| Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements | Note 3. Basis of Presentation, Summary of Significant Accounting
Policies and Recent Accounting Pronouncements Principles of consolidation The accompanying consolidated financial statements
of the Company include the accounts of the Company and its wholly or majority owned and controlled subsidiaries. Consolidated subsidiaries
results are included from the date the subsidiary was formed or acquired. Intercompany investments, balances and transactions have
been eliminated in consolidation. Non–controlling interests represents the minority equity investment in the Company's subsidiaries,
plus the minority investors' share of the net operating results and other components of equity relating to the non–controlling
interest. The Company's consolidated operating subsidiaries and (percentage owned at December 31, 2019) consisted of; Kairos Global
Technology, Inc., (100%) and Logical Brokerage Corp. (92.5%). Use of estimates The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management
to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the balance sheet and the reported amounts of revenue and expenses during the reporting periods. Actual
results could differ significantly from those estimates. The most significant accounting estimates inherent in the preparation
of the Company's financial statements include estimates associated with revenue recognition, asset valuations, the useful lives
and recoverability of long-lived assets, impairment analysis of intangibles and goodwill, stock-based compensation, and the valuation
allowance associated with the Company’s deferred tax assets. Long-term investments As described in Note 6 to these consolidated
financial statements, effective January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2016-01 and
related ASU 2018-03 concerning recognition and measurement of financial assets and financial liabilities. In adopting this new
guidance, the Company has made an accounting policy election to adopt an adjusted cost method measurement alternative for investments
in equity securities without readily determinable fair values. For equity investments that are accounted for
using the measurement alternative, the Company initially records equity investments at cost but is required to adjust the carrying
value of such equity investments through earnings when there is an observable transaction involving the same or a similar investment
with the same issuer or upon an impairment. As of December 31, 2019, the Company’s
long-term investments consist of its investments in Coinsquare Ltd., (“Coinsquare”), TessPay Inc. (formerly 1172767
B.C. Ltd) (“Tess”) and Verady, LLC (“Verady”). Cash, cash equivalents and short-term investments The Company considers all highly liquid investments
with an original maturity of three months or less at the date of acquisition to be cash equivalents. From time to time, the Company's
cash account balances exceed the balances as covered by the Federal Deposit Insurance System. The Company has never suffered a
loss due to such excess balances. As of December 31, 2019 and 2018, the Company had no cash equivalents or short-term investments. Fair value of financial instruments The Company accounts for financial instruments
under Financial Accounting Standards Board (“FASB”) ASC 820, Fair Value Measurements. This statement defines
fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures
about fair value measurements. To increase consistency and comparability in fair value measurements, ASC 820 establishes
a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows: Level 1 — quoted prices (unadjusted)
in active markets for identical assets or liabilities; Level 2 — observable inputs other than
Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities
in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable;
and Level 3 — assets and liabilities whose
significant value drivers are unobservable. Observable inputs are based on market data
obtained from independent sources, while unobservable inputs are based on the Company's market assumptions. Unobservable
inputs require significant management judgment or estimation. In some cases, the inputs used to measure an asset or liability
may fall into different levels of the fair value hierarchy. In those instances, the fair value measurement is required to
be classified using the lowest level of input that is significant to the fair value measurement. Such determination requires
significant management judgment. As of December 31, 2019 there were no financial assets or liabilities measured at fair value.
The carrying amounts of the Company’s financial assets and liabilities, such as cash and cash equivalents, and accounts
payable, approximate fair value due to the short-term nature of these instruments. During the year ended December 31, 2019, the
Company issued convertible notes and warrants in connection with the notes. The notes and warrants were classified as liabilities
and measured at fair value on the issuance date, with changes in fair value recognized as other expense on the consolidated statements
of operations and disclosed in the consolidated financial statements. Cryptocurrencies Cryptocurrencies, (including bitcoin,
bitcoin cash and litecoin) are included in current assets in the accompanying consolidated balance sheets. Cryptocurrencies
purchased are recorded at cost and cryptocurrencies awarded to the Company through its mining activities are accounted for in
connection with the Company’s revenue recognition policy disclosed below. Cryptocurrencies held are accounted for as
intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed
for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than
not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured
using the quoted price of the cryptocurrency at the time its fair value is being measured. In testing for impairment, the Company
has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists.
If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary.
If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss
is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted. Purchases of cryptocurrencies by the Company
are included within investing activities in the accompanying consolidated statements of cash flows, while cryptocurrencies awarded
to the Company through its mining activities are included within operating activities on the accompanying consolidated statements
of cash flows. The sales of cryptocurrencies are included within investing activities in the accompanying consolidated statements
of cash flows and any realized gains or losses from such sales are included in other income (expense) in the consolidated statements
of operations. The Company accounts for its gains or losses in accordance with the first in first out (FIFO) method of accounting. Deferred revenue The Company recognized upfront license fees
from Ceva Santé Animale S.A. (“Licensee”) related to its exclusive license agreement (“License Agreement”),
which have been recorded as deferred revenue and are being amortized over the term of the License Agreement. Amortization
of the license fees totaling approximately $1.6 million began in July 2012. As of December 31, 2019, and 2018, each, deferred revenue
of approximately $0.1 million has been classified as a current liability and $0.8 million and $0.9 million, respectively, has been
classified as a long-term liability. The current liability represents the next twelve months' portion of the license fees revenue. For
each of the years ended December 31, 2019 and 2018, approximately $0.1 million, was recorded as the license fee revenue. Property and equipment Property and equipment is stated at cost and
depreciated using the straight-line method over the estimated useful lives of the assets, generally two years for cryptocurrency
mining equipment and three years for computer related assets. Estimated useful lives for leasehold improvements are typically the
lesser of the estimated useful life of the asset or the life of the term of the lease. Patents and other intangible assets The Company accounts for intangible assets
under ASC 350-30. Patents costs consisting of filing and legal fees incurred are initially recorded at cost. Patents are amortized
over the legal life of the patent or their estimated useful lives, using the straight-line method. Certain patents are in the legal
application process and therefore are not currently being amortized. Impairment of long-lived assets Management reviews long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future cash flows
expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Based on its reviews,
management determined that its cryptocurrency mining equipment and related improvements were impaired by a total of $29.2 million
based upon an assessment as of December 31, 2018, including consideration of the decline in bitcoin values which occurred commencing in
late December 2017 and continued through December 31, 2018. Intangible assets acquired in the Tess business
combination consist primarily of in-process research and development (“IPR&D”) assets. The value attributable to
IPR&D projects at the time of acquisition is capitalized as an indefinite-lived intangible asset and tested for impairment
until the project is completed or abandoned. Upon completion of the project, the indefinite-lived intangible asset will be accounted
for as a finite-lived intangible asset and amortized on a straight-line basis over its estimated useful life. If the project is
abandoned, the indefinite-lived intangible asset will be charged to expense. During the year ended December 31, 2018, management
determined that its intangible assets related to the Tess Investment were impaired and recorded an impairment charge of $1.3 million. The Company made the decision, effective as
of December 31, 2019 not to pursue its RiotX / Logical Brokerage cryptocurrency exchange development plan, and as of December 31,
2019 recorded an impairment of intangible assets acquired of approximately $0.7 million. Deferred tax liability Due to certain acquisitions, temporary differences
between the book fair value and the tax basis of the indefinite life intangible assets and depreciable property and equipment were
recorded. The Company recognized a $0.1 million deferred tax liability related to its Logical Brokerage acquisition during
the year ended December 31, 2018. Subsequently, due to the Company’s decision not to pursue its Logical Brokerage business
and the impairment and depreciation of the Kairos property and equipment, the Company recorded a $0.1 million and $0.7 million
income tax benefit during the years ended December 31, 2019 and 2018, respectively, from the reduction of its existing deferred
tax liability related to its acquisitions. The following is a rollforward of the Company’s deferred tax liability from
January 1, 2018 to December 31, 2019:
December 31, 2019 December 31, 2018
Beginning Balance $ 143 $ 699
Deferred tax liability recorded on the Logical Brokerage acquisition — 143
Impairment and depreciation on the Kairos acquisition — (699 )
Abandonment of Logical Brokerage (143 ) —
Ending Balance $ — $ 143 Sequencing On January 28, 2019, the Company adopted a
sequencing policy under Accounting Standards Codification (“ASC”) 815-40-35 Derivatives and Hedging Notes payable fair value option As described further in Note 10 - Notes
and Other Obligations, As of December 31, 2019, all of the Notes were
converted into 1,813,500 shares of the Company’s common stock valued at their estimated fair value at the time of conversion
totaling approximately $10.2 million. Warrant liability The Company issued Warrants to purchase
1,908,144 shares of its common stock in connection with the Notes issued to the Investors in January 2019, and recorded these outstanding
Warrants as a liability at fair value utilizing a Monte Carlo simulation model. This liability is subject to re-measurement at
each balance sheet date, and any change in fair value is recognized in the Company's consolidated statements of operations. As of June 25, 2019, the Company’s
Notes had been converted in their entirety and the warrant liability was revalued and reclassified to equity, because the Warrants
are no longer subject to the Company’s sequencing policy as described above. Leases Effective January 1, 2019, the Company accounts
for its leases under ASC 842, Leases In calculating the right of use asset and lease
liability, the Company elects to combine lease and non-lease components as permitted under ASC 842. The Company excludes
short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and recognizes
rent expense on a straight-line basis over the lease term. The Company continues to account for leases in the prior period
financial statements under ASC Topic 840. Revenue recognition Cryptocurrency mining: The Company recognizes revenue under ASC 606,
Revenue from Contracts with Customers. The core principle of the new revenue standard is that a company should recognize revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company
expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle: • Step 1: Identify
the contract with the customer • Step 2: Identify
the performance obligations in the contract • Step 3: Determine
the transaction price • Step 4: Allocate
the transaction price to the performance obligations in the contract • Step 5: Recognize
revenue when the Company satisfies a performance obligation In order to identify the performance obligations in a contract with
a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that
is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of
goods or services) if both of the following criteria are met: The customer can benefit from the good or service either on its own
or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct),
and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in
the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract). If a good or service is not distinct, the good or service is combined
with other promised goods or services until a bundle of goods or services is identified that is distinct. The transaction price is the amount of consideration
to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration
promised in a contract with a customer may include fixed amounts, variable amounts, or both. When determining the transaction price,
an entity must consider the effects of all of the following:
• Variable consideration
• Constraining estimates of variable consideration
• The existence of a significant financing component in the contract
• Noncash consideration
• Consideration payable to a customer Variable consideration is included in the transaction
price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not
occur when the uncertainty associated with the variable consideration is subsequently resolved. The transaction price is allocated
to each performance obligation on a relative standalone selling price basis. The transaction price allocated to each performance
obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate. The Company has entered into digital asset
mining pools by executing contracts with the mining pool operators to provide computing power to the mining pool. The contracts
are terminable at any time by either party and the Company’s enforceable right to compensation only begins when the Company
provides computing power to the mining pool operator. In exchange for providing computing power, the Company is entitled to a fractional
share of the fixed cryptocurrency award the mining pool operator receives (less digital asset transaction fees to the mining pool
operator which are recorded as a component of cost of revenues), for successfully adding a block to the blockchain. The Company’s
fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total
computing power contributed by all mining pool participants in solving the current algorithm. Providing computing power in digital asset
transaction verification services is an output of the Company’s ordinary activities. The provision of providing such computing
power is the only performance obligation in the Company’s contracts with mining pool operators. The transaction consideration
the Company receives, if any, is noncash consideration, which the Company measures at fair value on the date received, which is
not materially different than the fair value at contract inception or the time the Company has earned the award from the pools.
The consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur,
the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm)
and the Company receives confirmation of the consideration it will receive, at which time revenue is recognized. There is no significant
financing component in these transactions. Fair value of the cryptocurrency award received
is determined using the quoted price of the related cryptocurrency at the time of receipt. There is currently no specific definitive guidance
under GAAP or alternative accounting framework for the accounting for cryptocurrencies recognized as revenue or held, and management
has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is
enacted by the FASB, the Company may be required to change its policies, which could have an effect on the Company’s consolidated
financial position and results from operations. Cost of revenue The Company's cost of revenue consists primarily
of direct production costs related to mining operations, including mining pool fees, rent and utilities, but excluding depreciation
and amortization, which are separately stated in the Company’s consolidated statements of operations. Business combinations The Company applies the provisions of ASC 805
in the accounting for acquisitions. ASC 805 requires us to recognize separately from goodwill the assets acquired and the liabilities
assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred
over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates
and assumptions to accurately apply preliminary value to assets acquired and liabilities assumed at the acquisition date as well
as contingent consideration, where applicable, these estimates are inherently uncertain and subject to refinement. As a result,
during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments in the current
period, rather than a revision to a prior period. Upon the conclusion of the measurement period or final determination of the values
of the assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in our consolidated
statements of operations. Accounting for business combinations requires management to make significant estimates and assumptions,
especially at the acquisition date, including estimates for intangible assets, contractual obligations assumed, restructuring liabilities,
pre-acquisition contingencies, and contingent consideration, where applicable. Although we believe the assumptions and estimates
we have made have been reasonable and appropriate, they are based in part on historical experience and information obtained from
management of the acquired companies and are inherently uncertain. Critical estimates in valuing certain of the intangible assets
we have acquired include; future expected cash flows from product sales; customer contracts and acquired technologies; expected
costs to develop in-process research and development into commercially viable products and estimated cash flows from the projects
when completed; and discount rates. Unanticipated events and circumstances may occur that may affect the accuracy or validity of
such assumptions, estimates, or actual results. Income taxes The Company accounts for income taxes under
the asset and liability method, in which deferred tax assets and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases
and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment
date. A valuation allowance is required to the extent any deferred tax assets may not be realizable. ASC Topic 740, Income Taxes, (“ASC 740”),
also clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes
a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained
upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties,
accounting in interim period, disclosure and transition. Based on the Company's evaluation, it has been concluded that there are
no significant uncertain tax positions requiring recognition in the Company's consolidated financial statements. The Company believes
that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result
in material changes to its financial position. Stock-based compensation The Company accounts for share-based payment
awards exchanged for services at the estimated grant date fair value of the award. Stock options issued under the Company’s
long-term incentive plans are granted with an exercise price equal to no less than the market price of the Company’s stock
at the date of grant and expire up to ten years from the date of grant. These options generally vest on the grant date
or over a one- year period. The Company estimates the fair value of stock
option grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based
awards represent management’s best estimates and involve inherent uncertainties and the application of management’s
judgment. Expected Term Expected Volatility Risk-Free Interest Rate Expected Dividend Effective January 1, 2017, the Company elected
to account for forfeited awards as they occur, as permitted by Accounting Standards Update (“ASU”) 2016-09. Ultimately,
the actual expenses recognized over the vesting period will be for those shares that vested. Prior to making this election, the
Company estimated a forfeiture rate for awards at 0%, as the Company did not have a significant history of forfeitures. Loss per share Basic net loss per share (“EPS”)
of common stock is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the
period. Diluted EPS 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 then shared in the earnings of the entity.
The Company excludes its unvested restricted shares and escrow shares from the net loss per share calculation. The escrow shares
are excluded because of related contingencies and including them would result in anti-dilution. Since the Company has only incurred losses,
basic and diluted net loss per share is the same. Securities that could potentially dilute loss per share in the future that
were not included in the computation of diluted loss per share at December 31, 2019 and 2018 because their inclusion would be anti-dilutive
are as follows:
December 31,
2019 2018
Warrants to purchase common stock 3,574,257 1,671,113
Options to purchase common stock 12,000 62,000
Escrow shares 200,000 200,000
Unvested restricted stock awards 1,524,499 95,939
Convertible Series B preferred shares 4,199 13,000
Total 5,314,955 2,042,052 Segment reporting Operating segments are defined as components
of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision
maker, or decision–making group in deciding how to allocate resources and in assessing performance. Our chief operating decision–making
group is composed of the chief executive officer. We currently operate in one segment surrounding our cryptocurrency mining operation. Subsequent events The Company has evaluated all events that occurred after the balance
sheet date through the date when the financial statements were issued. See Note 17. Recently issued and adopted accounting pronouncements
The Company continually assesses any new accounting
pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company's
financial reporting, the Company undertakes a study to determine the consequences of the change to its consolidated financial statements
and assures that there are proper controls in place to ascertain that the Company's consolidated financial statements properly
reflect the change. In February 2016, the FASB issued
Accounting Standards Update (“ASU”) 2016-02, Leases Leases
In June 2018, the FASB issued ASU 2018-07,
Improvements to Nonemployee Share-Based Payment Accounting In August 2018, the FASB issued
ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements
for Fair Value Measurement” (“ASU 2018-13”), which makes a number of changes meant to add, modify or remove
certain disclosure requirements associated with the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3
fair value measurements. This guidance is effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of the update. The
Company adopted on January 1, 2020 and its adoption did not
have any impact on the Company’s consolidated financial statements and related disclosures. In
December 2019, the FASB issued ASU No. 2019-12, “ Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes |
