10-Q 1 ebi_10q.htm FORM 10-Q ebi_10q.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended October 31, 2023

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______________ to _______________.

 

Commission file number: 000-56142

 

Everything Blockchain, Inc.

(Exact name of registrant as specified in its charter)

 

Florida

82-1091922

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

12574 Flagler Center Blvd, Suite 101

Jacksonville, FL

32258

(Address of principal executive offices)

(Zip Code)

 

(904) 454-2111

Registrant’s telephone number, including area code

 

(Former name and address, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. Yes ☒ No ☐

 

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). Yes ☒ No ☐

 

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

Non-accelerated Filer

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

 

As of November 30, 2023, the Company had 16,532,929 shares of common stock, $0.0001 par value outstanding.

 

Transitional Small Business Disclosure Format Yes ☐     No ☒

 

 

 

 

Everything Blockchain, Inc.

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements (unaudited)

 

3

 

 

Consolidated Balance Sheets

 

4

 

 

Consolidated Statements of Operations

 

5

 

 

Consolidated Statements of Stockholders’ Equity

 

6

 

 

Consolidated Statements of Cash Flows

 

7

 

 

Notes to Consolidated Financial Statements

 

8

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

19

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

24

 

Item 4.

Controls and Procedures

 

24

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

 

26

 

Item 1A.

Risk Factors

 

26

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

26

 

Item 3.

Defaults Upon Senior Securities

 

26

 

Item 4.

Mine Safety Disclosures

 

26

 

Item 5.

Other Information

 

26

 

Item 6.

Exhibits

 

27

 

 

 

 

 

 

SIGNATURES

 

28

 

 

 
2

Table of Contents

  

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Interim Consolidated Financial Statements and Notes to Interim Financial Statements

 

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with the instructions to Form 10-Q. Therefore, they do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders’ equity in conformity with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the three and nine months ended October 31, 2023, are not necessarily indicative of the results that can be expected for the year ending January 31, 2024 or any other reporting period. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended January 31, 2023 filed with the Securities and Exchange Commission (the “SEC”) on May 1, 2023 (the “Annual Report”).

 

 
3

Table of Contents

 

Everything Blockchain, Inc.

Consolidated Balance Sheets

(Amounts in thousands, except share and per share data)

 

ASSETS

 

 

As of

 

 

 

October 31,

 

 

January 31,

 

 

 

2023

 

 

2023

 

 

 

(unaudited)

 

Current assets

 

 

 

 

 

 

Cash

 

$13

 

 

$657

 

Current cryptocurrencies

 

 

9

 

 

 

4

 

Prepaid expenses

 

 

333

 

 

 

2,601

 

Other assets

 

 

143

 

 

 

127

 

Assets of discontinued operations

 

 

-

 

 

 

382

 

Total current assets

 

$498

 

 

$3,771

 

Property, plant and equipment, net

 

 

3

 

 

 

5

 

Goodwill

 

 

16,504

 

 

 

16,504

 

Intangible assets, net

 

 

4,855

 

 

 

4,270

 

Other assets

 

 

221

 

 

 

463

 

Assets of discontinued operations

 

 

-

 

 

 

655

 

Total assets

 

$22,081

 

 

$25,668

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$1,634

 

 

$1,072

 

Accounts payable related party

 

 

-

 

 

 

13

 

Current portion of long-term debt

 

 

68

 

 

 

-

 

Reserve for legal settlements

 

 

154

 

 

 

154

 

Deferred revenue

 

 

250

 

 

 

250

 

Liabilities of discontinued operations

 

 

-

 

 

 

582

 

Total current liabilities

 

$2,106

 

 

$2,071

 

Long-term liabilities

 

 

 

 

 

 

 

 

Debt

 

 

889

 

 

 

-

 

Liabilities of discontinued operations

 

 

-

 

 

 

47

 

Total long-term liabilities

 

$889

 

 

$47

 

Total liabilities

 

$2,995

 

 

$2,118

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Series A Preferred stock, $0.0001 par value: 1,000,000 shares authorized; 150,000 and 200,000 shares issued and outstanding as of October 31, 2023 and January 31, 2023, respectively

 

 

-

 

 

 

-

 

Series B Preferred stock, $0.0001 par value: 0 shares authorized, issued and outstanding as of October 31, 2023; 1,500,000 shares authorized; 650,000 shares issued and 400,000 shares outstanding as of January 31, 2023

 

 

-

 

 

 

-

 

Series C Preferred stock, $0.0001 par value: 10,000,000 and 2,000,000 shares authorized as of October 31, 2023 and January 31, 2023, respectively; 1,412,632 shares issued and 1,352,632 shares outstanding as of October 31, 2023; 1,000,000 shares issued and outstanding as of January 31, 2023

 

 

-

 

 

 

-

 

Common stock, $0.0001 par value, 200,000,000 shares authorized; 16,673,393 shares issued and 16,482,929 shares outstanding as of October 31, 2023; 9,949,966 shares issued and 9,923,304 shares outstanding as of January 31, 2023

 

 

1

 

 

 

1

 

Treasury stock

 

 

(435 )

 

 

(1,691 )

Additional paid-in capital

 

 

86,673

 

 

 

85,975

 

Receivable from stockholder

 

 

-

 

 

 

(200 )

Accumulated deficit

 

 

(67,153 )

 

 

(60,535 )

Total stockholders’ equity

 

$19,086

 

 

$23,550

 

Total liabilities and stockholders’ equity

 

$22,081

 

 

$25,668

 

 

See accompanying notes to consolidated financial statements.

 

 
4

Table of Contents

 

Everything Blockchain, Inc.

Consolidated Statements of Operations

(Amounts in thousands, except share and per share data)

 

 

 

 

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

October 31,

 

 

October 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(unaudited)

 

Revenue

 

$61

 

 

$63

 

 

$188

 

 

$240

 

Cost of sales

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Gross profit

 

 

61

 

 

 

63

 

 

 

188

 

 

 

240

 

Selling, general, and administrative

 

 

667

 

 

 

643

 

 

 

2,285

 

 

 

2,228

 

Stock based compensation

 

 

651

 

 

 

716

 

 

 

2,017

 

 

 

2,197

 

Depreciation and amortization

 

 

21

 

 

 

13

 

 

 

82

 

 

 

60

 

Total operating expenses

 

 

1,339

 

 

 

1,372

 

 

 

4,384

 

 

 

4,485

 

Loss from operations

 

 

(1,278 )

 

 

(1,309 )

 

 

(4,196 )

 

 

(4,245 )

Other expense, net

 

 

(410 )

 

 

(246 )

 

 

(1,725 )

 

 

(2,454 )

Loss from continuing operations before income taxes

 

 

(1,688 )

 

 

(1,555 )

 

 

(5,921 )

 

 

(6,699 )

Income tax expense (benefit)

 

 

-

 

 

 

(378 )

 

 

7

 

 

 

(1,532 )

Loss from continuing operations

 

 

(1,688 )

 

 

(1,177 )

 

 

(5,928 )

 

 

(5,167 )

Loss from discontinued operations, net of tax

 

 

(20 )

 

 

(87 )

 

 

(690 )

 

 

(219 )

Net loss

 

$(1,708 )

 

$(1,264 )

 

$(6,618 )

 

$(5,386 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Continuing operations

 

$(0.12 )

 

$(0.12 )

 

$(0.52 )

 

$(0.56 )

    Discontinued operations

 

$-

 

 

$(0.01 )

 

$(0.06 )

 

$(0.02 )

    Basic and diluted loss per share

 

$(0.12 )

 

$(0.13 )

 

$(0.58 )

 

$(0.58 )

Weighted average shares outstanding – basic and diluted

 

 

14,558,009

 

 

 

9,676,492

 

 

 

11,485,182

 

 

 

9,258,102

 

 

See accompanying notes to consolidated financial statements.

 

 
5

Table of Contents

 

Everything Blockchain, Inc.

Consolidated Statements of Stockholders’ Equity

(Amounts in thousands)

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Treasury

 

 

Additional 

Paid-in

 

 

Receivable

from

 

 

Accumulated 

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Stock

 

 

Capital

 

 

Shareholder

 

 

Deficit

 

 

Equity

 

 

 

(unaudited)

 

Balance – January 31, 2022

 

 

600

 

 

$-

 

 

 

8,604

 

 

$1

 

 

$(1,599 )

 

$80,134

 

 

$-

 

 

$(51,091 )

 

$27,445

 

Issuance of Series C Preferred

 

 

250

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,000

 

 

 

-

 

 

 

-

 

 

 

1,000

 

Conversion of Series C Preferred into common stock

 

 

(250 )

 

 

-

 

 

 

561

 

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

 -

 

Warrant exercise

 

 

-

 

 

 

-

 

 

 

785

 

 

 

-

 

 

 

-

 

 

 

785

 

 

 

(250 )

 

 

-

 

 

 

535

 

Sale of asset

 

 

 -

 

 

 

 -

 

 

 

(27 )

 

 

 -

 

 

 

(92 )

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

(92 )

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,915

 

 

 

-

 

 

 

-

 

 

 

1,915

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,386 )

 

 

(5,386 )

Balance – October 31, 2022

 

 

600

 

 

$-

 

 

 

9,923

 

 

$1

 

 

$(1,691 )

 

$83,834

 

 

$(250 )

 

$(56,477 )

 

$25,417

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – January 31, 2023

 

 

1,600

 

 

$-

 

 

 

9,923

 

 

$1

 

 

$(1,691 )

 

$85,975

 

 

$(200 )

 

$(60,535 )

 

$23,550

 

Conversion of Series A Preferred into common stock

 

 

(50 )

 

 

 -

 

 

 

2,500

 

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

-

 

Conversion of Series B Preferred into common stock

 

 

(400 )

 

 

 -

 

 

 

4,000

 

 

 

 

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

-

 

Issuance of Series C Preferred

 

 

413

 

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

340

 

 

 

 -

 

 

 

 -

 

 

 

340

 

Cancellation of treasury stock

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

1,599

 

 

 

(1,599 )

 

 

 -

 

 

 

 -

 

 

 

-

 

Cancellation of shares to settle disputed receivable

 

 

 -

 

 

 

 -

 

 

 

(49 )

 

 

 -

 

 

 

(127 )

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

(127 )

Sale of Mercury

 

 

(60 )

 

 

 -

 

 

 

(115 )

 

 

 -

 

 

 

(216 )

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

(216 )

Stock issued in exchange for accounts payable

 

 

 -

 

 

 

 -

 

 

 

224

 

 

 

 -

 

 

 

 -

 

 

 

165

 

 

 

 -

 

 

 

 -

 

 

 

165

 

Warrant exercise

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

200

 

 

 

-

 

 

 

200

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,792

 

 

 

-

 

 

 

-

 

 

 

1,792

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,618 )

 

 

(6,618 )

Balance – October 31, 2023

 

 

1,503

 

 

$-

 

 

 

16,483

 

 

$1

 

 

$(435 )

 

$86,673

 

 

$-

 

 

$(67,153 )

 

$19,086

 

 

See accompanying notes to consolidated financial statements.

 

 
6

Table of Contents

 

Everything Blockchain, Inc.

Consolidated Statements of Cash Flows

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

For the Nine Months Ended October 31

 

 

 

2023

 

 

2022

 

 

 

(unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net Loss

 

$(6,618)

 

$(5,386)

Adjustments to reconcile net loss to net

 

 

 

 

 

 

 

 

cash used in operating activities:

 

 

 

 

 

 

 

 

Loss from discontinued operations

 

 

690

 

 

 

219

 

Loss from sale of subsidiary

 

 

170

 

 

 

-

 

Stock based compensation

 

 

2,017

 

 

 

2,197

 

Deferred income tax benefit

 

 

-

 

 

 

(1,535)

Net loss on exchanges

 

 

-

 

 

 

4

 

Realized net loss on investment in cryptocurrency

 

 

77

 

 

 

186

 

Fair value adjustment to cryptocurrency

 

 

1,448

 

 

 

2,206

 

Amortization and depreciation

 

 

82

 

 

 

60

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses

 

 

(199)

 

 

(101)

Other assets

 

 

99

 

 

 

(69)

Accounts payable to related party

 

 

(13)

 

 

(30)

Accounts payable and accrued expenses

 

 

830

 

 

 

(40)

Deferred revenue

 

 

-

 

 

 

150

 

Cash used in operating activities of continuing operations

 

 

(1,417)

 

 

(2,139)

Cash provided by (used in) operating activities of discontinued operations

 

 

(768)

 

 

616

 

  Net cash used in operating activities

 

 

(2,185)

 

 

(1,523)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from cryptocurrencies, net

 

 

961

 

 

 

755

 

Capital expenditures

 

 

(665)

 

 

(861)

Cash provided by (used in) investing activities of continuing operations

 

 

296

 

 

 

(106)

Cash provided by (used in) investing activities of discontinued operations

 

 

401

 

 

 

(27)

  Net cash provided by (used in) investing activities

 

 

697

 

 

 

(133)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from debt – related party

 

 

944

 

 

 

-

 

Payment of debt

 

 

(467)

 

 

(24)

Proceeds from issuance of Series C Preferred Stock

 

 

-

 

 

 

1,000

 

Proceeds from exercise of warrants

 

 

200

 

 

 

500

 

Net cash provided by financing activities

 

 

677

 

 

 

1,476

 

Net Change in Cash

 

 

(811)

 

 

(180)

Cash, beginning of period – continuing operations

 

 

657

 

 

 

810

 

Cash, beginning of period – discontinued operations

 

 

167

 

 

 

252

 

Cash, end of period

 

 

13

 

 

 

882

 

Cash from discontinued operations, end of period

 

 

-

 

 

 

815

 

Cash from continuing operations, end of period

 

$13

 

 

$67

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flows Information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$24

 

 

$-

 

Cash paid for income taxes

 

$-

 

 

$3

 

 

 

 

 

 

 

 

 

 

Non-cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Acquisition of cryptocurrency

 

$2,242

 

 

$-

 

Issuance of Series C Preferred for cryptocurrency

 

 

250

 

 

 

-

 

Issuance of Series C Preferred

 

 

90

 

 

 

-

 

Settlement of disputed receivable for common stock

 

 

127

 

 

 

-

 

Retirement of treasury stock

 

 

1,599

 

 

 

-

 

Sale of subsidiary

 

 

217

 

 

 

-

 

Issuance of common stock for services

 

 

166

 

 

 

-

 

Conversion of accounts payable to related party to common stock

 

 

-

 

 

 

35

 

Sale of asset for common stock

 

 

-

 

 

 

92

 

Exercise of warrant for receivable

 

 

-

 

 

 

250

 

 

See accompanying notes to consolidated financial statements.

 

 
7

Table of Contents

 

Everything Blockchain, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 1. Organization and Basis of Presentation

 

The accompanying unaudited consolidated financial statements of Everything Blockchain, Inc. (“EBI”) and its consolidated subsidiaries (collectively, the “Company”, “we”, “our”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (the “SEC”). All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Description of Business

 

The Company is primarily engaged in the business of consulting and developing data management, blockchain and cybersecurity related solutions.

 

Subsidiaries of the Company

 

The subsidiaries of the Company are Render Payment Corp., DataStone, Inc. (formerly 832 Energy Technology Consultants, LLC), Mercury, Inc. (“Mercury”), Vengar Technologies, Inc. (formerly Vengar Technologies LLC), Everything Blockchain Technology Corporation, and EBI International, Inc.

 

Note 2. Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of EBI and its wholly owned subsidiaries.

 

Unaudited Interim Financial Information

 

The Company’s unaudited consolidated financial statements have been prepared in accordance with GAAP and pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. Accordingly, these consolidated financial statements should be read in conjunction with the audited financial statements as of and for the year ended January 31, 2023, and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended January 31, 2023, filed with the SEC on May 1, 2023 (the “2023 Annual Report”). The results for any interim period are not necessarily indicative of results for any future period.

 

The unaudited consolidated financial statements have been prepared on the same basis as the audited financial statements. In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all adjustments that are necessary to present fairly the Company’s financial position and results of operations for the interim periods presented. The results for the three and nine months ended October 31, 2023, are not necessarily indicative of the results for the year ending January 31, 2024, or for any future period.

 

As of October 31, 2023, there have been no material changes in the Company’s significant accounting policies from those that were disclosed in the 2023 Annual Report.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The most significant estimates and judgments relate to revenue recognition; sales returns and other allowances; allowance for doubtful accounts; valuation of inventory; valuation of long-lived assets and finite-lived intangible assets; recoverability of goodwill; acquisition method of accounting; contingencies; and income taxes.

 

On a regular basis, management reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience, and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.

 

 
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Revenue Recognition Policies

 

Services revenue. We generate services revenue via consulting services and software development. The Company is engaged in developing, engineering, and designing blockchain projects, to include platforms and cryptocurrencies for customers.

 

Subscription revenue. We generate revenue from subscriptions through staking of our current crypto assets. Our primary token being staked is a hybrid Proof of Work (“POW”) and Proof of Stake (“POS”) system. Stakers, in this particular token, are paid inflation based both on the duration of the stake (contract length), as well as based on the volume / quantity of tokens staked. Rewards / interest / inflation are paid in the native token. We also participate in networks with POW consensus algorithms, through creating or validating blocks on the network. In exchange for participating in the consensus mechanism of these networks, the Company earns rewards in the form of the native token of the network. Each block creation or validation is a performance obligation. Revenue is recognized at the point when the block creation or validation is complete, and the rewards are available for transfer. Revenue is measured based on the number of tokens received and the fair value of the token at the date of recognition.

 

Product revenue. We generate product revenue through customized product development and merchandise sales.

 

We recognize revenue when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

 

We determine revenue recognition through the following steps:

 

 

·

identification of the contract, or contracts, with a customer;

 

 

 

 

·

identification of the performance obligations in the contract;

 

 

 

 

·

determination of the transaction price;

 

 

 

 

·

allocation of the transaction price to the performance obligations in the contract; and

 

 

 

 

·

recognition of revenue when, or as, we satisfy a performance obligation.

 

Concentration of Credit Risk and Significant Customers

 

Financial instruments which potentially subject the Company to a concentration of credit risk consist principally of temporary cash investments and accounts receivable.

 

Concentrations of credit risk with respect to trade receivables and commodities are limited due to the Company’s diverse group of customers. The Company establishes an allowance for doubtful accounts when events and circumstances regarding the collectability of its receivables or the selling of its commodities warrant based upon factors such as the credit risk of specific customers, historical trends, other information, and past bad debt history. The outstanding balances are stated net of an allowance for doubtful accounts.

 

Our cash balances are maintained in accounts held by major banks and financial institutions located in the United States. The Company may occasionally maintain amounts on deposit with a financial institution that are in excess of the federally insured limit of $250,000. The risk is managed by maintaining all deposits in high-quality financial institutions. The Company had $0 and $0.4 million in excess of federally insured limits on October 31, 2023 and January 31, 2023, respectively.

 

Our cryptocurrency balances are maintained in accounts held by institutions located in and outside the United States. The Company maintains amounts on deposit that often exceed coverage from third party insured limit of up to $1,000,000. The risk is managed by maintaining multiple accounts with various accounts held in a cold storage wallet. The Company had $0 in excess of amounts protected by insurance.

 

 
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Cash and Cash Equivalents

 

The Company includes in cash and cash equivalents all short-term, highly liquid investments that mature within three months of the date of purchase. Cash equivalents consist principally of investments in interest-bearing demand deposit accounts and liquidity funds with financial institutions and are stated at cost, which approximates fair value. The Company had no cash equivalents as of October 31, 2023 and January 31, 2023.

 

Basic and Diluted Net Earnings (Loss) Per Share

 

The Company follows ASC Topic 260 – Earnings Per Share, and FASB 2015-06, Earnings Per Share to account for earnings per share. Basic earnings per share (“EPS”) calculations are determined by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted EPS calculations are determined by dividing net income (loss) by the weighted average number of common shares outstanding plus the dilutive effect, calculated using (i) the “treasury stock” method for warrants and (ii) the “if converted” method for the preferred stock if their inclusion would not have been anti-dilutive.

 

Fair Value Measurements 

 

The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

 

The following are the hierarchical levels of inputs to measure fair value:

 

- Level 1:

Quoted prices in active markets for identical instruments;

- Level 2:

Other significant observable inputs (including quoted prices in active markets for similar instruments);

- Level 3:

Significant unobservable inputs (including assumptions in determining the fair value of certain investments).

 

The carrying values for cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued liabilities, and deferred revenue approximate their fair value due to their short maturities.

 

Note 3. Going Concern

 

The Company’s consolidated financial statements are prepared in accordance with GAAP, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Because the business is new and has a limited history, no certainty of continuation can be stated. The accompanying financial statements for the three and nine months ended October 31, 2023 and 2022 have been prepared to assume that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

 

The Company has had historically negative cash flow and net losses. Though the year ended January 31, 2022 resulted in positive cash flow and net income, there are no assurances the Company will generate a profit or obtain positive cash flow in the future. The Company has sustained its solvency through the support of its shareholder and chairman, Michael Hawkins, or companies controlled by Michael Hawkins, which raise substantial doubt about its ability to continue as a going concern.

 

Management is taking steps to raise additional funds to address its operating and financial cash requirements to continue operations in the next twelve months. Management has devoted a significant amount of time to the raising of capital from additional debt and equity financing. However, the Company’s ability to continue as a going concern is dependent upon raising additional funds through debt and equity financing and generating revenue. There are no assurances the Company will receive the funding or generate the revenue necessary to fund operations. The financial statements contain no adjustments for the outcome of this uncertainty.

 

 
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Note 4. Discontinued Operations

 

On October 31, 2023, the Board of Directors approved, and the Company completed, the sale of Mercury to Chris Carter, founder and CEO of Mercury. The sales price consisted of 115,000 shares of Company common stock and 60,000 shares of Company Series C Preferred Stock, owned by Chris Carter, for a total sales price of $216,583. The sales price was primarily based on estimated net assets of Mercury.

 

In the consolidated statements of cash flows, the cash flows of discontinued operations were separately classified or aggregated under operating and investing activities.

 

The remaining notes to the consolidated financial statements were updated to reflect the impact of these discontinued operations. All discussions and amounts in the consolidated financial statements and related notes for all periods presented relate to continuing operations, unless otherwise noted.

 

The following table summarizes the components of assets and liabilities of discontinued operations (in thousands).

 

 

 

As of January 31,

 

 

 

2023

 

Current assets

 

 

 

Cash

 

$167

 

Accounts receivable, net

 

 

89

 

Inventory

 

 

64

 

Prepaid expenses

 

 

62

 

Total current assets

 

 

382

 

Property, plant and equipment, net

 

 

655

 

Total assets

 

$1,037

 

 

 

 

 

 

Current liabilities

 

 

 

 

Accounts payable and accrued expenses

 

$79

 

Current portion of long-term debt

 

 

474

 

Deferred revenue

 

 

29

 

Total current liabilities

 

$582

 

Long-term liabilities

 

 

 

 

Debt

 

 

47

 

Total long-term liabilities

 

$47

 

Total liabilities

 

$629

 

 

The following table summarizes the results of discontinued operations (in thousands).

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

October 31,

 

 

October 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

Revenue

 

$285

 

 

$1,759

 

 

$890

 

 

$2,220

 

Cost of sales

 

 

79

 

 

 

1,475

 

 

 

210

 

 

 

1,546

 

Gross profit

 

 

206

 

 

 

284

 

 

 

680

 

 

 

674

 

Selling, general, and administrative

 

 

345

 

 

 

352

 

 

 

1,395

 

 

 

839

 

Depreciation and amortization

 

 

24

 

 

 

27

 

 

 

81

 

 

 

80

 

Total operating expenses

 

 

369

 

 

 

379

 

 

 

1,476

 

 

 

919

 

Loss from operations

 

 

(163 )

 

 

(95 )

 

 

(796 )

 

 

(245 )

Other income (expense), net

 

 

143

 

 

 

(18 )

 

 

106

 

 

 

(41 )

Loss before income taxes

 

 

(20 )

 

 

(113 )

 

 

(690 )

 

 

(286 )

Income tax benefit

 

 

-

 

 

 

(26 )

 

 

-

 

 

 

(67 )

Net loss

 

$(20 )

 

$(87 )

 

$(690 )

 

$(219 )

 

 
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Note 5. Intangible Assets

 

Intangible assets consist of the following:

 

 

 

As of October 31, 2023

 

 

 

Gross

 Amount

 

 

Accumulated

 Amortization

 

 

Net

Carrying

Amount

 

 

 

(in thousands)

 

IP/Technology

 

$4,935

 

 

$80

 

 

$4,855

 

Non-compete agreements

 

 

82

 

 

 

82

 

 

 

-

 

Total Intangibles

 

$5,017

 

 

$162

 

 

$4,855

 

 

 

 

As of January 31, 2023

 

 

 

Gross

 Amount

 

 

Accumulated

 Amortization

 

 

Net

Carrying

Amount

 

 

 

(in thousands)

 

IP/Technology

 

$4,251

 

 

$-

 

 

$4,251

 

Non-compete agreements

 

 

82

 

 

 

63

 

 

 

19

 

Total Intangibles

 

$4,333

 

 

$63

 

 

$4,270

 

 

The Company’s IP/Technology is amortized over five years and the non-compete agreements are amortized over two years.

 

Note 6. Cryptocurrency Assets

 

The Company transacts business with cryptocurrency assets. The Company records cryptocurrency assets as an intangible asset with infinite life. We classify cryptocurrency assets that have a market value and substantial liquidity as current intangible assets. The following chart shows our cryptocurrency assets (in thousands):

 

Current Assets

 

 

As of

 

Coin Symbol

 

October 31, 2023

 

 

January 31, 2023

 

BTC

 

$9

 

 

$4

 

 

 

$9

 

 

$4

 

 

In May 2023, PulseChain (“Pulse”) and PulseX were launched. Pulse is a layer 1 blockchain that is a fork of Ethereum. PulseX is a fork of the Uniswap digital exchange platform (“DEX”) and is the native DEX of the Pulse ecosystem. During the year ended January 31, 2022, we invested $0.1 million in each of Pulse and PulseX. In May 2023, we received 2.3 billion Pulse tokens and 3.0 billion PulseX tokens.

 

 
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Also in May 2023, Overwatch Partners, Inc. (“Overwatch”), an entity controlled by Michael Hawkins, distributed to us Pulse and PulseX tokens of 12.3 billion each. As a result of this transaction, the Company distributed to Epic Industry Corp (“Epic”), a wholly owned company of Michael Hawkins, 2.5 billion Pulse tokens. The receipt of Pulse and PulseX also earned Epic 50,000 shares of Series A Preferred Stock, which were issued to Epic during the quarter ended July 31, 2021 and recorded as a prepaid expense of $2.0 million.

 

On September 28, 2023, Robert Adams, a board director, purchased 300,000 shares of Series C preferred stock for 11.0 billion PulseX tokens, which equaled $104,000 at date of transfer of the tokens.

 

For the three and nine months ended October 31, 2023, the Company recorded in other income (expense), net fair market value expense adjustments of $0.1 million and $1.4 million.

 

For the nine months ended October 31, 2022, the Company recorded in other expense, net fair market value expense adjustments of $2.2 million.

 

 
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Note 7. Property, Plant and Equipment

 

Property, plant and equipment consisted of the following (in thousands):

 

 

 

As of

 

 

 

October 31,

2023

 

 

January 31,

2023

 

Computer equipment and computer software

 

$19

 

 

$20

 

Less: Accumulated depreciation

 

 

(16 )

 

 

(15 )

Total property, plant and equipment, net

 

$3

 

 

$5

 

 

Note 8. Debt

 

On July 14, 2023, a board director of the Company loaned it $55,000, representing half of the Company’s employee retention credit refund, which the Company expects to receive this year. The note calls for the payment of the principal sum of $55,000 plus interest of $12,500 for a total of $67,500. The maturity date of the note is December 31, 2023.

 

On August 15, 2023, Epic, with the approval of the board, purchased Mercury’s building for $480,000. Mercury used $461,000 of the proceeds from the sale to payoff both Mercury’s line of credit and term loan. After paying off the notes and closing costs, Mercury was left with $11,000 for general corporate purposes.

 

On September 7, 2023, Epic formalized the loans to the Company in a note. As of July 31, 2023, the outstanding balance was $0.7 million. Subsequent to July 31, 2023, Epic has provided funding and plans to provide additional funding to equal a total note principal of $1.0 million. As of October 31, 2023, the remaining amount to be funded by Epic under the note is $111,000. Monthly interest only payments at an annual rate of 4% will be made through the maturity date of February 1, 2025.

 

Note 9. Commitments and Contingencies

 

The Company reports and accounts for its commitments and contingencies in accordance with ASC 440 – Commitments and ASC 450 – Contingencies. We recognize a loss on a contingency when it is probable a loss will be incurred and that the amount of the loss can be reasonably estimated. No loss contingencies have been recorded for the three and nine months ended October 31, 2023 and 2022.

 

Note 10. Legal Proceedings

 

The Company may be subject to legal proceedings and claims arising from contracts or other matters from time to time in the ordinary course of business. Management is not aware of any pending or threatened litigation where the ultimate disposition or resolution could have a material adverse effect on the Company’s financial position, results of operations or liquidity.

 

 
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Table of Contents

 

Note 11. Related Parties and Related Party Transactions

 

Related party balance sheet items (in thousands)

 

 

 

As of October 31,

2023

 

 

As of January 31, 2023

 

 

 

 

 

 

 

 

Prepaid expenses

 

$-

 

 

$2,000

 

Accounts payable and accrued expenses

 

 

130

 

 

 

28

 

Loans payable

 

 

957

 

 

 

13

 

 

Related party income statement items (in thousands)

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

October 31,

 

 

October 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consulting expenses

 

$66

 

 

$30

 

 

$198

 

 

$90

 

Stock based compensation

 

 

631

 

 

 

575

 

 

 

1,931

 

 

 

1,725

 

Payroll expenses

 

 

120

 

 

 

132

 

 

 

358

 

 

 

484

 

 

During the quarter ended July 31, 2021, the Company issued 50,000 shares of Series A Preferred Stock to Epic. The issuance was done as a prepayment for services to generate sales for the Company. The shares are earned as sales generated by Epic achieve certain sales targets.

 

In May 2023, Overwatch distributed to us Pulse and PulseX tokens of 12.3 billion each. As a result of this transaction, the Company distributed to Epic 2.5 billion Pulse tokens. The receipt of Pulse and PulseX also earned Epic 50,000 shares of Series A Preferred Stock, which were issued to Epic during the quarter ended July 31, 2021 and recorded as a prepaid expense of $2.0 million. Our board decided that the value received from Pulse and PulseX, in lieu of sales, satisfied the requirements for the Series A Preferred Stock to be earned by Epic.

 

On July 14, 2023, a board director of the Company loaned it $55,000, representing half of the Company’s employee retention credit refund, which the Company expects to receive this year. The note calls for the payment of the principal sum of $55,000 plus interest of $12,500 for a total of $67,500. The maturity date of the note is December 31, 2023.

 

On August 15, 2023, Epic, with the approval of the board, purchased Mercury’s building for $480,000. Mercury used $461,000 of the proceeds from the sale to payoff both Mercury’s line of credit and term loan. After paying off the notes and closing costs, Mercury was left with $11,000 for general corporate purposes.

 

On September 7, 2023, Epic formalized the loans to the Company in a note. As of July 31, 2023, the outstanding balance was $0.7 million. Subsequent to July 31, 2023, Epic has provided funding and plans to provide additional funding to equal a total note principal of $1.0 million. As of October 31, 2023, the remaining amount to be funded by Epic under the note is $111,000. Monthly interest only payments at an annual rate of 4% will be made through the maturity date of February 1, 2025.

 

On September 28, 2023, Robert Adams, a board director, purchased 300,000 shares of Series C preferred stock for 11.0 billion PulseX tokens, which equaled $104,000 at date of transfer of the tokens.

 

 
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Table of Contents

 

Note 12. Stockholders’ Equity

 

Common Stock

 

As of October 31, 2023 and January 31, 2023, the Company had 200 million common shares authorized, with 16,673,393 and 9,949,966 common shares at a par value of $0.0001 issued, respectively. As of October 31, 2023 and January 31, 2023, the Company had 16,482,929 and 9,923,304 common shares outstanding, respectively.

 

On August 2, 2023, Paul Rosenberg elected to convert 275,000 shares of Series B Preferred Stock into 2,750,000 shares of common stock. On August 2, 2023, Epic elected to convert 125,000 shares of Series B Preferred Stock into 1,250,000 shares of common stock.

 

On September 20, 2023, Epic gave back to the Company 48,802 shares of common stock in settlement of a disputed receivable the Company had with a consultant. The shares are considered treasury stock.

 

During the three months ended October 31, 2023, the Company issued 223,427 shares of common stock for services that totaled $166,000.

 

During the three months ended October 31, 2023, a holder of 50,000 Series A Preferred shares elected to convert his shares into 2.5 million shares of common stock.

 

On October 31, 2023, the Board of Directors approved, and the Company completed, the sale of Mercury to Chris Carter, founder and CEO of Mercury. The sales price consisted of 115,000 shares of Company common stock and 60,000 shares of Company Series C Preferred Stock, owned by Chris Carter, for a total sales price of $216,583. The shares are considered treasury stock.

 

During the three and nine months ended October 31, 2023, stock-based compensation expense related to stock grants was $75,000 and $225,000, respectively, from a grant to an employee. During the three months ended October 31, 2022, stock-based compensation expense related to stock grants was $75,000 from a grant to an employee. During the nine months ended October 31, 2022, stock-based compensation expense related to stock grants was $281,000, which consisted of grants to employee of $225,000 and consultants of $56,000.

 

Preferred Stock

 

Series A Preferred Stock

 

As of October 31, 2023, the Company had one million Series A Preferred shares, par value $0.0001, authorized, with 150,000 Series A Preferred shares issued and outstanding. As of January 31, 2023, the Company had 200,000 Series A Preferred shares issued and outstanding. The Series A Preferred stock converts into common stock at the option of the holder of the Series A Preferred, after twenty-four months of ownership. The conversion rate for every one share of Series A Preferred stock is 50 shares of common stock. Each share of Series A Preferred stock entitles the holder to 1,000 votes. Holders of Series A Preferred are entitled to share ratably in dividends, if any are declared. There are no redemption rights. In the event of dissolution, the holders of Series A Preferred are entitled to share pro rata all assets remaining after payment in full of all liabilities.

 

During the quarter ended July 31, 2021, the Company issued 50,000 shares of Series A Preferred Stock to Epic. The issuance was done as a prepayment for services to generate sales for the Company. The shares are earned as sales generated by Epic achieve certain sales targets.

 

In May 2023, Overwatch distributed to us Pulse and PulseX tokens of 12.3 billion each. As a result of this transaction, the Company distributed to Epic 2.5 billion Pulse tokens. The receipt of Pulse and PulseX also earned Epic 50,000 shares of Series A Preferred Stock, which were issued to Epic during the quarter ended July 31, 2021 and recorded as a prepaid expense of $2.0 million. Our board decided that the value received from Pulse and PulseX, in lieu of sales, satisfied the requirements for the Series A Preferred Stock to be earned by Epic.

 

During the three months ended October 31, 2023, a holder of 50,000 Series A Preferred shares elected to convert his shares into 2.5 million shares of common stock.

 

The 150,000 shares of Series A Preferred Stock are eligible to be converted into common stock at the option of the holder of the Series A Preferred Stock.

 

 
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Series B Preferred Stock

 

As of October 31, 2023, the Company had no Series B Preferred shares, par value $0.0001, authorized, issued and outstanding. As of January 31, 2023, the Company had 1.5 million Series B Preferred shares, par value $0.0001, authorized, with 650,000 Series B Preferred shares issued and 400,000 Series B Preferred shares outstanding. The Series B Preferred stock converts into common stock at the option of the holder of the Series B Preferred, after twenty-four months of ownership. The conversion rate for every one share of Series B Preferred stock is ten shares of common stock. Each share of Series B Preferred stock entitles the holder to 100 votes. Holders of Series B Preferred are entitled to share ratably in dividends if any are declared. There are no redemption rights. In the event of dissolution, the holders of Series B Preferred are entitled to share pro rata all assets remaining after payment in full of all liabilities.

 

On August 2, 2023, Paul Rosenberg elected to convert 275,000 shares of Series B Preferred Stock into 2,750,000 shares of common stock. On August 2, 2023, Epic elected to convert 125,000 shares of Series B Preferred Stock into 1,250,000 shares of common stock. On August 2, 2023, the Company officially retired the following class of stock: Series B Preferred.

 

Series C Preferred Stock

 

As of October 31, 2023, the Company had 10 million Series C Preferred shares, par value $0.0001, authorized with 1.4 million Series C Preferred shares issued and outstanding. As of January 31, 2023, the Company had 2 million Series C Preferred shares, par value $0.0001, authorized with one million Series C Preferred shares issued and outstanding. The Series C Preferred Stock shall rank senior to the Company’s common stock, Series A Preferred Stock, and Series B Preferred Stock. Each holder of Series C Preferred Stock is entitled to one (1) vote for each share of Series C Preferred Stock held on all matters submitted to a vote of stockholders. Each share of Series C Preferred Stock shall be convertible, at the discretion of the holders, after six months of ownership, into shares of common stock. The number of common shares issued shall be at the rate of 30% less than the volume-weighted average price or $5.00 per share whichever is less.

 

On September 28, 2023, Robert Adams, a board director, purchased 300,000 shares of Series C preferred stock for 11.0 billion PulseX tokens, which equaled $104,000 at date of transfer of the tokens.

 

1.1 million shares of Series C Preferred Stock are eligible to be converted into common stock at the option of the holder of the Series C Preferred Stock.

 

Note 13. Warrants

 

A summary of warrant activity for nine months ended October 31, 2023 is as follows:

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

 

 

 

Conversion

 

 

 

Shares

 

 

Price

 

 

 

 

 

 

 

 

Warrants outstanding at January 31, 2023

 

 

3,356,000

 

 

$3.60

 

Granted

 

 

580,000

 

 

 

1.00

 

Cancelled/Expired

 

 

(1,200,000 )

 

 

1.90

 

Warrants outstanding at October 31, 2023

 

 

2,736,000

 

 

$1.09

 

 

On September 5, 2023, the board of directors approved the repricing of the exercise price of 2,125,000 warrants to $1.00 per share and extending the expiration date of the warrants until January 31, 2028.

 

During the three months ended October 31, 2023, stock-based compensation expense related to warrant grants was $576,000, which consisted of grants to employees of $411,000, directors of $145,000, and consultants of $20,000. During the nine months ended October 31, 2023, stock-based compensation expense related to warrant grants was $1,792,000, which consisted of grants to employees of $1,087,000, directors of $620,000, and consultants of $85,000. During the three months ended October 31, 2022, stock-based compensation expense related to warrant grants was $641,000, which consisted of grants to employees of $366,000, directors of $209,000, and consultants of $66,000. During the nine months ended October 31, 2022, stock-based compensation expense related to warrant grants was $1,915,000, which consisted of grants to employees of $1,090,000, directors of $628,000, and consultants of $197,000

 

 
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Note 14. Treasury Stock

 

As of January 31, 2023, treasury stock consisted of 250,000 shares of Series B Preferred stock and 26,662 shares of common stock. During the three months ended October 31, 2023, the Company retired the treasury stock related to the Series B Preferred stock. As of October 31, 2023, treasury stock consisted of 190,464 shares of common stock and 60,000 shares of Series C Preferred stock. The shares are considered issued but not outstanding. Therefore, the shares are not used in the EPS calculations.

 

Note 15. Income Taxes

 

Our consolidated effective income tax rate for the three and nine months ended October 31, 2023 was 0%. Our consolidated effective income tax rates for the three and nine months ended October 31, 2022 were 26% and 23%, respectively.

 

Note 16. Net Loss Per Common Share

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

October 31,

 

 

October 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(in thousands, except per share data)

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$(1,688 )

 

$(1,177 )

 

$(5,928 )

 

$(5,167 )

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations

 

 

(20 )

 

 

(87 )

 

 

(690 )

 

 

(219 )

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$(1,708 )

 

$(1,264 )

 

$(6,618 )

 

$(5,386 )

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

14,558

 

 

 

9,676

 

 

 

11,485

 

 

 

9,258

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Preferred stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Diluted shares outstanding

 

 

14,558

 

 

 

9,676

 

 

 

11,485

 

 

 

9,258

 

Basic and diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Continuing operations

 

$(0.12 )

 

$(0.12 )

 

$(0.52 )

 

$(0.56 )

    Discontinued operations

 

 

-

 

 

 

(0.01 )

 

 

(0.06 )

 

 

(0.02 )

      Basic and diluted loss per share

 

$(0.12 )

 

$(0.13 )

 

$(0.58 )

 

$(0.58 )

 

Note 17. Subsequent Events

 

On November 27, 2023, the Company entered into a note for $149,500 with a net payment to the Company of $125,000 after an original issue discount of $19,500 and expenses of $5,000. There is a one-time interest charge of 11% which is paid back along with principal over nine monthly payments beginning with the first payment due on December 30, 2023. The maturity date of the note is August 30, 2024.

 

 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

You should read the following discussion and analysis of our financial condition, results of operations and cash flows in conjunction with our consolidated financial statements and the related notes presented in this report and in our Annual Report.

 

FORWARD-LOOKING STATEMENTS

 

Certain statements in this section contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this report and not clearly historical in nature are forward-looking, and the words “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “intends,” “potential,” and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) generally are intended to identify forward-looking statements. Any statements in this report that are not historical facts are forward-looking statements. Actual results may differ materially from those discussed from time to time in the Company’s SEC filings. The Company undertakes no obligation to update or revise any forward-looking statement for events or circumstances after the date on which such statement is made except as required by law.

 

OVERVIEW

 

The overview of the MD&A highlights selected information and does not contain all of the information that is important to readers of this Quarterly Report on Form 10-Q.

 

The Company is primarily engaged in the business of consulting and developing data management, blockchain and cybersecurity related solutions. We are a technology company that is blending blockchain, zero-trust, and database management technology to create a platform to solve real world, practical business problems. Our business model is based on building recurring revenue through software subscriptions, licensing agreements, and transaction fees. Our patent-pending advances in blockchain engineering deliver the essential elements needed for real-world business use: speed, security, and energy efficiency. Currently, our lines of business are EB Advise, BuildDB and EB Control.

 

Our website can be found at www.everythingblockchain.io, which is not incorporated as part of this Form 10-Q.

 

EMPLOYEES

 

As of October 31, 2023, the Company has 7 employees.

 

Available Information

 

All reports of the Company filed with the SEC are available free of charge through the SEC’s website at www.sec.gov. In addition, the public may read and copy materials filed by the Company at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. The public may also obtain additional information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.

 

 
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Critical Accounting Policies and Estimates

 

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. On an ongoing basis, we evaluate our estimates, including those related to uncollectible receivables, inventory valuation, deferred compensation, and contingencies.

 

We base our estimates on historical performance and on various other assumptions that we believe to be reasonable under the circumstances. These estimates allow us to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. If actual results or events differ materially from those contemplated by us in making these estimates, our reported financial condition, and results of operations for future periods could be materially affected.

 

Results of Operations

 

Our operating results for the three and nine months ended October 31, 2023 and 2022 are summarized as follows:

 

 

 

For the Three Months Ended October 31,

 

 

For the Nine Months Ended October 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Revenue

 

$61

 

 

$63

 

 

$188

 

 

$240

 

Cost of sales

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Gross profit

 

 

61

 

 

 

63

 

 

 

188

 

 

 

240

 

Selling, general, administrative

 

 

667

 

 

 

643

 

 

 

2,285

 

 

 

2,228

 

Stock based compensation

 

 

651

 

 

 

716

 

 

 

2,017

 

 

 

2,197

 

Depreciation and amortization

 

 

21

 

 

 

13

 

 

 

82

 

 

 

60

 

Total operating expenses

 

 

1,339

 

 

 

1,372

 

 

 

4,384

 

 

 

4,485

 

Loss from operations

 

 

(1,278 )

 

 

(1,309 )

 

 

(4,196 )

 

 

(4,245 )

Other expense, net

 

 

(410 )

 

 

(246 )

 

 

(1,725 )

 

 

(2,454 )

Loss from continuing operations before income taxes

 

 

(1,688 )

 

 

(1,555 )

 

 

(5,921 )

 

 

(6,699 )

Income tax expense (benefit)

 

 

-

 

 

 

(378 )

 

 

7

 

 

 

(1,532 )

Loss from continuing operations

 

 

(1,688 )

 

 

(1,177 )

 

 

(5,928 )

 

 

(5,167 )

Loss from discontinued operations, net of tax

 

 

(20 )

 

 

(87 )

 

 

(690 )

 

 

(219 )

Net loss

 

$(1,708 )

 

$(1,264 )

 

$(6,618 )

 

$(5,386 )

 

Revenue

 

Revenue for the three months ended October 31, 2023 and 2022 was $0.1 million from consulting services. Revenue for the nine months ended October 31, 2023 and 2022 was $0.2 million primarily from consulting services. 

 

 
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Operating Expenses

 

Operating expenses primarily consist of selling, general and administrative expenses, stock-based compensation expense, and amortization and depreciation expense. Selling, general and administrative expenses primarily consist of personnel costs, consultant fees, professional fees, computer and internet expenses, marketing expenses, utilities expenses, meals and entertainment, office supplies, and reporting fees.

 

Operating expenses for the three months ended October 31, 2023 were $1.3 million compared to $1.4 million for the three months ended October 31, 2022.

 

Operating expenses for the nine months ended October 31, 2023 were $4.4 million compared to $4.5 million for the nine months ended October 31, 2022.

 

Loss from Operations

 

Loss from operations for the three months ended October 31, 2023 and 2022 was $1.3 million. Loss from operations for the nine months ended October 31, 2023 and 2022 was $4.2 million. 

 

Other Expense

 

Other income (expense) consists primarily of sales of cryptocurrency and the associated costs, fair market value adjustments to cryptocurrency, loss on sale of subsidiary, and interest income and expense.

 

Other expense, net for the three months ended October 31, 2023 was $0.4 million compared to $0.2 million for the three months ended October 31, 2022. Other expense, net for the three months ended October 31, 2023 consists primarily of loss on sale of Mercury of $0.2 million, fair market value expense adjustments related to PulseX of $0.1 million, and loss on sale of cryptocurrencies of $0.1 million. Other expense, net for the three months ended October 31, 2022 consists primarily of loss on sale of cryptocurrencies of $0.2 million.

 

Other expense, net for the nine months ended October 31, 2023 was $1.7 million compared to $2.5 million for the nine months ended October 31, 2022. Other expense, net for the nine months ended October 31, 2023 consists primarily of fair market value expense adjustments related to PulseX of $1.4 million, loss on sale of Mercury of $0.2 million, and loss on sale of cryptocurrencies of $0.1 million. Other expense, net for the nine months ended October 31, 2022 consists primarily of fair market value expense adjustments to cryptocurrency of $2.2 million and loss on sale of cryptocurrencies of $0.2 million.

 

Adjusted EBITDA

 

The Company reports all financial information required in accordance with GAAP. The Company believes, however, that evaluating its ongoing operating results will be enhanced if it also discloses certain non-GAAP information.

 

Adjusted EBITDA, which is a non-GAAP financial measure, is defined by the Company as net income (loss) plus net interest income, income tax (benefit) expense, depreciation and amortization, and stock-based compensation.

 

Adjusted EBITDA should not be considered an alternative to net income, operating income, net cash provided by operating activities, or any other measure of financial performance or liquidity presented in accordance with GAAP. In addition, Adjusted EBITDA presented by other companies may not be comparable to our presentation since each company may define these terms differently.

 

 
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The table below reconciles Adjusted EBITDA, which is a non-GAAP financial measure, to net loss.

 

 

 

For the Three Months Ended October 31,

 

 

For the Nine Months Ended October 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Net loss

 

$(1,708 )

 

$(1,264 )

 

$(6,618 )

 

$(5,386 )

Add:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

 

-

 

 

 

(405 )

 

 

7

 

 

 

(1,599 )

Stock based compensation

 

 

651

 

 

 

716

 

 

 

2,017

 

 

 

2,197

 

Depreciation and amortization

 

 

46

 

 

 

40

 

 

 

164

 

 

 

140

 

Net interest expense

 

 

11

 

 

 

15

 

 

 

65

 

 

 

41

 

Adjusted EBITDA

 

$(1,000 )

 

$(898 )

 

$(4,365 )

 

$(4,607 )

 

Analysis of Cash Flows

 

Operating Activities

 

Net cash used in operating activities – continuing operations was $1.4 million for the nine months ended October 31, 2023. We had net loss of $5.9 million from continuing operations, which included stock-based compensation of $2.0 million and fair value adjustments to cryptocurrency of $1.4 million due to decreases in the values of cryptocurrencies.

 

Net cash used in operating activities – continuing operations was $2.1 million for the nine months ended October 31, 2022. We had net loss of $5.2 million from continuing operations, which included fair value adjustments to cryptocurrency of $2.2 million, due to decreases in the values of cryptocurrencies, and stock-based compensation of $2.2 million.

 

Net cash used in operating activities – discontinued operations was $0.8 million for the nine months ended October 31, 2023. We had net loss of $0.7 million from discontinued operations.

 

Net cash provided by operating activities – discontinued operations was $0.6 million for the nine months ended October 31, 2022. We had net loss of $0.2 million from discontinued operations.

 

 
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Table of Contents

 

Investing Activities

 

Net cash provided by investing activities – continuing operations was $0.3 million for the nine months ended October 31, 2023, compared to net cash used in investing activities – continuing operations of $0.1 million for the nine months ended October 31, 2022. During the nine months ended October 31, 2023, we had proceeds from cryptocurrencies of $1.0 million partially offset by capital expenditures of $0.7 million. During the nine months ended October 31, 2022, we had capital expenditures of $0.9 million partially offset by proceeds from cryptocurrencies of $0.8 million.

 

Net cash provided by investing activities – discontinued operations was $0.4 million for the nine months ended October 31, 2023, compared to net cash used in investing activities – discontinued operations of $0 for the nine months ended October 31, 2022. During the nine months ended October 31, 2023, we had proceeds from sale of building of $0.5 million partially offset by capital expenditures of $0.1 million. 

 

Financing Activities

 

Net cash provided by financing activities was $0.7 million for the nine months ended October 31, 2023, compared to $1.5 million for the nine months ended October 31, 2022. During the nine months ended October 31, 2023, we received proceeds from Epic debt of $0.9 million and $0.2 million receivable from stockholder, partially offset by debt payments of $0.5 million. During the nine months ended October 31, 2022, we sold 250,000 shares of Series C Preferred Stock for $1.0 million and two warrants were exercised for a total of 500,000 shares of common stock resulting in the Company receiving $0.5 million.

 

Liquidity and Capital Resources

 

We fund operations primarily through cash on hand, cash from sales of Series C Preferred Stock, cryptocurrencies, and exercises of warrants, and the support of Michael Hawkins.

 

In May 2023, Overwatch distributed to us Pulse and PulseX tokens of 12.3 billion each. As a result of this transaction, the Company distributed to Epic 2.5 billion Pulse tokens. The receipt of Pulse and PulseX also earned Epic 50,000 shares of Series A Preferred Stock, which were issued to Epic during the quarter ended July 31, 2021 and recorded as a prepaid expense of $2.0 million. Our board decided that the value received from Pulse and PulseX, in lieu of sales, satisfied the requirements for the Series A Preferred Stock to be earned by Epic.

 

On July 14, 2023, a board director of the Company loaned it $55,000, representing half of the Company’s employee retention credit refund, which the Company expects to receive this year. The note calls for the payment of the principal sum of $55,000 plus interest of $12,500 for a total of $67,500. The maturity date of the note is December 31, 2023.

 

During the nine months ended October 31, 2023, we received the $0.2 million receivable from stockholder.

 

On August 15, 2023, Epic, with the approval of the board, purchased Mercury’s building for $480,000. Mercury used $461,000 of the proceeds from the sale to payoff both Mercury’s line of credit and term loan. After paying off the notes and closing costs, Mercury was left with $11,000 for general corporate purposes.

 

On September 7, 2023, Epic formalized the loans to the Company in a note. As of July 31, 2023, the outstanding balance was $0.7 million. Subsequent to July 31, 2023, Epic has provided funding and plans to provide additional funding to equal a total note principal of $1.0 million. As of October 31, 2023, the remaining amount to be funded by Epic under the note is $111,000. Monthly interest only payments at an annual rate of 4% will be made through the maturity date of February 1, 2025.

 

 
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Table of Contents

 

On September 28, 2023, Robert Adams, a board director, purchased 300,000 shares of Series C preferred stock for 11.0 billion PulseX tokens, which equaled $104,000 at date of transfer of the tokens.

 

During the three months ended October 31, 2023, the Company issued 223,427 shares of common stock for services that totaled $166,000.

 

On November 27, 2023, the Company entered into a note for $149,500 with a net payment to the Company of $125,000 after an original issue discount of $19,500 and expenses of $5,000. There is a one-time interest charge of 11% which is paid back along with principal over nine monthly payments beginning with the first payment due on December 30, 2023. The maturity date of the note is August 30, 2024.

 

Off-Balance Sheet Arrangements

 

We did not have any material off-balance sheet arrangements as of October 31, 2023.

 

Going Concern

 

Our financial statements are prepared in accordance with GAAP, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Because the business is relatively new and has a short history and relatively few sales, no certainty of continuation can be stated. The accompanying consolidated financial statements for the three and nine months ended October 31, 2023 and 2022 have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

We are a smaller reporting company and therefore, we are not required to provide the information required by this Item of Form 10-Q.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures.

 

 
24

Table of Contents

 

We carried out an evaluation, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of January 31, 2023. In designing and evaluating the disclosure controls and procedures, management recognizes that there are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.

 

Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their desired control objectives. Additionally, in evaluating and implementing possible controls and procedures, management is required to apply its reasonable judgment. Based on the evaluation described above, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report because we did not document our Sarbanes-Oxley Act Section 404 internal controls and procedures.

 

As funds become available to us, we expect to implement additional measures to improve disclosure controls and procedures such as implementing and documenting our internal controls procedures.

 

Changes in internal controls over financial reporting

 

There have been no changes in our internal control over financial reporting during the quarter ended October 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Limitations on the Effectiveness of Controls

 

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The Company’s management, including its principal executive officer and its principal financial officer, do not expect that the Company’s disclosure controls will prevent or detect all errors and all fraud. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

 
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Table of Contents

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

The Company is not involved in any legal proceedings which management believes will have a material effect upon the financial condition of the Company, nor are any such material legal proceedings anticipated.

 

Item 1A. Risk Factors

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

On September 28, 2023, Robert Adams, a board director, purchased 300,000 shares of Series C preferred stock for 11.0 billion PulseX tokens, which equaled $104,000 at date of transfer of the tokens.

 

During the three months ended October 31, 2023, the Company issued 223,427 shares of common stock for services that totaled $166,000.

 

Item 3. Defaults Upon Senior Securities

 

There have been no events that are required to be reported under this Item.

 

Item 4. Mine Safety Disclosures

 

There have been no events that are required to be reported under this Item.

 

Item 5. Other Information

 

There have been no events that are required to be reported under this Item.

 

 
26

Table of Contents

 

Item 6. Exhibits

 

31.1

 

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

31.2

 

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

32.1

 

Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

32.2

 

Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

101.INS

 

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document.

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document.

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Labels Linkbase Document.

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

 

 

 

104

 

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

 

 
27

Table of Contents

 

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.

 

 

Everything Blockchain, Inc.

 

 

 

 

 

Dated: December 15, 2023

By:

/s/ Toney Jennings

 

 

 

Toney Jennings

 

 

Its:

Chief Executive Officer

(Principal Executive Officer)

 

 

Dated: December 15, 2023

By:

/s/ William Regan

 

 

 

William Regan

 

 

Its:

Chief Financial Officer

(Principal Financial Officer)

 

 

 
28