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 Capital Market) |
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 | ¨ |
| x | 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 ¨
State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: shares of common stock as of February 16, 2024.
| 1 |
TABLE OF CONTENTS
| Page | ||
| PART I – FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 4 |
| Condensed Consolidated Balance Sheets as of December 31, 2023 (unaudited) and March 31, 2023 | 4 | |
| Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2023 and 2022 (unaudited) | 5 | |
| Condensed Consolidated Statement of Changes in Shareholders’ Deficit for the three and nine months ended December 31, 2023 and 2022 (unaudited) | 6 | |
| Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2023 and 2022 (unaudited) | 7 | |
| Notes to Condensed Consolidated Financial Statements (unaudited) | 8 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 28 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 35 |
| Item 4. | Controls and Procedures | 35 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 37 |
| Item 1A. | Risk Factors | 37 |
| Item 2. | Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities | 37 |
| Item 3. | Defaults Upon Senior Securities | 37 |
| Item 4. | Mine Safety Disclosures | 37 |
| Item 5. | Other Information | 37 |
| Item 6. | Exhibits | 38 |
| 2 |
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.
| 3 |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
RISKON INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| December 31, 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 | |||||||||
| Assets in bankruptcy | |||||||||
| 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 in bankruptcy | |||||||||
| Non-current assets of discontinued operations/held for sale | |||||||||
| TOTAL ASSETS | $ | $ | |||||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | |||||||||
| CURRENT LIABILITIES | |||||||||
| Accounts payable | $ | $ | |||||||
| Accrued liabilities | |||||||||
| Dividends payable | |||||||||
| Derivative liabilities | |||||||||
| Notes and related party advances | - | ||||||||
| Current portion of long-term debt | |||||||||
| Advances - former parent of Bitnile.com, Inc. (“BNC”) | |||||||||
| Liabilities in bankruptcy | |||||||||
| 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 | |||||||||
| Commitment and contingencies | |||||||||
| SHAREHOLDERS’ DEFICIT | |||||||||
| Preferred stock, $ par value, shares authorized; Series A Preferred stock, and shares issued and outstanding as of December 31, 2023 and March 31, 2023, respectively | |||||||||
| Series B Preferred stock, and shares issued and outstanding as of December 31, 2023 and March 31, 2023, respectively | |||||||||
| Series C Preferred stock, and shares issued and outstanding as of December 31, 2023 and March 31, 2023, respectively | |||||||||
| Series D Preferred stock, and shares issued and outstanding as of December 31, 2023 and March 31, 2023, respectively | |||||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding as of December 31, 2023 and March 31, 2023, respectively | |||||||||
| 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.
| 4 |
RISKON INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| RiskOn360 revenue | $ | $ | $ | $ | ||||||||||||
| BitNile.com and service revenue | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross loss | ( | ) | ( | ) | ||||||||||||
| Operating expenses | ||||||||||||||||
| Salaries | ||||||||||||||||
| Professional and consulting fees | ||||||||||||||||
| Selling, general and administration | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Change in fair value of derivative liabilities | ||||||||||||||||
| Dividend expense | ( | ) | ( | ) | ||||||||||||
| Loss on conversion of derivative liability to common stock in conversion of preferred stock | ( | ) | ( | ) | ||||||||||||
| Gain on conversion of notes and derivative liability | ||||||||||||||||
| Loss on disposal of fixed assets | ( | ) | ( | ) | ||||||||||||
| Loss on redemption of Series A preferred stock | ( | ) | ( | ) | ||||||||||||
| Amortization of discounts | ( | ) | ( | ) | ||||||||||||
| Interest (expense) income, net of interest income | ( | ) | ( | ) | ( | ) | ||||||||||
| Total other (expense) income | ( | ) | ||||||||||||||
| (Loss) gain from continuing operations before discontinued operations | ( | ) | ( | ) | ||||||||||||
| Discontinued operations | ||||||||||||||||
| Loss from discontinued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain (loss) on disposal of discontinued operations | ( | ) | ||||||||||||||
| Total loss from discontinued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net (loss) income | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income attributable to non-controlling interest | ||||||||||||||||
| Net (loss) income to controlling interest | ( | ) | ( | ) | ( | ) | ||||||||||
| Less preferred stock dividends | ||||||||||||||||
| Net (loss) income to controlling interest of common shareholders | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Net (loss) income per share – basic and diluted | ||||||||||||||||
| Net (loss) income from continuing operations | $ | ) | $ | $ | ) | $ | ||||||||||
| Net loss from discontinued operations | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Net (loss) income per share | $ | ) | $ | $ | ) | $ | ) | |||||||||
| Weighted average common shares – basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
RISKON INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 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 | - | ( | ) | ( |
) | ( | ) | |||||||||||||||||
| Balance, September 30, 2023 | ( | ) | ( |
) | ( | ) | ||||||||||||||||||
| Shares issued for preferred stock dividends | ||||||||||||||||||||||||
| Shares issued under equity line of credit (“ELOC”) agreement | ||||||||||||||||||||||||
| Shares issued for commitment to ELOC offering | ||||||||||||||||||||||||
| Shares issued in the conversion of the senior convertible note | ||||||||||||||||||||||||
| Series D shares issued for conversion of liabilities | - | |||||||||||||||||||||||
| Series D dividends | - | ( | ) | |||||||||||||||||||||
| Series B and C shares issued for payment-in-kind (“PIK”) dividends | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, December 31, 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 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Shares issued in conversion of preferred stock to common stock | ||||||||||||||||||||||||||||
| Shares issued in conversion of preferred stock dividends | ||||||||||||||||||||||||||||
| Shares issued by Agora for services rendered, net of amounts prepaid | ||||||||||||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | |||||||||||||||||||||||||
| Preferred stock dividends | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
RISKON INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Nine Months Ended December 31, | ||||||||
| 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 | ||||||||
| Increase from former parent of BNC overhead allocation | ||||||||
| Debt modification expense | ||||||||
| Share-based compensation | ||||||||
| (Gain) loss on disposal of Zest Labs, Inc. (“Zest Labs”) and other fixed assets | ( | ) | ||||||
| Change in fair value of derivative liabilities | ( | ) | ( | ) | ||||
| Derivative income | ( | ) | ||||||
| Loss on conversion of derivative liabilities to common stock | ||||||||
| Shares issued for preferred dividend | ||||||||
| Gain on conversion of note payable and derivative liability | ( | ) | ||||||
| Loss on disposal of WTRV and Banner Midstream | ||||||||
| Gain on disposal of Trend Discovery Holdings, LLC (“Trend Discovery”) | ( | ) | ||||||
| Shares of common stock issued for services | ||||||||
| Commitment fees on long-term debt | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Dividend payable | ||||||||
| Amortization of right of use asset - operating leases | ( | ) | ||||||
| Operating lease expense | ||||||||
| Accounts payable | ||||||||
| Accrued liabilities | ( | ) | ||||||
| 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: | ||||||||
| Investment – securities | ( | ) | ||||||
| Purchase of fixed assets | ( | ) | ||||||
| Net cash used in investing activities of continuing operations | ( | ) | ||||||
| Net cash provided by investing activities of discontinued operations | ||||||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from former parent of BNC, net | ||||||||
| Redemption of preferred stock | ( | ) | ||||||
| Proceeds from note - related party | ||||||||
| Payments on note - related party | ( | ) | ||||||
| Proceeds from long-term debt | ||||||||
| Payments of long-term debt | ( | ) | ( | ) | ||||
| Proceeds from convertible note | ||||||||
| Proceeds from the sale of common stock under ATM | ||||||||
| Proceeds from the sale of common stock under ELOC | ||||||||
| Proceeds from the sale of preferred stock | ||||||||
| Net cash provided by financing activities of continuing operations | ||||||||
| Net cash provided by financing activities of discontinued operations | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) 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 | ||||||||
| Reclassification of convertible notes and warrants to derivative liability | $ | $ | ||||||
| Reclassification of redemption of Series A to due to BMC former parent | $ | $ | ||||||
| Recognition of new operating lease right-of-use assets and lease liabilities | $ | $ | ||||||
| Issuance costs on mezzanine equity | $ | $ | ||||||
| Preferred stock dividend paid in shares of common stock | $ | $ | ||||||
| Non-controlling interest recorded in consolidation of Enviro Technologies US, Inc. | $ | $ | ||||||
| Preferred shares converted into common stock | $ | $ | ||||||
| Mezzanine equity reclassified to liability upon amendment | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 7 |
RISKON INTERNATIONAL, INC. AND SUBSIDIAIRES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 also changed its ticker symbol from BNMV to ROI. The change in both name and ticker is underscored by the Company’s commitment to developing a vertically integrated community while creating a seamless and enriched user experience. The Company is a holding company, incorporated in the State of Nevada on November 19, 2007.
On August 25, 2023, 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, whereby the Purchaser purchased
Through December 31, 2023, the Company’s former wholly owned subsidiaries 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 December 31, 2023. The comparative financial statements for the three and nine months ended December 31, 2022 reflect the operations of those subsidiaries that were sold during the year ended March 31, 2023 as discontinued operations in the condensed consolidated statements of operations and as assets and liabilities of discontinued operations on the condensed consolidated balance sheets.
The BitNile.com metaverse (the “Metaverse”) represents a significant development in the online metaverse landscape. 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 subsidiary RiskOn360, Inc., organizes and holds business training and coaching conferences and learning seminars in certain cities across the United States. The curated events are designed for the attendees to learn from keynote speakers and panelists and have intimate networking opportunities.
In November 2023, the Company formed wholly owned subsidiary GuyCare, Inc. (“GuyCare”). GuyCare will provide health and wellness services as a core part of creating a sound and successful individual, specializing in men’s health. The clinics are expected to provide discreet and confidential care, ensuring men’s health and well-being through proven therapeutic interventions and innovative wellness programs. The first GuyCare clinic opened in January 2024.
The Company is focused on the development, promotion, and awareness of artificial intelligence (“AI”) integration, and primarily within the business community. In cooperation with Meetkai, the Company aims to cultivate businesses and individuals by offering a technology solution with high growth potential. The Company’s flagship product, "askROI," is a generative AI platform built upon a proprietary large language model. Businesses and individuals alike can leverage askROI's capabilities for tasks such as research optimization, content creation, streamlined communication, and workflow improvement. The Company’s ultimate vision for askROI is to create a one-stop-shop for individuals and businesses to access generative AI products. The Company plans to regularly integrate new tools and products within the askROI platform to continually expand the capabilities and opportunities within askROI.
Bankruptcy Filings
On November 1, 2023, Agora and Bitstream Mining LLC (“Bitstream”), Agora’s sole operating subsidiary, filed petitions for Chapter 7 bankruptcy in the United States Bankruptcy Court for the Western District of Texas. As a result, the Company deemed Agora as a discontinued operation for the periods ended March 31 and December 31, 2023. The cases are still pending before the court. See note 21, “Subsequent Events” for additional information on recent developments related to the cases.
| 8 |
2. LIQUIDITY AND GOING CONCERN
For the three and nine
months ended December 31, 2023, the Company had a net loss to controlling interest of common shareholders of $(
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. The accompanying financial statements 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 raise additional capital through sales of equity securities and borrowing. However, management cannot provide any assurances that the Company will succeed 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.
On April 27, 2023, the Company sold $
On October 30, 2023,
the registration statement related to the $
On October 16, 2023 and
November 8, 2023, the Company issued terms notes in gross amounts of $
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 nine months ended December 31, 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, the Company classifies noncontrolling interests as a component of equity within the condensed consolidated
balance sheet. In addition, the Company reflected
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.
| 9 |
Hospitality and VIP Services Revenue
Hospitality revenue 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.
RiskOn360 Revenue
RiskOn360 revenue consists of revenue from services provided to attendees of business and coaching conference events. Revenue is generated through contracts whereby a customer agrees to pay a contract price for services provided by the Company at individual conferences organized and held by the Company.
The Company recognizes revenue when the performance obligations to provide the learning event and related services are satisfied at the point in time when the services and products are received by the customer, which is when the conference is completed, and all obligations have been satisfied.
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.
Anti-dilutive securities, which are convertible into or exercisable for the Company’s common stock, consisted of the following at December 31, 2023 and March 31, 2023:
| Schedule of anti-dilutive shares | December 31, | March 31, | ||||||
| 2023 | 2023 | |||||||
| Warrants | ||||||||
| Convertible notes | ||||||||
| Convertible preferred stock | ||||||||
| Total | ||||||||
Recently Issued Accounting Standards
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280): Improvements To Reportable Segment Disclosures” (“ASU 2023-07”). ASU 2023-07 requires public entities to disclose information about the reportable segments’ significant expenses on an interim and annual basis to enable investors to develop more decision-useful financial analyses. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Entities must adopt the changes to the segment reporting guidance on a retrospective basis. Early adoption is permitted. The Company elected to early adopt ASU 2023-07. See note 20, “Segment Information” for the Company’s process in determining reportable segments and certain financial data of each segment.
| 10 |
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
The Company’s loss from discontinued operations includes Trend Discovery, White River Corp, Banner Midstream, Zest Labs and Agora for the three and nine months ended December 31, 2023 and 2022, which were sold in four separate transactions on June 17, 2022, July 25, 2022, September 7, 2022, August 25, 2023, respectively, and Agora which filed for bankruptcy on November 1, 2023. The assets and liabilities of Agora as of December 31, 2023 are reflected on the condensed consolidated balance sheet separately as assets and liabilities in bankruptcy.
Current assets as of December 31, 2023 and March 31, 2023– Discontinued Operations:
| December 31, 2023 | March 31, 2023 | |||||||
| Wolf Energy | $ | $ | ||||||
| Prepaid expenses | ||||||||
| $ | $ | |||||||
Non-current assets as of December 31, 2023 and March 31, 2023 – Discontinued Operations:
| Schedule of non-current assets | December 31, 2023 | March 31, 2023 | ||||||
| Wolf Energy | $ | $ | ||||||
| $ | $ | |||||||
Current liabilities as of December 31, 2023 and March 31, 2023– Discontinued Operations:
| December 31, 2023 | March 31, 2023 | |||||||
| Wolf Energy | $ | $ | ||||||
| Zest accounts payable | ||||||||
| Zest accrued expenses | ||||||||
| $ | $ | |||||||
Non-current liabilities as of December 31, 2023 and March 31, 2023– Discontinued Operations:
| Schedule of non-current liabilities | December 31, 2023 | March 31, 2023 | ||||||
| Wolf Energy | $ | $ | ||||||
The Company reclassified the following operations to discontinued operations for the three and nine months ended December 31, 2023 and 2022.
| Schedule of operations to discontinued operations | ||||||||||||||||
| Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Operating expenses | ||||||||||||||||
| Wolf Energy – net loss | ( | ) | ( | ) | ( | ) | ||||||||||
| Other loss | ( | ) | ( | ) | ||||||||||||
| Net loss from discontinued operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 11 |
5. BUSINESS COMBINATIONS/DIVESTITURES
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.
Revenues recorded for our services provided were as follows:
| Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| RiskOn360 revenue | $ | $ | $ | $ | ||||||||||||
| BitNile.com and service revenue | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The Company had related party hospitality service
sales of $
7. SENIOR SECURED PROMISSORY NOTE RECEIVABLE
Agora was issued a Senior Secured Promissory Note
by Trend Ventures, LP (“Trend Ventures Note”) on June 16, 2022, 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 $
On November 1, 2023, Agora and Bitstream Mining LLC (“Bitstream”), Agora’s sole operating subsidiary, filed petitions for Chapter 7 bankruptcy in the United States Bankruptcy Court for the Western District of Texas. The Trend Ventures Note was included as part of the bankruptcy estate. As of December 31, 2023, the Company has established a full reserve for the principal and accrued interest receivable. See note 21, “Subsequent Events” for additional information on recent developments related to the cases.
| 12 |
8. INVESTMENTS
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 shares of WTRV’s Series A Convertible Preferred Stock, which becomes convertible into shares of WTRV common stock upon such time as (A) WTRV has filed a Form S-1 with the SEC and such Form S-1 has been declared effective, or is no longer subject to comments from the Staff of the SEC, and (B) the Company elects to distribute shares of WTRV’s common stock to its shareholders. The S-1 was declared effective by the SEC on September 29, 2023, file number 333-268707, but the Company has not yet elected to convert the Series A preferred stock as it is still determining next steps on the previously proposed distribution of shares.
As of December 31, 2023, the Company has determined that WTRV is a variable interest entity, but this transaction has not resulted in the Company controlling WTRV, the Company does not have the power to direct activities of WTRV or control the board of directors of WTRV. Based on this determination the Company does not consolidate WTRV.
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. 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 66% of the voting common stock of Wolf Energy common stock outstanding at December 31, 2023 and March 31, 2023. Since the Company will be distributing to its shareholders a stock dividend to all common and preferred shareholders with a stock dividend date of September 30, 2022, the Company has reflected Wolf Energy, in discontinued operations as the Company intends to hold no shares and thus no voting interest upon the effectiveness of a registration statement for Wolf Energy, and the investment has been eliminated in consolidation. Subsequent to September 30, 2023, Wolf Energy and Banner Midstream have permanently ceased operations.
9. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31, 2023 and March 31, 2023:
| Schedule of property and equipment | December 31, 2023 | March 31, 2023 | ||||||
| (unaudited) | ||||||||
| Auto – BNC | ||||||||
| Equipment – BNC | ||||||||
| Computers and software | ||||||||
| Equipment | ||||||||
| Equipment – GuyCare | ||||||||
| Total property and equipment(1) | ||||||||
| Accumulated depreciation | ( | ) | ( | )) | ||||
| Property and equipment, net | $ | $ | ||||||
| (1) |
Depreciation expense for the three and nine months
ended December 31, 2023 was $
| 13 |
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. As a result, Agora’s assets, which represent only one parcel of land in West Texas, have been disclosed as non-current assets in bankruptcy.
10. INTANGIBLE ASSETS
Intangible assets consisted of the following as of December 31, 2023 and March 31, 2023:
| Schedule of intangible assets | December 31, 2023 | March 31, 2023 | ||||||
| Trademarks | $ | $ | ||||||
| Developed technology | ||||||||
| Accumulated amortization - trademarks | ( | ) | ( | ) | ||||
| Accumulated amortization - developed technology | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
Amortization expense for the three and nine months
ended December 31, 2023 was $
On August 25, 2023, the Company sold
Amortization expense for the next five years and in the aggregate is as follows:
| Remaining fiscal year 2024 | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Thereafter | |||||
| $ |
11. ACCRUED EXPENSES
Accrued expenses consisted of the following as of December 31, 2023 and March 31, 2023:
| December 31, 2023 | March 31, 2023 | |||||||
| Professional fees and consulting costs | ||||||||
| Compensation paid time off | ||||||||
| Sponsorship | ||||||||
| Interest | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
| 14 |
12. 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.
The Company has only included descriptions of warrants that are still outstanding as of December 31, 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 December 31, 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. The fair value of each warrant is estimated using the Black-Scholes valuation model. The following assumptions were used on December 31, 2023 and March 31, 2023 and at inception:
| Nine Months Ended December 31, 2023 | Year Ended March 31, 2023 | Inception | |||||||
| Expected term | – years | – years | years | ||||||
| Expected volatility | – | – | – | ||||||
| Expected dividend yield | |||||||||
| Risk-free interest rate | – | – | – | ||||||
| Market price | $ – $ | $ – $ |
| 15 |
The Company’s remaining derivative liabilities as of December 31, 2023 and March 31, 2023 associated with warrant offerings were as follows.
| December 31, 2023 | March 31, 2023 | ||||||||
| Fair value of | $ | $ | |||||||
| Fair value of | |||||||||
| Fair value of | |||||||||
| $ | $ | ||||||||
During the nine months ended December 31, 2023
and 2022, the Company recognized changes in the fair value of the derivative liabilities of $
Activity related to the warrant derivative liabilities for the nine months ended December 31, 2023 was as follows:
| 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 December 31, 2023 | $ |
Activity related to the warrant derivative liabilities for the nine months ended December 31, 2022 was as follows:
| Beginning balance as of March 31, 2022 | $ | |||
| Issuances of warrants – derivative liabilities | ||||
| Warrants exchanged for common stock | ||||
| Change in fair value of warrant derivative liabilities | ( | ) | ||
| Ending balance as of December 31, 2022 | $ |
13. LONG-TERM DEBT
Long-term debt included in continuing operations consisted of the following as of December 31, 2023 and March 31, 2023:
| December 31, 2023 | March 31, 2023 | |||||||
| Credit facility -Trend Discovery SPV 1, LLC | $ | $ | ||||||
| Auto loan | ||||||||
| Total long-term debt | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Long-term debt, net of current portion | $ | $ | ||||||
On December 28, 2018, the Company entered into
a $
| 16 |
On February 16, 2022, Agora entered into a long-term
secured note payable for $
The following is a list of maturities by fiscal year as of December 31, 2023:
| Remaining 2024 | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Thereafter | |||||
| $ |
Interest expense on long-term debt during the
three and nine months ended December 31, 2023 was $
14. NOTES PAYABLE
Related Parties
Ault Alliance Inc. (“AAI”) advanced
the Company $
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 shares of
newly designated Series D convertible preferred stock (“Series D”) for a total purchase price of $. Each share of Series D has a stated value of $ per share. Each share of Series D is
convertible into a number of shares of the Company’s common stock determined by dividing the Stated Value by $
Related Party Advances
During the quarter ended December 31, 2023, an
officer of AAI and current Company board member advanced the Company $90,000. The advance has no interest, unless it goes into default,
and includes an original issue discount of $
Term Note Agreements
On November 8, 2023,
the Company entered into a term note agreement for a principal amount of $
| 17 |
On October 16, 2023,
the Company entered into a term note agreement for a principal amount of $
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 | ||||
| Principal converted to common stock and gain on conversion | ( | ) | ||
| Less: debt discount – reclassification to derivative liability (*) | ( | ) | ||
| Ending balance as of December 31, 2023 | $ |
| (*) |
Activity related to the convertible note derivative liabilities for the nine months ended December 31, 2023 was as follows:
| 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 December 31, 2023 | $ |
15. PREFERRED STOCK
Preferred Stock Derivative Liability
RiskOn International Series A
The Company entered into a Securities Purchase Agreement (the “Series A Agreement”) with Ault Lending on June 8, 2022, and as amended November 28, 2022, pursuant to which the Company sold Ault Lending shares of Series A Convertible Redeemable Preferred Stock (the “Series A”), shares of common stock and a warrant to purchase shares of common stock (the “Warrant,”). The Warrant was cancelled on November 14, 2022.
The amendment to the Certificate of Designation
of Rights, Preferences and Limitations of the Series A constituted a modification from mezzanine equity to liability and was considered
a debt modification. Upon the reclassification to preferred stock liability and analysis of terms, the Company deemed the preferred stock
liability a derivative liability under ASC 815, Derivatives and Hedging (“ASC 815”). As a result, the Company determined
that on November 28, 2022 (inception), the value of the derivative liability was $
| 18 |
The derivative liability for the Series A was
remeasured at December 31, 2023 and was valued at $
In addition, the Company advanced $
Activity related to the preferred stock derivative liabilities for the nine months ended December 31, 2023 was as follows:
| Beginning balance as of March 31, 2023 | $ | |||
| Reclassification – advances former parent of BitNile.com, Inc. | ||||
| Redemption of Series A | ( | ) | ||
| Change in fair value of preferred stock derivative liabilities | ( | ) | ||
| Gain on conversion of derivative liability | ( | ) | ||
| Ending balance as of December 31, 2023 | $ |
The Company has accrued $
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 $
RiskOn International Series B and C
The Company entered into a share exchange agreement with AAI on February 8, 2023 and subsequently closed the transaction on March 7, 2023, in which the Company acquired the assets and liabilities of BNC and securities of Earnity beneficially owned by BNC in exchange of the issuance of shares of Series B preferred stock (“Series B”) and shares of Series C preferred stock (“Series C”), both of which are convertible into common stock subject to the terms of their respective Certificate of Designation of Rights, Preference and Limitations (collectively, “Certificates”). Additionally, pursuant to the terms and conditions of the Certificates, Series B and Series C holders are entitled to receive dividends in the form of additional shares or cash following the dividend payment set forth in the Certificates. As of December 31, 2023, there were shares of Series B and shares of Series C issued and outstanding. As of March 31, 2023, the Company had and shares of Series B and Series C, respectively, issued and outstanding.
The Company determined
that the Series B and Series C 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 the value of the derivative liability was $
Activity related to the preferred stock derivative liabilities for the Series B and Series C for the nine months ended December 31, 2023 was as follows:
| Beginning balance as of March 31, 2023 | $ | |||
| Change in fair value of preferred stock derivative liabilities | ( | ) | ||
| Ending balance as of December 31, 2023 | $ |
| 19 |
The Company has accrued $
The fair value of the Series A, Series B and Series C liability is estimated using the Black-Scholes valuation model. Changes to the inputs could produce a significantly higher or lower fair value measurement. The following assumptions were used on December 31, 2023 and March 31, 2023:
| December 31, 2023 |
March 31, 2023 | |||
| Expected term | – years | – years | ||
| Expected volatility | – | – | ||
| Expected dividend yield | ||||
| Risk-free interest rate | – | – | ||
| Market price | $ – $ | $ – $ |
RiskOn International Series D
On November 14, 2023, the Company entered into the SPA with AAI, pursuant to which the Company agreed to sell to AAI shares of Series D for a total purchase price of $. Each share of Series D has a stated value of $ per share. Each share of Series D is convertible into a number of shares of the Company’s common stock determined by dividing the Stated Value by 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. As the Conversion Price represents a premium to the closing price of the common stock on the date of execution of the Agreement, the conversion of the Series D is not subject to limitations on conversion.
As Series D is not mandatorily
redeemable and has no embedded features requiring bifurcation, the Company determined that the Series D should be classified as equity
in accordance with ASC 480 and ASC 815 as of November 14, 2023, the date of inception. As a result of this classification, the Company
determined that the fair value of the Series D was $
The Company issued $
For the three and nine months ended December 31,
2023, the Company recorded $
16. SHAREHOLDERS’ DEFICIT
Common Stock
On May 4, 2023, the Company amended its Articles of Incorporation to reflect a 1-for-30 reverse stock split. The Company also reduced its authorized shares on a 1-for-30 basis going from authorized shares down to authorized shares.
On October 16, 2023, the Company amended its Articles of Incorporation to increase its authorized shares of common stock from 3,333,333 to shares.
As of December 31, 2023, there were unsold shares of the Company’s common stock held by a custodian in an account owned by the Company which had not been sold during the ATM offering. It is the Company’s policy not to consider or classify these shares as issued or outstanding as it continues to own and control these shares.
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 December 31, 2023, the Company received conversion
notices converting an aggregate of $
| 20 |
In the three and nine months ended December 31,
2023, the Company issued and shares of common stock, respectively, for payment of preferred stock dividends of $
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 $100,000,000 of shares of 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 a registration statement, the Company has 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 (as defined in the ELOC Purchase Agreement). On October 30, 2023, a registration statement related to the ELOC Purchase Agreement was declared effective by the SEC.
As of December 31, 2023, the Company issued and
sold an aggregate of shares of common stock from the ELOC, for total gross proceeds of $
Agora Common Stock
The Company purchased shares of Agora in 2021. In addition, Agora issued shares of common stock to its management, non-employee directors, employees and advisors, as result the Company was issued restricted common stock and the Company controlled approximately of Agora.
The restricted shares of common stock consists
of shares of restricted stock are considered service grants and are considered performance grants. The future share-based
compensation related to the 4,600,000 shares issued in 2021 will be measured consists of $ over a three-year period in service-based
grants and $
The performance grants vest upon deployment of certain contracts and approval of the board of directors. On April 12, 2022, Agora upon board of director approval accelerated the vesting of a total of restricted shares for deploying two power contracts in Texas with Agora’s former Chief Financial Officer. All remaining 1,666,664 performance grants remain unvested.
Within discontinued operations, the Company recognized
$0 and $ in Agora share-based compensation for the three and nine months ended December 31, 2023, respectively. The Company recognized
$ and $ in share-based compensation for the three and nine months ended December 31, 2022, respectively. The unrecognized
share-based compensation expense as of December 31, 2023 is $
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 nine months ended December 31, 2023 and 2022.
Share-based compensation for the three and nine months ended December 31, 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 $ and $, respectively. Share-based compensation for the three and nine months ended December 31, 2022 for stock options and restricted stock units granted under the 2013 Incentive Stock Plan and 2017 Omnibus Incentive Stock Plan and non-qualified stock options were $ and $, respectively.
The Company accrued $ in share-based compensation expense as of December 31, 2023.
| 21 |
17. COMMITMENTS AND CONTINGENCIES
GuyCare Operating Lease
During the three months ended December 31, 2023,
the Company entered into a non-cancellable lease agreement with a three and one-half year term. The lease commenced on
The Company reported $
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 April 22, 2022, BitStream and the Company 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 $ |
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 “Shareholder Deficiency Letter”) from the 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 $
According to the Shareholder Deficiency Letter, the Company had 45 calendar days from the date of the Shareholder Deficiency Letter, or until September 1, 2023, to submit a plan to regain compliance with Nasdaq Listing Rule 5550(b)(1). In response to the Shareholder Deficiency Letter received in July 2023, the Company’s submitted a compliance plan on August 25, 2023, which was subsequently amended and restated (collectively, the "Compliance Plans”) in September 2023 to the Staff. On December 1, 2023, Nasdaq notified the Company that it rejected the Compliance Plans. The Company appealed the Staff’s determination to delist the Company’s common stock to a Hearings Panel (the “Panel”). The Panel will hear the Company’s appeal on February 29, 2024. The Panel will consider all violations against the Voting Rights Rule (including the incident for the Letter received in January 2024) in connection with the Company’s appeal.
| 22 |
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 its 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.
Non-cancelable Obligations
In the course of the
BitNile.com gaming business and 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 December 31, 2023, the Company had outstanding
non-cancelable purchase obligations with terms of one year or longer aggregating $
18. FAIR VALUE MEASUREMENTS
ASC Topic 820, “Fair Value Measurements and Disclosures,” establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach and cost approach). The three-level hierarchy is defined as follows:
Level 1 – quoted prices for identical instruments in active markets for identical assets or liabilities;
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.
The carrying values of cash, prepaid expenses, other receivables, accounts payable and accrued liabilities, notes payable, and amounts due to related parties approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
The Company measures and records the fair value of the derivative liabilities disclosed in accordance with ASC 815. The fair values of the derivatives were calculated using the Black-Scholes Model which requires us to make assumptions, including expected term, risk-free rate, expected volatility and expected dividend yield. 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.
| 23 |
The following table presents assets and liabilities that were measured and recognized at fair value on a recurring basis as of:
| Level 1 | Level 2 | Level 3 | Total Gains and (Losses) | |||||||||||||
| December 31, 2023 | ||||||||||||||||
| Derivative liabilities | $ | $ | $ | $ | ||||||||||||
| Investment – WTRV | ||||||||||||||||
| March 31, 2023 | ||||||||||||||||
| Derivative liabilities | $ | $ | $ | |||||||||||||
| Bitcoin | ( | ) | ||||||||||||||
| Investment – WTRV | ( | ) | ||||||||||||||
There were no transfers between Level 1, 2 or 3 during the nine months ended December 31, 2023.
The table below shows a reconciliation of the beginning and ending liabilities measured at fair value using significant unobservable inputs (Level 3) for the nine months ended December 31, 2023:
| Beginning balance as of March 31, 2023 | $ | ( | ) | |
| Issuance – convertible notes with warrants | ( | ) | ||
| Redemption of derivative liabilities and preferred, net | ||||
| Net change in fair value included in earnings | ||||
| Ending balance as of December 31, 2023 | $ |
19. 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 the Company provides in addition to a number of ongoing commercial relationships, including license agreements.
See note 8 for the investment in WTRV. The Company’s previous Chief Executive Officer and Chief Financial Officer held similar positions in WTRV at the time of the investment.
In the three and nine months ended December 31,
2023, the Company was advanced $
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 $
| 24 |
20. SEGMENT INFORMATION
The Company determines its operating segments based on how the chief operating decision maker ("CODM") views and analyzes each segments' operations, performance and allocates resources. Milton “Todd” Ault, Chairman of the board and CEO as of January 2024, is the CODM. The CODM utilizes net loss as the measure of segment profit or loss.
From September 30, 2022 through September 30, 2023, the Company had one aggregated reporting segment, which included the continuing operations related to Agora, Zest Labs and BitNile.com. Most of the limited continuing operations were related to Agora and the BitNile.com metaverse while Zest Labs operations were immaterial.
In the current fiscal quarter, with the launch of operations of RiskOn360 and the reclassification of Agora to discontinued operations, the Company changed its presentation of operating results. Herein, the Company reports the following two reporting segments: (1) BitNile.com and services (“BNS”) and (2) RiskOn360. Separate financial information for BNS and RiskOn360 is evaluated by the CODM to allocate resources and assess performance. As GuyCare had immaterial operations as of December 31, 2023, the Company did not review the business separately and its operations are not separately reported herein.
BNS is composed of operations from products and services provided in the Metaverse Platform and hospitality services provided in our sponsored racing events where the Platform is advertised. Management does not consider hospitality as a separate operating segment from the Metaverse Platform as the hospitality activities are considered incidental to the sponsorships and would not continue if the sponsorships were discontinued.
The Company’s segments do not engage in transactions with one another. The two reporting segments use certain shared infrastructure, and each segment is presented with its direct costs and an allocation of shared overhead costs.
BNS began operations during fiscal year 2023 and RiskOn360 started operations in November 2023. During the three and nine months ended December 31, 2022, the Company did not have businesses providing BNS or RiskOn360 products and services and therefore there is no meaningful comparative information for the prior year periods presented. Additionally, the financial information as of and for the three and nine months ended December 31, 2022 in the condensed consolidated financial statements relates to the holding company, Ecoark Holdings, Inc. (later renamed BitNile Metaverse, Inc. and currently RiskOn International, Inc.).
The table below highlights the Company's revenues, expenses and net loss for each reportable segment and is reconciled to net loss on a consolidated basis for the three months ended December 31, 2023.
| December 31, 2023 | ||||||||||||||||
| BNS | RiskOn360 | Other1 | Total | |||||||||||||
| RiskOn360 revenues | $ | $ | $ | $ | ||||||||||||
| BNS revenue | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| Operating loss before other expenses | ( | ) | ( | ) | ||||||||||||
| Operating expenses | ||||||||||||||||
| Salaries | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Selling, general and administration | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total | ||||||||||||||||
| Loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other expense | ( | ) | ( | ) | ||||||||||||
| Loss from discontinued operations | ( | ) | ( | ) | ||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 1 |
| 25 |
The table below highlights the Company’s revenues, expenses and net loss for each reportable segment and is reconciled to net loss on a consolidated basis for the nine months ended December 31, 2023:
| December 31, 2023 | ||||||||||||||||
| BNS | RiskOn360 | Other2 | Total | |||||||||||||
| RiskOn360 revenues | $ | $ | $ | $ | ||||||||||||
| BNS revenue | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| Operating loss before other expenses | ( | ) | ( | ) | ( | ) | ||||||||||
| Operating expenses | ||||||||||||||||
| Salaries | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Selling, general and administration | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total | ||||||||||||||||
| Loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income | ||||||||||||||||
| Loss from discontinued operations | ( | ) | ( | ) | ||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 2 |
21. SUBSEQUENT EVENTS
Nasdaq Compliance
On January 9, 2024, the Company received a letter (the “Letter”) from the Listing Qualifications staff (the “Staff”) of the Nasdaq Stock Market LLC (“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 Voting Rights Rule states that a company cannot create a new class of security that votes at a higher rate than an existing class of securities or take any other action that has the effect of restricting or reducing the voting rights of an existing class of securities.
According to the Letter, Nasdaq determined the Preferred Stock violates the Voting Rights Rule because the Preferred Stock could convert at a discount to the price of the Common Stock on the date of execution of the Agreement, and because the Preferred Stock votes on an as-converted basis. The Company notes that the violation is based on a hypothetical situation in the future, in which the anti-dilution protection triggers a ratchet down of the Conversion Price below the minimum price per share of the Company’s common stock at the time of the issuance of the Preferred Stock.
S-3 Registration Statement
On January 17, 2024, the Company filed a shelf
registration statement, which was amended on February 8, 2024, for the sale of common stock,
preferred stock, warrants, rights, units or a combination therefore, having an aggregate initial offering price not exceeding $
| 26 |
S-1 Registration Statement
On January 23, 2024, the Company filed a registration statement, which was amended on February 7, 2024, related to the offer and resale of up to shares of common stock under the ELOC Purchase Agreement. The registration statement was declared effective by the SEC on February 9, 2024.
Changes in Board of Directors Composition and Management
Effective January 29, 2024 (the “Effective Date”), the Company accepted the resignations of (i) Randy May, its former Chairman of the Board of Directors (the “Board”) in such capacity, and as the Company’s Chief Executive Officer, and (ii) Jay Puchir, its former Chief Financial Officer, each of which was submitted to the Company on January 28, 2024. On the Effective Date, Mr. Milton “Todd” Ault was appointed as its Chairman of the Board and Chief Executive Officer, William B. Horne and Steve J. Smith were appointed to the Board of Directors, Kayson Pulsipher was appointed as Chief Financial Officer, Joseph M. Spaziano as Chief Operating Officer and Douglas Gintz as Chief Technology Officer.
| 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, 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.
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. 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 December 31, 2023, the Company’s former wholly owned subsidiaries, Agora and Wolf Energy Services have been treated for accounting purposes as divested.
Our Business Strategy
BitNile.com and services (“BNS”)
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 the 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 year 2024 and 2025 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.
Hospitality service revenue and expenses are generated through services and hosting provided to groups at certain social functions and sporting events. Hospitality 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.
| 28 |
RiskOn360
RiskOn360 is a versatile educational global success conference series specifically tailored for business owners and entrepreneurs. What distinguishes RiskOn360 is its approach to education, providing training in-person in multiple cities, making it accessible to learners across the United States.
The company's commitment extends beyond mere knowledge transfer; it focuses on empowering individuals to achieve greater success and confidence in their entrepreneurial pursuits. The conferences are expertly crafted to not only impart essential business knowledge but also to build confidence among learners, enabling them to make informed and effective business decisions.
The curriculum is a blend of theoretical knowledge and practical application, designed to be engaging and relevant regardless of the industry the learners are in. The learners participate in in-person sessions and are guaranteed an interactive and hands-on learning experience. This approach is particularly effective in ensuring that theoretical concepts are well understood and can be applied practically in real business contexts. The conference topics are based on real life experiences and scenarios across multiple industries and case studies. This ensures that learners are well-equipped to navigate the challenges of the business world confidently.
RiskOn360 aims to be an invaluable resource for individuals looking to enhance their business and entrepreneurial skills and empower the learners with the necessary skills and confidence to succeed and excel in their business ventures.
Recent Developments
During the current fiscal year ending March 31, 2024, the Company engaged in the following transactions:
| ● | On April 27, 2023, the Company closed a $6,875,000 senior secured convertible promissory note, 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. |
| ● | 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 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 3,333,333 to 500,000,000. |
| ● | 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, Ault Alliance Inc. (“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. |
| 29 |
| ● | 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. |
The Company submitted a compliance plan, which was subsequently amended and restated, to the staff. On December 1, 2023, Nasdaq notified the Company that it rejected the Compliance Plans. The Company has appealed the Staff’s determination to delist the Company’s Common Stock to a Hearings Panel (the “Panel”). The Panel will hear the Company’s appeal on February 29, 2024. The Panel will consider all violations against the Voting Rights Rule in connection with the Company’s appeal.
| ● | 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 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. |
| ● | 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.
| 30 |
| ● | 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”) include conversion terms and dividend payout terms. The Preferred Shares each have a stated value of $25,000 per share (the “Stated Value”).
| ● | On January 17, 2024, the filed registration statement under a shelf registration process any combination of common stock, preferred stock, warrants, rights or units having an aggregate initial offering price not exceeding $25,000,000. The preferred stock, warrants, rights and units may be convertible, exercisable or exchangeable for common stock or preferred stock or other securities of ours. |
| ● | On January 23, 2024, the Registration Statement related to the offer and resale of up to 40,000,000 shares of common stock, par value $0.001 per share, of the Company, by Arena Business Solutions Global SPC II, Ltd., on behalf of and for the account of Segregated Portfolio #3 – SPC #3 (the “Selling Stockholder”). The shares included in this prospectus consist of (i) shares of our common stock that we may, in our discretion, elect to issue and sell to the Selling Stockholder, from time to time after the date of this prospectus, pursuant to the ELOC Purchase Agreement we entered into with the Selling Stockholder, in which the Selling Stockholder has committed to purchase from us. We are registering the resale of up to 40,000,000 of common stock issuable to the Selling Stockholder under the Purchase Agreement. The Purchase Agreement provides that we have the right to direct the Selling Stockholder to purchase up to an aggregate of $100 million of shares of our common stock (the “Maximum Commitment Amount”), of which $3,006,996 was previously registered, and, as consideration for the Selling Stockholder entering into the Purchase Agreement, we are required to issue to the Selling Stockholder, as a commitment fee, a number of shares of common stock having an aggregate dollar value equal to $4 million, of which $1,366,331 was previously registered. See the section titled “Committed Equity Financing” for a description of the Purchase Agreement and the section titled “Selling Stockholder” for additional information regarding the Selling Stockholder. |
| ● | Effective January 29, 2024, the Company (i) accepted the resignations of Randy May, its former Chairman of the Board of Directors (the “Board”) and as the Company’s Chief Executive Officer, and Jay Puchir, its former Chief Financial Officer, (ii) appointed Mr. Milton “Todd” Ault as its Chairman of the Board and Chief Executive Office (Mr. Ault was appointed to the Board on January 4, 2024), (iii) appointed William B. Horne and Steve J. Smith to the Board and (iv) appointed Kayson Pulsipher as Chief Financial Officer, Joseph M. Spaziano as Chief Operating Officer, Douglas Gitntz as Chief Technology Officer. |
| 31 |
Consolidated Results of Continuing Operations
The results below do not include our discontinued operations activity, accordingly, period to period comparisons may not be meaningful.
Consolidated Continuing Operations for the Three Months Ended December 31, 2023 and 2022
| December 31, | ||||||||||||||||
| 2023 | 2022 | Change ($) | Change (%) | |||||||||||||
| RiskOn360 revenue | $ | 240,356 | $ | - | $ | 240,356 | 100 | % | ||||||||
| Cost of revenue | 2,058,024 | - | 2,058,024 | 100 | % | |||||||||||
| Gross loss | (1,817,668 | ) | - | (1,817,668 | ) | 100 | % | |||||||||
| Operating expenses | ||||||||||||||||
| Salaries | 1,038,788 | 241,403 | 797,385 | 330 | % | |||||||||||
| Professional and consulting fees | 359,745 | 123,288 | 236,457 | 192 | % | |||||||||||
| Selling, general and administration | 6,897,295 | 1,089,816 | 5,807,479 | 533 | % | |||||||||||
| Depreciation and amortization | 125,016 | - | 125,016 | 100 | % | |||||||||||
| Total operating expenses | 8,420,844 | 1,454,507 | 6,966,337 | 479 | % | |||||||||||
| Operating loss | (10,238,512 | ) | (1,454,507 | ) | (8,784,005 | ) | 604 | % | ||||||||
| Other (expense) income | ||||||||||||||||
| Change in fair value of derivative liabilities | 824,475 | 6,124,833 | (5,300,358 | ) | -87 | % | ||||||||||
| Dividend expense | (1,589,046 | ) | - | 1,589,046 | 100 | % | ||||||||||
| Loss on conversion of derivative liability to common stock in conversion of preferred stock | - | (3,923 | ) | (3,923 | ) | -100 | % | |||||||||
| Gain on conversion of notes | 2,563 | - | 2,563 | 100 | % | |||||||||||
| Loss on disposal of fixed assets | (2,454 | ) | - | 2,454 | 100 | % | ||||||||||
| Amortization of discounts | (1,588,474 | ) | - | 1,588,474 | 100 | % | ||||||||||
| Loss on redemption of Series A preferred stock | (1,938,587 | ) | - | 1,938,587 | 100 | % | ||||||||||
| Interest (expense) income, net of interest income | (25,219 | ) | 87,611 | (112,830 | ) | 129 | % | |||||||||
| Total other (expense) income | (4,316,742 | ) | 6,208,521 | (10,525,263 | ) | 170 | % | |||||||||
| (Loss) gain from continuing operations before discontinued operations | (14,555,254 | ) | 4,754,014 | (19,309,268 | ) | 406 | % | |||||||||
| Discontinued operations | ||||||||||||||||
| Loss from discontinued operations | (243,863 | ) | (2,327,043 | ) | ||||||||||||
| Total loss discontinued operations | (243,863 | ) | (2,327,043 | ) | ||||||||||||
| Net (loss) income | $ | (14,799,117 | ) | $ | 2,426,971 | |||||||||||
Revenue and Gross Loss
Revenue and gross loss during the three months ended December 31, 2023 were $0.2 million and $2.0 million, respectively. The revenue and increased cost of revenue was attributable to the RiskOn360 conference held during the period. We did not have revenue or cost of sales during the three months ended December 31, 2022.
Operating Loss and Operating Expenses
During the three months ended December 31, 2023, our operating loss increased by $9 million, from $1 million for the three months ended December 31, 2022. The increase was due to increases in advertising expenses, gross loss, salary expense and platform fees of approximately $5 million, $2 million, $1 million and $1 million, respectively.
| 32 |
Loss from Continuing Operations
Loss from continuing operations for the three months ended December 31, 2023 was $15 million compared to income from continuing operations for the three months ended December 31, 2022 of $5 million. The increase of approximately $19 million was primarily due to the increase of our operating loss of approximately $9 million coupled with the decreased gain on the remeasurement of fair value for the derivative liabilities of approximately $5 million, increased amortization of original issuance and derivative discounts expense of $2 million, loss on redemption of Series A preferred stock of $2 million and dividend expenses of approximately $1 million.
Consolidated Continuing Operations For the Nine Months Ended December 31, 2023 and 2022
| December 31, | ||||||||||||||||
| 2023 | 2022 | Change ($) | Change (%) | |||||||||||||
| RiskOn360 revenue | $ | 240,356 | $ | - | $ | 240,356 | 100 | % | ||||||||
| BitNile.com and service revenue | 64,350 | - | 64,350 | 100 | % | |||||||||||
| Cost of revenue | 2,172,746 | - | 2,172,746 | 100 | % | |||||||||||
| Gross loss | (1,868,040 | ) | - | (1,868,040 | ) | 100 | % | |||||||||
| Operating expenses | ||||||||||||||||
| Salaries | 2,461,243 | 917,215 | 1,544,028 | 168 | % | |||||||||||
| Professional and consulting fees | 790,221 | 248,015 | 542,206 | 219 | % | |||||||||||
| Selling, general and administration | 23,175,273 | 2,386,655 | 20,788,618 | 871 | % | |||||||||||
| Depreciation and amortization | 371,223 | - | 371,223 | 100 | % | |||||||||||
| Total operating expenses | 26,797,960 | 3,551,885 | 23,246,075 | 654 | % | |||||||||||
| Operating loss | (28,666,000 | ) | (3,551,885 | ) | (25,114,115 | ) | 707 | % | ||||||||
| Other (expense) income | ||||||||||||||||
| Change in fair value of derivative liabilities | 23,807,318 | 9,017,305 | 14,790,013 | 164 | % | |||||||||||
| Dividend expense | (4,739,726 | ) | - | 4,739,726 | 100 | % | ||||||||||
| Loss on conversion of derivative liability to common stock in conversion of preferred stock | - | (3,923 | ) | 3,923 | -100 | % | ||||||||||
| Gain on conversion of notes | 2,563 | - | 2,563 | 100 | % | |||||||||||
| Loss on disposal of fixed assets | (2,454 | ) | - | 2,454 | 100 | % | ||||||||||
| Amortization of discounts | (4,172,858 | ) | - | 4,172,858 | 100 | % | ||||||||||
| Loss on redemption of Series A preferred stock | (1,938,587 | ) | 1,938,587 | 100 | % | |||||||||||
| Interest income (expense), net of interest income | (70,764 | ) | (77,353 | ) | 6,589 | -9 | % | |||||||||
| Total other income | 12,885,492 | 8,936,029 | 3,949,463 | 44 | % | |||||||||||
| (Loss) gain from continuing operations before discontinued operations | (15,780,508 | ) | 5,384,144 | (21,164,652 | ) | 393 | % | |||||||||
| Discontinued operations | ||||||||||||||||
| Loss from discontinued operations | (9,501,589 | ) | (26,592,798 | ) | ||||||||||||
| Gain (loss) on disposal of discontinued operations | 683,152 | (11,823,395 | ) | |||||||||||||
| Total loss discontinued operations | (8,818,437 | ) | (38,416,193 | ) | ||||||||||||
| Net loss | $ | (24,598,945 | ) | $ | (33,032,049 | ) | ||||||||||
Revenue and Gross Loss
Revenue and gross loss during the nine months ended December 31, 2023 were $0.3 million and $2.2 million, respectively. The revenue and increased cost of revenue was attributable to the RiskOn360 conference held during the period as well as sales of Hospitality services. We did not have revenue or cost of sales during the nine months ended December 31, 2022.
| 33 |
Operating Loss and Operating Expenses
During the nine months ended December 31, 2023, our operating loss increased by $25 million, from $4 million for the nine months ended December 31, 2022. The increase was primarily due to increases in sponsorship and advertising expenses, platform fees, cost of sales and travel expenses of approximately $18 million, $3 million, $2 million, $2 million, respectively.
Loss from Continuing Operations
Loss from continuing operations for the nine months ended December 31, 2023 was $16 million compared to income from continuing operations for the nine months ended December 31, 2022 of $5 million. The increase of $21 million was due to the increase of our operating loss of $25 million, loss on redemption of Series A preferred stock of $2 million, increased dividend expense of $5 million and amortization of discounts of $4 million, partially offset by the increased gain on the change in fair value of the derivative liabilities of approximately $15 million.
Business Segment Results for the Three and Nine Months Ended December 31, 2023 and 2022
As discussed in note 20, we changed the presentation of our segment operating results in the quarter ended December 31, 2023, and all amounts are presented under the new reporting segment structure. We have two reporting segments: the BitNile.com Metaverse & Hospitality segment and the RiskOn360 segment. Both were acquired in March 2023 as a part of the SEA agreement with AAI. GuyCare was formed and launched in November 2023 and had nominal operations during the three and nine months ended December 31, 2023, and is therefore considered an immaterial operating segment. We had no operations relating to Metaverse & Hospitality or RiskOn360 during the three months ended December 31, 2022.
The financial information as of and for the three and nine months ended December 31, 2022 in the condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q relates to Ecoark Holdings (later renamed BitNile Metaverse and currently named RiskOn International), a holding company, and the discontinued operations of Wolf Energy, Agora and Zest. The results of operations from Agora and Zest are included in discontinued operations for the three and nine months ended December 31, 2023.
As there is no meaningful financial information relating to our new segments compared to prior period segments, management has no additional discussion and comparative analysis to disclose. The significant activities and transactions of both periods are discussed in the notes to the financial statements and in the discussion and analysis of the consolidated results of continuing operations above.
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 $29 million for the nine months ended December 31, 2023, as compared to approximately $28 million in the prior year period. Significant changes impacting net cash used in operating activities during the nine months ended December 31, 2023 as compared to nine months ended December 31, 2022 were primarily due to (i) a $7 million reduction in loss from continuing operations, (ii) change in the fair value of derivative liabilities of approximately $18 million during the nine months ended December 31, compared to $6 million in the prior year period, (iii) gain on disposal of Zest of approximately $1 million compared to a loss of $13 million on the disposal of previous subsidiaries in the prior year period, and (iv) increased changes in accounts payable of $7 million, dividends payable of $5 million and amortization of discount of $4 million.
Net cash used in investing activities during the nine months ended December 31, 2023 increased due to fixed asset purchases and an investment in a simple agreement for future equity, partially offset by no cash being provided during the nine months ended December 31, 2023 by discontinued operations.
Net cash provided by financing activities during the nine months ended December 31, 2023 increased by approximately $9 million, primarily due to the proceeds from AAI of $13 million and the proceeds from the sale of common stock and convertible notes of $8 million during the nine months ended December 31, 2023, offset by proceeds to the sale of preferred stock of $12 million in the prior year period.
| 34 |
As of December 31, 2023, we had $101,487 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 acquired BitNile.com in March 2023, which has generated nominal revenue as of December 31, 2023. The accompanying financial statements for the three and nine month periods ended December 31, 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. As discussed in note 2, “Liquidity and Going Concern” above, during the current fiscal year, we received $5 million in proceeds from the sale of senior secured convertible notes in April 2023, $1 million from the issuance of term notes in October and December 2023, and as of December 31, 2023, we have raised $1 million from the sale of common stock related to the ELOC purchase agreement. 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.
Critical Accounting Estimates
A complete discussion of our critical accounting estimates is included in our Form 10-K for the year ended March 31, 2023. There have been no material changes to our critical accounting policies and estimates as compared to those disclosed in our Form 10-K. For a description of our critical accounting policies and estimates, see Part I, Item 1, note 3, "Basis of Presentation and Significant Accounting Policies" in our notes to the consolidated financial statements in this Quarterly Report on Form 10-Q.
Recently Issued Accounting Standards
See Part I, Item 1, note 3, "Basis of Presentation and Significant Accounting Policies" in our notes to the consolidated financial statements in this Quarterly Report on Form 10-Q for recently adopted accounting pronouncements as of the date of this Quarterly Report on Form 10-Q.
Our management has considered all recent accounting pronouncements issued since the last audit of our financial statements. Our management believes that these recent pronouncements, other than those discussed in note 3, 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.
| 35 |
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 internal control policies and procedures; and |
| 4. | The Company’s financial reporting is carried out with the assistance of an outside financial consultant. |
Planned Remediation
Management has taken and is taking steps to rectify these weaknesses through (i) hiring qualified accounting, financial reporting and key management personnel with public experience, (ii) engaging external advisors to assist in documenting, designing and implementing internal controls to ensure proper communication of critical information, review and approvals, and (iii) enhancing policies, procedures, and documentation for significant areas of accounting,
including each area where a material weakness was identified. Management has an increased focus and commitment in its efforts to remediate the identified material weaknesses.
Additionally, 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:
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 December 31, 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.
| 36 |
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.
| 37 |
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. |
| 38 |
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: February 20, 2024 | By: | /s/ Milton C. Ault, III |
| Milton C. Ault, III | ||
| Chief Executive Officer | ||
| Date: February 20, 2024 | By: | /s/ Kayson Pulsipher |
| Kayson Pulsipher | ||
| Chief Financial Officer | ||
39