BLOCKCHAIN INDUSTRIES, INC.
(Formerly
Omni Global Technologies, Inc.) Balance Sheets
As of January 31, 2018 and April 30, 2017 (as
Restated)
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ASSETS
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Current
assets
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Cash & cash
equivalents
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$
2,712,799
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$
–
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Available-for-sale
securities
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2,283,286
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–
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Notes
receivable
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250,000
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–
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Other current
assets
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51,519
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–
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Total current
assets
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5,297,604
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–
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Non-current
assets
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Property, plant
& equipment, net of accumulated depreciation
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108,675
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–
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Other non-current
assets
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11,317
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–
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Total non-current
assets
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119,992
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–
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Total
assets
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$
5,417,596
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$
–
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LIABILITIES
AND SHAREHOLDERS' DEFICIT
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Current
liabilities
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Accounts payable
and accrued expenses
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$
110,315
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$
493,596
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Deferred
revenue
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1,953,694
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–
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Due to related
parties
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27,289
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3,981,423
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Note
payable
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–
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501,112
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Convertible
note
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–
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53,000
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Total
liabilities
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2,091,298
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5,029,131
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Shareholders'
Deficit
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Preferred stock,
$0.001 par value, 5,000,000 authorized. 328,616.50 shares and zero
shares issued and outstanding as of January 31, 2018 and April 30,
2017, respectively
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329
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–
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Common stock;
$0.001 par value; 400,000,000 shares authorized 36,159,446 and
40,737,406 shares
issued and
outstanding as of January 31, 2018 and April 30, 2017,
respectively
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36,159
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40,737
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Additional paid-in
capital
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10,592,808
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6,159,120
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Accumulated
deficit
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(7,302,998
)
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(11,228,988
)
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Total shareholders'
equity (deficit)
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3,326,298
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(5,029,131
)
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Total liabilities
and shareholders' equity
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$
5,417,596
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$
–
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The
Accompanying Notes Are An Integral Part Of These Financial
Statements.
BLOCKCHAIN INDUSTRIES, INC.
(Formerly
Omni Global Technologies, Inc.) Statements of Operations
(unaudited)
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Three
Months
Ended
January
31,
2018
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Three
Months
Ended
January
31,
2017
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Nine
Months
Ended
January
31,
2018
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Nine
Months
Ended
January
31,
2017
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Sales
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$
108,194
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$
–
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$
108,194
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$
–
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Operating
expenses:
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Professional
fees
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480,994
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5,400
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500,184
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35,690
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Advertising and
marketing expense
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16,069
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16,069
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–
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General and
administrative expense
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129,459
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10
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138,367
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1,628
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Total operating
expenses
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$
626,522
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$
5,410
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$
654,620
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$
37,318
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Income (loss) from
operations
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(518,328
)
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(5,410
)
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(546,426
)
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(37,318
)
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Other income
(expense)
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Debt
forgiveness
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20,000
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5,023,192
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Interest
expense
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(441
)
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250
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(1,323
)
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543
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Unrealized gain
(loss) of equity securities
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(555,957
)
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–
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(555,957
)
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–
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Exchange gain
(loss)
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(12,246
)
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–
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(12,246
)
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–
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Total other income
(expense)
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(548,644
)
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(250
)
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4,453,666
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(543
)
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Income (loss)
before income taxes
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(1,066,972
)
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(5,660
)
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3,907,240
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(37,861
)
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Provision for
income taxes (benefit)
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–
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–
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–
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–
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Net income
(loss)
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$
(1,066,972
)
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(5,660
)
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$
3,907,240
)
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(37,861
)
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Basic earnings
(loss) per common share
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$
(0.03
)
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$
(0.01
)
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$
0.10
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$
(0.05
)
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Diluted earnings
(loss) per common share
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$
(0.02
)
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$
(0.01
)
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$
0.09
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$
(0.05
)
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Weighted-average
number of common shares outstanding:
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Basic
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32,883,186
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737,406
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38,119,333
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737,406
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Diluted
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39,738,384
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737,406
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43,770,835
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737,406
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The
Accompanying Notes Are An Integral Part Of These Financial
Statements.
BLOCKCHAIN INDUSTRIES, INC.
(Formerly
Omni Global Technologies, Inc.) Statement of Cash Flows
(unaudited)
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For the nine
months ended
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Cash flows from
operating activities:
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Net income
(loss)
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$
3,907,240
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$
(37,861
)
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Adjustments to
reconcile net income to net cash provided by (used in) operating
activities:
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Depreciation and
amortization
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125
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–
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Share-based
compensation
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166,603
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–
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Unrealized
(gain)/loss of equity securities
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555,957
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Unrealized currency
translation (gains)/losses
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12,246
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–
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Changes in
operating assets and liabilities:
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Prepaid expenses
and other assets
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(62,836
)
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–
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Increase in notes
receivable
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(250,000
)
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–
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Non-cash
compensation (marketable securities)
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(1,800,000
)
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Accounts payable
and accrued expenses
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(383,281
)
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(5,936
)
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Deferred
revenue
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1,953,694
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–
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Decrease in related
party liabilities
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(3,954,574
)
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–
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Decrease in notes
payable
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(501,112
)
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–
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Decrease in
convertible notes
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(53,000
)
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–
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Net cash provided
by (used in) operating activities
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(408,938
)
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(43,797
)
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Cash flows from
investing activities: Purchases of marketable
securities
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(1,039,783
)
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–
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Purchases of fixed
assets
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(108,800
)
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–
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Net cash provided
by (used in) investing activities
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(1,148,583
)
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–
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Cash flows from
financing activities: Loans and advances
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441
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43,843
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Sale of common and
preferred stock
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4,282,125
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–
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Net cash provided
by financing activities
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4,282,566
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43,843
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Net change in
cash
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2,725,045
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46
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Cash, beginning of
the period
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–
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–
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Effects of currency
translation on cash and cash equivalents
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(12,246
)
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–
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Cash, end of the
period
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$
2,712,799
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$
46
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The
Accompanying Notes Are An Integral Part Of These Financial
Statements.
Notes to Unaudited Financial Statements
For
the Three and Nine Month Interim Periods Ended January 31, 2018
(Unaudited)
NOTE
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
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.
However, from
October 2008 through early 2016, the Company’s operations
were limited as a result of limited capital resources.
Nevertheless, the Company continued operations of the Hotel.vn
website. On May 15, 2016, the Company was placed under the control
of a Receiver in Nevada’s Eighth Judicial District. 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 and maintain its
web-related business. 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”) from the Company by the authority of
the Receiver; (ii) assumed the liabilities of a judgement creditor
in the amount of approximately $25,000; and (iii) paid the Receiver
$150,000 which monies were used to cover the Receiver’s and
other company expenses. 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. On November 15, 2017, Mr. Patrick
Moynihan was appointed as the Company’s Chief Executive
Officer, Chief Financial Officer and Chairman/sole director and, on
the same date, Ms. Funk resigned all positions as an executive
officer and director of the Company. On December 1, 2017, the
Company announced Mr. Zack Pontgrave as President, although a
formal agreement was never signed, and Mr. Bryan Larkin as Chief
Technology Officer, respectively, joining Mr. Moynihan as part of
the Company’s management team. As of April 2018, the Company
has withdrawn the offer to Mr. Pontgrave, and the Company is
currently negotiating a separation agreement.
While
we initially purchased a new domain, hotelsinvietnam.net, which the
Company used for marketing Vietnamese travel businesses (the
“Legacy Business”) to be monetized through our newly
established blockchain technology, we are discontinuing that
business to focus on our broader business model related to the
blockchain technologies market, within the blockchain technology
market and intend to target and acquire or build a broad portfolio
of virtual currencies, digital coin and tokens, and other
blockchain assets (the “Digital Assets”) within four
business verticals:
●
Digital Asset Bank
& Investment Management
●
Initial Coin
Offerings (“ICOs”) and Ventures
The
Company discontinued the Legacy Business as of April 30,
2018.
Recent Share Recapitalization
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. The Company previously implemented a 1
for 15 reverse stock split effective November 18,
2016.
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Mana
g
ement’s Representation
o
f
Interim Financial
Statements
The
accompanying unaudited consolidated financial statements have been
prepared by the Company without audit pursuant to the rules and
regulations of the SEC. Certain information and disclosures
normally included in financial statements prepared in accordance
with US GAAP have been condensed or omitted as allowed by such
rules and regulations, and management believes that the disclosures
are adequate to make the information presented not misleading.
These consolidated financial statements include all of the
adjustments, which in the opinion of management are necessary to a
fair presentation of financial position and results of operations.
All such adjustments are of a normal and recurring nature. Interim
results are not necessarily indicative of results for a full year.
These consolidated financial statements should be read in
conjunction with the audited consolidated financial statements at
April 30, 2017 as presented in the Company’s Annual Report on
Form 10-K filed on August 30, 2017 with the SEC, and as amended on
May 21, 2018.
Revenue Reco
g
nition
The
Company recognizes 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. Amounts collected before these criteria are met are
recorded as deferred revenue.
Currently, the
Company’s revenue is in the form of consulting services
provided to customers. Revenue is recognized prorata on a monthly
basis over the term of the contractual agreement.
At
the time of the filing, the Company was unable to determine the
percentage of completion for the one project it was contracted to
perform and, as such, felt that using a pro rata method of
accounting was most appropriate at this time. If and when the
services and deliverables have been completed, we will immediately
record the remaining portion of the Deferred Revenue.
Marketable Securities
The
Company determines the appropriate classification of its marketable
securities, which consist primarily of investments in Digital
Assets, such as Bitcoin and Ethereum, at the time of purchase and
reevaluates such designation at each balance sheet date. All of the
Company’s marketable securities are considered
available-for-sale and carried at estimated fair values and
reported as available-for-sale securities on the balance sheet. The
Company has adopted ASU 2016-01, and now records unrealized gains
and losses on available-for- sale securities in net income and
reported as “Unrealized gain (loss) of equity
securities” on the income statement. Other income includes
realized gains and losses on sales of securities and
other-than-temporary declines in the fair value of securities, if
any. The cost of securities sold is based on the specific
identification method. The Company regularly reviews all of its
investments for other-than- temporary declines in fair value. The
Company’s review includes the consideration of the cause of
the impairment, including the creditworthiness of the security
issuers, the number of securities in an unrealized loss position,
the severity and duration of the unrealized losses, whether the
Company has the intent to sell the securities and whether it is
more likely than not that it will be required to sell the
securities before the recovery of their amortized cost basis. If
the Company were to determine that the decline in fair value of an
investment is below its accounting basis and the decline is
other-than-temporary, the Company would reduce the carrying value
of the security and record a loss for the amount of such
decline.
Goin
g
Concern
The
Company has an accumulated deficit of approximately $26 million
from its inception on September 15, 1995 to date. 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.
Stock-based compensation
The
Company follows the provisions of ASC 718, “Share-Based
Payment” and ASC 505-50 “Equity-Based Payments to Non-
Employees”. Under this guidance compensation cost generally
is recognized at fair value on the date of the grant and amortized
over the respective vesting periods. The fair value of options at
the date of grant is estimated using the Black-Scholes option
pricing model. The expected option life is derived from assumed
exercise rates based upon historical exercise patterns and
represents the period of time that options granted are expected to
be outstanding. The expected volatility is based upon historical
volatility of the Company’s shares using weekly price
observations over an observation period that approximates the
expected life of the options. The risk-free rate approximates the
U.S. Treasury yield curve rate in effect at the time of grant for
periods similar to the expected option life. Due to limited history
of forfeitures, the estimated forfeiture rate included in the
option valuation was zero.
While
ASC 505-50 does not specifically indicate which period expenses
should be recognized, the guidance does indicate that the expenses
should be recognized in the same period as when the services were
performed. The stock-based compensation, that are expensed at fair
value, accrue over the service period (vesting period) and are
re-measured every period until they are settled if the services are
to be performed over a period of time. On the vesting date, a final
adjustment is made to reconcile the prior expenses. Note that if
the performance requirements have been met but grant has expired,
the expenses are not reversed. However, if the performance
requirements have not been met then the expenses are
reversed.
Many
of the assumptions require significant judgment and any changes
could have a material impact in the determination of stock-based
compensation expense.
Fair Value Measurements
The
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 820
“Fair Value Measurements and Disclosures” (“ASC
820”) defines fair value as the exchange price that would be
received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants
on the measurement date. ASC 820 also establishes a fair value
hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when
measuring fair value. The standard describes three levels of inputs
that may be used to measure fair value:
Level 1
- Quoted prices in active
markets for identical assets or liabilities;
Level 2
- Inputs other than quoted
prices included within Level 1 that are either directly or
indirectly observable; and
Level 3
- Unobservable inputs that are
supported by little or no market activity, therefore requiring an
entity to develop its own assumptions about the assumptions that
market participants would use in pricing.
Fair
value estimates discussed herein are based upon certain market
assumptions and pertinent information available to management as of
January 31, 2018 and April 30, 2017. The Company uses the market
approach to measure fair value for its Level 1 financial assets and
liabilities. The market approach uses prices and other relevant
information generated by market transactions involving identical or
comparable assets or liabilities. The respective carrying value of
certain balance sheet financial instruments approximates its fair
value. These financial instruments include cash, marketable
securities, related party payables, accounts payable and accrued
liabilities. Fair values were estimated to approximate carrying
values for these financial instruments since they are short term in
nature and they are receivable or payable on demand.
The
estimated fair value of assets and liabilities acquired in business
combinations and reporting units and long-lived assets used in the
related asset impairment tests utilize inputs classified as Level 3
in the fair value hierarchy.
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.
The
Company classifies certain accounts holding Bitcoin and Ethereum to
be cash equivalents and records them at their initial cost, and
subsequently re-measures the carrying amounts it owns at each
reporting date based on their current fair value. The changes in
the fair value are included as a component of income or loss from
operations. The Company considers certain accounts holding Bitcoin
and Ethereum as cash because they are readily convertible to U.S.
Dollars and the Company has used these currencies to receive and
make payments for services.
The
Company obtains the equivalency rate of Bitcoins and Ethereum to
U.S. Dollars by using the historical values from Coin Market Cap
(https://coinmarketcap.com). The equivalency rate obtained
represents a generally well recognized quoted price in an active
market for Bitcoin and Ethereum, which website is accessible to the
Company on an ongoing basis. The Company may maintain its Bitcoin
and Ethereum in wallets of an online exchange or in a cold storage
wallet.
Proper
ty
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.
The
estimated useful lives of property and equipment are as
follows:
|
Computer
software and office equipment
|
1-5
years
|
|
Furniture
and fixtures
|
5-10
years
|
|
Mining
Facility
|
No
depreciation is taken until the project is completed and placed
into service
|
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.
Use
o
f
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.
Recent Accountin
g
Pronouncements
In
May 2017, the FASB issued ASU 2017-09, Compensation - Stock
Compensation (Topic 718): Scope of Modification Accounting. The new
standard provides 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. This pronouncement is
effective for annual reporting periods beginning after December 15,
2017 but early adoption is permitted. The Company is currently
evaluating the impact of adopting this guidance.
In
August 2016, the FASB issued ASU No. 2016-15, Statement of Cash
Flows (Topic 230): Classification of Certain Cash Receipts and Cash
Payments (“ASU 2016-15”). ASU 2016-15 addresses eight
specific cash flow issues with the objective of reducing diversity
in practice regarding how certain cash receipts and cash payments
are presented in the statement of cash flows. The standard provides
guidance on the classification of the following items: (1) debt
prepayment or debt extinguishment costs, (2) settlement of
zero-coupon debt instruments, (3) contingent consideration payments
made after a business combination, (4) proceeds from the settlement
of insurance claims, (5) proceeds from the settlement of
corporate-owned life insurance policies, (6) distributions received
from equity method investments, (7) beneficial interests in
securitization transactions, and (8) separately identifiable cash
flows. The Company is required to adopt ASU 2016-15 for fiscal
years, and for interim periods within those fiscal years, beginning
after December 15, 2017 on a retrospective basis. Early adoption is
permitted, including adoption in an interim period. The Company is
currently evaluating the impact of adoption of ASU
2016-15.
In
March 2016, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) 2016-09, “Compensation – Stock
Compensation: Improvements to Employee Share-Based Payment
Accounting,” which relates to the accounting for employee
share-based payments. This standard addresses several aspects of
the accounting for share-based payment award transactions,
including: (a) income tax consequences; (b) classification flows of
awards as either equity or liabilities; and (c) classification on
the statement of cash flows. This standard will be effective for
fiscal years beginning after December 15, 2016, including interim
periods within those fiscal years. The Company is in the process of
evaluating the impact of the adoption of ASU 2016-09 on its
consolidated financial statements. The adoption of ASU No. 2016-09
is not expected to have a material impact on the Company's
consolidated financial statements or related
disclosures.
All
other accounting standards that have been issued or proposed by the
FASB that do not require adoption until a future date are not
expected to have a material impact on the consolidated financial
statements upon adoption.
NOTE
3. PROVISION FOR INCOME TAXES
As of
January 31, 2018, the Company has a federal net operating loss
carry forwards of $ $6,264,744 that can be utilized to reduce
future taxable income. The net operating loss carry forward will
expire through 2023 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.
Management expects
to perform an analysis of the net operating loss carry forwards and
the impact of the recent changes in equity, which will provide
certainty over the limitations of the net operating
loss.
NOTE
4. AVAILABLE-FOR-SALE SECURITIES
The
following table sets forth the components of the Company’s
marketable securities at January 31, 2018 and April 30,
2017:
|
|
|
|
Description
|
|
Gross
Unrealized
gain (loss)
|
|
|
Chimes - Equity
Token
|
$
200,000
|
$
–
|
$
200,000
|
|
Chimes - Utility
Token
|
50,000
|
–
|
50,000
|
|
Video Coin -
Utility Token
|
50,000
|
–
|
50,000
|
|
Academy - Utility
Token
|
250,000
|
–
|
250,000
|
|
Coral Health -
Utility Token
|
250,000
|
–
|
250,000
|
|
Kinerjay Pay Common
Stock
|
1,800,000
|
(550,000
)
|
1,250,000
|
|
BTC
Wallet
|
26,928
|
(2,179
)
|
24,749
|
|
EOS
Wallet
|
20,323
|
(2,651
)
|
17,672
|
|
NEO
Wallet
|
101,523
|
(1,698
)
|
99,825
|
|
OMG
Wallet
|
20,870
|
(429
)
|
20,441
|
|
QTUM
Wallet
|
14,480
|
1,858
|
16,338
|
|
REP
Wallet
|
55,119
|
(858
)
|
54,261
|
|
Total
available-for-sale securities
|
$
2,839,243
|
$
(555,957
)
|
$
2,283,286
|
There
were no marketable securities 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.
We have an agreement with Chimes to purchase
500,000 tokens of their Series T Preferred Equity Token
“
Chimes Equity Tokens
”. Chimes will sell a total of 100,000,000
Chimes Equity Tokens. Chimes Equity Tokens share the same economic
value as commons shares of Chimes expect the Chimes Equity Tokens
are non-voting shares. For the utility tokens, they will be similar
to other tokens that trade on alternative trading systems, and do
not represent an equity interest in the underlying issuer, but an
investment in the blockchain platform.
NOTE
5. PROPERTY AND EQUIPMENT
The
following table sets forth the components of the Company’s
property, plant and equipment at January 31, 2018 and April 30,
2017:
|
|
|
|
|
|
|
|
|
Capital assets
subject to depreciation:
|
|
|
|
|
Computers, software
and office equipment
|
7,527
|
(125
)
|
7,402
|
|
Mining Facility (in
progress)
|
101,273
|
–
|
101,273
|
|
Total
fixed assets
|
108,800
|
(125
)
|
108,675
|
There
was no property and equipment as of April 30, 2017.
NOTE
6. 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 $5,023,192 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, 2017.
NOTE
7. DEFERRED REVENUE
As of
January 31, 2018, deferred revenue amounted to $1,953,694 compared
to zero as of April 30, 2017. The deferred revenue was concentrated
in one customer with whom the Company had signed a one-year
consulting agreement with 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
8. DUE TO RELATED PARTIES
As of
January 31, 2018, the balance due to related parties was $27,289.
As April 30, 2017, the balance due to related parties
was
$3,981,423. This
amount was written off as part of the discharge of receivership
described in Note 6. Liabilities Discharged in Receivership. The
amount of $27,289 relates to a liability assumed by the Company
related to the Share Purchase Agreement with JOJ Holdings described
in Note 1. Organization and Description of Business.
NOTE
9. STOCKHOLDERS’ EQUITY
Common and
Pr
e
ferred
Stock
The
Company has 400,000,000 shares of Common Stock authorized with a
par value of $0.001 per share and 5,000,000 shares of Preferred
Stock authorized, with a par value of $0.001 per
share.
As of
January 31, 2018, and April 30, 2017 there were 36,159,446 and
737,406 shares of Common Stock outstanding, respectively. As of
January 31, 2018, and April 30, 2017 there were 328,616.50 and zero
preferred shares outstanding, respectively. 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. Per ASC
230- 10-50-3, we executed a non-cash financing activity by entering
into an agreement with certain shareholders to convert their
13,144,660 shares of Common Stock into 328,616.50 shares of the
Company’s Series A Preferred Stock.
As of
January 31, 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
|
13,144,660
|
|
Warrants
|
7,637,500
|
|
Stock
options
|
234,247
|
|
Share count reconciliation
|
|
|
Beginning share
balance April 30, 2017
|
737,406
|
|
Control Shares
issued
|
40,000,000
|
|
Shares issued in
private placements
|
12,946,700
|
|
RSU’s
vested
|
620,000
|
|
Shares
retired
|
(5,000,000
)
|
|
Shares converted to
preferred stock.
|
(13,144,660
)
|
|
Ending share
balance January 31, 2018
|
36,159,446
|
Common Stock and Warrants Issued in Private Placements
During
the nine-month period ended January 31, 2018, the Company accepted
subscription agreements, issuing 12,946,700 shares of Common Stock
for $4,282,125. The Company issued the shares of Common Stock as
outlined in the table below:
|
|
|
|
|
$
0.05
|
4,000,000
|
$
200,000
|
|
$
0.10
|
6,175,000
|
$
617,500
|
|
$
1.25
|
2,771,700
|
$
3,464,625
|
|
|
12,946,700
|
$
4,282,125
|
As part
of the $0.05 and $0.10 rounds of investment, investors received
warrants equal to 50% of the shares received at an exercise price
of $0.25. Through the nine-months ended January 31, 2018, the
Company had issued 5,137,500 as part of the issuance for the $0.05
and $0.10
rounds.
Common Stock Issued in
Exchan
ge
for
Consultin
g,
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. We grant share-based payment
over the term of our agreements with vesting schedule to incentive
personnel over time. After the reporting period, we conducted a
409A valuation with the firm SingerLewak, The date of the 409A
valuation was May 22, 2018. SingerLewak took certain available
information about the Company and assess the following values at
specific dates:
|
|
|
|
December
1, 2017
|
0.063
|
|
January
1, 2018
|
0.117
|
|
February
1, 2018
|
1.25
|
|
March
1, 2018
|
1.25
|
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.
The
Company will continue to assess material changes to its business
that would affect our market values, and we may decide that certain
conditions would allow us to use the OTC-traded price as an
accurate representation of a fair market value of our common
stock.
During
the nine-month period ended January 31, 2018, the Company issued
2,620,000 restricted shares of Common Stock (“RSA”) to
independent contractors for professional services. The fair value
of the restricted shares was calculated to be $508,140 using the
price per share on the grant date of each restricted stock award.
The Company issued the shares of restricted Common Stock for
services as outlined in the table below:
|
RSAs
|
|
Remeasured Weighted Average Fair
Value
|
|
RSA
Unvested at the beginning of the Period
|
|
$
–
|
|
RSA
Granted During the Period
|
2,620,000
|
$
0.11
|
|
RSA
Canceled During the Period
|
|
$
–
|
|
RSA
Vested During the Period
|
620,000
|
$
0.07
|
|
RSA
Unvested at the End of the Period
|
2,000,000
|
$
0.12
|
|
|
|
Weighted Average Exercise
Price
|
|
Weighted Average Remaining
Life
|
Remeasured Weighted Average
Fair Value
|
|
Outstanding
at Beginning of Period
|
|
$
–
|
$
–
|
-
|
$
–
|
|
Exercisable
at the End of the Period
|
276,332
|
$
0.82
|
$
–
|
5.90
|
$
0.072
|
|
Granted
During the Period
|
1,422,000
|
$
1.92
|
$
–
|
7.92
|
$
0.107
|
|
Exercised
During the Period
|
|
$
–
|
$
–
|
-
|
$
-
|
|
Canceled
during the Period(Forfeited)
|
|
$
–
|
$
–
|
-
|
$
-
|
|
Canceled
during the Period(Expired)
|
|
$
–
|
$
–
|
-
|
$
-
|
|
Outstanding
at the End of the Period
|
1,422,000
|
$
1.92
|
$
–
|
7.92
|
$
0.107
|
|
Options
Vested During the Period
|
276,332
|
$
0.82
|
$
–
|
5.90
|
$
0.072
|
|
Vested
at end of Period
|
276,332
|
$
0.82
|
$
–
|
5.90
|
$
0.072
|
|
Shares
Expected to vest
|
1,145,668
|
$
2.19
|
$
–
|
8.40
|
$
0.116
|
|
Vested
and Expected to vest
|
1,422,000
|
$
1.92
|
$
–
|
7.92
|
$
0.107
|
Pr
e
ferred Notes Convertible to Common
Stock
During
the nine-month period ended January 31, 2018, the Company converted
13,144,660 shares of Common Stock into Series A Convertible
Preferred Stock (the “Preferred Shares”). 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 January 31, 2018, the Company had 328,616.50 Preferred Shares
issued and outstanding.
Key
terms of the Preferred Shares include:
●
Holders shall have
no voting rights unless and until such shares are converted into
shares of common stock.
●
Holders 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 shares of Series A 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 328,616.50 shares were issued and outstanding,
as follows:
|
|
Series A
Convertible Preferred Shares
|
|
JOJ Holdings, LLC
(1)
|
141,116.50
|
|
JFS Investments,
Inc. (2)
|
187,500.00
|
(1)
Mr. Justin
Schreiber is the control person of JOJ Holdings, LLC.
(2)
Mr. Joe Salvani is
the control person of JFS Investments, Inc.
The
Company is obligated is issue shares of Common Stock to the holders
of the Preferred Shares 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.
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 January
31, 2018 as outlined in the table below:
|
|
|
|
Average
Remaining Contractual
Life (years)
|
|
|
Founders
|
2,500,000
|
$
2.50
|
4.79
|
$
–
|
|
Founders
|
2,000,000
|
$
0.25
|
2.79
|
–
|
|
Private
Placement
|
5,137,500
|
$
0.25
|
2.85
|
–
|
|
|
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 are not
considered when calculating dilutive shares for the
period.
NOTE
10. 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 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 that
certain components of the Company’s shareholders’
equity (deficit) had not been adjusted for the above mentioned
forward split.
The
balance at January 31, 2018, of common stock and additional paid-in
capital was originally reported at $17,769 and $10,611,198,
respectively and revised as $36,159 and $10,592,808, respectively.
The balance at April 30, 2017, of common stock and additional
paid-in capital was originally reported at $10,368 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
Company previously disclosed on page 22 of amendment No. 1 to Form
10-Q for the fiscal quarter ended January 31, 2018, $18.8 million
of non-cash stock-based compensation expense. The Company had
corrected the stock-based compensation expense and recorded the
amount as $166,603 in the statement of operations and statement of
cash flows in Amendment No. 1, however, inadvertently did not
change the disclosure on page 22 from the original filing of the
Form 10-Q for the fiscal quarter ended January 31,
2018.
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.
As of the date of this Report,
the Company has funded $500,000 toward the AutoLotto Agreement, of
which $250,000 was funded at the period ending January 31,
2018
. The Company inadvertently classified the $250,000
funded to AutoLotto.com as an investment in available-for-sale
securities. As such, the Company reclassed this amount to Notes
Receivable.
The
following tables summarize the effects of the revisions on the
financial statements for the periods reported:
|
Consolidated
Balance Sheets as of January 31, 2018
|
|
|
|
|
Available-for-sale
securities
|
$
2,533,286
|
$
(250,000
)
|
$
2,283,286
|
|
Note
receivable
|
$
-
|
$
250,000
|
$
250,000
|
|
Consolidated
Statement of Operations for the 3 months ended January 31,
2018
|
|
|
|
|
Professional
fees
|
$
19,101,968
|
$
(18,620,974
)
|
$
480,994
|
|
Net income
(loss)
|
$
(19,131,989
)
|
$
18,065,017
|
$
(1,066,972
)
|
|
Basic earnings
(loss) per common share
|
$
(0.53
)
|
$
0.50
|
$
(0.03
)
|
|
Diluted earnings
(loss) per common share
|
$
(0.45
)
|
$
0.43
|
$
(0.02
)
|
|
Consolidated
Statement of Operations for the 9 months ended January 31,
2018
|
|
|
|
|
Professional
fees
|
$
19,121,158
|
$
(18,620,974
)
|
$
500,184
|
|
Net income
(loss)
|
$
(14,157,777
)
|
$
18,064,398
|
$
3,907,240
|
|
Basic earnings
(loss) per common share
|
$
(0.36
)
|
$
0.46
|
$
0.10
|
|
Diluted earnings
(loss) per common share
|
$
(0.32
)
|
$
0.41
|
$
0.09
|
|
Consolidated
Statement of Shareholders' Equity (Deficit) as of January 31,
2018
|
|
|
|
|
Common stock -
amount
|
$
17,769
|
$
18,390
|
$
36,159
|
|
Additional paid-in
capital
|
$
10,611,198
|
$
(18,390
)
|
$
10,592,808
|
|
|
|
|
|
|
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
11. SUBSEQUENT EVENTS
During
the period from February 1, 2018 through the date of this amended
Report, the Company has raised a total $1,445,000 through the
private placements of its common stock at $1.25 per share, issuing
1,248,000 shares of Common Stock. No warrants were issued as part
of these private placements.
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 tokens from the Company for 2,000,000 Euros,
or at the time of the purchase, approximately $2,481,600 USD. To
date the Company has purchased tokens amounting to approximately
1,128,770 tokens for a purchase price of 395,069.53 Euros. 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. 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.
Le
g
atumX:
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
|
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.
Basecoin &
Or
ig
in
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 create and manage listings for the fractional usage
of assets and services.
Item
2.
Management’s Discussion
and Analysis of Financial Condition and Results of
Operations
The following discussion should be read in conjunction with our
financial statements and notes thereto included herein. In
connection with, and because we desire to take advantage of, the
“safe harbor” provisions of the Private Securities
Litigation Reform Act of 1995, we caution readers regarding certain
forward-looking statements in the following discussion and
elsewhere in this report and in any other statement made by, or on
our behalf, whether or not in future filings with the Securities
and Exchange Commission. Forward looking statements are statements
not based on historical information and which relate to future
operations, strategies, financial results or other developments.
Forward looking statements are necessarily based upon estimates and
assumptions that are inherently subject to significant business,
economic and competitive uncertainties and contingencies, many of
which are beyond our control and many of which, with respect to
future business decisions, are subject to change. These
uncertainties and contingencies can affect actual results and could
cause actual results to differ materially from those expressed in
any forward-looking statements made by, or on our behalf. We
disclaim any obligation to update forward looking
statements.
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. On November 15, 2017, Mr. Patrick
Moynihan was appointed as the Company’s Chief Executive
Officer, Chief Financial Officer and Chairman/sole director and, on
the same date, Ms. Funk resigned from all positions as an executive
officer and director of the Company. On December 1, 2017, the
Company announced Mr. Zack Pontgrave as President, although a
formal agreement was never signed, and Mr. Bryan Larkin as Chief
Technology Officer, respectively, joining Mr. Moynihan as part of
the Company’s management team. As of April 2018, the Company
has withdrawn the offer to Mr. Pontgrave, and the Company is
currently negotiating a separation agreement. The Company has made
two appointments to its Board of Directors after the reporting
period. Mr. Max Robbins and Mr. Tony Evans have both joined our
Board of Directors.
While
we initially purchased a new domain, hotelsinvietnam.net, which the
Company used for marketing Vietnamese travel businesses (the
“Legacy Business”) to be monetized through our newly
established block chain technology, we are discontinuing that
business to focus on our broader business model related to the
blockchain technologies market, within the blockchain technology
market and intend to target and acquire or build a broad portfolio
of virtual currencies, digital coin and tokens, and other
blockchain assets (the “Digital Assets”) within four
business verticals:
●
Digital Asset Bank
& Investment Management
●
Initial Coin
Offerings (“ICOs”) and Ventures
The
Company discontinued the Legacy Business as of April 30,
2018.
Kine
r
jaPa
y
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.
Chimes
ICO
:
On
December 19, 2017 and February 5, 2018, the Company entered into
two agreements with Chimes Broadcasting, Inc. to purchase 500,000
equity tokens for $400,000 (the “Chimes Equity
Tokens”). The financial statements at the period of January
31, 2018 will only show $200,000 invested in the Chimes Equity
Token. The Chimes Equity Tokens will give the Company equity in
Chimes Broadcasting, Inc. In addition, the Company entered into
another agreement with Chimes Broadcasting, Inc. which grants us
the option to purchase future utility tokens for use on the Chimes
network platform.
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.
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, 2018.
As of
the date of this Report, the Company has funded $500,000 toward the
AutoLotto Agreement, of which $250,000 was funded at the period
ending January 31, 2018.
Academ
y
:
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.
RESULTS
OF OPERATIONS
Results of Operations for the three months ended January 2018 and
2017
Service Revenue
Revenue
was $108,194 for the three-month period ended January 31, 2018
compared to no revenue during the same three-month period ended
January 31, 2017. As aforementioned, the Company was under the
control of a Court appointed Receiver during the 2017 period. For
the period ended January 31, 2018 the Company primarily focused on
generating revenue from the Digital Asset market. The revenue
recorded during this period relates exclusively to the agreement it
signed with KPAY for ICO consulting services.
Under
the terms of the 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 this agreement at any time for any reason whatsoever
without an obligation to return any of the consideration received.
In the event that occurs, the Company would immediately record the
entire deferred liability balance as service revenue. The Company
intends to continue to work with KPAY throughout the term of the
contract and recognize monthly service income on a prorata basis.
Since the common stock from KPAY is restricted, it cannot be traded
for a period of at least six months. There can be no assurances
that KPAY will be worth a $1.80 per share, or have any value
whatsoever, at the time we decide to sell our shares. As of January
31, 2018, the value of the KPAY stock was $1.25 per share, or the
equivalent of an unrealized loss of $550,000. This loss was
recorded on the Company’s balance sheet in accumulated other
comprehensive income.
Operatin
g
expenses
Operating expenses
for the three-month period ended January 31, 2018 were $626,522
compared to $5,410 during the same period ended January 31, 2018.
The increase is attributable to the commencement of significant
operations, primarily in the form of professional fees and
administrative fees. These expenses include $480,994 in legal and
professional services, $16,069 in advertising and marketing, as
well as $129,459 in general and administrative expenses. Of the
$480,994 of legal and professional services, $166,063 is
attributable to share- based compensation.
Earnin
g
s per share
,
basic and full
y
diluted
The
weighted average number of shares outstanding used in computing
earnings per share on a diluted basis was 39,738,384 shares for the
three months ended January 31, 2018, an increase from 737,406
shares in the corresponding 2017 period. This increase resulted
primarily from the issuance of stock options, warrants, RSAs,
private placements of our common stock offset by the retirement of
5,000,00 shares.
Results of Operations for the nine months ended January 2018 and
2017
Service Revenue
Revenue
was $108,194 for the nine-month period ended January 31, 2018
compared to no revenue during the same three-month period ended
January 31, 2017. As described throughout this Report, the Company
was under the control of a Court appointed Receiver during the 2017
period. For the period ended January 31, 2018 the Company primarily
focused on generating revenue from the Digital Asset market. The
revenue recorded during this period relates exclusively to the
agreement it signed with KPAY for ICO consulting
services.
Under
the terms of the 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 this agreement at any time for any reason whatsoever
without an obligation to return any of the consideration received.
In the event that occurs, the Company would immediately record the
entire deferred liability balance as service revenue. The Company
intends to continue to work with KPAY throughout the term of the
contract and recognize monthly service income on a prorata basis.
Since the common stock from KPAY is restricted, it cannot be traded
for a period of at least six months. There can be no assurances
that KPAY will be worth a $1.80 per share, or have any value
whatsoever, at the time we decide to sell our shares. As of January
31, 2018, the value of the KPAY stock was $1.25 per share, or the
equivalent of an unrealized loss of $550,000. This loss was
recorded on the Company’s balance sheet in accumulated other
comprehensive income.
Operatin
g
expenses
Operating expenses
for the nine-month period ended January 31, 2018 were $654,620
compared to $37,318 during the same period ended January 31, 2017.
The increase is attributable to the commencement of significant
operations, primarily in the form of professional fees and
administrative fees. These expenses include $500,184 in legal and
professional services, $16,069 in advertising and marketing, as
well as $138,367 in general and administrative expenses. Of the
$500,184 of legal and professional services, $166,063 is
attributable to share- based compensation.
Earnin
g
s per share
,
basic and full
y
diluted
The
weighted average number of shares outstanding used in computing
earnings per share on a diluted basis was 43,770,835 shares for the
three months ended January 31, 2018, an increase from 737,406
shares in the corresponding 2017 period. This increase resulted
primarily from the issuance of stock options, warrants, RSAs,
private placements of our common stock offset by the retirement of
5,000,00 shares.
LIQUIDITY
AND CAPITAL RESOURCES
We had
$2,712,799 in cash on hand as of January 31, 2018.
We used
$159,477 in cash for operating activities during the nine-month
period ended January 31, 2018, compared to using $43,797 during the
nine-month period ended January 31, 2017. The use of $159,477 is
mostly attributable to $568,203 of unrealized losses, and a change
in deferred revenue of $1,953,694 offset by the change in non-cash
compensation of $1,800,000 and a decrease in accounts payable and
other liabilities of approximately $4.9 million, which mostly
included the retirement of debt through a court order from Clark
County, Nevada.
As a
result of a court order from Clark County, Nevada, dated June 13,
2017, a judgement by the Receiver was granted and any claims not
listed on the court order were barred by statute. Therefore, we
eliminated of approximately $5 million of debt during the nine
months ended January 31, 2018. White Tiger Partners, LLC became the
judgement creditor as a result of the Share Purchase Agreement that
JOJ Holdings, LLC entered into with the Receiver, obtaining a
judgment of $22,025.39 at 8% interest per annum. As of the date of
this amended 10-Q, the principal and interest to White Tiger
Partners, LLC has been fully paid. There was an additional $20,000
of debt owed to JOJ Holdings, LLC, which was forgiven during the
three months ended January 31, 2018.
We used
$1,398,043 in investing activities during the period ended January
31, 2018 compared to zero during the same period in 2017. The
increase is attributable to the purchase of $108,800, in fixed
assets and from the purchase of approximately $1.3 million, in
marketable securities.
Cash
from financing activities increase to $4,282,125 during the period
ended January 31, 2018 compared to $43,843 during the period ended
January 31, 2017. The increase is attributable to the sale of
common stock through private placements. Per ASC 230-10-50-3, we
executed a non-cash financing activity by entering into an
agreement with certain shareholders to convert their 13,144,660
shares of common stock into 328,616.50 Preferred
Shares.
We are
focused on securing sufficient capital to fund our ongoing
operations. In that regard, as part of our current fundraising
efforts, and subsequent to January 31, 2018, we raised $1,445,000
through the sale of restricted shares of our Common Stock, par
value $0.001 (each a “Share” collectively, the
“Shares”) at $1.25 per Share in private placements made
in reliance upon Section 4(2) of the Securities Act of 1933, as
amended (the “Act”) and Regulation D promulgated by the
United States Securities and Exchange Commission (the
“SEC”) under the Act. Our intention in furtherance of
our business plan is to raise a total of at least $10 million
through equity offerings pursuant to Regulation D and/or Regulation
S under the Act, which should enable us to sustain operations
through the end of calendar year 2019. We are in the process of
meeting with numerous investors in the U.S., Europe and Asia, and
believe that our financing initiatives will be successful. However,
there can be no assurance that we will, in fact, be successful in
our efforts at terms and conditions satisfactory to the Company. If
the Company is unsuccessful in attracting additional capital at
satisfactory terms, if at all, the lack of adequate funding could
adversely impact the Company’s business operations and
ability to fulfill its business plan and future
prospects.
The
Company has hired contractors, of which we intend a majority to
become full-time employees, to assist us with regulatory
environments and to generate revenue. Our goal is to increase our
liquidity by generating revenue through our efforts, however, our
liquidity demands currently outweigh our revenue-generating assets.
Therefore, we anticipate external funding will be the main source
of our liquidity until we are able to generate sufficient revenues.
The Company is actively seeking both external and internal sources
of liquidity to improve our financial condition going
forward.
Inflation
Although our
operations may be influenced by general economic conditions, we do
not believe that inflation had a material effect on our results of
operations during the nine-month period ended January 31,
2018.
Off-Balance Sheet Arrangements
We had
no off-balance sheet arrangements as of January 31, 2018 and April
30, 2017.
Critical Accounting Estimates
Our
financial statements and accompanying notes have been prepared in
accordance with U.S. GAAP. The preparation of these financial
statements requires management to make estimates, judgments and
assumptions that affect reported amounts of assets, liabilities,
revenues and expenses. We continually evaluate the accounting
policies and estimates used to prepare the financial statements.
The estimates are based on historical experience and assumptions
believed to be reasonable under current facts and circumstances.
Actual amounts and results could differ from these estimates made
by management. Certain accounting policies that require significant
management estimates
and are deemed
critical to our results of operations or financial position are
discussed below and should be read in reference to NOTE 2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES above.
Revenue Reco
g
nition
We have
adopted ASU 2014-09 and, as such, we analyze obligations on
contracts with customers, assessing the transaction price and
recording revenue accordingly. During the nine months ended January
31, 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.
Stock-based compensation
In
accordance with determining values of compensation delivered in our
Common Stock, we are required to use estimates on the value of our
Common Stock, in addition to volatility of our stock, among other
financial metrics. Our stock is thinly traded may not be the best
indicator of the valuation of our Company, however, it was the only
available price we could reasonably use to determine the value of
our stock-based compensation. In addition, to determine volatility
of for the valuation of option using a Black-Scholes valuation
model, the Company needed to use peer companies, of which there is
limited supply whose equity trades in public markets. The result of
the estimates used in our valuation was approximately $166,603 of a
non-cash stock-based compensation expense for the three-months
ended January 31, 2018. As more data becomes readily available, the
Company may determine to change the estimates used in the
valuation, which could have a material impact on the valuation of
our stock-based compensation expense.
Available-for-Sale Securities
The
Company uses estimates to determine the fair value of our AFS
securities, especially those in Digital Assets. For example, some
AFS securities were determined to have readily available market
values on alternative trading systems, which trade assets like
Bitcoin and Ethereum. The values are volatile and the systems on
which they trade may not be regulated. The Company may determine
that the systems we used for determining valuations may no longer
be appropriate. The Company also held AFS securities at cost
because we determined the was no market or markets were too limited
or thinly traded to determine a fair value. Until the Digital Asset
markets mature, the Company may have difficulty determining inputs
for valuation or need to change the estimates used to assess the
value of our Digital Assets.
Deferred Revenue
The
Company has deferred revenue from its first consulting contract for
the KPAY agreement. The Company determined that there our
obligations would be met evenly over the course of the contract
and, as such, will record revenue evenly over the course of the
agreement. The Company will need to assess each contract and our
obligations, assign values to each obligation in the agreement, as
per ASU 2014-
09.
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.
Item
3.
Quantitative and Qualitative
Disclosures about Market Risk
Not
applicable
Item
4.
Controls and
Procedures
Evaluation
of Disclosure Controls and Procedures
As required by Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), we have carried out an evaluation of
the effectiveness of the design and operation of our disclosure
controls and procedures as of January 31, 2018. This evaluation was
carried out under the supervision and with the participation of our
Chief Executive Officer (“CEO”) and Principal Financial
Officer (“PFO”). Based on this evaluation, our CEO and
PFO have concluded that our disclosure controls and procedures were
not effective as of January 31, 2018.
The conclusion that
our disclosure controls and procedures were not effective was due
to the presence of the following material weaknesses in disclosure
controls and procedures which are indicative of many small
companies with small staff:
(i)
inadequate segregation of duties and effective risk assessment as
the Company’s officers did not have ample time to prepare
sufficient risk assessments for the reporting period; (ii)
insufficient written policies and procedures for accounting and
financial reporting with
respect to the
requirements and application of both US GAAP and SEC Guidelines;
(iii) inadequate security and restricted access to computer systems
including insufficient disaster recovery plans; and (iv) no written
whistleblower policy.
We
expect to enhance our controls for the remainder of our fiscal year
ending April 30, 2018 as well as our 2019 fiscal year. During the
second half of our fiscal year ending April 30, 2018, we
implemented a multi-level approval process and two factor
authentication for cash disbursements, we have a centralized,
role-based accounting system. On May 18, 2018, we appointed Robert
Kalkstein as PFO, who was formally the Controller for the Company.
We intend to hire a Chief Financial Officer and additional staff
for accounting and finance functions.
Changes
in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) of the
Exchange Act) that occurred during the quarter ended January 31,
2018, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
In designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives. In addition,
the design of disclosure controls and procedures must reflect the
fact that there are resource constraints and that management is
required to apply its judgment in evaluating the benefits of
possible controls and procedures relative to their
costs.
PART II — OTHER INFORMATION
Item
1.
Legal
Proceedings.
We are
not a party to any legal proceeding, action, suit, proceeding,
inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending, to
the knowledge of the executive officers of our company, that we
believe will have a material adverse effect upon our business or
financial position and no such action has been
threatened.
However, from time
to time, we may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business.
Litigation is subject to inherent uncertainties, and an adverse
result in these or other matters may arise from time to time that
may harm our business.
Item
1A.
Risk
Factors
As a
smaller reporting company, we are not required to provide the
information required by this Item.
Item
2.
Unregistered Sales of Equity
Securities and Use of Proceeds
During
the nine-month period ended January 31, 2018, we issued and sold a
total of 12,946,700 restricted shares of our common stock, par
value $0.001 (the “Shares”) through private placements
to “accredited investors” as that term is defined under
Rule 501(d) promulgated by the United States Securities and
Exchange Commission (the “SEC”) under the Securities
Act of 1933, as amended (the “Act”). The sale of Shares
to accredited investors, from which we, received proceeds of
$4,282,125, were made in reliance upon the exemptions provided by
Section 4(2) of the Act and Regulation D promulgated by the SEC
under the Act. We used the funds from the private placements to:
(i) make investments into Digital Assets; (ii) investments into
activities that we expect will become operating assets; and (iii)
to pay for goods and services, including fees related to being a
public company filing reports under the Exchange Act, to operate
the Company during the nine-month period.
During
the nine-month period ended January 31, 2018, the Company also
issued 2,620,000 restricted Shares to independent contractors for
bona fide services (the “Services”) to the Company in
reliance upon Section 4(2) of the Act. The fair value of the
Services rendered in consideration for the issuance of Shares was
$508,140, which was calculated using the closing price per Share on
the respective dates of issuance.
Item
3.
Defaults upon Senior
Securities
None.
Item
4.
Mine Safety
Disclosures
Not
applicable.
Item
5.
Other
Information
There
is no other information required to be disclosed under this item
which has not been previously reported.
Item
6
Exhibits
|
EXHIBIT
NUMBER
|
|
DESCRIPTION
|
|
|
|
Coral
Health Agreement, dated Jan 30, 2018, filed herewith
|
|
|
|
Basecoin
Agreement, dated February 11, 2018, filed herewith
|
|
|
|
Origin
Protocol Agreement, dated February 19, 2018.
|
|
10.4
|
|
Equity
Token Purchase Agreement for Chimes Series T Equity Token, dated
February 5, 2018.
|
|
|
|
Certification
of the Chief Executive Officer to Exchange Act Rule
13a-14(a)
|
|
|
|
Certification
of Principal Financial Officer pursuant to Exchange Act Rules
13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
Certification
of the Chief Executive Officer to Exchange Act Rule 13a-14(b) and
18 U.S.C. Section 1350
|
|
|
|
Certifications
of Principal Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
|
|
|
|
101.INS
|
|
XBRL
Instances 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
|