UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM ~~10-Q~~10-Q/A

Amendment No. 1

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~September~~June 30, ~~2019~~2018

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ~~___~~_____ to ~~___~~_____

Commission File No. 000-53361

	Ecoark Holdings, Inc.
	(Exact name of Registrant as specified in its charter)

Nevada		30-0680177
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

~~5899 Preston Road #505, Frisco, TX 75034~~

~~(Address of principal executive offices) (Zip Code)~~

5899 Preston Road #505, Frisco, TX 75034

	~~(479) 259-2977~~
~~(Registrant’s telephone number, including area code)~~

(Address of principal executive offices) (Zip Code)

	~~Not applicable~~
~~(Former name, former address and former fiscal year, if changed since last report)~~

~~Securities registered pursuant to Section 12(b) of the Act:~~(479) 259-2977

(Registrant’s telephone number, including area code)

~~Title of each class~~		~~Trading Symbol(s)~~		~~Name of each exchange on which registered~~
~~Common Stock~~		~~ZEST~~		~~OTCQB~~

Not applicable

(Former name, former address and former fiscal year, 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 Exchange Act 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 at least the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “accelerated filer,” “large accelerated filer,” “smaller reporting company,” or “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

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 ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered

There were ~~68,771,586~~48,972,306 shares of the Registrant’s $0.001 par value common stock outstanding as of ~~November 15, 2019.~~August 6, 2018.

Explanatory Note

We are amending this Form 10-Q to correct previous reported amounts and disclosures related to the accounting for warrants in connection with capital raises in March 2017, May 2017 and March 2018. The results of the corrections impacted the Company’s liabilities, stockholders’ equity and its results of operations and earnings per share calculations.

Ecoark Holdings, Inc.

INDEX

		Page No.

Part I. Financial Information		1

Item 1.	Condensed Consolidated Financial Statements	1

	Condensed Consolidated Balance Sheets	2

	Condensed Consolidated Statements of Operations	3

	~~Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)~~	4

	Condensed Consolidated Statements of Cash Flows	54

	Notes to Condensed Consolidated Financial Statements	65

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2319

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3028

Item 4.	Controls and Procedures	3129

Part II. Other Information		3230

Item 1.	Legal Proceedings	3230

Item 1A.	Risk Factors	3230

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3230

Item 3.	Default Upon Senior Securities	3330

Item 4.	Mine Safety Disclosures	3330

Item 5.	Other Information	3330

Item 6.	Exhibits	3331

Signatures		3432

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~JUNE 30, ~~2019~~2018

Table of Contents

Balance Sheets	2
Statements of Operations	3
~~Statements of Changes in Stockholders’ Equity (Deficit)~~	4
Statements of Cash Flows	54
Notes to Financial Statements	65 - 2218

ECOARK HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (RESTATED)

(Dollars in thousands,
except per share data)
September 30, March 31,
2019 2019
(Unaudited)
ASSETS
CURRENT ASSETS
Cash ($15 pledged as collateral for credit) $ 449 $ 244
Accounts receivable, net of allowance of $569 and $573 as of September 30, 2019 and March 31, 2019, respectively 53 520
Prepaid expenses and other current assets 216 900
Current assets held for sale - 23
Total current assets 718 1,687
NON-CURRENT ASSETS
Goodwill 3,223 -
Property and equipment, net 676 824
Other assets 25 27
Total non-current assets 3,924 851
TOTAL ASSETS $ 4,642 $ 2,538

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable $ 663 $ 1,416
Accrued liabilities 872 828
Note payable 2,335 1,350
Notes payable – related parties 403 -
Derivative liabilities 2,242 3,104
Current liabilities held for sale - 34
Total current liabilities 6,515 6,732
NON-CURRENT LIABILITIES - -
COMMITMENTS AND CONTINGENCIES
Total liabilities 6,515 6,732

STOCKHOLDERS’ DEFICIT (Numbers of shares rounded to thousands)

Preferred stock, $0.001 par value; 5,000 shares authorized; 2 issued -
Common stock, $0.001 par value; 100,000 shares authorized, 62,648 shares issued and 62,063 shares outstanding as of September 30, 2019 and 52,571 shares issued and 51,986 shares outstanding as of March 31, 2019 63 53
Additional paid-in-capital 121,656 113,310
Accumulated deficit (121,921 ) (115,886 )
Treasury stock, at cost (1,671 ) (1,671 )
Total stockholders’ deficit (1,873 ) (4,194 )
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT $ 4,642 $ 2,538

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~

~~ECOARK HOLDINGS, INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)~~

Three Months Ended Six Months Ended
September 30, September 30,
2019 2018 2019 2018
(Restated) (Restated)
CONTINUING OPERATIONS:
REVENUES $ 44 $ 286 $ 79 $ 1,039
COST OF REVENUES 16 207 61 637
GROSS PROFIT 28 79 18 402
OPERATING EXPENSES:
Selling, general and administrative 1,683 2,493 3,232 4,584
Depreciation, amortization, and impairment 71 308 148 617
Research and development 788 771 1,685 1,641
Total operating expenses 2,542 3,572 5,065 6,842
Loss from continuing operations before other expenses (2,514 ) (3,493 ) (5,047 ) (6,440 )

OTHER INCOME (EXPENSE):
Change in fair value of derivative liabilities (960 ) 715 (16 ) 1,036
Loss on exchange of warrants for common stock (839 ) (839 )
(Interest expense), net of interest income (76 ) 4 (135 ) (7 )
Total other income (expenses) (1,875 ) 719 (990 ) 1,029
LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES (4,389 ) (2,774 ) (6,037 ) (5,411 )
DISCONTINUED OPERATIONS:
Loss from discontinued operations (576 ) - (1,166 )
Gain on disposal of discontinued operations - - 2 -
Total discontinued operations (576 ) 2 (1,166 )
PROVISION FOR INCOME TAXES - - - -
NET LOSS $ (4,389 ) $ (3,350 ) $ (6,035 ) $ (6,577 )

NET LOSS PER SHARE
Basic and diluted: Continuing operations $ (0.07 ) $ (0.07 ) $ (0.10 ) $ (0.13 )
Discontinued operations - (0.01 ) - (0.02 )
Total $ (0.07 ) $ (0.08 ) $ (0.10 ) $ (0.15 )

SHARES USED IN CALCULATION OF NET LOSS PER SHARE
Basic and diluted 61,967 50,500 58,227 49,739

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~

~~ECOARK HOLDINGS, INC. AND SUBSIDIARIES~~
~~CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)~~
~~SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018~~

(Dollar amounts and number of shares in thousands)
Preferred Common Stock Additional Paid-in Accumulated Treasury
Shares Amount Shares Amount Capital Deficit Stock Total

Balance at March 31, 2019 - $ - 52,571 $ 53 $ 113,310 $ (115,886 ) $ (1,671 ) $ (4,194 )

Shares issued – Trend Holdings acquisition - - 5,500 5 3,231 - - 3,236

Share-based compensation - - - - 582 - - 582

Net loss for the period - - - - (1,646 ) - (1,646 )

Balance at June 30, 2019 - - 58,071 58 117,123 (117,532 ) (1,671 ) (2,022 )
Shares issued in exchange for warrants - - 4,277 4 3,289 - - 3,293

Shares issued for services rendered - - 300 1 210 - - 211

Preferred stock issuance 2 - - - 404 - - 404

Share-based compensation - - - - 630 - - 630

Net loss for the period - - - - (4,389 ) - (4,389 )

Balance at September 30, 2019 2 $ - 62,648 $ 63 $ 121,656 $ (121,921 ) $ (1,671 ) $ (1,873 )
Balance at March 31, 2018 (Restated) - $ - 49,468 $ 49 $ 108,585 $ (102,236 ) $ (1,618 ) $ 4,780

Shares-based compensation - - 65 1 1,086 - - 1,087

Shares purchased from employees in lieu of taxes - - - - - - (23 ) (23 )

Net loss for the period - - - - - (3,227 ) - (3,227 )

Balance at June 30, 2018 (Restated) 49,533 50 109,671 (105,463 ) (1,641 ) 2,617

Shares issued - - 2,969 3 1,646 - - 1,649

Shares-based compensation - - 350 - 1,014 - - 1,014

Shares purchased from employees in lieu of taxes - - - - - - (19 ) (19 )

Net loss for the period - - - - - (3.350 ) - (3.350 )

Balance at September 30, 2018 (Restated) - $ - 52,537 $ 53 $ 112,331 $ (108,813 ) $ (1,660 ) $ 1,911

	(Dollars in thousands,
	except per share data)
	June 30,			March 31,
	2018 (Restated)			2018 (Restated)
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash ($100 pledged as collateral for credit)	$	1,748		$	3,730
Accounts receivable, net of allowance of $87 and $87 as of June 30, 2018 and March 31, 2018, respectively		2,014			2,617
Prepaid expenses		208			242
Current assets held for sale - (Note 2)		1,087			645
Total current assets		5,057			7,234
NON-CURRENT ASSETS
Property and equipment, net		2,448			2,619
Intangible assets, net		1,407			1,545
Non-current assets held for sale - (Note 2)		1,018			1,023
Other assets		26			26
Total non-current assets		4,899			5,213
TOTAL ASSETS	$	9,956		$	12,447

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable	$	2,537		$	2,350
Accrued liabilities		914			1,080
Derivative liabilities		3,373			3,694
Current portion of long-term debt		500			500
Current liabilities held for sale - (Note 2)		15			43
Total current liabilities		7,339			7,667
NON-CURRENT LIABILITIES		-			-
COMMITMENTS AND CONTINGENCIES
Total liabilities		7,339			7,667

STOCKHOLDERS’ EQUITY (Numbers of shares rounded to thousands)

Preferred stock, $0.001 par value; 5,000 shares authorized; none issued
Common stock, $0.001 par value; 100,000 shares authorized, 49,533 shares issued and 48,972 shares outstanding as of June 30, 2018 and 49,468 shares issued and 48,923 shares outstanding as of March 31, 2018		50			49
Additional paid-in-capital		109,671			108,585
Accumulated deficit		(105,463	)		(102,236	)
Treasury stock, at cost		(1,641	)		(1,618	)
Total stockholders’ equity		2,617			4,780
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	9,956		$	12,447

The accompanying notes are an integral part of these condensed consolidated financial statements.

ECOARK HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~OPERATIONS (UNAUDITED) (RESTATED)

Six Months Ended
September 30,
2019 2018
(Dollars in thousands)
(Restated)
Cash flows from operating activities:
Net loss $ (6,035 ) $ (6,577 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and impairment 148 617
Share-based compensation - services rendered 522 200
Share-based compensation – employees 900 1,900
Change in fair value of derivative liabilities 16 (1,036 )
Loss on exchange of warrants for common stock 839
Commitment fees on credit facility advances 34
Loss from discontinued operations - 1,166
Gain on sale of discontinued operations (2 ) -
Cash acquired in acquisition 3 -
Changes in assets and liabilities:
Accounts receivable 467 1,401
Inventory - (147 )
Prepaid expenses and other current assets 717 48
Other assets 1 -
Accounts payable (753 ) (1,134 )
Accrued liabilities 9 (226 )
Net cash used in operating activities of continuing operations (3,134 ) (3,788 )
Net cash used in discontinued operations - (1,114 )
Net cash used in operating activities (3,134 ) (4,902 )

Cash flows from investing activities:
Proceeds from sale of Magnolia Solar 5 -
Purchases of property and equipment - (18 )
Net cash provided by (used in) investing activities of continuing operations 5 (18 )
Net cash used in investing activities of discontinued operations - (166 )
Net cash provided by (used in) investing activities 5 (184 )

Cash flows from financing activities:
Proceeds from credit facility 951 -
Advances from related parties 403 -
Proceeds from issuance of preferred stock, net of fees 1,980
Proceeds from issuance of common stock, net of fees - 4,221
Repayment of debt - (500 )
Purchase of treasury shares from employees for tax withholdings - (42 )
Net cash provided by financing activities 3,334 3,679
NET INCREASE (DECREASE) IN CASH 205 (1,407 )
Cash - beginning of period 244 3,730
Cash - end of period $ 449 $ 2,323

SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ - $ 11
Cash paid for income taxes $ - $ -

SUMMARY OF NONCASH ACTIVITIES:
Exchange of common stock for warrants $ 3,293 $ -
Assets acquired via acquisition of Trend Discovery Holdings, Inc.:
Receivables $ 10 $ -
Other assets $ 1 $ -
Goodwill $ 3,223 $ -

	Three Months Ended
	June 30,
	2018			2017
	(Dollars in thousands,
	except per share data)
	(Restated)			(Restated)
CONTINUING OPERATIONS:
REVENUES	$	753		$	1
COST OF REVENUES		430			13
GROSS PROFIT (LOSS)		323			(12	)
OPERATING EXPENSES:
Selling, general and administrative		2,091			11,890
Depreciation, amortization, and impairment		309			120
Research and development		870			1,620
Total operating expenses		3,270			13,630
Loss from continuing operations before other expenses		(2,947	)		(13,642	)

OTHER INCOME (EXPENSE):
Change in fair value of derivative liability		321			3,346
Interest expense, net of interest income		(11	)		(15	)
Total other income (expenses)		310			3,331
LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES		(2,637	)		(10,311	)
DISCONTINUED OPERATIONS:
Loss from discontinued operations		(590	)		(588	)
Gain on disposal of discontinued operations		-			636
Total discontinued operations		(590	)		48
PROVISION FOR INCOME TAXES		-			-
NET LOSS	$	(3,227	)	$	(10,263	)

NET LOSS PER SHARE
Basic and diluted: Continuing operations	$	(0.06	)	$	(0.24	)
Discontinued operations	$	(0.01	)	$	-
Total	$	(0.07	)	$	(0.24	)

SHARES USED IN CALCULATION OF NET LOSS PER SHARE
Basic and diluted		48,960			43,247

The accompanying notes are an integral part of these condensed consolidated financial statements.

ECOARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (RESTATED)

	Three Months Ended
	June 30,
	2018			2017
	(Dollars in thousands)
Cash flows from operating activities:
Net loss	$	(3,227	)	$	(10,263	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and impairment		362			254
Shares of common stock issued for services rendered		136			1,314
Share-based compensation – stock – employees		951			6,938
Share-based compensation due to employment agreements		-			1,500
Change in fair value of derivative liabilities		(321	)		(3,346	)
Loss from discontinued operations		590			588
Gain on sale of discontinued operations		-			(636	)
Changes in assets and liabilities:
Accounts receivable		573			95
Inventory		(437	)		(494	)
Prepaid expenses		46			(290	)
Other current assets		13			(498	)
Other assets		-			4
Accounts payable		158			(479	)
Accrued liabilities		(167	)		(1,824	)
Net cash used in operating activities of continuing operations		(1,323	)		(7,137	)
Net cash used in discontinued operations		(590	)		(439	)
Net cash used in operating activities		(1,913	)		(7,576	)

Cash flows from investing activities:
Proceeds from sale of Eco3d		-			2,006
Purchases of property and equipment					(12	)
Net cash provided by investing activities of continuing operations		-			1,994
Net cash used in investing activities of discontinued operations		(46	)		(33	)
Net cash provided by (used in) investing activities		(46	)		1,961

Cash flows from financing activities:
Proceeds from issuance of common stock, net of fees		-			9,106
Purchase of treasury shares from employees for tax withholdings		(23	)		(577	)
Net cash provided by (used in) financing activities		(23	)		8,529
NET INCREASE (DECREASE) IN CASH		(1,982	)		2,914
Cash - beginning of period		3,730			8,646
Cash - end of period	$	1,748		$	11,560

SUPPLEMENTAL DISCLOSURES:
Cash paid for interest	$	11		$	15
Cash paid for income taxes	$	-		$	-

SUMMARY OF NONCASH ACTIVITIES:
Assets acquired via acquisition of 440labs, Inc.:
Identifiable intangible assets	$	-		$	1,435
Goodwill	$	-		$	65

The accompanying notes are an integral part of these condensed consolidated financial statements.

ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
~~SEPTEMBER~~JUNE 30, ~~2019~~2018

NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Ecoark Holdings, Inc. (“Ecoark Holdings” or the “Company”) is an innovative AgTech company that is focused on modernizing the post-harvest fresh food supply chain for a wide range of organizations including growers, distributors and retailers. Ecoark Holdings is a holding company that supports the businesses of its subsidiaries. Ecoark Holdings is the parent company of ~~Trend Discovery Holdings, LLC,~~ Ecoark, Inc. and Magnolia Solar Inc. ~~(through its sale in May 2019).~~

~~Trend Discovery Holdings, LLC~~(“Trend Holdings”) is a holding company which earns management fees and whose primary asset is Trend Discovery Capital Management. Trend Discovery Capital Management manages several entities including Trend Discovery LP and Trend Discovery SPV I. Trend Discovery LP is a hybrid hedge fund. Trend Discovery LP primarily invests in early-stage startups.

Ecoark, Inc.(“Ecoark”) was founded in 2011 and is located in Rogers, Arkansas, the home office for Ecoark and Ecoark Holdings. Ecoark merged into a wholly-owned subsidiary of Magnolia Solar Corporation (“MSC”) on March 24, 2016, with Ecoark as the surviving entity. At the merger, MSC changed its name to Ecoark Holdings, Inc. Ecoark is the parent company of Eco360, Pioneer Products and Zest Labs ~~Inc.~~(formerly known as Intelleflex Corporation). Ecoark was also the parent company of Eco3d until it was sold in April 2017, as discussed below.

Eco3d, LLC (“Eco3d”) is located in Phoenix, Arizona and provides customers with 3d technologies. Eco3d was formed by Ecoark in November 2013 and Ecoark owned 65% of the LLC. The remaining 35% was reflected as non-controlling interest until September 2016 when Ecoark Holdings issued shares of stock in exchange for the 35% non-controlling interest. Eco3d provides 3d mapping, modeling, and consulting services for clients in retail, construction, healthcare, and other industries throughout the United States. As described further in Note 2, in March 2017 the Ecoark Holdings Board of Directors (“Ecoark Holdings Board” or “Board”) approved a plan to sell Eco3d, and the sale was completed in April 2017.

Eco360, LLC(“Eco360”) is located in Rogers, Arkansas and has engaged in research and development activities. Eco360 was formed in November 2014 by Ecoark. Eco360 does not currently have any active operations.

Pioneer Products, ~~LLC.~~LLC (“Pioneer Products” or “Pioneer”) is located in Rogers, Arkansas and is involved in the selling of recycled plastic products. This subsidiary recovers plastic waste from retail supply chains that is converted to new consumer products from the reclaimed materials, completing a closed loop and reducing waste sent to landfills. Pioneer Products was purchased by Ecoark in 2012. Pioneer Products acquired Sable Polymer Solutions, LLC in a stock transaction on May 3, 2016, so its results are included with Pioneer’s since May 2016. As described in Note 2, in May 2018 the Ecoark Holdings Board approved a plan to sell Pioneer.

Sable Polymer Solutions, LLC (“Sable”) is located in Flowery Branch, Georgia and specializes in the sale, purchase, and processing of post-consumer and post-industrial plastic materials. It provides materials to a variety of suppliers and customers throughout the plastics processing industry, from small extruders, molders and scrap collectors to large corporations. As described in Note 2, in May 2018 the Ecoark Holdings Board approved a plan to sell key assets of Sable.

Zest Labs, Inc. (“Zest Labs”) is located in San Jose, California and offers freshness management solutions for food retailers, restaurants, growers, processors and suppliers. Its Zest Fresh solution is a cloud-based post-harvest freshness management solution that improves delivered freshness and reduces losses due to temperature handling and processing by intelligently matching customer freshness requirements with actual product freshness. It isfocuses on four primary value propositions – operational efficiency, consistent food freshness, reduced waste, and improved food safety. Zest Fresh empowers workers with real-time analytic tools and alerts that improve efficiency while driving quality consistency through best practice adherence at a pallet level. The Company’s Zest Delivery solution offers dynamic monitoring and control for prepared food delivery containers, helping delivery and dispatch personnel ensure the ~~parent company~~quality and safety of delivered food. Zest Labs (then known as Intelleflex Corporation) was purchased by Ecoark in September 2013. Effective October 28, 2016, Intelleflex Corporation changed its name to Zest Labs, Inc. to align its corporate name with its mission and the brand name of its products and services. Zest Labs acquired 440labs, Inc. in a stock transaction on May 23, 2017.

440labs, Inc.(“440labs”) is located near Boston, Massachusetts and is a software development and information solutions provider for cloud, mobile, and IoT (Internet of Things) applications.

~~Pioneer Products, LLC~~ ~~(“Pioneer Products” or “Pioneer”) was involved~~ 440labs had been a key development partner with Zest Labs for more than four years prior to the May 2017 acquisition, contributing its expertise in ~~the selling of recycled plastic products~~scalable enterprise cloud solutions and ~~the owner of Sable Polymer Solutions, LLC. Pioneer ceased operations in early 2019.~~

~~Sable Polymer Solutions, LLC~~ (“Sable”) was located in Flowery Branch, Georgia and specialized in the sale, purchase, and processing of post-consumer and post-industrial plastic materials. The key assets of Sable were sold in March 2019.mobile applications.

Magnolia Solar Inc.(“Magnolia Solar”) is located in Woburn, Massachusetts and is principally engaged in the development of nanotechnology-based, high-efficiency, thin-film technology that can be deposited on a variety of substrates, including glass and flexible structures. Magnolia Solar was a subsidiary of MSC that merged with Ecoark on March 24, 2016 to create Ecoark Holdings and continues operations as a subsidiary of Ecoark Holdings. As described in Note 2, in May 2018 the Ecoark Holdings Board approved a plan to sell Magnolia Solar.

Fiscal Year-End Change

On January 19, 2017, the Ecoark Holdings Board approved a change from a fiscal year ending on December 31 to a fiscal year ending on March 31 as permitted by the bylaws of Ecoark Holdings. The change applied to all subsidiaries except Eco3d which was sold in ~~May 2019.~~April 2017.

ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2018

Principles of Consolidation

The condensed consolidated financial statements of Ecoark Holdings and its subsidiaries and the accompanying notes included in this Quarterly Report on Form 10-Q are unaudited. In the opinion of management, all adjustments necessary for the fair presentation of the condensed consolidated financial statements have been included. Such adjustments are of a normal, recurring nature. The condensed consolidated financial statements, and the accompanying notes, are prepared in accordance with generally accepted accounting principles in the United States ~~(“GAAP”~~("GAAP") and do not contain certain information included in the ~~Company’s~~Company's Annual Report on Form 10-K for the fiscal year ended March 31, ~~2019.~~2018. Therefore, the interim condensed consolidated financial statements should be read in conjunction with that Annual Report on Form 10-K.

Reclassifications

The Company has reclassified certain amounts in the ~~September~~June 30, ~~2018~~2017 condensed consolidated financial statements to be consistent with the ~~September~~June 30, ~~2019~~2018 presentation. Reclassifications relating to the discontinued operations are described in Note 2. The reclassifications had no impact on net loss or net cash flows for the ~~six~~three months ended ~~September~~June 30, ~~2018.~~2018 and 2017.

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. Management evaluates all of the Company’s financial instruments, including warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The Company generally uses a Black-Scholes model, as applicable, to value the derivative instruments at inception and subsequent valuation dates when needed. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is remeasured at the end of each reporting period. The Black-Scholes model is used to estimate the fair value of the derivative liabilities. Applying this accounting policy resulted in restatements of prior periods as more fully described in Note 15.

Segment Information

The Company follows the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280-10Segment Reporting.This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions. ~~The~~As a result of Sable, Pioneer and Magnolia Solar being classified as discontinued operations, the Company and its Chief Operating Decision Makers determined that the Company’s operations ~~effective with the May 31, 2019, acquisition of Trend Holdings~~ now consist of ~~two segments, Trend Holdings and~~only one segment, Zest Labs.

~~Recently Adopted~~Recent Accounting Pronouncements Pending Adoption

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02 ~~and later updated with ASU 2019-01 in March 2019~~Leases (Topic 842).~~The ASU’s change~~ASU 2016-02 changes the accounting for leased assets, principally by requiring balance sheet recognition of assets under lease arrangements. It is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2018. OnThe Company does not expect that adoption ~~the Company recognized additional operating liabilities~~ of ~~approximately $99, with corresponding right of use assets of $99 based~~ASU 2016-02 will have a material impact on ~~the present value of the remaining minimum rental payments under leasing standards for existing operating leases.~~our consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07 Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent ~~with~~ accounting for employee share-based compensation. It is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2018. The Company ~~adopted~~is currently in the process of evaluating the impact of the adoption of ASU 2018-07 ~~effective April 1, 2019. The adoption did not have a material impact~~ on ~~our~~its consolidated financial statements.

~~Recent Accounting Pronouncements~~

~~In January 2017, the FASB issued ASU 2017-04~~~~Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment.~~This ASU is intended to simplify the subsequent measurement of goodwill by eliminating “Step 2” from the goodwill impairment test. It is effective for annual reporting periods, and interim reporting periods within those years, beginning after December 15, 2019. It is not possible to determine or estimate the impact on our consolidated financial statements at this time.

There were other updates recently issued, most of which represent technical corrections to the accounting literature or application to specific industries or transactions that are not expected to have a material impact ~~if any impact,~~ on the Company’s financial position, results of operations or cash flows.

Going Concern

The Company has experienced losses from operations resulting in an accumulated deficit of ~~$121,921~~$105,463 since inception. The accumulated deficit together with losses of ~~$6,035~~$3,227 for the ~~six~~three months ended ~~September~~June 30, ~~2019,~~2018, and net cash used in operating activities in the ~~six~~three months ended ~~September~~June 30, ~~2019~~2018 of ~~$3,134,~~$1,913, have resulted in the uncertainty of the Company’s ability to continue as a going concern.

These condensed consolidated financial statements of the Company have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period of time.

ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2018

The Company ~~has~~ raised additional capital through ~~various offerings~~the issuance of common stock, net of fees, in ~~addition to a credit facility.~~private placements, issuances under equity purchase agreements and sales of convertible notes of $12,693 in the year ended March 31, 2018. Portions of the capital raise resulted in recognition of derivative liabilities. The Company’s ability to raise additional capital through future equity and debt securities issuances and completion of the divesting of non-core assets is unknown. Obtaining additional financing and the successful development of the Company’s strategic plan to achieve profitability are necessary for the Company to continue operations. There can be no assurance that such capital will be available or on terms acceptable to the Company. There can also be no assurance that the Company will have met the SEC’s Form S-3 eligibility requirements to use its shelf registration. The Company intends to further develop its product offerings and customer ~~bases and has opportunities from the Trend Holdings acquisition.~~bases. The Company’s plans to achieve profitability include evaluating the cost structure and processes of its operations, both at the margin and operating expense levels, as well as pursuing additional strategic acquisitions and dispositions. The ability to successfully resolve these factors raises substantial doubt about the Company’s ability to continue as a going concern as determined by management. The condensed consolidated financial statements of the Company do not include any adjustments that may result from the outcome of the uncertainties.

~~ECOARK HOLDINGS, INC. AND SUBSIDIARIES~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~
~~(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)~~
~~SEPTEMBER~~As more fully described in Note 15, in connection with the preparation of the Company’s condensed consolidated financial statements as of and for the three months ended June 30, ~~2019~~2018, the Company identified inadvertent errors in the accounting for certain embedded derivative liabilities associated with warrants issued as a part of capital raises. In connection with those capital raises, proceeds (net of fees) were accounted for as equity. Upon further evaluation, the Company determined that a portion of the capital raised should have been accounted for as liabilities with fair value changes recorded in the Company’s condensed consolidated statements of operations.

NOTE 2: DISCONTINUED OPERATIONS

AsOn April 14, 2017, the Company sold the assets, liabilities and membership interests in Eco3d to a group led by executives of Eco3d after the Company’s Board concluded that Eco3d did not fit the future strategic direction of the Company. The Company received $2,006 in cash and 560 shares of the Company’s common stock (including 525 shares that had been exchanged for the noncontrolling interest in September 2016) that was held by executives of Eco3d, which were canceled upon receipt. In accordance with ASC 205-20 and having met the criteria for “held for sale”, the Company had reflected amounts relating to Eco3d as a disposal group classified as held for sale at March 31, 2017 and has included amounts relating to Eco3d as part of discontinued operations. Eco3d had $188 in revenues and a $57 loss in the first two weeks of April 2017 that are included in the table below. There was no significant continuing involvement with Eco3d. In addition, as a result of receiving letters of intent for the sale of key assets of Sable, Pioneer and Magnolia Solar, and the approval by the Company’s Board in May 2018 to sell the assets, those assets ~~were~~are included in assets held for sale and their operations included in ~~discontinued operations. All discontinued operations have been sold or ceased operations by September 30, 2019, so there are no remaining assets or liabilities of the~~ discontinued operations.

Carrying amounts of major classes of assets and liabilities classified as held for sale and included as part of discontinued operations in the condensed consolidated balance ~~sheet as of March 31, 2019~~sheets consisted of the following:

June 30, 2018:
Inventory			$	1,048
Other current assets	$	23		39
Current assets – held for sale	$	23	$	1,087

Property and equipment, net				993
Other assets				25
Non-current assets – held for sale			$	1,018

Accounts payable	$	23		2
Accrued liabilities		11		13
Current liabilities – held for sale	$	34	$	15
March 31, 2018:
Inventory			$	611
Other current assets				34
Current assets – held for sale			$	645

Property and equipment, net				995
Other assets				28
Non-current assets – held for sale			$	1,023

Accounts payable				30
Accrued liabilities				13
Current liabilities – held for sale			$	43

ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2018

Major line items constituting loss from discontinued operations in the condensed consolidated statements of operations consisted of the following:

	Six months ended September 30,
	2019		2018
Three months ended June 30, 2018:
Revenue	$	-	$	2,479		$	2,479
Cost of revenue		-		2,845			2,845
Gross loss		-		(366	)		(366	)
Operating expenses		-		224			224
Loss from discontinued operations	$	-	$	(590	)	$	(590	)
Non-cash expenses	$	-	$	61		$	61

Three months ended June 30, 2017:
Revenue						$	2.693
Cost of revenue							2,884
Gross loss							(191	)
Operating expenses							397
Loss from discontinued operations						$	(588	)
Non-cash expenses						$	194

After consideration of all the evidence, both positive and negative, management has recorded a full valuation allowance due to the uncertainty of realizing income tax benefit for all periods presented, and the income tax provision for all periods presented was considered immaterial. Thus, no separate tax provision or benefit relating to discontinued operations is included here or on the face of the condensed consolidated statements of operations.

Non-cash expenses above consist principally of depreciation, amortization and impairment ~~expense.~~costs. Capital expenditures of discontinued operations were principally at Sable and amounted to $0$46 and ~~$166~~$33 for the ~~six~~three months ended ~~September 30, 2019~~June 30,2018 and ~~2018,~~2017, respectively.

Gain on the sale of Eco3d of $636 was recognized in discontinued operations in the three months ended June 30, 2017.

NOTE 3: ~~RESTATEMENTS~~REVENUE

~~In connection~~The Company accounts for revenue in accordance with ASC Topic 606,Revenue from Contracts with Customers, which the ~~preparation of~~Company early adopted effective April 1, 2017. No cumulative adjustment to accumulated deficit was required, and the ~~Company’s~~early adoption did not have a material impact on our consolidated financial statements, as ~~of and~~no material arrangements prior to the adoption were impacted by the new pronouncement. Revenue for the ~~fiscal year~~three months ended ~~March 31, 2019, the Company identified inadvertent errors in the accounting for certain embedded derivative liabilities associated~~June 30, 2018 were from a professional services project with ~~warrants issued~~a major retailer and several Software as a ~~part~~Service (“SaaS”) projects in 2018 and from the sale of ~~capital raises~~hardware in ~~2017~~2017.

The following table disaggregates the Company’s revenue by major source:

	Three Months Ended
	June 30,
	2018		2017
Revenue:	(Unaudited)		(Unaudited)
Professional services	$	750	$	-
Software as a Service		3		-
Hardware sales		-		1
	$	753	$	1

NOTE 4: PROPERTY AND EQUIPMENT

Property and ~~2018. In connection with those capital raises, proceeds (net of fees) were accounted for as equity. Upon further evaluation, the Company determined that a portion~~equipment consisted of the ~~capital raised should have been accounted for as liabilities with fair value changes recorded in~~following:

	June 30, 2018			March 31, 2018
	(Unaudited)

Zest Labs freshness hardware	$	2,477		$	2,477
Computers and software costs		400			400
Machinery and equipment		211			211
Furniture and fixtures		89			89
Leasehold improvements		4			4
Total property and equipment		3,181			3,181
Accumulated depreciation and impairment		(733	)		(562	)
Property and equipment, net	$	2,448		$	2,619

During the ~~Company’s consolidated statements of operations. Accordingly, the Company restated its previously issued consolidated financial statements and the related disclosures for the fiscal~~ year ended March 31, 2018 Zest Labs entered into SaaS contracts with customers and ~~interim periods~~$2,477 of assets previously classified as inventory were reclassified to property and equipment as of March 31, 2018. These assets will be used in ~~fiscal years~~the satisfaction of performance obligations to customers and depreciated over estimated useful lives of three to seven years.

Depreciation expense for the three months ended June 30, 2018 and ~~2019 as well as an adjustment to the opening balance sheet for the first interim period of fiscal 2018 (the “Restated Periods”). The adjustment to the opening balance sheet as of April 1,~~ 2017 ~~consisted of establishing a current derivative liability of $3,351, offset by a reduction in additional paid-in-capital of $4,180~~was $171 and ~~a reduction of accumulated deficit of $829.~~$32, respectively.

~~The categories of misstatements~~Property and ~~their impact on previously reported consolidated financial statements are~~equipment for Sable and Magnolia Solar has been reclassified as assets held for sale as more fully described ~~below:~~

~~Derivative Liability:~~~~The recognition, measurement~~in Note 2 and ~~presentation and disclosure related to the warrants issued in conjunction with reserved private placements of the Company’s common stock.~~

~~Stockholders’ Deficit:~~The measurement and presentation and disclosure related to the derivative liability associated with the warrants issued in conjunction with the reserved private placements originally classified as additional paid in capital.

~~Change in Fair Value of Derivative Liabilities:~~~~The recognition, measurement and presentation and disclosure related to changes in the fair value of the derivative liability~~

~~In addition to the restatement of the financial statements, certain information within the notes to the financial statements referred to below that were~~accordingly depreciation expense for Sable through May 2018 has been included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2019 were impacted. Therefore, the interim condensed consolidated financial statements should be read in conjunction with that Annual Report on Form 10-K.loss from discontinued operations.

ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2018

~~Note 1: Organization and Summary of Significant Accounting Policies~~

~~Note 9: Warrant Derivative Liabilities~~

NOTE 5: INTANGIBLE ASSETS

~~Note 13: Stockholders’ Equity (Deficit)~~Intangible assets consisted of the following:

~~Note 18: Fair Value Measurements~~

	June 30, 2018			March 31, 2018
	(Unaudited)

Patents	$	1,013		$	1,013
Outsourced vendor relationships		1,017			1,017
Non-compete agreements		340			340
Total intangible assets		2,370			2,370
Accumulated amortization and impairment		(963	)		(825	)
Intangible assets, net	$	1,407		$	1,545

The ~~financial statement misstatements reflected~~outsourced vendor relationships and non-compete agreements were recorded as part of the acquisition of 440labs described in ~~previously issued consolidated financial statements did not impact cash flows from~~Note 11 below.

Amortization expense for the three months ended June 30, 2018 and 2017 was $138 and $88, respectively. Amortization for the intangible assets related to the discontinued operations ~~investing, or financing activities~~for the three months ended June 30, 2017 are included in the ~~Company’s consolidated statements of cash flows~~loss from discontinued operations for ~~any period previously presented, however they did impact individual line items.~~the three months ended June 30, 2017.

~~Comparison~~Accrued liabilities consisted of ~~restated financial statements to financial statements as previously reported~~the following:

	June 30, 2018		March 31, 2018
	(Unaudited)
Vacation and paid time off	$	302	$	278
Professional fees and consulting costs		213		325
Payroll and employee expenses		96		75
Legal fees		23		100
Hardware in transit		-		26
Other		280		276
	$	914	$	1,080

NOTE 7: LONG-TERM DEBT

The ~~following tables compare~~Company had a secured convertible promissory note (“convertible note”) bearing interest at 10% per annum, entered into on January 10, 2017 for $500 with the ~~Company’s previously issued Consolidated Balance Sheet, Consolidated Statement~~principal due in one lump sum payment on or before July 10, 2018. The principal along with accrued interest of ~~Operations and Consolidated Statement~~$11 was paid on July 2, 2018. The convertible note was part of ~~Cashflows~~the financing the Company entered into in the three months ended March 31, 2017.

Interest expense on debt for the ~~periods~~three months ended ~~September~~June 30, 2018 ~~to the corresponding restated consolidated financial statements for those periods.~~

~~CONSOLIDATED BALANCE SHEET~~

September 30, Restatement September 30,
2018 Adjustments 2018
(As Reported) (Restated)

ASSETS
CURRENT ASSETS
Cash ($35 pledged as collateral for credit) $ 2,323 $ 2,323
Accounts receivable, net of allowance of $87 1,216 1,216
Prepaid expenses and other current assets 217 217
Current assets held for sale 768 768
Total current assets 4,524 4,524
NON-CURRENT ASSETS
Property and equipment, net 2,297 2,297
Intangible assets, net 1,269 1,269
Non-current assets held for sale 1,137 1,137
Other assets 27 27
Total non-current assets 4,730 4,730
TOTAL ASSETS $ 9,254 $ 9,254

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable $ 1,243 $ 1,243
Accrued liabilities 869 869
Warrant derivative liabilities $ 5,228 5,228
Current liabilities held for sale 3 3
Total current liabilities 2,115 5,228 7,343

COMMITMENTS AND CONTINGENCIES
Total liabilities 2,115 5,228 7,343

STOCKHOLDERS’ EQUITY (Numbers of shares rounded to thousands)

Preferred stock, $0.001 par value; 5,000 shares authorized; none issued
Common stock, $0.001 par value; 100,000 shares authorized, 49,533 shares issued and 48,972 shares outstanding 53 53
Additional paid-in-capital 128,740 (16,409 ) 112,331
Accumulated deficit (119,994 ) 11,181 (108,813 )
Treasury stock, at cost (1,660 ) (1,660 )
Total stockholders’ equity 7,139 (5,228 ) 1,911
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 9,254 $ - $ 9,254

~~CONSOLIDATED STATEMENT OF OPERATIONS~~

Three Months Ended Six Months Ended
September 30, 2018 September 30, 2018
(As Reported) Restatement Adjustments (Restated) (As Reported) Restatement Adjustments (Restated)
CONTINUING OPERATIONS:
REVENUES $ 286 $ 286 $ 1,039 $ 1,039
COST OF REVENUES 207 207 637 637
GROSS PROFIT (LOSS) 79 79 402 402
OPERATING EXPENSES:
Selling, general and administrative 2,493 2,493 4,584 4,584
Depreciation, amortization, and impairment 308 308 617 617
Research and development 771 771 1,641 1,641
Total operating expenses 3,572 3,572 6,842 6,842
Loss from continuing operations before other expenses (3,493 ) (3,493 ) (6,440 ) (6,440 )

OTHER INCOME (EXPENSE):
Change in fair value of derivative liability $ 715 $ 715 $ 1,036 1,036
(Interest expense), net of interest income 4 4 (7 ) (7 )
Total other expenses 4 715 719 (7 ) 1,036 1,029
LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES (3,489 ) 715 (2,774 ) (6,447 ) 1,036 (5,411 )
DISCONTINUED OPERATIONS:
Loss from discontinued operations (576 ) (576 ) (1,166 ) (1,166 )
Gain on disposal of discontinued operations - - - -
Total discontinued operations (576 ) (576 ) (1,166 ) (1,166 )
PROVISION FOR INCOME TAXES - - - -
NET LOSS $ (4,065 ) 715 $ (3,350 ) $ (7,613 ) 1,036 $ (6,577 )

NET LOSS PER SHARE
Basic and diluted: Continuing operations $ (0.07 ) $ (0.07 ) $ (0.13 ) $ (0.13 )
Discontinued operations (0.01 ) (0.01 ) (0.02 ) (0.02 )
Total $ (0.08 ) $ (0.08 ) $ (0.15 ) $ (0.15 )

SHARES USED IN CALCULATION OF NET LOSS PER SHARE
Basic and diluted 50,500 50,500 49,739 49,739

~~CONSOLIDATED STATEMENT OF CASH FLOWS~~

Six Months Ended
September 30, 2018
As
Reported Restatement Adjustments Restated
Cash flows from operating activities:
Net loss $ (7,613 ) $ 1,036 $ (6,577 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and impairment 617 617
Shares of common stock issued for services rendered 200 200
Share-based compensation – stock – employees 1,900 1,900
Loss from discontinued operations 1,166 1,166
Change in fair value of derivative liabilities - (1,036 ) (1,036 )
Changes in assets and liabilities:
Accounts receivable 1,401 1,401
Inventory (147 ) (147 )
Prepaid expenses 13 13
Other current assets 35 35
Accounts payable (1,134 ) (1,134 )
Accrued liabilities (226 ) (226 )
Net cash used in operating activities of continuing operations (3,788 ) (3,788 )
Net cash used in discontinued operations (1,114 ) (1,114 )
Net cash used in operating activities (4,902 ) (4,902 )

Cash flows from investing activities:
Purchases of property and equipment (18 ) (18 )
Net cash used in investing activities of continuing operations (18 ) (18 )
Net cash used in investing activities of discontinued operations (166 ) (166 )
Net cash used in investing activities (184 ) (184 )

Cash flows from financing activities:
Proceeds from issuance of common stock, net of fees 4,221 4,221
Repayment of debt (500 ) (500 )
Purchase of treasury shares from employees for tax withholdings (42 ) (42 )
Net cash provided by financing activities 3,679 3,679
NET INCREASE (DECREASE) IN CASH (1,407 ) (1,407 )
Cash - beginning of period 3,730 3,730
Cash - end of period $ 2,323 $ 2,323

SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 11 $ 11
Cash paid for income taxes $ - $ -

~~NOTE 4: REVENUE~~

~~The Company accounts for revenue in accordance with ASC Topic 606,~~~~Revenue from Contracts with Custo~~~~mers. Professional services revenue for the six months ended September 30, 2019 were from management fees earned by Trend Holdings~~ and ~~in 2018 from a project with a major retailer. Several Software as a Service (“SaaS”) projects earned revenue in 2019~~2017 was $11 and ~~2018.~~$15, respectively.

~~The following table disaggregates the Company’s revenue by major source:~~

Six Months Ended
September 30,
2019 2018
(Unaudited) (Unaudited)
Revenue:
Professional services $ 51 $ 1,000
Software as a Service 28 39
$ 79 $ 1,039

NOTE ~~5: PROPERTY AND EQUIPMENT~~8: STOCKHOLDERS’ EQUITY

~~Property and equipment consisted of the following:~~Ecoark Holdings Preferred Stock

September 30,
2019

March 31,
2019

(Unaudited)

Zest Labs freshness hardware $ 2,493 $ 2,493
Computers and software costs 222 222
Machinery and equipment 200 200
Total property and equipment 2,915 2,915
Accumulated depreciation and impairment (2,239 ) (2,091 )
Property and equipment, net $ 676 $ 824

On March 18, 2016, the Company created 5,000 shares of “blank check” preferred stock, par value $0.001. No preferred shares have been issued.

~~Depreciation expense for the six months ended September~~Ecoark Holdings Common Stock

The Company has 100,000 shares of common stock, par value $0.001 which were authorized on March 18, 2016. The Company has outstanding warrants of 10,577 as of June 30, ~~2019 and~~ 2018 ~~was $148 and $340, respectively. Depreciation expense for~~that are exercisable into shares of common stock.

In the three months ended ~~September~~June 30, ~~2019 and~~ 2018, ~~was $71 and $169, respectively.~~

~~Property and equipment for Sable was reclassified as assets held for sale as more fully described~~the Company issued 24 shares of common stock pursuant to stock awards granted from the 2013 Ecoark Holdings Incentive Stock Plan (“2013 Incentive Stock Plan”), net of 16 shares of common stock acquired from employees in ~~Note 2 and accordingly depreciation expense for Sable through May 2018 was included in~~lieu of amounts required to satisfy minimum withholding requirements upon vesting of the ~~loss~~employees’ stock. The Company also issued 25 shares to an advisor to the Company pursuant to a stock award granted from ~~discontinued operations.~~

the 2017 Ecoark Holdings Omnibus Incentive Plan (“2017 Omnibus Incentive Plan”).

Share-based Compensation

The 2013 Incentive Stock Plan was registered on February 7, 2013. Under the 2013 Incentive Stock Plan, the Company may grant incentive stock in the form of stock options, stock awards and stock purchase offers of up to 5,500 shares of common stock to Company employees, officers, directors, consultants and advisors. The type of grant, vesting provisions, exercise price and expiration dates are to be established by the Board at the date of grant.

The 2017 Omnibus Incentive Plan was registered on June 14, 2017. Under the 2017 Omnibus Incentive Plan, the Company may grant nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, and other awards. Awards of up to 4,000 shares of common stock to Company employees, officers, directors, consultants and advisors are available under the 2017 Omnibus Incentive Plan. The type of grant, vesting provisions, exercise price and expiration dates are to be established by the Board at the date of grant.

During the year ended March 31, 2018, the Compensation Committee of the Board of Directors of the Company issued non-qualified stock option awards to individuals in replacement of existing restricted stock and restricted stock unit awards previously granted.

Share-based compensation expense is included in selling, general and administrative expense in the condensed consolidated statements of operations as follows:

	2013 Incentive Stock Plan		2017 Omnibus Incentive Plan		Non-Qualified Stock Options		Common Stock		Total
Three months ended June 30, 2018
Directors	$	-	$	100	$	-	$	-	$	100
Employees		202		98		651		-		951
Services		-		36		-		-		36
	$	202	$	234	$	651	$	-	$	1,087

Three months ended June 30,2017
Directors	$	-	$	125	$	-	$	-	$	125
Employees		6,900		38		-		1,500		8,438
Services		113		-		-		-		113
Amortization of services cost		1,076		-		-		-		1,076
	$	8,089	$	163		-	$	1,500	$	9,752

NOTE 9: INCOME TAXES

The Company has a net operating loss carryforward for tax purposes totaling approximately $93,204 at June 30, 2018. Internal Revenue Code Section 382 places a limitation on the amount of taxable income that can be offset by carryforwards after certain ownership shifts.

The provision (benefit) for income taxes for the three months ended June 30, 2018 and 2017 differs from the amount expected as a result of applying statutory tax rates to the losses before income taxes principally due to establishing a valuation allowance to fully offset the potential income tax benefit. Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carry-forwards are expected to be available to reduce taxable income. As the achievement of required taxable income is uncertain, the Company has recorded a full valuation allowance against deferred tax assets.

The Company’s deferred tax assets are summarized as follows:

	June 30, 2018			March 31, 2018
	(Unaudited)
Net operating loss carryover	$	21,835		$	23,230
Depreciable and amortizable assets		1,209			1,168
Share-based compensation		3,067			2,858
Inventory reserve					3
Accrued liabilities		58			58
Allowance for bad debts		13			13
Change in fair value of derivative liabilities		(67	)		(1,956	)
Effect of reduction in tax rate		-			(994	)
Other		332			328
Less: valuation allowance		(26,447	)		(24,708	)
Net deferred tax asset	$	-		$	-

ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2018

After consideration of all the evidence, both positive and negative, management has recorded a full valuation allowance at June 30, 2018 and March 31, 2018, due to the uncertainty of realizing the deferred income tax assets. The valuation allowance increased by $1,739 in the three months ended June 30, 2018. The Company has not identified any uncertain tax positions and has not received any significant notices from tax authorities.

On December 22, 2017, Public Law 115-97, informally referred to as the Tax Cuts and Jobs Act (“TCJA”) was enacted into U.S. law. The TCJA provides for significant changes to the U.S. Internal Revenue Code of 1986, as amended, that impact corporate taxation requirements. Effective January 1, 2018, the federal tax rate for corporations was reduced from 35% to 21% for U.S. taxable income. That required a one-time remeasurement of deferred taxes to reflect their value at a lower rate of 21%. Accordingly, the components of deferred tax assets in the table above have been remeasured at 21%. Additionally, the new tax law requires specified research and development or experimentation expenses paid or incurred after December 31, 2021 be capitalized and amortized ratably over a five-year period. That has the potential to impact the Company in the future. We continue to evaluate the impact of the TCJA.

NOTE 10: CONCENTRATIONS

During the three months ended June 30, 2018 and 2017 the Company had one major customer in each period comprising 99% and 100% of sales, respectively. A major customer is defined as a customer that represents 10% or greater of total sales. Additionally, the Company had two customers at June 30, 2018 and one customer as of March 31, 2018 with accounts receivable balances of 72% and 93% of the total accounts receivable. The Company does not believe that risk associated with these customers will have an adverse effect on the business.

In addition, during the three months ended June 30, 2018 and 2017, the Company had one major vendor in each period comprising 26% and 16% of purchases, respectively. A major vendor is defined as a vendor that represents 10% or greater of total purchases. Alternative sources exist such that the risk associated with the two vendors is not expected to have an adverse effect on the Company. Additionally, the Company had one vendor as of both June 30, 2018 and March 31, 2018 representing 50% and 27%, respectively, of total accounts payable.

The Company maintained cash balances in excess of the FDIC insured limit in both years. The Company does not consider this risk to be material.

NOTE 11: ACQUISITION OF 440labs, Inc.

On May 18, 2017, the Company entered into an exchange agreement (the “Exchange Agreement”) with Zest Labs, 440labs, SphereIt, LLC, a Massachusetts limited liability company (“SphereIt”) and three of 440labs’ executive employees. Pursuant to the Exchange Agreement, on May 23, 2017 the Company acquired all of the shares of 440labs in exchange for 300 shares of the Company’s common stock issued to SphereIt. 440labs’ three executive employees signed employment agreements pursuant to which each of the three executive employees received 100 shares of the Company’s common stock and became employed by Zest Labs.

No cash was paid relating to the acquisition of 440labs. 440labs is a software development and information solutions provider for cloud, mobile, and IoT applications. 440labs’ experienced leadership and engineering teams will augment Zest Labs’ development of modern, enterprise scale solutions that robustly connect to distributed IoT deployments. 440labs blends onshore and offshore resources to optimize development and provide extended runtime operations coverage, critical to broad-based deployments.

The Company acquired the assets and liabilities noted below in exchange for the 300 shares and accounted for the acquisition in accordance with ASC 805. Based on the fair values at the effective date of acquisition the purchase price was recorded as follows:

Identifiable intangible assets	$	1,435
Goodwill		65
	$	1,500

The primary business of 440labs is providing development services to Zest Labs. In consolidation, the revenues of 440labs prior to the acquisition would have been eliminated against the expenses of Zest Labs that were paid to 440labs, resulting in an insignificant impact to the net losses of the Company. The goodwill is not expected to be deductible for tax purposes. The goodwill was tested for impairment and written off in the quarter ended March 31, 2018 along with the intangible asset related to one of the executive employees who resigned from the Company.

ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2018

NOTE ~~6: INTANGIBLE ASSETS~~12: COMMITMENTS AND CONTINGENCIES

~~Intangible assets consisted~~Legal Proceedings

On August 1, 2018, Ecoark Holdings and Zest Labs filed a complaint against Walmart Inc. in the United States District Court for the Eastern District of Arkansas, Western Division. The complaint includes claims for violation of the ~~following:~~

September 30,
2019 March 31,
2019
(Unaudited)

Goodwill $ 3,223 $ -
Patents 1,013 1,013
Outsourced vendor relationships 1,017 1,017
Non-compete agreements 340 340
Total intangible assets 5,593 2,370
Accumulated amortization and impairment (2,370 ) (2,370 )
Intangible assets, net $ 3,223 $ -

~~The goodwill was recorded as part~~Arkansas Trade Secrets Act, violation of the ~~acquisition~~federal Defend Trade Secrets Act, breach of ~~Trend Holdings more fully described in Note 15. The patents were recorded as part~~contract, unfair competition, unjust enrichment, breach of the ~~acquisition~~covenant of ~~Zest Labs. The outsourced vendor relationships~~good faith and ~~non-compete agreements were recorded as part of the acquisition of 440labs. The intangible assets of~~fair dealing, conversion and fraud. Ecoark Holdings and Zest Labs are seeking damages of more than $2,000,000 (two billion) and ~~440labs were fully impaired as of~~other related relief to the extent it is deemed proper by the court. The Company does not believe that expenses incurred in pursuing the complaint will have a material effect on the Company’s net income or financial condition for the fiscal year ended March 31, ~~2019.~~2019 or any individual fiscal quarter.

~~Amortization~~On June 20, 2018, a complaint against the Company and certain affiliates was filed by Ridgeline, LLC in the U.S. District Court - Northern District of California. The complaint refers to an advisory agreement dated January 1, 2015 with Ecoark, Inc., a subsidiary of the Company, in which Ridgeline was to provide advice and consultation to Ecoark, Inc. in exchange for consulting fees, expenses and a warrant to purchase equity in Ecoark, Inc. The complaint seeks judgment for compensatory damages in excess of $75, specific performance regarding delivery of a warrant, attorney’s fees, interest and other relief. Company counsel has advised us that it is remote that the complaint, if decided adversely to or settled by the Company, will result in a liability material to the Company’s financial condition or results of operations.

Operating Leases

The Company leases many of its operating and office facilities for various terms under long-term, non-cancelable operating lease agreements. These leases expire at various dates through 2020. Rent expense for continuing operations was $72 and $91 in the ~~six~~three months ended ~~September~~June 30, 2018 and 2017, respectively. Future minimum lease payments required under the operating leases for continuing operations are as follows: fiscal 2019 - $133 and ~~2018 was $0 and $276, respectively.~~fiscal 2020 - $113.

NOTE ~~7: ACCRUED LIABILITIES~~

~~Accrued liabilities consisted of the following:~~

September 30,
2019 March 31,
2019
(Unaudited)
Vacation and paid time off $ 189 $ 345
Professional fees and consulting costs 334 150
Accrued interest 158 11
Lease liability 8 95
Payroll and employee expenses 44 50
Legal fees 72 108
Other 67 69
$ 872 $ 828

~~NOTE 8:~~13: WARRANT DERIVATIVE LIABILITIES

As described ~~in Note 3,~~herein, the Company issued common stock and warrants in ~~several~~ private placements in March 2017, May 2017 ~~March 2018~~ and ~~August~~March 2018. The March and May 2017 and March ~~and August~~ 2018 warrants (collectively the “Derivative Warrant Instruments”) are classified as liabilities. The Derivative Warrant Instruments have been accounted for utilizing ASC 815 “Derivatives and Hedging”. The Company has incurred a liability for the estimated fair value of Derivative Warrant Instruments. The estimated fair value of the Derivative Warrant Instruments has been calculated using the Black-Scholes fair value option-pricing model with key input variables provided by management, as of the date of issuance, with changes in fair value recorded as gains or losses on revaluation in other income (expense).

The Company identified embedded features in the ~~March and May 2017 warrants~~Derivative Warrant Instruments which caused the warrants to be classified as a liability. These embedded features included the implicit right for the holders to request that the Company settle the warrants in registered shares. Since maintaining an effective registration of shares is potentially outside the control of the Company, these warrants were classified as liabilities as opposed to equity. The accounting treatment of derivative financial instruments requires that the Company treat the whole instrument as liability and record the fair value of the instrument as derivatives as of the inception date of the instrument and to adjust the fair value of the instrument as of each subsequent balance sheet date.

On October 28, 2019, the Company issued 2,243 shares of the Company’s common stock to investors in exchange for the March and May 2017 warrants. Upon the issuance of the 2,243 shares, the March and May 2017 warrants were extinguished.

The Company identified embedded features in the March and August 2018 warrants which caused the warrants to be classified as a liability. These embedded features included the right for the holders to request that the Company cash settle the warrant instruments from the holder by paying to the holder an amount of cash equal to the Black-Scholes value of the remaining unexercised portion of the Derivative Warrant Instruments on the date of the consummation of a fundamental transaction. The accounting treatment of derivative financial instruments requires that the Company treat the whole instrument as liability and record the fair value of the instrument as derivatives as of the inception date of the instrument and to adjust the fair value of the instrument as of each subsequent balance sheet date.

On July 12, 2019, the March and August 2018 warrants were exchanged for 4,277 shares of Company common stock, and all of those warrants were extinguished. The fair value of the shares issued was $3,293, and the fair value of the warrants was $2,455 resulting in a loss of $839 that was recognized on the exchange.

As described further in Note 12 below, on August 22, 2019 the Company issued warrants that can be exercised in exchange for 3,922 shares of Company common stock to investors that invested in shares of Company preferred stock. The fair value of those warrants was estimated to be $1,576 at inception and $1,422 as of September 30, 2019. The accounting treatment for those warrants and the related issuance was consistent with that described in this note and in Note 3.

The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of September 30, 2019. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each warrant is estimated using the Black-Scholes valuation model. The following assumptions were used in September 30, 2019 and March 31, 2019 and at inception:

Six Months Ended Year Ended
September 30,
2019 March 31,
2019 Inception

Expected term 2.50 - 4.92 years 3.00 - 4.42 years 5.00 years
Expected volatility 97 % 96 % 91% - 107 %
Expected dividend yield - - -
Risk-free interest rate 1.55 % 2.23 % 1.50% - 2.77 %

~~The Company’s derivative liabilities associated with the warrants are as follows:~~

September 30,
2019 March 31,
2019 Inception
Fair value of 1,000 March 17, 2017 warrants $ 280 $ 256 $ 4,609
Fair value of 1,850 May 22, 2017 warrants 540 505 7,772
Fair value of 2,565 March 16, 2018 warrants - 1,040 3,023
Fair value of 2,969 August 14, 2018 warrants - 1,303 2,892
Fair value of 3,922 August 22, 2019 warrants 1,422 - 1,576
$ 2,242 $ 3,104 $ 19,872

During the six months ended September 30, 2019 and 2018 the Company recognized changes in the fair value of the derivative liabilities of $(16) and $1,036, respectively. As described in Note 12 below, the March and August 2018 warrants were exchanged for 4,277 shares of Company common stock and thus were no longer outstanding as of September 30, 2019. See additional details on warrant transactions subsequent to September 30, 2019 in Note 19 below describing that the March and May 2017 warrants were exchanged for 2,243 shares of Company common stock in October 2019, and additional warrants were issued on November 11, 2019.

~~NOTE 9: NOTE PAYABLE~~

On December 28, 2018, the Company entered into a $10,000 credit facility that includes a loan and security agreement (the “Agreement”) where the lender agreed to make one or more loans to the Company, and the Company may make a request for a loan or loans from the lender, subject to the terms and conditions. The Company is required to pay interest biannually on the outstanding principal amount of each loan calculated at an annual rate of 12%. The loans are evidenced by a demand note executed by the Company. The Company is able to request draws from the lender up to $1,000 with a cap of $10,000, including the $1,000 advanced on December 28, 2018 and an additional $350 advanced through March 31, 2019, and an additional $985 advanced during the six months ended September 30, 2019. If principal is prepaid, the loans may not be re-borrowed and the cap of $10,000 shall be reduced. The Company may make a request for a loan or loans from the lender, at any one time and from time to time, from the date of inception, the ~~Agreement until the earlier of (i) demand by the lender or (ii) December 27, 2020 or the earlier termination~~fair value of the ~~Agreement pursuant to~~March 2017 warrants of $4,609 was determined using the ~~terms thereof. Loans made pursuant to~~Black-Scholes Model based on a risk-free interest rate of 2.13% an expected term of 5.0 years, an expected volatility of 107% and a 0% dividend yield. At March 31, 2017, the ~~Agreement are secured by~~fair value of the March 2017 warrants of $3,351 was determined using the Black-Scholes Model based on a ~~security~~risk-free interest inrate of 1.93% an expected term of 4.9 years, an expected volatility of 105% and a 0% dividend yield. At March 31, 2018, the ~~Company’s collateral held with~~fair value of the ~~lender~~March 2017 warrants of $537 was determined using the Black-Scholes Model based on a risk-free interest rate of 2.56% an expected term of 4.0 years, an expected volatility of 91% and ~~guaranteed by~~a 0% dividend yield. At June 30, 2018, the ~~Company’s subsidiary, Zest Labs.~~fair value of the March 2017 warrants of $482 was determined using the Black-Scholes Model based on a risk-free interest rate of 2.73% an expected term of 3.75 years, an expected volatility of 94% and a 0% dividend yield.

The Company pays to the lender a commitment fee on the principal amount of each loan requested thereunder in the amount of 3.5% of the amount thereof. The Company also paid an arrangement fee of $300 to the lender which was paid upon execution of the Agreement. The aforementioned fees were and are netted from proceeds advanced and are recorded as interest expense. Zest Labs is a plaintiff in a litigation styled as~~Zest Labs, Inc. vs Walmart, Inc., Case Number 4:18-cv-00500~~ filed in the United States District Court for the Eastern District of Arkansas (the “Zest Litigation”). The Company agrees that within five days of receipt by Zest Labs or the Company of any settlement proceeds from the Zest Litigation, the Company will pay or cause to be paid over to lender an additional fee in an amount equal to (i) 0.50 multiplied by (ii) the highest aggregate principal balance of the loans over the life of the loans throughOn the date of inception, the ~~payment from settlement proceeds; provided, however, that such additional fee shall not exceed the amount~~fair value of the ~~settlement proceeds.~~May 2017 warrants of $7,772 was determined using the Black-Scholes Model based on a risk-free interest rate of 1.80% an expected term of 5.0 years, an expected volatility of 101% and a 0% dividend yield. At March 31, 2018, the fair value of the May 2017 warrants of $1,001 was determined using the Black-Scholes Model based on a risk-free interest rate of 2.56% an expected term of 4.17 years, an expected volatility of 91% and a 0% dividend yield. At June 30, 2018, the fair value of the May 2017 warrants of $900 was determined using the Black-Scholes Model based on a risk-free interest rate of 2.73% an expected term of 3.92 years, an expected volatility of 94% and a 0% dividend yield.

~~Subject to customary carve-outs,~~On the ~~Agreement contains customary negative covenants~~date of inception, the fair value of the March 2018 warrants of $3,023 was determined using the Black-Scholes Model based on a risk-free interest rate of 2.65% an expected term of 5.0 years, an expected volatility of 91% and ~~restrictions for agreements~~a 0% dividend yield. At March 31, 2018, the fair value of ~~this type~~the March 2018 warrants of $2,156 was determined using the Black-Scholes Model based on ~~actions by~~a risk-free interest rate of 2.56% an expected term of 5.0 years, an expected volatility of 91% and a 0% dividend yield. At June 30, 2018, the fair value of the March 2018 warrants of $1,991 was determined using the Black-Scholes Model based on a risk-free interest rate of 2.73% an expected term of 4.75 years, an expected volatility of 94% and a 0% dividend yield.

The Company’s derivative liabilities associated with the warrants are as follows:

	June 30, 2018		March 31, 2018		Inception
Fair value of 1,000 March 17, 2017 warrants	$	482	$	537	$	4,609
Fair value of 1,875 May 22, 2017 warrants		900		1,001		7,772
Fair value of 2,565 March 16, 2018 warrants		1,991		2,156		3,023
	$	3,373	$	3,694	$	15,404

During the three months ended June 30, 2018 and 2017 the Company ~~including, without limitation, restrictions on indebtedness, liens, investments, loans, consolidation, mergers, dissolution, asset dispositions outside~~recognized changes in the ~~ordinary course~~fair value of ~~business, change in business~~the derivative liabilities of $321 and restriction on use of proceeds. In addition, the Agreement requires compliance by the Company of covenants including, but not limited to, furnishing the lender with certain financial reports and protecting and maintaining its intellectual property rights. The Agreement contains customary events of default, including, without limitation, non-payment of principal or interest, violation of covenants, inaccuracy of representations in any material respect and cross defaults with certain other indebtedness and agreements.

~~Interest expense on the note for the three and six months ended September 30, 2019 was $60 and $122,~~$3,346, respectively.

NOTE ~~10: NOTES PAYABLE - RELATED PARTIES~~

A board member advanced $328 to the Company through September 30, 2019, under the terms of a note payable that bears 10% simple interest per annum, and the principal balance along with accrued interest is payable July 30, 2020 or upon demand. Interest expense on the note for the six months ended September 30, 2019 was $10.

William B. Hoagland, Principal Financial Officer, advanced $30 to the Company in May 2019 pursuant to a note with the same terms as the note with the board member. Randy May, CEO, advanced $45 to the Company in August 2019 pursuant to a note with the same terms as the note with the board member. Interest expense on both of these notes was not material.

~~NOTE 11: LONG-TERM DEBT~~14: FAIR VALUE MEASUREMENTS

The Company ~~had~~measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by U.S. generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:

Level 1 – quoted prices for identical instruments in active markets;

Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and

Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2018

Financial instruments consist principally of cash, accounts receivable and other receivables, accounts payable and accrued liabilities, notes payable, and amounts due to related parties. The fair value of cash is determined based on Level 1 inputs. There were no transfers into or out of “Level 3” during the periods ended June 30, 2017 and March 31, 2017. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.

Fair value estimates are made at a ~~secured convertible promissory note (“convertible note”) bearing interest~~specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. The Company records the fair value of the of the warrant derivative liabilities disclosed in Note 13 in accordance with ASC 815,Derivatives and Hedging. The fair values of the derivatives were calculated using the Black-Scholes Model. The fair value of the derivative liabilities is revalued on each balance sheet date with corresponding gains and losses recorded in other income (expense) in the consolidated statement of operations.

The following table presents assets and liabilities that are measured and recognized at ~~10% per annum, entered into~~fair value on ~~January 10, 2017~~a recurring basis as of and for ~~$500~~the periods June 30, 2018 and March 31, 2018:

June 30, 2018	Level 1		Level 2		Level 3		Total Gains and (Losses)
Warrant derivative liabilities		-		-	$	3,373	$	321

March 31, 2018
Warrant derivative liabilities		-		-	$	3,694	$	9,316

NOTE 15: RESTATEMENTS

In connection with the ~~principal due~~preparation of the Company’s consolidated financial statements as of and for the three months ended June 30, 2018, the Company identified inadvertent errors in ~~one lump sum payment on or before July 10,~~the accounting for certain embedded derivative liabilities associated with warrants issued as a part of capital raises in 2017 and 2018. In connection with those capital raises, proceeds (net of fees) were accounted for as equity. Upon further evaluation, the Company determined that a portion of the capital raised should have been accounted for as liabilities with fair value changes recorded in the Company’s consolidated statements of operations. Accordingly, the Company is restating herein its previously issued condensed consolidated financial statements and the related disclosures for the three months ended June 30, 2018 and 2017, as well as an adjustment to the opening balance sheet for the first interim period of fiscal 2018 (the “Restated Periods”). The ~~principal along with accrued interest~~adjustment to the opening balance sheet as of ~~$11 was paid on July 2, 2018.~~April 1, 2017 consisted of establishing a current derivatives liability of $3,351, offset by a reduction in additional paid-in-capital of $4,180 and a reduction of accumulated deficit of $829.

~~Interest expense~~The categories of misstatements and their impact on ~~debt~~previously reported condensed consolidated financial statements for the ~~six months ended September 30, 2019~~periods is described below:

Derivative Liability:The recognition, measurement and ~~2018 was $0~~presentation and ~~$11, respectively.~~disclosure related to the warrants issued in conjunction with reserved private placements of the Company’s common stock.

Stockholders’ Deficit:The measurement and presentation and disclosure related to the derivative liability associated with the warrants issued in conjunction with the reserved private placements originally classified as additional paid in capital.

Change in Fair Value of Derivative Liabilities:The recognition, measurement and presentation and disclosure related to changes in the fair value of the derivative liability

In addition to the restatement of the financial statements, certain information within the following notes to the financial statements have been restated to reflect the corrections of misstatements discussed above as well as to add disclosure language as appropriate:

~~NOTE 12: STOCKHOLDERS’ EQUITY~~Note 1: Organization and Summary of Significant Accounting Policies

~~Ecoark Holdings Preferred Stock~~Note 13: Warrant Derivative Liabilities

On March 18, 2016, the Company created 5,000 shares of “blank check” preferred stock, par value $0.001. On August 21, 2019 (the “Effective Date”), the Company and two accredited investors entered into a Securities Purchase Agreement pursuant to which the Company sold and issued to the investors an aggregate of 2 shares of Series B Convertible Preferred Stock, par value $0.001 per share at a price of $1,000 per share.

Pursuant to the Securities Purchase Agreement, the Company issued to each investor a warrant (a “Warrant”) to purchase a number of shares of common stock of the Company, par value $0.001 per share (“Common Stock”), equal to the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock purchased by the investor. Each Warrant has an exercise price equal to $0.51, subject to full ratchet price only anti-dilution provisions in accordance with the terms of the Warrants (the “Exercise Price”), and is exercisable for five years after the Effective Date. In addition, if the market price of the Common Stock on the 11 month anniversary of the closing date of the offering is less than $0.51, holder of the warrants shall be entitled to receive additional shares of common stock based on the number of shares of common stock that would have been issuable upon conversion of the Series B Convertible Preferred Stock had the initial conversion price been equal to the market price at such time (but not less than $0.25) less the number of shares of common stock issued or issuable upon exercise of the Series B Convertible Preferred Stock based on the $0.51 conversion price.

The Company also agreed to amend the current exercise price of the warrants that the investors received in connection with the Securities Purchase Agreements dated March 14, 2017 (the “March Warrants”) and May 22, 2017 (the “May Warrants” and, together with the March Warrants, the “Existing Securities”). The Existing Securities have a current exercise price of $0.59, which was amended from $2.50 on July 12, 2019. The current exercise price for the Existing Securities shall be amended to reduce the exercise price to $0.51 on August 21, 2019, subject to adjustment pursuant to the provisions of the Existing Securities.

Each share of the Series B Preferred Stock has a par value of $0.001 per share and a stated value equal to $1,000 (the “Stated Value”) and is convertible at any time at the option of the holder into the number of shares of Common Stock determined by dividing the stated value by the conversion price of $0.51, subject to certain limitations and adjustments (the “Conversion Price”).

The Company received gross proceeds from the Private Placement of $2,000, before deducting transaction costs, fees and expenses payable by the Company. The Company intends to use the net proceeds of the Private Placement to support the Company’s general working capital requirements.

As required by the Securities Purchase Agreement, each director and officer of the Company has previously entered into a lock-up agreement with the Company whereby each director and officer has agreed that during the period commencing from the Effective Date until 120 days after the Effective Date, such director or officer will not offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of or enter into any transaction to dispose of, or establish or increase a put position or liquidate or decrease a call position, with respect to any share of Common Stock or securities convertible, exchangeable or exercisable into, shares of Common Stock. On August 21, 2019, the Company issued 300 shares of common stock to advisors that assisted with the securities purchase agreement and exchange agreement.

~~On October 15, 2019, nearly all the Series B Preferred Stock shares were converted into 3,761 shares of Common Stock.~~

On November 11, 2019, the Company and two accredited investors (each an “Investor” and, collectively, the “Investors”) entered into a securities purchase agreement (the “Securities Purchase Agreement”) pursuant to which the Company sold and issued to the Investors an aggregate of 1 shares of Series C Convertible Preferred Stock, par value $0.001 per share (the “Series C Preferred Stock”), at a price of $1,000 per share (the “Private Placement”).

Pursuant to the Securities Purchase Agreement, the Company issued to each Investor a warrant (a “Warrant”) to purchase a number of shares of common stock of the Company, par value $0.001 per share (“Common Stock”), equal to the number of shares of Common Stock issuable upon conversion of the Series C Preferred Stock purchased by the Investor. Each Warrant has an exercise price equal to $0.73, subject to full ratchet price only anti-dilution provisions in accordance with the terms of the Warrants (the “Exercise Price”), and is exercisable for five years after the Effective Date. In addition, if the market price of the Common Stock for the five trading days prior to July 22, 2020 is less than $0.73, holder of the warrants shall be entitled to receive additional shares of common stock based on the number of shares of common stock that would have been issuable upon conversion of the Series C Convertible Preferred Stock had the initial conversion price been equal to the market price at such time (but not less than $0.25) less the number of shares of common stock issued or issuable upon exercise of the Series C Convertible Preferred Stock based on the $0.73 conversion price.

Each share of the Series C Preferred Stock has a par value of $0.001 per share and a stated value equal to $1,000 (the “Stated Value”) and is convertible at any time at the option of the holder into the number of shares of Common Stock determined by dividing the stated value by the conversion price of $0.73, subject to certain limitations and adjustments (the “Conversion Price”).

The Company received gross proceeds from the Private Placement of $1,000, before deducting transaction costs, fees and expenses payable by the Company. The Company intends to use the net proceeds of the Private Placement to support the Company’s general working capital requirements.

~~Ecoark Holdings Common Stock~~

The Company has 100,000 shares of common stock, par value $0.001 which were authorized on March 18, 2016. The Company has outstanding warrants as of September 30, 2019 that are exercisable into 7,657 shares of common stock.

On July 12, 2019, the Company entered into an exchange agreement with investors that are the holders of warrants. As a result of a cashless exercise, the Company issued 4,277 shares of the Company’s common stock to the investors. Upon the issuance of the 4,277 shares, warrants for 5,677 shares were extinguished. The fair value of the shares issued was $3,293, and the fair value of the warrants was $2,455 resulting in a loss of $839 that was recognized on the exchange. On August 21, 2019, the Company issued 300 shares to advisors that assisted with the securities purchase agreement and exchange agreement.

On October 15, 2019, nearly all the Series B Preferred Stock shares were converted into 3,761 shares of Common Stock. On October 28, 2019, the Company issued 2,243 shares of the Company’s common stock to investors in exchange for the March and May 2017 warrants. Upon the issuance of the 2,243 shares, the March and May 2017 warrants were extinguished. On October 31, 2019, the Company issued 120 shares of common stock for services rendered.

~~Share-based Compensation~~

~~Share-based compensation expense is included in selling, general and administrative expense in the condensed consolidated statements of operations as follows:~~

2013
Incentive
Stock Plan 2017
Omnibus Incentive
Plan Non-Qualified
Stock
Options Common Stock Total
Six months ended September 30, 2019
Directors $ - $ 200 $ - $ - $ 200
Employees - 231 669 - 900
Services - 111 - 211 322
$ - $ 542 $ 669 $ 211 $ 1,422

Six months ended September 30, 2018
Directors $ - $ 200 $ - $ - $ 200
Employees 285 286 1,329 - 1,900
Services - - - - -
$ 285 $ 486 1,329 $ - $ 2,100

~~NOTE 13: INCOME TAXES~~

The Company has a net operating loss carryforward for tax purposes totaling approximately $103,208 at September 30, 2019. Internal Revenue Code Section 382 places a limitation on the amount of taxable income that can be offset by carryforwards after certain ownership shifts.

The provision (benefit) for income taxes for the six months ended September 30, 2019 and 2018 differs from the amount expected as a result of applying statutory tax rates to the losses before income taxes principally due to establishing a valuation allowance to fully offset the potential income tax benefit. Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carry-forwards are expected to be available to reduce taxable income. As the achievement of required taxable income is uncertain, the Company has recorded a full valuation allowance against deferred tax assets.

~~The Company’s deferred tax assets are summarized as follows:~~

September 30,
2019 March 31,
2019
(Unaudited)
Net operating loss carryover $ 21,674 $ 23,327
Depreciable and amortizable assets 1,733 1,761
Share-based compensation 3,852 3,586
Accrued liabilities 57 57
Allowance for bad debts 120 120
Warrant derivative liabilities (2,887 ) (2,884 )
Other 382 381
Total 24,931 26,348
Less: valuation allowance (24,931 ) (26,348 )
Net deferred tax asset $ - $ -

After consideration of all the evidence, both positive and negative, management has recorded a full valuation allowance at September 30, 2019 and March 31, 2019, due to the uncertainty of realizing the deferred income tax assets. The valuation allowance decreased by $1,417 in the six months ended September 30, 2019. The Company has not identified any uncertain tax positions and has not received any significant notices from tax authorities.

~~NOTE 14: CONCENTRATIONS~~

~~Concentration of Credit Risk.~~The Company’s customer base for its Zest Lab products is concentrated with a small number of customers. The Company does not generally require collateral or other security to support accounts receivable. To reduce credit risk, the Company performs ongoing credit evaluations on its customers’ financial condition. The Company establishes allowances for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends and other information. J. Terrence Thompson accounted for more than 10% of the Company’s accounts receivable as of September 30, 2019 and March 31, 2019.

~~Supplier Concentration.~~Certain of the components and equipment used by the Company in the manufacture of its hardware are available from single-sourced vendors. Shortages could occur in these essential materials and components due to an interruption of supply or increased demand in the industry. If the Company were unable to procure certain components or equipment at acceptable prices, it would be required to reduce its operations, which could have a material adverse effect on its results of operations. In addition, the Company may make prepayments to certain suppliers or enter into minimum volume commitment agreements. Should these suppliers be unable to deliver on their obligations or experience financial difficulty, the Company may not be able to recover these prepayments.

~~The Company occasionally maintains cash balances in excess of the FDIC insured limit. The Company does not consider this risk to be material.~~

~~NOTE 15: ACQUISITION OF TREND DISCOVERY HOLDINGS, INC.~~

On May 31, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Trend Discovery Holdings Inc., a Delaware corporation (“Trend Holdings”) for the Company to acquire 100% of Trend Holdings pursuant to a merger of Trend Holdings with and into the Company (the “Merger”). The Merger was completed as agreed in the Merger Agreement, the Company is the surviving entity in the Merger and the separate corporate existence of Trend Holdings has ceased to exist. Pursuant to the Merger, each of the 1,000 issued and outstanding shares of common stock of Trend Holdings was converted into 5,500 shares of the Company’s common stock. No cash was paid relating to the acquisition.

The Company acquired the assets and liabilities noted below in exchange for the 5,500 shares and accounted for the acquisition in accordance with ASC 805. Based on the fair values at the effective date of acquisition the purchase price was recorded as follows (subject to adjustment):

Cash $ 3
Receivables 10
Other assets 1
Goodwill 3,223
$ 3,237

The Acquisition has been accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price was allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values. The fair value measurements utilize estimates based on key assumptions of the Acquisition, and historical and current market data. The excess of the purchase price over the total of estimated fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed is recognized as goodwill. In order to ultimately determine the fair values of tangible and intangible assets acquired and liabilities assumed for Trend Holdings, we may engage a third-party independent valuation specialist, however as of the date of this report, the valuation has not been undertaken. The Company has estimated the preliminary purchase price allocations based on historical inputs and data as of May 31, 2019. The preliminary allocation of the purchase price is based on the best information available and is pending, amongst other things: (i) the finalization of the valuation of the fair values and useful lives of tangible assets acquired; (ii) finalization of the valuations and useful lives for intangible assets; (iii) finalization of the valuation of accounts payable and accrued expenses; and (iv) finalization of the fair value of non-cash consideration.

During the measurement period (which is the period required to obtain all necessary information that existed at the acquisition date, or to conclude that such information is unavailable, not to exceed one year), additional assets or liabilities may be recognized, or there could be changes to the amounts of assets or liabilities previously recognized on a preliminary basis, if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets or liabilities as of that date. The Company expects the purchase price allocations for the acquisition of Trend Holdings to be completed by the end of the fourth quarter of fiscal 2020. The Company estimated the fair value of the Company’s shares issued on a preliminary basis based on an average of quoted market value.

~~The goodwill is not expected to be deductible for tax purposes.~~

The following table shows pro-forma results for the six months ended September 30, 2019 as if the acquisition had occurred on April 1, 2018. These unaudited pro forma results of operations are based on the historical financial statements and related notes of Trend Holdings and the Company.

Six Months Ended
September 30,
2019 2018
(Unaudited) (Unaudited)

Revenues $ 90 $ 1,076
Net loss $ (6,033 ) (6,550 )
Net loss per share $ (0.10 ) $ (0.12 )

~~NOTE 16: COMMITMENTS AND CONTINGENCIES~~

~~Legal Proceedings~~

On August 1, 2018, Ecoark Holdings, Inc. and Zest Labs, Inc. filed a complaint against Walmart Inc. in the United States District Court for the Eastern District of Arkansas, Western Division. The complaint includes claims for violation of the Arkansas Trade Secrets Act, violation of the federal Defend Trade Secrets Act, breach of contract, unfair competition, unjust enrichment, breach of the covenant of good faith and fair dealing, conversion and fraud. Ecoark Holdings and Zest Labs are seeking monetary damages and other related relief to the extent it is deemed proper by the court. The Company does not believe that expenses incurred in pursuing the complaint will have a material effect on the Company’s net income or financial condition for the fiscal year ended March 31, 2020 or any individual fiscal quarter. On October 22, 2018, the Court issued an order setting a trial date of June 1, 2020. The order also established deadlines for the completion of fact discovery by October 15, 2019, opening expert reports on October 24, 2019, and dispositive motions, on January 22, 2020. The fact discovery phase is complete and the case is presently in the expert discovery phase.

On December 12, 2018, a complaint was filed against the Company in the Twelfth Judicial Circuit in Sarasota County, Florida by certain investors who invested in the Company before it was public. The complaint alleges that the investment advisors who solicited the investors to invest into the Company made omissions and misrepresentations concerning the Company and the shares. The Company filed a motion to dismiss the complaint which is pending.

~~Operating Leases~~

The Company leased operating and office facilities for various terms under long-term, non-cancelable operating lease agreements. The only remaining lease obligation at September 30 is for the Zest Labs facility in San Jose, California that expires in December 2019. Rent expense was as follows for the six months ended September 30:

2019 2018
Continuing operations $ 122 $ 111
Discontinued operations - 207
Total $ 122 $ 318

Rent expense of continuing operations for the three months ended September 30, 2019 and 2018 was $68 and $39, respectively. Future minimum lease payments required under the Zest Labs operating lease are $25. On adoption of ASC 842~~Leases~~ beginning April 1, 2019, the Company recognized additional operating liabilities of approximately $99, with corresponding right of use assets of $99 based on the present value of the remaining minimum rental payments under leasing standards for existing operating leases.

~~NOTE 17: FAIR VALUE MEASUREMENTS~~Note 14: Fair Value Measurements

The ~~Company measures and discloses~~financial statement misstatements reflected in previously issued condensed consolidated financial statements did not impact cash flows from operations, investing, or financing activities in the ~~estimated fair value~~Company’s consolidated statements of financial assets and liabilities using the fair value hierarchy prescribed by U.S. generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:

~~Level 1 – quoted prices~~cash flows for ~~identical instruments in active markets;~~

~~Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.~~

any period previously presented, however they did impact individual line items.

Comparison of restated financial statements to financial statements as previously reported

~~Financial instruments consist principally~~The following tables compare the Company’s previously issued Condensed Consolidated Balance Sheet, Condensed Consolidated Statements of ~~cash, accounts receivable~~Operations, and ~~other receivables, accounts payable~~Consolidated Statement of Cashflows as of and accrued liabilities, notes payable, and amounts due to related parties. The fair value of cash is determined based on Level 1 inputs. There were no transfers into or out of “Level 3” during the periods ended September 30, 2019 and 2018. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. The Company records the fair value of the warrant derivative liabilities disclosed in Note 8 in accordance with ASC 815,~~Derivatives and Hedging~~. The fair values of the derivatives were calculated using the Black-Scholes Model. The fair value of the derivative liabilities is revalued on each balance sheet date with corresponding gains and losses recorded in other income (expense) in the consolidated statement of operations. Other income (expense) recorded based upon the change in fair value of the derivative liabilities was $(16) and $1,036 for the six months ended September 30, 2019 and 2018, respectively, and $(960) and $715 for the three months ended ~~September~~June 30, ~~2019 and~~ 2018 ~~respectively.~~

to the corresponding restated condensed consolidated financial statements for that period.

~~The following table presents assets and liabilities that are measured and recognized at fair value on a recurring basis:~~

				(Dollars in thousands,
				except per share data)
	June 30,			Restatement			June 30,
	2018			Adjustment			2018
	As Reported						As Restated
ASSETS
CURRENT ASSETS
Cash ($100 pledged as collateral for credit)	$	1,748		$	-		$	1,748
Accounts receivable, net of allowance of $87		2,014			-			2,014
Prepaid expenses		208			-			208
Current assets held for sale		1,087			-			1,087
Total current assets		5,057			-			5,057
NON-CURRENT ASSETS
Property and equipment, net		2,448			-			2,448
Intangible assets, net		1,407			-			1,407
Non-current assets held for sale		1,018			-			1,018
Other assets		26			-			26
Total non-current assets		4,899			-			4,899
TOTAL ASSETS	$	9,956			-		$	9,956

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

CURRENT LIABILITIES
Accounts payable	$	2,537		$	-		$	2,537
Accrued liabilities		914			-			914
Derivative liabilities		-			3,373			3,373
Current portion of long-term debt		500			-			500
Current portion of long-term debt – related party		15			-			15
Total current liabilities		3,966			3,373			7,339
NON-CURRENT LIABILITIES
COMMITMENTS AND CONTINGENCIES
Total liabilities		3,966			3,373			7,339

STOCKHOLDERS’ EQUITY (Numbers of shares rounded to thousands)

Preferred stock, $0.001 par value; 5,000 shares authorized; none issued		-			-			-
Common stock, $0.001 par value; 100,000 shares authorized, 49,533 shares issued and 48,972 shares outstanding as of June 30, 2018		50			-			50
Additional paid-in-capital		123,510			(13,839	)		109,671
Accumulated deficit		(115,929	)		10,466			(105,463	)
Treasury stock, at cost		(1,641	)		-			(1,641	)
Total stockholders’ equity		5,990			(3,373	)		2,617
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	9,956			-		$	9,956

Level 1 Level 2 Level 3
September 30, 2019
Warrant derivative liabilities - - $ 2,242

March 31, 2019
Warrant derivative liabilities - - $ 3,104

~~NOTE 18: SEGMENT INFORMATION~~

~~The Company follows the provisions of ASC 280-10~~~~Disclosures about Segments of an Enterprise and Related Information~~. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making operating decisions. As of September 30, 2019, and for the six months ended September 30, 2019, the Company operated in two segments. The segments are Trend Holdings and Zest Labs. Amounts related to discontinued operations are excluded from the amounts in the tables below. The acquisition of Trend holdings on May 31, 2019, caused the reportable segments to change from the previous reporting as a single segment in fiscal 2019. Home office costs are allocated to the two segments based on the relative support provided to those segments.

Six Months Ended September 30, 2019 Trend Holdings Zest Labs Total
Segmented operating revenues $ 52 $ 27 $ 79
Cost of revenues - 61 61
Gross profit (loss) 52 (34 ) 18
Total operating expenses net of depreciation, amortization, and impairment 200 4,717 4,917
Depreciation and amortization - 148 148
Other (income) expense - 990 990
Income (loss) from continuing operations $ (148 ) $ (5,889 ) $ (6,037 )

Three Months Ended September 30, 2019 Trend Holdings Zest Labs Total
Segmented operating revenues $ 29 $ 15 $ 44
Cost of revenues - 16 16
Gross profit (loss) 29 (1 ) 28
Total operating expenses net of depreciation, amortization, and impairment 61 2,410 2,471
Depreciation and amortization - 71 71
Other (income) expense - 1,875 1,875
Income (loss) from continuing operations $ (32 ) $ (4,357 ) $ (4,389 )

Segmented assets as of September 30, 2019
Property and equipment, net $ - $ 676 $ 676
Intangible assets, net $ 3,223 $ - $ 3,223
Capital expenditures $ - $ - $ -

	Three Months Ended					Three Months Ended
	June 30,			Restatement		June 30,
	2018			Adjustment		2018
	As Reported					As Restated
CONTINUING OPERATIONS:

REVENUES	$	753		$	-	$	753

COST OF REVENUES		430			-		430

GROSS PROFIT (LOSS)		323			-		323
OPERATING EXPENSES:
Selling, general and administrative		2,091			-		2,091
Depreciation, amortization and impairment		309			-		309
Research and development		870			-		870
Total operating expenses		3,270			-		3,270
Loss from continuing operations before other expenses		(2,947	)		-		(2,947	)

OTHER INCOME (EXPENSE):
Change in fair value of derivative liabilities		-			321		321
Interest expense, net of interest income		(11	)		-		(11	)
Total other income (expenses)		(11	)		321		(310	)
)LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES		(2,958	)		321		(2,637	)
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations		(590	)		-		(590	)
Gain on disposal of discontinued operations		-			-		-
Total discontinued operations		(590	)		-		(590	)
PROVISION FOR INCOME TAXES		-			-		-
NET LOSS		(3,548	)		321		(3,227	)
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST		-					-
NET LOSS ATTRIBUTABLE TO CONTROLLING INTEREST	$	(3,548	)	$	321	$	(3,227	)

NET LOSS PER SHARE
Basic and diluted: Continuing operations	$	(0.06	)	$	-	$	(0.06	)
Discontinued operations		(0.01	)		-		(0.01	)
Total	$	(0.07	)	$	-	$	(0.07	)

SHARES USED IN CALCULATION OF NET LOSS PER SHARE
Basic and diluted		48,960					48,960

ECOARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2018

	Three Months Ended June 30,			Restatement			Three Months Ended June 30,
	2018			Adjustment			2018
	As Reported						As Restated
Cash flows from operating activities:
Net loss attributable to controlling interest	$	(3,548	)	$	321		$	(3,227	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and impairment		362			-			362
Shares of common stock issued for services rendered		136			-			136
Share-based compensation – stock - employees		951			-			951
Change in value of derivative liabilities					(321	)		(321	)
(Income) loss from discontinued operations		590						590
Changes in assets and liabilities:
Accounts receivable		573			-			573
Inventory		(437	)		-			(437	)
Prepaid expenses		46			-			46
Other current assets		13			-			13
Accounts payable		158			-			158
Accrued liabilities		(167	)		-			(167	)
Net cash used in operating activities of continuing operations		(1,323	)		-			(1,323	)
Net cash used in discontinued operations		(590	)		-			(590	)
Net cash used in operating activities		(1,913	)		-			(1,913	)

Cash flows from investing activities:
Net cash used in investing activities – discontinued operations		(46	)		-			(46	)

Net cash used in investing activities		(46	)		-			(46	)

Cash flows from financing activities:
Proceeds from issuance of common stock, net of fees		-			-			-
Purchase of treasury shares from employees		(23	)		-			(23	)
Repayments of debt - related parties		-			-			-
Net cash used in financing activities		(23	)		-			(23	)
NET DECREASE IN CASH		(1,982	)		-			(1,982	)
Cash - beginning of period		3,730			-			3,730
Cash - end of period	$	1,748		$	-		$	1,748

SUPPLEMENTAL DISCLOSURES:
Cash paid for interest	$	11		$	-		$	11
Cash paid for income taxes	$	-		$	-		$	-

NOTE ~~19:~~16: SUBSEQUENT EVENTS

~~On October 15, 2019, nearly all the Series B Preferred Stock shares were converted into 3,761 shares of Common Stock.~~

~~On October 28, 2019,~~Subsequent to June 30, 2018, the Company ~~entered into an Exchange Agreement with investors (the “Investors”) that are the holders of warrants~~has issued in the Company’s purchase agreements entered into on (i) March 17, 2017 (the “March Purchase Agreement” and such warrants, the “March Warrants”) and (ii) May 26, 2017 (the “May Purchase Agreement” and such warrants, the “May Warrants”. The March Warrants and the May Warrants (collectively, the “Existing Securities”) were amended to, among other amendments, reduce the exercise price of the Existing Securities to $0.51.

Subject to the terms and conditions set forth in the Exchange Agreement and in reliance on Section 3(a)(9) of the Securities Act of 1933, as amended (the “Securities Act”), the Company issued 2,243 shares of the Company’s common stock to the Investors in exchange for the 2,875 of the Existing Securities. Upon the issuance of the 2,243 shares, the 2,875 Existing Securities were extinguished.

~~On October 31, 2019, the Company issued 120~~8 shares of common stock ~~for services rendered.~~

On November 11, 2019, the Company and two accredited investors (each an “Investor” and, collectively, the “Investors”) entered into a securities purchase agreement (the “Securities Purchase Agreement”) pursuant to ~~which~~stock awards granted from the 2013 Incentive Stock Plan. The Company sold and issued to the Investors an aggregate of 1 shares of Series C Convertible Preferred Stock, par value $0.001 per share (the “Series C Preferred Stock”), at a price of $1,000 per share (the “Private Placement”).

~~Pursuant to the Securities Purchase Agreement, the Company issued to each Investor a warrant (a “Warrant”) to purchase a number of~~acquired 5 shares of common stock from employees in lieu of amounts required to satisfy minimum withholding requirements upon vesting of the ~~Company, par value $0.001 per share (“Common Stock”), equal~~employees’ stock. Subsequent to June 30, 2018, the Board awarded 150 incentive stock options to employees pursuant to the ~~number of shares of Common Stock issuable upon conversion of the Series C Preferred Stock purchased by the Investor. Each Warrant has~~2017 Omnibus Incentive Plan, which grants are at an exercise price ~~equal to $0.73, subject to full ratchet price only anti-dilution provisions in accordance with the terms~~ of ~~the Warrants (the “Exercise Price”), and is exercisable for five~~$1.35, a term of 10 years after the Effective Date. In addition, if the market price of the Common Stock for the five trading days prior to July 22, 2020 is less than $0.73, holder of the warrants shall be entitled to receive additional shares of common stock based on the number of shares of common stock that would have been issuable upon conversion of the Series C Convertible Preferred Stock had the initial conversion price been equal to the market price at such time (but not less than $0.25) less the number of shares of common stock issued or issuable upon exercise of the Series C Convertible Preferred Stock based on the $0.73 conversion price.

~~Each share of the Series C Preferred Stock has a par value of $0.001 per share~~ and a stated value equal to $1,000 (the “Stated Value”) and is convertible at any time at the option of the holder into the number of shares of Common Stock determined by dividing the stated value by the conversion price of $0.73, subject to certain limitations and adjustments (the “Conversion Price”).

vesting period over four years.

~~As required by the Securities Purchase Agreement, each director and officer of the Company has previously~~had a secured convertible promissory note bearing interest at 10% per annum, entered ~~into a lock-up agreement~~on January 10, 2017 for $500 with the ~~Company whereby each director~~principal due in one lump sum payment on or before July 10, 2018. On July 2, 2018 the $500 and ~~officer has agreed that during~~$11 of accrued interest was repaid and the period commencing from the Effective Date until 120 days after the Effective Date, such director or officer will not offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of or enter into any transaction to dispose of, or establish or increase a put position or liquidate or decrease a call position, with respect to any share of Common Stock or securities convertible, exchangeable or exercisable into, shares of Common Stock.

note retired.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including: any projections of earnings, revenues or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “plan” or “anticipate” and other similar words. Such forward-looking statements may be contained in the sections “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Notes to Condensed Consolidated Financial Statements (Unaudited)” among other places in this Form ~~10-Q.~~10-Q/A.

Dollar amounts and number of shares below are expressed in thousands, except per share amounts.

~~Impact of Restatement Adjustments on Other Income and Net Loss of Previously Reported Periods~~

As more fully described in Note 3 to the condensed consolidated financial statements included in this report, the Company identified inadvertent errors in the accounting for certain embedded derivative liabilities associated with warrants issued as a part of capital raises in 2017 and 2018. In connection with those capital raises, proceeds (net of fees) were accounted for as equity. Upon further evaluation, the Company determined that a portion of the capital raised should have been accounted for as liabilities with fair value changes recorded in the Company’s consolidated statements of operations. Accordingly, the Company has restated its previously issued consolidated financial statements for the fiscal year ended March 31, 2018 and interim periods in fiscal years 2018 and 2019 as well as an adjustment to the opening balance sheet for the first interim period of fiscal 2018 (the “Restated Periods”).

The only impact on the consolidated statements of operations is an adjustment to other income which impacts the net loss for the respective Restated Periods. There is no impact to the income tax provision or net deferred tax asset because both the current tax benefit and deferred tax assets were offset by a full valuation allowance. Impacts to the consolidated balance sheets consisting of establishing derivative liabilities and adjustments to stockholders’ equity are addressed in the Liquidity and Capital Resources section below.

The adjustment to the opening balance sheet as of April 1, 2017 consisted of establishing a current derivative liability of $3,351, offset by a reduction in additional paid-in-capital of $4,180 and a reduction of accumulated deficit of $829.

~~For the six months ended September 30, 2018, other income increased by $1,036 with a corresponding reduction in net loss from $7,613 to $6,577.~~

Ecoark Holdings, Inc.

Ecoark Holdings is an innovative AgTech company focused on solutions that reduce food waste and improve delivered freshness and product margins for fresh and perishable foods for a wide range of organizations including growers, processors, distributors and retailers. Ecoark Holdings addresses this through its indirect wholly-owned subsidiary: Zest Labs, Inc. (“Zest Labs” or “Zest”). The Company committed to a plan to focus its business on Zest Labs and divested non-core assets in 2019 that included assets of Pioneer Products, LLC (“Pioneer Products” or “Pioneer”) and Magnolia Solar, Inc. (“Magnolia Solar”). Those assets are reported as held for sale and their operations are reported as discontinued operations in the consolidated financial statements. ~~All~~The subsidiary Eco3d, LLC (“Eco3d”) was sold on April 14, 2017 and is also reported as held for sale and discontinued operations ~~have been sold or ceased~~in the consolidated financial statements. The Company has 20 employees of continuing operations ~~by September 30, 2019, so there are~~and no ~~remaining assets or liabilities~~employees of discontinued operations as of the ~~discontinued operations.~~

~~On May 31, 2019, the Company entered into an Agreement and Plan~~date of Merger (the “Merger Agreement”) with Trend Discovery Holdings Inc., a Delaware corporation (“Trend Holdings”) for the Company to acquire 100% of Trend Holdings pursuant to a merger of Trend Holdings with and into the Company (the “Merger”). The Merger was completed on the May 31, 2019 and as agreed in the Merger Agreement, the Company is the surviving entity in the Merger and the separate corporate existence of Trend Holdings has ceased to exist.

Trend Holding’s primary asset is Trend Discovery Capital Management. Trend Discovery Capital Management manages several entities including Trend Discovery LP and Trend Discovery SPV I. Trend Discovery LP is a hybrid hedge fund with a since inception track record of outperforming the S&P 500. Trend Discovery LP primarily invests in early-stage startups. In the near-term, Trend Discovery LP’s performance will be driven by its investment in Volans-i, a fully autonomous vertical takeoff and landing (“VTOL”) drone delivery platform. Trend Discovery LP currently owns approximately 1% of Volans-i, and has participation rights to future financings to maintain its ownership at 1% indefinitely. More information can be found at flyvoly.com.this filing.

Our principal executive offices are located at 5899 Preston Road #505, Frisco, ~~Texas~~TX 75034, and our telephone number is (479) 259-2977. Our website address is ~~http://zestlabs.com/.~~www.zestlabs.com. Our website and the information contained on, or that can be accessed through, our website will not be deemed to be incorporated by reference in, and are not considered part of, this report.

Description of Business

Zest Labs

Zest Labs offers freshness management solutions for ~~fresh~~ food retailers and restaurants, growers, ~~suppliers,~~ processors, distributors ~~grocers~~ and ~~restaurants.~~suppliers. Its Zest Fresh solution is a cloud-based post-harvest shelf-life and freshness management solution that improves delivered freshness of ~~produce and protein~~products and reduces post-harvest losses at the retailer due to temperature handling and processing by 50% or more by intelligently matching customer freshness requirements with actual product freshness. It focuses on four primary value propositions – operational efficiency, consistent food freshness, reduced waste, and improved food safety. Zest Fresh empowers workers with real-time analytic tools and alerts that improve efficiency while driving quality consistency through best practice adherence at a pallet level. Zest Labs also offers its Zest Delivery solution that provides real-time monitoring and control for prepared food delivery containers, helping delivery and dispatch personnel ensure the quality and safety of delivered food.

~~On June 6, 2019, Zest Labsannounced a strategic collaboration between AgroFresh and~~ Zest Labs was previously known as Intelleflex Corporation. Effective on October 28, 2016, Intelleflex Corporation changed its name to ~~strengthen their end-to-end solutions. AgroFresh will incorporate~~ Zest ~~Labs’ Zest Fresh™ solution into~~Labs, Inc. to align its ~~FreshCloud™ Transit Insights platform. The agreement will utilize both companies’ resources~~corporate name with its mission and ~~strengths to provide customers with a comprehensive solution that improves operations, increases visibility into produce shelf-life~~the brand name of its products and ~~reduces food waste.~~services.

The Zest Fresh value proposition is to reduce fresh food loss by improving quality consistency. In the U.S. produce market, it is reported that roughly 30% of post-harvest fresh food is lost or wasted and therefore not consumed. Both fresh food producers and retailers bear significant expense when harvested food is either rejected due to early spoilage or reduced in value due to early ripening. Zest Labs believes that a significant portion of this waste can be attributed to inconsistent freshness based on variable post-harvest processing and handling. Fresh food producers and retailers manage food distribution and inventory based on the harvest date, with the assumption that all food harvested on the same day will have the same freshness. However, studies have shown that post-harvest handling can have a significant effect on the actual remaining freshness, and if not properly managed, can result in food loss or spoilage ahead of expectations, leading to waste and lost profits. Zest Fresh empowers fresh food producers and retailers to significantly reduce the post-harvest loss by providing real-time guidance to process adherence, intelligent distribution and best handling practices, with a goal of providing significant financial savings to fresh food producers and retailers.

Zest Labs has developed the industry’s first freshness metric called the Zest Intelligent Pallet Routing Code (“ZIPR Code”). The ZIPR Code has three main components: Harvest Quality which sets total freshness capacity (for example, 12 days for strawberries), Handling Impact which reflects aging acceleration due to improper handling, and Future Handling which accurately reflects how the product will be handled (for example, store shelf temperature may be 40 degrees Fahrenheit instead of the ideal 34 degrees Fahrenheit).

Zest Fresh is offered to fresh food producers, processors, distributors and retailers with pricing based on the number of pallets managed by Zest Fresh, typically from the field harvest through retail delivery. The Zest Fresh service includes a re-usable wireless Internet of Things (“IoT”) condition sensor that travels with the pallet of fresh food from the field or processor through retail delivery, continuously collecting product condition data. The collected pallet product data is analyzed, using artificial intelligence-based predictive analytics in real time by the Zest Fresh cloud application, with the fresh food producers and retailers accessing data through Zest Fresh web and mobile applications. Zest Fresh provides workers with real-time feedback on the current handling or processing of each pallet, empowering best practice adherence to achieve maximum freshness. Zest Fresh also provides dynamic updates as to actual product freshness for each pallet, enabling intelligent routing and inventory management of each pallet in a manner that ensures optimum delivered freshness. Zest also offers integrated blockchain support to grower and shipper customers via the Zest Fresh platform.

Zest Labs’ Zest Delivery solution helps to manage prepared food delivery from the restaurant through to the customer. Zest Delivery manages the delivery container environment, both monitoring and controlling the product condition. The value of Zest Delivery is to manage prepared meals in an ideal state for consumption, while accommodating extended pre-staging or delivery times. Extended pre-staging times are associated with “instant delivery” services of prepared meals, where the meals are often pre-staged in a delivery area ahead of demand. While pre-staging enables fast demand response time, it can result in prepared meals being staged for extended periods, which can potentially impact quality, value and safety. Zest Delivery monitors and controls the delivery container environment to preserve the prepared meal in ideal, ready to consume condition. Zest Delivery also provides the dispatcher with real-time remote visibility to the condition of available meals and confirming quality prior to dispatch. Zest Delivery provides automated, real-time visibility for a very distributed fleet of drivers, reflecting prepared meal food safety, quality and availability. Zest Delivery is offered to meal delivery companies based on the quantity of delivery containers and frequency of use.

Zest Labs currently holds rights to 6967 U.S. patents (with additional patents pending), numerous related foreign patents, and U.S. copyrights relating to certain aspects of its Zest Labs’ software, hardware devices including Radio-Frequency Identification (“RFID”) technology, software, and services. In addition, Zest Labs has registered, and/or has applied to register trademarks and service marks in the U.S. and a number of foreign countries for “Intelleflex,” the Intelleflex logo, “Zest,” “Zest Data Services,” and the Zest, Zest Fresh and Zest Delivery logos, ZIPR and numerous other trademarks and service marks. Many of Zest Labs’ products have been designed to include licensed intellectual property obtained from third-parties. Laws and regulations related to wireless communications devices in the jurisdictions in which Zest Labs operates and seeks to operate are extensive and subject to change. Wireless communication devices, such as RFID readers, are subject to certification and regulation by governmental and standardization bodies. These certification processes are extensive and time consuming, and could result in additional testing requirements, product modifications or delays in product shipment dates.

Although most components essential to Zest Labs’ business are generally available from multiple sources, certain key components including, but not limited to, microprocessors, enclosures, certain RFID or other wireless custom integrated circuits, and application-specific integrated circuits are currently obtained by Zest Labs from single or limited sources, principally in Asia.

Zest Labs is part of a very competitive industry that markets solutions to fresh food supply chain users, such as fresh food growers, producers and retailers. Many other companies that are both more established and command much greater resources compete in this market. While Zest Fresh and Zest Delivery offer new technical approaches and new user value, it remains uncertain if Zest Labs will gain sufficient adoption of its products to make them viable in the market. Further, it is unclear what industry competitors are developing that might address similar user needs. Zest Labs’ products provide a new approach for industry participants, and as with any new approach, adoption is uncertain as many in the industry can be slow to embrace new technology and/or new approaches. These market challenges can lead to extended sales cycles that may include extended pilot testing often at Zest Labs’ expense, for which the outcome remains unclear until the completion of each test. For these reasons, and others, forecasting new business adoption and future revenue can be very difficult and volatile. However, the Company believes that its solutions offer restaurants, fresh food retailers, growers, shippers, processors and distributors an opportunity to differentiate their businesses in ways that the shipment of canned and boxed food products cannot, as competition in the grocery market continues to accelerate.

On May 18, 2017, the Company entered into an exchange agreement (the “Exchange Agreement”) with Zest Labs, 440labs, Inc., a Massachusetts corporation (“440labs”), SphereIt, LLC, a Massachusetts limited liability company (“SphereIt”) and three of 440labs’ executive employees. Pursuant to the Exchange Agreement, on May 23, 2017 the Company acquired all of the shares of 440labs in exchange for 300 shares of the Company’s common stock issued to SphereIt. 440labs is a cloud and mobile software developer which is now a subsidiary of Zest Labs. 440labs’ three executive employees signed employment agreements pursuant to which each of the three executive employees received 100 shares of the Company’s common stock and became employed by Zest Labs.

The acquisition of 440labs in May 2017 allowed Zest Labs to internally maintain its software development and information solutions for cloud, mobile, and IoT applications. 440labs had been a key development partner with Zest Labs for more than four years prior to the May 2017 acquisition, contributing its expertise in scalable enterprise cloud solutions and mobile applications.

Discontinued Operations

Pioneer Products is located in Rogers, Arkansas and is involved in the selling of recycled plastic products. This subsidiary recovers plastic waste from retail supply chains that is converted to new consumer products from the reclaimed materials, completing a closed loop and reducing waste sent to landfills. Pioneer Products was purchased by Ecoark in 2012. Pioneer Products acquired Sable Polymer Solutions, LLC in a stock transaction on May 3, 2016, so its results are included with Pioneer’s since May 2016. In May 2018 the Ecoark Holdings Board approved a plan to sell Pioneer.

Sable is located in Flowery Branch, Georgia and specializes in the sale, purchase and processing of post-consumer and post-industrial plastic materials. It provides products to a variety of suppliers and customers throughout the plastics processing industry, from small extruders, molders and scrap collectors to large corporations. In May 2018 the Ecoark Holdings Board approved a plan to sell key assets of Sable.

Magnolia Solar is located in Woburn, Massachusetts and is principally engaged in the development of nanotechnology-based, high-efficiency, thin-film technology that can be deposited on a variety of substrates, including glass and flexible structures. In May 2018 the Ecoark Holdings Board approved a plan to sell Magnolia Solar.

Competition

~~Zest Labs operates~~The Company’s subsidiaries operate in markets for products and services that are highly competitive and face aggressive competition in all areas of their business.

The market for cloud-based, real-time supply chain analytic solutions—the market in which Zest Labs competes—is rapidly evolving. There are several new competitors with competing technologies, including companies that have greater resources than Ecoark Holdings, which operate in this space. Some of these companies are subsidiaries of large publicly traded companies that have brand recognition, established relationships with retailers, and own the manufacturing process.

Pioneer Products competes in the market for recycled products to support sustainability programs of its customers. There are currently hundreds of sustainability programs available in the market. These programs are offered through retailers, manufacturers, and service providers. Several competitors operating in this industry are vertically integrated and offer recycled products similar to those sold by Pioneer.

Sales and Marketing

We sell our products and services principally through direct sales efforts and the utilization of third-party agents. Zest Labs has marketing operations and programs for demand generation, public relations, and branding/messaging.

Research and Development

We have devoted a substantial amount of our resources to software and hardware development activities in recent years, principally for the Zest Labs initiatives. Ecoark Holdings believes that, analyzing the competitive factors affecting the market for the solutions and services its subsidiaries provide, its products and services compete favorably by offering integrated solutions to customers. The Company has incurred research and development expenses of ~~$1,685~~$870 and ~~$1,641~~$1,620 in the ~~six~~three months ended ~~September~~June 30, ~~2019~~2018 and ~~2018,~~2017, respectively, to develop its solutions and differentiate those solutions from competitive offerings. ~~Expenses in the three months ended September 30, 2019 and 2018 were $788 and $771, respectively.~~ We incurred no capitalized software development costs in the ~~six~~three months ended ~~September~~June 30, ~~2019~~2018 and ~~2018.~~2017.

Intellectual Property

Ecoark Holdings and its subsidiaries have had 6967 patents issued by the United States Patent and Trademark Office, and additional patent applications are currently pending.

Impact of Restatement Adjustments on Other Income and Net Loss of Previously Reported Periods

As more fully described in Note 15 to the condensed consolidated financial statements included in this report, the Company identified inadvertent errors in the accounting for certain embedded derivative liabilities associated with warrants issued as a part of capital raises in 2017 and 2018. In connection with those capital raises, proceeds (net of fees) were accounted for as equity. Upon further evaluation, the Company determined that a portion of the capital raised should have been accounted for as liabilities with fair value changes recorded in the Company’s condensed consolidated statements of operations. Accordingly, the Company is restating its previously issued condensed consolidated financial statements for the three months ended June 30, 2018 as well as an adjustment to the opening balance sheet for the first interim period of fiscal 2018 (the “Restated Periods”).

The only impact on the condensed consolidated statements of operations is an adjustment to other income which impacts the net loss for the respective Restated Periods. There is no impact to the income tax provision or net deferred tax asset because both the current tax benefit and deferred tax assets were offset by a full valuation allowance. Impacts to the consolidated balance sheets consisting of establishing derivative liabilities and adjustments to stockholders’ equity are addressed in the Liquidity and Capital Resources section below.

The adjustment to the opening balance sheet as of April 1, 2017 consisted of establishing a current derivatives liability of $3,351, offset by a reduction in additional paid-in-capital of $4,180 and a reduction of accumulated deficit of $829.

For the three months ended June 30, 2017, other income increased by $3,346 with a corresponding reduction in net loss from $13,609 to $10,263.

For the three and six months ended September 30, 2017, other income increased by $2,161 and $5,507, respectively, with corresponding reductions in net loss from $11,967 to $9,806 and from $25,576 to $20,069, respectively.

For the three and nine months ended December 31, 2017, other income increased by $1,738 and $7,245, respectively, with corresponding reductions in net loss from $10,017 to $8,279 and from $35,593 to $28,348, respectively.

For the year ended March 31, 2018, other income increased by $9,316 with a corresponding reduction in net loss from $42,152 to $32,836.

For the three months ended June 30, 2018, other income increased by $321 with a corresponding reduction in net loss from $3,548 to $3,227.

Critical Accounting Policies, Estimates and Assumptions

In reading and understanding the Company’s discussion of results of operations, liquidity and capital resources, and the ~~audited~~ financial statements that follow, one should be aware of key policies, judgments and assumptions that are important to the portrayal of financial conditions and results. The Company’s continuing operations have not generated sufficient revenues and related cash flows to date to fund the Company’s operations. That raises a question as to whether we are a “going concern”. Because we have been successful at raising capital, ~~and have a substantial credit facility in place,~~ we assume that we will continue operations and thus have not used liquidation accounting which would assume that liquidation was imminent.

~~Since April 1,~~Our revenues from periods prior to fiscal 2018 were generated principally from the sale of hardware. In the three months ended June 30, 2018, revenues were principally from a professional services project and more importantly from Software as a Service (“SaaS”) arrangements that we expect to be a principal source of revenue in the future. We adopted a new accounting policy for revenue recognition ~~on April 1, 2017~~ that had no impact on historical reported results, and it positions us for what we expect our business to be in the future. It requires judgment to apply, but in plain English it recognizes revenue when the Company fulfills the obligations it has committed to in agreements with customers. Judgment is also required to estimate the costs associated with those revenues. ~~The transition from Financial Accounting Standards Board Accounting Standard Codification (“ASC”) 605 to ASC 606,~~~~Revenue~~~~, was not material to our financial statements.~~

A significant percentage of our operating expenses results from non-cash share-based compensation, which is typical of technology companies. We have granted shares, options and warrants to employees, consultants and investors as incentives to generate success for the Company instead of making cash payments. The accounting calculations for this type of compensation can be complex and are derived from models like the Black-Scholes option pricing model that requires judgment in making assumptions and developing estimates.

We used the Black-Scholes option pricing model to estimate derivative liabilities associated with warrants issued in conjunction with capital raises. See additional discussion of those transactions in Notes 1 and 3 to the financial statements.

We have also invested heavily in research and development expenses. Those investments have required cash payments principally for the development of our software solutions and the testing of those solutions in our labs and on some customer projects. We have not capitalized any of that development effort, so there are no ~~R&D~~research and development costs to amortize in the future.

Given the strategic focus on Zest Labs moving forward, we ~~divested~~are in the process of divesting the remaining assets and operations that principally ~~consisted~~consist of our plastic resin and trash can ~~businesses.~~business. The decision to divest approved by our Board resulted in the reclassification of current and historical amounts related to those businesses. Judgment was required to estimate the fair value of the assets that we ~~intended~~intend to ~~sell prior to the final sales.~~sell. We have recorded impairments or non-cash write-downs of some of those assets, including intangible assets that include goodwill.

We have been conservative in our treatment of income taxes. Our historical losses have resulted in net operating losses for tax purposes. Applying accounting policies, we have recorded a “valuation allowance” against both current and future tax benefits of the losses. We will not recognize any benefits until such time as we are assured that we will generate taxable income.

RESULTS OF OPERATIONS

Overview

The discussion below addresses the Company’s operations and liquidity which were impacted by the acquisition of ~~Trend Holdings~~440labs in May ~~2019~~2017 and the sale of Eco3d in April 2017 as described ~~above.~~above Results from Eco3d, Sable, Pioneer Products and Magnolia Solar are included as discontinued operations in the statements of operations and therefore, the revenues and expenses for these entities are not included in the amounts and discussion of results of continuing operations below, except in the Net Loss summary.

Results of Continuing Operations for the Three Months Ended ~~September~~June 30, ~~2019~~2018 and ~~2018~~2017

Revenues, Cost of Revenues and Margins

Revenues for the three months ended ~~September~~June 30, ~~2019~~2018 were ~~$44~~$753 as compared to ~~$286~~$1 for the three months ended ~~September~~June 30, ~~2018.~~2017. Professional services revenues of ~~$28 in 2019 were from management and other fees earned by Trend Holdings compared to $250~~$750 for the three months ended ~~September~~June 30, 2018 were from a project with a large retailer related to freshness solutions. SaaS revenues of ~~$16 in 2019 and $36~~$3 in 2018 were from projects with produce distributors and ~~growers.~~growers, while the revenue in 2017 was from the sale of hardware.

Cost of revenues for the three months ended ~~September~~June 30, ~~2019~~2018 was ~~$16~~$430 as compared to ~~$207~~$13 for the three months ended ~~September~~June 30, ~~2018~~2017 resulting in gross profit of ~~$28~~$323 in ~~2019~~2018 and ~~$79~~gross loss of $12 in ~~2018.~~2017. The significant increase in gross profit in ~~2019~~2018 was directly related to the margin in professional services than in revenues from the hardware sale in 2017. The gross loss in 2017 was due primarily to ~~fees from Trend Holdings and in 2018 from the SaaS projects at Zest.~~royalties for cross license agreements on patents imbedded with Zest freshness solutions intellectual property.

Operating Expenses

Operating expenses for three months ended ~~September~~June 30, ~~2019~~2018 were ~~$2,542~~$3,270 as compared to ~~$3,572~~$13,630 for the three months ended ~~September~~June 30, ~~2018.~~2017. The ~~$1,030~~$10,360 decrease was due primarily to share-based non-cash compensation which decreased by ~~$382~~$8,665 to ~~$630~~$1,087 in the three months ended ~~September~~June 30, ~~2019~~2018 from ~~$1,012~~$9,752 in the three months ended ~~September~~June 30, ~~2018.~~2017. Operating expenses excluding share-based non-cash compensation for the three months ended ~~September~~June 30, ~~2019~~2018 decreased ~~$648~~$1,695 from the three months ended ~~September~~June 30, ~~2018~~2017 due to decreases in ~~depreciation and amortization,~~ professional fees and consulting ~~salaries and related costs,~~ and decreases in research and development expenditures.

Selling, General and Administrative

Selling, general and administrative expenses for the three months ended ~~September~~June 30, ~~2019~~2018 were ~~$1,683~~$2,091 compared with ~~$2,493~~$11,890 for the three months ended ~~September~~June 30, ~~2018.~~2017. The ~~$810~~$9,799 decrease was principally due to a ~~$382~~$8,665 decrease in share-based non-cash compensation, a decrease in the use of consultants and efforts to control general and administrative costs including ~~salaries and related costs and~~ travel and travel-related expenses.

Salaries and related costs for the three months ended ~~September~~June 30, ~~2019~~2018 were ~~$813,~~$1,613, down ~~$595~~$8,005 from ~~$1,408~~$9,618 for the three months ended ~~September~~June 30, ~~2018.~~2017. The decrease resulted primarily from a ~~$460~~$7,487 decrease in share-based non-cash compensation. A portion of that cost was derived from estimates of stock option expense calculated using a Black-Scholes model which can vary based on assumptions utilized and share-based compensation expense from awards of stock grants. Additional information on that equity expense can be found in Note 128 to the condensed consolidated financial statements, which complies with critical accounting policies driven by Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 718-10. ~~Decreases~~In fiscal 2018, reductions in staff were implemented to reduce the ~~number~~cash expenditures of ~~employees~~the Company which also reduced salaries and related costs ~~also contributed to the reduction in salaries and related costs.~~from 2017.

Professional fees and consulting expenses for the three months ended ~~September~~June 30, ~~2019~~2018 of ~~$546,~~$260, were ~~up $260~~down $1,226 from ~~$286~~$1,486 incurred for the three months ended ~~September~~June 30, ~~2018 was principally due to increased legal expense and costs related to engagement of consultants during the current period.~~

~~Depreciation, Amortization and Impairment~~

Depreciation, amortization and impairment expenses for the three months ended September 30, 2019 were $71 compared to $308 for the three months ended September 30, 2018. The $237 decrease primarily resulted from impairments of the intangible assets and Zest hardware assets recorded as of March 31, 2019.

~~Research and Development~~

Research and development expense of $788 in the three months ended September 30, 2019 was essentially flat compared with $771 during the same period in 2018. The expense related primarily to the development of the Zest Labs freshness solutions.

~~Interest Expense~~

Interest expense, net of interest income, for the three months ended September 30, 2019 was $76 as compared to interest income of $4 for the three months ended September 30, 2018. The increase in expense resulted from interest on the credit facility and advances from related parties in 2019.

~~Net Loss~~

Net loss for the three months ended September 30, 2019 was $4,389 as compared to $3,350 for the three months ended September 30, 2018. The $1,039 increase in net loss was primarily due to $1,675 decrease in other income from the change in fair value of warrant derivative liabilities and lower gross profit from professional services, the $839 loss on exchange of warrants for common stock, offset by the absence of the $576 loss from discontinued operations incurred in 2018, $382 decrease in non-cash share-based compensation, the decrease of $595 of salaries and related costs, and the $237 decrease in depreciation and amortization expense.

~~Results of Continuing Operations for the Six Months Ended September 30, 2019 and 2018~~

~~Revenues, Cost of Revenues and Margins~~

Revenues for the six months ended September 30, 2019 were $79 as compared to $1,039 for the six months ended September 30, 2018. Professional services revenues of $52 in 2019 were from management and other fees earned by Trend Holdings compared to $1,000 for the six months ended September 30, 2018 from a project with a large retailer related to freshness solutions. SaaS revenues of $28 in 2019 and $36 in 2018 were from projects with produce distributors and growers.

Cost of revenues for the six months ended September 30, 2019 was $61 as compared to $637 for the six months ended September 30, 2018 resulting in gross profit of $18 in 2019 and $402 in 2018. The significant gross profit in 2018 was directly related to the margin in professional services from the project with a large retailer. The gross profit in 2019 was due primarily to Trend Holdings fee income.

~~Operating Expenses~~

Operating expenses for six months ended September 30, 2019 were $5,065 as compared to $6,842 for the six months ended September 30, 2018. The $1,777 decrease was due primarily to share-based non-cash compensation which decreased by $678 to $1,422 in the six months ended September 30, 2019 from $2,100 in the six months ended September 30, 2018. Operating expenses excluding share-based non-cash compensation for the six months ended September 30, 2019 decreased $1,099 from the six months ended September 30, 2018 due to decreases in depreciation and amortization, decreases in salaries and related costs and the $839 loss on exchange of warrants for common stock.

~~Selling, General and Administrative~~

Selling, general and administrative expenses for the six months ended September 30, 2019 were $3,232 compared with $4,584 for the six months ended September 30, 2018. The $1,352 decrease was principally due to a $678 decrease in share-based non-cash compensation, a decrease in the use of consultants and efforts to control general and administrative costs including travel and travel-related expenses.

Salaries and related costs for the six months ended September 30, 2019 were $1,612, down $1,408 from $3,020 for the six months ended September 30, 2018. The decrease resulted primarily from a $1,003 decrease in share-based non-cash compensation. A portion of that cost was derived from estimates of stock option expense calculated using a Black-Scholes model which can vary based on assumptions utilized and share-based compensation expense from awards of stock grants. Additional information on that equity expense can be found in Note 12 to the condensed consolidated financial statements, which complies with critical accounting policies driven by Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 718-10. Decreases in the number of employees and related costs also contributed to the reduction in salaries and related costs.

~~Professional fees and consulting expenses for the six months ended September 30, 2019 of $901, were up $210 from $748 incurred for the six months ended September 30, 2018~~2017 as the engagement of consultants was ~~increased and legal expenses were higher~~significantly decreased during the current period.

Depreciation, Amortization and Impairment

Depreciation, amortization and impairment expenses for the ~~six~~three months ended ~~September~~June 30, ~~2019~~2018 were ~~$148~~$309 compared to ~~$617~~$120 for the ~~six~~three months ended ~~September~~June 30, ~~2018.~~2017. The ~~$469 decrease~~$189 increase primarily resulted from ~~impairments~~the amortization of the identifiable intangible assets related to the 440labs acquisition in 2017 and ~~Zest hardware~~depreciation on the $2,477 of assets ~~recorded~~previously classified as inventory that were reclassified to property and equipment as of March 31, ~~2019.~~2018 as Zest Labs entered into SaaS contracts.

Research and Development

Research and development expense ~~increased $44~~decreased $750 to ~~$1,685~~$870 in the ~~six~~three months ended ~~September~~June 30, ~~2019~~2018 compared with ~~$1,641~~$1,620 during the same period in ~~2018.~~2017. The ~~expense~~reduction in costs related primarily to the maturing of development of the Zest Labs freshness solutions.

Interest Expense

Interest expense, net of interest income, for the ~~six~~three months ended ~~September~~June 30, ~~2019~~2018 was ~~$135~~$11 as compared to $7$15 for the ~~six~~three months ended ~~September~~June 30, ~~2018.~~2017. The ~~increase~~decrease resulted from ~~interest on the credit facility and advances~~a decrease to $500 from ~~related parties in 2019 versus interest on~~$600 of convertible notes with an annual interest rate of 10%. The remaining $500 debt outstanding was paid in full subsequent to June 30, 2018.

Net Loss

Net loss for the ~~six~~three months ended ~~September~~June 30, ~~2019~~2018 was ~~$6,035~~$3,227 as compared to ~~$6,577~~$10,263 for the ~~six~~three months ended ~~September~~June 30, ~~2018.~~2017. The ~~$542~~$7,036 decrease in net loss was primarily due to the ~~$1,052~~$8,665 decrease in ~~other income from~~non-cash share-based compensation, a decrease in professional fees and a decrease in research and development expenditures plus the absence of the gain on sale of Eco3d of $636 in April 2017 and the change in fair value of ~~warrant~~ derivative liabilities, the absence of the $1,166 loss from discontinued operations incurred in 2018, the $678 decrease in non-cash share-based compensation, the $469 decrease in depreciation and amortization expense and the $839 loss on exchange of warrants for common stock, offset by lower gross profit from professional services.

liabilities.

Results of Discontinued Operations

On April 14, 2017, the Company sold the assets, liabilities and membership interests in Eco3d to a group led by executives of Eco3d after the Company’s Board concluded that Eco3d did not fit the future strategic direction of the Company. In accordance with ASC 205-20 and having met the criteria for “held for sale”, the Company had included amounts relating to Eco3d as part of discontinued operations in the three months ended June 30, 2017. In addition, as a result of receiving letters of intent for the sale of key assets of Sable, Pioneer and Magnolia Solar, and the approval by the Company’s Board to sell the assets, those assets are included in assets held for sale and their operations included in discontinued operations in both periods presented.

Loss from discontinued operations for the three ~~and six~~ months ended ~~September~~June 30, 2018 was ~~$576 and $1,166, respectively.~~$590. Revenues from discontinued operations ~~for the six months~~ were ~~$5,126,~~$2,479, comprised of ~~$5,066~~$2,419 for Pioneer and Sable and $60 for Magnolia Solar. Pioneer had a decrease in sales of consumer trash cans made from recycled materials due to a unit price decrease and fewer promotions by a customer. Losses from discontinued operations ~~for the six months~~ were ~~$1,116~~$558 for Pioneer and Sable and ~~$50~~$32 for Magnolia Solar. Pioneer and Sable losses were driven by lower volumes and a unit price decrease as previously described.

For the three months ended June 30, 2017 loss from discontinued operations was $588. Revenues from discontinued operations were $188 for Eco3d and $2,505 for Pioneer and Sable for a total of $2,693. Losses from discontinued operations were $57 for Eco3d and $553 for Pioneer and Sable.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.

To date we have financed our operations through sales of common stock and the issuance of debt.

At ~~September~~June 30, ~~2019~~2018 and March 31, ~~2019,~~2018, we had cash of ~~$449~~$1,748 and ~~$244,~~$3,730, respectively, and working capital ~~deficits~~deficit of ~~$5,797~~$2,282 at ~~September~~June 30, ~~2019 and $5,045~~2018 compared with working capital deficit of $433 at March 31, ~~2019.~~2018. The increase in the working capital deficit is the result of the net cash used in operating activities. The Company is dependent upon raising additional capital from future financing transactions.

Net cash used in operating activities was ~~$3,134~~$1,913 for the ~~six~~three months ended ~~September~~June 30, ~~2019,~~2018, as compared to net cash used in operating activities of ~~$4,902~~$7,576 for the ~~six~~three months ended ~~September~~June 30, ~~2018.~~2017. Cash used in operating activities is related to the Company’s net loss partially offset by non-cash expenses, including share-based compensation and depreciation, amortization and impairments.

Net cash ~~provided by~~used in investing activities was $5$46 for the ~~six~~three months ended ~~September~~June 30, ~~2019,~~2018, as compared to net cash ~~used in~~provided by investing activities of ~~$184~~$1,961 for the ~~six~~three months ended ~~September~~June 30, ~~2018~~2017 which included $2,006 proceeds from the sale of Eco3d.

Net cash used in financing activities in 2018 was $23. In 2017 net cash provided by financing activities ~~in 2019 were $3,334 and in 2018~~ was ~~$3,679. Cash provided by financing in 2019 includes $1,980 in proceeds~~$8,529, primarily from the issuance of ~~preferred~~common stock, ~~$951 draw on the credit facility and $403 advanced from related parties.~~net of fees.

At ~~September~~June 30, ~~2019,~~2018, $500 of Ecoark Holdings’ convertible notes payable were due in July 2018 and were paid on July 2, 2018. Future minimum lease payments required under operating leases of continuing operations by fiscal year are ~~$25.~~as follows: $2019 - $133 and 2020 - $113.

Since our inception, the Company has experienced negative cash flow from operations and may experience significant negative cash flow from operations in the future. We will need to raise additional funds in the future to continue to expand the Company’s operations and meet its obligations. The inability to obtain additional capital may restrict our ability to grow and may reduce the ability to continue to conduct business operations as a going concern.

Off-Balance Sheet Arrangements

As ~~of September~~June 30, ~~2019,~~2018 and March 31, ~~2019,~~2018, we had no off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

~~Our management,~~As required by Rule 13a-15 under the Exchange Act, as of June 30, 2018, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of ~~our principal executive~~the Company’s current management, including the Company’s Chief Executive Officer and ~~financial officers, has evaluated the effectiveness of our disclosure controls~~Principal Financial Officer (Principal Financial and ~~procedures in ensuring that the information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)~~Accounting Officer), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such information is accumulated and communicated to management (including the principal executive and financial officers) as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and financial officers havewho concluded that as of the end of the period covered by this report the Company’s disclosure controls and procedures were not effective given the identification of three material weaknesses in controls.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Principal Financial Officer (Principal Financial and Accounting Officer), as appropriate, to allow timely decisions regarding required disclosure.

We have advised our audit committee of three material weaknesses in internal control. The first weakness relates to inadequate segregation of duties consistent with control objectives. In an effort to reduce expenses, the Company reduced its accounting and administrative staff at the parent company level to the extent that achieving desired control objectives were deemed at risk.

The second weakness relates to ~~disclosure controls and~~ violations of the Company’s delegation of authority and related policies that were established and approved by the board of directors. The Company ~~continues to work~~is working with the board and board committees to communicate and reemphasize Company policies including the delegation of authority to reduce the risk of errors or omissions that could result in inaccurate or incomplete disclosures.

The third weakness relates to the ~~failure to recognize derivative liabilities associated with~~accounting for warrants issued in ~~conjunction~~connection with capital raises. The ~~transactions~~weakness caused us to restate our financial statements. The Company has plans to work with management and consultants to correct the reports that were ~~complex financings heavily dependent upon~~previously issued and ensure proper reporting in the use of estimates and assumptions and subjective interpretations of generally accepted accounting principles that are now the subject of a proposed Accounting Standards Update for which the FASB is requesting comments.future.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may become involved in litigation relating to claims arising out of our operations in the normal course of business. We are not presently involved in any pending legal proceeding or litigation other than a suit filed by the Company in Arkansas on August 1, 2018, ~~and~~ a suit filed against us in ~~Florida~~California on ~~December 12, 2018.~~June 20, 2018, and a suit we filed in Maryland to collect a receivable from a customer. To the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties or businesses are subject, which would reasonably be likely to have a material adverse effect on the Company.

On August 1, 2018, Ecoark Holdings ~~Inc.~~ and Zest Labs ~~Inc.~~ filed a complaint against Walmart Inc. in the United States District Court for the Eastern District of Arkansas, Western Division. The complaint includes claims for violation of the Arkansas Trade Secrets Act, violation of the federal Defend Trade Secrets Act, breach of contract, unfair competition, unjust enrichment, breach of the covenant of good faith and fair dealing, conversion and fraud. Ecoark Holdings and Zest Labs are seeking ~~monetary~~ damages of more than $2,000,000 (two billion) and other related relief to the extent it is deemed proper by the court. The Company does not believe that expenses incurred in pursuing the complaint will have a material effect on the Company’s net income or financial condition for the fiscal year ended March 31, 2019 or any individual fiscal quarter. On October 22, 2018, the Court issued an order setting a trial date of June 1, 2020. The order also established deadlines for the completion of fact discovery by October 15, 2019, opening expert reports on October 24, 2019, and dispositive motions, on January 22, 2020. The fact discovery phase is complete, and the case is presently in the expert discovery phase.

On ~~December 12,~~June 20, 2018, a complaint ~~was filed~~ against the Company and certain affiliates was filed by Ridgeline, LLC in the ~~Twelfth Judicial Circuit in Sarasota County, Florida by certain investors who invested in~~U.S. District Court - Northern District of California. The complaint refers to an advisory agreement dated January 1, 2015 with Ecoark, Inc., a subsidiary of the Company, ~~before it~~in which Ridgeline was ~~public.~~to provide advice and consultation to Ecoark, Inc. in exchange for consulting fees, expenses and a warrant to purchase equity in Ecoark, Inc. The complaint ~~alleges~~seeks judgment for compensatory damages in excess of $75, specific performance regarding delivery of a warrant, attorney’s fees, interest and other relief. Company counsel has advised us that it is remote that the ~~investment advisors who solicited the investors~~complaint, if decided adversely to ~~invest into~~or settled by the Company, ~~made omissions and misrepresentations concerning~~will result in a liability material to the ~~Company and the shares. The Company filed a motion to dismiss the complaint which is pending.~~ Company’s financial condition or results of operations.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors affecting our business that were discussed in ~~“Risk~~Part I. “Item 1A. Risk Factors” in our ~~Registration Statement~~Annual Report on Form ~~S-1~~10-K for the year ended March 31, 2018 filed with the SEC on ~~October 2, 2019.~~June 28, 2018.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

We did not sell any securities during the quarter ended ~~September~~June 30, ~~2019,~~2018, which were not registered under the Securities Act of 1933, as amended.

The following table contains information regarding shares of common stock withheld from employees in lieu of amounts required to satisfy minimum tax withholding requirements upon vesting of the employees’ stock during the three months ended June 30, 2018. The shares of common stock withheld to satisfy tax withholding obligations may be deemed purchases of such shares required to be disclosed pursuant to this Item 2.

(Number of shares in thousands) Total Number of Shares Purchased Average Price Paid Per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Amount of Shares That May Yet Be Purchased

April 1, 2018 to April 30, 2018 5 $ 0.91
May 1, 2018 to May 31, 2018 5 $ 1.97
June 1, 2018 to June 30, 2018 5 $ 1.55
(1) The average price paid per share is the weighted-average of the fair market prices at which we calculated the number of shares withheld to cover tax withholdings for the employees.

ITEM 3. DEFAULT UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit No. Description of Exhibit
31.1* Certification of Chief 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 Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2* Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

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.

Ecoark Holdings, Inc.
(Registrant)

Date: ~~November 18,~~December 10, 2019 By: /s/ RANDY MAY
Randy May
Chief Executive Officer
(Principal Executive Officer)

Date: ~~November 18,~~December 10, 2019 By: /s/ WILLIAM B. HOAGLAND
William B. Hoagland
Principal Financial and Accounting Officer

34
32

	(Dollars in thousands,
	except per share data)
	September 30,			March 31,
	2019			2019
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash ($15 pledged as collateral for credit)	$	449		$	244
Accounts receivable, net of allowance of $569 and $573 as of September 30, 2019 and March 31, 2019, respectively		53			520
Prepaid expenses and other current assets		216			900
Current assets held for sale		-			23
Total current assets		718			1,687
NON-CURRENT ASSETS
Goodwill		3,223			-
Property and equipment, net		676			824
Other assets		25			27
Total non-current assets		3,924			851
TOTAL ASSETS	$	4,642		$	2,538

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable	$	663		$	1,416
Accrued liabilities		872			828
Note payable		2,335			1,350
Notes payable – related parties		403			-
Derivative liabilities		2,242			3,104
Current liabilities held for sale		-			34
Total current liabilities		6,515			6,732
NON-CURRENT LIABILITIES		-			-
COMMITMENTS AND CONTINGENCIES
Total liabilities		6,515			6,732

STOCKHOLDERS’ DEFICIT (Numbers of shares rounded to thousands)

Preferred stock, $0.001 par value; 5,000 shares authorized; 2 issued		-
Common stock, $0.001 par value; 100,000 shares authorized, 62,648 shares issued and 62,063 shares outstanding as of September 30, 2019 and 52,571 shares issued and 51,986 shares outstanding as of March 31, 2019		63			53
Additional paid-in-capital		121,656			113,310
Accumulated deficit		(121,921	)		(115,886	)
Treasury stock, at cost		(1,671	)		(1,671	)
Total stockholders’ deficit		(1,873	)		(4,194	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	4,642		$	2,538

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
				(Restated)						(Restated)
CONTINUING OPERATIONS:
REVENUES	$	44		$	286		$	79		$	1,039
COST OF REVENUES		16			207			61			637
GROSS PROFIT		28			79			18			402
OPERATING EXPENSES:
Selling, general and administrative		1,683			2,493			3,232			4,584
Depreciation, amortization, and impairment		71			308			148			617
Research and development		788			771			1,685			1,641
Total operating expenses		2,542			3,572			5,065			6,842
Loss from continuing operations before other expenses		(2,514	)		(3,493	)		(5,047	)		(6,440	)

OTHER INCOME (EXPENSE):
Change in fair value of derivative liabilities		(960	)		715			(16	)		1,036
Loss on exchange of warrants for common stock		(839	)					(839	)
(Interest expense), net of interest income		(76	)		4			(135	)		(7	)
Total other income (expenses)		(1,875	)		719			(990	)		1,029
LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES		(4,389	)		(2,774	)		(6,037	)		(5,411	)
DISCONTINUED OPERATIONS:
Loss from discontinued operations					(576	)		-			(1,166	)
Gain on disposal of discontinued operations		-			-			2			-
Total discontinued operations					(576	)		2			(1,166	)
PROVISION FOR INCOME TAXES		-			-			-			-
NET LOSS	$	(4,389	)	$	(3,350	)	$	(6,035	)	$	(6,577	)

NET LOSS PER SHARE
Basic and diluted: Continuing operations	$	(0.07	)	$	(0.07	)	$	(0.10	)	$	(0.13	)
Discontinued operations		-			(0.01	)		-			(0.02	)
Total	$	(0.07	)	$	(0.08	)	$	(0.10	)	$	(0.15	)

SHARES USED IN CALCULATION OF NET LOSS PER SHARE
Basic and diluted		61,967			50,500			58,227			49,739

	(Dollar amounts and number of shares in thousands)
	Preferred				Common Stock				Additional Paid-in		Accumulated			Treasury
	Shares		Amount		Shares		Amount		Capital		Deficit			Stock			Total

Balance at March 31, 2019		-	$	-		52,571	$	53	$	113,310	$	(115,886	)	$	(1,671	)	$	(4,194	)

Shares issued – Trend Holdings acquisition		-		-		5,500		5		3,231		-			-			3,236

Share-based compensation		-		-		-		-		582		-			-			582

Net loss for the period		-				-		-		-		(1,646	)		-			(1,646	)

Balance at June 30, 2019		-		-		58,071		58		117,123		(117,532	)		(1,671	)		(2,022	)
Shares issued in exchange for warrants		-		-		4,277		4		3,289		-			-			3,293

Shares issued for services rendered		-		-		300		1		210		-			-			211

Preferred stock issuance		2		-		-		-		404		-			-			404

Share-based compensation		-		-		-		-		630		-			-			630

Net loss for the period		-				-		-		-		(4,389	)		-			(4,389	)

Balance at September 30, 2019		2	$	-		62,648	$	63	$	121,656	$	(121,921	)	$	(1,671	)	$	(1,873	)
Balance at March 31, 2018 (Restated)		-	$	-		49,468	$	49	$	108,585	$	(102,236	)	$	(1,618	)	$	4,780

Shares-based compensation		-		-		65		1		1,086		-			-			1,087

Shares purchased from employees in lieu of taxes		-		-		-		-		-		-			(23	)		(23	)

Net loss for the period		-		-		-		-		-		(3,227	)		-			(3,227	)

Balance at June 30, 2018 (Restated)						49,533		50		109,671		(105,463	)		(1,641	)		2,617

Shares issued		-		-		2,969		3		1,646		-			-			1,649

Shares-based compensation		-		-		350		-		1,014		-			-			1,014

Shares purchased from employees in lieu of taxes		-		-		-		-		-		-			(19	)		(19	)

Net loss for the period		-		-		-		-		-		(3.350	)		-			(3.350	)

Balance at September 30, 2018 (Restated)		-	$	-		52,537	$	53	$	112,331	$	(108,813	)	$	(1,660	)	$	1,911

	Three Months Ended								Six Months Ended
	September 30, 2018								September 30, 2018
	(As Reported)			Restatement Adjustments		(Restated)			(As Reported)			Restatement Adjustments		(Restated)
CONTINUING OPERATIONS:
REVENUES	$	286				$	286		$	1,039				$	1,039
COST OF REVENUES		207					207			637					637
GROSS PROFIT (LOSS)		79					79			402					402
OPERATING EXPENSES:
Selling, general and administrative		2,493					2,493			4,584					4,584
Depreciation, amortization, and impairment		308					308			617					617
Research and development		771					771			1,641					1,641
Total operating expenses		3,572					3,572			6,842					6,842
Loss from continuing operations before other expenses		(3,493	)				(3,493	)		(6,440	)				(6,440	)

OTHER INCOME (EXPENSE):
Change in fair value of derivative liability				$	715	$	715					$	1,036		1,036
(Interest expense), net of interest income		4					4			(7	)				(7	)
Total other expenses		4			715		719			(7	)		1,036		1,029
LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES		(3,489	)		715		(2,774	)		(6,447	)		1,036		(5,411	)
DISCONTINUED OPERATIONS:
Loss from discontinued operations		(576	)				(576	)		(1,166	)				(1,166	)
Gain on disposal of discontinued operations		-					-			-					-
Total discontinued operations		(576	)				(576	)		(1,166	)				(1,166	)
PROVISION FOR INCOME TAXES		-					-			-					-
NET LOSS	$	(4,065	)		715	$	(3,350	)	$	(7,613	)		1,036	$	(6,577	)

NET LOSS PER SHARE
Basic and diluted: Continuing operations	$	(0.07	)			$	(0.07	)	$	(0.13	)			$	(0.13	)
Discontinued operations		(0.01	)				(0.01	)		(0.02	)				(0.02	)
Total	$	(0.08	)			$	(0.08	)	$	(0.15	)			$	(0.15	)

SHARES USED IN CALCULATION OF NET LOSS PER SHARE
Basic and diluted		50,500					50,500			49,739					49,739

	September 30, 2019			March 31, 2019
	(Unaudited)

Zest Labs freshness hardware	$	2,493		$	2,493
Computers and software costs		222			222
Machinery and equipment		200			200
Total property and equipment		2,915			2,915
Accumulated depreciation and impairment		(2,239	)		(2,091	)
Property and equipment, net	$	676		$	824

	Six Months Ended			Year Ended
	September 30, 2019			March 31, 2019			Inception

Expected term		2.50 - 4.92 years			3.00 - 4.42 years			5.00 years
Expected volatility		97	%		96	%		91% - 107	%
Expected dividend yield		-			-			-
Risk-free interest rate		1.55	%		2.23	%		1.50% - 2.77	%

	2013 Incentive Stock Plan		2017 Omnibus Incentive Plan		Non-Qualified Stock Options		Common Stock		Total
Six months ended September 30, 2019
Directors	$	-	$	200	$	-	$	-	$	200
Employees		-		231		669		-		900
Services		-		111		-		211		322
	$	-	$	542	$	669	$	211	$	1,422

Six months ended September 30, 2018
Directors	$	-	$	200	$	-	$	-	$	200
Employees		285		286		1,329		-		1,900
Services		-		-		-		-		-
	$	285	$	486		1,329	$	-	$	2,100

	2019		2018
Continuing operations	$	122	$	111
Discontinued operations		-		207
Total	$	122	$	318

Six Months Ended September 30, 2019	Trend Holdings			Zest Labs			Total
Segmented operating revenues	$	52		$	27		$	79
Cost of revenues		-			61			61
Gross profit (loss)		52			(34	)		18
Total operating expenses net of depreciation, amortization, and impairment		200			4,717			4,917
Depreciation and amortization		-			148			148
Other (income) expense		-			990			990
Income (loss) from continuing operations	$	(148	)	$	(5,889	)	$	(6,037	)

Three Months Ended September 30, 2019	Trend Holdings			Zest Labs			Total
Segmented operating revenues	$	29		$	15		$	44
Cost of revenues		-			16			16
Gross profit (loss)		29			(1	)		28
Total operating expenses net of depreciation, amortization, and impairment		61			2,410			2,471
Depreciation and amortization		-			71			71
Other (income) expense		-			1,875			1,875
Income (loss) from continuing operations	$	(32	)	$	(4,357	)	$	(4,389	)

(Number of shares in thousands)	Total Number of Shares Purchased		Average Price Paid Per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Amount of Shares That May Yet Be Purchased

April 1, 2018 to April 30, 2018		5	$	0.91
May 1, 2018 to May 31, 2018		5	$	1.97
June 1, 2018 to June 30, 2018		5	$	1.55

Exhibit No.		Description of Exhibit
31.1*		Certification of Chief 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 Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

	Ecoark Holdings, Inc.
	(Registrant)

Date: ~~November 18,~~December 10, 2019	By:	/s/ RANDY MAY
		Randy May
		Chief Executive Officer
		(Principal Executive Officer)

Date: ~~November 18,~~December 10, 2019	By:	/s/ WILLIAM B. HOAGLAND
		William B. Hoagland
		Principal Financial and Accounting Officer