RiskOn International(ROI) - 2024 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements The company's financials reflect a major transition, a significant net loss improvement due to non-cash gains, and a severe liquidity crisis Condensed Consolidated Balance Sheets Total assets and liabilities decreased while the shareholders' deficit significantly worsened due to operating losses Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | Sep 30, 2023 ($) | Mar 31, 2023 ($) | Change ($) | | :--- | :--- | :--- | :--- | | Total Assets | 16,803,924 | 23,775,517 | (6,971,593) | | Cash and cash equivalents | 1,554 | 66,844 | (65,290) | | Derivative liabilities | 2,200,951 | 19,862,226 | (17,661,275) | | Total Liabilities | 35,857,107 | 37,719,641 | (1,862,534) | | Total Shareholders' Deficit | (19,053,183) | (13,944,124) | (5,109,059) | Condensed Consolidated Statements of Operations Net loss improved significantly due to a large non-cash gain on derivative liabilities, despite widening operating losses Statement of Operations Summary (Unaudited) | Metric | Three Months Ended Sep 30, 2023 ($) | Three Months Ended Sep 30, 2022 ($) | Six Months Ended Sep 30, 2023 ($) | Six Months Ended Sep 30, 2022 ($) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | 19,200 | 0 | 64,350 | 0 | | Operating Loss | (13,747,580) | (7,003,539) | (25,404,835) | (13,939,547) | | Change in fair value of derivative liabilities | 1,862,290 | 3,286,004 | 22,982,843 | 2,892,472 | | Net Loss to Controlling Interest | (14,517,905) | (22,985,608) | (8,572,304) | (33,138,812) | | Net Loss Per Share | (6.47) | (27.42) | (4.70) | (39.80) | Condensed Consolidated Statements of Cash Flows Operating cash burn increased while financing activities provided necessary inflows, yet the final cash position dwindled to a critical low Cash Flow Summary for Six Months Ended Sep 30 (Unaudited) | Cash Flow Activity | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | (13,525,359) | (11,009,363) | | Net cash provided by investing activities | 0 | 139,732 | | Net cash provided by financing activities | 13,460,069 | 11,770,856 | | Net (decrease) increase in cash | (65,290) | 901,225 | | Cash at end of period | 1,554 | 986,298 | Notes to Condensed Consolidated Financial Statements Notes detail significant corporate changes, a going concern warning, asset impairments, and Nasdaq compliance issues - On November 1, 2023, the company changed its name to RiskOn International, Inc ("ROI") and acquired BitNile.com, Inc (BNC) in a share exchange agreement, which was accounted for as an asset purchase, not a business combination[24] - The company has a working capital deficit of $24.5 million and an accumulated deficit of $217.2 million as of September 30, 2023, with only $1,554 in cash, raising substantial doubt about its ability to continue as a going concern[30][32] - On August 25, 2023, the company sold 100% of Zest Labs to a related party, Zest Labs Holdings, LLC, owned by a board member, recording a gain on disposal of $683,152[26][55] - The company impaired $3.9 million of net property and equipment related to its subsidiaries Agora and Bitstream as of September 30, 2023, deeming the assets valueless, with both subsidiaries subsequently filing for Chapter 7 bankruptcy[70][71][158] - The company is not in compliance with Nasdaq listing rules due to its shareholders' equity being below the $2.5 million minimum and its stock bid price falling below $1.00 per share, creating a risk of delisting[142][143][165] - Subsequent to the quarter end, the company entered into a $100 million Equity Line of Credit (ELOC) purchase agreement and a securities purchase agreement with a related party to sell $15.1 million of new Series D Convertible Preferred Stock[146][167][168] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the strategic shift to metaverse development, widening operating losses, and severe liquidity challenges Results of Operations Operating losses widened year-over-year, but a large non-cash gain on derivative liabilities reduced the overall loss from continuing operations Continuing Operations Comparison for the Three Months Ended September 30 | Metric | 2023 ($) | 2022 ($) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | 19,200 | 0 | 19,200 | 100% | | Operating Loss | (13,747,580) | (7,003,539) | (6,744,041) | -96% | | Total other (expense) income | (1,810,880) | 2,433,332 | (4,244,212) | -174% | | Loss from continuing operations | (15,558,460) | (4,570,207) | (10,988,253) | -240% | Continuing Operations Comparison for the Six Months Ended September 30 | Metric | 2023 ($) | 2022 ($) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | 64,350 | 0 | 64,350 | 100% | | Operating Loss | (25,404,835) | (13,939,547) | (11,465,288) | -82% | | Total other income | 17,026,743 | 2,002,972 | 15,023,771 | 750% | | Loss from continuing operations | (8,378,092) | (11,936,575) | (3,558,483) | -30% | Liquidity and Capital Resources The company's liquidity is critical with minimal cash, relying entirely on external financing to sustain operations and facing a going concern risk - As of September 30, 2023, the company had only $1,554 in cash and cash equivalents[203] - Management states that current cash is insufficient for the next year of operations, raising substantial doubt about the company's ability to continue as a going concern[203] - Net cash used in operating activities for continuing operations was approximately $16 million for the six months ended September 30, 2023, an increase from $14 million in the prior year period[201] - Financing activities provided $13.5 million in cash, primarily from $7.5 million in advances from AAI, $5.5 million in gross proceeds from convertible notes, and $1.8 million from an ATM offering[202][203] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company has indicated that this item is not applicable - Not applicable[210] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective due to persistent material weaknesses - The principal executive officer and principal financial officer concluded that the company's internal control over financial reporting was not effective as of September 30, 2023[212] - Material weaknesses identified include insufficient segregation of duties, lack of formal review procedures, insufficient written documentation of internal controls, and reliance on an outside financial consultant[213] - Planned remediation includes hiring additional accounting personnel, enhancing controls over revenue recognition and complex financial instruments, and improving documentation and review processes[214][215][216] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company reports no material developments in previously disclosed legal proceedings - There were no material developments in previously disclosed legal proceedings during the reporting period[223] Item 1A. Risk Factors No updates or changes were made to the risk factors previously disclosed in the company's prior reports - No updates or changes were made to the previously disclosed risk factors[224] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities The company reported no activity for this item during the reporting period - None[225] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including charters, agreements, and certifications