Notes to Condensed Financial Statements
Three Months Ended September 30, 2018 and 2017 (Restated)
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Integrated Ventures, Inc. (the "Company," "we," "our," or "EMS Find") was incorporated in the State of Nevada on March 22, 2011, under the name of Lightcollar, Inc. On March 20, 2015, the Company amended its articles of incorporation and changed its name from Lightcollar, Inc. to EMS Find, Inc. On May 30, 2017, Integrated Ventures, Inc. (“Integrated Ventures”), a Nevada corporation, was formed as a wholly owned subsidiary of the Company. Pursuant to an Agreement and Plan of Merger dated May 30, 2017, Integrated Ventures was merged into the Company, with the Company being the surviving corporation and changing its name to Integrated Ventures, Inc.
The Company has discontinued its prior operations and changed its business focus from its prior technologies relating to the EMS Find platform to acquiring, launching and operating companies in the cryptocurrency sector, mainly in digital currency mining, equipment manufacturing, and sales of branded mining rigs, as well as blockchain software development.
The Company is developing and acquiring a diverse portfolio of digital currency assets and block chain technologies, and now operates cryptocurrency mining operations in two facilities located in Pennsylvania and New Jersey. Cryptocurrency mining revenues commenced in November 2017. Crypto-currencies are a medium of exchange that uses decentralized control (a block chain) as opposed to a central bank to track and validate transactions. The Company, through its wholly owned subsidiary, BitcoLab, Inc., is currently mining Bitcoin, Litecoin and Ethereum, whereby the Company earns revenue by solving “blocks” to be added to the block chain.
The Company expanded its cryptocurrency mining operations in April 2018 by acquiring the operations of digiMine LLC (“digiMine”) (Note 6) and by purchasing 182 cryptocurrency mining machines from Secure Hosting LLC (“Secure Hosting”) in August 2018 (see Note 5).
Basis of Presentation
The accompanying unaudited condensed financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles ("US GAAP") for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. The results of operations for the interim periods ended September 30, 2018 shown in this report are not necessarily indicative of results to be expected for the full fiscal year ending June 30, 2019. In the opinion of the Company's management, the information contained herein reflects all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the Company's results of operations, financial position and cash flows. The unaudited interim financial statements should be read in conjunction with the audited financial statements in the Company's Annual Report on Form 10-K for the year ended June 30, 2018 filed on December 27, 2018 and Management's Discussion and Analysis of Financial Condition and Results of Operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Company are disclosed in Notes to Financial Statements included in the Company’s Annual Report on Form 10-K. The following summary of significant accounting policies of the Company is presented to assist in understanding the Company’s interim financial statements. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.
Integrated Ventures, Inc.
Notes to Condensed Financial Statements
Three Months Ended September 30, 2018 and 2017 (Restated)
(Unaudited)
Restatement
The Company is restating its condensed financial statements for the three months ended September 30, 2017 to correct reporting of derivative liabilities associated with its convertible notes payable and warrants, stock-based compensation, gain on sale of investments and other miscellaneous corrections.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Because of the use of estimates inherent in the financial reporting process, actual results could differ significantly from those estimates.
Digital Currencies
Digital currencies consist of Bitcoin, Litecoin and Ethereum, generally received for the Company’s own account as compensation for cryptocurrency mining services. Given that there is limited precedent regarding the classification and measurement of cryptocurrencies under current Generally Accepted Accounting Principles (“GAAP”), the Company has determined to account for these digital currencies as indefinite-lived intangible assets in accordance with Accounting Standards Update ("ASU") No. 350,
Intangibles – Goodwill and Other
, for the period covered by this report and in future reports unless and until further guidance is issued by the Financial Accounting Standards Board (“FASB”). An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not than an impairment exists. If it is determined that it is more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted. Realized gains on the sale of digital currencies are included in other income (expense) in the statements of operations.
Inventories
Inventories at September 30, 2018 consist of cryptocurrency mining units held for sale or deployment in mining operations, and are stated at the lower of cost or estimated realizable value. Payments to equipment suppliers prior to shipment of the equipment are recorded as equipment deposits.
Property and Equipment
Property and equipment, consisting primarily of computer and other cryptocurrency mining equipment (transaction verification servers) and leasehold improvements, is stated at the lower of cost or estimated realizable value and is depreciated when placed into service using the straight-line method over estimated useful lives. The Company operates in an emerging industry for which limited data is available to make estimates of the useful economic lives of specialized equipment. Management has assessed the basis of depreciation of these assets and believes they should be depreciated over a three-year period due to technological obsolescence reflecting rapid development of hardware that has faster processing capacity and other factors. Additionally, as of September 30, 2018, the Company wrote down cryptocurrency mining equipment by $2,097,930 to estimated net realizable value. Maintenance and repairs are expensed as incurred and improvements are capitalized. Gains or losses on the disposition of property and equipment are recorded upon disposal.
Management has determined that the three-year diminishing value best reflects the current expected useful life of transaction verification servers. This assessment takes into consideration the availability of historical data and management’s expectations regarding the direction of the industry including potential changes in technology. Management will review this estimate annually and will revise such estimates as and when data becomes available.
Integrated Ventures, Inc.
Notes to Condensed Financial Statements
Three Months Ended September 30, 2018 and 2017 (Restated)
(Unaudited)
To the extent that any of the assumptions underlying management’s estimate of useful life of its transaction verification servers are subject to revision in a future reporting period, either as a result of changes in circumstances or through the availability of greater quantities of data, then the estimated useful life could change and have a prospective impact on depreciation expense and the carrying amounts of these assets.
Accounting for Derivatives
The Company evaluates its convertible debt, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for. The result of this accounting treatment is that under certain circumstances the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under this accounting standard are reclassified to liability at the fair value of the instrument on the reclassification date.
Where the number of warrants or common shares to be issued under these agreements is indeterminate, the Company has concluded that the equity environment is tainted, and all additional warrants and convertible debt are included in the value of the derivatives.
We estimate the fair value of the derivatives associated with our convertible notes payable, warrants and put-back rights associated with two asset purchase agreements using, as applicable, either the Black-Scholes pricing model or multinomial lattice models that value the derivative liability based on a probability weighted discounted cash flow model using future projections of the various potential outcomes. We estimate the fair value of the derivative liabilities at the inception of the financial instruments, and, in the case of our convertible notes payable, at the date of conversions to equity and at each reporting date, recording a derivative liability, debt discount, additional paid-in capital and a gain or loss on change in derivative liabilities as applicable. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility, variable conversion prices based on market prices as defined in the respective agreements and probabilities of certain outcomes based on management projections. These inputs are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.
Impairment of Long-Lived Assets
All assets, including intangible assets subject to amortization, are reviewed for impairment when changes in circumstances indicate that the carrying amount of the asset may not be recoverable in accordance with ASC 350 and ASC 360. If the carrying amount of the asset exceeds the expected undiscounted cash flows of the asset, an impairment charge is recognized equal to the amount by which the carrying amount exceeds fair value or net realizable value. The testing of these intangibles under established guidelines for impairment requires significant use of judgment and assumptions. Changes in forecasted operations and other assumptions could materially affect the estimated fair values. Changes in business conditions could potentially require adjustments to these asset valuations. Total impairment expense, consisting of write downs for cryptocurrency mining equipment totaled $2,097,930 for the three months ended September 30, 2018.
Integrated Ventures, Inc.
Notes to Condensed Financial Statements
Three Months Ended September 30, 2018 and 2017 (Restated)
(Unaudited)
Fair Value of Financial Instruments
Disclosures about fair value of financial instruments require disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of September 30, 2018 and June 30, 2018, the amounts reported for cash, prepaid expenses and other current assets, accounts payable, accrued expenses and due to related party approximate fair value because of their short maturities.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
|
·
|
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
|
|
|
|
|
·
|
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
|
|
|
|
|
·
|
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
|
At September 30, 2018, we had no financial instrument assets measured at fair value. Our marketable securities as of June 30, 2018 are measured at fair value on a recurring basis and estimated as follows:
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
1,700
|
|
|
$
|
1,700
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
1,700
|
|
|
$
|
1,700
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Our derivative liabilities are measured at fair value on a recurring basis and estimated as follows:
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
1,917,301
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,917,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value
|
|
$
|
1,917,301
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,917,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
2,886,965
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,886,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value
|
|
$
|
2,886,965
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,886,965
|
|
During the three months ended September 30, 2018, the Company had the following activity in its derivative liabilities:
|
|
Convertible Notes Payable
|
|
|
Warrants
|
|
|
Put Back Rights
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities at June 30, 2018
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,886,965
|
|
|
$
|
2,886,965
|
|
Addition to liabilities for new debt/warrants
|
|
|
81,543
|
|
|
|
-
|
|
|
|
-
|
|
|
|
81,543
|
|
Change in fair value
|
|
|
(455
|
)
|
|
|
85,294
|
|
|
|
(1,136,046
|
)
|
|
|
(1,051,207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities at September 30, 2018
|
|
$
|
81,088
|
|
|
$
|
85,294
|
|
|
$
|
1,750,919
|
|
|
$
|
1,917,301
|
|
Integrated Ventures, Inc.
Notes to Condensed Financial Statements
Three Months Ended September 30, 2018 and 2017 (Restated)
(Unaudited)
Stock-Based Compensation
The Company accounts for all equity-based payments in accordance with ASC Topic 718,
Compensation – Stock Compensation.
ASC Topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock awards, stock options, warrants and other equity-based compensation issued to employees. The value of the portion of an award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method. The fair value of a stock award is recorded at the fair market value of a share of the Company’s stock on the grant date. The Company estimates the fair value of stock options and warrants at the grant date by using an appropriate fair value model such as the Black-Scholes option pricing model or multinomial lattice models.
The Company accounts for non-employee share-based awards based upon ASC 505-50,
Equity-Based Payments to Non-Employees.
ASC 505-50 requires the costs of goods and services received in exchange for an award of equity instruments to be recognized using the fair value of the goods and services or the fair value of the equity award, whichever is more reliably measurable. The fair value of the equity award is determined on the measurement date, which is the earlier of the date that a performance commitment is reached or the date that performance is complete. Generally, our awards do not entail performance commitments. When an award vests over time such that performance occurs over multiple reporting periods, we estimate the fair value of the award as of the end of each reporting period and recognize an appropriate portion of the cost based on the fair value on that date. When the award vests, we adjust the cost previously recognized so that the cost ultimately recognized is equivalent to the fair value on the date the performance is complete.
Revenue Recognition
Effective July 1, 2018, we adopted ASC 606,
Revenue from Contracts with Customers,
as amended, using the modified retrospective method, which requires the cumulative effect of adoption to be recognized as an adjustment to opening retained earnings in the period of adoption.. There was no cumulative effect of adopting the new standard and no impact on our financial statements. The new standard provides a single comprehensive model to be used in the accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific guidance. The standard’s stated core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, ASC 606 includes provisions within a five-step model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when, or as, an entity satisfies a performance obligation.
Our revenues currently consist of cryptocurrency mining revenues and revenues from the sale of cryptocurrency mining equipment recognized in accordance with ASC 606 as discussed above. Amounts collected from customers prior to shipment of products are recorded as deferred revenue.
The Company earns its cryptocurrency mining revenues by providing transaction verification services within the digital currency networks of crypto-currencies, such as Bitcoin, Litecoin and Ethereum. The Company satisfies its performance obligation at the point in time that the Company is awarded a unit of digital currency through its participation in the applicable network and network participants benefit from the Company’s verification service. In consideration for these services, the Company receives digital currencies, which are recorded as revenue using the closing U.S. dollar price of the related cryptocurrency on the date of receipt. Expenses associated with running the cryptocurrency mining operations, such as equipment depreciation, rent, operating supplies, rent, utilities and monitoring services are recorded as cost of revenues.
Integrated Ventures, Inc.
Notes to Condensed Financial Statements
Three Months Ended September 30, 2018 and 2017 (Restated)
(Unaudited)
There is currently no specific definitive guidance in GAAP or alternative accounting frameworks for the accounting for the production and mining of digital currencies and management has exercised significant judgment in determining appropriate accounting treatment for the recognition of revenue for mining of digital currencies. Management has examined various factors surrounding the substance of the Company’s operations and the guidance in ASC 606, including identifying the transaction price, when performance obligations are satisfied, and collectability is reasonably assured being the completion and addition of a block to a blockchain and the award of a unit of digital currency to the Company. In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies which could result in a change in the Company’s financial statements.
Income Taxes
The Company adopted the provisions of ASC 740-10,
Accounting for Uncertain Income Tax Positions.
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. In accordance with the guidance of ASC 740-10, 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 should be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded an asset for unrecognized tax benefits. As of September 30, 2018, tax years 2018, 2017, 2016 and 2015 remain open for IRS audit. The Company has received no notice of audit from the IRS for any of the open tax years.
The Company adopted ASC 740-10,
Definition of Settlement in FASB Interpretation No. 48,
(“ASC 740-10”), which was issued on May 2, 2007. ASC 740-10 amends FIN 48 to provide guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. The term “effectively settled” replaces the term “ultimately settled” when used to describe recognition, and the terms “settlement” or “settled” replace the terms “ultimate settlement” or “ultimately settled” when used to describe measurement of a tax position under ASC 740-10. ASC 740-10 clarifies that a tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. The adoption of ASC 740-10 did not have an impact on the accompanying financial statements.
Income (Loss) Per Share
Basic net income or loss per share is calculated by dividing net income or loss by the weighted average number of common shares outstanding for the period. Diluted income or loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as “in-the-money” stock options and warrants, convertible debt and convertible preferred stock, were exercised or converted into common stock. Equivalent shares are not utilized when the effect is anti-dilutive.
The common shares used in the computation of basic and diluted net income (loss) per share are reconciled as follows:
|
|
Three Months Ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding – basic
|
|
|
9,253,016
|
|
|
|
7,169,767
|
|
Dilutive effect of convertible debt
|
|
|
-
|
|
|
|
2,579,473
|
|
Dilutive effect of Series B convertible preferred stock
|
|
|
-
|
|
|
|
18,000,000
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding – diluted
|
|
|
9,253,016
|
|
|
|
27,749,240
|
|
Integrated Ventures, Inc.
Notes to Condensed Financial Statements
Three Months Ended September 30, 2018 and 2017 (Restated)
(Unaudited)
For the three months ended September 30, 2018, common stock equivalent shares which may dilute future earnings per share include 348,375 common shares issuable upon exercise of warrants, and 23,250,000 common shares issuable upon conversion of Series B Preferred Stock. The conversion feature of the Company’s convertible notes payable was not in effect as of September 30, 2018. Since these potential dilutive securities had an anti-dilutive effect, they were not included in the calculation of diluted net loss per common share; therefore, basic net loss per share is the same as diluted net loss per share for the three months ended September 30, 2018.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. This new pronouncement, as amended, is effective January 1, 2019 for calendar-year-end public companies, or July 1, 2019 for the Company. Early adoption is permitted. The Company is unable to determine the impact on its financial statements for the adoption of the new pronouncement.
There were no new accounting pronouncements issued or proposed by the FASB during the three months ended September 30, 2018 and through the date of filing this report which the Company believes will have a material impact on its financial financial statements.
Reclassifications
Certain amounts in the condensed financial statements for the prior-year periods have been reclassified to conform to the presentation for the current-year periods.
3. GOING CONCERN
The Company has reported recurring net losses since its inception and used net cash in operating activities of $155,227 in the three months ended September 30, 2018. As of September 30, 2018, the Company had an accumulated deficit of $13,170,158 and a total stockholders’ deficit of $281,368. These conditions raise substantial doubt about the Company's ability to continue as a going concern.
The accompanying financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The ability of the Company to reach a successful level of operations is dependent on the execution of management's plans, which include the raising of capital through the debt and/or equity markets, until such time that funds provided by operations are sufficient to fund working capital requirements. If the Company were not to continue as a going concern, it would likely not be able to realize its assets at values comparable to the carrying value or the fair value estimates reflected in the balances set out in the preparation of the financial statements.
There can be no assurances that the Company will be successful in attaining a profitable level of operations or in generating additional cash from the equity/debt markets or other sources fund its operations. The financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary. Should the Company not be successful in its business plan or in obtaining the necessary financing to fund its operations, the Company would need to curtail certain or all operational activities and/or contemplate the sale of its assets, if necessary.
Integrated Ventures, Inc.
Notes to Condensed Financial Statements
Three Months Ended September 30, 2018 and 2017 (Restated)
(Unaudited)
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
|
|
September 30,
2018
|
|
|
June 30,
2018
|
|
|
|
|
|
|
|
|
Cryptocurrency mining equipment
|
|
$
|
1,483,194
|
|
|
$
|
573,806
|
|
Furniture and equipment
|
|
|
16,064
|
|
|
|
14,427
|
|
Leasehold improvements
|
|
|
138,441
|
|
|
|
102,932
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,637,699
|
|
|
|
691,165
|
|
Less accumulated depreciation and amortization
|
|
|
(168,278
|
)
|
|
|
(58,060
|
)
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
1,469,421
|
|
|
$
|
633,105
|
|
Depreciation and amortization expense, included in cost of revenues, for the three months ended September 30, 2018 and 2017 was $110,218 and $0, respectively.
5. ASSET PURCHASE AGREEMENT
On August 2, 2018, the Company entered into an Asset Purchase Agreement with Secure Hosting LLC, a Florida limited liability, for the purchase of 182 Ethereum mining machines.
As consideration for the purchase of the machines, the Company issued 38,018 restricted shares of its Series B convertible preferred stock, valued on an “as converted to common” basis at an aggregate of $3,801,800, based on the market value of the Company’s common stock on the date of the transaction.
Of the 182 machines purchased, 152 were placed into operations, and 30 units deemed to be under-performing will be utilized by the Company as repair parts or sold as repair parts. The Company performed a lower of cost or market impairment analysis on the machines purchased, including writing off the purchase price allocated to the defective machines, and recorded an impairment expense of $2,097,930, which amount is included in operating expenses for the three months ended September 30, 2018.
The Agreement contains customary representations and warranties and covenants as of the Closing Date, including, without limitation, that the Equipment is (i) in good condition, (ii) free of all liens, (iii) not subject to any intellectual property rights other than software used in the Equipment and (iv) covered by certain manufacturer warranties. Because a portion of the machines were defective, certain shares of the Series B preferred stock issued in the transaction were subsequently returned to the Company and cancelled.
6. DIGIMINE ACQUISITION
In April 2018, the Company acquired the digital currency mining operations of digiMine LLC (“digiMine”) through two Asset Purchase Agreements (the “digiMine Acquisition”) in a transaction recorded as a business combination.
On April 16, 2018, the Company entered into an Asset Purchase Agreement with digiMine for the purchase of digiMine’s digital currency mining assets located in Marlboro, New Jersey, the principal assets consisting of: 150 cryptocurrency mining machines; all right, title and interest in, the lease and leasehold improvements for the premises on which digiMine’s business operates; all books and records pertaining to ownership of digiMine’s business as applicable; and restricted cash of $175,000. The Company issued 16,666 shares of its Series B preferred stock to digiMine.
Integrated Ventures, Inc.
Notes to Condensed Financial Statements
Three Months Ended September 30, 2018 and 2017 (Restated)
(Unaudited)
The Company also entered into a separate Security and Pledge Agreement, dated as of April 13, 2018, securing its obligations to digiMine under the Asset Purchase Agreement.
digiMine has the right (the “Put-Back Right”), at any time commencing April 1, 2019, to require that the Company redeem for cash any of Seller’s then-outstanding Shares at a redemption price equal to 72% of the Shares. The Conversion Amount on execution is equal to $1,200,000 (the “Put-Back Price”) of such Shares; provided, that the Put Back Right expires with respect to any of the Shares at such time as the Shares are registered for resale. Each of the Shares for purposes of the Put-Back Price is equal to a fixed price of $100 per share.
On April 30, 2018, the Company entered into a second Asset Purchase Agreement with digiMine for the purchase of digiMine’s digital currency mining assets located in Marlboro, New Jersey, the principal assets consisting of: 97 cryptocurrency mining machines and computer workstation; digital currency portfolio with an estimated value of $15,487; all right, title and interest in, the lease and leasehold improvements for the premises on which digiMine’s business operates; all books and records pertaining to ownership of digiMine’s business as applicable; and restricted cash of $200,000. The Company issued 20,000 shares of its Series B preferred stock to digiMine.
The Company also entered into a separate Security and Pledge Agreement, dated as of April 30, 2018, securing its obligations to digiMine under the Agreement.
digiMine has the right (the “Put-Back Right”), at any time commencing May 1, 2019, to require that the Company redeem for cash any of Seller’s then-outstanding Shares at a redemption price equal to 72% of the Shares. The Conversion Amount on execution is equal to $1,440,000 (the “Put-Back Price”) of such Shares; provided, that the Put Back Right expires with respect to any of the Shares at such time as the Shares are registered for resale. Each of the Shares for purposes of the Put-Back Price is equal to a fixed price of $100 per share.
The Company has identified the Put-Back Rights associated with the two Asset Purchase Agreements as derivatives.
The Company engaged an independent valuation firm to estimate the fair value of the Series B preferred stock issued in the two Asset Purchase Agreements, to estimate the value of the derivative liabilities associated with the Put-Back Rights, and allocate the total consideration paid to the assets acquired. The valuation firm developed multinomial lattice models that valued the derivative liability based on a probability weighted discounted cash flow model using future projections of the various potential outcomes.
The total consideration paid in the Acquisition is summarized as follows:
Value of 36,667 total Series B preferred shares
|
|
$
|
1,163,806
|
|
Derivative liabilities associated with Put-Back Rights
|
|
|
3,729,109
|
|
|
|
|
|
|
Total consideration paid
|
|
$
|
4,892,915
|
|
The total consideration paid was allocated to the fair value of the assets acquired as follows:
Restricted cash
|
|
$
|
375,000
|
|
Property and equipment
|
|
|
350,349
|
|
Digital currencies
|
|
|
14,056
|
|
Goodwill
|
|
|
4,153,510
|
|
|
|
|
|
|
Total consideration allocated
|
|
$
|
4,892,915
|
|
No liabilities of digiMine were assumed by the Company in the Acquisition. The excess of consideration paid over fair value of assets acquired was recorded as goodwill.
The Company performed an impairment analysis on the goodwill at June 30, 2018 and recorded an impairment expense of $4,153,510, which amount is included in operating expenses for the year ended June 30, 2018. The total cash acquired of $375,000 is restricted to fund digital mining operations.
7. RELATED PARTY TRANSACTIONS
We have one executive officer, Steve Rubakh, who is currently our only full-time employee and sole member of our Board of Directors. Mr. Rubakh is paid an annual salary established by the Board of Directors and is issued shares of Series B Preferred Stock for additional compensation. The number of shares issued, generally on a quarterly basis, is at the discretion of the Board of Directors.
On March 18, 2018, the Board of Directors of the Company modified the annual compensation for Steve Rubakh, effective April 1, 2018 to include annual salary of $150,000 per year and the issuance on a quarterly basis of 5,000 shares of Series B preferred stock.
Integrated Ventures, Inc.
Notes to Condensed Financial Statements
Three Months Ended September 30, 2018 and 2017 (Restated)
(Unaudited)
On July 1, 2018, the Company issued to Mr. Rubakh 5,000 shares of Series B convertible preferred stock valued on an “as converted to common” basis at $417,000. The stock-based compensation – related party is included in general and administrative expenses for the three months ended September 30, 2018.
On August 1, 2017, the Company issued to Mr. Rubakh 30,000 shares of Series B convertible preferred stock valued on an “as converted to common” basis at $9,000. The stock-based compensation – related party is included in general and administrative expenses for the three months ended September 30, 2017.
Amounts due to related party, including accrued salary to Mr. Rubakh, totaled $48,975 and $20,974 as of September 30, 2018 and June 30, 2018, respectively.
8. CONVERTIBLE NOTES PAYABLE
Convertible notes payable, all classified as current, consist of the following at September 30, 2018:
|
|
|
|
|
Debt
|
|
|
|
|
|
|
Principal
|
|
|
Discount
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
Geneva Roth Remark Holdings, Inc.
|
|
$
|
128,000
|
|
|
$
|
47,418
|
|
|
$
|
80,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BHP Capital NY, Inc.
|
|
|
52,000
|
|
|
|
46,326
|
|
|
|
5,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Armada Investment Fund, LLC
|
|
|
52,000
|
|
|
|
46,327
|
|
|
|
5,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
232,000
|
|
|
$
|
140,071
|
|
|
$
|
91,929
|
|
On September 17, 2018, the Company entered into a convertible promissory note with Geneva Roth Remark Holdings, Inc. (“Geneva”) in the principal amount of $128,000. The note matures on September 26, 2019 and bears interest at 10%. A debt discount of $49,169 was recorded, including a derivative liability of $46,169. Geneva has the right beginning on the date that is 170 days following the date of the note to convert principal and accrued interest into shares of the Company’s common stock. The conversion price is 70% of the average of the three lowest trading prices of the Company’s common stock during the ten trading days ending on the latest complete trading day prior to the date of conversion. As of September 30, 2018, $1,751 of the debt discount had been amortized and there was accrued interest payable of $459. The Company recorded a derivative liability of $45,818 as of September 30, 2018.
On September 26, 2018, the Company entered into a convertible promissory note with with BHP Capital NY, Inc. (“BHP”) in the principal amount of $52,000, with an original issue discount of $2,000. The note matures on September 17, 2019 and bears interest at 8%. BHP was issued 75,000 shares of the Company’s common stock valued at $26,625 as a fee. A debt discount of $46,840 was recorded, including a derivative liability of $17,687. BHP has the right beginning on the date that is 31 days following the date of the note to convert principal and accrued interest into shares of the Company’s common stock. The conversion price is 70% of the average of the three lowest trading prices of the Company’s common stock during the ten trading days ending on the latest complete trading day prior to the date of conversion. As of September 30, 2018, $513 of the debt discount had been amortized and there was accrued interest payable of $46. The Company recorded a derivative liability of $17,635 as of September 30, 2018.
On September 26, 2018, the Company entered into a convertible promissory note with with Armada Investment Fund, LLC (“Armada”) in the principal amount of $52,000, with an original issue discount of $2,000. The note matures on September 17, 2019 and bears interest at 8%. Armada was issued 75,000 shares of the Company’s common stock valued at $26,625 as a fee. A debt discount of $46,840 was recorded, including a derivative liability of $17,687. Armada has the right beginning on the date that is 31 days following the date of the note to convert principal and accrued interest into shares of the Company’s common stock. The conversion price is 70% of the average of the three lowest trading prices of the Company’s common stock during the ten trading days ending on the latest complete trading day prior to the date of conversion. As of September 30, 2018, $513 of the debt discount had been amortized and there was accrued interest payable of $46. The Company recorded a derivative liability of $17,635 as of September 30, 2018.
Integrated Ventures, Inc.
Notes to Condensed Financial Statements
Three Months Ended September 30, 2018 and 2017 (Restated)
(Unaudited)
9. STOCKHOLDERS’ DEFICIT
Preferred Stock
Series A Preferred Stock
In March 2015, the Company filed with the State of Nevada a Certificate of Designation establishing the designations, preferences, limitations and relative rights of 1,000,000 shares of the Company's Series A preferred stock ("Series A Preferred Stock"). Holders of the Series A Preferred Stock have the right to vote in aggregate, on all shareholder matters equal to 1,000 votes per share of Series A Preferred Stock. The shares of Series A Preferred Stock are not convertible into shares of common stock.
The Company has 1,000,000 shares of Series A Preferred Stock authorized, with 500,000 shares issued and outstanding as of September 30, 2018 and June 30, 2018, which were issued in March 2015 in consideration for services to members of the Company’s Board of Directors.
Series B Preferred Stock
On December 21, 2015, the Company filed a Certificate of Designation for a new Series B Convertible Preferred Stock with the State of Nevada following approval by the board of directors of the Company. Five Hundred (500,000) Thousand shares of the Company's authorized preferred stock are designated as the Series B Convertible Preferred Stock (the "Series B Preferred Stock"), par value of $0.001 per share and with a stated value of $0.001 per share (the "Stated Value"). Holders of Series B Preferred Stock shall be entitled to receive dividends, when and as declared by the Board of Directors out of funds legally available therefor. At any time and from time to time after the issuance of shares of the Series B Preferred Stock, each issued share of Series B Preferred Stock is convertible into One (100) Hundred shares of Common Stock ("Conversion Ratio"). The holders of the Series B Preferred Stock shall have the right to vote together with holders of Common Stock, on an as "converted basis", on any matter that the Company's shareholders may be entitled to vote on, either by written consent or by proxy. Upon any liquidation, dissolution or winding-up of the Company, the holders of the Series B Preferred Stock shall be entitled to receive out of the assets of the Company, whether such assets are capital or surplus, for each share of Series B Preferred Stock an amount equal to the Stated Value, and all other amounts in respect thereof then due and payable prior to any distribution or payment shall be made to the holders of any junior securities.
The Company has 500,000 shares of Series B Preferred Stock authorized, with 352,184 and 309,166 shares issued and outstanding as of September 30, 2018 and June 30, 2018, respectively.
On March 18, 2018, the Board of Directors of the Company modified the annual compensation for Steve Rubakh, effective April 1, 2018 to include annual salary of $150,000 per year and the issuance on a quarterly basis of 5,000 shares of Series B preferred stock. On July 1, 2018, the Company issued to Mr. Rubakh 5,000 shares of Series B convertible preferred stock valued on an “as converted to common” basis at $417,000. The stock-based compensation – related party is included in general and administrative expenses for the three months ended September 30, 2018.
As discussed in Note 5, on August 2, 2018, the Company entered into an Asset Purchase Agreement for the purchase of 182 cryptocurrency mining machines. As consideration for the purchase of the machines, the Company issued 38,018 shares of its Series B convertible preferred stock, valued on an “as converted to common” basis at an aggregate of $3,801,800.
Integrated Ventures, Inc.
Notes to Condensed Financial Statements
Three Months Ended September 30, 2018 and 2017 (Restated)
(Unaudited)
On August 1, 2017, the Company issued to Mr. Rubakh 30,000 shares of Series B convertible preferred stock valued on an “as converted to common” basis at $9,000. The stock-based compensation – related party is included in general and administrative expenses for the three months ended September 30, 2017.
Common Stock
The Company has 40,000,000 shares of common stock authorized, with 9,774,103 and 8,964,103 shares issued and outstanding as of September 30, 2018 and June 30, 2018, respectively.
During the three months ended September 30, 2018, the Company issued a total of 810,000 shares of its common stock.
On August 14, 2018, 100,000 shares of common stock valued at $55,000 were issued to a consultant.
On August 23, 2018, 560,000 shares of common stock were issued to a lender in the cashless exercise of warrants recorded at par value of $560. See Note 10.
On September 26, 2018, a total of 150,000 shares of common stock valued at $53,250 were issued to two lenders as loan fees. See Note 8.
During the three months ended September 30, 2017, the Company issued a total of 2,529,837 shares of its common stock.
On July 6, 2017, 188,240 shares of common stock were issued to a lender in the cashless exercise of warrants recorded at par value of $188.
During the three months ended September 30, 2017, a total of 1,994,081 shares of the Company’s common stock, valued at $117,263, were issued in conversion of $42,276 note principal, $2,715 accrued interest payable, $40,414 in derivative liabilities, $1,949 in fees and $29,909 in penalties.
On September 30, 2017, the Company increased the number of outstanding common shares by 114 shares due to rounding of shares in the reverse stock split.
10. WARRANTS
The Company has granted warrants to non-employee lenders in connection with the issuance of certain convertible promissory notes and to an investor in connection with the purchase of common shares of the Company. The Company has also granted warrants to officers and directors. Certain of the warrants have been subsequently surrendered to the Company and cancelled.
Warrant activity for the three months ended September 30, 2018 is as follows:
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted Average
Remaining
Contract Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2018
|
|
|
348,375
|
|
|
$
|
2.20
|
|
|
|
2.55
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(34,333
|
)
|
|
$
|
2.16
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at September 30, 2018
|
|
|
314,042
|
|
|
$
|
2.20
|
|
|
|
2.30
|
|
|
$
|
-
|
|
Because the number of common shares to be issued under convertible notes payable is indeterminate, the Company concluded that the equity environment was tainted as of September 30, 2018. Therefore, all warrants issued prior to that date were included in the Company’s calculations of derivative liabilities.
Integrated Ventures, Inc.
Notes to Condensed Financial Statements
Three Months Ended September 30, 2018 and 2017 (Restated)
(Unaudited)
11. COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of the date of filing of this report, there were no pending or threatened lawsuits, except as stated below.
Operating Leases
During the year ended June 30, 2018, the Company consolidated its cryptocurrency mining operations in two locations, Huntingdon Valley, Pennsylvania and Marlboro, New Jersey, where facilities are leased under operating leases. The lease for the Pennsylvania location is on a month-to-month basis at $850 per month. The lease for the New Jersey location was effective April 1, 2018 for a period of one year at a monthly rental of $6,986, with an automatic one-year renewal period with a 5% increase in the monthly rent.
12. RESTATEMENT
The Company has restated its financial statements as of September 30, 2017 and for the three months then ended to correct reporting of derivative liabilities associated with its convertible notes payable and warrants, stock-based compensation, gain on sale of investments and other miscellaneous corrections.
Integrated Ventures, Inc.
Notes to Condensed Financial Statements
Three Months Ended September 30, 2018 and 2017 (Restated)
(Unaudited)
The following adjustments were made to the September 30, 2017 Restated Balance Sheet:
Integrated Ventures, Inc.
|
|
Balance Sheet
|
|
|
|
|
|
As Originally Reported on
September 30,
2017
|
|
|
Adjustments
|
|
|
As Restated
September 30,
2017
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
90,193
|
|
|
$
|
-
|
|
|
|
$
|
90,193
|
|
Marketable securities
|
|
|
112,901
|
|
|
|
-
|
|
|
|
|
112,901
|
|
Prepaid expenses and other current assets
|
|
|
5,000
|
|
|
|
-
|
|
|
|
|
5,000
|
|
Total current assets
|
|
|
208,094
|
|
|
|
-
|
|
|
|
|
208,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
281,757
|
|
|
|
-
|
|
|
|
|
281,757
|
|
Deposits
|
|
|
700
|
|
|
|
-
|
|
|
|
|
700
|
|
Total assets
|
|
$
|
490,551
|
|
|
$
|
-
|
|
|
|
$
|
490,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
31,901
|
|
|
$
|
-
|
|
|
|
$
|
31,901
|
|
Accrued expenses
|
|
|
29,498
|
|
|
|
10,781
|
|
(a)
|
|
|
40,279
|
|
Due to related party
|
|
|
5,022
|
|
|
|
(5,022
|
)
|
(b)
|
|
|
-
|
|
Derivative liabilities
|
|
|
346,183
|
|
|
|
(287,828
|
)
|
(c)
|
|
|
58,355
|
|
Convertible notes payable, net of discounts
|
|
|
9,590
|
|
|
|
647
|
|
(c)
|
|
|
10,237
|
|
Note payable
|
|
|
125,000
|
|
|
|
-
|
|
|
|
|
125,000
|
|
Total current liabilities
|
|
|
547,194
|
|
|
|
(281,422
|
)
|
|
|
|
265,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
547,194
|
|
|
|
(281,422
|
)
|
|
|
|
265,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred stock, $0.001 par value, (1,000,000 shares authorized, 500,000 shares issued and outstanding)
|
|
|
500
|
|
|
|
-
|
|
|
|
|
500
|
|
Series B preferred stock, $0.001 par value, (500,000 shares authorized, 150,000 shares issued and outstanding)
|
|
|
180
|
|
|
|
-
|
|
|
|
|
180
|
|
Common stock, $0.001 par value, (40,000,000 shares authorized, 7,742,401 shares issued and outstanding)
|
|
|
7,742
|
|
|
|
-
|
|
|
|
|
7,742
|
|
Additional paid-in capital
|
|
|
4,988,413
|
|
|
|
1,033,310
|
|
(c)
|
|
|
6,021,723
|
|
Accumulated deficit
|
|
|
(5,053,478
|
)
|
|
|
(751,888
|
)
|
(b)(c)(d)
|
|
|
(5,805,366
|
)
|
Total stockholders’ equity (deficit)
|
|
|
(56,643
|
)
|
|
|
281,422
|
|
|
|
|
224,779
|
|
Total liabilities and stockholders’ equity (deficit)
|
|
$
|
490,551
|
|
|
$
|
-
|
|
|
|
$
|
490,551
|
|
Integrated Ventures, Inc.
Notes to Condensed Financial Statements
Three Months Ended September 30, 2018 and 2017 (Restated)
(Unaudited)
The following adjustments were made to the Restated Statement of Operations for the three months ended September 30, 2017:
Integrated Ventures, Inc.
|
|
Statement of Operations
|
|
|
|
As Originally Reported for the Three Months Ended
September 30,
2017
|
|
|
Adjustments
|
|
|
As Restated for
the Three Months Ended
September 30,
2017
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
139,877
|
|
|
|
21,481
|
|
(d)
|
|
|
161,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
139,877
|
|
|
|
21,481
|
|
|
|
|
161,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(139,877
|
)
|
|
|
(21,481
|
)
|
|
|
|
(161,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
98
|
|
|
|
-
|
|
|
|
|
98
|
|
Interest expense
|
|
|
(85,581
|
)
|
|
|
(1,299
|
)
|
(c)
|
|
|
(86,880
|
)
|
Realized gain on sale of investments
|
|
|
281,223
|
|
|
|
-
|
|
|
|
|
281,223
|
|
Unrealized gain on investments
|
|
|
61,111
|
|
|
|
-
|
|
|
|
|
61,111
|
|
Loss on extinguishment of debt
|
|
|
(271,735
|
)
|
|
|
276,410
|
|
(c)
|
|
|
4,675
|
|
Change in fair value of derivative liabilities
|
|
|
(71,835
|
)
|
|
|
60,086
|
|
(c)
|
|
|
(11,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(86,719
|
)
|
|
|
335,197
|
|
|
|
|
248,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(226,596
|
)
|
|
|
313,716
|
|
|
|
|
87,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(226,596
|
)
|
|
$
|
313,716
|
|
|
|
$
|
87,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.03
|
)
|
|
$
|
0.04
|
|
(e)
|
|
$
|
0.01
|
|
Diluted
|
|
$
|
(0.03
|
)
|
|
$
|
0.03
|
|
(e)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
7,169,768
|
|
|
|
-
|
|
|
|
|
7,169,768
|
|
Diluted
|
|
|
7,169,768
|
|
|
|
20,579,473
|
|
(e)
|
|
|
27,749,240
|
|
Integrated Ventures, Inc.
Notes to Condensed Financial Statements
Three Months Ended September 30, 2018 and 2017 (Restated)
(Unaudited)
The following adjustments were made to the Restated Statement of Cash Flows for the three months ended September 30, 2017:
Integrated Ventures, Inc.
|
|
Statement of Cash Flows
|
|
|
|
As Originally Reported for the Three Months Ended
September 30,
2017
|
|
|
Adjustments
|
|
|
As Restated for
the Three Months Ended
September 30,
2017
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(226,596
|
)
|
|
$
|
313,716
|
|
|
|
$
|
87,120
|
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation – related party
|
|
|
9,000
|
|
|
|
-
|
|
|
|
|
9,000
|
|
Amortization of debt discount
|
|
|
49,205
|
|
|
|
4,137
|
|
(c)
|
|
|
53,342
|
|
Amortization of original issue discount
|
|
|
1,347
|
|
|
|
-
|
|
|
|
|
1,347
|
|
Change in fair value of derivative liabilities
|
|
|
71,835
|
|
|
|
(60,086
|
)
|
|
|
|
11,749
|
|
(Gain) loss on extinguishment of debt
|
|
|
271,735
|
|
|
|
(276,410
|
)
|
|
|
|
(4,675
|
)
|
Financing fees related to notes payable
|
|
|
31,858
|
|
|
|
-
|
|
|
|
|
31,858
|
|
Realized gain on sale of investments
|
|
|
(281,223
|
)
|
|
|
-
|
|
|
|
|
(281,223
|
)
|
Unrealized gain on investments
|
|
|
(61,111
|
)
|
|
|
-
|
|
|
|
|
(61,111
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
2,500
|
|
|
|
-
|
|
|
|
|
2,500
|
|
Accrued interest receivable – related party
|
|
|
-
|
|
|
|
(98
|
)
|
(f)
|
|
|
(98
|
)
|
Accounts payable
|
|
|
4,484
|
|
|
|
-
|
|
|
|
|
4,484
|
|
Accrued expenses
|
|
|
(3,501
|
)
|
|
|
26,232
|
|
(a)
|
|
|
22,731
|
|
Due to related party
|
|
|
(15,194
|
)
|
|
|
(7,491
|
)
|
(b)
|
|
|
(22,685
|
)
|
Net cash used in operating activities
|
|
|
(145,661
|
)
|
|
|
-
|
|
|
|
|
(145,661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from the sale of investments
|
|
|
551,800
|
|
|
|
-
|
|
|
|
|
551,800
|
|
Increase in notes receivable – related party
|
|
|
(49,880
|
)
|
|
|
-
|
|
|
|
|
(49,880
|
)
|
Purchase of property and equipment
|
|
|
(281,757
|
)
|
|
|
-
|
|
|
|
|
(281,757
|
)
|
Net cash provided by investing activities
|
|
|
220,163
|
|
|
|
-
|
|
|
|
|
220,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
74,502
|
|
|
|
-
|
|
|
|
|
74,502
|
|
Cash, beginning of year
|
|
|
15,691
|
|
|
|
-
|
|
|
|
|
15,691
|
|
Cash, end of year
|
|
$
|
90,193
|
|
|
$
|
-
|
|
|
|
$
|
90,193
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
$
|
-
|
|
Cash paid for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for convertible notes payable
|
|
$
|
353,258
|
|
|
|
(235,995
|
)
|
(c)
|
|
|
117,263
|
|
Common shares issued for due to related party
|
|
|
15,624
|
|
|
|
-
|
|
|
|
|
15,624
|
|
Common shares issued for cashless exercise of warrants
|
|
|
-
|
|
|
|
188
|
|
(f)
|
|
|
188
|
|
Debt discount for derivative liability
|
|
|
47,617
|
|
|
|
-
|
|
|
|
|
47,617
|
|
Accrued interest added to convertible notes payable
|
|
|
1,117
|
|
|
|
-
|
|
|
|
|
1,117
|
|
Settlement of derivative liabilities
|
|
|
-
|
|
|
|
45,788
|
|
(c)
|
|
|
45,788
|
|
Integrated Ventures, Inc.
Notes to Condensed Financial Statements
Three Months Ended September 30, 2018 and 2017 (Restated)
(Unaudited)
______________
(a) Accrued officer compensation was reclassified from accrued expenses to due to related party and accrued interest payable was increased.
(b) Accrued officer compensation was reclassified from accrued expenses to due to related party and subsequently reduced. Shareholder loans were offset by other payments and expenses and reduced.
(c) The Company engaged an outside consultant to revise derivative liabilities associated with convertible notes payable and to add derivative liabilities associated with warrants. The calculations were made for each issuance of new debt and warrants and for each conversion, exchange or exercise of debt and warrants. As a result, total derivative liabilities decreased, and modifications were made to the calculation of debt discount, interest expense for the amortization of debt discount, and change in fair value of derivative. In addition, convertible notes payable, net of discounts, decreased, interest expense decreased, and change in fair value of derivative liabilities decreased. Additionally, no loss on extinguishment of debt for note conversions was recorded, resulting in a decrease in the loss and an increase in additional paid-in capital.
(d) Total general and administrative expenses decreased as a result of corrections to certain operating expenses.
(e) As a result of the adjustments discussed above, net loss as previously reported changed to net income, changing net loss per common share to net income per common share. Common stock equivalents for convertible debt and convertible preferred stock are no longer anti-dilutive and added to basic weighted average common shares to compute diluted weighted average common shares outstanding.
(f) Disclosure added which was previously omitted.
13. SUBSEQUENT EVENTS
Management has evaluated subsequent events according to the requirements of ASC TOPIC 855, and has reported the following:
Issuance of Shares
On October 5, 2018, the Company issued to a consultant 100,000 common shares valued at $15,000.
On January 9, 2019, 3,500 shares of Series B preferred stock were issued for stock subscriptions payable of $35,000.
Return of Shares
In December 2018, a total of 2,000 shares of Series B preferred stock originally issued pursuant to an Asset Purchase Agreement were returned to the Company and cancelled.