NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The following is a summary of the organization and business of Rokk3r, Inc and subsidiaries (“we”, “our”, “us”, or the "Company")
We were formerly known as Eight Dragons Company, a Nevada corporation. Our 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.”
We 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.
In connection with the new business initiatives, the Company has formed or acquired the following subsidiaries:
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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.
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Rokk3r Ai Inc. (“Rokk3r Ai”), a company incorporated in Delaware on November 20, 2018 and a majority-owned subsidiary of Rokk3r Ops. As of September 30, 2019, Rokk3r Ai is not yet
operational (see Note 5).
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Bullfrog Ventures, LLC (“Bullfrog”), a company incorporated in Florida on May 20, 2016, was acquired by the Company on May 21, 2019 and is a wholly owned subsidiary of the Company (see
Note 6).
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ROKKCB10, Inc. (“ROKKCB10”), a company incorporated in Delaware on June 11, 2019, and a wholly owned subsidiary of Rokk3r Ops. As of September 30, 2019, ROKKCB10 is not yet operational.
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Termo VB, Inc. (“Termo VB”), a company incorporated in Delaware on June 20, 2019, and a wholly owned subsidiary of Rokk3r Ops. As of September 30, 2019, Termo VB is not yet operational.
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Tradera, Inc. (“Tradera”), a company incorporated in Delaware on August 14, 2019, and a wholly owned subsidiary of Rokk3r Ops. As of September 30, 2019, ROKKCB10 is not yet operational.
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ROKKCB11, Inc. (“ROKKCB11”), a company incorporated in Delaware on September 13, 2019, and a wholly owned subsidiary of Rokk3r Ops. As of September 30, 2019, ROKKCB10 is not yet
operational.
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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 subsidiaries,
majority-owned subsidiary, which are inactive as of September 30, 2019, except Rokk3r Ops and Bullfrog, 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 September 30, 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 thereto 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 nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the full year.
The Company consolidates its subsidiaries that are wholly-owned, majority owned, and entities that are variable interest entities 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, Bullfrog, ROKKCB10, Termo VB, Tradera, Ai VB, B3riblock and Cargologik (collectively the “Company”). All significant intercompany accounts and
transactions have been eliminated in consolidation.
Variable Interest Entities
In accordance with ASC 810-10-25-22, 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.
ROKK3R INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019
(Unaudited)
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 VIEs 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”), B3riblock, Inc. (“B3riblock”) and Cargologik, Inc. (“Cargologik”) are entities which were determined to be VIEs, 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 VIEs because it is the sole service provider (some through service agreements) which gives the Rokk3r Ops the rights
to receive (and has received) the proceeds from the VIE operation. The consolidated VIEs have non-controlling interests (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
Majority-owned subsidiary:
On February 11, 2019, Rokk3r Ai sold 12.5% common stock of Rokk3r Ai to an investor. As a result of these transactions, Rokk3r Ops’ ownership and voting interest decreased from 100% to 87.5% as of
March 31, 2019.
On April 12, 2019, Rokk3r Ai sold additional equity which resulted in a further decrease of Rokk3r Ops’ equity ownership in Rokk3r Ai down to 50% and its voting interest down to 75%, with Rokk3r
Ops retaining control over Rokk3r Ai. The allocation of income (loss) to non-controlling interest was adjusted to reflect the change in the non-controlling interest in the subsidiary from 12.5% to 50% as of September 30, 2019 (see Note 5).
Variable interest entities:
On March 26, 2019, Rokk3r Ops entered into a Subscription Agreement (the “Subscription Agreement”) with Ai Venture Builder, Inc. (“Ai VB”), to purchase equity in Ai VB which gave Rokk3r Ops a 50%
equity ownership (see Note 5).
On October 15, 2018, B3riblock was incorporated, as a wholly-owned subsidiary of Rokk3r Ops and its investment in B3riblock was consolidated during the quarter ended March 31, 2019. On June 5,
2019, B3riblock sold 60% equity ownership to a third-party investor which reduced Rokk3r Ops equity ownership form 100% down to 40% (see Note 5).
On May 3, 2019, Cargologik was incorporated, as a wholly-owned subsidiary of Rokk3r Ops. On May 28, 2019, Cargologik sold 50% equity ownership to a third-party investor which reduced Rokk3r Ops
equity ownership form 100% down to 50% (see Note 5).
The Company presented non-controlling interest from the majority-owned subsidiary and VIEs 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 respective non-controlling interest ownership as of September 30, 2019.
Use of Estimates
The preparation of financial statements in conformity with GAAP 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 nine months
ended September 30, 2019 and year ended 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, the fair value of equity method investments and acquisitions, the fair value of intangible assets acquired, non-cash equity transactions and stock-based compensation.
Cash and Cash Equivalents
For the purposes of the condensed 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 September 30, 2019 and December 31, 2018, respectively. The Company maintained its cash in various financial institutions during the nine months ended September 30, 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 or direct write-offs 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 and does not believe that an allowance for bad debt is needed.
During the three and nine months ended September 30, 2019, the Company wrote-off $67,145 and $80,525, respectively, of account receivable deemed uncollectible.
During the nine months ended September 30, 2019, the Company recovered $107,779 of an account receivable written off in 2018 reducing the allowance for bad debt balance to $0. As of September 30,
2019, and December 31, 2018, the recorded allowance for bad debt were $0 and $148,982, respectively.
Investments in Digital Currencies
The Company believes that digital currencies meet the definition of indefinite-lived intangible assets and accounts for them at historical cost less impairment, applying the guidance in Accounting
Standards Codification (“ASC”) 350, Intangibles — Goodwill and Other. There are uncertainties related to the application of ASC 350 to digital currencies, as it does not appropriately reflect the economics
associated with digital currencies. However, in the absence of standards that specifically address the accounting for digital currencies, the Company believes that it must apply existing accounting standards in accounting for its investment in
digital currencies. The Financial Accounting Standards Board (“FASB”) does not have a standard-setting project on digital currencies or other similar digital assets on its agenda, but an industry trade group has requested that the FASB address the
accounting for cryptocurrencies, a category of digital asset under which the Company believes that digital currencies fall. Accordingly, the FASB staff has researched blockchain technology and cryptocurrency market activities and the accounting
challenges they present. The Company monitors any standard-setting, regulatory or technological developments that may affect the Company’s accounting for digital currencies or its controls and processes related to digital currencies.
The Company’s digital currencies are accounted for as indefinite-lived intangible assets therefore are not subject to amortization. Instead, its tested for impairment annually and more frequently,
if events or circumstances change that indicate that it’s more likely than not that the asset is impaired (i.e., if an impairment indicator exists). As a result, the Company only recognize decreases in the value of its digital currencies, and any
increase in value will be recognized only upon disposition. The Company’s digital currencies are accounted for as an intangible asset, however it’s reflected as a current asset under “Digital currencies” in
the accompanying condensed consolidated balance sheets because it is traded in a market and can be sold at any time. At September 30, 2019, the Company tested the digital currencies for impairment and concluded that it was impaired due to the decline
of its level 2 fair value. During the three and nine months ended September 30, 2019, an impairment expense of $48,878 and $89,158, respectively, was recorded in connection with the impairment of the digital currencies.
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 September 30, 2019 and December 31, 2018.
The carrying amounts reported in the balance sheets for accounts receivable, prepaid expenses, accounts payable, accrued expenses, notes payable and amounts due from parent company approximate
their fair market value based on the short-term maturity of these instruments.
Property and Equipment
Property and equipment 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.
Cost and Equity Method 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:
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Does not provide the investor with a controlling investment
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Does not provide the investor with the ability to exercise significant influence
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Does not have readily determinable fair values
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Is not subject to other industry-specific guidance
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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. As of September 30, 2019, the cost method investment consists of a non-controlling 18.79%
membership interest in our majority owner Rokk3r Labs (see Note 4). This has been presented as has a long-term asset on the accompanying condensed consolidated balance sheets.
Equity Method
The Company accounts for investments in which the Company owns more than 20% or has the ability to exercise significant influence 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 with 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 and nine months ended September 30, 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 an impairment loss 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. During the nine months ended September 30, 2018, there were no impairment losses incurred. During the three and nine months ended September 30, 2019, the Company
recorded an aggregate impairment loss of $48,878 and $118,058, respectively, of which $28,900 was related to the impairment of intangible assets in a subsidiary (see Note 5) and $89,158 was related to the impairment of digital currencies as discussed
above under “Investments in Digital Currencies” during the nine months ended September 30, 2019. The impairment for the three months ended September 30, 2019 was
related to the impairment of digital currencies.
Revenue Recognition
In May 2014, FASB issued an update Accounting Standards Update (“ASU”)2014-09 ("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.
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 per Common Share
Basic loss per share is calculated by dividing the net loss attributable to common 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 per
share is computed by dividing the loss available to common 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. Potentially dilutive common shares were excluded from the computation of diluted shares outstanding as they would have an anti-dilutive impact on the Company’s net losses and consisted of the following as of September 30, 2019 and
2018:
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September 30,
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2019
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2018
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Series B Preferred Stock
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4,085,938
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2,343,750
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4,085,938
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2,343,750
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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.
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 right-of-use 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 September 30, 2019, the Company
did not have any operating or capital leases.
Reclassifications
The Company segregated the compensation, legal and professional expense for the nine months ended September 30, 2019 into 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 the three and nine months ended September 30, 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
targeted improvements to GAAP for collaborative arrangements as follows:
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Clarifying 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.
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Adds 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.
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Requires 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.
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 nine months ended September 30, 2019, the Company had a net loss of $3,451,371 and net cash used in operations was $2,509,770, respectively. As of September 30, 2019, the Company had an accumulated deficit of
$78,304,430.
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
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. Rokk3r Labs is a venture builder
and operator of a ‘co-building’ platform for entrepreneurs, corporations and investors to create exponential startups.
In 2017, the Company became a majority-owned subsidiary of Rokk3r Labs and the Company kept its investment in Rokk3r Labs at cost of $1,000,000 which represents the cash purchase price. At
September 30, 2019 and December 31, 2018, the Company’s cost method investment in Rokk3r Labs was $1,000,000 (see Note 2) which is classified as long-term asset on the accompanying condensed consolidated balance sheets.
Rokk3r Flamingo, Inc.
On December 21, 2018, Rokk3r Flamingo, Inc. (“Rokk3r Flamingo”), then a wholly owned subsidiary of 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 September 30, 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.
During the nine months ended September 30, 2019, Rokk3r Ops’ share of Rokk3r Flamingo’s net loss was $37,399. In accordance to ASC 323-10-35-20, Rokk3r Ops only recognized its share of the net loss
equivalent to the basis in its investment in Rokk3r Flamingo, which was $350, and the Company discontinued applying the equity method since the investment is reduced to zero and Rokk3r Ops shall not provide for additional losses since Rokk3r Ops has
not guaranteed obligations to Rokk3r Flamingo and has not otherwise committed to further financial support for Rokk3r Flamingo. The Company will resume such application after its share of the Rokk3r Flamingo net income equals its share of the net
loss in Rokk3r Flamingo not recognized during the period the equity method was suspended (see Note 11).
NOTE 5 – NON-CONTROLLING INTEREST
Rokk3r Ai, Inc.
On February 11, 2019, Rokk3r Ai entered into a Stock Purchase Agreement (“SPA”) with a non-affiliated party, a Delaware limited liability company (the “Purchaser”), pursuant to which Rokk3r Ai sold
(i) a 12.5% ownership interest or 1,000,000 shares of common stock (the “Rokk3r Ai Stock”) of Rokk3r Ai at par value of $0.0001 per share, for a total amount of $100, and (ii) 45,000 shares of common stock (the “Rokk Stock”) of the Company at fair
value of $0.64 per share, for a total amount of $28,800. In exchange for the Rokk3r Ai Stock and Rokk Stock, Rokk3r Ai 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 nine months ended September 30, 2019.
On April 12, 2019, Rokk3r Ai entered into an employment agreement with an Executive, effective as of April 12, 2019, to serve as Rokk3r Ai’s Chief Executive Officer. Pursuant to this employment
agreement, Rokk3r Ai issued 1,813,332 shares of Rokk3r Ai common stock and 453,332 shares of Rokk3r Ai Series C Preferred Stock (“Series C”), representing 17% of the authorized Series C, to the Executive, subject to vesting, acceleration and
forfeiture, pursuant to the terms and conditions of the Restricted Stock Award Agreement. Compensated expense for vested accruals was not significant during the three and nine monthe ended September 30, 2019.
On April 12, 2019, Rokk3r Ai entered into a Stock Purchase Agreement (“SPA”) with a non-affiliated party, Rokk3r Ops and the Executive (the “Purchasers”) for sale of additional equity. Pursuant to
the SPA, Rokk3r Ai:
|
•
|
sold shares to the Executive consisting of (i) 853,334 shares of Rokk3r Ai common stock at a purchase price of $0.0001 per share, for a total purchase price of $85.33; (ii) one share of
Rokk3r Ai Series B Preferred Stock (“Series B”) at a purchase price of $1.00, which represents 100% of the authorized Series B and has no voting rights; and (iii) 213,335 shares of Rokk3r Ai Series C Preferred Stock (“Series C”) at a
purchase price of $0.0001 per share, for a total purchase price of $21.33, which represents 8% of the authorized Series C, convertible into shares of Rokk3r Ai common stock in the ratio of one-to-one, has one voting right per share and
rights to elect one director to serve on the three member Board of Directors of Rokk3r Ai (collectively “Rokk3r Ai Shares”), for a total purchase price of $107.67.
|
|
•
|
sold shares to Rokk3r Ops consisting of (i) one share of Rokk3r Ai Series A Preferred Stock (“Series A”) at a purchase price of $1.00, which represents 100% of the authorized Series A and
has one voting right per share and one voting right per total outstanding shares of all classes (common and preferred shares) and rights to elect two directors to serve on the three member Board of Directors of Rokk3r Ai; and (ii)
1,7500,000 shares of Rokk3r Ai Series C Preferred Stock (“Series C”) at a purchase price of $0.0001 per share, total purchase price of $175, which represents 66% of the authorized Series C, convertible into shares of Rokk3r Ai common stock
in the ratio of one-to-one, has one voting right per share, (collectively “Rokk3r Ai Shares”) for a total purchase price of $176.
|
|
•
|
sold to the non-affiliated party, 250,000 shares of Rokk3r Ai Series C Preferred Stock (“Series C”) at a purchase price of $0.0001 per share, total purchase price of $25, which represent
9% of the authorized Series C, convertible into shares of Rokk3r Ai common stock in the ratio of one-to-one, has one voting right per share.
|
On May 2, 2019, Rokk3r Ops and a related party entered into a joinder agreement (“Agreement”) for sale of Rokk3r Ai equity. Pursuant to the Agreement, Rokk3r Ops sold to a related party; (i)
1,655,000 shares of Rokk3r Ai common stock at a sale price of $0.0001 per share, for a total sale price of $165.50; and (ii) 413,750 shares of Rokk3r Ai Series C Preferred Stock (“Series C”) at a purchase price of $0.0001 per share, for a total
purchase price of $41.38, convertible into shares of Rokk3r Ai common stock in the ratio of one-to-one, has one voting right per share, (collectively “Rokk3r Ai Shares”) for a total purchase price of $206.88.
As a result of the above transactions, Rokk3r Ops’ ownership in Rokk3r Ai decreased from 100% to 50% and voting interest in Rokk3r Ai decreased from 100% to 75%, with Rokk3r Ops retaining control
over Rokk3r Ai. The Company accounted the 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 Company presented the non-controlling interest as a separate component of equity on its 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 its 50% ownership and the allocation of income (loss) was
adjusted to reflect the change in the non-controlling interest in the subsidiary from 12.5% to 50% as of September 30, 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 Venture Builder, Inc. (“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 $750,001. 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. This sale of non-controlling interest resulted in an increase in additional paid in capital to Rokk3r Ops of $375,000. As of September
30, 2019, the Investor has only appointed one member of the Ai VB Board.
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 investment 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 and nine months ended September 30, 2019, Rokk3r Ops provided services to Ai VB in the amount of $450,000 and $700,000, respectively, which were eliminated in consolidation in
accordance with ASC 810. The effects of consolidating Ai Venture Builder, Inc. as of September 30, 2019 resulted in an increase in current assets of $50,151.
B3riblock, Inc.
On October 15, 2018, B3riblock, Inc. (“B3riblock”) was incorporated in the State of Delaware and issued 10,000 shares of its common stock, at per share par value of $0.001 to Rokk3r Ops making it a
wholly owned subsidiary of Rokk3r Ops.
On June 5, 2019, B3riblock entered into a Stock Purchase Agreement (“SPA”) with Rokk3r Ops and a non-affiliated investor (“Investor”), a Columbian corporation, in order to raise capital and
commence operations. Pursuant to the SPA, B3riblock sold shares to Rokk3r Ops consisting of; (i) 1,990,000 shares of B3riblock common stock at a purchase price of $0.0001 per share, total purchase amount of $199; (ii) one share of B3riblock Series A
Preferred Stock (“Series A”) at a purchase price of $1.00, which represent 100% of the authorized Series A and has no voting rights; and (iii) 500,000 shares of B3riblock Series C Preferred Stock (“Series C”) at a purchase price of $0.0001 per share,
total purchase price of $50, which represents 40% of the authorized Series C, convertible into shares of common stock in the ratio of one-to-one, has one voting right per share and rights to elect one director to serve on the three member Board of
Directors of B3riblock, (collectively “B3riblock Shares”), for a total purchase price of $250. The total B3riblock Shares purchased by Rokk3r Ops together with the 10,000 shares of B3riblock common stock already owned gave Rokk3r Ops 40% equity
ownership in B3riblock.
In addition, pursuant to the SPA, B3riblock sold shares to an Investor consisting of; (i) 3,000,000 shares of B3riblock common stock at a purchase price of $0.0001 per share, total purchase amount
of $300; (ii) one share of B3riblock Series B Preferred Stock (“Series B”) at a purchase price of $1.00, which represent 100% of the authorized Series B and has no voting rights; and (iii) 750,000 shares of B3riblock Series C Preferred Stock (“Series
C”) at a purchase price of $0.0001 per share, total purchase price of $75, which represents 60% of the authorized Series C, convertible into shares of common stock in the ratio of one-to-one, has one voting right per share and rights to elect two
director to serve on the three member Board of Directors of B3riblock (“ B3riblock Board”), (collectively “B3riblock Shares”), for a total purchase price of $376. The total B3riblock Shares purchased gave the
Investor 60% equity ownership in B3riblock.
In accordance with ASC 810-10-25-22 – Variable Interest Entity, B3riblock 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 investment in B3riblock 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 B3riblock because Rokk3r Ops is the sole service provider (through service agreements) which gives Rokk3r Ops the right to receive (and has received) the proceeds from B3riblock’s operation. The Company
reassesses its initial evaluation of B3riblock as a VIE upon the occurrence of certain reconsideration events.
During the three and nine months ended September 30, 2019, Rokk3r Ops provided services to B3riblock in the amount of $2,764 and $22,160, respectively, which were eliminated in consolidation in
accordance with ASC 810.
Cargologik, Inc.
On May 3, 2019, Cargologik, Inc (“Cargologik”) was incorporated in Delaware as a wholly owned subsidiary of Rokk3r Ops. On the date of incorporation, the Board of Directors of Cargologik
(“Cargologik Board”) approved the sale of 500,000 shares of Cargologik common stock at par value of $0.0001 per share with total sale price of $50 to Rokk3r Ops.
On May 28, 2019, Cargologik entered into a Stock Purchase Agreement (“SPA”) with a non-affiliated party, a British Virgin Islands corporation. Pursuant to the SPA, the non-affiliated party,
purchased 500,000 shares of Cargologik common stock at a purchase price of $0.50 per share, for a total purchase price of $250,000 (“Purchase Price”) of which 50% or $125,000 of the Purchase Price was paid in cash and a Promissory Note was issued by
the non-affiliated party, for the remaining 50% balance of the Purchase Price. The Promissory Note matured on July 28, 2019 and was paid in full before the maturity date. This sale of non-controlling interest resulted in an increase in additional
paid in capital to Rokk3r Ops of $125,000.
In accordance with ASC 810-10-25-22 – Variable Interest Entity, Cargologik was determined to be a VIE under Rokk3r Ops, because the initial equity
investment in Cargologik 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 Cargologik because Rokk3r Ops is the
sole service provider (through service agreements) which gave the Rokk3r Ops the rights to receive (and has received) the proceeds from Cargologik’s operation. The Company reassesses its initial evaluation of Cargologik as a VIE upon the occurrence
of certain reconsideration events. The effects of consolidating Cargologik as of September 30, 2019 resulted in an increase in current assets of $186,825.
During the three and nine months ended September 30, 2019, Rokk3r Ops provided services to Cargologik in the amount of $81,134 and $95,269, respectively, which were eliminated in consolidation in
accordance with ASC 810.
|
Non-controlling interest balance reconciliation:
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
Equity allocated to non-controlling interest for quarter ended June 30, 2019
|
|
|
511,213
|
|
|
Adjustment on loss allocated to non-controlling interest due to increase in non-controlling interest (Rokker Ai)
|
|
|
(13,316
|
)
|
|
Loss allocated to non-controlling interest for the quarter ended June 30, 2019
|
|
|
(241,531
|
)
|
|
Balance at June 30, 2019
|
|
$
|
131,323
|
|
|
|
|
|
|
|
|
Loss allocated to non-controlling interest for the quarter ended September 30, 2019
|
|
|
(42,328
|
)
|
|
Balance at September 30, 2019
|
|
$
|
88,995
|
|
NOTE 6 – ACQUISITION OF BULLFROG VENTURES, LLC
On May 21, 2019 (the “Acquisition Date”), the Company completed the acquisition of 100% of the issued and outstanding membership interests of Bullfrog Ventures LLC, a Florida limited liability
company (“Bullfrog”), from its members pursuant to the terms and conditions of the Membership Interest Purchase Agreement entered into among the Company and the Bullfrog members on the Closing Date (the “Purchase Agreement”). Bullfrog is a Florida
based consulting company with a focus on technologies related to the insurance industry. The Company acquired Bullfrog primarily for the knowledge and experience of its workforce and business model with the sole intent of bringing Bullfrog’s
executives, and their business model under the Company’s newly created Insurtech division. On May 31, 2019 the Company entered into an employment agreement with two former members of Bullfrog (see Note 12).
Pursuant to the Purchase Agreement, the Company issued 292,250 shares of the Company’s common stock and cash compensation of $10 in exchange for 1,100 shares of Bullfrog common stock, of which 940
were issued and outstanding, comprising 100% of the Bullfrog authorized shares. The 292,250 shares of the Company’s common stock were valued at $159,569, or $0.546 per share, which was the Volume Weighted Average Price value of the Company’s common
stock based on the trading price of the Company’s common stock thirty days preceding and including the trading price on the Acquisition Date.
The fair value of the assets acquired and liabilities assumed are based on management’s initial estimates of the fair values on May 21, 2019. Based upon the purchase price allocation, the following
table summarizes the estimated fair value of the assets acquired and liabilities assumed on the Acquisition Date:
|
Assets acquired:
|
|
|
|
|
Cash
|
|
$
|
22,938
|
|
|
Accounts receivable
|
|
|
6,500
|
|
|
Deposit
|
|
|
45
|
|
|
Intangible asset
|
|
|
160,760
|
|
|
Total assets acquired at fair value
|
|
$
|
190,243
|
|
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
|
Accrued expenses
|
|
$
|
30,664
|
|
|
Total liabilities assumed
|
|
|
30,664
|
|
|
|
|
|
|
|
|
Net asset acquired
|
|
$
|
159,579
|
|
|
|
|
|
|
|
|
Purchase consideration paid:
|
|
|
|
|
|
Cash
|
|
$
|
10
|
|
|
Common stock
|
|
|
159,569
|
|
|
Total purchase consideration paid
|
|
$
|
159,579
|
|
The intangible asset assumed was recorded at its estimated fair value on the Acquisition Date and was inherently uncertain, subject to refinement, pending an independent valuation of the intangible
asset acquired. Management develops estimates based on assumptions as a part of the purchase price allocation process to value the assets acquired and liabilities assumed as of the date of acquisition. As a result, during the purchase price
measurement period, which may be up to one year from the business Acquisition Date, the Company may record adjustments to the assets acquired and liabilities assumed based on completion of valuations, with the corresponding offset to intangible asset
acquired. After the purchase price measurement period, the Company will record adjustments to assets acquired or liabilities assumed in operating expenses in the period in which the adjustments were determined.
The Company records acquisition and transaction related expenses in the period in which they are incurred. During the nine months ended September 30, 2019, acquisition related expenses primarily
consisted of legal fees of approximately $12,800.
The following unaudited pro forma consolidated results of operations have been prepared as if the acquisition of Bullfrog had occurred as of the beginning of the period:
|
|
Nine Months
Ended
September 30, 2019
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
Net Revenues
|
|
$
|
3,120,940
|
|
|
Net Loss
|
|
$
|
(3,520,125
|
)
|
|
Net Loss per Share
|
|
$
|
(0.03
|
)
|
Pro-forma data does not purport to be indicative of the results that would have been obtained had these events actually occurred at the beginning of the period presented and is not intended to be a
projection of future results.
NOTE 7 – 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 the 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 of 1933, as amended.
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 September 30, 2019 and 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 8 – 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 were 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.
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 (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.
The Certificate of Designation includes:
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the original issue price of each share is $0.64 (the “Original Issue Price”),
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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,
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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
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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.
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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 Exchange Act or (iii) upon the closing of a deemed liquidation event (as defined in the Investor Rights Agreement), whichever event occurs first. None of these events occured as of the date of
this report.
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 share.
As of September 30, 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 $310,345 during the nine months ended September 30, 2019, for an aggregate redemption premium of $414,764.
NOTE 9 – STOCKHOLDERS’ 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.
As of September 30, 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 8).
Common Stock
During the nine months ended September 30, 2019, the Company issued:
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45,000 shares of common stock of Rokk3r Inc., at fair value of $0.64 per share or $28,800, to a non-affiliated party, to purchase intangible assets (see Note 5).
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292,250 shares of common stock of Rokk3r Inc., at fair value of $0.546 per share or $159,569, in connection with the acquisition of Bullfrog Venture, LLC (see Note 6).
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5,000,000 shares of common stock of Rokk3r Inc., at par value of $0.001 per share to a related party, which are returnable or redeemable to the Company pursuant to the Safe-T agreement.
These shares are in escrow and are not included in basic EPS or as potentially dilutive shares in calculating the diluted EPS and will remain so until the provisions for the either the release or return of these shares are met pursuant to
the Safe-T agreement (see Note 11).
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Common Stock Issuable
During the nine months ended September 30, 2019, the Company entered into agreements to issue:
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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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an aggregate of 918,988 shares of common stock of Rokk3r Inc., at fair value of $0.70 per share or $643,292, to two executives pursuant to their employment agreements. These common shares
vest equally over a four-year term with the first vesting tranche on May 31, 2020. The Company recognized $83,762 of stock-based compensation expense related to these shares for the nine months ended September 30, 2019 (see Note 12).
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Equity Compensation Plans
2017 Omnibus Equity Compensation Plan
On April 12, 2017, the Board adopted a Financial Code of Ethics and adopted the 2017 Omnibus Equity Compensation Plan and approved to reserve 5,000,000 shares of common stock for future issuance
under the 2017 Omnibus Equity Compensation Plan. As of September 30, 2019, and December 31, 2018, no equity instruments have been issued 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 September 30, 2019, and December 31, 2018, no equity instruments have been issued 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 September 30, 2019, and December 31, 2018, although the share issuances were approved, no shares pursuant to the foregoing have been issued.
NOTE 10 – 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 September 30, 2019 and December 31, 2018, the Company had a cash balance of $443,471 and $2,297,902,
respectively. The Company has not experienced any losses in such accounts through September 30, 2019.
Concentrations of Revenue
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During the nine months ended September 30, 2019, the Company had revenues of $3,050,001 of which 18%, 10% and 9% were from three of the Company’s customers.
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During the nine months ended September 30, 2018, the Company had revenue of $1,092,169 of which 28%, 16%, and 8% were from three of the Company’s customers. 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.
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Concentrations of Accounts Receivables
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During the nine months ended September 30, 2019, the Company had total net account receivables of $670,557of which 27%, 19% and 12% were from three of the Company’s customers.
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During the year ended December 31, 2018, the Company had net accounts receivables of $360,315 of which 53% and 19% were from two Company’s customer.
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NOTE 11 – RELATED-PARTY TRANSACTIONS
Due from Parent Company
Rokk3r Labs leases office space, from a third party, which it shares with the Company through a verbal agreement. The Company pays for the rent expense and accordingly allocates Rokk3r Lab’s their
share of the expense. During the nine months ended September 30, 2019, the Company advanced Rokk3r Labs, its controlling shareholder, $58,769 primarily for their share of the office lease. The advances are non-interest bearing and are payable on
demand. At September 30, 2019 and December 31, 2018, the Company had $98,908 and $75,138 receivable 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 and
nine months ended September 30, 2019, the Company recorded and $719,950 and $2,132,188 of consulting fees – parent, respectively, in connection with the Collaboration Agreement. In connection with the Collaboration Agreement, during the three and
nine months ended September 30, 2018, the Company recorded $625,000 and $2,125,000 of consulting fees – parent, respectively.
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. During the three and nine months ended September 30, 2019, the Company recorded $30,000 and $90,000 of license fee expense,
respectively. As of September 30, 2019, $45,000 of the license fee was accrued under accrued expense – related party, in the unaudited condensed consolidated balance sheet, in connection with the Trademark
License Agreement.
Consulting Services Agreement
On June 21, 2018, a Consulting Services Agreement was signed between OpenExO, Inc. (“OpenExO”), formerly known as 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 OpenExO, or through ExO Lever Network. The services are represented in vouchers to
be used in the next two years from effective date (in the event of conversion into another instrument without expiration within such two-year period), or within ten (10) years of the effective date 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) 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 OpenExO. The $250,000 payment was recorded as prepaid expense – related party in the unaudited condensed consolidated balance sheets as of September 30, 2019 and
December 31, 2018. As of September 30, 2019, no service had been performed under the consulting agreement.
Stock Purchase Agreement
On November 2, 2018, the Company entered into a stock purchase agreement (the “SPA”) with OpenExO. Pursuant to the SPA, the Company agreed to issue OpenExO, 5,000,000 shares of the Company’s common
stock in exchange for OpenExO and the Company entering into a Simple Agreement for Future Equity with Token Allocation (the “Safe-T Agreement”).
Pursuant to the SPA, OpenExO agreed that during the 24 month period after the date of execution of the Safe-T Agreement, OpenExO may not directly or indirectly, sell or engage in any transaction
which has resulted or will result in a change in the beneficial or record ownership of 50% of the common stock issued to OpenExO. Further, under the Safe-T agreement, OpenExO agreed not to transfer any of the common stock issued to OpenExO 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 OpenExO and customary closing conditions. In July 2019, the Company issued the 5,000,000 shares of the
Company’s commons stock, to a related party, pursuant to the Safe-T agreement. If the terms and conditions of the Safe-T agreement are not met within the time frame as defined of such agreement, then the 5,000,000 shares of the Company’s commons
stock shall be returned to the Company. These shares are in escrow and are not included in basic EPS or as potentially dilutive shares in calculating the diluted EPS and will remain so until the provisions for the either the release or return of
these shares are met pursuant to the Safe-T agreement.
Safe-T Agreement
On November 2, 2018, the Company and OpenExO which is affiliated with a member of the Board of Directors of the Company, entered into the Safe-T Agreement. Pursuant to the Safe-T Agreement, at
OpenExO’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 OpenExO 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, OpenExO 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,
OpenExO will issue to the Company a number of shares of OpenExO’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 OpenExO 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 OpenExO 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).
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 OpenExO. The Safe-T
Agreement defines the term “Token Sale” as a bona fide transaction or series of transactions in which OpenExO 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 OpenExO 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 OpenExO 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 OpenExOor an initial public offering by OpenExO. The Safe-T Agreement defines the term “Dissolution Event” as (i) a
voluntary termination of operations of OpenExO; (ii) a general assignment for the benefit of OpenExO’s creditors; or (iii) any other liquidation, dissolution or winding up of OpenExO (excluding a Liquidity Event), whether voluntary or involuntary.
Upon the occurrence of a Liquidity Event or a Dissolution Event, OpenExOwill 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 OpenExO 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 OpenExO 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 OpenExO. As of September 30, 2019, the Company had not received any proceeds in connection with
the Safe-T Agreement.
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Employment Agreements
On May 31, 2019, the Company entered into an employment agreement with an Executive, effective of as May 31, 2019, to serve as a Managing Director of the Company’s Insurtech division (see Note 6).
The Executive’s employment agreement shall end on the earlier of (i) the fourth anniversary of the effective date; or (ii) upon termination of the Executive’s employment as defined in the employment agreement. The employment agreement shall renew
automatically for one year unless a written notice of termination is provided thirty days prior to the automatic renewal date. The employment agreement provides for a base salary and other fringe benefits as well bonuses and share award detailed
below:
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Incentive Bonus. In addition to Base Salary, the Executive will have the opportunity to earn and be paid an incentive of up to an
additional 50% of his annual salary based on the annual targets defined by the Supervisor and effective after the first $500,000 in Insurtech division revenues.
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Share Award. On the effective date, the Company granted to the Executive, 510,549 shares of the Company’s common stock (“Restricted Stock”)
pursuant to the terms and conditions of a Restricted Stock Award Agreement (the “RSA”) between the Company and the Executive (see Note 9).
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On May 31, 2019, the Company entered into an employment agreement with an Executive, effective of as May 31, 2019, to serve as a Managing Director of the Company’s Insurtech division (see Note 6).
The Executive’s employment agreement shall end on the earlier of (i) the fourth anniversary of the effective date; or (ii) upon termination of the Executive’s employment as defined in the employment agreement. The employment agreement shall renew
automatically for one year unless a written notice of termination is provided thirty days prior to the automatic renewal date. The employment agreement provides for a base salary and other fringe benefits as well bonuses and share award detailed
below:
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Incentive Bonus. In addition to Base Salary, the Executive will have the opportunity to earn and be paid an incentive of up to an
additional 50% of his annual salary based on the annual targets defined by the Supervisor and effective after the first $500,000 in Insurtech division revenues.
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Share Award. On the effective date, the Company granted to the Executive, 480,439 shares of the Company’s common stock (“Restricted Stock”)
pursuant to the terms and conditions of a Restricted Stock Award Agreement (the “RSA”) between the Company and the Executive (see Note 9).
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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.
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 OpenExO which is affiliated with a member of the Board of Directors of the Company. Pursuant to the SPA, the Company agreed to issue to
OpenExO, 5,000,000 shares of the Company’s common stock in exchange for OpenExO and the Company entering into the Safe-T Agreement. In July 2019, the Company issued the 5,000,000 shares of the Company’s commons stock, to a related party, pursuant to
the Safe-T agreement as discussed in Note 11. If the terms and conditions of the Safe-T agreement are not met within the time frame as defined of such agreement, then the 5,000,000 shares of the Company’s commons stock shall be returned to the
Company pursuant to the Safe-T agreement. These shares are in escrow and are not included in basic EPS or as potentially dilutive shares in calculating the diluted EPS and will remain so until the provisions for the either the release or return of
these shares are met pursuant to the Safe-T agreement.
Safe-T Agreement
On November 2, 2018, the Company and OpenExO which is which is affiliated with a member of the Board of Directors of the Company, entered into the Safe-T Agreement. Pursuant to the Safe-T
Agreement, at OpenExO’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 OpenExO 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 11.
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 13 – SUBSEQUENT EVENTS
On October 18, 2019 Termo VB sold equity at a price per share of $.53 to a non-affiliated investor. The transaction was for 300 shares of common stock at a price per share of $.53 and 3,750,638 of
Series A Preferred Shares for total consideration of $2,000,000, which resulted in an overall 75% equity position of Termo VB Inc. for the non-affiliated investor as well as two thirds representation in the Board of Directors. As a result of these
transactions, Rokk3r Ops’ ownership and voting interest decreased from 100% to 25% as of October 18th.
Subsequent to September 30, 2019, the Company:
|
•
|
Issued 20,571 shares of the Company’s common stock for $43,200 of legal services.
|
|
•
|
Issued 50,000 shares of the Company’s common stock, previously recorded as issuable, at fair value of $0.64 per share or $32,000, to a consultant pursuant to a consulting agreement (see Note 9).
|
Titan Funding, LLC.
On November 6, 2019, Titan Funding LLC., a Florida limited liability company (the “Plaintiff”) filed a complaint against the
Company, Rokk3r Fuel Fund 2, LP, a Delaware limited partnership, Tickmark, Inc., d/b/a Taxfyle, a Delaware corporation, and Jeffrey S. Ransdell, as an individual (collectively, the “Defendants”) in the Circuit Court of the Eleventh Judicial Circuit
in and for Miami-Dade County, Florida (Case No. 2019-032603-CA-01) (the “Complaint”). The Complaint seeks for damages, declaratory judgement, and jury trial and alleges that the Defendants breached an Assignment of Limited Partnership Interest (the
“Assignment Agreement”) and an Option Agreement for Interest in Rokk3r Fuel Fund 2, LP (the “Option Agreement”) pursuant to which the Company was to assign and transfer one hundred percent (100%) of its limited partner interest in the Rokk3r Fuel
Fund partnership to Plaintiff in exchange for Plaintiff’s investment in the amount of $268,750. The Defendants are within the legal deadline to answer the Complaint and will seek all legal measures to refute and defend the Company of such
allegations.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes included in this
Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended December 31, 2018 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which
are contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission (the “SEC”) on April 1, 2019.
Forward-Looking Statements
The information herein contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “should,” “could,” “predicts,” “potential,” “continue,” “would” and similar expressions are
intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should
not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. The forward-looking statements are
applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements. All forward-looking statements in this Quarterly Report on Form 10-Q are made based on our current expectations,
forecasts, estimates and assumptions, and involve risks, uncertainties and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements. In evaluating these statements, you should
specifically consider various factors, uncertainties and risks that could affect our future results or operations. These factors, uncertainties and risks may cause our actual results to differ materially from any forward-looking statement set forth
in this Quarterly Report on Form 10-Q. You should carefully consider these risk and uncertainties described and other information contained in the reports we file with or furnish to the SEC before making any investment decision with respect to our
securities. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.
Overview
Rokk3r, Inc. (the “Company,” “Rokk3r,” “we,” “us” and “our”) is a leading technology and services company, providing a range of solutions in business strategy (which we refer to as “Think Phase”),
technology development (referred to as “Cobuild”), and growth (referred to as “Scale”) services. Rokk3r seeks to transform industries and companies, as well as to create new ones, combining deep entrepreneurial experience and specialized skills
across industries and business functions with a geographic focus in the U.S. and in emerging markets, initially in Latin America. Rokk3r’s combination of world-class strategy and execution sets it apart from traditional consulting companies. We
believe that our deep knowledge of disruptive and exponential technologies, operations and new business and distribution models, can help our clients improve performance and achieve growth.
There are periods of time in human history that one can point to as being truly transformative, such as the advent of the Gutenberg press, exponential increases in computing power, and widespread
Internet access. Many of these periods share a common characteristic: increased access and information to wider societal groups. Currently, the availability of increased computing power and data storage, combined with decreasing costs has led to the
simultaneous rise and proliferation of multiple exponential technologies, such as artificial intelligence (“AI”), augmented reality (“AR”), virtual reality (“VR”), data science, digital biology and biotech, nanotech, robotics and sensors. Development
and enhancement of these technologies is spurring innovation in a way that we believe the world has never before witnessed. The technologies have significantly impacted multiple industries and changed our daily lives.
Compounding the impact of these technologies is the sheer number of people who are coming online. In 2017, Singularity Hub estimated that there were approximately three billion people connected to
the Internet and estimated this number of grow to over six billion over the next five to 10 years. We believe this growth has given and will continue to give, rise to a surplus of talent that for the first time has access to the same information at
the same time regardless of geographic location, and increasingly, regardless of socioeconomic status. While we believe that the large number of hyperconnected persons will give rise to trillions of dollars of online commerce, it also means there are
significant numbers of people who are looking for their place in the new global economy. These people are tomorrow’s visionaries, designers, developers and creators. Companies and entrepreneurs can be witnesses to this change or they can participate
in it by partnering with professionals like Rokk3r who seek to provide a full ecosystem for actionable innovation.
Rokk3r also provides flexibility in compensation arrangements. We can generate revenue through consulting fees or equity grants. Additionally, Rokk3r uses its portfolio of companies to further
create value through revenue share agreements, exiting equity positions and the creation of new value propositions.
Rokk3r offers a wide experience in exponential innovation, with over 200 projects developed to date. In addition, we provide a one-stop shop, assisting clients through the Think Phase, Cobuild, and
Scale, reducing the time of execution of the projects significantly. As of June 30, 2019, we were engaged by 19 companies in the Think Phase, 5 companies in Cobuild, and 9 companies in Scale. Since 2014, we have worked with entrepreneurs to build
over 40 companies.
Recent Developments
In the first quarter of 2019, Rokk3r introduced the Venture Builder model. A Rokk3r Venture Builder is a structure with the mandate to solve problems specific to an industry vertical (i.e.,
agriculture, fintech, etc.), geography (i.e., Latin America) or technology (i.e., AI). We seek to create companies around these criteria by partnering with investors, family offices, and corporations that have broad experience in the particular
industry or region at hand.
The first step of the Venture Builder is to run an initial phase of extensive research, analysis, and experiments (using the Think Phase methodology) to discover attractive value propositions that
can become the foundation of new companies. At the conclusion of this phase, we select the winners and seek to empower them with the right teams and resources to increase the chances of success at an early stage (through our Cobuild process). Each
Venture Builder has its own board of advisors that seek to open the right doors when navigating new industries and markets. Therefore, each Venture Builder is a set of self-contained Think Phases (4-8 depending on the size of the Venture Builder)
that result in a number of Cobuilds (2-4 depending on the investment amounts). We believe that these efforts will eventually generate new companies that reflect the equity split of the Venture Builder itself.
Through 2019, the Company has been investing heavily in strengthening its management team with the hiring of a new Chief Marketing Officer and two insurance industry veterans to lead the newly
formed Insurtech Division.
During the nine months ended September 30, 2019, we worked on a total of 28 Think Phases, compared to 12 Think Phases for the entirety of 2018. As a result of increased quality and more
comprehensive engagements, the average revenue per Think Phase has increased by 19% year-over-year. During 2019, we have been able to convert four of these Think Phases into Cobuild projects, with two more under negotiation. The Company also closed
two new Scale contracts during 2019, which served to replace one Scale contract completed at the end of 2018.
2019 year-to-date contracted bookings are over $12 million. Taking into consideration the consolidation of our VIEs in which we are the primary beneficiary we now expect to recognize approximately
$5M in revenue in 2019. This would represent a growth of 117% compared to the $2,301,939 of reported revenue for the entirety of 2018. However, there can be no assurance that the foregoing will occur as planned.
RESULTS OF OPERATIONS
The following comparative analysis on results of operations was based primarily on the comparative unaudited financial statements, footnotes and related information for the periods identified below
and should be read in conjunction with the financial statements and the notes to those statements that are included elsewhere in this report.
Revenue
The Company generated revenues of $925,856 and $584,324 for the three months ended September 30, 2019 and 2018, respectively. The 58% increase in revenues reflects the growth of our
revenue-producing activities, such as providing strategic consulting services (Think, Cobuild, and Scale) and launching our Venture Builder model.
The Company generated revenues of $3,050,001 and $1,092,169 for the nine months ended September 30, 2019 and 2018, respectively. The 179% increase in revenues reflects the commencement and growth
of our revenue-producing activities, such as providing strategic consulting services (Think, Cobuild, and Scale) and launching our Venture Builder model.
Operating Expenses
We incurred operating expenses in the amount of $2,483,699 and $6,502,436 for the three and nine months ended September 30, 2019, respectively, compared to $1,529,977 and $3,915,846 for the three
and nine months ended September 30, 2018, respectively, representing an increase of $953,772, or 62%, and $2,586,590, or 66%, respectively. The increase in operating expenses is the result of the costs associated with our increase in revenue
generating activities (Think, Cobuild, and Scale services).
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting fees - parent
|
|
$
|
719,950
|
|
|
$
|
625,000
|
|
|
$
|
2,132,188
|
|
|
$
|
2,125,000
|
|
|
Consulting fees - other
|
|
|
54,640
|
|
|
|
147,958
|
|
|
|
321,318
|
|
|
|
367,878
|
|
|
Compensation expense
|
|
|
490,654
|
|
|
|
185,032
|
|
|
|
1,129,310
|
|
|
|
242,338
|
|
|
Contract labor
|
|
|
653,914
|
|
|
|
315,696
|
|
|
|
1,536,460
|
|
|
|
454,536
|
|
|
Legal expense
|
|
|
125,219
|
|
|
|
81,131
|
|
|
|
390,389
|
|
|
|
300,204
|
|
|
Professional fees
|
|
|
72,952
|
|
|
|
69,715
|
|
|
|
190,262
|
|
|
|
183,692
|
|
|
Bad debt (recovery) expense
|
|
|
67,145
|
|
|
|
—
|
|
|
|
(27,254
|
)
|
|
|
—
|
|
|
General and administrative expenses
|
|
|
250,347
|
|
|
|
105,445
|
|
|
|
711,705
|
|
|
|
242,198
|
|
|
Impairment of intangible asset
|
|
|
48,878
|
|
|
|
—
|
|
|
|
118,058
|
|
|
|
—
|
|
|
Total
|
|
$
|
2,483,699
|
|
|
$
|
1,529,977
|
|
|
$
|
6,502,436
|
|
|
$
|
3,915,846
|
|
Consulting Fees
For the three months ended September 30, 2019, total consulting fees increased by $1,632, or 0.2%, as compared to the three months ended September 30, 2018. The increase was primarily attributed to
increase in related party consulting fee in 2019.
For the nine months ended September 30, 2019, total consulting fees decreased by $39,372, or 1.6%, as compared to the nine months ended September 30, 2018. The decrease was primarily attributed to
decrease in related party consulting fee in 2019.
Compensation Expense
For the three months ended September 30, 2019, compensation expense increased by $305,622, or 165%, as compared to the three months ended September 30, 2018. The increase was
attributed to an increase in stock-based compensation of $158,787 and an increase in salaries and benefits of $146,835 during the three months ended September 30, 2019, as compared to the three months ended September 30, 2018.
For the nine months ended September 30, 2019, compensation expense increased by $886,972 or 366% as compared to nine months ended September 30, 2018. The increase was attributed
to an increase in stock-based compensation of $336,712 and an increase in salaries and benefits of $550,260 during the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018. The Company had no compensation
expenses for the first 5 months of 2018.
Contract Labor
For the three months ended September 30, 2019, contract labor increased by $338,218, or 107%, as compared to the three months ended September 30, 2018. The increase was
attributed to increase in revenue producing activities in 2019 as compared to 2018. Rokk3r utilizes a staff on demand model to conduct a large portion of its Think Phase, Cobuild, and Scale delivery. The increase in expense year-over-year is directly
attributable to the increase in our revenue-generating activities (Think Phase, Cobuild, Scales and Venture Builder projects). Expenses are expected to continue to grow for the remainder of 2019 as a result of increasing consulting revenue, team and
portfolio.
For the nine months ended September 30, 2019, contract labor increased by $1,081,924, or 238%, as compared to the nine months ended September 30, 2018. The increase was
attributed to increase in revenue producing activities in 2019 as compared to 2018. The increase in expense year-over-year is directly attributable to the increase in our revenue-generating activities (Think Phase, Cobuild, Scales and Venture Builder
projects). Expenses are expected to continue to grow for the remainder of 2019 as a result of increasing consulting revenue, team and portfolio.
Legal Expense and Professional Fees
For the three months ended September 30, 2019, legal and professional fees increased by $47,325, or 31%, as compared to the three months ended September 30, 2018. The increase
was attributed to growth in business development activities of the Company and its subsidiaries when compared to 2018.
For the nine months ended September 30, 2019, legal and professional fees increased by 96,755, or 20%, as compared to the nine months ended September 30, 2018. The increase was
attributed to growth in business development activities of the Company and its subsidiaries when compared to 2018.
Bad Debt (Recovery) Expense
For the three months ended September 30, 2019, bad debt expense increased by $67,145, or 100%, as compared to the three months ended September 30, 2018. The increase was
attributed to uncollectible account receivables deemed uncollectible and which were written off.
For the nine months ended September 30, 2019, bad debt (recovery) increased by $(27,254), or 100%, as compared to the nine months ended September 30, 2018. The increase was
attributed to the recovery of previously written off uncollectible account receivables related to one of the Company’s customers offset by uncollectible account receivables deemed uncollectible and which were written off of $80,525.
General and Administrative Expenses
For the three months ended September 30, 2019, general and administrative expenses increased by $144,902, or 137%, as compared to the three months ended September 30, 2018. The
increase was attributed to increase in revenue producing activities and business development in 2019 compared to 2018.
For the nine months ended September 30, 2019, general and administrative expenses increased by $469,507, or 194%, as compared to the nine months ended September 30, 2018. The
increase was attributed to increase in revenue producing activities and business development in 2019 compared to 2018.
Impairment of Intangible Asset
For three months ended September 30, 2019, impairment of intangible asset increased by $48,878 or 100% as compared to three months ended September 30, 2018. The increase was
attributed to the impairment of the cost of investment in digital currencies acquired in 2019.
For nine months ended September 30, 2019, impairment of intangible asset increased by $118,058 or 100% as compared to nine months ended September 30, 2018. The increase was
attributed to the $28,900 impairment of the carrying balance of the intangible asset acquired in connection to the sale of non-controlling interest in a consolidated subsidiary and $89,158 due to impairment of an investment in digital currencies
acquired in 2019.
Other Expenses
We incurred other income for the three months ended September 30, 2019 in the amount of $933 compared to other (expenses) of $(8,216) for the three months ended September 30, 2018, representing a
change of $9,149, or 111%. The change was primarily attributed to interest expense related to the Firstfire convertible promissory note which was fully converted in the third quarter of 2018.
We incurred other income for the nine months ended September 30, 2019 in the amount of $1,064 compared to other (expenses) of $(40,875) for the nine months ended September 30, 2018, representing a
change of $41,939, or 103%. The change was primarily attributed to interest expense related to the Firstfire convertible promissory note which was fully converted in the third quarter of 2018.
Net Loss
We incurred a net loss for the three months ended September 30, 2019 in the amount of $1,556,910, or $(0.02) per basic and diluted common share, compared to net loss of $953,869, or $(0.01) per
basic and diluted common share, for the three months ended September 30, 2018, representing an increase of $603,041, or 63%, attributed to the changes discussed above.
We incurred a net loss for the nine months ended September 30, 2019 in the amount of $3,451,371 or $(0.04) per basic and diluted common share, compared to net loss of $2,864,552, or $(0.03) per
basic and diluted common share, for the nine months ended September 30, 2018, representing an increase of $586,819 or 21%, attributed to the changes discussed above.
Liquidity and Capital Resources
Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had a working capital of $899,699 and cash of $676,875 as of September 30,
2019 and a working capital of $2,959,543 and cash of $2,297,902 as of December 31, 2018.
|
|
September 30,
|
|
December 31,
|
|
Nine Months Ended
September 30, 2019
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
Percentage Change
|
|
|
Working capital deficit:
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
1,746,622
|
|
|
$
|
3,217,175
|
|
|
$
|
(1,470,553
|
)
|
|
|
46
|
%
|
|
Total current liabilities
|
|
|
(846,923
|
)
|
|
|
(257,632
|
)
|
|
|
(589,291
|
)
|
|
|
229
|
%
|
|
Working capital:
|
|
$
|
899,699
|
|
|
$
|
2,959,543
|
|
|
$
|
2,059,844
|
|
|
|
70
|
%
|
The decrease in working capital was primarily attributable to a decrease in current assets of $1,470,553 and an increase in current liabilities of $589,291.
Cash Flows
Changes in our cash balance are summarized as follows:
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Cash used in operating activities
|
|
$
|
(2,509,770
|
)
|
|
$
|
(3,361,195
|
)
|
|
Cash used in investing activities
|
|
|
(111,257
|
)
|
|
|
(8,711
|
)
|
|
Cash provided by financing activities
|
|
|
1,000,000
|
|
|
|
5,218,888
|
|
|
Net increase (decrease) in cash
|
|
$
|
(1,621,027
|
)
|
|
$
|
1,848,982
|
|
Net Cash Used in Operating Activities
Net cash flow used in operating activities was $2,509,770 for the nine months ended September 30, 2019 as compared to $3,361,195 for the nine months ended September 30, 2018, a decrease of
$851,425.
|
•
|
Net cash flow used in operating activities for the nine months ended September 30, 2019 primarily reflected a net loss of $3,451,371 adjusted for the add-back on non-cash items such as
depreciation expense of $4,672, stock-based compensation expense of $336,712, stock-based compensation for consulting services of $32,000, bad debt recovery of $(27,154), impairment loss of $118,058, loss on equity investment of $350,
changes in operating asset of $(81,963) and changes in operating liabilities of $559,126.
|
|
•
|
Net cash flow used in operating activities for the nine months ended September 30, 2018 primarily reflected a net loss of $2,864,552 and the add-back of non-cash items consisting of,
depreciation of $853, common stock issued for services of $25, 800 and non-cash interest of $40,449. This was offset by changes in operating assets and liabilities of $563,745 primarily related to an increase in prepaid expenses of
$265,777, an increase in receivable from customer and affiliate of $360,315 and $41,498, respectively, and an increase in accounts payable of $95,741.
|
Net Cash Used in Investing Activities
Net cash flow used in investing activities was $111,257 for the nine months ended September 30, 2019 as compared to $8,711 for the nine months ended September 30, 2018, representing an increase of
$102,546.
|
•
|
Net cash flow used in investing activities for the nine months ended September 30, 2019 was $111,257 attributed to the investment in digital currencies of $100,000, purchases of property
and equipment of $10,075 and purchase of equity investments of $350, advances to our parent company of $23,770 offset by cash acquired from acquisition of Bullfrog Ventures LLC of $(22,938).
|
|
•
|
Net cash flow used in investing activities was nine months ended September 30, 2018 was $8,711 attributed to purchases of property .
|
Cash Provided By Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2019 was $1,000,000 as compared to $5,218,888 during the nine months ended September 30, 2018, a decrease of
$4,218,888.
|
•
|
During the nine months ended September 30, 2019, we received proceeds from the sale of non-controlling VIE equity in subsidiaries of $1,000,000.
|
|
•
|
During the nine months ended September 30, 2018, we received proceeds from the sale of our common stock of $3,735,380 and sale of our Series B Convertible Preferred shares of $1,500,000,
offset by repayment of a advances received from our parent of $16,492.
|
Although in the future we expect to have sufficient positive cash flow to finance our ongoing operations, as of September 30, 2019, we do not have sufficient resources to effectuate all aspects of
our business plan. We may have to raise additional funds to pay for all of our planned expenses. We potentially will have to issue additional debt or equity or enter into a strategic arrangement with a third party to carry out some aspects of our
business plan. There can be no assurance that future operations will generate sufficient cash flow to finance our operations, or that additional capital will be available to us. We currently have no agreements, arrangements or understandings with any
person to obtain funds through bank loans, lines of credit or any other sources. Since we have no other such arrangements or plans currently in effect, our inability to raise funds for the above purposes will have a severe negative impact on our
ability to remain a viable company. We are dependent upon our controlling shareholder to provide or loan us funds to meet our working capital needs.
Going Concern Consideration
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 nine months ended September 30, 2019, the Company had a net loss of $3,451,371 and net cash used in operations was $2,509,770, 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. Although in the future we expect to have
sufficient positive cash flow to finance our ongoing operations, as of September 30, 2019, 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.
Inflation
In the opinion of management, inflation has not and will not have a material effect on our operations in the immediate future. Management will continue to monitor inflation and evaluate the
possible future effects of inflation on our business and operations.
Off-Balance Sheet Arrangements
Under SEC regulations, we are required to disclose our off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, such as
changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. As of September 30, 2019, we have no off-balance sheet arrangements.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Actual results could differ from those estimates. Significant estimates for the nine months ended September 30, 2019 and year ended 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
We maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer to allow timely decisions regarding required
disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated our company’s disclosure controls and procedures as of the end of the period covered by this quarterly report on Form
10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of September 30, 2019, our disclosure controls and procedures were not effective.
Our management, including our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rule 13a-15(f) under the Exchange Act). Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our internal control over financial reporting as of September
30, 2019. Our management’s evaluation of our internal control over financial reporting was based on the framework in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on this evaluation, our management concluded that as of September 30, 2019, our internal control over financial reporting was not effective.
The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which we identified in our internal control over financial reporting:
|
1.
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We do not have an Audit Committee. While not being legally obligated to have an audit committee, it is management’s view that such a committee, including a financial expert member, is an utmost important entity level control
over the Company’s financial statement. Currently the Board of Directors acts in the capacity of the Audit Committee, and does not include a member that is considered to be independent of management to provide the necessary oversight over
management’s activities.
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2.
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We did not maintain appropriate segregation of duties. As of September 30, 2019, the Company did not require dual signature on the Company’s bank accounts.
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3.
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We have not implemented policies and procedures that provide for multiple levels of supervision and review.
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4.
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The Company does not have well-established procedures to authorize and approve related party transactions.
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We expect to be materially dependent upon third parties to provide us with accounting consulting services related to accounting services for the foreseeable future. We believe this will be
sufficient to remediate the material weaknesses related to our accounting discussed above. Until such time as we have a chief financial officer with the requisite expertise in U.S. GAAP, there are no assurances that the material weaknesses and
significant deficiencies in our disclosure controls and procedures will not result in errors in our consolidated financial statements which could lead to a restatement of those financial statements.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and
all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there
are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within our company have been detected.
(b) Changes in Internal Controls over Financial Reporting
There was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934) during the quarter ended
September 30, 2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in
which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
ITEM 1A. RISK FACTORS
Not applicable for smaller reporting companies.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Except for provided below, all unregistered sales of our securities during the three months ended September 30, 2019, were previously disclosed in a Current Report on Form 8-K.
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•
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During the three months ended September 30, 2019, the Company issued 292,250 shares of common stock of Rokk3r Inc., at fair value of $0.546 per share or $159,569, in connection with the
acquisition of Bullfrog Venture, LLC.
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•
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During the three months ended September 30, 2019, the Company issued 5,000,000 shares of common stock of Rokk3r Inc., at par value of $0.0001 per share or $500, to a related party
pursuant to the Safe-T agreement. These shares are in escrow and are not included in basic EPS or as potentially dilutive shares in calculating the diluted EPS and will remain so until the provisions for the either the release or return of
these shares are met pursuant to the Safe-T agreement.
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The shares of Common Stock referenced herein were issued in reliance upon the exemption from securities registration afforded by the provisions of Section 4(a)(2) of the Securities Act of 1933, as
amended (“Securities Act”).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
a) Exhibits
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31.1*
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Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934
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32.1*
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Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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101.INS*
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XBRL Instance Document
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101.SCH*
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XBRL Taxonomy Extension Schema Document
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101.CAL*
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF*
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XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB*
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE*
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XBRL Taxonomy Extension Presentation Linkbase Document
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* filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Rokk3r Inc.
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Date: November 19, 2019
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By:
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/s/ Nabyl Charania
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Nabyl Charania
President, Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer, Principal Financial Officer and Accounting Officer)
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