Quarterly Report (10-q)

Date : 01/24/2019 @ 2:33PM
Source : Edgar (US Regulatory)
Stock : Integrated Ventures, Inc. (QB) (INTV)
Quote : 0.017  -0.003 (-15.00%) @ 8:07PM

Quarterly Report (10-q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

 

x QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2018

 

¨ TRANSITION REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission file number: 333-174759

 

INTEGRATED VENTURES, INC.

(Exact Name of Registrant as Specified in Its charter)

 

Nevada

 

82-1725385

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

73 Buck Road, Suite 2, Huntingdon Valley, PA 19006

(Address of principal executive offices) (Zip Code)

 

(215) 613-1111

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant (1) has filed all reports required 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 x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o

 

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

 

Large accelerated filer

o

Accelerated filer

o

Non-accelerated filer

o

Smaller reporting company

x

Emerging growth company

o

 

 

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 o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

The number of shares outstanding of the issuer’s common stock, $0.001 par value per share, was 9,874,103 as of January 24, 2019.

 

 
 
 
 

INTEGRATED VENTURES, INC.

FORM 10-Q

SEPTEMBER 30, 2018

 

TABLE OF CONTENTS

 

 

Page No. 

 

PART I: FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

2

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

25

 

Item 3.

 

Quantitative and Qualitative Disclosure About Market Risk

 

34

 

Item 4.

 

Controls and Procedures

 

34

 

 

 

 

PART II: OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

36

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

36

 

Item 3.

 

Defaults Upon Senior Securities

 

36

 

Item 4.

 

Mine Safety Disclosures

 

36

 

Item 5.

 

Other Information

 

36

 

Item 6.

 

Exhibits

 

37

 

 

 

 

SIGNATURES

 

 38

 

 

 
2
 
 

 

PART I – FINANCIAL INFORMATION

 

TABLE OF CONTENTS

 

Index to Financial Statements

 

Page

 

 

 

 

Condensed Balance Sheets as of September 30, 2018 (unaudited) and June 30, 2018

 

4

 

 

 

 

Condensed Statements of Operations for the Three Months Ended September 30, 2018 and 2017 (restated) (unaudited)

 

5

 

 

 

 

Condensed Statements of Cash Flows for the Three Months Ended September 30, 2018 and 2017 (restated) (unaudited)

 

6

 

 

 

 

Notes to Condensed Financial Statements (unaudited)

 

8

 

 

 
3
 

 

Integrated Ventures, Inc.

Condensed Balance Sheets

 

 

September 30,

2018

 

 

June 30,

2018

 

 

(Unaudited)

 

 

 

ASSETS

Current assets:

 

 

 

 

 

 

Cash

 

$ 199,096

 

 

$ 749

 

Restricted cash

 

 

-

 

 

 

40,321

 

Prepaid expenses and other current assets

 

 

6,000

 

 

 

9,000

 

Inventories

 

 

114,851

 

 

 

114,851

 

Equipment deposits

 

 

-

 

 

 

3,896

 

Marketable securities

 

 

-

 

 

 

1,700

 

Total current assets

 

 

319,947

 

 

 

170,517

 

 

 

 

 

 

 

 

 

 

Non-current assets:

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

1,469,421

 

 

 

633,105

 

Digital currencies

 

 

4,460

 

 

 

11,227

 

Deposits

 

 

14,673

 

 

 

14,673

 

Total assets

 

$ 1,808,501

 

 

$ 829,522

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$ 29,690

 

 

$ 26,973

 

Accrued expenses

 

 

1,974

 

 

 

29,428

 

Due to related party

 

 

48,975

 

 

 

20,974

 

Derivative liabilities

 

 

1,917,301

 

 

 

2,886,965

 

Convertible notes payable, net of discounts

 

 

91,929

 

 

 

-

 

Total current liabilities

 

 

2,089,869

 

 

 

2,964,340

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

2,089,869

 

 

 

2,964,340

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

 

 

Series A preferred stock, $0.001 par value, (1,000,000 shares authorized,

 

 

 

 

 

 

 

 

500,000 shares issued and outstanding as of September 30, 2018 and June 30, 2018)

 

 

500

 

 

 

500

 

Series B preferred stock, $0.001 par value, (500,000 shares authorized,

 

 

 

 

 

 

 

 

352,184 and 309,166 shares issued and outstanding as of September 30, 2018

 

 

 

 

 

 

 

 

and June 30, 2018, respectively)

 

 

352

 

 

 

309

 

Common stock, $0.001 par value, (40,000,000 shares authorized,

 

 

 

 

 

 

 

 

9,774,103 and 8,964,103 shares issued and outstanding as of September 30,

 

 

 

 

 

 

 

 

2018 and June 30, 2018, respectively)

 

 

9,775

 

 

 

8,965

 

Additional paid-in capital

 

 

12,818,163

 

 

 

9,290,344

 

Stock subscriptions payable

 

 

60,000

 

 

 

35,000

 

Accumulated deficit

 

 

(13,170,158 )

 

 

(11,469,936 )

Total stockholders’ deficit

 

 

(281,368 )

 

 

(2,134,818 )

Total liabilities and stockholders’ deficit

 

$ 1,808,501

 

 

$ 829,522

 

 

See notes to condensed financial statements

 

 
4
 
Table of Contents

 

Integrated Ventures, Inc.

Condensed Statements of Operations

(Unaudited)

 

 

Three Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

 

 

 

(Restated)

 

Revenues:

 

 

 

 

 

 

Cryptocurrency mining

 

$ 100,465

 

 

$ -

 

Sales of cryptocurrency mining equipment

 

 

14,780

 

 

 

-

 

Total revenues

 

 

115,245

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

 

201,260

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Gross loss

 

 

(86,015 )

 

 

-

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

General and administrative

 

 

556,922

 

 

 

161,358

 

Impairment of assets

 

 

2,097,930

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

2,654,852

 

 

 

161,358

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(2,740,867 )

 

 

(161,358 )

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest and other income

 

 

-

 

 

 

98

 

Interest expense

 

 

(3,324 )

 

 

(86,880 )

Realized gain (loss) on investments

 

 

(7,238 )

 

 

281,223

 

Unrealized gain on investments

 

 

-

 

 

 

61,111

 

Gain on extinguishment of debt

 

 

-

 

 

 

4,675

 

Change in fair value of derivative liabilities

 

 

1,051,207

 

 

 

(11,749 )

 

 

 

 

 

 

 

 

 

Total other income (expense)

 

 

1,040,645

 

 

 

248,478

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

(1,700,222 )

 

 

87,120

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$ (1,700,222 )

 

$ 87,120

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share:

 

 

 

 

 

 

 

 

Basic

 

$ (0.18 )

 

$ 0.01

 

Diluted

 

$ (0.18 )

 

$ 0.00

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

9,253,016

 

 

 

7,169,767

 

Diluted

 

 

9,253,016

 

 

 

27,749,240

 

 

See notes to condensed financial statements

 

 
5
 
Table of Contents

 

Integrated Ventures, Inc.

Condensed Statements of Cash Flows

(Unaudited)

 

 

Three Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

 

 

 

(Restated)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income (loss)

 

$ (1,700,222 )

 

$ 87,120

 

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

110,218

 

 

 

-

 

Stock-based compensation – related party

 

 

417,000

 

 

 

9,000

 

Stock-based compensation

 

 

55,000

 

 

 

-

 

Amortization of debt discount

 

 

2,777

 

 

 

53,342

 

Amortization of original issue discount

 

 

-

 

 

 

1,347

 

Impairment of assets

 

 

2,097,930

 

 

 

 

 

Change in fair value of derivative liability

 

 

(1,051,207 )

 

 

11,749

 

Gain on extinguishment of debt

 

 

-

 

 

 

(4,675 )

Financing fees related to notes payable

 

 

-

 

 

 

31,858

 

Realized (gain) loss on sale of investments

 

 

7,238

 

 

 

(281,223 )

Unrealized gain on investments

 

 

-

 

 

 

(61,111 )

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Digital currencies

 

 

(100,225 )

 

 

-

 

Prepaid expenses and other current assets

 

 

3,000

 

 

 

2,500

 

Accrued interest receivable – related party

 

 

-

 

 

 

(98 )

Accounts payable

 

 

2,717

 

 

 

4,485

 

Accrued expenses

 

 

(27,454 )

 

 

22,730

 

Due to related party

 

 

28,001

 

 

 

(22,685 )

Net cash used in operating activities

 

 

(155,227 )

 

 

(145,661 )

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Net proceeds from the sale of investments

 

 

101,454

 

 

 

551,800

 

Increase in notes receivable – related party

 

 

-

 

 

 

(49,880 )

Purchase of property and equipment

 

 

(37,146 )

 

 

(281,757 )

Net cash provided by investing activities

 

 

64,308

 

 

 

220,163

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from convertible notes payable

 

 

223,945

 

 

 

-

 

Proceeds from stock subscriptions payable

 

 

25,000

 

 

 

-

 

Net cash provided by financing activities

 

 

248,945

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Net increase in cash

 

 

158,026

 

 

 

74,502

 

Cash, beginning of period

 

 

41,070

 

 

 

15,691

 

 

 

 

 

 

 

 

 

 

Cash, end of period

 

$ 199,096

 

 

$ 90,193

 

 

 

 

 

 

 

 

 

 

(Continued)

 

See notes to condensed financial statements

 

 
6
 
Table of Contents

 

Integrated Ventures, Inc.

Condensed Statements of Cash Flows (Continued)

(Unaudited)

 

 

Three Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

 

 

 

(Restated)

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$ 29,257

 

 

$ -

 

Cash paid for income taxes

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Equipment deposits for property and equipment

 

$ 3,896

 

 

$ -

 

Common shares issued for cashless exercise of warrants

 

 

560

 

 

 

188

 

Common shares issued for debt discount

 

 

53,250

 

 

 

-

 

Debt discount for derivative liability

 

 

81,543

 

 

 

47,617

 

Series B preferred shares for property and equipment

 

 

3,003,422

 

 

 

-

 

Settlement of derivative liabilities

 

 

-

 

 

 

45,788

 

Common shares issued for convertible notes payable

 

 

-

 

 

 

117,263

 

Common shares issued for accrued compensation

 

 

-

 

 

 

15,624

 

Accrued interest payable added to note payable

 

 

-

 

 

 

1,117

 

Note receivable and accrued interest receivable – related party for marketable securities

 

 

-

 

 

 

66,850

 

 

See notes to condensed financial statements

 

 
7
 
Table of Contents

 

Integrated Ventures, Inc.

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.

 

 
8
 
Table of Contents

 

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.

 

 
9
 
Table of Contents

 

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.

 

 
10
 
Table of Contents

 

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

 

 

 
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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.

 

 
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Table of Contents

 

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

 

 

 
13
 
Table of Contents

 

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.

 

 
14
 
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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.

 

 
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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.

 

 
16
 
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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.

 

 
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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.

 

 
18
 
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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.

 

 
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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.

 

 
20
 
Table of Contents

 

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

 

 

 
21
 
Table of Contents

 

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

 

 

 
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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

 

 

 
23
 
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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.

 

 
24
 
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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS

 

We believe that it is important to communicate our future expectations to our security holders and to the public. This report, therefore, contains statements about future events and expectations which are "forward-looking statements" within the meaning of Sections 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including the statements about our plans, objectives, expectations and prospects under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations." You can expect to identify these statements by forward-looking words such as "may," "might," "could," "would," "will," "anticipate," "believe," "plan," "estimate," "project," "expect," "intend," "seek" and other similar expressions. Any statement contained in this report that is not a statement of historical fact may be deemed to be a forward-looking statement. Although we believe that the plans, objectives, expectations and prospects reflected in or suggested by our forward-looking statements are reasonable, those statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements, and we can give no assurance that our plans, objectives, expectations and prospects will be achieved.

 

Important factors that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in the "Risk Factors" section of and elsewhere in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018 and in our subsequent filings with the Securities and Exchange Commission. The following discussion of our results of operations should be read together with our financial statements and related notes included elsewhere in this report.

 

GENERAL

 

We were incorporated in the State of Nevada on March 22, 2013 under the name Lightcollar, Inc. On March 22, 2015, we changed our name to EMS Find, Inc., and in May 2017, we changed our name to Integrated Ventures, Inc. We have licensed our Ems Find platform and related technologies to EpicMD, Inc. via a Licensing Agreement and management has determined to focus our business on developing and operating digital currency assets. Our offices are located at 73 Buck Road, Suite 2, Huntingdon Valley, Pennsylvania 19006.

 

We have discontinued our prior operations and changed our business focus, from our 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.

 

Financial

 

On November 22, 2017, we successfully launched our cryptocurrency operations. For the three months ended September 30, 2018, we had total revenues of $115,245, consisting of: (1) revenues from mining operations of $100,465 received primarily in digital currencies and (2) equipment retail sales of $14,780.

 

In transactions on April 16 and April 30, 2018, the Company purchased a total of 247 Bitmain mining machines, together with associated assets, and restricted cash of $175,000 and $200,000 pursuant to two Asset Purchase Agreements. We assumed the lease obligation on one of the premises on which the business of digiMine operated in Marlboro, New Jersey.

 

On August 2, 2018, the Company entered into an Asset Purchase Agreement for the purchase of 182 Ethereum mining machines. Of the 182 machines purchased, 152 were placed into operations, and 30 units deemed to be under-performing will be utilized as repair parts by the Company or sold as repair parts.

 

 
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Table of Contents

 

We have consolidated our digital currency mining operations in two locations, Huntingdon Valley, Pennsylvania and Marlboro, New Jersey. In connection with this consolidation, we closed our operations in two locations in Philadelphia, Pennsylvania.

 

In September 2018, we completed convertible debt financing with three lenders, receiving net proceeds of $223,945.

 

Collaborative Agreements

 

We have signed a software development agreement with ITBS LLC, a New York-based IT group, to create a new lending platform, LoanFunder, designed to connect private businesses and publicly traded companies with pre-qualified institutional lenders to originate loans, issue convertible debt notes and to manage the entire lifecycle of a lending contract, consisting of initiating, qualifying, underwriting, funding, tracking and retiring financial instruments. LoanFunder would be the the world's first financial platform designed to integrate with decentralized and encrypted lending ledger, which offers a secure, efficient, verifiable and permanent way of storing lending information. Such protocols are the backbone of numerous digital currencies that are being mined by us, including Bitcoin, Ethereum and Litecoin.

 

We have signed an Authorized Reseller Agreement with Shenzhen Halley Cloud Technology Company, the exclusive manufacturer of PandaMiners. PandaMiner is a GPU integrated altcoin mining device which supports multiple hashing algorithms like ETH and other cryptocurrencies. It is assembled using a high configuration graphics card, customized and highly compatible case and other optimized accessories for the highest mining efficiency. As part of this Agreement, the Company agreed to purchase 50 PandaMiner B3 Pro mining rigs with total purchase price of $213,500.

 

The Digital Asset Market

 

The Company is focusing on the mining of digital assets, as well as blockchain applications (“blockchain”) and related technologies. A blockchain is a shared immutable ledger for recording the history of transactions of digital assets—a business blockchain provides a permissioned network with known identities. A Bitcoin is the most recognized type of a digital asset that is issued by, and transmitted through, an open source, math-based protocol platform using cryptographic security that is known as the “Bitcoin Network.” The Bitcoin Network is an online, peer-to-peer user network that hosts the public transaction ledger, known as the blockchain, and the source code that comprises the basis for the cryptography and math-based protocols governing the Bitcoin Network.

 

Bitcoins, for example, can be used to pay for goods and services or can be converted to fiat currencies, such as the US Dollar, at rates determined on Bitcoin exchanges or in individual end-user-to-end-user transactions under a barter system. The networks utilized by digital coins are designed to operate without any company or government in charge, governed by a collaboration of volunteer programmers and computers that maintain all the records. These blockchains are typically maintained by a network of participants which run servers while securing their blockchain. Third party service providers such as Bitcoin exchanges and bitcoin third party payment processing services may charge significant fees for processing transactions and for converting, or facilitating the conversion of, bitcoins to or from fiat currency.

 

This market is rapidly evolving and there can be no assurances that we will remain competitive with industry participants that have or may have greater resources or experience in in this industry than us, nor that the unproven digital assets that we mine will ever have any significant market value.

 

FINANCIAL OPERATIONS REVIEW

 

As discussed above, in November 2017 revenues commenced from our cryptocurrency mining operations and from sales of cryptocurrency mining equipment. Prior to that date, revenues were generated substantially from the now discontinued Ambulance services, which we have discontinued to focus on new revenue sources.

 

 
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We are incurring increased costs as a result of being a publicly-traded company. As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. We also have paid compensation through the issuance of shares of our common stock and warrants, the valuation of which has resulted in significant stock-based compensation. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the Securities and Exchange Commission, have required changes in corporate governance practices of public companies and will require us to comply with these rules. These new rules and regulations have will increase our legal and financial compliance costs and have made some activities more time-consuming and costlier. In addition, these new rules and regulations have made it more difficult and more expensive for us to obtain director and officer liability insurance, which we currently cannot afford to do. As a result of the new rules, it may become more difficult for us to attract and retain qualified persons to serve on our Board of Directors or as executive officers. We cannot predict or estimate the amount of additional costs we may incur as a result of being a public company or the timing of such costs.

 

To operate our digital currency mining facilities and to fund future operations, we will need to raise additional capital. The amount and timing of future funding requirements will depend on many factors, including the timing and results of our ongoing development efforts, the potential expansion of our current development programs, potential new development programs and related general and administrative support. We anticipate that we will seek to fund our operations through further liquidation of our marketable securities, public or private equity or debt financings or other sources, such as potential collaboration agreements. We cannot be certain that anticipated additional financing will be available to us on favorable terms, or at all.

 

RESTATEMENT OF FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2017

 

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. See Note 12 to the accompanying financial statements. Numbers used in the following financial analysis and discussion for the three months ended September 30, 2017 are taken from the restated financial statements.

 

RESULTS OF OPERATIONS

 

THREE MONTHS ENDED SEPTEMBER 30, 2018 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2017

 

Revenues

 

In November 2017 we commenced operations in our first cryptocurrency mining location. Our cryptocurrency mining revenues were $100,465 for the three months ended September 30, 2018.

 

We also had revenues from the sale of cryptocurrency mining units that we purchased or assembled for resale of $14,780 for the three months ended September 30, 2018.

 

We did not have any operating revenues for the three months ended September 30, 2017.

 

Cost of Revenues

 

Cost of revenues was $201,260 for the three months ended September 30, 2018. Expenses associated with running our cryptocurrency mining operations, such as equipment depreciation, rent, operating supplies, utilities and monitoring services are recorded as cost of revenues. Also included in cost of revenues are the costs of purchasing or assembling the cryptocurrency mining units sold. We experienced a gross loss on revenues during the three months ended September 30, 2018 primarily due to high utility costs and a conservative, short useful life for mining equipment depreciation.

 

We did not have any cost of revenues for the three months ended September 30, 2017.

 

Operating Expenses

 

General and administrative expenses increased $395,564 to $556,922 for the three months ended September 30, 2018 from $161,358 for the three months ended September 30, 2017. The increase in the current fiscal year was due primarily to increases in stock-based compensation and other expenses supporting our cryptocurrency mining operations. Stock-based compensation in the current year included 100,000 common shares valued at $55,000 issued to a consultant and 5,000 shares of Series B convertible preferred stock to Steve Rubakh valued at $417,000. The Company is disputing whether the consultant earned the 100,000 common shares and the shares may be cancelled.

 

We performed a lower of cost or market impairment analysis on the cryptocurrency machines purchased in the August 2018 Asset Purchase Agreeement, including writing off the purchase price allocated to the defective machines, and recorded an impairment expense of $2,097,930 for the three months ended September 30, 2018. We reported no impairment expense for the three months ended September 30, 2017.

 

 
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Other Income (Expense)

 

Our other income (expense) was comprised of the following for the three months ended September 30:

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

Interest and other income

 

$ -

 

 

$ 98

 

Interest expense

 

 

(3,324 )

 

 

(86,880 )

Realized gain (loss) on investments

 

 

(7,238 )

 

 

281,223

 

Unrealized gain on investments

 

 

-

 

 

 

61,111

 

Gain on extinguishment of debt

 

 

-

 

 

 

4,675

 

Change in fair value of derivative liabilities

 

 

1,051,207

 

 

 

(11,749 )

 

 

 

 

 

 

 

 

 

Total other income (expense)

 

$ 1,040,645

 

 

$ 248,478

 

 

Interest and other income are not currently material to our operations.

 

The decrease in our interest expense, which includes the amortization of debt discount and original issue discount, resulted from the extinguishment of our convertible notes payable that were outstanding during the the prior fiscal year, partially offset by interest expense on our new convertible debt closed in September 2018.

 

The realized loss on investments in the three months ended September 30, 2018 resulted from losses recorded on our digital currencies. The realized gain on investments in the three months ended September 30, 2017 resulted from sales of common shares of Viva Entertainment Group, Inc. (“Viva Entertainment), a former subsidiary.

 

In recording the market value of the Viva Entertainment common shares as of September 30, 2017, the Company recorded an unrealized gain on investments of $61,111. The Viva Entertainment shares were subsequently sold and no unrealized gain on investments was recorded at September 30, 2018.

 

We incurred no gain or loss on extinguishment of debt in the three months ended September 30, 2018. We incurred a gain on extinguishment of debt of $4,675 in the three months ended September 30, 2017 resulting from the overall decrease in our indebtedness.

 

We estimate the fair value of the derivatives associated with our convertible notes payable, warrants, and put back rights associated with certain Series B preferred stock using the Black-Scholes pricing model and multinomial lattice models that value the derivative liabilities 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.

 

Net Loss

 

As a result, our net loss for the three months ended September 30, 2018 was $1,700,222 compared to net income of $87,120 for the three months ended September 30, 2017.

 

 
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LIQUIDITY AND CAPITAL RESOURCES

 

Overview

 

We have substantially improved our financial condition as of September 30, 2018 compared to June 30, 2018 as a result of the decrease in our derivative liabilities, partially offset by the increase in our convertible notes payable, net of discounts. As of September 30, 2018, the Company had total current assets of $319,947, including $199,096 in cash, and total current liabilities of $2,089,869, resulting in negative working capital of $1,769,922. Included in total current liabilities are derivative liabilities totaling $1,917,301, which we do not believe will require cash to settle. In addition, we had a total stockholders’ deficit of $281,368.

 

In September 2018, we entered into three convertible promissory notes that provided us net proceeds of $223,945. The notes mature one year from issuance and bear interest at rates ranging from 8% to 10%. The lenders have the right beginning on dates defined in the note agreements 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.

 

Sources and Uses of Cash

 

We used net cash in operations of $155,227 in the three months ended September 30, 2018 as a result of our net loss of $1,700,222, non-cash gain of $1,051,207, increase in digital currencies of $100,225 and decrease in accrued expenses of $27,454, partially offset by non-cash expenses totaling $2,690,163, decrease in prepaid expenses and other current assets of $3,000, and increases in accounts payable of $2,717 and due to related party of $28,001.

 

By comparison, we used net cash in operations of $145,661 in the three months ended September 30, 2017 as a result of our net income of $87,120, non-cash expenses totaling $107,296, decrease in prepaid expenses and other current assets of $2,500 and increases in accounts payable of $4,485 and accrued expenses of $22,730, offset by non-cash gains totaling $347,009, increase in accrued interest receivable – related party of $98 and decrease in due to related party of $22,685.

 

During the three months ended September 30, 2018, we had net cash provided by investing activities of $64,308, comprised of net proeeeds from the sale of investments of $101,454, partially offset by the purchase of property and equipment of $37,146.

 

During the three months ended September 30, 2017, we had net cash provided by investing activities of $220,163, comprised of net proceeds from the sale of investments of $551,800, partially offset by increase in notes receivable – related party of $49,880 and purchase of property and equipment of $281,757.

 

During the three months ended September 30, 2018, we had net cash provided by financing activities of $248,945, comprised of proceeds from convertible notes payable of $223,945 and stock subscriptions receivable of $25,000. During the three months ended September 30, 2017, we had no net cash provided by or used in financing activities.

 

We will have to raise funds to complete and successfully deploy our digital mining assets and to fund our operating expenses. We may have to borrow money from shareholders or issue debt or equity or enter into a strategic arrangement with a third party. There can be no assurance that additional capital will be available to us. We currently have no arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources. Since we have no such arrangements or plans currently in effect, our inability to raise funds for our operations will have a severe negative impact on our ability to remain a viable company.

 

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.

 

 
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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.

 

SIGNIFICANT ACCOUNTING POLICIES

 

Our significant accounting policies are disclosed in Note 2 to our condensed financial statements and in the notes to our audited financial statements included in our Annual Report on Form 10-K for the year ended June 30, 2018. The following is a summary of those accounting policies that involve significant estimates and judgment of management.

 

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.

 

 
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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.

 

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.

 

 
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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.

 

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 September 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

 

 

 
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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

 

 

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.

 

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.

 

 
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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.

 

Off Balance Sheet Arrangements

 

We have consolidated our 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.

 

ITEM 3. 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 the information required by this item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

The Securities and Exchange Commission defines the term "disclosure controls and procedures" to mean a company's controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer's management, including its chief executive and chief financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC's rules and forms and that information required to be disclosed is accumulated and communicated to the chief executive and interim chief financial officer to allow timely decisions regarding disclosure.

 

 
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As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are not effective as of such date. The Chief Executive Officer and Chief Financial Officer have determined that the Company continues to have the following deficiencies which represent a material weakness:

 

1.

As of September 30, 2018, we did not maintain effective controls over the control environment. Specifically, the Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-B. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.

2.

As of September 30, 2018, due to the inherent issue of segregation of duties in a small company, we have relied heavily on entity or management review controls and engaged an outside financial consultant to lessen the issue of segregation of duties over accounting, financial close procedures and controls over financial statement disclosure. Accordingly, management has determined that this control deficiency constitutes a material weakness.

 

3.

As of September 30, 2018, we did not establish a written policy for the approval, identification and authorization of related party transactions. Accordingly, management has determined that this control deficiency constitutes a material weakness.

 

Because of these material weaknesses, management has concluded that the Company did not maintain effective internal control over financial reporting as of September 30, 2018, based on the criteria established in "Internal Control-Integrated Framework" (2013 Framework) issued by the COSO.

 

Changes in Internal Control Over Financial Reporting.

 

There have been no changes in the Company's internal control over financial reporting through the date of this report or during the quarter ended September 30, 2018, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

 

 
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PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

There are no pending legal proceedings in which we are a party or in which any of our directors, officers or affiliates, any owner of record or beneficiary of more than 5% of any class of our voting securities is a party adverse to us or has a material interest adverse to us, except as stated below. Our property is not the subject of any pending legal proceedings.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

During the three months ended September 30, 2018, the Company issued a total of 810,000 shares of its common stock: 100,000 shares valued at $55,000 to a consultant; 560,000 shares to a lender in the cashless exercise of warrants recorded at par value of $560; and a total of 150,000 shares of common stock valued at $53,250 to two lenders as loan fees.

 

During the three months ended September 30, 2018, the Company issued a total of 43,018 shares of its Series B convertible preferred stock: 38,018 shares, valued at an aggregate of $3,801,800, for the purchase of 182 cryptocurrency mining machines and 5,000 shares to Steve Rubakh valued at $417,000 for stock-based compensation.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

 
36
 
Table of Contents

 

ITEM 6. EXHIBITS.

 

(a) Exhibits.

 

Exhibit Number

Exhibit Description

31.1

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer and Principal Financial Officer. Filed herewith.

32.1

Section 1350 Certification of Chief Executive Officer and Principal Financial Officer. Filed herewith.

101.INS

 

XBRL Instance Document *

101.SCH

 

XBRL Taxonomy Extension Schema *

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase *

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase *

101.LAB

 

XBRL Taxonomy Extension Label Linkbase *

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase *

______________

* Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and not “filed” or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, or deemed “furnished” and not “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 

 
37
 
Table of Contents

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the Company has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

INTEGRATED VENTURES, INC.

 

Dated: January 24, 2019

By:

/s/ Steve Rubakh

 

 

Steve Rubakh

 

 

President and Chief Executive Officer and

Principal Financial Officer

 

 

38

 

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