The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – THE COMPANY
The
Crypto Company was incorporated in the State of Nevada on March 9, 2017. The Company is engaged in the business of providing consulting
services and education for distributed ledger technologies (“blockchain”), for the building of technological infrastructure
and enterprise blockchain technology solutions. The Company currently generates revenues and incurs expenses solely through these consulting
operations.
Unless
expressly indicated or the context requires otherwise, the terms “Crypto,” the “Company,” “we,” “us,”
and “our” in these consolidated financial statements refer to The Crypto Company and, where appropriate, its wholly-owned
subsidiary Blockchain Training Alliance, Inc. (“BTA”) and an inactive subsidiary Coin Tracking, LLC (“CoinTracking”).
The
Company entered into a Stock Purchase Agreement (the “SPA”) effective as of March 24, 2021 with Blockchain Training Alliance
(“BTA”) and its stockholders. On April 8, 2021, the Company completed the acquisition of all of the issued and outstanding
stock of BTA and BTA became a wholly-owned subsidiary of the Company. As a result of this acquisition, the operations of BTA became consolidated
with Company operations on April 8, 2021.
BTA
is a blockchain training company and service provider that provides training and educational courses focused on blockchain technology
and education as to the general understanding of blockchain to corporate and individual clients.
During
the years ended December 31, 2022 and 2021, the Company generated revenues and incurred expenses primarily through the business of providing
consulting services and education for distributed ledger technologies (“blockchain”), for the building of technological infrastructure
and enterprise blockchain technology solutions, both of which have ceased operations as of the date of this Annual Report.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going
Concern
The
Company’s consolidated financial statements are prepared using the accrual method of accounting in accordance with United
States (“U.S.”) generally accepted accounting principles (“GAAP”) and have been prepared on a going concern
basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company
has incurred significant losses and experienced negative cash flows since inception. As of December 31, 2022, the Company had cash
of $86,061. In addition, the Company’s
net loss was $5,662,918 for the year ended December 31, 2022 and the Company’s had a working capital deficit of $4,284,978. As of
December 31, 2022 the accumulated deficit amounted to $39,531,436. As a result of the Company’s history of losses and financial
condition, there is substantial doubt about the ability of the Company to continue as a going concern.
The
ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining
the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due.
Management is evaluating different strategies to obtain financing to fund the Company’s expenses and achieve a level of revenue
adequate to support the Company’s current cost structure. Financing strategies may include, but are not limited to, private placements
of capital stock, debt borrowings, partnerships and/or collaborations. There can be no assurance that any of these future-funding efforts
will be successful. The consolidated financial statements do not include any adjustments relating to the recoverability and classification
of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
Basis
of presentation – The company prepares its consolidated financial statements based upon the accrual method of accounting, recognizing
income when earned and expenses when incurred.
Consolidation
– The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Blockchain Training
Alliance and CoinTracking LLC which is inactive. All significant intercompany accounts and transactions are eliminated in consolidation.
Use
of estimates – The preparation of these consolidated financial statements in conformity with US GAAP requires management to
make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and the related disclosure
of contingent assets and liabilities. The Company bases its estimates on historical experience and on various other assumptions that
it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. The Company’s significant estimates and assumptions
include but are not limited to the recoverability and useful lives of long-lived assets, allocation of revenue on software subscriptions,
valuation of goodwill from business acquisitions, valuation and recoverability of investments, valuation allowances of deferred taxes,
and share- based compensation expenses. Actual results may differ from these estimates. In addition, any change in these estimates or
their related assumptions could have an adverse effect on the Company’s operating results.
Cash
and cash equivalents – The Company defines its cash and cash equivalents to include only cash on hand and certain highly liquid
investments with original maturities of ninety days or less. The Company maintains its cash and cash equivalents at financial institutions,
the balances of which may, at times, exceed federally insured limits. Management believes that the risk of loss due to the concentration
is minimal.
Investments
in cryptocurrency – Investments are comprised of several cryptocurrencies the Company owns, of which a majority is Bitcoin,
that are actively traded on exchanges. The Company records its investments as indefinite-lived intangible assets at cost less impairment
and are reported as long-term assets in the consolidated balance sheets. An intangible asset with an indefinite useful life is not amortized
but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely
than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for
impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that
an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test
is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment
loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.
Realized
gains and losses on sales of investments in cryptocurrency, and impairment losses, are included in other income/(expense) in the Consolidated
Statements of Operations.
As
of the December 31, 2022 and 2021 there were $-0- in investments in cryptocurrency on the Company’s Balance Sheet. However, during
the year ended December 31, 2022 the Company received tokens from cryptocurrency investments that were previously written down to -0-
value. These tokens were immediately liquidated, and the total proceeds received from them was $67,600 and classified as “Other
Income from the Recovery of Tokens” in the Company’s Statement of Operations.
Equipment
– Equipment is recorded at cost and depreciated using the straight-line method over the estimated useful life ranging from
three to five years. Normal repairs and maintenance are expensed as incurred. Expenditures that materially adapt, improve, or alter the
nature of the underlying assets are capitalized. When equipment is retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and the resulting gain or loss is credited or charged to income.
Business
combination – The purchase price of an acquired company is allocated between tangible and intangible assets acquired and liabilities
assumed from the acquired business based on their estimated fair values with the residual of the purchase price recorded as goodwill.
The results of operations of acquired businesses are included in our operating results from the dates of acquisition.
Goodwill
and intangible assets – The Company records the excess of purchase price over the fair value of the tangible and identifiable
intangible assets acquired as goodwill. Intangible assets resulting from the acquisitions of entities accounted for using the purchase
method of accounting are recorded at the estimated fair value of the assets acquired. Identifiable intangible assets are comprised of
purchased customer relationships, trade names, and developed technologies. Intangible assets subject to amortization are amortized over
the period of estimated economic benefit of five years. In accordance with ASC 350, Intangibles – Goodwill and Other (“ASC
350”), goodwill and other intangible assets with indefinite lives are not amortized but tested annually, on December 31, or more
frequently if the Company believes indicators of impairment exist. Indefinite lived intangible assets also include investments in cryptocurrency
(see Investments in Cryptocurrency).
The
Company assesses whether goodwill impairment and indefinite lived intangible assets exists using both qualitative and quantitative assessments.
The qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not that the
fair value of a reporting unit is less than its carrying amount, including goodwill. If based on this qualitative assessment the Company
determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if the Company elects
not to perform a qualitative assessment, a quantitative assessment is performed to determine whether a goodwill impairment exists at
the reporting unit. As of December 31, 2022 the Company determined that no impairment had occurred.
Income
taxes – Deferred tax assets and liabilities are recognized for expected future consequences of events that have been included
in the financial statements or tax returns. Under the asset and liability method, deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently
enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence,
are not expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period
in deferred tax assets and liabilities.
When
tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities,
while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately
sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available
evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution
of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that
meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely
of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken
that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits along with any associated
interest and penalties that would be payable to the taxing authorities upon examination.
As
of December 31, 2022, we had a net operating loss carryforward for federal income tax purposes of approximately $10,613,000 portions
of which will begin to expire in 2037. Utilization of some of the federal and state net operating loss and credit carryforwards are subject
to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state
provisions. The annual limitations may result in the expiration of net operating losses and credits before utilization.
Fair
value measurements – The Company recognizes and discloses the fair value of its assets and liabilities using a hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based
upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to
valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). Each level of input has different
levels of subjectivity and difficulty involved in determining fair value.
| |
Level
1 |
Inputs
are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurable date. |
| |
|
|
| |
Level
2 |
Inputs,
other than quoted prices included in Level 1, which are observable for the asset or liability through corroboration with market data
at the measurement date. |
| |
|
|
| |
Level
3 |
Unobservable
inputs that reflect management’s best estimate of what participants would use in pricing the asset or liability at the measurement
date. |
The
carrying amounts of the Company’s financial assets and liabilities, including cash, accounts payable and accrued expenses approximate
fair value because of the short maturity of these instruments.
Revenue
recognition – The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers (“ASC 606”).
The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those
goods or services. The following five steps are applied to achieve that core principle:
| |
● |
Step
1: Identify the contract with the customer |
| |
● |
Step
2: Identify the performance obligations in the contract |
| |
● |
Step
3: Determine the transaction price |
| |
● |
Step
4: Allocate the transaction price to the performance obligations in the contract |
| |
● |
Step
5: Recognize revenue when the Company satisfies a performance obligation |
In
order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in
the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of
a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met: The customer can
benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e.,
the good or service is capable of being distinct), and the entity’s promise to transfer the good or service to the customer is
separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the
context of the contract).
If
a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services
is identified that is distinct.
The
transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods
or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both.
When determining the transaction price, an entity must consider the effects of all of the following:
Variable
consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of
cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The transaction price
allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time
as appropriate.
The
Company adopted ASC 606 as of January 1, 2018 using the modified retrospective transition method for contracts as of the date of initial
application
Share-based
compensation
In
accordance with ASC No. 718, Compensation – Stock Compensation (“ASC 718”), the Company measures the compensation costs
of share-based compensation arrangements based on the grant date fair value of granted instruments and recognizes the costs in financial
statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock
options.
Equity
instruments (“instruments”) issued to non-employees are recorded on the basis of the fair value of the instruments, as required
by ASC 718. ASC No. 505, Equity Based Payments to Non-Employees (“ASC 505”), defines the measurement date and recognition
period for such instruments. In general, the measurement date is (a) when a performance commitment, as defined, is reached or (b) when
the earlier of (i) the non-employee performance is complete and (ii) the instruments are vested. The compensation cost is remeasured
at fair value at each reporting period when the award vests. As a result, stock option-based payments to non-employees can result in
significant volatility in compensation expense.
The
Company accounts for its share-based compensation using the Black-Scholes model to estimate the fair value of stock option awards. Using
this model, fair value is calculated based on assumptions with respect to the (i) expected volatility of the Company’s common stock
price, (ii) expected life of the award, which for options is the period of time over which employees and non-employees are expected to
hold their options prior to exercise, and (iii) risk-free interest rate.
Net
loss per common share – The Company reports earnings per share (“EPS”) with a dual presentation of basic EPS and
diluted EPS. Basic EPS is computed as net income divided by the weighted average of common shares for the period. Diluted EPS reflects
the potential dilution that could occur from common shares issued through stock options, or warrants. For the year ended December 31,
2022 and the year ended December 31, 2021, the Company had no potentially dilutive common stock equivalents. Therefore, the basic EPS
and the diluted EPS are the same.
Marketing
expense – Marketing expenses are charged to operations, under general and administrative expenses. The Company incurred $31,777
of marketing expenses for the year ended December 31, 2022, compared to $33,965 for year ended December 31, 2021.
Reclassifications
– Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.
Such reclassifications had no effect on the Company’s financial position, results of operations or cashflows.
NOTE
3 – RECENT ACCOUNTING PRONOUNCEMENTS
The
Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not
believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position
or results of operations except as noted below:
On
November 15, 2019, the FASB issued ASU 2019-10, which (1) provides a framework to stagger effective dates for future major accounting
standards and (2) amends the effective dates for certain major new accounting standards to give implementation relief to certain types
of entities. Specifically, ASU 2019-10 amends the effective date for ASU 2017-04 to fiscal years beginning after December 15, 2022, and
interim periods therein.
Early
adoption continues to be permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.
The Company does not anticipate the adoption of ASU 2017-04 will have a material impact on its financial statements for both annual and
interim reporting periods.
In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) which enhances and simplifies various aspects of the income
tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business
combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. The amendment will be effective
for public companies with fiscal years beginning after December 15, 2020; early adoption is permitted. We are evaluating the impact of
this amendment on our consolidated financial statements.
In
February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to
SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards
Update No. 2016-02, Leases (Topic 842) which amends the effective date of the original pronouncement for smaller reporting companies.
ASU 2016-13 and its amendments will be effective for us for interim and annual periods in fiscal years beginning after December 15, 2022.
We believe the adoption will modify the way we analyze financial instruments, but we do not anticipate a material impact on results of
operations. We are in the process of determining the effects adoption will have on our consolidated financial statements.
In
August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging
- Contracts in Entity’s Own Equity (Subtopic 815 - 40), (“ASU 2020-06”). ASU 2020-06 simplifies the accounting
for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on
an entity’s own equity. The ASU2020-06 amendments are effective for fiscal years beginning after December 15, 2023, and interim
periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including
interim periods within those fiscal years. The Company is evaluating the impact of this guidance on its consolidated financial statements.
NOTE
4 – ACQUISTION
BTA
and its stockholders. On April 8, 2021, the Company completed the acquisition of all of the issued and outstanding stock of BTA and BTA
became a wholly owned subsidiary of the Company. At the closing the Company delivered to the sellers a total of $600,000 in cash, promissory
notes in the total principal amount of $150,000 bearing 1% interest per annum, and an aggregate of 201,439 shares of Company common stock
valued at $604,317 in accordance with the terms of the SPA. Additionally, the Company acquired $4,860 in cash at BTA.
As
a result of the foregoing the Company initially recorded goodwill of $1,349,457. The Company conducted a valuation study on the acquisition
of BTA. The final valuation report determined the amount goodwill to be $740,469 and the remaining $650,000 of the goodwill relates to
amortizable intangibles amortized over a fifteen-year period, or approximately $54,166 per year.
During
the twelve months ended December 31, 2022 the Company recorded $43,332 in amortization expense. As of December 31, 2022 the balance of
goodwill and intangibles was $740,469 and $574,169 compared to $740,469 and $617,501, respectively.
Effective
October 27, 2022, the “Company entered into an agreement with each of Bitmine Immersion Technologies, Inc. (“BIT”)
and Innovative Digital Investors, LLC (“IDI”) that served to terminate or modify certain prior agreements entered into by
the parties in February 2022.
Pursuant
to an agreement with BIT, BIT repurchased from the Company all of the Bitcoin miners purchased by the Company from BIT in February 2022,
and also purchased certain of the Bitcoin miners purchased by the Company from IDI in February 2022. As part of these transactions, the
parties agreed that any remaining amounts due under the promissory note delivered by the Company to BIT in February 2022 in the original
principal amount of $168,750 was cancelled and extinguished. BIT delivered cash consideration of $212,750 to the Company to pay the remainder
of the consideration owed to the Company to repurchase the miners it delivered to the Company in February 2022 and to purchase certain
miners IDI sold to the Company in February 2022.
In
addition, pursuant to an agreement with IDI, IDI repurchased from the Company certain Bitcoin miners purchased by the Company from IDI
in February 2022. The Company and IDI agreed that any remaining amounts due under the promissory note delivered by the Company to IDI
in February 2022 in the original principal amount of $348,000 was cancelled and extinguished. IDI also agreed to sell and deliver 20
new Bitcoin miners to the Company. As part of the agreements and accommodations by the Company, IDI and BIT the parties terminated the
hosting agreement between the Company, BIT and IDI entered into in February 2022.
As
a result of these transactions the Company no longer owns any of the Bitcoin miners it acquired in February 2022 and each of the promissory
notes delivered by the Company in February 2022 to BIT and IDI are satisfied and extinguished in full.
NOTE
5 – SUMMARY OF STOCK OPTIONS AND WARRANTS
On
July 21, 2017, the Company’s board of directors adopted The Crypto Company 2017 Equity Incentive Plan (the “Plan”),
which was approved by its stockholders on August 24, 2017. The Plan is administered by the board of directors (the “Administrator”).
Under the Plan, the Company may grant equity awards to eligible participants which may take the form of stock options (both incentive
stock options and non-qualified stock options) and restricted stock awards. Awards may be granted to officers, employees, non-employee
directors (as defined in the Plan) and other key persons (including consultants and prospective employees). The term of any stock option
award may not exceed 10 years and may be subject to vesting conditions, as determined by the Administrator. Options granted generally
vest over eighteen to thirty-six months. Incentive stock options may be granted only to employees of the Company or any subsidiary that
is a “subsidiary corporation” within the meaning of Section 424(f) of the Internal Revenue Code.
During
the year ended December 31, 2020, the Company issued 500,000 stock options to members of its board of directors, 1,250,000 stock options
to employees, and 170,000 stock options to non-employees. No stock options were issued in 2021.
5,000,000
shares of the Company’s common stock are reserved for issuance under the Plan. As of December 31, 2021, there are outstanding stock
option awards issued from the Plan covering a total of 2,281,349 shares of the Company’s common stock and there remain reserved
for future awards 2,718,651 shares of the Company’s common stock.
SCHEDULE
OF STOCK OPTIONS ACTIVITY
| | |
| |
Weighted |
| | |
| |
| |
Average |
| | |
| |
Weighted | |
Remaining |
| | |
| |
Average | |
Contractual |
| | |
Number | |
Exercise | |
Term |
| | |
of
Shares | |
Price | |
(years) |
| | |
| |
| |
|
| Options outstanding, at December
31, 2020 | |
| 2,281,349 | | |
$ | 2.26 | | |
| - | |
| Options granted | |
| - | | |
| | | |
| | |
| Options cancelled | |
| - | | |
| | | |
| | |
| Options exercised | |
| - | | |
| | | |
| | |
| Options outstanding, at December 31, 2021 | |
| 2,281,349 | | |
$ | 2.26 | | |
| 4.25 | |
| Options granted | |
| - | | |
| | | |
| | |
| Options cancelled | |
| - | | |
| | | |
| | |
| Options
exercised | |
| - | | |
| | | |
| | |
| Options
vested and outstanding, at December 31, 2022 | |
| 2,281,349 | | |
$ | 2.26 | | |
| 3.25 | |
The
Company recognized $-0- and $-0- of compensation expense related to stock options for the years ended December 31, 2022 and 2021, respectively.
As of December 31, 2022 these options had no intrinsic value since they were all out of the money as of December 31, 2022.
The
determination of the fair value of share-based compensation awards utilizing the Black-Scholes model is affected by the Company’s
stock price and a number of complex and subjective assumptions, including stock price, volatility, expected life of the equity award,
forfeitures rates if any, risk-free interest rates and expected dividends. Volatility is based on the historical volatility of comparable
companies measured over the most recent period, generally commensurate with the expected life of the Company’s stock options, adjusted
for future expectations given the Company’s limited historical share price data.
The
risk-free rate is based on implied yields in effect at the time of the grant on U.S. Treasury zero-coupon bonds with remaining terms
equal to the expected term of the stock options. The expected dividend is based on the Company’s history and expectation of dividend
pay-outs. Forfeitures are recognized when they occur.
The
range of assumptions used for the year ended December 31, 2022 was as follows:
Schedule
Of Stock Option Assumptions
SCHEDULE
OF STOCK OPTION ASSUMPTIONS USED
| | |
Year ended
December 31, 2022
Ranges |
| Volatility | |
| 102 | % |
| Expected dividends | |
| 0 | % |
| Expected term (in years) | |
| 5 – 10 years | |
| Risk-free rate | |
| 0.40
| % |
The
Company recognized $2,086,151 and $715,215 of compensation expense related to restricted stock awards for the years ended December 31,
2022 and 2021, respectively. The $2,086,151 dollar expense represented the issuance of 748,146 shares for services which were valued
at approximately $1.50 per share based on the Company’s stock trading price on the OTC market on the date of issuance.
As of December 31, 2022 the Company had 2,009,167 warrants outstanding
comprised of the following:
| |
● |
50,000 warrants exercisable at a strike price of $0.01 expiring at various
times between February and June 2030 |
| |
● |
362,500 warrants exercisable at a strike price of $0.50 expiring in February
2026 |
| |
● |
1,596,667 warrants exercisable at a strike price of $5.25 expiring at between
January and May 2025. |
NOTE
6 – RELATED PARTY TRANSACTIONS
There
were no related party transaction in 2022 or 2021.
NOTE
7 – NOTE PAYABLE
● On
June 10, 2020, the Company received a loan from the Small Business Administration of $12,100 (the “2020 SBA Loan”). The 2020
SBA Loan bears interest at 3.75% per annum and is payable over 30 years with all payments of principal and interest deferred for the
first 12 months.
● On
February 2, 2021, the Company received a loan from the Small Business Administration of $18,265 (the “2021 SBA Loan”). The
2021 SBA Loan bears interest at 1% per annum and is payable over 5 years with all payments of principal and interest deferred for the
first 10 months.
● Effective
February 23, 2022, the Company entered into two separate Purchase Agreement and Bill of Sales to purchase a total of 215 cryptocurrency
miners (each, a “Purchase Agreement”). The first Purchase Agreement was entered into with Bitmine Immersion Technologies,
Inc. (“BIT”) whereby the Company agreed to purchase a total of 95 miners for a total purchase price of $337,500 and the second
Purchase Agreement was entered into with Innovative Digital investors, LLC (“IDI”) whereby the Company agreed to purchase
a total of 120 miners for a total purchase price of $696,000. In each case the Company paid one half of the purchase price at closing
(effective February 25, 2022) and the other half of the purchase price is payable in accordance with a 10% unsecured promissory note
delivered to each of BIT and IDI. The promissory note delivered to BIT is in the principal amount of $168,750, is payable in two installment
payments, and by its original term had a maturity date of May 15, 2022. The promissory note delivered to IDI is in the principal amount
of $348,000, is payable in four installment payments, and by its original terms had a maturity date of October 15, 2022.
The
maturity dates of the bitmine promissory note delivered to each of BIT and IDI (originally May 15, 2022 and October 15, 2022) were, in
each case extended by two months by mutual agreement of the parties due to supply chain delays effecting the shipment and delivery of
the mining equipment to the Company. See Note 10 “Subsequent Events” for an update this agreement
● Effective
January 13, 2022, the Company borrowed funds pursuant to the terms of a Securities Purchase Agreement entered into with AJB Capital Investments,
LLC (“AJB”), and issued a Promissory Note in the principal amount of $750,000 (the “Jan. AJB Note”) to AJB in
a private transaction for a purchase price of $675,000 (giving effect to a 10% original issue discount). The maturity date of the Jan.
AJB Note was July 12, 2022. The Jan. AJB Note bears interest at 10% per year, and principal and accrued interest was to be due on the
maturity date. In connection with a subsequent loan extended to the Company by AJB on or about May 3, 2022 (as further described below)
the Company repaid all outstanding obligations that were due to AJB under the Jan. AJB Note.
● Effective
January 18, 2022, the Company borrowed funds pursuant to a Securities Purchase Agreement (the “Sixth Street SPA”) entered
into with Sixth Street Lending, LLC (“Sixth Street”) and issued a Promissory Note in the principal amount of $116,200 (the
“Sixth Street Note”) to Sixth Street in a private transaction to for a purchase price of $103,750 (giving effect to an original
issue discount). The Company agreed to various covenants in the Sixth Street SPA. The Sixth Street Note had a maturity date of January
13, 2023 and the Company agreed to pay interest on the unpaid principal balance of the Sixth Street Note at the rate of twelve percent
(12.0%) per annum from the date on which the Sixth Street Note was issued until the same becomes due and payable, whether at maturity
or upon acceleration or by prepayment or otherwise. Payments are due monthly, beginning in the end of February 2022. The Company had
the right to prepay the Sixth Street Note in accordance with the terms set forth in the Sixth Street Note.
In
connection with a subsequent loan extended to the Company by 1800 Diagonal Lending, LLC on or about September 30, 2022 (as further described
below) the Company repaid all outstanding obligations that were due to Sixth Street under the Sixth Street Note.
● On
February 24, 2022, the Company borrowed funds pursuant to the terms of a Securities Purchase Agreement (the “Feb. SPA”) entered
into with AJB, and issued a Promissory Note in the principal amount of $300,000 (the “Feb. Note”) to ABJ in a private transaction
for a purchase price of $275,000 (giving effect to an original issue discount). The maturity date of the Feb. Note is August 24, 2022,
but it may be extended for six months upon the consent of AJB and the Company. The Feb. Note bears interest at 10% per year, and principal
and accrued interest is due on the maturity date. The Company may prepay the Feb. Note at any time without penalty. The Company’s
failure to make required payments under the AJB Note or to comply with various covenants, among other matters, would constitute an event
of default. Upon an event of default under the Feb. SPA or Feb. Note, the Feb. Note will bear interest at 18%, AJB may immediately accelerate
the Feb. Note due date, AJB may convert the amount outstanding under the Feb. Note into shares of Company common stock at a discount
to the market price of the stock, and AJB will be entitled to its costs of collection, among other penalties and remedies.
● On
April 7, 2022, the Company borrowed funds pursuant to the terms of a Securities Purchase Agreement (the “April SPA”) entered
into with Efrat Investments LLC (“Efrat”) and issued a Promissory Note in the principal amount of $220,000 to Efrat (the
“Efrat Note”) in a private transaction for a purchase price of $198,000 (giving effect to an original issue discount). After
payment of the fees and costs, the net proceeds from the Efrat Note will be used by the Company for working capital and other general
corporate purposes.
The
maturity date of the Efrat Note is September 7, 2022, although the maturity date may be extended for six months upon the consent of Efrat
and the Company. The Efrat Note bears interest at 10% per year, and principal and accrued interest is due on the maturity date. The Company
may prepay the Efrat Note at any time without penalty. Any failure by the Company to make required payments under the Efrat Note or to
comply with various covenants, among other matters, would constitute an event of default. Upon an event of default under the April SPA
or the Efrat Note, the Efrat Note will bear interest at 18%, Efrat may immediately accelerate the Efrat Note due date, Efrat may convert
the amount outstanding under the Efrat Note into shares of Company common stock at a discount to the market price of the stock, and Efrat
will be entitled to its costs of collection, among other penalties and remedies.
● On
May 3, 2022, the Company borrowed funds pursuant to the terms of a Securities Purchase Agreement (the “May AJB SPA”) entered
into with AJB, and issued a Promissory Note in the principal amount of $1,000,000 (the “May AJB Note”) to AJB in a private
transaction for a purchase price of $900,000 (giving effect to a 10% original issue discount). In connection with the sale of the AJB
Note, the Company also paid certain fees and due diligence costs of AJB and brokerage fees to J.H. Darbie & Co., a registered broker-dealer.
At
the closing the Company repaid all obligations owed to AJB pursuant to a 10% promissory note in the principal amount of $750,000 issued
in favor of AJB in January 2022 as generally described above. After the repayment of that promissory note, and after payment of the fees
and costs, the $138,125 net proceeds from the issuance of the May AJB Note are expected to be utilized for working capital and other
general corporate purposes.
The
maturity date of the May ABJ Note is November 3, 2022, but it may be extended by the Company for six months with the interest rate to
increase during the extension period. The May AJB Note bears interest at 10% per year, and principal and accrued interest is due on the
maturity date. The Company may prepay the May AJB Note at any time without penalty. Under the terms of the May AJB Note, the Company
may not sell a significant portion of its assets without the approval of AJB, may not issue additional debt that is not subordinate to
AJB, must comply with the Company’s reporting requirements under the Securities Exchange Act of 1934, and must maintain the listing
of the Company’s common stock on the OTC Market or other exchange, among other restrictions and requirements. The Company’s
failure to make required payments under the May AJB Note or to comply with any of these covenants, among other matters, would constitute
an event of default. Upon an event of default under the May AJB SPA or May AJB Note, the May AJB Note will bear interest at 18%, AJB
may immediately accelerate the May AJB Note due date, AJB may convert the amount outstanding under the May AJB Note into shares of Company
common stock at a discount to the market price of the stock, and AJB will be entitled to its costs of collection, among other penalties
and remedies.
● On
July 8, 2022, The Company borrowed funds pursuant to a Securities Purchase Agreement (the “SPA”) entered into with 1800 Diagonal
Lending, LLC (“Diagonal”), and Diagonal purchased a convertible promissory note (the “Note”) from the Company
in the aggregate principal amount of $79,250. Pursuant to the SPA, the Company agreed to reimburse Diagonal for certain fees in connection
with entry into the SPA and the issuance of the Note. The SPA contains customary representations and warranties by the Company and Diagonal
typically contained in such documents.
The
maturity date of the Note is July 5, 2023 (the “Maturity Date”). The Note bears interest at a rate of 10% per annum, and
a default interest of 22% per annum. Diagonal has the option to convert all of the outstanding amounts due under the Note into shares
of the Company’s common stock beginning on the date which is 180 days following the date of the Note and ending on the later of:
(i) the Maturity Date and (ii) the date of payment of the default amount, as such term is defined under the Note. The conversion price
under the Note for each share of common stock is equal to 65% of the lowest trading price of the Company’s common stock for the
10 trading days prior to the conversion date. The conversion of the Note is subject to a beneficial ownership limitation of 4.99% of
the number of shares of common stock outstanding immediately after giving effect to such conversion. Failure of the Company to convert
the Note and deliver the common stock when due will result in the Company paying Diagonal a monetary penalty for each day beyond such
deadline.
Prior
to the 180th day of the issuance date Note, the Company may prepay the Note in whole or in part, however, if it does so between the issuance
date and the date which is 60 days from the issuance date, the repayment percentage is 115%. If the Company prepays the Note between
the 61st day after issuance and the 120th day after issuance, the prepayment percentage is 120%. If the Company prepays the Note between
the 121st day after issuance and 180 days after issuance, the prepayment percentage is 125%. After such time, the Company can submit
an optional prepayment notice to Diagonal, however the prepayment shall be subject to the agreement between the Company and Diagonal
on the applicable prepayment percentage.
● On
July 27, 2022, The Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Coventry Enterprises,
LLC (“Coventry”), pursuant to which Coventry purchased a 10% unsecured promissory Note (the “Note”) from the
Company in the principal amount of $200,000, of which $40,000 was retained by Coventry through an “Original Issue Discount”
for due diligence and origination related to the transaction. Pursuant to the terms of the Purchase Agreement, the Company also agreed
to issue 25,000 shares of restricted common stock to Coventry as additional consideration for the purchase of the Note. In addition,
in the Purchase Agreement the Company granted Coventry a right of first refusal with respect to certain types of equity financing transactions
the Company may pursue or effect.
The
Note bears interest at a rate of 10% per annum, with guaranteed interest (the “Guaranteed Interest”) of $20,000 being deemed
earned as of date of issuance of the Note. The Note matures on July 15, 2023. The principal amount and the Guaranteed Interest is due
and payable in seven equal monthly payments of $31,428.57, beginning on December 15, 2022 and continuing on the third day of each month
thereafter until paid in full.
Any
or all of the principal amount and the Guaranteed Interest may be prepaid at any time and from time to time, in each case without penalty
or premium.
If
an Event of Default (as defined in the Note) occurs, consistent with the terms of the Note, the Note will become convertible, in whole
or in part, into shares of the Company’s common stock at Coventry’s option, subject to a 4.99% beneficial ownership limitation
(which may be increased up to 9.99% by Coventry). The per share conversion price is 90% of the lowest volume-weighted average trading
price during the 20-trading day period before conversion.
In
addition to certain other remedies, if an Event of Default occurs, consistent with the terms of the Note, the Note will bear interest
on the aggregate unpaid principal amount and Guaranteed Interest at the rate of the lesser of 18% per annum or the maximum rate permitted
by law.
●
On September 30, 2202, the Company borrowed funds pursuant to a Securities Purchase Agreement (the “SPA”) entered into
with 1800 Diagonal Lending, LLC (“Diagonal”), and Diagonal purchased a convertible promissory note (the
“Note”) from the Company in the aggregate principal amount of $108,936 (giving effect to an original issue discount).
The SPA contains customary representations and warranties by the Company and Diagonal typically contained in such
documents.
A
portion of the proceeds from the sale of the Note were used by the parties to satisfy all remaining amounts due under a convertible promissory
note dated January 11, 2022, issued by the Company to Sixth Street Lending, LLC. After payment of fees, and after satisfaction of the
January 11, 2022 convertible promissory note in favor of Sixth Street Lending, the net proceeds to the Company were $80,000, which will
be used for working capital and other general corporate purposes.
The
Note has a maturity date of September 26, 2023, and the Company has agreed to pay interest on the unpaid principal balance of the Note
at the rate of twelve percent (12.0%) per annum from the date on which the Note was issued until the same becomes due and payable, whether
at maturity or upon acceleration or by prepayment or otherwise. Payments are due monthly, beginning on November 15, 2022. The Company
has the right to prepay the Note in accordance with the terms set forth in the Note.
Following
an event of default, and subject to certain limitations, the outstanding amount of the Note may be converted into shares of Company common
stock. Amounts due under the Note would be converted into shares of the Company’s common stock at a conversion price equal to 75%
of the lowest trading price with a 10-day lookback immediately preceding the date of conversion. In no event may the lender effect a
conversion if such conversion, along with all other shares of Company common stock beneficially owned by the lender and its affiliates
would exceed 4.99% of the outstanding shares of Company common stock. In addition, upon the occurrence and during the continuation of
an event of default the Note will become immediately due and payable and the Company shall pay to the lender, in full satisfaction of
its obligations thereunder, additional amounts as set forth in the Note.
● On
December 15, 2022, Company borrowed funds pursuant to a Securities Purchase Agreement (the “SPA”) entered into with 1800
Diagonal Lending, LLC (“Diagonal”), and Diagonal purchased a convertible promissory note (the “Note”) from
the Company in the aggregate principal amount of $88,760 (giving effect to an original issue discount). Net proceeds from the sale
of the Note will be used primarily for general working capital purposes. The SPA contains customary representations and warranties
by the Company and Diagonal typically contained in such documents.
The
Note has a maturity date of December 9, 2023, and the Company has agreed to pay interest on the unpaid principal balance of the Note
at the rate of twelve percent (12.0%) per annum, with interest being payable through a one-time interest charge of $10,651 being applied
on the principal amount of the Note on the issuance date. Payments are due monthly, beginning on January 30, 2023. The Company has the
right to prepay the Note in accordance with the terms set forth in the Note.
Following
an event of default, and subject to certain limitations, the outstanding amount of the Note may be converted into shares of Company common
stock. Amounts due under the Note would be converted into shares of the Company’s common stock at a conversion price equal to 75%
of the lowest trading price with a 10-day lookback immediately preceding the date of conversion. In no event may the lender effect a
conversion if such conversion, along with all other shares of Company common stock beneficially owned by the lender and its affiliates
would exceed 4.99% of the outstanding shares of Company common stock. In addition, upon the occurrence and during the continuation of
an event of default the Note will become immediately due and payable and the Company shall pay to the lender, in full satisfaction of
its obligations thereunder, additional amounts as set forth in the Note.
NOTE
8 - COMMITMENTS AND CONTINGENCIES
Legal
Contingencies
The
Company may from time to time become subject to legal proceedings, claims, and litigation arising in the ordinary course of business.
Indemnities
and guarantees - During the normal course of business, the Company has made certain indemnities and guarantees under which it may be
required to make payments in relation to certain transactions. These indemnities include certain agreements with the Company’s
officers and directors, under which the Company may be required to indemnify such persons for liabilities arising out of their respective
relationships. In connection with its facility lease, the Company has indemnified the lessor for certain claims arising from the use
of the facility. The duration of these indemnities and guarantees varies and, in certain cases, is indefinite. The majority of these
indemnities and guarantees do not provide for any limitation of the maximum potential future payments the Company could be obligated
to make. Historically, the Company has not been obligated to make significant payments for these obligations, and no liabilities have
been recorded for these indemnities and guarantees in the accompanying balance sheet.
NOTE
9 - SUBSEQUENT EVENTS
●
On January 10, 2023, The Crypto Company (the “Company”) borrowed funds pursuant to a Securities Purchase Agreement (the “SPA”)
entered into with 1800 Diagonal Lending, LLC (“Diagonal”), and Diagonal purchased a convertible promissory note (the “Note”)
from the Company in the aggregate principal amount of $79,250. Pursuant to the SPA, the Company agreed to reimburse Diagonal for certain
fees in connection with entry into the SPA and the issuance of the Note. The SPA contains customary representations and warranties by
the Company and Diagonal typically contained in such documents.
The
maturity date of the Note is January 3, 2024 (the “Maturity Date”). The Note bears interest at a rate of 10% per annum, and
a default interest of 22% per annum. Diagonal has the option to convert all of the outstanding amounts due under the Note into shares
of the Company’s common stock beginning on the date which is 180 days following the date of the Note and ending on the later of:
(i) the Maturity Date and (ii) the date of payment of the default amount, as such term is defined under the Note. The conversion price
under the Note for each share of common stock is equal to 65% of the lowest trading price of the Company’s common stock for the
10 trading days prior to the conversion date. The conversion of the Note is subject to a beneficial ownership limitation of 4.99% of
the number of shares of common stock outstanding immediately after giving effect to such conversion. Failure of the Company to convert
the Note and deliver the common stock when due will result in the Company paying Diagonal a monetary penalty for each day beyond such
deadline.
The
Company may prepay the Note in whole, however, if it does so between the issuance date and the date which is 60 days from the issuance
date, the repayment percentage is 115%. If the Company prepays the Note on or between the 61st day after issuance and the 90th day after
issuance, the prepayment percentage is 120%. If the Company prepays the Note on or between the 91st day after issuance and 180 days after
issuance, the prepayment percentage is 125%. After such time, the Company can submit an optional prepayment notice to Diagonal, however
the prepayment shall be subject to the agreement between the Company and Diagonal on the applicable prepayment percentage.
Pursuant
to the Note, as long as the Company has any obligations under the Note, the Company cannot without Diagonal’s written consent,
sell, lease or otherwise dispose of any significant portion of its assets which would render the Company a “shell company”
as such term is defined in SEC Rule 144. Additionally, under the Note, any consent to the disposition of any assets may be conditioned
on a specified use of the proceeds of disposition.
The
Note contains standard and customary events of default such as failing to timely make payments under the Note when due, the failure of
the Company to timely comply with the Securities Exchange Act of 1934, as amended, reporting requirements and the failure to maintain
a listing on the OTC Markets. The occurrence of any of the events of default, entitle Diagonal, among other things, to accelerate the
due date of the unpaid principal amount of, and all accrued and unpaid interest on, the Note. Upon an “Event of Default”,
interest shall accrue at a default interest rate of 22%, and the Company may be obligated pay to the Diagonal an amount equal to 150%
of all amounts due and owing under the Note.
●
On February 2, 2023, The Crypto Company (the “Company”) borrowed funds pursuant to a Securities Purchase Agreement (the “SPA”)
entered into with Fast Capital, LLC (“Fast Capital”), and Fast Capital purchased a 10% convertible promissory note (the “Note”)
from the Company in the aggregate principal amount of $115,000. The Note has an original issue discount of $10,000, resulting in gross
proceeds to the Company of $105,000. Pursuant to the SPA, the Company agreed to reimburse Fast Capital for certain fees in connection
with entry into the SPA and the issuance of the Note. The SPA contains certain covenants and customary representations and warranties
by the Company and Fast Capital typically contained in such documents.
The
maturity date of the Note is January 30, 2024. The Note bears interest at a rate of 10% per annum, and a default interest of 24% per
annum. Interest is payable in shares of Company common stock.
For
the first six months, the Company has the right to prepay principal and accrued interest due under the Note at a premium of between 15%
and 40% depending on when it is repaid. The Note may not be prepaid after the 180th day of its issuance.
Fast
Capital has the right at any time after the six-month anniversary of the date of issuance of the Note to convert all or any part of the
outstanding and unpaid principal amount of the Note into Company common stock, subject to a beneficial ownership limitation. The conversion
price of the Note equals 60% of the lowest closing price of the Company’s common stock for the 20 prior trading days, including
the day upon which a notice of conversion is delivered.
The
Note contains various covenants standard and customary events of default such as failing to timely make payments under the Note when
due, the failure to maintain a listing on the OTC Markets or the Company defaulting on any other note or similar debt obligation into
which the Company has entered and failed to cure within the applicable grace period. The occurrence of any of the events of default,
entitle First Capital, among other things, to accelerate the due date of the unpaid principal amount of, and all accrued and unpaid interest
on, the Note. Upon an “Event of Default”, interest shall accrue at a default interest rate of 24%, and certain defined events
of default may give rise to other remedies (such as, if the Company is delinquent in its periodic report filings with the Securities
and Exchange Commission then the conversion price of the Note may be decreased).
●
On March 7, 2023, The Crypto Company (the “Company”) borrowed funds pursuant to a Securities Purchase Agreement (the “SPA”)
entered into with 1800 Diagonal Lending, LLC (“Diagonal”), and Diagonal purchased a convertible promissory note (the “Note”)
from the Company in the aggregate principal amount of $54,250. Pursuant to the SPA, the Company agreed to reimburse Diagonal for certain
fees in connection with entry into the SPA and the issuance of the Note. The SPA contains customary representations and warranties by
the Company and Diagonal typically contained in such documents.
The
maturity date of the Note is March 2, 2024 (the “Maturity Date”). The Note bears interest at a rate of 10% per annum, and
a default interest of 22% per annum. Diagonal has the option to convert all of the outstanding amounts due under the Note into shares
of the Company’s common stock beginning on the date which is 180 days following the date of the Note and ending on the later of:
(i) the Maturity Date and (ii) the date of payment of the default amount, as such term is defined under the Note. The conversion price
under the Note for each share of common stock is equal to 65% of the lowest trading price of the Company’s common stock for the
10 trading days prior to the conversion date. The conversion of the Note is subject to a beneficial ownership limitation of 4.99% of
the number of shares of common stock outstanding immediately after giving effect to such conversion. Failure of the Company to convert
the Note and deliver the common stock when due will result in the Company paying Diagonal a monetary penalty for each day beyond such
deadline.
The
Company may prepay the Note in whole, however, if it does so between the issuance date and the date which is 60 days from the issuance
date, the repayment percentage is 115%. If the Company prepays the Note on or between the 61st day after issuance and the 90th day after
issuance, the prepayment percentage is 120%. If the Company prepays the Note on or between the 91st day after issuance and 180 days after
issuance, the prepayment percentage is 125%. After such time, the Company can submit an optional prepayment notice to Diagonal, however
the prepayment shall be subject to the agreement between the Company and Diagonal on the applicable prepayment percentage.
The
Note contains standard and customary events of default such as failing to timely make payments under the Note when due, the failure of
the Company to timely comply with the Securities Exchange Act of 1934, as amended, reporting requirements and the failure to maintain
a listing on the OTC Markets. The occurrence of any of the events of default, entitle Diagonal, among other things, to accelerate the
due date of the unpaid principal amount of, and all accrued and unpaid interest on, the Note. Upon an “Event of Default”,
interest shall accrue at a default interest rate of 22%, and the Company may be obligated pay to the Diagonal an amount equal to 150%
of all amounts due and owing under the Note.