NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
The Company and Basis of Presentation
The
Crypto Company (the “Company”, “Crypto” or “Croe”) was incorporated in the State of Utah on
December 2, 2013 under the name Croe, Inc. On October 3, 2017, the Company filed Articles of Conversion with the Utah Secretary
of State and the Nevada Secretary of State to effectively change its state of Incorporation to Nevada, and filed Articles of Incorporation
with the Nevada Secretary of State to change its name to The Crypto Company.
On
June 7, 2017 (the “Transaction Date”), as a result of the Stock Sale, the Stock Dividend and the Share Exchange, each
as hereinafter described, (i) Crypto Sub, Inc., a Nevada corporation formerly known as The Crypto Company (“Crypto Sub”),
became a wholly owned subsidiary of Croe; (ii) all of the former shareholders of Crypto Sub became shareholders of Croe, on a
pro-rata basis; and (iii) the operations of Croe solely consisted of the operations of Crypto Sub.
The
Transaction was treated as a reverse acquisition of Croe, and Crypto Sub is treated as the acquirer, for financial accounting
and reporting purposes, while Croe is treated as the acquired entity. As of the effective date of the Transaction, the acquired
entity had no liabilities or obligations.
As
a result of the Transaction, Crypto Sub and its parent company, The Crypto Company, shall collectively be referred to as (the
“Company”, “we”, “our”, or “us”) herein.
The Company is engaged
in the business of advising regarding, investing in, trading and developing proprietary source code for the management
of digital assets. Our core services include consulting and advice to companies regarding investment and trading in the
digital asset market. We also invest in technologies and tokens in a manner that diversifies exposure to the growing class
of digital assets.
From time to time we
may seek strategic acquisitions either by integrating third party teams and technology with our core business or by funding third
party teams in which we may have interest.
Technology
We are developing proprietary technology, including trading management and auditing
software, tools and processes, to assist both our own operations and traditional companies, from start-up businesses to
well-established companies.
We may consider using our technology
to build additional units around our existing platform, or selling or
licensing our technology to third party institutions for a fee.
Consulting
We
offer various consulting services to a variety of clients, including advising traditional institutions and decentralized autonomous
organizations who desire to operate or trade in cryptocurrencies and active dialogue with government regulators, lawmakers and
industry groups to create responsible regulations that promote the growth of the cryptocurrency market while providing transparency
to potential investors.
Media
and Ongoing Education
We
engage in public discourse on an ongoing basis and regularly host roundtable webinars to educate the public about the cryptocurrency
market.
Stock
Sale
On
June 7, 2017, the Company entered into (i) a Share Purchase Agreement (the “Restricted Share Purchase Agreement”)
with Crypto Sub, and John B. Thomas P.C., in its sole capacity as representative for certain shareholders of the Company; and
(ii) a Share Purchase Agreement (the “Free Trading Share Purchase Agreement”, and together with the Restricted Share
Purchase Agreement, the “Share Purchase Agreements”) with Crypto Sub, Uptick Capital, LLC (“Uptick Capital”)
and John B. Thomas P.C., in its sole capacity as representative for certain shareholders of the Company. Pursuant to the Share
Purchase Agreements, the shareholders of the Company sold an aggregate of 11,235,000 shares of common stock of the Company to
Crypto Sub and 100,000 shares of common stock of the Company to Uptick Capital, representing an aggregate of 100% of the issued
and outstanding common stock of the Company as of such date, for aggregate proceeds of $411,650, including escrow and other transaction
related fees to the selling shareholders (the “Stock Sale”). A portion of the acquisition cost equal to $399,300 is
expensed as a general and administrative expense in the accompanying consolidated statement of operations.
10,000,000
shares held by Deborah Thomas, the former Chief Executive Officer, principal accounting and financial officer and director of
the Company, representing approximately 88.22% of the outstanding common stock of the Company immediately prior to the Stock Sale,
were sold at a price of $0.031 per share, and an aggregate of 1,335,000 shares held by the remaining shareholders of the Company
were sold at a price of $0.075 per share.
In
connection with the Stock Sale, effective as of June 7, 2017, (i) Deborah Thomas resigned as Chief Executive Officer, principal
accounting officer and director of the Company and Elliott Polatoff resigned as Secretary and director of the Company; and (ii)
Michael Poutre was appointed Chief Executive Officer and sole director of the Company, James Gilbert was appointed President of
the Company and Ron Levy was appointed Chief Operating Officer of the Company.
Stock
Dividend
On
June 7, 2017, Crypto Sub issued to its shareholders a stock dividend (the “Stock Dividend”) of 10,918,007 shares of
common stock of the Company acquired through the Stock Sale, distributed on a pro-rata basis, such that the shareholders of Crypto
Sub received fifteen shares of common stock of the Company for each share of common stock of Crypto Sub held as of June 6, 2017.
Immediately
following the consummation of the Stock Sale and the distribution of the Stock Dividend, Crypto Sub held 316,993 shares, representing
4.26% of the issued and outstanding shares of common stock of the Company, and the shareholders of Crypto Sub, collectively, held
10,918,007 shares, representing 94.40% of the issued and outstanding shares of common stock of the Company. Of the 316,993 shares
held by Crypto Sub, 129,238 shares were transferred to certain officers and consultants of Crypto Sub in exchange for their services
related to the Transaction, and the remaining shares were retired in June 2017.
Share
Exchange
On
June 7, 2017, the Company, entered into a Share Exchange Agreement (the “Exchange Agreement”) with Michael Poutre,
in his sole capacity as representative for the shareholders of Crypto Sub, pursuant to which each issued and outstanding share
of common stock of Crypto Sub was exchanged for shares of common stock of the Company (the “Share Exchange”), resulting
in the aggregate issuance of 7,026,614 shares of common stock of the Company, on a pro-rata basis, as provided on the Exchange
Agreement, to the shareholders of Crypto Sub, in exchange for 727,867 shares of common stock of Crypto Sub.
Immediately
following the Stock Exchange, the Company had 18,361,614 shares of common stock issued and outstanding.
The
Stock Sale, the Stock Dividend and the Share Exchange are collectively referred to as the “Transaction”.
Interim
Unaudited Financial Information
The
accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting
principles generally accepted in the United States of America (“US GAAP”) for interim financial information and pursuant
to the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of
normal recurring adjustments, considered necessary for a fair presentation of the condensed consolidated financial statements
have been included.
The
accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the 8-K/A for the period from March 9, 2017 (“Inception”),
through June 7, 2017, filed with the Securities and Exchange Commission on August 25, 2017. The results of operations for the
three months, and for the period from inception, March 9, 2017, through September 30, 2017 are not necessarily indicative of the
results for the year ending December 31, 2017 or any future interim period.
Liquidity
The
Company had limited revenues during the three months ended September 30, 2017 and since Inception through September 30,
2017, which were primarily limited to realized gains on investments in cryptocurrency. The Company has raised an aggregate of
$4,976,011 in cash from common stock issuances from Inception through September 30, 2017, and had $2,591,404 in cash as
of September 30, 2017 and working capital of $3,433,848. However, the Company has a limited operating history and its prospects
are subject to risks, expenses and uncertainties frequently encountered by early-stage companies. These risks include, but are
not limited to, the uncertainties of availability of financing and achieving future profitability and the success of an unproven
business plan in an emerging industry. Management anticipates that the Company will be dependent, for the near future, on
investment capital to fund operating expenses. The Company intends to position itself so that it may be able to raise funds through
the capital markets. There can be no assurance that such financing will be available at terms acceptable to the Company, if at
all. Failure to generate sufficient cash flows from operations, raise capital or reduce certain discretionary spending could have
a material adverse effect on the Company’s ability to achieve its intended business objectives.
2.
Summary of Significant Accounting Policies
Financial
Statement Presentation
The
condensed consolidated financial statements include the accounts of Crypto and its wholly-owned subsidiary, Crypto Sub. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Basis
of Accounting
The
Company prepares its financial statements based upon the accrual method of accounting, recognizing income when earned and expenses
when incurred.
The
Stock Sale, the Stock Dividend, and the Share Exchange, shall collectively be referred to as the “Transaction”. The
Transaction was treated as a reverse acquisition of Croe, Inc., a public company for financial accounting and reporting purposes.
Accordingly, only the historical operations of Crypto Sub, prior to the Transaction, are incorporated herein.
The
comparative financial statements for the period ended September 30, 2016 have been omitted as the Company had no operations during
the period.
Use
of Estimates
The
preparation of condensed consolidated financial statements in conformity with US GAAP requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues, and expenses and the related disclosure of contingent assets
and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. The Company’s significant estimates and assumptions include but are not
limited to the recoverability and useful lives of long-lived assets, valuation and recoverability of investments, valuation allowances
of deferred taxes and stock-based compensation expenses. Actual results may differ from these estimates. In addition, any change
in these estimates or their related assumptions could have an adverse effect on our operating results.
Cash
and cash equivalents
Cash
equivalents are generally comprised of certain highly liquid investments with original maturities of less than three months. The
Company maintains its cash and cash equivalents at financial institutions, the balances of which may, at times, exceed federally
insured limits.
Equipment
Equipment
is recorded at cost and depreciated using the straight line method over the estimated useful life. Normal repairs and maintenance
are expensed as incurred. Expenditures that materially adapt, improve, or alter the nature of the underlying assets are capitalized.
When property and equipment are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from
the accounts, and the resulting gain or loss is credited or charged to income.
Stock
Based Compensation
The
Company accounts for its stock based compensation under Accounting Standards Codification 718 “Compensation –
Stock Compensation” using the fair value based method. Under this method, the 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 its 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 investments.
Fair
Value Measurements
The
Company recognizes and discloses the fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations
based upon unobservable inputs that are significant to the valuation (Level 3 measurements). Each level of input has different
levels of subjectivity and difficulty involved in determining fair value.
|
Level
1
|
Inputs
are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurable date.
|
|
|
|
|
Level
2
|
Inputs,
other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market
data at the measurement date.
|
|
|
|
|
Level
3
|
Unobservable
inputs that reflect management’s best estimate of what participants would use in pricing the asset or liability at the
measurement date.
|
The
carrying amounts of the Company’s financial assets and liabilities, including cash, accounts payable, and accrued liabilities
approximate fair value because of the short maturity of these instruments.
Net
loss per common share
The
Company reports earnings per share (“EPS”) with a dual presentation of basic EPS and diluted EPS on the face of the
statements of operations. Basic EPS is computed as net income divided by the weighted average of common shares for the period.
Diluted EPS reflects the potential dilution that could occur from common shares issued through stock options or warrants. Since
the Company had a net loss as of September 30, 2017, the Company had no potentially dilutive common stock equivalents. As a result,
the basic EPS and the diluted EPS are the same.
Revenue
Recognition
The
Company records the realized gain or loss on the investments on a trade date basis. The changes in unrealized appreciation or
depreciation on the investments are measured to market on the last day of every month at 11:59 p.m., Pacific Time, based on publicly
available cryptocurrency exchanges. The Company classifies investment in cryptocurrency as trading investments. Trading generally
reflects active and frequent buying and selling, and is generally used with the objective of generating profits on short-term
differences in price.
The
Company recognizes consulting revenue when the service is rendered, the fee for arrangement is fixed or determinable, and collectability
is reasonably assured.
Income
Taxes
Deferred
tax assets and liabilities are recognized for expected future consequences of events that have been included in the financial
statements or tax returns. Under the asset and liability method, deferred income tax assets and liabilities are determined based
on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently
enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence,
are not expected to be realized. The provision for income taxes represents the tax payable for the period and the change during
the period in deferred tax assets and liabilities. The Income tax payable of $800 reflects the minimum franchise tax for the State
of California.
When
tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities,
while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately
sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available
evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution
of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions
that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50
percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated
with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax
benefits along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
Impairment
of long lived assets
The
Company analyzes its long-lived assets for potential impairment. Impairment losses are recorded on long-lived assets when indicators
of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the net carrying
amount of the assets. In such cases, the carrying values of assets to be held and used are adjusted to their estimated fair value,
less estimated selling expenses. As of September 30, 2017, the Company recognized no impairment losses on its long-lived assets.
Marketing
expense
Marketing
expenses are charged to operations, under general and administrative expenses. The Company incurred $21,968 and $35,468 in marketing
expenses for the three months ended on September 30, 2017 and for the period from inception through September 30, 2017, respectively.
3.
Recently Issued and Not Yet Adopted Accounting Standards
In July 2017, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 Rounds and 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.
This ASU changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down
round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments,
a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s
own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. The amendments also
require entities to recognize the effect of the down round feature on earnings per share when it is triggered. ASU 2017-11 should
be adopted retrospectively or as a cumulative-effect adjustment as of the date of adoption, only to financial instruments outstanding
as of the initial application date. ASU 2017-11 will be effective for annual reporting periods, and interim periods within those
annual periods, beginning after December 15, 2018, which will be the Company’s fiscal year 2020 (beginning July 1, 2019).
Early adoption is permitted, including adoption in an interim period. The adoption of this guidance is not expected to have a
material impact on the Company’s consolidated financial statements and related disclosures.
In
May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting, which
provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification
accounting. Essentially, an entity will not have to account for the effects of a modification if: (1) The fair value of the modified
award is the same immediately before and after the modification; (2) the vesting conditions of the modified award are the same
immediately before and after the modification; and (3) the classification of the modified award as either an equity instrument
or liability instrument is the same immediately before and after the modification. The new standard becomes effective for us on
January 1, 2018. We do not expect that ASU No. 2017-09 will have a material impact on our financial statements and related disclosures.
In February 2016, the
FASB issued ASU No. 2016-02, Leases (Topic 842), which, among other things, requires lessees to recognize most leases on their
balance sheets related to the rights and obligations created by those leases. The new standard also requires new disclosures to
help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The new
standard becomes effective for us on January 1, 2019. Early adoption is permitted. The amendments in this update should be applied
under a modified retrospective approach. We are evaluating the effect that ASU No. 2016-02 will have on our consolidated financial
statements and related disclosures.
In May 2014, the FASB
issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606): Revenue from Contracts with Customers
, which
will supersede the revenue recognition requirements in Accounting Standards Codification (“ASC”) Topic 605
, Revenue
Recognition
and most industry-specific guidance when it becomes effective. In March, April, May and December 2016, and in
September 2017, the FASB issued additional guidance related to Topic 606. Topic 606 affects any entity that 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 core principle of Topic 606 is that a company will recognize revenue when it transfers
promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled
in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under
current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration
to include in the transaction price and allocating the transaction price to each separate performance obligation. Topic 606 is
effective for annual reporting periods, and interim periods within those annual reporting periods, beginning after December 15,
2017, which will be the Company’s fiscal year 2019 (beginning July 1, 2018), and entities can transition to the standard
either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The adoption of this guidance is not expected
to have a material impact on the Company’s consolidated financial statements and related disclosures.
4.
Fair Value Measurements
The
investment in cryptocurrency is classified as a Level 2 asset. The following table summarizes the Company’s investments
at fair value:
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in cryptocurrency
|
|
$
|
-
|
|
|
$
|
900,110
|
|
|
$
|
-
|
|
5.
Equipment
Equipment
as of September 30, 2017 consisted of the following:
Computer
equipment
|
|
$
|
31,244
|
|
Furniture
equipment
|
|
|
2,583
|
|
|
|
|
33,827
|
|
Less
accumulated depreciation
|
|
|
(1,918
|
)
|
|
|
$
|
31,909
|
|
6.
Other Assets
Pursuant
to a Note Purchase Agreement dated as of March 27, 2017 by and between the Company and Rimrock Gold Corp, (“Rimrock”),
the Company agreed to fund up to $300,000 to settle outstanding convertible debt of and accounts payable by and on behalf of Rimrock
and to pay certain ongoing accounting expenses, for the ultimate acquisition of Rimrock, a public company located in Las Vegas,
Nevada with limited operations. The Company expects to consummate the acquisition in 2018 and does not currently have plans for
future operations of Rimrock. No definitive agreements have been entered into and no assurance can be given that we will successfully
complete and close the proposed acquisition or business combination. For the period from Inception to September 30, 2017,
the Company advanced $108,250 on behalf of Rimrock to settle the aforementioned liabilities.
7.
Common Stock
For
the period from Inception through June 6, 2017, Crypto Sub issued 477,867 shares of common stock of Crypto Sub for aggregate
proceeds of $2,661,036, net of financing costs, of capital, to fund its operations. On March 9, 2017, Crypto Sub issued (i) 125,000
shares of its common stock in exchange for consulting services, valued at $200,000, and (ii) 125,000 shares of its common stock
for investments in cryptocurrency, valued at $100,000. The shares were issued in a transaction that was exempt from the registration
requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(a)(2) of the
Securities Act and Regulation D promulgated thereunder inasmuch as the securities were offered and sold solely to accredited investors
and Crypto Sub did not engage in any form of general solicitation or general advertising in making the offering.
On
June 7, 2017, Crypto Sub’s shareholders received an aggregate of (i) 10,918,007 shares of common stock of Croe in connection
with the Stock Dividend issued by Crypto Sub, and (ii) 7,026,614 shares of common stock of Croe in exchange for all of the outstanding
shares of common stock of Crypto Sub (noted above) in connection with the Share Exchange. As part of the Transaction, Crypto Sub
retained 316,993 shares of common stock of its parent company, Croe.
On
June 13, 2017, the Company issued to four accredited investors an aggregate of 47,500 shares of common stock of the Company at
a purchase price of $2.00 per share for aggregate proceeds of $95,000.
On
June 14, 2017, Crypto Sub transferred an aggregate of 129,238 shares of common stock of its parent company Croe, held by Crypto
Sub, to certain officers and consultants of Crypto Sub in exchange for their services in connection with the Transaction. Accordingly,
the Company recorded an expense of $166,717 based on the fair value of the shares on the measurement date.
As
of September 30, 2017, Crypto Sub retained 187,755 shares of common stock of its parent company Croe, at a historical cost of
$8,473, which has been eliminated in consolidation.
On
September 8, 2017, the Company issued to eleven accredited investors an aggregate of 437,488 shares of common stock of the Company
at a price of $2.00 per share for aggregate proceeds of $874,975.
On
September 20, 2017, the Company issued to two accredited investors an aggregate of 62,500 shares of common stock of the Company
at a price of $2.00 per share, payable in digital currency equal to aggregate proceeds of approximately $125,000.
On
September 25, 2017, the Company issued to nine accredited investors (i) an aggregate of 672,500 shares of common stock of the
Company at a price of $2.00 per share, and (ii) three-year warrants to purchase an aggregate of 168,125 shares of common stock
of the Company at an exercise price of $2.00 per share, for aggregate proceeds of $1,345,000.
The
shares issued on September 8, 2017, September 20, 2017 and September 25, 2017 were issued in transactions that were exempt from
the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section
4(a)(2) of the Securities Act and Regulation D promulgated thereunder inasmuch as the securities were offered and sold solely
to accredited investors and the Company did not engage in any form of general solicitation or general advertising in making the
offering.
Warrants
for Common Stock
As
of September 30, 2017, outstanding warrants to purchase shares of common stock were as follows:
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
|
Exercisable
|
|
|
Expiration
|
|
|
Exercise
|
|
|
Outstanding
|
|
Issuance
Date
|
|
for
|
|
|
Date
|
|
|
Price
|
|
|
Under
Warrants
|
|
September
2017
|
|
|
Common
Shares
|
|
|
|
September
21, 2020
|
|
|
$
|
2.00
|
|
|
|
125,000
|
|
September
2017
|
|
|
Common
Shares
|
|
|
|
September
25, 2020
|
|
|
$
|
2.00
|
|
|
|
12,497
|
|
September
2017
|
|
|
Common
Shares
|
|
|
|
September
25, 2020
|
|
|
$
|
2.00
|
|
|
|
3,125
|
|
September
2017
|
|
|
Common
Shares
|
|
|
|
September
25, 2020
|
|
|
$
|
2.00
|
|
|
|
15,628
|
|
September
2017
|
|
|
Common
Shares
|
|
|
|
September
25, 2020
|
|
|
$
|
2.00
|
|
|
|
1,875
|
|
September
2017
|
|
|
Common
Shares
|
|
|
|
September
25, 2020
|
|
|
$
|
2.00
|
|
|
|
3,125
|
|
September
2017
|
|
|
Common
Shares
|
|
|
|
September
25, 2020
|
|
|
$
|
2.00
|
|
|
|
3,125
|
|
September
2017
|
|
|
Common
Shares
|
|
|
|
September
25, 2020
|
|
|
$
|
2.00
|
|
|
|
1,875
|
|
September
2017
|
|
|
Common
Shares
|
|
|
|
September
25, 2020
|
|
|
$
|
2.00
|
|
|
|
1,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168,125
|
|
The
warrants expire on the third anniversary of their respective issuance dates. The exercise price of the warrants is subject to
adjustment from time to time, as provided therein, to prevent dilution of purchase rights granted thereunder. The warrants
are considered indexed to the Company’s own stock and therefore no subsequent remeasurement is required.
8.
Summary of Stock Options
On
July 21, 2017, the Company’s board of directors adopted the 2017 Equity Incentive Plan (the “Plan), which was approved
by its stockholders on August 24, 2017. The Plan is administered by the board of directors (the “Administrator”).
Under the Plan, the Company may grant equity awards to eligible participants which may take the form of stock options (both incentive
stock options and non-qualified stock options) and restricted stock awards. Awards may be granted to officers, employees, nonemployee
directors (as defined in the Plan) and other key persons (including consultants and prospective employees). The term of any stock
option award may not exceed 10 years and may be subject to vesting conditions, as determined by the Administrator. Options granted
generally vest over eighteen months. Incentive stock options may be granted only to employees of the Company or any subsidiary
that is a “subsidiary corporation” within the meaning of Section 424(f) of the Internal Revenue Code.
5,000,000
shares of the Company’s common stock are reserved for issuance under the Plan. As of September 30, 2017, there are outstanding
stock option awards issued from the Plan covering a total of 887,512 shares of the Company’s common stock and there remain
reserved for future awards 4,112,488 shares of the Company’s common stock. The weighted average exercise price of the outstanding
stock options is $1.38 per share, and the remaining contractual term is 9.7 years.
Activity
under the Plan is as follows:
|
|
From
Inception Through
September 30, 2017
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Value
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
(years)
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding,
beginning of period
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Options
granted
|
|
|
887,512
|
|
|
$
|
1.38
|
|
|
|
9.7
|
|
|
|
|
|
Options
exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options
canceled
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options
outstanding, end of period
|
|
|
887,512
|
|
|
$
|
1.38
|
|
|
|
9.7
|
|
|
$
|
7,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
and exercisable and expected to vest, end of period
|
|
|
887,512
|
|
|
$
|
1.38
|
|
|
|
9.7
|
|
|
$
|
7,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
and exercisable, end of period
|
|
|
25,000
|
|
|
$
|
2.00
|
|
|
|
9.7
|
|
|
$
|
200
|
|
The
aggregate intrinsic value reflects the difference between the exercise price of the underlying stock options and the Company’s
closing share price as of September 30, 2017.
As
of September 30, 2017, the Company had not granted any restricted stock awards.
9.
Commitments and Contingencies
Operating
lease
On
May 15, 2017, the Company entered into a lease agreement with Gregory Hannley or Soba Living, LLC for the rental of office space.
The agreement, which had a term of three months is a month to month lease, provides for monthly rent of $6,000, and commenced
on May 15, 2017.
Effective
June 7, 2017, the Company terminated the sublease agreement between Croe, Inc. and Acadia Properties for the sublease of office
space in Draper, Utah.
Legal
From
time to time, the Company may become subject to legal proceedings, claims, and litigation arising in the ordinary course of business.
The Company is not currently a party to any material legal proceedings, nor is the Company aware of any pending or threatened
litigation that would have a material adverse effect on the Company’s business, operating results, cash flows, or financial
condition should such litigation be resolved unfavorably.
Indemnities
and guarantees
During
the normal course of business, the Company has made certain indemnities and guarantees under which it may be required to make
payments in relation to certain transactions. These indemnities include certain agreements with the Company’s officers and
directors, under which the Company may be required to indemnify such persons for liabilities arising out of their respective relationships.
In connection with its facility lease, the Company has indemnified the lessor for certain claims arising from the use of the facility.
The duration of these indemnities and guarantees varies and, in certain cases, is indefinite. The majority of these indemnities
and guarantees do not provide for any limitation of the maximum potential future payments the Company could be obligated to make.
Historically, the Company has not been obligated to make significant payments for these obligations and no liabilities have been
recorded for these indemnities and guarantees in the accompanying balance sheet.
10.
Related Party Transactions
On
March 9, 2017, Crypto Sub issued 125,000 shares of common stock of Crypto Sub to an employee of Crypto Sub, in exchange for an
initial investment made in the form of cryptocurrency, valued at $100,000, based on the fair value of the investment on the date
of such investment. On June 7, 2017, the employee received (i) 1,875,000 shares of common stock of Croe in connection with the
Stock Dividend issued by Crypto Sub, and (ii) 1,125,000 shares of common stock of Croe in exchange for all of the employee’s
shares of Crypto Sub in connection with the Share Exchange.
On
March 9, 2017, Crypto Sub issued 300,000 shares of common stock of Crypto Sub to James Gilbert, the President of the Company,
in exchange for $200,000. On June 7, 2017, Mr. Gilbert received (i) 4,500,000 shares of common stock of Croe in connection with
the Stock Dividend issued by Crypto Sub, and (ii) 2,700,000 shares of common stock of Croe in exchange for all of his shares of
Crypto Sub in connection with the Share Exchange.
On
March 9, 2017, Crypto Sub issued (i) 125,000 shares of common stock of Crypto Sub to Redwood Fund LP (“Redwood”) in
exchange for $200,000; and (ii) 125,000 shares of common stock of Crypto Sub to Imperial Strategies, LLC (“Imperial Strategies”)
in exchange for certain services rendered, valued at $200,000, as of the date of such issuance. Michael Poutre, the Chief Executive
Officer of the Company, and Ron Levy, the Chief Operating Officer of the Company, are Chief Executive Officer and Chief Operating
Officer, respectively, of Ladyface Capital, LLC, the General Partner of Redwood, and, as a result, had an indirect material
interest in the shares owned by Redwood. Mr. Poutre is the sole member of MP2 Ventures, LLC, a member of Imperial Strategies,
and, as of September 1, 2017, Mr. Poutre and Mr. Levy are Chief Executive Officer and Chief Operating Officer, respectively
of Imperial Strategies and, as a result, have an indirect material interest in the shares owned by Imperial Strategies.
On June 7, 2017, each of Redwood and Imperial Strategies received (i) 1,875,000 shares of common stock of Croe in connection with
the Stock Dividend issued by Crypto Sub, and (ii) 1,125,000 shares of common stock of Croe in exchange for all of their shares
of Crypto Sub in connection with the Share Exchange.
As
of September 30, 2017, the Company pre-paid consulting fees of $60,000 reflected in prepaid expenses to MP2 Ventures, LLC, of
which Michael Poutre, the Chief Executive Officer of the Company, is the sole member, for his services rendered as Chief Executive
Officer.
11
.
Subsequent Events
On
October 3, 2017, the Company filed Articles of Conversion with the Utah Secretary of State and the Nevada Secretary of State to
effectively change its state of Incorporation to Nevada, and filed Articles of Incorporation with the Nevada Secretary of State
to change its name to The Crypto Company. The Articles of Incorporation authorize the issuance of 50,000,000 shares of common
stock, par value $0.001 per share, and no shares of preferred stock.
On
October 30, 2017, the Company’s Board of Directors approved the grant, to a consultant, of an option to purchase 25,000
shares of common stock at a price of $2.00 per share, subject to vesting, pursuant to the Company’s 2017 Equity Incentive
Plan.
On November 6, 2017,
the Company’s Board of Directors approved the grant, to a consultant, of an option to purchase 25,000 shares of common stock
at a price of $6.00 per share, subject to vesting, pursuant to the Company’s 2017 Equity Incentive Plan.
There
were no other events subsequent to September 30, 2017 through the date of this filing, other than those described in these financial
statements and in the Current Reports on Form 8-K filed by the Company with the Securities and Exchange Commission from time to
time, that would require disclosure in these financial statements.