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
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties. Words such as “anticipates,” “expects,” “intends,” “goals,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “may,” “will,” “would,” “should,” “could,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, uncertain events or assumptions, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on management’s expectations as of the date of this filing and involve many risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include those described throughout this report and our Annual Report on Form 10-K for the year ended March 31, 2023, particularly the “Risk Factors” sections of such reports. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements in this Form 10-Q do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been completed as of the date of filing of this Quarterly Report on Form 10-Q. In addition, the forward-looking statements in this Form 10-Q are made as of the date of this filing, and we do not undertake, and expressly disclaim any duty to update such statements, whether as a result of new information, new developments or otherwise, except to the extent that disclosure may be required by law.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
RISKON INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 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 non-current assets | ||||||||
Non-current assets of discontinued operations/held for sale | ||||||||
TOTAL ASSETS | $ | $ | ||||||
LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | $ | ||||||
Dividends payable | ||||||||
Accrued liabilities | ||||||||
Derivative liabilities | ||||||||
Current portion of long-term debt | ||||||||
Advances - former parent of Bitnile.com, Inc. (“BNC”) | ||||||||
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 | ||||||||
SHAREHOLDERS’ DEFICIT: | ||||||||
Preferred stock, $ | ||||||||
Series B Preferred stock, | ||||||||
Series C Preferred stock, | ||||||||
Common Stock, $ | ||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total shareholders’ deficit before non-controlling interest | ( | ) | ( | ) | ||||
Non-controlling interest | ( | ) | ( | ) | ||||
TOTAL SHAREHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
RISKON INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Hospitality and VIP experience revenue | $ | $ | $ | $ | ||||||||||||
Gaming 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 derivative liabilities | ||||||||||||||||
Dividend expense | ( | ) | ( | ) | ||||||||||||
Amortization of discounts | ( | ) | - | ( | ) | - | ||||||||||
Loss on disposal of fixed assets | ( | ) | ( | ) | ||||||||||||
Interest income (expense), net of interest income | ( | ) | ( | ) | ( | ) | ||||||||||
Total other (expense) income | ( | ) | ||||||||||||||
Loss from continuing operations before discontinued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Discontinued operations | ||||||||||||||||
Loss from discontinued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Gain (loss) on disposal of discontinued operations | ( | ) | ( | ) | ||||||||||||
Total gain (loss) discontinued operations | ( | ) | ( | ) | ( | ) | ||||||||||
Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Net loss attributable to non-controlling interest | ||||||||||||||||
Net loss to controlling interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Less preferred stock dividends | ||||||||||||||||
Net loss to controlling interest of common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Net loss per share – basic and diluted | ||||||||||||||||
$ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
$ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
$ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
RISKON INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(UNAUDITED)
Common Stock | Additional Paid in | Accumulated | Non-controlling | Total Shareholders’ | ||||||||||||||||||||
Shares | Amount | Capital | Deficit | interest | Deficit | |||||||||||||||||||
Balance, March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
Shares issued for cash under at-the-market (“ATM”), net of fees | ||||||||||||||||||||||||
Shares issued for preferred stock dividends | ||||||||||||||||||||||||
Shares issued by Agora Digital Holdings, Inc. (“Agora”) for services rendered, net of amounts prepaid | - | |||||||||||||||||||||||
Share-based compensation | - | |||||||||||||||||||||||
Net income | - | ( | ) | |||||||||||||||||||||
Balance, June 30, 2023 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
Shares issued by Agora for services rendered, net of amounts prepaid | - | |||||||||||||||||||||||
Net loss for the period | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||
Balance, September 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) |
Common Stock | Additional Paid in | Accumulated | Treasury | Non-controlling | Total Shareholders’ | |||||||||||||||||||||||
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 for services rendered, net of amounts prepaid | - | |||||||||||||||||||||||||||
Share-based compensation | - | |||||||||||||||||||||||||||
Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
Preferred dividends | - | ( | ) | ( | ) | |||||||||||||||||||||||
Balance, June 30, 2022 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
Shares issued in conversion of preferred stock to common stock | ||||||||||||||||||||||||||||
Shares issued in settlement | ( | ) | ||||||||||||||||||||||||||
Shares issued by Agora for services rendered, net of amounts prepaid | - | |||||||||||||||||||||||||||
Share-based compensation | ||||||||||||||||||||||||||||
Disposal of subsidiaries in reverse merger transactions | - | |||||||||||||||||||||||||||
Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
Preferred stock dividends | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
Balance, September 30, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ |
The accompanying notes are an integral part of these unauditodensed consolidated financial statements.
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RISKON INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended September 30, | ||||||||
Cash flows from operating activities: | 2023 | 2022 | ||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Change in non-controlling interest | ( | ) | ( | ) | ||||
Amortization of discount | ||||||||
Depreciation, amortization and impairment | ||||||||
Legal costs for ATM facility | ||||||||
Share-based compensation | ||||||||
(Gain) loss on disposal of Zest Labs, Inc. (“Zest Labs”) and other fixed assets | ( | ) | ||||||
Loss on disposal of WTRV and Banner Midstream Corp. (“Banner Midstream”) | ||||||||
Gain on disposal of Trend Discovery Holdings, LLC (“Trend Discovery”) | ( | ) | ||||||
Common shares issued for services | ||||||||
Development expenses reduced from refund of power development costs | ||||||||
Change in fair value of derivative liabilities | ( | ) | ( | ) | ||||
Shares issued for preferred dividend | ||||||||
Common stock issued for services - Agora | ||||||||
Commitment fees on long-term debt | ||||||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable | ( | ) | ||||||
Prepaid expenses and other current assets | ||||||||
Accrued interest receivable | ( | ) | ||||||
Amortization of right of use asset - operating leases | ||||||||
Accounts payable | ||||||||
Accrued expenses | ||||||||
Dividends payable | ||||||||
Operating lease | ( | ) | ( | ) | ||||
Total adjustments | ( | ) | ||||||
Net cash used in operating activities of continued operations | ( | ) | ( | ) | ||||
Net cash provided by discontinued operations | ||||||||
Net cash used in operating activities | ( | ) | ( | ) | ||||
Cash flows from investing activities: | ||||||||
Proceeds from the sale of power development costs | ||||||||
Purchase of fixed assets | ( | ) | ||||||
Net cash provided by investing activities of continuing operations | ||||||||
Net cash used in investing activities of discontinued operations | ( | ) | ||||||
Net cash provided by investing activities | ||||||||
Cash flows from financing activities: | ||||||||
Proceeds from former parent of BNC | ||||||||
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 sale of preferred stock | ||||||||
Net cash provided by financing activities of continuing operations | ||||||||
Net cash used in financing activities of discontinued operations | ||||||||
Net cash provided by financing activities | ||||||||
Net (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 | $ | $ | ||||||
Non-controlling interest recorded in consolidation of Enviro Technologies US, Inc. | $ | $ | ||||||
Preferred shares converted into common stock | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
RISKON INTERNATIONAL, INC. AND SUBSIDIAIRES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
1. DESCRIPTION OF BUSINESS
Overview
On March 15, 2023, Ecoark Holdings Inc. changed
its name to BitNile Metaverse Inc. and subsequently on November 1, 2023, it changed its name to RiskOn International, Inc (“ROI”
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 September 30, 2023, the Company’s former wholly owned subsidiaries, with the exception of Agora, 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 September 30, 2023. The comparative financial statements for the three and six months ended September 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 Company’s former subsidiary Zest Labs,
along with the Company and Zest Labs Holdings, LLC (owned by Gary Metzger, a current board member of the Company and therefore a related
party) (the “Purchaser”), entered into a stock purchase agreement dated August 25, 2023, whereby the Purchaser purchased
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.
5
The Platform 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. The Company has 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.
2. LIQUIDITY AND GOING CONCERN
For the three and six months ended September 30,
2023, the Company had a net loss to controlling interest of common shareholders of $(
The Company’s financial statements are prepared
using accounting principles generally accepted in the United States (“U.S. GAAP”) applicable to a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal course of business. The Company sold its interests in Banner Midstream
in two separate transactions on July 25, 2022 and September 7, 2022. In addition, it sold the non-core business of Trend Discovery on
June 17, 2022. The Company expects to distribute the common stock it received (or issuable upon conversion of preferred stock) in the
sales to its shareholders 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 Series A preferred stock issued to Ault Lending, LLC (formerly Digital Power Lending,
LLC) (“Ault Lending”) in conjunction with a $
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 three and six month periods ended September 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 $
On October 30, 2023,
the registration statement related to the $
6
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 filed with 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 2023 Annual Report. Results of the three and six months ended September 30, 2023 are not necessarily indicative of the results to be expected for the full year ending March 31, 2024.
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 condensed 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 is 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. | Rewarded – SweepCoins (“SC”) – Users can use SC to enter sweepstakes type games with a potential to win both digital goods and real world cash redemptions. |
While the revenue received from the sale of NT and NC’s (collectively the “coins”) is currently nominal, the Company believes that its operation of the BitNile.com website could be a scalable source of revenue in the future. Additionally, the Company expects the website will be a mechanism to help increase its brand reputation and recognition by participants, which the Company believes will result in the acquisition and monetization of new users to the site.
During the three and six month periods ended September
30, 2023 and 2022, the Company recognized $
7
Hospitality and VIP Services Revenue
Hospitality revenue currently consists of revenue from services provided to groups at certain social functions and sporting events. The Company also sells 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 the Company provides.
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 it has 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, The Company also uses certain subcontractors that it selects and hires to help transfer services to the end customer. The Company has evaluated its agreements with its food and service subcontractors and based on the preceding, the Company determined that it 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.
Net Loss Per Share
Basic net loss per common share is computed using the weighted average number of common shares outstanding. Diluted loss per share includes 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.
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.
4. DISCONTINUED OPERATIONS
As discussed in Note 1 and the 2023 Annual Report, during the year
ended March 31, 2023, the Company sold all of its subsidiaries, other than Agora and Zest Labs. On August 25, 2023, the Company sold
Current assets as of September 30, 2023 and March 31, 2023 – Discontinued Operations:
September 30, 2023 | March 31, 2023 | |||||||
Wolf Energy | $ | $ | ||||||
Prepaid expenses | ||||||||
$ | $ |
8
September 30, 2023 | March 31, 2023 | |||||||
Wolf Energy | $ | $ | ||||||
$ | $ |
September 30, 2023 | March 31, 2023 | |||||||
Wolf Energy | $ | $ | ||||||
Zest Accounts payable | ||||||||
Zest Accrued expenses | ||||||||
$ | $ |
September 30, 2023 | March 31, 2023 | |||||||
Wolf Energy | $ | $ | ||||||
$ | $ |
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenue | $ | $ | $ | - | $ | |||||||||||
Operating expenses | ||||||||||||||||
Wolf Energy – 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. BUSINESS COMBINATIONS/DIVESTITURES
BNC
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 Accounting Standards Update (“ASU”) 2017-01.
Prepaid expenses | $ | |||
Property and equipment | ||||
Intangible assets | ||||
Accounts payable and accrued expenses | ( | ) | ||
Due to BNC former parent | ( | ) | ||
Notes payable | ( | ) | ||
Total assets and liabilities | $ | ( | ) |
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 as of March 7, 2023 of $
Zest Labs
On August 25, 2023, the Company sold
The Company sold the assets and liabilities of Zest Labs noted below at fair value.
Prepaid expenses | $ | |||
Accounts payable and accrued expenses | ( | ) | ||
Total assets and liabilities | $ | ( | ) |
The Company recorded a gain on disposal of Zest
Labs 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.
As part of each of the Company’s social functions or events, the Company offers the option to request catering services for an additional
charge. For the three and six months ended September 30, 2023 the Company recognized $
The Company had related party hospitality service
sales of $
10
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. 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
Trend Ventures Note. The First Amendment amended the following clauses of the Trend Ventures Note: (a) the principal amount was amended
from $
As of September 30, 2023, the Company has established a full reserve for the principal and accrued interest receivable.
8. INVESTMENT – SERIES A CONVERTIBLE PREFERRED STOCK – WTRV
On July 25, 2022, the Company entered into a Share
Exchange Agreement pursuant to which it sold to WTRV its oil and gas production business, which was part of the commodities segment. The
Company received
As of September 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 have not yet been converted into common stock, and the Company 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 as of September 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
11
10. INVESTMENT – EARNITY
As part of the acquisition of BNC, the Company
acquired BNC’s
11. PROPERTY AND EQUIPMENT
September 30, 2023 | March 31, 2023 | |||||||
(unaudited) | ||||||||
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 | $ | $ |
Depreciation expense for the three and six months
ended September 30, 2023 was $
Effective September 30, 2023, the Company impaired
$
On November 1, 2023, both Agora and Bitstream filed petitions for Chapter 7 bankruptcy in the United States Bankruptcy Court for the Western District of Texas, cases 23-51490 and 23-51491, respectively.
12. INTANGIBLE ASSETS
September 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 and six months
ended September 30, 2023 was $
12
On August 25, 2023, the Company sold
Remaining fiscal year 2024 | $ | |||
2025 | ||||
2026 | ||||
2027 | ||||
2028 | ||||
Thereafter | ||||
$ |
13. ACCRUED EXPENSES
September 30, 2023 | March 31, 2023 | |||||||
Professional fees and consulting costs | $ | $ | ||||||
Platform hosting fees | ||||||||
Compensation vacation and paid time off | ||||||||
Sponsorship | ||||||||
Interest | ||||||||
Accrued legal contingencies | ||||||||
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.
13
The Company has only included descriptions of warrants that are still outstanding as of September 30, 2023.
On August 6, 2021, the Company closed a $
On April 27, 2023, the Company closed a $
The Company determined its derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of September 30, 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.
Six Months Ended September 30, 2023 | Year Ended March 31, 2023 | Inception | ||||||||||
Expected term | ||||||||||||
Expected volatility | ||||||||||||
Expected dividend yield | ||||||||||||
Risk-free interest rate | ||||||||||||
Market price | $ | $ |
September 30, 2023 | March 31, 2023 | |||||||
Fair value of | $ | $ | ||||||
Fair value of | ||||||||
Fair value of | ||||||||
$ | $ |
During the six months ended September 30, 2023
and 2022, the Company recognized changes in the fair value of the derivative liabilities of $
14
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 September 30, 2023 | $ |
Beginning balance as of March 31, 2022 | $ | |||
Issuances of warrants – derivative liabilities | - | |||
Warrants exchanged for common stock | ||||
Change in fair value of warrant derivative liabilities | ( | ) | ||
Ending balance as of September 30, 2022 | $ |
15. LONG-TERM DEBT
September 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) |
15
Remaining 2024 | $ | |||
2025 | ||||
2026 | ||||
2027 | ||||
2028 | ||||
Thereafter | ||||
$ |
Interest expense on long-term debt during the
three and six months ended September 30, 2023 was $
16. NOTES PAYABLE
Related Parties
AAI advanced the Company $
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 discounts | ||||
Less: debt discount – reclassification to derivative liability (*) | ( | ) | ||
Ending balance as of September 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 September 30, 2023 | $ |
16
17. PREFERRED STOCK
RiskOn International Series A
On June 8, 2022, the Company entered into a Securities
Purchase Agreement (the “Series A Agreement”) with Ault Lending, pursuant to which the Company sold Ault Lending
Conversion Rights
Prior to the November 2022 amendment described
below, each share of RiskOn International Series A had a stated value of $
September 30, 2023 | March 31, 2023 | |||||||
Expected term | ||||||||
Expected volatility | ||||||||
Expected dividend yield | ||||||||
Risk-free interest rate | ||||||||
Market price | $ | $ |
17
As described in Note 19 “Commitments
and Contingencies”, on November 2, 2023, the Company received a notice in the form of a letter (“Deficiency Letter”)
from the Staff of the Nasdaq stating that the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2) because the bid price
for the Company’s common stock had closed below $
Negative Covenants and Approval Rights
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 RiskOn International 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 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 Holder
canceled the Warrant in exchange for $
18
Registration Rights
Pursuant to the Agreement,
the Company agreed to register the sale by Ault Lending of up to
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 Reports on Form 8-K as filed with the SEC on June 9, 2022, July 15, 2022 and November 29, 2022.
Preferred Stock Derivative Liability
RiskOn International Series A
As discussed herein, the Company determined that
the RiskOn International Series A upon the amendment on November 28, 2022, constituted a derivative liability under ASC 815, Derivatives
and Hedging (“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 RiskOn International
Series A holder converted
The derivative liability for the RiskOn International
Series A was remeasured at September 30, 2023 and was valued at $
In addition, the Company advanced $
Beginning balance as of March 31, 2023 | $ | |||
Reclassification – advances former owners of BitNile.com | ||||
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 September 30, 2023 | $ |
RiskOn International Series B and C
On February 8, 2023,
the Company entered into the SEA by and among AAI, a significant shareholder and the owner of approximately
19
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 $
In addition, for as
long as at least
The terms, rights, preferences
and limitations of the Series C are substantially the same as those of the Series B, except that the Series C does not hold negative covenant
and consent rights. The Company is required to maintain a reserve of authorized and unissued shares of common stock equal to
Pending shareholder approval
of the transaction, the Preferred Stock combined are subject to a
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 provided
that following the closing the Company will prepare and distribute a proxy statement and hold a meeting of its shareholders 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 BitNile Metaverse, Inc., (v) an increase of the Company’s authorized common stock to
20
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. 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.
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
was remeasured at September 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 September 30, 2023 | $ |
On April 4, 2023, the Company entered into an
agreement with Ault Lending and WTRV pursuant to which the Company agreed to advance to WTRV payments of up to $
18. SHAREHOLDERS’ DEFICIT
RiskOn International Series A
As of March 31, 2022, there were
As of September 30, 2023 and March 31, 2023,
the Company had issued Series B and Series C, as noted in Note 17, and has
21
Common Stock
The Company is authorized to issue
In the six months ended September 30, 2022, the
Company issued
On January 24, 2023,
the Company entered into an ATM Issuance Sales Agreement (the “ATM Agreement”) with Ascendiant Capital Markets, LLC (“Ascendiant”),
pursuant to which the Company could issue and sell from time to time, through Ascendiant, shares of the Company’s common stock,
par value $
Under the ATM Agreement,
Ascendiant was entitled to compensation of
As of September 30,
2023, there were
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 six months ended September 30, 2023, the
Company issued
As of September 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
22
On August 7, 2022, Agora issued
Of the
The performance grants vest as follows:
The Company recognized $
The Company accounts for share-based payments in accordance with ASC 718, Compensation — Stock Compensation. The Company measures compensation expense for restricted stock units based on the fair value of the award on the date of grant. The grant date fair value is based on the closing market price of the Company’s common stock on the date of grant.
Share-based Compensation Expense
Share-based compensation for employees is included in salaries and salary related costs and directors and services are included in professional fees and consulting in the condensed consolidated statement of operations for the three and six months ended September 30, 2023 and 2022.
Share-based compensation for the three and six
months ended September 30, 2023 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 was $
19. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is presently involved in the following legal proceedings. To the best of the Company’s knowledge, no governmental authority is contemplating any proceeding to which the Company is a party or to which any of its properties or businesses are subject, which would reasonably be likely to have a material adverse effect on the Company.
● | On August 1, 2018, ROI and Zest Labs filed a complaint against Walmart, Inc. (“Walmart”) in the United States District Court for the Eastern District of Arkansas, Western Division. The complaint includes claims for violation of the Arkansas Trade Secrets Act, violation of the Federal Defend Trade Secrets Act, breach of contract, unfair competition, unjust enrichment, breach of the covenant of good faith and fair dealing, conversion and fraud. On April 9, 2021, a Little Rock, Arkansas jury awarded ROI and Zest Labs a total of $ |
23
● | On April 22, 2022, BitStream and ROI were sued in Travis County, Texas District Court (Docket #79176-0002) by Print Crypto Inc. in the amount of $ |
● | On July 15, 2022, Bitstream 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 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 additional 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
On July 18, 2023, the
Company received a letter (the “Letter”) from the Listing Qualifications staff (the “Staff”) of the Nasdaq Stock
Market LLC (“Nasdaq”) indicating that the Company’s shareholders’ equity as reported in the 2023 Annual Report
did not satisfy the continued listing requirement under Nasdaq Listing Rule 5550(b)(1) for the Nasdaq Capital Market, which requires that
a listed company’s shareholders’ equity be at least $
According to the Letter, the Company had 45 calendar days from the date of the Letter, or until September 1, 2023, to submit a plan to regain compliance with Nasdaq Listing Rule 5550(b)(1). If the Company’s compliance plan is accepted by Nasdaq, then Nasdaq may, in its discretion, grant the Company up to 180 calendar days from the date of the Letter, or until January 14, 2024, to evidence compliance. If Nasdaq does not accept the Company’s plan, then Nasdaq may issue a staff delisting determination letter whereby the Company’s common stock will be subject to delisting. The Company would have the opportunity to appeal that decision to a Nasdaq hearings panel. The Company submitted a compliance plan, which was subsequently amended and restated, to the Staff, but as of the date of this filing, Nasdaq has not determined whether or not to accept the Company’s plan.
If the Company’s Common Stock is delisted from Nasdaq, the Company could face significant material adverse consequences, including:
● | it may adversely affect its ability to raise capital which is needed to stay operational; |
● | a limited availability of market quotations for the Company common stock; |
● | reduced liquidity with respect to the Company’s common stock; |
● | a determination that the Company’s common stock is a “penny stock” which will require broker-dealers trading in the common stock to adhere to more stringent rules, resulting in a reduced level of trading activity in the secondary trading market for the common stock; and |
● | being in default under the transaction documents entered into with the investors in the April 27, 2023 financing. |
If the Company is unable to rectify any of the above-described Nasdaq issues, a delisting would subject the Company and its shareholders to the above.
24
ELOC
On August 24, 2023,
the Company entered into a purchase agreement (the “ELOC Purchase Agreement”) with Arena Business Solutions Global SPC II
Ltd on behalf of and for the account of Segregated Portfolio #3 – SPC #3 (“Arena”), which provides that, upon the terms
and subject to the conditions and limitations set forth therein, the Company has the right to direct Arena to purchase up to an aggregate
of $
Non-cancelable Obligations
In the course of BNC’s
gaming business in association with its Platform, the Company has entered into non-cancelable obligations with certain parties to purchase
services, such as technology and the hosting of the Platform. As of September 30, 2023, the Company had outstanding non-cancelable purchase
obligations with terms of one year or longer aggregating $
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 or six months ended September 30, 2023 and 2022. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
Fair value estimates are made at a specific point
in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature
and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions
could significantly affect the estimates. The Company records the fair value of the of the warrant derivative liabilities disclosed in
accordance with ASC 815. 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) | |||||||||||||
September 30, 2023 | ||||||||||||||||
Derivative liabilities | $ | $ | $ | $ | ||||||||||||
Investment – WTRV | ||||||||||||||||
March 31, 2023 | ||||||||||||||||
Derivative liabilities | $ | $ | $ | |||||||||||||
Bitcoin | ( | ) | ||||||||||||||
Investment – WTRV | ( | ) |
25
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 September 30, 2023 | $ |
21. RELATED PARTY TRANSACTIONS
In connection with the hospitality services the Company offers, the Company and certain customers enter into separate arrangements with respect to sponsorships it provides in addition to a number of ongoing commercial relationships, including license agreements.
As of September 30, 2023 and March 31, 2023, the
Company had related party receivables of $
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. The Company’s Chief Executive Officer and Chief Financial Officer hold similar positions in WTRV.
In the six month period ended September 30, 2023,
the Company was advanced an additional $
The Company’s former subsidiary Zest Labs,
along with the Company and Zest Labs Holdings, LLC (owned by Gary Metzger, a current board member of the Company and therefore a related
party) (the “Purchaser”), entered into a stock purchase agreement dated August 25, 2023, whereby the Purchaser purchased
Revenues and Accounts Receivable
The Company 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 $
22. SUBSEQUENT EVENTS
Chapter 7 Bankruptcy Filing of Agora and Bitstream
On November 1, 2023, both Agora and Bitstream, filed voluntary petitions for relief under Chapter 7 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Western District of Texas. The bankruptcy cases are being administered under case numbers 23-51490 and 23-51491, respectively. The cases are still pending before the court.
26
S-1 Registration Statement
On October 30, 2023, the Registration
Statement related to the ELOC Purchase Agreement was declared effective by the SEC. In conjunction with the ELOC Purchase Agreement,
there were an indeterminable number of shares of the Company’s common stock to be issued to the Buyer equal to $
S-3 Registration Statement and Subsequent Conversions
On
October 19, 2023, the registration statement registering the shares of common stock issuable upon
conversion of the senior secured convertible notes issued in April 2023 was declared effective
by the SEC. As of November 16, 2023, the Company received conversion notices converting an aggregate of $
Name and Ticker Symbol Change
Effective November 1, 2023, the Company changed its name from BitNile Metaverse, Inc., to RiskOn International, Inc. and changed its ticker symbol from BNMV to ROI. The change in both name and ticker are underscored by the Company’s commitment to developing a vertically integrated community while creating a seamless and enriched user experience.
Changes in Board of Directors Composition
On October 13, 2023, the Company appointed Robert O. Smith to its Board of Directors. Mr. Smith will serve as lead independent director and as Chairman of the Audit Committee. Mr. Smith replaces Steve Nelson who departed the Board of Directors on September 30, 2023; Mr. Nelson’s resignation was not the result of any disagreement with the Company, or its management on any matter relating to the Company’s operations, policies or practices.
Changes in Authorized Shares
On October 16, 2023, the Company, upon obtaining
shareholder approval, filed a certificate of amendment to its Articles of Incorporation increasing its authorized shares of common stock
from
Nasdaq Compliance
On November 2, 2023,
the Company received a notice in the form of a letter (“Deficiency Letter”) from the Staff of the Nasdaq stating that the
Company was not in compliance with Nasdaq Listing Rule 5550(a)(2) because the bid price for the Company’s common stock had closed
below $
In accordance with Nasdaq
listing rule 5810(c)(3)(A), the Company has 180 calendar days, or until April 30, 2024, to regain compliance. The Deficiency Letter states
that to regain compliance, the bid price for the Company’s common stock must close at $
Term Note Agreement
On November 8, 2023,
the Company entered into a term note (“Term Note”) agreement for a principal amount of $
Series D Preferred Purchase Agreement, Related Party
On November 14, 2023, the Company entered into
a securities purchase agreement (the “SPA”) with AAI, pursuant to which the Company agreed to sell to AAI 603.44 shares of
newly designated Series D Convertible Preferred Stock (“Series D shares”) for a total purchase price of $
Common Stock Issuance
On November 17, 2023, the Company issued
27
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.; subsequently, on November 1, 2023 it changed its name to RiskOn International, Inc. (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 BitNile.com, Inc. (“BNC”), a significant shareholder of the Company, and the minority shareholders 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 securities of Earnity, Inc. beneficially owned by BNC (which represents approximately 19.9% of the outstanding securities 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. 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 September 30, 2022, 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. On August 28, 2023, we executed a spin-off of Zest Labs, which owns intellectual property relating to agriculture shelf life and freshness management, pursuant to a stock purchase agreement whereby we sold all of the outstanding shares of Zest Labs, Inc. to Zest Labs Holding, LLC. The comparative financial statements for the three and six months ended September 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.
Through BNC, we are primarily engaged in the development and operation of an online metaverse platform (the “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. Our virtual world, located at BitNile.com, 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 and Nile Coins (either free or purchased) cannot be redeemed for cash or 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.
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Our current and planned products and experiences are:
● | Virtual markets. The platform facilitates 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. The platform allows users to shop for a diverse range of real world products and VIP experiences. |
● | Gaming. The platform provides an extensive selection of gaming options, including participation in games, sweepstakes and social gaming experiences, such as Blackjack. |
● | Sweepstakes gaming. The platform features a dedicated gaming zone for users to engage in sweepstakes gaming, offering opportunities to win virtual and real money. |
● | Contests of skill. The platform organizes competitions for users to showcase their talents and compete against others for prizes and recognition in various disciplines. |
● | Building private spaces. The platform allows users to construct and customize their dream homes or private spaces. |
● | Socialization and connectivity. The platform’s ongoing mission will be to foster global connections by enabling users to interact with individuals from around the world, forming new friendships, collaborating on projects or engaging in conversations within various social hubs. |
● | Real and virtual concerts. We expect the platform to host live and virtual concerts within the metaverse, featuring performances from both real world and virtual artists, allowing users to attend and enjoy shows in an immersive environment. |
Our Business Strategy
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. Our business strategy revolves around creating a seamless, all-encompassing platform that caters to various user needs and interests.
The strategic pillars for the growth of our BitNile.com metaverse platform include (i) leveraging cutting-edge technology to offer a user-friendly, browser-based platform compatible with virtual reality headsets and other modern devices for an enhanced experience, (ii) providing a diverse range of products and experiences that caters to users with different interests and preferences, (iii) fostering global connections and a sense of community among users, encouraging socialization and collaboration, and (iv) focusing on continuous innovation to stay ahead of industry trends and customer expectations.
We expect to generate revenue in fiscal 2024 through the sale of tokens or coins that provide our end users with interactive entertainment (game play) and durable goods principally for the personal computer and mobile platforms.
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 develop 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. |
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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 2,100,905 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 $3,334,246 which represents the derivative liability at inception of the warrants. The fair value of the warrants was estimated to be $1,109,183 as of September 30, 2023. |
● | On May 4, 2023, the Company amended its Articles of Incorporation to effectuate a 1-for-30 reverse stock split. The Company also reduced its 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 was 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 $4,443,870, 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 had a full reserve established for the principal and accrued interest receivable. |
● | 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 shareholders 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. |
● |
On July 18, 2023, the Company received a letter from the Listing Qualifications staff of Nasdaq indicating that the Company’s shareholders’ equity as reported in the 2023 Annual Report did not satisfy the continued listing requirement under Nasdaq Listing Rule 5550(b)(1) for the Nasdaq Capital Market, which requires that a listed company’s shareholders’ equity be at least $2.5 million. As reported in the 2023 Annual Report, the Company’s shareholders’ equity as of March 31, 2023 was approximately $(13.9) million.
According to the letter, the Company had 45 calendar days from the date of the letter to submit a plan to regain compliance with Nasdaq Listing Rule 5550(b)(1). If the Company’s compliance plan is accepted by Nasdaq, then Nasdaq may, in its discretion, grant the Company up to 180 calendar days from the date of the Letter, or until January 14, 2024, to evidence compliance. If Nasdaq does not accept the Company’s plan, then Nasdaq may issue a staff delisting determination letter whereby the Company’s common stock will be subject to delisting. The Company would have the opportunity to appeal that decision to a Nasdaq hearings panel. The Company submitted a compliance plan, which was subsequently amended and restated, to the staff, but as of the date of this filing, Nasdaq has not determined whether or not to accept the Company’s plan. |
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● | On August 24, 2023, the Company entered into a purchase agreement (the “ELOC Purchase Agreement”) with Arena Business Solutions Global SPC II Ltd on behalf of and for the account of Segregated Portfolio #3 – SPC #3 (“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. The Registration Statement was declared effective on October 30, 2023. |
● | On August 25, 203, we, Zest Labs and Zest Labs Holdings, LLC (owned by Gary Metzger, a current board member of our company) (the “Purchaser”), entered into a stock purchase agreement, whereby the Purchaser purchased 100% of the issued and outstanding common stock of Zest Labs from us in exchange for the Purchaser agreeing to distribute any net proceeds from any new or ongoing intellectual property litigation or the sale or licensing of any intellectual property of Zest Labs to our shareholders of record as of November 15, 2022. |
● | On September 28, 2023, the Company amended the Certificate of Designations for each of the Series B Preferred Stock and the Series C Preferred Stock to eliminate all voting rights of these series of preferred stock. On October 16, 2023, Nasdaq notified the Company that it had regained compliance with the Voting Rights Rule. |
● |
On November 2, 2023, the Company received a letter from the Listing Qualifications staff of Nasdaq stating that the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2) because the bid price for the Company’s common stock had closed below $1.00 per share for the previous 31 consecutive business days.
In accordance with Nasdaq listing rule 5810(c)(3)(A), the Company has 180 calendar days, or until April 30, 2024, to regain compliance. The Deficiency Letter states that to regain compliance, the bid price for the Company’s common stock must close at $1.00 per share or more (the “Minimum Bid Price”) for a minimum of 10 consecutive business days during the compliance period ending April 30, 2024. In the event that the Company does not regain compliance within this 180-day period, the Company may be eligible to seek an additional compliance period of 180 calendar days if it meets the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the Minimum Bid Price, and provides written notice to Nasdaq of its intent to cure the deficiency during this second compliance period, by effecting a reverse stock split, if necessary. However, if it appears to the Nasdaq Staff that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, Nasdaq will provide notice to the Company that its common stock will be subject to delisting. At that time, the Company may appeal any such delisting determination to a Nasdaq hearings panel. |
● | On November 14, 2023, we entered into a Securities Purchase Agreement (the “Agreement”) with AAI, pursuant to which we sold to AAI 603.44 shares of newly designated Series D Convertible Preferred Stock (the “Preferred Shares”) for a total purchase price of $15,085,930.69 (the “Transaction”). The Transaction closed on November 15, 2023 (the “Closing Date”). |
The purchase price was paid by the cancellation of $15,085,930.69 of cash advances made by AAI to us between January 1, 2023 and November 9, 2023.
The terms of the Preferred Shares as set forth in the Certificates of Designations of the Rights, Preferences and Limitations of the Series D Convertible Preferred Stock (the “Certificate”). The Preferred Shares each have a stated value of $25,000 per share (the “Stated Value”). Pursuant to the Certificate, each Preferred Share is convertible into a number of shares of our common stock determined by dividing the Stated Value by $0.51 (the “Conversion Price”). The Conversion Price is subject to adjustment in the event of an issuance of common stock at a price per share lower than the Conversion Price then in effect, as well as upon customary stock splits, stock dividends, combinations or similar events.
The Preferred Shares holders are entitled to receive dividends at a rate of 10% of the Stated Value per annum from issuance until November 14, 2033 (the “Dividend Term”). During the first two years of the Dividend Term, dividends will be payable, in our option, in additional Preferred Shares rather than cash, and thereafter dividends will be payable in either additional Preferred Shares or cash as the majority holder may elect. If the Company fails to make a dividend payment as required by the Certificate, the dividend rate will be increased to 15% for as long as such default remains ongoing and uncured. Each Preferred Share also has a $25,000 liquidation preference in the event of a liquidation, change of control event, dissolution or winding up of our company, and ranks senior to all our other capital stock with respect thereto other than the existing Series B Preferred Stock and Series C Preferred Stock, with which the Preferred Shares shall have equal ranking. Each Preferred Share is entitled to vote, on an as-converted basis, with the common stock at a rate of 0.9 votes per share of common stock into which the Preferred Share is convertible.
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In addition, for as long as at least 25% of the Preferred Shares remain outstanding, AAI must consent with respect to certain corporate events, including reclassifications, fundamental transactions, stock redemptions or repurchases, increases in the number of directors, and declarations or payment of dividends, and further we are subject to certain negative covenants, including covenants against issuing additional shares of capital stock or derivative securities, incurring indebtedness, engaging in related party transactions, selling of properties having a value of over $50,000, altering the number of directors, and discontinuing the business of any subsidiary, subject to certain exceptions and limitations.
The Agreement provides the holders of Preferred Shares with most favored nations rights in the event we offer securities with more favorable terms than the Preferred Shares for as long as the Preferred Shares remain outstanding. Under the Agreement, while any Preferred Shares are outstanding, we are prohibited from redeeming or declaring or paying dividends on outstanding securities other than the Preferred Shares. Further, the Agreement prohibits us from issuing or amending securities at a price per share below the Conversion Price, or to engage in variable rate transactions, for a period ending on the earlier of (i) four (4) years from the Closing Date and (ii) the date that AAI holds less than 250 Preferred Shares.
Segment Reporting for the Three and Six Months Ended September 30, 2023 and 2022
As a result of the sales of WTRV and Banner Midstream, and the immaterial nature of the operations of Zest Labs and Agora, we no longer segregate our operations.
Results of Operations
The discussion of our results of operations should be evaluated considering that our primary subsidiaries were sold in the year ended March 31, 2023 and their results of operations are now treated as discontinued operations. Accordingly, period to period comparisons may not be meaningful.
Continuing Operations For the Three Months Ended September 30, 2023 and 2022
Three Months Ended September 30, | Change | Change | ||||||||||||||
2023 | 2022 | ($) | (%) | |||||||||||||
Hospitality and VIP experience revenue | $ | 17,700 | $ | - | $ | 17,700 | 100 | % | ||||||||
Gaming revenue | 1,500 | - | 1,500 | 100 | % | |||||||||||
Cost of revenue | 28,422 | 88,212 | (59,790 | ) | -68 | % | ||||||||||
Gross loss | (9,222 | ) | (88,212 | ) | 78,990 | 90 | % | |||||||||
Operating expenses: | ||||||||||||||||
Depreciation, amortization and impairment | 4,032,157 | 1,668,555 | 2,363,602 | 142 | % | |||||||||||
Bad debt | 55,548 | - | 55,548 | 100 | % | |||||||||||
Selling, general and administration | 7,030,891 | 1,621,728 | 5,409,163 | 334 | % | |||||||||||
Salaries and professional consulting fees | 2,619,762 | 3,625,044 | (1,005,282 | ) | -28 | % | ||||||||||
Total operating expenses | 13,738,358 | 6,915,327 | 6,823,031 | 99 | % | |||||||||||
Operating loss | (13,747,580 | ) | (7,003,539 | ) | (6,744,041 | ) | -96 | % | ||||||||
Other (expense) income | ||||||||||||||||
Change in fair value of warrant derivative liabilities | 1,862,290 | 3,286,004 | (1,423,714 | ) | -43 | % | ||||||||||
Dividend expense | (1,553,458 | ) | - | 1,553,458 | 100 | % | ||||||||||
Amortization of discounts | (2,161,211 | ) | - | 2,161,211 | 100 | % | ||||||||||
Loss on disposal of fixed assets | - | (570,772 | ) | (570,772 | ) | -100 | % | |||||||||
Interest expense, net of interest income | 41,499 | (281,900 | ) | 323,399 | -115 | % | ||||||||||
Total other (expense) income | (1,810,880 | ) | 2,433,332 | (4,244,212 | ) | -174 | % | |||||||||
Loss from continuing operations before discontinued operations | (15,558,460 | ) | (4,570,207 | ) | (10,988,253 | ) | -240 | % | ||||||||
Discontinued operations | ||||||||||||||||
Loss from discontinued operations | (385,242 | ) | (7,629,448 | ) | ||||||||||||
Gain (loss) on disposal of discontinued operations | 683,152 | (12,534,900 | ) | |||||||||||||
Total gain (loss) discontinued operations | 297,910 | (20,164,348 | ) | |||||||||||||
Net loss | $ | (15,260,550 | ) | $ | (24,734,555 | ) |
Revenue and Gross Loss
During the three-month period ended September 30, 2023, we had increased revenues of $19,200 and decreased gross loss of $78,990 compared to the three-month period ended September 30, 2022, primarily due to prior year salary and wage expenses coupled with the hospitality sales, which began in the three-month period ended September 30, 2023.
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Operating Loss and Operating Expenses
During the three months ended September 30, 2023, our operating loss increased by $7 million, from $7 million for the three-month period ended September 30, 2022, to $14 million for the three-month period ended September 30, 2023, primarily due to increased advertising expenses and platform hosting fees coupled with increased travel, legal and management expenses of approximately $5 million and $2 million, respectively.
Loss from Continuing Operations
We had increased loss from continuing operations for the period of approximately $11 million, from $5 million for the three-month period ended September 30, 2022, to $16 million for the three-month period ended September 30, 2023, due to the increase of our operating loss of approximately $7 million, the amortization of derivative discounts expense of $2 million and dividend expenses of approximately $2 million.
Continuing Operations For the Six Months Ended September 30, 2023 and 2022
Six Months Ended September 30, | Change | Change | ||||||||||||||
2023 | 2022 | ($) | (%) | |||||||||||||
Hospitality and VIP experience revenue | $ | 62,850 | $ | - | $ | 62,850 | 100 | % | ||||||||
Gaming revenue | 1,500 | - | 1,500 | 100 | % | |||||||||||
Cost of revenue | 114,722 | 182,074 | (67,352 | ) | -37 | % | ||||||||||
Gross loss | (50,372 | ) | (182,074 | ) | 131,702 | 72 | % | |||||||||
Operating expenses: | ||||||||||||||||
Depreciation, amortization and impairment | 4,169,039 | 1,713,651 | 2,455,388 | 143 | % | |||||||||||
Bad debt | 108,963 | - | 108,963 | 100 | % | |||||||||||
Selling, general and administration | 16,864,801 | 2,460,929 | 14,403,872 | 585 | % | |||||||||||
Salaries and professional consulting fees | 4,211,660 | 9,582,893 | (5,371,233 | ) | -56 | % | ||||||||||
Total operating expenses | 25,354,463 | 13,757,473 | 11,596,990 | 84 | % | |||||||||||
Operating loss | (25,404,835 | ) | (13,939,547 | ) | (11,465,288 | ) | -82 | % | ||||||||
Other income (expense) | ||||||||||||||||
Change in fair value of derivative liabilities | 22,982,843 | 2,892,472 | 20,090,371 | 695 | % | |||||||||||
Dividend expense | (3,150,680 | ) | - | 3,150,680 | 100 | % | ||||||||||
Amortization of discounts | (2,584,384 | ) | - | 2,584,834 | 100 | % | ||||||||||
Loss on disposal of fixed assets | - | (570,772 | ) | (570,772 | ) | -100 | % | |||||||||
Interest expense, net of interest income | (221,036 | ) | (318,728 | ) | (97,692 | ) | -31 | % | ||||||||
Total other income | 17,026,743 | 2,002,972 | 15,023,771 | 750 | % | |||||||||||
Loss from continuing operations before discontinued operations | (8,378,092 | ) | (11,936,575 | ) | (3,558,483 | ) | -30 | % | ||||||||
Discontinued operations | ||||||||||||||||
Loss from discontinued operations | (2,104,888 | ) | (11,699,050 | ) | ||||||||||||
Gain (loss) on disposal of discontinued operations | 683,152 | (11,823,395 | ) | |||||||||||||
Total loss from discontinued operations | (1,421,736 | ) | (23,522,445 | ) | ||||||||||||
Net loss | $ | (9,799,828 | ) | $ | (35,459,020 | ) |
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Revenue and Gross Loss
During the six-month period ended September 30, 2023, we had increased revenues of $64,350 and decreased gross loss of $131,702 compared to the six-month period ended September 30, 2022, primarily due to prior year salary and wage expenses coupled with hospitality and VIP experience sales, which began in the six-month period ended September 30, 2023.
Operating Loss and Operating Expenses
During the six months ended September 30, 2023, our operating loss increased by $11 million, from $14 million for the six-month period ended September 30, 2022, to $25 million for the six-month period ended September 30, 2023, primarily due to advertising and hospitality expenses, platform hosting fees and travel expenses of approximately $11 million, $2 million and $2 million, respectively. These expenses were partially offset by a decrease in salaries and professional fees of approximately $4 million.
Loss from Continuing Operations
We had decreased loss from continuing operations for the period of approximately $4 million, from $12 million for the six-month period ended September 30, 2022, to $8 million for the six-month period ended September 30, 2023, due to the gain of $18 million of other income primarily due to a change in the fair value of derivative liabilities and a gain on disposal of discontinued operations in 2023, partially offset by increased dividend expenses coupled with our increased operating loss of approximately $3 million and $11 million, respectively.
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, accounts payable and capital expenditures.
Net cash used in operating activities of continuing operations was approximately $16 million for the six month period ended September 30, 2023, as compared to approximately $14 million in the prior year period. The $2 million increase in the current period was primarily due to the change in the fair value of derivative liabilities of approximately $23 million, partially offset by no loss on disposal of WTRV and Banner Midstream of $12 million, depreciation amortization and impairment of approximately $4 million and dividends payable, gain on disposal of discontinued operations and legal expenses of $5 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 increased by approximately $2 million primarily, due to the proceeds from parent of $7 million and the proceeds from the sale of common stock and convertible notes of $7 million in the current year period offset by proceeds from the proceeds related to the sale of preferred stock of $12 million in the prior year period.
As of September 30, 2023, we had $1,554 in cash and cash equivalents. We believe 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 we need to raise capital to support our operations, raising substantial doubt about our ability to continue as a going concern. We recently acquired BNC and have generated nominal revenue as of September 30, 2023. The accompanying financial statements for the three and six month periods ended September 30, 2023 have been prepared assuming we will continue as a going concern, but our ability to continue as a going concern is dependent on our obtaining adequate capital to fund operating losses until we establish continued revenue streams and become 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 we will be successful in accomplishing any of our plans. If we are unable to obtain the necessary additional financing on a timely basis, we will be required to delay, reduce or perhaps even cease the operation of our business. Our ability to continue as a going concern is dependent upon our ability to successfully secure other sources of financing and attain profitable operations. In our fourth fiscal quarter ended March 31, 2023, we raised $1,715,439 from the sales of our common stock related to an “At-the-Market” (“ATM”) offering, with an additional approximate $1,800,000 raised in the first fiscal quarter of 2024. In addition, on April 27, 2023, we 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 our assets and certain of our subsidiaries, including BNC. The proceeds received have gone towards working capital until we can generate the necessary funds from our operations. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. See “Risk Factors” included in our 2023 Annual Report filed with the Securities and Exchange Commission SEC on July 14, 2023.
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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; and
Level 3 inputs: Instruments with primarily unobservable value drivers.
The carrying values of our 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
We do not currently use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks and do not expect to in the current fiscal year. Management evaluates all of our financial instruments, including warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. We 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, are remeasured at the end of each reporting period. The Black-Scholes model is used to estimate the fair value of the derivative liabilities.
Recently Issued Accounting Standards
In 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. We do not expect this guidance to have a material impact on our condensed consolidated financial statements.
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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 which began April 1, 2023, did not have a material impact on our condensed consolidated financial statements.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that 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 is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
Our principal executive officer and principal financial officer, with the assistance of other members of the Company’s management, have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based upon our evaluation, each of our principal executive officer and principal financial officer has concluded that the Company’s internal control over financial reporting was not effective as of the end of the period covered by this Quarterly Report on Form 10-Q because the Company has not yet completed its remediation of the material weaknesses previously identified and disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2023, the end of its most recent fiscal year.
Management has identified the following material weaknesses:
1. | The Company does not have sufficient segregation of duties within accounting functions; |
2. | Lack of formal review procedures including multiple level of review over accounting financial reporting process due to the small size of its accounting staff; |
3. | The Company does not have sufficient written documentation of our internal control policies and procedures; and |
4. | The Company’s financial reporting is carried out with the assistance of an outside financial consultant. |
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Planned Remediation
Management continues to work to improve its controls related to our material weaknesses. Management will continue to implement measures to remediate material weaknesses, such that these controls are designed, implemented, and operating effectively. We plan to rectify these weaknesses by implementing written policies and procedures for our internal control of financial reporting, and hiring additional accounting personnel at such time as we have sufficient financial and human capital resources to do so. In order to achieve the timely implementation of the above, management has commenced the following actions and will continue to assess additional opportunities for remediation on an ongoing basis:
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.
These material weaknesses will not be considered to be remediated until the applicable remediated controls are operating for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Despite the existence of these material weaknesses, we believe that the condensed consolidated financial statements included in the period covered by this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles.
Changes in Internal Controls Over Financial Reporting
Except as detailed above, during the fiscal quarter ended September 30, 2023, there were no significant changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected or are reasonably likely to materially affect 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
There are no updates or changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended March 31, 2023, as supplemented by the risk factors set forth in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
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
* | 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. |
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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.
RiskOn International, Inc. | ||
Date: November 20, 2023 | By: | /s/ Randy May |
Randy May | ||
Chief Executive Officer | ||
Date: November 20, 2023 | By: | /s/ Jay Puchir |
Jay Puchir | ||
Chief Financial Officer |
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