BNMV BitNile Metaverse Inc

APPROVAL OF NASDAQ 20% ISSUANCE PROPOSAL

Overview of Amendment and Related Matters

The disclosure that follows is intended to provide an overview of certain events leading up to and following the Amendment and other information that the Company believes is relevant to its stockholders’ consideration in voting on Proposal 1. These descriptions do not purport to be complete and are qualified in their entirety by the Company’s previous filings with the Securities and Exchange Commission (the “SEC”) disclosing such events and the full text of the referenced documents, as applicable, which are in some cases referenced elsewhere in this Proxy Statement and/or filed as exhibits to such previous SEC filings. Our stockholders are encouraged to review those filings and exhibits in evaluating this Proposal 1 and other matters being considered at the Special Meeting. We also attach as Annex A the Amended and Restated Series A Certificate.

The June 2022 Private Placement

On June 8, 2022, we entered into a Securities Purchase Agreement (the “SPA”) with Ault pursuant to which we sold Ault 1,200 shares of Series A, 102,881 shares of Common Stock and a warrant to purchase shares of Common Stock for a total purchase price of $12,000,000 in a private placement transaction which was exempt from registration under the Securities Act of 1933 and the rules promulgated by the SEC thereunder. The warrant, which entitled the holder to receive as many shares of Common Stock as necessary to enable it to beneficially own 49% of the outstanding Common Stock after exercise, was subsequently cancelled. The June 2022 private placement and certain material terms thereof were disclosed in a Current Report on Form 8-K filed by the Company on June 9, 2022, and certain material agreements and related documents entered into by the Company in connection therewith were filed as exhibits to that Form 8-K.

Prior Stockholder Approval of Series A and Warrant

On September 9, 2022, at the 2022 Annual Meeting of the Stockholders, the Company’s stockholders voted, among other things, to approve for purposes of complying with Nasdaq Listing Rule 5635 the issuance of shares of Common Stock underlying the Series A (before the November 2022 Amendment took effect), as well as the warrant referenced above. As disclosed in the Proxy Statement filed with the SEC and distributed to the Company’s stockholders on or about July 26, 2022 in connection with that meeting, the number of shares of Common Stock which were ultimately approved at that meeting included 5,817,167 shares of Common Stock issuable upon conversion of the Series A, plus 26,175,620 shares issuable in connection with the warrant issued to Ault in the June 2022 private placement.

The warrant was subsequently cancelled and given such cancellation and the fact that the Amendment provides for issuance under different circumstances, and further to correspondence with Nasdaq, we are asking the Company’s stockholders to approve the additional shares of Common Stock potentially issuable under the Series A by virtue of the Amendment, as more particularly described below.

Amendments to the Series A Certificate

After the June 2022 private placement, the Company effected three amendments to the Series A later in 2022. The final 2022 Amendment, which was filed with the Nevada Secretary of State on November 28, 2022 and is the subject of this Proposal 1, had the effect of increasing the number of shares of Common Stock issuable pursuant to the Series A Certificate in three ways: (1) it increased the stated value per share of Series A, which is used as the numerator in the Series A conversion formula, from $10,000 to $10,833.33; (2) it reduced the conversion price of the Series A, which is the denominator in the Series A conversion formula, by tying such conversion price to the volume-weighted average price (“VWAP”) of the Company’s Common Stock and applying a floor price $0.25 per share; and (3) it provided for the payment of dividends at a rate of $1,265 per Series A share per annum (subject to potential increase to $1,950 per Series A share per annum), in shares of Common Stock rather than cash, with the number of shares of Common Stock so payable determined by dividing the dividend rate by the as-amended conversion price. By virtue of these changes, the maximum total possible number of shares of Common Stock issuable under the Series A became 48,539,385 shares, which reflects 42,722,218 more shares than the 5,817,167 shares which our stockholders approved. We refer to these extra 42,722,218 shares which may be issued as the “Excess Shares”. The purpose of this Proposal 1 is to obtain approval of the issuance of the Excess Shares in accordance with Nasdaq Listing Rules.

For information on the voting rights of the Series A, see “Voting Rights” beginning at page 11.

Non-Compliance with Nasdaq Listing Rules

On December 27, 2022, the Company received a letter from Nasdaq notifying the Company of its noncompliance with stockholder approval requirements set forth in Listing Rule 5635(d), which as more particularly described below requires stockholder approval for transactions, other than public offerings, involving the issuance of 20% or more of the pre-transaction shares outstanding at less than the Minimum Price (as defined therein).

Additionally, the letter indicates that the Company has violated Nasdaq’s voting rights rule set forth in Listing Rule 5640. Specifically, when we entered into the November Amendment and reduced the conversion price, we failed to make the lower conversion price subject to stockholder approval resulting in a violation of Nasdaq Listing Rule 5640, which provides that existing stockholders’ voting rights cannot be disparately reduced or restricted through any corporate action or issuance. However, we are not seeking stockholder approval of the Nasdaq Listing Rule 5640 violation at the Special Meeting, as such a violation cannot be cured with stockholder approval.

In connection with the letter, the Company was given 45 days from the date of the letter to prepare and submit a plan to regain compliance with the referenced Nasdaq Listing Rules, and then up to 180 calendar days from the date of the letter to evidence compliance. As the letter indicated, if the Company’s plan is either not accepted by Nasdaq or is not adequately executed to regain compliance and remedy the matters set forth in the letter by the prescribed deadline, the Company’s Common Stock will be subject to delisting. While Listing Rule 5640 cannot be remedied by stockholder approval, the Company is seeking approval of this Proposal 1 as part of its plan to comply with Listing Rule 5635 with respect to the Amendment and all Excess Shares potentially issuable thereunder. The Company has responded to this letter with a plan to regain compliance that includes this Proposal 1 and has also responded to the other Nasdaq claims discussed below. As described under “Who is entitled to vote at the Special Meeting?” on page 2, we filed the Amended and Restated Series A Certificate and entered into a separate agreement with the principal holders of the Preferred Stock to, among other things, limit the conversion and voting rights of each series of Preferred Stock to address certain Nasdaq concerns. We are not asking you to approve the voting or conversion of the Series B or Series C at the Special Meeting.

The Company also received other correspondence from Nasdaq, including requests for information related to the Company’s sale of White River Holdings Corp. to White River Energy Corp. (“White River”) in July 2022 in exchange for shares of preferred stock of White River, the potential conflicts of interest resulting from our two senior executive officers also being the senior executive officers of White River, and our failure to have a full-time Chief Financial Officer. In addition, we received a minimum bid price deficiency notice arising from the Company’s Common Stock falling below $1.00 per share for 30 consecutive trading days. For information on the December 2022 Nasdaq correspondence and related matters, as well as subsequent developments with respect to Nasdaq, see the Company’s Current Report on Form 8-K filed on December 30, 2022, our Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2022 filed on February 21, 2023, and our Current Report on Form 8-K filed on March 10, 2023.

In connection with the BitNile.com share exchange described below, on March 3, 2023 the Company received a letter from Nasdaq indicating that certain of the terms of the Series B and the Series C, which subject to various limitations are convertible into a combined total of 400,000,000 shares of the Company’s Common Stock, would constitute a change of control requiring stockholder approval under Nasdaq Listing Rule 5110. Specifically, Listing Rule 5110(a) states that “[a] Company must apply for initial listing in connection with a transaction whereby the Company combines with a non-Nasdaq entity, resulting in a change of control of the Company...” Nasdaq also asked certain questions and requested certain documents and information related to various aspects of the BitNile.com transaction and other matters, including the transaction’s valuation and the process by which it arose, was negotiation and closed.

The Series B and the Series C are each subject to limitations designed to prevent a violation of the Nasdaq Listing Rules, including subjecting full conversion and corresponding voting rights to the Company’s receipt of stockholder approval. The Company intends to seek stockholder approval at its 2023 Annual Meeting expected to be held in the late summer.

Nasdaq’s review is continuing and we cannot predict whether it will provide relief.

Subsequent Developments

While the developments described in this subsection titled “Subsequent Developments” do not directly relate to Proposal 1 or any other matter being considered at the Special Meeting, the overview that follows in this subsection is being included in this Proxy Statement to provide stockholders with what management believes to be relevant disclosure and information to their decision in voting on Proposal 1 and, to a lesser degree, Proposals 2 and 3.

BitNile.com Share Exchange

As previously disclosed in the Company’s Current Report on Form 8-K filed on March 10, 2023, on March 6, 2023, the Company closed the share exchange with Ault, which owned approximately 86% of BitNile.com, and the other stockholders of BitNile.com (which include various Ault officers and directors as well as Ault and/or BitNile.com employees) and issued such stockholders on a pro-rata basis a total of 10,000 shares of Series B and Series C with a total stated value of $100,000,000, in exchange for 100% of the outstanding shares of capital stock of BitNile.com. As a result of the transaction, BitNile.com, Inc. became the Company’s wholly-owned subsidiary. Following its acquisition of BitNile.com, the Company’s principal business focus shifted to the development and operation of a metaverse platform. Effective at the closing of this share exchange, the Company’s Board fixed the number of directors at five and appointed Henry Nisser, President and a director of Ault, as a director of the Company to fill the vacancy and as President and General Counsel of the Company.

Because of the negative covenants imposed by the Series A Certificate and a related warrant to acquire a number of shares of Common Stock as necessary to beneficially own 49% of the Company post-exercise for nominal consideration as well as the Company’s plan to spin-off its principal subsidiaries, acquisition of some business from or at the suggestion of Ault was always likely beginning with the June 8, 2022 Series A sale since the Company could not borrow money or sell any securities or make acquisitions, among other things, without Ault’s consent. In connection with the BitNile.com acquisition, the Company obtained an opinion from a third party valuation firm that the transaction was fair to the Company.

After completion of the share exchange, the Company changed its name from “Ecoark Holdings, Inc.” to “BitNile Metaverse, Inc.” and changed its ticker symbol from “ZEST” to “BNMV.”

The Company expects to seek approval for the BitNile.com transaction, including the Series B and Series C terms referenced in the Nasdaq letter and certain related matters at its 2023 Annual Meeting of Stockholders in the late summer.

Amendment and Restatement of Series A Certificate

In response to the Nasdaq correspondence described above, on April [__], 2023, the Company filed the Amended and Restated Series A Certificate to, among other things, limit the total number of shares issuable thereunder to the 5,817,167 shares our stockholders approved in September 2022, less the 1,273,404 Transferred Shares, unless and until the Company receives stockholder approval for such issuance(s) in according with Nasdaq Listing Rules. As described elsewhere in this Proxy Statement, this Proposal 1 only relates to the Excess Shares (or 42,722,218 shares) underlying the Series A pursuant to the November 2022 Amendment, and the Company expects to seek subsequent stockholder approval for additional shares of Common Stock issuable under the Series B and the Series C at its 2023 Annual Meeting of Stockholders expected to be held late this summer.

For a general overview of the terms of the Amended and Restated Series A Certificate, see below under “Overview of Amended Series A.”

Transactions with Ault and White River

The following summarizes certain material transactions that the Company entered into with Ault and/or White River following the June 2022 private placement.

On July 25, 2022, we entered into a share exchange with White River under which we transferred our oil and gas drilling assets held by White River Holdings Corp. to White River in exchange for receipt of preferred stock of White River that converts into Common Stock of White River immediately prior to our spin-off of White River Common Stock to our stockholders of record as of September 30, 2022. In connection with the Series A investment by Ault, it (or a designee) was given the right to participate up to 25% in any future oil wells drilled by the Company in its former oil and gas drilling operations. This right was later transferred into White River. Ault participated in the drilling of [__] wells and owed White River $3,250,000.

On April 4, 2023, the Company entered into an agreement with Ault and White River pursuant to which the Company agreed to pay White River up to $3,250,000. The Company and Ault agreed that in lieu of repayment of the sums advanced to White River, Ault will permit the Company to redeem shares of the Company’s Series A held by Ault by dividing the amount being reduced by the stated value of such shares, or one share of Series A for each $10,833.33 advanced to White River. The redemption cannot occur until the previously announced spin-offs by the Company of shares of Common Stock of White River and Wolf Energy Services Inc. occur which would permit Ault to receive its full dividends thereunder. The transaction was approved by independent directors of the Company at a meeting, with Mr. May abstaining. Mr. Nisser was not present.

As of April 5, 2023, the Company has advanced White River $710,000 under this transaction.

Overview of Series A

The material terms of the Series A, including the Amended and Restated Series A Certificate, are summarized below, which descriptions do not purport to be complete and are summarized in their entirety by the complete text of the Amended and Restated Series A Certificate attached as Annex A.

Series A Overview

Conversion Rights

Each share of Series A has a stated value of $10,833.33 and is convertible into a number of shares of Common Stock (the “Conversion Shares”) determined by dividing the stated value of the shares of Series A being converted by a conversion price equal to the lesser of (i) $1.00 and (ii) the higher of (A) 80% of the 10-day VWAP and (B) $0.25, subject to certain adjustment provisions. The holder’s conversion of the Series A is subject to a beneficial ownership limitation of 19.9% of the issued and outstanding Common Stock as of any applicable date, unless and until we obtain stockholder and Nasdaq approval for the conversion of more than that amount in order to comply with Nasdaq Listing Rules, and in addition the conversion and voting rights of the holders of the Preferred Stock by separate agreement are collectively limited to 19.9% of the outstanding Common Stock as of March 6, 2023 unless and until stockholder approval is obtained (collectively, the “Nasdaq Beneficial Ownership Limitation”).

The conversion rights are also limited to the approved amount of 5,817,167 shares without stockholder approval. This Proposal 1 seeks such stockholder approval.

As described above, the Amendment had the result of increasing the stated value from $10,000 to $10,833.33 and reducing the conversion price from $2.10 to as low as $0.25. Therefore, the maximum number of shares of Common Stock issuable upon conversion of the 932 shares of Series A that were outstanding as of November 28, 2022, and therefore the maximum voting power underlying those shares, increased from 4,438,096 shares of Common Stock to 40,386,655 shares of Common Stock as a result of the Amendment, not including shares of Common Stock issuable as dividends after that date as described below.

Voting Rights

Subject to the Nasdaq Beneficial Ownership Limitation, the Series A is entitled to vote with the Common Stock determined based on the voting formula of the number of shares of Series A multiplied by $10,000, with the product then and divided by $2.10, subject to limitations including the limitation to the approved amount of up to 5,817,167 shares without stockholder approval and to applicable law and the Nasdaq Listing Rules. The Amended and Restated Series A Certificate which effected these changes was designed to alleviate the voting rights violation under Nasdaq Listing Rule 5640, and as a result of the change the voting rights are no longer tied to the conversion provisions of the Series A, as amended by the November 2022 Amendment. As a result, even if this Proposal 1 is approved, such approval will not increase the voting rights of the Series A above those which were in place at June 8, 2022 when the transaction was originally entered and the terms of which were previously approved by our stockholders at the September 2022 meeting.

“Who is entitled to vote at the Special Meeting?” on page 2 for an overview of the relative voting rights of the Preferred Stock at this Special Meeting.

Dividend Rights

Effective November 1, 2022, Ault as the holder of shares of the Series A, is entitled to dividends payable only in Common Stock at an annual rate of 12.6% of the stated value, which as a result of the increase to the stated value resulting from the Amendment is equivalent to $1,365 per year per share, payable monthly until the earlier of (a) November 1, 2024, and (b) the date on which the holder no longer holds any shares of Series A. Our obligation to deliver Common Stock is subject to the Beneficial Ownership Limitation referred to in this Proxy Statement. Prior to the Amendment in November 2022, dividends on the Series A were payable in cash rather than Common Stock at a rate of 12.6% of the stated value, or $1,260 at that time, per annum per share.

We paid the November payment to Ault in cash by mistake and as a result are still owed approximately $95,000 by Ault.

Liquidation Rights

The shares of Series A have a liquidation preference over the Common Stock and any subsequent series of junior preferred stock of $10,833.33 per share of Series A, plus accrued but unpaid dividends.

Redemption

At any time beginning on or after June 8, 2024, Ault may cause us to redeem some or all of the shares of Series A it holds at a per share redemption price equal to the stated value or $10,833.33, plus any accumulated and unpaid dividends thereon. See also the disclosure under “Transactions with Ault and White River” at page 10 regarding a recent agreement related to redemption.

Negative Covenants and Approval Rights

The Series A Certificate subjects us to negative covenants restricting our ability to take certain actions without prior approval from the holder(s) of a majority of the outstanding shares of Series A for as long as the holder(s) continue to hold at least 25% (or such higher percentage as set forth in the Series A Certificate) of the Series A shares issued on the closing date under the SPA. These restrictive covenants include the following actions by us, subject to certain exceptions and limitations:

Registration Rights

The Company agreed to register the sale by Ault of up to 5,246,456 shares of Common Stock, representing certain shares of Common Stock issued at the closing plus 5,143,575 of Common Stock (the number of shares permitted at the time by the Nasdaq Beneficial Ownership Limitation). This amount equals 19.9% of our outstanding Common Stock immediately prior to the closing of the June 2022 private placement in which the Series A and Common Stock were issued. We have registered the sale by filing a prospectus supplement pursuant to our registration statement on Form S-3 (File No. 333-249532), which became effective on December 29, 2020, and the base prospectus included therein. In January 2023, Ault agreed to reduce the registration of its secondary offering by $3,500,000 to enable the Company to pursue an at-the-market offering under its Form S-3.

Nasdaq Listing Rule 5635

Our Common Stock is listed on Nasdaq, and as a result, we are subject to Nasdaq’s Listing Rules, including Nasdaq Listing Rule 5635. Below is an overview of the relevant provisions of Nasdaq Listing Rule 5635 as they relate to the Nasdaq 20% Issuance Proposal. The overview does not purport to be complete and is qualified in its entirety by the full text of the Rule’s provisions, which are available on the Nasdaq’s Listing Center website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules.

Nasdaq Listing Rule 5635(d)

Nasdaq Listing Rule 5635(d) requires stockholder approval prior to an issuance of securities in connection with a transaction other than a public offering involving the sale, issuance or potential issuance by a listed company of Common Stock equal to 20% or more of the Common Stock, or 20% or more of the voting power, that was outstanding before the issuance for less than the lower of the closing price of such Common Stock as of the date of execution of the definitive agreement with respect to such transaction and the average closing price for the five trading days immediately preceding such date. The provisions in the Series A Certificate that prevent the issuance of shares of our Common Stock upon conversion if such issuance will result in such holders beneficially owning in excess of 19.9% of our Common Stock prior to stockholder approval pursuant to the Nasdaq Beneficial Ownership Limitation were designed to avoid an issuance under the Series A that would be in excess of the Nasdaq Beneficial Ownership Limitation, and are therefore required under Nasdaq Listing Rule 5635(d). The 19.9% limitation is based upon the number of shares of Common Stock outstanding as of any given conversion date and excludes Common Stock previously sold.

We are seeking stockholder approval for the issuance of the shares of Common Stock upon conversion and as dividend payments under the Series A after giving effect to the Amendment pursuant to Nasdaq Listing Rule 5635(d) without regard to the Nasdaq Beneficial Ownership Limitation.

Nasdaq Listing Rule 5635(b)

Nasdaq Listing Rule 5635(b) requires stockholder approval prior to an issuance of securities that will result in a “change of control” of a listed company, which for Nasdaq purposes is generally deemed to occur when, as a result of an issuance, an investor or a group of investors acquires, or has the right to acquire, 20% or more of the outstanding equity or voting power of the company and such ownership or voting power would be the company’s largest ownership position. Because the Amendment provides for the potential issuance of a total of 48,539,385 shares of Common Stock, representing the shares that were previously issuable under the Series A plus the Excess Shares on which the stockholders are being asked to vote in this Proposal 1, our issuance of Common Stock pursuant to the Series A Certificate as amended by the Amendment could result in a “change of control” for purposes of Nasdaq Listing Rule 5635(b). This number is greater than 50% of the 43,558,690 shares of our Common Stock that were outstanding as of the Record Date, and therefore absent the Nasdaq Beneficial Ownership Limitation, our issuance of the Series A and subsequent Amendment thereto would constitute a “change of control” because a single entity could acquire a greater ownership position than any of our stockholders prior to the June 2022 private placement in which the Series A was issued and the November 2022 Amendment.

Accordingly, we are seeking stockholder approval pursuant to Nasdaq Listing Rule 5635(b) to permit the issuance of the Excess Shares or 42,722,218 shares, which would be in excess of the 20% maximum under Rule 5635(b), after taking into account other shares of Common Stock issued or issuable to Ault that are below the Nasdaq Beneficial Ownership Limitation contained in the Series A.

However, the above description does not give effect to the issuance of Series B and Series C following the Amendment, which together are convertible into up to 400 million shares of Common Stock, subject to stockholder approval in accordance with Nasdaq Listing Rules. The Company intends to seek separate stockholder approval for the conversion and the voting of those series of Preferred Stock and related transactions. If we obtain such stockholder approval at our 2023 Annual Meeting, the holders of the Series B and Series C can vote 400 million votes (reduced ratably for any reverse split) in addition to votes under the Series A which may be approved at the Special Meeting.

Consequences if Stockholder Approval is Not Obtained

If we fail to obtain approval for the Nasdaq 20% Issuance Proposal, Ault (or any transferee) cannot convert its Series A into Common Stock beyond the previously approved 5,817,167 shares, less the 1,273,404 Transferred Shares.

In addition, if we fail to obtain approval for Proposal 1 or otherwise take action to regain compliance with Nasdaq Listing Rule 5635, Nasdaq may take action to delist us. Certain information about the risks of a potential delisting and the actions we may take to prevent it are discussed under Proposal 3 in which we are seeking stockholder approval of a Reverse Split to regain compliance with the Nasdaq Listing Rule that requires us to maintain a minimum bid price of $1.00. In addition, further risks and uncertainties relating to our Nasdaq issues are also separately discussed elsewhere in this Proxy Statement under “Certain Risks Associated with the Nasdaq Issues and Our Efforts to Regain Compliance” on pages 23.

Description of Proposal

We are seeking stockholder approval as required by Nasdaq Listing Rule 5635 (as described above) to enable us to issue a number of shares our Common Stock pursuant to the Series A Certificate as amended by the Amendment that exceeds 20% of our outstanding Common Stock as of any applicable conversion date, reflects the 42,722,218 Excess Shares consisting of the following:

Vote Required

The affirmative vote of the holders of a majority of votes cast on the proposal, which includes those present in person or represented by proxy and entitled to vote on the matter and excludes the voting power in excess of the Series A Voting Power and also excludes the voting power held by the Series B and Series C, is necessary to approve the Nasdaq 20% Issuance Proposal. If this threshold is not obtained, the Company may adjourn the meeting to seek additional votes “FOR” Proposal 1.

The use of the “majority of votes cast” is being used in accordance with Nasdaq Marketplace Rule 5635(e)(4). We have limited the Preferred Stock votes on this Proposal 1 to the Series A Voting Power which was previously approved to ensure such Preferred Stock, the outcome of Proposal 1 and any other matters related thereto are approved in accordance with Nasdaq Listing Rules.

Broker non-votes will not affect whether this proposal is approved, but abstentions will have the same effect as a vote against the proposal. Although Nevada law is unclear, we are treating abstentions as votes cast.

Anticipated and Potential Effects of this Proposal

The issuance of the shares of our Common Stock which are the subject of the Nasdaq 20% Issuance Proposal will result in an increase in the number of shares our Common Stock that may become outstanding. This will result in a decrease to the respective ownership and voting percentage interests of our other stockholders. Our market value and our future earnings per share, if any, may be reduced.

If the Nasdaq 20% Issuance Proposal is approved, it could also result in the subsequent issuance of a total of 42,722,218 Excess Shares over the Nasdaq Beneficial Ownership Limitation in the Series A, and assuming no other issuances of our Common Stock occur, which would be dilutive to our other stockholders and could also adversely affect the market price and trading volatility of our Common Stock.

If the Nasdaq 20% Issuance Proposal is not approved, the Company’s Common Stock could be subject to delisting from Nasdaq, unless it can successfully determine and effect another means of remedying the non-compliance brought about by the Amendment, which we believe is highly unlikely.

For your consideration of the Nasdaq 20% Issuance Proposal, the above descriptions of the material terms of the Amended and Restated Series A Certificate and certain other material developments that took place following the November 2022 Amendment is set forth in this Proxy Statement to provide you with basic information concerning the Series A and related matters. However, the description above is not a substitute for reviewing the more complete disclosure about the referenced developments, as well as the full text of the referenced documents. With respect to the Series A, this includes the Amended and Restated Series A Certificate included with this Proxy Statement as Annex A.

The Board recommends that the Company’s stockholders vote “FOR” the Nasdaq 20% Proposal (this Proposal 1), and thereby permit the issuance of the 42,722,218 shares of Common Stock issuable pursuant to the Amendment. Mr. Nisser abstained from voting on this matter.

PROPOSAL 2.

APPROVAL OF AUTHORIZED SHARE INCREASE

The Board has approved, and is asking the Company’s stockholders to approve the Authorized Share Increase, which is an increase in the number of authorized shares of Common Stock 100,000,000 shares to [400,000,000] shares and a corresponding amendment to the Articles to effect the Authorized Share Increase. The form of amendment to the Articles to be filed with the Nevada Secretary of State to effect the Authorized Share Increase if we obtain stockholder approval is included in this Proxy Statement as Annex B.

Under our Articles, we are currently authorized to issue up to 100,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock. As of the close of business on the Record Date, there were 43,558,690 shares of Common Stock issued and outstanding and 10,882 shares of Preferred Stock issued and outstanding, consisting of 882 shares of Series A, 8,637.5 shares of Series B and 1,362.5 shares of Series C. Additionally, as of the Record Date there were [__] shares of Common Stock underlying other outstanding derivative securities comprised of stock options, warrants and restricted stock units (“RSUs”). If Proposal 1 is approved by the stockholders, after allowing for the issuance of the Excess Shares assuming full conversion of the Series A and issuance of shares of Common Stock as dividends, and assuming for such purpose the maximum possible issuances thereunder, we would have only [__] shares of Common Stock available prior to affecting the Reverse Split for which we seek authorization in Proposal 3. As described below, we have contractual obligations which require us to increase our authorized Common Stock. While we do not plan to issue Ault or the Series C holders any portion of the extra 300 million shares prior to obtaining stockholder approval of that transaction, we have a substantial need to raise capital to support our new metaverse business which is in a startup phase as well as pay our ongoing costs, including public company costs. For this reason, and to allow for greater flexibility to issue Common Stock including for compensation awards, we are seeking stockholder approval of the Authorized Share Increase.

Purpose of the Authorized Share Increase

Assuming Proposal 1 is approved, we will be required to establish and maintain a reserve of authorized but unissued shares of Common Stock equal to approximately 145,618,155 shares (the “Series A Reserve”) for issuance pursuant to the Series A Certificate. When we effected the Amendment in November 2022, Ault understood we did not meet the Series A Reserve requirement. One principal purpose of the Authorized Share Increase is to comply with this Series A Reserve requirement in the event that Proposal 1 is approved. A second principal purpose is to have Common Stock available to permit us to raise capital. We estimate we will need approximately $[__] million to support our operations over the next 12 months. We cannot assure you that we will be successful in meeting our working capital needs but any financings will likely be very dilutive to our stockholders.

Excluding the Series B and Series C for which the Company intends to seek subsequent stockholder approval, the Company needs [__] shares of authorized Common Stock to meet its existing contractual obligations including those to Ault. Increasing the authorized number of shares of Common Stock to [400,000,000] shares would give the Company sufficient flexibility to undertake to issue Common Stock in the future as needed, including to raise capital.

Given the above outstanding securities and agreements to which the Company is subject, and specifically the need for additional authorized but unissued shares of Common Stock in order to comply with the Series A Reserve, as well as working capital needs, the Board believes it to be in the best interest of the Company to increase the number of shares of Common Stock the Company is authorized to issue in order to enable the Company to comply with its contractual obligations while also giving the Company greater flexibility to offer and sell Common Stock and/or derivative securities in future financing transactions. The Board believes that additional authorized shares of Common Stock will also better position the Company to take timely advantage of market conditions as well as favorable acquisition opportunities that may become available to the Company.

If this Proposal 2 is approved, the authorized but unissued shares of Common Stock will be [__] shares of Common Stock, which again does not reflect reserve requirements with respect to the Series B and the Series C. Specifically, the Series B and the Series C require an additional 200% reserve of the shares of Common Stock underlying those series of Preferred Stock, for a total share reserve requirement of 800,000,000 shares of Common Stock thereunder. This Proposal 2 will not, and is not intended to, establish such a reserve, but is rather focused on the Series A Reserve and requirements under other outstanding derivative securities, as well as enabling greater flexibility for other issuances as described above. Subject to the requirements of such securities and the Nasdaq Listing Rules, the authorized but unissued shares of Common Stock will be issued at the direction of the Board, without stockholder approval unless required by applicable law or Nasdaq Listing Rules.

Compensation Programs

We have historically compensated our directors, officers and employees with stock options and/or RSUs in addition to salaries and other forms of cash compensation. Presently, we are providing our non-employee directors (including Ault’s designee) with RSUs equal to $12,500 per quarter.

If approved by the stockholders, the Authorized Share Increase will enable the Company to continue to compensate its directors awards under its compensation programs.

Rights of Additional Authorized Shares

Any newly authorized shares of Common Stock will have the same rights as the shares of Common Stock now authorized and outstanding. The Authorized Share Increase will not affect the rights of current holders of Common Stock, none of whom have preemptive or similar rights to acquire the newly authorized shares.

Potential Effects of the Proposed Amendment

Adoption of the Authorized Share Increase alone will not have any immediate dilutive effect on the proportionate voting power or other rights of the Company’s existing stockholders. However, the Authorized Share Increase, if approved, will enable the Company to issue additional shares of Common Stock or derivative securities exercisable or convertible into Common Stock, which could have a dilutive effect on our existing stockholders and a depressive effect on our stock price.

While the Company cannot determine with certainty the exact uses of the additional authorized Common Stock as of the date of this Proxy Statement, certain anticipated or potential uses are summarized as follows:

In addition, the Company will be obligated to issue Common Stock underlying RSUs issued to non-employee directors in April 2023.

No Appraisal Rights

Stockholders have no rights under Chapter 78 of the Nevada Revised Statutes or under our Articles to exercise dissenters’ rights of appraisal with respect to the approval of the Authorized Share Increase.

The Board recommends that the stockholders vote “FOR” this Proposal 2.