UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended March 31, 2022 

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

 

For the transition period from __________ to __________

 

Commission file number: 333-174759

 

INTEGRATED VENTURES, INC.

(Exact Name of Registrant as Specified in Its charter)

 

Nevada

82-1725385

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

 

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

(Address of principal executive offices) (Zip Code)

 

(215) 613-1111

(Registrant’s Telephone Number, Including Area Code)

 

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

N/A

 

N/A

 

N/A

 

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

 

Large accelerated filer

Accelerated filer

Non-accelerated Filer

Smaller reporting company

Emerging growth company

 

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 ☐.

 

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

 

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

 

The number of shares outstanding of the issuer’s common stock, $0.001 par value per share, was 205,246,592 as of May 13, 2022.

 

 

Table of Contents

 

INTEGRATED VENTURES, INC.

FORM 10-Q

MARCH 31, 2022

 

TABLE OF CONTENTS

 

 

Page No.

PART I: FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements

 

3

Item 2.

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

 

4

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

 

14

Item 4.

Controls and Procedures

 

14

 

PART II: OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

16

Item 1A.

Risk Factors

 

16

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

16

Item 3.

Defaults Upon Senior Securities

 

16

Item 4.

Mine Safety Disclosures

 

16

Item 5.

Other Information

 

16

Item 6.

Exhibits

 

17

 

SIGNATURES

 

18

 

 
2

Table of Contents

 

PART I - FINANCIAL INFORMATION

INDEX TO FINANCIAL STATEMENTS

 

 

Page

 

 

 

Condensed Balance Sheets as of March 31, 2022 (unaudited) and June 30, 2021

 

F-1

 

 

 

Condensed Statements of Operations for the Three Months and Nine Months Ended March 31, 2022 and 2021 (unaudited)

 

F-2

 

 

 

Condensed Statement of Stockholders’ Equity for the Nine Months Ended March 31, 2022 (unaudited)

 

F-3

 

 

 

Condensed Statement of Stockholders’ Equity for the Nine Months Ended March 31, 2021 (unaudited)

 

F-4

 

 

 

Condensed Statements of Cash Flows for the Nine Months Ended March 31, 2022 and 2021 (unaudited)

 

F-5

 

 

 

Notes to Condensed Financial Statements (unaudited)

 

F-7

 

 

 
3

Table of Contents

  

Integrated Ventures, Inc.

Condensed Balance Sheets

 

 

 

March 31,

2022

 

 

June 30,

2021

 

 

(Unaudited)

 

 

 

ASSETS

Current assets:

 

 

 

 

 

 

Cash

 

$ 40,729

 

 

$ 2,097,537

 

Prepaid expenses and other current assets

 

 

2,500

 

 

 

197,620

 

Total current assets

 

 

43,229

 

 

 

2,295,157

 

 

 

 

 

 

 

 

 

 

Non-current assets:

 

 

 

 

 

 

 

 

Equipment deposits

 

 

4,984,457

 

 

 

7,663,265

 

Property and equipment, net of accumulated depreciation and amortization of $1,630,180 and $521,416 as of March 31, 2022 and June 30, 2021, respectively

 

 

10,820,658

 

 

 

3,159,523

 

Digital currencies

 

 

300,403

 

 

 

245,320

 

Deposits

 

 

700

 

 

 

700

 

Total assets

 

$ 16,149,447

 

 

$ 13,363,965

 

 

 

 

 

 

 

 

 

 

LIABILITIES, MEZZANINE AND STOCKHOLDERS' EQUITY

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$ 107,068

 

 

$ 27,259

 

Accrued preferred stock dividends

 

 

600,595

 

 

 

193,933

 

Accrued expenses

 

 

1,428

 

 

 

4,381

 

Due to related party

 

 

78,212

 

 

 

29,357

 

Notes payable

 

 

-

 

 

 

19,153

 

Total current liabilities

 

 

787,303

 

 

 

274,083

 

Total liabilities

 

 

787,303

 

 

 

274,083

 

 

 

 

 

 

 

 

 

 

Mezzanine:

 

 

 

 

 

 

 

 

Series C preferred stock, $0.001 par value, (3,000 shares authorized, 1,125 shares issued and outstanding as of March 31, 2022 and June 30, 2021 respectively)

 

 

1,125,000

 

 

 

1,125,000

 

Series D preferred stock, $0.001 par value, (4,000 shares authorized, 3,000 shares issued and outstanding as of March 31, 2022 and June 30, 2021 respectively)

 

 

3,000,000

 

 

 

3,000,000

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Series A preferred stock, $0.001 par value, (1,000,000 shares authorized, 500,000 shares issued and outstanding as of March 31, 2022 and June 30, 2021 respectively)

 

 

500

 

 

 

500

 

Series B preferred stock, $0.001 par value, (1,000,000 shares authorized, 752,633 and 727,370 shares issued and outstanding as of March 31, 2022 and June 30, 2021, respectively)

 

 

753

 

 

 

727

 

Common stock, $0.001 par value, (750,000,000 shares authorized,

 

 

 

 

 

 

 

 

205,146,592 and 194,487,662 shares issued and outstanding as of March 31, 2022 and June 30, 2021, respectively)

 

 

205,147

 

 

 

194,488

 

Common stock payable

 

 

-

 

 

 

5,480,000

 

Additional paid-in capital

 

 

55,755,311

 

 

 

48,365,263

 

Accumulated deficit

 

 

(44,724,567 )

 

 

(45,076,096 )

Total stockholders’ equity

 

 

11,237,144

 

 

 

8,964,882

 

Total liabilities, mezzanine and stockholders’ equity

 

$ 16,149,447

 

 

$ 13,363,965

 

 

See Notes to Condensed Financial Statements

 

 
F-1

Table of Contents

 

Integrated Ventures, Inc.

Condensed Statements of Operations

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

Nine Months Ended

March 31,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Cryptocurrency mining

 

$ 964,319

 

 

$ 682,706

 

 

$ 4,080,688

 

 

$ 885,931

 

Sales of cryptocurrency mining equipment

 

 

-

 

 

 

14,099

 

 

 

1,346,610

 

 

 

75,221

 

Related party sales of cryptocurrency mining equipment

 

 

467,500

 

 

 

-

 

 

 

467,500

 

 

 

-

 

Total revenues

 

 

1,431,819

 

 

 

696,805

 

 

 

5,894,798

 

 

 

961,152

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

 

1,124,327

 

 

 

266,897

 

 

 

3,008,668

 

 

 

618,954

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

307,492

 

 

 

429,908

 

 

 

2,886,130

 

 

 

342,198

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

118,687

 

 

 

16,718,665

 

 

 

2,398,424

 

 

 

16,910,410

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

118,687

 

 

 

16,718,665

 

 

 

2,398,424

 

 

 

16,910,410

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

 

188,805

 

 

 

(16,288,757 )

 

 

487,706

 

 

 

(16,568,212 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(53 )

 

 

(239,435 )

 

 

(515 )

 

 

(430,049 )

Realized gain (loss) on sale of digital currencies

 

 

(215,758 )

 

 

54,920

 

 

 

312,075

 

 

 

106,497

 

Gain on forgiveness of debt

 

 

-

 

 

 

-

 

 

 

5,924

 

 

 

-

 

Loss on disposition of property and equipment

 

 

(46,999 )

 

 

-

 

 

 

(46,999 )

 

 

(207,281 )

Change in fair value of derivative liabilities

 

 

-

 

 

 

(113,599 )

 

 

-

 

 

 

(76,687 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other income (expense)

 

 

(262,810 )

 

 

(298,114 )

 

 

270,485

 

 

 

(607,520 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

(74,005 )

 

 

(16,586,871 )

 

 

758,191

 

 

 

(17,175,732 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$ (74,005 )

 

$ (16,586,871 )

 

 

758,191

 

 

$ (17,175,732 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock dividends

 

 

(139,640 )

 

 

-

 

 

 

(406,662 )

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to shareholders

 

$ (213,645 )

 

$ (16,586,871 )

 

$ 351,529

 

 

$ (17,175,732 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share attributable to shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$ (0.00 )

 

$ (0.11 )

 

$ 0.00

 

 

$ (0.13 )

Diluted

 

$ (0.00 )

 

$ (0.11 )

 

$ 0.00

 

 

$ (0.13 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

205,146,592

 

 

 

154,411,932

 

 

 

204,584,234

 

 

 

130,057,332

 

Diluted

 

 

205,146,592

 

 

 

154,411,932

 

 

 

291,501,946

 

 

 

130,057,332

 

 

See Notes to Condensed Financial Statements

 

 
F-2

Table of Contents

 

Integrated Ventures, Inc.

Condensed Statement of Stockholders’ Equity

Nine Months Ended March 31, 2022

(Unaudited)

 

 

 

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, 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for conversion of Series B preferred stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(24,737 )

 

 

(24 )

 

 

2,473,700

 

 

 

2,474

 

 

 

-

 

 

 

(2,450 )

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

185,230

 

 

 

185

 

 

 

-

 

 

 

40,548

 

 

 

-

 

 

 

40,733

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares for common stock payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,000,000

 

 

 

8,000

 

 

 

(5,480,000 )

 

 

5,472,000

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series B preferred stock issued for related party compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

50,000

 

 

 

50

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,879,950

 

 

 

-

 

 

 

1,880,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(406,662 )

 

 

(406,662 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

758,191

 

 

 

758,191

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2022

 

 

1,125

 

 

$ 1,125,000

 

 

 

3,000

 

 

$ 3,000,000

 

 

 

500,000

 

 

$ 500

 

 

 

752,633

 

 

$ 753

 

 

 

205,146,592

 

 

$ 205,147

 

 

$ -

 

 

$ 55,755,311

 

 

$ (44,724,567 )

 

$ 11,237,144

 

 

See Notes to Condensed Financial Statements

 

 
F-3

Table of Contents

 

Integrated Ventures, Inc.

Condensed Statement of Stockholders’ Equity

Nine Months Ended March 31, 2021

(Unaudited)

 

 

 

Series C

Preferred Stock

 

 

Series D

Preferred Stock

 

 

Series A

Preferred Stock

 

 

Series B

Preferred Stock

 

 

Common Stock

 

 

Additional

 Paid-in

 

 

Accumulated

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

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 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 shares for services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

216,616

 

 

 

217

 

 

 

24,043

 

 

 

-

 

 

 

24,260

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares for conversion of Series B preferred stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(52,630 )

 

 

(53 )

 

 

5,263,000

 

 

 

5,262

 

 

 

(5,209 )

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series B preferred stock issued for related party 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(66,311 )

 

 

(66,311 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(17,175,732 )

 

 

(17,175,732 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2021

 

 

1,125

 

 

$ 1,125,000

 

 

 

3,000

 

 

$ 3,000,000

 

 

 

500,000

 

 

$ 500

 

 

 

727,370

 

 

$ 727

 

 

 

164,422,662

 

 

$ 164,423

 

 

$ 40,235,439

 

 

$ (39,691,125 )

 

$ 709,964

 

 

See Notes to Condensed Financial Statements

 

 
F-4

Table of Contents

 

 Integrated Ventures, Inc.

Condensed Statements of Cash Flows

(Unaudited)

 

 

 

Nine Months Ended

March 31,

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income (loss)

 

$ 758,191

 

 

$ (17,175,732 )

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,142,192

 

 

 

289,464

 

Series B preferred stock issued for related party stock-based compensation

 

 

1,880,000

 

 

 

16,537,500

 

Common stock issued for services

 

 

40,733

 

 

 

24,260

 

Realized gain on sale of digital currencies

 

 

(312,075 )

 

 

(106,497 )

Gain on forgiveness of debt

 

 

(5,924 )

 

 

-

 

Loss on disposition of property and equipment

 

 

46,999

 

 

 

207,281

 

Change in fair value of derivative liabilities

 

 

-

 

 

 

76,687

 

Amortization of debt discount

 

 

-

 

 

 

404,387

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Digital currencies

 

 

(4,080,688 )

 

 

(903,163 )

Equipment deposits

 

 

1,005,462

 

 

 

-

 

Prepaid expenses and other current assets

 

 

195,120

 

 

 

(4,250 )

Accounts payable

 

 

(41,369 )

 

 

(42,840 )

Accrued expenses

 

 

(2,953 )

 

 

21,143

 

Due to related party

 

 

48,855

 

 

 

(65,737 )

Net cash provided by (used in) operating activities

 

 

674,543

 

 

 

(737,497 )

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Increase in equipment deposits

 

 

(7,218,405 )

 

 

(2,528,392 )

Net proceeds from the sale of digital currencies

 

 

6,460,183

 

 

 

3,835,173

 

Purchase of digital currencies

 

 

(2,001,325 )

 

 

(4,156,874 )

Purchase of property and equipment

 

 

(28,575 )

 

 

(975,574 )

Proceeds from the sale of property and equipment

 

 

70,000

 

 

 

-

 

Net cash used in investing activities

 

 

(2,718,122 )

 

 

(3,825,667 )

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayment of notes payable

 

 

(13,229 )

 

 

(31,537 )

Proceeds from the issuance of Series C preferred shares

 

 

-

 

 

 

1,125,000

 

Proceeds from the issuance of Series D preferred shares

 

 

-

 

 

 

3,000,000

 

Proceeds from convertible notes payable

 

 

-

 

 

 

563,000

 

Net cash provided (used in) by financing activities

 

 

(13,229 )

 

 

4,656,463

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

(2,056,808 )

 

 

93,299

 

Cash, beginning of period

 

 

2,097,537

 

 

 

6,675

 

Cash, end of period

 

$ 40,729

 

 

$ 99,974

 

 

See Notes to Condensed Financial Statements

 

 
F-5

Table of Contents

 

Integrated Ventures, Inc.

Condensed Statements of Cash Flows (Continued)

(Unaudited)

 

 

 

Nine Months Ended

March 31,

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$ 515

 

 

$ 2,479

 

Cash paid for income taxes

 

 

-

 

 

 

-

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Equipment deposits transferred to property and equipment

 

$ 8,891,751

 

 

$ -

 

Accrued preferred stock dividends

 

 

406,662

 

 

 

66,311

 

Conversion of Series B preferred shares for common shares

 

 

2,474

 

 

 

5,263

 

Common shares issued for common stock payable

 

 

5,480,000

 

 

 

-

 

Debt discount for derivative liabilities

 

 

-

 

 

 

258,460

 

Common shares issued in conversion of debt

 

 

-

 

 

 

999,869

 

Common shares issued for stock subscription

 

 

 

 

 

 

33,888

 

Common shares issued for Series C preferred stock equity incentive

 

 

 

 

 

 

384,100

 

Settlement of derivative liabilities

 

 

-

 

 

 

466,093

 

Notes payable issued for property and equipment

 

 

-

 

 

 

57,822

 

Property and equipment purchased with digital securities

 

 

-

 

 

 

4,178

 

 

See Notes to Condensed Financial Statements

 

 
F-6

Table of Contents

 

Integrated Ventures, Inc.

Notes to Condensed Financial Statements

Nine Months Ended March 31, 2022

(Unaudited)

 

1. ORGANIZATION BASIS OF PRESENTATION

 

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.

 

Basis of Presentation

 

The accompanying unaudited condensed financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles ("US GAAP") for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. The results of operations for the interim period ended March 31, 2021 shown in this report are not necessarily indicative of results to be expected for the full fiscal year ending June 30, 2022. In the opinion of the Company's management, the information contained herein reflects all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the Company's results of operations, financial position and cash flows. The unaudited interim financial statements should be read in conjunction with the audited financial statements in the Company's Annual Report on Form 10-K for the year ended June 30, 2021 filed on September 24, 2021 and Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The significant accounting policies of the Company are disclosed in Notes to Financial Statements included in the Company’s Annual Report on Form 10-K. The following summary of significant accounting policies of the Company is presented to assist in understanding the Company’s interim financial statements. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.

 

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.

 

 
F-7

Table of Contents

 

Digital Currencies

 

Digital currencies consist mainly of Bitcoin and Litecoin generally received for the Company’s own account as compensation for cryptocurrency mining services, and other digital currencies 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 realized losses on sale of digital currencies of $215,758 in the three months ended March 31, 2022 and realized gains on sale of digital currencies of $54,920 in the three months ended March 31, 2021 and $312,075 and $106,497 in the nine months ended March 31, 2022 and 2021, respectively. Cryptocurrency mining revenues were $964,319 and $682,706 in the three months ended March 31, 2022 and 2021, respectively, and $4,080,688 and $885,931 in the nine months ended March 31, 2022 and 2021, respectively.

 

Property and Equipment

 

Property and equipment, consisting primarily of computer and other cryptocurrency mining equipment (digital 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 three months ended March 31, 2022, we sold used mining equipment and realized a loss on the sale of $46,999. During the nine months ended March 31, 2021, we disposed of and wrote off non-serviceable, defective mining equipment with a net book value of $207,281 and wrote off its net book value of $207,281 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 because 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.

 

 
F-8

Table of Contents

 

Derivatives

 

As of March 31, 2022, and June 30, 2021, the Company had no derivative liabilities.

 

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. If 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 periods ended March 31, 2022 and 2021.

 

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.

 

 
F-9

Table of Contents

 

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

 

For those periods where income before income taxes is reported in the accompanying condensed statements of operations, no provision for income taxes is provided due to the net operating loss carryforward of the Company. 

 

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, 2022, tax years 2015 through 2021 remain open for IRS audit. The Company has received no notice of audit from the IRS for any of the open tax years.

 

 
F-10

Table of Contents

 

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 based on 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 using the treasury stock method, 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 three months ended March 31, 2022 and 2021 and the nine months ended March 31, 2021, 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.

 

The common shares used in the computation of basic and diluted net income per share for the nine months ended March 31, 2022 are reconciled as follows:

 

Weighted average number of shares outstanding – basic

 

 

204,584,234

 

Dilutive effect of convertible preferred stock

 

 

86,917,712

 

Weighted average number of shares outstanding – diluted

 

 

291,501,946

 

 

Recently Issued Accounting Pronouncements

 

There were no new accounting pronouncements issued or proposed by the FASB during the nine months ended March 31, 2022 and through the date of filing this report which the Company believes will have a material impact on its financial statements.

 

Concentrations

 

During the nine months ended March 31, 2022, one customer accounted for 67% of sales of cryptocurrency mining equipment and 21% of total revenues. A related party customer accounted for 26% of sales of cryptocurrency mining revenues and 8% of total revenues.

 

During the nine months ended March 31, 2022, substantially all cryptocurrency mining equipment, including those units with costs included in equipment deposits as of March 31, 2022, was purchased from one supplier.

 

 
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Reclassifications

 

Certain amounts in the financial statements for prior year periods have been reclassified to conform to the presentation for the current year periods.

 

3. GOING CONCERN

 

Historically, the Company has reported recurring net losses from operations and used net cash in operating activities. As of March 31, 2022, the Company’s current liabilities exceeded its current assets by $744,074 and the Company had an accumulated deficit of $44,724,567. 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 and maintain 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 as of:

 

 

 

March 31,

 2022

 

 

June 30,

2021

 

 

 

 

 

 

 

 

Cryptocurrency mining equipment

 

$ 12,242,863

 

 

$ 3,664,573

 

Furniture and equipment

 

 

207,975

 

 

 

16,366

 

 

 

 

 

 

 

 

 

 

Total

 

 

12,450,838

 

 

 

3,680,939

 

Less accumulated depreciation and amortization

 

 

(1,630,180 )

 

 

(521,416 )

 

 

 

 

 

 

 

 

 

Net

 

$ 10,820,658

 

 

$ 3,159,523

 

 

Depreciation and amortization expense, included in cost of revenues, for the three months ended March 31, 2022 and 2021 was $417,312 and $111,672, respectively, and $1,142,192 and $289,464 for the nine months ended March 31, 2022 and 2021, respectively.

 

During the three months ended March 31, 2022, we sold used mining equipment and realized a loss on the sale of $46,999. During the nine months ended March 31, 2021, we disposed of and wrote off non-serviceable, defective mining equipment with a net book value of $207,281.

 

5. EQUIPMENT DEPOSITS

 

Payments to equipment suppliers prior to shipment of the equipment are recorded as equipment deposits.

 

 
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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 March 31 2022, and June 30, 2021, equipment deposits on the condensed balance sheets totaled $4,984,457 and $7,663,265, respectively, and were comprised of payments to Bitmain and other equipment vendors, net of Wattum reimbursements and the deliveries of equipment.  During the nine months ended March 31, 2022, equipment deposits paid to Bitmain, net of Wattum reimbursements, totaled $6,266,034.  As of March 31, 2022, 6 of the 12 shipments totaling 2,370 miners had been delivered by Bitmain to the Company, Wattum and two customers of the Company.

 

Canaan Convey Purchase

 

As of June 30, 2021, the Company prepaid $990,000 to Canaan Convey Co. LTD (“Canaan Convey”) for the purchase of 250 cryptocurrency miners and freight and custom charges. As of March 31, 2022, the 250 miners had been delivered to the Company by Canaan Convey.

 

Sale of Miners

 

In February 2022, the Company sold 95 miners to a non-related party for $875,017 and sold 55 miners to a related party for $467,500.

 

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.

 

Effective April 1, 2021, the Company entered a four-year employment contract with Steve Rubakh establishing annual salary at $250,000 with a quarterly bonus of $50,000 or 5,000 shares of Series B preferred stock, as determined by the Board of Directors. Quarterly bonuses of $25,000 and $50,000 were approved by the Board of Directors for the three months ended December 31, 2021 and September 30, 2021, respectively. Annual salary for Mr. Rubakh was $150,000 prior to April 1, 2021.

 

In October 2021, the Company issued to Mr. Rubakh 50,000 shares of Series B convertible preferred stock valued on an “as converted to common” basis at $1,880,000, using the closing market price of the Company’s common stock on the date of issuance. 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.

 

Total compensation expense included in general and administrative expenses was $67,500 and $37,500 for the three months ended March 31, 2022 and 2021, respectively, and $262,500 and $112,500 for the nine months ended March 31, 2022 and 2021, respectively. Amounts due to related party, consisting of accrued salary to Mr. Rubakh, totaled $78,212 and $29,357 as of March 31, 2022 and June 30, 2021, respectively.

 

 
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In August 2021, Mr. Rubakh converted 24,737 shares of Series B preferred stock into 2,473,700 shares of common stock in a transaction recorded at the par value of the shares.

 

On December 15, 2021, the Company and Tioga Holding, LLC, a related party owned 50% by Mr. Rubakh (“Tioga”), entered into a Property Lease and Power Purchase Agreement for the use by the Company of facilities located in Tioga, Pennsylvania. 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 term of the agreement is 36 months. Full mining operations had not commenced as of March 31, 2022. In March 2022, the Company paid power expense of $8,400 to Tioga.

 

In February 2022, the Company sold to Tioga 55 miners from the Bitmain shipments (Note 5) for a total sales price of $467,500.

 

7. 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. In November 2021, the Company made principal payments totaling $1,659. In December 2021, the remaining principal balance of $5,924 was forgiven pursuant to the provisions of the Act, and the Company recorded a gain of forgiveness of debt for this amount.

 

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 were secured by the equipment purchased and bore interest at 10%.

 

The $17,822 note was payable in twelve equal consecutive monthly installments of $1,567 and matured in September 2021. The note had a principal balance of $0 and $6,947 as of March 31, 2022 and June 30, 2021, respectively.

 

The $40,000 note was payable in twelve equal consecutive monthly installments of $3,516 and matured in August 2021. The note had a principal balance of $0 and $4,623 as of March 31, 2022 and June 30, 2021, respectively.

 

8. 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 March 31, 2022 and June 30, 2021, the Company accrued Series C preferred stock dividends of $172,779 and $61,098, respectively.

 

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.

 

 
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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 March 31, 2022, and 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 March 31, 2022 and June 30, 2021, the Company accrued Series D preferred stock dividends of $427,816 and $132,835, respectively.

 

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.

 

 
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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 March 31, 2022, and 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.

 

9. STOCKHOLDERS’ EQUITY

 

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 March 31, 2022 and June 30, 2021, which were issued in March 2015 to members of the Company’s Board of Directors in consideration for services.

 

 
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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 752,633 and 727,370 shares issued and outstanding as of March 31, 2022 and June 30, 2021, respectively.

 

On February 19, 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.

 

In August 2021, Mr. Rubakh converted 24,737 shares of Series B preferred stock into 2,473,700 shares of common stock in a transaction recorded at the par value of the shares.

 

In October 2021, the Company issued to Mr. Rubakh 50,000 shares of Series B convertible preferred stock valued on an “as converted to common” basis at $1,880,000, using the closing market price of the Company’s common stock of $0.37 on the date of issuance. 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.

 

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 205,146,592 and 194,487,662 common shares issued and outstanding as of March 31, 2022 and June 30, 2021, respectively.

 

During the nine months ended March 31, 2022, the Company issued a total of 10,658,930 shares of its common stock: 2,473,700 shares issued in conversion of Series B preferred stock recorded at par value of $2,474; 8,000,000 shares for common stock payable of $5,480,000 and 185,230 shares for services valued at $40,733.

 

During the nine months ended March 31, 2021, the Company issued a total of 61,258,202 shares of its common stock: 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, 216,616 shares for services valued at $24,260; 5,263,000 shares issued in conversion of Series B preferred stock recorded at par value of $5,262; 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.

 

 
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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 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. In July 2021, the Company issued 8,000,000 shares of its common stock in satisfaction of this obligation.

 

10. WARRANTS

 

As discussed in Note 8, 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. The Company also issued warrants to purchase 30,000,000 shares of its common stock in April 2021 in connection with the sale of common stock.

 

A summary of the Company’s warrants as of March 31, 2022, and changes during the nine months then ended is as follows:

 

 

 

Shares

 

 

Weighted

Average

  Exercise Price

 

 

Weighted Average

Remaining

Contract Term

  (Years)

 

 

Aggregate

Intrinsic

  Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding as of June 30, 2021

 

 

41,000,000

 

 

$ 0.30

 

 

 

 

 

 

 

Granted

 

 

-

 

 

$ -

 

 

 

 

 

 

 

Exercised

 

 

-

 

 

$ -

 

 

 

 

 

 

 

Forfeited or expired

 

 

-

 

 

$ -

 

 

 

 

 

 

 

Outstanding and exercisable as of March 31, 2022

 

 

41,000,000

 

 

$ 0.30

 

 

 

3.97

 

 

$ -

 

 

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the closing price of our common stock of $0.115 as of March 31, 2022, which would have been received by the holders of in-the-money warrants had the holders exercised their warrants as of that date.

 

11. COMMITMENTS AND CONTINGENCIES

 

Legal Matters

 

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of the date of filing of this report, there were no pending or threatened lawsuits.

 

Operating Leases

 

As of March 31, 2022, the Company had no obligation for future lease payments under non-cancelable operating leases. However, the Company has entered into three 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.

 

 
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PetaWatt Power Purchase Agreement

 

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 March 31, 2022 and June 30, 2021, the remaining prepayment balance was $0 and $193,870, respectively, which amounts were included in prepaid expenses and other current assets in the accompanying balance sheet. Due to PetaWatt’s financial difficulties, the Company discontinued its cryptocurrency mining operations in New York and the agreement was terminated. All mining equipment had been shipped to Tioga, Pennsylvania as of March 11, 2022. The Company estimates these miners will be connected and placed into service in late May or early June 2022.

 

Compute North Power Purchase and Hosting 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. The Company’s 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.

 

Tioga Property Lease and Power Purchase Agreement

 

On December 15, 2021, the Company and Tioga Holding, LLC, a related party, entered into a Property Lease and Power Purchase Agreement for the use by the Company of facilities located in Tioga, Pennsylvania. 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 term of the agreement is 36 months. Full mining operations had not commenced as of March 31, 2022. 

Service Agreement

 

On January 25, 2022, the Company and Bitkern Consulting, Inc. (“Bitkern”) entered into a Services Agreement for the Company’s Tioga, Pennsylvania mining operations. Bitkern is to provide: management of schedules of deliveries of mining equipment; receive and install mining equipment; install mining software, as needed, and maintain the mining equipment after installation. The agreement shall remain in effect for an indefinite period until terminated by either party in accordance with terms of the agreement. The Company is to pay monthly a contractual rate of $0.005 per kilowatt hour of electricity consumed in the Company’s cryptocurrency mining operations. Other costs of repairs and maintenance incurred by Bitkern, including materials and subcontractors, will be reimbursed by the Company.

 

 
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12. SUBSEQUENT EVENTS

 

Management has evaluated subsequent events according to the requirements of ASC TOPIC 855, and has reported the following:

 

Issuance of Common Stock

 

On April 27, 2022, the Company issued 100,000 common shares to a consultant for services valued at $5,210, based on the closing market price of the stock on that date.

 

Carthage, New York Operations

 

In March 2022, the Company discontinued its cryptocurrency mining operations in its Carthage, New York facility and transferred the mining equipment previously utilized in New York to its Tioga, Pennsylvania location. Subsequent to March 31, 2022, the Company continued the integration of the equipment to its Tioga facility and estimates these miners will be connected and placed into service in late May or early June 2022.

 

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

 

SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS

 

We believe that it is important to communicate our future expectations to our security holders and to the public. This report, therefore, contains statements about future events and expectations which are “forward-looking statements” within the meaning of Sections 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including the statements about our plans, objectives, expectations and prospects under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You can expect to identify these statements by forward-looking words such as “may,” “might,” “could,” “would,” “will,” “anticipate,” “believe,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek” and other similar expressions. Any statement contained in this report that is not a statement of historical fact may be deemed to be a forward-looking statement. Although we believe that the plans, objectives, expectations and prospects reflected in or suggested by our forward-looking statements are reasonable, those statements involve known and unknown 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 may cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in the “Risk Factors” section of and elsewhere in our Annual Report on Form 10-K for the year ended June 30, 2021 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 March 31, 2022 , the Company owned a total of approximately 2,122 miners in two locations, Kearney, Nebraska and Tioga, Pennsylvania. Under our contract with Bitmain, which expires in July 2022, we expect to receive an additional 800 miners. Due to PetaWatt’s financial difficulties, the Company has discontinued its cryptocurrency mining operations in New York. All mining equipment previously operating in New York has been relocated to Tioga, Pennsylvania. The Company estimates these miners and new Bitmain miners delivered to Tioga will be connected and placed into service late May or early June 2022. During the nine months ended March 31, 2022, the Company paid deposits totaling $6,266,034 (net of Wattum reimbursements) for additional miners.

 

The Company’s forward-looking business plan is focused on: (1) raising capital to purchase new mining equipment; (2) rotating and upgrading mining equipment; (3) expansion of power capacity; and (4) launching cryptocurrency mining operations in new locations.

 

Financial 

 

As of March 31, 202, we operated our cryptocurrency mining operations in one hosted facility located in Kearney, Nebraska. We estimate the mining equipment previously used in New York and transferred to Tioga Pennsylvania and new mining equipment purchased and delivered to Tioga will be connected and placed into service sometime in May 2022. The hosting and power purchase agreements for the Nebraska and Pennsylvania facilities require the Company to pay monthly a contractual rate per kilowatt hour of electricity consumed in the Company’s cryptocurrency mining operations. The agreement for the Pennsylvania facility is with a related party owned 50% by Steve Rubakh, our President and Chief Executive Officer.

 

 
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Revenues from our cryptocurrency mining operations were $964,319 and $682,706 for the three months ended March 31, 2022 and 2021, respectively, and $4,080,688 and $885,931 for the nine months ended March 31, 2022 and 2021, respectively. Revenues from the sales of cryptocurrency mining equipment were $467,500 and $14,099 for the three months ended March 31, 2022 and 2021, respectively, and $1,814,110 and $75,221 for the nine months ended March 31, 2022 and 2021, respectively. Included in the sales of cryptocurrency mining equipment in the three and nine months ended March 31, 2022 were sales to a related party of $467,500.

 

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 March 31, 2022, our digital currencies at cost totaled $300,403 and were comprised primarily of Bitcoin (BTC).

 

Historically, 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 nine months ended March 31, 2022, we generated sufficient cash flow from operations and from the sale of digital currencies, and did not incur additional debt or issue securities for cash. 

 

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, escalating prices of mining equipment 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.

 

 
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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 and Series B preferred stock, 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 must 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

 

THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2022 COMPARED TO THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2021

 

Revenues

 

Our cryptocurrency mining revenues increased to $964,319 in the three months ended March 31, 2022 from $682,706 in the three months ended March 31, 2021 and increased to $4,080,688 in the nine months ended March 31, 2022 from $885,931 in the nine months ended March 31, 2021. On a year-to-date basis, this increase in revenues resulted primarily from higher prices of BTC and the Company’s successful efforts to raise capital to purchase more efficient and profitable mining equipment. In addition, we expanded our cryptocurrency mining operations to a second location in Kearney, Nebraska. However, our cryptocurrency mining revenues were negatively impacted in the current year periods due to the weakening of cryptocurrency markets during our second and third fiscal quarters and to the financial difficulties of PetaWatt Holdings, which resulted in the termination of our Carthage, New York mining operations.

 

We also have revenues from the sale of cryptocurrency mining equipment that have been either newly purchased or refurbished for resale. Such sales totaled $467,500 and $14,099 in the three months ended March 31, 2022 and 2021, respectively, and totaled $1,814,110 and $75,221 in the nine months ended March 31, 2022 and 2021, respectively. The increase in sales of equipment in the current year was due primarily to three sales of miners to non-related customers. Also included in the sales of cryptocurrency mining equipment in the three and nine months ended March 31, 2022 were sales to a related party of $467,500. Sales of equipment will fluctuate from period to period depending on equipment available to us to sell and the current retail demand for our model of cryptocurrency mining units.

 

Cost of Revenues

 

Cost of revenues was $1,124,327 and $266,897 in the three months ended March 31, 2022 and 2021, respectively, and $3,008,668 and $618,954 in the nine months ended March 31, 2022 and 2021, respectively. The increase in cost of revenues in the current fiscal year is due primarily to: increased cryptocurrency mining revenues, expansion to two operating locations and increased 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 $307,492 and $429,908 in the three months ended March 31, 2022 and 2021, respectively, and $2,886,130 and $342,198 in the six months ended March 31, 2022 and 2021, respectively. 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 higher BTC market pricing, the implementation of more efficient mining equipment and the increase in the number of miners purchased also contributed to the gross profit on revenues.

 

 
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Operating Expenses

 

Our general and administrative expenses decreased to $118,687 in the three months ended March 31, 2022 from $16,718,665 in the three months ended March 31, 2021. Our general and administrative expenses decreased to $2,398,424 in the nine months ended March 31, 2022 from $16,910,410 in the nine months ended March 31, 2021. The decrease resulted primarily from decreased non-cash related party stock-based compensation expense. We reported non-cash, related party stock-based compensation of $16,537,500 in the three months and nine months ended March 31, 2021 compared to $0 and $1,880,000 in the three months ended March 31, 2022, respectively . 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. In October 2021, the Company issued to Mr. Rubakh 50,000 shares of Series B convertible preferred stock valued on an “as converted to common” basis at $1,880,000, using the closing market price of the Company’s common stock of $0.37 on the date of issuance. Each share of Series B preferred stock is convertible into 100 shares of the Company’s common stock. 

 

Other Income (Expense)

 

Our other income (expense) was comprised of the following:

 

 

 

Three Months Ended

March 31,

 

 

Nine Months Ended

March 31,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

$ (53 )

 

$ (239,435 )

 

$ (515 )

 

$ (430,049 )

Realized gain (loss) on sale of digital currencies

 

 

(215,758 )

 

 

54,920

 

 

 

312,075

 

 

 

106,497

 

Gain on forgiveness of debt

 

 

-

 

 

 

-

 

 

 

5,924

 

 

 

-

 

Loss on disposition of property and equipment

 

 

(46,999 )

 

 

-

 

 

 

(46,999 )

 

 

(207,281 )

Change in fair value of derivative liabilities

 

 

-

 

 

 

(113,599 )

 

 

-

 

 

 

(76,687 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other income (expense)

 

$ (262,810 )

 

$ (298,114 )

 

$ 270,485

 

 

$ (607,520 )

 

During our fiscal year ended June 30, 2021, our lenders completed the full conversion of our convertible notes payable, resulting in a substantial decrease in interest expense in the current fiscal year. 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. 

 

When funds are available and market conditions allow, we also invest in certain denominations of cryptocurrencies to complement our mining operations. In addition to the currencies received as compensation for our mining services, during the nine months ended March 31, 2022, we purchased various digital currencies totaling $2,001,325 and 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 nine months ended March 31, 2022, we received total proceeds of $6,460,183 from the sale of digital currencies and incurred transactions fees totaling $121,178, which were deducted from the gain realized of $433,253. During the nine months ended March 31, 2021, we received total proceeds of $3,835,173 from the sale of digital currencies and incurred transactions fees totaling $105,163, which were deducted from the gain realized of $211,660. In the quarter ended March 31, 2022 we realized a loss on sale of digital currencies of $215,758 and realized a gain on sale of digital currencies of $54,920 in the three months ended March 31, 2021.

 

 
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In April 2020, the Company received loan proceeds of $7,583 under the terms and conditions of the Paycheck Protection Program (“PPP”). The loan was to mature 24 months from inception and bore interest at 1% per annum. In November 2021, the Company made PPP loan principal payments totaling $1,659. In December 2021, the remaining principal balance of $5,924 was forgiven pursuant to the provisions of the Act, and the Company recorded a gain of forgiveness of debt for this amount in the nine months ended March 31, 2022.

 

During the three months and nine months ended March 31, 2022, we sold used mining equipment and realized a loss on the sale of $46,999. During the nine months ended March 31, 2021, we disposed of and wrote off non-serviceable, defective mining equipment with a net book value of $207,281. The equipment disposed of or sold was replaced with new, more efficient mining equipment. We reported no loss on disposition of property and equipment during the three months ended March 31, 2021.

 

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. As a result, we reported no gain or loss from change in fair value of derivative liabilities in the three months and nine months ended March 31, 2022. We reported losses change in fair value of derivative liabilities of $113,599 and $76,687 in the three months ended March 31, 2021 and the nine months ended March 31, 2021, respectively. 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. 

 

Net Income (Loss)

 

As a result, we reported net losses of $74,005 and $16,586,871 in the three months ended March 31, 2022 and 2021, respectively. We reported net income of $758,191 in the nine months ended March 31, 2022 and a net loss of $17,175,732 in the nine months ended March 31, 2021.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Overview

 

As of March 31, 2022, we had total current assets of $43,229, including cash of $40,729 and prepaid expenses and other current assets of $2,500. As of March 31, 2022, we had total current liabilities of $787,303, including accrued preferred stock dividends of $600,595. We had total stockholders’ equity of $11,237,144 as of March 31, 2022 compared to total stockholders’ equity of $8,964,882 as of June 30, 2021.

 

Sources and Uses of Cash

 

Net cash provided by operating activities in the nine months ended March 31, 2022 was $674,543 as a result of our net income of $758,191, non-cash expenses totaling $3,109,924, decrease in equipment deposits of $1,005,462, decrease in prepaid expenses and other current assets of $195,120 and increase in due to related party of $48,855, partially offset by non-cash gains totaling $318,000, increase in digital currencies of $4,080,688 and decreases in accounts payable of $41,368 and accrued expenses of $2,953.

 

 
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We used net cash in operations of $737,497 in the nine months ended March 31, 2021 as a result of our net loss of $17,175,732, non-cash gain of $106,497, increases in prepaid expenses and other current assets of $4,250 and digital currencies of $903,163 and decreases in accounts payable of $42,840 and due to related party of $65,737, partially offset by non-cash expenses totaling $17,539,579 and increase accrued expenses of $21,143.

 

During the nine months ended March 31, 2022, we used net cash in investing activities of $2,718,122, comprised of the increase in equipment deposits of $7,218,405, purchase of digital currencies of $2,001,325 and purchase of property and equipment of $28,575, partially offset by net proceeds from the sale of digital currencies of $6,460,183 and proceeds from the sale of property and equipment of $70,000. We transferred mining equipment with a total cost of $8,891,751 from equipment deposits to property and equipment during the nine months ended March 31, 2022

 

During the nine months ended March 31, 2021, we used net cash in investing activities of $3,825,667, comprised of the purchase of digital currencies of $4,156,874, the purchase of property and equipment of $975,574 and equipment deposits of $2,528,392, partially offset by proceeds from the sale of digital currencies of $3,835,173.

 

During the nine months ended March 31, 2022, we used net cash in financing activities of $13,229, comprised of repayment of notes payable.

 

During the nine months ended March 31, 2021, we had net cash provided by financing activities of $4,656,463 comprised of proceeds from convertible notes payable of $563,000, proceeds from the issuance of Series C preferred stock of $1,125,000 and $3,000,000 proceeds from the issuance of Series D preferred stock, partially offset by repayment of notes payable of $31,537. 

 

We must raise additional funds to successfully operate our digital currency mining operations, purchase equipment and expand our operations to multiple facilities. The Company may need to: (1) borrow money from shareholders; (2) issue debt or equity or (3) or enter a strategic financial arrangement with a third party. There can be no assurance that additional capital will be available to us. 

 

Going Concern

 

Historically, the Company has reported recurring net losses from operations and used net cash in operating activities. As of March 31, 2022, the Company’s current liabilities exceeded its current assets by $744,074 and the Company had an accumulated deficit of $44,724,567. 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 and maintain 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. 

 

 
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SIGNIFICANT ACCOUNTING POLICIES

 

Our significant accounting policies are disclosed in Note 2 to the accompanying condensed financial statements and in the notes to our audited financial statements included in our Annual Report on Form 10-K for the year ended June 30, 2021. 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 mainly of Bitcoin and Litecoin, generally received for the Company’s own account as compensation for cryptocurrency mining services, and other digital currencies 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 realized losses on sale of digital currencies of $215,758 in the three months ended March 31, 2022 and realized gains on sale of digital currencies of $54,920 in the three months ended March 31, 2021 and $312,075 and $106,497 in the nine months ended March 31, 2022 and 2021, respectively. Cryptocurrency mining revenues were $964,319 and $682,706 in the three months ended March 31, 2022 and 2021, respectively, and $4,080,688 and $885,931 in the nine months ended March 31, 2022 and 2021, respectively.

 

Property and Equipment

 

Property and equipment, consisting primarily of computer and other cryptocurrency mining equipment (digital 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 three months ended March 31, 2022, we sold used mining equipment and realized a loss on the sale of $46,999. During the nine months ended March 31, 2021, we disposed of and wrote off non-serviceable, defective mining equipment with a net book value of $207,281 and wrote off its net book value of $207,281 to loss on disposition of property and equipment.

 

 
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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 because 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.

 

Derivatives

 

As of March 31, 2022, and June 30, 2021, the Company had no derivative liabilities. 

 

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 periods ended March 31, 2022 and 2021.

 

 
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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.

 

 
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Other Agreements

 

On January 25, 2022, the Company and Bitkern Consulting, Inc. (“Bitkern”) entered into a confidential Services Agreement for the Company’s Tioga, Pennsylvania mining operations. Bitkern is to: provide management of schedules of deliveries of mining equipment; receive and install mining equipment; install mining software, as needed, and maintain the mining equipment after installation. The agreement shall remain in effect for an indefinite period until terminated by either party in accordance with terms of the agreement. The Company is to pay monthly a contractual rate per kilowatt hour of electricity consumed in the Company’s cryptocurrency mining operations. Other costs of repairs and maintenance incurred by Bitkern, including materials and subcontractors, will be reimbursed by the Company.

 

OFF BALANCE SHEET ARRANGEMENTS

 

Operating Leases

 

As of March 31, 2022, the Company had no obligation for future lease payments under non-cancelable operating leases. However, the Company has entered into three 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 Power Purchase Agreement

 

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 March 31, 2022 and June 30, 2021, the remaining prepayment balance was $0 and $193,870, respectively, which amounts were included in prepaid expenses and other current assets in the accompanying balance sheet. Subsequent to March 31, 2022, due to PetaWatt’s financial difficulties, the Company discontinued its cryptocurrency mining operations in New York and the agreement was terminated. All mining equipment has been relocated to Tioga, Pennsylvania. The Company estimates these miners will be connected and placed into service in May 2022.

 

Compute North Purchase and Hosting 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. The Company’s 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.

 

 
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Tioga Property Lease and Power Purchase Agreement

 

On December 15, 2021, the Company and Tioga Holding, LLC, a related party (“Tioga”), entered into a Property Lease and Power Purchase Agreement. Under the agreement, the Company will lease 12,134 square feet of aa building in Tioga, Pennsylvania (“Premises”). The term of the agreement is 36 months ending on December 15, 2024. The Company has right to terminate the agreement under certain circumstances, and may assign or sublet the Premises if Tioga provides prior written consent. The Company is to pay a base rent of $2,500 plus a monthly contractual rate per kilowatt hour of electricity consumed in the Company’s cryptocurrency mining operations. The Company projects mining operations will commenced in May 2022.

 

Equipment Purchase Agreements

 

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 March 31 2022, and June 30, 2021, equipment deposits on the condensed balance sheets totaled $4,984,457 and $7,663,265, respectively, and were comprised of payments to Bitmain and other equipment vendors, net of Wattum reimbursements and the deliveries of equipment. During the nine months ended March 31, 2022, equipment deposits paid to Bitmain, net of Wattum reimbursements, totaled $6,266,034. As of March 31, 2022, 6 of the 12 shipments totaling 2,370 miners had been delivered by Bitmain to the Company, Wattum and two customers of the Company. 

 

RECENTLY ISSUED ACCOUNTING POLICIES

 

There were no new accounting pronouncements issued or proposed by the FASB during the nine months ended March 31, 2022, and through the date of filing this report which the Company believes will have a material impact on its financial statements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

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

 

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

 

1.

As of March 31, 2022, 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 March 31, 2022, due to the inherent challenge 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 March 31, 2022, 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 March 31, 2022, 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 March 31, 2022, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 
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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations, except as set forth below. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company, threatened against or affecting our company, our common stock, or our company’s officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

ITEM 1A. RISK FACTORS

 

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021. The risks identified in these risk factors could materially affect our business, financial condition or future results. 

 

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

 

During the three months ended March 31, 2022, we did not issue any securities that were not registered under the Securities Act, and were not previously disclosed in a Current Report on Form 8-K or Quarterly Report on Form 10-Q as listed below.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

There is no other information required to be disclosed under this item which was not previously disclosed.

 

 
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ITEM 6. EXHIBITS

 

(a) Exhibits.

 

Exhibit

Number

Exhibit Description

31.1

Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer and Principal Financial Officer*

32.1

Section 1350 Certification of Principal Executive Officer and Principal Financial Officer**

101.INS

 

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

 

Inline XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

 

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

______________

* Filed herewith.

**This certification is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.

 

 
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SIGNATURES

 

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

 

INTEGRATED VENTURES, INC.

Dated: May 13, 2022

By:

/s/ Steve Rubakh

President and Chief Executive Officer

and Principal Financial Officer

 

 
18

 

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