In February 2016, the FASB issued Accounting
Standards Update (“ASU”) 2016-02 and later updated with ASU 2019-01 in March 2019 Leases (Topic 842). The ASU’s
change the accounting for leased assets, principally by requiring balance sheet recognition of assets under lease arrangements.
It is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2018. On adoption,
the Company recognized additional operating liabilities of approximately $99, with corresponding right of use assets of $99 based
on the present value of the remaining minimum rental payments under leasing standards for existing operating leases.
The Company has experienced losses from
operations resulting in an accumulated deficit of $121,921 since inception. The accumulated deficit together with losses of $6,035
for the six months ended September 30, 2019, and net cash used in operating activities in the six months ended September 30, 2019
of $3,134, have resulted in the uncertainty of the Company’s ability to continue as a going concern.
Non-cash expenses above consist principally of depreciation, amortization and impairment expense. Capital
expenditures of discontinued operations were principally at Sable and amounted to $0 and $166 for the six months ended September
30, 2019 and 2018, respectively.
The following tables compare the Company’s
previously issued Consolidated Balance Sheet, Consolidated Statement of Operations and Consolidated Statement of Cashflows for
the periods ended September 30, 2018 to the corresponding restated consolidated financial statements for those periods.
CONSOLIDATED
STATEMENT OF OPERATIONS
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30, 2018
|
|
|
September 30, 2018
|
|
|
|
(As Reported)
|
|
|
Restatement Adjustments
|
|
|
(Restated)
|
|
|
(As Reported)
|
|
|
Restatement Adjustments
|
|
|
(Restated)
|
|
CONTINUING OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
286
|
|
|
|
|
|
|
$
|
286
|
|
|
$
|
1,039
|
|
|
|
|
|
|
$
|
1,039
|
|
COST OF REVENUES
|
|
|
207
|
|
|
|
|
|
|
|
207
|
|
|
|
637
|
|
|
|
|
|
|
|
637
|
|
GROSS PROFIT (LOSS)
|
|
|
79
|
|
|
|
|
|
|
|
79
|
|
|
|
402
|
|
|
|
|
|
|
|
402
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
2,493
|
|
|
|
|
|
|
|
2,493
|
|
|
|
4,584
|
|
|
|
|
|
|
|
4,584
|
|
Depreciation, amortization, and impairment
|
|
|
308
|
|
|
|
|
|
|
|
308
|
|
|
|
617
|
|
|
|
|
|
|
|
617
|
|
Research and development
|
|
|
771
|
|
|
|
|
|
|
|
771
|
|
|
|
1,641
|
|
|
|
|
|
|
|
1,641
|
|
Total operating expenses
|
|
|
3,572
|
|
|
|
|
|
|
|
3,572
|
|
|
|
6,842
|
|
|
|
|
|
|
|
6,842
|
|
Loss from continuing operations before other expenses
|
|
|
(3,493
|
)
|
|
|
|
|
|
|
(3,493
|
)
|
|
|
(6,440
|
)
|
|
|
|
|
|
|
(6,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative liability
|
|
|
|
|
|
$
|
715
|
|
|
$
|
715
|
|
|
|
|
|
|
$
|
1,036
|
|
|
|
1,036
|
|
(Interest expense), net of interest income
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
(7
|
)
|
Total other expenses
|
|
|
4
|
|
|
|
715
|
|
|
|
719
|
|
|
|
(7
|
)
|
|
|
1,036
|
|
|
|
1,029
|
|
LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES
|
|
|
(3,489
|
)
|
|
|
715
|
|
|
|
(2,774
|
)
|
|
|
(6,447
|
)
|
|
|
1,036
|
|
|
|
(5,411
|
)
|
DISCONTINUED OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
(576
|
)
|
|
|
|
|
|
|
(576
|
)
|
|
|
(1,166
|
)
|
|
|
|
|
|
|
(1,166
|
)
|
Gain on disposal of discontinued operations
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Total discontinued operations
|
|
|
(576
|
)
|
|
|
|
|
|
|
(576
|
)
|
|
|
(1,166
|
)
|
|
|
|
|
|
|
(1,166
|
)
|
PROVISION FOR INCOME TAXES
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
NET LOSS
|
|
$
|
(4,065
|
)
|
|
|
715
|
|
|
$
|
(3,350
|
)
|
|
$
|
(7,613
|
)
|
|
|
1,036
|
|
|
$
|
(6,577
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted: Continuing operations
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
$
|
(0.07
|
)
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
$
|
(0.13
|
)
|
Discontinued operations
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
(0.02
|
)
|
Total
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
$
|
(0.08
|
)
|
|
$
|
(0.15
|
)
|
|
|
|
|
|
$
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHARES USED IN CALCULATION OF NET LOSS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
50,500
|
|
|
|
|
|
|
|
50,500
|
|
|
|
49,739
|
|
|
|
|
|
|
|
49,739
|
|
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, 2019
CONSOLIDATED
STATEMENT OF CASH FLOWS
|
|
Six Months Ended
|
|
|
|
September 30, 2018
|
|
|
|
As
Reported
|
|
|
Restatement Adjustments
|
|
|
Restated
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,613
|
)
|
|
$
|
1,036
|
|
|
$
|
(6,577
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and impairment
|
|
|
617
|
|
|
|
|
|
|
|
617
|
|
Shares of common stock issued for services rendered
|
|
|
200
|
|
|
|
|
|
|
|
200
|
|
Share-based compensation – stock – employees
|
|
|
1,900
|
|
|
|
|
|
|
|
1,900
|
|
Loss from discontinued operations
|
|
|
1,166
|
|
|
|
|
|
|
|
1,166
|
|
Change in fair value of derivative liabilities
|
|
|
-
|
|
|
|
(1,036
|
)
|
|
|
(1,036
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,401
|
|
|
|
|
|
|
|
1,401
|
|
Inventory
|
|
|
(147
|
)
|
|
|
|
|
|
|
(147
|
)
|
Prepaid expenses
|
|
|
13
|
|
|
|
|
|
|
|
13
|
|
Other current assets
|
|
|
35
|
|
|
|
|
|
|
|
35
|
|
Accounts payable
|
|
|
(1,134
|
)
|
|
|
|
|
|
|
(1,134
|
)
|
Accrued liabilities
|
|
|
(226
|
)
|
|
|
|
|
|
|
(226
|
)
|
Net cash used in operating activities of continuing operations
|
|
|
(3,788
|
)
|
|
|
|
|
|
|
(3,788
|
)
|
Net cash used in discontinued operations
|
|
|
(1,114
|
)
|
|
|
|
|
|
|
(1,114
|
)
|
Net cash used in operating activities
|
|
|
(4,902
|
)
|
|
|
|
|
|
|
(4,902
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(18
|
)
|
|
|
|
|
|
|
(18
|
)
|
Net cash used in investing activities of continuing operations
|
|
|
(18
|
)
|
|
|
|
|
|
|
(18
|
)
|
Net cash used in investing activities of discontinued operations
|
|
|
(166
|
)
|
|
|
|
|
|
|
(166
|
)
|
Net cash used in investing activities
|
|
|
(184
|
)
|
|
|
|
|
|
|
(184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock, net of fees
|
|
|
4,221
|
|
|
|
|
|
|
|
4,221
|
|
Repayment of debt
|
|
|
(500
|
)
|
|
|
|
|
|
|
(500
|
)
|
Purchase of treasury shares from employees for tax withholdings
|
|
|
(42
|
)
|
|
|
|
|
|
|
(42
|
)
|
Net cash provided by financing activities
|
|
|
3,679
|
|
|
|
|
|
|
|
3,679
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
(1,407
|
)
|
|
|
|
|
|
|
(1,407
|
)
|
Cash - beginning of period
|
|
|
3,730
|
|
|
|
|
|
|
|
3,730
|
|
Cash - end of period
|
|
$
|
2,323
|
|
|
|
|
|
|
$
|
2,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
11
|
|
|
|
|
|
|
$
|
11
|
|
Cash paid for income taxes
|
|
$
|
-
|
|
|
|
|
|
|
$
|
-
|
|
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, 2019
NOTE
4: REVENUE
The
Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. Professional services
revenue for the six months ended September 30, 2019 were from management fees earned by Trend Holdings and in 2018 from a project
with a major retailer. Several Software as a Service (“SaaS”) projects earned revenue in 2019 and 2018.
The
following table disaggregates the Company’s revenue by major source:
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Revenue:
|
|
|
|
|
|
|
Professional services
|
|
$
|
51
|
|
|
$
|
1,000
|
|
Software as a Service
|
|
|
28
|
|
|
|
39
|
|
|
|
$
|
79
|
|
|
$
|
1,039
|
|
NOTE
5: PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following:
|
|
September 30,
2019
|
|
|
March 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Zest Labs freshness hardware
|
|
$
|
2,493
|
|
|
$
|
2,493
|
|
Computers and software costs
|
|
|
222
|
|
|
|
222
|
|
Machinery and equipment
|
|
|
200
|
|
|
|
200
|
|
Total property and equipment
|
|
|
2,915
|
|
|
|
2,915
|
|
Accumulated depreciation and impairment
|
|
|
(2,239
|
)
|
|
|
(2,091
|
)
|
Property and equipment, net
|
|
$
|
676
|
|
|
$
|
824
|
|
Depreciation expense for the six months
ended September 30, 2019 and 2018 was $148 and $340, respectively. Depreciation expense for the three months ended September
30, 2019 and 2018 was $71 and $169, respectively.
Property
and equipment for Sable was reclassified as assets held for sale as more fully described in Note 2 and accordingly depreciation
expense for Sable through May 2018 was included in the loss from discontinued operations.
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, 2019
NOTE
6: INTANGIBLE ASSETS
Intangible
assets consisted of the following:
|
|
September 30,
2019
|
|
|
March 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
3,223
|
|
|
$
|
-
|
|
Patents
|
|
|
1,013
|
|
|
|
1,013
|
|
Outsourced vendor relationships
|
|
|
1,017
|
|
|
|
1,017
|
|
Non-compete agreements
|
|
|
340
|
|
|
|
340
|
|
Total intangible assets
|
|
|
5,593
|
|
|
|
2,370
|
|
Accumulated amortization and impairment
|
|
|
(2,370
|
)
|
|
|
(2,370
|
)
|
Intangible assets, net
|
|
$
|
3,223
|
|
|
$
|
-
|
|
The
goodwill was recorded as part of the acquisition of Trend Holdings more fully described in Note 15. The patents were recorded
as part of the acquisition of Zest Labs. The outsourced vendor relationships and non-compete agreements were recorded as part
of the acquisition of 440labs. The intangible assets of Zest Labs and 440labs were fully impaired as of March 31, 2019.
Amortization
expense for the six months ended September 30, 2019 and 2018 was $0 and $276, respectively.
NOTE
7: ACCRUED LIABILITIES
Accrued
liabilities consisted of the following:
|
|
September 30,
2019
|
|
|
March 31,
2019
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Vacation and paid time off
|
|
$
|
189
|
|
|
$
|
345
|
|
Professional fees and consulting costs
|
|
|
334
|
|
|
|
150
|
|
Accrued interest
|
|
|
158
|
|
|
|
11
|
|
Lease liability
|
|
|
8
|
|
|
|
95
|
|
Payroll and employee expenses
|
|
|
44
|
|
|
|
50
|
|
Legal fees
|
|
|
72
|
|
|
|
108
|
|
Other
|
|
|
67
|
|
|
|
69
|
|
|
|
$
|
872
|
|
|
$
|
828
|
|
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, 2019
NOTE
8: WARRANT DERIVATIVE LIABILITIES
As
described in Note 3, the Company issued common stock and warrants in several private placements in March 2017, May 2017, March
2018 and August 2018. The March and May 2017 and March and August 2018 warrants (collectively the “Derivative Warrant Instruments”)
are classified as liabilities. The Derivative Warrant Instruments have been accounted for utilizing ASC 815 “Derivatives
and Hedging”. The Company has incurred a liability for the estimated fair value of Derivative Warrant Instruments.
The estimated fair value of the Derivative Warrant Instruments has been calculated using the Black-Scholes fair value option-pricing
model with key input variables provided by management, as of the date of issuance, with changes in fair value recorded as gains
or losses on revaluation in other income (expense).
The
Company identified embedded features in the March and May 2017 warrants which caused the warrants to be classified as a liability.
These embedded features included 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. The accounting treatment of derivative financial instruments requires that
the Company treat the whole instrument as liability and record the fair value of the instrument as derivatives as of the inception
date of the instrument and to adjust the fair value of the instrument as of each subsequent balance sheet date.
On October 28, 2019, the Company issued
2,243 shares of the Company’s common stock to investors in exchange for the March and May 2017 warrants. Upon the issuance
of the 2,243 shares, the March and May 2017 warrants were extinguished.
The
Company identified embedded features in the March and August 2018 warrants which caused the warrants to be classified as a liability.
These embedded features included the right for the holders to request that the Company cash settle the warrant instruments from
the holder by paying to the holder an amount of cash equal to the Black-Scholes value of the remaining unexercised portion of
the Derivative Warrant Instruments on the date of the consummation of a fundamental transaction. The accounting treatment of derivative
financial instruments requires that the Company treat the whole instrument as liability and record the fair value of the instrument
as derivatives as of the inception date of the instrument and to adjust the fair value of the instrument as of each subsequent
balance sheet date.
On July 12, 2019, the March and August
2018 warrants were exchanged for 4,277 shares of Company common stock, and all of those warrants were extinguished. The fair value
of the shares issued was $3,293, and the fair value of the warrants was $2,455 resulting in a loss of $839 that was recognized
on the exchange.
As described further in Note 12 below, on August 22, 2019 the Company issued warrants that can be exercised
in exchange for 3,922 shares of Company common stock to investors that invested in shares of Company preferred stock. The fair
value of those warrants was estimated to be $1,576 at inception and $1,422 as of September 30, 2019. The accounting treatment for
those warrants and the related issuance was consistent with that described in this note and in Note 3.
The
Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model
to calculate the fair value as of September 30, 2019. 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 in September
30, 2019 and March 31, 2019 and at inception:
|
|
Six
Months Ended
|
|
|
Year
Ended
|
|
|
|
|
|
|
September
30,
2019
|
|
|
March
31,
2019
|
|
|
Inception
|
|
|
|
|
|
|
|
|
|
|
|
Expected term
|
|
|
2.50 - 4.92 years
|
|
|
|
3.00 - 4.42 years
|
|
|
|
5.00 years
|
|
Expected volatility
|
|
|
97
|
%
|
|
|
96
|
%
|
|
|
91% -
107
|
%
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Risk-free interest rate
|
|
|
1.55
|
%
|
|
|
2.23
|
%
|
|
|
1.50% - 2.77
|
%
|
The
Company’s derivative liabilities associated with the warrants are as follows:
|
|
September 30,
2019
|
|
|
March 31,
2019
|
|
|
Inception
|
|
Fair value of 1,000 March 17, 2017 warrants
|
|
$
|
280
|
|
|
$
|
256
|
|
|
$
|
4,609
|
|
Fair value of 1,850 May 22, 2017 warrants
|
|
|
540
|
|
|
|
505
|
|
|
|
7,772
|
|
Fair value of 2,565 March 16, 2018 warrants
|
|
|
-
|
|
|
|
1,040
|
|
|
|
3,023
|
|
Fair value of 2,969 August 14, 2018 warrants
|
|
|
-
|
|
|
|
1,303
|
|
|
|
2,892
|
|
Fair value of 3,922 August 22, 2019 warrants
|
|
|
1,422
|
|
|
|
-
|
|
|
|
1,576
|
|
|
|
$
|
2,242
|
|
|
$
|
3,104
|
|
|
$
|
19,872
|
|
During the six months ended September 30,
2019 and 2018 the Company recognized changes in the fair value of the derivative liabilities of $(16) and $1,036, respectively.
As described in Note 12 below, the March and August 2018 warrants were exchanged for 4,277 shares of Company common stock and thus
were no longer outstanding as of September 30, 2019. See additional details on warrant transactions subsequent to September 30,
2019 in Note 19 below describing that the March and May 2017 warrants were exchanged for 2,243 shares of Company common stock in
October 2019, and additional warrants were issued on November 11, 2019.
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, 2019
NOTE
9: NOTE PAYABLE
On
December 28, 2018, the Company entered into a $10,000 credit facility that includes a loan and security agreement (the “Agreement”)
where the lender agreed to make one or more loans to the Company, and the Company may make a request for a loan or loans from
the lender, subject to the terms and conditions. The Company is required to pay interest biannually on the outstanding principal
amount of each loan calculated at an annual rate of 12%. The loans are evidenced by a demand note executed by the Company. The
Company is able to request draws from the lender up to $1,000 with a cap of $10,000, including the $1,000 advanced on December
28, 2018 and an additional $350 advanced through March 31, 2019, and an additional $985 advanced during the six months ended September
30, 2019. If principal is prepaid, the loans may not be re-borrowed and the cap of $10,000 shall be reduced. The Company
may make a request for a loan or loans from the lender, at any one time and from time to time, from the date of the Agreement
until the earlier of (i) demand by the lender or (ii) December 27, 2020 or the earlier termination of the Agreement pursuant to
the terms thereof. Loans made pursuant to the Agreement are secured by a security interest in the Company’s collateral held
with the lender and guaranteed by the Company’s subsidiary, Zest Labs.
The
Company pays to the lender a commitment fee on the principal amount of each loan requested thereunder in the amount of 3.5% of
the amount thereof. The Company also paid an arrangement fee of $300 to the lender which was paid upon execution of the Agreement.
The aforementioned fees were and are netted from proceeds advanced and are recorded as interest expense. Zest Labs is a plaintiff
in a litigation styled as Zest Labs, Inc. vs Walmart, Inc., Case Number 4:18-cv-00500 filed in the United States District
Court for the Eastern District of Arkansas (the “Zest Litigation”). The Company agrees that within five days of receipt
by Zest Labs or the Company of any settlement proceeds from the Zest Litigation, the Company will pay or cause to be paid over
to lender an additional fee in an amount equal to (i) 0.50 multiplied by (ii) the highest aggregate principal balance of the loans
over the life of the loans through the date of the payment from settlement proceeds; provided, however, that such additional fee
shall not exceed the amount of the settlement proceeds.
Subject
to customary carve-outs, the Agreement contains customary negative covenants and restrictions for agreements of this type on actions
by the Company including, without limitation, restrictions on indebtedness, liens, investments, loans, consolidation, mergers,
dissolution, asset dispositions outside the ordinary course of business, change in business and restriction on use of proceeds.
In addition, the Agreement requires compliance by the Company of covenants including, but not limited to, furnishing the lender
with certain financial reports and protecting and maintaining its intellectual property rights. The Agreement contains customary
events of default, including, without limitation, non-payment of principal or interest, violation of covenants, inaccuracy of
representations in any material respect and cross defaults with certain other indebtedness and agreements.
Interest expense on the note for the three
and six months ended September 30, 2019 was $60 and $122, respectively.
NOTE
10: NOTES PAYABLE - RELATED PARTIES
A board member advanced $328 to the Company
through September 30, 2019, under the terms of a note payable that bears 10% simple interest per annum, and the principal balance
along with accrued interest is payable July 30, 2020 or upon demand. Interest expense on the note for the six months ended September
30, 2019 was $10.
William B. Hoagland, Principal Financial
Officer, advanced $30 to the Company in May 2019 pursuant to a note with the same terms as the note with the board member. Randy
May, CEO, advanced $45 to the Company in August 2019 pursuant to a note with the same terms as the note with the board member.
Interest expense on both of these notes was not material.
NOTE
11: LONG-TERM DEBT
The
Company had a secured convertible promissory note (“convertible note”) bearing interest at 10% per annum, entered
into on January 10, 2017 for $500 with the principal due in one lump sum payment on or before July 10, 2018. The principal along
with accrued interest of $11 was paid on July 2, 2018.
Interest
expense on debt for the six months ended September 30, 2019 and 2018 was $0 and $11, respectively.
NOTE
12: STOCKHOLDERS’ EQUITY
Ecoark
Holdings Preferred Stock
On March 18, 2016, the Company created
5,000 shares of “blank check” preferred stock, par value $0.001. On August 21, 2019 (the “Effective Date”),
the Company and two accredited investors entered into a Securities Purchase Agreement pursuant to which the Company sold and issued
to the investors an aggregate of 2 shares of Series B Convertible Preferred Stock, par value $0.001 per share at a price of $1,000
per share.
Pursuant
to the Securities Purchase Agreement, the Company issued to each investor a warrant (a “Warrant”) to purchase a number
of shares of common stock of the Company, par value $0.001 per share (“Common Stock”), equal to the number of shares
of Common Stock issuable upon conversion of the Series B Preferred Stock purchased by the investor. Each Warrant has an exercise
price equal to $0.51, subject to full ratchet price only anti-dilution provisions in accordance with the terms of the Warrants
(the “Exercise Price”), and is exercisable for five years after the Effective Date. In addition, if the market price
of the Common Stock on the 11 month anniversary of the closing date of the offering is less than $0.51, holder of the warrants
shall be entitled to receive additional shares of common stock based on the number of shares of common stock that would have been
issuable upon conversion of the Series B Convertible Preferred Stock had the initial conversion price been equal to the market
price at such time (but not less than $0.25) less the number of shares of common stock issued or issuable upon exercise of the
Series B Convertible Preferred Stock based on the $0.51 conversion price.
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, 2019
The Company also agreed to amend the current
exercise price of the warrants that the investors received in connection with the Securities Purchase Agreements dated March 14,
2017 (the “March Warrants”) and May 22, 2017 (the “May Warrants” and, together with the March Warrants,
the “Existing Securities”). The Existing Securities have a current exercise price of $0.59, which was amended from
$2.50 on July 12, 2019. The current exercise price for the Existing Securities shall be amended to reduce the exercise price to
$0.51 on August 21, 2019, subject to adjustment pursuant to the provisions of the Existing Securities.
Each
share of the Series B Preferred Stock has a par value of $0.001 per share and a stated value equal to $1,000 (the “Stated
Value”) and is convertible at any time at the option of the holder into the number of shares of Common Stock determined
by dividing the stated value by the conversion price of $0.51, subject to certain limitations and adjustments (the “Conversion
Price”).
The
Company received gross proceeds from the Private Placement of $2,000, before deducting transaction costs, fees and expenses payable
by the Company. The Company intends to use the net proceeds of the Private Placement to support the Company’s general working
capital requirements.
As
required by the Securities Purchase Agreement, each director and officer of the Company has previously entered into a lock-up
agreement with the Company whereby each director and officer has agreed that during the period commencing from the Effective Date
until 120 days after the Effective Date, such director or officer will not offer, sell, contract to sell, hypothecate, pledge
or otherwise dispose of or enter into any transaction to dispose of, or establish or increase a put position or liquidate or decrease
a call position, with respect to any share of Common Stock or securities convertible, exchangeable or exercisable into, shares
of Common Stock. On August 21, 2019, the Company issued 300 shares of common stock to advisors that assisted with the securities
purchase agreement and exchange agreement.
On October 15, 2019, nearly all the Series
B Preferred Stock shares were converted into 3,761 shares of Common Stock.
On November 11, 2019, the Company and two
accredited investors (each an “Investor” and, collectively, the “Investors”) entered into a securities
purchase agreement (the “Securities Purchase Agreement”) pursuant to which the Company sold and issued to the Investors
an aggregate of 1 shares of Series C Convertible Preferred Stock, par value $0.001 per share (the “Series C Preferred Stock”),
at a price of $1,000 per share (the “Private Placement”).
Pursuant to the Securities Purchase Agreement,
the Company issued to each Investor a warrant (a “Warrant”) to purchase a number of shares of common stock of the Company,
par value $0.001 per share (“Common Stock”), equal to the number of shares of Common Stock issuable upon conversion
of the Series C Preferred Stock purchased by the Investor. Each Warrant has an exercise price equal to $0.73, subject to full ratchet
price only anti-dilution provisions in accordance with the terms of the Warrants (the “Exercise Price”), and is exercisable
for five years after the Effective Date. In addition, if the market price of the Common Stock for the five trading days prior to
July 22, 2020 is less than $0.73, holder of the warrants shall be entitled to receive additional shares of common stock based on
the number of shares of common stock that would have been issuable upon conversion of the Series C Convertible Preferred Stock
had the initial conversion price been equal to the market price at such time (but not less than $0.25) less the number of shares
of common stock issued or issuable upon exercise of the Series C Convertible Preferred Stock based on the $0.73 conversion price.
Each share of the Series C Preferred Stock
has a par value of $0.001 per share and a stated value equal to $1,000 (the “Stated Value”) and is convertible at any
time at the option of the holder into the number of shares of Common Stock determined by dividing the stated value by the conversion
price of $0.73, subject to certain limitations and adjustments (the “Conversion Price”).
The Company received gross proceeds from
the Private Placement of $1,000, before deducting transaction costs, fees and expenses payable by the Company. The Company intends
to use the net proceeds of the Private Placement to support the Company’s general working capital requirements.
As required by the Securities Purchase
Agreement, each director and officer of the Company has previously entered into a lock-up agreement with the Company whereby each
director and officer has agreed that during the period commencing from the Effective Date until 120 days after the Effective Date,
such director or officer will not offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of or enter into any
transaction to dispose of, or establish or increase a put position or liquidate or decrease a call position, with respect to any
share of Common Stock or securities convertible, exchangeable or exercisable into, shares of Common Stock.
Ecoark
Holdings Common Stock
The Company has 100,000 shares of common
stock, par value $0.001 which were authorized on March 18, 2016. The Company has outstanding warrants as of September 30, 2019
that are exercisable into 7,657 shares of common stock.
On July 12, 2019, the Company entered into
an exchange agreement with investors that are the holders of warrants. As a result of a cashless exercise, the Company issued 4,277
shares of the Company’s common stock to the investors. Upon the issuance of the 4,277 shares, warrants for 5,677 shares were
extinguished. The fair value of the shares issued was $3,293, and the fair value of the warrants was $2,455 resulting in a loss
of $839 that was recognized on the exchange. On August 21, 2019, the Company issued 300 shares to advisors that assisted with the
securities purchase agreement and exchange agreement.
On October 15, 2019, nearly all the Series
B Preferred Stock shares were converted into 3,761 shares of Common Stock. On October 28, 2019, the Company issued 2,243 shares
of the Company’s common stock to investors in exchange for the March and May 2017 warrants. Upon the issuance of the 2,243
shares, the March and May 2017 warrants were extinguished. On October 31, 2019, the Company issued 120 shares of common stock
for services rendered.
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, 2019
Share-based
Compensation
Share-based
compensation expense is included in selling, general and administrative expense in the condensed consolidated statements of operations
as follows:
|
|
2013
Incentive
Stock Plan
|
|
|
2017
Omnibus Incentive
Plan
|
|
|
Non-Qualified
Stock
Options
|
|
|
Common Stock
|
|
|
Total
|
|
Six months ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors
|
|
$
|
-
|
|
|
$
|
200
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
200
|
|
Employees
|
|
|
-
|
|
|
|
231
|
|
|
|
669
|
|
|
|
-
|
|
|
|
900
|
|
Services
|
|
|
-
|
|
|
|
111
|
|
|
|
-
|
|
|
|
211
|
|
|
|
322
|
|
|
|
$
|
-
|
|
|
$
|
542
|
|
|
$
|
669
|
|
|
$
|
211
|
|
|
$
|
1,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors
|
|
$
|
-
|
|
|
$
|
200
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
200
|
|
Employees
|
|
|
285
|
|
|
|
286
|
|
|
|
1,329
|
|
|
|
-
|
|
|
|
1,900
|
|
Services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
285
|
|
|
$
|
486
|
|
|
|
1,329
|
|
|
$
|
-
|
|
|
$
|
2,100
|
|
NOTE
13: INCOME TAXES
The Company has a net operating loss carryforward
for tax purposes totaling approximately $103,208 at September 30, 2019. Internal Revenue Code Section 382 places a limitation on
the amount of taxable income that can be offset by carryforwards after certain ownership shifts.
The
provision (benefit) for income taxes for the six months ended September 30, 2019 and 2018 differs from the amount expected as
a result of applying statutory tax rates to the losses before income taxes principally due to establishing a valuation allowance
to fully offset the potential income tax benefit. Realization of deferred tax assets is dependent upon sufficient future taxable
income during the period that deductible temporary differences and carry-forwards are expected to be available to reduce taxable
income. As the achievement of required taxable income is uncertain, the Company has recorded a full valuation allowance against
deferred tax assets.
The
Company’s deferred tax assets are summarized as follows:
|
|
September 30,
2019
|
|
|
March 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Net operating loss carryover
|
|
$
|
21,674
|
|
|
$
|
23,327
|
|
Depreciable and amortizable assets
|
|
|
1,733
|
|
|
|
1,761
|
|
Share-based compensation
|
|
|
3,852
|
|
|
|
3,586
|
|
Accrued liabilities
|
|
|
57
|
|
|
|
57
|
|
Allowance for bad debts
|
|
|
120
|
|
|
|
120
|
|
Warrant derivative liabilities
|
|
|
(2,887
|
)
|
|
|
(2,884
|
)
|
Other
|
|
|
382
|
|
|
|
381
|
|
Total
|
|
|
24,931
|
|
|
|
26,348
|
|
Less: valuation allowance
|
|
|
(24,931
|
)
|
|
|
(26,348
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
After consideration of all the evidence,
both positive and negative, management has recorded a full valuation allowance at September 30, 2019 and March 31, 2019, due to
the uncertainty of realizing the deferred income tax assets. The valuation allowance decreased by $1,417 in the six months ended
September 30, 2019. The Company has not identified any uncertain tax positions and has not received any significant notices from
tax authorities.
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, 2019
NOTE
14: CONCENTRATIONS
Concentration
of Credit Risk. The Company’s customer base for its Zest Lab products is concentrated with a small number of customers.
The Company does not generally require collateral or other security to support accounts receivable. To reduce credit risk, the
Company performs ongoing credit evaluations on its customers’ financial condition. The Company establishes allowances for
doubtful accounts based upon factors surrounding the credit risk of customers, historical trends and other information. J. Terrence
Thompson accounted for more than 10% of the Company’s accounts receivable as of September 30, 2019 and March
31, 2019.
Supplier
Concentration. Certain of the components and equipment used by the Company in the manufacture of its hardware are available
from single-sourced vendors. Shortages could occur in these essential materials and components due to an interruption of supply
or increased demand in the industry. If the Company were unable to procure certain components or equipment at acceptable prices,
it would be required to reduce its operations, which could have a material adverse effect on its results of operations. In addition,
the Company may make prepayments to certain suppliers or enter into minimum volume commitment agreements. Should these suppliers
be unable to deliver on their obligations or experience financial difficulty, the Company may not be able to recover these prepayments.
The
Company occasionally maintains cash balances in excess of the FDIC insured limit. The Company does not consider this risk to be
material.
NOTE
15: ACQUISITION OF TREND DISCOVERY HOLDINGS, INC.
On
May 31, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Trend Discovery
Holdings Inc., a Delaware corporation (“Trend Holdings”) for the Company to acquire 100% of Trend Holdings pursuant
to a merger of Trend Holdings with and into the Company (the “Merger”). The Merger was completed as agreed in the
Merger Agreement, the Company is the surviving entity in the Merger and the separate corporate existence of Trend Holdings has
ceased to exist. Pursuant to the Merger, each of the 1,000 issued and outstanding shares of common stock of Trend Holdings was
converted into 5,500 shares of the Company’s common stock. No cash was paid relating to the acquisition.
The
Company acquired the assets and liabilities noted below in exchange for the 5,500 shares and accounted for the acquisition in
accordance with ASC 805. Based on the fair values at the effective date of acquisition the purchase price was recorded as follows
(subject to adjustment):
Cash
|
|
$
|
3
|
|
Receivables
|
|
|
10
|
|
Other assets
|
|
|
1
|
|
Goodwill
|
|
|
3,223
|
|
|
|
$
|
3,237
|
|
The
Acquisition has been accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the
total acquisition consideration price was allocated to the assets acquired and liabilities assumed based on their preliminary
estimated fair values. The fair value measurements utilize estimates based on key assumptions of the Acquisition, and historical
and current market data. The excess of the purchase price over the total of estimated fair values assigned to tangible and identifiable
intangible assets acquired and liabilities assumed is recognized as goodwill. In order to ultimately determine the fair values
of tangible and intangible assets acquired and liabilities assumed for Trend Holdings, we may engage a third-party independent
valuation specialist, however as of the date of this report, the valuation has not been undertaken. The Company has estimated
the preliminary purchase price allocations based on historical inputs and data as of May 31, 2019. The preliminary allocation
of the purchase price is based on the best information available and is pending, amongst other things: (i) the finalization of
the valuation of the fair values and useful lives of tangible assets acquired; (ii) finalization of the valuations and useful
lives for intangible assets; (iii) finalization of the valuation of accounts payable and accrued expenses; and (iv) finalization
of the fair value of non-cash consideration.
During
the measurement period (which is the period required to obtain all necessary information that existed at the acquisition date,
or to conclude that such information is unavailable, not to exceed one year), additional assets or liabilities may be recognized,
or there could be changes to the amounts of assets or liabilities previously recognized on a preliminary basis, if new information
is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition
of those assets or liabilities as of that date. The Company expects the purchase price allocations for the acquisition of Trend
Holdings to be completed by the end of the fourth quarter of fiscal 2020. The Company estimated the fair value of the Company’s
shares issued on a preliminary basis based on an average of quoted market value.
The
goodwill is not expected to be deductible for tax purposes.
The
following table shows pro-forma results for the six months ended September 30, 2019 as if the acquisition had occurred on April
1, 2018. These unaudited pro forma results of operations are based on the historical financial statements and related notes of
Trend Holdings and the Company.
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
90
|
|
|
$
|
1,076
|
|
Net loss
|
|
$
|
(6,033
|
)
|
|
|
(6,550
|
)
|
Net loss per share
|
|
$
|
(0.10
|
)
|
|
$
|
(0.12
|
)
|
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, 2019
NOTE
16: COMMITMENTS AND CONTINGENCIES
Legal Proceedings
On August 1, 2018, Ecoark Holdings, Inc.
and Zest Labs, Inc. filed a complaint against Walmart Inc. in the United States District Court for the Eastern District of Arkansas,
Western Division. The complaint includes claims for violation of the Arkansas Trade Secrets Act, violation of the federal Defend
Trade Secrets Act, breach of contract, unfair competition, unjust enrichment, breach of the covenant of good faith and fair dealing,
conversion and fraud. Ecoark Holdings and Zest Labs are seeking monetary damages and other related relief to the extent it is deemed
proper by the court. The Company does not believe that expenses incurred in pursuing the complaint will have a material effect
on the Company’s net income or financial condition for the fiscal year ended March 31, 2020 or any individual fiscal quarter.
On October 22, 2018, the Court issued an order setting a trial date of June 1, 2020. The order also established deadlines for the
completion of fact discovery by October 15, 2019, opening expert reports on October 24, 2019, and dispositive motions, on January
22, 2020. The fact discovery phase is complete and the case is presently in the expert discovery phase.
On
December 12, 2018, a complaint was filed against the Company in the Twelfth Judicial Circuit in Sarasota County, Florida by certain
investors who invested in the Company before it was public. The complaint alleges that the investment advisors who solicited the
investors to invest into the Company made omissions and misrepresentations concerning the Company and the shares. The Company
filed a motion to dismiss the complaint which is pending.
Operating
Leases
The Company leased operating and office
facilities for various terms under long-term, non-cancelable operating lease agreements. The only remaining lease obligation at
September 30 is for the Zest Labs facility in San Jose, California that expires in December 2019. Rent expense was as follows for
the six months ended September 30:
|
|
2019
|
|
|
2018
|
|
Continuing operations
|
|
$
|
122
|
|
|
$
|
111
|
|
Discontinued operations
|
|
|
-
|
|
|
|
207
|
|
Total
|
|
$
|
122
|
|
|
$
|
318
|
|
Rent expense of continuing operations for
the three months ended September 30, 2019 and 2018 was $68 and $39, respectively. Future minimum lease payments required under
the Zest Labs operating lease are $25. On adoption of ASC 842 Leases beginning April 1, 2019, the Company recognized additional
operating liabilities of approximately $99, with corresponding right of use assets of $99 based on the present value of the remaining
minimum rental payments under leasing standards for existing operating leases.
NOTE
17: FAIR VALUE MEASUREMENTS
The
Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed
by U.S. generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available
inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy
is defined as follows:
Level
1 – quoted prices for identical instruments in active markets;
Level
2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets
that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in
active markets; and
Level
3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value
drivers are unobservable.
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, 2019
Financial instruments consist principally
of cash, accounts receivable and other receivables, accounts payable and accrued liabilities, notes payable, and amounts due to
related parties. The fair value of cash is determined based on Level 1 inputs. There were no transfers into or out of “Level
3” during the periods ended September 30, 2019 and 2018. The recorded values of all other financial instruments approximate
their current fair values because of their nature and respective relatively short maturity dates or durations.
Fair value estimates are made at
a specific point in time, based on relevant market information and information about the financial instrument. These estimates
are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates. The Company records the fair value of the warrant
derivative liabilities disclosed in Note 8 in accordance with ASC 815, Derivatives and Hedging. The fair values of the derivatives
were calculated using the Black-Scholes Model. The fair value of the derivative liabilities is revalued on each balance sheet date
with corresponding gains and losses recorded in other income (expense) in the consolidated statement of operations. Other
income (expense) recorded based upon the change in fair value of the derivative liabilities was $(16) and $1,036 for the six months
ended September 30, 2019 and 2018, respectively, and $(960) and $715 for the three months ended September 30, 2019 and 2018, respectively.
The
following table presents assets and liabilities that are measured and recognized at fair value on a recurring basis:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
|
Warrant derivative liabilities
|
|
|
-
|
|
|
|
-
|
|
|
$
|
2,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant derivative liabilities
|
|
|
-
|
|
|
|
-
|
|
|
$
|
3,104
|
|
NOTE
18: SEGMENT INFORMATION
The
Company follows the provisions of ASC 280-10 Disclosures about Segments of an Enterprise and Related Information. This
standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company
in making operating decisions. As of September 30, 2019, and for the six months ended September 30, 2019, the Company operated
in two segments. The segments are Trend Holdings and Zest Labs. Amounts related to discontinued operations are excluded from the
amounts in the tables below. The acquisition of Trend holdings on May 31, 2019, caused the reportable segments to change from
the previous reporting as a single segment in fiscal 2019. Home office costs are allocated to the two segments based on the relative
support provided to those segments.
Six Months Ended September 30, 2019
|
|
Trend Holdings
|
|
|
Zest Labs
|
|
|
Total
|
|
Segmented operating revenues
|
|
$
|
52
|
|
|
$
|
27
|
|
|
$
|
79
|
|
Cost of revenues
|
|
|
-
|
|
|
|
61
|
|
|
|
61
|
|
Gross profit (loss)
|
|
|
52
|
|
|
|
(34
|
)
|
|
|
18
|
|
Total operating expenses net of depreciation, amortization, and impairment
|
|
|
200
|
|
|
|
4,717
|
|
|
|
4,917
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
148
|
|
|
|
148
|
|
Other (income) expense
|
|
|
-
|
|
|
|
990
|
|
|
|
990
|
|
Income (loss) from continuing operations
|
|
$
|
(148
|
)
|
|
$
|
(5,889
|
)
|
|
$
|
(6,037
|
)
|
Three Months Ended September 30, 2019
|
|
Trend Holdings
|
|
|
Zest Labs
|
|
|
Total
|
|
Segmented operating revenues
|
|
$
|
29
|
|
|
$
|
15
|
|
|
$
|
44
|
|
Cost of revenues
|
|
|
-
|
|
|
|
16
|
|
|
|
16
|
|
Gross profit (loss)
|
|
|
29
|
|
|
|
(1
|
)
|
|
|
28
|
|
Total operating expenses net of depreciation, amortization, and impairment
|
|
|
61
|
|
|
|
2,410
|
|
|
|
2,471
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
71
|
|
|
|
71
|
|
Other (income) expense
|
|
|
-
|
|
|
|
1,875
|
|
|
|
1,875
|
|
Income (loss) from continuing operations
|
|
$
|
(32
|
)
|
|
$
|
(4,357
|
)
|
|
$
|
(4,389
|
)
|
Segmented assets as of September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
-
|
|
|
$
|
676
|
|
|
$
|
676
|
|
Intangible assets, net
|
|
$
|
3,223
|
|
|
$
|
-
|
|
|
$
|
3,223
|
|
Capital expenditures
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
ECOARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, 2019
NOTE
19: SUBSEQUENT EVENTS
On October 15, 2019, nearly all the Series
B Preferred Stock shares were converted into 3,761 shares of Common Stock.
On
October 28, 2019, the Company entered into an Exchange Agreement with investors (the “Investors”) that are the holders
of warrants issued in the Company’s purchase agreements entered into on (i) March 17, 2017 (the “March Purchase Agreement”
and such warrants, the “March Warrants”) and (ii) May 26, 2017 (the “May Purchase Agreement” and such
warrants, the “May Warrants”. The March Warrants and the May Warrants (collectively, the “Existing Securities”)
were amended to, among other amendments, reduce the exercise price of the Existing Securities to $0.51.
Subject
to the terms and conditions set forth in the Exchange Agreement and in reliance on Section 3(a)(9) of the Securities Act of 1933,
as amended (the “Securities Act”), the Company issued 2,243 shares of the Company’s common stock to the Investors
in exchange for the 2,875 of the Existing Securities. Upon the issuance of the 2,243 shares, the 2,875 Existing Securities were
extinguished.
On October 31, 2019, the Company issued
120 shares of common stock for services rendered.
On November 11, 2019, the Company and
two accredited investors (each an “Investor” and, collectively, the “Investors”) entered into a
securities purchase agreement (the “Securities Purchase Agreement”) pursuant to which the Company sold and issued
to the Investors an aggregate of 1 shares of Series C Convertible Preferred Stock, par value $0.001 per share (the
“Series C Preferred Stock”), at a price of $1,000 per share (the “Private Placement”).
Pursuant to the Securities Purchase
Agreement, the Company issued to each Investor a warrant (a “Warrant”) to purchase a number of shares of common
stock of the Company, par value $0.001 per share (“Common Stock”), equal to the number of shares of Common Stock
issuable upon conversion of the Series C Preferred Stock purchased by the Investor. Each Warrant has an exercise price equal
to $0.73, subject to full ratchet price only anti-dilution provisions in accordance with the terms of the Warrants (the
“Exercise Price”), and is exercisable for five years after the Effective Date. In addition, if the market price
of the Common Stock for the five trading days prior to July 22, 2020 is less than $0.73, holder of the warrants shall be
entitled to receive additional shares of common stock based on the number of shares of common stock that would have been
issuable upon conversion of the Series C Convertible Preferred Stock had the initial conversion price been equal to the
market price at such time (but not less than $0.25) less the number of shares of common stock issued or issuable upon
exercise of the Series C Convertible Preferred Stock based on the $0.73 conversion price.
Each share of the Series C Preferred Stock
has a par value of $0.001 per share and a stated value equal to $1,000 (the “Stated Value”) and is convertible at any
time at the option of the holder into the number of shares of Common Stock determined by dividing the stated value by the conversion
price of $0.73, subject to certain limitations and adjustments (the “Conversion Price”).
The Company received gross proceeds from
the Private Placement of $1,000, before deducting transaction costs, fees and expenses payable by the Company. The Company intends
to use the net proceeds of the Private Placement to support the Company’s general working capital requirements.
As required by the Securities Purchase Agreement, each director and officer of the Company has previously
entered into a lock-up agreement with the Company whereby each director and officer has agreed that during the period commencing
from the Effective Date until 120 days after the Effective Date, such director or officer will not offer, sell, contract to sell,
hypothecate, pledge or otherwise dispose of or enter into any transaction to dispose of, or establish or increase a put position
or liquidate or decrease a call position, with respect to any share of Common Stock or securities convertible, exchangeable or
exercisable into, shares of Common Stock.