INTEGRATED VENTURES, INC. SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS
We believe that it is important to communicate our future expectations to our security holders and to the public. This report, therefore, contains statements about future events and expectations which are "forward-looking statements" within the meaning of Sections 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including the statements about our plans, objectives, expectations and prospects under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations." You can expect to identify these statements by forward-looking words such as "may," "might," "could," "would," "will," "anticipate," "believe," "plan," "estimate," "project," "expect," "intend," "seek" and other similar expressions. Any statement contained in this report that is not a statement of historical fact may be deemed to be a forward-looking statement. Although we believe that the plans, objectives, expectations and prospects reflected in or suggested by our forward-looking statements are reasonable, those statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements, and we can give no assurance that our plans, objectives, expectations and prospects will be achieved.
Important factors that might cause our actual results to differ materially from
the results contemplated by the forward-looking statements are contained in the
"Risk Factors" section of and elsewhere in our Annual Report on Form 10-K for
the fiscal year ended
GENERAL
We were incorporated in the
On
The Company will continue to (1) raise capital to purchase new mining equipment and (2) retire older and no longer profitable models.
Financial
We have consolidated our cryptocurrency operations in one facility, located in
Revenues from our cryptocurrency mining operations were
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When funds are available and market conditions allow, we also invest in certain
denominations of cryptocurrencies to complement our mining operations.We
consider these investments similar to marketable securities where we purchase
and hold the cryptocurrencies for sale. We report realized gains and losses on
the sales of cryptocurrencies (net of transaction costs. As of
We have funded our operations primarily from cash generated from our digital
currency mining operations and proceeds from convertible notes payable and
preferred stock. During the nine months ended
The Digital Asset Market
The Company is focusing on the mining of digital assets, as well as blockchain applications ("blockchain") and related technologies. A blockchain is a shared immutable ledger for recording the history of transactions of digital assets-a business blockchain provides a permissioned network with known identities. A Bitcoin is the most recognized type of a digital asset that is issued by, and transmitted through, an open source, math-based protocol platform using cryptographic security that is known as the "Bitcoin Network." The Bitcoin Network is an online, peer-to-peer user network that hosts the public transaction ledger, known as the blockchain, and the source code that comprises the basis for the cryptography and math-based protocols governing the Bitcoin Network.
Bitcoins, for example, can be used to pay for goods and services or can be converted to fiat currencies, such as the US Dollar, at rates determined on Bitcoin exchanges or in individual end-user-to-end-user transactions under a barter system. The networks utilized by digital coins are designed to operate without any company or government in charge, governed by a collaboration of volunteer programmers and computers that maintain all the records. These blockchains are typically maintained by a network of participants which run servers while securing their blockchain. Third party service providers such as Bitcoin exchanges and bitcoin third party payment processing services may charge significant fees for processing transactions and for converting, or facilitating the conversion of, bitcoins to or from fiat currency.
This market is rapidly evolving and there can be no assurances that we will remain competitive with industry participants that have or may have greater resources or experience in in this industry than us, nor that the unproven digital assets that we mine will ever have any significant market value.
The Company, like many cryptocurrency mining operators, is currently operating at a non-profitable status following record historic runs in market prices of digital currencies. Market prices of digital currencies have not been high enough to cover the operating costs of mining companies, including significant power costs and high levels of equipment depreciation. The Company is addressing these operational challenges through considering alternative sources of power, further consolidation of facilities, and potential hosting arrangements. There can be no assurance that the Company will be successful in these efforts and attain profitable levels of operations.
FINANCIAL OPERATIONS REVIEW
In
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, Series B preferred stock and
warrants, the valuation of which has resulted in significant stock-based
compensation. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules
subsequently implemented by the
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To operate our digital currency mining facilities and to fund future operations, we will need to raise additional capital. The amount and timing of future funding requirements will depend on many factors, including the timing and results of our ongoing development efforts, the potential expansion of our current development programs, potential new development programs and related general and administrative support. We anticipate that we will seek to fund our operations through further liquidation of our marketable securities, public or private equity or debt financings or other sources, such as potential collaboration agreements. We cannot be certain that anticipated additional financing will be available to us on favorable terms, or at all.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED
Revenues
Our cryptocurrency mining revenues increased to
We also have revenues from the sale of cryptocurrency mining units that have
been assembled or refurbished for resale and the sale of spare parts. Such sales
totaled
Cost of Revenues
Cost of revenues was
Operating Expenses
Our general and administrative expenses increased to
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We reported non-cash, related party stock-based compensation of
Other Income (Expense)
Our other income (expense) was comprised of the following:
Three Months Ended Nine Months Ended
March 31,: March 31,:
2021 2020 2021 2020
Interest expense $ (239,435 ) $ (90,824 ) $ (430,049 ) $ (573,561 )
Realized gain (loss) on digital
currencies 54,920 (562 ) 106,497 (6,158 )
Change in fair value of derivative
liabilities (113,599 ) (27,414 ) (76,687 ) 823,409
Loss on disposition of property and
equipment - - (207,281 ) -
Loss on conversion of debt - 10,168 - (4,592 )
Digital currency theft loss - - - (33,037 )
Total other income (expense) $ (298,114 ) $ (108,632 ) $ (607,520 ) $ 206,061 Our interest expense includes the amortization of debt discount and original
issue discount for our convertible notes payable. These amounts vary from period
to period depending on the timing of new borrowings and the conversion of the
debt to common stock by the lenders. In the three months ended
In the current fiscal year we have significantly increased our investing efforts
in digital currencies. In addition to the currencies received as compensation
for our mining services, we purchased various digital currencies totaling
During the nine months ended
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We estimate the fair value of the derivatives associated with our convertible
debt, options, warrants and other contracts using, as applicable, either the
Black-Scholes pricing model or multinomial lattice models that value the
derivative liability based on a probability weighted discounted cash flow model
using future projections of the various potential outcomes. We estimate the fair
value of the derivative liabilities at the inception of the financial
instruments, and, in the case of our convertible notes payable, at the date of
conversions to equity and at each reporting date, recording a derivative
liability, debt discount, additional paid-in capital and a gain or loss on
change in derivative liabilities as applicable. These estimates are based on
multiple inputs, including the market price of our stock, interest rates, our
stock price volatility, variable conversion prices based on market prices as
defined in the respective agreements and probabilities of certain outcomes based
on management projections. 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 three months ended
We reported a gain on conversion of debt of
During the nine months ended
Net Loss
As a result, primarily from the non-cash related party stock-based compensation,
we reported a net loss of
LIQUIDITY AND CAPITAL RESOURCES
Overview
As of
Most recently, we have funded our operations primarily from convertible notes
payable, the issuance of Series C and D preferred stock, and cash generated from
our digital currency mining operations. The Series C and D preferred stock are
recorded at total face value of
During the nine months ended
On
Pursuant to a second Series C Securities Purchase Agreement effective
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On
Sources and Uses of Cash
We used net cash in operations of
We used net cash in operations of
During the nine months ended
During the nine months ended
During the nine months ended
During the nine months ended
We will have to raise funds to successfully operate our digital currency mining operations and to fund our operating expenses. We will 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.
Subsequent Funding
On
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Equipment Purchase Agreement
On
Going Concern
The Company has reported recurring operating losses since its inception and used
net cash in operating activities of
The accompanying financial statements have been prepared in conformity with
There can be no assurances that the Company will be successful in attaining a profitable level of operations or in generating additional cash from the equity/debt markets or other sources fund its operations. The financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary. Should the Company not be successful in its business plan or in obtaining the necessary financing to fund its operations, the Company would need to curtail certain or all operational activities and/or contemplate the sale of its assets, if necessary.
Current and Future Impact of COVID-19
The COVID-19 pandemic continues to have a material negative impact on capital markets. While we continue to incur operating losses, we are currently dependent on debt or equity financing to fund our operations and execute our business plan. We believe that the impact on capital markets of COVID-19 may make it more costly and more difficult for us to access these sources of funding.
SIGNIFICANT ACCOUNTING POLICIES
Our significant accounting policies are disclosed in Note 2 to our condensed
financial statements and in the notes to our audited financial statements
included in our Annual Report on Form 10-K for the year ended
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.
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Digital Currencies
Digital currencies consist of Bitcoin, Litecoin, ZCash and Ethereum, generally
received for the Company's own account as compensation for cryptocurrency mining
services, and Chainlink and other digital currencies purchased for short-term
investment purposes. Given that there is limited precedent regarding the
classification and measurement of cryptocurrencies under current Generally
Accepted Accounting Principles ("GAAP"), the Company has determined to account
for these digital currencies as indefinite-lived intangible assets in accordance
with Accounting Standards Update ("ASU") No. 350, Intangibles -
Property and Equipment
Property and equipment, consisting primarily of computer and other cryptocurrency mining equipment (transaction verification servers), is stated at the lower of cost or estimated realizable value and is depreciated when placed into service using the straight-line method over estimated useful lives. The Company operates in an emerging industry for which limited data is available to make estimates of the useful economic lives of specialized equipment. Management has assessed the basis of depreciation of these assets and believes they should be depreciated over a three-year period due to technological obsolescence reflecting rapid development of hardware that has faster processing capacity and other factors. Maintenance and repairs are expensed as incurred and improvements are capitalized. Gains or losses on the disposition of property and equipment are recorded upon disposal.
During the six months ended
Management has determined that the three-year diminishing value best reflects the current expected useful life of transaction verification servers. This assessment takes into consideration the availability of historical data and management's expectations regarding the direction of the industry including potential changes in technology. Management will review this estimate annually and will revise such estimates as and when data becomes available.
To the extent that any of the assumptions underlying management's estimate of useful life of its transaction verification servers are subject to revision in a future reporting period, either as a result of changes in circumstances or through the availability of greater quantities of data, then the estimated useful life could change and have a prospective impact on depreciation expense and the carrying amounts of these assets.
Payments to equipment suppliers prior to shipment of the equipment are recorded as equipment deposits.
Derivatives
The Company evaluates its convertible debt, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for. The result of this accounting treatment is that under certain circumstances the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under this accounting standard are reclassified to liability at the fair value of the instrument on the reclassification date.
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Where the number of warrants or common shares to be issued under these agreements is indeterminate, the Company has concluded that the equity environment is tainted, and all additional warrants and convertible debt are included in the value of the derivatives.
We estimate the fair value of the derivatives associated with our convertible notes payable, common stock issuable pursuant to a Series B preferred stock Exchange Agreement and a stock subscription payable using, as applicable, either the Black-Scholes pricing model or multinomial lattice models that value the derivative liability based on a probability weighted discounted cash flow model using future projections of the various potential outcomes. We estimate the fair value of the derivative liabilities at the inception of the financial instruments, and, in the case of our convertible notes payable, at the date of conversions to equity and at each reporting date, recording a derivative liability, debt discount, additional paid-in capital and a gain or loss on change in derivative liabilities as applicable. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility, variable conversion prices based on market prices as defined in the respective agreements and probabilities of certain outcomes based on management projections. These inputs are subject to significant changes from period to period and to management's judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.
Impairment of Long-Lived Assets
All assets, including intangible assets subject to amortization, are reviewed
for impairment when changes in circumstances indicate that the carrying amount
of the asset may not be recoverable in accordance with ASC 350 and ASC 360. If
the carrying amount of the asset exceeds the expected undiscounted cash flows of
the asset, an impairment charge is recognized equal to the amount by which the
carrying amount exceeds fair value or net realizable value. The testing of these
intangibles under established guidelines for impairment requires significant use
of judgment and assumptions. Changes in forecasted operations and other
assumptions could materially affect the estimated fair values. Changes in
business conditions could potentially require adjustments to these asset
valuations. We reported no impairment expense for the three months or nine
months ended
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
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.
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Our derivative liabilities are measured at fair value on a recurring basis and
estimated as follows:
Total Level 1 Level 2 Level 3
March 31, 2021:
Derivative liabilities $ - $ - $ - $ -
Total liabilities measured at fair
value $ - $ - $ - $ -
June 30, 2020:
Derivative liabilities $ 164,834 $ - $ - $ 164,834
Total liabilities measured at fair
value $ 164,834 $ - $ - $ 164,834 Stock-Based Compensation
The Company accounts for all equity-based payments in accordance with ASC Topic 718, Compensation - Stock Compensation. ASC Topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock awards, stock options, warrants and other equity-based compensation issued to employees. The value of the portion of an award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method. The fair value of a stock award is recorded at the fair market value of a share of the Company's stock on the grant date. The Company estimates the fair value of stock options and warrants at the grant date by using an appropriate fair value model such as the Black-Scholes option pricing model or multinomial lattice models.
The Company accounts for non-employee share-based awards based upon ASC 505-50, Equity-Based Payments to Non-Employees. ASC 505-50 requires the costs of goods and services received in exchange for an award of equity instruments to be recognized using the fair value of the goods and services or the fair value of the equity award, whichever is more reliably measurable. The fair value of the equity award is determined on the measurement date, which is the earlier of the date that a performance commitment is reached or the date that performance is complete. Generally, our awards do not entail performance commitments. When an award vests over time such that performance occurs over multiple reporting periods, we estimate the fair value of the award as of the end of each reporting period and recognize an appropriate portion of the cost based on the fair value on that date. When the award vests, we adjust the cost previously recognized so that the cost ultimately recognized is equivalent to the fair value on the date the performance is complete.
Revenue Recognition
Effective
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.
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The Company earns its cryptocurrency mining revenues by providing transaction
verification services within the digital currency networks of cryptocurrencies,
such as Bitcoin, Litecoin, ZCash and Ethereum. The Company satisfies its
performance obligation at the point in time that the Company is awarded a unit
of digital currency through its participation in the applicable network and
network participants benefit from the Company's verification service. In
consideration for these services, the Company receives digital currencies, which
are recorded as revenue using the closing
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 it cryptocurrency operations in one facility in
On
RECENTLY ISSUED ACCOUNTING POLICIES
There were no new accounting pronouncements issued or proposed by the FASB
during the nine months ended
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