Company Quick10K Filing
Quick10K
Rokk3R
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-08 Accountant
8-K 2019-06-01 Accountant, Exhibits
8-K 2019-05-22 Regulation FD, Exhibits
8-K 2018-11-02 Enter Agreement, Sale of Shares, Officers, Exhibits
8-K 2018-07-26 Enter Agreement, Sale of Shares, Amend Bylaw, Exhibits
8-K 2018-06-18 Regulation FD, Exhibits
8-K 2018-06-15 Enter Agreement, Sale of Shares, Exhibits
8-K 2018-03-23 Amend Bylaw, Exhibits
8-K 2018-03-02 Regulation FD, Exhibits
8-K 2018-02-23 Regulation FD, Exhibits
8-K 2018-01-24 Other Events
8-K 2017-11-19 Enter Agreement, M&A, Sale of Shares, Control, Officers, Exhibits
NLSN Nielsen Holdings 8,630
CWST Casella Waste Systems 1,770
KRNT Kornit Digital 903
IIIV I3 Verticals 636
SQNS Sequans Communications 95
BCAC Bison Capital Acquisition 88
COCP Cocrystal Pharma 81
EMMS Emmis Communications 47
JFIL Jubilant Flame 0
LRDC Laredo Oil 0
EDRG 2019-03-31
Part I - Financial Information
Item 1. Financial Statements
Note 1 - Organization and Description of Business
Note 2 - Summary of Significant Accounting Policies
Note 3 - Going Concern
Note 4 - Investments
Note 5 - Non-Controlling Interest
Note 6 - Convertible Promissory Note
Note 7 - Series B Redeemable Convertible Preferred Stock
Note 8 - Shareholders' Equity
Note 9 - Concentrations
Note 10 - Related-Party Transactions
Note 11 - Commitments and Contingencies
Note 12 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.1 ex10-1.htm
EX-10.2 ex10-2.htm
EX-10.3 ex10-3.htm
EX-10.4 ex10-4.htm
EX-10.5 ex10-5.htm
EX-10.6 ex10-6.htm
EX-10.7 ex10-7.htm
EX-31.1 ex31-1.htm
EX-31.2 ex31-2.htm
EX-32.1 ex32-1.htm

Rokk3R Earnings 2019-03-31

EDRG 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 g8701.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2019
or

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________
 
ROKK3R INC.
(Exact name of registrant as specified in its charter)
 
Nevada
 
000-28453
 
75-2610236
(State or other jurisdiction
 
(Commission
 
(I.R.S. Employer
of incorporation or organization)
 
File Number)
 
Identification No.)
 
2121 NW 2nd Avenue #203, Miami, FL 33127
(Address of principal executive offices and zip code)
 
(305) 259-6637
(Registrant’s telephone number, including area code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
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 past 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 last 90 days. Yes [X] No [  ]
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T ( § 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
 
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
[  ]
[  ] 
[X] 
[X] 
[  ] 

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 [X]
 
Securities registered pursuant to Section 12(b) of the Act:

Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
         
None
 
N/A
 
N/A

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 101,472,105 Shares of Common Stock, par value $0.0001 per share as of May 10, 2019.



ROKK3R INC. AND SUBSIDIARIES

Form 10-Q
March 31, 2019
 
INDEX
 
PART I. FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
3
 
Condensed Consolidated Balance Sheets – As of March 31, 2019 (unaudited) and December 31, 2018
3
 
Condensed Consolidated Statements of Operations – For the Three Months ended March 31, 2019 and 2018 (unaudited)
4
 
Condensed Consolidated Statements of Changes in Stockholders’ Equity – For the Three Months ended March 31, 2019 and 2018 (unaudited)
5
 
 Condensed Consolidated Statements of Cash Flow – For the Three Months ended March 31, 2019 and 2018 (unaudited)
6
 
Notes to the Condensed Consolidated Financial Statements
7
Item 2.
Management’ s Discussion and Analysis of Financial Condition and Results of Operations
24
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
29
Item 4.
Controls and Procedures
29
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
30
Item 1A.
Risk Factors
30
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
30
Item 3.
Defaults Upon Senior Securities
30
Item 4.
Mine Safety Disclosures
30
Item 5.
Other Information
30
Item 6.
Exhibits
31
     
 SIGNATURES 
32
 
 
 
2


PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ROKK3R INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)


   
March 31, 2019
   
December 31, 2018
 
   
(Unaudited)
       
ASSETS
           
             
CURRENT ASSETS:
           
Cash
 
$
1,942,032
   
$
2,297,902
 
Accounts receivable, net
   
503,141
     
400,182
 
Accounts receivable - related party
    250,000
      -
 
Prepaid expenses - related party
   
425,000
     
425,000
 
Prepaid expenses
   
17,066
     
18,953
 
Receivable from parent company
   
110,506
     
75,138
 
                 
Total Current Assets
   
3,247,745
     
3,217,175
 
                 
Furniture and equipment, net
   
20,074
     
19,015
 
Investment in Rokk3r Labs (parent) - cost method
   
1,000,000
     
1,000,000
 
Investment in Rokk3r Flamingo, Inc - equity method
   
350
     
-
 
                 
Total Assets
 
$
4,268,169
   
$
4,236,190
 
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
                 
CURRENT LIABILITIES:
               
Accounts payable
 
$
286,201
     
192,225
 
Accounts payable - related party
   
192,083
     
-
 
Accrued expenses
   
23,653
     
18,407
 
Accrued expenses - related party
   
45,151
     
15,000
 
Deferred revenue
   
112,980
     
20,000
 
Notes payable - other
   
12,000
     
12,000
 
                 
Total Current Liabilities
   
672,068
     
257,632
 
                 
Redeemable Series B  Convertible Preferred stock - $0.0001 par value; 4,687,500 shares authorized;
               
4,085,938 and nil issued and outstanding at March 31, 2019 and December 31, 2018, respectively
               
(liquidation preference of $2,821,731 and $2,719,419, respectively)
   
2,821,731
     
2,719,419
 
                 
SHAREHOLDERS' EQUITY:
               
Preferred stock - $0.0001 par value; 50,000,000 shares authorized; Series A non-convertible preferred stock, 1,000,000
               
authorized; $0.0001 par value; no shares issued and outstanding at March 31, 2019 and December 31, 2018
   
-
     
-
 
Common stock - $0.0001 par value; 500,000,000 shares authorized; 102,472,105 and 101,427,105 shares issued and
               
outstanding at March 31, 2019 and December 31, 2018, respectively
   
10,247
     
10,143
 
Common stock issuable; 1,050,000 and 1,000,000 shares issuable at March 31, 2019 and December 31, 2018, respectively
   
105
     
100
 
Additional paid in capital
   
76,353,211
     
76,217,441
 
Accumulated deficit
   
(75,585,537
)
   
(74,968,545
)
Total Rokk3r, Inc Shareholders' Equity
   
778,026
     
1,259,139
 
Non-controlling interest in consolidated subsidiary (Note 5)
   
(3,656
)
   
-
 
                 
Total Shareholders' Equity
   
774,370
     
1,259,139
 
                 
Total Liabilities and Shareholders' Equity
 
$
4,268,169
   
$
4,236,190
 




See accompanying notes to the unaudited condensed consolidated financial statements

3

ROKK3R INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)


   
For the Three Months Ended
 
   
March 31,
 
   
2019
   
2018
 
             
Revenues
 
$
888,920
   
$
-
 
Revenues - related party
   
250,000
     
-
 
                 
Total Revenue
   
1,138,920
     
-
 
                 
Operating Expenses:
               
Consulting fees - parent
   
593,072
     
750,000
 
Consulting fees - other
   
112,507
     
-
 
Compensation expense
   
259,031
     
21,633
 
Contract  labor
   
393,517
     
-
 
Legal expense
   
124,573
     
75,926
 
Professional fees
   
55,681
     
39,820
 
Bad debt recovery
   
(107,779
)
   
-
 
General and administrative expenses
   
196,348
     
20,899
 
Impairment expense
   
28,900
     
-
 
Total Operating Expenses
   
1,655,850
     
908,278
 
                 
Loss from Operations
   
(516,930
)
   
(908,278
)
                 
Other Income (Expense)
               
Interest expense
   
(532
)
   
(16,039
)
Other expense
   
(723
)
   
-
 
Loss on equity method investments
   
(151
)
   
-
 
Total Other Income (Expense)
   
(1,406
)
   
(16,039
)
                 
Loss Before Provision for Income Taxes
   
(518,336
)
   
(924,317
)
                 
Provision for income taxes
   
-
     
-
 
                 
Net Loss
   
(518,336
)
   
(924,317
)
                 
Net Loss Attributable to Common Stockholders Before Allocation to Non-controlling Interest
   
(518,336
)
   
(924,317
)
Less Net Loss Allocated to Non-controlling Interest in Consolidated Subsidiary
   
(3,656
)
   
-
 
                 
Net Loss Applicable to Rokk3r, Inc Common Stockholders
 
$
(514,680
)
 
$
(924,317
)
                 
Net Loss per Share of Common Stock Outstanding -
               
Basic and Diluted
 
$
(0.00
)
 
$
(0.01
)
                 
Weighted-average number of shares outstanding –
               
Basic and Diluted
   
102,440,050
     
95,768,224
 




See accompanying notes to the unaudited condensed consolidated financial statements

4

ROKK3R INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 2019
(Unaudited)


                                       
Additional
                   
   
Preferred Stock
   
Common Stock
   
Common Stock Issuable
   
paid-in
   
Accumulated
   
Non-controlling
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
capital
   
deficit
   
interest
   
Total
 
                                                             
Balances at December 31, 2018
   
-
   
$
-
     
101,427,105
   
$
10,143
     
1,000,000
   
$
100
   
$
76,217,441
   
$
(74,968,545
)
 
$
-
   
$
1,259,139
 
                                                                                 
Common stock issued to
consultants for services
   
-
     
-
     
-
     
-
     
50,000
     
5
     
31,995
     
-
     
-
     
32,000
 
                                                                                 
Stock-based compensation
   
-
     
-
     
-
     
-
     
-
     
-
     
74,979
     
-
     
-
     
74,979
 
                                                                                 
Series B Preferred stock redemption
premium
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(102,312
)
   
-
     
(102,312
)
                                                                                 
Sale of non-controlling interest in
a subsidiary
   
-
     
-
     
1,045,000
     
104
     
-
     
-
     
28,796
     
-
      -

   
28,900
 
                                                                                 
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(516,480
)
    (3,656
)
   
(518,336
)
                                                                                 
Balances at March 31, 2019
   
-
   
$
-
     
102,472,105
   
$
10,247
     
1,050,000
   
$
105
   
$
76,353,211
   
$
(75,585,537
)
 
$
(3,656
)
 
$
774,370
 


ROKK3R INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 2018
(Unaudited)


                                       
Additional
                   
   
Preferred Stock
   
Common Stock
   
Common Stock Issuable
   
paid-in
   
Accumulated
   
Non-controlling
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
capital
   
deficit
   
interest
   
Total
 
                                                             
Balances at December 31, 2017
   
-
   
$
-
     
94,828,287
   
$
9,483
     
-
   
$
-
   
$
71,814,487
   
$
(71,454,325
)
 
$
-
   
$
369,645
 
                                                                                 
Stock issued for cash
   
-
     
-
     
3,395,125
     
339
     
-
     
-
     
2,172,661
     
-
     
-
     
2,173,000
 
                                                                                 
Stock issued to consultants for
services rendered  or to be
rendered
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
                                                                                 
Stock issued upon conversion
of debt
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
                                                                                 
Stock issued for convertible debt
financing
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
                                                                                 
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(924,317
)
   
-
     
(924,317
)
                                                                                 
Balances at March 31, 2018
   
-
   
$
-
     
98,223,412
   
$
9,822
     
-
   
$
-
   
$
73,987,148
   
$
(72,378,642
)
 
$
-
   
$
1,618,328
 




See accompanying notes to the unaudited condensed consolidated financial statements

5

ROKK3R INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


   
For the Three Months Ended
 
   
March 31,
 
   
2019
   
2018
 
Cash Flows from Operating Activities:
           
Net loss
 
$
(514,680
)
 
$
(924,317
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization expense
   
1,343
     
-
 
Stock-based compensation
   
74,979
     
-
 
Common stock issued for compensation and consulting services
   
32,000
     
-
 
Bad debt recovery
   
(107,779
)
   
-
 
Impairment loss
   
28,900
     
-
 
Loss on equity investments
   
151
     
-
 
Loss on investment on non-controlling interest in consolidated subsidiary
   
(3,656
)
   
-
 
Change in operating assets and liabilities:
               
Accounts receivable
   
(245,180
)
   
-
 
Prepaid expenses
   
1,887
     
(15,000
)
Accounts payable
   
93,976
     
30,200
 
Accounts payable - parent
   
192,083
     
250,000
 
Deferred revenue
   
92,980
     
-
 
Accrued expense - related party
   
45,000
     
-
 
Accrued expense
   
(9,754
)
   
-
 
Receivable from parent company
   
(35,368
)
   
-
 
Accrued interest payable - related party
   
-
     
13,414
 
Net cash used in operating activities
   
(353,118
)
   
(645,703
)
                 
Cash Flows from Investing Activities:
               
Investment in Flamingo, Inc
   
(350
)
   
-
 
Purchases of property and equipment.
   
(2,402
)
   
-
 
Net cash used in investing activities
   
(2,752
)
   
-
 
                 
Cash Flows from Financing Activities:
               
Proceeds from parent advances
   
-
     
79,225
 
Cash proceeds from sale of common stock
   
-
     
2,133,000
 
Net cash provided by financing activities
   
-
     
2,212,225
 
                 
Change in Cash
   
(355,870
)
   
1,566,522
 
                 
Cash at beginning of period
   
2,297,902
     
-
 
                 
Cash at end of period
 
$
1,942,032
   
$
1,566,522
 
                 
Supplemental Disclosure of Interest and Income Taxes Paid:
               
Interest paid
 
$
-
   
$
-
 
Income taxes paid
 
$
-
   
$
-
 
                 
Supplemental schedule of non-cash investing and financing activities
               
Subscription Receivable
 
$
-
   
$
40,000
 
Common shares issued in connection to sale of non-controlling interest in a subsidiary
 
$
28,900
   
$
-
 
Subscription payable in connectin with an equity investment
 
$
151
   
$
-
 




See accompanying notes to the unaudited condensed consolidated financial statements

6

ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)

 
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
 
We were formerly known as Eight Dragons Company, a Nevada corporation. Our predecessor was incorporated in Delaware on September 27, 1996 and on October 24, 2007 changed its state of incorporation from Delaware to Nevada by means of a merger with and into Eight Dragons Company. On March 23, 2018, we changed our name to Rokk3r Inc. In connection with this name change, on June 18, 2018, our trading symbol was changed to “ROKK.”

We generate revenues primarily from consulting services agreements focused on education, consulting, development and growth. Our agreements are individually negotiated and are meant to help entrepreneurs and business professionals to innovate and create high growth companies through training, mentors, and access to our global network of advisors, investors and business builders. Through our consulting services agreements, we provide "Think," "Co-build," and “Scale” services. We execute "Think Phases" for entrepreneurs and corporations, where we present an experienced team with a problem for four weeks to validate the ideas and refine their strategy. In “Co-build,” our team of strategists, creatives, and engineers seek to solve problems, understand our client’s business and develop a foundation for a technological platform to drive it. For growth, we work with entrepreneurs to help them define financial and growth objectives to develop short, medium and long-term strategies, a service offering we call "Scale."

On March 22, 2019, the board of directors of Rokk3r Ops approved the incorporation of a wholly-owned subsidiary, Rokk3r VB X Inc. which was incorporated in Delaware and as of the filing of this report, Rokk3r VB X Inc. was not operational yet.

On May 3, 2019, the board of directors of Rokk3r Ops approved the incorporation of a new wholly-owned subsidiary, Cargologik, Inc., which was incorporated in Delaware, and was not operational as of the date of this report (see Note 12).

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information, which includes consolidated unaudited interim financial statements and present the consolidated unaudited interim financial statements of the Company and its wholly-owned subsidiaries of which all are inactive except for Rokk3r Ops Inc., as of March 31, 2019. All intercompany transactions and balances have been eliminated. In the opinion of management, all adjustments necessary to present fairly our financial position, results of operations, and cash flows as of March 31, 2019 and 2018, and for the periods then ended, have been made. Those adjustments consist of normal and recurring adjustments. Certain information and note disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles have been omitted. The unaudited financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2018 and footnotes thereto included in the Company’s Report on Form 10-K filed with the SEC on April 1, 2019. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the full year.

Non-Controlling Interest

On February 11, 2019, Rokk3r Ai Inc. (“Rokk3r Ai”), a wholly-owned subsidiary Rokk3r Ops Inc. (“Rokk3r Ops”), sold 12.5% ownership of Rokk3r Ai to an investor. As a result of these transactions Rokk3r Ops’ ownership and voting interest decreased from 100% to 87.5%. Accordingly, as of that date, the Company presented non-controlling interest as a component of equity on its unaudited condensed consolidated balance sheets under the heading “Non-controlling interest in consolidated subsidiary” and reported non-controlling interest net income or loss under the heading “Net (income) loss allocated to non-controlling interest in consolidated subsidiary” in the unaudited condensed consolidated statements of operations based on its 12.5% ownership (see Note 5) as of March 31, 2019.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates. Significant estimates for the three months ended March 31, 2019 and December 31, 2018 include the assumptions used in assessing impairment of investments, allowances on uncollectible accounts receivable, useful life of property and equipment, valuation allowances for deferred tax assets, and the fair value of the account receivable, non-cash equity transactions and stock-based compensation.

7

ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)

 
Cash and Cash Equivalents

For the purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents at March 31, 2019 and December 31, 2018, respectively. The Company maintained its cash in various financial institutions during the three months ended March 31, 2019. Balances were insured up to Federal Deposit Insurance Corporation limits.

Accounts Receivable

Accounts receivable are stated at their net realizable value. The Company reviews its accounts to estimate losses resulting from the inability of its customer to make required payments. Any required allowance is based on specific analysis of past due accounts and considers historical trends if write-offs. Past due is based on how recently payments have been received from customers. The Company’s collection experience has been favorable reflecting a limited number of customers. During the three months ended March 31, 2019, the Company recovered $107,779 of account receivable previously written off which reduced the allowance for bad debt balance. As of March 31, 2019 and December 31, 2018, the recorded allowance for bad debt were $41,203 and $148,982, respectively.

Fair Value of Financial Instruments

ASC 825, “Disclosures about Fair Value of Financial Instruments,” requires disclosure of fair value information about financial instruments. ASC 820, “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2019 and December 31, 2018.

The carrying amounts reported in the balance sheets for accounts receivable, prepaid expenses, accounts payable, accrued expenses, convertible note payable, note payable and amounts due to parent company approximate their fair market value based on the short-term maturity of these instruments.

Property and Equipment
 
Property are stated at cost and are depreciated using the straight-line method over their estimated useful lives, which range from three to five years. Leasehold improvements are depreciated over the shorter of the useful life or lease term including scheduled renewal terms. Maintenance and repairs are charged to expense as incurred. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of these assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
 
Investments

The method of accounting applied to long-term investments, whether consolidated, equity or cost, involves an evaluation of the significant terms of each investment that explicitly grant or suggest evidence of control or influence over the operations of the investee and also includes the identification of any variable interests in which the Company is the primary beneficiary.

Cost Method

The Company accounts for investments in which the Company does not have the ability to exercise significant influence over operating and financial matters using the cost method in accordance with ASC Topic 325-20, Cost Method Investments. An equity investment is accounted for under the cost method if it:

·
Does not provide the investor with a controlling investment
·
Does not provide the investor with the ability to exercise significant influence
·
Does not have readily determinable fair values
·
Is not subject to other industry-specific guidance

8

ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)

 
Under ASC 325-20, cost method investments are recorded initially at historical cost. Dividends on cost method investments received as part of the investor’s share of net earnings of the investee after the date of investment (i.e., a return on investment) are recorded as income. However, the investment is reduced if dividends received are in excess of the investor’s share of investee earnings (i.e., a return of investment) after the date of investment (see Note 4). Cost method investments are assessed for other-than-temporary impairments under the provisions of ASC 320 and are adjusted accordingly.

Equity Method

The Company accounts for investments in which the Company owns more than 20% of the investee, using the equity method in accordance with ASC Topic 323, Investments—Equity Method and Joint Ventures. Under the equity method, an investor initially records an investment in the stock of an investee at cost and adjusts the carrying amount of the investment to recognize the investor’s share of the earnings or losses of the investee after the date of acquisition. The amount of the adjustment is included in the determination of net income by the investor, and such amount reflects adjustments similar to those made in preparing consolidated statements including adjustments to eliminate intercompany gains and losses, and to amortize, if appropriate, any difference between investor cost and underlying equity in net assets of the investee at the date of investment. The investment of an investor is also adjusted to reflect the investor’s share of changes in the investee’s capital. Dividends received from an investee reduce the carrying amount of the investment. A series of operating losses of an investee or other factors may indicate that a decrease in value of the investment has occurred which is other than temporary, and which should be recognized even though the decrease in value is in excess of what would otherwise be recognized by application of the equity method (see Note 4). 

In accordance to ASC 323-10-35-20 through 35-22, the investor ordinarily shall discontinue applying the equity method if the investment (and net advances) is reduced to zero and shall not provide for additional losses unless the investor has guaranteed obligations of the investee or is otherwise committed to provide further financial support for the investee. An investor shall, however, provide for additional losses if the imminent return to profitable operations by an investee appears to be assured. For example, a material, nonrecurring loss of an isolated nature may reduce an investment below zero even though the underlying profitable operating pattern of an investee is unimpaired. If the investee subsequently reports net income, the investor shall resume applying the equity method only after its share of that net income equals the share of net losses not recognized during the period the equity method was suspended.

Equity and cost method investments are included “Investments” in the accompanying consolidated balance sheets. The Company periodically evaluates its equity and cost method investments for impairment due to declines considered to be other than temporary. If the Company determines that a decline in fair value is other than temporary, then a charge to earnings is recorded as an impairment loss in the accompanying consolidated statements of operations. 

Based on an impairment analysis, the Company did not record any impairment loss related to such investments during the three months ended March 31, 2019 and 2018.

Impairment of Intangible Assets
 
In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. For the three months ended March 31, 2019 and 2018, the Company recorded $28,900 and $0 impairment loss (see Note 5).  

Revenue Recognition
 
In May 2014, FASB issued an update Accounting Standards Update ("ASU") ("ASU 2014-09") establishing Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("ASC 606"). ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard, which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. The Company adopted this standard in 2018 using the modified retrospective approach, which requires applying the new standard to all existing contracts not yet completed as of the effective date and recording a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Based on an evaluation of the impact ASU 2014-09 will have on the Company's sources of revenue, the Company has concluded that ASU 2014-09 did not have any impact on the process for, timing of, and presentation and disclosure of revenue recognition from customers.

9

ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)

 
The services that are offered are focused on education, consulting (“Think Phases”), development (“Co-build”) and growth (“Scale”). The Company provides services to help entrepreneurs and business professionals to innovate and create high growth companies through training, mentorship, and access to our global network of advisors, investors and business builders (“Education Services”). Revenue is recognized when the Company performs services pursuant to its agreements with customers and collectability is reasonably assured.

If at the outset of an arrangement, the Company determines that collectability is not reasonably assured, revenue is deferred until the earlier of when collectability becomes probable or the receipt of payment. If there is uncertainty as to the customer’s acceptance of the Company’s deliverables, revenue is not recognized until the earlier of receipt of customer acceptance or expiration of the acceptance period. If at the outset of an arrangement, the Company determines that the arrangement fee is not fixed or determinable, revenue is deferred until the arrangement fee becomes estimable, assuming all other revenue recognition criteria have been met.

Litigation settlements are accounted for in accordance with the gain contingency provisions of ASC Subtopic 450-30, Gain Contingencies, or ASC 450-30.
 

Redeemable Preferred Stock
 
Redeemable preferred stock (i.e., redeemable upon the occurrence of an event) and preferred stock that is redeemable (outside the control of the issuer), including those instruments that are redeemable at the option of the holder, are required to be present in mezzanine equity. Mezzanine equity is presented after liabilities and before stockholders’ equity on the balance sheet. The purpose of this classification is to convey that such a security may not be permanently part of equity and could result in a demand for cash or other assets of the entity in the future. Pursuant to ASC 480-10-S99, the Company presents redeemable securities that are classified as mezzanine equity separate from all other stockholders’ equity accounts that are classified as permanent equity (e.g., non-redeemable preferred, common stock, and retained earnings). The Company sold 4,085,938 shares of Series B Preferred for net proceeds of $2,615,000, or $0.64 per preferred share, during the year ended December 31, 2018 which is classified in mezzanine equity under “Redeemable Preferred Stock” (see Note 7).
 
Basic (Loss) Income per Common Share

Basic (loss) income per share is calculated by dividing the (net loss) net income attributable to stockholders by the weighted-average number of shares outstanding for the period. Diluted (loss) income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings (loss) of the Company. Diluted (loss) income per share is computed by dividing the (loss) income available to stockholders by the weighted average number of shares outstanding for the period and dilutive potential shares outstanding unless such dilutive potential shares would result in anti-dilution. As of March 31, 2019 and 2018, potentially dilutive securities consisted of the following:

   
 
March 31, 2019
 
 
March 31, 2018
 
 
 
 
 
 
 
 
Convertible debt
 
 
 
 
 
281,805
 

Stock-Based Compensation

Stock-based compensation is accounted for based on the requirements of ASC 718 – “Compensation –Stock Compensation,” which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award. Additionally, effective January 1, 2017, the Company adopted the ASU No. 2016-09 (“ASU 2016-09”), Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 permits the election of an accounting policy for forfeitures of share-based payment awards, either to recognize forfeitures as they occur or estimate forfeitures over the vesting period of the award. The Company has elected to recognize forfeitures as they occur, and the cumulative impact of this change did not have any effect on the Company’s consolidated financial statements and related disclosures.

10

ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)


Through March 31, 2018, pursuant to ASC 505-50 – “Equity-Based Payments to Non-Employees, all share-based payments to non-employees, including grants of stock options, were recognized in the consolidated financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a Black-Scholes valuation model, the Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns with the vesting period of the options, and the Company adjusted the expense recognized in the consolidated financial statements accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company early adopted ASU No. 2018-07 in the second quarter of 2018, and the adoption did not have any impact on its consolidated financial statements.

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the updated guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue guidance in ASC 606. The updated guidance is effective for interim and annual periods beginning after December 15, 2018.

On January 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether it has the right to direct the use of the asset. The Company will allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12 months or less. 
 
Operating lease ROU assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company use an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the consolidated statements of operations. As of March 31, 2019, the Company did not have any operating or capital lease.

Segment Reporting

During the three months ended March 31, 2019 and 2018, the Company operated in one business segment.

Reclassifications

The Company segregated the compensation, legal and professional expense and for the three months ended March 31, 2019 in separate line items in the operating expense section of the accompanying unaudited condensed consolidated statement of operations and conformed the presentation of the same for three months ended March 31, 2018, for comparative presentation.

11


ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)

 
Recent Accounting Pronouncements

In November 2018, the FASB issued ASU 2018-18— Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. The ASU make targeted improvements to generally accepted accounting principles (GAAP) for collaborative arrangements as follows:

1.
 
Clarify that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements.

2.
Add unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606.

3.
Require that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer
 
For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted, including adoption in any interim period, (1) for public business entities for periods for which financial statements have not yet been issued and (2) for all other entities for periods for which financial statements have not yet been made available for issuance.

An entity may not adopt the amendments earlier than its adoption date of Topic 606. The amendments in this Update should be applied retrospectively to the date of initial application of Topic 606. An entity should recognize the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings of the later of the earliest annual period presented and the annual period that includes the date of the entity’s initial application of Topic 606. An entity may elect to apply the amendments in this Update retrospectively either to all contracts or only to contracts that are not completed at the date of initial application of Topic 606. An entity should disclose its election. An entity may elect to apply the practical expedient for contract modifications that is permitted for entities using the modified retrospective transition method in Topic 606. The Company is currently evaluating the effect on its consolidated financial statements.

NOTE 3 – GOING CONCERN
 
The Company’s unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. As of March 31, 2019, we had working capital, stockholders’ equity, net loss and accumulated deficit of $2,575,677, $774,370, $518,336 and $75,585,537, respectively. The Company had a cash balance of $1,942,032 at March 31, 2019.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern for twelve months from the issuance date of this report. Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. These consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
 
NOTE 4 – INVESTMENTS

Investment in Rokk3r Labs, Inc.

On April 30, 2017, the Company completed a purchase of a non-controlling 18.72% membership interest in Rokk3r Labs for a purchase price of $1,000,000 (provided at the direction of an entity controlled by Una Taylor for the benefit of the Company) and the issuance of 9,677,208 shares of its common stock valued at $12,386,826 or $1.28 per share. Rokk3r Labs is a venture builder and operator of a ‘co-building’ platform for entrepreneurs, corporations and investors to create exponential startups. As a result of the closing of the transactions, Rokk3r Labs acquired control of the Company from Ms. Taylor. Following the closing, Rokk3r Labs owned 89.41% of the Company’s outstanding shares of common stock. Accordingly, the Company became a majority-owned subsidiary of Rokk3r Labs. In connection with the transactions and recapitalization of the Company, in December 2017, the Company wrote down its investment in Rokk3r Labs to $1,000,000 to reflect the cash purchase price.  Accordingly, during the year ended December 31, 2017, the Company recorded an impairment loss of $12,386,826, which amount is attributable to the Company’s common stock issued to Rokk3r Labs. At March 31, 2019 and December 31, 2018, the Company’s cost method investment in Rokk3r Labs were $1,000,000 (see Note 2). 

12


ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)

 
Investment in Rokk3r Flamingo, Inc

On December 21, 2018, Rokk3r Flamingo, Inc. (“Rokk3r Flamingo”), a wholly-owned subsidiary of Rokk3r Ops, Inc. (“Rokk3r Ops”), sold additional equity of Rokk3r Flamingo to several investors in order to raise capital and commence operation. As a result of these transactions Rokk3r Ops’ ownership and voting interest decreased from 100% to 35%. At March 31, 2019, Rokk3r Ops owned 35% of Rokk3r Flamingo and accounts for the investment in Rokk3r Flamingo under the equity method of accounting in accordance with ASC 323 (see Note 2). Rokk3r Flamingo did not have any activity during the three months ended March 31, 2019.

Investment in Ai Venture Builder, Inc

On March 26, 2019, Rokk3r Ops entered into a Subscription Agreement (the “Subscription Agreement”) with Ai Venture Builder, Inc. (“Ai VB”), a Delaware corporation incorporated on March 22, 2019.  In connection with the Subscription Agreement, the Company purchased founder shares of Ai VB consisting of; (i) 1,250,000 shares of Ai VB common stock at par value of $0.0001 per share; (ii) one share of Ai VB Series A Preferred Stock (“Series A Preferred”) at par value of $0.0001 per share which represent 100% of the authorized Series A Preferred and has voting rights equal to the number of outstanding common stock multiplied by nine; and (iii) 250,000 shares of Ai VB Series C Preferred Stock (“Series C Preferred”) at par value of $0.0001 per share which represent 25% of the authorized Series C Preferred, convertible into shares of common stock in the ratio of one-to-one and has one voting right per share (collectively the “Ai VB Shares”), for an aggregate purchase price $151. The Ai VB Shares purchased gave Rokk3r Ops a 50% equity ownership in Ai VB. The Series A Preferred provided Rokk3r Ops power and rights to elect two directors to serve on the three member Board of Directors of Ai VB (the “Ai VB Board”). Provisions in the Ai VB’s Articles of Incorporation and Bylaws set forth the Ai VB Board’s power and authority to decide, by majority votes, over the Ai VB’s operations through, but not limited to; (i) election/appointment or removal of officers; (ii) determine salaries or other compensation of officers and directors; (iii) designate committees and; (iv) change the number of directors. Furthermore, there were no provisions in Ai VB’s Articles of Incorporation or Bylaws for veto rights that would allow an Ai VB Board member to block significant decision without their consent and there was no operating agreement between Ai VB and its investors. The voting power for appointing two-thirds of the Ai VB Board members, provided by the Series A Preferred, granted Rokk3r Ops significant influence over Ai VB and in accordance with ASC 323-10 – Investments- Equity and Joint Ventures, the Company accounted for its investment in Ai VB under the equity method (see Note 2 and Note 10).

Pursuant to the terms of the Subscription Agreement, as amended on May 14, 2019, to correct the acquisition of the Series A Preferred by Rokk3r Ops which was an error in the original Subscription Agreement, Rokk3r Ops and the holder (the “Investor”) (collectively the “Parties”) of the Series B Preferred Stock (“Series B Preferred”) acknowledged and agreed that the acquisition of the Series A Preferred by Rokk3r Ops and the acquisition of the Series B Preferred by the Investor was in error, in that the Parties intended that on March 26, 2019, the Investor have the rights and preferences accruing to the Series A Stock and Rokk3r Ops have the rights and preferences accruing to the Series B Stock and therefore the Parties exchanged their respective holdings of Series A Preferred and Series B Preferred. Furthermore, pursuant to the amendment, Rokk3r Ops holds one share of Ai VB Series B Preferred at par value of $0.0001 per share which represent 100% of the authorized Series B Preferred and has voting rights equal to the number of outstanding common stock multiplied by nine. In addition, Series B Preferred provided Rokk3r Ops power and rights to elect one director to serve on the three member of the Ai VB Board. There was no change in the accounting method for Rokk3r Ops’ investment in Ai VB as it still meets the criteria for equity method in accordance to ASC 323.

During the three months ended March 31, 2019, Rokk3r Ops provided services, at an arm’s length transaction, to Ai VB in the amount of $250,000 which was recognized by Rokk3r Ops as revenue from related party in accordance with ASC 323 and ASC 850 (see Note 10).

In accordance to ASC 323-10-35-20, during the three months ended March 31, 2019, Rok3r Ops’ share of the Ai VB’s net loss was $125,000, however, Rokk3r Ops only recognized its share of the net loss equivalent to the basis in its investment in Ai VB, which was $151, and the Company discontinued applying the equity method since the investment is reduced to zero and Rokk3r Ops shall not provide for additional losses since Rock3r Ops has not guaranteed obligations of Ai VB and is not otherwise committed to further financial support for Ai VB. The Company will resume such application after its share of the Ai VB net income equals its share of the net loss in Ai VB not recognized during the period the equity method was suspended.
 
NOTE 5 – NON-CONTROLLING INTEREST

On February 11, 2019, the Rokk3r Ai (the “Seller”) entered into a Stock Purchase Agreement (“SPA”) with Aunken Labs LLC, a Delaware limited liability company (the “Purchaser”), pursuant to which Rokk3r Ai sold; (i)12.5% ownership or 1,000,000 shares of commons stock (the “Rokk3r Ai Stock”) of Rokk3r Ai at par value for $0.0001 per share, total amount of $100, and; (ii) 45,000 shares of commons stock (the “Rokk Stock”) of Rokk3r Inc. at fair value of $0.64 per share, total amount of $28,800. In exchange for the Rokk3r Ai Stock and Rokk Stock, the Seller received intangible assets that include but are not limited to, computer code, service brand, social media accounts, customer prospect lists, and all intangible rights, including but not limited to all goodwill in or arising from the business as a going concern (collectively, the “Intangible Assets”). The total fair value of consideration amounting to $28,900 was allocated to the Intangible Assets under Rokk3r Ai. At March 31, 2019, the Company performed an impairment test of the Intangible Assets and concluded based on the information available at that time, the carrying value of the Intangible Assets were impaired. An aggregate amount of $28,900, representing the full impairment of the Intangible Assets, was charged to impairment expense during the three months ended March 31, 2019.

13

ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)

 
As a result of the February 11, 2019 sale, Rokk3r Ops’ ownership and voting interest in Rokk3r Ai decreased from 100% to 87.5% retaining control over Rokk3r Ai. The Company accounted for sale of the non-controlling interest as an equity transaction in accordance with ASC 810 and no gain or loss was recognized in the accompanying unaudited condensed consolidated statement of operations. The difference between the fair value of consideration and carrying amount of the non-controlling interest resulted in “net gain” in the amount of $28,900 which was recorded in the in the equity section of the accompanying unaudited condensed consolidated balance sheet as described below. Accordingly, as of that date, the Company presented non-controlling interest as a separate component of equity on its unaudited condensed consolidated balance sheets under the heading “Non-controlling interest in consolidated subsidiary” and reported non-controlling interest net income or loss under the heading “Net (income) loss allocated to non-controlling interest in consolidated subsidiary” in the unaudited condensed consolidated statements of operations based on its 12.5% ownership and was adjusted to reflect the change in ownership interest in the subsidiary as of March 31, 2019 (detailed below).
 
Sale of non-controlling interest reconciliation:
     
Fair value of consideration on sale of 12.5% equity
 
$
28,900
 
Net gain on sale of non-controlling interest
 
$
28,900
 

Non-controlling interest balance reconciliation:
     
Beginning balance, January 1, 2019
 
$
 
Loss allocated to non-controlling interest as of March 31, 2019
   
(3,656
)
Ending balance at March 31, 2019
 
$
(3,656
)

NOTE 6 – CONVERTIBLE PROMISSORY NOTE

On April 27, 2017, the Company entered into Securities Purchase Agreements with Firstfire Global Opportunities Fund, LLC (“Firstfire”) for the sale of a convertible promissory note in aggregate principal amount of $330,000 (the “Firstfire Note”). On April 27, 2017, in connection with the Firstfire Note, the Company issued Firstfire 250,000 shares of its common stock as additional consideration for the purchase of the Firstfire Note. On November 15, 2017, the Company entered into a Settlement Agreement and Stipulation (the “Settlement Agreement”) with Firstfire, pursuant to which the Company agreed to issue common stock to Firstfire in exchange for the settlement of $330,000 for the principal amount of the promissory note issued by the Company to Firstfire on Firstfire Note, plus $100,000 (the “Settlement Amount”) as provided for in the Firstfire Note.
 
On November 28, 2017, the Circuit Court of Broward County, Florida (the “Court”), entered an order (the “Firstfire Order”) approving, among other things, the fairness of the terms and conditions of an exchange pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended (the “Securities Act”), in accordance with a stipulation of settlement, pursuant to the Settlement Agreement, in the matter entitled Firstfire Global Opportunities Fund, LLC v. Eight Dragons Company (Case No. CACE-17-019524 (Div. 25) (the “Firstfire Action”). Firstfire commenced the Firstfire Action against the Company to recover the Settlement Amount (the “Firstfire Claim”) pursuant to the Firstfire Note. The Settlement Agreement became effective and binding upon the execution of the Firstfire Order by the Court on November 15, 2017. The Company’s obligations under the Firstfire Note were governed by and were replaced by the Company’s obligations under the Settlement Agreement.

 On June 15, 2018, the Company and Firstfire entered into an Amendment to Settlement Agreement and Stipulation (the “Firstfire Amendment”) to amend the Settlement Agreement entered into on November 15, 2017. Pursuant to the terms of the Firstfire Amendment, the Company agreed to issue to Firstfire 1,000,000 shares (the “Settlement Shares”) of the Company’s common stock in full settlement of the claims set forth in the Settlement Agreement. The amount of Settlement Shares includes 250,000 shares of common stock previously issued to Firstfire in 2017 and an additional 750,000 shares to be issued by the Company upon approval of the Firstfire Amendment by the Court. The Company and Firstfire submitted the Firstfire Amendment to the Court for a hearing on the fairness of such terms and conditions, and the issuance exempt from registration of the Settlement Shares. The Firstfire Amendment became effective on July 9, 2018, when it was approved by the Court and the Company became obligated to issue the Settlement Shares, with such shares to be issued as freely trading securities pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended.

14

ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)


In addition, upon issuance of the Settlement Shares, Firstfire entered into an 18 month lock up agreement whereby it agreed not to sell any shares of the common stock it beneficially owns except as follows: (i) 25,000 shares during each consecutive month for a period of three consecutive months which commenced on the first full month after the date the Firstfire Amendment is approved by the Court (the “Order Date”), (ii) 50,000 shares per month for a period of three consecutive months commencing on the fourth month after the Order Date; (iii) 75,000 shares per month for a period of three consecutive months which commenced on the seventh month after the Order Date; and (iv) 100,000 shares each month for a period of three months which commenced on the tenth month after the Order Date. If, however, the dollar value of shares sold by Firstfire during the 18-month lock-up period exceeds $500,000, then the number of shares that may be sold during each month during the six consecutive months after such period shall be limited to 40,000.
 
During the year ended December 31, 2018, 750,000 shares of the Company’s common were issued, in addition to the 250,000 shares of common stock issued in 2017, pursuant to the Settlement Agreement and Firstfire Amendment. The Firstfire Note had no outstanding principal and interest as of December 31, 2018. The shares of common stock comprising the Settlement Shares were issued in reliance upon the exemption from securities registration afforded by the provisions of Section 3(a)(10) of the Securities Act.

NOTE 7 – SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK

On July 26, 2018, the Company entered into a Stock Purchase Agreement with an accredited investor pursuant to which, at closing, the Company agreed to issue and sell to that investor up to 4,687,500 shares of its Series B Convertible Preferred Stock, $0.0001 par value (“Series B Preferred”) at a price of $0.64 per share for an aggregate of $3,000,000. An aggregate of 3,906,250 shares will be issued and sold in five monthly tranches of at least 781,250 shares ($500,000) each, which commenced on July 27, 2018, the initial closing date, for an aggregate of $2,500,000. After the earlier of the four-month period after the initial closing date or the sale of 3,906,250 shares and not later than six months after the date of the initial closing, the investor may, but shall not be obligated to, purchase from the Company in a single closing, up to an additional 781,250 shares, not previously sold and never to exceed the number of Series B Preferred, at a price of $0.64 per share.

In connection with the Company’s obligations under the Stock Purchase Agreement, the Company and its parent, Rokk3r Labs, entered into a Security and Pledge Agreement. Pursuant to the terms of this agreement, Rokk3r Labs pledged as collateral security for the payment, performance and observance of all of the Company’s obligations under Security and Pledge Agreement, the Stock Purchase Agreement, the Investor Rights Agreement, and the Series B Preferred, securities owned by Rokk3r Labs with a value of approximately $16,000,000 (the “Collateral”). Rokk3r Labs may transfer any of its interests in the Collateral so long as the Company or Rokk3r Labs, at their option, (i) add the proceeds of such transfer to the Collateral or (ii) promptly pledge a first priority security interest in one or more securities identified in the Security and Pledge Agreement that have an aggregate value equal to or greater than the value of such proceeds, provided, however, (x) no replacement collateral shall be required unless the aggregate value of the then-remaining Collateral decreases below an amount that is equal to three (3) times the amount invested and (y) any such reserve equity interests used as replacement collateral shall be subject to the investor’s prior approval (not to be unreasonably withheld or delayed).

Upon a default under the terms of the Security and Pledge Agreement, the Stock Purchase Agreement, the Investor Rights Agreement, or the Series B Preferred, the investor may, among other things, collect or take possession of the Collateral, proceed with the foreclosure of the security interest in the Collateral or sell, lease or dispose of the Collateral. The pledge of the Collateral shall (a) remain in full force and effect until (i) the Company has acquired 75% of Rokk3r Labs’ current ownership interests in the aggregate in the entities that make up the reserved equity interests and the Collateral, or (ii) 75% of the shares of Series B Preferred owned by the investor have been converted into the Company’s common stock or have been redeemed by the investor.

In connection with the Company’s obligations under the Stock Purchase Agreement, we entered into an Investor Rights Agreement with the investor. Pursuant to the terms of this agreement, the Company agreed to, among other things, file a registration statement covering the investor’s resale of the common stock underlying the Series B Preferred (to the extent such shares are registrable under the Securities Act) within 60 days following demand by such investor, with such demand right permitted any time after 180 days after the effective date of a registration statement related to the Company’s first underwritten public offering of the Company’s common stock under the Securities Act (an “IPO”). In addition, the Company agreed to register such shares if the Company files a registration statement in connection with a public offering of its securities for cash. So long as the investor holds 75% of the Series B Preferred, the investor has similar demand registration rights if at any time we are eligible to use a Form S-3. All registration rights are subject to cut back to the extent the Company’s Chief Executive Officer makes a good faith determination that a registration statement would interfere with certain corporate events identified in such agreement.

15

ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)

 
The investor has certain information, observer and inspection rights which permit such investor to receive certain financial statements on a periodic basis, budget and business plan information annually and such other information as the investor shall reasonably request.  The investor is entitled to appoint two representatives to become members of the Company’s strategic advisory board for a period of no less than two years after the initial issuance of the Series B Preferred. The advisory board will be established by the Company’s Board to offer them and the Company strategic ideas and advice regarding potential businesses expansion and strategy of the Company as mandated from time-to-time by the Board, including development and location of Rokk3r Hubs, opportunity identification, pilot program identification and execution, deal origination, acquisitions and mergers and representation of the Company and its brand. The Company agreed to compensate the investor for the participation by its designees on the Company’s advisory board by issuing the investor 300,000 shares of the Company’s restricted common stock, with 50% of such shares vesting twelve months after the issuance date of the Series B Preferred and the 50% remaining balance vesting twenty-four months after the issuance date of the Series B Preferred, so long as at least one investor designee is a member of the advisory board at the time of vesting. In addition, the investor or its affiliates are entitled to, without additional charge, certain corporate educational services the Company provides to its clients.

On July 26, 2018, the Company filed a certificate of designation, preferences and rights of Series B Preferred stock (the “Certificate of Designation”) with the Secretary of State of the State of Nevada to designate 4,687,500 shares of our previously authorized preferred stock as Series B Preferred stock. The Certificate of Designation and its filing was approved by the Company’s Board of Directors on July 26, 2018 without shareholder approval as provided for in the Company’s articles of incorporation and under Nevada law.

The Certificate of Designation includes:
 
·
the original issue price of each share is $0.64 (the “Original Issue Price”),
·
the shares are entitled to one vote for each share of common stock that such shares of Series B Preferred are convertible into, the shares do not pay dividends,
·
each share is convertible into shares of our common stock at a conversion rate of one share of common stock for each share of Series B Preferred, subject to adjustment as hereinafter set forth. In the event of a breach by us of the rights, preferences, powers, restrictions and limitations of the Series B Preferred, then the number of shares of our common stock issuable upon conversion will be increased to 1.1 shares of common stock for each share of Series B Preferred and the holder may exercise its redemption rights discussed below,
·
the conversion price of the Series B Preferred is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events. In addition, the conversion price is subject to adjustment if we issue or sell shares of our common stock in one or more capital-raising transactions which results in gross proceeds to us of more than $500,000 at a purchase price per share of less than $0.64. If this event should occur, the number of shares of our common stock issuable upon conversion is increased on a pro-rata basis, and
·
the holder of the Series B Preferred has the right to elect to have all or any portion of the then outstanding shares of Series B Preferred redeemed by us at any time and from time to time on or after 18 months following the issuance of 3,906,250 shares or after any breach of the rights, preferences, powers, restrictions and limitations of the Series B Preferred for a price per share equal to 122.5% of the Original Issue Price, as adjusted.

The information, observer, inspection and advisory board rights will terminate (i) immediately before the consummation of the IPO, (ii) when the Company first becomes subject to the periodic reporting requirements the Exchange Act or (iii) upon the closing of a deemed liquidation event (as defined in the Investor Rights Agreement), whichever event occurs first.
 
The Series B Preferred is convertible into the Company’s common stock and/or redeemable at any time at the option of the holder or the Company in the events not controlled by the Company. The Company has classified the Series B Preferred mezzanine equity in the accompanying consolidated balance sheet in accordance with ASC 480 -"Distinguishing Liabilities from Equity" Under “Redeemable Preferred Shares” (see Note 2).

During the year ended December 31, 2018, the Company sold 4,085,938 shares of the Series B Preferred for net proceeds of $2,615,000 or $0.64 per preferred.

16


ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)

 
As of March 31, 2019 and December 31, 2018, 4,085,938 shares of Series B Preferred were issued and outstanding. The Company also recorded a redemption premium of $104,419 in connection with the issuance of the Series B Preferred during the year ended December 31, 2018 and $102,312 during the three months ended March 31, 2019, for an aggregate redemption premium of $206,731.

NOTE 8 – SHAREHOLDERS’ EQUITY

Shares Authorized

On March 8, 2018, the Company filed Amended and Restated Articles of Incorporation (the “Amended and Restated Articles”) with the Nevada Secretary of State to increase our authorized capital from 150,000,000 shares to 550,000,000 shares of which 500,000,000 will be common stock, par value $0.0001 per share (the “Common Stock”) and 50,000,000 will be preferred stock, par value $0.0001 per share (the “Preferred Stock”).

On July 26, 2018, we filed the Certificate of Designation to designate 4,687,500 shares of our previously authorized preferred stock as Series B Convertible Preferred stock (“Series B Preferred”).

Preferred Stock

Series A Preferred: Non-Convertible Preferred Stock

Effective on April 12, 2017, in conjunction with the filing of the amendment to the Company's Articles of Incorporation with the Nevada Secretary of State, specifically a Certificate of Designation, the Company amended its Articles of Incorporation to designate 1,000,000 shares of its authorized preferred stock as Series A Preferred with specific rights and preferences including the provision that each share of the Series A Preferred shall have one thousand votes on all matters presented to be voted by the holders of common stock. The Series A Preferred is not convertible to common stock.

As of March 31, 2019 and December 31, 2018, there were no outstanding shares of Series A Preferred stock.

Series B Preferred: Redeemable Convertible Preferred Stock

On July 26, 2018, the Company filed the Certificate of Designation with the Nevada Secretary of State to designate 4,687,500 shares of our previously authorized preferred stock as Series B Preferred. The Certificate of Designation and its filing was approved by the Company’s Board of Directors on July 26, 2018 without shareholder approval as provided for in the Company’s articles of incorporation and under Nevada law.

The Series B Preferred is convertible into the Company’s common stock and/or redeemable at any time at the option of the holder or the Company in the events not controlled by the Company. The Company has classified the Series B Preferred as mezzanine equity in the accompanying consolidated balance sheet in accordance with ASC 480 - Distinguishing Liabilities from Equity Under “Redeemable Preferred Shares” (see Note 2 and Note 7).
 
Common Stock

During the three months ended March 31, 2019, the Company issued:

·
45,000 shares of common stock of Rokk3r Inc., at fair value of $0.64 per share or $28,800, to an investor pursuant to the sale of non-controlling interest of a consolidated subsidiary (see Note 5).

Common Stock Issuable

During the three months ended March 31, 2019, the Company issued:

·
50,000 shares of common stock of Rokk3r Inc., at fair value of $0.64 per share or $32,000, to a consultant pursuant to a consulting agreement. The Company expensed the fair value of $32,000 as stock-based compensation.

17

ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)


Equity Compensation Plans

2017 Omnibus Equity Compensation Plan

On April 12, 2017, the Board adopted a Financial Code of Ethics and adopted the 2017 Omnibus Equity Compensation Plan and approved to reserve 5,000,000 shares of common stock for future issuance under the 2017 Omnibus Equity Compensation Plan. As of March 31, 2019 and December 31, 2018, no equity instruments have been issued under the 2017 Omnibus Equity Compensation Plan.

2018 Equity Incentive Plan

On March 7, 2018, the Board approved, and on March 28, 2018, our shareholder approved, by written consent, the 2018 Equity Incentive Plan. The 2018 Equity Incentive Plan is intended to make available incentives that will assist us to attract, retain and motivate employees, including officers, consultants and directors. We may provide these incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and units and other cash-based or stock-based awards. A total of 15,000,000 shares of the Company’s common stock were reserved under the 2018 Equity Incentive Plan. The shares authorized under the 2018 Equity Incentive Plan automatically increase on January 1, 2019 and each subsequent anniversary through 2028, by an amount equal to the smaller of (a) 3% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (b) an amount determined by the Board. As of March 31, 2019 and December 31, 2018, no equity instruments have been issued under the plan.

Approved Grant of Common Stock as Incentive for Employees and Contractors

On November 16, 2018, our Board approved the grant of stock-based awards of its common stock by Rokk3r Ops Inc. as signing bonuses to attract innovative, creative and experience individuals to join by Rokk3r Ops Inc. in the aggregate amount of not more than $352,000, represented by 550,000 shares, to be vested as per an agreed upon vesting schedule (the “Vesting Date”). At Vesting Date, the shares shall be issued; notwithstanding the foregoing, the Board may at any time accelerate the Vesting Date.  As of March 31, 2019 and December 31, 2018, although the share issuances were approved, no shares pursuant to the foregoing have been issued.

NOTE 9 – CONCENTRATIONS

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash deposits. The Company maintains its cash in financial institutions in the United States for which balances are insured up to Federal Deposit Insurance Corporation limits of $250,000 per account. At March 31, 2019 and December 31, 2018, the Company had a cash balance of $1,942,032 and $2,297,902, respectively. The Company has not experienced any losses in such accounts through March 31, 2019.
   
Concentrations of Revenue

During the three months ended March 31, 2019, the Company had revenue $1,138,920 of which 22% (related party), 12% and 11% were from three of the Company’s customers. During the three months ended March 31, 2018, the Company did not have any revenue. A reduction in revenue from or loss of such customers would have a material adverse effect on the Company’s consolidated results of operations and financial condition.

Concentrations of Accounts Receivables

During the three months ended March 31, 2019, the Company had net account receivable of $753,141 of which 33% and 25% were from two of the Company’s customers. During the year ended December 31, 2018, the Company had net account receivable of $400,182 of which 42% was from a Company’s customer.

18


ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)

 
NOTE 10 – RELATED-PARTY TRANSACTIONS

Due from Parent Company

During the three months ended March 31, 2019, the Company advanced Rokk3r Labs, its controlling shareholder, approximately $35,400 primarily for their share of the office lease for the three months ended March 31, 2019. The advances are non-interest bearing and are payable on demand. At March 31, 2019 and December 31, 2018, the Company had $110,506 and $75,138 receivable balance from Rokk3r Labs, respectively.

Collaboration Agreement – Parent Company

On April 9, 2018, the Company entered into a collaboration agreement with Rokk3r Labs, the Company’s controlling shareholder (the “Collaboration Agreement”). Under the terms of the Collaboration Agreement, initially, Rokk3r Labs will provide the following services to the Company on a non-exclusive, as-needed basis: delivery support of products such as consultancy services and software development services; sales support and promotion for company building and consulting services; and promotional activity, events, branding, and marketing.  Once the Company is ready to undertake some or all of these activities, Rokk3r Labs will narrow down the services it performs on behalf of the Company. Each party, based on its cost structure, will define the fees for the services to be provided and will invoice the other party for the services actually rendered on a monthly basis. The term of the Collaboration Agreement commenced on January 1, 2018 and has a term of two years. However, the parties may, by mutual agreement, terminate the Collaboration Agreement or renew it for an additional one-year period.  In connection with the Collaboration Agreement, during the three months ended March 31, 2019, the Company recorded $593,072 of consulting fees – parent company and $175,000 of prepaid expense – related party in connection with the Collaboration Agreement. In connection with the Collaboration Agreement, during the three months ended March 31, 2018, the Company recorded $750,000 of consulting fees – parent company in connection with the Collaboration Agreement.

Trademark License Agreement – Parent Company

On November 15, 2018, the Company entered into a Trademark License Agreement with Rokk3r Labs. Pursuant to which, Rokk3r Labs granted the Company and its subsidiaries, a limited, worldwide, non-exclusive, non-transferable, license to use the trademark ROKK3R in word form and in all style and design variations used to date by Rokk3r Labs or its authorized licensees, until November 12, 2019. The agreement may automatically renew for successive one-year terms unless terminated by either party. If a party elects not to renew the agreement, that party shall provide a notice of that intention to the other party at least 30 days prior to the renewal date. Pursuant to the agreement, the Company shall pay an annual fee of $120,000, payable on the anniversary of the effective date of the agreement. The Company recorded $45,000 in accrued expense – related party in the unaudited condensed consolidated balance sheet as of March 31, 2019, in connection with the Trademark License Agreement.

Consulting Services Agreement

On June 21, 2018, a Consulting Services Agreement was signed between ExO Foundation, Inc. which is owned and controlled by Salim Ismail, a member of the Board of Directors of the Company, and Rokk3r Ops for the pre-purchase of $250,000 in future services such as consultants, advisors and speakers to be rendered by ExO Foundation, Inc, or through ExO Lever Network. The services are represented in vouchers to be used in the next two years (in the event of conversion into another instrument without expiration within such two-year period) or within Ten (10) years if the vouchers are not converted into another instrument. The vouchers are transferable and assignable. The $250,000 payment was recorded as prepaid expense – related party in the unaudited condensed consolidated balance sheet as of December 31, 2018. As of March 31, 2019, no service had been performed under the consulting agreement and had prepaid balance of $250,000.

Stock Purchase Agreement

On November 2, 2018, the Company entered into a stock purchase agreement (the “SPA”) with ExO Foundation Inc., a Delaware public benefit corporation (“EXO”) which is owned and controlled by Salim Ismail, a member of the Board of Directors of the Company. Pursuant to the SPA, the Company agreed to issue and sell to EXO, 5,000,000 shares of the Company’s common stock in exchange for EXO and the Company entering into a Simple Agreement for Future Equity with Token Allocation (the “Safe-T Agreement”).

19

ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)

 
Pursuant to the SPA, EXO agreed that during the 24 month period after the date of execution of the Safe-T Agreement, EXO will not directly or indirectly, sell or engage in any transaction that will result in a change in the beneficial or record ownership of 50% of the common stock issued to EXO pursuant to the SPA.  Further, pursuant to the SPA, EXO agreed not to transfer any of the common stock issued to EXO pursuant to the SPA during the 24 month period after the date of execution of the Safe-T Agreement without first giving the Company written notice of such proposed transfer and allowing the Company the option to purchase the common stock at issue on the same terms as contemplated by such proposed transfer.

The SPA includes customary representations, warranties and covenants by the Company and EXO and customary closing conditions. As of March 31, 2019 no shares of common stock had been issued in connection with the SPA.

Safe-T Agreement

On November 2, 2018, the Company and EXO which is owned and controlled by Salim Ismail, a member of the Board of Directors of the Company, entered into the Safe-T Agreement. Pursuant to the Safe-T Agreement, at EXO’s election, the Company has the right to purchase a number of units of CivX Tokens (each a “Token” and together the “Tokens”) to be used in a software network platform or application built by EXO and its affiliates, equal to the Purchase Amount, as such term is defined in the Safe-T Agreement and discussed below, divided by the Price Per Token, as such term is defined in the Safe-T Agreement and discussed below.

Further, pursuant to the Safe-T Agreement, EXO agreed that if it conducts an Equity Financing as such term is defined in the Safe-T Agreement, prior to the termination of the Safe-T Agreement, EXO will issue to the Company a number of shares of EXO’s preferred stock equal to the Purchase Amount, as such term is defined in the Safe-T Agreement, divided by the price per share of the preferred stock sold by EXO in the Equity Financing.

The Safe-T Agreement defines the term “Equity Financing” as a bona fide transaction or series of transactions with the principal purpose of raising capital, pursuant to which EXO issues and sells its preferred stock at a fixed pre-money valuation with aggregate proceeds of at least $5,000,000 (excluding any Simple Agreements for the Future Equity with Token Allocations, Simple Agreements for the Future Equity, or other convertible securities converting pursuant to the Equity Financing).

The Safe-T Agreement defines the term “Purchase Amount” as follows: (a) the value of 5,000,000 shares of the Company’s common stock (the “Purchaser Shares”) to be either (i) the publicly traded price of the Purchaser Shares at the time of the calculation, with the express requirement that if the Purchaser Shares are then trading at over $3.00 then that will be the maximum value of the Purchaser Shares and if the Purchaser Shares are then trading under $0.64 then that will be the minimum value of the Purchaser Shares or (ii) if the Purchaser Shares are not publicly traded at such time, the value of such shares shall be the fair market value, up to but not exceeding $3.00 (referred to as the “Adjusted Value”); (b) with a discount rate of 85% to be applied to the Adjusted Value to determine the final value of the “Purchase Amount.”

The Safe-T Agreement defines the term “Price Per Token” as the fair market value of an individual Token at the time of the Token Sale, as such term is defined in the Safe-T Agreement; provided, however, that if there is no public market for the Tokens at the time of the Token Sale, the price per Token shall be determined by an independent third party valuation firm or expert, as mutually agreed between Company and EXO. The Safe-T Agreement defines the term “Token Sale” as a bona fide transaction or series of transactions in which EXO elects to sell all of the Tokens to the Company pursuant to the Safe-T Agreement.

The Safe-T Agreement will terminate upon either the earlier of the following (i) the issuance of all of the Tokens by EXO to the Company pursuant to the Safe-T Agreement (ii) the issuance of all of the shares in the Equity Financing pursuant to the Safe-T Agreement (iii) upon payment by EXO to the Company in the event of an occurrence of a Dissolution Event or Liquidity Event, as such terms are defined in the Safe-T Agreement or (iv) 24 months after the date of execution of the Safe-T Agreement.

The Safe-T Agreement defines the term “Liquidity Event” as a change of control of EXO or an initial public offering by EXO. The Safe-T Agreement defines the term “Dissolution Event” as (i) a voluntary termination of operations of EXO; (ii) a general assignment for the benefit of EXO’s creditors; or (iii) any other liquidation, dissolution or winding up of EXO (excluding a Liquidity Event), whether voluntary or involuntary.  Upon the occurrence of a Liquidity Event or a Dissolution Event, EXO will have to pay the Company a cash amount equal to the Purchase Amount.

20

ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)

 
Upon the occurrence of the termination of the Safe-T Agreement pursuant to the 24 month expiration EXO will have to deliver to the Company either the Purchaser Shares, cash in an amount equal to the Purchase Amount or an amount of equity in EXO equal to the Purchase Amount.

Pursuant to the Safe-T Agreement, the Company agreed that if Tokens are issued to the Company pursuant to the Safe-T Agreement, that the Company would not transfer 50% of such Tokens for a period of 12 months from the issuance of the Tokens.

The Safe-T Agreement includes customary representations, warranties and covenants by the Company and EXO. As of March 31, 2019, the Company had not received any proceeds or issued shares in connection with the Safe-T Agreement.

Investment in Rokk3r Flamingo, Inc

On December 21, 2018, Rokk3r Flamingo, Inc. (“Rokk3r Flamingo”), a wholly-owned subsidiary of Rokk3r Ops, Inc. (“Rokk3r Ops”), sold additional equity of Rokk3r Flamingo to several investors in order to raise capital and commence operation. As a result of these transactions Rokk3r Ops’ ownership and voting interest decreased from 100% to 35%. At March 31, 2019, Rokk3r Ops owned 35% of Rokk3r Flamingo and accounts for the investment in Rokk3r Flamingo under the equity method of accounting in accordance with ASC 323. Rokk3r Flamingo did not have any activity during the three months ended March 31, 2019 (see Note 4).

Investment in Ai Venture Builder, Inc

On March 26, 2019, Rokk3r Ops entered into a Subscription Agreement (the “Subscription Agreement”) with Ai Venture Builder, Inc. (“Ai VB”), a Delaware corporation incorporated on March 22, 2019.  In connection with the Subscription Agreement, the Company purchased founder shares of Ai VB consisting of; (i) 1,250,000 shares of Ai VB common stock at par value of $0.0001 per share; (ii) one share of Ai VB Series A Preferred Stock (“Series A Preferred”) at par value of $0.0001 per share which represent 100% of the authorized Series A Preferred and has voting rights equal to the number of outstanding common stock multiplied by nine; and (iii) 250,000 shares of Ai VB Series C Preferred Stock (“Series C Preferred”) at par value of $0.0001 per share which represent 25% of the authorized Series C Preferred, convertible into shares of common stock in the ratio of one-to-one and has one voting right per share (collectively the “Ai VB Shares”), for an aggregate purchase price $151. The Ai VB Shares purchased gave Rokk3r Ops a 50% equity ownership in Ai VB. The Series A Preferred provided Rokk3r Ops power and rights to elect two directors to serve on the three member Board of Directors of Ai VB (the “Ai VB Board”). Provisions in the Ai VB’s Articles of Incorporation and Bylaws set forth the Ai VB Board’s power and authority to decide, by majority votes, over the Ai VB’s operations through, but not limited to; (i) election/appointment or removal of officers; (ii) determine salaries or other compensation of officers and directors; (iii) designate committees and; (iv) change the number of directors. Furthermore, there were no provisions in Ai VB’s Articles of Incorporation or Bylaws for veto rights that would allow an Ai VB Board member to block significant decision without their consent and there was no operating agreement between Ai VB and its investors. The voting power for appointing two-thirds of the Ai VB Board members, provided by the Series A Preferred, granted Rokk3r Ops significant influence over Ai VB and in accordance with ASC 323-10 – Investments- Equity and Joint Ventures, the Company accounted for its investment in Ai VB under the equity method (see Note 2 and Note 4).

Pursuant to the terms of the Subscription Agreement, as amended on May 14, 2019, to correct the acquisition of the Series A Preferred by Rokk3r Ops which was an error in the original Subscription Agreement, Rokk3r Ops and the holder (the “Investor”) (collectively the “Parties”) of the Series B Preferred Stock (“Series B Preferred”) acknowledged and agreed that the acquisition of the Series A Preferred by Rokk3r Ops and the acquisition of the Series B Preferred by the Investor was in error, in that the Parties intended that on March 26, 2019, the Investor have the rights and preferences accruing to the Series A Stock and Rokk3r Ops have the rights and preferences accruing to the Series B Stock and therefore the Parties exchanged their respective holdings of Series A Preferred and Series B Preferred. Furthermore, pursuant to the amendment, Rokk3r Ops holds one share of Ai VB Series B Preferred at par value of $0.0001 per share which represent 100% of the authorized Series B Preferred and has voting rights equal to the number of outstanding common stock multiplied by nine. In addition, Series B Preferred provided Rokk3r Ops power and rights to elect one director to serve on the three member of the Ai VB Board. There was no change in the accounting method for Rokk3r Ops’ investment in Ai VB as it still meets the criteria for equity method in accordance to ASC 323.

During the three months ended March 31, 2019, Rokk3r Ops provided services, at an arm’s length transaction, to Ai VB in the amount of $250,000 which was recognized by Rokk3r Ops as revenue from related party in accordance with ASC 323 and ASC 850 (see Note 4).

In accordance to ASC 323-10-35-20, during the three months ended March 31, 2019, Rok3r Ops’ share of the Ai VB’s net loss was $125,000, however, Rokk3r Ops only recognized its share of the net loss equivalent to the basis in its investment in Ai VB, which was $151, and the Company discontinued applying the equity method since the investment is reduced to zero and Rokk3r Ops shall not provide for additional losses since Rock3r Ops has not guaranteed obligations of Ai VB and is not otherwise committed to further financial support for Ai VB. The Company will resume such application after its share of the Ai VB net income equals its share of the net loss in Ai VB not recognized during the period the equity method was suspended (see Note 4).

21

ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)

 
NOTE 11 – COMMITMENTS AND CONTINGENCIES

Park Road Solutions, LLC and Jordan Fishman

On June 1, 2017, the Company, Eight Dragons Acquisition I, Inc., Park Road Solutions, Inc. (“Park Road”) and Jordan Fishman ostensibly signed an Agreement and Plan of Merger and Reorganization (the “Park Road Merger Agreement”) to acquire all of the issued and outstanding common shares of Park Road from Mr. Fishman in exchange for 80,000 shares of the Company’s common stock (the “Park Road Acquisition”). The Company rescinded the Park Road Merger Agreement, ab initio, due to, among other things, its legal insufficiency, a lack of consideration on the part of Mr. Fishman and Park Road and their failure to fulfill their obligations as provided for in the Merger Agreement. On May 8, 2017, the Company’s transfer agent issued 1,150,000 shares of its common stock in the name of Jordan Fishman in anticipation of acquiring an entity owned or controlled by Mr. Fishman. The plan to acquire the entity was abandoned prior to closing and the 1,150,000 shares were never delivered to Mr. Fishman and were cancelled.
 
Mr. Fishman has disputed the Company’s right to rescind the Park Road Merger Agreement, demanded that the Company deliver the 1,150,000 shares of the Company’s common stock without providing any legal basis for such demand and further demanded reimbursement of $36,626 for services and expenses ostensibly advanced for the benefit of Park Road. The Company believes its right to rescind the Park Road Acquisition, has no legal obligation to deliver the 1,150,000 shares to Mr. Fishman and disputes his other demands. If Mr. Fishman pursues legal action against the Company, the Company intends to vigorously defend its rights against Mr. Fishman. Pending the outcome of the dispute with Mr. Fishman, the Company has reserved 1,150,000 shares of its Common Stock for possible issuance in the event of a determination by a court of law or subsequent agreement between the Company and Mr. Fishman.

Sean Young Demand

On May 8, 2017, the Company’s transfer agent issued 1,250,000 shares of its common stock in the name of Sean Young in anticipation of acquiring an entity owned or controlled by Mr. Young. The plan to acquire the entity was abandoned prior to closing and the 1,250,000 shares were never delivered to Mr. Young and were cancelled.

On March 26, 2018, Mr. Young demanded that the Company deliver the 1,250,000 shares without providing any legal or factual basis for such demand and additionally demanded payment of $29,000 for services and expenses ostensibly advanced for the benefit of Park Road. The Company believes it has no legal obligation to deliver the 1,250,000 shares to Mr. Young and disputes his demand for payment. If Mr. Young pursues legal action against the Company, the Company intends to vigorously defend its rights against Mr. Young. Pending the outcome of the dispute with Mr. Young, the Company has reserved 1,250,000 shares of its Common Stock for possible issuance in the event of a determination by a court of law or subsequent agreement between the Company and Mr. Young.

Stock Purchase Agreement

On November 2, 2018, the Company entered into a SPA with EXO which is owned and controlled by Salim Ismail, a member of the Board of Directors of the Company. Pursuant to the SPA, the Company agreed to issue and sell to EXO, 5,000,000 shares of the Company’s common stock in exchange for EXO and the Company entering into the Safe-T Agreement as discussed above in Note 10.

Safe-T Agreement

On November 2, 2018, the Company and EXO which is owned and controlled by Salim Ismail, a member of the Board of Directors of the Company, entered into the Safe-T Agreement. Pursuant to the Safe-T Agreement, at EXO’s election, the Company has the right to purchase a number of units of Tokens to be used in a software network platform or application built by EXO and its affiliates, equal to the Purchase Amount, as such term is defined in the Safe-T Agreement, divided by the Price Per Token, as such term is defined in the Safe-T Agreement and discussed above in Note 10.

Other than as set forth above, we are not presently a party to any material litigation that may have a material adverse effect on our consolidated financial position, results of operations or cash flows.

22


ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)

 
NOTE 12 – SUBSEQUENT EVENTS

On April 23, 2019, Rokk3r Ai’s board agreed to name Toby Matejovsky as an officer and director of Rokk3r Ai, and to enter into an employment agreement with Mr. Matejovsky. As required pursuant to the terms of the employment agreement, to grant to Mr. Matejovsky 1,813,332 shares of Common Stock and 453,332 shares of Class C Stock. Also, on the same day, Rokk3r Ai board approved the sale of equity to Mr. Matejovsky and to issue new Class C Stock to the then existing shareholders of Rokk3r Ai.

On May 7, 2019, Rokk3r Ai sold additional 27.13% of equity to a new investor which resulted in further dilution of Rokk3r Ops’ ownership and voting interest down from 87.5% to 60.37%.

On May 3, 2019, the board of directors of Rokk3r Ops approved the incorporation of a new wholly-owned subsidiary, Cargologik, Inc., which was incorporated in Delaware, and was not operational as of the date of this report (see Note 1).
 

23



 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Cautionary Note Regarding Forward-Looking Information and Factors That May Affect Future Results
 
This Quarterly Report on Form 10-Q contains forward-looking statements regarding our business, financial condition, results of operations and prospects. The Securities and Exchange Commission (the “SEC”) encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This Quarterly Report on Form 10-Q and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management’s plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results.
 
We caution that these factors could cause our actual results of operations and financial condition to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations 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.
 
The following discussion should be read in conjunction with our unaudited financial statements and the related notes that appear elsewhere in this Quarterly Report on Form 10-Q.
  
The Company

We were formerly known as Eight Dragons Company, a Nevada corporation. Our predecessor was incorporated in Delaware on September 27, 1996 and on October 24, 2007 changed its state of incorporation from Delaware to Nevada by means of a merger with and into Eight Dragons Company. On March 23, 2018, we changed our name to Rokk3r Inc. In connection with this name change, on June 18, 2018, our trading symbol was changed to “ROKK.”

We generate revenues primarily from consulting services agreements focused on education, consulting, development and growth. Our agreements are individually negotiated and are meant to help entrepreneurs and business professionals to innovate and create high growth companies through training, mentors, and access to our global network of advisors, investors and business builders. Through our consulting services agreements, we provide "Think," "Co-build," and “Scale” services. We execute "Think Phases" for entrepreneurs and corporations, where we present an experienced team with a problem for four weeks to validate the ideas and refine their strategy. In “Co-build,” our team of strategists, creatives, and engineers seek to solve problems, understand our client’s business and develop a foundation for a technological platform to drive it. For growth, we work with entrepreneurs to help them define financial and growth objectives to develop short, medium and long-term strategies, a service offering we call "Scale."
  
Recent Developments
 
On December 21, 2018, Rokk3r Flamingo, Inc. (“Rokk3r Flamingo”), a wholly-owned subsidiary of Rokk3r Ops, Inc. (“Rokk3r Ops”), sold additional equity of Rokk3r Flamingo to several investors in order to raise capital and commence operations. As a result of these transactions Rokk3r Ops’ ownership and voting interest decreased from 100% to 35%. At March 31, 2019, Rokk3r Ops owned 35% of Rokk3r Flamingo and accounts for the investment in Rokk3r Flamingo under the equity method of accounting in accordance with ASC 323. Rokk3r Flamingo did not have any activity during the three months ended March 31, 2019.

On February 11, 2019, Rokk3r Ai Inc. (“Rokk3r Ai”), a wholly-owned subsidiary of Rokk3r Ops Inc. (“Rokk3r Ops”), sold 12.5% ownership of Rokk3r Ai to an investor. As a result of these transactions Rokk3r Ops’ ownership and voting interest decreased from 100% to 87.5%. Accordingly, as of that date, the Company presented non-controlling interest as a component of equity on its unaudited condensed consolidated balance sheets under the heading “Non-controlling interest in consolidated subsidiary” and reported non-controlling interest net income or loss under the heading “Net (income) loss allocated to non-controlling interest in consolidated subsidiary” in the unaudited condensed consolidated statements of operations based on its 12.5% ownership as of March 31, 2019.

24



On March 22, 2019, the board of directors of Rokk3r Ops approved the incorporation of a wholly-owned subsidiary, Rokk3r VB X Inc. which was incorporated in Delaware and as of the filing of this report, Rokk3r VB X Inc. was not operational yet.

On March 26, 2019, Rokk3r Ops entered into a Subscription Agreement (the “Subscription Agreement”) with Ai Venture Builder, Inc. (“Ai VB”), a Delaware corporation incorporated on March 22, 2019.  In connection with the Subscription Agreement, the Company purchased founder shares of Ai VB consisting of; (i) 1,250,000 shares of Ai VB common stock at par value of $0.0001 per share; (ii) one share of Ai VB Series A Preferred Stock (“Series A Preferred”) at par value of $0.0001 per share which represent 100% of the authorized Series A Preferred and has voting rights equal to the number of outstanding common stock multiplied by nine; and (iii) 250,000 shares of Ai VB Series C Preferred Stock (“Series C Preferred”) at par value of $0.0001 per share which represent 25% of the authorized Series C Preferred, convertible into shares of common stock in the ratio of one-to-one and has one voting right per share (collectively the “Ai VB Shares”), for an aggregate purchase price $151. The Ai VB Shares purchased gave Rokk3r Ops a 50% equity ownership in Ai VB. The Series A Preferred provided Rokk3r Ops power and rights to elect two directors to serve on the three member Board of Directors of Ai VB (the “Ai VB Board”). Provisions in the Ai VB’s Articles of Incorporation and Bylaws set forth the Ai VB Board’s power and authority to decide, by majority votes, over the Ai VB’s operations through, but not limited to; (i) election/appointment or removal of officers; (ii) determine salaries or other compensation of officers and directors; (iii) designate committees and; (iv) change the number of directors. Furthermore, there were no provisions in Ai VB’s Articles of Incorporation or Bylaws for veto rights that would allow an Ai VB Board member to block significant decision without their consent and there was no operating agreement between Ai VB and its investors. The voting power for appointing two-thirds of the Ai VB Board members, provided by the Series A Preferred, granted Rokk3r Ops significant influence over Ai VB and in accordance with ASC 323-10 – Investments- Equity and Joint Ventures, the Company accounted for its investment in Ai VB under the equity method.

Pursuant to the terms of the Subscription Agreement, as amended on May 14, 2019, to correct the acquisition of the Series A Preferred by Rokk3r Ops which was an error in the original Subscription Agreement, Rokk3r Ops and the holder (the “Investor”) (collectively the “Parties”) of the Series B Preferred Stock (“Series B Preferred”) acknowledged and agreed that the acquisition of the Series A Preferred by Rokk3r Ops and the acquisition of the Series B Preferred by the Investor was in error, in that the Parties intended that on March 26, 2019, the Investor have the rights and preferences accruing to the Series A Stock and Rokk3r Ops have the rights and preferences accruing to the Series B Stock and therefore the Parties exchanged their respective holdings of Series A Preferred and Series B Preferred. Furthermore, pursuant to the amendment, Rokk3r Ops holds one share of Ai VB Series B Preferred at par value of $0.0001 per share which represent 100% of the authorized Series B Preferred and has voting rights equal to the number of outstanding common stock multiplied by nine. In addition, Series B Preferred provided Rokk3r Ops power and rights to elect one director to serve on the three member of the Ai VB Board. There was no change in the accounting method for Rokk3r Ops’ investment in Ai VB as it still meets the criteria for equity method in accordance to ASC 323.

During the three months ended March 31, 2019, Rokk3r Ops provided services, at an arm’s length transaction, to Ai VB in the amount of $250,000 which was recognized by Rokk3r Ops as revenue from related party in accordance with ASC 323 and ASC 850.

In accordance to ASC 323-10-35-20, during the three months ended March 31, 2019, Rok3r Ops’ share of the Ai VB’s net loss was $125,000, however, Rokk3r Ops only recognized its share of the net loss equivalent to the basis in its investment in Ai VB, which was $151, and the Company discontinued applying the equity method since the investment is reduced to zero and Rokk3r Ops shall not provide for additional losses since Rock3r Ops has not guaranteed obligations of Ai VB and is not otherwise committed to further financial support for Ai VB. The Company will resume such application after its share of the Ai VB net income equals its share of the net loss in Ai VB not recognized during the period the equity method was suspended.

On April 23, 2019, Rokk3r Ai’s board agreed to name Toby Matejovsky as an officer and director of Rokk3r Ai, and to enter into an employment agreement with Mr. Matejovsky. As required pursuant to the terms of the employment agreement, to grant to Mr. Matejovsky 1,813,332 shares of Common Stock and 453,332 shares of Class C Stock. Also, on the same day, Rokk3r Ai board approved the sale of equity to Mr. Matejovsky and to issue new Class C Stock to the then existing shareholders of Rokk3r Ai.

On May 7, 2019, Rokk3r Ops sold another 27.13% equity in Rokk3r Ai to a new investor. As a result of all the aforementioned transactions, Rokk3r Ops ownership and voting interest decreased from 87.5% to 60.37%.

RESULTS OF OPERATIONS
 
The following comparative analysis on results of operations was based primarily on the comparative unaudited financial statements, footnotes and related information for the periods identified below and should be read in conjunction with the financial statements and the notes to those statements that are included elsewhere in this report.
 
Revenue
 
The Company generated revenues of $1,138,920 and $0 for the three months ended March 31, 2019 and 2018, respectively, of which $250,000 of the 2019 revenue was from a related party. The increase in revenues reflect the commencement of our current revenue producing activities such as providing consulting services. Through our consulting services agreements, we provide "Think," "Co-build," and “Scale” services. We execute "Think Phases" for entrepreneurs and corporations, where we present an experienced team with a problem for four weeks to validate the ideas and refine their strategy. In “Co-build,” our team of strategists, creatives, and engineers seek to solve problems, understand our client’s business and develop a foundation for a technological platform to drive it. For growth, we work with entrepreneurs to help them define financial and growth objectives to develop short, medium and long-term strategies, a service offering we call "Scale." We did not have any revenue producing activities three months ended March 31, 2018.

25


Operating Expenses
 
For the three months ended March 31, 2019, we incurred operating expenses in the amount of $1,655,850 compared to $908,278 for the three months ended March 31, 2018, an increase of $747,572 or 82%. The increase was attributable to:

 
 
Three Months Ended March 31,
 
 
 
2019
   
2018
 
                 
Consulting fees - parent
 
$
593,072
   
$
750,000
 
Consulting fees - other
   
112,507
     
 
Compensation expense
   
259,031
     
21,633
 
Contract labor
   
393,517
     
 
Legal expense
   
124,573
     
75,926
 
Professional fees
   
55,681
     
39,820
 
Bad debt recovery
   
(107,779
)
   
 
General and administrative expenses
   
196,348
     
20,899
 
Impairment of intangible asset
   
28,900
     
 
Total Operating Expenses
 
$
1,655,850
   
$
908,278
 

Consulting Fees

For three months ended March 31, 2019, consulting fees – parent decrease by $156,928 or 21% as compared to three months ended March 31, 2018. The decrease was attributed to additional third party consultants in 2019.

For three months ended March 31, 2019, consulting fees – other increased by $112,507 or 100% as compared to three months ended March 31, 2018. The increase was attributed to additional third party consultants in 2019.

Compensation Expense

For three months ended March 31, 2019, compensation expense increased by $237,398 or 1097% as compared to three months ended March 31, 2018. The increase was attributed to increase in the number of employees during the three months ended March 31, 2019 as compared to the three months ended March 31, 2018.

Contract Labor

For three months ended March 31, 2019, contract labor increased by $393,517 or 100% as compared to three months ended March 31, 2018. The increase was attributed to increase in revenue producing activities in 2019 as compared to 2018.

Legal Expense and Professional Fees

For three months ended March 31, 2019, legal expense increased by $48,647 or 64% as compared to three months ended March 31, 2018. The increase was attributed to business development of the Company and its subsidiaries in 2019.

For three months ended March 31, 2019, professional fees increased by $15,651 or 40% as compared to three months ended March 31, 2018. The increase was attributed to business development of the Company and its subsidiaries in 2019.

Bad Debt Recovery

For three months ended March 31, 2019, bad debt recovery increased by $107,779 or 100% as compared to three months ended March 31, 2018. The increase was attributed to the recovery of previously written off uncollectible account receivable related to one of the Company’s customer.

General and Administrative Expenses

For three months ended March 31, 2019, general and administrative expenses increased by $175,449 or 840% as compared to three months ended March 31, 2018. The increase was attributed to increase in revenue producing activities and business development in 2019 compared to 2018.

26


Impairment of Intangible Asset

For three months ended March 31, 2019, impairment of intangible asset increased by $28,900 or 100% as compared to three months ended March 31, 2018. The increase was attributed to the impairment of the carrying balance of the intangible asset acquired in connection to the sale of non-controlling interest in a consolidated subsidiary.

Other Expenses

We incurred other expenses for the three months ended March 31, 2019 in the amount of $1,406 compared $16,039 for the three months ended March 31, 2018, a decrease of $14,633 or 91%. The decrease was primarily attributed to interest expense related to the Firstfire convertible promissory note which was fully converted in the third quarter of 2018.
 
Net Loss
 
We incurred a net loss for the three months ended March 31, 2019 in the amount of $518,336, or $(0.00) per basic and diluted common share, compared to net loss of $924,317 or $(0.01) per basic and diluted common share, for the three months ended March 1, 2018, a change of $405,981 or 44%.

Liquidity and Capital Resources
 
Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had a working capital of $2,575,677 and cash of $1,942,032 as of March 31, 2019 and a working capital of $2,959,543 and cash of $2,297,902 as of December 31, 2018.

 
             
Three Months Ended March 31, 2019
 
 
 
March 31, 2019
   
December 31, 2018
   
Change
   
Percentage Change
 
Working capital deficit:
                       
Total current assets
 
$
3,247,745
   
$
3,217,175
   
$
(30,570
)
   
1
%
Total current liabilities
   
(672,068
)
   
(257,632
)
   
414, 436
     
161
%
Working capital:
 
$
2,575,677
   
$
2,959,543
   
$
383,866
     
13
%

The decrease in working capital was primarily attributable to an increase in current assets of $30,570 and an increase in current liabilities of $407,936.

Cash Flows
 
Changes in our cash balance are summarized as follows:

 
 
Three Months Ended March 31,
 
 
 
2019
   
2018
 
                 
Cash used in operating activities
 
$
(353,118
)
 
$
(645,703
)
Cash used in investing activities
   
(2,752
)
   
 
Cash provided by financing activities
   
     
2,212,225
 
Net increase (decrease) in cash
 
$
(355,870
)
 
$
1,566,522
 

Net Cash Used in Operating Activities

Net cash flow used in operating activities was $355,118 for the three months ended March 31, 2019 as compared to $645,703for the three months ended March 31, 2018, a decrease of $292,585. 
 
·
Net cash flow used in operating activities for the three months ended March 31, 2019 primarily reflected a net loss of $514,680  adjusted for the add-back on non-cash items such as depreciation expense of $1,343, stock-based compensation expense of $74,979, stock-based compensation for consulting services of $32,000, bad debt recovery of $(107,779), impairment loss of $28,900, loss on equity investment of $151, loss on investment on non-controlling interest in a consolidated subsidiary of $(3,656), changes in operating asset of $(278,661) and changes in operating liability of $414,285.

27



·
Net cash flow used in operating activities for the three months ended March 31, 2018 primarily reflected a net loss of $924,317 and changes in operating assets and liabilities of $278,614 primarily related to an increase in accounts payable – parent company of $250,000.
 
Net Cash Used in Investing Activities
 
Net cash flow used in investing activities was $2,752 for the three months ended March 31, 2019 as compared to $0 for the three months ended Mach 31, 2018, an increase of $2,752. The increase was attributed to investment in Rokk3r Flamingo Inc. and purchase of fixed assets in 2019.
 
Cash Provided By Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2019 was $0 as compared to $2,212,225 during the three months ended March 31, 2018, a decrease of $2,212,225. During the three months ended March 31, 2018, we received proceeds from the sale of our common stock of $2,133,000 and received proceeds from advances from the parent company of $79,225.

We do not have sufficient resources to effectuate all aspects of our business plan. We will have to raise additional funds to pay for all of our planned expenses. We potentially will have to issue additional debt or equity or enter into a strategic arrangement with a third party to carry out some aspects of our business plan. There can be no assurance that additional capital will be available to us. We currently have no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources. Since we have no other such arrangements or plans currently in effect, our inability to raise funds for the above purposes will have a severe negative impact on our ability to remain a viable company. We are dependent upon our controlling shareholder to provide or loan us funds to meet our working capital needs.

Going Concern Consideration

The Company’s unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. As of March 31, 2019, we had working capital, stockholders’ equity, net loss and accumulated deficit of $2,575,677, $774,370, $518,336, $75,585,537, respectively. The Company had a cash balance of $1,942,032 at March 31, 2019.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern for twelve months from the issuance date of this report. Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. These consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Inflation
 
In the opinion of management, inflation has not and will not have a material effect on our operations in the immediate future. Management will continue to monitor inflation and evaluate the possible future effects of inflation on our business and operations.
 
Off-Balance Sheet Arrangements
 
Under SEC regulations, we are required to disclose our off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, such as changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. As of March 31, 2019, we have no off-balance sheet arrangements.
 
Critical Accounting Policies
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Actual results could differ from those estimates. Significant estimates for the three months ended March 31, 2019 and December 31, 2018 include the assumptions used in assessing impairment of investments, allowances on uncollectible accounts receivable, useful life of property and equipment, valuation allowances for deferred tax assets, and the fair value of the account receivable, non-cash equity transactions and stock-based compensation.
 
28



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Not applicable.

ITEM 4. CONTROLS AND PROCEDURES
 
(a) Evaluation of Disclosure Controls and Procedures.
 
We maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated our company’s disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of March 31, 2019, our disclosure controls and procedures were not effective.
 
Our management, including our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our internal control over financial reporting as of March 31, 2019. Our management’s evaluation of our internal control over financial reporting was based on the framework in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that as of March 31, 2019, our internal control over financial reporting was not effective.

The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which we identified in our internal control over financial reporting:
 

1)
We do not have an Audit Committee. While not being legally obligated to have an audit committee, it is management’s view that such a committee, including a financial expert member, is an utmost important entity level control over the Company’s financial statement. Currently the Board of Directors acts in the capacity of the Audit Committee, and does not include a member that is considered to be independent of management to provide the necessary oversight over management’s activities.


2)
We did not maintain appropriate segregation of duties. As of March 31, 2019, the Company did not require dual signature on the Company’s bank accounts.


3)
We have not implemented policies and procedures that provide for multiple levels of supervision and review


4)
The Company does not have well-established procedures to authorize and approve related party transactions.

We expect to be materially dependent upon third parties to provide us with accounting consulting services related to accounting services for the foreseeable future. We believe this will be sufficient to remediate the material weaknesses related to our accounting discussed above. Until such time as we have a chief financial officer with the requisite expertise in U.S. GAAP, there are no assurances that the material weaknesses and significant deficiencies in our disclosure controls and procedures will not result in errors in our consolidated financial statements which could lead to a restatement of those financial statements.
 
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
 
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(b) Changes in Internal Controls over Financial Reporting
 
There was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934) during the quarter ended March 31, 2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
    
PART II - OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
 
ITEM 1A. RISK FACTORS
 
Not applicable for smaller reporting companies.
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Except for provided below, all unregistered sales of our securities during the three months ended March 31, 2019, were previously disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.

·
During the three months ended March 31, 2019, the Company issued 45,000 shares of common stock of Rokk3r Inc., at fair value of $0.64 per share or $28,800, to an investor pursuant to the sale of non-controlling interest of a consolidated subsidiary.


The shares of Common Stock referenced herein were issued in reliance upon the exemption from securities registration afforded by the provisions of Section 4(a)(2) of the Securities Act of 1933, as amended, (“Securities Act”).
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES
 
Not applicable.
 
ITEM 5. OTHER INFORMATION

On December 21, 2018, Rokk3r Flamingo, Inc. (“Rokk3r Flamingo”), a wholly-owned subsidiary of Rokk3r Ops, Inc. (“Rokk3r Ops”), sold additional equity of Rokk3r Flamingo to several investors in order to raise capital and commence operations. On January 17, 2019, Rokk3r Flamingo Inc. and Broad Strategy Fund, LLC, a Delaware limited liability company, entered into a Stock Purchase Agreement pursuant to which Rokk3r Flamingo Inc. sold and issued 500,000 of its common shares to Broad Strategy Fund, LLC in exchange for $50.00.On January 21, 2019, Rokk3r Flamingo Inc. and Rokk3r Fuel Fund 2, L.P., a Florida limited partnership, entered into a Stock Purchase Agreement, pursuant to which Rokk3r Flamingo Inc. sold and issued 500,000 of its common shares to Rokk3r Fuel Fund 2, L.P in exchange for $50.00. As a result of these transactions Rokk3r Ops’ ownership and voting interest decreased from 100% to 35%. At March 31, 2019, Rokk3r Ops owned 35% of Rokk3r Flamingo and accounts for the investment in Rokk3r Flamingo under the equity method of accounting in accordance with ASC 323. Rokk3r Flamingo did not have any activity during the three months ended March 31, 2019.

On February 11, 2019, the Rokk3r Ai entered into a Stock Purchase Agreement with Aunken Labs LLC, a Delaware limited liability company, pursuant to which Rokk3r Ai sold; (i)12.5% ownership or 1,000,000 shares of commons stock of Rokk3r Ai and; (ii) 45,000 shares of commons stock of Rokk3r Inc. In exchange for, Rokk3r Ai received intangible assets that include but are not limited to, computer code, service brand, social media accounts, customer prospect lists, and all intangible rights, including but not limited to all goodwill in or arising from the business as a going concern. As a result of these transactions Rokk3r Ops’ ownership and voting interest decreased from 100% to 87.5%. Accordingly, as of that date, the Company presented non-controlling interest as a component of equity on its unaudited condensed consolidated balance sheets under the heading “Non-controlling interest in consolidated subsidiary” and reported non-controlling interest net income or loss under the heading “Net (income) loss allocated to non-controlling interest in consolidated subsidiary” in the unaudited condensed consolidated statements of operations based on its 12.5% ownership as of March 31, 2019.

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ITEM 6. EXHIBITS
 
a) Exhibits

2.1(a)
Agreement and Plan of Merger and Reorganization between Rokk3r Inc. and Park Roads Solutions, Inc., dated June 1, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 7, 2017).
   
2.1(b)
Agreement and Plan of Merger, dated March 23, 2018, between Rokk3r Inc. and Eight Dragons Company (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on March 29, 2018).
   
3.1(a)
Articles of Incorporation (incorporated by reference to Exhibit 3.i(1) to the Company’s Current Report on Form 8-K filed with the SEC on December 12, 2007).
   
3.1(b)
Certificate of Designation of Series A Preferred Stock filed with the Nevada Secretary of State on April 12, 2017 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on April 24, 2017).
   
3.1(c)
Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit A to the Company’s Definitive Information Statement on Schedule 14C filed with the SEC on Mach 20, 2018).
   
3.1(d)
Articles of Merger filed with the Nevada Secretary of State on March 23, 2018 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 29, 2018).
   
3.2
Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 19, 2017).
   
10.1*
Stock Purchase Agreement Dated January 21, 2019, between Rokk3r Flamingo Inc. and Rokk3r Fuel Fund 2, L.P.
   
10.2*
Stock Purchase Agreement Dated February 11, 2019, between Rokk3r Ai Inc. and Auken Labs LLC.
   
10.3*
Stock Purchase Agreement Dated December 21, 2018, between Rokk3r Flamingo Inc. and Senec LLC.
   
10.4*
Stock Purchase Agreement Dated December 21, 2019, between Rokk3r Flamingo Inc. and Wynwood Ventures LLC.
   
10.5*
Stock Purchase Agreement Dated January 17, 2019, between Rokk3r Flamingo Inc. and Broad Strategy Fund, LLC.
   
10.6*
Stockholders Agreement dated February 14, 2019, between Rokk3r Ai Inc. and Rokk3r Ops Inc.
   
10.7*
Stockholders Agreement dated December 21, 2018, between Rokk3r Flamingo Inc. and Rokk3r Ops Inc.
   
31.1*
Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934
   
31.2*
Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934
   
32.1*
Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document

* filed herewith.
 
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SIGNATURES
 
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
Rokk3r Inc.
 
 
 
 
 
 
Date: May 20, 2019
By:
/s/ Nabyl Charania
 
 
 
Nabyl Charania
President and Chief Executive Officer
(Principal Executive Officer) and Chief Financial Officer
(Principal Financial and Accounting Officer)

 






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