UNITED
STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C.
20549
FORM 10-K
(Mark One)
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ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year
ended June 30,
2021
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TRANSITION REPORT UNDER SECTION13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the transition
period from __________ to __________
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Commission file number:
000-55681
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INTEGRATED VENTURES,
INC.
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(Exact Name of
Registrant as Specified in Its Charter)
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NEVADA
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82-1725385
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(State or Other
Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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73 Buck Road, Suite 2, Huntingdon Valley, PA
19006
(Address of principal executive offices) (Zip Code)
(215) 613-1111
(Registrant’s Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value per share
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Title of each
class
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Trading
Symbol(s)
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Name of each
exchange on which registered
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Common Stock, $0.001 par
value
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INTV
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N/A
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Indicate by check mark whether the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
☐ No ☒
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all
reports required by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days. Yes ☒ No ☐.
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or such shorter period that the registrant was required to
submit such files. Yes ☒ No ☐.
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
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Large accelerated
filer
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Accelerated filer
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Non-accelerated
filer
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Smaller reporting
company
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Emerging growth
company
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Yes ☐ No ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes
☐ No ☒.
On December 31, 2020, the last business day of the registrant’s
most recently completed second quarter, the aggregate market value
of the registrant’s common stock held by non-affiliates of the
registrant was $4,347,889 based upon the closing price on that date
of the common stock of the registrant as reported on the OTC
Markets system of $0.033. For purposes of this response, the
registrant has assumed that its directors, executive officers and
beneficial owners of 5% or more of its Common Stock are deemed
affiliates of the registrant.
As of September 24, 2021, the registrant had 204,961,362 shares of
its common stock, $0.001 par value, issued and outstanding.
TABLE OF
CONTENTS
Forward-Looking Statements
All statements in this Annual Report on Form 10-K, other than
historical fact or present financial information, may be deemed to
be forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended (the “Securities Act”), and
Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). All statements that address activities, outcomes
and other matters that should or may occur in the future,
including, without limitation, statement regarding the financial
position, business strategy, growth, projections and other plans
and objectives for our future operations, are forward-looking
statements. Although we believe the expectations expressed in such
forward-looking statements, they are no guarantees of future
performance. We have no obligation and make no undertaking to
publicly update or revise any forward-looking statements, except as
may be required by law.
Forward-looking statements include the items identified in the
preceding paragraph, information concerning possible or assumed
future results of operations and other statements in this Annual
Report, and can be identified by terminology such as “may,” “will,”
“should,” “expects,” “intend,” “anticipates,” “believes,” “could,”
“estimates,” “plans,” “potential,” “predicts,” “project,” or
“continue” or the negative of these terms or other comparable
terminology. These statements are only predictions and involve
known and unknown risks, uncertainties and other factors that may
cause our or our industry’s actual results, levels of activity,
performance or achievements to be materially different from any
future results, levels of activity, performance or achievements
expressed or implied by these forward-looking statements.
Readers of this Annual Report on Form 10-K should carefully
consider such risks, uncertainties and other information,
disclosures and discussions which contain cautionary statements
identifying important factors that could cause our actual results
to differ materially from those provided in forward-looking
statements. Readers should not place undue reliance on
forward-looking statements contained in this Form 10-K. Although we
believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements.
As used in this annual report, the terms “we,” “us,” “our,” the
“Company,” and “Integrated Ventures” mean Integrated Ventures,
Inc., unless otherwise indicated.
PART
I
Item 1.
Business.
We were incorporated in the State of Nevada on March 22, 2013 under
the name Lightcollar, Inc. On March 22, 2015, we changed our name
to EMS Find, Inc., and in July 2017, we changed our name to
Integrated Ventures, Inc. We have discontinued our prior operations
and changed our business focus from our prior technologies relating
to the EMS Find platform to acquiring, launching, and operating
companies in the cryptocurrency sector, mainly in digital currency
mining and sales of branded mining rigs.
On November 22, 2017, we successfully launched our cryptocurrency
operations, and revenues commenced from cryptocurrency mining
operations and from sales of cryptocurrency mining equipment.
As of June 30, 2021, the Company owned a total of approximately 914
miners that mine Bitcoin, Litecoin, ZCash and Ethereum. Our
cryptocurrency mining operations are currently located in two
hosted facilities in Carthage, New York and, effective September 1,
2021, Kearney, Nebraska. The hosting and power purchase agreements
for the two facilities require the Company to pay monthly a
contractual rate per kilowatt hour of electricity consumed in the
Company’s cryptocurrency mining operations. In addition, as of June
30, 2021, the Company paid deposits totaling $7,544,190 for 2,650
additional miners to be connected on a monthly basis in tranches of
200 miners beginning in September 2021. We have entered into
several agreements discussed below under the heading “Recent
Developments.”
The Company will continue to (1) raise capital to purchase new
mining equipment, (2) sell older and no longer profitable models,
and (3) expand cryptocurrency mining equipment to new
locations.
Cryptocurrency Mining
Digital tokens are built on a distributed ledger infrastructure
often referred to as a “blockchain.” These tokens can provide
various rights, and cryptocurrency is a type of digital token,
designed as a medium of exchange. Other digital tokens provide
rights to use assets or services, or in some cases represent
ownership interests. Cryptocurrencies, for example Bitcoin, are
digital software that run on a blockchain platform, which is a
decentralized, immutable ledger of transactions, and essentially
function as a digital form of money. Cryptocurrencies such as
Bitcoin are not sponsored by any government or a single entity.
Bitcoin is one type of intangible digital asset that is issued by,
and transmitted through, an open source, math-based protocol
platform using cryptographic security (the “Bitcoin Network”). The
Bitcoin Network, for example, is an online, peer-to-peer user
network that hosts the digital public transaction ledger, known as
the “blockchain,” and the source code that comprises the basis for
the cryptography and math-based protocols governing the Bitcoin
Network. No single entity owns or operates the Bitcoin Network, the
infrastructure of which is collectively maintained by a
decentralized user base. Bitcoin can be used to pay for goods and
services or can be converted to fiat currencies, such as the US
Dollar, at rates determined on bitcoin exchanges or in individual
end-user-to-end-user transactions under a barter system.
Bitcoin, for example, is “stored” on the blockchain, which is a
digital file stored in a decentralized manner on the computers of
each Bitcoin Network or as applicable to other cryptocurrency
users. A blockchain records the transaction history of all bitcoins
in existence and, through the transparent reporting of
transactions, allows the cryptocurrency network to verify the
association of each bitcoin with the digital wallet that owns them.
The network and software programs can interpret the blockchain to
determine the exact balance, if any, of any digital wallet listed
in the blockchain as having taken part in a transaction on the
cryptocurrency network.
Mining is the process by which bitcoins, for example, are created
resulting in new blocks being added to the blockchain and new
bitcoins being issued to the miners. Miners engage in a set of
prescribed complex mathematical calculations in order to add a
block to the blockchain and thereby confirm cryptocurrency
transactions included in that block’s data. Miners that are
successful in adding a block to the blockchain are automatically
awarded a fixed number of bitcoins for their effort. To begin
mining, a user can download and run the network mining software,
which turns the user’s computer into a node on the network that
validates blocks.
All bitcoin transactions are recorded in blocks added to the
blockchain. Each block contains the details of some or all of the
most recent transactions that are not memorialized in prior blocks,
a reference to the most recent prior block, and a record of the
award of bitcoins to the miner who added the new block. Each unique
block can only be solved and added to the blockchain by one miner;
therefore, all individual miners and mining pools on the
cryptocurrency network are engaged in a competitive process and are
incentivized to increase their computing power to improve their
likelihood of solving for new blocks.
The method for creating new bitcoins is mathematically controlled
in a manner so that the supply of bitcoins grows at a limited rate
pursuant to a predetermined schedule. Mining economics has also
been much more pressured by the Difficulty Rate – a computation
used by miners to determine the amount of computing power required
to mine bitcoin. The Difficulty Rate is directly influenced by the
total size of the entire Bitcoin network. The Bitcoin network has
grown 15-fold in the past year, resulting in a 15-fold increase in
difficulty. Today, the network requires the computing power of
approximately 350 Bitmain S19 miners to mine one Bitcoin per day,
using approximately 1.5 MegaWatt of power supply. Meanwhile, demand
from miners also drove up hardware and power prices, the largest
costs of production. This deliberately controlled rate of bitcoin
creation means that the number of bitcoins in existence will never
exceed 21 million and that bitcoins cannot be devalued through
excessive production unless the Bitcoin Network’s source code (and
the underlying protocol for bitcoin issuance) is altered.
Mining pools have developed in which multiple miners act cohesively
and combine their processing power to solve blocks. When a pool
solves a new block, the participating mining pool members split the
resulting reward based on the processing power they each
contributed to solve for such block. The mining pool operator
provides a service that coordinates the workers. Fees are paid to
the mining pool operator to cover the costs of maintaining the
pool. The pool uses software that coordinates the pool members’
hashing power, identifies new block rewards, records how much work
all the participants are doing, and assigns block rewards in
proportion to the participants’ efforts. While we do not pay pool
fees directly, pool fees (approximately 2% to 5%) are deducted from
amounts we may otherwise earn. Participation in such pools is
essential for our mining business.
Our Cryptocurrency Operations
We utilize and rely on cryptocurrency pools to mine
cryptocurrencies and generate a mixed selection of digital
cryptocurrencies, including BTC, ETH, ZEC and LTC. Cryptocurrency
payouts, net of applicable fees, are paid to us by the pool
operator, currently ViaBTC and Foundry Digital, LLC, and the
digital currency produced is either stored in a wallet (Coinbase)
or sold in open market. Payout proceeds are automatically deposited
in our corporate bank accounts.
In our digital currency mining operations, various models of miners
are owned and deployed by the Company.
When funds are available and market conditions allow, we also
invest in certain denominations of cryptocurrencies to complement
our mining operations. We consider these investments similar to
marketable securities where we purchase and hold the
cryptocurrencies for sale. We report realized gains and losses on
the sales of cryptocurrencies and mark our portfolio of
cryptocurrencies to market at the end of each quarterly reporting
period, reporting unrealized gains or losses on the investments.
We held digital currencies with a total
cost of $245,320 and $82,855 as of June 30, 2021 and June 30,
2020, respectively, comprised of multiple denominations, primarily
Bitcoin (BTC), Ethereum (ETH) and Chainlink (LINK).
Other
developments during our fiscal year ended
June 30, 2021
On August 4, 2020, we entered into a Securities Purchase Agreement
(the “Agreement”) with Eagle Equities, LLC (the “Buyer”), providing
for the issuance and sale by the Company and the purchase by the
Buyer of a 6% convertible note of the Company in the aggregate
principal amount of $1,086,956.52 (together with
any note(s) issued in replacement thereof or as a dividend thereon
or otherwise with respect thereto in accordance with the terms
thereof, the “Note”), convertible into shares of common stock of
the Company (the “Conversion Shares”), upon the terms and subject
to the limitations and conditions set forth in the Note. The Note
provides for an 8% original issue discount (“OID”) such that the
aggregate purchase price for Note will be $1,000,000.00.
The Securities Purchase Agreement and Note have been amended
pursuant to an Amendment to the Agreement and the Note (the
“Amendment”) effective November 16, 2020, to reduce the principal
amount of the Note to $543,478.26 the aggregate principal balance
after the two completed fundings under the Note that have taken
place: The first closing date under the Note (“Closing”) was held
on August 4, 2020, at which the Company sold, and the Buyer
purchased the first tranche under the Note for a $271,739.13
portion of the principal balance of the Note, for a purchase price
of $250,000, reflecting the OID of 8%. A subsequent Closing of an
additional $271,739.13 portion of the Note (the “Second Tranche”)
took place on October 22, 2020. The purchase price for the
$271,739.13 Second Tranche of the Note was $250,000 as well,
representing the OID of 8%. The total amount now due under the
Note, as amended on November 16, 2020, following the two completed
closings is $543,478.26, which amount corresponds to total
aggregate principal balance of the Note purchased in the two
completed closings. Now there is no unfunded balance under the Note
as a result of the Amendment reducing the principal amount thereof
to the aggregate principal balance of the Note following the two
completed closings. On January 13, 2021, the SEC declared our Form
S-1 resale registration statement effective (File No. 333-249596),
which provides for the registration of an aggregate of 34,426,000
shares of common stock of our company, which shares are issuable
upon the conversion of the 6% convertible note pursuant to the
Agreement.
Effective January 14, 2021, the Company filed a Certificate of
Designation of the Series C Convertible Preferred Stock (“Series C
preferred stock”) with the Nevada Secretary of State. The Company
has authorized the issuance of an aggregate of 3,000 shares of the
Series C preferred stock. Each share of Series C preferred stock
has a par value of $0.001 per share and a stated value of $1,100
per share. The shares of Series C preferred stock are convertible
into shares of the Company’s common stock at a conversion price of
$0.068 per share.
On January 14, 2021, the Company entered into a Securities Purchase
Agreement the (the “Series C Agreement”) with BHP Capital NY, Inc.
(“BHP”), providing for the issuance and sale by the Company and the
purchase by BHP of newly designated shares of Series C preferred
stock issued by the Company. Under the January 2021 Financing, the
purchase price per share of Series C preferred stock was $1,000.
The first closing under the January 2021 Financing was held on
January 22, 2021, at which the Company sold, and BHP purchased, 750
shares of Series C preferred stock for $750,000. The Company
received net proceeds of $740,000 after payment of legal fees. The
Company also on that date issued 2,000,000 shares of its common
stock to BHP as equity incentive shares. Pursuant
to a second Securities Purchase Agreement
effective February 5, 2021, BHP purchased a second tranche
consisting of 375,000 shares of Series C preferred stock for
$375,000 (together with the Series C Agreement, the “January 2021
Financing”). As an equity incentive to this purchase of Series C
preferred stock, 1,000,000 shares of the Company’s common stock
were issued to BHP.
On February 18, 2021, we entered into a Securities Purchase
Agreement, (the “Series D Agreement”) with BHP Capital NY, Inc.,
providing for the issuance and sale by the Company and the purchase
by such purchaser of 3,000 shares of Series D Convertible Preferred
Stock (the “Series D preferred stock”) and a warrant to purchase
common stock for a purchase price of $3,000,000, with the ability
to purchase another 1,000 shares of Series D preferred stock on the
same terms exercisable at $0.60 per share (the “February 2021
Financing”).
Using the proceeds from the Series C Agreements and the Series D
Agreement, as well as amounts from operating cash flows, we
purchased an additional 697 mining rigs for an aggregate purchase
price of $2,910,964.
On February 19, 2021, the Company filed a Certificate of
Designation of the Series D Preferred Stock with the Nevada
Secretary of State. The Company has authorized the issuance of an
aggregate of 4,000 shares of the Series D Preferred Stock, and at a
closing held February 19, 2021, 3,000 shares of Series D preferred
stock were issued to BHP Capital NY, Inc.
On March 8, 2021, we entered into a
Master Agreement with Compute North
LLC (“Compute North”) pursuant to which
Compute North will provide collocation and hosting services in data
centers located in Nebraska and Texas, including rack space,
electrical power, utilities and physical security. Compute North
will also provide managed services for the mining equipment. The
monthly fees and term of the services will be determined based on
the number of mining rigs placed into service and total power
consumed. Effective September 1, 2021, hosting operations were
launched in Kearney, Nebraska.
On March 25, 2021, the SEC declared our Form S-3 resale
registration statement effective (File No. 333-254172), which
provides for the registration of an aggregate of $50,000,000 of
common stock, preferred stock, debt securities, warrants, rights
and units.
On March 30, 2021, we entered into securities purchase agreements
(the “Purchase Agreements”) with two institutional investors (the
“Purchasers”), for the offering (the “Offering”) of (i) 30,000,000
shares of common stock (“Shares”), par value $0.001 per share, of
the Company (“Common Stock”) and (ii) common stock purchase
warrants (“Warrants”) to purchase up to an aggregate of 30,000,000
shares of Common Stock, which are exercisable for a period of five
years after issuance at an initial exercise price of $0.30 per
share, subject to certain adjustments, as provided in the Warrants.
Each of the Purchasers will receive Warrants in the amount equal to
100% of the number of Shares purchased by such Purchaser. Each
Share and accompanying Warrant will be offered at a combined
offering price of $0.30. Pursuant to the Purchase Agreements, the
Purchasers are purchasing the Shares and accompanying Warrants for
an aggregate purchase price of $9,000,000. The number of shares of
common stock outstanding immediately after the Offering was
189,685,962 shares (excluding the exercise of the warrants offered
in the Offering). The Company expects to receive approximately
$8,145,000 in net proceeds from the Offering before exercise of the
Warrants and after deducting the discounts, commissions, and other
estimated offering expenses payable by the Company. The Company
expects to use the net proceeds from the Offering for working
capital and for general corporate purposes.
On April 12, 2021, we entered into non-fixed price sales and
purchase agreement (the “Bitmain Agreement”) with Bitmain
Technologies Limited (“Bitmain”) to purchase from Bitmain
cryptocurrency mining hardware and other equipment in accordance
with the terms and conditions of the Bitmain Agreement. Bitmain is
scheduled to manufacture and ship miners on monthly basis, in 12
equal batches of 400 units, starting on August 2021 and through
July 2022. The Bitmain Agreement remains in effect until the
delivery of the last batch of products. The total purchase price
was approximately $34,047,600, subject to price adjustments and
related offsets. The total purchase price is payable as follows:
(i) 25% of the total purchase price is due upon the execution of
the Bitmain Agreement or no later than April 19, 2021; (ii) 35% of
the total purchase price, is due by May 30, 2021; and (iii) the
remaining 40% of the total purchase price, is payable on a monthly
basis starting in June 2021.
The Company entered into a separate verbal agreement with Wattum
Management, Inc. {“Wattum”), a non-related party, whereby Wattum
agreed to share 50% of the purchase obligation under the Bitmain
Agreement, including reimbursing the Company for 50% of the
equipment deposits paid by the Company to Bitmain.
On June 11, 2021, we filed a Form S-3 resale registration statement
(File No. 333-257047), which provides for the registration of
46,920,591 shares of common stock, but has not yet been declared
effective.
Other developments subsequent to June 30,
2021
On July 6, 2021, the Company issued a total of 8,000,000 shares of
its common stock as compensation under two Management Agreements
(see Notes 11 and 13) and extinguished a common stock payable of
$5,480,000 recorded as of June 30, 2021.
On July 6, 2021, the Company terminated an agreement entered into
on February 10, 2021 to purchase seven mobile mining
containers. On September 3, 2021, the Company executed a
manufacturing and purchase agreement for two forty-foot mobile
mining containers capable of hosting over 700 miners, with an
estimated delivery date of November 10, 2021.
On August 16, 2021, the Company issued 2,473,700 shares of common
stock to Steve Rubakh for the conversion of 24,737 shares of Series
B preferred stock. The common shares issued were valued at par
value of $2,474.
Subsequent to June 30, 2021, the Company made equipment prepayments
totaling $2,876,256 to Bitmain pursuant to the Bitmain Agreement
and received reimbursements totaling $1,984,352 from Wattum.
The Digital Currency Markets and Trend
Information
The value of bitcoins is determined by the supply and demand of
bitcoins in the bitcoin exchange market (and in private
end-user-to-end-user transactions), as well as the number of
merchants that accept them. However, merchant adoption is very low
according to a Morgan Stanley note from the summer of 2018. As
bitcoin transactions can be broadcast to the Bitcoin Network by any
user’s bitcoin software and bitcoins can be transferred without the
involvement of intermediaries or third parties, there are little or
no transaction costs in direct peer-to-peer transactions on the
Bitcoin Network. Third party service providers such as crypto
currency exchanges and bitcoin third party payment processing
services may charge significant fees for processing transactions
and for converting, or facilitating the conversion of, bitcoins to
or from fiat currency.
Under the peer-to-peer framework of the Bitcoin Network,
transferors and recipients of bitcoins are able to determine the
value of the bitcoins transferred by mutual agreement, the most
common means of determining the value of a bitcoin being by
surveying one or more bitcoin exchanges where bitcoins are publicly
bought, sold and traded, i.e., the Bitcoin Exchange Market
(“Bitcoin Exchange”).
On each Bitcoin Exchange, bitcoins are traded with publicly
disclosed valuations for each transaction, measured by one or more
fiat currencies. Bitcoin Exchanges report publicly on their site
the valuation of each transaction and bid and ask prices for the
purchase or sale of bitcoins. Market participants can choose the
Bitcoin Exchange on which to buy or sell bitcoins. To date, the SEC
has rejected the proposals for bitcoin ETF’s, citing that lack of
enough transparency in the cryptocurrency markets to be sure that
prices are not being manipulated. The Wall Street Journal has
recently reported on how bots are manipulating the prices of
bitcoin on the crypto exchanges. However, on November 8, 2018, the
SEC announced in an order (the “Order”) that it had settled charges
against Zachary Coburn, the founder of the digital token exchange
EtherDelta, marking the first time that the SEC has brought an
enforcement action against an online digital token platform for
operating as an unregistered national securities exchange.
Although the cryptocurrency markets have been historically volatile
and have weathered several up and down cycles over the past few
years, recently these markets have been in a selloff phase for the
past several months, possibly reflecting doubts as to the
applicability of digital currencies in commercial applications and
other factors. In this selloff, prices of digital currencies other
than Bitcoin have experienced deeper percentage declines than
Bitcoin. The current trading range for Bitcoin is $40,000 to
$50,000. Other cryptocurrencies have experienced more substantial
declines, than Bitcoin’s recent decline. Our revenues are directly
affected by the Bitcoin market price specifically, which is the
market leader for prices of all cryptocurrencies. In recent weeks,
regulatory crackdowns have also weighed on prices. The SEC recently
announced its first civil penalties against cryptocurrency founders
as part of a wide regulatory and legal crackdown on fraud and
abuses in the industry.
Competition
In cryptocurrency mining, companies, individuals and groups
generate units of cryptocurrency through mining. Miners can range
from individual enthusiasts to professional mining operations with
dedicated data centers, with all of which we compete. Miners may
organize themselves in mining pools, with which we would compete.
The Company currently participates in mining pools and may decide
to invest or initiate operations in mining pools. At present, the
information concerning the activities of these enterprises is not
readily available as the vast majority of the participants in this
sector do not publish information publicly or the information may
be unreliable.
Government Regulation
Government regulation of blockchain and cryptocurrency under review
with a number of government agencies, the SEC, the Commodity
Futures Trading Commission, the Federal Trade Commission and the
Financial Crimes Enforcement Network of the U.S. Department of the
Treasury, and in other countries. State government regulations also
may apply to certain activities such as cryptocurrency exchanges
(bitlicense, banking and money transmission regulations) and other
activities. Other bodies which may have an interest in regulating
or investigating companies engaged in the blockchain or
cryptocurrency business include the national securities exchanges
and the Financial Industry Regulatory Authority. As the regulatory
and legal environment evolves, the Company may in its mining
activities become subject to new laws, and further regulation by
the SEC and other agencies. On November 16, 2018, the SEC issued a
Statement on Digital Asset Securities Issuance and Trading, in
which it emphasized that market participants must still adhere to
the SEC’s well-established and well-functioning federal securities
law framework when dealing with technological innovations,
regardless of whether the securities are issued in certificated
form or using new technologies, such as blockchain.
Blockchain and cryptocurrency regulations are in a nascent state
with agencies investigating businesses and their practices,
gathering information, and generally trying to understand the risks
and uncertainties in order to protect investors in these businesses
and in cryptocurrencies generally. Various bills have also been
proposed in Congress for adoption related to our business which may
be adopted and have an impact on us. The offer and sale of digital
assets in initial coin offerings, which is not an activity we
expect to pursue, has been a central focus of recent regulatory
inquiries. On November 16, 2018, the SEC settled with two
cryptocurrency startups, and reportedly has more than 100
investigations into cryptocurrency related ventures, according to a
codirector of the SEC’s enforcement division (Wall Street
Journal, November 17-18, 2018). An annual report by the SEC
shows that digital currency scams are among the agency’s top
enforcement priorities. The SEC is focused in particular on Initial
Coin Offerings (ICOs), which involve the sale of digital
tokens related to blockchain projects. Many such projects have
failed to deliver on their promises or turned out to be outright
scams. In the past year, the enforcement division has opened
dozens of investigations involving ICOs and digital assets, many of
which were ongoing at the close of FY 2018,” the SEC states in a
section of the report titled “ICOs and Digital Assets.” Moreover,
in recent months, members of Congress have made inquiries into the
regulation of crypto assets, and Gary Gensler, Chair of the SEC,
has made public statements regarding increased regulatory oversight
of crypto assets.
Financial
As of June 30, 2021, we operated our cryptocurrency mining
operations in a hosted facility located in Carthage, New York, and
effective September 1, 2021, expanded our mining operations to a
second hosted facility located in Kearney, Nebraska. The hosting
and power purchase agreements for the two facilities require the
Company to pay monthly a contractual rate per kilowatt hour of
electricity consumed in the Company’s cryptocurrency mining
operations. The Company is aggressively looking to expand its power
capacity and is currently negotiating purchase or investment in
multiple real estate properties capable of being deployed as data
centers for cryptocurrency mining operations.
Our mining pool services are provided by ViaBTC and, effective
September 15, 2021, by Foundry Digital, LLC.
Revenues from our cryptocurrency mining operations were $1,793,316
and $435,740 for the years ended June 30, 2021, respectively.
Revenues from the sales of used equipment and parts were $58,074
and $18,430 for the years ended June 30, 2021 and 2020,
respectively.
When funds are available and market conditions allow, we also
invest in certain denominations of cryptocurrencies to complement
our mining operations. We consider these investments similar to
marketable securities where we purchase and hold the
cryptocurrencies for sale. We report realized gains and losses on
the sales of cryptocurrencies net of transaction costs. As of June
30, 2021, our digital currencies at cost totaled $245,320 and were
comprised of multiple denominations, primarily Bitcoin (BTC),
Ethereum (ETH) Chainlink (LINK).
We have funded our operations primarily from cash generated from
our digital currency mining operations and proceeds from
convertible notes payable and preferred stock. During the year
ended June 30, 2021, we received net proceeds from convertible
notes payable of $563,000, Series C preferred stock of $1,125,000,
Series D preferred stock of $3,000,000 and common stock of
$8,135,000.
As of June 30, 2021, our convertible debt lenders had fully
converted all debt to common stock and all derivative liabilities
had been extinguished.
Additional Capital Requirements
To continue to operate, complete and successfully operate our
digital currency mining facilities and to fund future operations,
we may need to raise additional capital for expansion or other
expenses of operations. The amount and timing of future funding
requirements will depend on many factors, including the timing and
results of our ongoing mining operations, and potential new
development and administrative support expenses. We anticipate that
we will seek to fund our operations through our cryptocurrency
mining operations, further liquidation of our marketable
securities, public or private equity or debt financings or other
sources, such as potential collaboration agreements. If additional
financing is required, we cannot be certain that it will be
available to us on favorable terms, or at all.
Employees and Employment Agreements
We presently have one full time employee, Steve Rubakh, our sole
officer and director, who devotes 100% of his time to our
operations. In addition, we rely on a group of subcontractors to
build, install, manage, monitor and service our mining equipment.
We presently do not have pension, health, annuity, insurance, stock
options, profit sharing or similar benefit plans; however, we may
adopt such plans in the future. There are presently no personal
benefits available to any officers, directors or employees;
however, we at times do reimburse Mr. Rubakh for certain health
insurance and medical costs.
Available Information
All reports of the Company filed with the SEC are available free of
charge through the SEC’s website at www.sec.gov. In addition, the
public may read and copy materials filed by the Company at the
SEC’s Public Reference Room located at 100 F Street, N.E.,
Washington, D.C. 20549. The public may also obtain additional
information on the operation of the Public Reference Room by
calling the Commission at 1-800-SEC-0330.
Item 1A.
Risk Factors.
Risks Related
to Our Business
Because We Are An Early-Stage Company With Minimal
Revenue And A History Of Losses And We Expect To Continue To Incur
Substantial Losses For The Foreseeable Future, We Cannot Assure You
That We Can Or Will Be Able To Operate
Profitably.
We have incurred losses since our organization, and are subject to
the risks common to start-up, pre-revenue enterprises, including,
among other factors, undercapitalization, cash shortages,
limitations with respect to personnel, financial and other
resources and lack of revenues. We cannot assure you that we will
be able to operate profitably or generate positive cash flow. If we
cannot achieve profitability, we may be forced to cease operations
and you may suffer a total loss of your investment.
An Investment In The Company Must Be Considered
Speculative Since Our Operations Are Dependent On The Market Value
Of Bitcoin.
Our operations are dependent on the continued viable market
performance of cryptocurrencies that we market and, in particular,
the market value of Bitcoin. The decision to pursue blockchain and
digital currency businesses exposes the Company to risks associated
with a new and untested strategic direction. Under the current
accounting rules, cryptocurrency is not cash, currency or a
financial asset, but an indefinite-lived intangible asset; declines
in the market price of cryptocurrencies would be included in
earnings, whereas increases in value beyond the original cost or
recoveries of previous declines in value would not be captured. The
prices of digital currencies have varied wildly in recent periods
and reflects “bubble” type volatility, meaning that high prices may
have little or no merit, may be subject to rapidly changing
investor sentiment, and may be influenced by factors such as
technology, regulatory void or changes, fraudulent actors,
manipulation and media reporting.
Natural disasters and
geo-political events could adversely affect our
business.
Natural disasters, including hurricanes, cyclones, typhoons,
tropical storms, floods, earthquakes and tsunamis, weather
conditions, including winter storms, droughts and tornados, whether
as a result of climate change or otherwise, and geo-political
events, including civil unrest or terrorist attacks, that affect
us, or other service providers could adversely affect our business.
Specifically, if the weather conditions in Carthage, New York or
Kearney, Nebraska, become too hot, or too humid, we may be required
to install additional AC units to cool the cryptocurrency mining
equipment which will greatly affect our profit margins. In
addition, too much humidity in the air may damage our equipment or
require us to install expensive dehumidifiers further lowering our
profit margins.
Raising Additional Capital May Cause Dilution To Our
Existing Stockholders, Restrict Our Operations Or Require Us To
Relinquish Rights.
We may seek additional capital through a combination of private and
public equity offerings, debt financings collaborations and
strategic and licensing arrangements. To the extent that we raise
additional capital through the sale of common stock or securities
convertible or exchangeable into common stock, current
stockholders’ ownership interest in the Company will be diluted. In
addition, the terms may include liquidation or other preferences
that materially adversely affect their rights as a stockholder.
Debt financing, if available, would increase our fixed payment
obligations and may involve agreements that include covenants
limiting or restricting our ability to take specific actions, such
as incurring additional debt, making capital expenditures or
declaring dividends. If we raise additional funds through
collaboration, strategic alliance and licensing arrangements with
third parties, we may have to relinquish valuable rights to our
product candidates, our intellectual property, future revenue
streams or grant licenses on terms that are not favorable to
us.
We Are Increasingly Dependent On Information Technology
Systems And Infrastructure (Cyber Security).
Our operations are potentially vulnerable to breakdown or other
interruption by fire, power loss, system malfunction, unauthorized
access and other events such as computer hackings, cyber-attacks,
computer viruses, worms or other destructive or disruptive
software. Likewise, data privacy breaches by employees and others
with permitted access to our systems may pose a risk that sensitive
data may be exposed to unauthorized persons or to the public. It is
critical that our systems provide a continued and uninterrupted
performance for our business to generate revenues. There can be no
assurance that our efforts will prevent significant breakdowns,
breaches in our systems or other cyber incidents that could have a
material adverse effect upon our business, operations or financial
condition of the Company.
If We Are Unable To Attract, Train And Retain Technical
And Financial Personnel, Our Business May Be Materially And
Adversely Affected.
Our future success depends, to a significant extent, on our ability
to attract, train and retain key management, technical, regulatory
and financial personnel. Recruiting and retaining capable personnel
with experience in pharmaceutical products is vital to our success.
There is substantial competition for qualified personnel, and
competition is likely to increase. We cannot assure you we will be
able to attract or retain the technical and financial personnel we
require. If we are unable to attract and retain qualified
employees, our business may be materially and adversely
affected.
We Depend Heavily On Our Chief Executive Officer, And
His Departure Could Harm Our Business.
The expertise and efforts of Steve Rubakh, our Chief Executive
Officer, are critical to the success of our business. The loss of
Mr. Rubakh’s services could significantly undermine our management
expertise and our ability to operate our Company.
Our Auditors’ Report Includes A Going Concern
Paragraph.
Our financial statements include a going-concern qualification from
our auditors, which expresses doubt about our ability to continue
as a going concern. We have operated at a loss since inception. Our
ability to operate profitably is dependent upon, among other
things, obtaining additional financing for our operations. These
factors, among others, raise substantial doubt about our ability to
continue as a going concern. The accompanying financial statements
do not include any adjustments that take into consideration the
uncertainty of our ability to continue operations.
Risks Relating Generally to Our Operations and
Technology
Currently, There Is Relatively Limited Use Of Bitcoin
In The Retail And Commercial Marketplace In Comparison To
Relatively Large Use By Speculators, Thus Contributing To Price
Volatility That Could Adversely Affect Our Results Of
Operations.
Bitcoin has only recently become accepted as a means of payment for
goods and services by certain major retail and commercial outlets
and use of Bitcoin by consumers to pay such retail and commercial
outlets remains limited. Conversely, a significant portion of
Bitcoin demand is generated by speculators and investors seeking to
profit from the short- or long-term holding of Bitcoin. Many
industry commentators believe that Bitcoin’s best use case is as a
store of wealth, rather than as a currency for transactions, and
that other cryptocurrencies having better scalability and faster
settlement times will better serve as currency. This could limit
Bitcoin’s acceptance as transactional currency. A lack of expansion
by Bitcoin into retail and commercial markets, or a contraction of
such use, may result in increased volatility or a reduction in the
Bitcoin Index Price, either of which could adversely affect our
results of operations.
We Are Reliant On Pools Of Users Or Miners That Are The
Sole Outlet For Sales Of Cryptocurrencies That We
Mine.
We do not have the ability to sell our cryptocurrency production
directly on the exchanges or markets that are currently where
cryptocurrencies are purchased and traded. Pools are operated to
pool the production on a daily of companies mining
cryptocurrencies, and these pools are our sole means of selling our
production of cryptocurrencies. Absent access to such pools, we
would be forced to seek a different method of access to the
cryptocurrency markets. There is no assurance that we could arrange
any alternate access to dispose of our mining production.
We May Not Be Able To Respond Quickly Enough To Changes
In Technology And Technological Risks, And To Develop Our
Intellectual Property Into Commercially Viable
Products.
Changes in legislative, regulatory or industry requirements or in
competitive technologies may render certain of our planned products
obsolete or less attractive. Our mining equipment may become
obsolete, and our ability to anticipate changes in technology and
regulatory standards and to successfully develop and introduce new
and enhanced products on a timely basis will be a significant
factor in our ability to remain competitive. We cannot provide
assurance that we will be able to achieve the technological
advances that may be necessary for us to remain competitive or that
certain of our products will not become obsolete.
The SEC
Is Continuing Its Probes Into Public Companies That
Appear To Incorporate And Seek To Capitalize On The Blockchain
Technology, And May Increase Those Efforts With Novel Regulatory
Regimes And Determine To Issue Additional Regulations Applicable To
The Conduct Of Our Business Or Broadening Disclosures In Our
Filings Under The Securities Exchange Act Of
1934.
As the SEC stated previously, it is continuing to scrutinize and
commence enforcement actions against companies, advisors and
investors involved in the offering of cryptocurrencies and related
activities. At least one Federal Court has held that
cryptocurrencies are “securities” for certain purposes under the
Federal Securities Laws.
According to a recent report published by Lex Machina, securities
litigation in general and those that are related to blockchain,
cryptocurrency or bitcoin specifically, showed a marked increase
during the first two quarters of 2018 as compared to 2017. The
total number of securities cases that referenced “blockchain,”
“cryptocurrency” or “bitcoin” in the pleadings tripled in the first
half of 2018 alone compared to 2017.On the same day, the SEC
announced its first charge against unregistered broker-dealers for
selling digital tokens after the SEC issued The DAO Report in 2017.
The SEC charged TokenLot LLC (TokenLot), a self-described “ICO
Superstore”, and its owners, Lenny Kugel and Eli L. Lewitt, with
failing to register as broker-dealers. On November 16, 2018 the SEC
settled with two cryptocurrency startups, and reportedly has more
than 100 investigations into cryptocurrency related ventures,
according to a codirector of the SEC’s enforcement. As the
regulatory and legal environment evolves, the Company may in its
mining activities become subject to new laws, and further
regulation by the SEC and other federal and state agencies.
On February 11, 2020, the SEC filed charges against an Ohio-based
businessman who allegedly orchestrated a digital asset scheme that
defrauded approximately 150 investors, including many physicians.
The agency alleges that Michael W. Ackerman, along with two
business partners, raised at least $33 million by claiming to
investors that he had developed a proprietary algorithm that
allowed him to generate extraordinary profits while trading in
cryptocurrencies. The SEC’s complaint alleges that Ackerman misled
investors about the performance of his digital currency trading,
his use of investor funds, and the safety of investor funds in the
Q3 trading account. The complaint further alleges that Ackerman
doctored computer screenshots taken of Q3’s trading account to
create. In reality, as alleged, at no time did Q3’s trading account
hold more than $6 million and Ackerman was personally enriching
himself by using $7.5 million of investor funds to purchase and
renovate a house, purchase high end jewelry, multiple cars, and pay
for personal security services.
On March 16, 2020, the SEC obtained an asset freeze and other
emergency relief to halt an ongoing securities fraud perpetrated by
a former state senator and two others who bilked investors in and
outside the U.S. and obtained an asset freeze and other emergency
relief to halt an ongoing securities fraud perpetrated by a former
state senator and two others who bilked investors in and outside
the U.S. The SEC’s complaint alleges that Florida residents Robert
Dunlap and Nicole Bowdler worked with former Washington state
senator David Schmidt to market and sell a purported digital asset
called the “Meta 1 Coin” in an unregistered securities offering,
conducted through the Meta 1 Coin Trust. The complaint alleges that
the defendants made numerous false and misleading statements to
potential and actual investors, including claims that the Meta 1
Coin was backed by a $1 billion art collection or $2 billion of
gold, and that an accounting firm was auditing the gold assets. The
defendants also allegedly told investors that the Meta 1 Coin was
risk-free, would never lose value and could return up to 224,923%.
According to the complaint, the defendants never distributed the
Meta 1 Coins and instead used investor funds to pay personal
expenses and for other personal purposes. The SEC continues to
actively prosecute cases involving digital assets, digital
securities, cryptocurrencies or other operations involving
blockchain technology.
Banks And Financial Institutions May Not Provide
Banking Services, Or May Cut Off Services, To Businesses That
Provide Digital Currency-Related Services Or That Accept Digital
Currencies As Payment, Including Financial Institutions Of
Investors In Our Securities.
A number of companies that provide bitcoin and/or other digital
currency-related services have been unable to find banks or
financial institutions that are willing to provide them with bank
accounts and other services. Similarly, a number of companies and
individuals or businesses associated with digital currencies may
have had and may continue to have their existing bank accounts
closed or services discontinued with financial institutions in
response to government action, particularly in China, where
regulatory response to digital currencies has been particularly
harsh. We also may be unable to obtain or maintain these services
for our business. The difficulty that many businesses that provide
bitcoin and/or derivatives on other digital currency-related
services have and may continue to have in finding banks and
financial institutions willing to provide them services may be
decreasing the usefulness of digital currencies as a payment system
and harming public perception of digital currencies, and could
decrease their usefulness and harm their public perception in the
future.
It May Be Illegal Now, Or In The Future, To Acquire,
Own, Hold, Sell Or Use Bitcoin, Ethereum, Or Other
Cryptocurrencies, Participate In The Blockchain Or Utilize Similar
Digital Assets In One Or More Countries, The Ruling Of Which Could
Adversely Affect The Company.
Although currently Bitcoin, Ethereum, and other cryptocurrencies,
the Blockchain and digital assets generally are not regulated or
are lightly regulated in most countries, including the United
States, one or more countries such as China and Russia may take
regulatory actions in the future that could severely restrict the
right to acquire, own, hold, sell or use these digital assets or to
exchange for fiat currency. Such restrictions may adversely affect
the Company. Such circumstances could have a material adverse
effect on the ability of the Company to continue as a going concern
or to pursue this segment at all, which could have a material
adverse effect on the business, prospects or operations of the
Company and potentially the value of any cryptocurrencies the
Company holds or expects to acquire for its own account and harm
investors.
If regulatory changes or interpretations require the regulation of
Bitcoin or other digital assets under the securities laws of the
United States or elsewhere, including the Securities Act of 1933,
as amended (the “Securities Act”), the Securities Exchange Act of
1934, as amended (the “Exchange Act”) and the Investment Company
Act of 1940 or similar laws of other jurisdictions and
interpretations by the SEC, the Commodity Futures Trading
Commission (the “CFTC”), the Internal Revenue Service (“IRS”),
Department of Treasury or other agencies or authorities, the
Company may be required to register and comply with such
regulations, including at a state or local level. To the extent
that the Company decides to continue operations, the required
registrations and regulatory compliance steps may result in
extraordinary expense or burdens to the Company. The Company may
also decide to cease certain operations. Any disruption of the
Company’s operations in response to the changed regulatory
circumstances may be at a time that is disadvantageous to the
Company.
Our Digital Currencies May Be Subject To Loss, Theft Or
Restriction On Access.
There is a risk that some or all of our digital currencies could be
lost or stolen. Digital currencies are stored in digital currency
sites commonly referred to as “wallets” by holders of digital
currencies which may be accessed to exchange a holder’s digital
currency assets. Hackers or malicious actors may launch attacks to
steal, compromise or secure digital currencies, such as by
attacking the digital currency network source code, exchange
miners, third-party platforms, cold and hot storage locations or
software, or by other means. We may be in control and possession of
one of the more substantial holdings of digital currency. As we
increase in size, we may become a more appealing target of hackers,
malware, cyber-attacks or other security threats. Any of these
events may adversely affect our operations and, consequently, our
investments and profitability. The loss or destruction of a private
key required to access our digital wallets may be irreversible and
we may be denied access for all time to our digital currency
holdings or the holdings of others held in those compromised
wallets. Our loss of access to our private keys or our experience
of a data loss relating to our digital wallets could adversely
affect our investments and assets.
Incorrect Or Fraudulent Digital Currency Transactions
May Be Irreversible.
Once a transaction has been verified and recorded in a block that
is added to a blockchain, an incorrect transfer of a digital
currency or a theft thereof generally will not be reversible and we
may not have sufficient recourse to recover our losses from any
such transfer or theft. It is possible that, through computer or
human error, or through theft or criminal action, our digital
currency rewards could be transferred in incorrect amounts or to
unauthorized third parties, or to uncontrolled accounts. Further,
at this time, there is no specifically enumerated U.S. or foreign
governmental, regulatory, investigative or prosecutorial authority
or mechanism through which to bring an action or complaint
regarding missing or stolen digital currency. To the extent that we
are unable to recover our losses from such action, error or theft,
such events could have a material adverse effect on our ability to
continue as a going concern or to pursue our new strategy at all,
which could have a material adverse effect on our business,
prospects or operations of and potentially the value of any bitcoin
or other digital currencies we mine or otherwise acquire or hold
for our own account.
We Are Subject To Risks Associated With Our Need For
Significant Electrical Power. Government Regulators May Potentially
Restrict The Ability Of Electricity Suppliers To Provide
Electricity To Mining Operations, Such As Ours.
The operation of a bitcoin or other digital currency mine can
require massive amounts of electrical power. We are reliant on
PetaWatt Properties, LLC and Compute North, LLC for the power
supply for our mining operations. Our mining operations can only be
successful and ultimately profitable if the costs, including
electrical power costs, associated with mining a bitcoin are lower
than the price of a bitcoin. As a result, any mine we establish can
only be successful if we can obtain sufficient electrical power for
that mine on a cost-effective basis with a reliable supplier, and
our establishment of new mines requires us to find locations where
that is the case. There may be significant competition for suitable
mine locations, and government regulators may potentially restrict
the ability of electricity suppliers to provide electricity to
mining operations in times of electricity shortage, or may
otherwise potentially restrict or prohibit the provision or
electricity to mining operations. If we are unable to receive
adequate power supply and are forced to reduce our operations due
to the availability or cost of electrical power, our business would
experience materially negative impacts.
We Have Increased Our Investments In Cryptocurrencies,
The Market Value Of Which May Be Subject To Significant
Fluctuations.
When funds are available and market conditions allow, current
strategy is to invest in certain denominations of cryptocurrencies
to complement our mining operations. We consider these investments
similar to marketable securities where we purchase and hold the
cryptocurrencies for sale. We report realized gains and losses on
the sales of cryptocurrencies and mark our portfolio of
cryptocurrencies to market at the end of each quarterly reporting
period, reporting unrealized gains or losses on the investments.
The market value of these investments may fluctuate materially, and
we may be subject to investment losses on the change in market
value.
Risks
Related to the
Coronavirus
Pandemic
The Future Impact Of The Covid-19 Pandemic On Companies
Is Evolving And We Are Currently Unable To Assess With Certainty
The Broad Effects Of Covid-19 On Our Business.
The future impact of the COVID-19 pandemic on companies is evolving
and we are currently unable to assess with certainty the broad
effects of COVID-19 on our business, particularly on the digital
currency markets. As of June 30 31, 2021, our investment in
property and equipment of $3,159,523 could be subject to impairment
or change in valuation due to COVID-19 if our cryptocurrency mining
revenues significantly decrease or we are not able to raise capital
sufficient to fund our operations. In addition, any travel
restrictions and social distancing requirements may make it
difficult for our management to access and oversee our operations
in New York and Nebraska.
The COVID-19 pandemic continues to have a material negative impact
on capital markets, including the market prices of digital
currencies. While we continue to incur operating losses, we are
currently dependent on debt or equity financing to fund our
operations and execute our business plan, including ongoing
requirements to replace old and nonprofitable mining machines. We
believe that the impact on capital markets of COVID-19 may make it
more costly and more difficult for us to access these sources of
funding.
Our business can potentially be impacted by the effects of the
COVID-19 as follows: (1) effect our financial condition, operating
results and reduce cash flows; (2) cause disruption to the
activities of equipment suppliers; (3) negatively effect the
Company’s mining activities due to imposition of related public
health measures and travel and business restrictions; (4) create
disruptions to our core operations in New York and Nebraska due to
quarantines and self-isolations; (5) restrict the Company’s ability
and that of its employees to access facilities and perform
equipment maintenance, repairs, and programming which will lead to
inability to monitor and service miners, resulting in reduced
ability to mine cryptocurrencies due to miners being offline.
In addition, our partners such as manufacturers, suppliers and
sub-contractors will be disrupted by absenteeism, quarantines and
travel restrictions resulting in their employees’ ability to work.
The Company’s supply chain, shipments of parts and purchases of new
products may be negatively affected. Such disruptions could have a
material adverse effect on our operations.
The Coronavirus Pandemic Is An Emerging Serious Threat
To Health And Economic Wellbeing Affecting Our Employees, Investors
And Our Sources Of Supply.
The sweeping nature of the novel COVID-19 pandemic makes it
extremely difficult to predict how the Company’s business and
operations will be affected in the long run. However, the likely
overall economic impact of the pandemic is viewed as highly
negative to the general economy. To date, we have not been
classified as an essential business in the New York, and we may not
be allowed to access our mining facilities. The duration of such
impact cannot be predicted.
Risks Related to Our
Securities
Our Lack Of Internal Controls Over Financial Reporting
May Affect The Market For And Price Of Our Common
Stock.
Pursuant to Section 404 of the Sarbanes-Oxley Act, we are required
to file a report by our management on our internal control over
financial reporting. Our disclosure controls and our internal
controls over financial reporting are not effective. We do not have
the financial resources or personnel to develop or implement
systems that would provide us with the necessary information on a
timely basis so as to be able to implement financial controls. The
absence of internal controls over financial reporting may inhibit
investors from purchasing our stock and may make it more difficult
for us to raise capital or borrow money. Implementing any
appropriate changes to our internal controls may require specific
compliance training of our directors and employees, entail
substantial costs in order to modify our existing accounting
systems, take a significant period of time to complete and divert
management’s attention from other business concerns. These changes
may not, however, be effective in developing or maintaining
internal control.
Our Common Stock Is Deemed To Be “Penny Stock,” Which
May Make It More Difficult For Investors To Sell Their Shares Due
To Disclosure And Suitability Requirements.
Our common stock is deemed to be “penny stock” as that term is
defined in Rule 3a51-1 promulgated under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). These requirements
may reduce the potential market for our common stock by reducing
the number of potential investors. This may make it more difficult
for investors in our common stock to sell shares to third parties
or to otherwise dispose of them. This could cause our stock price
to decline. Penny stocks are stock:
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Whose prices are not quoted on the
NASDAQ automated quotation system (NASDAQ listed stock must still
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In issuers with net tangible assets
less than $2.0 million (if the issuer has been in continuous
operation for at least three years) or $10.0 million (if in
continuous operation for less than three years), or with average
revenues of less than $6.0 million. |
Broker-dealers dealing in penny stocks are required to provide
potential investors with a document disclosing the risks of penny
stocks. Moreover, broker-dealers are required to determine whether
an investment in a penny stock is a suitable investment for a
prospective investor. Many brokers have decided not to trade “penny
stocks” because of the requirements of the penny stock rules and,
as a result, the number of broker-dealers willing to act as market
makers in such securities is limited. In the event that we remain
subject to the “penny stock rules” for any significant period,
there may develop an adverse impact on the market, if any, for our
securities.
FINRA
Sales Practice Requirements May Limit A Stockholder’s
Ability To Buy And Sell Our Stock.
The Financial Industry Regulatory Authority (referred to as FINRA)
has adopted rules requiring that, in recommending an investment to
a customer, a broker-dealer must have reasonable grounds for
believing that the investment is suitable for that customer. Prior
to recommending speculative or low-priced securities to their
non-institutional customers, broker-dealers must make reasonable
efforts to obtain information about the customer’s financial
status, tax status, investment objectives and other information.
Under interpretations of these rules, FINRA has indicated its
belief that there is a high probability that speculative or
low-priced securities will not be suitable for at least some
customers. If these FINRA requirements are applicable to us or our
securities, they may make it more difficult for broker-dealers to
recommend that at least some of their customers buy our common
stock, which may limit the ability of our stockholders to buy and
sell our common stock and could have an adverse effect on the
market for and price of our common stock.
The Market Price For Our Common Stock May Be Volatile
And Your Investment In Our Common Stock Could Suffer A Decline In
Value.
The trading volume in our stock is low, which may result in
volatility in our stock price. As a result, any reported prices may
not reflect the price at which you would be able to sell shares of
common stock if you want to sell any shares you own or buy if you
wish to buy shares. Further, stocks with a low trading volume may
be more subject to manipulation than a stock that has a significant
public float and is actively traded. The price of our stock may
fluctuate significantly in response to a number of factors, many of
which are beyond our control. These factors include, but are not
limited to, the following, in addition to the risks described above
and general market and economic conditions:
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the market’s reaction
to our financial condition and its perception of our ability to
raise necessary funding or enter into a joint venture, given the
economic environment resulting from the COVID-19 pandemic, as well
as its perception of the possible terms of any financing or joint
venture;
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the market’s perception
as to our ability to generate positive cash flow or earnings;
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securities analysts’ estimate of our financial performance;
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the anticipated or
actual results of our operations;
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changes in market
valuations of digital currencies and other companies in our
industry;
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concern that our
internal controls are ineffective;
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actions by third
parties to either sell or purchase stock in quantities which would
have a significant effect on our stock price; and
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other factors not
within our control.
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Raising Funds By Issuing Equity Or Convertible Debt
Securities Could Dilute The Net Tangible Book Value Of The Common
Stock And Impose Restrictions On Our Working
Capital.
We anticipate that we will require funds in addition to the net
proceeds from this offering for our business.
We will need to raise additional capital, we may in the future
offer additional shares of our common stock or other securities
convertible into or exchangeable for our common stock at prices
that may not which is less than the market price and which may be
based on a discount from market at the time of issuance.
Stockholders will incur dilution upon exercise of any outstanding
stock options, warrants or upon the issuance of shares of common
stock under our present and future stock incentive programs. If we
were to raise capital by issuing equity securities, either alone or
in connection with a non-equity financing, the net tangible book
value of the then outstanding common stock could decline. If the
additional equity securities were issued at a per share price less
than the market price, which is customary in the private placement
of equity securities, the holders of the outstanding shares would
suffer dilution, which could be significant. Further, if we are
able to raise funds from the sale of debt securities, the lenders
may impose restrictions on our operations and may impair our
working capital as we service any such debt obligations. In
addition, the sale of shares and any future sales of a substantial
number of shares of our common stock in the public market, or the
perception that such sales may occur, could adversely affect the
price of our common stock. We cannot predict the effect, if any,
that market sales of those shares of common stock or the
availability of those shares of common stock for sale will have on
the market price of our common stock.
We May Issue Preferred Stock Whose Terms Could
Adversely Affect The Voting Power Or Value Of Our Common
Stock.
Our articles of incorporation authorize us to issue, without the
approval of our stockholders, one or more classes or series of
preferred stock having such designations, preferences, limitations
and relative rights, including preferences over our common stock
respecting dividends and distributions, as our board of directors
may determine. We have outstanding shares of our Series A
super-voting preferred stock and Series B convertible preferred
stock, the terms of which adversely impact the voting power or
value of our common stock. Similarly, the repurchase or redemption
rights or liquidation preferences included in a series of preferred
stock issued in the future might provide to holders of preferred
stock rights that could affect the residual value of the common
stock.
Because Certain Existing Stockholders Own A Large
Percentage Of Our Voting Stock, Other Stockholders’ Voting Power
May Be Limited.
Steve Rubakh, our Chief Executive Officer, owns and/or controls a
majority of the voting power of our common stock. As a result, Mr.
Rubakh will have the ability to control all matters submitted to
our stockholders for approval, including the election and removal
of directors and the approval of any merger, consolidation or sale
of all or substantially all of our assets. This stockholder, who is
also our sole director, may make decisions that are averse to or in
conflict with your interests.
We Do Not Have A Majority Of Independent Directors On
Our Board And The Company Has Not Voluntarily Implemented Various
Corporate Governance Measures, In The Absence Of Which Stockholders
May Have More Limited Protections Against Interested Director
Transactions, Conflicts Of Interest And Similar
Matters.
Federal legislation, including the Sarbanes-Oxley Act of 2002, has
resulted in the adoption of various corporate governance measures
designed to promote the integrity of the corporate management and
the securities markets. Some of these measures have been adopted in
response to legal requirements. Others have been adopted by
companies in response to the requirements of national securities
exchanges, such as the NYSE or the NASDAQ Stock Market, on which
their securities are listed. Among the corporate governance
measures that are required under the rules of national securities
exchanges are those that address board of directors’ independence,
audit committee oversight, and the adoption of a code of ethics. We
have not yet adopted any of these other corporate governance
measures and since our securities are not yet listed on a national
securities exchange, we are not required to do so. If we expand our
board membership in future periods to include additional
independent directors, we may seek to establish an audit and other
committee of our board of directors. It is possible that if our
Board of Directors included a number of independent directors and
if we were to adopt some or all of these corporate governance
measures requiring expansion of our board of directors,
stockholders would benefit from somewhat greater assurance that
internal corporate decisions were being made by disinterested
directors. In evaluating our Company, our current lack of corporate
governance measures should be borne in mind.
Our Share Price Is Volatile And May Be Influenced By
Numerous Factors That Are Beyond Our Control.
Market prices for shares of technology companies such as ours are
often volatile. The market price of our common stock may fluctuate
significantly in response to a number of factors, most of which we
cannot control, including:
|
|
•
|
fluctuations in digital
currency and stock market prices and trading volumes of similar
companies;
|
|
|
|
|
|
|
•
|
general market
conditions and overall fluctuations in U.S. equity markets;
|
|
|
|
|
|
|
•
|
sales of large blocks
of our common stock, including sales by our executive officers,
directors and significant stockholders;
|
|
|
|
|
|
|
•
|
discussion of us or our
stock price by the press and by online investor communities;
and
|
|
|
|
|
|
|
•
|
other risks and
uncertainties described in these risk factors.
|
We Have No Current Plans To Pay Dividends On Our Common
Stock And Investors Must Look Solely To Stock Appreciation For A
Return On Their Investment In Us.
We do not anticipate paying any further cash dividends on our
common stock in the foreseeable future. We currently intend to
retain all future earnings to fund the development and growth of
our business. Any payment of future dividends will be at the
discretion of our board of directors and will depend on, among
other things, our earnings, financial condition, capital
requirements, level of indebtedness, statutory and contractual
restrictions applying to the payment of dividends and other
considerations that the board of directors deems relevant.
Investors may need to rely on sales of their common stock after
price appreciation, which may never occur, as the only way to
realize a return on their investment. Investors seeking cash
dividends should not purchase our common stock.
Item 1B.
Unresolved Staff Comments.
Disclosure under this Item 1B is not required of smaller reporting
companies.
Item 2.
Properties.
Our corporate offices are located at 73 Buck Road, Suite 2,
Huntingdon Valley, Pennsylvania 19006. Our telephone number is
(215) 613-1111. We occupy a 450 square foot facility, at no cost to
the Company, where we maintain and manage corporate accounting and
perform research and development and equipment repair services. Our
cryptocurrency mining operations are currently located in two
hosted facilities in Carthage, New York, and Kearney, Nebraska. The
hosting and power purchase agreements for the two facilities
require the Company to pay monthly a contractual rate per kilowatt
hour of electricity consumed in the Company’s cryptocurrency mining
operations. We believe that our offices and hosted cryptocurrency
mining facilities are currently suitable and adequate; however, we
plan to expand our hosted cryptocurrency mining locations as new
equipment is purchased and the need for additional space arises.
Item 3.
Legal Proceedings.
We are not aware of any pending legal proceedings in which we are a
party or in which any of our directors, officers or affiliates, any
owner of record or beneficiary of more than 5% of any class of our
voting securities is a party adverse to us or has a material
interest adverse to us.
Item 4.
Mine Safety Disclosures.
Not applicable.
PART
II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
Market Information
Our common stock is traded over-the-counter market under the symbol
“INTV.” The quotations in the table below reflect inter-dealer
prices, without retail mark-up, mark-down, or commission and may
not represent actual transactions.
|
Period
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
Fiscal year Ended June 30,
2021
|
|
|
|
|
|
|
|
Quarter Ended September
30, 2020
|
|
$ |
0.0460 |
|
|
$ |
0.0145 |
|
|
Quarter Ended December 31, 2020
|
|
$ |
0.0500 |
|
|
$ |
0.0145 |
|
|
Quarter Ended March 31, 2021
|
|
$ |
0.8900 |
|
|
$ |
0.0320 |
|
|
Quarter Ended June 30, 2021
|
|
$ |
0.4340 |
|
|
$ |
0.1240 |
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year Ended June 30,
2020
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30, 2019
|
|
$ |
0.1510 |
|
|
$ |
0.0260 |
|
|
Quarter Ended December 31, 2019
|
|
$ |
03720 |
|
|
$ |
0.0088 |
|
|
Quarter Ended March 31, 2020
|
|
$ |
0.0280 |
|
|
$ |
0.0078 |
|
|
Quarter Ended June 30, 2020
|
|
$ |
0.0810 |
|
|
$ |
0.0090 |
|
Holders
As of September 9, 2021, there were 42 holders of record of our
common stock. This number does not include stockholders for whom
shares were held in “nominee” or “street” name. On
August 13, 2020, the Board of Directors of the Company approved a
resolution to increase the number of authorized common shares to
750,000,000.
Dividends
We have not declared or paid any cash dividends on our common stock
and do not anticipate declaring or paying any cash dividends in the
foreseeable future. We currently expect to retain future earnings,
if any, for the development of our business.
Equity Compensation Plan Information
The following table shows information with respect to each equity
compensation plan under which our common stock is authorized for
issuance through June 30, 2021:
|
Plan category
|
|
Number of
securities
to be issued
upon
exercise
of
outstanding
options
|
|
|
Weighted
average
exercise price
of
outstanding
options
|
|
|
Number of
securities
remaining
available for future issuance under equity compensation plans
excluding securities reflected in column (a)
|
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity compensation plans approved by
security holders
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not
approved by security holders (1)
|
|
|
41,000,000 |
|
|
$ |
0.30 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
41,000,000 |
|
|
$ |
0.30 |
|
|
|
0 |
|
|
|
(1)
|
Consists of warrants to purchase a total of
41,000,000 shares of common stock.
|
Recent Sales of Unregistered Securities
The table below sets forth information as to sales by the Company
of unregistered securities not previously reported in the Company’s
periodic filings for its fiscal year ended June 30, 2021.
|
Date
|
|
Title and
Amount(1)
|
|
Purchaser
|
|
Principal
Underwriter
|
|
Total Offering
Price/
Underwriting
Discounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 6, 2020
|
|
Convertible Promissory Note
|
|
JSJ Investments,
Inc.
|
|
N/A
|
|
$77,000 / N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 4, 2020
|
|
Convertible Promissory Note
|
|
Eagle Equities, LLC
|
|
N/A
|
|
$271,739 / N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 22, 2020
|
|
Convertible Promissory Note
|
|
Eagle Equities, LLC
|
|
N/A
|
|
$271,739 / N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 14, 2021
|
|
Issuance of 750 shares of Series C preferred
stock and 2,000,000 shares of common stock for cash
|
|
BHP Capital NY, Inc.
|
|
NA
|
|
$750,000 / NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 19, 2021
|
|
Issuance of 216,616 shares of common stock
for services (1)
|
|
Econ Corporate
Services
|
|
NA
|
|
$24,261 / NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 5, 2021
|
|
Issuance of 375 shares of Series C preferred
stock and 1,000,000 shares of common stock for cash
|
|
BHP Capital NY, Inc.
|
|
NA
|
|
$375,000 / NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 19, 2021
|
|
Issuance of 3,000 shares of Series D
preferred stock and warrants for cash
|
|
BHP Capital NY, Inc.
|
|
NA
|
|
$3,000,000 / NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 19, 2021
|
|
Issuance of 5,263,000 shares of common stock
for conversion of 52,630 shares of Series B preferred stock
|
|
Steve Rubakh
|
|
NA
|
|
$NA / NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 24, 2021
|
|
Issuance of 350,000 shares of Series B
preferred stock for compensation (2)
|
|
Steve Rubakh
|
|
NA
|
|
$16,537,500 / NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2021
|
|
Issuance of 65,000 shares of common stock for
services (1)
|
|
Dennis Gauger
|
|
NA
|
|
$24,888 / NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2021
|
|
Issuance of 15,000,000 shares of common stock
and warrants for cash
|
|
CVI Investments Inc.
|
|
Kingswood Capital
Markets
|
|
$4,500,000 /
$270,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2021
|
|
Issuance of 15,000,000 shares of common stock
and warrants for cash
|
|
Sabby Volatility Warrant
Master Fund, LTC
|
|
Kingswood Capital
Markets
|
|
$4,500,000 /
$270,000
|
|
|
|
1.
|
Non-cash compensation valued at closing
market price of the Company’s common stock.
|
|
|
|
|
|
|
2.
|
Non-cash compensation valued at closing
market price of the Company’s common stock computed on an “as
converted to common” basis.
|
Penny Stock
Our common stock is considered “penny stock” under the rules the
Securities and Exchange Commission (the “SEC”) under the Securities
Exchange Act of 1934. The SEC has adopted rules that regulate
broker-dealer practices in connection with transactions in penny
stocks. Penny stocks are generally equity securities with a price
of less than $5.00, other than securities registered on certain
national securities exchanges or quoted on the NASDAQ Stock Market
System, provided that current price and volume information with
respect to transactions in such securities is provided by the
exchange or quotation system. The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock, to deliver
a standardized risk disclosure document prepared by the Commission,
that:
|
·
|
contains a description
of the nature and level of risks in the market for penny stocks in
both public offerings and secondary trading;
|
|
|
|
|
|
·
|
contains a description
of the broker’s or dealer’s duties to the customer and of the
rights and remedies available to the customer with respect to a
violation to such duties or other requirements of Securities’ laws;
contains a brief, clear, narrative description of a dealer market,
including bid and ask prices for penny stocks and the significance
of the spread between the bid and ask price;
|
|
|
|
|
|
·
|
contains a toll-free
telephone number for inquiries on disciplinary actions;
|
|
|
|
|
|
·
|
defines significant
terms in the disclosure document or in the conduct of trading in
penny stocks; and
|
|
|
|
|
|
·
|
contains such other
information and is in such form, including language, type, size and
format, as the Commission shall require by rule or regulation.
|
The broker-dealer also must provide, prior to effecting any
transaction in a penny stock, the customer with:
|
·
|
bid and offer
quotations for the penny stock;
|
|
|
|
|
|
·
|
the compensation of the
broker-dealer and its salesperson in the transaction;
|
|
|
|
|
|
·
|
the number of shares to
which such bid and ask prices apply, or other comparable
information relating to the depth and liquidity of the marker for
such stock; and
|
|
|
|
|
|
·
|
monthly account
statements showing the market value of each penny stock held in the
customer’s account.
|
In addition, the penny stock rules that require that prior to a
transaction in a penny stock not otherwise exempt from those rules;
the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and
receive the purchaser’s written acknowledgement of the receipt of a
risk disclosure statement, a written agreement to transactions
involving penny stocks, and a signed and dated copy of a written
suitably statement.
These disclosure requirements may have the effect of reducing the
trading activity in the secondary market for our stock.
Item 6.
Reserved.
Item 7.
Management’s Discussion and Analysis or Financial Condition and
Results of Operations.
SPECIAL NOTE CONCERNING FORWARD-LOOKING
STATEMENTS
We believe that it is important to communicate our future
expectations to our security holders and to the public. This
report, therefore, contains statements about future events and
expectations which are “forward-looking statements” within the
meaning of Sections 27A of the Securities Act of 1933 and 21E of
the Securities Exchange Act of 1934, including the statements about
our plans, objectives, expectations and prospects under the heading
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations.” You can expect to identify these statements
by forward-looking words such as “may,” “might,” “could,” “would,”
“will,” “anticipate,” “believe,” “plan,” “estimate,” “project,”
“expect,” “intend,” “seek” and other similar expressions. Any
statement contained in this report that is not a statement of
historical fact may be deemed to be a forward-looking statement.
Although we believe that the plans, objectives, expectations and
prospects reflected in or suggested by our forward-looking
statements are reasonable, those statements involve risks,
uncertainties and other factors that may cause our actual results,
performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by
these forward-looking statements, and we can give no assurance that
our plans, objectives, expectations and prospects will be
achieved.
Important factors that might cause our actual results to differ
materially from the results contemplated by the forward-looking
statements are contained in the “Risk Factors” section of and
elsewhere in this Annual Report and in our subsequent filings with
the Securities and Exchange Commission. The following discussion of
our results of operations should be read together with our
financial statements and related notes included elsewhere in this
report.
GENERAL
We were incorporated in the State of Nevada on March 22, 2013 under
the name Lightcollar, Inc. On March 22, 2015, we changed our name
to EMS Find, Inc., and in July 2017, we changed our name to
Integrated Ventures, Inc. We have discontinued our prior operations
and changed our business focus from our prior technologies relating
to the EMS Find platform to acquiring, launching, and operating
companies in the cryptocurrency sector, mainly in digital currency
mining and sales of branded mining rigs. Our offices are located at
73 Buck Road, Suite 2, Huntingdon Valley, Pennsylvania 19006.
On November 22, 2017, we successfully launched our cryptocurrency
operations, and revenues commenced from cryptocurrency mining
operations and from sales of cryptocurrency mining equipment. As of
June 30, 2021, the Company owned and operated a total of
approximately 914 miners in two locations that mine Bitcoin,
Litecoin, ZCash and Ethereum. In addition, as of June 30, 2021, the
Company paid deposits totaling $7,544,190 for 2,650 additional
miners to be placed into service beginning in September 2021.
The Company will continue to (1) raise capital to purchase new
mining equipment, (2) sell older and no longer profitable
models and (3) expand cryptocurrency mining operations to new
locations.
Financial
As of June 30, 2021, we operated our
cryptocurrency mining operations in two hosted facilities located
in Carthage, New York and Kearney, Nebraska. The hosting and
power purchase agreements for the two facilities require the
Company to pay monthly a contractual rate per kilowatt hour of
electricity consumed in the Company’s cryptocurrency mining
operations.
Revenues from our cryptocurrency mining operations were $1,793,316
and $435,740 for the years ended June 30, 2021, respectively.
Revenues from the sales of used equipment and parts were $58,074
and $18,430 for the years ended June 30, 2021 and 2020,
respectively.
When funds are available and market conditions allow, we also
invest in certain denominations of cryptocurrencies to complement
our mining operations. We consider these investments similar to
marketable securities where we purchase and hold the
cryptocurrencies for sale. We report realized gains and losses on
the sales of cryptocurrencies net of transaction costs. As of June
30, 2021, our digital currencies at cost totaled $245,320 and were
comprised of multiple denominations, primarily of Bitcoin (BTC),
Ethereum (ETH) and Chainlink (LINK).
We have funded our operations primarily from cash generated from
our digital currency mining operations and proceeds from
convertible notes payable and preferred stock. During the year
ended June 30, 2021, we received net proceeds from convertible
notes payable of $563,000, Series C preferred stock of $1,125,000,
Series D preferred stock of $3,000,000 and common stock of
$8,135,000.
As of June 30, 2021, our convertible debt lenders had fully
converted all debt to common stock and all derivative liabilities
had been extinguished.
The Digital Asset Market
The Company is focusing on the mining of digital assets, as well as
blockchain applications (“blockchain”) and related technologies. A
blockchain is a shared immutable ledger for recording the history
of transactions of digital assets—a business blockchain provides a
permissioned network with known identities. A Bitcoin is the most
recognized type of a digital asset that is issued by, and
transmitted through, an open source, math-based protocol platform
using cryptographic security that is known as the “Bitcoin
Network.” The Bitcoin Network is an online, peer-to-peer user
network that hosts the public transaction ledger, known as the
blockchain, and the source code that comprises the basis for the
cryptography and math-based protocols governing the Bitcoin
Network.
Bitcoins, for example, can be used to pay for goods and services or
can be converted to fiat currencies, such as the US Dollar, at
rates determined on Bitcoin exchanges or in individual
end-user-to-end-user transactions under a barter system. The
networks utilized by digital coins are designed to operate without
any company or government in charge, governed by a collaboration of
volunteer programmers and computers that maintain all the records.
These blockchains are typically maintained by a network of
participants which run servers while securing their blockchain.
Third party service providers such as Bitcoin exchanges and bitcoin
third party payment processing services may charge significant fees
for processing transactions and for converting, or facilitating the
conversion of, bitcoins to or from fiat currency.
This market is rapidly evolving and there can be no assurances that
we will remain competitive with industry participants that have or
may have greater resources or experience in in this industry than
us, nor that the unproven digital assets that we mine will ever
have any significant market value.
The Company, like many cryptocurrency mining operators, is
currently operating at a non-profitable status following record
historic runs in market prices of digital currencies. Market prices
of digital currencies have not been high enough to cover the
operating costs of mining companies, including significant power
costs and high levels of equipment depreciation. The Company is
addressing these operational challenges through considering
alternative sources of power, further consolidation of facilities,
and potential hosting arrangements. There can be no assurance that
the Company will be successful in these efforts and attain
profitable levels of operations.
Financial Operations Review
We are incurring increased costs because of being a publicly traded
company. As a public company, we incur significant legal,
accounting, and other expenses that we did not incur as a private
company. We also have paid compensation through the issuance of
shares of our common stock, Series B preferred stock and warrants,
the valuation of which has resulted in significant stock-based
compensation. In addition, the Sarbanes-Oxley Act of 2002, as well
as new rules subsequently implemented by the Securities and
Exchange Commission, have required changes in corporate governance
practices of public companies and will require us to comply with
these rules. These new rules and regulations have will increase our
legal and financial compliance costs and have made some activities
more time-consuming and costlier. In addition, these new rules and
regulations have made it more difficult and more expensive for us
to obtain director and officer liability insurance, which we
currently cannot afford to do. As a result of the new rules, it may
become more difficult for us to attract and retain qualified
persons to serve on our Board of Directors or as executive
officers. We cannot predict or estimate the amount of additional
costs we may incur as a result of being a public company or the
timing of such costs.
To operate our digital currency mining facilities and to fund
future operations, we will need to raise additional capital. The
amount and timing of future funding requirements will depend on
many factors, including the timing and results of our ongoing
development efforts, the potential expansion of our current
development programs, potential new development programs and
related general and administrative support. We anticipate that we
will seek to fund our operations through further liquidation of our
marketable securities, public or private equity or debt financings
or other sources, such as potential collaboration agreements. We
cannot be certain that anticipated additional financing will be
available to us on favorable terms, or at all.
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 2021 COMPARED TO THE YEAR ENDED JUNE
30, 2020
Revenues
Our cryptocurrency mining revenues increased to $1,793,316 in the
year ended June 30, 2021 from $435,740 in the year ended June 30,
2020. This increase in revenues resulted primarily from the Company
replacing under-performing, non-serviceable mining equipment during
the current fiscal year with new more efficient mining equipment
and increasing the number of miners. Also, we expanded our
cryptocurrency mining operations to a second location in Kearney,
Nebraska near the end of the current fiscal year.
We also have revenues from the sale of cryptocurrency mining units
that have been assembled or refurbished for resale and the sale of
spare parts. Such sales totaled $58,074 and $18,430 in the years
ended June 30, 2021 and 2020, respectively. The increase in sales
of unused equipment and parts was due to the replacement of
under-performing, non-serviceable mining equipment during the
current fiscal year with new more efficient equipment. Sales of
equipment and parts will fluctuate from period to period depending
on the current retail demand for our model of cryptocurrency mining
units and parts.
Cost of Revenues
Cost of revenues was $920,376 and $996,409 in the years ended June
30, 2021 and 2020, respectively. The decrease in cost of revenues
in the current fiscal year is due primarily to a decrease in
depreciation and amortization expense. Expenses associated with
running our cryptocurrency mining operations, such as equipment
depreciation and amortization, operating supplies, utilities, and
consulting services are recorded as cost of revenues. Also included
in cost of revenues are the costs of purchasing or assembling the
cryptocurrency mining units sold. We reported a gross profit on
revenues of $931,014 in the year ended June 30, 2021 and a gross
loss of $542,239 in the year ended June 30, 2020. In prior year
periods, we have reported a gross loss on revenues primarily due to
lower revenues, high utility costs and a conservative, short useful
life for mining equipment depreciation and amortization. Higher
cryptocurrency mining revenues in the current year resulting from
the implementation of more efficient mining equipment and the
increase in the number of miners purchased also contributed to the
gross profit on revenues.
Operating Expenses
Our general and administrative expenses increased to $6,061,741 in
the year ended June 30, 2021 from $352,399 in the year ended June
30, 2020. The increases resulted primarily from higher professional
and consulting fees relating to debt and equity financings and the
increase in levels of cryptocurrency mining operations.
Fluctuations in operating expenses from period to period result
primarily from changes in consulting and professional fees and
travel expenses.
We reported non-cash, related party stock-based compensation of
$16,537,500 in the year ended June 30, 2021. On February 26, 2021
the Company issued to Steve Rubakh, our President, 350,000 total
shares of Series B convertible preferred stock valued on an “as
converted to common” basis at $16,537,500, using the closing market
price of the Company’s common stock on that date. Each share of
Series B preferred stock is convertible into 100 shares of the
Company’s common stock. No related party stock-based compensation
was incurred in the year ended June 30, 2020.
Other Income (Expense)
Our other income (expense) was comprised of the following for the
years ended June 30:
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$ |
(435,981 |
) |
|
$ |
(655,199 |
) |
|
Realized gain (loss) on digital
currencies
|
|
|
(22,948 |
) |
|
|
5,884 |
|
|
Change in fair value of derivative
liabilities
|
|
|
(76,687 |
) |
|
|
782,258 |
|
|
Loss on disposition of property and
equipment
|
|
|
(238,363 |
) |
|
|
(162,451 |
) |
|
Gain on extinguishment of debt
|
|
|
9,125 |
|
|
|
- |
|
|
Loss on conversion of debt
|
|
|
- |
|
|
|
(4,592 |
) |
|
Digital currency theft loss
|
|
|
- |
|
|
|
(33,037 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
$ |
(764,854 |
) |
|
$ |
(67,137 |
) |
Our interest expense includes the amortization of debt discount and
original issue discount for our convertible notes payable. These
amounts vary from period to period depending on the timing of new
borrowings and the conversion of the debt to common stock by the
lenders. During the current fiscal year, our lenders completed the
full conversion of our convertible notes payable, resulting in a
decrease in interest expense compared to the prior fiscal year.
In the current fiscal year, we significantly increased our
investing efforts in digital currencies. In addition to the
currencies received as compensation for our mining services, we
purchased various digital currencies totaling $7,374,678 and also
converted currencies from one denomination to another based on our
assessment of market conditions for each respective currency. The
market values of individual currency denominations continually
fluctuate, and the fluctuations may be material from day to day.
During the year ended June 30, 2021, we received total proceeds of
$9,211,118 from the sale of digital currencies and incurred
transactions fees totaling $233,580, which are deducted from the
gain or loss realized. We realized a loss on sale of digital
currencies, after deducting transaction costs, of $22,948 in the
year ended June 30, 2021 and a gain on sale of digital currencies,
after deducting transaction costs, of $5,884 in the year ended June
30, 2020.
During the year ended June 30, 2021, we recognized a loss on change
in fair value of derivative liabilities of $76,687 and during the
year ended June 30, 2020, we recognized a gain on change in fair
value of derivative liabilities of $782,258. During the year ended
June 30, 2021, all convertible notes payable and other equity
instruments with provisions identified as derivatives were
extinguished through conversion to common shares and all related
derivative liabilities were settled. We estimate the fair value of
the derivatives associated with our convertible debt, options,
warrants and other contracts 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. Since these inputs are subject to
significant changes from period to period and to management’s
judgment, the estimated fair value of the derivative liabilities
will fluctuate from period to period, and the fluctuation may be
material.
During the years ended June 30, 2021 and 2020, we disposed of and
wrote off non-serviceable, defective mining equipment with a net
book value of $238,363 and $162,451, respectively. The equipment
disposed of was replaced with new, more efficient mining
equipment.
We reported a gain on extinguishment of debt of $9,125 in the year
ended June 30, 2021 due to favorable settlement of certain
liabilities. We had no gain or loss on extinguishment of debt in
the year ended June 30, 2020.
We reported a loss on conversion of debt of $4,592 in the year
ended June 30, 2020. Gains or losses on extinguishment of debt
result from conversion of convertible notes to common stock where
the conversion terms were outside the related agreements. We did
not report any gain or loss on extinguishment of debt during the
year ended June 30, 2021.
During the year ended June 30, 2020, we incurred a digital currency
theft loss of $33,037 where a hacker obtained unauthorized access
to our online digital currency processing service and transferred
digital currencies out of our account.
Net Loss
As a result, primarily from the non-cash related party stock-based
compensation, we reported a net loss of $22,433,081 in the year
ended June 30, 2021, compared to a net loss of $1,081,775 in the
year ended June 30, 2020.
LIQUIDITY AND CAPITAL RESOURCES
Overview
As of June 30, 2021, we had total current assets of $2,295,157,
including cash of $2,097,537 and prepaid expenses and other current
assets of $197,620 and total current liabilities of $274,083.
During the year ended June 30, 2021, our lenders converted in full
their convertible notes payable and the related derivative
liabilities were settled. We had total stockholders’ equity of
$8,964,882 as of June 30, 2021 compared to a stockholders’ deficit
of $109,603 as of June 30, 2020.
Most recently, in April 2021, we funded our operations and the
acquisition of cryptocurrency mining equipment from the sale of
30,000,000 shares of our common stock to two institutional
investors for total net proceeds of $8,135,000. Previously, in
January and February 2021, we received proceeds totaling $4,125,000
from the issuance of Series C and D preferred stock, which are
recorded at face value as mezzanine equity due to certain mandatory
redemption features of the stock.
During the year ended June 30, 2021, we received net proceeds from
convertible notes payable of $563,000, which debt was converted in
full into shares of our common stock. We also funded the purchase
of cryptocurrency mining equipment through short-term installment
debt totaling $57,822.
On March 30, 2021, the Company entered into securities purchase
agreements (the “Purchase Agreements”) with two institutional
investors (the “Purchasers”), for the offering (the “Offering”) of
(i) 30,000,000 shares of common stock (“Shares”), par value $0.001
per share, of the Company (“Common Stock”) and (ii) common stock
purchase warrants (“Warrants”) to purchase up to an aggregate of
30,000,000 shares of Common Stock, which are exercisable for a
period of five years after issuance at an initial exercise price of
$0.30 per share, subject to certain adjustments, as provided in the
Warrants. Each of the Purchasers received Warrants in the amount
equal to 100% of the number of Shares purchased by such Purchaser.
Each Share and accompanying Warrant were offered at a combined
offering price of $0.30. Pursuant to the Purchase Agreements, the
Purchasers purchased the Shares and accompanying Warrants for an
aggregate purchase price of $9,000,000. The transaction closed on
April 1, 2021, with the Company receiving proceeds of $8,135,000
after payment of expenses.
On January 14, 2021, the Company entered into a Securities Purchase
Agreement (the “Series C Agreement”) with BHP Capital NY, Inc.
(“BHP”), providing for the issuance and sale by the Company and the
purchase by BHP of newly designated shares of Series C Convertible
preferred stock issued by the Company at a purchase price per share
of $1,000. The first closing under the Series C Agreement was held
on January 22, 2021, at which the Company sold, and BHP purchased
750 shares of Series C preferred stock for $750,000. The Company
received net proceeds of $740,000 after payment of legal fees. The
Company also on that date issued 2,000,000 shares of its common
stock to BHP as equity incentive shares.
Effective February 5, 2021, BHP purchased a second tranche
consisting of 375,000 shares of Series C preferred stock for
$375,000. As an equity incentive to this purchase of Series C
preferred stock, the Company issued 1,000,000 shares of the
Company’s common stock to BHP.
On February 18, 2021, the Company entered into a Securities
Purchase Agreement, dated as of February 18, 2021 (the “Series D
Agreement”) with BHP providing for the issuance and sale by the
Company and the purchase by BHP of shares of Series D preferred
stock. At a closing held February 19, 2021, BHP initially purchased
3,000 shares of Series D preferred stock at a price of $1,000 per
share for a total purchase price of $3,000,000. Included in the
purchase price was a five-year warrant granting BHP the right to
purchase 5,000,000 warrants, exercisable into shares of the
Company’s common stock at a per share $0.60 per share.
Sources and Uses of Cash
We used net cash in operations of $1,567,715 in the year ended June
30, 2021 as a result of our net loss of $22,433,081, non-cash gain
of $9,125, increases in prepaid expenses and other current assets
of $194,370, digital currencies of $1,792,451 and decreases in
accounts payable of $281,639 and due to related party of $93,550,
partially offset by non-cash expenses totaling $23,217,836 and
increase accrued expenses of $18,665.
We used net cash in operations of $671,101 in the year ended June
30, 2020 as a result of our net loss of $1,081,775, non-cash gains
totaling $788,142, increase in digital currencies of $451,546,
partially offset by non-cash expenses totaling $1,500,381 and
increases in accounts payable of $45,415, accrued expenses of
$51,513 and due to related party of $53,053.
During the year ended June 30, 2021, we used net cash in investing
activities of $9,118,171, comprised of the increase in equipment
deposits of $7,663,265, purchase of digital currencies of
$7,374,678, and the purchase of property and equipment of
$3,291,346, partially offset by net proceeds from the sale of
digital currencies of $9,211,118.
During the year ended June 30, 2020, we had net cash provided by
investing activities of $218,191 comprised of net proceeds from the
sale of digital currencies of $714,126, partially offset by the
purchase of property and equipment of $123,349 and purchase of
digital currencies of $372,586.
During the year ended June 30, 2021, we had net cash provided by
financing activities of $12,776,748 comprised of proceeds from
convertible notes payable of $563,000, proceeds from the issuance
of Series C preferred stock of $1,125,000, proceeds from the
issuance of Series D preferred stock of $3,000,000, and proceeds
from the issuance of common stock of $8,135,000, partially offset
by repayment of notes payable of $46,252.
During the year ended June 30, 2020, we had net cash provided by
financing activities of $411,275 comprised of proceeds from
convertible notes payable of $534,000, proceeds from notes payable
of $7,583, partially offset by repayment of convertible notes
payable of $130,308.
We will have to raise funds to successfully operate our digital
currency mining operations, purchase equipment and expand our
operations to multiple facilities. We will have to borrow money
from shareholders or issue debt or equity or enter a strategic
arrangement with a third party. There can be no assurance that
additional capital will be available to us.
Going Concern
The Company has reported recurring net losses since its inception
and used net cash in operating activities of $1,567,715 in the year
ended June 30, 2021. As of June 30, 2021, the Company had an
accumulated deficit of $45,076,096. 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.
Current and Future Impact of COVID-19
The COVID-19 pandemic continues to have a material negative impact
on capital markets. While we continue to incur operating losses, we
are currently dependent on debt or equity financing to fund our
operations and execute our business plan. We believe that the
impact on capital markets of COVID-19 may make it more costly and
more difficult for us to access these sources of funding.
SIGNIFICANT ACCOUNTING POLICIES
Our significant accounting policies are disclosed in Note 2 to the
accompanying financial statements. The following is a summary of
those accounting policies that involve significant estimates and
judgment of management.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Because of the use of estimates inherent in the financial
reporting process, actual results could differ significantly from
those estimates.
Digital Currencies
Digital currencies consist of Bitcoin, Litecoin, ZCash and
Ethereum, generally received for the Company’s own account as
compensation for cryptocurrency mining services, and other digital
currencies such as Chainlink and Quant purchased for short-term
investment and trading purposes. 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 or
losses on the sale of digital currencies, net of transaction costs,
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),
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. 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.
During the years ended June 30, 2021 and 2020, the Company
discontinued the use of damaged or non-serviceable mining equipment
and wrote off its net book value of $238,363 and $162,451,
respectively, to loss on disposition of property and equipment.
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.
Payments to equipment suppliers prior to shipment of the equipment
are recorded as equipment deposits.
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, common stock issuable pursuant to a
Series B preferred stock Exchange Agreement and a stock
subscription payable using, as applicable, either the Black-Scholes
pricing model or multinomial lattice models that value the
derivative liability based on a probability weighted discounted
cash flow model using future projections of the various potential
outcomes. We estimate the fair value of the derivative liabilities
at the inception of the financial instruments, and, in the case of
our convertible notes payable, at the date of conversions to equity
and at each reporting date, recording a derivative liability, debt
discount, additional paid-in capital and a gain or loss on change
in derivative liabilities as applicable. These estimates are based
on multiple inputs, including the market price of our stock,
interest rates, our stock price volatility, variable conversion
prices based on market prices as defined in the respective
agreements and probabilities of certain outcomes based on
management projections. These inputs are subject to significant
changes from period to period and to management’s judgment;
therefore, the estimated fair value of the derivative liabilities
will fluctuate from period to period, and the fluctuation may be
material.
Impairment of Long-Lived Assets
All assets, including intangible assets subject to amortization,
are reviewed for impairment when changes in circumstances indicate
that the carrying amount of the asset may not be recoverable in
accordance with ASC 350 and ASC 360. If the carrying amount of the
asset exceeds the expected undiscounted cash flows of the asset, an
impairment charge is recognized equal to the amount by which the
carrying amount exceeds fair value or net realizable value. The
testing of these intangibles under established guidelines for
impairment requires significant use of judgment and assumptions.
Changes in forecasted operations and other assumptions could
materially affect the estimated fair values. Changes in business
conditions could potentially require adjustments to these asset
valuations. We reported no impairment expense for the years ended
June 30, 2021 and 2020.
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, 2021 and 2020, the amounts reported for cash,
prepaid expenses and other current assets, equipment deposits,
accounts payable, accrued preferred stock dividends, accrued
expenses, due to related party and notes payable approximate fair
value because of their short maturities.
Fair value is defined as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. ASC Topic 820
established a three-tier fair value hierarchy, which prioritizes
the inputs used in measuring fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (level 1measurements) and the
lowest priority to unobservable inputs (level 3 measurements).
These tiers include:
|
|
·
|
Level 1, defined as observable
inputs such as quoted prices for identical instruments in active
markets; |
|
|
·
|
Level 2, defined as inputs other
than quoted prices in active markets that are either directly or
indirectly observable such as quoted prices for similar instruments
in active markets or quoted prices for identical or similar
instruments in markets that are not active; and |
|
|
·
|
Level 3, defined as unobservable
inputs in which little or no market data exists, therefore
requiring an entity to develop its own assumptions, such as
valuations derived from valuation techniques in which one or more
significant inputs or significant value drivers are
unobservable. |
Our derivative liabilities are measured at fair value on a
recurring basis and estimated as follows:
|
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
June 30,
2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at
fair value
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
June 30,
2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities
|
|
$ |
164,834 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
164,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at
fair value
|
|
$ |
164,834 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
164,834 |
|
Stock-Based Compensation
The Company accounts for all equity-based payments in accordance
with ASC Topic 718, Compensation – Stock Compensation. ASC
Topic 718 requires companies to recognize in the statement of
operations the grant-date fair value of stock awards, stock
options, warrants and other equity-based compensation issued to
employees. The value of the portion of an award that is ultimately
expected to vest is recognized as an expense over the requisite
service periods using the straight-line attribution method. The
fair value of a stock award is recorded at the fair market value of
a share of the Company’s stock on the grant date. The Company
estimates the fair value of stock options and warrants at the grant
date by using an appropriate fair value model such as the
Black-Scholes option pricing model or multinomial lattice
models.
The Company accounts for non-employee share-based awards based upon
ASC 505-50, Equity-Based Payments to Non-Employees. ASC
505-50 requires the costs of goods and services received in
exchange for an award of equity instruments to be recognized using
the fair value of the goods and services or the fair value of the
equity award, whichever is more reliably measurable. The fair value
of the equity award is determined on the measurement date, which is
the earlier of the date that a performance commitment is reached or
the date that performance is complete. Generally, our awards do not
entail performance commitments. When an award vests over time such
that performance occurs over multiple reporting periods, we
estimate the fair value of the award as of the end of each
reporting period and recognize an appropriate portion of the cost
based on the fair value on that date. When the award vests, we
adjust the cost previously recognized so that the cost ultimately
recognized is equivalent to the fair value on the date the
performance is complete.
Revenue Recognition
Effective July 1, 2018, we adopted ASC 606, Revenue from Contracts
with Customers, as amended, using the modified retrospective
method, which requires the cumulative effect of adoption to be
recognized as an adjustment to opening retained earnings in the
period of adoption. There was no cumulative effect of adopting the
new standard and no impact on our financial statements. The new
standard provides a single comprehensive model to be used in the
accounting for revenue arising from contracts with customers and
supersedes current revenue recognition guidance, including
industry-specific guidance. The standard’s stated core principle is
that an entity should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in
exchange for those goods or services. To achieve this core
principle, ASC 606 includes provisions within a five-step model
that includes identifying the contract with a customer, identifying
the performance obligations in the contract, determining the
transaction price, allocating the transaction price to the
performance obligations, and recognizing revenue when, or as, an
entity satisfies a performance obligation.
Our revenues currently consist of cryptocurrency mining revenues
and revenues from the sale of cryptocurrency mining equipment
recognized in accordance with ASC 606 as discussed above. Amounts
collected from customers prior to shipment of products are recorded
as deferred revenue.
The Company earns its cryptocurrency mining revenues by providing
transaction verification services within the digital currency
networks of cryptocurrencies, such as Bitcoin, Litecoin, ZCash 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, net of applicable network fees, which are
recorded as revenue using the closing U.S. dollar price of the
related cryptocurrency on the date of receipt. Expenses associated
with running the cryptocurrency mining operations, such as
equipment depreciation, rent, operating supplies, rent, utilities
and monitoring services are recorded as cost of revenues.
There is currently no specific definitive guidance in GAAP or
alternative accounting frameworks for the accounting for the
production and mining of digital currencies and management has
exercised significant judgment in determining appropriate
accounting treatment for the recognition of revenue for mining of
digital currencies. Management has examined various factors
surrounding the substance of the Company’s operations and the
guidance in ASC 606, including identifying the transaction price,
when performance obligations are satisfied, and collectability is
reasonably assured being the completion and addition of a block to
a blockchain and the award of a unit of digital currency to the
Company. In the event authoritative guidance is enacted by the
FASB, the Company may be required to change its policies which
could result in a change in the Company’s financial statements.
OFF BALANCE SHEET ARRANGEMENTS
Operating Leases
As of June 30, 2021, the Company had no obligation for future lease
payments under non-cancelable operating leases. However, the
Company has entered into two agreements described below related to
its crypto currency mining operations pursuant to which the
Company’s sole obligation is to pay monthly a contractual rate per
kilowatt hour of electricity consumed.
PetaWatt Agreements
Power Supply and Purchase Agreement
In May 2019, the Company consolidated its then cryptocurrency
operations in one facility in Carthage, New York. The Carthage
power supply and purchase agreement with PetaWatt Properties, LLC
(“PetaWatt”) was entered into on May 10, 2019 for an initial term
of 90 days, with an option to continue the agreement for a
subsequent 36 months, which option the Company has exercised. The
Company’s sole obligation under the agreement is to pay monthly a
contractual rate per kilowatt hour of electricity consumed in the
Company’s cryptocurrency mining operations. This agreement was
superseded on May 7, 2021 with a new Lease, Hosting, and Energy
Services Agreement with PetaWatt.
Lease, Hosting, and Energy Services Agreement
On May 7, 2021, the Company and PetaWatt entered into a Lease,
Hosting and Energy Services Agreement for the Carthage, New York
facility for a period of 36 months. The Company’s sole obligation
under the agreement is to pay monthly a contractual rate per
kilowatt hour of electricity consumed in the Company’s
cryptocurrency mining operations. The Company made a
prepayment of $300,000 upon signing the agreement, to be drawn down
with monthly invoices submitted to the Company by PetaWatt. As of
June 30, 2021, the remaining prepayment balance was $193,870, which
amount was included in prepaid expenses and other current assets in
the accompanying balance sheet.
Compute North Master Agreement
On March 8, 2021, the Company and Compute North LLC (“Compute
North”) entered into a Master Agreement for the colocation and
management of the Company’s cryptocurrency mining operations. The
Company submits Order Forms to Compute North to determine the
location of the hosted facilities, the number of cryptocurrency
miners, the term of the services provided and the contractual rate
per kilowatt hour of electricity consumed in the Company’s
cryptocurrency mining operations. The agreement also provides the
Company the option to purchase cryptocurrency mining equipment from
Compute North. The initial Order form was for 425 miners in
Kearney, Nebraska for a term of 3 years and 250 miners in
Savoy, Texas for a term of 3 years. The parties subsequently
consolidated the cryptocurrency mining operations in the Kearney,
Nebraska facility. Through June 30, 2021, the Company paid set up
fees of $37,931 with its ongoing obligation under the agreement to
pay monthly a contractual rate per kilowatt hour of electricity
consumed in the Company’s cryptocurrency mining operations. Our
Nebraska operations commenced in September 2021. The Company
has expanded its relationship with Compute North by securing
additional capacity for 1,000 miners, starting in April 2022.
Equipment Purchase Agreement
On April 12, 2021, we entered into a Non-fixed Price Sales and
Purchase Agreement with Bitmain Technologies Limited (“Bitmain”)
(the “Bitmain Agreement”) to purchase from Bitmain cryptocurrency
mining hardware and other equipment in accordance with the terms
and conditions of the Bitmain Agreement. Bitmain is scheduled to
manufacture and ship miners on monthly basis, in 12 equal batches
of 400 units, starting in August 2021 and through July 2022. The
Purchase Agreement remains in effect until the delivery of the last
batch of products. The total purchase price was approximately
$34,047,600, subject to price adjustments and related offsets. The
total purchase price is payable as follows: (i) 25% of the total
purchase price is due upon the execution of the Agreement or no
later than April 19, 2021; (ii) 35% of the total purchase price, is
due by May 30, 2021; and (iii) the remaining 40% of the total
purchase price, is payable monthly starting in June 2021.
The Company entered into a separate agreement with Wattum
Management, Inc. (“Wattum”), a non-related party, whereby Wattum
agreed to share 50% of the purchase obligation under the Bitmain
Agreement, including reimbursing the Company for 50% of the
equipment deposits paid by the Company to Bitmain.
As of June 30, 2021, the Company had paid a total of $7,663,265 in
equipment deposits, including $6,554,190 paid to Bitmain under the
Bitmain Agreement (net of Wattum reimbursements).
RECENTLY ISSUED ACCOUNTING POLICIES
There were no new accounting pronouncements issued or proposed by
the FASB during the year ended June 30, 2021 and through the date
of filing this report which the Company believes will have a
material impact on its financial statements.
Item 7A.
Quantitative and Qualitative Disclosures about Market
Risk.
Disclosure under Item 7A is not required of smaller reporting
companies.
Item 8.
Financial Statements and Supplementary Data.
INTEGRATED VENTURES, INC.
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Integrated Ventures, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Integrated
Ventures, Inc. (the Company) as of June 30, 2021 and 2020, and the
related statements of operations, stockholders’ equity (deficit),
and cash flows for each of the years in the two-year period ended
June 30, 2021, and the related notes (collectively referred to as
the financial statements). In our opinion, the financial statements
present fairly, in all material respects, the financial position of
the Company as of June 30, 2021 and 2020, and the results of its
operations and its cash flows for each of the years in the two-year
period ended June 30, 2021, in conformity with accounting
principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in
Note 3 to the financial statements, the Company has suffered net
losses from operations in current and prior periods and has an
accumulated deficiency, which raises substantial doubt about its
ability to continue as a going concern. Management’s plans
regarding those matters are discussed in Note 3. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising
from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee
and that: (1) relate to accounts or disclosures that are material
to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the
financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or
disclosures to which they relate.
Revenue Recognition
As discussed in Note 2 to the financial statements, when another
party is involved in providing goods or services to the Company’s
clients, a determination is made as to who is acting in the
capacity as the principal in the sales transaction. In
addition, the Company has Mining Revenues associated with the
mining of crypto currencies that requires significant judgements
with regard to how the revenues are recognized.
Auditing management’s evaluation of agreements with customers
involves significant judgment, given the fact that some agreements
require management’s evaluation of principal versus agent. Auditing
management’s evaluation of the accounting for mining revenues
recognized involved significant judgement and subjectivity due to
lack of formal GAAP guidance in the United States.
To
evaluate the appropriateness and accuracy of the assessment by
management, we evaluated management’s assessment in relationship to
the relevant agreements.
/s/ M&K CPAS, PLLC
We have served as the Company’s auditor since 2018.
Houston, TX
September 24, 2021
Integrated
Ventures, Inc.
Balance Sheets
|
|
|
June 30,
2021
|
|
|
June 30,
2020
|
|
|
ASSETS
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash
|
|
$ |
2,097,537 |
|
|
$ |
6,675 |
|
|
Prepaid expenses and other
current assets
|
|
|
197,620 |
|
|
|
3,250 |
|
|
Total current assets
|
|
|
2,295,157 |
|
|
|
9,925 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
|
Equipment deposits
|
|
|
7,663,265
|
|
|
|
-
|
|
|
Property and equipment, net of
accumulated depreciation and amortization of $521,416 and $805,421
as of June 30, 2021 and 2020, respectively
|
|
|
3,159,523 |
|
|
|
453,342 |
|
|
Digital currencies
|
|
|
245,320 |
|
|
|
82,855 |
|
|
Deposits
|
|
|
700 |
|
|
|
700 |
|
|
Total assets
|
|
$ |
13,363,965 |
|
|
$ |
546,822 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES,
MEZZANINE AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
27,259 |
|
|
$ |
84,443 |
|
|
Accrued preferred stock
dividends
|
|
|
193,933 |
|
|
|
- |
|
|
Accrued expenses
|
|
|
4,381 |
|
|
|
25,274 |
|
|
Due to related party
|
|
|
29,357 |
|
|
|
122,907 |
|
|
Notes payable
|
|
|
19,153 |
|
|
|
7,583 |
|
|
Convertible notes payable, net
of discounts of $0 and $88,449 as of June 30, 2021 and 2020,
respectively
|
|
|
- |
|
|
|
251,384 |
|
|
Derivative liabilities
|
|
|
- |
|
|
|
164,834 |
|
|
Total current liabilities
|
|
|
274,083 |
|
|
|
656,425 |
|
|
Total liabilities
|
|
|
274,083 |
|
|
|
656,425 |
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine:
|
|
|
|
|
|
|
|
|
|
Series C preferred stock, $0.001
par value, (3,000 shares authorized, 1,125 and 0 shares issued and
outstanding as of June 30, 2021 and 2020, respectively)
|
|
|
1,125,000 |
|
|
|
- |
|
|
Series D preferred stock, $0.001
par value, (4,000 shares authorized, 3,000 and 0 shares issued and
outstanding as of June 30, 2021 and 2020, respectively)
|
|
|
3,000,000 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit):
|
|
|
|
|
|
|
|
|
|
Series A preferred stock, $0.001
par value, (1,000,000 shares authorized, 500,000 shares issued and
outstanding as of June 30, 2021 and 2020, respectively)
|
|
|
500 |
|
|
|
500 |
|
|
Series B preferred stock, $0.001
par value, (1,000,000 shares authorized, 727,370 and 430,000 shares
issued and outstanding as of June 30, 2021 and 2020,
respectively)
|
|
|
727 |
|
|
|
430 |
|
|
Common stock, $0.001 par value,
(750,000,000 shares authorized, 194,487,662 and 103,164,460 shares
issued and outstanding as of June 30, 2021 and 2020,
respectively)
|
|
|
194,488 |
|
|
|
103,165 |
|
|
Common stock payable
|
|
|
5,480,000 |
|
|
|
- |
|
|
Additional paid-in capital
|
|
|
48,365,263 |
|
|
|
21,851,284 |
|
|
Accumulated deficit
|
|
|
(45,076,096 |
) |
|
|
(22,064,982 |
) |
|
Total stockholders’ equity
(deficit)
|
|
|
8,964,882 |
|
|
|
(109,603 |
) |
|
Total liabilities, mezzanine and
stockholders’ equity (deficit)
|
|
$ |
13,363,965 |
|
|
$ |
546,822 |
|
See Notes to Financial Statements
Integrated
Ventures, Inc.
Statements of Operations
|
|
|
Years Ended
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Cryptocurrency mining
|
|
$ |
1,793,316 |
|
|
$ |
435,740 |
|
|
Sales of cryptocurrency mining
equipment
|
|
|
58,074 |
|
|
|
18,430 |
|
|
Total revenues
|
|
|
1,851,390 |
|
|
|
454,170 |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
920,376 |
|
|
|
996,409 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
931,014 |
|
|
|
(542,239 |
) |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
6,061,741 |
|
|
|
352,399 |
|
|
Related party stock-based
compensation
|
|
|
16,537,500 |
|
|
|
120,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
22,599,241 |
|
|
|
472,399 |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(21,668,227 |
) |
|
|
(1,014,638 |
) |
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(435,981 |
) |
|
|
(655,199 |
) |
|
Realized gain (loss) on sale of
digital currencies
|
|
|
(22,948 |
) |
|
|
5,884 |
|
|
Change in fair value of
derivative liabilities
|
|
|
(76,687 |
) |
|
|
782,258 |
|
|
Loss on disposition of property
and equipment
|
|
|
(238,363 |
) |
|
|
(162,451 |
) |
|
Gain on settlement of accounts
payable
|
|
|
9,125 |
|
|
|
- |
|
|
Loss on conversion of debt
|
|
|
- |
|
|
|
(4,592 |
) |
|
Digital currency theft loss
|
|
|
- |
|
|
|
(33,037 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(764,854 |
) |
|
|
(67,137 |
) |
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(22,433,081 |
) |
|
|
(1,081,775 |
) |
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(22,433,081 |
) |
|
$ |
(1,081,775 |
) |
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
(193,933 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Deemed dividend
|
|
|
(384,100 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to shareholders
|
|
$ |
(23,011,114 |
) |
|
$ |
(1,081,775 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share attributable to
shareholders, basic and diluted
|
|
$ |
(0.16 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding, basic and diluted
|
|
|
146,038,413 |
|
|
|
65,389,138 |
|
See Notes to Financial Statements
Integrated Ventures, Inc.
Statement of Stockholders’ Equity (Deficit)
Year Ended June 30, 2021
|
|
|
Series C
Preferred Stock
|
|
|
Series D
Preferred Stock
|
|
|
Series A
Preferred Stock
|
|
|
Series B
Preferred Stock
|
|
|
Common
Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Payable
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
Balance, June 30, 2020
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
|
500,000 |
|
|
$ |
500 |
|
|
|
430,000 |
|
|
$ |
430 |
|
|
|
103,164,460 |
|
|
$ |
103,165 |
|
|
$ |
- |
|
|
$ |
21,851,284 |
|
|
$ |
(22,064,982 |
) |
|
$ |
(109,603 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares for cash
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
30,000,000 |
|
|
|
30,000 |
|
|
|
- |
|
|
|
8,105,000 |
|
|
|
- |
|
|
|
8,135,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares in conversion of
convertible notes payable
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
52,723,031 |
|
|
|
52,723 |
|
|
|
- |
|
|
|
947,146 |
|
|
|
- |
|
|
|
999,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares for stock
subscription
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
55,555 |
|
|
|
56 |
|
|
|
- |
|
|
|
33,832 |
|
|
|
- |
|
|
|
33,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for services
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
281,616 |
|
|
|
281 |
|
|
|
- |
|
|
|
48,868 |
|
|
|
- |
|
|
|
49,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for conversion of
Series B preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(52,630 |
) |
|
|
(53 |
) |
|
|
5,263,000 |
|
|
|
5,263 |
|
|
|
- |
|
|
|
(5,210 |
) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series B preferred stock for
officer compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
350,000 |
|
|
|
350 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
16,537,150 |
|
|
|
- |
|
|
|
16,537,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series C preferred stock for
cash
|
|
|
1,125 |
|
|
|
1,125,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock as equity incentive
for Series C preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,000,000 |
|
|
|
3,000 |
|
|
|
- |
|
|
|
381,100 |
|
|
|
(384,100 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series D preferred stock for
cash
|
|
|
- |
|
|
|
- |
|
|
|
3,000 |
|
|
|
3,000,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of derivative liabilities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
466,093 |
|
|
|
- |
|
|
|
466,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares payable for services
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,480,000 |
|
|
|
- |
|
|
|
- |
|
|
|
5,480,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(193,933 |
) |
|
|
(193,933 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(22,433,081 |
) |
|
|
(22,433,081 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2021
|
|
|
1,125 |
|
|
$ |
1,125,000 |
|
|
|
3,000 |
|
|
$ |
3,000,000 |
|
|
|
500,000 |
|
|
$ |
500 |
|
|
|
727,370 |
|
|
$ |
727 |
|
|
|
194,487,662 |
|
|
$ |
194,488 |
|
|
$ |
5,480,000 |
|
|
$ |
48,365,263 |
|
|
$ |
(45,076,096 |
) |
|
$ |
8,964,882 |
|
See Notes to Financial Statements
Integrated Ventures, Inc.
Statement of Stockholders’ Equity (Deficit)
Year Ended June 30, 2020
|
|
|
Series A
Preferred Stock
|
|
|
Series B
Preferred Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2019
|
|
|
500,000 |
|
|
$ |
500 |
|
|
|
300,000 |
|
|
$ |
300 |
|
|
|
29,824,187 |
|
|
$ |
29,825 |
|
|
$ |
19,864,239 |
|
|
$ |
(20,983,207 |
) |
|
$ |
(1,088,343 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued in
Series B preferred stock Exchange Agreement
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8,000,000 |
|
|
|
8,000 |
|
|
|
471,800 |
|
|
|
- |
|
|
|
479,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued in
conversion of convertible notes payable
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
68,340,273 |
|
|
|
68,340 |
|
|
|
931,139 |
|
|
|
- |
|
|
|
999,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return and cancellation of
common shares and reissuance of Series B preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
30,000 |
|
|
|
30 |
|
|
|
(3,000,000 |
) |
|
|
(3,000 |
) |
|
|
2,970 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series B
preferred stock for officer compensation
|
|
|
- |
|
|
|
- |
|
|
|
100,000 |
|
|
|
100 |
|
|
|
- |
|
|
|
- |
|
|
|
119,900 |
|
|
|
- |
|
|
|
120,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of derivative liabilities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
461,236 |
|
|
|
- |
|
|
|
461,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,081,775 |
) |
|
|
(1,081,775 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2020
|
|
|
500,000 |
|
|
$ |
500 |
|
|
|
430,000 |
|
|
$ |
430 |
|
|
|
103,164,460 |
|
|
$ |
103,165 |
|
|
$ |
21,851,284 |
|
|
$ |
(22,064,982 |
) |
|
$ |
(109,603 |
) |
See Notes to Financial Statements
|
Integrated Ventures,
Inc.
|
|
Statements of
Cash Flows
|
|
|
|
|
|
Years Ended
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(22,433,081 |
) |
|
$ |
(1,081,775 |
) |
|
Adjustments to reconcile net
loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
408,802 |
|
|
|
575,210 |
|
|
Stock-based compensation –
related party
|
|
|
16,537,500 |
|
|
|
120,000 |
|
|
Common shares payable for
services
|
|
|
5,480,000 |
|
|
|
- |
|
|
Common shares issued for
services
|
|
|
49,149 |
|
|
|
- |
|
|
Loss on disposition of property
and equipment
|
|
|
238,363 |
|
|
|
162,451 |
|
|
Amortization of debt
discount
|
|
|
404,387 |
|
|
|
585,091 |
|
|
Realized loss (gain) on sale of
digital currencies
|
|
|
22,948 |
|
|
|
(5,884 |
) |
|
Change in fair value of
derivative liabilities
|
|
|
76,687 |
|
|
|
(782,258 |
) |
|
Gain on settlement of accounts
payable
|
|
|
(9,125 |
) |
|
|
- |
|
|
Financing fees related to notes
payable
|
|
|
- |
|
|
|
20,000 |
|
|
Digital currency theft loss
|
|
|
- |
|
|
|
33,037 |
|
|
Loss on conversion of debt
|
|
|
- |
|
|
|
4,592 |
|
|
Changes in assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
Digital currencies
|
|
|
(1,792,451 |
) |
|
|
(451,546 |
) |
|
Prepaid expenses and other
current assets
|
|
|
(194,370 |
) |
|
|
- |
|
|
Accounts payable
|
|
|
(281,639 |
) |
|
|
45,415 |
|
|
Accrued expenses
|
|
|
18,665 |
|
|
|
51,513 |
|
|
Due to related party
|
|
|
(93,550 |
) |
|
|
53,053 |
|
|
Net cash used in operating
activities
|
|
|
(1,567,715 |
) |
|
|
(671,101 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Increase in equipment
deposits
|
|
|
(7,663,265 |
) |
|
|
- |
|
|
Net proceeds from the sale of
digital currencies
|
|
|
9,211,118 |
|
|
|
714,126 |
|
|
Purchase of property and
equipment
|
|
|
(3,291,346 |
) |
|
|
(123,349 |
) |
|
Purchase of digital
currencies
|
|
|
(7,374,678 |
) |
|
|
(372,586 |
) |
|
Net cash provided by (used in)
investing activities
|
|
|
(9,118,171 |
) |
|
|
218,191 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from convertible notes
payable
|
|
|
563,000 |
|
|
|
534,000 |
|
|
Proceeds from the issuance of
Series C preferred stock
|
|
|
1,125,000 |
|
|
|
- |
|
|
Proceeds from the issuance of
Series D preferred stock and warrants
|
|
|
3,000,000 |
|
|
|
- |
|
|
Proceeds from the issuance of
common stock
|
|
|
8,135,000 |
|
|
|
- |
|
|
Repayment of notes payable
|
|
|
(46,252 |
) |
|
|
- |
|
|
Proceeds from notes payable
|
|
|
- |
|
|
|
7,583 |
|
|
Repayment of convertible notes
payable
|
|
|
- |
|
|
|
(130,308 |
) |
|
Net cash provided by financing
activities
|
|
|
12,776,748 |
|
|
|
411,275 |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
2,090,862 |
|
|
|
(41,635 |
) |
|
Cash, beginning of year
|
|
|
6,675 |
|
|
|
48,310 |
|
|
Cash, end of year
|
|
$ |
2,097,537 |
|
|
$ |
6,675 |
|
See Notes to Financial Statements
|
Integrated
Ventures, Inc.
|
|
Statements of
Cash Flows (continued)
|
|
|
|
Years Ended
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow
information:
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$ |
3,014 |
|
|
$ |
1,160 |
|
|
Cash paid for income taxes
|
|
|
- |
|
|
|
- |
|
|
Non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
Debt discount for derivative
liabilities
|
|
$ |
258,460 |
|
|
$ |
270,354 |
|
|
Common shares issued in
conversion of debt
|
|
|
999,869 |
|
|
|
994,887 |
|
|
Common shares issued for stock
subscription
|
|
|
33,888 |
|
|
|
- |
|
|
Settlement of derivative
liabilities
|
|
|
466,093 |
|
|
|
461,236 |
|
|
Notes payable issued for
property and equipment
|
|
|
57,822 |
|
|
|
- |
|
|
Property and equipment purchased
with digital currencies
|
|
|
4,178 |
|
|
|
- |
|
|
Accrued preferred stock
dividends
|
|
|
193,933 |
|
|
|
- |
|
|
Common shares issued for Series
C preferred stock equity incentive
|
|
|
384,100 |
|
|
|
- |
|
|
Conversion of Series B preferred
shares for common shares
|
|
|
5,263 |
|
|
|
- |
|
|
Equipment deposits for property
and equipment
|
|
|
- |
|
|
|
27,971 |
|
|
Return common shares for Series
B preferred shares
|
|
|
- |
|
|
|
3,000 |
|
|
Common shares issued in Series B
preferred share stock Exchange Agreement
|
|
|
- |
|
|
|
479,800 |
|
See Notes to Financial Statements
Integrated Ventures, Inc.
Notes to Financial Statements
Years Ended June 30, 2021 and 2020
1. ORGANIZATION
Organization
Integrated Ventures, Inc. (the “Company,” “we” or “our”) 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.
Cryptocurrencies 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 is currently mining Bitcoin and
Ethereum, whereby the Company earns revenue by solving “blocks” to
be added to the block chain. The Company also purchases certain
digital currencies for short-term investment purposes.
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 at times may exceed federally insured limits. For 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,
2020.
Digital Currencies
Digital currencies consist of Bitcoin, Litecoin, ZCash and
Ethereum, generally received for the Company’s own account as
compensation for cryptocurrency mining services, and other digital
currencies including Chainlink and Quant purchased for short-term
investment and trading purposes. 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 or
losses on the sale of digital currencies, net of transaction costs,
are included in other income (expense) in the statements of
operations. The Company had a realized loss on sale of digital
currencies of $22,948 in the year ended June 30, 2021, and a had a
realized gain on the sale of digital currencies of $5,884 in the
year ended June 30, 2020. Cryptocurrency mining revenues were
$1,793,316 and $435,740 in the years ended June 30, 2021 and 2020,
respectively.
Property and Equipment
Property and equipment, consisting primarily of computer and other
cryptocurrency mining equipment (transaction verification servers),
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. 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.
During the years ended June 30, 2021 and 2020, the Company
discontinued the use of damaged or non-serviceable mining equipment
and wrote off its net book value of $238,363 and $162,451,
respectively, to loss on disposition of property and equipment.
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.
Payments to equipment suppliers prior to shipment of the equipment
are recorded as equipment deposits.
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, common stock issuable pursuant to a
Series B preferred stock Exchange Agreement and a stock
subscription payable using, as applicable, either the Black-Scholes
pricing model or multinomial lattice models that value the
derivative liability based on a probability weighted discounted
cash flow model using future projections of the various potential
outcomes. We estimate the fair value of the derivative liabilities
at the inception of the financial instruments, and, in the case of
our convertible notes payable, at the date of conversions to equity
and at each reporting date, recording a derivative liability, debt
discount, additional paid-in capital and a gain or loss on change
in derivative liabilities as applicable. These estimates are based
on multiple inputs, including the market price of our stock,
interest rates, our stock price volatility, variable conversion
prices based on market prices as defined in the respective
agreements and probabilities of certain outcomes based on
management projections. These inputs are subject to significant
changes from period to period and to management’s judgment;
therefore, the estimated fair value of the derivative liabilities
will fluctuate from period to period, and the fluctuation may be
material.
Impairment of Long-Lived Assets
All assets, including intangible assets subject to amortization,
are reviewed for impairment when changes in circumstances indicate
that the carrying amount of the asset may not be recoverable in
accordance with ASC 350 and ASC 360. If the carrying amount of the
asset exceeds the expected undiscounted cash flows of the asset, an
impairment charge is recognized equal to the amount by which the
carrying amount exceeds fair value or net realizable value. The
testing of these intangibles under established guidelines for
impairment requires significant use of judgment and assumptions.
Changes in forecasted operations and other assumptions could
materially affect the estimated fair values. Changes in business
conditions could potentially require adjustments to these asset
valuations. We reported no impairment expense for the years ended
June 30, 2021 and 2020.
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, 2021 and 2020, the amounts reported for cash,
prepaid expenses and other current assets, equipment deposits,
accounts payable, accrued preferred stock dividends, accrued
expenses, due to related party and notes payable approximate fair
value because of their short maturities.
Fair value is defined as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. ASC Topic 820
established a three-tier fair value hierarchy, which prioritizes
the inputs used in measuring fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (level 1measurements) and the
lowest priority to unobservable inputs (level 3 measurements).
These tiers include:
|
|
·
|
Level 1, defined as observable
inputs such as quoted prices for identical instruments in active
markets; |
|
|
·
|
Level 2, defined as inputs other
than quoted prices in active markets that are either directly or
indirectly observable such as quoted prices for similar instruments
in active markets or quoted prices for identical or similar
instruments in markets that are not active; and |
|
|
·
|
Level 3, defined as unobservable
inputs in which little or no market data exists, therefore
requiring an entity to develop its own assumptions, such as
valuations derived from valuation techniques in which one or more
significant inputs or significant value drivers are
unobservable. |
Our derivative liabilities are measured at fair value on a
recurring basis and estimated as follows:
|
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
June 30,
2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at
fair value
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities
|
|
$ |
164,834 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
164,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at
fair value
|
|
$ |
164,834 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
164,834 |
|
Mezzanine
Series C and D preferred stock that contain certain default
provisions requiring mandatory cash redemption that are outside the
control of the Company are recorded as Mezzanine in the
accompanying balance sheets.
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
We recognize revenue in accordance with ASC 606, Revenue from
Contracts with Customers. This standard provides a single
comprehensive model to be used in the accounting for revenue
arising from contracts with customers and supersedes current
revenue recognition guidance, including industry-specific guidance.
The standard’s stated core principle is that an entity should
recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those
goods or services. To achieve this core principle, ASC 606 includes
provisions within a five-step model that includes identifying the
contract with a customer, identifying the performance obligations
in the contract, determining the transaction price, allocating the
transaction price to the performance obligations, and recognizing
revenue when, or as, an entity satisfies a performance
obligation.
Our revenues currently consist of cryptocurrency mining revenues
and revenues from the sale of cryptocurrency mining equipment
recognized in accordance with ASC 606 as discussed above. Amounts
collected from customers prior to shipment of products are recorded
as deferred revenue.
The Company earns its cryptocurrency mining revenues by providing
transaction verification services within the digital currency
networks of cryptocurrencies, such as Bitcoin, Litecoin, ZCash 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, net of applicable network fees, which are
recorded as revenue using the closing U.S. dollar price of the
related cryptocurrency on the date of receipt. Expenses associated
with running the cryptocurrency mining operations, such as
equipment depreciation, rent, operating supplies, rent, utilities
and monitoring services are recorded as cost of revenues.
There is currently no specific definitive guidance in GAAP or
alternative accounting frameworks for the accounting for the
production and mining of digital currencies and management has
exercised significant judgment in determining appropriate
accounting treatment for the recognition of revenue for mining of
digital currencies. Management has examined various factors
surrounding the substance of the Company’s operations and the
guidance in ASC 606, including identifying the transaction price,
when performance obligations are satisfied, and collectability is
reasonably assured being the completion and addition of a block to
a blockchain and the award of a unit of digital currency to the
Company. In the event authoritative guidance is enacted by the
FASB, the Company may be required to change its policies which
could result in a change in the Company’s financial statements.
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 March
31, 2021, tax years 2015 through 2020 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”). ASC 740-10
provides 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 has not had an impact on our 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, 2021 and 2020, 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.
Recently Issued Accounting Pronouncements
There were no new accounting pronouncements issued or proposed by
the FASB during the year ended June 30, 2021 and through the date
of filing this report which the Company believes will have a
material impact on its financial statements.
Reclassifications
Certain amounts in the financial statements for the year ended June
30, 2020 have been reclassified to conform to the presentation for
the year ended June 30, 2021.
3. GOING CONCERN
The Company has reported recurring net losses since its inception
and used net cash in operating activities of $1,567,715 in the year
ended June 30, 2021. As of June 30, 2021, the Company had an
accumulated deficit of $45,076,096. 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. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30:
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Cryptocurrency mining equipment
|
|
$ |
3,664,573 |
|
|
$ |
1,242,397 |
|
|
Furniture and equipment
|
|
|
16,366 |
|
|
|
16,366 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,680,939 |
|
|
|
1,258,763 |
|
|
Less accumulated depreciation and
amortization
|
|
|
(521,416 |
) |
|
|
(805,421 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
$ |
3,159,523 |
|
|
$ |
453,342 |
|
Depreciation and amortization expense, included in cost of
revenues, for the years ended June 30, 2021 and 2020 was $408,802
and $575,210, respectively.
During the years ended June 30, 2021 and 2020, we disposed of and
wrote off non-serviceable, defective mining equipment with a net
book value of $238,363 and $162,451, respectively.
5. EQUIPMENT DEPOSITS
Payments to equipment suppliers prior to shipment of the equipment
are recorded as equipment deposits.
Bitmain Agreement
On April 12, 2021, we entered into a Non-fixed Price Sales and
Purchase Agreement with Bitmain Technologies Limited (“Bitmain”)
(the “Bitmain Agreement”) to purchase from Bitmain cryptocurrency
mining hardware and other equipment in accordance with the terms
and conditions of the Bitmain Agreement. Bitmain is scheduled to
manufacture and ship miners on monthly basis, in 12 equal batches
of 400 units, starting in August 2021 and through July 2022. The
Purchase Agreement remains in effect until the delivery of the last
batch of products. The total purchase price was approximately
$34,047,600, subject to price adjustments and related offsets. The
total purchase price is payable as follows: (i) 25% of the total
purchase price is due upon the execution of the Agreement or no
later than April 19, 2021; (ii) 35% of the total purchase price, is
due by May 30, 2021; and (iii) the remaining 40% of the total
purchase price, is payable monthly starting in June 2021.
The Company entered into a separate agreement with Wattum
Management, Inc. {“Wattum”), a non-related party, whereby Wattum
agreed to share 50% of the purchase obligation under the Bitmain
Agreement, including reimbursing the Company for 50% of the
equipment deposits paid by the Company to Bitmain.
As of June 30, 2021, the Company had paid a total of $7,663,265 in
equipment deposits, including $6,554,190 paid to Bitmain under the
Bitmain Agreement (net of Wattum reimbursements).
Canaan Convey Purchase
In February 2021, the Company prepaid $990,000 to Canaan Convey Co.
LTD (“Canaan Convey”) for the purchase of 250 cryptocurrency
miners. As of June 30, 2021, the 250 miners had not been delivered
to the Company by Canaan Convey.
6. RELATED PARTY TRANSACTIONS
We have one executive officer, Steve Rubakh, who is currently our
only full-time employee and sole member of our Board of Directors.
Mr. Rubakh is paid an annual salary established by the Board of
Directors, bonuses as determined by the Board of Directors, and is
issued shares of Series B preferred stock on a quarterly basis for
additional compensation. The number and timing of Series B
preferred shares issued to Mr. Rubakh is at the discretion of the
Board of Directors.
The Board of Directors of the Company set the current annual
compensation for Steve Rubakh to include annual salary of $150,000
per year through March 31, 2021 and $250,000 effective April 1,
2021. In addition, the Board of Directors approved a bonus of
$50,000 for the quarter ended June 30, 2021. Total compensation
expense included in general and administrative expenses was
$225,000 and $150,000 for the years ended June 30, 2021 and 2020,
respectively. Amounts due to related party, consisting of accrued
salary to Mr. Rubakh, totaled $29,357 and $122,907 as of June 30,
2021 and 2020, respectively.
In April 2019, Mr. Rubakh converted 30,000 shares of Series B
preferred stock into 3,000,000 shares of common stock of the
Company, recorded at the par value of the common stock issued. In
February 2020, Mr. Rubakh returned 3,000,000 shares of the
Company’s common stock and was issued 30,000 shares of the
Company’s Series B preferred stock which were previously
surrendered in the April 2019 conversion. The common shares were
canceled, and the transaction was recorded at the par value of the
common and Series B preferred stock.
During the year ended June 30, 2021, the Company issued to Mr.
Rubakh 350,000 shares of Series B convertible preferred stock
valued on an “as converted to common” basis at $16,537,500, using
the closing market price of the Company’s common stock on that
date. During the year ended June 30, 2020, the Company issued to
Mr. Rubakh 100,000 shares of Series B convertible preferred stock
valued on an “as converted to common” basis at $120,000, using the
closing market price of the Company’s common stock on that date.
Each share of Series B preferred stock is convertible into 100
shares of the Company’s common stock. This non-cash, related party
stock-based compensation is included in operating expenses in the
accompanying statements of operations.
In February 2021, Mr. Rubakh converted 52,630 shares of Series B
preferred stock into 5,263,000 shares of common stock in a
transaction recorded at the par value of the shares.
7. CONVERTIBLE NOTES PAYABLE
As of June 30, 2021, all convertible notes payable had been fully
converted and the obligations extinguished. All related derivative
liabilities were settled.
As
of June 30, 2020, current convertible notes payable consisted of
the following:
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
Principal
|
|
|
Discount
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BHP Capital NY, Inc. #4
|
|
$ |
66,000 |
|
|
$ |
13,193 |
|
|
$ |
52,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Armada Investment Fund, LLC #5
|
|
|
20,000 |
|
|
|
2,739 |
|
|
|
17,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Armada Investment Fund, LLC #6
|
|
|
22,000 |
|
|
|
4,167 |
|
|
|
17,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BHP Capital NY, Inc. #5
|
|
|
83,333 |
|
|
|
21,141 |
|
|
|
62,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BHP Capital NY, Inc. #6
|
|
|
60,500 |
|
|
|
19,188 |
|
|
|
41,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Armada Investment Fund, LLC #7
|
|
|
88,000 |
|
|
|
28,021 |
|
|
|
59,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
339,833 |
|
|
$ |
88,449 |
|
|
$ |
251,384 |
|
In consideration for an agreement to limit conversions of a prior
convertible note, the Company issued to Armada Investment Fund, LLC
(“Armada”) a fifth convertible promissory note in the principal
amount of $20,000. The note matures on November 1, 2020 and bears
interest at 8%. A debt discount of $8,082 was recorded, consisting
of a derivative liability. Armada has the right beginning on the
date that is 31 days following the date of the note to convert
principal and accrued interest into shares of the Company’s common
stock. The conversion price is 70% of the average of the five
lowest trading prices (lowest bid prices) of the Company’s common
stock during the fifteen trading days ending on the latest complete
trading day prior to the date of conversion. During the year ended
June 30, 2021, Armada converted the entire principal of $20,000,
accrued interest payable of $1,184 and conversion fees of $500 into
common shares of the Company, extinguishing the debt in full. As of
June 30, 2021, the debt discount had been amortized in full to
interest expense.
On November 21, 2019, the Company entered into a sixth convertible
promissory note with Armada in the principal amount of $22,000,
with an original issue discount of $2,000. The note matures on
November 21, 2020 and bears interest at 8%. A debt discount of
$10,590 was recorded, including a derivative liability of $8,090.
Armada has the right beginning on the date that is 31 days
following the date of the note to convert principal and accrued
interest into shares of the Company’s common stock. The conversion
price is 70% of the average of the five lowest trading prices
(lowest bid prices) of the Company’s common stock during the
fifteen trading days ending on the latest complete trading day
prior to the date of conversion. During the year ended June 30,
2021, Armada converted the entire principal of $22,000, accrued
interest payable of $1,109 and conversion fees of $500 into common
shares of the Company, extinguishing the debt in full. As of June
30, 2021, the debt discount had been amortized in full to interest
expense.
On December 2, 2019, the Company entered into a fourth convertible
promissory note with BHP Capital NY, Inc. (“BHP”) in the principal
amount of $66,000, with an original issue discount of $6,000. The
note matures on December 2, 2020 and bears interest at 8%. A debt
discount of $31,153 was recorded, including a derivative liability
of $24,153. BHP has the right beginning on the date that is 31 days
following the date of the note to convert principal and accrued
interest into shares of the Company’s common stock. The conversion
price is 70% of the average of the three lowest trading prices
(lowest bid prices) of the Company’s common stock during the
fifteen trading days ending on the latest complete trading day
prior to the date of conversion. During the year ended June 30,
2021, BHP converted the entire principal of $66,000, accrued
interest payable of $3,467 and conversion fees of $1,000 into
common shares of the Company, extinguishing the debt in full. As of
June 30, 2021, the debt discount had been amortized in full to
interest expense.
On February 20, 2020, the Company entered into a fifth convertible
promissory note with BHP in the principal amount of $83,333, with
an original issue discount of $8,333. The note matures on November
20, 2020, and bears interest at 8%. A debt discount of $40,507 was
recorded, including a derivative liability of $30,674. BHP has the
right beginning on the date that is 31 days following the date of
the note to convert principal and accrued interest into shares of
the Company’s common stock. The conversion price is 70% of the
average of the three lowest trading prices (lowest bid prices) of
the Company’s common stock during the fifteen trading days ending
on the latest complete trading day prior to the date of conversion.
During the year ended June 30, 2021, BHP converted the entire
principal of $83,333, accrued interest payable of $4,663 and
conversion fees of $1,000 into common shares of the Company,
extinguishing the debt in full. As of June 30, 2021, the debt
discount had been amortized in full to interest expense.
On March 4, 2020, the Company entered into a sixth convertible
promissory note with BHP in the principal amount of $60,500, with
an original issue discount of $5,500. The note matures on March 4,
2021, and bears interest at 8%. A debt discount of $28,354 was
recorded, including a derivative liability of $22,854. BHP has the
right beginning on the date that is 31 days following the date of
the note to convert principal and accrued interest into shares of
the Company’s common stock. The conversion price is 70% of the
average of the five lowest trading prices (lowest bid prices) of
the Company’s common stock during the fifteen trading days ending
on the latest complete trading day prior to the date of conversion.
During the year ended June 30, 2021, BHP converted the entire
principal of $60,500, accrued interest payable of $3,872 and
conversion fees of $500 into common shares of the Company,
extinguishing the debt in full. As of June 30, 2020, the debt
discount had been amortized in full to interest expense.
On March 4, 2020, the Company entered into a seventh convertible
promissory note with Armada in the principal amount of $88,000,
with an original issue discount of $8,000. The note matures on
March 4, 2021, and bears interest at 8%. A debt discount of $41,408
was recorded, including a derivative liability of $33,408. Armada
has the right beginning on the date that is 181 days following the
date of the note to convert principal and accrued interest into
shares of the Company’s common stock. The conversion price is 70%
of the average of the five lowest trading prices (lowest bid
prices) of the Company’s common stock during the fifteen trading
days ending on the latest complete trading day prior to the date of
conversion. During the year ended June 30, 2021, Armada converted
the entire principal of $88,000, accrued interest payable of $3,808
and conversion fees of $1,500 into common shares of the Company,
extinguishing the debt in full. As of June 30, 2021, the debt
discount had been amortized in full to interest expense.
On July 6, 2020, the Company entered into a convertible promissory
note with JSJ Investments Inc. (“JSJ”) in the principal amount of
$77,000. The note matures on July 6, 2021, and bears interest at
8%. A debt discount $44,617 was recorded, including a derivative
liability of $42,617. JSJ has the right beginning on the date that
is 31 days following the date of the note to convert principal and
accrued interest into shares of the Company’s common stock. The
conversion price is 70% of the average of the three lowest trading
prices of the Company’s common stock during the fifteen trading
days ending on the latest complete trading day prior to the date of
conversion. During the year ended June 30, 2021, JSJ converted the
entire principal of $77,000, accrued interest payable of $3,122 and
conversion fees of $300 into common shares of the Company,
extinguishing the debt in full. As of June 30, 2021, the debt
discount had been amortized in full to interest expense.
On August 4, 2020, the Company entered into a Securities Purchase
Agreement with Eagle Equities, LLC (“Eagle”), providing for the
issuance and sale by the Company and the purchase by Eagle of a 6%
convertible note of the Company (the “Note”) in the aggregate
principal amount of $1,086,957. The Note provided
for an 8% original issue discount (“OID”) such that the aggregate
purchase price for Note will be $1,000,000. The Note was to be
purchased by Eagle in various tranches on defined closing
dates.
The first closing date under the Note was held on August 4, 2020,
when the Company sold, and the Buyer purchased the first tranche
under the Note for a $271,739 portion of the aggregate $1,086,957,
resulting in proceeds to the Company of $250,000 and reflecting the
OID of 8%. A subsequent closing of a second tranche of $271,739
portion of the Note was to occur on the filing of the Company’s
resale registration statement under the Securities Act of 1933, as
amended, covering the entire principal amount of the Note. Eagle
retained the right to purchase the unfunded balance of the Note
through February 4, 2022, provided that each purchase must be in an
amount of not less than $108,696 ($100,000 after the OID).
On October 22, 2020, the Company closed the second tranche of the
Note after the Company filing the required Form S-1 registration
statement. The second tranche was for $271,739, with proceeds to
the Company of $250,000 net of the original issue discount.
The Note was to mature on February 4, 2022 and bore interest at 6%.
Eagle had the right at any time to convert principal and accrued
interest into shares of the Company’s common stock. The conversion
price was 70% of the lowest closing bid price of the Company’s
common stock during the fifteen trading days ending on the latest
complete trading day prior to the date of conversion.
A debt discount $139,943 was recorded for the first tranche,
including a derivative liability of $112,204. During the year ended
June 30, 2021, Eagle converted the entire principal of the first
tranche of $271,739 and accrued interest payable of $4,155 into
common shares of the Company, extinguishing the debt in full. As of
June 30, 2021, the debt discount had been amortized in full to
interest expense.
A debt discount $131,378 was recorded for the second tranche,
including a derivative liability of $103,639. During the year ended
June 30, 2021, Eagle converted the entire principal of the second
tranche of $271,739 and accrued interest payable of $8,877 into
common shares of the Company, extinguishing the debt in full. As of
June 30, 2021, the debt discount had been amortized in full to
interest expense.
8. ACCOUNTS PAYABLE
During the year ended June 30, 2021, the Company settled certain
accounts payable and recorded a gain on settlement of accounts
payable of $9,125, consisting of accounts payable balances totaling
$14,014 net of a loss of $4,889 on common shares issued for
settlement of accounts payable of $4,889 (see Note 11).
9. NOTES PAYABLE
With an effective date of April 20, 2020, a loan to the Company was
approved under the terms and conditions of the Paycheck Protection
Program (“PPP”) of the United States Small Business Administration
(“SBA”) and the CARES Act (2020) (H.R. 748) (15 U.S.C. 636 et seq.)
(the “Act”) in the amount of $7,583. The loan matures 24 months
from inception, bears interest at 1% and had a balance of $7,583 as
of June 30, 2021 and 2020. The loan may be forgiven pursuant to the
provisions of the Act.
In August and September 2020, the Company entered into two
agreements for the purchase of digital mining equipment with Wattum
Management Inc. resulting in two promissory notes in the principal
amounts of $17,822 and $40,000. The notes are secured by the
equipment purchased and bear interest at 10%.
The $17,822 note is payable in twelve equal consecutive monthly
installments of $1,567 and matures in September 2021. The note had
a principal balance of $6,947 as of June 30, 2021.
The $40,000 note is payable in twelve equal consecutive monthly
installments of $3,516 and matures in August 2021. The note had a
principal balance of $4,623 as of June 30, 2021.
10. MEZZANINE
Series C Preferred Stock
Effective January 14, 2021, the Company filed a Certificate of
Designation of the Series C Convertible Preferred Stock with the
Nevada Secretary of State. The Company has authorized the issuance
of an aggregate of 3,000 shares of the Series C preferred stock.
Each share of Series C preferred stock has a par value of $0.001
per share and a stated value of $1,100 per share. The shares of
Series C preferred stock are convertible into shares of the
Company’s common stock at a conversion price of $0.068 per
share.
Each share of the Series C preferred stock is entitled to receive
cumulative dividends of 12% per annum, payable monthly and accruing
and compounding daily from the date of issuance of the shares.
Dividends may be paid in cash or in shares of Series C preferred
stock at the discretion of the Company. As of June 30, 2021, the
Company accrued Series C preferred stock dividends of $61,098.
The Company, at its sole discretion, has the right to redeem all,
but not less than all, shares of the Series C preferred stock
issued and outstanding upon 5 days’ notice at a defined redemption
price. The holders of the Series C preferred stock do not have a
right to put the shares to the Company.
The holders of the Series C 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.
On January 14, 2021, the Company entered into a Securities Purchase
Agreement (the “Series C Agreement”) with BHP Capital NY, Inc.
(“BHP”), providing for the issuance and sale by the Company and the
purchase by BHP of newly designated shares of Series C Convertible
preferred stock issued by the Company at a purchase price per share
of $1,000. The first closing under the Series C Agreement was held
on January 22, 2021, at which the Company sold, and BHP purchased
750 shares of Series C preferred stock for $750,000. The Company
received net proceeds of $740,000 after payment of legal fees. The
Company also on that date issued 2,000,000 shares of its common
stock to BHP as equity incentive shares, which shares were valued
at $295,000 based on the closing market price of the Company’s
common stock and recorded to accumulated deficit as a deemed
dividend.
Effective February 5, 2021, BHP purchased a second tranche
consisting of 375,000 shares of Series C preferred stock for
$375,000. As an equity incentive to this purchase of Series C
preferred stock, the Company issued 1,000,000 shares of the
Company’s common stock to BHP, which shares were valued at $89,100
based on the closing market price of the Company’s common stock and
recorded to accumulated deficit as a deemed dividend.
In addition to the requirement of the Company to cause a
registration statement covering the shares issued to be declared
effective by the SEC within 180 days, the Series C Agreement and
the terms of the Series C Certificate of Designation contain
multiple defined triggering events or events of default that may
require the Company to redeem in cash the Series C preferred stock.
Such events include, but are not limited to the following: (i) the
suspension, cessation from trading or delisting of the Company’s
Common Stock on the Principal Market for a period of two (2)
consecutive trading days or more; (ii) the failure by the Company
to timely comply with the reporting requirements of the Exchange
Act (including applicable extension periods); (iii) the failure for
any reason by the Company to issue Commitment Shares, Dividends or
Conversion Shares to the Purchaser within three trading days; (iv)
the Company breaches any representation warranty, covenant or other
term of condition contained in the definitive agreements between
the parties; (v) the Company files for Bankruptcy or receivership
or any money judgment writ, liquidation or a similar process is
entered by or filed against the Company for more than $50,000 and
remains unvacated, unbonded or unstayed for a period of twenty (20)
calendar days; (vi) conduct its business; (vii) the Company shall
lose the “bid” price for its Common stock on the Principal Market;
(viii) if at any time the Common Stock is no longer DWAC eligible;
(ix) the Company must have a registration statement covering the
Preferred Shares declared effective by the SEC within one hundred
eighty (180) days of the Effective Date hereof; (x) the Company
must complete deposits to secure power supply contracts and
purchase mining equipment within ninety (90) days from the
Effective Date hereof; (xi) the Company shall cooperate and provide
the necessary information for the Purchaser to file the appropriate
UCC filings to be filed promptly after each of the pieces of mining
equipment is purchased as required under section (x) of this
section, giving Purchaser a priority lien on any and all said
purchased mining equipment; and (xii) any other event specifically
listed as an Event of Default under any section in the Transaction
Documents.
As of June 30, 2021, 1,125 shares of Series C preferred stock were
issued and outstanding and recorded at stated value as mezzanine
due to certain default provisions requiring mandatory cash
redemption that are outside the control of the Company.
Series D Preferred Stock
On February 19, 2021, the Company filed a Certificate of
Designation of the Series D Convertible Preferred Stock with the
Nevada Secretary of State authorizing the issuance of an aggregate
of 4,000 shares of the Series D preferred stock. Each share of
Series D preferred stock has a par value of $0.001 per share and a
stated value of $1,100 per share. The shares of Series D preferred
stock are convertible into shares of the Company’s common stock at
a conversion price of $0.30 per share.
Each share of the Series D preferred stock is entitled to receive
cumulative dividends of 12% per annum, payable monthly and accruing
and compounding daily from the date of issuance of the shares.
Dividends may be paid in cash or in shares of Series D preferred
stock at the discretion of the Company. As of June 30, 2021, the
Company accrued Series D preferred stock dividends of $132,835.
The Company, at its sole discretion, has the right to redeem all,
but not less than all, shares of the Series D preferred stock
issued and outstanding upon 5 days’ notice at a defined redemption
price. The holders of the Series D preferred stock do not have a
right to put the shares to the Company.
The holders of the Series D 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.
On February 18, 2021, the Company entered into a Securities
Purchase Agreement, dated as of February 18, 2021 (the “Series D
Agreement”) with BHP providing for the issuance and sale by the
Company and the purchase by BHP of shares of Series D preferred
stock. At a closing held February 19, 2021, BHP initially purchased
3,000 shares of Series D preferred stock at a price of $1,000 per
share for a total purchase price of $3,000,000. Included in the
purchase price was a five-year warrant granting BHP the right to
purchase up to one hundred percent (100%) warrant coverage,
exercisable into shares of the Company’s common stock at a per
share $0.60 per share. Warrants exercisable for 11,000,000 common
shares were issued.
In addition to the requirement of the Company to cause a
registration statement covering the shares issued to be declared
effective by the SEC within 180 days, the Series D Agreement and
the terms of the Series D Certificate of Designation contain
multiple defined triggering events or events of default that may
require the Company to redeem in cash the Series D preferred stock.
Such events include, but are not limited to the following: (i) the
suspension, cessation from trading or delisting of the Company’s
Common Stock on the Principal Market for a period of two (2)
consecutive trading days or more; (ii) the failure by the Company
to timely comply with the reporting requirements of the Exchange
Act (including applicable extension periods); (iii) the failure for
any reason by the Company to issue Commitment Shares, Dividends or
Conversion Shares to the Purchaser within three trading days; (iv)
the Company breaches any representation warranty, covenant or other
term of condition contained in the definitive agreements between
the parties; (v) the Company files for Bankruptcy or receivership
or any money judgment writ, liquidation or a similar process is
entered by or filed against the Company for more than $50,000 and
remains unvacated, unbonded or unstayed for a period of twenty (20)
calendar days; (vi) conduct its business; (vii) the Company shall
lose the “bid” price for its Common stock on the Principal Market;
(viii) if at any time the Common Stock is no longer DWAC eligible;
(ix) the Company must have a registration statement covering the
Preferred Shares declared effective by the SEC within one hundred
eighty (180) days of the Effective Date hereof; (x) the Company
must complete deposits to secure power supply contracts and
purchase mining equipment within ninety (90) days from the
Effective Date hereof; (xi) the Company shall cooperate and provide
the necessary information for the Purchaser to file the appropriate
UCC filings to be filed promptly after each of the pieces of mining
equipment is purchased as required under section (x) of this
section, giving Purchaser a priority lien on any and all said
purchased mining equipment; and (xii) any other event specifically
listed as an Event of Default under any section in the Transaction
Documents.
As of June 30, 2021, 3,000 shares of Series D preferred stock were
issued and outstanding and recorded as mezzanine due to certain
default provisions requiring mandatory cash redemption that are
outside the control of the Company.
11. STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred Stock
On January 25, 2019, the Board of Directors of the Company approved
a resolution to increase the number of authorized preferred shares
to 20,000,000 shares.
Series A Preferred Stock
In March 2015, the Company filed with the State of Nevada a
Certificate of Designation establishing the designations,
preferences, limitations and relative rights of 1,000,000 shares of
the Company’s Series A preferred stock. Holders of the Series A
preferred stock have the right to vote in aggregate, on all
shareholder matters equal to 1,000 votes per share of Series A
preferred stock. The shares of Series A preferred stock are not
convertible into shares of common stock.
The Company has 1,000,000 shares of Series A preferred stock
authorized, with 500,000 shares issued and outstanding as of June
30, 2021 and 2020, which were issued in March 2015 to members of
the Company’s Board of Directors in consideration for services.
Series B Preferred Stock
On December 21, 2015, the Company filed a Certificate of
Designation for a new Series B convertible preferred stock with the
State of Nevada following approval by the board of directors of the
Company. Five Hundred Thousand (500,000) shares of the Company’s
authorized preferred stock are designated as the Series B
convertible 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 100 shares of
the Company’s common stock. 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
number of authorized Series B preferred stock was later increased
to 1,000,000 shares.
The Company had 727,370 and 430,000 shares issued and outstanding
as of June 30, 2021 and 2020, respectively.
In April 2019, Mr. Rubakh converted 30,000 shares of Series B
preferred stock into 3,000,000 shares of common stock of the
Company, recorded at the par value of the common stock issued. In
February 2020, Mr. Rubakh returned 3,000,000 shares of the
Company’s common stock and was issued 30,000 shares of the
Company’s Series B preferred stock which were previously
surrendered in the April 2019 conversion. The common shares were
canceled, and the transaction was recorded at the par value of the
common and Series B preferred stock.
During the year ended June 30, 2021, the Company issued to Mr.
Rubakh 350,000 shares of Series B convertible preferred stock
valued on an “as converted to common” basis at $16,537,500, using
the closing market price of the Company’s common stock on that
date. During the year ended June 30, 2020, the Company issued to
Mr. Rubakh 100,000 shares of Series B convertible preferred stock
valued on an “as converted to common” basis at $120,000, using the
closing market price of the Company’s common stock on that
date.
In February 2021, Mr. Rubakh converted 52,630 shares of Series B
preferred stock into 5,263,000 shares of common stock in a
transaction recorded at the par value of the shares.
Common Stock
On January 25, 2019, the Board of Directors of the Company approved
a resolution to increase the number of authorized common shares to
250,000,000. The Company had 194,487,662 and 103,164,460 common
shares issued and outstanding as of June 30, 2021 and 2020,
respectively.
During the year ended June 30, 2021, the Company issued a total of
91,323,202 shares of its common stock: 30,000,000 shares issued for
cash of $8,135,000; 52,723,031 shares in conversion of $960,311
note principal, $34,258 accrued interest payable, and $5,300 in
fees; 55,555 shares in the repayment of a stock subscription
payable of $33,888, 281,616 shares for services valued at $49,149;
5,263,000 shares issued in conversion of Series B preferred stock
recorded at par value of $5,263; and 3,000,000 shares issued as
equity incentive shares in the sale of Series C and D preferred
stock recorded at total market value of $384,100 and recorded as a
cost of capital. No gain or loss was recorded as the conversions
were completed within the terms of the debt agreements and the
transactions resulted in the extinguishment of derivative
liabilities totaling $466,093.
During the year ended June 30, 2020, the Company issued a total of
76,340,273 shares of its common stock: 8,000,000 shares valued at
$479,800 were issued pursuant to a Preferred Stock Asset Agreement
entered into on May 21, 2019 and a total of 68,340,273 shares
valued at $999,479 were issued in conversion of $944,192 note
principal, $43,695 accrued interest payable, $7,000 in fees and
loss on conversion of debt of $4,592, resulting in the
extinguishment of derivative liabilities totaling $461,236. In
addition, as discussed above, Mr. Rubakh returned 3,000,000 shares
of the Company’s common stock and was issued 30,000 shares of the
Company’s Series B preferred stock. The common shares returned were
previously issued to Mr. Rubakh in conversion of 30,000 shares of
Series B preferred stock. The common shares were canceled, and the
transaction was recorded at the par value of the common and Series
B preferred stock.
On March 30, 2021, the Company entered into securities purchase
agreements (the “Purchase Agreements”) with two institutional
investors (the “Purchasers”), for the offering (the “Offering”) of
(i) 30,000,000 shares of common stock (“Shares”), par value $0.001
per share, of the Company (“Common Stock”) and (ii) common stock
purchase warrants (“Warrants”) to purchase up to an aggregate of
30,000,000 shares of Common Stock, which are exercisable for a
period of five years after issuance at an initial exercise price of
$0.30 per share, subject to certain adjustments, as provided in the
Warrants. Each of the Purchasers received Warrants in the amount
equal to 100% of the number of Shares purchased by such Purchaser.
Each Share and accompanying Warrant were offered at a combined
offering price of $0.30. Pursuant to the Purchase Agreements, the
Purchasers purchased the Shares and accompanying Warrants for an
aggregate purchase price of $9,000,000. The transaction closed on
April 1, 2021, with the Company receiving proceeds of $8,135,000
after payment of expenses.
Common Stock Payable
As of June 30, 2021, the Company was obligated to issue a total of
8,000,000 shares of its common stock to two consultants (see Note
13) and recorded a common stock payable of $5,480,000, based on the
market value of the common shares on the date of the consulting
agreements.
12. WARRANTS
As discussed in Note 9, the Company issued warrants in February
2021 to purchase 11,000,000 shares of its common stock in
connection with the sale of Series D preferred stock. Also as
discussed in Note 10, the Company issued warrants to purchase
30,000,000 warrants in April 2021 in connection with the sale of
common stock.
A
summary of the Company’s warrants as of June 30, 2021, and changes
during the year then ended is as follows:
|
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contract Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2020
|
|
|
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
Granted
|
|
|
41,000,000 |
|
|
$ |
0.30 |
|
|
|
|
|
|
|
|
Exercised
|
|
|
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at June 30,
2021
|
|
|
41,000,000 |
|
|
$ |
0.30 |
|
|
|
4.72 |
|
|
$ |
- |
|
The aggregate intrinsic value in the preceding table represents the
total pretax intrinsic value, based on the closing price of our
common stock of $0.2037 as of June 30, 2021, which would have been
received by the holders of in-the-money warrants had the holders
exercised their warrants as of that date.
13. 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.
Operating Leases
As of June 30, 2021, the Company had no obligation for future lease
payments under non-cancelable operating leases. However, the
Company has entered into two agreements described below related to
its crypto currency mining operations pursuant to which the
Company’s sole obligation is to pay monthly a contractual rate per
kilowatt hour of electricity consumed.
PetaWatt Agreements
Power Supply and Purchase Agreement
In May 2019, the Company consolidated its then cryptocurrency
operations in one facility in Carthage, New York. The Carthage
power supply and purchase agreement with PetaWatt Properties, LLC
(“PetaWatt”) was entered into on May 10, 2019 for an initial term
of 90 days, with an option to continue the agreement for a
subsequent 36 months, which option the Company has exercised. The
Company’s sole obligation under the agreement is to pay monthly a
contractual rate per kilowatt hour of electricity consumed in the
Company’s cryptocurrency mining operations. This agreement was
superseded on May 7, 2021 with a new Lease, Hosting, and Energy
Services Agreement with PetaWatt.
Lease, Hosting, and Energy Services Agreement
On May 7, 2021, the Company and PetaWatt entered into a Lease,
Hosting and Energy Services Agreement for the Carthage, New York
facility for a period of 36 months. The Company’s sole obligation
under the agreement is to pay monthly a contractual rate per
kilowatt hour of electricity consumed in the Company’s
cryptocurrency mining operations. The agreement may also be
expanded to include up to 7 mobile mining containers. The Company
made a prepayment of $300,000 upon signing the agreement, to be
drawn down with monthly invoices submitted to the Company by
PetaWatt. As of June 30, 2021, the remaining prepayment balance was
$193,870, which amount was included in prepaid expenses and other
current assets in the accompanying balance sheet.
Compute North Master Agreement
On March 8, 2021, the Company and Compute North LLC (“Compute
North”) entered into a Master Agreement for the colocation and
management of the Company’s cryptocurrency mining operations. The
Company submits Order Forms to Compute North to determine the
location of the hosted facilities, the number of cryptocurrency
miners, the term of the services provided and the contractual rate
per kilowatt hour of electricity consumed in the Company’s
cryptocurrency mining operations. The agreement also provides the
Company the option to purchase cryptocurrency mining equipment from
Compute North. The initial Order form was for 425 miners in
Kearney, Nebraska for a term of 3 years and 250 miners in Savoy,
Texas for a term of 3 years. The parties subsequently consolidated
the cryptocurrency mining operations in the Kearney, Nebraska
facility. Through June 30, 2021, the Company paid set up fees of
$37,931 with its ongoing obligation under the agreement to pay
monthly a contractual rate per kilowatt hour of electricity
consumed in the Company’s cryptocurrency mining operations.
Nebraska operations commenced in September 2021.
Management Agreements
On February 21, 2021, the Company entered into two Management
Agreements with consultants, each for a term of 120 days, to
provide guidance for financing, corporate structure, contracts,
mergers and acquisitions and general corporate consulting. Either
party may terminate the agreements immediately upon written notice.
The Company is to pay the consultants consulting fees comprised of
a total of 8,000,000 shares of the Company’s common stock, which
shares were issued in July 2021 (see Notes 11 and 16).
NOTE 14. DERIVATIVE LIABILITIES
The Company issued convertible notes payable, warrants and certain
preferred stock with put back rights and has entered into exchange
and subscription agreements that contained certain provisions that
were identified as derivatives. As of June 30, 2020, the Company
determined that the number of common shares to be issued under
these agreements was indeterminate; therefore, the Company
concluded that the equity environment was tainted and all
additional warrants, stock options convertible debt and obligations
to issue common shares were included in the value of derivative
liabilities. During the year ended June 30, 2021, the obligations
under these agreements were extinguished in full and no derivative
liabilities were recorded as of June 30, 2021.
The Company estimates the fair value of the derivative liabilities
at the issuance date and at each subsequent reporting date, using a
multinomial lattice model simulation. The model is based on a
probability weighted discounted cash flow model using projections
of the various potential outcomes. 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.
During the years ended June 30, 2021 and 2020, the Company had the
following activity in its derivative liabilities:
|
|
|
Convertible
Notes Payable
|
|
|
Exchange
Agreement
|
|
|
Common Stock
Subscription
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities at June 30, 2019
|
|
$ |
382,052 |
|
|
$ |
1,227,200 |
|
|
$ |
8,522 |
|
|
$ |
1,617,774 |
|
|
Addition to liabilities for new
debt/subscription
|
|
|
270,354 |
|
|
|
- |
|
|
|
- |
|
|
|
270,354 |
|
|
Decrease due to conversions/assignments
|
|
|
(461,236 |
) |
|
|
(479,800 |
) |
|
|
- |
|
|
|
(941,036 |
) |
|
Change in fair value
|
|
|
(27,505 |
) |
|
|
(747,400 |
) |
|
|
(7,353 |
) |
|
|
(782,258 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities at June 30, 2020
|
|
|
163,665 |
|
|
|
- |
|
|
|
1,169 |
|
|
|
164,834 |
|
|
Addition to liabilities for new
debt/subscription
|
|
|
258,460 |
|
|
|
- |
|
|
|
- |
|
|
|
258,460 |
|
|
Decrease due to conversions/assignments
|
|
|
(466,093 |
) |
|
|
- |
|
|
|
(33,888 |
) |
|
|
(499,981 |
) |
|
Change in fair value
|
|
|
43,968 |
|
|
|
- |
|
|
|
32,719 |
|
|
|
76,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities at June 30, 2021
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
15. INCOME TAXES
For the years ended June 30, 2021 and 2020, there was no provision
for income taxes and deferred tax assets have been entirely offset
by valuation allowances.
As of June 30, 2021, the Company has net operating loss carry
forwards of approximately $2,374,000 that expire through the year
2039. 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,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Tax benefit at the statutory rate
|
|
$ |
(4,710,947 |
) |
|
$ |
(227,173 |
) |
|
State income taxes, net of federal income tax
benefit
|
|
|
(210,324 |
) |
|
|
410,032 |
|
|
Non-deductible items
|
|
|
4,787,602 |
|
|
|
187,821 |
|
|
Non-taxable items
|
|
|
- |
|
|
|
(165,664 |
) |
|
Change in valuation allowance
|
|
|
133,669 |
|
|
|
(205,016 |
) |
|
|
|
|
|
|
|
|
|
|
|
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 2020 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, 2021 and 2020, respectively, are as
follows:
|
|
|
June
30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$ |
498,610 |
|
|
$ |
632,279 |
|
|
Less valuation allowance
|
|
|
(498,610 |
) |
|
|
(632,279 |
) |
|
|
|
|
|
|
|
|
|
|
|
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, 2021 and 2020 were fully offset
by a 100% valuation allowance.
16. SUBSEQUENT EVENTS
Management has evaluated subsequent events according to the
requirements of ASC TOPIC 855, and has reported the following:
Issuances of Common Shares
On July 6, 2021, the Company issued a total of 8,000,000 shares of
its common stock as compensation under two Management Agreements
(see Notes 11 and 13) and extinguished a common stock payable of
$5,480,000 recorded as of June 30, 2021.
On August 16, 2021, the Company issued 2,473,700 shares of common
stock to Steve Rubakh for the conversion of 24,737 shares of Series
B preferred stock. The common shares issued were valued at par
value of $2,474.
Equipment Deposits
Subsequent to June 30, 2021, the Company made equipment prepayments
totaling $2,876,256 to Bitmain pursuant to the Bitmain Agreement
and received reimbursements totaling $1,984,352 from Wattum (see
Note 5).
Mobile Mining Containers
On July 6, 2021, the Company terminated an agreement entered into
on February 10, 2021 to purchase seven mobile mining
containers. On September 3, 2021, the Company executed a
manufacturing and purchase agreement for two forty-foot mobile
mining containers capable of hosting over 700 miners, with an
estimated delivery date of November 10, 2021.
Item 9.
Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
Item 9A.
Controls and Procedures.
Evaluation of Disclosure Controls and
Procedures
We carried out an evaluation, under the supervision and with the
participation of our management, including our principal executive
officer and principal financial officer, of the effectiveness of
our disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our
principal executive officer and principal financial officer
concluded that, as of the end of the period covered in this report,
our disclosure controls and procedures were not effective to ensure
that information required to be disclosed in reports filed under
the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the required time periods and is
accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required
disclosure.
Our management, including our principal executive officer and
principal financial officer, does not expect that our disclosure
controls and procedures or our internal controls will prevent all
error or fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that
the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered
relative to their costs. Due to the inherent limitations in all
control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any,
have been detected. To address the material weaknesses, we
performed additional analysis and other post-closing procedures in
an effort to ensure our consolidated financial statements included
in this annual report have been prepared in accordance with
generally accepted accounting principles. Accordingly, management
believes that the financial statements included in this report
fairly present in all material respects our financial condition,
results of operations and cash flows for the periods presented.
Management’s Annual Report on Internal Control over
Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rule 13a-15(f) under the Securities Exchange Act, as amended. Our
management assessed the effectiveness of our internal control over
financial reporting as of June 30, 2021. In making this assessment,
our management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”) in
Internal Control-Integrated Framework. A material weakness is a
deficiency, or a combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable
possibility that a material misstatement of the Company’s annual or
interim financial statements will not be prevented or detected on a
timely basis. We have identified the following material
weaknesses:
|
1.
|
As of June 30, 2021, we
did not maintain effective controls over the control environment.
Specifically, the Board of Directors does not currently have any
independent members and no director qualifies as an audit committee
financial expert as defined in Item 407(d)(5)(ii) of Regulation
S-B. Since these entity level programs have a pervasive effect
across the organization, management has determined that these
circumstances constitute a material weakness.
|
|
|
|
|
2.
|
As of June 30, 2021,
due to the inherent issue of segregation of duties in a small
company, we have relied heavily on entity or management review
controls and engaged an outside financial consultant to lessen the
issue of segregation of duties over accounting, financial close
procedures and controls over financial statement disclosure.
Accordingly, management has determined that this control deficiency
constitutes a material weakness.
|
|
|
|
|
|
|
3.
|
As of June 30, 2021, we
did not establish a written policy for the approval, identification
and authorization of related party transactions. Accordingly,
management has determined that this control deficiency constitutes
a material weakness.
|
Because of these material weaknesses, management has concluded that
the Company did not maintain effective internal control over
financial reporting as of June 30, 2021, based on the criteria
established in “Internal Control-Integrated Framework” issued by
the COSO.
Changes in Internal Control Over Financial
Reporting
There have been no changes in the Company’s internal control over
financial reporting through the date of this report or during the
quarter ended June 30, 2021, that materially affected, or are
reasonably likely to materially affect, the Company’s internal
control over financial reporting.
Independent Registered Accountant’s Internal Control
Attestation
This annual report does not include an attestation report of the
Company’s registered public accounting firm regarding internal
control over financial reporting. Management’s report was not
subject to attestation by the Company’s registered public
accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only
management’s report in this annual report.
Corrective Action
Management plans to address the structure of the Board of Directors
and discuss adding an audit committee during fiscal year 2022.
Item 9B.
Other Information.
None.
PART
III
Item 10.
Directors, Executive Officers and Corporate
Governance.
Directors and Executive Officers
The following table sets forth the names and positions of our
current executive officers and directors.
|
Name and
Address
|
|
Age
|
|
Position(s) Held
|
|
|
|
|
|
|
|
Steve Rubakh
|
|
60
|
|
President, CEO, CFO, Secretary, and
Director
|
Biographies of Directors and Executive
Officers
Steve Rubakh has been our President, Chief
Executive Officer, Chief Financial Officer, Secretary, Treasurer,
and a Director since April 1, 2015. Mr. Rubakh founded EMS Factory,
Inc., in 2011, where he oversaw the day-to-day operations and
assisted in building and creating a vision for the company. At the
end of 2014, Mr. Rubakh took the company to the next stage by
initiating the development of the on-demand mobile application and
platform on which the Company strategy is now based. In 2003, he
founded Power Sports Factory, Inc., and served as the President
until 2010. Prior to founding Power Sports Factory, Mr. Rubakh was
the founder of International Parking Concepts specializing in
providing services to the hospitality industry. Mr. Rubakh attended
both Community College of Philadelphia and Temple University
majoring in business administration.
Corporate Governance
Directors are elected at the annual stockholder meeting or
appointed by our Board of Directors and serve for one year or until
their successors are elected and qualified. When a new director is
appointed to fill a vacancy created by an increase in the number of
directors, that director holds office until the next election of
one or more directors by stockholders. Officers are appointed by
our Board of Directors and their terms of office are at the
discretion of our Board of Directors.
Committees of our Board of Directors
Audit Committee
Our Board of Directors plans to establish an Audit Committee, the
members of which shall be considered as independent under the
standards for independence for audit committee members established
by the NYSE. The Audit Committee will operate under a written
charter.
Other Committees
The Board does not have standing compensation or nominating
committees. The Board does not believe a compensation or nominating
committee is necessary based on the size of the Company, the
current levels of compensation to corporate officers and voting
control by our major stockholder. The Board will consider
establishing compensation and nominating committees at the
appropriate time.
Stockholder Communications
The Board has not established a formal process for stockholders to
send communications, including director nominations, to the Board;
however, the names of all directors are available to stockholders
in this report. Any stockholder may send a communication to any
member of the Board of Directors, in care of the Company, at 73
Buck Road, Suite 2, Huntingdon Valley, PA 19006 (Attention:
Secretary). Director nominations submitted by a stockholder will be
considered by the full Board. Due to the infrequency of stockholder
communications to the Board, the Board does not believe that a more
formal process is necessary. However, the Board will consider, from
time to time, whether adoption of a more formal process for such
stockholder communications has become necessary or appropriate.
Other Information about our Board of Directors
During our fiscal year ended June 30, 2021, our Board of Directors
acted by written consent six times.
Directors’ and Officers’ Liability Insurance
The Company does not have directors’ and officers’ liability
insurance insuring our directors and officers against liability for
acts or omissions in their capacities as directors or officers.
Director Compensation
We compensate directors as per specific agreements with each
director, as applicable. Director compensation to Steve Rubakh, our
sole director, is included in the total compensation discussed in
Item 11, Executive Compensation.
Section 16(a) Compliance by Officers and
Directors
Based solely upon a review of Mr. Steve Rubakh, our CEO, we believe
that we did not need to, and we did not file any Forms 3, 4 or 5
during the fiscal year ended June 30, 2021.
Item 11.
Executive Compensation.
General
We have one executive officer, who is currently our only employee.
The Board of Directors of the Company has set the annual base
compensation of Steve Rubakh at $250,000, effective April 1. 2021,
resulting in an annual salary of $175,000 for the fiscal year ended
June 30, 2021. Mr. Rubakh’s annual compensation was $150,000 for
each of the fiscal years ended June 30, 2020 and 2019. The Board of
Directors may also declare bonuses for Mr. Rubakh. The Board of
Directors also has issued shares of Series B Preferred Stock to Mr.
Rubakh for additional compensation. The number of shares issued is
at the discretion of the Board of Directors.
The following summary compensation table sets forth information
concerning compensation for services rendered in all capacities,
including that of director, during fiscal years 2021, 2020 and 2019
awarded to, earned by or paid to our executive officer.
|
Name and Principal Position
|
|
Year
|
|
Salary (2)
($)
|
|
|
Bonus (2)
($)
|
|
|
Stock
Awards (3)
($)
|
|
|
Option and Warrant
Awards
($)
|
|
|
Non-Equity
Incentive Plan Compensation
($)
|
|
|
Change in
Pension Value and Non-Qualified Deferred Compensation Earnings
($)
|
|
|
All Other Compensation
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steve Rubakh
|
|
2021
|
|
|
175,000 |
|
|
|
50,000 |
|
|
|
16,537,500 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
16,762,500 |
|
|
Chief Executive Officer,
|
|
2020
|
|
|
150,000 |
|
|
|
- |
|
|
|
120,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
270,000 |
|
|
Chief Financial Officer
and Director(1)
|
|
2019
|
|
|
150,000 |
|
|
|
- |
|
|
|
1,312,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,462,000 |
|
|
|
(1)
|
Mr. Rubakh was
appointed as CEO, CFO and Director on April 1, 2015.
|
|
|
|
|
|
|
(2)
|
The Board of Directors
of the Company set the annual compensation for Steve Rubakh to
include annual salary of $150,000 per year through March 31, 2021
and $250,000 effective April 1, 2021. In addition, the Board of
Directors approved a bonus of $50,000 for the quarter ended June
30, 2021.
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|
|
|
|
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(3)
|
For the years ended
June 30, 2021, 2020 and 2019, the Board of Directors authorized the
issuance of 350,000, 100,000 and 70,000 shares of Series B
preferred stock, respectively, as part of Mr. Rubakh’s compensation
package. The Series B preferred stock is convertible into 100
shares of common stock and is valued for financial reporting
purposes on an “as converted to common” basis, using the closing
market price of the Company’s common stock on the issuance
date.
|
Accrued compensation payable to Steve Rubakh as of June 30, 2021
and 2020 was $29,357 and $122,907, respectively.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
The following table sets forth information regarding the beneficial
ownership of the Company’s common stock, Series A Preferred Stock
and Series B preferred stock as of September 15, 2021, for:
|
|
i.
|
each person or entity
who, to our knowledge, beneficially owns more than 5% of each class
or series of our outstanding stock;
|
|
|
ii.
|
each executive officer
and named officer;
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|
iii.
|
each director; and
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|
|
iv.
|
all of our officers and
directors as a group.
|
Except as indicated in the footnotes to the following table, the
persons named in the table has sole voting and investment power
with respect to all shares of common stock and preferred stock
beneficially owned. Except as otherwise indicated, the address of
each of the stockholders listed below is: c/o 73 Buck Road, Suite
2, Huntingdon Valley, PA 19006.
|
|
|
Name
of
|
|
Amount
and
Nature
of
|
|
|
Percent
of
|
|
|
Total
Voting
|
|
|
Title of Class
|
|
Beneficial
Owners
|
|
Ownership(1)
|
|
|
Class(2)
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par
value
|
|
Steve Rubakh(3)
73 Buck Road, Suite 2
Huntingdon Valley, PA 19006
|
|
|
9,047,757 |
(3) |
|
|
4.41 |
% |
|
|
9,047,757 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred stock, $0.001 par
value
|
|
Steve Rubakh(3)(4)
|
|
|
500,000 |
|
|
|
100.0 |
% |
|
|
500,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B preferred stock, $0.001 par
value
|
|
Steve Rubakh(3)(5)
|
|
|
702,633 |
|
|
|
100.0 |
% |
|
|
70,263,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C
preferred stock, $0.001 par value
|
|
BNY Capital NY, Inc.
(6)
|
|
|
3,000 |
|
|
|
100.0 |
% |
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series D
preferred stock, $0.001 par value
|
|
BNY Capital NY, Inc.
(6)
|
|
|
4,000 |
|
|
|
100.0 |
% |
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total voting shares
|
|
Steve Rubakh
|
|
|
|
|
|
|
|
|
|
|
579,311,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All officers and directors (one
person)
|
|
|
|
|
|
|
|
|
|
|
|
|
579,311,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of voting
shares
|
|
|
|
|
|
|
|
|
|
|
|
|
74.73 |
% |
*less than 1%
|
(1)
|
Beneficial Ownership is
determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment
power with respect to securities. Each of the beneficial owners
listed above has direct ownership of and sole voting power and
investment power to the shares of the Company’s common stock. For
each Beneficial Owner listed, any options or convertible securities
exercisable or convertible within 60 days have been also included
for purposes of calculating their beneficial ownership of
outstanding common stock.
|
|
|
|
|
(2)
|
As of September 15,
2021, a total of 204,961,362 shares of the Company’s common stock
are outstanding.
|
|
|
|
|
(3)
|
Mr. Rubakh owns
8,747,257 shares of common stock directly and has voting control
over 300,5000 shares held by Stanislav Rubakh and Kim Rubakh, and,
as a result, has voting control over 9,047,757 shares of common
stock. Mr. Rubakh holds 702,633 shares of Series B Convertible
Preferred Stock directly, convertible into 70,263,300 shares of
common stock and representing 70,263,300 total voting shares. Mr.
Rubakh also owns all of the outstanding 500,000 shares of the
super-voting Series A Preferred stock representing 500,000,000
voting shares.
|
|
|
|
|
(4)
|
The Series A preferred
stock is not convertible into common stock but is representative of
500,000,000 shares of common stock solely for voting purposes.
|
|
|
|
|
(5)
|
As of September 15,
2021, a total of 702,633 shares of the Company’s Series B preferred
stock are outstanding. The Series B preferred stock is convertible
into 70,263,300 shares of common stock, and the holder has the
right to vote, together with holders of Common Stock, on an as
“converted basis.”
|
|
(6)
|
As of September 15,
2021, a total of 3,000 Series D preferred stock and 4,000 Series D
preferred stock are outstanding. The Series B preferred stock is
convertible into 4,412 shares of common stock, and the holder has
the right to vote, together with holders of Common Stock, on an as
“converted basis,” and the Series C preferred stock is convertible
into 13,333 shares of common stock, and the holder has the right to
vote, together with holders of Common Stock, on an as “converted
basis.” The natural person with voting power on behalf of BHP
Capital NY Inc. is Bryan Pantofel.
|
Applicable percentage ownership in the preceding table is based on
approximately 204,961,362 shares of common stock outstanding as of
September 15, 2021 plus, for everyone, any securities that
individual has the right to acquire within 60 days of September 15,
2021. Beneficial ownership is determined under the rules of the SEC
and generally includes voting or investment power over securities.
The number of shares shown as beneficially owned in the tables
below are calculated pursuant to Rule 13d-3(d)(1) of the Exchange
Act. Under Rule 13d-3(d)(1), shares not outstanding that are
subject to options, warrants, rights or conversion privileges
exercisable within 60 days are deemed outstanding for the purpose
of calculating the number and percentage owned by such person, but
not deemed outstanding for the purpose of calculating the
percentage owned by each other person listed.
Changes in Control
None.
Item 13.
Certain Relationship and Related Transactions, and Director
Independence.
Certain Relationships and Related Transactions
We have one executive officer, Steve Rubakh, who is currently our
only full-time employee and sole member of our Board of Directors.
Mr. Rubakh is paid an annual salary established by the Board of
Directors, bonuses as determined by the Board of Directors, and is
issued shares of Series B preferred stock on a quarterly basis for
additional compensation. The number and timing of Series B
preferred shares issued to Mr. Rubakh is at the discretion of the
Board of Directors.
The Board of Directors of the Company set the current annual
compensation for Steve Rubakh to include annual salary of $150,000
per year through March 31, 2021 and $250,000 effective April 1,
2021. In addition, the Board of Directors approved a bonus of
$50,000 for the quarter ended June 30, 2021. Total compensation
expense included in general and administrative expenses was
$225,000 and $150,000 for the years ended June 30, 2021 and 2020,
respectively. Amounts due to related party, consisting of accrued
salary to Mr. Rubakh, totaled $29,357 and $122,907 as of June 30,
2021 and 2020, respectively.
During the year ended June 30, 2021, the Company issued to Mr.
Rubakh 350,000 shares of Series B convertible preferred stock
valued on an “as converted to common” basis at $16,537,500, using
the closing market price of the Company’s common stock on that
date. During the year ended June 30, 2020, the Company issued to
Mr. Rubakh 100,000 shares of Series B convertible preferred stock
valued on an “as converted to common” basis at $120,000, using the
closing market price of the Company’s common stock on that date.
Each share of Series B preferred stock is convertible into 100
shares of the Company’s common stock. This non-cash, related party
stock-based compensation is included in operating expenses in the
accompanying statements of operations.
In February 2021, Mr. Rubakh converted 52,630 shares of Series B
preferred stock into 5,263,000 shares of common stock in a
transaction recorded at the par value of the shares.
Director Independence
We currently have no independent directors as that term is defined
in Rule 4200 of Nasdaq’s listing standards.
Item 14.
Principal Accountant Fees and Services.
Audit Fees
For the years ended June 30, 2021 and 2020, the aggregate fees
billed by M&K CPAS PLLC for professional services rendered for
the audit (including quarterly reviews) of our annual consolidated
financial statements included in our annual report on Form 10-K
were $65,900 and $34,050, respectively.
Audit fees consist of amounts billed for the audit of our annual
financial statements, review of financial statements included in
our Quarterly Reports on Form 10-Q and services that are normally
provided by the accountant in connection with statutory and
regulatory filings or engagement.
Audit-Related Fees
For the years ended June 30, 2021 and 2020, we were not billed for
any audit-related fees. Audit-related fees consist of assurance and
related services that are reasonably related to the performance of
the audit and reviews of our financial statements and are not
included in “audit fees.”
Tax Fees
Tax fees consist of professional services rendered for tax
compliance, tax advice and tax planning. The nature of these tax
services is tax preparation. Our independent auditors do not
provide us with tax compliance, tax advice or tax planning
services.
All Other Fees
None.
Audit Committee Approval
We do not have an audit committee of our board of directors. We
believe that each member of our board has the expertise and
experience to adequately serve our stockholders’ interests while
serving as directors. Since we are not required to maintain an
audit committee and our full board acts in the capacity of an audit
committee, we have not elected to designate any member of our board
as an “audit committee financial expert.”
Item 15.
Exhibits and Financial Statement Schedules.
|
|
(a)
|
The following documents are filed as part of
this Form 10-K: The list of financial statements required by this
Item is set forth in Item 8.
|
|
|
|
|
|
|
(b)
|
Exhibits: See the list of Exhibits in the
Exhibits Index to this Form 10-K as follows, which are incorporated
herein by reference.
|
Item 16. Form 10-K Summary.
Not Applicable.
EXHIBIT INDEX
|
Exhibit
Number
|
|
Exhibit Description
|
|
|
|
|
|
|
|
Description of Exhibit
|
|
|
|
|
|
3.1
|
|
Certificate of Incorporation of the Company [Incorporated by
reference to Exhibit 2 to Company’s Registration Statement on Form
S-1, filed with the SEC on June 7, 2011]
|
|
|
|
|
|
3.1(a)
|
|
Certificate of Amendment, filed December 1, 2014 [Incorporated by
reference to Exhibit 3.1 to our Current Report on Form 8-K, filed
with the SEC on December 8, 2015]
|
|
|
|
|
|
3.1(b)
|
|
Certificate of Designations of the Company’s Series A Preferred
Stock, filed March 12, 2015 [Incorporated by reference to Exhibit
3.1 to the Company’s Current Report on Form 8-K, filed with the SEC
on March 20, 2015]
|
|
|
|
|
|
3.2
|
|
Bylaws of the Company [Incorporated by reference to Exhibit 3 to
Company’s Registration Statement on Form S-1, filed with the SEC on
June 7, 2011]
|
|
|
|
|
|
3.2(a)
|
|
Amendment to Exhibit A to the Company’s By-Laws, effective August
12, 2015 [Incorporated by reference to Exhibit 10.2(a) to our
Current Report on Form 8-K, filed with the SEC on August 12,
2015]
|
|
|
|
|
|
3.1(c)
|
|
Certificate of Amendment to Articles of Incorporation, filed August
3, 2016, with the Secretary of State of Nevada [Incorporated by
reference to Exhibit 3.1(c) to our Current Report on Form 8-K,
filed with the SEC on August 11, 2016]
|
|
|
|
|
|
3.1(d)
|
|
Certificate of Correction, filed with the Nevada Secretary of State
on November 7, 2016 [Incorporated by reference to Exhibit 3.1(d) to
our Current Report on Form 8-K, filed with the SEC on November 18,
2016]
|
|
|
|
|
|
3.1(e)
|
|
Certificate of Designation for the Company’s Series B Preferred
Stock, filed with the Secretary of State of Nevada on December 21,
2015 [Incorporated by reference to Exhibit 3.1(e) to our Annual
Report on Form 10-K, filed with the SEC on September 14,
2017]
|
|
|
|
|
|
3.1(f)
|
|
Certificate of Amendment, filed with the Secretary of State of
Nevada on March 15, 2017 [Incorporated by reference to Exhibit
3.1(f) to our Annual Report on Form 10-K, filed with the SEC on
September 14, 2017]
|
|
|
|
|
|
3.1(g)
|
|
Articles of Merger for the merger of the Company’s wholly-owned
subsidiary, Interactive Ventures, Inc., into the Company, filed
with the Secretary of State of Nevada on June 14, 2017
[Incorporated by reference to Exhibit 3.1(g) to our Annual Report
on Form 8-K, filed with the SEC on September 14, 2017]
|
|
|
|
|
|
3.1(h)
|
|
Certificate of Amendment, filed with the Secretary of State of
Nevada on March 15, 2019 [Incorporated by reference to Exhibit
3.1(h) to our Annual Report on Form 10-K, filed with the SEC on
September 30, 2019]
|
|
|
|
|
|
3.1(i)
|
|
Certificate of Designation of Preferences, Rights and Limitations
of Series C Convertible Preferred Stock filed January 20, 2021, as
amended January 21, 2021 [Incorporated by reference to Exhibit
3.1(j) to our Current Report on Form 8-K/A, filed with the SEC on
January 29, 2021]
|
|
|
|
|
|
3.1(k)
|
|
Certificate of Designation of Preferences, Rights and Limitations
of Series D Convertible Preferred Stock filed February 19
[Incorporated by reference to Exhibit 3.1(k) to our Current Report
on Form 8-K filed with the SEC on February 25, 2021]
|
|
|
|
|
|
4.1
|
|
Form of Warrant in connection with Securities Purchase Agreement,
dated as of March 30, 2021, by and between the Company and the
Purchasers [Incorporated by reference to Exhibit 4.1 to our Current
Report on Form 8-K filed with the SEC on April 2, 2021]
|
|
10.1
|
|
Amendment dated November 16, 2020 to Securities Purchase Agreement,
dated August 4, 2020, between the Company and Eagle Equities, LLC,
and to Convertible Redeemable Note due February 4, 2020 issued
August 4, 2020 to Eagle Equities, LLC [Incorporated by reference to
Exhibit 10.35 to our Current Report on Form 8-K, filed with the SEC
on November 18, 2020]
|
|
|
|
|
|
10.2
|
|
Securities Purchase Agreement, dated as of August 4, 2020, between
the Company and Eagle Equities, LLC [Incorporated by reference to
Exhibit 10.33 to our Current Report on Form 8-K, filed with the SEC
on August 10, 2020]
|
|
|
|
|
|
10.3
|
|
Form of Convertible Redeemable Note due February 4, 2020 issued
August 4, 2020 to Eagle Equities, LLC [Incorporated by reference to
Exhibit 10.34 to our Current Report on Form 8-K, filed with the SEC
on August 10, 2020]
|
|
|
|
|
|
10.4
|
|
Securities Purchase Agreement, dated as of January 14, 2021,
between the Company and BHP Capital NY, Inc. [Incorporated by
reference to Exhibit 10.36 to our Current Report on Form 8-K filed
with the SEC on January 28, 2021]
|
|
|
|
|
|
10.5
|
|
Securities Purchase Agreement, dated as of February 18, 2021,
between the Company and BHP Capital NY, Inc. [Incorporated by
reference to Exhibit 10.37 to our Current Report on Form 8-K filed
with the SEC on February 25, 2021]
|
|
|
|
|
|
10.6
|
|
Common Stock Purchase Warrant, issued February 18, 2021, by the
Company to BHP Capital NY , Inc. [Incorporated by reference to
Exhibit 10.38 to our Current Report on Form 8-K filed with the SEC
on February 25, 2021]
|
|
|
|
|
|
10.7
|
|
Form of Securities Purchase Agreement, dated as of March 30, 2021,
by and between the Company and the Purchasers [Incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K filed
with the SEC on April 2, 2021]
|
|
|
|
|
|
10.8
|
|
Form of Lock-Up in connection with Securities Purchase Agreement,
dated as of March 30, 2021, by and between the Company and the
Purchasers [Incorporated by reference to Exhibit 10.2 to our
Current Report on Form 8-K filed with the SEC on April 2,
2021]
|
|
|
|
|
|
10.9
|
|
Form of Non-Fixed Price Sales and Purchase Agreement, dated as of
April 12, 2021, by and between the Company and Bitmain
[Incorporated by reference to Exhibit 10.1 to our Current Report on
Form 8-K filed with the SEC on April 15, 2021]
|
|
|
|
|
|
10.10
|
|
Master Agreement, dated March 8, 2021, by and
between the Company and Compute North LLC, filed herewith
|
|
|
|
|
|
10.11
|
|
Securities
Purchase Agreement, dated as of February 5, 2021, by and between
the Company and BHP Capital NY, Inc., filed herewith
|
|
|
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief
Executive Officer and Principal Financial Officer, filed
herewith
|
|
|
|
|
|
32.1
|
|
Section 1350 Certification of Chief Executive
Officer and Principal Financial Officer, filed herewith
|
|
101.INS
|
|
XBRL Instance Document
*
|
|
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension
Schema *
|
|
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension
Calculation Linkbase *
|
|
|
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension
Definition Linkbase *
|
|
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension
Label Linkbase *
|
|
|
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension
Presentation Linkbase *
|
_________
* Pursuant to Rule 406T of Regulation S-T, these interactive data
files are deemed “furnished” and not “filed” or part of a
registration statement or prospectus for purposes of Sections 11 or
12 of the Securities Act of 1933, or deemed “furnished” and not
“filed” for purposes of Section 18 of the Securities and Exchange
Act of 1934, and otherwise is not subject to liability under these
sections.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
/s/ Steve Rubakh
|
|
September 24, 2021
|
|
|
Steve Rubakh, Principal Executive Officer
and Principal Accounting Officer
|
|
Date
|
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
|
/s/ Steve Rubakh
|
|
September 24, 2021
|
|
|
Steve Rubakh, Director and Chief Executive
Officer
|
|
Date
|
|
Integrated Ventures (QB) (USOTC:INTV)
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