Quarterly Report (10-q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2023 OR

 

☐ 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: 000-55726

 

THE CRYPTO COMPANY

(Exact name of registrant as specified in its charter)

 

Nevada		46-4212105
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

 

23823 Malibu Road, # 50477

Malibu, California 90265

(Address of principal executive offices)

 

[phone]

(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. 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). 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 ☐
	Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

As of May 19, 2023 the issuer had 30,402,320 shares of common stock, par value $0.001 per share, outstanding.

 

 

TABLE OF CONTENTS

 

		Page No.
PART I FINANCIAL INFORMATION		4
Item 1.	Financial Statements	4
	Unaudited Consolidated Balance Sheets as of March 31, 2023, and December 31, 2022	4
	Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 2023, and 2022	5
	Unaudited Consolidated Statements of Stockholders’ (Deficit) for the Three Months Ended March 31, 2023, and 2022	6
	Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023, and 2022	7
	Notes to Interim Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	21
PART II OTHER INFORMATION
Item 6.	Exhibits	22
SIGNATURES		23

 

2

 

 

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, 2022 (the “2022 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”).

 

3

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

 

THE CRYPTO COMPANY

CONSOLIDATED BALANCE SHEETS

 

		March 31, 2023				December 31, 2022
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	16,677			$	110,606
Prepaid expenses			57,717				81,317
Total current assets			74,394				191,923
Fixed assets			-				50,000
Goodwill			740,469				740,469
Intangible assets			563,336				574,169
TOTAL ASSETS		$	1,378,199			$	1,556,561
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	2,457,771			$	2,265,548
Deferred revenue			60,000				-
Notes payable, net			2,361,218				2,211,353
Total current liabilities			4,878,989				4,476,901
Convertible debt			125,000				125,000
Notes payable - other			13,864				14,100
TOTAL LIABILITIES			5,017,853				4,616,001
STOCKHOLDERS’ DEFICIT
Common stock, $0.001 par value; 750,000,000 shares authorized, 25,740,537 and 23,950,380 shares issued and outstanding, respectively			25,741				23,950
Additional paid-in-capital			38,637,372				36,448,046
Accumulated deficit			(42,302,767	)			(39,531,436	)
TOTAL STOCKHOLDERS’ DEFICIT			(3,639,654	)			(3,059,440	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT		$	1,378,199			$	1,556,561

 

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

 

4

 

 

THE CRYPTO COMPANY

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

 

		For the three months ended
		March 31, 2023				March 31, 2022
Revenue:
Services		$	156,893			$	142,512
Cost of services			97,868				79,218
Gross profit			59,024				63,294
Operating expenses:
General and administrative expenses			431,049				631,390
Amortization			10,833				10,833
Depreciation			-				10,903
Share-based compensation - employee			6,761				163,000
Share-based compensation - non-employee			379,799				722,461
Total operating expenses			828,442				1,538,587
Operating loss			(769,418	)			(1,475,293	)
Other income			-				-
Loss on the sale of equipment			(31,000	)			-
Other income - recovery of token investment			-				15,000
Interest expense			(1,970,913	)			(1,023,883	)
Loss before provision for income taxes			(2,771,331	)			(2,484,176	)
Provision for income taxes			-				-
Net loss			(2,771,331	)			(2,484,176	)
Net loss per share		$	(0.11	)		$	(0.11	)
Weighted average common shares outstanding – basic and diluted			25,097,908				22,502,177

 

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

 

5

 

 

THE CRYPTO COMPANY

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 

										Additional								Total
		Common stock								paid-in-				Accumulated				Stockholders’
		Shares				Amount				capital				Deficit				Deficit
Balance, December 31, 2021			22,205,248			$	22,206			$	32,830,497			$	(33,868,518	)		$	(1,015,815	)
Stock issued for cash at $3.28 per share			8,000				8				26,232								26,240
Stock compensation expense in connection with issuance of common stock			309,650				310				885,151								885,461
Warrants issued in connection with promissory notes											979,304								979,304
Net loss															(2,484,176	)			(2,484,176	)
Balance, March 31, 2022			22,522,898			$	22,523			$	34,721,184			$	(36,352,694	)		$	(1,608,987	)

 

										Additional								Total
		Common stock								paid-in-				Accumulated				Stockholders’
		Shares				Amount				capital				Deficit				Deficit
Balance, December 31, 2022			23,950,380			$	23,950			$	36,448,046			$	(39,531,436	)		$	(3,059,440	)
Stock issued for cash at $5.00 per share			125,000				125				24,875								25,000
Stock compensation expense in connection with issuance of common stock			1,665,157				1,666				384,894								386,560
Debt discount for warrants											1,779,557								1,779,557
Net loss															(2,771,331	)			(2,771,331	)
Balance, March 31, 2023			25,740,537			$	25,741			$	38,637,372			$	(42,302,767	)		$	(3,639,654	)

 

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

 

6

 

 

THE CRYPTO COMPANY

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		For the Three Months Ended
		March 31, 2023				March 31, 2022
Cash flows from operating activities:
Net loss		$	(2,771,331	)		$	(2,484,176	)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation and amortization			10,833				21,736
Share-based compensation			386,560				885,461
Debt discount for warrants			1,779,557				979,304
Loss on disposal of equipment			31,000				-
Change in operating assets and liabilities:
Prepaid expenses			23,600				27,157
Accounts payable and accrued expenses			192,224				65,749
Deferred revenue			60,000				-
Net (used in) operating activities			(287,557	)			(504,769	)
Cash flows from investing activities:
Purchase of computer equipment			-				(1,033,500	)
Net cash (used in) investing activities			-				(1,033,500	)
Cash flows from financing activities:
Payment of notes payable			(159,122	)			-
Proceeds from issuance of notes payable			327,750				1,535,125
Proceeds from common stock issuance			25,000				26,241
Net cash provided by financing activities			193,628				1,561,366
Net (decrease) increase in cash and cash equivalents			(93,929	)			23,097
Cash and cash equivalents at the beginning of the period			110,606				75,699
Cash and cash equivalents at the end of the period		$	16,677			$	98,796

 

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

 

7

 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

 

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 incurred expenses primarily through these consulting and related operations.

 

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.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Going Concern

 

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 March 31, 2023, the Company had cash of $16,677. In addition, the Company’s net loss was $2,771,331 for the three months ended March 31,2023 and the Company’s had a working capital deficit of $4,804,595. As of March 31, 2023, the accumulated deficit amounted to $42,302,767. 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.

 

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, 2022.

 

The Company prepares its consolidated financial statements based upon the accrual method of accounting, recognizing income when earned and expenses when incurred.

 

8

 

 

Basis of Presentation and Principles of Consolidation

 

Use of estimates

 

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.

 

Cash and cash equivalents

 

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.

 

Investments in cryptocurrency

 

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 March 31, 2023, the Company had written off the value of its investments in cryptocurrency.

 

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 March 31, 2023, and December 31, 2022 the Company had written-off its investments in non- cryptocurrency.

 

9

 

 

Business combination

 

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.

 

Income taxes

 

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 March 31, 2023, 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.

 

Fair value measurements

 

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.

 

10

 

 

Revenue recognition

 

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 March 31, 2023, 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.

 

Revenues from Mining at Hosted Locations

 

The Company has their mining equipment a hosting facility managed by a third party (“Host”). The equipment generating the hosting revenue is owned by the Company. Through the period ended March 31, 2023 the Host accepted the mining proceeds daily from a mining pool into a cold wallet address in the Host’s name. The Host sends the Company its portion daily, as the Host receives such proceeds. Hosting revenues consist of amounts received in U.S. dollars for a percentage of cryptocurrency generated by the Host.

 

Share-based compensation

 

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.

 

11

 

 

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.

 

Net loss per common share

 

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 periods ended March 31, 2023, and 2022, the Company had no potentially dilutive common stock equivalents. Therefore, the basic EPS and diluted EPS are the same.

 

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.

 

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 $600,000 in cash, promissory notes in the total principal amount of $150,000 bearing 1% interest per annum, and an aggregate of 201,439 shares of Company common stock valued at $604,317 in accordance with the terms of the SPA. Additionally, the Company acquired $4,860 in cash at BTA.

 

As a result of the foregoing the Company initially recorded goodwill of $1,349,457. The Company conducted a valuation study on the acquisition of BTA. The final valuation report determined the amount goodwill to be $740,469 and the remaining $650,000 of the goodwill relates to amortizable intangibles amortized over a fifteen-year period, or approximately $54,166 per year.

 

During the three months ended March 31, 2023 the Company recorded $10,833 in amortization expense.

 

NOTE 5 – NOTE PAYABLE

 

On April 3, 2018, CoinTracking entered into a Loan Agreement (the “Loan Agreement”) with CoinTracking GmbH, which provided for total borrowings of up to $3,000,000. During 2018, CoinTracking borrowed $1,500,000 in exchange for three promissory notes (collectively, the “CoinTracking Note”) in the principal amounts of $300,000, $700,000, and $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 $1,200,000 of the sales proceeds were applied toward repayment of the $1,500,000 outstanding loan amount under the CoinTracking Note. The remaining balance of $300,000 is outstanding as of September 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 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. The maturity date of the CoinTracking Note has not been extended nor has any default been asserted by the lender.

 

Interest expense for Notes Payable was $189,816 for the three-month period ended March 31, 2023, compared to $223,965, during the same three-month period ended March 31, 2022, respectively.

 

●

On June 10, 2020, the Company received a loan from the Small Business Administration of $14,100 (the “2020 SBA Loan”). The 2020 SBA Loan bears interest at 3.75% per annum and is payable over 30 years with all payments of principal and interest deferred for the first 12 months.

 

	●	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 $300,000 (the “Feb. Note”) to ABJ in a private transaction for a purchase price of $275,000 (giving effect to an original issue discount). The Feb. Note had a maturity date of 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 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. 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 $220,000 to Efrat (the “Efrat Note”) in a private transaction for a purchase price of $198,000 (giving effect to an original issue discount).

 

12

 

 

The Efrat Note had a maturity date of 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 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. 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 $1,000,000 (the “May AJB Note”) to AJB in a private transaction for a purchase price of $900,000 (giving effect to a 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.

 

At the closing the Company repaid all obligations owed to AJB pursuant to a 10% promissory note in the principal amount of $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 $138,125 net proceeds from the issuance of the May AJB Note was utilized for working capital and other general corporate purposes.

 

The May AJB Note had a maturity date of 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 Company has extended the maturity date of the May AJB Note. 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. 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.

 

●

On July 8, 2022, the Company borrowed funds pursuant to a Securities Purchase Agreement (the “Diagonal SPA”) entered into with 1800 Diagonal Lending, LLC (“Diagonal”), and Diagonal purchased a convertible promissory note (the “July Note”) from the Company in the aggregate principal amount of $79,250. Pursuant to the Diagonal SPA, the Company agreed to reimburse Diagonal for certain fees in connection with entry into the diagonal SPA and the issuance of the Note.

 

The maturity date of the Note is July 5, 2023 (the “Maturity Date”). The July Note bears interest at a rate of 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 July 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 July Note. The conversion price under the July Note for each share of common stock is equal to 65% of the lowest trading price of the Company’s common stock for the 10 trading days prior to the conversion date. The conversion of the July 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 July Note and deliver the common stock when due will result in the Company paying Diagonal a monetary penalty for each day beyond such deadline.

 

Prior to the 180th day of the issuance date July Note, the Company may prepay the July 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 July Note between the 61st day after issuance and the 120th day after issuance, the prepayment percentage is 120%. If the Company prepays the July 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.

 

●

On 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 10% unsecured promissory Note (the “Coventry Note”) from the Company in the principal amount of $200,000, of which $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 25,000 shares of restricted common stock to Coventry as additional consideration for the purchase of the Coventry 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.

 

13

 

 

The Coventry Note bears interest at a rate of 10% per annum, with guaranteed interest (the “Guaranteed Interest”) of $20,000 being deemed earned as of date of issuance of the Coventry Note. The Coventry Note matures on July 15, 2023. The principal amount and the Guaranteed Interest is due and payable in seven equal monthly payments of $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.

 

If an Event of Default (as defined in the Coventry Note) occurs, consistent with the terms of the Coventry Note, the Coventry 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 Coventry Note, the Coventry Note will bear interest on the aggregate unpaid principal amount and Guaranteed Interest at the rate of the lesser of 18% per annum or the maximum rate permitted by law.

 

On April 24, 2023, the Company received a letter (the “Notice of Conversion”) from Coventry formally notifying the Company of an event of default under Section 7(a)(i) of the Coventry Note. The Company was in violation of covenants in the Note that require the Company make the payment of any principal amount, guaranteed interest, or any other interest due under the Coventry Note, when due, subject to a five day cure period. Upon an event of default, consistent with the terms of the Coventry Note, the Coventry Note becomes convertible, in whole or in part, into shares of the Company’s Common Stock at Coventry’s option. As set forth in the Notice of Conversion, Coventry elected to convert $17,916.94 of principal and $2,083.06 of interest under the Note into Conversion Shares of the Company.

 

● On September 30, 2022, 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 $108,936 (giving effect to an original issue discount). The SPA contains customary representations and warranties by the Company and Diagonal typically contained in such documents.

 

A portion of the proceeds from the sale of the Note were used by the parties to satisfy all remaining amounts due under a convertible promissory note dated January 11, 2022, issued by the Company to Sixth Street Lending, LLC. After payment of fees, and after satisfaction of the January 11, 2022 convertible promissory note in favor of Sixth Street Lending, the net proceeds to the Company were $80,000, which will be used for working capital and other general corporate purposes.

 

The Note has a maturity date of September 26, 2023, and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12.0%) per annum from the date on which the 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 on November 15, 2022. The Company has the right to prepay the Note in accordance with the terms set forth in the Note.

 

Following an event of default, and subject to certain limitations, the outstanding amount of the Note may be converted into shares of Company common stock.

 

Amounts due under the Note would be converted into shares of the Company’s common stock at a conversion price equal to 75% of the lowest trading price with a 10-day lookback immediately preceding the date of conversion. In no event may the lender effect a conversion if such conversion, along with all other shares of Company common stock beneficially owned by the lender and its affiliates would exceed 4.99% of the outstanding shares of Company common stock. In addition, upon the occurrence and during the continuation of an event of default the Note will become immediately due and payable and the Company shall pay to the lender, in full satisfaction of its obligations thereunder, additional amounts as set forth in the Note.

 

On May 8, 2023, the Company received a letter (the “Notice of Conversion”) from Diagonal formally notifying the Company of an event of default under Article III of the Note. The Company is in violation of covenants in the Note that require the Company make the payment of any principal or interest due under the Note, when due, subject to a ten day cure period. Upon an event of default, consistent with the terms of the Note, the Note becomes convertible, in whole or in part, into shares of the Company’s Common Stock at Diagonal’s option. As set forth in the Notice of Conversion, Diagonal elected to convert $15,000 of principal under the Note into Conversion Shares of the Company.

 

● On December 15, 2022, 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 $88,760 (giving effect to an original issue discount). Net proceeds from the sale of the Note will be used primarily for general working capital purposes. The SPA contains customary representations and warranties by the Company and Diagonal typically contained in such documents.

 

The Note has a maturity date of December 9, 2023, and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12.0%) per annum, with interest being payable through a one-time interest charge of $10,651 being applied on the principal amount of the Note on the issuance date. Payments are due monthly, beginning on January 30, 2023. The Company has the right to prepay the Note in accordance with the terms set forth in the Note.

 

14

 

 

Following an event of default, and subject to certain limitations, the outstanding amount of the Note may be converted into shares of Company common stock. Amounts due under the Note would be converted into shares of the Company’s common stock at a conversion price equal to 75% of the lowest trading price with a 10-day lookback immediately preceding the date of conversion. In no event may the lender effect a conversion if such conversion, along with all other shares of Company common stock beneficially owned by the lender and its affiliates would exceed 4.99% of the outstanding shares of Company common stock. In addition, upon the occurrence and during the continuation of an event of default the Note will become immediately due and payable and the Company shall pay to the lender, in full satisfaction of its obligations thereunder, additional amounts as set forth in the Note.

 

● On December 29, 2022, the Company entered into a First Amendment to Promissory Note (the “Amendment”) to amend certain terms of a the Note originally issued by the Company on or about May 3, 2022 in favor of AJB Capital Investments, LLC (“AJB”). Pursuant to the Amendment, AJB loaned the Company an additional $125,000 (resulting in proceeds to the Company of $100,000 after giving effect to an original issue discount of $25,000), and, as a result the Amendment served to increase the face amount of the Note to $1,125,000 to give effect to the additional funds loaned to the Company. All transaction documents originally entered into by the parties in connection with the issuance of the Note were amended to cause the term “Principal” to mean the sum of $1,125,000. Except as amended by the Amendment all of the original terms and conditions of the Note remain as set forth in the original transaction documents.

 

The Company used proceeds of the additional loan amount, in part, to satisfy in full all remaining obligations owed by the Company pursuant to a promissory note in the principal amount of $79,250 issued in favor of 1800 Diagonal Lending, LLC in July 2022 (the “July Diagonal Note”). As a result, the July Diagonal Note is satisfied in full and was terminated.

 

● On January 10, 2023, 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 $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 January 3, 2024 (the “Maturity Date”). The Note bears interest at a rate of 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 65% of the lowest trading price of the Company’s common stock for the 10 trading days prior to the conversion date. 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.

 

The Company may prepay the Note in whole, 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 on or between the 61st day after issuance and the 90th day after issuance, the prepayment percentage is 120%. If the Company prepays the Note on or between the 91st 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 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.

 

● On February 2, 2023, the Company borrowed funds pursuant to a Securities Purchase Agreement (the “SPA”) entered into with Fast Capital, LLC (“Fast Capital”), and Fast Capital purchased a 10% convertible promissory note (the “Note”) from the Company in the aggregate principal amount of $115,000. The Note has an original issue discount of $10,000, resulting in gross proceeds to the Company of $105,000. Pursuant to the SPA, the Company agreed to reimburse Fast Capital for certain fees in connection with entry into the SPA and the issuance of the Note. The SPA contains certain covenants and customary representations and warranties by the Company and Fast Capital typically contained in such documents.

 

The maturity date of the Note is January 30, 2024. The Note bears interest at a rate of 10% per annum, and a default interest of 24% per annum. Interest is payable in shares of Company common stock.

 

15

 

 

For the first six months, the Company has the right to prepay principal and accrued interest due under the Note at a premium of between 15% and 40% depending on when it is repaid. The Note may not be prepaid after the 180^th day of its issuance.

 

Fast Capital has the right at any time after the six-month anniversary of the date of issuance of the Note to convert all or any part of the outstanding and unpaid principal amount of the Note into Company common stock, subject to a beneficial ownership limitation. The conversion price of the Note equals 60% of the lowest closing price of the Company’s common stock for the 20 prior trading days, including the day upon which a notice of conversion is delivered.

 

The Note contains various covenants standard and customary events of default such as failing to timely make payments under the Note when due, the failure to maintain a listing on the OTC Markets or the Company defaulting on any other note or similar debt obligation into which the Company has entered and failed to cure within the applicable grace period. The occurrence of any of the events of default, entitle First Capital, 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 24%, and certain defined events of default may give rise to other remedies (such as, if the Company is delinquent in its periodic report filings with the Securities and Exchange Commission then the conversion price of the Note may be decreased).

 

● On March 7, 2023, 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 $54,250. 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 March 2, 2024 (the “Maturity Date”). The Note bears interest at a rate of 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 65% of the lowest trading price of the Company’s common stock for the 10 trading days prior to the conversion date. 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.

 

The Company may prepay the Note in whole, 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 on or between the 61st day after issuance and the 90th day after issuance, the prepayment percentage is 120%. If the Company prepays the Note on or between the 91st 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.

 

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 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.

 

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NOTE 6 – CONVERTIBLE NOTES

 

The balance of outstanding Convertible Notes was $125,000 as of March 31, 2023 and December 31, 2022.

 

In June 2020, the Company issued Convertible Notes (“June 2020 Notes”) to an accredited investor for an aggregate amount of $5,000. The June 2020 Notes mature in June 2025, unless earlier converted. The June 2020 Notes bear interest at a rate of 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 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 $22,500. The April 2020 Notes mature in April 2025, unless earlier converted. The April 2020 Notes bear interest at a rate of 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 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 $22,500. The February 2020 Notes mature in February 2025, unless earlier converted. The February 2020 Notes bear interest at a rate of 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 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.

 

Interest expense for Convertible Notes was $1,541 for the three months ended March 31, 2023, and March 31, 2022, respectively.

 

NOTE 7 – WARRANTS FOR COMMON STOCK

 

As of March 31, 2023, outstanding warrants to purchase shares of the Company’s common stock were as follows:

 

Issuance Date		Exercisable for		Expiration Date		Exercise Price				Number of Shares Outstanding Under Warrants
September 2019		Common Shares		September 24, 2022		$	0.01				75,000
February 2020		Common Shares		February 6, 2030		$	0.01				10,000
February 2020		Common Shares		February 12, 2030		$	0.01				2,500
February 2020		Common Shares		February 19, 2030		$	0.01				10,000
April 2020		Common Shares		April 20, 2030		$	0.01				22,500
June 2020		Common Shares		June 9, 2030		$	0.01				5,000
March 2021		Common Shares		February 28, 2026		$	0.50				362,500
January 2022		Common Shares		January 12, 2025		$	5.25				500,000
February 2022		Common Shares		February 24, 2025		$	5.25				200,000
April 2022		Common Shares		April 7, 2025		$	5.25				146,667
May 2022		Common Stock		May 3, 2025		$	5.25				750,000
March 2023		Common Stock		March 8, 2028		$	0.00001				474,780
March 2023		Common Stock		March 13, 2028		$	0.00001				7,000,000

 

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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NOTE 8 - SUMMARY OF STOCK OPTIONS

 

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 10 years and may be subject to vesting conditions, as determined by the Administrator. Options granted generally vest over eighteen to thirty-six months. 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 three-month period ended March 31, 2023, the Company did not issue any stock options.

 

5,000,000 shares of the Company’s common stock are reserved for issuance under the Plan. As of March 31, 2023, there are outstanding stock option awards issued from the Plan covering a total of 2,281,429 shares of the Company’s common stock and there remain reserved for future awards 2,718,571 shares of the Company’s common stock.

 

										Weighted Average
						Weighted				Remaining
						Average				Contractual				Aggregate
		Number of Shares				Exercise Price				Term (years)				Intrinsic Value
Options outstanding, on December 31, 2022			2,281,429			$	2.26				3.25				5,155,003
Options granted			-				-				-				-
Options canceled			-				-				-				-
Options exercised			-				-				-				-
Options outstanding, on March 31, 2023			2,281,429			$	2.26				3.00			$	5,155,003
Vested and exercisable			2,281,429			$	2.26				3.00			$	5,155,003

 

The Company recognized $-0- for share-based compensation related to stock options for the three month period ended March 31, 2023. There were no options exercised for the three months ended March 31, 2023.

 

The Company granted 1,665,157 shares of restricted stock during the three-month period ended March 31, 2023 (although such shares were not issued under the Plan).

 

The Company recognized $386,560 for share-based compensation related to restricted stock issued for the three month period ended March 31, 2023. As of March 31, 2023, there was $-0- of unrecognized compensation costs related to stock options issued to employees and nonemployees, and the stock options had no intrinsic value since they were all “out of the money” as of March 31, 2023.

 

NOTE 9- COMMITMENTS AND CONTINGENCIES

 

Facility rent expense was $-0- for the three months ended March 31, 2023, and March 31, 2022, respectively.

 

NOTE 10 – SUBSEQUENT EVENTS

 

Subsequent to March 31, 2023 the Company issued 6,286,783 common shares pursuant to the conversion of $162,154 of convertible debt.

 

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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, 2022 (the “2022 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.

 

Results of Operations

 

Revenue

 

Revenues for the three months ended March 31, 2023, and March 31, 2022, were $156,893 and $142,512, respectively. Revenue for the 2023 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 March 31, 2023, our general and administrative expenses were $431,049, a decrease of $200,341 compared to $631,390 for the period ended March 31, 2022. 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.

 

Amortization expense was $10,833 and $10,833 for the three months ended March 31, 2023, and March 31, 2022, respectively. Depreciation expense was $-0- and $10,903 for the three months ended March 31, 2023, and March 31, 2022, respectively.

 

Share-based compensation was $386,530 and $885,461 for the three months ended March 31, 2023, and March 31, 2022, respectively.

 

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Other income(expense)

 

During the three months ended March 31, 2023, other income was $-0- compared to $15,000 during the three months ended March 31, 2022. 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 March 31, 2023, interest expense was $379,799 compared to $722,461 during the three months ended March 31, 2022. The decrease is primarily attributed to debt discount calculated on the issuance of warrants, and the issuance of promissory notes payable during the 2022 period.

 

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:

 

		Three months ended March 31,
		2023				2022
Net cash provided by (used in) operating activities		$	(287,557	)		$	(504,769	)
Net cash used in investing activities			-				(1,033,500	)
Net cash provided by financing activities			193,628				1,561,366
Net increase(decrease) in cash and cash equivalents		$	(93,929	)		$	23,097

 

Operating Activities

 

Net cash used in operating activities was $287,557 for the three months ended March 31, 2023, compared to net cash provided by operating activities of $504,769 for the three months ended March 31, 2022. The decrease in net cash used in operating activities during the 2023 period was primarily due to a decrease in general and administrative expenses of $200,341 for the three months ended March 31, 2023.

 

Investing Activities

 

Net cash used in investing activities was $-0- for the three months ended March 31, 2023, compared to 1,033,500 for the three months ended March 31, 2022. The decrease in cash used in investing activities was primarily due to the acquisition of bitcoin mining equipment in February 2022. In 2023, the Company exited the bitcoin mining initiative because it was not profitable.

 

Financing Activities

 

Net cash from financing activities for the three months ended March 31, 2023, was $193,628, compared to $1,561,366 for the three months ended March 31, 2022. The decrease in net cash from financing activities was mainly due to the resulting issuance of promissory notes during the three months ended March 31, 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 2022 Annual Report, we are not aware of any trends, events, or uncertainties that are likely to have a material effect on our financial condition.

 

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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 2022 Annual Report.

 

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 September 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 March 31, 2023, 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 March 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. Other Information

 

ITEM 1. Legal Proceedings.

 

The Company is subject, from time to time, to various legal proceedings that are incidental to the conduct of its business. The Company is not involved in any pending legal proceeding that it believes would reasonably be expected to have a material adverse effect on its financial condition or results of operations.

 

ITEM 1A. Risk Factors.

 

In evaluating us and our common stock, we urge you to carefully consider the risks and other information in this Quarterly Report on Form 10-Q, the Risk Factors disclosed in Item 1A. of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, that could materially and adversely affect our results of operations or financial condition.

 

ITEM 3. Defaults upon Senior Securities.

 

On May 8, 2023, the Company defaulted on the September 26, 2022 Diagonal Note. The Company was in violation of covenants in the Note that require the Company make the payment of any principal or interest due under the Note, when due, subject to a ten day cure period. Upon an event of default, consistent with the terms of the Note, the Note becomes convertible, in whole or in part, into shares of the Company’s Common Stock at Diagonal’s option. On May 8, 2023, the Company received a notice of default in the amount of $15,000. As per the terms of the Diagonal Note, upon the occurrence and during the continuation of an event of default, the Note will become immediately due and payable. As of the filing date of this quarterly report on Form 10-Q, the total arrearage is $38,205.

 

ITEM 4. Mine Safety Disclosures.

 

Not applicable.

 

ITEM 5. Other Information.

 

None.

 

ITEM 6. Exhibits.

 

Exhibit Number		Document
10.41		AJB Capital Second Amendment dated April 14, 2022 to the May 3, 22 Note
10.42		AJB Capital Pre-Funded Common Stock Warrant April 14, 2023
10.43		AJB Capital Letter Regarding Note Increase and PreFunded Warrant 04.14.2023
31.1		Certification of the Company’s Principal Executive Officer, Principal Financial and Accounting Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of the Company’s Principal Executive Officer, Principal Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

  

101.INS*		Inline XBRL Instance Document
101.SCH*		Inline XBRL Taxonomy Extension Schema
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF*		Inline XBRL Taxonomy Extension Definitions Linkbase
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase
104*		Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

22

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Dated: May 22, 2023	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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