MedWellAI, Inc 10-Q for FY2024 Q3
MedWellAI, Inc. (MWAI)
About this 10-Q
MedWellAI, Inc filed this 10-Q on May 15, 2024, covering the quarter ended March 31, 2024 (FY2024 Q3).
Headline figures
Quarter ended March 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.98M
- up 34.7% from $1.47M a year earlier
- Net income
- $297.28K
- compared with a net loss of $1.77M a year earlier
- Diluted EPS
- $0.01
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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For the quarterly period ended | |
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TRANSITION REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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For the transition period from __________ to __________ | |
Commission file number:
(Exact Name of Registrant as Specified in Its Charter) |
| ||
(State or Other Jurisdiction of Incorporation or Organization) |
| (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(
(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 |
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| N/A |
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.
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.
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 | ☐ |
☐ | Smaller reporting company | ||
Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 14, 2024, the registrant had
TABLE OF CONTENTS
Page | ||||
Item 1. | Financial Statements | F-1 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 3 | |||
10 | ||||
11 | ||||
12 | ||||
12 | ||||
20 | ||||
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2 |
| Table of Contents |
PART I – FINANCIAL INFORMATION
INDEX TO FINANCIAL STATEMENTS
| F-1 |
| Table of Contents |
INTEGRATED VENTURES, INC.
CONDENSED BALANCE SHEETS
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| March 31, |
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| June 30, |
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| 2024 |
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| 2023 |
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| (Unaudited) |
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ASSETS |
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Current assets: |
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Cash |
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| $ |
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Digital assets |
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Prepaid expenses and other current assets |
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Total current assets |
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Non-current assets: |
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Property and equipment, net of accumulated depreciation and amortization of $ |
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Deposits |
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Total non-current assets |
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Total assets |
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| $ |
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LIABILITIES, MEZZANINE AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
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Accrued preferred stock dividends |
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Accrued expenses |
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Due to related party |
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Notes payable in default, net of debt discount |
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Total current liabilities |
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Mezzanine: |
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Series C preferred stock, $0.01 par value, 3,000 shares authorized, 1,125 shares issued and outstanding as of March 31, 2024 and June 30, 2023, respectively. |
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Series D preferred stock, $ |
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Commitments and contingencies |
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Stockholders' equity: |
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Series A preferred stock, $ |
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Series B preferred stock, $ |
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Common stock, $ |
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Additional paid in capital |
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Accumulated deficit |
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Total stockholders' deficit |
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Total liabilities, mezzanine and stockholders' equity |
| $ |
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| $ |
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The accompanying notes are an integral part of these condensed financial statements.
| F-2 |
| Table of Contents |
INTEGRATED VENTURES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
|
| Three Months Ended March 31, |
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| Nine Months Ended March 31, |
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| 2024 |
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| 2023 |
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| 2024 |
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| 2023 |
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Revenue: |
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Bitcoin mining |
| $ |
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| $ |
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| $ |
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| $ |
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Total revenue |
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Costs and expenses: |
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Cost of revenues - energy, hosting, and other |
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General and administrative |
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Depreciation and amortization |
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Change in fair value of digital assets |
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Realized (gain) loss on sale of digital assets |
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Loss on disposition of property and equipment |
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Total operating costs and expenses |
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Income (loss) from operations |
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| ( | ) |
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Other income (expense): |
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Interest expense |
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Loss on exercise of warrant |
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Total other income (expense) |
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Income (loss) before income taxes |
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Provision for income taxes |
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Net income (loss) |
| $ |
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| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |
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Dividends on Preferred Stock |
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| ( | ) |
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Deemed dividend |
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Net income (loss) attributable to shareholders |
| $ |
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| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |
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Net income (loss) per common share attributable to shareholders, basic |
| $ |
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| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |
Net income (loss) per common share attributable to shareholders, diluted |
| $ |
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| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |
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Weighted average number of common shares outstanding, basic |
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Weighted average number of common shares outstanding, diluted |
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The accompanying notes are an integral part of these condensed financial statements.
| F-3 |
| Table of Contents |
INTEGRATED VENTURES, INC. | |||||||||||||
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY | |||||||||||||
THREE AND NINE MONTHS ENDED MARCH 31, 2024 AND 2023 | |||||||||||||
(Unaudited) |
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| Series C |
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| Series D |
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| Series A |
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| Series B |
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| Additional |
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| Preferred Stock |
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| Preferred Stock |
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| Preferred Stock |
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| Preferred Stock |
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| Common Stock |
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| Paid in |
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| Accumulated |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Capital |
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| Deficit |
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| Total |
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Balance, June 30, 2022 |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Issuance of common stock for conversion of Series B preferred stock |
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| - |
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| - |
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| - |
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| - |
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| ( | ) |
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| ( | ) |
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Issuance of Series B preferred stock for related party compensation |
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| - |
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| - |
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| - |
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| - |
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| - |
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Issuance of common shares for cashless exercise of warrants |
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| - |
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| - |
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| - |
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| - |
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| ( | ) |
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Deemed dividend for warrant modification |
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| - |
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| - |
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| - |
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| - |
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| - |
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| ( | ) |
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Preferred stock dividends |
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| - |
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| - |
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| - |
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| - |
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| - |
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| ( | ) |
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Net loss |
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| - |
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| - |
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| - |
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| - |
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| - |
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Balance, September 30, 2022 |
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Issuance of common shares for cashless exercise of warrants |
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| - |
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| - |
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| - |
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| - |
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Issuance of Series B preferred stock for related party compensation |
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| - |
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| - |
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| - |
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| - |
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Preferred stock dividends |
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| - |
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| - |
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| - |
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| - |
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| - |
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Net loss |
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| - |
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| - |
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| - |
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| - |
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Balance, December 31, 2022 |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Issuance of common stock for conversion of Series B preferred stock |
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| - |
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| - |
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| - |
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Issuance of common shares for cashless exercise of warrants |
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| - |
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| - |
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| - |
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| - |
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Issuance of common share for exercise of warrants |
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| - |
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| - |
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| - |
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| - |
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Issuance of Series B Series B preferred stock for related party compensation |
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| - |
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| - |
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| - |
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| - |
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Issuance of common shares for settlement of accrued dividends |
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| - |
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| - |
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| - |
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| - |
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Deemed dividend for warrant modification |
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| - |
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| - |
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| - |
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| - |
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| - |
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| ( | ) |
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Rounding shares due to reverse split |
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| - |
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| - |
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| - |
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| - |
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Preferred stock dividends |
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| - |
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| - |
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| - |
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| - |
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| - |
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| ( | ) |
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Net loss |
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| - |
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| - |
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| - |
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| - |
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| - |
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| ( | ) |
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| ( | ) | ||||||
Balance, March 31, 2023 |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Balance, June 30, 2023 |
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| $ |
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| $ |
|
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| $ |
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| $ |
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| $ |
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| $ |
|
| $ | ( | ) |
| $ | ( | ) | |||||||||||
Cumulative effect upon adoption of ASU 2023-08 |
|
| - |
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|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
| $ | - |
|
|
| 47,360 |
|
|
| 47,360 |
| ||
Issuance of common stock for conversion of Series B preferred stock |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| |||||
Issuance of Series B preferred stock for related party compensation |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Preferred stock dividends |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||||||
Balance, September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||||||||
Issuance of common shares for purchase of bitcoin miners |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Issuance of common stock for conversion of Series B preferred stock |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| |||||||
Preferred stock dividends |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||||||
Balance, December 31, 2023 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) | |||||||||||
Preferred stock dividends |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||||||
Net Income |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance, March 31, 2024 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) | |||||||||||
The accompanying notes are an integral part of these condensed financial statements.
| F-4 |
| Table of Contents |
INTEGRATED VENTURES, INC. | ||
CONDENSED STATEMENTS OF CASH FLOWS | ||
(Unaudited) | ||
|
| Nine Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
| ||
Net income (loss) |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
| ||
Stock-based compensation - related party |
|
|
|
|
|
| ||
Loss on exercise of warrants |
|
|
|
|
|
| ||
Loss on disposition of property and equipment |
|
|
|
|
|
| ||
Amortization of debt discount |
|
|
|
|
|
| ||
Realized loss (gain) on sale of digital assets |
|
|
|
|
|
| ||
Change in fair value of digital assets |
|
| ( | ) |
|
|
| |
Revenue recognized from Bitcoin mined |
|
| ( | ) |
|
| ( | ) |
Operating expenses paid with digital assets |
|
|
|
|
|
| ||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
|
| ( | ) |
|
| ( | ) |
Deposits |
|
|
|
|
| ( | ) | |
Accounts payable |
|
|
|
|
|
| ||
Accrued expenses |
|
|
|
|
|
| ||
Due to related party |
|
|
|
|
|
| ||
Net cash provided by (used in) operating activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Equipment deposits |
|
|
|
|
| ( | ) | |
Proceeds from the sale of digital assets |
|
|
|
|
|
| ||
Purchase of digital assets |
|
| ( | ) |
|
| ( | ) |
Purchase of property and equipment |
|
| ( | ) |
|
|
| |
Net cash provided by (used in) investing activities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Repayment of related party advance |
|
| ( | ) |
|
|
| |
Repayment of accrued interest on note payable |
|
| ( | ) |
|
| ( | ) |
Net cash provided by (used in) financing activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
|
|
| ( | ) | |
Cash, cash equivalents, and restricted cash - beginning of period |
|
|
|
|
|
| ||
Cash, cash equivalents, and restricted cash - end of period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
| $ |
|
| $ |
| ||
Income taxes |
| $ |
|
| $ |
| ||
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Equipment deposits transferred to property and equipment |
| $ |
|
| $ |
| ||
Common stock issued for purchase of bitcoin miners |
| $ |
|
| $ |
| ||
Cumulative effect upon adoption of ASU 2023-08 |
| $ | 47,360 |
|
| $ | - |
|
Accrued preferred stock dividends |
| $ |
|
| $ |
| ||
Conversion of Series B preferred stock for common stock |
| $ |
|
| $ |
| ||
Payment of amounts due to related party with digital assets |
| $ |
|
| $ |
| ||
Purchase of property and equipment with digital assets |
| $ |
|
| $ |
| ||
Interest on notes payable paid with digital assets |
| $ |
|
| $ |
| ||
Common stock issued for accrued dividends |
| $ |
|
| $ |
| ||
Common stock issued with warrants |
| $ |
|
| $ |
| ||
Deemed dividend for warrant modification |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these condensed financial statements.
| F-5 |
| Table of Contents |
Integrated Ventures, Inc.
Notes to Financial Statements
Nine Months Ended March 31, 2024
(Unaudited)
1. ORGANIZATION BASIS OF PRESENTATION
Organization
Integrated Ventures, Inc. (the “Company,” “we” or “our”) was incorporated in the State of Nevada on March 22, 2011, under the name of Lightcollar, Inc. On March 20, 2015, the Company amended its articles of incorporation and changed its name from Lightcollar, Inc. to EMS Find, Inc. On May 30, 2017, Integrated Ventures, Inc. (“Integrated Ventures”), a Nevada corporation, was formed as a wholly owned subsidiary of the Company. Pursuant to an Agreement and Plan of Merger dated May 30, 2017, Integrated Ventures was merged into the Company, with the Company being the surviving corporation and changing its name to Integrated Ventures, Inc.
The Company has discontinued its prior operations and changed its business focus from its prior technologies relating to the EMS Find platform to acquiring, launching, and operating companies in the digital asset sector, mainly in digital asset 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 assets and block chain technologies. Digital assets are a medium of exchange that uses decentralized control (a block chain) as opposed to a central bank to track and validate transactions. The Company is currently mining Bitcoin, whereby the Company earns revenue by solving “blocks” to be added to the block chain. The Company also purchases certain digital assets for short-term investment purposes.
Basis of Presentation
The accompanying unaudited financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. The results of operations for the interim period ended March 31, 2024 shown in this report are not necessarily indicative of results to be expected for the full fiscal year ending June 30, 2024. In the opinion of the Company's management, the information contained herein reflects all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the Company's results of operations, financial position and cash flows. The unaudited interim financial statements should be read in conjunction with the audited financial statements in the Company's Amended Annual Report on Form 10-K/A for the year ended June 30, 2023 filed on May 10, 2024 and Management's Discussion and Analysis of Financial Condition and Results of Operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Company are disclosed in Notes to Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2023 filed on September 28, 2023. The following summary of significant accounting policies of the Company is presented to assist in understanding the Company’s interim financial statements. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Because of the use of estimates inherent in the financial reporting process, actual results could differ significantly from those estimates.
| F-6 |
| Table of Contents |
Cash and Cash Equivalents
The Company maintains cash balances in non-interest-bearing accounts that at times may exceed federally insured limits. For the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The Company had no cash equivalents at March 31, 2024.
Significant Accounting Policies
The Company maintains cash balances in non-interest-bearing accounts that at times may exceed federally insured limits. For the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The Company had no cash equivalents at March 31, 2024.
Digital Assets
Digital assets are included in current assets in the Consolidated Balance Sheets due to the Company’s ability to sell bitcoin in a highly liquid marketplace and the sale of bitcoin to fund operating expenses to support operations. The proceeds from the sale of digital assets and the purchase of digital assets are included within investing activities in the accompanying Consolidated Statement of Cash Flows. Digital Assets awarded to the Company through its mining activities are accounted for in connection with the Company’s revenue recognition policy. Following the adoption of ASU 2023-08 effective July 1, 2023, the Company measures digital assets at fair value with changes recognized in operating expenses in the Consolidated Statement of Comprehensive Income (Loss). The Company tracks its cost basis of digital assets by-wallet in accordance with the first-in-first-out (“FIFO”) method of accounting. Refer to NOTE 4. DIGITAL ASSETS, for further information regarding the Company’s impact of the adoption of ASU 2023-08.
Property and Equipment
Property and equipment, consisting primarily of computer and other digital asset 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. 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 nine months ended March 31, 2024, the Company discontinued the use of damaged or non-serviceable mining equipment and wrote off its net book value of $
During the nine months ended March 31, 2023, the Company discontinued the use of damaged or non-serviceable mining equipment and wrote off its net book value of $
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.
| F-7 |
| Table of Contents |
Derivatives
As of March 31, 2024, and June 30, 2023, the Company had no derivative liabilities.
The Company evaluates its convertible debt, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for. The result of this accounting treatment is that under certain circumstances the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. If the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under this accounting standard are reclassified to liability at the fair value of the instrument on the reclassification date.
Where the number of warrants or common shares to be issued under these agreements is indeterminate, the Company has concluded that the equity environment is tainted, and all additional warrants and convertible debt are included in the value of the derivatives.
We estimate the fair value of the derivatives 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 and nine months ended March 31, 2024 and 2023.
Mezzanine
Series C and D preferred stock that contain certain default provisions requiring mandatory cash redemption that are outside the control of the Company are recorded as Mezzanine in the accompanying balance sheets.
Stock-Based Compensation
The Company accounts for all equity-based payments in accordance with ASC Topic 718, Compensation – Stock Compensation. ASC Topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock awards, stock options, warrants and other equity-based compensation issued to employees. The value of the portion of an award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method. The fair value of a stock award is recorded at the fair market value of a share of the Company’s stock on the grant date. The Company estimates the fair value of stock options and warrants at the grant date by using an appropriate fair value model such as the Black-Scholes option pricing model or multinomial lattice models.
| F-8 |
| Table of Contents |
The Company accounts for non-employee share-based awards based upon ASC 505-50, Equity-Based Payments to Non-Employees. ASC 505-50 requires the costs of goods and services received in exchange for an award of equity instruments to be recognized using the fair value of the goods and services or the fair value of the equity award, whichever is more reliably measurable. The fair value of the equity award is determined on the measurement date, which is the earlier of the date that a performance commitment is reached or the date that performance is complete. Generally, our awards do not entail performance commitments. When an award vests over time such that performance occurs over multiple reporting periods, we estimate the fair value of the award as of the end of each reporting period and recognize an appropriate portion of the cost based on the fair value on that date. When the award vests, we adjust the cost previously recognized so that the cost ultimately recognized is equivalent to the fair value on the date the performance is complete.
Revenue Recognition
We recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers. This standard provides a single comprehensive model to be used in the accounting for revenue arising from contracts with customers, 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 digital asset mining revenues and revenues from the sale of digital asset 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.
To generate revenue from mining bitcoin, the Company has entered into digital asset mining pools by executing contracts, as amended from time to time, with the mining pool operators to provide computing power to the mining pool. The contracts are terminable at any time by either party without penalty and the Company’s enforceable right to compensation begins only when, and lasts as long as, the Company provides computing power to the mining pool operator. In exchange for providing computing power, we are entitled to a Full-Pay-Per-Share payout of Bitcoin based on a contractual formula, which primarily calculates the hash rate provided by us to the mining pool as a percentage of total network hash rate, and other inputs. We are entitled to consideration even if a block is not successfully placed by the mining pool operator.
Providing computing power to solve complex cryptographic algorithms in support of the Bitcoin blockchain (in a process known as “solving a block”) is an output of the Company’s ordinary activities. The provision of providing such computing power is the only performance obligation in the Company’s contracts with mining pool operators. The transaction consideration the Company receives is net of digital asset transaction fees kept by the mining pool operator and is noncash, in the form of bitcoin, which the Company measures at fair value on the date Bitcoin is received. This value is not materially different than the fair value at the moment we meet the performance obligation, which can be recalculated based on the contractual formula. The consideration is variable. The amount of consideration recognized is constrained to the amount of consideration received, which is when it is probable a significant reversal will not occur. There is no significant financing component or risk of a significant revenue reversal in these transactions due to the performance obligations and settlement of the transactions being on a daily basis.
Income Taxes
We have adopted ASC Subtopic 740-10, Income Taxes, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
Management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance recorded against our deferred tax assets. Deferred tax assets are reduced by a valuation allowance if, based on the consideration of all available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Changes in assumptions in future periods may require us to adjust our valuation allowance, which could materially impact our financial position and results of operations. The Company recognizes the benefit of an uncertain tax position that it has taken or expects to take on its income tax return, if such a position is more likely than not to be sustained.
| F-9 |
| Table of Contents |
Net Income (Loss) Per Share
Basic net income or loss per share is calculated by dividing net income or loss by the weighted average number of common shares outstanding for the period. Diluted income or loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as “in-the-money” stock options and warrants using the treasury stock method, convertible debt, and convertible preferred stock, were exercised or converted into common stock. Equivalent shares are not utilized when the effect is anti-dilutive. For the nine months ended March 31, 2024 and the three and nine months ended March 31, 2023, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share; therefore, basic net loss per share is the same as diluted net loss per share.
The following table illustrates the computation of diluted earnings per share for the three months ended March 31, 2024.
|
| March 31, 2024 |
| |
Net income |
| $ |
| |
Less: preferred dividends |
|
| ( | ) |
Net income available to common shareholders (numerator) |
| $ |
| |
|
|
|
|
|
Basic weighted average number of common shares outstanding |
|
|
| |
Dilutive impact of convertible preferred stock |
|
|
| |
Diluted weighted average number of common shares outstanding (denominator) |
|
|
| |
|
|
|
|
|
Diluted income per common share |
| $ |
| |
Fair Value of Financial Instruments
Assets and liabilities measured at fair value on a recurring basis
We recognize financial instruments under the following fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:
| Level 1: | quoted prices (unadjusted) in active markets for identical assets or liabilities; | |
|
|
|
|
| Level 2: | observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and | |
|
|
|
|
| Level 3: | assets and liabilities whose significant value drivers are unobservable. | |
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The Company will update its assumptions each reporting period based on new developments and record such amounts at fair value based on the revised assumptions until the agreements expire or contingency is resolved, as applicable.
| F-10 |
| Table of Contents |
The following tables present the Company’s assets and liabilities measured at fair value on a recurring basis:
|
| Fair value measured as of March 31, 2024 |
| |||||||||||||
|
| Total carrying value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Bitcoin (see NOTE 4) |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
The Company did not have assets or liabilities measured at fair value on a recurring basis as of June 30, 2023.
Assets and liabilities not measured at fair value on a recurring basis
In addition to assets and liabilities that are measured at fair value on a recurring basis, we also measure certain assets and liabilities at fair value on a nonrecurring basis. Our non-financial assets, including property and equipment, are measured at fair value when there is an indication of impairment and the carrying amount exceeds the asset’s projected undiscounted cash flows. These assets are recorded at fair value only when an impairment charge is recognized.
As of March 31, 2024 and June 30, 2023, the fair values of cash, prepaid expenses and other current assets, accounts payable, and accrued expenses approximated their carrying values because of their short-term nature.
Recently Issued Accounting Pronouncements
In December 2023, the FASB issued ASU No. 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets. The amendments in ASU No. 2023-08 are intended to improve the accounting for certain crypto assets by requiring an entity to measure those crypto assets at fair value each reporting period with changes in fair value recognized in net income. The amendments also improve the information provided to investors about an entity’s crypto asset holdings by requiring disclosure about significant holdings, contractual sale restrictions, and changes during the reporting period. The amendments are effective for all entities for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements. The Company elected to early adopt ASU 2023-08 for the year ended June 30, 2024, effective as of July 1, 2023, which had a material impact on the Consolidated Financial Statements. Refer to Note 4. DIGITAL ASSETS, for further information.
There were no other new accounting pronouncements issued or proposed by the FASB during the nine months ended March 31, 2024 and through the date of filing this report which the Company believes will have a material impact on its financial statements.
Reclassifications
Certain amounts in the financial statements for prior year periods have been reclassified to conform to the presentation for the current year periods.
3. GOING CONCERN
Historically, the Company has reported recurring net losses from operations and used net cash in operating activities. As of March 31, 2024, the Company’s current liabilities exceeded its current assets by $
The accompanying financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The ability of the Company to reach and maintain a successful level of operations is dependent on the execution of management’s plans, which include the raising of capital through the debt and/or equity markets, until such time that funds provided by operations are sufficient to fund working capital requirements. If the Company were not to continue as a going concern, it would likely not be able to realize its assets at values comparable to the carrying value or the fair value estimates reflected in the balances set out in the preparation of the financial statements.
| F-11 |
| 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.
4. DIGITAL ASSETS
Adoption of ASU 2023-08, Accounting for and Disclosure of Crypto Assets
Effective July 1, 2023, the Company early adopted ASU 2023-08, which requires entities to measure crypto assets at fair value with changes recognized in the Statement of Operations each reporting period. The Company’s digital assets are within the scope of ASU 2023-08 and the transition guidance requires a cumulative-effect adjustment as of the beginning of the current fiscal year for any difference between the carrying amount of the Company’s digital assets and fair value. As a result of the Company’s early adoption of ASU 2023-08, the Company recorded a $
The following table presents the Company’s significant Digital Asset holdings as of March 31, 2024:
|
| Quantity |
|
| Cost Basis |
|
| Fair Value |
| |||
Bitcoin |
|
|
|
| $ |
|
| $ |
| |||
Total digital assets held as of March 31, 2024 |
|
|
|
|
| $ |
|
| $ |
| ||
The following table presents a roll-forward of total digital assets for the period ended March 31, 2024, based on the fair value model under ASU 2023-08:
|
| Fair Value |
| |
Balance as of June 30, 2023 |
| $ |
| |
Cumulative effect upon adoption of ASU 2023-08 |
|
| 47,360 |
|
Revenue recognized from Bitcoin mined |
|
|
| |
Proceeds from sale of Digital Assets |
|
| ( | ) |
Operating expenses paid with Digital Assets |
|
| ( | ) |
Amount due to related party paid with Digital Assets |
|
| ( | ) |
Purchase of property and equipment with Digital Assets |
|
| ( | ) |
Accrued interest on notes payable paid with Digital Assets |
|
| ( | ) |
Change in fair value of Digital Assets |
|
|
| |
Balance as of March 31, 2024 |
| $ |
| |
|
|
|
|
|
Realized gains for the nine months ended March 31, 2024 |
|
|
| |
Prior to Adoption of ASU 2023-08, Accounting for and Disclosure of Crypto Assets
Digital assets
Prior to the adoption of ASU 2023-08, digital assets were accounted for as indefinite-lived intangible assets and were initially measured in accordance with ASC 350 - Intangible-Goodwill and Other. Digital assets were not amortized, but were 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 intangible asset is impaired. Whenever the exchange-traded price of digital assets declined below its carrying value, the Company was required to determine if an impairment existed and to record an impairment equal to the amount by which the carrying value exceeded the fair value.
| F-12 |
| Table of Contents |
The following table presents a roll-forward of digital assets for the period ended March 31, 2023, based on the cost-impairment model under ASC 350:
|
| Fair Value |
| |
Balance as of June 30, 2022 |
| $ |
| |
Revenue recognized from Bitcoin mined |
|
|
| |
Proceeds from sale of Digital Assets |
|
| ( | ) |
Operating expenses paid with Digital Assets |
|
| ( | ) |
Realized (gain) loss on sale of digital assets |
|
| ( | ) |
Balance as of March 31, 2023 |
| $ |
| |
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of:
|
| March 31, 2024 |
|
| June 30, 2023 |
| ||
|
|
|
|
|
|
| ||
Digital asset mining equipment |
| $ |
|
| $ |
| ||
Furniture and equipment |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
| ||
Less accumulated depreciation and amortization |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Net |
| $ |
|
| $ |
| ||
Depreciation and amortization expense, for the three months ended March 31, 2024 and 2023 was $
During the nine months ended March 31, 2024 and 2023, we disposed of and wrote off non-serviceable, defective mining equipment with a net book value of $
6. RELATED PARTY TRANSACTIONS
We have one executive officer, Steve Rubakh, who is currently our only full-time employee and sole member of our Board of Directors. The Board of Directors establishes Mr. Rubakh’s annual salary, cash bonuses, and the number of Series B preferred stock to issue Mr. Rubakh as additional compensation. Effective January 1, 2024 the Board of Directors approved Mr. Rubakh’s annual salary to be $
During the nine months ended March 31, 2024,
| F-13 |
| Table of Contents |
During the nine months ended March 31, 2023,
Total compensation expense included in general and administrative expenses was $
In April 2022, Mr. Rubakh advanced $
Total amount due to Mr. Rubakh for accrued salary and short-term advances as of March 31, 2024 and June 30, 2023 was $
During the nine months ended March 31, 2024, Mr. Rubakh converted
During the nine months ended March 31, 2023, Mr. Rubakh converted
On December 15, 2021, the Company and Tioga Holding, LLC, a related party owned 50% by Mr. Rubakh (“Tioga”), entered into a Property Lease and Power Purchase Agreement for the use by the Company of facilities located in Tioga, Pennsylvania. The Company’s sole obligation under the agreement is to pay monthly a contractual rate per kilowatt hour of electricity consumed in the Company’s digital asset mining operations. The term of the agreement was
7. NOTES PAYABLE
On June 15, 2022, the Company entered into a Loan Agreement and Promissory Note with BHP Capital NY, Inc. (“BHP”) in the amount of $
8. MEZZANINE
Series C Preferred Stock
Effective January 14, 2021, the Company filed a Certificate of Designation of the Series C Convertible Preferred Stock with the Nevada Secretary of State. The Company has authorized the issuance of an aggregate of
| F-14 |
| Table of Contents |
Each share of the Series C preferred stock is entitled to receive cumulative dividends of
The Company, at its sole discretion, has the right to redeem all, but not less than all, shares of the Series C preferred stock issued and outstanding upon 5 days’ notice at a defined redemption price. The holders of the Series C preferred stock do not have a right to put the shares to the Company.
The holders of the Series C preferred stock shall have the right to vote together with holders of common stock, on an as “converted basis”, on any matter that the Company’s shareholders may be entitled to vote on, either by written consent or by proxy.
As March 31, 2024 and June 30, 2023,
Series D Preferred Stock
On February 19, 2021, the Company filed a Certificate of Designation of the Series D Convertible Preferred Stock with the Nevada Secretary of State authorizing the issuance of an aggregate of
Each share of the Series D preferred stock is entitled to receive cumulative dividends of
The Company, at its sole discretion, has the right to redeem all, but not less than all, shares of the Series D preferred stock issued and outstanding upon 5 days’ notice at a defined redemption price. The holders of the Series D preferred stock do not have a right to put the shares to the Company.
The holders of the Series D preferred stock shall have the right to vote together with holders of common stock, on an as “converted basis”, on any matter that the Company’s shareholders may be entitled to vote on, either by written consent or by proxy.
As of March 31, 2024 and June 30, 2023,
| F-15 |
| Table of Contents |
9. STOCKHOLDERS’ EQUITY (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
The Company has
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 (
During the nine months ended March 31, 2024, Mr. Rubakh converted
During the nine months ended March 31, 2023, Mr. Rubakh converted
For services provided during the nine months ended March 31, 2024, the Company issued to Mr. Rubakh
For services provided during the nine months ended March 31, 2023, the Company issued to Mr. Rubakh
The Company had
| F-16 |
| Table of Contents |
Common Stock
As of March 31, 2024, we were authorized to issue up to
The Company had
During the nine months ended March 31, 2024, the Company issued a total of
During the nine months ended March 31, 2023, the Company issued a total of
10. WARRANTS
The Company issued warrants to purchase
On January 19, 2023, the Company and the Purchaser entered into a letter agreement whereby the Company agreed to amend the terms of such Purchaser’s Warrants to purchase up to
The effect of this modification was measured as the excess of the fair value of the amended Purchaser’s Warrants over the fair value of the Purchaser’s Warrants immediately before the amendments which amounted to $
During the nine months ended March 31, 2023, we issued
The Company also issued warrants to purchase
On September 13, 2022, the Company and one of the Purchasers entered into a letter agreement (the “September 13 Amendment Agreement”) whereby the Company agreed to amend the terms of such Purchaser’s Warrants to purchase up to
On September 15, 2022, the Company and the other Purchaser entered into a letter agreement (the “September 15 Amendment Agreement”) whereby the Company agreed to amend the terms of such Purchaser’s Warrants to purchase up to
| F-17 |
| Table of Contents |
The effect of these modifications was measured as the excess of the fair value of the amended Purchaser’s Warrants over the fair value of the Purchaser’s Warrants immediately before the amendments which amounted to $
During the nine months ended March 31, 2023, we issued
There were no warrants outstanding as of March 31, 2024 and June 30, 2023.
11. IMPACTS OF ADOPTION OF ASU 2023-08
The following tables present a summary of the impacts of the adoption of ASU 2023-08, effective July 1, 2023, on the Company’s interim Condensed Statements of Operations for the three months ended September 30, 2023 and the three and six months ended December 31, 2023 (all amounts are unaudited):
|
| For the three months ended September 30, 2023 |
| |||||||||
Statements of Operations |
| As previously reported |
|
| Effects of adoption |
|
| As adjusted |
| |||
Total Revenue |
|
|
|
|
|
|
|
|
| |||
Realized gain (loss) on sale of digital assets |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Change in fair value of digital assets |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Operating income (loss) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Net income (loss) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Basic and diluted net income (loss) per share |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Basic and diluted weighted average number of shares outstanding |
|
|
|
|
| - |
|
|
|
| ||
|
| For the three months ended December 31, 2023 |
| |||||||||
Statements of Operations |
| As previously reported |
|
| Effects of adoption |
|
| As adjusted |
| |||
Total Revenue |
|
|
|
|
|
|
|
|
| |||
Realized gain (loss) on sale of digital assets |
|
|
|
|
| ( | ) |
|
|
| ||
Change in fair value of digital assets |
|
|
|
|
|
|
|
|
| |||
Operating income (loss) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Net income (loss) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Basic and diluted net income (loss) per share |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Basic and diluted weighted average number of shares outstanding |
|
|
|
|
| - |
|
|
|
| ||
|
| For the six months ended December 31, 2023 |
| |||||||||
Statements of Operations |
| As previously reported |
|
| Effects of adoption |
|
| As adjusted |
| |||
Total Revenue |
|
|
|
|
|
|
|
|
| |||
Realized gain (loss) on sale of digital assets |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Change in fair value of digital assets |
|
|
|
|
|
|
|
|
| |||
Operating income (loss) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Net income (loss) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Basic and diluted net income (loss) per share |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Basic and diluted weighted average number of shares outstanding |
|
|
|
|
| - |
|
|
|
| ||
| F-18 |
| Table of Contents |
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.
13. SUBSEQUENT EVENTS
Management has evaluated subsequent events according to the requirements of ASC TOPIC 855, and has none to report.
| F-19 |
| Table of Contents |
Item 2. Management’s Discussion and Analysis or Financial Condition and Results of Operations.
SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS
We believe that it is important to communicate our future expectations to our security holders and to the public. This report, therefore, contains statements about future events and expectations which are “forward-looking statements” within the meaning of Sections 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including the statements about our plans, objectives, expectations and prospects under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You can expect to identify these statements by forward-looking words such as “may,” “might,” “could,” “would,” “will,” “anticipate,” “believe,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek” and other similar expressions. Any statement contained in this report that is not a statement of historical fact may be deemed to be a forward-looking statement. Although we believe that the plans, objectives, expectations and prospects reflected in or suggested by our forward-looking statements are reasonable, those statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements, and we can give no assurance that our plans, objectives, expectations and prospects will be achieved.
Important factors that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in the “Risk Factors” section of and elsewhere in our Annual Report on Form 10-K for the year ended June 30, 2023 filed on September 28, 2023 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 digital asset sector, mainly in digital asset mining and sales of branded mining rigs. Our offices are located at 73 Buck Road, Suite 2, Huntingdon Valley, Pennsylvania 19006.
| 3 |
| Table of Contents |
As of March 31, 2024, the Company owned a total of approximately 2,582 miners in one location, Granbury, Texas. All miners previously located in Tioga, Pennsylvania were relocated to Granbury, Texas during the three months ended September 30, 2023.
The Company will continue to (1) raise capital to purchase new mining equipment, (2) sell older and no longer profitable models and (3) expand digital asset mining operations to new locations.
On April 17, 2023, the Board of Directors of the Company approved a 1-for-125 reverse split of the Company’s common shares. The reverse split has been given retroactive effect in the financial statements for all periods presented.
Financial
As of March 31, 2024, we operated our digital asset mining operations in one hosted facility in Wolf Hollow, Texas. The hosting and power purchase agreement for this facility requires the Company to pay monthly a contractual rate per kilowatt hour of electricity consumed in the Company’s digital asset mining operations.
Revenues from our digital asset mining operations were $1,983,250 and $1,472,813 for the three months ended March 31, 2024 and 2023, respectively and $4,770,422 and $2,398,470 for the nine months ended March 31, 2024 and 2023, respectively.
When funds are available and market conditions allow, we also invest in certain denominations of digital assets to complement our mining operations. As of March 31, 2024, our digital assets at fair market value totaled $1,625,424 and were comprised of Bitcoin (BTC).
Historically, we have funded our operations primarily from cash generated from our digital currency mining operations and proceeds from convertible notes payable and preferred stock. During the nine months ended March 31, 2024, we generated negative cash flow from operations and a gain on the change in fair value of digital assets. We did not incur additional debt or issue securities for cash.
The Digital Asset Market
The Company is focusing on the mining of digital assets, as well as blockchain applications (“blockchain”) and related technologies. A blockchain is a shared immutable ledger for recording the history of transactions of digital assets—a business blockchain provides a permissioned network with known identities. A Bitcoin is the most recognized type of a digital asset that is issued by, and transmitted through, an open source, math-based protocol platform using cryptographic security that is known as the “Bitcoin Network.” The Bitcoin Network is an online, peer-to-peer user network that hosts the public transaction ledger, known as the blockchain, and the source code that comprises the basis for the cryptography and math-based protocols governing the Bitcoin Network.
Bitcoins, for example, can be used to pay for goods and services or can be converted to fiat currencies, such as the US Dollar, at rates determined on Bitcoin exchanges or in individual end-user-to-end-user transactions under a barter system. The networks utilized by digital coins are designed to operate without any company or government in charge, governed by a collaboration of volunteer programmers and computers that maintain all the records. These blockchains are typically maintained by a network of participants which run servers while securing their blockchain. Third party service providers such as Bitcoin exchanges and bitcoin third party payment processing services may charge significant fees for processing transactions and for converting, or facilitating the conversion of, bitcoins to or from fiat currency.
This market is rapidly evolving and there can be no assurances that we will remain competitive with industry participants that have or may have greater resources or experience in in this industry than us, nor that the unproven digital assets that we mine will ever have any significant market value.
The Company, like many digital asset mining operators, is currently operating at a non-profitable status following record historic runs in market prices of digital assets. 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.
| 4 |
| Table of Contents |
Financial Operations Review
We are incurring increased costs because of being a publicly traded company. As a public company, we incur significant legal, accounting, and other expenses that we did not incur as a private company. We also have paid compensation through the issuance of shares of our common stock, Series B preferred stock and warrants, the valuation of which has resulted in significant stock-based compensation. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the Securities and Exchange Commission, have required changes in corporate governance practices of public companies and will require us to comply with these rules. These new rules and regulations have will increase our legal and financial compliance costs and have made some activities more time-consuming and costlier. In addition, these new rules and regulations have made it more difficult and more expensive for us to obtain director and officer liability insurance, which we currently cannot afford to do. As a result of the new rules, it may become more difficult for us to attract and retain qualified persons to serve on our Board of Directors or as executive officers. We cannot predict or estimate the amount of additional costs we may incur as a result of being a public company or the timing of such costs.
To operate our digital asset 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 MONTHS AND NINE MONTHS ENDED MARCH 31, 2024 COMPARED TO THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2023
Revenues
Our digital asset mining revenues increased to $1,983,250 in the three months ended March 31, 2024 from $1,472,813 in the three months ended March 31, 2023 and increased to $4,770,422 in the nine months ended March 31, 2024 from $2,398,470 in the nine months ended March 31, 2023. This increase in revenues resulted primarily due to the strengthening of the Bitcoin market and increased miners.
Costs and expenses
Cost of revenues was $1,197,523 and $976,958 in the three months ended March 31, 2024 and 2023, respectively and $3,209,083 and $1,602,434 in the nine months ended March 31, 2024 and 2023, respectively. Expenses associated with running our digital asset mining operations, such as energy and hosting costs, operating supplies, and consulting services are recorded as cost of revenues, but excluding depreciation and amortization, which are separately stated. The increase in cost of revenues in the current fiscal period is due primarily to an increase in energy and hosting costs.
General and administrative expenses decreased to $240,002 in the three months ended March 31, 2024 from $337,475 in the three months ended March 31, 2023. Our general and administrative expenses increased to $8,919,954 in the nine months ended March 31, 2024 from $1,032,999 in the nine months ended March 31, 2023. The decrease for the three-month period and the increase for the nine-month period resulted primarily from non-cash stock-based compensation expense. We reported non-cash, related party stock-based compensation of $0 and $145,000 in the three months ended March 31, 2024 and 2023, respectively and $8,300,000 and $497,500 in the nine months ended March 31, 2024 and 2023, respectively.
Depreciation and amortization decreased to $692,654 in the three months ended March 31, 2024 from $1,469,195 in the three months ended March 31, 2023. Depreciation and amortization decreased to $2,171,938 in the nine months ended March 31, 2024 from $2,291,301 in the nine months ended March 31, 2023. The decrease is depreciation and amortization in the current fiscal year is due primarily to a reduction in the cost basis of the Company’s digital asset minors.
| 5 |
| Table of Contents |
Change in fair value of Bitcoin for the three and nine months ended March 31, 2024, was a gain of $452,808 and $568,224, respectively, and was recognized as a result of adopting Accounting Standards Update (“ASU”) No. 2023-08, Intangibles-Goodwill and Other-Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”), effective July 1, 2023, under which Bitcoin is recognized at fair value with changes in fair value recognized in net income. The gain recognized was attributable to increases in the price of Bitcoin and the increased quantity of Bitcoin held as of March 31, 2024, as compared to June 30, 2023.
In addition to the currencies received as compensation for our mining services, we purchased various digital currencies totaling $332,934 and $302,951 during the nine months ended March 31, 2024 and 2023, 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 nine months ended March 31, 2024 and 2023, we received total proceeds of $3,850,947 and $2,428,290, respectively, from the sale of digital currencies and incurred transactions fees totaling $62,654 and $32,099, respectively, which are recorded in General and administrative expenses in our Statement of Operations. We realized a gain (loss) on sale of digital currencies of $11,923 and $(12,514) in the nine months ended March 31, 2024 and 2024, respectively.
During the nine months ended March 31, 2024 and 2023, we disposed of and write off non-serviceable, defective mining equipment with a net book value of $121,670 and $510,634 respectively. During the three months ended March 31, 2024 and 2023, we disposed of and write off non-serviceable, defective mining equipment with a net book value of $0 and $463,919 respectively.
Other Income (Expense)
Our other income (expense) was comprised of the following for the three and nine months ended March 31:
|
| Three Months Ended March 31 |
|
| Nine Months Ended March 31 |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
| $ | (23,168 | ) |
| $ | (36,281 | ) |
| $ | (70,082 | ) |
| $ | (254,182 | ) |
Loss on exercise of warrants |
|
| - |
|
|
| (11,000 | ) |
|
| - |
|
|
| (11,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
| $ | (23,168 | ) |
| $ | (47,281 | ) |
| $ | (70,082 | ) |
| $ | (265,182 | ) |
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 nine months ended, we had one note payable outstanding for $500,000 which we had recorded $114,564 of interest for debt discount. During the current nine months ended we had the same note payable outstanding with a fully amortized debt discount, thus resulting in a decrease in interest expense compared to the prior period.
During the nine months ended March 31, 2024 and 2023, we recognized $0 and $11,000 loss on exercise of warrants.
Net Loss
As a result, we reported net income (loss) of $297,283 and ($1,766,615) in the three months ended March 31, 2024 and 2023, respectively and net losses of $9,142,158 and $3,316,594 in the nine months ended March 31, 2024 and 2023, respectively.
| 6 |
| Table of Contents |
LIQUIDITY AND CAPITAL RESOURCES
Overview
As of March 31, 2024, we had total current assets of $2,015,696, including cash of $381,872, digital assets of $1,625,424, and prepaid expenses and other current assets of $8,400 and total current liabilities of $3,306,111. We had total stockholders’ deficit of $1,483,252 as of March 31, 2024 compared to a stockholders’ deficit of $509,883 as of June 30, 2023.
Sources and Uses of Cash
During the nine months ended March 31, 2024, we used cash in operations of $3,199,249 as a result of our net loss of $9,142,158, a non-cash gain on the change in the fair value of digital assets of $568,224, non-cash revenue recognized from Bitcoin mined of $4,770,422, and an increase in prepaid expenses and other current assets of $1,235 partially offset by non-cash stock-based compensation-related party of $8,300,000, other non-cash expenses of $2,293,608, the payment of operating expenses with digital assets worth $57,722, and increases in accounts payable of $285,742, accrued expenses of $68,750, and amounts due to related party of $276,968.
During the nine months ended March 31, 2023, we used cash in operations of $2,234,294 as a result of our net loss of $3,316,594, increases in digital currencies of $2,398,464, prepaid expenses of $8,880, deposits of $500,000, accounts payable of $120,727, accrued expenses of $139,381 and amounts due to related party of $292,023 partially offset by non-cash losses on sale of digital currencies of $12,514, other non-cash expenses of $3,424,999.
During the nine months ended March 31, 2024, we provided net cash in investing activities of $3,516,273, comprised of net proceeds from the sale of digital currencies of $3,850,947, offset by the purchase of digital currencies of $332,934 and the purchase of mining equipment for $1,740.
During the nine months ended March 31, 2023, we provided net cash in investing activities of $2,092,825, comprised of net proceeds from the sale of digital currencies of $2,428,290, offset by the increase in equipment deposits of $32,514 and the purchase of digital currencies of $302,951.
During the nine months ended March 31, 2024, we used net cash in financing activities of $193,150, comprised of the repayment of the related party short term advance of $118,150 and the repayment of accrued interest on a note payable of $75,000.
During the nine months ended March 31, 2023, we used net cash in financing activities of $50,000, comprised of repayment of accrued interest on a note payable.
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 March 31, 2024, the Company had an accumulated deficit of $82,684,536. 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.
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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.
CRITICAL 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 Assets
Digital assets are included in current assets in the Consolidated Balance Sheets due to the Company’s ability to sell bitcoin in a highly liquid marketplace and the sale of bitcoin to fund operating expenses to support operations. The proceeds from the sale of digital assets and the purchase of digital assets are included within investing activities in the accompanying Consolidated Statement of Cash Flows. Digital Assets awarded to the Company through its mining activities are accounted for in connection with the Company’s revenue recognition policy. Following the adoption of ASU 2023-08 effective July 1, 2023, the Company measures digital assets at fair value with changes recognized in operating expenses in the Consolidated Statement of Comprehensive Income (Loss). The Company tracks its cost basis of digital assets by-wallet in accordance with the first-in-first-out (“FIFO”) method of accounting.
Property and Equipment
Property and equipment, consisting primarily of computer and other digital asset 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. 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 nine months ended March 31, 2024, the Company discontinued the use of damaged or non-serviceable mining equipment and wrote off its net book value of $121,670 to loss on disposition of property and equipment.
During the nine months ended March 31, 2023, the Company discontinued the use of damaged or non-serviceable mining equipment and wrote off its net book value of $510,634 to loss on disposition of property and equipment.
Management has determined that the three-year diminishing value best reflects the current expected useful life of transaction verification servers. This assessment takes into consideration the availability of historical data and management’s expectations regarding the direction of the industry including potential changes in technology. Management will review this estimate annually and will revise such estimates as and when data becomes available.
To the extent that any of the assumptions underlying management’s estimate of useful life of its transaction verification servers are subject to revision in a future reporting period, either as a result of changes in circumstances or through the availability of greater quantities of data, then the estimated useful life could change and have a prospective impact on depreciation expense and the carrying amounts of these assets.
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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 three and nine months ended March 31, 2024 and 2023.
Mezzanine
Series C and D preferred stock that contain certain default provisions requiring mandatory cash redemption that are outside the control of the Company are recorded as Mezzanine in the accompanying balance sheets.
Stock-Based Compensation
The Company accounts for all equity-based payments in accordance with ASC Topic 718, Compensation – Stock Compensation. ASC Topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock awards, stock options, warrants and other equity-based compensation issued to employees. The value of the portion of an award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method. The fair value of a stock award is recorded at the fair market value of a share of the Company’s stock on the grant date. The Company estimates the fair value of stock options and warrants at the grant date by using an appropriate fair value model such as the Black-Scholes option pricing model or multinomial lattice models.
The Company accounts for non-employee share-based awards based upon ASC 505-50, Equity-Based Payments to Non-Employees. ASC 505-50 requires the costs of goods and services received in exchange for an award of equity instruments to be recognized using the fair value of the goods and services or the fair value of the equity award, whichever is more reliably measurable. The fair value of the equity award is determined on the measurement date, which is the earlier of the date that a performance commitment is reached or the date that performance is complete. Generally, our awards do not entail performance commitments. When an award vests over time such that performance occurs over multiple reporting periods, we estimate the fair value of the award as of the end of each reporting period and recognize an appropriate portion of the cost based on the fair value on that date. When the award vests, we adjust the cost previously recognized so that the cost ultimately recognized is equivalent to the fair value on the date the performance is complete.
Revenue Recognition
We recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers. This standard provides a single comprehensive model to be used in the accounting for revenue arising from contracts with customers, 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 digital asset mining revenues and revenues from the sale of digital asset 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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To generate revenue from mining bitcoin, the Company has entered into digital asset mining pools by executing contracts, as amended from time to time, with the mining pool operators to provide computing power to the mining pool. The contracts are terminable at any time by either party without penalty and the Company’s enforceable right to compensation begins only when, and lasts as long as, the Company provides computing power to the mining pool operator. In exchange for providing computing power, we are entitled to a Full-Pay-Per-Share payout of Bitcoin based on a contractual formula, which primarily calculates the hash rate provided by us to the mining pool as a percentage of total network hash rate, and other inputs. We are entitled to consideration even if a block is not successfully placed by the mining pool operator.
Providing computing power to solve complex cryptographic algorithms in support of the Bitcoin blockchain (in a process known as “solving a block”) is an output of the Company’s ordinary activities. The provision of providing such computing power is the only performance obligation in the Company’s contracts with mining pool operators. The transaction consideration the Company receives is net of digital asset transaction fees kept by the mining pool operator and is noncash, in the form of bitcoin, which the Company measures at fair value on the date Bitcoin is received. This value is not materially different than the fair value at the moment we meet the performance obligation, which can be recalculated based on the contractual formula. The consideration is variable. The amount of consideration recognized is constrained to the amount of consideration received, which is when it is probable a significant reversal will not occur. There is no significant financing component or risk of a significant revenue reversal in these transactions due to the performance obligations and settlement of the transactions being on a daily basis.
OFF BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity, or capital expenditures.
RECENTLY ISSUED ACCOUNTING POLICIES
In December 2023, the FASB issued ASU No. 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets. The amendments in ASU No. 2023-08 are intended to improve the accounting for certain crypto assets by requiring an entity to measure those crypto assets at fair value each reporting period with changes in fair value recognized in net income. The amendments also improve the information provided to investors about an entity’s crypto asset holdings by requiring disclosure about significant holdings, contractual sale restrictions, and changes during the reporting period. The amendments are effective for all entities for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements. The Company elected to early adopt ASU 2023-08 for the year ended June 30, 2024, effective as of July 1, 2023, which had a material impact on the Consolidated Financial Statements.
There were no other new accounting pronouncements issued or proposed by the FASB during the nine months ended March 31, 2024 and through the date of filing this report which the Company believes will have a material impact on its financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this item.
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ITEM 4. 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 quarterly 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 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 March 31, 2024. 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 March 31, 2024, 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-K. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness. | |
2. | As of March 31, 2024, 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. | |
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| 3. | As of March 31, 2024, we did not establish a written policy for the approval, identification and authorization of related party transactions. Accordingly, management has determined that this control deficiency constitutes a material weakness. |
Because of these material weaknesses, management has concluded that the Company did not maintain effective internal control over financial reporting as of March 31, 2024, based on the criteria established in “Internal Control-Integrated Framework” issued by the COSO.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting through the date of this report or during the quarter ended March 31, 2024, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Corrective Action
Management plans to address the structure of the Board of Directors and discuss adding an audit committee during fiscal year 2024.
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PART II
ITEM 1. LEGAL PROCEEDINGS
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company, threatened against or affecting our company, our common stock, or our company’s 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 1A. RISK FACTORS
Risks Related to Our Business
Because we are an early-stage company with minimal revenue and a history of losses and we expect to continue to incur substantial losses for the foreseeable future, we cannot assure you that we can or will be able to operate profitably.
We have incurred losses since our organization, and are subject to the risks common to start-up, pre-revenue enterprises, including, among other factors, undercapitalization, cash shortages, limitations with respect to personnel, financial and other resources and lack of revenues. We cannot assure you that we will be able to operate profitably or generate positive cash flow. If we cannot achieve profitability, we may be forced to cease operations and you may suffer a total loss of your investment.
An investment in the company must be considered speculative since our operations are dependent on the market value of Bitcoin.
Our operations are dependent on the continued viable market performance of cryptocurrencies that we market and, in particular, the market value of Bitcoin. The decision to pursue blockchain and digital currency businesses exposes the Company to risks associated with a new and untested strategic direction. Under the current accounting rules, cryptocurrency is not cash, currency or a financial asset, but an indefinite-lived intangible asset; declines in the market price of cryptocurrencies would be included in earnings, whereas increases in value beyond the original cost or recoveries of previous declines in value would not be captured. The prices of digital currencies have varied wildly in recent periods and reflects “bubble” type volatility, meaning that high prices may have little or no merit, may be subject to rapidly changing investor sentiment, and may be influenced by factors such as technology, regulatory void or changes, fraudulent actors, manipulation and media reporting.
Natural disasters and geo-political events could adversely affect our business.
Natural disasters, including hurricanes, cyclones, typhoons, tropical storms, floods, earthquakes and tsunamis, weather conditions, including winter storms, droughts and tornados, whether as a result of climate change or otherwise, and geo-political events, including civil unrest or terrorist attacks, that affect us, or other service providers could adversely affect our business. Specifically, if the weather conditions in Tioga, Pennsylvania, Kearney, Nebraska or Wolf Hollow, TX, become too hot, or too humid, we may be required to install additional AC units to cool the cryptocurrency mining equipment which will greatly affect our profit margins. In addition, too much humidity in the air may damage our equipment or require us to install expensive dehumidifiers further lowering our profit margins.
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Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights.
We may seek additional capital through a combination of private and public equity offerings, debt financings collaborations and strategic and licensing arrangements. To the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into common stock, current stockholders’ ownership interest in the Company will be diluted. In addition, the terms may include liquidation or other preferences that materially adversely affect their rights as a stockholder. Debt financing, if available, would increase our fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaboration, strategic alliance and licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, our intellectual property, future revenue streams or grant licenses on terms that are not favorable to us.
We are increasingly dependent on information technology systems and infrastructure (cyber security).
Our operations are potentially vulnerable to breakdown or other interruption by fire, power loss, system malfunction, unauthorized access and other events such as computer hackings, cyber-attacks, computer viruses, worms or other destructive or disruptive software. Likewise, data privacy breaches by employees and others with permitted access to our systems may pose a risk that sensitive data may be exposed to unauthorized persons or to the public. It is critical that our systems provide a continued and uninterrupted performance for our business to generate revenues. There can be no assurance that our efforts will prevent significant breakdowns, breaches in our systems or other cyber incidents that could have a material adverse effect upon our business, operations or financial condition of the Company.
If we are unable to attract, train and retain technical and financial personnel, our business may be materially and adversely affected.
Our future success depends, to a significant extent, on our ability to attract, train and retain key management, technical, regulatory and financial personnel. Recruiting and retaining capable personnel with experience in pharmaceutical products is vital to our success. There is substantial competition for qualified personnel, and competition is likely to increase. We cannot assure you we will be able to attract or retain the technical and financial personnel we require. If we are unable to attract and retain qualified employees, our business may be materially and adversely affected.
We depend heavily on our chief executive officer, and his departure could harm our business.
The expertise and efforts of Steve Rubakh, our Chief Executive Officer, are critical to the success of our business. The loss of Mr. Rubakh’s services could significantly undermine our management expertise and our ability to operate our Company.
Our auditors’ report includes a going concern paragraph.
Our financial statements include a going-concern qualification from our auditors, which expresses doubt about our ability to continue as a going concern. We have operated at a loss since inception. Our ability to operate profitably is dependent upon, among other things, obtaining additional financing for our operations. These factors, among others, raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not include any adjustments that take into consideration the uncertainty of our ability to continue operations.
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Risks Relating Generally to Our Operations and Technology
Currently, there is relatively limited use of Bitcoin in the retail and commercial marketplace in comparison to relatively large use by speculators, thus contributing to price volatility that could adversely affect our results of operations.
Bitcoin has only recently become accepted as a means of payment for goods and services by certain major retail and commercial outlets and use of Bitcoin by consumers to pay such retail and commercial outlets remains limited. Conversely, a significant portion of Bitcoin demand is generated by speculators and investors seeking to profit from the short- or long-term holding of Bitcoin. Many industry commentators believe that Bitcoin’s best use case is as a store of wealth, rather than as a currency for transactions, and that other cryptocurrencies having better scalability and faster settlement times will better serve as currency. This could limit Bitcoin’s acceptance as transactional currency. A lack of expansion by Bitcoin into retail and commercial markets, or a contraction of such use, may result in increased volatility or a reduction in the Bitcoin Index Price, either of which could adversely affect our results of operations.
We are reliant on pools of users or miners that are the sole outlet for sales of cryptocurrencies that we mine.
We do not have the ability to sell our cryptocurrency production directly on the exchanges or markets that are currently where cryptocurrencies are purchased and traded. Pools are operated to pool the production on a daily of companies mining cryptocurrencies, and these pools are our sole means of selling our production of cryptocurrencies. Absent access to such pools, we would be forced to seek a different method of access to the cryptocurrency markets. There is no assurance that we could arrange any alternate access to dispose of our mining production.
We may not be able to respond quickly enough to changes in technology and technological risks, and to develop our intellectual property into commercially viable products.
Changes in legislative, regulatory or industry requirements or in competitive technologies may render certain of our planned products obsolete or less attractive. Our mining equipment may become obsolete, and our ability to anticipate changes in technology and regulatory standards and to successfully develop and introduce new and enhanced products on a timely basis will be a significant factor in our ability to remain competitive. We cannot provide assurance that we will be able to achieve the technological advances that may be necessary for us to remain competitive or that certain of our products will not become obsolete.
The SEC is continuing its probes into public companies that appear to incorporate and seek to capitalize on 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 report published by Lex Machina, securities litigation in general and those that are related to blockchain, cryptocurrency or bitcoin specifically, showed a marked increase during the first two quarters of 2018 as compared to 2017. The total number of securities cases that referenced “blockchain,” “cryptocurrency” or “bitcoin” in the pleadings tripled in the first half of 2018 alone compared to 2017. On the same day, the SEC announced its first charge against unregistered broker-dealers for selling digital tokens after the SEC issued The DAO Report in 2017. The SEC charged TokenLot LLC (TokenLot), a self-described “ICO Superstore”, and its owners, Lenny Kugel and Eli L. Lewitt, with failing to register as broker-dealers. On November 16, 2018 the SEC settled with two cryptocurrency startups, and reportedly has more than 100 investigations into cryptocurrency related ventures, according to a codirector of the SEC’s enforcement. As the regulatory and legal environment evolves, the Company may in its mining activities become subject to new laws, and further regulation by the SEC and other federal and state agencies.
On February 11, 2020, the SEC filed charges against an Ohio-based businessman who allegedly orchestrated a digital asset scheme that defrauded approximately 150 investors, including many physicians. The agency alleges that Michael W. Ackerman, along with two business partners, raised at least $33 million by claiming to investors that he had developed a proprietary algorithm that allowed him to generate extraordinary profits while trading in cryptocurrencies. The SEC’s complaint alleges that Ackerman misled investors about the performance of his digital currency trading, his use of investor funds, and the safety of investor funds in the Q3 trading account. The complaint further alleges that Ackerman doctored computer screenshots taken of Q3’s trading account to create. In reality, as alleged, at no time did Q3’s trading account hold more than $6 million and Ackerman was personally enriching himself by using $7.5 million of investor funds to purchase and renovate a house, purchase high end jewelry, multiple cars, and pay for personal security services.
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On March 16, 2020, the SEC obtained an asset freeze and other emergency relief to halt an ongoing securities fraud perpetrated by a former state senator and two others who bilked investors in and outside the U.S. and obtained an asset freeze and other emergency relief to halt an ongoing securities fraud perpetrated by a former state senator and two others who bilked investors in and outside the U.S. The SEC’s complaint alleges that Florida residents Robert Dunlap and Nicole Bowdler worked with former Washington state senator David Schmidt to market and sell a purported digital asset called the “Meta 1 Coin” in an unregistered securities offering, conducted through the Meta 1 Coin Trust. The complaint alleges that the defendants made numerous false and misleading statements to potential and actual investors, including claims that the Meta 1 Coin was backed by a $1 billion art collection or $2 billion of gold, and that an accounting firm was auditing the gold assets. The defendants also allegedly told investors that the Meta 1 Coin was risk-free, would never lose value and could return up to 224,923%. According to the complaint, the defendants never distributed the Meta 1 Coins and instead used investor funds to pay personal expenses and for other personal purposes. The SEC continues to actively prosecute cases involving digital assets, digital securities, cryptocurrencies or other operations involving blockchain technology.
Banks and financial institutions may not provide banking services, or may cut off services, to businesses that provide digital currency-related services or that accept digital currencies as payment, including financial institutions of investors in our securities.
A number of companies that provide bitcoin and/or other digital currency-related services have been unable to find banks or financial institutions that are willing to provide them with bank accounts and other services. Similarly, a number of companies and individuals or businesses associated with digital currencies may have had and may continue to have their existing bank accounts closed or services discontinued with financial institutions in response to government action, particularly in China, where regulatory response to digital currencies has been particularly harsh. We also may be unable to obtain or maintain these services for our business. The difficulty that many businesses that provide bitcoin and/or derivatives on other digital currency-related services have and may continue to have in finding banks and financial institutions willing to provide them services may be decreasing the usefulness of digital currencies as a payment system and harming public perception of digital currencies, and could decrease their usefulness and harm their public perception in the future.
It may be illegal now, or in the future, to acquire, own, hold, sell or use Bitcoin, Ethereum, or other cryptocurrencies, participate in the blockchain or utilize similar digital assets in one or more countries, the ruling of which could adversely affect the company.
Although currently Bitcoin, Ethereum, and other cryptocurrencies, the Blockchain and digital assets generally are not regulated or are lightly regulated in most countries, including the United States, one or more countries such as China and Russia may take regulatory actions in the future that could severely restrict the right to acquire, own, hold, sell or use these digital assets or to exchange for fiat currency. Such restrictions may adversely affect the Company. Such circumstances could have a material adverse effect on the ability of the Company to continue as a going concern or to pursue this segment at all, which could have a material adverse effect on the business, prospects or operations of the Company and potentially the value of any cryptocurrencies the Company holds or expects to acquire for its own account and harm investors.
If regulatory changes or interpretations require the regulation of Bitcoin or other digital assets under the securities laws of the United States or elsewhere, including the Securities Act of 1933, as amended (the “Securities Act”), the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Investment Company Act of 1940 or similar laws of other jurisdictions and interpretations by the SEC, the Commodity Futures Trading Commission (the “CFTC”), the Internal Revenue Service (“IRS”), Department of Treasury or other agencies or authorities, the Company may be required to register and comply with such regulations, including at a state or local level. To the extent that the Company decides to continue operations, the required registrations and regulatory compliance steps may result in extraordinary expense or burdens to the Company. The Company may also decide to cease certain operations. Any disruption of the Company’s operations in response to the changed regulatory circumstances may be at a time that is disadvantageous to the Company.
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Our digital currencies may be subject to loss, theft or restriction on access.
There is a risk that some or all of our digital currencies could be lost or stolen. Digital currencies are stored in digital currency sites commonly referred to as “wallets” by holders of digital currencies which may be accessed to exchange a holder’s digital currency assets. Hackers or malicious actors may launch attacks to steal, compromise or secure digital currencies, such as by attacking the digital currency network source code, exchange miners, third-party platforms, cold and hot storage locations or software, or by other means. We may be in control and possession of one of the more substantial holdings of digital currency. As we increase in size, we may become a more appealing target of hackers, malware, cyber-attacks or other security threats. Any of these events may adversely affect our operations and, consequently, our investments and profitability. The loss or destruction of a private key required to access our digital wallets may be irreversible and we may be denied access for all time to our digital currency holdings or the holdings of others held in those compromised wallets. Our loss of access to our private keys or our experience of a data loss relating to our digital wallets could adversely affect our investments and assets.
Incorrect or fraudulent digital currency transactions may be irreversible.
Once a transaction has been verified and recorded in a block that is added to a blockchain, an incorrect transfer of a digital currency or a theft thereof generally will not be reversible and we may not have sufficient recourse to recover our losses from any such transfer or theft. It is possible that, through computer or human error, or through theft or criminal action, our digital currency rewards could be transferred in incorrect amounts or to unauthorized third parties, or to uncontrolled accounts. Further, at this time, there is no specifically enumerated U.S. or foreign governmental, regulatory, investigative or prosecutorial authority or mechanism through which to bring an action or complaint regarding missing or stolen digital currency. To the extent that we are unable to recover our losses from such action, error or theft, such events could have a material adverse effect on our ability to continue as a going concern or to pursue our new strategy at all, which could have a material adverse effect on our business, prospects or operations of and potentially the value of any bitcoin or other digital currencies we mine or otherwise acquire or hold for our own account.
We are subject to risks associated with our need for significant electrical power, therefore, government regulators may potentially restrict the ability of electricity suppliers to provide electricity to mining operations, such as ours.
The operation of a bitcoin or other digital currency mine can require massive amounts of electrical power. We are reliant on Tioga Holding, LLC and Compute North, LLC for the power supply for our mining operations. Our mining operations can only be successful and ultimately profitable if the costs, including electrical power costs, associated with mining a bitcoin are lower than the price of a bitcoin. As a result, any mine we establish can only be successful if we can obtain sufficient electrical power for that mine on a cost-effective basis with a reliable supplier, and our establishment of new mines requires us to find locations where that is the case. There may be significant competition for suitable mine locations, and government regulators may potentially restrict the ability of electricity suppliers to provide electricity to mining operations in times of electricity shortage, or may otherwise potentially restrict or prohibit the provision or electricity to mining operations. If we are unable to receive adequate power supply and are forced to reduce our operations due to the availability or cost of electrical power, our business would experience materially negative impacts.
We have increased our investments in cryptocurrencies, the market value of which may be subject to significant fluctuations.
When funds are available and market conditions allow, our 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 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 March 31, 2024 and June 30, 2023, our investment in property and equipment of $3,354,016 and $5,299,834, respectively, could be subject to impairment or change in valuation due to COVID-19 if our cryptocurrency mining revenues significantly decrease or we are not able to raise capital sufficient to fund our operations. In addition, any travel restrictions and social distancing requirements may make it difficult for our management to access and oversee our operations in Pennsylvania, Nebraska and Texas.
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 Pennsylvania, Nebraska and Texas due to quarantines and self-isolations; (5) restrict the Company’s ability and that of its employees to access facilities and perform equipment maintenance, repairs, and programming which will lead to inability to monitor and service miners, resulting in reduced ability to mine cryptocurrencies due to miners being offline.
In addition, our partners such as manufacturers, suppliers and sub-contractors will be disrupted by absenteeism, quarantines and travel restrictions resulting in their employees’ ability to work. The Company’s supply chain, shipments of parts and purchases of new products may be negatively affected. Such disruptions could have a material adverse effect on our operations.
The COVID-19 pandemic is an emerging serious threat to health and economic wellbeing affecting our employees, investors and our sources of supply.
The sweeping nature of the novel COVID-19 pandemic makes it extremely difficult to predict how the Company’s business and operations will be affected in the long run. However, the likely overall economic impact of the pandemic is viewed as highly negative to the general economy.
Risks Related to Our Securities
Our lack of internal controls over financial reporting may affect the market for and price of our common stock.
Pursuant to Section 404 of the Sarbanes-Oxley Act, we are required to file a report by our management on our internal control over financial reporting. Our disclosure controls and our internal controls over financial reporting are not effective. We do not have the financial resources or personnel to develop or implement systems that would provide us with the necessary information on a timely basis so as to be able to implement financial controls. The absence of internal controls over financial reporting may inhibit investors from purchasing our stock and may make it more difficult for us to raise capital or borrow money. Implementing any appropriate changes to our internal controls may require specific compliance training of our directors and employees, entail substantial costs in order to modify our existing accounting systems, take a significant period of time to complete and divert management’s attention from other business concerns. These changes may not, however, be effective in developing or maintaining internal control.
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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; |
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| · | That are not traded on a “recognized” national exchange; |
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| · | 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 |
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| · | In issuers with net tangible assets less than $2.0 million (if the issuer has been in continuous operation for at least three years) or $10.0 million (if in continuous operation for less than three years), or with average revenues of less than $6.0 million. |
Broker-dealers dealing in penny stocks are required to provide potential investors with a document disclosing the risks of penny stocks. Moreover, broker-dealers are required to determine whether an investment in a penny stock is a suitable investment for a prospective investor. Many brokers have decided not to trade “penny stocks” because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. In the event that we remain subject to the “penny stock rules” for any significant period, there may develop an adverse impact on the market, if any, for our securities.
FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our stock.
The Financial Industry Regulatory Authority (referred to as FINRA) has adopted rules requiring that, in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative or low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA has indicated its belief that there is a high probability that speculative or low-priced securities will not be suitable for at least some customers. If these FINRA requirements are applicable to us or our securities, they may make it more difficult for broker-dealers to recommend that at least some of their customers buy our common stock, which may limit the ability of our stockholders to buy and sell our common stock and could have an adverse effect on the market for and price of our common stock.
The market price for our common stock may be volatile and your investment in our common stock could suffer a decline in value.
The trading volume in our stock is low, which may result in volatility in our stock price. As a result, any reported prices may not reflect the price at which you would be able to sell shares of common stock if you want to sell any shares you own or buy if you wish to buy shares. Further, stocks with a low trading volume may be more subject to manipulation than a stock that has a significant public float and is actively traded. The price of our stock may fluctuate significantly in response to a number of factors, many of which are beyond our control. These factors include, but are not limited to, the following, in addition to the risks described above and general market and economic conditions:
| · | the market’s reaction to our financial condition and its perception of our ability to raise necessary funding or enter into a joint venture, given the economic environment resulting from the COVID-19 pandemic, as well as its perception of the possible terms of any financing or joint venture; |
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| · | the market’s perception as to our ability to generate positive cash flow or earnings; |
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| · | changes in our or any securities analysts’ estimate of our financial performance; |
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| · | the anticipated or actual results of our operations; |
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| · | changes in market valuations of digital currencies and other companies in our industry; |
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| · | concern that our internal controls are ineffective; |
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| · | actions by third parties to either sell or purchase stock in quantities which would have a significant effect on our stock price; and |
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| · | other factors not within our control. |
Raising funds by issuing equity or convertible debt securities could dilute the net tangible book value of the common stock and impose restrictions on our working capital.
We anticipate that we will require funds in addition to the net proceeds from this offering for our business.
We will need to raise additional capital, we may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock at prices that may not which is less than the market price and which may be based on a discount from market at the time of issuance. Stockholders will incur dilution upon exercise of any outstanding stock options, warrants or upon the issuance of shares of common stock under our present and future stock incentive programs. If we were to raise capital by issuing equity securities, either alone or in connection with a non-equity financing, the net tangible book value of the then outstanding common stock could decline. If the additional equity securities were issued at a per share price less than the market price, which is customary in the private placement of equity securities, the holders of the outstanding shares would suffer dilution, which could be significant. Further, if we are able to raise funds from the sale of debt securities, the lenders may impose restrictions on our operations and may impair our working capital as we service any such debt obligations. In addition, the sale of shares and any future sales of a substantial number of shares of our common stock in the public market, or the perception that such sales may occur, could adversely affect the price of our common stock. We cannot predict the effect, if any, that market sales of those shares of common stock or the availability of those shares of common stock for sale will have on the market price of our common stock.
We may issue preferred stock whose terms could adversely affect the voting power or value of our common stock.
Our articles of incorporation authorize us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designations, preferences, limitations and relative rights, including preferences over our common stock respecting dividends and distributions, as our board of directors may determine. We have outstanding shares of our Series A super-voting preferred stock and Series B convertible preferred stock, the terms of which adversely impact the voting power or value of our common stock. Similarly, the repurchase or redemption rights or liquidation preferences included in a series of preferred stock issued in the future might provide holders of preferred stock rights that could affect the residual value of the common stock.
Because certain existing stockholders own a large percentage of our voting stock, other stockholders’ voting power may be limited.
Steve Rubakh, our Chief Executive Officer, owns and/or controls a majority of the voting power of our common stock. As a result, Mr. Rubakh will have the ability to control all matters submitted to our stockholders for approval, including the election and removal of directors and the approval of any merger, consolidation or sale of all or substantially all of our assets. This stockholder, who is also our sole director, may make decisions that are averse to or in conflict with your interests.
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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 requiring expansion of our board of directors, stockholders would benefit from somewhat greater assurance that internal corporate decisions were being made by disinterested directors. In evaluating our Company, our current lack of corporate governance measures should be borne in mind.
Our share price is volatile and may be influenced by numerous factors that are beyond our control.
Market prices for shares of technology companies such as ours are often volatile. The market price of our common stock may fluctuate significantly in response to a number of factors, most of which we cannot control, including:
| ● | fluctuations in digital currency and stock market prices and trading volumes of similar companies; |
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| ● | general market conditions and overall fluctuations in U.S. equity markets; |
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| ● | sales of large blocks of our common stock, including sales by our executive officers, directors and significant stockholders; |
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| ● | discussion of us or our stock price by the press and by online investor communities; and |
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| ● | other risks and uncertainties described in these risk factors. |
We have no current plans to pay dividends on our common stock and investors must look solely to stock appreciation for a return on their investment in us.
We do not anticipate paying any further cash dividends on our common stock in the foreseeable future. We currently intend to retain all future earnings to fund the development and growth of our business. Any payment of future dividends will be at the discretion of our board of directors and will depend on, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that the board of directors deems relevant. Investors may need to rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize a return on their investment. Investors seeking cash dividends should not purchase our common stock.
ITEM 2. UNREGISTERED SALES IN EQUITY SECURITIES AND USE OF PROCEEDS
During the nine months ended March 31, 2024, we did not issue any securities that were not registered under the Securities Act, and were not previously disclosed in a Current Report on Form 8-K or Quarterly Report on Form 10-Q.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
There is no other information required to be disclosed under this item which was not previously disclosed.
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ITEM 6. EXHIBITS
EXHIBIT INDEX
Exhibit Number |
| Exhibit Description |
| Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer and Principal Financial Officer** | |
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| Section 1350 Certification of Chief Executive Officer and Principal Financial Officer** | |
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101.INS |
| Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) * |
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101.SCH |
| Inline XBRL Taxonomy Extension Schema * |
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101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase * |
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101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase * |
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101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase * |
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101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase * |
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104 |
| Cover Page Interactive Data File (formatted inline XBRL and contained in Exhibit 101)* |
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* 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.
**This certification is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Company has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
INTEGRATED VENTURES, INC. | |||
Dated: May 15, 2024 | By: | /s/ Steve Rubakh | |
President and Chief Executive Officer and Principal Financial Officer | |||
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EXHIBIT 31.1
SECTION 302 CERTIFICATION
I, Steve Rubakh, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the period ended on March 31, 2024 of Integrated Ventures, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
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| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on Integrated Ventures, Inc.’s most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (of persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.
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| Dated: May 15, 2024 | By: | /s/ Steve Rubakh | |
| Steve Rubakh | |||
| President Chief Executive Officer | |||
| Principal Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Integrated Ventures, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2024 (the “Report”) I, Steve Rubakh, President of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Dated: May 15, 2024 | By: | /s/ Steve Rubakh | |
| Steve Rubakh | |||
| President Chief Executive Officer | |||
| Principal Financial Officer |
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.