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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 8/19/22 Crypto Co. 10-Q 6/30/22 51:35M M2 Compliance LLC/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 525K
2: EX-10.1 Material Contract HTML 27K
3: EX-10.2 Material Contract HTML 23K
4: EX-10.3 Material Contract HTML 25K
5: EX-10.4 Material Contract HTML 19K
6: EX-10.5 Material Contract HTML 28K
7: EX-10.6 Material Contract HTML 23K
8: EX-10.7 Material Contract HTML 25K
9: EX-10.8 Material Contract HTML 19K
10: EX-31.1 Certification -- §302 - SOA'02 HTML 19K
11: EX-32.1 Certification -- §906 - SOA'02 HTML 17K
17: R1 Cover HTML 64K
18: R2 Consolidated Balance Sheets (Unaudited) HTML 94K
19: R3 Consolidated Balance Sheets (Unaudited) HTML 24K
(Parenthetical)
20: R4 Consolidated Statements of Operations (Unaudited) HTML 84K
21: R5 Consolidated Statements of Stockholders' Equity HTML 59K
(Unaudited)
22: R6 Consolidated Statements of Stockholders' Equity HTML 17K
(Unaudited) (Parenthetical)
23: R7 Consolidated Statements of Cash Flows (Unaudited) HTML 82K
24: R8 Organization and Description of the Business HTML 24K
25: R9 Summary of Significant Accounting Policies HTML 63K
26: R10 Recent Accounting Pronouncements HTML 28K
27: R11 Goodwill and Intangible Assets HTML 24K
28: R12 Note Payable HTML 59K
29: R13 Convertible Notes HTML 31K
30: R14 Warrants for Common Stock HTML 44K
31: R15 Summary of Stock Options HTML 45K
32: R16 Commitments and Contingencies HTML 19K
33: R17 Subsequent Events HTML 37K
34: R18 Summary of Significant Accounting Policies HTML 94K
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37: R21 Organization and Description of the Business HTML 21K
(Details Narrative)
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(Details Narrative)
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40: R24 Note Payable (Details Narrative) HTML 137K
41: R25 Convertible Notes (Details Narrative) HTML 41K
42: R26 Schedule of Outstanding Warrants to Purchase HTML 53K
Shares of Common Stock (Details)
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45: R29 Commitments and Contingencies (Details Narrative) HTML 17K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
i ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended i June 30, i 2022 /
OR
i ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________to ____________
Commission File Number: i 000-55726
(Exact name of registrant as specified in its charter)
| i Nevada | i 46-4212105 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
i 23823 Malibu Road, i Suite 50477
i Malibu, i California i 90265
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. i Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period than the registrant was required to submit such files). i Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer ☐ | Accelerated filer ☐ |
| i Non-accelerated filer ☐ | Smaller reporting company i ☒ |
| Emerging growth company i ☐ |
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 ☐ i No ☒
As of August 19, 2022 the issuer had shares of common stock, par value $0.001 per share, outstanding.
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TABLE OF CONTENTS
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NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements. All statements contained in this Quarterly Report other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations, and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”) as filed with the U.S. Securities and Exchange Commission (“SEC”) and in any subsequent filings with the SEC. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. Our management cannot predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events, and trends discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
Unless expressly indicated or the context requires otherwise, unless expressly indicated or the context requires otherwise, the terms “Crypto,” the “Company,” “we,” “us,” and “our” in these consolidated financial statements refer to The Crypto Company and, where appropriate, its wholly-owned subsidiary Blockchain Training Alliance, Inc. (“BTA”) and an inactive subsidiary Coin Tracking, LLC (“CoinTracking”).
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CONSOLIDATED BALANCE SHEETS
(Unaudited)
| June 30, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | i 19,214 | $ | i 75,699 | ||||
| Accounts receivable, net | - | - | ||||||
| Prepaid expenses | i 18,829 | i 86,179 | ||||||
| Total current assets | i 38,043 | i 161,878 | ||||||
| Goodwill | i 740,469 | i 740,469 | ||||||
| Fixed assets | i 989,889 | - | ||||||
| Intangible assets | i 595,835 | i 617,501 | ||||||
| TOTAL ASSETS | $ | i 2,364,236 | $ | i 1,519,848 | ||||
| LIABILITIES AND STOCKHOLDERS’ (DEFICIT) | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | i 2,006,699 | $ | i 1,933,800 | ||||
| Deferred revenue | i 21,000 | - | ||||||
| Notes payable, net | i 2,310,998 | i 444,500 | ||||||
| Total current liabilities | i 4,338,697 | i 2,378,300 | ||||||
| Convertible debt | i 125,000 | i 125,000 | ||||||
| Notes payable - other | i 14,100 | i 32,365 | ||||||
| TOTAL LIABILITIES | i 4,477,797 | i 2,535,665 | ||||||
| STOCKHOLDERS’ (DEFICIT) | ||||||||
| Common stock, $ par value; shares authorized, and shares issued and outstanding, as of June 30, 2022 and December 31, 2021, respectively | i 23,191 | i 22,205 | ||||||
| Additional paid-in-capital | i 36,129,188 | i 32,830,496 | ||||||
| Accumulated deficit | ( i 38,265,940 | ) | ( i 33,868,518 | ) | ||||
| TOTAL STOCKHOLDERS’ (DEFICIT) | ( i 2,113,561 | ) | ( i 1,015,817 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) | $ | i 2,364,236 | $ | i 1,519,848 | ||||
Note : Amounts may not foot due to rounding
The accompanying notes are an integral part of the consolidated financial statements.
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UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
| For the three months ended | For the six months ended | |||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
| Revenue: | ||||||||||||||||
| Services | $ | i 151,869 | $ | i 109,745 | $ | i 294,381 | $ | i 111,145 | ||||||||
| Cost of services | i 82,433 | - | i 176,211 | - | ||||||||||||
| Gross margin | $ | i 69,436 | $ | i 109,745 | i 118,170 | i 111,145 | ||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative expenses | i 506,390 | i 533,960 | i 1,123,370 | i 656,369 | ||||||||||||
| Amortization | i 10,833 | i 22,491 | i 21,666 | i 22,491 | ||||||||||||
| Depreciation | i 32,708 | - | i 43,611 | - | ||||||||||||
| Share-based compensation - employee | i 109,447 | i 2,470 | i 272,447 | i 2,470 | ||||||||||||
| Share-based compensation - non-employee | i 789,602 | i 190,289 | i 1,512,063 | i 331,124 | ||||||||||||
| Total Operating Expenses | i 1,448,980 | i 749,210 | i 2,973,157 | i 1,012,454 | ||||||||||||
| Operating loss | ( i 1,379,545 | ) | ( i 639,465 | ) | ( i 2,854,987 | ) | ( i 901,309 | ) | ||||||||
| Other income | i 66,765 | i 794,700 | i 81,765 | i 955,508 | ||||||||||||
| Interest expense | ( i 600,317 | ) | ( i 4,127 | ) | ( i 1,624,200 | ) | ( i 7,949 | ) | ||||||||
| Loss before provision for income taxes | ( i 1,913,096 | ) | i 151,108 | ( i 4,397,422 | ) | i 46,250 | ||||||||||
| Provision for income taxes | - | - | - | - | ||||||||||||
| Net income(loss) | ( i 1,913,096 | ) | i 151,108 | ( i 4,397,422 | ) | i 46,250 | ||||||||||
| Net income (loss) per share | $ | ( i 0.08 | ) | $ | i 0.01 | $ | ( i 0.19 | ) | $ | i 0.00 | ||||||
| Weighted average common shares outstanding – basic and diluted | i 23,000,073 | i 22,136,852 | i 22,752,500 | i 21,989,445 | ||||||||||||
Note : Amounts may not foot due to rounding
The accompanying notes are an integral part of the consolidated financial statements.
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UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| Additional | Total | |||||||||||||||||||
| Common stock | paid-in- | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | capital | Deficit | Equity | ||||||||||||||||
| Balance, December 31, 2020 | i 21,417,841 | $ | i 21,418 | $ | i 30,665,823 | $ | ( i 33,082,888 | ) | $ | ( i 2,395,647 | ) | |||||||||
| Stock issued in connection with warrant exercise | i 41,858 | i 42 | i 20,887 | i 20,929 | ||||||||||||||||
| Stock issued for cash at $ per share, with warrants | i 412,500 | i 413 | i 824,588 | i 825,001 | ||||||||||||||||
| Stock compensation expense in connection with issuance of common stock | i 108,750 | i 109 | i 312,556 | i 312,665 | ||||||||||||||||
| Stock issued for acquisition of BTA | i 201,439 | i 201 | i 604,116 | i 604,317 | ||||||||||||||||
| Net loss | - | - | - | i 46,250 | i 46,250 | |||||||||||||||
| Balance, June 30, 2021 | i 22,182,388 | $ | i 22,183 | $ | i 32,427,970 | $ | ( i 33,036,638 | ) | $ | ( i 586,486 | ) | |||||||||
| Additional | Total | |||||||||||||||||||
| Common stock | paid-in- | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | capital | Deficit | Equity | ||||||||||||||||
| Balance, December 31, 2021 | i 22,205,248 | $ | i 22,205 | $ | i 32,830,497 | $ | ( i 33,868,518 | ) | $ | ( i 1,015,817 | ) | |||||||||
| Stock issued for cash at $ per share | i 8,000 | i 8 | i 26,232 | i 26,240 | ||||||||||||||||
| Stock issued for cash | i 8,000 | i 8 | i 26,232 | i 26,240 | ||||||||||||||||
| Stock compensation expense in connection with issuance of common stock | i 904,921 | i 905 | i 1,739,855 | i 1,740,760 | ||||||||||||||||
| Stock issued in connection with warrant exercise | i 73,250 | i 73 | i 43,677 | i 43,750 | ||||||||||||||||
| Debt discount for warrants | - | i 1,488,927 | i 1,488,927 | |||||||||||||||||
| Net loss | - | - | - | ( i 4,397,422 | ) | ( i 4,397,422 | ) | |||||||||||||
| Balance, June 30, 2022 | i 23,191,419 | $ | i 23,191 | $ | i 36,129,189 | $ | ( i 38,265,940 | ) | $ | ( i 2,113,561 | ) | |||||||||
Note : Amounts may not foot due to rounding
The accompanying notes are an integral part of the consolidated financial statements.
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| 6 |
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
| June 30, 2022 | June 30, 2021 | |||||||
| For the Six Months Ended | ||||||||
| June 30, 2022 | June 30, 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | ( i 4,397,422 | ) | $ | i 46,250 | |||
| Adjustments to reconcile net loss to net cash used in operations: | ||||||||
| Depreciation and amortization | i 65,277 | i 22,491 | ||||||
| Share-based compensation | i 1,784,510 | i 333,594 | ||||||
| Debt discount for warrants | i 1,488,927 | - | ||||||
| Issuance of common stock for acquisition | - | i 604,317 | ||||||
| Goodwill impairment | - | - | ||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | - | i 3,900 | ||||||
| Prepiad expenses | i 67,350 | - | ||||||
| Accounts payable and accrued expenses | i 72,900 | ( i 138,361 | ) | |||||
| Deferred revenue | i 21,000 | - | ||||||
| Net cash provided by (used in) operating activities | ( i 897,458 | ) | i 872,191 | |||||
| Cash flows from investing activities: | ||||||||
| Purchase of BTA subsidiary | - | ( i 1,349,457 | ) | |||||
| Purchase of computer equipment | ( i 1,033,500 | ) | - | |||||
| Net cash used in investing activities | ( i 1,033,500 | ) | ( i 1,349,457 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from loans payable | ( i 18,265 | ) | i 18,265 | |||||
| Proceeds from issuance of convertible notes | - | - | ||||||
| Proceeds from issuance of notes payable | i 1,866,498 | i 150,000 | ||||||
| Proceeds from common stock issuance | i 26,240 | i 825,000 | ||||||
| Net cash provided by financing activities | i 1,874,473 | i 993,265 | ||||||
| Net (decrease) increase in cash and cash equivalents | ( i 56,485 | ) | i 515,999 | |||||
| Cash and cash equivalents at the beginning of the period | i 75,699 | i 26,326 | ||||||
| Cash and cash equivalents at the end of the period | $ | i 19,214 | $ | i 542,325 | ||||
Note : Amounts may not foot due to rounding
The accompanying notes are an integral part of the consolidated financial statements.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
i
NOTE 1 – ORGANIZATION AND DESCRIPTION OF THE BUSINESS
The Crypto Company was incorporated in the State of Nevada on March 9, 2017. The Company is engaged in the business of providing consulting, training, and educational and related services for distributed ledger technologies (“blockchain”), for corporate and individual clients, enterprises for general blockchain education, as well as for the building of technological infrastructure and enterprise blockchain technology solutions. In recent periods the Company has generated revenues and incurs expenses primarily through these consulting and related operations. In February 2022 the Company acquired bitcoin mining equipment and entered into an arrangement with a third party to host and operate the equipment. The mining equipment began mining bitcoin and generated approximately $ i 19,000 in revenue during the six months ended June 30, 2022.
Unless expressly indicated or the context requires otherwise, the terms “Crypto,” the “Company,” “we,” “us,” and “our” in these consolidated financial statements refer to The Crypto Company and, where appropriate, its wholly-owned subsidiary Blockchain Training Alliance, Inc. (“BTA”) and an inactive subsidiary Coin Tracking, LLC (“CoinTracking”).
The Company entered into a Stock Purchase Agreement (the “SPA”) effective as of March 24, 2021 with BTA and its stockholders. On April 8, 2021, the Company completed the acquisition of all of the issued and outstanding stock of BTA and BTA became a wholly-owned subsidiary of the Company. As a result of this acquisition, the operations of BTA became consolidated with Company operations on April 8, 2021.
BTA is a blockchain training company and service provider that provides training and educational courses focused on blockchain technology and education as to the general understanding of blockchain to corporate and individual clients.
The Company’s accounting year-end is December 31.
COVID-19
On March 11, 2020, the World Health Organization declared the Covid-19 outbreak to be a global pandemic. In addition to the devastating effects on human life, the pandemic has, in general, had a negative ripple effect on the global economy, leading to disruptions and volatility in the global financial markets, and has contributed to inflation, supply chain constraints, labor shortages and other adverse economic effects. Most U.S. states and many countries have, at times, issued various policies intended to stop or slow the further spread of the disease.
Covid-19 and the U.S.’s response to the pandemic has caused economic volatility since the pandemic’s outbreak. There are no recent comparable events that provide guidance as to the effect the Covid-19 pandemic may have, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know the full extent of the effects on the economy, the markets we serve, our business, or our operations.
/ i
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
i
The Company’s consolidated financial statements are prepared using the accrual method of accounting in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) and have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company has incurred significant losses and experienced negative cash flows since inception. As of June 30, 2022, the Company had cash of $ i 19,214. In addition, the Company’s net loss was $ i 4,397,422 for the six months ended June 30, 2022. The Company’s working capital was negative $ i 4,300,654 as of June 30, 2022. As of June 30, 2022, the accumulated deficit amounted to $ i 38,265,940. As a result of the Company’s history of losses and financial condition, there is substantial doubt about the ability of the Company to continue as a going concern.
The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management is evaluating different strategies to obtain financing to fund the Company’s expenses and achieve a level of revenue adequate to support the Company’s current cost structure. Financing strategies may include, but are not limited to, private placements of capital stock, debt borrowings, partnerships and/or collaborations. There can be no assurance that any of these future-funding efforts will be successful. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
/ i
Management’s Representation of Interim Financial Statements
The accompanying unaudited consolidated financial statements have been prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements include all of the adjustments, which in the opinion of management are necessary to a fair presentation of financial position and results of operations. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of December 31, 2021.
The Company prepares its consolidated financial statements based upon the accrual method of accounting, recognizing income when earned and expenses when incurred.
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i
Basis of Presentation and Principles of Consolidation
i
The preparation of these consolidated financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and the related disclosure of contingent assets and liabilities. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The Company’s significant estimates and assumptions include but are not limited to the valuation allowances of deferred taxes, and share-based compensation expenses. Actual results may differ from these estimates. In addition, any change in these estimates or their related assumptions could have an adverse effect on the Company’s operating results.
i
The Company defines its cash and cash equivalents to include only cash on hand and certain highly liquid investments with original maturities of ninety days or less. The Company maintains its cash and cash equivalents at financial institutions, the balances of which may, at times, exceed federally insured limits. Management believes that the risk of loss due to the concentration is minimal.
i
Investments were comprised of several cryptocurrencies the Company owned, of which a majority was Bitcoin, that were actively traded on exchanges. During 2018, the Company sold most of its investments and during 2019 wrote-off the remainder of all those investments because there was no method to obtain liquidity for those investments. The Company recorded this recovery as other income in its financial statements. As previously disclosed, the Company has ceased operations of its former cryptocurrency investment segment, and the Company liquidates newly issued/accessible assets from old investments as promptly as practicable for the sole purpose of winding down the Company’s legacy cryptocurrency investment segment.
The Company records its investments as indefinite-lived intangible assets at cost less impairment and are reported as long-term assets in the consolidated balance sheets. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted. The primary exchanges and principal markets the Company utilized for its trading were Kraken, Bittrex, Poloniex, and Bitstamp.
As of June 30, 2022, the Company had written off the value of its investments in cryptocurrency.
i
Investments non-cryptocurrency
The Company previously invested in simple agreement for future tokens (“SAFT”) and a simple agreement for future equity (“SAFE”) agreements. The SAFT agreements provide for the issuance of tokens in anticipation of a future token generation event, with the number of tokens predetermined based on the price established in each respective agreement. The SAFE investment included provisions that provide for either equity or tokens or both. As of June 30, 2022, and December 31, 2021 the Company had written-off its investments in non-cryptocurrency.
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The purchase price of an acquired company is allocated between tangible and intangible assets acquired and liabilities assumed from the acquired business based on their estimated fair values with the residual of the purchase price recorded as goodwill. The results of operations of acquired businesses are included in our operating results from the dates of acquisition.
i
Deferred tax assets and liabilities are recognized for expected future consequences of events that have been included in the financial statements or tax returns. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceed the amount measured as described above is reflected as a liability for unrecognized tax benefits along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
As of June 30, 2022, we are subject to federal taxation in the U.S., as well as state taxes. The Company has not been audited by the U.S. Internal Revenue Service.
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The Company recognizes and discloses the fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). Each level of input has different levels of subjectivity and the difficulty involved in determining fair value.
| Level 1 | Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurable date. | |
| Level 2 | Inputs, other than quoted prices included in Level 1, which are observable for the asset or liability through corroboration with market data at the measurement date. | |
| Level 3 | Unobservable inputs that reflect management’s best estimate of what participants would use in pricing the asset or liability at the measurement date. |
The carrying amounts of the Company’s financial assets and liabilities, including cash, accounts payable and accrued expenses approximate fair value because of the short maturity of these instruments.
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The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
| ● | Step 1: | Identify the contract with the customer | |
| ● | Step 2: | Identify the performance obligations in the contract | |
| ● | Step 3: | Determine the transaction price | |
| ● | Step 4: | Allocate the transaction price to the performance obligations in the contract | |
| ● | Step 5: | Recognize revenue when the Company satisfies a performance obligation |
In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met: The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct), and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).
If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.
The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. When determining the transaction price, an entity must consider the effects of all of the following:
Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.
The Company adopted ASC 606 as of January 1, 2018, using the modified retrospective transition method for contracts as of the date of initial application. There was no cumulative impact on the Company’s retained earnings.
During the period ended June 30, 2022, the Company’s main source of revenue was consulting and education services to numerous customers provided by and through BTA. The Company has determined that revenue should be recognized over time, as the service is provided. The Company considered the criteria in ASC 606 in reaching this determination, specifically:
| ● | The customer receives and consumes the benefit provided by the Company’s performance as the Company performs. | |
| ● | The Company’s performance enhances an asset controlled by the customer. | |
| ● | The Company’s performance does not create an asset with alternative use, and the Company has an enforceable right to payment for performance completed to date. |
The consulting arrangement meets more than one of the criteria above.
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In accordance with ASC No. 718, Compensation-Stock Compensation, the Company measures the compensation costs of share-based compensation arrangements based on the grant date fair value of granted instruments and recognizes the costs in financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options.
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On January 1, 2019, the Company adopted ASC No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. Previously, share-based payments to nonemployees was accounted for in accordance with ASC No. 505, Equity-Based Payments to Non-Employees, which required compensation cost to be remeasured at fair value at each reporting period when the award vests. As a result, stock option-based payments to non-employees resulted in significant volatility in compensation expense in prior years.
The Company accounts for its share-based compensation using the Black-Scholes model to estimate the fair value of stock option awards. Using this model, fair value is calculated based on assumptions with respect to the (i) expected volatility of the Company’s common stock price, (ii) expected life of the award, which for options is the time over which employees and non-employees are expected to hold their options prior to exercise, and (iii) risk-free interest rate.
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The Company reports earnings per share (“EPS”) with a dual presentation of basic EPS and diluted EPS. Basic EPS is computed as net income divided by the weighted average of common shares for the period. Diluted EPS reflects the potential dilution that could occur from common shares issued through stock options, or warrants. For the three-month period ended June 30, 2022, and 2021, the Company had no potentially dilutive common stock equivalents. Therefore, the basic EPS and diluted EPS are the same.
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NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations.
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NOTE 4 -GOODWILL AND INTANGIBLE ASSETS
The Company entered into a Stock Purchase Agreement (the “SPA”) effective as of March 24, 2021 with BTA and its stockholders. On April 8, 2021, the Company completed the acquisition of all of the issued and outstanding stock of BTA and BTA became a wholly owned subsidiary of the Company. At the closing the Company delivered to the sellers a total of $ i 600,000 in cash, promissory notes in the total principal amount of $ i 150,000 bearing i 1% interest per annum, and an aggregate of shares of Company common stock valued at $ i 604,317 in accordance with the terms of the SPA. Additionally, the Company acquired $ i 4,860 in cash at BTA.
As a result of the foregoing the Company initially recorded goodwill of $ i 1,349,457. The Company conducted a valuation study on the acquisition of BTA. The final valuation report determined the amount goodwill to be $ i 699,457 and the remaining $ i 650,000 of the goodwill relates to amortizable intangibles amortized over a fifteen-year period, or approximately $ i 54,166 per year.
During the six months ended June 30, 2022 the Company recorded $ i 21,666 in amortization expense.
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On April 3, 2018, CoinTracking entered into a Loan Agreement (the “Loan Agreement”) with CoinTracking GmbH, which provided for total borrowings of up to $ i 3,000,000. During 2018, CoinTracking borrowed $ i 1,500,000 in exchange for three promissory notes (collectively, the “CoinTracking Note”) in the amounts of $ i 300,000, $ i 700,000, and $ i 500,000, respectively. On December 31, 2018, the CoinTracking Note was still outstanding. On January 2, 2019, the Company sold its equity ownership stake in CoinTracking GmbH, and $ i 1,200,000 of the sales proceeds were applied toward repayment of the $ i 1,500,000 outstanding loan amount under the CoinTracking Note. The remaining balance of $ i 300,000 is outstanding as of June 30, 2022, with a due date of March 31, 2023 which due date was extended from the prior due date of March 31, 2021 pursuant to an amendment dated December 28, 2018. The CoinTracking Note bears interest at i 3%, which is payable monthly, in arrears. All payments shall be applied first to all accrued and unpaid interest and second to the outstanding principal balance, as applicable.
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Interest expense for Notes Payable was $ i 164,053 for the six-month period ended June 30, 2022, compared to $ i 4,850, during the same six-month period ended June 30, 2021, respectively.
| ● | On June 10, 2020, the Company received a loan from the Small Business Administration of $ i 12,100 (the “2020 SBA Loan”). The 2020 SBA Loan bears interest at i 3.75% per annum and is payable over i 30 years with all payments of principal and interest deferred for the first 12 months. | |
| ● | On February 2, 2021, the Company received a loan from the Small Business Administration of $ i 18,265 (the “2021 SBA Loan”). The 2021 SBA Loan bears interest at i 1% per annum and is payable over i 5 years with all payments of principal and interest deferred for the first 10 months. | |
| ● | Effective February 23, 2022, the Company entered into two separate Purchase Agreement and Bill of Sales to purchase a total of i 215 cryptocurrency miners (each, a “Purchase Agreement”). The first Purchase Agreement was entered into with Bitmine Immersion Technologies, Inc. (“BIT”) whereby the Company agreed to purchase a total of i 95 miners for a total purchase price of $ i 337,500 and the second Purchase Agreement was entered into with Innovative Digital investors, LLC (“IDI”) whereby the Company agreed to purchase a total of i 120 miners for a total purchase price of $ i 696,000. In each case the Company paid one half of the purchase price at closing (effective February 25, 2022) and the other half of the purchase price is payable in accordance with a i 10% unsecured promissory note delivered to each of BIT and IDI. The promissory note delivered to BIT is in the principal amount of $ i 168,750, is payable in two installment payments, and by its original term had a maturity date of May 15, 2022. The promissory note delivered to IDI is in the principal amount of $ i 348,000, is payable in four installment payments, and by its original terms had a maturity date of i October 15, 2022. | |
| The maturity dates of the bitmine promissory note delivered to each of BIT and IDI (originally May 15, 2022 and October 15, 2022) were, in each case extended by two months by mutual agreement of the parties due to supply chain delays effecting the shipment and delivery of the mining equipment to the Company. |
| ● | Effective January 13, 2022, the Company borrowed funds pursuant to the terms of a Securities Purchase Agreement entered into with AJB Capital Investments, LLC (“AJB”), and issued a Promissory Note in the principal amount of $ i 750,000 (the “Jan. AJB Note”) to AJB in a private transaction for a purchase price of $ i 675,000 (giving effect to a i 10% original issue discount). The maturity date of the Jan. AJB Note was July 12, 2022. The Jan. AJB Note bears interest at i 10% per year, and principal and accrued interest was to be due on the maturity date. In connection with a subsequent loan extended to the Company by AJB on or about May 3, 2022 (as further described below) the Company repaid all outstanding obligations that were due to AJB under the Jan. AJB Note. | |
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Effective January 18, 2022, the Company borrowed funds pursuant to a Securities Purchase Agreement (the “Sixth Street SPA”) entered into with Sixth Street Lending, LLC (“Sixth Street”) and issued a Promissory Note in the principal amount of $ i 116,200 (the “Sixth Street Note”) to Sixth Street in a private transaction to for a purchase price of $ i 103,750 (giving effect to an original issue discount). The Company agreed to various covenants in the Sixth Street SPA. The Sixth Street Note has a maturity date of January 13, 2023 and the Company has agreed to pay interest on the unpaid principal balance of the Sixth Street Note at the rate of twelve percent ( i 12.0%) per annum from the date on which the Sixth Street Note was issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. Payments are due monthly, beginning in the end of February 2022. The Company has the right to prepay the Sixth Street Note in accordance with the terms set forth in the Sixth Street Note.
Following an event of default, and subject to certain limitations, the outstanding amount of the Sixth Street Note may be converted into shares of Company common stock. Amounts due under the Sixth Street Note would be converted into shares of the Company’s common stock at a conversion price equal to i 75% of the lowest trading price with a 10-day lookback immediately preceding the date of conversion. In addition, upon the occurrence and during the continuation of an event of default the Sixth Street Note will become immediately due and payable and the Company shall pay to Sixth Street, in full satisfaction of its obligations thereunder, additional amounts as set forth in the Sixth Street Note. In no event may Sixth Street effect a conversion if such conversion, along with all other shares of Company common stock beneficially owned by Sixth Street and its affiliates would exceed 4.99% of the outstanding shares of Company common stock. | |
| ● | On February 24, 2022, the Company borrowed funds pursuant to the terms of a Securities Purchase Agreement (the “Feb. SPA”) entered into with AJB, and issued a Promissory Note in the principal amount of $ i 300,000 (the “Feb. Note”) to ABJ in a private transaction for a purchase price of $ i 275,000 (giving effect to an original issue discount). The maturity date of the Feb. Note is August 24, 2022, but it may be extended for six months upon the consent of AJB and the Company. The Feb. Note bears interest at i 10% per year, and principal and accrued interest is due on the maturity date. The Company may prepay the Feb. Note at any time without penalty. The Company’s failure to make required payments under the AJB Note or to comply with various covenants, among other matters, would constitute an event of default. i Upon an event of default under the Feb. SPA or Feb. Note, the Feb. Note will bear interest at 18%, AJB may immediately accelerate the Feb. Note due date, AJB may convert the amount outstanding under the Feb. Note into shares of Company common stock at a discount to the market price of the stock, and AJB will be entitled to its costs of collection, among other penalties and remedies. | |
| ● | On April 7, 2022, the Company borrowed funds pursuant to the terms of a Securities Purchase Agreement (the “April SPA”) entered into with Efrat Investments LLC (“Efrat”) and issued a Promissory Note in the principal amount of $ i 220,000 to Efrat (the “Efrat Note”) in a private transaction for a purchase price of $ i 198,000 (giving effect to an original issue discount). After payment of the fees and costs, the net proceeds from the Efrat Note will be used by the Company for working capital and other general corporate purposes. | |
| The maturity date of the Efrat Note is September 7, 2022, although the maturity date may be extended for six months upon the consent of Efrat and the Company. The Efrat Note bears interest at i 10% per year, and principal and accrued interest is due on the maturity date. The Company may prepay the Efrat Note at any time without penalty. Any failure by the Company to make required payments under the Efrat Note or to comply with various covenants, among other matters, would constitute an event of default. i Upon an event of default under the April SPA or the Efrat Note, the Efrat Note will bear interest at 18%, Efrat may immediately accelerate the Efrat Note due date, Efrat may convert the amount outstanding under the Efrat Note into shares of Company common stock at a discount to the market price of the stock, and Efrat will be entitled to its costs of collection, among other penalties and remedies. | ||
| ● | On May 3, 2022, the Company borrowed funds pursuant to the terms of a Securities Purchase Agreement (the “May AJB SPA”) entered into with AJB, and issued a Promissory Note in the principal amount of $ i 1,000,000 (the “May AJB Note”) to AJB in a private transaction for a purchase price of $ i 900,000 (giving effect to a i 10% original issue discount). In connection with the sale of the AJB Note, the Company also paid certain fees and due diligence costs of AJB and brokerage fees to J.H. Darbie & Co., a registered broker-dealer. | |
| At the closing the Company repaid all obligations owed to AJB pursuant to a i 10% promissory note in the principal amount of $ i 750,000 issued in favor of AJB in January 2022 as generally described above. After the repayment of that promissory note, and after payment of the fees and costs, the $ i 138,125 net proceeds from the issuance of the May AJB Note are expected to be utilized for working capital and other general corporate purposes. | ||
| The maturity date of the May ABJ Note is November 3, 2022, but it may be extended by the Company for six months with the interest rate to increase during the extension period. The May AJB Note bears interest at 10% per year, and principal and accrued interest is due on the maturity date. The Company may prepay the May AJB Note at any time without penalty. Under the terms of the May AJB Note, the Company may not sell a significant portion of its assets without the approval of AJB, may not issue additional debt that is not subordinate to AJB, must comply with the Company’s reporting requirements under the Securities Exchange Act of 1934, and must maintain the listing of the Company’s common stock on the OTC Market or other exchange, among other restrictions and requirements. The Company’s failure to make required payments under the May AJB Note or to comply with any of these covenants, among other matters, would constitute an event of default. i Upon an event of default under the May AJB SPA or May AJB Note, the May AJB Note will bear interest at 18%, AJB may immediately accelerate the May AJB Note due date, AJB may convert the amount outstanding under the May AJB Note into shares of Company common stock at a discount to the market price of the stock, and AJB will be entitled to its costs of collection, among other penalties and remedies. |
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The balance of outstanding Convertible Notes was $ i 125,000 as of June 30, 2022.
In June 2020, the Company issued Convertible Notes (“June 2020 Notes”) to an accredited investor for an aggregate amount of $ i 5,000. The June 2020 Notes i mature in June 2025, unless earlier converted. The June 2020 Notes bear interest at a rate of i 5% per year. The June 2020 Notes will automatically convert into shares of common stock on the earlier to occur of a) a qualified equity financing, with the conversion price equal to i 50% of the common stock price paid by the purchasers of the equity, or b) on the maturity date, at a price per share equal to the fair market value of the Company’s common stock on that date. If a change in control occurs before either of the automatic conversion events, the holders of the June 2020 Notes will have the option to convert the June 2020 Notes at a price per share equal to the fair market value of the common stock at the time of such conversion. The Company can prepay the principal and interest, in cash, at any time without any premium or penalty. The June 2020 Notes have no voting rights, do not participate in dividends, and are unsecured. The Company believes it is more likely than not that the June 2020 Notes will not be automatically converted in connection with a qualified equity financing prior to either prepayment or automatic conversion on maturity.
In April 2020, the Company issued three Convertible Notes (“April 2020 Notes”) to three accredited investors for an aggregate amount of $ i 22,500. The April 2020 Notes i mature in April 2025, unless earlier converted. The April 2020 Notes bear interest at a rate of i 5% per year. The April 2020 Notes will automatically convert into shares of common stock on the earlier to occur of a) a qualified equity financing, with the conversion price equal to i 50% of the common stock price paid by the purchasers of the equity, or b) on the maturity date, at a price per share equal to the fair market value of the Company’s common stock on that date. If a change in control occurs before either of the automatic conversion events, the holders of the April 2020 Notes will have the option to convert the April 2020 Notes at a price per share equal to the fair market value of the common stock at the time of such conversion. The Company can prepay the principal and interest, in cash, at any time without any premium or penalty. The April 2020 Notes have no voting rights, do not participate in dividends, and are unsecured. The Company believes it is more likely than not that the April 2020 Notes will not be automatically converted in connection with a qualified equity financing prior to either prepayment or automatic conversion on maturity.
In February 2020, the Company issued three Convertible Notes (“February 2020 Notes”) to three accredited investors for an aggregate amount of $ i 22,500. The February 2020 Notes i mature in February 2025, unless earlier converted. The February 2020 Notes bear interest at a rate of i 5% per year. The February 2020 Notes will automatically convert into shares of common stock on the earlier to occur of a) a qualified equity financing, with the conversion price equal to i 50% of the common stock price paid by the purchasers of the equity, or b) on the maturity date, at a price per share equal to the fair market value of the Company’s common stock on that date. If a change in control occurs before either of the automatic conversion events, the holders of the February 2020 Notes will have the option to convert the February 2020 Notes at a price per share equal to the fair market value of the common stock at the time of such conversion. The Company can prepay the principal and interest, in cash, at any time without any premium or penalty. The February 2020 Notes have no voting rights, do not participate in dividends, and are unsecured. The Company believes it is more likely than not that the February 2020 Notes will not be automatically converted in connection with a qualified equity financing prior to either prepayment or automatic conversion on maturity.
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Interest expense for Convertible Notes was $ i i 3,099 / for the six months ended June 30, 2022, and the six months ended June 30, 2021, respectively.
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NOTE 7 – WARRANTS FOR COMMON STOCK
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As of June 30, 2022, outstanding warrants to purchase shares of the Company’s common stock were as follows:
SCHEDULE OF OUTSTANDING WARRANTS TO PURCHASE SHARES OF COMMON STOCK
| Issuance Date | Exercisable for | Expiration Date | Exercise Price | Number of Shares Outstanding Under Warrants | ||||||||
| i September 2019 | i Common Shares | i September 24, 2022 | $ | i 0.01 | i 75,000 | |||||||
| i February 2020 | i Common Shares | i February 6, 2030 | $ | i 0.01 | i 10,000 | |||||||
| i February 2020 | i Common Shares | i February 12, 2030 | $ | i 0.01 | i 2,500 | |||||||
| i February 2020 | i Common Shares | i February 19, 2030 | $ | i 0.01 | i 10,000 | |||||||
| i April 2020 | i Common Shares | i April 20, 2030 | $ | i 0.01 | i 22,500 | |||||||
| i June 2020 | i Common Shares | i June 9, 2030 | $ | i 0.01 | i 5,000 | |||||||
| i March 2021 | i Common Shares | i February 28, 2026 | $ | i 0.50 | i 362,500 | |||||||
| i January 2022 | i Common Shares | i January 12, 2025 | $ | i 5.25 | i 500,000 | |||||||
| i February 2022 | i Common Shares | i February 24, 2025 | $ | i 5.25 | i 200,000 | |||||||
| i April 2022 | i Common Shares | i April 7, 2025 | $ | i 5.25 | i 146,667 | |||||||
| i May 2022 | i Common Stock | i May 3, 2025 | $ | i 5.25 | i 750,000 | |||||||
The exercise price of the warrants is subject to adjustment from time to time, as provided therein, to prevent dilution of purchase rights granted thereunder. The warrants are considered indexed to the Company’s own stock and therefore no subsequent remeasurement is required.
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On July 21, 2017, the Company’s board of directors adopted The Crypto Company 2017 Equity Incentive Plan (the “Plan”), which was approved by its stockholders on August 24, 2017. The Plan is administered by the board of directors (the “Administrator”). Under the Plan, the Company may grant equity awards to eligible participants which may take the form of stock options (both incentive stock options and non-qualified stock options) and restricted stock awards. Awards may be granted to officers, employees, non-employee directors (as defined in the Plan) and other key persons (including consultants and prospective employees). The term of any stock option award may not exceed years and may be subject to vesting conditions, as determined by the Administrator. . Incentive stock options may be granted only to employees of the Company or any subsidiary that is a “subsidiary corporation” within the meaning of Section 424(f) of the Internal Revenue Code.
During the six-month period ended June 30, 2022, the Company did not issue any stock options.
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shares of the Company’s common stock are reserved for issuance under the Plan. As of June 30, 2022, there are outstanding stock option awards issued from the Plan covering a total of shares of the Company’s common stock and there remain reserved for future awards shares of the Company’s common stock.
i| Weighted | ||||||||||||||||
| Average | ||||||||||||||||
| Weighted | Remaining | |||||||||||||||
| Average | Contractual | Aggregate | ||||||||||||||
| Number | Exercise | Term | Intrinsic | |||||||||||||
| of Shares | Price | (years) | Value | |||||||||||||
| Options outstanding, on December 31, 2021 | i 2,281,429 | $ | i 2.26 | i 5,155,003 | ||||||||||||
| Options granted | - | - | - | - | ||||||||||||
| Options canceled | - | - | - | - | ||||||||||||
| Options exercised | - | - | - | - | ||||||||||||
| Options outstanding, on June 30, 2022 | i 2,281,429 | $ | i 2.26 | $ | i 5,155,003 | |||||||||||
| Vested and exercisable | i 2,281,429 | $ | i 2.26 | $ | i 5,155,003 | |||||||||||
The Company recognized $-- for share-based compensation related to stock options for the six month period ended June 30, 2022.
There were options exercised for the six months ended June 30, 2022.
The Company granted shares of restricted stock during the six-month period ended June 30, 2022 (although such shares were not issued under the Plan).
The Company recognized $ for share-based compensation related to restricted stock issued for the six month period ended June 30, 2022.
As of June 30, 2022, there was $-- of unrecognized compensation costs related to stock options issued to employees and nonemployees.
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NOTE 9- COMMITMENTS AND CONTINGENCIES
Facility rent expense was $- i i 0 / - for the six months ended June 30, 2022, and June 30, 2021, respectively.
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1800 Diagonal Lending, LLC Loan
Effective July 8, 2202, the Company borrowed funds pursuant to a Securities Purchase Agreement (the “SPA”) entered into with 1800 Diagonal Lending, LLC (“Diagonal”), and Diagonal purchased a convertible promissory note (the “Note”) from the Company in the aggregate principal amount of $ i 79,250. Pursuant to the SPA, the Company agreed to reimburse Diagonal for certain fees in connection with entry into the SPA and the issuance of the Note. The SPA contains customary representations and warranties by the Company and Diagonal typically contained in such documents.
The maturity date of the Note is i July 5, 2023 (the “Maturity Date”). i The Note bears interest at a rate of i 10% per annum, and a default interest of 22% per annum. / Diagonal has the option to convert all of the outstanding amounts due under the Note into shares of the Company’s common stock beginning on the date which is 180 days following the date of the Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the default amount, as such term is defined under the Note. The conversion price under the Note for each share of common stock is equal to i 65% of the lowest trading price of the Company’s common stock for the i 10 trading days prior to the conversion date. i The conversion of the Note is subject to a beneficial ownership limitation of 4.99% of the number of shares of common stock outstanding immediately after giving effect to such conversion. Failure of the Company to convert the Note and deliver the common stock when due will result in the Company paying Diagonal a monetary penalty for each day beyond such deadline.
i Prior to the 180th day of the issuance date Note, the Company may prepay the Note in whole or in part, however, if it does so between the issuance date and the date which is 60 days from the issuance date, the repayment percentage is 115%. If the Company prepays the Note between the 61st day after issuance and the 120th day after issuance, the prepayment percentage is 120%. If the Company prepays the Note between the 121st day after issuance and 180 days after issuance, the prepayment percentage is 125%. After such time, the Company can submit an optional prepayment notice to Diagonal, however the prepayment shall be subject to the agreement between the Company and Diagonal on the applicable prepayment percentage.
Pursuant to the Note, as long as the Company has any obligations under the Note, the Company cannot without Diagonal’s written consent, sell, lease or otherwise dispose of any significant portion of its assets which would render the Company a “shell company” as such term is defined in SEC Rule 144. Additionally, under the Note, any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.
The Note contains standard and customary events of default such as failing to timely make payments under the Note when due, the failure of the Company to timely comply with the Securities Exchange Act of 1934, as amended, reporting requirements and the failure to maintain a listing on the OTC Markets. The occurrence of any of the events of default, entitle Diagonal, among other things, to accelerate the due date of the unpaid principal amount of, and all accrued and unpaid interest on, the Note. Upon an “Event of Default”, interest shall accrue at a default interest rate of i 22%, and the Company may be obligated pay to the Diagonal an amount equal to 150% of all amounts due and owing under the Note.
Coventry Enterprise, LLC Loan
Effective July 27, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Coventry Enterprises, LLC (“Coventry”), pursuant to which Coventry purchased a i 10% unsecured promissory Note (the “Note”) from the Company in the principal amount of $ i 200,000, of which $ i 40,000 was retained by Coventry through an “Original Issue Discount” for due diligence and origination related to the transaction. Pursuant to the terms of the Purchase Agreement, the Company also agreed to issue shares of restricted common stock to Coventry as additional consideration for the purchase of the Note. In addition, in the Purchase Agreement the Company granted Coventry a right of first refusal with respect to certain types of equity financing transactions the Company may pursue or effect.
The Note bears interest at a rate of i 10% per annum, with guaranteed interest (the “Guaranteed Interest”) of $ i 20,000 being deemed earned as of date of issuance of the Note. The Note matures on i July 15, 2023. The principal amount and the Guaranteed Interest is due and payable in seven equal monthly payments of $ i 31,428.57, beginning on December 15, 2022 and continuing on the third day of each month thereafter until paid in full.
Any or all of the principal amount and the Guaranteed Interest may be prepaid at any time and from time to time, in each case without penalty or premium.
i If an Event of Default (as defined in the Note) occurs, consistent with the terms of the Note, the Note will become convertible, in whole or in part, into shares of the Company’s common stock at Coventry’s option, subject to a 4.99% beneficial ownership limitation (which may be increased up to 9.99% by Coventry). The per share conversion price is 90% of the lowest volume-weighted average trading price during the 20-trading day period before conversion.
In addition to certain other remedies, if an Event of Default occurs, consistent with the terms of the Note, the Note will bear interest on the aggregate unpaid principal amount and Guaranteed Interest at the rate of the lesser of i 18% per annum or the maximum rate permitted by law.
The Purchase Agreement and the Note contain various representations, warranties, covenants, defined events of default, and other provisions that are generally customary for transaction documents of this nature.
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q (“Quarterly Report”) and with our audited consolidated financial statements, including the notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Annual Report”), as filed with the U.S. Securities and Exchange Commission (“SEC”). In addition to historical consolidated financial information, the following discussion and analysis contain forward-looking statements that reflect our plans, estimates, and beliefs and involve risks and uncertainties. The words “may,” “could,” “should,” “estimate,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “target,” “plan” and similar expressions are intended to identify forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report, as well as risks referenced in our other filings with the SEC.
Overview of Our Business
We are primarily engaged in the business of providing consulting, training, and educational services for distributed ledger technologies (“blockchain”), for individual and corporate clients, enterprises for general blockchain education, as well as for the building of technological infrastructure and enterprise blockchain technology solutions. We currently generate revenues and incur expenses through these consulting and educational operations. We have disposed of our entire ownership interest in CoinTracking GmbH and also divested all of our cryptocurrency assets owned by our former cryptocurrency investment segment, which has ceased operations.
The Company entered into a Stock Purchase Agreement (the “SPA”) effective as of March 24, 2021 with Blockchain Training Alliance, Inc (“BTA”) and its stockholders. On April 8, 2021, the Company completed the acquisition of all of the issued and outstanding stock of BTA and BTA became a wholly owned subsidiary of the Company.
BTA is a blockchain training company and service provider that provides training and educational courses focused on blockchain technology and education as to the general understanding of blockchain to corporate and individual clients.
During the first quarter of 2022 the Company acquired bitcoin mining equipment and entered into an arrangement with a third party to host and operate the equipment. The mining equipment mines bitcoin and the Company began to monetize the bitcoin mined from its equipment during the six months ended June 30, 2022 and generated $19,000 in revenue.
Comparison of the three months ended June 30, 2022, and the three months June 30, 2021
Revenue
Revenues for the three months ended June 30, 2022, and June 30, 2021, were $151,869 and $109,745, respectively. Revenue for the 2022 period consisted primarily of fees received for blockchain training and consulting generated by the Company’s BTA subsidiary which was acquired in April 2021.
General and administrative expenses
For the three months ended June 30, 2022, our general and administrative expenses were $1,448,980, an increase of $699,770 compared to $749,210 for the period ended June 30, 2021. General and administrative expenses consist primarily of costs relating to professional services, payroll, and payroll-related expenses. Professional services included in general and administrative expenses consist primarily of contracting fees, consulting fees, and accounting fees. A significant portion of the increase in expense is attributable to the BTA acquisition that occurred in the 2021 period.
Amortization expense was $10,833 and $22,491 for the three months ended June 30, 2022, and June 30, 2021, respectively.
Depreciation expense was $32,708 and $-0- for the three months ended June 30, 2022, and June 30, 2021, respectively.
Share-based compensation was $899,049 and $192,759 for the three months ended June 30, 2022, and June 30, 2021, respectively.
Other income(expense)
During the three months ended June 30, 2022, other income was $66,765 compared to $794,700 during the three months ended June 30, 2021. The decrease is attributable to cryptocurrency investments that had previously been written off became valuable during the 2021 period and the Company liquidated the extent of its holdings at that time for cash.
Interest expense
During the three months ended June 30, 2022, interest expense was $600,317 compared to $4,127 during the three months ended June 30, 2021. The increase is primarily attributed to debt discount calculated on the issuance of warrants, and the issuance of notes payable during the period.
Comparison of the six months ended June 30, 2022, and the six months June 30, 2021
Revenue
Revenues for the six months ended June 30, 2022, and June 30, 2021, were $294,381 and $111,145, respectively. Revenue for the 2022 period consisted primarily of fees received for blockchain training and consulting generated by the Company’s BTA subsidiary which was acquired in April 2021.
General and administrative expenses
For the six months ended June 30, 2022, our general and administrative expenses were $2,973,157, an increase of $1,960,703 compared to $1,012,454 for the period ended June 30, 2021. General and administrative expenses consist primarily of costs relating to professional services, payroll, and payroll-related expenses. Professional services included in general and administrative expenses consist primarily of contracting fees, consulting fees, and accounting fees. A significant portion of the increase in expense is attributable to the BTA acquisition that occurred in the 2021 period.
Amortization expense was $21,666 and $22,491 for the six months ended June 30, 2022, and June 30, 2021, respectively.
Depreciation expense was $43,611 and $-0- for the six months ended June 30, 2022, and June 30, 2021, respectively.
Share-based compensation was $1,784,510 and $333,594 for the six months ended June 30, 2022, and June 30, 2021, respectively.
Other income(expense)
During the six months ended June 30, 2022, other income was $81,765 compared to $955,508 during the six months ended June 30, 2021. The decrease is attributable to cryptocurrency investments that had previously been written off became valuable during the 2021 period and the Company liquidated the extent of its holdings at that time for cash.
Interest expense
During the six months ended June 30, 2022, interest expense was $1,624,200 compared to $7,949 during the six months ended June 30, 2021. The increase is primarily attributed to debt discount calculated on the issuance of warrants, and the issuance of notes payable during the period.
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Liquidity and Capital Resources
The ability to continue as a going concern is dependent upon us generating profitable operations in the future and/or obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. Management is evaluating different strategies to obtain financing to fund our expenses and achieve a level of revenue adequate to support our current cost structure. Financing strategies may include but are not limited to, private placements of capital stock, debt borrowings, partnerships, and/or collaborations. There can be no assurance that any of these future-funding efforts will be successful. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
The following table summarizes the primary sources and uses of cash for the periods presented below:
| Six months ended | ||||||||
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| Net cash provided by (used in) operating activities | $ | (897,458 | ) | $ | 872,191 | |||
| Net cash used in investing activities | (1,033,500 | ) | (1,349,457) | |||||
| Net cash provided by financing activities | 1,874,473 | 993,265 | ||||||
| Net increase (decrease) in cash and cash equivalents | $ | (56,485) | $ | 515,999 | ||||
Operating Activities
Net cash used in operating activities was $897,458 for the six months ended June 30, 2022, compared to net cash provided by operating activities of $872,191 for the six months ended June 30, 2021. The increase in net cash used in operating activities was primarily due to increases in general and administrative expenses of $1,188,647 for the six months ended June 30, 2022, compared to $678,860 for the six-month period ended June 30, 2021.
Investing Activities
Net cash used in investing activities was $1,033,500 for the six months ended June 30, 2022, compared to 1,349,457 for the six months ended June 30,2021. The decrease in cash used in investing activities was primarily due to the BTA acquisition having closed in the 2021 period, but partially offset by the acquisition of bitcoin mining equipment in February 2022.
Financing Activities
Net cash from financing activities for the six months ended June 30, 2022, was $1,874,473, compared to $993,265 for the six months ended June 30, 2021. The increase in net cash from financing activities was mainly due to the resulting issuance of promissory notes during the six months ended June 30, 2022.
Trends, Events, and Uncertainties
The blockchain technology market is dynamic and unpredictable. Although we will undertake compliance efforts, including efforts with commercially reasonable diligence, there can be no assurance that there will not be a new or unforeseen law, regulation or risk factor which will materially impact our ability to continue our business as currently operated or raise additional capital to foster our continued growth.
Other than as discussed elsewhere in this Quarterly Report and our 2021 Annual Report, we are not aware of any trends, events, or uncertainties that are likely to have a material effect on our financial condition.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements requires us to make estimates that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent liabilities. We base our judgments on our historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making estimates about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We have no material changes to our Critical Accounting Policies and Estimates disclosure as filed in our 2021 Annual Report.
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Recent Accounting Pronouncements
See Note 3 to the consolidated financial statements for a discussion of recent accounting pronouncements.
Off-Balance Sheet Transactions
We do not have any off-balance sheet transactions.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.
ITEM 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, including our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of June 30, 2022. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2022, to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the period ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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+ This document is deemed not filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.
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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.
| Dated: August 19, 2022 | THE CRYPTO COMPANY | |
| (Registrant) | ||
| By: | /s/ Ron Levy | |
| Ron Levy | ||
Chief Executive Officer, Interim Chief Financial Officer, Chief Operating Officer and Secretary (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | ||
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| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 6/9/30 | ||||
| 4/20/30 | ||||
| 2/19/30 | ||||
| 2/12/30 | ||||
| 2/6/30 | ||||
| 2/28/26 | ||||
| 5/3/25 | ||||
| 4/7/25 | ||||
| 2/24/25 | ||||
| 1/12/25 | ||||
| 7/15/23 | ||||
| 7/5/23 | ||||
| 3/31/23 | ||||
| 1/13/23 | ||||
| 12/15/22 | ||||
| 11/3/22 | ||||
| 10/15/22 | ||||
| 9/24/22 | ||||
| 9/7/22 | ||||
| 8/24/22 | ||||
| Filed on: | 8/19/22 | |||
| 7/27/22 | 8-K | |||
| 7/12/22 | ||||
| For Period end: | 6/30/22 | NT 10-Q | ||
| 5/15/22 | ||||
| 5/3/22 | 8-K | |||
| 4/7/22 | 8-K | |||
| 2/25/22 | ||||
| 2/24/22 | 8-K | |||
| 2/23/22 | ||||
| 1/18/22 | ||||
| 1/13/22 | 8-K | |||
| 12/31/21 | 10-K | |||
| 6/30/21 | 10-Q | |||
| 4/8/21 | 8-K | |||
| 3/31/21 | 10-Q | |||
| 3/24/21 | ||||
| 2/2/21 | ||||
| 12/31/20 | 10-K, 8-K/A | |||
| 6/10/20 | ||||
| 3/11/20 | ||||
| 1/2/19 | ||||
| 1/1/19 | ||||
| 12/31/18 | 10-K, NT 10-K | |||
| 12/28/18 | 8-K | |||
| 4/3/18 | 8-K | |||
| 1/1/18 | ||||
| 8/24/17 | 8-K/A | |||
| 7/21/17 | ||||
| 3/9/17 | ||||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 5/04/23 Crypto Co. DEF 14C 5/04/23 1:118K M2 Compliance LLC/FA 2/23/23 Crypto Co. PRE 14C 2/23/23 1:119K M2 Compliance LLC/FA 1/06/23 Crypto Co. DEF 14C 1/06/23 1:113K M2 Compliance LLC/FA |