PART
I
FORWARD
LOOKING STATEMENTS
Except
for historical information, this document contains various
“forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). These forward-looking statements
involve risks and uncertainties, including, among other things,
statements regarding our revenue mix, anticipated costs and
expenses, development, relationships with strategic partners and
other factors discussed under “Business” and
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations”. These forward-looking
statements may include declarations regarding our belief or current
expectations of management, such as statements indicating that
“we expect,” “we anticipate,” “we
intend,” “we believe,” and similar language. We
caution that any forward-looking statement made by us in this Form
10- K or in other announcements made by us are further qualified by
important factors that could cause actual results to differ
materially from those projected in the forward-looking statements,
including without limitation the risk factors set forth in this
Form 10-K.
ITEM
1. BUSINESS
History
Blockchain
Industries, Inc. (“BCII”, the “Company”,
“we”, “our” or “us”) was
originally formed on September 15, 1995 as Interactive Processing,
Inc. under the laws of the State of Nevada 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, to sell 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
Recent
Developments
On January 16,
2019, the Company entered into a letter of intent (the
“Letter of Intent”) with BTHMB Holdings Pte. Ltd., a
Singapore corporation (“BTHMB”). The Letter of Intent
provides that the Company and BTHMB will negotiate the terms of a
certain stock purchase whereby the Company shall sell that certain
number of shares of it’s Common Stock (the “Sale
Shares”) representing a super majority of the Company’s
outstanding shares.
Although this
Letter of Intent expired on February 7, 2019, the Company and BTHMB
have continued to negotiate the parameters of a potential business
transaction in good faith, including but not limited to a merger
transaction and other strategic partnerships within the various
business verticals we plan to pursue.
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
Mana
g
ement
During
the 2018 Fiscal Year through January 2019, the Company was planning
to pursue investment management of blockchain-related assets as one
of its core lines of business. We were seeking to provide services
to traditional investment management companies, with a focus on
blockchain technology. Our thesis in the business focused 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 was to be operated through our wholly-owned subsidiary,
BCI Investment Management, LLC, a Delaware limited liability
company. We believed we would eventually 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. The Company expected to seed the funds with its own capital
and subsequently obtain outside investment capital from non-related
third parties and expected to generate revenues by charging a
combination of management and performance fees. Up until January
2019 we were in the process of establishing the following three
alternative investment vehicles in furtherance of the
foregoing:
a.
Blockchain Industries Global Opportunity Fund
It was contemplated
that this fund would have sought to invest in exchange-traded
tokens. Our strategy was twofold (i) algorithmic/high- frequency
trading (“HFT”); and (ii) small/mid-cap fundamental
trading. The HFT component would have sought 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.
b.
Blockchain Industries ICO Access Fund
This fund sought to
invest in early-stage Initial Coin Offerings (“ICO”),
Security Token Offerings (“STO”) and private token
sales. Utilizing our business network, we believed that we could
differentiate against competitors to access deals that are
unavailable to most investors and often at favorable terms. We
expected significant overlap between our portfolio companies and
our advisory clients.
c.
Blockchain Industries Venture Fund
This
fund sought 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.
As of January 2019,
the Company has delayed its plans related to the Investment
Management segment of its business. We chose to pause this segment
because the Company does not have sufficient capital to maintain or
build this business and the Company has focused its efforts on
pursuing a business transaction with BTHMB as well as its advisory
services vertical.
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, development services to build blockchains or
stablecoins and to assist with cyber security of blockchains,
marketing and eventually making capital introductions via the use
of a broker-dealer, which we are actively seeking. In addition, we
aim 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. Although we intended to form or purchase a
broker-dealer to help us maintain compliance and execute our
business in the emerging token capital markets, we have abandoned
active efforts to actively seek partnerships 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 potential ICO or STO transactions, and we will continue to try
and contract with customers that we feel have a high-value utility
in their underlying business model.
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 conferences, 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. As of the date of this report there has been
no 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.
As of the date of
this report the Company has delayed its plans related to the Media
and Education segment of its business. We chose to pause this
segment because the Company does not have sufficient capital to
maintain or build this business.
4.
Di
g
ital Asset Minin
g
“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. During the 2018 Fiscal Year through
January 2019, it was the intention of BCII to build a data center
that houses the specialized computers or other resources on behalf
of clients. We intended to rent space or resources (power,
bandwidth, etc.) to client for a fee.
The
Company intended 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 was focused on a
potential site in Virginia Beach, VA and was negotiating with a
local economic development agency for the development of the site.
The Company sought additional capital to proceed with this
potential investment, however it was unable to procure funding and
abandoned the project.
As of January 2019,
the Company has abandoned its plans related to the Digital Asset
Mining segment of its business due to insufficient capital to fund
the development and maintenance of this
business.
A
digital asset exchange is an area 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 this business unit or merge it
with an 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.
During the
2018 Fiscal Year through January 2019, the Company had
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 believed there was great potential
in this business as Digital Asset exchanges are fragmented and
cannot provide enough liquidity, and many of the transactions are
not up to standards in terms of regulatory requirements. The
Company planned to leverage its reputation to offer a global,
scalable solution to this market.
As of January 2019,
the Company has abandoned its plans related to Merchant Banking
segment due to insufficient capital to fund the development and
maintenance of the business.
b.
Digital Asset Exchange
The
Company previously undertook due diligence in
connection with potentially establishing
its own Digital Asset exchange. We planned to
partner 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. There will 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
would require partnerships with key vendors,
experienced technical and financial expertise, regulatory and
compliance in various jurisdictions, all of which will require
significant capital.
As of January 2019,
the Company has delayed its plans related to the Digital Asset
Exchange segment due to insufficient capital to fund the
development and maintenance of this business, although the Company
is actively pursuing several partnerships, including with BTHMB,
which may aid in the development of this segment in the
future.
Intellectual
Property
In
April 2018, we applied for a trademark on “Blockchain
Unbound”.
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. As of
the date of this report there has been no resolution of the
prior filed application, we will determine whether to continue our
pursuit of the trademark registration and how to best
proceed.
The
Company will assess all possible patents, trademarks or other
intellectual property in all business opportunities. Intellectual
property rights may be required to be successful and maintain
competitive advantages. However, at this time the Company does not
maintain any Patents or Trademarks and does not have any Patents
pending. We currently rely on our trade secrets and know-how. As
our business expands we expect to make significant investments in
technology, some of which we expect to be proprietary and will
necessitate the filing of patents and or trademarks.
Growth
Strategy
BCII will utilize
its network to seek and contract with clients looking for advisory
services. Initially, we feel starting with white papers and
engineering of blockchain architecture will be our first
opportunities. Although the Company is focusing most of its efforts
on closing a business transaction with BTHMB, including a potential
merger among other strategic partnerships, we have made some effort
into looking for these opportunities. If the Company is able to
obtain required capital we may continue to seek a relationship with
a broker-dealer, we expect to grow the business with capital
raising and utilize an expanding network to offer additional
services.
We believe there
are opportunities to expand the Blockchain Unbound brand, which
includes our conferences, to other media sources, developing
content not only from our conferences. Until the Company is able to
fund this business, we do not expect to hold conferences in the
interim although we will continue to build relationships to
maintain our ability to host a conference. We may also create free
or subscription-based platforms to specialized written or video
content from industry experts, drawing attention to the Digital
Asset progress and current events.
In
addition to foregoing, the Company will continue to explore other
synergistic business opportunities related to blockchain
technologies and Digital Assets. The analysis of business
opportunities, as it relates to our market verticals, will be
undertaken by or under the supervision of the officers and
directors of the Company. In particular, we are keenly focused on
acquiring, through share purchase agreements,
businesses in the blockchain space or have an obvious blockchain
use-case that (1) currently or will, in the near-term, generate
positive cash flow; and (2) integrates well into our ecosystem. In
its efforts to analyze potential business opportunities, the
Company will consider factors including, but not limited to, the
list below:
●
potential for
organic growth in revenue and cash flow, indicated by technology,
anticipated market expansion or new products;
●
competitive
position as compared to other firms of similar size and experience
within the industry verticals as well as within the industry as a
whole;
●
strength and
diversity of management, either in place or scheduled for
recruitment;
●
capital
requirements and anticipated availability of required funds, to be
provided by the Company or from operations, through the sale of
additional securities, through joint ventures or similar
arrangements or from other sources;
●
the cost of
participation by the Company as compared to the perceived tangible
and intangible values and potentials;
●
the extent to which
the business opportunity can be advanced and incorporated into our
ecosystem;
●
the accessibility
of required management expertise, personnel, raw materials,
services, professional assistance and other required
items.
In
applying the foregoing criteria, none of which will be controlling,
management will attempt to analyze all factors and circumstances
and decide based upon reasonable investigative measures and
available data. Additionally, management will investigate an entity
to engage a potential acquisition through reviewing available
financial statements, interviewing a potential acquisition’s
primary vendors and customers as well as financial
advisors.
Industry
Overview
Our
business model now focuses on blockchain technology. A blockchain
is a decentralized, distributed ledger. As opposed to a centralized
database whereby an entire database, or full copies of that
database, remains in the control of one person or entity stored on
a computer that is controlled or owned by that same person or
entity, a blockchain ledger typically has partial copies of itself
across various nodes, or computers, in the network. Each new block
requires a method of consensus between nodes of the network in
order for the block to post to the ledger and become permanent.
There are various methods being developed for executing a
consensus. Currently, the most popular blockchain is Bitcoin, a
cryptocurrency, which uses a mathematical problem to be solved
before it can be confirmed and added to its
blockchain.
Cryptocurrencies
are a medium of exchange that are transacted through and recorded
on a blockchain and therefore within our scope of business. The
term “mining” is used to define a process which the
blockchain consensus is formed. The Bitcoin consensus process, for
example, entails solving complex mathematical problems using custom
designed computers. However, many more public and private
blockchains are being developed with different algorithms or
consensus models, which can use different hardware and methods for
performing function of adding blocks to their blockchains. A
fork is when the developers of a digital currency essentially
create a second branch of that currency using the same basic code.
Most of the time, a fork occurs after deliberation and discussion
among the development team behind a virtual currency and the mining
and (sometimes) investing communities. An airdrop is the delivery
of a cryptocurrency to a certain group of investors. There may be
unknown accounting issues with new assets delivered by airdrops and
forks. There may also be loss of value from existing assets in the
blockchain forks because market conditions do not find the fork
advantageous.
Digital Assets Value
Cryptocurrencies
are currencies that are not backed by a central bank or a national,
supra-national or quasi-national organization and are not typically
backed by hard assets or other credit. Cryptocurrencies are
typically used as a medium of exchange, similar to fiat currencies
like the U.S. Dollar. In addition to cryptocurrencies, there are
other assets such as contracts or other information that reside on
a blockchain that represent a form of ownership. Examples may
include insurance contracts, deeds, wills, health data, or
securities. Together with cryptocurrencies, these other assets,
which also include virtual currencies, digital coins and tokens,
and other blockchain assets, make up a class of assets called
“Digital Assets”. The value of Digital Assets is
determined by the value that various market participants place on
them through their transactions, for example, via peer-to-peer
transactions, e-commerce, or exchanges.
Form Digital Assets
Bitcoin
is one form of a Digital Asset. Digital Assets are all electronic
representations or claims on other assets, which is not much
different than today. U.S. dollars may now be digital, deeds may
now be digital, health records may now be digital or stored
electronically, signatures are now capable of being digital and so
on. The difference between today’s digitized assets and
Digital Assets that BCII is focusing on revolves around the use of
blockchain to maintain trust and increase efficiencies of currently
centralized systems. U.S. Dollars are controlled by one entity, the
Federal Reserve System (the “Fed”). The Fed is
responsible for many aspects of the United States’ banking
system such as (1) ensuring that all member banks do not
double-spend any money, (2) settling transactions between member
banks, (3) creating or destroying credit by setting reserve
requirements, setting interest rate targets and entering into
transactions that will increase or decrease the supply of U.S.
Dollars. They do all of this digitally. The purpose of blockchain,
specifically related to banking and the use of money, is to have a
self-governing system that prevents double-spending of money,
settling transactions, and manipulating the supply of money. The
form of our assets, or proof of ownership of those assets, are
digital today. Our goal is to simply seek business
opportunities in the technology that is eliminating
bureaucracy, “middle men”, and other inefficiencies
that increase the costs of our world through the use of a database
that is distributed on various nodes of a network, rather than
centrally controls by one or a few entities or
individuals.
Storage of Digital Assets
Bitcoin
is called a cryptocurrency because it is used as a medium of
exchange. People can trade Bitcoin on an exchange, similar to
buying
U.S.
Dollars futures contracts on an exchange. People also use Bitcoin
via e-commerce platforms such as Overstock.com, or smaller
retailers that have integrations with wallets. Bitcoin, like most
cryptocurrencies, are stored in a digital wallet, similar to a
traditional bank account today, except the code behind the Bitcoin
is not controlled by a central bank. A wallet that holds a Digital
Asset can be stored in an online exchange like Coinbase, which is
similar to Bank of America holding your U.S. Dollars. This is
called “hot storage”. Digital Assets can also be held
in “cold storage”, which is similar to having your
money in a safety deposit box. A cold storage wallet is a wallet on
a separate physical device such as a cell phone, a USB drive or a
special encrypted device to hold Digital Assets.
Blockchain
Advisory Market
The blockchain
advisory market size is difficult to predict. However, Reuters
published an article on March 5, 2019, stating that blockchain in
the financial technology market alone will be worth $6.7 billion by
2023. A MarketWatch article published June 19, 2019, states that
the total blockchain market will reach $23.3 billion by 2023. By
comparison, the MarketWatch article notes the blockchain market
size was $1.2 billion in 2018. Within these market sizes, we feel
advisory will play a large role to educate existing business and
technologies on the role blockchain can play in improving their
operations, potentially by improving security, trust, efficiency
and lowering costs.
In the first half
of 2019, there seems to be a popularity of
“stablecoins”, which are pegged to an existing, more
stable asset, most notably fiat currencies such as the U.S. Dollar.
Companies such as J.P. Morgan Chase and Facebook have announced
they are launching stablecoins, which could overtake the market
with their ability to influence through their existing networks,
platforms and associations. A proposed advantage of stablecoins is
the ability to reduce the time of transaction settlement in
traditional payment networks.
Competition
Our industry is
extremely new and subject to rapid change and constant innovation.
We face significant competition, including from companies that have
entered this space much earlier than us and are better capitalized,
with vertically integrated business models. Larger companies such
as IBM already provide blockchain advisory services. The “Big
4” public accounting firms, such as Pricewaterhouse Coopers
and Ernst and young also provide blockchain advisory services. Our
focus will need to be small to medium-sized companies that cannot
afford the costs of the large blockchain
advisors.
Our
Advisory Services business has competition from several places. The
demand for Digital Asset developers is high and has become costly,
so we would be competing with engineering firms for talent. In
addition, as more traditional financial institutions may see the
benefit in raising capital for clients in the Digital Asset
industry, we may be forced to compete with larger, established
institutions with long, successful track records.
Our
competitors may be larger than us, have more access to capital and
have lower operating costs than we do.
Regulation
As a
result of the enactment of the Dodd-Frank Wall Street Reform and
Consumer Protection Act in 2010 (Dodd-Frank), the adoption of
implementing regulations by the federal regulatory agencies, and
other recent regulatory reforms, we have experienced significant
changes in the laws and regulations that apply to us, how we are
regulated, and regulatory expectations in the areas of compliance,
risk management, corporate governance, operations, capital, and
liquidity.
Typically, we do
not have to obtain permits to operate conferences. The hotels at
which such events occur obtain any required permits and cover fire
safety and occupancy matters as part of the rental agreement. Crowd
control varies by location and is either provided by the
hotel’s personnel or by a third-party security service. We
have hired security teams for each of our conferences thus far. We
utilize tax counsel to determine if a Physical Establishment is
formed for any international conferences. If Physical Establishment
is determined to be formed, we may be subject to additional
regulations and income or value-added taxes in the international
jurisdiction where we hold the conference.
The
Digital Asset markets have grown rapidly in both popularity and
market size. These markets are local, national and international
and include an ever-broadening range of products and participants.
The SEC, and other governmental agencies around the world, are
evaluating these markets and are likely to institute new rules and
regulations within this market to protect investors and such
regulations could result in the restriction of the acquisition,
ownership, holding, selling, use or trading of our common
stock.
Potentially
available business opportunities may occur at various stages of
development, all of which may be expected to make the task of
comparative investigation and analysis of such business
opportunities difficult, complex, time-consuming and costly.
Capital limitations always limit a company’s ability to
pursue some potential opportunities. Investments in this emerging
space are more speculative in nature than traditional industries.
Every reasonable attempt to conduct proper due diligence will be
made, but we can make no warranties or guarantees about the
outcomes.
Employees
As of
June 20, 2019, we employ a total of 2 full-time
employees, of whom all are based in the United States. As of
June 20, 2019, we rely on 1 part-time independent contractor
that is based in North America.
We
believe that our future success depends on attracting and retaining
highly skilled personnel. We may be unable to attract and retain
high-caliber employees. Our employees are not represented by any
collective bargaining unit. We have never experienced a work
stoppage and consider our employee relations to be
good.
Available
Information
We file
our annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K pursuant to Section 13(a) or 15(d) of
the Exchange Act electronically with the Securities and Exchange
Commission, or SEC. The public may read or copy any materials we
file with the SEC at the SEC’s Public Reference Room at 100 F
Street, NE, Washington, DC 20549. The public may obtain information
on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains
reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The
address of that site is
http://www.sec
.g
ov
.
ITEM
1A. RISK FACTORS
You
should carefully consider the risks described below, together with
all of the other information included in this report, in
considering our business and prospects. The risks and uncertainties
described below are not the only ones facing the Company.
Additional risks and uncertainties not presently known to us or
that we currently deem immaterial also may impair our business
operations. The occurrence of any of the following risks could harm
our business, financial condition or results of
operations.
General Risks
Unfavorable
general economic conditions in the U.S. and globally can adversely
affect our business and our ability to obtain future
financing.
Our
business could be materially adversely affected by unfavorable
general economic conditions, including effects of weak domestic and
world economies. Future volatility and disruption in worldwide
capital and credit markets and any declines in economic conditions
in the U.S., Europe or in other parts of the world could adversely
impact our business and results of operations, particularly if the
availability of financing for us is limited.
We
have an evolving business model.
As
Digital Assets and blockchain technologies become more widely
available, we expect the services and products associated with them
to evolve. In order to stay current with the industry, our business
model may need to evolve as well. From time to time, we may modify
aspects of our business model relating to our product mix and
service offerings. We cannot offer any assurance that these or any
other modifications will be successful or will not result in harm
to our business. We may not be able to manage growth effectively,
which could damage our reputation, limit our growth and negatively
affect our operating results. Such circumstances could have a
material adverse effect on our ability to continue as a going
concern or to pursue our new strategy at all, which could have a
material adverse effect on our business, prospects or
operations.
Failure
to complete the proposal merger with BTHMB Holdings Pte. Ltd. May
never occur and could significantly harm the market price of our
common stock and negatively affect the future business and
operations of each company.
There is no
guarantee that our proposed merger with BTHMB Holdings Pte. Ltd.
May ever occur. In addition, if this merger is terminated and the
board of directors of BTHMB Holdings Pte. Ltd. Determines to seek
another business combination, there can be no assurance that we
will be able to find a partner and close an alternative transaction
on terms that are as favorable or more favorable than the proposed
transaction. On January 16, 2019, we entered into a Letter of
Intent (the "LOI") with BTHMB Holdings Pte. Ltd., a Singapore
corporation (“BTHMB”) where BTHMB will purchase a super
majority of the Company’s outstanding shares of common stock
and the Company will become a subsidiary of BTHMB. As per the terms
of the LOI BTHMB has put $1 million in escrow, which portions may
be released should the Company meet certain milestones. The
released portions will be used to fund our
operations.
Failure
of our internal control over financial reporting could harm our
business and financial results.
Our management is
responsible for establishing and maintaining effective internal
control over financial reporting. Internal control over financial
reporting is a process to provide reasonable assurance regarding
the reliability of financial reporting for external purposes in
accordance with accounting principles generally accepted in the
United States. Internal control over financial reporting includes
maintaining records that in reasonable detail accurately and fairly
reflect our transactions; providing reasonable assurance that
transactions are recorded as necessary for preparation of the
financial statements; providing reasonable assurance that receipts
and expenditures of our assets are made in accordance with
management authorization; and providing reasonable assurance that
unauthorized acquisition, use or disposition of our assets that
could have a material effect on the financial statements would be
prevented or detected on a timely basis. Any failure to maintain an
effective system of internal control over financial reporting could
limit our ability to report our financial results accurately and
timely or to detect and prevent fraud.
In connection with
the evaluation of our internal control over financial reporting as
of April 30, 2018, that was undertaken by management in connection
with the preparation of our Annual Report on Form 10-K for the
fiscal year ended April 30, 2018, management determined that our
lack of sufficient internal accounting resources resulting in a
lack of segregation of duties to ensure an adequate review of
financial statement preparation and ineffective management review
of complex transactions to enable timely decisions regarding
disclosures constituted a material weakness as of April 30, 2018.
To remediate the foregoing weaknesses managements plans include (i)
re-designing our accounting processes and control procedures; (ii)
identifying gaps in our skill base and the expertise of our staff
required to meet the financial reporting requirements of a public
company; and (iii) review and improve current accounting policies
and procedures and develop a thorough document detailing said
policies and procedures with respects to the requirements and
application of both US GAAP and SEC Guidelines. Despite these
remedial measures undertaken during the fiscal year end April 30,
2018, we were not able to adequately address the weaknesses that we
identified, and thus management determined that the weaknesses
still existed as of April 30, 2018.
If
we fail to maintain the value and reputation of our brand, our
value is likely to decline.
Our
success depends on the value and reputation of our brand. Our name
is integral to our business as well as to the implementation of our
strategies for expanding business. Maintaining, promoting and
positioning our reputation will depend largely on our ability to
distinguish ourselves from other public cryptocurrency mining and
trading companies and build public trust. We be adversely affected
by recent negative publicity of the Digital Asset industry,
specifically around cryptocurrencies.
We
will not be able to successfully execute our business strategy if
we are deemed to be an investment company under the Investment
Company Act of 1940.
U.S.
companies that have more than 100 shareholders or are publicly
traded in the U.S. and are, or hold themselves out as being,
engaged primarily in the business of investing, reinvesting or
trading in securities are subject to regulation under the
Investment Company Act. Unless a substantial part of our assets
consists of, and a substantial part of our income is derived from,
interests in majority-owned subsidiaries and companies that we
primarily control, we may be required to register and become
subject to regulation under the Investment Company Act. If certain
Digital Assets, such as Bitcoin and other cryptocurrencies, were to
be deemed securities for purposes of the Investment Company Act, we
would have difficulty avoiding classification and regulation as an
investment company.
If we
were deemed to be, and were required to register as, an investment
company, we would be forced to comply with substantive requirements
under the Investment Company Act, including limitations on our
ability to borrow, limitations on our capital structure;
restrictions on acquisitions of interests in associated companies,
prohibitions on transactions with affiliates, restrictions on
specific investments, and compliance with reporting, record
keeping, voting, proxy disclosure and other rules and regulations.
If we were forced to comply with the rules and regulations of the
Investment Company Act, our operations would significantly change,
and we would be prevented from successfully executing our business
strategy. To avoid regulation under the Investment Company Act and
related SEC rules, we may need to sell Digital Assets and other
assets which we would otherwise want to retain and could be unable
to sell assets which we would otherwise want to sell. In addition,
we could be forced to acquire additional, or retain existing,
income-generating or loss- generating assets which we would not
otherwise have acquired or retained and could need to forgo
opportunities to acquire Digital Assets and other assets that would
benefit our business. If we were forced to sell, buy or retain
assets in this manner, we could be prevented from successfully
executing our business strategy.
The
Company may have become subject to the Investment Company Act of
1940 (the “40 Act”). In order to alleviate such
concerns, the Company is actively seeking to sell investment
holdings in one of two ways in order to relieve any doubt that the
Company is subject to 40 Act reporting requirements: The Company is
looking (1) to sell most or all of its investments to a third party
through an over-the-counter market, (since there is no active
market for the investments the Company currently holds) and (2) to
sell most or all of its investments to the Company's investment
management subsidiary BCI Investment Management LLC
(“BCIM”), or one of the fund entities that BCIM manages
because it is the Company's intention that BCIM will eventually
perform services that would require it to be subject to the 40
Act.
While the Company
has acquired securities or tokens in the past, the Company has
subsequently abandoned such investment side of its business and
does not plan on making any balance sheet investments in the
future. Furthermore, the Company had to do a restatement and wrote
these assets down such that they no longer constitute 40% of its
assets.
We may be classified as an investment
company
.
We
believe that we are not engaged in the business of investing,
reinvesting, or trading in securities, and we do not hold ourselves
out as being engaged in those activities. However, under the
Investment Company Act a company may be deemed an investment
company under section 3(a)(1)(C) if the value of its investment
securities is more than 40% of its total assets (exclusive of
government securities and cash items) on a consolidated
basis.
As a
result of our investments, including investments in which we do not
have a controlling interest, the investment securities we hold
could exceed 40% of our total assets, exclusive of cash items and,
accordingly, we could determine that we have become an investment
company. The Digital Assets we own, acquire or mine may be deemed
an investment security by the SEC. An investment company can avoid
being classified as an investment company if it can rely on one of
the exclusions under the 1940 Act. One such exclusion, Rule 3a-2
under the 1940 Act, allows an investment company a grace period of
one year from the earlier of (a) the date on which an issuer owns
securities and/or cash having a value exceeding 50% of the issuer's
total assets on either a consolidated or unconsolidated basis and
(b) the date on which an issuer owns or proposes to acquire
investment securities having a value exceeding 40% of the value of
such issuer's total assets (exclusive of government securities and
cash items) on an unconsolidated basis. As of April 30, 2018, we do
not believe we are an investment company, however resolution of
pending comments received from the SEC have not been concluded and
this issue has not been resolved by SEC rules or regulations. For
us, any grace period would be unknown until these issues are
resolved or the SEC issues rules and regulations concerning
cryptocurrency treatment. We may take actions to cause the
investment securities held by us to be less than 40% of our total
assets, which may include acquiring assets with our cash and
cryptocurrency on hand or liquidating our investment securities,
Digital Assets or seeking a no-action letter from the SEC if we are
unable to acquire sufficient assets or liquidate sufficient
investment securities in a timely manner.
As Rule
3a-2 is available to a company no more than once every three years,
and assuming no other exclusion were available to us, we would have
to keep within the 40% limit for at least three years after we
cease being an investment company. This may limit our ability to
make certain investments or enter into joint ventures that could
otherwise have a positive impact on our earnings. However, we do
not intend to become an investment company engaged in the business
of investing and trading securities.
Classification as
an investment company under the Investment Company Act requires
registration with the SEC. If an investment company fails to
register, it would have to stop doing almost all business, and its
contracts would become voidable. Registration is time consuming and
restrictive and would require a restructuring of our operations,
and we may be constrained in the kind of business we could do as a
registered investment company. Further, we would become subject to
substantial regulation concerning management, operations,
transactions with affiliated persons and portfolio composition, and
would need to file reports under the Investment Company Act. The
cost of such compliance would result in the Company incurring
substantial additional expenses, and the failure to register if
required would have a materially adverse impact on our
operations.
We
could face a variety of risks of expanding into a new
business.
The
Company is expanding into new lines of business. Risks of our entry
into the new business lines include, without limitation: (i)
potential diversion of management’s attention and other
resources, including available cash, from our existing businesses;
(ii) unanticipated liabilities or contingencies; (iii) the need for
additional capital and other resources to expand into this new line
of business; and (iv) inefficient combination or integration of
operational and management systems and controls. Entry into a new
line of business may also subject us to new laws and regulations
with which we are not familiar, and may lead to increased
litigation and regulatory risk. Further, our business model and
strategy are still evolving and are continually being reviewed and
revised, and we may not be able to successfully implement our
business model and strategy. We may not be able to attract a
sufficiently large number of audience or customers, or recover
costs incurred for developing and marketing these products or
services. If we are unable to successfully implement our growth
strategies, our revenue and profitability may not grow as we
expect, our competitiveness may be materially and adversely
affected, and our reputation and business may be
harmed.
We
recently engaged in debt financings that are secured by the grant
of a security interest in all of our assets and upon a default the
lender may foreclose on all of our assets.
In
August 2018, we entered into a loan and security agreement (the
“Loan and Security Agreement”) with an accredited
investor (the “August Investor”) and issued the Note in
connection therewith (the “Note” together with the Loan
and Security Agreement, the “Obligations”). The
Obligations, which have an outstanding balance of principal and
interest in the aggregate of $275,000 as of June 20,
2019, are secured by the grant of a security interest in
substantially all of the Company’s assets. In the event of
the Company’s failure to make such payments or to comply with
the terms of the Loan and Security Agreement or the Notes, the
August Investor can declare a default and seek to foreclose on the
Company’s assets.
Additionally, in
September 2018, we entered into a loan and security agreement (the
“Loan and Security Agreement”) with an accredited
investor (the September Investor”) and issued the Note in
connection therewith (the “Note” together with the Loan
and Security Agreement, the “Obligations”). The
Obligations, which have an outstanding balance of principal and
interest in the aggregate of $120,000 as of June 20,
2019, are secured by the grant of a security interest in the
Company’s assets. In the event of the Company’s failure
to make such payments or to comply with the terms of the Loan and
Security Agreement or the Notes, the September Investor can declare
a default and seek to foreclose on the Company’s
assets.
If the
Company is unable to repay or refinance its indebtedness it may be
forced to cease operations and the holders of the Company’s
Common Stock may lose a significant portion, or all, of their
investment.
Our
Principal Financial Officer is not a full-time
employee.
Our
Principal Financial Officer is an independent contractor and shares
his time with other clients. The ability to retain a full-time
Principal Financial Officer or governor of the financial
responsibilities of the Company may impair our ability to meet our
reporting obligations and implement financial controls to protect
the Company.
Cr
yp
tocurrenc
y
-Related Risks
Regulatory
changes or actions may alter the nature of an investment in us or
restrict the use of cryptocurrencies in a manner that adversely
affects our business, prospects or operations.
As
cryptocurrencies have grown in both popularity and market size,
governments around the world have reacted differently to
cryptocurrencies, with certain governments deeming them illegal,
and others allowing their use and trade but, in some jurisdictions,
such as in the U.S., subject to extensive, and in some cases
overlapping, regulatory requirements, as well as unclear and
evolving requirements. Ongoing and future regulatory actions may
impact our ability to continue to operate, and such actions could
affect our ability to continue as a going concern or to pursue our
new strategy at all, which could have a material adverse effect on
our business, prospects or operations.
In
addition, the Company is subject to changing regulatory and tax
environments. These events are beyond the Company’s control,
and the likelihood that they may occur cannot be
predicted.
Our
change in our business strategy and name could subject us to
increased SEC scrutiny.
The SEC
has announced that it is scrutinizing public companies that change
their name or business model in a bid to capitalize upon the hype
surrounding blockchain technology and has suspended trading of
certain of such companies. SEC Chairman, Jay Clayton, warned that
it is not acceptable for companies without a meaningful track
record in the sector to dabble in blockchain technology, change
their
name and
immediately offer investors securities without providing adequate
disclosures about the risks involved. As a result, we could be
subject to substantial SEC scrutiny that could require devotion of
significant management and other resources and potentially have an
adverse impact on the trading of our stock.
Banks
and financial institutions may not provide banking services, or may
cut off services, to businesses that provide cryptocurrency-related
services or that accept cryptocurrencies as payment, including
financial institutions of investors in our securities.
A
number of companies, including our own, that provide
cryptocurrency-related services have been unable to find banks or
financial institutions that are willing to provide them with bank
accounts and other services. Similarly, a number of companies,
including our own, and individuals or businesses associated with
cryptocurrencies may have had and may continue to have their
existing bank accounts closed or services discontinued with
financial institutions. We also may be unable to obtain or maintain
these services for our business. The difficulty that many
businesses that provide derivatives on other cryptocurrency-related
services have and may continue to have in finding banks and
financial institutions willing to provide them services may be
decreasing the usefulness of cryptocurrencies as a payment system
and harming public perception of cryptocurrencies and could
decrease their usefulness and harm their public perception in the
future. Similarly, the usefulness of cryptocurrencies as a payment
system and the public perception of cryptocurrencies could be
damaged if banks or financial institutions were to close the
accounts of businesses providing cryptocurrency-related services.
This could occur as a result of compliance risk, cost, government
regulation or public pressure. The risk applies to securities
firms, clearance and settlement firms, national stock and
derivatives on commodities exchanges, the over-the-counter market,
and the Depository Trust Company, which, if any of such entities
adopts or implements similar policies, rules or regulations, could
negatively affect our relationships with financial institutions and
impede our ability to convert cryptocurrencies to fiat currencies.
Such factors could have a material adverse effect on our ability to
continue as a going concern or to pursue our new strategy at all,
which could have a material adverse effect on our business,
prospects or operations and harm investors.
We
may face risks of Internet disruptions, which could have an adverse
effect on the price of cryptocurrencies.
A
disruption of the Internet may affect the use of cryptocurrencies
and subsequently the value of our securities. Generally,
cryptocurrencies are dependent upon the Internet. A significant
disruption in Internet connectivity could disrupt a
cryptocurrency's network operations until the disruption is
resolved and have an adverse effect on the price of
cryptocurrencies.
The
impact of geopolitical events on the supply and demand for
cryptocurrencies is uncertain.
Crises
may motivate large-scale purchases of cryptocurrencies, which could
increase the price of cryptocurrencies rapidly. This may increase
the likelihood of a subsequent price decrease as crisis-driven
purchasing behavior wanes, adversely affecting the value of our
inventory. Such risks are similar to the risks of purchasing
commodities in general uncertain times, such as the risk of
purchasing, holding or selling gold.
As an
alternative to gold, currencies that are backed by central
governments, cryptocurrencies, which are relatively new, are
subject to supply and demand forces. How such supply and demand
will be impacted by geopolitical events is largely uncertain but
could be harmful to us and investors in our securities. Political
or economic crises may motivate large-scale acquisitions or sales
of cryptocurrencies either globally or locally. Such events could
have a material adverse effect on our ability to continue as a
going concern or to pursue our new strategy at all, which could
have a material adverse effect on our business, prospects or
operations and potentially the value of any cryptocurrencies we
mine or otherwise acquire or hold for our own account.
Acceptance
or widespread use of cryptocurrency is uncertain.
Currently, there is
a relatively limited use of any cryptocurrency in the retail and
commercial marketplace, thus contributing to price volatility that
could adversely affect an investment in our securities. Banks and
other established financial institutions may refuse to process
funds for cryptocurrency transactions, process wire transfers to or
from cryptocurrency exchanges, cryptocurrency-related companies or
service providers, or maintain accounts for persons or entities
transacting in cryptocurrency. Conversely, a significant portion of
cryptocurrency demand is generated by investors seeking a long-term
store of value or speculators seeking to profit from the short- or
long-term holding of the asset. Price volatility undermines any
cryptocurrency's role as a medium of exchange, as retailers are
much less likely to accept it as a form of payment. Market
capitalization for a cryptocurrency as a medium of exchange and
payment method may always be low.
The
relative lack of acceptance of cryptocurrencies in the retail and
commercial marketplace, or a reduction of such use, limits the
ability of end users to use them to pay for goods and services.
Such lack of acceptance or decline in acceptances could have a
material adverse effect on our ability to continue as a going
concern or to pursue our new strategy at all, which could have a
material adverse effect on our business, prospects or operations
and potentially the value of bitcoin or any other cryptocurrencies
we mine or otherwise acquire or hold for our own
account.
Transactional
fees may decrease demand for bitcoin and prevent
expansion.
As the
number of bitcoin awarded for solving a block in a blockchain
decreases, the incentive for miners to continue to contribute to
the bitcoin network will transition from a set reward to
transaction fees. Either the requirement from miners of higher
transaction fees in exchange for recording transactions in a
blockchain or a software upgrade that automatically charges fees
for all transactions may decrease demand for bitcoin and prevent
the expansion of the bitcoin network to retail merchants and
commercial businesses, resulting in a reduction in the price of
bitcoin that could adversely impact an investment in our
securities.
In
order to incentivize miners to continue to contribute power, space,
or another resource to certain cryptocurrency networks, the network
may either formally or informally transition from a set reward to
transaction fees earned upon solving a block. This transition could
be accomplished by miners independently electing to record in the
blocks they solve only those transactions that include payment of a
transaction fee. If transaction fees paid for cryptocurrency
transactions become too high, the marketplace may be reluctant to
accept that cryptocurrency as a means of payment and existing users
may be motivated to switch from that cryptocurrency to another
cryptocurrency or to fiat currency. Decreased use and demand for a
particular cryptocurrency may adversely affect its value and result
in a reduction in the price of that cryptocurrency and the value of
our securities.
We face risks from the lack of clarity in the
corporate governance of many cryptocurrency
systems
.
Lack of
clarity in the corporate governance of many cryptocurrency systems
may lead to ineffective decision making that slows development or
prevents a network from overcoming important obstacles. Governance
of many cryptocurrency systems is by voluntary consensus and open
competition. To the extent lack of clarity in corporate governance
of cryptocurrency systems leads to ineffective decision making that
slows development and growth, the value of our securities may be
adversely affected.
Political
or economic crises may motivate large-scale sales of Bitcoin or
other cryptocurrencies, which could result in a reduction in value
and adversely affect us.
As an
alternative to fiat currencies that are backed by central
governments, Digital Assets such as Bitcoin and Ether, which are
relatively new, are subject to supply and demand forces based upon
the desirability of an alternative, decentralized means of buying
and selling goods and services, and it is unclear how such supply
and demand will be impacted by geopolitical events. Nevertheless,
political or economic crises may motivate large-scale acquisitions
or sales of Bitcoin, Ether and other cryptocurrencies either
globally or locally. Large-scale sales of Bitcoin and Ether or
other cryptocurrencies would result in a reduction in their value
and could adversely affect us. Such circumstances could have a
material adverse effect on our ability to continue as a going
concern or to pursue our new strategy at all, which could have a
material adverse effect on our business, prospects or operations
and potentially the value of any Bitcoin or other cryptocurrencies
we mine or otherwise acquire or hold for our own account and harm
investors.
It
may be illegal now, or in the future, to acquire, own, hold, sell
or use Bitcoin, ether, or other cryptocurrencies, participate in
blockchains or utilize similar digital assets in one or more
countries, the ruling of which would adversely affect
us.
Although currently
cryptocurrencies generally are not regulated or are lightly
regulated in most countries, one or more countries such as China
and Russia may take regulatory actions in the future that could
severely restrict the right to acquire, own, hold, sell or use
these Digital Assets or to exchange for fiat currency. Such
restrictions may adversely affect us. Such circumstances could have
a material adverse effect on our ability to continue as a going
concern or to pursue our new strategy at all, which could have a
material adverse effect on our business, prospects or operations
and potentially the value of any bitcoin or other cryptocurrencies
we mine or otherwise acquire or hold for our own account and harm
investors.
There
is a lack of liquid markets, and possible manipulation of
blockchain or cryptocurrency-based assets.
Digital
Assets that are represented and trade on an exchange may not
necessarily benefit from viable trading markets. Traditional stock
exchanges, such as the New York Stock Exchange or Nasdaq, have
listing requirements, vet issuers, requiring them to be subjected
to rigorous listing standards and rules, and monitor investors
transacting on such platform for fraud and other improprieties.
These conditions may not necessarily be replicated on exchanges
that list cryptocurrencies, depending on the platform's controls
and other policies. The less stringent an exchange is about vetting
issuers of Digital Assets or users that transact on the platform,
the higher the potential risk for fraud or the manipulation of
Digital Assets. These factors may decrease liquidity or volume or
increase volatility of digital securities or other assets trading
on a non-traditional exchanges, which may adversely affect us. Such
circumstances could have a material adverse effect on our ability
to continue as a going concern or to pursue our new strategy at
all, which could have a material adverse effect on our business,
prospects or operations and potentially the value of any Digital
Assets we mine or otherwise acquire or hold for our own account and
harm investors.
Our
operations, investment strategies and profitability may be
adversely affected by competition from other methods of investing
in cryptocurrencies.
We
compete with other users and/or companies that are mining
cryptocurrencies and other potential financial vehicles, including
securities backed by or linked to cryptocurrencies through entities
similar to us. Market and financial conditions, and other
conditions beyond our control, may make it more attractive to
invest in other financial vehicles, or to invest in
cryptocurrencies directly, which could limit the market for our
shares and reduce their liquidity. The emergence of other financial
vehicles and exchange-traded funds have been scrutinized by
regulators and such scrutiny and negative impressions or
conclusions could be applicable to us and impact our ability to
successfully pursue our new strategy or operate at all, or to
establish or maintain a public market for our securities. Such
circumstances could have a material adverse effect on our ability
to continue as a going concern or to pursue our new strategy at
all, which could have a material adverse effect on our business,
prospects or operations and potentially the value of any Bitcoin or
other cryptocurrencies we mine or otherwise acquire or hold for our
own account and harm investors.
The
development and acceptance of competing blockchain platforms or
technologies may cause consumers to use alternative distributed
ledgers or other alternatives.
The
development and acceptance of competing blockchain platforms or
technologies may cause consumers to use alternative distributed
ledgers or an alternative to distributed ledgers altogether. This
may adversely affect us and our exposure to various blockchain
technologies and prevent us from realizing the anticipated profits
from our investments. Such circumstances could have a material
adverse effect on our ability to continue as a going concern or to
pursue our new strategy at all, which could have a material adverse
effect on our business, prospects or operations and potentially the
value of any Bitcoin or other cryptocurrencies we mine or otherwise
acquire or hold for our own account and harm
investors.
Our
operations, investment strategies and profitability may be
adversely affected by competition from other methods of investing
in cryptocurrencies.
We
compete with other users and/or companies that mine
cryptocurrencies and other potential financial vehicles, possibly
including securities backed by or linked to cryptocurrencies
through entities similar to us. Market and financial conditions,
and other conditions beyond our control, may make it more
attractive to invest in other financial vehicles, or to invest in
cryptocurrencies directly, which could limit the market for our
shares and reduce their liquidity.
Our
cryptocurrency holdings may be subject to loss, theft or
restriction on access.
There
is currently no clearing house for Digital Assets, nor is there a
central or major depository for the custody of Digital Assets.
There is a risk that some or all of the Company’s Digital
Assets could be lost or stolen. The Company does not have insurance
protection on its Digital Assets, which exposes the Company to the
risk of loss of its Digital Assets. Further, Digital Asset
transactions are irrevocable and stolen or incorrectly transferred
Digital Assets may be irretrievable.
To the
extent private keys for Digital Asset addresses are lost, destroyed
or otherwise compromised, and no backups of the private keys are
accessible, the Company may be unable to access the Digital Assets
held in the associated addresses, and the private key will not be
capable of being restored by the Digital Asset networks. The
processes by which Digital Asset transactions are settled are
dependent on the Digital Asset peer-to-peer networks, and as such,
the Company is subject to operational risk.
There
is a risk that some or all of our cryptocurrency holdings could be
lost or stolen. Access to our coins could also be restricted by
cybercrime (such as a denial of service attack) against a service
at which we maintain a hosted hot wallet. A hot wallet refers to
any cryptocurrency wallet that is connected to the Internet.
Generally, hot wallets are easier to set up and access, but they
are also more susceptible to hackers and other technical
vulnerabilities. Cold storage refers to any cryptocurrency wallet
that is not connected to the Internet. Cold storage is generally
more secure but is not ideal for quick or regular transactions. We
expect to hold the majority of our cryptocurrencies in cold storage
to reduce the risk of malfeasance, but this risk cannot be
eliminated.
Hackers
or malicious actors may launch attacks to steal, compromise or
secure cryptocurrencies, such as by attacking the cryptocurrency
network source code, exchange servers, third-party platforms, cold
and hot storage locations or software, or by other means. We may be
in control and possession of one of the more substantial holdings
of cryptocurrency. As we increase in size, we may become a more
appealing target of hackers, malware, cyber-attacks or other
security threats. Any of these events may adversely affect our
operations and, consequently, our investments and profitability.
The loss or destruction of a private key required to access our
digital wallets may be irreversible and we may be denied access for
all time to our cryptocurrency holdings or the holdings of others.
Our loss of access to our private keys or our experience of a data
loss relating to our digital wallets could adversely affect our
investments and assets.
Cryptocurrencies
are controllable only by the possessor of both the unique public
and private keys relating to the local or online digital wallet in
which they are held, which wallet's public key or address is
reflected in the network's public blockchain. We will publish the
public key relating to digital wallets in use when we verify the
receipt of transfers and disseminate such information into the
network, but we will need to safeguard the private keys relating to
such digital wallets. To the extent such private keys are lost,
destroyed or otherwise compromised, we will be unable to access our
cryptocurrency coins and such private keys may not be capable of
being restored by any network. Any loss of private keys relating to
digital wallets used to store our or our client's cryptocurrencies
could have a material adverse effect on our ability to continue as
a going concern or to pursue our new strategy at all, which could
have a material adverse effect on our business, prospects or
operations and potentially the value of any bitcoin or other
cryptocurrencies we mine or otherwise acquire or hold for our own
account.
Incorrect
or fraudulent coin transactions may be irreversible.
Cryptocurrency
transactions are irrevocable and stolen or incorrectly transferred
coins may be irretrievable. As a result, any incorrectly executed
or fraudulent coin transactions could adversely affect our
investments and assets.
Coin
transactions are not, from an administrative perspective,
reversible without the consent and active participation of the
recipient of the transaction. In theory, cryptocurrency
transactions may be reversible with the control or consent of a
majority of processing power on the network. Once a transaction has
been verified and recorded in a block that is added to a
blockchain, an incorrect transfer of a coin or a theft of coin
generally will not be reversible, and we may not be capable of
seeking compensation for any such transfer or theft. It is possible
that, through computer or human error, or through theft or criminal
action, our coins could be transferred in incorrect amounts or to
unauthorized third parties, or to uncontrolled accounts. Further,
at this time, there is no U.S. or foreign governmental, regulatory,
investigative or prosecutorial authority or mechanism through which
to bring an action or complaint regarding missing or stolen
cryptocurrency. To the extent that we are unable to seek redress
for such action, error or theft, such events could have a material
adverse effect on our ability to continue as a going concern or to
pursue our new strategy at all, which could have a material adverse
effect on our business, prospects or operations of and potentially
the value of any bitcoin or other cryptocurrencies we mine or
otherwise acquire or hold for our own account.
Our
interactions with a blockchain may expose us to SDN or blocked
persons or cause us to violate provisions of law that did not
contemplate distribute ledger technology.
The
Office of Financial Assets Control of the US Department of Treasury
requires us to comply with its sanction program and not conduct
business with persons named on its specially designated nationals
("SDN") list. However, because of the pseudonymous nature
of
blockchain
transactions we may inadvertently without our knowledge engage in
transactions with persons named on OFAC's SDN list. Moreover,
federal law prohibits any US person from knowingly or unknowingly
possessing any visual depiction commonly known as child
pornography. Recent media reports have suggested that persons have
imbedded such depictions on one or more blockchains. Because our
business requires us to download and retain one or more blockchains
to effectuate our ongoing business, it is possible that such
digital ledgers contain prohibited depictions. To the extent
government enforcement authorities or regulators literally enforce
these and other laws and regulations that are impacted by
decentralized distributed ledger technology, we may be subject to
investigation, administrative or court proceedings, and civil or
criminal monetary fines and penalties, all of which could harm our
reputation and affect the value of our securities.
Cryptocurrencies
face significant scaling obstacles that can lead to high fees or
slow transaction settlement times.
Cryptocurrencies
face significant scaling obstacles that can lead to high fees or
slow transaction settlement times and attempts to increase the
volume of transactions may not be effective. Many cryptocurrency
networks face significant scaling challenges. For example,
cryptocurrencies are limited with respect to how many transactions
can occur per second. Participants in the cryptocurrency ecosystem
debate potential approaches to increasing the average number of
transactions per second that the network can handle and have
implemented mechanisms or are researching ways to increase scale,
such as increasing the allowable sizes of blocks, and therefore the
number of transactions per block, and sharding, which would not
require every single transaction to be included in every single
miner's or validator's block. However, there is no guarantee that
any of the mechanisms in place or being explored for increasing the
scale of settlement of cryptocurrency transactions will be
effective, or how long they will take to become effective, which
could adversely affect an investment in our
securities.
The
price of coins may be affected by the sale of coins by other
investment vehicles investing in coins or tracking cryptocurrency
markets.
The
global market for cryptocurrency is characterized by supply
constraints that differ from those present in the markets for
commodities or other tangible assets such as gold and silver. The
mathematical protocols under which certain cryptocurrencies are
mined permit the creation of a limited, predetermined amount of
currency, while others have no limit established on total supply.
To the extent that other vehicles investing in coins or tracking
cryptocurrency markets form and come to represent a significant
proportion of the demand for coins, large redemptions of the
securities of those vehicles and the subsequent sale of coins by
such vehicles could negatively affect cryptocurrency prices and
therefore affect the value of the inventory we hold. Such events
could have a material adverse effect on our ability to continue as
a going concern or to pursue our new strategy at all, which could
have a material adverse effect on our business, prospects or
operations and potentially the value of any Bitcoin or other
cryptocurrencies we mine or otherwise acquire or hold for our own
account.
Because
there has been limited precedent set for financial accounting of
Bitcoin and other Digital Assets, the determination that we have
made for how to account for Digital Assets transactions may be
subject to change.
Because
there has been limited precedent set for the financial accounting
of Digital Assets and related revenue recognition and no guidance
has yet been provided by the Financial Accounting Standards Board
or the SEC, it is unclear how companies may in the future be
required to account for Digital Asset transactions and assets and
related revenue recognition. A change in regulatory or financial
accounting standards could result in the necessity to change our
accounting methods and restate our financial statements. Such a
restatement could adversely affect the accounting for our newly
mined coins and more generally negatively impact our business,
prospects, financial condition and results of operation. Such
circumstances would have a material adverse effect on our ability
to continue as a going concern or to pursue our new strategy at
all, which would have a material adverse effect on our business,
prospects or operations and potentially the value of any
cryptocurrencies we hold or expects to acquire for our own account
and harm investors.
We must
comply with applicable laws, rules and regulations; the effect of
any future regulatory change that affects us, our business or any
cryptocurrency that we may mine or hold for others is impossible to
predict, and such change could have a material adverse effect on
our ability to continue as a going concern or to pursue our new
strategy at all, which could have a material adverse effect on our
business, prospects or operations.
Regulation of
cryptocurrencies and cryptocurrency exchanges is currently
undeveloped and likely to evolve rapidly, vary significantly among
international, federal, state and local jurisdictions and is
subject to significant uncertainty. Failure by our company to
comply with any laws, rules and regulations, some of which may not
exist yet or are subject to interpretation and may be subject to
change, could result in a variety of adverse consequences,
including civil penalties and fines imposed by governmental
authorities, including the SEC, the FTC, the FinCEN and one or more
state regulatory authorities. Under certain circumstances, such
failure by our company could also result in criminal
sanctions.
As
blockchain networks and Digital Assets have grown in popularity and
in market size, governments and regulatory agencies have begun to
take interest in, and in some cases regulate, their use and
operation to the extent that a government or quasi-governmental
agency exerts regulatory authority over a blockchain network or
asset upon which our business relies, our business could be
adversely affected. Blockchain networks currently face an uncertain
regulatory landscape in many jurisdictions. The effect of any
future legal or regulatory change is impossible to predict, but
such laws, regulations or directives may directly and negatively
impact our business.
Governments may in
the future curtail or outlaw the acquisition, use or redemption of
cryptocurrencies. Ownership of, holding or trading in
cryptocurrencies may then be considered illegal and subject to
sanction. Governments may also take regulatory action that may
increase the cost and/or subject cryptocurrency companies to
additional regulation. Judicial determinations may also have an
adverse impact on the trading of cryptocurrencies.
On July
25, 2017, the SEC released an investigative report which states
that the United States would, in some circumstances, consider the
offer and sale of cryptocurrencies pursuant to an initial coin
offering (“ICO”) subject to federal securities laws.
Thereafter, China released statements and took similar actions, but
subsequently blocked ICOs and cryptocurrency exchanges. Although we
do not currently participate in ICOs, our potential clients and
customers related to our cryptocurrency exchange business, if and
when we launch such an exchange, may participate in ICOs and these
actions may be a prelude to further action that chills widespread
acceptance of blockchain and cryptocurrency adoption and have a
material adverse effect on our ability to continue as a going
concern or to pursue our new strategy at all, which could have a
material adverse effect on our business, prospects or operations.
In particular, China is a large market that might indicate larger
worldwide trends, so its restrictions related to ICOs and domestic
and foreign exchanges may have wider implications for the
cryptocurrency industry. Moreover, in the United States some
cryptocurrencies that we may wish to offer, such as ether, may have
been issued in whole or part as part of an ICO. It is unclear what
view the SEC might ultimately take with regard to cryptocurrencies
that are of the character of cryptocurrencies if they were
initially issued in whole or part as part of an ICO. If the SEC
were to deem all cryptocurrencies issued as part of ICOs as
securities, we may be required to seek certain licenses we
currently are not intending to acquire, and this could have an
adverse impact on our operations.
Governments may in
the future take regulatory actions that prohibit or severely
restrict the right to acquire, own, hold, sell, use or trade
cryptocurrencies or to exchange cryptocurrencies for fiat currency.
Similar actions by governments or regulatory bodies (such as an
exchange on which our securities are listed, quoted or traded)
could result in restriction of the acquisition, ownership, holding,
selling, use or trading in our securities. Such a restriction could
result in us liquidating our inventory at unfavorable prices and
may adversely affect our shareholders and have a material adverse
effect on our ability to continue as a going concern or to pursue
our new strategy at all, raise new capital or maintain a securities
listing with an exchange, which could have a material adverse
effect on our business, prospects or operations and harm investors
in our securities.
Risks Related to Our Investment Mana
g
ement Business
Adverse
changes in market and economic conditions could lower demand for
the Company’s investment management services.
The
Company provides its products and services to individual investors,
financial advisors, companies and institutional clients. Adverse
conditions in the financial and securities markets may have an
impact on the Company’s revenues, income, and fees which
could adversely affect the Company’s results of operations
and financial condition. Adverse conditions in the financial and
securities markets could also have an adverse effect on our
investment management revenues and reduce the amount of cash flow
that the Company receives from such services, which reduction could
adversely affect the Company’s financial
condition.
The
Company faces significant competition.
The
investment information and investment management conducted by the
Company are very competitive. There are many competing firms and a
wide variety of product offerings. Some of the firms in these
industries are substantially larger and have greater financial
resources than the Company. With regard to the investment
information, barriers to entry have been reduced by the minimal
cost structure of the Internet and other technologies. With regard
to the investment management business, the absence of significant
barriers to entry by new investment management firms in the fund
industry increases competitive pressure. Competition in the
investment management business is based on various factors,
including business reputation, investment performance, quality of
service, marketing, distribution services offered, the range of
products offered and fees charged. Access to fund distribution
channels has also become increasingly competitive.
Difficult
market conditions, market disruptions and volatility have adversely
affected, and may in the future adversely affect, the Company's
businesses, results of operations and financial
condition.
The
Company's businesses, by their nature, do not produce predictable
earnings, and all of the Company's businesses may be materially
affected by conditions in the global financial markets and by
global economic conditions, such as interest rates, the
availability of credit, inflation rates, economic uncertainty,
changes in laws, commodity prices, asset prices (including real
estate), currency exchange rates and controls and national and
international political circumstances (including wars, terrorist
acts, protests or security operations). Challenging market
conditions could affect the level and volatility of securities
prices and the liquidity and the value of investments in the
Company's funds or other investments in which the Company has
investments of its own capital, and the Company may not be able to
effectively manage its investment management business's exposure to
challenging market conditions..
Volatility
in the value of the Company's investments and securities portfolios
or other assets and liabilities, including funds, or negative
returns from the investments made by the Company could adversely
affect the Company's results of operations and statement of
financial condition.
The
Company will invest a significant portion of its capital base to
help drive results and facilitate growth of its investment
management and broker-dealer businesses. As of April 30, 2018, the
Company's invested capital amounted to a net value $3,916,477
million, representing approximately 121% of our stockholders'
equity presented in accordance with accounting principles generally
accepted in the United States of America ("US GAAP"). In accordance
with US GAAP, we define fair value as the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date. US GAAP also establishes a framework for measuring fair value
and a valuation hierarchy based upon the transparency of inputs
used in the valuation of an asset or liability. Changes in fair
value are reflected in the statement of operations at each
measurement period. Therefore, continued volatility in the value of
the Company's investments and securities portfolios or other assets
and liabilities, including funds, will result in volatility of the
Company's results. In addition, the investments made by the Company
may not generate positive returns. As a result, changes in value or
negative returns from investments made by the Company may have an
adverse effect on the Company's financial condition or operations
in the future.
Limitations
on access to capital by the Company and its subsidiaries could
impair its liquidity and its ability to conduct its
businesses.
Liquidity, or ready
access to funds, is essential to the operations of financial
services firms. Failures of financial institutions have often been
attributable in large part to insufficient liquidity. Liquidity is
of particular importance to the Company's trading business and
perceived liquidity issues may affect the willingness of the
Company's broker-dealer clients and counterparties to engage in
brokerage transactions with the Company. The Company's liquidity
could be impaired due to circumstances that the Company may be
unable to control, such as a general market disruption or an
operational problem that affects the Company, its trading clients
or third parties. Furthermore, the Company's ability to sell assets
may be impaired if other market participants are seeking to sell
similar assets at the same time.
The
Company's investment management and broker-dealer businesses’
subsidiaries may become subject to additional regulations which
could increase the costs and burdens of compliance or impose
additional restrictions which could have a material adverse effect
on the Company's businesses and the performance of the Company's
funds. Market disruptions like those experienced in 2008 have led
to an increase in governmental as well as regulatory scrutiny from
a variety of regulators, including the SEC, CFTC, FINRA, NFA, U.S.
Treasury, the NYSE, or other stock exchange, and state attorneys
general. Penalties and fines sought by regulatory authorities have
increased substantially over the last several years. In light of
current conditions in the global financial markets and the global
economy, regulators have increased their focus on the regulation of
the financial services industry. The Company may be adversely
affected by changes in the interpretation or enforcement of
existing laws and rules by these governmental authorities and
self-regulatory organizations. The Company also may be adversely
affected as a result of new or revised legislation or regulations
imposed by the SEC, other U.S. or foreign governmental regulatory
authorities or self-regulatory organizations that supervise the
financial markets. The Company could be fined, prohibited from
engaging in some of its business activities or subjected to
limitations or conditions on its business activities. In addition,
the Company could incur significant expense associated with
compliance with any such legislation or regulations or the
regulatory and enforcement environment generally. Substantial legal
liability or significant regulatory action against the Company
could have a material adverse effect on the financial condition and
results of operations of the Company or cause significant
reputational harm to the Company, which could seriously affect its
business prospects.
The
activities of certain of the Company's subsidiaries and affiliates
will be regulated primarily within the U.S. by the SEC, FINRA, the
NFA, the CFTC and other self-regulatory organizations, as well as
various state agencies, and may be also subject to regulation by
other agencies in various jurisdictions in which we intend to
operate and expect to offer services. Certain legislation proposing
greater regulation of the industry is regularly considered by the
U.S. Congress - as well as by the governing bodies of non-U.S.
jurisdictions - and from time to time adopted as in the case of the
Dodd-Frank Act in the U.S. and MiFID II in the E.U.
The
investment advisers responsible for the Company's investment
management business will register as investment advisers with the
SEC or rely upon the registration of an affiliated
adviser.
It is
difficult to predict what other changes may be instituted in the
future in the regulation of the Company or the markets in which we
intend to invest, or the counterparties with which it does
business, in addition to those changes already proposed or adopted
in the U.S. or other countries. Any such regulation could have a
material adverse effect on the profit potential of the
Company’s operations.
Finally, financial
services firms are subject to numerous perceived or actual
conflicts of interest, which have drawn and which we expect will
continue to draw scrutiny from the SEC and other federal and state
regulators. For example, the research areas of investment banks
have been and remain the subject of heightened regulatory scrutiny,
which has led to increased restrictions on the interaction
between
equity research
analysts and investment banking personnel at securities firms.
Regulations have also been focusing on potential conflicts of
interest or issues relating to impermissible disclosure of material
nonpublic information. Appropriately dealing with conflicts of
interest is complex and difficult, and our reputation could be
damaged if it fails to do so. Such policies and procedures to
address or limit actual or perceived conflicts may also result in
increased costs, additional operational personnel and increased
regulatory risk. Failure to adhere to these policies and procedures
may result in regulatory sanctions or client
litigation.
We
are subject to risk of litigation by investors in the investment
management line of business.
In
general, the Company is exposed to risk of litigation by investors
in its investment management business if the management of any of
its funds is alleged to have been grossly negligent or fraudulent.
Investors or beneficial owners of the Company’s funds could
sue to recover amounts lost due to any alleged misconduct, up to
the entire amount of the loss. In addition, the Company faces the
risk of litigation from investors and beneficial owners of any of
its funds if applicable restrictions are violated. In addition, the
Company is exposed to risks of litigation or investigation relating
to transactions that presented conflicts of interest that were not
properly addressed. In the majority of such actions the Company
would be obligated to bear legal, settlement and other costs, which
may be in excess of any available insurance coverage. In addition,
although the Company is contractually entitled to indemnification
from its funds, our rights to indemnification may be challenged. If
the Company is required to incur all or a portion of the costs
arising out of litigation or investigations as a result of
inadequate insurance proceeds, if any, or is not wholly
indemnified, our business, results of operations and financial
condition could be materially adversely affected. In its investment
management business, the Company is exposed to the risk of
litigation if a fund suffers catastrophic losses due to the failure
of a particular investment strategy or due to the trading activity
of an employee who has violated market rules or regulations. Any
litigation arising in such circumstances is likely to be
protracted, expensive and surrounded by circumstances which are
materially damaging to the Company's reputation and
businesses.
Risks Related to Our Advisor
y
Services Business
Failure
to Anticipate and Respond to Market Trends.
Our
success depends in part upon our ability to anticipate rapidly
changing technologies and market trends and to adapt our research,
data, advisory services, and other related products and services to
meet the changing needs of our clients. The technology and commerce
sectors that we analyze undergo frequent and often dramatic
changes. The environment of rapid and continuous change presents
significant challenges to our ability to provide our clients with
current and timely analysis, strategies and advice on issues of
importance to them. Meeting these challenges requires the
commitment of substantial resources. Any failure to continue to
provide insightful and timely analysis of developments,
technologies, and trends in a manner that meets market needs could
have an adverse effect on our market position and results of
operations.
We
face increased competition.
We
compete principally in the market for research, data and advisory
services, with an emphasis on customer behavior and customer
experience, and the impact of business technology on our
clients’ business and service models. Our principal direct
competitors include other independent providers of research and
advisory services, as large as companies like IBM and Ernst &
Young, to smaller entrepreneurial startups, as well as marketing
agencies, general business consulting firms, survey-based general
market research firms, providers of peer networking services, and
digital media measurement services. Some of our competitors have
substantially greater financial and marketing resources than we do.
In addition, our indirect competitors include the internal planning
and marketing staffs of our current and prospective clients, as
well as other information providers such as electronic and print
publishing companies. We also face competition from free sources of
information available on the Internet, such as Google. Our indirect
competitors could choose to compete directly against us in the
future. In addition, there are relatively few barriers to entry
into certain segments of our market, and new competitors could
readily seek to compete against us in one or more of these market
segments. Increased competition could adversely affect our
operating results through pricing pressure and loss of market
share. There can be no assurance that we will be able to continue
to compete successfully against existing or new
competitors.
We
depend on project-based advisory engagements, and our failure to
secure new engagements could lead to a decrease in our
revenues.
Advisory
engagements typically are project-based. Our ability to attract
advisory engagements is subject to numerous factors, including the
following:
● delivering
consistent, high-quality advisory services to our
clients;
● tailoring
our advisory services to the changing needs of our
clients;
● matching
the skills and competencies of our advisory staff to the skills
required for the fulfillment of existing or potential advisory
engagements; and
● maintaining
a global business operation.
Any
material decline in our ability to secure new advisory arrangements
could have an adverse impact on our revenues and financial
condition.
If we
are unable to achieve or maintain adequate utilization for our
consultants, our operating results could be adversely
impacted.
We
could lose money on our fixed-fee contracts.
As part
of our strategy, from time to time, we may enter into fixed fee
contracts, in addition to contracts based on payment for time and
materials. Because of the complexity of many of our client
engagements, accurately estimating the cost, scope and duration of
a particular engagement can be a difficult task. If we fail to make
accurate estimates, we could be forced to devote additional
resources to these engagements for which we will not receive
additional compensation. To the extent that an expenditure of
additional resources is required on an engagement, this could
reduce the profitability of, or result in a loss on, the
engagement.
Our
contracts with contingent-based revenue may cause unusual
variations in our operating results.
As part
of our strategy, from time to time, we may earn incremental
revenues, in addition to hourly or fixed fee billings, which are
contingent on the attainment of certain contractual milestones or
objectives. Because it is uncertain when the milestones or
objectives will be achieved, if ever, any such incremental revenues
may cause unusual variations in quarterly revenues and operating
results. Also, whether any contractual milestones or objectives are
achieved may become subject to dispute.
Our
contracts with Digital Asset compensation may cause unusual
variations in our operating results.
As part
of our strategy, from time to time, we may earn revenues via
Digital Assets such as Bitcoin or less liquid tokens or coin. In
addition, compensation may be delayed due to lockup provisions.
Because it is uncertain whether or not the Digital Asset
compensation will have liquid markets, stable markets now or in the
future, our operating results may vary due to the ability to
recognize revenue or maintain the valuation of the Digital Assets
on our balance sheet, which may cause us to impair the valuation or
unable to recognize any revenue from these engagements. Due
to the volatility in the market and the diminishing value in our
digital currency assets we have fully impaired our digital currency
assets at April 30, 2018.
Risks Relatin
g
to
our Media and Education Business
If
we do not compete successfully against new and existing
competitors, we may lose our market share, and our operating
results may be adversely affected.
We
compete with other advertising service providers that may reach our
target audience by means that are more effective than our
conferences, digital media and crypto currency services. Further,
if such other providers of advertising have a long operating
history, large product and service suites, more capital resources
and broad international or local recognition, our operating results
may be adversely affected if we cannot successfully
compete.
If
we do not maintain and develop our Blockchain Unbound brand, we
will not be able to attract an audience to the
conferences.
We
attract audiences and advertisers partly through brand name
recognition. We believe that establishing, maintaining and
enhancing our portfolio of conferences and the brands of our
strategic partners will enhance our growth prospects. The promotion
of our Blockchain Unbound brand and those of our strategic partners
will depend largely on our success in maintaining a sizable and
loyal audience, providing high-quality content and organizing
effective marketing programs. If we fail to meet the standards to
which our consumers are accustomed, our reputation will be harmed
and we may lose market share.
Our
future success depends on attracting sponsors and advertisers who
will advertise at our conferences. If we fail to attract a
sufficient number of sponsors and advertisers, our operating
results and revenues may not meet expectations.
Advertisers may
find that our targeted demographic does not consist of their
desired consumers or a critical mass of consumers, decide to use a
competitor’s services or decide not to use our services for
other reasons. If the sponsors and advertisers decide against
advertising with us, we may not realize our growth potential or
meet investor expectations. Our future operating results and
business prospects could be adversely affected.
We
rely on key contracts and business relationships, and if our
current or future business partners or contracting counterparties
fail to perform or terminate any of their contractual arrangements
with us for any reason or cease operations, or should we fail to
adequately identify key business relationships, our business could
be disrupted and our reputation may be harmed.
If any
of our business partners or contracting counterparties fails to
perform or terminates their agreement(s) with us for any reason, or
if our business partners or contracting counterparties with which
we have short-term agreements refuse to extend or renew the
agreement or enter into a similar agreement, our ability to carry
on operations and cross-sell sales and marketing services among
different platforms may be impaired. If one of our partners or
counterparties is unable (including as a result of bankruptcy or a
liquidation proceeding) or unwilling to continue operating in the
line of business that is the subject of our contract, we may not be
able to obtain similar relationships and agreements on terms
acceptable to us or at all. If a partner or counterparty fails to
perform or terminates any of the agreements with us or discontinues
operations, and we are unable to obtain similar relationships or
agreements, such events could have an adverse effect on our
operating results and financial condition. Further, if we are
unable to timely produce our conferences or produce the same
quality of conferences to which our target demographic has been
accustomed, the consequences could be far-reaching and harmful to
our reputation, existing business relationships and future growth
potential.
We may
also need to form new strategic partnerships or joint ventures to
access appropriate assets and industry know-how. Failing to
identify, execute and integrate such future partnerships or joint
ventures may have an adverse effect on our business, growth,
financial condition, and cash flow from operations.
The
advertising market is particularly volatile and we may not be able
to effectively adjust to such volatility.
Advertising
spending is volatile and sensitive to changes in the economy. Our
advertising customers may reduce the amount they spend on our media
for a number of reasons, including, without
limitation:
● a
downturn in economic conditions;
● a
deterioration of the ratings of their programs; or
● a
decline in advertising spending in general.
We may
be unable to maintain or increase our advertising fees and sales,
which could negatively affect our ability to generate revenues in
the future. A decrease in demand for advertising in general, and
for our advertising services in particular, could materially and
adversely affect our operating results.
Risks Related to Our Di
g
ital Asset Minin
g
Business
Commencement
of Digital Asset mining.
Although we have
not commenced Digital Asset mining, we have spent $452,800
assessing the viability of building a data center for our Digital
Asset Mining Business. We may never commence operations and spend
significantly more capital in our assessment of the business. If or
when we do commence Digital Asset mining, the output of which is
typically cryptocurrencies, which the Commission has indicated it
deems a security, may open the Company to other risks found in
these Risk Factors.
As of
January 2019, the Company has abandoned its plans related to the
Digital Asset Mining segment of its business due to due to
insufficient capital to fund the development and maintenance of
this business.
Risks Associated with our Explorator
y
Efforts to Launch a U.S.
Cr
yp
tocurrenc
y
Exchan
g
e and Related
Businesses
We
may not successfully develop, market and launch any cryptocurrency
exchange.
We are
only in the early stages of investigating and planning the
establishment of a cryptocurrency exchange. For a variety of
reasons, we could suffer significant delays in our efforts to
establish such an exchange and may ultimately not be successful in
doing so. We will need to obtain additional management, regulatory
compliance and technical expertise and devote substantial time and
effort to this project. We also expect to need to raise additional
funds (which may be seek by offering direct investments in this
business) to pursue development of the exchange, and we may not be
successful in raising that capital. It is possible that the launch
of our cryptocurrency exchange may never occur, and even if it is
successfully developed, it is possible that it will not be accessed
or utilized by a large number of users or will otherwise not
achieve market acceptance.
Risks Related to Our Securities
We
are subject to the “penny stock rules” which will make
our securities more difficult to sell.
We are
subject to the SEC’s “penny stock” rules because
our securities sell below $5.00 per share. The penny stock rules
require broker- dealers to deliver a standardized risk disclosure
document prepared by the SEC which provides information about penny
stocks and the nature and level of risks in the penny stock market.
The broker-dealer must also provide the customer with current bid
and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson, and monthly account statements
showing the market value of each penny stock held in the
customer’s account. In addition, the bid and offer
quotations, and the broker-dealer and salesperson compensation
information must be given to the customer orally or in writing
prior to completing the transaction and must be given to the
customer in writing before or with the customer’s
confirmation.
Furthermore, the
penny stock rules require that prior to a transaction, the broker
dealer must make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the
purchaser’s written agreement to the transaction. The penny
stock rules are burdensome and may reduce purchases of any
offerings and reduce the trading activity for our securities. As
long as our securities are subject to the penny stock rules, the
holders of such securities will find it more difficult to sell
their securities.
We
are not likely to pay cash dividends in the foreseeable
future.
We
currently intend to retain any future earnings for use in the
operation and expansion of our business. Accordingly, we do not
expect to pay any cash dividends in the foreseeable future but will
review this policy as circumstances dictate.
Our
stock price is likely to be highly volatile because of our limited
public float.
The
market price of our common stock is likely to be highly volatile
because there has been a relatively thin trading market for our
stock, which causes trades of small blocks of stock to have a
significant impact on our stock price. You may not be able to
resell shares of our common stock following periods of volatility
because of the market’s adverse reaction to volatility. Other
factors that could cause such volatility may include, among other
things: actual or anticipated fluctuations in our operating
results; the absence of securities analysts covering us and
distributing research and recommendations about us; overall stock
market fluctuations; economic conditions generally; announcements
concerning our business or those of our competitors; our ability to
raise capital when we require it, and to raise such capital on
favorable terms; conditions or trends in the industry; litigation;
changes in market valuations of other similar companies;
announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships or joint ventures; future
sales of common stock; actions initiated by the SEC or other
regulatory bodies; and general market conditions. Any of these
factors could have a significant and adverse impact on the market
price of our common stock. These broad market fluctuations may
adversely affect the trading price of our common
stock.
In
order to raise sufficient funds to expand our operations, we may
have to issue additional securities at prices which may result in
substantial dilution to our shareholders.
If we
raise additional funds through the sale of equity or convertible
debt, our current stockholders’ percentage ownership will be
reduced. In addition, these transactions may dilute the value of
our common shares outstanding. We may also have to issue securities
that may have rights, preferences and privileges senior to our
common stock.
Our
stock is thinly traded, so an investor may be unable to sell at or
near ask prices or at all.
The
shares of our common stock are traded on the OTC Pink Sheets and
are thinly traded, meaning that the number of persons interested in
purchasing our common stock at or near ask prices at any given time
may be relatively small or non-existent. This situation is
attributable to a number of factors, including the fact that we are
a smaller reporting company that is relatively unknown to stock
analysts, stock brokers, institutional investors and others in the
investment community who generate or influence sales volume. Even
in the event that we come to the attention of such persons, they
would likely be reluctant to follow an unproven company such as
ours or purchase or recommend the purchase of our shares until such
time as we become more seasoned and viable. As a consequence, our
stock price may not reflect an actual or perceived value. Also,
there may be periods of several days or more when trading activity
in our shares is minimal or non-existent, as is currently the case,
as compared to a seasoned issuer that has a large and steady volume
of trading activity that will generally support continuous sales
without an adverse effect on share price. A broader or more active
public trading market for our common shares may not develop or if
developed, may not be sustained. Due to these conditions, you may
not be able to sell your shares at or near ask prices or at all if
you need money or otherwise desire to liquidate your
shares.
Currently,
there is a limited public market for our securities, and there can
be no assurances that any public market will ever develop and, even
if developed, it is likely to be subject to significant price
fluctuations.
We have
a trading symbol for our common stock, namely ‘BCII’.
However, our stock has been thinly traded, if at all. Consequently,
there can be no assurances as to whether:
● any
market for our shares will develop;
● the
prices at which our common stock will trade; or
● the
extent to which investor interest in us will lead to the
development of an active, liquid trading market.
Active
trading markets generally result in lower price volatility and more
efficient execution of buy and sell orders for
investors.
Until
our common stock is fully distributed and an orderly market
develops in our common stock, if ever, the price at which it trades
is likely to fluctuate significantly. Prices for our common stock
will be determined in the marketplace and may be influenced by many
factors, including the depth and liquidity of the market for shares
of our common stock, developments affecting our business, including
the impact of the factors referred to elsewhere in these risk
factors, investor perception of our Company and general economic
and market conditions. No assurances can be given that an orderly
or liquid market will ever develop for the shares of our common
stock.
ITEM
1B UNRESOLVED STAFF COMMENTS
On May
21, 2018, July 31, 2018 and December 3, 2018, the
Company received a comment letter from the staff of the SEC's
Division of Corporation Finance as part of its review of the
Company's Form 10-K for the year ended April 30, 2017, its Form
10-Q for the fiscal quarter ended January 31, 2018 and its
Form 10-K for the year ended April 30, 2018. The staff
requested additional information and provided comments relating to
various sections of the above-mentioned documents. The Company
responded to the outstanding comment letters through this 10-K and
believes that it had addressed the staff’s comments
appropriately.
ITEM
2 PROPERTIES
The
Company currently holds a mailbox in New York City to receive paper
mail communications. The Company does not maintain a physical
office at this time and its employees and consultant work
remotely.
In May 2019, we
abandoned our principal executive offices located in Santa Monica,
CA. The Company was unable to pay its lease in Santa Monica, CA and
abandoned the property. The Company still owes money toward the
lease in Santa Monica, CA, as the Company was unable to terminate
the lease. The Company leased two office units at a co-working
location in Santa Monica, CA.
One unit, which is
approximately 400 square feet, is used by the Company and costs
$10,244.10 per month. The other unit is approximately 100 square
feet and costs $2,888 per month for LegatumX. We also leased an
office in San Juan, Puerto Rico. The space was approximately 80
square feet and cost $1,815.00 per month. During September 2018, we
cancelled the month-to-month lease of this space.
ITEM
3 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
4 MINE SAFETY DISCLOSURES
Not
Applicable.
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, except for the effects on the financial statements
of the restatement described in Note 3, as to which the date is
June 20, 2019.
|
BLOCKCHAIN
INDUSTRIES, INC.
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash & cash
equivalents
|
$
518,960
|
$
-
|
|
Investments in
securities
|
600,000
|
-
|
|
Other
receivables
|
26,245
|
-
|
|
Other current
assets
|
123,488
|
-
|
|
Total current
assets
|
1,268,693
|
-
|
|
|
|
|
|
Other non-current
assets
|
69,077
|
-
|
|
Total
assets
|
$
1,337,770
|
$
-
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts payable
and accrued expenses
|
$
357,208
|
$
493,596
|
|
Deferred
revenue
|
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:
|
|
|
|
referred 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
|
(15,702,391
)
|
(11,228,988
)
|
|
Total shareholders'
deficit
|
(446,723
)
|
(5,029,131
)
|
|
Total liabilities
and shareholders' deficit
|
$
1,337,770
|
$
-
|
The accompanying notes are an integral part of these audited
consolidated financial statements.
|
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
|
|
Write-off
of investment in SAFTs
|
1.720,000
|
-
|
|
Write-off
of fixed assets
|
112,739
|
-
|
|
Reserve
for note receivable
|
500,000
|
-
|
|
Impairment
of digital currencies
|
1,126,334
|
-
|
|
Impairment
of available-for-sale securities
|
180,000
|
-
|
|
Stock
compensation expense
|
3,222,436
|
-
|
|
Total operating
expenses
|
9,755,791
|
148,000
|
|
Loss
from operations
|
(8,502,093
)
|
(148,000
)
|
|
Other
income (expense): Debt forgiveness
|
5,049,131
|
-
|
|
Interest
expense
|
(441
)
|
(5,913
)
|
|
Realized and
unrealized gain (loss)
|
(1,020,000
)
|
-
|
|
Other income
(expense), net
|
4,028,690
|
(5,913
)
|
|
Loss before income
taxes
|
(4,473,403
)
|
(153,913
)
|
|
Provision for
income taxes (benefit)
|
-
|
-
|
|
Net
loss
|
$
(4,473,403
)
|
$
(153,913
)
|
|
Net loss per share
attributable to common shareholders: Basic and
diluted
|
$
(0.117
)
|
$
(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.
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
|
-
|
-
|
-
|
-
|
-
|
(4,473,403
)
|
(4,473,403
)
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2018
|
39,548,579
|
$
39,548
|
278,422
|
$
278
|
$
15,215,842
|
$
(15,702,391
)
|
$
(446,723
)
|
The accompanying notes are an integral part of these audited
consolidated financial statements.
BLOCKCHAIN
INDUSTRIES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
For the Years
Ended April 30,
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
Net
loss
|
$
(4,473,403
)
|
$
(153,913
)
|
|
Adjustments to
reconcile net loss to net cash used in operating
activities:
Depreciation and
amortization
|
-
|
-
|
|
Stock-based
compensation
|
3,222,436
|
|
|
Interest
expense
|
441
|
-
|
|
Write-off of SAFT
investments
|
1,720,000
|
-
|
|
Write-off of fixed
assets
|
112,723
|
-
|
|
Reserve for note
receivable
|
500,000
|
-
|
|
Impairment of
digital currency
|
1,126,334
|
-
|
|
Impairment of
available-for-sale securities
|
180,000
|
-
|
|
Unrealized loss on
equity investments
|
1,020,000
|
-
|
|
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
)
|
-
|
|
Note receivable
with AutoLotto
|
(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.
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:
●
Digital Asset
Advisory Services
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.
During
the 2018 Fiscal Year through January 2019, the Company was planning
to pursue investment management of blockchain-related assets as on
of its core lines of business. We were seeking to provide services
to traditional investment management companies, with a focus on
blockchain technology. Our thesis in the business focused 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 was to be operated through our wholly-owned subsidiary,
BCI Investment Management, LLC, (“BCIM”) a Delaware
limited liability company. We believed we would eventually 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. The Company expected to seed the
funds with its own capital and subsequently obtain outside
investment capital from non-related third parties and expected to
generate revenues by charging a combination of management and
performance fees. Up until January 2019 we were in the process of
establishing the following three alternative investment vehicles in
furtherance of the foregoing:
a.
Blockchain Industries Global Opportunity Fund
It
was contemplated that this fund would have sought to invest in
exchange-traded tokens. Our strategy was twofold (i)
algorithmic/high- frequency trading (“HFT”); and (ii)
small/mid-cap fundamental trading. The HFT component would have
sought 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.
.
b.
Blockchain Industries ICO Access Fund
This
fund sought to invest in early-stage Initial Coin Offerings
(“ICO”), Security Token Offerings (“STO”)
and private token sales. Utilizing our business network, we
believed that we could differentiate against competitors to access
deals that are unavailable to most investors and often at favorable
terms. We expected significant overlap between our portfolio
companies and our advisory clients.
c.
Blockchain Industries Venture Fund
This
fund sought 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.
As of January 2019,
the Company has paused its plans related to the Investment
Management segment of its business. We chose to pause this segment
because the Company does not have sufficient capital to maintain or
build this business and the Company has focused its efforts on
closing the Letter of Intent transaction with BTHMB Holdings Pte.
Ltd. (“BTHMB”).
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. To date, we have limited to no revenues
related to the advisory services segment of our business and it has
not garnered the expected level of interest we anticipated. As a
result, the Company has insufficient funds to build, produce and
maintain a sales force as well as be able to market
ourselves.
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.
As of the date of
this report the Company has paused its plans related to the Media
and Education segment of its business. We chose to pause this
segment because the Company does not have sufficient capital to
maintain or build this business and the Company has focused its
efforts on closing the Letter of Intent with
BTHMB.
“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 intended 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 was focused on a
potential site in Virginia Beach, VA and was negotiating with a
local economic development agency for the development of the site.
The Company sought additional capital to proceed with this
potential investment, however it was unable to procure funding and
abandoned the project.
As
of January 2019, the Company has abandoned its plans related to the
Digital Asset Mining segment of its business due to insufficient
capital to fund the development and maintenance of this
business.
A
digital asset exchange is an area 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 this business unit or merge it with an
existing business unit 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.
During the Fiscal
Year 2018 through January 2019, the Company had 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, and (3) provide financing
for IC)’s or STO’s, acquisitions or other services
related to traditional merchant banking, but related to the Digital
Assets industry. We believed there was a great potential in this
business as Digital Asset exchanges are fragmented and cannot
provide enough liquidity, and many of the transactions are not up
to standards in terms of regulatory requirements. The Company
planned to leverage its reputation to offer a global, scalable
solution to this market.
As of January 2019,
the Company has abandoned its plans related to the Merchant Banking
segment due to insufficient capital to fund the development and
maintenance of the business.
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.
There will 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.
As of January 2019,
the Company has abandoned its plans related to the Digital Asset
Exchange segment due to insufficient capital to fund the
development and maintenance of this business, although the Company
is still working toward closing the Letter of Intent with BTHMB,
which may aid in the development of this
segment.
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.
Variable
Interest Entities
The Company follows
ASC 810-10-15 guidance with respect to accounting for variable
interest entities (each, a “VIE”). These entities do
not have sufficient equity at risk to finance their activities
without additional subordinated financial support from other
parties or whose equity investors lack any of the characteristics
of a controlling financial interest. A variable interest is an
investment or other interest that will absorb portions of a
VIE’s expected losses or receive portions of its expected
residual returns and are contractual, ownership, or pecuniary in
nature and that change with changes in the fair value of the
entity’s net assets. A reporting entity is the primary
beneficiary of a VIE and must consolidate it when that party has a
variable interest, or combination of variable interest, that
provides it with a controlling financial interest. A party is
deemed to have a controlling financial interest if it meets both of
the power and losses/benefits criteria. The power criterion is the
ability to direct the activities of the VIE that most significantly
impact its economic performance. The losses/benefits criterion is
the obligation to absorb losses from, or right to receive benefits
from, the VIE that could potentially be significant to the VIE. The
VIE model requires an ongoing reconsideration of whether a
reporting entity is the primary beneficiary of a VIE due to changes
in facts and circumstances.
We currently
consolidate one VIE, LegtumX, as of April 30, 2018. The Company had
no VIEs at April 30, 2017. Refer to Note 4,
Investment in LegatumX,
for additional
information.
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 (“ASC
505”), 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. Per ASC
505 the measurement date is (a) when a performance commitment, as
defined, is reached or (b) when the earlier of (i) the non-employee
performance is complete or (ii) the instruments are vested. ASC 505
allows for, when appropriate, an issuer to recognize the costs
related to share-based payment transactions with non-employees
before a measurement date has occurred if (i) the quantity and
terms of the equity instruments are known up front or (ii) the
quantity or any of the terms of the equity instruments are not
known up front for purposes of recognition of any costs of the
transaction during financial reporting periods before the
measurement date. If any costs are recognized prior to the
measurement date the fair value of the equity instruments shall be
remeasured at each reporting period. The Company identified the
measurement date for the share-based instruments at the date of
their specific performance commitment and did not recognize any
related costs prior to the measurement dates.
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 common shares issued to
independent contractors and $762,353 of expense related to options
granted to independent contractors.
Segment
Reporting
The Company has
four reportable segments: Investment Management, Digital Asset
Advisory Services, Media and Education, and Digital Asset Mining.
The Investment Management segment provides investment management
services for block-chained related assets. The Digital Asset
Advisory segment provides clients a complete solution including,
but not limited to, architecting their token structure and
issuance, crypto-economic design, technology engineering,
consulting, generating whitepapers, software development, marketing
and eventually making capital introductions. The Media and
Education segment helps promote the awareness, growth and education
of blockchain technology and digital assets. The Digital Asset
Mining segment will set up mining facilities with access to
inexpensive energy and lease these facilities to experienced
digital asset miners.
The accounting
policies of each of the segments are the same as those described in
the summary of significant accounting policies. The Company
evaluates performance based on profit or loss from operations
before income taxes not including nonrecurring gains and losses and
foreign exchange gains and losses. We account for intersegment
sales and transfers as if the sales or transfers were to third
parties, that is, at current market prices.
The Company’s
reportable segments are strategic business units that offer
different products and services. They are managed separately
because each business requires different technology and marketing
strategies. As of the year ended April 30, 2018, the only
reportable segment that generated significant revenue or operations
was the Media and Education segment. The Company is currently
unable to follow through on the development of its other
segments.
Investments in Digital Currencies
The Company
categorizes its investments in digital currencies as intangible
assets with indefinite lives and, in accordance with ASC 350,
Intangibles – Goodwill and Other, records them at cost. The
Company reviews the intangible assets for impairment on an annual
basis or if events or changes in circumstances indicate it is more
likely than not that they are impaired. A decline below cost in a
quoted price on an exchange may be an event indicating that it is
more likely than not that a digital currency is impaired. Due to
the volatile nature of digital currencies and the subsequent losses
sustained by the Company upon selling the Company’s digital
currencies on various exchanges the Company has determined that its
investment in digital currencies are fully impaired and have
recorded a loss on impairment of $1,126,334 at April 30,
2018.
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. The Company accounts for its
Investment in SAFT agreements as a financial asset and, in
accordance with ASC 321
Investments – Equity Securities
,
the Investments in SAFT agreements are carried at cost. At April
30, 2018, the Company concluded that there is no current or future
value related to the Investments in SAFTs and, as a result, have
written-off the full $1,720,000.
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. Due to management’s
estimate of the lack of an active market for the Option or the
future market of the AutoLotto Tokens the Company recorded a value
of $0 at April 30, 2018.
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.
The
following table breaks out the Company’s Investment in
SAFTs:
|
|
|
|
|
|
|
|
Investment in
SAFTs:
|
|
|
|
Chimes
|
$
500,000
|
$
-
|
|
BlockEx
|
500,000
|
-
|
|
Coral
Health
|
250,000
|
-
|
|
Academy
|
250,000
|
-
|
|
Basecoin
|
100,000
|
-
|
|
Origin
|
50,000
|
-
|
|
VideoCoin
|
50,000
|
-
|
|
Wireline
|
20,000
|
-
|
|
Investment in
SAFTs
|
1,720,000
|
-
|
|
Write-off of
Investment in SAFTs
|
(1,720,000
)
|
-
|
|
Total
Investment in SAFTs
|
$
-
|
$
-
|
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. 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 securities
|
$
600,000
|
$
600,000
|
$
-
|
$
-
|
$
600,000
|
|
KinerjaPay
|
600,000
|
600,000
|
-
|
-
|
600,000
|
|
|
$
600,000
|
$
600,000
|
$
-
|
$
-
|
$
600,000
|
Investments in
securities are treated as available-for-sale securities and are
carried at fair value with unrealized gains or losses included in
other income (expense). Unrealized loss on investments in digital
currencies and securities were $1,020,000 and $0 for the years
ended April 30, 2018 and 2017, respectively.
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.
Subsequent to April
30, 2018, the Company decided to sell, in portions, it
available-for-sale securities. In April and May 2019, the Company
sold a total of 517,425 of the 1,000,000 common shares it owns of
KinerjaPay. The Company sold these shares at an average share price
of $0.60 for a total of $311,202. Due to the decreased value of the
KinerjaPay common shares in the open market management believes our
investment in KinerjaPay is other-than-temporarily impaired at
April 30, 2018. As a result, the Company revalued our investment in
available-for-sale securities at April 30, 2018, at $0.60 per share
for a total of $600,000. As such, the Company recorded an
impairment in available-for-sale securities of $180,000 at April
30, 2018.
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
Company previously reported at April 30, 2018, fixed assets of
$112,239 net of accumulated depreciation of $584. The Company
determined as of the date of this Report that the fixed assets were
impaired as of the fiscal year ended April 30, 2018. As a result of
the impairment the Company recorded a write-off of fixed assets on
the Statement of Operations for the $112,139.
The Company
previously reported at April 30, 2018, its investments in digital
currencies in accordance with the fair value election pursuant with
ASC 825, Financial Instruments and recorded unrealized gains of
approximately $40,000 for the period ended April 30, 2018. The
Company determined as of the date of this Report that our
investments in digital currencies should have been recorded as
intangible assets with indefinite lives to be reviewed for
impairment annually and more frequently if events or changes in
circumstances indicate that it is more likely than not that they
are impaired. The Company determined that due to the volatile
nature of digital currencies and the subsequent losses sustained by
the Company upon selling the Company’s digital currencies on
various exchanges the Company has determined that its investments
in digital currencies are fully impaired and have recorded a loss
on impairment of $1,126,334 at April 30, 2018.
The Company
previously reported at April 30, 2018, Investment in SAFTs of
$1,720,000. The Company determined as of the date of this Report
that there is no current or future value related to the Investments
in SAFTs and, as a result, have written-off the full $1,720,000. As
a result of the impairment the Company recorded a write-off of
investment in SAFTs on the Statement of Operations for
$1,720,000.
The Company
previously reported at April 30, 2018, investment in
available-for-sale securities of $780,000. Subsequent to April 30,
2018, the Company decided to sell, in portions, it
available-for-sale securities. In April and May 2019, the Company
sold a total of 517,425 of the 1,000,000 common shares it owns of
KinerjaPay. The Company sold these shares at an average share price
of $0.60 for a total of $311,202. Due to the decreased value of the
KinerjaPay common shares in the open market management believes our
investment in KinerjaPay is other-than-temporarily impaired at
April 30, 2018. As a result, the Company revalued our investment in
available-for-sale securities at April 30, 2018, at $0.60 per share
for a total of $600,000. As such, the Company recorded an
impairment in available-for-sale securities of $180,000 at April
30, 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 $500,000 was funded at the fiscal year ending April 30,
2018
. The Company has determined that, at the date of this
Report, it is more probable than not that AutoLotto will repay the
note. As such, the Company has fully reserved for the note
receivable.
The
following table summarizes the effects of the revisions on the
financial statements for the period reported.
|
Consolidated
Balance Sheets as of
|
|
|
|
|
April
30, 2018
|
|
|
|
|
Property, plant
& equipment
|
$
112,239
|
$
(112,239
)
|
$
-
|
|
Note receivable,
net
|
$
500,000
|
$
(500,000
)
|
$
-
|
|
Investments in
digital currencies
|
$
1,166,477
|
$
(1,166,477
)
|
$
-
|
|
Investments in
SAFTs
|
$
1,720,000
|
$
(1,720,000
)
|
$
-
|
|
Investments in
available-for-sale securities
|
$
780,000
|
$
(180,000
)
|
$
600,000
|
Consolidated
Statement of Operations as of
|
|
|
|
|
April
30, 2018
|
|
|
|
|
Write-off of
investment in SAFTs
|
$
-
|
$
1,720,000
|
$
1,720,000
|
|
Write-off of fixed
assets
|
$
-
|
$
112,139
|
$
112,139
|
|
Impairment of
digital currencies
|
$
-
|
$
1,126,334
|
$
1,126,334
|
|
Impairment of
available-for-sale securities
|
$
-
|
$
180,000
|
$
180,000
|
|
Reserve for note
receivable
|
$
-
|
$
500,000
|
$
500,000
|
|
Unrealized loss on
equity securities
|
$
(979,857
)
|
$
40,143
|
$
(1,020,000
)
|
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 provide
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.
We have determined
that our investment in LegatumX results in the Company being the
primary beneficiary of LegatumX and, therefore, categorizes
LegatumX as a VIE. We believe we are the primary beneficiary due to
our ownserhip of 20% of the outstanding common shares, our payment
of certain expenses on behalf of LegatumX and the presence of a
BCII executive as one of the three directors on LegatumX. As such,
we have consolidated the operations of LegatumX from the date of
investment through the year ended April 30,
2018.
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
|
$
-
|
Write-off of Property and equipment
|
(112,139
)
|
-
|
|
|
$
-
|
$
-
|
Depreciation
expense was $584 and $0 for the years ended April 30, 2018, and
2017, respectively. As of the date of this Report the Company
determined that all of the property and equipment was fully
impaired. As a result, the Company wrote-off the full net value of
$112,139 at April 30, 2018.
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. Due to
management’s estimate of the lack of an active market for the
Option or the future market of the AutoLotto Tokens the Company
recorded a value of $0 at April 30, 2018. Management has determined
that it is more probable than not that AutoLotto will be unable to
satisfy the note receivable. As a result, the Company has fully
reserved for the note receivable at April 30,
2018.
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:
|
Value Date
|
|
|
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
|
Issuee
Name
|
|
|
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.
Service-Based
Stock Options
In December 2017,
the Company issued 300,000, 200,000 and 200,000 service-based
options to an independent contractor valued at $374,970, $249,920,
and $249,900, respectively with exercise prices of $0.25, $2.50 and
$5.00, respectively.
In December 2017,
the Company issued 200,000 service-based options to an independent
contractor valued at $131,150 with an exercise price of
$0.50.
In December 2017,
the Company issued 60,000 service-based options to an independent
contractor valued at $3,660 with an exercise price of
$0.50.
In January 2018,
the Company issued 166,664, 66,668 and 66,668 service-based options
to an independent contractor valued at $120,043, $83,055 and
$83,175, respectively with exercise prices of $1.25, $2.50 and
$3.75, respectively.
In January 2018,
the Company issued 4,000, 4,000 and 4,000 service-based options to
an independent contractor valued at $4,968, $4,983 and $4,990,
respectively with exercise prices of $1.25, $2.50 and $3.75,
respectively.
In January 2018,
the Company issued 50,000, 50,000 and 50,000 service-based options
to an independent contractor valued at $5,845, $61,945 and $61,825,
respectively with exercise prices of $1.25, $2.50 and $3.75,
respectively.
In February 2018,
the Company issued 144,000 service-based options to an independent
director valued at $178,862 with an exercise price of
$1.25.
In February 2018,
the Company issued 16,500, 16,500 and 17,000 service-based options
to an independent contractor valued at $19,232, $19,721 and
$20,794, respectively with exercise prices of $2.50, $5.00 and
$7.50, respectively.
In February 2018,
the Company issued 165,000, 165,000 and 170,000 service-based
options to an independent contractor valued at $192,324, $197,208
and $207,944, respectively with exercise prices of $2.50, $5.00 and
$7.50, respectively.
A
summary of the outstanding service-based options
are as
follows:
|
|
|
Weighted
Average Exercise Price
|
Weighted
Average Contractual Remaining Life
|
|
Balance
at April 30, 2016
|
-
|
-
|
-
|
|
Issued
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
|
Balance
at April 30, 2017
|
-
|
-
|
-
|
|
Issued
|
2,116,000
|
2.68
|
6.64
|
|
Exercised
|
-
|
-
|
-
|
|
Balance
at April 30, 2018
|
2,116,000
|
2.68
|
6.64
|
|
Exercisable
at April 30, 2018
|
276,332
|
0.82
|
5.66
|
The aggregate grant
date fair value of options granted during the years ended April 30,
2018 and 2017 amounted to $2,276,515 and $0, respectively.
Compensation expense related to stock options was $762,353 and $0
for the years ended April 30, 2018 and 2017,
respectively.
As of April 30,
2018, the total unrecognized fair value compensation cost related
to unvested stock options was $1,474,061, which is to be recognized
over a remaining weighted-average period of approximately 6.64
years.
The significant
assumptions used to determine the fair value of options issued,
using Black-Scholes option-pricing model are as
follows:
|
Significant
assumptions (weighted-average):
|
|
|
|
Risk-free
interest rate at grant date
|
2.55
%
|
0
%
|
|
Expected
stock price volatility
|
231.98
%
|
0
%
|
|
Expected
dividend payout
|
-
|
-
|
|
Expected
option life (in years)
|
10
|
-
|
|
Expected
forfeiture rate
|
0
%
|
0
%
|
Restricted Stock
The Company’s
restricted stock activity was as follows:
Compensation
expense related to restricted shares was $2,460,083 and $0 for the
years ended April 30, 2018 and 2017, respectively. Information
relating to non-vested restricted award shares is as
follows:
|
|
|
Weighted Average Grant Date Fair Value
|
|
Non-vested,
April 30, 2017
|
-
|
-
|
|
Granted
|
2,820,000
|
1.16
|
|
Vested
|
220,000
|
0.07
|
|
Forfeited/Expired
|
-
|
-
|
|
Non-vested,
April 30, 2018
|
2,600,000
|
1.25
|
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
Weighted-average exercise
price
|
9,637,500
|
$
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.
The
weighted-average fair value of warrants granted during the years
ended April 30, 2018 and 2017, and the weighted-average significant
assumptions used to determine those fair values, using a
Black-Scholes-Merton option pricing model are as
follows:
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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