SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS
We believe that it is important to communicate our future expectations to our
security holders and to the public. This report, therefore, contains statements
about future events and expectations which are "forward-looking statements"
within the meaning of Sections 27A of the Securities Act of 1933 and 21E of the
Securities Exchange Act of 1934, including the statements about our plans,
objectives, expectations and prospects under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations." You
can expect to identify these statements by forward-looking words such as "may,"
"might," "could," "would," "will," "anticipate," "believe," "plan," "estimate,"
"project," "expect," "intend," "seek" and other similar expressions. Any
statement contained in this report that is not a statement of historical fact
may be deemed to be a forward-looking statement. Although we believe that the
plans, objectives, expectations and prospects reflected in or suggested by our
forward-looking statements are reasonable, those statements involve risks,
uncertainties and other factors that may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by these forward-looking statements, and we
can give no assurance that our plans, objectives, expectations and prospects
will be achieved.
Important factors that might cause our actual results to differ materially from
the results contemplated by the forward-looking statements are contained in the
"Risk Factors" section of and elsewhere in this Annual Report and in our
subsequent filings with the Securities and Exchange Commission. The following
discussion of our results of operations should be read together with our
financial statements and related notes included elsewhere in this report.
GENERAL
We were incorporated in the State of Nevada on March 22, 2013 under the name
Lightcollar, Inc. On March 22, 2015, we changed our name to EMS Find, Inc., and
in July 2017, we changed our name to Integrated Ventures, Inc. We have
discontinued our prior operations and changed our business focus from our prior
technologies relating to the EMS Find platform to acquiring, launching, and
operating companies in the cryptocurrency sector, mainly in digital currency
mining and sales of branded mining rigs. Our offices are located at 18385 Route
287, Tioga, PA 16946.
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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, 2022, the Company owned a total of approximately 2,744 miners in
three locations, Kearney, Nebraska, Tioga, Pennsylvania, and Lancaster,
Pennsylvania. Subsequent to June 30, 2022, the miners located in Lancaster,
Pennsylvania were shipped to Wolf Hollow, Texas. Under our contract with
Bitmain, which expired in July 2022, we received an additional 392 miners
subsequent to June 30, 2022. Due to PetaWatt's financial difficulties, the
Company has discontinued its cryptocurrency mining operations in New York. All
mining equipment previously operating in New York has been relocated to Tioga,
Pennsylvania. Some of these miners and new Bitmain miners delivered to Tioga, PA
and Kearney, NE, were connected and placed into service, effective April 2022.
The Company estimates the miners now located in Wolf Hollow, Texas will be
connected and placed into service in early October 2022. During the year ended
June 30, 2022, the Company paid deposits totaling $6,316,119 (net of Wattum
reimbursements) for additional miners.
The Company will continue to (1) raise capital to purchase new mining equipment,
(2) sell older and no longer profitable models and (3) expand cryptocurrency
mining operations to new locations.
Financial
As of June 30, 2022, we operated our cryptocurrency mining operations in two
hosted facilities located in Kearney, Nebraska and Tioga, Pennsylvania. The
hosting and power purchase agreements for the Nebraska and Pennsylvania
facilities require the Company to pay monthly a contractual rate per kilowatt
hour of electricity consumed in the Company's cryptocurrency mining operations.
The agreement for the Pennsylvania facility is with a related party owned 50% by
Steve Rubakh, our President and Chief Executive Officer.
Revenues from our cryptocurrency mining operations were $4,871,473 and
$1,793,316 for the years ended June 30, 2022 and 2021, respectively. Revenues
from the sales of cryptocurrency mining equipment were $1,678,660 and $58,074
for the years ended June 30, 2022 and 2021, respectively.
When funds are available and market conditions allow, we also invest in certain
denominations of cryptocurrencies to complement our mining operations. We
consider these investments similar to marketable securities where we purchase
and hold the cryptocurrencies for sale. We report realized gains and losses on
the sales of cryptocurrencies net of transaction costs. As of June 30, 2022, our
digital currencies at cost totaled $72,885 and were comprised of multiple
denominations, primarily of Bitcoin (BTC).
Historically, we have funded our operations primarily from cash generated from
our digital currency mining operations and proceeds from convertible notes
payable and preferred stock. During the year ended June 30, 2022, we generated
sufficient cash flow from operations and from the sale of digital currencies and
were only required to enter one Loan Agreement and Promissory Note in the amount
of $500,000 to supplement the funding of our operations. We did not issue
securities for cash.
The Digital Asset Market
The Company is focusing on the mining of digital assets, as well as blockchain
applications ("blockchain") and related technologies. A blockchain is a shared
immutable ledger for recording the history of transactions of digital assets-a
business blockchain provides a permissioned network with known identities. A
Bitcoin is the most recognized type of a digital asset that is issued by, and
transmitted through, an open source, math-based protocol platform using
cryptographic security that is known as the "Bitcoin Network." The Bitcoin
Network is an online, peer-to-peer user network that hosts the public
transaction ledger, known as the blockchain, and the source code that comprises
the basis for the cryptography and math-based protocols governing the Bitcoin
Network.
Bitcoins, for example, can be used to pay for goods and services or can be
converted to fiat currencies, such as the US Dollar, at rates determined on
Bitcoin exchanges or in individual end-user-to-end-user transactions under a
barter system. The networks utilized by digital coins are designed to operate
without any company or government in charge, governed by a collaboration of
volunteer programmers and computers that maintain all the records. These
blockchains are typically maintained by a network of participants which run
servers while securing their blockchain. Third party service providers such as
Bitcoin exchanges and bitcoin third party payment processing services may charge
significant fees for processing transactions and for converting, or facilitating
the conversion of, bitcoins to or from fiat currency.
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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 this industry than us, nor that the unproven digital
assets that we mine will ever have any significant market value.
The Company, like many cryptocurrency mining operators, is currently operating
at a non-profitable status following record historic runs in market prices of
digital currencies. Market prices of digital currencies have not been high
enough to cover the operating costs of mining companies, including significant
power costs and high levels of equipment depreciation. The Company is addressing
these operational challenges through considering alternative sources of power,
further consolidation of facilities, and potential hosting arrangements. There
can be no assurance that the Company will be successful in these efforts and
attain profitable levels of operations.
Financial Operations Review
We are incurring increased costs because of being a publicly traded company. As
a public company, we incur significant legal, accounting, and other expenses
that we did not incur as a private company. We also have paid compensation
through the issuance of shares of our common stock, Series B preferred stock and
warrants, the valuation of which has resulted in significant stock-based
compensation. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules
subsequently implemented by the Securities and Exchange Commission, have
required changes in corporate governance practices of public companies and will
require us to comply with these rules. These new rules and regulations will
increase our legal and financial compliance costs and have made some activities
more time-consuming and costlier. In addition, these new rules and regulations
have made it more difficult and more expensive for us to obtain director and
officer liability insurance, which we currently cannot afford to do. As a result
of the new rules, it may become more difficult for us to attract and retain
qualified persons to serve on our Board of Directors or as executive officers.
We cannot predict or estimate the amount of additional costs we may incur as a
result of being a public company or the timing of such costs.
To operate our digital currency mining facilities and to fund future operations,
we will need to raise additional capital. The amount and timing of future
funding requirements will depend on many factors, including the timing and
results of our ongoing development efforts, the potential expansion of our
current development programs, potential new development programs and related
general and administrative support. We anticipate that we will seek to fund our
operations through further liquidation of our marketable securities, public or
private equity or debt financings or other sources, such as potential
collaboration agreements. We cannot be certain that anticipated additional
financing will be available to us on favorable terms, or at all.
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 2022 COMPARED TO THE YEAR ENDED JUNE 30, 2021
Revenues
Our cryptocurrency mining revenues increased to $4,871,473 in the year ended
June 30, 2022 from $1,793,316 in the year ended June 30, 2021. This increase in
revenues resulted primarily from higher prices of BTC and the Company's
successful efforts to raise capital to purchase more efficient and profitable
mining equipment. In addition, we expanded our cryptocurrency mining operations
to two locations: Tioga, Pennsylvania and Kearney, Nebraska. However, our
cryptocurrency mining revenues were negatively impacted in the current year due
to the weakening of cryptocurrency markets during the second half of our fiscal
year and to the financial difficulties of PetaWatt Holdings, which resulted in
the termination of our Carthage, New York mining operations.
We also have revenues from the sale of cryptocurrency mining equipment that have
been either newly purchased or refurbished for resale. Such sales totaled
$1,678,660 and $58,074 in the years ended June 30, 2022 and 2021, respectively.
The increase in sales of equipment in the current year was due primarily to
three sales of miners. Sales of equipment will fluctuate from period to period
depending on equipment available to us to sell and the current retail demand for
our model of cryptocurrency mining units.
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Cost of Revenues
Cost of revenues was $3,868,471 and $920,376 in the years ended June 30, 2022
and 2021, respectively. The increase in cost of revenues in the current fiscal
year is due primarily to: increased cryptocurrency mining revenues, expansion to
two operating locations and increased depreciation and amortization expense.
Expenses associated with running our cryptocurrency mining operations, such as
equipment depreciation and amortization, operating supplies, utilities, and
consulting services are recorded as cost of revenues. Also included in cost of
revenues are the costs of purchasing or assembling the cryptocurrency mining
units sold. We reported a gross profit on revenues of $2,681,662 and $931,014 in
the years ended June 30, 2022 and 2021, respectively. Higher cryptocurrency
mining revenues in the current year resulting from higher BTC market pricing,
the implementation of more efficient mining equipment and the increase in the
number of miners purchased also contributed to the gross profit on revenues.
Operating Expenses
Our general and administrative expenses decreased to $776,585 in the year ended
June 30, 2022 from $6,061,741 in the year ended June 30, 2021. The decrease
resulted primarily from decreased non-cash stock-based compensation expense. We
reported non-cash, related party stock-based compensation of $16,537,500 in the
year ended June 30, 2021 compared to $2,438,900 in the year ended June 30, 2022.
For the year ended June 30, 2021, the Company issued to Steve Rubakh, our
President, 350,000 total shares of Series B convertible preferred stock valued
on an "as converted to common" basis at $16,537,500, using the closing market
price of the Company's common stock. For the year ended June 30, 2022, the
Company issued to Mr. Rubakh 200,000 total shares of Series B convertible
preferred stock valued on an "as converted to common" basis at $2,438,900, using
the closing market price of the Company's common stock. Each share of Series B
preferred stock is convertible into 100 shares of the Company's common stock.
Other Income (Expense)
Our other income (expense) was comprised of the following for the years ended
June 30:
2022 2021
Interest expense $ (18,289 ) $ (435,981 )
Realized gain (loss) on sale of digital currencies 181,853 (22,948 )
Change in fair value of derivative liabilities
- (76,687 )
Loss on disposition of property and equipment (154,180 ) (238,363 )
Gain on extinguishment of debt
5,924 9,125
Loss on sale of property and equipment (46,999 ) -
Total other income (expense) $ (31,691 ) $ (764,854 )
Our interest expense includes the amortization of debt discount and original
issue discount for our convertible notes payable. These amounts vary from
period to period depending on the timing of new borrowings and the conversion of
the debt to common stock by the lenders. During the prior fiscal year, our
lenders completed the full conversion of our convertible notes payable,
resulting in a decrease in interest expense compared to the prior fiscal year.
In addition to the currencies received as compensation for our mining services,
we purchased various digital currencies totaling $2,098,676 and $7,374,678
during the years ended June 30, 2022 and 2021, respectively. We also converted
currencies from one denomination to another based on our assessment of market
conditions for each respective currency. The market values of individual
currency denominations continually fluctuate, and the fluctuations may be
material from day to day. During the years ended June 30, 2022 and 2021, we
received total proceeds of $7,462,655 and $9,211,118, respectively, from the
sale of digital currencies and incurred transactions fees totaling $138,919 and
$233,580, respectively, which are deducted from the gain or loss realized. We
realized a gain on sale of digital currencies, after deducting transaction
costs, of $181,853 in the year ended June 30, 2022 and a loss on sale of digital
currencies, after deducting transaction costs, of $22,948 in the year ended June
30, 2021.
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During the year ended June 30, 2021, we recognized a loss on change in fair
value of derivative liabilities of $76,687. During the year ended June 30,
2021, all convertible notes payable and other equity instruments with provisions
identified as derivatives were extinguished through conversion to common shares
and all related derivative liabilities were settled. We estimate the fair value
of the derivatives associated with our convertible debt, options, warrants and
other contracts using, as applicable, either the Black-Scholes pricing model or
multinomial lattice models that value the derivative liability based on a
probability weighted discounted cash flow model using future projections of the
various potential outcomes. We estimate the fair value of the derivative
liabilities at the inception of the financial instruments, and, in the case of
our convertible notes payable, at the date of conversions to equity and at each
reporting date, recording a derivative liability, debt discount, additional
paid-in capital and a gain or loss on change in derivative liabilities as
applicable. These estimates are based on multiple inputs, including the market
price of our stock, interest rates, our stock price volatility, variable
conversion prices based on market prices as defined in the respective agreements
and probabilities of certain outcomes based on management projections. Since
these inputs are subject to significant changes from period to period and to
management's judgment, the estimated fair value of the derivative liabilities
will fluctuate from period to period, and the fluctuation may be material.
During the years ended June 30, 2022 and 2021, we disposed of and wrote off
non-serviceable, defective mining equipment with a net book value of $154,180
and $238,363, respectively. The equipment disposed of was replaced with new,
more efficient mining equipment.
We reported a gain on extinguishment of debt of $5,924 and $9,125 in the years
ended June 30, 2022 and 2021 due to favorable settlement of certain
liabilities.
During the year ended June 30, 2022, we sold used mining equipment and realized
a loss on the sale of $46,999. We did not report any gain or loss on the sale of
property and equipment during the year ended June 30, 2021.
Net Loss
As a result, primarily from the non-cash related party stock-based compensation,
we reported a net loss of $565,514 in the year ended June 30, 2022, compared to
a net loss of $22,433,081 in the year ended June 30, 2021.
LIQUIDITY AND CAPITAL RESOURCES
Overview
As of June 30, 2022, we had total current assets of $492,780, including cash of
$490,280 and prepaid expenses and other current assets of $2,500 and total
current liabilities of $1,563,756. We had total stockholders' equity of
$10,592,307 as of June 30, 2022 compared to a stockholders' equity of $8,964,882
as of June 30, 2021.
During the year ended June 30, 2022, we received net proceeds from a Promissory
Note of $500,000. We also funded operations with a $118,150 short term advance
from our Chief Executive Officer.
Sources and Uses of Cash
Operations provided $55,455 of cash in the year ended June 30, 2022 as a result
of our net loss of $565,514, non-cash gain on sale of digital currencies of
$181,853, non-cash gain on forgiveness of debt of $5,924, increases in digital
currencies of $5,009,691, and deposits of $78,147 more than offset by non-cash
expenses totaling $4,311,690, decreases in equipment deposits of $1,135,088 and
prepaid expenses and other current assets of $195,120 and increases in accounts
payable of $28,702, accrued expenses of $4,731, and amounts due to related party
of $221,253.
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We used net cash in operations of $1,567,715 in the year ended June 30, 2021 as
a result of our net loss of $22,433,081, non-cash gain of $9,125, increases in
prepaid expenses and other current assets of $194,370, digital currencies of
$1,792,451 and decreases in accounts payable of $281,639 and due to related
party of $93,550, partially offset by non-cash expenses totaling $23,217,836 and
increase accrued expenses of $18,665.
During the year ended June 30, 2022, we used net cash in investing activities of
$2,267,633, comprised of the increase in equipment deposits of $7,763,487,
purchase of digital currencies of $2,098,676, and the purchase of property and
equipment of $73,575, partially offset by net proceeds from the sale of digital
currencies of $7,462,655, proceeds from the sale of property and equipment of
$70,000, and proceeds from the sale of fully depreciated property and equipment
to a related party of $135,450.
During the year ended June 30, 2021, we used net cash in investing activities of
$9,118,171, comprised of the increase in equipment deposits of $7,663,265,
purchase of digital currencies of $7,374,678, and the purchase of property and
equipment of $3,291,346, partially offset by net proceeds from the sale of
digital currencies of $9,211,118.
During the year ended June 30, 2022, we had net cash provided by financing
activities of $604,921 comprised of proceeds related party short term advances
of $118,150 and proceeds from notes payable of $500,000, partially offset by
repayment of notes payable of $13,229.
During the year ended June 30, 2021, we had net cash provided by financing
activities of $12,776,748 comprised of proceeds from convertible notes payable
of $563,000, proceeds from the issuance of Series C preferred stock of
$1,125,000, proceeds from the issuance of Series D preferred stock of
$3,000,000, and proceeds from the issuance of common stock of $8,135,000,
partially offset by repayment of notes payable of $46,252.
We will have to raise funds to successfully operate our digital currency mining
operations, purchase equipment and expand our operations to multiple facilities.
We will have to borrow money from shareholders or issue debt or equity or enter
a strategic arrangement with a third party. There can be no assurance that
additional capital will be available to us.
Going Concern
The Company has reported recurring net losses since its inception. As of June
30, 2022, the Company had an accumulated deficit of $46,192,164. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern.
The accompanying financial statements have been prepared in conformity with U.S.
GAAP, which contemplate continuation of the Company as a going concern and the
realization of assets and satisfaction of liabilities in the normal course of
business. The ability of the Company to reach a successful level of operations
is dependent on the execution of management's plans, which include the raising
of capital through the debt and/or equity markets, until such time that funds
provided by operations are sufficient to fund working capital requirements. If
the Company were not to continue as a going concern, it would likely not be able
to realize its assets at values comparable to the carrying value or the fair
value estimates reflected in the balances set out in the preparation of the
financial statements.
There can be no assurances that the Company will be successful in attaining a
profitable level of operations or in generating additional cash from the
equity/debt markets or other sources fund its operations. The financial
statements do not include any adjustments relating to the recoverability of
assets and classification of assets and liabilities that might be necessary.
Should the Company not be successful in its business plan or in obtaining the
necessary financing to fund its operations, the Company would need to curtail
certain or all operational activities and/or contemplate the sale of its assets,
if necessary.
Current and Future Impact of COVID-19
The COVID-19 pandemic continues to have a material negative impact on capital
markets. While we continue to incur operating losses, we are currently
dependent on debt or equity financing to fund our operations and execute our
business plan. We believe that the impact on capital markets of COVID-19 may
make it more costly and more difficult for us to access these sources of
funding.
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SIGNIFICANT ACCOUNTING POLICIES
Our significant accounting policies are disclosed in Note 2 to the accompanying
financial statements. The following is a summary of those accounting policies
that involve significant estimates and judgment of management.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Because of the use of estimates inherent in the financial reporting process,
actual results could differ significantly from those estimates.
Digital Currencies
Digital currencies consist of Bitcoin, Litecoin, ZCash and Ethereum, generally
received for the Company's own account as compensation for cryptocurrency mining
services, and other digital currencies such as Chainlink and Quant purchased for
short-term investment and trading purposes. Given that there is limited
precedent regarding the classification and measurement of cryptocurrencies under
current Generally Accepted Accounting Principles ("GAAP"), the Company has
determined to account for these digital currencies as indefinite-lived
intangible assets in accordance with Accounting Standards Update ("ASU") No.
350, Intangibles - Goodwill and Other, for the period covered by this report and
in future reports unless and until further guidance is issued by the Financial
Accounting Standards Board ("FASB"). An intangible asset with an indefinite
useful life is not amortized but assessed for impairment annually, or more
frequently, when events or changes in circumstances occur indicating that it is
more likely than not that the indefinite-lived asset is impaired. Impairment
exists when the carrying amount exceeds its fair value. In testing for
impairment, the Company has the option to first perform a qualitative assessment
to determine whether it is more likely than not that an impairment exists. If it
is determined that it is more likely than not that an impairment exists, a
quantitative impairment test is not necessary. If the Company concludes
otherwise, it is required to perform a quantitative impairment test. To the
extent an impairment loss is recognized, the loss establishes the new cost basis
of the asset. Subsequent reversal of impairment losses is not permitted.
Realized gains or losses on the sale of digital currencies, net of transaction
costs, are included in other income (expense) in the statements of operations.
Property and Equipment
Property and equipment, consisting primarily of computer and other
cryptocurrency mining equipment (transaction verification servers), is stated at
the lower of cost or estimated realizable value and is depreciated when placed
into service using the straight-line method over estimated useful lives. The
Company operates in an emerging industry for which limited data is available to
make estimates of the useful economic lives of specialized equipment. Management
has assessed the basis of depreciation of these assets and believes they should
be depreciated over a three-year period due to technological obsolescence
reflecting rapid development of hardware that has faster processing capacity and
other factors. Maintenance and repairs are expensed as incurred and
improvements are capitalized. Gains or losses on the disposition of property and
equipment are recorded upon disposal.
During the year ended June 30, 2022, we sold used mining equipment and realized
a loss on the sale of $46,999. During the years ended June 30, 2022 and 2021,
the Company discontinued the use of damaged or non-serviceable mining equipment
and wrote off its net book value of $154,180 and $238,363, respectively, to loss
on disposition of property and equipment.
Management has determined that the three-year diminishing value best reflects
the current expected useful life of transaction verification servers. This
assessment takes into consideration the availability of historical data and
management's expectations regarding the direction of the industry including
potential changes in technology. Management will review this estimate annually
and will revise such estimates as and when data becomes available.
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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.
Impairment of Long-Lived Assets
All assets, including intangible assets subject to amortization, are reviewed
for impairment when changes in circumstances indicate that the carrying amount
of the asset may not be recoverable in accordance with ASC 350 and ASC 360. If
the carrying amount of the asset exceeds the expected undiscounted cash flows of
the asset, an impairment charge is recognized equal to the amount by which the
carrying amount exceeds fair value or net realizable value. The testing of these
intangibles under established guidelines for impairment requires significant use
of judgment and assumptions. Changes in forecasted operations and other
assumptions could materially affect the estimated fair values. Changes in
business conditions could potentially require adjustments to these asset
valuations. We reported no impairment expense for the years ended June 30, 2022
and 2021.
Stock-Based Compensation
The Company accounts for all equity-based payments in accordance with ASC Topic
718, Compensation - Stock Compensation. ASC Topic 718 requires companies to
recognize in the statement of operations the grant-date fair value of stock
awards, stock options, warrants and other equity-based compensation issued to
employees. The value of the portion of an award that is ultimately expected to
vest is recognized as an expense over the requisite service periods using the
straight-line attribution method. The fair value of a stock award is recorded at
the fair market value of a share of the Company's stock on the grant date. The
Company estimates the fair value of stock options and warrants at the grant date
by using an appropriate fair value model such as the Black-Scholes option
pricing model or multinomial lattice models.
The Company accounts for non-employee share-based awards based upon ASC 505-50,
Equity-Based Payments to Non-Employees. ASC 505-50 requires the costs of goods
and services received in exchange for an award of equity instruments to be
recognized using the fair value of the goods and services or the fair value of
the equity award, whichever is more reliably measurable. The fair value of the
equity award is determined on the measurement date, which is the earlier of the
date that a performance commitment is reached or the date that performance is
complete. Generally, our awards do not entail performance commitments. When an
award vests over time such that performance occurs over multiple reporting
periods, we estimate the fair value of the award as of the end of each reporting
period and recognize an appropriate portion of the cost based on the fair value
on that date. When the award vests, we adjust the cost previously recognized so
that the cost ultimately recognized is equivalent to the fair value on the date
the performance is complete.
Revenue Recognition
We recognize revenue in accordance with ASC 606, Revenue from Contracts with
Customers. This standard provides a single comprehensive model to be used in
the accounting for revenue arising from contracts with customers and supersedes
current revenue recognition guidance, including industry-specific guidance. The
standard's stated core principle is that an entity should recognize revenue to
depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. To achieve this core principle, ASC 606
includes provisions within a five-step model that includes identifying the
contract with a customer, identifying the performance obligations in the
contract, determining the transaction price, allocating the transaction price to
the performance obligations, and recognizing revenue when, or as, an entity
satisfies a performance obligation.
Our revenues currently consist of cryptocurrency mining revenues and revenues
from the sale of cryptocurrency mining equipment recognized in accordance with
ASC 606 as discussed above. Amounts collected from customers prior to shipment
of products are recorded as deferred revenue.
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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, net
of applicable network fees, which are recorded as revenue using the closing U.S.
dollar price of the related cryptocurrency on the date of receipt. Expenses
associated with running the cryptocurrency mining operations, such as equipment
depreciation, rent, operating supplies, rent, utilities and monitoring services
are recorded as cost of revenues.
There is currently no specific definitive guidance in GAAP or alternative
accounting frameworks for the accounting for the production and mining of
digital currencies and management has exercised significant judgment in
determining appropriate accounting treatment for the recognition of revenue for
mining of digital currencies. Management has examined various factors
surrounding the substance of the Company's operations and the guidance in ASC
606, including identifying the transaction price, when performance obligations
are satisfied, and collectability is reasonably assured being the completion and
addition of a block to a blockchain and the award of a unit of digital currency
to the Company. In the event authoritative guidance is enacted by the FASB, the
Company may be required to change its policies which could result in a change in
the Company's financial statements.
OFF BALANCE SHEET ARRANGEMENTS
Operating Leases
As of June 30, 2022, the Company had no obligation for future lease payments
under non-cancelable operating leases. However, the Company has entered into
several agreements described below related to its crypto currency mining
operations pursuant to which the Company's sole obligation is to pay monthly a
contractual rate per kilowatt hour of electricity consumed.
PetaWatt Agreements
Power Supply and Purchase Agreement
In May 2019, the Company consolidated its then cryptocurrency operations in one
facility in Carthage, New York. The Carthage power supply and purchase
agreement with PetaWatt Properties, LLC ("PetaWatt") was entered into on May 10,
2019 for an initial term of 90 days, with an option to continue the agreement
for a subsequent 36 months, which option the Company has exercised. The
Company's sole obligation under the agreement is to pay monthly a contractual
rate per kilowatt hour of electricity consumed in the Company's cryptocurrency
mining operations. This agreement was superseded on May 7, 2021 with a new
Lease, Hosting, and Energy Services Agreement with PetaWatt.
Lease, Hosting, and Energy Services Agreement
On May 7, 2021, the Company and PetaWatt entered into a Lease, Hosting and
Energy Services Agreement for the Carthage, New York facility for a period of 36
months. The Company's sole obligation under the agreement is to pay monthly a
contractual rate per kilowatt hour of electricity consumed in the Company's
cryptocurrency mining operations. The Company made a prepayment of $300,000
upon signing the agreement, to be drawn down with monthly invoices submitted to
the Company by PetaWatt. As of June 30, 2022 and June 30, 2021, the remaining
prepayment balance was $0 and $193,870, respectively, which amounts were
included in prepaid expenses and other current assets in the accompanying
balance sheet. Due to PetaWatt's financial difficulties, the Company
discontinued its cryptocurrency mining operations in New York and the agreement
was terminated. All mining equipment had been shipped to Tioga, Pennsylvania
and Kearney, Nebraska as of March 11, 2022 where full mining operations
commenced in April 2022.
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Compute North Power Purchase and Hosting Agreement
On March 8, 2021, the Company and Compute North LLC ("Compute North") entered
into a Master Agreement for the colocation and management of the Company's
cryptocurrency mining operations. The Company submits Order Forms to Compute
North to determine the location of the hosted facilities, the number of
cryptocurrency miners, the term of the services provided and the contractual
rate per kilowatt hour of electricity consumed in the Company's cryptocurrency
mining operations. The agreement also provides the Company the option to
purchase cryptocurrency mining equipment from Compute North. The initial Order
form was for 425 miners in Kearney, Nebraska for a term of 3 years and 250
miners in Savoy, Texas for a term of 3 years. The parties subsequently
consolidated the cryptocurrency mining operations in the Kearney, Nebraska
facility. Through June 30, 2021, the Company paid set up fees of $78,147 with
its ongoing obligation under the agreement to pay monthly a contractual rate per
kilowatt hour of electricity consumed in the Company's cryptocurrency mining
operations. Our Nebraska operations commenced in September 2021.
Equipment Purchase Agreement
On April 12, 2021, we entered into a Non-fixed Price Sales and Purchase
Agreement with Bitmain Technologies Limited ("Bitmain") (the "Bitmain
Agreement") to purchase from Bitmain cryptocurrency mining hardware and other
equipment in accordance with the terms and conditions of the Bitmain Agreement.
Bitmain is scheduled to manufacture and ship miners on monthly basis, in 12
equal batches of 400 units, starting in August 2021 and through July 2022. The
Purchase Agreement remains in effect until the delivery of the last batch of
products. The total purchase price was approximately $34,047,600, subject to
price adjustments and related offsets. The total purchase price is payable as
follows: (i) 25% of the total purchase price is due upon the execution of the
Agreement or no later than April 19, 2021; (ii) 35% of the total purchase price,
is due by May 30, 2021; and (iii) the remaining 40% of the total purchase price,
is payable monthly starting in June 2021.
On June 3, 2022, the Company and Compute North entered into a second Master
Agreement for the colocation and management of the Company's cryptocurrency
mining operations. The Company executed Order Forms to Compute North to
determine the number of cryptocurrency miners, the term of the services provided
and the contractual rate per kilowatt hour of electricity consumed in the
Company's cryptocurrency mining operations. The agreement also provides the
Company the option to purchase cryptocurrency mining equipment from Compute
North. No cryptocurrency mining equipment has been purchased under this
agreement. The final Order Form was to host 1,675 miners in Wolf Hollow, Texas
for a term of 5 years. This agreement required an initial deposit of $500,000,
which had not been paid as of June 30, 2022. The Company has an ongoing
obligation under the agreement to pay monthly a contractual rate per kilowatt
hour of electricity consumed in the Company's cryptocurrency mining operations.
Full mining operations had not commenced as of June 30, 2022. The Company
estimates these miners will be connected and placed into service in early
October 2022.
Tioga Property Lease and Power Purchase Agreement
On December 15, 2021, the Company and Tioga Holding, LLC, a related party,
entered into a Property Lease and Power Purchase Agreement for the use by the
Company of facilities located in Tioga, Pennsylvania. The Company's sole
obligation under the agreement is to pay monthly a contractual rate per kilowatt
hour of electricity consumed in the Company's cryptocurrency mining operations.
The term of the agreement is 36 months. Full mining operations commenced in
April 2022.
RECENTLY ISSUED ACCOUNTING POLICIES
There were no new accounting pronouncements issued or proposed by the FASB
during the year ended June 30, 2022 and through the date of filing this report
which the Company believes will have a material impact on its financial
statements.
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INTEGRATED VENTURES, INC. 
