, 2023, the Company received a letter from the Listing Qualifications staff (the “Staff”) of the Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that the Staff has determined to delist the Company’s common stock, par value $0.001 per share (the “Common Stock”) from The Nasdaq Capital Market, effective May 17, 2023, pursuant to Listing Rule 5810(c)(3)(A)(iii), as the Company’s common stock traded below $0.10 per share for 10 consecutive trading days.
On May 12, 2023, the Company issued a press release announcing a 1-for-30 reverse stock split of its outstanding common stock which will be effective for trading purposes as of the commencement of trading on May 15, 2023.
On May 26, 2023, the Company received a letter from Nasdaq stating that the Company’s bid price deficiency had been cured, and that the Company was in compliance with all applicable listing standards.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
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* | Certain schedules and other attachments have been omitted. The Company undertakes to furnish the omitted schedules and attachments to the Securities and Exchange Commission upon request. |
** | This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K. |
Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our stockholders who make a written request to our Corporate Secretary at BitNile Metaverse, Inc., 303 Pearl Parkway Suite #200, San Antonio, Texas 78215.
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SIGNATURES
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.
BitNile Metaverse, Inc. | ||
Date: August 21, 2023 | By: | /s/ Randy May |
Randy May | ||
Chief Executive Officer | ||
Date: August 21, 2023 | By: | /s/ Jay Puchir |
Jay Puchir | ||
Chief Financial Officer |
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