Report of Independent Registered Public Accounting
Firm
To the shareholders and the board of directors of Blockchain
Industries, Inc.
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheets of
Blockchain Industries, Inc.
as
of April 30, 2018 and 2017, the related statements of operations,
stockholders' equity (deficit), and cash flows for the years then
ended, and the related notes (collectively referred to as the
"financial statements"). In our opinion, the financial statements
present fairly, in all material respects, the financial position of
the Company as of April 30, 2018 and 2017, and the results of its
operations and its cash flows for the years then ended, in
conformity with accounting principles generally accepted
in the United
States.
Basis for Opinion
These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the
Company's financial statements based on our audit. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) ("PCAOB") and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or
fraud.
Our
audit included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audit also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audit provides a reasonable basis
for our opinion.
Substantial Doubt about the Company’s Ability to Continue as
a Going Concern
The
accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note
2 to the financial statements, the Company has suffered recurring
losses from operations and has a significant accumulated deficit.
In addition, the Company continues to experience negative cash
flows from operations. These factors raise substantial doubt about
the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/S/ BF
Borgers CPA PC
BF Borgers CPA PC
We have
served as the Company's auditor since 2016
Lakewood,
CO
October
26, 2018
BLOCKCHAIN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash & cash
equivalents
|
$
518,960
|
$
-
|
|
Investments in
securities
|
780,000
|
-
|
|
Investments in
digital currencies
|
1,166,477
|
-
|
|
Investments in
SAFTs
|
1,720,000
|
-
|
|
Other
receivables
|
26,245
|
-
|
|
Other current
assets
|
123,488
|
-
|
|
|
4,335,170
|
-
|
|
|
|
|
|
Property, plant
& equipment, net of accumulated depreciation of $584 and $0 as
of April 30, 2018, and April 30, 2017,
respectively
|
112,139
|
-
|
|
Note
receivable
|
500,000
|
-
|
|
Other non-current
assets
|
69,077
|
-
|
|
Total
assets
|
$
5,016,386
|
$
-
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts payable
and accrued expenses
|
$
357,208
|
$
493,596
|
|
|
1,427,285
|
-
|
|
Current
liabilities
|
1,784,493
|
493,596
|
|
|
|
-
|
|
Due to related
parties
|
-
|
3,981,423
|
|
Note
payable
|
-
|
501,112
|
|
Convertible
note
|
-
|
53,000
|
|
Total
liabilities
|
1,784,493
|
5,029,131
|
|
|
|
|
|
Shareholders'
deficit:
|
|
|
|
Preferred stock,
$0.001 par value, 5,000,000 authorized. 278,422 and 0 shares issued
and outstanding as of April 30, 2018 and April 30, 2017,
respectively
|
278
|
-
|
|
Common stock;
$0.001 par value; 400,000,000 shares authorized 39,548,579 and
40,737,406 shares issued and outstanding as of April 30, 2018 and
April 30, 2017, respectively
|
39,548
|
40,737
|
|
Additional paid-in
capital
|
15,215,842
|
6,159,120
|
|
Accumulated
deficit
|
(12,023,775
)
|
(11,228,988
)
|
|
Total shareholders'
equity (deficit)
|
3,231,893
|
(5,029,131
)
|
|
Total liabilities
and shareholders' equity (deficit)
|
$
5,016,386
|
$
-
|
|
|
|
|
The accompanying notes are an integral part of these audited
consolidated financial statements.
F-2
BLOCKCHAIN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
|
|
For the Years Ended
April 30,
|
|
|
|
|
|
Sales
|
$
1,582,483
|
$
-
|
|
Cost of goods
sold
|
328,785
|
-
|
|
Gross
margin
|
1,253,698
|
-
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
Professional
fees
|
1,760,703
|
117,420
|
|
General and
administrative expense
|
1,134,179
|
30,580
|
|
Total operating
expenses
|
2,894,882
|
148,000
|
|
|
|
|
|
Loss from
operations
|
(1,641,184
)
|
(148,000
)
|
|
|
|
|
|
Other income
(expense):
|
|
|
|
Debt
forgiveness
|
5,049,131
|
-
|
|
Interest
expense
|
(441
)
|
(5,913
)
|
|
Realized and
unrealized gain (loss)
|
(979,857
)
|
-
|
Stock compensation
expense
|
(3,222,436
)
|
-
|
Other income
(expense), net
|
846,397
|
(5,913
)
|
|
Loss before income
taxes
|
(794,787
)
|
(153,913
)
|
|
Provision for
income taxes (benefit)
|
-
|
-
|
|
|
|
|
|
Net
loss
|
$
(794,787
)
|
$
(153,913
)
|
|
|
|
|
|
Net
loss per share attributable to common shareholders:
|
|
|
|
Basic and
diluted
|
$
(0.021
)
|
$
(0.003
)
|
|
|
|
|
|
Weighted-average
number of common shares outstanding:
|
|
|
|
Basic and
diluted
|
38,116,598
|
4,901,790
|
The accompanying notes are an integral part of these audited
consolidated financial statements.
F-3
BLOCKCHAIN INDUSTRIES, INC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(DEFICIT)
|
|
|
Preferred Stock (Class A)
|
|
|
|
|
|
|
|
|
|
Additional Paid-In Capital
|
|
Total Shareholders' Equity (Deficit)
|
|
Balance at April 30, 2017
|
40,737,406
|
$
40,737
|
-
|
$
-
|
$
6,159,120
|
$
(11,228,988
)
|
$
(5,029,131
)
|
|
|
|
|
|
|
|
|
|
|
Sale
of common stock
|
14,194,700
|
14,195
|
-
|
-
|
5,712,930
|
-
|
5,727,125
|
|
|
|
|
|
|
|
|
|
|
Issuance
of preferred stock
|
-
|
-
|
323,617
|
323
|
58,145
|
-
|
58,468
|
|
|
|
|
|
|
|
|
|
|
Shares
converted to preferred stock
|
(12,944,660
)
|
(12,945
)
|
-
|
-
|
(45,523
)
|
-
|
(58,468
)
|
|
|
|
|
|
|
|
|
|
|
Issuance
of restricted stock for services
|
653,333
|
653
|
-
|
-
|
2,459,430
|
-
|
2,460,083
|
|
|
|
|
|
|
|
|
|
|
Stock option
compensation expense
|
|
|
|
|
762,353
|
|
762,353
|
|
|
|
|
|
|
|
|
|
|
Shares
retired
|
(5,000,000
)
|
(5,000
)
|
-
|
-
|
(13,750
)
|
-
|
(18,750
)
|
|
|
|
|
|
|
|
|
|
|
Shares converted
from preferred stock to common stock
|
1,807,800
|
1,808
|
(45,195
)
|
(45
)
|
(1,763
)
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
Shares issued for
acquisition of LegatumX shares
|
100,000
|
100
|
-
|
-
|
124,900
|
-
|
125,000
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(794,787
)
|
(794,787
)
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2018
|
39,548,579
|
$
39,548
|
278,422
|
$
278
|
$
15,215,842
|
$
(12,023,775
)
|
$
3,231,893
|
The accompanying notes are an integral part of these audited
consolidated financial statements.
F-4
BLOCKCHAIN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AUDITED)
|
|
For the Years
Ended April 30,
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
Net
loss
|
$
(794,787
)
|
$
(153,913
)
|
|
Adjustments to
reconcile net loss to net cash used in operating
activities:
|
|
|
|
Depreciation and
amortization
|
584
|
-
|
|
Stock-based
compensation
|
3,222,436
|
|
|
Interest
expense
|
441
|
-
|
|
Unrealized gain
(loss) of investments
|
979,857
|
|
|
|
|
|
|
Change in operating
assets and liabilities:
|
|
-
|
|
Other
receivables
|
(26,245
)
|
-
|
|
Prepaid expenses
and other assets
|
(123,488
)
|
3,913
|
|
Other non-current
assets
|
(69,077
)
|
-
|
|
Accounts payable
and accrued expenses
|
(135,837
)
|
-
|
|
Deferred
revenue
|
1,427,285
|
-
|
|
Net cash provided
by (used in) operating activities:
|
4,481,169
|
(150,000
)
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
Purchases of
investments
|
(2,886,477
)
|
-
|
|
Payments to related
parties
|
(3,981,423
)
|
-
|
|
Purchases of fixed
assets
|
(113,497
)
|
-
|
|
Payment of note
receivable
|
(500,000
)
|
-
|
|
Net cash used in
investing activities
|
(7,481,397
)
|
-
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
Proceeds from the
issuance of common stock
|
4,073,300
|
150,000
|
|
Repayment of
convertible note
|
(53,000
)
|
-
|
|
Repayment of note
payable
|
(501,112
)
|
-
|
|
Net cash provided
by financing activities
|
3,519,188
|
150,000
|
|
|
|
|
|
Net change in
cash
|
518,960
|
-
|
|
|
|
|
|
Cash, beginning of
year
|
-
|
-
|
|
|
|
|
|
Cash, end of
year
|
$
518,960
|
$
-
|
The accompanying notes are an integral part of these audited
consolidated financial statements.
F-5
NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Overview
Blockchain
Industries, Inc. (“BCII”, “Blockchain”, the
“Company”, “we”, “our” or
“us”) was originally formed under the laws of the State
of Nevada on September 15, 1995 as Interactive Processing, Inc. to
market high-tech consumer electronics through television
home-shopping networks, retail stores, catalog companies and their
website remotecontrols.com. In March 1999, the Company changed its
name to Worldtradeshow.com, Inc. (“WTS”). In April
1999, the Company acquired intellectual property rights to a
database from Chaiisai Tora, Inc., an unaffiliated third party, and
significantly changed its business plan to develop tradeshow
software and market both physical and virtual tradeshow space
through the Company's website.
The
Company’s business involved the operation of Hotels.com.vn,
tour companies and restaurants and marketing of the WTS Discount
Card in Vietnam in order to serve as an online vehicle for
Vietnamese companies to promote themselves, using the largest
travel and tourism online website in, as well as being recognized
as the official travel/tourism website of, Vietnam.
On
March 26, 2007, the Company acquired assets from Business.com.vn, a
Vietnamese company, which assets consisted of a database of 300,000
Vietnamese companies, marketing software, trademarks and
intellectual property, with the intention of developing a directory
of companies. The plan included offering such companies
opportunities to market themselves through domain registration,
website development, and online marketing expertise to help these
Vietnamese companies market themselves directly and/or on the
Company’s BVNI web portal. In June 2007, the Company changed
its name to Business.vn, Inc.
From
October 2008 through early 2016, the Company’s operations
were limited due to a lack of capital resources. However, during
this time, the Hotel.vn website was still operational. On May 15,
2016, the Company was placed under the control of a Receiver in
Nevada’s Eighth Judicial District (the
“Receiver”). From May 15, 2016 through March 22, 2017,
while under the control of the Receiver, the Company continued to
incur expenses to maintain its corporate existence as a public
company. On November 18, 2016, the Company changed its name to Omni
Global Technologies, Inc. and on May 23, 2017, the Company entered
into a Share Purchase Agreement with JOJ Holdings, LLC
(“JOJ”), pursuant to which JOJ: (i) purchased
40,000,000 restricted shares of common stock, $0.001 par value (the
“Control Shares”); (ii) assumed the liabilities of a
judgement creditor in the amount of approximately $25,000; and
(iii) paid the Receiver $150,000 for the Receiver’s and other
Company expenses (the “Share Purchase Agreement”).
Additionally, and concurrent with the execution of the Share
Purchase Agreement, the Receiver resigned, and Olivia Funk was
appointed as the sole officer and director of the
Company.
On
November 13, 2017, the Company filed Certificate of Amendment to
its Articles of Incorporation with the State of Nevada for the
purpose of changing its name from Omni Global Technologies, Inc. to
Blockchain Industries, Inc. to more accurately reflect its new
business strategy.
Since that time the
Company has taken steps to become a next generation
blockchain-powered, financial technology and advisory company. In
this regard the Company’s business can be divided into the
following four verticals:
●
Investment
Management
●
Digital
Asset Advisory Services
●
Media
and Education
●
Digital
Asset Mining
Our Business
Our
initial plan to develop a blockchain business with a new domain
called hotelsinvietnam.net has been discontinued. We intend to
target and acquire or build a broad portfolio of Digital Assets
within our four business verticals. The Company’s mission is
to provide products and services related to Digital Assets. We
intend to target and acquire or build a broad portfolio of Digital
Assets by building an ecosystem within the Digital Asset industry.
Our ecosystem will include four major verticals: investment
management, digital asset advisory services, media & education,
and digital asset mining. In the future, we also plan to establish
auxiliary businesses such as OTC (over-the-counter) trading,
exchanges.
1.
Investment
Management
One of
our main lines of business will be investment management of
blockchain-related assets. We are seeking to provide services to
traditional investment management companies, with a focus on
blockchain technology. Our thesis in this business will focus on
new or traditional businesses that have already integrated or have
reasonably viable plans to implement blockchain-technology into
their business model.
This
business vertical will be operated through our wholly-owned
subsidiary, BCI Investment Management, LLC, (“BCIM”) a
Delaware limited liability company. We expect to begin the process
to register this entity with the Securities and Exchange Commission
as a registered investment company under the Investment Company Act
of 1940 by the end of the calendar year 2018, although we do not
expect to complete the process by the end of calendar year 2018.
The Company expects to seed the funds with its own capital and
subsequently obtain outside investment capital from non-related
third parties. We expect to generate revenues by charging a
combination of management and performance fees. Our preference is
to invest in businesses whereby blockchain is required to make the
business practical. However, we will assess and potentially invest
in opportunities where blockchain technology can enhance business
operations, although it may not be necessary for the business to
succeed. We are in the process of establishing the following three
alternative investment vehicles in furtherance of the
foregoing:
a. Blockchain Industries Global Opportunity Fund
This
fund will seek to invest in exchange-traded tokens. This fund will
employ two primary investment strategies (i)
algorithmic/high-frequency trading (“HFT”); and (ii)
small/mid-cap fundamental trading. The HFT component seeks to
capture inefficiencies in market structure and provide liquidity to
other market participants. The small/mid-cap fundamental strategy
would seek to invest tokens that are outside of the top fifteen
high market-capitalization tokens. We aim to invest in tokens that
we believe are mispriced and overlooked after deep fundamental due
diligence.
b. Blockchain Industries ICO Access Fund
This
fund will seek to invest in early-stage Initial Coin Offerings
(“ICO”), Security Token Offerings (“STO”)
and private token sales. Utilizing our business network, we believe
that we can differentiate against competitors to access deals that
are unavailable to most investors and often at favorable terms. We
will frequently seek to add value to the companies we invest in
through providing them access to our ecosystem (exposure to media,
technical advisory, capital raising strategy, treasury management,
and various partnership opportunities). We expect significant
overlap between our portfolio companies and our advisory
clients.
c. Blockchain Industries Venture Fund
This
fund will seek to invest in early-stage equity of blockchain and
blockchain related companies. and will make equity investments in
fiat-generating businesses in the blockchain space (e.g. exchanges,
trading tool providers) and in companies developing
blockchain-native technologies who may or may not have token
offerings. We will take a similar value-add approach as we will in
our Blockchain Industries ICO Access Fund and expect significant
overlap between our portfolio companies and our advisory
clients.
2.
Advisory
Services
We
believe that incorporating a blockchain into a traditional business
model can add value not only from raising capital, but also
transparency and efficiency. Our advisory service seeks to offer
clients a complete solution including, but not limited to,
architecting their token structure and issuance, crypto-economic
design (assessing economic benefits of utilizing a blockchain-based
token), technology/engineering, consulting, generating whitepapers,
software development, marketing and eventually making capital
introductions via the use of a broker-dealer, which we are actively
seeking. In addition, we aim to use our reputation and media &
education business to help our clients establish a meaningful
understanding of blockchain technologies and services, establish
partnerships and provide them with media exposure and informative
literature. The Company is remunerated through a combination of
upfront compensation (generally in U.S. Dollars), equity and/or
tokens of the companies we advise. Lastly, we eventually intend to
form or purchase a broker-dealer to help us maintain compliance and
execute our business in the emerging token capital markets. We are
currently actively seeking partnership and coverage from existing
broker-dealers.
The
Company continues to examine a wide array of potential companies
that we believe will benefit from our consulting and other services
related to their planned ICO or STO, and we will continue to
contract with customers that we feel have a high-value utility in
their underlying business model.
3.
Media and
Education
Blockchain
technology is fairly nascent and most educated investors are
unaware of its broad use cases or how the technology works.
Education is going to be a large part of the technology’s
success and we believe there is a market to develop educational and
other content for professionals, students, investors or other
potential users of the technology.
We have
developed a business to help promote the awareness, growth, and
education of blockchain technology and Digital Assets. Our goals
are (1) to invest in, partner with or acquire media streams, news
outlets or other methods of content distribution focused on the
marketing of blockchain technologies and Digital Asset economies
and their impact on the future and (2) partner with educational
institutions to help train the next generation of blockchain
developers. We have begun executing our goal to hold conferences
around the world with strategic partners that attract key sponsors
and influential speakers from the blockchain industry, local
governments and educators on an ongoing basis. In 2018 we held two
conference, one in San Juan, Puerto Rico and the other in Tokyo,
which focused on bringing together regulators, investors,
technologists, media and other blockchain stakeholders to discuss
the evolution of blockchain technology and its impact on industries
such as government, finance, technology and more. The conference in
San Juan Puerto Rico
was held under the name
“Blockchain Unbound”, for which we submitted an
application in April 2018 to the U.S. Patent and Trademark Office
(the “USPTO”) for trademark registration. Our
application was received by and is currently pending before the
USPTO. The application has been initially refused due to a prior
filed application by another applicant seeking registration of the
trademark “Unbound” to be used in manner that the
examiner considers to be confusingly similar to ours. Pending the
resolution of the prior filed application, we will determine
whether to continue our pursuit of the trademark
registration.
We
promote our brand primarily through the use of our network,
bringing on speakers that are influencers, which we feel will draw
crowds. We do anticipate a small amount of advertising on social
media or news websites. The Company was responsible for organizing
media, security, entertainment, and booking guest speakers and
travel for certain guests.
The
Company expects to hold these conferences at least annually or hold
smaller events throughout the coming years. Pricing for our
conferences is typically at different levels and stages. For
example, we hold early-bird pricing with discounts. We also offer
different levels of pricing, which include negotiated hotel rate
with the venue where we host the conference. Further, we also offer
discount codes for certain participant groups, which are typically
negotiated for larger or strategic groups.
4.
Digital Asset
Mining
“Mining”
for Digital Assets is the process by which a node on a blockchain
network is rewarded with the coin or token from that blockchain for
providing resources to the blockchain. For example, Bitcoin, a
popular cryptocurrency, uses a proof-of-work method to add blocks
to the blockchain. Specialized computers solve complex mathematical
problems to validate transaction and post them to the blockchain.
For successfully solving the problems, and providing power to the
network, the computer is rewarded with coins or tokens inherent to
that blockchain. There are other methods of validation and
verification such as, proof-of-stake and proof-of-space, hybrid
methods, among others. It is the intention of BCII to build a data
center that houses the specialized computers or other resources on
behalf of clients. We intend to rent space or resources (power,
bandwidth, etc.) to client for a fee.
The
Company intends to set up mining facilities with access to
inexpensive energy and lease these facilities to experienced
digital asset miners. The Company previously intended to enter into
an agreement to purchase land and build a tier-2 data center in
upstate New York. The Company entered into several agreements with
independent contractors to assess the design, feasibility and
profitability of this endeavor. The Company incurred costs for the
project which was paid to services professionals for their work in
connection therewith. As of April 30, 2018, the Company has
withdrawn from that opportunity. The Company is now focused on a
potential site in Virginia Beach, VA and expects to incur
additional costs on the assessment of this opportunity. Our goal is
to start by purchasing land in Virginia Beach, VA and build a data
center and lease space or power to tenants. We are negotiating with
a local economic development agency for the development of the
site. As of October 2018, their request is to build a full data
center. The Company is seeking additional capital to proceed with
this potential investment.
5.
Future
Plans
The
following businesses are areas that the Company has invested time
and capital but has not yet pursued to a point where they have been
able to generate revenues or believe they will generate any
significant revenues in the immediate future. The Company is
actively seeking to build these business units or merge them with
existing business units at the appropriate time. No guarantee can
be made that we will continue to pursue these opportunities or that
we will have the capital in order to do so in a timely manner or at
all.
a. Merchant Banking
The
Company has explored developing merchant banking operations to (1)
help broker off-exchange transactions in Bitcoin, Ethereum and
other Digital Assets, (2) perform Digital Asset custody service,
(3) provide financing for ICO’s or STO’s, acquisitions
or other services related to traditional merchant banking, but
related to the Digital Asset industry. We believe there is great
potential in this business as Digital Asset exchanges are
fragmented and cannot provide enough liquidity, the buyers and
sellers inherently do not trust each other, and many of the
transactions are not up to standards in terms of regulatory
requirements. The Company plans to leverage its reputationto offer
a global, scalable solution to this market. Our solution is planned
to consist of a client portal, streamlined KYC/AML procedure, coin
verification, third-party escrow, and institutional-caliber
service. Although this is a relatively new initiative for the
Company, we believe that we would be well positioned to be a market
leader as we have negotiating to engage one of the most experienced
OTC agents in the industry and are building the platform to scale
his expertise. We are planning to set up our operations in
international jurisdictions and are aware that there will be
regulatory agencies that will require applications for licensing
which will increase the time and costs to complete. We currently do
not have an estimated time that the Company feels it will complete
this potential business, if ever. The success of this business will
rely on maintaining experienced or training employees with
necessary licenses in order to develop and maintain the operation
of this business, which may be difficult or impossible to achieve.
This business’ success will also rely on the Digital Asset
market to at least maintain its market capitalization, as a decline
in the value of these assets will inhibit our ability to find the
necessary volume and prices for this business to be
successful.
b. Digital Asset Exchange
The
Company is currently in the initial stages of performing diligence
to establish a Digital Asset exchange. We are partnering with
high-frequency trading and technology specialists to develop a
global exchange with the intention of uniting the fragmented
liquidity pools on the hundreds of Digital Asset exchanges. We
believe that this platform would be able to provide the robust
infrastructure and market depth to support institutional investors.
Therewill be regulatory agencies that will have oversight on this
business, which will require us to apply and successfully receive,
in order to operate legally in the jurisdictions where we plan to
operate and where our clients are located. We will be required to
adhere to strict standards of security and compliance, which will
make this business costly and difficult to operate. The success of
our Digital Asset Exchange will require partnerships with key
vendors, experienced technical and financial expertise, regulatory
and compliance in various jurisdictions, all of which will require
significant capital, there can be no guarantee that we would be
able to raise such capital on favorable terms or at
all.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The
accompanying consolidated financial statements for the years ended
April 30, 2018 and 2017 have been prepared in accordance and in
conformity with accounting principles generally accepted in the
United States of America (“U.S. GAAP”) and applicable
rules and regulations of the Securities and Exchange Commission
(“SEC”) regarding consolidated financial
information.
Use of Estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
requires management to make certain 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 revenue and
expenses during the periods presented. Actual results could differ
from those estimates.
Significant
estimates made by management are, among others, realizability of
long-lived assets, deferred taxes and stock option valuation.
Management reviews its estimates on a quarterly basis and, where
necessary, makes adjustments prospectively.
Revenue Recognition
We
recognize revenue when the following criteria are met: (1)
persuasive evidence of an arrangement exists; (2) delivery has
occurred or services are rendered; (3) the price to the buyer is
fixed or determinable; and (4) collectability is reasonably
assured. During the year ended April 30, 2018, we had one contract
with a customer to provide services. The Company used the OTC
Market price of our customer because we felt the price was readily
available and volume of the common stock, which we received as
compensation, was fairly liquid to use the OTC Market price as an
appropriate valuation. The Company may enter into additional
agreements where we receive non-cash assets as compensation, which
will require us to use estimates on the value of our services,
which will be recorded as revenue. To the extent the Company
receives compensation of illiquid non-cash assets, or any asset
that may not have a readily determinable fair market value, we may
require the use of certain Level 3 fair value estimated as defined
by ASC 820.
Currently, the Company’s revenue is in the form of consulting
services provided to customers, sponsorship fees for promotional
material and events and event registration. Revenue is recognized
pro rata on a monthly basis over the term of the contractual
agreement for consulting services and on the day of the event for
promotional material and events and event
registration.
Stock-based Compensation
In
accordance with ASC 718, Compensation – Stock Based
Compensation, and ASC 505, Equity Based Payments to Non-Employees,
the Company accounts for share-based payment using the fair value
method. Common shares issued to third parties for non-cash
consideration are valued based on the fair market value of the
services provided or the fair market value of the common stock on
the measurement date, whichever is readily determinable. The
Company calculates the fair value of option grants utilizing the
Black-Scholes pricing model and estimates the fair value of the
stock based upon the estimated fair value of the common stock. The
amount of stock-based compensation recognized during a period is
based on the value of the portion of the awards that are ultimately
expected to vest. The result of the estimates used in our valuation
was approximately $3,222,436 million of stock-based compensation
expense for the year ended April 30, 2018, comprised of $2,460,083
of expense related to independent contractors and $762,353 of
expense related to options granted to independent
contractors.
Investments in Digital Currencies
The
Company uses fair value as its method of accounting for digital
currencies (also referred to herein as digital assets) in
accordance with the fair value election pursuant to FASB ASC 825,
Financial Instruments (“ASC 825”). The Company
considers its investments in digital currencies to be analogous to
commodities as the Commodity Futures Trading Commission
(“CFTC”) determined that Bitcoin and other digital
currencies are commodities in September 2015. On March 6, 2018, a
United States District Court of New York ruled that the CFTC has
standing to exercise its enforcement power over fraud related to
virtual currencies sold in interstate commerce. This ruling
affirmed the CFTC’s position that digital currencies are
subject to the anti-fraud and anti-manipulation enforcement
authority, thereby asserting jurisdiction over futures, swaps, and
other CFTC regulated derivatives that reference digital currencies.
Consistent with the recent ruling, the Company classifies its
investment in digital currencies as commodities and are held at
fair value. Changes in net unrealized gains or losses for these
digital currencies are included in realized and unrealized gains,
net on the Consolidated Statement of Income.
Principle Market and Fair Value Determination
In
determining which of the eligible digital currency exchanges is the
Company’s principal market for the purpose of determining
fair value of individual digital currencies, the Company considers
only digital currency exchanges that have an online platform and
publish transaction price and volume publicly. In determining which
of the eligible digital currency exchanges is the appropriate
principal market, the Company reviews these criteria in the
following order, for each digital currency being fair
valued:
First,
the Company prepares a list of eligible digital currency exchanges
and determines if any meet all of the following three criteria: (i)
the digital currency exchange has a USD pairing to allow for USD
liquidation to U.S. based customers, (ii) the Company has access to
the exchange as a U.S. based customer and can legally open an
account on the exchange platform, and (iii) the exchange complies
with federal and state licensing requirements and practices
regarding anti-money laundering procedures that are applicable to
the Company.
From
the list of eligible digital currency exchanges prepared in
accordance with the eligibility criteria noted above, the Company
selects the exchange with the highest trading volume and USD
pairing for the trailing twelve months, taking into consideration
intra-day pricing fluctuations and the degree of variances in price
on the digital currency exchanges.
Second,
if no digital currency exchange meets all of the above criteria,
the Company will filter each exchange that has a USD pairing,
regardless of whether it is accessible to U.S. based customers.
From this list, the Company selects the exchange with the highest
trading volume and USD pairing for the trailing twelve months,
taking into consideration intra-day pricing fluctuations and the
degree of variances in price.
Third,
if there are no exchanges with USD pairing, the Company will assess
exchanges for compliance with federal and state licensing
requirements that are applicable to the Company. The Company also
assesses each exchange’s practices regarding anti-money
laundering procedures. The Company then identifies the pairing with
the highest trading volume of the digital currency being fair
valued to the digital currency with the highest market
capitalization for the prior trailing twelve months, taking into
consideration intra-day pricing fluctuations and the degree of
variances in price on digital currency exchanges.
The
Company determines its principal market annually for each digital
currency held to determine if (i) there have been recent changes to
each digital currency exchange’s transaction volume in the
prior trailing twelve months, (ii) if any digital currency
exchanges have fallen out of, or come into, compliance with
applicable regulatory requirements, (iii) if there have been any
digital currency exchanges that have added a USD pairing, (iv) if
exchanges previously inaccessible to the Company are now
accessible, or (v) if recent changes to each exchange price
stability have occurred that would materially impact the selection
of the principal market and necessitate a change in the
Company’s determination of its principal market.
Investments in SAFTs and Pre-ICO Tokens
The
Company enters into simple agreements for future tokens
(“SAFT”) in which the Company invests in a company for
a promise of access to future product of the company. Investments
in SAFT agreements are carried at cost.
The
Company had investments in the following companies as of April 30,
2018:
KinerjaPay ICO(KPAY)
On
January 11, 2018, the Company entered into an advisory agreement to
provide Initial Coin Offering (“ICO”) services to PT
KinerjaPay Indonesia, an Indonesian company and a wholly-owned
subsidiary of KinerjaPay Corp., a Delaware corporation (OTCQB:
KPAY) (“KPAY”). As consideration for entering into the
advisory agreement and providing services related to administering
the KinerjaPay ICO and establishing a Digital Asset Exchange in
Indonesia, we were paid $250,000 in cash, and received 1,000,000
restricted shares of KinerjaPay’s common stock, having a
market value approximately $1,800,000 based upon the closing price
of the KPAY shares on the OTCQB of $1.80 on January 11, 2018. In
addition, we shall receive a 50% equity ownership in an
Indonesian-based Digital Asset Exchange which has yet to be formed.
Per the advisory agreement, the Company, in conjunction with
Fintech Financial Consultants, Inc. (“FFCI”) shall
provide to the Company the following Advisory Services
(“Services”):
●
Consulting related
to the launch of the ICO and the establishment of a market on the
Exchange for which to trade and transfer digital
tokens;
●
Introductions to
third parties with marketing and advisory experience potentially
relevant to the ICO; and
●
Creation of the
Exchange and a full complement of related pre-sale support,
functionality and acquisitions concerning digital
tokens.
As part
of the Services, the Company and FFCI will formulate, develop,
structure, establish, administer and operate the Exchange. Such
Services may include but shall not be limited to consulting and
advisory services regarding trading, price discovery and
settlement/clearing, as well as, due diligence, escrow,
underwriting and providing communication platforms to enable the
adoption of new products and technologies and to attract investors.
The Company
was previously working through its Japanese partner to assist KPAY
with its coin offering. A visit was made to Indonesia to
collect additional data and develop strategy, however due to a
sharp reduction in demand for digital assets, the advisory work is
still underway and will resume at the appropriate time in the
future. There are no disagreements between KPAY and
Blockchain Industries and we anticipate being able to assist them
in the future with the their contemplated ICO.
The
equity interests of the Exchange Entity shall be beneficially owned
one-half (50%) by KPAY and one-half (50%) by the Company. The
Company and FFCI having made other arrangements between themselves,
and FFCI acknowledges and agrees that FFCI shall have no equity
interest in the Exchange Entity.
The
Exchange Entity shall initially be funded pursuant to a
contribution by KPAY of Two Hundred Fifty Thousand U.S. Dollars
($250,000 USD) from the proceeds generated by the ICO (the
“Startup Contribution”). KPAY and the Company shall
contribute such additional capital to the Exchange Entity as
mutually agreed upon to be necessary and appropriate for the
operation of the Exchange and in proportion to their respective
ownership interests in the Exchange Entity. If the Company and/or
FFCI advance funds to the Exchange Entity prior to KPAY’s
funding of the Startup Contribution, the Company and/or FFCI, as
the case may be, shall be entitled to prompt reimbursement for the
entire amount of such funds so advanced.
Chimes ICO
On
December 19, 2017 and February 5, 2018, the Company entered into
two agreements with Chimes Broadcasting, Inc.
(“Chimes”) to purchase 500,000 equity tokens for
$400,000 (the “Chimes Equity Tokens”). As of the year
ended April 30, 2018, the Company has disbursed $400,000 to Chimes
in exchange for 500,000 Chimes Equity Tokens, to be issued at a
later date, representing less than 1% (0.5%) ownership in Chimes.
There are 100,000,000 authorized Chimes Equity Tokens, which share
the same economic benefits to common shareholders of Chimes,
however, the Chimes Equity Tokens are non-voting
shares.
In
addition, the Company entered into two Simple Agreements for Future
Tokens (“SAFTs”) with Chimes Broadcasting, Inc. which
grants us the option to purchase future utility tokens for use on
the Chimes network platform. To date, the Company has disbursed
$100,000 to Chimes for an amount of CHIME tokens yet to be
determined. The Company has not been issued or received any CHIME
tokens to date.
AutoLotto
On
January 17, 2018, the Company entered into a Promissory Note
Agreement (“AutoLotto Agreement”) with AutoLotto, Inc.,
a Delaware corporation. Under the terms of the AutoLotto Agreement,
the Company will pay to AutoLotto $1.5 million (the
Principal”) in exchange for a promissory note that will
accrue interest at one percent per annum (the
“Interest”). All unpaid Principal and Interest are due
and payable to the Company at the earlier of (i) the closing of
AutoLotto’s initial coin offering of at least $20,000,000 or
(ii) AutoLotto’s issuance of equity securities (excluding any
conversion or issuance of any note or other convertible security)
of at least $20,000,000. In the event AutoLotto does not raise
$20,000,000 through an initial coin offering or issuance of equity
noted above, any unpaid Principal and Interest will convert to
equity at a rate of $250,000,000 divided by the number of common
shares outstanding immediately prior to January 17, 2020. As part
of the AutoLotto Agreement, the Company also received an option to
purchase tokens of the AutoLotto initial coin offering (the
“Option”) equal to two times the outstanding unpaid
Principal and Interest under the AutoLotto Agreement. The exercise
price of the Option will be an undisclosed private pre-sale price,
and the Option is exercisable within ten days of AutoLotto
providing notice to the Company of its initial coin offering. The
Option expires on January 16, 2020.
Academy
On
January 30, 2018, the Company invested $250,000 into Academy Token,
a utility token that will be used as a means of paying for
immersive training programs, educational offerings, and to access
online content related to blockchain technology. Academy intends to
address the shortfall in the supply of blockchain developers due to
the increasing demand of blockchain technology.
Coral Health
On
January 31, 2018, the Company invested $250,000 into the Coral
Health utility token. Coral Health aims to align the interests of
different players in the healthcare ecosystem. Coral Health intends
to utilize blockchain technology to accelerate the uptake of
personalized medicine, incorporating all levels of healthcare from
patient records, payments, insurance, prescriptions, clinical
trials and monitoring.
Basecoin & Origin Protocol
On
February 13, 2018 and February 20, 2018, the Company entered into
two separate subscription agreements with KR CRYPTO SPE, LLC, a
special-purpose entity, for the purpose of acquiring tokens of
Basecoin and Origin Protocol, respectively. The Company invested
$100,000 and $50,000 into the subscription agreements for Basecoin
and Origin Protocol, respectively. Basecoin’s token will be
utilized as a form of controlling the supply and demand of
fiat-based currencies to expand or contract the money-supply,
similar to how current central banks attempt to maintain a
normalized supply and demand of their respective fiat currencies.
The Origin Protocol utilizes the Ethereum blockchain, allowing
developers to build decentralized marketplaces to facilitate the
shared economy, such as home rentals, ride share and bike share,
without intermediary companies such as Airbnb and
Uber.
BlockEx
On
February 16, 2018, we entered into a Private Token Purchase
Commitment Form (“BlockEx Agreement”) with BlockEx
Limited (“BlockEx”) a privately held limited liability
company incorporated under the laws of Gibraltar. Under the terms
of the BlockEx Agreement, the Company agreed to purchase up to
5,714,285.71 Digital Asset Exchange Tokens (“DAXT”)
from the Company for 2,000,000 Euros, or at the time of the
purchase, approximately $2,481,600 USD. As of the date of this
Report, the Company has purchased tokens amounting to approximately
1,428,571 tokens for a purchase price of 395,069.53 Euros,
approximately $500,000 USD. The tokens were issued to the Company
in June 2018. The Company filled the 2,000,000 Euro obligation for
the BlockEx Agreement by pooling with other investors for the
remaining 1,604,930 Euros. The remaining 4,285,714.71 DAXT will be
issued to the investor pool.
This
investment provides the Company with exposure to a digital asset
exchange platform. The BlockEx platform provides an institutional
exchange, white-labeled brokerage software, and the ability to
launch ICO’s. DAXT is BlockEx’s ICO. It is a utility
token. Only holders of DAXT will be able to access the pre-sale
feature of ICOs in BlockEx Markets. DAXT must be burnt each time a
customer uses it to purchase ICOs on a pre-sale basis.
Wireline
On
February 6, 2018, the Company invested $20,000 into Wireline tokens
(“WRL”). These tokens are offered by Wireline Developer
Fund, Inc., a Cayman Islands company established to launch a
network platform that enables developers to create applications and
services that dynamically discover, interact, and trade with each
other using smart contracts. Wireline is the decentralized network
and registry for serverless cloud computing. Services running on
Wireline benefit from the scaling and high-availability guarantees
of internet-scale serverless architecture; the blockchain-backed
registry provides a decentralized mechanism for service discovery
and coordination.
VideoCoin
On
January 23, 2018, the Company invested $50,000 into VideoCoin
tokens. These tokens are offered by VideoCoin Development
Association, LTD which develops and operates VideoCoin Network, a
decentralized platform for video encoding, video storage, and video
distribution. The company's platform turns cloud-based video
services into an algorithmic market running on a blockchain with a
VideoCoin token. The platform also captures unused computing
capacity while providing tokenized rewards for users that
participate in decentralizing video content processing through the
network. The company is based in Los Angeles,
California.
LegatumX
On
February 19, 2018, the Company entered into a Stock Purchase
Agreement (“LegatumX Agreement”) with LegatumX, Inc.
(“LegatumX”). This investment will provide us with a
market share into the legal industry for the storage,
authentication and validation of legal documents such as wills,
trusts, deeds, mortgages, and more. We expect that the Media and
Education segment of our business will be able to assist this
company in marketing their products to consumers worldwide,
although we will be starting with U.S. consumers. Under the terms
of the LegatumX Agreement, we will initially receive 30% of
LegatumX’s common stock calculated on a fully diluted basis
for a purchase price of $1,300,000:
|
Amount paid by Company
|
Paid or Due on
|
|
$100,000
|
February 19, 2018
|
|
$200,000
|
May 20, 2018
|
|
100,000 shares of our Common Stock
(1)
|
March 1, 2018
|
(1) The
value of our Common Stock for this agreement was valued at $10 per
share.
The
Company may earn an additional (i) 5%, for a total of 35%, of
LegatumX’s common stock if LegatumX realizes $2.3 million in
gross proceeds from the sale of the 100,000 shares of our common
stock within the 12-month period following the effective date of
the Company’s filing of a Form 10 with the SEC (the
“Form 10”), or (ii) an additional 10%, for a total of
40%, of LegatumX’s common stock if LegatumX realizes $10.1
million in gross proceeds from the sale of the 100,000 shares of
our common stock within the 12-month period following the effective
date of the Form 10. As of April 30, 2018, the Company paid
$100,000 to LegatumX in exchange for 20% ownership in LegatumX. As
of the date of this Report, the Company has paid an additional
$20,000 (for a total of $120,000) and issued 100,000 shares of our
common stock to LegatumX for a total of 25.5% ownership in
LegatumX.
Fair Value Measurement
The
Company applies ASC 820,
Fair
Value Measurement
(‘‘ASC 820’’),
which establishes a framework for measuring fair value and
clarifies the definition of fair value within that framework. ASC
820 defines fair value as an exit price, which is the price that
would be received for an asset or paid to transfer a liability in
the Company’s principal or most advantageous market in an
orderly transaction between market participants on the measurement
date. The fair value hierarchy established in ASC 820 generally
requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value.
Observable inputs reflect the assumptions that market participants
would use in pricing the asset or liability and are developed based
on market data obtained from sources independent of the reporting
entity. Unobservable inputs reflect the entity’s own
assumptions based on market data and the entity’s judgments
about the assumptions that market participants would use in pricing
the asset or liability and are to be developed based on the best
information available in the circumstances.
The
valuation hierarchy is composed of three levels. The classification
within the valuation hierarchy is based on the lowest level of
input that is significant to the fair value measurement. The levels
within the valuation hierarchy are described below:
Level 1
— Assets and liabilities with unadjusted, quoted prices
listed on active market exchanges. Inputs to the fair value
measurement are observable inputs, such as quoted prices in active
markets for identical assets or liabilities.
Level 2
— Inputs to the fair value measurement are determined using
prices for recently traded assets and liabilities with similar
underlying terms, as well as direct or indirect observable inputs,
such as interest rates and yield curves that are observable at
commonly quoted intervals.
Level 3
— Inputs to the fair value measurement are unobservable
inputs, such as estimates, assumptions, and valuation techniques
when little or no market data exists for the assets or
liabilities.
Financial assets
are considered Level 3 when their fair values are determined using
pricing models, discounted cash flow methodologies or similar
techniques and at least one significant model assumption or input
is unobservable.
The
fair value hierarchy gives the highest priority to quoted prices
(unadjusted) in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. If the inputs used
to measure the financial assets and liabilities fall within more
than one level described above, the categorization is based on the
lowest level input that is significant to the fair value
measurement of the instrument.
The
carrying amounts of the Company’s financial assets and
liabilities, such as cash, prepaid expenses and other current
assets, accounts payable and accrued expenses approximate their
fair values due to the short-term nature of these
instruments.
The
Company had no Level 3 financial assets or liabilities as of April
30, 2018 and 2017.
The
Company uses Level 1 of the fair value hierarchy to measure the
fair value of investments in common equity securities. The Company
uses Level 2 of the fair value hierarchy to measure the fair value
of investments in digital currencies. The Company revalues such
assets at every reporting period and recognizes gains or losses as
revenue and cost of revenue respectively in the consolidated
statements of operations that are attributable to the change in the
fair value of the digital currencies. Refer to the table below for
a breakout of the Company’s investments in digital currencies
and traditional securities as of April 30, 2018:
|
|
|
Fair Value Measurement Using
|
|
|
|
|
|
|
|
|
April
30, 2018
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Investments
in digital currencies
|
$
1,166,477
|
$
-
|
$
1,166,477
|
$
-
|
$
1,166,477
|
|
BNB
|
213
|
-
|
213
|
-
|
213
|
|
BTC
|
753,371
|
-
|
753,371
|
-
|
753,371
|
|
BTCP
|
19,992
|
-
|
19,992
|
-
|
19,992
|
|
EOS
|
108,292
|
-
|
108,292
|
-
|
108,292
|
|
ETH
|
149,190
|
-
|
149,190
|
-
|
149,190
|
|
NEO
|
57,713
|
-
|
57,713
|
-
|
57,713
|
|
OMG
|
22,018
|
-
|
22,018
|
-
|
22,018
|
|
QSP
|
14,968
|
-
|
14,968
|
-
|
14,968
|
|
QTUM
|
8,782
|
-
|
8,782
|
-
|
8,782
|
|
REP
|
31,938
|
-
|
31,938
|
-
|
31,938
|
|
Investments
in securities
|
780,000
|
780,000
|
-
|
-
|
780,000
|
|
KinerjaPay
|
780,000
|
780,000
|
-
|
-
|
780,000
|
|
|
$
1,946,477
|
$
780,000
|
$
1,166,477
|
$
-
|
$
1,946,477
|
There were no financial securities or investments in digital assets
as of April 30, 2017.
The KinerjaPay Common Stock was received as compensation and, as
such, the Company did not use cash to acquire the
securities.
Deferred Revenue
The
Company has deferred revenue from its first consulting contract for
the KPAY agreement. The Company determined that its obligations
would be met evenly over the course of the contract and, as such,
will record revenue evenly over the course of the agreement.
Estimated used in the determination of value and duration may
change on a per-contract basis and, in addition, the Company could
change the original estimates used for a specific contract
depending on changes over the course of contracts with customers.
For example, the KPAY agreement is currently being recorded evenly
over one year, however, the Company may determine the obligations
to have all been met early and may decide to record the remaining,
unearned revenue immediately.
Going Concern
We will
need additional working capital for ongoing operations, which
raises substantial doubt about our ability to continue as a going
concern. Management of the Company is working on a strategy to meet
future operational goals which may include equity funding, short
term or long-term financing or debt financing, to enable the
Company to reach profitable operations, however, there can be no
assurances that the plan will succeed, nor that the Company will be
able to execute its plans.
Cost of Goods Sold
The
cost of goods sold is the direct costs attributable to the
production of goods sold. Cost of goods sold primarily consisted of
catering and jobs supplies relating to the events portion of the
Company’s business.
Stock Purchase Warrants
The
Company accounts for warrants issued to purchase shares of its
Common Stock as equity in accordance with FASB ASC 480, Accounting
for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock, Distinguishing Liabilities
from Equity.
Cash and cash equivalents
The
Company considers all highly liquid investments with a maturity of
three months or less at the date of purchase to be cash
equivalents. Cash and cash equivalents consist of cash on deposit
with banks and money market funds, the fair value of which
approximates cost. The Company maintains its cash balances with a
high-credit-quality financial institution. At times, such cash may
be in excess of the Federal Deposit Insurance Corporation-insured
limit of $250,000. The Company has not experienced any losses in
such accounts, and management believes the Company is not exposed
to any significant credit risk on its cash and cash
equivalents.
Property and equipment
Property and
equipment are stated at cost or fair value if acquired as part of a
business combination. Depreciation is computed by the straight-line
method and is charged to operations over the estimated useful lives
of the assets. Maintenance and repairs are charged to expense as
incurred. The carrying amount and accumulated depreciation of
assets sold or retired are removed from the accounts in the year of
disposal and any resulting gain or loss is included in results of
operations. The Company currently is in the process of building a
mining facility for Digital Assets. All cost associated with that
project, including the architectural, designs, and planning cost
are being capitalized until the completion of the project. Property
and equipment are stated at cost and depreciated on a straight-line
basis over their estimated useful lives. Useful lives are 10 years
for software and 10 years for buildings.
Basic and Diluted Net Loss Per Share
Net
earnings or loss per share is calculated in accordance with SFAS
No. 128, Earnings Per Share for the period presented. Basic
earnings, net loss per share is based upon the weighted average
number of common shares outstanding. Fully diluted earnings per
share is based on the assumption includes dilutive equivalents such
as warrants, stock options, and convertible preferred
stock.
Recently Adopted Accounting Standards
In
January 2017, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standard Update
(“ASU”) 2017-01,
Business Combinations: Clarifying the
Definition of a Business
, which amends the current
definition of a business. Under ASU 2017-01, to be considered a
business, an acquisition would have to include an input and a
substantive process that together significantly contributes to the
ability to create outputs. ASU 2017-01 further states that when
substantially all of the fair value of gross assets acquired is
concentrated in a single asset (or a group of similar assets), the
assets acquired would not represent a business. The new guidance
also narrows the definition of the term “outputs” to be
consistent with how it is described in Topic 606, Revenue from
Contracts with Customers. The changes to the definition of a
business will likely result in more acquisitions being accounted
for as asset acquisitions. The guidance is effective for the annual
period beginning after December 15, 2017, with early adoption
permitted. The Company has elected to early adopt ASU 2017-01 and
to apply it to any transaction, which occurred prior to the
issuance date that has not been reported in financial statements
that have been issued or made available for issuance.
In May
2014, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) No. 2014-09,
“Revenue from Contracts with Customers,” Topic 606.
This Update affects any entity that either enters into contracts
with customers to transfer goods or services or enters into
contracts for the transfer of nonfinancial assets, unless those
contracts are within the scope of other standards. The guidance in
this Update supersedes the revenue recognition requirements in
Topic 605, Revenue Recognition and most industry-specific guidance.
The core principle of the guidance is that an entity should
recognize revenue to illustrate 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. The new guidance also includes a cohesive set of
disclosure requirements that will provide users of financial
statements with comprehensive information about the nature, amount,
timing, and uncertainty of revenue and cash flows arising from a
reporting organization’s contracts with customers. In April
2016, the FASB issued ASU No. 2016-10, “Revenue from
Contracts with Customers,” Topic 606: “Identifying
Performance Obligations and Licensing”. This Update clarifies
guidance related to identifying performance obligations and
licensing implementation guidance contained in the new revenue
recognition standard. The Update includes targeted improvements
based on input the Board received from the Transition Resource
Group for Revenue Recognition and other stakeholders. The update
seeks to proactively address areas in which diversity in practice
potentially could arise, as well as to reduce the cost and
complexity of applying certain aspects of the guidance both at
implementation and on an ongoing basis. In May 2016, the FASB
issued ASU No. 2016-12, “Revenue from Contracts with
Customers,” Topic 606: “Narrow-Scope Improvements and
Practical Expedients”. The amendments in this Update address
narrow-scope improvements to the guidance on collectability,
noncash consideration, and completed contracts at transition.
Additionally, the amendments in this Update provide a practical
expedient for contract modifications at transition and an
accounting policy election related to the presentation of sales
taxes and other similar taxes collected from customers. This ASU is
the final version of Proposed Accounting Standards Update 2015-320,
“Revenue from Contracts with Customers,” (Topic 606):
“Narrow-Scope Improvements and Practical Expedients,”
which has been deleted. In December 2016, the FASB issued ASU No.
2016-20, “Revenue from Contracts with Customers,” Topic
606: “Technical Corrections and Improvements to Topic 606,
Revenue from Contracts with Customers”. The amendments in
this Update address narrow-scope improvements to the guidance on
loan guarantee fees, contract cost-impairment testing, contract
costs-interaction of impairment testing with guidance in other
topics, provision for losses on construction-type and
production-type contracts, scope of topic 606 to exclude all
contracts that are within the scope of Topic 944, disclosure of
remaining performance obligations, disclosure of prior-period
performance obligations, contract modifications, contract asset
versus receivable, refund liability, advertising costs, fixed-odds
wagering contracts in the casino industry and cost capitalization
for advisors to private funds and public funds. The Board decided
to issue a separate Update for technical corrections and
improvements to Topic 606 and other Topics amended by Update
2014-09 to increase stakeholders’ awareness of the proposals
and to expedite improvements to Update 2014-09. This ASU is
effective for fiscal years, and interim periods within those years
beginning after December 15, 2017 for public companies and 2018 for
non-public entities. We adopted the new standard effective May 1,
2018, using the modified retrospective transition
method.
We developed an implementation plan to adopt this new guidance,
which included an assessment of the impact of the new guidance on
our financial position and results of operations. We have
substantially completed our assessment and have determined that
this standard will not have a material impact on our financial
position or results of operations, except enhanced disclosure
regarding revenue recognition, including disclosures of revenue
streams, performance obligations, variable consideration and the
related judgments and estimates necessary to apply the new
standard. On May 1, 2018, we adopted the new accounting standard
ASC 606, Revenue from Contracts with Customers and for all open
contracts and related amendments as of May 1, 2018 using the
modified retrospective method. Results for reporting periods
beginning after May 1, 2018 will be presented under ASC 606, while
the comparative information will not be restated and will continue
to be reported under the accounting standards in effect for those
periods.
Recently Issued Accounting Pronouncements
In
March 2016, the FASB issued ASU 2016-09, Compensation - Stock
Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting (ASU 2016-09). ASU 2016-09 simplifies
several aspects of the accounting for share-based payment
transactions, including the income tax consequences, classification
of awards as either equity or liabilities, and classification on
the statement of cash flows. The Company adopted the provisions of
this ASU effective May 1, 2017. The adoption of this update did not
have an impact on the Company’s financial
statements.
In March 2016, the FASB issued ASU 2016-07,
Investments - Equity Method and Joint Ventures (Topic 323):
Simplifying the Transition to the Equity Method of Accounting (ASU
2016-07). ASU 2016-07 eliminates the requirement that when an
investment, initially accounted for under a method other than the
equity method of accounting, subsequently qualifies for use of the
equity method, an investor must retrospectively apply the equity
method in prior periods in which it held the investment. This
requires an investor to determine the fair value of the
investee’s underlying assets and liabilities retrospectively
at each investment date and revise all prior periods as if the
equity method had always been applied. The new guidance requires
the investor to apply the equity method prospectively from the date
the investment qualifies for the equity method. The investor will
add the carrying value of the existing investment to the cost of
the additional investment to determine the initial cost basis of
the equity method investment. ASU 2016-07 is effective for fiscal
years beginning after December 15, 2016, and interim periods within
those fiscal years, and early adoption is permitted.
The
Company adopted ASU 2016-07 in the first quarter of fiscal 2018.
The adoption of ASU 2016-07 in the first quarter of fiscal 2018 did
not impact the Company's financial position or results of
operations.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
(“ASU
2016-02”), which is effective for annual reporting periods
beginning after December 15, 2018. Under ASU 2016-02, lessees will
be required to recognize the following for all leases (with the
exception of short-term leases) at the commencement date: 1) a
lease liability, which is a lessee’s obligation to make lease
payments arising from a lease, measured on a discounted basis, and
2) a right-of-use asset, which is an asset that represents the
lessee’s right to use, or control the use of, a specified
asset for the lease term. The Company is currently evaluating the
effects of ASU 2016-02 on its audited consolidated financial
statements.
In
August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230)
Classification of Certain Cash Receipts and Cash Payments
(“ASU 2016-15”). ASU 2016-15 eliminates the diversity
in practice related to the classification of certain cash receipts
and payments for debt prepayment or extinguishment costs, the
maturing of a zero-coupon bond, the settlement of contingent
liabilities arising from a business combination, proceeds from
insurance settlements, distributions from certain equity method
investees and beneficial interests obtained in a financial asset
securitization. ASU 2016-15 designates the appropriate cash flow
classification, including requirements to allocate certain
components of these cash receipts and payments among operating,
investing and financing activities. The guidance is effective for
fiscal years beginning after December 15, 2017. The Company is
currently evaluating the effects of ASU 2016-15 on its audited
consolidated financial statements.
In May
2017, the FASB issued ASU No 2017-09
Compensation-Stock Compensation (Topic 718):
Scope of Modification Accounting
(“ASU
2017-09”). ASU 2017-09 provides clarity and reduces both (i)
diversity in practice and (ii) cost and complexity when applying
the guidance in Topic 718, Compensation-Stock Compensation, to a
change to the terms or conditions of a share-based payment award.
The amendments in ASU 2017-09 provide guidance about which changes
to the terms or conditions of a share-based payment award require
an entity to apply modification accounting in Topic 718. An entity
should account for the effects of a modification unless all three
of the following are met: (1) The fair value (or calculated value
or intrinsic value, if such an alternative measurement method is
used) of the modified award is the same as the fair value (or
calculated value or intrinsic value, if such an alternative
measurement is used) of the original award immediately before the
original award is modified. If the modification does not affect any
of the inputs to the valuation technique that the entity uses to
value the award, the entity is not required to estimate the value
immediately before and after the modification. (2) The vesting
conditions of the modified award are the same as the vesting
conditions of the original award immediately before the original
award is modified. (3) The classification of the modified award as
an equity instrument or a liability instrument is the same as the
classification of the original award immediately before the
original award is modified. Note that the current disclosure
requirements in Topic 718 apply regardless of whether an entity is
required to apply modification accounting under the amendments in
ASU 2017-09.
This guidance is
effective for annual reporting periods beginning after December 15,
2018, including interim periods within the reporting period. We are
currently evaluating the effect of the adoption of this guidance on
our condensed consolidated financial
statements.
In July
2017, the FASB issued ASU 2017-11,
Earnings Per Share (Topic 260), Distinguishing
Liabilities from Equity (Topic 480) and Derivatives and Hedging
(Topic 815): I. Accounting for Certain Financial Instruments with
Down Round Features; II. Replacement of the Indefinite Deferral for
Mandatorily Redeemable Financial Instruments of Certain Nonpublic
Entities and Certain Mandatorily Redeemable Noncontrolling
Interests with a Scope Exception.
Part I of this update
addresses the complexity of accounting for certain financial
instruments with down round features. Down round features are
features of certain equity-linked instruments (or embedded
features) that result in the strike price being reduced on the
basis of the pricing of future equity offerings. Current accounting
guidance creates cost and complexity for entities that issue
financial instruments (such as warrants and convertible
instruments) with down round features that require fair value
measurement of the entire instrument or conversion option. Part II
of this update addresses the difficulty of navigating Topic 480,
Distinguishing Liabilities from Equity, because of the existence of
extensive pending content in the FASB Accounting Standards
Codification. This pending content is the result of the indefinite
deferral of accounting requirements about mandatorily redeemable
financial instruments of certain nonpublic entities and certain
mandatorily redeemable noncontrolling interests. The amendments in
Part II of this update do not have an accounting effect. This ASU
is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2018. The Company is currently
assessing the potential impact of adopting ASU 2017-11 on its
audited consolidated financial statements and related
disclosures.
Management has
evaluated other recently issued accounting pronouncements and does
not believe that any of these pronouncements will have a
significant impact on our consolidated financial statements and
related disclosures.
NOTE 3. RESTATEMENT OF FINANCIAL STATEMENTS
On
January 16, 2018, the Company executed a 2-for-1 forward stock
split. Accordingly, all references to the numbers of common shares
and per share data in the accompanying financial statements have
been adjusted to reflect these splits, on a retroactive basis,
unless indicated otherwise. Upon further review it was determined
the Company’s shareholders’ equity (deficit) had not
been adjusted for the above mentioned forward split. The balance at
April 30, 2017 of common stock and additional paid-in capital was
originally reported at $20,368 and $6,179,489, respectively and
revised as $40,737 and $6,159,120, respectively. In addition, the
number of common shares issued and outstanding as of April 30, 2017
was originally reported as 737,406 and revised as
40,737,406.
The
following table summarizes the effects of the revisions on the
financial statements for the period reported.
|
|
|
Previously Reported
|
|
Adjustments
|
|
As revised
|
|
|
Consolidated Statement of Shareholders' Equity (Deficit) as of
April 30, 2017
|
|
|
|
|
|
|
|
|
Common stock - shares
|
|
737,406
|
|
40,000,000
|
|
40,737,406
|
|
|
Common stock - amount
|
|
$ 20,368
|
|
$ 20,369
|
|
$ 40,737
|
|
|
Additional paid-in capital
|
|
$ 6,179,489
|
|
$ (20,369)
|
|
$ 6,159,120
|
|
NOTE 4. INVESTMENT IN LEGATUMX
On
February 19, 2018, the Company entered into a Stock Purchase
Agreement (“LegatumX Agreement”) with LegatumX, Inc.
(“LegatumX”). This investment will the Company with a
market share into the legal industry for the storage,
authentication and validation of legal documents such as wills,
trusts, deeds, mortgages, and more. Under the terms of the LegatumX
Agreement, the Company will initially receive 30% of
LegatumX’s common stock calculated on a fully diluted basis
for a purchase price of $1,300,000.
The
Company may earn an additional (i) 5%, for a total of 35%, of
LegatumX’s common stock if LegatumX realizes $2.3 million in
gross proceeds from the sale of the 100,000 shares of our common
stock within the 12-month period following the effective date of
the Company’s filing of a Form 10 with the SEC (the
“Form 10”), or (ii) an additional 10%, for a total of
40%, of LegatumX’s common stock if LegatumX realizes $10.1
million in gross proceeds from the sale of the 100,000 shares of
our common stock within the 12-month period following the effective
date of the Form 10. As of April 30, 2018, the Company paid
$100,000 to LegatumX in exchange for 20% ownership in LegatumX. As
of the date of this Report, the Company has paid an additional
$20,000 (for a total of $120,000) and issued 100,000 to LegatumX
for a total of 25.5% ownership in LegatumX.
NOTE 5. PROPERTY AND EQUIPMENT, NET
Property and
equipment consisted of the following:
|
|
|
|
|
|
|
|
Buildings
|
$
105,195
|
$
-
|
|
Software
|
7,528
|
-
|
|
Total
|
112,723
|
-
|
|
Less:
Accumulated depreciation
|
(584
)
|
-
|
|
Property
and equipment, net
|
$
112,139
|
$
-
|
Depreciation
expense was $584 and $0 for the years ended April 30, 2018, and
2017, respectively.
NOTE 6. NOTE RECEIVABLE
On January 17, 2018, the Company entered into a
Promissory Note Agreement (“AutoLotto Agreement”) with
AutoLotto, Inc., a Delaware corporation. Under the terms of the
AutoLotto Agreement, the Company will pay to AutoLotto $1.5 million
(the “Principal”) in exchange for a promissory note
that will accrue interest at one percent per annum (the
“Interest”). All unpaid Principal and Interest are due
and payable to the Company at the earlier of (i) the closing of
AutoLotto’s initial coin offering of at least $20,000,000 or
(ii) AutoLotto’s issuance of equity securities (excluding any
conversion or issuance of any note or other convertible security)
of at least $20,000,000. In the event AutoLotto does not raise
$20,000,000 through an initial coin offering or issuance of equity
noted above, any unpaid Principal and Interest will convert to
equity at a rate of $250,000,000 divided by the number of common
shares outstanding immediately prior to January 17, 2020. As part
of the AutoLotto Agreement, the Company also received an option to
purchase tokens of the AutoLotto initial coin offering (the
“Option”) equal to two times the outstanding unpaid
Principal and Interest under the AutoLotto Agreement. The exercise
price of the Option will be an undisclosed private pre-sale price,
and the Option is exercisable within ten days of AutoLotto
providing notice to the Company of its initial coin offering. The
Option expires on January 16, 2020. During the year the Company
funded $500,000 to AutoLotto in conjunction with the AutoLotto
Agreement. The Note Receivable balance for the
years ended
April 30, 2018 and 2017 was $500,000 and $0,
respectively.
NOTE 7. LIABILITIES DISCHARGED IN RECEIVERSHIP
The
Company was dormant from October 2008 through May 15, 2016, until
it was placed under the control of a Receiver in Nevada’s
Eighth Judicial District pursuant to Case #A14-715484-P (“the
Case”). On June 13, 2017, pursuant to an order by the judge
presiding over the Case, the Company emerged from receivership and
liabilities including accounts payable, accrued expenses, amounts
due to related parties, notes payable, and convertible notes
amounting to $5,049,131 that had been outstanding since 2009, were
officially discharged. As a result, the Company recorded other
income, “debt forgiveness” on its income statement for
the period ended July 31, 2017. The amount of debt discharged
represented substantially all of the Company’s liabilities
outstanding as of April 30, 2018.
NOTE 8. NOTE PAYABLE
Note
payable consisted of the following:
|
|
|
|
|
Note
Payable
|
$
-
|
$
501,112
|
|
Total
|
$
-
|
$
501,112
|
The
interest expense associated with the note payable was $0 and $5,913
for the years ended April 30, 2018 and 2017,
respectively.
NOTE 9. DEFERRED REVENUE
As of
April 30, 2018, deferred revenue amounted to $1,427,285 compared to
$0 as of April 30, 2017. The deferred revenue was concentrated in
one customer with whom the Company had signed a one-year consulting
agreement on January 11, 2018 (the “Consulting
Agreement”). Under the terms of the Consulting Agreement with
the customer, the value of the contract was comprised of $250,000
in cash and 1,000,000 shares of stock valued at $1.80 per share, or
$1,800,000, and was paid in full to the Company prior to the
commencement of services. The total value of the contract was
$2,050,000. The Company or customer may cancel the Consulting
Agreement at any time for any reason whatsoever without an
obligation to return any of the consideration received. In the
event of such termination, the Company would immediately record the
entire deferred liability balance as service revenue.
There
were no deferred revenue balances as of April 30,
2017.
NOTE 10. DUE TO RELATED PARTIES
In
March 2018 and October 2018, Robert Kalkstein, our Principal
Financial Officer, loaned to the Company approximately $180,000 and
$100,000, respectively, on a credit card for hotel bills related to
the Blockchain Unbound events. The short-term loans were repaid
within 1-2 days and did not bear any interest.
As of
April 30, 2018, the balance due to related parties was $0. As of
April 30, 2017, the balance due to related parties was $3,981,423.
This amount was written off as part of the discharge in
receivership described in Note 7. Liabilities Discharged in
Receivership.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Occasionally, the
Company may be involved in claims and legal proceedings arising
from the ordinary course of its business. The Company records a
provision for a liability when it believes that is both probable
that a liability has been incurred, and the amount can be
reasonably estimated. If these estimates and assumptions change or
prove to be incorrect, it could have a material impact on the
Company’s consolidated financial statements. Contingencies
are inherently unpredictable, and the assessments of the value can
involve a series of complex judgments about future events and can
rely heavily on estimates and assumptions.
NOTE 12. STOCKHOLDERS’ EQUITY (DEFICIT)
The
Company has 400,000,000 shares of Common Stock authorized with a
par value of $0.001 per share. As of April 30, 2018, and 2017,
there were 39,548,579 and 40,737,406 shares of Common Stock
outstanding, respectively.
The
Company has 5,000,000 shares of Series A Preferred Stock (the
“preferred shares”) authorized, with a par value of
$0.001 per share. The preferred shares shall have no voting rights
unless and until such shares are converted into shares of common
stock of the Company. Each preferred share is convertible to 40
shares of Common Stock, which is adjusted for the 2-for-1 forward
stock split effective January 16, 2018. As of April 30, 2018 and
2017, there were 278,422 and 0 preferred shares outstanding,
respectively.
Per ASC
230-10-50-3, the Company executed a non-cash financing activity by
entering into an agreement with certain shareholders to convert
their 12,944,660 shares of Common Stock into 323,617 preferred
shares. On March 8, 2018, one shareholder converted 45,195
preferred shares into 1,807,800 shares of Common Stock. As of April
30, 2018, the following dilutive securities calculated using the
treasury method were considered equivalents for the purposes of
calculating earnings per share:
|
Preferred shares
convertible to Common Stock
|
11,136,860
|
|
Warrants
|
7,637,500
|
|
Stock
options
|
234,247
|
2,000,000 warrants are not yet vested and will
vest on January 1, 2019. As such, the 2,000,000 warrants are
not considered when calculating dilutive shares for the
period.
Common Stock Issued in Exchange for Consulting, Professional and
Other Services
The
Company has issued non-statutory stock options, restricted stock
purchase awards and stock compensation to directors and
consultants. The terms of stock options granted under these plans
generally may not exceed 10 years. The Company currently does not
have a defined equity incentive plan. Stock issued to directors and
consultants have been granted via individual
agreements.
Share-based payment
arrangements were made to compensate independent contractors to
perform services as a way to conserve cash as we develop our
business. Share-based payments were made in negotiations with each
independent contractor and may be in the form of an option to
purchase shares of our common stock or restricted shares of our
common stock. The following are fair- values at specific
dates:
|
|
|
|
December
1, 2017
|
$
0.063
|
|
January
1, 2018
|
$
0.117
|
|
February
1, 2018
|
$
1.25
|
|
March
1, 2018
|
$
1.25
|
|
April 1,
2018
|
$
1.25
|
ASC
505-50 requires all nonemployee transactions, in which goods or
services are the consideration received in exchange for equity
instruments, to be accounted for based on the fair value of the
consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable. The Company believes
these values represent an accurate representation of our fair
market value at the specific dates. According to these results
above, the Company determined that it did not issue any options
below the fair value market price. The Company will keep this
valuation in the event the IRS investigates our claims that our
OTC-traded price is not a fair representation of our market value
on those dates. If the IRS concludes that the OTC-traded price
should be used to determine our valuation, there may be penalties
to the grantees or to the Company under Section 409A of the
Internal Revenue Code.
If
the Company is a newly formed corporation or shares of the Company
are thinly traded the use of share prices established in the
Company’s most recent private placement memorandum
(“PPM”), or weekly or monthly price observations would
generally be more appropriate than the use of daily price
observations as such shares could be artificially inflated due to a
larger spread between the bid and asked quotes and lack of
consistent trading in the market.
The
fair value of share options and similar instruments is estimated on
the date of grant. The ranges of assumptions for inputs are as
follows:
●
Expected
term of share options and similar instruments: Pursuant to
Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards
Codification the expected term of share options and represents the
period of time the options are expected to be outstanding taking
into consideration of the contractual term of the instruments and
holder’s expected exercise behavior into the fair value of
the instruments. The Company uses historical data to estimate
holder’s expected exercise behavior.
●
Expected
volatility of the entity’s shares and the method used to
estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a
thinly-traded or nonpublic entity that uses the calculated value
method shall disclose the reasons why it is not practicable for the
Company to estimate the expected volatility of its share price, the
appropriate industry sector index that it has selected, the reasons
for selecting that particular index, and how it has calculated
historical volatility using that index. The Company uses the
average historical volatility of the comparable companies over the
expected contractual life of the share options or similar
instruments as its expected volatility. If shares of a company are
thinly traded the use of weekly or monthly price observations would
generally be more appropriate than the use of daily price
observations as the volatility calculation using daily observations
for such shares could be artificially inflated due to a larger
spread between the bid and asked quotes and lack of consistent
trading in the market.
●
Expected
annual rate of quarterly dividends. The expected dividend yield is
based on the Company’s current dividend yield as the best
estimate of projected dividend yield for periods within the
expected term of the share options and similar
instruments.
●
Risk-free
rate(s). The risk-free interest rate is based on the U.S. Treasury
yield curve in effect at the time of grant for periods within the
expected term of the share options and similar
instruments.
Pursuant
to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant
fully vested, non-forfeitable equity instruments that are
exercisable by the grantee only after a specified period of time if
the terms of the agreement provide for earlier exercisability if
the grantee achieves specified performance conditions. Any measured
cost of the transaction shall be recognized in the same period(s)
and in the same manner as if the entity had paid cash for the goods
or services or used cash rebates as a sales discount instead of
paying with, or using, the equity instruments. A recognized asset,
expense, or sales discount shall not be reversed if a share option
and similar instrument that the counterparty has the right to
exercise expires unexercised.
During
the year ended April 30, 2018, the Company issued 653,333
restricted shares of Common Stock (“RSA”) to
independent contractors for professional services. The Company
issued the shares of restricted Common Stock for services as
outlined in the table below:
|
|
|
|
December
1, 2017
|
$
0.063
|
|
January 1,
2018
|
$
0.117
|
|
February 1,
2018
|
$
1.25
|
|
March 1,
2018
|
$
1.25
|
Preferred Stock Convertible to Common Stock
During
the year ended April 30, 2018, the Company converted 45,195
preferred shares into 1,807,800 shares of Common Stock. The Company
designated 500,000 shares as preferred shares. The Company had
agreed to convert certain investor shares of Common Stock into the
preferred shares, which are convertible into shares of Common Stock
at a rate of one preferred share into forty shares of Common Stock.
At April 30, 2018, the Company had 278,422 preferred shares issued
and outstanding. The Company is obligated is issue shares of Common
Stock to the holders of the preferred shares at the holder’s
discretion once the holder submits a notice of conversion to the
Company. The Company shall issue the required number of shares of
Common Stock at a rate of 40 shares of Common Stock to 1 share of
the preferred shares. In addition, the Holders shall have no voting
rights unless and until such shares are converted into shares of
common stock and must provide written notice to the authorized
representative of the Company in order to convert their shares. In
no event may the holder convert any preferred shares into Common
Stock if, as a result of such conversion, the Holder will own of
record and/or beneficially in excess of 4.99% of the outstanding
shares of Common Stock.
On
February 12, 2018, the Company filed a Certificate of Designation
with the State of Nevada effective as of November 11, 2017 for a
newly authorized Series A Convertible Preferred Stock. A total of
500,000 shares of Series A Convertible Preferred Stock have been
authorized of which 278,422 shares were issued and outstanding, as
follows:
|
|
Series A
Convertible Preferred Shares
|
|
JOJ
Holdings, LLC (1)
|
90,922
|
|
JFS
Investments, Inc. (2)
|
187,500
|
|
Total
|
278,422
|
(1) Mr.
Justin Schreiber is the control person of JOJ Holdings,
LLC.
(2) Mr.
Joe Salvani is the control person of JFS Investments,
Inc.
On
March 8, 2018,
JOJ Holdings,
LLC
converted 45,195 Series A Preferred Shares into
1,807,800 shares of Common Stock.
Stock Purchase Warrants
The
stock purchase warrants have been accounted for as equity in
accordance with FASB ASC 480, Accounting for Derivative Financial
Instruments indexed to, and potentially settled in, a
company’s own stock, distinguishing liabilities from
equity.
The
Company had a total of 9,637,500 warrants outstanding as of April
30, 2018 as outlined in the table below:
|
|
|
|
Average Remaining
Contractual Life (years)
|
|
|
Founders
|
2,500,000
|
$
2.50
|
4.39
|
$
–
|
|
Founders
|
2,000,000
|
$
0.25
|
2.39
|
$
–
|
|
Private
Placement
|
5,137,500
|
$
0.25
|
2.48
|
$
–
|
|
Total
|
9,637,500
|
|
|
$
–
|
|
Weighted-average
exercise price
|
|
$
0.83
|
|
|
The
$0.83 per share is the weighted-average exercise price of all
warrants that have been issued, which are convertible into one
share of our Common Stock. 2,000,000 warrants are not yet vested
and will vest on January 1, 2019. As such the 2,000,000 warrants
are not considered when calculating dilutive shares for the
period.
NOTE 13. COST OF GOODS SOLD
The cost of goods sold is the direct costs
attributable to the production of goods sold. Cost of goods sold
primarily consisted of catering and jobs supplies relating to the
events portion of the Company’s business. Cost of goods
sold
for the years ended April 30, 2018 and 2017 were
$328,785 and $0, respectively.
NOTE
14. INCOME TAXES
As
of April 30, 2018, the Company has a federal net operating loss
carry forwards of approximately $12,140,000 that can be
utilized to reduce future taxable income. The net operating loss
carry forward will expire through 2024 if not utilized. Utilization
of the net operating loss and tax credit carry forward may be
subject to substantial annual limitations due to the ownership
change limitations provided by the Internal Revenue Code of 1986,
as amended, and similar state provisions. The annual limitation may
result in the expiration of net operating loss and tax credit carry
forwards before utilization. The Company has provided a full
valuation allowance on the deferred tax asset because of
uncertainty regarding
realizability.
NOTE 15. SUBSEQUENT EVENTS
On July 2, 2018,
the Company entered into a service agreement with BlakFX to provide
consulting services such as building BlakFX’s tokenization
model, an ICO Whitepaper, legal and KYC/AML, and technology review
or design. The Company will receive $150,000 over six months for
the services, plus 0.60% of the total amount of U.S. Dollar raised
in BlakCoin, their token. The $150,000 in U.S. Dothat the Company
will receive is contingent upon BlakFX raising at least $5,000,000
from any funding source. The Company has begun working on the
BlakFX whitepaper.
On August 14, 2018,
the Company entered into a Promissory Note for the principal amount
of $250,000 and a flat rate of $25,000. The Promissory Note is due
and payable on September 14, 2018. In conjunction, with the
Promissory Note, the Company issued to the holder of the Promissory
Note right to purchase 500,000 shares of the Company’s common
stock at a per share purchase price of $1.25.
On
September 5, 2018, the Company entered into a Promissory Note for
the principal amount of $100,000 and interest on the principle at
the rate of 10%. The Promissory Note is due and payable on
September 18, 2018. In conjunction, with the Promissory Note, the
Company issued to the holder of the Promissory Note right to
purchase 50,000 shares of the Company’s common stock at a per
share purchase price of $1.25.
On
October 9, 2018, the Company entered into a subscription purchase
agreement with an accredited investor for $762,606 to purchase
435,775 shares of our common stock at a price of $1.75 per share.
The subscription was paid for in Ether and Bitcoin and translated
into U.S. Dollars at
the then current
market values of Ether and Bitcoin
to arrive at the U.S.
Dollar value of $762,606.
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