ROKK ROKK3R Inc (CE)

ITEM 1. FINANCIAL STATEMENTS

ROKK3R INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

		June 30,				December 31,
		2019				2018
		(Restated)
ASSETS
CURRENT ASSETS:
Cash		$	1,481,683			$	2,297,902
Accounts receivable, net			693,675				400,182
Prepaid expenses - related party			250,000				425,000
Prepaid expenses			23,629				18,953
Other receivable			477				-
Due from parent company			117,124				75,138
Investment in digital currencies			59,720				-
Total Current Assets			2,626,308				3,217,175
Furniture and equipment, net			22,248				19,015
Intangible assets			160,760				-
Investment in Rokk3r Labs (parent) - cost method			1,000,000				1,000,000
Total Assets		$	3,809,316			$	4,236,190
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable		$	237,769				192,225
Accrued expenses			46,135				18,407
Accrued expenses - related party			15,000				15,000
Due to related party			10				-
Deferred revenue			15,300				20,000
Notes payable - other			12,000				12,000
Total Current Liabilities			326,214				257,632
Redeemable Series B Convertible Preferred stock - $0.0001 par value; 4,687,500 shares authorized; 4,085,938 issued and
outstanding at June 30, 2019 and December 31, 2018 (liquidation preference of $2,925,179 and $2,719,419, respectively)			2,925,179				2,719,419
Commitments and Contingencies (Note 12)
STOCKHOLDERS' EQUITY:
Preferred stock - $0.0001 par value; 50,000,000 shares authorized; Series A non-convertible preferred stock, 1,000,000 authorized;
$0.0001 par value; no shares issued and outstanding at June 30, 2019 and December 31, 2018			-				-
Common stock - $0.0001 par value; 500,000,000 shares authorized; 101,472,105 shares issued and outstanding at
June 30, 2019 and December 31, 2018			10,147				10,143
Common stock issuable; 2,261,238 and 1,000,000 shares issuable at June 30, 2019 and December 31, 2018, respectively			226				100
Additional paid in capital			77,101,490				76,217,441
Accumulated deficit			(76,685,263	)			(74,968,545	)
Total Rokk3r, Inc Stockholders' Equity			426,600				1,259,139
Non-controlling interest in consolidated subsidiary and VIE (Note 5)			131,323				-
Total Stockholders' Equity			557,923				1,259,139
Total Liabilities and Stockholders' Equity		$	3,809,316			$	4,236,190

See accompanying notes to the unaudited condensed consolidated financial statements.

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ROKK3R INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

		For the Three Months Ended								For the Six Months Ended
		June 30,								June 30,
		2019				2018				2019				2018
		(Restated)								(Restated)
Revenues		$	1,239,137			$	507,845			$	2,124,145			$	507,845
Operating Expenses:
Consulting fees - parent			819,167				750,000				1,412,238				1,500,000
Consulting fees - other			139,704				-				266,678				-
Compensation expense			379,718				57,306				638,702				57,306
Contract  labor			489,029				138,839				882,546				138,839
Legal expense			140,597				75,926				265,170				219,073
Professional fees			61,630				339,665				117,311				333,897
Bad debt (recovery) expense			13,380				-				(94,399	)			-
General and administrative expenses			279,379				115,857				461,311				136,756
Impairment loss			40,280				-				69,180				-
Total Operating Expenses			2,362,884				1,477,593				4,018,737				2,385,871
Loss from Operations			(1,123,747	)			(969,748	)			(1,894,592	)			(1,878,026	)
Other Income (Expense)
Interest income (expense)			2,195				(16,620	)			1,665				(32,659	)
Other income (expense), net			(462	)			-				(1,185	)			-
Loss on equity method investments			(350	)			-				(350	)			-
Total Other Income (Expense)			1,383				(16,620	)			130				(32,659	)
Loss Before Provision for Income Taxes			(1,122,364	)			(986,368	)			(1,894,462	)			(1,910,685	)
Provision for income taxes			-				-				-				-
Net Loss			(1,122,364	)			(986,368	)			(1,894,462	)			(1,910,685	)
Series B Preferred stock redemption premium			(103,448	)			-				(205,760	)			-
Net Loss Attributable to Common Stockholders Before Allocation to  Non-controlling Interest			(1,225,812	)			(986,368	)			(2,100,222	)			(1,910,685	)
Less Net Loss Allocated to Non-controlling Interest in Consolidated Subsidiary and VIE			(241,531	)			-				(383,503	)			-
Net Loss Applicable to Rokk3r, Inc Common Stockholders		$	(984,281	)		$	(986,368	)		$	(1,716,719	)		$	(1,910,685	)
Net Loss per Share of Common Stock Outstanding:
Basic and Diluted		$	(0.01	)		$	(0.01	)		$	(0.02	)		$	(0.02	)
Weighted-Average Number of Shares Outstanding:
Basic and Diluted			102,953,530				101,783,317				102,717,876				97,717,445

See accompanying notes to the unaudited condensed consolidated financial statements.

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ROKK3R INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

For the Six Months Ended June 30, 2019 and 2018

(Unaudited)

																										Additional
		Preferred Stock								Common Stock								Common Stock Issuable								Paid-in				Accumulated				Non-controlling
		Shares				Amount				Shares				Amount				Shares				Amount				Capital				Deficit				Interest				Total
																																						(Restated)
Balance at December 31, 2018			-			$	-				101,427,105			$	10,143				1,000,000			$	100			$	76,217,441			$	(74,968,545	)		$	-			$	1,259,139
Common stock issued to consultants for services			-				-				-				-				50,000				5				31,995				-				-				32,000
Stock-based compensation			-				-				-				-				-				-				74,979				-				-				74,979
Series B Preferred stock redemption premium			-				-				-				-				-				-				-				(102,312	)			-				(102,312	)
Sale of non-controlling VIE equity in subsidiary			-				-				45,000				4				-				-				25,283				-				3,613				28,900
Net loss			-				-				-				-				-				-				-				(643,441	)			(128,656	)			(772,097	)
Balance at March 31, 2019			-			$	-				101,472,105			$	10,147				1,050,000			$	105			$	76,349,698			$	(75,714,298	)		$	(125,043	)		$	520,609
Stock-based compensation			-				-				-				-				918,988				92				102,854				-				-				102,946
Series B Preferred stock redemption premium			-				-				-				-				-				-				-				(103,448	)			-				(103,448	)
Acquisition of Bullfrog Venture LLC			-				-				-				-				292,250				29				159,540				-				-				159,569
Sale of non-controlling VIE equity in subsidiary			-				-				-				-				-				-				488,787				-				511,213				1,000,000
Reallocation of loss due to sale of additional non-controlling interest			-				-				-				-				-				-				611				13,316				(13,316	)			611
Net loss			-				-				-				-				-				-				-				(880,833	)			(241,531	)			(1,122,364	)
Balance at June 30, 2019			-			$	-				101,472,105			$	10,147				2,261,238			$	226			$	77,101,490			$	(76,685,263	)		$	131,323			$	557,923

																										Additional
		Preferred Stock								Common Stock								Common Stock Issuable								Paid-in				Accumulated				Non-controlling
		Shares				Amount				Shares				Amount				Shares				Amount				Capital				Deficit				Interest				Total
Balance at December 31, 2017			-			$	-				94,828,287			$	9,483				-			$	-			$	71,814,487			$	(71,454,325	)		$	-			$	369,645
Stock issued for cash			-				-				3,395,125				339				-				-				2,172,661				-				-				2,173,000
Net loss			-				-				-				-				-				-				-				(924,317	)			-				(924,317	)
Balance at March 31, 2018			-			$	-				98,223,412			$	9,822				-			$	-			$	73,987,148			$	(72,378,642	)		$	-			$	1,618,328
Stock issued for cash			-				-				2,441,407				245				-				-				1,562,135				-				-				1,562,380
Net loss			-				-				-				-				-				-				-				(986,368	)			-				(986,368	)
Balance at June 30, 2018			-			$	-				100,664,819			$	10,067				-			$	-			$	75,549,283			$	(73,365,010	)		$	-			$	2,194,340

See accompanying notes to the unaudited condensed consolidated financial statements.

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ROKK3R INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

		For the Six Months Ended
		June 30,
		2019				2018
		(Restated)
Cash Flows from Operating Activities:
Net loss		$	(1,894,462	)		$	(1,910,685	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense			2,815				393
Stock-based compensation			177,925				-
Common stock issued for compensation and consulting services			32,000				-
Bad debt recovery			(94,299	)			-
Impairment loss			69,180				-
Loss on equity investments			350				-
Loss on investment on non-controlling interest in consolidated subsidiary			-				-
Change in operating assets and liabilities:
Accounts receivable			(193,146	)			(86,752	)
Accounts receivable - related parties			-				-
Prepaid expenses			170,369				(15,000	)
Accounts payable			45,544				112,658
Accounts payable - parent			-				(250,000	)
Deferred revenue			(4,700	)			-
Accrued expenses			(2,349	)			60,579
Net cash used in operating activities			(1,690,773	)			(2,088,807	)
Cash Flows from Investing Activities:
Investment in digital currencies			(100,000	)			-
Cash paid for equity Investments			(350	)			-
Cash acquired from acquisition of Bullfrog Venture LLC			22,938				-
Cash paid for purchase of additional equity in a majority-owned subsidiary			-				-
Due from parent company			(41,986	)			-
Purchases of property and equipment			(6,048	)			(8,711	)
Net cash used in investing activities			(125,446	)			(8,711	)
Cash Flows from Financing Activities:
Cash proceed from sale of non-controlling VIE equity			1,000,000				-
Payments on parent advances			-				(4,810	)
Cash proceeds from sale of common stock			-				3,735,380
Net cash provided by financing activities			1,000,000				3,730,570
Change in Cash			(816,219	)			1,633,052
Cash at beginning of period			2,297,902				-
Cash at end of period		$	1,481,683			$	1,633,052
Supplemental Disclosure of Interest and Income Taxes Paid:
Interest paid		$	-			$	-
Income taxes paid		$	-			$	-
Supplemental schedule of non-cash investing and financing activities
Subscription Receivable		$	75			$	-
Common shares issued in connection with purchase of intangible assets		$	28,900			$	-
Series B Preferred stock redemption premium		$	205,760			$	-
Net Assets Acquired in Acquisition:
Cash		$	22,938			$	-
Account receivable			6,500				-
Deposit			45				-
Intangible  asset			160,760				-
Accrued expenses			(30,664	)			-
Common stock issued in connection with the acquisition of Bullfrog Ventures, LLC		$	159,579			$	-

See accompanying notes to the unaudited condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(Unaudited)

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Rokk3r Inc. was formerly known as Eight Dragons Company, a Nevada corporation. The predecessor was incorporated in Delaware on September 27, 1996 and on October 24, 2007 changed its state of incorporation from Delaware to Nevada by means of a merger with and into Eight Dragons Company. On March 23, 2018, the Company changed its name to Rokk3r Inc. In connection with this name change, on June 18, 2018, the Company’s trading symbol was changed to “ROKK.”

The Company generates revenues primarily from consulting services agreements focused on education, consulting, development and growth. 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 and variable interest entities:

 

•	Rokk3r Ops Inc. (“Rokk3r Ops”), a company incorporated in Florida on May 16, 2018 and wholly owned by the Company that provides our "Think Phase", "Co-build", and “Scale” services.

•	Rokk3r Ai Inc. (“Rokk3r Ai”), a company incorporated in Delaware on November 20, 2018 and a majority-owned subsidiary of Rokk3r Ops. As of June 30, 2019, Rokk3r Ai is not yet operational (see Note 5).

•	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).

•	ROKKCB10, Inc. (“ROKKCB10”), a company incorporated in Delaware on June 11, 2019, and a wholly owned subsidiary of Rokk3r Ops. As of June 30, 2019, ROKKCB10 is not yet operational.

•	Termo VB, Inc. (“Termo VB”), a company incorporated in Delaware on June 20, 2019, and a wholly owned subsidiary of Rokk3r Ops. As of June 30, 2019, Termo VB is not yet operational.

•	B3riblock, Inc. (“B3riblock”), a company incorporated in Delaware on October 15, 2018, and a variable interest entity under Rokk3r Ops.

•	Ai Venture Builder, Inc. (“Ai VB”), a company incorporated in Delaware on March 22, 2019, and a variable interest entity under Rokk3r Ops.

•	Cargologik, Inc. (“Cargologik”), a company incorporated in Delaware on May 3, 2019, and a variable interest entity under Rokk3r Ops.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) for interim financial information, which includes unaudited condensed consolidated financial statements of the Company, its wholly owned and majority owned subsidiaries, which are inactive as of June 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 June 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 six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the full year.

The Company consolidates its wholly owned and majority owned subsidiaries and entities that are VIEs where Rokk3r Ops is determined to be the primary beneficiary. The Company’s consolidated financial statements include the accounts of: Rokk3r Inc, Rokk3r Ops, Rokk3r Ai, Bullfrog, ROKKCB10, Termo VB, 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 the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”) 810-10-25-22 – Variable Interest Entity, a VIE is an entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The determination of whether an entity is a VIE includes both a qualitative and quantitative analysis. The Company bases its qualitative analysis on its review of the design of the entity, its organizational structure including decision-making ability and relevant financial agreements and the quantitative analysis on the forecasted cash flow of the entity. The Company reassesses its initial evaluation of an entity as a VIE upon the occurrence of certain reconsideration events.

 

A VIE must be consolidated only by its primary beneficiary, which is defined as the party who, along with its affiliates and agents, has both the: (i) power to direct the activities that most significantly impact the VIE’s economic performance; and (ii) obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. Rokk3r Ops determines whether it is the primary beneficiary of a VIE by considering qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of its investment; the obligation or likelihood for Rokk3r Ops or other interests to provide financial support; consideration of the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders and the similarity with and significance to the business activities of Rokk3r Ops and the other interests. Rokk3r Ops reassesses its determination of whether it is the primary beneficiary of a VIE each reporting period. Significant judgments related to these determinations include estimates about the current and future fair value and performance of investments held by these 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:

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 June 30, 2019 (see Note 5).

Variable interest entities:

On March 26, 2019, Rokk3r Ops entered into a Subscription Agreement (the “Subscription Agreement”) 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 from 100% 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 from 100% 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 VIEs” and reported non-controlling interest net income or loss under “Net (income) loss allocated to non-controlling interest in consolidated subsidiary and VIEs” in the unaudited condensed consolidated statements of operations based on the respective non-controlling interest ownership as of June 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 six months ended June 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 June 30, 2019 and December 31, 2018, respectively. The Company maintained its cash in various financial institutions during the six months ended June 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 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 six months ended June 30, 2019, the Company recovered $107,779 of account receivable previously written off which reduced the allowance for bad debt balance to $0. As of June 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 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 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 June 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 six months ended June 30, 2019, an impairment expense of $40,280 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 June 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 to parent company approximate their fair market value based on the short-term maturity of these instruments.

Property and Equipment

 

Property are stated at cost and are depreciated using the straight-line method over their estimated useful lives, which range from three to five years. Leasehold improvements are depreciated over the shorter of the useful life or lease term including scheduled renewal terms. Maintenance and repairs are charged to expense as incurred. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of these assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

 

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:

•	Does not provide the investor with a controlling investment

•	Does not provide the investor with the ability to exercise significant influence

•	Does not have readily determinable fair values

•	Is not subject to other industry-specific guidance

Under ASC 325-20, cost method investments are recorded initially at historical cost. Dividends on cost method investments received as part of the investor’s share of net earnings of the investee after the date of investment (i.e., a return on investment) are recorded as income. However, the investment is reduced if dividends received are in excess of the investor’s share of investee earnings (i.e., a return of investment) after the date of investment (see Note 4). Cost method investments are assessed for other-than-temporary impairments under the provisions of ASC 320 and are adjusted accordingly. As of June 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 to ASC 323-10-35-20 through 35-22, the investor ordinarily shall discontinue applying the equity method if the investment (and net advances) is reduced to zero and shall not provide for additional losses unless the investor has guaranteed obligations of the investee or is otherwise committed to provide further financial support for the investee. An investor shall, however, provide for additional losses if the imminent return to profitable operations by an investee appears to be assured. For example, a material, nonrecurring loss of an isolated nature may reduce an investment below zero even though the underlying profitable operating pattern of an investee is unimpaired. If the investee subsequently reports net income, the investor shall resume applying the equity method only after its share of that net income equals the share of net losses not recognized during the period the equity method was suspended.

Equity and cost method investments are classified as investments in the accompanying consolidated balance sheets. The Company periodically evaluates its equity and cost method investments for impairment due to declines considered to be other than temporary. If the Company determines that a decline in fair value is other than temporary, then a charge to earnings is recorded as an impairment loss in the accompanying consolidated statements of operations. 

Based on an impairment analysis, the Company did not record any impairment loss related to such investments during the six months ended June 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 impairment losses when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. During the six months ended June 30, 2018, there were no impairment losses incurred. During the six months ended June 30, 2019, the Company recorded an aggregate impairment loss of $69,180 of which $28,900 was related to the impairment of intangible assets in a subsidiary (see Note 5) and $40,280 was related to the impairment of digital currencies as discussed above under “Investments in 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.

 

Litigation settlements are accounted for in accordance with the gain contingency provisions of ASC Subtopic 450-30, Gain Contingencies, or ASC 450-30.

 

Redeemable Preferred Stock

 

Redeemable preferred stock (i.e., redeemable upon the occurrence of an event) and preferred stock that is redeemable (outside the control of the issuer), including those instruments that are redeemable at the option of the holder, are required to be present in mezzanine equity. Mezzanine equity is presented after liabilities and before stockholders’ equity on the balance sheet. The purpose of this classification is to convey that such a security may not be permanently part of equity and could result in a demand for cash or other assets of the entity in the future. Pursuant to ASC 480-10-S99, the Company presents redeemable securities that are classified as mezzanine equity separate from all other stockholders’ equity accounts that are classified as permanent equity (e.g., non-redeemable preferred, common stock, and retained earnings). The Company sold 4,085,938 shares of Series B Preferred for net proceeds of $2,615,000, or $0.64 per preferred share, during the year ended December 31, 2018 which is classified in mezzanine equity under “Redeemable Preferred Stock” (see Note 7).

 

Basic (Loss) Income per Common Share

Basic (loss) income per share is calculated by dividing the net (loss) income attributable to stockholders by the weighted-average number of shares outstanding for the period. Diluted (loss) income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings (loss) of the Company. Diluted (loss) income per share is computed by dividing the (loss) income available to stockholders by the weighted average number of shares outstanding for the period and dilutive potential shares outstanding unless such dilutive potential shares would result in anti-dilution. 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 June 30, 2019 and 2018:

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 June 30, 2019, the Company did not have any operating or capital leases.

Reclassifications

The Company segregated the compensation, legal and professional expense for the six months ended June 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 six months ended June 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:

 

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 six months ended June 30, 2019, the Company had a net loss of $1,894,462 and net cash used in operations was $1,690,773, respectively.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern for twelve months from the issuance date of this report. Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. These consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

NOTE 4 – INVESTMENTS

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 June 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 June 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 six months ended June 30, 2019, Rokk3r Ops’ share of Rokk3r Flamingo’s net loss was $19,736.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

On February 11, 2019, Rokk3r Ai entered into a Stock Purchase Agreement (the “Rokk3r Ai SPA”) with a non-affiliated party, a Delaware limited liability company (the “Purchaser”), pursuant to which Rokk3r Ai sold (i)12.5% ownership 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 six months ended June 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.

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 Rokk3r Ai 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 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 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 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 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 the heading “Non-controlling interest in consolidated subsidiary and VIE” and reported non-controlling interest net income or loss under the heading “Net (income) loss allocated to non-controlling interest in consolidated subsidiary and VIEs” 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 June 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 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 June 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 investments in Ai VB may be or are insufficient to meet or sustain its operations without additional subordinated financial support from other parties (see Note 2). Rokk3r Ops is the primary beneficiary of Ai VB because Rokk3r Ops is the sole service provider (through service agreements) which gives the Rokk3r Ops the rights to receive (and has received) all proceeds from Ai VB’s operation and capital contributions. The Company reassesses its initial evaluation of Ai VB as a VIE upon the occurrence of certain reconsideration events.

 

During the three and six months ended June 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 VB as of June 30, 2019 resulted in an increase in current assets of $350,151.

B3riblock, Inc.

On October 15, 2018, 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 (the “B3riblock SPA”) with Rokk3r Ops and a non-affiliated investor (“Investor”), a Columbian corporation, in order to raise capital and commence operations. Pursuant to the B3riblock 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 B3riblock 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 investments 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 six months ended June 30, 2019, Rokk3r Ops provided services to B3riblock in the amount of $15,484 and $19,396, respectively, which were eliminated in consolidation in accordance with ASC 810.

Cargologik, Inc.

On May 3, 2019, 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 (the “Cargologik SPA”) with a non-affiliated party, a British Virgin Islands corporation. Pursuant to the Cargologik 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 equity investors do not have the characteristics of a controlling financial interest and the initial equity investments 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 June 30, 2019 resulted in an increase in current assets of $250,100.

During the three and six months ended June 30, 2019, Rokk3r Ops provided services to Cargologik in the amount of $14,135 for both periods, which were eliminated in consolidation in accordance with ASC 810.

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, 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:

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 three and six months ended June 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 following periods:

 

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 periods 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 aggregate principal amount of $330,000 (the “Firstfire Note”). On April 27, 2017, in connection with the Firstfire Note, the Company issued Firstfire 250,000 shares of its common stock as additional consideration for the purchase of the Firstfire Note. On November 15, 2017, the Company entered into a Settlement Agreement and Stipulation (the “Settlement Agreement”) with Firstfire, pursuant to which the Company agreed to issue common stock to Firstfire in exchange for the settlement of $330,000 for the principal amount of the promissory note issued by the Company to Firstfire on Firstfire Note, plus $100,000 (the “Settlement Amount”) as provided for in the Firstfire Note.

 

On November 28, 2017, the Circuit Court of Broward County, Florida (the “Court”), entered an order (the “Firstfire Order”) approving, among other things, the fairness of the terms and conditions of an exchange pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended (the “Securities Act”), in accordance with a stipulation of settlement, pursuant to the Settlement Agreement, in the matter entitled Firstfire Global Opportunities Fund, LLC v. Eight Dragons Company (Case No. CACE-17-019524 (Div. 25) (the “Firstfire Action”). Firstfire commenced the Firstfire Action against the Company to recover the Settlement Amount (the “Firstfire Claim”) pursuant to the Firstfire Note. The Settlement Agreement became effective and binding upon the execution of the Firstfire Order by the Court on November 15, 2017. The Company’s obligations under the Firstfire Note were governed by and were replaced by the Company’s obligations under the Settlement Agreement.

On June 15, 2018, the Company and Firstfire entered into an Amendment to Settlement Agreement and Stipulation (the “Firstfire Amendment”) to amend the Settlement Agreement entered into on November 15, 2017. Pursuant to the terms of the Firstfire Amendment, the Company agreed to issue to Firstfire 1,000,000 shares (the “Settlement Shares”) of the Company’s common stock in full settlement of the claims set forth in the Settlement Agreement. The amount of Settlement Shares includes 250,000 shares of common stock previously issued to Firstfire in 2017 and an additional 750,000 shares to be issued by the Company upon approval of the Firstfire Amendment by the Court. The Company and Firstfire submitted the Firstfire Amendment to the Court for a hearing on the fairness of such terms and conditions, and the issuance exempt from registration of the Settlement Shares. The Firstfire Amendment became effective on July 9, 2018, when it was approved by the Court and the Company became obligated to issue the Settlement Shares, with such shares to be issued as freely trading securities pursuant to Section 3(a)(10) of the Securities Act.

In addition, upon issuance of the Settlement Shares, Firstfire entered into an 18 month lock up agreement whereby it agreed not to sell any shares of the common stock it beneficially owns except as follows: (i) 25,000 shares during each consecutive month for a period of three consecutive months which commenced on the first full month after the date the Firstfire Amendment is approved by the Court (the “Order Date”), (ii) 50,000 shares per month for a period of three consecutive months commencing on the fourth month after the Order Date; (iii) 75,000 shares per month for a period of three consecutive months which commenced on the seventh month after the Order Date; and (iv) 100,000 shares each month for a period of three months which commenced on the tenth month after the Order Date. If, however, the dollar value of shares sold by Firstfire during the 18-month lock-up period exceeds $500,000, then the number of shares that may be sold during each month during the six consecutive months after such period shall be limited to 40,000.

 

During the year ended December 31, 2018, 750,000 shares of the Company’s common were issued, in addition to the 250,000 shares of common stock issued in 2017, pursuant to the Settlement Agreement and Firstfire Amendment. The Firstfire Note had no outstanding principal and interest as of June 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 will be issued and sold in five monthly tranches of at least 781,250 shares ($500,000) each, which commenced on July 27, 2018, the initial closing date, for an aggregate of $2,500,000. After the earlier of the four-month period after the initial closing date or the sale of 3,906,250 shares and not later than six months after the date of the initial closing, the investor may, but shall not be obligated to, purchase from the Company in a single closing, up to an additional 781,250 shares, not previously sold and never to exceed the number of Series B Preferred, at a price of $0.64 per share.

In connection with the Company’s obligations under the Stock Purchase Agreement, the Company and its parent, Rokk3r Labs, entered into a Security and Pledge Agreement. Pursuant to the terms of this agreement, Rokk3r Labs pledged as collateral security for the payment, performance and observance of all of the Company’s obligations under Security and Pledge Agreement, the Stock Purchase Agreement, the Investor Rights Agreement, and the Series B Preferred, securities owned by Rokk3r Labs with a value of approximately $16,000,000 (the “Collateral”). Rokk3r Labs may transfer any of its interests in the Collateral so long as the Company or Rokk3r Labs, at their option, (i) add the proceeds of such transfer to the Collateral or (ii) promptly pledge a first priority security interest in one or more securities identified in the Security and Pledge Agreement that have an aggregate value equal to or greater than the value of such proceeds, provided, however, (x) no replacement collateral shall be required unless the aggregate value of the then-remaining Collateral decreases below an amount that is equal to three (3) times the amount invested and (y) any such reserve equity interests used as replacement collateral shall be subject to the investor’s prior approval (not to be unreasonably withheld or delayed).

Upon a default under the terms of the Security and Pledge Agreement, the Stock Purchase Agreement, the Investor Rights Agreement, or the Series B Preferred, the investor may, among other things, collect or take possession of the Collateral, proceed with the foreclosure of the security interest in the Collateral or sell, lease or dispose of the Collateral. The pledge of the Collateral shall (a) remain in full force and effect until (i) the Company has acquired 75% of Rokk3r Labs’ current ownership interests in the aggregate in the entities that make up the reserved equity interests and the Collateral, or (ii) 75% of the shares of Series B Preferred owned by the investor have been converted into the Company’s common stock or have been redeemed by the investor.

In connection with the Company’s obligations under the Stock Purchase Agreement, we entered into an Investor Rights Agreement with the investor. Pursuant to the terms of this agreement, the Company agreed to, among other things, file a registration statement covering the investor’s resale of the common stock underlying the Series B Preferred (to the extent such shares are registrable under the Securities Act) within 60 days following demand by such investor, with such demand right permitted any time after 180 days after the effective date of a registration statement related to the Company’s first underwritten public offering of the Company’s common stock under the Securities Act (an “IPO”). In addition, the Company agreed to register such shares if the Company files a registration statement in connection with a public offering of its securities for cash. So long as the investor holds 75% of the Series B Preferred, the investor has similar demand registration rights if at any time we are eligible to use a Form S-3. All registration rights are subject to cut back to the extent the Company’s Chief Executive Officer makes a good faith determination that a registration statement would interfere with certain corporate events identified in such agreement.

The investor has certain information, observer and inspection rights which permit such investor to receive certain financial statements on a periodic basis, budget and business plan information annually and such other information as the investor shall reasonably request.  The investor is entitled to appoint two representatives to become members of the Company’s strategic advisory board for a period of no less than two years after the initial issuance of the Series B Preferred. The advisory board will be established by the Company’s Board to offer them and the Company strategic ideas and advice regarding potential businesses expansion and strategy of the Company as mandated from time-to-time by the Board, including development and location of Rokk3r Hubs, opportunity identification, pilot program identification and execution, deal origination, acquisitions and mergers and representation of the Company and its brand. The Company agreed to compensate the investor for the participation by its designees on the Company’s advisory board by issuing the investor 300,000 shares of the Company’s restricted common stock, with 50% of such shares vesting twelve months after the issuance date of the Series B Preferred and the 50% remaining balance vesting twenty-four months after the issuance date of the Series B Preferred, so long as at least one investor designee is a member of the advisory board at the time of vesting. In addition, the investor or its affiliates are entitled to, without additional charge, certain corporate educational services the Company provides to its clients.

 

On July 26, 2018, the Company filed a certificate of designation, preferences and rights of Series B Preferred stock (the “Certificate of Designation”) with the Secretary of State of the State of Nevada to designate 4,687,500 shares of our previously authorized preferred stock as Series B Preferred stock. The Certificate of Designation and its filing was approved by the Company’s Board of Directors on July 26, 2018 without shareholder approval as provided for in the Company’s articles of incorporation and under Nevada law.

The Certificate of Designation includes:

 

•	the original issue price of each share is $0.64 (the “Original Issue Price”),

•	the shares are entitled to one vote for each share of common stock that such shares of Series B Preferred are convertible into, the shares do not pay dividends,

•

each share is convertible into shares of our common stock at a conversion rate of one share of common stock for each share of Series B Preferred, subject to adjustment as hereinafter set forth. In the event of a breach by us of the rights, preferences, powers, restrictions and limitations of the Series B Preferred, then the number of shares of our common stock issuable upon conversion will be increased to 1.1 shares of common stock for each share of Series B Preferred and the holder may exercise its redemption rights discussed below,

•

the conversion price of the Series B Preferred is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events. In addition, the conversion price is subject to adjustment if we issue or sell shares of our common stock in one or more capital-raising transactions which results in gross proceeds to us of more than $500,000 at a purchase price per share of less than $0.64. If this event should occur, the number of shares of our common stock issuable upon conversion is increased on a pro-rata basis, and

•

the holder of the Series B Preferred has the right to elect to have all or any portion of the then outstanding shares of Series B Preferred redeemed by us at any time and from time to time on or after 18 months following the issuance of 3,906,250 shares or after any breach of the rights, preferences, powers, restrictions and limitations of the Series B Preferred for a price per share equal to 122.5% of the Original Issue Price, as adjusted.

The information, observer, inspection and advisory board rights will terminate (i) immediately before the consummation of the IPO, (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Securities Exchange Act of 1934, as amended, or (iii) upon the closing of a deemed liquidation event (as defined in the Investor Rights Agreement), whichever event occurs first.

 

The Series B Preferred is convertible into the Company’s common stock and/or redeemable at any time at the option of the holder or the Company in the events not controlled by the Company. The Company has classified the Series B Preferred mezzanine equity in the accompanying consolidated balance sheet in accordance with ASC 480 - Distinguishing Liabilities from Equity under “Redeemable Preferred Shares” (see Note 2).

During the year ended December 31, 2018, the Company sold 4,085,938 shares of the Series B Preferred for net proceeds of $2,615,000 or $0.64 per preferred share.

As of June 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 $205,760 during the six months ended June 30, 2019, for an aggregate redemption premium of $310,178.

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 June 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 six months ended June 30, 2019, the Company issued:

•	45,000 shares of common stock of Rokk3r Inc., at fair value of $0.64 per share or $28,800, to a non-affiliated party, in connection with the sale of non-controlling interest of a consolidated subsidiary and receipt of intangible assets (see Note 5).

Common Stock Issuable

During the six months ended June 30, 2019, the Company entered into agreements to issue:

•	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.

•	292,250 shares of common stock of Rokk3r Inc., at fair value of $0.546 per share or $159,569, in connection with the Bullfrog acquisition (see Note 6).

•

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 $27,921 of stock-based compensation expense related to these shares for the three and six months ended June 30, 2019 (see Note 12).

Equity Compensation Plans

2017 Omnibus Equity Compensation Plan

On April 12, 2017, the Board adopted the 2017 Omnibus Equity Compensation Plan and reserved 5,000,000 shares of common stock for future issuance under the 2017 Omnibus Equity Compensation Plan. As of June 30, 2019, and December 31, 2018, no grants have been made under the 2017 Omnibus Equity Compensation Plan.

2018 Equity Incentive Plan

On March 7, 2018, the Board approved, and on March 28, 2018, our shareholder approved, by written consent, the 2018 Equity Incentive Plan. The 2018 Equity Incentive Plan is intended to make available incentives that will assist us to attract, retain and motivate employees, including officers, consultants and directors. We may provide these incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and units and other cash-based or stock-based awards. A total of 15,000,000 shares of the Company’s common stock were reserved under the 2018 Equity Incentive Plan. The shares authorized under the 2018 Equity Incentive Plan automatically increase on January 1, 2019 and each subsequent anniversary through 2028, by an amount equal to the smaller of (a) 3% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (b) an amount determined by the Board. As of June 30, 2019, and December 31, 2018, no grants have been made under the plan.

Approved Grant of Common Stock as Incentive for Employees and Contractors

On November 16, 2018, our Board approved the grant of stock-based awards of its common stock by Rokk3r Ops Inc. as signing bonuses to attract innovative, creative and experience individuals to join by Rokk3r Ops Inc. in the aggregate amount of not more than $352,000, represented by 550,000 shares, to be vested as per an agreed upon vesting schedule (the “Vesting Date”). At Vesting Date, the shares shall be issued; notwithstanding the foregoing, the Board may at any time accelerate the Vesting Date.  As of June 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 June 30, 2019 and December 31, 2018, the Company had a cash balance of $1,481,683 and $2,297,902, respectively. The Company has not experienced any losses in such accounts through June 30, 2019.

Concentrations of Revenue

•

During the six months ended June 30, 2019, the Company had revenues of $2,124,145 of which 16% and 11% were from two 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.

•

During the six months ended June 30, 2018, the Company had revenue of $507,845 of which 36%, 18% and 12% 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.

Concentrations of Accounts Receivables

•	During the six months ended June 30, 2019, the Company had net account receivables of $693,675 of which 25%, 15% and 11% were from three of the Company’s customers.

•	During the year ended December 31, 2018, the Company had net accounts receivables of $400,182 of which 42% was from a customer.

 

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 six months ended June 30, 2019, the Company advanced Rokk3r Labs, its controlling shareholder, $41,986 primarily for their share of the office lease. The advances are non-interest bearing and are payable on demand. At June 30, 2019 and December 31, 2018, the Company had $117,124 and $75,138 due 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 six months ended June 30, 2019, the Company recorded and $819,167 and $1,412,238 of consulting fees – parent, respectively, in connection with the Collaboration Agreement. In connection with the Collaboration Agreement, during the three and six months ended June 30, 2018, the Company recorded $750,000 and $1,500,000 of consulting fees – parent, respectively, and $250,000 of prepaid expense – related party in connection with the Collaboration Agreement.

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 six months ended June 30, 2019, the Company recorded $30,000 and $60,000 of license fee expense, respectively. As of June 30, 2019, $15,000 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 ExO Foundation, Inc. which is owned and controlled by Salim Ismail, a member of the Board of Directors of the Company, and Rokk3r Ops for the pre-purchase of $250,000 in future services such as consultants, advisors and speakers to be rendered by ExO Foundation, Inc, or through ExO Lever Network. The services are represented in vouchers to be used in the next two years (in the event of conversion into another instrument without expiration within such two-year period) or within Ten (10) years if the vouchers are not converted into another instrument. Either party may terminate the consulting agreement, upon thirty (30) days’ written notice to the other party. If Rokk3r Ops early terminates the agreement, any prepaid services would be non-refundable and shall be forfeited, unless terminated due to a material breach by ExO Foundation. The vouchers are transferable and assignable. The $250,000 payment was recorded as prepaid expense – related party in the unaudited condensed consolidated balance sheets as of June 30, 2019 and December 31, 2018. As of June 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 “ExO SPA”) with ExO Foundation Inc., a Delaware public benefit corporation (“EXO”) which is owned and controlled by Salim Ismail, a member of the Board of Directors of the Company. Pursuant to the ExO SPA, the Company agreed to issue and sell to EXO, 5,000,000 shares of the Company’s common stock in exchange for EXO and the Company entering into a Simple Agreement for Future Equity with Token Allocation (the “Safe-T Agreement”).

Pursuant to the ExO SPA, EXO agreed that during the 24 month period after the date of execution of the Safe-T Agreement, EXO will not directly or indirectly, sell or engage in any transaction that will result in a change in the beneficial or record ownership of 50% of the common stock issued to EXO pursuant to the ExO SPA. Further, pursuant to the ExO SPA, EXO agreed not to transfer any of the common stock issued to EXO pursuant to the ExO SPA during the 24 month period after the date of execution of the Safe-T Agreement without first giving the Company written notice of such proposed transfer and allowing the Company the option to purchase the common stock at issue on the same terms as contemplated by such proposed transfer.

 

The ExO SPA includes customary representations, warranties and covenants by the Company and EXO and customary closing conditions. As of June 30, 2019, no shares of common stock had been issued in connection with the ExO SPA. In July 2019, the Company issued the 5,000,000 common shares (see Note 13).

Safe-T Agreement

On November 2, 2018, the Company and EXO which is owned and controlled by Salim Ismail, a member of the Board of Directors of the Company, entered into the Safe-T Agreement. Pursuant to the Safe-T Agreement, at EXO’s election, the Company has the right to purchase a number of units of CivX Tokens (each a “Token” and together the “Tokens”) to be used in a software network platform or application built by EXO and its affiliates, equal to the Purchase Amount, as such term is defined in the Safe-T Agreement and discussed below, divided by the Price Per Token, as such term is defined in the Safe-T Agreement and discussed below.

Further, pursuant to the Safe-T Agreement, EXO agreed that if it conducts an Equity Financing as such term is defined in the Safe-T Agreement, prior to the termination of the Safe-T Agreement, EXO will issue to the Company a number of shares of EXO’s preferred stock equal to the Purchase Amount, as such term is defined in the Safe-T Agreement, divided by the price per share of the preferred stock sold by EXO in the Equity Financing.

The Safe-T Agreement defines the term “Equity Financing” as a bona fide transaction or series of transactions with the principal purpose of raising capital, pursuant to which EXO issues and sells its preferred stock at a fixed pre-money valuation with aggregate proceeds of at least $5,000,000 (excluding any Simple Agreements for the Future Equity with Token Allocations, Simple Agreements for the Future Equity, or other convertible securities converting pursuant to the Equity Financing).

The Safe-T Agreement defines the term “Purchase Amount” as follows: (a) the value of 5,000,000 shares of the Company’s common stock (the “Purchaser Shares”) to be either (i) the publicly traded price of the Purchaser Shares at the time of the calculation, with the express requirement that if the Purchaser Shares are then trading at over $3.00 then that will be the maximum value of the Purchaser Shares and if the Purchaser Shares are then trading under $0.64 then that will be the minimum value of the Purchaser Shares or (ii) if the Purchaser Shares are not publicly traded at such time, the value of such shares shall be the fair market value, up to but not exceeding $3.00 (referred to as the “Adjusted Value”); (b) with a discount rate of 85% to be applied to the Adjusted Value to determine the final value of the “Purchase Amount.”

The Safe-T Agreement defines the term “Price Per Token” as the fair market value of an individual Token at the time of the Token Sale, as such term is defined in the Safe-T Agreement; provided, however, that if there is no public market for the Tokens at the time of the Token Sale, the price per Token shall be determined by an independent third party valuation firm or expert, as mutually agreed between Company and EXO. The Safe-T Agreement defines the term “Token Sale” as a bona fide transaction or series of transactions in which EXO elects to sell all of the Tokens to the Company pursuant to the Safe-T Agreement.

The Safe-T Agreement will terminate upon either the earlier of the following (i) the issuance of all of the Tokens by EXO to the Company pursuant to the Safe-T Agreement (ii) the issuance of all of the shares in the Equity Financing pursuant to the Safe-T Agreement (iii) upon payment by EXO to the Company in the event of an occurrence of a Dissolution Event or Liquidity Event, as such terms are defined in the Safe-T Agreement or (iv) 24 months after the date of execution of the Safe-T Agreement.

The Safe-T Agreement defines the term “Liquidity Event” as a change of control of EXO or an initial public offering by EXO. The Safe-T Agreement defines the term “Dissolution Event” as (i) a voluntary termination of operations of EXO; (ii) a general assignment for the benefit of EXO’s creditors; or (iii) any other liquidation, dissolution or winding up of EXO (excluding a Liquidity Event), whether voluntary or involuntary.  Upon the occurrence of a Liquidity Event or a Dissolution Event, EXO will have to pay the Company a cash amount equal to the Purchase Amount.

Upon the occurrence of the termination of the Safe-T Agreement pursuant to the 24-month expiration EXO will have to deliver to the Company either the Purchaser Shares, cash in an amount equal to the Purchase Amount or an amount of equity in EXO equal to the Purchase Amount.

Pursuant to the Safe-T Agreement, the Company agreed that if Tokens are issued to the Company pursuant to the Safe-T Agreement, that the Company would not transfer 50% of such Tokens for a period of 12 months from the issuance of the Tokens.

 

The Safe-T Agreement includes customary representations, warranties and covenants by the Company and EXO. As of June 30, 2019, the Company had not received any proceeds or issued shares in connection with the Safe-T Agreement (see Note 13).

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:

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:

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 the ExO SPA with EXO which is affiliated with a member of the Board of Directors of the Company. Pursuant to the ExO SPA, the Company agreed to issue and sell to EXO, 5,000,000 shares of the Company’s common stock in exchange for EXO and the Company entering into the Safe-T Agreement as discussed above in Note 11. In July 2019, the Company issued the 5,000,000 shares (see Note 13).

Safe-T Agreement

On November 2, 2018, the Company and EXO 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 EXO’s election, the Company has the right to purchase a number of units of Tokens to be used in a software network platform or application built by EXO and its affiliates, equal to the Purchase Amount, as such term is defined in the Safe-T Agreement, divided by the Price Per Token, as such term is defined in the Safe-T Agreement and discussed above in Note 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.