NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL
30, 2022
(UNAUDITED)
Note
1 – Organization, Nature of Operations and Going Concern
Organization
and Nature of Operations
Descrypto
Holdings, Inc. and its subsidiary (“Descrypto,” “we,” “our,” “us,” or the “Company”)
is a holding company focused on blockchain technology and digital assets, including the world of non-fungible tokens (NFTs) and the metaverse.
Descrypto is currently focused on the sports and entertainment aspects of NFTs, including building out a creative studio and NFT platform
for the development of crypto art, NFT development and digital entertainment. Descrypto also intends to provide consulting and support
services related to the development of decentralized autonomous organizations (“DAOs”). Through its subsidiary, OpenLocker,
Inc. (“OpenLocker”), Descrypto is connecting fans and athletes with innovative digital collectibles and through OpenStable,
which is part of the OpenLocker ecosystem, Descrypto is providing the first thoroughbred racing digital collectibles to a growing next
generation of fans. In general, Descrypto is focused on delivering shareholder value by acquiring and developing high-quality companies
and key personnel while increasing the value and adoption of blockchain technologies worldwide.
The
parent (Descrypto Holdings, Inc.) and subsidiary are organized as follows:
Schedule
Of Subsidary
Company
Name |
| | |
Incorporation
Date | |
State
of Incorporation |
Descrypto
Holdings, Inc. |
| | |
1996 | |
Delaware |
Descrypto,
Inc. |
| * | |
2017 | |
Delaware |
Descrypto Studio, LLC |
| | |
2022 | |
Wyoming |
* | Entity was acquired
in a reverse merger on July 29, 2021. |
See
Note 6 regarding the acquisition of OpenLocker, Inc. which became a wholly owned subsidiary on May 31, 2022.
Reverse
Merger
On
July 29, 2021, the Company entered into a share exchange agreement with KryptoBank Co. (“KryptoBank”) and its stockholders,
pursuant to which the Company issued common stock representing 90% (233,474,958 shares) of the Company’s total issued and outstanding
common stock in exchange for 100% interest in KryptoBank. KryptoBank was incorporated in Delaware on December 27, 2017. Pursuant to the
terms of the exchange agreement, previous note holders were issued shares of common stock as settlement of the outstanding notes payable.
As a result, KryptoBank became a wholly owned subsidiary of the Company and assumed net liabilities of $16,306. This transaction was
accounted for as a reverse merger by which KrytoBank is deemed to be the accounting acquirer. Consequently, the assets, liabilities and
historical operations are those of KryptoBank. In November 2021, KryptoBank’s name was changed to Descrypto, Inc.
Going
Concern and Management’s Plans
These
unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of business.
As
reflected in the accompanying unaudited consolidated financial statements, for the nine months ended April 30, 2022, the Company had:
|
● |
Net
loss of $1,673,472; and |
|
● |
Net
cash used in operations of $. |
DESCRYPTO
HOLDINGS, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL
30, 2022
(UNAUDITED)
Additionally,
at April 30, 2022, the Company had:
|
● |
Accumulated
deficit of $1,824,913; |
|
● |
Stockholders’
equity of $594,944; and |
|
● |
Working
capital of $573,083. |
We
manage liquidity risk by reviewing, on an ongoing basis, our sources of liquidity and capital requirements. The Company has cash on hand
of $607,145 at April 30, 2022. Although the Company intends to raise additional debt or equity capital, the Company expects to continue
to incur significant losses from operations and have negative cash flows from operating activities for the near-term. These losses could
be significant as operations ramp up along with continuing expenses related to compensation, professional fees, and regulatory are incurred.
The
Company has incurred significant losses since its inception and has not demonstrated an ability to generate sufficient revenues to achieve
profitable operations. There can be no assurance that profitable operations will ever be achieved, or if achieved, could be sustained
on a continuing basis. In making this assessment we performed a comprehensive analysis of our current circumstances including: our financial
position, our cash flows and cash usage forecasts for the twelve months ended April 30, 2023, and our current capital structure including
equity-based instruments and our obligations and debts.
The
Company has satisfied its obligations from the issuance of common stock; however, there is no assurance that such successful efforts
will continue during the twelve months subsequent to the date these unaudited consolidated financial statements are issued.
If
the Company does not obtain additional capital, the Company will be required to reduce the scope of its business development activities
or cease operations. The Company continues to explore obtaining additional capital financing and the Company is closely monitoring its
cash balances, cash needs, and expense levels.
These
factors create substantial doubt about the Company’s ability to continue as a going concern within the twelve-month period subsequent
to the date that these unaudited consolidated financial statements are issued. The unaudited consolidated financial statements do not
include any adjustments that might be necessary if the Company is unable to continue as a going concern. Accordingly, the unaudited consolidated
financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the
realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
Management’s
strategic plans include the following:
|
● |
Pursuing
additional capital raising opportunities; |
|
● |
Continuing
to explore and execute prospective partnering or distribution opportunities; |
|
● |
Identifying
strategic acquisitions; and |
|
● |
Identifying
unique market opportunities that represent potential positive short-term cash flow. |
During
the nine months ended April 30, 2022, the Company’s financial results and operations were not materially adversely impacted by
the COVID-19 pandemic. The extent to which the Company’s future financial results could be impacted by the COVID-19 pandemic depends
on future developments that are highly uncertain and cannot be predicted at this time. The Company is not aware of any specific event
or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities.
These
estimates may change, as new events occur, and additional information is obtained. Actual results could differ materially from these
estimates under different assumptions or
conditions.
To
date, the Company has not experienced any significant economic impact due to COVID-19.
DESCRYPTO
HOLDINGS, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL
30, 2022
(UNAUDITED)
Note
2 - Summary of Significant Accounting Policies
Basis
of Presentation
The
accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial statements (“U.S. GAAP”) and with the instructions to Form 10-Q and
Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain
all information and footnotes required by U.S. GAAP for annual financial statements.
In
the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all of the adjustments
necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of April 30, 2022 and the
results of operations and cash flows for the periods presented. The results of operations for the nine months ended April 30, 2022 are
not necessarily indicative of the operating results for the full fiscal year or any future period.
These
unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included
in the Company’s Annual Report on Form 10-KT (transition period from January 1, 2021 to July 31, 2021) for the period ended July
31, 2021 filed with the SEC on November 15, 2021.
Management
acknowledges its responsibility for the preparation of the accompanying unaudited consolidated financial statements which reflect all
adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of its consolidated
financial position and the consolidated results of its operations for the periods presented.
Principles
of Consolidation
These
unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company and
its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated.
Business
Combinations
The
Company accounts for business combinations using the acquisition method in accordance with the Financial Accounting Standards Board’s
(“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations which requires recognition
of assets acquired and liabilities assumed, including contingent assets and liabilities, at their respective fair values on the date
of acquisition.
Business
Segments and Concentrations
The
Company uses the “management approach” to identify its reportable segments. The management approach requires companies to
report segment financial information consistent with information used by management for making operating decisions and assessing performance
as the basis for identifying the Company’s reportable segments. The Company manages its business as a single operating segment.
Use
of Estimates
Preparing
financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues
and expenses during the reported period. Actual results could differ from those estimates, and those estimates may be material.
Fair
Value of Financial Instruments
The
Company accounts for financial instruments under FASB ASC 820, Fair Value Measurements. ASC 820 provides a framework for measuring
fair value and requires disclosures regarding fair value measurements. Fair value is defined 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, based on the
Company’s principal or, in absence of a principal, most advantageous market for the specific asset or liability.
DESCRYPTO
HOLDINGS, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL
30, 2022
(UNAUDITED)
The
Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring
basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement.
The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining
fair value.
The
three tiers are defined as follows:
|
● |
Level
1 —Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; |
|
● |
Level
2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace
for identical or similar assets and liabilities; and |
|
● |
Level
3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions. |
The
determination of fair value and the assessment of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations
often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various cost, market, or income valuation
methodologies applied to unobservable management estimates and assumptions. Management’s assumptions could vary depending on the
asset or liability valued and the valuation method used. Such assumptions could include estimates of prices, earnings, costs, actions
of market participants, market factors, or the weighting of various valuation methods. The Company may also engage external advisors
to assist us in determining fair value, as appropriate.
Although
the Company believes that the recorded fair value of our financial instruments is appropriate, these fair values may not be indicative
of net realizable value or reflective of future fair values.
The
Company’s financial instruments, including cash, and accounts payable and accrued expenses, are carried at historical cost. At
April 30, 2022 and July 31, 2021, respectively, the carrying amounts of these instruments approximated their fair values because of the
short-term nature of these instruments.
ASC
825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities
at fair value (“fair value option”). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable
unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument
should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding
financial instruments.
Cash
and Cash Equivalents
For
purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months
or less at the purchase date and money market accounts to be cash equivalents.
At
April 30, 2022 and July 31, 2021, respectively, the Company did not have any cash equivalents.
Investment
The
Company owns 150,000 shares of iGrow Systems Inc. The shares are valued at cost $15,000 ($0.10/share). The investment is recorded on
the Company’s balance sheet using the cost method of accounting.
DESCRYPTO
HOLDINGS, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL
30, 2022
(UNAUDITED)
Goodwill
and Impairment
In
financial reporting, goodwill is not amortized, but is tested for impairment annually or whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. Events that result in an impairment review include significant changes in the
business climate, declines in our operating results, or an expectation that the carrying amount may not be recoverable. We assess potential
impairment by considering present economic conditions as well as future expectations. All assessments of goodwill impairment are conducted
at the individual reporting unit level.
The
Company uses qualitative factors according to ASC 350-20-35-3 to determine whether it is more likely than not that the fair value
of goodwill is less than its carrying amount. During the nine months ended April 30, 2022 and 2021, the Company determined there were
no impairments of goodwill.
Intangible
Assets and Impairment
Definite-lived
intangible assets are amortized on a straight-line basis over their estimated useful lives. Indefinite-lived intangible assets are reviewed
for impairment annually. The Company reviews definite-lived intangible assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
There
were no impairment losses for the three and nine months ended April 30, 2022 and 2021, respectively.
Impairment
of Long-lived Assets
Management
evaluates the recoverability of the Company’s identifiable intangible assets and other long-lived assets when events or circumstances
indicate a potential impairment exists, in accordance with the provisions of ASC 360-10-35-15 “Impairment or Disposal of Long-Lived
Assets.”
If
impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment to
be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.
There
were no impairment losses for the three and nine months ended April 30, 2022 and 2021, respectively.
Property
and Equipment
Property
and equipment is stated at cost less accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated
useful lives of the assets.
Expenditures
for repair and maintenance which do not materially extend the useful lives of property and equipment are charged to operations. When
property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective
accounts with the resulting gain or loss reflected in operations.
Management
reviews the carrying value of its property and equipment whenever events or changes in circumstances indicate that the carrying amount
of the asset may not be recoverable.
There
were no impairment losses for the three and nine months ended April 30, 2022 and 2021, respectively.
Income
Taxes
The
Company accounts for income tax using the asset and liability method prescribed by ASC 740, “Income Taxes”. Under
this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases
of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse.
The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not
that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is
recognized as income or loss in the period that includes the enactment date.
DESCRYPTO
HOLDINGS, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL
30, 2022
(UNAUDITED)
The
Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”. Using
that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position
will be sustained upon examination by the tax authorities. As of April 30, 2022 and July 31, 2021, respectively, the Company had no uncertain
tax positions that qualify for either recognition or disclosure in the financial statements.
The
Company recognizes interest and penalties related to uncertain income tax positions in other expense. No interest and penalties related
to uncertain income tax positions were recorded for the three and nine months ended April 30, 2022 and 2021, respectively.
Advertising
Costs
Advertising
costs are expensed as incurred. Advertising costs are included as a component of general and administrative expense in the consolidated
statements of operations.
The
Company recognized $0 and $0 in marketing and advertising costs during the three and nine months ended April 30, 2022 and 2021, respectively.
Stock-Based
Compensation
The
Company accounts for our stock-based compensation under ASC 718 “Compensation – Stock Compensation” using the
fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized
over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions
in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by
the issuance of those equity instruments.
When
determining fair value of stock options, the Company considers the following assumptions in the Black-Scholes model:
|
● |
Exercise
price, |
|
● |
Expected
dividends, |
|
● |
Expected
volatility, |
|
● |
Risk-free
interest rate; and |
|
● |
Expected
life of option |
The
Company has no issued or outstanding stock options at April 30, 2022 and July 31, 2021, respectively.
Basic
and Diluted Earnings (Loss) per Share
Pursuant
to ASC 260-10-45, basic earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of
shares of common stock outstanding for the periods presented.
Diluted
earnings per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents
and potentially dilutive securities outstanding during the period. Potentially dilutive common shares may consist of common stock issuable
for stock options and warrants (using the treasury stock method), convertible notes and common stock issuable. These common stock equivalents
may be dilutive in the future. In the event of a net loss, diluted loss per share is the same as basic loss per share since the effect
of the potential common stock equivalents upon conversion would be anti-dilutive.
The
Company effected a reverse merger and recapitalization on July 29, 2021, as a result, all share and per share amounts have been retroactively
restated to the earliest period presented (for the year ended July 31, 2021).
DESCRYPTO
HOLDINGS, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL
30, 2022
(UNAUDITED)
For
the nine months ended April 30, 2022 and 2021, the Company had potentially dilutive equity securities of 35,520,000 and 0, respectively.
These securities consist solely of Series A, convertible preferred stock, which convert into 1,000 shares of common stock for each 1
share of Series A, convertible preferred stock held.
Related
Parties
Parties
are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are
controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management,
members of the immediate families of principal owners of the Company and its management and other parties with which the Company may
deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one
of the transacting parties might be prevented from fully pursuing its own separate interests.
Recent
Accounting Standards
Changes
to accounting principles are established by the FASB in the form of Accounting Standards Updates (“ASUs”) to the FASB’s
ASC. We consider the applicability and impact of all ASUs on our consolidated financial position, results of operations, stockholders’
deficit, cash flows, or presentation thereof. Management has evaluated all recent accounting pronouncements as issued by the FASB in
the form of ASUs through the date these unaudited financial statements were available to be issued and found no recent accounting pronouncements
issued, but not yet effective accounting pronouncements, when adopted, will have a material impact on the consolidated financial statements
of the Company.
Note
3 – Property and Equipment
Property
and Equipment consisted of the following:
Schedule
of Property, Plant and Equipment
v | |
| April
30 | | |
$ | July
31 | | |
|
| |
| | |
| | |
Estimated
Useful |
| |
April
30, 2022 | | |
July
31, 2021 | | |
Lives
(Years) |
| |
| | |
| | |
|
Website | |
$ | 10,836 | | |
$ | 10,836 | | |
3 |
Accumulated
amortization | |
| 3,975 | | |
| 1,391 | | |
|
Website
- net | |
$ | 6,861 | | |
$ | 9,445 | | |
|
Amortization
expense for the three months ended April 30, 2022 and 2021 was $792 and $0, respectively.
Amortization
expense for the nine months ended April 30, 2022 and 2021 was $2,584
and $445,
respectively.
These
amounts are included as a component of general and administrative expenses in the accompanying consolidated statements of operations.
DESCRYPTO
HOLDINGS, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL
30, 2022
(UNAUDITED)
Note
4 – Notes Payable – Related Parties and Debt Forgiveness
The
following represents a summary of the Company’s notes payable – related parties, key terms, and outstanding balances at April
30, 2022 and July 31, 2021, respectively:
Schedule
of Notes Payable Related Parties
| |
Note
Payable | | |
|
|
Note
Payable | | |
| |
Note
Payable | | |
| |
| |
Terms | |
Related
Parties | | |
|
|
Related
Party | | |
| |
Related
Party | | |
| |
| |
Issuance
date of notes | |
Prior
to 2018 | | |
|
|
June
29, 2021 | | |
| |
July
9, 2021 | | |
| |
| |
Maturity date | |
Due on demand | | |
|
|
June 28, 2022 | | |
A | |
June 28, 2022 | | |
A | |
| |
Interest rate | |
12% | | |
|
|
12% | | |
| |
12% | | |
| |
| |
Collateral | |
Unsecured | | |
|
|
Unsecured | | |
| |
Unsecured | | |
| |
| |
| |
| | |
|
|
| | |
| |
| | |
| |
Total | |
| |
| | |
|
|
| | |
| |
| | |
| |
| |
Principal | |
$ | 112,167 | | |
|
|
$ | 25,000 | | |
| |
$ | 25,000 | | |
| |
$ | 162,167 | |
| |
| | | |
|
|
| | | |
| |
| | | |
| |
| | |
Balance
- July 31, 2020 | |
$ | 112,167 | | |
|
|
$ | - | | |
| |
$ | - | | |
| |
$ | 112,167 | |
Proceeds
from issuance of notes | |
| - | | |
|
|
| 25,000 | | |
| |
| 25,000 | | |
| |
| 50,000 | |
Balance
- July 31, 2021 | |
| 112,167 | | |
|
|
| 25,000 | | |
| |
| 25,000 | | |
| |
| 162,167 | |
Forgiveness
of note payable | |
| (112,167 | ) | |
B |
|
| - | | |
| |
| - | | |
| |
| (112,167 | ) |
Stock
issued in conversion of note payable | |
| | | |
|
|
| (25,000 | ) | |
C | |
| (25,000 | ) | |
C | |
| (50,000 | ) |
Balance
- April 30, 2022 | |
$ | - | | |
|
|
$ | - | | |
| |
$ | - | | |
| |
$ | - | |
A
Due on the earlier of June 28, 2022, or the date which the Company raises at least $200,000 from investors.
B
These notes were forgiven by the debt holders in February 2022. Total principal and accrued interest totalled $155,743.
Since these transactions occurred with related parties, gain on debt forgiveness was recorded as an increase to additional paid-in capital.
See Note 5.
C
The Company issued 135,450 shares of common stock, having a fair value of $106,274, to settle the outstanding principal and related
accrued interest of $54,180 on these notes payable - related parties, resulting in a loss on debt extinguishment of $52,094. See Note
5.
Note
5 – Stockholders’ Equity (Deficit)
At
April 30, 2022, the Company had two (2) classes of stock:
Class
A Common Stock
|
- |
10,000,000,000
shares authorized |
|
- |
Par
value - $0.0001 |
|
- |
Voting
at 1 vote per share |
DESCRYPTO
HOLDINGS, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL
30, 2022
(UNAUDITED)
Series
A Preferred Stock
|
- |
200,000
shares authorized |
|
- |
Par
value - $0.0001 |
|
- |
Conversion
ratio – 1 share of Series A converts into 1,000 shares of common stock |
|
- |
Voting
on an if converted basis of 1,000 votes per share |
|
- |
Eligible
for dividends/distributions if declared by the Board of Directors |
|
- |
Liquidation
preference - none |
Equity
Transactions for the Nine Months Ended April 30, 2022
Stock
Issued for Cash
The
Company issued 182,503,736 shares of common stock for $638,196 ($0.0001 – $0.40/share).
Stock
Issued for a Subscription Receivable
The
Company issued 250,000 shares of common stock for $100,000 ($0.40/share). The Company collected the cash in May 2022.
Stock
Issued for Services
Year
Ended July 31, 2021
On
July 30, 2021, the Company entered into an employment agreement with an officer of the Company to grant 1% of the outstanding common
stock on that date (2,593,766 shares) to be earned over the following six-month period beginning on August 1, 2021. In November 2021,
the officer resigned his position with the Company and executed a termination agreement granting him 1,385,625 shares in place of the
shares granted in the employment agreement.
On
July 30, 2021, the Company entered into an employment agreement with an officer of the Company to grant 0.5% of the outstanding common
stock on that date (1,296,883 shares) to be earned over the following six-month period beginning on August 1, 2021. These shares were
fully earned as of January 31, 2022 and recorded as a stock payable.
Three
Months Ended April 30, 2022
During
the three months ended April 30, 2022, the Company issued 1,645,042 shares of common stock for services rendered in settling the above
stock grants to the former officers having a fair value of $1,525,637 based upon the quoted closing trading price on the modified grant
dates.
In
order to reflect the proper compensation related to these arrangements, the Company adjusted general and administrative expense by $1,545,936
to reflect the total fair value of the shares issued.
Stock
Issued in Conversion of Notes Payable and Accrued Interest – Related Parties
The
Company issued 135,450 shares of common stock, having a fair value of $106,274 ($0.70 - $0.87/share), based upon the quoted closing trading
price, in connection with the conversion of notes payable and related accrued interest totaling $54,180, resulting in a loss on debt
extinguishment of 52,094. See Note 4.
Forgiveness
of Notes Payable and Accrued Interest – Related Parties
Certain
debt holders forgave notes payable and related accrued interest totaling $155,743 (principal of $112,167 and accrued interest of $43,576).
The Company recorded an increase to additional paid in capital related to the debt forgiveness.
DESCRYPTO
HOLDINGS, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL
30, 2022
(UNAUDITED)
Common
Stock Share Redemptions
The
Company agreed to repurchase common stock from certain shareholders. The Company redeemed 240,814,962
shares ranging from $0.0001 - $0.000001/share
for a net amount of $935.
The shares were cancelled and are available for future issuances.
Preferred
Stock Share Redemptions
The
Company agreed to repurchase common stock from certain shareholders. The Company redeemed 142,080 shares at $0.0001/share for a net amount
of $2. The shares were cancelled and are available for future issuances.
Share
Exchange Agreement – Related Parties
In
January 2022, the Company issued 88,800 shares of Series A preferred stock to ACV in exchange for 88,800,191 shares of common stock,
having a fair value of $8,880 ($0.0001/share).
In
January 2022, the Company issued 88,800 shares of Series A preferred stock to Leone in exchange for 88,800,191 shares of common stock,
having a fair value of $8,880 ($0.0001/share).
Note
6 – Subsequent Events
Subsequent
to April 30, 2022, the Company had the following transactions:
Stock
Issued for Cash
The
Company issued 162,500 shares of common stock for $65,000 ($0.40/share).
Stock
Issued for Services
The
Company issued 162,000 shares of common stock for services rendered, having a fair value of $140,940 ($0.87/share), based upon the quoted
closing trading price.
Acquisitions
and Pro Forma Financial Information
OpenLocker,
Inc. (“OL”)
On
May 31, 2022, the Company closed a share exchange agreement with OL and issued 12,500,000
shares of common stock, having a fair value of
$8,125,000
($0.65/share),
based upon the quoted closing trading price, on the acquisition date, to purchase 100%
of OL’s, outstanding stock in a transaction treated as a business combination.
The
Company is in the process of assessing the fair value of the net assets acquired and, as a result, the fair value of the net assets acquired
may be subject to adjustments pending completion of final valuations and post-closing adjustments.
DESCRYPTO
HOLDINGS, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL
30, 2022
(UNAUDITED)
In
connection with the acquisition of OL, the Company has agreed to the following pursuant to the share exchange agreement:
In
addition, the Company agreed to the following pursuant to the terms of the Share Exchange Agreement:
|
1. |
Following
the Closing, the Company reserved 750,000
shares of Company common stock for issuance
to OpenLocker employees as options, restricted stock or similar incentive compensation, on terms to be determined by the Company’s
Board of Directors (the “Board”); |
|
2. |
At
the Closing, the Company contributed $300,000
to the operations of OpenLocker, which funds
will generally be used for working capital uses and for the payment of OpenLocker payables and costs and expenses incurred by OpenLocker
in connection with the Exchange and related transactions, and not for executive salaries, cash bonuses, etc.; |
|
3. |
Following
the Closing and prior to September 1, 2022, the Company will fund at least an additional $250,000 to the operations of OpenLocker,
which will generally be used for working capital uses and not for executive salaries, cash bonuses, etc.; |
|
4. |
At
the Closing, Mr. Klatsky was named as a member of the Board; and |
|
5. |
At
the Closing, American Capital Ventures, Inc. (“ACV”), Leone Capital Group LLC (“Leone”) and Mr. Klatsky entered
into a voting agreement pursuant to which, subject to the terms and conditions therein, Leone and ACV agreed to vote
for Mr. Klatsky as a director of the Company. |
Both
ACV and Leone are significant stockholders
of the Company. Howard Gostfrand, the Company’s Chief Executive Officer, Principal Financial Officer and a member of the Board,
is the sole owner of ACV. Laura Anthony, the Company’s President and a member of the Board, is the sole owner of Leone.
OpenLocker became
one of the core businesses of the Company following the Closing. OpenLocker is a leading innovator in utilizing blockchain technology
to provide digital ownership of NFTs for college athletes and thoroughbred racing stars.
The
Share Exchange Agreement includes customary representations, warranties, and covenants by the respective parties and closing conditions,
including that all SAFEs shall have been converted or exercised. Consummation of the transactions contemplated under the Share Exchange
Agreement is not subject to a financing condition.
See
the Current Report on Form 8-K filed with the SEC by the Company on June 6, 2022 for a complete discussion of the transaction.
The
table below summarizes preliminary estimated fair value of the assets acquired and the liabilities assumed at the effective acquisition
date.
Schedule
of Assets and Liabilities Effective on Acquisition
Consideration | |
| | |
Common
stock (12,500,000 shares of common stock ($0.65/share)) | |
$ | 8,125,000 | |
| |
| | |
Fair
value of consideration transferred | |
| 8,125,000 | |
| |
| | |
Recognized
amounts of identifiable assets acquired and liabilities assumed: | |
| | |
| |
| | |
Cash | |
| 35,725 | |
Total
assets acquired | |
| 35,725 | |
| |
| | |
Accounts
payable and accrued expenses | |
| 91,151 | |
SAFE
Notes | |
| 175,000 | |
Total
liabilities assumed | |
| 266,151 | |
| |
| | |
Total
identifiable net liabilities | |
| (230,426 | ) |
| |
| | |
Goodwill | |
$ | 8,355,426 | |
In
connection with the purchase of OL, there were no additional transaction costs incurred.
DESCRYPTO
HOLDINGS, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL
30, 2022
(UNAUDITED)
Supplemental
Pro Forma Information (Unaudited)
The
unaudited pro forma information for the periods set forth below gives effect to the acquisition as if the transaction had occurred on
August 1, 2021 and 2020, respectively. However, OL was incorporated in August 2021, therefore there were no pro forma operations for
OL for the year ended July 31, 2021.
For
purposes of presenting the pro forma information for the year ended July 31, 2021, the data consists solely of the Company, while giving
effect to the issuance of the 12,500,000 shares of common stock as if this occurred on August 1, 2021.
This
proforma information is presented for informational purposes only and is not necessarily indicative of the results of operations that
actually would have been achieved had the transactions been consummated as of that time:
Schedule
of Supplemental Proforma Information
| |
Nine
Months Ended | | |
Year
Ended | |
| |
April
30, 2022 | | |
July
31, 2021 | |
| |
| | |
| |
Revenues | |
$ | 23,162 | | |
$ | - | |
| |
| | | |
| | |
Net
loss | |
$ | (1,935,104 | ) | |
$ | (121,231 | ) |
| |
| | | |
| | |
Loss
per share - basic | |
$ | (0.01 | ) | |
$ | (0.00 | ) |
| |
| | | |
| | |
Loss
per share - diluted | |
$ | (0.01 | ) | |
$ | (0.00 | ) |
| |
| | | |
| | |
Weighted
average number of shares - basic | |
| 192,945,872 | | |
| 271,876,620 | |
| |
| | | |
| | |
Weighted
average number of shares - diluted | |
| 192,945,872 | | |
| 271,876,620 | |