| Summary of Significant Accounting Policies | NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES Basis of Presentation and Principles
of Consolidation The accompanying consolidated condensed
financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC). Certain information and disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America (U.S. GAAP) have been condensed or omitted pursuant
to such rules and regulations. These consolidated condensed financial statements reflect all adjustments (consisting only of normal
recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position, the results
of operations and cash flows of the Company for the periods presented. It is suggested that these consolidated condensed financial
statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s
most recent Annual Report on Form 10-K. The results of operations for the interim periods are not necessarily indicative of the
results to be expected for the full year ended December 31, 2018. Use of Estimates and Assumptions The preparation of financial statements
in conformity with US 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 made
by management include, but are not limited to, estimating the useful lives of patent assets, the assumptions used to calculate
fair value of warrants and options granted, goodwill impairment, realization of long-lived assets, deferred income taxes, unrealized
tax positions and business combination accounting. Significant Accounting Policies There have been no material changes
in the Company’s significant accounting policies to those previously disclosed in the 2017 Annual Report other than the adoption
of the Financial Accounting Standards Board (FASB) Accounting Standard Updates (ASU) 606, Revenue from Contracts with Customers 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 (“CODM”) is composed of the chief executive officer and chief financial officer. The Company currently operates
in the Digital Currency Blockchain segment. The Company’s Crypto-currency Machines are located in Canada and the Company
has employees only in the United States and views its operations as one operating segment as the CODM reviews financial information
on a consolidated basis in making decisions regarding resource allocations and assessing performance. Digital Currencies Digital currencies are included in current
assets in the consolidated balance sheets. Digital currencies are recorded at cost less impairment. An intangible asset with an indefinite
useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances
occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying
amount exceeds its fair value. In testing for impairment, the Company has the option to first perform a qualitative assessment
to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than
not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required
to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis
of the asset. Subsequent reversal of impairment losses is not permitted. The following table presents the activities
of the digital currencies for the nine months ended September 30, 2018:
Digital currenciess at December 31, 2017 $ -
Additions of digital currencies 1,200,171
Realized loss on sale of digital currencies (73,533 )
Sale of digital currencies (1,126,638 )
Digital Currencies at September 30, 2018 $ - Crypto-currency Machines Management has assessed the basis of
depreciation of the Company’s Crypto-currency Machines used to verify digital currency transactions and generate digital
currencies and believes they should be depreciated over a 2 year period. The rate at which the Company generates digital assets
and, therefore, consumes the economic benefits of its transaction verification servers are influenced by a number of factors including
the following:
● the complexity of the transaction verification process which is driven by the algorithms contained within the bitcoin open source software;
● the general availability of appropriate computer processing capacity on a global basis (commonly referred to in the industry as hashing capacity which is measured in Petahash units); and
● technological obsolescence reflecting rapid development in the transaction verification server industry such that more recently developed hardware is more economically efficient to run in terms of digital assets generated as a function of operating costs, primarily power costs i.e. the speed of hardware evolution in the industry is such that later hardware models generally have faster processing capacity combined with lower operating costs and a lower cost of purchase. The Company operates in an emerging
industry for which limited data is available to make estimates of the useful economic lives of specialized equipment. Management
has determined that a two year diminishing value best reflects the current expected useful life of transaction verification servers.
This assessment takes into consideration the availability of historical data and management’s expectations regarding the
direction of the industry including potential changes in technology. Management will review this estimate annually and will revise
such estimates as and when data comes available. To the extent that any of the assumptions
underlying management’s estimate of useful life of its transaction verification servers are subject to revision in a future
reporting period either as a result of changes in circumstances or through the availability of greater quantities of data then
the estimated useful life could change and have a prospective impact on depreciation expense and the carrying amounts of these
assets. Intangible Assets Intangible assets include the Crypto
Currency Patent with original estimated useful live of 17 years. The Company amortize the cost of the intangible assets over their
estimated useful lives on a straight-line basis. Costs incurred to acquire patents, including legal costs, are also capitalized
as long-lived assets and amortized on a straight-line basis with the associated patent. The Company monitors the carrying value
of long-lived assets for potential impairment and tests the recoverability of such assets whenever events or changes in circumstances
indicate that the carrying amounts may not be recoverable. If a change in circumstance occurs, the Company will perform a test
of recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows. If
cash flows cannot be separately and independently identified for a single asset, the Company will determine whether impairment
has occurred for the group of assets for which we can identify the projected cash flows. If the carrying values are in excess of
undiscounted expected future cash flows, the Company will measure any impairment by comparing the fair value of the asset or asset
group to its carrying value. During the three and nine months ended September 30, 2018, there is no impairment to the intangible
assets. Revenue Recognition The Company recognizes revenue when
it is realized or realizable and earned. We consider revenue realized or realizable and earned when there is persuasive evidence
of an arrangement and that the product has been shipped or the services have been provided to the customer, the sales price is
fixed or determinable and collectability is probable. Our material revenue stream is related to the mining of digital currencies.
In consideration for these services, the Company receives digital currencies which are recorded as revenue, using the average U.
S. dollar spot price of the related crypto-currency on the date of receipt. The coins are recorded on the balance sheet at their
fair value. Gains or losses on sale of digital currencies are recorded as other income (expenses) in the statement of operations.
Expenses associated with running the crypto-currency mining business, such as equipment depreciation, rent and electricity cost
are also recorded as cost of revenues. There is currently
no specific definitive guidance in U.S. GAAP or alternative accounting frameworks for the accounting for the production and mining
of digital currencies and management has exercised significant judgement in determining appropriate accounting treatment for the
recognition of revenue for mining of digital currencies. Management has examined various factors surrounding the substance of the
Company’s operations and the guidance in ASC 606, Revenue from Contracts with Customers The Company recognizes revenue under
ASC 606, Revenue from Contracts with Customers
● 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).
● 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. There is only one performance obligation
in each digital currency transaction (transfer of a verified transaction to the blockchain). If the Company is successful in adding
a block to the blockchain (by verifying an individual transaction), the Company is automatically awarded a fixed number of digital
currency tokens for their effort. At the time the contract with the customer arises (upon being the first to solve the algorithm
and transferring a verified transaction to the blockchain), the consideration receivable is fixed. As such, the Company concluded
that there was no variable consideration. There is no significant financing component or consideration payable to the customer
in these transactions. Digital currencies are non-cash consideration
and thus must be included in the transaction price at fair value at the inception of the contract, which is when the algorithm
is solved and a verified transaction is transferred to the blockchain. Fair value is determined using the average U.S. dollar spot
rate of the related digital currency. Expenses associated
with running the digital currency mining business, such as rent and electricity cost are also recorded as cost of revenues. Depreciation
on digital currency mining equipment is recorded as a component of costs and expenses. Related Party Transactions Parties are considered related to the
Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common
control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate
families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls
or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties
might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. At September 30, 2018 and December 31,
2017, the Company has fully reserved a Note Receivable on the Balance Sheets which consists of an uncollateralized note receivable
in the amount of $588,864 from nXn, an entity owned or controlled or previously owned or controlled by Erich Spangenberg. The note
receivable does not carry interest and was repayable to the Company at the earlier of March 31, 2018 or based upon certain milestones.
The note receivable was not repaid by nXn and the Company took a full reserve for bad debt as of December 31, 2017. At September 30, 2018 and December 31,
2017, the Company owed Doug Croxall (former CEO), $0 and $124,297, respectively (comprised of $187,500 bonus payable and $63,203
advance). Fair Value of Financial Instruments The Company measures at fair value certain
of its financial and non-financial assets and liabilities by using a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date, essentially an exit price, based on the highest
and best use of the asset or liability. The levels of the fair value hierarchy are:
Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data
Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions. The carrying amounts reported in the
consolidated balance sheet for cash, accounts receivable, accounts payable, and accrued expenses, approximate their estimated fair
market value based on the short-term maturity of these instruments. The carrying value of notes payable and other long-term liabilities
approximate fair value as the related interest rates approximate rates currently available to the Company. Financial assets and liabilities are
classified in their entirety within the fair value hierarchy based on the lowest level of input that is significant to their fair
value measurement. The Company measures the fair value of its marketable securities by taking into consideration valuations obtained
from third-party pricing sources. The pricing services utilize industry standard valuation models, including both income and market-based
approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs
included reported trades of and broker-dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities
and other observable inputs. The following tables present information
about the Company’s assets and liabilities measured at fair value on a recurring basis and the Company’s estimated
level within the fair value hierarchy of those assets and liabilities as of September 30, 2018 and December 31, 2017, respectively:
Fair value measured at September 30, 2018
Total carrying value at September 30, Quoted prices in active markets Significant other observable inputs Significant unobservable inputs
2018 (Level 1) (Level 2) (Level 3)
Liabilities
Warrant liability $ 145,124 $ - $ - $ 145,124
Fair value measured at December 31, 2017
Total carrying value at December 31, Quoted prices in active markets Significant other observable inputs Significant unobservable inputs
2017 (Level 1) (Level 2) (Level 3)
Liabilities
Warrant liability $ 1,794,396 $ - $ - $ 1,794,396 There were no transfers between Level
1, 2 or 3 during the nine months ended September 30, 2018. At September 30, 2018, the Company had
an outstanding warrant liability in the amount of $145,124 associated with warrants that were issued in January 2017 and warrants
issued related to the Convertible Notes issued in August and September of 2017. The following table rolls forward the fair value
of the Company’s warrant liability, the fair value of which is determined by Level 3 inputs for the nine months ended September
30, 2018. FV of warrant liabilities
Fair value
Outstanding as of December 31, 2017 $ 1,794,396
Exercised (55,791 )
Change in fair value of warrants (1,593,481 )
Outstanding as of September 30, 2018 $ 145,124 Basic and Diluted Net Loss per Share Net loss per common share is calculated
in accordance with ASC Topic 260: Earnings Per Share (“ASC 260”). Basic loss per share is computed by dividing net
loss by the weighted average number of shares of common stock outstanding during the period. The computation of diluted net loss
per share does not include dilutive common stock equivalents in the weighted average shares outstanding, as they would be anti-dilutive. Securities that could potentially dilute
loss per share in the future that were not included in the computation of diluted loss per share at September 30, 2018 and 2017
are as follows:
As of September 30,
2018 2017
Warrants to purchase common stock 728,764 7,487,893
Options to purchase common stock 416,079 613,194
Preferred stock to exchange common stock - 195,501
Convertible notes to exchange common stock 1,248,882 13,750,000
Total 2,393,725 22,046,588 The following table sets forth the computation
of basic and diluted loss per share:
For the three months ended September 30, For the nine months ended September 30,
2018 2017 2018 2017
Net loss attributable to common shareholders $ (1,340,457 ) $ (6,677,486 ) $ (8,419,922 ) $ (12,484,925 )
Denominator:
Weighted average common shares - basic and diluted 24,321,788 6,270,299 19,893,901 5,564,465
Loss per common share - basic and diluted $ (0.06 ) $ (1.06 ) $ (0.42 ) $ (2.24 ) Recent Accounting Pronouncements In August 2018, the SEC adopted the
final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that
were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements
on the analysis of stockholders’ equity for interim financial statements. Under the amendments, an analysis of changes in
each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate statement. The
analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of
comprehensive income is required to be filed. This final rule is effective on November 5, 2018. We are evaluating the impact of
this guidance on our condensed consolidated financial statements. In June 2018, the FASB issued ASU 2018-07,
“ Improvements to Nonemployee Share-Based Payment Accounting In July 2017, the FASB issued ASU 2017-11,
“ Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815) In May 2017, the FASB issued ASU No.
2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting In January 2017, the FASB issued ASU
2017-01 Business Combinations (Topic 805): Clarifying the Definition of a Business In May 2014, the FASB issued ASU No.
2014-09, Revenue from Contracts with Customers In February 2016, the FASB issued ASU
No. 2016-02, “ Leases (Topic 842) Any new accounting standards, not disclosed
above, that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material
impact on the financial statements upon adoption. |
