Crypto Co - Annual Report: 2018 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

or

For the transition period from _______________.to _______________.

Commission file number 000-55726

THE CRYPTO COMPANY

(Exact name of Registrant as specified in its charter)

22809 Pacific Coast Highway
Malibu, CA 90265

(Address of principal executive offices - Zip Code)

Registrant’s telephone number, including area code: (424) 228-9955

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001 per share

Indicate by check mark if the Registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ] No [X]

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [  ] No [X]

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes [  ] No [X]

As of June 29, 2018, the Registrant’s common stock was not publicly traded.

Number of shares outstanding of the Registrant’s common stock, as of July 19, 2019: 21,212,860

DOCUMENTS INCORPORATED BY REFERENCE

None.

THE CRYPTO COMPANY

Table of Contents

PART I

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may” or other similar expressions in this report. In particular, forward-looking statements include statements relating to future actions, prospective products, applications, customers and technologies, and future performance or future financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The forward-looking statements are based upon management’s beliefs and assumptions and are made as of the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements included in this report to conform such statements to actual results or changes in our expectations. You should not place undue reliance on these forward-looking statements.

Item 1. Business

The Crypto Company (the “Company”, “Crypto”, “we”, “us” or “our”) was incorporated in the State of Utah on December 2, 2013 under the name Croe, Inc. On October 3, 2017, the Company filed Articles of Conversion with the Utah Secretary of State and the Nevada Secretary of State to effectively change its state of Incorporation to Nevada, and filed Articles of Incorporation with the Nevada Secretary of State to change its name to The Crypto Company.

Crypto Sub, Inc. (formerly known as The Crypto Company) (“Crypto Sub”) was incorporated in the State of Nevada on March 9, 2017 (“Inception”). On June 7, 2017, Crypto Sub completed a reverse acquisition of Croe, Inc. as a result of a Stock Sale, Stock Dividend and Share Exchange, each as described below and collectively referred to as the “Acquisition”. On October 3, 2017, we changed our name to The Crypto Company to better reflect our new business. We are located at 22809 Pacific Coast Highway in Malibu, California and our telephone number is (424) 228-9955. Our website can be accessed at www.thecryptocompany.com. The information contained on or that may be obtained from our website is not a part of this report. Crypto Sub and CoinTracking, LLC, a Nevada limited liability company (“CoinTracking”), are wholly-owned subsidiaries of the Company.

Prior to the Acquisition, the Company was an early stage fitness apparel company with the mission of creating supportive, protective, and innovative sports bras and fitness apparel.

The Acquisition

Stock Sale

On June 7, 2017, the Company entered into (i) a Share Purchase Agreement (the “Restricted Share Purchase Agreement”) with Crypto Sub and John B. Thomas P.C., in its sole capacity as representative for certain shareholders of the Company; and (ii) a Share Purchase Agreement (the “Free Trading Share Purchase Agreement”, and together with the Restricted Share Purchase Agreement, the “Share Purchase Agreements”) with Crypto Sub, Uptick Capital, LLC (“Uptick Capital”) and John B. Thomas P.C., in its sole capacity as representative for certain shareholders of the Company. Pursuant to the Share Purchase Agreements, the shareholders of the Company sold an aggregate of 11,235,000 shares of common stock of the Company to Crypto Sub and 100,000 shares of common stock of the Company to Uptick Capital, representing an aggregate of 100% of the issued and outstanding common stock of the Company as of such date, for aggregate proceeds of $411,650, including escrow and other transaction related fees to the selling shareholders (the “Stock Sale”). A portion of the acquisition cost equal to $399,300 is expensed as a general and administrative expense in the accompanying consolidated statement of operations.

10,000,000 shares held by Deborah Thomas, the former Chief Executive Officer, principal accounting and financial officer and director of the Company, representing approximately 88.22% of the outstanding common stock of the Company immediately prior to the Stock Sale, were sold at a price of $0.031 per share, and an aggregate of 1,335,000 shares held by the remaining shareholders of the Company were sold at a price of $0.075 per share.

In connection with the Stock Sale, effective as of June 7, 2017, (i) Deborah Thomas resigned as Chief Executive Officer, principal accounting officer and director of the Company and Elliott Polatoff resigned as Secretary and director of the Company; and (ii) Michael Poutre was appointed Chief Executive Officer and sole director of the Company, James Gilbert was appointed President of the Company and Ron Levy was appointed Chief Operating Officer of the Company.

Stock Dividend

On June 7, 2017, Crypto Sub issued to its shareholders a stock dividend (the “Stock Dividend”) of 10,918,007 shares of common stock of the Company acquired through the Stock Sale, distributed on a pro-rata basis, such that the shareholders of Crypto Sub received fifteen shares of common stock of the Company for each share of common stock of Crypto Sub held as of June 6, 2017.

Immediately following the consummation of the Stock Sale and the distribution of the Stock Dividend, Crypto Sub held 316,993 shares, representing 4.26% of the issued and outstanding shares of common stock of the Company, and the shareholders of Crypto Sub, collectively, held 10,918,007 shares, representing 94.40% of the issued and outstanding shares of common stock of the Company. Of the 316,993 shares held by Crypto Sub, 129,238 shares were transferred to certain officers and consultants of Crypto Sub in exchange for their services related to the Transaction, and the remaining shares were retained by Crypto Sub.

Share Exchange

On June 7, 2017, the Company entered into a Share Exchange Agreement (the “Exchange Agreement”) with Michael Poutre, in his sole capacity as representative for the shareholders of Crypto Sub, pursuant to which each issued and outstanding share of common stock of Crypto Sub was exchanged for shares of common stock of the Company (the “Share Exchange”), resulting in the aggregate issuance of 7,026,614 shares of common stock of the Company, on a pro-rata basis, as provided on the Exchange Agreement, to the shareholders of Crypto Sub, in exchange for 727,867 shares of common stock of Crypto Sub.

The Stock Sale, the Stock Dividend and the Share Exchange are collectively referred to as the “Acquisition”. Immediately following the Acquisition, (i) Crypto Sub became a wholly owned subsidiary of the Company; (ii) all of the former shareholders of Crypto Sub became shareholders of the Company, on a pro-rata basis; and (iii) the operations of the Company solely consisted of the operations of Crypto Sub.

Acquisition and Disposition of CoinTracking GmbH

On January 16, 2018, pursuant to an Equity Purchase Agreement (the “CoinTracking Purchase Agreement”) entered into on December 22, 2017 by and among the Company, CoinTracking, Kachel Holding GmbH, an entity formed under the laws of the Republic of Germany (“Kachel Holding”), and Dario Kachel, an individual, CoinTracking purchased from Kachel Holding 12,525 shares of CoinTracking GmbH, an entity formed under the laws of Germany (“CoinTracking GmbH”), representing 50.1% of the equity interests in CoinTracking GmbH, for a purchase price of (i) $4,736,400 in cash, and (ii) 473,640 shares of common stock of the Company, par value $0.001 per share, subject to adjustment as provided in the CoinTracking Purchase Agreement (the “CoinTracking Acquisition”). The CoinTracking Acquisition was consummated on January 26, 2018.

On December 28, 2018, CoinTracking entered into an agreement on the purchase and assignment of shares, agreements on a purchase price of loan agreement and a compensation agreement, with Kachel Holding and CoinTracking GmbH pursuant to which, on January 2, 2019, CoinTracking sold 12,525 shares of equity interest in CoinTracking GmbH, representing 50.1% of the outstanding equity interests in CoinTracking GmbH and CoinTracking’s entire equity ownership stake in CoinTracking GmbH, to Kachel Holding in exchange for $2,200,000, of which (i) $1,000,000 was paid in cash to CoinTracking and (ii) $1,200,000 was applied toward the repayment of an outstanding loan in the amount of $1,500,000 from CoinTracking GmbH to CoinTracking under the CoinTracking Note (the “CoinTracking Disposition”).

Overview of Our Business

We are engaged in the business of providing consulting services and education for distributed ledger technologies (“blockchain”), for the building of technological infrastructure and enterprise blockchain technology solutions. We currently generate revenues and incur expenses solely through these consulting operations.

We have disposed of our entire ownership interest in CoinTracking GmbH, and also divested substantially all of our cryptocurrency assets.

Strategic Acquisitions

In furtherance of the development of our blockchain consulting services, we may seek from time to time additional strategic acquisitions of majority and minority equity interests in entities and technology that demonstrate (i) established, protectable and scalable revenues; (ii) substantial market share; (iii) established brand equity and customer loyalty; (iv) proprietary technology with competitive advantages; (v) quality personnel; and (vi) strategic access to international markets.

Media Opportunities

We engage in public discourse on an ongoing basis and host roundtable webinars to educate the public about blockchain technology and intend to expand our presence at industry conferences to develop and expand our community and content network. We do not express opinions regarding the advisability of investing in any digital asset or in the digital asset marketplace, and we do not receive compensation in connection with these roundtable webinars.

Intellectual Property

We regard our service marks as having significant value and as being important factors in the marketing of our products and services. Our policy is to pursue registration of our marks whenever possible and to oppose vigorously any infringement of our marks.

Market Overview

Blockchain

The blockchain is a decentralized database or digital “ledger” of transactions across a peer-to-peer network of computers or “nodes” that use the underlying infrastructure of the Internet to validate and process valuable transactions. While using the blockchain, participants can transfer information across the Internet without the need of a central third party. In a financial transaction, the buyer and seller interact directly without the need for verification by a trusted third-party intermediary. The actual record of transaction is pseudonymous, but the identifying information is encrypted, preventing personal information from being shared.

The primary benefits of blockchain include the following:

Competition

We have a number of competitors, ranging in size, consisting primarily of other similar consulting firms. We believe our main competitors are ConsenSys, Natsoft Corporation, Quest Global Technologies, and CGI Inc. In addition, global audit and assurance firms typically provide consulting services.

Governmental Regulations

Government regulation of blockchain is being actively considered by the United States federal government via a number of agencies (including the U.S. Securities and Exchange Commission (the “SEC”), the U.S. Commodities Future Trading Commission (“CFTC”), Federal Trade Commission (“FTC”), and the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of the Treasury) and in other countries. Other regulatory bodies are governmental or semi-governmental and have shown an interest in regulating or investigating companies engaged in the blockchain business (NASDAQ, NYSE, FINRA, state securities commissions).

Blockchain regulations are in a nascent state with agencies investigating businesses and their practices, gathering information, and generally trying to understand the risks and uncertainties in order to protect investors in these businesses. Regulations will certainly increase, in many cases, although it is presently not possible to know how they will increase, how regulations will apply to the Company’s businesses, or when they will be effective. Various bills have also been proposed in congress for adoption related to the Company’s business which may be adopted and have an impact on it. As the regulatory and legal environment evolves, the Company may become subject to new laws and further regulation by the SEC and other agencies, although the Company is not currently trading in digital assets and has no intention to trade in digital assets.

Employees

As of June 30, 2019, we had two full-time employees and three part-time employee. We believe that our future success will depend in part on our continued ability to attract, hire and retain qualified personnel. None of our employees is represented by a labor union, and we believe that our employee relations are good.

Item 1A. Risk Factors

Investing in our common stock involves a high degree of risk. Prospective investors should carefully consider the risks described below, together with all of the other information included or referred to in this Annual Report on Form 10-K, before purchasing shares of our common stock. There are numerous and varied risks that may prevent us from achieving our goals. If any of these risks actually occurs, our business, financial condition or results of operations may be materially adversely affected. In such case, the trading price of our common stock could decline and investors in our common stock could lose all or part of their investment.

Risks Related to our Business

We have an evolving business model that will require significant resources, and our business model may not develop as we project.

As blockchain technology becomes more widely available and utilized, we expect the services and products associated with them to evolve and, as a result our contemplated blockchain consulting business will have to continue to evolve. Distributed ledger technology is relatively new and we believe that it will take significant resources to become a competitive provider of consulting services relating to the application of distributed ledger technology. Future additions and modifications to our business will increase the complexity of our business and may place significant strain on our management, personnel, and operations.

If we do not keep pace with technological changes, our blockchain consulting business, if and when developed, may not become competitive and/or our competitors may develop and market similar products that receive greater market acceptance.

The market for blockchain technology and any related consulting services is characterized by rapid technological change, frequent product and service innovation and evolving industry standards. As a result, our contemplated blockchain consulting business must be able to keep pace with this rapidly developing and competitive marketplace. There can be no assurance that we will be able to successfully grow our contemplated blockchain consulting business.

We have not voluntarily implemented various corporate governance measures, in the absence of which, shareholders may have more limited protections against interested director transactions, conflicts of interest and similar matters.

Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or the Nasdaq Stock Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges are those that address board of directors’ independence, and audit committee oversight. We have not yet adopted any of these corporate governance measures and, since our securities are not yet listed on a national securities exchange, we are not required to do so. It is possible that if we were to adopt some or all of these corporate governance measures, stockholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct. Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.

The elimination of personal liability against our directors and officers under Nevada law and the existence of indemnification rights held by our directors, officers and employees may result in substantial expenses.

Our Articles of Incorporation and our Bylaws limit the personal liability of our directors and officers for damages for breach of fiduciary duty as a director or officer to the extent permissible under applicable state law. Further, our Articles of Incorporation and our Bylaws provide that we are obligated to indemnify each of our directors or officers to the fullest extent authorized by applicable state law and, subject to certain conditions, advance the expenses incurred by any director or officer in defending any action, suit or proceeding prior to its final disposition. Those indemnification obligations could expose us to substantial expenditures to cover the cost of settlement or damage awards against our directors or officers, which we may be unable to afford. Further, those provisions and resulting costs may discourage us or our stockholders from bringing a lawsuit against any of our current or former directors or officers for breaches of their fiduciary duties, even if such actions might otherwise benefit our stockholders.

If we are unable to retain our staff, our business and results of operations could be harmed.

Our ability to develop our blockchain consulting business is largely dependent on the services of certain executive officers and other employees and contractors which assist such individuals in management and operation of the business (collectively, “Key Personnel”). If we are unable to retain Key Personnel and to attract qualified senior management on terms satisfactory to us, our business will be adversely affected. We do not have key man life insurance covering the life of any executive officers and, even if we are able to afford such a key man policy, our coverage levels may not be sufficient to offset any losses we may suffer as a result of the loss of any Key Personnel.

We may acquire stakes in businesses and enter into joint ventures that will expose us to increased operating risks.

As part of our growth strategy, we intend to enter into joint venture arrangements intended to complement or expand our business and will likely continue to do so in the future. These joint ventures are subject to substantial risks and liabilities associated with their operations, as well as the risk that our relationships with our joint venture partners do not succeed in the manner that we anticipate.

Current and future litigation could adversely affect us.

We, along with certain of the Company’s directors and/or officers, were a party to the legal proceedings described in Item 3 of Part 1 of this Annual Report, which, as of the date of this Annual Report, have been voluntarily dismissed. We, along with certain directors and/or officers of the Company may also become subject to other legal proceedings in our ordinary course of business. Such legal proceedings involve substantial costs, including the costs associated with investigation, litigation and possible settlement, judgment, penalty or fine. As a smaller company, the collective costs of litigation proceedings represent a drain on our cash resources, as well as an inordinate amount of our management’s time and attention. Moreover, an adverse ruling in respect of certain litigation could have a material adverse effect on our results of operation and financial condition.

We may face competition and, if we are not able to effectively compete in our markets, our revenues may decrease.

Competitive pressures in our markets could adversely affect our competitive position, leading to a possible loss of customers or a decrease in prices, either of which could result in decreased revenues and profits. Though the market sectors in which we compete are fairly new, our competitors are numerous, and the recent increase in popularity of such market sectors only creates more competition. New or current competitors may have significantly greater capital resources than us, and our business could be adversely affected because of increased competition from such competitors.

We are in the development stage, are not generating revenue in our continuing operations, and have a limited operating history in providing consulting services.

The Company is in the development stage and faces all of the risks and uncertainties associated with a new and unproven business. Our future is based on an unproven business plan with no historical facts to support projections and assumptions. The Company was founded in March 2017 and has limited history of providing blockchain consulting services. The Company is not currently generating revenues and cannot guarantee when it expects to generate revenue. Investors should understand that an investment in a start-up business is significantly riskier than an investment in a business with any significant operating history. There can be no assurance that the Company will ever achieve revenues or profitability. The Company’s operations are subject to all of the risks inherent in the establishment of a new business enterprise. The likelihood of our success must be considered in light of the challenges, expenses and delays frequently encountered in connection with the operation of a pre-revenue business. Our lack of a significant and relevant operating history makes it difficult to predict future operating results.

We expect to continue to incur losses from operations and negative cash flows, which raise substantial doubt about the Company’s ability to continue as a going concern.

We have accumulated a net deficit through December 31, 2018. We expect to incur significant losses in the foreseeable future. The time required for us to become profitable is uncertain, and there can be no assurance that we will achieve profitability on a sustained basis, if at all. As a result of our limited operating history, we have neither internal nor industry-based historical financial data for any significant period of time upon which to project revenues or base planned operating expenses. We expect that our results of operations may also fluctuate significantly in the future as a result of a variety of factors, including: the ability to make strategic acquisitions; the ability to develop our consulting business; our ability to attract, retain and motivate qualified personnel; specific economic conditions in the consulting market; general economic conditions; and other factors.

If our remedial measures are insufficient to address material weaknesses and we are unable to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results, timely file our periodic reports, maintain our reporting status or prevent fraud.

Our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal controls, including any failure to implement new or improved controls, or if we experience difficulties in their implementation, our business and financial results could be harmed and we could fail to meet our financial reporting obligations.

For example, management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2017 and December 31, 2018 and concluded that there are material weaknesses in our internal controls related to control over financial reporting, and therefore, that we did not maintain effective internal control over financial reporting as of December 31, 2018. Under standards established by the Public Company Accounting Oversight Board, a material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented, detected or corrected on a timely basis. If the enhanced controls implemented to remediate and address the material weaknesses are not designed or do not operate effectively, if we are unsuccessful in implementing or following these processes, if additional material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, or we are otherwise unable to remediate the material weaknesses, this may result in untimely or inaccurate reporting of our financial results.

We may be forced to cease operations or take actions that result in the dissolution of the Company.

It is possible that, due to any number of reasons, including, but not limited to, regulations that decrease interests in or inhibit the growth of Blockchain technology, the inability by the Company to maintain its competitiveness among companies operating in similar market sectors, the failure of commercial relationships, or intellectual property ownership challenges, the Company may no longer be viable to operate and the Company may dissolve or take actions that result in a dissolution event.

Risks Related to the Ownership of our Common Stock

The OTC Markets have assigned the “Caveat Emptor” designation to the Company.

On December 7, 2017, the Company was assigned a “Caveat Emptor” designation by the OTC Markets Group, Inc. (the ‘OTC Markets”). The OTC Markets assigns a Caveat Emptor designation to a company’s stock symbol to inform current and potential investors that there may be reasons to exercise additional care when deciding whether they should continue or begin their investment in such company. Such reasons include: (i) a suspension or halt in the trading of a company’s stock, (ii) unsolicited quotes, (iii) the OTC Markets’ belief of the existence of undisclosed corporate actions, (iv) investigation of fraud or other criminal activities and (v) the OTC Markets’ belief of other public interest concern. Typically, the OTC Markets will continue to display such designation until adequate current information is made available by a company pursuant to certain reporting standards, such adequacy being in the sole discretion of the OTC Markets, and until the OTC Markets believes there is no longer a public interest concern. The designation of the Caveat Emptor symbol does not suspend or halt the company’s trading on the OTC Markets.

As of the date of this report, the Caveat Emptor designation assigned to the Company has not been removed. While the Company believes it has disclosed all material facts in accordance with its SEC reporting obligations, and continues to work with the OTC Markets to resolve any issues in an effort to remove the Caveat Emptor designation, we cannot guarantee that the designation will be removed in the future, or at all.

Our shares were previously suspended by the SEC, and are currently listed on the OTC Grey Market.

On December 19, 2017, the SEC, pursuant to Section 12(k) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), temporarily suspended trading of the Company’s stock on the OTC Pink market until January 3, 2018 (the “Trade Halt”). The SEC cited concerns on the accuracy and adequacy of information in the marketplace about, among other things, the compensation paid for promotion of the Company, statements in SEC filings about the plans of the Company’s insiders to sell their shares of the Company’s common stock and potential manipulative transactions in the Company’s stock in November of 2017. The Trade Halt was lifted by the SEC as of January 4, 2018, and the SEC did not provide comments on whether it is still investigating the Company. Although the Company has had ongoing communications with the SEC and we believe that we have addressed all of the issues raised by the SEC, we cannot guarantee that the SEC will not suspend the trading of the Company’s stock on the OTC Markets, should we resume our quotation thereon, or on any national securities exchange in the future.

Upon the expiration of the Trade Halt, the OTC Markets, automatically, as a matter of course, discontinued the display of quotes for our common stock and moved our common stock to the OTC Grey Market (the “Grey Market Listing”) as of January 4, 2018. Securities listed on the OTC Grey Market are tradable, but broker-dealers of such securities are unable to publicly quote such securities. While the Company continues to work with the OTC Markets, there can be no guarantee that our stock will resume trading on the OTC Pink market.

There is not now, and there may never be, an active, liquid and orderly trading market for our common stock, which may make it difficult for investors to sell shares of our common stock.

Since the Grey Market Listing, there has not been any trading activity in our common stock on a national securities exchange, the OTC Pink market or any other OTC Market, and an active trading status on such OTC Markets or exchange for our shares may never develop or be sustained. Even if the Company’s stock resumes trading on the OTC Pink Market, the Company can neither guarantee that the OTC Market will remove the Caveat Emptor designation assigned to the Company nor the SEC will not suspend or halt trading of the Company’s stock in the future. As a result, investors in our common stock must bear the economic risk of holding those shares for an indefinite period of time. We do not now, and may not in the future, meet the listing standards of any national securities exchange. As a result, our stockholders may find it difficult to obtain an accurate determination as to the market value of their shares of our common stock, and may find few buyers to purchase their stock. As a result of these and other factors, it may not be possible to resell shares of our common stock at or above the price for which they were purchased, or at all. Further, an inactive market may also impair our ability to raise capital by selling additional equity in the future, and may impair our ability to enter into strategic partnerships or acquire companies or products by using shares of our common stock as consideration.

Investors may have difficulty in reselling their shares due to state Blue Sky laws.

The holders of our shares of common stock and persons who desire to purchase them in any trading market that might develop in the future should be aware that there might be significant state law restrictions upon the ability of investors to resell our shares. Accordingly, even if we are successful in having the shares available for trading on the OTCQB marketplace or on the OTC Bulletin Board, investors should consider any secondary market for our common shares to be a limited one. We intend to seek coverage and publication of information regarding the company in an accepted publication, which permits a “manual exemption.” This manual exemption permits a security to be distributed in a particular state without being registered if the company issuing the security has a listing for that security in a securities manual recognized by the state. However, it is not enough for the security to be listed in a recognized manual. The listing entry must contain (1) the names of issuers, officers, and directors, (2) an issuer’s balance sheet, and (3) a profit and loss statement for either the fiscal year preceding the balance sheet or for the most recent fiscal year of operations. We may not be able to secure a listing containing all of this information. Furthermore, the manual exemption is a non-issuer exemption restricted to secondary trading transactions, making it unavailable for issuers selling newly issued securities. Most of the accepted manuals are those published in Standard and Poor’s, Moody’s Investor Service, Fitch’s Investment Service, and Best’s Insurance Reports, and many states expressly recognize these manuals. A smaller number of states declare that they “recognize securities manuals” but do not specify the recognized manuals. The following states do not have any provisions and therefore do not expressly recognize the manual exemption: Alabama, Georgia, Illinois, Kentucky, Louisiana, Montana, South Dakota, Tennessee, Vermont and Wisconsin. Accordingly, our common shares should be considered totally illiquid, which inhibits investors’ ability to resell their shares.

We have no plans to pay dividends.

To date, we have paid no cash dividends on our common stock. For the foreseeable future, earnings generated from our operations will be retained for use in our business and not to pay dividends. As a result, capital appreciation, if any, of our common stock will be the sole resource of gain for stockholders for the foreseeable future. Investors seeking cash dividends should not purchase our common stock.

We may issue more shares in a future financing or strategic acquisition, which could result in substantial dilution.

Any future financing, merger or acquisition effected by us would result in the issuance of additional securities and the substantial dilution in the percentage of our common stock held by our then existing stockholders. Moreover, the common stock issued in any such merger or acquisition transaction may be valued on an arbitrary or non-arm’s-length basis by our management, resulting in an additional reduction in the percentage of common stock held by our then existing stockholders. Our Board has the power to issue any or all of such authorized but unissued shares without stockholder approval. To the extent that additional shares of common stock are issued in connection with and following a business combination or otherwise, dilution to the interests of our stockholders will occur and the rights of the holders of common stock might be materially and adversely affected.

We may be subject to penny stock regulations and restrictions and you may have difficulty selling shares of our common stock.

The SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. Our common stock initially was a “penny stock,” and we became subject to Rule 15g-9 under the Exchange Act, or the “Penny Stock Rule.” This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers. For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the investor and have received the investor’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our common shares and may affect the ability of investor s to sell any of our common shares in the secondary market.

For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in a penny stock, of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.

We do not anticipate that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.

We may be subject to penny stock regulations and restrictions and you may have difficulty selling shares of our common stock.

The SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. Our common stock initially was a “penny stock,” and we became subject to Rule 15g-9 under the Exchange Act, or the “Penny Stock Rule.” This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers. For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the investor and have received the investor’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our common shares and may affect the ability of investor s to sell any of our common shares in the secondary market.

For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in a penny stock, of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.

We do not anticipate that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.

Unless the requirements of an exemption, such as Rule 144, is met, Investors may be restricted from selling their shares.

Rule 144 promulgated under the Securities Act (“Rule 144”), which provides for an exemption from the registration requirements under the Securities Act under certain conditions, requires, among other conditions, for resales of securities acquired in a non-public offering without having to satisfy such registration requirements, a six-month holding period following acquisition of and payment in full for such securities. There can be no assurance that the Company will fulfill any reporting requirements in the future under the Exchange Act or disseminate to the public any current financial or other information concerning the Company, as is required by Rule 144 as part of the conditions of its availability.

Accordingly, an investor should be prepared to hold the securities acquired in such offerings indefinitely and cannot expect to be able to liquidate any or all of their investment even in case of an emergency. In addition, any proposed transfer must comply with restrictions on transfer imposed by the Company and by federal and state securities laws. The Company may permit the transfer of such securities out of a subscriber’s name only when his or her request for transfer is accompanied by an opinion of counsel reasonably satisfactory to the Company that neither the sale nor the proposed transfer results in a violation of the Securities Act or any applicable state securities or “blue sky” laws.

Sales of our common stock under Rule 144 could reduce the price of our stock.

Some, but not all, of our outstanding common shares may currently be eligible for resale under Rule 144 assuming we satisfy the requirements therein, including the requirements relating to the disclosure of current public information. If substantial amounts of our common stock become available for resale under Rule 144, prevailing market prices for our common stock will be reduced.

Item 1B. Unresolved Staff Comments

Not applicable. As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item 1B.

Item 2. Properties

We currently rent an office, on a month to month basis, located at 22809 Pacific Coast Highway, Malibu, CA 90265, for $344 per month.

Item 3. Legal Proceedings

See discussion of legal proceedings in Note 14 (Commitments and Contingencies) to the Consolidated Financial Statements included in Item 8 of Part II of this Report, which is incorporated by reference into this Item 3 of Part I.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The trading symbol for our common stock is “CRCW”.

The following table sets forth the high and low bid prices for our common stock for the periods indicated as reported by the OTC Grey market. The bid quotations reported by the OTC Grey market reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

On December 19, 2017, the SEC implemented the Trade Halt, pursuant to Section 12(k) of the Exchange Act, which temporarily suspended trading of the Company’s stock on the OTC Pink market until January 3, 2018. The Trade Halt was lifted by the SEC as of January 4, 2018, at which time the OTC Markets Group Inc. (the “OTC Markets”), automatically, as a matter of course, discontinued the display of quotes for our common stock and moved our common stock to the OTC Grey market. Securities listed on the OTC Grey market are tradable, but broker-dealers of such securities are unable to publicly quote such securities. While the Company continues to work with the OTC Markets, there can be no guarantee that our stock will resume trading on the OTC Pink market.

Holders

As of June 30, 2019, there were 148 holders of record of our common stock.

Securities Authorized for Issuance Under Equity Compensation Plan

The Company has issued equity awards in the form of stock options from The Crypto Company 2017 Equity Incentive Plan (the “2017 Plan”), which was approved by stockholders on August 24, 2017.

The following table sets forth information about the 2017 Plan as of December 31, 2018:

Item 6. Selected Financial Data

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This report contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology including, “could” “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “potential” and the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.

While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this Annual Report.

The following discussion should be read in conjunction with the consolidated financial statements and the related notes contained elsewhere in this Annual Report. In addition to historical information, the following discussion contains forward looking statements based upon current expectations that are subject to risks and uncertainties. Actual results may differ substantially from those referred to herein due to a number of factors, including, but not limited to, risks described in the section titled “Risk Factors”.

We are engaged in the business of providing consulting services and education for distributed ledger technologies (“blockchain”), for the building of technological infrastructure and enterprise blockchain technology solutions. We currently generate revenues and incur expenses solely through these consulting and education operations. As described below, as of the date of this report we have disposed of our entire ownership interest in CoinTracking GmbH and also divested substantially all of our cryptocurrency assets owned by our former cryptocurrency investment segment, which has ceased operations.

Recent Events

On January 2, 2019, CoinTracking sold 12,525 shares of equity interest in CoinTracking GmbH, representing 50.1% of the outstanding equity interests in CoinTracking GmbH and CoinTracking’s entire equity ownership stake in CoinTracking GmbH, to Kachel Holding in exchange for $2,200,000, of which (i) $1,000,000 was paid in cash to CoinTracking and (ii) $1,200,000 was applied toward the repayment of an outstanding loan in the amount of $1,500,000 from CoinTracking GmbH to CoinTracking.

Business Segments

During the year ended December 31, 2018, the Company had two principal business segments that generated revenues and incurred expenses, both of which have ceased operations as of the date of this report:

The cryptocurrency investment segment generated revenues that primarily consisted of amounts earned through trading activities of cryptocurrencies. The Company recorded its investments in cryptocurrency as indefinite lived intangible assets, at cost less impairment, and are reported as long-term assets in the consolidated balance sheets. Realized gains and losses on sales of investments in cryptocurrency, and impairment losses, are included in other income/(expense) in the consolidated statement of operations and comprehensive income.

The Company also generated software subscription revenues through CoinTracking GmbH and generates minimal amounts of consulting revenue. The software subscription segment consisted primarily of amounts earned through subscriptions to the CoinTracking GmbH website. Operating expenses related to this segment consisted primarily of technology infrastructure and general administrative costs primarily incurred in Germany.

Discontinued Operations

As a result of the pending sale as of December 31, 2018, of CoinTracking’s entire equity ownership stake in CoinTracking GmbH, and a strategic shift in our business in the fourth quarter of 2018 away from cryptocurrency investing to blockchain consulting and education, the assets and liabilities to be sold or disposed of other than by sale are reported in assets and liabilities held for sale in the Consolidated Balance Sheets as of December 31, 2018. Additionally, the current operating results associated with these assets and liabilities have been reclassified to give effect to these changes and are reported as discontinued operations in the Consolidated Statements of Operations for all periods presented. Loss from discontinued operations was $16,376,131 for the year ended December 31, 2018. The loss includes an impairment of goodwill of $9,356,105, and impairment of other intangible assets of $3,743,480 related to CoinTracking GmbH. The loss from discontinued operations attributable to the Crypto Company was $9,859,271 for the year ended December 31, 2018, which includes our 50.1% ownership of CoinTracking GmbH. CoinTracking GmbH was acquired in 2018, and therefore, there was no impact on the Company’s prior year results. Income from discontinued operations of $541,254 for the period from Inception through December 31, 2017 relates to our discontinued cryptocurrency investment segment.

See Note 15- Discontinued Operations to our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report for further details of the results of CoinTracking GmbH.

Results of Continuing Operations

Comparison of the fiscal year ended December 31, 2018 and the period from Inception through December 31, 2017

Revenue

For the year ended December 31, 2018, revenues relating to consulting services were $5,000, compared to $6,000 for the period from Inception through December 31, 2017.

General and administrative expenses and share based compensation

For the year ended December 31, 2018, our general and administrative expenses were $5,730,063, an increase of 65.1% compared to $3,471,010 for the period from Inception through December 31, 2017. General and administrative expenses consist primarily of costs relating to professional services, payroll and payroll-related expenses and depreciation and amortization expenses. Professional services included in general and administrative expenses consist primarily of contracting fees, consulting fees, accounting fees, and legal costs. The increase for the year ended December 31, 2018 reflects increased costs associated with being a public company, in particular, outside legal and accounting costs. In addition, the prior year comparative period was not a full fiscal year.

Share-based compensation was $3,302,471 for the year ended December 31, 2018, a decline of 49.1% compared to $6,493,514 for the period from Inception through December 31, 2017. Share-based compensation decreased due to a decline in the value of the Company’s common stock, resulting in an adjustment to offset a portion of the previously recorded share-based compensation for non-employees, which are remeasured quarterly. This decline was offset, in part, by a grant of 2,804,062 stock options, net of cancellations, including 2,407,062 options granted to employees and directors for the year ended December 31, 2018. A significant portion of the stock options granted were cancelled in the fourth quarter ended December 31, 2018. In addition, share-based compensation includes $1,417,584 for the year ended December 31, 2018 for common stock issued to our former CEO, James Gilbert, in connection with services rendered, compared to $746,717 for the period from Inception through December 31, 2017, for common stock issued to certain officers and consultants for services rendered, including services in connection with a stock dividend, stock sale and share exchange.

Liquidity, Going Concern and Capital Resources

Our consolidated financial statements are prepared using the accrual method of accounting in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) and have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company has incurred significant losses and experienced negative cash flows since Inception. As of December 31, 2018, we had cash of $2,448, a decline of $8,947,796 from the December 31, 2017 balance of $8,950,244. This decline is due, in part, to the acquisition of CoinTracking GmbH in January 2018, which included $3,189,303 of cash consideration, net of acquired cash. In addition, our loss before provision for income taxes from continuing operations was $18,903,249 for the year ended December 31, 2018. Our working capital was ($955,303) as of December 31, 2018. During the year ended December 31, 2018, we liquidated a majority of our investments in cryptocurrency, which had a cost basis of $964,067 at December 31, 2017. In addition, on January 2, 2019, we sold our equity interest in CoinTracking GmbH for $2,200,000, of which (i) $1,000,000 was received in cash and (ii) $1,200,000 was applied toward the repayment of an outstanding loan in the amount of $1,500,000 from CoinTracking GmbH. The cash received from the liquidation of our investment in cryptocurrency helped fund our operations during the year ended December 31, 2018, and the funds received from the sale of CoinTracking GmbH is projected to fund a portion of operations in 2019. As of December 31, 2018, our accumulated deficit amounted to $28,456,550. As a result of our history of losses and financial condition, there is substantial doubt about our ability to continue as a going concern.

The ability to continue as a going concern is dependent upon us generating profitable operations in the future and/or obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. Management is evaluating different strategies to obtain financing to fund our expenses and achieve a level of revenue adequate to support our current cost structure. Financing strategies may include, but are not limited to, private placements of capital stock, debt borrowings, partnerships and/or collaborations. There can be no assurance that any of these future-funding efforts will be successful, that we will be able to replace the revenues lost as a result of the sale of CoinTracking GmbH, or that we will achieve our projected level of revenues in 2019 and beyond. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

The following table summarizes the primary sources and uses of cash for the periods presented below:

Operating Activities

We have incurred, and expect to continue to incur, significant expenses in the areas of professional fees and contracting services.

Net cash used in operating activities for the year ended December 31, 2018 was $6,274,104 compared to $3,133,188 for the period from Inception through December 31, 2017. The increase of $3,140,916 was primarily due to an increase in our net loss to $25,420,109 for the year ended December 31, 2018 compared to $9,553,301 for the period from inception through December 31, 2017. In addition, our net realized gain on investments in cryptocurrency increased to $1,303,130 for the year ended December 31, 2018 from $781,373 for the period from inception through December 31, 2017, and our contract liabilities, part of our software subscription segment acquired in 2018, decreased $1,977,768 for the year ended December 31, 2018 compared to the period from Inception to December 31, 2017, due to a decrease in subscription sales beginning in the second quarter of 2018. In addition, our non-cash share-based compensation decreased to $4,213,475 for the year ended December 31, 2018, compared to $6,533,696 for the period from inception through December 31, 2017. These decreases were offset, in part, by non-cash charges relating to a write-off of goodwill and intangible assets of $13,099,584 for the year ended December 31, 2018, and non-cash impairment of investments in cryptocurrency of $2,066,803. There was no impairment of goodwill, intangible assets and investments in cryptocurrency in the prior year. Finally, depreciation and amortization increased to $1,214,827 for the year ended December 31, 2018 compared to $4,675 for the period from inception through December 31, 2017.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2018 was $1,630,966 compared to $198,495 for the period from inception through December 31, 2017, due to the acquisition of CoinTracking GmbH for $3,189,303, net of acquired cash of $1,547,097, offset by sales of investments in cryptocurrency, net of purchases of $2,228,949, for the year ended December 31, 2018, and the purchase of additional SAFT and SAFE investments included in investments, non-cryptocurrency of $500,000. There was no cash used to purchase investments in cryptocurrency in the period from Inception to December 31, 2017.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2018 was $250,057, compared to $12,281,927 in the period from Inception to December 31, 2017. The decrease of $12,031,870 was primarily the result of a decrease to $200,000 in aggregate proceeds from sales of common stock for the year ended December 31, 2018, compared to aggregate proceeds of $12,358,000 from issuance of common stock of the Company for the period from Inception through December 31, 2017.

Critical Accounting Policies and Estimates

Stock Based Compensation

In accordance with ASC No. 718, Compensation – Stock Compensation (“ASC 718”), the Company measures the compensation costs of stock-based compensation arrangements based on the grant date fair value of granted instruments and recognizes the costs in financial statements over the period during which employees are required to provide services. Stock-based compensation arrangements include stock options.

Equity instruments (“instruments”) issued to non-employees are recorded on the basis of the fair value of the instruments, as required by ASC 718. ASC No. 505, Equity Based Payments to Non-Employees (“ASC 505”), defines the measurement date and recognition period for such instruments. In general, the measurement date is (a) when a performance commitment, as defined, is reached or (b) when the earlier of (i) the non-employee performance is complete and (ii) the instruments are vested. The compensation cost is remeasured at fair value at each reporting period when the award vests. As a result, stock option-based payments to non-employees can result in significant volatility in compensation expense.

The Company accounts for its stock-based compensation using the Black-Scholes model to estimate the fair value of stock option awards. Using this model, fair value is calculated based on assumptions with respect to the (i) expected volatility of the Company’s common stock price, (ii) expected life of the award, which for options is the period of time over which employees and non-employees are expected to hold their options prior to exercise, and (iii) risk-free interest rate.

Fair Value Measurements

The Company recognizes and discloses the fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). Each level of input has different levels of subjectivity and difficulty involved in determining fair value.

The carrying amounts of the Company’s financial assets and liabilities, including cash, accounts payable, and accrued liabilities approximate fair value because of the short maturity of these instruments.

Goodwill and Indefinite-lived intangible Assets

We test for the impairment of our goodwill and indefinite-lived assets at least annually and whenever events or circumstances occur indicating that a possible impairment has been incurred.

We perform our annual goodwill impairment test on the first day of our fourth quarter based on the income approach, also known as the discounted cash flow (“DCF”) method, which utilizes the present value of future cash flows to estimate fair value. We also use the market approach, which utilizes market price data of companies engaged in the same or a similar line of business as that of our company, to estimate fair value. A reconciliation of the two methods is performed to assess the reasonableness of fair value of each of the reporting units.

The future cash flows used under the DCF method are derived from estimates of future revenues, operating income, working capital requirements and capital expenditures, which in turn reflect specific global, industry and market conditions. The discount rate developed is based on data and factors relevant to the economies in which the business operates and other risks associated with those cash flows, including the potential variability in the amount and timing of the cash flows. A terminal growth rate is applied to the final year of the projected period and reflects our estimate of stable growth to perpetuity. We then calculate the present value of the respective cash flows for each reporting unit to arrive at the fair value using the income approach and then determine the appropriate weighting between the fair value estimated using the income approach and the fair value estimated using the market approach. Finally, we compare the estimated fair value of our goodwill and indefinite-lived assets to its respective carrying value in order to determine if the goodwill assigned to each reporting unit is potentially impaired. In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment”, which eliminated Step 2 from the goodwill impairment test. If the fair value of the asset exceeds its carrying value, goodwill is not impaired and no further testing is required. If the fair value of the asset is less than the carrying value, an impairment charge is recognized for the amount by which the carrying amount exceeds the asset’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that asset. This update is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

Significant assumptions used include management’s estimates of future growth rates, the amount and timing of future operating cash flows, capital expenditures, discount rates, as well as market and industry conditions and relevant comparable company multiples for the market approach. Assumptions utilized are highly judgmental, especially given the role technology plays in driving the demand for consulting services in the blockchain technology space.

Revenue Recognition

The Company recognizes consulting revenue when the service is rendered, the fee for arrangement is fixed or determinable, and collectability is reasonably assured.

CoinTracking GmbH accounts for a contract when it has approval and commitment from all parties, the rights of the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Revenue is recognized when control of the promised services is transferred to the Company’s customers over time, and in an amount that reflects the consideration the Company was contractually due in exchange for those services. Most of the Company’s contracts with customers were single, or had few distinct performance obligations, and the transaction price was allocated to each performance obligation using the stand-alone selling price.

CoinTracking GmbH’s revenue is primarily derived directly from users in the form of subscriptions. Subscription revenue is presented net of credits and credit card chargebacks. Subscribers pay in advance, primarily by PayPal or cryptocurrencies, subject to certain conditions identified in our terms and conditions. Revenue is initially deferred and recognized using the straight-line method over the term of the applicable subscription period, which primarily range from annual to perpetual.

Income Taxes

Deferred tax assets and liabilities are recognized for expected future consequences of events that have been included in the financial statements or tax returns. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities. The Income tax payable of $800 reflects the minimum franchise tax for the State of California.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Off-Balance Sheet Transactions

We do not have any off-balance sheet transactions.

Trends, Events and Uncertainties

The blockchain technology market is dynamic and unpredictable. Although we will undertake compliance efforts, including efforts with commercially reasonable diligence, there can be no assurance that there will not be a new or unforeseen law, regulation or risk factor which will materially impact our ability to continue our business as currently operated or raise additional capital to foster our continued growth.

We cannot assure you that our consulting business will develop as planned, that we will ever earn revenues sufficient to support our operations, or that we will ever be profitable. Furthermore, since we have no committed source of financing, we cannot assure you that we will be able to raise money as and when we need it to continue our operations. If we cannot raise funds as and when we need them, we may be required to severely curtail, or even to cease, our operations.

Other than as discussed above and elsewhere in this Annual Report on Form 10-K, we are not aware of any trends, events or uncertainties that are likely to have a material effect on our financial condition.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

Item 8. Financial Statements and Supplementary Data

See pages beginning with page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Internal Control over Financial Reporting and Evaluation of Disclosure Controls and Procedures.

Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures

Our management, including our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) or 15d-15(e) of the Exchange Act, as of December 31, 2018. Based upon (1) that evaluation, (2) the fact that the Company’s previously issued financial statements for the period from inception through December 31, 2017 and each fiscal quarter therein, and for the quarterly periods ended March 31, 2018, June 30, 2018, and September 30, 2018 (collectively, the “Relevant Periods”), should no longer be relied upon because of errors in those financial statements and (3) the fact that the Company is restating those financial statements in this Annual Report to correct such errors, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of December 31, 2018, due to the material weaknesses in our internal control over financial reporting in connection with the Company’s previous accounting treatment for its investments in cryptocurrency, as well as the material weaknesses in our internal control over financial reporting described in our Annual Report on Form 10-K for the period from Inception through December 31, 2017, as filed on April 2, 2018 with the SEC, as amended by Amendment No. 1 on Form 10-K/A filed with the SEC on September 14, 2018, as further amended by Amendment No. 2 on Form 10-K/A filed with the SEC on April 4, 2019 (the “2017 Annual Report”), which have not yet been remediated.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive officer and principal financial officer and effected by our Board of Directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“GAAP”) and includes those policies and procedures that:

All systems of internal control, no matter how well designed, have inherent limitations. Therefore, even those systems deemed to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Furthermore, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in disclosure controls and procedures, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2018. The framework used in carrying out this evaluation was set forth by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission in “Internal Control—Integrated Framework (2013)”.

Based on this evaluation, our management concluded that as of December 31, 2018, our internal control over financial reporting was not effective due to the material weakness relating to the Company’s previous accounting treatment for its investments in cryptocurrency. The errors that necessitated restatement of the Company’s previously issued financial statements for the Relevant Periods resulted from (1) the misclassification of accounting for investments in cryptocurrency at fair value, as opposed to intangible assets with indefinite lives and recording such investments in cryptocurrency at cost less impairment, if any, and (2) the misclassification of accounting for certain investments in token pre-sale and simple agreements for future tokens that were incorrectly described as investments in Initial Coin Offerings and included as investments in cryptocurrency in the Company’s consolidated balance sheets when such investments should be included as investments, non-cryptocurrency in the Company’s consolidated balance sheets.

As we previously disclosed in our 2017 Annual Report, the other matters involving internal controls and procedures that our management considered to be material weaknesses were as follows:

Management’s Actions and Plans to Remediate Material Weaknesses

Management is responsible for implementing changes and improvements to internal control over financial reporting and for remediating the control deficiencies that gave rise to the material weaknesses. Management believes that progress has been made to remediate the underlying causes of the material weaknesses in internal control over financial reporting and has taken the following steps to remediate such material weaknesses:

Management plans to take the following steps to further remediate the material weaknesses as follows:

Management understands that in order to remediate the Company’s material weaknesses, additional segregation of duties, changes in personnel and technologies are necessary. We will not consider these material weaknesses fully remediated until management has tested those internal controls and found them to be operating effectively.

Changes in Internal Control over Financial Reporting

Other than as described above, there have been no changes in our internal control over financial reporting during the three-month period ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Set forth below is certain information regarding our current executive officers and directors. Each of the directors was elected to serve until our next annual meeting of stockholders or until his or her successor is elected and qualified. Our officers are appointed by, and serve at the pleasure of, the board of directors.

Biographical information with respect to our executive officers, directors and key employees is provided below. There are no family relationships between any of our executive officers, directors or key employees.

Ron Levy. Mr. Levy, 59, has served as our Chief Executive Officer and a Director since May 2018. Mr. Levy has also served as our Chief Operating Officer since June 2017. Mr. Levy’s experience includes consulting for various emerging growth companies through various growth cycles. He also serves as Chief Operating Officer and Partner at Redwood Fund, LP, a private investment fund and major stockholder of the Company, since February 2014, and Ladyface Capital, LLC, the General Partner of Redwood Fund, LP, since July 2013.

Anthony Strickland. Mr. Strickland, 49, has served as a member of the Board since June 2017 and currently serves as President and Chief Executive Officer of Strong America, an advocacy group and political action committee, since June 2017. Mr. Strickland is a former Republican member of the California State Senate, representing District 19 from 2008 to 2012, and a former California Assemblyman, representing the 37th District from 1998 to 2004. He served as Vice President of GreenWave Energy Solutions LLC, a company that seeks to harness the power of ocean waves to provide energy to Californians, from January 2007 to November 2008. Mr. Strickland earned his B.A. in political science from Whittier College. Because of his experience in legislation and ability to offer guidance on regulatory matters, we concluded that Mr. Strickland should serve as a member of the Board.

Holly Ruxin. Ms. Holly Ruxin, 49, has served as a member of the Board since April 2018 and currently serves as Chief Executive Officer of Montcalm TCR, a San Francisco-based wealth management and capital markets trading firm. Ms. Ruxin began her investment career at Goldman Sachs in the fixed income derivatives arena, and she has managed client assets and led private client teams at Morgan Stanley, Montgomery Securities and Bank of America for over twenty years. Ms. Ruxin is also the founder of Trevor TCR, a non-profit organization designed to invest in what matters and achieve transformation through giving. Ms. Ruxin received a Master of Business Administration in Finance from Columbia University and a Bachelor of Arts in Economics from the University of Michigan. We determined that Ms. Ruxin should serve as a director because of her extensive asset management and capital markets experience.

Ivan Ivankovich. Mr. Ivankovich, 52, has served as our Chief Financial Officer since August 2017. He is the Co-Founder and Managing Partner of Full Stack Finance, an accounting and part-time CFO services company, since March 2015. He also served as Chief Financial Officer of Springowl Asset Management, a registered hedge fund, from March 2016 until July 2017, President of iFinance Consulting Group from July 2005 until March 2015 and a member of the Board of Directors of OriginClear, Inc. (OTCQB:OCLN) from June 2007 until January 2014. Mr. Ivankovich earned his Bachelor of Science in Economics from the University of California, Santa Barbara.

Code of Ethics

The Company has adopted a Code of Conduct and Ethics that applies to every director, officer and employee of the Company. Such Code of Conduct and Ethics includes written standards that are reasonably designed to deter wrongdoing and to promote:

A copy of the Code of Conduct and Ethics is available on the Company’s website at www.thecryptocompany.com.

Director Nominations

The Company does not have any defined procedures by which stockholders may submit nominations for directors and there has been no change to that policy.

Audit Committee and Audit Committee Financial Expert

The board of directors of the Company does not have an audit committee. The board of directors oversees the accounting and financial reporting processes of the Company and the audits of the Company’s consolidated financial statements and does not have an “audit committee financial expert.” We are actively seeking independent members of our board of directors to serve on an audit committee, including an “audit committee financial expert.”

Item 11. Executive Compensation

2018 Summary Compensation Table

The following table provides information regarding the total compensation for services rendered in all capacities that was earned during the fiscal year indicated by our named executive officers for 2018.

Outstanding Equity Awards at Fiscal Year-End

We did not grant any equity awards to our named executive officers during the year ended December 31, 2018.

Employment Agreements, Severance and Change-in Control Arrangements

Michael Poutre

On June 22, 2017, the Company entered into a Consulting Agreement (“Consulting Agreement”) with MP2 Ventures, LLC (“MP2”), pursuant to which MP2 shall cause Michael Poutre, principal of MP2 and Chief Executive Officer of the Company, to serve as Chief Executive Officer of the Company for an initial term of one year, in exchange for a consulting fee in the amount of $240,000 per annum.

Effective May 14, 2018, Michael Poutre, former Chief Executive Officer and director of the Company resigned from all of his current roles with the Company. Mr. Poutre remained a consultant to the Company until November 2018. In connection with Mr. Poutre’s resignation, the Company entered into a Separation and Consulting Agreement and General Mutual Release (the “Separation and Consulting Agreement”), which was executed on May 9, 2018 and approved by the Board of Directors on May 14, 2018. The Separation and Consulting Agreement was not effective until May 17, 2018, following the end of the revocation period. The Separation and Consulting Agreement provides that the Company pays Mr. Poutre a lump-sum cash payment of (i) his earned but unpaid base salary, (ii) his accrued but unpaid vacation time, and (iii) any outstanding requests for expense reimbursements that are approved pursuant to Company policy. Mr. Poutre served as a consultant of the Company for six months at a rate of $30,000 per month, payable in two separate tranches, though the Company may terminate his services for any reason.

On January 15, 2019, the Company entered into a settlement agreement with Mr. Poutre, whereby the Company agreed to pay Mr. Poutre $40,000 as settlement of all amounts outstanding in connection with his Separation and Consulting Agreement.

Employee Benefits

We currently do not offer any employee benefit plans, including any 401(k) plan.

Director Compensation Policy

The board of directors of the Company does not have a compensation committee. The board of directors determines the amount and form of executive and director compensation.

As previously disclosed, the Company entered into Director Services Agreements with each of its non-employee directors, effective April 7, 218 for each of Jeffrey Berman and Holly Ruxin, and June 7, 2018 for Anthony Strickland. Pursuant to the Director Service Agreements, each director is be entitled to receive (i) a fee of $80,000 per annum, payable quarterly, and (ii) a ten-year option to purchase 100,000 shares of common stock of the Company at an exercise price of $10.00 per share, which option shall be fully vested on the six-month anniversary of the date of grants. In addition, Mr. Strickland received an additional option grant to purchase 150,000 shares of common stock of the Company at an exercise price of $7.00 per share, which option was fully vested on the grant date. Additionally, subject to certain exceptions, each director is entitled to receive reimbursement for reasonable expenses incurred for the benefit of the Company.

The table below summarizes the compensation earned or paid to our non-employee directors for the fiscal year ended December 31, 2018:

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The disclosure in Item 5 under the heading “Securities Authorized for Issuance Under Equity Compensation Plans” is hereby incorporated by reference.

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information as of July 19, 2019 regarding the beneficial ownership of our common stock by the following persons:

Percentage ownership of our common stock is based on 21,212,836 shares of our common stock outstanding as of July 19, 2019.

Beneficial ownership is determined in accordance with the rules of the SEC, and thus represents voting or investment power with respect to our securities. Unless otherwise indicated in the footnotes to the following table, each person named in the table has sole voting and investment power. The address for each of our named executive officers and directors is c/o The Crypto Company, 22809 Pacific Coast Highway, Malibu, California 90265. Shares of common stock subject to options, warrants or other rights currently exercisable or exercisable within 60 days of July 19, 2019, are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the stockholder holding the options, warrants or other rights, but are not deemed outstanding for computing the percentage of any other stockholder.

Section 16(a) Beneficial Ownership Reporting Compliance

Our directors and executive officers and any beneficial owner of more than 10% of our common stock, as well as certain affiliates of those persons, must file reports with the SEC showing the number of shares of common stock they beneficially own and any changes in their beneficial ownership. Based on our review of these reports and written representations of our directors and executive officers, we believe that all required reports in 2018 were filed in a timely manner, except that, as a result of administrative errors, one Form 4 reporting one transaction was not timely filed on behalf of Mr. Strickland.

Change in Control

As of the date of this report, we are not aware of any arrangements, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in control of the Company.

Item 13. Certain Relationships and Related Transactions, and Director Independence

SEC regulations define the related person transactions that require disclosure to include any transaction, arrangement or relationship in which the amount involved exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years in which we were or are to be a participant and in which a related person had or will have a direct or indirect material interest. A related person is: (i) an executive officer, director or director nominee of the Company, (ii) a beneficial owner of more than 5% of our common stock, (iii) an immediate family member of an executive officer, director or director nominee or beneficial owner of more than 5% of our common stock, or (iv) any entity that is owned or controlled by any of the foregoing persons or in which any of the foregoing persons has a substantial ownership interest or control.

From January 1 2018, through the date of this Annual Report on Form 10-K, described below are certain transactions or series of transactions between us and certain related persons. Information relating to employment agreements entered into by the Company and its executive officers and executive officer compensation can be found at Item 11 - Executive Compensation.

We have a services agreement with Full Stack Finance for chief financial officer and accounting outsource services. Ivan Ivankovich, the Company’s CFO, is the Co-Managing Director of Full Stack Finance. We incurred $476,287 in fees to Full Stack Finance during the year ended December 31, 2018.

Policies and Procedures for Related Person Transactions

While our board of directors has not adopted a formal written related person transaction policy that sets forth the policies and procedures for the review and approval or ratification of related person transactions, it the Company’s practice and procedure to present all transactions arrangements, relationships or any series of similar transactions, arrangements or relationships, in which the Company was or is to be a participant and a related person had or will have a direct or indirect material interest, to the board of directors for approval.

Director Independence

Our determination of the independence of our directors is made using the definition of “independent” contained in the listing standards of the Nasdaq Stock Market. On the basis of information solicited from each director, the board has determined that each of Anthony Strickland and Holly Ruxin is independent within the meaning of such rules.

Item 14. Principal Accounting Fees and Services

The following table sets forth fees billed and to be billed to us by our independent registered public accounting firm for the years ended December 31, 2018 and 2017 for (i) services rendered for the audit of our annual consolidated financial statements and the review of our quarterly consolidated financial statements, (ii) services rendered that are reasonably related to the performance of the audit or review of our consolidated financial statements that are not reported as Audit Fees, and (iii) services rendered in connection with tax preparation, compliance, advice and assistance.

Audit Fees: Represents fees for professional services provided for the audit of our annual consolidated financial statements, review of our consolidated financial statements included in our quarterly reports and services in connection with statutory and regulatory filings.

Audit-Related Fees: Represents the fees for audits of CoinTracking GmbH’s historical financial statements and review of correspondence with regulatory bodies.

The board of directors of the Company does not have an audit committee. The board of directors of the Company oversees the accounting and financial reporting processes of the Company and approves all auditing services and the terms thereof and non-audit services (other than non-audit services published under Section 10A(g) of the Exchange Act or the applicable rules of the SEC or the Public Company Accounting Oversight Board) to be provided to us by the independent auditor; provided, however, the pre-approval requirement is waived with respect to the provisions of non-audit services for us if the “de minimis” provisions of Section 10A(i)(1)(B) of the Exchange Act are satisfied.

Tax Fees: Represents professional services rendered for tax compliance, tax advice and tax planning.

All Other Fees: Our independent registered public accounting firm was not paid any other fees for professional services during the fiscal years ended December 31, 2018 and 2017.

PART IV

Item 15. Exhibits, Financial Statement Schedules

Financial Statements

See pages beginning with page F-1.

Exhibit Index

* Filed herewith

** Management contract or compensatory plan

Item 16. Form 10-K Summary

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereto duly authorized, on July 26, 2019.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities indicated on the 26th day of July, 2019.

THE CRYPTO COMPANY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the board of directors of The Crypto Company

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of The Crypto Company as of December 31, 2018 and 2017, the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a significant accumulated deficit. In addition, the Company continues to experience negative cash flows from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/S/ BF Borgers CPA PC

BF Borgers CPA PC

We have served as the Company’s auditor since 2019.

Lakewood, CO

July 26, 2019

THE CRYPTO COMPANY

Consolidated Balance Sheets

December 31,

The accompanying notes are an integral part of these condensed consolidated financial statements.

THE CRYPTO COMPANY

Consolidated Statement of Operations

For the year ended December 31, 2018 and For the Period from Inception, March 9, 2017 through December 31, 2017

The accompanying notes are an integral part of these consolidated financial statements.

THE CRYPTO COMPANY

Consolidated Statement of Stockholders’ Equity

For the Year Ended December 31, 2018 and for the Period from Inception, March 9, 2017 through December 31, 2017