RISKON INTERNATIONAL, INC. The following management's discussion and analysis of financial condition and results of operations describes the principal factors affecting the results of our operations, financial condition, and changes in financial condition. This discussion should be read in conjunction with the accompanying audited financial statements, and notes thereto, included elsewhere in this report. The information contained in this discussion is subject to a number of risks and uncertainties. We urge you to review carefully the sections of this report entitled "Risk Factors" and "Forward-Looking Statements" for a more complete discussion of the risks and uncertainties associated with an investment in our securities.
Dollar amounts and numbers of shares that follow in this report are presented in thousands, except per share amounts.
OVERVIEW
Through its subsidiaries, the Company is engaged in three separate and distinct business segments: (i) technology; (ii) commodities; and (iii) financial.
?Zest Labs offers the Zest Fresh solution, a breakthrough approach to quality management of fresh food, is specifically designed to help substantially reduce the$161 billion amount of food loss theU.S. experiences each year. ? Banner Midstream is engaged in oil and gas exploration, production and drilling operations on over 10,000 cumulative acres of active mineral leases inTexas ,Louisiana , andMississippi . Banner Midstream also provides transportation and logistics services and procures and finances equipment to oilfield transportation service contractors. ?Trend Holding's primary asset isTrend Discovery Capital Management .Trend Discovery Capital Management provides services and collects fees from entities.Trend Holdings invests in a select number of early stage startups each year as part of the fund's Venture Capital strategy. ? 440IoT is a cloud and mobile software developer based nearBoston, Massachusetts and is a software development and information solutions provider for cloud, mobile, and IoT (Internet of Things) applications.
On
Pursuant to the Merger, the Company acquired
In the near-term,
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On
Banner Midstream has four operating subsidiaries:
White River and Shamrock are engaged in oil and gas exploration, production, and
drilling operations on over 10,000 cumulative acres of active mineral leases in
Commitment on Secured Funding
The Company has secured a commitment for a
Conversion of Credit Facility to Common Shares
The Company converted all principal and interest in the Trend SPV credit
facility into shares of the Company's common stock on
Increase in Authorized Common Shares
On
Critical Accounting Policies, Estimates and Assumptions
Principles of Consolidation
The consolidated financial statements include the accounts of
The Company applies the guidance of Topic 810 Consolidation of the ASC to determine whether and how to consolidate another entity. Pursuant to ASC Paragraph 810-10-15-10 all majority-owned subsidiaries-all entities in which a parent has a controlling financial interest-are consolidated except when control does not rest with the parent. Pursuant to ASC Paragraph 810-10-15-8, the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation. The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other stockholders, or by court decree.
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Basis of Presentation
The accompanying consolidated financial statements have been prepared in
conformity with
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the
The estimates of proved, probable and possible oil and gas reserves are used as significant inputs in determining the depletion of oil and gas properties and the impairment of proved and unproved oil and gas properties. There are numerous uncertainties inherent in the estimation of quantities of proven, probable and possible reserves and in the projection of future rates of production and the timing of development expenditures. Similarly, evaluations for impairment of proved and unproved oil and gas properties are subject to numerous uncertainties including, among others, estimates of future recoverable reserves and commodity price outlooks. Actual results could differ from the estimates and assumptions utilized.
Cash
Cash consists of cash, demand deposits and money market funds with an original
maturity of three months or less. The Company holds no cash equivalents as of
Property and Equipment and Long-Lived Assets
Property and equipment is stated at cost. Depreciation on property and equipment is computed using the straight-line method over the estimated useful lives of the assets, which range from two to ten years for all classes of property and equipment, except leasehold improvements which are depreciated over the term of the lease, which is shorter than the estimated useful life of the improvements.
ASC 360 requires that long-lived assets and certain identifiable intangibles
held and used by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company has early adopted Accounting Standard Update ("ASU")
2017-04 Intangibles -
The Company reviews recoverability of long-lived assets on a periodic basis whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company's ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets.
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ASC 360-10 addresses criteria to be considered for long-lived assets expected to be disposed of by sale. Six criteria are listed in ASC 360-10-45-9 that must be met in order for assets to be classified as held for sale. Once the criteria are met, long-lived assets classified as held for sale are to be measured at the lower of carrying amount or fair value less costs to sell.
These intangible assets are being amortized over estimated flows over the
estimated useful lives of ten years for the customer relationships and on a
straight-line basis over five years for the non-compete agreements. These
intangible assets will be amortized commencing
The Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment review include the following:
1. Significant underperformance relative to expected historical or projected
future operating results;
2. Significant changes in the manner of use of the acquired assets or the
strategy for the overall business; and
3. Significant negative industry or economic trends.
When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows.
Oil and Gas Properties
The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under the full cost method of accounting, all costs associated with acquisition, exploration and development of oil and gas reserves, including directly related overhead costs are capitalized. General and administrative costs related to production and general overhead are expensed as incurred.
All capitalized costs of oil and gas properties, including the estimated future costs to develop proved reserves, are amortized on the unit of production method using estimates of proved reserves. Disposition of oil and gas properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in operations. Unproved properties and development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that the properties are impaired, the amount of the loss from operations before income taxes and the adjusted carrying amount of the unproved properties is amortized on the unit-of-production method.
Limitation on Capitalized Costs
Under the full-cost method of accounting, we are required, at the end of each
reporting date, to perform a test to determine the limit on the book value of
our oil and gas properties (the "Ceiling" test). If the capitalized costs of our
oil and natural gas properties, net of accumulated amortization and related
deferred income taxes, exceed the Ceiling, the excess or impairment is charged
to expense. The expense may not be reversed in future periods, even though
higher oil and gas prices may subsequently increase the Ceiling. The Ceiling is
defined as the sum of: (a) the present value, discounted at 10% and assuming
continuation of existing economic conditions, of (1) estimated future gross
revenues from proved reserves, which is computed using oil and gas prices
determined as the unweighted arithmetic average of the first-day-of-the-month
price for each month within the 12-month hedging arrangements pursuant to
Oil and Gas Reserves
Reserve engineering is a subjective process that is dependent upon the quality of available data and interpretation thereof, including evaluations and extrapolations of well flow rates and reservoir pressure. Estimates by different engineers often vary sometimes significantly. In addition, physical factors such as results of drilling, testing and production subsequent to the date of an estimate, as well as economic factors such as changes in product prices, may justify revision of such estimates. Because proved reserves are required to be estimated using recent prices of the evaluation, estimated reserve quantities can be significantly impacted by changes in product prices.
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Accounting for Asset Retirement Obligation
Asset retirement obligations ("ARO") primarily represent the estimated present value of the amount the Company will incur to plug, abandon and remediate its producing properties at the projected end of their productive lives, in accordance with applicable federal, state and local laws. The Company determined its ARO by calculating the present value of the estimated cash flows related to the obligation. The retirement obligation is recorded as a liability at its estimated present value as of the obligation's inception, with an offsetting increase to proved properties.
Software Costs
The Company accounts for software development costs in accordance with ASC
985-730
Research and Development Costs
Research and development costs are expensed as incurred. These costs include internal salaries and related costs and professional fees for activities related to development. These costs relate to the Zest Data Services platform, Zest Fresh and Zest Delivery.
Subsequent Events
Subsequent events were evaluated through the date the consolidated financial statements were filed.
Revenue Recognition
The Company accounts for revenue in accordance with ASC Topic 606, Revenue from
Contracts with Customers, which the Company early adopted effective
The Company accounts for a contract when it has been approved and committed to, each party's rights regarding the goods or services to be transferred have been identified, the payment terms have been identified, the contract has commercial substance, and collectability is probable. Revenue is generally recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities. Revenue recognition for multiple-element arrangements requires judgment to determine if multiple elements exist, whether elements can be accounted for as separate units of accounting, and if so, the fair value for each of the elements.
Revenue from software license agreements of
Revenue under master service agreements is recorded upon the performance obligation being satisfied. Typically, the satisfaction of the performance obligation occurs upon the frac sand load being delivered to the customer site and this load being successfully invoiced and accepted by the Company's factoring agent.
The Company accounts for contract costs in accordance with ASC Topic 340-40, Contracts with Customers. The Company recognizes the cost of sales of a contract as expense when incurred or at the time a performance obligation is satisfied. The Company recognizes an asset from the costs to fulfill a contract only if the costs relate directly to a contract, the costs generate or enhance resources that will be used in satisfying a performance obligation in the future and the costs are expected to be recovered. The incremental costs of obtaining a contract are capitalized unless the costs would have been incurred regardless of whether the contract was obtained.
Cost of sales for Pinnacle Frac includes all direct expenses incurred to produce the revenue for the period. This includes, but is not limited to, direct employee labor, direct contract labor and fuel.
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Accounts Receivable and Concentration of Credit Risk
The Company considers accounts receivable, net of allowance for doubtful accounts, to be fully collectible. The allowance is based on management's estimate of the overall collectability of accounts receivable, considering historical losses, credit insurance and economic conditions. Based on these same factors, individual accounts are charged off against the allowance when management determines those individual accounts are uncollectible. Credit extended to customers is generally uncollateralized, however credit insurance is obtained for some customers. Past-due status is based on contractual terms.
For Pinnacle Frac, accounts receivable is comprised of unsecured amounts due from customers that have been conveyed to a factoring agent without recourse. Pinnacle Frac receives an advance from the factoring agent of 98% of the amount invoiced to the customer within one business day. The Company recognizes revenue for 100% of the gross amount invoiced, records an expense for the 2% finance charge by the factoring agent, and realizes cash for the 98% net proceeds received.
Uncertain Tax Positions
The Company follows ASC 740-10 Accounting for Uncertainty in Income Taxes. This requires recognition and measurement of uncertain income tax positions using a "more-likely-than-not" approach. Management evaluates their tax positions on an annual basis.
The Company files income tax returns in the
Vacation and Paid-Time-Off Compensation
The Company follows ASC 710-10 Compensation - General. The Company records liabilities and expense when obligations are attributable to services already rendered, will be paid even if an employee is terminated, payment is probable, and the amount can be estimated.
Share-Based Compensation
The Company follows ASC 718 Compensation - Stock Compensation and has early
adopted ASU 2017-09 Compensation - Stock Compensation (Topic 718) Scope of
Modification Accounting as of
The Company facilitates payment of the employee tax withholdings resulting from the issuances of these awards by remitting the employee taxes and recovering the resulting amounts due from the employee either via payments from employees or from the sale of shares issued sufficient to cover the amounts due the Company.
The Company measured compensation expense for its non-employee share-based
compensation under ASC 505-50 Equity-Based Payments to Non-Employees through
The Company adopted ASU 2016-09 Improvements to Employee Share-Based Payment
Accounting effective
In
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Fair Value of Financial Instruments
ASC 825 Financial Instruments requires the Company to disclose estimated fair values for its financial instruments. Fair value estimates, methods, and assumptions are set forth below for the Company's financial instruments: The carrying amount of cash, accounts receivable, prepaid and other current assets, accounts payable and accrued liabilities, and amounts payable to related parties, approximate fair value because of the short-term maturity of those instruments. The Company does not utilize derivative instruments. The carrying amount of the Company's debt instruments also approximates fair value.
Leases
The Company followed ASC 840 Leases in accounting for leased properties through
Earnings (Loss) Per Share of Common Stock
Basic net income (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share ("EPS") include additional dilution from common stock equivalents, such as convertible notes, preferred stock, stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive for periods presented, so only basic weighted average number of common shares are used in the computations.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. Management evaluates all of the Company's financial instruments, including warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The Company generally uses a Black-Scholes model, as applicable, to value the derivative instruments at inception and subsequent valuation dates when needed. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is remeasured at the end of each reporting period. The Black-Scholes model is used to estimate the fair value of the derivative liabilities.
Fair Value Measurements
ASC 820 Fair Value Measurements defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosure about fair value measurements. ASC 820 classifies these inputs into the following hierarchy:
Level 1 inputs: Quoted prices for identical instruments in active markets.
Level 2 inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 inputs: Instruments with primarily unobservable value drivers.
Related-Party Transactions
Parties are considered to be related to the Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal stockholders of the Company, its management, members of the immediate families of principal stockholders of the Company and its management and other parties with which the Company may deal where one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all material related-party transactions. All transactions shall be recorded at fair value of the goods or services exchanged.
Recently Adopted Accounting Pronouncements
In
In
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Recently Issued Accounting Standards
There were updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company's financial position, results of operations or cash flows.
Segment Information
The Company follows the provisions of ASC 280-10 Segment Reporting. This
standard requires that companies disclose operating segments based on the manner
in which management disaggregates the Company in making internal operating
decisions. The Company and its Chief Operating Decision Makers determined that
the Company's operations effective with the
RESULTS OF OPERATIONS
Fiscal year ended
As the Company acquired
Revenues
Revenues for the fiscal year ended
Cost of Revenues and Gross Profit
Cost of revenues for the fiscal year ended
Operating Expenses
Operating expenses for the fiscal year ended
Salaries and Salary Related Costs
Salaries and related costs for the fiscal year ended
Professional Fees and Consulting
Professional fees and consulting expenses for the fiscal year ended
Share-based non-cash compensation of
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Selling, General and Administrative
Selling, general and administrative expenses for the fiscal year ended
Depreciation, Amortization and Impairment
Depreciation, amortization and impairment expenses for the fiscal year ended
Research and Development
Research and development expense decreased 26% to
Interest and Other Expense
Change in fair value of derivative liabilities for the fiscal year ended
Interest expense, net of interest income, for the fiscal year ended
Net Loss
Net loss for the year ended
Results of Discontinued Operations
Loss from discontinued operations for the fiscal year ended
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 funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.
To date we have financed our operations through sales of common stock and the issuance of debt. Significant capital raising during the year consisted of the following:
(a) ? On
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. Each share of the Series B Convertible Preferred
Stock has a par value of $0.001 per share and a stated value equal to
$1,000 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").
? On
converted into 3,761 shares of Common Stock.
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? On
Agreements") with accredited institutional investors (the "Investors") holding
the warrants issued with the Company's Series B Convertible Preferred Stock on
Investors agreed to a cash exercise of the Warrants at a price of
Company additionally, granted 5,882 warrants at
Company received approximately
2019 warrants and issued the
an exercise price of
(b) ? On
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
Upon the issuance of the 2,243 shares, the 2,875
extinguished.
(c) ? On November 11, 2019 (the "Effective Date"), the Company and two
institutional 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 1,000 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
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
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
less than
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
issuable upon exercise of the Series C Convertible Preferred Stock based on the
? Each share of the Series C Preferred Stock has a par value of
and a stated value equal to
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
subject to certain limitations and adjustments (the "Conversion Price").
In addition to these transactions, the Company in the period
(a) On April 16, 2020 , the Company received $386 in Payroll Protection Program
funding related to Ecoark Holdings , and the Company also received on April
13, 2020 , $1,482 in Payroll Protection Program funds for Pinnacle Frac
LLC , a subsidiary of Banner Midstream.
(b) On May 1, 2020 , an institutional investor elected to convert its remaining
shares of Series B Preferred shares into 161 common shares.
(c) On April 1 and May 5, 2020, two institutional investors elected to convert
their 1 Series C Preferred share into 1,379 common shares.
(d) On May 10, 2020 , the Company received approximately $6,294 from accredited
institutional investors holding 1,379 warrants issued on November 13, 2019
with an exercise price of $0.73 and holding 5,882 warrants with an
exercise price of $0.90 . The Company agreed to issue to these investors an
additional number of warrants as a condition of their agreement to
exercise the November 2019 warrants.
At
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Net cash used in operating activities was
Net cash used in investing activities was
Net cash provided by financing activities for the fiscal year ended
Other commitments and contingencies are disclosed in Note 12 to the consolidated financial statements.
Off-Balance Sheet Arrangements
As of
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