ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
LevelBlox, Inc. (“LevelBlox”) formerly known as AlphaPoint Technology, Inc. (“AlphaPoint”) was incorporated in the State of Delaware on September 27, 2018. The effective date of the Amendment for purposes of Delaware law was September 27, 2018. However, the corporate name change did not take effect at that time, as it required approval by the Financial Industry Regulatory Authority (“FINRA”). On October 18, 2018, FINRA notified the Company that its corporate name change and ticker symbol change would take effect on October 19, 2018.
LevelBlox, is a developer of Software Asset Management applications for the Blockchain. LevelBlox has also developed a patent-pending software application called AssetCentral (AC). Through AssetCentral use cases we have identified the growing complexity and scope with the current methodology tracking of Software Asset Management licenses. By leveraging AC’s patent pending processes with Blockchain technology, LevelBlox’s SAM Blockchain application will connect software entitlements to their licenses and components with the software decision makers, to drive automation with transparency to reduce SAM content, effort, and cost. LevelBlox’s Blockchain auditing and compliance tool will assist companies with their compliance audits, internal controls, and best business practices.
LevelBlox management is currently seeking alternative opportunities in line with their original strategy of acquiring a business in the Blockchain technology sector that is capable of growth and development.
RESULTS OF OPERATIONS
Three months ended June 30, 2019 and 2018
Our consolidated revenues were $30,000 and $0 for the three months ended June 30, 2019 and 2018, respectively.
Revenue recorded during the second quarter of 2019 relates to an ongoing customer contract.
Operating expenses were $163,657 and $566,565 for the three months ended June 30, 2019 and 2018, respectively.
The decrease in year over year expenses resulted mainly from a reduction in professional fees incurred by the Company. During
2018, the Company incurred significant professional fees in the Company’s efforts to see executive talent and business advisors
to assist in developing new business strategies.
Net losses incurred in the periods presented have been primarily due to operating costs. The Company
incurred net losses of $133,657 and $566,565 for the three months ended June 30, 2019 and 2018, respectively.
Six months ended June 30, 2019 and 2018
Our consolidated revenues were $640,000 and $0 for the six months ended June 30, 2019 and 2018, respectively.
Revenue recorded during the second quarter of 2019 relates to an ongoing customer contract.
Operating expenses were $385,270 and $651,487 for the six months ended June 30, 2019 and 2018, respectively.
The decrease in year over year expenses resulted mainly from a reduction in professional fees incurred by the Company. During
2018, the Company incurred significant professional fees in the Company’s efforts to see executive talent and business advisors
to assist in developing new business strategies.
Net losses incurred in the periods presented have been primarily due to operating costs. The Company
incurred net losses of $345,270 and $651,487 for the six months ended June 30, 2019 and 2018, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As reflected in the consolidated financial statements, at June 30, 2019, we had a deficit in working capital, an accumulated deficit and a net loss.
At June 30, 2019, the Company had current assets of approximately $19,860 and current liabilities of approximately
$1,071,353, resulting in a working capital deficit of approximately $1,051,493.
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We depend on advances from shareholders, to meet any shortfall in meeting our obligations. However, we will require working capital to meet our current shortfall in working capital. If the Company is unable to raise the funds partially through stock offerings, the Company will seek alternative financing through means such as borrowings from institutions or private individuals. There can be no assurance that the Company will be able to raise such funds.
Consequently, there is doubt about the Company’s ability to continue to operate as a going concern.
As reflected in the consolidated financial statements we have an accumulated deficit from inception of $5,838,153 as of June 30,
2019 and have a loss from operations of $345,270 and $651,487 for the six months ended June 30, 2019 and June 30, 2018, respectively.
The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital
and execution of its business plan. The financial statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.
If we are unsuccessful at raising sufficient funds, for whatever reason, to fund our operations, the Company may be forced to seek a buyer for our business or another entity with which we could create a joint venture.
Management believes that actions presently being taken to obtain additional funding and execution of its strategic plans provide the opportunity for the Company to continue as a going concern.
Recent Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or The NASDAQ Stock Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges are those that address board of directors’ independence, audit committee oversight, and the adoption of a code of ethics. Our Board of Directors consists of eight (8) individuals who advise our chief executive officer and chief financial officer. Our chief executive officer makes decisions on all significant corporate matters such as the approval of terms of the compensation of our executive officers.
The Company has adopted a Code of Ethics and Business Conduct. The Company is in the process of introducing them. The Company has not adopted corporate governance measures such as an audit or other independent committees of our board of directors. If we expand our board membership in future periods to include additional independent directors, the Company may seek to establish an audit and other committees of our Board of Directors. It is possible that if our Board of Directors included independent directors and if we were to adopt some or all of these corporate governance measures, stockholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct. For example, in the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to our senior officers and recommendations for director nominees may be made by a majority of directors who have an interest in the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 3 to the consolidated financial statements for a discussion of recent accounting guidance.
OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to our stockholders.
MANAGEMENT CONSIDERATION OF ALTERNATIVE BUSINESS STRATEGIES
In order to continue to protect and increase shareholder value, management believes that it may, from time to time, consider alternative management strategies to create value for the company or additional revenues. Strategies to be reviewed may include acquisitions, roll-ups, strategic alliances, joint ventures on large projects, and/or mergers.
Management will only consider these options where it believes the result would be to increase shareholder value while continuing the viability of the company.
INFLATION
The effect of inflation on our revenues and operating results has not been significant.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
When we prepare our consolidated financial statements and accompanying notes in conformity with U.S. GAAP, we must make estimates and assumptions about future events that affect the amounts we report. Certain of these estimates result from judgments that can be subjective and complex. As a result of that subjectivity and complexity, and because we continuously evaluate these estimates and assumptions based on a variety of factors, actual results could materially differ from our estimates and assumptions if changes in one or more factors require us to make accounting adjustments. During the six months ended June 30, 2019, we reassessed our critical accounting policies and estimates as disclosed in our 2018 Form 10-K; however, we have made no material changes or additions with regard to those policies and estimates.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Our internal control system was designed to, in general, provide reasonable assurance to the Company’s management and board regarding the preparation and fair presentation of published financial statements, but because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of the Company’s internal control over financial reporting
as of June 30, 2019. The framework used by management in making that assessment was the criteria set forth in the document
entitled “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on that assessment, our management has determined that as of June 30, 2019, the Company’s internal
control over financial reporting was not effective for the purposes for which it is intended, due to material weaknesses stemming
from the factors listed below.
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The Board of Directors does not currently have an audit committee.
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During 2019, the Company entered into a contract to develop software for a customer. Management did not fully
evaluate this contract in order to determine the impact of ASC 606, “Revenue from Contracts with Customers”, which
was adopted January 1, 2018. Given the nature of the accounts affected by this standard and their potentially material impact
on the financial statements, we have determined that the lack of timely review is a control deficiency that arises to the level
of material weakness.
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In response to these material weaknesses, Management intends to give consideration to adopting a more rigorous
corporate governance, including the formation of an audit committee in the future. In addition, Management intends to develop a
more formal process to evaluate customer contracts as sales of goods and services continue to evolve.
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