Notes to Financial Statements
Years Ended June 30, 2018 and 2017 (Restated)
1. ORGANIZATION
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”) (the “digiMine Acquisition.”) See Note 4.
On August 21, 2017, the Board of Directors of the Company approved a 1-for-50 reverse split of the Company’s common shares, which through approval of FINRA was effective September 21, 2017. The reverse split has been given retroactive effect in the condensed financial statements for all periods presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Cash and Cash Equivalents
The Company maintains cash balances in non-interest-bearing accounts that currently do not exceed federally insured limits. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The Company had no cash equivalents at June 30, 2018 and 2017.
Restricted Cash
Amounts included in restricted cash represent funds required to be set aside pursuant to the digiMine Acquisition for the payment of defined digital currency mining expenditures. The restriction will lapse when the required expenditures have been paid.
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 June 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. As of June 30, 2018, inventories were written down by $534,001 to estimated net realizable value. Payments to equipment suppliers prior to shipment of the equipment are recorded as equipment deposits.
Marketable Securities
Marketable securities included in current assets in the balance sheet, are classified as trading securities, and reported at fair value based on quoted market prices. Changes in the fair value of the investments during the period are recorded as unrealized gains or losses in other income (expense) in the statements of operations. Realized gains on the sale of marketable securities are included in other income (expense) in the statements of operations.
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 June 30, 2018, the Company wrote down cryptocurrency mining equipment by $220,373 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.
Goodwill
The excess of the cost over the fair value of net assets acquired in the digiMine acquisition is recorded as goodwill. Goodwill is not subject to amortization, but is reviewed for impairment annually, or more frequently whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. An impairment charge would be recorded to the extent the carrying value of goodwill exceeds its estimated fair value. The testing of goodwill 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. At June 30, 2018, the Company reviewed the goodwill recorded in the digiMine acquisition and determined that an impairment expense of $4,153,510 was required.
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. As of June 30, 2018, the Company had no convertible notes or warrants outstanding and no related derivative liabilities.
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 equipment inventories, cryptocurrency mining equipment and goodwill, totaled $4,907,884 for the year ended June 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 June 30, 2018 and 2017, the amounts reported for cash, prepaid expenses and other current assets, purchase deposits, accounts payable, accrued expenses, note payable 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:
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·
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Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
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·
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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
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·
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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.
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Our marketable securities are measured at fair value on a recurring basis and estimated as follows:
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Total
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Level 1
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Level 2
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Level 3
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June 30, 2018:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
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|
$
|
1,700
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|
|
$
|
1,700
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|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
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|
$
|
1,700
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|
|
$
|
1,700
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
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|
$
|
253,998
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|
|
$
|
253,998
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
253,998
|
|
|
$
|
253,998
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Our derivative liabilities are measured at fair value on a recurring basis and estimated as follows:
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Total
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|
Level 1
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|
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Level 2
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Level 3
|
|
June 30, 2018:
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|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
2,886,965
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,886,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value
|
|
$
|
2,886,965
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,886,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
June 30, 2017:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
85,191
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
85,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value
|
|
$
|
85,191
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
85,191
|
|
During the years ended June 30, 2018 and 2017, the Company had the following activity in its derivative liabilities:
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|
Convertible Notes Payable
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|
|
Warrants
|
|
|
Put Back Rights
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|
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Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities at June 30, 2016
|
|
$
|
170,812
|
|
|
$
|
5,384
|
|
|
$
|
-
|
|
|
$
|
176,196
|
|
Addition to liabilities for new debt/warrants
|
|
|
472,334
|
|
|
|
-
|
|
|
|
-
|
|
|
|
472,334
|
|
Decrease due to conversion/assignment of debt
|
|
|
(731,043
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(731,043
|
)
|
Decrease due to exercise/surrender of warrants
|
|
|
-
|
|
|
|
(9,615
|
)
|
|
|
-
|
|
|
|
(9,615
|
)
|
Change in fair value
|
|
|
172,442
|
|
|
|
4,877
|
|
|
|
-
|
|
|
|
177,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities at June 30, 2017
|
|
|
84,545
|
|
|
|
646
|
|
|
|
-
|
|
|
|
85,191
|
|
Addition to liabilities for new debt issued
|
|
|
72,617
|
|
|
|
-
|
|
|
|
-
|
|
|
|
72,617
|
|
Addition to liabilities for put rights issued
|
|
|
-
|
|
|
|
-
|
|
|
|
3,729,109
|
|
|
|
3,729,109
|
|
Decrease due to conversion/assignment of debt
|
|
|
(480,969
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(480,969
|
)
|
Decrease due to exercise/surrender of warrants
|
|
|
-
|
|
|
|
(28,499
|
)
|
|
|
-
|
|
|
|
(28,499
|
)
|
Change in fair value
|
|
|
323,807
|
|
|
|
27,853
|
|
|
|
(842,144
|
)
|
|
|
(490,484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability at June 30, 2018
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,886,965
|
|
|
$
|
2,886,965
|
|
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
Our revenues currently consist of cryptocurrency mining revenues and revenues from the sale of cryptocurrency mining equipment recognized in accordance with ASC 605,
Revenue Recognition
. Revenue is recognized when: (i) persuasive evidence of a sales arrangement exists, (ii) the sales terms are fixed or determinable, (iii) title and risk of loss have transferred, and (iv) collectability is reasonably assured — generally when products are shipped to the customer and services are rendered. 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 605,
Revenue R
ecognition
, including when title and risk of loss have transferred, 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 a liability for unrecognized tax benefits. As of June 30, 2018, tax years 207, 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.
For the years ended June 30, 2018 and 2017, potential dilutive securities had an anti-dilutive effect and 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.
Restatement
The Company is restating its financial statements for the year ended June 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.
Reclassifications
Certain amounts in the financial statements for the year ended June 30, 2017 have been reclassified to conform to the presentation for the year ended June 30, 2018.
Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.
The amendments in this Update modify certain disclosure requirements of fair value measurements and are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is currently unable to determine the impact on its financial statements of the adoption of this new accounting pronouncement.
In July 2017, the FASB issued ASU 2017-11,
Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-Controlling Interests with a Scope Exception.
Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480,
Distinguishing Liabilities from Equity,
because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable non-controlling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently unable to determine the impact on its consolidated financial statements of the adoption of this new accounting pronouncement.
In January 2017, the FASB issued ASU No. 2017-4,
Intangibles – Goodwill and Other (Topic 350): "Simplifying the Test for Goodwill Impairment.
This update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. An entity should apply the amendments in this update on a prospective basis. An entity is required to disclose the nature of and reason for the change in accounting principle upon transition. That disclosure should be provided in the first annual period and in the interim period within the first annual period when the entity initially adopts the amendments in this update. A public business entity that is an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently unable to determine the impact on its financial statements of the adoption of this new accounting pronouncement.
In January 2017, the FASB issued ASU No. 2017-1,
Business Combinations (Topic 805): Clarifying the Definition of a Business.
The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments of this ASU are effective for public business entities for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The amendments in this Update are to be applied prospectively on or after the effective date. The Company is currently unable to determine the impact on its financial statements of the adoption of this new accounting pronouncement.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
and has subsequently issued a number of amendments to ASU 2014-09. The new standard, as amended, 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, ASU 2014-09 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. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard will be effective for the Company beginning July 1, 2018 and permits two methods of adoption: the full retrospective method, which requires the standard to be applied to each prior period presented, or 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. The Company is currently unable to determine the impact on its financial statements of the adoption of this new accounting pronouncement.
Although there are several other new accounting pronouncements issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its financial position or results of operations.
3. GOING CONCERN
The Company has reported recurring net losses since its inception and used net cash in operating activities of $1,147,502 in the year ended June 30, 2018. As of June 30, 2018, the Company had an accumulated deficit of $11,469,936 and a total stockholders’ deficit of $2,134,818. 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.
4. 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.
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.
5. NOTE RECEIVABLE – RELATED PARTY AND MARKETABLE SECURITIES
On April 6, 2016 the Company completed the sale of its subsidiary, Viva Entertainment Group, Inc. (“Viva Entertainment”), to Black River Petroleum Corp., a Nevada publicly-traded company (“Black River”), at a closing where, in exchange for all sale of all of the outstanding shares of Viva Entertainment, Black River issued to the Company its 10% (15% default rate) promissory note in the principal amount of $100,000, due December 31, 2016 (the “Viva Note”). The Company gave no effect to the Viva Note in its financial statements, pending collection of the note and completion of the transaction. We discontinued consolidation of the accounts of Viva Entertainment effective April 6, 2016.
On February 27, 2017, the Viva Note was in default and no repayments to the Company had been made. On that date, the parties entered into an addendum to the Viva Note, establishing the principal amount at $100,000 and accrued interest at $6,000. Terms of the Viva Note were also amended to allow the Company to convert the unpaid principal and interest into common shares of Viva Entertainment using a Variable Conversion Price equal to 50% of the lowest one-day Trading Price for the Viva Entertainment common stock during the twenty Trading Day period ending on the last complete Trading Day prior to the Conversion Date. Effective February 27, 2017, the Company increased additional paid-in capital by $106,000 and recorded a note receivable of $100,000 and accrued interest receivable of $6,000.
On April 4, 2017, the Company and Global Opportunity Group LLC (“Global”), a lender, entered into a Purchase, Exchange and Escrow Agreement whereby the Company assigned $50,000 principal and $3,000 accrued interest of the Viva Note to Global in extinguishment of a convertible promissory note payable to Global dated March 28, 2017 with a principal balance of $18,150 and accrued interest payable of $35. The Company recognized a loss on extinguishment of debt of $34,815.
These common shares of Viva Entertainment were initially recorded at their cost basis, as determined by the converted amounts of principal and accrued interest payable of the Viva Note, and are classified as trading securities in the Company’s financial statements, and subsequently reported at fair value based on quoted market prices. Changes in the fair value of the marketable securities are recorded as unrealized gains or losses in other (income) expense in the statements of operations. Realized gains on the sale of marketable securities are included in other (income) expense in the statements of operations.
Pursuant to multiple conversions during April 2017 through June 2017, the Company converted $33,128 principal of the Viva Note and $2,206 accrued interest payable into a total of 173,809,000 common shares of Viva Entertainment. As of June 30, 2017, the Viva Note had a principal balance of $16,872 and accrued interest of $1,519 outstanding. As of June 30, 2017, the Company held a total of 86,000,000 common shares of Viva Entertainment, recorded at market value of $253,998. The Company recorded total unrealized gains on investments of $240,800 during the year ended June 30, 2017.
Total net proceeds from the sale of Viva Entertainment common stock during the year ended June 30, 2017 were $52,800 and the Company recorded a realized gain on sale of investments of $30,664.
During July 2017, the Company sold a total of 170,250,000 common shares of Viva Entertainment, with net proceeds of $551,800, and recorded a realized gain on sale of marketable securities of $282,652 for the year ended June 30, 2017.
In July and August 2017, the Company advanced a total of $49,880 cash to Viva Entertainment pursuant to a new convertible note receivable dated July 5, 2017 (the “July 2017 Viva Note”). On August 1, 2017, the Company converted the remaining principal balance of the Viva Note of $22, the principal balance of the July 2017 Viva Note of $49,880 and accrued interest receivable of $98, for a total of $50,000, into 55,555,555 common shares of Viva Entertainment.
On December 31, 2017, the Company and Global entered into a Purchase and Escrow Agreement whereby the Company sold 55,555,555 common shares of Viva to Global for the following consideration:
Extinguishment of debt to Global:
|
|
|
|
Convertible note payable dated December 30, 2017
|
|
$
|
25,000
|
|
Convertible note payable dated July 31, 2017
|
|
|
12,074
|
|
Accrued interest payable
|
|
|
1,370
|
|
Cash
|
|
|
15,000
|
|
|
|
|
|
|
Total
|
|
$
|
53,444
|
|
The Company recognized a realized gain on sale of investments of $3,444 in the transaction.
On March 28, 2017, Viva Entertainment issued the Company a convertible promissory note in the principal amount of $8,935 as consideration for the Company’s payment to a vender on behalf of Viva Entertainment. The note bears interest at 8% and matures on March 31, 2018. The note is convertible into common shares of Viva Entertainment at an exercise price of 40% of the lowest trading price during the ten trading days ending on the trading date prior to the conversion notice.
On June 30, 2017, the Company entered into a Purchase and Exchange Agreement with Viva Entertainment and Global Opportunity Group LLC (“Global”) pursuant to which the Company assigned the $8,985 principal balance and $184 accrued interest receivable to Global in payment of a convertible promissory note payable to Global with a principal balance of $11,992 and accrued interest payable of $280 (see Note 5).
At June 30, 2018, marketable securities consisted of funds held in a brokerage account of $1,700.
6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30, 2018:
Cryptocurrency mining equipment
|
|
$
|
573,806
|
|
Furniture and equipment
|
|
|
14,427
|
|
Leasehold improvements
|
|
|
102,932
|
|
|
|
|
|
|
Total
|
|
|
691,165
|
|
Less accumulated depreciation and amortization
|
|
|
(58,060
|
)
|
|
|
|
|
|
Net
|
|
$
|
633,105
|
|
Depreciation and amortization expense for the year ended June 30, 2018 was $59,875.
As of June 30, 2018, the Company wrote down cryptocurrency mining equipment by $220,372 to estimated net realizable value.
During the year ended June 30, 2018, the Company consolidated its digital currency mining operations in two locations, closing two facilities. Leasehold improvements with a cost of $51,247 and accumulated depreciation and amortization of $1,089 were written off, resulting in a loss of $50,158, which is included in general and administrative expenses.
The Company had no property and equipment at June 30, 2017. Property and equipment held for sale related to the Company’s medical transportation business of $4,870 was disposed of during the year ended June 30, 2017 with the loss reported as other expense.
7. RELATED PARTY TRANSACTIONS
We have one executive officer, Steve Rubakh, who is currently our only 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.
During the years ended June 30, 2018 and 2017, the Company recorded salary expense to Mr. Rubakh of $131,250 and $75,000, respectively. Effective April 1, 2018, the annual salary for Mr. Rubakh was established by the Board of Directors at $150,000. Accrued compensation payable to Mr. Rubakh, included in due to related party, was $20,974 and $22,325 as of June 30, 2018 and 2017, respectively.
Non-salary payments made to Mr. Rubakh or on his behalf totaled $31,348 and $0 for the years ended June 30, 2018 and 2017, respectively.
For the years ended June 30, 2018 and 2017, the Board of Directors authorized the issuance to Mr. Rubakh of 110,000 and 150,000 shares of Series B preferred stock, respectively, as part of Mr. Rubakh's compensation package. Stock-based compensation of $809,000 and $725,400 was recorded for the years ended June 30, 2018 and 2017, respectively, based on the estimated market price of the Company’s common stock on an “as converted” basis.
On August 31, 2017, 347,222 shares of common stock were issued to Steve Rubakh for conversion of accrued compensation of $15,625.
On February 14, 2017, the Board of Directors of the Company agreed with Steve Rubakh to convert $37,459 of accrued compensation into 249,728 shares of common stock, at a conversion rate of $0.15 per share.
On February 14, 2017, 132,368 shares of common stock valued at $19,855 were issued to Steve Rubakh to reimburse him for payments made by him to a vendor.
On July 1, 2016, 60,000 shares of common stock were issued to Steve Rubakh for conversion of accrued compensation of $37,500.
As further discussed in Note 5, the Company completed the sale of its subsidiary, Viva Entertainment onApril 6, 2016, and received consideration (as subsequently amended on February 27, 2017) consisting of a convertible promissory note receivable of $120,000 and accrued interest receivable of $6,000. A total of $106,000 was recorded to additional paid-in capital. In July and August 2017, the Company advanced Viva Entertainment $49,880 in cash to Viva Entertainment pursuant to a new convertible promissory note.
As detailed in Note 5, during the years ended June 30, 2017 and 2018, the convertible promissory notes receivable and related accrued interest receivable were extinguished either through conversion to common shares of Viva Entertainment or assignment of amounts receivable from Viva Entertainment to a lender in partial extinguishment of a convertible note payable. The common shares of Viva Entertainment were sold for cash in market transactions or assigned to a lender in extinguishment of a convertible note payable.
8. DEBT
Accrued Judgement
On October 22, 2015, the Company entered into a Securities Purchase Agreement ("Purchase Agreement"), dated as of October 22, 2015, with LG Capital Funding, LLC ("LG"), pursuant to which the Company sold LG a convertible note in the principal amount of $125,000 (the first of four such Convertible Notes each in the principal amount of $125,000 provided for under the Purchase Agreement), bearing interest at the rate of 8% per annum (the "Convertible Note"). Each of the Convertible Notes issuable under the Purchase Agreement provides for a 15% original issue discount ("OID"), such that the purchase price for each Convertible Note is $106,250, and at each closing LG is entitled to be paid $6,000 for legal and other expenses. The Convertible Note provides LG the right to convert the outstanding balance, including accrued and unpaid interest, of such Convertible Note into shares of the Company's common stock at a price ("Conversion Price") for each share of common stock equal to 80% of the lowest trading price of the common stock as reported on the National Quotations Bureau for the OTCQB exchange on which the Company's shares are traded or any exchange upon which the common stock may be traded in the future, for the twenty prior trading days including the day upon which a Notice of Conversion is received by the Company or its transfer agent. The Convertible Note was payable, along with interest thereon, on October 22, 2016 and was in default. The convertible note had an OID of 15%, which was recorded at $18,750 and which has been fully amortized. The Company recorded a debt discount of $44,643, which has also been fully amortized.
On October 14, 2016, the Supreme Court of the State of New York County of Kings, in regards to LG Capital Funding, LLC v. EMS Find, Inc., issued a judgment against EMS Find, Inc. in favor of LG Capital Funding, LLC, in the amount of $135,202, which includes principal and interest (calculated as of September 29, 2016), in regards to the convertible promissory note dated October 22, 2015. The judgment includes an Information Subpoena with Restraining Notice, which addressed the EMS Find, Inc. bank account at TD Bank. As a result of the judgment, the conversion feature of the note was eliminated and therefore, the associated derivative liability was extinguished. As of June 30, 2017, the principal balance of the Convertible Note was recorded as accrued judgment of $125,000, a current liability, and $34,835 of interest was accrued.
On May 4, 2018, the Company and LG Capital entered into a Forbearance Agreement related to the judgment. According to terms of the Forbearance Agreement, the Company extinguished the debt in full by paying LG Capital $135,427 in April 2017 and $29,257 on July 11, 2018.
Convertible Notes Payable
Convertible notes payable, all classified as current, consist of the following:
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
|
|
Principal
|
|
|
Debt
Discount
|
|
|
Original
Issue
Discount
|
|
|
Net
|
|
|
Principal
|
|
|
Debt
Discount
|
|
|
Original
Issue
Discount
|
|
|
Net
|
|
Global Opportunity Group, LLC
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
A1 Solar Corp.
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
River North Equity, LLC
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,660
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,660
|
|
Global Opportunity Group, LLC
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,700
|
|
|
|
(7,379
|
)
|
|
|
(722
|
)
|
|
|
10,599
|
|
EMA Financial, LLC
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,916
|
|
|
|
(2,394
|
)
|
|
|
-
|
|
|
|
6,522
|
|
GPL Ventures, LLC
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
(548
|
)
|
|
|
-
|
|
|
|
9,452
|
|
Global Opportunity Group, LLC
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
(5,301
|
)
|
|
|
(625
|
)
|
|
|
4,074
|
|
Howard Schraub
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,500
|
|
|
|
(12,250
|
)
|
|
|
-
|
|
|
|
4,250
|
|
Howard Schraub
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,000
|
|
|
|
(15,233
|
)
|
|
|
-
|
|
|
|
4,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
88,776
|
|
|
$
|
(43,105
|
)
|
|
$
|
(1,347
|
)
|
|
$
|
44,324
|
|
On December 3, 2015, the Company issued a second convertible note to LG for $125,000. The Company recorded an OID of 15%, or $18,750, and which has been fully amortized. The Company recorded a debt discount of $85,165, which has been fully amortized. The Company sold $60,000 principal of the note to Global Opportunity Group, LLC (“Global”) on August 18, 2016, $40,000 principal of the note and $462 accrued interest to GPL Ventures, LLC (“GPL”) on December 15, 2016 and sold $50,000 principal of the note (including a $25,000 penalty added to principal) to Global on February 21, 2017. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2017.
On July 21, 2016, the Company entered into a convertible promissory note with Old Main Capital, LLC (“Old Main”) for $33,333. The note matures on July 21, 2017 and bears interest at 10%. The convertible promissory note provided for an OID of $3,333, a deduction of $1,250 for Old Main’s legal fees, and $2,500 for Old Main’s legal fees related to the equity purchase agreement. Therefore, the net proceeds to the Company was $26,250. The Company recorded a debt discount and derivative liability of $29,574. The debt discount and OID have been fully amortized. The conversion price is the lower of 65% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date or the closing bid price on the original issue date. On April 20, 2017, the Company and Old Main entered into a Settlement Agreement & Mutual Release with respect to this note, resulting in penalties of $22,667 added to the note principal to bring the principal balance to $56,000 and requiring a principal payment of $30,000, which payment was financed by the issuance of a new convertible promissory to Global. Pursuant to multiple conversions during April and May 2017, the remaining principal of $26,000 was extinguished through the issuance of 230,123 shares of the Company’s common stock and accrued interest payable of $2,574 was written off. In April 2017, 52,000 shares of the Company’s common stock were issued to Old Main for penalties of $13,000. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2017.
On July 25, 2016, the Company entered into an equity purchase agreement with River North Equity, LLC (“River North”) for up to $2,000,000. On July 25, 2016, the Company entered into a convertible promissory note with River North for $33,333. The convertible promissory note had a maturity date of March 29, 2017 and bears interest at 10%. The convertible promissory note provided for an OID of $3,333, a deduction of $4,000 for River North’s legal fees, and the Company recorded a debt discount of $30,051. The conversion price is the lower of 65% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date. On February 1, 2017, River North converted $2,037 principal and $1,744 accrued interest into 52,878 common shares of the Company. On April 20, 2017, the Company and River North entered into a Settlement Agreement & Mutual Release with respect to this note, resulting in penalties of $17,955 added to the note principal to bring the principal balance to $49,252 and requiring a principal payment of $30,000, which payment was financed by the issuance of a new convertible promissory to Global Opportunity Group, LLC (“Global”). On June 2, 2017, River North converted $14,592 principal into 172,685 common shares of the Company, resulting in a principal balance of $4,660 as of June 30, 2017. As of June 30, 2017, the OID and the debt discount had been fully amortized and there was accrued interest payable of $1,236. The Company recorded a derivative liability of $5,227 as of June 30, 2017. On July 5, 2017, River North converted the remaining principal of $4,660 into 183,068 common shares of the Company and the accrued interest payable balance of $1,236 was written off. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2018.
On August 10, 2016, the Company issued a convertible promissory note with Global for $16,500. The convertible promissory note has a maturity date of August 10, 2017 and bears interest at 12%. The convertible promissory note provided for an OID of $1,500, a deduction of $1,000 for Global’s legal fees, and a debt discount of $16,500. The Company received net proceeds of $15,000. The Company recorded a debt discount of $16,500 and a derivative liability of $16,793. The conversion price is 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the conversion date. Additionally, the Company issued 165,000 five-year warrants for common stock with an exercise price of $0.15 per share, subject to certain adjustments, and a cashless exercise option. The Company sold $16,500 of the principal of the note to Howard Schraub (“Schraub”) on March 16, 2017 and wrote off accrued interest payable of $1,063. As of June 30, 2017, the OID and the debt discount had been fully amortized. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2017.
On August 18, 2016, Global purchased $60,000 of the December 2015 LG convertible promissory note. The conversion price is 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the conversion date. The acquisition was in two tranches, $30,000 each, thirty days apart. The Company recorded a debt discount of $60,000 and a derivative liability of $68,651. In multiple conversions during August 2016 through January 2017, Global converted $68,593 principal (including a penalty of $8,593 added to principal), $101 accrued interest payable and $5,000 in fees into 249,444 shares of the Company’s common stock. The replacement note has been repaid in full and no related derivative liability was recorded as of June 30, 2017.
On August 23, 2016, the Company entered into a convertible promissory note with EMA Financial, LLC (“EMA”), for $33,000. The convertible promissory note had a maturity date of August 23, 2017 and bears interest at 16%. The convertible promissory note provided for an OID of $3,300, a deduction of $3,000 for EMA’s legal fees, and a debt discount of $33,000. The Company received net proceeds of $29,700. The Company recorded a debt discount of $33,000 and a derivative liability of $41,947. The conversion price is the lower of 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date or the closing bid price on the original issue date. In April 2017, penalties totaling $8,249 were added to the note principal. Pursuant to multiple conversions in March and April 2017, EMA converted the entire principal of $41,249 into 503,152 shares of the Company’s common stock and wrote off $3,172 accrued interest payable. As of June 30, 2017, the OID and the debt discount had been fully amortized. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2017.
On October 6, 2016, the Company entered into a convertible promissory note with EMA for $33,000. The note matures on October 6, 2017 and bears interest at 12%. The Company recorded a debt discount of $33,000 and a derivative liability of $45,358. The conversion price is the lower of 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date or the closing bid price on the original issue date. Pursuant to multiple conversions in May and June 2017, EMA converted principal of $24,084 into 976,000 shares of the Company’s common stock, resulting in a principal balance of $8,916 as of June 30, 2017. As of June 30, 2017, $30,606 of the debt discount had been amortized, and there was accrued interest of $2,677. The Company recorded a derivative liability of $10,411 as of June 30, 2017. On July 5, 2017, July 7, 2017 and July 12, 2017, EMA converted the remaining principal of $8,916, accrued interest payable of $2,715 and penalties totaling $29,908 into a total of 830,776 common shares of the Company. The OID and the debt discount have been fully amortized. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2018.
On December 2, 2016, the Company entered into a convertible promissory note with Global for $18,700. The note matures on December 2, 2017 and bears interest at 12%. The convertible promissory note provided for an OID of $1,700; therefore, the net proceeds to the Company was $17,000. The Company recorded a debt discount and a derivative liability of $17,376. The conversion price is the lower of 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date or the closing bid price on the original issue date. As of June 30, 2017, $978 of the OID had been amortized, $9,997 of the debt discount had been amortized and there was accrued interest of $1,297. The Company recorded a derivative liability of $17,336 as of June 30, 2017. Additionally, the Company issued 1,650 five-year warrants for common stock with an exercise price of $7.50 per share, subject to certain adjustments, and a cashless exercise option. On July 13, 2017 and August 15, 2017, Global converted the entire principal of $18,700 and fees totaling $1,250 into a total of 567,867 common shares of the Company and the accrued interest payable balance of $1,541 was written off. The OID and the debt discount have been fully amortized. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2018.
On December 13, 2016, the Company entered into a convertible promissory note with GPL Ventures LLC (‘GPL”) for $10,000. The note matures on July 13, 2017 and bears interest at 12%. The Company recorded a debt discount and derivative liability of $8,932. The conversion price is the lower of 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date or the closing bid price on the original issue date. As of June 30, 2017, $8,384 of the debt discount had been amortized, and there was accrued interest of $658. The Company recorded a derivative liability of $10,172 as of June 30, 2017. On July 6, 2017 and July 12, 2017, GPL converted the entire principal of $10,000 into a total of 400,000 common shares of the Company and the accrued interest payable balance of $687 was written off. The OID and the debt discount have been fully amortized. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2018.
On December 15, 2016, GPL purchased $40,000 principal and $462 accrued interest of the December 2015 LG convertible promissory note. The replacement convertible promissory note with GPL for $40,462 matures on July 15, 2017 and bears interest at 10%. The Company recorded a debt discount and derivative liability of $35,764. The conversion price is the lower of 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date or the closing bid price on the original issue date. Pursuant to three conversions in December 2016 through February 2017, GPL converted $1,270 principal into 254,000 shares of the Company’s common stock. On May 12, 2017, the Company and GPL entered into a Settlement and Release Agreement pursuant to which the remaining principal of $39,192 and accrued interest payable of $1,604 were extinguished. As of June 30, 2017, the debt discount had been fully amortized. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2017.
On February 13, 2017, the Company entered into a convertible promissory note with Global for $10,000. The note matures on February 13, 2018 and bears interest at 2%. The convertible promissory note provides for an OID of $1,000. Therefore, the net proceeds to the Company was $9,000. The Company recorded a debt discount and derivative liability of $8,487. The conversion price is 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date. As of June 30, 2017, $375 of the OID had been amortized, $3,186 of the debt discount had been amortized and there was accrued interest of $75. The Company recorded a derivative liability of $8,482 as of June 30, 2017. Additionally, the Company issued 6,667 seven-year warrants for common stock with an exercise price of $0.50 per share, subject to certain adjustments, and a cashless exercise option. On September 15, 2017, Global sold the $10,000 note and $1,117 accrued interest payable to A1 Solar Corp (“A1 Solar”). The OID and the debt discount have been fully amortized. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2018.
On February 21, 2017, Global purchased $50,000 principal of the December 2015 LG convertible promissory note. The $50,000 replacement note matures on February 21, 2018 and interest does not accrue prior to an event of default or the maturity date. The Company recorded a debt discount and derivative liability of $41,976. The conversion price is 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date. Pursuant to four conversions in February 2017 through March 2017, Global converted $34,159 principal and $2,000 in fees into 358,460 shares of the Company’s common stock. On April 25, 2017, the Company sold the remaining $15,841 principal to Howard Schraub (“Schraub”). As of June 30, 2017, the debt discount had been fully amortized and no related derivative liability was recorded.
On March 16, 2017, Schraub purchased $16,500 principal of the August 10, 2016 Global convertible promissory note. The $16,500 replacement note matures on March 16, 2018 and bears interest at 12%. The Company recorded a debt discount of $16,500 and a derivative liability of $18,844. The conversion price is 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date. Pursuant to two conversions in March and April 2017, Schraub converted the entire principal of $16,500 and $400 in fees into 160,011 shares of the Company’s common stock. As of June 30, 2017, the debt discount had been fully amortized and accrued interest of $57 was written off. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2017.
On March 28, 2017, the Company entered into a convertible promissory note with Schraub for $16,500. The note matures on March 28, 2018 and bears interest at 10%. The Company recorded a debt discount of $16,500 and a derivative liability of $19,999. The conversion price is 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date. Additionally, the Company issued 12,100 seven-year warrants for common stock with an exercise price of $0.50 per share, subject to certain adjustments, and a cashless exercise option. These warrants were surrendered to the Company and cancelled on May 8, 2017. As of June 30, 2017, $4,250 of the debt discount had been amortized and there was accrued interest of $425. The Company recorded a derivative liability of $15,161 as of June 30, 2017. On July 31, 2017, Schraub assigned the $16,500 note to Global. The debt discount has been fully amortized and $565 of accrued interest payable was written off. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2018.
On March 28, 2017, the Company issued a convertible promissory note with Global for $18,150. The note matures on March 28, 2018 and bears interest at 10%. The convertible promissory note provides for an OID of $1,750. Therefore, the net proceeds to the Company was $16,400. The Company recorded a debt discount of $18,150 and a derivative liability of $21,608. The conversion price is 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date. Additionally, the Company issued 605,000 seven-year warrants for common stock with an exercise price of $0.01 per share, subject to certain adjustments, and a cashless exercise option. On April 4, 2017, the Company and Global entered into a Purchase, Exchange and Escrow Agreement pursuant to which $18,150 principal and $35 accrued interest payable were extinguished through assignment to Global of $50,000 of the Viva Entertainment note receivable (see Note 4). As of June 30, 2017, the OID and debt discount had been fully amortized. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2017. The warrants were surrendered to the Company and cancelled pursuant to the Purchase, Exchange and Escrow Agreement.
On April 4, 2017, the Company entered into a convertible promissory note with Schraub for $20,000. The note matures on April 4, 2018 and bears interest at 10%. A debt discount of $20,000 and a derivative liability of $23,381 were recorded. The conversion price is 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date. Additionally, the Company issued 15,000 seven-year warrants for common stock with an exercise price of $0.50 per share, subject to certain adjustments, and a cashless exercise option. These warrants were surrendered to the Company and cancelled on May 8, 2017. As of June 30, 2017, $4,767 of the debt discount had been amortized and there was accrued interest of $477. The Company recorded a derivative liability of $17,756 as of June 30, 2017. On July 31, 2017, Schraub assigned the $20,000 note to Global. The debt discount has been fully amortized and $647 of accrued interest payable was written off. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2018.
On April 13, 2017, the Company issued a convertible promissory note with Global for $30,000 to partially fund the settlement with Old Main discussed above. The note matures on April 13, 2018 and bears interest at 10%. The Company recorded a debt discount of $30,000 and a derivative liability of $34,825. The conversion price is 50% of the lowest traded price for the twenty-five consecutive trading days immediately preceding the applicable conversion date. Pursuant to two conversions in April and May 2017, Global converted $18,284 principal and $1,200 in fees into 222,680 shares of the Company’s common stock. On June 6, 2017, the Company sold the remaining $11,716 principal to Schraub. As of June 30, 2017, the debt discount had been fully amortized. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2017.
On April 25, 2017, Schraub purchased a convertible promissory note from Global with a principal balance of $15,841. The note matures on March 28, 2018 and is non-interest bearing. The Company recorded a debt discount of $15,481 and a derivative liability of $17,787. The conversion price is 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date. Pursuant to two conversions in April and May 2017, Schraub converted the entire principal of $15,841 and $500 in fees into 195,559 shares of the Company’s common stock. As of June 30, 2017, the debt discount had been fully amortized. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2017.
On May 16, 2017, the Company issued a convertible promissory note with Global for $30,000 to partially fund the settlement with River North discussed above. The note matures on May 16, 2018 and bears interest at 10%. The Company recorded a debt discount of $30,000 and a derivative liability of $36,823. The conversion price is 50% of the lowest traded price for the twenty-five consecutive trading days immediately preceding the applicable conversion date. Pursuant to two conversions in June 2017, Global converted $18,009 principal and $1,200 in fees into 362,180 shares of the Company’s common stock. On June 30, 2017, the Company and Global entered into a Purchase, Exchange and Escrow Agreement and Cancellation pursuant to which the remaining principal of $11,991 and $280 accrued interest payable were extinguished through the exchange with Global of a note receivable from Viva Entertainment with a principal balance of $8,985 and accrued interest receivable of $184 (see Note 4). As of June 30, 2017, the debt discount had been fully amortized. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2017.
On June 6, 2017, Schraub purchased a convertible promissory note from Global with a principal balance of $11,716. The note matures on March 13, 2018 and bears interest at 10%. The Company recorded a debt discount and derivative liability of $10,683. The conversion price is 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date. Pursuant to two conversions in June 2017, Schraub converted the entire principal of $11,716 and $600 in fees into 381,070 shares of the Company’s common stock. As of June 30, 2017, the debt discount had been fully amortized. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2017.
On July 31, 2017, Global was assigned the $16,500 principal of the March 28, 2017 Schraub convertible promissory note. The note matures on March 28, 2018 and bears interest at 10%. A debt discount of $16,500 and a derivative liability of $17,406 were recorded. The conversion price is 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date. On January 5, 2018, Global converted principal of $16,500 and accrued interest of $1,279 into 88,093 common shares of the Company. The debt discount has been fully amortized. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2018.
On July 31, 2017, Global was assigned the $20,000 principal of the April 4, 2017 Schraub convertible promissory note. The note matures on April 4, 2018 and bears interest at 10%. A debt discount of $20,000 and a derivative liability of $21,097 were recorded. The conversion price is 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date. Pursuant to two conversion in October and December 2017 Global converted a total of $7,926 principal into 348,691 total common shares of the Company. Pursuant to a Purchase and Escrow Agreement dated December 31, 2017 (Note 4), the remaining principal of $12,074 and accrued interest payable of $1,367 were extinguished. The debt discount has been fully amortized and $647 of accrued interest payable was written off. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2018.
On September 15, 2017, A1 Solar purchased $10,000 principal and $1,117 accrued interest payable of the February 13, 2017 Global convertible promissory note. The $11,117 convertible replacement note matures on September 29, 2018 and bears interest at an annual rate of 12%. The Company recorded a debt discount of $11,117 and a derivative liability of $13,348. The conversion price is 50% of the lowest traded price for the twenty consecutive trading days immediately preceding the applicable conversion date. On October 5, 2017 and January 10, 2018, A1 Solar converted $11,117 principal and accrued interest of $77 into 322,018 total common shares of the Company. The debt discount has been fully amortized. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2018.
On December 30, 2017, the Company and Global entered into an Exchange Agreement pursuant to which warrants held by Global to purchase a total of 11,115 shares of the Company’s common stock were cancelled in exchange for a convertible promissory note payable to Global in the principal amount of $25,000. The note matures on December 30, 2018 and bears interest at an annual rate of 5%, compounded monthly. A debt discount of $25,000 and a derivative liability of $324,629 was recorded. Pursuant to a Purchase and Escrow Agreement dated December 31, 2017 (Note 4), the $25,000 principal and accrued interest payable of $3 were extinguished. The note has been repaid in full and no related derivative liability was recorded as of June 30, 2018.
On July 6, 2017, Schraub converted fees of $600 into 12,370 common shares of the Company.
As detailed above, during the year ended June 30, 2017, a total of 4,118,242 shares of the Company’s common stock were issued in conversion of $284,083 note principal and $1,884 accrued interest payable. In addition, derivative liabilities of $324,916 were extinguished and note penalties of $35,985 and fees of $10,900 were paid through the issuance of common stock in the note conversions.
During the year ended June 30, 2018, a total of 2,752,883 shares of the Company’s common stock were issued in conversion of $77,818 note principal and $4,072 accrued interest payable. In addition, derivative liabilities of $78,412 were extinguished and note penalties of $29,909 and fees of $2,950 were paid through the issuance of common stock in the note conversions.
9. STOCKHOLDERS’ DEFICIT
Preferred Stock
Series A Preferred Stock
On March 10, 2015, the Company, with the approval of a majority vote of its Board of Directors, approved the filing of 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 (the "Series A Designation" and the "Series A Preferred Stock"). The terms of the Certificate of Designation of the Series A Preferred Stock, which was filed with the State of Nevada on March 12, 2015, include 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 June 30, 2018 and 2017, 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 its 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 309,166 and 150,000 shares issued and outstanding as of June 30, 2018 and 2017, respectively.
For the years ended June 30, 2018 and 2017, the Board of Directors authorized the issuance to Steve Rubakh of 110,000 and 150,000 shares of Series B preferred stock, respectively, as part of his compensation package. Stock-based compensation of $809,000 and $725,400 was recorded for the years ended June 30, 2018 and 2017, respectively, based on the market price of the Company’s common stock on an “as converted” basis.
On October 25, 2017, four investors entered into subscription agreements for the purchase of a total of 16,000 shares of Series B Preferred stock for cash at $10 per share. Through June 30, 2018, 12,500 of the shares had been issued for an investment of $125,000. As of June 30, 2018, a stock subscription payable of $35,000 was recorded for unissued shares.
As more fully discussed in Note 4, in April 2018, the Company entered into two Asset Purchase Agreements with digiMine for the purchase of digiMine’s digital currency mining operations. The Company issued a total of 36,666 shares of Series B Preferred stock valued at $1,163,806 by an independent valuation firm.
Common Stock
The Company has 2,000,000,000 shares of common stock authorized, with 8,964,103 and 5,212,563 shares issued and outstanding as of June 30, 2018 and 2017, respectively.
On August 21, 2017, the Board of Directors of the Company approved a 1-for-50 reverse split of the Company’s common shares. The reverse split has been given retroactive effect in the financial statements for all periods presented.
During the year ended June 30, 2018, the Company issued a total of 3,751,540 shares of its common stock.
On July 6, 2017, 188,240 shares of common stock were issued to Global in the cashless exercise of warrants recorded at par value of $188. See Note 10.
On August 31, 2017, 347,222 shares of common stock valued at $15,625 were issued to Steve Rubakh for accrued compensation. See Note 7.
On January 19, 2018, the Company and St. George Investments LLC (“St. George”) entered into a Securities Purchase Agreement, pursuant to which St. George purchased 462,900 restricted common shares of the Company for $750,000. The Company received net proceeds of $720,000. The Company also issued to St. George a three-year warrant for the purchase of 347,175 shares of the Company’s common stock at an exercise price of $2.16 per share. The warrant was valued using the Black-Sholes option pricing model at $1.75 per share, or $607,556. The net proceeds received of $720,000 were allocated $411,429 to the shares purchased and $308,571 to the warrants issued based on estimated relative fair values. No derivative liability was recorded for the warrant as the Company’s equity environment was not considered tainted on the warrant issuance date.
As detailed in Note 8, during the year ended June 30, 2018, a total of 2,752,883 shares of the Company’s common stock valued at $193,161were issued in conversion of $77,818 note principal, $4,072 accrued interest payable, $78,412 derivative liabilities, $2,950 in fees and $29,909 in penalties.
On September 30, 2017, the Company increased the number of outstanding common shares by 115 shares due to rounding of shares in the reverse stock split.
During the year ended June 30, 2017, the Company issued a total of 4,558,337 shares of its common stock.
On July 1, 2016, 6,000 shares of common stock valued at $37,500 were issued to Steve Rubakh for accrued compensation.
A total of 249,728 shares of common stock valued at $37,459 were issued to Steve Rubakh for accrued compensation.
On February 14, 2017, 132,368 shares of common stock valued at $19,855 were issued to Steve Rubakh to reimburse him for payments of $16,546 made by him to a vendor.
On April 18, 2017, 52,000 shares of common stock valued at $13,000 were issued to a lender for loan penalties.
During the year ended June 30, 2017, a total of 4,118,242 shares of the Company’s common stock valued at $809,820 were issued in conversion of $284,083 note principal, $1,884 accrued interest payable, $324,916 derivative liabilities, $10,900 in fees, $35,985 of penalties and $152,052 loss on conversion of debt.
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. See Note 8.
As discussed in Note 8, on December 30, 2017, the Company and Global entered into an Exchange Agreement pursuant to which warrants held by Global to purchase a total of 11,115 shares of the Company’s common stock were cancelled in exchange for a convertible promissory note payable to Global in the principal amount of $25,000. Derivative liabilities related to the warrants of $324,303 were also extinguished in this transaction and the Company recorded an increase to additional paid-in capital of $299,303.
Warrant activity for the years ended June 30, 2018 and 2017 is as follows:
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted Average
Remaining
Contract Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2016
|
|
|
1,200
|
|
|
$
|
12.50
|
|
|
|
2.81
|
|
|
$
|
-
|
|
Granted
|
|
|
50,817
|
|
|
$
|
1.18
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(39,200
|
)
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2017
|
|
|
12,817
|
|
|
$
|
4.33
|
|
|
|
5.25
|
|
|
$
|
-
|
|
Granted
|
|
|
347,175
|
|
|
$
|
2.16
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(502
|
)
|
|
$
|
7.50
|
|
|
|
|
|
|
|
|
|
Cancelled or expired
|
|
|
(11,115
|
)
|
|
$
|
3.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at June 30, 2018
|
|
|
348,375
|
|
|
$
|
2.20
|
|
|
|
2.55
|
|
|
$
|
-
|
|
Because the number of common shares to be issued under convertible notes payable was indeterminate, the Company concluded that the equity environment was tainted through January 10, 2018. Therefore, all warrants issued prior to that date were included in the Company’s calculations of derivative liabilities.
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.
On May 4, 2018, the Company and LG Capital Funding, LLC ("LG") entered into a Forbearance Agreement related to a September 29, 2016 judgment for amounts due on a $125,000 promissory note payable to LG. According to terms of the Forbearance Agreement, the Company extinguished the debt in full by paying LG Capital $135,427 in April 2017 and $29,257 on July 11, 2018.
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. As part of the consolidations, operating leases at two other locations were terminated.
The lease for the Pennsylvania location is on a month-to-month basis at $850 per month.
The lease for the New Jersey location, which was assumed in the digiMine Acquisition, 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.
Total rent expense under operating leases was $49,295 and $6,800 for the years ended June 30, 2018 and 2017, respectively.
Future lease payments under non-cancelable operating leases as of June 30, 2018 are as follows:
Year ending June 30:
|
|
|
|
2019
|
|
$
|
84,883
|
|
2020
|
|
|
66,020
|
|
|
|
|
|
|
Total
|
|
$
|
150,903
|
|
12. INCOME TAXES
For the years ended June 30, 2018 and 2017, there was no provision for income taxes and deferred tax assets have been entirely offset by valuation allowances.
As of June 30, 2018 and 2017, the Company has net operating loss carry forwards of approximately $883,382 and $755,095, respectively, that expire through the year 2036. The Company’s net operating loss carry forwards may be subject to annual limitations, which could reduce or defer the utilization of the losses as a result of an ownership change as defined in Section 382 of the Internal Revenue Code.
The Company’s income tax expense (benefit) differs from the “expected” tax expense (benefit) for Federal income tax purposes (computed by applying the United States Federal tax rate of 21% to income (loss) before income taxes), as follows:
|
|
Years Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Tax benefit at the statutory rate
|
|
$
|
(1,171,265
|
)
|
|
$
|
(600,082
|
)
|
State income taxes, net of federal income tax benefit
|
|
|
66,710
|
|
|
|
(45,542
|
)
|
Non-deductible items
|
|
|
1,248,992
|
|
|
|
578,351
|
|
Non-taxable items
|
|
|
(104,668
|
)
|
|
|
(81,872
|
)
|
Change in valuation allowance
|
|
|
(39,769
|
)
|
|
|
149,145
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
The tax effects of the temporary differences between reportable financial statement income and taxable income are recognized as deferred tax assets and liabilities.
The tax years 2014 through 2018 remain open to examination by federal agencies and other jurisdictions in which it operates.
The tax effect of significant components of the Company’s deferred tax asset at June 30, 2018 and 2017, respectively, are as follows:
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
273,848
|
|
|
$
|
234,079
|
|
Less valuation allowance
|
|
|
(273,848
|
)
|
|
|
(234,079
|
)
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
-
|
|
|
$
|
-
|
|
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
Because of the historical earnings history of the Company, the net deferred tax assets as of June 30, 2018 and 2017 were fully offset by a 100% valuation allowance.
13. RESTATEMENT
The Company is restating its financial statements for the year ended June 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.
The following adjustments were made to the June 30, 2017 Restated Balance Sheet:
Integrated Ventures, Inc.
|
Balance Sheet
|
|
|
|
As Originally Reported on
June 30, 2017
|
|
|
Adjustments
|
|
|
|
|
As Restated
June 30, 2017
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
15,691
|
|
|
$
|
-
|
|
|
|
|
$
|
15,691
|
|
Prepaid expenses and other current assets
|
|
|
7,500
|
|
|
|
-
|
|
|
|
|
|
7,500
|
|
Marketable securities
|
|
|
253,998
|
|
|
|
-
|
|
|
|
|
|
253,998
|
|
Note receivable
|
|
|
16,872
|
|
|
|
-
|
|
|
|
|
|
16,872
|
|
Accrued interest receivable
|
|
|
1,519
|
|
|
|
-
|
|
|
|
|
|
1,519
|
|
Total current assets
|
|
|
295,580
|
|
|
|
-
|
|
|
|
|
|
295,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
700
|
|
|
|
-
|
|
|
|
|
|
700
|
|
Total assets
|
|
$
|
296,280
|
|
|
$
|
-
|
|
|
|
|
$
|
296,280
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
27,417
|
|
|
$
|
-
|
|
|
|
|
$
|
27,417
|
|
Accrued expenses
|
|
|
57,032
|
|
|
|
(15,353
|
)
|
|
(a)
|
|
|
41,679
|
|
Due to related party
|
|
|
20,216
|
|
|
|
2,469
|
|
|
(b)
|
|
|
22,685
|
|
Derivative liabilities
|
|
|
226,731
|
|
|
|
(141,540
|
)
|
|
(c)
|
|
|
85,191
|
|
Convertible notes payable, net of discounts
|
|
|
47,814
|
|
|
|
(3,490
|
)
|
|
(c)(h)
|
|
|
44,324
|
|
Note payable
|
|
|
125,000
|
|
|
|
-
|
|
|
|
|
|
125,000
|
|
Total current liabilities
|
|
|
504,211
|
|
|
|
(157,914
|
)
|
|
|
|
|
346,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
504,210
|
|
|
|
(157,914
|
)
|
|
|
|
|
346,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ 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)
|
|
|
150
|
|
|
|
-
|
|
|
|
|
|
150
|
|
Common stock, $0.001 par value, (2,000,000,000 shares authorized, 5,212,563 shares issued and outstanding)
|
|
|
5,213
|
|
|
|
-
|
|
|
|
|
|
5,213
|
|
Additional paid-in capital
|
|
|
4,613,089
|
|
|
|
1,223,518
|
|
|
(c)(e)(f)
|
|
|
5,836,607
|
|
Accumulated deficit
|
|
|
(4,826,882
|
)
|
|
|
(1,065,604
|
)
|
|
(b)(c)(d)(e)(f)
|
|
|
(5,892,486
|
)
|
Total stockholders’ deficit
|
|
|
(207,930
|
)
|
|
|
157,914
|
|
|
|
|
|
(50,016
|
)
|
Total liabilities and stockholders’ deficit
|
|
$
|
296,280
|
|
|
$
|
-
|
|
|
|
|
$
|
296,280
|
|
The following adjustments were made to the June 30, 2017 Restated Statement of Operations:
Integrated Ventures, Inc.
|
Statement of Operations
|
|
|
|
As Originally Reported for the Year Ended
June 30, 2017
|
|
|
Adjustments
|
|
|
|
|
As Restated for
the Year Ended
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
1,035,762
|
|
|
|
(43,390
|
)
|
|
(d)
|
|
|
992,372
|
|
Research and development
|
|
|
21,636
|
|
|
|
-
|
|
|
|
|
|
21,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,057,398
|
|
|
|
(43,390
|
)
|
|
|
|
|
1,014,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,057,398
|
)
|
|
|
43,390
|
|
|
|
|
|
(1,014,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
2,408
|
|
|
|
-
|
|
|
|
|
|
2,408
|
|
Interest expense
|
|
|
(656,421
|
)
|
|
|
(22,174
|
)
|
|
(c)(h)
|
|
|
(678,595
|
)
|
Realized gain on sale of investments
|
|
|
136,664
|
|
|
|
(106,000
|
)
|
|
(e)
|
|
|
30,664
|
|
Unrealized gain on investments
|
|
|
240,800
|
|
|
|
-
|
|
|
|
|
|
240,800
|
|
Loss on extinguishment of debt
|
|
|
(1,036,204
|
)
|
|
|
872,177
|
|
|
(c)(e)
|
|
|
(164,027
|
)
|
Change in fair value of derivative liabilities
|
|
|
2,707,896
|
|
|
|
(2,885,215
|
)
|
|
(c)
|
|
|
(177,319
|
)
|
Loss on disposition of property and equipment
|
|
|
(4,870
|
)
|
|
|
-
|
|
|
|
|
|
(4,870
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
1,390,273
|
|
|
|
(2,141,212
|
)
|
|
|
|
|
(750,939
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
332,875
|
|
|
|
(2,097,822
|
)
|
|
|
|
|
(1,764,947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
332,875
|
|
|
$
|
(2,097,822
|
)
|
|
|
|
$
|
(1,764,947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share, basic and diluted
|
|
$
|
0.22
|
|
|
$
|
(1.35
|
)
|
|
|
|
$
|
(1.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding, basic and diluted
|
|
|
1,564,137
|
|
|
|
-
|
|
|
|
|
|
1,564,137
|
|
The following adjustments were made to the June 30, 2017 Restated Statement of Cash Flows:
Integrated Ventures, Inc.
|
Statement of Cash Flows
|
|
|
|
As Originally Reported for the Year Ended June 30, 2017
|
|
|
Adjustments
|
|
|
|
|
As Restated for
the Year Ended
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
332,875
|
|
|
$
|
(2,097,822
|
)
|
|
|
|
$
|
(1,764,947
|
)
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation – related party
|
|
|
746,243
|
|
|
|
(20,843
|
)
|
|
(d)
|
|
|
725,400
|
|
Amortization of debt discount
|
|
|
481,346
|
|
|
|
(4,079
|
)
|
|
(c)
|
|
|
477,267
|
|
Amortization of original issue discount
|
|
|
28,401
|
|
|
|
-
|
|
|
|
|
|
28,401
|
|
Financing fees related to notes payable
|
|
|
121,101
|
|
|
|
12,999
|
|
|
{h}
|
|
|
134,100
|
|
Realized gain on sale of investments
|
|
|
(136,664
|
)
|
|
|
106,000
|
|
|
(e)
|
|
|
(30,664
|
)
|
Unrealized gain loss on investments
|
|
|
(240,800
|
)
|
|
|
-
|
|
|
|
|
|
(240,800
|
)
|
Loss on disposition of property and equipment
|
|
|
4,870
|
|
|
|
-
|
|
|
|
|
|
4,870
|
|
Loss on extinguishment of debt
|
|
|
1,036,204
|
|
|
|
(872,177
|
)
|
|
(c)
|
|
|
164,027
|
|
Change in fair value of derivative liabilities
|
|
|
(2,707,896
|
)
|
|
|
2,885,215
|
|
|
(c)
|
|
|
177,319
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
(6,934
|
)
|
|
|
-
|
|
|
|
|
|
(6,934
|
)
|
Accrued interest receivable
|
|
|
(909
|
)
|
|
|
-
|
|
|
|
|
|
(909
|
)
|
Accounts payable
|
|
|
18,353
|
|
|
|
-
|
|
|
|
|
|
18,353
|
|
Accrued expenses
|
|
|
41,156
|
|
|
|
(15,314
|
)
|
|
(a)(b)
|
|
|
25,842
|
|
Due to related party
|
|
|
16,971
|
|
|
|
6,021
|
|
|
(a)(b)
|
|
|
22,992
|
|
Net cash used in operating activities
|
|
|
(265,683
|
)
|
|
|
-
|
|
|
|
|
|
(265,683
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from the sale of investments
|
|
|
52,800
|
|
|
|
-
|
|
|
|
|
|
52,800
|
|
Net cash provided by investing activities
|
|
|
52,800
|
|
|
|
-
|
|
|
|
|
|
52,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from convertible notes payable
|
|
|
226,600
|
|
|
|
-
|
|
|
|
|
|
226,600
|
|
Net cash provided by financing activities
|
|
|
226,600
|
|
|
|
-
|
|
|
|
|
|
226,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
13,717
|
|
|
|
-
|
|
|
|
|
|
13,717
|
|
Cash, beginning of year
|
|
|
1,974
|
|
|
|
-
|
|
|
|
|
|
1,974
|
|
Cash, end of year
|
|
$
|
15,691
|
|
|
$
|
-
|
|
|
|
|
$
|
15,691
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
$
|
-
|
|
Cash paid for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
-
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note receivable and accrued interest receivable for marketable securities
|
|
$
|
-
|
|
|
$
|
35,334
|
|
|
(g)
|
|
$
|
35,334
|
|
Common shares issued for convertible notes payable
|
|
|
1,368,751
|
|
|
|
(710,983
|
)
|
|
(c)
|
|
|
657,768
|
|
Common shares issued for due to related party
|
|
|
68,716
|
|
|
|
6,243
|
|
|
(b)
|
|
|
37,459
|
|
Debt discount for derivative liability
|
|
|
467,215
|
|
|
|
5,119
|
|
|
(c)
|
|
|
472,334
|
|
Accrued interest added to convertible notes payable
|
|
|
462
|
|
|
|
-
|
|
|
|
|
|
462
|
|
Settlement of derivative liabilities
|
|
|
-
|
|
|
|
415,738
|
|
|
(f)
|
|
|
415,742
|
|
Common shares issued for accounts payable
|
|
|
16,546
|
|
|
|
3,309
|
|
|
(d)
|
|
|
19,855
|
|
Increase in note receivable and due to related party
|
|
|
-
|
|
|
|
8,985
|
|
|
(b)
|
|
|
8,985
|
|
Settlement of related party note receivable and accrued interest
|
|
|
-
|
|
|
|
106,000
|
|
|
(e)
|
|
|
106,000
|
|
Settlement of convertible notes payable with note receivable and accrued interest receivable – related party
|
|
|
-
|
|
|
|
61,985
|
|
|
(c)
|
|
|
61,985
|
|
Derivative liability
|
|
|
(1,726,213
|
)
|
|
|
1,726,213
|
|
|
(c)
|
|
|
-
|
|
(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.
(d) Total general and administrative expenses decreased as a result of corrections to stock-based compensation – related party, and other adjustments to operating expenses.
(e) Realized gain on sale of investments decreased with an associated increase to additional paid-in capital.
(f) The net effect of modifications to derivative liabilities discussed in (c) above was a decrease to additional paid-in capital and an increase to accumulated deficit at the beginning of the year.
(g) Disclosure added which was previously omitted.
(h) Increased financing fees added to convertible note principal.
14. SUBSEQUENT EVENTS
Management has evaluated subsequent events according to the requirements of ASC TOPIC 855, and has reported the following:
Share-Based Compensation
On July 5, 2018, the Company issued 5,000 shares of its Series B Preferred Stock with an estimated value of $417,000 to Steve Rubakh for compensation.
On August 14, 2018, the Company issued 100,000 shares of its common stock with an estimated value of $55,000 to a consultant for services.
On October 5, 2018, the Company issued 100,000 shares of its common stock with an estimated value of $25,160 to a consultant for services.
Asset Purchase Agreement
On August 2, 2018 (the “
Closing Date
”), the Company entered into an Asset Purchase Agreement (the “
Agreement
”) with Secure Hosting LLC, a Florida limited liability company (“Secure Hosting”) for the purchase of certain assets of the Seller consisting of 182 cryptocurrency mining machines (the “
Equipment
”).
As consideration for the purchase of the Equipment, the Company issued 38,018 restricted shares of its Series B convertible preferred stock, preliminarily valued at an aggregate of $3,231,615. 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.
Convertible Note issued to Geneva Roth Remark Holdings, Inc.
On September 17, 2018, the Company issued a convertible Promissory Note in the principal amount of $128,000 to Geneva Roth Remark Holdings, Inc. (“Geneva”), pursuant to a Securities Purchase Agreement dated September 17, 2018 between the Company and Geneva. The note is due September 17, 2019, and bears interest at the annual rate of 10% per annum. In the Event of Default under the note, additional interest will accrue from the Maturity Date or the date of the Event of Default at the rate equal to the lower of 24% per annum or the highest rate permitted by law. Geneva shall have the right from time to time, and at any time during the period beginning on the date which is one hundred seventy (170) days following the date of the note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III of the Note), each in respect of the remaining outstanding principal amount of the note to convert all or any part of the outstanding and unpaid principal amount of the note into shares of the Company’s common at a conversion price equal to 70% multiplied by the average of the three lowest trading prices during the ten days prior to the conversion date.
Convertible Note issued to Armada Investment Fund, LLC
The Company issued a convertible Promissory Note dated September 26, 2018 in the principal amount of $52,000 to Armada Investment Fund, LLC (“Armada”), pursuant to a Securities Purchase Agreement dated September 21, 2018 between the Company and Armada. The Note is due September 21, 2019, and bears interest at the annual rate of 8% per annum. In the Event of Default under the Note, additional interest will accrue from the Maturity Date or the date of the Event of Default at the rate equal to the lower of 24% per annum or the highest rate permitted by law. At any time after 31 days after the Closing Date, until the Note is no longer outstanding, the Note shall be convertible, in whole or in part, into shares of the Company’s common stock at the option of Armada, at a conversion price equal to 70% multiplied by the average of the three lowest trading prices during the fifteen days prior to the conversion date.
The Company issued Armada 75,000 shares of common stock valued at $26,625 as due diligence fees.
Convertible Note issued to BHP Capital NY, Inc.
The Company issued a convertible Promissory Note dated September 26, 2018 in the principal amount of $52,000 to BHP Capital NY, Inc. (“BHP”), pursuant to a Securities Purchase Agreement dated September 21, 2018 between the Company and BHP. The Note is due September 21, 2019, and bears interest at the annual rate of eight percent (8%) per annum. In the Event of Default under the Note, additional interest will accrue from the Maturity Date or the date of the Event of Default at the rate equal to the lower of 24% per annum or the highest rate permitted by law. At any time after 31 days after the Closing Date, until the Note is no longer outstanding, the Note shall be convertible, in whole or in part, into shares of the Company’s common stock at the option of BHP, at a conversion price equal to 70% multiplied by the average of the three lowest trading prices during the fifteen days prior to the conversion date.
The Company issued BHP 75,000 shares of common stock valued at $26,625 as due diligence fees.