Mail Stop 3561
December 3, 2018
Patrick Moynihan
Chairman and Chief Executive Officer and Chief Financial Officer
Blockchain Industries, Inc.
53 Calle Palmeras, Suite 802
San Juan, Puerto Rico 00901
Re: Blockchain Industries, Inc.
Form 10-K for Fiscal Year Ended April 30, 2018
Filed October 29, 2018
Amendment 2 to Form 10-Q for Fiscal Quarter Ended January 31,
2018
Filed November 2, 2018
Response Dated November 2, 2018
File No. 0-51126
Dear Mr. Moynihan:
We have reviewed your November 2, 2018 response to our comment
letter and have the
following comments. In some of our comments, we may ask you to provide us
with information
so we may better understand your disclosure.
Please respond to these comments within ten business days by
providing the requested
information or advise us as soon as possible when you will respond. If you
do not believe our
comments apply to your facts and circumstances, please tell us why in your
response.
After reviewing your response to these comments, we may have
additional comments.
Unless we note otherwise, our references to prior comments are to comments
in our July 23,
2018 letter.
Form 10-K for Fiscal Year Ended April 30, 2018
General
1. In light of your revised disclosure regarding your Investment
Management vertical and
your response to comment 22 in our letter dated May 31, 2018 we are
considering your
disclosure. We may have additional comments.
Patrick Moynihan
Blockchain Industries, Inc.
December 3, 2018
Page 2
Cover Page
2. You state on your cover page that you have Common Stock registered
pursuant to
Section 12(g) of the Exchange Act; however, given that you withdrew your
registration
statement on Form 10-12G earlier this year, this statement appears to be
inaccurate.
Please revise to remove this statement or advise.
3. Please disclose the aggregate market value of the voting and non-voting
common equity
held by non-affiliates computed by reference to the price at which the
common equity
was last sold, or the average bid and asked price of such common equity,
as of the last
business day of your most recently completed second fiscal quarter.
Our Business, page 5
4. As part of your investment management vertical, you have started, and
intend to
continue, to create a portfolio of digital assets through participation
in offerings and
secondary market purchases of various tokens. Please disclose the
process and framework
that you are using to determine which digital assets to add to your
portfolio. Please also
disclose how you will evaluate whether each digital asset you acquire
and hold is a security.
If such digital asset constitutes a security, please confirm your
understanding that if you
choose to sell these tokens in the future, you will either register the
issuance, or rely upon
an exemption from registration.
Risk Factors, page 10
5. We note your disclosure of a material weakness in your internal controls
over financial
reporting on page 43. Please provide related risk factor disclosure or
tell us why you do
not believe such disclosure is necessary.
We may be classified as an investment company, page 12
6. Please revise your disclosure to discuss the potential effect that the
volatility in the digital
asset markets may have on your ability to maintain a portfolio
consisting of no more than
40% of digital assets that are securities.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of
Operations
Recent Developments, page 30
7. We note your revised disclosure in response to comment 19 in our letter
dated May 31,
2018, included in Note 2 to the Financial Statements and in the "Recent
Development"
section on page 30. Please expand your disclosure to describe for each
investment the
amount of tokens received, the issuer of the token, the nature of the
token and explain
how you determined the nature of such tokens.
Patrick Moynihan
Blockchain Industries, Inc.
December 3, 2018
Page 3
8. We note your response to comment 20 in our letter dated May 31, 2018 and
we reissue
the comment in part. In this regard, please revise to discuss whether
you plan to hold or
trade each digital asset or cryptocurrency you currently hold and
describe the custodial
practices and cybersecurity measures you currently have in place or
intend to use to
protect the digital assets you hold, or tell us where you have provided
such disclosures in
your filing. Please also revise to disclose any risks and challenges
created by events on
the underlying blockchain of the asset, such as "forks" and "airdrops."
9. We note your response to comment 21 in our letter dated May 31, 2018 and
we reissue
the comment. To the extent you plan to trade digital assets, disclose
the trading platforms
or exchanges on which you intend to trade these assets.
Chimes ICO, page 30
10. We note that you have paid for Chimes Equity Tokens and acquired Chimes
Equity
Tokens pursuant to Simple Agreements for Future Tokens ("SAFTs") to be
issued in the
future. Disclose under what circumstances these sets of tokens will be
issued to you in
the future. These SAFTs grant you "the option to purchase future
utility tokens for use
on the Chimes network platform." Please describe the services provided
by the Chimes
network platform, how you determined that these are utility tokens, and
how you will
determine the number of tokens to be received.
BlockEx, page 31
11. We note your response to comment 15 in our letter dated May 31, 2018
and we reissue
the comment in part. Please clarify if you, the other investors, or
both, will be entitled to
the tokens to be issued to the "investor pool." We also note your
revised disclosure that
"this investment provides the Company with exposure to a digital asset
exchange
platform." Please clarify how this investment provides you with such
exposure. If you
have procured additional tokens via the pre-sale feature you reference,
please disclose
those as well.
Results of Operations
Years Ended April 30, 2018 and 2017, page 33
12. Revise to discuss the anticipated sources of funds that you will need
to proceed with your
material commitments. For example, we note your disclosure on page 7
that you will seek
additional capital to continue with your plan to build a data center
for your Digital Asset
Mining vertical and your disclosure on page 9 regarding your
expectation to "seed [y]our
funds with [y]our own capital by the end of the 2018 calendar year" for
your investment
company vertical. In light of your disclosure regarding your ability to
continue as a going
Patrick Moynihan
Blockchain Industries, Inc.
December 3, 2018
Page 4
concern, please also disclose how you intend to finance your operating
costs over the
next 12 months. Refer to Item 303(2)(i) of Regulation S-K.
Operating expenses, page 34
13. We note that you identify two or more factors that contributed to a
change in your
operating expenses. Please disclose the factors that resulted in the
increase in legal and
professional fees and general and administrative expenses and the
dollar impact that each
had on operating expenses. Please refer to Item 303(a)(3)(i) of
Regulation S-K.
Item 8. Financial Statements and Supplementary Data
Consolidated Balance Sheets, page F-12
14. Please identify for us and consider the need to revise your disclosure
to clarify the
material components of the Investment in the SAFT balance sheet line
item, the
accounting for them and the basis for such accounting, and whether the
title of the line
item appropriately reflects its material components. For example, when
your refer to
equity tokens and utility tokens do they represent the ASC Master
Glossary definition of
financial assets, derivative, equity security or intangible asset?
Similarly, please also
consider the need to clarify your disclosure to indicate for each
material item on pages F-
12 to F-14 of your April 30, 2018 10-K the balance sheet line item in
which it is
presented and how you are accounting for each.
Consolidated Statement of Operations, page F-3
15. Please tell us your basis in GAAP for classifying stock compensation
expense under
other income (expense) rather than under operating expenses in the
consolidated
statement of operations for the year ended April 30, 2018.
Consolidated Statements of Cash Flows, page F-5
16. Please tell us how to reconcile proceeds from the issuance of common
stock disclosed in
the consolidated statements of shareholders' equity (deficit). In
addition, please revise to
disclose non-cash investing and financing activities. Please refer to
ASC 230-10-50-3.
Patrick Moynihan
Blockchain Industries, Inc.
December 3, 2018
Page 5
Notes to the Audited Consolidated Financial Statements
Note 2. Summary of Significant Accounting Policies
General
17. Please disclose the factors used to identify your reportable segments,
including the basis
of organization and the types of products and services from which each
segment derives
its revenues. Please refer to ASC 280-50-10-21. In addition, please
disclose revenues for
each product and service or each group of similar products and services
unless it is
impracticable to do so. If providing the information is impracticable,
please disclose that
fact.
18. Please revise to include a description of the accounting policies
related to available-for-
sale securities.
Stock-based Compensation, page F-10
19. Please revise to disclose how you determine the measurement date of
stock-based awards
to nonemployees, how you measure stock-based compensation costs before
the
measurement date, and how you measure stock-based compensation costs
after the
measurement date. Please refer to ASC 505-50.
Investments in Digital Currencies, page F-11
20. We note your accounting policy disclosure that you account for
investments in digital
currencies in accordance with the fair value option in ASC 825. In
order to help us
evaluate your accounting policy, please analyze for us each of your
investments in digital
assets in the context of the specific provisions of ASC 825-10-15 and
demonstrate why
they represent eligible items to which the fair value option may be
applied. In addition,
as previously requested, please analyze for us whether each of your
investments in digital
assets are intangible assets as defined in ASC 350 and if so, your
analysis of the specific
provisions of ASC 350-10-15.
Investments in SAFT's and Pre-IOC Tokens
LegatumX, page F-14
21. Please tell us how you are accounting for your investment in LagatumX
common stock
and how the investment is recorded in the consolidated balance sheets.
Patrick Moynihan
Blockchain Industries, Inc.
December 3, 2018
Page 6
Note 6. Note Receivable, page F-21
22. Please explain to us how you are accounting for the option to purchase
tokens of
AutoLoan initial coin offering and the basis in GAAP for your
accounting citing relevant
accounting literature. Please be sure to address the guidance in ASC
815.
Note 12. Stockholders' Equity (Deficit)
Common Stock Issued in Exchange for Consulting, Professional and Other
Services, page F-23
23. We reviewed you response to comment 10 and the revisions to your
disclosure. Please
address the following with respect to stock-based compensation awards:
We understand that you completed a 409(A) valuation on May 22, 2018
to determine
the fair value of stock-based compensation awards granted to
employees and
nonemployees during 2017 and 2018. Please explain to us why you did
not use the
OTC trading prices of your common stock in determining the fair
value of equity
awards granted to nonemployees and employees. In addition, please
tell us the
trading prices of your common stock on each valuation date.
Finally, please tell us
whether the 409A valuations comply the AICPA Audit and Accounting
Practice Aid
"Valuation of Privately-Held-Company Equity Securities Issued as
Compensation."
We also understand that you may have used the sales prices of
recent private
offerings of common stock to determine the fair value of
stock-based compensation
awards. Please tell us what the OTC trading prices of your common
stock was on the
dates of the private placements.
Please provide us a summary of stock-based awards that includes the
grantee, grant
date, the OTC trading prices on the grant dates and the number of
shares of common
stock underlying the stock option and restricted stock awards.
Please tell us how you accounted for the modified award described
on page 47
granted to Mr. Robbins on May10, 2018.
Please revise to provide all of the applicable disclosures required
by ASC 718-10-50-
2 for stock options and restricted stock awards granted to
employees and
nonemployees.
Subsequent Events, page F-26
24. We note your last paragraph that you have received Ether and Bitcoin as
payment for a
subscription purchase agreement. In an appropriate place in your annual
report, please
explain the payment process. For example, explain how the conversion of
the
cryptocurrency to dollars will be accomplished, whether the company
will use a specific
Patrick Moynihan
Blockchain Industries, Inc.
December 3, 2018
Page 7
cryptocurrency exchange and how and when the price in cryptocurrency
will be determined
and communicated to the purchaser.
Exhibits 31.1 and 31.2
25. We note that paragraph 4d. does not conform to the certification set
forth in Item
601(31)(i) of Regulation S-K. Please revise to conform to the
certification in Item
601(31)(i) of Regulation S-K.
General
26. Please tell us when you plan to file your quarterly report on Form 10-Q
for the quarter
ended July 31, 2018.
Amendment 2 to Form 10-Q for Fiscal Quarter Ended January 31, 2018
Notes to Unaudited Financial Statements
For the Three and Nine Month Interim Periods Ended January 31, 2018
Note 10. Restatement of Financial Statements, page 4
27. We reviewed your response to comment 2 and the revisions to your
disclosure. We note
you restated your financial statements for other errors that you did
not address in your
restatement disclosures, including a restatement of professional fees
and the AutoLotto
note receivable not previously recognized. Please revise your
disclosure to also discuss
the errors in your interim financial statements related to stock-based
compensation
expense included in professional fees and the AutoLotto note
receivable. Please refer to
ASC 250-10-50-7 and 50-11.
28. We note that you only included Note 10 to the unaudited financial
statements in
Amendment 2 to Form 10-Q for the fiscal quarter ended January 31, 2018.
Please note
that any amendment to the financial statements or notes to the
financial statements must
contain the complete text of the item being amended. Please further
amend Form 10-Q
for fiscal quarter ended January 31, 2018 to include the complete text
of Item 1 and
updated certifications. Please refer to Exchange Act Rule 12b-15.
29. Please label the financial statements as of and for the quarter ended
April 30, 2018 and
the balance sheet as of April 30, 2017 "as restated".
30. Please file a report under Item 4.02(a) of Form 8-K regarding
non-reliance on previously
issued unaudited financial statements for the fiscal quarter ended
January 31, 2018.
Patrick Moynihan
Blockchain Industries, Inc.
December 3, 2018
Page 8
You may contact Yolanda Guobadia at (202) 551-3562 or me at (202)
551-3344 if you
have questions regarding comments on the financial statements and related
matters. Please
contact Jennifer Lopez-Molina at (202) 551-3792 or Mara Ransom a111t (202)
551-3264 with
any other questions.
Sincerely,
/s/ William H. Thompson
William H. Thompson
Accounting Branch Chief
Office of Consumer
Products