ITEM 1. FINANCIAL STATEMENTS
ROKK3R INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Restated)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
Cash
|
|
$
|
1,942,032
|
|
|
$
|
2,297,902
|
|
Accounts receivable, net
|
|
|
499,229
|
|
|
|
400,182
|
|
Prepaid expenses - related party
|
|
|
425,000
|
|
|
|
425,000
|
|
Prepaid expenses
|
|
|
17,066
|
|
|
|
18,953
|
|
Receivable from parent company
|
|
|
110,506
|
|
|
|
75,138
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
2,993,833
|
|
|
|
3,217,175
|
|
|
|
|
|
|
|
|
|
|
Furniture and equipment, net
|
|
|
20,074
|
|
|
|
19,015
|
|
Investment in Rokk3r Labs LLC (parent) - cost method
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
Investment in Rokk3r Flamingo, Inc - equity method
|
|
|
350
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
4,014,257
|
|
|
$
|
4,236,190
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
286,201
|
|
|
|
192,225
|
|
Accounts payable - related party
|
|
|
192,083
|
|
|
|
-
|
|
Accrued expenses
|
|
|
23,653
|
|
|
|
18,407
|
|
Accrued expenses - related party
|
|
|
45,000
|
|
|
|
15,000
|
|
Contract liability
|
|
|
112,980
|
|
|
|
20,000
|
|
Notes payable - other
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
671,917
|
|
|
|
257,632
|
|
|
|
|
|
|
|
|
|
|
Redeemable Series B Convertible Preferred stock - $0.0001 par value; 4,687,500 shares authorized; 4,085,938
|
|
|
|
|
|
issued and outstanding at March 31, 2019 and December 31, 2018 (liquidation preference of $2,821,731 and $2,719,419, respectively)
|
|
|
2,821,731
|
|
|
|
2,719,419
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
Preferred stock - $0.0001 par value; 50,000,000 shares authorized; Series A non-convertible preferred stock, 1,000,000
|
|
|
|
|
|
authorized; $0.0001 par value; no shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively
|
|
|
-
|
|
|
|
-
|
|
Common stock - $0.0001 par value; 500,000,000 shares authorized; 101,472,105 and 101,427,105 shares issued and
|
|
|
|
|
|
outstanding at March 31, 2019 and December 31, 2018, respectively
|
|
|
10,147
|
|
|
|
10,143
|
|
Common stock issuable; 1,050,000 and 1,000,000 shares issuable at March 31, 2019 and December 31, 2018, respectively
|
|
|
105
|
|
|
|
100
|
|
Additional paid-in capital
|
|
|
76,349,698
|
|
|
|
76,217,441
|
|
Accumulated deficit
|
|
|
(75,714,298
|
)
|
|
|
(74,968,545
|
)
|
Total Rokk3r, Inc. Stockholders' Equity
|
|
|
645,652
|
|
|
|
1,259,139
|
|
Non-controlling interest in consolidated subsidiary and VIE (Note 5)
|
|
|
(125,043
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity
|
|
|
520,609
|
|
|
|
1,259,139
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
4,014,257
|
|
|
$
|
4,236,190
|
|
See accompanying notes to the unaudited condensed consolidated financial statements.
ROKK3R INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
885,008
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
Consulting fees - parent
|
|
|
593,072
|
|
|
|
750,000
|
|
Consulting fees - other
|
|
|
112,507
|
|
|
|
-
|
|
Compensation expense
|
|
|
259,031
|
|
|
|
21,633
|
|
Contract labor
|
|
|
393,517
|
|
|
|
-
|
|
Legal expense
|
|
|
124,573
|
|
|
|
75,926
|
|
Professional fees
|
|
|
55,681
|
|
|
|
39,820
|
|
Bad debt recovery
|
|
|
(107,779
|
)
|
|
|
-
|
|
General and administrative expenses
|
|
|
196,348
|
|
|
|
20,899
|
|
Impairment expense
|
|
|
28,900
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
1,655,850
|
|
|
|
908,278
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(770,842
|
)
|
|
|
(908,278
|
)
|
|
|
|
|
|
|
|
|
|
Other Expense:
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(532
|
)
|
|
|
(16,039
|
)
|
Other expense, net
|
|
|
(723
|
)
|
|
|
-
|
|
Total Other Expense, net
|
|
|
(1,255
|
)
|
|
|
(16,039
|
)
|
|
|
|
|
|
|
|
|
|
Loss Before Provision for Income Taxes
|
|
|
(772,097
|
)
|
|
|
(924,317
|
)
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(772,097
|
)
|
|
|
(924,317
|
)
|
|
|
|
|
|
|
|
|
|
Series B Preferred stock redemption premium
|
|
|
(102,312
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Common Stockholders Before Allocation to Non-controlling Interest
|
|
|
(874,409
|
)
|
|
|
(924,317
|
)
|
Less Net Loss Allocated to Non-controlling Interest in Consolidated Subsidiary and VIE
|
|
|
(128,656
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Loss Applicable to Rokk3r, Inc. Common Stockholders
|
|
$
|
(745,753
|
)
|
|
$
|
(924,317
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss per Share of Common Stock Outstanding -
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding –
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
102,479,605
|
|
|
|
95,768,224
|
|
See accompanying notes to the unaudited condensed consolidated financial statements.
ROKK3R INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 2019
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Common Stock Issuable
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
Non-controlling
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
interest
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
101,427,105
|
|
|
$
|
10,143
|
|
|
|
1,000,000
|
|
|
$
|
100
|
|
|
$
|
76,217,441
|
|
|
$
|
(74,968,545
|
)
|
|
$
|
-
|
|
|
$
|
1,259,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued to consultants for services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
5
|
|
|
|
31,995
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
74,979
|
|
|
|
-
|
|
|
|
-
|
|
|
|
74,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B Preferred stock redemption premium
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(102,312
|
)
|
|
|
-
|
|
|
|
(102,312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for intagible assets
|
|
|
-
|
|
|
|
-
|
|
|
|
45,000
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,283
|
|
|
|
-
|
|
|
|
3,613
|
|
|
|
28,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(643,441
|
)
|
|
|
(128,656
|
)
|
|
|
(772,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
101,472,105
|
|
|
$
|
10,147
|
|
|
|
1,050,000
|
|
|
$
|
105
|
|
|
$
|
76,349,698
|
|
|
$
|
(75,714,298
|
)
|
|
$
|
(125,043
|
)
|
|
$
|
520,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Common Stock Issuable
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
Non-controlling
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
interest
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
94,828,287
|
|
|
$
|
9,483
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
71,814,487
|
|
|
$
|
(71,454,325
|
)
|
|
$
|
-
|
|
|
$
|
369,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
3,395,125
|
|
|
|
339
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,172,661
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,173,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(924,317
|
)
|
|
|
-
|
|
|
|
(924,317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
98,223,412
|
|
|
$
|
9,822
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
73,987,148
|
|
|
$
|
(72,378,642
|
)
|
|
$
|
-
|
|
|
$
|
1,618,328
|
|
See accompanying notes to the unaudited condensed consolidated financial statements.
ROKK3R INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Restated)
|
|
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(772,097
|
)
|
|
$
|
(924,317
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
1,343
|
|
|
|
-
|
|
Stock-based compensation
|
|
|
74,979
|
|
|
|
-
|
|
Common stock issued for compensation and consulting services
|
|
|
32,000
|
|
|
|
-
|
|
Bad debt recovery
|
|
|
(107,779
|
)
|
|
|
-
|
|
Impairment loss
|
|
|
28,900
|
|
|
|
-
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
8,732
|
|
|
|
-
|
|
Prepaid expenses
|
|
|
1,887
|
|
|
|
(15,000
|
)
|
Accounts payable
|
|
|
93,976
|
|
|
|
30,200
|
|
Accounts payable - parent
|
|
|
192,083
|
|
|
|
250,000
|
|
Contract liability
|
|
|
92,980
|
|
|
|
-
|
|
Accrued expense - related party
|
|
|
45,000
|
|
|
|
-
|
|
Accrued expense
|
|
|
(9,754
|
)
|
|
|
-
|
|
Accrued interest payable - related party
|
|
|
-
|
|
|
|
13,414
|
|
Net cash used in operating activities
|
|
|
(317,750
|
)
|
|
|
(645,703
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Investment in Flamingo, Inc.
|
|
|
(350
|
)
|
|
|
-
|
|
Purchases of property and equipment.
|
|
|
(2,402
|
)
|
|
|
-
|
|
Advance to parent company
|
|
|
(35,368
|
)
|
|
|
|
|
Net cash used in investing activities
|
|
|
(38,120
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from parent advances
|
|
|
-
|
|
|
|
79,225
|
|
Cash proceeds from sale of common stock
|
|
|
-
|
|
|
|
2,133,000
|
|
Net cash provided by financing activities
|
|
|
-
|
|
|
|
2,212,225
|
|
|
|
|
|
|
|
|
|
|
Change in Cash
|
|
|
(355,870
|
)
|
|
|
1,566,522
|
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
|
2,297,902
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
1,942,032
|
|
|
$
|
1,566,522
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Interest and Income Taxes Paid:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Income taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Subscription Receivable
|
|
$
|
-
|
|
|
$
|
40,000
|
|
Common shares issued in connection with the purchase of intangible assets
|
|
$
|
28,900
|
|
|
$
|
-
|
|
Series B Preferred Stock redemption premium
|
|
$
|
102,312
|
|
|
$
|
-
|
|
See accompanying notes to the unaudited condensed consolidated financial statements.
ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The Company was formerly known as Eight Dragons Company, a Nevada corporation. The predecessor was incorporated in Delaware on September 27, 1996 and on October 24, 2007 changed its state of incorporation from
Delaware to Nevada by means of a merger with and into Eight Dragons Company. On March 23, 2018, we changed our name to Rokk3r Inc. In connection with this name change, on June 18, 2018, our trading symbol was changed to “ROKK.”
The Company generate revenues primarily from consulting services agreements focused on education, consulting, development and growth. Our agreements are individually negotiated and are meant to help
entrepreneurs and business professionals to innovate and create high growth companies through training, mentors, and access to our global network of advisors, investors and business builders. Through our consulting services agreements, we
provide "Think," "Co-build," and “Scale” services. We execute "Think Phases" for entrepreneurs and corporations, where we present an experienced team with a problem for four weeks to validate the ideas and refine their strategy. In
“Co-build,” our team of strategists, creatives, and engineers seek to solve problems, understand our client’s business and develop a foundation for a technological platform to drive it. For growth, we work with entrepreneurs to help them
define financial and growth objectives to develop short, medium and long-term strategies, a service offering we call "Scale."
In connection with the new business initiatives, the Company has formed or acquired the following subsidiaries and variable interest entities:
•
|
Rokk3r Ops Inc. (“Rokk3r Ops”), a company incorporated in Florida on May 16, 2018 and wholly-owned by the Company that provides our "Think Phase", "Co-build", and “Scale”
services.
|
•
|
Rokk3r Ai Inc. (“Rokk3r Ai”), a company incorporated in Delaware on November 20, 2018 and a majority-owned subsidiary of Rokk3r Ops. As of March 31, 2019, Rokk3r Ai is not yet
operational (see Note 5).
|
•
|
B3riblock, Inc. (“B3riblock”), a company incorporated in Delaware on October 15, 2018, and a wholly-owned subsidiary under Rokk3r Ops.
|
•
|
Ai Venture Builder, Inc. (“Ai VB”), a company incorporated in Delaware on March 22, 2019, and a variable interest entity under Rokk3r Ops.
|
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and
regulations of the United States Securities and Exchange Commission (the “SEC”) for interim financial information, which includes unaudited condensed consolidated financial statements of the Company, and its wholly owned and majority owned
subsidiaries which are inactive as of March 31, 2019, except Rokk3r Ops and variable interest entities (“VIE”) for which the Company has been determined to be the primary beneficiary. All intercompany transactions and balances have been
eliminated. In the opinion of management, all adjustments necessary to present fairly our financial position, results of operations, and cash flows as of March 31, 2019 and 2018, and for the periods then ended, have been made. Those
adjustments consist of normal and recurring adjustments. Certain information and note disclosures normally included in our annual consolidated financial statements prepared in accordance with generally accepted accounting principles have been
omitted. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2018 and footnotes there to included in the
Company’s Annual Report on Form 10-K filed with the SEC on April 1, 2019. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the full year.
The Company consolidates its wholly-owned and majority-owned subsidiaries, and entities that are VIEs where Rokk3r Ops is determined to be the primary beneficiary. The Company’s consolidated financial
statements include the accounts of: Rokk3r Inc, Rokk3r Ops, Rokk3r Ai, B3riblock, and Ai VB (collectively, the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation.
ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)
Variable Interest Entities
In accordance with the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”) 810-10-25-22 – Variable Interest Entity, a VIE is
an entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity
at risk for the entity to finance its activities without additional subordinated financial support from other parties. The determination of whether an entity is a VIE includes both a qualitative and quantitative analysis. The Company bases
its qualitative analysis on its review of the design of the entity, its organizational structure including decision-making ability and relevant financial agreements and the quantitative analysis on the forecasted cash flow of the entity. The
Company reassesses its initial evaluation of an entity as a VIE upon the occurrence of certain reconsideration events.
A VIE must be consolidated only by its primary beneficiary, which is defined as the party who, along with its affiliates and agents, has both the: (i) power to direct the activities that most significantly
impact the VIE’s economic performance; and (ii) obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. Rokk3r Ops determines whether it is the primary beneficiary
of a VIE by considering qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of
its investment; the obligation or likelihood for Rokk3r Ops or other interests to provide financial support; consideration of the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable
interest holders and the similarity with and significance to the business activities of Rokk3r Ops and the other interests. Rokk3r Ops reassesses its determination of whether it is the primary beneficiary of a VIE each reporting period.
Significant judgments related to these determinations include estimates about the current and future fair value and performance of investments held by these VIE and general market conditions.
The Company evaluates its investments and financings, including investments in unconsolidated ventures and securitization financing transactions to determine whether each investment or financing is a VIE.
Rokk3r Ops analyzes new investments and financings, as well as reconsideration events for existing investments and financings, which vary depending on type of investment or financing.
Ai Venture Builder, Inc. (“Ai VB”) is an entity which was determined to be a VIE, in accordance with ASC 810-10-25-22, under Rokk3r Ops, because the equity investors do
not have the characteristics of a controlling financial interest and the initial equity investments in these entities may be or are insufficient to meet or sustain its operations without additional subordinated financial support from other
parties. Rokk3r Ops is the primary beneficiary of these VIE because it is the sole service provider (some through service agreements) which gives Rokk3r Ops the rights to receive (and has received) the proceeds from the VIE’s operation. The
consolidated VIE has anon-controlling interest (see Note 5) and the Company reassesses its initial evaluation of an entity as a VIE upon the occurrence of certain reconsideration events.
Non-Controlling Interest
On February 11, 2019, Rokk3r Ai, a wholly-owned subsidiary of Rokk3r Ops, sold 12.5% ownership of Rokk3r Ai to an investor. As a result of this transaction Rokk3r Ops’
ownership and voting interest decreased from 100% to 87.5% (see Note 5).
Variable interest entities
On March 26, 2019, Rokk3r Ops entered into a Subscription Agreement (the “Subscription Agreement”) with Ai VB to purchase equity in Ai VB which gave Rokk3r Ops a 50% equity ownership (see Note 5).
The Company presented non-controlling interest from the majority-owned subsidiary and VIE as a component of equity on the Company’s unaudited condensed consolidated balance sheets under “Non-controlling
interest in consolidated subsidiary and VIE” and reported non-controlling interest net income or loss under “Net (income) loss allocated to non-controlling interest in consolidated subsidiary and VIE” in the unaudited condensed consolidated
statements of operations based on the respective non-controlling interest ownership as of March 31, 2019.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates for the three months ended March 31, 2019 and December 31, 2018 include the assumptions used in assessing impairment of investments, allowances on uncollectible accounts receivable, useful life of property and equipment,
valuation allowances for deferred tax assets, and the fair value of the account receivable, non-cash equity transactions and stock-based compensation.
ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)
Cash and Cash Equivalents
For the purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. There
were no cash equivalents at March 31, 2019 and December 31, 2018, respectively. The Company maintained its cash in various financial institutions during the three months ended March 31, 2019. Balances were insured up to Federal Deposit
Insurance Corporation limits.
Accounts Receivable
Accounts receivable are stated at their net realizable value. The Company reviews its accounts to estimate losses resulting from the inability of its customer to make required payments. Any required allowance
is based on specific analysis of past due accounts and considers historical trends if write-offs. Past due is based on how recently payments have been received from customers. The Company’s collection experience has been favorable reflecting
a limited number of customers. During the three months ended March 31, 2019, the Company recovered $107,779 of account receivable previously written off which reduced the allowance for bad debt balance. As of March 31, 2019, and December 31,
2018, the recorded allowance for bad debt were $41,203 and $148,982, respectively.
Fair Value of Financial Instruments
ASC 825, “Disclosures about Fair Value of Financial Instruments,” requires disclosure of fair value information about financial instruments. ASC 820, “Fair Value Measurements” defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information
available to management as of March 31, 2019 and December 31, 2018.
The carrying amounts reported in the balance sheets for accounts receivable, prepaid expenses, accounts payable, accrued expenses, convertible note payable, note payable and amounts due to parent company
approximate their fair market value based on the short-term maturity of these instruments.
Property and Equipment
Property are stated at cost and are depreciated using the straight-line method over their estimated useful lives, which range from three to five years. Leasehold improvements are depreciated over the shorter of
the useful life or lease term including scheduled renewal terms. Maintenance and repairs are charged to expense as incurred. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any
resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of these assets when events or changes in circumstances reflect the fact that their recorded value may
not be recoverable.
Investments
The method of accounting applied to long-term investments, whether consolidated, equity or cost, involves an evaluation of the significant terms of each investment that explicitly grant or suggest evidence of
control or influence over the operations of the investee and also includes the identification of any variable interests in which the Company is the primary beneficiary.
Cost Method
The Company accounts for investments in which the Company does not have the ability to exercise significant influence over operating and financial matters using the cost method in accordance with ASC Topic
325-20, Cost Method Investments. An equity investment is accounted for under the cost method if it:
•
|
Does not provide the investor with a controlling investment
|
•
|
Does not provide the investor with the ability to exercise significant influence
|
•
|
Does not have readily determinable fair values
|
•
|
Is not subject to other industry-specific guidance
|
Under ASC 325-20, cost method investments are recorded initially at historical cost. Dividends on cost method investments received as part of the investor’s share of net earnings of the investee after the date
of investment (i.e., a return on investment) are recorded as income. However, the investment is reduced if dividends received are in excess of the investor’s share of investee earnings (i.e., a return of investment) after the date of
investment (see Note 4). Cost method investments are assessed for other-than-temporary impairments under the provisions of ASC 320 and are adjusted accordingly.
ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)
Equity Method
The Company accounts for investments in which the Company owns more than 20% of the investee, using the equity method in accordance with ASC Topic 323, Investments—Equity
Method and Joint Ventures. Under the equity method, an investor initially records an investment in the stock of an investee at cost and adjusts the carrying amount of the investment to recognize the investor’s share of the earnings
or losses of the investee after the date of acquisition. The amount of the adjustment is included in the determination of net income by the investor, and such amount reflects adjustments similar to those made in preparing consolidated
statements including adjustments to eliminate intercompany gains and losses, and to amortize, if appropriate, any difference between investor cost and underlying equity in net assets of the investee at the date of investment. The investment
of an investor is also adjusted to reflect the investor’s share of changes in the investee’s capital. Dividends received from an investee reduce the carrying amount of the investment. A series of operating losses of an investee or other
factors may indicate that a decrease in value of the investment has occurred which is other than temporary, and which should be recognized even though the decrease in value is in excess of what would otherwise be recognized by application of
the equity method (see Note 4).
In accordance to ASC 323-10-35-20 through 35-22, the investor ordinarily shall discontinue applying the equity method if the investment (and net advances) is reduced to zero and shall not provide for additional
losses unless the investor has guaranteed obligations of the investee or is otherwise committed to provide further financial support for the investee. An investor shall, however, provide for additional losses if the imminent return to
profitable operations by an investee appears to be assured. For example, a material, nonrecurring loss of an isolated nature may reduce an investment below zero even though the underlying profitable operating pattern of an investee is
unimpaired. If the investee subsequently reports net income, the investor shall resume applying the equity method only after its share of that net income equals the share of net losses not recognized during the period the equity method was
suspended.
Equity and cost method investments are classified as investments in the accompanying consolidated balance sheets. The Company periodically evaluates its equity and cost method investments for impairment due to
declines considered to be other than temporary. If the Company determines that a decline in fair value is other than temporary, then a charge to earnings is recorded as an impairment loss in the accompanying consolidated statements of
operations.
Based on an impairment analysis, the Company did not record any impairment loss related to such investments during the three months ended March 31, 2019 and 2018.
Impairment of Intangible Assets
In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable,
or at least annually. The Company recognizes impairment losses when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s
estimated fair value and its book value. For the three months ended March 31, 2019 and 2018, the Company recorded $28,900 and $0 impairment loss (see Note 5).
Revenue Recognition
In May 2014, FASB issued an update Accounting Standards Update ("ASU") ("ASU 2014-09") establishing ASC Topic 606, Revenue from Contracts with Customers ("ASC 606").
ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition
guidance. This standard, which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity to recognize revenue to depict 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 and also requires certain additional disclosures. The Company adopted this standard in 2018 using the modified
retrospective approach, which requires applying the new standard to all existing contracts not yet completed as of the effective date and recording a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of
adoption. Based on an evaluation of the impact ASU 2014-09 will have on the Company's sources of revenue, the Company has concluded that ASU 2014-09 did not have any impact on the process for, timing of, and presentation and disclosure of
revenue recognition from customers.
The services that are offered are focused on education, consulting (“Think Phases”), development (“Co-build”) and growth (“Scale”). The Company provides services to help entrepreneurs and business professionals
to innovate and create high growth companies through training, mentorship, and access to our global network of advisors, investors and business builders (“Education Services”). Revenue is recognized when the Company performs services pursuant
to its agreements with customers and collectability is reasonably assured.
ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)
If at the outset of an arrangement, the Company determines that collectability is not reasonably assured, revenue is deferred until the earlier of when collectability becomes probable or the receipt of payment.
If there is uncertainty as to the customer’s acceptance of the Company’s deliverables, revenue is not recognized until the earlier of receipt of customer acceptance or expiration of the acceptance period. If at the outset of an arrangement,
the Company determines that the arrangement fee is not fixed or determinable, revenue is deferred until the arrangement fee becomes estimable, assuming all other revenue recognition criteria have been met.
Redeemable Preferred Stock
Redeemable preferred stock (i.e., redeemable upon the occurrence of an event) and preferred stock that is redeemable (outside the control of the issuer), including those instruments that are redeemable at the
option of the holder, are required to be present in mezzanine equity. Mezzanine equity is presented after liabilities and before stockholders’ equity on the balance sheet. The purpose of this classification is to convey that such a security
may not be permanently part of equity and could result in a demand for cash or other assets of the entity in the future. Pursuant to ASC 480-10-S99, the Company presents redeemable securities that are classified as mezzanine equity separate
from all other stockholders’ equity accounts that are classified as permanent equity (e.g., non-redeemable preferred, common stock, and retained earnings). The Company sold 4,085,938 shares of Series B Preferred for net proceeds of
$2,615,000, or $0.64 per preferred share, during the year ended December 31, 2018 which is classified in mezzanine equity under “Redeemable Preferred Stock” (see Note 7).
Basic (Loss) Income per Common Share
Basic (loss) income per share is calculated by dividing the net (loss) income attributable to stockholders by the weighted-average number of shares outstanding for the period. Diluted (loss) income per share
reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings (loss) of the
Company. Diluted (loss) income per share is computed by dividing the (loss) income available to stockholders by the weighted average number of shares outstanding for the period and dilutive potential shares outstanding unless such dilutive
potential shares would result in anti-dilution. As of March 31, 2019, and 2018, potentially dilutive securities consisted of the following:
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Convertible debt
|
|
|
—
|
|
|
|
281,805
|
|
Series B Preferred Stock
|
|
|
4,085,938
|
|
|
|
—
|
|
|
|
|
4,085,938
|
|
|
|
281,805
|
|
Stock-Based Compensation
Stock-based compensation is accounted for based on the requirements of ASC 718 – “Compensation –Stock Compensation, ” which requires recognition in the financial
statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the
vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award. Additionally, effective January 1, 2017, the Company adopted
the ASU No. 2016-09 (“ASU 2016-09”), Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 permits the election of an accounting policy for forfeitures of share-based payment awards,
either to recognize forfeitures as they occur or estimate forfeitures over the vesting period of the award. The Company has elected to recognize forfeitures as they occur, and the cumulative impact of this change did not have any effect on
the Company’s consolidated financial statements and related disclosures.
Through March 31, 2018, pursuant to ASC 505-50 – “Equity-Based Payments to Non-Employees,” all share-based payments to non-employees, including grants of stock options,
were recognized in the consolidated financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a Black-Scholes valuation model, the Company
periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns with the vesting period of the options, and the Company adjusted the expense recognized in the consolidated financial
statements accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee
share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for
annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company
early adopted ASU No. 2018-07 in the second quarter of 2018, and the adoption did not have any impact on its consolidated financial statements.
ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The updated guidance requires lessees to recognize lease assets and lease liabilities for most
operating leases. In addition, the updated guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue guidance in ASC 606. The updated guidance is effective for interim and annual
periods beginning after December 15, 2018.
On January 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the
following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. For contracts entered into on or after the
effective date, at the inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we
obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether it has the right to direct the use of the asset. The Company will allocate the consideration in the contract to each
lease component based on its relative stand-alone price to determine the lease payments. The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12 months or less.
Operating lease ROU assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the
lease term at commencement date. As most leases do not provide an implicit rate, the Company use an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease
expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the consolidated statements of operations. As of March 31, 2019, the Company did not have
any operating or capital lease.
Segment Reporting
During the three months ended March 31, 2019 and 2018, the Company operated in one business segment.
Reclassifications
The Company segregated the compensation, legal and professional expense and for the three months ended March 31, 2019 in separate line items in the operating expense section of the accompanying unaudited
condensed consolidated statement of operations and conformed the presentation of the same for three months ended March 31, 2018, for comparative presentation.
Recent Accounting Pronouncements
In November 2018, the FASB issued ASU 2018-18— Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. The ASU make targeted
improvements to GAAP for collaborative arrangements as follows:
|
1.
|
Clarify that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of
account. In those situations, all the guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements.
|
|
2.
|
Add unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within
the scope of Topic 606.
|
|
3.
|
Require that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the
collaborative arrangement participant is not a customer
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For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, the
amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted, including adoption in any interim period, (1) for public
business entities for periods for which financial statements have not yet been issued and (2) for all other entities for periods for which financial statements have not yet been made available for issuance.
ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)
An entity may not adopt the amendments earlier than its adoption date of Topic 606. The amendments in this Update should be applied retrospectively to the date of initial application of Topic 606. An entity
should recognize the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings of the later of the earliest annual period presented and the annual period that includes the date of the
entity’s initial application of Topic 606. An entity may elect to apply the amendments in this Update retrospectively either to all contracts or only to contracts that are not completed at the date of initial application of Topic 606. An
entity should disclose its election. An entity may elect to apply the practical expedient for contract modifications that is permitted for entities using the modified retrospective transition method in Topic 606. The Company is currently
evaluating the effect on its consolidated financial statements.
NOTE 3 – GOING CONCERN
The Company’s unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. As reflected in the accompanying condensed consolidated financial
statements, for the three months ended March 31, 2019, the Company had a net loss of $772,097 and net cash used in operations was $317,750, respectively.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern for twelve months from the issuance date of this report. Management cannot provide assurance that the Company
will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. These consolidated financial statements do not include any adjustments related to the recoverability and
classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 4 – INVESTMENTS
Investment in Rokk3r Labs, LLC.
On April 30, 2017, the Company completed a purchase of a non-controlling 18.72% membership interest in Rokk3r Labs for a purchase price of $1,000,000 (provided at the direction of an entity controlled by Una
Taylor for the benefit of the Company) and the issuance of 9,677,208 shares of its common stock valued at $12,386,826 or $1.28 per share. Rokk3r Labs is a venture builder and operator of a ‘co-building’ platform for entrepreneurs,
corporations and investors to create exponential startups. As a result of the closing of the transactions, Rokk3r Labs acquired control of the Company from Ms. Taylor. Following the closing, Rokk3r Labs owned 89.41% of the Company’s
outstanding shares of common stock. Accordingly, the Company became a majority-owned subsidiary of Rokk3r Labs. In connection with the transactions and recapitalization of the Company, in December 2017, the Company wrote down its investment
in Rokk3r Labs to $1,000,000 to reflect the cash purchase price. Accordingly, during the year ended December 31, 2017, the Company recorded an impairment loss of $12,386,826, which amount is attributable to the Company’s common stock issued
to Rokk3r Labs. At March 31, 2019 and December 31, 2018, the Company’s cost method investment in Rokk3r Labs were $1,000,000 (see Note 2).
Investment in Rokk3r Flamingo, Inc
On December 21, 2018, Rokk3r Flamingo, Inc. (“Rokk3r Flamingo”), a wholly-owned subsidiary of Rokk3r Ops, Inc. (“Rokk3r Ops”), sold additional equity of Rokk3r Flamingo to several investors in order to raise
capital and commence operation. As a result of these transactions Rokk3r Ops’ ownership and voting interest decreased from 100% to 35%. At March 31, 2019, Rokk3r Ops owned 35% of Rokk3r Flamingo and accounts for the investment in Rokk3r
Flamingo under the equity method of accounting in accordance with ASC 323 (see Note 2). Rokk3r Flamingo did not have any activity during the three months ended March 31, 2019.
NOTE 5 – NON-CONTROLLING INTEREST
Rokk3r Ai, Inc
On February 11, 2019, the Rokk3r Ai entered into a Stock Purchase Agreement with a non-affiliated party , a Delaware limited liability company, pursuant to which Rokk3r Ai sold; (i)12.5% ownership or 1,000,000
shares of commons stock (the “Rokk3r Ai Stock”) of Rokk3r Ai at par value for $0.0001 per share, total amount of $100; and (ii) 45,000 shares of commons stock (the “Rokk Stock”) of Rokk3r Inc. at fair value of $0.64 per share, total amount of
$28,800. In exchange for the Rokk3r Ai Stock and Rokk Stock, the Seller received intangible assets that include but are not limited to, computer code, service brand, social media accounts, customer prospect lists, and all intangible rights,
including but not limited to all goodwill in or arising from the business as a going concern (collectively, the “Intangible Assets”). The total fair value of consideration amounting to $28,900 was allocated to the Intangible Assets under
Rokk3r Ai. At March 31, 2019, the Company performed an impairment test of the Intangible Assets and concluded based on the information available at that time, the carrying value of the Intangible Assets were impaired. An aggregate amount of
$28,900, representing the full impairment of the Intangible Assets, was charged to impairment expense during the three months ended March 31, 2019.
ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)
As a result of the February 11, 2019 sale, Rokk3r Ops’ ownership and voting interest in Rokk3r Ai decreased from 100% to 87.5% retaining control over Rokk3r Ai. The Company accounted for sale of the
non-controlling interest as an equity transaction in accordance with ASC 810 and no gain or loss was recognized in the accompanying unaudited condensed consolidated statement of operations. The difference between the fair value of
consideration and carrying amount of the non-controlling interest resulted in “net gain” in the amount of $28,900 which was recorded in the in the equity section of the accompanying unaudited condensed consolidated balance sheet as described
below. Accordingly, as of that date, the Company presented non-controlling interest as a separate component of equity on its unaudited condensed consolidated balance sheets under the heading “Non-controlling interest in consolidated
subsidiary and VIE” and reported non-controlling interest net income or loss under the heading “Net (income) loss allocated to non-controlling interest in consolidated subsidiary and VIE” in the unaudited condensed consolidated statements of
operations based on its 12.5% ownership and was adjusted to reflect the change in ownership interest in the subsidiary as of March 31, 2019.
Ai Venture Builder, Inc.
On March 26, 2019, Rokk3r Ops entered into a Subscription Agreement which was amended on May 14, 2019 (collectively the “Subscription Agreement”) with Ai VB, a Delaware corporation incorporated on March 22,
2019. In connection with the Subscription Agreement, the Company purchased founder shares of Ai VB consisting of; (i) 1,250,000 shares of Ai VB common stock at par value of $0.0001 per share; (ii) one share of Ai VB Series B Preferred Stock
(“Series B Preferred”) at $1.00 per share which represent 100% of the authorized Series B Preferred and has voting rights equal to the number of outstanding common stock multiplied by nine; and (iii) 250,000 shares of Ai VB Series C
Preferred Stock (“Series C Preferred”) at par value of $0.0001 per share which represent 25% of the authorized Series C Preferred, convertible into shares of common stock in the ratio of one-to-one and has one voting right per share
(collectively the “Ai VB Shares”), for an aggregate purchase price $151. The Ai VB Shares purchased gave Rokk3r Ops a 50% equity ownership in Ai VB. The Series B Preferred provided Rokk3r Ops power and rights to elect one director to serve on
the three-member Board of Directors of Ai VB (the “Ai VB Board”).
On March 29, 2019, Ai VB entered into a Subscription Agreement with a non- affiliated investor (“Investor”) to purchase shares of Ai VB consisting of; (i) 1,250,000 shares of Ai VB common stock at $0.50 per
share or $625,000; (ii) one share of Ai VB Series A Preferred Stock (“Series A Preferred”) at par value of $1.00 per share which represent 100% of the authorized Series A Preferred and has voting rights equal to the number of outstanding
common stock multiplied by nine; and (iii) 250,000 shares of Ai VB Series C Preferred Stock (“Series C Preferred”) at $0.50 per share, or $125,000, which represent 25% of the authorized Series C Preferred, convertible into shares of common
stock in the ratio of one-to-one and has one voting right per share (collectively the “Ai VB Shares”), for an aggregate purchase price $750,000. The Ai VB Shares purchased gave the Investor a 50% equity ownership in Ai VB. The Series A
Preferred gave the Investor power and rights to elect two directors to serve on the three-member Board of Directors of Ai VB Board. Subsequent to the three months ended March 31, 2019, the Company received $750,000 of proceeds from this
sale of non-controlling interest.
Provisions in the Ai VB’s Articles of Incorporation and Bylaws set forth the Ai VB Board’s power and authority to decide, by majority votes, over the Ai VB’s operations through, but not limited to: (i)
election/appointment or removal of officers; (ii) determine salaries or other compensation of officers and directors; (iii) designate committees; and (iv) change the number of directors. Furthermore, there were no provisions in Ai VB’s
Articles of Incorporation or Bylaws for veto rights that would allow an Ai VB Board member to block significant decision without their consent and there was no operating agreement between Ai VB and its investors. The voting power for
appointing two-thirds of the Ai VB Board members, provided by the Series A Preferred, granted the non-affiliated investor significant influence over Ai VB.
In accordance with ASC 810-10-25-22 – Variable Interest Entity, Ai VB was determined to be a VIE under Rokk3r Ops, because the equity investors do not have the
characteristics of a controlling financial interest and the initial equity investments in Ai VB may be or are insufficient to meet or sustain its operations without additional subordinated financial support from other parties (see Note 2).
Rokk3r Ops is the primary beneficiary of Ai VB because Rokk3r Ops is the sole service provider (through service agreements) which gives the Rokk3r Ops the rights to receive (and has received) all proceeds from Ai VB’s operation and capital
contributions. The Company reassesses its initial evaluation of Ai VB as a VIE upon the occurrence of certain reconsideration events.
During the three months ended March 31, 2019, Rokk3r Ops provided services to Ai VB in the amount of $250,000 which was eliminated in consolidation in accordance with ASC 810. The effects of consolidating Ai VB
as of March 31, 2019 had no impact on the Company’s financial position or results of operations.
ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)
Non-controlling interest balance reconciliation (restated):
Beginning balance, January 1, 2019
|
|
$
|
—
|
|
|
|
|
|
|
Equity allocated to non-controlling interest for quarter ended March 31, 2019
|
|
|
3,613
|
|
Loss allocated to non-controlling interest for quarter ended March 31, 2019
|
|
|
(128,656
|
)
|
Balance at March 31, 2019
|
|
$
|
(125,043
|
)
|
NOTE 6 – CONVERTIBLE PROMISSORY NOTE
On April 27, 2017, the Company entered into Securities Purchase Agreements with Firstfire Global Opportunities Fund, LLC (“Firstfire”) for the sale of a convertible promissory note in aggregate principal amount
of $330,000 (the “Firstfire Note”). On April 27, 2017, in connection with the Firstfire Note, the Company issued Firstfire 250,000 shares of its common stock as additional consideration for the purchase of the Firstfire Note. On November 15,
2017, the Company entered into a Settlement Agreement and Stipulation (the “Settlement Agreement”) with Firstfire, pursuant to which the Company agreed to issue common stock to Firstfire in exchange for the settlement of $330,000 for the
principal amount of the promissory note issued by the Company to Firstfire on Firstfire Note, plus $100,000 (the “Settlement Amount”) as provided for in the Firstfire Note.
On November 28, 2017, the Circuit Court of Broward County, Florida (the “Court”), entered an order (the “Firstfire Order”) approving, among other things, the fairness of the terms and conditions of an exchange
pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended (the “Securities Act”), in accordance with a stipulation of settlement, pursuant to the Settlement Agreement, in the matter entitled Firstfire Global Opportunities Fund,
LLC v. Eight Dragons Company (Case No. CACE-17-019524 (Div. 25) (the “Firstfire Action”). Firstfire commenced the Firstfire Action against the Company to recover the Settlement Amount (the “Firstfire Claim”) pursuant to the Firstfire Note.
The Settlement Agreement became effective and binding upon the execution of the Firstfire Order by the Court on November 15, 2017. The Company’s obligations under the Firstfire Note were governed by and were replaced by the Company’s
obligations under the Settlement Agreement.
On June 15, 2018, the Company and Firstfire entered into an Amendment to Settlement Agreement and Stipulation (the “Firstfire Amendment”) to amend the Settlement Agreement entered into on November 15, 2017.
Pursuant to the terms of the Firstfire Amendment, the Company agreed to issue to Firstfire 1,000,000 shares (the “Settlement Shares”) of the Company’s common stock in full settlement of the claims set forth in the Settlement Agreement. The
amount of Settlement Shares includes 250,000 shares of common stock previously issued to Firstfire in 2017 and an additional 750,000 shares to be issued by the Company upon approval of the Firstfire Amendment by the Court. The Company and
Firstfire submitted the Firstfire Amendment to the Court for a hearing on the fairness of such terms and conditions, and the issuance exempt from registration of the Settlement Shares. The Firstfire Amendment became effective on July 9, 2018,
when it was approved by the Court and the Company became obligated to issue the Settlement Shares, with such shares to be issued as freely trading securities pursuant to Section 3(a)(10) of the Securities Act.
In addition, upon issuance of the Settlement Shares, Firstfire entered into an 18 month lock up agreement whereby it agreed not to sell any shares of the common stock it beneficially owns except as follows: (i)
25,000 shares during each consecutive month for a period of three consecutive months which commenced on the first full month after the date the Firstfire Amendment is approved by the Court (the “Order Date”), (ii) 50,000 shares per month for
a period of three consecutive months commencing on the fourth month after the Order Date; (iii) 75,000 shares per month for a period of three consecutive months which commenced on the seventh month after the Order Date; and (iv) 100,000
shares each month for a period of three months which commenced on the tenth month after the Order Date. If, however, the dollar value of shares sold by Firstfire during the 18-month lock-up period exceeds $500,000, then the number of shares
that may be sold during each month during the six consecutive months after such period shall be limited to 40,000.
During the year ended December 31, 2018, 750,000 shares of the Company’s common were issued, in addition to the 250,000 shares of common stock issued in 2017, pursuant to the Settlement Agreement and Firstfire
Amendment. The Firstfire Note had no outstanding principal and interest as of December 31, 2018. The shares of common stock comprising the Settlement Shares were issued in reliance upon the exemption from securities registration afforded by
the provisions of Section 3(a)(10) of the Securities Act.
NOTE 7 – SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK
On July 26, 2018, the Company entered into a Stock Purchase Agreement with an accredited investor pursuant to which, at closing, the Company agreed to issue and sell to that investor up to 4,687,500 shares of
its Series B Convertible Preferred Stock, $0.0001 par value (“Series B Preferred”) at a price of $0.64 per share for an aggregate of $3,000,000. An aggregate of 3,906,250 shares will be issued and sold in five monthly tranches of at least
781,250 shares ($500,000) each, which commenced on July 27, 2018, the initial closing date, for an aggregate of $2,500,000. After the earlier of the four-month period after the initial closing date or the sale of 3,906,250 shares and not
later than six months after the date of the initial closing, the investor may, but shall not be obligated to, purchase from the Company in a single closing, up to an additional 781,250 shares, not previously sold and never to exceed the
number of Series B Preferred, at a price of $0.64 per share.
ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)
In connection with the Company’s obligations under the Stock Purchase Agreement, the Company and its parent, Rokk3r Labs, entered into a Security and Pledge Agreement. Pursuant to the terms of this agreement,
Rokk3r Labs pledged as collateral security for the payment, performance and observance of all of the Company’s obligations under Security and Pledge Agreement, the Stock Purchase Agreement, the Investor Rights Agreement, and the Series B
Preferred, securities owned by Rokk3r Labs with a value of approximately $16,000,000 (the “Collateral”). Rokk3r Labs may transfer any of its interests in the Collateral so long as the Company or Rokk3r Labs, at their option, (i) add the
proceeds of such transfer to the Collateral or (ii) promptly pledge a first priority security interest in one or more securities identified in the Security and Pledge Agreement that have an aggregate value equal to or greater than the value
of such proceeds, provided, however, (x) no replacement collateral shall be required unless the aggregate value of the then-remaining Collateral decreases below an amount that is equal to three (3) times the amount invested and (y) any such
reserve equity interests used as replacement collateral shall be subject to the investor’s prior approval (not to be unreasonably withheld or delayed).
Upon a default under the terms of the Security and Pledge Agreement, the Stock Purchase Agreement, the Investor Rights Agreement, or the Series B Preferred, the investor may, among other things, collect or take
possession of the Collateral, proceed with the foreclosure of the security interest in the Collateral or sell, lease or dispose of the Collateral. The pledge of the Collateral shall (a) remain in full force and effect until (i) the Company
has acquired 75% of Rokk3r Labs’ current ownership interests in the aggregate in the entities that make up the reserved equity interests and the Collateral, or (ii) 75% of the shares of Series B Preferred owned by the investor have been
converted into the Company’s common stock or have been redeemed by the investor.
In connection with the Company’s obligations under the Stock Purchase Agreement, we entered into an Investor Rights Agreement with the investor. Pursuant to the terms of this agreement, the Company agreed to,
among other things, file a registration statement covering the investor’s resale of the common stock underlying the Series B Preferred (to the extent such shares are registrable under the Securities Act) within 60 days following demand by
such investor, with such demand right permitted any time after 180 days after the effective date of a registration statement related to the Company’s first underwritten public offering of the Company’s common stock under the Securities Act
(an “IPO”). In addition, the Company agreed to register such shares if the Company files a registration statement in connection with a public offering of its securities for cash. So long as the investor holds 75% of the Series B Preferred,
the investor has similar demand registration rights if at any time we are eligible to use a Form S-3. All registration rights are subject to cut back to the extent the Company’s Chief Executive Officer makes a good faith determination that a
registration statement would interfere with certain corporate events identified in such agreement.
The investor has certain information, observer and inspection rights which permit such investor to receive certain financial statements on a periodic basis, budget and business plan information annually and
such other information as the investor shall reasonably request. The investor is entitled to appoint two representatives to become members of the Company’s strategic advisory board for a period of no less than two years after the initial
issuance of the Series B Preferred. The advisory board will be established by the Company’s Board to offer them and the Company strategic ideas and advice regarding potential businesses expansion and strategy of the Company as mandated from
time-to-time by the Board, including development and location of Rokk3r Hubs, opportunity identification, pilot program identification and execution, deal origination, acquisitions and mergers and representation of the Company and its brand.
The Company agreed to compensate the investor for the participation by its designees on the Company’s advisory board by issuing the investor 300,000 shares of the Company’s restricted common stock, with 50% of such shares vesting twelve
months after the issuance date of the Series B Preferred and the 50% remaining balance vesting twenty-four months after the issuance date of the Series B Preferred, so long as at least one investor designee is a member of the advisory board
at the time of vesting. In addition, the investor or its affiliates are entitled to, without additional charge, certain corporate educational services the Company provides to its clients.
On July 26, 2018, the Company filed a certificate of designation, preferences and rights of Series B Preferred stock (the “Certificate of Designation”) with the Secretary of State of the State of Nevada to
designate 4,687,500 shares of our previously authorized preferred stock as Series B Preferred stock. The Certificate of Designation and its filing was approved by the Company’s Board of Directors on July 26, 2018 without shareholder approval
as provided for in the Company’s articles of incorporation and under Nevada law.
ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)
The Certificate of Designation includes:
•
|
the original issue price of each share is $0.64 (the “Original Issue Price”),
|
•
|
the shares are entitled to one vote for each share of common stock that such shares of Series B Preferred are convertible into, the shares do not pay dividends,
|
•
|
each share is convertible into shares of our common stock at a conversion rate of one share of common stock for each share of Series B Preferred, subject to adjustment as
hereinafter set forth. In the event of a breach by us of the rights, preferences, powers, restrictions and limitations of the Series B Preferred, then the number of shares of our common stock issuable upon conversion will be
increased to 1.1 shares of common stock for each share of Series B Preferred and the holder may exercise its redemption rights discussed below,
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•
|
the conversion price of the Series B Preferred is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events. In addition, the
conversion price is subject to adjustment if we issue or sell shares of our common stock in one or more capital-raising transactions which results in gross proceeds to us of more than $500,000 at a purchase price per share of less
than $0.64. If this event should occur, the number of shares of our common stock issuable upon conversion is increased on a pro-rata basis, and
|
•
|
the holder of the Series B Preferred has the right to elect to have all or any portion of the then outstanding shares of Series B Preferred redeemed by us at any time and from
time to time on or after 18 months following the issuance of 3,906,250 shares or after any breach of the rights, preferences, powers, restrictions and limitations of the Series B Preferred for a price per share equal to 122.5% of
the Original Issue Price, as adjusted.
|
The information, observer, inspection and advisory board rights will terminate (i) immediately before the consummation of the IPO, (ii) when the Company first becomes subject to the periodic reporting
requirements of Section 12(g) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or (iii) upon the closing of a deemed liquidation event (as defined in the Investor Rights Agreement), whichever event occurs
first.
The Series B Preferred is convertible into the Company’s common stock and/or redeemable at any time at the option of the holder or the Company in the events not controlled by the Company. The Company has
classified the Series B Preferred mezzanine equity in the accompanying consolidated balance sheet in accordance with ASC 480 -" Distinguishing Liabilities from Equity " Under “Redeemable Preferred
Shares” (see Note 2).
During the year ended December 31, 2018, the Company sold 4,085,938 shares of the Series B Preferred for net proceeds of $2,615,000 or $0.64 per preferred.
As of March 31, 2019, and December 31, 2018, 4,085,938 shares of Series B Preferred were issued and outstanding. The Company also recorded a redemption premium of $104,419 in connection with the issuance of the
Series B Preferred during the year ended December 31, 2018 and $102,312 during the three months ended March 31, 2019, for an aggregate redemption premium of $206,731.
NOTE 8 – SHAREHOLDERS’ EQUITY
Shares Authorized
On March 8, 2018, the Company filed Amended and Restated Articles of Incorporation (the “Amended and Restated Articles”) with the Nevada Secretary of State to increase our authorized capital from 150,000,000
shares to 550,000,000 shares of which 500,000,000 will be common stock, par value $0.0001 per share (the “Common Stock”) and 50,000,000 will be preferred stock, par value $0.0001 per share (the “Preferred Stock”).
On July 26, 2018, we filed the Certificate of Designation to designate 4,687,500 shares of our previously authorized preferred stock as Series B Convertible Preferred stock (“Series B Preferred”).
Preferred Stock
Series A Preferred: Non-Convertible Preferred Stock
Effective on April 12, 2017, in conjunction with the filing of the amendment to the Company's Articles of Incorporation with the Nevada Secretary of State, specifically a Certificate of Designation, the Company
amended its Articles of Incorporation to designate 1,000,000 shares of its authorized preferred stock as Series A Preferred with specific rights and preferences including the provision that each share of the Series A Preferred shall have one
thousand votes on all matters presented to be voted by the holders of common stock. The Series A Preferred is not convertible to common stock.
ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)
As of March 31, 2019, and December 31, 2018, there were no outstanding shares of Series A Preferred stock.
Series B Preferred: Redeemable Convertible Preferred Stock
On July 26, 2018, the Company filed the Certificate of Designation with the Nevada Secretary of State to designate 4,687,500 shares of our previously authorized preferred stock as Series B Preferred. The
Certificate of Designation and its filing was approved by the Company’s Board of Directors on July 26, 2018 without shareholder approval as provided for in the Company’s articles of incorporation and under Nevada law.
The Series B Preferred is convertible into the Company’s common stock and/or redeemable at any time at the option of the holder or the Company in the events not controlled by the Company. The Company has
classified the Series B Preferred as mezzanine equity in the accompanying consolidated balance sheet in accordance with ASC 480 - Distinguishing Liabilities from Equity Under “Redeemable Preferred
Shares” (see Note 2 and Note 7).
Common Stock
During the three months ended March 31, 2019, the Company issued:
•
|
45,000 shares of common stock of Rokk3r Inc., at fair value of $0.64 per share or $28,800, to an investor pursuant to the sale of non-controlling interest of a consolidated
subsidiary (see Note 5).
|
Common Stock Issuable
During the three months ended March 31, 2019, the Company issued:
•
|
50,000 shares of common stock of Rokk3r Inc., at fair value of $0.64 per share or $32,000, to a consultant pursuant to a consulting agreement. The Company expensed the fair value
of $32,000 as stock-based compensation.
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Equity Compensation Plans
2017 Omnibus Equity Compensation Plan
On April 12, 2017, the Board adopted the 2017 Omnibus Equity Compensation Plan and reserved 5,000,000 shares of common stock for future issuance under the 2017 Omnibus Equity Compensation Plan. As of March 31,
2019, and December 31, 2018, no grants have been made under the 2017 Omnibus Equity Compensation Plan.
2018 Equity Incentive Plan
On March 7, 2018, the Board approved, and on March 28, 2018, our shareholder approved, by written consent, the 2018 Equity Incentive Plan. The 2018 Equity Incentive Plan is intended to make available incentives
that will assist us to attract, retain and motivate employees, including officers, consultants and directors. We may provide these incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted stock
units, performance shares and units and other cash-based or stock-based awards. A total of 15,000,000 shares of the Company’s common stock were reserved under the 2018 Equity Incentive Plan. The shares authorized under the 2018 Equity
Incentive Plan automatically increase on January 1, 2019 and each subsequent anniversary through 2028, by an amount equal to the smaller of (a) 3% of the number of shares of common stock issued and outstanding on the immediately preceding
December 31, or (b) an amount determined by the Board. As of March 31, 2019, and December 31, 2018, no grants have been made under the plan.
Approved Grant of Common Stock as Incentive for Employees and Contractors
On November 16, 2018, our Board approved the grant of stock-based awards of its common stock by Rokk3r Ops Inc. as signing bonuses to attract innovative, creative and experience individuals to join by Rokk3r
Ops Inc. in the aggregate amount of not more than $352,000, represented by 550,000 shares, to be vested as per an agreed upon vesting schedule (the “Vesting Date”). At Vesting Date, the shares shall be issued; notwithstanding the foregoing,
the Board may at any time accelerate the Vesting Date. As of March 31, 2019, and December 31, 2018, although the share issuances were approved, no shares pursuant to the foregoing have been issued.
ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)
NOTE 9 – CONCENTRATIONS
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash deposits. The Company maintains its cash in financial institutions in
the United States for which balances are insured up to Federal Deposit Insurance Corporation limits of $250,000 per account. At March 31, 2019 and December 31, 2018, the Company had a cash balance of $1,942,032 and $2,297,902, respectively.
The Company has not experienced any losses in such accounts through March 31, 2019.
Concentrations of Revenue
•
|
During the three months ended March 31, 2019, the Company had revenue $885,008 of which 15%, 14%, 13%, 13% and 12% were from five of the Company’s customers.
|
•
|
During the three months ended March 31, 2018, the Company did not have any revenue. A reduction in revenue from or loss of such customers would have a material adverse effect on
the Company’s consolidated results of operations and financial condition.
|
Concentrations of Accounts Receivables
•
|
During the three months ended March 31, 2019, the Company had net accounts receivables of $499,230 of which 38% and 12% were from two of the Company’s customers.
|
•
|
During the year ended December 31, 2018, the Company had net account receivable of $400,182 of which 42% was from a customer.
|
NOTE 10 – RELATED-PARTY TRANSACTIONS
Due from Parent Company
During the three months ended March 31, 2019, the Company advanced Rokk3r Labs, its controlling shareholder, approximately $35,400 primarily for their share of the office lease for the three months ended March
31, 2019. The advances are non-interest bearing and are payable on demand. At March 31, 2019 and December 31, 2018, the Company had $110,506 and $75,138 receivable balance from Rokk3r Labs, respectively.
Collaboration Agreement – Parent Company
On April 9, 2018, the Company entered into a collaboration agreement with Rokk3r Labs, the Company’s controlling shareholder (the “Collaboration Agreement”). Under the terms of the Collaboration Agreement,
initially, Rokk3r Labs will provide the following services to the Company on a non-exclusive, as-needed basis: delivery support of products such as consultancy services and software development services; sales support and promotion for
company building and consulting services; and promotional activity, events, branding, and marketing. Once the Company is ready to undertake some or all of these activities, Rokk3r Labs will narrow down the services it performs on behalf of
the Company. Each party, based on its cost structure, will define the fees for the services to be provided and will invoice the other party for the services actually rendered on a monthly basis. The term of the Collaboration Agreement
commenced on January 1, 2018 and has a term of two years. However, the parties may, by mutual agreement, terminate the Collaboration Agreement or renew it for an additional one-year period. In connection with the Collaboration Agreement,
during the three months ended March 31, 2019, the Company recorded $593,072 of consulting fees – parent company and $175,000 of prepaid expense – related party in connection with the Collaboration Agreement. In connection with the
Collaboration Agreement, during the three months ended March 31, 2018, the Company recorded $750,000 of consulting fees – parent company in connection with the Collaboration Agreement.
ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)
Trademark License Agreement – Parent Company
On November 15, 2018, the Company entered into a Trademark License Agreement with Rokk3r Labs. Pursuant to which, Rokk3r Labs granted the Company and its subsidiaries, a limited, worldwide, non-exclusive,
non-transferable, license to use the trademark ROKK3R in word form and in all style and design variations used to date by Rokk3r Labs or its authorized licensees, until November 12, 2019. The agreement may automatically renew for successive
one-year terms unless terminated by either party. If a party elects not to renew the agreement, that party shall provide a notice of that intention to the other party at least 30 days prior to the renewal date. Pursuant to the agreement, the
Company shall pay an annual fee of $120,000, payable on the anniversary of the effective date of the agreement. The Company recorded $45,000 in accrued expense – related party in the unaudited condensed consolidated balance sheet as of March
31, 2019, in connection with the Trademark License Agreement.
Consulting Services Agreement
On June 21, 2018, a Consulting Services Agreement was signed between ExO Foundation, Inc. which is owned and controlled by Salim Ismail, a member of the Board of Directors of the Company, and Rokk3r Ops for the
pre-purchase of $250,000 in future services such as consultants, advisors and speakers to be rendered by ExO Foundation, Inc, or through ExO Lever Network. The services are represented in vouchers to be used in the next two years (in the
event of conversion into another instrument without expiration within such two-year period) or within Ten (10) years if the vouchers are not converted into another instrument. The vouchers are transferable and assignable. Either party may
terminate the consulting agreement, upon thirty (30) days’ written notice to the other party. If Rokk3r Ops early terminates the agreement, any prepaid services would be non-refundable and shall be forfeited, unless terminated due to a
material breach by ExO Foundation. The $250,000 payment was recorded as prepaid expense – related party in the unaudited condensed consolidated balance sheet as of December 31, 2018. As of March 31, 2019, no service had been performed under
the consulting agreement and the prepaid balance of $250,000 remained.
Stock Purchase Agreement
On November 2, 2018, the Company entered into a stock purchase agreement (the “SPA”) with ExO Foundation Inc., a Delaware public benefit corporation (“EXO”) which is owned and controlled by Salim Ismail, a
member of the Board of Directors of the Company. Pursuant to the SPA, the Company agreed to issue and sell to EXO, 5,000,000 shares of the Company’s common stock in exchange for EXO and the Company entering into a Simple Agreement for Future
Equity with Token Allocation (the “Safe-T Agreement”).
Pursuant to the SPA, EXO agreed that during the 24 month period after the date of execution of the Safe-T Agreement, EXO will not directly or indirectly, sell or engage in any transaction that will result in a
change in the beneficial or record ownership of 50% of the common stock issued to EXO pursuant to the SPA. Further, pursuant to the SPA, EXO agreed not to transfer any of the common stock issued to EXO pursuant to the SPA during the 24 month
period after the date of execution of the Safe-T Agreement without first giving the Company written notice of such proposed transfer and allowing the Company the option to purchase the common stock at issue on the same terms as contemplated
by such proposed transfer.
The SPA includes customary representations, warranties and covenants by the Company and EXO and customary closing conditions. As of March 31, 2019, no shares of common stock had been issued in connection with
the SPA.
Safe-T Agreement
On November 2, 2018, the Company and EXO which is owned and controlled by Salim Ismail, a member of the Board of Directors of the Company, entered into the Safe-T Agreement. Pursuant to the Safe-T Agreement, at
EXO’s election, the Company has the right to purchase a number of units of CivX Tokens (each a “Token” and together the “Tokens”) to be used in a software network platform or application built by EXO and its affiliates, equal to the Purchase
Amount, as such term is defined in the Safe-T Agreement and discussed below, divided by the Price Per Token, as such term is defined in the Safe-T Agreement and discussed below.
Further, pursuant to the Safe-T Agreement, EXO agreed that if it conducts an Equity Financing as such term is defined in the Safe-T Agreement, prior to the termination of the Safe-T Agreement, EXO will issue to
the Company a number of shares of EXO’s preferred stock equal to the Purchase Amount, as such term is defined in the Safe-T Agreement, divided by the price per share of the preferred stock sold by EXO in the Equity Financing.
The Safe-T Agreement defines the term “Equity Financing” as a bona fide transaction or series of transactions with the principal purpose of raising capital, pursuant to which EXO issues and sells its preferred
stock at a fixed pre-money valuation with aggregate proceeds of at least $5,000,000 (excluding any Simple Agreements for the Future Equity with Token Allocations, Simple Agreements for the Future Equity, or other convertible securities
converting pursuant to the Equity Financing).
ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)
The Safe-T Agreement defines the term “Purchase Amount” as follows: (a) the value of 5,000,000 shares of the Company’s common stock (the “Purchaser Shares”) to be either (i) the publicly traded price of the Purchaser Shares at the time of the
calculation, with the express requirement that if the Purchaser Shares are then trading at over $3.00 then that will be the maximum value of the Purchaser Shares and if the Purchaser Shares are then trading under $0.64 then that will be the
minimum value of the Purchaser Shares or (ii) if the Purchaser Shares are not publicly traded at such time, the value of such shares shall be the fair market value, up to but not exceeding $3.00 (referred to as the “Adjusted Value”); (b) with
a discount rate of 85% to be applied to the Adjusted Value to determine the final value of the “Purchase Amount.”
The Safe-T Agreement defines the term “Price Per Token” as the fair market value of an individual Token at the time of the Token Sale, as such term is defined in the Safe-T Agreement; provided, however, that if
there is no public market for the Tokens at the time of the Token Sale, the price per Token shall be determined by an independent third party valuation firm or expert, as mutually agreed between Company and EXO. The Safe-T Agreement defines
the term “Token Sale” as a bona fide transaction or series of transactions in which EXO elects to sell all of the Tokens to the Company pursuant to the Safe-T Agreement.
The Safe-T Agreement will terminate upon either the earlier of the following (i) the issuance of all of the Tokens by EXO to the Company pursuant to the Safe-T Agreement (ii) the issuance of all of the shares
in the Equity Financing pursuant to the Safe-T Agreement (iii) upon payment by EXO to the Company in the event of an occurrence of a Dissolution Event or Liquidity Event, as such terms are defined in the Safe-T Agreement or (iv) 24 months
after the date of execution of the Safe-T Agreement.
The Safe-T Agreement defines the term “Liquidity Event” as a change of control of EXO or an initial public offering by EXO. The Safe-T Agreement defines the term “Dissolution Event” as (i) a voluntary
termination of operations of EXO; (ii) a general assignment for the benefit of EXO’s creditors; or (iii) any other liquidation, dissolution or winding up of EXO (excluding a Liquidity Event), whether voluntary or involuntary. Upon the
occurrence of a Liquidity Event or a Dissolution Event, EXO will have to pay the Company a cash amount equal to the Purchase Amount.
Upon the occurrence of the termination of the Safe-T Agreement pursuant to the 24-month expiration EXO will have to deliver to the Company either the Purchaser Shares, cash in an amount equal to the Purchase
Amount or an amount of equity in EXO equal to the Purchase Amount.
Pursuant to the Safe-T Agreement, the Company agreed that if Tokens are issued to the Company pursuant to the Safe-T Agreement, that the Company would not transfer 50% of such Tokens for a period of 12 months
from the issuance of the Tokens.
The Safe-T Agreement includes customary representations, warranties and covenants by the Company and EXO. As of March 31, 2019, the Company had not received any proceeds or issued shares in connection with the
Safe-T Agreement.
NOTE 11 – COMMITMENTS AND CONTINGENCIES
Park Road Solutions, LLC and Jordan Fishman
On June 1, 2017, the Company, Eight Dragons Acquisition I, Inc., Park Road Solutions, Inc. (“Park Road”) and Jordan Fishman ostensibly signed an Agreement and Plan of Merger and Reorganization (the “Park Road
Merger Agreement”) to acquire all of the issued and outstanding common shares of Park Road from Mr. Fishman in exchange for 80,000 shares of the Company’s common stock (the “Park Road Acquisition”). The Company rescinded the Park Road Merger
Agreement, ab initio, due to, among other things, its legal insufficiency, a lack of consideration on the part of Mr. Fishman and Park Road and their failure to fulfill their obligations as provided for in the Merger Agreement. On May 8,
2017, the Company’s transfer agent issued 1,150,000 shares of its common stock in the name of Jordan Fishman in anticipation of acquiring an entity owned or controlled by Mr. Fishman. The plan to acquire the entity was abandoned prior to
closing and the 1,150,000 shares were never delivered to Mr. Fishman and were cancelled.
Mr. Fishman has disputed the Company’s right to rescind the Park Road Merger Agreement, demanded that the Company deliver the 1,150,000 shares of the Company’s common stock without providing any legal basis for
such demand and further demanded reimbursement of $36,626 for services and expenses ostensibly advanced for the benefit of Park Road. The Company believes its right to rescind the Park Road Acquisition, has no legal obligation to deliver the
1,150,000 shares to Mr. Fishman and disputes his other demands. If Mr. Fishman pursues legal action against the Company, the Company intends to vigorously defend its rights against Mr. Fishman. Pending the outcome of the dispute with Mr.
Fishman, the Company has reserved 1,150,000 shares of its Common Stock for possible issuance in the event of a determination by a court of law or subsequent agreement between the Company and Mr. Fishman.
ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)
Sean Young Demand
On May 8, 2017, the Company’s transfer agent issued 1,250,000 shares of its common stock in the name of Sean Young in anticipation of acquiring an entity owned or controlled by Mr. Young. The plan to acquire
the entity was abandoned prior to closing and the 1,250,000 shares were never delivered to Mr. Young and were cancelled.
On March 26, 2018, Mr. Young demanded that the Company deliver the 1,250,000 shares without providing any legal or factual basis for such demand and additionally demanded payment of $29,000 for services and
expenses ostensibly advanced for the benefit of Park Road. The Company believes it has no legal obligation to deliver the 1,250,000 shares to Mr. Young and disputes his demand for payment. If Mr. Young pursues legal action against the
Company, the Company intends to vigorously defend its rights against Mr. Young. Pending the outcome of the dispute with Mr. Young, the Company has reserved 1,250,000 shares of its Common Stock for possible issuance in the event of a
determination by a court of law or subsequent agreement between the Company and Mr. Young.
Stock Purchase Agreement
On November 2, 2018, the Company entered into a SPA with EXO which is owned and controlled by Salim Ismail, a member of the Board of Directors of the Company. Pursuant to the SPA, the Company agreed to issue
and sell to EXO, 5,000,000 shares of the Company’s common stock in exchange for EXO and the Company entering into the Safe-T Agreement as discussed above in Note 10.
Safe-T Agreement
On November 2, 2018, the Company and EXO which is owned and controlled by Salim Ismail, a member of the Board of Directors of the Company, entered into the Safe-T Agreement. Pursuant to the Safe-T Agreement, at
EXO’s election, the Company has the right to purchase a number of units of Tokens to be used in a software network platform or application built by EXO and its affiliates, equal to the Purchase Amount, as such term is defined in the Safe-T
Agreement, divided by the Price Per Token, as such term is defined in the Safe-T Agreement and discussed above in Note 10.
Other than as set forth above, we are not presently a party to any material litigation that may have a material adverse effect on our consolidated financial position, results of operations or
cash flows.
NOTE 12 – SUBSEQUENT EVENTS
On April 23, 2019, Rokk3r Ai’s board agreed to name Toby Matejovsky as an officer and director of Rokk3r Ai, and to enter into an employment agreement with Mr. Matejovsky. As required pursuant to the terms of
the employment agreement, Rokk3r Ai granted Mr. Matejovsky 1,813,332 shares of Common Stock and 453,332 shares of Class C Stock. Also, on the same day, the Rokk3r Ai board approved the sale of equity to Mr. Matejovsky and the issuance of new
Class C Stock to the then existing shareholders of Rokk3r Ai.
On May 7, 2019, Rokk3r Ai sold an additional 27.13% of equity to a new investor which resulted in further dilution of Rokk3r Ops’ ownership and voting interest down from 87.5% to 60.37%.
On May 3, 2019, the board of directors of Rokk3r Ops approved the incorporation of a new wholly-owned subsidiary, Cargologik, Inc., which was incorporated in Delaware, and was not operational as of May 20, 2019
(see Note 1).
NOTE 13 – RESTATEMENT
In connection with the preparation of the Company’s unaudited condensed consolidated financial statements for the period ended September 30, 2019, management determined that it had incorrectly accounted for its
VIE as an equity method investment in its unaudited condensed consolidated financial statements for the period ended March 31, 2019 and did not consolidate its VIE in the Company’s Quarterly Report on Form 10-Q for the period ended March 31,
2019, as originally filed with the SEC on May 20, 2019 (the “Original Filing”).
Based on management’s analysis, in accordance with ASC 810-10-25-22 – Consolidation – Variable Interest Entities, the Company determined that the equity investors
lacked characteristics of a controlling financial interest and the initial equity investments in these entities may be or were insufficient to meet or sustain its operations without additional subordinated financial support from other
parties. Additionally, the Company determined that it is the primary beneficiary of the VIE because the Company is the sole service provider (some through service agreements), which gave the Company the right to receive (and the Company has
received) the proceeds from the VIE’s operations. Accordingly, the Company restated its unaudited condensed consolidated financial statements to include the consolidated financial position and results of operations of its VIE since its
inception, which occurred during the three months ended March 31, 2019, which is included in this Amendment No. 1 to the Company’s Quarterly Report on Form 10-Q/A for quarter ended March 31, 2019.
ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)
Accordingly, the Company’s unaudited condensed consolidated balance sheet at March 31, 2019 and for the three months ended March 31, 2019 and the condensed consolidated statements of operations have been
restated herein. The effect of correcting this error in the Company’s condensed consolidated financial statements at March 31, 2019 and for the three months ended March 31, 2019 are shown in the table as follows:
Condensed Consolidated Balance Sheet Data (Unaudited):
|
|
March 31, 2019
|
|
|
As Previously
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
503,141
|
|
|
$
|
(3,912
|
)
|
(a)
|
$
|
499,229
|
|
Accounts receivable - related party
|
|
$
|
250,000
|
|
|
$
|
(250,000
|
)
|
(a)
|
$
|
—
|
|
Total Assets
|
|
$
|
4,268,169
|
|
|
$
|
(253,912
|
)
|
(b)
|
$
|
4,014,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses - related party
|
|
$
|
45,151
|
|
|
$
|
(151
|
)
|
(c)
|
$
|
45,000
|
|
Total Liabilities
|
|
$
|
672,068
|
|
|
$
|
(151
|
)
|
|
$
|
671,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
$
|
10,247
|
|
|
$
|
(100
|
)
|
(d)
|
$
|
10,147
|
|
Additional paid in capital
|
|
$
|
76,353,211
|
|
|
$
|
(3,513
|
)
|
(e)
|
$
|
76,349,698
|
|
Accumulated deficit
|
|
$
|
(75,585,537
|
)
|
|
$
|
(128,761
|
)
|
(f)
|
$
|
(75,714,298
|
)
|
Total Rokk3r, Inc Stockholders' Equity
|
|
|
778,026
|
|
|
|
(132,374
|
)
|
|
|
645,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest in consolidated subsidiary and VIE (Note 5)
|
|
$
|
(3,656
|
)
|
|
$
|
(121,387
|
)
|
(g)
|
$
|
(125,043
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity
|
|
$
|
774,370
|
|
|
$
|
(253,761
|
)
|
(h)
|
$
|
520,609
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
4,268,169
|
|
|
$
|
(253,912
|
)
|
|
$
|
(4,014,257
|
)
|
a)
|
Decrease of accounts receivable and accounts receivable - related party of $3,912 and $250,000, respectively, from elimination of inter-company receivables as a result of
consolidating the VIE.
|
b)
|
Aggregate decrease in total assets of $253,912 from above change as a result of consolidating the VIE.
|
c)
|
Decrease of accrued expenses - related party of $151 due to elimination of inter-company balance as a result of consolidating the VIE.
|
d)
|
Decrease of common stock of $100 due correction of common stock attributed to the Company.
|
e)
|
Decrease of additional paid-in-capital of $3,513 due to elimination of VIE’s paid-in-capital as a result of consolidating the VIE.
|
f)
|
Increase of accumulated deficit of $128,761 due to addition of VIE’s net loss attributed to the Company as a result of consolidating the VIE.
|
g)
|
Increase of non-controlling interest in consolidated VIE of $121,387 due to addition of VIE’s non-controlling interest attributed to the VIE as a result of consolidating the VIE.
|
h)
|
Aggregate increase in total liabilities and stockholders’ equity of $253,912 from above changes as a result of consolidating the VIE.
|
ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(Unaudited)
Consolidated Statement of Operations (Unaudited):
|
|
For the Three Months Ended
March 31, 2019
|
|
|
|
As Previously
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
888,920
|
|
|
$
|
(3,912
|
)
|
|
$
|
885,008
|
|
Revenues – related party
|
|
|
250,000
|
|
|
|
(250,000
|
)
|
|
|
—
|
|
Total Revenue
|
|
$
|
1,138,920
|
|
|
$
|
253,912
|
|
(a)
|
$
|
885,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on equity method investments
|
|
$
|
(151
|
)
|
|
$
|
151
|
|
(b)
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Common Stockholders Before Allocation to Non-controlling Interest
|
|
$
|
(518,336
|
)
|
|
$
|
(356,073
|
)
|
(c)
|
$
|
(874,409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Net Loss Allocated to Non -controlling Interest in Consolidated Subsidiary and VIE
|
|
|
(3,656
|
)
|
|
|
(125,000
|
)
|
(d)
|
|
(128,656
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Applicable to Rokk3r, Inc Common Stockholders
|
|
$
|
(514,680
|
)
|
|
$
|
(231,073
|
)
|
|
$
|
(745,753
|
)
|
a)
|
Aggregate decrease of revenues and revenues -related party for the three months ended March 31, 2019 of $253,912 due to elimination of inter-company revenue as a result of
consolidating the VIE.
|
b)
|
Decrease of loss on equity method investments for the three months ended March 31, 2019 of $151 as a result of consolidating the VIE.
|
c)
|
Increase of net loss attributable to common stockholders before allocation to non-controlling interest for the three months ended March 31, 2019 of $253,761 due to the changes
discussed above as a result of consolidating the VIE. Further, $102,312 is the result of Series B Preferred Stock redemption premium for the three months ended March 31, 2019 not previously reported.
|
d)
|
Increase of net loss allocated to non-controlling interest for the three months ended March 31, 2019 of $125,000 as a result of consolidating the VIE.
|