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, 2022
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, Suite 50477
Malibu, California 90265
(Address of principal executive offices)
(424) 228-9955
(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 16, 2022 the issuer had shares of common stock, par value $0.001 per share, outstanding.
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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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
THE CRYPTO COMPANY
CONSOLIDATED BALANCE SHEETS
| March 31, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 98,796 | $ | 75,699 | ||||
| Prepaid expenses | 59,022 | 86,179 | ||||||
| Fixed assets | 1,022,597 | - | ||||||
| Total current assets | 1,180,415 | 161,878 | ||||||
| Goodwill | 740,469 | 740,469 | ||||||
| Intangible assets | 606,668 | 617,501 | ||||||
| TOTAL ASSETS | $ | 2,527,552 | $ | 1,519,848 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | 1,999,549 | $ | 1,933,800 | ||||
| Notes payable, net | 1,979,625 | 444,500 | ||||||
| Total current liabilities | 3,979,174 | 2,378,300 | ||||||
| Convertible notes | 125,000 | 125,000 | ||||||
| Notes payable - other | 32,365 | 32,365 | ||||||
| TOTAL LIABILITIES | 4,136,539 | 2,535,665 | ||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Common stock, $ par value; shares authorized, and shares issued and outstanding, respectively | 22,523 | 22,205 | ||||||
| Additional paid-in-capital | 34,721,184 | 32,830,496 | ||||||
| Accumulated deficit | (36,352,694 | ) | (33,868,518 | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | (1,608,987 | ) | (1,015,817 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 2,527,552 | $ | 1,519,848 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
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THE CRYPTO COMPANY
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
| For the three months ended | ||||||||
| March 31, 2022 | March 31, 2021 | |||||||
| Revenue: | ||||||||
| Services | $ | 142,512 | $ | 1,400 | ||||
| Cost of services | 79,218 | - | ||||||
| Gross margin | 63,294 | 1,400 | ||||||
| Operating expenses: | ||||||||
| General and administrative expenses | 631,390 | 170,607 | ||||||
| Amortization | 10,833 | - | ||||||
| Depreciation | 10,903 | - | ||||||
| Share-based compensation - employee | 163,000 | - | ||||||
| Share-based compensation - non-employee | 722,461 | 140,835 | ||||||
| Total Operating Expenses | 1,538,587 | 311,442 | ||||||
| Operating loss | (1,475,293 | ) | (310,042 | ) | ||||
| Other income | - | 160,808 | ||||||
| Other income recovery of token investment | 15,000 | - | ||||||
| Interest expense | (1,023,883 | ) | (7,202 | ) | ||||
| Loss before provision for income taxes | (2,484,176 | ) | (153,056 | ) | ||||
| Provision for income taxes | - | - | ||||||
| Net income(loss) | $ | (2,484,176 | ) | $ | (153,056 | ) | ||
| Net income (loss) per share | $ | (0.11 | ) | $ | (0.01 | ) | ||
| Weighted average common shares outstanding – basic and diluted | 22,502,177 | 21,840,822 | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
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THE CRYPTO COMPANY
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| Additional | Total | |||||||||||||||||||
| Common stock | paid-in- | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | capital | Deficit | Equity | ||||||||||||||||
| Balance, December 31, 2020 | 21,417,841 | $ | 21,418 | $ | 30,665,823 | $ | (33,082,888 | ) | $ | (2,395,647 | ) | |||||||||
| Stock issued for cash at $ per share, with warrants | 412,500 | 413 | 824,588 | 825,000 | ||||||||||||||||
| Stock compensation expense in connection with issuance of common stock | 41,750 | 42 | 140,793 | 140,835 | ||||||||||||||||
| Net loss | - | - | - | (153,056 | ) | (153,056 | ) | |||||||||||||
| Balance, March 31, 2021 | 21,872,091 | $ | 21,872 | $ | 31,631,204 | $ | (33,235,944 | ) | $ | (1,582,868 | ) | |||||||||
| Additional | Total | |||||||||||||||||||
| Common stock | paid-in- | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | capital | Deficit | Equity | ||||||||||||||||
| Balance, December 31, 2021 | 22,205,248 | $ | 22,205 | $ | 32,830,497 | $ | (33,868,518 | ) | $ | (1,015,817 | ) | |||||||||
| Stock issued for cash at $ 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 | ) | |||||||||
The accompanying notes are an integral part of the consolidated financial statements.
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THE CRYPTO COMPANY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Three Months Ended | ||||||||
| March 31, 2022 | March 31, 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (2,484,176 | ) | $ | (153,056 | ) | ||
| Adjustments to reconcile net loss to net cash used in operations: | ||||||||
| Depreciation and amortization | 21,736 | - | ||||||
| Share-based compensation | 885,461 | 140,835 | ||||||
| Debt discount for warrants | 979,304 | - | ||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | - | 2,500 | ||||||
| Prepaid expenses | 27,157 | - | ||||||
| Accounts payable and accrued expenses | 65,749 | (14,119 | ) | |||||
| Net cash used in operating activities | (504,769 | ) | (23,840 | ) | ||||
| 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: | ||||||||
| Proceeds from loans payable | - | 18,265 | ||||||
| Proceeds from issuance of notes payable | 1,535,125 | - | ||||||
| Proceeds from common stock issuance | 26,241 | 825,000 | ||||||
| Net cash provided by financing activities | 1,561,366 | 843,265 | ||||||
| Net increase in cash and cash equivalents | 23,097 | 819,426 | ||||||
| Cash and cash equivalents at the beginning of the period | 75,699 | 26,326 | ||||||
| Cash and cash equivalents at the end of the period | $ | 98,796 | $ | 845,752 | ||||
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 MONTHS ENDED MARCH 31, 2022 AND 2021
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 solely 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 $19,000 in revenue during the three months ended March 31, 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.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Liquidity and 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, 2022, the Company had cash of $98,796. In addition, the Company’s net loss was $2,484,176 for the three months ended March 31, 2022. The Company’s working capital was negative $2,956,178 as of March 31, 2022. As of March 31, 2022, the accumulated deficit amounted to $36,352,694. 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, 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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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, 2022, 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, 2022, and December 31, 2021 the Company had written-off its investments in non-cryptocurrency.
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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, 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.
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.
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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 quarter ended March 31, 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 meet more than one of the criteria above.
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.
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. .
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 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 $699,457 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, 2022 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 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 March 31, 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.
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Interest expense for Notes Payable was $40,339 for the three-month period ended March 31, 2022, respectively, compared to $2,250, respectively during the same three-month period ended March 31, 2021.
| ● | On June 10, 2020, the Company received a loan from the Small Business Administration of $12,100 (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 2, 2021, the Company received a loan from the Small Business Administration of $18,265 (the “2021 SBA Loan”). The 2021 SBA Loan bears interest at 1% per annum and is payable over 5 years with all payments of principal and interest deferred for the first 10 months. | |
| ● | In connection with the BTA acquisition, on April 7, 2021, the Company delivered a promissory note (the “Promissory Notes”) to each of the former stockholders of BTA, with the aggregate principal amount of the Promissory Notes being $150,000. The Promissory Notes each have a -year term and bear interest at a rate of 1.0% per annum. Principal and interest payments are due on the twelve-month anniversary of the issuance of the Promissory Notes, unless earlier paid or accelerated under the terms of the notes. The Promissory Notes contains events of default and other provisions customary for a loan of this type. Subsequent to March 31, 2022 the Promissory Notes were repaid in full. | |
| ● | Effective February 23, 2022, the Company entered into two separate Purchase Agreement and Bill of Sales to purchase a total of 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 95 miners for a total purchase price of $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 120 miners for a total purchase price of $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 10% unsecured promissory note delivered to each of BIT and IDI. The promissory note delivered to BIT is in the principal amount of $168,750, is payable in two installment payments, and had a maturity date of May 15, 2022. The promissory note delivered to IDI is in the principal amount of $348,000, is payable in four installment payments, and had a maturity date of October 15, 2022. | |
| The due dates on the Bitmine May 15, 2022 and October 15,2022 payments were extended two months by mutual agreement due to supply chain delays effecting the shipment of mining equipment. |
| ● | Effective January 13, 2022, the Company borrowed funds pursuant to the terms of a Securities Purchase Agreement (the “AJB SPA”) entered into with AJB Capital Investments, LLC (“AJB”), and issued a Promissory Note in the principal amount of $750,000 (the “AJB Note”) to AJB in a private transaction for a purchase price of $675,000 (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 to J.H. Darbie & Co., a registered broker-dealer. The maturity date of the AJB Note is July 12, 2022, but it may be extended for six months upon the consent of AJB and the Company. The AJB Note bears interest at 10% per year, and principal and accrued interest is due on the maturity date. The Company may prepay the AJB Note at any time without penalty. Under the terms of the 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 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 AJB SPA or AJB Note, the AJB Note will bear interest at 18%, AJB may immediately accelerate the AJB Note due date, AJB may convert the amount outstanding under the 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. | |
| ● | 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 $116,200 (the “Sixth Street Note”) to Sixth Street in a private transaction to for a purchase price of $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 (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 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 additional funds pursuant to the terms of a Securities Purchase Agreement (the “Feb. SPA”) entered into with AJB Capital Investments, LLC (“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 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 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. |
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NOTE 6 – CONVERTIBLE NOTES
The balance of outstanding Convertible Notes was $125,000 as of March 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.
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Interest expense for Convertible Notes was $1,541 for the three months ended March 31, 2022, and the three months ended March 31, 2021, respectively.
NOTE 7 – WARRANTS FOR COMMON STOCK
As of March 31, 2022, 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 | |||||||
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.
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 three-month period ended March 31, 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 March 31, 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.
| Weighted | ||||||||||||||||
| Average | ||||||||||||||||
| Weighted | Remaining | |||||||||||||||
| Average | Contractual | Aggregate | ||||||||||||||
| Number | Exercise | Term | Intrinsic | |||||||||||||
| of Shares | Price | (years) | Value | |||||||||||||
| Options outstanding, on December 31, 2021 | 2,281,429 | $ | 2.26 | 5,155,003 | ||||||||||||
| Options granted | - | - | ||||||||||||||
| Options canceled | - | - | ||||||||||||||
| Options exercised | - | - | - | |||||||||||||
| Options outstanding, on March 31, 2022 | 2,281,429 | $ | 2.26 | $ | 5,155,003 | |||||||||||
| Vested and exercisable | 2,281,429 | $ | 2.26 | $ | 5,155,003 | |||||||||||
The Company recognized $-- for share-based compensation related to stock options for the three month period ended March 31, 2022.
There were options exercised for the three months ended March 31, 2022.
The Company granted shares of restricted stock during the three-month period ended March 31, 2022.
The Company recognized $ for share-based compensation related to restricted stock issued for the three month period ended March 31, 2022.
As of March 31, 2022, there was $-- of unrecognized compensation costs related to stock options issued to employees and nonemployees.
NOTE 9- COMMITMENTS AND CONTINGENCIES
Facility rent expense was $-0- for the three months ended March 31, 2022, and March 31, 2021, respectively.
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NOTE 10 – SUBSEQUENT EVENTS
Efrat Investments LLC Loan
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). 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 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.
The Company provided various representations, warranties, and covenants to Efrat in the April SPA. Any breach by the Company of any representation or warranty, or failure to comply with the covenants would constitute an event of default. Also pursuant to the April SPA, the Company paid Efrat a commitment fee of unregistered shares of the Company’s common stock (the “commitment fee shares”). If, after the sixth month anniversary of closing and before the thirty-sixth month anniversary of closing, Efrat has been unable to sell the commitment fee shares for $110,000, then the Company may be required to issue additional shares or pay cash in the amount of the shortfall. However, if the Company pays the April Note off before its maturity date, then the Company may redeem of the commitment fee shares for one dollar. Pursuant to the April SPA, the Company also issued to Efrat a common stock purchase warrant (the “warrant”) to purchase 146,667 shares of the Company’s common stock for $5.25 per share. The warrant expires on April 7, 2025. The warrant also includes various covenants of the Company for the benefit of the warrant holder and includes a beneficial ownership limitation on the holder that, in certain circumstances, may serve to restrict the holders right to exercise the warrant. The Company also entered into a Security Agreement with Efrat pursuant to which the Company granted to Efrat a security interest in substantially all of the Company’s assets to secure the Company obligations under the Efrat SPA, Efrat Note and warrant, although such security interest is subordinate to the rights of another third party lender.
The offer and sale of the Efrat Note and the warrant was made in a private transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), in reliance on exemptions afforded by Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated thereunder.
AJB Lending LLC Loan
On May 3, 2022, the Company borrowed funds pursuant to the terms of a Securities Purchase Agreement (the “AJB SPA”) entered into with AJB Capital Investments, LLC (“AJB”), and issued a Promissory Note in the principal amount of $1,000,000 (the “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 to J.H. Darbie & Co., a registered broker-dealer.
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 (the “Jan. 2022 Note”). As a result, the Jan. 2022 Note is satisfied in full and was terminated. After the repayment of the Jan. 2022 Note, and after payment of the fees and costs, the $138,125 net proceeds from the issuance of the AJB Note are expected to be utilized for working capital and other general corporate purposes.
The maturity date of the 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 AJB Note bears interest at 10% per year, and principal and accrued interest is due on the maturity date. The Company may prepay the AJB Note at any time without penalty. Under the terms of the 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 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 AJB SPA or AJB Note, the AJB Note will bear interest at 18%, AJB may immediately accelerate the AJB Note due date, AJB may convert the amount outstanding under the 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.
The Company provided various representations, warranties, and covenants to AJB in the AJB SPA. The Company’s breach of any representation or warranty, or failure to comply with the covenants would constitute an event of default. Also pursuant to the AJB SPA, the Company paid AJB a commitment fee of unregistered shares of the Company’s common stock (the “commitment fee shares”). If, after the sixth month anniversary of closing and before the thirty-sixth month anniversary of closing, AJB has been unable to sell the commitment fee shares for $700,000, then the Company may be required to issue additional shares or pay cash in the amount of the shortfall. However, if the Company pays the AJB Note off before November 3, 2022, then the Company may redeem of the commitment fee shares for one dollar. Pursuant to the AJB SPA, the Company also issued to AJB a common stock purchase warrant (the “warrant”) to purchase 750,000 shares of the Company’s common stock for $5.25 per share. The warrant expires on May 3, 2025. The warrant also includes various covenants of the Company for the benefit of the warrant holder and includes a beneficial ownership limitation on the holder that, in certain circumstances, may serve to restrict the holder’s right to exercise the warrant. The Company also entered into a Security Agreement with AJB pursuant to which the Company granted to AJB a security interest in substantially all of the Company’s assets to secure the Company obligations under the AJB SPA, AJB Note and warrant.
The offer and sale of the AJB Note and the warrant was made in a private transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), in reliance on exemptions afforded by Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated thereunder.
Additionally, the Company issued shares related to services performed and shares issued for cashless exercise of warrants.
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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 quarter and generated $19,000 in revenue.
Comparison of the three months ended March 31, 2022, and the three months March 31, 2021
Revenue
Revenues for the three months ended March 31, 2022, and March 31, 2021, were $142,512 and $1,400, respectively. Revenue for the 2022 period consisted 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, 2022, our general and administrative expenses were $644,404, an increase of $473,797 compared to $170,607 for the period ended March 31, 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 $-0- for the three months ended March 31, 2022, and March 31, 2021, respectively. There was no amortization of intangible assets for the three month period ended March 31, 2021 because the valuation report on the BTA acquisition resulted in a lower annual amortization expense than the Company had originally estimated and recorded during the three months ended March 31, 2021.
Depreciation expense was $10,903 and $-0- for the three months ended March 31, 2022, and March 31, 2021, respectively.
Share-based compensation was $885,461 and $140,835 for the three months ended March 31, 2022, and March 31, 2021, respectively.
Other income(expense)
During the three months ended March 31, 2022, other income was $15,000 compared to $160,808 during the three months ended March 31, 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.
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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:
| Three months ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Net cash provided by (used in) operating activities | $ | (504,769 | ) | $ | (23,840 | ) | ||
| Net cash used in investing activities | (1,033,500 | ) | - | |||||
| Net cash provided by financing activities | 1,561,366 | 843,266 | ||||||
| Net increase in cash and cash equivalents | $ | 23,097 | $ | 819,426 | ||||
Operating Activities
Net cash used in operating activities was $515,144 for the three months ended March 31, 2022, compared to net cash used of $23,840 for the three months ended March 31, 2021. The increase in net cash used in operating activities was primarily due to an increase in general and administrative expenses of $644,404 for the three months ended March 31, 2022, compared to $170,607 for the three-month period ended March 31, 2021.
Investing Activities
Net cash used in investing activities was 1,033,500 for the three months ended March 31, 2022, compared to -0- for the three months ended March 31,2021. The increase in cash used in investing activities was primarily due to the acquisition of bitcoin mining equipment in February 2022.
Financing Activities
Net cash from financing activities for the three months ended March 31, 2022, was $1,5761,366, compared to $843,266 for the three months ended March 31, 2021. The increase in net cash from financing activities was mainly due to loans the Company received during the first quarter of 2022 and 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 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 March 31, 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, 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 March 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II-OTHER INFORMATION
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On or about January 11, 2022 the Company issued 8,000 shares of Company common stock in a private placement conducted solely to accredited investors for cash consideration. These shares of Company common stock were offered and sold in a private transaction in accordance with Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506(b) promulgated thereunder.
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ITEM 6. Exhibits.
+ 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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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 16, 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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Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT
I, Ron Levy, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period ended March 31, 2022, of The Crypto Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
Date: May 16, 2022
| /s/ Ron Levy | |
| Ron Levy | |
Chief Executive Officer, Interim Chief Financial Officer, Chief Operating Officer, and Secretary (Principal Executive Officer and Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The Crypto Company. (the “Company”) on Form 10-Q for the period ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ron Levy, Chief Executive Officer, Interim Chief Financial Officer, Chief Operating Officer and Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
IN WITNESS WHEREOF, the undersigned has executed this certification as of May 16, 2022.
| /s/ Ron Levy | |
| Ron Levy | |
Chief Executive Officer, Interim Chief Financial Officer, Chief Operating Officer, and Secretary (Principal Executive Officer and Principal Financial Officer) |