UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
OR
For the transition period from __________to ___________
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | N/A | N/A |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
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).
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 ☐ | |
| 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 ☐
As of November 14, 2022 the issuer had shares of common stock, par value $0.001 per share, outstanding.
TABLE OF CONTENTS
| 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, 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”).
| 3 |
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
THE CRYPTO COMPANY
CONSOLIDATED BALANCE SHEETS
| September 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses | ||||||||
| Fixed assets, net | ||||||||
| Total current assets | ||||||||
| Goodwill | ||||||||
| Intangible assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Notes payable, net of discount | ||||||||
| Total current liabilities | ||||||||
| Convertible debt | ||||||||
| Notes payable - other | ||||||||
| TOTAL LIABILITIES | ||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Common stock, $ par value; shares authorized, and shares issued and outstanding, as of September 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
| 4 |
THE CRYPTO COMPANY
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
| For the three months ended | For the nine months ended | |||||||||||||||
September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||
| Revenue: | ||||||||||||||||
| Services | $ | $ | $ | $ | ||||||||||||
| Cost of services | ||||||||||||||||
| Gross margin | $ | $ | ||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Amortization | ||||||||||||||||
| Depreciation | ||||||||||||||||
| Share-based compensation - employee | ||||||||||||||||
| Share-based compensation - non-employee | ||||||||||||||||
| Total operating Expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding – basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of the 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 | Equity | ||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Stock issued in connection with warrant exercise | ||||||||||||||||||||
| Stock issued for cash at $ per share, with warrants | ||||||||||||||||||||
| Stock compensation expense in connection with issuance of common stock | ||||||||||||||||||||
| Stock issued for acquisition of BTA | ||||||||||||||||||||
| Cancellation of shares | ( | ) | ( | ) | ||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Additional | Total | |||||||||||||||||||
| Common stock | paid-in- | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | capital | Deficit | Equity | ||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Stock issued for cash at $ per share | ||||||||||||||||||||
| Stock compensation expense in connection with issuance of common stock | ||||||||||||||||||||
| Stock issued in connection with warrant exercise | ||||||||||||||||||||
| Debt discount for warrants | ||||||||||||||||||||
| Return of shares for financing commitment | ( | ) | ( | ) | ||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
| 6 |
THE CRYPTO COMPANY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Nine Months Ended | ||||||||
| September 30, 2022 | September 30, 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operations: | ||||||||
| Depreciation and amortization | ||||||||
| Share-based compensation | ||||||||
| Debt discount for warrants | ||||||||
| Issuance of common stock for acquisition | ||||||||
| Gain on the forgiveness of debt | ( | ) | ||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Deferred revenue | ||||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchase of BTA subsidiary | ( | ) | ||||||
| Purchase of computer equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from loans payable | ||||||||
| Payment of notes payable | ( | ) | ||||||
| Proceeds from issuance of notes payable | ||||||||
| Proceeds from common stock issuance | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents at the beginning of the period | ||||||||
| Cash and cash equivalents at the end of the period | $ | $ | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
| 7 |
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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 incurred expenses primarily through these consulting and
related operations. In February 2022 the Company acquired bitcoin mining equipment and entered into an arrangement with a third party
to host and operate the equipment. The mining equipment generated approximately $
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 September 30, 2022, the Company had cash
of $
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.
| 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 September 30, 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 September 30, 2022, and December 31, 2021 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 September 30, 2022, we are subject to federal taxation in the U.S., as well as state taxes. The Company has not been audited by the U.S. Internal Revenue Service.
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 September 30, 2022, the Company’s main source of revenue was consulting and education services to numerous customers provided by and through BTA. The Company has determined that revenue should be recognized over time, as the service is provided. The Company considered the criteria in ASC 606 in reaching this determination, specifically:
| ● | The customer receives and consumes the benefit provided by the Company’s performance as the Company performs. | |
| ● | The Company’s performance enhances an asset controlled by the customer. | |
| ● | The Company’s performance does not create an asset with alternative use, and the Company has an enforceable right to payment for performance completed to date. |
The consulting arrangement meets more than one of the criteria above.
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 September 30, 2022 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.
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.
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 nine and three-month period ended September 30, 2022, and 2021, 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 $
As
a result of the foregoing the Company initially recorded goodwill of $
During
the nine months ended September 30, 2022 the Company recorded $
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 $
| 12 |
Interest
expense for Notes Payable was $
| ● | On
June 10, 2020, the Company received a loan from the Small Business Administration of $ |
| ● | On
February 2, 2021, the Company received a loan from the Small Business Administration of $ |
| ● | Effective
February 23, 2022, the Company entered into two separate Purchase Agreement and Bill of Sales
to purchase a total of |
| The maturity dates of the promissory note delivered to each of BIT and IDI (originally May 15, 2022 and October 15, 2022) were, in each case extended by two months by mutual agreement of the parties due to supply chain delays effecting the shipment and delivery of the mining equipment to the Company. Subsequent to September 30, 2022, the Company entered into certain agreements with BIT and IDI whereby, among other things, the amounts due under each of the promissory notes was deemed satisfied in full |
| ● | Effective
January 13, 2022, the Company borrowed funds pursuant to the terms of a Securities Purchase
Agreement entered into with AJB Capital Investments, LLC (“AJB”), and issued
a Promissory Note in the principal amount of $ |
| ● | 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 $ |
In connection with a subsequent loan extended to the Company by 1800 Diagonal Lending, LLC on or about September 30, 2022 (as further described below) the Company repaid all outstanding obligations that were due to Sixth Street under the Sixth Street Note.
| ● | 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 $ |
| ● | 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 $ |
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. This six month extension was exercised on ______. The Efrat Note bears interest at
| 13 |
| ● | 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 $ |
At
the closing the Company repaid all obligations owed to AJB pursuant to a
The
maturity date of the May AJB 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 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.
| ● | 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 $ |
The
maturity date of the Note is
| ● | 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 |
The
Coventry Note bears interest at a rate of
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.
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
| ● | Effective
September 30, 2022, The Company borrowed funds pursuant to a Securities Purchase Agreement (the “Sept. SPA”) entered
into with Diagonal, and Diagonal purchased a convertible promissory note (the “Sept. Note”) from the Company in the
aggregate principal amount of $ |
| 14 |
NOTE 6 – CONVERTIBLE NOTES
The
balance of outstanding Convertible Notes was $
In
June 2020, the Company issued Convertible Notes (“June 2020 Notes”) to an accredited investor for an aggregate amount of
$
In
April 2020, the Company issued three Convertible Notes (“April 2020 Notes”) to three accredited investors for an aggregate
amount of $
In
February 2020, the Company issued three Convertible Notes (“February 2020 Notes”) to three accredited investors for an aggregate
amount of $
Interest
expense for Convertible Notes was $
NOTE 7 – WARRANTS FOR COMMON STOCK
As of September 30, 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 | ||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
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.
| 15 |
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 nine-month period ended September 30, 2022, the Company did not issue any stock options.
shares of the Company’s common stock are reserved for issuance under the Plan. As of September 30, 2022, there are outstanding stock option awards issued from the Plan covering a total of shares of the Company’s common stock and there remain reserved for future awards shares of the Company’s common stock.
| Weighted | ||||||||||||||||
| Average | ||||||||||||||||
| Weighted | Remaining | |||||||||||||||
| Average | Contractual | Aggregate | ||||||||||||||
| Number | Exercise | Term | Intrinsic | |||||||||||||
| of Shares | Price | (years) | Value | |||||||||||||
| Options outstanding, on December 31, 2021 | $ | |||||||||||||||
| Options granted | - | - | ||||||||||||||
| Options canceled | - | - | ||||||||||||||
| Options exercised | - | - | ||||||||||||||
| Options outstanding, on September 30, 2022 | $ | $ | ||||||||||||||
| Vested and exercisable | $ | $ | ||||||||||||||
The Company recognized $-- for share-based compensation related to stock options for the nine month period ended September 30, 2022. There were no options exercised for the nine months ended September 30, 2022.
The Company granted shares of restricted stock during the nine-month period ended September 30, 2022 (although such shares were not issued under the Plan).
The Company recognized $ for share-based compensation related to restricted stock issued for the nine month period ended September 30, 2022. As of September 30, 2022, there was $-- 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 September 30, 2022.
NOTE 9- COMMITMENTS AND CONTINGENCIES
Facility
rent expense was $-
NOTE 10 – SUBSEQUENT EVENTS
Termination of a Material Definitive Agreement
Effective October 27, 2022 the Company entered into an agreement with each of BIT and IDI that served to terminate or modify certain prior agreements entered into by the parties in February 2022. As part of those agreements the Company sold the bitcoin miners it purchaserpurchased in 2022 and each of the promissory notes delivered by the Company in February 2022 to BIT and IDI are satisfied and extinguished in full. However, as a result as part of the transactions and accommodations, the Company now ownsacquired 20 new Bitcoin miners, however, these new miners are not currently in operation due to market conditions. The Company will monitor the price of Bitcoin and other market conditions, and seek to cause the new miners to be put into operation when market conditions indicate they can be operated in a profitable manner.
| 16 |
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 nine months ended September 30, 2022, and generated $40,000 in revenue during that period. Subsequent to September 30, 2022 the Company divested all of the bitcoin mining equipment it acquired in the first quarter of 2022, and, as part of that larger transaction acquired twenty new bitcoin miners. Those new miners are not currently active due to market conditions, including the price of bitcoin, that would likely result in their being operated at an overall loss. The Company intends to put its bitcoin miners into operation when market conditions indicate they can be operated profitably, and therefore the Company may not realize additional revenues from its bitcoin mining equipment during the remainder of 2022 (or beyond).
Comparison of the three months ended September 30, 2022, and the three months September 30, 2021
Revenue
Revenues for the three months ended September 30, 2022, and September 30, 2021, were $252,733 and $109,252, respectively. Revenue for the 2022 period consisted primarily of fees received for blockchain training and consulting generated by the Company’s BTA subsidiary which was acquired in April 2021.
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 three months ended September 30, 2022 and generated approximately $21,000 in revenue.
General and administrative expenses
For the three months ended September 30, 2022, our general and administrative expenses were $305,723, a decrease of $116,251 compared to $421,974 for the period ended September 30, 2021. General and administrative expenses consist primarily of costs relating to professional services, payroll, and payroll-related expenses. Professional services included in general and administrative expenses consist primarily of contracting fees, consulting fees, and accounting fees. A significant portion of the increase in expense is attributable to the BTA acquisition that occurred in the 2021 period.
Amortization expense was $10,833 and $-0- for the three months ended September 30, 2022, and September 30, 2021, respectively. Depreciation expense was $32,708 and $-0- for the three months ended September 30, 2022, and September 30, 2021, respectively.
Share-based compensation was $181,487 and $97,387 for the three months ended September 30, 2022, and September 30, 2021, respectively.
| 17 |
Other income(expense)
During the three months ended September 30, 2022, other income was $4,100 compared to $135,842 during the three months ended September 30, 2021. The decrease is attributable to cryptocurrency investments that had previously been written off became valuable during the 2021 period and the Company liquidated the extent of its holdings at that time for cash.
Interest expense
During the three months ended September 30, 2022, interest expense was $47,286 compared to $4,209 during the three months ended September 30, 2021. The increase is primarily attributed to debt discount calculated on the issuance of warrants, and the issuance of promissory notes payable during the 2022 period.
Comparison of the nine months ended September 30, 2022, and the nine months September 30, 2021
Revenue
Revenues for the nine months ended September 30, 2022, and September 30, 2021, were $515,767 and $220,397, respectively. Revenue for the 2022 period consisted primarily of fees received for blockchain training and consulting generated by the Company’s BTA subsidiary which was acquired in April 2021.
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 nine months ended September 30, 2022 and generated $40,000 in revenue.
General and administrative expenses
For the nine months ended September 30, 2022, our general and administrative expenses were $1,414,053, an increase of $335,710 compared to $1,078,343 for the period ended September 30, 2021. General and administrative expenses consist primarily of costs relating to professional services, payroll, and payroll-related expenses. Professional services included in general and administrative expenses consist primarily of contracting fees, consulting fees, and accounting fees. A significant portion of the increase in expense is attributable to the BTA acquisition that occurred in the 2021 period (and the related general and administrative expenses that we began to incur through BTA starting in April 2021).
Amortization expense was $32,499 and $22,491 for the nine months ended September 30, 2022, and September 30, 2021, respectively. Depreciation expense was $76,319 and $-0- for the nine months ended September 30, 2022, and September 30, 2021, respectively.
Share-based compensation was $1,965,997 and $430,981 for the nine months ended September 30, 2022, and September 30, 2021, respectively.
Other income(expense)
During the nine months ended September 30, 2022, other income was $85,865 compared to $1,091,350 during the nine months ended September 30, 2021. The decrease is attributable to cryptocurrency investments that had previously been written off became valuable during the 2021 period and the Company liquidated the extent of its holdings at that time for cash.
Interest expense
During the nine months ended September 30, 2022, interest expense was $1,671,486 compared to $12,158 during the nine months ended September 30, 2021. The increase is primarily attributed to debt discount calculated on the issuance of warrants, and the issuance of notes payable during the period.
| 18 |
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:
| Nine months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Net cash provided by (used in) operating activities | $ | (1,075,585 | ) | $ | 494,730 | |||
| Net cash used in investing activities | (1,033,500 | ) | (1,349,457 | ) | ||||
| Net cash provided by financing activities | 2,119,447 | 993,265 | ||||||
| Net increase in cash and cash equivalents | $ | 10,362 | $ | 138,538 | ||||
Operating Activities
Net cash used in operating activities was $1,075,585 for the nine months ended September 30, 2022, compared to net cash provided by operating activities of $494,730 for the nine months ended September 30, 2021. The net cash used in operating activities during the 2022 period was primarily due to increases in general and administrative expenses of $1,414,053 for the nine months ended September 30, 2022, compared to $1,078,343 for the nine-month period ended September 30, 2021.
Investing Activities
Net cash used in investing activities was $1,033,500 for the nine months ended September 30, 2022, compared to 1,349,457 for the nine months ended September 30,2021. The decrease in cash used in investing activities was primarily due to the BTA acquisition having closed in the 2021 period, but partially offset by the acquisition of bitcoin mining equipment in February 2022.
Financing Activities
Net cash from financing activities for the nine months ended September 30, 2022, was $2,119,447, compared to $993,265 for the nine months ended September 30, 2021. The increase in net cash from financing activities was mainly due to the resulting issuance of promissory notes during the nine months ended September 30, 2022.
Trends, Events, and Uncertainties
The blockchain technology market is dynamic and unpredictable. Although we will undertake compliance efforts, including efforts with commercially reasonable diligence, there can be no assurance that there will not be a new or unforeseen law, regulation or risk factor which will materially impact our ability to continue our business as currently operated or raise additional capital to foster our continued growth.
Other than as discussed elsewhere in this Quarterly Report and our 2021 Annual Report, we are not aware of any trends, events, or uncertainties that are likely to have a material effect on our financial condition.
| 19 |
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.
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 September 30, 2022, to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the period ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 20 |
PART II-OTHER INFORMATION
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.
| 21 |
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: November 14, 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) | ||
| 22 |