Everything Blockchain, Inc 10-Q for FY2022 Q3
Everything Blockchain, Inc. (EBZT)
About this 10-Q
Everything Blockchain, Inc filed this 10-Q on December 15, 2021, covering the quarter ended October 31, 2021 (FY2022 Q3).
Headline figures
Quarter ended October 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $4.91M
- up 7812.9% from $62K a year earlier
- Net income
- $3.23M
- compared with a net loss of $140K a year earlier
- Diluted EPS
- $0.29
- compared with -$0.02 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
For the transition period from _______________ to _______________.
Commission file number:
(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
| (Zip Code) |
(
Registrant’s telephone number, including area code
3027 US Highway 17
Fleming Island, FL 32003
(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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
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Non-accelerated filer | ☐ | Smaller reporting company | |
(Do not check if smaller reporting company) |
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| 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
As of November 30, 2021, the Company had
Transitional Small Business Disclosure Format Yes ☐ No ☒
Everything Blockchain, Inc.
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Interim Condensed Consolidated Financial Statements and Notes to Interim Financial Statements
The accompanying unaudited condensed 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. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements included in the Company’s original S-1 filing and the annual audit for the year ended January 31, 2021. 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, 2021, are not necessarily indicative of the results that can be expected for the year ending January 31, 2022 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, 2021 filed with the Securities and Exchange Commission (the “SEC”) on May 17, 2021 (the “Annual Report”).
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Everything Blockchain, Inc. |
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Consolidated Balance Sheets (Amounts in thousands, except share and per share data) |
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ASSETS |
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Current assets |
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Cash |
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Accounts receivable, net |
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Interest receivable |
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Current cryptocurrencies, net |
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Inventory |
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Prepaid expenses |
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Total current assets |
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Property, plant and equipment, net |
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Cryptocurrency, net |
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Goodwill |
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Intangible assets, net |
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Other assets |
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Loan receivable |
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Total assets |
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LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities |
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Accounts payable and accrued expenses |
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Accounts payable related party |
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Current portion of long-term debt |
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Reserve for legal settlements |
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Deferred revenue |
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Total current liabilities |
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Long-term liabilities |
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Debt |
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Total long-term liabilities |
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Total liabilities |
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Stockholders' equity |
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Series A Preferred stock, $ |
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Series B Preferred stock, $ |
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Common stock, $ |
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of October 31, 2021 and January 31, 2021, respectively. |
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Treasury stock |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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See accompanying notes to consolidated financial statements.
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Everything Blockchain, Inc. | ||||||||||||||||
Consolidated Statements of Operations (Amounts in thousands, except share and per share data) | ||||||||||||||||
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Revenue from services |
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Other revenue |
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Total revenue |
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Cost of sales |
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Gross profit |
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Selling, general, and administrative |
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Depreciation and amortization |
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Total operating expenses |
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Operating income (loss) |
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Other income (expense) |
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Net income (loss) |
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Basic and diluted income (loss) per share: |
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Basic income (loss) per share |
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Diluted income (loss) per share |
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Weighted average shares outstanding - basic |
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Weighted average shares outstanding - diluted |
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See accompanying notes to consolidated financial statements. | ||||||||||||||||
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Everything Blockchain, Inc. | ||||||||||||||||||||||||||||||||
Consolidated Statements of Stockholders’ Equity (Amounts in thousands) | ||||||||||||||||||||||||||||||||
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| Additional |
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Balance – January 31, 2021 |
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Stock issued |
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Stock issued for services |
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Stock issued for acquisitions |
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Warrant exercise |
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Issuance of Series A Preferred for services |
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Conversion of note receivable |
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Net income |
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Balance – October 31, 2021 |
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Balance – January 31, 2020 |
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Conversion of common to series B preferred |
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Conversion of accounts payable |
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Issuance of Series A preferred |
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Issuance of series B preferred |
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Imputed Interest |
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Interest receivable – related party |
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Stock issued for services |
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Sale of assets to related party |
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Stock issued in warrant exercise |
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Net loss |
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Balance – October 31, 2020 |
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See accompanying notes to consolidated financial statements. | ||||||||||||||||||||||||||||||||
| 6 |
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Everything Blockchain, Inc. | ||||||||
Consolidated Statements of Cash Flows (Amounts in thousands) | ||||||||
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| For the Nine Months Ended October 31, |
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Cash flows from operating activities: |
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Net (Loss) |
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Adjustments to reconcile net income (loss) to net |
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cash provided by (used in) operating activities: |
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Stock based compensation |
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Reverse of bad debt |
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Realized net gain on investment in cryptocurrency |
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Loss on cryptocurrency impairment |
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Fair value adjustment to cryptocurrency |
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Amortization and depreciation |
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Imputed interest |
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Changes in operating assets and liabilities: |
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Accounts receivable, net |
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Interest receivable |
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Inventory |
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Prepaid expenses |
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Other assets |
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Accounts payable to related party |
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Accrued interest |
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Accounts payable and accrued expenses |
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Reserve for legal settlements |
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Deferred revenue |
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Net cash provided by (used in) operating activities |
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Cash flows from investing activities: |
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Acquisition of cryptocurrencies, net |
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Proceeds from sale of cryptocurrencies |
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Capital expenditures |
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Acquisitions, net of cash received |
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Net cash provided by investing activities |
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Cash flows from financing activities: |
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Borrowing from related party |
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Payment to related party |
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Payment of debt |
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Proceeds from issuance of stock, net |
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Net cash provided by (used in) financing activities |
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Net Change in Cash |
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Cash at Beginning of Year |
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Cash at End of Year |
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Supplemental Disclosure of Cash Flows Information: |
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Cash paid for interest |
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Cash paid for income taxes |
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Non-cash Investing and Financing Activities: |
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Loan of cryptocurrency |
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Cryptocurrency received for payment under contract |
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Fair value of assets in acquisitions |
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Fair value of liabilities assumed in acquisitions |
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Accounts receivable settlement for Render Payment |
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Conversion of note receivable in exchange for common stock and preferred stock |
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Issuance of stock for services |
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Issuance of Series A Preferred for services |
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Conversion of accounts payable to related party to common stock |
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Sale of software to related party |
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Conversion of debt through sale of cryptocurrencies |
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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. and its consolidated subsidiaries (collectively, the “Company”, “we”, “our”), have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the SEC. All significant intercompany accounts and transactions have been eliminated.
Description of Business
The Company’s early model was to earn revenue through social media advertising, fees, and services. Under this plan, the Company developed its white label software solution for BOTS under the 420 Cloud brand. After multiple attempts to secure acceptance in the market, the Company discontinued this operation during the fiscal year ended January 31, 2020.
In April 2020 the Company divested and sold its white label software solution and changed direction of its business. The Company has become a developer, engineer, and consultant in the industry of blockchain technologies.
Subsidiaries of the Company
On April 26, 2021, in a settlement agreement with Render Payment, LLC (“Render”) owners, the Company became the sole owner of Render, in exchange for an outstanding accounts receivable the Company impaired in 2019. The settlement was considered a related party transaction and conducted as an arm’s length transaction approved by board members not associated with Render. As part of the transaction the Company recognized other income of $
On June 21, 2021, the Company acquired all of the equity interests of 832 Energy Technology Consultants, LLC (“832”), pursuant to a Purchase Agreement. Upon the closing of the transaction (the “832 Acquisition”), 832 became a wholly owned subsidiary of the Company. 832, which is located in Texas, has developed many innovations in the areas of distributed computing, artificial intelligence and blockchain. For information on the 832 Acquisition refer to “Note 4. 832 Acquisition”.
On June 30, 2021, the Company acquired all of the equity interests of Mercury, Inc. (“Mercury”), pursuant to a Purchase Agreement dated April 24, 2021. Upon the closing of the transaction (the “Mercury Acquisition”), Mercury became a wholly owned subsidiary of the Company. The Company has utilized Mercury, which is located in Idaho, as its hosting solution since May 2020. The Company with Mercury will launch its mining operations in the western United States. The Company will commence mining for Bitcoins, Ethereum, and other alternative cryptocurrencies. For information on the Mercury Acquisition refer to “Note 5. Mercury Acquisition”.
On July 31, 2021, the Company acquired all of the equity interests of Vengar Technologies LLC (“Vengar”), pursuant to a Purchase Agreement. Upon the closing of the transaction (the “Vengar Acquisition”), Vengar became a wholly owned subsidiary of the Company. Vengar, which is located in Florida, has developed a zero trust protection software that the Company plans to integrate into its blockchain solutions. For information on the Vengar Acquisition refer to “Note 6. Vengar Acquisition”.
Note 2. Summary of Significant Accounting Policies
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 and recoverability of long-lived assets; property and equipment; 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.
| 8 |
| Table of Contents |
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.
Revenues from one customer represent $
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 $
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 $
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.
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.
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, 2021 and 2020 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.
Note 4. 832 Acquisition
On June 21, 2021, the Company acquired all the equity interests of 832. This acquisition is consistent with the Company’s strategy of expanding its blockchain business. The purchase price consisted of
This business combination has been accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair market values as of the acquisition date.
The purchase price recognized in our financial statements consisted of the following (amounts in thousands):
Common stock |
| $ |
| |
Total purchase price |
| $ |
|
| 9 |
| Table of Contents |
The Company’s preliminary purchase price allocation is as follows (amounts in thousands):
Cash |
| $ |
| |
Intangible assets |
|
|
| |
Accounts payable and accrued expenses |
|
| ( | ) |
Total preliminary purchase price |
| $ |
|
Intangible assets consist of blockchain source code for QueryChain.
The final purchase price and the allocation thereof will not be known until the valuation of intangible assets is completed.
The operations of 832 are included in the consolidated statement of operations as of June 21, 2021. During the three months ended October 31, 2021, the Company recorded revenue of $
Note 5. Mercury Acquisition
On June 30, 2021, the Company acquired all the equity interests of Mercury. This acquisition is consistent with the Company’s strategy of expanding its cryptocurrency business. The purchase price consisted of
This business combination has been accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair market values as of the acquisition date.
The purchase price recognized in our financial statements consisted of the following (amounts in thousands):
Cash |
| $ |
| |
Common stock |
|
|
| |
Total purchase price |
| $ |
|
The Company’s purchase price allocation is as follows (amounts in thousands):
Cash |
| $ |
| |
Accounts receivable |
|
|
| |
Property, plant & equipment |
|
|
| |
Goodwill |
|
|
| |
Accounts payable and accrued expenses |
|
| ( | ) |
Deferred revenue |
|
| ( | ) |
Notes payable |
|
| ( | ) |
Total purchase price |
| $ |
|
The goodwill recorded reflects the value to the Company of Mercury’s mining operations.
The operations of Mercury are included in the consolidated statement of operations as of July 1, 2021. During the three months ended October 31, 2021, the Company recorded revenue of $
Note 6. Vengar Acquisition
On July 31, 2021, the Company acquired all the equity interests of Vengar. This acquisition is consistent with the Company’s strategy of expanding its blockchain business. The purchase price consisted of
This business combination has been accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair market values as of the acquisition date.
The purchase price recognized in our financial statements consisted of the following (amounts in thousands):
Cash |
| $ |
| |
Common stock |
|
|
| |
Total purchase price |
| $ |
|
| 10 |
| Table of Contents |
The Company’s preliminary purchase price allocation is as follows (amounts in thousands):
Cash |
| $ |
| |
Intangible assets |
|
|
| |
Accounts payable and accrued expenses |
|
| ( | ) |
Total preliminary purchase price |
| $ |
|
Intangible assets consist of patents.
The final purchase price and the allocation thereof will not be known until the valuation of intangible assets is completed.
The operations of Vengar are included in the consolidated statement of operations as of August 1, 2021. During the three and nine months ended October 31, 2021, the Company recorded no revenue and net loss of $0.1 million related to Vengar.
Note 7. Revenue
Under Topic 606, revenue is recognized 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. |
Revenue was $62,000 for the three and nine months ended October 31, 2020, consisting of consulting and service revenue. The following table presents revenue for the three and nine months ended October 31, 2021 disaggregated by revenue source (in thousands):
Revenue | ||||||||
|
|
|
| |||||
Net revenue |
| For the Three Months Ended October 31, 2021 |
|
| For the Nine Months Ended October 31, 2021 |
| ||
Transactional revenue |
|
|
|
|
|
| ||
Consulting and services revenue |
| $ |
|
| $ |
| ||
Total transaction revenue |
|
|
|
|
|
| ||
Subscription and services revenue |
|
|
|
|
|
|
|
|
Staking revenue |
|
|
|
|
|
| ||
Total subscription and services revenue |
|
|
|
|
|
| ||
Total net revenue |
|
|
|
|
|
| ||
Other revenue |
|
|
|
|
|
|
|
|
Fair value adjustment to cryptocurrency |
|
|
|
|
|
| ||
Crypto asset sales revenue |
|
|
|
|
|
| ||
Interest income |
|
|
|
|
|
| ||
Total other revenue |
|
|
|
|
|
| ||
Total revenue |
| $ |
|
| $ |
| ||
Transaction revenue
The Company charges a fee for its services at the transactional level. Currently the Company is engaged in developing, engineering, and designing blockchain projects, to include platforms and cryptocurrencies for customers. We typically treat all revenue generated from third parties for services as transaction revenue.
| 11 |
| Table of Contents |
Subscription and service revenue
Subscription and service revenue primarily consist of staking revenue. The Company participates in networks with proof-of-stake 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.
Other revenues
The Company includes interest income as a part of revenue when generated from non-cash equivalents as other revenue within net revenue. Interest earned on cash and cash equivalents is included in corporate interest income, within other income.
Other revenue also includes the sale of crypto assets. The Company records the total value of the sale in other revenue and the cost of the crypto assets in cost of sales within the consolidated statements of operations.
Note 8. Notes
On March 17, 2021, the Company entered into a loan agreement for $
Note 9. Related Party Transactions
During the nine months ended October 31, 2021 and year ended January 31, 2021, Overwatch Partners paid multiple different expenses on behalf of the Company, which the Company treats as an account payable to related party. The total amount owed by the Company to Overwatch Partners as of October 31, 2021 was $
On August 9, 2021, Eric Jaffe exercised his warrants of
On July 6, 2021, the Company entered into a settlement agreement with BOTS, Inc. Under the settlement agreement, BOTS agreed to return
During the quarter ended July 31, 2021, the Company issued
On April 12, 2021 Epic exercised the warrant it had and purchased
During the quarter ended April 30, 2021, the Company issued seven warrants to its officers and directors for the purchase of up to a total of
On March 17, 2021 the Company borrowed $
On April 29, 2020 the Company converted
On April 22, 2020 the Company converted $
On April 17, 2020, the Company issued
On April 17, 2020, the Company issued
| 12 |
| Table of Contents |
Note 10. Stockholders’ Equity
Common Stock
As of October 31, 2021 and January 31, 2021, the Company had
On October 21, 2021, the Company sold
On September 13, 2021, the Law Offices of Carl G. Hawkins exercised their warrant acquiring
On August 25, 2021, the Company sold
On August 9, 2021, Eric Jaffe exercised his warrants of
On July 31, 2021, the Company issued
On June 30, 2021, the Company issued
On June 30, 2021, the Company issued
On June 24, 2021, the Company issued
On June 21, 2021, the Company issued
On May 23, 2021, the Company entered into an Investor Relations agreement with RedChip Companies. The term of the agreement is for one year. The Company will pay $
On May 23, 2021, the Company issued
On April 12, 2021, Epic exercised the warrant it had and purchased
On April 22, 2020, the Company converted the following accounts payable into shares of common stock at the rate of $
Name |
| AP Balance |
|
| Shares Issued |
|
| FMV |
|
| Stock Based Compensation |
| ||||
Paul Rosenberg |
| $ |
|
|
|
|
| $ |
|
| $ |
| ||||
Brandy Craig |
| $ |
|
|
|
|
| $ |
|
| $ |
| ||||
Law Offices of Carl G Hawkins |
| $ |
|
|
|
|
| $ |
|
| $ |
| ||||
Thomas G Amon |
| $ |
|
|
|
|
| $ |
|
| $ |
| ||||
Total |
| $ |
|
|
|
|
| $ |
|
| $ |
| ||||
| 13 |
| Table of Contents |
Preferred Stock
Series A Preferred
As of October 31, 2021 and January 31, 2021, the Company had 1 million Series A Preferred shares, par value $
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.
During the quarter ended April 30, 2020 the Company sold
Series B Preferred
As of October 31, 2021 and January 31, 2021, the Company had 1.5 million Series B Preferred shares, par value $
On July 6, 2021, the Company entered into a settlement agreement with BOTS, Inc. Under the settlement agreement, BOTS agreed to return
During the quarter ended April 30, 2020, the Company issued
On April 29, 2020, the Company converted
Note 11. Basic Income per Share
Basic Income Per Share - The computation of basic and diluted income (loss) per common share is based on the weighted average number of shares outstanding during each period. The basic income per share for the three and nine months ended October 31, 2021 was $
Note 12. 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 incur and that the amount of the loss can be reasonably estimated. The Company recognized $
| 14 |
| Table of Contents |
Note 13. 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.
Cease and Desist Notice
On November 2, 2021, the Company received a cease and desist notice (the “Notice”) from First Genesis, Inc. (“First Genesis”). The Notice alleges, among other things, that Cedric Harris, the Company’s Chief Research Officer, and the Company were using First Genesis’ intellectual property. Mr. Harris, through 832, developed First Genesis’ intellectual property and has been providing First Genesis with consulting services. 832’s intellectual property, which Mr. Harris also developed, is completely different than the First Genesis intellectual property. We believe that the allege claims by First Genesis are without merit and the Company will continue to vigorously defend against the allegations in the Notice.
Note 14. Warrants
On October 21, 2021, the Company issued a warrant to a stockholder of the Company for the purchase of up to a total of
On September 30, 2021, the Company issued a warrant to Myosin, Inc. for the purchase of up to a total of
On September 22, 2021, the Company issued a warrant to one officer of the Company (Bill Regan) for the purchase of up to a total of
On September 20, 2021, the Company issued a warrant to a consultant of the Company (Sophie Grinevald) for the purchase of up to a total of
On September 20, 2021, the Company issued a warrant to one director of the Company (Thomas Amon) for the purchase of up to a total of
On September 15, 2021, the Company issued a warrant to one director of the Company (Richard Schaeffer) for the purchase of up to a total of
On July 31, 2021, the Company issued warrants to two officers of the Company (Toney Jennings and Brandon Hart) for the purchase of up to a total of
On June 21, 2021, the Company issued a warrant to one officer of the Company (Cedric Harris) for the purchase of up to a total of
On March 11, 2021, the Company issued warrants to three officers of the Company (Robert Adams, Eric Jaffe, and Michael Hawkins) for the purchase of up to a total consolidated 600,000 shares of common stock at $
On February 1, 2021, the Company issued warrants to four directors of the Company (Mark Gilroy, Michael Hawkins, Paul Rosenberg, and Robert Adams) for the purchase of up to a total consolidated
On November 1, 2017, the Company issued 7 warrants to officers, directors, and investors for the purchase of up to
| 15 |
| Table of Contents |
A summary of warrant activity for nine months ended October 31, 2021 is as follows:
|
|
|
| Weighted |
| |||
|
|
|
| Average |
| |||
|
|
|
| Conversion |
| |||
|
| Shares |
|
| Price |
| ||
|
|
|
|
|
|
| ||
Warrants outstanding at January 31, 2021 |
|
|
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Exercised |
|
| ( | ) |
|
|
| |
Granted |
|
|
|
|
|
| ||
Warrants outstanding at October 31, 2021 |
|
|
|
| $ |
| ||
Note 15: Sale of Assets to Related Party
On May 13, 2020, the Company sold its 420 Cloud Software to First Bitcoin Capital, Inc., for the purchase price of $1.9 million. The $
Note 16. Cryptocurrency Assets
The Company records cryptocurrency assets as an intangible asset with infinite life. We classify cryptocurrency that have a market value and substantial liquidity as current intangible assets, which we value at fair market value in accordance with Statement No. 157. Cryptocurrencies that do not trade on a market or have limited liquidity are classified as non-current intangible assets and are recorded on a cost basis. The following chart shows our cryptocurrency assets as of October 31, 2021 and January 31, 2021:
Cryptocurrency Holdings | ||||||||
Current Assets (in thousands) | ||||||||
|
| As of |
|
| As of |
| ||
|
| October 31, 2021 |
|
| January 31, 2021 |
| ||
Coin Symbol |
| FMV |
|
| FMV |
| ||
BTC |
| $ |
|
| $ |
| ||
ETH |
|
|
|
|
|
| ||
GUSD |
|
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| ||
USDC |
|
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| ||
HEX |
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|
|
| ||
|
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Non-Current Assets (in thousands) | ||||||||
|
| As of |
|
| As of |
| ||
|
| October 31, 2021 |
|
| January 31, 2021 |
| ||
Coin Symbol |
| Cost Basis |
|
| Cost Basis |
| ||
PRES |
| $ |
|
| $ |
| ||
BIT |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
Note 17. Subsequent Events
In accordance with ASC 855-10, Company management reviewed all material events through the date of this report and determined that there are no additional material subsequent events to report.
| 16 |
| Table of Contents |
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.
EXECUTIVE OVERVIEW
The executive 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 10Q.
Our strong results for the three and nine months ended October 31, 2021 reflect the strength of the crypto price cycle we entered in Q4 2020. We saw many crypto assets reach all time high prices, high levels of volatility, and increased interest across the entire blockchain. Crypto market capitalization reached $2 trillion at the end of the third quarter compared to $1 trillion at the end of last quarter of the last fiscal year. We are well positioned to take advantage of this market trend.
Our involvement in certain development projects since revamping our operations in April 2020 has provided substantial amounts of cryptocurrencies at entry point levels during initial roll out of new platforms and products. Accepting these payments in cryptocurrencies has opened the doors to staking and interest earning at unprecedented rates within the markets which has compounded our growth. While we accept certain and inherent risks associated with the volatility of the current blockchain markets, our involvement with clients birthing new products limits our risks to time, effort, and energy risks which shields us from the blockchain markets rise and falls. While we are not immune to the variances within the market, our basis of entry is often low and as such can withstand the day-to-day valuations of the market.
Despite our strong results, the rapid expansion of blockchain also creates challenges for us. Competition is increasing as new market entrants join the blockchain every month. Our competitors are supporting certain crypto assets that are experiencing large trading volume and growth in market capitalization that we do not currently participate in, as well as offering new products and services that we are developing and/or do not offer. We welcome these challenges as they indicate that the market we serve is growing rapidly, but we also have to continue to move quickly to address them, and that inspires us towards action and growth.
HISTORY AND BACKGROUND
Change of Control
On April 17, 2020 shares of Series A Preferred stock were issued to two parties effecting the Company’s change of control.
Business Model
The Company’s early model was to earn revenue through social media advertising, fees, and services. Under this plan, the Company developed its white label software solution for BOTS under the 420 Cloud brand. After multiple attempts to secure acceptance in the market, the Company discontinued this operation during the fiscal year ended January 31, 2020.
In April 2020 the Company divested and sold its white label software solution and changed direction of its business. The Company has become a developer, engineer, and consultant in the industry of blockchain technologies.
GENERAL OVERVIEW
Our current website can be found at www.everythingblockchain.io which is not incorporated as part of this Form 10Q.
| 17 |
| Table of Contents |
EMPLOYEES AND CONSULTANTS
As of October 31, 2021, the Company has 19 employees. We currently utilize various consultants who fulfill a majority of the sales and marketing aspects of the business operations.
Available Information
All reports of the Company filed with the SEC are available free of charge through the SEC’s Web site 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.
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. No material change has occurred to our critical accounting policies and estimates from the information provided in the Annual Report.
Results of Operations
Our operating results for the three and nine months ended October 31, 2021 and 2020 are summarized as follows (in thousands):
|
| For the Three Months Ended October 31, |
|
| For the Nine Months Ended October 31, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (in thousands) |
| |||||||||||||
Revenue |
| $ | 4,906 |
|
| $ | 62 |
|
| $ | 11,603 |
|
| $ | 62 |
|
Cost of sales |
|
| 723 |
|
|
| - |
|
|
| 3,469 |
|
|
| - |
|
Gross profit |
|
| 4,183 |
|
|
| 62 |
|
|
| 8,134 |
|
|
| 62 |
|
Total operating expenses |
|
| 938 |
|
|
| 674 |
|
|
| 1,788 |
|
|
| 49,949 |
|
Operating income (loss) |
| $ | 3,245 |
|
| $ | (612 | ) |
| $ | 6,346 |
|
| $ | (49,887 | ) |
Results of Operations for the three and nine months ended October 31, 2021 and 2020
Revenue
We generated $4.9 million in revenue for the three months ended October 31, 2021 as compared to $0.1 million in revenue for the three months ended October 31, 2020. Revenue generated for the quarter ended October 31, 2021 primarily consisted of $2.3 million from fair value adjustment to the cryptocurrencies, $1.7 million from cryptocurrency sales, $0.7 million from consulting services, and $0.1 million from staking.
We generated $11.6 million in revenue for the nine months ended October 31, 2021 as compared to $0.1 million in revenue for the nine months ended October 31, 2020. Revenue generated for the nine months ended October 31, 2021 primarily consisted of $4.7 million from fair value adjustment to the cryptocurrencies, $4.7 million from cryptocurrency sales, $2.0 million from consulting services, and $0.2 million from staking.
| 18 |
| Table of Contents |
Cost of Sales
Cost of sales for the three months ended October 31, 2021 was $0.7 million as compared to no cost of sales for the three months ended October 31, 2020. Cost of sales for the three months ended October 31, 2021 primarily consisted of cost of cryptocurrency of $0.5 million and $0.2 million in product costs and commissions.
Cost of sales for the nine months ended October 31, 2021 was $3.5 million as compared to no cost of sales for the nine months ended October 31, 2020. Cost of sales for the nine months ended October 31, 2021 primarily consisted of $2.2 million in labor costs and commissions and cost of cryptocurrency of $1.2 million.
Gross Profit
Gross profit for the three months ended October 31, 2021 was $4.2 million as compared to $0.1 million for the three months ended October 31, 2020.
Gross profit for the nine months ended October 31, 2021 was $8.1 million as compared to $0.1 million for the nine months ended October 31, 2020.
Operating Expenses
Operating expenses consist primarily of selling, general and administrative expenses and amortization and depreciation expense. Selling, general and administrative expenses include personnel costs, consultant fees, bank charges, telephone expenses, meals and entertainment, computer and internet expenses, postage and delivery, office supplies, professional fees, reporting fees, and other miscellaneous fees.
Our operating expenses increased by $0.2 million to $0.9 million for the three months ended October 31, 2021, from $0.7 million for the three months ended October 31, 2020. The primary reason for the increase was due to the acquisitions of Render, 832, Mercury, and Vengar, partially offset by a decrease in consulting expenses.
Our operating expenses decreased by $48.1 million to $1.8 million for the nine months ended October 31, 2021, from $49.9 million for the nine months ended October 31, 2020. The primary reason for the decrease was due to stock-based compensation of $49.2 million, which was recorded for the nine months ended October 31, 2020, partially offset by increases in operating expenses due to the acquisitions of Render, 832, Mercury, and Vengar.
Operating Income (Loss)
Our operating income increased by $3.9 million to operating income of $3.2 million for the three months ended October 31, 2021 as compared to an operating loss of $0.6 million for the three months ended October 31, 2020. The primary reason for the increase in operating income was due to the increase in revenue as discussed above.
Our operating income increased by $56.2 million to operating income of $6.3 million for the nine months ended October 31, 2021 as compared to an operating loss of $49.9 million for the nine months ended October 31, 2020. The primary reason for the increase in operating income was due to the increase in revenue and decrease in stock-based compensation as discussed above.
Liquidity and Capital Resources
During the nine months ended October 31, 2021 we gained $1.5 million in cash. Our cash on hand as October 31, 2021 was $1.5 million. Based on our revenues, cash on hand and current monthly burn rate, the Company can sustain its operations going forward.
Sources and Uses of Cash
Operating Activities
Net cash used in operating activities was $2.0 million for the nine months ended October 31, 2021. We had net income of $6.5 million, which included fair value adjustment to cryptocurrencies of $4.7 million.
Net cash provided by operating activities was $0 for the nine months ended October 31, 2020. We had net loss of $49.4 million, which included stock-based compensation of $49.2 million.
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Investing Activities
Net cash provided by investing activities was $3.3 million for the nine months ended October 31, 2021, compared to $0 for the same period in the prior year. During the nine months ended October 31, 2021, we sold $4.7 million of cryptocurrencies and purchased $1.3 million of cryptocurrencies.
Financing Activities
Net cash provided by financing activities was $0.3 million for the nine months ended October 31, 2021, compared to $0 for the same period in the prior year. During the nine months ended October 31, 2021, we had proceeds from issuance of common stock of $0.8 million and we paid off debt to a related party of $0.5 million.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that we consider material.
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 financial statements for the three and nine months ended October 31, 2021 and 2020 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 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.
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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, 2021. 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, 2021 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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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 October 21, 2021, the Company sold 25,000 shares of common stock to an individual for $150,000 or $6.00 per share of common stock.
On September 13, 2021, the Law Offices of Carl G. Hawkins exercised their warrant acquiring 40,000 shares at the strike price of $1.00 per share through the conversion of the accounts payable owed by the Company for services provided. The shares were issued in the name of Carl G. Hawkins.
On August 25, 2021, the Company sold 21,000 shares of common stock to an individual for $126,000 or $6.00 per share of common stock.
On August 9, 2021, Eric Jaffe exercised his warrants of 50,000 shares at the exercise price of $2.12 per share on a cashless basis, resulting in the issuance of 42,246 shares of common stock.
During the quarter ended July 31, 2021, the Company issued 50,000 shares of Series A Preferred Stock to Epic.
On July 31, 2021, the Company issued 1,000,000 shares of common stock as part of the Vengar Acquisition.
On June 30, 2021, the Company issued 300,000 shares of common stock to Chris Carter as part of his employment contract for a three-year period. The shares shall be fully earned upon completion of his three-year contract.
On June 17, 2021, the Company issued 5,000 shares of common stock each to Sophie Grinevald and Bill Regan for services provided.
On June 21, 2021, the Company issued 300,000 shares of common stock as part of the 832 Acquisition.
On June 30, 2021, the Company issued 450,000 shares of common stock as part of the Mercury Acquisition.
On May 23, 2021, the Company issued 75,000 shares of common stock to RedChip Companies, Inc.
On May 19, 2021, the Company issued 5,000 shares of common stock to Sarah Moline for services provided.
On April 12, 2021, Epic exercised the warrant it had and purchased 100,000 shares of common stock in exchange for $100,000. Epic elected to issue the shares in the name of Timothy R Schucker and Anastasia Hawkins JTWROS, the daughter and son-in-law of Michael Hawkins.
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On April 22, 2020, the Company converted the following accounts payable into shares of common stock at the rate of $0.75 per share.
Name |
| Shares Issued |
| |
Paul Rosenberg |
|
| 130,128 |
|
Brandy Craig |
|
| 88,455 |
|
Law Offices of Carl G Hawkins |
|
| 8,504 |
|
Thomas G Amon |
|
| 19,230 |
|
Total |
|
| 246,317 |
|
During the quarter ending April 30, 2020 the Company sold 150,000 shares of Series A Preferred Stock to Epic at par value for a total payment of $15. Epic, through its sole shareholder directed the Company to issue 100,000 shares of Series A Preferred stock to Overwatch Partners, Inc., with the remaining 50,000 shares to Epic.
During the quarter ending April 30, 2020, the Company issued 150,000 shares of Series B Preferred stock to Paul Rosenberg in exchange for 60 cryptocurrency ATM machines.
On April 29, 2020, the Company converted 5,000,000 shares of common stock owned by BOTS, Inc., into 500,000 shares of Series B Preferred stock.
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.
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Item 6. Exhibits
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101 |
| Interactive data files pursuant to Rule 405 of Regulation S-T. | ||
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| 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). | ||
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| 101.SCH |
| Inline XBRL Taxonomy Extension Schema Document. | ||
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| 101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. | ||
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| 101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. | ||
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101.LAB |
| Inline XBRL Taxonomy Extension Labels Linkbase Document. | ||
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101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. | ||
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104 |
| Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). | ||
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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. |
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Dated: December 15, 2021 |
| /s/ Eric Jaffe |
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| By: | Eric Jaffe |
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| Its: | Chief Executive Officer (Principal Executive Officer) |
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Dated: December 15, 2021 |
| /s/ William Regan |
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| By: | William Regan |
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| Its: | Interim Chief Financial Officer (Principal Financial Officer) |
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