UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the fiscal year ended June 30, 2020

 

 

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 under Section 12(b) of the Exchange Act: None.

 

Securities registered under Section 12(g) of the Exchange Act: Common Stock, $0.001 par value per share

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 par value

 

INTV

 

NA

   

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐    No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐    No ☒

 

Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No ☐.

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit such files. Yes ☒    No ☐.

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

 

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

  

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐     No ☐

 

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

 

On December 31, 2019, the last business day of the registrant’s most recently completed second quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $602,158 based upon the closing price on that date of the common stock of the registrant as reported on the OTC Markets system of $0.0098 For purposes of this response, the registrant has assumed that its directors, executive officers and beneficial owners of 5% or more of its Common Stock are deemed affiliates of the registrant.

 

As of September 23, 2020, the registrant had 116,506,895 shares of its common stock, $0.001 par value, issued and outstanding.

   

 

 

    

INTEGRATED VENTURES, INC.

(FORMERLY EMS FIND, INC.)

TABLE OF CONTENTS

 

 

 

 

Page

 

PART I

 

Item 1.

Business

 

4

 

Item 1A.

Risk Factors

 

9

 

Item 1B.

Unresolved Staff Comments

 

13

 

Item 2.

Properties

 

13

 

Item 3.

Legal Proceedings

 

13

 

Item 4.

Mine Safety Disclosures

 

13

 

 

 

 

 

 

PART II

 

Item 5.

Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

14

 

Item 6.

Selected Financial Data

 

16

 

Item 7.

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

 

16

 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

 

25

 

Item 8.

Financial Statements and Supplementary Data

 

26

 

Item 9.

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

 

27

 

Item 9A.

Controls and Procedures

 

27

 

Item 9B.

Other Information

 

28

 

 

 

 

 

 

PART III

 

Item 10.

Directors, Executive Officers and Corporate Governance

 

29

 

Item 11.

Executive Compensation

 

30

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

31

 

Item 13.

Certain Relationship and Related Transactions, and Director Independence

 

32

 

Item 14.

Principal Accountant Fees and Services

 

33

 

 

 

 

 

 

PART IV

Item 15.

Exhibits and Financial Statement Schedules

 

34

 

 

 

 

 

 

SIGNATURES

 

38

 

  

 

2

 

    

Forward-Looking Statements

 

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

 

Readers of this Annual Report on Form 10-K should carefully consider such risks, uncertainties and other information, disclosures and discussions which contain cautionary statements identifying important factors that could cause our actual results to differ materially from those provided in forward-looking statements. Readers should not place undue reliance on forward-looking statements contained in this Form 10-K. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

 

As used in this annual report, the terms "we," "us," "our," the “Company,” and "Integrated Ventures" mean Integrated Ventures, Inc., unless otherwise indicated.

  

 
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Table of Contents

  

PART I

 

ITEM 1.BUSINESS.

 

We were incorporated in the State of Nevada on March 22, 2013 under the name Lightcollar, Inc.On March 22, 2015, we changed our name to EMS Find, Inc. (“EMS Find”). Effective March 31, 2015, we entered into a Share Exchange Agreement with the sole shareholder of EMS Factory, Inc., a Pennsylvania corporation (“EMS Factory”), and following the closing under the Share Exchange Agreement, EMS Factory became a wholly-owned subsidiary of the Company, with the former stockholder of EMS Factory owning approximately 35% of the outstanding shares of common stock of the combined company.The Company developed and marketed a B2B & B2C on-demand mobile platform, designed to connect health care providers and consumers to a network of medical transport companies. On April 6, 2016, we completed the sale of our subsidiary Viva Entertainment Group, Inc. to Black River Petroleum Corp.

 

Effective July 27, 2017, we changed our name to Integrated Ventures, Inc. to reflect our plan to expand our operations by the acquisition of additional operating companies.

 

In November 2017, we discontinued our prior operations and changed our business focus to acquiring, launching and operating companies in the technology sector, mainly in digital currency mining, equipment manufacturing, and sales of branded mining rigs, as well as blockchain software development.

 

In April 2018, the Company acquired the digital currency mining operations of digiMine LLC through two Asset Purchase Agreements. In addition, in August 2018, the Company acquired the digital currency mining operations of Secure Hosting, LLC through an Asset Purchase Agreement.

 

Our Business

 

On November 22, 2017, we successfully launched our cryptocurrency operations, and revenues commenced from cryptocurrency mining operations and from sales of cryptocurrency mining equipment. As of June 30, 2020, the Company owned and operated approximately 925 miners that mine Bitcoin (BTC), Litecoin (LTC) and Ethereum (ETH).

  

In the next 90 days, the Company plans to (1) raise capital to purchase new mining equipment and (2) retire older and no longer profitable models.

 

On May 8, 2019, the Company had consolidated all of its mining operations by signing a three-year power supply and purchase agreement with PetaWatt Properties, LLC, located in Carhage, NY and moved all of cryptocurrency operations to a new location.

  

 
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Cryptocurrency Mining

 

Digital tokens are built on a distributed ledger infrastructure often referred to as a “blockchain”. These tokens can provide various rights, and cryptocurrency is a type of digital token, designed a a medium of exchange. Other digital tokens provide rights to use assets or services, or in some cases represent ownership interests.Cryptocurrencies, for example Bitcoin, are digital software that run on a blockchain platform, which is a decentralized, immutable ledger of transactions, and essentially function as a digital form of money.Cryptocurrencies such as Bitcoin are not sponsored by any government or a single entity.A bitcoin is one type of an intangible digital asset that is issued by, and transmitted through, an open source, math-based protocol platform using cryptographic security (the “Bitcoin Network”). The Bitcoin Network, for example, is an online, peer-to-peer user network that hosts the public transaction ledger, known as the “Blockchain,” and the source code that comprises the basis for the cryptography and math-based protocols governing the Bitcoin Network. No single entity owns or operates the Bitcoin Network, the infrastructure of which is collectively maintained by a decentralized user base. Bitcoins 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.

 

Bitcoins are “stored” or reflected on the digital transaction ledger known as the “blockchain,” which is a digital file stored in a decentralized manner on the computers of each Bitcoin Network or as applicable to other cryptocurrency users. A blockchain records the transaction history of all bitcoins in existence and, through the transparent reporting of transactions, allows the cryptocurrency network to verify the association of each bitcoin with the digital wallet that owns them. The network and software programs can interpret the blockchain to determine the exact balance, if any, of any digital wallet listed in the blockchain as having taken part in a transaction on the cryptocurrency network.

 

Mining is the process by which bitcoins, for example, are created resulting in new blocks being added to the blockchain and new bitcoins being issued to the miners. Miners engage in a set of prescribed complex mathematical calculations in order to add a block to the blockchain and thereby confirm cryptocurrency transactions included in that block’s data. Miners that are successful in adding a block to the blockchain are automatically awarded a fixed number of bitcoins for their effort. To begin mining, a user can download and run the network mining software, which turns the user’s computer into a node on the network that validates blocks.

 

All bitcoin transactions are recorded in blocks added to the blockchain. Each block contains the details of some or all of the most recent transactions that are not memorialized in prior blocks, a reference to the most recent prior block, and a record of the award of bitcoins to the miner who added the new block. Each unique block can only be solved and added to the blockchain by one miner; therefore, all individual miners and mining pools on the cryptocurrency network are engaged in a competitive process and are incentivized to increase their computing power to improve their likelihood of solving for new blocks.

 

The method for creating new bitcoins is mathematically controlled in a manner so that the supply of bitcoins grows at a limited rate pursuant to a pre-set schedule. Less than a year ago, Bitcoin moved to a price around $20,000 in December 2017, and is trading in the range of $10,000 currently. Mining economics have also been much more pressured by the Difficulty Rate – a computation used by miners to determine the amount of computing power required to mine bitcoin. The Difficulty Rate is directly influenced by the total size of the entire Bitcoin network. The Bitcoin network has grown six-fold in the past year, resulting in a six-fold increase in difficulty. Today, the network requires the computing power of approximately 1,800 Bitmain S9 miners to mine one Bitcoin per day, using approximately 2.5 MegaWatt of power supply. Meanwhile, demand from miners also drove up hardware and power prices, the largest costs of production. This deliberately controlled rate of bitcoin creation means that the number of bitcoins in existence will never exceed 21 million and that bitcoins cannot be devalued through excessive production unless the Bitcoin Network’s source code (and the underlying protocol for bitcoin issuance) is altered.

 

 
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Mining pools have developed in which multiple miners act cohesively and combine their processing power to solve blocks. When a pool solves a new block, the participating mining pool members split the resulting reward based on the processing power they each contributed to solve for such block. The mining pool operator provides a service that coordinates the workers. Fees are paid to the mining pool operator to cover the costs of maintaining the pool. The pool uses software that coordinates the pool members’ hashing power, identifies new block rewards, records how much work all the participants are doing, and assigns block rewards in-proportion to the participants’ efforts. While we do not pay pool fees directly, pool fees (approximately 2% to 5%) are deducted from amounts we may otherwise earn. Participation in such pools is essential for our mining business.

 

Our Cryptocurrency Operations

 

We utilize and rely on cryptocurrency pools to mine cryptocurrencies and generate a mixed selection of digital cryptocurrencies, including BTC, LTC and ETH. Cryptocurrency payouts are paid to us by the pool operator, and the digital currency produced is either stored in a wallet (Coinbase) or sold in open market. Payout proceeds are automatically deposited in our corporate bank accounts.

 

In our digital currency mining operations, various models of miners are owned and deployed by the Company.

 

When funds are available and market conditions allow, we also invest in certain denominations of cryptocurrencies to complement our mining operations.We consider these investments similar to marketable securities where we purchase and hold the cryptocurrencies for sale.We report realized gains and losses on the sales of cryptocurrencies and mark our portfolio of cryptocurrencies to market at the end of each quarterly reporting period, reporting unrealized gains or losses on the investments. As of June 30, 2020, our investments at market value totaled $82,855 and were comprised primarily of LINK (Chainlink), with a smaller portfolio of BTC, LTC and ETH.

 

The Digital Currency Markets

 

The value of bitcoins is determined by the supply and demand of bitcoins in the bitcoin exchange market (and in private end-user-to-end-user transactions), as well as the number of merchants that accept them. However, merchant adoption is very low according to a Morgan Stanley note from the summer of 2018.As bitcoin transactions can be broadcast to the Bitcoin Network by any user’s bitcoin software and bitcoins can be transferred without the involvement of intermediaries or third parties, there are little or no transaction costs in direct peer-to-peer transactions on the Bitcoin Network. Third party service providers such as crypto currency exchanges and bitcoin third party payment processing services may charge significant fees for processing transactions and for converting, or facilitating the conversion of, bitcoins to or from fiat currency.

 

Under the peer-to-peer framework of the Bitcoin Network, transferors and recipients of bitcoins are able to determine the value of the bitcoins transferred by mutual agreement, the most common means of determining the value of a bitcoin being by surveying one or more bitcoin exchanges where bitcoins are publicly bought, sold and traded, i.e., the Bitcoin Exchange Market (“Bitcoin Exchange”).

 

On each Bitcoin Exchange, bitcoins are traded with publicly disclosed valuations for each transaction, measured by one or more fiat currencies.Bitcoin Exchanges report publicly on their site the valuation of each transaction and bid and ask prices for the purchase or sale of bitcoins. Market participants can choose the Bitcoin Exchange on which to buy or sell bitcoins. To date, the SEC has rejected the proposals for bitcoin ETF’s, citing that lack of enough transparency in the cryptocurrency markets to be sure that prices are not being manipulated. The Wall Street Journal has recently reported on how bots are manipulating the prices of bitcoin on the crypto exchanges.However, on November 8, 2018, the SEC announced in an order (the "Order") that it had settled charges against Zachary Coburn, the founder of the digital token exchange EtherDelta, marking the first time that the SEC has brought an enforcement action against an online digital token platform for operating as an unregistered national securities exchange.

 

Although the cryptocurrency markets have been historically volatile and have weathered several up and down cycles over the past few years, recently these markets have been in a selloff phase for the past several months, possibly reflecting doubts as to the applicability of digital currencies in commercial applications and other factors. In this selloff, prices of digital currencies other than Bitcoin have experienced deeper percentage declines than Bitcoin. On December 31, 2017, Bitcoin was trading in the range of $18,000, and as of November 30, 2018 had declined to a $4,000 trading range. The trading range has recently increased to approximately $10,200.Other cryptocurrencies have experienced more substantial declines, than Bitcoin’s recent decline.Our revenues are directly affected by the Bitcoin market price specifically, which is the market leader for prices of all cryptocurrencies. In recent weeks, regulatory crackdowns have also weighed on prices. The Securities and Exchange Commission recently announced its first civil penalties against cryptocurrency founders as part of a wide regulatory and legal crackdown on fraud and abuses in the industry. In addition, Bloomberg News recently reported that regulators are investigating whether bitcoin's rally to almost $20,000 last year was the result of market manipulation. The U.S. Justice Department is investigating whether tether, a controversial cryptocurrency that founders say is backed 1:1 by the U.S. dollar, was used by traders to prop up bitcoin, according to the report, which cited three unnamed sources familiar with the matter.

 

 
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Table of Contents

 

Competition

 

In cryptocurrency mining, companies, individuals and groups generate units of cryptocurrency through mining. Miners can range from individual enthusiasts to professional mining operations with dedicated data centers, with all of which we compete. Miners may organize themselves in mining pools, with which we would compete. The Company currently participates in mining pools and may decide to invest or initiate operations in mining pools. At present, the information concerning the activities of these enterprises is not readily available as the vast majority of the participants in this sector do not publish information publicly or the information may be unreliable.

 

Government Regulation

 

Government regulation of blockchain and cryptocurrency under review with a number of government agencies, the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Federal Trade Commission and the Financial Crimes Enforcement Network of the U.S. Department of the Treasury, and in other countries. State government regulations also may apply to certain activities such as cryptocurrency exchanges (bitlicense, banking and money transmission regulations) and other activities. Other bodies which may have an interest in regulating or investigating companies engaged in the blockchain or cryptocurrency business include the national securities exchanges and the Financial Industry Regulatory Authority. As the regulatory and legal environment evolves, the Company may in its mining activities become subject to new laws, and further regulation by the SEC and other agencies..On November 16, 2018, the SEC issued a Statement on Digital Asset Securities Issuance and Trading, in which it emphasized that market participants must still adhere to the SEC’s well-established and well-functioning federal securities law framework when dealing with technological innovations, regardless of whether the securities are issued in certificated form or using new technologies, such as blockchain.

 

Blockchain and cryptocurrency regulations are in a nascent state with agencies investigating businesses and their practices, gathering information, and generally trying to understand the risks and uncertainties in order to protect investors in these businesses and in cryptocurrencies generally.   Various bills have also been proposed in Congress for adoption related to our business which may be adopted and have an impact on us.  The offer and sale of digital assets in initial coin offerings, which is not an activity we expect to pursue, has been a central focus of recent regulatory inquiries.  On November 16, 2018 the SEC settled with two cryptocurrency startups, and reportedly has more than 100 investigations into cryptocurrency related ventures, according to a codirector of the SEC’s enforcement division (Wall Street Journal, November 17-18, 2018).  An annual report by the SEC shows that digital currency scams are among the agency’s top enforcement priorities.  The SEC is focused in particular on Initial Coin Offerings (ICOs), which involve the sale of digital tokens related to blockchain projects. Many such projects have failed to deliver on their promises or turned out to be outright scams. In the past year, the enforcement division has opened dozens of investigations involving ICOs and digital assets, many of which were ongoing at the close of FY 2018,” the SEC states in a section of the report titled “ICOs and Digital Assets.”

 

Financial

 

For the year ended June 30, 2020, we recognized revenues totaling $454,170 from cryptocurrency operations (consisting of both mining and equipment sales transactions).We increased our investment activities as further discussed above, and at June 30, 2020, we held cryptocurrencies with a total market value of $82,855.

 

At June 30, 2020, the Company owned approximately 925 mining rigs, with a net book value of $453,229.This number is directly related to the availability of the electric power for the mining rigs, which is currently at maximum utilization capacity.For financial accounting purposes, we record our mining rigs at the lower of cost or estimated net realizable value.

 

 
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On April 16, 2018, the Company entered into an Asset Purchase Agreement with digiMine LLC (“digiMine”) for the purchase of certain digiMine digital currency mining assets located in Marlboro, New Jersey, the principal assets consisting of: 150 cryptocurrency mining machines; and restricted cash of $175,000. The Company issued 16,666 shares of its Series B preferred stock to digiMine for these assets.On April 30, 2018, the Company entered into a second Asset Purchase Agreement with digiMine for the purchase of additional digital currency mining assets from digiMine at the same location, the principal assets consisting of: 97 cryptocurrency mining machines and restricted cash of $200,000. The Company issued 20,000 shares of its Series B preferred stock to digiMine in this transaction.

 

On May 21, 2019, the Company and DigiMine, LLC entered into an Exchange Agreement, pursuant to which, DigiMine had agreed to surrender the remaining 20,000 shares of the Company’s Series B Preferred Stock held by it and terminate its Put-Back-Rights under the April 2018 Security and Pledge Agreements, in exchange for 10,000,000 shares of the Company’s common stock, which issued in ten tranches of 1,000,000 shares each. Ten trading days after the Initial Closing date and each ten trading days thereafter, the Company agreed to deliver a tranche of 1,000,000 shares of common stock to the Holder. Through June 30, 2019, closings were held and 2,000,000 shares of the common stock exchange shares were issued. The remaining 8,000,000 shares of common stock were issued in the year ended June 30, 2020.

 

On August 2, 2018, the Company entered into an Asset Purchase Agreement with Secure Hosting, LLC ("Secure Hosting") for the purchase of 182 Ethereum mining machines. As consideration for the purchase of the machines, the Company issued 38,018 shares of its Series B convertible preferred stock.

 

We have also purchased mining machines directly from the manufacturers and funded our operations with proceeds provided primarily from the issuance of convertible notes payable.During the year ended June 30, 2020, we received net proceeds from convertible notes payable totaling $534,000

 

Additional Capital Requirements

 

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

 

Employees and Employment Agreements

 

At present time, we have one full time employee, Steve Rubakh, our sole officer and director, who devotes 100% of his time to our operations.In addition, we rely on a group of subcontractors to build, install, manage, monitor and service our mining equipment. We presently do not have pension, health, annuity, insurance, stock options, profit sharing or similar benefit plans; however, we may adopt such plans in the future.There are presently no personal benefits available to any officers, directors or employees; however, we at times do reimburse Mr. Rubakh for certain health insurance and medical costs.

 

Property

 

Our corporate offices are located at 73 Buck Road, Suite 2, Huntingdon Valley, Pennsylvania 19006. Our telephone number is (215) 613-1111. We occupy 450 sq ft facility, at no cost to the Company. On May 8, 2019, the Company had consolidated all of its mining operations in Carthage, New York, by signing a three-year power supply and purchase agreement with PetaWatt Properties, LLC. We believe that our offices and data center facility are suitable and adequate and that we have sufficient capacity to meet our current and future needs.

 

 
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Available Information

 

All reports of the Company filed with the SEC are available free of charge through the SEC’s website at www.sec.gov. In addition, the public may read and copy materials filed by the Company at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. The public may also obtain additional information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.

  

ITEM 1A. RISK FACTORS.

 

Risks Relating to Our Business

 

AN INVESTMENT IN THE COMPANY MUST BE CONSIDERED SPECULATIVE.

 

Our operations are dependent on the continued viable market performance of cryptocurrencies that we market, and in particular, the market value of Bitcoin. The decision to pursue blockchain and digital currency businesses exposes the Company to risks associated with a new and untested strategic direction. Under the current accounting rules, cryptocurrency is not cash, currency or a financial asset, but an indefinite-lived intangible asset; declines in the market price of cryptocurrencies would be included in earnings, whereas increases in value beyond the original cost or recoveries of previous declines in value would not be captured.The prices of digital currencies have varied wildly in recent periods and reflects "bubble" type volatility, meaning that high prices may have little or no merit, may be subject to rapidly changing investor sentiment, and may be influenced by factors such as technology, regulatory void or changes, fraudulent actors, manipulation and media reporting.

 

RAISING ADDITIONAL CAPITAL MAY CAUSE DILUTION TO OUR EXISTING STOCKHOLDERS, RESTRICT OUR OPERATIONS OR REQUIRE US TO RELINQUISH RIGHTS.

 

We may seek additional capital through a combination of private and public equity offerings, debt financings collaborations and strategic and licensing arrangements. To the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into common stock, current stockholders’ ownership interest in the Company will be diluted. In addition, the terms may include liquidation or other preferences that materially adversely affect their rights as a stockholder. Debt financing, if available, would increase our fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaboration, strategic alliance and licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, our intellectual property, future revenue streams or grant licenses on terms that are not favorable to us.

 

We are increasingly dependent on information technology systems and infrastructure (cyber security).

 

Our operations are potentially vulnerable to breakdown or other interruption by fire, power loss, system malfunction, unauthorized access and other events such as computer hackings, cyber-attacks, computer viruses, worms or other destructive or disruptive software. Likewise, data privacy breaches by employees and others with permitted access to our systems may pose a risk that sensitive data may be exposed to unauthorized persons or to the public.It is critical that our systems provide a continued and uninterrupted performance for our business to generate revenues. There can be no assurance that our efforts will prevent significant breakdowns, breaches in our systems or other cyber incidents that could have a material adverse effect upon our business, operations or financial condition of the Company.

 

We depend heavily on OUR CHIEF EXECUTIVE OFFICER, and HIS departure could harm our business.

 

The expertise and efforts of Steve Rubakh, our Chief Executive Officer, are critical to the success of our business. The loss of Mr. Rubakh’s services could significantly undermine our management expertise and our ability to operate our Company.

 

 
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Risks Relating Generally to Our Operations and Technology

 

WE ARE RELIANT ON POOLS OF USERS OR MINERS THAT ARE THE SOLE OUTLET FOR SALES OF CRYPTOCURRENCIES THAT WE MINE.

 

We do not have the ability to sell our cryptocurrency production directly on the exchanges or markets that are currently where cryptocurrencies are purchased and traded.Pools are operated to pool the production on a daily of companies mining cryptocurrencies, and these pools are our sole means of selling our production of cryptocurrencies.Absent access to such pools, we would be forced to seek a different method of access to the cryptocurrency markets.There is no assurance that we could arrange any alternate access to dispose of our mining production.

 

We May Not Be Able To Respond Quickly Enough To Changes In Technology And Technological Risks, And To Develop Our Intellectual Property Into Commercially Viable Products.

 

Changes in legislative, regulatory or industry requirements or in competitive technologies may render certain of our planned products obsolete or less attractive. Our mining equipment may become obsolete, and our ability to anticipate changes in technology and regulatory standards and to successfully develop and introduce new and enhanced products on a timely basis will be a significant factor in our ability to remain competitive. We cannot provide assurance that we will be able to achieve the technological advances that may be necessary for us to remain competitive or that certain of our products will not become obsolete.

 

The SEC is continuing its probeS into public companies that appear to incorporate and seek to capitalize on the blockchain technology, AND MAY INCREASE THOSE EFFORTS WITH NOVEL REGULATORY REGIMES AND DETERMINE TO ISSUE ADDITIONAL REGULATIONS APPLICABLE TO THE CONDUCT OF OUR BUSINESS OR BROADENING DISCLOSURES IN OUR FILINGS UNDER THE SECURITIES eXCHANGE ACT OF 1934.

 

As the SEC stated previously, it is continuing to scrutinize and commence enforcement actions against companies, advisors and investors involved in the offering of cryptocurrencies and related activities.At least one Federal Court has held that cryptocurrencies are “securities” for certain purposes under the Federal Securities Laws.

 

According to a recent report published by Lex Machina, securities litigation in general and those that are related to blockchain, cryptocurrency or bitcoin specifically, showed a marked increase during the first two quarters of 2018 as compared to 2017. The total number of securities cases that referenced "blockchain," "cryptocurrency" or "bitcoin" in the pleadings tripled in the first half of 2018 alone compared to 2017.On the same day, the SEC announced its first charge against unregistered broker-dealers for selling digital tokens after the SEC issued The DAO Report in 2017. The SEC charged TokenLot LLC (TokenLot), a self-described "ICO Superstore", and its owners, Lenny Kugel and Eli L. Lewitt, with failing to register as broker-dealers. On November 16, 2018 the SEC settled with two cryptocurrency startups, and reportedly has more than 100 investigations into cryptocurrency related ventures, according to a codirector of the SEC’s enforcement.As the regulatory and legal environment evolves, the Company may in its mining activities become subject to new laws, and further regulation by the SEC and other federal and state agencies.

 

WE HAVE INCREASED OUR INVESTMENTS IN CRYPTOCURRENCIES, THE MARKET VALUE OF WHICH MAY BE SUBJECT TO SIGNIFICANT FLUCTUATIONS

 

When funds are available and market conditions allow, current strategy is to invest in certain denominations of cryptocurrencies to complement our mining operations.We consider these investments similar to marketable securities where we purchase and hold the cryptocurrencies for sale.We report realized gains and losses on the sales of cryptocurrencies and mark our portfolio of cryptocurrencies to market at the end of each quarterly reporting period, reporting unrealized gains or losses on the investments. The market value of these investments may fluctuate materially, and we may be subject to investment losses on the change in market value.

 

 
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Risks related to the coronavirus pandemic

 

THE FUTURE IMPACT OF THE COVID-19 PANDEMIC ON COMPANIES IS EVOLVING AND WE ARE CURRENTLY UNABLE TO ASSESS WITH CERTAINTY THE BROAD EFFECTS OF COVID-19 ON OUR BUSINESS.

 

The future impact of the Covid-19 pandemic on companies is evolving and we are currently unable to assess with certainty the broad effects of Covid-19 on our business, particularly on the digital currency markets. As of June 30, 2020, our investment in property and equipment of $453,342 could be subject to impairment or change in valuation due to Covid-19 if our crypocurrency mining revenues significantly decrease or we are not able to raise capital sufficient to fund our operations.In addition, current travel restrictions and social distancing requirements make it difficult for our management to access and oversee our operations in the State of New York.

 

As of June 30, 2020, the reported values of the Company’s material convertible debt and derivative liabilities are based on multiple factors, 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. We believe these inputs will be subject to even more significant changes due to the impact on capital markets of Covid-19, and the future estimated fair value of these liabilities may fluctuate materially from period to period.

 

The Covid-19 pandemic continues to have a material negative impact on capital markets, including the market prices of digital currencies.While we continue to incur operating losses, we are currently dependent on debt or equity financing to fund our operations and execute our business plan, including ongoing requirements to replace old and nonprofitable mining machines. We believe that the impact on capital markets of Covid-19 may make it more costly and more difficult for us to access these sources of funding.

 

Our business can potentially be impacted by the effects of the COVID-19 as follows: (1) effect our financial condition, operating results and reduce cash flows; (2) cause disruption to the activities of equipment suppliers; (3) negatively effect the Company's mining activities due to imposition of related public health measures and travel and business restrictions; (4) create disruptions to our core operations in New York due to quarantines and self-isolations; (5) restrict the Company's ability and that of its employees to access facilities and perform equipment maitenance, repairs, and programming which will lead to inability to monitor and service miners, resulting in reduced ability to mine cryptocurrencies due to miners being offline.

 

In addition, our partners such as manufacturers, suppliers and sub-contractors will be disrupted by absenteeism, quarantines and travel restrictions resulting in their employees’ ability to work. The Company's supply chain, shipments of parts and purchases of new products may be negatively affected. Such disruptions could have a material adverse effect on our operations.

 

THE CORONAVIRUS PANDEMIC IS A CONTINUING SERIOUS THREAT TO HEALTH AND ECONCOMIC WELLBEING AFFECTING OUR EMPLOYEES, INVESTORS AND OUR SOURCES OF SUPPLY.

 

The sweeping nature of the novel Coronavirus (COVID-19) pandemic makes it extremely difficult to predict how the Company’s business and operations will be affected in the long run. However, the likely overall economic impact of the pandemic is viewed as highly negative to the general economy.To date, we have not been classified as an essential business in the New York, and we may not be allowed to access our mining facilities. The duration of such impact cannot be predicted.

 

Risks Related to Our Common Stock and its Market

 

Because certain existing stockholders own a large percentage of our voting stock, other stockholders' voting power may be limited.

 

Steve Rubakh, our Chief Executive Officer, owns and/or controls a majority of the voting power of our common stock.As a result, Mr. Rubakh will have the ability to control all matters submitted to our stockholders for approval, including the election and removal of directors and the approval of any merger, consolidation or sale of all or substantially all of our assets.This stockholder, who is also our sole director, may make decisions that are averse to or in conflict with your interests. See our discussion under the caption “Principal Stockholders” for more information about ownership of our outstanding shares.

 

 
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We do not have a majority of independent directors on our Board and the Company has not voluntarily implemented various corporate governance measures, in the absence of which stockholders may have more limited protections against interested director transactions, conflicts of interest and similar matters.

 

Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or the NASDAQ Stock Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges are those that address board of directors’ independence, audit committee oversight, and the adoption of a code of ethics. We have not yet adopted any of these other corporate governance measures and since our securities are not yet listed on a national securities exchange, we are not required to do so. If we expand our board membership in future periods to include additional independent directors, we may seek to establish an audit and other committee of our board of directors. It is possible that if our Board of Directors included a number of independent directors and if we were to adopt some or all of these corporate governance measures, stockholders would benefit from somewhat greater assurance that internal corporate decisions were being made by disinterested directors.In evaluating our Company, our current lack of corporate governance measures should be borne in mind.

    

Our share price is volatile and may be influenced by numerous factors that are beyond our control.

 

Market prices for shares of technology companies such as ours are often volatile. The market price of our common stock may fluctuate significantly in response to a number of factors, most of which we cannot control, including:

 

 

fluctuations in digital currency and stock market prices and trading volumes of similar companies;

 

 

 

 

general market conditions and overall fluctuations in U.S. equity markets; 

 

 

 

 

sales of large blocks of our common stock, including sales by our executive officers, directors and significant stockholders; 

 

 

 

 

discussion of us or our stock price by the press and by online investor communities; and 

 

 

 

 

other risks and uncertainties described in these risk factors.

    

We have no current plans to pay dividends on our common stock and investors must look solely to stock appreciation for a return on their investment in us.

 

We do not anticipate paying any further cash dividends on our common stock in the foreseeable future. We currently intend to retain all future earnings to fund the development and growth of our business. Any payment of future dividends will be at the discretion of our board of directors and will depend on, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that the board of directors deems relevant. Investors may need to rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize a return on their investment. Investors seeking cash dividends should not purchase our common stock.

   

 
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Our common stock is deemed to be “penny stock,” which may make it more difficult for investors to sell their shares due to DISCLOSURE AND suitability requirements.

 

Our common stock is deemed to be “penny stock” as that term is defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These requirements may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of them. This could cause our stock price to decline. Penny stocks are stock:

    

 

·

With a price of less than $5.00 per share;

 

 

 

 

·

That are not traded on a “recognized” national exchange;

 

 

 

 

·

Whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ listed stock must still have a price of not less than $5.00 per share); or

 

 

 

 

·

In issuers with net tangible assets less than $2.0 million (if the issuer has been in continuous operation for at least three years) or $10.0 million (if in continuous operation for less than three years), or with average revenues of less than $6.0 million.

   

Broker-dealers dealing in penny stocks are required to provide potential investors with a document disclosing the risks of penny stocks. Moreover, broker-dealers are required to determine whether an investment in a penny stock is a suitable investment for a prospective investor. Many brokers have decided not to trade “penny stocks” because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. In the event that we remain subject to the “penny stock rules” for any significant period, there may develop an adverse impact on the market, if any, for our securities.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS.

 

Disclosure under Item 1B is not required of smaller reporting companies.

 

ITEM 2. PROPERTIES.

 

Our corporate offices are located at 73 Buck Road, Suite 2, Huntingdon Valley, Pennsylvania 19006. Our telephone number is (215) 613-1111. We occupy 450 sq ft facility, at no cost to the Company. On May 8, 2019, the Company had consolidated all of its mining operations in Carthage, New York, by signing a three-year power supply and purchase agreement with PetaWatt Properties, LLC. We believe that our offices and data center facility are suitable and adequate and that we have sufficient capacity to meet our current and future needs.

 

ITEM 3. LEGAL PROCEEDINGS.

 

There are no pending legal proceedings in which we are a party or in which any of our directors, officers or affiliates, any owner of record or beneficiary of more than 5% of any class of our voting securities is a party adverse to us or has a material interest adverse to us.

 

ITEM 4. MINE SAFETY DISCLOSURES.

  

Not applicable.

 

 
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PART II

 

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

Market Information

 

Our common stock is traded over-the-counter market and has been quoted on the OTCQB, since approximately April 24, 2015, under the symbol "EMSF.” The quotations in the table below reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not represent actual transactions.

   

Period

 

High

 

 

Low

 

 

 

 

 

 

 

 

Fiscal year Ended June 30, 2020

 

 

 

 

 

 

Quarter Ended September 30, 2019

 

$ 0.1510

 

 

$ 0.0260

 

Quarter Ended December 31, 2019

 

$ 0.3720

 

 

$ 0.0088

 

Quarter Ended March 31, 2020

 

$ 0.0280

 

 

$ 0.0078

 

Quarter Ended June 30, 2020

 

$ 0.0810

 

 

$ 0.0090

 

 

 

 

 

 

 

 

 

 

Fiscal Year Ended June 30, 2019

 

 

 

 

 

 

 

 

Quarter Ended September 30, 2018

 

$ 1.02

 

 

$ 0.261

 

Quarter Ended December 31, 2018

 

$ 0.50

 

 

$ 0.011

 

Quarter Ended March 31, 2019

 

$ 0.34

 

 

$ 0.086

 

Quarter Ended June 30, 2019

 

$ 0.195

 

 

$ 0.07

 

 

Holders

 

As of September 8, 2020, there were 18 holders of record of our common stock.This number does not include stockholders for whom shares were held in “nominee” or “street” name.

 

Dividend Distributions

 

We have not declared or paid any cash dividends on our common stock and do not anticipate declaring or paying any cash dividends in the foreseeable future. We currently expect to retain future earnings, if any, for the development of our business.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

Not applicable.

  

 
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Recent Sales of Unregistered Securities

 

The table below sets forth information as to sales by the Company of unregistered securities not previously reported in the Company’s periodic filings for its fiscal year ended June 30, 2020.

 

Date

 

Title and

Amount(1)

 

Purchaser

 

Principal

Underwriter

 

 

Total Offering

Price/

Underwriting

Discounts

 

 

 

 

 

 

 

 

 

 

 

 

July 3, 2019

 

Convertible Promissory Note

 

Armada Investment Fund, LLC.

 

 

N/A

 

 

$137,500 / N/A

 

July 3, 2019

 

Convertible Promissory Note

 

BHP Capital NY, Inc.

 

 

N/A

 

 

$137,500 / N/A

 

November 1, 2019

 

Convertible Promissory Note

 

Armada Investment Fund, LLC

 

 

N/A

 

 

$20,000 / N/A

 

November 21, 2019

 

Convertible Promissory Note

 

Armada Investment Fund, LLC

 

 

N/A

 

 

$22,000 / N/A

 

December 2, 2019

 

Convertible Promissory Note

 

BHP Capital NY, Inc.

 

 

N/A

 

 

$66,000 / N/A

 

February 20, 2020

 

Convertible Promissory Note

 

BHP Capital NY, Inc.

 

 

N/A

 

 

$83,333 / N/A

 

March 4, 2020

 

Convertible Promissory Note

 

BHP Capital NY, Inc.

 

 

N/A

 

 

$60,500 / N/A

 

March 4, 2020

 

Convertible Promissory Note

 

Armada Investment Fund, LLC

 

 

N/A

 

 

$88,000 / N/A

 

February 25, 2020

 

Issuance of 50,000 shares of Series B Preferred Stock issued as compensation to Chief Executive Officer

 

Steve Rubakh

 

NA

 

 

$0.012 per underlying common share /NA

 

February 25, 2020

 

Issuance of 50,000 shares of Series B Preferred Stock issued as compensation to Chief Executive Officer

 

Steve Rubakh

 

NA

 

 

$0.012 per underlying common share /NA

 

February 27, 2020

 

Re-issuance of 30,000 shares of Series B Preferred Stock and cancellation of 3,000,000 common shares

 

Steve Rubakh

 

NA

 

 

$0.001 par value per share /NA

 

 

Penny Stock

 

Our common stock is considered "penny stock" under the rules the Securities and Exchange Commission (the "SEC") under the Securities Exchange Act of 1934. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ Stock Market System, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the Commission, that:

 

contains a description of the nature and level of risks in the market for penny stocks in both public offerings and secondary trading;

 

 

 

contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of Securities' laws; contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price;

 

 

 

contains a toll-free telephone number for inquiries on disciplinary actions;

 

 

 

defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and

 

 

 

contains such other information and is in such form, including language, type, size and format, as the Commission shall require by rule or regulation.

  

 
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The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with:

 

bid and offer quotations for the penny stock;

 

 

 

the compensation of the broker-dealer and its salesperson in the transaction;

 

 

 

the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the marker for such stock; and

 

 

 

monthly account statements showing the market value of each penny stock held in the customer's account.

 

In addition, the penny stock rules that require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgement of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement.

 

These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.

 

Related Stockholder Matters

 

None.

 

Issuer Purchases of Equity Securities

 

None.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not applicable.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS

 

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

 

 
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Important factors that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in the “Risk Factors” section of and elsewhere in this Annual Report and in our subsequent filings with the Securities and Exchange Commission. The following discussion of our results of operations should be read together with our financial statements and related notes included elsewhere in this report.

 

GENERAL

 

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

 

We have discontinued our prior operations and changed our business focus, from our prior technologies relating to the EMS Find platform to acquiring, launching and operating companies in the cryptocurrency sector, mainly in digital currency mining, equipment manufacturing, and sales of branded mining rigs, as well as blockchain software development.

 

Financial

 

On November 22, 2017, we successfully launched our cryptocurrency operations. From that date through June 30, 2020, we had total revenues of $1,039,720, consisting of: (1) revenues from mining operations of $883,806 received primarily in digital currencies and (2) equipment and parts retail sales of $155,914.Mining revenues were $435,740 and $249,819 for the years ended June 30, 2020 and 2019, respectively.Equipment and parts revenues were $18,430 and $29,324 for the years ended June 30, 2020 and 2019, respectively.

 

We have consolidated our cryptocurrency operations in facility, located in Carthage, New York.The power supply and purchase agreement was entered into on May 10, 2019 for an initial term of 90 days, with an option to continue for a subsequent 36 months.The Company’s sole obligation under the Agreement is to pay the PetaWatt Properties, LLC, contractual rate per kilowatt hour of electricity, consumed by the Company’s cryptocurrency mining operations.

 

When funds are available and market conditions allow, we also invest in certain denominations of cryptocurrencies to complement our mining operations.We consider these investments similar to marketable securities where we purchase and hold the cryptocurrencies for sale.We report realized gains and losses on the sales of cryptocurrencies and mark our portfolio of cryptocurrencies to market at the end of each quarterly reporting period, reporting unrealized gains or losses on the investments. As of June 30, 2020, our investments at market value totaled $82,855 and were comprised primarily of LINK (Chainlink), with a smaller portfolio of Bitcoin (BTC), Litecoin (LTC) and Ethereum (ETH).

 

We have funded our operations primarily from cash generated from our digital currency mining operations and proceeds from convertible notes payable.Most recently, we received cash proceeds totaling $210,000 from three convertible notes payable issued in January and February 2020.

 

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.

 

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

 

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

 

The Company, like many cryptocurrency mining operators, is currently operating at a non-profitable status following record historic runs in market prices of digital currencies. Market prices of digital currencies have not been high enough to cover the operating costs of mining companies, including significant power costs and high levels of equipment depreciation. The Company is addressing these operational challenges through considering alternative sources of power, further consolidation of facilities, and potential hosting arrangements. There can be no assurance that the Company will be successful in these efforts and attain profitable levels of operations.

 

FINANCIAL OPERATIONS REVIEW

 

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

 

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

 

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

  

 
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RESULTS OF OPERATIONS

 

YEAR ENDED JUNE 30, 2020 COMPARED TO THE YEAR ENDED JUNE 30, 2019

 

Revenues

 

In November 2017 we commenced operations in our first cryptocurrency mining location. Our cryptocurrency mining revenues increased to $435,740 in the year ended June 30, 2020 from $249,819 in the year ended June 30, 2019.This increase in revenues resulted primarily from additional mining machines deployed in the current fiscal year in our new facility in Carthage, New York.

 

We also have revenues from the sale of cryptocurrency mining units that have been assembled or refurbished for resale and spare parts.Such sales totaled $18,430 and $29,324 in the years ended June 30, 2020 and 2019, respectively.Sales of equipment and parts will fluctuate from period to period depending on the market demand for cryptocurrency mining equipment and related and parts.

 

Cost of Revenues

 

Cost of revenues was $996,409 in the year ended June 30, 2020 compared to $1,005,479 in the year ended June 30, 2019.Expenses associated with running our cryptocurrency mining operations, such as equipment depreciation, rent, operating supplies, utilities and monitoring services are recorded as cost of revenues. Also included in cost of revenues are the costs of purchasing, assembling and connecting the cryptocurrency mining units. We experienced a gross loss on revenues in both fiscal years primarily due to high utility costs, a conservative, short useful life for mining equipment depreciation, and in particular for fiscal 2019, costs of vacating and relocating operations, including abandonment of leasehold improvements.

 

Operating Expenses

 

General and administrative expenses decreased to $472,399 in the year ended June 30, 2020 from $1,823,523 in the year ended June 30, 2019.The decrease is due primarily to a decrease in non-cash stock-based compensation to related parties, partially offset by increases in other expenses supporting our expanded cryptocurrency mining operations.Stock-based compensation – related party totaled $120,000 in the year ended June 30, 2020 and $1,312,000 in the year ended June 30, 2019.The value of the stock-based compensation is computed using the market price of our common stock.

 

We performed a lower of cost or market impairment analysis on the cryptocurrency machines purchased in the August 2018 Asset Purchase Agreement, including writing off the purchase price allocated to the defective machines, and recorded an impairment expense of $2,097,930 during the year ended June 30, 2019. We reported no impairment expense for the year ended June 30, 2020.

 

Other Income (Expense)

 

Our other income (expense) was comprised of the following for the years ended June 30:

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Interest expense

 

$ (655,199 )

 

$ (214,373 )

Realized loss on sale of investments

 

 

(733 )

 

 

(32,770 )

Unrealized gain on investments

 

 

6,617

 

 

 

-

 

Change in fair value of derivative liabilities

 

 

782,258

 

 

 

(2,468,339 )

Loss on disposition of property and equipment

 

 

(162,451 )

 

 

-

 

Loss on conversion of debt

 

 

(4,592 )

 

 

-

 

Digital currency theft loss

 

 

(33,037 )

 

 

-

 

Loss on settlement of warrants

 

 

-

 

 

 

(500,000 )

Loss on exchange of Series B preferred stock

 

 

-

 

 

 

(1,650,000 )

 

 

 

 

 

 

 

 

 

Total other income (expense)

 

$ (67,137 )

 

$ (4,865,482 )

 

 
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The increase in our interest expense in the current fiscal year, which includes the amortization of debt discount and original issue discount, resulted from new convertible debt incurred.

 

The realized loss on investments in all periods presented resulted primarily from losses recorded on our digital currencies, as we experienced the negative impact of fluctuating market values.

 

The unrealized gain on investments for the year ended June 30, 2020 resulted from marking to market our investment in cryptocurrencies as of June 30, 2020.Unrealized gains or losses on investments for any date or period are dependent on the amount of cryptocurrencies on hand and the fluctuation in market values as reported by financial publications.

 

We estimate the fair value of the derivatives associated with our convertible notes payable, warrants, put-back rights associated with two asset purchase agreements, 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.

 

During the year ended June 30, 2020, we disposed of and wrote off non-serviceable, defective mining equipment with a net book value of $162,451.We did not report any loss on disposition of property and equipment during the year ended June 30, 2019.

 

The loss on extinguishment of debt of $4,592 in the year ended June 30, 2020 resulted from conversion of convertible notes to common stock where the conversion terms were outside the related agreements.We did not report any gain or loss on extinguishment of debt during the year ended June 30, 2019

 

During the nine months ended March 31, 2020, we incurred a digital currency theft loss of $33,037 where a hacker obtained unauthorized access to our online digital currency processing service and transferred digital currencies out of our account.

 

On June 26, 2019, the Company entered into an Exchange Agreement with St. George Investments LLC (“St. George”) pursuant to which a convertible promissory note payable to St. George in the principal amount of $500,000 was issued in consideration for the surrender by St. George of all outstanding warrants previously issued in January 2018.As a result, we reported a loss on exchange of warrants of $500,000 in the year ended June 30, 2019.

 

On May 21, 2019, the Company and digiMine entered into an Exchange Agreement (the “Preferred Stock Exchange Agreement”) pursuant to which DigiMine agreed to surrender the remaining 20,000 shares of the Company’s Series B preferred stock held by it and terminate its rights under the Security and Pledge Agreement, dated April 30, 2018, in exchange for 10,000,000 shares of the Company’s common stock, which are to be issued in ten tranches of 1,000,000 shares each beginning ten trading days after the date of the Exchange Agreement and each ten trading days thereafter.The Company identified a derivative liability associated with the obligation to issue the common shares recorded initially at $1,650,000 and recorded a loss on the Series B preferred stock exchange of $1,650,000 for the year ended June 30, 2019.

 

Net Loss

 

As a result, our net loss for the year ended June 30, 2020 was $1,081,775, compared to a net loss of $9,513,271 for the year ended June 30, 2019.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Overview

 

As of June 30, 2020, we had total current assets of $9,925, including cash of $6,675, and total current liabilities of $656,425, resulting in a working capital deficit of $646,500.Included in current liabilities as of June 30, 2020 are derivative liabilities totaling $164,834, which we do not anticipate will require the payment of cash to settle.In addition, we had a total stockholders’ deficit of $109,603 as of June 30, 2020.

 

 
20

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We have funded our operations primarily from cash generated from our digital currency mining operations and proceeds from convertible notes payable.During the year ended June 30, 2020, we received net proceeds from convertible notes payable of $403,692 (net of debt repaid in cash of $130,308) and proceeds of $7,583 from a Paycheck Protection Program loan.

 

Sources and Uses of Cash

 

We used net cash in operations of $671,101 in the year ended June 30, 2020 as a result of our net loss of $1,081,775, non-cash gains totaling $788,875 and increase in digital currencies of $451,546, partially offset by non-cash expenses totaling $1,501,114 and increases in accounts payable of $45,415, accrued expenses of $51,513 and due to related party of $53,053.

 

By comparison, we used net cash in operations of $708,040 in the year ended June 30, 2019 as a result of our net loss of $9,513,271, increases in digital currencies of $251,627and equipment deposits of $27,971 partially offset by non-cash expenses totaling $8,993,776, decreases in prepaid expenses and other current assets of $5,750 and deposits of $13,973, and increases in accounts payable of $12,055, accrued expenses of $10,395 and due to related party of $48,880.

 

During the year ended June 30, 2020, we had net cash provided by investing activities of $218,191 comprised of net proceeds from the sale of investments of $714,126, partially offset by purchase of investments of $372,586 and the purchase of property and equipment of $123,349.

 

During the year ended June 30, 2019, we had net cash provided by investing activities of $189,335, comprised of net proceeds from the sale of investments of $231,782, partially offset by the purchase of property and equipment of $42,447.

 

During the year ended June 30, 2020, we had net cash provided by financing activities of $411,275 comprised of proceeds from convertible notes payable of $534,000 and proceeds from PPP loan payable of $7,583, partially offset by repayment of convertible notes payable of $130,308.

 

During the year ended June 30, 2019, we had net cash provided by financing activities of $525,945 comprised of proceeds from convertible notes payable of $500,945 and proceeds from stock subscriptions payable of $25,000.

 

We currently do not have sufficient cash to fund our operations and will have to raise funds to complete and successfully deploy our digital mining facilities and to fund our operating expenses. We may have to borrow money from shareholders or issue debt or equity or enter into a strategic arrangement with a third party. There can be no assurance that additional capital will be available to us. We currently have no arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources. Since we have no such arrangements or plans currently in effect, our inability to raise funds for our operations will have a severe negative impact on our ability to remain a viable company.

 

Going Concern

 

The Company has reported recurring net losses since its inception and used net cash in operating activities of $671,101 in the year ended June 30, 2020.As of June 30, 2020, the Company had an accumulated deficit of $22,064,982 and a total stockholders’ deficit of $109,603.These conditions raise substantial doubt about the Company's ability to continue as a going concern.

 

The accompanying financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The ability of the Company to reach a successful level of operations is dependent on the execution of management's plans, which include the raising of capital through the debt and/or equity markets, until such time that funds provided by operations are sufficient to fund working capital requirements. If the Company were not to continue as a going concern, it would likely not be able to realize its assets at values comparable to the carrying value or the fair value estimates reflected in the balances set out in the preparation of the financial statements.

 

 
21

Table of Contents

 

There can be no assurances that the Company will be successful in attaining a profitable level of operations or in generating additional cash from the equity/debt markets or other sources fund its operations. The financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary. Should the Company not be successful in its business plan or in obtaining the necessary financing to fund its operations, the Company would need to curtail certain or all operational activities and/or contemplate the sale of its assets, if necessary.

 

SIGNIFICANT ACCOUNTING POLICIES

 

Our significant accounting policies are disclosed in Note 2 to our financial statements. The following is a summary of those accounting policies that involve significant estimates and judgment of management.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.Because of the use of estimates inherent in the financial reporting process, actual results could differ significantly from those estimates.

 

Digital Currencies

 

Digital currencies consist of Bitcoin, Litecoin and Ethereum, generally received for the Company’s own account as compensation for cryptocurrency mining services.Given that there is limited precedent regarding the classification and measurement of cryptocurrencies under current Generally Accepted Accounting Principles (“GAAP”), the Company has determined to account for these digital currencies as indefinite-lived intangible assets in accordance with Accounting Standards Update ("ASU") No. 350, Intangibles – Goodwill and Other, for the period covered by this report and in future reports unless and until further guidance is issued by the Financial Accounting Standards Board (“FASB”).An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired.Impairment exists when the carrying amount exceeds its fair value.In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not than an impairment exists.If it is determined that it is more likely than not that an impairment exists, a quantitative impairment test is not necessary.If the Company concludes otherwise, it is required to perform a quantitative impairment test.To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset.Subsequent reversal of impairment losses is not permitted.Realized gains or losses on the sale of digital currencies are included in other income (expense) in the statements of operations.

 

Property and Equipment

 

Property and equipment, consisting primarily of computer and other cryptocurrency mining equipment (transaction verification servers) and leasehold improvements, is stated at the lower of cost or estimated realizable value and is depreciated when placed into service using the straight-line method over estimated useful lives. The Company operates in an emerging industry for which limited data is available to make estimates of the useful economic lives of specialized equipment. Management has assessed the basis of depreciation of these assets and believes they should be depreciated over a three-year period due to technological obsolescence reflecting rapid development of hardware that has faster processing capacity and other factors. Additionally, during the year ended June 30, 2019, the Company wrote down cryptocurrency mining equipment by $2,097,930 to estimated net realizable value.The Company also wrote off abandoned leasehold improvements with a net book value of $107,150 to cost of goods sold during the year ended June 30, 2019.Maintenance and repairs are expensed as incurred and improvements are capitalized. Gains or losses on the disposition of property and equipment are recorded upon disposal.

 

Management has determined that the three-year diminishing value best reflects the current expected useful life of transaction verification servers. This assessment takes into consideration the availability of historical data and management’s expectations regarding the direction of the industry including potential changes in technology. Management will review this estimate annually and will revise such estimates as and when data becomes available.

  

 
22

Table of Contents

 

To the extent that any of the assumptions underlying management’s estimate of useful life of its transaction verification servers are subject to revision in a future reporting period, either as a result of changes in circumstances or through the availability of greater quantities of data, then the estimated useful life could change and have a prospective impact on depreciation expense and the carrying amounts of these assets.

 

Derivatives

 

The Company evaluates its convertible debt, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for. The result of this accounting treatment is that under certain circumstances the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under this accounting standard are reclassified to liability at the fair value of the instrument on the reclassification date.

 

Where the number of warrants or common shares to be issued under these agreements is indeterminate, the Company has concluded that the equity environment is tainted, and all additional warrants and convertible debt are included in the value of the derivatives.

 

We estimate the fair value of the derivatives associated with our convertible notes payable, warrants, put-back rights associated with two asset purchase agreements, 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. Total impairment expense, consisting of write downs for cryptocurrency mining equipment totaled $2,097,930 for the year ended June 30, 2019.

 

Fair Value of Financial Instruments

 

Disclosures about fair value of financial instruments require disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value.As of June 30, 2020 and 2019, the amounts reported for cash, restricted cash, prepaid expenses and other current assets, equipment deposits, accounts payable, accrued expenses and due to related party approximate fair value because of their short maturities.

  

 
23

Table of Contents

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.ASC Topic 820 established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1measurements) and the lowest priority to unobservable inputs (level 3 measurements).These tiers include:

  

 

·

Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

 

·

Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

 

·

Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

        

Our derivative liabilities are measured at fair value on a recurring basis and estimated as follows:

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

June 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities

 

$ 164,834

 

 

$ -

 

 

$ -

 

 

$ 164,834

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities measured at fair value

 

$ 164,834

 

 

$ -

 

 

$ -

 

 

$ 164,834

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities

 

$ 1,617,774

 

 

$ -

 

 

$ -

 

 

$ 1,617,774

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities measured at fair value

 

$ 1,617,774

 

 

$ -

 

 

$ -

 

 

$ 1,617,774

 

 

Stock-Based Compensation

 

The Company accounts for all equity-based payments in accordance with ASC Topic 718, Compensation – Stock Compensation. ASC Topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock awards, stock options, warrants and other equity-based compensation issued to employees. The value of the portion of an award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method. The fair value of a stock award is recorded at the fair market value of a share of the Company’s stock on the grant date. The Company estimates the fair value of stock options and warrants at the grant date by using an appropriate fair value model such as the Black-Scholes option pricing model or multinomial lattice models.

 

The Company accounts for non-employee share-based awards based upon ASC 505-50, Equity-Based Payments to Non-Employees. ASC 505-50 requires the costs of goods and services received in exchange for an award of equity instruments to be recognized using the fair value of the goods and services or the fair value of the equity award, whichever is more reliably measurable. The fair value of the equity award is determined on the measurement date, which is the earlier of the date that a performance commitment is reached or the date that performance is complete. Generally, our awards do not entail performance commitments. When an award vests over time such that performance occurs over multiple reporting periods, we estimate the fair value of the award as of the end of each reporting period and recognize an appropriate portion of the cost based on the fair value on that date. When the award vests, we adjust the cost previously recognized so that the cost ultimately recognized is equivalent to the fair value on the date the performance is complete.

 

Revenue Recognition

 

Effective July 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers, as amended, using the modified retrospective method, which requires the cumulative effect of adoption to be recognized as an adjustment to opening retained earnings in the period of adoption. There was no cumulative effect of adopting the new standard and no impact on our financial statements. The new standard provides a single comprehensive model to be used in the accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific guidance. The standard’s stated core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, ASC 606 includes provisions within a five-step model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when, or as, an entity satisfies a performance obligation.

 

 
24

Table of Contents

 

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 and Ethereum. The Company satisfies its performance obligation at the point in time that the Company is awarded a unit of digital currency through its participation in the applicable network and network participants benefit from the Company’s verification service. In consideration for these services, the Company receives digital currencies, which are recorded as revenue using the closing U.S. dollar price of the related cryptocurrency on the date of receipt. Expenses associated with running the cryptocurrency mining operations, such as equipment depreciation, rent, operating supplies, rent, utilities and monitoring services are recorded as cost of revenues.

 

There is currently no specific definitive guidance in GAAP or alternative accounting frameworks for the accounting for the production and mining of digital currencies and management has exercised significant judgment in determining appropriate accounting treatment for the recognition of revenue for mining of digital currencies. Management has examined various factors surrounding the substance of the Company’s operations and the guidance in ASC 606, including identifying the transaction price, when performance obligations are satisfied, and collectability is reasonably assured being the completion and addition of a block to a blockchain and the award of a unit of digital currency to the Company. In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies which could result in a change in the Company’s financial statements.

 

OFF BALANCE SHEET ARRANGEMENTS

 

The Company has consolidated its cryptocurrency operations in one facility located in Carthage, New York.The power supply and purchase agreement was entered into on May 10, 2019, for an initial term of 90 days, with an option to continue for a subsequent 36 months, which option has been exercised by the Company.The Company’s sole obligation, under the Agreement is to pay PetaWatt Properties, LLC, the contractual rate per kilowatt hour of electricity consumed by the Company’s cryptocurrency mining operations.

 

We currently have no other material off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

RECENTLY ISSUED ACCOUNTING POLICIES

 

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes” (Income Taxes Topic 740). The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general provision of Topic 740. The amendments also improve consistent application of and simplify General Accepted Accounting Principles for other areas of Topic 740 by clarifying and amending existing practice. For public entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments is permitted. The Company is currently unable to determine the impact on its consolidated financial statements of the implementation of this ASU.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions.This new pronouncement, as amended, was effective January 1, 2019 for calendar-year-end public companies and was adopted by the Company on July 1, 2019.Adoption of the new lease pronouncement did not have a material impact on the Company’s financial statements.The Company concluded that the new lease pronouncement is not applicable to its New York power supply and purchase agreement, for which the Company’s sole obligation is to pay the lessor a contractual dollar amount per kilowatt hour of electricity consumed in the Company’s cryptocurrency mining operations.

 

Although there are other new accounting pronouncements issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its financial position or results of operations.

 

Item 7A.Quantitative and Qualitative Disclosures About Market Risk.

 

Disclosure under Item 7A is not required of smaller reporting companies.

 

 
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Item 8. Financial Statements and Supplementary Data.

   

INTEGRATED VENTURES, INC.

 

TABLE OF CONTENTS

 

Index to Financial Statements

 

Page

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

F-1

 

 

 

 

 

Balance Sheets as of June 30, 2020 and 2019

 

F-2

 

 

 

 

 

Statements of Operations for the Years Ended June 30, 2020 and 2019

 

F-3

 

 

 

 

 

Statements of Stockholders’ Deficit for the Years Ended June 30, 2020 and 2019

 

F-4

 

 

 

 

 

Statements of Cash Flows for the Years Ended June 30, 2020 and 2019

 

F-5

 

 

 

 

 

Notes to Financial Statements

 

F-7

 

 

 

26

Table of Contents

     

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     

To the Board of Directors and
Stockholders of Integrated Ventures, Inc.

  

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of Integrated Ventures, Inc. (the Company) as of June 30, 2020 and 2019, and the related statements of operations, stockholders’ deficit, and cash flows for each of the years in the two year period ended June 30, 2020 and 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two year period ended June 30, 2020, in conformity with accounting principles generally accepted in the United States of America.

  

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, since inception, the Company has suffered net losses that have resulted in an accumulated deficit and stockholders’ deficit, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ M&K CPAS, PLLC

 

 

We have served as the Company’s auditor since 2018.

 

 

Houston, Texas

 

 

September 23, 2020

 

    

 
F-1

Table of Contents

    

Integrated Ventures, Inc.

 

Balance Sheets

 

 

 

 

 

June 30,
2020

 

 

June 30,
2019

 

ASSETS

 

Current assets:

 

 

 

 

 

 

Cash

 

$ 6,675

 

 

$ 48,310

 

Prepaid expenses and other current assets

 

 

3,250

 

 

 

3,250

 

Equipment deposits

 

 

-

 

 

 

27,971

 

Total current assets

 

 

9,925

 

 

 

79,531

 

 

 

 

 

 

 

 

 

 

Non-current assets:

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

453,342

 

 

 

1,039,683

 

Digital currencies

 

 

82,855

 

 

 

2

 

Deposits

 

 

700

 

 

 

700

 

Total assets

 

$ 546,822

 

 

$ 1,119,916

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$ 84,443

 

 

$ 39,028

 

Accrued expenses

 

 

25,274

 

 

 

24,456

 

Due to related party

 

 

122,907

 

 

 

69,854

 

Derivative liabilities

 

 

164,834

 

 

 

1,617,774

 

Convertible notes payable, net of discounts

 

 

251,384

 

 

 

457,147

 

PPP loan payable

 

 

7,583

 

 

 

-

 

Total current liabilities

 

 

656,425

 

 

 

2,208,259

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

656,425

 

 

 

2,208,259

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

 

 

Series A preferred stock, $0.001 par value, (1,000,000 shares authorized, 500,000 shares issued and outstanding as of June 30, 2020 and 2019)

 

 

500

 

 

 

500

 

Series B preferred stock, $0.001 par value, (500,000 shares authorized, 430,000 and 300,000 shares issued and outstanding as of June 30, 2020 and 2019, respectively)

 

 

430

 

 

 

300

 

Common stock, $0.001 par value, (250,000,000 shares authorized, 103,164,460 and 29,824,187 shares issued and outstanding as of June 30, 2020 and 2019, respectively)

 

 

103,165

 

 

 

29,825

 

Additional paid-in capital

 

 

21,851,284

 

 

 

19,864,239

 

Accumulated deficit

 

 

(22,064,982 )

 

 

(20,983,207 )

Total stockholders’ deficit

 

 

(109,603 )

 

 

(1,088,343 )

Total liabilities and stockholders’ deficit

 

$ 546,822

 

 

$ 1,119,916

 

    

See Notes to Financial Statements

 

 
F-2

Table of Contents

    

Integrated Ventures, Inc.

Statements of Operations

 

 

 

Years Ended
June 30,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

Cryptocurrency mining

 

$ 435,740

 

 

$ 249,819

 

Sales of cryptocurrency mining equipment

 

 

18,430

 

 

 

29,324

 

Total revenues

 

 

454,170

 

 

 

279,143

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

 

996,409

 

 

 

1,005,479

 

 

 

 

 

 

 

 

 

 

Gross loss

 

 

(542,239 )

 

 

(726,336 )

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

General and administrative

 

 

472,399

 

 

 

1,823,523

 

Impairment of assets

 

 

-

 

 

 

2,097,930

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

472,399

 

 

 

3,921,453

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(1,014,638 )

 

 

(4,647,789 )

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense

 

 

(655,199 )

 

 

(214,373 )

Realized loss on sale of investments

 

 

(733 )

 

 

(32,770 )

Unrealized gain on investments

 

 

6,617

 

 

 

-

 

Change in fair value of derivative liabilities

 

 

782,258

 

 

 

(2,468,339 )

Loss on disposition of property and equipment

 

 

(162,451 )

 

 

-

 

Loss on conversion of debt

 

 

(4,592 )

 

 

-

 

Digital currency theft loss

 

 

(33,037 )

 

 

-

 

Loss on settlement of warrants

 

 

-

 

 

 

(500,000 )

Loss on exchange of Series B preferred stock

 

 

-

 

 

 

(1,650,000 )

 

 

 

 

 

 

 

 

 

Total other income (expense)

 

 

(67,137 )

 

 

(4,865,482 )

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(1,081,775 )

 

 

(9,513,271 )

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Net loss

 

$ (1,081,775 )

 

$ (9,513,271 )

 

 

 

 

 

 

 

 

 

Net loss per common share, basic and diluted

 

$ (0.02 )

 

$ (0.70 )

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding, basic and diluted

 

 

65,389,138

 

 

 

13,665,421

 

  

See Notes to Financial Statements

 

 
F-3

Table of Contents

   

Integrated Ventures, Inc.

Statements of Stockholders’ Deficit

For the Years Ended June 30, 2020 and 2019

 

 

 

Series A
Preferred Stock

 

 

Series B
Preferred Stock

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Stock
Subscriptions

 

 

Accumulated

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

Payable

Deficit

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2018

 

 

500,000

 

 

$ 500

 

 

 

309,166

 

 

$ 309

 

 

 

8,964,103

 

 

$ 8,965

 

 

$ 9,290,344

 

 

$ 35,000

 

 

$ (11,469,936 )

 

$ (2,134,818 )

Issuance of Series B preferred stock to officer for compensation

 

 

-

 

 

 

-

 

 

 

70,000

 

 

 

70

 

 

 

-

 

 

 

-

 

 

 

1,311,930

 

 

 

-

 

 

 

-

 

 

 

1,312,000

 

Issuance of Series B preferred stock for property and equipment

 

 

-

 

 

 

-

 

 

 

38,018

 

 

 

38

 

 

 

-

 

 

 

-

 

 

 

3,003,384

 

 

 

-

 

 

 

-

 

 

 

3,003,422

 

Issuance of Series B preferred stock for stock subscriptions payable

 

 

-

 

 

 

-

 

 

 

3,500

 

 

 

4

 

 

 

-

 

 

 

-

 

 

 

34,996

 

 

 

(35,000 )

 

 

-

 

 

 

-

 

Return and cancellation of Series B preferred stock

 

 

-

 

 

 

-

 

 

 

(3,000 )

 

 

(3 )

 

 

-

 

 

 

-

 

 

 

3

 

 

 

-

 

 

 

-

 

 

 

-

 

Conversion of Series B preferred stock to common stock

 

 

-

 

 

 

-

 

 

 

(97,684 )

 

 

(98 )

 

 

9,768,400

 

 

 

9,768

 

 

 

(9,670 )

 

 

-

 

 

 

-

 

 

 

-

 

Common shares issued in Series B preferred stock Exchange Agreement

 

 

-

 

 

 

-

 

 

 

(20,000 )

 

 

(20 )

 

 

2,000,000

 

 

 

2,000

 

 

 

283,020

 

 

 

-

 

 

 

-

 

 

 

285,000

 

Common shares issued for consulting fees

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

220,000

 

 

 

220

 

 

 

81,837

 

 

 

-

 

 

 

-

 

 

 

82,057

 

Common shares issued for cashless exercise of warrants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,950,000

 

 

 

4,950

 

 

 

(3,059 )

 

 

-

 

 

 

-

 

 

 

1,891

 

Common shares issued for debt discount

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

150,000

 

 

 

150

 

 

 

53,100

 

 

 

-

 

 

 

-

 

 

 

53,250

 

Common shares issued in conversion of debt

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,771,684

 

 

 

3,772

 

 

 

253,995

 

 

 

-

 

 

 

-

 

 

 

257,767

 

Settlement of derivative liabilities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,564,359

 

 

 

-

 

 

 

-

 

 

 

5,564,359

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(9,513,271 )

 

 

(9,513,271 )

Balance, June 30, 2019

 

 

500,000

 

 

$ 500

 

 

 

300,000

 

 

$ 300

 

 

 

29,824,187

 

 

$ 29,825

 

 

$ 19,864,239

 

 

$ -

 

 

$ (20,983,207 )

 

$ (1,088,343 )

Issuance of Series B preferred stock to officer for compensation

 

 

-

 

 

 

-

 

 

 

100,000

 

 

 

100

 

 

 

-

 

 

 

-

 

 

 

119,900

 

 

 

-

 

 

 

-

 

 

 

120,000

 

Return and cancellation of common shares and reissuance of Series B preferred stock

 

 

-

 

 

 

-

 

 

 

30,000

 

 

 

30

 

 

 

(3,000,000 )

 

 

(3,000 )

 

 

2,970

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common shares in Series B preferred stock Exchange Agreement

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,000,000

 

 

 

8,000

 

 

 

471,800

 

 

 

-

 

 

 

-

 

 

 

479,800

 

Common shares issued in conversion of debt

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

68,340,273

 

 

 

68,340

 

 

 

931,139

 

 

 

-

 

 

 

-

 

 

 

999,479

 

Settlement of derivative liabilities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

461,236

 

 

 

-

 

 

 

-

 

 

 

461,236

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,081,775 )

 

 

(1,081,775 )

Balance, June 30, 2020

 

 

500,000

 

 

$ 500

 

 

 

430,000

 

 

$ 430

 

 

 

103,164,460

 

 

$ 103,165

 

 

$ 21,851,284

 

 

$ -

 

 

$ (22,064,982 )

 

$ (109,603 )

   

See Notes to Financial Statements

  

 
F-4

Table of Contents

    

Integrated Ventures, Inc.

Statements of Cash Flows

 

 

 

Years Ended
June 30,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$ (1,081,775 )

 

$ (9,513,271 )

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

575,210

 

 

 

552,958

 

Stock-based compensation – related party

 

 

120,000

 

 

 

1,312,000

 

Loss on disposition of property and equipment

 

 

162,451

 

 

 

-

 

Amortization of debt discount

 

 

585,091

 

 

 

180,172

 

Financing fees related to notes payable

 

 

20,000

 

 

 

10,400

 

Realized loss on sale of investments

 

 

733

 

 

 

32,770

 

Unrealized gain on investments

 

 

(6,617 )

 

 

-

 

Change in fair value of derivative liabilities

 

 

(782,258 )

 

 

2,468,339

 

Digital currency theft loss

 

 

33,037

 

 

 

-

 

Loss on conversion of debt

 

 

4,592

 

 

 

-

 

Stock-based compensation

 

 

-

 

 

 

82,057

 

Impairment of assets

 

 

-

 

 

 

2,097,930

 

Abandonment of leasehold improvements

 

 

-

 

 

 

107,150

 

Loss on exchange of Series B preferred stock

 

 

-

 

 

 

1,650,000

 

Loss on settlement of warrants

 

 

-

 

 

 

500,000

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Digital currencies

 

 

(451,546 )

 

 

(251,627 )

Prepaid expenses and other current assets

 

 

-

 

 

 

5,750

 

Equipment deposits

 

 

-

 

 

 

(27,971 )

Deposits

 

 

-

 

 

 

13,973

 

Accounts payable

 

 

45,415

 

 

 

12,055

 

Accrued expenses

 

 

51,513

 

 

 

10,395

 

Due to related party

 

 

53,053

 

 

 

48,880

 

Net cash used in operating activities

 

 

(671,101 )

 

 

(708,040 )

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Net proceeds from the sale of investments

 

 

714,126

 

 

 

231,782

 

Purchase of property and equipment

 

 

(123,349 )

 

 

(42,447 )

Purchase of investments

 

 

(372,586 )

 

 

-

 

Net cash provided by investing activities

 

 

218,191

 

 

 

189,335

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from convertible notes payable

 

 

534,000

 

 

 

500,945

 

Proceeds from PPP loan payable

 

 

7,583

 

 

 

-

 

Repayment of convertible notes payable

 

 

(130,308 )

 

 

-

 

Proceeds from stock subscriptions

 

 

-

 

 

 

25,000

 

Net cash provided by financing activities

 

 

411,275

 

 

 

525,945

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

(41,635 )

 

 

7,240

 

Cash, beginning of year

 

 

48,310

 

 

 

41,070

 

Cash, end of year

 

$ 6,675

 

 

$ 48,310

 

 

See Notes to Financial Statements.

  

 
F-5

Table of Contents

    

Integrated Ventures, Inc.

Statements of Cash Flows (continued)

 

 

 

Years Ended
June 30,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$ 1,160

 

 

$ 29,257

 

Cash paid for income taxes

 

 

-

 

 

 

-

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Equipment deposits for property and equipment

 

$ 27,971

 

 

$ 3,896

 

Debt discount for derivative liabilities

 

 

270,354

 

 

 

438,720

 

Common shares issued in conversion of debt

 

 

994,887

 

 

 

257,767

 

Common shares issued in Series B preferred share stock Exchange Agreement

 

 

479,800

 

 

 

120,000

 

Settlement of derivative liabilities

 

 

461,236

 

 

 

5,564,359

 

Return common shares for Series B preferred shares

 

 

3,000

 

 

 

-

 

Inventories for property and equipment

 

 

-

 

 

 

114,851

 

Series B preferred shares for property and equipment

 

 

-

 

 

 

3,003,422

 

Series B preferred shares returned and cancelled

 

 

-

 

 

 

3

 

Common shares issued in conversion of Series B preferred stock

 

 

-

 

 

 

98

 

Common shares issued for debt discount

 

 

-

 

 

 

53,250

 

Common shares issued in cashless exercise of warrants

 

 

-

 

 

 

1,891

 

Series B preferred shares issued for stock subscription payable

 

 

-

 

 

 

35,000

 

    

See Notes to Financial Statements.

 

 
F-6

Table of Contents

 

Integrated Ventures, Inc.

Notes to Financial Statements

Years Ended June 30, 2020 and 2019

   

1. ORGANIZATION

 

Organization

 

Integrated Ventures, Inc. (the "Company," "we," "our," or "EMS Find") was incorporated in the State of Nevada on March 22, 2011, under the name of Lightcollar, Inc.On March 20, 2015, the Company amended its articles of incorporation and changed its name from Lightcollar, Inc. to EMS Find, Inc.On May 30, 2017, Integrated Ventures, Inc. (“Integrated Ventures”), a Nevada corporation, was formed as a wholly owned subsidiary of the Company.Pursuant to an Agreement and Plan of Merger dated May 30, 2017, Integrated Ventures was merged into the Company, with the Company being the surviving corporation and changing its name to Integrated Ventures, Inc.

 

The Company has discontinued its prior operations and changed its business focus from its prior technologies relating to the EMS Find platform to acquiring, launching and operating companies in the cryptocurrency sector, mainly in digital currency mining, equipment manufacturing, and sales of branded mining rigs, as well as blockchain software development.

 

The Company is developing and acquiring a diverse portfolio of digital currency assets and block chain technologies and mining revenues commenced in November 2017. 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, through its wholly owned subsidiary, BitcoLab, Inc., is currently mining Bitcoin, Litecoin and Ethereum, whereby the Company earns revenue by solving “blocks” to be added to the block chain.As funds are available, the Company also purchases certain digital currencies for short-term investment purposes.

 

In May 2019, the Company consolidated all of its mining operations and signed a power supply and purchase agreement with PetaWatt Properties, LLC.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.Because of the use of estimates inherent in the financial reporting process, actual results could differ significantly from those estimates.

 

Cash and Cash Equivalents

 

The Company maintains cash balances in non-interest-bearing accounts that currently do not exceed federally insured limits.For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The Company had no cash equivalents at June 30, 2020 and 2019.

 

Digital Currencies

 

Digital currencies consist of Bitcoin, Litecoin and Ethereum, generally received for the Company’s own account as compensation for cryptocurrency mining services.Given that there is limited precedent regarding the classification and measurement of cryptocurrencies under current Generally Accepted Accounting Principles (“GAAP”), the Company has determined to account for these digital currencies as indefinite-lived intangible assets in accordance with Accounting Standards Update ("ASU") No. 350, Intangibles – Goodwill and Other, for the period covered by this report and in future reports unless and until further guidance is issued by the Financial Accounting Standards Board (“FASB”).An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired.Impairment exists when the carrying amount exceeds its fair value.In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not than an impairment exists.If it is determined that it is more likely than not that an impairment exists, a quantitative impairment test is not necessary.If the Company concludes otherwise, it is required to perform a quantitative impairment test.To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset.Subsequent reversal of impairment losses is not permitted.Realized gains or losses on the sale of digital currencies are included in other income (expense) in the statements of operations.Changes in the fair value of digital currencies purchased for investment purposes during the period are recorded as unrealized gains or losses in other income (expense) in the statements of operations.As of June 30, 2020, the market value of digital securities exceeded the Company’s cost basis by $6,617, which amount is recorded as unrealized gain on investments.

  

 
F-7

Table of Contents

  

Property and Equipment

 

Property and equipment, consisting primarily of computer and other cryptocurrency mining equipment (transaction verification servers) and leasehold improvements, is stated at the lower of cost or estimated realizable value and is depreciated when placed into service using the straight-line method over estimated useful lives. The Company operates in an emerging industry for which limited data is available to make estimates of the useful economic lives of specialized equipment. Management has assessed the basis of depreciation of these assets and believes they should be depreciated over a three-year period due to technological obsolescence reflecting rapid development of hardware that has faster processing capacity and other factors. 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 year ended June 30, 2020, the Company discontinued the use of damaged or non-serviceable mining equipment and wrote off its net book value of $162,451 to loss on disposition of property and equipment.

 

During the year ended June 30, 2019, the Company wrote down cryptocurrency mining equipment by $2,097,930 to estimated net realizable value.The Company also wrote off abandoned leasehold improvements with a net book value of $107,150 to cost of goods sold during the year ended June 30, 2019.

 

Management has determined that the three-year diminishing value best reflects the current expected useful life of transaction verification servers. This assessment takes into consideration the availability of historical data and management’s expectations regarding the direction of the industry including potential changes in technology. Management will review this estimate annually and will revise such estimates as and when data becomes available.

 

To the extent that any of the assumptions underlying management’s estimate of useful life of its transaction verification servers are subject to revision in a future reporting period, either as a result of changes in circumstances or through the availability of greater quantities of data, then the estimated useful life could change and have a prospective impact on depreciation expense and the carrying amounts of these assets.

 

Derivatives

 

The Company evaluates its convertible debt, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for. The result of this accounting treatment is that under certain circumstances the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under this accounting standard are reclassified to liability at the fair value of the instrument on the reclassification date.

 

Where the number of warrants or common shares to be issued under these agreements is indeterminate, the Company has concluded that the equity environment is tainted, and all additional warrants and convertible debt are included in the value of the derivatives.

 

We estimate the fair value of the derivatives associated with our convertible notes payable, warrants, put-back rights associated with two asset purchase agreements, 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.

  

 
F-8

Table of Contents

  

Impairment of Long-Lived Assets

 

All assets, including intangible assets subject to amortization, are reviewed for impairment when changes in circumstances indicate that the carrying amount of the asset may not be recoverable in accordance with ASC 350 and ASC 360. If the carrying amount of the asset exceeds the expected undiscounted cash flows of the asset, an impairment charge is recognized equal to the amount by which the carrying amount exceeds fair value or net realizable value. The testing of these intangibles under established guidelines for impairment requires significant use of judgment and assumptions. Changes in forecasted operations and other assumptions could materially affect the estimated fair values. Changes in business conditions could potentially require adjustments to these asset valuations. Total impairment expense, consisting of write downs for cryptocurrency mining equipment totaled $0 and $2,097,930 for the years ended June 30, 2020 and 2019, respectively.

 

Fair Value of Financial Instruments

 

Disclosures about fair value of financial instruments require disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value.As of June 30, 2020 and 2019, the amounts reported for cash, prepaid expenses and other current assets, equipment deposits, accounts payable, accrued expenses and due to related party approximate fair value because of their short maturities.

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.ASC Topic 820 established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1measurements) and the lowest priority to unobservable inputs (level 3 measurements).These tiers include:

 

 

·

Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

 

·

Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

 

·

Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

  

Our derivative liabilities are measured at fair value on a recurring basis and estimated as follows:

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

June 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities

 

$ 164,834

 

 

$ -

 

 

$ -

 

 

$ 164,834

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities measured at fair value

 

$ 164,834

 

 

$ -

 

 

$ -

 

 

$ 164,834

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities

 

$ 1,617,774

 

 

$ -

 

 

$ -

 

 

$ 1,617,774

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities measured at fair value

 

$ 1,617,774

 

 

$ -

 

 

$ -

 

 

$ 1,617,774

 

 

 
F-9

Table of Contents

  

Stock-Based Compensation

 

The Company accounts for all equity-based payments in accordance with ASC Topic 718, Compensation – Stock Compensation. ASC Topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock awards, stock options, warrants and other equity-based compensation issued to employees. The value of the portion of an award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method. The fair value of a stock award is recorded at the fair market value of a share of the Company’s stock on the grant date. The Company estimates the fair value of stock options and warrants at the grant date by using an appropriate fair value model such as the Black-Scholes option pricing model or multinomial lattice models.

 

The Company accounts for non-employee share-based awards based upon ASC 505-50, Equity-Based Payments to Non-Employees. ASC 505-50 requires the costs of goods and services received in exchange for an award of equity instruments to be recognized using the fair value of the goods and services or the fair value of the equity award, whichever is more reliably measurable. The fair value of the equity award is determined on the measurement date, which is the earlier of the date that a performance commitment is reached or the date that performance is complete. Generally, our awards do not entail performance commitments. When an award vests over time such that performance occurs over multiple reporting periods, we estimate the fair value of the award as of the end of each reporting period and recognize an appropriate portion of the cost based on the fair value on that date. When the award vests, we adjust the cost previously recognized so that the cost ultimately recognized is equivalent to the fair value on the date the performance is complete.

 

Revenue Recognition

 

Effective July 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers, as amended, using the modified retrospective method, which requires the cumulative effect of adoption to be recognized as an adjustment to opening retained earnings in the period of adoption. There was no cumulative effect of adopting the new standard and no impact on our financial statements. The new standard provides a single comprehensive model to be used in the accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific guidance. The standard’s stated core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, ASC 606 includes provisions within a five-step model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when, or as, an entity satisfies a performance obligation.

 

Our revenues currently consist of cryptocurrency mining revenues and revenues from the sale of cryptocurrency mining equipment recognized in accordance with ASC 606 as discussed above. Amounts collected from customers prior to shipment of products are recorded as deferred revenue.

 

The Company earns its cryptocurrency mining revenues by providing transaction verification services within the digital currency networks of cryptocurrencies, such as Bitcoin, Litecoin and Ethereum. The Company satisfies its performance obligation at the point in time that the Company is awarded a unit of digital currency through its participation in the applicable network and network participants benefit from the Company’s verification service. In consideration for these services, the Company receives digital currencies, which are recorded as revenue using the closing U.S. dollar price of the related cryptocurrency on the date of receipt. Expenses associated with running the cryptocurrency mining operations, such as equipment depreciation, rent, operating supplies, rent, utilities and monitoring services are recorded as cost of revenues.

 

There is currently no specific definitive guidance in GAAP or alternative accounting frameworks for the accounting for the production and mining of digital currencies and management has exercised significant judgment in determining appropriate accounting treatment for the recognition of revenue for mining of digital currencies. Management has examined various factors surrounding the substance of the Company’s operations and the guidance in ASC 606, including identifying the transaction price, when performance obligations are satisfied, and collectability is reasonably assured being the completion and addition of a block to a blockchain and the award of a unit of digital currency to the Company. In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies which could result in a change in the Company’s financial statements.

 

Income Taxes

 

The Company adopted the provisions of ASC 740-10, Accounting for Uncertain Income Tax Positions. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits. As of June 30, 2020, tax years 2015 through 2019 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”), which was issued on May 2, 2007. ASC 740-10 amends FIN 48 to provide guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. The term “effectively settled” replaces the term “ultimately settled” when used to describe recognition, and the terms “settlement” or “settled” replace the terms “ultimate settlement” or “ultimately settled” when used to describe measurement of a tax position under ASC 740-10. ASC 740-10 clarifies that a tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. The adoption of ASC 740-10 did not have an impact on the accompanying financial statements.

 

Income (Loss) Per Share

 

Basic net income or loss per share is calculated by dividing net income or loss by the weighted average number of common shares outstanding for the period.Diluted income or loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as “in-the-money” stock options and warrants, convertible debt and convertible preferred stock, were exercised or converted into common stock.Equivalent shares are not utilized when the effect is anti-dilutive.

 

For the years ended June 30, 2020 and 2019, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share; therefore, basic net loss per share is the same as diluted net loss per share.

 

Recently Issued Accounting Pronouncements

 

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes” (Income Taxes Topic 740). The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general provision of Topic 740. The amendments also improve consistent application of and simplify General Accepted Accounting Principles for other areas of Topic 740 by clarifying and amending existing practice. For public entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments is permitted. The Company is currently unable to determine the impact on its consolidated financial statements of the implementation of this ASU.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions.This new pronouncement, as amended, was effective January 1, 2019 for calendar-year-end public companies and was adopted by the Company on July 1, 2019.Adoption of the new lease pronouncement did not have a material impact on the Company’s financial statements.The Company concluded that the new lease pronouncement is not applicable to its New York power supply and purchase agreement, for which the Company’s sole obligation is to pay the lessor a contractual dollar amount per kilowatt hour of electricity consumed in the Company’s cryptocurrency mining operations.

 

Although there are other new accounting pronouncements issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its financial position or results of operations.

 

 
F-11

Table of Contents

    

Reclassifications

 

Certain amounts in the financial statements for the year ended June 30, 2019 have been reclassified to conform to the presentation for the year ended June 30, 2020.

 

3. GOING CONCERN

 

The Company has reported recurring net losses since its inception and used net cash in operating activities of $671,101 in the year ended June 30, 2020.As of June 30, 2020, the Company had an accumulated deficit of $22,064,982 and a total stockholders’ deficit of $109,603.These conditions raise substantial doubt about the Company's ability to continue as a going concern.

 

The accompanying financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The ability of the Company to reach a successful level of operations is dependent on the execution of management's plans, which include the raising of capital through the debt and/or equity markets, until such time that funds provided by operations are sufficient to fund working capital requirements. If the Company were not to continue as a going concern, it would likely not be able to realize its assets at values comparable to the carrying value or the fair value estimates reflected in the balances set out in the preparation of the financial statements.

 

There can be no assurances that the Company will be successful in attaining a profitable level of operations or in generating additional cash from the equity/debt markets or other sources fund its operations. The financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary. Should the Company not be successful in its business plan or in obtaining the necessary financing to fund its operations, the Company would need to curtail certain or all operational activities and/or contemplate the sale of its assets, if necessary.

 

4. PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following at June 30:

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Cryptocurrency mining equipment

 

$ 1,242,397

 

 

$ 1,579,580

 

Furniture and equipment

 

 

16,366

 

 

 

16,366

 

 

 

 

 

 

 

 

 

 

Total

 

 

1,258,763

 

 

 

1,595,946

 

Less accumulated depreciation and amortization

 

 

(805,421 )

 

 

(556,263 )

 

 

 

 

 

 

 

 

 

Net

 

$ 453,342

 

 

$ 1,039,683

 

 

Depreciation and amortization expense, included in cost of revenues, for the years ended June 30, 2020 and 2019 was $575,210 and $552,958, respectively.

 

During the year ended June 30, 2020, we disposed of and wrote off non-serviceable, defective mining equipment with a net book value of $162,451.We did not report any loss on disposition of property and equipment during the year ended June 30, 2019.

 

5. ASSET PURCHASE AGREEMENT

 

On August 2, 2018, the Company entered into an Asset Purchase Agreement with Secure Hosting LLC, a Florida limited liability, for the purchase of 182 Ethereum mining machines.

 

As consideration for the purchase of the machines, the Company issued 38,018 restricted shares of its Series B convertible preferred stock, valued on an “as converted to common” basis at an aggregate of $3,003,422, based on the market value of the Company’s common stock on the date of the transaction.

 

 
F-12

Table of Contents

 

Of the 182 machines purchased, 152 were placed into operations, and 30 units deemed to be under-performing will be utilized by the Company as repair parts or sold as repair parts.The Company performed a lower of cost or market impairment analysis on the machines purchased, including writing off the purchase price allocated to the defective machines, and recorded an impairment expense of $2,097,930, which amount is included in operating expenses for the year ended June 30, 2019.

 

The Agreement contains customary representations and warranties and covenants as of the Closing Date, including, without limitation, that the Equipment is (i) in good condition, (ii) free of all liens, (iii) not subject to any intellectual property rights other than software used in the Equipment and (iv) covered by certain manufacturer warranties.Because a portion of the machines were defective, certain shares of the Series B preferred stock issued in the transaction were subsequently returned to the Company and cancelled.

 

6. DIGIMINE PREFERRED STOCK EXCHANGE AGREEMENT

 

In April 2018, the Company acquired the digital currency mining operations of digiMine LLC (“digiMine”) through two Asset Purchase Agreements (the “digiMine Acquisition”) in a transaction recorded as a business combination. A total of 36,667 Series B preferred shares were issued to digiMine.The Company also entered into separate Security and Pledge Agreements, securing its obligations to digiMine under the Asset Purchase Agreements.Pursuant to the digiMine Acquisition, digiMine had the right (the “Put-Back Right”) to require that the Company redeem for cash any of Seller’s then-outstanding Shares at a defined redemption

 

On May 21, 2019, the Company and digiMine entered into an Exchange Agreement (the “Preferred Stock Exchange Agreement”) pursuant to which digiMine agreed to surrender the remaining 20,000 shares of the Company’s Series B preferred stock held by it and terminate its rights under the Security and Pledge Agreements in exchange for 10,000,000 shares (“Exchange Shares”) of the Company’s common stock, which were to be issued in ten tranches of 1,000,000 shares each beginning ten trading days after the date of the Exchange Agreement and each ten trading days thereafter.The Company identified a derivative liability associated with the obligation to issue the common shares recorded initially at $1,650,000 and recorded a loss on the Series B preferred stock exchange of $1,650,000 in the year ended June 30, 2019.

 

With the sale of the 16,666 shares of Series B preferred stock by digiMine in April and May of 2019 and with the completion of the Exchange Agreement, the Put-Back Rights in connection with the Asset Purchase Agreements have been eliminated and the associated derivative liability settled.During the year ended June 30, 2020, a total of 8,000,000 shares of the Company’s common stock valued at $479,800 were issued and during the year ended June 30, 2019, a total of 2,000,000 shares of the Company’s common stock valued at $285,000 were issued.As a result, the Preferred Stock Exchange Agreement was extinguished, and the associated derivative liability settled.

 

7. RELATED PARTY TRANSACTIONS

 

We have one executive officer, Steve Rubakh, who is currently our only full-time employee and sole member of our Board of Directors.Mr. Rubakh is paid an annual salary established by the Board of Directors and is issued shares of Series B preferred stock for additional compensation.The number of shares issued, generally on a quarterly basis, is at the discretion of the Board of Directors.

 

During the year ended June 30, 2020 and 2019, the Board of Directors authorized the issuance to Mr. Rubakh of 100,000 and 70,000 total shares of Series B convertible preferred stock, respectively. Stock-based compensation of $120,000 and $1,312,000 was recorded for the years ended June 30, 2020 and 2019, respectively, based on the market price of the Company’s common stock on an “as converted” basis.The stock-based compensation – related party is included in general and administrative expenses in the accompanying statements of operations.

 

The Board of Directors of the Company has set the current annual compensation for Steve Rubakh to include annual salary of $150,000 per year in addition to shares of Series B preferred stock.The Company recorded salary expense to Mr. Rubakh of $150,000 for the years ended June 30, 2020 and 2019.

 

In April 2019, Mr. Rubakh converted 30,000 shares of Series B preferred stock into 3,000,000 shares of common stock of the Company, recorded at the par value of the common stock issued.On February 27, 2020, Mr. Rubakh returned 3,000,000 shares of the Company’s common stock and was issued 30,000 shares of the Company’s Series B preferred stock which were previously surrendered in the April 2019 conversion.The common shares were canceled, and the transaction was recorded at the par value of the common and Series B preferred stock.

 

Amounts due to related party, consisting of accrued salary to Mr. Rubakh, totaled $122,907 and $69,854 as of June 30, 2020 and 2019, respectively.

 

 
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Table of Contents

 

8. CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable, all classified as current, consist of the following:

 

 

 

June 30, 2020

June 30, 2019

 

 

 

 

 

Debt

 

 

 

 

 

 

Debt

 

 

 

 

 

Principal

 

 

Discount

 

 

Net

 

 

Principal

 

 

Discount

 

 

Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Geneva Roth Remark Holdings, Inc. #2

 

$ -

 

 

$ -

 

 

$ -

 

 

$ 43,000

 

 

$ 11,582

 

 

$ 31,418

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Geneva Roth Remark Holdings, Inc. #3

 

 

-

 

 

 

-

 

 

 

-

 

 

 

78,000

 

 

 

24,253

 

 

 

53,747

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Geneva Roth Remark Holdings, Inc. #4

 

 

-

 

 

 

-

 

 

 

-

 

 

 

63,000

 

 

 

21,605

 

 

 

41,395

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BHP Capital NY, Inc. #2

 

 

-

 

 

 

-

 

 

 

-

 

 

 

38,500

 

 

 

16,748

 

 

 

21,752

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Armada Investment Fund, LLC #2

 

 

-

 

 

 

-

 

 

 

-

 

 

 

38,500

 

 

 

16,747

 

 

 

21,753

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jefferson Street Capital LLC

 

 

-

 

 

 

-

 

 

 

-

 

 

 

38,500

 

 

 

16,747

 

 

 

21,753

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

St. George Investments LLC

 

 

-

 

 

 

-

 

 

 

-

 

 

 

500,000

 

 

 

234,671

 

 

 

265,329

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BHP Capital NY, Inc. #4

 

 

66,000

 

 

 

13,193

 

 

 

52,807

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Armada Investment Fund, LLC #5

 

 

20,000

 

 

 

2,739

 

 

 

17,261

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Armada Investment Fund, LLC #6

 

 

22,000

 

 

 

4,167

 

 

 

17,833

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BHP Capital NY, Inc. #5

 

 

83,333

 

 

 

21,141

 

 

 

62,192

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BHP Capital NY, Inc. #6

 

 

60,500

 

 

 

19,188

 

 

 

41,312

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Armada Investment Fund, LLC #7

 

 

88,000

 

 

 

28,021

 

 

 

59,979

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$ 339,833

 

 

$ 88,449

 

 

$ 251,384

 

 

$ 799,500

 

 

$ 342,353

 

 

$ 457,147

 

 

On February 6, 2019, the Company entered into a second convertible promissory note with Geneva Roth Remark Holdings, Inc. (“Geneva” in the principal amount of $43,000. The note matures on February 6, 2020 and bears interest at 10%. A debt discount of $19,128 was recorded, including a derivative liability of $16,128. Geneva has the right beginning on the date that is 170 days following the date of the note to convert principal and accrued interest into shares of the Company’s common stock.The conversion price is 70% of the average of the three lowest trading prices (closing bid prices) of the Company’s common stock during the ten trading days ending on the latest complete trading day prior to the date of conversion.In August 2019, Geneva converted the entire principal of $43,000 and accrued interest payable of $2,150 into common shares of the Company, extinguishing the debt in full. As of June 30, 2020, the debt discount had been amortized in full to interest expense.

 

On March 21, 2019, the Company entered into a third convertible promissory note with Geneva in the principal amount of $78,000. The note matures on March 21, 2020 and bears interest at 10%. A debt discount of $33,496 was recorded, including a derivative liability of $30,496. Geneva has the right beginning on the date that is 170 days following the date of the note to convert principal and accrued interest into shares of the Company’s common stock.The conversion price is 70% of the average of the three lowest trading prices (closing bid prices) of the Company’s common stock during the ten trading days ending on the latest complete trading day prior to the date of conversion.In September and October 2019, Geneva converted principal of $78,000 and accrued interest of $3,900 into common shares of the Company, extinguishing the debt in full.As of June 30, 2020, the debt discount had been amortized in full to interest expense.

 

 
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Table of Contents

 

On April 18, 2019, the Company entered into a fourth convertible promissory note with Geneva in the principal amount of $63,000. The note matures on April 18, 2020 and bears interest at 10%. A debt discount of $26,988 was recorded, including a derivative liability of $23,988. Geneva has the right beginning on the date that is 170 days following the date of the note to convert principal and accrued interest into shares of the Company’s common stock.The conversion price is 70% of the average of the three lowest trading prices (closing bid prices) of the Company’s common stock during the ten trading days ending on the latest complete trading day prior to the date of conversion.Pursuant to an Assignment Agreement dated October 11, 2019, Geneva assigned $63,000 principal and $3,003 accrued interest to Armada Investment Fund, LLC (“Armada”).During November 2019 through January 2020, Armada converted principal of $63,000 and accrued interest of $4,030 into common shares of the Company, extinguishing the debt in full.As of June 30, 2020, the debt discount had been amortized in full to interest expense.

 

On May 15, 2019, the Company entered into a second convertible promissory note with Armada in the principal amount of $38,500, with an original issue discount of $2,500. The note bears interest at 8%.The maturity date of the note was extended to August 15, 2020.A debt discount of $20,098 was recorded, including a derivative liability of $15,598. Armada had the right beginning on the date that is 31 days following the date of the note to convert principal and accrued interest into shares of the Company’s common stock.The conversion price is 70% of the average of the three lowest trading prices (lowest bid prices) of the Company’s common stock during the ten trading days ending on the latest complete trading day prior to the date of conversion.In June 2020, Armada converted principal of $38,500, accrued interest of $3,460 and conversion fees of $500 into common shares of the Company, extinguishing the debt in full.As of June 30, 2020, the debt discount had been amortized in full to interest expense.

 

On May 15, 2019, the Company entered into a second convertible promissory note with BHP Capital NY, Inc. (“BHP”) in the principal amount of $38,500, with an original issue discount of $2,500. The note matured on February 15, 2020 and bears interest at 8%.A debt discount of $20,097 was recorded, including a derivative liability of $15,597. BHP has the right beginning on the date that is 31 days following the date of the note to convert principal and accrued interest into shares of the Company’s common stock.The conversion price is 70% of the average of the three lowest trading prices (lowest bid prices) of the Company’s common stock during the ten trading days ending on the latest complete trading day prior to the date of conversion.In November and December 2019 and January 2020, BHP converted the principal of $38,500, accrued interest of $1,933 and conversion fees of $1,000 into common shares of the Company, extinguishing the debt in full.As of June 30, 2020, the debt discount had been amortized in full to interest expense.

 

On May 15, 2019, the Company entered into a convertible promissory note with Jefferson Street Capital LLC (“Jefferson”) in the principal amount of $38,500, with an original issue discount of $2,500. The note matures on February 15, 2020 and bears interest at 8%.A debt discount of $20,097 was recorded, including a derivative liability of $15,597. Jefferson has the right beginning on the date that is 31 days following the date of the note to convert principal and accrued interest into shares of the Company’s common stock.The conversion price is 70% of the average of the three lowest trading prices (lowest bid prices) of the Company’s common stock during the ten trading days ending on the latest complete trading day prior to the date of conversion.In November and December 2019 and January 2020, Jefferson converted the principal of $38,500, accrued interest of $1,540 and conversion fees of $2,000 into common shares of the Company, extinguishing the debt in full.As of June 30, 2020, the debt discount had been amortized in full to interest expense.

 

On June 26, 2019, the Company entered into an Exchange Agreement with St. George Investments LLC (“St. George”) pursuant to which a convertible promissory note payable to St. George in the principal amount of $500,000 was issued in consideration for the surrender by St. George of all outstanding warrants, which amount was recorded as a loss on settlement of warrants.The warrants were issued by the Company on January 19, 2018.The maturity date of the note was extended to June 26, 2020.The note bears interest at 5%.A debt discount and derivative liability of $239,773 was recorded at the inception of the note.St. George has the right beginning on the date of the note to convert principal and accrued interest into shares of the Company’s common stock.The conversion price is 80% of the average of the three lowest closing prices of the Company’s common stock during the twenty trading days preceding the date of conversion.During the year ended June 30, 2020, St. George converted principal of $369,692 and accrued interest of $7,838 into common shares of the Company and repaid $130,308 principal and $1,160 accrued interest payable, extinguishing the debt in full.As of June 30, 2020, the debt discount had been amortized in full to interest expense.

 

On July 3, 2019, the Company entered into a third convertible promissory note with Armada in the principal amount of $137,500, with an original issue discount of $12,500. The note matures on July 3, 2020 and bears interest at 8%.A debt discount of $73,573 was recorded, including a derivative liability of $59,573. Armada has the right beginning on the date that is 31 days following the date of the note to convert principal and accrued interest into shares of the Company’s common stock.The conversion price is 70% of the average of the five lowest trading prices (lowest bid prices) of the Company’s common stock during the fifteen trading days ending on the latest complete trading day prior to the date of conversion.During the February through June 2020, Armada converted principal of $137,500, accrued interest of $9,271 and fees of $2,000 into common shares of the Company, extinguishing the debt in full.As of June 30, 2020, the debt discount had been amortized in full to interest expense.

 

 
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Table of Contents

 

On July 3, 2019, the Company entered into a third convertible promissory note with BHP in the principal amount of $137,500, with an original issue discount of $12,500. The note matures on July 3, 2020 and bears interest at 8%.A debt discount of $73,584 was recorded, including a derivative liability of $59,584. BHP has the right beginning on the date that is 31 days following the date of the note to convert principal and accrued interest into shares of the Company’s common stock.The conversion price is 70% of the average of the five lowest trading prices (lowest bid prices) of the Company’s common stock during the fifteen trading days ending on the latest complete trading day prior to the date of conversion.During February through June 2020, BHP converted principal of $137,500, accrued interest of $9,572 and conversion fees of $1,500 into common shares of the Company, extinguishing the debt in full.As of June 30, 2020, the debt discount had been amortized in full to interest expense.

 

On October 11, 2019, Geneva assigned a convertible promissory note with a principal balance of $63,000 and accrued interest payable of $3,003 to Armada.Armada assumed the right beginning on the date that is 170 days following April 18, 2019, the date of the original note, to convert principal and accrued interest into shares of the Company’s common stock.The conversion price of the fourth Armada convertible note is 70% of the average of the three lowest trading prices (lowest bid prices) of the Company’s common stock during the ten trading days ending on the latest complete trading day prior to the date of conversion.The Company and Armada also entered into an agreement on November 1, 2019 whereby Armada agreed to limit its conversions of this note to no more than $20,000 note principal every thirty days.During November 2019 through January 2020, Armada converted the entire principal of $63,000 and accrued interest of $4,031 into common shares of the Company, extinguishing the debt in full.As of June 30, 2020, the debt discount had been amortized in full to interest expense.

 

In consideration for the November 1, 2019 agreement to limit conversions of the fourth Armada note, the Company issued to Armada a fifth convertible promissory note in the principal amount of $20,000.The note matures on November 1, 2020 and bears interest at 8%.A debt discount of $8,082 was recorded, consisting of a derivative liability. Armada has the right beginning on the date that is 31 days following the date of the note to convert principal and accrued interest into shares of the Company’s common stock.The conversion price is 70% of the average of the five lowest trading prices (lowest bid prices) of the Company’s common stock during the fifteen trading days ending on the latest complete trading day prior to the date of conversion.As of June 30, 2020, $5,343 of the debt discount had been amortized to interest expense and there was accrued interest payable of $1,061. The Company recorded a derivative liability of $10,855 as of June 30, 2020.

 

On November 21, 2019, the Company entered into a sixth convertible promissory note with Armada in the principal amount of $22,000, with an original issue discount of $2,000. The note matures on November 21, 2020 and bears interest at 8%.A debt discount of $10,590 was recorded, including a derivative liability of $8,090. Armada has the right beginning on the date that is 31 days following the date of the note to convert principal and accrued interest into shares of the Company’s common stock.The conversion price is 70% of the average of the five lowest trading prices (lowest bid prices) of the Company’s common stock during the fifteen trading days ending on the latest complete trading day prior to the date of conversion.As of June 30, 2020, $6,423 of the debt discount had been amortized to interest expense and there was accrued interest payable of $1,070. The Company recorded a derivative liability of $10,774 as of June 30, 2020.

 

On December 2, 2019, the Company entered into a fourth convertible promissory note with BHP in the principal amount of $66,000, with an original issue discount of $6,000. The note matures on December 2, 2020 and bears interest at 8%.A debt discount of $31,153 was recorded, including a derivative liability of $24,153. BHP has the right beginning on the date that is 31 days following the date of the note to convert principal and accrued interest into shares of the Company’s common stock.The conversion price is 70% of the average of the three lowest trading prices (lowest bid prices) of the Company’s common stock during the fifteen trading days ending on the latest complete trading day prior to the date of conversion.As of June 30, 2020, $17,960 of the debt discount had been amortized to interest expense and there was accrued interest payable of $3,052. The Company recorded a derivative liability of $32,129 as of June 30, 2020.

 

On February 20, 2020, the Company entered into a fifth convertible promissory note with BHP in the principal amount of $83,333, with an original issue discount of $8,333. The note matures on November 20, 2020, and bears interest at 8%.A debt discount of $40,507 was recorded, including a derivative liability of $30,674. BHP has the right beginning on the date that is 31 days following the date of the note to convert principal and accrued interest into shares of the Company’s common stock.The conversion price is 70% of the average of the three lowest trading prices (lowest bid prices) of the Company’s common stock during the fifteen trading days ending on the latest complete trading day prior to the date of conversion.As of June 30, 2020, $19,366 of the debt discount had been amortized to interest expense and there was accrued interest payable of $2,393. The Company recorded a derivative liability of $39,965 as of June 30, 2020.

 

 
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On March 4, 2020, the Company entered into a sixth convertible promissory note with BHP in the principal amount of $60,500, with an original issue discount of $5,500. The note matures on March 4, 2021, and bears interest at 8%.A debt discount of $28,354 was recorded, including a derivative liability of $22,854. BHP has the right beginning on the date that is 31 days following the date of the note to convert principal and accrued interest into shares of the Company’s common stock.The conversion price is 70% of the average of the five lowest trading prices (lowest bid prices) of the Company’s common stock during the fifteen trading days ending on the latest complete trading day prior to the date of conversion.As of June 30, 2020, $9,166 of the debt discount had been amortized to interest expense and there was accrued interest payable of $1,565. The Company recorded a derivative liability of $28,425 as of June 30, 2020.

 

On March 4, 2020, the Company entered into a seventh convertible promissory note with Armada in the principal amount of $88,000, with an original issue discount of $8,000. The note matures on March 4, 2021, and bears interest at 8%.A debt discount of $41,408 was recorded, including a derivative liability of $33,408. Armada has the right beginning on the date that is 31 days following the date of the note to convert principal and accrued interest into shares of the Company’s common stock.The conversion price is 70% of the average of the five lowest trading prices (lowest bid prices) of the Company’s common stock during the fifteen trading days ending on the latest complete trading day prior to the date of conversion.As of June 30, 2020, $13,387 of the debt discount had been amortized and there was accrued interest payable of $2,276. The Company recorded a derivative liability of $41,517 as of June 30, 2020.

 

9, PPP LOAN 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, 2020.The loan may be forgiven pursuant to the provisions of the Act.

 

10. STOCKHOLDERS’ DEFICIT

 

Preferred Stock

 

Series A Preferred Stock

 

In March 2015, the Company filed with the State of Nevada a Certificate of Designation establishing the designations, preferences, limitations and relative rights of 1,000,000 shares of the Company's Series A preferred stock.Holders of the Series A preferred stock have the right to vote in aggregate, on all shareholder matters equal to 1,000 votes per share of Series A preferred stock.The shares of Series A preferred stock are not convertible into shares of common stock.

 

The Company has 1,000,000 shares of Series A preferred stock authorized, with 500,000 shares issued and outstanding as of June 30, 2020 and 2019, which were issued in March 2015 to members of the Company’s Board of Directors in consideration for services.

 

Series B Preferred Stock

 

On December 21, 2015, the Company filed a Certificate of Designation for a new Series B convertible preferred stock with the State of Nevada following approval by the board of directors of the Company. Five Hundred Thousand (500,000) shares of the Company's authorized preferred stock are designated as the Series B convertible preferred stock, par value of $0.001 per share and with a stated value of $0.001 per share (the "Stated Value"). Holders of Series B preferred stock shall be entitled to receive dividends, when and as declared by the Board of Directors out of funds legally available therefor. At any time and from time to time after the issuance of shares of the Series B preferred stock, each issued share of Series B preferred stock is convertible into 100 shares of the Company’s common stock.The holders of the Series B preferred stock shall have the right to vote together with holders of common stock, on an as "converted basis", on any matter that the Company's shareholders may be entitled to vote on, either by written consent or by proxy. Upon any liquidation, dissolution or winding-up of the Company, the holders of the Series B preferred stock shall be entitled to receive out of the assets of the Company, whether such assets are capital or surplus, for each share of Series B preferred stock an amount equal to the Stated Value, and all other amounts in respect thereof then due and payable prior to any distribution or payment shall be made to the holders of any junior securities.

 

 
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The Company has 500,000 shares of Series B preferred stock authorized, with 430,000 and 300,000 shares issued and outstanding as of June 30, 2020 and 2019, respectively.

 

During the years ended June 30, 2020 and 2019, the Board of Directors authorized the issuance to Steve Rubakh of a total of 100,000 and 70,000 shares of Series B preferred stock, respectively, as part of his compensation package.Stock-based compensation – related party of $120,000 and $1,312,000 was recorded for the years ended June 30, 2020 and 2019, respectively, based on the market price of the Company’s common stock on an “as converted to common” basis.

 

On February 27, 2020, Mr. Rubakh returned 3,000,000 shares of the Company’s common stock and was issued 30,000 shares of the Company’s Series B preferred stock.The common shares returned were previously issued to Mr. Rubakh in conversion of 30,000 shares of Series B preferred stock.The common shares were canceled, and the transaction was recorded at the par value of the common and Series B preferred stock.

 

As discussed in Note 5, on August 2, 2018, the Company entered into an Asset Purchase Agreement for the purchase of 182 cryptocurrency mining machines. As consideration for the purchase of the machines, the Company issued 38,018 shares of its Series B convertible preferred stock, valued on an “as converted to common” basis at an aggregate of $3,801,800.Because a portion of the machines were defective, a total of 1,800 shares of Series B preferred stock originally issued pursuant to the Asset Purchase Agreement were returned to the Company and cancelled.In February 2019, an additional 1,200 shares of Series B preferred stock originally issued pursuant to the Asset Purchase Agreement were returned to the Company and cancelled.

 

On October 25, 2017, four investors entered into subscription agreements for the purchase of a total of 16,000 shares of Series B preferred stock for cash at $10 per share.Of the shares, 12,500 shares were issued for cash of $125,000 and a stock subscription payable of $35,000 was recorded for the other 3,500 shares.On January 9, 2019, the 3,500 shares of Series B preferred stock were issued for stock subscriptions payable of $35,000.

 

During the year ended June 30, 2019, a total of 97,684 shares of Series B preferred stock were converted into 9,768,400 shares of common stock, including 30,000 shares converted by Mr. Rubakh into 3,000,000 shares of common stock of the Company.The Company recorded the conversions at $9,768, the par value of the common stock issued.

 

During the year ended June 30, 2019, a total of 3,000 shares of Series B preferred stock, valued at par value of $3, were returned to the Company and cancelled.

 

As discussed in Note 6, on May 21, 2019, the Company and digiMine entered into a Preferred Stock Exchange Agreement pursuant to which digiMine agreed to surrender 20,000 shares of the Company’s Series B preferred stock held by it and terminate its rights under the Security and Pledge Agreement, dated April 30, 2018, in exchange for 10,000,000 shares the Company’s common stock, which are to be issued in ten tranches of 1,000,000 shares each.The unissued common shares were valued at $1,650,000 and the Company recorded a derivative liability and corresponding loss on exchange of Series B preferred stock for this amount.As a result of the Preferred Stock Exchange Agreement and prior conversions by digiMine of Series B preferred stock into common stock, derivative liabilities of $764,800 were settled.During the year ended June 30, 2020, a total of 8,000,000 shares of the Company’s common stock valued at $479,800 were issued and during the year ended June 30, 2019, a total of 2,000,000 shares of the Company’s common stock valued at $285,000 were issued.As a result, the Preferred Stock Exchange Agreement was extinguished, and the associated derivative liability settled.

 

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 103,164,460 and 29,824,187 shares issued and outstanding as of June 30, 2020 and 2019, respectively.

 

During the year ended June 30, 2020, the Company issued a total of 76,340,273 shares of its common stock:8,000,000 shares valued at $479,800 were issued pursuant to a Preferred Stock Asset Agreement entered into on May 21, 2019 (see Note 6) and a total of 68,340,273 shares valued at $999,479 were issued in conversion of $944,192 note principal, $43,695 accrued interest payable, $7,000 in fees and loss on conversion of debt of $4,592, resulting in the extinguishment of derivative liabilities totaling $461,236.

 

 
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In addition, as discussed above, Mr. Rubakh returned 3,000,000 shares of the Company’s common stock and was issued 30,000 shares of the Company’s Series B preferred stock.The common shares returned were previously issued to Mr. Rubakh in conversion of 30,000 shares of Series B preferred stock.The common shares were canceled, and the transaction was recorded at the par value of the common and Series B preferred stock.

 

During the year ended June 30, 2019, the Company issued a total of 20,860,084 shares of its common stock:

a total of 220,000 shares of common stock, valued at $82,057, based on the closing market price of stock on the date of grant, were issued to a consultants; a total of 150,000 shares of common stock valued at $53,250, based on the closing market price of stock on the date of grant, were issued to two lenders as loan fees (See Note 8); and a total of 4,950,000 shares of common stock were issued to a lender in the cashless exercise of warrants and recorded at par value of $4,950, resulting in the extinguishment of derivative liabilities of $772,751; a total of 2,000,000 shares of common stock valued at $285,000 were issued pursuant to a Preferred Stock Exchange Agreement (Note 6); a total of 9,768,400 shares of common stock were issued in the conversion of 97,684 shares of Series B preferred stock and recorded at par value of $9,670;a total of 3,771,684 shares of common stock were issued in the conversion of notes payable principal of $242,400 and accrued interest of $15,367, resulting in the extinguishment of derivative liabilities totaling $95,755. No gain or loss was recorded on these transactions as the conversions and issuances of shares were completed within the terms of the related agreements.

 

In August 2018, the Company received proceeds of $25,000 from a common stock subscription.Because of the existence of a tainted equity environment, the stock subscription has been recorded as a derivative and revalued at each reporting date.

 

11.WARRANTS

 

The Company has granted warrants to non-employee lenders in connection with the issuance of certain convertible promissory notes and to an investor in connection with the purchase of common shares of the Company.The Company has also granted warrants to officers and directors.Certain of the warrants have been subsequently surrendered to the Company and cancelled.

 

There were no warrants issued by the Company during the year ended June 30, 2020 and no warrants outstanding as of June 30, 2020.Warrant activity for the year ended June 30, 2019 is as follows:

 

 

 


Number of
Warrants

 

 

Weighted
Average
Exercise Price

 

 

Weighted Average
Remaining
Contract Term
(Years)

 

 


Aggregate
Intrinsic
Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2018

 

 

348,375

 

 

$ 2.20

 

 

 

2.55

 

 

$ -

 

Granted

 

 

-

 

 

$ -

 

 

 

 

 

 

 

 

 

Exercised

 

 

(99,713 )

 

$ 2.16

 

 

 

 

 

 

 

 

 

Cancelled or expired

 

 

(248,662 )

 

$ 2.21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding and exercisable at June 30, 2019

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

Because the number of common shares to be issued under certain convertible notes payable and other agreements is indeterminate, the Company concluded that the equity environment was tainted as of June 30, 2020.Therefore, all warrants issued prior to that date were included in the Company’s calculations of derivative liabilities.With the cashless exercise of warrants and an exchange of warrants for a convertible promissory note, derivative liabilities totaling $2,123,969 were extinguished in the year ended June 30, 2019.

 

 
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12. 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.

 

Power Supply and Purchase Agreement

 

The Company has consolidated it cryptocurrency operations in one facility in Carthage, New York.The Carthage power supply and purchase agreement 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 a contractual rate per kilowatt hour of electricity consumed in the Company’s cryptocurrency mining operations.

 

As of June 30, 2020, the Company had no obligation for future lease payments under non-cancelable operating leases.

 

13. DERIVATIVE LIABILITIES

 

The Company as issued convertible notes payable, warrants and Series B preferred stock with put back rights and has entered into exchange and subscription agreements that contain certain provisions that have been identified as derivatives.As of June 30, 2020, the Company has determined that the number of common shares to be issued under these agreements is indeterminate; therefore, the Company concluded that the equity environment is tainted and all additional warrants, stock options convertible debt and obligations to issue common shares are included in the value of derivative liabilities.

 

The Company estimates the fair value of the derivative liabilities at the issuance date and at each subsequent reporting date, using a multinomial lattice model simulation. The model is based on a probability weighted discounted cash flow model using projections of the various potential outcomes.

 

During the years ended June 30, 2020 and 2019, the Company had the following activity in its derivative liabilities:

 

 

 

Convertible
Notes Payable

 

 

Warrants

 

 

Put Back
Rights

 

 

Exchange Agreement

 

 

Common Stock Subscription

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities at June 30, 2018

 

$ -

 

 

$ -

 

 

$ 2,886,965

 

 

$ -

 

 

$ -

 

 

$ 2,886,965

 

Addition to liabilities for new debt/subscription

 

 

438,720

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

25,000

 

 

 

463,720

 

Addition to liabilities for Exchange Agreement

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,485,000

 

 

 

-

 

 

 

1,485,000

 

Decrease due to conversions/assignments

 

 

(95,758 )

 

 

(2,124,588 )

 

 

(2,571,265 )

 

 

(120,000 )

 

 

-

 

 

 

(4,911,611 )

Decrease due to exercise/surrender of warrants

 

 

-

 

 

 

(774,642 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(774,642 )

Change in fair value

 

 

39,090

 

 

 

2,899,230

 

 

 

(315,700 )

 

 

(137,800 )

 

 

(16,478 )

 

 

2,468,342

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities at June 30, 2019

 

 

382,052

 

 

 

-

 

 

 

-

 

 

 

1,227,200

 

 

$ 8,522

 

 

$ 1,617,774

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Addition to liabilities for new debt/subscription

 

 

270,354

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

270,354

 

Decrease due to conversions/assignments

 

 

(461,236 )

 

 

-

 

 

 

-

 

 

 

(479,800 )

 

 

-

 

 

 

(941,036 )

Change in fair value

 

 

(27,505 )

 

 

-

 

 

 

-

 

 

 

(747,400 )

 

 

(7,353 )

 

 

(782,258 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities at June 30, 2020

 

$ 163,665

 

 

$ -

 

 

$ -

 

 

$ -

 

 

$ 1,169

 

 

$ 164,834

 

 

Key inputs and assumptions used in valuing the Company’s derivative liabilities as of June 30, 2020 are as follows:

 

 

·

Stock prices on all measurement dates were based on the fair market value

 

·

Risk-free interest rate of 0.013% to 0.15%

 

·

The probability of future financing was estimated at 100%

 

·

Computed volatility ranging from 248% to 258%

  

These inputs are subject to significant changes from period to period and to management's judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.

 

 
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14. INCOME TAXES

 

For the years ended June 30, 2020 and 2019, there was no provision for income taxes and deferred tax assets have been entirely offset by valuation allowances.

 

As of June 30, 2020, the Company has net operating loss carry forwards of approximately $3,010,852 that expire through the year 2038. The Company’s net operating loss carry forwards may be subject to annual limitations, which could reduce or defer the utilization of the losses as a result of an ownership change as defined in Section 382 of the Internal Revenue Code.

 

The Company’s income tax expense (benefit) differs from the “expected” tax expense (benefit) for Federal income tax purposes (computed by applying the United States Federal tax rate of 21% to income (loss) before income taxes), as follows:

 

 

 

Years Ended June 30,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Tax benefit at the statutory rate

 

$ (227,173 )

 

$ (1,997,787 )

State income taxes, net of federal income tax benefit

 

 

410,032

 

 

 

417,669

 

Non-deductible items

 

 

187,821

 

 

 

1,726,651

 

Non-taxable items

 

 

(165,664 )

 

 

6,882

 

Change in valuation allowance

 

 

(205,016 )

 

 

(153,415 )

 

 

 

 

 

 

 

 

 

Total

 

$ -

 

 

$ -

 

 

The tax effects of the temporary differences between reportable financial statement income and taxable income are recognized as deferred tax assets and liabilities.

 

The tax years 2014 through 2019 remain open to examination by federal agencies and other jurisdictions in which it operates.

 

The tax effect of significant components of the Company’s deferred tax asset at June 30, 2020 and 2019, respectively, are as follows:

 

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Net operating loss carryforward

 

$ 632,279

 

 

$ 427,263

 

Less valuation allowance

 

 

(632,279 )

 

 

(427,263 )

 

 

 

 

 

 

 

 

 

Net

 

$ -

 

 

$ -

 

 

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

 

Because of the historical earnings history of the Company, the net deferred tax assets as of June 30, 2020 and 2019 were fully offset by a 100% valuation allowance.

 

15. SUBSEQUENT EVENTS

 

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

 

On August 13, 2020, the Board of Directors and the holder of the majority of the voting power of the Company’s outstanding shares approved an increase in the total number of authorized shares to 770,000,000, of which 750,000,000 were designated as common shares and 20,000,000 shares were designated as preferred shares.

 

On August 25, 2020, the Board of Directors of the Company approved the designation of Series B(2) preferred shares, $0.001 par value per share.Each Series B(2) preferred share is convertible into 100 shares of common stock of the Company.The Series B(2) preferred shares have the right to vote, together with holders of the common stock, on an “as converted basis” on any matter that the Company’s shareholders may be entitled to vote on.

 

Subsequent to June 30, 2020, the Company issued a total of 13,342,435 shares of its common stock in the conversion of $164,000 convertible note principal, $8,866 accrued interest and $2,000 of conversion fees.

 

 
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Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 9A. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

 

Management's Annual Report on Internal Control over Financial Reporting.

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act, as amended. Our management assessed the effectiveness of our internal control over financial reporting as of June 30, 2020. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. We have identified the following material weaknesses:

 

1.

As of June 30, 2020, we did not maintain effective controls over the control environment. Specifically, the Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-B. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.

2.

As of June 30, 2020, due to the inherent issue of segregation of duties in a small company, we have relied heavily on entity or management review controls and engaged an outside financial consultant to lessen the issue of segregation of duties over accounting, financial close procedures and controls over financial statement disclosure. Accordingly, management has determined that this control deficiency constitutes a material weakness.

 

 

 

 

3.

As of June 30, 2020, we did not establish a written policy for the approval, identification and authorization of related party transactions.Accordingly, management has determined that this control deficiency constitutes a material weakness.

 

Because of these material weaknesses, management has concluded that the Company did not maintain effective internal control over financial reporting as of June 30, 2020, based on the criteria established in "Internal Control-Integrated Framework" issued by the COSO.

 

 
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Table of Contents

 

Changes in Internal Control Over Financial Reporting.

 

There have been no changes in the Company's internal control over financial reporting through the date of this report or during the quarter ended June 30, 2020, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

 

Independent Registered Accountant's Internal Control Attestation.

 

This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.

 

Corrective Action.

 

Management plans to address the structure of the Board of Directors and discuss adding an audit committee during fiscal year 2021.

 

Item 9B. Other Information.

 

None.

 

 
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PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

Directors and Executive Officers

 

The following table sets forth the names and positions of our current executive officers and directors.

   

Name and Address

 

Age

 

 

Position(s) Held

 

 

 

 

 

 

 

 

Steve Rubakh

 

 

59

 

 

President, CEO, CFO, Secretary, and Director

 

 

Biographies of Directors and Executive Officers

 

Steve Rubakh has been our President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer, and a Director since April 1, 2015. Mr. Rubakh founded EMS Factory, Inc., in 2011, where he oversaw the day to day operations and assisted in building and creating a vision for the company. At the end of 2014, Mr. Rubakh took the company to the next stage by initiating the development of the on-demand mobile application and platform on which the Company strategy is now based. In 2003, he founded Power Sports Factory, Inc., and served as the President until 2010. Prior to founding Power Sports Factory, Mr. Rubakh was the founder of International Parking Concepts specializing in providing services to the hospitality industry. Mr. Rubakh attended both Community College of Philadelphia and Temple University majoring in business administration.

 

Corporate Governance

 

Directors are elected at the annual stockholder meeting or appointed by our Board of Directors and serve for one year or until their successors are elected and qualified. When a new director is appointed to fill a vacancy created by an increase in the number of directors, that director holds office until the next election of one or more directors by stockholders. Officers are appointed by our Board of Directors and their terms of office are at the discretion of our Board of Directors.

 

Committees of our Board of Directors

 

Audit Committee. Our Board of Directors plans to establish an Audit Committee, the members of which shall be considered as independent under the standards for independence for audit committee members established by the NYSE. The Audit Committee will operate under a written charter.

 

Other Committees. The Board does not have standing compensation or nominating committees. The Board does not believe a compensation or nominating committee is necessary based on the size of the Company, the current levels of compensation to corporate officers and voting control by our major stockholder. The Board will consider establishing compensation and nominating committees at the appropriate time.

 

Stockholder Communications

 

The Board has not established a formal process for stockholders to send communications, including director nominations, to the Board; however, the names of all directors are available to stockholders in this report. Any stockholder may send a communication to any member of the Board of Directors, in care of the Company, at 73 Buck Road, Suite 2, Huntingdon Valley, PA 19006 (Attention: Secretary). Director nominations submitted by a stockholder will be considered by the full Board. Due to the infrequency of stockholder communications to the Board, the Board does not believe that a more formal process is necessary. However, the Board will consider, from time to time, whether adoption of a more formal process for such stockholder communications has become necessary or appropriate.

 

 
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Other Information about our Board of Directors

 

During our fiscal year ended June 30, 2020, our Board of Directors acted by written consent 5 times.

   

Directors’ and Officers’ Liability Insurance

 

The Company does not have directors’ and officers’ liability insurance insuring our directors and officers against liability for acts or omissions in their capacities as directors or officers.

 

Director Compensation

 

We compensate directors as per specific agreements with each director, as applicable. Director compensation to Steve Rubakh, our sole director, is included in the total compensation discussed in Item 11, Executive Compensation.

 

Section 16(a) Compliance by Officers and Directors

 

Based solely upon a review of Forms 3, 4 and 5 furnished to us,we believe all parties subject to the reporting requirements of Section 16(a) of the Exchange Act filed all such required reports during and with respect to our fiscal year ended June 30, 2020, except as follows: no Form 4 was filed by Mr. Steve Rubakh, our CEO, to report the issuance to Mr. Rubakh of a total of 100,000 shares of Series B Preferred Stock on February 25, 2020 for officer compensation.

 

Item 11. Executive Compensation.

 

General

 

We have one executive officer, who is currently our only employee.The Board of Directors of the Company has set the annual the compensation of Steve Rubakh at $150,000 for the years ended June 30, 2020 and 2019.The Board of Directors also has issued shares of Series B Preferred Stock to Mr. Rubakh for additional compensation.The number of shares issued is at the discretion of the Board of Directors.

 

The following summary compensation table sets forth information concerning compensation for services rendered in all capacities, including that of director, during fiscal years 2020, 2019 and and 2018 awarded to, earned by or paid to our executive officer.

 


Name and
Principal Position

 


Year

 


Salary

($)

 

 


Bonus
 ($)

 

 


Stock

Awards (2)

($)

 

 


Option and Warrant Awards

($)

 

 


Non-Equity Incentive Plan Compensation ($)

 

 

Change in Pension Value and Non-Qualified Deferred Compensation Earnings

($)

 

 


All Other Compensation (3)
($)

 

 


Total

($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steve Rubakh

 

2020

 

 

150,000

 

 

 -

 

 

 

120,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

270,000

 

Chief Executive Officer, Chief

 

2019

 

 

150,000

 

 

 

-

 

 

 

1,312,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,462,000

 

Financial Officer and Director(1)

 

2018

 

 

131,250

 

 

 

-

 

 

 

809,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

31,348

 

 

 

971,598

 

 

 

(1)

Mr. Rubakh was appointed as CEO, CFO and Director on April 1, 2015.

 

 

 

 

(2)

For the year ended June 30, 2020, the Board of Directors authorized the issuance of 100,000 shares of Series B preferred stock as part of Mr. Rubakh’s compensation package.For the year ended June 30, 2019, the Board of Directors authorized the issuance of 70,000 shares of Series B preferred stock as part of Mr. Rubakh's compensation package. For the year ended June 30, 2018, the Board of Directors authorized the issuance of 110,000 shares of Series B preferred stock as part of Mr. Rubakh's compensation package.

 

 

 

 

(3)

For the year ended June 30, 2018, other compensation is comprised of medical payments and other expenses paid on behalf of Mr. Rubakh.

   

Accrued compensation payable to Steve Rubakh at June 30, 2020 and 2019 was $122,907 and $69,854, respectively.

 

 
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The following table sets forth information regarding the beneficial ownership of the Company’s common stock, Series A Preferred Stock and Series B preferred stock as of September 8, 2020, for:

 

 

i.

each person or entity who, to our knowledge, beneficially owns more than 5% of each class or series of our outstanding stock;

 

ii.

each executive officer and named officer;

 

iii.

each director; and

 

iv.

all of our officers and directors as a group.

   

Except as indicated in the footnotes to the following table, the persons named in the table has sole voting and investment power with respect to all shares of common stock and preferred stock beneficially owned. Except as otherwise indicated, the address of each of the stockholders listed below is: c/o 73 Buck Road, Suite 2, Huntingdon Valley, PA 19006.

 

 

Name of

 

Amount and

Nature of

 

 

Percent of

 

 

 

Total Voting

Title of Class

 

Beneficial Owners

 

Ownership (1)

 

 

Class(2)

 

 

 

Shares

Common stock, $0.001 par value:

 

 

 

 

 

 

 

 

 

 

Steve Rubakh (3)

73 Buck Road, Suite 2

Huntingdon Valley, PA 19006

 

 

1,311,057

 

 

 

1.13 %

 

 

1,311,057

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A preferred stock, $0.001 par value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steve Rubakh (3)(4)

 

 

500,000

 

 

 

100.0 %

 

 

500,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series B preferred stock, $0.001 par value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steve Rubakh (3)(5)

 

 

430,000

 

 

 

100.0 %

 

 

43,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total voting shares

 

Steve Rubakh

 

 

 

 

 

 

 

 

 

 

544,311,057

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All officers and directors (one person)

 

 

 

 

 

 

 

 

 

 

 

 

544,311,057

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of voting shares

 

 

 

 

 

 

 

 

 

 

 

 

82.53

%

  

(1)

Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power to the shares of the Company's common stock. For each Beneficial Owner listed, any options or convertible securities exercisable or convertible within 60 days have been also included for purposes of calculating their beneficial ownership of outstanding common stock.

 

 

(2)

As of September 8, 2020, a total of 116,506,895 shares of the Company's common stock are outstanding.

 

 

(3)

Mr. Rubakh owns 1,311,057 shares of common stock directly.Mr. Rubakh holds 430,000 shares of Series B Convertible Preferred Stock directly, convertible into 43,000,000 shares of common stock and representing 43,000,000 total voting shares.Mr. Rubakh also owns all of the outstanding 500,000 shares of the super-voting Series A Preferred stock representing 500,000,000 voting shares.

 

 

(4)

The Series A preferred stock is not convertible into common stock but is representative of 500,000,000 shares of common stock solely for voting purposes.

 

 

(5)

As of September 8, 2019, a total of 430,000 shares of the Company’s Series B preferred stock are outstanding.The Series B preferred stock is convertible into 43,000,000 shares of common stock, and the holder has the right to vote, together with holders of Common Stock, on an as "converted basis".

 

Changes in Control

 

None.

 

 
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

Certain Relationships and Related Transactions

 

We have one executive officer, Steve Rubakh, who is currently our only full-time employee and sole member of our Board of Directors.Mr. Rubakh is paid an annual salary established by the Board of Directors and is issued shares of Series B preferred stock for additional compensation.The number of shares issued, generally on a quarterly basis, is at the discretion of the Board of Directors.

 

During the year ended June 30, 2020 and 2019, the Board of Directors authorized the issuance to Mr. Rubakh of 100,000 and 70,000 total shares of Series B convertible preferred stock.Stock-based compensation of $120,000 and $1,312,000 was recorded for the years ended June 30, 2020 and 2019, respectively, based on the market price of the Company’s common stock on an “as converted” basis.The stock-based compensation – related party is included in general and administrative expenses in the accompanying statements of operations.

 

The Board of Directors of the Company has set the current annual compensation for Steve Rubakh to include annual salary of $150,000 per year in addition to shares of Series B preferred stock.The Company recorded salary expense to Mr. Rubakh of $150,000 for the years ended June 30, 2020 and 2019.

 

In April 2019, Mr. Rubakh converted 30,000 shares of Series B preferred stock into 3,000,000 shares of common stock of the Company, recorded at the par value of the common stock issued.On February 27, 2020, Mr. Rubakh returned 3,000,000 shares of the Company’s common stock and was issued 30,000 shares of the Company’s Series B preferred stock which were previously surrendered in the April 2019 conversion.The common shares were canceled, and the transaction was recorded at the par value of the common and Series B preferred stock.

 

Amounts due to related party, consisting of accrued salary to Mr. Rubakh, totaled $122,907 and $69,854 as of June 30, 2020 and 2019, respectively.

 

Director Independence

 

We currently have no independent directors as that term is defined in Rule 4200 of Nasdaq’s listing standards.

 

 
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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

Audit Fees

 

For the years ended June 30, 2020 and 2019, the aggregate fees billed by M&K CPAS PLLC for professional services rendered for the audit (including quarterly reviews) of our annual consolidated financial statements included in our annual report on Form 10-K were $34,050 and $41,123, respectively.

 

Audit fees consist of amounts billed for the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagement

 

Audit-Related Fees

 

For the years ended June 30, 2020 and 2019, we were not billed for any audit-related fees.Audit-related fees consist of assurance and related services that are reasonably related to the performance of the audit and reviews of our financial statements and are not included in “audit fees.”

   

Tax Fees

 

Tax fees consist of professional services rendered for tax compliance, tax advice and tax planning. The nature of these tax services is tax preparation.Our independent auditors do not provide us with tax compliance, tax advice or tax planning services.

 

All Other Fees

 

None.

 

Audit Committee Approval

 

We do not have an audit committee of our board of directors. We believe that each member of our board has the expertise and experience to adequately serve our stockholders’ interests while serving as directors. Since we are not required to maintain an audit committee and our full board acts in the capacity of an audit committee, we have not elected to designate any member of our board as an “audit committee financial expert.”

  

 
33

Table of Contents

   

ITEM 15.EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES.

 

(a) Financial Statements

 

The financial statements and included in this Annual Report on Form 10-K are included in Item 8 in this Annual Report.

 

(b) Exhibits

 

The following exhibits are being filed as part of this Annual Report on Form 10-K, or incorporated herein by reference as indicated.

 

Exhibit Number

 

Exhibit Description

 

 

 

3.1

 

Certificate of Incorporation of the Company. [Incorporated by reference to Exhibit 2 to Company’s Registration Statement on Form S-1, filed with the SEC on June 7, 2011.]

 

3.1(a)

 

Certificate of Amendment, filed December 1, 2014. [Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K, filed with the SEC on December 8, 2015.]

 

3.1(b)

 

Certificate of Designations of the Company’s Series A Preferred Stock, filed March 12, 2015. [Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on March 20, 2015.]

 

3.2

 

By-Laws of the Company. [Incorporated by reference to Exhibit 3 to Company’s Registration Statement on Form S-1, filed with the SEC on June 7, 2011.]

 

3.2(a)

 

Amendment to Exhibit A to the Company’s By-Laws, effective August 12, 2015. [Incorporated by reference to Exhibit 10.2(a) to our Current Report on Form 8-K, filed with the SEC on August 12, 2015.]

 

3.1(c)

 

Certificate of Amendment to Articles of Incorporation, filed August 3, 2016, with the Secretary of State of Nevada. [Incorporated by reference to Exhibit 3.1(c) to our Current Report on Form 8-K, filed with the SEC on August 11, 2016.]

 

 

 

3.1(d)

 

Certificate of Correction, filed with the Nevada Secretary of State on November 7, 2016. [Incorporated by reference to Exhibit 3.1(d) to our Current Report on Form 8-K, filed with the SEC on November 18, 2016.]

 

 

 

3.1(e)

 

Certificate of Designation for the Company’s Series B Preferred Stock, filed with the Secretary of State of Nevada on December 21, 2015, filed herewith.[Incorporated by reference to Exhibit 3.1(e) to our Annual Report on Form 10-K, filed with the SEC on September 14, 2017.]

 

3.1(f)

 

Certificate of Amendment, filed with the Secretary of State of Nevada on March 15, 2017. [Incorporated by reference to Exhibit 3.1(f) to our Annual Report on Form 10-K, filed with the SEC on September 14, 2017.]

 

 

 

3.1(g) 

 

 

Articles of Merger for the merger of the Company’s wholly-owned subsidiary, Interactive Ventures, Inc., into the Company, filed with the Secretary of State of Nevada on June 14, 2017.[Incorporated by reference to Exhibit 3.1(g) to our Annual Report on Form 8-K, filed with the SEC on September 14, 2017.]

 

 

 

3.1(h)

 

Certificate of Amendment, filed with the Secretary of State of Nevada on March 15, 2019. [Incorporated by reference to Exhibit 3.1(h) to our Annual Report on Form 10-K, filed with the SEC on September 30,2019.]

 

 

 

10.1

 

Share Exchange Agreement, dated March 31, 2015, between the Company, EMS Factory, Inc., and the shareholders of EMS Factory, Inc. [Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed with the SEC on April 7, 2015.]

 

10.2

 

Employment Agreement, dated October 28, 2015, between Viva Entertainment Group, Inc., a subsidiary of the Company and Johnny Falcones. [Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K, filed with the SEC on October 30, 2015.]

   

 
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10.3

 

Form of Common Stock Purchase Warrant issued October 8, 2015. [Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K, filed with the SEC on October 30, 2015.]

 

10.4

 

$125,000 Promissory Convertible Note issued to LG Capital Funding, LLC. [Incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K, filed with the SEC on November 10, 2015.]

 

10.5

 

Securities Purchase Agreement, dated as of October 22, 2015, between LG Capital Funding, LLC and the Company. [Incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K, filed with the SEC on November 10, 2015.]

 

10.6

 

Termination Agreement, dated April 5, 2016, by and among the Company, Viva Entertainment Group, Inc., a subsidiary of the Company, and Johnny Falcones. [Incorporated by reference to Exhibit 10.6 to our Current Report on Form 8-K, filed with the SEC on April 11, 2016.]

 

10.7

 

Purchase Agreement, dated as of April 5, 2016, by and among the Company, Viva Entertainment Group, Inc., a subsidiary of the Company, Black River Petroleum Corp., Alexander Stanbury, Steve Rubakh and Johnny Falcones. [Incorporated by reference to Exhibit 10.7 to our Current Report on Form 8-K, filed with the SEC on April 11, 2016.]

 

10.8

 

$33,333 Promissory Convertible Note issued July 21, 2016 to Old Main Capital, LLC. [Incorporated by reference to Exhibit 10.8 to our Current Report on Form 8-K, filed with the SEC on August 11, 2016.]

 

10.9

 

$2,000,000 Equity Purchase Agreement, dated as of July 21, 2016, between Old Main Capital, LLC and the Company. [Incorporated by reference to Exhibit 10.9 to our Current Report on Form 8-K, filed with the SEC on August 11, 2016.]

 

10.10

 

$33,333 Promissory Convertible Note issued July 25, 2016 to River North Equity, LLC. [Incorporated by reference to Exhibit 10.10 to our Current Report on Form 8-K, filed with the SEC on August 11, 2016.]

 

10.11

 

Equity Purchase Agreement, dated as of July 25, 2016, between River North Equity, LLC and the Company. [Incorporated by reference to Exhibit 10.11 to our Current Report on Form 8-K, filed with the SEC on August 11, 2016.]

 

 

 

10.12

 

Securities Purchase Agreement, dated August 10, 2016, between Global Opportunity Group, LLC, and the Company, filed herewith. [Incorporated by Reference to Exhibit 10.12 to our Annual Report on Form 10-K, filed with the SEC on September 27, 2016.]

 

 

 

10.13

 

Common Stock Purchase Warrant, dated August 10, 2016, issued to Global Opportunity Group, LLC. [Incorporated by Reference to Exhibit 10.13 to our Annual Report on Form 10-K, filed with the SEC on September 27, 2016.]

 

 

 

10.14

Securities Purchase Agreement, dated August 23, 2016, between EMA Financial, LLC, and the Company. [Incorporated by Reference to Exhibit 10.14 to our Annual Report on Form 10-K, filed with the SEC on September 27, 2016.]

  

 
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Table of Contents

  

10.15

 

Viva Entertainment Group Promissory Note, as amended February 27, 2017. [Incorporated by reference to Exhibit 10.15 to our Current Report on Form 8-K, filed with the SEC on March 9, 2017 .]

 

 

 

10.16

 

Term Sheet dated December 19, 2017, between the Company and Leviathan Capital Partners. [Incorporated by reference to Exhibit 10.16 to our Current Report on Form 8-K, filed with the SEC on December 28, 2017 .]

 

 

 

10.17

 

Exchange Agreement, dated as of December 28, 2017, between the Company and Global Opportunity Group, LLC. [Incorporated by reference to Exhibit 10.16 to our Current Report on Form 8-K/A, filed with the SEC on December 28, 2017 .]

 

 

 

10.18

 

Convertible Note issued December 18, 2017 to Global Opportunities Group, LLC. [Incorporated by reference to Exhibit 10.18 to our Current Report on Form 8-K, filed with the SEC on December 29, 2017 .]

 

 

 

10.19

 

Securities Purchase Agreement, dated January 19, 2018, between the Company and St. George Investments LLC. [Incorporated by reference to Exhibit 10.19 to our Current Report on Form 8-K, filed with the SEC on January 31, 2018.]

 

 

 

10.20

 

Form of Warrant issued January 19, 2018 to St George Investments LLC. [Incorporated by reference to Exhibit 10.20 to our Current Report on Form 8-K, filed with the SEC on January 31, 2018.]

 

 

 

10.21

 

Asset Purchase Agreement, dated April 16, 2018, between the Company and digiMine, LLC. [Incorporated by reference to Exhibit 10.21 to our Current Report on Form 8-K, filed with the SEC on April 24, 2018.]

 

 

 

10.22

 

Security and Pledge Agreement, dated as of April 13, 2018, between the Company and digiMine, LLC. [Incorporated by reference to Exhibit 10.22 to our Current Report on Form 8-K, filed with the SEC on April 24, 2018.]

 

 

 

10.23

 

Asset Purchase Agreement, dated April 30, 2018, between the Company and digiMine, LLC. [Incorporated by reference to Exhibit 10.23 to our Quarterly Report on Form 10-Q, filed with the SEC on May 15, 2018.]

 

 

 

10.24

 

Security and Pledge Agreement, dated April 30, 2018, between the Company and digiMine, LLC. [Incorporated by reference to Exhibit 10.24 to our Quarterly Report on Form 10-Q, filed with the SEC on May 15, 2018.]

 

 

 

10.25

 

Forbearance Agreement, dated May 4, 2018, between the Company and LG Capital Funding, LLC. [Incorporated by reference to Exhibit 10.24 to our Quarterly Report on Form 10-Q, filed with the SEC on May 15, 2018.]

 

 

 

10.26

 

Asset Purchase Agreement, dated August 2, 2018, between the Company and Secure Hosting LLC. [Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed with the SEC on August 9, 2018.]

 

 

 

10.26a

 

Securities Purchase Agreement, dated September 17, 2018, between the Company and Geneva Roth Remark Holdings, Inc. [Incorporated by reference to Exhibit 10.26 to our Current Report on Form 8-K, filed with the SEC on October 10, 2018.]

 

 

 

10.27

 

Convertible Note issued September 17, 2018 to Geneva Roth Remark Holdings, Inc. [Incorporated by reference to Exhibit 10.27 to our Current Report on Form 8-K, filed with the SEC on October 10, 2018.]

 

 

 

10.28

 

Securities Purchase Agreement, dated September 21, 2018, between the Company and Armada Investment Fund, LLC.[Incorporated by reference to Exhibit 10.29 to our Current Report on Form 8-K, filed with the SEC on October 10, 2018.]

 

 

 

10.29

 

Convertible Note issued September 21, 2018 to Armada Investment Fund, LLC.[Incorporated by reference to Exhibit 10.29 to our Current Report on Form 8-K, filed with the SEC on October 10, 2018.]

 

 

 

10.30

 

Securities Purchase Agreement, dated September 21, 2018 between the Company and BHP Capital NY, Inc. Incorporated by reference to Exhibit 10.30 to our Current Report on Form 8-K, filed with the SEC on October 10, 2018.]

 

 
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10.31

 

Convertible Note issued September 21, 2018 to BHP Capital NY, Inc. [Incorporated by reference to Exhibit 10.30 to our Current Report on Form 8-K, filed with the SEC on October 10, 2018.

 

 

 

10.32

 

Exchange Agreement, dated as of May 21, 2019, between DigiMine LLC and the Company. [Incorporated by reference to Exhibit 10.32 to our Current Report on Form 8-K, filed with the SEC on May 24, 2019.]

 

 

 

31

 

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

 

32

 

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

  

101.INS

 

XBRL Instance Document *

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema *

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase *

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase *

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase *

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase *

_________

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

  

 
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Table of Contents

    

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

/s/ Steve Rubakh

 

September 23, 2020

 

Steve Rubakh, Principal Executive Officer and Principal Accounting Officer

 

Date

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

/s/ Steve Rubakh

 

September 23, 2020

 

Steve Rubakh, Director and Chief Executive Officer

 

Date

 

  

 
38

Table of Contents

 

EXHIBIT INDEX

  

Exhibit Number  

 

Exhibit Description 

 

 

 

 

 

Description of Exhibit 

 

 

 

31

 

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

 

 

 

32

 

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

     

101.INS

XBRL Instance Document *

101.SCH

XBRL Taxonomy Extension Schema *

101.CAL

XBRL Taxonomy Extension Calculation Linkbase *

101.DEF

XBRL Taxonomy Extension Definition Linkbase *

101.LAB

XBRL Taxonomy Extension Label Linkbase *

101.PRE

XBRL Taxonomy Extension Presentation Linkbase *

______________

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

 

 
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Integrated Ventures (QB) (USOTC:INTV)
Historical Stock Chart
From Sep 2021 to Oct 2021 Click Here for more Integrated Ventures (QB) Charts.
Integrated Ventures (QB) (USOTC:INTV)
Historical Stock Chart
From Oct 2020 to Oct 2021 Click Here for more Integrated Ventures (QB) Charts.